INVESTORS FUND SERIES, 497, 1998-05-05

INVESTORS FUND SERIES
497, 1998-05-05

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<PAGE> 1

TABLE OF CONTENTS

<TABLE>
<S> <C>
Summary.................................. 2
Financial Highlights..................... 5
Investment Objectives, Policies and Risk
Factors................................ 14
Investment Techniques.................... 39
Net Asset Value.......................... 45
Purchase and Redemption.................. 46
Dividends and Taxes...................... 47
Capital Structure and General
Information............................ 47
Investment Manager....................... 48
Distributor.............................. 53
Appendix................................. 54
</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, 1998, 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 KEMPER 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, 1998

INVESTORS FUND SERIES
222 SOUTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
1-800-778-1482

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

The twenty investment portfolios are:

KEMPER MONEY MARKET PORTFOLIO
KEMPER TOTAL RETURN PORTFOLIO
KEMPER HIGH YIELD PORTFOLIO
KEMPER GROWTH PORTFOLIO
KEMPER GOVERNMENT SECURITIES PORTFOLIO
KEMPER INTERNATIONAL PORTFOLIO
KEMPER SMALL CAP GROWTH PORTFOLIO
KEMPER INVESTMENT GRADE BOND PORTFOLIO
KEMPER CONTRARIAN VALUE PORTFOLIO
KEMPER SMALL CAP VALUE PORTFOLIO
KEMPER VALUE+GROWTH PORTFOLIO
KEMPER HORIZON 20+ PORTFOLIO
KEMPER HORIZON 10+ PORTFOLIO
KEMPER HORIZON 5 PORTFOLIO
KEMPER BLUE CHIP PORTFOLIO
KEMPER GLOBAL INCOME PORTFOLIO
KEMPER-DREMAN HIGH RETURN EQUITY
PORTFOLIO
KEMPER-DREMAN FINANCIAL SERVICES PORTFOLIO
KEMPER GLOBAL BLUE CHIP PORTFOLIO
KEMPER INTERNATIONAL GROWTH AND 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> 2

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 twenty
portfolios ("Portfolios"), listed below. 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 twenty Portfolios of the Fund are as follows:

KEMPER MONEY MARKET PORTFOLIO ("Money Market Portfolio") seeks maximum current
income to the extent consistent with stability of principal from a portfolio of
high quality money market instruments.

KEMPER TOTAL RETURN PORTFOLIO ("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.

KEMPER HIGH YIELD PORTFOLIO ("High Yield Portfolio") seeks to provide a high
level of current income by investing in fixed-income securities.

KEMPER GROWTH PORTFOLIO ("Growth Portfolio") seeks maximum appreciation of
capital through diversification of investment securities having potential for
capital appreciation.

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

KEMPER INTERNATIONAL PORTFOLIO ("International Portfolio") seeks total return, a
combination of capital growth and income, principally through an internationally
diversified portfolio of equity securities.

KEMPER SMALL CAP GROWTH PORTFOLIO ("Small Cap Growth Portfolio") seeks maximum
appreciation of investors' capital from a portfolio primarily of growth stocks
of smaller companies.

KEMPER INVESTMENT GRADE BOND PORTFOLIO ("Investment Grade Bond Portfolio") seeks
high current income by investing primarily in a diversified portfolio of
investment grade debt securities.

KEMPER CONTRARIAN VALUE PORTFOLIO ("Contrarian Value Portfolio") seeks to
achieve a high rate of total return from a portfolio primarily of value stocks
of larger companies.

KEMPER SMALL CAP VALUE PORTFOLIO ("Small Cap Value Portfolio") seeks long-term
capital appreciation from a portfolio primarily of value stocks of smaller
companies.

KEMPER VALUE+GROWTH PORTFOLIO ("Value+Growth Portfolio") seeks growth of capital
through professional management of a portfolio of growth and value stocks.

KEMPER HORIZON 20+ PORTFOLIO ("Horizon 20+ Portfolio"), designed for investors
with approximately a 20+ year investment horizon, seeks growth of capital, with
income as a secondary objective.

2
<PAGE> 3

KEMPER HORIZON 10+ PORTFOLIO ("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.

KEMPER HORIZON 5 PORTFOLIO ("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.

KEMPER BLUE CHIP PORTFOLIO ("Blue Chip Portfolio") seeks growth of capital and
of income.

KEMPER GLOBAL INCOME PORTFOLIO ("Global Income Portfolio") seeks to provide high
current income consistent with prudent total return asset management.

KEMPER-DREMAN HIGH RETURN EQUITY PORTFOLIO ("High Return Equity Portfolio")
seeks to achieve a high rate of total return.

KEMPER-DREMAN FINANCIAL SERVICES PORTFOLIO ("Financial Services Portfolio")
seeks long-term capital appreciation by investing primarily in common stocks and
other equity securities of companies in the financial services industry believed
by the Portfolio's investment manager to be undervalued.

KEMPER GLOBAL BLUE CHIP PORTFOLIO ("Global Blue Chip Portfolio") seeks long-term
growth of capital through a diversified worldwide portfolio of marketable
securities, primarily equity securities, including common stocks, preferred
stocks and debt securities convertible into common stocks.

KEMPER INTERNATIONAL GROWTH AND INCOME PORTFOLIO ("International Growth and
Income Portfolio") seeks long-term growth of capital and current income,
primarily from foreign equity securities.

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, Blue Chip and Financial Services
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, Global Income, Global Blue
Chip and International Growth and Income Portfolios 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 for certain portfolios. The High Yield Portfolio will, and
the Total Return, Government Securities, Investment Grade Bond, Horizon,
Financial Services, Global Blue Chip and International Growth and Income
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, Horizon, Financial Services, Global Blue Chip and International
Growth and Income 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, Global Income,
Global Blue Chip and International Growth and

3
<PAGE> 4

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. The High Return Equity Portfolio may invest a significant
percentage of its total assets in one or more market sectors, in which case,
financial, economic, business and other developments affecting issuers in that
sector may have a greater effect on the Portfolio than if it had not
concentrated its assets in that sector. Concentration by the Financial Services
Portfolio in investments in the financial services industry creates greater risk
than investments across various industries since the financial, economic and
business developments affecting issuers in such industry may have a greater
effect on the Portfolio than if it had not concentrated its assets in the
financial services industry. 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 MANAGER. Scudder Kemper Investments, Inc. ("Scudder Kemper" or
"investment manager") serves as investment manager for each of the Portfolios
and is paid a monthly management fee at 1/12 of 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%), Contrarian (.75%), Small Cap Value (.75%), Value+Growth (.75%), Horizon
20+ (.60%), Horizon 10+ (.60%), Horizon 5 (.60%), Blue Chip (.65%), Global
Income (.75%) and International Growth and Income (1.00%). Scudder Kemper is
paid monthly an investment management fee by the High Return Equity and
Financial Services Portfolios based upon average daily net assets of each
Portfolio at an annual rate ranging from .75% to .62%, and is paid monthly an
investment management fee by the Global Blue Chip Portfolio based upon average
daily net assets of the Portfolio at an annual rate ranging from 1.00% to .90%.
As discussed more fully under "Investment Manager," Scudder Kemper has agreed to
temporarily waive its management fee for the current fiscal year in the amount
of .15% of average daily net assets of the Global Blue Chip Portfolio and .30%
of the average daily net assets of the International Growth and Income
Portfolio. Zurich Investment Management Limited ("ZIML"), an affiliate of
Scudder Kemper, serves as sub-adviser for the International and Global Income
Portfolios. ZIML is paid by Scudder Kemper a fee of .35% for the International
Portfolio and .30% for the Global Income Portfolio of the portion of the average
daily net assets of that Portfolio allocated by Scudder Kemper to ZIML for
management. Dreman Value Management, L.L.C. ("DVM") serves as sub-adviser for
the High Return Equity and Financial Services Portfolios and is paid by Scudder
Kemper a fee based upon average daily net assets of each Portfolio at an annual
rate ranging from .24% to .198%. See "Investment Manager."

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> 5

FINANCIAL HIGHLIGHTS

The tables below show financial information for each Portfolio (other than the
High Return Equity, Financial Services, Global Blue Chip, and International
Growth and Income Portfolios, which commenced operations on May 1, 1998)
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 1997 has
been audited by Ernst & Young LLP, independent auditors. The report of Ernst &
Young LLP is contained in the Fund's Registration Statement and is available
from the Fund. The financial statements contained in the Fund's 1997 Annual
Report to Shareholders are incorporated herein by reference and may be obtained
by writing or calling the Fund.

MONEY MARKET PORTFOLIO

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,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of year $ 2.815 2.579 2.112 2.586 2.473 2.658 2.071 2.021 1.707 1.605
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .090 .084 .084 .069 .069 .061 .080 .113 .102 .086
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .377 .322 .453 (.313) .214 (.026) .677 (.013) .298 .102
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .467 .406 .537 (.244) .283 .035 .757 .100 .400 .188
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income .090 .090 .070 .060 .050 .080 .110 .020 .086 .086
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gain .370 .080 -- .170 .120 .140 .060 .030 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .460 .170 .070 .230 .170 .220 .170 .050 .086 .086
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 2.822 2.815 2.579 2.112 2.586 2.473 2.658 2.071 2.021 1.707
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 19.96% 16.76 25.97 (9.50) 12.13 1.69 37.90 5.04 24.16 11.98
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses .60% .59 .60 .61 .59 .60 .61 .61 .58 .61
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 3.32% 3.21 3.52 3.13 3.19 3.41 3.46 5.94 5.43 5.19
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year
(in thousands) $786,996 697,102 659,894 586,594 643,830 528,007 412,772 272,747 262,652 206,262
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 122% 90 118 128 191 160 187 139 102 152
- ---------------------------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the years ended December 31, 1997 and 1996 were $.0586 and
$.0574, respectively.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

5
<PAGE> 6

HIGH YIELD PORTFOLIO

<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year $ 1.281 1.259 1.185 1.338 1.209 1.144 .914 1.122 1.258 1.225
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .116 .120 .125 .116 .120 .125 .140 .170 .151 .152
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .019 .042 .069 (.149) .109 .070 .300 (.338) (.163) .033
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .135 .162 .194 (.033) .229 .195 .440 (.168) (.012) .185
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends from net
investment income .120 .140 .120 .120 .100 .130 .210 .040 .124 .152
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 1.296 1.281 1.259 1.185 1.338 1.209 1.144 .914 1.122 1.258
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 11.61% 14.06 17.40 (2.25) 20.00 17.76 51.83 (15.45) (1.22) 15.66
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .65% .65 .65 .65 .63 .64 .67 .68 .63 .66
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 9.20% 9.70 10.27 9.49 9.54 10.44 12.95 16.27 12.50 11.98
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in
thousands) $391,664 289,315 257,377 219,415 233,964 162,158 121,608 88,566 150,674 138,461
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 90% 98 90 98 84 57 31 28 81 52
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

GROWTH PORTFOLIO

<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year $ 3.371 3.262 2.665 2.935 2.631 2.642 1.681 1.692 1.348 1.374
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .012 .030 .034 .018 .004 .007 .017 .032 .039 .032
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .448 .589 .793 (.138) .370 .082 .974 (.023) .338 (.026)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .460 .619 .827 (.120) .374 .089 .991 .009 .377 .006
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income .020 .040 .010 -- .010 .005 .030 .010 .033 .032
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gain .810 .470 .220 .150 .060 .095 -- .010 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .830 .510 .230 .150 .070 .100 .030 .020 .033 .032
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 3.001 3.371 3.262 2.665 2.935 2.631 2.642 1.681 1.692 1.348
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 21.34% 21.63 32.97 (4.02) 14.63 3.57 59.47 0.60 27.87 .40
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .65% .64 .64 .66 .64 .64 .67 .68 .70 .71
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .42% .94 1.15 .69 .30 .65 .83 2.23 2.49 2.34
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in
thousands) $563,016 487,483 414,533 321,708 284,461 203,624 118,983 61,621 51,961 45,833
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 170% 175 88 106 78 78 106 135 93 301
- ---------------------------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the years ended December 31, 1997 and 1996 were $.0590 and
$.0558, respectively.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

6
<PAGE> 7

GOVERNMENT SECURITIES PORTFOLIO

<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 1.207 1.269 1.142 1.267 1.277 1.287 1.175 1.091 1.053 1.020
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .084 .085 .084 .067 .060 .064 .090 .093 .092 .089
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) .016 (.057) .123 (.102) .020 .006 .082 .011 .036 (.056)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .100 .028 .207 (.035) .080 .070 .172 .104 .128 .033
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment
income .100 .090 .080 .060 .060 .050 .060 .020 .090 --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gain -- -- -- .030 .030 .030 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .100 .090 .080 .090 .090 .080 .060 .020 .090 --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 1.207 1.207 1.269 1.142 1.267 1.277 1.287 1.175 1.091 1.053
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 8.96% 2.56 18.98 (2.74) 6.48 5.90 15.22 9.81 13.14 3.27
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .64% .66 .65 .63 .60 .61 .63 .58 .53 1.81
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 7.12% 7.09 7.08 5.69 5.05 6.08 7.42 8.48 8.73 7.94
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in
thousands) $86,682 84,314 95,185 95,782 121,912 98,814 59,064 31,929 14,878 1,170
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 179% 325 275 606 534 492 141 174 28 25
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE TO GOVERNMENT SECURITIES PORTFOLIO:

Scudder Kemper 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.

7
<PAGE> 8

INTERNATIONAL PORTFOLIO

<TABLE>
<CAPTION>
Year ended
December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993 1992(a)
-------- -------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.564 1.371 1.244 1.306 .993 1.000
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .011 .011 .018 .009 .010 .010
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .130 .212 .139 (.056) .313 (.017)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .141 .223 .157 (.047) .323 (.007)
- ----------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .020 .020 .010 -- .009 --
- ----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain .070 .010 .020 .015 .001 --
- ----------------------------------------------------------------------------------------------------------------------
Total dividends .090 .030 .030 .015 .010 --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.615 1.564 1.371 1.244 1.306 .993
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 9.46% 16.49 12.83 (3.59) 32.83 (.72)
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses .91% .96 .92 .93 .92 1.11
- ----------------------------------------------------------------------------------------------------------------------
Net investment income .71% .89 1.39 .74 .86 1.01
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $200,046 163,475 134,481 122,710 88,880 19,447
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 79% 87 126 107 116 129
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

Average commission rates paid per share on stock transactions for the years
ended December 31, 1997 and 1996 were $.0142 and $.0183, respectively. 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,
------------------------------------
1997 1996 1995 1994(a)
-------- ------ ------ -------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.677 1.346 1.039 1.000
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .004 .002 .005 .008
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain .488 .369 .307 .031
- --------------------------------------------------------------------------------------------------
Total from investment operations .492 .371 .312 .039
- --------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .010 -- .005 --
- --------------------------------------------------------------------------------------------------
Distribution from net realized gain .190 .040 -- --
- --------------------------------------------------------------------------------------------------
Total dividends .200 .040 .005 --
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.969 1.677 1.346 1.039
- --------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 34.20% 28.04 30.07 3.95
- --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses .71% .75 .87 1.25
- --------------------------------------------------------------------------------------------------
Net investment income .20% .15 .42 .91
- --------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $137,415 69,137 35,373 12,909
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 330% 156 81 58
- --------------------------------------------------------------------------------------------------
</TABLE>

Average commission rates paid per share on stock transactions for the years
ended December 31, 1997 and 1996 were $.0579 and $.0570, respectively.
- --------------------------------------------------------------------------------
NOTE TO SMALL CAP GROWTH PORTFOLIO:

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

8
<PAGE> 9

INVESTMENT GRADE BOND PORTFOLIO

<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1996(a)
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.036 1.000
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .066 .031
- --------------------------------------------------------------------------------
Net realized and unrealized gain .026 .005
- --------------------------------------------------------------------------------
Total from investment operations .092 .036
- --------------------------------------------------------------------------------
Less distribution from net investment income .010 --
- --------------------------------------------------------------------------------
Net asset value, end of period $ 1.118 1.036
- --------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 9.04% 3.57
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses .80% .87
- --------------------------------------------------------------------------------
Net investment income 6.23% 4.93
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $15,504 1,998
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 311% 75
- --------------------------------------------------------------------------------
</TABLE>

NOTE TO INVESTMENT GRADE BOND PORTFOLIO:

(a) For the period from May 1, 1996 (inception) through December 31, 1996.

CONTRARIAN VALUE PORTFOLIO

<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1997 1996(a)
-------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.174 1.000
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income .031 .015
- ---------------------------------------------------------------------------------
Net realized and unrealized gain .323 .159
- ---------------------------------------------------------------------------------
Total from investment operations .354 .174
- ---------------------------------------------------------------------------------
Less distribution from net investment income .010 --
- ---------------------------------------------------------------------------------
Net asset value, end of period $ 1.518 1.174
- ---------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 30.38% 17.36
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .80% .90
- ---------------------------------------------------------------------------------
Net investment income 2.38% 2.42
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .80% .92
- ---------------------------------------------------------------------------------
Net investment income 2.38% 2.40
- ---------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $162,380 21,305
- ---------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 46% 57
- ---------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions $ .0561 .0500
- ---------------------------------------------------------------------------------
</TABLE>

NOTE TO CONTRARIAN VALUE PORTFOLIO:

(a) For the period from May 1, 1996 (inception) through December 31, 1996.

9
<PAGE> 10

SMALL CAP VALUE PORTFOLIO

<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1996(a)
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.019 1.000
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .012 .013
- --------------------------------------------------------------------------------
Net realized and unrealized gain .206 .006
- --------------------------------------------------------------------------------
Total from investment operations .218 .019
- --------------------------------------------------------------------------------
Less distribution from net investment income .010 --
- --------------------------------------------------------------------------------
Net asset value, end of period $ 1.227 1.019
- --------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 21.73% 1.86
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .84% 90
- --------------------------------------------------------------------------------
Net investment income 1.18% 2.25
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .84% .92
- --------------------------------------------------------------------------------
Net investment income 1.18% 2.23
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $76,108 13,307
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 22% 61
- --------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions $ .0533 .0500
- --------------------------------------------------------------------------------
</TABLE>

NOTE TO SMALL CAP VALUE PORTFOLIO:

(a) For the period from May 1, 1996 (inception) through December 31, 1996.

VALUE + GROWTH PORTFOLIO

<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1996(a)
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.146 1.000
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .012 .008
- --------------------------------------------------------------------------------
Net realized and unrealized gain .277 .138
- --------------------------------------------------------------------------------
Total from investment operations .289 .146
- --------------------------------------------------------------------------------
Less distribution from net investment income .010 --
- --------------------------------------------------------------------------------
Net asset value, end of period $ 1.425 1.146
- --------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 25.47% 14.60
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .84% .90
- --------------------------------------------------------------------------------
Net investment income .95% .97
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .84% 1.01
- --------------------------------------------------------------------------------
Net investment income .95% .86
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $69,094 10,196
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 50% 25
- --------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions $ .0591 .0596
- --------------------------------------------------------------------------------
</TABLE>

NOTE TO VALUE + GROWTH PORTFOLIO:

(a) For the period from May 1, 1996 (inception) through December 31, 1996.
10
<PAGE> 11

HORIZON 20+ PORTFOLIO

<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1996(a)
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.154 1.000
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .020 .012
- --------------------------------------------------------------------------------
Net realized and unrealized gain .214 .142
- --------------------------------------------------------------------------------
Total from investment operations .234 .154
- --------------------------------------------------------------------------------
Less distribution from net investment income .010
- --------------------------------------------------------------------------------
Net asset value, end of period $ 1.378 1.154
- --------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 20.48% 15.37
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .93% .81
- --------------------------------------------------------------------------------
Net investment income 1.58% 1.71
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .93% 1.13
- --------------------------------------------------------------------------------
Net investment income 1.58% 1.39
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $16,659 3,759
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 75% 60
- --------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions $ .0517 .0458
- --------------------------------------------------------------------------------
</TABLE>

NOTE TO HORIZON 20+ PORTFOLIO:

(a) For the period from May 1, 1996 (inception) through December 31, 1996.

HORIZON 10+ PORTFOLIO

<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1996(a)
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.114 1.000
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .034 .018
- --------------------------------------------------------------------------------
Net realized and unrealized gain .151 .096
- --------------------------------------------------------------------------------
Total from investment operations .185 .114
- --------------------------------------------------------------------------------
Less distribution from net investment income .010
- --------------------------------------------------------------------------------
Net asset value, end of period $ 1.289 1.114
- --------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 16.77% 11.37
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .83% .78
- --------------------------------------------------------------------------------
Net investment income 2.77% 2.69
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .83% 1.01
- --------------------------------------------------------------------------------
Net investment income 2.77% 2.46
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $22,553 5,727
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 67% 76
- --------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions $ .0501 .0455
- --------------------------------------------------------------------------------
</TABLE>

NOTE TO HORIZON 10+ PORTFOLIO:

(a) For the period from May 1, 1996 (inception) through December 31, 1996.

11
<PAGE> 12

HORIZON 5 PORTFOLIO

<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1996(a)
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.096 1.000
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income .043 .023
- -------------------------------------------------------------------------------
Net realized and unrealized gain .095 .073
- -------------------------------------------------------------------------------
Total from investment operations .138 .096
- -------------------------------------------------------------------------------
Less distribution from net investment income .010
- -------------------------------------------------------------------------------
Net asset value, end of period $ 1.224 1.096
- -------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 12.70% 9.59
- -------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .97% .83
- -------------------------------------------------------------------------------
Net investment income 3.63% 3.60
- -------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION
(ANNUALIZED):
Expenses .97% 1.01
- -------------------------------------------------------------------------------
Net investment income 3.63% 3.42
- -------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $14,258 2,534
- -------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 89% 13
- -------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions $ .0525 .0490
- -------------------------------------------------------------------------------
</TABLE>

NOTE TO HORIZON 5 PORTFOLIO:

(a) For the period from May 1, 1996 (inception) through December 31, 1996.

BLUE CHIP PORTFOLIO

<TABLE>
<CAPTION>
1997(a)
-------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.000
- ---------------------------------------------------------------------
Income from investment operations:
Net investment income .017
- ---------------------------------------------------------------------
Net realized and unrealized gain (loss) .098
- ---------------------------------------------------------------------
Total from investment operations .115
- ---------------------------------------------------------------------
Net asset value, end of period $ 1.115
- ---------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 11.54%
- ---------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses .95%
- ---------------------------------------------------------------------
Net investment income 2.07%
- ---------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $18,421
- ---------------------------------------------------------------------
Portfolio turnover rate (annualized) 78%
- ---------------------------------------------------------------------
Average commission rate paid per share on stock transactions $ .0597
- ---------------------------------------------------------------------
</TABLE>

NOTE TO BLUE CHIP PORTFOLIO:

(a) For the period from May 1, 1997 (inception) through December 31, 1997.

12
<PAGE> 13

GLOBAL INCOME PORTFOLIO

<TABLE>
<CAPTION>
1997(a)
-------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $1.000
- ---------------------------------------------------------------------
Income from investment operations:
Net investment income .036
- ---------------------------------------------------------------------
Net realized and unrealized gain (loss) (.007)
- ---------------------------------------------------------------------
Total from investment operations .029
- ---------------------------------------------------------------------
Net asset value, end of period $1.029
- ---------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 2.87%
- ---------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses 1.10%
- ---------------------------------------------------------------------
Net investment income 5.36%
- ---------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $2,145
- ---------------------------------------------------------------------
Portfolio turnover rate (annualized) 290%
- ---------------------------------------------------------------------
</TABLE>

NOTE FOR GLOBAL INCOME PORTFOLIO:

(a) For the period from May 1, 1997 (inception) through December 31, 1997.

NOTE TO ALL PORTFOLIOS:

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

13
<PAGE> 14

INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS

The Fund has adopted for each Portfolio, other than the High Return Equity,
Financial Services, Global Blue Chip, and International Growth and Income
Portfolios, 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"). The Fund has also
adopted certain fundamental investment restrictions for the High Return Equity,
Financial Services, Global Blue Chip, and International Growth and Income
Portfolio which, together with the investment objective, cannot be changed with
respect to a Portfolio without approval by holders of a majority of the voting
shares as defined in the 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

14
<PAGE> 15

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 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

15
<PAGE> 16

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.

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

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

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

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

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

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

purchase or sell portfolio securities on a when-issued or delayed delivery
basis. See "Special Risk Factors--Foreign Securities" and "Investment
Techniques."

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

17
<PAGE> 18

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.

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<PAGE> 19

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

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<PAGE> 20

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.

CONTRARIAN PORTFOLIO. The Contrarian 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."

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<PAGE> 21

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.

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
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<PAGE> 22

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

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<PAGE> 23

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

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<PAGE> 24

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

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<PAGE> 25

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.

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

25
<PAGE> 26

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.

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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. 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." 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.

HIGH RETURN EQUITY PORTFOLIO. The High Return Equity Portfolio's investment
objective is to achieve a high rate of total return. 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 generally will invest in common stocks that pay relatively
high dividends, i.e., comparable to the dividend yield of Standard & Poor's 500
Composite Stock Index. In order to enhance its investment return, the Portfolio
may sell covered call options, and sell put options on securities it may
acquire. The Portfolio will earn premium income on the sale of these options.

Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities. Equity securities include common stock,
preferred stocks, securities convertible into or exchangeable for common or
preferred stocks, equity investments in partnerships, joint ventures and other
forms of non-corporate investments and warrants and rights exercisable for
equity securities and equity equivalents.

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, 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."

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Although the Portfolio will not invest 25% or more of its total assets in any
one industry, it may, from time to time, invest a significant percentage of its
total assets in one or more market sectors. The investment manager considers a
market sector to be comprised of a group of industries. If the Portfolio
concentrates its investments in a market sector, financial, economic, business
and other developments affecting issuers in that sector may have a greater
effect on the Portfolio than if it had not concentrated its assets in that
sector.

While it is anticipated that under normal circumstances the Portfolio will be
fully invested, in order to conserve assets during temporary defensive periods
when the investment manager deems it appropriate, the Portfolio may invest up to
100% of its assets in cash or defensive-type securities, such as high-grade debt
securities (those rated BBB or above by S&P, or Baa or above by Moody's),
securities of the U.S. Government or its agencies and high quality money market
instruments, including repurchase agreements. Investments in such interest
bearing securities will be for temporary defensive purposes only. It is
impossible to predict for how long such alternative strategies may be utilized.

FINANCIAL SERVICES PORTFOLIO. The Financial Services Portfolio seeks long-term
capital appreciation. The Portfolio pursues its investment objective by
investing primarily in common stocks and other equity securities of companies in
the financial services industry believed by the investment manager 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 a company.

The Portfolio will concentrate its investments in securities of financial
services companies, including commercial banks, insurance companies, thrifts,
consumer finance companies, commercial finance companies, leasing companies,
securities brokerage firms, asset management firms, and government-sponsored
financial enterprises. 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,
however, from time to time, invest in stocks that pay no dividends. 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.

In the opinion of the Portfolio's investment manager, the Portfolio offers
investors the opportunity to participate in the substantial long-term
appreciation potential of companies in the financial services sector.
Concentration by the Portfolio in investments in the financial services industry
creates greater risk than investment across various industries since the
financial, economic and business developments affecting issuers in such industry
may have a greater effect on the Portfolio than if it had not concentrated its
assets in the financial services industry. In addition, an investment in the
Portfolio may involve significantly greater risks and greater volatility than a
diversified equity mutual fund that is invested in issuers in various
industries. The Portfolio is subject to the risk that a particular group of
related stocks will decline in price due to industry-specific developments. As a
result, the Portfolio should only be considered a long-term investment and part
of a well-diversified portfolio.

Under normal circumstances, the Portfolio will invest at least 65% of its assets
in equity securities of companies in the financial services industry. For
purposes of the foregoing, a company will be considered within the financial
services industry if at least 50% of its assets, revenues or net income are
related to or derived from the financial services industry. The Portfolio will
invest primarily in equity securities of U.S. companies, but may invest up to
30% of its assets in foreign companies and in U.S. Dollar-denominated American
Depository Receipts ("ADRs"), which are bought and sold in the United States.
While the Portfolio invests predominantly in common stocks, the Portfolio may
purchase other types of equity securities, including preferred stock,
convertible or non-convertible securities, equity investments in partnerships,
joint ventures and other forms of non-corporate investment and rights and
warrants. Securities may be listed on national exchanges or traded
over-the-counter. The Portfolio may invest up to 35% of its assets in corporate
debt securities, including up to 5% of its assets in securities rated below
investment-grade, I.E., rated below BBB by S&P and below Baa by

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Moody's, or if unrated determined to be of equivalent quality by the Portfolio's
investment manager, or in U.S. Treasury securities, agency and instrumentality
obligations and zero coupon securities. With respect to the Portfolio's
investments in securities rated below investment grade, there is no minimum
quality restriction applicable to such investments. In addition, the Portfolio
may enter into repurchase agreements, loan portfolio securities, purchase
securities on a when-issued basis and, further, may engage in strategic
transactions to attempt to increase stock market participation or for hedging
purposes, to enhance liquidity and manage transaction costs.

GLOBAL BLUE CHIP PORTFOLIO. Global Blue Chip Portfolio seeks long-term growth of
capital through a diversified worldwide portfolio of marketable securities,
primarily equity securities, including common stocks, preferred stocks and debt
securities convertible into common stocks. The Portfolio invests in equity
securities of companies which are incorporated in the U.S. and in foreign
countries. The Portfolio will invest primarily in developed markets, with a
maximum of 15% of the Portfolio's total assets invested in emerging markets. It
also may invest in the debt securities of U.S. and foreign issuers. Income is an
incidental consideration.

In pursuing its objective, the Portfolio will emphasize investments in common
stocks of large, well known companies. Companies of this general type are often
referred to as "Blue Chip" companies. While specific investment and financial
criteria may vary from market to market, Blue Chip companies around the world
are generally identified by the investment manager as having substantial
capitalization, established financial history, ready access to credit, good
industry position and superior management structure. While these companies may
be among the largest in their local markets, they may be small by the standards
of U.S. stock market capitalization. Global Blue Chip companies are believed to
generally exhibit less investment risk and less price volatility, on average,
than companies lacking these characteristics, such as smaller, less-seasoned
companies. In addition, the large market of publicly held shares for such
companies and the generally higher trading volume in those shares generally
result in a relatively high degree of liquidity for such investments. Under
normal market conditions, the Portfolio will, as a non-fundamental policy,
invest at least 65% of its total assets in Global Blue Chip companies.

The Portfolio invests in companies that the investment manager believes will
benefit from global economic trends, promising technologies or products and
specific country opportunities resulting from changing geopolitical, currency or
economic relationships. The Portfolio's global framework allows it to take
advantage of investment opportunities wherever they arise, without being
constrained by location of a company's headquarters or the trading market for
its shares.

It is expected that investments will be spread broadly around the world with an
emphasis on developed economies and capital markets. The Portfolio will usually
be invested in securities of issuers located in at least three countries, one of
which may be the U.S. The Portfolio may be invested 100% in non-U.S. issues, and
for temporary defensive purposes may be invested 100% in U.S. issues, although
under normal circumstances it is expected that both foreign and U.S. investments
will be represented in the Portfolio's holdings. It is expected that investments
will include securities of companies of varying sizes, as measured by assets,
sales, income or market capitalization.

The Portfolio generally invests in equity securities of established companies
listed on U.S. or foreign securities exchanges, but also may invest in
securities traded over-the-counter. It also may invest in debt securities
convertible into common stock, and convertible and non-convertible preferred
stock, and fixed-income securities of governments, government agencies,
supranational agencies and companies when the investment manager believes the
potential for appreciation will equal or exceed that available from investments
in equity

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securities. These debt and fixed-income securities will be predominantly
investment-grade securities, that is, those rated Aaa, Aa, A or Baa by Moody's
or AAA, AA, A or BBB by S&P or those of equivalent quality as determined by the
investment manager. The Portfolio may not invest more than 5% of its total
assets in debt securities rated Baa or below by Moody's, or BBB or below by S&P
or deemed by the investment manager to be of comparable quality (commonly
referred to as "high yield" or "junk" bonds). (See "Special Risk Factors"). With
respect to the Portfolio's investments in securities rated below investment
grade, there is no minimum quality restriction applicable to such investments.

The Portfolio may invest in zero coupon securities. In addition, fixed-income
securities may be held without limit for temporary defensive purposes when the
investment manager believes market conditions so warrant and for temporary
investment. It is impossible to accurately predict how long such alternative
strategies may be utilized. Similarly, the Portfolio may invest in cash
equivalents (including domestic and foreign money market instruments, such as
bankers' acceptances, certificates of deposit, commercial paper, short-term
government and corporate obligations and repurchase agreements) for temporary
defensive purposes and for liquidity. The Portfolio may invest in closed-end
investment companies holding foreign securities, as well as shares of closed-
end investment companies that invest primarily in emerging market debt
securities. In addition, the Portfolio may engage in strategic transactions,
which may include derivatives. (See "Special Risk Factors").

INTERNATIONAL GROWTH AND INCOME PORTFOLIO. International Growth and Income
Portfolio seeks long-term growth of capital and current income primarily from
foreign equity securities. The Portfolio invests generally in common stocks of
established companies listed on foreign exchanges, which offer prospects for
growth of earnings while paying relatively high current dividends. The Portfolio
can also invest in other types of equity securities, including preferred stocks
and securities convertible into common stock. The Portfolio does not invest in
emerging markets, but instead focuses its investments on the developed foreign
countries included in the Morgan Stanley Capital International World ex-US Index
(the "MSCI").

The Portfolio's income-oriented strategy, which can help cushion returns in
volatile periods, and its concentration in developed markets, may make it
appropriate for investors seeking lower share price volatility than many other
international equity funds.

While the Portfolio offers the potential for price appreciation and dividend
income, it also involves various types of risk. The Portfolio's net asset value
can fluctuate with changes in world securities market levels, political
developments, movements in currencies, investment flows and other factors. (See
"Special Risk Factors").

In pursuing its dual objective, at least 80% of the Portfolio's net assets will
normally be invested in the equity securities of established non-U.S. companies.
The Portfolio generally invests in equity securities of established companies
listed on foreign securities exchanges, but also may invest in securities traded
over-the-counter. The Portfolio's equity investments include common stock,
convertible and non-convertible preferred stock, sponsored and unsponsored
depository receipts, and warrants.

The Portfolio intends to diversify investments among several developed foreign
markets and normally to invest in securities of issuers located in at least
three different countries. The Portfolio will invest predominantly in securities
of issuers in the developed foreign countries included in the MSCI.

Under normal conditions, the Portfolio may also invest up to 20% of its net
assets in debt securities convertible into common stock and fixed-income
securities of governments, governmental agencies, supranational agencies and
private issuers when the investment manager believes the potential for
appreciation and income will equal or exceed that available from investments in
equity securities. These securities will predominantly be "investment grade"
securities, which are those rated Aaa, Aa, A, or Baa by Moody's or AAA, AA, A or
BBB by S&P or if unrated, judged by the investment manager to be of equivalent
quality. The Portfolio may also invest up to 5% of its total assets in debt
securities which are rated below-investment grade. (See "Special Risk Factors").

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<PAGE> 31

The Portfolio may also hold up to 20% of its net assets in U.S. and foreign
income securities for temporary defensive purposes when the investment manager
believes market conditions so warrant. Similarly, the Portfolio may invest up to
20% of its net assets in cash equivalents including domestic and foreign money
market instruments, short-term government and corporate obligations and
repurchase agreements under normal circumstances and without limit for temporary
defensive purposes and to maintain liquidity. It is impossible to accurately
predict for how long such alternative strategies may be utilized. In addition,
the Portfolio may engage in strategic transactions, which may include
derivatives. (See "Special Risk Factors").

The investment manager applies a disciplined, multi-part investment approach for
selecting stocks for the Portfolio. The first stage of this process involves
analyzing the pool of dividend-paying foreign securities, primarily from the
world's more mature markets, and targeting stocks that have high relative yields
compared to the average for their markets. In the investment manager's opinion,
this group of higher-yielding stocks offers the potential for returns that is
greater than or equal to the average market return, with price volatility that
is lower than the overall market volatility. The investment manager believes
that these potentially favorable risk and return characteristics exist because
the higher dividends offered by these stocks act as a "cushion" when markets are
volatile and because the stocks with higher yields tend to have more attractive
valuations (e.g., lower price-to-earnings ratios and lower price-to-book
ratios).

The second stage of portfolio construction involves a fundamental analysis of
each company's financial strength, profitability, projected earnings,
competitive positioning and ability of management. During this step, the
investment manager's research team identifies what it believes are the most
promising stocks for the Portfolio.

The third stage of the investment process involves diversifying the Portfolio
among different industry sectors. The key element of this stage is evaluating
how the stocks in different sectors react to economic factors such as interest
rates, inflation, Gross Domestic Product and consumer spending, and then
attaining a proper balance of stocks in these sectors based on the investment
manager's economic forecast.

The fourth and final stage of this ongoing process is diversifying the Portfolio
among different countries. The investment manager will seek to have broad
country representation, favoring those countries that it believes have sound
economic conditions and open markets. The Portfolio's strategy is to manage risk
and create opportunity at each of its four stages in the investment process,
starting with the focus on stocks with high relative yields.

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 Scudder Kemper that typically invest in growth stocks 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 Scudder Kemper that typically invest
in value stocks include the following Portfolios: Contrarian, Small Cap Value,
Value+Growth (value stock portion), Horizon (value stock portion), High Return
Equity and Financial Services.

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, the investment manager emphasizes stock selection and
fundamental research in seeking to enhance long-term performance potential. The
investment manager considers a number of quantitative

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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 the investment manager in making its investments in growth stocks
are patterns of increasing growth in sales and earnings, the development of new
or improved products or services, favorable outlooks for growth in the industry,
the probability of increased operating efficiencies, emphasis on research and
development, cyclical conditions, or other signs that a company is expected to
show greater than average capital appreciation and earnings growth.

In managing value stocks, the investment manager 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.

The investment manager 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,
the investment manager 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. The investment manager 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, the investment
manager 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 the investment manager'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 the investment manager'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, Horizon, Financial Services,
Global Blue Chip, and International Growth and Income 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

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recognized rating agencies or will be non-rated. Lower rated and non-rated
securities, which are commonly referred to as "junk bonds," have widely varying
characteristics and quality. These lower rated and non-rated fixed income
securities are considered, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation and generally will involve more credit risk than securities in
the higher rating categories.

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

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

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

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

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valuing a Portfolio's assets. Market quotations generally are available on many
high yield issues only from a limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual sales.

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

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

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

SPECIAL RISK FACTORS--FOREIGN SECURITIES. The Total Return, High Yield, Growth,
Small Cap Growth, Investment Grade Bond, Value+Growth, Blue Chip and Financial
Services 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 (other than the
Financial Services Portfolio) currently limit investment in foreign securities
not publicly traded in the United States to 25% of their total assets. The
Financial Services Portfolio may invest up to 30% of its total assets in foreign
securities. 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, Small Cap Value and High Return Equity
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, Global
Income, Global Blue Chip, and International Growth and 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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

DEPOSITORY RECEIPTS. 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.

NON-DIVERSIFIED 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

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allows the Portfolio, as to 50% of its assets, to invest more than 5% of its
assets, but not more than 25%, in the securities of an individual foreign
government or corporate issuer. Currently, the Global Income 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.

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.

ADDITIONAL INVESTMENT INFORMATION. The portfolio turnover rates for each
Portfolio other than the Money Market, High Return Equity, Financial Services,
Global Blue Chip, and International Growth and 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 High Return
Equity and Financial Services Portfolios will not exceed 100% and, for the
Global Blue Chip, and International Growth and Income Portfolios, will not
exceed 75%. 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.
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).

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 and High Return Equity
Portfolios) of the Portfolio's net assets, valued at the time of the
transactions, would be invested in such securities.

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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. For each
Portfolio except the Global Blue Chip Portfolio, the investment manager will
limit such lending to not more than one-third of the value of a Portfolio's
total assets. For the Global Blue Chip Portfolio, the investment manager will
limit securities lending to not more than 5% of the value of the 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 Contrarian, Small Cap Value and High Return
Equity 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, Global Income, Financial Services,
Global Blue Chip, and International Growth and 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 Contrarian, Small Cap Value, High Return Equity, Financial Services, Global
Blue Chip, and International Growth and Income Portfolios are authorized to sell
covered call options on all of the stocks they hold. No put option will be sold
for those Portfolios, however, if as a result, a Portfolio would be obligated to
purchase securities whose total value exceeds 50% of its net assets (total
assets for the Global Blue Chip, and International Growth and Income
Portfolios). The Global Blue Chip and International Growth and Income Portfolios
may each purchase put and call options provided that the aggregate premiums paid
on all such options held by the Portfolio at any time do not exceed 20% of its
total assets. The Financial Services Portfolio may purchase put and call options
without limit for hedging purposes, provided that no more than 5% of its net
assets may be committed for non-hedging purposes.

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

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

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

Price movements in securities which a Portfolio owns or intends to purchase
probably will not correlate perfectly with movements in the level of an index
and, therefore, a Portfolio bears the risk of a loss on an index option which is
not completely offset by movements in the price of such securities. Because
index options are settled in cash, a call writer cannot determine the amount of
its settlement obligations in advance and, unlike 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, Global Income,
Financial Services, Global Blue Chip, and International Growth and Income
Portfolios may also engage in foreign currency financial futures transactions.
The Total Return, High Yield, Growth, International, Small Cap Growth,
Investment Grade Bond, Value+Growth, Horizon, Blue Chip and Global Income
Portfolios 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 Financial Services, Global Blue Chip, and International Growth and Income
Portfolios each will not enter into a futures contract or related option (except
for closing transactions) if immediately thereafter, the sum of the amount of
its initial margin and premiums on open future contracts and options thereon
would exceed 5% of the Portfolio's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.

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

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

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

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, Blue Chip and Financial Services Portfolios may invest a
limited portion of their assets, and the International, Global Income, Global
Blue Chip, and International Growth and 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

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<PAGE> 42

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

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

When the investment manager believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of the Portfolio's securities denominated in such foreign
currency. In this situation the International, Global Income, Financial
Services, Global Blue Chip, and International Growth and 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",
denominated in a currency or currencies that the Fund's investment manager
believes will have price movements that closely correlate with that currency.
The Portfolios' 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, except that there is no limit as to the percentage of assets that the
Global Income, Financial Services, Global Blue Chip, and International Growth
and Income Portfolios intend to commit to such forward 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

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<PAGE> 43

as a security index, an interest rate or a currency ("derivatives"). Derivatives
are most often used in an effort to manage investment risk, to increase or
decrease exposure to an asset class or benchmark (as a hedge or to enhance
return), or to create an investment position indirectly (often because it is
more efficient or less costly than direct investment). There is no guarantee
that these results can be achieved through the use of derivatives. The types of
derivatives used by each Portfolio and the techniques employed by the
Portfolio's investment manager may change over time as new derivatives and
strategies are developed or regulatory changes occur.

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

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

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<PAGE> 44

REVERSE REPURCHASE AGREEMENTS. The Global Blue Chip and International Growth and
Income Portfolios may each enter into "reverse repurchase agreements," which are
repurchase agreements in which a Portfolio, as the seller of the securities,
agrees to repurchase them at an agreed time and price. Each Portfolio maintains
a segregated account in connection with outstanding reverse repurchase
agreements. A Portfolio will enter into reverse repurchase agreements only when
the investment manager believes that the interest income to be earned from the
investment of the proceeds of the transaction will be greater than the interest
expense of the transaction.

BORROWINGS. Each Portfolio is authorized to borrow money for purposes of
liquidity and to provide for redemptions and distributions. Each Portfolio will
borrow only when the investment manager believes that borrowing will benefit the
Portfolio after taking into account considerations such as the costs of the
borrowing. Borrowing by each Portfolio will involve special risk considerations.
Although the principal of each Portfolio's borrowings will be fixed, a
Portfolio's assets may change in value during the time a borrowing is
outstanding, thus increasing exposure to capital risk.

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 investment manager considers the legally restricted but
readily saleable Section 4(2) paper to be liquid; however, pursuant to
procedures approved by the Board of Trustees of the Fund, if a particular
investment in Section 4(2) paper is not determined to be liquid, that investment
will be included within the limitation of the particular Portfolio on illiquid
securities. The Fund's investment manager monitors 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.

Collateralized obligations, depending on their structure and the rate of
prepayments, can be volatile. Some collateralized obligations may not be as
liquid as other securities. Since 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

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<PAGE> 45

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."

COMMON STOCKS. Subject to its investment objectives and policies, certain
Portfolios may invest in common stocks. Common stock is issued by companies to
raise cash for business purposes and represents a proportionate interest in the
issuing companies. Therefore, a Portfolio participates in the success or failure
of any company in which it holds stock. The market values of common stock can
fluctuate significantly, reflecting the business performance of the issuing
company, investor perception and general economic or financial market movements.
Smaller companies are especially sensitive to these factors. An investment in
common stock entails greater risk of becoming valueless than does an investment
in fixed-income securities. Despite the risk of price volatility, however,
common stock also offers the greatest potential for long-term gain on
investment, compared to other classes of financial assets such as bonds or cash
equivalents.

CONVERTIBLE SECURITIES. Subject to its investment objectives and policies,
certain Portfolios may invest in convertible securities which may offer higher
income than the common stocks into which they are convertible. The convertible
securities in which International Growth and Income Portfolio may invest include
fixed-income or zero coupon debt securities, which may be converted or exchanged
at a stated or determinable exchange ratio into underlying shares of common
stock. Prior to their conversion, convertible securities may have
characteristics similar to both nonconvertible debt securities and equity
securities. While convertible securities generally offer lower yields than
nonconvertible debt securities of similar quality, their prices may reflect
changes in the value of the underlying common stock. Convertible securities
generally entail less credit risk than the issuer's common stock.

INVESTMENT COMPANY SECURITIES. Securities of other investment companies may be
acquired by certain Portfolios, to the extent permitted under the 1940 Act and
subject to a Portfolio's investment objectives and policies. Investment
companies incur certain expenses such as management, custodian, and transfer
agency fees, and, therefore, any investment by a Portfolio in shares of other
investment companies may be subject to such duplicate expenses.

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. The net asset value of shares of a Portfolio is
computed as of the close of regular trading on the New York Stock Exchange (the
"Exchange") on each day the Exchange is open for trading. The Exchange is
scheduled to be closed on the following holidays: New Year's Day, Martin Luther
King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day,

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<PAGE> 46

Thanksgiving and Christmas. Portfolio securities for which market quotations are
readily available are generally valued at market value. All other securities may
be valued at fair value as determined in good faith by or under the direction of
the Board.

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. In the event that a
deviation of 1/2 of 1% or more exists between the Portfolio's $1.00 per share
net asset value, calculated at amortized cost, and the net asset value
calculated by reference to market-based quotations, or if there is any other
deviation that the Board of Trustees believes would result in a material
dilution to shareholders or purchasers, the Board of Trustees will promptly
consider what action, if any, should be initiated. In order to value its
investments at amortized cost, the Money Market Portfolio purchases only
securities with a maturity of one year or less and maintains a dollar-weighted
average portfolio maturity of 90 days or less. In addition, the Money Market
Portfolio limits its portfolio investments to securities that meet the quality
and diversification requirements of Rule 2a-7.

PURCHASE AND REDEMPTION

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

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

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

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

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<PAGE> 47

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 the High Return Equity,
Financial Services, Global Blue Chip, and International Growth and 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 generally 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 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. The Board of Trustees may also authorize
the establishment of a multiple class fund structure. This would permit the Fund
to issue classes that would differ as to the allocation of certain expenses,
such as distribution and administrative expenses, permitting, among other
things, different levels of services or methods of distribution among various
classes. Currently, the Fund does not offer a multi-class fund structure, but it
may adopt such a structure at a future date.

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

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<PAGE> 48

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 1997 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 MANAGER

INVESTMENT MANAGER. Scudder Kemper Investments, Inc. ("Scudder Kemper"), 345
Park Avenue, New York, New York, is the investment manager of each Portfolio and
provides each with continuous professional investment supervision. Scudder
Kemper is one of the largest investment managers in the country with more than
$210 billion under management and has been engaged in the management of
investment funds for more than seventy years. Zurich Insurance Company, a
leading, internationally recognized provider of insurance and financial services
in property/casualty and life insurance, reinsurance and structured financial
solutions as well as asset management, owns approximately 70% of Scudder Kemper
with the balance owned by Scudder Kemper's officers and employees.

Responsibility for overall management of the Fund rests with the Board of
Trustees and officers of the Fund. Professional investment supervision is
provided by Scudder Kemper. The investment management agreement provides that
Scudder Kemper shall act as investment adviser for each Portfolio, manage its
investments and provide it with various services and facilities. For its
services, Scudder Kemper is paid a management fee, payable monthly, based upon
the average daily net assets of such Portfolios at 1/12 of the annual rate, as
follows: Money Market (.50%), Total Return (.55%), High Yield (.60%), Growth
(.60%), Government Securities (.55%), International (.75%), Small Cap Growth
(.65%), Investment Grade Bond (.60%), Value (.75%), Small Cap Value (.75%),
Value+Growth (.75%), Horizon 20+ (.60%), Horizon 10+ (.60%), Horizon 5 (.60%),
Blue Chip (.65%), Global Income (.75%) and International Growth and Income
(1.00%).

The High Return Equity, Financial Services and Global Blue Chip Portfolios each
pay Scudder Kemper an investment management fee, payable monthly, at 1/12 of the
annual rates shown below.

High Return Equity Portfolio
and Financial Services
Portfolio.......................75% for the first $250 million, .72% for the
next $750 million, .70% for the next $1.5
billion, .68% for the next $2.5 billion, .65%
for the next $2.5 billion, .64% for the next
$2.5 billion, .63% for the next $2.5 billion
and .62% over $12.5 billion.

Global Blue Chip Portfolio.....1.00% for the first $250 million, .95% for the
next $750 million and .90% over $1 billion.

Scudder Kemper has agreed to temporarily waive its management fee in the amount
of .15% of the average daily net assets of the Global Blue Chip Portfolio and
.30% of the average daily net assets of the International Growth and Income
Portfolio. The actual level of this voluntary waiver shall be in Scudder
Kemper's discretion and, upon notice to the Portfolio, Scudder Kemper may at any
time terminate this waiver.

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<PAGE> 49

Scudder Kemper uses the services of Zurich Investment Management Limited
("ZIML"), 1 Fleet Place, London, U.K. EC4M 7RQ, as a sub-adviser for the
International and Global Income Portfolios. ZIML is an affiliate 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 Scudder
Kemper 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 Scudder Kemper to ZIML from time to
time for management, including services related to foreign securities, foreign
currency transactions and related investments. Scudder Kemper pays ZIML for its
services a sub-advisory fee, payable monthly at 1/12 of the following annual
rates applied to the portion of the average daily net assets of the applicable
Portfolio allocated by Scudder Kemper to ZIML for management: .35% for the
International Portfolio and .30% for the Global Income Portfolio.

Dreman Value Management, L.L.C. ("DVM") Three Harding Road, Red Bank, New Jersey
07701, serves as sub-adviser for the High Return Equity and Financial Services
Portfolios. Under the terms of the sub-advisory agreement between Scudder Kemper
and DVM for each Portfolio, DVM manages the investment and reinvestment of each
Portfolio's assets in accordance with the investment objectives, policies and
limitations and subject to the supervision of Scudder Kemper and the Board of
Trustees. DVM was formed in April 1997 and has served as sub-adviser for each
Portfolio since each Portfolio's inception. DVM is controlled by David N.
Dreman. Scudder Kemper pays DVM for its services to each Portfolio a
sub-advisory fee, payable monthly, at the annual rate of .24% of the first $250
million of each Portfolio's average daily net assets, .23% of the average daily
net assets between $250 million and $1 billion, .224% of average daily net
assets between $1 billion and $2.5 billion, .218% of average daily net assets
between $2.5 billion and $5 billion, .208% of average daily net assets between
$5 billion and $7.5 billion, .205% of average daily net assets between $7.5
billion and $10 billion, .202% of average daily net assets between $10 billion
and $12.5 billion and .198% of each Portfolio's average daily net assets over
$12 billion.

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 Scudder Kemper in January 1973 and is currently a managing
director of Scudder Kemper 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. From
August 1998 to March 1994, 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 Scudder Kemper in
February 1972 and is currently a senior vice president of Scudder Kemper 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 Scudder Kemper in 1988
and is currently a senior vice president of Scudder Kemper and a vice president
of the Fund. He received a B.A. in Finance from Michigan State University,
Lansing, Michigan. Mr. Resis holds a number of NYSE and NASD licenses.

Steven H. Reynolds has been the lead portfolio manager of the Growth Portfolio
since September 1995. Mr. Reynolds joined Scudder Kemper in September 1995 and
is currently managing director of Scudder Kemper and he is a vice president of
the Fund. From 1991 to September 1995, he was a senior vice president and equity
portfolio manager of an investment advisory firm. 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.
Tracy McCormick Chester has been portfolio manager of the Growth Portfolio since
March 1998. Ms. Chester joined Scudder Kemper in September 1994 and is a senior
vice president of Scudder Kemper.

49
<PAGE> 50

Prior to joining Scudder Kemper, she was a senior vice president and portfolio
manager for an investment management company from August 1992 to September 1994.
She received a B.A. and an M.B.A. in finance from Michigan State University,
East Lansing, Michigan. Gary A. Langbaum has been portfolio manager of the
Growth Portfolio since March 1998. Mr. Langbaum joined Scudder Kemper in 1988
and is a senior vice president of Scudder Kemper. He received a B.A. in finance
from the University of Maryland, College Park, Maryland. Maureen P. Lentz has
been portfolio manager of the Growth Portfolio since March 1998. Ms. Lentz
joined Scudder Kemper in November 1994 and is a vice president at Scudder
Kemper. From October 1986 to November 1994, 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.

Richard L. Vandenberg is the portfolio manager of the Government Securities
Portfolio and has been a manager or co-manager since March 1996. Mr. Vandenberg
joined Scudder Kemper in March 1996 and is a vice president of the Fund. Prior
to March 1996, he was a senior vice president and portfolio manager with 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.

Maureen P. Lentz, lead portfolio manager of the Total Return Portfolio, has been
a portfolio manager of the Portfolio since January 1997. Gary Langbaum has
served as portfolio manager of the Total Return Portfolio since February 1995.
Steven Reynolds has been portfolio manager of the Total Return Portfolio since
March 1998 and Tracy McCormick Chester has been portfolio manager of the
Portfolio since March 1998. Biographical information regarding Ms. Lentz, Mr.
Langbaum, Mr. Reynolds and Ms. Chester appears above.

Lead portfolio manager David H. Burshtan has been a portfolio manager of the
Small Cap Growth Portfolio since January 1997. He joined Scudder Kemper in 1995
and is a vice president at Scudder Kemper. From 1993 to 1995, 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. Kurt R. Stalzer has been portfolio
manager of the Small Cap Growth Portfolio since he joined Scudder Kemper in
January 1997 and is a senior vice president at Scudder Kemper. From 1992 to
January 1997, 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. Anne Carney has been portfolio
manager of the Small Cap Growth Portfolio since March 1998. Ms. Carney joined
Scudder Kemper in January 1992 and is a Senior Vice President at Scudder Kemper.
Ms. Carney received a B.S. degree from Loras College and a M.B.A. in Finance
from the University of Iowa. Richard Goers has been portfolio manager of the
Small Cap Growth Portfolio since March 1998. Mr. Goers joined Scudder Kemper in
January 1971 and is a Senior Vice President at Scudder Kemper. Mr. Goers
received a B.S. from Iowa State University and an M.B.A. with a concentration in
finance from Northwestern University.

Thomas H. Forester and Steven T. Stokes have been the co-managers of the Small
Cap Value Portfolio since July 1997. Mr. Forester has lead responsibility for
the management of the Portfolio. He joined Scudder Kemper in May 1997. Prior to
joining Scudder Kemper, he served as a senior portfolio manager of an
unaffiliated investment management firm from 1995 to 1997. For the three years
prior to 1995, he was a portfolio manager of another investment management firm.
He received his undergraduate degree at the University of Colorado and an M.B.A.
in finance from Northwestern University. He is a chartered financial analyst.
Mr. Stokes joined Scudder Kemper in April, 1996 and is currently a managing
director of Scudder Kemper. Prior thereto, he served as a portfolio manager for
an unaffiliated investment management firm from 1986 to 1996. Mr. Stokes
received a B.S. degree in Finance from State University of New York at New Paltz
and is a Chartered Financial Analyst.

Thomas Sassi is the lead portfolio manager of the Contrarian Portfolio and has
been a portfolio manager since August 1996. Frederick L. Gaskin and Jonathan Kay
have been portfolio managers of the Contrarian Portfolio since September 1997.
Mr. Sassi joined Scudder Kemper in August 1996 and is a managing director at
Scudder Kemper. Prior to joining Scudder Kemper, he was a consultant with a
consulting firm from 1993 to August

50
<PAGE> 51

1996. 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. Frederick L. Gaskin
joined Scudder Kemper in 1996 where he has served as a managing director. From
1993 until 1996, Mr. Gaskin served as a vice president and portfolio manager for
an unaffiliated investment management firm. He received a B.S. in finance from
Appalachian State University and an M.B.A. from Babcock Graduate School of
Management. Jonathan Kay joined Scudder Kemper in 1993 were he has served as a
portfolio manager for institutional accounts. From 1986 to 1993, Mr. Kay was a
financial analyst for an unaffiliated investment management firm. He received a
B.A. in economics from the University of Buffalo and an M.B.A. in Finance from
Bernard M. Baruch College 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 Scudder Kemper in
1993 and is a senior vice president of Scudder Kemper and director of investment
grade corporate and sovereign bond research. 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.

William M. Knapp is the co-lead portfolio manager of the Horizon 20+, Horizon
10+ and Horizon 5 Portfolios and he has served as manager or co-manager of the
Portfolio since April 1997. Mr. Knapp joined Scudder Kemper in 1992 and is a
vice president at Scudder Kemper. 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. Philip S. Fortuna has served as co-lead
portfolio manager of the Horizon 20+, Horizon 10+ and Horizon 5 Portfolios since
March 1998. Mr. Fortuna joined Scudder Kemper in 1986 and is currently a
managing director of Scudder Kemper. Mr. Fortuna received a B.S. degree in
economics from Carnegie Mellon University in 1978 and an M.B.A. degree from the
University of Chicago in 1984. Karla Grant has served as portfolio manager of
the Horizon 20+, Horizon 10+ and Horizon 5 Portfolios since March 1998. Ms.
Grant joined Scudder Kemper in November 1997 and is currently a vice president
of Scudder Kemper. From February 1997 to November 1997, Ms. Grant served as a
consultant for an unaffiliated investment management firm. From May 1996 to
October 1996 she was a Vice President for an unaffiliated investment management
firm. From November 1994 to April 1996 Ms. Grant served as a Vice President at
an unaffiliated investment management firm. Prior thereto, she was an assistant
vice president from June 1990 to November 1994 for an unaffiliated investment
management firm. Ms. Grant received a B.S. degree from Virginia Tech and a
M.B.A. in Finance from Rollins College.

William M. Knapp is the co-lead portfolio manager of the Value+Growth Portfolio
and has served as a manager or co-manager of the Portfolio since January 1997.
Philip S. Fortuna has served as the co-lead portfolio manager of the
Value+Growth Portfolio since March 1998 and Karla Grant has served as portfolio
manager of the Portfolio since March 1998. Biographical information regarding
Mr. Knapp, Mr. Fortuna and Ms. Grant appears above.

Tracy McCormick Chester is the lead portfolio manager of the Blue Chip Portfolio
and has served as portfolio manager of the Portfolio since its inception in May
1997. Steven Reynolds, Gary Langbaum and Maureen Lentz have served as portfolio
managers of the Blue Chip Portfolio since March 1998. Biographical information
regarding Ms. Chester, Mr. Reynolds, Mr. Langbaum and Ms. Lentz appears above.

Gordon K. Johns is the lead portfolio manager of the Global Income Portfolio and
has served as portfolio manager since 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. Terence C. Prideaux and Pankaj
Shah have served as portfolio managers of the Global Income Portfolio since
March 1998. Mr. Prideaux joined ZIML in 1989 and is currently a director-fixed
income of ZIML. He received a B.A. in Law from Balliol College, Oxford, U.K. Mr.
Shah joined ZIML in 1997 and is currently a director-fixed income of ZIML. From
November 1991 to October 1997, Mr. Shah was a portfolio manager at an
unaffiliated investment management

51
<PAGE> 52

firm. Mr. Shah received a B.S. degree and a M.B.A. in finance from City
University Business School in London, England.

David N. Dreman has been the portfolio manager of the High Return Equity and
Financial Services Portfolios since their inception. He is the Chairman of DVM.
Mr. Dreman is a pioneer of the philosophy of contrarian investing (buying what
is out of favor) and a leading proponent of the low P/E investment style. He is
a columnist for FORBES and the author of several books on the value style of
investing. Since 1988, Mr. Dreman has served as a portfolio manager for several
investment companies and private accounts. He received a Bachelor of Commerce
from the University of Manitoba, Winnipeg, Manitoba, Canada.

Diego Espinosa is the lead portfolio manager of the Global Blue Chip Portfolio,
and he joined the investment manager in 1996. Mr. Espinosa is responsible for
development of the Portfolio's strategy and management of the Portfolio on a
daily basis. Mr. Espinosa has four years of direct investment experience as both
an analyst and a portfolio manager. Prior to that, he worked in commercial
banking for two years and as a management consultant for three years. William E.
Holzer, portfolio manager, also has day-to-day responsibility for the Global
Blue Chip Portfolio's worldwide strategy and investment themes. Mr. Holzer has
over 20 years' experience in global investing - first as an analyst and later as
a portfolio manager. He joined the investment manager in 1980. Nicholas Bratt,
portfolio manager, directs the Portfolio's overall global equity investment
strategies. Mr. Bratt joined the investment manager as a portfolio manager in
1976.

Sheridan Reilly is the lead portfolio manager of the International Growth and
Income Portfolio. Mr. Reilly joined the investment manager in 1995 and has over
10 years of experience as an international economic analyst in the financial
service industry where he developed strategies for global portfolios, currency
hedging, and foreign equity markets. Irene Cheng serves as portfolio manager for
the International Growth and Income Portfolio and she joined the investment
manager in 1993. Ms. Cheng, who has over 13 years of industry experience,
including five years as a portfolio manager, focuses on portfolio management and
research for the investment manager's international equity accounts.

FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of Scudder Kemper, is responsible for determining the daily net asset
value per share for each Portfolio and maintaining all accounting records
related thereto. Currently, SFAC receives no fee for its services to each
Portfolio other than the High Return Equity, Financial Services, Global Blue
Chip and International Growth and Income Portfolios; however, subject to Board
approval, at some time in the future, SFAC may seek payment for its services to
those Portfolios under its agreement with such Portfolios. SFAC charges a fee
for its services to the High Return Equity, Financial Services, Global Blue
Chip, and International Growth and Income Portfolios. See "Investment Manager
and Distributor - Fund Accounting Agent" in the Statement of Additional
Information for additional information.

YEAR 2000 COMPLIANCE. Like other mutual funds and financial and business
organizations worldwide, the Portfolios could be adversely affected if computer
systems on which the Portfolios rely, which primarily include those used by
Scudder Kemper, its affiliates or other service providers, are unable to
correctly process date-related information on and after January 1, 2000. This
risk is commonly called the Year 2000 Issue. Failure to successfully address the
Year 2000 Issue could result in interruptions to and other material adverse
effects on the Portfolios' business and operations. Scudder Kemper has commenced
a review of the Year 2000 Issue as it may affect the Portfolios and is taking
steps it believes are reasonably designed to address the Year 2000 Issue,
although there can be no assurances that these steps will be sufficient. In
addition, there can be no assurances that the Year 2000 Issue will not have an
adverse effect on the companies whose securities are held by the Portfolios or
on global markets or economies generally.

CUSTODIAN AND TRANSFER AGENT. Investors Fiduciary Trust Company ("IFTC"), 801
Pennsylvania Avenue, Kansas City, Missouri 64105, as custodian, and State Street
Bank and Trust Company ("State Street"), 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of each Portfolio (other than the High Return Equity, Financial Services, Global
Blue Chip, and International Growth and Income Portfolios) maintained in the
United States; and The Chase Manhattan Bank, Chase MetroTech

52
<PAGE> 53

Center, Brooklyn, New York 11245, as custodian, has custody of all securities
and cash of such Portfolios held outside the United States. State Street, as
custodian, has custody of all securities and cash of the High Return Equity and
Financial Services Portfolio. Brown Brothers Harriman & Co., as custodian, has
custody of all securities and cash of the Global Blue Chip and International
Growth and Income Portfolios. They attend to the collection of principal and
income, and payment for and collection of proceeds of securities bought and sold
by those Portfolios. IFTC is also the transfer agent and dividend-paying agent
for each Portfolio.

PORTFOLIO TRANSACTIONS. Scudder Kemper, ZIML and DVM place all orders for
purchases and sales of a Portfolio's securities. As described more fully under
"Portfolio Transactions" in the Statement of Additional Information, they may
consider sales of shares of the Fund and other funds managed by Scudder Kemper
or its affiliates or variable life insurance and variable annuity contracts
funded by the Fund as a factor in selecting broker-dealers.

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

DISTRIBUTOR

Kemper Distributors, Inc. ("KDI"), 222 South Riverside Plaza, Chicago, Illinois
60606 an affiliate of Scudder Kemper, serves as distributor and principal
underwriter for the Fund pursuant to an underwriting agreement. KDI bears all
its expenses of providing services pursuant to the agreement. KDI provides for
the preparation of advertising or sales literature, and bears the cost of
printing and mailing prospectuses to persons other than shareholders. KDI bears
the cost of qualifying and maintaining the qualification of Fund shares for sale
under the securities laws of Massachusetts and the Fund bears the expense of
registering its shares with the Securities and Exchange Commission. KDI will pay
all fees and expenses in connection with its qualification and registration as a
broker or dealer under Federal and state laws, a portion of the toll free
telephone service and of computer terminals, and of any activity which is
primarily intended to result in the sale of shares issued by the Fund, unless a
plan pursuant to Rule 12b-1 under the 1940 Act ("12b-1 Plan") is in effect that
provides that the Fund shall bear some or all of such expenses.

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

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

53
<PAGE> 54

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, 1997. 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 1997--DECEMBER 1997)

<TABLE>
<CAPTION>
HIGH
MOODY'S/S&P RATING YIELD GENERAL DESCRIPTION
OR OTHER CATEGORY PORTFOLIO OF BOND QUALITY
------------------ --------- -------------------
<S> <C> <C>
Cash Equivalents............................. 7%
Aaa/AAA...................................... 2 Highest quality
Aa/AA........................................ 0 High quality
A/A.......................................... 1 Upper medium grade
Baa/BBB...................................... 1 Medium grade
Ba/BB........................................ 15 Some speculative elements
B/B.......................................... 66 Speculative
Caa/CCC...................................... 3 More speculative
Ca/CC, C/C................................... 0 Very speculative
D............................................ 0 In default
Non-rated, Not in Default.................... 4
Non-rated, In Default........................ 0
Other Assets................................. 1
---
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.

54
<PAGE> 55
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, 1998

INVESTORS
FUND
SERIES

Investors Fund Series
2222 South Riverside Plaza
Chicago, IL 60606
1-800-778-1482

ANN-1A 5/98
<PAGE> 56

STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998

INVESTORS FUND SERIES
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
1-800-778-1482

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, 1998. 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-10

Portfolio Transactions...................................... B-17

Investment Manager and Distributor.......................... B-20

Purchase and Redemption of Shares........................... B-24

Officers and Trustees....................................... B-24

Net Asset Value............................................. B-27

Dividends and Taxes......................................... B-29

Shareholder Rights.......................................... B-29

Report of Independent Auditors (April 24, 1998)............. B-31

Statement of Net Assets (April 24, 1998).................... B-32

Appendix--Ratings of Investments............................ B-33
</TABLE>

The financial statements appearing in the Fund's Annual Report for the fiscal
year ended December 31, 1997 are incorporated herein by reference. Such Report
accompanies this Statement of Additional Information.

ANN-13 5/98 (LOGO)printed on recycled paper
<PAGE> 57

INVESTMENT RESTRICTIONS

The Fund has adopted for each Portfolio, other than the High Return Equity,
Financial Services, Global Blue Chip, and International Growth and Income
Portfolios, 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. The fund has adopted certain fundamental investment restrictions
for the High Return Equity, Financial Services, Global Blue Chip, and
International Growth and Income Portfolios which, together with the investment
objective 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

B-1
<PAGE> 58

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.

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

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

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

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

B-2
<PAGE> 59

(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 15% of its net assets in illiquid securities.

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

The following fundamental investment restrictions apply to each of the Small Cap
Growth, Investment Grade Bond, Contrarian, 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
Contrarian 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

B-3
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requests without immediately selling any portfolio securities (any such
borrowings under this section will not be collateralized). If, for any
reason, the current value of the Portfolio's total assets falls below an
amount equal to three (3) times the amount of its indebtedness from money
borrowed, the Portfolio will reduce, within three (3) business days, its
indebtedness to the extent necessary. The Portfolio will not borrow for
leverage purposes. The Portfolio will not purchase any investments while
borrowings are outstanding.

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

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

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

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

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

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

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

(2) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets, or
for the Contrarian, 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.

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

(4) 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.

(5) For the Contrarian 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.

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<PAGE> 61

The Blue Chip Portfolio may not, as a fundamental policy:

(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,
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.

B-5
<PAGE> 62

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.

(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.)

(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.

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

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<PAGE> 63

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.

The High Return Equity Portfolio may not, as a fundamental policy:

(1) Purchase securities of any one issuer other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
(collectively "U.S. Government Securities") if immediately thereafter more
than 5% of its total assets would be invested in the securities of any one
issuer, or purchase more than 10% of an issuer's outstanding securities,
except that up to 25% of the Portfolio's total assets may be invested
without regard to these limitations.

(2) Borrow money or issue senior securities, except that the Portfolio may
borrow from banks for temporary purposes in amounts not in excess of 10% of
the value of its total assets at the time of such borrowing; or mortgage,
pledge, or hypothecate any assets except in connection with any such
borrowing in amounts not in excess of the lesser of the amount borrowed or
10% of the value of its total assets at the time of such borrowing;
provided that the Portfolio may enter into futures contracts and related
options as described in the prospectus. Optioned securities are not
considered to be pledged for purposes of this limitation.

(3) Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities
of issuers conducting their principal activities in the same industry.

(4) Make loans, except that the Portfolio may lend securities it owns as
described herein and enter into repurchase agreements pursuant to its
investment objective and policies.

(5) Purchase securities on margin or make short sales of securities,
provided that the Portfolio may enter into futures contracts and related
options and make initial and variation margin deposits in connection
therewith.

(6) Purchase or sell commodities or commodity contracts, except futures
contracts and options thereon as stated in the prospectus, or invest in
oil, gas or mineral exploration or development programs, or in real estate
or mortgage loans provided that the Portfolio may, to the extent
appropriate to its investment objective, purchase publicly traded
securities of companies engaging in whole or in part in such activities.

(7) Engage in the business of underwriting securities issued by others,
except that the Portfolio may acquire securities which are subject to
restrictions on disposition ("restricted securities") within the meaning of
the Securities Act of 1933.

The following non-fundamental restrictions apply to the High Return Equity
Portfolio. The Portfolio may not:

(i) Invest for the purpose of exercising control over management of any
company.

(ii) Invest more than 10% of the value of its net assets in illiquid
securities, including restricted securities and repurchase agreements
with remaining maturities in excess of seven days, and other securities
for which market quotations are not readily available.

(iii) Invest its assets in securities of any investment company, except
by open market purchases, including an ordinary broker's commission, or
in connection with a merger, acquisition of assets, consolidation or
reorganization, and any investments in the securities of other
investment companies will be in compliance with the 1940 Act.

B-7
<PAGE> 64

THE FINANCIAL SERVICES PORTFOLIO MAY NOT, AS A FUNDAMENTAL POLICY:

(1) Borrow money, except as permitted under the Investment Company Act
of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction from time to time.

(2) Issue senior securities, except as permitted under the Investment
Company Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.

(3) Purchase physical commodities or contracts relating to physical
commodities.

(4) Engage in the business of underwriting securities issued by others,
except to the extent that the Portfolio may be deemed to be an
underwriter in connection with the disposition of portfolio securities.

(5) Purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the Portfolio
reserves freedom of action to hold and to sell real estate acquired as a
result of the Portfolio's ownership of securities.

(6) Make loans to other persons except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase agreements
and the purchase of debt instruments or interests in indebtedness in
accordance with the Portfolio's objective and policies may be deemed to
be loans. or

(7) Concentrate its investments in a particular industry, as that term
is used in the 1940 Act, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time, except that the
Portfolio may concentrate its investments in the financial services
industry.

THE FOLLOWING NON-FUNDAMENTAL RESTRICTIONS APPLY TO THE FINANCIAL SERVICES
PORTFOLIO. THE PORTFOLIO MAY NOT:

(i) Invest for the purpose of exercising control over management of any
company;

(ii) Invest its assets in securities of any investment company, except
by open market purchases, including an ordinary broker's commission, or
in connection with a merger, acquisition of assets, consolidation or
reorganization, and any investments in the securities of other
investment companies will be in compliance with the 1940 Act.

(iii) Invest more than 15% of the value of its net assets in illiquid
securities.

THE FOLLOWING FUNDAMENTAL INVESTMENT RESTRICTIONS APPLY TO EACH OF THE GLOBAL
BLUE CHIP AND INTERNATIONAL GROWTH AND INCOME PORTFOLIOS. EACH PORTFOLIO MAY
NOT:

(1) Borrow money, except as permitted under the Investment Company Act
of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction from time to time.

(2) Issue senior securities, except as permitted under the Investment
Company Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.

(3) Purchase physical commodities or contracts relating to physical
commodities.

(4) Engage in the business of underwriting securities issued by others,
except to the extent that a Portfolio may be deemed to be an underwriter
in connection with the disposition of portfolio securities.

(5) Purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that a Portfolio
reserves freedom of action to hold and to sell real estate acquired as a
result of the Portfolio's ownership of securities.

B-8
<PAGE> 65

(6) Make loans to other persons except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase agreements
and the purchase of debt instruments or interests in indebtedness in
accordance with a Portfolio's investment objective and policies may be
deemed to be loans. or

(7) Concentrate its investments in a particular industry, as that term
is used in the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time.

THE FOLLOWING NON-FUNDAMENTAL RESTRICTIONS APPLY TO THE GLOBAL BLUE CHIP AND
INTERNATIONAL GROWTH AND INCOME PORTFOLIOS. EACH PORTFOLIO MAY NOT:

(i) Borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by engaging in
reverse repurchase agreements, dollar rolls, or other investments or
transactions described in the Portfolio's registration statement which
may be deemed to be borrowings.

(ii) Enter into either of reverse repurchase agreements or dollar rolls
in an amount greater than 5% of its total assets.

(iii) Purchase securities on margin or make short sales, except (a)
short sales against the box, (b) in connection with arbitrage
transactions, (c) for margin deposits in connection with futures
contracts, options or other permitted investments, (d) that transactions
in futures contracts and options shall not be deemed to constitute
selling securities short, and (e) that the Portfolio may obtain such
short-term credits as may be necessary for the clearance of securities
transactions.

(iv) Purchase options, unless the aggregate premiums paid on all such
options held by the Portfolio at any time do not exceed 20% of its total
assets; or sell put options, if as a result, the aggregate value of the
obligations underlying such put options would exceed 50% of its total
assets.

(v) Enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect to such futures contracts entered into on behalf of
the Portfolio and the premiums paid for such options on futures
contracts does not exceed 5% of the fair market value of the Portfolio's
total assets; provided that in the case of an option that is in-the-
money at the time of purchase, the in-the-money amount may be excluded
in computing the 5% limit.

(vi) Purchase warrants if as a result, such securities, taken at the
lower of cost or market value, would represent more than 5% of the value
of the Portfolio's total assets (for this purchase, warrants acquired in
units or attached to securities will be deemed to have no value). and

(vii) For Global Blue Chip Portfolio: lend portfolio securities in an
amount greater than 5% of its total assets.

(viii) For International Growth and Income Portfolio: lend portfolio
securities in an amount greater than 33 1/3% of its total assets.

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.

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<PAGE> 66

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 Portfolio'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-10
<PAGE> 67

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, Contrarian, Small Cap Value and High Return Equity
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. Procedures are in place
for each Portfolio for engaging in OTC options for the purpose of reducing any
potential adverse effect of such transactions upon the liquidity of the such
Portfolios. A brief description of such procedures is set forth below.

EACH PORTFOLIO OTHER THAN THE MONEY MARKET, CONTRARIAN, SMALL CAP VALUE, HIGH
RETURN EQUITY, FINANCIAL SERVICES, GLOBAL BLUE CHIP, AND INTERNATIONAL GROWTH
AND INCOME PORTFOLIOS

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

B-11
<PAGE> 68

will be the amount by which the current market value of the underlying security
exceeds the exercise price. In the case of an OTC put option, intrinsic value
will be the amount by which the exercise price exceeds the current market value
of the underlying security. If there is no such agreement requiring a dealer to
allow the Portfolio to repurchase a specific OTC option written by the
Portfolio, the "liquidity charge" will be the current market value of the assets
serving as "cover" for such OTC option.

FINANCIAL SERVICES, GLOBAL BLUE CHIP, AND INTERNATIONAL GROWTH AND INCOME
PORTFOLIOS

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. A
Portfolio will only sell OTC options that are subject to a buy-back provision
permitting the Portfolio to require the Counterparty to sell the option back to
the Portfolio at a formula price within seven days. The Portfolio expects
generally to enter into OTC options that have cash settlement provisions,
although it is not required to do so.

Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Portfolio or fails to make a cash settlement payment
due in accordance with the terms of that option, the Portfolio will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the investment manager must assess the
creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC option will be satisfied. A Portfolio will engage in OTC option
transactions only with U.S. government securities dealers recognized by the
Federal Reserve Bank of New York as "primary dealers" or broker/dealers,
domestic or foreign banks or other financial institutions which have received
(or the guarantors of the obligation of which have received) a short-term credit
rating of A-1 from S&P or P-1 from Moody's or an equivalent rating from any
nationally recognized statistical rating organization ("NRSRO").

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.

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

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

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

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

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

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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, Global Income, Financial Services,
Global Blue Chip, and International Growth and 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.

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,
Global Income, Financial Services, Global Blue Chip, and International Growth
and 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

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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,
Global Income, Financial Services, Global Blue Chip, and International Growth
and 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, Global Income, Financial Services, Global Blue Chip,
International Growth and 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 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, Global Income, Financial Services, Global Blue Chip, and

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International Growth and 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 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"
(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 Portfolio'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 contracts if they would have more than
15% of the value of their total assets committed to such contracts, except that
there is no limit as to the percentage of assets that the Global Income,
Financial Services, Global Blue Chip, and International Growth and Income
Portfolios intend to commit to such forward 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.

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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, depending on their structure and the rate of
prepayments, can be volatile. Some collateralized obligations may not be as
liquid as other securities. 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 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

BROKERAGE -- SCUDDER KEMPER

Allocation of brokerage is supervised by Scudder Kemper Investments, Inc.
("Scudder Kemper").

The primary objective of Scudder Kemper and Zurich Investment Management Limited
("ZIML") (each an "investment manager" and collectively, the "investment
managers") in placing orders for the purchase and sale of securities for a
Portfolio is to obtain the most favorable net results taking into account such
factors as price, commission where applicable, size of order, difficulty of
execution and skill required of the executing broker/dealer. The investment
managers seek to evaluate the overall reasonableness of brokerage commissions
paid (to the

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extent applicable) through their familiarity with commissions charged on
compatible transactions, as well as by comparing commissions paid by a Portfolio
to reported commissions paid by others. The investment managers review on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.

Each Portfolio's purchases and sales of fixed-income securities are generally
placed by the investment manager with primary market makers for these securities
on a net basis, without any brokerage commission being paid by a Portfolio.
Trading does, however, involve transaction costs. Transactions with dealers
serving as primary market makers reflect the spread between the bid and asked
prices. Purchases of underwritten issues may be made, which will include an
underwriting fee paid to the underwriter.

When it can be done consistently with the policy of obtaining the most favorable
net results, it is the investment managers' practice to place such orders with
broker/dealers who supply research, market and statistical information to a
Portfolio. The term "research, market and statistical information" includes
advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts. The investment managers are authorized when placing
portfolio transactions for a Portfolio to pay a brokerage commission in excess
of that which another broker might charge for executing the same transaction on
account of the receipt of research, market or statistical information. In
effecting transactions in over-the-counter securities, orders are placed with
the principal market makers for the security being traded unless, after
exercising care, it appears that more favorable results are available elsewhere.

In selecting among firms believed to meet the criteria for handling a particular
transaction, the investment manager may give consideration to those firms that
have sold or are selling shares of a fund managed by Scudder Kemper.

To the maximum extent feasible, it is expected that the investment managers will
place orders for portfolio transactions through Scudder Investor Services, Inc.
("SIS"), a corporation registered as a broker-dealer and a subsidiary of Scudder
Kemper; SIS will place orders on behalf of the Portfolios with issuers,
underwriters or other brokers and dealers. SIS will not receive any commission,
fee or other remuneration from the Portfolios for this service.

Although certain research, market and statistical information from
broker/dealers may be useful to a Portfolio and to the investment managers, it
is the opinion of the investment managers that such information only supplements
their own research effort since the information must still be analyzed, weighed
and reviewed by the investment manager's staff. Such information may be useful
to the investment manager in providing services to clients other than the
Portfolios and not all such information is used by the investment manager in
connection with the Portfolios. Conversely, such information provided to the
investment manager by broker/dealers through whom other clients of the
investment manager effect securities transactions may be useful to the
investment manager in providing services to a Portfolio.

The Trustees for the Fund review from time to time whether the recapture for the
benefit of a Portfolio of some portion of the brokerage commissions or similar
fees paid by a Portfolio on portfolio transactions is legally permissible and
advisable.

Each Portfolio's average portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to a Portfolio and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for a Portfolio whenever necessary, in
management's opinion, to meet a Portfolio's objective.

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BROKERAGE--DVM

Under the sub-advisory agreement between Scudder Kemper and Dreman Value
Management, L.L.C. ("DVM"), DVM places all orders for purchases and sales of the
High Return Equity and Financial Services Portfolios' securities. At times
investment decisions may be made to purchase or sell the same investment
securities of a Portfolio and for one or more of the other clients managed by
DVM. 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.
Position limits imposed by national securities exchanges may restrict the number
of options the Portfolio 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 future contracts available to the Portfolio. On
the other hand, the ability of the Portfolio to participate in volume
transactions may produce better executions for the Portfolio in some cases. The
Board of Trustees believes that the benefits of DVM's organization outweigh any
limitations that may arise from simultaneous transactions or position
limitations.

DVM, in effecting purchases and sales of portfolio securities for the account of
the Portfolio, will implement the Portfolio's policy of seeking best execution
of orders. DVM 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 Portfolio and DVM. 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 DVM. In selecting among firms believed
to meet the criteria for handling a particular transaction, DVM may give
consideration to those firms that have sold or are selling shares of the
Portfolio and of other funds managed by Scudder Kemper and its affiliates, as
well as to those firms that provide market, statistical and other research
information to the Portfolio and DVM, although DVM is not authorized to pay
higher commissions to firms that provide such services, except as described
below.

DVM may in certain instances be permitted to pay higher brokerage commissions
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. 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 DVM
in cash. Subject to Section 28(e) and procedures adopted by the Board of
Trustees, the Portfolio could pay a firm that provides research services
commissions for effecting a securities transaction for the Portfolio in excess
of the amount other firms would have charged for the transaction if DVM
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 DVM's overall
responsibilities to the Portfolio and other clients. Not all of such research
services may be useful or of value in advising the Portfolio. Research benefits
will be available for all clients of DVM. The sub-advisory fee paid by Scudder
Kemper to DVM is not reduced because these research services are received.

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BROKERAGE COMMISSIONS

The table below shows total brokerage commissions paid by each Portfolio (other
than the High Return Equity, Financial Services, Global Blue Chip, and
International Growth and Income Portfolios, which commenced operations on May 1,
1998) 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 1997 IN FISCAL 1997 FISCAL 1996 FISCAL 1995
--------- ----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Money Market............................... $ 0 0% $ 0 $ 0
Total Return............................... $1,512,000 73% $1,562,000 $1,613,000
High Yield................................. $3,627,000 0% $2,567,000 $1,758,000
Growth..................................... $1,936,000 85% $1,782,000 $1,066,000
Government Securities...................... $ 16,000 0% $ 20,000 $ 15,000
International.............................. $ 747,000 85% $ 936,000 $ 941,000
Small Cap Growth........................... $2,658,000 98% $ 787,000 $ 245,000
Investment Grade Bond...................... $ 31,000 0% $ 6,000** --
Contrarian................................. $ 92,000 96% $ 26,000** --
Small Cap Value............................ $ 31,000 92% $ 50,000** --
Value+Growth............................... $ 97,000 90% $ 15,000** --
Horizon 20+................................ $ 35,000 90% $ 5,000** --
Horizon 10+................................ $ 37,000 88% $ 6,000** --
Horizon 5.................................. $ 17,000 90% $ 2,000** --
Blue Chip.................................. $ 31,000*** 92% -- --
Global Income.............................. $ 0*** 0% -- --
</TABLE>

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

** Commencement of Operations on May 1, 1996 through December 31, 1996.

*** Commencement of Operations on May 1, 1997 through December 31, 1997.

INVESTMENT MANAGER AND DISTRIBUTOR

INVESTMENT MANAGER. Scudder Kemper is investment manager for each Portfolio.
Scudder Kemper is approximately 70% owned by Zurich Insurance Company, a leading
internationally recognized provider of insurance and financial services in
property/casualty and life insurance, reinsurance and structured financial
solutions as well as asset management. The balance of Scudder Kemper is owned by
Scudder Kemper's officers and employees. Pursuant to an investment management
agreement, Scudder Kemper acts as investment manager to each Portfolio, manages
its investments, administers its business affairs, furnishes office facilities
and equipment, provides clerical and administrative 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 agreement provides 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 and
maintaining all accounting records related thereto, 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.

B-20
<PAGE> 77

The agreement provides that Scudder Kemper 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.

The 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 agreement 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. The 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 agreement. 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.

ZIML, 1 South Place, London, U.K. EC2M 2ZS, an affiliate of Scudder Kemper, is
the sub-adviser for the International and Global Income Portfolios. ZIML acts as
sub-adviser pursuant to the terms of a Sub-Advisory Agreement between it and
Scudder Kemper for the Portfolios. ZIML is subject to regulation 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 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 Scudder
Kemper 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 the Sub-Advisory Agreement, render similar services to
others including other investment companies. For its services, ZIML will receive
from Scudder Kemper a monthly fee at 1/12 of the following annual rates applied
to the portion of the average daily net assets of each Portfolio allocated by
Scudder Kemper to ZIML for management: .35% for the International Portfolio and
.30% for the Global Income Portfolio. ZIML 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 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.

The Sub-Advisory Agreement with ZIML 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 Scudder Kemper,
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 the 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.

Dreman Value Management, L.L.C. ("DVM"), Three Harding Road, Red Bank, New
Jersey 07701, is the sub-adviser for the High Return Equity Portfolio and the
Financial Services Portfolio. DVM is controlled by David N. Dreman. DVM serves
as sub-adviser pursuant to the terms of a Sub-Advisory Agreement between it and
Scudder Kemper for each Portfolio.

B-21
<PAGE> 78

Under the terms of each Sub-Advisory Agreement, DVM manages the investment and
reinvestment of the Portfolio's assets and will provide such investment advice,
research and assistance as Scudder Kemper may, from time to time, reasonably
request. The current sub-advisory fee rates paid by Scudder Kemper to DVM for
each Portfolio are in the prospectus under "Investment Manager and Distributor."

Each Sub-Advisory Agreement provides that DVM will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Portfolio 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 DVM in the performance of its duties or from reckless disregard by DVM
of its obligations and duties under the Sub-Advisory Agreement.

Each Sub-Advisory Agreement with DVM remains in effect until May 1, 2003 unless
sooner terminated or not annually approved as described below. Notwithstanding
the foregoing, the Sub-Advisory Agreement shall continue in effect through May
1, 2003 and year to year thereafter, but only as long as such continuance is
specifically 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 of the Fund. The Sub-Advisory Agreement may be terminated at
any time upon 60 days' notice by Scudder Kemper or by the Board of Trustees of
the Fund or by majority vote of the outstanding shares of the Portfolio, and
will terminate automatically upon assignment or upon termination of the
Portfolio's investment management agreement. DVM may not terminate the
Sub-Advisory Agreement prior to May 1, 2001. Thereafter, DVM may terminate the
Sub-Advisory Agreement upon 90 days' notice to Scudder Kemper.

Pursuant to the terms of an agreement, Scudder, Stevens & Clark, Inc.
("Scudder"), and Zurich Insurance Company ("Zurich"), formed a new global
investment organization by combining Scudder with Zurich Kemper Investments,
Inc. ("ZKI"), a former subsidiary of Zurich and the former investment manager
for each Portfolio other than the Contrarian, Small Cap Value, High Return
Equity, Financial Services, Global Blue Chip, and International Growth and
Income Portfolios, and Zurich Kemper Value Advisors, Inc. ("ZKVA"), a former
subsidiary of Zurich and the former investment manager for the Contrarian and
Small Cap Value Portfolios. Upon completion of the transaction, Scudder changed
its name to Scudder Kemper Investments, Inc. As a result of the transaction,
Zurich owns approximately 70% of Scudder Kemper, with the balance owned by
Scudder Kemper's officers and employees. In addition, ZIML is a wholly-owned
subsidiary of Zurich.

Because the transaction between Scudder and Zurich resulted in the assignment of
the Portfolios' investment management agreements with ZKI and ZKVA, as well as
the sub-advisory agreements with ZIML for certain Portfolios, the agreements
were deemed to be automatically terminated upon consummation of the transaction.
In anticipation of the transaction, however, a new investment management
agreement between the Fund and Scudder Kemper, and a new sub-advisory agreement
between Scudder Kemper and ZIML for the International and Global Income
Portfolios, were approved by the Fund's Board of Trustees and shareholders. The
new investment management and sub-advisory agreements were effective as of
December 31, 1997, and will be in effect for an initial term ending on the same
date as would the previous investment management and sub-advisory agreements.

The Portfolios' investment management and sub-advisory agreements are on
substantially the same terms as the investment management and sub-advisory
agreements terminated by the transaction, except that Scudder Kemper is the new
investment manager to the Portfolios.

The sub-adviser fees paid by Scudder Kemper to ZIML for the International and
Global Income Portfolios for the period from May 1, 1997 (inception) through
December 31, 1997 were $657,013 and $3,176, respectively.

The current investment management fee rates paid by the Portfolios are in the
prospectus under "Investment Manager."

B-22
<PAGE> 79

The investment management fees paid by each Portfolio (other than the High
Return Equity, Financial Services, Global Blue Chip, and International Growth
and Income Portfolios, which commenced operations on May 1, 1998) for its last
three fiscal years are shown in the table below.

<TABLE>
<CAPTION>
Portfolio Fiscal 1997 Fiscal 1996 Fiscal 1995
- --------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Money Market $ 497,000 $ 376,000 $ 373,000
Total Return $4,072,000 $3,691,000 $3,461,000
High Yield $1,991,000 $1,565,000 $1,463,000
Growth $3,142,000 $2,658,000 $2,132,000
Government Securities $ 460,000 $ 485,000 $ 538,000
International $1,419,000 $1,174,000 $ 946,000
Small Cap Growth $ 633,000 $ 340,000 $ 151,000
Investment Grade Bond $ 46,000 $ 4,000* --
Value $ 604,000 $ 44,000* --
Small Cap Value $ 307,000 $ 33,000* --
Value+Growth $ 257,000 $ 22,000* --
Horizon 20+ $ 56,000 $ 6,000* --
Horizon 10+ $ 77,000 $ 11,000* --
Horizon 5 $ 44,000 $ 5,000* --
Blue Chip $ 27,000** -- --
Global Income $ 9,000** -- --
</TABLE>

- ---------------
* Commencement of Operations on May 1, 1996 through December 31, 1996.

** Commencement of Operations on May 1, 1997 through December 31, 1997.

FUND ACCOUNTING AGENT. Scudder Fund Accounting Corp. ("SFAC"), a subsidiary of
Scudder Kemper, is responsible for determining the daily net asset value per
share of the Portfolios and maintaining all accounting records related thereto.
Currently, SFAC receives no fee for its services to each Portfolio other than
the High Return Equity, Financial Services, Global Blue Chip, and International
Growth and Income Portfolios; however, subject to Board approval, at some time
in the future, SFAC may seek payment for its services to those Portfolios under
its agreement with such Portfolios. The High Return Equity and Financial
Services Portfolios each pays SFAC an annual fee equal to .025% of the first
$150 million of average daily net assets of the Portfolio, .0075% of the next
$850 million of such assets and .0045% of such assets in excess of $1 billion,
plus holding and transaction charges for this service. The Global Blue Chip and
International Growth and Income Portfolios each pays SFAC an annual fee equal to
.065% of the first $150 million of average daily net assets of the Portfolio,
.04% of the next $850 million of such assets and .02% of such assets in excess
of $1 billion, plus holding and transaction charges for this service.

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

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, 1997, no
fees for record keeping or dividend-paying agents' services, were paid to
KILICO.

B-23
<PAGE> 80

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.

LEGAL COUNSEL. Vedder, Price, Kaufman & Kammholz, 222 N. LaSalle St., Chicago,
Illinois, serves as legal counsel to each Portfolio other than the Financial
Services, Global Blue Chip, and International Growth and Income Portfolios.
Dechert Price & Rhoads, Ten Post Office Square South, Boston, Massachusetts,
serves as legal counsel to the Financial Services, Global Blue Chip, and
International Growth and Income Portfolios.

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

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

OFFICERS AND TRUSTEES

The officers and trustees of the Fund, their principal occupations, employment
history for the past five years, and their affiliations, if any, with Scudder
Kemper or ZIML, the investment manager or sub-adviser for the Fund and KDI, the
Fund's principal underwriter or their affiliates, are listed below. All persons
named as trustees also serve in similar capacities for other funds advised by
Scudder Kemper.

JAMES E. AKINS (10/15/26), Trustee, 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, 10642 Brookridge Drive, Frankfort,
Illinois; Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; formerly, Illinois State Senator;
formerly, Vice President, The Reuben H. Donnelley Corp; formerly, attorney.

FREDERICK T. KELSEY (04/25/27), Trustee, 4010 Arbor Lane, Unit 102, Northfield,
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 Funds; formerly, Trustee of
the Pilot Funds.

*DANIEL PIERCE (3/18/34), Trustee, 345 Park Avenue, New York, New York; Chairman
of the Board and Managing Director, Scudder Kemper; Director, Fiduciary Trust
Company and Fiduciary Company Incorporated.

FRED B. RENWICK (02/01/30), Trustee, 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.

B-24
<PAGE> 81

JOHN B. TINGLEFF (05/04/35), Trustee, 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.

*EDMOND D. VILLANI (3/4/47), Trustee, 345 Park Avenue, New York, New York;
President, Chief Executive Officer and Managing Director, Scudder Kemper.

JOHN G. WEITHERS (08/08/33), Trustee, 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.

*MARK S. CASADY (9/21/60), President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.

*DAVID H. BURSHTAN (10/24/61), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Vice President, Scudder Kemper; formerly, employed as a
senior international securities analyst from 1993 to 1995.

*ROBERT S. CESSINE (01/05/50), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President, Scudder Kemper; formerly, Vice
President, Wellington Management Company.

*TRACY McCORMICK CHESTER (9/27/54), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President, Scudder Kemper; formerly, senior vice
president and portfolio manager for an investment management company from August
1992 to September 1995.

*PHILIP J. COLLORA (11/15/45), Vice President, Treasurer and Secretary, 222
South Riverside Plaza, Chicago, Illinois; Attorney, Senior Vice President,
Scudder Kemper.

*THOMAS H. FORESTER (12/15/58), Vice President, 345 Park Avenue, New York, New
York; Vice President, Scudder Kemper; formerly, senior portfolio manager for an
unaffiliated investment management firm from 1995 to 1997; formerly, portfolio
manager for an unaffiliated investment management firm from 1992 to 1995.

*PHILIP S. FORTUNA (11/30/57), Vice President, 101 California Street, Suite
4100, San Francisco, California; Managing Director, Scudder Kemper.

*FREDERICK L. GASKIN (12/18/61), Vice President, 345 Park Avenue, New York, New
York; Vice President, Scudder Kemper; formerly, vice president and portfolio
manager for an unaffiliated investment management firm from 1993 to 1996.

*JERALD K. HARTMAN (3/1/33), Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.

*JONATHAN KAY (9/22/61), Vice President, 345 Park Avenue, New York, New York;
Vice President, Scudder Kemper.

*WILLIAM M. KNAPP (4/23/61), Vice President, 222 South Riverside Plaza, Chicago,
Illinois; Vice President, Scudder Kemper.

*GARY A. LANGBAUM (12/16/48), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Scudder Kemper.

*MAUREEN P. LENTZ (8/26/61), Vice President, 222 South Riverside Plaza, Chicago,
Illinois; Vice President, Scudder Kemper; formerly, vice president of an
unaffiliated investment management firm from October 1986 to November 1994.

*THOMAS W. LITTAUER (4/26/55), Vice President, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.

B-25
<PAGE> 82

*ANN M. McCREARY (11/6/56), Vice President, 345 Park Avenue, New York, New York;
Senior Vice President, Scudder Kemper.

*MICHAEL A. McNAMARA (12/28/44), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Scudder Kemper.

*ROBERT C. PECK, JR. (10/1/46), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Scudder Kemper; formerly, Executive Vice
President and Chief Investment Officer with an unaffiliated investment
management firm from 1988 to 1997.

*KATHRYN L. QUIRK (12/3/52), Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.

*FRANK J. RACHWALSKI, JR. (03/26/45), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Scudder Kemper.

*HARRY E. RESIS, JR. (11/24/45), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President, Scudder Kemper.

*STEVEN H. REYNOLDS (09/11/43), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Scudder Kemper; formerly, senior vice
president and equity portfolio manager for an investment advisory firm from 1991
to September 1995.

*THOMAS F. SASSI (11/7/42), Vice President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper; formerly, consultant with an unaffiliated
investment consulting firm and an officer of an unaffiliated investment banking
firm from 1993 to 1996.

*KURT R. STALZER (5/1/58), Vice President, 222 South Riverside Plaza, Chicago,
Illinois; Managing Director, Scudder Kemper; formerly, senior portfolio manager
for an unaffiliated investment management company from 1992 to January 1997.

*STEVEN T. STOKES (7/18/62), Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper; formerly, portfolio manager and
financial analyst for an unaffiliated investment management firm from 1986 to
1996.

*RICHARD L. VANDENBERG (11/16/49), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President, Scudder Kemper; formerly, senior vice
president and portfolio manager with an unaffiliated investment management firm.

*LINDA J. WONDRACK (9/12/64), Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.

*JOHN R. HEBBLE (6/27/58), Assistant Treasurer, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.

*MAUREEN E. KANE (2/14/62), Assistant Secretary, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.

*CAROLINE PEARSON (4/1/62), Assistant Secretary, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.

*ELIZABETH C. WERTH (10/1/47), Assistant Secretary, 222 South Riverside Plaza,
Chicago, Illinois; Vice President, Scudder Kemper; Vice President, KDI.

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

B-26
<PAGE> 83

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
1997 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.............................................. $39,900 $106,300
Arthur R. Gottschalk*....................................... $45,100 $121,100
Frederick T. Kelsey......................................... $41,800 $111,300
Fred B. Renwick............................................. $39,900 $106,300
John B. Tingleff............................................ $39,900 $106,300
John G. Weithers............................................ $39,900 $106,300
</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 $108,700 for Mr. Gottschalk.

** Includes compensation for service on the Boards of 14 funds managed by
Scudder Kemper and its affiliates with 42 fund portfolios during calendar
year 1997. Each trustee currently serves as a board member of 15 funds
managed by Scudder Kemper and its affiliates with 48 fund portfolios. Total
Compensation does not reflect amounts paid by Scudder Kemper Investments
Inc. to the trustees for meetings regarding the combination of Scudder and
ZKI. Such amounts totaled $42,800, $40,100, $39,000, $42,900, $42,900 and
$42,900 for Messrs. Akins, Gottschalk, Kelsey, Renwick, Tingleff and
Weithers, respectively.

As of March 2, 1998, the trustees and officers as a group owned beneficially
less than 1% of the outstanding shares of each Portfolio of the Fund.

As of March 2, 1998, all the shares of the Money Market, Total Return, High
Yield, Growth, Government Securities, International, Small Cap Growth,
Investment Grade Bond, Contrarian, Small Cap Value, Value+Growth, Horizon, Blue
Chip and Global Income Portfolios were held of record by KILICO Variable Annuity
Separate Account ("KVASA"), KILICO Variable Separate Account ("KVSA"), Separate
Account KGC ("KGC"), Separate Account KG ("KG"), Cova Variable Annuity Account
One ("Cova One") and Cova Variable Annuity Account Five ("Cova Five") 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, Allmerica Financial Life Insurance and Annuity Company ("Allmerica")
will vote the shares held of record by KGC and KG, and Cova Financial Services
Life Insurance Company and Cova Financial Life Insurance Company (collectively,
"Cova") will vote the shares held of record by Cova One and Cova Five, 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, and Cova disclaims beneficial ownership
of the shares of these portfolios held of record by Cova One and Cova Five.

NET ASSET VALUE

The net asset value per share of each Portfolio is the value of one share and is
determined by dividing the value of the Portfolio's net assets by the number of
shares outstanding. The net asset value of shares of the Portfolio is
B-27
<PAGE> 84

computed as of the close of regular trading on the New York Stock Exchange (the
"Exchange") on each day the Exchange is open for trading. The Exchange is
scheduled to be closed on the following holidays: New Year's Day, Martin Luther
King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas. With respect to Portfolios with
securities listed primarily on foreign exchanges, such securities may trade on
days when the Portfolio's net asset value is not computed; and therefore, the
net asset value of a Portfolio may be significantly affected on days when the
investor has no access to the Portfolio.

EACH PORTFOLIO OTHER THAN THE MONEY MARKET, HIGH RETURN EQUITY, FINANCIAL
SERVICES, GLOBAL BLUE CHIP, AND INTERNATIONAL GROWTH AND INCOME PORTFOLIOS

Portfolio securities traded on a domestic securities exchange or securities
listed on the NASDAQ National Market are valued at the last sale price on the
exchange or market where primarily traded or listed or, if there is no recent
sale price available, at the last current bid quotation. Portfolio securities
that are primarily traded on foreign securities exchanges are generally valued
at the preceding closing values of such securities on their respective exchanges
where primarily traded. A security that is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the primary
market for that security by the Board of Trustees or its delegates. Securities
not so traded or listed are valued at the last current bid quotation if market
quotations are available. Fixed income securities are valued by using market
quotations, or independent pricing services that use prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Equity options are
valued at the last sale price unless the bid price is higher or the asked price
is lower, in which event such bid or asked price is used. Exchange traded fixed
income options, 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.

HIGH RETURN EQUITY, FINANCIAL SERVICES, GLOBAL BLUE CHIP, AND INTERNATIONAL
GROWTH AND INCOME PORTFOLIOS

An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on The Nasdaq Stock Market
("Nasdaq") is valued at its most recent sale price. Lacking any sales, the
security is valued at the most recent bid quotation. The value of an equity
security not quoted on Nasdaq, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.

Debt securities are valued at prices supplied by the Portfolio's pricing
agent(s) which reflect broker/dealer supplied valuations and electronic data
processing techniques. Money market instruments purchased with an original
maturity of sixty days or less, maturing at par, are valued at amortized cost,
which the Board believes approximates market value. If it is not possible to
value a particular debt security pursuant to these valuation methods, the value
of such security is the most recent bid quotation supplied by a bona fide
marketmaker. If it is

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<PAGE> 85

not possible to value a particular debt security pursuant to the above methods,
the investment manager may calculate the price of that debt security, subject to
limitations established by the Board.

An exchange-traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price.

If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.

If, in the opinion of the Fund's Valuation Committee of the Fund's Board, the
value of a Portfolio asset as determined in accordance with these procedures
does not represent the fair market value of the Portfolio asset, the value of
the Portfolio asset is taken to be an amount which, in the opinion of the
Valuation Committee, represents fair market value on the basis of all available
information. The value of other Portfolio holdings owned by the Portfolio is
determined in a manner which, in the discretion of the Valuation Committee, most
fairly reflects the fair market value of the property on the valuation date.

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 the High Return
Equity, Financial Services, Global Blue Chip, and International Growth and
Income Portfolios, intend to qualify) as a regulated investment company under
subchapter M of the Internal Revenue Code ("Code") in order to avoid taxation of
the Fund and its shareholders.

Pursuant to the requirements of Section 817(h) of the Code, with certain limited
exceptions, 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.

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<PAGE> 86

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 Scudder Kemper remote and not material since it is limited to
circumstances in which the provisions limiting liability are inoperative and the
Fund itself is unable to meet its obligations.

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

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<PAGE> 87

REPORT OF INDEPENDENT AUDITORS

The Board of Trustees and Shareholder
Investors Fund Series

We have audited the accompanying statement of net assets of the Kemper-Dreman
High Return Equity, Kemper-Dreman Financial Services, Kemper Global Blue Chip
and Kemper International Growth and Income Portfolios of Investors Fund Series
as of April 24, 1998. 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 Kemper-Dreman
High Return Equity, Kemper-Dreman Financial Services, Kemper Global Blue Chip
and Kemper International Growth and Income Portfolios of Investors Fund Series
at April 24, 1998 in conformity with generally accepted accounting principles.

Ernst & Young LLP

Chicago, Illinois
April 24, 1998

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<PAGE> 88

INVESTORS FUND SERIES
STATEMENT OF NET ASSETS--APRIL 24, 1998

<TABLE>
<CAPTION>
KEMPER
KEMPER-DREMAN KEMPER-DREMAN KEMPER INTERNATIONAL
HIGH RETURN FINANCIAL GLOBAL GROWTH AND
EQUITY SERVICES BLUE CHIP INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- --------- -------------
<S> <C> <C> <C> <C>
ASSETS

Cash................................................... $ 1,200 $ 1,200 $ 1,200 $ 1,200
Organization Costs..................................... 15,000 15,000 15,000 15,000
-------- -------- -------- --------
Total Assets.................................. $ 16,200 $ 16,200 $ 16,200 $ 16,200
-------- -------- -------- --------

LIABILITIES

Organization costs payable............................. $ 15,000 $ 15,000 $ 15,000 $ 15,000
-------- -------- -------- --------
Net assets.................................... $ 1,200 $ 1,200 $ 1,200 $ 1,200
======== ======== ======== ========

NET ASSETS

Net assets, applicable to shares of beneficial interest
(unlimited number of shares authorized, no par value)
outstanding.......................................... $ 1,200 $ 1,200 $ 1,200 $ 1,200
======== ======== ======== ========

THE PRICING OF SHARES

Net asset value and redemption price per share,
applicable to each Portfolio ($1,200 / 1,200 shares
outstanding)......................................... $ 1.000 $ 1.000 $ 1.000 $ 1.000
Maximum offering price per share, applicable to each
Portfolio (net asset value).......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000
</TABLE>

NOTES:

1. Investors Fund Series (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 the above Portfolios were issued to Scudder Kemper
Investments, Inc. ("Scudder Kemper"), the investment manager for the
Portfolios of the Fund, on April 24, 1998. The Fund may establish multiple
series; currently twenty series have been established.

2. Costs of $15,000 incurred by each of the above Portfolios in conjunction with
its organization, are amortized over the five year period beginning May 1,
1998. If any of the shares purchased by Scudder Kemper are redeemed prior to
the end of the amortization period, the redemption proceeds will be reduced
by the pro rata share of the unamortized costs as of the date of redemption.

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<PAGE> 89

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.

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<PAGE> 90

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-34