KEMPER INVESTORS FUND, 485BPOS, 1996-09-27

KEMPER INVESTORS FUND
485BPOS, 1996-09-27

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1996

1933 ACT REGISTRATION NO. 33-11802
1940 ACT REGISTRATION NO. 811-5002
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------

FORM N-1A

<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. __ / /
Post-Effective Amendment No. 17 /X/
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 18 /X/
(Check appropriate box or boxes)
</TABLE>

------------------

KEMPER INVESTORS FUND
(Exact name of Registrant as Specified in Charter)

120 South LaSalle Street, Chicago, Illinois
(Address of Principal Executive Office)

60603
(Zip Code)

Registrant's Telephone Number, including Area Code: (312) 781-1121

Philip J. Collora, Vice President and Secretary
KEMPER INVESTORS FUND
120 South LaSalle Street
Chicago, Illinois 60603
(Name and Address of Agent for Service)

With a copy to:
Charles F. Custer
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601

The Registrant has registered an indefinite number of shares of the Fund
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Rule 24f-2 Notice for the Registrant's most recent
fiscal year was filed on or about February 27, 1996.

It is proposed that this filing will become effective (check appropriate
box)

/ / immediately upon filing pursuant to paragraph (b)

/X/ on October 1, 1996 pursuant to paragraph (b)

/ / 60 days after filing pursuant to paragraph (a)(1)

/ / on (date) pursuant to paragraph (a)(1).

/ / 75 days after filing pursuant to paragraph (a)(2)

/ / on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

/ /this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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<PAGE> 2

KEMPER INVESTORS FUND

CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART A
OF FORM N-1A AND PROSPECTUS

<TABLE>
<CAPTION>
ITEM NUMBER LOCATION
OF FORM N-1A IN PROSPECTUS
- --------------------------------------------------- ----------------------------------------
<S> <C>
1. Cover Page............................... Cover Page
2. Synopsis................................. Summary
3. Condensed Financial Information.......... Financial Highlights; Supplement to
Prospectus
4. General Description of Registrant........ Summary; Capital Structure and General
Information; Investment Objectives,
Policies and Risk Factors; Investment
Techniques
5. Management of the Fund................... Summary; Investment Managers;
Distributor; Supplement to Prospectus
5A. Management's Discussion of Fund
Performance.................................... Capital Structure and General
Information
6. Capital Stock and Other Securities....... Summary; Capital Structure and General
Information; Dividends and Taxes
7. Purchase of Securities Being Offered..... Summary; Purchase and Redemption; Net
Asset Value; Distributor
8. Redemption or Repurchase................. Purchase and Redemption
9. Pending Legal Proceedings................ Inapplicable
</TABLE>

<PAGE> 3

KEMPER INVESTORS FUND

SUPPLEMENT TO PROSPECTUS

DATED MAY 1, 1996

-------------------------

FINANCIAL HIGHLIGHTS

The tables below show financial information for the Investment Grade Bond,
Value, Small Cap Value, Value+Growth, Horizon 20+, Horizon 10+ and Horizon 5
Portfolios expressed in terms of one share outstanding throughout the period.
The unaudited financial statements contained in the Fund's Semiannual Report to
Shareholders for the period ended June 30, 1996 are incorporated herein by
reference and may be obtained by writing or calling the Fund.

INVESTMENT GRADE BOND PORTFOLIO

<TABLE>
<CAPTION>
MAY 1, 1996 TO
JUNE 30, 1996
--------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......................................... $1.000
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income....................................................... .006
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)..................................... --
- -----------------------------------------------------------------------------------------------
Total from investment operations.............................................. .006
- -----------------------------------------------------------------------------------------------
Net asset value, end of period................................................ $1.006
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)................................................. .62%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses...................................................................... .74%
- -----------------------------------------------------------------------------------------------
Net investment income......................................................... 3.61%
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands).................................... $ 440
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate....................................................... --%
- -----------------------------------------------------------------------------------------------
</TABLE>

VALUE PORTFOLIO

<TABLE>
<CAPTION>
MAY 1, 1996 TO
JUNE 30, 1996
--------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......................................... $1.000
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income....................................................... .004
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain............................................ .014
- -----------------------------------------------------------------------------------------------
Total from investment operations.............................................. .018
- -----------------------------------------------------------------------------------------------
Net asset value, end of period................................................ $1.018
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)................................................. 1.79%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses...................................................................... .90%
- -----------------------------------------------------------------------------------------------
Net investment income......................................................... 4.19%
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands).................................... $3,199
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized).......................................... 520%
- -----------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions.................. $.0500
- -----------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 4

SMALL CAP VALUE PORTFOLIO

<TABLE>
<CAPTION>
MAY 1, 1996 TO
JUNE 30, 1996
--------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......................................... $1.000
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income....................................................... .006
- -----------------------------------------------------------------------------------------------
Net realized and unrealized loss............................................ (.076)
- -----------------------------------------------------------------------------------------------
Total from investment operations.............................................. (.070)
- -----------------------------------------------------------------------------------------------
Net asset value, end of period................................................ $ .930
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)................................................. (7.05)%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses...................................................................... .85%
- -----------------------------------------------------------------------------------------------
Net investment income......................................................... 5.94%
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands).................................... $3,890
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized).......................................... 568%
- -----------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions.................. $.0500
- -----------------------------------------------------------------------------------------------
</TABLE>

VALUE + GROWTH PORTFOLIO

<TABLE>
<CAPTION>
MAY 1, 1996 TO
JUNE 30, 1996
--------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......................................... $1.000
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income....................................................... .003
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain............................................ .012
- -----------------------------------------------------------------------------------------------
Total from investment operations.............................................. .015
- -----------------------------------------------------------------------------------------------
Net asset value, end of period................................................ $1.015
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)................................................. 1.45%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses...................................................................... .89%
- -----------------------------------------------------------------------------------------------
Net investment income......................................................... 1.53%
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands).................................... $1,643
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate....................................................... --%
- -----------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions.................. $.0595
- -----------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 5

HORIZON 20+ PORTFOLIO

<TABLE>
<CAPTION>
MAY 1, 1996 TO
JUNE 30, 1996
--------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......................................... $1.000
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income....................................................... .024
- -----------------------------------------------------------------------------------------------
Net realized and unrealized loss............................................ (.011)
- -----------------------------------------------------------------------------------------------
Total from investment operations.............................................. .013
- -----------------------------------------------------------------------------------------------
Net asset value, end of period................................................ $1.013
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)................................................. 1.26%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses...................................................................... .74%
- -----------------------------------------------------------------------------------------------
Net investment income......................................................... 3.11%
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands).................................... $ 584
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized).......................................... 15%
- -----------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions.................. $.0597
- -----------------------------------------------------------------------------------------------
</TABLE>

HORIZON 10+ PORTFOLIO

<TABLE>
<CAPTION>
MAY 1, 1996 TO
JUNE 30, 1996
--------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......................................... $1.000
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income....................................................... .019
- -----------------------------------------------------------------------------------------------
Net realized and unrealized loss............................................ (.009)
- -----------------------------------------------------------------------------------------------
Total from investment operations.............................................. .010
- -----------------------------------------------------------------------------------------------
Net asset value, end of period................................................ $1.010
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)................................................. 1.03%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses...................................................................... .74%
- -----------------------------------------------------------------------------------------------
Net investment income......................................................... 2.61%
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands).................................... $1,311
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized).......................................... 9%
- -----------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions.................. $.0595
- -----------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 6

HORIZON 5 PORTFOLIO

<TABLE>
<CAPTION>
MAY 1, 1996 TO
JUNE 30, 1996
--------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......................................... $1.000
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income....................................................... .015
- -----------------------------------------------------------------------------------------------
Net realized and unrealized loss............................................ (.005)
- -----------------------------------------------------------------------------------------------
Total from investment operations.............................................. .010
- -----------------------------------------------------------------------------------------------
Net asset value, end of period................................................ $1.010
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)................................................. .99%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses...................................................................... .74%
- -----------------------------------------------------------------------------------------------
Net investment income......................................................... 2.96%
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands).................................... $ 752
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate....................................................... --%
- -----------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions.................. $.0592
- -----------------------------------------------------------------------------------------------
</TABLE>

INVESTMENT MANAGERS

Steven T. Stokes and Christian C. Bertelsen have been the portfolio
co-managers of the Small Cap Value Portfolio since July, 1996. Mr. Stokes joined
Dreman Value Advisors, Inc. ("DVA"), the investment manager for the Small Cap
Value Portfolio, in April, 1996 and is currently a Managing Director of DVA.
Prior thereto, he served as a portfolio manager of an unaffiliated investment
management firm. Mr. Stokes received a B.S. degree in Finance from State
University of New York at New Paltz and is a Chartered Financial Analyst. Mr.
Bertelsen joined DVA in March, 1996 as Chief Investment Officer. Prior to
joining DVA, he served from April, 1993 as a senior vice president and a
portfolio manager of an unaffiliated investment management firm. Prior thereto,
he was a senior vice president of another unaffiliated investment management
firm. Mr. Bertelsen received a B.A. degree from Boston University, Boston,
Massachusetts.

Christian C. Bertelsen has been the portfolio manager of the Value
Portfolio since September, 1996.

Daniel J. Bukowski is the portfolio manager of the Value + Growth Portfolio
and has served as portfolio manager or co-manager since its inception in May
1996. As reflected in the prospectus, Zurich Kemper Investments, Inc. ("ZKI")
serves as investment manager for the Value + Growth Portfolio and DVA serves as
sub-adviser. ZKI is responsible for management of the growth portion of the
portfolio while DVA is responsible for management of the value portion of the
portfolio. See the "Investment Managers" section in the prospectus for more
information on Mr. Bukowski and management of the Value + Growth Portfolio.

October 1, 1996

KINF-03 10/96 (RECYCLE LOGO) printed on recycled paper

<PAGE> 7

TABLE OF CONTENTS

<TABLE>
<S> <C>
Summary.................................. 2
Financial Highlights..................... 5
Investment Objectives, Policies and Risk
Factors................................ 9
Investment Techniques.................... 26
Net Asset Value.......................... 32
Purchase and Redemption.................. 33
Dividends and Taxes...................... 33
Capital Structure and General
Information............................ 34
Investment Managers...................... 35
Distributor.............................. 38
Appendix................................. 39
</TABLE>

This prospectus contains information about the Fund that you should know before
investing and should be retained for future reference. A Statement of Additional
Information dated May 1, 1996, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. It is available upon request
without charge from the Fund at the address or telephone number shown above.

AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
KEMPER
INVESTORS
FUND
PROSPECTUS MAY 1, 1996

KEMPER INVESTORS FUND
120 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
1-800-621-1048

Kemper Investors Fund (the "Fund") offers a choice of fourteen investment
portfolios to investors applying for certain variable life insurance and
variable annuity contracts offered by Participating Insurance Companies.

The fourteen investment portfolios are:

MONEY MARKET PORTFOLIO
TOTAL RETURN PORTFOLIO
HIGH YIELD PORTFOLIO
GROWTH PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
INTERNATIONAL PORTFOLIO
SMALL CAP GROWTH PORTFOLIO
INVESTMENT GRADE BOND PORTFOLIO
VALUE PORTFOLIO
SMALL CAP VALUE PORTFOLIO
VALUE+GROWTH PORTFOLIO
HORIZON 20+ PORTFOLIO
HORIZON 10+ PORTFOLIO
HORIZON 5 PORTFOLIO

Shares of the Portfolios are available exclusively as pooled funding vehicles
for the variable life insurance and variable annuity contracts of Participating
Insurance Companies.
<PAGE> 8

SUMMARY

FUND INVESTMENT CONCEPT. Kemper Investors Fund (the "Fund") is an open-end
management investment company established on January 22, 1987 as a Massachusetts
business trust. The Fund is a series fund consisting of fourteen portfolios
("Portfolios"): Money Market, Total Return, High Yield, Growth (formerly
Equity), Government Securities, International, Small Cap Growth (formerly Small
Capitalization Equity), Investment Grade Bond, Value, Small Cap Value,
Value+Growth, Horizon 20+, Horizon 10+ and Horizon 5. Additional Portfolios may
be created from time to time. The Fund is the funding vehicle for variable life
insurance contracts ("VLI contracts") and variable annuity contracts ("VA
contracts") offered by the separate accounts of certain life insurance companies
("Participating Insurance Companies"). The Fund currently does not foresee any
disadvantages to the holders of VLI contracts and VA contracts arising from the
fact that the interests of the holders of such contracts may differ.
Nevertheless, the Fund's Board of Trustees intends to monitor events in order to
identify any material irreconcilable conflicts that may arise and to determine
what action, if any, should be taken. The VLI contracts and VA contracts are
described in the separate prospectuses issued by the Participating Insurance
Companies. The Fund assumes no responsibility for such prospectuses.

Individual VLI contract holders and VA contract holders are not the
"shareholders" of the Fund. Rather, the Participating Insurance Companies and
their separate accounts are the shareholders or investors (the "Shareholders"),
although such companies may pass through voting rights to their VLI and VA
contract holders.

The fourteen Portfolios of the Fund are as follows:

MONEY MARKET PORTFOLIO seeks maximum current income to the extent consistent
with stability of principal from a portfolio of high quality money market
instruments.

TOTAL RETURN PORTFOLIO seeks a high total return, a combination of income and
capital appreciation, by investing in a combination of debt securities and
common stocks.

HIGH YIELD PORTFOLIO seeks to provide a high level of current income by
investing in fixed-income securities.

GROWTH PORTFOLIO seeks maximum appreciation of capital through diversification
of investment securities having potential for capital appreciation.

GOVERNMENT SECURITIES PORTFOLIO seeks high current return consistent with
preservation of capital from a portfolio composed primarily of U.S. Government
securities.

INTERNATIONAL PORTFOLIO seeks total return, a combination of capital growth and
income, principally through an internationally diversified portfolio of equity
securities.

SMALL CAP GROWTH PORTFOLIO seeks maximum appreciation of investors' capital from
a portfolio primarily of growth stocks of smaller companies.

INVESTMENT GRADE BOND PORTFOLIO seeks high current income by investing primarily
in a diversified portfolio of investment grade debt securities.

VALUE PORTFOLIO seeks to achieve a high rate of total return from a portfolio
primarily of value stocks of larger companies.

SMALL CAP VALUE PORTFOLIO seeks long-term capital appreciation from a portfolio
primarily of value stocks of smaller companies.

VALUE+GROWTH PORTFOLIO seeks growth of capital through professional management
of a portfolio of growth and value stocks.

2
<PAGE> 9

HORIZON 20+ PORTFOLIO, designed for investors with approximately a 20+ year
investment horizon, seeks growth of capital, with income as a secondary
objective.

HORIZON 10+ PORTFOLIO, designed for investors with approximately a 10+ year
investment horizon, seeks a balance between growth of capital and income,
consistent with moderate risk.

HORIZON 5 PORTFOLIO, designed for investors with approximately a 5 year
investment horizon, seeks income consistent with preservation of capital, with
growth of capital as a secondary objective.

Each Portfolio except the Money Market Portfolio may engage in options and
financial futures transactions. The Total Return, High Yield, Growth, Small Cap
Growth, Investment Grade Bond and Value+Growth Portfolios each may invest a
portion of its assets in foreign securities and engage in related foreign
currency transactions. The Horizon Portfolios each will invest a portion of its
assets in foreign securities and engage in related foreign currency
transactions. The International Portfolio will invest a substantial portion of
its assets in foreign securities and engage in related foreign currency
transactions. Foreign securities may include investments in developing
countries. The High Yield Portfolio will, and the Total Return, Government
Securities, Investment Grade Bond and Horizon Portfolios may, invest in high
yield (high risk) bonds. All of the Portfolios are diversified. See "Investment
Objectives, Policies and Risk Factors."

RISK FACTORS. There is no assurance that the investment objective of any
Portfolio will be achieved and investment in each Portfolio includes risks that
vary in kind and degree depending upon the investment policies of the Portfolio.
The returns and net asset value of a Portfolio will fluctuate (except that the
Money Market Portfolio seeks to maintain a net asset value of $1.00 per share).
Investors should note that investments in high yield securities by certain
portfolios (the High Yield, Total Return, Government Securities, Investment
Grade Bond and Horizon Portfolios) entail relatively greater risk of loss of
income and principal than investments in higher rated securities; and market
prices of high yield securities may fluctuate more than market prices of higher
rated securities. The government guarantee of the U.S. Government securities in
which the Government Securities Portfolio may invest does not guarantee the
market value of the shares of the Portfolio. Normally the value of investments
in U.S. Government securities varies inversely with changes in interest rates.
Foreign investments by certain Portfolios (principally the International
Portfolio) involve risk and opportunity considerations not typically associated
with investing in U.S. companies. The return of such a Portfolio can be
adversely affected by changes in currency exchange rates. Investment by the
Small Cap Growth Portfolio and the Small Cap Value Portfolio primarily in
smaller companies involves greater risk than investment in larger, more
established companies. There are special risks associated with options,
financial futures, foreign currency and other derivative transactions and there
is no assurance that use of those investment techniques will be successful. Some
of the Portfolios may experience high portfolio turnover, which would involve
correspondingly greater brokerage commissions or other transaction costs. See
"Investment Objectives, Policies and Risk Factors."

PURCHASES AND REDEMPTIONS. The separate accounts of the Participating Insurance
Companies place orders to purchase and redeem shares of each Portfolio based on,
among other things, the amount of premium payments to be invested and surrender
and transfer requests to be effected on that date pursuant to VLI and VA
contracts. See "Purchase and Redemption."

INVESTMENT MANAGERS. Zurich Kemper Investments, Inc. ("ZKI" or "investment
manager," formerly named Kemper Financial Services, Inc.) serves as investment
manager for each of the Portfolios other than the Value Portfolio and the Small
Cap Value Portfolio and is paid a management fee at an annual rate, based upon
the average daily net assets of such Portfolios, as follows: Money Market
(.50%), Total Return (.55%), High Yield (.60%), Growth (.60%), Government
Securities (.55%), International (.75%), Small Cap Growth (.65%), Investment
Grade Bond (.60%), Value+Growth (.75%), Horizon 20+ (.60%), Horizon 10+ (.60%)
and Horizon 5 (.60%). Dreman Value Advisors, Inc. ("DVA" or "investment
manager"), a wholly owned subsidiary of ZKI, serves as the investment manager
for the Value and the Small Cap Value Portfolios and is paid a management fee at
an annual rate of .75% of average daily net assets of such Portfolios. DVA
serves as

3
<PAGE> 10

sub-adviser for the Value+Growth Portfolio and is paid a sub-advisory fee by ZKI
at an annual rate of .25% of average daily net assets of that Portfolio. DVA
also serves as sub-adviser for the Horizon Portfolios and is paid a sub-advisory
fee by ZKI at an annual rate of .25% of the portion of the average daily net
assets of each Horizon Portfolio allocated by ZKI to DVA for management. See
"Investment Managers."

GENERAL INFORMATION AND CAPITAL. Since the Fund offers multiple Portfolios, it
is known as a "series company." Shares of each Portfolio have equal
non-cumulative voting rights and equal rights with respect to dividends, assets
and liquidation of such Portfolio. Each Portfolio has its own objective,
policies and restrictions. The Fund is not required to hold annual shareholder
meetings, but will hold special shareholder meetings as required or deemed
desirable. See "Capital Structure and General Information."

4
<PAGE> 11
FINANCIAL HIGHLIGHTS

The tables below show financial information for each Portfolio (other than the
Investment Grade Bond, Value, Small Cap Value, Value+Growth and Horizon
Portfolios, all of which commenced operations on May 1, 1996) expressed in terms
of one share outstanding throughout the period. The information for the Money
Market, Total Return, High Yield and Growth Portfolios for fiscal periods prior
to 1990 reflects the operations of certain Separate Accounts as discussed under
"Capital Structure and General Information." The information in the tables for
the years ended December 31, 1990 through 1995 is covered by the report of the
Fund's independent auditors. The report is contained in the Fund's Registration
Statement and is available from the Fund. The financial statements contained in
the Fund's 1995 Annual Report to Shareholders are incorporated herein by
reference and may be obtained by writing or calling the Fund.

MONEY MARKET PORTFOLIO

<CAPTION>
Year ended December 31,
1988 1987 1986
------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year 1.00 1.00 1.00
- ------------------------------------------------------------------------------
Net investment income and dividends declared .07 .06 .06
- ------------------------------------------------------------------------------
Net asset value, end of year 1.00 1.00 1.00
- ------------------------------------------------------------------------------
TOTAL RETURN (%) 7.47 6.58 6.61
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .56 .55 .56
- ------------------------------------------------------------------------------
Net investment income 7.19 6.43 6.44
- ------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) 80,362 92,130 83,793
- ------------------------------------------------------------------------------
</TABLE>

NOTE TO MONEY MARKET PORTFOLIO:

The total returns for 1995 and 1994 include the effect of a capital contribution
from the investment manager. Without the capital contribution, the total returns
would have been 5.11% and 3.47%, respectively.

TOTAL RETURN PORTFOLIO

<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993 1992 1991 1990 1989
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $2.112 2.586 2.473 2.658 2.071 2.021 1.707
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .084 .069 .069 .061 .080 .113 .102
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .453 (.313) .214 (.026) .677 (.013) .298
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .537 (.244) .283 .035 .757 .100 .400
- ----------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .070 .060 .050 .080 .110 .020 .086
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain -- .170 .120 .140 .060 .030 --
- ----------------------------------------------------------------------------------------------------------------------------
Total dividends .070 .230 .170 .220 .170 .050 .086
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $2.579 2.112 2.586 2.473 2.658 2.071 2.021
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 25.97 (9.50) 12.13 1.69 37.90 5.04 24.16
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .60 .61 .59 .60 .61 .61 .58
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 3.52 3.13 3.19 3.41 3.46 5.94 5.43
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) $659,894 586,594 643,830 528,007 412,772 272,747 262,652
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 118 128 191 160 187 139 102
- ----------------------------------------------------------------------------------------------------------------------------

<CAPTION>
Year ended December 31,
1988 1987 1986
------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year 1.605 1.661 1.496
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income .086 .075 .060
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .102 (.056) .165
- ------------------------------------------------------------------------------
Total from investment operations .188 .019 .225
- ------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .086 .075 .060
- ------------------------------------------------------------------------------
Distributions from net realized gain -- -- --
- ------------------------------------------------------------------------------
Total dividends .086 .075 .060
- ------------------------------------------------------------------------------
Net asset value, end of year 1.707 1.605 1.661
- ------------------------------------------------------------------------------
TOTAL RETURN (%) 11.98 .62 15.13
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .61 .58 .60
- ------------------------------------------------------------------------------
Net investment income 5.19 4.04 3.59
- ------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) 206,262 214,203 146,324
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 152 129 136
- ------------------------------------------------------------------------------
</TABLE>

5
<PAGE> 12
HIGH YIELD PORTFOLIO

<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993 1992 1991 1990 1989
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $1.185 1.338 1.209 1.144 .914 1.122 1.258
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .125 .116 .120 .125 .140 .170 .151
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .069 (.149) .109 .070 .300 (.338) (.163)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .194 (.033) .229 .195 .440 (.168) (.012)
- ------------------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income .120 .120 .100 .130 .210 .040 .124
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.259 1.185 1.338 1.209 1.144 .914 1.122
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 17.40 (2.25) 20.00 17.76 51.83 (15.45) (1.22)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .65 .65 .63 .64 .67 .68 .63
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 10.27 9.49 9.54 10.44 12.95 16.27 12.50
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) $ 257,377 219,415 233,964 162,158 121,608 88,566 150,674
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 90 98 84 57 31 28 81
- ------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
Year ended December 31,
1988 1987 1986
-----------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year 1.225 1.290 1.226
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income .152 .139 .142
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .033 (.065) .064
- ---------------------------------------------------------------------------------
Total from investment operations .185 .074 .206
- ---------------------------------------------------------------------------------
Less dividends from net investment income .152 .139 .142
- ---------------------------------------------------------------------------------
Net asset value, end of year 1.258 1.225 1.290
- ---------------------------------------------------------------------------------
TOTAL RETURN (%) 15.66 5.82 17.63
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .66 .62 .66
- ---------------------------------------------------------------------------------
Net investment income 11.98 10.81 11.06
- ---------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) 138,461 95,502 143,605
- ---------------------------------------------------------------------------------
Portfolio turnover rate (%) 52 122 158
- ---------------------------------------------------------------------------------
</TABLE>

GROWTH PORTFOLIO
(FORMERLY THE EQUITY PORTFOLIO)

<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993 1992 1991 1990 1989
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $2.665 2.935 2.631 2.642 1.681 1.692 1.348
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .034 .018 .004 .007 .017 .032 .039
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .793 (.138) .370 .082 .974 (.023) .338
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .827 (.120) .374 .089 .991 .009 .377
- ------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .010 -- .010 .005 .030 .010 .033
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain .220 .150 .060 .095 -- .010 --
- ------------------------------------------------------------------------------------------------------------------------------
Total dividends .230 .150 .070 .100 .030 .020 .033
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $3.262 2.665 2.935 2.631 2.642 1.681 1.692
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 32.97 (4.02) 14.63 3.57 59.47 0.60 27.87
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .64 .66 .64 .64 .67 .68 .70
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.15 .69 .30 .65 .83 2.23 2.49
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) $ 414,533 321,708 284,461 203,624 118,983 61,621 51,961
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 88 106 78 78 106 135 93
- ------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
Year ended December 31,
1988 1987 1986
-----------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year 1.374 1.377 1.283
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income .032 .030 .024
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.026) (.003) .094
- ---------------------------------------------------------------------------------
Total from investment operations .006 .027 .118
- ---------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .032 .030 .024
- ---------------------------------------------------------------------------------
Distributions from net realized gain -- -- --
- ---------------------------------------------------------------------------------
Total dividends .032 .030 .024
- ---------------------------------------------------------------------------------
Net asset value, end of year 1.348 1.374 1.377
- ---------------------------------------------------------------------------------
TOTAL RETURN (%) .40 1.67 9.10
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .71 .64 .70
- ---------------------------------------------------------------------------------
Net investment income 2.34 1.85 1.82
- ---------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) 45,833 46,474 30,228
- ---------------------------------------------------------------------------------
Portfolio turnover rate (%) 301 165 262
- ---------------------------------------------------------------------------------
</TABLE>

6
<PAGE> 13

GOVERNMENT SECURITIES PORTFOLIO

<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993 1992 1991 1990(a) 1989(a) 1988 1987(c)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $1.142 1.267 1.277 1.287 1.175 1.091 1.053 1.020 1.000
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .084 .067 .060 .064 .090 .093 .092 .089 --
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .123 (.102) .020 .006 .082 .011 .036 (.056) .020
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .207 (.035) .080 .070 .172 .104 .128 .033 .020
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .080 .060 .060 .050 .060 .020 .090 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain -- .030 .030 .030 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .080 .090 .090 .080 .060 .020 .090 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.269 1.142 1.267 1.277 1.287 1.175 1.091 1.053 1.020
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 18.98 (2.74) 6.48 5.90 15.22 9.81 13.14 3.27 --
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .65 .63 .60 .61 .63 .58 .53 1.81 --(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 7.08 5.69 5.05 6.08 7.42 8.48 8.73 7.94 --(b)
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) $95,185 95,782 121,912 98,814 59,064 31,929 14,878 1,170 311
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 275 606 534 492 141 174 28 25 --
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTES TO GOVERNMENT SECURITIES PORTFOLIO:

(a) ZKI waived its investment management fee from March 1, 1989 to March 1,
1990. Absent this waiver, the ratio of expenses to average net assets and
the ratio of net investment income to average net assets would have been
1.04% and 8.22%, respectively, in 1989 and .66% and 8.40%, respectively, in
1990.
(b) Because of the short start-up period from the Government Securities
Portfolio's initial public offering to December 31, 1987, ratios of expenses
and net investment income to average net assets for 1987 are not meaningful.
(c) For the period from September 3, 1987 (inception) through December 31, 1987.

7
<PAGE> 14

INTERNATIONAL PORTFOLIO

<TABLE>
<CAPTION>
Year ended
December 31,
------------------------------
1995 1994 1993 1992(a)
-------- ------- ------ -------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $1.244 1.306 .993 1.000
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .018 .009 .010 .010
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .139 (.056) .313 (.017)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .157 (.047) .323 (.007)
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .010 -- .009 --
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain .020 .015 .001 --
- ---------------------------------------------------------------------------------------------------------------------------
Total dividends .030 .015 .010 --
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.371 1.244 1.306 .993
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 12.83 (3.59) 32.83 (.72)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .92 .93 .92 1.11
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 1.39 .74 .86 1.01
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $134,481 122,710 88,880 19,447
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 126 107 116 129
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE TO INTERNATIONAL PORTFOLIO:

(a) For the period from January 6, 1992 (inception) through December 31, 1992.

SMALL CAP GROWTH PORTFOLIO
(FORMERLY THE SMALL CAPITALIZATION EQUITY PORTFOLIO)

<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1995 1994(a)
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $1.039 1.000
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .005 .008
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .307 .031
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations .312 .039
- -------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .005 --
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.346 1.039
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 30.07 3.95
- -------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .87 1.25
- -------------------------------------------------------------------------------------------------------------------------
Net investment income .42 .91
- -------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $35,373 12,909
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 81 58
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE TO SMALL CAP GROWTH PORTFOLIO:

(a) For the period from May 2, 1994 (inception) through December 31, 1994.

NOTES:

Ratios for all Portfolios have been determined on an annualized basis. Total
return is not annualized.

Financial Highlights reflect data at the Portfolio level and exclude contract
specific charges which would reduce total return.

8
<PAGE> 15

INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS

The Fund has adopted for each Portfolio certain fundamental investment
restrictions which, together with the investment objective and policies, cannot
be changed with respect to a Portfolio without approval by holders of a majority
of the outstanding voting shares as defined in the Investment Company Act of
1940 ("1940 Act"). See "Investment Restrictions" in the Statement of Additional
Information.

Each Portfolio has a different investment objective which it pursues through
separate investment policies, as described below. The differences in objectives
and policies among the Portfolios can be expected to affect the degree of market
and financial risk to which each Portfolio is subject and the return of each
Portfolio. There are market risks in any investment and therefore there can be
no assurance that the objective of any Portfolio will be achieved. The actual
return of a holder of a variable life or variable annuity contract will be
affected by charges imposed by the separate accounts of Participating Insurance
Companies.

MONEY MARKET PORTFOLIO. The Money Market Portfolio seeks maximum current income
to the extent consistent with stability of principal from a portfolio of the
following types of U.S. Dollar denominated money market instruments that mature
in twelve months or less:

1. Obligations of, or guaranteed by, the U.S. or Canadian Governments,
their agencies or instrumentalities. The two broad categories of U.S.
Government debt instruments are: (a) direct obligations of the U.S.
Treasury and (b) securities issued or guaranteed by agencies and
instrumentalities of the U.S. Government. Some obligations issued or
guaranteed by agencies or instrumentalities of the U.S. Government are
backed by the full faith and credit of the United States and others are
backed exclusively by the agency or instrumentality with limited rights of
the issuer to borrow from the U.S. Treasury.

2. Bank certificates of deposit, time deposits or bankers' acceptances
limited to U.S. banks or Canadian chartered banks having total assets in
excess of $1 billion.

3. Bank certificates of deposit, time deposits or bankers' acceptances of
U.S. branches of foreign banks having total assets in excess of $10
billion.

4. Commercial paper rated Prime-1 or Prime-2 by Moody's Investors Service,
Inc. ("Moody's") or A-1 or A-2 by Standard & Poor's Corporation ("S&P"), or
commercial paper or notes of comparable quality, such as are issued by
companies with an unsecured debt issue outstanding currently rated A or
higher by Moody's or S&P where the obligation is on the same or a higher
level of priority as the rated issue, and investments in other corporate
obligations such as publicly traded bonds, debentures and notes rated A or
higher by Moody's or S&P. See "Appendix--Ratings of Investments" in the
Statement of Additional Information for a description of the ratings.

5. Repurchase agreements of obligations which are suitable for investment
under the categories set forth above. Repurchase agreements are discussed
under "Investment Techniques--Repurchase Agreements."

In addition, the Money Market Portfolio limits its portfolio investments to
securities that meet the quality and diversification requirements of Rule 2a-7
of the 1940 Act. See "Net Asset Value."

To the extent the Money Market Portfolio purchases Eurodollar certificates of
deposit issued by London branches of U.S. banks, or commercial paper issued by
foreign entities, consideration will be given to their marketability, possible
restrictions on international currency transactions and to regulations imposed
by the domicile country of the foreign issuer. Eurodollar certificates of
deposit may not be subject to the same regulatory requirements as certificates
issued by U.S. banks and associated income may be subject to the imposition of
foreign taxes. The Money Market Portfolio will normally invest at least 25% of
its net assets in instruments issued by domestic or foreign banks.

The Money Market Portfolio seeks to maintain its net asset value at $1.00 per
share by valuing its portfolio of investments on the amortized cost method in
accordance with Rule 2a-7 of the 1940 Act. See "Net Asset

9
<PAGE> 16

Value." While the Portfolio will make every effort to maintain a fixed net asset
value at $1.00 per share, there can be no assurance that this objective will be
achieved.

The Money Market Portfolio may invest in instruments that bear rates of interest
that are adjusted periodically or that "float" continuously according to
formulae intended to minimize fluctuations in values of the instruments
("Variable Rate Securities"). The Fund determines the maturity of Variable Rate
Securities in accordance with Securities and Exchange Commission ("SEC") rules
that allow the Fund to consider certain of such instruments as having maturities
earlier than the maturity date on the instrument.

TOTAL RETURN PORTFOLIO. The Total Return Portfolio seeks a high total return, a
combination of income and capital appreciation, by investing in a combination of
debt securities and common stocks. The Portfolio's investments will normally
consist of domestic and foreign fixed income and equity securities. Fixed income
securities will include bonds, money market instruments (including repurchase
agreements) and other debt securities (such as U.S. and foreign government
securities and investment grade and high yield corporate obligations) and
preferred stocks, some of which may have a call on common stocks through
attached warrants or a conversion privilege. The Portfolio may invest in fixed
income securities that are in the lower rating categories and those that are
non-rated (sometimes called "junk bonds"). The characteristics of the rating
categories are described in "Appendix--Ratings of Investments" in the Statement
of Additional Information. For a discussion of lower rated and non-rated
securities and related risks, see "High Yield Portfolio" and "Special Risk
Factors--High Yield (High Risk) Bonds" below. Equity investments normally will
consist of common stocks and securities convertible into or exchangeable for
common stocks; however, the Portfolio may also make private placement
investments (which are normally restricted securities). For a further
description of equity securities, see "Growth Portfolio" below. The percentage
of assets invested in specific categories of fixed-income and equity securities
will vary from time to time depending upon the judgment of the investment
manager as to general market and economic conditions, trends in yields and
interest rates, and changes in fiscal or monetary policies.

The Portfolio does not make investments for short-term profits nor does it have
a separate portfolio turnover policy for equity and fixed income segments of its
portfolio. The Portfolio is not restricted in policy with regard to portfolio
turnover and will make changes in its investment portfolio from time to time as
business and economic conditions or market prices may dictate and as its
investment policy may require.

The Portfolio may write and purchase put and call options traded on national
securities exchanges or over-the-counter, including options on securities
indices. The Portfolio may also engage in financial futures transactions and may
purchase foreign securities and engage in related foreign currency transactions.
The Portfolio may purchase or sell portfolio securities on a when-issued or
delayed delivery basis. See "Special Risk Factors--Foreign Securities" and
"Investment Techniques."

HIGH YIELD PORTFOLIO. The High Yield Portfolio seeks to provide a high level of
current income by investing in fixed income securities. Fixed income obligations
include corporate debt securities, U.S. and Canadian Government securities,
obligations of U.S. and Canadian banking institutions, convertible securities,
assignments or participations in loans, preferred stock, and cash and cash
equivalents, including repurchase agreements.

The fixed income securities purchased by the Portfolio may include those in the
lower rating categories of the established rating services and those that are
non-rated (sometimes called "junk bonds"). Investments in such securities entail
relatively greater risk of loss of income or principal than investments in
higher rated securities; market prices may fluctuate more than market prices of
higher rated securities. See "Special Risk Factors--High Yield (High Risk)
Bonds" below for a discussion of such risks. These fixed income securities (debt
and preferred stock issues, including convertibles) normally offer a current
yield or yield to maturity that is significantly higher than the yield available
from securities rated in the four highest categories assigned by Moody's or S&P.
See "Appendix--Ratings of Investments" in the Statement of Additional
Information for a description of Moody's and S&P ratings.

10
<PAGE> 17

The average maturity and the mix of investments of the Portfolio will vary as
the investment manager seeks to provide a high level of income considering the
available alternatives in the market. See "Appendix--High Yield
Portfolio/Portfolio Composition" in this prospectus. Since interest rates vary
with changes in economic, market, political and other conditions, there can be
no assurance that historic interest rates are indicative of rates which may
prevail in the future. Since the value of securities in the Portfolio fluctuates
depending upon market factors and inversely with current interest rate levels,
the net asset value of its shares will fluctuate. The investment manager will
adjust the investments of the Portfolio as considered advisable in view of
prevailing or anticipated market conditions. Accordingly, certain portfolio
securities may be purchased or sold in anticipation of a rise or a decline in
interest rates.

The Portfolio does not make investments for short-term profits, but it is not
restricted in policy with regard to portfolio turnover and will make changes in
its investment portfolio from time to time as business and economic conditions
or market prices may dictate and as its investment policy may require.

GROWTH PORTFOLIO. The Growth Portfolio seeks maximum appreciation of capital
through diversification of investment securities having potential for capital
appreciation. Current income will not be a significant factor. The Portfolio's
investments normally will consist of equity securities and securities
convertible into or exchangeable for equity securities; however, it may also
make private placement investments (which are normally restricted securities).

As a non-fundamental investment policy, the Growth Portfolio will invest at
least 65% of its total assets in equity securities under normal circumstances.
Equity securities include common stocks, preferred stocks, securities
convertible into or exchangeable for common or preferred stocks, equity
investments in partnerships, joint ventures and other forms of non-corporate
investment and warrants, options and rights exercisable for equity securities.
The common stocks or the other securities selected will be those which, in the
investment manager's judgment, have significant appreciation possibilities.
Investment opportunities will often be sought among securities of small, less
well-known companies; but securities of large, well-known companies will also be
purchased, particularly when the investment manager considers such securities to
be priced favorably in comparison with securities of smaller companies. See
"Growth and Value Stocks" below.

In seeking to obtain capital appreciation, the Portfolio may trade in securities
for the short term. To this extent, the Portfolio will be engaged in trading
operations based on short-term market considerations as distinct from long-term
investment based upon fundamental valuation of securities. However, the
Portfolio will emphasize fundamental research in attempting to identify
under-valued situations that it hopes will appreciate over the longer term. The
Portfolio's investment policy may involve a somewhat greater risk than is
inherent in the ordinary investment security.

For defensive purposes, the Portfolio may temporarily hold a significant portion
of its assets in cash or defensive type securities, such as liquid high grade
debt securities, high quality money market instruments and repurchase
agreements.

The Portfolio may write and purchase put and call options traded on national
securities exchanges or over-the-counter, including options on securities
indices. The Portfolio may also engage in financial futures transactions and may
purchase foreign securities and engage in related foreign currency transactions.
See "Special Risk Factors--Foreign Securities" and "Investment Techniques."

GOVERNMENT SECURITIES PORTFOLIO. The Government Securities Portfolio seeks high
current return consistent with preservation of capital from a portfolio composed
primarily of U.S. Government securities. The Portfolio will

11
<PAGE> 18

also invest in fixed-income securities other than U.S. Government securities,
and will engage in options and financial futures transactions. The Portfolio may
purchase or sell portfolio securities on a when-issued or delayed delivery
basis. See "Investment Techniques." The Portfolio's current return is sought
from interest income and net short-term gains on securities and options and
futures transactions.

Under normal market conditions, the Portfolio will, as a fundamental policy,
invest at least 65% of its total assets in U.S. Government securities and
repurchase agreements of U.S. Government securities. There are two broad
categories of U.S. Government securities: (a) direct obligations of the U.S.
Treasury and (b) obligations issued or guaranteed by agencies and
instrumentalities of the United States. Some obligations issued or guaranteed by
agencies or instrumentalities are backed by the full faith and credit of the
United States (such as Government National Mortgage Association "GNMA"
Certificates) and others are backed exclusively by the agency or instrumentality
with limited rights of the issuer to borrow from the U.S. Treasury (such as
Federal National Mortgage Association Bonds). GNMA Certificates are debt
securities which represent an interest in one or a pool of mortgages which are
insured by the Federal Housing Administration or the Farmers Home
Administration, or guaranteed by the Veterans Administration. U.S. Government
securities may include "zero coupon" securities that have been stripped by the
U.S. Government of their unmatured interest coupons (see "Investment Policies
and Techniques" in the Statement of Additional Information for a discussion of
their features and risks) and collateralized obligations issued or guaranteed by
a U.S. Government agency or instrumentality (see "Investment Techniques").

U.S. Government securities of the type in which the Portfolio may invest have
historically involved little risk of loss of principal if held to maturity. The
government guarantee of the securities in the Portfolio, however, does not
guarantee the market value of the shares of the Portfolio. There are market
risks inherent in all investments in securities and the value of an investment
in the Portfolio will fluctuate over time. Normally, the value of the
Portfolio's investments varies inversely with changes in interest rates. For
example, as interest rates rise, the value of the Portfolio's investments will
tend to decline and, as interest rates fall, the value of the Portfolio's
investments will tend to increase. In addition, the potential for appreciation
in the event of a decline in interest rates may be limited or negated by
increased principal prepayments in respect to certain mortgage-backed
securities, such as GNMA certificates. Prepayment of high interest rate
mortgage-backed securities during times of declining interest rates will tend to
lower the return of the Portfolio and may even result in losses to the Portfolio
if some securities were acquired at a premium. With respect to securities
supported only by the credit of the issuing agency or by an additional line of
credit with the U.S. Treasury, there is no guarantee that the U.S. Government
will provide support to such agencies and such securities may involve risk of
loss of principal and interest.

The Portfolio will seek to enhance income through limited investment (up to 35%
of total assets) in fixed income securities other than U.S. Government
securities. Such other fixed-income securities include: (a) corporate debt
securities that are rated at the time of purchase within the four highest grades
by either Moody's (Aaa, Aa, A, or Baa) or S&P (AAA, AA, A, or BBB); (b)
commercial paper that is rated at the time of purchase within the two highest
grades by either Moody's (Prime-1 or Prime-2) or S&P (A-1 or A-2); (c) bank
certificates of deposit (including term deposits) or bankers' acceptances issued
by domestic banks (including their foreign branches) and Canadian chartered
banks having total assets in excess of $1 billion; and (d) repurchase agreements
with respect to any of the foregoing; provided, however, the Portfolio may
invest up to 10% of its total assets in fixed income securities without regard
to the foregoing limitations, including securities that are rated below Baa by
Moody's and BBB by S&P or are non-rated (sometimes called "junk bonds"). The
characteristics of the rating categories are described in "Appendix--Ratings of
Investments" in the Statement of Additional Information. For a discussion of
lower rated and non-rated securities and related risks, see "High Yield
Portfolio" above and "Special Risk Factors--High Yield (High Risk) Bonds" below.

The Portfolio may also invest in collateralized obligations which, consistent
with the limitations reflected above, may be privately issued or may be issued
or guaranteed by U.S. Government agencies or instrumentalities. See "Investment
Techniques."

12
<PAGE> 19

During temporary defensive periods when the Fund's investment manager deems it
appropriate, the Portfolio may invest all or a portion of its assets in cash or
short-term high quality money market instruments, including short-term U.S.
Government securities and repurchase agreements with respect to such securities.
The yields on these securities tend to be lower than the yields on other
securities to be purchased by the Portfolio.

INTERNATIONAL PORTFOLIO. The International Portfolio seeks a total return, a
combination of capital growth and income, principally through an internationally
diversified portfolio of equity securities. Investments may be made for capital
growth or for income or any combination thereof for the purpose of achieving a
high overall return. There is no limitation on the percentage or amount of the
Portfolio's assets that may be invested for growth or income, and therefore at
any particular time the investment emphasis may be placed solely or primarily on
growth of capital or on income. While the Portfolio invests principally in
equity securities of non-U.S. issuers, it may also invest in convertible and
debt securities and foreign currencies. The Portfolio invests primarily in
non-U.S. issuers, and under normal circumstances more than 80% of the
Portfolio's total assets will be invested in non-U.S. issuers. In determining
whether the Portfolio will be invested for capital growth or income, the
investment manager analyzes the international equity and fixed income markets
and seeks to assess the degree of risk and level of return that can be expected
from each market. See "Growth and Value Stocks" below. Also see "Special Risk
Factors--Foreign Securities."

In pursuing its objective, the Portfolio invests primarily in common stocks of
established non-U.S. companies believed to have potential for capital growth,
income or both. However, there is no requirement that the Portfolio invest
exclusively in common stocks or other equity securities. The Portfolio may
invest in any other type of security including, but not limited to, convertible
securities (including warrants), preferred stocks, bonds, notes and other debt
securities of companies (including Euro-currency instruments and securities) or
obligations of domestic or foreign governments and their political subdivisions.
When the investment manager believes that the total return potential in debt
securities equals or exceeds that of equity securities, the Portfolio may
substantially increase its holdings of such debt securities. The Portfolio may
establish and maintain reserves for defensive purposes or to enable it to take
advantage of future buying opportunities. The Portfolio's reserves may be
invested in domestic as well as foreign short-term money market instruments
including, but not limited to, government obligations, certificates of deposit,
bankers' acceptances, time deposits, commercial paper, short-term corporate debt
securities and repurchase agreements.

The Portfolio makes investments in various countries. Under normal
circumstances, business activities in not less than three different foreign
countries will be represented in the portfolio. The Portfolio may, from time to
time, have more than 25% of its assets invested in any major industrial or
developed country that in the view of the investment manager poses no unique
investment risk. The Portfolio may purchase securities of companies, wherever
organized, that have their principal activities and interests outside the United
States. Under exceptional economic or market conditions abroad, the Portfolio
may, for defensive purposes, invest all or a major portion of its assets in U.S.
Government obligations or securities of companies incorporated in and having
their principal activities in the United States. The Portfolio may also invest
its reserves in domestic short-term money market instruments as described above.

In determining the appropriate distribution of investments among various
countries and geographic regions, the investment manager ordinarily considers
such factors as: prospects for relative economic growth among foreign countries;
expected levels of inflation; relative price levels of the various capital
markets; government policies influencing business conditions; the outlook for
currency relationships and the range of individual investment opportunities
available to the international investor. Currently, more than 60% of the market
capitalization of equity securities are represented by securities in currencies
other than the U.S. Dollar.

The Portfolio may purchase and sell options on securities, index options,
financial futures contracts and options on financial futures contracts. The
Portfolio may enter into forward foreign currency exchange contracts, foreign
currency options and foreign currency futures contracts and options thereon to
protect against uncertainty in the level of future foreign exchange rates. See
"Investment Techniques" below.

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<PAGE> 20

Generally, the Portfolio will not trade in securities for short-term profits
but, when circumstances warrant, securities may be sold without regard to the
length of time held.

Investors should understand that the expense ratio of the Portfolio can be
expected to be higher than that of portfolios investing in domestic securities
since the costs of operation are higher.

SMALL CAP GROWTH PORTFOLIO. The Small Cap Growth Portfolio seeks maximum
appreciation of investors' capital. Current income will not be a significant
factor. The Portfolio is designed primarily for investors with substantial
resources and the investment experience to consider their shares as a long-term
investment involving financial risk commensurate with potential substantial
gains. Since many of the securities in the Portfolio may be considered
speculative in nature by traditional investment standards, substantially greater
than average market volatility and investment risk may be involved. There is no
assurance that the Portfolio's objective will be achieved and its returns and
net asset value will fluctuate.

The Small Cap Growth Portfolio seeks attractive areas for investment opportunity
arising from such factors as technological advances, new marketing methods, and
changes in the economy and population. Currently, the investment manager
believes that such investment opportunities may be found among the following:
(a) companies engaged in high technology fields such as electronics, medical
technology and computer software and specialty retailing; (b) companies having a
significantly improved earnings outlook as the result of a changed economic
environment, acquisitions, mergers, new management, changed corporate strategy
or product innovation; (c) companies supplying new or rapidly growing services
to consumers and businesses in such fields as automation, data processing,
communications, and marketing and finance; and (d) companies having innovative
concepts or ideas.

As a non-fundamental investment policy, at least 65% of the Small Cap Growth
Portfolio's total assets normally will be invested in the equity securities of
smaller companies, i.e., those having a market capitalization of $1 billion or
less at the time of investment, many of which would be in the early stages of
their life cycle. The investment manager currently believes that investment in
such companies may offer greater opportunities for growth of capital than
larger, more established companies, but also involves certain special risks. See
"Special Risk Factors--Small Cap Securities" below for a discussion of the risks
associated with an investment in securities of companies with small market
capitalizations. See "Growth and Value Stocks" below.

The Small Cap Growth Portfolio's investment portfolio will normally consist
primarily of common stocks and securities convertible into or exchangeable for
common stocks, including warrants and rights. The Portfolio may also invest to a
limited degree in preferred stocks and debt securities when they are believed by
the investment manager to offer opportunities for capital growth. The Portfolio
may also write and purchase options, engage in financial futures transactions,
purchase foreign securities, engage in related foreign currency transactions and
lend its portfolio securities. See "Special Risk Factors--Foreign Securities"
and "Investment Techniques" below. When a defensive position is deemed
advisable, the Portfolio may, without limit, invest in high grade debt
securities and securities of the U.S. Government and its agencies or
instrumentalities or retain cash or cash equivalents, including repurchase
agreements.

In the selection of investments, long-term capital appreciation will take
precedence over short range market fluctuations. The Small Cap Growth Portfolio
does not intend to engage actively in trading for short-term profits, although
it may occasionally make investments for short-term capital appreciation when
such action is believed to be desirable and consistent with sound investment
procedure. Generally, the Portfolio will make long-term rather than short-term
investments. Nevertheless, it may dispose of such investments at any time it may
be deemed advisable because of a subsequent change in the circumstances of a
particular company or industry or in general market or economic conditions. The
rate of portfolio turnover is not a limiting factor when changes in investment
are deemed appropriate. In addition, market conditions, cash requirements for
redemption and repurchase of Portfolio shares or other factors could affect the
portfolio turnover rate.

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<PAGE> 21

INVESTMENT GRADE BOND PORTFOLIO. The Investment Grade Bond Portfolio seeks high
current income by investing primarily in a diversified portfolio of investment
grade debt securities. Under normal market conditions, as a non-fundamental
policy, at least 65% of the Portfolio's assets will be invested in the following
categories: (a) corporate debt securities that are rated Aaa, Aa, A or Baa by
Moody's or AAA, AA, A or BBB by S&P or any other nationally recognized
statistical rating organization; (b) obligations of, or guaranteed by, the
United States, its agencies or instrumentalities; (c) obligations (payable in
U.S. Dollars) of, or guaranteed by, the government of Canada or any
instrumentality or political subdivision thereof; (d) commercial paper rated
Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P; (e) bank certificates of
deposit or bankers' acceptances issued by domestic or Canadian chartered banks
having total deposits in excess of $1 billion; and (f) cash and cash
equivalents. The Portfolio may also invest up to 10% of its assets in preferred
stock.

There are market and investment risks with any security and the value of an
investment in the Portfolio may fluctuate over time. Normally, the value of the
Portfolio's investments varies inversely with changes in interest rates.
Corporate debt securities rated within the four highest grades by Moody's or S&P
are generally considered to be "investment grade." Like higher rated securities,
securities rated in the BBB or Baa categories are considered to have adequate
capacity to pay principal and interest, although they may have fewer protective
provisions than higher rated securities and thus may be adversely affected by
severe economic circumstances and are considered to have speculative
characteristics. The Portfolio may invest up to 35% of its total assets in fixed
income securities that are rated below BBB by S&P and Baa by Moody's or are
non-rated. For a discussion of lower rated and non-rated securities, commonly
referred to as "junk bonds," and related risks, see "Special Risk Factors--High
Yield (High Risk) Bonds" and "Appendix--Ratings of Investments" in the Statement
of Additional Information.

The Portfolio may purchase and sell options and engage in financial futures
transactions. See "Investment Techniques" below. The Portfolio may also invest
in foreign securities and engage in related foreign currency transactions. See
"Special Risk Factors--Foreign Securities" below.

VALUE PORTFOLIO. The Value Portfolio's investment objective is to achieve a high
rate of total return. It will invest principally in a diversified portfolio
consisting primarily of common stocks believed by the investment manager to be
undervalued. See "Growth and Value Stocks" below.

The Portfolio will invest primarily in common stocks of larger, listed companies
with a record of earnings and dividends, low price-earnings ratios, reasonable
returns on equity, and sound finances which, in the opinion of the investment
manager, have intrinsic value. The Portfolio may also invest in preferred
stocks, convertible securities and warrants. It is anticipated that most stocks
purchased will be listed on the New York Stock Exchange, but the Portfolio may
also purchase securities listed on other securities exchanges and in the over-
the-counter market. The Portfolio generally will invest in common stocks that
pay relatively high dividends, i.e., comparable to the dividend yield of S&P's
500 Composite Stock Index. In order to enhance its investment return, the
Portfolio may sell options on securities it holds ("covered call options"), and
sell put options on securities it may acquire. The Portfolio may earn premium
income on the sale of these options.

While most investments will be in dividend paying stocks, the Portfolio may also
acquire stocks that do not pay dividends in anticipation of market appreciation,
future dividends, or both, and when the investment manager believes that it
would be advantageous to write options on such stocks. The Portfolio will be
managed with a view to achieving a high rate of total return on investors'
capital primarily through appreciation of its common stock holdings, options
transactions and by acquiring and selling stock index futures and options
thereon and, to a lesser extent, through dividend and interest income, all of
which, in the investment manager's judgment, are elements of "total return."

While it is anticipated that under normal circumstances the Portfolio will be
fully invested, in order to conserve assets during periods when the investment
manager believes that the markets for equity securities are unduly speculative,
the Portfolio may invest all or a significant portion of its assets in cash or
defensive-type securities, such as high-grade debt securities, securities issued
or guaranteed by the U.S. Government or its agencies or

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<PAGE> 22

instrumentalities and high quality money market instruments, including
repurchase agreements. Investments in such interest-bearing securities will be
for temporary defensive purposes only.

SMALL CAP VALUE PORTFOLIO. The Small Cap Value Portfolio's investment objective
is to seek long-term capital appreciation. It will invest principally in a
diversified portfolio of equity securities of small companies with market
capitalizations ranging from $100 million to $1 billion that the investment
manager believes to be undervalued. See "Growth and Value Stocks" below. The
Portfolio may also invest in preferred stocks, convertible securities and
warrants. Under normal market conditions, at least 65% of the total assets of
the Portfolio will be invested in securities of companies whose market
capitalizations are less than $1 billion. The investment manager currently
believes that investment in such companies may offer greater opportunities for
growth of capital than larger, more established companies, but also involves
certain special risks. For a discussion of the risks associated with an
investment in securities of companies with small market capitalizations, see
"Special Risk Factors--Small Cap Securities" below.

The Portfolio will invest primarily in common stocks of companies with a record
of earnings, low price-earnings ratios, reasonable returns on equity and sound
finances which, in the opinion of the investment manager, have intrinsic value.
Such securities are generally traded on the New York Stock Exchange, the
American Stock Exchange and in the over-the-counter market. The Portfolio may
sell covered call options on securities it holds and put options on securities
it may acquire. The Portfolio may earn premium income on the sale of these
options. The Portfolio may also engage in financial futures transactions. See
"Investment Techniques" below.

VALUE+GROWTH PORTFOLIO. The Value+Growth Portfolio seeks growth of capital
through professional management of a portfolio of growth and value stocks. These
stocks include stocks of large established companies, as well as stocks of small
companies. A secondary objective is the reduction of risk over a full market
cycle compared to a portfolio of only growth stocks or only value stocks. See
"Growth and Value Stocks" below.

Although it is anticipated that the Portfolio will invest primarily in common
stocks of domestic companies, the Portfolio may also purchase convertible
securities, such as bonds and preferred stocks (including warrants and rights).
The Portfolio may also purchase options, engage in financial futures
transactions, purchase foreign securities, engage in related foreign currency
transactions and lend its portfolio securities. See "Special Risk
Factors--Foreign Securities" and "Investment Techniques" below. From time to
time, all or a significant portion of the Portfolio's assets may be held
temporarily in cash or defensive type securities, such as high-grade debt
securities, securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and high quality money market instruments,
including repurchase agreements.

The Portfolio does not generally make investments for short-term profits, but it
is not restricted in policy with regard to portfolio turnover and will make
changes in its investment portfolio from time to time as business and economic
conditions and market prices may dictate and as its investment policy may
require.

HORIZON PORTFOLIOS. The Horizon 20+, Horizon 10+ and Horizon 5 Portfolios (the
"Horizon Portfolios") are designed for investors with different investment
horizons. Investors are encouraged to choose the appropriate Horizon Portfolio
based upon their evaluation of their individual circumstances, including the
anticipated timing of major investment goals, such as sending a child or
grandchild to college, retirement or purchasing a home, as well as their
individual risk tolerance and investment objective. As investors' horizons
change, or as their investment goals change, they are encouraged to re-evaluate
their Horizon Portfolio choices to determine

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<PAGE> 23

whether they should move all or a portion of their investment to a different
Horizon Portfolio with a more appropriate objective and asset mix. The
investment horizon of each Horizon Portfolio should not be the sole factor in
considering a Horizon Portfolio. Investors should also review the investment
objectives and policies of each Horizon Portfolio.

Through professional management and diversification, each Horizon Portfolio
seeks to control risk for its given time horizon. Each Horizon Portfolio's
investment objectives, investment horizon, and investment policies are described
below.

HORIZON 20+ PORTFOLIO. The Horizon 20+ Portfolio, designed for investors with
approximately a 20+ year investment horizon, seeks growth of capital, with
income as a secondary objective. Under normal conditions, the Horizon 20+
Portfolio expects to maintain an asset allocation of approximately 80% equity
securities and 20% fixed income securities.

HORIZON 10+ PORTFOLIO. The Horizon 10+ Portfolio, designed for investors with
approximately a 10+ year investment horizon, seeks a balance between growth of
capital and income, consistent with moderate risk. Under normal conditions, the
Horizon 10+ Portfolio expects to maintain an asset allocation of approximately
60% equity securities and 40% fixed income securities.

HORIZON 5 PORTFOLIO. The Horizon 5 Portfolio, designed for investors with
approximately a 5 year investment horizon, seeks income consistent with
preservation of capital, with growth of capital as a secondary objective. Under
normal conditions, the Horizon 5 Portfolio expects to maintain an asset
allocation of approximately 40% equity securities and 60% fixed income
securities.

<TABLE>
<CAPTION>
HORIZON 20+ HORIZON 10+ HORIZON 5
TARGET ALLOCATION TARGET ALLOCATION TARGET ALLOCATION
----------------- ----------------- -----------------
<S> <C> <C> <C>
Equities............................................ 80% 60% 40%
Fixed Income........................................ 20% 40% 60%
</TABLE>

Although each Horizon Portfolio has a target asset allocation of equity and
fixed income securities, the investment manager may adjust each Horizon
Portfolio's asset mix somewhat based upon cash flow, market conditions and an
evaluation of the anticipated returns and risk for various asset classes. For
example, if equities are considered to have greater appreciation potential
relative to fixed income securities during a given period, a Horizon Portfolio's
percentage weighting of equities may be increased. Allocating assets permits the
investment manager to seek optimum performance for each Horizon Portfolio
consistent with its investment objective and investment horizon. Allocation
decisions are normally based upon long-term considerations and it is expected
that, over the long-term, the target allocation percentages will be closely
approximated.

When the investment manager determines that adverse market or economic
conditions exist and considers a temporary defensive position advisable, each
Horizon Portfolio may invest without limitation in high-grade debt securities,
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and high quality money market instruments, including
repurchase agreements, or retain cash or cash equivalents. Each Horizon
Portfolio may also purchase and write options, engage in financial futures
transactions, engage in foreign currency transactions, lend its portfolio
securities and engage in delayed delivery transactions.

The Horizon Portfolios do not generally make investments for short-term profits,
nor do they have separate portfolio turnover policies for the equity and fixed
income asset classes. The Horizon Portfolios are not restricted in policy with
regard to portfolio turnover and will make changes in their investments from
time to time as business and economic conditions or market prices may dictate
and as their investment objectives and policies may require.

EQUITIES. Each Horizon Portfolio's investment in equity securities will be
comprised primarily of common stocks of U.S. and foreign (or "international")
companies, but may also include preferred stocks, securities convertible into
and exchangeable for common or preferred stocks (including other preferred
stocks, warrants

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<PAGE> 24

and rights, but not including convertible debt securities), equity investments
in partnerships, joint ventures and other forms of noncorporate investments and
warrants and rights exercisable for equity securities. Investments will
primarily include stocks of large, established companies, but may also include
stocks of smaller companies. Each Horizon Portfolio's equity securities will be
divided between U.S. and international as described below. The U.S. equity
portion of each Horizon Portfolio is divided further into two parts, one
invested in growth stocks and one invested in value stocks. As with the overall
asset allocation, the investment manager may, from time to time, adjust the
equity asset class of each Horizon Portfolio. It is expected, however, that
adjustments to the mix of the equity asset class will be more dynamic than
adjustments to the overall mix.

U.S./INTERNATIONAL. The target mix between U.S. equities and international
equities seeks the optimum balance of risk reduction and return enhancement
available from international investing. This allows investors in each Horizon
Portfolio the opportunity to invest a portion of their assets in a diversified
portfolio of foreign securities. Under normal conditions, each Horizon
Portfolio's equity securities will consist of approximately 70% U.S. and 30%
international. In the case of the international equity exposure, allocations may
range from 20% to 40%, although the investment manager may decrease a Horizon
Portfolio's exposure to zero if investments in foreign securities appear to be
relatively unattractive in the judgment of the investment manager because of
current or anticipated adverse political or economic conditions.

Foreign securities can be attractive because they increase diversification, as
compared to a portfolio comprised solely of U.S. securities. In addition, many
foreign economies have, from time to time, grown faster than the U.S. economy,
and the returns on investments in these countries have exceeded those of similar
U.S. investments, although there can be no assurance that these conditions will
continue. International diversification allows an investor to achieve greater
portfolio diversification and to take advantage of changes in foreign economies
and market conditions. Although international investing entails special risks,
the mixture of U.S. and international stocks is designed to reduce risk, while
also increasing potential return, relative to investing in U.S. or international
stocks alone. There is no assurance, however, that any specific allocation will
reduce risk or increase returns. See "Special Risk Factors--Foreign Securities"
below.

U.S. GROWTH/U.S. VALUE. The allocation between U.S. growth stocks and U.S. value
stocks seeks to reduce the risk, over a full market cycle, of holding growth
stocks or value stocks alone. See "Growth and Value Stocks" below.

FIXED INCOME. The fixed income portion of each Horizon Portfolio may be invested
in a broad variety of fixed income securities including, without limitation: (a)
obligations issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities; (b) bonds, debentures, convertible debt instruments,
assignments or participation in loans, notes, commercial paper, and other debt
securities of corporations, trusts and other entities; (c) certificates of
deposit, bankers' acceptances and time deposits and (d) cash and cash
equivalents, including repurchase agreements. The fixed income portion of each
Horizon Portfolio will be comprised of U.S. Dollar denominated instruments.

Each Horizon Portfolio attempts to limit its exposure to credit risk by imposing
limits on the quality of specific securities in its Portfolio and by maintaining
a relatively high average weighted credit quality. Credit quality refers to a
fixed income security issuer's expected ability to make all required interest
and principal payments in a timely manner. Higher rated fixed income securities
generally represent less risk than lower or non-rated securities. Ratings
published by nationally recognized rating agencies such as S&P and Moody's are
widely accepted measures of credit risk. The fixed income portion of each
Horizon Portfolio will be invested in securities that are rated at the time of
purchase within the four highest grades assigned by Moody's, S&P, Fitch
Investors Service, Inc. ("Fitch") or Duff & Phelps Credit Rating Co. ("Duff") or
any other Nationally Recognized Statistical Rating Organization ("NRSRO") as
designated by the Securities and Exchange Commission, or will be of comparable
quality as determined by the investment manager, provided that up to 10% of the
fixed income portion of each Horizon Portfolio may be invested in securities
that are lower rated ("junk bonds"). The top four ratings currently assigned by
these organizations are as follows: Moody's (Aaa, Aa, A or Baa), S&P

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<PAGE> 25

(AAA, AA, A or BBB), Fitch (AAA, AA, A or BBB) and Duff (AAA, AA, A or BBB). In
addition, under normal conditions, each Horizon Portfolio expects to maintain a
relatively high average dollar-weighted credit quality (i.e., within the top two
rating categories of an NRSRO or comparable as determined by the investment
manager). Average dollar-weighted credit quality is calculated by averaging the
ratings of each fixed income security held by a Horizon Portfolio with each
rating "weighted" according to the percentage of assets that it represents.
Average dollar-weighted credit quality is not a precise measure of the credit
risk presented by a Horizon Portfolio of fixed income securities. For instance,
a combination of securities that are rated AAA and securities that are rated BB
that together result in an average weighted credit quality of AA may present
more risk than a group of just AA rated securities.

After a Horizon Portfolio purchases a security, its quality level may fall below
that at which it was purchased (i.e., downgraded). In such instance, the Horizon
Portfolio would not be required to sell the security, but the investment manager
will consider such an event in determining whether the Horizon Portfolio should
continue to hold the security. The ratings of NRSROs represent their opinions as
to the quality of the securities that they undertake to rate. It should be
emphasized, however, that ratings, and other opinions as to quality, are
relative and subjective and are not absolute standards of quality. For a
discussion of lower rated and non-rated securities and related risks, see
"Special Risk Factors -- High Yield (High Risk) Bonds" below.

Each Horizon Portfolio attempts to limit its exposure to interest rate risk by
maintaining a relatively short duration. Interest rate risk is the risk that the
value of the fixed income securities may rise or fall as interest rates change.
Under normal conditions, the target duration of the fixed-income portion of each
Horizon Portfolio is approximately 2.5 years, although it may range from 1.5 to
3.5 years depending upon market conditions. "Duration," and the more traditional
"average dollar-weighted maturity," are measures of how a fixed income portfolio
tend to react to interest rate changes. Each fixed income security held by a
Horizon Portfolio has a stated maturity. The stated maturity is the date when
the issuer must repay the entire principal amount to an investor. A security's
term to maturity is the time remaining to maturity. A security will be treated
as having a maturity earlier than its stated maturity date if the security has
technical features (such as puts or demand features) or a variable rate of
interest that, in the judgment of the investment manager, will result in the
security being valued in the market as though it has the earlier maturity.
Average dollar-weighted maturity is calculated by averaging the terms to
maturity of each fixed income security held by each Horizon Portfolio with each
maturity "weighted" according to the percentage of assets that it represents.
Unlike average dollar-weighted maturity, duration reflects both principal and
interest payments and is designed to measure more accurately a portfolio's
sensitivity to incremental changes in interest rates than does average weighted
maturity. By way of example, if the duration of a Horizon Portfolio's fixed
income securities were two years, and interest rates decreased by 100 basis
points ( a basis point is one-hundredth of one percent), the market price of
that portfolio of fixed income securities would be expected to increase by
approximately 2%.

GROWTH AND VALUE STOCKS. Certain Portfolios of the Fund intend to invest in
growth stocks or value stocks, or a combination thereof. Equity portfolios
managed by ZKI typically invest in growth stocks. These include the following
Portfolios: Total Return (stock portion), Growth, International, Small Cap
Growth, Value+Growth (growth stock portion), and Horizon (growth stock portion).
Equity portfolios managed by DVA typically invest in value stocks. These include
the following Portfolios: Value, Small Cap Value, Value+Growth (value stock
portion) and Horizon (value stock portion).

Growth stocks are stocks of companies whose earnings per share are expected by
the investment manager to grow faster than the market average. Growth stocks
tend to trade at higher price to earnings (P/E) ratios than the general market,
but the investment manager believes that the potential of such stocks for above
average earnings more than justifies their price. Value stocks are considered
"bargain stocks" because they are perceived as undervalued, i.e., attractively
priced in relation to their earnings potential (low P/E ratios). Value stocks
typically have dividend yields higher than the average of the companies
represented in the S&P 500 Stock Index. Typically, stocks of both types will
have market capitalizations in excess of $1 billion, except those

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<PAGE> 26

stocks selected for inclusion in the Small Cap Growth and Small Cap Value
Portfolios, which will typically have market capitalizations ranging from
approximately $100 million to $1 billion.

In managing growth stocks, ZKI emphasizes stock selection and fundamental
research in seeking to enhance long-term performance potential. ZKI considers a
number of quantitative and qualitative factors in considering whether to invest
in a growth stock including high return on equity and earnings growth rate, low
level of debt, strong balance sheet, good management and industry leadership.
Other factors considered by ZKI in making its investments in growth stocks are
patterns of increasing growth in sales and earnings, the development of new or
improved products or services, favorable outlooks for growth in the industry,
the probability of increased operating efficiencies, emphasis on research and
development, cyclical conditions, or other signs that a company is expected to
show greater than average capital appreciation and earnings growth.

In managing value stocks, DVA seeks stocks it believes to be undervalued.
Securities of a company may be undervalued as a result of overreaction by
investors to unfavorable news about a company, industry or the stock markets in
general or as a result of a market decline, poor economic conditions, tax-loss
selling or actual or anticipated unfavorable developments affecting the company.
The principal factor considered in determining whether a stock is undervalued is
P/E ratios.

DVA believes that the risk in owning stocks can be reduced by investing in
companies with sound finances whose current market prices are low in relation to
earnings. In determining whether a company's finances are sound, DVA considers
among other things, its cash position and current ratio (current assets compared
to current liabilities) and, in this regard, considers a 2:1 ratio to be
favorable. DVA applies quantitative analysis to its research process, and begins
by screening a large number of stocks. In selecting among stocks with low P/E
ratios, DVA considers other factors such as the following about the issuer:
financial strength; book-to-market value; five and ten-year earnings growth
rates; five and ten-year dividend growth rates; five and ten-year return on
equity; size of institutional ownership; and earnings estimates for the next 12
months.

Fundamental analysis is used on companies that initially look promising.
Earnings and cash flow analysis as well as a company's conventional dividend
payout ratio are important to this process.

The policies of certain Portfolios of investing in securities that may be out of
favor differs from the investment approach followed by many other investment
companies. Companies reporting poor earnings, whose businesses are cyclically
down, whose prices have declined sharply or that are not widely followed are not
typically held by most investment companies. It is DVA's belief, however, that
the securities of sound, well-managed companies that may be temporarily out of
favor due to earnings declines or other adverse developments are likely to
provide a greater total investment return than securities whose prices appear to
reflect anticipated favorable developments.

The allocation between growth and value stocks in the Value+Growth and Horizon
Portfolios will be made by ZKI's Quantitative Research Department with the help
of a proprietary model that evaluates macro-economic factors such as the
strength of the economy, interest rates and special factors concerning growth
and value stocks. Historically, the performance of growth and value stocks has
tended to be counter-cyclical, i.e., when one was in favor, the other was out of
favor relative to the equity market in general. Through the allocation process,
the investment manager will seek to weight the Portfolio more heavily in the
type of stocks that are believed to present greater total return opportunities
at the time. The neutral allocation between growth and value stocks would be
50%/50%. Although allocations in favor of growth or value normally would not be
expected to exceed 60%, the allocation to growth or value may be up to 75% at
any time. Allocation decisions are normally based upon long-term considerations
and changes would normally be expected to be gradual. There is no assurance that
the allocation process will improve investment results.

SPECIAL RISK FACTORS--HIGH YIELD (HIGH RISK) BONDS. As reflected above, the High
Yield Portfolio intends to invest a substantial portion of its assets in fixed
income securities offering high current income. Subject to their specific
investment objectives and policies as described above, the Total Return,
Government Securities,

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Investment Grade Bond and Horizon Portfolios also may invest a portion of their
assets in such securities. Such high yield (high risk) fixed income securities
will ordinarily be in the lower rating categories (securities rated below the
fourth category) of recognized rating agencies or will be non-rated. Lower rated
and non-rated securities, which are commonly referred to as "junk bonds," have
widely varying characteristics and quality. These lower rated and non-rated
fixed income securities are considered, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation and generally will involve more credit risk than
securities in the higher rating categories.

The market values of such securities tend to reflect individual corporate
developments to a greater extent than do those of higher rated securities, which
react primarily to fluctuations in the general level of interest rates. Such
lower rated securities also are more sensitive to economic conditions than are
higher rated securities. Adverse publicity and investor perceptions regarding
lower rated bonds, whether or not based on fundamental analysis, may depress the
prices for such securities. These and other factors adversely affecting the
market value of high yield securities will adversely affect a Portfolio's net
asset value.

The investment philosophy of the High Yield Portfolio with respect to high yield
(high risk) bonds is based upon the premise that over the long term a broadly
diversified portfolio of high yield fixed-income securities should, even taking
into account possible losses, provide a higher net return than that achievable
on a portfolio of higher rated securities. The Portfolio seeks to achieve the
highest yields possible while reducing relative risk through (a) broad
diversification, (b) credit analysis by the investment manager of the issuers in
which the Portfolio invests, (c) purchase of high yield securities at discounts
from par or stated value when practicable and (d) monitoring and seeking to
anticipate changes and trends in the economy and financial markets that might
affect the prices of portfolio securities. The investment manager's judgment as
to the "reasonableness" of the risk involved in any particular investment will
be a function of its experience in managing fixed income investments and its
evaluation of general economic and financial conditions, a specific issuer's
business and management, cash flow, earnings coverage of interest and dividends,
ability to operate under adverse economic conditions, and fair market value of
assets, and of such other considerations as the investment manager may deem
appropriate. The investment manager, while seeking maximum current yield, will
monitor current corporate developments with respect to portfolio securities and
potential investments and to broad trends in the economy. In some circumstances,
defensive strategies may be implemented to preserve or enhance capital even at
the sacrifice of current yield. Defensive strategies, which may be used singly
or in any combination, may include, but are not limited to, investments in
discount securities or investments in money market instruments as well as
futures and options strategies.

High yield (high risk) securities frequently are issued by corporations in the
growth stage of their development. They may also be issued in connection with a
corporate reorganization or a corporate takeover. Companies that issue such high
yielding securities often are highly leveraged and may not have available to
them more traditional methods of financing. Therefore, the risk associated with
acquiring the securities of such issuers
generally is greater than is the case with higher rated securities. For example,
during an economic downturn or recession, highly leveraged issuers of high yield
securities may experience financial stress. During such periods, such issuers
may not have sufficient revenues to meet their interest payment obligations. The
issuer's ability to service its debt obligations may also be adversely affected
by specific corporate developments, or the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing. The
risk of loss from default by the issuer is significantly greater for the holders
of high yield securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer. Although some risk is
inherent in all securities ownership, holders of fixed income securities have a
claim on the assets of the issuer prior to the holders of common stock.
Therefore, an investment in fixed income securities generally entails less risk
than an investment in common stock of the same issuer.

A Portfolio may have difficulty disposing of certain high yield (high risk)
securities because they may have a thin trading market. Because not all dealers
maintain markets in all high yield securities, the Fund anticipates that such
securities could be sold only to a limited number of dealers or institutional
investors. The lack of a liquid

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secondary market may have an adverse effect on market price and a Portfolio's
ability to dispose of particular issues and may also make it more difficult for
a Portfolio to obtain accurate market quotations for purposes of valuing a
Portfolio's assets. Market quotations generally are available on many high yield
issues only from a limited number of dealers and may not necessarily represent
firm bids of such dealers or prices for actual sales.

Zero coupon securities and pay-in-kind bonds involve additional special
considerations. Zero coupon securities are debt obligations that do not entitle
the holder to any periodic payments of interest prior to maturity or a specified
cash payment date when the securities begin paying current interest (the "cash
payment date") and therefore are issued and traded at a discount from their face
amount or par value. The market prices of zero coupon securities are generally
more volatile than the market prices of securities that pay interest
periodically and are likely to respond to changes in interest rates to a greater
degree than do securities paying interest currently having similar maturities
and credit quality. Zero coupon, pay-in-kind or deferred interest bonds carry
additional risk in that, unlike bonds that pay interest throughout the period to
maturity, a Portfolio will realize no cash until the cash payment date unless a
portion of such securities is sold and, if the issuer defaults, a Portfolio may
obtain no return at all on its investment.

Current federal income tax law requires the holder of a zero coupon security or
of certain pay-in-kind bonds (bonds which pay interest through the issuance of
additional bonds) to accrue income with respect to these securities prior to the
receipt of cash payments. To maintain its qualification as a regulated
investment company and avoid liability for federal income taxes, a Portfolio
will be required to distribute income accrued with respect to these securities.

Additional information concerning high yield (high risk) securities appears
under "Appendix--High Yield Portfolio/Portfolio Composition" in this prospectus
and under "Appendix--Ratings of Investments" in the Statement of Additional
Information.

SPECIAL RISK FACTORS--FOREIGN SECURITIES. The Total Return, High Yield, Growth,
Small Cap Growth, Investment Grade Bond and Value+Growth Portfolios invest
primarily in securities that are publicly traded in the United States; but, they
have discretion to invest a portion of their assets in foreign securities that
are traded principally in securities markets outside the United States. As a
non-fundamental policy, these Portfolios currently limit investment in foreign
securities not publicly traded in the United States to 25% of their total
assets. The Horizon Portfolios will invest in foreign securities at a target
level normally ranging from 20% to 40% of the allocation of each Portfolio to
equity securities. See "Horizon Portfolios" above. These Portfolios may also
invest without limit in U.S. Dollar denominated American Depository Receipts
("ADRs") which are bought and sold in the United States and are not subject to
the preceding limitation. The Value and Small Cap Value Portfolios may invest up
to 20% of their assets in securities of foreign companies in the form of ADRs.
Foreign securities in which a Portfolio may invest include any type of security
consistent with that Portfolio's investment objective and policies. In
connection with their foreign securities investments, such Portfolios may, to a
limited extent, engage in foreign currency exchange transactions and purchase
and sell foreign currency options and foreign currency futures contracts as a
hedge and not for speculation. The International Portfolio may invest without
limit in foreign securities and may engage in foreign currency exchange
transactions and may purchase and sell foreign currency options and foreign
currency futures contracts. See "Investment Techniques--Options and Financial
Futures Transactions--Foreign Currency Transactions." The Money Market Portfolio
and Government Securities Portfolio, each within its quality standards, may also
invest in securities of foreign issuers. However, such investments will be in
U.S. Dollar denominated instruments.

Foreign securities involve currency risks. The U.S. Dollar value of a foreign
security tends to decrease when the value of the U.S. Dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the U.S. Dollar falls against such currency. Fluctuations in
exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be repatriated
based on the exchange rate at the time of disbursement or payment, and

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<PAGE> 29

restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies.

Foreign securities may be subject to foreign government taxes that reduce their
attractiveness. Other risks of investing in such securities include political or
economic instability in the country involved, the difficulty of predicting
international trade patterns and the possibility of imposition of exchange
controls. The prices of such securities may be more volatile than those of
domestic securities. In addition, there may be less publicly available
information about foreign issuers than about domestic issuers. Many foreign
issuers are not subject to uniform accounting, auditing and financial reporting
standards comparable to those applicable to domestic issuers. There is generally
less regulation of stock exchanges, brokers, banks, and listed companies abroad
than in the United States. With respect to certain foreign countries, there is a
possibility of expropriation or diplomatic developments which could affect
investment in these countries.

EMERGING MARKETS. While a Portfolio's investments in foreign securities will
principally be in developed countries, a Portfolio may make investments in
developing or "emerging" countries, which involve exposure to economic
structures that are generally less diverse and mature than in the United States,
and to political systems that may be less stable. A developing or emerging
market country can be considered to be a country that is in the initial stages
of its industrialization cycle. Currently, emerging markets generally include
every country in the world other than the United States, Canada, Japan,
Australia, New Zealand, Hong Kong, Singapore and most Western European
countries. Currently, investing in many emerging markets may not be desirable or
feasible because of the lack of adequate custody arrangements for a Portfolio's
assets, overly burdensome repatriation and similar restrictions, the lack of
organized and liquid securities markets, unacceptable political risks or other
reasons. As opportunities to invest in securities in emerging markets develop, a
Portfolio may expand and further broaden the group of emerging markets in which
it invests. In the past, markets of developing or emerging market countries have
been more volatile than the markets of developed countries; however, such
markets often have provided higher rates of return to investors. The investment
manager believes that these characteristics can be expected to continue in the
future.

Many of the risks described above relating to foreign securities generally will
be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing markets.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which they
trade.

Also, the securities markets of developing countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure, regulatory and
accounting standards in many respects are less stringent than in the United
States and other developed markets. There also may be a lower level of
monitoring and regulation of developing markets and the activities of investors
in such markets, and enforcement of existing regulations has been extremely
limited.

In addition, brokerage commissions, custodial services and other needs relating
to investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Such settlement problems may cause emerging market securities to be illiquid.
The inability of a Portfolio to make intended securities purchases because of
settlement problems could

23
<PAGE> 30

cause the Portfolio to miss attractive investment opportunities. Inability to
dispose of a portfolio security because of settlement problems could result in
losses to a Portfolio from subsequent declines in value of the portfolio
security or, if a Portfolio has entered into a contract to sell the security, it
could result in possible liability to the purchaser. Certain emerging markets
may lack clearing facilities equivalent to those in developed countries.
Accordingly, settlements can pose additional risks in such markets and
ultimately can expose a Portfolio to the risk of losses resulting from the
Portfolio's inability to recover from a counterparty.

The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading in securities may cease or may be
substantially curtailed and prices for a Portfolio's securities in such markets
may not be readily available. A Portfolio's securities in the affected markets
will be valued at fair value determined in good faith by or under the direction
of the Board of Trustees of the Fund.

Investment in certain emerging market securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain emerging market securities and increase the costs
and expenses of a Portfolio. Emerging markets may require governmental approval
for the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market country's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.

FIXED INCOME. Since most foreign fixed income securities are not rated, a
Portfolio will invest in foreign fixed income securities based upon the
investment manager's analysis without relying on published ratings. Since such
investments will be based upon the investment manager's analysis rather than
upon published ratings, achievement of a Portfolio's goals may depend more upon
the abilities of the investment manager than would otherwise be the case.

The value of the foreign fixed income securities held by a Portfolio, and thus
the net asset value of the Portfolio's shares, generally will fluctuate with (a)
changes in the perceived creditworthiness of the issuers of those securities,
(b) movements in interest rates, and (c) changes in the relative values of the
currencies in which a Portfolio's investments in fixed income securities are
denominated with respect to the U.S. Dollar. The extent of the fluctuation will
depend on various factors, such as the average maturity of a Portfolio's
investments in foreign fixed income securities, and the extent to which a
Portfolio hedges its interest rate, credit and currency exchange rate risks.
Many of the foreign fixed income obligations in which a Portfolio will invest
will have long maturities. A longer average maturity generally is associated
with a higher level of volatility in the market value of such securities in
response to changes in market conditions.

Investments in sovereign debt, including Brady Bonds, involve special risks.
Brady Bonds are debt securities issued under a plan implemented to allow debtor
nations to restructure their outstanding commercial bank indebtedness. Foreign
governmental issuers of debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or pay
interest when due. In the event of default, there may be limited or no legal
recourse in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Political conditions, especially a sovereign entity's
willingness to meet the terms of its fixed income securities, are of
considerable significance. Also, there can be no assurance that the holders of
commercial bank loans to the same sovereign entity may not contest payments to
the holders of sovereign debt in the event of default under commercial bank loan
agreements. In addition, there is no bankruptcy proceeding with respect to
sovereign debt on which a sovereign has defaulted, and a Portfolio may be unable
to collect all or any part of its investment in a particular issue.

Foreign investment in certain sovereign debt is restricted or controlled to
varying degrees, including requiring governmental approval for the repatriation
of income, capital or proceeds of sales by foreign investors. These restrictions
or controls may at times limit or preclude foreign investment in certain
sovereign debt or increase the costs and expenses of a Portfolio. A significant
portion of the sovereign debt in which a Portfolio may invest is issued as part
of debt restructuring and such debt is to be considered speculative. There is a
history of defaults

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<PAGE> 31

with respect to commercial bank loans by public and private entities issuing
Brady Bonds. All or a portion of the interest payments and/or principal
repayment with respect to Brady Bonds may be uncollateralized.

PRIVATIZED ENTERPRISES. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. A Portfolio's investments in the
securities of privatized enterprises include privately negotiated investments in
a government or state-owned or controlled company or enterprise that has not yet
conducted an initial equity offering, investments in the initial offering of
equity securities of a state enterprise or former state enterprise and
investments in the securities of a state enterprise following its initial equity
offering.

In certain jurisdictions, the ability of a foreign entity, such as a Portfolio
of the Fund, to participate in privatizations may be limited by local law, or
the price or terms on which a Portfolio of the Fund may be able to participate
may be less advantageous than for local investors. Moreover, there can be no
assurance that governments that have embarked on privatization programs will
continue to divest their ownership of state enterprises, that proposed
privatizations will be successful or that governments will not re-nationalize
enterprises that have been privatized.

In the case of the enterprises in which a Portfolio of the Fund may invest,
large blocks of the stock of those enterprises may be held by a small group of
stockholders, even after the initial equity offerings by those enterprises. The
sale of some portion or all of those blocks could have an adverse effect on the
price of the stock of any such enterprise.

Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization or management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as the enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.

Prior to privatization, most of the state enterprises in which a Portfolio may
invest enjoy the protection of and receive preferential treatment from the
respective sovereigns that own or control them. After making an initial equity
offering these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition.

DEPOSITORY RECEIPTS. For many foreign securities, there are U.S.
Dollar-denominated ADRs, which are bought and sold in the United States and are
issued by domestic banks. ADRs represent the right to receive securities of
foreign issuers deposited in the domestic bank or a correspondent bank. ADRs do
not eliminate all the risk inherent in investing in the securities of foreign
issuers, such as changes in foreign currency exchange rates. However, by
investing in ADRs rather than directly in foreign issuers' stock, the Portfolios
avoid currency risks during the settlement period. In general, there is a large,
liquid market in the United States for most ADRs. Securities of foreign issuers
are also available in the form of European Depository Receipts ("EDRs") and
Global Depository Receipts ("GDRs"), which are receipts evidencing an
arrangement with a bank similar to that for ADRs and are designed for use in
European and other foreign securities markets. EDRs and GDRs are not necessarily
denominated in the currency of the underlying security.

SPECIAL RISK FACTORS--SMALL CAP SECURITIES. As reflected above, the Small Cap
Growth and Small Cap Value Portfolios intend to invest a substantial portion of
their assets in equity securities of small companies, i.e., those having a
market capitalization of $1 billion or less at the time of investment.
Investments in securities of

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<PAGE> 32

companies with small market capitalizations are generally considered to offer
greater opportunity for appreciation and to involve greater risks of
depreciation than securities of companies with larger market capitalizations.
Smaller companies often have limited product lines, markets or financial
resources, and they may be dependent upon one or a few key people for
management. Since the securities of such companies are not as broadly traded as
those of companies with larger market capitalizations, these securities are
often subject to wider and more abrupt fluctuations in market price.

Among the reasons for the greater price volatility of these securities are the
less certain growth prospects of smaller firms, a lower degree of liquidity in
the markets for such stocks compared to larger capitalization stocks or the
market averages in general, and the greater sensitivity of small companies to
changing economic conditions. In addition to exhibiting greater volatility,
small company stocks may, to a degree, fluctuate independently of larger company
stocks. Small company stocks may decline in price as large company stock prices
rise, or rise in price as large company stock prices decline. Investors should
therefore expect that the value of the shares of the Small Cap Growth and Small
Cap Value Portfolios may be more volatile than the shares of a portfolio that
invests in larger capitalization stocks.

THE FUND. The portfolio turnover rates for the Total Return, High Yield, Growth,
Government Securities, International and Small Cap Growth Portfolios are listed
under "Financial Highlights." Since securities with maturities of less than one
year are excluded from portfolio turnover rate calculations, the portfolio
turnover rate for the Money Market Portfolio is zero. It is anticipated that,
under normal circumstances, the portfolio turnover rate for the Value, Small Cap
Value, Value+Growth and Horizon Portfolios will not exceed 100%. The Investment
Grade Bond Portfolio may experience a relatively high portfolio turnover rate
(over 100%). Frequency of portfolio turnover will not be a limiting factor
should a Portfolio's investment manager deem it desirable to purchase or sell
securities. Higher portfolio turnover (over 100%) involves correspondingly
greater brokerage commissions or other transaction costs. Higher portfolio
turnover may result in the realization of greater net short-term capital gains.
In order to continue to qualify as a regulated investment company for federal
income tax purposes, less than 30% of the annual gross income of a Portfolio
must be derived from the sale or disposition of securities and certain other
investments held by a Portfolio for less than three months. See "Dividends and
Taxes" in the Statement of Additional Information.

A Portfolio will not, as a non-fundamental policy, purchase illiquid securities
including repurchase agreements maturing in more than seven days, if, as a
result thereof, more than 15% (10% for the Money Market Portfolio) of the
Portfolio's net assets, valued at the time of the transactions, would be
invested in such securities.

INVESTMENT TECHNIQUES

LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, each Portfolio may lend securities (principally to broker-dealers)
where such loans are callable at any time and are continuously secured by
segregated collateral (cash or U.S. Government securities) equal to no less than
the market value, determined daily, of the securities loaned. The Portfolio will
receive amounts equal to dividends or interest on the securities loaned. It will
also earn income for having made the loan. Any cash collateral pursuant to these
loans will be invested in short-term money market instruments. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, the loans would be made only to firms deemed by the Portfolio's
investment manager to be of good standing, and when the Portfolio's investment
manager believes the potential earnings to justify the attendant risk.
Management will limit such lending to not more than one-third of the value of a
Portfolio's total assets.

OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. Each Portfolio except the Money
Market Portfolio may deal in options on securities and securities indices, which
options may be listed for trading on a national securities exchange or traded
over-the-counter, except that the Value and Small Cap Value Portfolios do not
engage in

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<PAGE> 33

over-the-counter options transactions. The ability to engage in options
transactions enables a Portfolio to pursue its investment objective and also to
hedge against currency and market risks but is not intended for speculation. In
connection with their foreign securities investments, the Total Return, High
Yield, Growth, International, Small Cap Growth, Investment Grade Bond and
Horizon Portfolios may also purchase and sell, and the Value+Growth Portfolio
may purchase, foreign currency options.

The Government Securities Portfolio individually may write (sell) covered call
options on up to 100% of net assets, may write (sell) secured put options on up
to 50% of net assets and may purchase put and call options provided that no more
than 5% of net assets may be invested in premiums on such options. The Total
Return, High Yield, Growth, International, Small Cap Growth, Investment Grade
Bond and Horizon Portfolios may write (sell) covered call and secured put
options on up to 25% of net assets and may purchase put and call options
provided that no more than 5% of its net assets may be invested in premiums on
such options. The Value+Growth Portfolio may purchase put and call options
provided that no more than 5% of its net assets may be invested in premiums on
such options.

The Value and Small Cap Value Portfolios are authorized to sell covered call
options on all of the stocks they hold. No put option will be sold, however, if
as a result, either Portfolio would be obligated to purchase securities whose
total value exceeds 50% of its net assets.

The Portfolios may write (sell) covered call options so long as they own
securities or other assets that are acceptable for escrow purposes. Also, such
Portfolios may write (sell) secured put options, which means that so long as the
Portfolio is obligated as a writer of a put option, it will invest an amount not
less than the exercise price of the put option in money market instruments.

A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security or other asset at the exercise price
during the option period. A put option gives the purchaser the right to sell,
and the writer the obligation to buy, the underlying security or other asset at
the exercise price during the option period. The writer of a covered call owns
securities or other assets that are acceptable for escrow and the writer of a
secured put invests an amount not less than the exercise price in eligible
securities or other assets to the extent that it is obligated as a writer. If a
call written by a Portfolio is exercised, the Portfolio foregoes any possible
profit from an increase in the market price of the underlying security or other
asset over the exercise price plus the premium received. In writing puts, there
is a risk that a Portfolio may be required to take delivery of the underlying
security or other asset at a disadvantageous price.

Over-the-counter traded options ("OTC options") differ from exchange traded
options in several respects. Such options are transacted with dealers directly
and not with a clearing corporation and there is a risk of non-performance by
the dealer as a result of the insolvency of such dealer or otherwise, in which
event a Portfolio may experience material losses. However, in writing options
the premium is paid in advance by the dealer. OTC options are available for a
greater variety of securities or other assets, and a wider range of expiration
dates and exercise prices, than for exchange traded options.

A Portfolio, as part of its option transactions, also may use index options.
Through the writing or purchase of index options a Portfolio can achieve many of
the same objectives as through the use of options on individual securities.
Options on securities indices are similar to options on a security except that,
rather than the right to take or make delivery of a security at a specified
price, an option on a securities index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.

Price movements in securities which a Portfolio owns or intends to purchase
probably will not correlate perfectly with movements in the level of an index
and, therefore, a Portfolio bears the risk of a loss on an index option which is
not completely offset by movements in the price of such securities. Because
index options are settled in cash, a call writer cannot determine the amount of
its settlement obligations in advance and, unlike

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<PAGE> 34

call writing on specific securities, cannot provide in advance for, or cover,
its potential settlement obligations by acquiring and holding the underlying
securities.

Each Portfolio except the Money Market Portfolio may engage in financial futures
transactions. Financial futures contracts are commodity contracts that obligate
the long or short holder to take or make delivery of a specified quantity of a
financial instrument, such as a security, or the cash value of a securities
index during a specified future period at a specified price. A Portfolio will
"cover" futures contracts sold by the Portfolio and maintain in a segregated
account certain liquid assets in connection with futures contracts purchased by
the Portfolio as described under "Investment Policies and Techniques" in the
Statement of Additional Information. In connection with their foreign securities
investments, the Total Return, High Yield, Growth, International, Small Cap
Growth, Investment Grade Bond, Value+Growth and Horizon Portfolios may also
engage in foreign currency financial futures transactions. A Portfolio will not
enter into any futures contracts or options on futures contracts if the
aggregate of the contract value of the outstanding futures contracts of the
Portfolio and futures contracts subject to outstanding options written by the
Portfolio would exceed 50% of the total assets of the Portfolio.

The Portfolios may engage in financial futures transactions and may use index
options as an attempt to hedge against currency and market risks. For example,
when the near-term market view is bearish but the portfolio composition is
judged satisfactory for the longer term, exposure to temporary declines in the
market may be reduced by entering into futures contracts to sell securities or
the cash value of an index. Conversely, where the near-term view is bullish, but
a Portfolio is believed to be well positioned for the longer term with a high
cash position, the Portfolio can hedge against market increases by entering into
futures contracts to buy securities or the cash value of an index. In either
case, the use of futures contracts would tend to reduce portfolio turnover and
facilitate a Portfolio's pursuit of its investment objective. Also, if a
Portfolio owned long-term bonds and interest rates were expected to rise, it
could sell financial futures contracts. If interest rates did increase, the
value of the bonds in the Portfolio would decline, but this decline would be
offset in whole or in part by an increase in the value of the Portfolio's
futures contracts. If, on the other hand, long-term interest rates were expected
to decline, the Portfolio could hold short-term debt securities and benefit from
the income earned by holding such securities, while at the same time the
Portfolio could purchase futures contracts on long-term bonds or the cash value
of a securities index. Thus, the Portfolio could take advantage of the
anticipated rise in the value of long-term bonds without actually buying them.
The futures contracts and short-term debt securities could then be liquidated
and the cash proceeds used to buy long-term bonds.

Futures contracts entail risks. If the investment manager's judgment about the
general direction of interest rates, markets or exchange rates is wrong, the
overall performance may be poorer than if no such contracts had been entered
into. There may be an imperfect correlation between movements in prices of
futures contracts and portfolio assets being hedged. In addition, the market
prices of futures contracts may be affected by certain factors. If participants
in the futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures market could result. Price
distortions also could result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators,
margin requirements in the futures market are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager still may not result in a successful hedging
transaction. A Portfolio could also experience losses if it could not close out
its futures position because of an illiquid secondary market. If any of these
events should occur, a Portfolio could lose money on the financial futures
contracts and also on the value of its portfolio assets. The costs incurred in
connection with futures transactions could reduce a Portfolio's return.

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<PAGE> 35

Index options involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by a
Portfolio may expire worthless, in which case a Portfolio would lose the premium
paid therefor.

A Portfolio may engage in futures transactions only on commodities exchanges or
boards of trade. A Portfolio will not engage in transactions in index options,
financial futures contracts or related options for speculation, but only as an
attempt to hedge against changes in interest rates or market conditions
affecting the values of securities which the Portfolio owns or intends to
purchase.

FOREIGN CURRENCY TRANSACTIONS. As indicated under "Investment Objectives,
Policies and Risk Factors--Special Risk Factors--Foreign Securities," the Total
Return, High Yield, Growth, Small Cap Growth, Investment Grade Bond,
Value+Growth and Horizon Portfolios may invest a limited portion of their
assets, and the International Portfolio may invest without limit, in securities
denominated in foreign currencies. These Portfolios may engage in foreign
currency transactions in connection with their investments in foreign securities
but will not speculate in foreign currency exchange.

The value of the foreign securities investments of a Portfolio measured in U.S.
Dollars (including ADRs) may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and the
Portfolio may incur costs in connection with conversions between various
currencies. A Portfolio will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
directly between currency traders (usually large commercial banks) and their
customers.

When a Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the U.S. Dollar cost
or proceeds, as the case may be. By entering into a forward contract in U.S.
Dollars for the purchase or sale of the amount of foreign currency involved in
an underlying security transaction, the Portfolio is able to protect itself
against a possible loss between trade and settlement date resulting from an
adverse change in the relationship between the U.S. Dollar and such foreign
currency. However, this tends to limit potential gains that might result from a
positive change in such currency relationships. A Portfolio may also hedge its
foreign currency exchange rate risk by engaging in currency financial futures
and options transactions.

When the investment manager believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of the Portfolio's securities denominated in such foreign
currency. In this situation the International Portfolio may, instead, enter into
a forward contract to sell a different foreign currency for a fixed U.S. Dollar
amount when the investment manager believes that the U.S. Dollar value of the
currency to be sold pursuant to the forward contract will fall whenever there is
a decline in the U.S. Dollar value of the currency in which portfolio securities
of the International Portfolio are denominated ("cross-hedge"). The forecasting
of short-term currency market movement is extremely difficult and whether such a
short-term hedging strategy will be successful is highly uncertain.

It is impossible to forecast with precision the market value of portfolio
securities at the expiration of a contract. Accordingly, it may be necessary for
a Portfolio to purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Portfolio is obligated to deliver when a decision
is made to sell the security and make delivery of the foreign currency in
settlement of a forward contract. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the portfolio
security if its market value exceeds the amount of foreign currency the
Portfolio is obligated to deliver.

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The Portfolios will not speculate in foreign currency exchange. A Portfolio will
not enter into such forward contracts or maintain a net exposure in such
contracts where the Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Portfolio's securities or other assets
(a) denominated in that currency or (b), in the case of a "cross-hedge" for the
International Portfolio, denominated in a currency or currencies that the Fund's
investment manager believes will have price movements that closely correlate
with that currency. The Fund's custodian bank segregates cash or liquid
high-grade debt securities in an amount not less than the value of each
Portfolio's total assets committed to forward foreign currency exchange
contracts entered into for the purchase of a foreign currency. If the value of
the securities segregated declines, additional cash or securities are added so
that the segregated amount is not less than the amount of the Portfolio's
commitments with respect to such contracts. The Portfolios do not intend to
enter into such forward contracts if they would have more than 15% of the value
of their total assets committed to such contracts. A Portfolio generally does
not enter into a forward contract with a term longer than one year.

DERIVATIVES. In addition to options, financial futures and foreign currency
transactions, consistent with its objective, each Portfolio may invest in a
broad array of financial instruments and securities in which the value of the
instrument or security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, an interest rate or a currency
("derivatives"). Derivatives are most often used in an effort to manage
investment risk, to increase or decrease exposure to an asset class or benchmark
(as a hedge or to enhance return), or to create an investment position
indirectly (often because it is more efficient or less costly than direct
investment). There is no guarantee that these results can be achieved through
the use of derivatives. The types of derivatives used by each Portfolio and the
techniques employed by the Portfolio's investment manager may change over time
as new derivatives and strategies are developed or regulatory changes occur.

SPECIAL RISK FACTORS--OPTIONS, FUTURES, FOREIGN CURRENCIES AND OTHER
DERIVATIVES. The Statement of Additional Information contains further
information about the characteristics, risks and possible benefits of options,
futures, foreign currency and other derivative transactions. See "Investment
Policies and Techniques" in the Statement of Additional Information. The
principal risks are: (a) possible imperfect correlation between movements in the
prices of options, currencies, futures or other derivatives contracts and
movements in the prices of the securities or currencies hedged, used for cover
or that the derivatives intended to replicate; (b) lack of assurance that a
liquid secondary market will exist for any particular option, futures, foreign
currency or other derivatives contract at any particular time; (c) the need for
additional skills and techniques beyond those required for normal portfolio
management; (d) losses on futures contracts resulting from market movements not
anticipated by the investment manager; (e) the possible need to defer closing
out certain options, futures or other derivative contracts in order to continue
to qualify for beneficial tax treatment afforded regulated investment companies
under the Internal Revenue Code; and (f) the possible non-performance of the
counter-party to the derivative contract.

To the extent a Portfolio engages in when-issued or delayed delivery
transactions, it will generally do so for the purpose of acquiring portfolio
securities consistent with the Portfolio's investment objective and policies. A
Portfolio reserves the right to sell these securities before the settlement date
if deemed advisable. In some instances, the third-party seller of when-issued or
delayed delivery securities may determine prior to the settlement date that it
will be unable to meet its existing transaction commitments without borrowing
securities.

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<PAGE> 37

If advantageous from a yield perspective, a Portfolio may, in that event, agree
to resell its purchase commitment to the third-party seller at the current
market price on the date of sale and concurrently enter into another purchase
commitment for such securities at a later date. As an inducement for a Portfolio
to "roll over" its purchase commitment, the Portfolio may receive a negotiated
fee.

REPURCHASE AGREEMENTS. Each Portfolio may invest in repurchase agreements, under
which it acquires ownership of a security and the broker-dealer or bank agrees
to repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the Portfolio's holding period. The investment
manager will evaluate the creditworthiness of all entities with which the
Portfolio intends to engage in repurchase agreements pursuant to procedures
adopted by the Board of Trustees of the Fund. Maturity of the securities subject
to repurchase may exceed one year. In the event of a bankruptcy or other default
of a seller of a repurchase agreement, the Portfolio might have expenses in
enforcing its rights, and could experience losses, including a decline in the
value of the underlying securities and loss of income. Repurchase agreements
maturing in more than seven days will be considered illiquid for purposes of the
Portfolios' limitations on illiquid securities.

SECTION 4(2) PAPER. Subject to its investment objectives and policies, a
Portfolio may invest in commercial paper issued by major corporations under the
Securities Act of 1933 in reliance on the exemption from registration afforded
by Section 3(a)(3) thereof. Such commercial paper may be issued only to finance
current transactions and must mature in nine months or less. Trading of such
commercial paper is conducted primarily by institutional investors through
investment dealers, and individual investor participation in the commercial
paper market is very limited. A Portfolio also may invest in commercial paper
issued in reliance on the so-called "private placement" exemption from
registration afforded by Section 4(2) of the Securities Act of 1933 ("Section
4(2) paper"). Section 4(2) paper is restricted as to disposition under the
federal securities laws, and generally is sold to institutional investors such
as a Portfolio who agree that they are purchasing the paper for investment and
not with a view to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2) paper normally is resold to other
institutional investors like the Portfolio through or with the assistance of the
issuer or investment dealers who make a market in the Section 4(2) paper, thus
providing liquidity. The Fund's investment managers consider the legally
restricted but readily saleable Section 4(2) paper to be liquid; however,
pursuant to procedures approved by the Board of Trustees of the Fund, if a
particular investment in Section 4(2) paper is not determined to be liquid, that
investment will be included within the limitation of the particular Portfolio on
illiquid securities. The Fund's investment managers monitor the liquidity of
each Portfolio's investments in Section 4(2) paper on a continuing basis.

COLLATERALIZED OBLIGATIONS. Subject to its investment objectives and policies, a
Portfolio may purchase collateralized obligations, including interest only
("IO") and principal only ("PO") securities. A collateralized obligation is a
debt security issued by a corporation, trust or custodian, or by a U.S.
Government agency or instrumentality, that is collateralized by a portfolio or
pool of mortgages, mortgage-backed securities, U.S. Government securities or
other assets. The issuer's obligation to make interest and principal payments is
secured by the underlying pool or portfolio of securities. Collateralized
obligations issued or guaranteed by a U.S. Government agency or instrumentality,
such as the Federal Home Loan Mortgage Corporation, are considered U.S.
Government securities for purposes of this prospectus. Privately-issued
collateralized obligations collateralized by a portfolio of U.S. Government
securities are not direct obligations of the U.S. Government or any of its
agencies or instrumentalities and are not considered U.S. Government securities
for purposes of this prospectus. A variety of types of collateralized
obligations are available currently and others may become available in the
future.

Since the collateralized obligations may be issued in classes with varying
maturities and interest rates, the investor may obtain greater predictability of
maturity than with direct investments in mortgage-backed securities. Classes
with shorter maturities may have lower volatility and lower yield while those
with longer maturities may have higher volatility and higher yield. This
provides the investor with greater control over the characteristics of the
investment in a changing interest rate environment. With respect to interest
only and

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principal only securities, an investor has the option to select from a pool of
underlying collateral the portion of the cash flows that most closely
corresponds to the investor's forecast of interest rate movements. These
instruments tend to be highly sensitive to prepayment rates on the underlying
collateral and thus place a premium on accurate prepayment projections by the
investor.

A Portfolio, other than the Money Market Portfolio, may invest in collateralized
obligations whose yield floats inversely against a specified index rate. These
"inverse floaters" are more volatile than conventional fixed or floating rate
collateralized obligations and the yield thereon, as well as the value thereof,
will fluctuate in inverse proportion to changes in the index upon which rate
adjustments are based. As a result, the yield on an inverse floater will
generally increase when market yields (as reflected by the index) decrease and
decrease when market yields increase. The extent of the volatility of inverse
floaters depends on the extent of anticipated changes in market rates of
interest. Generally, inverse floaters provide for interest rate adjustments
based upon a multiple of the specified interest index, which further increases
their volatility. The degree of additional volatility will be directly
proportional to the size of the multiple used in determining interest rate
adjustments.

Additional information concerning collateralized obligations is contained in the
Statement of Additional Information under "Investment Policies and
Techniques--Collateralized Obligations."

NET ASSET VALUE

ALL PORTFOLIOS (OTHER THAN THE MONEY MARKET PORTFOLIO). The net asset value per
share is determined by calculating the total value of a Portfolio's assets,
deducting total liabilities, and dividing the result by the number of shares
outstanding of such Portfolio. Portfolio securities traded on a domestic
securities exchange or securities listed on the NASDAQ National Market are
valued at the last sale price on the exchange or market where primarily traded
or listed or, if there is no recent sale price available, at the last current
bid quotation. Portfolio securities that are primarily traded on foreign
securities exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges where primarily traded. A security
that is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for that security by the Board
of Trustees or its delegates. Securities not so traded or listed are valued at
the last current bid quotation if market quotations are available. Fixed income
securities are valued by using market quotations, or independent pricing
services that use prices provided by market makers or estimates of market values
obtained from yield data relating to instruments or securities with similar
characteristics. Equity options are valued at the last sale price unless the bid
price is higher or the asked price is lower, in which event such bid or asked
price is used. Exchange traded fixed income options are valued at the last sale
price unless there is no sale price, in which event current prices provided by
market makers are used. Over-the-counter traded fixed income options are valued
based upon current prices provided by market makers. Financial futures and
options thereon are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. Other securities and assets
are valued at fair value as determined in good faith by the Board of Trustees.
Because of the need to obtain prices as of the close of trading on various
exchanges throughout the world; the calculation of net asset value does not
necessarily take place contemporaneously with the determination of the prices of
a Portfolio's foreign securities, which may be made prior to the determination
of net asset value. For purposes of determining a Portfolio's net asset value,
any assets and liabilities initially expressed in foreign currency values will
be converted into U.S. Dollar values at the mean between the bid and offered
quotations of such currencies against U.S. Dollars as last quoted by a
recognized dealer. If an event were to occur, after the value of a security was
so established but before the net asset value per share was determined, which
was likely to materially change the net asset value, then that security would be
valued using fair value considerations by the Board of Trustees or its
delegates. On each day the New York Stock Exchange ("Exchange") is open for
trading, the net asset value is determined as of the earlier of 3:00 p.m.
Central time or the close of the Exchange, except that the net asset value will
not be computed on a day in which no order to purchase shares was received or no
shares were tendered for redemption.

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<PAGE> 39

MONEY MARKET PORTFOLIO. The net asset value per share of the Money Market
Portfolio is determined at 11:00 a.m. and as of the earlier of 3:00 p.m. Central
time or the close of the Exchange on each day the Exchange is open for trading,
except that the net asset value will not be computed on a day in which no orders
to purchase shares were received or no shares were tendered for redemption. The
net asset value per share is determined by dividing the total assets of the
Portfolio minus its liabilities by the total number of its shares outstanding.
The net asset value per share of the Money Market Portfolio is ordinarily $1.00
calculated at amortized cost in accordance with Rule 2a-7 under the 1940 Act.
While this rule provides certainty in valuation, it may result in periods during
which value, as determined by amortized cost, is higher or lower than the price
the Portfolio would have received if all its investments were sold. Under the
direction of the Board of Trustees, certain procedures have been adopted to
monitor and stabilize the price per share for the Portfolio. Calculations are
made to compare the value of its investments valued at amortized cost with
market-based values. Market-based values will be obtained by using actual
quotations provided by market makers, estimates of market value, or values
obtained from yield data relating to classes of money market instruments or
government securities published by reputable sources at the mean between the bid
and asked prices for the instruments. In the event that a deviation of 1/2 of 1%
or more exists between the Portfolio's $1.00 per share net asset value,
calculated at amortized cost, and the net asset value calculated by reference to
market-based quotations, or if there is any other deviation that the Board of
Trustees believes would result in a material dilution to shareholders or
purchasers, the Board of Trustees will promptly consider what action, if any,
should be initiated. In order to value its investments at amortized cost, the
Money Market Portfolio purchases only securities with a maturity of one year or
less and maintains a dollar-weighted average portfolio maturity of 90 days or
less. In addition, the Money Market Portfolio limits its portfolio investments
to securities that meet the quality and diversification requirements of Rule
2a-7.

PURCHASE AND REDEMPTION

The separate accounts of the Participating Insurance Companies place orders to
purchase and redeem shares of each Portfolio based on, among other things, the
amount of premium payments to be invested and surrender and transfer requests to
be effected on that day pursuant to VLI and VA contracts. The shares of all
Portfolios are each purchased and redeemed at the net asset value of each
Portfolio's shares determined that same day or, in the case of an order not
resulting automatically from VLI and VA contract transactions, next determined
after an order in proper form is received. An order is considered to be in
proper form if it is communicated by telephone or wire by an authorized employee
of the Participating Life Insurance Company.

From time to time, the Fund may temporarily suspend the offering of shares of
one or more of its Portfolios. During the period of such suspension,
shareholders of such Portfolio are normally permitted to continue to purchase
additional shares and to have dividends reinvested.

The Fund seeks to have its Money Market Portfolio as fully invested as possible
at all times in order to achieve maximum income. Since the Money Market
Portfolio will be investing in instruments which normally require immediate
payment in Federal funds (monies credited to a bank's account with its regional
Federal Reserve Bank), the Fund has adopted certain procedures for the
convenience of its shareholders and to ensure that the Money Market Portfolio
receives investable funds.

No fee is charged the shareholders when they purchase or redeem Portfolio
shares.

DIVIDENDS AND TAXES

DIVIDENDS FOR MONEY MARKET PORTFOLIO. The Money Market Portfolio's net
investment income is declared as a dividend daily. Shareholders will receive
dividends monthly in additional shares. If a shareholder withdraws its entire
account, all dividends accrued to the time of withdrawal will be paid at that
time.

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DIVIDENDS FOR ALL PORTFOLIOS EXCEPT MONEY MARKET PORTFOLIO. The Fund normally
follows the practice of declaring and distributing substantially all the net
investment income and any net short-term and long-term capital gains of these
Portfolios at least annually.

TAXES. Under the current Internal Revenue Code ("Code"), Participating Insurance
Companies are taxed as life insurance companies and the operations of their
separate accounts are taxed as part of their total operations. Under current
interpretations of existing federal income tax law, investment income and
capital gains of separate accounts are not subject to federal income tax to the
extent applied to increase the values of VLI or VA contracts. Tax consequences
to VLI or VA contract holders are described in the separate prospectuses issued
by the Participating Insurance Companies.

Each Portfolio intends to continue to qualify (or, for each of the Investment
Grade Bond, Value, Small Cap Value, Value+Growth, Horizon 20+, Horizon 10+ and
Horizon 5 Portfolios, intend to qualify) as a regulated investment company under
subchapter M of the Code. As a result, with respect to any fiscal year in which
a Portfolio distributes all its net investment income and net realized capital
gains, that Portfolio will not be subject to federal income tax. Subchapter M
includes other requirements relating to the diversification of investments.
Subchapter M's diversification requirements are in addition to diversification
requirements under Section 817(h) of the Code and the 1940 Act. Each applicable
law's diversification requirement could require the sale of assets of a
Portfolio, which could have an adverse impact on the net asset value of such
Portfolio.

The preceding is a brief summary of certain of the relevant tax considerations.
The Statement of Additional Information includes a more detailed discussion.
This discussion is not intended, even as supplemented by the Statement of
Additional Information, as a complete explanation or a substitute for careful
tax planning and consultation with individual tax advisers.

CAPITAL STRUCTURE AND GENERAL INFORMATION

The Fund was organized as a business trust under the laws of Massachusetts on
January 22, 1987. The Fund may issue an unlimited number of shares of beneficial
interest all having no par value. Since the Fund offers multiple Portfolios, it
is known as a "series company." Shares of a Portfolio have equal noncumulative
voting rights and equal rights with respect to dividends, assets and liquidation
of such Portfolio. Shares are fully paid and nonassessable when issued, and have
no preemptive or conversion rights. The Fund is not required to hold annual
shareholders' meetings and does not intend to do so. However, it will hold
special meetings as required or deemed desirable for such purposes as electing
trustees, changing fundamental policies or approving an investment advisory
contract. If shares of more than one Portfolio are outstanding, shareholders
will vote by Portfolio and not in the aggregate except when voting in the
aggregate is required under the 1940 Act, such as for the election of trustees.
The Board of Trustees may authorize the issuance of additional Portfolios if
deemed desirable, each with its own investment objective, policies and
restrictions.

On November 3, 1989, KILICO Money Market Separate Account, KILICO Total Return
Separate Account, KILICO Income Separate Account and KILICO Equity Separate
Account (collectively, the Accounts), which were separate accounts organized as
open-end management investment companies, were restructured into one continuing
separate account (KILICO Variable Annuity Separate Account) in unit investment
trust form with subaccounts investing in corresponding Portfolios of the Fund.
An additional subaccount also was created to invest in the Fund's Government
Securities Portfolio. The restructuring and combining of the Accounts is
referred to as the Reorganization. In connection with the Reorganization,
approximately $550,000,000 in assets was added to the Fund (which at that time
consisted of approximately $6,000,000 in assets). Because the assets added to
the Fund as a result of the Reorganization were significantly greater than the
existing assets of the Fund, the per share financial highlights of the Money
Market, Total Return, High Yield and Growth Portfolios in this Prospectus
reflect the Accounts as the continuing entities.

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<PAGE> 41

Information about the Portfolios' investment performance is contained in the
Fund's 1995 Annual Report to Shareholders, which may be obtained without charge
from the Fund.

Shareholder inquiries should be made by writing the Fund at the address shown on
the front cover of this Prospectus.

INVESTMENT MANAGERS

INVESTMENT MANAGERS. Zurich Kemper Investments, Inc. (formerly named Kemper
Financial Services, Inc.) ("ZKI"), 120 South LaSalle Street, Chicago, Illinois
60603, is the investment manager of each Portfolio other than the Value and
Small Cap Value Portfolios and provides each with continuous professional
investment supervision. ZKI is one of the largest investment managers in the
country and has been engaged in the management of investment funds for more than
forty-six years. ZKI and its affiliates, including Dreman Value Advisors, Inc.,
provide investment advice and manage investment portfolios for the Kemper Funds,
affiliated insurance companies and other corporate, pension, profit-sharing and
individual accounts representing approximately $79 billion under management. ZKI
and its affiliates act as investment adviser for 29 open-end and seven
closed-end investment companies, with 76 separate investment portfolios
representing more than 3 million shareholder accounts. ZKI is an indirect
subsidiary of Zurich Insurance Company, an internationally recognized company
providing services in life and non-life insurance, reinsurance and asset
management.

Dreman Value Advisors, Inc. ("DVA"), 10 Exchange Place, 20th Floor, Jersey City,
New Jersey 07302, a wholly owned subsidiary of ZKI, is the investment manager of
the Value and Small Cap Value Portfolios and provides each with continuous
professional investment supervision. DVA is also the sub-adviser for the
Value+Growth, Horizon 20+, Horizon 10+ and Horizon 5 Portfolios. Under the terms
of its Sub-Advisory Agreement with ZKI, DVA will manage the value portion of
each of these Portfolios and will provide such other investment advice, research
and assistance as ZKI may, from time to time, reasonably request. DVA, which was
formed in October 1994, has served as the investment manager for mutual funds
and certain institutional accounts since August, 1995, when it acquired
substantially all the assets of Dreman Value Management, L.P. ("DVMLP"), an
investment manager that had advised mutual funds since 1988. DVA has
approximately $2 billion under management.

Responsibility for overall management of the Fund rests with the Board of
Trustees and officers of the Fund. Professional investment supervision is
provided by ZKI (DVA for the Value and Small Cap Value Portfolios). The
investment management agreement with ZKI provides that ZKI act as investment
adviser for each Portfolio other than the Value and Small Cap Value Portfolios,
manage its investments and provide it with various services and facilities. For
its services, ZKI is paid a management fee based upon the average daily net
assets of such Portfolios, as follows: Money Market (.50%), Total Return (.55%),
High Yield (.60%), Growth (.60%), Government Securities (.55%), International
(.75%), Small Cap Growth (.65%), Investment Grade Bond (.60%), Value+Growth
(.75%), Horizon 20+ (.60%), Horizon 10+ (.60%) and Horizon 5 (.60%). DVA serves
as the investment manager for the Value and Small Cap Value Portfolios and is
paid a management fee at an annual rate of .75% of the average daily net assets
of these Portfolios. DVA also serves as sub-adviser for the Value+Growth and
Horizon Portfolios. ZKI pays DVA for its services as sub-adviser for the
Value+Growth Portfolio a sub-advisory fee, payable monthly, at an annual rate of
.25% of the average daily net assets of that Portfolio. ZKI also pays DVA a
sub-advisory fee, payable monthly, at an annual rate of .25% of the portion of
the average daily net assets of each Horizon Portfolio allocated by ZKI to DVA
for management. ZKI may from time to time use the services of Zurich Investment
Management Limited ("ZIML"), 1 Fleet Place, London EC4M 7RQ, a wholly owned
subsidiary of ZKI, with respect to foreign securities investments of the
Portfolios including analysis, research, execution and trading services.

Frank J. Rachwalski, Jr. is the portfolio manager of the Money Market Portfolio.
He has served in this capacity since the Portfolio commenced operations in 1982.
Mr. Rachwalski joined ZKI in January 1973 and is

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currently a Senior Vice President of ZKI and a Vice President of the Fund. He
received a B.B.A. and an M.B.A. from Loyola University, Chicago, Illinois.

Dennis H. Ferro has been the portfolio manager for the International Portfolio
since March 1994 when he joined ZKI. He is an Executive Vice President of ZKI,
the Managing Director--Equities, KIML and a Vice President of the Fund. Mr.
Ferro was President and Chief Investment Officer of an international investment
advisory firm prior to joining ZKI. He received a B.A. in Political Science from
Villanova University, Villanova, Pennsylvania and an MBA in Finance from St.
Johns University, Jamaica, New York. Mr. Ferro is a Chartered Financial Analyst.

Michael A. McNamara (since 1990) and Harry E. Resis, Jr. (since 1993) are the
co-portfolios managers of the High Yield Portfolio. Mr. McNamara joined ZKI in
February 1972 and is currently a Senior Vice President of ZKI and a Vice
President of the Fund. He received a B.S. in Business Administration from the
University of Missouri, St. Louis, Missouri, and an M.B.A. in Finance from
Loyola University, Chicago, Illinois. Mr. Resis joined ZKI in 1988 and is
currently a First Vice President of ZKI and a Vice President of the Fund. He
received a B.A. in Finance from Michigan State University, Lansing, Michigan.
Mr. Resis holds a number of NYSE and NASD licenses.

Steven H. Reynolds and the ZKI Equity Investment Committee have managed the
Growth Portfolio since September, 1995. Mr. Reynolds joined ZKI in September,
1995 as an executive vice president and Chief Investment Officer--Equities and
he is a Vice President of the Fund. Immediately prior to joining ZKI, he was a
senior vice president and equity portfolio manager of an investment advisory
firm; and prior thereto, he was a senior vice president, managing director and
head of active equities at a national bank. Mr. Reynolds received a bachelor's
degree from Johns Hopkins University, Baltimore, Maryland and an M.B.A. in
finance from the University of Virginia, Charlottesville, Virginia.

J. Patrick Beimford, Jr. is a co-portfolio manager of the Government Securities
Portfolio and has served as portfolio manager or co-portfolio manager since
October, 1995. Mr. Beimford joined ZKI in April, 1976 and is currently an
executive vice president and Chief Investment Officer--Fixed Income Investments
of ZKI and a Vice President of the Fund. He received a B.S.I.M. in Business from
Purdue University, West Lafayette, Indiana, and an M.B.A. in Finance from the
University of Chicago, Chicago, Illinois. Mr. Beimford is a Chartered Financial
Analyst. Richard L. Vandenberg has been a co-portfolio manager of the Government
Securities Portfolio since March, 1996. Mr. Vandenberg joined ZKI in March, 1996
and is a Vice President of the Fund. Immediately prior to joining ZKI, he was a
senior vice president and portfolio manager of an investment management firm. He
received a B.B.A. and M.B.A., both in Finance, Investments and Banking, from the
University of Wisconsin, Madison, Wisconsin.

Gary A. Langbaum has been the portfolio manager of the Total Return Portfolio
since February 1995 and the portfolio manager of the Small Cap Growth Portfolio
since January, 1996. He is assisted by investment personnel who specialize in
certain areas. Mr. Langbaum joined ZKI in 1988 and is an executive vice
president of ZKI. He received a B.A. in Finance from the University of Maryland,
College Park, Maryland.

David Dreman has been the portfolio manager of the Value Portfolio since its
inception in May, 1996 and has been a portfolio co-manager primarily responsible
for the management of the value portion of the Value+Growth Portfolio since its
inception in May, 1996. He is currently the Chairman and a Director of DVA and
had been a principal of DVMLP. Mr. Dreman is a pioneer of the philosophy of
contrarian investing (buying what is out of favor) and a leading proponent of
the low P/E investment style. He is a columnist for FORBES and the author of
several books on the value style of investing. He received a Bachelor of
Commerce from the University of Manitoba, Winnipeg, Manitoba, Canada.

Michael Berry has been the portfolio manager of the Small Cap Value Portfolio
since its inception in May, 1996. He is currently a Managing Director of DVA and
had been associated with DVMLP since April, 1994. Prior thereto, he was a
Professor at James Madison University, Harrisonburg, Virginia and at the
University of

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Virginia, Charlottesville, Virginia. He received a Bachelors in Mathematics from
the University of Waterloo, an M.B.A. in Marketing from the University of
Connecticut and a Ph.D. in Finance from Arizona State University.

Robert Cessine has been the portfolio manager of the Investment Grade Bond
Portfolio since its inception in May, 1996. Mr. Cessine joined ZKI in 1993 and
is a Senior Vice President of ZKI and director of investment grade corporate and
sovereign bond research. Before joining ZKI in 1993, Mr. Cessine was a senior
corporate bond analyst and chairman of the bond selection committee of an
investment management company. He received a B.S. in Economics from the
University of Wisconsin, Madison, Wisconsin, an M.S. in Agricultural and
Resource Economics from the University of Maryland, Baltimore/College Park,
Maryland and an M.S. in Finance from the University of Wisconsin, Madison,
Wisconsin. Mr. Cessine is a Chartered Financial Analyst.

Thomas M. Regner has been the portfolio manager of the Horizon 20+, Horizon 10+
and Horizon 5 Portfolios since their inception in May, 1996. Mr. Regner is
senior vice president and equity strategist of ZKI. He is responsible for
managing the asset mix of each of these Portfolios. He is assisted in managing
the various asset classes by investment personnel who specialize in certain
areas. For the value portion of the U.S. equities portion of each of these
Portfolios, asset management is performed by DVA as sub-adviser. Mr. Regner
joined ZKI in December, 1994. Immediately prior to joining ZKI he was a
financial adviser for a major investment manager and research company. Prior
thereto, he was the chief investment officer and senior portfolio manager for a
professional association. Mr. Regner received his B.A. and M.S. from the
University of Wisconsin, Madison, Wisconsin. He is a Chartered Financial
Analyst.

Daniel J. Bukowski has been a portfolio co-manager of the Value+Growth Portfolio
since its inception in May, 1996. Mr. Bukowski joined ZKI in 1989 and is a
senior vice president and Director of Quantitative Research at ZKI and a Vice
President of the Fund. Mr. Bukowski received a B.A. in Statistics and an M.B.A.
in Finance from the University of Chicago, Chicago, Illinois. Steven H. Reynolds
has been a portfolio co-manager of the Value+Growth Portfolio since its
inception in May 1996. See above for biographical information about Mr.
Reynolds. David N. Dreman is also a portfolio co-manager of the Value+Growth
Portfolio. See above for more information on management of that Portfolio and
Mr. Dreman.

ZKI has an Equity Investment Committee that determines overall investment
strategy for equity portfolios managed by ZKI. The Equity Investment Committee
is currently comprised of the following members: Daniel J. Bukowski, Tracy
McCormick Chester, James H. Coxon, Richard A. Goers, Frank D. Korth, Gary A.
Langbaum, Maura J. Murrihy, James R. Neel, Thomas M. Regner, Steven H. Reynolds
and Stephen B. Timbers. The portfolio managers work together as a team with the
Equity Investment Committee and various equity analysts and equity traders to
manage each Portfolio's equity investments. Equity analysts--through research,
analysis and evaluation--work to develop investment ideas appropriate for these
Portfolios. These ideas are studied and debated by the Equity Investment
Committee and, if approved, are added to a list of eligible investments. The
portfolio managers use the list of eligible investments to help them structure
each Portfolio's investments in a manner consistent with each Portfolio's
objective. The ZKI International Equity Investments area, directed by Dennis H.
Ferro, provides research and analysis regarding foreign investments to the
portfolio managers. After investment decisions are made, equity traders execute
the portfolio manager's instructions through various broker-dealer firms.

ZKI also has a Fixed Income Investment Committee that determines overall
investment strategy for fixed income portfolios managed by ZKI. The Fixed Income
Committee is currently comprised of the following members: J. Patrick Beimford,
Jr., Robert S. Cessine, Frank E. Collecchia, George Klein, Michael A. McNamara,
Christopher J. Mier, Frank J. Rachwalski, Jr., Harry E. Resis, Jr., Robert H.
Schumacher, John E. Silvia, Stephen B. Timbers, Jonathan W. Trutter, and
Christopher T. Vincent. The portfolio managers work together as a team with the
Fixed Income Committee and various fixed income analysts and traders to manage
the Portfolios' fixed income investments. Analysts provide market, economic and
financial research and analysis that is used by the Fixed Income Committee to
establish broad parameters for these Portfolios, including duration and cash
levels. In addition, credit research by analysts is used by portfolio managers
in selecting

37
<PAGE> 44

securities appropriate for each Portfolio. After investment decisions are made,
fixed income traders execute the portfolio manager's instructions through
various broker-dealer firms.

CUSTODIAN AND TRANSFER AGENT. Investors Fiduciary Trust Company ("IFTC"), 127
West 10th Street, Kansas City, Missouri 64105, as custodian, and State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, as
sub-custodian, have custody of all securities and cash of the Fund maintained in
the United States. The Chase Manhattan Bank, N.A., Chase MetroTech Center,
Brooklyn, New York 11245, as custodian, has custody of all securities and cash
held outside the United States. They attend to the collection of principal and
income, and payment for and collection of proceeds of securities bought and sold
by the Fund. IFTC is also the Fund's transfer agent and dividend-paying agent.

PORTFOLIO TRANSACTIONS. ZKI places all orders for purchases and sales of a
Portfolio's securities, except that DVA places all orders for the Value and
Small Cap Value Portfolios and for the value portion of the Value+Growth and
Horizon Portfolios. Subject to seeking best execution of orders, ZKI or DVA may
consider sales of shares of the Fund and other funds managed by ZKI or DVA or
variable life insurance and variable annuity contracts funded by the Fund as a
factor in selecting broker-dealers. See "Portfolio Transactions" in the
Statement of Additional Information.

Each Portfolio pays its respective fees and expenses of independent auditors,
counsel, custodian, the cost of reports and notices to owners of VLI and VA
contracts, brokerage commissions or transaction costs, taxes and registration
fees.

DISTRIBUTOR

Kemper Distributors, Inc. ("KDI"), 120 South LaSalle Street, Chicago, Illinois
60603 an affiliate of ZKI and DVA, serves as distributor and principal
underwriter for the Fund pursuant to an underwriting agreement. KDI bears all
its expenses of providing services pursuant to the agreement. KDI provides for
the preparation of advertising or sales literature, and bears the cost of
printing and mailing prospectuses to persons other than shareholders. KDI bears
the cost of qualifying and maintaining the qualification of Fund shares for sale
under the securities laws of Massachusetts and the Fund bears the expense of
registering its shares with the Securities and Exchange Commission. KDI will pay
all fees and expenses in connection with its qualification and registration as a
broker or dealer under Federal and state laws, a portion of the toll free
telephone service and of computer terminals, and of any activity which is
primarily intended to result in the sale of shares issued by the Fund, unless a
plan pursuant to Rule 12b-1 under the 1940 Act ("12b-1 Plan") is in effect that
provides that the Fund shall bear some or all of such expenses.

KDI currently offers shares of each Portfolio of the Fund continuously to the
separate accounts of Participating Insurance Companies where permitted by
applicable law. The underwriting agreement provides that KDI accepts orders for
shares at net asset value, as no sales commission or load is charged. KDI has
made no firm commitment to acquire shares of the Fund.

NOTE: Although the Fund does not currently have a 12b-1 Plan and shareholder
approval would be required in order to adopt one, the underwriting agreement
provides that the Fund will also pay those fees and expenses permitted to be
paid or assumed by the Fund pursuant to a 12b-1 Plan, if any, adopted by the
Fund, notwithstanding any other provision to the contrary in the underwriting
agreement, and the Fund or a third party will pay those fees and expenses not
specifically allocated to KDI in the underwriting agreement.

38
<PAGE> 45

APPENDIX-- HIGH YIELD PORTFOLIO
PORTFOLIO COMPOSITION

The table below reflects the composition by quality rating of the investment
portfolio of the High Yield Portfolio. Percentages for the Portfolio reflect the
net asset weighted average of the percentage for each category on the last day
of each month in the 12 month period ended December 31, 1995. The table reflects
the percentage of net assets represented by fixed income securities rated by
Moody's or S&P, by non-rated fixed income securities and by other assets. The
percentage shown reflects the higher of the Moody's or S&P rating. U.S.
Government securities, whether or not rated, are reflected as Aaa and AAA
(highest quality). Cash equivalents include money market instruments, repurchase
agreements, net payables and receivables, U.S. Treasuries with a maturity of one
year or less and cash. Other assets include options, financial futures contracts
and equity securities. As noted under "Investment Objectives, Policies and Risk
Factors," the High Yield Portfolio invests in high yielding, fixed income
securities without relying upon published ratings. The allocations in the table
are not necessarily representative of the composition of the Portfolio at other
times. Portfolio composition will change over time.

END OF THE MONTH COMPOSITION OF PORTFOLIO BY QUALITY AS A PERCENTAGE OF
NET ASSETS (JANUARY 1995--DECEMBER 1995)

<TABLE>
<CAPTION>
HIGH
MOODY'S/S&P RATING YIELD GENERAL DESCRIPTION
OR OTHER CATEGORY PORTFOLIO OF BOND QUALITY
- ------------------------------------- --------- -------------------------------------------------
<S> <C> <C>
Cash Equivalents..................... 7%
Aaa/AAA.............................. 2 Highest quality
Aa/AA................................ 0 High quality
A/A.................................. 0 Upper medium grade
Baa/BBB.............................. 0 Medium grade
Ba/BB................................ 23 Some speculative elements
B/B.................................. 59 Speculative
Caa/CCC.............................. 6 More speculative
Ca/CC, C/C........................... 0 Very speculative
D.................................... 0 In default
Non-rated, Not in Default............ 1
Non-rated, In Default................ 0
Other Assets......................... 2
Net Assets........................... 100%
</TABLE>

The description of each bond quality category set forth in the table above is
intended to be a general guide and not a definitive statement as to how Moody's
and S&P define such rating category. A more complete description of the rating
categories is set forth under "Appendix--Ratings of Investments" in the
Statement of Additional Information. The ratings of Moody's and S&P represent
their opinions as to the quality of the securities that they undertake to rate.
It should be emphasized, however, that ratings are relative and subjective and
are not absolute standards of quality.

39
<PAGE> 46
Prospectus, May 1, 1996

Kemper
Investors
Fund

[LOGO]

Kemper Investors Fund
222 South Riverside Plaza
Chicago, IL 60606-5808
1-800-778-1482

Shares of Kemper Investors Fund are available exclusively as pooled funding
vehicles for the variable life insurance and variable annuity contracts of
Participating Insurance Companies.

This prospectus must be preceded or accompanied by a prospectus for the
variable life insurance or variable annuity contract.

ANN-1A 5/99
<PAGE> 47

KEMPER INVESTORS FUND

CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART B
OF FORM N-1A AND STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
ITEM NUMBER LOCATION IN STATEMENT OF
OF FORM N-1A ADDITIONAL INFORMATION
---------------------------------------------
<S> <C> <C>
10. Cover Page............................... Cover Page
11. Table of Contents........................ Table of Contents
12. General Information and History.......... Inapplicable
13. Investment Objectives and Policies....... Investment Restrictions; Investment Policies
and Techniques; Appendix--Ratings of
Investments
14. Management of the Fund................... Investment Managers and Distributor;
Officers and Trustees
15. Control Persons and Principal Holders of
Securities............................... Officers and Trustees
16. Investment Advisory and Other Services... Investment Managers and Distributor
17. Brokerage Allocation and Other
Practices................................ Portfolio Transactions; Investment Managers
and Distributor
18. Capital Stock and Other Securities....... Dividends and Taxes; Shareholder Rights
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Purchase and Redemption of Shares
20. Tax Status............................... Dividends and Taxes
21. Underwriters............................. Investment Managers and Distributor
22. Calculation of Performance Data.......... Inapplicable
23. Financial Statements..................... Financial Statements; Report of Independent
Auditors; Statement of Net Assets; Supplement
to SAI
</TABLE>

<PAGE> 48

KEMPER INVESTORS FUND

SUPPLEMENT TO STATEMENT OF

ADDITIONAL INFORMATION

DATED MAY 1, 1996

Financial Statements

The financial statements (unaudited) appearing in the Fund's Semiannual Report
to Shareholders for the period ended June 30, 1996 are incorporated into the
Statement of Additional Information by reference. The Fund's Semiannual Report
accompanies the Statement of Additional Information. All adjustments necessary
for a fair statement of the results of operations for the period covered by such
report are included. All such adjustments are of a normal, recurring nature.

October 1, 1996

KINF-

<PAGE> 49

STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996

KEMPER INVESTORS FUND
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603
1-800-621-1048

This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the prospectus of Kemper Investors Fund (the "Fund") dated
May 1, 1996. The prospectus may be obtained without charge from the Fund.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Restrictions..................................... B-1
Investment Policies and Techniques.......................... B-5
Portfolio Transactions...................................... B-12
Investment Managers and Distributor......................... B-14
Experts..................................................... B-16
Purchase and Redemption of Shares........................... B-16
Officers and Trustees....................................... B-16
Dividends and Taxes......................................... B-19
Shareholder Rights.......................................... B-19
Report of Independent Auditors (April 22, 1996)............. B-21
Statement of Net Assets (April 22, 1996).................... B-22
Appendix--Ratings of Investments............................ B-23
</TABLE>

The financial statements appearing in the Fund's Annual Report for the fiscal
year ended December 31, 1995 are incorporated herein by reference. Such Report
accompanies this Statement of Additional Information.

ANN-13 5/96 (LOGO)printed on recycled paper
<PAGE> 50

INVESTMENT RESTRICTIONS

The Fund has adopted for each Portfolio certain fundamental investment
restrictions which, together with the investment objective and policies of each
Portfolio, cannot be changed for a Portfolio without approval by a majority of
the outstanding voting shares of that Portfolio. As defined in the Investment
Company Act of 1940 ("1940 Act"), this means the lesser of the vote of (a) 67%
of the shares of a Portfolio present at a meeting where more than 50% of the
outstanding shares are present in person or by proxy or (b) more than 50% of the
outstanding shares of a Portfolio. In addition to the fundamental investment
restrictions, each Portfolio has certain non-fundamental investment
restrictions, which can be changed by the Board of Trustees without shareholder
approval.

The following fundamental investment restrictions apply to each of the Money
Market, Total Return, High Yield, Growth and Government Securities Portfolios
except as indicated to the contrary. The Portfolio may not:

(1) Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States Government or its agencies or
instrumentalities) if, as a result, more than five percent (5%) of the
Portfolio's total assets would be invested in securities of that issuer.
For the High Yield Portfolio only, the restriction is as follows: "With
respect to 75% of the Portfolio's total assets, purchase the securities of
any issuer (other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the Portfolio's total assets would be invested in the
securities of that issuer, or (b) the Portfolio would hold more than 10% of
the outstanding voting securities of that issuer."

(2) Except for the High Yield Portfolio, purchase more than ten percent
(10%) of any class of securities of any issuer. All debt securities and all
preferred stocks are each considered as one class.

(3) For the Money Market Portfolio only, enter into repurchase agreements
if, as a result thereof, more than ten percent (10%) of the Portfolio's
total assets valued at the time of the transaction would be subject to
repurchase agreements maturing in more than seven (7) days.

(4) Make loans to others (except the purchase of debt obligations or
repurchase agreements or by lending its Portfolio securities) in accordance
with its objective and policies.

(5) Borrow money except from a bank as a temporary measure for
extraordinary or emergency purposes and then only in an amount up to
one-third ( 1/3) of the value of its total assets, in order to meet
redemption requests without immediately selling any portfolio securities
(any such borrowings under this section will not be collateralized). If,
for any reason, the current value of the Portfolio's total assets falls
below an amount equal to three (3) times the amount of its indebtedness
from money borrowed, the Portfolio will reduce, within three (3) business
days, its indebtedness to the extent necessary. The Portfolio will not
borrow for leverage purposes. The Portfolio will not purchase any
investments while borrowings are outstanding.

(6) Make short sales of securities or purchase any securities on margin
except to obtain such short-term credits as may be necessary for the
clearance of transactions; however, the Total Return, High Yield, Growth
and Government Securities Portfolios may make margin deposits in connection
with financial futures and options transactions.

(7) Concentrate more than 25% of a Portfolio's net assets in any one
industry; provided, however, that the Money Market Portfolio intends, under
normal conditions, to invest more than 25% of its net assets in instruments
issued by banks in accordance with its investment objective and policies.
There is no limitation in respect to investments in obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities.

B-1
<PAGE> 51

(8) For the Money Market Portfolio only, invest more than five percent (5%)
of the Portfolio's total assets in securities restricted as to disposition
under the Federal securities laws.

(9) Invest in commodities or commodity futures contracts, although it may
buy or sell financial futures contracts and options on such contracts; or
in real estate, although it may invest in securities which are secured by
real estate and securities of issuers which invest or deal in real estate;
provided that the Total Return, High Yield and Growth Portfolios may
purchase foreign currency on a spot basis (in cash).

(10) Purchase securities of other investment companies, except as permitted
under the 1940 Act including in connection with a merger, consolidation,
reorganization or acquisition of assets.

(11) Underwrite securities issued by others except to the extent the Fund
may be deemed to be an underwriter, under the Federal securities laws, in
connection with the disposition of portfolio securities.

(12) Issue senior securities except as permitted under the 1940 Act.

(13) For the Money Market Portfolio only, write, purchase or sell puts,
calls or combinations thereof.

(14) For the Total Return, High Yield and Growth Portfolios only, engage in
put or call option transactions; except it may write (sell) put or call
options on up to 25% of its net assets and may purchase put and call
options if no more than 5% of its net assets would be invested in premiums
on put and call options, combinations thereof or similar options; and it
may buy and sell options on financial futures contracts.

The following non-fundamental investment restrictions apply to each of the Money
Market, Total Return, High Yield, Growth and Government Securities Portfolios
except as indicated to the contrary. The Portfolio may not:

(1) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser own
beneficially more than .50% of the securities of such issuer and together
own more than 5% of the securities of such issuer.

(2) Except for the Money Market Portfolio, invest more than 15% of its net
assets in illiquid securities.

(3) For the Money Market Portfolio only, invest more than 10% of its net
assets in illiquid securities.

(4) Invest for the purpose of exercising control or management of another
issuer.

(5) Invest in oil, gas or other mineral exploration or developmental
programs, although it may invest in the securities of issuers which invest
in or sponsor such programs.

The following investment restrictions apply to the International Portfolio. The
International Portfolio may not:

(1) Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States or any foreign government or their
agencies or instrumentalities) if, as a result, more than 5% of the
Portfolio's total assets would be invested in securities of that issuer.
With respect to 75% of its assets, the Portfolio will limit its investments
in the securities of any one foreign government issuer to 5% of the
Portfolio's total assets.

(2) Purchase more than 10% of any class of securities of any issuer except
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities. All debt securities are considered as one
class and all preferred stocks are considered as one class.

(3) Lend money provided that the making of time or demand deposits with
banks and the purchase of debt securities such as bonds, debentures,
commercial paper, repurchase agreements and short-term obligations in
accordance with its objective and policies are not prohibited.

(4) Borrow money except for temporary or emergency purposes (but not for
the purpose of purchase of investments) and then only in an amount not to
exceed 5% of the Portfolio's net assets; or pledge the

B-2
<PAGE> 52

Portfolio's securities or receivables or transfer or assign or otherwise
encumber them in an amount exceeding the amount of the borrowing secured
thereby.

(5) Make short sales of securities, or purchase any securities on margin
except to obtain such short-term credits as may be necessary for the
clearance of transactions; however, the Portfolio may make margin deposits
in connection with financial futures and options transactions.

(6) Write or sell put or call options, combinations thereof or similar
options on more than 25% of the Portfolio's net assets; nor may it purchase
put or call options if more than 5% of the Portfolio's net assets would be
invested in premiums on put and call options, combinations thereof or
similar options; however, the Portfolio may buy or sell options on
financial futures contracts.

(7) Concentrate more than 25% of the value of its assets in any one
industry. Water, communications, electric and gas utilities shall each be
considered a separate industry. This limitation shall not apply to
obligations issued by the U.S. Government or its agencies or
instrumentalities.

(8) Invest in commodities or commodity futures contracts, although it may
buy or sell financial futures contracts and options on such contracts and
may enter into foreign currency transactions; or in real estate, although
it may invest in securities which are secured by real estate and securities
of issuers which invest or deal in real estate.

(9) Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase
in the open market of securities of closed-end investment companies where
no underwriter or dealer's commission or profit, other than customary
broker's commission, is involved and only if immediately thereafter not
more than (i) 3% of the total outstanding voting stock of such company is
owned by the Fund, (ii) 5% of the Fund's total assets would be invested in
any one such company, and (iii) 10% of the Fund's total assets would be
invested in such securities.

(10) Underwrite securities issued by others except to the extent the
Portfolio may be deemed to be an underwriter, under the federal securities
laws, in connection with the disposition of portfolio securities. The Fund
may buy and sell securities outside the United States which are not
registered with the Securities and Exchange Commission or marketable in the
United States.

(11) Issue senior securities except as permitted under the 1940 Act.

The following non-fundamental investment restrictions apply to the International
Portfolio. The International Portfolio may not:

(1) Invest more than 5% of the Portfolio's total assets in securities of
issuers which with their predecessors have a record of less than three
years continuous operation.

(2) Invest more than 15% of its net assets in illiquid securities.

(3) Purchase or retain the securities or any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns
beneficially more than 1/2 of 1% of the securities of such issuer and
together own more than 5% of the securities of such issuer.

(4) Invest for the purpose of exercising control or management of another
issuer.

(5) Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the securities of issuers
which invest in or sponsor such programs.

B-3
<PAGE> 53

The following fundamental investment restrictions apply to each of the Small Cap
Growth, Investment Grade Bond, Value, Small Cap Value, Value+Growth and Horizon
Portfolios except as indicated to the contrary. The Portfolio may not:

(1) Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States Government, its agencies or
instrumentalities) if, as a result, more than 5% of the Portfolio's total
assets would be invested in securities of that issuer; except that, for the
Value and Small Cap Value Portfolios, up to 25% of each Portfolio's total
assets may be invested without regard to these limitations.

(2) Purchase more than 10% of the outstanding voting securities of any
issuer.

(3) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term
obligations are not prohibited and the Portfolio may lend its portfolio
securities.

(4) Borrow money except from a bank as a temporary measure for
extraordinary or emergency purposes and then only in an amount up to
one-third ( 1/3) of the value of its total assets, in order to meet
redemption requests without immediately selling any portfolio securities
(any such borrowings under this section will not be collateralized). If,
for any reason, the current value of the Portfolio's total assets falls
below an amount equal to three (3) times the amount of its indebtedness
from money borrowed, the Portfolio will reduce, within three (3) business
days, its indebtedness to the extent necessary. The Portfolio will not
borrow for leverage purposes. The Portfolio will not purchase any
investments while borrowings are outstanding.

(6) For the Small Cap Growth, Investment Grade Bond and Horizon Portfolios
only, write (sell) put or call options, combinations thereof or similar
options on more than 25% of the Portfolio's net assets; nor may the
Portfolio purchase put or call options if more than 5% of the Portfolio's
net assets would be invested in premiums on put and call options,
combinations thereof or similar options; however, the Portfolio may buy or
sell options on financial futures contracts.

(7) Concentrate 25% or more of the value of its assets in any one industry.
Water, communications, electric and gas utilities shall each be considered
a separate industry.

(8) Invest in commodities or commodity futures contracts, although it may
buy or sell financial futures contracts and options on such contracts; or
in real estate, although it may invest in securities which are secured by
real estate and securities of issuers which invest or deal in real estate.

(9) Underwrite securities issued by others except to the extent the Fund
may be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities.

(10) Issue senior securities except as permitted under the 1940 Act.

The following non-fundamental investment restrictions apply to each of the Small
Cap Growth, Investment Grade Bond, Value, Small Cap Value, Value+Growth and
Horizon Portfolios except as indicated to the contrary. The Portfolio may not:

(1) Invest more than 5% of the Portfolio's total assets in securities of
issuers which with their predecessors have a record of less than three
years continuous operation.

(2) Purchase or retain the securities of any issuer if any of the officers
or trustees of the Portfolio or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more
than 5% of the securities of such issuer.

B-4
<PAGE> 54

(3) Invest for the purpose of exercising control or management of another
issuer.

(4) Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the securities of issuers
which invest in or sponsor such programs.

(5) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets, or
for the Value, Small Cap Value and Horizon Portfolios, by purchase in the
open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than
(i) 3% of the total outstanding voting stock of such company is owned by
it, (ii) 5% of its total assets would be invested in any one such company,
and (iii) 10% of total assets would be invested in such securities.

(6) Invest more than 15% of its net assets in illiquid securities.

(7) For the Value+Growth Portfolio, write (sell) put or call options,
combinations thereof or similar options; nor may it purchase put or call
options if more than 5% of the Portfolio's net assets would be invested in
premiums on put and call options, combinations thereof or similar options;
however, the Portfolio may buy or sell options on financial futures
contracts.

(8) For the Value and Small Cap Value Portfolios, write (sell) put or call
options, combinations thereof or similar options except that the Portfolio
may write covered call options on up to 100% of the Portfolio's net assets
and may write secured put options on up to 50% of the Portfolio's net
assets; nor may the Portfolio purchase put or call options; however, the
Portfolio may buy or sell options on financial futures contracts.

Except as specifically noted, if a percentage restriction is adhered to at the
time of investment, a later increase or decrease in percentage beyond the
specified limit resulting from a change in values or net assets will not be
considered a violation.

INVESTMENT POLICIES AND TECHNIQUES

Each Portfolio except the Money Market Portfolio may engage in options and
futures transactions in accordance with its respective investment objectives and
policies and to the extent specified in the prospectus. Each such Portfolio
intends to engage in such transactions if it appears to the investment manager
to be advantageous to do so in order to pursue its objective and also to hedge
(i.e., protect) against the effects of market risks but not for speculative
purposes. The use of futures and options, and possible benefits and attendant
risks, are discussed below along with information about other investment
policies and techniques.

OPTIONS ON SECURITIES. A Portfolio may write (sell) "covered" call options on
securities as long as it owns the underlying securities subject to the option or
an option to purchase the same underlying securities, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain with the Fund's custodian for the term of the option a
segregated account consisting of cash, U.S. Government securities or other
liquid high-grade debt obligations ("eligible securities") having a value at
least equal to the fluctuating market value of the optioned securities. A
Portfolio may write "covered" put options provided that, so long as the
Portfolio is obligated as a writer of a put option, the Portfolio will own an
option to sell the underlying securities subject to the option, having an
exercise price equal to or greater than the exercise price of the "covered"
option, or it will deposit and maintain with the custodian in a segregated
account eligible securities having a value equal to or greater than the exercise
price of the option. A call option gives the purchaser the right to buy, and the
writer the obligation to sell, the underlying security at the exercise price
during the option period. A put option gives the purchaser the right to sell,
and the writer has the obligation to buy, the underlying security at the
exercise price during the option period. The premium received for writing an
option will reflect, among other things, the current market price of the
underlying security, the relationship of

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the exercise price to such market price, the price volatility of the underlying
security, the option period, supply and demand and interest rates. A Portfolio
may write or purchase spread options, which are options for which the exercise
price may be a fixed dollar spread or yield spread between the security
underlying the option and another security that is used as a bench mark. The
exercise price of an option may be below, equal to or above the current market
value of the underlying security at the time the option is written. The buyer of
a put who also owns the related security is protected by ownership of a put
option against any decline in that security's price below the exercise price
less the amount paid for the option. The ability to purchase put options allows
the Portfolio to protect capital gains in an appreciated security it owns,
without being required to actually sell that security. At times a Portfolio
would like to establish a position in securities upon which call options are
available. By purchasing a call option, the Portfolio is able to fix the cost of
acquiring the security, this being the cost of the call plus the exercise price
of the option. This procedure also provides some protection from an unexpected
downturn in the market, because the Portfolio is only at risk for the amount of
the premium paid for the call option which it can, if it chooses, permit to
expire.

During the option period the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the
security being "called away." For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain in the amount of the premium received.
If the covered call option writer has to sell the underlying security because of
the exercise of a call option, it realizes a gain or loss from the sale of the
underlying security, with the proceeds being increased by the amount of the
premium.

If a secured put option expires unexercised, the writer realizes a gain from the
amount of the premium, plus the interest income on the money market investment.
If the secured put writer has to buy the underlying security because of the
exercise of the put option, the secured put writer incurs an unrealized loss to
the extent that the current market value of the underlying security is less than
the exercise price of the put option. However, this would be offset in whole or
in part by gain from the premium received and any interest income earned on the
money market investment.

OVER-THE-COUNTER OPTIONS. As indicated in the prospectus (see "Investment
Techniques--Options and Financial Futures Transactions"), each Portfolio except
the Money Market, Value and Small Cap Value Portfolios may deal in
over-the-counter traded options ("OTC options"). OTC options differ from
exchange traded options in several respects. They are transacted directly with
dealers and not with a clearing corporation, and there is a risk of
nonperformance by the dealer as a result of the insolvency of such dealer or
otherwise, in which event a Portfolio may experience material losses. However,
in writing options the premium is paid in advance by the dealer. OTC options are
available for a greater variety of securities, and a wider range of expiration
dates and exercise prices, than are exchange traded options. Since there is no
exchange, pricing is normally done by reference to information from market
makers, which information is carefully monitored by the investment manager and
verified in appropriate cases.

A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there can be
no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, a Portfolio may be able to
realize the value of an OTC option it has purchased only by exercising it or
entering into a closing sale with the dealer that issued it. Similarly, when a
Portfolio writes an OTC option, it generally can close out that option prior to
its expiration only by entering into a closing purchase transaction with the
dealer to which the Portfolio originally wrote it. If a covered call option
writer cannot effect a closing transaction, it cannot sell the underlying
security until the option expires or the option is exercised. Therefore, a
covered call option writer may not be able to sell an underlying security even
though it might otherwise be advantageous to do so. Likewise, a secured put
writer may be unable to sell the securities pledged to secure the put for other
investment purposes while it is obligated

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<PAGE> 56

as a put writer. Similarly, a purchaser of such put or call options might also
find it difficult to terminate its position on a timely basis in the absence of
a secondary market.

The Fund understands the position of the staff of the Securities and Exchange
Commission ("SEC") to be that purchased OTC options and the assets used as
"cover" for written OTC options are illiquid securities. The investment manager
disagrees with this position and has found the dealers with which it engages in
OTC options transactions generally agreeable to and capable of entering into
closing transactions. The Fund has adopted procedures for engaging in OTC
options for the purpose of reducing any potential adverse effect of such
transactions upon the liquidity of the Fund's portfolios. A brief description of
such procedures is set forth below.

A Portfolio will only engage in OTC options transactions with dealers that have
been specifically approved by the Fund's investment manager pursuant to
procedures adopted by the Board of Trustees of the Fund. The Fund's investment
manager believes that the approved dealers should be able to enter into closing
transactions if necessary and, therefore, present minimal credit risks to a
Portfolio. The investment manager will monitor the creditworthiness of the
approved dealers on an on-going basis. A Portfolio currently will not engage in
OTC options transactions if the amount invested by the Portfolio in OTC options,
plus a "liquidity charge" related to OTC options written by the Portfolio, plus
the amount invested by the Portfolio in illiquid securities, would exceed 15% of
the Portfolio's net assets. The "liquidity charge" referred to above is computed
as described below.

The Fund anticipates entering into agreements with dealers to which a Portfolio
sells OTC options. Under these agreements a Portfolio would have the absolute
right to repurchase the OTC options from the dealer at any time at a price no
greater than a price established under the agreements (the "Repurchase Price").
The "liquidity charge" referred to above for a specific OTC option transaction
will be the Repurchase Price related to the OTC option less the intrinsic value
of the OTC option. The intrinsic value of an OTC call option for such purposes
will be the amount by which the current market value of the underlying security
exceeds the exercise price. In the case of an OTC put option, intrinsic value
will be the amount by which the exercise price exceeds the current market value
of the underlying security. If there is no such agreement requiring a dealer to
allow the Portfolio to repurchase a specific OTC option written by the
Portfolio, the "liquidity charge" will be the current market value of the assets
serving as "cover" for such OTC option.

OPTIONS ON SECURITIES INDICES. The Portfolios, as part of their options
transactions, may also use options on securities indices in an attempt to hedge
against market conditions affecting the value of securities that the Portfolio
owns or intends to purchase, and not for speculation. Through the writing or
purchase of index options, a Portfolio can achieve many of the same objectives
as through the use of options on individual securities. Options on securities
indices are similar to options on a security except that, rather than the right
to take or make delivery of a security at a specified price, an option on a
securities index gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the securities index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Unlike security options, all
settlements are in cash and gain or loss depends on price movements in the
market generally (or in a particular industry or segment of the market) rather
than price movements in individual securities. Price movements in securities
that the Fund owns or intends to purchase probably will not correlate perfectly
with movements in the level of an index since the prices of such securities may
be affected by somewhat different factors and, therefore, a Portfolio bears the
risk that a loss on an index option would not be completely offset by movements
in the price of such securities.

When a Portfolio writes an option on a securities index, it will be required to
deposit with its custodian and mark-to-market eligible securities equal in value
to at least 100% of the exercise price in the case of a put, or the contract
value in the case of a call. In addition, where the Portfolio writes a call
option on a securities index at a

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<PAGE> 57

time when the contract value exceeds the exercise price, the Portfolio will
segregate and mark-to-market, until the option expires or is closed out, cash or
cash equivalents equal in value to such excess.

A Portfolio may also purchase and sell options on other appropriate indices, as
available, such as foreign currency indices. Options on futures contracts and
index options involve risks similar to those risks relating to transactions in
financial futures contracts described below. Also, an option purchased by a
Portfolio may expire worthless, in which case the Portfolio would lose the
premium paid therefor.

FINANCIAL FUTURES CONTRACTS. The Portfolios may enter into financial futures
contracts for the future delivery of a financial instrument, such as a security,
or an amount of foreign currency, or the cash value of a securities index. This
investment technique is designed primarily to hedge (i.e. protect) against
anticipated future changes in market conditions or foreign exchange rates which
otherwise might affect adversely the value of securities or other assets which
the Portfolio holds or intends to purchase. A "sale" of a futures contract means
the undertaking of a contractual obligation to deliver the securities or the
cash value of an index or foreign currency called for by the contract at a
specified price during a specified delivery period. A "purchase" of a futures
contract means the undertaking of a contractual obligation to acquire the
securities or cash value of an index or foreign currency at a specified price
during a specified delivery period. At the time of delivery, in the case of
fixed income securities pursuant to the contract, adjustments are made to
recognize differences in value arising from the delivery of securities with a
different interest rate than that specified in the contract. In some cases,
securities called for by a futures contract may not have been issued at the time
the contract was written.

Although some futures contracts by their terms call for the actual delivery or
acquisition of securities or other assets, in most cases a party will close out
the contractual commitment before delivery of the underlying assets by
purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same month. Such a
transaction, if effected through a member of an exchange, cancels the obligation
to make or take delivery of the underlying securities or other assets. All
transactions in the futures market are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded. A
Portfolio will incur brokerage fees when it purchases or sells contracts, and
will be required to maintain margin deposits. At the time a Portfolio enters
into a futures contract, it is required to deposit with its custodian, on behalf
of the broker, a specified amount of cash or eligible securities, called
"initial margin." The initial margin required for a futures contract is set by
the exchange on which the contract is traded. Subsequent payments, called
"variation margin," to and from the broker are made on a daily basis as the
market price of the futures contract fluctuates. The costs incurred in
connection with futures transactions could reduce the Portfolio's return.
Futures contracts entail risks. If the investment manager's judgment about the
general direction of markets or exchange rates is wrong, the overall performance
may be poorer than if no contracts had been entered into.

There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators, the
margin requirements in the futures markets are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager may still not result in a successful hedging
transaction. If any of these events should occur, the Portfolio could lose money
on the financial futures contracts and also on the value of its portfolio
assets.

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OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Portfolios may purchase and write
call and put options on financial futures contracts. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract at a specified exercise price at any
time during the period of the option. Upon exercise, the writer of the option
delivers the futures contract to the holder at the exercise price. The Portfolio
would be required to deposit with its custodian initial margin and maintenance
margin with respect to call and put options on futures contracts written by it.
A Portfolio will establish segregated accounts or will provide cover with
respect to written options on financial futures contracts in a manner similar to
that described under "Options on Securities." Options on futures contracts
involve risks similar to those risks relating to transactions in financial
futures contracts described above. Also, an option purchased by a Portfolio may
expire worthless, in which case the Portfolio would lose the premium paid
therefor.

DELAYED DELIVERY TRANSACTIONS. The Total Return, High Yield, Growth, Government
Securities, Investment Grade Bond and Horizon Portfolios may purchase or sell
portfolio securities on a when-issued or delayed delivery basis. When-issued or
delayed delivery transactions arise when securities are purchased by the
Portfolio with payment and delivery to take place in the future in order to
secure what is considered to be an advantageous price and yield to the Portfolio
at the time of entering into the transaction. When the Portfolio enters into a
delayed delivery transaction, it becomes obligated to purchase securities and it
has all of the rights and risks attendant to ownership of a security, although
delivery and payment occur at a later date. The value of fixed income securities
to be delivered in the future will fluctuate as interest rates vary. At the time
a Portfolio makes the commitment to purchase a security on a when-issued or
delayed delivery basis, it will record the transaction and reflect the liability
for the purchase and the value of the security in determining its net asset
value. Likewise, at the time a Portfolio makes the commitment to sell a security
on a delayed delivery basis, it will record the transaction and include the
proceeds to be received in determining its net asset value; accordingly, any
fluctuations in the value of the security sold pursuant to a delayed delivery
commitment are ignored in calculating net asset value so long as the commitment
remains in effect. The Portfolio generally has the ability to close out a
purchase obligation on or before the settlement date, rather than take delivery
of the security.

To the extent the Portfolio engages in when-issued or delayed delivery
transactions, it will do so for the purpose of acquiring portfolio securities
consistent with the Portfolio's investment objective and policies. The Portfolio
will only make commitments to purchase securities on a when-issued or delayed
delivery basis with the intention of actually acquiring the securities, but the
Portfolio reserves the right to sell these securities before the settlement date
if deemed advisable.

REGULATORY RESTRICTIONS. To the extent required to comply with SEC Release No.
IC-10666, when purchasing a futures contract, writing a put option or entering
into a delayed delivery purchase or a forward currency exchange purchase, a
Portfolio will maintain in a segregated account cash, U.S. Government securities
or liquid high grade debt securities equal to the value of such contracts. A
Portfolio will use cover in connection with selling a futures contract.

A Portfolio will not engage in transactions in financial futures contracts or
options thereon for speculation, but only to attempt to hedge against changes in
interest rates or market conditions affecting the value of securities which the
Portfolio holds or intends to purchase.

FOREIGN CURRENCY OPTIONS. The Total Return, High Yield, Growth, International,
Small Cap Growth, Investment Grade Bond, Value+Growth and Horizon Portfolios may
engage in foreign currency options transactions. A foreign currency option
provides the option buyer with the right to buy or sell a stated amount of
foreign currency at the exercise price at a specified date or during the option
period. A call option gives its owner the right, but not the obligation, to buy
the currency, while a put option gives its owner the right, but not the
obligation, to sell the currency. The option seller (writer) is obligated to
fulfill the terms of the option sold if it is exercised. However, either seller
or buyer may close its position during the option period in the secondary market
for such options any time prior to expiration.

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A call rises in value if the underlying currency appreciates. Conversely, a put
rises in value if the underlying currency depreciates. While purchasing a
foreign currency option can protect the Portfolio against an adverse movement in
the value of a foreign currency, it does not limit the gain which might result
from a favorable movement in the value of such currency. For example, if a
Portfolio were holding securities denominated in an appreciating foreign
currency and had purchased a foreign currency put to hedge against a decline in
the value of the currency, it would not have to exercise its put. Similarly, if
the Portfolio had entered into a contract to purchase a security denominated in
a foreign currency and had purchased a foreign currency call to hedge against a
rise in value of the currency but instead the currency had depreciated in value
between the date of purchase and the settlement date, the Portfolio would not
have to exercise its call but could acquire in the spot market the amount of
foreign currency needed for settlement.

FOREIGN CURRENCY FUTURES TRANSACTIONS. As part of their financial futures
transactions (see "Financial Futures Contracts" and "Options on Financial
Futures Contracts" above), the Total Return, High Yield, Growth, International,
Small Cap Growth, Investment Grade Bond, Value+Growth and Horizon Portfolios may
use foreign currency futures contracts and options on such futures contracts.
Through the purchase or sale of such contracts, a Portfolio may be able to
achieve many of the same objectives as through forward foreign currency exchange
contracts more effectively and possibly at a lower cost.

Unlike forward foreign currency exchange contracts, foreign currency futures
contracts and options on foreign currency futures contracts are standardized as
to amount and delivery period and are traded on boards of trade and commodities
exchanges. It is anticipated that such contracts may provide greater liquidity
and lower cost than forward foreign currency exchange contracts.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Total Return, High Yield,
Growth, International, Small Cap Growth, Investment Grade Bond, Value+Growth and
Horizon Portfolios may engage in forward foreign currency transactions. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
("term") from the date of the contract agreed upon by the parties, at a price
set at the time of the contract. These contracts are traded directly between
currency traders (usually large commercial banks) and their customers. The
investment manager believes that it is important to have the flexibility to
enter into such forward contracts when it determines that to do so is in the
best interest of a Portfolio. A Portfolio will not speculate in foreign currency
exchange.

If a Portfolio retains the portfolio security and engages in an offsetting
transaction with respect to a forward contract, the Portfolio will incur a gain
or a loss (as described below) to the extent that there has been movement in
forward contract prices. If a Portfolio engages in an offsetting transaction, it
may subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between a Portfolio's entering
into a forward contract for the sale of foreign currency and the date when it
enters into an offsetting contract for the purchase of the foreign currency, the
Portfolio would realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Portfolio would suffer a loss to the extent
the price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell. Although such contracts tend to minimize the
risk of loss due to a decline in the value of the hedged currency, they also
tend to limit any potential gain that might result should the value of such
currency increase. A Portfolio may have to convert its holdings of foreign
currencies into U.S. Dollars from time to time in order to meet such needs as
Portfolio expenses and redemption requests. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the
difference (the "spread") between the prices at which they are buying and
selling various currencies.

The returns available from foreign currency denominated debt instruments can be
adversely affected by changes in exchange rates. The investment manager believes
that the use of foreign currency hedging techniques, including "cross-hedges"
for the International Portfolio, can help protect against declines in the U.S.
Dollar value of income available for distribution to shareholders, and against
declines in the net asset value of a

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Portfolio's shares resulting from adverse changes in currency exchange rates.
For example, the return available from securities denominated in a particular
foreign currency would diminish if the value of the U.S. Dollar increased
against that currency. Such a decline could be partially or completely offset by
the increased value of a cross-hedge involving a forward foreign currency
exchange contract to sell a different foreign currency, if that contract were
available on terms more advantageous to the International Portfolio than a
contract to sell the currency in which the position being hedged is denominated.
The investment manager believes that cross-hedges can therefore provide
significant protection of net asset value in the event of a general rise in the
U.S. Dollar against foreign currencies. However, a cross-hedge cannot provide
assured protection against exchange rate risks and, if the investment manager
misjudges future exchange rate relationships, the International Portfolio could
be in a less advantageous position than if such a hedge had not been
established.

A Portfolio will not enter into forward contracts or maintain a net exposure in
such contracts when the Portfolio would be obligated to deliver an amount of
foreign currency in excess of the value of the Portfolio's securities or other
assets (a) denominated in that currency or (b), in the case of a "cross-hedge"
for the International Portfolio (see "Investment Objectives, Policies and Risk
Factors" in the prospectus), denominated in a currency or currencies that the
investment manager believes will have price movements that tend to correlate
closely with that currency. The investment manager will normally seek to select
currencies for sale under a forward contract for a "cross-hedge" that would
reflect a price movement correlation of .8 or higher with respect to the
currency being hedged (1 reflects a perfect correlation, 0 reflects a random
relationship and -1 reflects a diametrically opposite correlation). There is, of
course, no assurance that any specific correlation can be maintained for any
specific transaction. See "Foreign Currency Transactions" under "Investment
Techniques" in the prospectus. The Fund's custodian bank segregates cash or
liquid high-grade securities in an amount not less than the value of a
Portfolio's total assets committed to forward foreign currency exchange
contracts entered into for the purchase of foreign currency. If the value of the
securities segregated declines, additional cash or securities are added so that
the segregated amount is not less than the amount of the Portfolio's commitments
with respect to such contracts. The Portfolios currently do not intend to enter
into such forward contracts if they would have more than 15% of the value of
their total assets committed to such contracts. A Portfolio generally will not
enter into a forward contract with a term longer than one year.

COLLATERALIZED OBLIGATIONS. A Portfolio will currently invest in only those
collateralized obligations that are fully collateralized and that meet the
quality standards otherwise applicable to the Portfolio's investments. Fully
collateralized means that the collateral will generate cash flows sufficient to
meet obligations to holders of the collateralized obligations under even the
most conservative prepayment and interest rate projections. Thus, the
collateralized obligations are structured to anticipate a worst case prepayment
condition and to minimize the reinvestment rate risk for cash flows between
coupon dates for the collateralized obligations. A worst case prepayment
condition generally assumes immediate prepayment of all securities purchased at
a premium and zero prepayment of all securities purchased at a discount.
Reinvestment rate risk may be minimized by assuming very conservative
reinvestment rates and by other means such as by maintaining the flexibility to
increase principal distributions in a low interest rate environment. The
effective credit quality of the collateralized obligations in such instances is
the credit quality of the issuer of the collateral. The requirements as to
collateralization are determined by the issuer or sponsor of the collateralized
obligation in order to satisfy rating agencies, if rated. None of the Portfolios
currently intends to invest more than 5% of its total assets in collateralized
obligations that are collateralized by a pool of credit card or automobile
receivables or other types of assets rather than a pool of mortgages,
mortgage-backed securities or U.S. Government securities. Currently, none of the
Portfolios intends to invest more than 5% of its net assets in inverse floaters
as described in the prospectus (see "Investment Techniques--Collateralized
Obligations"). The Money Market Portfolio does not invest in inverse floaters.

Payments of principal and interest on the underlying collateral securities are
not passed through directly to the holders of the collateralized obligations as
such. Collateralized obligations often are issued in two or more classes with
varying maturities and stated rates of interest. Because interest and principal
payments on the

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underlying securities are not passed through directly to holders of
collateralized obligations, such obligations of varying maturities may be
secured by a single portfolio or pool of securities, the payments on which are
used to pay interest on each class and to retire successive maturities in
sequence. These relationships may in effect "strip" the interest payments from
principal payments of the underlying securities and allow for the separate
purchase of either the interest or the principal payments, sometimes called
interest only ("IO") and principal only ("PO") securities. Collateralized
obligations are designed to be retired as the underlying securities are repaid.
In the event of prepayment on or call of such securities, the class of
collateralized obligation first to mature generally will be paid down first.
Therefore, although in most cases the issuer of collateralized obligations will
not supply additional collateral in the event of such prepayment, there will be
sufficient collateral to secure collateralized obligations that remain
outstanding. It is anticipated that no more than 5% of a Portfolio's net assets
will be invested in IO and PO securities. Governmentally-issued and
privately-issued IO's and PO's will be considered illiquid for purposes of a
Portfolio's limitation on illiquid securities, however, the Board of Trustees
may adopt guidelines under which governmentally-issued IO's and PO's may be
determined to be liquid.

In reliance on an interpretation by the SEC, a Portfolio's investments in
certain qualifying collateralized obligations are not subject to the limitations
in the 1940 Act regarding investments by a registered investment company, such
as a Portfolio, in another investment company.

ZERO COUPON GOVERNMENT SECURITIES. Subject to its investment objective and
policies, a Portfolio may invest in zero coupon U.S. Government securities. Zero
coupon bonds are purchased at a discount from the face amount. The buyer
receives only the right to receive a fixed payment on a certain date in the
future and does not receive any periodic interest payments. These securities may
include those created directly by the U.S. Treasury and those created as
collateralized obligations through various proprietary custodial, trust or other
relationships. The effect of owning instruments which do not make current
interest payments is that a fixed yield is earned not only on the original
investment but also, in effect, on all discount accretion during the life of the
obligations. This implicit reinvestment of earnings at the same rate eliminates
the risk of being unable to reinvest distributions at a rate as high as the
implicit yield on the zero coupon bond, but at the same time eliminates any
opportunity to reinvest earnings at higher rates. For this reason, zero coupon
bonds are subject to substantially greater price fluctuations during periods of
changing market interest rates than those of comparable securities that pay
interest currently, which fluctuation is greater as the period to maturity is
longer. Zero coupon bonds created as collateralized obligations are similar to
those created through the U.S. Treasury, but the former investments do not
provide absolute certainty of maturity or of cash flows after prior classes of
the collateralized obligations are retired. No Portfolio currently intends to
invest more than 5% of its net assets in zero coupon U.S. Government securities
during the current year.

PORTFOLIO TRANSACTIONS

Zurich Kemper Investments, Inc. (formerly named Kemper Financial Services, Inc.)
("ZKI") and its affiliate Dreman Value Advisors, Inc. ("DVA") are each the
investment manager or sub-adviser for the Portfolios of the Fund. ZKI and its
affiliates, including DVA, also furnish investment management services to the
Kemper funds and other clients including affiliated insurance companies. ZKI is
the sole shareholder of Zurich Investment Management, Inc. and Zurich Investment
Management Limited. These three entities share some common research and trading
facilities. DVA is the investment manager or sub-adviser for certain Kemper
Funds and other institutional accounts including the Value, Small Cap Value,
Value+Growth and Horizon Portfolios. At times investment decisions may be made
to purchase or sell the same investment security for one or more Portfolios and
for one or more of the clients managed by ZKI or its affiliates. When two or
more of such clients are simultaneously engaged in the purchase or sale of the
same security through the same trading facility, the transactions are allocated
as to amount and price in a manner considered equitable to each.

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National securities exchanges have established limitations governing the maximum
number of options in each class which may be written by a single investor or
group of investors acting in concert. An exchange may order the liquidation of
positions found to be in violation of these limits, and it may impose certain
other sanctions. These position limits may restrict the number of options the
Fund will be able to write on a particular security.

The above mentioned factors may have a detrimental effect on the quantities or
prices of securities, options or futures contracts available to the Portfolios.
On the other hand, the ability of the Portfolios to participate in volume
transactions may produce better executions for the Portfolios in some cases. The
Board of Trustees of the Fund believes that the benefits of the ZKI and DVA
organizations outweigh any limitations that may arise from simultaneous
transactions or position limits.

The Fund may purchase instruments issued by banks which are receiving service
payments or commissions; however, no preferences will be given in making such
portfolio purchases. Money market instruments are normally purchased in
principal transactions directly from the issuer or from an underwriter or market
maker. There usually will be no brokerage commissions paid for such purchases.
Purchases from underwriters will include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
will include the spread between the bid and asked prices.

ZKI and DVA, in effecting purchases and sales of portfolio securities for the
account of each Portfolio, will implement the policy of seeking best execution
of orders, which includes best net prices, except to the extent that ZKI and DVA
may be permitted to pay higher brokerage commissions for research services as
described below. Consistent with this policy, orders for portfolio transactions
are placed with broker-dealer firms giving consideration to the quality,
quantity and nature of each firm's professional services, which include
execution, clearance procedures, wire service quotations and statistical and
other research information provided to the Portfolios, ZKI, and DVA. Any
research benefits derived are available for all clients, including clients of
affiliated companies of ZKI. Since it is only supplementary to ZKI's and DVA's
own research efforts and must be analyzed and reviewed by their staffs, the
receipt of research information is not expected to materially reduce expenses.
In selecting among the firms believed to meet the criteria for handling a
particular transaction, ZKI and DVA may give consideration to those firms that
have sold or are selling shares of other funds managed by ZKI and DVA or
variable life insurance and variable annuity contracts funded by the Fund, as
well as to those firms that provide market, statistical and other research
information to the Fund, ZKI and DVA; although neither ZKI nor DVA is authorized
to pay higher commissions or, in the case of principal trades, higher prices to
firms that provide such services, except as described below.

ZKI and DVA may in certain instances be permitted to pay higher brokerage
commissions (not including principal trades) solely for receipt of market,
statistical and other research services. Subject to Section 28(e) of the
Securities Exchange Act of 1934 and procedures adopted by the Board of Trustees
of the Fund, the Fund could pay a firm that provides research services to ZKI or
DVA commissions for effecting a securities transaction for the Fund in excess of
the amount other firms would have charged for the transaction if ZKI or DVA
determines in good faith that the greater commission is reasonable in relation
to the value of the research services provided by the executing firm viewed in
terms either of a particular transaction or ZKI's or DVA's overall
responsibilities to the Fund or other clients. Not all of such research services
may be useful or of value in advising a particular Portfolio. Research benefits
will be available for all clients of ZKI and its subsidiaries. The investment
management fee paid by the Fund to ZKI or DVA is not reduced because ZKI or DVA
receives these research services.

B-13
<PAGE> 63

The table below shows total brokerage commissions paid by each Portfolio (other
than the Investment Grade Bond, Value, Small Cap Value, Value+Growth and Horizon
Portfolios, all of which commenced operations on May 1, 1996) then existing for
the last three fiscal years and, for the most recent fiscal year, the percentage
thereof that was allocated to firms based upon research information provided or
sales of Kemper Fund shares.

<TABLE>
<CAPTION>
ALLOCATED TO FIRMS
BASED ON RESEARCH
PORTFOLIO FISCAL 1995 IN FISCAL 1995 FISCAL 1994 FISCAL 1993
- ------------------------------------------ ----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Money Market.............................. $ 0 0% $ 0 $ 0
Total Return.............................. $ 1,613,000 62% $ 2,594,000 $ 3,044,000
High Yield................................ $ 4,000 95% $ 7,000 $ 12,000
Growth.................................... $ 1,066,000 79% $ 1,058,000 $ 880,000
Government Securities..................... $ 12,000 0% $ 27,000 $ 3,000
International............................. $ 941,000 93% $ 996,000 $ 566,000
Small Cap Growth.......................... $ 245,000 53% $ 32,000* $ N/A
</TABLE>

- ---------------

* Commencement of Operations on May 1, 1994 through December 31, 1994

INVESTMENT MANAGERS AND DISTRIBUTOR

INVESTMENT MANAGERS. ZKI is investment manager for each Portfolio other than the
Value and Small Cap Value Portfolios. ZKI is wholly owned by KFS Holding Corp.
KFS Holding Corp. is a more than 90% owned subsidiary of Zurich Holding Company
of America, Inc., which is a wholly owned subsidiary of Zurich Insurance
Company, an internationally recognized company providing services in life and
non-life insurance, reinsurance and asset management. DVA, a wholly owned
subsidiary of ZKI, serves as the investment manager for the Value and Small Cap
Value Portfolios. Pursuant to investment management agreements, ZKI acts as
investment manager to each Portfolio (DVA for the Value and Small Cap Value
Portfolios), manages its investments, administers its business affairs,
furnishes office facilities and equipment, provides clerical, bookkeeping and
administrative services, provides shareholder and information services and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Fund if elected to such positions. The agreements
provide that each Portfolio pays the charges and expenses of its operations
including the fees and expenses of the trustees (except those who are officers
or employees of the investment manager), independent auditors, counsel,
custodian and transfer agent and the cost of share certificates, reports and
notices to shareholders, brokerage commissions or transaction costs, costs of
calculating net asset value, taxes and membership dues. The Fund bears the
expenses of registration of its shares with the Securities and Exchange
Commission, while the principal underwriter pays the cost of qualifying and
maintaining the qualification of the Fund's shares for sale under the securities
laws of the various states, if any.

The agreements provide that the investment manager (ZKI or DVA) shall not be
liable for any error of judgment or of law, or for any loss suffered by the Fund
in connection with the matters to which the 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 obligations and duties, or by
reason of its reckless disregard of its obligations and duties under the
agreement.

Each investment management agreement continues in effect from year to year so
long as its continuation is approved at least annually by a majority of the
trustees who are not parties to such agreements or interested persons of any
such party except in their capacity as trustees of the Fund and by the
shareholders or the Board of Trustees. Each agreement may be terminated at any
time upon 60 days' notice by either party, or by a majority vote of the
outstanding shares, and will terminate automatically upon assignment. Additional

B-14
<PAGE> 64

Portfolios may become subject to the investment management agreements. The
provisions concerning continuation, amendment and termination and the allocation
of the management fees and the application of the expense limitation shall be on
a Portfolio by Portfolio basis. Additional Portfolios may be subject to
different agreements.

DVA is the sub-adviser of the Value+Growth and the Horizon Portfolios. DVA acts
as sub-adviser pursuant to the terms of a Sub-Advisory Agreement between it and
ZKI. Under the terms of the Sub-Advisory Agreement, DVA manages the value
portion of each Portfolio and provides such investment advice, research and
assistance as ZKI may, from time to time, reasonably request. For its services,
DVA will receive from ZKI a monthly sub-advisory fee at the annual rate of (i)
.25% of average daily net assets of the Value+Growth Portfolio and (ii) .25% of
the portion of the average daily net assets of each Horizon Portfolio allocated
by ZKI to DVA for management. DVA permits any of its officers or employees to
serve without compensation as trustees or officers of the Fund if elected to
such positions.

The Sub-Advisory Agreement provides that DVA will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Sub-Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
DVA in the performance of its obligations and duties or by reason of reckless
disregard by DVA of its obligations and duties under the Sub-Advisory Agreement.

The Sub-Advisory Agreement continues in effect from year to year so long as its
continuation is approved at least annually (a) by a majority of the trustees who
are not parties to such agreement or interested persons of any such party except
in their capacity as trustees of the Fund and (b) by the shareholders or the
Board of Trustees. The Sub-Advisory Agreement may be terminated at any time for
a Portfolio upon 60 days notice by ZKI, DVA or the Board of Trustees, or by a
majority vote of the outstanding shares of the Portfolio, and will terminate
automatically upon assignment or upon the termination of the Fund's investment
management agreement. The provisions concerning continuation, amendment and
termination are on a Portfolio by Portfolio basis. Additional Portfolios may be
subject to a different agreement.

The Fund pays an investment management fee payable monthly, at an annual rate,
based upon the average daily net assets of each Portfolio, as follows: Money
Market (.50%), Total Return (.55%), High Yield (.60%), Growth (.60%), Government
Securities (.55%), International (.75%), Small Cap Growth (.65%), Investment
Grade Bond (.60%), Value (.75%), Small Cap Value (.75%), Value+Growth (.75%),
Horizon 20+ (.60%), Horizon 10+ (.60%) and Horizon 5 (.60%). For management
services and facilities furnished for the fiscal year ended December 31, 1995,
the Fund incurred fees in the Money Market, Total Return, High Yield, Growth,
Government Securities, International and Small Cap Growth Portfolios of
$373,000, $3,461,000, $1,463,000, $2,132,000, $538,000, $946,000 and $151,000,
respectively. For management services and facilities furnished for the fiscal
year ended December 31, 1994, the Fund incurred fees in the Money Market, Total
Return, High Yield, Growth, Government Securities, International and Small Cap
Growth Portfolios of $512,000, $3,403,000, $1,329,000, $1,768,000, $583,000,
$842,000 and $26,000, respectively. For management services and facilities
furnished for the fiscal year ended December 31, 1993, the Fund incurred fees in
the Money Market, Total Return, High Yield, Growth, Government Securities and
International Portfolios of $357,000, $3,223,000, $1,225,000, $1,472,000,
$629,000 and $295,000, respectively.

PRINCIPAL UNDERWRITER. Kemper Distributors, Inc. ("KDI"), a wholly owned
subsidiary of ZKI, is the distributor and principal underwriter for shares of
the Fund in the continuous offering of its shares. The Fund pays the cost for
the prospectus and shareholder reports to be set in type and printed for
existing shareholders, and KDI pays for the printing and distribution of copies
thereof used in connection with the offering of shares to prospective
shareholders. KDI also pays for supplementary sales literature and advertising
costs. Terms of continuation, termination and assignment under the underwriting
agreement are identical to those described above with regard to the investment
management agreements, except that termination other than upon assignment
requires six month's notice.

B-15
<PAGE> 65

Investors Fiduciary Trust Company ("IFTC"), has entered into an agreement with
Kemper Investors Life Insurance Company ("KILICO") whereby KILICO provides
certain record keeping services. During the year ended December 31, 1995, no
fees for record keeping or dividend-paying agents' services, were paid to
KILICO.

EXPERTS

The financial statements of the Fund at December 31, 1995 and for the five years
in the period then ended have been audited by Ernst & Young LLP, 233 South
Wacker Drive, Chicago, Illinois 60606, independent auditors, as set forth in
their report appearing elsewhere herein and incorporated herein by reference;
and those financial statements are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

PURCHASE AND REDEMPTION OF SHARES

Fund shares are sold at their net asset value next determined after an order and
payment are received as described in the Fund's prospectus.

Upon receipt by IFTC, the Fund's Transfer Agent, of a request for redemption,
shares will be redeemed by the Fund at the applicable net asset value as
described in the Fund's prospectus.

The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange ("Exchange") is
closed, other than customary weekend and holiday closings or during any period
in which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of a Portfolio's investments
is not reasonably practicable, or (ii) it is not reasonably practicable for the
Portfolio to determine the value of its net assets, or (c) for such other
periods as the Securities and Exchange Commission may by order permit for the
protection of the Fund's shareholders.

OFFICERS AND TRUSTEES

The officers and trustees of the Fund, their principal occupations and their
affiliations, if any, with ZKI or DVA, the investment managers for the Fund and
KDI, the Fund's principal underwriter or their affiliates, are as follows (The
number following each person's title is the number of investment companies
managed by ZKI or DVA for which he or she holds similar positions):

JAMES E. AKINS (10/15/26), Trustee (13), 2904 Garfield Terrace, N.W.,
Washington, D.C.; Consultant on International, Political and Economic Affairs;
formerly a career United States Foreign Service Officer, Energy Adviser for the
White House and United States Ambassador to Saudi Arabia, 1973-76.

ARTHUR R. GOTTSCHALK (02/13/25), Trustee (13), 10642 Brookridge Drive,
Frankfort, Illinois; Retired; formerly, President, Illinois Manufacturers
Association; Trustee, Illinois Masonic Medical Center; Member, Board of
Governors, Heartland Institute/Illinois; formerly, Illinois State Senator.

FREDERICK T. KELSEY (04/25/27), Trustee (13), 3133 Laughing Gull Court, John's
Island, South Carolina; Retired; formerly, consultant to Goldman, Sachs & Co.;
formerly, President, Treasurer and Trustee of Institutional Liquid Assets and
its affiliated mutual funds; Trustee of the Benchmark Fund and the Pilot Fund.

*DOMINIQUE P. MORAX (10/02/48), Trustee (36), 120 South LaSalle Street, Chicago,
Illinois; Member, Extended Corporate Executive Board, Zurich Insurance Company;
Director, ZKI.

FRED B. RENWICK (02/01/30), Trustee (13), 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director,
TIFF Industrial Program, Inc., Director, the Wartberg

B-16
<PAGE> 66

Home Foundation; Chairman Investment Committee of Morehouse College Board of
Trustees; Chairman, American Bible Society Investment Committee; formerly member
of the Investment Committee of Atlanta University Board of Trustees; formerly
Director of Board of Pensions Evangelical Lutheran Church of America.

*STEPHEN B. TIMBERS (08/08/44), President and Trustee (36), 120 S. LaSalle
Street, Chicago, Illinois; President, Chief Executive Officer, Chief Investment
Officer and Director, ZKI; Director, KDI, DVA and LTV Corporation.

JOHN B. TINGLEFF (05/04/35), Trustee (13), 2015 South Lake Shore Drive, Harbor
Springs, Michigan; Retired; formerly President, Tingleff & Associates
(management consulting firm); formerly, Senior Vice President, Continental
Illinois National Bank & Trust Company.

JOHN G. WEITHERS (08/08/33), Trustee (13), 311 Springlake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University; Director Systems
Imagineering, Inc.

*J. PATRICK BEIMFORD, JR. (05/25/50), Vice President (23), 120 South LaSalle
Street, Chicago, Illinois; Executive Vice President and Chief Investment Officer
- -- Fixed Income Investments, ZKI.

*MICHAEL A. BERRY (05/29/47), Vice President (2), 10 Exchange Place, 20th Floor,
Jersey City, New Jersey; Managing Director, DVA.

*DANIEL J. BUKOWSKI (05/06/63), Vice President (3), 120 South LaSalle Street,
Chicago, Illinois; Senior Vice President and Director of Quantitative Research,
ZKI.

*ROBERT S. CESSINE (01/05/50), Vice President (4), 120 South LaSalle Street,
Chicago, Illinois; Senior Vice President, ZKI; formerly, Vice President,
Wellington Management Company.

*PHILIP J. COLLORA (11/15/45), Vice President and Secretary (36), 120 South
LaSalle Street, Chicago, Illinois; Attorney, Senior Vice President and Assistant
Secretary, ZKI.

*CHARLES F. CUSTER (08/19/28), Vice President and Assistant Secretary (36), 222
North LaSalle Street, Chicago, Illinois; Partner, Vedder, Price, Kaufman &
Kammholz (attorneys), Legal Counsel to the Fund.

*DAVID N. DREMAN (05/06/36), Vice President (3), 10 Exchange Place, 20th Floor,
Jersey City, New Jersey; Chairman and Director, DVA.

*JEROME L. DUFFY (06/29/36), Treasurer (36), 120 South LaSalle Street, Chicago,
Illinois; Senior Vice President, ZKI.

*DENNIS H. FERRO (06/20/45), Vice President (5), 120 South LaSalle Street,
Chicago, Illinois; Executive Vice President and Director of International Equity
Investments, ZKI; prior thereto, President, Managing Director and Chief
Investment Officer of an international investment advisory firm.

*GARY A. LANGBAUM (12/16/48), Vice President (2), 120 South LaSalle Street,
Chicago, Illinois; Executive Vice President, ZKI.

*MICHAEL A. McNAMARA (12/28/44), Vice President (6), 120 South LaSalle Street,
Chicago, Illinois; Senior Vice President, ZKI.

*JOHN E. NEAL (03/09/50), Vice President (36), 120 South LaSalle Street,
Chicago, Illinois; President, Kemper Funds Group, a unit of ZKI; Director ZKI,
DVA and KDI.

*JOHN E. PETERS (11/04/47), Vice President (36), 120 South LaSalle Street,
Chicago, Illinois; Senior Executive Vice President, ZKI; President and Director,
KDI; Director, DVA.

B-17
<PAGE> 67

*THOMAS M. REGNER (07/01/52), Vice President (2), 120 South LaSalle Street,
Chicago, Illinois; Senior Vice President, ZKI.

*STEVEN H. REYNOLDS (09/11/43), Vice President (13), 120 South LaSalle Street,
Chicago, Illinois; Executive Vice President and Chief Investment Officer --
Equities, ZKI.

*FRANK J. RACHWALSKI, JR. (03/26/45), Vice President (8), 120 South LaSalle
Street, Chicago, Illinois; Senior Vice President, ZKI.

*HARRY E. RESIS, JR. (11/24/45), Vice President (6), 120 South LaSalle Street,
Chicago, Illinois; First Vice President, ZKI.

*RICHARD L. VANDENBERG (11/16/49), Vice President (8), 120 South LaSalle Street,
Chicago, Illinois; formerly senior vice president and portfolio manager of an
investment management firm.

* Interested persons of the Fund as defined in the Investment Company Act of
1940.

The trustees and officers who are "interested persons" as designated above
receive no compensation from the Fund, except that Mr. Custer's law firm
receives fees from the Fund as counsel to the Fund. The table below shows
amounts paid or accrued to those trustees who are not designated "interested
persons" during the 1995 calendar year.

<TABLE>
<CAPTION>
TOTAL
COMPENSATION FROM
AGGREGATE KEMPER FUND COMPLEX
COMPENSATION PAID TO
NAME OF TRUSTEE FROM FUND TRUSTEES**
- ----------------------------------------------------------------- ------------ --------------------
<S> <C> <C>
James E. Akins***................................................ $ 6,800 $ 26,100
Arthur R. Gottschalk*............................................ $ 28,700 $ 90,300
Frederick T. Kelsey*............................................. $ 29,100 $ 90,700
Fred B. Renwick***............................................... $ 6,800 $ 26,100
John B. Tingleff................................................. $ 25,400 $ 81,700
John G. Weithers................................................. $ 25,600 $ 81,900
</TABLE>

- ---------------
* Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with the Fund. Deferred amounts accrue interest
monthly at a rate equal to the yield of Kemper Money Funds--Kemper Money
Market Fund. Total deferred fees and interest accrued for the latest and
prior fiscal years for this Fund are $53,800 for Mr. Gottschalk and $74,200
for Mr. Kelsey.

** Includes compensation for service on the Boards of 11 Kemper funds with 25
fund portfolios during calendar year 1995. Each trustee currently serves as
a board member of 13 Kemper funds with 36 fund portfolios.

*** Elected trustee on September 19, 1995.

As of April 30, 1996, the trustees and officers as a group owned beneficially
less than 1% of the outstanding shares of each Portfolio of the Fund.

As of April 30, 1996, ZKI owned all the shares of the Investment Grade Bond,
Value, Small Cap Value, Value+Growth, Horizon 20+, Horizon 10+ and Horizon 5
Portfolios of the Fund.

As of April 30, 1996, all the shares of the Money Market, Total Return, High
Yield, Growth, Government Securities, International, and Small Cap Growth
Portfolios were held of record by KILICO Variable Annuity Separate Account
("KVASA") and KILICO Variable Separate Account ("KVSA") on behalf of the owners
of variable life insurance contracts and variable annuity contracts. At all
meetings of shareholders of these portfolios, KILICO will vote the shares held
of record by KVASA and KVSA only in accordance with the instructions received
from the variable life and variable annuity contract owners on behalf of whom
the shares

B-18
<PAGE> 68

are held. All shares for which no instructions are received will be voted in the
same proportion as the shares for which instructions are received. Accordingly,
KILICO disclaims beneficial ownership of the shares of these portfolios held of
record by KVASA and KVSA.

DIVIDENDS AND TAXES

DIVIDENDS. The Fund may at any time vary the dividend practices with respect to
a Portfolio and, therefore, reserves the right from time to time to either
distribute or retain for reinvestment such of its net investment income and its
net short-term and long-term capital gains as the Board of Trustees of the Fund
determines appropriate under the then current circumstances.

TAXES. Each Portfolio intends to continue to qualify (or, for each of the
Investment Grade Bond, Value, Small Cap Value, Value+Growth, Horizon 20+,
Horizon 10+ and Horizon 5 Portfolios, intend to qualify) as a regulated
investment company under subchapter M of the Internal Revenue Code ("Code") in
order to avoid taxation of the Fund and its shareholders. One of the subchapter
M requirements to be satisfied is that less than 30% of a Portfolio's gross
income during the fiscal year must be derived from gains from the sale or other
disposition of securities held for less than three months. A Portfolio may be
limited in its options, futures and foreign currency transactions in order to
prevent recognition of such gains.

Pursuant to the requirements of Section 817(h) of the Code, the only
shareholders of the Fund and its Portfolios will be insurance companies and
their separate accounts that fund variable insurance contracts. The prospectus
that describes a particular variable insurance contract discusses the taxation
of separate accounts and the owner of the particular variable insurance
contract.

Each Portfolio intends to comply with the requirements of Section 817(h) and
related regulations. Section 817(h) of the Code and the regulations issued by
the Treasury Department impose certain diversification requirements affecting
the securities in which the Portfolios may invest. These diversification
requirements are in addition to the diversification requirements under
subchapter M and the Investment Company Act of 1940. The consequences of failure
to meet the requirements of Section 817(h) could result in taxation of the
insurance company offering the variable insurance contract and immediate
taxation of the owner of the contract to the extent of appreciation on
investment under the contract.

The preceding is a brief summary of certain of the relevant tax considerations.
The summary is not intended as a complete explanation or a substitute for
careful tax planning and consultation with individual tax advisers.

SHAREHOLDER RIGHTS

The Fund is generally not required to hold meetings of its shareholders. Under
the Agreement and Declaration of Trust of the Fund ("Declaration of Trust"),
however, shareholder meetings will be held in connection with the following
matters: (a) the election or removal of trustees if a meeting is called for such
purpose; (b) the adoption of any contract for which approval is required by the
1940 Act; (c) any termination of the Fund to the extent and as provided in the
Declaration of Trust; (d) any amendment of the Declaration of Trust (other than
amendments changing the name of the Fund or any Portfolio, establishing a
Portfolio, supplying any omission, curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision thereof); (e) as to
whether a court action, preceding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Fund or the
shareholders, to the same extent as the stockholders of a Massachusetts business
corporation; and (f) such additional matters as may be required by law, the
Declaration of Trust, the By-laws of the Fund, or any registration of the Fund
with the Securities and Exchange Commission or any state, or as the trustees may
consider necessary or desirable. The shareholders also would vote upon changes
in fundamental investment objectives, policies or restrictions.

B-19
<PAGE> 69

Under current interpretations of the 1940 Act, the Fund expects that
Participating Insurance Company shareholders will offer VLI and VA contract
holders the opportunity to instruct them as to how Fund shares attributable to
such contracts will be voted with respect to the matters described above. The
separate prospectuses describing the VLI and VA contracts include additional
disclosure of how contract holder voting rights are computed.

Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Fund. The Declaration of Trust, however, contains provisions designed to protect
shareholders from liability for acts or obligations of the Fund and requires
that notice of such provisions be given in each agreement, obligation or
instrument entered into or executed by the Fund or the trustees. Moreover, the
Declaration of Trust provides for indemnification out of Fund property for all
losses and expenses of any shareholders held personally liable for the
obligations of the Fund and the Fund will be covered by insurance which the
trustees consider adequate to cover foreseeable tort claims. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
considered by ZKI remote and not material since it is limited to circumstances
in which the provisions limiting liability are inoperative and the Fund itself
is unable to meet its obligations.

The Declaration of Trust further provides that the trustees will not be liable
for errors of judgment or mistakes of fact or law. The Declaration of Trust does
not protect a trustee against any liability to which he or she should otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties of a trustee. The Declaration of Trust permits
the Trust to purchase insurance against certain liabilities on behalf of the
trustees.

B-20
<PAGE> 70

REPORT OF INDEPENDENT AUDITORS

The Board of Trustees and Shareholders
Kemper Investors Fund

We have audited the accompanying statement of net assets of the Investment Grade
Bond Portfolio, the Value Portfolio, the Small Cap Value Portfolio, the
Value+Growth Portfolio, the Horizon 20+ Portfolio, the Horizon 10+ Portfolio and
the Horizon 5 Portfolio, comprising certain of the Portfolios of Kemper
Investors Fund as of April 22, 1996. This statement of net assets is the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this statement of net assets based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement of net assets
presentation. We believe that our audit of the statement of net assets provides
a reasonable basis for our opinion.

In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of each of the above Portfolios
of Kemper Investors Fund at April 22, 1996 in conformity with generally accepted
accounting principles.

Ernst & Young LLP

Chicago, Illinois
April 22, 1996

B-21
<PAGE> 71

KEMPER INVESTORS FUND
STATEMENT OF NET ASSETS--APRIL 22, 1996

<TABLE>
<CAPTION>
SMALL CAP VALUE+
INVESTMENT GRADE VALUE VALUE GROWTH HORIZON HORIZON HORIZON
BOND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO 20+ PORTFOLIO 10+ PORTFOLIO 5 PORTFOLIO
---------------- --------- --------- --------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash......................... $100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000
============= ======== ======== ======== ========== ========== ========
NET ASSETS
Net assets, applicable to
shares of beneficial
interest (unlimited number
of shares authorized, no
par value) outstanding:.... $100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000
============= ======== ======== ======== ========== ========== ========
THE PRICING OF SHARES
Net asset value and
redemption price per share,
applicable to all
Portfolios ($100,000 divided
by 100,000 shares
outstanding)............... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Maximum offering price
per share, applicable to
all Portfolios (net asset
value)..................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
</TABLE>

NOTES:

Kemper Investors Fund (the "Fund") was organized as a business trust under the
laws of The Commonwealth of Massachusetts on January 22, 1987. All shares of
beneficial interest of each of the above Portfolios were issued to Zurich Kemper
Investments, Inc. ("ZKI"), the investment manager for certain Portfolios of the
Fund, on April 22, 1996. The Fund may establish multiple series; currently
fourteen series have been established.

The costs of organization of each of the above Portfolios will be paid by ZKI.

B-22
<PAGE> 72

APPENDIX--RATINGS OF INVESTMENTS

COMMERCIAL PAPER RATINGS

A-1, A-2 AND PRIME-1, PRIME-2 COMMERCIAL PAPER RATINGS

Commercial paper rated by Standard & Poor's Corporation has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determine whether the
issuer's commercial paper is rated A-1 or A-2.

The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service, Inc. Among the factors considered by them
in assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations. Relative
strength or weakness of the above factors determines whether the issuer's
commercial paper is rated Prime-1 or 2.

CORPORATE BONDS
STANDARD & POOR'S CORPORATION BOND RATINGS

AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.

CI. The rating CI is reserved for income bonds on which no interest is being
paid.

D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

B-23
<PAGE> 73

MOODY'S INVESTORS SERVICE, INC. BOND RATINGS

AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

AA. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.

A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

BAA. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

B-24
<PAGE> 74

KEMPER INVESTORS FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
SMALL
MONEY TOTAL HIGH GOVERNMENT CAPITALIZATION
MARKET RETURN YIELD EQUITY SECURITIES INTERNATIONAL EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (Cost:
$61,803, $566,602, $255,498,
$372,099, $91,855, $118,260 and
$30,571, respectively):......... $61,803 653,496 255,219 434,535 96,521 134,008 35,234
Repurchase agreements, at value
(Cost: $10,485)................. -- -- -- -- 10,485 -- --
Cash.............................. -- 843 516 689 1 441 1,153
Receivable for:
Investments sold................ -- 3,020 511 1,036 3,090 59 39
Portfolio shares sold........... 127 403 302 270 37 126 66
Interest and dividends.......... 313 4,985 5,006 355 880 185 5
------- ------- ------- ------- ------- ------- ------
Total assets................ 62,243 662,747 261,554 436,885 111,014 134,819 36,497
LIABILITIES AND NET ASSETS
Cash overdraft.................... 523 -- -- -- -- -- --
Payable for:
Investments purchased........... -- 1,379 3,417 21,364 15,661 -- 1,038
Portfolio shares redeemed....... 435 1,126 602 753 91 231 53
Dividends....................... 159 -- -- -- -- -- --
Management fee.................. 29 302 128 201 43 83 18
Custodian and transfer agent
fees and related expenses..... 3 29 11 14 14 4 6
Other........................... 16 17 19 20 20 20 9
------- ------- ------- ------- ------- ------- ------
Total liabilities........... 1,165 2,853 4,177 22,352 15,829 338 1,124
------- ------- ------- ------- ------- ------- ------
Net assets........................ $61,078 659,894 257,377 414,533 95,185 134,481 35,373
======= ======= ======= ======= ======= ======= ======
ANALYSIS OF NET ASSETS
Paid-in capital................... $61,928 530,034 258,624 287,880 78,510 115,194 29,437
Undistributed net realized gain
(loss) on investments and
foreign currency transactions... -- 19,445 (22,162) 58,026 (4,477) 887 1,049
Net unrealized appreciation
(depreciation) on investments
and assets and liabilities in
foreign currencies.............. (850) 86,894 (279) 62,436 4,666 15,808 4,663
Undistributed net investment
income.......................... -- 23,521 21,194 6,191 16,486 2,592 224
------- ------- ------- ------- ------- ------- ------
Net assets applicable to shares
outstanding..................... $61,078 659,894 257,377 414,533 95,185 134,481 35,373
======= ======= ======= ======= ======= ======= ======
THE PRICING OF SHARES
Shares outstanding, no par
value........................... 61,078 255,878 204,457 127,086 74,992 98,119 26,283
======= ======= ======= ======= ======= ======= ======
Net asset value and redemption
price per share (Net
assets / shares outstanding).... $ 1.00 2.579 1.259 3.262 1.269 1.371 1.346
======= ======= ======= ======= ======= ======= ======
</TABLE>

See accompanying notes to financial statements.

<PAGE> 75

KEMPER INVESTORS FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
SMALL
MONEY TOTAL HIGH GOVERNMENT CAPITALIZATION
MARKET RETURN YIELD EQUITY SECURITIES INTERNATIONAL EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Interest.......................... $ 4,532 19,994 26,569 2,255 7,565 708 249
Dividends......................... -- 5,918 57 4,109 -- 2,435 50
------ ------- ------ ------ ------ ------ -----
4,532 25,912 26,626 6,364 7,565 3,143 299
Less foreign taxes withheld....... -- -- -- -- -- 227 --
------ ------- ------ ------ ------ ------ -----
Total investment income......... 4,532 25,912 26,626 6,364 7,565 2,916 299
Expenses:
Management fee.................... 373 3,461 1,463 2,132 538 946 151
Custodian and transfer agent fees
and related expenses............ 17 140 47 45 58 157 28
Professional fees................. 8 53 21 28 8 10 8
Trustees' fees and other.......... 11 130 58 72 38 45 15
------ ------- ------ ------ ------ ------ -----
Total expenses.................. 409 3,784 1,589 2,277 642 1,158 202
------ ------- ------ ------ ------ ------ -----
Net investment income............... 4,123 22,128 25,037 4,087 6,923 1,758 97
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) on sales
of investments and foreign
currency transactions........... -- 47,119 (2,027) 58,852 2,730 1,344 1,186
Net realized gain from futures
transactions.................... -- -- -- -- 178 -- --
------ ------- ------ ------ ------ ------ -----
Net realized gain (loss)........ -- 47,119 (2,027) 58,852 2,908 1,344 1,186
Change in net unrealized
appreciation (depreciation) on
investments and assets and
liabilities in foreign
currencies...................... (355) 74,735 15,859 36,452 7,318 12,368 4,361
------ ------- ------ ------ ------ ------ -----
Net gain (loss) on investments...... (355) 121,854 13,832 95,304 10,226 13,712 5,547
------ ------- ------ ------ ------ ------ -----
Net increase in net assets resulting
from operations................... $ 3,768 143,982 38,869 99,391 17,149 15,470 5,644
====== ======= ====== ====== ====== ====== =====
</TABLE>

<PAGE> 76

KEMPER INVESTORS FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
MONEY MARKET TOTAL RETURN
PORTFOLIO PORTFOLIO
--------------------- ---------------------
1995 1994 1995 1994
-------- ------ ------- -------
<S> <C> <C> <C> <C>
Operations:
Net investment income................................................ $ 4,123 4,049 22,128 19,352
Net realized gain (loss)............................................. -- -- 47,119 (26,384)
Change in unrealized appreciation (depreciation)..................... (355) (495) 74,735 (55,621)
Capital contribution from investment manager......................... 355 495 -- --
-------- ------ ------- -------
Net increase (decrease) in net assets resulting from operations.... 4,123 4,049 143,982 (62,653)
Equalization credits (charges)......................................... -- -- (1,827) 721
Dividends to shareholders:
Distribution from net investment income.............................. (4,123) (4,049) (18,740) (15,302)
Distribution from net realized gain on investments................... -- -- -- (43,357)
-------- ------ ------- -------
Total dividends to shareholders........................................ (4,123) (4,049) (18,740) (58,659)
Net increase (decrease) from capital share transactions................ (22,743) 15,644 (50,115) 63,355
-------- ------ ------- -------
Total increase (decrease) in net assets................................ (22,743) 15,644 73,300 (57,236)
Net assets:
Beginning of year.................................................... 83,821 68,177 586,594 643,830
-------- ------ ------- -------
End of year.......................................................... $ 61,078 83,821 659,894 586,594
======== ====== ======= =======
Undistributed net investment income at end of year..................... $ -- -- 23,521 21,265
======== ====== ======= =======
</TABLE>

(a) For the period from May 2, 1994 (commencement of operations) to December 31,
1994.

See accompanying notes to financial statements.

<PAGE> 77
<TABLE>
<CAPTION>
GOVERNMENT SMALL
HIGH YIELD EQUITY SECURITIES INTERNATIONAL CAPITALIZATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO EQUITY PORTFOLIO
- ------------------- ------------------- ------------------ ------------------- ------------------
1995 1994 1995 1994 1995 1994 1995 1994 1995 1994(A)
- ------- ------- ------- ------- ------ ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25,037 21,022 4,087 2,041 6,923 6,026 1,758 828 97 37
(2,027) (6,998) 58,852 23,805 2,908 (6,812) 1,344 1,853 1,186 (128)
15,859 (19,015) 36,452 (37,642) 7,318 (2,415) 12,368 (7,631) 4,361 302
-- -- -- -- -- -- -- -- -- --
- ------- ------- ------- ------- ------ ------- ------- ------- ------ ------
38,869 (4,991) 99,391 (11,796) 17,149 (3,201) 15,470 (4,950) 5,644 211
36 (1,390) 249 432 (2,310) (2,672) (37) 422 97 60
(22,165) (19,251) (1,120) -- (6,202) (5,312) (970) -- (76) --
-- -- (24,649) (14,929) -- (2,656) (1,941) (1,170) -- --
- ------- ------- ------- ------- ------ ------- ------- ------- ------ ------
(22,165) (19,251) (25,769) (14,929) (6,202) (7,968) (2,911) (1,170) (76) --
21,222 11,083 18,954 63,540 (9,234) (12,289) (751) 39,528 16,799 12,538
- ------- ------- ------- ------- ------ ------- ------- ------- ------ ------
37,962 (14,549) 92,825 37,247 (597) (26,130) 11,771 33,830 22,464 12,809
219,415 233,964 321,708 284,461 95,782 121,912 122,710 88,880 12,909 100
- ------- ------- ------- ------- ------ ------- ------- ------- ------ ------
257,377 219,415 414,533 321,708 95,185 95,782 134,481 122,710 35,373 12,909
======= ======= ======= ======= ====== ======= ======= ======= ====== ======
21,194 18,280 6,191 3,001 16,486 18,069 2,592 1,716 224 97
======= ======= ======= ======= ====== ======= ======= ======= ====== ======
</TABLE>

<PAGE> 78

KEMPER INVESTORS FUND

NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF THE FUND

Kemper Investors Fund (the "Fund") is an open-end, diversified management
investment company organized as a business trust under the laws of
Massachusetts. The Fund offers multiple Portfolios, currently consisting of the
Money Market, Total Return, High Yield, Equity, Government Securities,
International and Small Capitalization Equity Portfolios. The Fund has an
unlimited number of authorized shares.

(2) SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATION.

Investments are stated at value.

The securities of the Total Return, High Yield, Equity, Government Securities,
International and Small Capitalization Equity Portfolios that are traded on a
domestic securities exchange or securities listed on the NASDAQ National Market
are valued at the last sale price on the exchange or market where primarily
traded or listed or, if there is no recent sale, at the last current bid
quotation. Portfolio securities that are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges where primarily traded. A security that
is listed or traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for that security by the Board of
Trustees or its delegates. Securities not so traded or listed are valued at the
last current bid quotation if market quotations are available. Fixed income
securities are valued by using market quotations, or independent pricing
services that use prices provided by market makers or estimates of market values
obtained from yield data relating to instruments or securities with similar
characteristics. Equity options are valued at the last sale price unless the bid
price is higher or the asked price is lower, in which event such bid or asked
price is used. Exchange traded fixed income options are valued at the last sale
price unless there is no sale price, in which event prices provided by market
makers are used. Over-the-counter traded fixed income options are valued based
upon prices provided by market makers. Financial futures and options thereon are
valued at the settlement price established each day by the board of trade or
exchange on which they are traded. Forward foreign currency contracts and
foreign currencies are valued at the forward and current exchange rates,
respectively, prevailing on the day of valuation. Other securities and assets
are valued at fair value as determined in good faith by the Board of Trustees.

The securities of the Money Market Portfolio are stated at amortized cost, which
approximates market value. In the event that a deviation of 1/2 of 1% or more
exists between the Portfolio's $1.00 per share net asset value, calculated at
amortized cost, and the net asset value calculated by reference to market
quotations, or if there is any other deviation that the Board of Trustees
believes would result in a material dilution to shareholders or purchasers, the
Board of Trustees will promptly consider what action, if any, should be
initiated.

CURRENCY TRANSLATION.

The books and records of the Fund are maintained in U.S. Dollars. All assets and
liabilities initially expressed in foreign currency values are converted into
U.S. Dollars at the mean between the bid and offered quotations of such
currencies against the U.S. Dollar as last quoted by a recognized dealer. If
such quotations are not readily available, the rate of exchange is determined in
good faith by the Board of Trustees. Income and expenses and purchases and sales
of investments are translated into U.S. Dollars at the rate of exchange
prevailing on the respective dates of such transactions. The Portfolios include
that portion of the results of operations resulting

<PAGE> 79

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

from changes in foreign exchange rates with the net realized and unrealized gain
(loss) on investments, as appropriate.

INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.

Investment transactions are accounted for on the trade date (date the order to
buy or sell is executed). Dividend income is recorded on the ex-dividend date,
except that certain dividends from foreign securities are recorded as soon as
the information is available to the Fund. Interest income is recorded on the
accrual basis and includes premium and discount amortization on money market
instruments and mortgage-backed securities; it also includes original issue and
market discount amortization on long-term fixed income securities. Realized
gains and losses from investment transactions are reported on an identified cost
basis.

Several of the Portfolios may purchase securities with delivery or payment to
occur at a later date. At the time a Portfolio enters into a commitment to
purchase a security, the transaction is recorded and the value of the security
is reflected in the net asset value. The value of the security may vary with
market fluctuations. No interest accrues to the Portfolio until payment takes
place. At the time the Portfolio enters into this type of transaction it is
required to segregate cash or other liquid assets equal to the value of the
securities purchased. At December 31, 1995, the Government Securities Portfolio
had $15,661,000 of purchase commitments outstanding (16% of net assets) with a
corresponding amount of assets segregated.

EXPENSES.

Expenses arising in connection with a Portfolio are allocated to that Portfolio.
Other Fund expenses are allocated among the Portfolios in proportion to their
relative net assets.

FUND SHARE VALUATION.

Shares of each Portfolio of the Fund are offered on a continuous basis to the
separate accounts of participating insurance companies where permitted by law.
On each day the New York Stock Exchange is open for trading, each Portfolio
determines its net asset value per share (NAV) by dividing the total value of
the Portfolio's investments and other assets, less liabilities, by the number of
Portfolio shares outstanding. The NAV is determined as of the earlier of 3:00
p.m. Chicago time or the close of the Exchange for the Total Return, High Yield,
Equity, Government Securities, International and Small Capitalization Equity
Portfolios and at 11:00 a.m. and as of the earlier of 3:00 p.m. Chicago time or
the close of the Exchange for the Money Market Portfolio. Because of the need to
obtain prices as of the close of trading on various exchanges throughout the
world, the calculation of net asset value for the International Portfolio does
not take place contemporaneously with the determination of prices of the Fund's
foreign securities.

FEDERAL INCOME TAXES.

Each Portfolio has complied with the special provisions of the Internal Revenue
Code available to investment companies and therefore no federal income tax
provision is required. The accumulated net realized loss on sales of investments
for federal income tax purposes at December 31, 1995 amounted to approximately
$22,141,000 in the High Yield Portfolio and $3,904,000 in the Government
Securities Portfolio. These losses are available to offset future taxable gains
in the respective Portfolios and, if not applied, expire during the period 1998
through 2003.

<PAGE> 80

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DIVIDENDS TO SHAREHOLDERS.

Dividends payable to shareholders are recorded by all Portfolios except the
Money Market Portfolio on the ex-dividend date. Net realized capital gains, if
any, reduced by capital loss carryovers, will be distributed at least annually.
The Money Market Portfolio declares a daily dividend equal to its net investment
income for that day, payable monthly.

Shareholders will receive dividends in additional shares.

Distributions to shareholders are determined in accordance with income tax
principles which may treat certain transactions differently from generally
accepted accounting principles. These differences are primarily due to differing
treatments for certain transactions such as foreign currency transactions, if
applicable.

EQUALIZATION ACCOUNTING.

A portion of proceeds from sales and cost of redemptions of Fund shares in all
Portfolios except the Money Market Portfolio is credited or charged to
undistributed net investment income so that income per share available for
distribution is not affected by sales or redemptions of shares.

(3) TRANSACTIONS WITH AFFILIATES

The Fund has a management agreement with Kemper Financial Services, Inc. (KFS),
the Fund's investment manager. For management services and facilities furnished,
the Fund pays a fee, based on average daily net assets, at an annual rate of
.50% for the Money Market Portfolio, .55% for the Total Return and Government
Securities Portfolios, .60% for the High Yield and Equity Portfolios, .65% for
the Small Capitalization Equity Portfolio and .75% for the International
Portfolio. For the year ended December 31, 1995, the Fund incurred management
fees of $9,064,000. Kemper Distributors, Inc., an affiliate of KFS, is the
distributor and principal underwriter for shares of the Fund.

Kemper Asset Holdings, Inc. (KAHI), a subsidiary of Kemper Corporation, the
parent company of KFS, arranged for the issuance of a $3,201,000 irrevocable
letter of credit from The Bank of New York for the benefit of the Fund. The
letter of credit supports the payment of principal and interest on the Orange
County, California obligation held in the Money Market Portfolio. The Fund and
KAHI are parties to an agreement related to the letter of credit which provides,
among other things, that, in connection with a payment of principal or interest
under the letter of credit, the Fund will transfer to KAHI any proceeds received
under the Orange County obligation.

Certain officers or trustees of the Fund are also officers or directors of KFS.
During the year ended December 31, 1995, the Fund made no direct payments to its
officers and incurred trustees' fees of $124,000 to independent trustees.

(4) INVESTMENT TRANSACTIONS

For the year ended December 31, 1995, investment transactions (excluding
temporary short-term investments) are as follows (in thousands):

<TABLE>
<CAPTION>
SMALL
TOTAL HIGH GOVERNMENT CAPITALIZATION
RETURN YIELD EQUITY SECURITIES INTERNATIONAL EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Purchases............................. $ 724,808 265,763 292,542 286,819 145,372 32,114
-------- ------- ------- ------- ------- ------
Proceeds from sales................... 746,193 252,152 342,982 287,532 142,314 16,272
-------- ------- ------- ------- ------- ------
</TABLE>

<PAGE> 81

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(5) CAPITAL SHARE TRANSACTIONS

The following table summarizes the activity in capital shares of the Fund (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------------------------------------------------
MONEY GOVERNMENT
MARKET TOTAL RETURN HIGH YIELD EQUITY SECURITIES INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ----------------- ----------------- ------------------ ----------------- -----------------
(a) SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------- -------- ------- -------- ------- --------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold........ $ 122,960 35,774 $ 81,265 74,793 $ 84,004 40,308 $117,495 38,793 $36,895 29,450 $37,549
--------- ------ -------- ------ -------- ------ -------- ------ ------- ------ -------
Shares issued in
reinvestment of
dividends........ 4,191 8,512 18,740 19,366 22,165 9,679 25,769 5,447 6,202 2,361 2,911
--------- ------ -------- ------ -------- ------ -------- ------ ------- ------ -------
127,151 44,286 100,005 94,159 106,169 49,987 143,264 44,240 43,097 31,811 40,460
Less shares
redeemed......... 149,894 66,098 150,120 74,907 84,947 43,622 124,310 53,140 52,331 32,312 41,211
--------- ------ -------- ------ -------- ------ -------- ------ ------- ------ -------
Net increase
(decrease) from
capital share
transactions..... $ (22,743) (21,812) $(50,115) 19,252 $ 21,222 6,365 $ 18,954 (8,900) $(9,234) (501) $ (751)
========= ====== ======== ====== ======== ====== ======== ====== ======= ====== =======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------

SMALL
CAPITALIZATION
EQUITY PORTFOLIO
----------------
SHARES AMOUNT
------- --------
<S> <C> <C>
Shares sold........ 22,379 $26,856
------ -------
Shares issued in
reinvestment of
dividends........ 71 76
------ -------
22,450 26,932
Less shares
redeemed......... 8,586 10,133
------ -------
Net increase
(decrease) from
capital share
transacions...... 13,364 $16,799
====== =======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-----------------------------------------------------------------------------------------------------------
MONEY GOVERNMENT
MARKET TOTAL RETURN HIGH YIELD EQUITY SECURITIES INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ----------------- ----------------- ------------------ ----------------- -----------------
(a) SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------- -------- ------- -------- ------- --------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... $ 218,865 55,759 $ 127,333 105,586 $ 122,106 63,325 $ 173,691 18,859 $ 17,396 78,847 $ 99,933
--------- ------ --------- ------- --------- ------ --------- ------- -------- ------ --------
Shares issued in
reinvestment
of dividends.. 3,923 27,538 58,659 16,697 19,251 5,689 14,929 7,004 7,968 952 1,170
--------- ------ --------- ------- --------- ------ --------- ------- -------- ------ -------
222,788 83,297 185,992 122,283 141,357 69,014 188,620 25,863 25,364 79,799 101,103
Less shares
redeemed...... 207,144 54,564 122,637 111,925 130,274 45,216 125,080 38,208 37,653 49,218 61,575
--------- ------ --------- ------- --------- ------ --------- ------- -------- ------ --------
Net increase
(decrease)
from capital
share
transactions.. $ 15,644 28,733 $ 63,355 10,358 $ 11,083 23,798 $ 63,540 (12,345) $(12,289) 30,581 $ 39,528
========= ====== ========= ======= ========= ====== ========= ======= ======== ====== ========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------

SMALL
CAPITALIZATION
EQUITY PORTFOLIO(b)
--------------------
SHARES AMOUNT
------- --------
<S> <C> <C>
Shares sold...... 16,090 $ 16,218
Shares issued in
reinvestment of
dividends...... -- --
------ --------
16,090 16,218
Less shares
redeemed....... 3,671 3,680
------ --------
Net increase
(decrease) from
capital share
transactions... 12,419 $ 12,538
====== ========
</TABLE>

(a) For the Money Market Portfolio, dollar amounts and number of shares are the
same.

(b) For the period from May 2, 1994 (commencement of operations) to December 31,
1994.

<PAGE> 82

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(6) FORWARD FOREIGN CURRENCY CONTRACTS

In order to protect itself against a decline in the value of particular foreign
currencies against the U.S. Dollar, the International Portfolio has entered into
forward contracts to deliver foreign currency in exchange for U.S. Dollars as
described below. The Portfolio bears the market risk that arises from changes in
foreign exchange rates, and accordingly, the net unrealized gain on these
contracts is reflected in the accompanying financial statements. The Portfolio
also bears the credit risk if the counterparty fails to perform under the
contract. At December 31, 1995, the Portfolio had the following forward foreign
currency contracts outstanding with settlement dates in March, 1996.

<TABLE>
<CAPTION>
UNREALIZED
FOREIGN CURRENCY CONTRACT GAIN (LOSS)
TO BE DELIVERED AMOUNT AT 12/31/95
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
- ------------------------------------------------------------------
3,868 British Pounds $ 5,900 $(96)
- ------------------------------------------------------------------
22,898 French Francs 4,595 (92)
- ------------------------------------------------------------------
2,628 German Marks 1,820 (22)
- ------------------------------------------------------------------
1,554,990 Japanese Yen 15,529 325
- ------------------------------------------------------------------
2,854 Swiss Francs 2,440 (56)
- ------------------------------------------------------------------
Net unrealized
gain $ 59
- ------------------------------------------------------------------
</TABLE>

<PAGE> 83

FINANCIAL HIGHLIGHTS

MONEY MARKET PORTFOLIO

NOTE TO MONEY MARKET PORTFOLIO:

TOTAL RETURN PORTFOLIO

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............................... $ 2.112 2.586 2.473 2.658 2.071
Income from investment operations:
Net investment income.......................................... .084 .069 .069 .061 .080
Net realized and unrealized gain (loss)........................ .453 (.313) .214 (.026) .677
-------- ------- ------- ------- -------
Total from investment operations................................. .537 (.244) .283 .035 .757
Less dividends:
Distribution from net investment income........................ .070 .060 .050 .080 .110
Distribution from net realized gain............................ -- .170 .120 .140 .060
-------- ------- ------- ------- -------
Total dividends.................................................. .070 .230 .170 .220 .170
-------- ------- ------- ------- -------
Net asset value, end of year..................................... $ 2.579 2.112 2.586 2.473 2.658
======== ======= ======= ======= =======
TOTAL RETURN (%)................................................. 25.97 (9.50) 12.13 1.69 37.90
RATIOS TO AVERAGE NET ASSETS (%):
Expenses......................................................... .60 .61 .59 .60 .61
Net investment income............................................ 3.52 3.13 3.19 3.41 3.46
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands)......................... $659,894 586,594 643,830 528,007 412,772
Portfolio turnover rate (%)...................................... 118 128 191 160 187
</TABLE>

<PAGE> 84

FINANCIAL HIGHLIGHTS--(CONTINUED)

HIGH YIELD PORTFOLIO

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................................. $ 1.185 1.338 1.209 1.144 .914
Income from investment operations:
Net investment income............................................. .125 .116 .120 .125 .140
Net realized and unrealized gain (loss)........................... .069 (.149) .109 .070 .300
-------- ------- ------- ------- -------
Total from investment operations.................................... .194 (.033) .229 .195 .440
Less distribution from net investment income........................ .120 .120 .100 .130 .210
-------- ------- ------- ------- -------
Net asset value, end of year........................................ $ 1.259 1.185 1.338 1.209 1.144
======== ======= ======= ======= =======
TOTAL RETURN (%).................................................... 17.40 (2.25) 20.00 17.76 51.83
RATIOS TO AVERAGE NET ASSETS (%):
Expenses............................................................ .65 .65 .63 .64 .67
Net investment income............................................... 10.27 9.49 9.54 10.44 12.95
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands)............................ $257,377 219,415 233,964 162,158 121,608
Portfolio turnover rate (%)......................................... 90 98 84 57 31
</TABLE>

EQUITY PORTFOLIO

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................................. $ 2.665 2.935 2.631 2.642 1.681
Income from investment operations:
Net investment income............................................. .034 .018 .004 .007 .017
Net realized and unrealized gain (loss)........................... .793 (.138) .370 .082 .974
-------- ------- ------- ------- -------
Total from investment operations.................................... .827 (.120) .374 .089 .991
Less dividends:
Distribution from net investment income........................... .010 -- .010 .005 .030
Distribution from net realized gain............................... .220 .150 .060 .095 --
-------- ------- ------- ------- -------
Total dividends..................................................... .230 .150 .070 .100 .030
-------- ------- ------- ------- -------
Net asset value, end of year........................................ $ 3.262 2.665 2.935 2.631 2.642
======== ======= ======= ======= =======
TOTAL RETURN (%).................................................... 32.97 (4.02) 14.63 3.57 59.47
RATIOS TO AVERAGE NET ASSETS (%):
Expenses............................................................ .64 .66 .64 .64 .67
Net investment income............................................... 1.15 .69 .30 .65 .83
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands)............................ $414,533 321,708 284,461 203,624 118,983
Portfolio turnover rate (%)......................................... 88 106 78 78 106
</TABLE>

<PAGE> 85

FINANCIAL HIGHLIGHTS--(CONTINUED)

GOVERNMENT SECURITIES PORTFOLIO

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............................... $ 1.142 1.267 1.277 1.287 1.175
Income from investment operations:
Net investment income.......................................... .084 .067 .060 .064 .090
Net realized and unrealized gain (loss)........................ .123 (.102) .020 .006 .082
-------- ------- ------- ------ ------
Total from investment operations................................. .207 (.035) .080 .070 .172
Less dividends:
Distribution from net investment income........................ .080 .060 .060 .050 .060
Distribution from net realized gain............................ -- .030 .030 .030 --
-------- ------- ------- ------ ------
Total dividends.................................................. .080 .090 .090 .080 .060
-------- ------- ------- ------ ------
Net asset value, end of year..................................... $ 1.269 1.142 1.267 1.277 1.287
======== ======= ======= ====== ======
TOTAL RETURN (%)................................................. 18.98 (2.74) 6.48 5.90 15.22
RATIOS TO AVERAGE NET ASSETS (%):
Expenses......................................................... .65 .63 .60 .61 .63
Net investment income............................................ 7.08 5.69 5.05 6.08 7.42
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands)......................... $ 95,185 95,782 121,912 98,814 59,064
Portfolio turnover rate (%)...................................... 275 606 534 492 141
</TABLE>

INTERNATIONAL PORTFOLIO

<TABLE>
<CAPTION>
JANUARY 6,
YEAR ENDED DECEMBER 31, 1992 TO
-------------------------------- DECEMBER 31,
1995 1994 1993 1992
-------- ------- ------- ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................. $ 1.244 1.306 .993 1.000
Income from investment operations:
Net investment income.......................................... .018 .009 .010 .010
Net realized and unrealized gain (loss)........................ .139 (.056) .313 (.017)
-------- ------- ------- ------
Total from investment operations................................. .157 (.047) .323 (.007)
Less dividends:
Distribution from net investment income........................ .010 -- .009 --
Distribution from net realized gain............................ .020 .015 .001 --
-------- ------- ------- ------
Total dividends.................................................. .030 .015 .010 --
-------- ------- ------- ------
Net asset value, end of period................................... $ 1.371 1.244 1.306 .993
======== ======= ======= ======
TOTAL RETURN (NOT ANNUALIZED) (%)................................ 12.83 (3.59) 32.83 (.72)
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (%):
Expenses......................................................... .92 .93 .92 1.11
Net investment income............................................ 1.39 .74 .86 1.01
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands)....................... $134,481 122,710 88,880 19,447
Portfolio turnover rate (annualized) (%)......................... 126 107 116 129
</TABLE>

<PAGE> 86

FINANCIAL HIGHLIGHTS--(CONTINUED)

SMALL CAPITALIZATION EQUITY PORTFOLIO

<TABLE>
<CAPTION>
MAY 2, 1994
YEAR ENDED TO
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................... $ 1.039 1.000
Income from investment operations:
Net investment income................................. .005 .008
Net realized and unrealized gain...................... .307 .031
------- ------
Total from investment operations........................ .312 .039
Less distribution from net investment income............ .005 --
------- ------
Net asset value, end of period.......................... $ 1.346 1.039
======= ======
TOTAL RETURN (NOT ANNUALIZED) (%)....................... 30.07 3.95
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (%):
Expenses................................................ .87 1.25
Net investment income................................... .42 .91
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands).............. $35,373 12,909
Portfolio turnover rate (annualized) (%)................ 81 58
</TABLE>

NOTE FOR ALL PORTFOLIOS:

Financial Highlights reflect data at the Portfolio level and exclude contract
specific charges which would reduce Total Return.

<PAGE> 87

KEMPER INVESTORS FUND

MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
VALUE
-------
<S> <C>
CORPORATE OBLIGATIONS
BANKING AND CONSUMER FINANCING--19.6%
Associates Corporation of North America
5.78%, 2/7/96............................... $ 1,988
Barton Capital Corporation
5.83%, 1/24/96.............................. 1,993
Countrywide Funding Corporation
5.51%, 7/31/96.............................. 2,005
Mitsubishi Motors Credit of America, Inc.
6.01%, 1/19/96.............................. 1,994
Sierra Funding Corporation
6.09%, 1/25/96.............................. 1,992
Svenska Handelsbanken, Inc.
5.77%, 2/23/96.............................. 1,983
-------
11,955
CAPTIVE BUSINESS FINANCE--19.6%
(a)AT&T Capital Corporation
5.78%, 1/29/96.............................. 2,000
Caterpillar Financial Services Corporation
5.79%, 1/29/96.............................. 1,991
CSW Credit, Inc.
5.76%, 2/6/96............................... 1,989
(a)Finova Capital Corporation
5.91%, 3/15/96.............................. 2,000
Hanson Finance (UK) PLC
5.77%, 2/16/96.............................. 1,985
(a)USL Capital Corporation
6.00%, 2/29/96.............................. 2,002
-------
11,967
COMMUNICATIONS--3.3%
NYNEX Corporation
5.78%, 2/9/96............................... 1,988
CONSUMER PRODUCTS AND SERVICES--2.4%
American Home Products Corporation
5.78%, 2/12/96.............................. 1,490
CORPORATE FINANCING--9.8%
Astro Capital Corp.
5.86%, 3/8/96............................... 1,979
(a)Beta Finance Corporation
5.25%, 1/3/96............................... 2,000
Ranger Funding Corporation
5.80%, 2/1/96............................... 1,990
-------
5,969
FINANCIAL SERVICES--13.1%
(a)Bear Stearns Companies Inc.
5.98%, 1/19/96.............................. 2,000
(a)CS First Boston, Inc.
5.99%, 1/10/96.............................. 2,000
(a)Goldman, Sachs & Co.
5.90%, 1/25/96.............................. 2,000
Nomura Holding America Inc.
5.86%, 2/16/96.............................. $ 1,985
-------
7,985
MANUFACTURING AND INDUSTRIAL PRODUCTS--6.5%
Bridgestone/Firestone, Inc.
6.20%, 1/22/96.............................. 1,993
Kobe Steel International (USA) Inc.
6.01%, 1/22/96.............................. 1,993
-------
3,986
MUNICIPAL OBLIGATIONS--8.2%
(a)(b)Orange County, California
6.78%, 6/30/96, $3,000,000 (cost and par)... 2,865
(b)Letter of credit from The Bank of New
York........................................ 135
-------
3,000
Gulf Coast Waste Disposal Authority
5.78%, 2/21/96.............................. 2,000
-------
5,000
RECEIVABLES FINANCING--3.2%
Heller International Corporation
6.12%, 3/4/96............................... 1,979
-------
TOTAL CORPORATE OBLIGATIONS--85.7%
(average maturity: 41 days)..................... 52,319
BANK OBLIGATIONS
CERTIFICATES OF DEPOSIT
U.S. BANKS--5.7%
MBNA America Bank N.A.
5.90%, 2/5/96............................... 1,500
Mellon Bank Corporation
5.75%, 2/6/96............................... 2,000
-------
3,500
FOREIGN BANKS--9.8%
ABN AMRO Bank Canada
5.75%, 2/20/96.............................. 1,984
Banque Nationale De Paris
5.76%, 1/31/96.............................. 2,000
National Westminster Bank, PLC
5.75%, 1/31/96.............................. 2,000
-------
5,984
-------
TOTAL BANK OBLIGATIONS--15.5%
(average maturity: 36 days)..................... 9,484
-------
TOTAL INVESTMENTS--101.2%
(average maturity: 40 days)..................... 61,803
LIABILITIES, LESS OTHER ASSETS--(1.2)%.......... (725)
-------
NET ASSETS--100%................................ $61,078
=======
</TABLE>

See accompanying notes to Money Market Portfolio of Investments.

<PAGE> 88

NOTES TO MONEY MARKET PORTFOLIO OF INVESTMENTS

Interest rates represent annualized yield to date of maturity, except for
variable rate securities described in Note (a). For each security, except as
described in Note (b), cost (for financial reporting and federal income tax
purposes) and carrying value are the same. Likewise, carrying value approximates
principal amount.

(a) Variable rate securities. The rates shown are the current rates at December
31, 1995. The dates shown represent the demand date or next interest rate
change date.

(b) Illiquid securities. At December 31, 1995 the value of the Portfolio's
illiquid securities was $3,000,000, which represented 4.9% of net assets.
See Note (3) of the Notes to Financial Statements.

See accompanying notes to financial statements.

<PAGE> 89

KEMPER INVESTORS FUND

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR NUMBER
OF SHARES VALUE
---------- --------
<S> <C> <C>
GOVERNMENT OBLIGATIONS
U.S. Treasury Notes
7.75%, 2000....................... $ 10,000 $ 10,863
7.875%, 2001...................... 7,000 7,818
7.75%, 2001....................... 9,000 9,951
6.25%, 2003....................... 8,500 8,868
7.25%, 2004....................... 33,000 36,704
6.50%, 2005....................... 4,200 4,468
U.S. Treasury Bonds
7.25%, 2016....................... 19,000 21,722
8.75%, 2017....................... 32,000 42,355
Republic of Italy,
6.875%, 2023...................... 2,000 1,951
--------
TOTAL GOVERNMENT OBLIGATIONS--21.9%
(Cost: $133,149).................... 144,700
COMMON STOCKS
BASIC INDUSTRY--3.5%
Air Products & Chemicals............ 92,500 shs. 4,879
(b)FMC Corp. ....................... 51,300 3,469
Georgia-Pacific Corp. .............. 40,000 2,745
Monsanto Co. ....................... 76,500 9,371
Nucor Corp. ........................ 50,000 2,856
--------
23,320
COMMUNICATIONS AND MEDIA--3.0%
(b)AirTouch Communications.......... 130,000 3,672
Gillett Holdings, Inc. ............. 33,652 698
(b)Liberty Media Group, "A"......... 70,000 1,881
Tele-Communications, Inc. .......... 210,000 4,174
(b)Viacom International
"A" Shares........................ 57,456 2,636
"B" Shares........................ 50,377 2,387
(b)WorldCom, Inc. .................. 129,100 4,551
--------
19,999
COMPUTER HARDWARE, COMPONENTS AND
SEMICONDUCTORS--8.7%
(b)Applied Materials, Inc. ......... 96,300 3,792
(b)Atmel Corporation................ 142,800 3,195
(b)Bay Networks..................... 60,750 2,498
(b)Cisco Systems.................... 65,000 4,851
(b)Compaq Computer Corp. ........... 138,300 6,638
Hewlett-Packard, Co. ............... 90,000 7,538
Intel Corp. ........................ 125,600 7,128
International Business Machines
Corp. ............................ 50,000 4,588
(b)LSI Logic Corp. ................. 120,000 $ 3,930
(b)Silicon Graphics, Inc. .......... 100,300 2,758
(b)Sun Microsystems................. 100,000 4,563
Texas Instruments................... 45,000 2,329
(b)3Com Corporation................. 80,000 3,730
--------
57,538
COMPUTER SOFTWARE AND
ELECTRONICS--4.3%
(b)BMC Software..................... 75,000 3,206
Computer Associates International... 75,000 4,266
First Data Corporation.............. 49,174 3,289
General Motors-Electronic Data
Systems........................... 95,100 4,945
(b)Microsoft Corp. ................. 105,000 9,214
(b)Parametric Technology Corp. ..... 50,000 3,325
--------
28,245
CONSUMER DURABLES--1.4%
Armstrong World Industries.......... 100,000 6,200
Magna International, "A"............ 75,000 3,244
--------
9,444
CONSUMER PRODUCTS AND SERVICES--8.3%
Alco Standard Corporation........... 60,000 2,737
CPC International................... 60,000 4,117
Coca-Cola Co. ...................... 50,000 3,712
(b)CUC International 70,450 2,404
Gillette Co. ....................... 75,000 3,909
PepsiCo............................. 149,200 8,337
Philip Morris Companies............. 140,800 12,742
Procter & Gamble Co. ............... 109,200 9,064
Sara Lee Corp. ..................... 130,000 4,144
Warnaco Group....................... 150,000 3,750
--------
54,916
DRUGS AND HEALTHCARE--7.4%
Abbott Laboratories................. 86,600 3,616
Baxter International................ 100,000 4,187
Columbia/HCA Healthcare Corp. ...... 100,400 5,095
Johnson & Johnson................... 100,000 8,563
Eli Lilly & Co. .................... 66,000 3,713
Medtronic, Inc. .................... 70,000 3,911
Merck & Co., Inc. .................. 96,200 6,325
Pfizer Inc. ........................ 105,000 6,615
SmithKline Beecham PLC.............. 110,000 6,105
United Healthcare Corp. ............ 5,000 328
--------
48,458
</TABLE>

<PAGE> 90

KEMPER INVESTORS FUND

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- --------
<S> <C> <C>
ENERGY AND RELATED SERVICES--1.6%
Enron Corp. ........................ 107,200 $ 4,087
Mobil Corp. ........................ 45,000 5,040
Schlumberger Ltd. .................. 20,000 1,385
--------
10,512
ENTERTAINMENT--2.3%
Carnival Corp. ..................... 182,800 4,456
(b)Circus Circus Enterprises........ 172,000 4,794
Walt Disney Company................. 100,000 5,900
--------
15,150
FINANCIAL SERVICES--5.1%
American International Group,
Inc. ............................. 90,000 8,325
Banc One Corporation................ 90,000 3,397
Dean Witter Discover................ 70,000 3,290
Federal National Mortgage
Association....................... 48,000 5,958
First USA........................... 45,100 2,001
General Re Corp. ................... 30,000 4,650
MGIC Investment Corp. .............. 52,000 2,821
NationsBank......................... 50,000 3,481
--------
33,923
MANUFACTURING--9.1%
Allied-Signal....................... 160,000 7,600
B.F. Goodrich Co. .................. 55,000 3,747
Boeing Co. ......................... 90,000 7,054
Emerson Electric Co. ............... 88,900 7,268
Fluor Corp. ........................ 120,000 7,920
General Electric Co. ............... 178,600 12,859
Xerox Corporation................... 55,000 7,535
York International Corp. ........... 120,900 5,682
--------
59,665
RETAILING AND DISTRIBUTION--2.3%
(b)Federated Department Stores...... 200,000 5,500
May Department Stores Co. .......... 95,000 4,014
(b)OfficeMax........................ 166,400 3,723
Pep Boys-Manny Moe & Jack........... 59,200 1,517
Thrifty Payless Holdings............ 47,500 202
--------
14,956
TRANSPORTATION--.7%
Union Pacific Corp. ................ 60,000 3,960
(b)Wisconsin Central Transportation
Corporation....................... 10,900 717
--------
4,677
--------

<CAPTION>
NUMBER OF
SHARES OR
PRINCIPAL
AMOUNT VALUE
---------- --------
<S> <C> <C>
TOTAL COMMON STOCKS--57.7%
(Cost: $311,443).................... $380,803
CORPORATE OBLIGATIONS
BROADCASTING, CABLESYSTEMS AND
PUBLISHING--1.9%
CF Cable TV Inc., 11.625%, 2005..... $ 510 561
Century Communications Corporation,
9.50%, 2005....................... 1,500 1,549
Comcast Corporation, 10.625%,
2012.............................. 1,500 1,680
Continental Cablevision, Inc.,
9.50%, 2013....................... 2,000 2,150
(a)Diamond Cable Communications PLC,
11.75%, 2005...................... 320 189
Rogers Cablesystems Limited,
10.00%, 2005...................... 1,050 1,129
Time Warner Entertainment Company,
L.P., 8.375%, 2033................ 2,000 2,134
Univision TV, 11.75%, 2001.......... 1,500 1,605
Viacom International Inc.,
8.00%, 2006....................... 1,500 1,545
--------
12,542
COMMUNICATIONS AND MEDIA--1.9%
Cinemark USA, Inc., 12.00%, 2002.... 570 621
Cox Communications, 6.875%, 2005.... 2,000 2,072
GTE Corporation, Florida,
6.25%, 2005....................... 1,000 1,014
MCI Communications, 7.50%, 2004..... 1,000 1,086
News American Holdings,
9.25%, 2013....................... 2,000 2,357
Rogers Cantel, 11.125%, 2002........ 1,790 1,920
TCI Communications, 8.65%, 2004..... 2,000 2,220
(a)Telewest Communications PLC,
11.00%, 2007...................... 1,900 1,140
--------
12,430
CONSUMER PRODUCTS AND SERVICES--1.0%
Nabisco, 8.00%, 2000................ 1,000 1,062
P&C Food Markets, Inc.,
11.50%, 2001...................... 120 118
Philip Morris Companies
8.25%, 2003....................... 1,000 1,113
7.25%, 2003....................... 1,000 1,052
Philips Electronics N.V.,
8.375%, 2006...................... 1,000 1,155
RJR Nabisco Inc., 8.75%, 2005....... 2,000 2,043
--------
6,543
</TABLE>

<PAGE> 91
KEMPER INVESTORS FUND

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- --------
<S> <C> <C>
DRUGS AND HEALTHCARE--.9%
American Home Products,
7.90%, 2005....................... $ 2,000 $ 2,250
Columbia/HCA Healthcare Corp.,
6.91%, 2005....................... 2,000 2,081
Tenet Healthcare
9.625%, 2002...................... 130 142
10.125%, 2005..................... 1,370 1,516
--------
5,989
ENERGY AND RELATED SERVICES--1.5%
Gulf Canada Resources Limited,
9.25%, 2004....................... 1,500 1,537
Parker & Parsley Petroleum,
8.25%, 2007....................... 1,500 1,622
Petronas, 7.125%, 2005.............. 1,000 1,055
Texas Utilities Company, 6.75%,
2003.............................. 2,000 2,060
TransTexas Gas Corporation,
11.50%, 2002...................... 1,385 1,427
USX Corporation, 9.375%, 2012....... 2,000 2,328
--------
10,029
FINANCIAL SERVICES--4.0%
ABN AMRO Bank, 8.25%, 2009.......... 2,000 2,237
Abbey National First Capital,
8.20%, 2004....................... 2,000 2,267
Associates Corp, N.A., 8.25%,
1999.............................. 2,000 2,167
Capital One Bank, 8.125%, 2000...... 2,000 2,138
Citicorp, 7.625%, 2005.............. 1,000 1,095
Commercial Credit, 7.375%, 2005..... 2,000 2,156
Equitable Life, 6.95%, 2005......... 2,000 2,028
First USA Bank, Medium Term Note,
8.10%, 1997....................... 2,000 2,049
GMAC, Medium Term Note,
8.50%, 2000....................... 2,000 2,204
Lehman Brothers Holdings,
7.125%, 2003...................... 2,000 2,061
Malayan Banking Berhad,
7.125%, 2005...................... 1,000 1,049
Repsol International Finance,
7.00%, 2005....................... 1,000 1,059
Sears Roebuck Acceptance Corp.,
6.75%, 2005....................... 2,000 2,065
Smurfit Capital Funding,
6.75%, 2005....................... 2,000 2,049
--------
26,624
MANUFACTURING--2.3%
Boise Cascade Corp.
9.85%, 2002....................... 1,000 1,183
9.45%, 2009....................... 1,000 1,238

<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- --------
<S> <C> <C>
CSR America, 6.875%, 2005........... $ 2,000 $ 2,089
Case Corp., 7.25%, 2005............. 1,000 1,059
Crown Paper, 11.00%, 2005........... 1,000 875
Lockheed Corp., 6.75%, 2003......... 2,000 2,079
Magna International, 5.00%, 2002.... 917 931
Nortek, Inc., 9.875%, 2004.......... 90 84
Owens-Illinois, Inc., 11.00%,
2003.............................. 3,990 4,509
Raytheon Co., 6.50%, 2005........... 1,000 1,031
--------
15,078
RETAILING AND DISTRIBUTION-- .9%
Federated Department Stores, 10.00%,
2001.............................. 2,000 2,185
May Department Stores Co.
7.15%, 2004....................... 250 265
7.50%, 2015....................... 750 802
Pathmark Stores, Inc.,
11.625%, 2002..................... 1,390 1,400
Penn Traffic Company
10.25%, 2002...................... 30 29
10.65%, 2004...................... 400 386
10.375%, 2004..................... 930 884
--------
5,951
TRANSPORTATION-- .8%
Delta Airlines, 9.75%, 2021......... 3,000 3,688
United Airlines, 9.56%, 2018........ 1,000 1,160
--------
4,848
--------
TOTAL CORPORATE OBLIGATIONS--15.2%
(Cost: $94,042)..................... 100,034
MONEY MARKET INSTRUMENTS--4.2%
Yield--5.82% to 6.20%
Due--January 1996
(Cost: $27,968)..................... 28,000 27,959
--------
TOTAL INVESTMENTS--99.0%
(Cost: $566,602).................... 653,496
CASH AND OTHER ASSETS, LESS
LIABILITIES--1.0%..................... 6,398
--------
NET ASSETS--100%...................... $659,894
=========
</TABLE>

<PAGE> 92

NOTES TO TOTAL RETURN PORTFOLIO OF INVESTMENTS

(a) Deferred interest obligation; currently zero coupon under the terms of the
initial offering.

(b) Non-income producing security.

Based on the cost of investments of $566,602,000 for federal income tax purposes
at December 31, 1995, the aggregate gross unrealized appreciation was
$94,364,000, the aggregate gross unrealized depreciation was $7,470,000 and the
net unrealized appreciation on investments was $86,894,000.

See accompanying notes to financial statements.

<PAGE> 93

KEMPER INVESTORS FUND

HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- --------
<S> <C> <C>
CORPORATE OBLIGATIONS
AEROSPACE--4.5%
BE Aerospace, 9.75%, 2003............. $ 880 $ 884
Fairchild Corporation, 12.00%, 2001... 2,390 2,342
Fairchild Industries, 12.25%, 1999.... 1,490 1,588
Howmet Inc., 10.00%, 2003............. 270 283
K & F Industries, Inc.
13.75%, 2001........................ 4,226 4,395
11.875%, 2003....................... 420 455
RHI Holdings, 11.875%, 1999........... 1,070 1,059
Sequa Corporation, 8.75%, 2001........ 730 690
--------
11,696
BROADCASTING, CABLESYSTEMS AND
PUBLISHING--21.4%
(b)A3 Holdings, Unit, 13.25%, 2006.... 810 830
Act III Broadcasting, Inc.
9.625%, 2003........................ 330 343
10.250%, 2005....................... 360 369
Adelphia Communications Corporation,
12.50%, 2002........................ 1,940 1,901
Affinity Group, Inc., 11.50%, 2003.... 1,460 1,482
(b)Australis Media Corporation,
14.00%, 2003........................ 2,220 1,610
(b)Bell Cablemedia PLC
11.95%, 2004........................ 2,810 1,981
11.875%, 2005....................... 340 213
Big Flower Press, Inc., 10.75%,
2003................................ 1,267 1,362
CAI Wireless Systems, 12.25%, 2002.... 1,000 1,073
CF Cable TV Inc., 11.625%, 2005....... 1,100 1,210
Cablevision Systems Company
9.250%, 2005........................ 570 596
9.875%, 2013........................ 965 1,025
9.875%, 2023........................ 550 572
Century Communications Corporation
9.50%, 2000......................... 300 311
11.875%, 2003....................... 960 1,034
9.50%, 2005......................... 2,200 2,272
Comcast Corporation
9.125%, 2006........................ 1,030 1,076
9.50%, 2008......................... 690 731
10.625%, 2012....................... 1,950 2,184
(b)Comcast UK Cable Partners Limited,
11.20%, 2007........................ 3,120 1,817
Continental Cablevision, Inc.,
9.50%, 2013......................... 4,270 4,590
(b)Diamond Cable Communications PLC,
11.75%, 2005........................ 2,560 1,510

<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- --------
<S> <C> <C>
(b)Echostar Communications,
12.875%, 2004....................... $ 4,745 $ 3,179
EZ Communications, 9.75%, 2005....... 930 931
Fundy Cable Limited., 11.00%, 2005... 320 335
Granite Broadcasting Corp.,
10.375%, 2005....................... 1,420 1,461
(b)International Cabletel
Incorporated, 12.75%, 2005.......... 3,960 2,534
Katz Corporation, 12.75%, 2002....... 960 1,073
(b)Neodata Services, 12.00%, 2003....... 1,610 1,457
(b)People's Choice TV, Unit,
13.125%, 2004....................... 1,550 903
Rogers Cablesystems Limited
9.625%, 2002........................ 720 754
10.00%, 2005........................ 800 860
Sinclair Broadcasting Group, Inc.,
10.00%, 2003........................ 1,620 1,660
(b)Telewest PLC, 11.00%, 2007........... 4,490 2,694
Univision TV, 11.75%, 2001........... 370 396
Viacom International Inc., 8.00%,
2006................................ 3,350 3,450
Videotron Groupe, 10.625%, 2005...... 500 536
(b)Videotron Holdings PLC
11.125%, 2004....................... 1,500 1,046
11.00%, 2005........................ 1,090 676
Webcraft Technologies, Inc.,
9.375%, 2002........................ 640 621
Young Broadcasting Inc., 11.75%,
2004................................ 440 493
--------
55,151
BUSINESS SERVICES--1.7%
Corporate Express Inc., 9.125%,
2004................................ 1,300 1,310
Host Marriott Travel Plazas, Inc.,
9.50%, 2005......................... 600 595
Monarch Marking Systems,
12.50%, 2003........................ 1,270 1,340
Outdoor Systems, 10.75%, 2003......... 1,250 1,206
--------
4,451
CHEMICALS--5.8%
Agriculture, Mining and Chemicals,
Inc., 10.75%, 2003.................. 640 698
Allied Waste Industries, 12.00%,
2004................................ 550 589
Arcadian Partners, L.P., 10.75%,
2005................................ 1,370 1,517
Atlantis Group, Inc., 11.00%, 2003.... 1,135 985
G-I Holdings Inc., zero coupon,
1998................................ 3,240 2,487
Hines Horticulture, 11.75%, 2005...... 350 366
Huntsman Corporation, 10.625%, 2001... 700 782
Pioneer Americas Acquisition Corp.,
13.375%, 2005....................... 840 884
Polymer Group, Inc., 12.25%, 2002..... 1,240 1,277
</TABLE>

<PAGE> 94

KEMPER INVESTORS FUND

HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- --------
<S> <C> <C>
Rexene Corporation, 11.75%, 2004......... $ 1,650 $ 1,749
Terra Industries, 10.50%, 2005........... 840 926
UCC Investors Holdings, Inc.
10.50%, 2002........................... 2,280 2,360
11.00%, 2003........................... 300 308
--------
14,928
COMMUNICATIONS--7.5%
(b) Call-Net Enterprises Inc., 13.25%,
2004................................ 1,000 720
(a)(b)Celcaribe, S.A., 13.50%, 2004........ 1,000 915
(b) Cellular, Inc., 11.75%, 2003......... 625 494
(b) Comcel, 13.125%, 2003................ 2,200 1,243
Commnet Cellular, 11.25%, 2005....... 500 528
(b) Intelcom Group, Inc., 13.50%,
2005................................ 1,470 853
Intermedia Communications of Florida,
Inc., 13.50%, with warrants, 2005... 1,140 1,277
IXC Communication Services,
12.50%, 2005........................ 1,610 1,719
Mobilemedia Communications,
9.375%, 2007........................ 400 413
Paging Network, Inc.
11.75%, 2002........................ 2,070 2,298
10.125%, 2007....................... 580 632
(b) PanAmSat, L.P., 11.375%, 2003........ 2,815 2,294
Rogers Cantel, 11.125%, 2002......... 3,570 3,829
USA Mobile Communications, Inc. II
14.00%, 2004........................ 1,190 1,380
9.50%, 2004......................... 600 591
--------
19,186
CONSTRUCTION MATERIALS--5.6%
American Standard Inc.
10.875%, 1999....................... 2,315 2,564
11.375%, 2004....................... 1,090 1,207
(b) 10.50%, 2005........................ 1,110 952
9.25%, 2016......................... 840 874
(b) Building Materials Corporation of
America, 11.75%, 2004................ 3,285 2,234
Nortek, Inc., 9.875%, 2004........... 2,170 2,034
Triangle Pacific Corp., 10.50%,
2003................................ 2,185 2,316
Waxman Industries, Inc.
12.25%, 1998........................ 850 824
13.75%, 1999........................ 884 575
(b) 12.75%, 2004........................ 1,749 700
(a) 52,274 warrants expiring 2004....... 6
--------
14,286
CONSUMER PRODUCTS AND SERVICES--3.7%
(c) Beatrice Foods, Inc., 12.00%,
2001................................ 2,000 560
Cinemark USA, Inc., 12.00%, 2002..... 940 1,025

<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- --------
<S> <C> <C>
Coinmach Corporation, 11.75%, 2005.... $ 1,500 $ 1,530
(b) Dr. Pepper Bottling Holdings, Inc.,
11.625%, 2003........................ 1,120 913
Premier Parks Inc., 12.00%, 2003...... 600 624
(b) Six Flags Theme Park, 12.25%,
2005................................. 2,550 2,005
Van De Kamps, Inc., 12.00%, 2005...... 550 572
West Point Stevens Inc., 9.375%,
2005................................. 2,280 2,251
--------
9,480
DRUGS AND HEALTHCARE--2.9%
Amerisource Distribution Corp.,
11.25%, 2005......................... 753 828
Charter Medical Corporation,
11.25%, 2004......................... 2,570 2,840
Dade International Inc., 13.00%,
2005................................. 720 806
Graphic Controls, 12.00%, 2005........ 320 333
Merit Behavioral, 11.50%, 2005........ 380 394
Ornda Healthcorporation,
11.375%, 2004........................ 1,560 1,755
Tenet Healthcare, 9.625%, 2002........ 500 547
--------
7,503
ENERGY AND RELATED SERVICES--3.8%
Chesapeake Energy Corporation,
10.50%, 2002......................... 1,175 1,234
Empire Gas Corporation, 7.00%, with
warrants, 2004....................... 900 758
Gerrity Oil & Gas, 11.75%, 2004....... 910 851
Gulf Canada Resources Limited, 9.25%,
2004................................. 1,800 1,845
Santa Fe Energy Resources, Inc.,
11.00%, 2004......................... 1,030 1,137
TransTexas Gas Corporation,
11.50%, 2002......................... 2,065 2,127
United Meridian Corp., 10.375%,
2005................................. 500 529
Vintage Petroleum, 9.00%, 2005........ 1,160 1,173
--------
9,654
FINANCIAL SERVICES, HOME BUILDING AND
REAL ESTATE--1.7%
Continental Homes Holding,
12.00%, 1999......................... 680 735
Forecast Group L.P.,
11.375%, 2000........................ 440 255
Hovnanian Kent
11.25%, 2002......................... 1,368 1,303
9.75%, 2005.......................... 550 484
</TABLE>

<PAGE> 95

KEMPER INVESTORS FUND

HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- --------
<S> <C> <C>
J.M. Peters, 12.75%, with
warrants, 2002..................... $ 460 $ 422
Presley Companies, 12.50%, 2001..... 1,575 1,260
--------
4,459
LODGING AND GAMING--4.8%
Bally's Park Place Funding, Inc.,
9.25%, 2004......................... 2,490 2,534
Empress River Casino, 10.75%, 2002... 1,090 1,125
Grand Casinos, Inc., 10.125%, 2003... 530 553
Players International, Inc.,
10.875%, 2005....................... 990 928
Santa Fe Hotel, Inc., 11.00%, 2000... 757 477
Trump Plaza Funding, 10.875%, 2001... 1,280 1,328
Trump Taj Mahal, PIK, 11.35%, 1999... 5,553 5,358
--------
12,303
MANUFACTURING, METALS AND MINING--8.9%
Aftermarket Technology, 12.00%,
2004................................ 780 827
Bluebird Body Company, 11.75%, 2002.. 1,430 1,502
Crain Industries, Inc., 13.50%,
2005................................ 750 761
Day International Group, Inc.,
11.125%, 2005....................... 970 989
Essex Group Incorporated,
10.00%, 2003........................ 1,270 1,251
Fairfield Manufacturing Company,
11.375%, 2001....................... 530 517
Foamex L.P.
11.25%, 2002........................ 930 893
11.875%, 2004....................... 1,370 1,315
(b)Foamex-JPS Automotive L.P.,
14.00%, 2004, with warrants
expiring 1999..................... 940 531
Great Dane Holding Company,
12.75%, 2001........................ 1,495 1,360
GS Technologies
12.00%, 2004........................ 1,930 1,916
12.25%, 2005........................ 670 669
Gulf States Steel, 13.50%, with
warrants, 2003...................... 1,310 1,146
Jordan Industries, 10.375%, 2003..... 1,560 1,326
JPS Automotive Products Corporation,
11.125%, 2001....................... 1,160 1,160
Newflo Corporation, 13.25%, 2002..... 1,050 1,087
NS Group, Inc., 13.50%, 2003......... 1,535 1,374
Pace Industries, Inc., 10.625%,
2002................................ 1,020 903
Penda Industries, Inc., 10.75%,
2004................................ 650 530
RBX Corporation, 11.250%, 2005....... 60 59

<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- --------
<S> <C> <C>
Thermadyne Industries, Inc.
10.25%, 2002........................ $ 1,290 $ 1,290
10.75%, 2003........................ 1,476 1,476
--------
22,882
PAPER, FOREST PRODUCTS AND
CONTAINERS--6.6%
Berry Plastics Corporation, 12.25%,
with warrants, 2004................. 480 520
Container Corporation of America,
11.25%, 2004........................ 1,815 1,879
Crown Paper, 11.00%, 2005............. 1,500 1,313
Gaylord Container Corporation
(b) 12.75%, 2005........................ 3,060 3,014
122,950 warrants expiring 1996...... 922
Maxxam Group, Inc.
(b) 12.25%, 2003........................ 740 503
11.25%, 2003........................ 1,220 1,171
Owens-Illinois, Inc.
11.00%, 2003........................ 1,030 1,164
9.75%, 2004......................... 2,780 2,926
Repap New Brunswick Inc.,
10.625%, 2005....................... 1,250 1,216
SD Warren Company, 12.00%, 2004....... 475 522
Stone Container Corporation,
10.75%, 2002........................ 280 290
Sweetheart Cup Company Inc., 10.50%,
2003................................ 900 918
Williamhouse-Regency, 13.00%, 2005.... 600 630
--------
16,988
RETAILING--5.2%
(c)Color Tile, Inc., 10.75%, 2001....... 1,470 162
Finlay Fine Jewelry Corporation,
10.625%, 2003....................... 740 703
P&C Food Markets, Inc.,
11.50%, 2001........................ 1,380 1,358
Pamida Holdings, 11.75%, 2003........ 1,950 1,462
Pathmark Stores, Inc.
12.625%, 2002....................... 1,000 1,029
11.625%, 2002....................... 1,535 1,546
Penn Traffic Company
10.25%, 2002........................ 370 356
10.375%, 2004....................... 1,290 1,226
Ralph's Grocery Company,
10.45%, 2004........................ 1,040 1,056
Southland Corporation, 5.00%, 2003... 1,139 948
Specialty Retailers, Inc., 11.00%,
2003................................ 610 543
Thrifty Payless Inc., 11.75%, 2003... 2,830 3,056
--------
13,445
</TABLE>

<PAGE> 96

KEMPER INVESTORS FUND

HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- --------
<S> <C> <C>
TECHNOLOGY--1.5%
Communication and Power Industry, Inc.,
12.00%, 2005........................ $ 585 $ 603
Computervision Corporation,
11.375%, 1999....................... 1,080 1,139
Merisel, Inc., 12.50%, 2004........... 1,370 1,028
Unisys Corporation
13.50%, 1997........................ 1,160 1,102
9.50%, 1998......................... 20 17
10.625%, 1999....................... 100 88
--------
3,977
TRANSPORTATION--.6%
(c)Burlington Motor Holdings Inc.,
11.50%, 2003........................ 1,350 243
OMI Corp., 10.25%, 2003.............. 995 894
(b)Transtar Holdings, L.P.,
13.375%, 2003....................... 631 429
--------
1,566
--------
TOTAL CORPORATE
OBLIGATIONS--86.2%
(Cost: $220,025)...................... 221,955

<CAPTION>
NUMBER OF
SHARES OR
PRINCIPAL
AMOUNT VALUE
--------- --------
<S> <C> <C>
COMMON AND PREFERRED STOCKS
BCP/Essex Holdings, PIK, preferred... 24,756 $ 625
(c)Computervision Corporation........... 130,160 2,001
(c)Echostar Communications.............. 27,450 499
(c)Gaylord Container Corporation........ 68,728 555
(c)Gillett Holdings, Inc................ 42,066 873
(c)Grand Union Company.................. 70,520 529
(c)IntelCom Group, Inc.................. 4,851 24
(c)Thrifty Payless Inc.................. 31,540 134
(c)UGI Inc.............................. 4,250 5
(c)Walter Industries, Inc............... 7,468 98
--------
TOTAL COMMON AND PREFERRED STOCKS--2.1%
(Cost: $7,544)........................ 5,343
MONEY MARKET
INSTRUMENTS
Yield--5.82%-6.03%
Due--January 1996
ConAgra, Inc..........................$ 8,000 7,992
Countrywide Funding Corporation....... 6,000 5,981
ITT Destinations...................... 8,000 7,974
SRD Finance Inc....................... 6,000 5,974
--------
TOTAL MONEY MARKET INSTRUMENTS--10.9%
(Cost: $27,929)....................... 27,921
--------
TOTAL INVESTMENTS--99.2%
(Cost: $255,498)...................... 255,219
CASH AND OTHER ASSETS,
LESS LIABILITIES--.8%................... 2,158
--------
NET ASSETS--100%........................ $257,377
========
</TABLE>

See accompanying notes to High Yield Portfolio of Investments.

<PAGE> 97

NOTES TO HIGH YIELD PORTFOLIO OF INVESTMENTS

(a) The following securities may require registration under the Securities Act
of 1933 or an exemption therefrom in order to effect sale in the ordinary
course of business; they were valued at cost on the dates of acquisition.
These securities were valued at fair value as determined in good faith by
the Board of Trustees of the Fund. At December 31, 1995, the value of the
Portfolio's restricted securities was $921,000, which represented .36% of
net assets.

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
DATE OF OR NUMBER UNIT
SECURITY DESCRIPTION ACQUISITION OF SHARES COST
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------
Celcaribe, S.A., 13.50%, 2004 May 1994 $1,000,000 $0.80
-----------------------------------------------------------------------------------------------------------------------
Waxman Industries, Inc., warrants expiring 2004 June 1994 52,274shs. 2.00
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

(b) Deferred interest obligation; currently zero coupon under terms of the
initial offering.

(c) Non-income producing security. In the case of a bond, generally denotes that
issuer has defaulted on the payment of interest or has filed for bankruptcy.

"PIK" denotes that interest or dividends are paid in kind.

Based on the cost of investments of $255,498,000 for federal income tax purposes
at December 31, 1995, the aggregate gross unrealized appreciation was
$12,351,000, the aggregate gross unrealized depreciation was $12,630,000 and the
net unrealized depreciation on investments was $279,000.

See accompanying notes to financial statements.

<PAGE> 98

KEMPER INVESTORS FUND
EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- --------
<S> <C> <C>
COMMON STOCKS
CHEMICALS--7.8%
Air Products & Chemicals.............. 86,000 $ 4,537
B.F. Goodrich Co...................... 70,000 4,769
E.I. DuPont de Nemours & Co........... 90,000 6,289
(a)FMC Corp.............................. 100,000 6,762
Monsanto Co........................... 61,000 7,473
Praxair, Inc.......................... 77,000 2,589
--------
32,419
COMMUNICATIONS AND MEDIA--12.5%
(a)AirTouch Communications............... 224,000 6,328
Cox Communications Inc................ 430,000 8,385
(a)DSC Communications Corp............... 51,300 1,892
(a)Liberty Media Group, "A".............. 210,000 5,644
SBC Communications, Inc............... 47,900 2,754
Tele-Communications, Inc.............. 373,000 7,413
(a)Tellabs, Inc.......................... 30,800 1,140
(a)3Com Corporation...................... 58,000 2,704
(a)Viacom International "B".............. 150,093 7,111
(a)WorldCom, Inc......................... 246,200 8,679
--------
52,050
COMPUTER SOFTWARE,
ELECTRONIC DATA
PROCESSING AND
SEMICONDUCTORS--9.3%
Atmel Corporation..................... 60,600 1,356
(a)BMC Software.......................... 28,000 1,197
(a)Cisco Systems......................... 56,600 4,224
(a)Compaq Computer Corp.................. 36,600 1,757
First Data Corporation................ 114,572 7,662
General Motors-Electronic Data
Systems............................. 64,700 3,364
Hewlett-Packard, Co................... 34,500 2,889
Intel Corp............................ 104,100 5,908
Linear Technology Corp................ 72,500 2,846
(a)LSI Logic Corp........................ 27,000 884
(a)Microsoft Corp........................ 40,500 3,554
(a)Parametric Technology................. 6,000 399
(a)Silicon Graphics Inc.................. 89,000 2,448
--------
38,488
CONSUMER PRODUCTS AND
SERVICES--9.0%
Alco Standard Corporation............. 100,000 4,562
Gillette Co........................... 62,300 3,247
Kimberly-Clark Corp................... 56,400 4,667
Manpower Inc.......................... 210,000 5,906
Philip Morris Companies............... 77,900 7,050
Procter & Gamble Co................... 44,200 3,669
Sara Lee Corp......................... 108,000 3,442

<CAPTION>
NUMBER
OF SHARES VALUE
--------- --------
<S> <C> <C>
Warnaco Group......................... 186,200 $ 4,655
--------
37,198
DRUGS AND HEALTHCARE--9.5%
Boston Scientific Corp................ 37,000 1,813
Columbia/HCA Heathcare Corp........... 97,000 4,923
Guidant Corp.......................... 70,745 2,989
(a)IDEXX Laboratories.................... 72,200 3,393
(a)Integrated Health Services............ 38,000 950
Johnson & Johnso..n................... 50,500 4,324
(a)Medaphis Corp......................... 95,214 3,523
Medtronic, Inc........................ 150,000 8,381
Pfizer Inc............................ 65,700 4,139
SmithKline Beecham PLC................ 45,000 2,498
United Healthcare Corp................ 38,500 2,522
--------
39,455
ENERGY AND TRANSPORTATION--6.9%
Enron Corp............................ 161,100 6,142
Enron Oil & Gas....................... 146,600 3,518
Mobil Corp............................ 48,000 5,376
Schlumberger Ltd...................... 47,800 3,310
Union Texas Petroleum Holdings........ 360,000 6,975
(a)Wisconsin Central Transportation
Corporation........................... 48,200 3,169
--------
28,490
ENTERTAINMENT AND RESTAURANTS--2.9%
Carnival Corp......................... 195,000 4,753
Walt Disney Co........................ 94,100 5,552
McDonald's Corp....................... 37,400 1,688
--------
11,993
FINANCIAL SERVICES--7.0%
American International Group,
Inc................................. 12,700 1,175
Bank of Boston........................ 60,000 2,775
Boatmen's Bancshares.................. 104,400 4,267
Dean Witter Discover.................. 75,800 3,563
First USA............................. 51,600 2,290
General Re Corp....................... 18,200 2,821
Mercantile Bancorp.................... 97,500 4,485
MGIC Investment Corp.................. 61,000 3,309
NationsBank........................... 60,800 4,233
--------
28,918
MANUFACTURING--12.8%
Allied-Signal......................... 68,400 3,249
(a)Applied Materials, Inc................ 76,600 3,016
Armstrong World Industries............ 22,800 1,414
Boeing Co............................. 77,200 6,051
(a)Crown Cork & Seal Co.................. 42,000 1,753
</TABLE>

<PAGE> 99

KEMPER INVESTORS FUND
EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- --------
<S> <C> <C>
Emerson Electric Co................... 55,000 $ 4,496
Fluor Corp............................ 76,900 5,075
General Electric Co................... 19,400 1,397
Georgia-Pacific Corp.................. 91,500 6,279
Magna International, "A".............. 50,000 2,163
Nucor Corp............................ 50,000 2,856
PPG Industries........................ 50,000 2,287
Shaw Industries....................... 225,000 3,319
Xerox Corporation..................... 27,000 3,699
York International Corp............... 128,400 6,035
--------
53,089
RETAILING--4.3%
Federated Department Stores........... 213,500 5,871
Home Depot............................ 103,500 4,955
(a)Office Depot.......................... 118,950 2,349
(a)Viking Office Products................ 38,400 1,786
Wal-Mart Stores....................... 134,100 3,000
--------
17,961
--------
TOTAL COMMON STOCKS--82.0%
(Cost: $277,592)....................... 340,061

<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- --------
<S> <C> <C>
MONEY MARKET INSTRUMENTS
Yield--5.82% to 6.20%
Due--January 1996
ConAgra, Inc.......................... $10,000 $ 9,985
Countrywide Funding Corp.............. 10,000 9,968
CSX Corp.............................. 10,000 9,990
Dayton-Hudson Corp.................... 10,000 9,972
Enterprise Funding Corp............... 2,700 2,695
ITT Corporation....................... 12,000 11,961
Potomac Capital Investment
Corporation......................... 10,000 9,992
SRD Finance Inc....................... 10,000 9,956
Windmill Funding Corp................. 10,000 9,990
Working Capital Management Co.,
L.P................................. 10,000 9,965
--------
TOTAL MONEY MARKET INSTRUMENTS--22.8%
(Cost: $94,507)..................... 94,474
--------
TOTAL INVESTMENTS--104.8%
(Cost: $372,099)....................... 434,535
LIABILITIES, LESS CASH AND OTHER
ASSETS--(4.8)%........................... (20,002)
--------
NET ASSETS--100%......................... $414,533
========
</TABLE>

NOTES TO EQUITY PORTFOLIO OF INVESTMENTS

(a) Non-income producing security.

Based on the cost of investments of $372,099,000 for federal income tax purposes
at December 31, 1995, the aggregate gross unrealized appreciation was
$66,687,000, the aggregate gross unrealized depreciation was $4,251,000 and the
net unrealized appreciation on investments was $62,436,000.

See accompanying notes to financial statements.

<PAGE> 100

KEMPER INVESTORS FUND

GOVERNMENT SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COUPON PRINCIPAL
RATE MATURITY AMOUNT VALUE
---------- --------- --------- -------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
FEDERAL HOME LOAN MORTGAGE CORPORATION--11.1%
(Cost: $9,810)
Pass-through Certificates.............................................. 7.00% 2023-2024 $10,490 $10,589
FEDERAL NATIONAL MORTGAGE ASSOCIATION--11.1%
(Cost: $10,279)
Pass-through Certificates.............................................. 6.50 2025-2026 7,469 7,382
7.50 2025 1,924 1,972
8.00 2024-2025 1,208 1,251
-------
10,605
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--55.3%
(Cost: $50,056)
Pass-through Certificates.............................................. 6.00 2026 3,000 2,911
6.50 2023-2026 6,891 6,838
7.00 2023-2026 17,785 18,002
7.50 2022-2024 12,111 12,460
8.00 2016-2024 8,011 8,346
8.50 2016-2024 1,655 1,739
9.00 2016 275 291
9.50 2013-2022 771 828
10.00 2016 1,063 1,168
-------
52,583
U.S. TREASURY BONDS--17.2%
(Cost: $15,617)........................................................ 11.875 2003 945 1,320
7.25 2016 700 800
7.875 2021 1,090 1,343
7.25 2022 5,000 5,787
6.25-7.125 2023 6,800 7,118
-------
16,368
-------
TOTAL U.S. GOVERNMENT OBLIGATIONS--94.7%
(Cost: $85,762)........................................................ 90,145
CORPORATE OBLIGATIONS
American Home Products................................................. 7.90 2005 500 562
Barnett Banks.......................................................... 6.90 2005 500 521
CSR America, Inc. ..................................................... 6.875 2005 500 522
Case, Corp. ........................................................... 7.25 2005 500 530
Columbia/HCA Healthcare Corp. ......................................... 6.91 2005 500 520
Commercial Credit Company.............................................. 7.375 2005 500 539
Cox Communications..................................................... 6.875 2005 500 518
GTE Florida, Inc. ..................................................... 6.25 2005 500 507
Nabisco Holdings Corp. ................................................ 6.70 2002 500 509
NationsBank Corporation................................................ 9.50 2004 500 606
Philip Morris Companies................................................ 7.25 2003 500 526
Sears Roebuck Acceptance Corp. ........................................ 6.75 2005 500 516
-------
TOTAL CORPORATE OBLIGATIONS--6.7%
(Cost: $6,093)......................................................... 6,376
</TABLE>

<PAGE> 101
KEMPER INVESTORS FUND

GOVERNMENT SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995--(CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- --------
<S> <C> <C>
(a) REPURCHASE AGREEMENTS--11.0%
State Street Bank and Trust Company,
dated 12/29/95, 4.75%, due 1/2/96.............................................................. $10,485 $ 10,485
TOTAL INVESTMENTS--112.4%
(Cost: $102,340)................................................................................ 107,006
--------
LIABILITIES, LESS CASH AND OTHER ASSETS--(12.4)%.................................................. (11,821)
--------
NET ASSETS--100%.................................................................................. $ 95,185
========
</TABLE>

NOTES TO GOVERNMENT SECURITIES PORTFOLIO OF INVESTMENTS

(a) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities. The collateral is monitored daily by the
Portfolio so that its market value exceeds the carrying value of the
repurchase agreement.

Based on the cost of investments of $102,340,000 for federal income tax purposes
at December 31, 1995, the aggregate gross unrealized appreciation was
$4,793,000, the aggregate gross unrealized depreciation was $127,000, and the
net unrealized appreciation of investments was $4,666,000.

See accompanying notes to financial statements.

<PAGE> 102

KEMPER INVESTORS FUND

INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- --------
<S> <C> <C>
COMMON STOCKS
EUROPE
FINLAND--.9%
Nokia Oy AB............................ 32,258 $ 1,248
Telecommunications equipment
manufacturer
FRANCE--4.2%
Axa Group.............................. 30,000 2,024
Insurance company
Carrefour S.A.......................... 4,000 2,430
Food retailer
Technip S.A............................ 16,400 1,130
Oil services company
--------
5,584
GERMANY--4.9%
Allianz AG Holding..................... 1,000 1,953
Insurance company
Mannesmann A.G......................... 4,100 1,308
Construction and engineering
company
(a)SGL CARBON............................ 7,000 543
Chemicals
Veba A.G.............................. 64,000 2,723
Electric utility company
--------
6,527
HUNGARY--.2%
(a)MOL Magyar Olajes Gazipari............ 42,500 349
Oil and gas company
IRELAND--3.8%
Bank of Ireland........................ 200,000 1,449
Banking
Greencore Group PLC.................... 126,686 1,093
Food processing
Independent Newspapers PLC ............ 333,007 2,082
Publisher
Kerry Group PLC........................ 70,280 536
Food processing
--------
5,160

<CAPTION>
NUMBER OF
SHARES VALUE
--------- --------
<S> <C> <C>
ITALY--1.3%
Stet................................ 205,000 $ 580
Telecommunications company
(a)Telecom Italia Mobile................. 700,000 1,233
Mobile telecommunications provider
--------
1,813
NETHERLANDS--4.2%
Aalberts Industries N.V................ 23,603 1,377
Hardware company
Getronics N.V. ........................ 29,500 1,380
Information systems
(a)Internationale Nederlanden
Groep............................. 30,500 2,040
Banking
PolyGram N.V. ........................ 15,430 820
Music recording company
--------
5,617
SPAIN--4.2%
Banco Bilbao Vizcaya.................. 34,600 1,246
Banking
Empresa Nacional de Electricidad,
S.A................................. 40,000 2,265
Electric utility company
Iberdrola, S.A........................ 235,000 2,150
Electric utility company
--------
5,661
SWEDEN--4.1%
Astra AB.............................. 60,000 2,399
Pharmaceutical company
H & M Hennes & Mauritz AB............. 21,560 1,204
Retailing
LM Ericsson Telephone Co., "B"........ 98,645 1,935
Telecommunications equipment
manufacturer
--------
5,538
</TABLE>

<PAGE> 103

KEMPER INVESTORS FUND

INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995--(CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- --------
<S> <C> <C>
SWITZERLAND--5.6%
Ciba-Geigy Limited.................. 2,300 $ 2,029
Pharmaceutical company
Rhone-Poulenc....................... 200 11
Chemical and pharmaceutical
company
Roche Holding AG.................... 525 4,163
Pharmaceutical company
Union Bank of Switzerland........... 1,200 1,304
Banking
--------
7,507
UNITED KINGDOM--17.6%
Abbey National PLC.................. 290,000 2,864
Financial services
British Bio-Technology Group........ 40,000 1,121
Pharmaceutical company
Burton Group PLC....................1,000,000 2,088
Retailer
Cable & Wireless PLC................ 240,000 1,714
Telecommunications company
Dixons Group PLC.................... 333,393 2,306
Electronics retailer
Forte PLC........................... 150,000 770
Hotel and restaurant operator
Glaxo Wellcome PLC.................. 260,000 3,694
Pharmaceutical company
Grand Metropolitan PLC.............. 300,000 2,159
Food and drink marketing
Medeva PLC.......................... 220,000 915
Pharmaceutical company
National Westminster Bank PLC....... 171,800 1,730
Banking
Reed International PLC.............. 136,000 2,072
Publisher
SmithKline Beecham PLC.............. 200,000 2,205
Pharmaceutical company
--------
23,638
--------
TOTAL EUROPEAN COUNTRIES--51.0%....... 68,642

PACIFIC REGION
HONG KONG--6.7%
Cheung Kong Holdings Ltd............ 310,000 1,888
Real estate company
CITIC Pacific Ltd................... 550,000 1,881
Conglomerate holding company

<CAPTION>
NUMBER OF
SHARES VALUE
--------- --------
<S> <C> <C>
Henderson Land Development Co.,
Ltd............................... 150,000 $ 904
Property developer
Hong Kong Telecommunications Ltd.... 734,400 1,311
Telecommunications company
HSBC Holdings PLC................... 109,193 1,652
Banking
New World Development Co., Ltd...... 250,000 479
Investment holding and property
investment company
Peregrine Investment Holdings....... 705,000 912
Investment banking
--------
9,027
JAPAN--23.5%
Bridgestone Corp.................... 90,000 1,431
Rubber related products
manufacturer
Daifuku Co., Ltd.................... 45,000 637
Diversified machinery manufacturer
Daiwa Securities Co., Ltd........... 90,000 1,378
Stock broker
Fujisawa Pharmaceutical............. 70,000 672
Pharmaceutical company
Kurita Water Industries Ltd......... 30,000 800
Water treatment equipment and
chemical manufacturer
Mabuchi Motor Co., Ltd.............. 16,000 996
Engine manufacturer
Matsushita Electric Industrial Co.,
Ltd............................... 84,000 1,368
Electronics manufacturer
Mitsubishi Heavy Industries......... 165,000 1,316
Industrial machinery manufacturer
Mitsubishi Paper Mills Ltd.......... 110,000 662
Paper manufacturer
Mitsui & Co. Ltd.................... 120,000 1,054
Steel products wholesaler
Miura Printing...................... 43,000 659
Manufacturing and printing
Murata Manufacturing................ 26,000 958
Ceramic capacitors and filters
manufacturer
New Japan Securities Co., Ltd....... 190,000 1,227
Financial services
Nippon Express...................... 160,000 1,542
Transportation company
(a) NKK Corp............................ 446,000 1,202
Steel manufacturer
</TABLE>

<PAGE> 104

KEMPER INVESTORS FUND

INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995--(CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- --------
<S> <C> <C>
Omron Corporation................... 50,000 $ 1,154
Electronics manufacturer
Sanwa Bank Ltd...................... 65,000 1,323
Financial services
Seven Eleven Japan Co., Ltd......... 8,000 564
Convenience retailer
Sumitomo Bank Ltd................... 35,000 743
Banking
Sumitomo Corp....................... 130,000 1,323
Holding company
Sumitomo Metal Industries........... 500,000 1,517
Steel manufacturer
Sumitomo Trust & Banking............ 120,000 1,698
Banking
Taisei Corp......................... 210,000 1,403
Construction company
Teijin Ltd.......................... 275,000 1,407
Synthetic fiber manufacturer
Tokyo Style......................... 43,000 738
Women's apparel manufacturer
Tokyu Department Store.............. 225,000 1,490
Retailer
Toray Industries.................... 240,000 1,582
Synthetic fiber manufacturer
Ube Industries, Ltd................. 200,000 756
Diversified company
--------
31,600
SINGAPORE--3.8%
DBS Bank............................ 90,000 1,120
Banking
Fraser & Neave Ltd.................. 100,000 1,272
Beer and soft drink manufacturer
Jurong Shipyard Ltd................. 135,000 1,040
Shipyard company
Keppel Corp. Ltd.................... 80,000 713
Conglomerate holding company
Singapore Press Holdings Ltd........ 53,000 937
Publisher
--------
5,082

<CAPTION>
NUMBER OF
SHARES VALUE
--------- --------
<S> <C> <C>
THAILAND--.6%
Advanced Info Service Ltd........... 25,000 $ 443
Telecommunications company
Siam Cement Co., Ltd................ 6,000 332
Cement company
--------
775
--------
TOTAL PACIFIC REGION--34.6%........... 46,484

COMMONWEALTH COUNTRIES
AUSTRALIA--3.1%
Australia and New Zealand Banking
Group Limited..................... 508,700 2,388
Financial services
Qantas Airways Limited.............. 39,200 652
Air transportation company
TABcorp Holdings Ltd................ 380,300 1,075
Entertainment and gaming
--------
4,115
CANADA--1.2%
(a)Canadian National Railway
Company.......................... 36,000 540
Railway company
Petro-Canada
Oil and gas company.............. 195,700 1,125
--------
1,665
NEW ZEALAND--1.0%
Lion Nathan Ltd..................... 591,700 1,412
Beer and soft drink manufacturer
--------
TOTAL COMMONWEALTH
COUNTRIES--5.3%..................... 7,192
--------
TOTAL COMMON STOCKS--90.9%
(Cost: $106,570)...................... 122,318
--------
</TABLE>

<PAGE> 105

KEMPER INVESTORS FUND

INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995--(CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
MONEY MARKET INSTRUMENTS
Yield--5.90% to 6.15%
Due--January 1996
ConAgra, Inc........................ $5,300 $ 5,295
Cooper Industries, Inc.............. 3,600 3,597
Potomac Capital Investment
Corporation....................... 2,800 2,798
--------
TOTAL MONEY MARKET INSTRUMENTS--8.7%
(Cost: $11,690)..................... 11,690
--------
</TABLE>

<TABLE>
<CAPTION>
Value
--------
<S> <C>
TOTAL INVESTMENTS--99.6%
(Cost: $118,260)..................... $134,008
CASH AND OTHER ASSETS,
LESS LIABILITIES--.4%.................. 473
--------
NET ASSETS--100%....................... $134,481
========
</TABLE>

At December 31, 1995, the International Portfolio of Investments had the
following industry diversification (dollars in thousands):

<TABLE>
<CAPTION>
VALUE %
-------- -----
<S> <C> <C>
Financial Services..................................................................... $ 27,322 20.3
Chemicals, Medical Equipment and Pharmaceuticals....................................... 18,552 13.8
Industrial Products and Services....................................................... 13,393 9.9
Consumer Products and Services......................................................... 10,830 8.1
Food and Beverages..................................................................... 8,902 6.6
Retailing.............................................................................. 8,390 6.2
Utilities.............................................................................. 8,371 6.2
Communications......................................................................... 7,231 5.4
Publishing............................................................................. 5,091 3.8
Transportation......................................................................... 3,774 2.8
Diversified............................................................................ 2,792 2.1
Energy Sources......................................................................... 2,604 1.9
Construction and Building Materials.................................................... 2,544 1.9
Electrical and Electronics............................................................. 2,522 1.9
-------- -----
Total Common Stocks.................................................................... 122,318 90.9
Cash and Other Net Assets.............................................................. 12,163 9.1
-------- -----
Net Assets............................................................................. $134,481 100.0
======== =====
</TABLE>

NOTES TO INTERNATIONAL PORTFOLIO OF INVESTMENTS

(a) Non-income producing security.

Based on the cost of investments of $118,260,000 for federal income tax purposes
at December 31, 1995, the aggregate gross unrealized appreciation was
$16,964,000, the aggregate gross unrealized depreciation was $1,216,000 and the
net unrealized appreciation on investments was $15,748,000.

See accompanying notes to financial statements.

<PAGE> 106

KEMPER INVESTORS FUND

SMALL CAPITALIZATION EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -------
<S> <C> <C>
COMMON STOCKS
COMMUNICATIONS, ENTERTAINMENT AND
MEDIA--3.7%
(a)CKS Group............................. 1,000 $ 39
Gaylord Entertainment Co. ............ 20,000 555
Hollinger International............... 15,400 162
(a)Infinity Broadcasting Corp............ 10,000 372
Mecklermedia Corporation.............. 7,000 112
(a)MGM Grand............................. 3,000 69
-------
1,309
CHEMICALS--2.8%
(a)FMC Corp.............................. 12,000 811
Lawter International.................. 8,000 93
OM Group.............................. 3,000 99
-------
1,003
COMPUTER SOFTWARE AND
TECHNOLOGY--16.1%
(a)Alpha Industries...................... 10,800 153
(a)Alternative Resources
Corporation.................... 20,000 605
(a)Artisoft, Inc......................... 12,400 78
(a)Atmel Corporation..................... 9,000 201
(a)Auspex Systems, Inc. ................. 12,000 219
(a)Cooper & Chyan Technology............. 2,000 31
(a)C P Clare Corporation................. 11,000 225
(a)Gartner Group......................... 2,500 120
(a)HCIA Inc.............................. 3,000 140
(a)IDX Systems........................... 2,500 87
(a)IMNET Systems, Inc.................... 2,800 67
(a)Intergraph Corp....................... 12,000 189
(a)Keane, Inc............................ 19,200 425
(a)McAfee Associates Inc................. 4,800 211
(a)Medaphis Corp......................... 3,000 111
(a)Meta Group............................ 500 15
(a)Metatools............................. 1,000 26
(a)Microchip Technology.................. 11,000 401
(a)Novadigm, Inc......................... 8,000 227
(a)Parametric Technology Corp............ 4,000 266
(a)PLATINUM Technology................... 27,000 496
(a)7th Level, Inc........................ 28,000 392
(a)Softkey International................. 8,000 185
(a)Solectron Corp........................ 6,000 265
(a)SPSS, Inc. ........................... 10,000 195
(a)Symantec Corp......................... 8,000 186
(a)Wang Laboratories..................... 10,000 166
-------
5,682
CONSUMER PRODUCTS AND SERVICES--7.1%
(a)Estee Lauder Companies................ 4,300 150
(a)Franklin Quest Co..................... 7,900 154
Hudson Foods.......................... 30,000 517

<CAPTION>
NUMBER OF
SHARES VALUE
--------- -------
<S> <C> <C>
(a)Kenneth Cole Productions.............. 10,000 $ 187
(a)Manhattan Bagel Company............... 9,000 162
(a)Opta Food Ingredients................. 5,000 64
(a)Pete's Brewing Company................ 8,000 112
(a)Play-By-Play Toys & Novelties,
Inc................................. 10,000 146
(a)Redhook Ale Brewing,
Incorporated........................ 3,000 78
(a)Safety 1st............................ 20,000 295
Stewart Enterprises, Inc.............. 10,000 370
(a)Williams-Sonoma....................... 15,000 277
-------
2,512
ENERGY AND TRANSPORTATION--3.2%
(a)Copart, Inc. ......................... 11,000 289
(a)Input/Output, Inc..................... 3,300 191
(a)Smith International................... 2,000 47
(a)Wisconsin Central Transportation
Corporation........................... 9,300 611
-------
1,138
ENGINEERING--1.4%
(a)Jacobs Engineering Group.............. 20,000 500

FINANCIAL SERVICES--5.3%
(a)Cityscape Financial................... 21,400 444
(a)Meadowbrook Insurance Group........... 4,100 137
(a)Risk Capital Holdings, Inc............ 27,000 631
(a)SPS Transaction Services.............. 13,000 385
Western National Corporation.......... 18,000 290
-------
1,887
MANUFACTURING AND DISTRIBUTION--11.6%
(a)Applied Extrusion Technologies........ 13,700 171
Dekalb Genetics Corp.................. 1,500 68
(a)Elsag Bailey Process
Automation..................... 19,000 511
Federal Signal Corp................... 21,700 561
(a)Fort Howard Corporation............... 40,000 900
Greenfield Industries................. 13,000 406
IMCO Recycling........................ 9,000 220
(a)Mohawk Industries..................... 17,000 266
Nordson Corp.......................... 6,000 338
Superior Industries International 6,000 158
(a)Thompson PBE, Inc..................... 10,000 140
TriMas Corp........................... 19,200 362
-------
4,101
MEDICAL PRODUCTS AND EQUIPMENT--9.1%
Arrow International................... 2,000 80
(a)Dendrite International, Inc........... 16,100 290
(a)Dura Pharmaceuticals.................. 11,000 382
(a)Genzyme Corporation................... 3,000 48
(a)Healthdyne Technologies............... 15,000 173
(a)ICU Medical........................... 12,000 204
(a)IDEXX Laboratories.................... 14,000 658
(a)i-STAT Corp........................... 13,800 448
</TABLE>

<PAGE> 107

KEMPER INVESTORS FUND
SMALL CAPITALIZATION EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -------
<S> <C> <C>
Physician Sales & Service............. 15,600 $ 445
(a)Quest Medical......................... 16,900 175
(a)Research Industries................... 12,000 324
-------
3,227
MEDICAL SERVICES--8.8%
(a)ABR Information Services.............. 6,000 264
(a)Access Health, Inc.................... 5,300 235
Caremark International, Inc........... 34,000 616
(a)CRA Managed Care, Inc................. 12,000 263
(a)Emeritus Corporation.................. 4,500 52
(a)Occusystems, Inc...................... 8,800 176
Omnicare, Inc......................... 12,000 537
(a)Owen Healthcare, Inc.................. 4,000 111
(a)Renal Treatment Centers............... 6,600 290
(a)RTW, Inc.............................. 7,400 194
(a)Total Renal Care Holdings............. 12,800 378
-------
3,116
OFFICE EQUIPMENT AND SUPPLIES--3.8%
Danka Business Systems PLC............ 13,000 481
(a)OfficeMax, Inc........................ 15,000 336
(a)Viking Office Products................ 11,000 512
-------
1,329
RETAILING AND RESTAURANTS--5.1%
(a)Department 56, Inc.................... 8,900 342
(a)General Nutrition..................... 13,200 304
(a)Gymboree.............................. 14,000 289
(a)Renters Choice, Inc................... 38,800 534
(a)Starbucks Corp........................ 16,000 336
-------
1,805

<CAPTION>
NUMBER OF
SHARES OR
PRINCIPAL
AMOUNT VALUE
--------- -------
S> <C> <C>
TELECOMMUNICATIONS AND EQUIPMENT--7.5%
Allen Group........................... 17,000 $ 380
(a)APAC TeleServices..................... 5,500 184
(a)InterVoice, Inc....................... 18,000 342
(a)LCI International, Inc................ 41,400 849
(a)MIDCOM Communications, Inc............ 9,400 172
(a)Tellabs Operations.................... 12,000 444
(a)Teltrend Inc.......................... 1,900 89
U.S. Robotics......................... 2,000 176
-------
2,636
-------
TOTAL COMMON STOCKS--85.5%
(Cost: $25,580)..................... 30,245
MONEY MARKET INSTRUMENTS
Yield--6.02% to 6.07%
Due--January 1996
CSX Corporation..................... $ 1,000 999
ConAgra, Inc........................ 1,000 998
Countrywide Funding Corporation..... 1,000 997
Potomac Capital Investment
Corporation...................... 1,000 999
SRD Finance Inc..................... 1,000 996
-------
TOTAL MONEY MARKET INSTRUMENTS--14.1%
(Cost: $4,991)...................... 4,989
-------
TOTAL INVESTMENTS--99.6%
(Cost: $30,571)..................... 35,234
CASH AND OTHER ASSETS, LESS
LIABILITIES--.4%...................... 139
-------
NET ASSETS--100%...................... $35,373
=======
</TABLE>
NOTES TO SMALL CAPITALIZATION EQUITY PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
Based on the cost of investments of $30,571,000 for federal income tax purposes
at December 31, 1995, the aggregate gross unrealized appreciation was
$5,732,000, the aggregate gross unrealized depreciation was $1,069,000 and the
net unrealized appreciation on investments was $4,663,000.

<PAGE> 108

KEMPER INVESTORS FUND
FINANCIAL STATEMENTS

11
<PAGE> 109

KEMPER INVESTORS FUND

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
Small
Money Total High Government Cap
Market Return Yield Growth Securities International Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (Cost:
$67,177, $597,889, $253,027,
$390,598, $97,260, $137,325,
$43,015, $379, $3,437, $3,969,
$1,751, $583, $1,295 and $703,
respectively):.................. $67,177 671,577 251,850 449,091 96,685 158,640 52,544
Cash.............................. 667 4,376 979 384 788 -- 751
Receivable for:
Investments sold................ -- 5,408 1,880 6,430 5,530 3,909 1,769
Interest and dividends.......... 193 5,488 4,604 588 927 482 6
-------- -------- -------- -------- --------- ---------- ----------
Total assets................ 68,037 686,849 259,313 456,493 103,930 163,031 55,070
LIABILITIES AND NET ASSETS
Cash overdraft.................... -- -- -- -- -- 2,780 --
Payable for:
Investments purchased........... -- 8,807 5,571 4,720 16,510 1,647 2,058
Dividends....................... 99 -- -- -- -- -- --
Management fee.................. 26 311 126 225 40 98 29
Custodian and transfer agent
fees and related expenses..... 4 23 13 17 14 31 9
Other........................... 29 66 23 24 22 22 11
-------- -------- -------- -------- --------- ---------- ----------
Total liabilities........... 158 9,207 5,733 4,986 16,586 4,578 2,107
-------- -------- -------- -------- --------- ---------- ----------
Net assets........................ $67,879 677,642 253,580 451,507 87,344 158,453 52,963
======== ======== ======== ======== ========= ========== ==========
ANALYSIS OF NET ASSETS
Paid-in capital................... $68,729 554,799 271,864 345,391 79,109 126,792 42,070
Undistributed net realized gain
(loss) on investments and
foreign currency transactions... (850) 37,870 (22,184) 43,361 (4,140) 7,913 1,030
Net unrealized appreciation
(depreciation) on investments
and assets and liabilities in
foreign currencies.............. -- 73,716 (1,177) 58,556 (575) 22,011 9,529
Undistributed net investment
income.......................... -- 11,257 5,077 4,199 12,950 1,737 334
-------- -------- -------- -------- --------- ---------- ----------
Net assets applicable to shares
outstanding..................... $67,879 677,642 253,580 451,507 87,344 158,453 52,963
======== ======== ======== ======== ========= ========== ==========
THE PRICING OF SHARES
Shares outstanding................ 67,879 266,285 216,084 147,416 75,731 106,206 34,921
======== ======== ======== ======== ========= ========== ==========
Net asset value and redemption
price per share (Net
assets divided by
shares outstanding).... $ 1.00 2.545 1.174 3.063 1.153 1.492 1.517
======== ======== ======== ======== ========= ========== ==========
</TABLE>

See accompanying notes to financial statements.

12
<PAGE> 110

<TABLE>
<CAPTION>
Investment Small
Grade Cap Value+
Bond Value Value Growth Horizon 20+ Horizon 10+ Horizon 5
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
379 3,451 3,828 1,726 576 1,283 699
61 70 24 44 54 66 65
-- -- 52 -- -- -- --
-- 6 4 1 1 1 --
--------- -------- -------- -------- --------- --------- --------
440 3,527 3,908 1,771 631 1,350 764
-- -- -- -- -- -- --
-- 326 16 127 47 38 12
-- -- -- -- -- -- --
-- 2 2 1 -- 1 --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
--------- -------- -------- -------- --------- --------- --------
-- 328 18 128 47 39 12
--------- -------- -------- -------- --------- --------- --------
440 3,199 3,890 1,643 584 1,311 752
========= ======== ======== ======== ========= ========= ========
437 3,177 4,110 1,664 588 1,317 752
-- (3) (103) -- 1 -- --
-- 14 (141) (25) (7) (12) (4)
3 11 24 4 2 6 4
--------- -------- -------- -------- --------- --------- --------
440 3,199 3,890 1,643 584 1,311 752
========= ======== ======== ======== ========= ========= ========
437 3,143 4,185 1,620 576 1,298 744
========= ======== ======== ======== ========= ========= ========
1.006 1.018 .930 1.015 1.013 1.010 1.010
========= ======== ======== ======== ========= ========= ========
</TABLE>

13
<PAGE> 111

KEMPER INVESTORS FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
Small
Money Total High Government Cap
Market Return Yield Growth Securities International Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------ ------- ------- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Interest......................... $1,973 9,537 12,694 1,635 3,390 138 170
Dividends........................ -- 2,947 101 2,306 -- 1,922 38
------ ------- ------- ------ ------ ------ -----
1,973 12,484 12,795 3,941 3,390 2,060 208
Less foreign taxes withheld...... -- -- -- -- -- 233 --
------ ------- ------- ------ ------ ------ -----
Total investment income........ 1,973 12,484 12,795 3,941 3,390 1,827 208
Expenses:
Management fee................... 179 1,847 745 1,300 250 558 145
Custodian and transfer agent fees
and related expenses........... 8 37 28 39 34 126 19
Professional fees................ 5 36 14 18 5 11 2
Trustees' fees and other......... 22 33 18 27 12 13 9
------ ------- ------- ------ ------ ------ -----
Total expenses................. 214 1,953 805 1,384 301 708 175
------ ------- ------- ------ ------ ------ -----
Net investment income.............. 1,759 10,531 11,990 2,557 3,089 1,119 33
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) on sales
of investments and foreign
currency transactions.......... (850) 38,614 (18) 44,333 203 8,070 1,190
Net realized gain (loss) from
futures transactions........... -- 143 (4) -- 134 -- --
------ ------- ------- ------ ------ ------ -----
Net realized gain (loss)....... (850) 38,757 (22) 44,333 337 8,070 1,190
Change in net unrealized
appreciation (depreciation) on
investments and assets and
liabilities in foreign
currencies..................... 850 (13,178) (898) (3,880) (5,241) 6,203 4,866
------ ------- ------- ------ ------ ------ -----
Net gain (loss) on investments..... -- 25,579 (920) 40,453 (4,904) 14,273 6,056
------ ------- ------- ------ ------ ------ -----
Net increase (decrease) in net
assets resulting from
operations....................... $1,759 36,110 11,070 43,010 (1,815) 15,392 6,089
====== ======= ======= ====== ====== ====== =====
</TABLE>

(a) For the period from May 1, 1996 (commencement of operations) to June 30,
1996.
See accompanying notes to financial statements.

14
<PAGE> 112

<TABLE>
<CAPTION>
Investment Small
Grade Cap Value+
Bond Value Value Growth Horizon 20+ Horizon 10+ Horizon 5
Portfolio(a) Portfolio(a) Portfolio(a) Portfolio(a) Portfolio(a) Portfolio(a) Portfolio(a)
------------- ------------ ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
2 4 6 1 -- 3 2
-- 10 21 3 2 1 1
------ ---------- ------ ------ ----------- ----------- -----
2 14 27 4 2 4 3
-- -- -- -- -- -- --
------ ---------- ------ ------ ----------- ----------- -----
2 14 27 4 2 4 3
-- 2 3 1 1 1 1
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- 1 -- 1 -- -- --
------ ---------- ------ ------ ----------- ----------- -----
-- 3 3 2 1 1 1
------ ---------- ------ ------ ----------- ----------- -----
2 11 24 2 1 3 2
-- (3) (103) -- 1 -- --
-- -- -- -- -- -- --
------ ---------- ------ ------ ----------- ----------- -----
-- (3) (103) -- 1 -- --
-- 14 (141) (25) (7) (12) (4)
------ ---------- ------ ------ ----------- ----------- -----
-- 11 (244) (25) (6) (12) (4)
------ ---------- ------ ------ ----------- ----------- -----
2 22 (220) (23) (5) (9) (2)
========== ========== ========= ========= ========= ========= =========
</TABLE>

15
<PAGE> 113

KEMPER INVESTORS FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
Money Market Total Return
Portfolio Portfolio
--------------------- ---------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operations:
Net investment income...................................................... $ 1,759 4,123 10,531 22,128
Net realized gain (loss)................................................... (850) -- 38,757 47,119
Change in unrealized appreciation (depreciation)........................... 850 (355) (13,178) 74,735
Capital contribution from investment manager............................... -- 355 -- --
------- ------- ------- -------
Net increase (decrease) in net assets resulting from operations.......... 1,759 4,123 36,110 143,982
Equalization credits (charges)............................................... -- -- 78 (1,827)
Dividends to shareholders:
Distribution from net investment income.................................... (1,759) (4,123) (22,873) (18,740)
Distribution from net realized gain on investments......................... -- -- (20,332) --
------- ------- ------- -------
Total dividends to shareholders.............................................. (1,759) (4,123) (43,205) (18,740)
Net increase (decrease) from capital share transactions...................... 6,801 (22,743) 24,765 (50,115)
------- ------- ------- -------
Total increase (decrease) in net assets...................................... 6,801 (22,743) 17,748 73,300
Net assets:
Beginning of period........................................................ 61,078 83,821 659,894 586,594
------- ------- ------- -------
End of period.............................................................. $67,879 61,078 677,642 659,894
======= ======= ======= =======
Undistributed net investment income at end of period......................... $ -- -- 11,257 23,521
======= ======= ======= =======
</TABLE>

See accompanying notes to financial statements.

16
<PAGE> 114

<TABLE>
<CAPTION>
Government
High Yield Growth Securities International Small Cap
Portfolio Portfolio Portfolio Portfolio Growth Portfolio
- ------------------- ------------------- ----------------- ------------------- ------------------
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
- ------- ------- ------- ------- ------ ------ ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11,990 25,037 2,557 4,087 3,089 6,923 1,119 1,758 33 97
(22) (2,027) 44,333 58,852 337 2,908 8,070 1,344 1,190 1,186
(898) 15,859 (3,880) 36,452 (5,241) 7,318 6,203 12,368 4,866 4,361
-- -- -- -- -- -- -- -- -- --
- ------- ------- ------- ------- ------ ------ ------- ------- ------- ------
11,070 38,869 43,010 99,391 (1,815) 17,149 15,392 15,470 6,089 5,644
(3,301) 36 472 249 (118) (2,310) 115 (37) 77 97
(24,806) (22,165) (5,021) (1,120) (6,507) (6,202) (2,089) (970) -- (76)
-- -- (58,998) (24,649) -- -- (1,044) (1,941) (1,209) --
- ------- ------- ------- ------- ------ ------ ------- ------- ------- ------
(24,806) (22,165) (64,019) (25,769) (6,507) (6,202) (3,133) (2,911) (1,209) (76)
13,240 21,222 57,511 18,954 599 (9,234) 11,598 (751) 12,633 16,799
- ------- ------- ------- ------- ------ ------ ------- ------- ------- ------
(3,797) 37,962 36,974 92,825 (7,841) (597) 23,972 11,771 17,590 22,464
257,377 219,415 414,533 321,708 95,185 95,782 134,481 122,710 35,373 12,909
- ------- ------- ------- ------- ------ ------ ------- ------- ------- ------
253,580 257,377 451,507 414,533 87,344 95,185 158,453 134,481 52,963 35,373
======= ======= ======= ======= ====== ====== ======= ======= ======= ======
5,077 21,194 4,199 6,191 12,950 16,486 1,737 2,592 334 224
======= ======= ======= ======= ====== ====== ======= ======= ======= ======
</TABLE>

17
<PAGE> 115

KEMPER INVESTORS FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM MAY 1, 1996 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
Investment Small
Grade Bond Value Cap Value
Portfolio Portfolio Portfolio
---------- --------- ---------
<S> <C> <C> <C>
Operations:
Net investment income............................................................. $ 2 11 24
Net realized gain (loss).......................................................... -- (3) (103)
Change in unrealized appreciation (depreciation).................................. -- 14 (141)
----- ------- -------
Net increase (decrease) in net assets resulting from operations................. 2 22 (220)
Equalization credits................................................................ 1 -- --
Net increase from capital share transactions........................................ 337 3,077 4,010
----- ------- -------
Total increase in net assets........................................................ 340 3,099 3,790
Net assets:
Beginning of period............................................................... 100 100 100
----- ------- -------
End of period..................................................................... $440 3,199 3,890
======= ======= =======
Undistributed net investment income at end of period................................ $ 3 11 24
======= ======= =======
</TABLE>

See accompanying notes to financial statements.

18
<PAGE> 116

<TABLE>
<CAPTION>
Value+
Growth Horizon 20+ Horizon 10+ Horizon 5
Portfolio Portfolio Portfolio Portfolio
- --------- ----------- ----------- ---------
<S> <C> <C> <C>
2 1 3 2
-- 1 -- --
(25) (7) (12) (4)
- ------- --- ----- ---
(23) (5) (9) (2)
2 1 3 2
1,564 488 1,217 652
- ------- --- ----- ---
1,543 484 1,211 652
100 100 100 100
- ------- --- ----- ---
1,643 584 1,311 752
======= ======= ======== ======
4 2 6 4
======= ======= ======== ======
</TABLE>

19
<PAGE> 117

KEMPER INVESTORS FUND

NOTES TO FINANCIAL STATEMENTS

(1) DESCRIPTION OF THE FUND
Kemper Investors Fund (the "Fund") is an open-end, diversified management
investment company organized as a business trust under the laws of
Massachusetts. The Fund offers multiple Portfolios, currently consisting of the
Money Market, Total Return, High Yield, Growth, Government Securities,
International, Small Cap Growth, Investment Grade Bond, Value, Small Cap Value,
Value + Growth, Horizon 20+, Horizon 10+ and Horizon 5 Portfolios.

(2) SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION.
Investments are stated at value.

The securities of the Portfolios (excluding the Money Market Portfolio) that are
traded on a domestic securities exchange or securities listed on the NASDAQ
National Market are valued at the last sale price on the exchange or market
where primarily traded or listed or, if there is no recent sale, at the last
current bid quotation. Portfolio securities that are primarily traded on foreign
securities exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges where primarily traded. A security
that is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for that security by the Board
of Trustees or its delegates. Securities not so traded or listed are valued at
the last current bid quotation if market quotations are available. Fixed income
securities are valued by using market quotations, or independent pricing
services that use prices provided by market makers or estimates of market values
obtained from yield data relating to instruments or securities with similar
characteristics. Equity options are valued at the last sale price unless the bid
price is higher or the asked price is lower, in which event such bid or asked
price is used. Exchange traded fixed income options are valued at the last sale
price unless there is no sale price, in which event prices provided by market
makers are used. Over-the-counter traded fixed income options are valued based
upon prices provided by market makers. Financial futures and options thereon are
valued at the settlement price established each day by the board of trade or
exchange on which they are traded. Forward foreign currency contracts and
foreign currencies are valued at the forward and current exchange rates,
respectively, prevailing on the day of valuation. Other securities and assets
are valued at fair value as determined in good faith by the Board of Trustees.

CURRENCY TRANSLATION.

20
<PAGE> 118

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.

Investment transactions are accounted for on the trade date (date the order to
buy or sell is executed). Dividend income is recorded on the ex-dividend date,
except that certain dividends from foreign securities are recorded as soon as
the information is available to the Fund. Interest income is recorded on the
accrual basis and includes discount amortization on all fixed income securities
and premium amortization on mortgage-backed securities. Realized gains and
losses from investment transactions are reported on an identified cost basis.

Several of the Portfolios may purchase securities with delivery or payment to
occur at a later date. At the time a Portfolio enters into a commitment to
purchase a security, the transaction is recorded and the value of the security
is reflected in the net asset value. The value of the security may vary with
market fluctuations. No interest accrues to the Portfolio until payment takes
place. At the time the Portfolio enters into this type of transaction it is
required to segregate cash or other liquid assets equal to the value of the
securities purchased. At June 30, 1996, the Government Securities Portfolio had
$16,252,000 of purchase commitments outstanding (19% of net assets) with a
corresponding amount of assets segregated.

EXPENSES.

Expenses arising in connection with a Portfolio are allocated to that Portfolio.
Other Fund expenses are allocated among the Portfolios in proportion to their
relative net assets.

FUND SHARE VALUATION.

Shares of each Portfolio of the Fund are offered on a continuous basis to the
separate accounts of participating insurance companies where permitted by law.
On each day the New York Stock Exchange is open for trading, each Portfolio
determines its net asset value per share (NAV) by dividing the total value of
the Portfolio's investments and other assets, less liabilities, by the number of
Portfolio shares outstanding. The NAV is determined as of the earlier of 3:00
p.m. Chicago time or the close of the Exchange for all Portfolios except the
Money Market Portfolio, and at 11:00 a.m. and as of the earlier of 3:00 p.m.
Chicago time or the close of the Exchange for the Money Market Portfolio.
Because of the need to obtain prices as of the close of trading on various
exchanges throughout the world, the calculation of net asset value for the
International Portfolio does not take place contemporaneously with the
determination of prices of the Fund's foreign securities.

FEDERAL INCOME TAXES.

Each Portfolio has complied or intends to comply with the special provisions of
the Internal Revenue Code available to investment companies for the six months
ended June 30, 1996. The accumulated net realized loss on sales of investments
for federal income tax purposes at June 30, 1996 amounted to approximately
$22,163,000 in the High Yield Portfolio and $3,567,000 in the Government
Securities Portfolio. These losses are available to offset future taxable gains
in the respective Portfolios and, if not applied, expire during the period 1998
through 2004.

DIVIDENDS TO SHAREHOLDERS.

All Portfolios except the Money Market Portfolio declare and pay dividends of
net investment income and net realized capital gains annually, which are
recorded on the ex-dividend date. The Money Market Portfolio declares a daily
dividend equal to its net investment income for that day, payable monthly.

Shareholders will receive dividends in additional shares.

21
<PAGE> 119

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Dividends are determined in accordance with income tax principles which may
treat certain transactions differently from generally accepted accounting
principles. These differences are primarily due to differing treatments for
certain transactions such as foreign currency transactions, if applicable.

EQUALIZATION ACCOUNTING.

(3) TRANSACTIONS WITH AFFILIATES

The Fund has a management agreement with Zurich Kemper Investments, Inc. (ZKI),
the Fund's investment manager for each Portfolio except the Value and Small Cap
Value Portfolios. For management services and facilities furnished, the Fund
pays a fee, based on average daily net assets, at an annual rate of .50% for the
Money Market Portfolio, .55% for the Total Return and Government Securities
Portfolios, .60% for the High Yield, Growth, Investment Grade Bond, Horizon 20+,
Horizon 10+ and Horizon 5 Portfolios, .65% for the Small Cap Growth Portfolio
and .75% for the International and Value + Growth Portfolios. Dreman Value
Advisors, Inc. (DVA), a wholly owned subsidiary of ZKI, serves as the investment
manager for the Value and the Small Cap Value Portfolios and is paid a
management fee at an annual rate of .75% of average daily net assets of such
Portfolios. DVA also serves as sub-adviser for the Value + Growth and Horizon
Portfolios. For the six months ended June 30, 1996, the Fund incurred management
fees of $5,033,000. Kemper Distributors, Inc., an affiliate of ZKI, is the
distributor and principal underwriter for shares of the Fund.

Certain officers or trustees of the Fund are also officers or directors of ZKI
or DVA. During the six months ended June 30, 1996, the Fund made no direct
payments to its officers and incurred trustees' fees of $83,000 to independent
trustees.

(4) INVESTMENT TRANSACTIONS

For the six months ended June 30, 1996, investment transactions (excluding
short-term investments) are as follows (in thousands):

<TABLE>
<CAPTION>
Total High Government Small
Return Yield Growth Securities International Cap Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Purchases............................... $ 331,820 166,110 276,247 149,993 94,601 36,156
Proceeds from sales..................... 319,171 160,608 245,379 144,791 77,687 23,905
</TABLE>

For the period from May 1, 1996 to June 30, 1996, investment transactions
(excluding short-term investments) are as follows (in thousands):

<TABLE>
<CAPTION>
Investment
Grade Small Value + Horizon Horizon Horizon
Bond Value Cap Value Growth 20+ 10+ 5
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Purchases........................ $ 30 4,632 5,995 1,651 488 802 305
Proceeds from sales.............. -- 1,849 2,601 -- 6 6 --
</TABLE>

22
<PAGE> 120

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(5) CAPITAL SHARE TRANSACTIONS

The following tables summarize the activity in capital shares of the Fund (in
thousands):

<TABLE>
<CAPTION>
Six months ended June 30, 1996
---------------------------------------------------------------------------------------------------------------------------
Money Government
Market Total Return High Yield Growth Securities
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ------------------ ----------------- ----------------- -----------------
(a) Shares Amount Shares Amount Shares Amount Shares Amount
--------- ------- --------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold... $ 70,069 20,334 $ 50,834 44,753 $ 51,926 14,881 $ 46,625 5,932 $ 5,151
Shares issued
in reinvest-
ment of
dividends... 1,819 17,682 43,205 21,456 24,806 22,196 64,019 5,657 6,507
-------- ------- -------- ------- -------- ------- -------- ------- --------
71,888 38,016 94,039 66,209 76,732 37,077 110,644 11,589 11,658
Shares
redeemed... (65,087) (27,609) (69,274) (54,582) (63,492) (16,747) (53,133) (10,850) (11,059)
-------- ------- -------- ------- -------- ------- -------- ------- -------
Net increase
from capital
share trans-
actions... $ 6,801 10,407 $ 24,765 11,627 $ 13,240 20,330 $ 57,511 739 $ 599
======== ======= ======== ======= ======== ======= ======== ======= ========
</TABLE>

<TABLE>
<CAPTION>
Six months ended June 30, 1996
---------------------------------------------------------------------------------------------------------------------------

International Small Cap
Portfolio Growth Portfolio
----------------- ----------------
Shares Amount Shares Amount
------- -------- ------ --------
<S> <C> <C> <C> <C>
Shares sold... 20,085 $ 28,825 13,927 $ 20,354
Shares issued
in reinvest-
ment of
dividends... 2,155 3,133 840 1,209
------ ------- -------- ------
22,240 31,958 14,767 21,563
Shares
redeemed... (14,153) (20,360) (6,129) (8,930)
------- -------- ------ -------
Net increase
from capital
share trans-
actions... 8,087 $ 11,598 8,638 $ 12,633
======= ======== ====== =======
</TABLE>

(a) For the Money Market Portfolio, dollar amounts and number of shares are the
same.

<TABLE>
<CAPTION>
May 1, 1996 to June 30, 1996
------------------------------------------------------
Investment
Grade Bond Value Small Cap
Portfolio Portfolio Value Portfolio
----------------- ----------------- ----------------
Shares Amount Shares Amount Shares Amount
------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................................................. 345 $ 345 3,053 $ 3,088 4,095 $ 4,020
Shares redeemed......................................................... (8) (8) (10) (11) (10) (10)
--- ---- ----- ------ ----- ------
Net increase from capital share transactions............................ 337 $ 337 3,043 $ 3,077 4,085 $ 4,010
=== ==== ===== ====== ===== ======
</TABLE>

<TABLE>
<CAPTION>
May 1, 1996 to June 30, 1996
-------------------------------------------------------------------------
Value+Growth Horizon 20+ Horizon 10+ Horizon 5
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount
------- -------- ------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold............................................ 1,604 $ 1,651 496 $ 509 1,201 $ 1,220 697 $ 705
Shares redeemed........................................ (84) (87) (20) (21) (3) (3) (53) (53)
----- ------ --- ---- ----- ------ --- ----
Net increase from capital share transactions........... 1,520 $ 1,564 476 $ 488 1,198 $ 1,217 644 $ 652
===== ====== === ==== ===== ====== === ====
</TABLE>

23
<PAGE> 121

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
Year ended December 31, 1995
-----------------------------------------------------------------------------------------------------------
Money Government
Market Total Return High Yield Growth Securities International
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ------------------ ----------------- ------------------ ----------------- -----------------
(a) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
--------- ------- --------- ------- -------- ------- --------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold... $ 122,960 35,774 $ 81,265 74,793 $ 84,004 40,308 $117,495 38,793 $ 36,895 29,450 $ 37,549
Shares issued in
reinvestment
of dividends... 4,191 8,512 18,740 19,366 22,165 9,679 25,769 5,447 6,202 2,361 2,911
--------- ------- --------- ------- -------- ------- --------- ------- -------- ------- --------
127,151 44,286 100,005 94,159 106,169 49,987 143,264 44,240 43,097 31,811 40,460
Shares redeemed... (149,894) (66,098) (150,120) (74,907) (84,947) (43,622) (124,310) (53,140) (52,331) (32,312) (41,211)
--------- ------- --------- ------- -------- ------- --------- ------- -------- ------- --------
Net increase
(decrease) from
capital share
transactions... $ (22,743) (21,812) $ (50,115) 19,252 $ 21,222 6,365 $ 18,954 (8,900) $ (9,234) (501) $ (751)
========= ======= ========= ======= ======== ======= ========= ======= ======== ======= ========
</TABLE>

Small Cap
Growth Portfolio
----------------
Shares Amount
------ --------
<S> <C> <C>
Shares sold... 22,379 $ 26,856
Shares issued in
reinvestment
of dividends... 71 76
------ --------
22,450 26,932
Shares redeemed... (8,586) (10,133)
------ --------
Net increase
(decrease) from
capital share
transactions... 13,864 $ 16,799
====== ========
- -----------------
</TABLE>
(a) For the Money Market Portfolio, dollar amounts and number of shares are the
same.

(6) FINANCIAL FUTURES CONTRACTS

The Total Return, High Yield and Government Securities Portfolios have entered
into exchange traded financial futures contracts in order to help protect
themselves from anticipated market conditions and, as such, bear the risk that
arises from owning these contracts. At the time a Portfolio enters into a
futures contract, it is required to make a margin deposit with its custodian.
Subsequently, gain or loss is recognized and payments are made on a daily basis
between the Portfolios and the broker as the market value of the futures
contract fluctuates. At June 30, 1996, the market value of assets pledged by the
Portfolios to cover margin requirements for open futures positions were
$135,000, $26,000 and $1,055,000 for the Total Return, High Yield and Government
Securities Portfolios, respectively. The Portfolios also had liquid securities
in their portfolio sufficient to cover the following short Treasury futures
positions open at June 30, 1996 that expire in September, 1996.

<TABLE>
<CAPTION>
Face Loss at
Portfolio amount 6/30/96
<S> <C> <C>
- -----------------------------------------------------
Total Return $ 3,517,000 $ (31,000)
- -----------------------------------------------------
High Yield 1,591,000 (22,000)
- -----------------------------------------------------
Government Securities 97,266,000 (1,153,000)
- -----------------------------------------------------
</TABLE>

24
<PAGE> 122

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(7) FORWARD FOREIGN CURRENCY CONTRACTS

In order to protect themselves against a decline in the value of particular
foreign currencies against the U.S. Dollar, the Total Return, Growth and
International Portfolios have entered into forward contracts to deliver foreign
currency in exchange for U.S. Dollars as described below. The Portfolios bear
the market risk that arises from changes in foreign exchange rates, and
accordingly, the net unrealized gain on these contracts is reflected in the
accompanying financial statements. The Portfolios also bear the credit risk if
the counterparty fails to perform under the contract. At June 30, 1996, the
Portfolios had the following forward foreign currency contracts outstanding with
settlement dates in July, 1996:

TOTAL RETURN PORTFOLIO

<TABLE>
<CAPTION>
Unrealized
Contract gain
Foreign Currency amount in (loss)
to be delivered U.S. dollars at 6/30/96
<S> <C> <C>
- ------------------------------------------------------------
130,000 British Pounds $ 196,000 $ (6,000)
- ------------------------------------------------------------
285,000 Dutch Guilders 170,000 3,000
- ------------------------------------------------------------
1,320,000 French Francs 259,000 3,000
- ------------------------------------------------------------
80,565,000 Japanese Yen 760,000 24,000
- ------------------------------------------------------------
148,000 Swiss Francs 122,000 4,000
- ------------------------------------------------------------
Net unrealized
gain $ 28,000
- ------------------------------------------------------------
</TABLE>

GROWTH PORTFOLIO

<TABLE>
<CAPTION>
Unrealized
Contract gain
Foreign Currency amount in (loss)
to be delivered U.S. dollars at 6/30/96
<S> <C> <C>
- ------------------------------------------------------------
385,000 British Pounds $ 582,000 $ (15,000)
- ------------------------------------------------------------
609,000 Dutch Guilders 356,000 (1,000)
- ------------------------------------------------------------
2,100,000 French Francs 405,000 (3,000)
- ------------------------------------------------------------
255,354,000 Japanese Yen 2,414,000 82,000
- ------------------------------------------------------------
463,000 Swiss Francs 372,000 --
- ------------------------------------------------------------
Net unrealized
gain $ 63,000
- ------------------------------------------------------------
</TABLE>

INTERNATIONAL PORTFOLIO

<TABLE>
<CAPTION>
Unrealized
Contract gain
Foreign Currency amount in (loss)
to be delivered U.S. dollars at 6/30/96
<S> <C> <C>
- ------------------------------------------------------------
3,022,000 British Pounds $ 4,565,000 $ (130,000)
- ------------------------------------------------------------
13,530,000 Dutch Guilders 7,998,000 64,000
- ------------------------------------------------------------
25,750,000 French Francs 5,013,000 9,000
- ------------------------------------------------------------
2,551,000,000 Japanese Yen 23,962,000 662,000
- ------------------------------------------------------------
4,909,000 Swiss Francs 4,006,000 80,000
- ------------------------------------------------------------
Net unrealized
gain $ 685,000
- ------------------------------------------------------------
</TABLE>

25
<PAGE> 123

FINANCIAL HIGHLIGHTS

MONEY MARKET PORTFOLIO

NOTE TO MONEY MARKET PORTFOLIO:

TOTAL RETURN PORTFOLIO

<TABLE>
<CAPTION>
Six months
ended
June 30, Year ended December 31,
1996 1995 1994 1993 1992
---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............................. $ 2.579 2.112 2.586 2.473 2.658
Income from investment operations:
Net investment income........................................... .040 .084 .069 .069 .061
Net realized and unrealized gain (loss)......................... .096 .453 (.313) .214 (.026)
---------- ------- ------- ------- -------
Total from investment operations.................................. .136 .537 (.244) .283 .035
Less dividends:
Distribution from net investment income......................... .090 .070 .060 .050 .080
Distribution from net realized gain............................. .080 -- .170 .120 .140
---------- ------- ------- ------- -------
Total dividends................................................... .170 .070 .230 .170 .220
---------- ------- ------- ------- -------
Net asset value, end of period.................................... $ 2.545 2.579 2.112 2.586 2.473
========== ======= ======= ======= =======
TOTAL RETURN (NOT ANNUALIZED)..................................... 5.54% 25.97 (9.50) 12.13 1.69
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses.......................................................... .58% .60 .61 .59 .60
Net investment income............................................. 3.14% 3.52 3.13 3.19 3.41
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands)........................ $677,642 659,894 586,594 643,830 528,007
Portfolio turnover rate (annualized).............................. 94% 118 128 191 160
</TABLE>

Average commission rate paid per share on stock transactions for the six months
ended June 30, 1996 was $.0576.

26
<PAGE> 124

FINANCIAL HIGHLIGHTS--(CONTINUED)

HIGH YIELD PORTFOLIO

<TABLE>
<CAPTION>
Year ended December 31,
Six months
ended June
30, 1996 1995 1994 1993 1992
---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............................. $ 1.259 1.185 1.338 1.209 1.144
Income from investment operations:
Net investment income........................................... .060 .125 .116 .120 .125
Net realized and unrealized gain (loss)......................... (.005) .069 (.149) .109 .070
---------- ------- ------- ------- -------
Total from investment operations.................................. .055 .194 (.033) .229 .195
Less distribution from net investment income...................... .140 .120 .120 .100 .130
---------- ------- ------- ------- -------
Net asset value, end of period.................................... $ 1.174 1.259 1.185 1.338 1.209
========== ======= ======= ======= =======
TOTAL RETURN (NOT ANNUALIZED)..................................... 4.51% 17.40 (2.25) 20.00 17.76
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses.......................................................... .65% .65 .65 .63 .64
Net investment income............................................. 9.66% 10.27 9.49 9.54 10.44
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands)........................ $253,580 257,377 219,415 233,964 162,158
Portfolio turnover rate (annualized).............................. 121% 90 98 84 57
</TABLE>

GROWTH PORTFOLIO

<TABLE>
<CAPTION>
Year ended December 31,
Six months
ended
June 30,
1996 1995 1994 1993 1992
---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............................. $ 3.262 2.665 2.935 2.631 2.642
Income from investment operations:
Net investment income........................................... .019 .034 .018 .004 .007
Net realized and unrealized gain (loss)......................... .292 .793 (.138) .370 .082
---------- ------- ------- ------- -------
Total from investment operations.................................. .311 .827 (.120) .374 .089
Less dividends:
Distribution from net investment income......................... .040 .010 -- .010 .005
Distribution from net realized gain............................. .470 .220 .150 .060 .095
---------- ------- ------- ------- -------
Total dividends................................................... .510 .230 .150 .070 .100
---------- ------- ------- ------- -------
Net asset value, end of period.................................... $ 3.063 3.262 2.665 2.935 2.631
========== ======= ======= ======= =======
TOTAL RETURN (NOT ANNUALIZED)..................................... 10.50% 32.97 (4.02) 14.63 3.57
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses.......................................................... .64% .64 .66 .64 .64
Net investment income............................................. 1.18% 1.15 .69 .30 .65
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands)........................ $451,507 414,533 321,708 284,461 203,624
Portfolio turnover rate (annualized).............................. 124% 88 106 78 78
</TABLE>

Average commission rate paid per share on stock transactions for the six months
ended June 30, 1996 was $.0477.

27
<PAGE> 125

FINANCIAL HIGHLIGHTS--(CONTINUED)

GOVERNMENT SECURITIES PORTFOLIO

<TABLE>
<CAPTION>
Six months
ended
June 30, Year ended December 31,
1996 1995 1994 1993 1992
---------- ------ ------ ------------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $ 1.269 1.142 1.267 1.277 1.287
Income from investment operations:
Net investment income................................... .041 .084 .067 .060 .064
Net realized and unrealized gain (loss)................. (.067) .123 (.102) .020 .006
---------- ------ ------ ------------ ------
Total from investment operations.......................... (.026) .207 (.035) .080 .070
Less dividends:
Distribution from net investment income................. .090 .080 .060 .060 .050
Distribution from net realized gain..................... -- -- .030 .030 .030
---------- ------ ------ ------------ ------
Total dividends........................................... .090 .080 .090 .090 .080
---------- ------ ------ ------------ ------
Net asset value, end of period............................ $ 1.153 1.269 1.142 1.267 1.277
========== ====== ====== ============ ======
TOTAL RETURN (NOT ANNUALIZED)............................. (2.02)% 18.98 (2.74) 6.48 5.90
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses.................................................. .66% .65 .63 .60 .61
Net investment income..................................... 6.80% 7.08 5.69 5.05 6.08
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands)................ $ 87,344 95,185 95,782 121,912 98,814
Portfolio turnover rate (annualized)...................... 290% 275 606 534 492
</TABLE>

INTERNATIONAL PORTFOLIO

<TABLE>
<CAPTION>
Six months January 6,
ended 1992 to
June 30, Year ended December 31, December 31,
1996 1995 1994 1993 1992
---------- ------- ------- ------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 1.371 1.244 1.306 .993 1.000
Income from investment operations:
Net investment income..................................... .010 .018 .009 .010 .010
Net realized and unrealized gain (loss)................... .141 .139 (.056) .313 (.017)
---------- ------- ------- ------ ------
Total from investment operations............................ .151 .157 (.047) .323 (.007)
Less dividends:
Distribution from net investment income................... .020 .010 -- .009 --
Distribution from net realized gain....................... .010 .020 .015 .001 --
---------- ------- ------- ------ ------
Total dividends............................................. .030 .030 .015 .010 --
---------- ------- ------- ------ ------
Net asset value, end of period.............................. $ 1.492 1.371 1.244 1.306 .993
========== ======= ======= ====== ============
TOTAL RETURN (NOT ANNUALIZED)............................... 11.10% 12.83 (3.59) 32.83 (.72)
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses.................................................... .95% .92 .93 .92 1.11
Net investment income....................................... 1.51% 1.39 .74 .86 1.01
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands).................. $158,453 134,481 122,710 88,880 19,447
Portfolio turnover rate (annualized)........................ 101% 126 107 116 129
</TABLE>

Average commission rate paid per share on stock transactions for the six months
ended June 30, 1996 was $.0199. Foreign commissions usually are lower than U.S.
commissions when expressed as cents per share due to the lower per share price
of many non-U.S. securities.

28
<PAGE> 126

FINANCIAL HIGHLIGHTS--(CONTINUED)

SMALL CAP GROWTH PORTFOLIO

<TABLE>
<CAPTION>
Six months May 2, 1994
ended Year ended to
June 30, 1996 December 31, 1995 December 31, 1994
------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................ $ 1.346 1.039 1.000
Income from investment operations:
Net investment income......................................... .041 .005 .008
Net realized and unrealized gain.............................. .170 .307 .031
------- ------ ------
Total from investment operations................................ .211 .312 .039
Less dividends:
Distribution from net investment income....................... -- .005 --
Distribution from net realized gain........................... .040 -- --
------- ------ ------

Total dividends................................................. .040 .005 --
------- ------ ------
Net asset value, end of period.................................. $ 1.517 1.346 1.039
======= ====== ======
TOTAL RETURN (NOT ANNUALIZED)................................... 15.82% 30.07 3.95
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses........................................................ .78% .87 1.25
Net investment income........................................... .15% .42 .91
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands)...................... $52,963 35,373 12,909
Portfolio turnover rate (annualized)............................ 123% 81 58
</TABLE>

Average commission rate paid per share on stock transactions for the six months
ended June 30, 1996 was $.0561.

29
<PAGE> 127

FINANCIAL HIGHLIGHTS--(CONTINUED)

FOR THE PERIOD MAY 1, 1996 TO JUNE 30, 1996

<TABLE>
<CAPTION>
Investment Small Value+
Grade Bond Value Cap Value Growth Horizon 20+ Horizon 10+ Horizon 5
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
---------- --------- --------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $1.000 1.000 1.000 1.000 1.000 1.000 1.000
Income from investment
operations:
Net investment income.......... .006 .004 .006 .003 .024 .019 .015
Net realized and unrealized
gain (loss).................. -- .014 (.076) .012 (.011) (.009) (.005)
------ ----- ----- ----- ----- ----- -----
Total from investment
operations..................... .006 .018 (.070) .015 .013 .010 .010
Net asset value, end of period... $1.006 1.018 .930 1.015 1.013 1.010 1.010
====== ===== ===== ===== ===== ===== =====
TOTAL RETURN (NOT ANNUALIZED).... .62% 1.79 (7.05) 1.45 1.26 1.03 .99
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Expenses......................... .74% .90 .85 .89 .74 .74 .74
Net investment income............ 3.61% 4.19 5.94 1.53 3.11 2.61 2.96
SUPPLEMENTAL DATA:
Net assets at end of period
(in thousands)................. $ 440 3,199 3,890 1,643 584 1,311 752
Portfolio turnover rate
(annualized)................... --% 520 568 -- 15 9 --
Average commission rate paid per
share on stock transactions.... $ -- .0500 .0500 .0595 .0597 .0595 .0592
</TABLE>

30
<PAGE> 128

KEMPER INVESTORS FUND
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Value
-------
<S> <C>
CORPORATE OBLIGATIONS
CAPITAL AND MORTGAGE LENDING--8.8%
Countrywide Funding Corporation
5.51%, 7/31/96................................. $ 2,001
PHH Corporation
5.38%, 7/23/96................................. 1,993
SRD Finance Inc.
5.47%, 7/18/96................................. 1,994
-------
5,988
CAPTIVE AUTO FINANCE--8.8%
Ford Motor Credit Company
5.36%, 7/19/96................................. 1,994
General Motors Acceptance Corp.
5.36%, 7/3/96.................................. 1,999
Mitsubishi Motors Credit of America, Inc.
5.47%, 8/1/96.................................. 1,990
-------
5,983
CAPTIVE BUSINESS FINANCE--20.6%
B.A.T Capital Corp.
5.38%, 7/26/96................................. 1,992
CSW Credit, Inc.
5.39%, 7/26/96................................. 1,992
(a)Finova Capital Corporation
5.56%, 7/15/96................................. 2,000
Orix America Inc.
5.43%-5.62%, 7/1/96-9/3/96..................... 3,979
(a)USL Capital Corporation
5.62%, 8/29/96................................. 2,001
Xerox Credit Corporation
5.37%, 7/23/96................................. 1,993
-------
13,957
CONSUMER PRODUCTS AND SERVICES--5.9%
American Home Products Corporation
5.45%, 8/15/96................................. 1,986
Sony Capital Corporation
5.38%, 7/17/96................................. 1,995
-------
3,981
CORPORATE FINANCING--14.7%
Astro Capital Corp.
5.50%, 8/30/96................................. 1,981
B I Funding Inc.
5.38%, 7/17/96................................. 1,995
Broadway Capital Corp.
5.52%, 7/1/96.................................. 1,999
Ranger Funding Corporation
5.40%, 7/3/96.................................. 1,999
Windmill Funding Corporation
5.38%, 7/22/96................................. 1,993
-------
9,967

<CAPTION>
Value
-------
<S> <C>
ENERGY AND UTILITIES--7.9%
DIC Americas, Inc.
5.47%, 7/11/96................................. $ 1,996
New England Power Co.
5.42%, 7/18/96................................. 3,340
-------
5,336
FINANCIAL SERVICES--8.8%
(a)Bear Stearns Companies Inc.
5.51%, 7/19/96................................. 2,000
Dean Witter, Discover & Co.
5.39%, 7/9/96.................................. 1,997
(a)Goldman, Sachs & Co.
5.55%, 7/25/96................................. 2,000
-------
5,997
INFORMATION SERVICES--5.9%
International Business Machines Corp.
5.26%, 2/28/97................................. 1,997
Nynex Corporation
5.43%, 8/9/96.................................. 1,988
-------
3,985
MANUFACTURING AND INDUSTRIAL PRODUCTS--2.9%
Bridgestone/Firestone, Inc.
5.45%, 7/22/96................................. 1,993

RECEIVABLES FINANCING--11.7%
(a)Heller Financial, Inc.
5.66%, 7/1/96.................................. 2,002
Jet Funding Corporation
5.54%, 9/30/96................................. 1,972
Old Line Funding Corp.
5.43%, 7/18/96................................. 1,994
Receivables Capital Corp.
5.35%, 7/16/96................................. 1,995
-------
7,963
-------
TOTAL CORPORATE OBLIGATIONS--96.0%
(average maturity: 31 days)....................... 65,150

U.S. TREASURY NOTE--3.0%
(average maturity: 214 days)
5.04%, 1/31/97................................. 2,027
-------
TOTAL INVESTMENTS--99.0%
(average maturity: 36 days)....................... 67,177

CASH AND OTHER ASSETS,
LESS LIABILITIES--1.0%............................ 702
-------
NET ASSETS--100%.................................. $67,879
=======
</TABLE>

See accompanying notes to Money Market Portfolio of Investments.

31
<PAGE> 129

NOTES TO MONEY MARKET PORTFOLIO OF INVESTMENTS

Interest rates represent annualized yield to date of maturity, except for
variable rate securities described in Note (a). For each security, cost (for
financial reporting and federal income tax purposes) and carrying value are the
same. Likewise, carrying value approximates principal amount.

(a) Variable rate securities. The rates shown are the current rates at June 30,
1996. The dates shown represent the demand date or next interest rate change
date.

See accompanying notes to financial statements.

32
<PAGE> 130

KEMPER INVESTORS FUND

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Principal
Amount or
Number
of Shares Value
---------- --------
<S> <C> <C>
GOVERNMENT OBLIGATIONS
U.S. Treasury Notes
7.75%, 2000..................... $ 10,000 $ 10,430
7.875%, 2001.................... 7,000 7,416
7.75%, 2001..................... 9,000 9,464
6.25%, 2003..................... 8,500 8,359
7.25%, 2004..................... 33,000 34,218
6.50%, 2005..................... 4,200 4,146
U.S. Treasury Bonds
12.00%, 2013.................... 1,800 2,541
12.50%, 2014.................... 13,000 19,153
Government of Canada,
8.625%, 2005.................... 2,000 2,157
--------
TOTAL GOVERNMENT OBLIGATIONS--14.4%
(Cost: $97,886)................... 97,884

COMMON STOCKS
BASIC INDUSTRIES--2.6%
Air Products & Chemicals.......... 92,500shs. 5,342
Crown Cork & Seal Co.............. 33,700 1,517
Monsanto Co....................... 175,000 5,688
Praxair, Inc...................... 106,100 4,483
Sumitomo Metal Industries......... 50,000 153
Toray Industries.................. 23,000 159
--------
17,342
CAPITAL GOODS--7.2%
Boeing Co......................... 86,000 7,493
Emerson Electric Co............... 70,900 6,408
Fluor Corp........................ 89,000 5,818
General Electric Co............... 161,600 13,978
B.F. Goodrich Co.................. 165,000 6,167
Honda Motor Co., Ltd. ............ 6,000 155
Illinois Tool Works............... 36,500 2,468
Mitsubishi Heavy Industries....... 18,000 156
Technip S.A. ..................... 1,734 159
York International Corp........... 120,900 6,256
--------
49,058
CONSUMER CYCLICALS--8.2%
Burton Group PLC.................. 70,330 170
Carnival Corp..................... 200,000 5,775
(b)Circus Circus Enterprises...... 94,900 3,891
(b)Consolidated Stores
Corporation.................... 85,000 3,124
Walt Disney Company............... 100,000 6,288
(b)Federated Department Stores.... 119,000 4,061

<CAPTION>
Number
of Shares Value
---------- --------
<S> <C> <C>
Harcourt General.................. 31,600 $ 1,580
Hilton Hotels..................... 35,000 3,938
Liberty Media Group, "A".......... 145,000 3,842
Lowes Companies................... 80,000 2,890
Manpower, Inc. ................... 75,000 2,944
Marriott International............ 98,500 5,294
Merrill Lynch & Co.
(convertible preferred)........... 96,000 2,124
(b)Mirage Resorts, Inc............ 73,000 3,942
Moet Hennessy Louis Vuitton....... 642 152
(b)OfficeMax Inc.................. 116,400 2,779
Pep Boys-Manny Moe & Jack......... 64,400 2,190
(b)Thrifty Payless Holdings....... 47,500 208
--------
55,192
CONSUMER DURABLES--1.6%
Leggett & Platt Incorporated...... 149,000 4,135
Magna International Inc........... 140,500 6,463
--------
10,598
CONSUMER STAPLES--8.1%
Avon Products..................... 50,000 2,256
Duracell International............ 100,000 4,313
Gillette Co....................... 75,000 4,678
Heineken N.V...................... 734 164
Melville Corp..................... 52,700 2,134
PepsiCo........................... 145,400 5,144
Philip Morris Companies........... 172,800 17,971
Procter & Gamble Co............... 101,700 9,216
Reed International PLC............ 8,968 150
Sysco Corp........................ 50,000 1,712
Warnaco Group..................... 190,000 4,892
Wendy's International............. 115,000 2,142
--------
54,772
ENERGY--1.4%
Enron Corp........................ 142,200 5,812
Mobil Corp........................ 31,000 3,476
--------
9,288
FINANCE--9.3%
Allstate Corp. ................... 120,000 5,475
American International Group,
Inc. ........................... 45,000 4,438
Bank of Boston.................... 85,800 4,247
Bank of Ireland................... 24,057 164
CITIC Pacific Ltd. ............... 42,000 170
Cheung Kong Holdings Ltd. ........ 22,000 158
Dean Witter Discover.............. 80,000 4,580
</TABLE>

33
<PAGE> 131

KEMPER INVESTORS FUND

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number
of Shares Value
---------- --------
<S> <C> <C>
Development Bank of Singapore..... 13,000 $ 162
Federal National Mortgage
Association..................... 262,000 8,777
First USA......................... 73,900 4,065
ITT Hartford Group................ 90,000 4,793
Internationale Nederlanden
Groep........................... 5,750 171
KeyCorp........................... 102,500 3,972
Krung Thai Bank Public Co.
Ltd. ........................... 31,800 149
MBIA Inc. ........................ 68,800 5,358
MGIC Investment Corp. ............ 72,200 4,052
Marsh & McLennan Companies,
Inc. ........................... 30,000 2,895
NationsBank....................... 45,000 3,718
Swire Pacific Ltd., "A"........... 19,500 167
Travelers Group................... 123,750 5,646
--------
63,157
HEALTH CARE--8.4%
Abbott Laboratories............... 120,000 5,220
American Home Products............ 100,000 6,013
Astra AB.......................... 3,691 163
C. R. Bard........................ 60,000 2,040
Baxter International.............. 120,000 5,670
(b)Biogen......................... 25,000 1,372
Johnson & Johnson................. 240,000 11,880
Eli Lilly & Co. .................. 100,000 6,500
Medtronic, Inc. .................. 77,000 4,312
Merck & Co., Inc. ................ 91,200 5,894
Omnicare.......................... 41,000 1,087
Perkin-Elmer Corp. ............... 70,000 3,378
Roche Holding AG.................. 40 153
Sandoz, Ltd. ..................... 61,200 3,481
(b)U.S. Bioscience................ 2,326 31
--------
57,194
TECHNOLOGY--14.4%
Alco Standard Corporation......... 62,000 2,806
(b)Atmel Corporation.............. 110,800 3,338
(b)Cisco Systems.................. 190,000 10,759
Computer Associates
International................... 72,600 5,173
(b)Computer Sciences Corp. ....... 56,000 4,186
(b)Electronic Arts................ 70,000 1,873
Electronic Data Systems........... 115,100 6,187
L.M. Ericsson Telephone Co.,
"B"............................. 8,045 173
First Data Corporation............ 49,174 3,915
Harris Corp. ..................... 60,000 3,660
Hewlett-Packard, Co. ............. 57,000 5,679
Intel Corp. ...................... 94,000 6,903
Linear Technology Corp. .......... 107,400 3,222

<CAPTION>
Number of
Shares or
Principal
Amount Value
---------- --------
<S> <C> <C>
Matsushita Electric Industrial
Co., Ltd. ...................... 10,000 $ 186
(b)Microsoft Corp. ............... 36,000 4,325
Murata Manufacturing.............. 5,000 189
(b)Parametric Technology Corp. ... 56,500 2,451
(b)Seagate Technology............. 86,000 3,870
(b)Solectron Corp. ............... 77,000 2,916
(b)Sun Microsystems............... 85,000 5,004
Texas Instruments................. 52,000 2,593
(b)3Com Corporation............... 185,000 8,464
United Technologies............... 20,000 2,300
Xerox Corporation................. 141,000 7,543
--------
97,715
TRANSPORTATION--.7%
Canadian National Railway
Company......................... 8,767 161
Conrail........................... 35,000 2,323
Nippon Express.................... 17,000 166
Union Pacific Corp. .............. 30,000 2,096
--------
4,746
UTILITIES--2.9%
AT&T.............................. 142,900 8,860
(b)AirTouch Communications........ 130,000 3,673
Iberdola, S.A. ................... 17,400 178
SBC Communications Inc. .......... 80,000 3,940
(b)WorldCom....................... 58,600 3,245
--------
19,896
--------
TOTAL COMMON STOCKS--64.8%
(Cost: $363,671).................. 438,958

CORPORATE OBLIGATIONS
BASIC INDUSTRIES--1.4%
Boise Cascade Corp.
9.85%, 2002..................... $ 1,000 1,118
9.45%, 2009..................... 1,000 1,112
Crown Paper, 11.00%, 2005......... 1,200 1,143
Owens-Illinois, Inc., 11.00%,
2003............................ 3,990 4,289
Smurfit Capital Funding, 6.75%,
2005............................ 2,000 1,904
--------
9,566
CAPITAL GOODS--.5%
G-I Holdings, zero coupon, 1998... 360 291
Lockheed Corp., 7.45%, 2004....... 2,000 2,029
Nortek, Inc., 9.875%, 2004........ 90 85
Northrop Grumman, 7.00%, 2006..... 750 722
--------
3,127
</TABLE>

34
<PAGE> 132

KEMPER INVESTORS FUND

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Principal
Amount Value
---------- --------
<S> <C> <C>
CONSUMER CYCLICALS--7.0%
American Radio System Corporation,
9.00%, 2006..................... $ 1,260 $ 1,178
Bally's Park Place Funding,
9.25%, 2004..................... 1,800 1,915
CF Cable TV, Inc., 11.625%,
2005............................ 510 561
Cablevision Systems Corporation,
9.25%, 2005..................... 1,800 1,674
Century Communications
Corporation, 9.50%, 2005........ 1,500 1,451
Cinemark USA, Inc., 12.00%,
2002............................ 570 618
Comcast Corporation, 10.625%,
2012............................ 1,500 1,567
(a)Comcast UK Cable Partners
Limited, 11.20%, 2007........... 2,880 1,670
Continental Cablevision, Inc.,
9.50%, 2013..................... 2,000 2,162
Empress River Casino, 10.75%,
2002............................ 2,000 2,100
Federated Department Stores,
10.00%, 2001.................... 2,000 2,148
Granite Broadcasting Corp.,
9.375%, 2005.................... 1,240 1,139
ITT Corporation, 6.75%, 2005...... 2,000 1,892
K-III Communication Corporation,
8.50%, 2006..................... 750 697
MobileMedia Communications,
9.375%, 2007.................... 2,000 1,780
News American Holdings,
9.25%, 2013..................... 2,000 2,177
P&C Food Markets, Inc.,
11.50%, 2001.................... 120 113
Pathmark Stores, Inc., 11.625%,
2002............................ 1,390 1,387
Penn Traffic Company
10.25%, 2002.................... 30 27
10.65%, 2004.................... 400 361
10.375%, 2004................... 930 830
Rogers Cablesystems Limited,
10.00%, 2005.................... 1,050 1,047
Rogers Cantel, 11.125%, 2002...... 1,790 1,902
Sears Roebuck Acceptance Corp.,
6.75%, 2005..................... 2,000 1,929
Sinclair Broadcast Group, Inc.
10.00%, 2003.................... 810 786
10.00%, 2005.................... 900 867
TCI Communications, 8.65%, 2004... 1,000 1,020
(a)TeleWest Communications PLC,
11.00%, 2007.................... 4,020 2,382
360 Communications, 7.125%,
2003............................ 2,000 1,917

<CAPTION>
Principal
Amount Value
---------- --------
<S> <C> <C>
Time Warner Entertainment Company,
L.P., 8.875%, 2012.............. $ 1,000 $ 1,064
Time Warner Inc., 9.125%, 2013.... 1,000 1,043
Trump Atlantic City, 11.25%,
2006............................ 1,800 1,805
Univision TV, 11.75%, 2001........ 1,500 1,575
Viacom International, Inc.,
8.00%, 2006..................... 2,400 2,217
(a)Videotron Holdings, 11.125%,
2004........................... 625 456
--------
47,457
CONSUMER DURABLES--.3%
WestPoint Stevens, 9.375%, 2005... 1,900 1,843

CONSUMER STAPLES--.5%
Philip Morris Companies
8.25%, 2003..................... 1,000 1,057
7.25%, 2003..................... 1,000 999
RJR Nabisco Inc., 8.00%, 2000..... 1,000 1,031
--------
3,087
ENERGY--1.6%
BHP Finance USA, 7.875%, 2002..... 2,000 2,087
Gulf Canada Resources Limited,
9.25%, 2004..................... 1,500 1,464
Parker & Parsley Petroleum,
8.25%, 2007..................... 2,000 2,080
Petronas Dagangan Bhd
7.125%, 2005.................... 1,000 990
7.750%, 2015.................... 1,000 1,003
Repsol International Finance,
7.00%, 2005..................... 1,000 986
USX Corporation, 9.375%, 2012..... 2,000 2,210
--------
10,820
FINANCE--4.1%
ABN AMRO Bank, 8.25%, 2009........ 2,000 2,064
Abbey National First Capital,
8.20%, 2004..................... 2,000 2,116
Associates Corp, N.A., 8.25%,
1999............................ 2,000 2,090
Banco Central Hispano Americano,
7.50%, 2005..................... 1,000 994
Bangkok Bank Ltd., 7.25%, 2005.... 2,000 1,927
Capital One Bank, 8.125%, 2000.... 2,000 2,057
Citicorp, 7.625%, 2005............ 1,000 1,015
Commercial Credit, 7.375%, 2005... 1,250 1,253
ERAC USA Finance, 6.95%, 2006..... 2,000 1,885
Equitable Life, 6.95%, 2005....... 2,000 1,917
First USA Bank, 8.10%, 1997....... 2,000 2,022
</TABLE>

35
<PAGE> 133

KEMPER INVESTORS FUND

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Principal
Amount Value
---------- --------
<S> <C> <C>
GMAC Medium Term Note,
8.50%, 2000..................... $ 2,000 $ 2,119
Lehman Brothers Holdings,
7.250%, 2003.................... 2,000 1,976
Malayan Banking Berhad,
7.125%, 2005.................... 1,000 977
Merita Bank Ltd., 6.50%, 2006..... 1,000 928
Merrill Lynch & Co., 7.375%,
2006............................ 750 750
Societe Generale, 7.40%, 2006..... 2,000 1,999
--------
28,089
HEALTH CARE--.8%
Columbia/HCA Healthcare Corp.,
6.91%, 2005..................... 2,000 1,951
Ornda HealthCorp.
12.25%, 2002.................... 1,440 1,555
11.375%, 2004................... 410 452
Tenet Healthcare Corporation
9.625%, 2002.................... 130 138
10.125%, 2005................... 1,370 1,449
--------
5,545
TRANSPORTATION--.8%
Delta Airlines
9.875%, 2008.................... 749 835
9.75%, 2021..................... 2,250 2,577
United Airlines, 9.56%, 2018...... 2,000 2,199
--------
5,611
UTILITIES--1.7%
Ameritech Capital Funding,
7.50%, 2005..................... 2,000 2,047

<CAPTION>
Principal
Amount Value
---------- --------
<S> <C> <C>
(a)International CableTel Inc.,
11.50%, 2006.................... $ 2,600 $ 1,462
(a)MFS Communications Company,
Inc., 8.875%, 2006.............. 3,525 2,141
(a)PanAmSat, L.P., 11.375%,
2003............................ 1,800 1,557
Southwestern Bell Telephone,
6.625%, 2005.................... 1,000 969
Tenaga Nasional Berhad,
7.875%, 2004.................... 1,750 1,810
USA Mobile Communication, Inc. II,
9.50%, 2004..................... 1,750 1,612
--------
11,598
--------
TOTAL CORPORATE
OBLIGATIONS--18.7%
(Cost: $128,340).................. 126,743

MONEY MARKET INSTRUMENTS--1.2%
Yield--5.45% to 5.50%
Due--July 1996
(Cost: $7,992).................... 8,000 7,992
--------
TOTAL INVESTMENTS--99.1%
(Cost: $597,889).................. 671,577

CASH AND OTHER ASSETS, LESS
LIABILITIES--.9%.................... 6,065
--------
NET ASSETS--100%.................... $677,642
========
</TABLE>

NOTES TO TOTAL RETURN PORTFOLIO OF INVESTMENTS

(a) Deferred interest obligation; currently zero coupon under the terms of the
initial offering.

(b) Non-income producing security.

Based on the cost of investments of $597,889,000 for federal income tax purposes
at June 30, 1996, the gross unrealized appreciation was $84,161,000, the gross
unrealized depreciation was $10,473,000 and the net unrealized appreciation on
investments was $73,688,000.

See accompanying notes to financial statements.

36
<PAGE> 134

KEMPER INVESTORS FUND

HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
U.S. TREASURY NOTES--.4%
8.875%, 1997
(Cost: $1,043)..................... $ 1,000 $ 1,038

CORPORATE OBLIGATIONS
AEROSPACE--1.5%
Fairchild Corporation, 12.00%,
2001............................... 2,390 2,384
Howmet Inc., 10.00%, 2003............ 270 285
K & F Industries, Inc., 11.875%,
2003............................... 470 503
Sequa Corporation, 8.75%, 2001....... 730 708
--------
3,880
BROADCASTING, CABLESYSTEMS AND
PUBLISHING--20.7%
Adelphia Communication Corporation,
12.50%, 2002....................... 1,380 1,401
Affinity Group, Inc., 11.50%, 2003... 1,460 1,480
American Radio Systems, 9.00%,
2006............................... 1,520 1,421
(b)American Telecasting
14.50%, 2004....................... 970 667
14.50%, 2005....................... 590 348
(b)Bell Cablemedia PLC, 11.95%,
2004............................... 3,370 2,376
Big Flower Press, Inc., 10.75%,
2003............................... 1,147 1,118
CAI Wireless Systems, 12.25%, 2002... 1,000 1,050
CF Cable TV, Inc., 11.625%, 2005..... 1,180 1,295
(b)CS Wireless, 11.375%, 2006........ 2,520 1,307
Cablevision Industries Corporation,
9.25%, 2008........................ 1,000 1,015
Cablevision Systems Corporation
9.25%, 2005........................ 420 391
9.875%, 2013....................... 965 895
10.50%, 2016....................... 1,250 1,212
9.875%, 2023....................... 550 498
Century Communications Corporation
11.875%, 2003...................... 960 1,020
9.50%, 2005........................ 2,200 2,128
(b)Charter Communications, 14.00%,
2007............................... 1,870 1,038
Comcast Corporation
9.125%, 2006....................... 1,740 1,657
9.50%, 2008........................ 630 608
10.625%, 2012...................... 570 596
(b)Comcast UK Cable Partners Limited,
11.20%, 2007....................... 4,630 2,685
Continental Cablevision, Inc., 9.50%,
2013............................... 2,200 2,379
EZ Communications, 9.75%, 2005....... 1,420 1,349
(b)Echostar Communications, 12.875%,
2004............................... 2,645 1,937

<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
Granite Broadcasting Corp.
10.375%, 2005...................... $ 1,220 $ 1,188
9.375%, 2005....................... 640 588
(b)International Cabletel
Incorporated
12.75%, 2005....................... 3,750 2,414
11.50%, 2006....................... 450 253
Katz Corporation, 12.75%, 2002....... 960 1,069
Multicanal Port, 12.625%, 2004....... 820 845
Neodata Services, 12.00%, 2003....... 1,610 1,606
Newsquest Capital PLC, 11.00%,
2006............................... 1,020 1,020
(b)People's Choice TV Unit, 13.125%,
2004............................... 2,050 1,187
Rogers Cablesystems Limited
9.625%, 2002....................... 720 715
10.00%, 2005....................... 620 618
10.00%, 2007....................... 290 284
Sinclair Broadcasting Group, Inc.,
10.00%, 2003....................... 1,620 1,569
Sullivan Broadcasting
10.25%, 2005....................... 410 395
13.25%, 2006....................... 810 798
Telewest Communications PLC
9.625%, 2006....................... 1,080 1,053
(b) 11.00%, 2007.................... 1,465 868
(b)UIH Australia Pacific, Inc.,
14.00%, 2006....................... 2,590 1,366
Univision TV, 11.75%, 2001........... 370 389
(b)Videotron Holdings PLC
11.125%, 2004...................... 745 544
11.00%, 2005....................... 1,020 650
Young Broadcasting Inc.
11.75%, 2004....................... 440 464
9.00%, 2006........................ 990 881
--------
52,635
BUSINESS SERVICES--1.8%
Allied Waste Industry, 12.00%,
2004............................... 550 599
Corporate Express, Inc., 9.125%,
2004............................... 1,300 1,287
Monarch Marking Systems, 12.50%,
2003............................... 1,270 1,343
Outdoor Systems, Inc., 10.75%,
2003............................... 1,250 1,300
--------
4,529
CHEMICALS AND AGRICULTURE--5.1%
Agriculture, Mining and Chemicals,
Inc., 10.75%, 2003................. 940 996
Arcadian Partners, L.P., 10.75%,
2005............................... 1,370 1,480
Atlantis Group, Inc., 11.00%, 2003... 1,735 1,640
G-I Holdings Inc., zero coupon,
1998............................... 3,240 2,616
Hines Horticulture, 11.75%, 2005..... 350 364
</TABLE>

37
<PAGE> 135

KEMPER INVESTORS FUND

HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
Pioneer Americas Acquisition
Corporation, 13.375%, 2005......... $ 840 $ 882
Polymer Group Inc., 12.25%, 2002..... 827 889
Rexene Corporation, 11.75%, 2004..... 1,910 1,986
Terra Industries, 10.50%, 2005....... 840 874
UCC Investors Holdings, Inc.
10.50%, 2002....................... 840 886
11.00%, 2003....................... 300 316
--------
12,929
COMMUNICATIONS--8.6%
(b)Call-Net Enterprises Inc., 13.25%,
2004............................... 1,000 742
(b)Cellular, Inc., 11.75%, 2003...... 625 500
(b)Commcell, 13.125%, with warrants,
2003............................... 2,200 1,419
CommNet Cellular, 11.25%, 2005....... 500 533
(b)Intelcom Group, Inc., 13.50%, with
warrants, 2005..................... 1,470 933
Intermedia Communications of Florida,
Inc., 13.50%, with warrants,
2005............................... 1,140 1,328
(b)Millicom International Cellular
S.A., 13.50%, 2006................. 2,050 1,084
Mobilemedia Communications, 9.375%,
2007............................... 1,170 1,041
Nextlink Communications, 12.50%,
2006............................... 1,260 1,260
Paging Network, Inc.
11.75%, 2002....................... 2,070 2,225
10.125%, 2007...................... 1,140 1,129
(b)PanAmSat, L.P., 11.375%, 2003..... 2,815 2,435
Rogers Cantel
11.125%, 2002...................... 1,820 1,934
9.375%, 2008....................... 780 757
9.75%, 2016........................ 520 504
(b)Shared Technologies, 12.25%,
2006............................... 810 608
(b)Teleport Communications, 11.125%,
2007............................... 880 513
USA Mobile Communicatons, Inc. II
14.00%, 2004....................... 1,190 1,342
9.50%, 2004........................ 600 553
Vanguard Cellular Systems, 9.375%,
2006............................... 580 567
Western Wireless, 10.50%, 2006....... 540 543
--------
21,950
CONSTRUCTION MATERIALS--4.0%
American Standard Inc.
10.875%, 1999...................... 2,315 2,448
(b) 10.50%, 2005.................... 1,110 968

<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
(b)Building Materials Corporation of
America, 11.75%, 2004.............. $ 3,285 $ 2,464
Nortek, 9.875%, 2004................. 2,170 2,043
Triangle Pacific Corporation, 10.50%,
2003............................... 2,185 2,251
--------
10,174
CONSUMER PRODUCTS AND SERVICES--6.2%
AMF Group
(b) 12.25%, 2006.................... 1,000 554
10.875%, 2006...................... 1,520 1,510
Avondale Mills, 10.25%, 2006......... 1,070 1,053
(c)Beatrice Foods, Inc., 12.00%,
2001............................... 2,000 755
Cinemark USA, Inc., 12.00%, 2002..... 940 1,020
Coinmach Corporation, 11.75%, 2005... 2,340 2,451
(b)Dr. Pepper Bottling Holdings,
Inc., 11.625%, 2003................ 1,120 924
Foodbrands America, 10.75%, 2006..... 510 511
Herff Jones, Inc., 11.00%, 2005...... 200 206
Premier Parks Inc., 12.00%, 2003..... 1,220 1,305
(b)Six Flags Theme Park, 12.25%,
2005............................... 2,830 2,420
Van De Kamps, Inc., 12.00%, 2005..... 550 588
West Point Stevens, Inc., 9.375%,
2005............................... 2,550 2,474
--------
15,771
DRUGS AND HEALTH CARE--3.5%
Dade International Inc., 11.125%,
2006............................... 930 965
Magellan Health Services, 11.25%,
2004............................... 2,570 2,776
Ornda Healthcorporation
12.25%, 2002....................... 2,120 2,290
11.375%, 2004...................... 2,000 2,205
Tenet Healthcare, 9.625%, 2002....... 500 531
--------
8,767
ENERGY AND RELATED SERVICES--5.8%
Benton Oil & Gas Co., 11.625%,
2003............................... 695 719
Chesapeake Energy Corporation,
10.50%, 2002....................... 1,265 1,328
Clark USA Inc., 10.875%, 2005........ 490 503
Cliffs Drilling Co., 10.25%, 2003.... 850 841
Coda Energy, 10.50%, 2006............ 1,070 1,067
Empire Gas Corporation, 7.00%, with
warrants, 2004..................... 900 773
Ferrellgas Partners, L.P., 9.375%,
2006............................... 1,000 970
</TABLE>

38
<PAGE> 136

KEMPER INVESTORS FUND

HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
Gulf Canada Resources Limited
9.25%, 2004........................ $ 1,690 $ 1,650
9.625%, 2005....................... 930 922
MESA Inc.
(b) 11.625%, 2006................... 830 490
10.625%, 2006...................... 860 877
Nuevo Energy Co., 9.50%, 2006........ 510 501
Plains Resources, 10.25%, 2006....... 950 950
Santa Fe Energy Resources, 11.00%,
2004............................... 1,040 1,113
United Meridian Corp., 10.375%,
2005............................... 730 756
Vintage Petroleum, 9.00%, 2005....... 1,360 1,289
--------
14,749
FINANCIAL SERVICES, HOME BUILDING AND
REAL ESTATE--2.4%
Continental Homes Holding, 10.00%,
2006............................... 1,556 1,490
Forecast Group L.P., 11.375%, 2000... 740 518
Fortress Group, 13.75%, 2003......... 660 682
Hovnanian Kent, 11.25%, 2002......... 1,188 1,102
J.M. Peters Company, 12.75%, 2002.... 740 688
Presley Companies, 12.50%, 2001...... 1,575 1,504
--------
5,984
HOTELS AND GAMING--4.8%
Bally's Park Place Funding, Inc.,
9.25%, 2004........................ 1,490 1,585
Empress River Casino, 10.75%, 2002... 1,670 1,754
Harvey's Casino Resorts, 10.625%,
2006............................... 460 467
MGM Grand Hotel Finance Corporation,
12.00%, 2002....................... 2,475 2,716
Majestic Star Casino, 12.75%, 2003... 200 216
Players International, 10.875%,
2005............................... 1,380 1,408
Station Casinos Inc., 10.125%,
2006............................... 1,440 1,411
Trump Atlantic City, 11.25%, 2006.... 2,550 2,556
--------
12,113
MANUFACTURING, METALS AND MINING--11.1%
Aftermarket Technology, 12.00%,
2004............................... 780 847
Alvey Systems, 11.375%, 2003......... 650 663
Bar Technologies, 13.50%, 2001....... 750 769
Bluebird Body Company, 11.75%,
2002............................... 1,540 1,586
Collins & Aikman Corporation, 11.50%,
2006............................... 660 672
Crain Industries, Inc., 13.50%,
2005............................... 750 799
Day International Group, 11.125%,
2005............................... 1,440 1,472
Essex Group, Incorporated, 10.00%,
2003............................... 1,290 1,258

<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
Fairfield Manufacturing Company,
11.375%, 2001...................... $ 580 $ 593
Foamex L.P.
11.25%, 2002....................... 1,470 1,518
11.875%, 2004...................... 500 513
(b)Foamex - JPS Automotive L.P.,
14.00%, 2004 with warrants, 1999... 940 663
Great Dane Holdings Inc., 12.75%,
2001............................... 835 810
GS Technologies
12.00%, 2004....................... 650 665
12.25%, 2005....................... 890 914
Gulf States Steel, 13.50%, with
warrants, 2003..................... 1,150 1,034
IMO Industries, 11.75%, 2006......... 630 645
JPS Automotive Products Corporation,
11.125%, 2001...................... 1,670 1,716
Jordan Industries, 10.375%, 2003..... 1,560 1,482
Knoll Inc., 10.875%, 2006............ 870 887
NS Group, Inc., 13.50%, 2003......... 1,055 1,029
Newflo Corporation, 13.25%, 2002..... 1,050 1,126
Penda Industries, Inc., 10.75%,
2004............................... 950 881
Renco Metals, 11.50%, 2003........... 620 629
Terex Corporation Unit, 13.75%,
2002............................... 1,000 1,045
Thermadyne Industries, Inc.
10.25%, 2002....................... 1,320 1,333
10.75%, 2003....................... 1,476 1,487
UNC, Inc., 11.00%, 2006.............. 500 505
Weirton Steel Corp., 11.375%, 2004... 520 513
--------
28,054
PAPER, FOREST PRODUCTS AND
CONTAINERS--7.6%
BPC Holding Corp., 12.50%, 2006...... 720 727
Berry Plastics Corporation, 12.25%,
with warrants, 2004................ 480 532
Container Corporation of America,
11.25%, 2004....................... 1,815 1,865
Crown Paper, 11.00%, 2005............ 1,630 1,553
Florida Coast Paper Company, 12.75%,
2003............................... 500 520
Four M Corporation, 12.00%, 2006..... 500 511
Gaylord Container Corporation,
12.75%, 2005....................... 2,390 2,518
Maxxam Group, Inc.
(b) 12.25%, 2003.................... 440 334
11.25%, 2003....................... 1,653 1,645
National Fiberstock, 11.625%, 2002... 520 524
</TABLE>

39
<PAGE> 137

KEMPER INVESTORS FUND

HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
Owens-Illinois
11.00%, 2003....................... $ 670 $ 720
9.95%, 2004........................ 1,125 1,128
9.75%, 2004........................ 2,230 2,230
Repap New Brunswick, Inc., 10.625%,
2005............................... 1,430 1,351
Riverwood International Corp.
10.25%, 2006....................... 510 507
10.875%, 2008...................... 1,840 1,812
Sweetheart Cup Company, Inc., 10.50%,
2003............................... 900 891
--------
19,368
RETAILING--4.6%
Brunos, 10.50%, 2005................. 1,050 1,042
(c)Color Tile, Inc., 10.75%, 2001.... 1,470 73
Dominick's, 10.875%, 2005............ 1,000 1,058
Finlay Fine Jewelry Corporation,
10.625%, 2003...................... 1,520 1,512
Guitar Center, 11.00%, 2006.......... 420 426
Michaels Stores, 10.875%, 2006....... 520 530
Pamida Holdings, 11.75%, 2003........ 2,410 2,085
Pathmark Stores, Inc.
12.625%, 2002...................... 1,000 1,017
11.625%, 2002...................... 1,535 1,531
Penn Traffic Company
10.25%, 2002....................... 250 227
10.65%, 2004....................... 760 686
10.375%, 2004...................... 1,080 964
11.50%, 2006....................... 500 467
--------
11,618
TECHNOLOGY--.7%
Communication and Power Industry,
Inc., 12.00%, 2005................. 585 622
Computervision Corporation,
11.375%, 1999...................... 1,080 1,115
--------
1,737
TRANSPORTATION--.7%
(c)Burlington Motor Holdings, Inc.,
11.50%, 2003....................... 1,350 27
GPA Group PLC, 10.875%, 2019......... 1,190 1,241
(b)Transtar Holdings, L.P., 13.375%,
2003............................... 631 467
--------
1,735
--------

<CAPTION>
Number of
Shares or
Principal
Amount Value
--------- --------
<S> <C> <C>
TOTAL CORPORATE
OBLIGATIONS--89.1%
(Cost: $226,668)..................... $225,993

COMMON AND PREFERRED STOCKS
BCP/Essex Holdings, PIK, preferred... 26,648shs. 698
(a)Benedek Unit, PIK, preferred...... 500 500
Computervision Corporation........... 130,160 1,304
(c)Echostar Communications........... 14,987 425
Gaylord Container Corporation,
warrants expiring 1996............. 122,950 961
(c)Grand Union Company............... 62,520 408
Great Bay Power...................... 2,662 20
(c)Sullivan Broadcasting............. 12,960 130
(c)Thrifty Payless Inc............... 31,540 138
(c)Walter Industries, Inc............ 7,468 104
(a)(c)Waxman Industries, Inc.,
warrants expiring 2004............. 52,274 157
--------
TOTAL COMMON AND PREFERRED STOCKS--1.9%
(Cost: $5,342)....................... 4,845

MONEY MARKET
INSTRUMENTS
Yield--5.45%-5.55%
Due--July 1996
Dynamic Funding Corporation.......... $ 5,000 4,991
Enserch Corporation.................. 6,000 5,991
Finova Capital Corporation........... 2,000 1,994
Union Pacific Corporation............ 7,000 6,998
--------
TOTAL MONEY MARKET INSTRUMENTS--7.9%
(Cost: $19,974)...................... 19,974
--------
TOTAL INVESTMENTS--99.3%
(Cost: $253,027)..................... 251,850
CASH AND OTHER ASSETS,
LESS LIABILITIES--.7%.................. 1,730
--------
NET ASSETS--100%....................... $253,580
========
</TABLE>

See accompanying notes to High Yield Portfolio of Investments.

40
<PAGE> 138

NOTES TO HIGH YIELD PORTFOLIO OF INVESTMENTS

(a) The following securities may require registration under the Securities Act
of 1933 or an exemption therefrom in order to effect sale in the ordinary
course of business; they were valued at cost on the dates of acquisition.
These securities are valued at fair value as determined in good faith by the
Board of Trustees of the Fund. At June 30, 1996, the value of the
Portfolio's restricted securities was $657,000, which represented .26% of
net assets.

<TABLE>
<CAPTION>
Date of Number Unit
Security Description Acquisition of Shares Cost
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Benedek Unit, PIK, preferred May 1996 500 $1,000
--------------------------------------------------------------------------------------------------------------------
Waxman Industries, Inc., warrants expiring 2004 June 1994 52,274 2.00
--------------------------------------------------------------------------------------------------------------------
</TABLE>

(b) Deferred interest obligation; currently zero coupon under terms of the
initial offering.

(c) Non-income producing security. In the case of a bond, generally denotes that
issuer has defaulted on the payment of interest or has filed for bankruptcy.

"PIK" denotes that interest or dividends are paid in kind.

Based on the cost of investments of $253,027,000 for federal income tax purposes
at June 30, 1996, the gross unrealized appreciation was $8,198,000, the gross
unrealized depreciation was $9,375,000 and the net unrealized depreciation on
investments was $1,177,000.

See accompanying notes to financial statements.

41
<PAGE> 139

KEMPER INVESTORS FUND
GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number of
Shares Value
--------- --------
<S> <C> <C>
COMMON STOCKS
BASIC INDUSTRIES--3.0%
(a)FMC Corp. ......................... 100,000 $ 6,525
Monsanto Co. ...................... 100,000 3,250
Praxair, Inc. ..................... 61,000 2,577
Sumitomo Metal Industries.......... 161,000 493
Toray Industries................... 76,000 524
--------
13,369
CAPITAL GOODS--5.2%
Boeing Co. ........................ 65,200 5,681
Fluor Corp. ....................... 76,900 5,027
B.F. Goodrich Co. ................. 125,000 4,672
Honda Motor Co., Ltd. ............. 19,000 492
Kyocera Corp. ..................... 4,500 318
Mitsubishi Heavy Industries........ 61,000 530
Technip S.A. ...................... 2,317 213
York International Corp. .......... 128,400 6,645
--------
23,578
CONSUMER CYCLICALS--18.0%
Burton Group PLC................... 249,970 604
Carnival Corp. .................... 204,000 5,890
(a)Cox Communications Inc. ........... 470,000 10,164
Walt Disney Company................ 64,100 4,030
(a)Federated Department Stores........ 268,900 9,176
Home Depot......................... 91,500 4,941
(a)Liberty Media Group, "A"........... 206,100 5,462
Lowes Companies Inc. .............. 125,000 4,516
Manpower, Inc. .................... 80,000 3,140
Marriott International............. 150,000 8,063
(a)Mirage Resorts, Inc. .............. 20,000 1,080
Moet Hennessy Louis Vuitton........ 2,317 550
(a)Office Depot....................... 118,950 2,424
Paging Network, Inc. .............. 260,000 6,240
Tele-Communications, Inc. ......... 463,000 8,392
(a)Viking Office Products............. 30,800 966
Wal-Mart Stores.................... 219,100 5,560
--------
81,198

<CAPTION>
Number of
Shares Value
--------- --------
<S> <C> <C>
CONSUMER DURABLES--1.9%
Armstrong World Industries......... 92,800 $ 5,348
Shaw Industries.................... 255,000 3,347
--------
8,695
CONSUMER STAPLES--6.6%
Duracell International............. 80,000 3,450
Heineken N.V. ..................... 2,692 601
Kimberly-Clark Corp. .............. 56,400 4,357
Philip Morris Companies............ 77,900 8,102
Procter & Gamble Co. .............. 44,200 4,006
Reed International PLC............. 31,114 521
Warnaco Group...................... 151,200 3,893
Wendy's International.............. 250,000 4,656
--------
29,586
FINANCE--14.3%
Allstate Corp. .................... 100,000 4,562
American International Group,
Inc. ............................ 45,000 4,438
Bank of Ireland.................... 72,091 492
CITIC Pacific Ltd. ................ 90,000 364
Cheung Kong Holdings Ltd........... 51,000 367
Dean Witter Discover............... 73,300 4,196
Development Bank of Singapore...... 35,000 436
Federal Home Loan Mortgage Corp. .. 60,000 5,130
Federal National Mortgage
Association...................... 220,000 7,370
General Re Corp. .................. 28,000 4,263
ITT Hartford Group................. 45,000 2,396
Internationale Nederlanden Groep... 19,202 572
Krung Thai Bank Public Co. Ltd. ... 95,000 445
MBIA Inc. ......................... 133,700 10,412
MGIC Investment Corp. ............. 136,000 7,633
NationsBank........................ 45,800 3,784
Swire Pacific Ltd. "A"............. 44,000 377
Travelers Group.................... 162,500 7,414
--------
64,651
</TABLE>

42
<PAGE> 140

KEMPER INVESTORS FUND
GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number of
Shares Value
--------- --------
<S> <C> <C>
HEALTH CARE--23.6%
Astra AB........................... 11,731 $ 518
Baxter International............... 90,000 4,252
(a)Biogen............................. 100,000 5,488
(a)Boston Scientific Corp............. 100,000 4,500
Columbia/HCA Healthcare Corp....... 97,000 5,177
Glaxo Wellcome, ADR................ 195,000 5,216
Guidant Corporation................ 120,745 5,947
(a)IDEXX Laboratories................. 72,300 2,838
Johnson & Johnson.................. 191,000 9,455
Eli Lilly & Co..................... 95,000 6,175
Medtronic, Inc..................... 169,000 9,464
Omnicare........................... 148,600 3,938
Pall Corp.......................... 250,000 6,031
Perkin-Elmer Corp.................. 120,000 5,790
Pfizer Inc......................... 30,000 2,141
Roche Holding AG................... 134 513
Sandoz, Ltd........................ 165,000 9,384
(a)R.P. Scherer Corp.................. 80,100 3,635
SmithKline Beecham PLC............. 135,000 7,341
United Healthcare Corp............. 175,000 8,836
--------
106,639
TECHNOLOGY--16.2%
Alco Standard Corporation.......... 140,000 6,335
(a)BMC Software....................... 28,000 1,673
(a)Cisco Systems...................... 122,200 6,920
(a)Compaq Computer Corp............... 95,000 4,679
(a)Computer Sciences Corp............. 120,000 8,970
DSC Communications Corp............ 59,300 1,786
Electronic Data Systems............ 40,000 2,150
LM Ericsson Telephone Co., "B"..... 16,329 352
First Data Corporation............. 20,572 1,638
Hewlett-Packard, Co................ 69,500 6,924
Intel Corp......................... 52,800 3,877
Linear Technology Corp............. 92,500 2,775
Matsushita Electric Industrial Co.,
Ltd.............................. 30,000 558
(a)Microchip Technology............... 40,000 990
(a)Microsoft Corp..................... 38,500 4,625
Murata Manufacturing............... 15,000 $ 567
<CAPTION>
Number of
Shares or
Principal
Amount Value
--------- --------
<S> <C> <C>
(a)Parametric Technology Corp......... 21,600 937
(a)Solectron Corp..................... 75,000 2,841
(a)Sun Microsystems................... 45,000 2,649
(a)3Com Corporation................... 123,000 5,627
Xerox Corporation.................. 117,000 6,260
--------
73,133
TRANSPORTATION--.2%
Canadian National Railway Company.. 28,372 521
Nippon Express..................... 52,000 507
--------
1,028
UTILITIES--2.1%
(a)AirTouch Communications............ 224,000 6,328
Iberdrola, S.A..................... 45,000 462
(a)WorldCom, Inc...................... 45,000 2,492
--------
9,282
--------
TOTAL COMMON STOCKS--91.1%
(Cost: $352,666)................... 411,159
MONEY MARKET INSTRUMENTS
Yield--5.49% to 5.57%
Due--July 1996
Conagra, Inc........................ $14,000 13,963
Houston Industries, Inc............. 10,000 9,986
Other............................... 14,000 13,983
--------
TOTAL MONEY MARKET INSTRUMENTS--8.4%
(Cost: $37,932)..................... 37,932
--------
TOTAL INVESTMENTS--99.5%
(Cost: $390,598).................... 449,091
CASH AND OTHER ASSETS, LESS
LIABILITIES--.5%...................... 2,416
--------
NET ASSETS--100%...................... $451,507
========
</TABLE>

NOTES TO GROWTH PORTFOLIO OF INVESTMENTS

(a) Non-income producing security.

Based on the cost of investments of $390,598,000 for federal income tax purposes
at June 30, 1996, the gross unrealized appreciation was $63,729,000, the gross
unrealized depreciation was $5,236,000 and the net unrealized appreciation on
investments was $58,493,000.

See accompanying notes to financial statements.

43
<PAGE> 141

KEMPER INVESTORS FUND
GOVERNMENT SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Principal
Coupon Rate Maturity Amount Value
----------- --------- --------- -------
<S> <C> <C> <C> <C>
GOVERNMENT OBLIGATIONS
FEDERAL HOME LOAN MORTGAGE CORPORATION--11.2%
(Cost: $9,476)
Pass-through Certificates.............................................. 7.00% 2023-2024 $10,129 $ 9,756
FEDERAL NATIONAL MORTGAGE ASSOCIATION--16.3%
(Cost: $14,556)
Pass-through Certificates.............................................. 6.50 2025-2026 2,547 2,382
7.50 2025-2026 4,792 4,729
8.00 2024-2025 932 939
8.50 2026 6,000 6,158
-------
14,208
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--52.1%
(Cost: $44,996)
Pass-through Certificates.............................................. 7.00 2022-2024 15,394 14,773
7.50 2022-2026 12,512 12,336
8.00 2016-2026 11,603 11,712
8.50 2016-2024 1,455 1,497
9.00 2016-2026 3,273 3,417
9.50 2013-2022 692 739
10.00 2016 921 1,003
-------
45,477
U.S. TREASURY SECURITIES--25.9%
(Cost: $23,443)
Notes.................................................................. 8.875 1998 5,000 5,288
8.00 1999 7,000 7,324
8.75 2000 5,000 5,418
7.875 2004 2,000 2,152
Bonds.................................................................. 9.125 2009 484 551
12.75 2010 1,382 1,941
-------
22,674
CANADIAN PROVINCIAL OBLIGATIONS--1.2%
(Cost: $1,094)
Province of Ontario.................................................... 7.625 2004 500 516
Province of Quebec..................................................... 8.625 2005 500 539
-------
1,055
-------
TOTAL GOVERNMENT OBLIGATIONS--106.7%
(Cost: $93,565)........................................................ 93,170
CORPORATE OBLIGATIONS
BHP Finance USA........................................................ 7.875 2002 500 522
Banco Central Hispano.................................................. 7.50 2005 500 497
Equitable Life......................................................... 6.95 2005 500 479
Nabisco Inc............................................................ 6.70 2002 500 487
NationsBank Corporation................................................ 9.50 2004 500 564
Sears Roebuck Acceptance Corp.......................................... 6.75 2005 500 482
Southwestern Bell Telephone............................................ 6.625 2005 500 484
-------
TOTAL CORPORATE OBLIGATIONS--4.0%
(Cost: $3,695)........................................................... 3,515
-------
</TABLE>

44
<PAGE> 142

KEMPER INVESTORS FUND
GOVERNMENT SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Value
-------
<S> <C>
TOTAL INVESTMENTS--110.7%
(Cost $97,260).................................................................................................. $96,685
LIABILITIES, LESS CASH AND OTHER ASSETS--(10.7)%.................................................................. (9,341)
-------
NET ASSETS--100%.................................................................................................. $87,344
=======
</TABLE>

NOTE TO GOVERNMENT SECURITIES PORTFOLIO OF INVESTMENTS

Based on the cost of investments of $97,260,000 for federal income tax purposes
at June 30, 1996, the gross unrealized appreciation was $1,264,000, the gross
unrealized depreciation was $1,839,000 and the net unrealized depreciation on
investments was $575,000.

See accompanying notes to financial statements.

45
<PAGE> 143

KEMPER INVESTORS FUND

INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number of
Shares Value
---------- --------
<S> <C> <C>
COMMON STOCKS
EUROPE
DENMARK--.5%
Copenhagen Airports................ 7,800 $ 771
AIRPORT OPERATOR
FRANCE--5.5%
Carrefour S.A...................... 6,000 2,510
FOOD RETAILER
Christian Dior S.A................. 2,500 325
LUXURY GOODS MANUFACTURER
Elf Aquitaine...................... 22,000 1,618
OIL AND GAS PRODUCER
Grand Optical Photoservice......... 5,000 644
PHOTODEVELOPING AND PRESCRIPTION
OPTICAL MANUFACTURING
Moet Hennessy Louis Vuitton........ 9,000 2,134
LUXURY GOODS MANUFACTURER
Technip S.A........................ 16,400 1,510
ENGINEERING COMPANY
--------
8,741
GERMANY--3.5%
Bayer A.G.......................... 46,000 1,624
CHEMICAL COMPANY
Mannesmann A.G..................... 4,100 1,417
CAPITAL GOODS PRODUCER
SGL CARBON A.G..................... 7,000 819
CHEMICAL COMPANY
Veba, A.G.......................... 32,000 1,700
ELECTRIC UTILITY
--------
5,560
HUNGARY--.3%
(a)Cofinec GDR..................... 10,220 488
LABELS AND PACKAGING MATERIAL
MANUFACTURER
IRELAND--3.5%
Bank of Ireland.................... 272,176 1,857
BANKING
Greencore Group PLC................ 256,990 1,345
FOOD PRODUCER
Independent Newspapers PLC......... 366,666 1,672
PUBLISHER
Kerry Group PLC.................... 70,280 724
FOOD PROCESSING
--------
5,598

<CAPTION>
Number of
Shares Value
--------- --------
<S> <C> <C>
ITALY--1.5%
Bulgari SpA........................ 55,000 $ 879
LUXURY GOODS MANUFACTURER
Telecom Italia Mobile.............. 700,000 1,564
MOBILE TELECOMMUNICATIONS PROVIDER
--------
2,443
NETHERLANDS--11.2%
Aalberts Industries N.V............ 12,289 1,204
CAPITAL GOODS AND COMPONENTS
Aegon N.V.......................... 33,646 1,549
INSURANCE COMPANY
GTI Holding........................ 8,840 849
ENGINEERING SERVICES
Getronics N.V...................... 57,700 1,278
INFORMATION TECHNOLOGY SERVICES
(a)Gucci Group N.V.................... 10,300 667
LUXURY GOODS MANUFACTURER
Heineken N.V....................... 7,000 1,564
BREWERY
IHC Caland N.V..................... 23,800 1,170
MARINE TECHNOLOGY HOLDING COMPANY
Internationale Nederlanden Groep... 66,695 1,989
BANKING AND INSURANCE
Koninklijke Ahold N.V.............. 31,915 1,729
FOOD RETAILER
Randstad Holding N.V............... 18,750 1,384
BUSINESS SERVICES
Royal Dutch Petroleum.............. 9,065 1,400
PETROLEUM PRODUCER
Schuttersveld Holding N.V.......... 32,735 1,266
HOLDING COMPANY
Wolters Kluwer..................... 15,000 1,704
PUBLISHER
--------
17,753
NORWAY--.3%
Schibsted A/S...................... 35,550 460
PUBLISHER
SPAIN--3.0%
Banco Bilbao Vizcaya............... 34,600 1,401
BANKING
Empresa Nacional de Electricidad
S.A.............................. 20,000 1,246
ELECTRIC UTILITY
Iberdrola, S.A..................... 125,000 1,282
ELECTRIC UTILITY
</TABLE>

46
<PAGE> 144

KEMPER INVESTORS FUND

INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number of
Shares Value
---------- --------
<S> <C> <C>
PRYCA Centros..................... 35,000 $ 874
FOOD RETAILER
--------
4,803
SWEDEN--4.7%
Astra AB.......................... 90,000 3,974
PHARMACEUTICAL COMPANY
Dahl International................ 13,540 195
TECHNICAL WHOLESALER
LM Ericsson Telephone Co. "B"..... 60,000 1,293
TELECOMMUNICATIONS EQUIPMENT
MANUFACTURER
Getinge Industrier AB............. 24,750 466
MEDICAL SUPPLY COMPANY
Hoganas AB........................ 24,200 846
ENGINEERING COMPANY
WM-data AB........................ 11,320 716
INFORMATION TECHNOLOGY SERVICES
--------
7,490
SWITZERLAND--5.6%
Ciba-Geigy Limited................ 3,900 4,752
PHARMACEUTICAL COMPANY
Rhone-Poulenc Rorer............... 200 13
CHEMICAL AND PHARMACEUTICAL
COMPANY
Roche Holding AG.................. 1,050 4,019
PHARMACEUTICAL COMPANY
--------
8,784
UNITED KINGDOM--9.1%
BBA Group PLC..................... 275,551 1,319
AUTOMOTIVE PRODUCTS MANUFACTURER
British Airways PLC............... 180,000 1,549
AIRLINE
(a)British Bio-Technology Group...... 40,000 1,548
PHARMACEUTICAL COMPANY
Burton Group PLC.................. 1,000,000 2,416
RETAILER
Dixons Group PLC.................. 213,393 1,754
ELECTRONICS RETAILER
Glaxo Wellcome.................... 20,000 269
PHARMACEUTICAL COMPANY
(a)Millenium & Copthorne............. 175,500 900
HOTEL OPERATOR
Next PLC.......................... 110,000 962
RETAILER

<CAPTION>
Number of
Shares Value
---------- --------
<S> <C> <C>
Reed International PLC............ 136,000 2,276
PUBLISHER
(a)Sun Life & Provincial Holdings.... 398,700 $ 1,369
LIFE INSURANCE COMPANY
--------
14,362
--------
TOTAL EUROPEAN COUNTRIES--48.7%..... 77,253
PACIFIC REGION
HONG KONG--4.1%
CITIC Pacific Ltd................. 210,000 849
CONGLOMERATE
Cheung Kong Holding Ltd........... 140,000 1,008
REAL ESTATE
Dao Heng Bank Ltd................. 190,000 734
BANKING
Guangdong Investment Ltd.......... 1,650,000 1,044
CONGLOMERATE
HSBC Holdings PLC................. 65,935 997
BANKING
Henderson Land Development Co.,
Ltd............................. 100,000 749
PROPERTY DEVELOPER
Swire Pacific Ltd................. 128,000 1,095
CONGLOMERATE
--------
6,476
JAPAN--28.9%
Bridgestone Corp.................. 100,000 1,905
RUBBER RELATED PRODUCTS
MANUFACTURER
Canon Inc......................... 88,000 1,829
PRECISION INSTRUMENTS MANUFACTURER
Circle K Japan.................... 18,000 932
CONVENIENCE RETAILER
(a)Daicel Chemical Industries,
Ltd............................. 130,000 800
CHEMICAL COMPANY
Daifuku Co., Ltd.................. 66,000 1,011
DIVERSIFIED MACHINERY MANUFACTURER
Honda Motor Co., Ltd.............. 40,000 1,036
AUTOMOBILE MANUFACTURER
Ishikawajima-Harima Heavy
Industries...................... 325,000 1,585
HEAVY MACHINERY MANUFACTURER
Kyocera Corp...................... 31,000 2,190
ELECTRONICS MANUFACTURER
Mabuchi Motor Co., Ltd............ 36,000 2,291
ENGINE MANUFACTURER
</TABLE>

47
<PAGE> 145

KEMPER INVESTORS FUND

INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number of
Shares Value
---------- --------
<S> <C> <C>
Matsushita Electric Industrial Co.,
Ltd............................... 145,000 $ 2,697
ELECTRONICS MANUFACTURER
Mitsubishi Heavy Industries......... 165,000 1,434
INDUSTRIAL EQUIPMENT MANUFACTURER
Miura Co., Ltd...................... 43,000 729
BOILER MAKER
Murata Manufacturing................ 42,000 1,589
ELECTRONICS COMPONENTS
MANUFACTURER
NEC Corporation..................... 95,000 1,031
ELECTRONICS MANUFACTURER
NKK Corp............................ 350,000 1,059
STEEL MANUFACTURER
New Japan Securities Co., Ltd....... 190,000 1,155
SECURITIES BROKER
Nippon Express...................... 195,000 1,902
TRANSPORTATION COMPANY
Olympus Optical Co., Ltd............ 150,000 1,504
CAMERA AND OPTICAL EQUIPMENT
MANUFACTURER
Seven Eleven Japan Co., Ltd......... 16,000 1,020
CONVENIENCE RETAILER
Shimizu Corp........................ 140,000 1,544
CONSTRUCTION COMPANY
Sony Music Entertainment............ 29,100 1,353
ENTERTAINMENT SOFTWARE COMPANY
Sumitomo Bank Ltd................... 75,000 1,450
BANKING
Sumitomo Metal Industries........... 610,000 1,869
STEEL MANUFACTURER
Sumitomo Trust & Banking............ 168,000 2,297
BANKING
Taisei Corp......................... 253,000 1,795
CONSTRUCTION COMPANY
Teijin Ltd.......................... 275,000 1,492
TEXTILE MANUFACTURER
Tokyo Style......................... 77,000 1,341
WOMEN'S APPAREL MANUFACTURER
Tokyu Department Store.............. 166,000 1,132
RETAILER
Toray Industries.................... 385,000 2,654
TEXTILE MANUFACTURER
Tsubakimoto Chain Co................ 175,000 1,192
CHAIN AND CONVEYOR MANUFACTURER
--------
45,818

<CAPTION>
Number of
Shares Value
---------- --------
<S> <C> <C>
MALAYSIA--3.0%
DCB Holdings Bhd.................... 375,000 $ 1,285
BANKING
Edaran Otomobil Nasional Berhad..... 30,000 287
AUTOMOBILE DISTRIBUTOR
Hong Leong Industries Berhad........ 160,000 776
CONGLOMERATE
Hume Industries Bhd................. 155,000 758
CONSTRUCTION MATERIAL MANUFACTURER
KFC Holdings Bhd.................... 63,000 341
RESTAURANT
Kedah Cement Berhad................. 150,000 278
CEMENT MANUFACTURER
Renong Berhad....................... 520,000 829
CONGLOMERATE
Sungei Way Holdings Berhad.......... 35,000 164
BUILDING MATERIALS COMPANY
--------
4,718
SINGAPORE--1.2%
Development Bank of Singapore....... 90,000 1,122
BANKING
Fraser & Neave Ltd.................. 70,000 724
BEER AND SOFT DRINK MANUFACTURER
--------
1,846
THAILAND--1.3%
Advanced Info Service Ltd........... 42,000 658
TELECOMMUNICATION SERVICES
Shinawatra Computer Co.............. 45,000 967
COMPUTER EQUIPMENT DISTRIBUTOR
Siam Cement Co. Ltd................. 6,000 294
BUILDING MATERIALS PRODUCER
Siam City Bank...................... 200,000 217
BANKING
--------
2,136
--------
TOTAL PACIFIC REGION--38.5%........... 60,994
COMMONWEALTH COUNTRIES
AUSTRALIA--1.4%
Aristocrat.......................... 72,000 164
ENTERTAINMENT
Tabcorp Holdings Ltd................ 436,400 1,975
ENTERTAINMENT AND GAMING
--------
2,139
</TABLE>

48
<PAGE> 146

KEMPER INVESTORS FUND

INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number of
Shares Value
---------- --------
<S> <C> <C>
CANADA--4.6%
CAE Inc............................. 181,000 $ 1,506
FLIGHT SIMULATOR MANUFACTURER
Canadian National Railway Company... 84,000 1,544
RAILWAY COMPANY
Petro-Canada........................ 232,700 1,425
OIL AND GAS COMPANY
(a)Philip Environmental................ 166,500 1,311
WASTE COLLECTION AND RECYCLING
COMPANY
Shaw Communications.................... 209,100 1,479
CABLE TELEVISION COMPANY
--------
7,265
NEW ZEALAND--1.6%
Lion Nathan Ltd..................... 657,800 1,717
BEER AND SOFT DRINK MANUFACTURER
Tranz Rail Holdings Ltd............. 63,100 876
TRANPORTATION
--------
2,593
--------
TOTAL COMMONWEALTH COUNTRIES--7.6%.... 11,997
LATIN AMERICA
ARGENTINA--.5%
(a)Ciadea S.A.......................... 107,000 760
AUTOMOBILE MANUFACTURER AND DEALER

<CAPTION>
Number of
Shares or
Principal
Amount Value
---------- --------
<S> <C> <C>
BRAZIL--.5%
(a)Iochpe-Maxion....................... 6,100,000 $ 762
AUTO PARTS AND MACHINERY --------
MANUFACTURER
TOTAL LATIN AMERICAN
COUNTRIES--1.0%....................... 1,522
TOTAL COMMON STOCKS--95.8%
(Cost: $130,451).................... 151,766
MONEY MARKET INSTRUMENTS--4.3%
Yield--5.50% to 5.54%
Due-July 1996
(Cost: $6,874)...................... $ 6,900 6,874
--------
TOTAL INVESTMENTS--100.1%
(Cost: $137,325).................... 158,640
LIABILITIES, LESS OTHER
ASSETS--(.1)%......................... (187)
--------
NET ASSETS--100%...................... $158,453
========
</TABLE>

49
<PAGE> 147

KEMPER INVESTORS FUND

INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)

At June 30, 1996, the International Portfolio of Investments had the following
industry diversification (dollars in thousands):

<TABLE>
<CAPTION>
VALUE %
-------- -----
<S> <C> <C>
Finance................................................................................. $ 26,422 16.7
Consumer Cyclicals...................................................................... 20,852 13.1
Basic Industries........................................................................ 17,307 10.9
Technology.............................................................................. 17,271 10.9
Capital Goods........................................................................... 17,011 10.7
Consumer Staples........................................................................ 16,261 10.3
Health Care............................................................................. 15,685 9.9
Transportation.......................................................................... 6,642 4.2
Utilities............................................................................... 5,792 3.7
Energy.................................................................................. 4,443 2.8
Consumer Durables....................................................................... 4,080 2.6
-------- -----
Total Common Stocks..................................................................... 151,766 95.8
Other Net Assets........................................................................ 6,687 4.2
-------- -----
Net Assets.............................................................................. $158,453 100.0
======== =====
</TABLE>

NOTES TO INTERNATIONAL PORTFOLIO OF INVESTMENTS

(a)Non-income producing security.

Based on the cost of investments of $137,325,000 for federal income tax purposes
at June 30, 1996, the gross unrealized appreciation was $22,847,000, the gross
unrealized depreciation was $1,532,000 and the net unrealized appreciation on
investments was $21,315,000.

See accompanying notes to financial statements.

50
<PAGE> 148

KEMPER INVESTORS FUND

SMALL CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number of
Shares Value
--------- -------
<S> <C> <C>
COMMON STOCKS
BASIC INDUSTRIES--6.6%
Greenfield Industries............... 13,000 $ 429
Hollinger International............. 30,100 342
(a)Jacobs Engineering Group............ 27,000 712
Outdoor Systems, Inc................ 30,000 1,057
Philip Environmental................ 35,000 276
Trico Marine Services, Inc.......... 30,000 667
-------
3,483
CAPITAL GOODS--5.2%
(a)Cascade Communications.............. 6,000 408
(a)Elsag Bailey Process
Automation.......................... 25,500 682
Federal Signal Corp................. 13,000 306
(a)Lamson & Sessions................... 15,000 178
Nordson Corp........................ 6,000 339
Pioneer-Standard Electronics........ 8,500 113
(a)Renters Choice...................... 11,200 286
TriMas Corp......................... 19,200 449
-------
2,761
CONSUMER CYCLICALS--12.5%
(a)APAC TeleServices................... 16,000 576
Allen Group......................... 17,000 370
Gaylord Entertainment Co............ 41,000 1,158
(a)Global DirectMail................... 15,000 593
(a)MGM Grand........................... 10,000 399
(a)OfficeMax, Inc...................... 31,500 752
(a)Primadonna Resorts.................. 25,000 575
SPX Corp............................ 35,000 857
(a)Safety 1st.......................... 9,500 80
(a)Tellabs Operations.................. 9,500 635
(a)Viking Office Products.............. 6,800 213
Vincam Group, Inc................... 2,000 52
(a)Williams-Sonoma..................... 15,000 354
-------
6,614
CONSUMER DURABLES--3.4%
(a)Ethan Allen Interiors............... 20,300 502
Diamond Home Services, Inc.......... 25,000 419
(a)Mohawk Industries................... 17,000 302
(a)Triangle Pacific Corp............... 30,000 592
-------
1,815

<CAPTION>
Number of
Shares Value
--------- -------
<S> <C> <C>
CONSUMER STAPLES--8.2%
(a)Kenneth Cole Productions............ 20,000 $ 395
(a)Gymboree............................ 8,000 244
Intimate Brands..................... 12,500 286
(a)Donna Karan International Inc....... 4,000 112
(a)Opta Food Ingredients............... 2,800 28
(a)Patterson Dental Co................. 22,300 808
(a)Revlon, Inc......................... 29,000 845
Richfood Holdings................... 10,500 341
(a)Starbucks Corp...................... 28,000 791
Talbots............................. 15,000 486
-------
4,336
ENERGY--.4%
(a)Input/Output, Inc................... 6,600 214
FINANCE--11.2%
(a)Cityscape Financial................. 16,400 841
Executive Risk...................... 11,500 440
(a)Financial Federal Corporation....... 55,000 859
(a)Meadowbrook Insurance Group......... 5,500 169
PMI Group........................... 20,800 884
(a)Riscorp, Inc........................ 21,800 398
(a)Risk Capital Holdings, Inc.......... 40,000 785
Roosevelt Financial Group........... 37,500 722
Texas Regional Bancshares........... 10,800 270
(a)United Insurance Companies.......... 11,200 255
Western National Corporation........ 18,000 331
-------
5,954
HEALTH CARE--20.8%
(a)ABR Information Services............ 11,500 578
(a)Access Health, Inc.................. 14,950 706
(a)CRA Managed Care, Inc............... 22,500 1,007
Caremark International, Inc......... 13,800 348
(a)Dura Pharmaceuticals................ 11,000 616
(a)EndoSonics Corp..................... 25,000 447
(a)IDEXX Laboratories.................. 14,000 549
(a)IMNET Systems....................... 5,100 156
(a)Interim Services.................... 18,600 800
Millenmum Pharmaceutical............ 10,000 155
(a)Occusystems, Inc.................... 12,300 460
Omnicare, Inc....................... 33,000 875
Physician Computer Network.......... 20,000 231
Physician Sales & Service........... 35,200 854
(a)Quest Medical....................... 15,000 105
RTW, Inc............................ 11,100 350
(a)Renal Treatment Centers............. 13,200 379
(a)Research Industries................. 12,000 265
</TABLE>

51
<PAGE> 149

KEMPER INVESTORS FUND
SMALL CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Number of
Shares Value
--------- -------
<S> <C> <C>
(a)Serologicals Corporation......... 10,700 $ 284
(a)Steris Corp...................... 8,000 256
Stewart Enterprises.............. 24,250 758
(a)Total Renal Care Holdings........ 19,800 837
-------
11,016
TECHNOLOGY--17.3%
(a)Alternative Resources
Corporation...................... 27,000 992
(a)Ascend Communications............ 4,500 253
Atmel Corporation................ 17,500 527
(a)Auspex Systems, Inc.............. 18,000 270
(a)Boca Research.................... 17,500 319
(a)Ciber, Inc....................... 11,400 251
(a)Dendrite International, Inc...... 17,000 587
(a)Electronic Arts.................. 20,000 535
(a)Gartner Group.................... 10,000 366
(a)Integrated Systems............... 6,400 256
(a)InterVoice, Inc.................. 18,000 358
(a)Keane, Inc....................... 19,200 708
(a)McAfee Associates, Inc........... 7,200 353
(a)Parametric Technology Corp....... 19,000 824
(a)SPSS, Inc........................ 10,000 250
(a)Softkey International............ 25,000 473
(a)Solectron Corp................... 21,500 814
(a)Tech Data Corporation............ 21,700 472
U.S. Robotics.................... 4,000 342
(a)Wang Laboratories................ 10,000 189
-------
9,139
TRANSPORTATION--3.9%
(a)Copart, Inc...................... 28,500 470

Number of
Shares or
Principal
Amount Value
--------- --------
(a)Genesee & Wyoming Inc............ 37,000 $ 759
Tranz Rail Holdings, Ltd......... 25,000 347
(a)Wisconsin Central
Transportation................... 15,400 500
-------
2,076
UTILITIES--2.2%
(a)LCI International, Inc........... 36,400 1,142
-------
TOTAL COMMON STOCKS--91.7%
(Cost: $39,021).................. 48,550
MONEY MARKET INSTRUMENTS
Yield--5.48% to 5.65%
Due--July 1996
ConAgra.......................... $ 1,000 996
Enserch Corporation.............. 1,000 999
Houston Industries............... 1,000 999
Union Pacific Corp............... 1,000 1,000
-------
TOTAL MONEY MARKET INSTRUMENTS--7.5%
(Cost: $3,994)................... 3,994
-------
TOTAL INVESTMENTS--99.2%
(Cost: $43,015).................. 52,544
CASH AND OTHER ASSETS, LESS
LIABILITIES--.8%................... 419
-------
NET ASSETS--100%................... $52,963
=======
</TABLE>

NOTES TO SMALL CAP GROWTH PORTFOLIO OF INVESTMENTS

(a) Non-income producing security.

Based on the cost of investments of $43,015,000 for federal income tax purposes
at June 30, 1996, the gross unrealized appreciation was $10,500,000, the gross
unrealized depreciation was $971,000 and the net unrealized appreciation on
investments was $9,529,000.

52
<PAGE> 150

KEMPER INVESTORS FUND
INVESTMENT GRADE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- -----
<S> <C> <C>
U.S. TREASURY BILLS--22.5%
(Cost: $100)............................ $ 100 $ 99
CORPORATE OBLIGATIONS
AEROSPACE--2.3%
Lockheed Martin, 7.70%, 2008............ 10 10
BANKING--2.3%
Societe Generale, 7.40%, 2006........... 10 10
OIL, GAS AND PETROLEUM SERVICES--2.2%
Parker & Parsley Petroleum,
8.25%, 2007........................... 10 10
----
TOTAL CORPORATE OBLIGATIONS--6.8%
(Cost: $30)............................. 30

<CAPTION>
Principal
Amount Value
--------- -----
<S> <C> <C>
MONEY MARKET INSTRUMENTS
Yield -- 5.08% to 5.31%
Due--July and September 1996
Federal Farm Credit Banks............... $ 50 $ 50
Federal Home Loan Mortgage
Corporation........................... 150 150
Federal National Mortgage Association... 50 50
----
TOTAL MONEY MARKET INSTRUMENTS--56.8%
(Cost: $249)............................ 250
TOTAL INVESTMENTS--86.1%
(Cost: $379)............................ 379
----
CASH AND OTHER ASSETS, LESS
LIABILITIES--13.8%........................ 61
----
NET ASSETS--100%.......................... $440
====
</TABLE>

NOTE TO INVESTMENT GRADE BOND PORTFOLIO OF INVESTMENTS

Based on the cost of investments of $379,000 for federal income tax purposes at
June 30, 1996, there was no appreciation or depreciation on investments.

See accompanying notes to financial statements.

53
<PAGE> 151

KEMPER INVESTORS FUND
VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number of
Shares Value
--------- --------
<S> <C> <C>
COMMON STOCKS
BANKS--19.2%
Banc One Corporation............... 2,300 $ 78
Bank of New York Co................ 300 15
BankAmerica Corp................... 1,000 76
Bankers Trust New York Corp........ 500 38
Barnett Banks...................... 1,200 73
First Chicago NBD Corp............. 1,900 74
First Union Corp................... 1,400 85
NationsBank........................ 1,200 99
PNC Bank, N.A...................... 2,600 77
--------
615
BASIC INDUSTRIES--.1%
Crane Company...................... 100 4
CAPITAL GOODS--3.0%
General Electric Co................ 1,100 95
CONSUMER CYCLICALS--9.4%
(a) Burlington Coat Factory............ 900 9
Liz Claiborne...................... 700 24
Dayton Hudson Corp................. 300 32
Dillard Department Stores.......... 600 22
(a) Fruit of The Loom.................. 1,200 31
Philips N.V., ADR.................. 1,800 59
TJX Companies, Inc................. 1,200 41
(a) Toys R Us.......................... 800 23
V.F. Corp.......................... 500 30
Wal-Mart Stores.................... 1,200 30
--------
301
CONSUMER DURABLES--.4%
Ford Motor Co...................... 400 13
CONSUMER STAPLES--9.2%
Hanson PLC, ADR.................... 400 6
Philip Morris Companies............ 1,600 166
UST, Inc........................... 3,600 123
--------
295
ENERGY--9.5%
AMOCO Corp......................... 700 51
Atlantic Richfield Co.............. 600 71
Columbia Gas System................ 2,800 147
Louisiana-Pacific Corp............. 1,600 35
--------
304

<CAPTION>
Number of
Shares Value
--------- --------
<S> <C> <C>
FINANCIAL SERVICES--21.8%
H.F. Ahmanson & Co................. 400 $ 11
American General Corp.............. 600 22
American International Group,
Inc.............................. 400 39
Capital One Financial Corp......... 100 3
Crestar Financial Corp............. 200 11
Federal Home Loan Mortgage Corp.... 2,000 171
Federal National Mortgage
Association...................... 6,600 221
Fleet Financial Group, Inc......... 600 26
Great Western Financial Corp....... 600 14
KeyCorp............................ 1,600 62
J.P. Morgan & Company.............. 500 42
Norwest Corp....................... 500 17
Signet Banking Corp................ 2,400 56
--------
695
HEALTH CARE--6.7%
Baxter International............... 200 9
Becton Dickinson & Co.............. 100 8
Columbia/HCA Healthcare Corp....... 100 5
Glaxo Wellcome, ADR................ 200 5
(a) Humana, Inc........................ 2,400 43
Eli Lilly & Co..................... 500 33
Merck & Co., Inc................... 300 19
Pharmacia-Upjohn Inc............... 500 22
(a) Tenet Healthcare Corporation....... 1,400 30
U.S. Healthcare.................... 700 39
--------
213
TECHNOLOGY--8.1%
(a) Compaq Computer Corp............... 1,800 89
Intel Corp......................... 1,500 110
Texas Instruments.................. 1,200 60
--------
259
--------
TOTAL COMMON STOCKS--87.4%
(Cost: $2,780)..................... 2,794
</TABLE>

54
<PAGE> 152

KEMPER INVESTORS FUND
VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 -- (CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
MONEY MARKET INSTRUMENTS--20.5%
Yield--5.25% to 5.30%
Due--July and August 1996
(Cost: $657)
Federal Home Loan Mortgage Corp.... $ 660 $ 657
--------

Value
--------
TOTAL INVESTMENTS--107.9%
(Cost: $3,437)..................... $ 3,451
LIABILITIES, LESS CASH AND OTHER
ASSETS--(7.9)%..................... (252)
--------
NET ASSETS--100%..................... $ 3,199
========
</TABLE>

NOTES TO VALUE PORTFOLIO OF INVESTMENTS

(a) Non-income producing security.

Based on the cost of investments of $3,437,000 for federal income tax purposes
at June 30, 1996, the gross unrealized appreciation was $63,000, the gross
unrealized depreciation was $49,000 and the net unrealized appreciation on
investments was $14,000.

See accompanying notes to financial statements.

55
<PAGE> 153

KEMPER INVESTORS FUND

SMALL CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number
of Shares Value
---------- ------
<S> <C> <C>
COMMON STOCKS
AUTOS AND TRANSPORTATION--5.0%
Airborne Freight Corporation........ 2,700 $ 70
Fleetwood Enterprises............... 2,900 90
Simpson Industries.................. 3,700 34
------
194
BANKS AND THRIFTS--12.9%
Compass Bancshares.................. 2,100 69
Cullen Frost Bankers................ 1,400 39
First Commerce Corp................. 1,800 64
First Financial Corp................ 1,600 36
Liberty Bancorp..................... 1,500 53
Long Island Bancorp................. 2,300 70
North Side Savings Bank............. 1,300 45
Roosevelt Financial Group........... 3,600 69
T.R. Financial Corp................. 2,000 55
------
500
CONSUMER DISCRETIONARY--12.8%
J. Baker, Inc....................... 6,400 48
Bally Entertainment Corp............ 4,500 124
Cato Corp........................... 9,700 58
Fedders Corporation................. 5,300 38
Haggar Apparel Co................... 3,100 42
Heilig-Meyers....................... 2,000 48
(a) Insurance Auto Auctions............. 6,300 63
(a) Sports & Recreation................. 8,500 77
------
498
ENERGY--5.1%
Giant Industries.................... 4,800 70
KCS Energy.......................... 4,500 129
------
199
FINANCE--10.9%
First Financial Caribbean Corp...... 3,300 68
Guaranty National Insurance......... 2,200 40
Imperial Credit Industries.......... 3,400 103
Integon Corp........................ 3,000 60
Lawyers Title Insurance Corp........ 1,900 34
PHH Corporation..................... 2,100 120
------
425
INTEGRATED OILS--1.9%
(a) Tesoro Petroleum Corp............... 6,500 75

MATERIALS AND PROCESSING--10.4%
AK Steel Holding Corp............... 1,600 63

<CAPTION>
Number of
Shares or
Principal
Amount Value
---------- ------
<S> <C> <C>
AMCOL International................. 2,600 $ 39
Del Webb Corp....................... 4,500 90
(a) Mueller Industries, Inc............. 2,600 108
Quanex Corp......................... 1,500 35
Rexene Corp......................... 7,300 72
------
407
PRODUCER DURABLES--8.0%
(a) Asyst Technologies.................. 2,000 38
Blount, Inc......................... 4,400 139
(a) Electroglas......................... 4,600 65
Stewart & Stevenson Services........ 3,000 68
------
310
TECHNOLOGY--7.7%
(a) Burr Brown Corp..................... 1,800 32
(a) Cyrix............................... 900 15
(a) Diamond Multimedia Systems,
Inc. ............................. 2,700 26
(a) EXAR Corporation.................... 5,100 66
(a) Proxima Corp........................ 2,700 33
(a) Read-Rite Corp...................... 5,100 72
(a) Western Digital Corp................ 2,100 55
------
299
UTILITIES--3.4%
(a) Atlantic Tele-Network............... 5,500 132

OTHER--2.9%
Arbatax International, Inc.......... 3,250 15
(a) Mercer International Inc............ 7,100 96
------
111
------
TOTAL COMMON STOCKS--81.0%
(Cost: $3,291)...................... 3,150

MONEY MARKET INSTRUMENTS--17.4%
Yield--5.25% to 5.29%
Due--July and August 1996
(Cost: $678)
Federal Home Loan Mortgage Corp..... $ 680 678
------
TOTAL INVESTMENTS--98.4%
(Cost: $3,969)...................... 3,828

CASH AND OTHER ASSETS, LESS
LIABILITIES--1.6%..................... 62
------
NET ASSETS--100%...................... $3,890
======
</TABLE>

See accompanying notes to Small Cap Value Portfolio of Investments.

56
<PAGE> 154

NOTES TO SMALL CAP VALUE PORTFOLIO OF INVESTMENTS

(a) Non-income producing security.

Based on the cost of investments of $3,969,000 for federal income tax purposes
at June 30, 1996, the gross unrealized appreciation was $107,000, the gross
unrealized depreciation was $248,000 and the net unrealized depreciation on
investments was $141,000.

See accompanying notes to financial statements.

57
<PAGE> 155

KEMPER INVESTORS FUND

VALUE + GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number of
Shares Value
--------- -------
<S> <C> <C>
COMMON STOCKS
BASIC INDUSTRIES--1.6%
(a) FMC Corp.............................. 400 $ 26
CAPITAL GOODS--4.9%
Emerson Electric Co................. 200 18
General Electric Co................. 400 35
Xerox Corporation................... 500 27
-------
80
CONSUMER CYCLICALS--10.8%
Circuit City Stores................. 500 18
Dayton Hudson Corp.................. 200 21
Dillard Department Stores........... 300 11
(a) Fruit of The Loom................... 400 10
Mattel, Inc......................... 800 23
Newell Co........................... 1,000 31
Philips N.V., ADR................... 300 10
TJX Companies, Inc.................. 300 10
(a) Toys R Us........................... 600 17
V.F. Corp........................... 200 12
Wal-Mart Stores..................... 600 15
-------
178
CONSUMER DURABLES--1.7%
Ford Motor Co....................... 400 13
Leggett & Platt Incorporated........ 300 8
Singer Company N.V.................. 400 8
-------
29
CONSUMER STAPLES--14.0%
American Greetings Corp............. 400 11
Carnival Corp....................... 700 20
(a) Cox Communications Inc.............. 1,000 22
Walt Disney Company................. 400 25
(a) Franklin Quest Co................... 600 12
Philip Morris Companies............. 400 42
Procter & Gamble Co................. 300 27
Tele-Communications, Inc............ 1,000 18
UST, Inc............................ 1,000 34
Wendy's International............... 1,000 19
-------
230

<CAPTION>
Number of
Shares Value
--------- -------
<S> <C> <C>
ENERGY--6.9%
AMOCO Corp.......................... 400 $ 29
Atlantic Richfield Co............... 200 24
Columbia Gas System................. 600 31
Enron Corp.......................... 400 16
Louisiana-Pacific Corp.............. 600 13
-------
113
FINANCE--21.6%
American General Corp............... 300 11
American International Group,
Inc............................... 200 20
Banc One Corporation................ 300 10
BankAmerica Corp.................... 200 15
Bankers Trust New York Corp......... 200 15
Barnett Banks....................... 300 18
Federal Home Loan Mortgage Corp..... 500 43
Federal National Mortgage
Association....................... 1,500 50
First Chicago NBD Corp.............. 400 16
First Union Corp.................... 400 24
First USA........................... 300 16
Fleet Financial Group, Inc.......... 200 9
KeyCorp............................. 200 8
MGIC Investment Corp................ 200 11
J.P. Morgan & Company............... 200 17
NationsBank......................... 300 25
PNC Bank, N.A....................... 500 15
Signet Banking Corp................. 600 14
Travelers Group..................... 400 18
-------
355
HEALTH CARE--12.7%
Abbott Laboratories................. 600 26
(a) Foundation Health Corp.............. 400 14
Glaxo Wellcome, ADR................. 400 11
(a) Humana, Inc......................... 800 14
Johnson & Johnson................... 500 25
Eli Lilly & Co...................... 300 19
Mallinckrodt Group.................. 300 12
Merck & Co., Inc.................... 400 26
(a) Mid Atlantic Medical Services,
Inc................................. 1,000 14
Sandoz, Ltd......................... 300 17
United Healthcare Corp.............. 600 30
-------
208
</TABLE>

58
<PAGE> 156

KEMPER INVESTORS FUND

VALUE + GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number of
Shares Value
--------- -------
<S> <C> <C>
TECHNOLOGY--21.3%
(a)Applied Materials, Inc.................... 600 $ 18
(a)Atmel Corporation......................... 500 15
(a)Bay Networks.............................. 700 18
(a)Cisco Systems............................. 400 23
(a)Compaq Computer Corp...................... 800 39
(a)EMC Corp.................................. 1,000 19
Intel Corp................................ 300 22
International Business Machines
Corp.................................... 200 20
(a)LSI Logic Corp............................ 600 16
(a)Lam Research Corp......................... 900 23
Linear Technology Corp.................... 400 12
(a)Maxim Integrated Products................. 500 14
(a)Novellus Systems.......................... 500 18
(a)Seagate Technology........................ 400 18
(a)Silicon Graphics Inc...................... 700 17
(a)Softkey International..................... 800 15
Texas Instruments......................... 400 20
(a)3Com Corporation.......................... 500 23
-------
350
UTILITIES--3.5%
AT & T.................................. 400 25
(a)Paging Network, Inc....................... 700 17
SBC Communications Inc.................... 300 15
-------
57
-------

<CAPTION>
Principal
Amount Value
--------- -------
<S> <C> <C>
TOTAL COMMON STOCK--99.0%
(Cost: $1,651).......................... $ 1,626
MONEY MARKET INSTRUMENTS--6.1%
Yield--5.26%
Due--July 1996
(Cost: $100)
Federal Home Loan Mortgage Corp.........$ 100 100
-------
TOTAL INVESTMENTS--105.1%
(Cost: $1,751).......................... 1,726
LIABILITIES, LESS CASH AND OTHER
ASSETS--(5.1)%........................... (83)
-------
NET ASSETS--100%......................... $ 1,643
=======
</TABLE>

NOTES TO VALUE + GROWTH PORTFOLIO OF INVESTMENTS

(a) Non-income producing security.

Based on the cost of investments of $1,751,000 for federal income tax purposes
at June 30, 1996, the gross unrealized appreciation was $36,000, the gross
unrealized depreciation was $61,000 and the net unrealized depreciation on
investments was $25,000.

See accompanying notes to financial statements.

59
<PAGE> 157

KEMPER INVESTORS FUND
HORIZON 20+ PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996

(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number of
Shares Value
--------- -----
<S> <C> <C>
COMMON STOCKS
BASIC INDUSTRIES--1.2%
(a)FMC Corp.............................. 100 $ 7
CAPITAL GOODS--2.4%
General Electric Co................... 100 9
Xerox Corporation..................... 100 5
-----
14
CONSUMER CYCLICALS--8.7%
Circuit City Stores................... 200 7
Dillard Department Stores............. 100 4
(a)Fruit of The Loom..................... 200 5
Mattel, Inc........................... 200 6
Newell Co............................. 200 6
Philips N.V., ADR..................... 100 3
TJX Companies, Inc.................... 100 3
(a)Toys R Us............................. 200 6
V.F. Corp............................. 100 6
Wal-Mart Stores....................... 200 5
-----
51
CONSUMER DURABLES--2.2%
Ford Motor Co......................... 100 3
Leggett & Platt Incorporated.......... 200 6
Singer Company N.V.................... 200 4
-----
13
CONSUMER STAPLES--9.8%
American Greetings Corp............... 200 5
Carnival Corp......................... 200 6
(a)Cox Communications Inc................ 200 4
Walt Disney Company................... 100 6
Philip Morris Companies............... 100 10
Procter & Gamble Co................... 100 9
Tele-Communications, Inc.............. 300 5
UST, Inc.............................. 200 7
Wendy's International................. 300 5
-----
57

Number of
Shares Value
--------- -----
ENERGY--5.5%
AMOCO Corp............................ 100 $ 7
Atlantic Richfield Co................. 100 12
Columbia Gas System................... 100 5
Enron Corp............................ 100 4
Louisiana-Pacific Corp................ 200 4
-----
32
FINANCE--18.5%
American International Group, Inc..... 100 10
Banc One Corporation.................. 100 3
BankAmerica Corp...................... 100 8
Bankers Trust New York Corp........... 100 7
Barnett Banks......................... 100 6
Federal Home Loan Mortgage Corp....... 100 9
Federal National Mortgage
Association......................... 400 13
First Chicago NBD Corp................ 100 4
First Union Corp...................... 100 6
First USA............................. 100 6
MGIC Investment Corp.................. 100 6
NationsBank........................... 100 8
PNC Bank, N.A......................... 200 6
Signet Banking Corp................... 400 9
Travelers Group....................... 150 7
-----
108
HEALTH CARE--9.9%
Abbott Laboratories................... 200 9
(a)Foundation Health Corp................ 100 4
Glaxo Wellcome, ADR................... 200 5
(a)Humana, Inc........................... 200 4
Johnson & Johnson..................... 100 5
Eli Lilly & Co........................ 100 7
Mallinckrodt Group.................... 100 4
Merck & Co., Inc...................... 100 6
(a)Mid Atlantic Medical Services,
Inc................................... 200 3
Sandoz, Ltd........................... 100 6
United Healthcare Corp................ 100 5
-----
58
</TABLE>

60
<PAGE> 158

KEMPER INVESTORS FUND

HORIZON 20+ PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Number of
Shares Value
--------- -----
<S> <C> <C>
TECHNOLOGY--20.2%
(a)Applied Materials, Inc............. 100 $ 3
(a)Atmel Corporation.................. 200 6
(a)Bay Networks....................... 200 5
(a)Cisco Systems...................... 100 6
(a)Compaq Computer Corp............... 100 5
(a)EMC Corp........................... 300 6
Intel Corp......................... 100 7
(a)LSI Logic Corp..................... 300 8
(a)Lam Research Corp.................. 300 8
Linear Technology Corp............. 200 6
(a)Maxim Integrated Products.......... 200 5
(a)Novellus Systems................... 300 11
(a)Seagate Technology................. 300 14
(a)Silicon Graphics Inc............... 400 10
(a)Softkey International.............. 200 4
Texas Instruments.................. 100 5
(a)3Com Corporation................... 200 9
-----
118
UTILITIES--3.1%
AT&T............................. 100 6
(a)Paging Network, Inc.............. 300 7
SBC Communications Inc........... 100 5
-----
18
-----
TOTAL COMMON STOCKS--81.5%
(Cost: $483)..................... 476
</TABLE>

<TABLE>
<CAPTION>
Principal
Amount Value
--------- -----
<S> <C> <C>
MONEY MARKET INSTRUMENTS--17.1%
Yield--5.52%
Due--July 1996
(Cost: $100)
Federal Farm Credit Banks........ $ 100 $100
-----
TOTAL INVESTMENTS--98.6%
(Cost: $583)....................... 576
CASH AND OTHER ASSETS, LESS
LIABILITIES--1.4%.................. 8
-----
NET ASSETS--100%................... $584
=====
</TABLE>

NOTES TO HORIZON 20+ PORTFOLIO OF INVESTMENTS

(a) Non-income producing security.

Based on the cost of investments of $583,000 for federal income tax purposes at
June 30, 1996, the gross unrealized appreciation was $11,000, the gross
unrealized depreciation was $18,000 and the net unrealized depreciation on
investments was $7,000.

See accompanying notes to financial statements.

61
<PAGE> 159

KEMPER INVESTORS FUND

HORIZON 10+ PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number of
Shares Value
--------- --------
<S> <C> <C>
COMMON STOCKS
BASIC INDUSTRIES--.6%
(a) FMC Corp............................. 100 $ 7
CAPITAL GOODS--2.7%
Emerson Electric Co................ 100 9
General Electric Co................ 200 17
Xerox Corporation.................. 200 10
--------
36
CONSUMER CYCLICALS--6.1%
Circuit City Stores................ 300 11
Dayton Hudson Corp................. 50 5
Dillard Department Stores.......... 200 7
Mattel, Inc........................ 300 9
Newell Co.......................... 400 12
Philips N.V., ADR.................. 100 3
TJX Companies, Inc................. 200 7
(a) Toys R Us.......................... 200 6
V.F. Corp.......................... 100 5
Wal-Mart Stores.................... 600 15
--------
80
CONSUMER DURABLES--1.7%
Ford Motor Co...................... 300 10
Leggett & Platt Incorporated....... 300 8
Singer Company N.V................. 200 4
--------
22
CONSUMER STAPLES--7.8%
American Greetings Corp............ 200 5
Carnival Corp...................... 400 12
(a) Cox Communications Inc............. 400 9
Walt Disney Company................ 200 13
Philip Morris Companies............ 200 21
Procter & Gamble Co................ 100 9
Tele-Communications, Inc........... 300 5
UST, Inc........................... 500 17
Wendy's International.............. 600 11
--------
102

<CAPTION>
Number of
Shares Value
--------- --------
<S> <C> <C>
ENERGY--3.8%
AMOCO Corp......................... 100 $ 7
Atlantic Richfield Co.............. 100 12
Columbia Gas System................ 300 16
Enron Corp......................... 200 8
Louisiana-Pacific Corp............. 300 7
--------
50
FINANCE--14.8%
American General Corp.............. 300 11
American International Group,
Inc.............................. 100 10
Banc One Corporation............... 400 14
BankAmerica Corp................... 100 8
Bankers Trust New York Corp........ 100 7
Barnett Banks...................... 200 12
Federal Home Loan Mortgage Corp.... 200 17
Federal National Mortgage
Association...................... 500 17
First Chicago NBD Corp............. 200 8
First Union Corp................... 200 12
First USA.......................... 200 11
Fleet Financial Group, Inc......... 100 4
KeyCorp............................ 100 4
MGIC Investment Corp............... 200 11
J.P. Morgan & Company.............. 100 8
NationsBank........................ 100 8
PNC Bank, N.A...................... 300 9
Signet Banking Corp................ 400 9
Travelers Group.................... 300 14
--------
194
HEALTH CARE--7.4%
Abbott Laboratories................ 300 13
(a) Foundation Health Corp............. 200 7
Glaxo Wellcome, ADR................ 200 5
(a) Humana, Inc........................ 300 5
Johnson & Johnson.................. 200 10
Eli Lilly & Co..................... 100 6
Mallinckrodt Group................. 200 8
Merck & Co., Inc................... 200 13
(a) Mid Atlantic Medical Services,
Inc.............................. 600 9
Sandoz, Ltd........................ 100 6
United Healthcare Corp............. 300 15
--------
97
</TABLE>

62
<PAGE> 160

KEMPER INVESTORS FUND

HORIZON 10+ PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number of
Shares Value
--------- --------
<S> <C> <C>
TECHNOLOGY--12.2%
(a)Applied Materials, Inc.......... 100 $ 3
(a)Atmel Corporation............... 100 3
(a)Bay Networks.................... 300 8
(a)Cisco Systems................... 100 6
(a)Compaq Computer Corp............ 300 15
(a)EMC Corp........................ 300 6
Intel Corp......................... 200 15
International Business Machines
Corp............................. 100 10
(a)Lam Research Corp. 400 10
(a)LSI Logic Corp.................. 400 10
Linear Technology Corp............. 200 6
(a)Maxim Integrated Products....... 300 8
(a)Novellus Systems 300 11
(a)Seagate Technology.............. 300 14
(a)Silicon Graphics Inc............ 200 5
(a)Softkey International........... 300 6
Texas Instruments.................. 200 10
(a)3Com Corporation................ 300 14
--------
160
UTILITIES--2.7%
AT&T............................ 200 12
(a)Paging Network, Inc............. 600 14
SBC Communications Inc.......... 200 10
--------
36
--------

<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
TOTAL COMMON STOCKS--59.8%
(Cost: $796)....................... $ 784
MONEY MARKET INSTRUMENTS
Yield--5.28% to 5.31%
Due--July 1996
Federal Farm Credit Banks.......... $ 100 100
Federal Home Loan Mortgage
Corporation...................... 300 299
Federal National Mortgage
Association...................... 100 100
--------
TOTAL MONEY MARKET INSTRUMENTS--38.1%
(Cost: $499)....................... 499
--------
TOTAL INVESTMENTS--97.9%
(Cost: $1,295)..................... 1,283
CASH AND OTHER ASSETS, LESS
LIABILITIES--2.1%.................... 28
--------
NET ASSETS--100%..................... $ 1,311
========
</TABLE>

NOTES TO HORIZON 10+ PORTFOLIO OF INVESTMENTS

(a) Non-income producing security.

Based on the cost of investments of $1,295,000 for federal income tax purposes
at June 30, 1996, the gross unrealized appreciation was $15,000, the gross
unrealized depreciation was $27,000 and the net unrealized depreciation on
investments was $12,000.

See accompanying notes to financial statements.

63
<PAGE> 161

KEMPER INVESTORS FUND - HORIZON 5 PORTFOLIO

PORTFOLIO OF INVESTMENTS JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Number of
Shares Value
--------- -----
<S> <C> <C>
COMMON STOCKS
BASIC INDUSTRIES--.9%
(a)FMC Corp.......................... 100 $ 7
CAPITAL GOODS--1.9%
General Electric Co................ 100 9
Xerox Corporation.................. 100 5
----
14
CONSUMER CYCLICALS--3.0%
Circuit City Stores................ 200 7
Dillard Department Stores.......... 100 4
Mattel, Inc........................ 100 3
Newell Co.......................... 200 6
Wal-Mart Stores.................... 100 3
----
23
CONSUMER DURABLES--1.1%
Ford Motor Co...................... 100 3
Leggett & Platt Incorporated....... 100 3
Singer Company N.V................. 100 2
----
8
CONSUMER STAPLES--6.7%
American Greetings Corp............ 100 3
Carnival Corp...................... 100 3
(a)Cox Communications Inc............ 200 4
Walt Disney Company................ 100 6
Philip Morris Companies............ 100 10
Procter & Gamble Co................ 100 9
Tele-Communications, Inc........... 200 4
UST, Inc........................... 200 7
Wendy's International.............. 200 4
----
50
ENERGY--1.5%
Columbia Gas System................ 100 5
Enron Corp......................... 100 4
Louisiana-Pacific Corp............. 100 2
----
11
FINANCE--8.9%
Banc One Corporation............... 100 3
Barnett Banks...................... 100 6
Federal Home Loan Mortgage Corp.... 100 9
Federal National Mortgage
Association...................... 300 10
First Union Corp................... 100 6
First USA.......................... 100 5

<CAPTION>
Number of
Shares Value
-------- ----
<S> <C> <C>
KeyCorp............................ 100 $ 4
NationsBank........................ 100 8
PNC Bank, N.A...................... 200 6
Signet Banking Corp................ 200 5
Travelers Group.................... 100 5
----
67
HEALTH CARE--6.0%
Abbott Laboratories............... 100 4
(a)Foundation Health Corp............ 100 4
Glaxo Wellcome, ADR............... 100 3
(a)Humana, Inc....................... 200 4
Johnson & Johnson................. 100 5
Eli Lilly & Co.................... 100 7
Merck & Co., Inc.................. 100 6
(a)Mid Atlantic Medical Services,
Inc............................... 100 1
Sandoz, Ltd....................... 100 6
United Healthcare Corp............ 100 5
----
45
TECHNOLOGY--8.4%
(a)Applied Materials, Inc............ 100 3
(a)Bay Networks...................... 200 5
(a)Cisco Systems..................... 100 5
(a)Compaq Computer Corp.............. 100 5
(a)EMC Corp.......................... 200 4
Intel Corp........................ 100 7
(a)Lam Research Corp................. 200 5
(a)Maxim Integrated Products......... 100 3
(a)Novellus Systems.................. 100 4
(a)Seagate Technology................ 200 9
(a)Silicon Graphics Inc.............. 100 2
(a)Softkey International............. 100 2
Texas Instruments................. 100 5
(a)3Com Corporation.................. 100 4
----
63
UTILITIES--1.7%
AT&T............................. 100 6
(a)Paging Network, Inc............... 100 2
SBC Communications Inc............ 100 5
----
13
----
TOTAL COMMON STOCKS--40.0%
(Cost: $305)...................... 301
----
</TABLE>

64
<PAGE> 162

KEMPER INVESTORS FUND - HORIZON 5 PORTFOLIO

PORTFOLIO OF INVESTMENTS JUNE 30, 1996--(CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Principal
Amount Value
----
<S> <C> <C>
MONEY MARKET INSTRUMENTS
Yield--5.27% - 5.31%
Due--July and August 1996
Federal Farm Credit Banks............. $ 200 $198
Federal Home Loan Mortgage Corp....... 200 200
----
TOTAL MONEY MARKET
INSTRUMENTS--52.9%
(Cost: $398).......................... 398
----

Value
-----
TOTAL INVESTMENTS--92.9%
(Cost: $703).......................... $699
CASH AND OTHER ASSETS, LESS
LIABILITIES--7.1%....................... 53
----
NET ASSETS--100%........................ $752
====
</TABLE>

NOTES TO HORIZON 5 PORTFOLIO OF INVESTMENTS

(a) Non-income producing security.

Based on the cost of investments of $703,000 for federal income tax purposes at
June 30, 1996, the gross unrealized appreciation was $8,000, the gross
unrealized depreciation was $12,000 and the net unrealized depreciation on
investments was $4,000.

See accompanying notes to financial statements.

65
<PAGE> 163

PART C.

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements:

<TABLE>
<S> <C>
(i) Financial Statements included in Part A of the Registration Statement:
Money Market, Total Return, High Yield, Growth, Government Securities,
International, Small Cap Growth, Investment Grade Bond, Value, Small Cap Value,
Value+Growth, Horizon 20+, Horizon 10+ and Horizon 5 Portfolios -- Financial
Highlights
(ii) Financial Statements included in Part B of the Registration Statement:
Money Market, Total Return, High Yield, Growth, Government Securities,
International and Small Cap Growth Portfolios
Report of Independent Auditors (February 16, 1996)
Statement of Assets and Liabilities--December 31, 1995
Statement of Operations for the year ended December 31, 1995
Statement of Changes in Net Assets for each of the two years in the period ended
December 31, 1995 (except for the Small Cap Growth Portfolio, which is for the
year ended December 31, 1995 and the period May 2, 1994 through December 31,
1994)
Notes to Financial Statements
Portfolio of Investments--December 31, 1995
Investment Grade Bond, Value, Small Cap Value, Value+Growth, Horizon 20+,
Horizon 10+ and Horizon 5 Portfolios
Report of Independent Auditors (April 22, 1996)
Statement of Net Assets (April 22, 1996)
Statement of Net Assets (June 30, 1996) (unaudited)
Statement of Operations for the period from May 1, 1996 to June 30, 1996
(unaudited)
Statement of Changes in Net Assets for the period from May 1, 1996 to June 30,
1996 (unaudited)
Notes to Financial Statements
Portfolio of Investments--June 30, 1996 (unaudited)
</TABLE>

Schedule I has been omitted for the Money Market, Total Return, High Yield,
Growth, Government Securities, International and Small Cap Growth Portfolios as
the required information is presented in the Portfolio of Investments at
December 31, 1995.

Schedule I has been omitted for the Investment Grade Bond, Value, Small Cap
Value, Value+Growth, Horizon 20+, Horizon 10+ and Horizon 5 Portfolios as the
required information is presented in the Portfolio of Investments at June 30,
1996.

Schedules II, III, IV and V for each Portfolio have been omitted as the
required information is not present.

(b) Exhibits:

C-1
<PAGE> 164

<TABLE>
<S> <C>
99.b1. (f) Written Instrument Amending the Agreement and Declaration of Trust to
Change the Name of One Existing Series.***
99.b2. By-laws.*
99.b3. Not Applicable.
99.b4. Text of Share certificate.*
99.b5. (a) Investment Management Agreement (Money Market, Total Return, High
Yield, Growth, Government Securities, International and Small Cap
Growth Portfolios.)**
99.b5. (b) Notification of Additional Portfolios (Investment Grade Bond,
Value+Growth
Horizon 20+, Horizon 10+ and Horizon 5 Portfolios).***
99.b5. (c) Investment Management Agreement (Value and Small Cap Value
Portfolios).***
99.b5. (d) Sub-Advisory Agreement (Value+Growth, Horizon 20+, Horizon 10+ and
Horizon 5 Portfolios).***
99.b6. Underwriting Agreement.**
99.b7. Not Applicable.
99.b8. (a) Custody Agreement.*
99.b8. (b) Foreign Custodian Agreement.*
99.b9. Agency Agreement.*
99.b10. Not Applicable.
99.b11. Consent and Reports of Ernst & Young LLP.
99.b12. Not Applicable.
99.b13. Not Applicable.
99.b14. Not Applicable.
99.b15. Not Applicable.
99.b17. Not Applicable.
99.b18. Not Applicable.
99.b24. Powers of Attorney.***
27 Financial Data Schedule.
485.B Representation of Counsel (Rule 485(b)).
</TABLE>

- ---------------

* Incorporated herein by reference to Post-Effective Amendment No. 14 to the
Registration Statement filed on April 27, 1995.
** Incorporated herein by reference to Post-Effective Amendment No. 15 to the
Registration Statement filed on February 14, 1996.

*** Incorporated herein by reference to Post-Effective Amendment No. 16 to the
Registration Statement filed on April 25, 1996.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Shares of the Registrant will be offered and sold to Kemper Investors Life
Insurance Company ("KILICO"), a stock insurance company organized under the laws
of Illinois, and its separate investment accounts, "KILICO Variable Separate
Account" and "KILICO Variable Annuity Separate Account" (the "Separate
Accounts"). The purchasers of insurance contracts and annuity contracts issued
in connection with such accounts will have the right to instruct KILICO with
respect to the voting of the Registrant's shares held by the Separate Accounts.
Subject to such voting instruction rights, KILICO and the Separate Accounts
directly control the Registrant. KILICO is a wholly-owned subsidiary of Zurich
Kemper Life Insurance Companies, Inc.

C-2
<PAGE> 165

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

As of September 16, 1996, there were three holders of record of shares of
the Money Market, Total Return, High Yield, Growth, Government Securities,
International and Small Cap Growth Portfolios. As of September 16, 1996, there
were two holders of record of shares of the Investment Grade Bond, Value, Small
Cap Value, Value+Growth, Horizon 20+, Horizon 10+ and Horizon 5 Portfolios.

ITEM 27. INDEMNIFICATION

Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 1 hereto, which is incorporated herein by reference) provides in effect
that the Registrant will indemnify its officers and trustees under certain
circumstances. However, in accordance with Section 17(h) and 17(i) of the
Investment Company Act of 1940 and its own terms, said Article of the Agreement
and Declaration of Trust does not protect any person against any liability to
the Registrant or its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of

such issue.

C-3
<PAGE> 166
ITEM 28(a) BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information pertaining to business and other connections of the
Registrant's investment advisers is hereby incorporated by reference to the
section of the Prospectus captioned "Investment Managers" and "Distributor"
and to the section of the Statement of Additional Information
captioned "Investment Managers and Distributor."

Zurich Kemper Investments, Inc., investment adviser of the Registrant, is
investment adviser of:

Kemper Mutual Funds:
Kemper Technology Fund
Kemper Total Return Fund
Kemper Growth Fund
Kemper Small Capitalization Equity Fund
Kemper Income and Capital Preservation Fund
Kemper Money Funds
Kemper National Tax-Free Income Series
Kemper Diversified Income Fund
Kemper High Yield Fund
Cash Equivalent Fund
Kemper U.S. Government Securities Fund
Kemper International Fund
Kemper Portfolios
Kemper State Tax-Free Income Series
Tax-Exempt California Money Market Fund
Kemper Adjustable Rate U.S. Government Fund
Kemper Blue Chip Fund
Kemper Global Income Fund
Kemper Target Equity Fund
Cash Account Trust
Investors Cash Trust
Tax-Exempt New York Money Market Fund
Kemper Value Plus Growth Fund
Kemper Quantitative Equity Fund
Kemper Horizon Fund
Kemper Europe Fund
Kemper Asian Growth Fund

Kemper Closed-End Funds:
Kemper High Income Trust
Kemper Intermediate Government Trust
Kemper Municipal Income Trust
Kemper Multi-Market Income Trust
Kemper Strategic Municipal Income Trust
The Growth Fund of Spain, Inc.
Kemper Strategic Income Fund

Zurich Kemper Investments, Inc. also furnishes investment advice to and
manages investment portfolios for other clients including Kemper Investors Fund
and Kemper International Bond Fund.

C-4
<PAGE> 167
Item 28(b)(i) Business and Other Connections of Officers
and Directors of Zurich Kemper Investments, Inc.,
the Investment Advisor

TIMBERS, STEPHEN B.
Director, President, Chief Executive Officer and Chief Investment
Officer, Zurich Kemper Investments, Inc.
Director, Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Chairman, Kemper Service Company
Director, Dreman Value Advisors, Inc.
Director, ZKI Agency, Inc.
Director, President, Kemper International Management, Inc.
Trustee and President, Kemper Funds
Director, The LTV Corporation
Governor, Investment Company Institute

NEAL, JOHN E.
Director, Zurich Kemper Investments, Inc.
President, Kemper Funds Group, a unit of Zurich Kemper
Investments, Inc.
Director, President, Kemper Service Company
Director, Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Dreman Value Advisors, Inc.
Director, ZKI Agency, Inc.
Director, Community Investment Corporation
Director, Continental Community Development Corporation
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
Director, RespiteCare
Director, Urban Shopping Centers, Inc.
Vice President, Kemper Funds

CHENG, LAURENCE W.
Director, Zurich Kemper Investments, Inc.
President and Chief Executive Officer, Zurich Investment
Management Group

C-5
<PAGE> 168

MORAX, DOMINQUE P.
Director, Zurich Kemper Investments, Inc.
Senior Vice President, Member Extended Corporate Executive Board,
Zurich Insurance Company
Trustee, Kemper Funds

CHAPMAN, II, WILLIAM E.
President, Kemper Retirement Plans Group, a unit of Zurich Kemper
Investments, Inc.
Director, Executive Vice President, Kemper Distributors, Inc.

VOGEL, VICTOR E.
Senior Executive Vice President, Zurich Kemper Investments, Inc.
Trustee, Zurich Kemper Investments, Inc. Profit Sharing Plan & Money
Purchase Pension Plan

BEIMFORD, JR., JOSEPH P.
Executive Vice President, Chief Investment Officer - Fixed
Income, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
Vice President, Galaxy Offshore, Inc.
Vice President, Investors Cash Trust
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Global Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Income and Capital Preservation Fund
Vice President, Kemper Intermediate Government Trust
Vice President, Kemper International Bond Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Money Funds
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Municipal Income Trust
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Portfolios
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Strategic Income Fund
Vice President, Kemper Strategic Municipal Income Trust
Vice President, Kemper U.S. Government Securities Fund
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund

COXON, JAMES H.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Vice President, Galaxy Offshore, Inc.

C-6
<PAGE> 169
Executive Vice President, Zurich Investment Management, Inc.

FERRO, DENNIS H.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Managing Director-Equities, Zurich Investment
Management Limited
Vice President, Kemper International Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Target Equity Fund
Vice President, The Growth Fund of Spain, Inc.
Vice President, Kemper Europe Fund

GREENAWALT, JAMES L.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, President, Kemper Distributors, Inc.
Director, President, ZKI Agency, Inc.

JOHNS, GORDON K.
Executive Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Global Income Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper International Bond Fund
Vice President, Kemper International Management, Inc.
Managing Director, Zurich Investment Management Limited
Vice President, Kemper Multi-Market Income Trust
Director, Thames Heritage Parade Limited

LANGBAUM, GARY A.
Executive Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Total Return Fund
Vice President, Kemper Investors Fund

MANZONI, JR., CHARLES R.
Executive Vice President, Secretary & General Counsel, Zurich Kemper
Investments, Inc.
Vice President, Kemper Funds
Secretary, ZKI Agency, Inc.

MURRIHY, MAURA J.
Executive Vice President, Zurich Kemper Investments, Inc.

REYNOLDS, STEVEN H.
Executive Vice President, Chief Investment Officer - Equities, Zurich
Kemper Investments, Inc.
Vice President, Kemper Technology Fund
Vice President, Kemper Total Return Fund
Vice President, Kemper Growth Fund
Vice President, Kemper Small Capitalization Equity Fund
Vice President, Kemper International Fund
Vice President, Kemper Blue Chip Fund
Vice President, Kemper Value Plus Growth Fund
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Target Equity Fund
Vice President, Kemper Horizon Fund
Vice President, Kemper Investors Fund
Vice President, The Growth Fund of Spain, Inc.
Vice President, Kemper Europe Fund

C-7
<PAGE> 170
ROBERTS, SCOTT A.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Zurich Investment Management, Inc.

SILIGMUELLER, DALE S.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Kemper Service Company

WEISS, ROBERT D.
Executive Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Zurich Investment Management, Inc.

BUKOWSKI, DANIEL J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Value Plus Growth Fund
Vice President, Kemper Investors Fund

BUTLER, DAVID H.
Senior Vice President, Zurich Kemper Investments, Inc.

CERVONE, DAVID M.
Senior Vice President, Zurich Kemper Investments, Inc.

CESSINE, ROBERT S.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Income and Capital Preservation Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Investors Fund

CHESTER, TRACY McCORMICK
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Blue Chip Fund
Vice President, Kemper Target Equity Fund

CIARLELLI, ROBERT W.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Kemper Service Company

COLLECCHIA, FRANK E.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
Senior Investment Officer, Federal Kemper Life Assurance
Company
Senior Investment Officer, Fidelity Life Association
Vice President, Galaxy Offshore, Inc.
Senior Investment Officer, Kemper Investors Life Insurance
Company

COLLORA, PHILIP J.
Senior Vice President and Assistant Secretary, Zurich Kemper
Investments, Inc.
Vice President and Secretary, Kemper Funds

C-8
<PAGE> 171
Assistant Secretary, Kemper International Management, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
Assistant Secretary, Dreman Value Advisors, Inc.
Assistant Secretary, ZKI Agency, Inc.

DUDASIK, PATRICK H.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Chief Financial Officer and Treasurer,
Dreman Value Advisors, Inc.
Vice President and Treasurer, Zurich Investment Management, Inc.
Treasurer and Chief Financial Officer, Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Kemper Service Company
Director and Treasurer, Zurich Investment Management Limited
Treasurer, ZKI Agency, Inc.

DUFFY, JEROME L.
Senior Vice President, Zurich Kemper Investments, Inc.
Treasurer, Kemper Funds

FINK, THOMAS M.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.

GALLAGHER, MICHAEL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Kemper Service Company

GOERS, RICHARD A.
Senior Vice President, Zurich Kemper Investments, Inc.

GREENWALD, MARSHALL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.

HARRINGTON, MICHAEL E.
Senior Vice President, Zurich Kemper Investments, Inc.

KLEIN, GEORGE
Senior Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Zurich Investment Management, Inc.

KLEIN, MARTY
Senior Vice President, Zurich Kemper Investments, Inc.

KORTH, FRANK D.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Technology Fund

McNAMARA, MICHAEL A.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund

C-9
<PAGE> 172
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund

MOORE, C. PERRY
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, ZKI Agency, Inc.

MIER, CHRISTOPHER J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Municipal Income Trust
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Strategic Municipal Income Trust

RABIEGA, CRAIG F.
Senior Vice President, Zurich Kemper Investments, Inc.
First Vice President, Kemper Service Company

RACHWALSKI, JR. FRANK J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
Vice President, Investors Cash Trust
Vice President, Kemper Investors Fund
Vice President, Kemper Money Funds
Vice President, Kemper Portfolios
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund

REGNER, THOMAS M.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Horizon Fund
Vice President, Kemper Investors Fund

RESIS, JR., HARRY E.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund

SCHUMACHER, ROBERT T.
Senior Vice President, Zurich Kemper Investments, Inc.

SILVIA, JOHN E.
Senior Vice President, Zurich Kemper Investments, Inc.

SMITH, JR., EDWARD BYRON
Senior Vice President, Zurich Kemper Investments, Inc.

SWANSON, DAVID
Senior Vice President, Zurich Kemper Investments, Inc.

C-10
<PAGE> 173
THOUIN-LEERKAMP, EDITH A.
Senior Vice President, Zurich Kemper Investments, Inc.
Director-European Equities, Zurich Investment Management Limited
Vice President, Kemper Europe Fund

VANDENBERG, RICHARD
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper U.S. Government Securities Fund
Vice President, Kemper Portfolios
Vice President, Kemper Adjustable Rate U.S. Government Fund

VINCENT, CHRISTOPHER T.
Senior Vice President, Zurich Kemper Investments, Inc.
First Vice President, Zurich Investment Management, Inc.

WONNACOTT, LARRY R.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.

BAZAN, KENNETH M.
First Vice President, Zurich Kemper Investments, Inc.
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.

BOEHM, JONATHAN J.
First Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Kemper Service Company

BURROW, DALE R.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Strategic Municipal Income Trust

BYRNES, ELIZABETH A.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Intermediate Government Trust

CHIEN, CHRISTINE
First Vice President, Zurich Kemper Investments, Inc.

CHRISTIANSEN, HERBERT A.
First Vice President, Zurich Kemper Investments, Inc.
First Vice President, Kemper Service Company

COHEN, JERRI I.
First Vice President, Zurich Kemper Investments, Inc.

DeMAIO, CHRIS C.
First Vice President, Zurich Kemper Investments, Inc.
Vice President and Chief Accounting Officer, Kemper Service
Company

C-11

<PAGE> 174
DEXTER, STEPHEN P.
First Vice President, Zurich Kemper Investments, Inc.

DOYLE, DANIEL J.
First Vice President, Zurich Kemper Investments, Inc.

FENGER, JAMES E.
First Vice President, Zurich Kemper Investments, Inc.

HALE, DAVID D.
First Vice President, Zurich Kemper Investments, Inc.

HORTON, ROBERT J.
First Vice President, Zurich Kemper Investments, Inc.

INNES, BRUCE D.
First Vice President, Zurich Kemper Investments, Inc.
Co-President, International Association of Corporate and
Professional Recruiters

JACOBS, PETER M.
First Vice President, Zurich Kemper Investments, Inc.

KEELEY, MICHELLE M.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Intermediate Government Trust
Vice President, Kemper Portfolios

KIEL, CAROL L.
First Vice President, Zurich Kemper Investments, Inc.

KNAPP, WILLIAM M.
First Vice President, Zurich Kemper Investments, Inc.

LAUGHLIN, ANN M.
First Vice President, Zurich Kemper Investments, Inc.

LENTZ, MAUREEN P.
First Vice President, Zurich Kemper Investments, Inc.

McCRINDLE-PETRARCA, SUSAN
First Vice President, Zurich Kemper Investments, Inc.

MINER, EDWARD
First Vice President, Zurich Kemper Investments, Inc.

MURRAY, SCOTT S.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company

NORRIS, JOHNSTON A.
First Vice President, Zurich Kemper Investments, Inc.

C-12
<PAGE> 175
PANOZZO, ROBERTA L.
First Vice President, Zurich Kemper Investments, Inc.

RADIS, STEVE A.
First Vice President, Zurich Kemper Investments, Inc.

RATEKIN, DIANE E.
First Vice President, Assistant General Counsel and Assistant
Secretary, Zurich Kemper Investments, Inc.
Assistant Secretary, Kemper Distributors, Inc.

STUEBE, JOHN W.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund

TEPPER, SHARYN A.
First Vice President, Zurich Kemper Investments, Inc.

TRUTTER, JONATHAN W.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund

WETHERALD, ROBERT F.
First Vice President, Zurich Kemper Investments, Inc.

WILLSON, STEPHEN R.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Strategic Municipal Income Trust

WITTNEBEL, MARK E.
First Vice President, Zurich Kemper Investments, Inc.

ADAMS, DONALD
Vice President, Zurich Kemper Investments, Inc.

ALLEN, PATRICIA L.
Vice President, Zurich Kemper Investments, Inc.

ANDREASEN, AMY
Vice President, Zurich Kemper Investments, Inc.

ANTONAK, GEORGE A.
Vice President, Zurich Kemper Investments, Inc.

BALASUBRAMANIAM, KALAMADI
Vice President, Zurich Kemper Investments, Inc.

BARRY, JOANN M.
Vice President, Zurich Kemper Investments, Inc.

C-13
<PAGE> 176
BIEBERLY, CHRISTINE A.
Vice President, Zurich Kemper Investments, Inc.

BODEM, RICHARD A.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company

BUCHANAN, PAMELA S.
Vice President, Zurich Kemper Investments, Inc.

BURKE, MARY PAT
Vice President, Zurich Kemper Investments, Inc.

BURSHTAN, DAVID H.
Vice President, Zurich Kemper Investments, Inc.

CARNEY, ANNE T.
Vice President, Zurich Kemper Investments, Inc.

CACCIOLA, RONALD
Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.

CARTER, PAUL J.
Vice President and Compliance Manager, Zurich Kemper Investments, Inc.

COHEN, JERRI I.
Vice President, Zurich Kemper Investments, Inc.

ESOLA, CHARLES J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company

FRIHART, THORA A.
Vice President, Zurich Kemper Investments, Inc.

GERACI, AUGUST L.
Vice President, Zurich Kemper Investments, Inc.

GOLAN, JAMES S.
Vice President, Zurich Kemper Investments, Inc.

GOODWIN, JUDITH C.
Vice President, Zurich Kemper Investments, Inc.

GRAY, PATRICK
Vice President, Zurich Kemper Investments, Inc.

GROOTENDORST, TONYA
Vice President, Zurich Kemper Investments, Inc.

HECHT, MARC L.
Vice President, Zurich Kemper Investments, Inc.
Assistant Secretary, ZKI Agency, Inc.

C-14
<PAGE> 177
HUM, CHI H.
Vice President, Zurich Kemper Investments, Inc.

HUOT, LISA L.
Vice President, Zurich Kemper Investments, Inc.

JASINSKI, R. ANTHONY
Vice President, Zurich Kemper Investments, Inc.

KARWOWSKI, KENNETH F.
Vice President, Zurich Kemper Investments, Inc.

KENNEDY, PATRICK J.
Vice President, Zurich Kemper Investments, Inc.

KOCH, DEBORAH L.
Vice President, Zurich Kemper Investments, Inc.

KOURY, KATHRYN E.
Vice President, Zurich Kemper Investments, Inc.

KOWALCZYK, MARK A.
Vice President, Zurich Kemper Investments, Inc.
Vice President, ZKI Agency, Inc.

KRANZ, KATHY J.
Vice President, Zurich Kemper Investments, Inc.

KRUEGER, PAMELA D.
Vice President, Zurich Kemper Investments, Inc.

KYCE, JOYCE
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company

LASKA, ROBERTA E.
Vice President, Zurich Kemper Investments, Inc.

LAUTZ, STEPHEN
Vice President, Zurich Kemper Investments, Inc.

LeFEBVRE, THOMAS J.
Vice President, Zurich Kemper Investments, Inc.

McGOVERN, KAREN B.
Vice President, Zurich Kemper Investments, Inc.

MILLER, GARY L.
Vice President, Zurich Kemper Investments, Inc.

MILLIGAN, BRIAN J.
Vice President, Zurich Kemper Investments, Inc.

C-15
<PAGE> 178
MULLEN, TERRENCE
Vice President, Zurich Kemper Investments, Inc.

MURPHY, THOMAS M.
Vice President, Zurich Kemper Investments, Inc.

NEVILLE, BRIAN P.
Vice President, Zurich Kemper Investments, Inc.

NORMAN, JR., DONALD L.
Vice President, Zurich Kemper Investments, Inc.

NOWAK, GREGORY J.
Vice President, Zurich Kemper Investments, Inc.

PANOZZO, ALBERT R.
Vice President, Zurich Kemper Investments, Inc.

PAXTON, THOMAS
Vice President, Zurich Kemper Investments, Inc.

PONTECORE, SUSAN E.
Vice President, Zurich Kemper Investments, Inc.

QUADRINI, LISA L.
Vice President, Zurich Kemper Investments, Inc.

RANDALL, JR., WALTER R.
Vice President, Zurich Kemper Investments, Inc.

ROBINSON, DEBRA A.
Vice President, Zurich Kemper Investments, Inc.

RODGERS, JOHN B.
Vice President, Zurich Kemper Investments, Inc.

ROKOSZ, PAUL A.
Vice President, Zurich Kemper Investments, Inc.

ROSE, KATIE M.
Vice President, Zurich Kemper Investments, Inc.

RUDIN, MICHELLE I.
Vice President, Zurich Kemper Investments, Inc.

SHULTZ, KAREN D.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company

SMITH, ROBERT G.
Vice President, Zurich Kemper Investments, Inc.

SOPHER, EDWARD O.
Vice President, Zurich Kemper Investments, Inc.

C-16
<PAGE> 179
SPILLER, KATHLEEN A.
Vice President, Zurich Kemper Investments, Inc.

SPURLING, CHRIS
Vice President, Zurich Kemper Investments, Inc.

STROMM, LAWRENCE D.
Vice President, Zurich Kemper Investments, Inc.

THOMAS, JILL
Vice President, Zurich Kemper Investments, Inc.

VANDEMERKT, RICHARD J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company

WALKER, ANGELA
Vice President, Zurich Kemper Investments, Inc.

WATKINS, JAMES K.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company

WERTH, ELIZABETH C.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Distributors, Inc.
Assistant Secretary, Kemper Open-End Mutual Funds

WILNER, MITCHELL
Vice President, Zurich Kemper Investments, Inc.

WIZER, BARBARA K.
Vice President, Zurich Kemper Investments, Inc.

ZURAWSKI, CATHERINE N.
Vice President, Zurich Kemper Investments, Inc.

C-17
<PAGE> 180
ITEM 29. PRINCIPAL UNDERWRITERS

(a) Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper Mutual
Funds, Kemper Investors Fund, Kemper International Bond Fund and the
Kemper-Dreman Funds.

(b) Information on the officers and directors of Kemper Distributors,
Inc., principal underwriter for the Registrant is set forth below. The
principal business address is 120 South Lasalle Street, Chicago, Illinois
60603.

<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
---- ---------------- ----------
<S> <C> <C>
James L. Greenawalt Director, President None
William E. Chapman, II Director, Executive Vice President None
John E. Neal Director Vice President
Stephen B. Timbers Director President, Trustee
Patrick H. Dudasik Financial Principal, Treasurer
and Chief Financial Officer None
Linda A. Bercher Senior Vice President None
Terry Cunningham Senior Vice President None
John H. Robison, Jr. Senior Vice President None
Henry J. Schulthesz Senior Vice President None
Thomas V. Bruns Vice President None
Carlene D. Merold Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Diane E. Ratekin Assistant Secretary None
</TABLE>

C-18
<PAGE> 181

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

All such accounts, books and other documents are maintained at the offices
of the Registrant, at the offices of the Registrant's investment managers,
Zurich Kemper Investments, Inc., 120 South LaSalle Street, Chicago, Illinois
60603 and Dreman Value Advisors, Inc. (also the Registrant's sub-adviser), 10
Exchange Place, Jersey City, New Jersey 07302, at the offices of Registrant's
principal underwriter, Kemper Distributors, Inc., 120 South LaSalle Street,
Chicago, Illinois 60603, at the offices of the custodian, Investors Fiduciary
Trust Company, 127 West 10th Street, Kansas City, Missouri 64105 or at the
offices of the custodian, The Chase Manhattan Bank, Chase MetroTech Center,
Brooklyn, New York 11245.

ITEM 31. MANAGEMENT SERVICES

Not applicable.

ITEM 32. UNDERTAKINGS

(a) Not applicable.

(b) Not applicable.

(c) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered, a copy of Registrant's latest annual report to
shareholders, upon request and without charge.

C-19
<PAGE> 182

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago and State of Illinois, on the 24th day
of September, 1996.

KEMPER INVESTORS FUND

By /s/ STEPHEN B. TIMBERS

------------------------------------
Stephen B. Timbers, President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on September 24, 1996 on behalf of
the following persons in the capacities indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ STEPHEN B. TIMBERS President (Principal
- --------------------------------------------- Executive Officer)
Stephen B. Timbers and Trustee
/s/ JAMES E. AKINS* Trustee
- ---------------------------------------------
/s/ ARTHUR R. GOTTSCHALK* Trustee
- ---------------------------------------------
/s/ FREDERICK T. KELSEY* Trustee
- ---------------------------------------------
/s/ DOMINIQUE P. MORAX* Trustee
- ---------------------------------------------
/s/ FRED B. RENWICK* Trustee
- ---------------------------------------------
/s/ JOHN B. TINGLEFF* Trustee
- ---------------------------------------------
/s/ JOHN G. WEITHERS* Trustee
- ---------------------------------------------
/s/ JEROME L. DUFFY Treasurer (Principal
- --------------------------------------------- Financial and
Jerome L. Duffy Accounting Officer)
</TABLE>

* Philip J. Collora signs this document pursuant to powers of attorney filed
with Post-Effective Amendment No. 15 to the Registration Statement filed on
February 14, 1996 and Post-Effective Amendment No. 16 to the Registration
Statement filed on April 25, 1996.

/s/ PHILIP J. COLLORA

--------------------------------------
Philip J. Collora
<PAGE> 183

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------- -------------------------------------------------------------------------------
<S> <C>
</TABLE>

<TABLE>
<S> <C>
99.b1. (a) Agreement and Declaration of Trust.*
99.b1. (b) Written Instrument Amending the Agreement and Declaration of Trust.*
99.b1. (c) Written Instrument Amending the Agreement and Declaration of Trust.*
99.b1. (d) Written Instrument Amending the Agreement and Declaration of Trust to Establish
and Designate Seven Additional Series.**
99.b1. (e) Written Instrument Amending the Agreement and Declaration of Trust to Change
the Name of Two Existing Series.**
99.b1. (f) Written Instrument Amending the Agreement and Declaration of Trust to Change
the Name of One Existing Series.***
99.b2. By-laws.*
99.b3. Not Applicable.
99.b4. Text of Share certificate.*
99.b5. (a) Investment Management Agreement (Money Market, Total Return, High Yield,
Growth, Government Securities, International and Small Cap Growth
Portfolios).**
99.b5. (b) Notification of Additional Portfolios (Investment Grade Bond, Value+Growth,
Horizon 20+, Horizon 10+ and Horizon 5 Portfolios).***
99.b5. (c) Investment Management Agreement (Value and Small Cap Value Portfolios).***
99.b5. (d) Sub-Advisory Agreement (Value+Growth, Horizon 20+, Horizon 10+ and Horizon 5
Portfolios).***
99.b6. Underwriting Agreement.**
99.b7. Not Applicable.
99.b8. (a) Custody Agreement.*
99.b8. (b) Foreign Custodian Agreement.*
99.b9. Agency Agreement.*
99.b10. Not Applicable.
99.b11. Consent and Reports of Ernst & Young LLP.
99.b12. Not Applicable.
99.b13. Not Applicable.
99.b14. Not Applicable.
99.b15. Not Applicable.
99.b17. Not Applicable.
99.b24. Powers of Attorney.***
27 Financial Data Schedule.
485.B Representation of Counsel (Rule 485(b)).
</TABLE>

- ---------------
* Incorporated herein by reference to Post-Effective Amendment No. 14 to the
Registration Statement filed on April 27, 1995.
** Incorporated herein by reference to Post-Effective Amendment No. 15 to the
Registration Statement filed on February 14, 1996.

*** Incorporated herein by reference to Post-Effective Amendment No. 16 to the
Registration Statement filed on April 25, 1996.

<PAGE> 1
EXHIBIT 99.B11

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights" and "Experts" and to the incorporation by reference of our report
with respect to Kemper Investors Fund-Money Market, Total Return, High Yield,
Equity, Government Securities, International, and Small Capitalization Equity
portfolios, dated February 16, 1996 and to the use our report with respect to
Kemper Investors Fund-Investment Grade Bond, Value, Small Cap Value,
Value+Growth, Horizon 20+, Horizon 10+, and Horizon 5 portfolios dated April
22, 1996 in the Registration Statement of Kemper Investors Fund on Form N-1A
and the related Prospectus filed with the Securities and Exchange Commission in
this Post-Effective Amendment No. 17 to the Registration Statement under the
Securities Act of 1933 (File No. 33-11802) and in the Amendment No. 18 to the
Registration Statement under the Investment Company Act of 1940 (File No.
811-5002).

ERNST & YOUNG LLP

Chicago, Illinois
September 24, 1996
<PAGE> 2
EXHIBIT 99.B11

REPORT OF INDEPENDENT AUDITORS

The Board of Trustees and Shareholders
Kemper Investors Fund

We have audited the accompanying statement of assets and liabilities, including
the portfolios of investments, of the Money Market, Total Return, High Yield,
Equity, Government Securities, International and Small Capitalization Equity
Portfolios, comprising the Kemper Investors Fund as of December 31, 1995, and
the related statements of operations for the year then ended, and changes in
net assets for each of the two years in the period then ended (except for the
Small Capitalization Equity Portfolio which is for the year ended December 31,
1995 and the period May 2, 1994, commencement of operations, through December
31, 1994), and the financial highlights for each of the fiscal periods since
1990. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Portfolios of Kemper Investors Fund at December 31, 1995, the results of
their operations and the changes in their net assets for the fiscal periods
referred to above and the financial highlights for each of the fiscal periods
since 1990, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Chicago, Illinois
February 16, 1996

<PAGE> 3
EXHIBIT 99.B11

REPORT OF INDEPENDENT AUDITORS

The Board of Trustees and Shareholder
Kemper Investors Fund

We have audited the accompanying statement of net assets of the Investment
Grade Bond Portfolio, the Value Portfolio, the Small Cap Value Portfolio, the
Value+Growth Portfolio, the Horizon 20+ Portfolio, the Horizon 10+ Portfolio
and the Horizon 5 Portfolio, comprising certain of the Portfolios of the
Kemper Investors Fund as of April 22, 1996. This statement of net assets is
the responsibility of the Fund's management. Our responsibility is to express
an opinion on the statement of net assets based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of net assets is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of net assets.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of net assets presentation. We believe that our audit of the
statement of nets assets provides a reasonable basis for our opinion.

In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of each of the above
Portfolios of Kemper Investors Fund at April 22, 1996 in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

April 22, 1996
Chicago, Illinois

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
SEMI-ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810573
<NAME> KEMPER INVESTORS FUND
<SERIES>
<NUMBER> 08
<NAME> INVESTMENT GRADE BOND PORTFOLIO
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 379
<INVESTMENTS-AT-VALUE> 379
<RECEIVABLES> 0
<ASSETS-OTHER> 61
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 440
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 437
<SHARES-COMMON-STOCK> 437
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 440
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 2
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2
<EQUALIZATION> 1
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 345
<NUMBER-OF-SHARES-REDEEMED> (8)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 340
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 240
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .006
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.006
<EXPENSE-RATIO> .74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 3,437
<INVESTMENTS-AT-VALUE> 3,451
<RECEIVABLES> 6
<ASSETS-OTHER> 70
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,527
<PAYABLE-FOR-SECURITIES> 326
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2
<TOTAL-LIABILITIES> 328
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,177
<SHARES-COMMON-STOCK> 3,143
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 11
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14
<NET-ASSETS> 3,199
<DIVIDEND-INCOME> 10
<INTEREST-INCOME> 4
<OTHER-INCOME> 0
<EXPENSES-NET> (3)
<NET-INVESTMENT-INCOME> 11
<REALIZED-GAINS-CURRENT> (3)
<APPREC-INCREASE-CURRENT> 14
<NET-CHANGE-FROM-OPS> 22
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,053
<NUMBER-OF-SHARES-REDEEMED> (10)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,099
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3
<AVERAGE-NET-ASSETS> 1,610
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .004
<PER-SHARE-GAIN-APPREC> .014
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.018
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
SEMI-ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810573
<NAME> KEMPER INVESTORS FUND
<SERIES>
<NUMBER> 10
<NAME> SMALL CAP VALUE PORTFOLIO
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 3,969
<INVESTMENTS-AT-VALUE> 3,828
<RECEIVABLES> 56
<ASSETS-OTHER> 24
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,908
<PAYABLE-FOR-SECURITIES> 16
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2
<TOTAL-LIABILITIES> 18
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,110
<SHARES-COMMON-STOCK> 4,185
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 24
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (103)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (141)
<NET-ASSETS> 3,890
<DIVIDEND-INCOME> 21
<INTEREST-INCOME> 6
<OTHER-INCOME> 0
<EXPENSES-NET> (3)
<NET-INVESTMENT-INCOME> 24
<REALIZED-GAINS-CURRENT> (103)
<APPREC-INCREASE-CURRENT> (141)
<NET-CHANGE-FROM-OPS> (220)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,095
<NUMBER-OF-SHARES-REDEEMED> (10)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,790
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3
<AVERAGE-NET-ASSETS> 2,135
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .006
<PER-SHARE-GAIN-APPREC> (.076)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> .930
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
SEMI-ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810573
<NAME> KEMPER INVESTORS FUND
<SERIES>
<NUMBER> 11
<NAME> VALUE+GROWTH PORTFOLIO
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 1,751
<INVESTMENTS-AT-VALUE> 1,726
<RECEIVABLES> 1
<ASSETS-OTHER> 44
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,771
<PAYABLE-FOR-SECURITIES> 127
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1
<TOTAL-LIABILITIES> 128
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,664
<SHARES-COMMON-STOCK> 1,620
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (25)
<NET-ASSETS> 1,643
<DIVIDEND-INCOME> 3
<INTEREST-INCOME> 1
<OTHER-INCOME> 0
<EXPENSES-NET> (2)
<NET-INVESTMENT-INCOME> 2
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (25)
<NET-CHANGE-FROM-OPS> (23)
<EQUALIZATION> 2
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,604
<NUMBER-OF-SHARES-REDEEMED> (84)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,543
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2
<AVERAGE-NET-ASSETS> 913
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .003
<PER-SHARE-GAIN-APPREC> .012
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.015
<EXPENSE-RATIO> .89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 583
<INVESTMENTS-AT-VALUE> 576
<RECEIVABLES> 1
<ASSETS-OTHER> 54
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 631
<PAYABLE-FOR-SECURITIES> 47
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 47
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 588
<SHARES-COMMON-STOCK> 576
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (7)
<NET-ASSETS> 584
<DIVIDEND-INCOME> 2
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (1)
<NET-INVESTMENT-INCOME> 1
<REALIZED-GAINS-CURRENT> 1
<APPREC-INCREASE-CURRENT> (7)
<NET-CHANGE-FROM-OPS> (5)
<EQUALIZATION> 1
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 496
<NUMBER-OF-SHARES-REDEEMED> (20)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 484
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1
<AVERAGE-NET-ASSETS> 294
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .024
<PER-SHARE-GAIN-APPREC> (.011)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.013
<EXPENSE-RATIO> .74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 1,295
<INVESTMENTS-AT-VALUE> 1,283
<RECEIVABLES> 1
<ASSETS-OTHER> 66
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,350
<PAYABLE-FOR-SECURITIES> 38
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1
<TOTAL-LIABILITIES> 39
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,317
<SHARES-COMMON-STOCK> 1,298
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (12)
<NET-ASSETS> 1,311
<DIVIDEND-INCOME> 1
<INTEREST-INCOME> 3
<OTHER-INCOME> 0
<EXPENSES-NET> (1)
<NET-INVESTMENT-INCOME> 3
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (12)
<NET-CHANGE-FROM-OPS> (9)
<EQUALIZATION> 3
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,201
<NUMBER-OF-SHARES-REDEEMED> (3)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,211
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1
<AVERAGE-NET-ASSETS> 653
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .019
<PER-SHARE-GAIN-APPREC> (.009)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.010
<EXPENSE-RATIO> .74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE 1996
SEMI-ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810573
<NAME> KEMPER INVESTORS FUND
<SERIES>
<NUMBER> 14
<NAME> HORIZON 5 PORTFOLIO
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 703
<INVESTMENTS-AT-VALUE> 699
<RECEIVABLES> 0
<ASSETS-OTHER> 65
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 764
<PAYABLE-FOR-SECURITIES> 12
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 12
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 752
<SHARES-COMMON-STOCK> 744
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4)
<NET-ASSETS> 752
<DIVIDEND-INCOME> 1
<INTEREST-INCOME> 2
<OTHER-INCOME> 0
<EXPENSES-NET> (1)
<NET-INVESTMENT-INCOME> 2
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (4)
<NET-CHANGE-FROM-OPS> (2)
<EQUALIZATION> 2
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 697
<NUMBER-OF-SHARES-REDEEMED> (53)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 652
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1
<AVERAGE-NET-ASSETS> 436
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .015
<PER-SHARE-GAIN-APPREC> (.005)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.010
<EXPENSE-RATIO> .74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE> 1
Exhibit 99.485(B)

[VEDDER PRICE LETTERHEAD]

September 24, 1996

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Kemper Investors Fund
---------------------

To The Commission:

We are counsel to the above-referenced investment company (the"Fund")
and as such have participated in the preparation and review of Post-Effective
Amendment No. 17 to the Fund's registration statement being filed pursuant to
Rule 485(b) under the Securities Act of 1933. In accordance with paragraph
(b)(4) of Rule 485, we hereby represent that such amendment does not contain
disclosures which would render it ineligible to become effective pursuant to
paragraph (b) thereof.

Very truly yours,

Vedder, Price, Kaufman & Kammholz
---------------------------------
VEDDER, PRICE, KAUFMAN & KAMMHOLZ