<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1997
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. 19 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 20 [X]
(Check appropriate box or boxes)
</TABLE>
------------------
KEMPER INVESTORS FUND
(Exact name of Registrant as Specified in Charter)
222 South Riverside Plaza, Chicago, Illinois
(Address of Principal Executive Office)
60606
(Zip Code)
Registrant's Telephone Number, including Area Code: (312) 537-7000
Philip J. Collora, Vice President and Secretary
KEMPER INVESTORS FUND
222 South Riverside Plaza
Chicago, Illinois 60606
(Name and Address of Agent for Service)
With a copy to:
Charles F. Custer
David A. Sturms
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, 1997.
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) 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)
[X] on May 1, 1997 pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ]this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
<PAGE> 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
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
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
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary.................................. 2
Financial Highlights..................... 5
Investment Objectives, Policies and Risk
Factors................................ 13
Investment Techniques.................... 34
Net Asset Value.......................... 39
Purchase and Redemption.................. 40
Dividends and Taxes...................... 41
Capital Structure and General
Information............................ 41
Investment Managers...................... 42
Distributor.............................. 46
Appendix................................. 47
</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, 1997, 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.
INVESTORS
FUND
SERIES
PROSPECTUS MAY 1, 1997
INVESTORS FUND SERIES
222 SOUTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
1-800-621-1048
Investors Fund Series (the "Fund") offers a choice of sixteen investment
portfolios to investors applying for certain variable life insurance and
variable annuity contracts offered by Participating Insurance Companies.
The sixteen investment portfolios, sometimes referred to as the "Kemper
Series," 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
BLUE CHIP PORTFOLIO
GLOBAL INCOME 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> 4
SUMMARY
FUND INVESTMENT CONCEPT. Investors Fund Series (the "Fund") is registered as an
open-end management investment company established on January 22, 1987 as a
Massachusetts business trust. The Fund is a series fund consisting of sixteen
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+, Horizon 5, Blue Chip and Global
Income. 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 sixteen 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> 5
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.
BLUE CHIP PORTFOLIO seeks growth of capital and of income.
GLOBAL INCOME PORTFOLIO seeks to provide high current income consistent with
prudent total return asset management.
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, Value+Growth and Blue Chip 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 and Global Income Portfolio each 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. Each Portfolio except
the Global Income Portfolio is diversified. As a "non-diversified" Portfolio,
the Global Income Portfolio will be able to invest a relatively high percentage
of its assets in a limited number of issuers, therefore making the Portfolio
more susceptible to a single, economic, political or regulatory occurrence than
a diversified portfolio. 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 and
Global Income Portfolios) 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") serves as investment manager for each of the Portfolios other than the
Value Portfolio and the Small Cap Value Portfolio and is
3
<PAGE> 6
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%), Horizon 5 (.60%), Blue Chip (.65%) and
Global Income (.75%). 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 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. Zurich Investment Management Limited ("ZIML"), an affiliate of ZKI,
serves as sub-adviser for the Total Return, High Yield, Growth, International,
Small Cap Growth, Investment Grade Bond, Value+Growth, Horizon, Blue Chip and
Global Income Portfolios. ZIML is paid by ZKI a fee of .35% for the Total
Return, Growth, International, Small Cap Growth, Value+Growth, Horizon and Blue
Chip Portfolios and .30% for the High Yield, Investment Grade Bond and Global
Income Portfolios of the portion of the average daily net assets of that
Portfolio allocated by ZKI to ZIML 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> 7
FINANCIAL HIGHLIGHTS
The tables below show financial information for each Portfolio (other than the
Blue Chip and Global Income Portfolios, both of which commenced operations on
May 1, 1997) 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 1996 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 1996 Annual
Report to Shareholders are incorporated herein by reference and may be obtained
by writing or calling the Fund.
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- - ---------------------------------------------------------------------------------------------------------------------------------
Net investment income and
dividends declared .05 .06 .04 .03 .03 .06 .08 .09 .07 .06
- - ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- - ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 5.03% 5.66 3.96 2.83 3.43 5.89 8.08 9.11 7.47 6.58
- - ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .60% .55 .53 .56 .57 .56 .58 .57 .56 .55
- - ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.90% 5.52 3.95 2.79 3.38 5.80 7.78 8.75 7.19 6.43
- - ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in
thousands) $70,601 61,078 83,821 68,177 75,270 76,479 95,759 78,683 80,362 92,130
- - ---------------------------------------------------------------------------------------------------------------------------------
</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,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of year $2.579 2.112 2.586 2.473 2.658 2.071 2.021 1.707 1.605 1.661
- - ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .084 .084 .069 .069 .061 .080 .113 .102 .086 .075
- - ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .322 .453 (.313) .214 (.026) .677 (.013) .298 .102 (.056)
- - ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .406 .537 (.244) .283 .035 .757 .100 .400 .188 .019
- - ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income .090 .070 .060 .050 .080 .110 .020 .086 .086 .075
- - ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gain .080 -- .170 .120 .140 .060 .030 -- -- --
- - ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .170 .070 .230 .170 .220 .170 .050 .086 .086 .075
- - ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $2.815 2.579 2.112 2.586 2.473 2.658 2.071 2.021 1.707 1.605
- - ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 16.76% 25.97 (9.50) 12.13 1.69 37.90 5.04 24.16 11.98 .62
- - ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses .59% .60 .61 .59 .60 .61 .61 .58 .61 .58
- - ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 3.21% 3.52 3.13 3.19 3.41 3.46 5.94 5.43 5.19 4.04
- - ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year
(in thousands) $697,102 659,894 586,594 643,830 528,007 412,772 272,747 262,652 206,262 214,203
- - ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 90% 118 128 191 160 187 139 102 152 129
- - ---------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended December 31, 1996 was $.0574.
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year $1.259 1.185 1.338 1.209 1.144 .914 1.122 1.258 1.225 1.290
- - ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .120 .125 .116 .120 .125 .140 .170 .151 .152 .139
- - ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .042 .069 (.149) .109 .070 .300 (.338) (.163) .033 (.065)
- - ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .162 .194 (.033) .229 .195 .440 (.168) (.012) .185 .074
- - ---------------------------------------------------------------------------------------------------------------------------------
Less dividends from net
investment income .140 .120 .120 .100 .130 .210 .040 .124 .152 .139
- - ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.281 1.259 1.185 1.338 1.209 1.144 .914 1.122 1.258 1.225
- - ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 14.06% 17.40 (2.25) 20.00 17.76 51.83 (15.45) (1.22) 15.66 5.82
- - ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .65% .65 .65 .63 .64 .67 .68 .63 .66 .62
- - ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 9.70% 10.27 9.49 9.54 10.44 12.95 16.27 12.50 11.98 10.81
- - ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in
thousands) $289,315 257,377 219,415 233,964 162,158 121,608 88,566 150,674 138,461 95,502
- - ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 98% 90 98 84 57 31 28 81 52 122
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
GROWTH PORTFOLIO
(FORMERLY THE EQUITY PORTFOLIO)
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year $3.262 2.665 2.935 2.631 2.642 1.681 1.692 1.348 1.374 1.377
- - ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .030 .034 .018 .004 .007 .017 .032 .039 .032 .030
- - ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .589 .793 (.138) .370 .082 .974 (.023) .338 (.026) (.003)
- - ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .619 .827 (.120) .374 .089 .991 .009 .377 .006 .027
- - ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income .040 .010 -- .010 .005 .030 .010 .033 .032 .030
- - ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gain .470 .220 .150 .060 .095 -- .010 -- -- --
- - ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .510 .230 .150 .070 .100 .030 .020 .033 .032 .030
- - ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $3.371 3.262 2.665 2.935 2.631 2.642 1.681 1.692 1.348 1.374
- - ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 21.63% 32.97 (4.02) 14.63 3.57 59.47 0.60 27.87 .40 1.67
- - ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .64% .64 .66 .64 .64 .67 .68 .70 .71 .64
- - ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .94% 1.15 .69 .30 .65 .83 2.23 2.49 2.34 1.85
- - ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in
thousands) $487,483 414,533 321,708 284,461 203,624 118,983 61,621 51,961 45,833 46,474
- - ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 175% 88 106 78 78 106 135 93 301 165
- - ---------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended December 31, 1996 was $.0558.
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 9
GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994 1993 1992 1991 1990(a) 1989(a) 1988 1987(c)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 1.269 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 .085 .084 .067 .060 .064 .090 .093 .092 .089 --
- - ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (.057) .123 (.102) .020 .006 .082 .011 .036 (.056) .020
- - ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .028 .207 (.035) .080 .070 .172 .104 .128 .033 .020
- - ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment
income .090 .080 .060 .060 .050 .060 .020 .090 -- --
- - ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gain -- -- .030 .030 .030 -- -- -- -- --
- - ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .090 .080 .090 .090 .080 .060 .020 .090 -- --
- - ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 1.207 1.269 1.142 1.267 1.277 1.287 1.175 1.091 1.053 1.020
- - ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 2.56% 18.98 (2.74) 6.48 5.90 15.22 9.81 13.14 3.27 --
- - ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .66% .65 .63 .60 .61 .63 .58 .53 1.81 --(b)
- - ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 7.09% 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) $84,314 95,185 95,782 121,912 98,814 59,064 31,929 14,878 1,170 311
- - ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 325% 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> 10
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
Year ended
December 31,
-------------------------------------
1996 1995 1994 1993 1992(a)
-------- ------- ------- ------ -------
<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 .011 .018 .009 .010 .010
- - -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .212 .139 (.056) .313 (.017)
- - -------------------------------------------------------------------------------------------------------------
Total from investment operations .223 .157 (.047) .323 (.007)
- - -------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .020 .010 -- .009 --
- - -------------------------------------------------------------------------------------------------------------
Distributions from net realized gain .010 .020 .015 .001 --
- - -------------------------------------------------------------------------------------------------------------
Total dividends .030 .030 .015 .010 --
- - -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.564 1.371 1.244 1.306 .993
- - -------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 16.49% 12.83 (3.59) 32.83 (.72)
- - -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses .96% .92 .93 .92 1.11
- - -------------------------------------------------------------------------------------------------------------
Net investment income .89% 1.39 .74 .86 1.01
- - -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $163,475 134,481 122,710 88,880 19,447
- - -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 87% 126 107 116 129
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rate paid per share on stock transactions for the year ended
December 31, 1996 was $.0183. 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.
- - --------------------------------------------------------------------------------
NOTE TO INTERNATIONAL PORTFOLIO:
(a) For the period from January 6, 1992 (inception) through December 31, 1992.
SMALL CAP GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Year ended
December 31,
---------------------------
1996 1995 1994(a)
------- ------- -------
<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 .002 .005 .008
- - -----------------------------------------------------------------------------------------
Net realized and unrealized gain .369 .307 .031
- - -----------------------------------------------------------------------------------------
Total from investment operations .371 .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 $1.677 1.346 1.039
- - -----------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 28.04% 30.07 3.95
- - -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses .75% .87 1.25
- - -----------------------------------------------------------------------------------------
Net investment income .15% .42 .91
- - -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $69,137 35,373 12,909
- - -----------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 156% 81 58
- - -----------------------------------------------------------------------------------------
</TABLE>
Average commission rate paid per share on stock transactions for the year ended
December 31, 1996 was $.0570.
- - --------------------------------------------------------------------------------
NOTE TO SMALL CAP GROWTH PORTFOLIO:
(a) For the period from May 2, 1994 (inception) through December 31, 1994.
8
<PAGE> 11
INVESTMENT GRADE BOND PORTFOLIO
<TABLE>
<CAPTION>
May 1, 1996 to
December 31, 1996
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.000
- - --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .031
- - --------------------------------------------------------------------------------
Net realized and unrealized gain .005
- - --------------------------------------------------------------------------------
Total from investment operations .036
- - --------------------------------------------------------------------------------
Net asset value, end of period $ 1.036
- - --------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 3.57%
- - --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses .87%
- - --------------------------------------------------------------------------------
Net investment income 4.93%
- - --------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $ 1,998
- - --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 75%
- - --------------------------------------------------------------------------------
</TABLE>
VALUE PORTFOLIO
<TABLE>
<CAPTION>
May 1, 1996 to
December 31, 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 gain .159
- - --------------------------------------------------------------------------------
Total from investment operations .174
- - --------------------------------------------------------------------------------
Net asset value, end of period $ 1.174
- - --------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 17.36%
- - --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .90%
- - --------------------------------------------------------------------------------
Net investment income 2.42%
- - --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .92%
- - --------------------------------------------------------------------------------
Net investment income 2.40%
- - --------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $21,305
- - --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 57%
- - --------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the period
ended December 31, 1996 was $.0500.
- - --------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 12
SMALL CAP VALUE PORTFOLIO
<TABLE>
<CAPTION>
May 1, 1996 to
December 31, 1996
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $1.000
- - --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .013
- - --------------------------------------------------------------------------------
Net realized and unrealized gain .006
- - --------------------------------------------------------------------------------
Total from investment operations .019
- - --------------------------------------------------------------------------------
Net asset value, end of period $1.019
- - --------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.86%
- - --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION
(ANNUALIZED):
Expenses 90%
- - --------------------------------------------------------------------------------
Net investment income 2.25%
- - --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .92%
- - --------------------------------------------------------------------------------
Net investment income 2.23%
- - --------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $13,307
- - --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 61%
- - --------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the period
ended December 31, 1996 was $.0500.
- - --------------------------------------------------------------------------------
</TABLE>
VALUE + GROWTH PORTFOLIO
<TABLE>
<CAPTION>
May 1, 1996 to
December 31, 1996
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $1.000
- - --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .008
- - --------------------------------------------------------------------------------
Net realized and unrealized gain .138
- - --------------------------------------------------------------------------------
Total from investment operations .146
- - --------------------------------------------------------------------------------
Net asset value, end of period $1.146
- - --------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.60%
- - --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .90%
- - --------------------------------------------------------------------------------
Net investment income .97%
- - --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION
(ANNUALIZED):
Expenses 1.01%
- - --------------------------------------------------------------------------------
Net investment income .86%
- - --------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $10,196
- - --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 25%
- - --------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the period
ended December 31, 1996 was $.0596.
- - --------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 13
HORIZON 20+ PORTFOLIO
<TABLE>
<CAPTION>
May 1, 1996 to
December 31, 1996
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $1.000
- - --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .012
- - --------------------------------------------------------------------------------
Net realized and unrealized gain .142
- - --------------------------------------------------------------------------------
Total from investment operations .154
- - --------------------------------------------------------------------------------
Net asset value, end of period $1.154
- - --------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 15.37%
- - --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .81%
- - --------------------------------------------------------------------------------
Net investment income 1.71%
- - --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION
(ANNUALIZED):
Expenses 1.13%
- - --------------------------------------------------------------------------------
Net investment income 1.39%
- - --------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $3,759
- - --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 60%
- - --------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the period
ended December 31, 1996 was $.0458.
- - --------------------------------------------------------------------------------
</TABLE>
HORIZON 10+ PORTFOLIO
<TABLE>
<CAPTION>
May 1, 1996 to
December 31, 1996
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $1.000
- - --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .018
- - --------------------------------------------------------------------------------
Net realized and unrealized gain .096
- - --------------------------------------------------------------------------------
Total from investment operations .114
- - --------------------------------------------------------------------------------
Net asset value, end of period $1.114
- - --------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 11.37%
- - --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .78%
- - --------------------------------------------------------------------------------
Net investment income 2.69%
- - --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION
(ANNUALIZED):
Expenses 1.01%
- - --------------------------------------------------------------------------------
Net investment income 2.46%
- - --------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $5,727
- - --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 76%
- - --------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the period
ended December 31, 1996 was $.0455.
- - --------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
HORIZON 5 PORTFOLIO
<TABLE>
<CAPTION>
May 1, 1996 to
December 31, 1996
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $1.000
- - --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .023
- - --------------------------------------------------------------------------------
Net realized and unrealized gain .073
- - --------------------------------------------------------------------------------
Total from investment operations .096
- - --------------------------------------------------------------------------------
Net asset value, end of period $1.096
- - --------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 9.59%
- - --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses .83%
- - --------------------------------------------------------------------------------
Net investment income 3.60%
- - --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION
(ANNUALIZED):
Expenses 1.01%
- - --------------------------------------------------------------------------------
Net investment income 3.42%
- - --------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $2,534
- - --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 13%
- - --------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the period
ended December 31, 1996 was $.0490.
- - --------------------------------------------------------------------------------
</TABLE>
NOTE:
Financial Highlights reflect data at the Portfolio level and exclude contract
specific charges which would reduce total return.
12
<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
13
<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.
14
<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.
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."
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.
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."
15
<PAGE> 18
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 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.
16
<PAGE> 19
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."
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.
17
<PAGE> 20
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.
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
18
<PAGE> 21
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.
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, engage in financial futures
transactions and purchase or sell portfolio securities on a when-issued or
delayed delivery basis. 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."
19
<PAGE> 22
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 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.
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 instrumentalities and
high quality money market instruments, including repurchase agreements.
Investments in such interest-bearing securities will be for temporary defensive
purposes only.
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
20
<PAGE> 23
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 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
21
<PAGE> 24
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 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
22
<PAGE> 25
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 (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%.
BLUE CHIP PORTFOLIO. The Blue Chip Portfolio seeks growth of capital and of
income. In seeking to achieve its objective, the Portfolio will invest primarily
in common stocks of well capitalized, established companies that the Portfolio's
investment manager believes to have the potential for growth of capital,
earnings and dividends. Under normal market conditions, the Portfolio will, as a
fundamental policy, invest at least 65%, and may invest up to 100%, of its total
assets in the common stocks of companies with a market capitalization of at
least $1 billion at the time of investment.
In pursuing its objective, the Portfolio will emphasize investments in common
stocks of large, well known, high quality companies. Companies of this general
type are often referred to as "Blue Chip" companies. "Blue Chip" companies are
generally identified by their substantial capitalization, established history of
earnings and
23
<PAGE> 26
dividends, easy access to credit, good industry position and superior management
structure. "Blue Chip" companies are believed to generally exhibit less
investment risk and less price volatility than companies lacking these high
quality characteristics, such as smaller, less seasoned companies. In addition,
the large market of publicly held shares for such companies and the generally
high trading volume in those shares results in a relatively high degree of
liquidity for such investments. The characteristics of high quality and high
liquidity of "Blue Chip" investments should make the market for such stocks
attractive to investors both within and outside the United States. The Portfolio
will generally attempt to avoid speculative securities or those with significant
speculative characteristics.
Examples of "Blue Chip" companies currently eligible for investment by the
Portfolio include, but are not limited to, companies such as Pfizer Inc., Merck
& Co., Inc., Hewlett-Packard Company, AT&T Company, General Reinsurance, J.P.
Morgan & Co., Union Pacific Corporation and PepsiCo, Inc. While the Portfolio's
holdings will not be limited to the examples noted and need not contain any
specific security, companies of this general quality comprise a relatively
small, select group. In general, the Portfolio will seek to invest in those
established, high quality companies whose industries are experiencing favorable
secular or cyclical change. Thus, the Portfolio in seeking its objective will
endeavor to select its investments from among high quality companies operating
in the more attractive industries.
An indicated above, the Portfolio's investment portfolio will normally consist
primarily of common stocks. The Portfolio may invest to a more limited extent in
preferred stocks, debt securities and securities convertible into or
exchangeable for common stocks, including warrants and rights, when they are
believed to offer opportunities for growth of capital and of income. 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. The Portfolio may engage in short sales
against-the-box, although it is the Portfolio's current intention that no more
than 5% of its net assets will be at risk. When, as a result of market
conditions affecting "Blue Chip" companies, a defensive position is deemed
advisable to help preserve capital, the Portfolio may temporarily invest without
limit in high-grade debt securities, securities of the U.S. Government and its
agencies, and high quality money market instruments, including repurchase
agreements, or retain cash.
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.
There are risks inherent in the investment in any security, including shares of
the Portfolio. The investment manager attempts to reduce risk through
diversification of the Portfolio's holdings and fundamental research; however,
there is no guarantee that such efforts will be successful. The investment
manager believes that there are opportunities for growth of capital and growth
of dividends from investments in "Blue Chip" companies over time. The
Portfolio's shares are intended for long-term investment.
GLOBAL INCOME PORTFOLIO. The objective of the Global Income Portfolio is to
provide high current income consistent with prudent total return asset
management. In seeking to achieve its objective, the Portfolio will invest
primarily in investment grade foreign and domestic fixed income securities. In
managing the Portfolio's holdings to provide a high level of current income, the
investment manager will also be seeking to protect net asset value and to
provide investors with a total return, which is measured by changes in net asset
value as well as income earned. In so managing the Portfolio's holdings in an
effort to reduce volatility and increase returns, the investment manager may, as
is discussed more fully below, adjust the Portfolio's holdings across various
global markets, maturity ranges, quality ratings and issuers based upon its view
of interest rates and other market conditions prevailing throughout the world.
As a global fund, the Portfolio may invest in securities issued by any issuer
and in any currency and may hold foreign currency. Under normal market
conditions, as a fundamental policy, at least 65% of the Portfolio's assets will
be invested in the securities of issuers located in at least three countries,
one of which may be the
24
<PAGE> 27
United States. Securities of issuers within a given country may be denominated
in the currency of another country, or in multinational currency units such as
the European Currency Unit ("ECU"). Since the Portfolio invests in foreign
securities, the net asset value of the Portfolio will be affected by
fluctuations in currency exchange rates. See "Special Risk Factors--Foreign
Securities" below.
The Portfolio may seek to capitalize on investment opportunities presented
throughout the world and in international financial markets influenced by the
increasing interdependence of economic cycles and currency exchange rates.
Currently, more than 50% of the value of the world's debt securities is
represented by securities denominated in currencies other than the U.S. Dollar.
Over the past ten years, debt securities offered by certain foreign governments
provided higher investment returns than U.S. Government debt securities. Such
returns reflect interest rates prevailing in those countries and the effect of
gains and losses in the denominated currencies, which have had a substantial
impact on investment in foreign fixed income securities. The relative
performance of various countries' fixed income markets historically has
reflected wide variations relating to the unique characteristics of each
country's economy. Year-to-year fluctuations in certain markets have been
significant, and negative returns have been experienced in various markets from
time to time. The investment manager believes that investment in a global
portfolio can provide investors with more opportunities for attractive returns
than investment in a portfolio comprised exclusively of U.S. debt securities.
Also, the flexibility to invest in fixed income markets around the world can
reduce risk since, as noted above, different world markets have often performed,
at a given time, in radically different ways.
The Portfolio will allocate its assets among securities of various issuers,
geographic regions, and currency denominations in a manner that is consistent
with its objective based upon relative interest rates among currencies, the
outlook for changes in these interest rates, and anticipated changes in
worldwide exchange rates. In considering these factors, a country's economic and
political state, including such factors as inflation rate, growth prospects,
global trade patterns and government policies, will be evaluated.
It is currently anticipated that the Portfolio's assets will be invested
principally within Australia, Canada, Japan, New Zealand, the United States and
Western Europe, and in securities denominated in the currencies of these
countries or denominated in multinational currency units such as the ECU. The
Portfolio may also acquire securities and currency in less developed countries
and in developing countries.
The Portfolio may invest in debt securities of supranational entities
denominated in any currency. A supranational entity is an entity designated or
supported by the national governments of two or more countries to promote
economic reconstruction or development. Examples of supranational entities
include, among others, the World Bank, the European Investment Bank and the
Asian Development Bank. The Portfolio may, in addition, invest in debt
securities denominated in the ECU of an issuer in any country (including
supranational issuers). The Portfolio is further authorized to invest in
"semi-governmental securities," which are debt securities issued by entities
owned by either a national, state or equivalent government or are obligations of
such a government jurisdiction that are not backed by its full faith and credit
and general taxing powers.
The Portfolio is authorized to invest in the securities of any foreign or
domestic issuer. Investments by the Portfolio in fixed income securities may
include obligations issued or guaranteed by United States or foreign governments
(including foreign states, provinces and municipalities) or their agencies and
instrumentalities; obligations issued or guaranteed by supranational entities;
debt obligations of foreign and domestic corporations, banks and other business
organizations; and other foreign and domestic debt securities such as
convertible securities and preferred stocks, cash and cash equivalents and
repurchase agreements. Under normal market conditions, the Portfolio, as a
fundamental policy, will invest at least 65%, and may invest up to 100%, of its
total assets in fixed income securities. Some of the Portfolio's fixed income
securities may be convertible into common stock or be traded together with
warrants for the purchase of common stock, and the Portfolio may convert such
securities into equities and hold them as equity upon conversion. Investments
may include securities issued by enterprises that have undergone or are
currently undergoing privatization.
25
<PAGE> 28
The securities in which the Portfolio may invest will be "investment grade"
securities. Investment grade securities are those rated at the time of purchase
within the four highest grades assigned by Moody's, S&P or IBCA Limited
(including its affiliate IBCA, Inc.) ("IBCA"); or that are unrated but are of
comparable quality in the opinion of the investment manager. Most foreign fixed
income securities are unrated. The characteristics of the securities held by the
Portfolio, such as the maturity and type of issuer, will affect yields and yield
differentials, which vary over time.
When the investment manager deems it appropriate to invest for temporary
defensive purposes, such as during periods of adverse market conditions, or when
relative yields in other securities are not deemed attractive, part or all of
the Portfolio's assets may be invested in cash (including foreign currency) or
cash equivalent short-term obligations, either rated as high quality or
considered to be of comparable quality in the opinion of the investment manager,
including, but not limited to, certificates of deposit, commercial paper,
short-term notes, obligations issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities, and repurchase agreements secured thereby.
In particular, for defensive purposes a larger portion of the Portfolio's assets
may be invested in U.S. Dollar-denominated obligations to reduce the risks
inherent in non-U.S. Dollar-denominated assets.
The Portfolio will not normally engage in the trading of securities for the
purpose of realizing short-term profits, but it will adjust its portfolio as
considered advisable in view of prevailing or anticipated market conditions and
the Portfolio's investment objective. Accordingly, the Portfolio may sell
portfolio securities in anticipation of a rise in interest rates and purchase
securities for inclusion in its portfolio in anticipation of a decline in
interest rates.
The Portfolio may purchase and sell options on securities, index options,
financial futures contracts and options on financial futures contracts, may
enter into forward foreign currency exchange contracts, foreign currency options
and foreign currency futures contracts and options thereon and may engage in
delayed delivery transactions. See "Investment Techniques" below.
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), Horizon (growth stock portion) and
Blue Chip. 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 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.
26
<PAGE> 29
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, 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.
27
<PAGE> 30
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 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
28
<PAGE> 31
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, Value+Growth and Blue Chip 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 and
Global Income Portfolios 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
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
29
<PAGE> 32
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 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.
30
<PAGE> 33
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 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
31
<PAGE> 34
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. Investments in securities of foreign issuers may be in the
form of American Depository Receipts ("ADRs"). 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.
GLOBAL INCOME PORTFOLIO. The Global Income Portfolio operates as a
"non-diversified" portfolio so that it will be able to invest more than 5% of
its assets in the obligations of an issuer, subject to the diversification
requirements of Subchapter M of the Internal Revenue Code applicable to the
Portfolio. This allows the Global Income Portfolio, as to 50% of its assets, to
invest more than 5% of its assets, but not more than 25%, in the fixed income
securities of an individual foreign government or corporate issuer. Currently,
the Portfolio does not intend to invest more than 5% of its assets in any
individual corporate issuer. Since the Portfolio may invest a relatively high
percentage of its assets in the obligations of a limited number of issuers, the
Portfolio may be more susceptible to any single economic, political or
regulatory occurrence than a diversified portfolio. See "Investment
Restrictions" in the Statement of Additional Information.
32
<PAGE> 35
As noted above, the Global Income Portfolio may invest in securities that are
rated within the four highest grades by S&P, Moody's or IBCA or, if unrated, are
of comparable quality as determined by the investment manager. Securities rated
within the four highest grades are generally considered to be "investment
grade." Like higher rated securities, securities rated in the fourth grade 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 characteristics of the rating categories
are described in the Statement of Additional Information under
"Appendix--Ratings of Investments."
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 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 each Portfolio other than the Money
Market, Blue Chip and Global Income 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 Blue Chip and Global Income
Portfolios will not exceed 150% and 400%, respectively. 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.
The Global Income Portfolio may take full advantage of the entire range of
maturities of fixed income securities and may adjust the average maturity of its
portfolio from time to time, depending upon its assessment of relative yields on
securities of different maturities and its expectations of future changes in
interest rates. Thus, the average maturity of the Portfolio's securities may be
relatively short (under five years, for example) at some times and relatively
long (over 10 years, for example) at other times. Generally, since shorter term
debt securities tend to be more stable than longer term debt securities, the
Portfolio's average maturity will be shorter when interest rates are expected to
rise and longer when interest rates are expected to fall. Since in most foreign
markets debt securities generally are issued with maturities of ten years or
less, it is currently anticipated that the average maturity of the Portfolio's
securities will normally be in the intermediate range (three to ten years).
33
<PAGE> 36
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 other liquid 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 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, Horizon and Global Income Portfolios may also purchase and sell, and the
Value+Growth and Blue Chip Portfolios 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, Horizon and Global Income 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 and Blue Chip Portfolios 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.
Each Portfolio, except the Money Market, Value+Growth and Blue Chip 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
34
<PAGE> 37
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 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, Horizon, Blue Chip and Global
Income 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
35
<PAGE> 38
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.
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, Horizon and Blue Chip Portfolios may invest a limited portion of
their assets, and the International and Global Income Portfolios 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
36
<PAGE> 39
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 and Global Income Portfolios 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 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.
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 and Global Income Portfolios, 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 securities to the extent required by applicable regulation in
connection with forward foreign currency exchange contracts entered into for the
purchase of a foreign currency. 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
37
<PAGE> 40
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.
DELAYED DELIVERY TRANSACTIONS. The Total Return, High Yield, Growth, Government
Securities, Investment Grade Bond, Horizon and Global Income 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 a 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 transactions. The value of fixed
yield securities to be delivered in the future will fluctuate as interest rates
vary. Because a Portfolio must set aside cash or other liquid securities to
satisfy its commitments to purchase when-issued or delayed delivery securities,
flexibility to manage the Portfolio's investments may be limited if commitments
to purchase when-issued or delayed delivery securities were to exceed 25% of the
value of its assets.
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. 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
38
<PAGE> 41
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 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
39
<PAGE> 42
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, 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. Over-the-counter traded fixed income options are valued
based upon current prices provided by market makers. 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 determinations 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.
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
40
<PAGE> 43
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.
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 Blue Chip and
Global Income 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. On May 1, 1997, the Fund changed its name from "Kemper
Investors Fund" to "Investors Fund Series." 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
41
<PAGE> 44
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.
Information about the Portfolios' investment performance is contained in the
Fund's 1996 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. ("ZKI"), 222 South
Riverside Plaza, Chicago, Illinois 60606, 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-eight years. ZKI and its affiliates,
including Dreman Value Advisors, Inc., provide investment advice and manage
investment portfolios for the Kemper Funds, other investment companies,
affiliated insurance companies and other corporate, pension, profit-sharing and
individual accounts representing approximately $80 billion under management. ZKI
and its affiliates act as investment adviser for 32 open-end and seven
closed-end investment companies, with 82 separate investment portfolios
representing more than 2.5 million shareholder accounts. ZKI is an indirect
subsidiary of Zurich Insurance Company, an internationally recognized provider
of financial services in property/casualty and life insurance, reinsurance and
asset management.
Dreman Value Advisors, Inc. ("DVA"), 280 Park Avenue 40th Floor, New York, New
York 10017, 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.
42
<PAGE> 45
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%), Horizon 5 (.60%), Blue Chip
(.65%) and Global Income (.75%). 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 uses the services of Zurich Investment Management Limited ("ZIML"), 1 Fleet
Place, London, U.K. EC4M 7RQ, an affiliate of ZKI, as a sub-adviser for the
Total Return, High Yield, Growth, International, Small Cap Growth, Investment
Grade Bond, Value+Growth, Horizon, Blue Chip and Global Income Portfolios. ZIML
is an indirect subsidiary of Zurich Insurance Company and has served as
sub-adviser for mutual funds since December, 1996 and investment adviser for
certain institutional accounts since August, 1988. Under the terms of the
Sub-Advisory Agreement between ZIML and ZKI for the Total Return, High Yield,
Growth, Small Cap Growth, Investment Grade Bond, Value+Growth, Horizon and Blue
Chip Portfolios, ZIML renders investment advisory and management services with
regard to that portion of a Portfolio's assets as may be allocated by ZKI to
ZIML from time to time for management of foreign securities, including foreign
currency transactions and related investments. Under the terms of the
Sub-Advisory Agreement between ZIML and ZKI for the International and Global
Income Portfolios, ZIML renders investment advisory and management services with
regard to that portion of the Portfolio's assets as may be allocated by ZKI to
ZIML from time to time for management, including services related to foreign
securities, foreign currency transactions and related investments. ZKI pays ZIML
for its services a sub-advisory fee, payable monthly at the following annual
rates applied to the portion of the average daily net assets of the applicable
Portfolio allocated by ZKI to ZIML for management: .35% for the Growth,
International, Small Cap Growth, Total Return, Value+Growth, Horizon and Blue
Chip Portfolios; and .30% for the High Yield, Investment Grade Bond and Global
Income Portfolios.
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 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 is a Managing Director of ZIML and the portfolio manager for the
International Portfolio and has served in this capacity since March 1994. Prior
to joining ZIML, Mr. Ferro was President and Chief Investment Officer of an
international investment advisory firm. 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-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.
43
<PAGE> 46
Steven H. Reynolds has been the portfolio manager of 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-manager of the Government Securities Portfolio
and has served as portfolio manager or co-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 is a co-manager of the Total Return Portfolio and has served as
portfolio manager or co-manager since February 1995. 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. Maureen P. Lentz has
been a co-manager of the Total Return Portfolio since January 1997. Ms. Lentz
joined ZKI in November 1994 and is a Vice President at ZKI. Prior to joining
ZKI, she was a vice president of an unaffiliated investment management firm. Ms.
Lentz received a B.S. in economics from John Carrol University and an M.B.A. in
finance and marketing from Case Western Reserve University in Cleveland, Ohio.
Kurt R. Stalzer has been a co-manager of the Small Cap Growth Portfolio since he
joined ZKI in January 1997 and is a senior vice president at ZKI. Prior to
joining ZKI, Mr. Stalzer was a senior portfolio manager for an unaffiliated
investment management company. Mr. Stalzer received a B.B.A. in finance and
accounting from the University of Michigan. David H. Burshtan has been a
co-manager of the Small Cap Growth Portfolio since January 1997. He joined ZKI
in 1995 and is a Vice President at ZKI. Immediately prior to joining ZKI, Mr.
Burshtan was employed as a senior international securities analyst, and prior
thereto as a senior portfolio manager for an unaffiliated investment management
company. Mr. Burshtan received a B.A. in economics from Brown University and an
M.B.A. in finance from the University of Chicago.
Steven T. Stokes and Christian C. Bertelsen have been the co-managers of the
Small Cap Value Portfolio since July, 1996. Mr. Stokes joined DVA in April, 1996
and is currently a Managing Director of DVA. Prior thereto, he served as a
portfolio manager for 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 for 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.
Thomas Sassi has been the portfolio manager of the Value Portfolio since January
1997. Mr. Sassi joined DVA in August 1996 and is a Managing Director at DVA and
Director of Research. Prior to joining DVA, he was a consultant with a
consulting firm. Mr. Sassi received a B.B.A. in management and economics and an
M.B.A. in Finance from Hofstra University in New York City, New York.
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
44
<PAGE> 47
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.
Daniel J. Bukowski and William M. Knapp have been the co-managers of the Horizon
20+, Horizon 10+ and Horizon 5 Portfolios since April, 1997. Messrs. Bukowski
and Knapp are responsible for managing the asset mix of each of these
Portfolios. They are 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. 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. Mr. Knapp joined ZKI in 1992
and is a first vice president at ZKI. Prior to joining ZKI he served as an
officer with an unaffiliated investment management company. He received a B.S.
in economics from Drake University and an M.S. and Ph.D. in industrial
organization and finance from the University of Wisconsin-Madison.
Daniel J. Bukowski has been a co-manager of the Value+Growth Portfolio since its
inception in May, 1996. William M. Knapp has been a co-manager of the
Value+Growth Portfolio since January 1997. See above for biographical
information regarding Messrs. Bukowski and Knapp.
Tracy McCormick Chester has been the portfolio manager of the Blue Chip
Portfolio since its inception in May, 1997. Ms. Chester joined ZKI in September
1994 and is a senior vice president of ZKI. Prior to joining ZKI, she was a
senior vice president and portfolio manager for an investment management
company; and prior thereto, she managed private accounts. She received a B.A.
and an M.B.A. in finance from Michigan State University, East Lansing, Michigan.
Gordon K. Johns and J. Patrick Beimford, Jr. are the co-managers of the Global
Income Portfolio. Mr. Johns and Mr. Beimford have served in this capacity since
the Portfolio commenced operations in May, 1997. Mr. Johns joined ZIML in
September 1988 and is a Managing Director of ZIML. He received a B.A. in law
from Balliol College in Oxford, United Kingdom. See above for biographical
information regarding Mr. Beimford.
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, 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, DVA and ZIML place all orders for purchases and
sales of a Portfolio's securities. Subject to seeking best execution of orders,
they may consider sales of shares of the Fund and other funds managed by ZKI or
its affiliates 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.
45
<PAGE> 48
DISTRIBUTOR
Zurich Kemper Distributors, Inc. ("ZKDI"), 222 South Riverside Plaza, Chicago,
Illinois 60606 an affiliate of ZKI and DVA, serves as distributor and principal
underwriter for the Fund pursuant to an underwriting agreement. ZKDI bears all
its expenses of providing services pursuant to the agreement. ZKDI provides for
the preparation of advertising or sales literature, and bears the cost of
printing and mailing prospectuses to persons other than shareholders. ZKDI 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. ZKDI 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.
ZKDI 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 ZKDI accepts orders for
shares at net asset value, as no sales commission or load is charged. ZKDI 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 ZKDI in the underwriting agreement.
46
<PAGE> 49
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, 1996. 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 1996--DECEMBER 1996)
<TABLE>
<CAPTION>
HIGH
MOODY'S/S&P RATING YIELD GENERAL DESCRIPTION
OR OTHER CATEGORY PORTFOLIO OF BOND QUALITY
------------------ --------- -------------------
<S> <C> <C>
Cash Equivalents............................. 6%
Aaa/AAA...................................... 1 Highest quality
Aa/AA........................................ 0 High quality
A/A.......................................... 1 Upper medium grade
Baa/BBB...................................... 0 Medium grade
Ba/BB........................................ 21 Some speculative elements
B/B.......................................... 62 Speculative
Caa/CCC...................................... 4 More speculative
Ca/CC, C/C................................... 0 Very speculative
D............................................ 0 In default
Non-rated, Not in Default.................... 3
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.
47
<PAGE> 50
Shares of Investors Fund Series 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.
PROSPECTUS MAY 1, 1997
INVESTORS
FUND
SERIES
Investors Fund Series
2222 South Riverside Plaza
Chicago, IL 60606
1-800-778-1482
ANN-1A 5/97
<PAGE> 51
KEMPER INVESTORS FUND
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART B
OF FORM N-1A AND STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
LOCATION IN STATEMENT OF
ITEM NUMBER ADDITIONAL INFORMATION
OF FORM N-1A ------------------------
<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
</TABLE>
<PAGE> 52
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
INVESTORS FUND SERIES
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the prospectus of Investors Fund Series (the "Fund") dated
May 1, 1997. 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-8
Portfolio Transactions...................................... B-15
Investment Managers and Distributor......................... B-17
Purchase and Redemption of Shares........................... B-19
Officers and Trustees....................................... B-20
Dividends and Taxes......................................... B-22
Shareholder Rights.......................................... B-23
Report of Independent Auditors (April 22, 1997)............. B-25
Statement of Net Assets (April 22, 1997).................... B-26
Appendix--Ratings of Investments............................ B-27
</TABLE>
The financial statements appearing in the Fund's Annual Report for the fiscal
year ended December 31, 1996 are incorporated herein by reference. Such Report
accompanies this Statement of Additional Information.
ANN-13 5/97 (LOGO)printed on recycled paper
<PAGE> 53
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> 54
(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 fundamental 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> 55
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> 56
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.
(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) 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> 57
(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.
The Blue Chip Portfolio may not, as a fundamental policy:
(1) Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. Government, its agencies or instrumentalities) if,
as a result, more than 5% of the total value of the Portfolio's assets
would be invested in securities of that issuer.
(2) Purchase more than 10% of any class of voting securities of any issuer.
(3) Make loans to others provided that the Portfolio may purchase debt
obligations or repurchase agreements, and it may lend its securities in
accordance with its investment objective and policies.
(4) Borrow money except as a temporary measure for extraordinary or
emergency purposes, and then only in an amount up to one-third of the value
of its total assets, in order to meet redemption requests without
immediately selling any portfolio securities. If, for any reason, the
current value of the Portfolio's total assets falls below an amount equal
to three times the amount of its indebtedness from money borrowed, the
Portfolio will, within three days (not including Sundays and holidays),
reduce its indebtedness to the extent necessary. The Portfolio will not
borrow for leverage purposes and will not purchase securities or make
investments while borrowings are outstanding.
(5) Pledge, hypothecate, mortgage or otherwise encumber more than 15% of
its total assets and then only to secure borrowings permitted by
restriction number (4) above. (The collateral arrangements with respect to
options, financial futures and delayed delivery transactions and any margin
payments in connection therewith are not deemed to be pledges or other
encumbrances.)
(6) Purchase 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 options and financial
futures transactions.
(7) Make short sales of securities or maintain a short position for the
account of the Portfolio unless at all times when a short position is open
it owns an equal amount of such securities or owns securities which,
B-5
<PAGE> 58
without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount to,
the securities sold short and unless not more than 10% of the Portfolio's
total assets is held as collateral for such sales at any one time.
(8) 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.
(9) Purchase securities (other than securities of the U.S. Government, its
agencies or instrumentalities) if as a result of such purchase 25% or more
of the Portfolio's total assets would be invested in any one industry.
(10) Invest in commodities or commodity futures contracts, although it may
buy or sell financial futures contracts and options on such contracts, and
engage in foreign currency transactions; or in real estate (including real
estate limited partnership interests), although it may invest in securities
which are secured by real estate and securities of issuers which invest or
deal in real estate.
(11) 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.
(12) Issue senior securities except as permitted under the Investment
Company Act of 1940.
The following non-fundamental restrictions apply to the Blue Chip Portfolio. The
Portfolio may not:
(i) Invest for the purpose of exercising control or management of another
issuer.
(ii) Invest more than 15% of its net assets in illiquid securities.
The Global Income Portfolio may not, as a fundamental policy:
(1) Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. Government, its agencies or instrumentalities) if,
as a result, more than 5% of the total value of the Portfolio's assets
would be invested in securities of that issuer except that, with respect to
50% of the Portfolio's total assets, the Portfolio may invest up to 25% of
its total assets in securities of any one issuer.
(2) Purchase more than 10% of any class of voting securities of any issuer.
(3) Make loans to others provided that the Portfolio may purchase debt
obligations or repurchase agreements and it may lend its securities in
accordance with its investment objective and policies.
(4) Borrow money except as a temporary measure for extraordinary or
emergency purposes, and then only in an amount up to one-third of the value
of its total assets, in order to meet redemption requests without
immediately selling any portfolio securities. If, for any reason, the
current value of the Portfolio's total assets falls below an amount equal
to three times the amount of its indebtedness from money borrowed, the
Portfolio will, within three days (not including Sundays and holidays),
reduce its indebtedness to the extent necessary. The Portfolio will not
borrow for leverage purposes and will not purchase securities or make
investments while borrowings are outstanding.
(5) Pledge, hypothecate, mortgage or otherwise encumber more than 15% of
its total assets and then only to secure borrowings permitted by
restriction 4 above. (The collateral arrangements with respect to options,
financial futures and delayed delivery transactions and any margin payments
in connection therewith are not deemed to be pledges or other
encumbrances.)
(6) Purchase 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 options and financial
futures transactions.
B-6
<PAGE> 59
(7) Make short sales of securities or other assets or maintain a short
position for the account of the Portfolio unless at all times when a short
position is open it owns an equal amount of such securities or other assets
or owns securities which, without payment of any further consideration, are
convertible into or exchangeable for securities or other assets of the same
issue as, and equal in amount to, the securities or other assets sold short
and unless not more than 10% of the Portfolio's total assets is held as
collateral for such sales at any one time.
(8) Write or 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.
(9) Purchase securities (other than securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities) if as a result of such
purchase 25% or more of the Portfolio's total assets would be invested in
any one industry.
(10) Invest in commodities or commodity futures contracts, although it may
buy or sell financial futures contracts and options on such contracts, and
engage in foreign currency transactions; or in real estate (including real
estate limited partnerships), although it may invest in securities which
are secured by real estate and securities of issuers which invest or deal
in real estate including real estate investment trusts.
(11) 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.
(12) Issue senior securities except as permitted under the Investment
Company Act of 1940.
The following non-fundamental restrictions apply to the Global Income Portfolio.
The Portfolio may not:
(i) Invest for the purpose of exercising control or management of
another issuer.
(ii) Invest more than 15% of its net assets in illiquid securities.
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.
B-7
<PAGE> 60
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 or other liquid securities ("eligible
securities") to the extent required by applicable regulation in connection with
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 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
B-8
<PAGE> 61
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 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
B-9
<PAGE> 62
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 to the extent
required by applicable regulation. In addition, where the Portfolio writes a
call option on a securities index at a 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
B-10
<PAGE> 63
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.
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, Horizon and Global Income 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.
B-11
<PAGE> 64
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 applicable
regulation, 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 eligible securities in a segregated account. 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, Horizon, Blue Chip and
Global Income 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.
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, Horizon, Blue Chip and
Global Income 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,
Horizon, Blue Chip and Global Income 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
B-12
<PAGE> 65
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 and Global Income Portfolios, 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 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 or Global Income 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 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 and Global Income Portfolios (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 eligible securities to the extent required by
applicable regulation in connection with 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
B-13
<PAGE> 66
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 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
B-14
<PAGE> 67
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. ("ZKI") and its affiliates Dreman Value
Advisors, Inc. ("DVA") and Zurich Investment Management Limited ("ZIML") are
each the investment manager or sub-adviser for the Portfolios of the Fund. ZKI
and its affiliates, including DVA and ZIML, also furnish investment management
services to the Kemper funds, other investment companies and other clients
including affiliated insurance companies. ZKI and it affiliates share some
common research and trading facilities. 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.
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, ZIML 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, DVA and ZIML, in effecting purchases and sales of portfolio securities for
the account of each Portfolio, will implement the policy of seeking best
execution of orders. ZKI, DVA and ZIML 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, financial responsibility,
responsiveness, clearance procedures, wire service quotations and statistical
and other research information provided to the Portfolios, ZKI and its
affiliates. Subject to seeking best execution of an order, brokerage is
allocated on the basis of all services provided. Any research benefits derived
are available for all clients of ZKI and its affiliates. In selecting among the
firms believed to meet the criteria for handling a particular transaction, ZKI,
DVA and ZIML may give consideration to those firms that have sold or are selling
shares of other funds managed by ZKI or its affiliates 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 and ZKI and its affiliates;
B-15
<PAGE> 68
although ZKI, DVA and ZIML are not authorized to pay higher commissions to firms
that provide such services, except as described below.
ZKI, DVA and ZIML 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 as defined in Section 28(e) of the
Securities Exchange Act of 1934 and interpretations thereunder. Such services
may include, among other things: economic, industry or company research reports
or investment recommendations; computerized databases; quotation and execution
equipment and software; and research or analytical computer software and
services. ZKI, DVA and ZIML may attempt to direct sufficient commissions and in
the case of transactions for certain types of clients, dealer selling
concessions on new issues of securities, to ensure the continued receipt of such
research products and services. Where products or services have a "mixed use," a
good faith effort is made to make a reasonable allocation of the cost of
products or services in accordance with the anticipated research and
non-research uses and the cost attributable to non-research use is paid by ZKI
or one of its affiliates in cash. Subject to Section 28(e) and procedures
adopted by the Board of Trustees of the Fund, the Fund could pay a firm that
provides research services commissions for effecting a securities transaction
for the Fund in excess of the amount other firms would have charged for the
transaction if ZKI, DVA or ZIML determines in good faith that the greater
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing firm viewed in terms either of a particular
transaction or ZKI's, DVA's or ZIML's overall responsibilities to the Fund and
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 these research services are received.
The table below shows total brokerage commissions paid by each Portfolio (other
than the Blue Chip and Global Income Portfolios, which commenced operations on
May 1, 1997) 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.
<TABLE>
<CAPTION>
ALLOCATED TO FIRMS
BASED ON RESEARCH
PORTFOLIO FISCAL 1996 IN FISCAL 1996 FISCAL 1995 FISCAL 1994
- - --------- ----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Money Market................................ $ 0 0% $ 0 $ 0
Total Return................................ $1,562,000 72% $1,613,000 $2,594,000
High Yield.................................. $2,567,000 0% $1,758,000 $1,480,000
Growth...................................... $1,782,000 94% $1,066,000 $1,058,000
Government Securities....................... $ 20,000 0% $ 15,000 $ 27,000
International............................... $ 936,000 90% $ 941,000 $ 996,000
Small Cap Growth............................ $ 787,000 69% $ 245,000 $ 32,000*
Investment Grade Bond....................... $ 6,000** 0% -- --
Value....................................... $ 26,000** 0% -- --
Small Cap Value............................. $ 50,000** 0% -- --
Value+Growth................................ $ 15,000** 98% -- --
Horizon 20+................................. $ 5,000** 94% -- --
Horizon 10+................................. $ 6,000** 92% -- --
Horizon 5................................... $ 2,000** 96% -- --
</TABLE>
- - ---------------
* Commencement of Operations on May 1, 1994 through December 31, 1994
** Commencement of Operations on May 1, 1996 through December 31, 1996.
B-16
<PAGE> 69
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 ZKI Holding Corp.
ZKI 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 provider of financial services in
property/casualty and 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
affiliates 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
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.
B-17
<PAGE> 70
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.
ZIML, 1 Fleet Place, London, U.K. EC4M 7RQ, a wholly-owned subsidiary of ZKI, is
the sub-adviser for the foreign securities portion of certain Portfolios. ZIML
acts as sub-adviser pursuant to the terms of a Sub-Advisory Agreement between it
and ZKI for each Portfolio. ZIML is subject to regulations by the Investment
Management Regulatory Organization in England as well as the U.S. Securities and
Exchange Commission.
Under the terms of the Sub-Advisory Agreement for the Total Return, High Yield,
Growth, Small Cap Growth, Investment Grade Bond, Value+Growth, Horizon and Blue
Chip Portfolios, ZIML renders investment advisory and management services with
regard to that portion of a Portfolio's assets as may be allocated to ZIML by
ZKI from time to time for management of foreign securities, including foreign
currency transactions and related investments. Under the terms of the
Sub-Advisory Agreement for the International and Global Income Portfolios, ZIML
renders investment advisory and management services with regard to that portion
of a Portfolio's assets as may be allocated by ZKI to ZIML from time to time for
management, including services related to foreign securities, foreign currency
transactions and related investments. ZIML may, under the terms of each
Sub-Advisory Agreement, render similar services to others including other
investment companies. For its services, ZIML will receive from ZKI a monthly fee
at the following annual rates applied to the portion of the average daily net
assets of each Portfolio allocated by ZKI to ZIML for management: .35% for the
Growth, International, Small Cap Growth, Total Return, Value+Growth, Horizon and
Blue Chip Portfolios; and .30% for the High Yield, Investment Grade Bond and
Global Income Portfolios. ZIML permits any of its officers or employees to serve
without compensation as trustees or officers of the Fund if elected to such
positions.
Each Sub-Advisory Agreement provides that ZIML 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
ZIML in the performance of its duties or from reckless disregard by ZIML of its
obligations and duties under the Sub-Advisory Agreement.
Each 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. Each Sub-Advisory Agreement may be terminated at any time for
a Portfolio upon 60 days notice by ZKI, ZIML 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. If additional Portfolios become subject to a Sub-Advisory
Agreement, the provisions concerning continuation, amendment and termination
shall be on a Portfolio-by-Portfolio basis. Additional Portfolios may be subject
to a different agreement.
No sub-adviser fees were paid by ZKI to ZIML for each Portfolio's 1996 fiscal
year, although in prior fiscal years ZKI has paid ZIML for its services to ZKI
with respect to foreign securities investments of certain Portfolios.
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%),
B-18
<PAGE> 71
Horizon 10+ (.60%), Horizon 5 (.60%), Blue Chip (.65%) and Global Income (.75%).
The investment management fees paid by each Portfolio (other than the Blue Chip
and Global Income Portfolios, which commenced operations on May 1, 1997) for its
last three fiscal years are shown in the table below.
<TABLE>
<CAPTION>
Portfolio Fiscal 1996 Fiscal 1995 Fiscal 1994
- - --------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Money Market $ 376,000 $ 373,000 $ 512,000
Total Return $3,691,000 $3,461,000 $3,403,000
High Yield $1,565,000 $1,463,000 $1,329,000
Growth $2,658,000 $2,132,000 $1,768,000
Government Securities $ 485,000 $ 538,000 $ 583,000
International $1,174,000 $ 946,000 $ 842,000
Small Cap Growth $ 340,000 $ 151,000 $ 26,000*
Investment Grade Bond $ 4,000** -- --
Value $ 44,000** -- --
Small Cap Value $ 33,000** -- --
Value+Growth $ 22,000** -- --
Horizon 20+ $ 6,000** -- --
Horizon 10+ $ 11,000** -- --
Horizon 5 $ 5,000** -- --
</TABLE>
- - ---------------
* Commencement of Operations on May 1, 1994 through December 31, 1994.
** Commencement of Operations on May 1, 1996 through December 31, 1996.
PRINCIPAL UNDERWRITER. Zurich Kemper Distributors, Inc. ("ZKDI"), 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 ZKDI pays for the printing and distribution of copies
thereof used in connection with the offering of shares to prospective
shareholders. ZKDI 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.
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, 1996, no
fees for record keeping or dividend-paying agents' services, were paid to
KILICO.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Fund's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Fund. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
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.
B-19
<PAGE> 72
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, DVA or ZIML, the investment managers or
sub-advisers for the Fund and ZKDI, 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), 738 York Court, Northbrook,
Illinois; 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 (39), 222 South Riverside Plaza,
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 Wartburg 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 (39), 222 S. Riverside
Plaza, Chicago, Illinois; President, Chief Executive Officer, Chief Investment
Officer and Director, ZKI; Director, ZKDI, 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), 222 South Riverside
Plaza, Chicago, Illinois; Executive Vice President and Chief Investment Officer
- - -- Fixed Income Investments, ZKI.
*CHRISTIAN C. BERTELSEN (1/20/43), Vice President (2), 280 Park Avenue 40th
Floor, New York, New York; Senior Managing Director and Chief Investment
Officer, DVA.
B-20
<PAGE> 73
*DANIEL J. BUKOWSKI (05/06/63), Vice President (3), 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President and Director of Quantitative Research,
ZKI.
*DAVID H. BURSHTAN (10/24/61), Vice President (1), 222 South Riverside Plaza,
Chicago, Illinois; Vice President, ZKI.
*ROBERT S. CESSINE (01/05/50), Vice President (4), 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President, ZKI; formerly, Vice President,
Wellington Management Company.
*PHILIP J. COLLORA (11/15/45), Vice President and Secretary (39), 222 South
Riverside Plaza, Chicago, Illinois; Attorney, Senior Vice President and
Assistant Secretary, ZKI.
*JEROME L. DUFFY (06/29/36), Treasurer (39), 222 South Riverside Plaza, Chicago,
Illinois; Senior Vice President, ZKI.
*WILLIAM M. KNAPP (4/23/61), Vice President (1), 222 South Riverside Plaza,
Chicago, Illinois; First Vice President, ZKI.
*GARY A. LANGBAUM (12/16/48), Vice President (2), 222 South Riverside Plaza,
Chicago, Illinois; Executive Vice President, ZKI.
*MAUREEN P. LENTZ (8/26/61), Vice President (1), 222 South Riverside Plaza,
Chicago, Illinois; Vice President, ZKI.
*CHARLES R. MANZONI, JR. (1/23/47), Vice President (39), 222 South Riverside
Plaza, Chicago, Illinois; Executive Vice President, Secretary and General
Counsel of ZKI, Secretary of ZKI Holding Corp., Secretary ZKI Agency, Inc.;
formerly Partner, Gardner Carton & Douglas (attorneys).
*MICHAEL A. McNAMARA (12/28/44), Vice President (6), 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President, ZKI.
*JOHN E. NEAL (03/09/50), Vice President (39), 222 South Riverside Plaza,
Chicago, Illinois; President, Kemper Funds Group, a unit of ZKI; Director ZKI,
DVA and ZKDI.
*STEVEN H. REYNOLDS (09/11/43), Vice President (13), 222 South Riverside Plaza,
Chicago, Illinois; Executive Vice President and Chief Investment Officer --
Equities, ZKI.
*FRANK J. RACHWALSKI, JR. (03/26/45), Vice President (8), 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President, ZKI.
*HARRY E. RESIS, JR. (11/24/45), Vice President (6), 222 South Riverside Plaza,
Chicago, Illinois; First Vice President, ZKI.
*THOMAS F. SASSI (11/7/42), Vice President (1), 280 Park Avenue 40th Floor, New
York, New York; Managing Director, DVA.
*KURT R. STALZER (5/1/58), Vice President (1), 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President, ZKI.
*STEVEN T. STOKES (7/18/62), Vice President (2), 280 Park Avenue 40th Floor, New
York, New York; Managing Director, DVA.
*RICHARD L. VANDENBERG (11/16/49), Vice President (8), 222 South Riverside
Plaza, 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.
B-21
<PAGE> 74
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows amounts paid or
accrued to those trustees who are not designated "interested persons" during the
1996 calendar year.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION FROM
AGGREGATE FUND AND FUND COMPLEX
COMPENSATION PAID TO
NAME OF TRUSTEE FROM FUND TRUSTEES**
- - --------------- ------------ ---------------------
<S> <C> <C>
James E. Akins.............................................. $32,900 $ 94,300
Arthur R. Gottschalk*....................................... $36,000 $102,700
Frederick T. Kelsey*........................................ $37,700 $106,800
Fred B. Renwick............................................. $32,900 $ 94,300
John B. Tingleff............................................ $32,900 $ 94,300
John G. Weithers............................................ $32,900 $ 94,300
</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 Zurich Money Funds--Zurich Money
Market Fund. Total deferred fees and interest accrued for the latest and
prior fiscal years for this Fund are $69,600 for Mr. Gottschalk and $111,900
for Mr. Kelsey.
** Includes compensation for service on the Boards of 13 funds managed by ZKI
and its affiliates with 36 fund portfolios during calendar year 1996. Each
trustee currently serves as a board member of 13 funds managed by ZKI and
its affiliates with 39 fund portfolios.
As of April 30, 1997, 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, 1997, ZKI owned all the shares of the Blue Chip and Global
Income Portfolios of the Fund.
As of April 30, 1997, all the shares of the Money Market, Total Return, High
Yield, Growth, Government Securities, International, Small Cap Growth Investment
Grade Bond, Value, Small Cap Value, Value+Growth and Horizon Portfolios were
held of record by KILICO Variable Annuity Separate Account ("KVASA"), KILICO
Variable Separate Account ("KVSA"), Separate Account KGC ("KGC") and Separate
Account KG ("KG") on behalf of the owners of variable life insurance contracts
and variable annuity contracts. At all meetings of shareholders of these
Portfolios, Kemper Investors Life Insurance Company ("KILICO") will vote the
shares held of record by KVASA and KVSA, and Allmerica Financial Life Insurance
and Annuity Company ("Allmerica") will vote the shares held of record by KGC and
KG, only in accordance with the instructions received from the variable life and
variable annuity contract owners on behalf of whom the shares 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, and Allmerica disclaims beneficial ownership of the
shares of these portfolios held of record by KGC and KG.
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 Blue
Chip and Global Income Portfolios, intend to qualify) as a regulated investment
company under subchapter M of the Internal Revenue
B-22
<PAGE> 75
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.
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
B-23
<PAGE> 76
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-24
<PAGE> 77
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Kemper Investors Fund
We have audited the accompanying statement of net assets of the Blue Chip
Portfolio and the Global Income Portfolio, comprising certain of the Portfolios
of Kemper Investors Fund as of April 22, 1997. 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, 1997 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Chicago, Illinois
April 22, 1997
B-25
<PAGE> 78
KEMPER INVESTORS FUND
STATEMENT OF NET ASSETS--APRIL 22, 1997
<TABLE>
<CAPTION>
BLUE CHIP GLOBAL INCOME
PORTFOLIO PORTFOLIO
--------- -------------
<S> <C> <C>
ASSETS
Cash........................................................ $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
======== ========
THE PRICING OF SHARES
Net asset value and redemption price per share, applicable
to each Portfolio ($100,000 / 100,000 shares
outstanding).............................................. $ 1.000 $ 1.000
Maximum offering price per share, applicable to each
Portfolio (net asset value)............................... $ 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, 1997. The Fund may establish multiple series; currently
sixteen series have been established.
The costs of organization of each of the above Portfolios will be paid by ZKI.
B-26
<PAGE> 79
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-27
<PAGE> 80
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-28
<PAGE> 81
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, Growth, Government Securities, International, Small Cap Growth,
Investment Grade Bond, Value, Small Cap Value, Value+Growth, Horizon 20+,
Horizon 10+ and Horizon 5 Portfolios, comprising the Kemper Investors Fund as of
December 31, 1996, 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 for
the Money Market, Total Return, High Yield, Growth, Government Securities,
International and Small Cap Growth Portfolios and the related statements of
operations and changes in net assets for the period from May 1, 1996
(commencement of operations) to December 31, 1996 for the Investment Grade Bond,
Value, Small Cap Value, Value+Growth, Horizon 20+, Horizon 10+, and Horizon 5
Portfolios, and the financial highlights for the fiscal periods since 1992.
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, 1996, 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, 1996, the
results of their operations, the changes in their net assets and the financial
highlights for the periods referred to above, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 14, 1997
13
<PAGE> 82
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
MONEY TOTAL HIGH GOVERNMENT
MARKET RETURN YIELD GROWTH SECURITIES INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------------------------------
ASSETS
- - --------------------------------------------------------------------------------------------------------------------------
Investments, at value (Cost: $71,225,
$615,420, $275,528, $459,172, $100,612,
$132,888, $63,082, $1,964, $19,871, $12,503,
$9,330, $3,475, $5,278 and $2,410,
respectively): $71,225 697,850 284,341 492,138 101,634 162,545
- - --------------------------------------------------------------------------------------------------------------------------
Cash 4 -- 153 1,261 -- 384
- - --------------------------------------------------------------------------------------------------------------------------
Receivable for:
Investments sold -- 2,354 40 5,554 2,046 954
- - --------------------------------------------------------------------------------------------------------------------------
Portfolio shares sold 361 249 584 145 39 94
- - --------------------------------------------------------------------------------------------------------------------------
Interest and dividends 138 5,650 5,692 193 810 209
- - --------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 71,728 706,103 290,810 499,291 104,529 164,186
- - --------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- - --------------------------------------------------------------------------------------------------------------------------
Cash overdraft -- 791 -- -- 1,456 --
- - --------------------------------------------------------------------------------------------------------------------------
Payable for:
Investments purchased -- 3,287 553 8,650 18,340 --
- - --------------------------------------------------------------------------------------------------------------------------
Portfolio shares redeemed 899 4,543 756 2,864 342 523
- - --------------------------------------------------------------------------------------------------------------------------
Dividends 143 -- -- -- -- --
- - --------------------------------------------------------------------------------------------------------------------------
Management fee 32 321 143 241 39 103
- - --------------------------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and
related expenses 3 21 14 21 14 59
- - --------------------------------------------------------------------------------------------------------------------------
Other 50 38 29 32 24 26
- - --------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,127 9,001 1,495 11,808 20,215 711
- - --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $70,601 697,102 289,315 487,483 84,314 163,475
- - --------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- - --------------------------------------------------------------------------------------------------------------------------
Paid-in capital $70,601 507,950 283,159 338,706 73,298 124,087
- - --------------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on
investments and foreign currency transactions -- 85,424 (21,460) 110,059 (5,008) 6,755
- - --------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and
assets and liabilities in foreign currencies -- 82,430 8,813 32,966 1,022 29,894
- - --------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income -- 21,298 18,803 5,752 15,002 2,739
- - --------------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $70,601 697,102 289,315 487,483 84,314 163,475
- - --------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- - --------------------------------------------------------------------------------------------------------------------------
Shares outstanding 70,601 247,603 225,904 144,606 69,839 104,504
- - --------------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per share
(net assets / shares outstanding) $1.00 2.815 1.281 3.371 1.207 1.564
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 83
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SMALL INVESTMENT SMALL
CAP GRADE CAP VALUE+
GROWTH BOND VALUE VALUE GROWTH HORIZON 20+ HORIZON 10+ HORIZON 5
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C>
71,331 1,965 21,268 13,247 9,968 3,721 5,597 2,504
- - ------------------------------------------------------------------------------------------------------
537 111 441 493 407 131 59 --
- - ------------------------------------------------------------------------------------------------------
-- -- -- 72 -- -- -- --
- - ------------------------------------------------------------------------------------------------------
105 4 84 81 21 4 35 19
- - ------------------------------------------------------------------------------------------------------
8 27 31 28 12 13 41 24
- - ------------------------------------------------------------------------------------------------------
71,981 2,107 21,824 13,921 10,408 3,869 5,732 2,547
- - ------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- -- 11
- - ------------------------------------------------------------------------------------------------------
2,719 108 486 598 204 107 -- --
- - ------------------------------------------------------------------------------------------------------
71 -- 12 7 2 1 1 --
- - ------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- -- --
- - ------------------------------------------------------------------------------------------------------
36 1 13 8 6 2 3 1
- - ------------------------------------------------------------------------------------------------------
6 -- 7 -- -- -- -- --
- - ------------------------------------------------------------------------------------------------------
12 -- 1 1 -- -- 1 1
- - ------------------------------------------------------------------------------------------------------
2,844 109 519 614 212 110 5 13
- - ------------------------------------------------------------------------------------------------------
69,137 1,998 21,305 13,307 10,196 3,759 5,727 2,534
- - ------------------------------------------------------------------------------------------------------
52,074 1,936 19,457 12,545 9,428 3,463 5,308 2,384
- - ------------------------------------------------------------------------------------------------------
8,370 2 181 (154) 61 11 6 2
- - ------------------------------------------------------------------------------------------------------
8,249 1 1,397 744 638 246 319 94
- - ------------------------------------------------------------------------------------------------------
444 59 270 172 69 39 94 54
- - ------------------------------------------------------------------------------------------------------
69,137 1,998 21,305 13,307 10,196 3,759 5,727 2,534
- - ------------------------------------------------------------------------------------------------------
41,235 1,929 18,154 13,064 8,896 3,258 5,142 2,313
- - ------------------------------------------------------------------------------------------------------
1.677 1.036 1.174 1.019 1.146 1.154 1.114 1.096
- - ------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 84
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
MONEY TOTAL HIGH GOVERNMENT
MARKET RETURN YIELD GROWTH SECURITIES INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- - --------------------------------------------------------------------------------------------------------------------------
Interest $4,143 19,431 26,881 3,090 6,837 320
- - --------------------------------------------------------------------------------------------------------------------------
Dividends -- 6,023 105 3,920 -- 2,889
- - --------------------------------------------------------------------------------------------------------------------------
4,143 25,454 26,986 7,010 6,837 3,209
- - --------------------------------------------------------------------------------------------------------------------------
Less foreign taxes withheld -- -- -- -- -- 321
- - --------------------------------------------------------------------------------------------------------------------------
Total investment income 4,143 25,454 26,986 7,010 6,837 2,888
- - --------------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee 376 3,691 1,565 2,658 485 1,174
- - --------------------------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and
related expenses 19 86 56 88 60 280
- - --------------------------------------------------------------------------------------------------------------------------
Professional fees 10 68 26 42 10 18
- - --------------------------------------------------------------------------------------------------------------------------
Trustees' fees and other 50 91 42 62 23 28
- - --------------------------------------------------------------------------------------------------------------------------
Total expenses before expense absorption 455 3,936 1,689 2,850 578 1,500
- - --------------------------------------------------------------------------------------------------------------------------
Less expenses absorbed by investment manager -- -- -- -- -- --
- - --------------------------------------------------------------------------------------------------------------------------
Total expenses after expense absorption 455 3,936 1,689 2,850 578 1,500
- - --------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 3,688 21,518 25,297 4,160 6,259 1,388
- - --------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sales of
investments and foreign currency
transactions (850) 86,269 730 111,045 (342) 7,804
- - --------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from futures
transactions -- 65 (19) -- (185) --
- - --------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) (850) 86,334 711 111,045 (527) 7,804
- - --------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) on investments and assets and
liabilities in foreign currencies 850 (4,464) 9,092 (29,470) (3,644) 14,086
- - --------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments -- 81,870 9,803 81,575 (4,171) 21,890
- - --------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $3,688 103,388 35,100 85,735 2,088 23,278
- - --------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from May 1, 1996 (commencement of operations) to December 31,
1996.
See accompanying Notes to Financial Statements.
16
<PAGE> 85
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SMALL INVESTMENT
CAP GRADE SMALL CAP VALUE+
GROWTH BOND VALUE VALUE GROWTH HORIZON 20+ HORIZON 10+ HORIZON 5
PORTFOLIO PORTFOLIO(A) PORTFOLIO(A) PORTFOLIO(A) PORTFOLIO(A) PORTFOLIO(A) PORTFOLIO(A) PORTFOLIO(A)
<S> <C> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------
377 36 67 57 10 15 50 31
- - ----------------------------------------------------------------------------------------------------------------------
98 -- 129 85 45 12 15 5
- - ----------------------------------------------------------------------------------------------------------------------
475 36 196 142 55 27 65 36
- - ----------------------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- -- --
- - ----------------------------------------------------------------------------------------------------------------------
475 36 196 142 55 27 65 36
- - ----------------------------------------------------------------------------------------------------------------------
340 4 44 33 22 6 11 5
- - ----------------------------------------------------------------------------------------------------------------------
37 1 8 7 7 5 7 3
- - ----------------------------------------------------------------------------------------------------------------------
4 -- 1 -- -- -- -- --
- - ----------------------------------------------------------------------------------------------------------------------
15 1 1 1 1 1 1 --
- - ----------------------------------------------------------------------------------------------------------------------
396 6 54 41 30 12 19 8
- - ----------------------------------------------------------------------------------------------------------------------
-- -- 1 1 3 3 4 1
- - ----------------------------------------------------------------------------------------------------------------------
396 6 53 40 27 9 15 7
- - ----------------------------------------------------------------------------------------------------------------------
79 30 143 102 28 18 50 29
- - ----------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------
8,533 2 181 (154) 61 11 6 2
- - ----------------------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- -- --
- - ----------------------------------------------------------------------------------------------------------------------
8,533 2 181 (154) 61 11 6 2
- - ----------------------------------------------------------------------------------------------------------------------
3,586 1 1,397 744 638 246 319 94
- - ----------------------------------------------------------------------------------------------------------------------
12,119 3 1,578 590 699 257 325 96
- - ----------------------------------------------------------------------------------------------------------------------
12,198 33 1,721 692 727 275 375 125
- - ----------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 86
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
MONEY MARKET TOTAL RETURN
PORTFOLIO PORTFOLIO
1996 1995 1996 1995
<S> <C> <C> <C> <C>
- - ---------------------------------------------------------------------------------------------------
OPERATIONS
- - ---------------------------------------------------------------------------------------------------
Net investment income $ 3,688 4,123 21,518 22,128
- - ---------------------------------------------------------------------------------------------------
Net realized gain (loss) (850) -- 86,334 47,119
- - ---------------------------------------------------------------------------------------------------
Change in unrealized appreciation 850 (355) (4,464) 74,735
- - ---------------------------------------------------------------------------------------------------
Capital contribution from investment manager -- 355 -- --
- - ---------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,688 4,123 103,388 143,982
- - ---------------------------------------------------------------------------------------------------
Equalization credits (charges) -- -- (891) (1,827)
- - ---------------------------------------------------------------------------------------------------
Distribution from net investment income (3,688) (4,123) (22,873) (18,740)
- - ---------------------------------------------------------------------------------------------------
Distribution from net realized gain on investments -- -- (20,332) --
- - ---------------------------------------------------------------------------------------------------
Total dividends to shareholders (3,688) (4,123) (43,205) (18,740)
- - ---------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions 9,523 (22,743) (22,084) (50,115)
- - ---------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 9,523 (22,743) 37,208 73,300
- - ---------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of year 61,078 83,821 659,894 586,594
- - ---------------------------------------------------------------------------------------------------
END OF YEAR $70,601 61,078 697,102 659,894
- - ---------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME AT END OF YEAR $ -- -- 21,298 23,521
- - ---------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM MAY 1, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,
1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTMENT
GRADE BOND VALUE
PORTFOLIO PORTFOLIO
<S> <C> <C>
- - ------------------------------------------------------------------------------------------
OPERATIONS
- - ------------------------------------------------------------------------------------------
Net investment income $ 30 143
- - ------------------------------------------------------------------------------------------
Net realized gain (loss) 2 181
- - ------------------------------------------------------------------------------------------
Change in unrealized appreciation 1 1,397
- - ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 33 1,721
- - ------------------------------------------------------------------------------------------
Equalization credits 29 127
- - ------------------------------------------------------------------------------------------
Net increase from capital share transactions 1,836 19,357
- - ------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 1,898 21,205
- - ------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------
NET ASSETS
- - ------------------------------------------------------------------------------------------
Beginning of period 100 100
- - ------------------------------------------------------------------------------------------
END OF PERIOD $1,998 21,305
- - ------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME AT END OF PERIOD $ 59 270
- - ------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
18
<PAGE> 87
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HIGH YIELD GROWTH GOVERNMENT INTERNATIONAL SMALL CAP
PORTFOLIO PORTFOLIO SECURITIES PORTFOLIO PORTFOLIO GROWTH PORTFOLIO
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25,297 25,037 4,160 4,087 6,259 6,923 1,388 1,758 79 97
- - -------------------------------------------------------------------------------------------------------------------
711 (2,027) 111,045 58,852 (527) 2,908 7,804 1,344 8,533 1,186
- - -------------------------------------------------------------------------------------------------------------------
9,092 15,859 (29,470) 36,452 (3,644) 7,318 14,086 12,368 3,586 4,361
- - -------------------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- -- -- -- --
- - -------------------------------------------------------------------------------------------------------------------
35,100 38,869 85,735 99,391 2,088 17,149 23,278 15,470 12,198 5,644
- - -------------------------------------------------------------------------------------------------------------------
(2,891) 36 409 249 (1,240) (2,310) (121) (37) 138 97
- - -------------------------------------------------------------------------------------------------------------------
(24,806) (22,165) (5,021) (1,120) (6,507) (6,202) (2,012) (970) -- (76)
- - -------------------------------------------------------------------------------------------------------------------
-- -- (58,999) (24,649) -- -- (1,044) (1,941) (1,209) --
- - -------------------------------------------------------------------------------------------------------------------
(24,806) (22,165) (64,020) (25,769) (6,507) (6,202) (3,056) (2,911) (1,209) (76)
- - -------------------------------------------------------------------------------------------------------------------
24,535 21,222 50,826 18,954 (5,212) (9,234) 8,893 (751) 22,637 16,799
- - -------------------------------------------------------------------------------------------------------------------
31,938 37,962 72,950 92,825 (10,871) (597) 28,994 11,771 33,764 22,464
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
257,377 219,415 414,533 321,708 95,185 95,782 134,481 122,710 35,373 12,909
- - -------------------------------------------------------------------------------------------------------------------
289,315 257,377 487,483 414,533 84,314 95,185 163,475 134,481 69,137 35,373
- - -------------------------------------------------------------------------------------------------------------------
18,803 21,194 5,752 6,191 15,002 16,486 2,739 2,592 444 224
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP
VALUE VALUE+GROWTH HORIZON 20+ HORIZON 10+ HORIZON 5
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------------
102 28 18 50 29
- - --------------------------------------------------------------------------------
(154) 61 11 6 2
- - --------------------------------------------------------------------------------
744 638 246 319 94
- - --------------------------------------------------------------------------------
692 727 275 375 125
- - --------------------------------------------------------------------------------
70 41 21 44 25
- - --------------------------------------------------------------------------------
12,445 9,328 3,363 5,208 2,284
- - --------------------------------------------------------------------------------
13,207 10,096 3,659 5,627 2,434
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
100 100 100 100 100
- - --------------------------------------------------------------------------------
13,307 10,196 3,759 5,727 2,534
- - --------------------------------------------------------------------------------
172 69 39 94 54
- - --------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 88
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 fourteen Portfolios.
On May 1, 1996 the Equity Portfolio and Small
Capitalization Equity Portfolio changed their names
to the Growth Portfolio and Small Cap Growth
Portfolio, respectively.
- - --------------------------------------------------------------------------------
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, 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. Over-the-counter
traded fixed income options are valued based upon
prices provided by market makers. 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
20
<PAGE> 89
NOTES TO FINANCIAL STATEMENTS
last quoted by a recognized dealer. If such
quotations are not readily available, the rates of
exchange are 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 rates of exchange prevailing on the
respective dates of such transactions. The
Portfolios include that portion of the results of
operations resulting from changes in foreign
exchange rates with the net realized and unrealized
gain (loss) on investments.
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 and money market
instruments. 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, 1996, the
Government Securities Portfolio had $16,317,000 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, and additionally
at 11:00 a.m. Chicago time 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
21
<PAGE> 90
NOTES TO FINANCIAL STATEMENTS
accumulated net realized loss on sales of
investments for federal income tax purposes at
December 31, 1996 amounted to approximately
$21,430,000 in the High Yield Portfolio, $4,431,000
in the Government Securities Portfolio and $40,000
in the Small Cap Value Portfolio. These losses are
available to offset future taxable gains in the
respective Portfolios and, if not applied, expire
during the period 1998 through 2005.
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.
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. 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 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, and is paid by ZKI for its
services. Zurich Investment Management Limited, an
affiliate of ZKI, serves as sub-adviser with
respect to foreign securities investments in the
applicable portfolios, and is paid by ZKI for its
services. For the year ended December 31, 1996, the
Fund incurred management fees of $10,414,000.
Kemper Distributors, Inc., an affiliate of ZKI, is
the distributor and principal underwriter for
shares of the Fund.
ZKI agreed to absorb certain operating expenses of
the following portfolios through December 31, 1996:
Investment Grade Bond, Value, Small Cap Value,
Value+Growth, Horizon 20+, Horizon 10+ and Horizon
5
22
<PAGE> 91
NOTES TO FINANCIAL STATEMENTS
Portfolios. Under this arrangement, ZKI absorbed
expenses of $13,000 for the period ended December
31, 1996.
Certain officers or trustees of the Fund are also
officers or directors of ZKI or DVA. During the
year ended December 31, 1996, the Fund made no
direct payments to its officers and incurred
trustees' fees of $182,000 to independent trustees.
- - --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended December 31, 1996, investment
transactions (excluding short-term investments) are
as follows (in thousands):
<TABLE>
<CAPTION>
PROCEEDS
PURCHASES FROM SALES
--------- ----------
<S> <C> <C>
Total Return Portfolio $625,164 $664,125
High Yield Portfolio 331,662 294,418
Growth Portfolio 727,992 715,730
Government Securities Portfolio 321,712 316,613
International Portfolio 161,743 142,343
Small Cap Growth Portfolio 100,192 80,205
</TABLE>
For the period from May 1, 1996 to December 31,
1996, investment transactions (excluding short-term
investments) are as follows (in thousands):
<TABLE>
<CAPTION>
PROCEEDS
PURCHASES FROM SALES
--------- ----------
<S> <C> <C>
Investment Grade Bond Portfolio $ 1,731 $ 168
Value Portfolio 20,008 3,609
Small Cap Value Portfolio 13,568 2,856
Value+Growth Portfolio 10,385 1,115
Horizon 20+ Portfolio 4,107 743
Horizon 10+ Portfolio 6,714 1,442
Horizon 5 Portfolio 2,432 124
</TABLE>
- - --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following tables summarize the activity in
capital shares of each Portfolio of the Fund (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO
Shares sold 149,223 $ 149,223 122,960 $ 122,960
------------------------------------------------------------------------------
Shares issued in reinvestment
of dividends 3,704 3,704 4,191 4,191
------------------------------------------------------------------------------
152,927 152,927 127,151 127,151
------------------------------------------------------------------------------
Shares redeemed (143,404) (143,404) (149,894) (149,894)
------------------------------------------------------------------------------
Net increase (decrease) from
capital share transactions 9,523 $ 9,523 (22,743) $ (22,743)
------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 92
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------
TOTAL RETURN PORTFOLIO
Shares sold 36,913 $ 94,083 35,774 $ 81,265
------------------------------------------------------------------------------
Shares issued in reinvestment
of dividends 17,682 43,205 8,512 18,740
------------------------------------------------------------------------------
54,595 137,288 44,286 100,005
------------------------------------------------------------------------------
Shares redeemed (62,870) (159,372) (66,098) (150,120)
------------------------------------------------------------------------------
Net decrease from capital share
transactions (8,275) $ (22,084) (21,812) $ (50,115)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
Shares sold 101,227 $ 118,182 74,793 $ 84,004
------------------------------------------------------------------------------
Shares issued in reinvestment
of dividends 21,456 24,806 19,366 22,165
------------------------------------------------------------------------------
122,683 142,988 94,159 106,169
------------------------------------------------------------------------------
Shares redeemed (101,236) (118,453) (74,907) (84,947)
------------------------------------------------------------------------------
Net increase from capital share
transactions 21,447 $ 24,535 19,252 $ 21,222
------------------------------------------------------------------------------
------------------------------------------------------------------------------
GROWTH PORTFOLIO
Shares sold 33,305 $ 104,951 40,308 $ 117,495
------------------------------------------------------------------------------
Shares issued in reinvestment
of dividends 22,196 64,020 9,679 25,769
------------------------------------------------------------------------------
55,501 168,971 49,987 143,264
------------------------------------------------------------------------------
Shares redeemed (37,981) (118,145) (43,622) (124,310)
-----------------------------------------------------------------------------
Net increase from capital share
transactions 17,520 $ 50,826 6,365 $ 18,954
------------------------------------------------------------------------------
------------------------------------------------------------------------------
GOVERNMENT SECURITIES PORTFOLIO
Shares sold 11,632 $ 10,799 38,793 $ 36,895
------------------------------------------------------------------------------
Shares issued in reinvestment
of dividends 5,657 6,507 5,447 6,202
------------------------------------------------------------------------------
17,289 17,306 44,240 43,097
------------------------------------------------------------------------------
Shares redeemed (22,442) (22,518) (53,140) (52,331)
------------------------------------------------------------------------------
Net decrease from capital share
transactions (5,153) $ (5,212) (8,900) $ (9,234)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
INTERNATIONAL PORTFOLIO
Shares sold 41,003 $ 59,682 29,450 $ 37,549
------------------------------------------------------------------------------
Shares issued in reinvestment
of dividends 2,155 3,056 2,361 2,911
------------------------------------------------------------------------------
43,158 62,738 31,811 40,460
------------------------------------------------------------------------------
Shares redeemed (36,773) (53,845) (32,312) (41,211)
------------------------------------------------------------------------------
Net increase (decrease) from
capital share transactions 6,385 $ 8,893 (501) $ (751)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SMALL CAP GROWTH PORTFOLIO
Shares sold 28,558 $ 43,316 22,379 $ 26,856
------------------------------------------------------------------------------
Shares issued in reinvestment
of dividends 840 1,209 71 76
------------------------------------------------------------------------------
29,398 44,525 22,450 26,932
------------------------------------------------------------------------------
Shares redeemed (14,446) (21,888) (8,586) (10,133)
------------------------------------------------------------------------------
Net increase from capital share
transactions 14,952 $ 22,637 13,864 $ 16,799
------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 93
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MAY 1 TO
DECEMBER 31, 1996
-------------------
SHARES AMOUNT
<S> <C> <C>
----------------------------------------------------------------------------
INVESTMENT GRADE BOND PORTFOLIO
Shares sold 1,962 $ 1,970
----------------------------------------------------------------------------
Shares redeemed (133) (134)
----------------------------------------------------------------------------
Net increase from capital share transactions 1,829 $ 1,836
----------------------------------------------------------------------------
----------------------------------------------------------------------------
VALUE PORTFOLIO
Shares sold 18,543 $19,897
----------------------------------------------------------------------------
Shares redeemed (489) (540)
----------------------------------------------------------------------------
Net increase from capital share transactions 18,054 $19,357
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SMALL CAP VALUE PORTFOLIO
Shares sold 13,865 $13,311
----------------------------------------------------------------------------
Shares redeemed (901) (866)
----------------------------------------------------------------------------
Net increase from capital share transactions 12,964 $12,445
----------------------------------------------------------------------------
----------------------------------------------------------------------------
VALUE+GROWTH PORTFOLIO
Shares sold 9,367 $ 9,935
----------------------------------------------------------------------------
Shares redeemed (571) (607)
----------------------------------------------------------------------------
Net increase from capital share transactions 8,796 $ 9,328
----------------------------------------------------------------------------
----------------------------------------------------------------------------
HORIZON 20+ PORTFOLIO
Shares sold 3,249 $ 3,460
----------------------------------------------------------------------------
Shares redeemed (91) (97)
----------------------------------------------------------------------------
Net increase from capital share transactions 3,158 $ 3,363
----------------------------------------------------------------------------
----------------------------------------------------------------------------
HORIZON 10+ PORTFOLIO
Shares sold 5,200 $ 5,375
----------------------------------------------------------------------------
Shares redeemed (158) (167)
----------------------------------------------------------------------------
Net increase from capital share transactions 5,042 $ 5,208
----------------------------------------------------------------------------
----------------------------------------------------------------------------
HORIZON 5 PORTFOLIO
Shares sold 2,326 $ 2,399
----------------------------------------------------------------------------
Shares redeemed (113) (115)
----------------------------------------------------------------------------
Net increase from capital share transactions 2,213 $ 2,284
----------------------------------------------------------------------------
</TABLE>
25
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
6 FINANCIAL FUTURES
CONTRACTS The Government Securities Portfolio has entered
into exchange traded financial futures contracts in
order to help protect itself from anticipated
market conditions and, as such, bears the risk that
arises from entering into 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
Portfolio and the broker as the market value of the
futures contract fluctuates. At December 31, 1996,
the market value of assets pledged by the Portfolio
to cover margin requirements for open futures
positions was $825,000. In addition, the Portfolio
had sufficient assets segregated at the custodian
to cover its obligation under the following futures
contracts expiring in March, 1997.
<TABLE>
<CAPTION>
FACE GAIN (LOSS) AT
TYPE AMOUNT POSITION 12/31/96
---------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury
Securities $3,646,000 Long $(45,000)
---------------------------------------------------------------------
U.S. Treasury
Securities 7,422,000 Short 57,000
---------------------------------------------------------------------
Total $ 12,000
---------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
7 FORWARD FOREIGN
CURRENCY CONTRACTS In order to protect itself against a decline in the
value of a particular foreign currency against the
U.S. Dollar, the International Portfolio has
entered into a forward contract 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 this
contract 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, 1996, the Portfolio had
the following forward foreign currency contract
outstanding with a settlement date in January,
1997:
<TABLE>
<CAPTION>
CONTRACT UNREALIZED
FOREIGN CURRENCY AMOUNT IN GAIN AT
TO BE DELIVERED U.S. DOLLARS 12/31/96
------------------------------------------------------------------
<S> <C> <C>
906,400,000 Japanese Yen $8,092,000 $239,000
------------------------------------------------------------------
</TABLE>
26
<PAGE> 95
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------
MONEY MARKET PORTFOLIO
----------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- - ------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 1.00 1.00 1.00 1.00 1.00
- - ------------------------------------------------------------------------------------------
Net investment income and dividends
declared .05 .06 .04 .03 .03
- - ------------------------------------------------------------------------------------------
Net asset value, end of year $ 1.00 1.00 1.00 1.00 1.00
- - ------------------------------------------------------------------------------------------
TOTAL RETURN 5.03% 5.66 3.96 2.83 3.43
- - ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- - ------------------------------------------------------------------------------------------
Expenses .60% .55 .53 .56 .57
- - ------------------------------------------------------------------------------------------
Net investment income 4.90% 5.52 3.95 2.79 3.38
- - ------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- - ------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $70,601 61,078 83,821 68,177 75,270
- - ------------------------------------------------------------------------------------------
</TABLE>
NOTES 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.
<TABLE>
<CAPTION>
--------------------------------------------------
TOTAL RETURN PORTFOLIO
--------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- - -----------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 2.579 2.112 2.586 2.473 2.658
- - -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .084 .084 .069 .069 .061
- - -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .322 .453 (.313) .214 (.026)
- - -----------------------------------------------------------------------------------------------
Total from investment operations .406 .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 year $ 2.815 2.579 2.112 2.586 2.473
- - -----------------------------------------------------------------------------------------------
TOTAL RETURN 16.76% 25.97 (9.50) 12.13 1.69
- - -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- - -----------------------------------------------------------------------------------------------
Expenses .59% .60 .61 .59 .60
- - -----------------------------------------------------------------------------------------------
Net investment income 3.21% 3.52 3.13 3.19 3.41
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- - -----------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $697,102 659,894 586,594 643,830 528,007
- - -----------------------------------------------------------------------------------------------
Portfolio turnover rate 90% 118 128 191 160
- - -----------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended December 31,
1996 was $.0574.
- - -----------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 96
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------------------
HIGH YIELD PORTFOLIO
---------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- - ----------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 1.259 1.185 1.338 1.209 1.144
- - ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .120 .125 .116 .120 .125
- - ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .042 .069 (.149) .109 .070
- - ----------------------------------------------------------------------------------------------------
Total from investment operations .162 .194 (.033) .229 .195
- - ----------------------------------------------------------------------------------------------------
Less distribution from net investment income .140 .120 .120 .100 .130
- - ----------------------------------------------------------------------------------------------------
Net asset value, end of year $ 1.281 1.259 1.185 1.338 1.209
- - ----------------------------------------------------------------------------------------------------
TOTAL RETURN 14.06% 17.40 (2.25) 20.00 17.76
- - ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- - ----------------------------------------------------------------------------------------------------
Expenses .65% .65 .65 .63 .64
- - ----------------------------------------------------------------------------------------------------
Net investment income 9.70% 10.27 9.49 9.54 10.44
- - ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- - ----------------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $289,315 257,377 219,415 233,964 162,158
- - ----------------------------------------------------------------------------------------------------
Portfolio turnover rate 98% 90 98 84 57
- - ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------
GROWTH PORTFOLIO
--------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
- - ----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 3.262 2.665 2.935 2.631 2.642
- - ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .030 .034 .018 .004 .007
- - ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .589 .793 (.138) .370 .082
- - ----------------------------------------------------------------------------------------------------
Total from investment operations .619 .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 year $ 3.371 3.262 2.665 2.935 2.631
- - ----------------------------------------------------------------------------------------------------
TOTAL RETURN 21.63% 32.97 (4.02) 14.63 3.57
- - ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- - ----------------------------------------------------------------------------------------------------
Expenses .64% .64 .66 .64 .64
- - ----------------------------------------------------------------------------------------------------
Net investment income .94% 1.15 .69 .30 .65
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- - ----------------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $487,483 414,533 321,708 284,461 203,624
- - ----------------------------------------------------------------------------------------------------
Portfolio turnover rate 175% 88 106 78 78
- - ----------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended December 31, 1996
was $.0558.
- - ----------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 97
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------
GOVERNMENT SECURITIES PORTFOLIO
-----------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- - -------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 1.269 1.142 1.267 1.277 1.287
- - -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .085 .084 .067 .060 .064
- - -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.057) .123 (.102) .020 .006
- - -------------------------------------------------------------------------------------------
Total from investment operations .028 .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 year $ 1.207 1.269 1.142 1.267 1.277
- - -------------------------------------------------------------------------------------------
TOTAL RETURN 2.56% 18.98 (2.74) 6.48 5.90
- - -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- - -------------------------------------------------------------------------------------------
Expenses .66% .65 .63 .60 .61
- - -------------------------------------------------------------------------------------------
Net investment income 7.09% 7.08 5.69 5.05 6.08
- - -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- - -------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $84,314 95,185 95,782 121,912 98,814
- - -------------------------------------------------------------------------------------------
Portfolio turnover rate 325% 275 606 534 492
- - -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------
INTERNATIONAL PORTFOLIO
-------------------------------------------------
JANUARY 6
TO
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 .011 .018 .009 .010 .010
- - -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .212 .139 (.056) .313 (.017)
- - -----------------------------------------------------------------------------------------------
Total from investment operations .223 .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 $ 1.564 1.371 1.244 1.306 .993
- - -----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 16.49% 12.83 (3.59) 32.83 (.72)
- - -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- - -----------------------------------------------------------------------------------------------
Expenses .96% .92 .93 .92 1.11
- - -----------------------------------------------------------------------------------------------
Net investment income .89% 1.39 .74 .86 1.01
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- - -----------------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $163,475 134,481 122,710 88,880 19,447
- - -----------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 87% 126 107 116 129
- - -----------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended December 31,
1996 was $.0183. 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.
- - -----------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 98
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------
SMALL CAP GROWTH PORTFOLIO
-----------------------------------
YEAR ENDED
DECEMBER 31, MAY 2 TO
1996 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 .002 .005 .008
- - -------------------------------------------------------------------------------
Net realized and unrealized gain .369 .307 .031
- - -------------------------------------------------------------------------------
Total from investment operations .371 .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 $1.677 1.346 1.039
- - -------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 28.04% 30.07 3.95
- - -------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- - -------------------------------------------------------------------------------
Expenses .75% .87 1.25
- - -------------------------------------------------------------------------------
Net investment income .15% .42 .91
- - -------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- - -------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $69,137 35,373 12,909
- - -------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 156% 81 58
- - -------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended
December 31, 1996 was $.0570.
- - -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT
GRADE SMALL VALUE+ HORIZON HORIZON HORIZON
BOND VALUE CAP VALUE GROWTH 20+ 10+ 5
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
FOR THE PERIOD MAY 1 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
- - ---------------------------------------------------------------------------------------------------------------------------------
<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 .031 .015 .013 .008 .012 .018 .023
- - ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .005 .159 .006 .138 .142 .096 .073
- - ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .036 .174 .019 .146 .154 .114 .096
- - ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.036 1.174 1.019 1.146 1.154 1.114 1.096
- - ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 3.57% 17.36 1.86 14.60 15.37 11.37 9.59
- - ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED):
- - ---------------------------------------------------------------------------------------------------------------------------------
Expenses .87% .90 .90 .90 .81 .78 .83
- - ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.93% 2.42 2.25 .97 1.71 2.69 3.60
- - ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED):
- - ---------------------------------------------------------------------------------------------------------------------------------
Expenses .87% .92 .92 1.01 1.13 1.01 1.01
- - ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.93% 2.40 2.23 .86 1.39 2.46 3.42
- - ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- - ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $1,998 21,305 13,307 10,196 3,759 5,727 2,534
- - ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 75% 57 61 25 60 76 13
- - ---------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid per
share
on stock transactions -- $.0500 .0500 .0596 .0458 .0455 .0490
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 99
PORTFOLIO OF INVESTMENTS
KEMPER INVESTORS FUND MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------
CORPORATE OBLIGATIONS VALUE
- - ----------------------------------------------------------
<S> <C>
- - ----------------------------------------------------------
BANKING--2.8%
- - ----------------------------------------------------------
Credit Lyonnais N.A. Inc.
5.49%, 1/22/97 $ 1,994
- - ----------------------------------------------------------
BUSINESS LOANS--22.6%
- - ----------------------------------------------------------
Astro Capital Corp.
5.48%, 2/3/97 1,990
BTM Capital Corporation
5.45%, 1/21/97 1,994
Banner Receivables Corporation
5.50%, 2/20/97 1,985
Broadway Capital Corp.
5.41%, 1/15/97 1,996
Gotham Capital Corporation
5.50%, 1/9/97 1,997
(a) Heller Financial, Inc.
5.36%, 1/2/97 2,000
Ranger Funding Corporation
5.43%, 1/28/97 1,992
Strategic Asset Funding Corp.
5.48%, 1/31/97 1,991
--------------------------------------------------
15,945
- - ----------------------------------------------------------
CAPITAL AND EQUIPMENT LENDING--8.5%
- - ----------------------------------------------------------
IBM Credit Corp.
5.26%, 2/28/97 1,999
Mitsubishi Motors Credit of America,
Inc.
5.49%, 1/13/97 1,996
SRD Finance Inc.
5.45%, 1/9/97 1,998
--------------------------------------------------
5,993
- - ----------------------------------------------------------
CAPTIVE BUSINESS LENDING--12.7%
- - ----------------------------------------------------------
CSW Credit, Inc.
5.41%, 1/29/97 1,992
Enterprise Funding Corp.
5.50%, 1/28/97 1,992
(a) FINOVA Capital Corporation
5.68%, 1/15/97 2,000
Orix America, Inc.
5.70%, 3/17/97 2,965
--------------------------------------------------
8,949
- - ----------------------------------------------------------
CONSUMER PRODUCTS AND SERVICES--2.8%
- - ----------------------------------------------------------
Coca-Cola Enterprises Inc.
5.40%, 1/14/97 1,996
- - ----------------------------------------------------------
DIVERSIFIED FINANCE--11.3%
- - ----------------------------------------------------------
APEX Funding Corp.
5.49%, 1/31/97 $ 1,991
Dynamic Funding Corporation
5.51%, 1/8/97 1,998
STRAIT Capital Corporation
5.45%, 1/21/97 1,994
Sigma Finance, Inc.
5.48%, 3/27/97 1,974
--------------------------------------------------
7,957
- - ----------------------------------------------------------
FINANCIAL SERVICES--16.9%
- - ----------------------------------------------------------
(a) Bear Stearns Companies Inc.
5.66%, 1/21/97 2,000
(a) Goldman Sachs Group, L.P.
5.93%, 1/27/97 2,000
(a)(b) Lehman Brothers Holdings Inc.
5.81%, 1/15/97 2,000
(a) Merrill Lynch & Co., Inc.
5.58%, 1/21/97 2,000
Nomura Holding America Inc.
5.61%, 4/29/97 1,964
Salomon Inc.
6.42%, 4/21/97 1,962
--------------------------------------------------
11,926
- - ----------------------------------------------------------
UTILITIES--12.0%
- - ----------------------------------------------------------
GTE Corporation
5.54%, 1/24/97 1,993
Gulf Coast Waste Authority, Texas
5.42%, 1/27/97 2,000
NYNEX Corporation
5.50%, 3/28/97 1,974
New Hampshire
Industrial Development Authority
5.45%, 2/18/97 2,500
--------------------------------------------------
8,467
--------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--89.6%
(AVERAGE MATURITY: 35 DAYS) 63,227
--------------------------------------------------
</TABLE>
31
<PAGE> 100
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BANK OBLIGATIONS VALUE
- - -------------------------------------------------------------
<S> <C>
CERTIFICATES OF DEPOSIT
U.S. BANKS--8.5%
- - -------------------------------------------------------------
(a)AmSouth Bank of Alabama
5.46%, 1/7/97 $ 1,999
(a)Bankers Trust Company
5.40%, 1/1/97 1,999
(a)Old Kent Bank
3.75%, 1/1/97 2,000
-----------------------------------------------------
5,998
-----------------------------------------------------
<CAPTION>
BANK OBLIGATIONS VALUE
- - -------------------------------------------------------------
<S> <C>
CERTIFICATES OF DEPOSIT
FOREIGN BANK--2.8%
- - -------------------------------------------------------------
Sumitomo Bank, Ltd.
5.53%, 2/28/97 $ 2,000
-----------------------------------------------------
TOTAL BANK OBLIGATIONS--11.3%
(AVERAGE MATURITY: 16 DAYS) 7,998
-----------------------------------------------------
TOTAL INVESTMENTS--100.9%
(AVERAGE MATURITY: 33 DAYS) 71,225
-----------------------------------------------------
LIABILITIES, LESS CASH
AND OTHER ASSETS--(.9)% (624)
-----------------------------------------------------
NET ASSETS--100% $70,601
-----------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
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 December
31, 1996. The dates shown represent the demand date or next interest rate
change date.
(b) Illiquid security representing 2.8% of net assets at December 31, 1996.
See accompanying Notes to Financial Statements.
32
<PAGE> 101
\PORTFOLIO OF INVESTMENTS
KEMPER INVESTORS FUND TOTAL RETURN PORTFOLIO
Portfolio of Investments at December 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
PRINCIPAL
AMOUNT OR
NUMBER
GOVERNMENT OBLIGATIONS OF SHARES VALUE
- - ----------------------------------------------------------------
U.S. TREASURY NOTES
- - ----------------------------------------------------------------
<S> <C> <C>
7.75%, 2000 $ 6,000 $ 6,279
7.875%, 2001 7,000 7,462
7.75%, 2001 9,000 9,512
6.25%, 2003 8,500 8,492
7.25%, 2004 33,000 34,726
5.875%, 2004 4,000 3,895
6.50%, 2005 4,200 4,229
-----------------------------------------------------------
74,595
- - ----------------------------------------------------------------
U.S. TREASURY BONDS
- - ----------------------------------------------------------------
10.75%, 2005 8,400 10,777
12.00%, 2013 1,800 2,575
12.50%, 2014 13,000 19,433
-----------------------------------------------------------
32,785
- - ----------------------------------------------------------------
PROVINCE OF QUEBEC, CANADA
- - ----------------------------------------------------------------
8.625%, 2005 2,000 2,202
-----------------------------------------------------------
TOTAL GOVERNMENT OBLIGATIONS--15.7%
(COST: $108,424) 109,582
-----------------------------------------------------------
COMMON STOCKS
- - ----------------------------------------------------------------
BASIC INDUSTRIES--3.4%
- - ----------------------------------------------------------------
Air Products & Chemicals 58,500shs. 4,044
Betz Laboratories 44,900 2,627
Cementos Mexicanos, S.A. de
C.V., "B," ADR 38,700 152
Crown Cork & Seal Co. 85,000 4,622
W.R. Grace & Co. 57,000 2,950
Nucor Corp. 33,500 1,708
Praxair, Inc. 93,100 4,294
Rentokil Group PLC 21,000 158
Temple-Inland Inc. 50,000 2,706
Toray Industries 23,000 142
-----------------------------------------------------------
23,403
- - ----------------------------------------------------------------
CAPITAL GOODS--7.7%
- - ----------------------------------------------------------------
Boeing Co. 51,000 5,425
Emerson Electric Co. 58,900 5,698
Fluor Corp. 60,000 3,765
GM Hughes Electronics Corp. 85,000 4,781
General Electric Co. 116,600 11,529
B.F. Goodrich Co. 165,000 6,682
Honda Motor Co., Ltd. 6,000 171
Illinois Tool Works 57,500 4,593
Mitsubishi Heavy Industries 18,000 143
Raytheon Co. 22,500 1,083
Sundstrand Corp. 113,200 4,811
Technip S.A. 3,468 325
(a) U.S. Filter Corp. 65,000 2,064
Westinghouse Electric Corp. 130,000 2,584
-----------------------------------------------------------
53,654
<CAPTION>
NUMBER
OF SHARES VALUE
- - ----------------------------------------------------------------
CONSUMER CYCLICALS--6.9%
- - ----------------------------------------------------------------
<S> <C> <C>
Brunswick Corp. 170,000 $ 4,080
CVS Corporation 76,700 3,173
Carnival Corp. 200,000 6,600
(a)Circus Circus Enterprises 47,400 1,629
(a)Consolidated Stores Corp. 170,750 5,507
Walt Disney Company 75,000 5,222
(a)Federated Department Stores 119,000 4,061
Hilton Hotels Corp. 140,000 3,658
(a)Liberty Media Group, "A" 84,000 2,399
Marriott International 64,900 3,586
(a)Mirage Resorts, Incorporated 216,000 4,671
Randstad Holding N.V. 1,172 84
Reed International PLC 8,968 169
(a)Viacom International, "B" 90,000 3,139
-----------------------------------------------------------
47,978
- - ----------------------------------------------------------------
CONSUMER DURABLES--2.7%
- - ----------------------------------------------------------------
Goodyear Tire & Rubber Company 74,500 3,827
Leggett & Platt Incorporated 193,100 6,686
Magna International Inc., "A" 140,500 7,833
Matsushita Electric Industrial
Co., Ltd. 10,000 163
-----------------------------------------------------------
18,509
- - ----------------------------------------------------------------
CONSUMER STAPLES--3.1%
- - ----------------------------------------------------------------
Dole Food Co. 3,000 102
Gillette Co. 46,000 3,576
Newell Co. 80,000 2,520
Philip Morris Companies 59,800 6,735
Procter & Gamble Co. 79,700 8,568
Rite Aid Corp. 9,263 368
-----------------------------------------------------------
21,869
- - ----------------------------------------------------------------
ENERGY--4.4%
- - ----------------------------------------------------------------
AMOCO Corp. 53,000 4,267
Amerada Hess Corp. 75,000 4,341
British Petroleum 11,895 143
Enron Corp. 75,200 3,243
Exxon Corp. 41,600 4,077
Mobil Corp. 31,000 3,790
Union Pacific Resources Group 45,000 2,706
Union Texas Petroleum Holdings 207,500 4,643
Unocal Corp. 85,000 3,453
-----------------------------------------------------------
30,663
</TABLE>
33
<PAGE> 102
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
NUMBER
OF SHARES VALUE
- - ----------------------------------------------------------------
FINANCE--11.1%
- - ----------------------------------------------------------------
<S> <C> <C>
H. F. Ahmanson & Co. 68,000 $ 2,210
Allstate Corp. 145,000 8,392
American Express Company 70,000 3,955
Bank of Boston 61,800 3,971
Bank of Ireland 24,613 223
CITIC Pacific Ltd. 42,000 244
Chase Manhattan Corp. 28,000 2,499
Cheung Kong Holdings Ltd. 22,000 195
Corestates Financial Corp. 45,000 2,334
Dean Witter Discover 80,000 5,300
Development Bank of Singapore 13,000 176
Federal National Mortgage
Association 148,500 5,532
First Chicago NBD Corp. 62,000 3,332
First USA 132,800 4,598
Great Western Financial Corp. 50,000 1,450
ITT Hartford Group 90,000 6,075
Internationale Nederlanden
Groep N.V. 5,838 210
Jefferson-Pilot Corp. 68,600 3,884
KeyCorp 39,900 2,015
MGIC Investment Corp. 42,700 3,245
Mellon Bank Corp. 45,000 3,195
Merrill Lynch & Co. 23,800 1,940
NationsBank 32,000 3,128
PNC Bank Corp., N.A. 92,500 3,480
Signet Banking Corp. 50,000 1,537
Travelers Group 98,666 4,477
-----------------------------------------------------------
77,597
- - ----------------------------------------------------------------
HEALTH CARE--9.7%
- - ----------------------------------------------------------------
Abbott Laboratories 120,000 6,090
American Home Products 100,000 5,863
(a)Amgen, Inc. 38,000 2,066
Baxter International 84,000 3,444
(a)British Bio-Technology Group 36,500 128
(a)Fresenius Medical Care, A.G. 2,090 168
(a)HealthCare COMPARE Corp. 76,100 3,225
Johnson & Johnson 190,000 9,453
Eli Lilly & Co. 100,000 7,300
Merck & Co., Inc. 83,200 6,594
(a)Novartis, ADR 61,200 3,481
Omnicare, Inc. 76,100 2,445
Perkin-Elmer Corp. 100,000 5,887
Pharmacia & Upjohn, Inc. 70,000 2,774
Roche Holding A.G.,
with warrants expiring 1998 20 156
(a)St. Jude Medical 70,000 2,984
(a)Steris Corp. 100,900 4,389
(a)Ventritex Inc. 50,000 1,231
-----------------------------------------------------------
67,678
<CAPTION>
- - ----------------------------------------------------------------
NUMBER OF
SHARES OR
PRINCIPAL
AMOUNT VALUE
- - ----------------------------------------------------------------
TECHNOLOGY--8.7%
- - ----------------------------------------------------------------
<S> <C> <C>
Adobe Systems 44,000 $ 1,644
(a)Applied Materials, Inc. 58,000 2,084
(a)Cadence Design Systems 106,600 4,237
(a)Cisco Systems 88,000 5,599
L.M. Ericsson Telephone Co.,
"B" 8,045 249
Harris Corp. 52,000 3,568
Hewlett-Packard Co. 57,500 2,889
(a)Informix Corp. 122,000 2,486
Intel Corp. 45,000 5,892
International Business
Machines 20,000 3,020
Murata Manufacturing 5,000 165
(a)National Semiconductor Corp. 125,000 3,047
(a)Parametric Technology Corp. 43,200 2,219
Pitney Bowes Inc. 54,000 2,943
(a)Silicon Graphics Inc. 68,000 1,734
(a)Sterling Commerce 87,500 3,084
(a)Sun Microsystems 116,000 2,980
(a)Teradyne 79,000 1,926
(a)3Com Corporation 61,800 4,534
United Technologies 93,600 6,178
-----------------------------------------------------------
60,478
- - ----------------------------------------------------------------
TRANSPORTATION--1.6%
- - ----------------------------------------------------------------
Burlington Northern Sante Fe
Corporation 48,000 4,146
Canadian National Railway
Company 42,767 1,625
Ryder System Inc. 190,700 5,363
Swire Pacific Ltd., "A" 19,500 186
-----------------------------------------------------------
11,320
- - ----------------------------------------------------------------
UTILITIES--3.7%
- - ----------------------------------------------------------------
(a)Airtouch Communications 110,000 2,777
Ameritech Corp. 60,000 3,638
Cincinnati Bell 76,700 4,727
Iberdrola, S.A. 17,400 246
(a)LCI International, Inc. 90,000 1,935
SBC Communications Inc. 80,000 4,140
Salomon, Inc. convertible
preferred--Cincinnati Bell 17,000 1,024
Telefonica del Peru S.A., ADS 8,000 151
(a)WorldCom, Inc. 272,000 7,089
-----------------------------------------------------------
25,727
-----------------------------------------------------------
TOTAL COMMON STOCKS--63.0%
(COST: $360,188) 438,876
-----------------------------------------------------------
CORPORATE OBLIGATIONS
- - ----------------------------------------------------------------
BASIC INDUSTRIES--1.4%
- - ----------------------------------------------------------------
Boise Cascade Corp.
9.85%, 2002 $ 1,000 $ 1,125
9.45%, 2009 1,000 1,153
Crown Paper, 11.00%, 2005 795 749
Euramax International,
11.25%, 2006 1,000 1,035
Owens-Illinois, Inc.,
11.00%, 2003 3,990 4,439
Stone Container Corp.,
11.875%, 2016 1,000 1,070
Stone Container Finance Corp.,
11.50%, 2006 500 517
-----------------------------------------------------------
10,088
</TABLE>
34
<PAGE> 103
PORTFOLIO OF INVESTMENTS
(Dollars in thousands)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- - ----------------------------------------------------------------
CAPITAL GOODS
- - ----------------------------------------------------------------
<S> <C> <C>
Nortek, Inc., 9.875%, 2004 $ 90 $ 90
- - ----------------------------------------------------------------
CONSUMER CYCLICALS--6.6%
- - ----------------------------------------------------------------
AMF Group
(b) 12.25%, 2006 1,000 663
10.875%, 2006 500 526
American Radio System,
9.00%, 2006 1,260 1,222
Cablevision Systems Corp.,
9.25%, 2005 1,800 1,778
Cinemark USA, Inc.,
9.625%, 2008 1,360 1,384
(b)Comcast UK Cable Partners
Ltd.,
11.20%, 2007 2,880 2,059
Delco Remy International,
10.625%, 2006 1,000 1,056
Empress River Casino,
10.75%, 2002 2,000 2,170
Federated Department Stores,
10.00%, 2001 2,000 2,183
Granite Broadcasting Corp.,
9.375%, 2005 1,240 1,204
Hayes Wheels International,
Inc.,
11.00%, 2006 1,000 1,085
(b)International CableTel Inc.,
11.50%, 2006 2,600 1,768
K-III Communications Corp.,
8.50%, 2006 750 729
News American Holdings,
9.25%, 2013 2,000 2,235
(b)PanAmSat, L.P.,
11.375%, 2003 1,800 1,665
Pathmark Stores, Inc.,
9.625%, 2003 245 235
Rogers Cantel Mobile Inc.,
11.125%, 2002 1,790 1,893
Royal Caribbean Cruises Ltd.,
8.25%, 2005 2,000 2,134
Sears Roebuck Acceptance
Corp.,
6.75%, 2005 2,000 1,971
Sinclair Broadcasting Group,
Inc.,
10.00%, 2003 1,710 1,742
TCI Communications,
8.65%, 2004 1,000 1,024
<CAPTION>
- - ----------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- - ----------------------------------------------------------------
CONSUMER CYCLICALS--CONTINUED
- - ----------------------------------------------------------------
<S> <C> <C>
(b)TeleWest Communications PLC,
11.00%, 2007 $ 4,020 $ 2,794
360 Communications,
7.125%, 2003 2,000 1,975
Time Warner Entertainment Co.,
8.875%, 2012 1,000 1,086
Time Warner Inc.,
9.125%, 2013 1,000 1,095
Trump Atlantic City,
11.25%, 2006 1,800 1,784
Univision TV,
11.75%, 2001 1,500 1,579
USA Mobile Communications,
Inc.,
9.50%, 2004 1,750 1,667
(b)Videotron Holdings PLC,
11.125%, 2004 625 545
WestPoint Stevens,
9.375%, 2005 2,050 2,114
-----------------------------------------------------------
45,365
- - ----------------------------------------------------------------
CONSUMER STAPLES--.5%
- - ----------------------------------------------------------------
Nabisco Inc.,
8.00%, 2000 1,000 1,034
Rite Aid Corp.
6.70%, 2001 500 500
7.125%, 2007 1,400 1,404
7.70%, 2027 300 302
-----------------------------------------------------------
3,240
- - ----------------------------------------------------------------
ENERGY--1.6%
- - ----------------------------------------------------------------
BHP Finance USA,
7.875%, 2002 2,000 2,115
Gulf Canada Resources Limited,
9.25%, 2004 1,500 1,586
Parker & Parsley Petroleum,
8.25%, 2007 2,000 2,150
Petronas Dagangan Bhd
7.125%, 2005 1,000 1,007
7.75%, 2015 1,000 1,034
Repsol International Finance,
7.00%, 2005 1,000 1,007
USX Corporation,
9.375%, 2012 2,000 2,333
-----------------------------------------------------------
11,232
</TABLE>
35
<PAGE> 104
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- - --------------------------------------------------------------
<S> <C> <C>
FINANCE--4.9%
- - --------------------------------------------------------------
AB Spintab,
7.50%, 2049 $ 2,000 $ 2,017
ABN AMRO Bank,
8.25%, 2009 2,000 2,127
Abbey National First Capital,
8.20%, 2004 700 753
Abbey National PLC,
7.35%, 2049 1,300 1,315
Associates Corp, N.A.,
8.25%, 1999 2,000 2,101
BCH Cayman Islands Limited,
7.70%, 2006 1,000 1,029
Banco Central Hispano
Americano,
7.50%, 2005 1,000 1,016
Bangkok Bank Ltd.,
7.25%, 2005 2,000 1,961
Capital One Bank,
8.125%, 2000 2,000 2,073
Citicorp,
7.625%, 2005 1,000 1,039
Corporation Andina De
Formento,
7.10%, 2003 1,750 1,751
ERAC USA Finance,
6.95%, 2006 2,000 1,962
Equitable Life,
6.95%, 2005 2,000 1,969
GMAC Medium Term Note,
8.50%, 2000 2,000 2,129
Lehman Brothers Holdings,
7.25%, 2003 2,000 2,013
Merita Bank Ltd.,
6.50%, 2006 1,000 954
NationsBank Corp.,
7.50%, 2006 2,000 2,058
Skandinaviska Enskilda Banken,
6.625%, 2049 1,000 982
Societe Generale New York,
7.40%, 2006 2,000 2,040
SunTrust Banks, Atlanta,
7.25%, 2006 2,000 2,034
UBS Securities,
7.25%, 2006 1,000 1,021
---------------------------------------------------------
34,344
- - --------------------------------------------------------------
HEALTH CARE--1.0%
- - --------------------------------------------------------------
Columbia/HCA
Healthcare Corp.,
7.25%, 2008 $ 1,000 $ 1,015
MedPartners,
7.375%, 2006 2,000 2,009
Ornda HealthCorp.
12.25%, 2002 1,440 1,534
11.375%, 2004 380 440
Tenet Healthcare Corporation
9.625%, 2002 130 142
10.125%, 2005 1,600 1,768
---------------------------------------------------------
6,908
- - --------------------------------------------------------------
TRANSPORTATION--.8%
- - --------------------------------------------------------------
Delta Airlines
9.875%, 2008 738 837
9.75%, 2021 2,250 2,700
United Airlines,
9.56%, 2018 2,000 2,274
---------------------------------------------------------
5,811
- - --------------------------------------------------------------
UTILITIES--.4%
- - --------------------------------------------------------------
Southwestern Bell Telephone,
6.625%, 2005 1,000 986
Tenaga Nasional Berhad,
7.875%, 2004 1,750 1,844
---------------------------------------------------------
2,830
---------------------------------------------------------
TOTAL CORPORATE
OBLIGATIONS--17.2%
(COST: $117,325) 119,908
---------------------------------------------------------
MONEY MARKET INSTRUMENTS--4.2%
Yield--5.92% to 7.15%
Due--January 1997
(COST: $29,483) 29,500 29,484
---------------------------------------------------------
TOTAL INVESTMENTS--100.1%
(COST: $615,420) 697,850
---------------------------------------------------------
LIABILITIES, LESS OTHER
ASSETS--(.1)% (748)
---------------------------------------------------------
NET ASSETS--100% $697,102
---------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
NOTES TO TOTAL RETURN PORTFOLIO OF INVESTMENTS
- - --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Deferred interest obligation; currently zero coupon under the terms of the
initial offering.
Based on the cost of investments of $615,420,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $85,747,000, the
gross unrealized depreciation was $3,317,000 and the net unrealized appreciation
on investments was $82,430,000.
See accompanying Notes to Financial Statements.
36
<PAGE> 105
PORTFOLIO OF INVESTMENTS
KEMPER INVESTORS FUND HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- - ---------------------------------------------------------------
<S> <C> <C>
GOVERNMENT OBLIGATIONS
- - ---------------------------------------------------------------
U.S. Treasury Notes
8.875%, 1997 $ 1,000 $ 1,027
5.875%, 2001 8,000 7,884
Republic of Argentina,
9.25%, 2001 800 812
United Mexican States,
9.75%, 2001 800 828
----------------------------------------------------------
TOTAL GOVERNMENT
OBLIGATIONS--3.6%
(Cost: $10,631) 10,551
----------------------------------------------------------
CORPORATE OBLIGATIONS
- - ---------------------------------------------------------------
AEROSPACE--2.7%
- - ---------------------------------------------------------------
Airplanes Pass Through Trust,
10.875%, 2019 1,190 1,318
Fairchild Corporation,
12.00%, 2001 2,840 2,868
Howmet Inc.,
10.00%, 2003 270 297
K & F Industries, Inc.
11.875%, 2003 470 505
10.375%, 2004 1,510 1,589
UNC, Inc.,
11.00%, 2006 1,080 1,161
----------------------------------------------------------
7,738
- - ---------------------------------------------------------------
BROADCASTING, CABLESYSTEMS AND PUBLISHING--15.1%
- - ---------------------------------------------------------------
Adelphia Communication
Corporation
12.50%, 2002 165 169
11.875%, 2004 240 242
Affinity Group, Inc.,
11.50%, 2003 1,460 1,529
American Radio Systems,
9.00%, 2006 1,410 1,368
(a) American Telecasting
14.50%, 2004 970 461
14.50%, 2005 590 251
(a) Bell Cablemedia PLC
11.95%, 2004 3,140 2,732
11.875%, 2005 150 121
Big Flower Press, Inc.,
10.75%, 2003 1,257 1,339
CAI Wireless Systems,
12.25%, 2002 1,000 490
(a) CS Wireless,
11.375%, 2006 2,520 920
Cablevision Systems Corporation
9.25%, 2005 420 415
9.875%, 2013 730 719
10.50%, 2016 1,220 1,254
9.875%, 2023 550 533
Century Communications Corp.,
11.875%, 2003 1,100 1,166
(a) Charter Communications,
14.00%, 2007 1,870 1,103
(a) Comcast UK Cable Partners Ltd.,
11.20%, 2007 4,630 3,310
Comcast Corporation
9.125%, 2006 690 707
9.50%, 2008 730 758
<CAPTION>
- - ---------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- - ---------------------------------------------------------------
BROADCASTING, CABLESYSTEMS AND PUBLISHING--CONTINUED
- - ---------------------------------------------------------------
<S> <C> <C>
(a) Echostar Communications,
12.875%, 2004 $ 2,095 $ 1,723
Frontiervision,
11.00%, 2006 1,020 1,030
Granite Broadcasting Corp.
10.375%, 2005 1,220 1,255
9.375%, 2005 640 622
Intermedia Capital Partners,
11.25%, 2006 1,260 1,310
(a) International Cabletel Inc.
12.75%, 2005 3,750 2,794
11.50%, 2006 450 306
Multicanal Participacoes,
12.625%, 2004 820 887
Neodata Services,
12.00%, 2003 1,610 1,695
Newsquest Capital PLC,
11.00%, 2006 1,700 1,759
(a) People's Choice TV Unit,
13.125%, 2004 2,050 861
Sinclair Broadcasting Group,
Inc.,
10.00%, 2003 1,890 1,925
Sullivan Broadcasting
10.25%, 2005 410 418
13.25%, 2006 810 891
Telewest Communications PLC
9.625%, 2006 1,350 1,384
(a) 11.00%, 2007 2,365 1,644
(a) UIH Australia Pacific, Inc.,
14.00%, 2006 2,350 1,222
Univision TV,
11.75%, 2001 370 389
(a) Videotron Holdings PLC
11.125%, 2004 745 650
11.00%, 2005 1,020 821
Young Broadcasting Inc.,
11.75%, 2004 440 484
----------------------------------------------------------
43,657
- - ---------------------------------------------------------------
BUSINESS SERVICES--2.3%
- - ---------------------------------------------------------------
Allied Waste Industries,
10.25%, 2006 600 631
Corporate Express Inc.,
9.125%, 2004 1,300 1,332
Intertek Finance,
10.25%, 2006 650 679
Monarch Marking Systems,
12.50%, 2003 1,270 1,499
Outdoor Systems, Inc.,
9.375%, 2006 1,640 1,689
Universal Outdoor Holdings,
Inc.,
9.75%, 2006 760 787
----------------------------------------------------------
6,617
</TABLE>
37
<PAGE> 106
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- - ----------------------------------------------------------------
CHEMICALS AND AGRICULTURE--4.5%
- - ----------------------------------------------------------------
<S> <C> <C>
Agriculture, Mining and
Chemicals, Inc.,
10.75%, 2003 $ 940 $ 1,001
Atlantis Group, Inc.,
11.00%, 2003 1,735 1,813
(a)Brooks Fiber,
11.875%, 2006 1,670 1,071
Hines Horticulture,
11.75%, 2005 610 656
NL Industries Inc.,
11.75%, 2003 1,710 1,813
Pioneer Americas Acquisition
Corporation,
13.375%, 2005 1,000 1,130
Polymer Group Inc.,
12.25%, 2002 897 982
Rexene Corporation,
11.75%, 2004 2,180 2,442
Terra Industries Inc.,
10.50%, 2005 840 914
UCC Investors Holdings, Inc.
10.50%, 2002 840 907
11.00%, 2003 300 321
-------------------------------------------------------------
13,050
- - ----------------------------------------------------------------
COMMUNICATIONS--9.3%
- - ----------------------------------------------------------------
(a)Call-Net Enterprises Inc.,
13.25%, 2004 1,000 822
(a)Cellular, Inc.,
11.75%, 2003 1,795 1,633
(a)Comunicacion Cellular,
13.125%, with warrants, 2003 2,200 1,628
CommNet Cellular,
11.25%, 2005 730 777
(a)ICG Holdings,
13.50%, 2005 3,000 2,130
IMPSAT Corporation,
12.125%, 2003 870 913
Intermedia Communications of
Florida, Inc.,
13.50%, with warrants, 2005 1,870 2,186
(a)Millicom International Cellular S.A.,
13.50%, 2006 2,700 1,677
Netsat Servicos,
12.75%, 2004 650 680
Nextlink Communications,
12.50%, 2006 850 917
Paging Network, Inc.
10.125%, 2007 1,200 1,230
10.00%, 2008 300 306
(a)PanAmSat, L.P.,
11.375%, 2003 3,615 3,344
Rogers Cantel
11.125%, 2002 2,570 2,718
9.375%, 2008 520 546
9.75%, 2016 440 465
(a)Shared Technologies,
12.25%, 2006 810 674
USA Mobile Communications, Inc. II
14.00%, 2004 1,220 1,379
9.50%, 2004 530 505
Vanguard Cellular Systems,
9.375%, 2006 1,380 1,390
Western Wireless
10.50%, 2006 290 304
10.50%, 2007 500 523
-------------------------------------------------------------
26,747
<CAPTION>
- - ----------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- - ----------------------------------------------------------------
CONSTRUCTION MATERIALS--3.5%
- - ----------------------------------------------------------------
<S> <C> <C>
American Standard Inc.
(a) 10.50%, 2005 $ 1,110 $ 1,032
9.25%, 2016 1,300 1,352
(a)Building Materials Corporation
of America,
11.75%, 2004 3,895 3,379
Nortek,
9.875%, 2004 2,170 2,175
Triangle Pacific Corporation,
10.50%, 2003 2,185 2,332
-------------------------------------------------------------
10,270
- - ----------------------------------------------------------------
CONSUMER PRODUCTS AND SERVICES--7.1%
- - ----------------------------------------------------------------
AMF Group
(a) 12.25%, 2006 2,940 1,948
10.875%, 2006 2,440 2,565
Avondale Mills,
10.25%, 2006 1,620 1,677
Cinemark USA, Inc.,
9.625%, 2008 1,140 1,160
Coinmach Corporation,
11.75%, 2005 2,630 2,847
(a)Dr. Pepper Bottling Holdings, Inc.,
11.625%, 2003 1,330 1,257
Herff Jones, Inc.,
11.00%, 2005 500 535
Pillowtex Corp.,
10.00%, 2006 550 572
Premier Parks Inc.,
12.00%, 2003 1,460 1,602
(a)Six Flags Theme Park,
12.25%, 2005 3,250 3,088
Van De Kamps, Inc.,
12.00%, 2005 600 665
West Point Stevens, Inc.,
9.375%, 2005 2,550 2,630
-------------------------------------------------------------
20,546
- - ----------------------------------------------------------------
DRUGS AND HEALTH CARE--3.4%
- - ----------------------------------------------------------------
Dade International Inc.,
11.125%, 2006 930 1,014
Genesis Health Venture,
9.25%, 2006 780 803
Magellan Health Services,
11.25%, 2004 1,890 2,107
Ornda Healthcorporation,
11.375%, 2004 1,840 2,132
Scholastic Brands,
11.00%, 2007 760 775
Tenet Healthcare,
10.125%, 2005 1,560 1,724
Unison Healthcare,
12.25%, 2006 1,170 1,199
-------------------------------------------------------------
9,754
</TABLE>
38
<PAGE> 107
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- - ----------------------------------------------------------------
ENERGY AND RELATED SERVICES--6.5%
- - ----------------------------------------------------------------
<S> <C> <C>
Benton Oil & Gas Co.,
11.625%, 2003 $ 1,215 $ 1,340
Chesapeake Energy Corporation,
10.50%, 2002 1,265 1,379
Clark USA, Inc.,
10.875%, 2005 890 917
Coda Energy,
10.50%, 2006 1,460 1,548
Empire Gas Corporation,
7.00%, with warrants, 2004 900 772
Ferrellgas Partners, L.P.,
9.375%, 2006 1,000 1,035
Flores & Rucks Inc.
13.50%, 2004 1,310 1,569
9.75%, 2006 80 84
Forcenergy Gas Exploration,
9.50%, 2006 530 554
Gulf Canada Resources Limited
9.25%, 2004 1,690 1,787
9.625%, 2005 930 1,002
Mesa Operating Co.,
10.625%, 2006 1,180 1,288
Parker Drilling Corp.,
9.75%, 2006 550 580
Plains Resources,
10.25%, 2006 950 1,016
Santa Fe Energy Resources Inc.,
11.00%, 2004 1,040 1,149
United Meridian Corp.,
10.375%, 2005 870 953
Vintage Petroleum,
9.00%, 2005 1,810 1,851
-------------------------------------------------------------
18,824
<CAPTION>
- - ----------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- - ----------------------------------------------------------------
FINANCIAL SERVICES, HOME BUILDERS AND REAL ESTATE--3.8%
- - ----------------------------------------------------------------
<S> <C> <C>
Continental Homes Holding,
10.00%, 2006 $ 1,116 $ 1,158
Forecast Group L.P.,
11.375%, 2000 765 708
Fortress Group,
13.75%, 2003 660 702
Hovnanian Kent,
11.25%, 2002 1,858 1,891
Kaufman & Broad Home Corp.,
9.625%, 2006 1,180 1,184
J.M. Peters Company,
12.75%, 2002 1,300 1,248
Presley Companies,
12.50%, 2001 1,545 1,483
Ryland Group,
10.50%, 2006 1,470 1,536
Toll Brothers Inc.,
8.75%, 2006 1,100 1,107
-------------------------------------------------------------
11,017
- - ----------------------------------------------------------------
HOTELS AND GAMING--4.3%
- - ----------------------------------------------------------------
Eldorado Resorts,
10.50%, 2006 1,840 1,950
Empress River Casino,
10.75%, 2002 2,170 2,354
Harrahs Entertainment
8.75%, 2000 500 509
10.875%, 2002 80 85
Harvey's Casino Resorts,
10.625%, 2006 380 407
MGM Grand Hotel Finance
Corporation,
12.00%, 2002 1,175 1,262
Players International,
10.875%, 2005 1,380 1,366
Station Casinos Inc.,
10.125%, 2006 1,550 1,554
Trump Atlantic City,
11.25%, 2006 3,000 2,974
-------------------------------------------------------------
12,461
</TABLE>
39
<PAGE> 108
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- - ----------------------------------------------------------------
MANUFACTURING, METALS AND MINING--14.0%
- - ----------------------------------------------------------------
<S> <C> <C>
Aftermarket Technology,
12.00%, 2004 $ 1,380 $ 1,547
Alvey Systems,
11.375%, 2003 1,050 1,102
Bar Technologies,
13.50%, with warrants, 2001 750 816
Collins & Aikman Corporation,
11.50%, 2006 2,130 2,322
Crain Industries, Inc.,
13.50%, 2005 990 1,120
Day International Group, Inc.,
11.125%, 2005 1,680 1,777
Delco Remy International,
10.625%, 2006 1,580 1,669
Essex Group Incorporated,
10.00%, 2003 1,290 1,329
Euramax International PLC,
11.25%, 2006 1,580 1,635
Fairfield Manufacturing
Company,
11.375%, 2001 780 815
(a)Foamex-JPS Automotive L.P.,
14.00%, with warrants, 2004 940 804
Foamex L.P.,
11.25%, 2002 1,970 2,098
GS Technologies
12.00%, 2004 380 396
12.25%, 2005 620 654
Great Dane Holdings Company,
12.75%, 2001 995 1,000
Gulf States Steel,
13.50%, with warrants, 2003 1,660 1,569
Hayes Wheels International, Inc.,
11.00%, 2006 2,020 2,192
IMO Industries,
11.75%, 2006 810 753
JPS Automotive Products Corp.,
11.125%, 2001 1,670 1,787
Jordan Industries,
10.375%, 2003 1,560 1,544
Knoll Inc.,
10.875%, 2006 870 961
Motors and Gears, Inc.,
10.75%, 2006 1,200 1,236
Newflo Corporation,
13.25%, 2002 1,050 1,160
Penda Industries, Inc.,
10.75%, 2004 550 540
Renco Metals,
11.50%, 2003 660 693
Spinnaker Industries,
10.75%, 2006 510 533
Terex Corporation Unit,
13.25%, 2002 1,030 1,128
Thermadyne Industries, Inc.
10.25%, 2002 1,320 1,386
10.75%, 2003 1,576 1,655
UCAR Global,
12.00%, 2005 1,550 1,788
WCI Steel Inc.,
10.00%, 2004 1,500 1,523
Weirton Steel Corp.,
11.375%, 2004 1,000 1,013
-------------------------------------------------------------
40,545
<CAPTION>
- - ----------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- - ----------------------------------------------------------------
PAPER, FOREST PRODUCTS AND CONTAINERS--8.9%
- - ----------------------------------------------------------------
<S> <C> <C>
BPC Holding Corp.,
12.50%, 2006 $ 750 $ 795
Berry Plastics Corporation,
12.25%, 2004 1,140 1,254
Container Corporation of
America,
11.25%, 2004 585 629
Crown Paper,
11.00%, 2005 1,315 1,239
Florida Coast Paper Company,
12.75%, 2003 390 425
Four M Corporation,
12.00%, 2006 560 588
Gaylord Container Corporation,
12.75%, 2005 1,730 1,912
Maxxam Group, Inc.
(a) 12.25%, 2003 440 372
12.00%, 2003 520 533
11.25%, 2003 1,653 1,711
National Fiberstock
Corporation,
11.625%, 2002 760 807
Owens-Illinois, Inc.
11.00%, 2003 670 745
9.95%, 2004 1,125 1,192
9.75%, 2004 2,230 2,341
Plastic Container,
10.00%, 2006 270 278
Printpack, Inc.
9.875%, 2004 340 352
10.625%, 2006 1,170 1,217
Riverwood International
10.25%, 2006 1,350 1,330
10.875%, 2008 2,070 1,925
Speciality Paperboard,
9.375%, 2006 1,155 1,181
Stone Container Corporation
11.50%, 2006 2,180 2,256
11.875%, 2016 1,740 1,862
U.S. Can Corp.,
10.125%, 2006 880 926
-------------------------------------------------------------
25,870
- - ----------------------------------------------------------------
RETAILING--3.5%
- - ----------------------------------------------------------------
Ameriking,
10.75%, 2006 330 340
Brunos,
10.50%, 2005 2,450 2,597
Cole National Group,
9.875%, 2006 1,110 1,143
(b)Color Tile, Inc.,
10.75%, 2001 1,470 59
Dominick's Finer Foods,
10.875%, 2005 400 443
Finlay Fine Jewelry
Corporation,
10.625%, 2003 2,020 2,131
Guitar Center Management,
11.00%, 2006 520 551
Pamida Holdings,
11.75%, 2003 1,500 1,290
Pathmark Stores, Inc.
12.625%, 2002 1,040 1,082
9.625%, 2003 590 564
-------------------------------------------------------------
10,200
</TABLE>
40
<PAGE> 109
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------
PRICIPAL
AMOUNT OR
NUMBER
OF SHARES Value
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--.6%
Communication and Power
Industry, Inc.,
12.00%, 2005 $ 585 $ 657
Computervision Corporation,
11.375%, 1999 1,080 1,131
-----------------------------------------------------
1,788
- - -------------------------------------------------------------------------------------
TRANSPORTATION--.2%
(a) Transtar Holdings, L.P.,
13.375%, 2003 631 498
-----------------------------------------------------
TOTAL CORPORATE
OBLIGATIONS--89.7%
(COST: $250,207) 259,582
-----------------------------------------------------
- - -------------------------------------------------------------------------------------
(B) COMMON AND PREFERRED STOCKS
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beatrice Foods 31,584shs. 565
Benedek Unit
preferred 5,000 493
warrants 5,000 18
Capital Pacific Holdings 3,634 4
Computervision Corporation 130,160 1,204
Echostar Communications 14,987 330
Gaylord Container Corporation 122,950 753
Grand Union Company 54,520 273
Intelcom Group, Inc., warrants 4,851 59
Rite Aid Corporation 6,150 244
Sullivan Broadcasting 12,960 130
Waxman Industries, Inc.,
warrants 52,274 150
-----------------------------------------------------
TOTAL COMMON AND PREFERRED
STOCKS--1.5%
(COST: $4,705) 4,223
-----------------------------------------------------
- - -------------------------------------------------------------------------------------
<CAPTION>
- - -------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET
INSTRUMENTS--3.5%
Yield--6.26% to 6.51%
Due--January 1997
(COST: $9,985) $ 10,000 $ 9,985
-----------------------------------------------------
TOTAL INVESTMENTS--98.3%
(COST: $275,528) 284,341
-----------------------------------------------------
CASH AND OTHER ASSETS, LESS
LIABILITIES--1.7% 4,974
-----------------------------------------------------
NET ASSETS--100% $289,315
-----------------------------------------------------
- - -------------------------------------------------------------------------------------
</TABLE>
NOTES TO HIGH YIELD PORTFOLIO OF INVESTMENTS
(a) Deferred interest obligation; currently zero coupon under terms of the
initial offering.
(b) 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.
Based on the cost of investments of $275,528,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $15,482,000, the
gross unrealized depreciation was $6,669,000 and the net unrealized appreciation
on investments was $8,813,000.
See accompanying Notes to Financial Statements.
41
<PAGE> 110
PORTFOLIO OF INVESTMENTS
KEMPER INVESTORS FUND GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--4.2%
Cementos Mexicanos, S.A.
de C.V. "B," ADR 131,800 $ 517
W.R. Grace & Co. 154,400 7,990
Pall Corp. 250,000 6,375
Praxair, Inc. 100,000 4,613
Toray Industries 76,000 468
(a)Tubos de Acero de Mexico,
S.A., ADR 18,500 294
-----------------------------------------------------
20,257
- - --------------------------------------------------------------------------------
CAPITAL GOODS--10.1%
Boeing Co. 25,200 2,681
Fluor Corp. 71,900 4,512
GM Hughes Electronics Corp. 100,000 5,625
B.F. Goodrich Co. 240,000 9,720
Honda Motor Co., Ltd. 19,000 542
Mitsubishi Heavy Industries 61,000 484
Rentokil Group PLC 75,000 565
Technip S.A. 4,634 434
(a)U.S. Filter Corp. 230,000 7,302
(a)United Waste Systems 44,000 1,512
Westinghouse Electric Corp. 500,000 9,938
York International Corp. 106,000 5,923
-----------------------------------------------------
49,238
- - --------------------------------------------------------------------------------
CONSUMER CYCLICALS--24.6%
(a)Autozone 385,000 10,587
Brunswick Corp. 350,000 8,400
Carnival Corp. 150,000 4,950
(a)Consolidated Stores Corp. 343,750 11,086
(a)Cox Communications 450,000 10,406
(a)Federated Department Stores 218,900 7,470
Heilig-Meyers 350,000 5,687
Home Depot 176,500 8,847
(a)Liberty Media Group, "A" 276,100 7,886
(a)Lone Star Steakhouse &
Saloon 300,000 8,025
(a)MGM Grand 140,000 4,883
Manpower, Inc. 150,000 4,875
(a)Mirage Resorts, Incorporated 200,000 4,325
Randstad Holding N.V. 3,725 269
Reed International PLC 31,114 586
(a)Tele-Communications, Inc. 693,000 9,052
(a)Tommy Hilfiger Corporation 155,000 7,440
Wendy's International 250,000 5,125
------------------------------------------------------
119,899
- - --------------------------------------------------------------------------------
CONSUMER DURABLES--1.2%
Goodyear Tire and Rubber
Company 100,000 5,137
Matsushita Electric Industrial
Co., Ltd. 30,000 488
-----------------------------------------------------
5,625
- - --------------------------------------------------------------------------------
CONSUMER STAPLES--3.8%
Dole Food Co. 300,000 10,163
Newell Co. 100,000 3,150
Philip Morris Companies 32,900 3,705
Procter & Gamble Co. 14,200 1,527
-----------------------------------------------------
18,545
- - --------------------------------------------------------------------------------
<CAPTION>
- - --------------------------------------------------------------------------------
COMMON STOCKS
- - --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
<S> <C> <C> <C>
ENERGY--2.8%
Baker Hughes, Inc. 150,000 $ 5,175
British Petroleum 42,270 506
Halliburton Co. 130,000 7,833
-----------------------------------------------------
13,514
- - --------------------------------------------------------------------------------
FINANCE--1.8%
Bank of Ireland 73,759 668
CITIC Pacific Ltd. 90,000 522
Cheung Kong Holdings Ltd. 51,000 453
Development Bank of Singapore 35,000 473
Federal National Mortgage
Association 75,000 2,794
Internationale Nederlanden
Groep N.V. 19,497 701
Charles Schwab Corporation 100,000 3,200
-----------------------------------------------------
8,811
- - --------------------------------------------------------------------------------
HEALTH CARE--19.6%
(a)ALZA Corp. 220,700 5,711
(a)Amgen, Inc. 90,000 4,894
(a)Biogen 180,000 6,975
(a)British Bio-Technology Group 118,000 414
Columbia/HCA Healthcare Corp. 70,000 2,853
(a)Fresenius Medical Care, AG 6,640 534
Guidant Corporation 210,000 11,970
(a)HealthCare COMPARE Corp. 100,000 4,237
(a)IDEXX Laboratories 170,000 6,120
Johnson & Johnson 191,000 9,502
Eli Lilly & Co. 65,000 4,745
(a)Nellcor Puritan Bennett
Incorporated 270,000 5,906
Omnicare Inc. 163,000 5,236
Perkin-Elmer Corp. 165,000 9,714
Roche Holding A.G.,
with warrants expiring 1998 67 522
(a)St. Jude Medical 48,000 2,046
United Healthcare Corp. 225,000 10,125
(a)Ventritex Inc. 170,000 4,186
-----------------------------------------------------
95,690
- - --------------------------------------------------------------------------------
TECHNOLOGY--13.1%
Alco Standard Corporation 80,000 4,130
(a)Cadence Design Systems 270,000 10,733
(a)Ceridian Corporation 184,000 7,452
(a)Cisco Systems 75,000 4,772
(a)Compaq Computer Corp. 35,000 2,599
(a)Electronic Arts 285,000 8,532
L.M. Ericsson Telephone Co.,
"B" 16,329 505
Intel Corp. 37,800 4,949
Linear Technology Corp. 37,500 1,645
Murata Manufacturing 15,000 498
(a)Sterling Commerce 325,000 11,456
(a)Sun Microsystems 185,000 4,752
(a)TCI Satellite 69,300 684
Texas Instruments 19,700 1,256
-----------------------------------------------------
63,963
- - --------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 111
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
NUMBER OF
SHARES VALUE
- - ----------------------------------------------------------------
TRANSPORTATION--1.9%
- - ----------------------------------------------------------------
<S> <C> <C>
Burlington Northern
Sante Fe Corporation 40,000 $ 3,455
Canadian National
Railway Company 53,372 2,028
Ryder System Inc. 21,000 591
Southwest Airlines Co. 130,600 2,890
Swire Pacific Ltd., "A" 44,000 420
-----------------------------------------------------------
9,384
- - ----------------------------------------------------------------
UTILITIES--5.9%
- - ----------------------------------------------------------------
(a)AirTouch Communications 224,000 5,656
Iberdrola, S.A 45,000 637
(a)LCI International, Inc. 400,000 8,600
Frontier Corporation 100,000 2,263
(a)Paging Network, Inc. 260,000 3,965
Telefonica del Peru S.A., ADS 27,500 519
(a)WorldCom, Inc. 275,000 7,167
-----------------------------------------------------------
28,807
-----------------------------------------------------------
TOTAL COMMON STOCKS--89.0%
(Cost: $400,767) 433,733
-----------------------------------------------------------
<CAPTION>
- - ----------------------------------------------------------------
NUMBER OF
SHARES VALUE
- - ----------------------------------------------------------------
<S> <C> <C>
MONEY MARKET INSTRUMENTS
Yield--5.46% to 7.15%
Due--January and February 1997
Baxter International $10,000 $ 9,986
Countrywide Home Loans 10,000 9,976
Houston Lighting 10,000 9,997
Whirlpool Financial Corporation 10,000 9,985
Other 18,500 18,461
-----------------------------------------------------------
TOTAL MONEY MARKET
INSTRUMENTS--12.0%
(COST: $58,405) 58,405
-----------------------------------------------------------
TOTAL INVESTMENTS--101.0%
(COST: $459,172) 492,138
-----------------------------------------------------------
LIABILITIES, LESS CASH AND
OTHER ASSETS--(1.0)% (4,655)
-----------------------------------------------------------
NET ASSETS--100% $487,483
-----------------------------------------------------------
</TABLE>
- - ------------------------------------------------------------------------------
NOTES TO GROWTH PORTFOLIO OF INVESTMENTS
- - ------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $459,172,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $46,877,000, the
gross unrealized depreciation was $13,911,000 and the net unrealized
appreciation on investments was $32,966,000.
See accompanying Notes to Financial Statements.
43
<PAGE> 112
PORTFOLIO OF INVESTMENTS
KEMPER INVESTORS FUND GOVERNMENT SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
COUPON PRINCIPAL
GOVERNMENT OBLIGATIONS TYPE RATE MATURITY AMOUNT VALUE
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GOVERNMENT NATIONAL Pass-through Certificates 7.00% 2022-2024 $14,750 $ 14,467
MORTGAGE 7.125 2022 2,991 3,057
ASSOCIATION - 58.6% 7.50 2022-2027 10,851 10,877
(Cost: $48,395) 8.00 2016-2026 11,101 11,390
8.50 2016-2027 4,365 4,527
9.00 2016-2027 3,270 3,449
9.50 2013-2022 682 740
10.00 2016 821 904
--------------------------------------------------------------------------
49,411
- - ----------------------------------------------------------------------------------------------------------------
U.S. TREASURY Notes 8.875 1998 5,000 5,261
SECURITIES - 17.5% 8.75 2000 5,000 5,418
(Cost: $15,114) 7.00 2006 1,600 1,663
Bonds 11.875 2003 870 1,135
9.125 2009 484 558
9.125 2018 555 703
--------------------------------------------------------------------------
14,738
- - ----------------------------------------------------------------------------------------------------------------
FEDERAL HOME Pass-through Certificates 7.00 2023-2024 9,782 9,626
LOAN MORTGAGE
CORPORATION - 11.4%
(Cost: $9,155)
- - ----------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL Pass-through Certificates 6.50 2025 508 486
MORTGAGE 7.00 2027 3,000 2,935
ASSOCIATION - 10.8% 7.50 2025-2027 4,757 4,752
(Cost: $9,064) 8.00 2024-2025 904 921
--------------------------------------------------------------------------
9,094
- - ----------------------------------------------------------------------------------------------------------------
CANADIAN PROVINCIAL Province of Ontario 7.625 2004 500 526
OBLIGATIONS - 1.3% Province of Quebec 8.625 2005 500 551
(Cost: $1,094)
--------------------------------------------------------------------------
1,077
--------------------------------------------------------------------------
TOTAL GOVERNMENT OBLIGATIONS--99.6%
(Cost: $82,822) 83,946
--------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
(A) CORPORATE American Express Master Trust 7.60 2002 2,500 2,603
OBLIGATIONS - 16.2% BHP Finance USA 7.875 2002 500 529
Banco Central Hispano 7.50 2005 500 508
Chase Credit Company 5.55 2003 2,500 2,425
Equitable Life 6.95 2005 500 492
Green Tree Financial Corp. 7.00 2026 2,500 2,529
Nabisco Inc. 6.70 2002 500 497
NationsBank Corp. 9.50 2004 500 574
Olympic Automobile Receivable 7.00 2004 2,500 2,545
Sears Roebuck Acceptance Corp. 6.75 2005 500 493
Southwestern Bell Telephone 6.625 2005 500 493
--------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--16.2%
(Cost: $13,790) 13,688
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 113
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE Dated December, 1996. Collateralized by Federal Home Loan Mortgage
AGREEMENT- 4.7% Association and Federal National Mortgage Association securities which are
(Cost: $4,000) monitored daily to ensure their market value exceeds the carrying value of
the repurchase agreement.
Merrill Lynch Government Securities,
Inc.
(held at The Chase Manhattan Bank, N.A., subcustodian)
7.00%, 1/2/97 $ 4,000 $ 4,000
--------------------------------------------------------------------------
TOTAL INVESTMENTS--120.5%
(Cost: $100,612) 101,634
--------------------------------------------------------------------------
LIABILITIES, LESS OTHER ASSETS--(20.5)% (17,320)
--------------------------------------------------------------------------
NET ASSETS--100% $ 84,314
--------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
NOTES TO GOVERNMENT SECURITIES PORTFOLIO OF INVESTMENTS
- - --------------------------------------------------------------------------------
(a) The portfolio may invest up to 35% of total assets in fixed income
securities other than U.S. Government Securities.
Based on the cost of investments of $100,612,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $1,791,000, the
gross unrealized depreciation was $769,000, and the net unrealized appreciation
on investments was $1,022,000.
See accompanying Notes to Financial Statements.
45
<PAGE> 114
PORTFOLIO OF INVESTMENTS
KEMPER INVESTORS FUND INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- - -------------------------------------------------------------------------------------------------------
EUROPE
<S> <C> <C>
- - -------------------------------------------------------------------------------------------------------
NETHERLANDS--13.6%
- - -------------------------------------------------------------------------------------------------------
ABN AMRO Bank 42,103 $ 2,736
BANKING
Aalberts Industries N.V. 61,445 1,510
CAPITAL GOODS AND COMPONENTS
Aegon N.V. 49,929 3,178
INSURANCE COMPANY
GTI Holding 6,540 826
ENGINEERING SERVICES
Goudsmit N.V. 20,310 1,808
TEMPORARY EMPLOYMENT AGENCY
Gucci Group N.V. 20,300 1,361
LUXURY GOODS MANUFACTURER
Internationale Nederlanden
Groep N.V. 101,228 3,640
BANKING AND INSURANCE
Koninklijke Ahold N.V. 47,889 2,990
FOOD RETAILER
Randstad Holding N.V. 9,750 703
BUSINESS SERVICES
Royal Dutch Petroleum 9,065 1,587
PETROLEUM PRODUCER
Wolters Kluwer 15,000 1,990
PUBLISHER
-----------------------------------------------------
22,329
- - -------------------------------------------------------------------------------------------------------
UNITED KINGDOM--13.4%
- - -------------------------------------------------------------------------------------------------------
BBA Group PLC 277,214 1,679
DIVERSIFIED ENGINEERING
COMPANY
Barclays PLC 96,000 1,642
BANKING
(a)British Bio-Technology Group 450,000 1,579
PHARMACEUTICAL COMPANY
British Petroleum 171,530 2,056
PETROLEUM PRODUCER
Dixons Group PLC 216,306 2,014
ELECTRONICS RETAILER
Glaxo Wellcome 185,000 3,006
PHARMACEUTICAL COMPANY
Granada Group PLC 200,000 2,955
ENTERTAINMENT AND
COMMUNICATIONS COMPANY
Laura Ashley Holdings PLC 332,000 963
RETAILER
Next PLC 110,000 1,071
RETAILER
Pearson PLC 43,600 560
MEDIA AND ENTERTAINMENT
COMPANY
Reed International PLC 136,000 2,564
PUBLISHER
Rentokil Group PLC 240,000 1,809
SERVICES COMPANY
-----------------------------------------------------
21,898
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
<S> <C> <C>
- - -------------------------------------------------------------------------------------------------------
SWITZERLAND--6.4%
- - -------------------------------------------------------------------------------------------------------
Alusuisee-Lonza Holding 2,000 $ 1,559
ALUMINUM, CHEMICALS AND
PACKAGING MANUFACTURER
(a)Novartis 4,160 4,749
PHARMACEUTICAL COMPANY
Roche Holding A.G., with
warrants expiring 1998 525 4,089
PHARMACEUTICAL COMPANY
-----------------------------------------------------
10,397
- - -------------------------------------------------------------------------------------------------------
SPAIN--5.6%
- - -------------------------------------------------------------------------------------------------------
Banco Bilbao Vizcaya 49,600 2,673
BANKING
Empresa Nacional de
Electricidad S.A. 20,000 1,421
ELECTRIC UTILITY
Iberdrola, S.A. 250,000 3,536
ELECTRIC UTILITY
PRYCA Centros, S.A. 70,000 1,480
FOOD RETAILER
-----------------------------------------------------
9,110
- - -------------------------------------------------------------------------------------------------------
IRELAND--5.1%
- - -------------------------------------------------------------------------------------------------------
Bank of Ireland 278,473 2,521
BANKING
Greencore Group PLC 258,797 1,643
FOOD PRODUCER
Independent Newspapers PLC 443,201 2,250
PUBLISHER
Kerry Group PLC 70,280 717
FOOD PROCESSING
Waterford Wedgewood PLC 977,315 1,257
FINE CHINA AND CRYSTAL
MANUFACTURER
-----------------------------------------------------
8,388
- - -------------------------------------------------------------------------------------------------------
FRANCE--5.1%
- - -------------------------------------------------------------------------------------------------------
Carrefour S.A. 4,500 2,922
FOOD RETAILER
Christian Dior S.A. 2,500 403
LUXURY GOODS MANUFACTURER
Clarins 7,230 1,058
COSMETIC PRODUCTS
Elf Aquitaine 22,000 1,999
OIL AND GAS PRODUCER
Grand Optical Photoservice 2,500 404
PHOTO DEVELOPING AND
PRESCRIPTION OPTICAL
MANUFACTURING
Rhone Poulenc Rorer 200 16
CHEMICAL AND PHARMACEUTICAL
COMPANY
Technip S.A. 16,400 1,536
ENGINEERING COMPANY
-----------------------------------------------------
8,338
- - -------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 115
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
<S> <C> <C>
- - ----------------------------------------------------------------------------
GERMANY--4.7%
- - ----------------------------------------------------------------------------
Bayer A.G. 46,000 $ 1,875
CHEMICAL COMPANY
Fresenius A.G. 17,000 1,367
PHARMACEUTICAL COMPANY
Mannesmann A.G. 4,100 1,775
CAPITAL GOODS PRODUCER
SGL CARBON A.G. 7,000 881
CHEMICAL COMPANY
Veba, A.G. 32,000 1,848
ELECTRIC UTILITY
-----------------------------------------------------
7,746
- - ----------------------------------------------------------------------------
ITALY--1.8%
- - ----------------------------------------------------------------------------
Bulgari SpA 55,000 1,114
LUXURY GOODS MANUFACTURER
Telecom Italia Mobile 700,000 1,766
MOBILE TELECOMMUNICATIONS
PROVIDER
-----------------------------------------------------
2,880
- - ----------------------------------------------------------------------------
SWEDEN--1.4%
- - ----------------------------------------------------------------------------
L.M. Ericsson Telephone Co.,
"B" 30,000 927
TELECOMMUNICATIONS EQUIPMENT
MANUFACTURER
Getinge Industrier AB 24,750 488
MEDICAL SUPPLY COMPANY
Hoganas AB 24,200 847
ENGINEERING COMPANY
-----------------------------------------------------
2,262
- - ----------------------------------------------------------------------------
BELGIUM--.7%
- - ----------------------------------------------------------------------------
Generale de Banque 3,200 1,146
BANKING
- - ----------------------------------------------------------------------------
DENMARK--.5%
- - ----------------------------------------------------------------------------
Copenhagen Airports 7,800 793
AIRPORT OPERATOR
- - ----------------------------------------------------------------------------
NORWAY--.4%
- - ----------------------------------------------------------------------------
Schibsted A/S 40,450 744
PUBLISHER
- - ----------------------------------------------------------------------------
FINLAND--.4%
- - ----------------------------------------------------------------------------
(a)Tietotehdas Oy 7,690 636
INFORMATION TECHNOLOGY
-----------------------------------------------------
TOTAL EUROPEAN
COUNTRIES--59.1% 96,667
-----------------------------------------------------
<CAPTION>
- - ----------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
<S> <C> <C>
- - ----------------------------------------------------------------------------
PACIFIC REGION
- - ----------------------------------------------------------------------------
JAPAN--21.6%
- - ----------------------------------------------------------------------------
Bank of Tokyo-Mitsubishi Ltd. 88,000 $ 1,630
BANKING
Canon Inc. 110,000 2,426
PRECISION INSTRUMENTS
MANUFACTURER
Circle K Japan 27,000 1,163
CONVENIENCE RETAILER
Daifuku Co., Ltd 66,000 830
DIVERSIFIED MACHINERY
MANUFACTURER
Eisai Co., Ltd. 110,000 2,161
PHARMACEUTICAL COMPANY
Honda Motor Co., Ltd. 82,000 2,338
AUTOMOBILE MANUFACTURER
Ishikawajima-Harima
Heavy Industries 465,000 2,063
HEAVY MACHINERY MANUFACTURER
Mabuchi Motor Co., Ltd. 27,300 1,371
ENGINE MANUFACTURER
Matsushita Electric
Industrial Co., Ltd. 165,000 2,687
ELECTRONICS MANUFACTURER
Mitsubishi Heavy Industries 177,000 1,403
INDUSTRIAL EQUIPMENT
MANUFACTURER
Mitsui & Co. Ltd. 225,000 1,822
CONGLOMERATE
Miura Co., Ltd. 43,000 545
BOILER MAKER
Murata Manufacturing 63,000 2,090
ELECTRONIC COMPONENTS
MANUFACTURER
Olympus Optical Co., Ltd. 150,000 1,422
CAMERA AND OPTICAL EQUIPMENT
MANUFACTURER
Ricoh Company, Ltd. 160,000 1,833
OFFICE AUTOMATION EQUIPMENT
MANUFACTURER
Seven Eleven Japan Co., Ltd. 23,000 1,344
CONVENIENCE RETAILER
Sumitomo Metal Industries 610,000 1,498
STEEL MANUFACTURER
Tokyo Style 88,000 1,228
WOMEN'S APPAREL MANUFACTURER
Toray Industries 385,000 2,372
TEXTILE MANUFACTURER
Toyota Motor Corp. 77,000 2,209
AUTOMOBILE MANUFACTURER
Tsubakimoto Chain Co. 175,000 935
CHAIN AND CONVEYOR
MANUFACTURER
-----------------------------------------------------
35,370
- - ----------------------------------------------------------------------------
</TABLE>
47
<PAGE> 116
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------
NUMBER OF
SHARES VALUE
- - -----------------------------------------------------------
HONG KONG--4.5%
- - -----------------------------------------------------------
<S> <C> <C>
CITIC Pacific Ltd. 210,000 $ 1,219
CONGLOMERATE
Cheung Kong Holdings Ltd. 138,000 1,227
REAL ESTATE
HSBC Holdings PLC 46,535 996
BANKING
Henderson Land
Development Co., Ltd. 100,000 1,008
PROPERTY DEVELOPER
Hysan Development Co., Ltd. 235,000 936
PROPERTY DEVELOPER
Regal Hotels International
Holdings 3,000,000 1,047
HOTEL OPERATOR
Swire Pacific Ltd., "A" 103,000 982
CONGLOMERATE
-----------------------------------------------------
7,415
- - ----------------------------------------------------------
MALAYSIA--2.7%
- - -----------------------------------------------------------
DCB Holdings Bhd 260,000 891
BANKING
Edaran Otomobil
Nasional Berhad 33,000 330
AUTOMOBILE DISTRIBUTOR
Hume Industries Bhd 125,000 787
CONSTRUCTION MATERIAL
MANUFACTURER
Kedah Cement Berhad 156,000 309
CEMENT MANUFACTURER
Magnum Corporation Berhad 375,000 727
ENTERTAINMENT AND GAMING
Sungei Way Holdings Berhad 190,000 564
BUILDING MATERIALS COMPANY
U M W Holdings Bhd 153,000 715
EQUIPMENT MANUFACTURER
-----------------------------------------------------
4,323
- - ----------------------------------------------------------
SINGAPORE--.8%
- - ----------------------------------------------------------
Development Bank of Singapore 61,000 824
BANKING
Fraser & Neave Ltd. 41,000 422
BEER AND SOFT DRINK
MANUFACTURER
-----------------------------------------------------
1,246
-----------------------------------------------------
TOTAL PACIFIC REGION--29.6% 48,354
-----------------------------------------------------
COMMONWEALTH COUNTRIES
- - ----------------------------------------------------------
CANADA--5.0%
- - ----------------------------------------------------------
Canadian National
Railway Company 84,000 3,192
RAILWAY COMPANY
Petro-Canada 232,700 2,531
OIL AND GAS COMPANY
(a)Philip Environmental 166,500 2,414
WASTE COLLECTION AND
RECYCLING COMPANY
-----------------------------------------------------
8,137
<CAPTION>
NUMBER OF
SHARES VALUE
- - ----------------------------------------------------------
AUSTRALIA--1.2%
- - ----------------------------------------------------------
<S> <C> <C>
Aristocrat 152,105 $ 395
ENTERTAINMENT
Tabcorp Holdings Ltd. 338,400 1,613
ENTERTAINMENT AND GAMING
-----------------------------------------------------
2,008
- - ----------------------------------------------------------
NEW ZEALAND--.7%
- - ----------------------------------------------------------
Tranz Rail Holdings Ltd. 63,100 1,116
TRANSPORTATION
-----------------------------------------------------
TOTAL COMMONWEALTH COUNTRIES--6.9%
11,261
-----------------------------------------------------
LATIN AMERICA
- - ----------------------------------------------------------
MEXICO--3.3%
- - ----------------------------------------------------------
Cementos Mexicanos, S.A. de
C.V., "B," ADR 415,100 1,628
CEMENT PRODUCER
Fomento Economico Mexicano de
C.V., "B," ADR 287,000 976
BEER AND SOFT DRINK
MANUFACTURER
Grupo Carso, S.A. de C.V., ADR 164,000 865
INDUSTRIAL CONGLOMERATE
Grupo Televisa, S.A., GDR 29,000 743
MEDIA AND BROADCASTING
COMPANY
(a)Tubos de Acero de
Mexico, S.A., ADR 70,500 1,119
STEEL MANUFACTURER
-----------------------------------------------------
5,331
- - ----------------------------------------------------------
PERU--.4%
- - ----------------------------------------------------------
Telefonica del Peru S.A., ADS 38,700 730
TELECOMMUNICATION SERVICES
- - ----------------------------------------------------------
BRAZIL--.1%
- - ----------------------------------------------------------
(a)Iochpe-Maxion 3,505,000 202
AUTO PARTS AND MACHINERY
MANUFACTURER
-----------------------------------------------------
TOTAL LATIN AMERICAN COUNTRIES--3.8%
6,263
-----------------------------------------------------
TOTAL COMMON STOCKS--99.4%
(COST: $132,888) 162,545
-----------------------------------------------------
CASH AND OTHER ASSETS,
LESS LIABILITIES--.6% 930
-----------------------------------------------------
NET ASSETS--100% $163,475
-----------------------------------------------------
</TABLE>
48
<PAGE> 117
PORTFOLIO OF INVESTMENTS
At December 31, 1996, the International Portfolio had the following industry
diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
--------------------------------------------------------------------------------------
<S> <C> <C>
Finance $ 29,774 18.2
--------------------------------------------------------------------------------------
Consumer Cyclicals 29,028 17.8
--------------------------------------------------------------------------------------
Capital Goods 20,855 12.8
--------------------------------------------------------------------------------------
Health Care 17,859 10.9
--------------------------------------------------------------------------------------
Basic Industries 16,568 10.1
--------------------------------------------------------------------------------------
Technology 13,392 8.2
--------------------------------------------------------------------------------------
Consumer Staples 12,494 7.6
--------------------------------------------------------------------------------------
Utilities 9,301 5.7
--------------------------------------------------------------------------------------
Energy 8,173 5.0
--------------------------------------------------------------------------------------
Transportation 5,101 3.1
--------------------------------------------------------------------------------------
Total Common Stocks 162,545 99.4
--------------------------------------------------------------------------------------
Other Net Assets 930 0.6
--------------------------------------------------------------------------------------
Net Assets $163,475 100.0
--------------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
NOTES TO INTERNATIONAL PORTFOLIO OF INVESTMENTS
- - --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $132,888,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $32,877,000, the
gross unrealized depreciation was $3,220,000 and the net unrealized appreciation
on investments was $29,657,000.
See accompanying Notes to Financial Statements.
49
<PAGE> 118
PORTFOLIO OF INVESTMENTS
KEMPER INVESTORS FUND SMALL CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--6.7%
- - --------------------------------------------------------------------------------------------
(a)Culligan Water Technologies 19,000 $ 770
(a)Fort Howard Corp. 62,500 1,730
Gentex Corp. 26,000 523
NuCo2, Inc. 17,000 226
Philip Environmental 65,000 943
Steel Dynamics, Inc. 23,900 457
-----------------------------------------------------
4,649
- - --------------------------------------------------------------------------------------------
CAPITAL GOODS--4.2%
- - --------------------------------------------------------------------------------------------
BE Aerospace, Inc. 23,000 624
(a)KLA Instruments 28,500 1,012
Precision Castparts Corp. 15,600 774
(a)Rofin-Sinar Technologies,
Inc. 40,900 481
-----------------------------------------------------
2,891
- - --------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--12.3%
- - --------------------------------------------------------------------------------------------
Gaylord Entertainment Co. 41,000 938
(a)Getty Communications PLC 40,000 600
(a)MGM Grand 32,500 1,133
(a)MSC Industrial Direct 31,100 1,151
Meredith Corp. 20,300 1,071
Outdoor Systems, Inc. 36,000 1,013
Pier 1 Imports 23,000 405
(a)Planet Hollywood Int'l Inc. 28,000 553
Steiner Leisure 12,500 252
U.S. Franchise Systems, Inc. 45,000 456
Univision Communications,
Inc. 9,500 352
Western Teleaservices 24,000 546
-----------------------------------------------------
8,470
- - --------------------------------------------------------------------------------------------
CONSUMER DURABLES--4.2%
- - --------------------------------------------------------------------------------------------
Ethan Allen Interiors 13,800 531
SPX Corp. 35,000 1,356
(a)Triangle Pacific Corp. 42,500 1,023
-----------------------------------------------------
2,910
- - --------------------------------------------------------------------------------------------
CONSUMER STAPLES--4.2%
- - --------------------------------------------------------------------------------------------
(a)ABR Information Services 12,000 473
CKE Restaurants 16,000 576
K-III Communications
Corporation 60,000 645
Stewart Enterprises 35,250 1,199
-----------------------------------------------------
2,893
- - --------------------------------------------------------------------------------------------
ENERGY--.9%
- - --------------------------------------------------------------------------------------------
Trico Marine Services, Inc. 9,500 456
Western Gas Resources 10,000 193
-----------------------------------------------------
649
<CAPTION>
- - --------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
<S> <C> <C> <C>
- - --------------------------------------------------------------------------------------------
FINANCE--18.1%
- - --------------------------------------------------------------------------------------------
BA Merchant Services 32,000 $ 572
(a)Coast Savings Financial 25,000 916
Columbia Banking Systems 50,000 813
Commercial Federal Corp. 18,000 864
DST Systems, Inc. 40,000 1,255
Executive Risk 22,500 833
(a)Financial Federal Corporation 62,000 1,039
HCC Insurance Holdings 27,500 660
Kansas City Southern
Industries 9,200 414
Long Island Bancorp 14,000 490
Paychex 10,000 514
Quick and Reilly Group 30,500 911
Redwood Trust 8,800 328
SunGard Data Systems 11,500 454
Texas Regional Bancshares 18,300 622
Western National Corporation 18,000 347
Wilmington Trust Corp. 37,500 1,481
-----------------------------------------------------
12,513
- - --------------------------------------------------------------------------------------------
HEALTH CARE--12.4%
- - --------------------------------------------------------------------------------------------
(a)CRA Managed Care, Inc. 15,000 675
(a)Dura Pharmaceuticals 25,000 1,194
Mentor Corp. 25,000 738
(a)OccuSystems, Inc. 12,300 332
Omnicare, Inc. 43,000 1,381
Physician Sales & Service 30,000 431
(a)Henry Schein, Inc. 15,500 533
(a)Sofamor-Danek Group 21,000 641
(a)Steris Corp. 38,000 1,653
(a)Total Renal Care Holdings 27,300 990
-----------------------------------------------------
8,568
- - --------------------------------------------------------------------------------------------
TECHNOLOGY--23.7%
- - --------------------------------------------------------------------------------------------
Adobe Systems 19,000 710
(a)Altera Corp. 22,500 1,635
(a)Analog Devices 46,000 1,558
(a)Andrew Corp. 15,000 796
(a)Ciber, Inc. 15,000 450
(a)Dupont Photomasks, Inc. 14,000 635
(a)Electronic Arts 26,000 778
(a)Gartner Group 28,500 1,110
(a)Geoworks 22,500 551
(a)HNC Software 26,500 828
(a)Informix Corp. 51,200 1,043
(a)Keane, Inc. 30,800 978
(a)Kulicke & Soffa Industries 42,500 808
(a)McAfee Associates, Inc. 10,800 472
(a)Microchip Technology 21,000 1,068
(a)Parametric Technology Corp. 11,500 591
(a)Puma Technologies 35,000 604
(a)Read-Rite Corp. 26,500 669
(a)Tellabs Operations 15,000 564
(a)Wind River Systems, Inc. 11,000 521
-----------------------------------------------------
16,369
- - --------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 119
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------
NUMBER OF
SHARES OR
PRINCIPAL
AMOUNT VALUE
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION--2.4%
(a) Wisconsin Central
Transportation 41,900 $ 1,660
- - ----------------------------------------------------------------------------------------------------
UTILITIES--1.1%
(a) LCI International, Inc. 36,200 778
------------------------------------------------------------------
TOTAL COMMON STOCKS--90.2%
(COST: $54,100) 62,350
------------------------------------------------------------------
MONEY MARKET INSTRUMENTS
Yield--5.46% to 7.15%
Due--January and February 1997
Enron Corporation $ 2,500 2,500
Renaissance Energy Co. 2,500 2,486
Other 4,000 3,995
------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--13.0%
(COST: $8,982) 8,981
------------------------------------------------------------------
TOTAL INVESTMENTS--103.2%
(COST: $63,082) 71,331
------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER
ASSETS--(3.2)% (2,194)
------------------------------------------------------------------
NET ASSETS--100% $ 69,137
------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
NOTES TO SMALL CAP GROWTH PORTFOLIO OF INVESTMENTS
- - --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $63,082,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $9,430,000, the
gross unrealized depreciation was $1,181,000 and the net unrealized appreciation
on investments was $8,249,000.
See Accompanying Notes to Financial Statements.
51
<PAGE> 120
PORTFOLIO OF INVESTMENTS
KEMPER INVESTORS FUND INVESTMENT GRADE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY NOTES--5.0%
(Cost: $100) $100 $ 100
------------------------------------------------------------
CORPORATE OBLIGATIONS
AEROSPACE--2.9%
Lockheed Corp.,
7.70%, 2008 10 10
Lockheed Martin,
7.25%, 2006 50 51
------------------------------------------------------------
61
- - -------------------------------------------------------------------------------------------------------
BANKS--19.2%
- - -------------------------------------------------------------------------------------------------------
Abbey National PLC,
7.35%, 2049 50 51
BCH Cayman Islands Limited,
7.70%, 2006 20 21
Corporation Andina De Formento,
7.10%, 2003 100 100
MBNA Corp.,
8.278%, 2026 100 101
Peoples Bank Bridgeport,
7.20%, 2006 50 49
Societe Generale,
7.40%, 2006 10 10
SunTrust Banks,
7.25%, 2006 50 51
------------------------------------------------------------
383
- - -------------------------------------------------------------------------------------------------------
COMMUNICATIONS, MEDIA
AND ELECTRONICS--5.6%
- - -------------------------------------------------------------------------------------------------------
News American Holdings, Inc.,
9.25%, 2013 100 112
- - -------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS, SERVICES
AND RETAIL--14.1%
- - -------------------------------------------------------------------------------------------------------
Dimon Inc.,
8.875%, 2006 100 105
Rite Aid Corp.,
7.70%, 2027 100 101
Royal Caribbean Cruises Ltd.,
8.25%, 2005 70 75
------------------------------------------------------------
281
- - -------------------------------------------------------------------------------------------------------
DRUGS AND HEALTH CARE--2.5%
- - -------------------------------------------------------------------------------------------------------
MedPartners, Inc.,
7.375%, 2006 50 50
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
<S> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------
ENERGY--15.5%
Enersis S.A.,
7.40%, 2016 $ 50 $ 49
Freeport-McMoRan, Inc.,
7.20%, 2026 50 49
Freeport-McMoRan Resource Partners,
Ltd.,
7.00%, 2008 100 97
Gulf Canada Resources,
8.35%, 2006 50 52
ISP Holdings,
9.00%, 2003 50 51
Parker & Parsley Petroleum,
8.25%, 2007 10 11
------------------------------------------------------------
309
- - -------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--5.5%
- - -------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings,
7.25%, 2003 50 51
Mellon Corp.,
7.72%, 2026 50 49
Salomon Inc.,
7.50%, 2003 10 10
------------------------------------------------------------
110
- - -------------------------------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS--5.6%
- - -------------------------------------------------------------------------------------------------------
Domtar, Inc.,
9.50%, 2016 50 54
James River Corporation,
9.25%, 2021 50 58
------------------------------------------------------------
112
- - -------------------------------------------------------------------------------------------------------
UTILITIES--2.4%
- - -------------------------------------------------------------------------------------------------------
Tenega Nasional Berhad,
7.50%, 2096 50 48
------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--73.3%
(COST: $1,465) 1,466
------------------------------------------------------------
MONEY MARKET INSTRUMENTS--20.0%
(COST: $399)
Yield--5.37%
Due--January 1997
Federal Home Loan Mortgage
Corporation 400 399
------------------------------------------------------------
TOTAL INVESTMENTS--98.3%
(COST: $1,964) 1,965
------------------------------------------------------------
CASH AND OTHER ASSETS,
LESS LIABILITIES--1.7% 33
------------------------------------------------------------
NET ASSETS--100% $ 1,998
------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------
</TABLE>
NOTE TO INVESTMENT GRADE BOND PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $1,964,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $9,000, the gross
unrealized depreciation was $8,000 and the net unrealized appreciation on
investments was $1,000.
See accompanying Notes to Financial Statements.
52
<PAGE> 121
PORTFOLIO OF INVESTMENTS
KEMPER INVESTORS FUND VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
NUMBER
COMMON STOCKS OF SHARES VALUE
<C> <S> <C> <C>
- - ---------------------------------------------------------------------------------------------------
BANKS--11.2%
- - ---------------------------------------------------------------------------------------------------
Banc One Corporation 6,200 $ 267
Bank of New York Co. 2,400 81
BankAmerica Corp. 1,800 179
Bankers Trust New York Corp. 1,200 104
Barnett Banks 4,400 181
Crestar Financial Corp. 1,000 74
First Chicago NBD Corp. 3,500 188
First Union Corp. 2,700 200
Fleet Financial Group, Inc. 1,200 60
KeyCorp 3,300 167
NationsBank 2,200 215
Norwest Corp. 2,100 91
Signet Banking Corp. 5,600 172
PNC Bank Corp., N.A. 5,900 222
Wells Fargo & Co. 700 189
-----------------------------------------------------
2,390
- - ---------------------------------------------------------------------------------------------------
BASIC INDUSTRIES--5.1%
- - ---------------------------------------------------------------------------------------------------
Champion International
Corporation 4,500 195
Dow Chemical Co. 1,500 117
Georgia-Pacific Corp. 3,000 216
Louisiana-Pacific Corp. 14,000 296
Union Camp Corp. 5,500 263
-----------------------------------------------------
1,087
- - ---------------------------------------------------------------------------------------------------
CAPITAL GOODS--3.1%
- - ---------------------------------------------------------------------------------------------------
General Electric Co. 2,200 218
Xerox Corporation 8,500 447
-----------------------------------------------------
665
- - ---------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--6.0%
- - ---------------------------------------------------------------------------------------------------
(a)Burlington Coat Factory 4,600 60
Liz Claiborne 1,300 50
Deluxe Corporation 10,000 328
(a)Fruit of the Loom 2,300 87
J.C. Penney Co. 8,000 390
Philips N.V., ADR 7,500 300
V.F. Corp. 900 61
-----------------------------------------------------
1,276
- - ---------------------------------------------------------------------------------------------------
CONSUMER DURABLES--3.0%
- - ---------------------------------------------------------------------------------------------------
Ford Motor Co. 20,000 637
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
NUMBER
COMMON STOCKS OF SHARES VALUE
- - ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CONSUMER STAPLES--11.2%
- - ---------------------------------------------------------------------------------------------------
Chiquita Brands International 15,000 $ 191
Nestle S.A., ADR 8,000 426
Phillip Morris Companies 8,200 923
UST, Inc. 15,400 499
Unilever N.V., ADR 2,000 351
-----------------------------------------------------
2,390
- - ---------------------------------------------------------------------------------------------------
ENERGY--11.1%
- - ---------------------------------------------------------------------------------------------------
AMOCO Corp. 9,700 781
Atlantic Richfield Co. 3,000 397
Chevron Corp. 5,000 325
Columbia Gas System 5,800 369
Exxon Corp. 5,000 490
-----------------------------------------------------
2,362
- - ---------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--15.7%
- - ---------------------------------------------------------------------------------------------------
ADVANTA Corp. 7,000 286
H.F. Ahmanson & Co. 2,300 75
American General Corp. 5,100 208
American International Group,
Inc. 6,600 714
Beneficial Corp. 4,000 253
Federal Home Loan Mortgage Corp. 4,900 540
Federal National Mortgage
Association 15,600 581
General Re Corp. 2,000 316
Great Western Financial Corp. 6,200 180
Transamerica Corp. 2,500 197
-----------------------------------------------------
3,350
- - ---------------------------------------------------------------------------------------------------
HEALTH CARE--4.6%
- - ---------------------------------------------------------------------------------------------------
C.R. Bard 15,000 420
Becton Dickinson & Co. 6,000 260
Glaxo Wellcome, ADR 9,700 308
-----------------------------------------------------
988
- - ---------------------------------------------------------------------------------------------------
TECHNOLOGY--5.8%
- - ---------------------------------------------------------------------------------------------------
AMP Incorporated 11,000 422
Hewlett-Packard Co. 5,000 251
Raytheon Co. 5,500 265
Texas Instruments 4,500 287
-----------------------------------------------------
1,225
- - ---------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 122
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
NUMBER OF
SHARES OR
PRINCIPAL
AMOUNT VALUE
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTILITIES--7.6%
AT&T 8,500 $ 370
GTE Corp. 9,000 410
SBC Communications Inc. 5,000 259
Southern Company 18,000 407
U.S. West Communications Group 5,000 161
----------------------------------------------------------
1,607
----------------------------------------------------------
TOTAL COMMON STOCKS--84.4%
(COST: $16,580) 17,977
----------------------------------------------------------
- - -------------------------------------------------------------------------------------------
<CAPTION>
- - -------------------------------------------------------------------------------------------
NUMBER OF
SHARES OR
PRINCIPAL
AMOUNT VALUE
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET INSTRUMENTS
Yield--5.23% to 5.51%
Due--January 1997
Federal Home Loan Mortgage
Corporation $ 1,300 $ 1,296
Federal National Mortgage
Association 2,000 1,995
----------------------------------------------------------
TOTAL MONEY MARKET
INSTRUMENTS--15.4%
(COST: $3,291) 3,291
----------------------------------------------------------
TOTAL INVESTMENTS--99.8%
(COST: $19,871) 21,268
----------------------------------------------------------
CASH AND OTHER ASSETS,
LESS LIABILITIES--.2% 37
----------------------------------------------------------
NET ASSETS--100% $ 21,305
----------------------------------------------------------
- - -------------------------------------------------------------------------------------------
</TABLE>
NOTES TO VALUE PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
Based on the cost of investments of $19,871,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $1,500,000, the
gross unrealized depreciation was $103,000 and the net unrealized appreciation
on investments was $1,397,000.
See accompanying Notes to Financial Statements.
54
<PAGE> 123
PORTFOLIO OF INVESTMENTS
KEMPER INVESTORS FUND SMALL CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUTOS AND TRANSPORTATION--7.4%
Airborne Freight Corporation 8,900 $ 208
Fleetwood Enterprises 5,000 137
Intermet Corp. 14,500 234
Myers Industries 11,500 194
Simpson Industries 5,400 59
Walbro Corp. 8,700 159
---------------------------------------------------
991
- - --------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--9.3%
(a) AMC Entertainment 8,400 121
J. Baker, Inc. 6,400 34
Bush Industries 3,500 67
Cato Corp. 9,700 48
Del Webb Corp. 13,600 223
Fedders Corporation 18,500 116
Haggar Apparel Co. 9,600 152
Heilig-Meyers 13,200 215
Hilton Hotels Corp. 4,500 118
(a) Insurance Auto Auctions 8,100 77
(a) Sports & Recreation 8,500 66
---------------------------------------------------
1,237
- - --------------------------------------------------------------------------------------------------
CONSUMER STAPLES--.7%
(a) Performance Food Group 6,000 93
---------------------------------------------------
- - --------------------------------------------------------------------------------------------------
ENERGY--9.3%
(a) Belden & Blake Corporation 3,500 89
(a) Chieftain International Inc. 9,000 234
Enron Global Power & Pipelines
L.L.C. 5,400 146
Giant Industries 10,000 140
KCS Energy 4,500 161
(a) Nuevo Energy Co. 4,500 234
(a) Seitel, Inc. 5,900 236
---------------------------------------------------
1,240
- - --------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--18.8%
(a) Arbatax International, Inc. 3,250 21
Compass Bancshares 4,700 187
Cullen Frost Bankers 7,800 259
First Commerce Corp. 3,500 136
First Financial Caribbean
Corp. 9,400 261
First Financial Corp. 9,125 224
Guaranty National Insurance 706 12
Imperial Credit Industries 12,200 256
Integon Corp. 13,100 233
Lawyers Title Insurance Corp. 4,400 86
Liberty Bancorp 1,500 75
Long Island Bancorp 4,300 151
North Fork Bancorp 2,800 100
PHH Corporation 6,900 297
Roosevelt Financial Group 3,600 76
T.R. Financial Corporation 3,500 124
---------------------------------------------------
2,498
- - --------------------------------------------------------------------------------------------------
<CAPTION>
- - --------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEGRATED OILS--1.9%
Tesoro Petroleum Corp. 17,800 $ 249
---------------------------------------------------
- - --------------------------------------------------------------------------------------------------
MATERIALS AND PROCESSING--16.3%
AK Steel Holding Corp. 6,300 250
AMCOL International 11,100 175
Ball Corp. 5,900 153
Blount, Inc. 8,400 322
Carpenter Technology Corp. 7,200 264
Elcor Corp. 9,000 192
(a) Global Industrial
Technologies,
Inc. 11,400 252
(a) Lydall, Inc. 6,800 153
(a) Mueller Industries, Inc. 3,500 135
Quanex Corp. 6,300 172
Rexene Corp. 7,300 99
---------------------------------------------------
2,167
- - --------------------------------------------------------------------------------------------------
PRODUCER DURABLES--8.7%
(a) Asyst Technologies 4,400 75
(a) Electroglas 10,000 161
Pacific Scientific Co. 9,800 110
Scientific-Atlanta 16,800 252
Stewart & Stevenson Services 8,600 250
(a) Teltrend 4,200 117
Watts Industries, Inc. 8,200 196
---------------------------------------------------
1,161
- - --------------------------------------------------------------------------------------------------
TECHNOLOGY--9.2%
(a) Benchmark Electronics 6,900 208
(a) Burr Brown Corp. 5,800 151
(a) Diamond Multimedia Systems,
Inc. 2,700 32
(a) EXAR Corporation 7,100 110
(a) Jones Intercable Inc. 21,600 224
(a) Photronics, Inc. 2,600 71
(a) Proxima Corp. 6,400 82
(a) Read-Rite Corp. 5,100 129
(a) Tech-Sym Corporation 7,400 220
---------------------------------------------------
1,227
- - --------------------------------------------------------------------------------------------------
UTILITIES--2.8%
(a) Atlantic Tele-Network 11,500 175
United Cities Gas Co. 8,500 191
--------------------------------------------------
366
- - --------------------------------------------------------------------------------------------------
OTHER--.5%
Mercer International, Inc. 7,100 73
---------------------------------------------------
TOTAL COMMON STOCKS--84.9%
(COST: $10,558) 11,302
---------------------------------------------------
- - --------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE> 124
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- - --------------------------------------------------------------------------------
<S> <C> <C>
MONEY MARKET INSTRUMENTS
- - --------------------------------------------------------------------------------
Yield--5.32% to 5.51%
Due--January 1997
Federal Farm Credit Bank $ 250 $ 249
Federal Home Loan Mortgage
Corporation 700 699
Federal National Mortgage
Association 1,000 997
------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--14.6%
(COST: $1,945) 1,945
------------------------------------------------------------
TOTAL INVESTMENTS--99.5%
(COST: $12,503) 13,247
------------------------------------------------------------
CASH AND OTHER ASSETS,
LESS LIABILITIES--.5% 60
------------------------------------------------------------
NET ASSETS--100% $13,307
- - --------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
NOTES TO SMALL CAP VALUE PORTFOLIO OF INVESTMENTS
- - --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $12,503,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $1,114,000, the
gross unrealized depreciation was $370,000 and the net unrealized appreciation
on investments was $744,000.
See accompanying Notes to Financial Statements.
56
PORTFOLIO OF INVESTMENTS
<PAGE> 125
PORTFOLIO OF INVESTMENTS
KEMPER INVESTORS FUND VALUE+GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------
NUMBER
COMMON STOCKS OF SHARES VALUE
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--3.0%
Champion International Corp. 2,000 $ 87
(a)FMC Corp. 1,200 84
Hanson PLC, ADR 10,000 68
Louisiana-Pacific Corp. 2,800 59
(a)Millennium Chemicals Inc. 250 4
------------------------------------------------------
302
- - --------------------------------------------------------------------------------------------------
CAPITAL GOODS--5.5%
- - --------------------------------------------------------------------------------------------------
Emerson Electric Co. 800 77
General Electric Co. 1,000 99
B.F. Goodrich Co. 2,500 101
Raytheon Co. 1,500 72
(a)U.S. Filter Corp. 3,000 95
York International Corp. 2,000 112
------------------------------------------------------
556
- - --------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--22.8%
- - --------------------------------------------------------------------------------------------------
American Greetings Corp. 3,600 102
(a)AutoZone 4,200 116
Brunswick Corp. 4,300 103
Carnival Corp. 3,100 102
Circuit City Stores 2,300 69
(a)Consolidated Stores Corp. 3,375 109
Dayton Hudson Corp. 2,200 86
Deluxe Corporation 3,000 98
Dillard Department Stores 1,200 37
Walt Disney Company 1,300 91
(a)Fruit of the Loom 2,100 80
Gap 3,200 96
Heilig-Meyers 6,300 102
(a)Liberty Media Group, "A" 3,000 86
(a)Lone Star Steakhouse & Saloon 4,000 107
(a)MGM Grand 1,000 35
Mattel, Inc. 2,800 78
(a)Outback Steakhouse 3,300 88
J.C. Penney Co. 1,600 78
Philips N.V., ADR 1,700 68
TJX Companies, Inc. 1,200 57
(a)Tele-Communications, Inc. 7,100 93
(a)Toys R Us 2,400 72
UST, Inc. 3,400 110
V.F. Corp. 1,000 67
(a)Viacom International, "B" 2,500 87
Wal-Mart Stores 2,200 50
Wendy's International 3,000 61
------------------------------------------------------
2,328
- - --------------------------------------------------------------------------------------------------
CONSUMER DURABLES--4.3%
- - --------------------------------------------------------------------------------------------------
Ford Motor Co. 2,000 64
(a)Lear Corporation 1,800 61
Leggett & Platt Incorporated 3,500 121
Magna International Inc., "A" 1,800 100
Singer Company N.V. 4,100 92
------------------------------------------------------
438
- - --------------------------------------------------------------------------------------------------
CONSUMER STAPLES--2.2%
- - --------------------------------------------------------------------------------------------------
(a)Imperial Tobacco Group, ADR 875 11
Philip Morris Companies 1,300 146
Quaker Oats Co. 1,800 69
------------------------------------------------------
226
<CAPTION>
- - --------------------------------------------------------------------------------------------------
NUMBER
COMMON STOCKS OF SHARES VALUE
<S> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------
ENERGY--5.6%
- - --------------------------------------------------------------------------------------------------
AMOCO Corp. 1,500 $ 121
Amerada Hess Corp. 1,800 104
Atlantic Richfield Co. 1,000 133
Columbia Gas System 1,800 115
Union Texas Petroleum Holdings 4,500 101
------------------------------------------------------
574
- - --------------------------------------------------------------------------------------------------
FINANCE--18.1%
- - --------------------------------------------------------------------------------------------------
ADVANTA Corp. 1,700 73
American General Corp. 800 33
Banc One Corporation 1,700 73
Bank of New York Co. 2,600 88
BankAmerica Corp. 600 60
Bankers Trust New York Corp. 600 52
Barnett Banks 1,500 62
Crestar Financial Corp. 700 52
Federal Home Loan Mortgage Corp. 800 88
Federal National Mortgage
Association 3,600 134
First Chicago NBD Corp. 2,000 108
First USA 3,100 107
First Union Corp. 1,300 96
Fleet Financial Group, Inc. 1,400 70
General Re Corp. 500 79
ITT Hartford Group 1,500 101
Jefferson-Pilot Corp. 1,500 85
KeyCorp 1,000 51
MGIC Investment Corp. 1,200 91
J.P. Morgan & Company 400 39
NationsBank 1,000 98
PNC Bank Corp., N.A. 2,000 75
Signet Banking Corp. 2,400 74
Travelers Group 1,200 54
------------------------------------------------------
1,843
- - --------------------------------------------------------------------------------------------------
HEALTH CARE--11.3%
- - --------------------------------------------------------------------------------------------------
Abbott Laboratories 1,200 61
Astra A.B., ADR 2,100 103
C.R. Bard 3,000 84
(a)Forest Laboratories 2,900 95
(a)Foundation Health Corp. 3,000 95
(a)HealthCare COMPARE Corp. 1,200 51
(a)Humana, Inc. 5,000 96
Eli Lilly & Co 900 66
Mallinckrodt Group 2,200 97
Merck & Co., Inc. 1,000 79
(a)Novartis, ADR 1,800 102
(a)St. Jude Medical 1,600 68
United Healthcare Corp. 2,100 95
(a)Value Health 3,000 58
------------------------------------------------------
1,150
- - --------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE> 126
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- - ------------------------------------------------------------------------------------------------------
TECHNOLOGY--19.1%
- - ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
AMP, Incorporated 2,200 $ 84
(a)Applied Materials, Inc. 2,700 97
(a)Atmel Corporation 2,800 93
(a)Bay Networks 3,000 63
(a)Cabletron Systems 2,500 83
(a)Cisco Systems 1,600 102
(a)Compaq Computer Corp. 1,600 119
(a)DSC Communications Corp. 3,200 57
(a)EMC Corp. 3,100 103
(a)Gateway 2000 1,900 102
Hewlett-Packard Co. 1,000 50
International Business Machines 200 30
(a)Learning Company 7,500 108
Linear Technology Corp. 2,000 88
(a)Maxim Integrated Products 2,300 99
(a)Novellus Systems 1,600 87
(a)Seagate Technology 2,400 95
(a)Silicon Graphics Inc. 4,000 102
(a)3Com Corporation 1,500 110
(a)TCI Satellite 710 7
(a)U.S. Robotics 1,500 108
(a)Western Digital Corp. 1,000 57
Xerox Corporation 2,000 105
------------------------------------------------------
1,949
<CAPTION>
- - ------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
<C> <S> <C> <C>
- - ------------------------------------------------------------------------------------------------------
TRANSPORTATION--.4%
- - ------------------------------------------------------------------------------------------------------
Ryder System Inc. 1,500 $ 42
- - ------------------------------------------------------------------------------------------------------
UTILITIES--5.5%
- - ------------------------------------------------------------------------------------------------------
AT&T 2,000 87
(a)AirTouch Communications 3,500 88
Ameritech Corp. 800 49
GTE Corp. 1,500 68
(a)Paging Network, Inc. 6,000 91
SBC Communications Inc. 600 31
Southern Company 3,000 68
(a)WorldCom, Inc. 3,000 78
------------------------------------------------------
560
------------------------------------------------------
TOTAL COMMON STOCKS--97.8%
(COST: $9,330) 9,968
------------------------------------------------------
CASH AND OTHER ASSETS, LESS
LIABILITIES--2.2% 228
------------------------------------------------------
NET ASSETS--100% $10,196
------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO VALUE+GROWTH PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
Based on the cost of investments of $9,330,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $822,000, the gross
unrealized depreciation was $184,000 and the net unrealized appreciation on
investments was $638,000.
See accompanying Notes to Financial Statements.
58
<PAGE> 127
PORTFOLIO OF INVESTMENTS
KEMPER INVESTORS FUND HORIZON 20+ PORTFOLIO
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------
PRINCIPAL
AMOUNT OR
NUMBER OF
SHARES VALUE
- - -----------------------------------------------------------
<S> <C> <C>
U.S. TREASURY NOTES--18.7%
(Cost: $706)
8.00%, 1999 $ 100 $ 105
7.75%, 1999 100 105
6.00%, 1999 300 300
5.50%, 2000 200 195
---------------------------------------------------
705
- - -----------------------------------------------------------
COMMON STOCKS
- - -----------------------------------------------------------
<S> <C> <C>
BASIC INDUSTRIES--3.2%
Bayer A.G. 493shs. 20
(a) CRA Managed Care, Inc. 200 9
Cementos Mexicanos, S.A. de
C.V., "B," ADR 5,000 19
(a) FMC Corp. 300 21
(a) Global Industrial Technology,
Inc. 200 4
Hanson PLC, ADR 2,500 17
Louisiana-Pacific Corp. 600 13
Millennium Chemicals Inc. 107 2
(a) Philip Environmental 500 7
Toray Industries 1,500 9
---------------------------------------------------
121
- - -----------------------------------------------------------
CAPITAL GOODS--5.1%
Blount, Inc., "A" 100 4
Emerson Electric Co. 200 19
Foster Wheeler Corporation 700 26
General Electric Co. 400 40
Honda Motor Co., Ltd. 1,100 31
PHH Corporation 200 9
Quanex Corp. 100 3
Raytheon Co. 100 5
(a) Triangle Pacific Corp. 200 5
U.S. Filter Corp. 700 22
York International Corp. 500 28
---------------------------------------------------
192
- - -----------------------------------------------------------
CONSUMER CYCLICALS--16.6%
American Greetings Corp. 700 $ 20
(a) AutoZone 800 22
Brunswick Corp. 600 14
Carnival Corp. 600 20
Carrefour S.A. 32 21
Circuit City Stores 500 15
(a) Consolidated Stores Corp. 500 16
Dayton Hudson Corp. 500 20
Deluxe Corp. 500 16
Dillard Department Stores 600 19
Walt Disney Company 400 28
Ethan Allen Interiors 200 8
(a) Fruit of the Loom 1,000 38
Gap 800 24
Granada Group PLC 1,766 26
Heilig-Meyers 1,500 24
(a) Liberty Media Group, "A" 500 14
(a) Lone Star Steakhouse & Saloon 1,000 27
(a) MGM Grand 600 21
Mattel, Inc. 600 17
Meredith Corp. 200 11
Nutricia Verenigde Bedryven
N.V. 105 16
(a) Outback Steakhouse 500 13
Philips N.V., ADR 500 20
Randstad Holding N.V. 166 12
Reed International PLC 1,286 24
TJX Companies, Inc. 200 9
Talbots Inc. 100 3
(a) Tele-Communications, Inc. 700 9
(a) Toys R Us 800 24
UST, Inc. 1,000 32
V.F. Corp. 100 7
(a) Viacom International, "B" 400 14
Wal-Mart Stores 200 5
Wendy's International 800 16
---------------------------------------------------
625
- - -----------------------------------------------------------
CONSUMER DURABLES--2.8%
Ford Motor Co. 300 10
Leggett & Platt Incorporated 500 17
Magna International Inc., "A" 400 22
Matsushita Electric
Industries Co., Ltd. 1,850 30
Singer Company N.V. 1,200 27
---------------------------------------------------
106
- - -----------------------------------------------------------
CONSUMER STAPLES--3.5%
(a) Carriage Services, Inc. 200 4
Imperial Tobacco Group, ADR 375 5
Independent Newspapers PLC 4,860 25
(a) Insurance Auto Auctions 400 4
Koninklijke Ahold N.V. 330 21
Newell Co. 800 25
Philip Morris Companies 300 34
Quaker Oats Co. 400 15
---------------------------------------------------
133
</TABLE>
59
<PAGE> 128
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- - -----------------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY--3.6%
AMOCO Corp. 300 $ 24
Amerada Hess Corp. 200 12
Atlantic Richfield Co. 200 27
British Petroleum 1,753 21
Columbia Gas System 300 19
Giant Industries 300 4
KCS Energy 100 4
Union Texas Petroleum Holdings 1,000 22
-----------------------------------------------------
133
- - ----------------------------------------------------------------------------
FINANCE--12.8%
American General Corp. 200 8
Banc One Corporation 300 13
BankAmerica Corp. 200 20
Bank of New York Co. 500 17
Bankers Trust New York Corp. 200 17
Barnett Banks 800 33
CITIC Pacific Ltd. 4,500 26
Crestar Financial Corp. 200 15
DCB Holdings Berhad 3,000 10
Del Webb Corp. 100 2
Executive Risk 100 4
Federal Home Loan Mortgage Corp. 200 22
Federal National Mortgage
Association 800 30
(a) Financial Federal Corporation 200 3
First Chicago NBD Corp. 400 22
First USA 600 21
First Union Corp. 300 22
Fleet Financial Group, Inc. 300 15
HSBC Holding PLC, ADR 800 17
Imperial Credit Industries 200 4
Internationale Nederlanden
Groep N.V. 589 21
Kansas City Southern Industries 200 9
KeyCorp 300 15
MGIC Investment Corp. 200 15
Mercer International 300 3
J.P. Morgan & Company 200 20
NationsBank 300 29
PNC Bank Corp., N.A. 400 15
Roosevelt Financial Group 200 4
Signet Banking Corp. 400 12
Texas Regional Bankshares 100 3
Travelers Group 333 15
-----------------------------------------------------
482
- - ----------------------------------------------------------------------------
<CAPTION>
- - ----------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE--9.4%
Abbott Laboratories 200 $ 10
Astra A.B., ADR 500 25
C.R. Bard 1,000 28
(a) British Bio-Technology Group 4,310 15
(a) Forest Laboratories 500 16
(a) Foundation Health Corp. 700 22
(a) Fresenius Medical Care, ADS 272 22
(a) HealthCare COMPARE Corp. 400 17
(a) Humana, Inc. 1,200 23
Eli Lilly & Co. 100 7
Mallinckrodt Group 200 9
Merck & Co., Inc. 200 16
(a) Nellcor Puritan Bennett
Incorporated 1,000 22
(a) Novartis
ADR 600 34
common stock 21 24
(a) OccuSystems, Inc. 100 3
(a) St. Jude Medical 400 17
(a) Henry Schein, Inc. 100 3
(a) Steris Corp. 400 17
(a) Tenet Healthcare Corporation 200 4
United Healthcare Corp. 400 18
-----------------------------------------------------
352
- - ----------------------------------------------------------------------------
TECHNOLOGY--15.3%
(a) Applied Materials, Inc. 1,000 36
(a) Atmel Corporation 800 27
(a) Bay Networks 900 19
(a) Cabletron Systems 600 20
Canon, Inc. 900 20
(a) Cisco Systems 300 19
(a) Compaq Computer Corp. 500 37
(a) EMC Corp. 700 23
L.M. Ericsson Telephone Co.,
"B" 674 21
(a) Gateway 2000 500 27
(a) Informix Corp. 1,000 20
International Business Machines 100 15
(a) Learning Company 1,700 24
Linear Technology Corp. 400 18
(a) Marshall Industries 100 3
(a) Maxim Integrated Products 200 9
Murata Manufacturing 200 7
(a) Novellus Systems 400 22
(a) Quantum Corporation 700 20
(a) Seagate Technology 300 12
(a) Silicon Graphics Inc. 600 15
(a) Sterling Commerce 800 28
(a) TCI Satellite 70 1
(a) Teradyne 1,000 24
(a) 3Com Corporation 600 44
(a) U.S. Robotics 200 14
(a) Western Digital Corp. 300 17
Xerox Corporation 600 32
-----------------------------------------------------
574
- - ----------------------------------------------------------------------------
TRANSPORTATION--.9%
Canadian National Railway
Company 550 21
(a) Knight Transportation 200 4
Ryder System Inc. 300 8
-----------------------------------------------------
33
- - ----------------------------------------------------------------------------
</TABLE>
60
<PAGE> 129
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- - --------------------------------------------------------------------------
<S> <C> <C>
UTILITIES--4.4%
- - --------------------------------------------------------------------------
AT&T 200 $ 9
(a) AirTouch Communications 600 15
Ameritech Corp. 400 24
(a) Atlantic Tele-Network 100 2
Empresa Noacional de Elec-
tricidad S.A. 288 20
Iberdrola, S.A. 1,250 18
(a) Paging Network, Inc. 1,000 15
SBC Communications Inc. 300 16
Verba, A.G. 350 20
(a) WorldCom, Inc. 1,000 26
-----------------------------------------------------
165
- - --------------------------------------------------------------------------
<CAPTION>
- - --------------------------------------------------------------------------
PRINCIPAL
SHARES VALUE
- - --------------------------------------------------------------------------
<S> <C> <C>
TOTAL COMMON STOCKS--77.6%
(COST: $2,669) 2,916
-----------------------------------------------------
MONEY MARKET INSTRUMENTS--2.7%
Yield--5.27%
Due--January 1997
(COST: $100) $ 100 100
-----------------------------------------------------
TOTAL INVESTMENTS--99.0%
(COST: $3,475) 3,721
-----------------------------------------------------
CASH AND OTHER ASSETS, LESS
LIABILITIES--1.0% 38
-----------------------------------------------------
NET ASSETS--100% $3,759
- - --------------------------------------------------------------------------
</TABLE>
- - -------------------------------------------------------------------------------
NOTES TO HORIZON 20+ PORTFOLIO OF INVESTMENTS
- - -------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $3,475,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $296,000, the gross
unrealized depreciation was $50,000 and the net unrealized appreciation on
investments was $246,000.
See accompanying Notes to Financial Statements.
61
<PAGE> 130
PORTFOLIO OF INVESTMENTS
KEMPER INVESTORS FUND HORIZON 10+ PORTFOLIO
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------
PRINCIPAL
AMOUNT OR
NUMBER
OF SHARES VALUE
- - -----------------------------------------------------------
<S> <C> <C>
U.S. TREASURY NOTES--38.9%
(Cost: $2,224)
6.375%, 1999 $ 400 $ 403
6.00%, 1999 800 800
8.50%, 2000 500 534
5.50%, 2000 500 489
------------------------------------------------------
2,226
<CAPTION>
- - -----------------------------------------------------------
COMMON STOCKS
- - -----------------------------------------------------------
<S> <C> <C>
BASIC INDUSTRIES--2.1%
Bayer A.G. 771shs. 31
(a) CRA Managed Care, Inc. 200 9
Cementos Mexicanos, S.A. de C.V.,
"B," ADR 5,300 21
(a) FMC Corp. 300 21
(a) Global Industrial Technology, Inc. 100 2
Hanson PLC, ADR 1,500 10
Louisiana-Pacific Corp. 600 13
Millennium Chemicals Inc. 107 2
(a) Philip Environmental 700 10
------------------------------------------------------
119
- - -----------------------------------------------------------
CAPITAL GOODS--3.1%
B.F. Goodrich Co. 500 20
Blount, Inc., "A" 200 8
Emerson Electric Co. 300 29
General Electric Co. 500 49
Honda Motor Co., Ltd. 1,300 37
PHH Corporation 100 4
Quanex Corp. 100 3
(a) Triangle Pacific Corp. 300 7
York International Corp. 400 22
------------------------------------------------------
179
- - -----------------------------------------------------------
CONSUMER CYCLICALS--16.3%
American Greetings Corp. 800 23
(a) AutoZone 1,000 28
Brunswick Corp. 1,700 41
Carnival Corp. 700 23
Carrefour S.A. 52 34
Circuit City Stores 600 18
(a) Consolidated Stores Corp. 750 24
Dayton Hudson Corp. 400 16
Deluxe Corp. 1,000 33
Dillard Department Stores 600 18
Walt Disney Company 600 42
Ethan Allen Interiors 200 8
(a) Fruit of the Loom 800 30
Gap 1,000 30
Granada Group PLC 2,096 31
Heilig-Meyers 1,500 24
(a) Liberty Media Group, "A" 800 23
(a) Lone Star Steakhouse & Saloon 1,500 40
(a) MGM Grand 500 17
Mattel, Inc. 700 19
Meredith Corp. 200 11
Nutricia Verenigde Bedryven N.V. 208 32
(a) Outback Steakhouse 700 19
Philips N.V., ADR 600 24
Randstad Holding N.V. 275 20
Reed International PLC 7,108 134
<CAPTION>
- - -----------------------------------------------------------
PRINCIPAL
AMOUNT OR
NUMBER
OF SHARES VALUE
- - -----------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICALS--CONTINUED
TJX Companies, Inc. 300 $ 14
Talbots Inc. 200 6
(a) Tele-Communications, Inc. 1,000 13
(a) Toys R Us 800 24
UST, Inc. 1,300 42
V.F. Corp. 300 20
(a) Viacom International, "B" 600 21
Wal-Mart Stores 600 14
Wendy's International 1,000 21
------------------------------------------------------
937
- - -----------------------------------------------------------
CONSUMER DURABLES--1.7%
Ford Motor Co. 600 19
Leggett & Platt Incorporated 800 28
Matsushita Electric Industries
Co., Ltd. 1,800 29
Singer Company N.V. 900 20
------------------------------------------------------
96
- - -----------------------------------------------------------
CONSUMER STAPLES--3.2%
(a) Carriage Services, Inc. 300 7
Imperial Tobacco Group, ADR 375 5
Independent Newspapers PLC 5,960 30
(a) Insurance Auto Auctions 400 4
Koninklijke Ahold N.V. 333 21
Newell Co. 1,000 32
Philip Morris Companies 400 45
Quaker Oats Co. 1,000 38
------------------------------------------------------
182
- - -----------------------------------------------------------
ENERGY--3.5%
AMOCO Corp. 300 24
Amerada Hess Corp. 400 23
Atlantic Richfield Co. 250 33
British Petroleum 2,635 32
Columbia Gas System 500 32
Giant Industries 300 4
KCS Energy 100 4
Petro Canada 2,000 28
Union Texas Petroleum Holdings 900 20
------------------------------------------------------
200
- - -----------------------------------------------------------
FINANCE--10.6%
American General Corp. 300 12
Banc One Corporation 500 22
BankAmerica Corp. 200 20
Bank of New York Co. 1,100 37
Bankers Trust New York Corp. 400 35
Barnett Banks 600 25
CITIC Pacific Ltd. 5,500 32
Crestar Financial Corp. 200 15
Del Webb Corp. 100 2
Executive Risk 200 7
Federal Home Loan Mortgage Corp. 200 22
Federal National Mortgage
Association 1,500 56
(a) Financial Federal Corporation 400 7
First Chicago NBD Corp. 500 27
First USA 1,400 48
</TABLE>
62
<PAGE> 131
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- - -----------------------------------------------------------------------------------------
FINANCE--CONTINUED
<S> <C> <C> <C>
First Union Corp. 300 $ 22
Fleet Financial Group, Inc. 200 10
HSBC Holdings PLC, ADR 800 17
Imperial Credit Industries 400 8
Internationale Netherlanden Groep
N.V. 914 33
Kansas City Southern Industries 200 9
KeyCorp 200 10
MGIC Investment Corp. 200 15
Mercer International 300 3
J.P. Morgan & Company 100 10
NationsBank 400 39
PNC Bank Corp., N.A. 600 23
Roosevelt Financial Group 200 4
Signet Banking Corp. 600 18
Texas Regional Bankshares 100 3
Travelers Group 400 18
------------------------------------------------------------
609
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE--5.8%
Abbott Laboratories 300 15
C.R. Bard 1,100 31
(a) Forest Laboratories 500 16
(a) Foundation Health Corp. 600 19
(a) Fresenius Medical Care, ADS 310 25
(a) Humana, Inc. 900 17
Eli Lilly & Co. 100 7
Mallinckrodt Group 200 9
Merck & Co., Inc. 400 32
(a) Novartis
ADR 300 17
common stock 26 29
(a) OccuSystems, Inc. 200 5
(a) St. Jude Medical 600 26
(a) Henry Schein, Inc. 200 7
(a) Steris Corp. 800 35
(a) Tenet Healthcare Corporation 200 4
United Healthcare Corp. 800 36
------------------------------------------------------------
330
- - -----------------------------------------------------------------------------------------
<CAPTION>
NUMBER
OF SHARES VALUE
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--8.9%
(a) Applied Materials, Inc. 500 $ 18
(a) Atmel Corporation 900 30
(a) Bay Networks 300 6
(a) Cabletron Systems 800 27
Canon Inc. 400 9
(a) Cisco Systems 500 32
(a) Compaq Computer Corp. 600 45
(a) DSC Communications Corp. 1,500 27
(a) EMC Corp. 500 17
L.M. Ericsson Telephone Co., "B" 751 23
(a) Gateway 2000 400 21
International Business Machines 100 15
(a) Learning Company 2,100 29
Linear Technology Corp. 600 26
(a) Marshall Industries 200 6
(a) Maxim Integrated Products 400 17
(a) Novellus Systems 400 22
(a) Seagate Technology 300 12
(a) Silicon Graphics Inc. 500 13
(a) Sterling Commerce 1,000 35
(a) TCI Satellite 100 1
(a) 3Com Corporation 400 30
(a) U.S. Robotics 300 22
Xerox Corporation 500 26
------------------------------------------------------------
509
- - -----------------------------------------------------------------------------------------
TRANSPORTATION--.7%
Canadian National Railway Company 750 29
(a) Knight Transportation 200 4
Ryder Systems Inc. 300 8
------------------------------------------------------------
41
- - -----------------------------------------------------------------------------------------
UTILITIES--2.9%
(a) AirTouch Communications 700 18
Ameritech Corp. 400 24
(a) Atlantic Tele-Network 200 3
Empresa Noacional de Electricidad
S.A. 485 34
(a) Paging Network, Inc. 1,600 24
SBC Communications Inc. 300 16
Southern Company 500 11
(a) WorldCom, Inc. 1,500 39
------------------------------------------------------------
169
------------------------------------------------------------
TOTAL COMMON STOCKS--58.8%
(COST: $3,054) 3,371
------------------------------------------------------------
TOTAL INVESTMENTS--97.7%
(COST: $5,278) 5,597
------------------------------------------------------------
CASH AND OTHER ASSETS, LESS
LIABILITIES--2.3% 130
------------------------------------------------------------
NET ASSETS--100% $5,727
------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
</TABLE>
NOTES TO HORIZON 10+ PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
Based on the cost of investments of $5,278,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $383,000, the gross
unrealized depreciation was $64,000 and the net unrealized appreciation on
investments was $319,000.
See accompanying Notes to Financial Statements.
63
<PAGE> 132
PORTFOLIO OF INVESTMENTS
KEMPER INVESTORS FUND HORIZON 5 PORTFOLIO
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------
PRINCIPAL
AMOUNT OR
NUMBER
OF SHARES VALUE
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY NOTES--56.2%
(COST: $1,426)
8.00%, 1999 $100 $ 105
6.875%, 1999 200 204
6.375%, 1999 400 404
8.50%, 2000 300 320
5.50%, 2000 400 391
- - ---------------------------------------------------------------------------------
1,424
<CAPTION>
- - ---------------------------------------------------------------------------------
COMMON STOCKS
- - ---------------------------------------------------------------------------------
BASIC INDUSTRIES--2.2%
Bayer A.G. 246shs. 10
(a) CRA Managed Care, Inc. 100 5
Cementos Mexicanos, S.A.
de C.V., "B," ADR 3,000 12
(a) FMC Corp. 100 7
(a) Global Industrial Technology, Inc. 100 2
Hanson PLC, ADR 500 3
Louisiana-Pacific Corp. 100 2
Millennium Chemicals Inc. 100 2
(a) Philip Environmental 200 3
Toray Industries 1,500 10
---------------------------------------------------
56
- - --------------------------------------------------------------------------------
CAPITAL GOODS--2.2%
Blount, Inc., "A" 100 4
Emerson Electric Co. 100 10
General Electric Co. 100 10
Honda Motor Co., Ltd. 600 17
PHH Corporation 100 4
Quanex Corp. 100 3
(a) Triangle Pacific Corp. 100 2
York International Corp. 100 6
---------------------------------------------------
56
- - --------------------------------------------------------------------------------
CONSUMER CYCLICALS--7.5%
American Greetings Corp. 100 3
Brunswick Corp. 200 5
Carnival Corp. 200 7
Carrefour S.A. 16 10
Circuit City Stores 200 6
(a) Consolidated Stores Corp. 250 8
Dayton Hudson Corp. 100 4
Dillard Department Stores 100 3
Walt Disney Company 100 7
Ethan Allen Interiors 100 4
(a) Fruit of the Loom 200 8
Granada Group PLC 666 10
Heilig-Meyers 200 3
(a) Liberty Media Group, "A" 100 3
(a) Lone Star Steakhouse & Saloon 200 5
Mattel, Inc. 200 6
Meredith Corp. 100 5
(a) Outback Steakhouse 200 5
Philips N.V., ADR 100 4
Randstad Holding N.V. 99 7
Reed International PLC 1,286 24
TJX Companies, Inc. 100 5
Talbots Inc. 100 3
(a) Tele-Communications, Inc. 200 3
(a) Toys R Us 200 6
UST, Inc. 400 13
V.F. Corp. 100 7
<CAPTION>
- - --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- - --------------------------------------------------------------------------------
CONSUMER CYCLICALS--CONTINUED
<S> <C> <C>
(a) Viacom International, "B" 200 $ 7
Wal-Mart Stores 100 2
Wendy's International 300 6
---------------------------------------------------
189
- - --------------------------------------------------------------------------------
CONSUMER DURABLES--1.6%
Ford Motor Co. 100 3
Leggett & Platt Incorporated 200 7
Magna International Inc., "A" 100 6
Matsushita Electric Industries
Co., Ltd. 1,350 22
Singer Company N.V. 200 4
--------------------------------------------------
42
- - --------------------------------------------------------------------------------
CONSUMER STAPLES--2.0%
(a) Carriage Services, Inc. 100 2
Imperial Tobacco Group, ADR 125 2
Independent Newspapers PLC 1,285 7
(a) Insurance Auto Auctions 300 3
Koninklijke Ahold N.V. 165 10
Philip Morris Companies 200 23
Quaker Oats Co. 100 4
--------------------------------------------------
51
- - --------------------------------------------------------------------------------
ENERGY--1.8%
Amerada Hess Corp. 100 6
Atlantic Richfield Co. 100 13
British Petroleum 925 11
Columbia Gas System 100 6
Giant Industries 200 3
KCS Energy 100 4
Union Texas Petroleum Holdings 100 2
--------------------------------------------------
45
- - ---------------------------------------------------------------------------------
FINANCE--8.5%
American General Corp. 100 4
Banc One Corporation 100 4
BankAmerica Corp. 100 10
Bankers Trust New York Corp. 100 9
Barnett Banks 200 8
CITIC Pacific Ltd. 3,000 17
Crestar Financial Corp. 100 7
DCB Holdings Berhad 3,000 10
Del Webb Corp. 100 2
Executive Risk 100 4
Federal Home Loan Mortgage Corp. 100 11
Federal National Mortgage
Association 300 11
(a) Financial Federal Corporation 200 3
First Chicago NBD Corp. 200 11
First USA 200 7
First Union Corp. 100 7
(a) HSBC Holding PLC, ADR 400 9
Imperial Credit Industries 200 4
Internationale Netherlanden
Groep N.V. 441 16
Kansas City Southern Industries 100 5
KeyCorp 200 10
MGIC Investment Corp. 100 8
Mercer International 200 2
NationsBank 100 10
PNC Bank Corp., N.A. 200 8
Roosevelt Financial Group 100 2
</TABLE>
64
<PAGE> 133
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- - ----------------------------------------------------------------
FINANCE--CONTINUED
- - ----------------------------------------------------------------
<S> <C> <C>
Signet Banking Corp. 200 $ 6
Texas Regional Bankshares 100 3
Travelers Group 133 6
--------------------------------------------------------
214
- - ----------------------------------------------------------------
HEALTH CARE--3.8%
- - ----------------------------------------------------------------
Abbott Laboratories 100 5
Astra A.B., ADR 100 5
(a)British Bio-Technology Group 2,870 10
(a)Foundation Health Corp. 200 6
(a)Fresenius Medical Care, ADS 88 7
(a)Humana, Inc. 300 6
Eli Lilly & Co. 100 7
Mallinckrodt Group 100 4
Merck & Co., Inc. 100 8
(a)Novartis
ADR 100 6
common stock 9 10
(a)OccuSystems, Inc. 100 3
(a)Henry Schein, Inc. 100 3
(a)Steris Corp. 200 9
(a)Tenet Healthcare Corporation 100 2
United Healthcare Corp. 100 5
--------------------------------------------------------
96
- - ----------------------------------------------------------------
TECHNOLOGY--6.4%
- - ----------------------------------------------------------------
(a)Applied Materials, Inc. 200 7
(a)Atmel Corporation 200 7
(a)Bay Networks 200 4
Canon Inc. 700 15
(a)Cisco Systems 100 6
(a)Compaq Computer Corp. 200 15
(a)DSC Communications Corp. 300 5
(a)EMC Corp. 300 10
L.M. Ericsson Telephone Co. "B" 337 10
(a)Gateway 2000 100 5
International Business Machines 100 15
(a)Learning Company 300 4
Linear Technology Corp. 200 9
(a)Marshall Industries 100 3
(a)Maxim Integrated Products 100 4
<CAPTION>
- - ----------------------------------------------------------------
NUMBER OF
SHARES OR
PRINCIPAL
AMOUNT VALUE
- - ----------------------------------------------------------------
TECHNOLOGY--CONTINUED
- - ----------------------------------------------------------------
<S> <C> <C>
Murata Manufacturing 200 $ 7
(a)Novellus Systems 100 5
(a)Seagate Technology 200 8
(a)Silicon Graphics Inc. 200 5
(a)3Com Corporation 100 7
Xerox Corporation 200 11
--------------------------------------------------------
162
- - ----------------------------------------------------------------
TRANSPORTATION--.2%
- - ----------------------------------------------------------------
(a)Knight Transportation 100 2
Ryder Systems Inc. 150 4
--------------------------------------------------------
6
- - ----------------------------------------------------------------
UTILITIES--2.5%
- - ----------------------------------------------------------------
AT&T 100 4
(a)AirTouch Communications 200 5
Ameritech Corp 100 6
(a)Atlantic Tele-Network 100 2
Empresa Noacional de
Electricidad S.A. 158 11
Iberdrola, S.A. 850 12
(a)Paging Network, Inc. 200 3
SBC Communications Inc. 100 5
Verba, A.G. 175 10
(a)WorldCom, Inc. 200 5
--------------------------------------------------------
63
--------------------------------------------------------
TOTAL COMMON STOCKS--38.7%
(COST: $884) 980
--------------------------------------------------------
MONEY MARKET INSTRUMENTS--3.9%
Yield--5.27%
Due--January 1997
(COST: $100) $ 100 100
--------------------------------------------------------
TOTAL INVESTMENTS--98.8%
(COST: $2,410) 2,504
--------------------------------------------------------
CASH AND OTHER ASSETS, LESS
LIABILITIES--1.2% 30
--------------------------------------------------------
NET ASSETS--100% $2,534
--------------------------------------------------------
</TABLE>
- - -------------------------------------------------------------------------------
NOTES TO HORIZON 5 PORTFOLIO OF INVESTMENTS
- - -------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $2,410,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $117,000, the gross
unrealized depreciation was $23,000 and the net unrealized appreciation on
investments was $94,000.
See accompanying Notes to Financial Statements.
65
<PAGE> 134
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 (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 Portfolios -- Financial
Highlights
Blue Chip and Global Income Portfolios -- None
(ii) Financial Statements included in Part B of the Registration
Statement:
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 Portfolios
Report of Independent Auditors (February 14, 1997)
Statement of Assets and Liabilities--December 31, 1996
Statement of Operations for the year ended December 31, 1996
(except for the Investment Grade Bond, Value, Small Cap
Value, Value+Growth, Horizon 20+, Horizon 10+ and Horizon
5 Portfolios, which is for the period May 1, 1996 through
December 31, 1996)
Statement of Changes in Net Assets for each of the two years
in the period ended December 31, 1996 (except for the
Investment Grade Bond, Value, Small Cap Value,
Value+Growth, Horizon 20+, Horizon 10+ and Horizon 5
Portfolios, which is for the period May 1, 1996 through
December 31, 1996)
Notes to Financial Statements
Portfolio of Investments--December 31, 1996
Blue Chip and Global Income Portfolios
Report of Independent Auditors (April 22, 1997)
Statement of Net Assets (April 22, 1997)
</TABLE>
Schedules I (for the Blue Chip and Global Income Portfolios), II, III, IV
and V have been omitted as the required information is not present.
Schedule I has been omitted for 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 as the required information is presented in the Portfolio of
Investments at December 31, 1996.
(b) Exhibits:
<TABLE>
<S> <C>
99.b1.(a) Agreement and Declaration of Trust.(1)
99.b1.(b) Written Instrument Amending the Agreement and Declaration of
Trust.(1)
99.b1.(c) Written Instrument Amending the Agreement and Declaration of
Trust.(1)
99.b1.(d) Written Instrument Amending the Agreement and Declaration of
Trust to Establish and Designate Seven Additional Series.(2)
99.b1.(e) Written Instrument Amending the Agreement and Declaration of
Trust to Change the Name of Two Existing Series.(2)
99.b1.(f) Written Instrument Amending the Agreement and Declaration of
Trust to Change the Name of One Existing Series.(3)
</TABLE>
C-1
<PAGE> 135
<TABLE>
<S> <C>
99.b1.(g) Written Instrument Amending the Agreement and Declaration of
Trust to Establish and Designate Four Additional Series.
99.b2. By-laws.(1)
99.b3. Not Applicable.
99.b4. Text of Share certificate.(1)
99.b5.(a) Investment Management Agreement (Money Market, Total Return,
High Yield, Growth, Government Securities, International and
Small Cap Growth Portfolios.)(2)
99.b5.(b) Notification of Additional Portfolios (Investment Grade
Bond, Value+Growth
Horizon 20+, Horizon 10+ and Horizon 5 Portfolios).(3)
99.b5.(c) Investment Management Agreement (Value and Small Cap Value
Portfolios).(3)
99.b5.(d) Sub-Advisory Agreement (Value+Growth, Horizon 20+, Horizon
10+ and Horizon 5 Portfolios).(3)
99.b5.(e) Notification of Additional Portfolios (Blue Chip and Global
Income Portfolios).
99.b5.(f) Sub-Advisory Agreement (Total Return, High Yield, Growth,
Small Cap Growth, Investment Grade Bond, Value+Growth and
Horizon Portfolios).
99.b5.(g) Notification of Additional Portfolio (Blue Chip Portfolio).
99.b5.(h) Sub-Advisory Agreement (International Portfolio).
99.b5.(i) Notification of Additional Portfolio (Global Income
Portfolio).
99.b6. Underwriting Agreement.(2)
99.b7. Not Applicable.
99.b8.(a) Custody Agreement.(1)
99.b8.(b) Foreign Custodian Agreement.(1)
99.b9. Agency Agreement.(1)
99.b10.(a) Legal Opinion and Consent of Vedder, Price, Kaufman &
Kammholz.
99.b10.(b) Legal Opinion and Consent of Ropes & Gray.
99.b11. Consent and Reports of Ernst & Young LLP.
99.b12. Not Applicable.
99.b13. Subscription Agreement (Blue Chip and Global Income
Portfolios).
99.b14. Not Applicable.
99.b15. Not Applicable.
99.b17. Not Applicable.
99.b18. Not Applicable.
99.b24. Powers of Attorney.(4)
27.1 Financial Data Schedules.
</TABLE>
- - ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 14 to the
Registration Statement filed on April 27, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 15 to the
Registration Statement filed on February 14, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 16 to the
Registration Statement filed on April 25, 1996.
(4) Incorporated herein by reference to Post-Effective Amendment No. 15 to the
Registration Statement filed on February 14, 1996, except for the Power of
Attorney of Dominque P. Morax, which is incorporated by reference to
Post-Effective Amendment No. 16 to the Registration Statement filed on April
25, 1996.
C-2
<PAGE> 136
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". Shares of the
Registrant will also be offered and sold to Allmerica Financial Life Insurance
and Annuity Company ("Allmerica"), a life insurance company organized under the
laws of Delaware, and to its separate investment accounts, "Separate Account
KGC" and "Separate Account KG". Shares of the Registrant will also be offered
and sold to Federal Kemper Life Insurance Company ("FKLA"), an Illinois
insurance company, and to its separate investment account, "FKLA Variable
Separate Account." The purchasers of insurance contracts and annuity contracts
issued in connection with such accounts will have the right to instruct KILICO,
Allmerica or FKLA, as the case may be, with respect to the voting of the
Registrant's shares held by the Separate Accounts. Subject to such voting
instruction rights, KILICO and its Separate Accounts control 96% of the
Registrant, Allmerica and its Separate Accounts control 4% of the Registrant and
FKLA and its separate account control 0% of the Registrant as of March 24, 1997.
KILICO is a wholly-owned subsidiary of Zurich Kemper Life Insurance Companies,
Inc.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of April 30, 1997, there were four holders of record of shares of the
Money Market, Total Return, High Yield, Growth, Government Securities,
International and Small Cap Growth, Investment Grade Bond, Value, Small Cap
Value, Value+Growth, Horizon 20+, Horizon 10+ and Horizon 5 Portfolios. As of
April 30, 1997, there was one holder of record of shares of the Blue Chip and
Global Income 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> 137
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 Manager and Underwriter"
and to the section of the Statement of Additional Information captioned
"Investment Manager and Underwriter".
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
Zurich 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 Aggressive Growth Fund
Zurich Yieldwise Money 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> 138
Item 28(b)(i) Business and Other Connections of Officers
and Directors of Zurich Kemper Investments, Inc.,
the Investment Adviser
TIMBERS, STEPHEN B.
Director, President, Chief Executive Officer and Chief Investment
Officer, Zurich Kemper Investments, Inc.
Director, Zurich Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Chairman, Zurich 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, Zurich Kemper Service Company
Director, Zurich 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
C-5
<PAGE> 139
MORAX, DOMINQUE P.
Director, Zurich Kemper Investments, Inc.
Senior Vice President, Member Extended Corporate Executive Board,
Zurich Insurance Company
Trustee, Kemper Funds
Executive Committee, ZKI Holding Corporation
CHAPMAN, II, WILLIAM E.
President, Kemper Retirement Plans Group, a unit of Zurich Kemper
Investments, Inc.
Director, Executive Vice President, Zurich Kemper Distributors, Inc.
Executive Vice President, Zurich Kemper Service Company
VOGEL, VICTOR E.
Senior Executive Vice President, Zurich Kemper Investments, Inc.
Trustee, Zurich Kemper Investments, Inc. Profit Sharing Plan & Money
Purchase Pension Plan
Executive Vice President, Zurich Kemper Service Company
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> 140
Managing Director, Zurich Investment Management, Inc.
DUDASIK, PATRICK H.
Executive Vice President and Chief Financial Officer, Zurich Kemper
Investments, Inc.
Executive Vice President, Chief Financial Officer and Treasurer,
Dreman Value Advisors, Inc.
Chief Financial Officer and Treasurer, Zurich Investment Management, Inc.
Treasurer and Chief Financial Officer, Zurich Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Zurich Kemper Service Company
Treasurer, ZKI Agency, Inc.
FROEHLICH, PH.D, ROBERT J.
Executive Vice President, Chief Investment Strategist Zurich Kemper
Investments, Inc.
GREENAWALT, JAMES L.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, President, Zurich Kemper Distributors, Inc.
Director, President, ZKI Agency, Inc.
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.
Secretary, Zurich Kemper Service Company
Secretary, Zurich Kemper Distributors, Inc.
Secretary, ZKI Holding Corporation
Secretary, Zurich Investment Management, Inc.
Secretary, Dreman Value Advisors, 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> 141
ROBERTS, SCOTT A.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Senior Managing Director, Zurich Investment Management, Inc.
SILIGMUELLER, DALE S.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Zurich Kemper Service Company
WEISS, ROBERT D.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Senior Managing Director, 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
CHIEN, CHRISTINE
Senior Vice President, Zurich Kemper Investments, Inc.
CIARLELLI, ROBERT W.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Zurich Kemper Service Company
COLLORA, PHILIP J.
Senior Vice President and Assistant Secretary, Zurich Kemper
Investments, Inc.
Vice President and Secretary, Kemper Funds
C-8
<PAGE> 142
Assistant Secretary, Kemper International Management, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
Assistant Secretary, Dreman Value Advisors, Inc.
Assistant Secretary, ZKI Agency, Inc.
DUFFY, JEROME L.
Senior Vice President, Zurich Kemper Investments, Inc.
Treasurer, Kemper Funds
FENGER, JAMES E.
Senior Vice President, Zurich Kemper Investments, Inc.
FINK, THOMAS M.
Senior Vice President, Zurich Kemper Investments, Inc.
Managing Director, Zurich Investment Management, Inc.
GALLAGHER, MICHAEL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Kemper Service Company
GOERS, RICHARD A.
Senior Vice President, Zurich Kemper Investments, Inc.
GREENWALD, MARSHALL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Managing Director, Zurich Investment Management, Inc.
HARRINGTON, MICHAEL E.
Senior Vice President, Zurich Kemper Investments, Inc.
KEITH, GEORGE
Senior Vice President, Zurich Kemper Investments, Inc.
KLEIN, GEORGE
Senior Vice President, Zurich Kemper Investments, Inc.
Director, Managing Director, Zurich Investment Management, Inc.
KLEIN, MARTIN
Senior Vice President, Zurich Kemper Investments, Inc.
Managing Director, Zurich Investment Management, Inc.
KOCHER, GARY
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> 143
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
MOELLER, JAMES V.
Senior Vice President, Zurich Kemper Investments, Inc.
Managing Director, Zurich Investment Management, Inc.
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, Zurich 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
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
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> 144
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.
Managing Director, Zurich Investment Management, Inc.
WONNACOTT, LARRY R.
Senior Vice President, Zurich Kemper Investments, Inc.
Managing Director, 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, Zurich 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
CHRISTIANSEN, HERBERT A.
First Vice President, Zurich Kemper Investments, Inc.
First Vice President, Zurich 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, Zurich Kemper Service
Company
C-11
<PAGE> 145
DEXTER, STEPHEN P.
First Vice President, Zurich Kemper Investments, Inc.
DOYLE, DANIEL J.
First Vice President, Zurich Kemper Investments, Inc.
HALE, DAVID D.
First Vice President, Zurich Kemper Investments, Inc.
HAUSKEN, PHILIP D.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Zurich Kemper Distributors, Inc.
Assistant Secretary, Zurich Investment Management, 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.
KIEL, CAROL L.
First Vice President, Zurich Kemper Investments, Inc.
KNAPP, WILLIAM M.
First Vice President, Zurich Kemper Investments, Inc.
LASKA, ROBERTA E.
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.
McGOVERN, KAREN
First Vice President, Zurich Kemper Investments, Inc.
MICHAEL, DIANNE
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, Zurich Kemper Service Company
NORRIS, JOHNSTON A.
First Vice President, Zurich Kemper Investments, Inc.
C-12
<PAGE> 146
PANOZZO, ROBERTA L.
First Vice President, Zurich Kemper Investments, Inc.
PONTECORE, SUSAN E.
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, Zurich Kemper Distributors, Inc.
SMITH, ROBERT G.
First Vice President, Zurich Kemper Investments, 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.
Assistant Secretary, Zurich Investment Management, Inc.
TRUTTER, JONATHAN W.
First Vice President, Zurich Kemper Investments, Inc.
Managing Director, Zurich Investment Management, 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.
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.
BARSANTI, WILLIAM
Vice President, Zurich Kemper Investments, Inc.
C-13
<PAGE> 147
BIEBERLY, CHRISTINE A.
Vice President, Zurich Kemper Investments, Inc.
BODEM, RICHARD A.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Zurich Kemper Service Company
BRENNAN, ELEANOR R.
Vice President, Zurich Kemper Investments, Inc.
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.
Managing Director, Zurich Investment Management, Inc.
CARTER, PAUL J.
Vice President and Compliance Manager, Zurich Kemper Investments, Inc.
CECOLA, MARY
Vice President, Zurich Kemper Investments, Inc.
COULTER, STEVAN F.
Vice President, Zurich Kemper Investments, Inc.
CRAWSHAW, SUSAN
Vice President, Zurich Kemper Investments, Inc.
ESOLA, CHARLES J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Zurich 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.
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, Zurich Kemper Distributors, Inc.
Assistant Secretary, ZKI Holding Corporation
Assistant Secretary, ZKI Agency, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
Assistant Secretary, Dreman Value Advisors, Inc.
C-14
<PAGE> 148
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.
KOBS, MICHAEL G.
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, Zurich Kemper Service Company
LAUTZ, STEPHEN
Vice President, Zurich Kemper Investments, Inc.
LeFEBVRE, THOMAS J.
Vice President, Zurich Kemper Investments, Inc.
MARKLEY, DAVID
Vice President, Zurich Kemper Investments, Inc.
MATZA, LINDA
Vice President, Zurich Kemper Investments, Inc.
McGINN, MARTHA R.
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> 149
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.
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.
SAENGER, MARYELLEN
Vice President, Zurich Kemper Investments, Inc.
SHULTZ, KAREN D.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Zurich Kemper Service Company
SOPHER, EDWARD O.
Vice President, Zurich Kemper Investments, Inc.
C-16
<PAGE> 150
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.
TRUNSKY, JUDITH C.
Vice President, Zurich Kemper Investments, Inc.
VANDEMERKT, RICHARD J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Zurich Kemper Service Company
WALKER, ANGELA
Vice President, Zurich Kemper Investments, Inc.
WATKINS, JAMES K.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Zurich Kemper Service Company
WERTH, ELIZABETH C.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Zurich Kemper Distributors, Inc.
Assistant Secretary, Kemper Open-End 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> 151
Item 28(b)(ii) Business and Other Connections of Officers and Directors of
Zurich Investment Management Limited, the Investment Sub-Advisor
JOHNS, GORDON K.
Director, Managing Director, Zurich Investment Management Limited
Director, Thames Heritage Parade Limited
NEAL, JOHN E.
Director, Zurich Investment Management Limited
President, Kemper Funds Group, a unit of Zurich Kemper
Investments, Inc.
Director, Zurich Kemper Investments, Inc.
Director, President, Zurich Kemper Service Company
Director, Zurich 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
TIMBERS, STEPHEN B.
Director, Zurich Investment Management Limited
Director, President, Chief Executive Officer and Chief Investment
Officer, Zurich Kemper Investments, Inc.
Director, Dreman Value Advisors, Inc.
Director, Zurich Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Chairman, Zurich Kemper Service Company
Director, President, Kemper International Management, Inc.
Trustee and President, Kemper Funds
Director, The LTV Corporation
Governor, Investment Company Institute
Director, ZKI Agency, Inc.
FERRO, DENNIS H.
Director, Managing Director-Equities, Zurich Investment
Management Limited
C-18
<PAGE> 152
DUDASIK, PATRICK H.
Director and Treasurer, Zurich Investment Management Limited
Executive Vice President & Chief Financial Officer, 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, Zurich Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Zurich Kemper Service Company
Treasurer, ZKI Agency, Inc.
THOUIN-LEERKAMP, EDITH A.
Director-European Equities, Zurich Investment Management Limited
Senior Vice President, Zurich Kemper Investments, Inc.
HAAS, RICHARD D.W.
Director, Finance Director, Compliance Officer and Joint
Secretary, Zurich Investment Management Limited
PRIDEAUX, TERENCE C.
Director, Zurich Investment Management Limited
KOMAROMY, LESLIE J.S.
Director, Zurich Investment Management Limited
WALLIS, STEPHEN P.
Director, Zurich Investment Management Limited
MASON, ANDREW
Director-Asian Equities, Zurich Investment Management Limited
SHANKAR, RAVI
Director-Fixed Income Strategy, Zurich Investment Management
Limited
SLENDEBROEK, MARC J.
Associate Director, Zurich Investment Management Limited
GRAHAM, ANDREW
Associate Director, Zurich Investment Management Limited
BOORMAN, JONATHAN J.
Associate Director, Zurich Investment Management Limited
C-19
<PAGE> 153
Item 28(b) Business and Other Connections of Officers and Directors
of Dreman (iii) Value Advisors, Inc., the Investment Advisor
DREMAN, DAVID N.
Director, Chairman of the Board, Dreman Value Advisors, Inc.
NEAL, JOHN E.
Director, Dreman Value Advisors, Inc.
Director, Zurich Kemper Investments, Inc.
President, Kemper Funds Group, a unit of Zurich Kemper
Investments, Inc.
Director, President, Zurich Kemper Service Company
Director, Zurich Kemper Distributors, Inc.
Director, Zurich Investment Management, 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
C - 20
<PAGE> 154
TIMBERS, STEPHEN B.
Director, Dreman Value Advisors, Inc.
Director, President, Chief Executive Officer and Chief Investment
Officer, Zurich Kemper Investments, Inc.
Director, Zurich Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Chairman, Zurich Kemper Service Company
Director, President, Kemper International Management, Inc.
Director, ZKI Agency, Inc.
Trustee and President, Kemper Funds
Director, The LTV Corporation
Governor, Investment Company Institute
C - 21
<PAGE> 155
NEEL, JAMES R.
Director, President and Chief Executive Officer, Dreman Value Advisors, Inc.
Vice President, Kemper-Dreman Fund, Inc.
BERTELSEN, CHRISTIAN C.
Senior Managing Director and Chief Investment Officer,
Dreman Value Advisors, Inc.
Vice President, Kemper-Dreman Fund, Inc.
DUDASIK, PATRICK H.
Executive Vice President, Chief Financial Officer and Treasurer, Dreman
Value Advisors, Inc.
Executive Vice President and Chief Financial Officer, Zurich Kemper
Investments, Inc.
Chief Financial Officer and Treasurer, Zurich Investment Management, Inc.
Treasurer and Chief Financial Officer, Zurich Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Zurich Kemper Service Company
Treasurer, ZKI Agency, Inc.
COUGHLIN, WILLIAM F.
Managing Director, Dreman Value Advisors, Inc.
C - 22
<PAGE> 156
SASSI, THOMAS
Senior Managing Director, Dreman Value Advisors, Inc.
SHIPMAN, STEPHEN E.
Managing Director, Dreman Value Advisors, Inc.
STOKES, STEPHEN T.
Managing Director, Dreman Value Advisors, Inc.
EPSTEIN, HARRY
Vice President, Operations, Dreman Value Advisors, Inc.
KAY, JONATHAN S.
Managing Director, Dreman Value Advisors, Inc.
McRAE, SUSAN A.
Vice President, Dreman Value Advisors, Inc.
MORRISSEY, JOSYANE
Vice President, Dreman Value Advisors, Inc.
RIDER, JOSEPH K.
Vice President, Dreman Value Advisors, Inc.
COLLORA, PHILIP J.
Assistant Secretary, Dreman Value Advisors, Inc.
Senior Vice President and Assistant Secretary,
Zurich Kemper Investments, Inc.
Vice President and Secretary, Kemper Funds
Assistant Secretary, Kemper International Management, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
HECHT, MARC L.
Assistant Secretary, Dreman Value Advisors, Inc.
Vice President, Zurich Kemper Investments, Inc.
Assistant Secretary, Zurich Kemper Distributors, Inc.
Assistant Secretary, ZKI Holding Corporation
Assistant Secretary, ZKI Agency, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
MANZONI, JR., CHARLES R.
Secretary, Dreman Value Advisors, Inc.
Executive Vice Pres., Sec'y & General Counsel, Zurich Kemper
Investments, Inc.
Vice President, Kemper Funds
Secretary, ZKI Agency, Inc.
Secretary, Zurich Kemper Service Company
Secretary, Zurich Kemper Distributors, Inc.
Secretary, ZKI Holding Corporation
Secretary, Zurich Investment Management, Inc.
C - 23
<PAGE> 157
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Zurich Kemper Distributors, Inc. acts as principal underwriter of
the Registrant's shares and acts as principal underwriter of the Kemper Funds,
Kemper Investors Fund, Kemper International Bond Fund and Kemper-Dreman Fund,
Inc.
(b) Information on the officers and directors of Zurich Kemper
Distributors, Inc., principal underwriter for the Registrant is set forth
below. The principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.
<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
Thomas V. Bruns 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
Philip D. Hausken Vice President None
Carlene D. Merold Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Charles R. Manzoni, Jr. Secretary Vice President
Marc L. Hecht Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
</TABLE>
(c) Not applicable.
C-24
<PAGE> 158
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., 222 South Riverside Plaza, Chicago, Illinois
60606 and Dreman Value Advisors, Inc. (also the Registrant's sub-adviser), 280
Park Avenue, 40th Floor, New York, New York 10017, at the offices of
Registrant's principal underwriter, Zurich Kemper Distributors, Inc., 222 South
Riverside Plaza, 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) The Registrant undertakes to file a Post-Effective Amendment using
financial statements of the Blue Chip and Global Income Portfolios of the
Registrant, which need not be certified, within four to six months from the
effective date of the Registration Statement.
(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-25
<PAGE> 159
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago and State of Illinois, on the 24th day of
April, 1997.
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 April 24, 1997 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 (except for the power of attorney signed by Dominique P.
Morax, which was filed with Post-Effective Amendment No. 16 to the
Registration Statement filed on April 25, 1996).
/s/ PHILIP J. COLLORA
--------------------------------------
Philip J. Collora
<PAGE> 160
INDEX TO EXHIBITS
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<S> <C>
99.b1.(a) Agreement and Declaration of Trust.(1)
99.b1.(b) Written Instrument Amending the Agreement and Declaration of
Trust.(1)
99.b1.(c) Written Instrument Amending the Agreement and Declaration of
Trust.(1)
99.b1.(d) Written Instrument Amending the Agreement and Declaration of
Trust to Establish and Designate Seven Additional Series.(2)
99.b1.(e) Written Instrument Amending the Agreement and Declaration of
Trust to Change the Name of Two Existing Series.(2)
99.b1.(f) Written Instrument Amending the Agreement and Declaration of
Trust to Change the Name of One Existing Series.(3)
99.b1.(g) Written Instrument Amending the Agreement and Declaration of
Trust to Establish and Designate Four Additional Series.
99.b2. By-laws.(1)
99.b3. Not Applicable.
99.b4. Text of Share certificate.(1)
99.b5.(a) Investment Management Agreement (Money Market, Total Return,
High Yield, Growth, Government Securities, International and
Small Cap Growth Portfolios.)(2)
99.b5.(b) Notification of Additional Portfolios (Investment Grade
Bond, Value+Growth
Horizon 20+, Horizon 10+ and Horizon 5 Portfolios).(3)
99.b5.(c) Investment Management Agreement (Value and Small Cap Value
Portfolios).(3)
99.b5.(d) Sub-Advisory Agreement (Value+Growth, Horizon 20+, Horizon
10+ and Horizon 5 Portfolios).(3)
99.b5.(e) Notification of Additional Portfolios (Blue Chip and Global
Income Portfolios).
99.b5.(f) Sub-Advisory Agreement (Total Return, High Yield, Growth,
Small Cap Growth, Investment Grade Bond, Value+Growth and
Horizon Portfolios).
99.b5.(g) Notification of Additional Portfolio (Blue Chip Portfolio).
99.b5.(h) Sub-Advisory Agreement (International Portfolio).
99.b5.(i) Notification of Additional Portfolio (Global Income
Portfolio).
99.b6. Underwriting Agreement.(2)
99.b7. Not Applicable.
99.b8.(a) Custody Agreement.(1)
99.b8.(b) Foreign Custodian Agreement.(1)
99.b9. Agency Agreement.(1)
99.b10.(a) Legal Opinion and Consent of Vedder, Price, Kaufman &
Kammholz.
99.b10.(b) Legal Opinion and Consent of Ropes & Gray.
99.b11. Consent and Reports of Ernst & Young LLP.
99.b12. Not Applicable.
</TABLE>
<PAGE> 161
<TABLE>
<S> <C>
99.b13. Subscription Agreement (Blue Chip and Global Income Portfolios).
99.b14. Not Applicable.
99.b15. Not Applicable.
99.b17. Not Applicable.
99.b18. Not Applicable.
99.b24. Powers of Attorney.(4)
27.1 Financial Data Schedules.
</TABLE>
- - ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 14 to the
Registration Statement filed on April 27, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 15 to the
Registration Statement filed on February 14, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 16 to the
Registration Statement filed on April 25, 1996.
(4) Incorporated herein by reference to Post-Effective Amendment No. 15 to the
Registration Statement filed on February 14, 1996, except for the Power of
Attorney of Dominque P. Morax, which is incorporated by reference to
Post-Effective Amendment No. 16 to the Registration Statement filed on April
25, 1996.
<PAGE> 1
EXHIBIT 99.B1(g)
KEMPER INVESTORS FUND
WRITTEN INSTRUMENT AMENDING THE
AGREEMENT AND DECLARATION OF TRUST
The undersigned, being a majority of the trustees of Kemper Investors Fund
(the "Trust"), a business trust organized pursuant to an Agreement and
Declaration of Trust dated January 22, 1987, as amended (the "Declaration of
Trust"), pursuant to Section 1 of Article III of the Declaration of Trust do
hereby establish and designate a fifteenth, sixteenth, seventeenth and
eighteenth series of shares of the Trust to be known as the Blue Chip
Portfolio, the Global Income Portfolio, the Zurich High Yield Portfolio and
the Zurich Emerging Markets Portfolio, respectively. The relative rights and
preferences of such series shall be as set forth in the Declaration of Trust.
This instrument shall constitute an amendment to the Declaration of Trust.
IN WITNESS WHEREOF, the undersigned have this 20th day of March, 1997
signed these presents.
/s/Stephen B. Timbers
-----------------------------------------
Stephen B. Timbers, Trustee
210 South Green Bay Road
Lake Forest, Illinois 60045
(Signatures continue)
<PAGE> 2
/s/ James E. Akins
-----------------------------------------
James E. Akins, Trustee
2904 Garfield Terrace, N.W.
Washington, DC 20008-3507
/s/ Arthur R. Gottschalk
-----------------------------------------
Arthur R. Gottschalk, Trustee
10642 Brookridge Drive
Frankfort, Illinois 60423
/s/ Frederick T. Kelsey
-----------------------------------------
Frederick T. Kelsey, Trustee
3133 Laughing Gull Court
Johns Island, South Carolina 29455
/s/ Dominique P. Morax
-----------------------------------------
Dominique P. Morax, Trustee
Vordere Dorfstrasse 13
8803 Ruschlikon
Switzerland
/s/ Fred B. Renwick
-----------------------------------------
Fred B. Renwick, Trustee
3 Hanover Square
New York, New York 10004
-----------------------------------------
Stephen B. Timbers, Trustee
210 South Green Bay Road
Lake Forest, Illinois 60045
/s/ John B. Tingleff
-----------------------------------------
John B. Tingleff, Trustee
2015 South Lake Shore Drive
Harbor Springs, Michigan 49740
/s/ John G. Weithers
-----------------------------------------
John G. Weithers, Trustee
311 Springlake
Hinsdale, Illinois 60521
<PAGE> 1
EXHIBIT-99.B5(e)
NOTIFICATION OF ADDITIONAL PORTFOLIOS
Investors Fund Series (formerly named Kemper Investors Fund), a Massachusetts
business trust (the "Fund"), pursuant to Paragraph 2 of the Investment
Management Agreement ("Management Agreement") dated January 4, 1996 between the
Fund and Kemper Financial Services, Inc. (currently named Zurich Kemper
Investments, Inc.) (the "Adviser") hereby notifies the Adviser that it desires
to retain the Adviser to render investment advisory and management services
under the Management Agreement for the Blue Chip and Global Income Portfolios
of the Fund, the investment management fees for such services to be computed at
the annual rates set forth in Appendix A hereto in accordance with Paragraph 3
of the Management Agreement.
Dated: May 1, 1997
INVESTORS FUND SERIES
By:____________________________
Title:_________________________
Attest:_______________________
Title: _______________________
Adviser, pursuant to said Paragraph 2 of the Management Agreement, hereby
notifies the Fund that it is willing to render the aforesaid services for the
Blue Chip and Global Income Portfolios for the investment management fees
described above and acknowledges that such Portfolios shall hereby become
"Portfolios" under the Management Agreement.
ZURICH KEMPER INVESTMENTS, INC.
By:_____________________________
Title:__________________________
Attest:_____________________
Title:______________________
<PAGE> 2
APPENDIX A
INVESTMENT MANAGEMENT FEE
Portfolio Annual Rate
--------- -----------
Blue Chip .65 of 1%
Global Income .75 of 1%
<PAGE> 1
EX-99.B5(f)
SUB-ADVISORY AGREEMENT
(Form 2 Series)
AGREEMENT made this 1st day of December, 1996, by and between
ZURICH KEMPER INVESTMENTS, INC., a Delaware corporation (the
"Adviser") and ZURICH INVESTMENT MANAGEMENT LIMITED, an English
corporation (the "Sub-Adviser").
WHEREAS, KEMPER INVESTORS FUND, a Massachusetts business trust
(the "Fund") is a management investment company registered under the
Investment Company Act of 1940;
WHEREAS, the Fund is authorized to issue Shares in separate
series with each representing the interests in a separate portfolio
of securities and other assets;
WHEREAS, the Fund has retained the Adviser to render to it
investment advisory and management services with regard to the series
of the Fund known as the Total Return Portfolio, Growth Portfolio,
Small Capitalization Growth Portfolio, Value Plus Growth Portfolio,
Horizon 20+ Portfolio, Horizon 10+ Portfolio, Horizon 5 Portfolio,
High Yield Portfolio, Investment Grade Bond Portfolio (the "initial
series") pursuant to an Investment Management Agreement (the
"Management Agreement"); and
WHEREAS, the Adviser desires at this time to retain the
Sub-Adviser to render investment advisory and management services
with respect to that portion of the portfolio of the Fund's initial
series allocated to the Sub-Adviser by the Adviser for management of
foreign securities, including foreign currency transactions and
related investments, and the Sub-Adviser is willing to render such
services;
NOW THEREFORE, in consideration of the mutual covenants
hereinafter contained, it is hereby agreed by and between the parties
hereto as follows:
1. The Adviser hereby employs the Sub-Adviser to manage the
investment and reinvestment of the assets of the initial series of
the Fund allocated by the Adviser in its sole discretion to the
Sub-Adviser for management of foreign securities, including foreign
currency transactions and related investments, in accordance with the
applicable investment objectives, policies and limitations and
subject to the supervision of the Adviser and the Board of Trustees
of the Fund for the period and upon the terms herein set forth, and
to place orders for the purchase or sale of portfolio securities for
the
<PAGE> 2
Fund's account with brokers or dealers selected by the Sub-Adviser;
and, in connection therewith, the Sub-Adviser is authorized as the
agent of the Fund to give instructions to the Custodian of the Fund
as to the deliveries of securities and payments of cash for the
account of the Fund. In connection with the selection of such
brokers or dealers and the placing of such orders, the Sub-Adviser is
directed to seek for the Fund best execution of orders. Subject to
such policies as the Board of Trustees of the Fund determines and
subject to satisfying the requirements of Section 28(e) of the
Securities Exchange Act of 1934, the Sub-Adviser shall not be deemed
to have acted unlawfully or to have breached any duty, created by
this Agreement or otherwise, solely by reason of its having caused
the Fund to pay a broker or dealer an amount of commission for
effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
that transaction, if the Sub-Adviser determined in good faith that
such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer
viewed in terms of either that particular transaction or the
Sub-Adviser's overall responsibilities with respect to the clients of
the Sub-Adviser as to which the Sub-Adviser exercises investment
discretion. The Adviser recognizes that all research services and
research that the Sub-Adviser receives are available for all clients
of the Sub-Adviser, and that the Fund and other clients of the
Sub-Adviser may benefit thereby. The investment of funds shall be
subject to all applicable restrictions of the Agreement and
Declaration of Trust and By-Laws of the Fund as may from time to time
be in force.
The Sub-Adviser accepts such employment and agrees during such
period to render such investment management services, to furnish
related office facilities and equipment and clerical, bookkeeping and
administrative services for the Fund, to permit any of its officers
or employees to serve without compensation as trustees or officers of
the Fund if elected to such positions and to assume the obligations
herein set forth for the compensation herein provided. The
Sub-Adviser shall for all purposes herein provided be deemed to be an
independent contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for or represent the Fund
or the Adviser in any way or otherwise be deemed an agent of the Fund
or the Adviser. It is understood and agreed that the Sub-Adviser, by
separate agreements with the Fund, may also serve the Fund in other
capacities.
-2-
<PAGE> 3
The Sub-Adviser will keep the Fund and the Adviser informed of
developments materially affecting the Fund and shall, on the
Sub-Adviser's own initiative and as reasonably requested by the
Adviser or the Fund, furnish to the Fund and the Adviser from time to
time whatever information the Adviser reasonably believes appropriate
for this purpose.
The Sub-Adviser agrees that, in the performance of the duties
required of it by this Agreement, it will comply with the Investment
Advisers Act of 1940 and the Investment Company Act of 1940, and all
rules and regulations thereunder, and all applicable laws and
regulations and with any applicable procedures adopted by the Fund's
Board of Trustees and identified in writing to the Sub-Adviser.
The Sub-Adviser shall provide the Adviser with such investment
portfolio accounting and shall maintain and provide such detailed
records and reports as the Adviser may from time to time reasonably
request, including without limitation, daily processing of investment
transactions and cash positions, periodic valuations of investment
portfolio positions as required by the Adviser, monthly reports of
the investment portfolio and all investment transactions and the
preparation of such reports and compilation of such data as may be
required by the Adviser to comply with the obligations imposed upon
it under Management Agreement.
The Sub-Adviser shall provide adequate security with respect to
all materials, records, documents and data relating to any of its
responsibilities pursuant to this Agreement including any means for
the effecting of securities transactions.
The Sub-Adviser agrees that it will make available to the
Adviser and the Fund promptly upon their request copies of all of its
investment records and ledgers with respect to the Fund to assist the
Adviser and the Fund in monitoring compliance with the Investment
Company Act of 1940 and the Investment Advisers Act of 1940, as well
as other applicable laws. The Sub-Adviser will furnish the Fund's
Board of Trustees such periodic and special reports with respect to
the portfolio of each series subject to this Agreement as the Adviser
or the Board of Trustees may reasonably request.
In compliance with the requirements of Rule 31a-3 under the
Investment Company Act of 1940, the Sub-Adviser hereby agrees that
any records that it maintains for the Fund are the property of the
Fund and further agrees to surrender promptly to the Fund copies of
any such records upon the Fund's request. The Sub- Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 under the
Investment Company Act of 1940 any records with respect to the
Sub-Adviser's duties hereunder required to be maintained by Rule
31a-1 under the such Act to the extent that
-3-
<PAGE> 4
the Sub-Adviser prepares and maintains such records pursuant to this
Agreement and to preserve the records required by Rule 204-2 under
the Investment Advisers Act of 1940 for the period specified in that
Rule.
The Sub-Adviser agrees that it will immediately notify the
Adviser and the Fund in the event that the Sub-Adviser: (i) becomes
subject to a statutory disqualification that prevents the Sub-Adviser
from serving as an investment adviser pursuant to this Agreement; or
(ii) is or expects to become the subject of an administrative
proceeding or enforcement action by the United States Securities and
Exchange Commission, the Investment Management Regulatory
Organization ("IMRO") or other regulatory authority.
The Sub-Adviser represents that it is an investment adviser
registered under the Investment Advisers Act of 1940 and other
applicable laws and it is regulated by IMRO and will treat the Fund
as a Non-Private Customer as defined by IMRO. The Sub- Adviser
agrees to maintain the completeness and accuracy of its registration
on Form ADV in accordance with all legal requirements relating to
that Form. The Sub-Adviser acknowledges that it is an "investment
adviser" to the Fund within the meaning of the Investment Company Act
of 1940 and the Investment Advisers Act of 1940.
The Sub-Adviser shall be responsible maintaining an appropriate
compliance program to ensure that the services provided by it under
this Agreement are performed in a manner consistent with applicable
laws and the terms of this Agreement. Furthermore, the Sub-Adviser
shall maintain and enforce a Code of Ethics that is in form and
substance satisfactory to the Adviser. Sub-Adviser agrees to provide
such reports and certifications regarding its compliance program as
the Adviser or the Fund shall reasonably request from time to time.
2. In the event that there are, from time to time, one or more
additional series of the Fund with respect to which the Adviser
desires to retain the Sub-Adviser to render investment advisory and
management services hereunder, the Adviser shall notify the
Sub-Adviser in writing. If the Sub-Adviser is willing to render such
services, it shall notify the Adviser in writing whereupon such
additional series shall become subject to this Agreement.
3. For the services and facilities described in Section 1, the
Adviser will pay to the Sub-Adviser, at the end of each calendar
month, a sub-advisory fee computed at an annual rate of that portion
of the average daily net assets of the initial series of the Fund
that is allocated by the Adviser to the Sub-Adviser for management as
specified below:
-4-
<PAGE> 5
<TABLE>
<CAPTION>
Series Annual Rate
------ -----------
<S> <C>
Total Return Portfolio .35%
Growth Portfolio .35%
Small Capitalization Growth Portfolio .35%
Value Plus Growth Portfolio .35%
Horizon 20+ Portfolio .35%
Horizon 10+ Portfolio .35%
Horizon 5 Portfolio .35%
High Yield Portfolio .30%
Investment Grade Bond Portfolio .30%
</TABLE>
For the month and year in which this Agreement becomes effective
or terminates, there shall be an appropriate proration on the basis
of the number of days that the Agreement is in effect during the
month and year, respectively.
4. The services of the Sub-Adviser under this Agreement are
not to be deemed exclusive, and the Sub-Adviser shall be free to
render similar services or other services to others so long as its
services hereunder are not impaired thereby.
5. The Sub-Adviser shall arrange, if desired by the Fund, for
officers or employees of the Sub-Adviser to serve, without
compensation from the Fund, as trustees, officers or agents of the
Fund if duly elected or appointed to such positions and subject to
their individual consent and to any limitations imposed by law.
6. The net asset value for each series of the Fund subject to
this Agreement shall be calculated as the Board of Trustees of the
Fund may determine from time to time in accordance with the
provisions of the Investment Company Act of 1940. On each day when
net asset value is not calculated, the net asset value of a series
shall be deemed to be the net asset value of such series as of the
close of business on the last day on which such calculation was made
for the purpose of the foregoing computations.
7. Subject to applicable statutes and regulations, it is
understood that certain trustees, officers or agents of the Fund are
or may be interested in the Sub-Adviser as officers, directors,
agents, shareholders or otherwise, and that the officers, directors,
shareholders and agents of the Sub-Adviser may be interested in the
Fund otherwise than as a trustee, officer or agent.
-5-
<PAGE> 6
8. The Sub-Adviser shall not be liable for any error of
judgment or of law or for any loss suffered by the Fund or the
Adviser in connection with the matters to which this Agreement
relates, except loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Sub-Adviser in the performance of
its obligations and duties or by reason of its reckless disregard of
its obligations and duties under this Agreement.
9. This Agreement shall become effective with respect to the
initial series of the Fund on the date hereof and shall remain in
full force until April 1, 1998, unless sooner terminated as
hereinafter provided. This Agreement shall continue in force from
year to year thereafter with respect to each such series, but only as
long as such continuance is specifically approved for each series at
least annually in the manner required by the Investment Company Act
of 1940 and the rules and regulations thereunder; provided, however,
that if the continuation of this Agreement is not approved for a
series, the Sub-Adviser may continue to serve in such capacity for
such series in the manner and to the extent permitted by the
Investment Company Act of 1940 and the rules and regulations
thereunder.
This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Management
Agreement and may be terminated at any time with respect to any
series subject to this Agreement without the payment of any penalty
by the Adviser or by the Sub-Adviser on sixty (60) days written
notice to the other party. The Fund may effect termination with
respect to any such series without payment of any penalty by action
of the Board of Trustees or by vote of a majority of the outstanding
voting securities of such series on sixty (60) days written notice to
the Adviser and the Sub-Adviser.
This Agreement may be terminated with respect to any series at
any time without the payment of any penalty by the Board of Trustees
of the Fund, by vote of a majority of the outstanding voting
securities of such series or by the Adviser in the event that it
shall have been established by a court of competent jurisdiction that
the Sub-Adviser or any officer or director of the Sub-Adviser has
taken any action which results in a breach of the covenants of the
Sub-Adviser set forth herein.
The terms "assignment" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in
the Investment Company Act of 1940 and the rules and regulations
thereunder.
-6-
<PAGE> 7
Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the
compensation described in Section 3 earned prior to such termination.
10. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the
remainder shall not be thereby affected.
11. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other
party at such address as such other party may designate for the
receipt of such notice.
12. This Agreement shall be construed in accordance with
applicable federal law and the laws of the State of Illinois.
13. This Agreement is the entire contract between the parties
relating to the subject matter hereof and supersedes all prior
agreements between the parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the Adviser and the Sub-Adviser have caused
this Agreement to be executed as of the day and year first above
written.
ZURICH KEMPER INVESTMENTS, INC.
By: /s/ Patrick H. Dudasik Title:
----------------------------------
Title: Senior Vice President
-------------------------------
ZURICH INVESTMENT MANAGEMENT LIMITED
By: /s/ Dennis H. Ferro
----------------------------------
Title: Managing Directo
-------------------------------
-7-
<PAGE> 1
EXHIBIT-99.B5(g)
NOTIFICATION OF ADDITIONAL PORTFOLIO
Zurich Kemper Investments, Inc., a Delaware corporation (the "Adviser"),
pursuant to Paragraph 2 of the Sub-Advisory (Form 2 Series) Agreement
("Sub-Advisory Agreement") dated December 1, 1996 between the Adviser and
Zurich Investment Management Limited, an English corporation (the
"Sub-Adviser") hereby notifies the Sub-Adviser that it desires to retain the
Sub- Adviser to render investment advisory and management services under the
Sub-Advisory Agreement for the Blue Chip Portfolio of Investors Fund Series
(formerly named Kemper Investors Fund), the sub-advisory fee for such services
to be computed at the annual rate set forth in Appendix A hereto in accordance
with Paragraph 3 of the Sub-Advisory Agreement.
Dated: May 1, 1997
ZURICH KEMPER INVESTMENTS, INC.
By:_______________________________
Title:____________________________
Attest:_______________________
Title: _______________________
Sub-Adviser, pursuant to said Paragraph 2 of the Sub-Advisory Agreement, hereby
notifies the Adviser that it is willing to render the aforesaid services for
the Blue Chip Portfolio for the sub-advisory fee described above and
acknowledges that such Portfolio shall hereby become a "Portfolio" under the
Sub-Advisory Agreement.
ZURICH INVESTMENT MANAGEMENT LIMITED
By:________________________________
Title: ____________________________
Attest:______________________
Title: ______________________
<PAGE> 2
APPENDIX A
SUB-ADVISORY FEE
Portfolio Annual Rate
--------- -----------
Blue Chip .35 of 1%
<PAGE> 1
EXHIBIT-99.B5(h)
SUB-ADVISORY AGREEMENT
(Form 1 Series)
AGREEMENT made this 1st day of December, 1996, by and between ZURICH
KEMPER INVESTMENTS, INC., a Delaware corporation (the "Adviser") and ZURICH
INVESTMENT MANAGEMENT LIMITED, an English corporation (the "Sub-Adviser").
WHEREAS, KEMPER INVESTORS FUND, a Massachusetts business trust (the
"Fund") is a management investment company registered under the Investment
Company Act of 1940;
WHEREAS, the Fund is authorized to issue Shares in separate series with
each representing the interests in a separate portfolio of securities and other
assets;
WHEREAS, the Fund has retained the Adviser to render to it investment
advisory and management services with regard to the series of the Fund known as
the International Portfolio (the "initial series") pursuant to an Investment
Management Agreement (the "Management Agreement"); and
WHEREAS, the Adviser desires at this time to retain the Sub-Adviser to
render investment advisory and management services with respect to that portion
of the portfolio of the Fund's initial series allocated to the Sub-Adviser by
the Adviser for management, including services related to foreign securities,
foreign currency transactions and related investments, and the Sub-Adviser is
willing to render such services;
NOW THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. The Adviser hereby employs the Sub-Adviser to manage the investment
and reinvestment of the assets of the initial series of the Fund allocated by
the Adviser in its sole discretion to the Sub-Adviser for management, including
services related to foreign securities, foreign currency transactions and
related investments, in accordance with the applicable investment objectives,
policies and limitations and subject to the supervision of the Adviser and the
Board of Trustees of the Fund for the period and upon the terms herein set
forth, and to place orders for the purchase or sale of portfolio securities for
the Fund's account with brokers or dealers selected by the Sub-Adviser; and, in
connection therewith, the Sub-Adviser is authorized as the agent of the Fund to
give instructions to the
<PAGE> 2
Custodian of the Fund as to the deliveries of securities and payments of cash
for the account of the Fund. In connection with the selection of such brokers
or dealers and the placing of such orders, the Sub-Adviser is directed to seek
for the Fund best execution of orders. Subject to such policies as the Board
of Trustees of the Fund determines and subject to satisfying the requirements
of Section 28(e) of the Securities Exchange Act of 1934, the Sub-Adviser shall
not be deemed to have acted unlawfully or to have breached any duty, created by
this Agreement or otherwise, solely by reason of its having caused the Fund to
pay a broker or dealer an amount of commission for effecting a securities
transaction in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction, if the Sub-Adviser
determined in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer viewed in terms of either that particular transaction or the
Sub-Adviser's overall responsibilities with respect to the clients of the
Sub-Adviser as to which the Sub-Adviser exercises investment discretion. The
Adviser recognizes that all research services and research that the Sub-Adviser
receives are available for all clients of the Sub-Adviser, and that the Fund
and other clients of the Sub-Adviser may benefit thereby. The investment of
funds shall be subject to all applicable restrictions of the Agreement and
Declaration of Trust and By-Laws of the Fund as may from time to time be in
force.
The Sub-Adviser accepts such employment and agrees during such period to
render such investment management services, to furnish related office
facilities and equipment and clerical, bookkeeping and administrative services
for the Fund, to permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions
and to assume the obligations herein set forth for the compensation herein
provided. The Sub-Adviser shall for all purposes herein provided be deemed to
be an independent contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for or represent the Fund or the
Adviser in any way or otherwise be deemed an agent of the Fund or the Adviser.
It is understood and agreed that the Sub-Adviser, by separate agreements with
the Fund, may also serve the Fund in other capacities.
The Sub-Adviser will keep the Fund and the Adviser informed of
developments materially affecting the Fund and shall, on the Sub-Adviser's own
initiative and as reasonably requested by the Adviser or the Fund, furnish to
the Fund and the Adviser from time to time whatever information the Adviser
reasonably believes appropriate for this purpose.
-2-
<PAGE> 3
The Sub-Adviser agrees that, in the performance of the duties required of
it by this Agreement, it will comply with the Investment Advisers Act of 1940
and the Investment Company Act of 1940, and all rules and regulations
thereunder, and all applicable laws and regulations and with any applicable
procedures adopted by the Fund's Board of Trustees and identified in writing to
the Sub-Adviser.
The Sub-Adviser shall provide the Adviser with such investment portfolio
accounting and shall maintain and provide such detailed records and reports as
the Adviser may from time to time reasonably request, including without
limitation, daily processing of investment transactions and cash positions,
periodic valuations of investment portfolio positions as required by the
Adviser, monthly reports of the investment portfolio and all investment
transactions and the preparation of such reports and compilation of such data
as may be required by the Adviser to comply with the obligations imposed upon
it under Management Agreement.
The Sub-Adviser shall provide adequate security with respect to all
materials, records, documents and data relating to any of its responsibilities
pursuant to this Agreement including any means for the effecting of securities
transactions.
The Sub-Adviser agrees that it will make available to the Adviser and the
Fund promptly upon their request copies of all of its investment records and
ledgers with respect to the Fund to assist the Adviser and the Fund in
monitoring compliance with the Investment Company Act of 1940 and the
Investment Advisers Act of 1940, as well as other applicable laws. The
Sub-Adviser will furnish the Fund's Board of Trustees such periodic and special
reports with respect to the portfolio of each series subject to this Agreement
as the Adviser or the Board of Trustees may reasonably request.
In compliance with the requirements of Rule 31a-3 under the Investment
Company Act of 1940, the Sub-Adviser hereby agrees that any records that it
maintains for the Fund are the property of the Fund and further agrees to
surrender promptly to the Fund copies of any such records upon the Fund's
request. The Sub- Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the Investment Company Act of 1940 any records
with respect to the Sub-Adviser's duties hereunder required to be maintained by
Rule 31a-1 under the such Act to the extent that the Sub-Adviser prepares and
maintains such records pursuant to this Agreement and to preserve the records
required by Rule 204-2 under the Investment Advisers Act of 1940 for the period
specified in that Rule.
-3-
<PAGE> 4
The Sub-Adviser agrees that it will immediately notify the Adviser and the
Fund in the event that the Sub-Adviser: (i) becomes subject to a statutory
disqualification that prevents the Sub-Adviser from serving as an investment
adviser pursuant to this Agreement; or (ii) is or expects to become the subject
of an administrative proceeding or enforcement action by the United States
Securities and Exchange Commission, the Investment Management Regulatory
Organization ("IMRO") or other regulatory authority.
The Sub-Adviser represents that it is an investment adviser registered
under the Investment Advisers Act of 1940 and other applicable laws and it is
regulated by IMRO and will treat the Fund as a Non-Private Customer as defined
by IMRO. The Sub- Adviser agrees to maintain the completeness and accuracy of
its registration on Form ADV in accordance with all legal requirements relating
to that Form. The Sub-Adviser acknowledges that it is an "investment adviser"
to the Fund within the meaning of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940.
The Sub-Adviser shall be responsible maintaining an appropriate compliance
program to ensure that the services provided by it under this Agreement are
performed in a manner consistent with applicable laws and the terms of this
Agreement. Furthermore, the Sub-Adviser shall maintain and enforce a Code of
Ethics that is in form and substance satisfactory to the Adviser. Sub-Adviser
agrees to provide such reports and certifications regarding its compliance
program as the Adviser or the Fund shall reasonably request from time to time.
2. In the event that there are, from time to time, one or more
additional series of the Fund with respect to which the Adviser desires to
retain the Sub-Adviser to render investment advisory and management services
hereunder, the Adviser shall notify the Sub-Adviser in writing. If the
Sub-Adviser is willing to render such services, it shall notify the Adviser in
writing whereupon such additional series shall become subject to this
Agreement.
3. For the services and facilities described in Section 1, the Adviser
will pay to the Sub-Adviser, at the end of each calendar month, a sub-advisory
fee computed at an annual rate of that portion of the average daily net assets
of the initial series of the Fund that is allocated by the Adviser to the
Sub-Adviser for management as specified below:
-4-
<PAGE> 5
Series Annual Rate
------ -----------
International Portfolio .35%
For the month and year in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement is in effect during the month and year,
respectively.
4. The services of the Sub-Adviser under this Agreement are not to be
deemed exclusive, and the Sub-Adviser shall be free to render similar services
or other services to others so long as its services hereunder are not impaired
thereby.
5. The Sub-Adviser shall arrange, if desired by the Fund, for officers
or employees of the Sub-Adviser to serve, without compensation from the Fund,
as trustees, officers or agents of the Fund if duly elected or appointed to
such positions and subject to their individual consent and to any limitations
imposed by law.
6. The net asset value for each series of the Fund subject to this
Agreement shall be calculated as the Board of Trustees of the Fund may
determine from time to time in accordance with the provisions of the Investment
Company Act of 1940. On each day when net asset value is not calculated, the
net asset value of a series shall be deemed to be the net asset value of such
series as of the close of business on the last day on which such calculation
was made for the purpose of the foregoing computations.
7. Subject to applicable statutes and regulations, it is understood that
certain trustees, officers or agents of the Fund are or may be interested in
the Sub-Adviser as officers, directors, agents, shareholders or otherwise, and
that the officers, directors, shareholders and agents of the Sub-Adviser may be
interested in the Fund otherwise than as a trustee, officer or agent.
8. The Sub-Adviser shall not be liable for any error of judgment or of
law or for any loss suffered by the Fund or the Adviser in connection with the
matters to which this Agreement relates, except loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Sub-Adviser in
the performance of its obligations and duties or by reason of its reckless
disregard of its obligations and duties under this Agreement.
-5-
<PAGE> 6
9. This Agreement shall become effective with respect to the initial
series of the Fund on the date hereof and shall remain in full force until
April 1, 1998, unless sooner terminated as hereinafter provided. This
Agreement shall continue in force from year to year thereafter with respect to
each such series, but only as long as such continuance is specifically approved
for each series at least annually in the manner required by the Investment
Company Act of 1940 and the rules and regulations thereunder; provided,
however, that if the continuation of this Agreement is not approved for a
series, the Sub-Adviser may continue to serve in such capacity for such series
in the manner and to the extent permitted by the Investment Company Act of 1940
and the rules and regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Management Agreement and
may be terminated at any time with respect to any series subject to this
Agreement without the payment of any penalty by the Adviser or by the
Sub-Adviser on sixty (60) days written notice to the other party. The Fund may
effect termination with respect to any such series without payment of any
penalty by action of the Board of Trustees or by vote of a majority of the
outstanding voting securities of such series on sixty (60) days written notice
to the Adviser and the Sub-Adviser.
This Agreement may be terminated with respect to any series at any time
without the payment of any penalty by the Board of Trustees of the Fund, by
vote of a majority of the outstanding voting securities of such series or by
the Adviser in the event that it shall have been established by a court of
competent jurisdiction that the Sub-Adviser or any officer or director of the
Sub-Adviser has taken any action which results in a breach of the covenants of
the Sub-Adviser set forth herein.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Investment Company Act of
1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the compensation
described in Section 3 earned prior to such termination.
10. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
-6-
<PAGE> 7
11. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for the receipt of such notice.
12. This Agreement shall be construed in accordance with applicable
federal law and the laws of the State of Illinois.
13. This Agreement is the entire contract between the parties relating to
the subject matter hereof and supersedes all prior agreements between the
parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the Adviser and the Sub-Adviser have caused this
Agreement to be executed as of the day and year first above written.
ZURICH KEMPER INVESTMENTS, INC.
By: /s/ Patrick H. Dudasik
-----------------------------
Title: Senior Vice President
--------------------------
ZURICH INVESTMENT MANAGEMENT LIMITED
By: /s/ Dennis H. Ferro
------------------------------
Title: Managing Director
---------------------------
-7-
<PAGE> 1
EXHIBIT-99.B5(i)
NOTIFICATION OF ADDITIONAL PORTFOLIO
Zurich Kemper Investments, Inc., a Delaware corporation (the "Adviser"),
pursuant to Paragraph 2 of the Sub-Advisory Agreement (Form 1
Series) ("Sub-Advisory Agreement") dated December 1, 1996 between the
Adviser and Zurich Investment Management Limited, an English corporation
(the "Sub-Adviser") hereby notifies the Sub-Adviser that it desires to
retain the Sub-Adviser to render investment advisory and management
services under the Sub-Advisory Agreement for the Global Income Portfolio of
Investors Fund Series (formerly named Kemper Investors Fund), the
sub-advisory fee for such services to be computed at the annual rate set
forth in Appendix A hereto in accordance with Paragraph 3 of the Sub-Advisory
Agreement.
Dated: May 1, 1997
ZURICH KEMPER INVESTMENTS, INC.
By:_______________________________
Title:____________________________
Attest:_______________________
Title:________________________
Sub-Adviser, pursuant to said Paragraph 2 of the Sub-Advisory Agreement,
hereby notifies the Adviser that it is willing to render the aforesaid
services for the Global Income Portfolio for the sub-advisory fee described
above and acknowledges that such Portfolio shall hereby become a
"Portfolio" under the Sub-Advisory Agreement.
ZURICH INVESTMENT MANAGEMENT LIMITED
By:_________________________________
Title:______________________________
Attest:_____________________
Title:______________________
<PAGE> 2
APPENDIX A
SUB-ADVISORY FEE
Portfolio Annual Rate
--------- -----------
Global Income .30 of 1%
<PAGE> 1
EXHIBIT 99.b10(a)
[VEDDER PRICE LETTERHEAD]
April 25, 1997
Kemper Investors Fund
222 South Riverside Plaza
Chicago, Illinois 60606
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A under the Securities Act of 1933 being
filed by Kemper Investors Fund (the "Fund") in connection with the proposed
public offering of units of beneficial interest, no par value "(Shares"), in
the Blue Chip Portfolio and the Global Income Portfolio (the "Portfolios").
We have acted as counsel to the Fund, and in such capacity are familiar
with the Fund's organization and have counseled the Fund regarding various legal
matters. We have examined such Fund records and other documents and
certificates as we have considered necessary or appropriate for the purposes
of this opinion. In our examination of such materials, we have assumed the
genuineness of all signatures and the conformity to original documents of all
copies submitted to us.
Based upon foregoing and upon the opinion dated April 25, 1997 by Ropes
& Gray of Boston, Massachusetts, and assuming that the Fund's Agreement and
Declaration of Trust dated January, 22, 1987, as amended December 18, 1991,
April 15, 1994, January 17, 1996, March 6, 1996 and March 20, 1997, and the
By-laws of the Fund adopted January 22, 1987 are presently in full force and
effect and have not been amended in any respect and the the resolutions adopted
by the Board of Trustees of the Fund on January 22, 1987, January 17, 1996 and
March 11, 1997 relating to organizational matters, securties matters and the
issuance of shares are presently in full force and effect and have not been
amended in any respect, we advise you and opine that (a) the Fund is a legally
orgainzed and validly existing voluntary association with transferrable shares
under the laws of the Commonwealth of Massachusetts and is authorized to issue
an unlimited number of Shares in the Portfolios; and (b) upon the issuance of
the Shares in accordance with the Fund's Agreement and Declaration of Trust and
the receipt by the Fund of a purchase price not less than the net asset value
per Share, the Shares will be legally issued and outstanding,
<PAGE> 2
[VEDDER PRICE LETTERHEAD]
Kemper Investors Fund
April 25, 1997
Page 2
fully paid and nonassessable (although shareholders of the Fund may be subject
to liability under certain circumstances described in the opinion from Ropes &
Gray).
This opinion is solely for the benefit of the Fund, the Fund's Board of
Trustees and the Fund's officers and may not be relied upon by any other
person without our prior written consent. We hereby consent to the use of this
opinion in connection with said Post-Effective Amendment.
Very truly yours,
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
DAS/COK/dme
<PAGE> 1
EXHIBIT 99.b10.(b)
[ROPES & GRAY LETTERHEAD]
April 25, 1997
Kemper Investors Fund
222 South Riverside Plaza
Chicago, Illinois 60606
Vedder, Price, Kaufman & Kammholz
22 North LaSalle Street
Chicago, Illinois 60601
Ladies and Gentlemen:
We are furnishing this opinion with respect to the proposed offer and
sale from time to time by the Blue Chip Portfolio and the Global Income
Portfolio (the "Funds"), each a series of Kemper Investors Fund (the "Trust"),
of an indefinite number of shares of beneficial interest of the Funds (the
"Shares"), pursuant to a post-effective amendment to the Trust's Registration
Statement on Form N-1A (No. 33-11802) under the Securities Act of 1933, as
amended.
We have examined the Trust's records of Trustee action, its By-Laws and
its Agreement and Declaration of Trust, as amended to date. We have examined
such other documents as we deem necessary for the purposes of this opinion.
With respect to the organization and legal existence of the Trust, we have
relied, with your consent, solely on an opinion of Freedman, Levy, Kroll &
Simonds dated June 12, 1987 and a certificate of the Secretary of State of The
Commonwealth of Massachusetts dated April 22, 1997.
We assume that appropriate action has been or will be taken to register
or qualify the sale of the Shares under any applicable state laws regulating
sales and offerings of securities and that upon sale of the Shares, the Trust
will receive the authorized consideration therefor, and that such consideration
will in each case at lease equal the net asset value of the shares,
Based upon the foregoing, we are of the opinion that:
1. The Trust is a legally organized and validly existing unincorporated
voluntary association under the laws of The Commonwealth of Massachusetts
which, unless terminated
<PAGE> 2
Kemper Investors Fund
Vedder, Price, Kaufman & Kammholz -2- April 25, 1997
as provided in its Agreement an Declaration of Trust, shall continue in
existence without limitation of time.
2. The Trust authorized to issue an unlimited number of Shares and
that, when the Shares are issued and sold after the post-effective amendment to
the Registration Statement has been declared effective and the authorized
consideration therefor is received by the Trust, they will be validly issued,
fully paid, and nonassessable by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust or
any series of the Trust (a "Series"). However, the Agreement and Declaration
of Trust disclaims shareholder liability for acts and obligations of the Trust
or of a particular Series and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Trustees or officers of the Trust. The Agreement and Declaration of Trust
provides for indemnification out of the property of a particular Series for all
loss and expense of any shareholder of that Series held personally liable for
the obligations of such Series. Thus, the risk of liability is limited to
circumstances in which the relevant Series would be unable to meet its
obligations.
We hereby consent to the filing of this opinion as an exhibit to the
aforesaid post-effective amendment to the Trust's Registration Statement.
Very truly yours,
Ropes & Gray
<PAGE> 1
EXHIBIT 99.b11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors and Reports to Shareholders" and to the
use of our report with respect to Kemper Investors Fund-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 dated February 14, 1997 and to the
use our report with respect to Kemper Investors Fund-Blue Chip and Global
Income Portfolios dated April 22, 1997 in the Registration Statement of Kemper
Investors Fund on Form N-1A and the related Prospectus and Statement of
Additional Information filed with the Securities and Exchange Commission in
this Post-Effective Amendment No. 18 to the Registration Statement under the
Securities Act of 1933 (File No. 33-11802) and in this Amendment No. 19 to the
Registration Statement under the Investment Company Act of 1940 (File No.
811-5002).
ERNST & YOUNG LLP
Chicago, Illinois
April 24, 1997
<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 net assets of the Blue Chip
Portfolio and the Global Income Portfolio, comprising certain of the Portfolios
of Kemper Investors Fund as of April 22, 1997. 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, 1997 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
April 22, 1997
<PAGE> 3
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,
Growth, Government Securities, International, Small Cap Growth, Investment
Grade Bond, Value, Small Cap Value, Value+Growth, Horizon 20+, Horizon 10+ and
Horizon 5 Portfolios, comprising the Kemper Investors Fund as of December 31,
1996, 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 for
the Money Market, Total Return, High Yield, Growth, Government Securities,
International and Small Cap Growth Portfolios and the related statements of
operations and changes in the net assets for the period May 1, 1996
(commencement of operations) to December 31, 1996 for the Investment Grade
Bond, Value, Small Cap Value, Value+Growth, Horizon 20+, Horizon 10+ and
Horizon 5 Portfolios, 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, 1996, 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, 1996, the results of
their operations, the changes in their net assets and the financial highlights
for the fiscal periods referred to above in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 14, 1997
<PAGE> 1
EXHIBIT-99.B13
SUBSCRIPTION AGREEMENT
KEMPER INVESTORS FUND
Blue Chip Portfolio
Global Income Portfolio
1. Share Subscription. The undersigned agrees to purchase from KEMPER
INVESTORS FUND (the "Fund") the number of shares (the "Shares") of the Fund's
Blue Chip and Global Income Portfolios (the "Portfolios"), without par value,
set forth at the end of this Agreement on the terms and conditions set forth
herein and in the Preliminary Prospectus ("Preliminary Prospectus") described
below, and hereby tenders the amount of the price required to purchase these
Shares at the price set forth at the end of this Agreement.
The undersigned understands that the Fund has prepared a registration
statement or an amendment thereto for filing with the Securities and Exchange
Commission on Form N-1A, which contains the Preliminary Prospectus which
describes the Fund, the Portfolios and the Shares. By its signature hereto,
the undersigned hereby acknowledges receipt of a copy of the Preliminary
Prospectus.
The undersigned recognizes that the Portfolios will not be fully
operational until such time as they commence the public offering of their
shares. Accordingly, a number of features of the Portfolios described in the
Preliminary Prospectus, including, without limitation, the declaration and
payment of dividends, and redemption of shares upon request of shareholders,
are not, in fact, in existence at the present time and will not be instituted
until the Fund's registration under the Securities Act of 1933 is made
effective.
2. Registration and Warranties. The undersigned hereby represents and
warrants as follows:
(a) It is aware that no Federal or state agency has made any
findings or determination as to the fairness for investment, nor any
recommendation or endorsement, of the Shares;
(b) It has such knowledge and experience of financial and business
matters as will enable it to utilize the information made available to it
in connection with the offering of the Shares, to evaluate the merits and
risks of
<PAGE> 2
the prospective investment and to make an informed investment decision;
(c) It recognizes that the Portfolios have no financial or
operating history and, further, that investment in the Portfolios involves
certain risks, and it has taken full cognizance of and understands all of
the risks related to the purchase of the Shares, and it acknowledges that
it has suitable financial resources and anticipated income to bear the
economic risk of such an investment;
(d) It is purchasing the Shares for its own account, for
investment, and not with any present intention of redemption,
distribution, or resale of the Shares, either in whole or in part;
(e) It will not sell the Shares purchased by it without
registration of the Shares under the Securities Act of 1933 or exemption
therefrom;
(f) This Agreement and the Preliminary Prospectus and such material
documents relating to the Fund as it has requested have been provided to
it by the Fund and have been reviewed carefully by it; and
(g) It has also had the opportunity to ask questions of, and
receive answers from, representatives of the Fund concerning the Fund and
the terms of the offering.
3. The undersigned recognizes that the Fund reserves the unrestricted
right to reject or limit any subscription and to close the offer at any time.
2
<PAGE> 3
Number of Shares of each Portfolio: 100,000 shares at a subscription
price of $1.000 per share for an aggregate price of $100,000.00 for each of the
Blue Chip and Global Income Portfolios.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 22nd
day of April, 1997.
ZURICH KEMPER INVESTMENTS, INC.
By: /s/ Philip J. Collora
----------------------------
Title: Senior Vice President
-------------------------
3
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
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> 01
<NAME> MONEY MARKET PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 71,225
<INVESTMENTS-AT-VALUE> 71,225
<RECEIVABLES> 499
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 71,728
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,127
<TOTAL-LIABILITIES> 1,127
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 70,601
<SHARES-COMMON-STOCK> 70,601
<SHARES-COMMON-PRIOR> 61,078
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 70,601
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,143
<OTHER-INCOME> 0
<EXPENSES-NET> (455)
<NET-INVESTMENT-INCOME> 3,688
<REALIZED-GAINS-CURRENT> (850)
<APPREC-INCREASE-CURRENT> 850
<NET-CHANGE-FROM-OPS> 3,688
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,688)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 149,223
<NUMBER-OF-SHARES-REDEEMED> (143,404)
<SHARES-REINVESTED> 3,704
<NET-CHANGE-IN-ASSETS> 9,523
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 376
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 455
<AVERAGE-NET-ASSETS> 75,249
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORAMTION EXTRACTED FROM THE 1996
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> 02
<NAME> TOTAL RETURN PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 615,420
<INVESTMENTS-AT-VALUE> 697,850
<RECEIVABLES> 8,253
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 706,103
<PAYABLE-FOR-SECURITIES> 3,287
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,714
<TOTAL-LIABILITIES> 9,001
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 507,950
<SHARES-COMMON-STOCK> 247,603
<SHARES-COMMON-PRIOR> 255,878
<ACCUMULATED-NII-CURRENT> 21,298
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 85,424
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 82,430
<NET-ASSETS> 697,102
<DIVIDEND-INCOME> 6,023
<INTEREST-INCOME> 19,431
<OTHER-INCOME> 0
<EXPENSES-NET> (3,936)
<NET-INVESTMENT-INCOME> 21,518
<REALIZED-GAINS-CURRENT> 86,334
<APPREC-INCREASE-CURRENT> (4,464)
<NET-CHANGE-FROM-OPS> 103,388
<EQUALIZATION> (891)
<DISTRIBUTIONS-OF-INCOME> (22,873)
<DISTRIBUTIONS-OF-GAINS> (20,332)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 36,913
<NUMBER-OF-SHARES-REDEEMED> (62,870)
<SHARES-REINVESTED> 17,682
<NET-CHANGE-IN-ASSETS> 37,208
<ACCUMULATED-NII-PRIOR> 23,521
<ACCUMULATED-GAINS-PRIOR> 19,445
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,691
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,936
<AVERAGE-NET-ASSETS> 672,859
<PER-SHARE-NAV-BEGIN> 2.579
<PER-SHARE-NII> .084
<PER-SHARE-GAIN-APPREC> .322
<PER-SHARE-DIVIDEND> (.090)
<PER-SHARE-DISTRIBUTIONS> (.080)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 2.815
<EXPENSE-RATIO> .59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
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> 03
<NAME> HIGH YIELD PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 275,528
<INVESTMENTS-AT-VALUE> 284,341
<RECEIVABLES> 6,316
<ASSETS-OTHER> 153
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 290,810
<PAYABLE-FOR-SECURITIES> 553
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 942
<TOTAL-LIABILITIES> 1,495
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 283,159
<SHARES-COMMON-STOCK> 225,904
<SHARES-COMMON-PRIOR> 204,457
<ACCUMULATED-NII-CURRENT> 18,803
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (21,460)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,813
<NET-ASSETS> 289,315
<DIVIDEND-INCOME> 105
<INTEREST-INCOME> 26,881
<OTHER-INCOME> 0
<EXPENSES-NET> (1,689)
<NET-INVESTMENT-INCOME> 25,297
<REALIZED-GAINS-CURRENT> 711
<APPREC-INCREASE-CURRENT> 9,092
<NET-CHANGE-FROM-OPS> 35,100
<EQUALIZATION> (2,891)
<DISTRIBUTIONS-OF-INCOME> (24,806)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 101,227
<NUMBER-OF-SHARES-REDEEMED> (101,236)
<SHARES-REINVESTED> 21,456
<NET-CHANGE-IN-ASSETS> 31,938
<ACCUMULATED-NII-PRIOR> 21,194
<ACCUMULATED-GAINS-PRIOR> (22,162)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,565
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,689
<AVERAGE-NET-ASSETS> 261,835
<PER-SHARE-NAV-BEGIN> 1.259
<PER-SHARE-NII> .120
<PER-SHARE-GAIN-APPREC> .042
<PER-SHARE-DIVIDEND> (.140)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.281
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
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> 04
<NAME> GROWTH PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 459,172
<INVESTMENTS-AT-VALUE> 492,138
<RECEIVABLES> 5,892
<ASSETS-OTHER> 1,261
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 499,291
<PAYABLE-FOR-SECURITIES> 8,650
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,158
<TOTAL-LIABILITIES> 11,808
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 338,706
<SHARES-COMMON-STOCK> 144,606
<SHARES-COMMON-PRIOR> 127,086
<ACCUMULATED-NII-CURRENT> 5,752
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 110,059
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32,966
<NET-ASSETS> 487,483
<DIVIDEND-INCOME> 3,920
<INTEREST-INCOME> 3,090
<OTHER-INCOME> 0
<EXPENSES-NET> (2,850)
<NET-INVESTMENT-INCOME> 4,160
<REALIZED-GAINS-CURRENT> 111,045
<APPREC-INCREASE-CURRENT> (29,470)
<NET-CHANGE-FROM-OPS> 85,735
<EQUALIZATION> 409
<DISTRIBUTIONS-OF-INCOME> (5,021)
<DISTRIBUTIONS-OF-GAINS> (58,999)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 33,305
<NUMBER-OF-SHARES-REDEEMED> (37,981)
<SHARES-REINVESTED> 22,196
<NET-CHANGE-IN-ASSETS> 72,950
<ACCUMULATED-NII-PRIOR> 6,191
<ACCUMULATED-GAINS-PRIOR> 58,026
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,658
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,850
<AVERAGE-NET-ASSETS> 444,170
<PER-SHARE-NAV-BEGIN> 3.262
<PER-SHARE-NII> .030
<PER-SHARE-GAIN-APPREC> .589
<PER-SHARE-DIVIDEND> (.040)
<PER-SHARE-DISTRIBUTIONS> (.470)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 3.371
<EXPENSE-RATIO> .64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
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> 05
<NAME> GOVERNMENT SECURITIES PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 100,612
<INVESTMENTS-AT-VALUE> 101,634
<RECEIVABLES> 2,895
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 104,529
<PAYABLE-FOR-SECURITIES> 18,340
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,875
<TOTAL-LIABILITIES> 20,215
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 73,298
<SHARES-COMMON-STOCK> 69,839
<SHARES-COMMON-PRIOR> 74,992
<ACCUMULATED-NII-CURRENT> 15,002
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,008)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,022
<NET-ASSETS> 84,314
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,837
<OTHER-INCOME> 0
<EXPENSES-NET> (578)
<NET-INVESTMENT-INCOME> 6,259
<REALIZED-GAINS-CURRENT> (527)
<APPREC-INCREASE-CURRENT> (3,644)
<NET-CHANGE-FROM-OPS> 2,088
<EQUALIZATION> (1,240)
<DISTRIBUTIONS-OF-INCOME> (6,507)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,632
<NUMBER-OF-SHARES-REDEEMED> (22,442)
<SHARES-REINVESTED> 5,657
<NET-CHANGE-IN-ASSETS> (10,871)
<ACCUMULATED-NII-PRIOR> 16,486
<ACCUMULATED-GAINS-PRIOR> (4,477)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 485
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 578
<AVERAGE-NET-ASSETS> 88,344
<PER-SHARE-NAV-BEGIN> 1.269
<PER-SHARE-NII> .085
<PER-SHARE-GAIN-APPREC> (.057)
<PER-SHARE-DIVIDEND> (.090)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.207
<EXPENSE-RATIO> .66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
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> 06
<NAME> INTERNATIONAL PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 132,888
<INVESTMENTS-AT-VALUE> 162,545
<RECEIVABLES> 1,257
<ASSETS-OTHER> 384
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 164,186
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 711
<TOTAL-LIABILITIES> 711
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 124,087
<SHARES-COMMON-STOCK> 104,504
<SHARES-COMMON-PRIOR> 98,119
<ACCUMULATED-NII-CURRENT> 2,739
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,755
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29,894
<NET-ASSETS> 163,475
<DIVIDEND-INCOME> 2,568
<INTEREST-INCOME> 320
<OTHER-INCOME> 0
<EXPENSES-NET> (1,500)
<NET-INVESTMENT-INCOME> 1,388
<REALIZED-GAINS-CURRENT> 7,804
<APPREC-INCREASE-CURRENT> 14,086
<NET-CHANGE-FROM-OPS> 23,278
<EQUALIZATION> (121)
<DISTRIBUTIONS-OF-INCOME> (2,012)
<DISTRIBUTIONS-OF-GAINS> (1,044)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 41,003
<NUMBER-OF-SHARES-REDEEMED> (36,773)
<SHARES-REINVESTED> 2,155
<NET-CHANGE-IN-ASSETS> 28,994
<ACCUMULATED-NII-PRIOR> 2,592
<ACCUMULATED-GAINS-PRIOR> 887
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,174
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,500
<AVERAGE-NET-ASSETS> 156,067
<PER-SHARE-NAV-BEGIN> 1.371
<PER-SHARE-NII> .011
<PER-SHARE-GAIN-APPREC> .212
<PER-SHARE-DIVIDEND> (.020)
<PER-SHARE-DISTRIBUTIONS> (.010)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.564
<EXPENSE-RATIO> .96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
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> 07
<NAME> SMALL CAP GROWTH PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 63,082
<INVESTMENTS-AT-VALUE> 71,331
<RECEIVABLES> 113
<ASSETS-OTHER> 537
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 71,981
<PAYABLE-FOR-SECURITIES> 2,719
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 125
<TOTAL-LIABILITIES> 2,844
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,074
<SHARES-COMMON-STOCK> 41,235
<SHARES-COMMON-PRIOR> 26,283
<ACCUMULATED-NII-CURRENT> 444
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,370
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,249
<NET-ASSETS> 69,137
<DIVIDEND-INCOME> 98
<INTEREST-INCOME> 377
<OTHER-INCOME> 0
<EXPENSES-NET> (396)
<NET-INVESTMENT-INCOME> 79
<REALIZED-GAINS-CURRENT> 8,533
<APPREC-INCREASE-CURRENT> 3,586
<NET-CHANGE-FROM-OPS> 12,198
<EQUALIZATION> 138
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,209)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28,558
<NUMBER-OF-SHARES-REDEEMED> (14,446)
<SHARES-REINVESTED> 840
<NET-CHANGE-IN-ASSETS> 33,764
<ACCUMULATED-NII-PRIOR> 224
<ACCUMULATED-GAINS-PRIOR> 1,049
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 340
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 396
<AVERAGE-NET-ASSETS> 52,377
<PER-SHARE-NAV-BEGIN> 1.346
<PER-SHARE-NII> .002
<PER-SHARE-GAIN-APPREC> .369
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.040)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.677
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
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> 8-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1,964
<INVESTMENTS-AT-VALUE> 1,965
<RECEIVABLES> 31
<ASSETS-OTHER> 111
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,107
<PAYABLE-FOR-SECURITIES> 108
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1
<TOTAL-LIABILITIES> 109
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,936
<SHARES-COMMON-STOCK> 1,929
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 59
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1
<NET-ASSETS> 1,998
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 36
<OTHER-INCOME> 0
<EXPENSES-NET> (6)
<NET-INVESTMENT-INCOME> 30
<REALIZED-GAINS-CURRENT> 2
<APPREC-INCREASE-CURRENT> 1
<NET-CHANGE-FROM-OPS> 33
<EQUALIZATION> 29
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,962
<NUMBER-OF-SHARES-REDEEMED> (133)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,898
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6
<AVERAGE-NET-ASSETS> 934
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .031
<PER-SHARE-GAIN-APPREC> .005
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.036
<EXPENSE-RATIO> .87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
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> 09
<NAME> VALUE PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 19,871
<INVESTMENTS-AT-VALUE> 21,268
<RECEIVABLES> 115
<ASSETS-OTHER> 441
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,824
<PAYABLE-FOR-SECURITIES> 486
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33
<TOTAL-LIABILITIES> 519
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,457
<SHARES-COMMON-STOCK> 18,154
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 270
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 181
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,397
<NET-ASSETS> 21,305
<DIVIDEND-INCOME> 129
<INTEREST-INCOME> 67
<OTHER-INCOME> 0
<EXPENSES-NET> (53)
<NET-INVESTMENT-INCOME> 143
<REALIZED-GAINS-CURRENT> 181
<APPREC-INCREASE-CURRENT> 1,397
<NET-CHANGE-FROM-OPS> 1,721
<EQUALIZATION> 127
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,543
<NUMBER-OF-SHARES-REDEEMED> (489)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 21,205
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 44
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 54
<AVERAGE-NET-ASSETS> 9,063
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .015
<PER-SHARE-GAIN-APPREC> .159
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.174
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
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> 8-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 12,503
<INVESTMENTS-AT-VALUE> 13,247
<RECEIVABLES> 181
<ASSETS-OTHER> 493
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,921
<PAYABLE-FOR-SECURITIES> 598
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16
<TOTAL-LIABILITIES> 614
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,545
<SHARES-COMMON-STOCK> 13,064
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 172
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (154)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 744
<NET-ASSETS> 13,307
<DIVIDEND-INCOME> 85
<INTEREST-INCOME> 57
<OTHER-INCOME> 0
<EXPENSES-NET> (40)
<NET-INVESTMENT-INCOME> 102
<REALIZED-GAINS-CURRENT> (154)
<APPREC-INCREASE-CURRENT> 744
<NET-CHANGE-FROM-OPS> 692
<EQUALIZATION> 70
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,865
<NUMBER-OF-SHARES-REDEEMED> (901)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 13,207
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 33
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 41
<AVERAGE-NET-ASSETS> 6,706
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .013
<PER-SHARE-GAIN-APPREC> .006
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.019
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
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> 8-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 9,330
<INVESTMENTS-AT-VALUE> 9,968
<RECEIVABLES> 33
<ASSETS-OTHER> 407
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,408
<PAYABLE-FOR-SECURITIES> 204
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8
<TOTAL-LIABILITIES> 212
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,428
<SHARES-COMMON-STOCK> 8,896
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 69
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 61
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 638
<NET-ASSETS> 10,196
<DIVIDEND-INCOME> 45
<INTEREST-INCOME> 10
<OTHER-INCOME> 0
<EXPENSES-NET> (27)
<NET-INVESTMENT-INCOME> 28
<REALIZED-GAINS-CURRENT> 61
<APPREC-INCREASE-CURRENT> 638
<NET-CHANGE-FROM-OPS> 727
<EQUALIZATION> 41
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,367
<NUMBER-OF-SHARES-REDEEMED> (571)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10,096
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 22
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 30
<AVERAGE-NET-ASSETS> 4,407
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .008
<PER-SHARE-GAIN-APPREC> .138
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.146
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
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> 12
<NAME> HORIZON 20+ PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 3,475
<INVESTMENTS-AT-VALUE> 3,721
<RECEIVABLES> 17
<ASSETS-OTHER> 131
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,869
<PAYABLE-FOR-SECURITIES> 107
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3
<TOTAL-LIABILITIES> 110
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,463
<SHARES-COMMON-STOCK> 3,258
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 39
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 246
<NET-ASSETS> 3,759
<DIVIDEND-INCOME> 12
<INTEREST-INCOME> 15
<OTHER-INCOME> 0
<EXPENSES-NET> (9)
<NET-INVESTMENT-INCOME> 18
<REALIZED-GAINS-CURRENT> 11
<APPREC-INCREASE-CURRENT> 246
<NET-CHANGE-FROM-OPS> 275
<EQUALIZATION> 21
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,249
<NUMBER-OF-SHARES-REDEEMED> (91)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,659
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12
<AVERAGE-NET-ASSETS> 1,600
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .012
<PER-SHARE-GAIN-APPREC> .142
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.154
<EXPENSE-RATIO> .81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
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> 13
<NAME> HORIZON 10+ PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 5,278
<INVESTMENTS-AT-VALUE> 5,597
<RECEIVABLES> 76
<ASSETS-OTHER> 59
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,732
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5
<TOTAL-LIABILITIES> 5,727
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,308
<SHARES-COMMON-STOCK> 5,142
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 94
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 319
<NET-ASSETS> 5,727
<DIVIDEND-INCOME> 15
<INTEREST-INCOME> 50
<OTHER-INCOME> 0
<EXPENSES-NET> (15)
<NET-INVESTMENT-INCOME> 50
<REALIZED-GAINS-CURRENT> 6
<APPREC-INCREASE-CURRENT> 319
<NET-CHANGE-FROM-OPS> 375
<EQUALIZATION> 44
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,200
<NUMBER-OF-SHARES-REDEEMED> (158)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,627
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19
<AVERAGE-NET-ASSETS> 2,786
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .018
<PER-SHARE-GAIN-APPREC> .096
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.114
<EXPENSE-RATIO> .78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
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> 8-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,410
<INVESTMENTS-AT-VALUE> 2,504
<RECEIVABLES> 43
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,547
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13
<TOTAL-LIABILITIES> 13
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,384
<SHARES-COMMON-STOCK> 2,313
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 54
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 94
<NET-ASSETS> 2,534
<DIVIDEND-INCOME> 5
<INTEREST-INCOME> 31
<OTHER-INCOME> 0
<EXPENSES-NET> 7
<NET-INVESTMENT-INCOME> 29
<REALIZED-GAINS-CURRENT> 2
<APPREC-INCREASE-CURRENT> 94
<NET-CHANGE-FROM-OPS> 125
<EQUALIZATION> 25
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,326
<NUMBER-OF-SHARES-REDEEMED> (113)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,434
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8
<AVERAGE-NET-ASSETS> 1,250
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .023
<PER-SHARE-GAIN-APPREC> .073
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.096
<EXPENSE-RATIO> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
