Filed electronically with the Securities and Exchange Commission on
February 25, 1999
File No. 33-11802
File No. 811-5002
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_/
Pre-Effective Amendment No. /_/
Post-Effective Amendment No. 30 /X/
and/or ---
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /_/
Amendment No. 31 /X/
---
Kemper Variable Series
----------------------
(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza, Chicago, Illinois 60606
--------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 537-7000
--------------
Philip J. Collora, Vice President
Secretary
KEMPER VARIABLE SERIES
222 South Riverside Plaza
Chicago, Illinois 60606
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/_/ Immediately upon filing pursuant to paragraph (b)
/_/ 60 days after filing pursuant to paragraph (a) (1)
/_/ 75 days after filing pursuant to paragraph (a) (2)
/_/ On October 29, 1999 pursuant to paragraph (b)
/X/ On May 1, 2000 pursuant to paragraph (a) (1)
/_/ On _______________ pursuant to paragraph (a) (2) of Rule 485
/_/ On _______________ pursuant to paragraph (a) (3) of Rule 485
If Appropriate, check the following box:
/_/ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
Kemper Variable Series
222 South Riverside Plaza, Chicago, Illinois 60606 (800) 778-1482
Kemper Variable Series offers a choice of 26 investment portfolios (each a
"portfolio"), to investors applying for certain variable life insurance and
variable annuity contracts offered by Participating Insurance Companies.
Prospectus
May 1, 2000
<TABLE>
<CAPTION>
<S> <C>
Kemper Money Market Portfolio Kemper Small Cap Growth Portfolio
Kemper Government Securities Portfolio Kemper Technology Growth Portfolio
Kemper Investment Grade Bond Portfolio Kemper Value+Growth Portfolio
Kemper High Yield Portfolio Kemper Contrarian Value Portfolio
Kemper Total Return Portfolio KVS Dreman High Return Equity Portfolio
Kemper Blue Chip Portfolio Kemper Small Cap Value Portfolio
Kemper Growth Portfolio KVS Dreman Financial Services Portfolio
Kemper Aggressive Growth Portfolio Kemper Global Income Portfolio
Kemper Horizon 20+ Portfolio Kemper Global Blue Chip Portfolio
Kemper Horizon 10+ Portfolio Kemper International Growth and Income Portfolio
Kemper Horizon 5 Portfolio Kemper International Portfolio
</TABLE>
KVS Index 500 Portfolio
KVS Focused Large Cap Growth Portfolio
KVS Growth And Income Portfolio
KVS Growth Opportunities Portfolio
Shares of the portfolios are available exclusively as pooled funding vehicles
for variable life insurance and variable annuity contracts of Participating
Insurance Companies.
This prospectus should be read in conjunction with the variable life insurance
or variable annuity contract prospectus.
Shares of the portfolios are not FDIC-insured, have no bank guarantees and may
lose value.
The Securities and Exchange Commission (SEC) does not approve or disapprove
these shares or determine whether the information in this prospectus is truthful
or complete. It is a criminal offense for anyone to inform you otherwise.
<PAGE>
Table of Contents
4 About the Portfolios 90 About Your Investment
4 Kemper Money Market Portfolio 90 Other Policies and Risks
7 Kemper Government Securities Portfolio 91 Investment Manager
11 Kemper Investment Grade Bond Portfolio 98 Euro Conversion
14 Kemper High Yield Portfolio 98 Share Price
18 Kemper Total Return Portfolio 99 Purchase and Redemption
22 Kemper Blue Chip Portfolio 99 Distributions and Taxes
25 Kemper Growth Portfolio
29 Kemper Aggressive Growth Portfolio
32 Kemper Horizon 20+ Portfolio
36 Kemper Horizon 10+ Portfolio
40 Kemper Horizon 5 Portfolio
44 Kemper Small Cap Growth Portfolio
47 Kemper Technology Growth Portfolio
50 Kemper Value+Growth Portfolio
53 Kemper Contrarian Value Portfolio
56 Kemper-Dreman High Return Equity Portfolio
59 Kemper Small Cap Value Portfolio
62 Kemper-Dreman Financial Services Portfolio
65 Kemper Global Income Portfolio
69 Kemper Global Blue Chip Portfolio
72 Kemper International Growth and Income
Portfolio
75 Kemper International Portfolio
78 Kemper Index 500 Portfolio
81 KVS Focused Large Cap Growth Portfolio
84 KVS Growth And Income Portfolio
87 KVS Growth Opportunities Portfolio
2
<PAGE>
Fund Investment Concept
Kemper Variable Series (the "Fund") is an open-end, registered management
investment company, currently comprising 26 portfolios. Additional portfolios
may be created from time to time. The Fund is intended to be a 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 the 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, although such
companies may pass through voting rights to their VLI and VA contract holders.
Shares of the Portfolios are not FDIC-insured, have no bank guarantees and may
lose value.
3
<PAGE>
About the Portfolios
Kemper Money Market Portfolio
Portfolio Goal
The portfolio seeks maximum current income to the extent consistent with
stability of principal.
The Portfolio's Main Strategy
The portfolio pursues its goal by investing exclusively in high quality
short-term securities, as well as repurchase agreements.
The portfolio may buy securities from many types of issuers, including the U.S.
government, corporations and municipalities. The portfolio typically invests
more than 25% of its net assets in obligations of U.S. banks and domestic
branches of foreign banks. However, everything the portfolio buys must meet the
rules for money market portfolio investments (see below).
Working in conjunction with credit analysts, the portfolio managers screen
potential securities and develop a list of those that the portfolio may buy. The
managers then decide which securities on this list to buy, looking for
attractive yield and weighing considerations such as credit quality, economic
outlook and possible interest rate movements. The managers may adjust the
portfolio's exposure to interest rate risk, typically seeking to take advantage
of possible rises in interest rates and to preserve yield when interest rates
appear likely to decline.
The portfolio's investment advisor establishes a security's credit rating at the
time it buys securities, using independent ratings or, if unrated, its own
credit determination. If a security's credit quality falls below the minimum
required for purchase by the portfolio, the security will be sold unless the
Board believes this would not be in the best interest of the shareholders.
Money Market Fund Rules
To be called a money market fund, a mutual fund must operate within strict
federal rules. Designed to help maintain a stable share price, these rules limit
money market funds to particular types of securities. Some of these rules are:
o individual securities must have remaining maturities of no more than 397
days
o the dollar-weighted average maturity of the portfolio's holdings cannot
exceed 90 days
o all securities must be in the top two credit grades for short-term
securities and be denominated in U.S. dollars
The Main Risks Of Investing In The Portfolio
Money market portfolios are generally considered to have lower risks than other
types of mutual fund portfolios. Even so, there are several risk factors that
could reduce the yield you get from the portfolio or make it perform less well
than other investments. An investment in the portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the portfolio seeks to preserve the value of your investment at
$1.00 per share, you could lose money by investing in the portfolio.
As with most money market portfolios, the most important factor affecting the
portfolio's performance is market interest rates. The portfolio's yield tends to
reflect current interest rates, which means that when these rates decline, the
portfolio's yield generally declines as well.
A second factor is credit quality. If a portfolio security declines in credit
quality or goes into default, it could hurt the portfolio's performance. To the
extent that the portfolio emphasizes sectors of the short-term securities
market, the portfolio increases its exposure to factors affecting these sectors.
For example, banks' repayment abilities could be compromised by broad economic
declines or sharp rises in interest rates. Securities from foreign banks may
have greater credit risk than comparable U.S. securities, for reasons ranging
from political and economic uncertainties to less stringent banking regulations.
4
<PAGE>
Other factors that could affect performance include:
o the managers could be incorrect in their analysis of interest rate trends,
credit quality or other matters
o the counterparty to a repurchase agreement or other transaction could
default on its obligations
o securities that rely on outside guarantors to raise their credit quality
could decline in price or go into default if the financial condition of the
guarantor deteriorates
o over time, inflation may erode the real value of an investment in the
portfolio.
This portfolio may be of interest to investors who want a versatile, broadly
diversified money market fund.
Performance
The bar chart below shows how the total returns for the portfolio have varied
from year to year, which may give some idea of risk. The chart doesn't include
sales loads and fees associated with a separate account that invests in the
portfolio or any insurance contract for which the portfolio is an investment
option; if it did, returns would be lower. The table shows how the portfolio's
returns over different periods average out. All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.08 5.90 3.43 2.85 3.95 5.66 5.02 5.25 5.14 00.00
</TABLE>
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
1 Year 5 Years 10 Years Since Inception*
- ----------------------------------------------------------------------------
Portfolio 0.00% 0.00% 0.00% 0.00%
- ----------------------------------------------------------------------------
* Since ___________.
On December 31, 1999, the portfolio's 7-day annualized yield was __%.
The portfolio managers
The following people handle the portfolio's day-to-day
management:
Frank Rachwalski, Jr. Jerri I. Cohen
Lead Portfolio Manager Portfolio Manager
o Began investment career in o Began investment career
1973 in 1992
o Joined the advisor in 1973 o Joined the advisor in
o Joined the portfolio team 1981
in 1984 o Joined the portfolio
team in 1998
5 | Kemper Money Market Portfolio
<PAGE>
Financial Highlights
6 | Kemper Money Market Portfolio
<PAGE>
Kemper Government Securities Portfolio
Portfolio Goal
The portfolio seeks high current income consistent with preservation of capital.
The Portfolio's Main Strategy
The portfolio pursues its objective by investing at least 65% of its total
assets in U.S. Government securities and repurchase agreements of U.S.
Government securities. U.S. Government-related debt instruments in which the
portfolio may invest include:
o direct obligations of the U.S. Treasury; and
o securities issued or guaranteed by U.S. Government agencies or Government
sponsored entities.
In deciding which types of securities to buy and sell, the portfolio managers
first consider the relative attractiveness of Treasuries compared to other U.S.
government and agency securities and determine allocations for each. Their
decisions are generally based on a number of factors, including interest rate
outlooks and changes in supply and demand within the bond market.
In choosing individual bonds, the managers review each bond's fundamentals,
compare the yields of shorter maturity bonds to those of longer maturity bonds
and use technical analysis to project prepayment rates and other factors that
could affect a bond's attractiveness.
The managers may adjust the duration (a measure of sensitivity to interest rate
movements) of the portfolio's portfolio, depending on their outlook for interest
rates.
Credit Quality Policies
This portfolio normally invests all of its assets in securities issued by the
U.S. government, its agencies or instrumentalities. These securities are
generally considered to be among the very highest quality securities.
The Main Risks Of Investing In The Portfolio
There are several factors that could reduce the yield you get from the
portfolio, cause you to lose money or make the portfolio perform less well than
other investments.
As with most bond portfolios, one of the most important factors is market
interest rates. A rise in interest rates generally means a decline in bond
prices -- and, in turn, a decline in the value of your investment. An increase
in the portfolio's duration could make the portfolio more sensitive to this
risk.
Some securities issued by U.S. government agencies or instrumentalities are
supported only by the credit of that agency or instrumentality, while other
securities are backed by the U.S. Treasury. There is no guarantee that the U.S.
government will provide support to such agencies or instrumentalities and such
securities may involve risk of loss of principal and interest. The full faith
and credit guarantee of the U.S. government doesn't protect the portfolio
against market-driven declines in the prices or yields of these securities, nor
does it apply to shares of the portfolio itself.
Mortgage-backed securities carry additional risks and may be more volatile than
many other types of debt securities. Any unexpected behavior in interest rates
could hurt the performance of these securities. For example, a large decline in
interest rates could cause these securities to be paid off earlier than
expected, forcing the portfolio to reinvest the money at a lower rate. In
addition, if interest rates rise or stay high, these securities could be paid
off later than expected, forcing the portfolio to endure low yields. The result
for the portfolio could be an increase in the volatility of its share price and
yield.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends, issuers,
industries or other matters
o at times, it could be hard to value some investments or to get an
attractive price for them
This portfolio may appeal to investors who want a portfolio that searches for
attractive yields generated by U.S. government securities.
7 | Kemper Government Securities Portfolio
<PAGE>
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For context, the table has a broad-based market index (which, unlike the
portfolio, has no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.81 15.22 5.92 6.48 -2.74 18.98 2.56 8.96 7.03 00.00
</TABLE>
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1998)
Since 12/31/97 Since 12/31/93 Since 12/31/88 Since 10/1/79
1 Year 5 Years 10 Years Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio % % ____% ____%
- --------------------------------------------------------------------------------
Index ____ ____ N/A*
- --------------------------------------------------------------------------------
Index: Salomon Brothers 30-Year GNMA Index, an unmanaged index that measures the
total return of GNMA 30-year pass throughs of single family and graduated
payment mortgages.
- --------------------------------------------------------------------------------
* The Index was not in existence on the portfolio's inception date.
8 | Kemper Government Securities Portfolio
<PAGE>
The portfolio managers
Below are the people who handle the portfolio's
day-to-day management:
Richard L. Vandenberg John E. Dugenske
Lead Portfolio Manager o Began investment
o Began investment career career in 1990
in 1973 o Joined the advisor
o Joined the advisor in 1998
in 1996 o Joined the portfolio
o Joined the portfolio team in 1998
team in 1996
Scott E. Dolan
o Began investment career
in 1989
o Joined the advisor
in 1989
o Joined the portfolio
team in 1998
9 | Kemper Government Securities Portfolio
<PAGE>
Financial Highlights
10 | Kemper Government Securities Portfolio
<PAGE>
Kemper Investment Grade Bond Portfolio
Portfolio Goal
The portfolio seeks high current income.
The Portfolio's Main Strategy
The portfolio can buy many types of income-producing securities, among them
corporate bonds, U.S. government and agency bonds, high quality commercial
paper, obligations of the Canadian government or its instrumentalities (payable
in U.S. dollars), bank certificates of deposit of domestic or Canadian chartered
banks with deposits in excess of $1 billion and cash and cash equivalents.
Generally, the portfolio invests in U.S. bonds or instruments, but up to 25% of
total assets could be in bonds from foreign issuers.
In deciding which securities to buy and sell, the portfolio manager uses
independent analysis to look for bonds of companies whose fundamental business
prospects and cash flows are expected to improve. The manager also considers
valuation, preferring those bonds that appear attractively priced in comparison
to similar issues.
Based on the analysis of economic and market trends, the manager may favor bonds
from different segments of the economy at different times, while still
maintaining variety in terms of the companies and industries represented.
Credit Quality Policies
This portfolio normally invests at least 65% of total assets in bonds of the top
four grades of credit quality. The portfolio could invest up to 35 percent of
total assets in junk bonds (i.e., grade BB/Ba and below). Compared to
investment-grade bonds, junk bonds may pay higher yields and have higher
volatility and higher risk of default on payments of interest or principal.
The Main Risks Of Investing In The Portfolio
There are several factors that could reduce the yield you get from the
portfolio, cause you to lose money or make the portfolio perform less well than
other investments.
As with most bond portfolios, the most important factor is market interest
rates. A rise in interest rates generally means a decline in bond prices -- and,
in turn, a decline in the value of your investment. Changes in interest rates
will also affect the portfolio's yield: when rates decline, the portfolio's
yield tends to decline as well.
Because the economy affects corporate bond performance, the portfolio will tend
to perform less well than other types of bond portfolios when the economy is
weak. Also, to the extent that the portfolio emphasizes bonds from any given
industry, it could be hurt if that industry does not do well.
Other factors that could affect performance include:
o the manager could be wrong in the analysis of economic trends, issuers,
industries or other matters
o a bond could decline in credit quality or go into default; this risk is
greater with lower rated bonds
o some bonds could be paid off earlier than expected, which could hurt the
portfolio's performance
o currency fluctuations could cause foreign investments to lose value
o at times, it could be hard to value some investments or to get an
attractive price for them
This portfolio may appeal to investors who want exposure to the corporate bond
market through a diversified portfolio that seeks high current income.
11 | Kemper Investment Grade Bond Portfolio
<PAGE>
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For context, the table has a broad-based market index (which, unlike the
portfolio, has no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- --------------------------------------
1997 1998 1999
- --------------------------------------
9.03 7.93 00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 5/1/96
Since 12/31/98 1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio % %
- --------------------------------------------------------------------------------
Index N/A*
- --------------------------------------------------------------------------------
Index: Lehman Brothers Government/Corporate Bond Index, an unmanaged index
generally representative of intermediate-term government bonds, investment-grade
corporate debt securities and mortgage-backed securities.
- --------------------------------------------------------------------------------
The portfolio manager
Robert S. Cessine handles the portfolio's day-to-day management. He began his
investment career in 1982, joined the advisor in 1993 and has been managing the
portfolio since its inception on May 1, 1996.
12 | Kemper Investment Grade Bond Portfolio
<PAGE>
Financial Highlights
13 | Kemper Investment Grade Bond Portfolio
<PAGE>
Kemper High Yield Portfolio
Portfolio Goal
The portfolio seeks to provide a high level of current income.
The Portfolio's Main Strategy
The portfolio invests primarily in lower rated, high yield/high risk
fixed-income securities, often called junk bonds. Generally, the portfolio
invests in bonds from U.S. issuers, but up to 25% of total assets could be in
bonds from foreign issuers.
In deciding which securities to buy and sell to achieve income and capital
appreciation, the portfolio managers analyze securities to determine which
appear to offer reasonable risk compared to their potential return. To do this,
they rely on extensive independent analysis, favoring the bonds of companies
whose credit is gaining strength or whom they believe are unlikely to default.
Based on their analysis of economic and market trends, the managers may favor
bonds from different segments of the economy at different times, while still
maintaining variety in terms of the types of bonds, companies and industries
represented. For example, the managers typically favor subordinated debt (which
has higher risks and may pay higher returns), but may emphasize senior debt if
they expect an economic slowdown.
The managers may adjust the duration (a measure of sensitivity to interest rate
movements) of the portfolio's portfolio, depending on their outlook for interest
rates.
Credit Quality Policies
This portfolio normally invests at least 65% of total assets in junk bonds,
which are those below the fourth credit grade (i.e., grade BB/Ba and below).
The Main Risks Of Investing In The Portfolio
There are several risk factors that could reduce the yield you get from the
portfolio, cause you to lose money or make the portfolio perform less well than
other investments.
For this portfolio, one of the main factors is the economy. Because the
companies that issue high yield bonds may be in uncertain financial health, the
prices of their bonds can be more vulnerable to bad economic news or even the
expectation of bad news, than investment-grade bonds. This may affect a company,
an industry or the high yield market as a whole. In some cases, bonds may
decline in credit quality or go into default. This risk is higher with foreign
bonds.
Another factor is market interest rates. A rise in interest rates generally
means a decline in bond prices -- and, in turn, a decline in the value of your
investment. An increase in the portfolio's duration could make the portfolio
more sensitive to this risk. Compared to investment-grade bonds, junk bonds may
pay higher yields and have higher volatility and higher risk of default on
payments.
Because the economy has a strong impact on corporate bond performance, the
portfolio will tend to perform less well than other types of bond portfolios
when the economy is weak. To the extent that the portfolio emphasizes bonds from
any given industry, it could be hurt if that industry does not do well.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends, issuers,
industries or other matters
o some bonds could be paid off earlier than expected, which could hurt the
portfolio's performance
o currency fluctuations could cause foreign investments to lose value
o at times, it could be hard to value some investments or to get an
attractive price for them
Investors who seek high current income and can accept risk of loss of principal
may be interested in this portfolio.
14 | Kemper High Yield Portfolio
<PAGE>
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For context, the table has a broad-based market index (which, unlike the
portfolio, has no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-15.45 51.82 17.75 19.99 -2.24 17.40 14.06 11.61 1.45 00.00
</TABLE>
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 12/31/98 Since 12/31/94 Since 12/31/89 Since __/__/__
1 Year 5 Years 10 Years Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio % % % %
- --------------------------------------------------------------------------------
Index
- --------------------------------------------------------------------------------
Index: Salomon Brothers Long-Term High Yield Bond Index, which measures the
total return of high yield bonds with a par value of $50 million or higher and a
remaining maturity of ten years or longer.
- --------------------------------------------------------------------------------
* The Index was not in existence on the portfolio's inception date.
15 | Kemper High Yield Portfolio
<PAGE>
The portfolio managers
The following people handle the portfolio's day-to-day
management:
Harry E. Resis, Jr. Daniel J. Doyle
Lead Portfolio Manager o Began investment
o Began investment career career in 1984
in 1968 o Joined the advisor in
o Joined the advisor in 1986
1988 o Joined the portfolio
o Joined the portfolio team in 1999
team in 1992
Michael A. McNamara
o Began investment career
in 1972
o Joined the advisor in
1972
o Joined the portfolio
team in 1990
16 | Kemper High Yield Portfolio
<PAGE>
Financial Highlights
17 | Kemper High Yield Portfolio
<PAGE>
Kemper Total Return Portfolio
Portfolio Goal
The portfolio seeks high total return, a combination of income and capital
appreciation.
The Portfolio's Main Strategy
The portfolio follows a flexible investment program, investing in a mix of
growth stocks and bonds.
The portfolio can buy many types of securities, among them common stocks,
convertible securities, corporate bonds, U.S. government bonds and mortgage- and
asset-backed securities. Generally, the portfolio invests in bonds from U.S.
issuers, but the portfolio may invest up to 25% of total assets in foreign
securities.
The portfolio managers may shift the proportion of the portfolio's holdings, at
different times favoring stocks or bonds (and within those asset classes,
different types of securities), while still maintaining variety in terms of the
securities, issuers and economic sectors represented.
In choosing individual stocks, the managers favor large companies with a history
of above-average growth, attractive prices relative to potential growth, sound
financial strength and effective management, among other factors.
The portfolio will normally sell a stock when it reaches a target price or when
the managers believe its fundamental qualities have deteriorated.
In deciding what types of bonds to buy and sell, the managers consider their
relative potential for stability and attractive income, and other factors such
as credit quality and market conditions. The portfolio may invest in bonds of
any duration (a measure of sensitivity to interest rates).
Other Investments
Normally, this portfolio's bond component consists mainly of investment-grade
bonds (those in the top four grades of credit quality). However, the portfolio
could invest up to 35% of its total assets in junk bonds (i.e., grade BB and
below).
While the portfolio is permitted to use various types of derivatives (contracts
whose value is based on, for example, indices, currencies or securities), the
managers don't intend to use them as principal investments, and might not use
them at all.
Because the portfolio invests in a mix of stocks and bonds, this portfolio could
make sense for investors seeking asset class diversification in a single
portfolio.
The Main Risks Of Investing In The Portfolio
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or make the portfolio perform less well than other
investments.
The most important factor is how stock markets perform -- something that depends
on many influences, including economic, political and demographic trends. When
stock prices decline, the value of your investment is likely to decline as well.
Stock prices can be hurt by poor management, shrinking product demand and other
business risks. Stock risks tend to be greater with smaller companies.
The portfolio is also affected by the performance of bonds. A rise in interest
rates generally means a decline in bond prices and, in turn, a decline in the
value of your investment. Some bonds could be paid off earlier than expected,
which would hurt the portfolio's performance; with mortgage- or asset-backed
securities, any unexpected behavior in interest rates could increase the
volatility of the portfolio's share price and yield. Corporate bonds could
perform less well than other bonds in a weak economy. Compared to
investment-grade bonds, junk bonds may pay higher yields and have higher
volatility and higher risk of default on payments.
18 | Kemper Total Return Portfolio
<PAGE>
Other factors that could affect performance include:
o the managers could be wrong in their analysis of industries, companies, the
relative attractiveness of stocks and bonds or other matters
o foreign securities may be more volatile than their U.S. counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty
o a bond could decline in credit quality or go into default
o derivatives could produce disproportionate losses
o at times, it might be hard to value some investments or to get an
attractive price for them
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For context, the table has three broad-based market indices (which, unlike the
portfolio, have no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.05 37.88 1.69 12.11 -9.49 25.97 16.76 19.96 15.14 00.00
</TABLE>
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 12/31/98 Since 12/31/94 Since 12/31/89
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Portfolio % % %
- --------------------------------------------------------------------------------
Index 1 21.04 28.56 18.21
- --------------------------------------------------------------------------------
Index 2 -2.15 7.61 7.65
- --------------------------------------------------------------------------------
Index 3 33.16 32.41 20.32
- --------------------------------------------------------------------------------
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Lehman Brothers Government/Corporate Bond Index, an unmanaged index
comprised of intermediate and long-term government and investment-grade
corporate debt securities.
Index 3: Russell 1000 Growth Index, an unmanaged capitalization-weighted index
containing the growth stocks in the Russell 1000 Index.
- --------------------------------------------------------------------------------
19 | Kemper Total Return Portfolio
<PAGE>
The portfolio managers
The following people handle the portfolio's day-to-day
management:
Gary A. Langbaum Tracy McCormick
Lead Portfolio Manager o Began investment career
o Began investment career in 1980
in 1970 o Joined the advisor
o Joined the advisor in 1988 in 1994
o Joined the portfolio team o Joined the portfolio
in 1995 team in 1998
Robert S. Cessine
o Began investment career
in 1982
o Joined the advisor in 1993
o Joined the portfolio team
in 1999
20 | Kemper Total Return Portfolio
<PAGE>
Financial Highlights
21 | Kemper Total Return Portfolio
<PAGE>
Kemper Blue Chip Portfolio
Portfolio Goal
The portfolio seeks growth of capital and income.
The Portfolio's Main Strategy
The portfolio normally invests at least 65% of its total assets in common stocks
of large U.S. companies. As of December 31, 1999, companies in which the
portfolio invests had a median market capitalization of approximately $32
billion.
In choosing stocks, the portfolio managers look for attractive "blue chip"
companies: large, well-known established companies with sound financial strength
whose stock price is attractive relative to potential growth. The managers look
for factors that could signal future growth, such as new management, products or
business strategies.
The managers may favor securities from different industries and companies at
different times while still maintaining variety in terms of the industries and
companies represented.
The portfolio normally will sell a stock when the managers believe its price is
unlikely to go much higher, its fundamental qualities have deteriorated or other
investments offer better opportunities.
Other Investments
While the portfolio invests mainly in U.S. stocks, it could invest up to 25% of
its total assets in foreign securities. Also, while the portfolio is permitted
to use various types of derivatives (contracts whose value is based on, for
example, indices, currencies or securities), the managers don't intend to use
them as principal investments, and might not use them at all.
The Main Risks Of Investing In The Portfolio
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or make the portfolio perform less well than other
investments.
As with most stock portfolios, the most important factor with this portfolio is
how stock markets perform -- in this case, the large growth company portion of
the U.S. stock market. When prices of these stocks decline, you should expect
the value of your investment to decline as well. Large company stocks at times
may not perform as well as small or mid-size companies. Because a stock
represents ownership in its issuer, stock prices can be hurt by poor management,
shrinking product demand and other business risks. These may affect single
companies as well as groups of companies.
To the extent that the portfolio focuses on a given industry, any factors
affecting that industry could affect portfolio securities. For example, a rise
in unemployment could hurt consumer goods makers, or the emergence of new
technologies could hurt computer software or hardware companies.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends or other matters
o growth stocks could become unpopular
o foreign securities may be more volatile than their U.S. counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty
o derivatives could produce disproportionate losses
o at times, it might be hard to value some investments or to get an
attractive price for them
Investors with long-term goals who want a core stock investment may be
interested in this portfolio.
22 | Kemper Blue Chip Portfolio
<PAGE>
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For context, the table has two broad-based market indices (which, unlike the
portfolio, have no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- -------------------------------------
1998 1999
- -------------------------------------
13.84 00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 5/1/97
Since 12/31/98 1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio % %
- --------------------------------------------------------------------------------
Index 1 21.04
- --------------------------------------------------------------------------------
Index 2 20.91
- --------------------------------------------------------------------------------
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Russell 1000 Index, an unmanaged capitalization-weighted price only
index comprised of the largest capitalized U.S. companies whose common stocks
are traded in the United States.
- --------------------------------------------------------------------------------
The portfolio managers
The following people handle the portfolio's day-to-day
management:
Tracy McCormick Gary A. Langbaum
Lead Portfolio Manager o Began investment career
o Began investment career in 1970
in 1980 o Joined the advisor
o Joined the advisor in 1994 in 1988
o Joined the portfolio team o Joined the portfolio
in 1994 team in 1998
23 | Kemper Blue Chip Portfolio
<PAGE>
Financial Highlights
24 | Kemper Blue Chip Portfolio
<PAGE>
Kemper Growth Portfolio
Portfolio Goal
The portfolio seeks maximum appreciation of capital.
The Portfolio's Main Strategy
The portfolio normally invests at least 65% of its total assets in common stocks
of U.S. companies. 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. Companies in which the portfolio invests
generally have market capitalizations in excess of $1 billion.
In choosing stocks, the portfolio managers look for individual companies that
have strong product lines, talented management and leadership positions within
core markets. The managers also analyze each company, valuation, stock price
movements and other factors.
Based on their analysis, the managers classify stocks as follows:
Stable Growth (typically at least 70% of portfolio): companies with strong
business lines and potentially sustainable earnings growth
Accelerating Growth (typically up to 25% of portfolio): companies with a history
of strong earnings growth and the potential for continued growth
Special Situations (typically up to 15% of portfolio): companies that appear
likely to become Stable Growth or Accelerating Growth companies through a new
product launch, restructuring, change in management or other catalyst.
The portfolio normally will sell a stock when the managers believe its earnings
potential or its fundamental qualities have deteriorated or when other
investments offer better opportunities.
Other Investments
While the portfolio invests mainly in U.S. stocks, it could invest up to 25% of
its total assets in foreign securities. Also, while the portfolio is permitted
to use various types of derivatives (contracts whose value is based on, for
example, indices, currencies or securities), the managers don't intend to use
them as principal investments and may not use them at all.
The Main Risks Of Investing In The Portfolio
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or make the portfolio perform less well than other
investments.
As with most stock portfolios, the most important factor with this portfolio is
how stock markets perform -- in this case, the growth company portion of the
U.S. stock market. When prices of these stocks decline, you should expect the
value of your investment to decline as well. Large company stocks may at times
not perform as well as stocks of small or mid-size companies. Conversely, small
company stocks may not perform as well as large company stocks. Because a stock
represents ownership in its issuer, stock prices can be hurt by poor management,
shrinking product demand and other business risks. These may affect single
companies as well as groups of companies.
To the extent that the portfolio focuses on a given industry, any factors
affecting that industry could affect portfolio securities. For example, a rise
in unemployment could hurt consumer goods makers, or the emergence of new
technologies could hurt computer software or hardware companies.
25 | Kemper Growth Portfolio
<PAGE>
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends or other matters
o growth stocks may be out of favor for certain periods
o foreign securities may be more volatile than their U.S. counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty
o derivatives could produce disproportionate losses
o at times, it might be hard to value some investments or to get an
attractive price for them
This portfolio may be suitable for investors who want a moderate to aggressive
long-term growth portfolio with a large-cap emphasis.
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For context, the table has two broad-based market indices (which, unlike the
portfolio, have no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.60 59.46 3.58 14.62 -4.62 32.97 21.63 21.34 15.10 00.00
</TABLE>
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 12/31/98 Since 12/31/94 Since 12/31/89
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Portfolio % % %
- --------------------------------------------------------------------------------
Index 1 21.04 28.56 18.21
- --------------------------------------------------------------------------------
Index 2 20.91 28.04 18.13
- --------------------------------------------------------------------------------
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Russell 1000 Growth Index, an unmanaged capitalization-weighted index
containing the growth stocks in the Russell 1000 Index.
- --------------------------------------------------------------------------------
26 | Kemper Growth Portfolio
<PAGE>
The portfolio managers
The following people handle the portfolio's day-to-day
management:
Valerie F. Malter George P. Fraise
Co-lead Portfolio Manager Co-lead Portfolio Manager
o Began investment career o Began investment career
in 1985 in 1987
o Joined the advisor in 1995 o Joined the advisor
o Joined the portfolio team in 1997
in 1999 o Joined the portfolio
team in 1999
27 | Kemper Growth Portfolio
<PAGE>
Financial Highlights
28 | Kemper Growth Portfolio
<PAGE>
Kemper Aggressive Growth Portfolio
Portfolio Goal
The portfolio seeks capital appreciation through the use of aggressive
investment techniques.
The Portfolio's Main Strategy
The portfolio normally invests at least 65% of its total assets in equity
securities, mainly those of U.S. companies. Although the portfolio can invest in
stocks of any size and market sector, it may invest in initial public offerings
(IPOs) and in growth-oriented market sectors, such as the technology sector. In
fact, the portfolio's stock selection methods may at times cause it to invest
more than 25% of total assets in a single sector. A sector is made up of
numerous industries.
In choosing stocks, the portfolio managers look for individual companies in
growing industries that have innovative products and services, competitive
positions, repeat customers, effective management, control over costs and prices
and strong balance sheets and earnings growth.
To a limited extent, the managers may seek to take advantage of short-term
trading opportunities that result from market volatility. For example, the
managers may increase positions in favored companies when prices decline and may
sell fully valued companies when prices rise.
The portfolio normally will sell a stock when the managers believe its price is
unlikely to go much higher, its fundamental qualities have deteriorated, other
investments offer better opportunities or to adjust its emphasis in a given
industry.
Other Investments
While the portfolio invests mainly in U.S. common stocks, it could invest up to
25% of its total assets in foreign securities. Also, while the portfolio is
permitted to use various types of derivatives (contracts whose value is based
on, for example, indices, currencies or securities), the managers don't intend
to use them as principal investments and may not use them at all.
The Main Risks Of Investing In The Portfolio
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or make the portfolio perform less well than other
investments.
As with most stock portfolios, the most important factor with this portfolio is
how stock markets perform. When growth stock prices decline, you should expect
the value of your investment to decline as well. The fact that the portfolio may
focus on one or more sectors increases this risk, because factors affecting
those sectors could affect portfolio performance.
Similarly, because the portfolio isn't diversified and can invest a larger
percentage of assets in a given stock than a diversified portfolio, factors
affecting that stock could affect portfolio performance. Because a stock
represents ownership in its issuer, stock prices can be hurt by poor management,
shrinking product demand and other business risks. These may affect single
companies as well as groups of companies. Stocks of small companies (including
most that issue IPOs) can be highly volatile because their prices often depend
on future expectations.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, sectors,
economic trends, the relative attractiveness of different sizes of stocks
or other matters
o growth stocks could become unpopular
o foreign securities may be more volatile than their U.S. counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty
o derivatives could produce disproportionate losses
o at times, it might be hard to value some investments or to get an
attractive price for them
29 | Kemper Aggressive Growth Portfolio
<PAGE>
This portfolio may be appropriate for long-term investors who can accept an
above-average level of risk to their investment in exchange for potentially
higher performance.
Performance
No performance information is provided because the portfolio does not yet have a
full calendar year of operations.
The portfolio managers
The following people handle the portfolio's day-to-day
management:
Sewall F. Hodges Jesus A. Cabrera
Lead Portfolio Manager o Began investment career
o Began investment career in in 1984
1978 o Joined the advisor in
o Joined the advisor in 1995 1999
o Joined the portfolio team o Joined the portfolio
in 1999 team in 1999
30 | Kemper Aggressive Growth Portfolio
<PAGE>
Financial Highlights
31 | Kemper Aggressive Growth Portfolio
<PAGE>
Kemper Horizon 20+ Portfolio
Portfolio Goal
To seek growth of capital, with income a secondary goal.
The Portfolio's Main Strategy
Under normal circumstances, the portfolio maintains an asset allocation of
approximately 80% equity securities and 20% fixed-income securities.
Equity portion. Most of this portion is normally invested in common stocks. In
choosing U.S. stocks, the managers use proprietary models to rank stocks
according to book value, earnings per share, expected earnings growth and other
factors. The model uses the same criteria for all stocks, but ranks growth
stocks and value stocks separately. Based on market, economic and other factors,
the managers determine their desired mix of growth and value stocks (between 40%
and 60% of each) and choose stocks from among the top-ranked in each category.
In choosing foreign stocks, the managers generally focus on established
companies in countries with developed economies, although the portfolio can
invest in stocks of any size and from any country.
Fixed-income portion. This portion is divided among government and agency
securities, corporate securities, bank obligations and cash equivalents. All of
the portfolio's fixed-income securities must be denominated in U.S. dollars, and
90% of the fixed-income portion must be in the top four credit grades, with an
average credit quality within the top two credit grades.
Allocation Adjustments
While the managers expect that, over time, the portfolio's actual allocations
will average out to be similar to its target allocations, the actual allocations
may be different from the target allocations at any given time. This is because
the managers may adjust the portfolio's actual allocations in seeking to take
advantage of current or expected market conditions, or to manage risk.
The Main Risks Of Investing In The Portfolio
There are several factors that could hurt portfolio performance, cause you to
lose money or make the portfolio perform less well than other investments.
The most important factor is how stock markets perform -- something that depends
on many influences, including economic, political and demographic trends. When
stock prices decline, the value of your investment is likely to decline as well.
Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. Stock risks
tend to be greater with smaller companies, which often don't have the broad
business lines or financial resources to weather hard times.
Foreign stocks tend to be more volatile than their U.S. counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. In addition, there is the risk
with foreign investments that changing currency rates could add to market losses
or reduce market gains. These risks tend to be greater in emerging markets.
Because the portfolio invests some of its assets in bonds, it may perform less
well in the long run than a portfolio investing entirely in stocks. At the same
time, the portfolio's bond component means that its performance could be hurt
somewhat by poor performance in the bond market or from the particular bonds it
owns.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies, the attractiveness of asset classes or
other matters
o bond prices could be hurt by rising interest rates or declines in credit
quality
o at times, it could be hard to value some investments or to get an
attractive price for them
This portfolio may make sense for investors with a time horizon of 20 years or
longer who want an investment that uses an asset allocation strategy to pursue
growth and manage risk.
32 | Kemper Horizon 20+ Portfolio
<PAGE>
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For context, the table has two broad-based market indices (which, unlike the
portfolio, have no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- ----------------------------------
1997 1998 1999
- ----------------------------------
20.47 13.01 00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 12/29/96
Since 12/31/98 1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio % %
- --------------------------------------------------------------------------------
Index 1 *
- --------------------------------------------------------------------------------
Index 2 *
- --------------------------------------------------------------------------------
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Lehman Brothers Government/Corporate Bond Index, an unmanaged index
comprised of intermediate and long-term government and investment-grade
corporate debt securities.
- --------------------------------------------------------------------------------
* Since 12/31/96
33 | Kemper Horizon 20+ Portfolio
<PAGE>
The portfolio managers
The following people handle the portfolio's day-to-day
management:
Robert D. Tymoczko Almond G. Goduti
Lead Portfolio Manager Portfolio Manager
o Began investment career in o Began investment career
1996 in 1985
o Joined the advisor in 1997 o Joined the advisor in
o Joined the portfolio team 1996
in 1999 o Joined the portfolio
team in 1999
Shahram Tajbakhsh Josephine Chu
Portfolio Manager Portfolio Manager
o Began investment career in o Began investment career
1991 in 1996
o Joined the advisor in 1996 o Joined the advisor in
o Joined the portfolio team 1997
in 1999 o Joined the portfolio
team in 1999
34 | Kemper Horizon 20+ Portfolio
<PAGE>
Financial Highlights
35 | Kemper Horizon 20+ Portfolio
<PAGE>
Kemper Horizon 10+ Portfolio
Portfolio Goal
To seek a balance between growth of capital and income, consistent with moderate
risk.
The Portfolio's Main Strategy
Under normal conditions, the portfolio maintains an asset allocation of
approximately 60% equity securities and 40% fixed-income securities.
Equity portion. Most of this portion is normally invested in common stocks. In
choosing U.S. stocks, the managers use proprietary models to rank stocks
according to book value, earnings per share, expected earnings growth and other
factors. The model uses the same criteria for all stocks, but ranks growth
stocks and value stocks separately. Based on market, economic and other factors,
the managers determine their desired mix of growth and value stocks (between 40%
and 60% of each) and choose stocks from among the top-ranked in each category.
In choosing foreign stocks, the managers generally focus on established
companies in countries with developed economies, although the portfolio can
invest in stocks of any size and from any country.
Fixed-income portion. This portion is divided among government and agency
securities (including mortgage- and asset-backed securities), corporate
securities, bank obligations and cash equivalents. Under normal conditions, all
of the portfolio's fixed-income securities will be denominated in U.S. dollars,
and 90% of the fixed-income portion will be in the top four credit grades, with
an average credit quality within the top two credit grades.
Allocation Adjustments
While the managers expect that, over time, the portfolio's actual allocations
will average out to be similar to its target allocations, the actual allocations
may be different from the target allocations at any given time. This is because
the managers may adjust the portfolio's actual allocations in seeking to take
advantage of current or expected market conditions, or to manage risk.
The Main Risks Of Investing In The Portfolio
There are several factors that could hurt portfolio performance, cause you to
lose money or make the portfolio perform less well than other investments.
The most important factor is how stock markets perform -- something that depends
on many influences, including economic, political and demographic trends. When
stock prices decline, the value of your investment is likely to decline as well.
Stock prices can be hurt by poor management, shrinking product demand and other
business risks. Stock risks tend to be greater with smaller companies.
Foreign stocks tend to be more volatile than their U.S. counterparts. There is
also the risk with foreign investments that changing currency rates could add to
market losses or reduce market gains. These risks tend to be greater in emerging
markets.
The portfolio is also affected by how bond markets perform. Bonds could be hurt
by rises in market interest rates. (As a rule, a 1% rise in interest rates means
a 1% fall in value for every year of duration.) Some bonds could be paid off
earlier than expected if interest rates fall. With mortgage- or asset-backed
securities, any unexpected behavior in interest rates could increase the
volatility of the portfolio's share price and yield. Corporate bonds could
perform less well than other types of bonds in a weak economy.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies, the attractiveness of asset classes or
other matters
o a bond could fall in credit quality or go into default
o at times, it could be hard to value some investments or to get an
attractive price for them
Investors who are looking for a balanced portfolio of stock and bond investments
and whose time horizon is approximately ten or more years may be interested in
this portfolio.
36 | Kemper Horizon 10+ Portfolio
<PAGE>
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For context, the table has two broad-based market indices (which, unlike the
portfolio, have no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- -----------------------------------
1997 1998 1999
- -----------------------------------
16.77 11.30 00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 12/31/98 Since 12/31/96 Since 5/1/96 Life
1 Year 3 Years of Class
- --------------------------------------------------------------------------------
Portfolio % % %
- --------------------------------------------------------------------------------
Index 1
- --------------------------------------------------------------------------------
Index 2
- --------------------------------------------------------------------------------
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Lehman Brothers Government/Corporate Bond Index, an unmanaged index
comprised of intermediate and long-term government and investment-grade
corporate debt securities.
- --------------------------------------------------------------------------------
37 | Kemper Horizon 10+ Portfolio
<PAGE>
The portfolio managers
The following people handle the portfolio's day-to-day
management:
Robert D. Tymoczko Almond G. Goduti
Lead Portfolio Manager Portfolio Manager
o Began investment career in o Began investment career
1996 in 1985
o Joined the advisor in 1997 o Joined the advisor in
o Joined the portfolio team 1996
in 1999 o Joined the portfolio
team in 1999
Shahram Tajbakhsh Josephine Chu
Portfolio Manager Portfolio Manager
o Began investment career in o Began investment career
1991 in 1996
o Joined the advisor in 1996 o Joined the advisor in
o Joined the portfolio team 1997
in 1999 o Joined the portfolio
team in 1999
38 | Kemper Horizon 10+ Portfolio
<PAGE>
Financial Highlights
39 | Kemper Horizon 10+ Portfolio
<PAGE>
Kemper Horizon 5 Portfolio
Portfolio Goal
To seek income consistent with capital preservation; growth of capital is a
secondary goal.
The Portfolio's Main Strategy
Under normal conditions, the portfolio maintains an asset allocation of
approximately 40% equity securities and 60% fixed-income securities.
Fixed-income portion. This portion is divided among government and agency
securities, corporate securities, bank obligations and cash equivalents. All of
the portfolio's fixed-income securities must be denominated in U.S. dollars, and
90% of the fixed-income portion must be in the top four credit grades, with an
average credit quality within the top two credit grades.
Equity portion. Most of this portion is normally invested in common stocks. In
choosing U.S. stocks, the managers use proprietary models to rank stocks
according to book value, earnings per share, expected earnings growth and other
factors. The model uses the same criteria for all stocks, but ranks growth
stocks and value stocks separately. Based on market, economic and other factors,
the managers determine their desired mix of growth and value stocks (between 40%
and 60% of each) and choose stocks from among the top-ranked in each category.
In choosing foreign stocks, the managers generally focus on established
companies in countries with developed economies, although the portfolio can
invest in stocks of any size and from any country.
Allocation Adjustments
While the managers expect that, over time, the portfolio's actual allocations
will average out to be similar to its target allocations, the actual allocations
may be different from the target allocations at any given time. This is because
the managers may adjust the portfolio's actual allocations in seeking to take
advantage of current or expected market conditions, or to manage risk.
The Main Risks Of Investing In The Portfolio
There are several factors that could hurt portfolio performance, cause you to
lose money or make the portfolio perform less well than other investments.
The portfolio is affected by how bond markets perform. Bonds could be hurt by
rises in market interest rates. (As a rule, a 1% rise in interest rates means a
1% decline in value for every year of duration.) Some bonds could be paid off
earlier than expected if interest rates decline. With mortgage- or asset-backed
securities, any unexpected behavior in interest rates could increase the
volatility of the portfolio's share price and yield. Corporate bonds could
perform less well than other types of bonds in a weak economy.
The portfolio is also affected by how stock markets perform -- something that
depends on many influences, including economic, political and demographic
trends. When stock prices fall, the value of your investment is likely to fall
as well. Stock prices can be hurt by poor management, shrinking product demand
and other business risks. Stock risks tend to be greater with smaller companies.
Foreign stocks tend to be more volatile than their U.S. counterparts. There is
also the risk with foreign investments that changing currency rates could add to
market losses or reduce market gains. These risks tend to be greater in emerging
markets.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies, the attractiveness of asset classes or
other matters
o a bond could fall in credit quality or go into default
o at times, it could be hard to value some investments or to get an
attractive price for them
Investors who are about five years away from their financial goals, or who want
a portfolio that takes a more conservative asset allocation, may want to
consider this portfolio.
40 | Kemper Horizon 5 Portfolio
<PAGE>
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For context, the table has two broad-based market indices (which, unlike the
portfolio, have no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- ----------------------------------
1997 1998 1999
- ----------------------------------
12.70 10.00 00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 5/1/96
Since 12/31/97 1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio % %
- --------------------------------------------------------------------------------
Index 1
- --------------------------------------------------------------------------------
Index 2
- --------------------------------------------------------------------------------
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Lehman Brothers Government/Corporate Bond Index, an unmanaged index
comprised of intermediate and long-term government and investment-grade
corporate debt securities.
- --------------------------------------------------------------------------------
41 | Kemper Horizon 5 Portfolio
<PAGE>
The portfolio managers
The following people handle the portfolio's day-to-day
management:
Robert D. Tymoczko Almond G. Goduti
Lead Portfolio Manager Portfolio Manager
o Began investment career o Began investment career
in 1996 in 1985
o Joined the advisor in 1997 o Joined the advisor
o Joined the portfolio team in 1996
in 1999 o Joined the portfolio
team in 1999
Shahram Tajbakhsh Josephine Chu
Portfolio Manager Portfolio Manager
o Began investment career o Began investment career
in 1991 in 1996
o Joined the advisor in 1996 o Joined the advisor
o Joined the portfolio team in 1997
in 1999 o Joined the portfolio
team in 1999
42 | Kemper Horizon 5 Portfolio
<PAGE>
Financial Highlights
43 | Kemper Horizon 5 Portfolio
<PAGE>
Kemper Small Cap Growth Portfolio
Portfolio Goal
The portfolio seeks maximum appreciation of investors' capital.
The Portfolio's Main Strategy
The portfolio invests at least 65% of its total assets in small capitalization
stocks similar in size to those comprising the Russell 2000 Index.
In choosing stocks, the portfolio managers look for individual companies with a
history of revenue growth, effective management and strong balance sheets, among
other factors. In particular, the managers seek companies that may benefit from
technological advances, new marketing methods and economic and demographic
changes.
The managers also consider the economic outlooks for various sectors and
industries, typically favoring those where high growth companies tend to be
clustered, such as electronics, medical technology, software and specialty
retailing.
The managers may favor securities from different industries and companies at
different times, while still maintaining variety in terms of the industries and
companies represented.
The portfolio normally will sell a stock when the managers believe its price is
unlikely to go much higher, its fundamental qualities have deteriorated or other
investments offer better opportunities. The portfolio also sells securities of
companies that have grown in market capitalization above the maximum of the
Russell 2000 Index, as necessary to keep focused on smaller companies.
Other Investments
While the portfolio invests mainly in U.S. stocks, it could invest up to 25% of
its total assets in foreign securities. Also, while the portfolio is permitted
to use various types of derivatives (contracts whose value is based on, for
example, indices, currencies or securities), the manager doesn't intend to use
them as principal investments, and might not use them at all.
The Main Risks Of Investing In The Portfolio
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or make the portfolio perform less well than other
investments.
As with most stock portfolios, the most important factor with this portfolio is
how stock markets perform -- in this case, the small and mid-size growth company
portion of the U.S. stock market. When prices of these stocks decline, you
should expect the value of your investment to decline as well. Small stocks tend
to be more volatile than stocks of larger companies, in part because small and
mid-size companies tend to be less established than larger companies and the
valuation of their stocks often depends on future expectations. Because a stock
represents ownership in its issuer, stock prices can be hurt by poor management,
shrinking product demand and other business risks. These may affect single
companies as well as groups of companies.
To the extent that the portfolio focuses on a given sector, any factors
affecting that sector could affect portfolio securities. For example, the
emergence of new technologies could hurt electronics or medical technology
companies.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends or other matters
o growth stocks could become unpopular
o foreign securities may be more volatile than their U.S. counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty
o derivatives could produce disproportionate losses
o at times, it might be hard to value some investments or to get an
attractive price for them
44 | Kemper Small Cap Growth Portfolio
<PAGE>
Investors who are looking to add the growth potential of smaller companies or to
diversify a large-cap growth portfolio may want to consider this portfolio.
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For context, the table has three broad-based market indices (which, unlike the
portfolio, have no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- --------------------------------------------------------
1995 1996 1997 1998 1999
- --------------------------------------------------------
30.07 28.04 34.20 18.37 00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 12/31/98 Since 12/31/94 Since 5/2/94
1 Year 5 Years Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio % % %
- --------------------------------------------------------------------------------
Index 1
- --------------------------------------------------------------------------------
Index 2
- --------------------------------------------------------------------------------
Index 3
- --------------------------------------------------------------------------------
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Russell 2000 Index, an unmanaged capitalization-weighted measure of
approximately 2000 small U.S. stocks.
Index 3: Russell 2000 Growth Index, an unmanaged index that measures the
performance of those Russell 2000 companies with higher price-to-book ratios and
higher forecasted growth values.
- --------------------------------------------------------------------------------
The portfolio manager
Jesus A. Cabrera handles the portfolio's day-to-day management. He began his
investment career in 1984, joined the advisor in 1999 and began managing the
portfolio in 1999.
45 | Kemper Small Cap Growth Portfolio
<PAGE>
Financial Highlights
46 | Kemper Small Cap Growth Portfolio
<PAGE>
Kemper Technology Growth Portfolio
Portfolio Goal
The portfolio seeks growth of capital.
The Portfolio's Main Strategy
The portfolio normally invests at least 65% of its total assets in common stocks
of U.S. companies in the technology sector. This may include companies of any
size that commit at least half of their assets to the technology sector, or
derive at least half of their revenues or net income from that sector. Examples
of industries within the technology sector are aerospace, electronics,
computers/software, medicine/biotechnology, geology and oceanography.
In choosing stocks, the portfolio managers look for companies that have robust
and sustainable earnings momentum, large and growing markets, innovative
products and services and strong balance sheets, among other factors.
The managers may favor securities from different industries and companies within
the technology sector at different times, while still maintaining variety in
terms of the industries and companies represented.
The portfolio will normally sell a stock when the managers believe its price is
unlikely to go much higher, its fundamental qualities have deteriorated or other
investments offer better opportunities.
Other Investments
While the portfolio invests mainly in U.S. stocks, it could invest up to 25% of
its total assets in foreign securities. Also, while the portfolio is permitted
to use various types of derivatives (contracts whose value is based on, for
example, indices, currencies or securities), the managers don't intend to use
them as principal investments, and might not use them at all.
The Main Risks Of Investing In The Portfolio
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or make the portfolio perform less well than other
investments.
As with most stock portfolios, the most important factor with this portfolio is
how stock markets perform. When stock prices decline, you should expect the
value of your investment to decline as well. The fact that the portfolio
concentrates in one sector increases this risk, because factors affecting this
sector affect portfolio performance. For example, technology companies could be
hurt by such factors as market saturation, price competition and competing
technologies.
Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. These may
affect single companies as well as groups of companies. Many technology
companies are smaller companies that may have limited business lines and
financial resources, making them highly vulnerable to business and economic
risks.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends or other matters
o growth stocks could become unpopular
o foreign securities may be more volatile than their U.S. counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty
o derivatives could produce disproportionate losses
o at times, it might be hard to value some investments or to get an
attractive price for them
This portfolio may appeal to investors who want exposure to a sector that offers
attractive long-term growth potential and who can accept above-average risks.
47 | Kemper Technology Growth Portfolio
<PAGE>
Performance
No performance information is provided because the portfolio does not yet have a
full calendar year of operations.
The portfolio managers
The following people handle the portfolio's day-to-day
management:
James B. Burkart Robert L. Horton
Co-lead Portfolio Manager o Began investment career
o Began investment career in in 1993
1970 o Joined the advisor
o Joined the advisor in 1998 in 1996
o Joined the portfolio team o Joined the portfolio
in 1998 team in 1999
Deborah L. Koch Tracy McCormick
Co-lead Portfolio Manager o Began investment career
o Began investment career in in 1980
1985 o Joined the advisor
o Joined the advisor in 1992 in 1994
o Joined the portfolio team o Joined the portfolio
in 1999 team in 1998
J. Brooks Dougherty Virginea Stuart
o Began investment career in o Began investment career
1984 in 1995
o Joined the advisor in 1993 o Joined the advisor
o Joined the portfolio team in 1996
in 1999 o Joined the portfolio
team in 1999
48 | Kemper Technology Growth Portfolio
<PAGE>
Financial Highlights
49 | Kemper Technology Growth Portfolio
<PAGE>
Kemper Value+Growth Portfolio
Portfolio Goal
The portfolio seeks growth of capital. A secondary objective of the portfolio is
the reduction of risk over a full market cycle compared to a portfolio of only
growth stocks or only value stocks.
The Portfolio's Main Strategy
The portfolio normally invests at least 65% of its total assets in U.S. common
stocks. Although the portfolio can invest in stocks of any size, it mainly
chooses stocks from the 1,000 largest (as measured by market capitalization).
The portfolio manages risk by investing in both growth and value stocks.
While the portfolio's neutral mix is 50% for growth stocks and 50% for value
stocks, the managers may shift the portfolio's holdings depending on their
outlook, at different times favoring growth stocks or value stocks, while still
maintaining variety in terms of the securities, issuers and economic sectors
represented. Typically, adjustments in the portfolio's growth/value proportions
will be gradual. The allocation to growth or value stocks may be up to 75% at
any time.
In choosing growth stocks, the managers look for companies with a history of
above-average growth, attractive prices relative to potential growth and sound
financial strength, among other factors. With value stocks, the managers look
for companies whose stock prices are low in light of earnings, cash flow and
other valuation measures, while also considering such factors as dividend growth
rates and earnings estimates.
The portfolio normally will sell a stock when the managers believe its price is
unlikely to go much higher, its fundamental qualities have deteriorated or to
adjust the proportions of its growth and value stocks.
Other Investments
While the portfolio invests mainly in U.S. stocks, it could invest up to 25% of
its total assets in foreign securities. Also, while the portfolio is permitted
to use various types of derivatives (contracts whose value is based on, for
example, indices, currencies or securities), the managers don't intend to use
them as principal investments, and might not use them at all.
The Main Risks Of Investing In The Portfolio
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or make the portfolio perform less well than other
investments.
As with most stock portfolios, the most important factor with this portfolio is
how stock markets perform -- in this case, the large company portion of the U.S.
stock market. When large company stock prices decline, you should expect the
value of your investment to decline as well. Large company stocks may be less
risky than shares of smaller companies, but at times may not perform as well.
Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. These may
affect single companies as well as groups of companies.
In any given period, either growth stocks or value stocks will generally lag the
other; because the portfolio invests in both, it is likely to lag any portfolio
that focuses on the type of stock that outperforms during that period, and at
times may lag both.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of industries, companies, the
relative attractiveness of growth stocks and value stocks or other matters
o foreign securities may be more volatile than their U.S. counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty
o derivatives could produce disproportionate losses
o at times, it might be hard to value some investments or to get an
attractive price for them
This portfolio is designed for investors with long-term goals who want to gain
exposure to both growth and value stocks in a single portfolio.
50 | Kemper Value+Growth Portfolio
<PAGE>
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For context, the table has two broad-based market indices (which, unlike the
portfolio, have no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- --------------------------------------
1997 1998 1999
- --------------------------------------
25.47 20.17 00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 5/1/96
Since 12/31/98 1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio % %
- --------------------------------------------------------------------------------
Index 1
- --------------------------------------------------------------------------------
Index 2
- --------------------------------------------------------------------------------
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Russell 1000 Index, an unmanaged capitalization-weighted price only
index comprised of the largest capitalized U.S. companies whose common stocks
are traded in the United States.
- --------------------------------------------------------------------------------
The portfolio managers
The following people handle the portfolio's day-to-day
management:
Donald E. Hall William J. Wallace
Lead Portfolio Manager o Began investment career
o Began investment career in 1981
in 1982 o Joined the advisor
o Joined the advisor in 1982 in 1987
o Joined the portfolio team o Joined the portfolio
in 1999 team in 1999
51 | Kemper Value+Growth Portfolio
<PAGE>
Financial Highlights
52 | Kemper Value+Growth Portfolio
<PAGE>
Kemper Contrarian Value Portfolio
Portfolio Goal
The portfolio seeks to achieve a high rate of total return.
The Portfolio's Main Strategy
The portfolio normally invests at least 65% in common stocks and other equity
securities of large U.S. companies (those with a market value of $1 billion or
more) that the portfolio managers believe are undervalued. Although the
portfolio can invest in stocks of any economic sector, at times it may emphasize
the financial services sector or other sectors (in fact, it may invest more than
25% of total assets in a single sector). As of December 31, 1999, the companies
in which the portfolio invests had a median market capitalization of
approximately $14 billion.
The portfolio managers begin by screening for stocks whose price-to-earnings
ratios are below the average for the S&P 500 Index. The managers then compare a
company's stock price to its book value, cash flow and yield, and analyze
individual companies to identify those that are financially sound and appear to
have strong potential for long-term growth.
The managers assemble the portfolio from among the most attractive stocks,
drawing on analysis of economic outlooks for various sectors and industries. The
managers intend to diversify the portfolio's holdings among sectors and
industries, although, depending on their outlook, they may increase or reduce
the portfolio's exposure to a given sector or industry.
The portfolio normally will sell a stock when it reaches a target price, its
fundamental factors have changed or it has performed below the managers'
expectations for three to four years.
Other Investments
While the portfolio is permitted to use various types of derivatives (contracts
whose value is based on, for example, indices, currencies or securities), the
managers don't intend to use them as principal investments, and might not use
them at all.
The portfolio may also invest up to 20% of its assets in U.S. dollar-denominated
American Depository Receipts.
The Main Risks Of Investing In The Portfolio
There are several factors that could hurt portfolio performance, cause you to
lose money or make the portfolio perform less well than other investments.
As with most stock portfolios, the most important factor with this portfolio is
how stock markets perform -- in this case, the large company portion of the U.S.
stock market. When large company stock prices decline, you should expect the
value of your investment to decline as well. Large company stocks at times may
not perform as well as stocks of smaller or middle-size companies. Because a
stock represents ownership in its issuer, stock prices can be hurt by poor
management, shrinking product demand and other business risks.
These may affect single companies as well as groups of companies.
To the extent that the portfolio concentrates in one or more sectors, any
factors affecting those sectors could affect portfolio performance. For example,
financial services companies could be hurt by such factors as changing
government regulations, increasing competition and interest rate movements.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends or other matters
o value stocks could become unpopular
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
Investors seeking to diversify a growth-oriented portfolio or add a core holding
to a value-oriented portfolio may want to consider this portfolio.
53 | Kemper Contrarian Value Portfolio
<PAGE>
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For context, the table has a broad-based market index (which, unlike the
portfolio, has no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- -------------------------------------
1997 1998 1999
- -------------------------------------
30.38 19.26 00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 5/1/96
Since 12/31/98 1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio % %
- --------------------------------------------------------------------------------
Index
- --------------------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index, an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange and the American Stock Exchange, and traded on the
Nasdaq Stock Market, Inc.
- --------------------------------------------------------------------------------
The portfolio managers
Below are the people who handle the portfolio's
day-to-day management:
Thomas F. Sassi Frederick L. Gaskin
Lead Portfolio Manager o Began investment career
o Began investment career in 1986
in 1971 o Joined the advisor in
o Joined the advisor in 1996 1996
o Joined the portfolio team o Joined the portfolio
in 1997 team in 1997
54 | Kemper Contrarian Value Portfolio
<PAGE>
Financial Highlights
55 | Kemper Contrarian Value Portfolio
<PAGE>
Kemper-Dreman High Return Equity Portfolio
Portfolio Goal
The portfolio seeks to achieve a high rate of total return.
The Portfolio's Main Strategy
The portfolio normally invests at least 65% of its total assets in common stocks
and other equity securities. The portfolio focuses on stocks of large U.S.
companies (those with a market value of $1 billion or more) that the portfolio
managers believe are undervalued. Although the portfolio can invest in stocks of
any economic sector, at times it may emphasize the financial services sector or
other sectors (in fact, it may invest more than 25% of total assets in a single
sector). As of December 31, 1999, companies in which the portfolio invests had a
median market capitalization of approximately $5.13 billion and an average
market capitalization of $14 billion.
The portfolio manager begins by screening for stocks whose price-to-earnings
ratios are below the average for the S&P 500 Index. The manager then compares a
company's stock price to its book value, cash flow and yield, and analyze
individual companies to identify those that are financially sound and appear to
have strong potential for long-term growth and income.
The manager assembles the portfolio from among the most attractive stocks,
drawing on analysis of economic outlooks for various sectors and industries. The
manager may favor securities from different sectors and industries at different
times, while still maintaining variety in terms of sectors and industries
represented.
The portfolio normally will sell a stock when it reaches a target price, its
fundamental factors have changed or it has performed below the manager's
expectations.
Other Investments
The portfolio may invest up to 20% of its total assets in U.S.
dollar-denominated American Depository Receipts and in securities of foreign
companies traded principally in securities markets outside the U.S.
The managers may, but are not required to, use various types of derivatives
(contracts whose value is based on, for example, indices, currencies or
securities), particularly exchange-traded stock index futures, which offer the
portfolio exposure to future stock market movements without direct ownership of
stocks. While the portfolio invests mainly in U.S. stocks, it could invest up to
20% of total assets in foreign securities.
The Main Risks Of Investing In The Portfolio
There are several factors that could hurt portfolio performance, cause you to
lose money or make the portfolio perform less well than other investments.
As with most stock portfolios, the most important factor with this portfolio is
how stock markets perform -- in this case, the large company portion of the U.S.
stock market. When large company stock prices decline, you should expect the
value of your investment to decline as well. Large company stocks may be less
risky than shares of smaller companies, but at times may not perform as well.
Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. These may
affect single companies as well as groups of companies.
To the extent that the portfolio concentrates in one or more sectors, any
factors affecting those sectors could affect portfolio performance. For example,
financial services companies could be hurt by such factors as changing
government regulations, increasing competition and interest rate movements.
Any investments in index futures or other derivatives that don't perform as
expected could produce disproportionate losses, potentially costing the
portfolio more than it paid for the derivatives themselves.
56 | Kemper-Dreman High Return Equity Portfolio
<PAGE>
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends or other matters
o value stocks could become unpopular
o foreign stocks may be more volatile than their U.S. counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty
o at times, it could be hard to value some investments or to get an
attractive price for them
This portfolio may serve investors with long-term goals who are interested in a
large-cap value portfolio that takes moderately higher risks.
Performance
The bar chart shows the total return for the portfolio for its first calendar
year of operations, which may give some idea of risk. The chart doesn't reflect
sales loads and fees associated with a separate account that invests in the
portfolio or any insurance contract for which the portfolio is an investment
option; if it did, returns would be lower. The table shows how the portfolio's
returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the
portfolio, has no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- --------------
1999
- --------------
00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 5/1/96
Since 12/31/98 1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio % %
- --------------------------------------------------------------------------------
Index
- --------------------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index, an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange and the American Stock Exchange, and traded on the
Nasdaq Stock Market, Inc.
- --------------------------------------------------------------------------------
The portfolio manager
The portfolio manager is David N. Dreman, founder and chairman of Dreman Value
Management. Widely regarded as a leading proponent of value-style investment
management, Mr. Dreman began his investment career in 1957 and has managed the
portfolio since inception.
57 | Kemper-Dreman High Return Equity Portfolio
<PAGE>
Financial Highlights
58 | Kemper-Dreman High Return Equity Portfolio
<PAGE>
Kemper Small Cap Value Portfolio
Portfolio Goal
The portfolio seeks long-term capital appreciation.
The Portfolio's Main Strategy
The portfolio normally invests at least 65% of its total assets in undervalued
common stocks of small U.S. companies, which the portfolio defines as companies
that are similar in market value to those in the Russell 2000 Index ($1.4
billion or less as of 12/31/1999).
The portfolio managers begin by screening for small companies whose stock prices
appear low relative to other companies in the same sector (rather than on an
absolute basis). A quantitative stock valuation model compares each company's
stock price to the company's earnings, book value, sales and other measures of
performance potential. The managers also look for factors that may signal a
rebound for a company, whether through a recovery in its markets, a change in
business strategy or other factors.
The managers then assemble the portfolio from among the qualifying stocks, using
portfolio optimization software that combines information about the potential
return and risks of each stock.
The managers diversify the portfolio's investments among many companies
(typically over 150), and expect to keep the portfolio's sector weightings
similar to those of the overall small-cap market.
The portfolio normally will sell a stock when it no longer qualifies as a small
company, when it is no longer considered undervalued or when the managers
believe other investments offer better opportunities.
Other Investments
While the portfolio invests mainly in U.S. stocks, it could invest up to 20% of
its total assets in securities of companies in the form of U.S.
dollar-denominated American Depository Receipts. Also, while the portfolio is
permitted to use various types of derivatives (contracts whose value is based
on, for example, indices, currencies or securities), the managers don't intend
to use them as principal investments, and might not use them at all.
The Main Risks Of Investing In The Portfolio
There are several factors that could hurt portfolio performance, cause you to
lose money or make the portfolio perform less well than other investments.
As with most stock portfolios, the most important factor with this portfolio is
how stock markets perform -- in this case, the small company portion of the U.S.
stock market. When small company stock prices decline, you should expect the
value of your investment to decline as well. Small company stocks tend to be
more volatile than stocks of larger companies, in part because small companies
tend to be less established than larger companies and more vulnerable to
competitive challenges and bad economic news. Because a stock represents
ownership in its issuer, stock prices can be hurt by poor management, shrinking
product demand and other business risks. These may affect single companies as
well as groups of companies.
To the extent that the portfolio focuses on a given sector, any factors
affecting that sector could affect portfolio securities. For example, the
emergence of new technologies could hurt electronics or medical technology
companies.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends or other matters
o value stocks could become unpopular
o foreign stocks may be more volatile than their U.S. counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
59 | Kemper Small Cap Value Portfolio
<PAGE>
This portfolio may make sense for investors who are interested in small-cap
market exposure with potentially lower risk than a growth-oriented small-cap
portfolio.
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For context, the table has a broad-based market index (which, unlike the
portfolio, has no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- ------------------------------------
1997 1998 1999
- ------------------------------------
21.74 -11.25 00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 5/1/96
Since 12/31/98 1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio % %
- --------------------------------------------------------------------------------
Index
- --------------------------------------------------------------------------------
Index: The Russell 2000 Index, a capitalization-weighted price only index which
is comprised of 2000 of the smallest stocks (on the basis of capitalization) in
the Russell 3000 Index.
- --------------------------------------------------------------------------------
The portfolio managers
Below are the people who handle the portfolio's
day-to-day management:
James M. Eysenbach Calvin S. Young
Lead Portfolio Manager o Began investment career
o Began investment career in 1988
in 1984 o Joined the advisor in
o Joined the advisor in 1991 1990
o Joined the portfolio team o Joined the portfolio
in 1999 team in 1999
60 | Kemper Small Cap Value Portfolio
<PAGE>
Financial Highlights
61 | Kemper Small Cap Value Portfolio
<PAGE>
KVS Dreman Financial Services Portfolio
Portfolio Goal
The portfolio seeks to provide long-term capital appreciation.
The Portfolio's Main Strategy
The portfolio normally invests at least 65% of its total assets in equity
securities (mainly common stocks) of financial services companies. This may
include companies of any size that commit at least half of their assets to the
financial services sector, or derive at least half of their revenues or net
income from that sector. The major types of financial services companies are
banks, insurance companies, savings and loans, securities brokerage firms and
diversified financial companies.
The portfolio managers begin by screening for financial services stocks whose
price-to-earnings ratios are below the average for the S&P 500 Index. The
managers then compare a company's stock price to its book value, cash flow and
yield, and analyze individual companies to identify those that are financially
sound and appear to have strong potential for long-term growth. The portfolio
invests principally in companies in the financial services sector believed by
the portfolio manager to be undervalued.
The managers assemble the portfolio from among the most attractive stocks,
drawing on analysis of economic outlooks for various financial industries. The
manager may favor securities from different industries in the financial sector
at different times, while still maintaining variety in terms of industries and
companies represented.
The portfolio will normally sell a stock when it reaches a target price, its
fundamental factors have changed or it has performed below the managers'
expectations.
Other Investments
While the portfolio invests mainly in U.S. stocks, it could invest up to 30% of
total assets in foreign securities, and up to 35% of total assets in
investment-grade debt securities. Also, while the portfolio is permitted to use
various types of derivatives (contracts whose value is based on, for example,
indices, currencies or securities), the managers don't intend to use them as
principal investments and might not use them at all.
The Main Risks Of Investing In The Portfolio
There are several factors that could hurt portfolio performance, cause you to
lose money or make the portfolio perform less well than other investments.
As with most stock portfolios, the most important factor with this portfolio is
how stock markets perform, and in this case, financial services stocks. When
stock prices decline, you should expect the value of your investment to decline
as well. The fact that the portfolio focuses on a single sector increases this
risk, because factors affecting that sector could affect portfolio performance.
For example, financial services companies could be hurt by such factors as
changing government regulations, increasing competition and interest rate
movements.
Similarly, because the portfolio isn't diversified and can invest a larger
percentage of assets in a given company than a diversified portfolio, factors
affecting that company could affect portfolio performance. Because a stock
represents ownership in its issuer, stock prices can be hurt by poor management,
shrinking product demand and other business risks. These may affect single
companies as well as groups of companies.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends or other matters
o value stocks could become unpopular
o foreign stocks may be more volatile than their U.S. counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty
o the bond portion of the portfolio could be hurt by rising interest rates or
declines in credit quality
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
62 | KVS Dreman Financial Services Portfolio
<PAGE>
This portfolio may be appropriate for long-term investors who want to gain
exposure to the financial services sector and can accept the above-average risks
of a sector-specific investment.
Performance
The bar chart shows the total return for the portfolio for its first calendar
year of operations, which may give some idea of risk. The chart doesn't reflect
sales loads and fees associated with a separate account that invests in the
portfolio or any insurance contract for which the portfolio is an investment
option; if it did, returns would be lower. The table shows how the portfolio's
returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the
portfolio, has no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- ------------
1999
- ------------
00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since __/__/__
1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio % %
- --------------------------------------------------------------------------------
Index %
- --------------------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index, an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange and the American Stock Exchange, and traded on the
Nasdaq Stock Market, Inc.
- --------------------------------------------------------------------------------
The portfolio manager
The portfolio manager is David N. Dreman, founder and chairman of Dreman Value
Management. Widely regarded as a leading proponent of value-style investment
management, Mr. Dreman began his investment career in 1957 and has managed the
portfolio since inception.
63 | KVS Dreman Financial Services Portfolio
<PAGE>
Financial Highlights
64 | KVS Dreman Financial Services Portfolio
<PAGE>
Kemper Global Income Portfolio
Portfolio Goal
The portfolio seeks high current income consistent with prudent total return
asset management.
The Portfolio's Main Strategy
The portfolio invests at least 65% of total assets in foreign and U.S.
investment-grade bonds and other debt securities. While the portfolio may invest
in securities issued by any issuer and in any currency, it generally focuses on
issuers in developed markets, such as Australia, Canada, Japan, New Zealand, the
United States and Western Europe, and on securities of other countries that are
denominated in the currencies of these countries or the euro.
In making their buy and sell decisions, the portfolio managers typically
consider a number of factors, including economic outlooks, interest rate
movements, inflation trends, security characteristics and changes in supply and
demand within global bond markets. In choosing individual bonds, the managers
use independent analysis to look for bonds that have attractive yields and good
credit. The managers may favor securities from different countries and issuers
at different times, while still maintaining variety in terms of countries and
issuers represented.
Credit Quality Policies
This portfolio normally invests at least 65% of total assets in investment-grade
bonds, which are those in the top four credit grades (i.e., as low as BBB/Baa).
The Main Risks Of Investing In The Portfolio
There are several factors that could hurt portfolio performance, cause you to
lose money or make the portfolio perform less well than other investments.
For this portfolio, the main factor is global interest rates. A rise in interest
rates generally means a decline in bond prices -- and, in turn, a decline in the
value of your investment. (As a rule, a 1% rise in interest rates means a 1%
decline in value for every year of duration.)
Foreign markets tend to be more volatile than U.S. markets, for reasons ranging
from political and economic uncertainties to poor regulation to a higher risk
that essential information may be incomplete or wrong.
Another major factor is currency exchange rates. When the dollar value of a
foreign currency falls, so does the value of any investments the portfolio owns
that are denominated in that currency. This is separate from market risk, and
may add to market losses or reduce market gains.
The fact that the portfolio is not diversified and may invest in securities of
relatively few issuers increases its risk, because any factors affecting a given
issuer could affect performance. Similarly, if the portfolio emphasizes a given
market, such as Canada, or a given industry, factors affecting that market or
industry will affect performance.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, issuers, industries or other matters
o a bond could fall in credit quality or go into default
o some types of bonds could be paid off earlier than expected, which would
hurt the portfolio's performance
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
This portfolio may make sense for investors seeking a less aggressive approach
to international income investing.
65 | Kemper Global Income Portfolio
<PAGE>
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For comparison, the table has a broad-based market index (which, unlike the
portfolio, has no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- ----------------------------
1998 1999
- ----------------------------
10.98 00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 12/31/98 1 Year Since Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio 00.00% 00.00%
- --------------------------------------------------------------------------------
Index 00.00 00.00
- --------------------------------------------------------------------------------
Index: The Salomon Smith Barney World Government Bond Index is an unmanaged
index comprised of government bonds from eighteen countries (United States,
Japan, United Kingdom, Germany, France, Canada, the Netherlands, Australia,
Switzerland, Denmark, Austria, Belgium, Finland, Ireland, Italy, Portugal, Spain
and Sweden) with maturities greater than one year. Index returns assume
reinvestment of dividends and, unlike portfolio returns, do not reflect any
fees, expenses or sales charges.
- --------------------------------------------------------------------------------
66 | Kemper Global Income Portfolio
<PAGE>
The portfolio managers
The following people handle the portfolio's day-to-day
management:
Jan C. Faller Jeremy L. Ragus
Co-Lead Portfolio Manager o Began investment career
o Began investment career in in 1977
1988 o Joined the advisor in
o Joined the advisor in 1999 1990
o Joined the portfolio team in o Joined the portfolio
1999 team in 1999
Robert Stirling
Co-Lead Portfolio Manager
o Began investment career in
[YEAR]
o Joined the advisor in [YEAR]
o Joined the portfolio team in
1999
67 | Kemper Global Income Portfolio
<PAGE>
Financial Highlights
68 | Kemper Global Income Portfolio
<PAGE>
Kemper Global Blue Chip Portfolio
Portfolio Goal
The portfolio seeks long-term capital growth.
The Portfolio's Main Strategy
The portfolio invests at least 65% of its total assets in common stocks and
other equities of "blue chip" companies throughout the world. These are large,
well known companies that typically have an established earnings and dividends
history, extensive financial resources, solid positions in their industries and
strong management. Although the portfolio may invest in any country, it
primarily focuses on countries with developed economies (including the U.S.).
In choosing stocks, the portfolio managers look for those blue-chip companies
that appear likely to benefit from global economic trends or have promising new
technologies or products. The managers also consider a stock's valuation, and
may invest in companies whose stocks appear low compared to other measures of
value as well as stocks whose prices are not low but appear reasonable in light
of their business prospects.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The portfolio will normally sell a stock when the managers believe it has
reached its fair value, when its fundamental factors have changed or when
adjusting its exposure to a given country or industry.
Other Investments
While the portfolio invests mainly in developed countries, it may invest up to
15% of total assets in debt or equity securities of developing or emerging
markets, including closed-end mutual portfolios that invest primarily in
emerging market debt securities.
The Main Risks Of Investing In The Portfolio
There are several factors that could hurt portfolio performance, cause you to
lose money or make the portfolio perform less well than other investments.
The most important factor with this portfolio is how U.S. and foreign stock
markets perform -- something that depends on a large number of factors,
including economic, political and demographic trends. When U.S. and foreign
stock prices decline, especially prices of large company stocks, you should
expect the value of your investment to decline as well.
Foreign stocks tend to be more volatile than their U.S. counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. Large company stocks may be
less risky than smaller company stocks, but at times may not perform as well.
Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. These may
affect single companies as well as groups of companies. In addition, changing
currency rates could add to the portfolio's investment losses or reduce its
investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
If you are interested in large-cap stocks and want to look beyond U.S. markets,
this portfolio could be suitable for you.
69 | Kemper Global Blue Chip Portfolio
<PAGE>
Performance
The bar chart shows the total return for the portfolio for its first calendar
year of operations, which may give some idea of risk. The chart doesn't reflect
sales loads and fees associated with a separate account that invests in the
portfolio or any insurance contract for which the portfolio is an investment
option; if it did, returns would be lower. The table shows how the portfolio's
returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the
portfolio, has no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- --------------
1999
- --------------
00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 5/1/98
Since 12/31/98 1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio % %
- --------------------------------------------------------------------------------
Index
- --------------------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index, an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange and the American Stock Exchange, and traded on the
Nasdaq Stock Market, Inc.
- --------------------------------------------------------------------------------
The portfolio managers
The following people handle the portfolio's day-to-day
management:
Diego Espinosa William E. Holzer
Lead Portfolio Manager o Began investment career
o Began investment career in in 1970
1991 o Joined the advisor in
o Joined the advisor in 1996 1980
o Joined the portfolio team o Joined the portfolio
in 1998 team in 1998
Nicholas Bratt
o Began investment career in
1974
o Joined the advisor in 1976
o Joined the portfolio team
in 1998
70 | Kemper Global Blue Chip Portfolio
<PAGE>
Financial Highlights
71 | Kemper Global Blue Chip Portfolio
<PAGE>
Kemper International Growth And Income Portfolio
Portfolio Goal
The portfolio seeks long-term growth of capital and current income.
The Portfolio's Main Strategy
The portfolio invests at least 80% of its net assets in foreign equities
(equities issued by foreign-based companies and listed on foreign exchanges).
The portfolio generally focuses on common stocks of established companies in
countries with developed economies (other than the United States).
In choosing stocks, the portfolio managers begin by screening for yields. Each
month, they examine a universe of about 1,200 stocks, seeking those with
dividends at least 25% above the stock's three-year average or the median for
the stock's local market.
To further narrow the pool of potential stocks, the managers use bottom-up
analysis, looking for companies with sound balance sheets, good business
prospects, strong competitive positioning and effective management. The managers
assemble the portfolio from among the qualifying stocks, drawing on analysis of
economic outlooks for various countries and industries.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The portfolio normally will sell a stock when its dividends are 25% lower than
the stock's own three-year average or the median for the stock's local market.
It may also sell a stock when it reaches a target price or when the managers
believe other investments offer better opportunities.
Other Investments
The portfolio may invest up to 20% of its net assets in debt securities,
primarily investment grade (i.e. in the top four credit grades).
The Main Risks Of Investing In The Portfolio
There are several factors that could hurt portfolio performance, cause you to
lose money or make the portfolio perform less well than other investments.
The most important factor with this portfolio is how foreign stock markets
perform -- something that depends on a large number of factors, including
economic, political and demographic trends. When foreign stock prices decline,
you should expect the value of your investment to decline as well.
Foreign stocks may at times be more volatile than their U.S. counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. Because a stock represents
ownership in its issuer, stock prices can be hurt by poor management, shrinking
product demand and other business risks. These may affect single companies as
well as groups of companies. In addition, changing currency rates could add to
the portfolio's investment losses or reduce its investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o to the extent that the portfolio focuses on income, it may end up avoiding
opportunities in faster-growing industries or companies
o bond investments could be hurt by rising interest rates or declines in
credit quality
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
Investors who are looking for a broadly diversified international portfolio with
current income may want to consider this portfolio.
72 | Kemper International Growth And Income Portfolio
<PAGE>
Performance
The bar chart shows the total return for the portfolio for its first calendar
year of operations, which may give some idea of risk. The chart doesn't reflect
sales loads and fees associated with a separate account that invests in the
portfolio or any insurance contract for which the portfolio is an investment
option; if it did, returns would be lower. The table shows how the portfolio's
returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the
portfolio, has no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- ------------
1999
- ------------
00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1998)
Since 5/1/98
Since 12/31/98 1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio % %
- --------------------------------------------------------------------------------
Index
- --------------------------------------------------------------------------------
Index:
- --------------------------------------------------------------------------------
The portfolio managers
The following people handle the portfolio's day-to-day
management:
Sheridan P. Reilly Lauren C. Lambert
Lead Portfolio Manager o Began investment career
o Began investment career in in 1987
1987 o Joined the advisor in
o Joined the advisor in 1995 1994
o Joined the portfolio team o Joined the portfolio
in 1998 team in 1999
Irene Cheng
o Began investment career in
1985
o Joined the advisor in 1993
o Joined the portfolio team
in 1998
73 | Kemper International Growth And Income Portfolio
<PAGE>
Financial Highlights
74 | Kemper International Growth And Income Portfolio
<PAGE>
Kemper International Portfolio
Portfolio Goal
The portfolio seeks total return through a combination of capital growth and
income.
The Portfolio's Main Strategy
The portfolio invests at least 80% of total assets in foreign securities
(securities issued by foreign-based issuers). The portfolio generally focuses on
common stocks of established foreign companies. The portfolio may invest more
than 25% of total assets in any given developed country that the manager
believes poses no unique investment risk.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies that have sound
financial strength, good business prospects and strong competitive positioning
and above-average earnings growth, among other factors.
Top-down analysis. The managers consider the economic outlooks for various
countries and geographical areas, favoring those they believe have sound
economic conditions and open markets.
Analysis of global themes. The managers look for significant changes in the
business environment, with an eye toward identifying industries that may benefit
from these changes.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The portfolio normally will sell a stock when the managers believe it has
reached its fair value, its underlying investment theme has matured or the
reasons for originally investing no longer apply.
Other Investments
The portfolio may also invest in debt securities, convertible securities,
preferred stocks, bonds, notes and other debt securities of companies and
futures contracts.
The Main Risks Of Investing In The Portfolio
There are several factors that could hurt portfolio performance, cause you to
lose money or make the portfolio perform less well than other investments.
The most important factor with this portfolio is how foreign stock markets
perform -- something that depends on a large number of factors, including
economic, political and demographic trends. When foreign stock prices decline,
you should expect the value of your investment to decline as well.
Foreign stocks may at times be more volatile than their U.S. counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. Because a stock represents
ownership in its issuer, stock prices can be hurt by poor management, shrinking
product demand and other business risks. These may affect single companies as
well as groups of companies. In addition, changing currency rates could add to
the portfolio's investment losses or reduce its investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o bond investments could be hurt by rising interest rates or declines in
credit quality
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
Investors who are looking for a broadly diversified international portfolio may
want to consider this portfolio.
75 | Kemper International Portfolio
<PAGE>
Performance
The bar chart shows how the total returns for the portfolio have varied from
year to year, which may give some idea of risk. The chart doesn't reflect sales
loads and fees associated with a separate account that invests in the portfolio
or any insurance contract for which the portfolio is an investment option; if it
did, returns would be lower. The table shows how the portfolio's returns over
different periods average out.
For comparison, the table has a broad-based market index (which, unlike the
portfolio, has no fees or expenses). All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
Annual Total Returns (%) as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- ------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------
32.79 -3.59 12.83 16.49 9.46 10.02 00.00
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
Year-to-date Total Return as of 3/31/2000: 0.00%
Average Annual Total Returns (as of 12/31/1999)
Since 12/31/98 Since 12/31/94 Since 1/6/92
1 Year 5 Years Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio 00.00% 00.00% 00.00%
- --------------------------------------------------------------------------------
Index 00.00 00.00 00.00
- --------------------------------------------------------------------------------
Index: The EAFE Index (Morgan Stanley Capital International Europe,
Austral-Asia, Far East Index) is a generally accepted benchmark for performance
of major overseas markets. Index returns assume reinvestment of dividends and,
unlike portfolio returns, do not reflect any fees, expenses or sales charges.
- --------------------------------------------------------------------------------
The portfolio managers
The following people handle the portfolio's day-to-day
management:
Irene Cheng Marc Slendebroek
Lead Portfolio Manager o Began investment career
o Began investment career in in 1990
1985 o Joined the advisor in
o Joined the advisor in 1993 1994
o Joined the portfolio team o Joined the portfolio
in 1999 team in 1998
76 | Kemper International Portfolio
<PAGE>
Financial Highlights
77 | Kemper International Portfolio
<PAGE>
KVS Index 500 Portfolio
Portfolio Goal
The portfolio seeks returns that, before expenses, correspond to the total
return of U.S. common stocks as represented by the Standard & Poor's 500
Composite Stock Price Index.
The Portfolio's Main Strategy
The portfolio seeks returns that, before expenses, correspond to the total
return of U.S. common stocks as represented by the Standard & Poor's 500
Composite Stock Price Index. The portfolio pursues its goal by normally
investing at least 80% of its total assets in common stocks of the large U.S.
companies that comprise the index.
In choosing stocks, the portfolio uses an indexing strategy, seeking to
approximate the risk and return of the S&P 500 Index. To do this, the portfolio
managers use a statistical process to select stocks whose performance as a group
is expected to be very close to that of the index. The portfolio may avoid a
stock if the managers believe it could be difficult to sell or if the company
has suffered unusual declines. The portfolio seeks to keep the composition of
its portfolio similar to the index in industry distribution, market
capitalization and significant fundamental characteristics (such as
price-to-book ratios and dividend yields). Over the long term, the portfolio
managers seek a correlation between the performance of the portfolio, before
expenses, and the index, of 98% or better. A figure of 100% would indicate
perfect correlation.
Because the portfolio incurs expenses that the index does not have, and does not
invest in all of the stocks in the index, its long term performance is likely to
be slightly lower or higher than that of the index.
The portfolio normally will sell a stock when it is removed from the index or as
a result of its statistical process.
Other Investments
Although most of the portfolio's investments are common stocks, the portfolio
also may invest up to 20% of its total assets in stock index futures and
options, as well as short-term debt securities. The portfolio typically invests
new flows of money in index futures in order to gain immediate exposure to the
index.
The Main Risks Of Investing In The Portfolio
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or make the portfolio perform less well than other
investments.
As with most stock portfolios, the most important factor with this portfolio is
how stock markets perform -- in this case, the large company portion of the U.S.
market. When large company stock prices decline, you should expect the value of
your investment to decline as well. Large company stocks may be less risky than
shares of smaller companies, but at times may not perform as well either.
Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. These may
affect single companies as well as groups of companies.
The portfolio's index strategy involves several risks. Because the portfolio is
designed to reflect the performance of the index, it does not actively manage
losses in a market downturn. The portfolio could underperform the index during
short periods or over the long term, either because its selection of stocks
failed to track the index or because of the effects of expenses or shareholder
transactions.
Other factors that could affect performance include:
o derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some investments or
to get an attractive price for them
This portfolio is designed for long-term investors who want a portfolio that is
designed to avoid substantially underperforming the overall large-cap stock
market.
78 | KVS Index 500 Portfolio
<PAGE>
Performance
No performance is provided because the portfolio does not yet have a full
calendar year of operations.
The portfolio manager
The portfolio manager is James A. Creighton. Mr. Creighton joined Bankers Trust
Company in ____ and began day-to-day management of the portfolio in ____.
79 | KVS Index 500 Portfolio
<PAGE>
Financial Highlights
80 | KVS Index 500 Portfolio
<PAGE>
KVS Focused Large Cap Growth Portfolio
Portfolio Goal
The portfolio seeks growth through long-term capital appreciation.
The Portfolio's Main Strategy
The portfolio normally invests at least 65% of its total assets in the equity
securities of seasoned, financially strong U.S. growth companies (typically
those with a market value of $10 billion or more). Growth stocks are stocks of
companies with above-average earnings growth potential. The portfolio uses a
"bottom-up" method of analysis based on fundamental research to determine which
common stocks to purchase. The portfolio focuses on companies that the portfolio
manager considers likely to have long-term returns greater than the average for
companies included in the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index"). The portfolio seeks companies which have at the time of
purchase one or more of the following characteristics:
o earnings-per-share or revenue growth greater than the average of the S&P
500 Index;
o a dominant company in its industry with a sustainable competitive
advantage; or
o an exceptional management team with a clearly articulated vision of their
company's future.
If the stock price appreciates to a level that the portfolio manager believes is
not sustainable, the portfolio generally will sell the stock to realize the
existing profits and avoid a potential price correction.
Other Investments
To a more limited extent, the portfolio may, but is not required to, utilize
other investments and investment techniques that may impact portfolio
performance including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Main Risks
There are market and investment risks with any security. The value of an
investment in the portfolio will fluctuate over time and it is possible to lose
money invested in the portfolio.
The portfolio's principal risks are associated with investing in the stock
market, equity and growth investing, and the investment manager's skill in
managing the portfolio.
The portfolio's returns and net asset value will go up and down. Stock market
movements will affect the portfolio's share price on a daily basis. Declines in
value are possible in both the overall stock market and in the types of
securities held by the portfolio.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the portfolio participates in the
success or failure of any company in which it holds stock. Compared to other
classes of financial assets, such as bonds or cash equivalents, common stocks
have historically offered a greater potential for gain on investment. However,
the market value of common stocks can fluctuate significantly, reflecting such
things as the business performance of the issuing company, investors'
perceptions of the company or the overall stock market and general economic or
financial market movements.
Because of their perceived return potential, growth stocks are typically in
demand and tend to carry relatively high prices. Growth stocks generally
experience greater share price fluctuations as the market reacts to changing
perceptions of the underlying companies' growth potential and broader economic
activity. If the growth stocks the portfolio invests in do not produce the
expected earnings growth, their share price may drop and the portfolio's net
asset value would decline.
To the extent that the portfolio invests in foreign securities, particularly
investments in emerging markets, there are added risks due to the possibility of
inadequate or inaccurate financial information about companies, potential
political disturbances and fluctuations in currency exchange rates. Foreign
securities are often thinly traded and could be harder to sell at a fair price
generally, or in specific market situations.
81 | KVS Focused Large Cap Growth Portfolio
<PAGE>
The portfolio expects to trade securities actively. This strategy could increase
transaction costs, result in taxable capital gains and reduce performance.
The portfolio manager's skill in choosing appropriate investments for the
portfolio will determine in large part the portfolio's ability to achieve its
investment objective.
Past Performance
Because the portfolio commenced operations less than one year ago, no past
performance information is available.
The portfolio manager
The portfolio manager is Ashi Parikh. Mr. Parikh joined Eagle Asset Management
in 1999 and began day-to-day management of the portfolio in 1999. Prior to 1999
he was employed by an unaffiliated investment adviser.
82 | KVS Focused Large Cap Growth Portfolio
<PAGE>
Financial Highlights
83 | KVS Focused Large Cap Growth Portfolio
<PAGE>
KVS Growth and Income Portfolio
Portfolio Goal
The portfolio seeks long-term capital growth and current income.
The Portfolio's Main Strategy
The portfolio's manager applies a "bottom-up" approach in choosing investments.
In other words, it looks mostly for equity and income-producing securities that
meet its investment criteria one at a time. If the portfolio is unable to find
such investments, much of the portfolio's assets may be in cash or similar
investments.
The portfolio normally emphasizes investments in common stocks. It normally will
invest up to 75% of its total assets in equity securities selected primarily for
their growth potential and at least 25% of its total assets in securities the
portfolio manager believes have income potential.
The portfolio may invest substantially all of its assets in common stocks if the
portfolio manager believes that common stocks have the potential to appreciate
in value. The portfolio manager generally seeks to identify common stocks of
companies with earnings growth potential that may not be recognized by the
market at large. The portfolio manager makes this assessment by looking at
companies one at a time, regardless of size, country of organization, place of
principal business activity, or other similar selection criteria.
The portfolio may invest without limit in foreign securities either indirectly
(e.g., depositary receipts) or directly in foreign markets. Foreign securities
are generally selected on a stock-by-stock basis without regard to any defined
allocation among countries or geographic regions. However, certain factors such
as expected levels of inflation, government policies influencing business
conditions, currency exchange rates, and prospects for economic growth among
countries or geographic regions may warrant greater consideration in selecting
foreign securities.
The portfolio shifts assets between the growth and income components of its
holdings based on the portfolio manager's analysis of relevant market, financial
and economic conditions. If the portfolio manager believes that growth
securities may provide better returns than the yields then available or expected
on income-producing securities, the portfolio will place a greater emphasis on
the growth component of its holdings.
The growth component of the portfolio is expected to consist primarily of common
stocks, but may also include warrants, preferred stocks or convertible
securities selected primarily for their growth potential.
The income component of the portfolio will consist of securities that the
portfolio manager believes have income potential. Such securities may include
equity securities, convertible securities and all types of debt securities.
Equity securities may be included in the income component of the portfolio if
they currently pay dividends or if the portfolio manager believes they have the
potential for either increasing their dividends or commencing dividends, if none
are currently paid.
Other Investments
To a more limited extent, the portfolio may, but is not required to, utilize
other investments and investment techniques that may impact portfolio
performance including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
In addition, the portfolio may invest in debt securities, indexed/structured
securities, high-yield/high-risk bonds (less than 35% of the portfolio's total
assets) and securities purchased on a when-issued, delayed delivery or forward
commitment basis.
84 | KVS Growth and Income Portfolio
<PAGE>
The Main Risks of Investing in the Portfolio
The portfolio's returns and net asset value will go up and down. Stock market
movements will affect the portfolio's share price on a daily basis. Declines in
value are possible in both the overall stock market and in the types of
securities held by the portfolio.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the Portfolio participates in the
success or failure of any company in which it holds stock. Compared to other
classes of financial assets, such as bonds or cash equivalents, common stocks
have historically offered a greater potential for gain on investment. However,
the market value of common stocks can fluctuate significantly, reflecting such
things as the business performance of the issuing company, investors'
perceptions of the company or the overall stock market and general economic or
financial market movements. Smaller companies are especially sensitive to these
factors and may even become valueless.
Because of their perceived return potential, growth stocks are typically in
demand and tend to carry relatively high prices. Growth stocks generally
experience greater share price fluctuations as the market reacts to changing
perceptions of the underlying companies' growth potential and broader economic
activity. If the growth stocks the portfolio invests in do not produce the
expected earnings growth, their share price may drop and the portfolio's net
asset value would decline.
To the extent that the portfolio invests in foreign securities, particularly
investments in emerging markets, there are added risks due to the possibility of
inadequate or inaccurate financial information about companies, potential
political disturbances and fluctuations in currency exchange rates. Foreign
securities are often thinly traded and could be harder to sell at a fair price
generally, or in specific market situations.
The portfolio expects to trade securities actively. This strategy could increase
transaction costs, result in taxable capital gains and reduce performance.
The investment manager's skill in choosing appropriate investments for the
portfolio will determine in large part the portfolio's ability to achieve its
investment objective.
Past Performance
No performance information is provided for the portfolio because it has not yet
been in operation for a full calendar year.
The portfolio manager
The portfolio's subadviser is Janus Capital Corporation, Denver, Colorado. The
portfolio manager is David J. Corkins. Mr. Corkins joined Janus Capital
Corporation in 1995 and began day-to-day management of the portfolio in 1999.
85 | KVS Growth and Income Portfolio
<PAGE>
Financial Highlights
86 | KVS Growth and Income Portfolio
<PAGE>
KVS Growth Opportunities Portfolio
Portfolio Goal
The portfolio seeks long-term growth of capital in a manner consistent with the
preservation of capital.
The Portfolio's Main Strategy
The portfolio's manager applies a "bottom-up" approach in choosing investments.
In other words, it looks for companies with earnings growth potential one at a
time. If the portfolio is unable to find investments with earnings growth
potential, a significant portion of the portfolio's assets may be in cash or
similar investments.
The portfolio invests primarily in common stocks selected for their growth
potential. Although the portfolio can invest in companies of any size, it
generally invests in larger, more established companies.
The portfolio may invest substantially all of its assets in common stocks if the
portfolio manager believes that common stocks will appreciate in value. The
portfolio manager generally seeks to identify individual companies with earnings
growth potential that may not be recognized by the market at large. The
portfolio manager makes this assessment by looking at companies one at a time,
regardless of size, country of organization, place of principal business
activity, or other similar selection criteria. Realization of income is not a
significant consideration when choosing investments for the portfolio.
The portfolio may invest without limit in foreign securities either indirectly
(e.g., depositary receipts) or directly in foreign markets. Foreign securities
are generally selected on a stock-by-stock basis without regard to any defined
allocation among countries or geographic regions. However, certain factors such
as expected levels of inflation, government policies influencing business
conditions, currency exchange rates, and prospects for economic growth among
countries, regions or geographic area may warrant greater consideration in
selecting foreign securities.
Other Investments
To a more limited extent, the portfolio may, but is not required to, utilize
other investments and investment techniques that may impact portfolio
performance including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
In addition, the portfolio may invest in debt securities, indexed/structured
securities, high-yield/high-risk bonds (less than 35% of the portfolio's total
assets) and securities purchased on a when-issued, delayed delivery or forward
commitment basis.
The Main Risks of Investing in the Portfolio
There are market and investment risks with any security. The value of an
investment in the portfolio will fluctuate over time and it is possible to lose
money invested in the portfolio.
The portfolio's principal risks are associated with investing in the stock
market, equity and growth investing, and the investment manager's skill in
managing the portfolio.
The portfolio's returns and net asset value will go up and down. Stock market
movements will affect the portfolio's share price on a daily basis. Declines in
value are possible in both the overall stock market and in the types of
securities held by the portfolio.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the portfolio participates in the
success or failure of any company in which it holds stock. Compared to other
classes of financial assets, such as bonds or cash equivalents, common stocks
have historically offered a greater potential for gain on investment. However,
the market value of common stocks can fluctuate significantly, reflecting such
things as the business performance of the issuing company, investors'
perceptions of the company or the overall stock market and general economic or
financial market movements. Smaller companies are especially sensitive to these
factors and may even become valueless.
87 | KVS Growth Opportunities Portfolio
<PAGE>
Because of their perceived return potential, growth stocks are typically in
demand and tend to carry relatively high prices. Growth stocks generally
experience greater share price fluctuations as the market reacts to changing
perceptions of the underlying companies' growth potential and broader economic
activity. If the growth stocks the portfolio invests in do not produce the
expected earnings growth, their share price may drop and the portfolio's net
asset value would decline.
To the extent that the portfolio invests in foreign securities, particularly
investments in emerging markets, there are added risks due to the possibility of
inadequate or inaccurate financial information about companies, potential
political disturbances and fluctuations in currency exchange rates. Foreign
securities are often thinly traded and could be harder to sell at a fair price
generally, or in specific market situations.
The portfolio expects to trade securities actively. This strategy could increase
transaction costs, result in taxable capital gains and reduce performance.
The investment manager's skill in choosing appropriate investments for the
portfolio will determine in large part the portfolio's ability to achieve its
investment objective.
Past Performance
Because the portfolio commenced operations less than one year ago, no past
performance information is available.
The portfolio managers
The portfolio subadviser is Janus Capital Corporation, Denver, Colorado. The
portfolio manager is E. Marc Pinto. Mr. Pinto joined Janus Capital Corporation
in 1994 and began day-to-day management of the portfolio in 1999.
88 | KVS Growth Opportunities Portfolio
<PAGE>
Financial Highlights
89 | KVS Growth Opportunities Portfolio
<PAGE>
About Your Investment
Other Policies and Risks
While the previous pages describe the main points of each fund's strategy and
risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, each portfolio's Board could
change that portfolio's investment goal without seeking shareholder
approval.
o As a temporary defensive measure, the portfolios could shift 100% of their
assets into investments such as money market securities. This could prevent
losses, but would mean the portfolio would not be pursuing its goal.
o Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies or
securities), the managers don't intend to use them as principal
investments. With derivatives there is a risk that they could produce
disproportionate losses.
o The portfolios may trade securities actively. This strategy could raise
transaction costs and lower performance.
o Equity portfolios. These portfolios' equity investments are mainly in
common stocks, but may include other types of equities, such as preferred
stocks.
o Fixed-income portfolios. Scudder Kemper establishes a securities credit
quality when its buys the security, using independent ratings, or for
unrated securities, its own credit determination. When ratings don't agree,
a portfolio may use the higher rating. If a security's credit quality
falls, the advisor will determine whether selling it would be in the
shareholder's best interest.
90
<PAGE>
Investment Manager
Each portfolio retains the investment management firm of Scudder Kemper
Investments, Inc., 345 Park Avenue, New York, New York, to manage its daily
investment and business affairs subject to the policies established by the
portfolio's Board. Scudder Kemper Investments, Inc. actively manages the
portfolios' investments. Professional management can be an important advantage
for investors who do not have the time or expertise to invest directly in
individual securities. Scudder Kemper Investments, Inc. is one of the largest
and most experienced investment management organizations worldwide, managing
more than $290 billion in assets globally for mutual portfolio investors,
retirement and pension plans, institutional and corporate clients, and private
family and individual accounts.
Each portfolio pays the investment manager a monthly investment management fee.
Fees paid for the most recently completed fiscal year for the portfolios
operating at least one year are shown below:
Portfolio Name % of Average Net Assets on an Annual Basis
- --------------------------------------------------------------------------------
Kemper Money Market Portfolio 0.50%
Kemper Government Securities Portfolio 0.55%
Kemper Investment Grade Bond Portfolio 0.60%
Kemper High Yield Portfolio 0.60%
Kemper Total Return Portfolio 0.55%
Kemper Blue Chip Portfolio 0.65%
Kemper Growth Portfolio 0.60%
Kemper Horizon 20+ Portfolio 0.60%
Kemper Horizon 10+ Portfolio 0.60%
Kemper Horizon 5 Portfolio 0.60%
Kemper Small Cap Growth 0.65%
Kemper Value+Growth Portfolio 0.75%
Kemper Contrarian Value Portfolio 0.75%
Kemper Small Cap Value Portfolio 0.75%
Kemper Global Income Portfolio 0.75%
Kemper International Portfolio 0.75%
KVS Dreman High Return Equity Portfolio 0.75%
KVS Dreman Financial Services Portfolio 0.75%
Kemper Aggressive Growth Portfolio 0.75%
Kemper Technology Growth Portfolio 0.75%
Kemper Global Blue Chip Portfolio 1.00%
- --------------------------------------------------------------------------------
91
<PAGE>
KVS Focused Large Cap Growth Portfolio, KVS Growth And Income Portfolio and KVS
Growth Opportunities Portfolio each pays the investment manager a graduated
investment management fee based on the average daily net assets of the
portfolio, payable monthly, at the annual rates shown below:
Average Daily Net Assets of the Portfolio Annual Management Fee Rate
$0-$250 million 0.950%
$250 million-$500 million 0.925%
$500 million-$1 billion 0.900%
$1 billion-$2.5 billion 0.875%
Over $2.5 billion 0.850%
Kemper Index 500 Portfolio pays the investment manager a graduated investment
management fee based on the average daily net assets of the portfolio, payable
monthly, at the annual rates shown below:
Average Daily Net Assets of the Portfolio Annual Management Fee Rate
$0-$200 million 0.45%
$200 million-$750 million 0.42%
$750 million-$2 billion 0.40%
$2 billion-$5 billion 0.38%
Over $5 billion 0.35%
The Kemper International Growth and Income Portfolio pays the investment manager
an investment management fee, payable monthly, based on an annual rate of 1% of
the average daily net assets of the portfolio.
Subadviser for Kemper Index 500 Portfolio
Bankers Trust Company, the portfolio's subadviser, is a New York banking
corporation with its principal offices located at 130 Liberty Street, New York,
New York. It is a wholly owned subsidiary of Bankers Trust Corporation. On June
4, 1999, Bankers Trust Corporation merged with and into a subsidiary of Deutsche
Bank AG. Deutsche Bank AG is a major global banking institution that is engaged
in a wide range of financial services, including investment management, mutual
portfolios, retail and commercial banking, investment banking and insurance.
Bankers Trust Company will handle day-to-day investment and trading functions
for the portfolio under the guidance of the portfolio manager. The subadviser
has managed stock index investments since 1977.
A fee is paid to the subadviser by Scudder Kemper Investments, Inc. and
calculated monthly as a percentage of the portfolio's average daily net assets.
The rate decreases with successive increases in net assets. The minimum annual
fee is set at $100,000, however, the minimum fee does not apply during the
portfolio's first year of operations. For its services as subadviser, Bankers
Trust Company will receive a subadvisory fee based on the average daily net
assets of the portfolio, payable monthly, at the annual rates shown below:
Average Daily Net Assets of the Portfolio Annual Subadviser Fee Rate
- ----------------------------------------- --------------------------
$0-$200 million 0.08%
On the next $550 million 0.05%
On the balance over $750 million 0.025%
92
<PAGE>
Subadviser for KVS Focused Large Cap Growth Portfolio
Pursuant to a subadvisory agreement with Scudder Kemper Investments, Inc., Eagle
Asset Management, Inc., 880 Carillon Parkway, St. Petersburg, Florida, is the
subadviser for the KVS Focused Large Cap Growth Portfolio and receives a fee for
its services from Scudder Kemper Investments, Inc. Eagle Asset Management, Inc.
manages more than $5.5 billion in assets for institutional, high net worth
individuals and subadvisory clients. Eagle Asset Management, Inc. will handle
day-to-day investment and trading functions for the KVS Focused Large Cap Growth
Portfolio under the guidance of the portfolio manager.
A fee is paid to the subadviser by Scudder Kemper Investments, Inc. and is
calculated monthly as a percentage of the portfolio's average daily net assets.
The rate decreases with successive increases in net assets. For its services as
subadviser, Eagle Asset Management, Inc. will receive a subadvisory fee based on
the average daily net assets of the portfolio, payable monthly, at the annual
rates shown below:
Average Daily Net Assets of the Portfolio Annual Subadviser Fee Rate
- ----------------------------------------- --------------------------
$0-$50 million 0.45%
$50 million-$300 million 0.40%
On the balance over $300 million 0.30%
Prior Performance of the Eagle Asset Management Growth Equity Composite
Provided below are historical performance figures representing the total returns
for the Eagle Asset Management's Growth Equity institutional composite. This
composite is comprised of institutional large cap growth accounts of $2 million
or more with respect to which the subadviser has trading discretion. One of the
accounts is a registered investment company. The accounts that comprise the
composite have investment objectives, policies and strategies that are
substantially similar to those of the KVS Focused Large Cap Growth Portfolio.
This information is provided merely to illustrate the past performance of a
composite group of similar accounts, as measured against a specified market
index, and does not represent the performance of the portfolio, which does not
yet have a performance record of its own. The information does not reflect
charges and fees associated with a separate account that invests in the
portfolio or any insurance contract for which the portfolio is an investment
option. These charges and fees will reduce returns. If the portfolio's fees and
expenses had been used in calculating the composite's performance, the
performance of the composite would have been lower. Investors should not
consider this performance data as an indication of future performance of the
portfolio, the investment manager or the subadviser to the portfolio.
The performance information below is for the subadviser's Growth Equity
institutional composite and is presented net of fees and expenses. Certain of
the accounts that comprise the composite are private accounts, which are not
subject to frequent inflows and outflows of assets as are most mutual funds,
including the portfolio. Such inflows and outflows of assets make it more
difficult to manage the portfolio and thus may adversely affect its performance
relative to these private accounts. In addition, the private accounts are not
subject to the diversification requirements, specific tax restrictions and
investment limitations imposed on the portfolio by the 1940 Act and Subchapter M
of the Internal Revenue Code. Consequently, the performance results for the
composite could have been lower than what is shown had these private accounts
been regulated as registered investment companies under the federal securities
laws.
93
<PAGE>
Total returns of the Composite for years ended December 31
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-9.32 37.44 9.22 17.1 -1.74 27.26 23.57 37.53 37.11 00.00
</TABLE>
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
For the periods included in the bar chart, the highest return for a calendar
quarter was ____% (the second quarter of 1997), and the lowest return for a
calendar quarter was _____% (the third quarter of 199_).
The year-to-date total return as of March 31, 2000 was _____%.
Average Annual Total Returns
For periods ended Growth Equity
December 31, 1999 Institutional Composite S&P 500 Index*
----------------- -----------------------
One Year % %
Five Years % %
Ten Years % %
- -------------
* The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is an
unmanaged capitalization-weighted measure of 500 widely held common stocks
listed on the New York Stock Exchange and the American Stock Exchange, and
traded on the Nasdaq Stock Market, Inc. Index returns assume reinvestment of
dividends and, unlike the composite's returns, do not reflect any fees or
expenses.
Subadviser for KVS Growth And Income Portfolio and KVS Growth Opportunities
Portfolio
Pursuant to a subadvisory agreement with Scudder Kemper Investments, Inc., Janus
Capital Corporation, 100 Fillmore Street, Denver, Colorado, is the subadviser
for the KVS Growth And Income Portfolio and the KVS Growth Opportunities
Portfolio and receives a fee for its services from Scudder Kemper Investments,
Inc. Janus Capital Corporation manages more than $155 billion in assets for
variable annuities, mutual portfolios and separately managed institutional
accounts. They began serving as investment adviser to Janus Fund in 1970 and
currently serve as investment adviser to all of the Janus Portfolios, acts as
subadviser for a number of private-label mutual portfolios and provides separate
account advisory services for institutional accounts. Janus Capital Corporation
will handle day-to-day investment and trading functions for the KVS Growth And
Income Portfolio and the KVS Growth Opportunities Portfolio under the guidance
of the portfolio managers.
A fee is paid to the subadviser by Scudder Kemper Investments, Inc. and is
calculated monthly as a percentage of the combined average daily net assets of
the KVS Growth And Income Portfolio and the KVS Growth Opportunities Portfolio.
The rate decreases with successive increases in net assets. For its services as
subadviser, Janus Capital Corporation will receive subadvisory fees based on the
combined average daily net assets of the portfolios, payable monthly, at the
annual rates shown below:
Average Daily Net Assets of the Portfolios Annual Subadviser Fee Rate
- ------------------------------------------ --------------------------
$0-$100 million 0.55%
$100 million-$500 million 0.50%
On the balance over $500 million 0.45%
94
<PAGE>
Prior Performance of the Janus Capital's Growth and Income Composite
Provided below are historical performance figures representing the total returns
for the Janus Capital's Growth and Income institutional composite. This
composite is comprised of large cap growth accounts of $__ million or more with
respect to which the subadviser has trading discretion. ____ of the accounts is
a registered investment company. The accounts that comprise the composite have
investment objectives, policies and strategies that are substantially similar to
those of the KVS Growth and Income Portfolio. This information is provided
merely to illustrate the past performance of a composite group of similar
accounts, as measured against a specified market index, and does not represent
the performance of the KVS Growth and Income Portfolio. The information does not
reflect charges and fees associated with a separate account that invests in the
portfolio or any insurance contract for which the portfolio is an investment
option. These charges and fees will reduce returns. If the portfolio's fees and
expenses had been used in calculating the composite's performance, the
performance of the composite would have been lower. Investors should not
consider this performance data as an indication of future performance of the
portfolio, the investment manager or the subadviser to the portfolio.
The performance information below is for the subadviser's Growth and Income
institutional composite and is presented net of fees and expenses. Certain of
the accounts that comprise the composite are private accounts, which are not
subject to frequent inflows and outflows of assets as are most mutual funds,
including the portfolio. Such inflows and outflows of assets make it more
difficult to manage the portfolio and thus may adversely affect its performance
relative to these private accounts. In addition, the private accounts are not
subject to the diversification requirements, specific tax restrictions and
investment limitations imposed on the portfolio by the 1940 Act and Subchapter M
of the Internal Revenue Code. Consequently, the performance results for the
composite could have been lower than what is shown had these private accounts
been regulated as registered investment companies under the federal securities
laws.
Total returns of the Composite for years ended December 31
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
</TABLE>
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
For the periods included in the bar chart, the highest return for a calendar
quarter was ____% (the second quarter of 1997), and the lowest return for a
calendar quarter was _____% (the third quarter of 199_).
The year-to-date total return as of March 31, 2000 was _____%.
Average Annual Total Returns
For periods ended Growth and Income
December 31, 1999 Institutional Composite S&P 500 Index*
----------------- -----------------------
One Year % %
Five Years % %
Ten Years % %
- -------------
* The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is an
unmanaged capitalization-weighted measure of 500 widely held common stocks
listed on the New York Stock Exchange and the American Stock Exchange, and
traded on the Nasdaq Stock Market, Inc. Index returns assume reinvestment of
dividends and, unlike the composite's returns, do not reflect any fees or
expenses.
95
<PAGE>
Prior Performance of the Janus Capital's Large Cap Growth Composite
Provided below are historical performance figures representing the total returns
for the Janus Capital's Large Cap Growth Composite. This composite is comprised
of institutional growth and income accounts of $__ million or more with respect
to which the subadviser has trading discretion. ____ of the accounts is a
registered investment company. The accounts that comprise the composite have
investment objectives, policies and strategies that are substantially similar to
those of the KVS Growth Opportunities Portfolio. This information is provided
merely to illustrate the past performance of a composite group of similar
accounts, as measured against a specified market index, and does not represent
the performance of the KVS Growth Opportunities Portfolio. The information does
not reflect charges and fees associated with a separate account that invests in
the portfolio or any insurance contract for which the portfolio is an investment
option. These charges and fees will reduce returns. If the portfolio's fees and
expenses had been used in calculating the composite's performance, the
performance of the composite would have been lower. Investors should not
consider this performance data as an indication of future performance of the
portfolio, the investment manager or the subadviser to the portfolio.
The performance information below is for the subadviser's Growth Equity
institutional composite and is presented net of fees and expenses. Certain of
the accounts that comprise the composite are private accounts, which are not
subject to frequent inflows and outflows of assets as are most mutual funds,
including the portfolio. Such inflows and outflows of assets make it more
difficult to manage the portfolio and thus may adversely affect its performance
relative to these private accounts. In addition, the private accounts are not
subject to the diversification requirements, specific tax restrictions and
investment limitations imposed on the portfolio by the 1940 Act and Subchapter M
of the Internal Revenue Code. Consequently, the performance results for the
composite could have been lower than what is shown had these private accounts
been regulated as registered investment companies under the federal securities
laws.
Total returns of the Composite for years ended December 31
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
</TABLE>
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
For the periods included in the bar chart, the highest return for a calendar
quarter was ____% (the second quarter of 1997), and the lowest return for a
calendar quarter was _____% (the third quarter of 199_).
The year-to-date total return as of March 31, 2000 was _____%.
Average Annual Total Returns
For periods ended Large Cap
December 31, 1999 Growth Composite S&P 500 Index*
----------------- ----------------
One Year % %
Five Years % %
Ten Years % %
- -------------
* The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is an
unmanaged capitalization-weighted measure of 500 widely held common stocks
listed on the New York Stock Exchange and the American Stock Exchange, and
traded on the Nasdaq Stock Market, Inc. Index returns assume reinvestment of
dividends and, unlike the composite's returns, do not reflect any fees or
expenses.
96
<PAGE>
Subadviser for Kemper Global Income Portfolio and Kemper International Portfolio
Scudder Investments (U.K.) Limited, 1 South Place, London, U.K., an affiliate of
Scudder Kemper Investments, Inc., is the subadviser for Kemper Global Income
Portfolio and Kemper International Portfolio. Scudder Investments (U.K.) Limited
has served as subadviser for mutual funds since December 1996, and investment
adviser for certain institutional accounts since August 1998.
For its services as subadviser, Scudder Investments (U.K.) received an annual
fee from Scudder Kemper Investments of 0.30% and 0.35% for each of the Kemper
Global Income Portfolio and Kemper International Portfolio, respectively, for
the fiscal year ended December 31, 1999.
Subadviser for Kemper-Dreman High Return Equity Portfolio and Kemper-Dreman
Financial Services Portfolio
Pursuant to a subadvisory agreement with Scudder Kemper Investments, Inc.,
Dreman Value Management L.L.C., 10 Exchange Place, Jersey City, New Jersey, is
the subadviser for the Kemper-Dreman High Return Equity Portfolio and
Kemper-Dreman Financial Services Portfolio and receives a fee for its services
from Scudder Kemper Investments, Inc. Founded in 1977, Dreman Value Management,
L.L.C. manages over $7 billion in assets.
Scudder Kemper Investments, Inc. pays Dreman Value Management, L.L.C. a
sub-advisory fee for each of Kemper-Dreman High Return Equity Portfolio and
Kemper-Dreman Financial Services Portfolio. For its services as subadviser,
Dreman Value Management, L.L.C. receives an annual fee based on the average
daily net assets of each of the Kemper-Dreman High Return Equity Portfolio and
Kemper-Dreman Financial Services Portfolio, payable monthly, at the annual rates
shown below:
Average Daily Net Assets of each Portfolio Annual Subadviser Fee Rate
$0-$250 million 0.240%
$250 million-$1 billion 0.230%
$1 billion-$2.5 billion 0.224%
$2.5 billion-$5 billion 0.218%
$5 billion-$7.5 billion 0.208%
$7.5 billion-$10 billion 0.205%
$10 billion-$12.5 billion 0.202%
Over $12.5 billion 0.198%
97
<PAGE>
Euro Conversion
The introduction of a new European currency, the Euro, may result in
uncertainties for European securities and the operation of each portfolio. The
Euro was introduced on January 1, 1999, by eleven European countries that are
members of the European Economic and Monetary Union (EMU). The introduction of
the Euro will require the redenomination of European debt and equity securities
over a period of time, which may result in various accounting differences and/or
tax treatments. Additional questions are raised by the fact that certain other
European community members, including the United Kingdom, did not officially
implement the Euro on January 1, 1999.
The investment manager is actively working to address Euro-related issues and
understands that other key service providers are taking similar steps. At this
time, however, no one knows precisely what the degree of impact will be. To the
extent that the market impact or effect on a portfolio's holdings is negative,
it could hurt the portfolio's performance.
Share Price
All portfolios (other than the Money Market Portfolio). Scudder Portfolio
Accounting Corporation determines the net asset value per share as of the close
of regular trading on the New York Stock Exchange, normally 4:00 p.m. eastern
time, on each day the New York Stock Exchange is open for trading. Market prices
are used to determine the value of the portfolios' assets, but when reliable
market quotations are unavailable, a portfolio may use procedures established by
the portfolio's Board of Trustees.
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 of that portfolio outstanding.
To the extent that the portfolios invest in foreign securities, these securities
may be listed on foreign exchanges that trade on days when the portfolios do not
price their shares. As a result, the net asset value per share of the portfolios
may change at a time when shareholders are not able to purchase or redeem their
shares.
Money Market Portfolio. Scudder Fund Accounting Corporation determines the net
asset value per share of the Money Market Portfolio at 12:00 p.m. (noon) Eastern
time and the close of regular trading on the New York Stock Exchange normally
4:00 p.m., Eastern time on each day the New York Stock Exchange is open for
trading. The net asset value per share of the Money Market Portfolio is normally
$1.00 calculated at amortized cost in accordance with a rule of the Securities
and Exchange Commission (Rule 2a-7).
The net asset value per share of the Money Market Portfolio is the value of one
share and is determined by dividing the value of the portfolio's net assets,
less all liabilities, by the number of shares of the portfolio outstanding.
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.
98
<PAGE>
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 each
portfolio are purchased and redeemed at the net asset value of the 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 Insurance Company.
From time to time, the portfolio 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 portfolio 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 that normally require immediate
payment in Federal portfolios (monies credited to a bank's account with its
regional Federal Reserve Bank), the portfolio has adopted certain procedures for
the convenience of its shareholders and to ensure that the Money Market
Portfolio receives investable portfolios.
No fee is charged the shareholders when they purchase or redeem portfolio
shares.
Distributions and Taxes
Dividends and Capital Gains Distributions
Dividends for All portfolios Except Money Market Portfolio. The portfolios
normally declare and distribute dividends of net investment income annually for
these portfolios. Each portfolio distributes any net realized short-term and
long-term capital gains at least annually.
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.
Taxes
Each portfolio intends to comply with the diversification requirements of
Internal Revenue code section 817(h). By meeting this and other requirements,
the participating insurance companies, rather than the holders of variable
annuity contracts and variable life insurance policies, should be subject to tax
on distributions received with respect to portfolio shares. For further
information concerning federal income tax consequences for the holders of
variable annuity contracts and variable life insurance policies, such holders
should consult the prospectus used in connection with the issuance of their
particular contracts or policies.
Distributions of net investment income are treated by shareholders as ordinary
income. Long-term capital gains distributions are treated by shareholders as
long-term capital gains, regardless of how long they have owned their shares.
Short-term capital gains and any other taxable income distributions are treated
by shareholders as ordinary income. Participating insurance companies should
consult their own tax advisers as to whether such distributions are subject to
federal income tax if they are retained as part of policy reserves.
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.
99
<PAGE>
Additional information about the portfolios may be found in the portfolios'
Statement of Additional Information and in shareholder reports. Shareholder
inquiries may be made by calling the toll-free telephone number listed below.
The Statement of Additional Information contains information on portfolio
investments and operations. The semiannual and annual shareholder reports
contain a discussion of the market conditions and the investment strategies that
significantly affected the portfolios' performance during the last fiscal year,
as well as a listing of portfolio holdings and financial statements. These and
other portfolio documents may be obtained without charge from the following
sources:
By Phone: In Person:
- --------------------------------------------------------------------------------
Call Kemper at: Public Reference Room
1-800-778-1482 Securities and Exchange Commission,
Washington, D.C.
(Call
for more information.)
By Mail: By Internet:
- --------------------------------------------------------------------------------
Kemper Distributors, Inc. http://www.sec.gov
------------------
222 South Riverside Plaza http://www.kemper.com
---------------------
Chicago, IL 60606-5808
or
Public Reference Section, Securities and
Exchange Commission, Washington, D.C.
20549-6009
(a duplication fee is charged)
- --------------------------------------------------------------------------------
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file number: Kemper Variable Series 811-5002.
100
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
KEMPER VARIABLE 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 Kemper Variable Series (the "Fund") dated
May 1, 2000. The prospectus may be obtained without charge from the Fund by
calling the toll-free number listed above, and is also available along with
other related materials on the SEC's Internet web site (http://www.sec.gov). The
prospectus is also available from participating insurance companies.
Kemper Variable Series offers a choice of 26 investment portfolios (each a
"Portfolio") to investors applying for certain variable life insurance and
variable annuity contracts offered by Participating Insurance Companies.
The 26 portfolios are:
Kemper Money Market Portfolio "Money Market Portfolio"
Kemper Government Securities Portfolio "Government Securities Portfolio"
Kemper Investment Grade Bond Portfolio "Investment Grade Bond Portfolio"
Kemper High Yield Portfolio "High Yield Portfolio"
Kemper Total Return Portfolio "Total Return Portfolio"
Kemper Blue Chip Portfolio "Blue Chip Portfolio"
KVS Index 500 Portfolio "Index 500 Portfolio"
Kemper Growth Portfolio "Growth Portfolio"
Kemper Aggressive Growth Portfolio "Aggressive Growth Portfolio"
Kemper Horizon 20+ Portfolio
Kemper Horizon 10+ Portfolio Collectively, the "Horizon Portfolios"
Kemper Horizon 5 Portfolio
Kemper Small Cap Growth Portfolio "Small Cap Growth Portfolio"
Kemper Technology Growth Portfolio "Technology Portfolio"
Kemper Value+Growth Portfolio "Value+Growth Portfolio"
Kemper Contrarian Value Portfolio "Contrarian Portfolio"
KVS Dreman High Return Equity Portfolio "High Return Equity Portfolio"
KVS Focused Large Cap Growth Portfolio "Large Cap Growth Portfolio"
KVS Growth And Income Portfolio "Growth And Income Portfolio"
KVS Growth Opportunities Portfolio "Growth Opportunities Portfolio"
Kemper Small Cap Value Portfolio "Small Cap Value Portfolio"
KVS Dreman Financial Services Portfolio "Financial Services Portfolio"
Kemper Global Income Portfolio "Global Income Portfolio"
Kemper Global Blue Chip Portfolio "Global Blue Chip Portfolio"
Kemper International Growth and Income "International Growth and Income
Portfolio Portfolio"
Kemper International Portfolio "International Portfolio"
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT RESTRICTIONS.........................................3
INVESTMENT POLICIES AND TECHNIQUES.............................10
PORTFOLIO TRANSACTIONS.........................................37
INVESTMENT MANAGER AND DISTRIBUTOR.............................42
PURCHASE AND REDEMPTION OF SHARES..............................50
OFFICERS AND TRUSTEES..........................................50
NET ASSET VALUE................................................54
DIVIDENDS AND TAXES............................................55
SHAREHOLDER RIGHTS.............................................56
APPENDIX -- RATINGS OF INVESTMENTS
The financial statements appearing in the Fund's Annual Report for the fiscal
year ended December 31, 1999 are incorporated herein by reference. The Annual
Report accompanies this document.
2
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted for each Portfolio certain fundamental investment
restrictions which 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, as amended (the "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.
Each Portfolio except the Financial Services, Aggressive Growth and Global
Income Portfolios is classified as a diversified open-end management investment
company. The Financial Services, Aggressive Growth and Global Income Portfolios
are non-diversified open-end investment management companies.
Each Portfolio may not, as a fundamental policy:
(1) borrow money, except as permitted under the 1940 Act, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time;
(2) issue senior securities, except as permitted under the 1940 Act, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time;
(3) For all Portfolios except Money Market Portfolio: 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;
For Money Market Portfolio: 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 intends to invest more than 25% of its
net assets in instruments issued by banks.
(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) purchase physical commodities or contracts relating to physical
commodities; or
(7) make loans except as permitted under the 1940 Act, and as interpreted
or modified by regulatory authority having jurisdiction, from time to
time.
With regard to Restriction (3) above, for purposes of determining the percentage
of Money Market Portfolio's assets invested in securities of issuers having
their principal business activities in a particular industry, asset backed
securities will be classified separately, based on the nature of the underlying
assets. Currently, the following categories are used: captive auto, diversified,
retail and consumer loans, captive equipment and business, business trade
receivables, nuclear fuel and capital and mortgage lending.
If a percentage restriction is adhered to at the time of the 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. The Fund has
also adopted the following non-fundamental policies, which may be changed or
eliminated for each Portfolio by the Fund's Board of Trustees without a vote of
the shareholders:
Each of Money Market Portfolio, Total Return Portfolio, High Yield Portfolio,
Growth Portfolio and Government Securities Portfolio may not, as a
non-fundamental policy:
3
<PAGE>
(1) For all Portfolios except High Yield Portfolio, 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 5% of the Portfolio's total assets would be invested
in securities of that issuer.
(2) For High Yield Portfolio only, With respect to 75% of the Fund'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.
(3) Except for High Yield Portfolio, purchase more than 10% of any class of
securities of any issuer. All debt securities and all preferred stocks
are each considered as one class.
(4) For Money Market Portfolio only, enter into repurchase agreements if,
as a result thereof, more than 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.
(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, Total Return Portfolio, High Yield
Portfolio, Growth Portfolio and Government Securities Portfolio may
make margin deposits in connection with financial futures and options
transactions.
(6) For Money Market Portfolio only, invest more than 5% of the Portfolio's
total assets in securities restricted as to disposition under the
Federal securities laws.
(7) 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.
(8) For Money Market Portfolio only, write, purchase or sell puts, calls or
combinations thereof.
(9) For Total Return Portfolio, High Yield Portfolio and Growth Portfolio
only, (i) purchase options, unless the aggregate premiums paid on all
such options held by a fund 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;
(ii) 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
a Fund and the premium paid for such options on futures contracts does
not exceed 5% of the fair market value of a Fund'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.
(10) For all Portfolios except for Kemper Money Market Portfolio, invest
more than 15% of its net assets in illiquid securities.
(11) For Kemper Money Market Portfolio only, invest more than 10% of its net
assets in illiquid securities.
(12) Invest for the purpose of exercising control or management of another
issuer.
International Portfolio may not, as a non-fundamental policy:
4
<PAGE>
(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 and preferred stocks
are considered as one class.
(3) Pledge the Portfolio's securities or receivables or transfer or assign
or otherwise encumber them in an amount exceeding the amount of a
borrowing secured thereby.
(4) 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.
(5) Purchase options, unless the aggregate premiums paid on all 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.
(6) Enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect 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.
(7) Invest more than 15% of its net assets in illiquid securities.
(8) Invest for the purpose of exercising control or management of another
issuer.
Each of Small Cap Growth Portfolio, Investment Grade Bond Portfolio, Contrarian
Value Portfolio, Small Cap Value Portfolio, Value+Growth Portfolio and Horizon
Portfolios, may not, as a non-fundamental policy:
(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 Contrarian Value Portfolio, Small Cap Growth Portfolio and
Small Cap Value Portfolio, 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, except that up to 25% of the Small Cap Growth Portfolio's total
assets may be invested without regard to this limitation;
5
<PAGE>
(3) 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;
(4) Purchase options, unless the aggregate premiums paid on all 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.
(5) Enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect 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.
(6) Invest for the purpose of exercising control or management of another
issuer.
(7) Invest more than 15% of its net assets in illiquid securities.
Blue Chip Portfolio may not, as a non-fundamental policy:
(1) Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. Government, its agencies or instrumentalities)
if, as a result, more than 5% of the total value of the Portfolio's
assets would be invested in securities of that issuer;
(2) Purchase more than 10% of any class of voting securities of any issuer;
(3) Pledge, hypothecate, mortgage or otherwise encumber more than 15% of
its total assets and then only to secure permitted borrowings. (The
collateral arrangements with respect to options, financial futures and
delayed
6
<PAGE>
delivery transactions and any margin payments in connection therewith
are not deemed to be pledges or other encumbrances.);
(4) 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;
(5) 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;
(6) Purchase options, unless the aggregate premiums paid on all 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.
(7) Enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect 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.
(8) Invest in real estate limited partnerships.
(9) Invest for the purpose of exercising control or management of another
issuer.
(10) Invest more than 15% of its net assets in illiquid securities.
Global Income Portfolio may not, as a non-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) Pledge, hypothecate, mortgage or otherwise encumber more than 15% of
its total assets and then only to secure permitted borrowings. (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.);
(4) Purchase securities on margin, except to obtain such short-term credits
as may be necessary for the clearance of transactions; however, the
Fund may make margin deposits in connection with options and financial
futures transactions;
(5) Make short sales of securities or other assets or maintain a short
position for the account of the Fund 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 Fund's total assets is held as collateral for such sales at any one
time;
7
<PAGE>
(6) Purchase options, unless the aggregate premiums paid on all 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.
(7) Enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect 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.
(8) Invest in real estate limited partnerships.
(9) Invest for the purpose of exercising control or management of another
issuer.
(10) Invest more than 15% of its net assets in illiquid
securities.
High Return Equity Portfolio may not, as a non-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 Fund's total assets may be
invested without regard to these limitations;
(2) Mortgage, pledge or hypothecate any assets except in connection with a
borrowing in amounts not in excess of the lesser of the amount borrowed
or 10% or the value of its total assets at the time of such borrowing;
(3) Purchase securities on margin or make short sales of securities,
provided that the Fund may enter into futures contracts and related
options and make initial and variation margin deposits in connection
therewith;
(4) Invest in oil, gas or mineral exploration or development programs,
except that the Fund may, to the extent appropriate to its investment
objective, purchase publicly traded securities of companies engaging in
whole or in part in such activities;
(5) Invest in mortgage loans, except that the Fund may, to the extent
appropriate to its investment objective, purchase publicly traded
securities of companies engaging in whole or in part in such
activities.
(6) Invest for the purpose of exercising control over management of any
company.
(7) 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.
(8) 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.
Financial Services Portfolio may not, as a non-fundamental policy:
(1) Invest for the purpose of exercising control over management of any
company;
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(3) Invest more than 15% of the value of its net assets in illiquid
securities.
The following non-fundamental restrictions apply to the Index 500 Portfolio,
Aggressive Growth, Technology, Global Blue Chip, Focused Large Cap Growth,
Growth And Income, Growth Opportunities Portfolio and International Growth and
Income Portfolios. Each Portfolio may not, as a non-fundamental policy:
(1) 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;
(2) Enter into either of reverse repurchase agreements or dollar rolls in
an amount greater than 5% of its total assets;
(3) 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;
(4) 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;
(5) 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;
(6) 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);
(7) For Global Blue Chip Portfolio only, lend portfolio securities in an
amount greater than 5% of its total assets; and
(8) For International Growth and Income Portfolio only, lend portfolio
securities in an amount greater than 33 1/3% of its total assets.
Each 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.
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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INVESTMENT POLICIES AND TECHNIQUES
General Investment Objectives and Policies
Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which a Portfolio may engage
(such as short selling, hedging, etc.) or a financial instrument which a
Portfolio may purchase (such as options, forward foreign currency contracts,
etc.) are meant to describe the spectrum of investments that Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "investment manager" or the
"Adviser"), in its discretion, might, but is not required to, use in managing
each Portfolio's assets. The investment manager may, in its discretion, at any
time employ such practice, technique or instrument for one or more Portfolios
but not for all investment companies advised by it. Furthermore, it is possible
that certain types of financial instruments or investment techniques described
herein may not be available, permissible, economically feasible or effective for
their intended purposes in all markets. Certain practices, techniques, or
instruments may not be principal activities of a Portfolio but, to the extent
employed, could from time to time have a material impact on the Portfolio's
performance.
Each Portfolio except the Money Market Portfolio may engage in futures, options,
and other derivatives transactions in accordance with its respective investment
objectives and policies. 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, to hedge (i.e., protect) against the
effects of fluctuating interest rates and to stabilize the value of its assets
and not for speculation. The use of futures and options, and possible benefits
and attendant risks, are discussed below along with information concerning
certain other investment policies and techniques.
Strategic Transactions and Derivatives (All Portfolios except Money Market
Portfolio). A Portfolio may, but is not required to, utilize various other
investment strategies as described below for a variety of purposes, such as
hedging various market risks, managing the effective maturity or duration of
fixed-income securities in a Portfolio's portfolio, or enhancing potential gain.
These strategies may be executed through the use of derivative contracts.
In the course of pursuing these investment strategies, a Portfolio may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies, or currency futures and
various other currency transactions (collectively, all the above are called
"Strategic Transactions"). In addition, strategic transactions may also include
new techniques, instruments or strategies that are permitted as regulatory
changes occur. Strategic Transactions may be used without limit (subject to
certain limitations imposed by the 1940 Act) to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for a Portfolio's portfolio resulting from securities markets or currency
exchange rate fluctuations, to protect a Portfolio's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of
fixed-income securities in a Portfolio's portfolio, or to establish a position
in the derivatives markets as a substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of a Portfolio's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of a Portfolio to utilize
these Strategic Transactions successfully will depend on the Adviser's ability
to predict pertinent market movements, which cannot be assured. A Portfolio will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions will not be used
to alter fundamental investment purposes and characteristics of a Portfolio, and
each Fund will segregate assets (or as provided by applicable regulations, enter
into certain offsetting positions) to cover its obligations under options,
futures and swaps to limit leveraging of a Portfolio.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to a Portfolio, force the sale or
purchase of portfolio
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securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation a Portfolio can realize on its investments or
cause a Portfolio to hold a security it might otherwise sell. The use of
currency transactions can result in a Portfolio incurring losses as a result of
a number of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Portfolio creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a Portfolio's position. In addition, futures
and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Portfolio might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, a Portfolio's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving a Portfolio the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. A Portfolio's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect a Portfolio against an increase in the price of the
underlying instrument that it intends to purchase in the future by fixing the
price at which it may purchase such instrument. An American style put or call
option may be exercised at any time during the option period while a European
style put or call option may be exercised only upon expiration or during a fixed
period prior thereto. A Portfolio is authorized to purchase and sell exchange
listed options and over-the-counter options ("OTC options"). Exchange listed
options are issued by a regulated intermediary such as the Options Clearing
Corporation ("OCC"), which guarantees the performance of the obligations of the
parties to such options. The discussion below uses the OCC as an example, but is
also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
A Portfolio's ability to close out its position as a purchaser or
seller of an OCC or exchange listed put or call option is dependent, in part,
upon the liquidity of the option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (i) insufficient trading
interest in certain options; (ii) restrictions on transactions imposed by an
exchange; (iii) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities
including reaching daily price limits; (iv) interruption of the normal
operations of the OCC or an exchange; (v) inadequacy of the facilities of an
exchange or OCC to handle current trading volume; or (vi) a decision by one or
more exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the relevant market for that option on that
exchange would cease to exist,
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although outstanding options on that exchange would generally continue to be
exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
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 (other than OTC currency options) that are
subject to a buy-back provision permitting a Portfolio to require the
Counterparty to sell the option back to a Portfolio at a formula price within
seven days. A 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, currency or other instrument underlying
an OTC option it has entered into with a Portfolio or fails to make a cash
settlement payment due in accordance with the terms of that option, a Portfolio
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser 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") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
a Portfolio, and portfolio securities "covering" the amount of a Portfolio's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to a Portfolio's
limitation on investing no more than 15% of its net assets in illiquid
securities.
If a Portfolio sells a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase a Portfolio's income. The sale of put options can
also provide income.
A Portfolio may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, foreign
sovereign debt, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments that are traded on U.S. and
foreign securities exchanges and in the over-the-counter markets, and on
securities indices, currencies and futures contracts. All calls sold by a
Portfolio must be "covered" (i.e., a Portfolio must own the securities or
futures contract subject to the call) or must meet the asset segregation
requirements described below as long as the call is outstanding. Even though a
Portfolio will receive the option premium to help protect it against loss, a
call sold by a Portfolio exposes a Portfolio during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require a Portfolio to hold a security
or instrument which it might otherwise have sold.
A Portfolio may purchase and sell put options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, foreign
sovereign debt, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments (whether or not it holds the
above securities in its portfolio), and on securities indices, currencies and
futures contracts other than futures on individual corporate debt and individual
equity securities. A Portfolio will not sell put options if, as a result, more
than 50% of a Portfolio's total assets would be required to be segregated to
cover its potential obligations under such put options other than those with
respect to futures and options thereon. In selling put options, there is a risk
that a Portfolio may be required to buy the underlying security at a
disadvantageous price above the market price.
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General Characteristics of Futures. A Portfolio may enter into futures contracts
or purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by a Portfolio, as seller, to deliver
to the buyer the specific type of financial instrument called for in the
contract at a specific future time for a specified price (or, with respect to
index futures and Eurodollar instruments, the net cash amount). Options on
futures contracts are similar to options on securities except that 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 and obligates the seller to deliver
such position.
A Portfolio's use of futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into for bona fide hedging, risk management (including duration management) or
other portfolio and return enhancement management purposes. Typically,
maintaining a futures contract or selling an option thereon requires a Portfolio
to deposit with a financial intermediary as security for its obligations an
amount of cash or other specified assets (initial margin) which initially is
typically 1% to 10% of the face amount of the contract (but may be higher in
some circumstances). Additional cash or assets (variation margin) may be
required to be deposited thereafter on a daily basis as the mark to market value
of the contract fluctuates. The purchase of an option on financial futures
involves payment of a premium for the option without any further obligation on
the part of a Portfolio. If a Portfolio exercises an option on a futures
contract it will be obligated to post initial margin (and potential subsequent
variation margin) for the resulting futures position just as it would for any
position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price, nor that
delivery will occur.
A Portfolio 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 futures contracts and options
thereon would exceed 5% of a 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 segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. A Portfolio also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. A Portfolio may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) 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. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. A Portfolio may enter into
currency transactions with Counterparties which have received (or the guarantors
of the obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be of equivalent credit quality by
the Adviser.
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A Portfolio's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions except as described below. Transaction hedging is entering into a
currency transaction with respect to specific assets or liabilities of a
Portfolio, which will generally arise in connection with the purchase or sale of
its portfolio securities or the receipt of income therefrom. Position hedging is
entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency.
A Portfolio generally will not enter into a transaction to hedge
currency exposure to an extent greater, after netting all transactions intended
wholly or partially to offset other transactions, than the aggregate market
value (at the time of entering into the transaction) of the securities held in
its portfolio that are denominated or generally quoted in or currently
convertible into such currency, other than with respect to proxy hedging or
cross hedging as described below.
A Portfolio may also cross-hedge currencies by entering into
transactions to purchase or sell one or more currencies that are expected to
decline in value relative to other currencies to which a Portfolio has or in
which a Portfolio expects to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, a Portfolio may also engage in
proxy hedging. Proxy hedging is often used when the currency to which a
Portfolio's portfolio is exposed is difficult to hedge or to hedge against the
dollar. Proxy hedging entails entering into a commitment or option to sell a
currency whose changes in value are generally considered to be correlated to a
currency or currencies in which some or all of a Portfolio's portfolio
securities are or are expected to be denominated, in exchange for U.S. dollars.
The amount of the commitment or option would not exceed the value of a
Portfolio's securities denominated in correlated currencies. For example, if the
Adviser considers that the Austrian schilling is correlated to the German
deutschemark (the "D-mark"), a Portfolio holds securities denominated in
schillings and the Adviser believes that the value of schillings will decline
against the U.S. dollar, the Adviser may enter into a commitment or option to
sell D-marks and buy dollars. Currency hedging involves some of the same risks
and considerations as other transactions with similar instruments. Currency
transactions can result in losses to a Portfolio if the currency being hedged
fluctuates in value to a degree or in a direction that is not anticipated.
Further, there is the risk that the perceived correlation between various
currencies may not be present or may not be present during the particular time
that a Portfolio is engaging in proxy hedging. If a Portfolio enters into a
currency hedging transaction, a Portfolio will comply with the asset segregation
requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a Portfolio if it is unable to deliver or receive currency or funds
in settlement of obligations and could also cause hedges it has entered into to
be rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. A Portfolio may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions (including forward currency contracts) and multiple
interest rate transactions and any combination of futures, options, currency and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of a Portfolio to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
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Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which a
Portfolio may enter are interest rate, currency, index and other swaps and the
purchase or sale of related caps, floors and collars. A Portfolio expects to
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities a Portfolio anticipates purchasing at a
later date. A Portfolio will not sell interest rate caps or floors where it does
not own securities or other instruments providing the income stream a Portfolio
may be obligated to pay. Interest rate swaps involve the exchange by a Portfolio
with another party of their respective commitments to pay or receive interest,
e.g., an exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. A currency swap is an agreement to exchange
cash flows on a notional amount of two or more currencies based on the relative
value differential among them and an index swap is an agreement to swap cash
flows on a notional amount based on changes in the values of the reference
indices. The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling such cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.
A Portfolio will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as a Portfolio will
segregate assets (or enter into offsetting positions) to cover its obligations
under swaps, the Adviser and a Portfolio believe such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to its borrowing restrictions. A Portfolio will not enter
into any swap, cap, floor or collar transaction unless, at the time of entering
into such transaction, the unsecured long-term debt of the Counterparty,
combined with any credit enhancements, is rated at least A by S&P or Moody's or
has an equivalent rating from a NRSRO or is determined to be of equivalent
credit quality by the Adviser. If there is a default by the Counterparty, a
Portfolio may have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
Eurodollar Instruments. A Portfolio may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. A Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed income instruments are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in a Portfolio's ability to act upon
economic events occurring in foreign markets during non-business hours in the
U.S., (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the U.S., and (v) lower trading
volume and liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that a Portfolio segregate cash or
liquid assets with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
a Portfolio to pay or deliver securities or assets must be covered at all times
by the securities, instruments or currency required to be delivered, or, subject
to any regulatory restrictions, an amount of cash or liquid assets at least
equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer
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necessary to segregate them. For example, a call option written by a Portfolio
will require a Portfolio to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate cash or liquid assets sufficient to purchase and
deliver the securities if the call is exercised. A call option sold by a
Portfolio on an index will require a Portfolio to own portfolio securities which
correlate with the index or to segregate cash or liquid assets equal to the
excess of the index value over the exercise price on a current basis. A put
option written by a Portfolio requires a Portfolio to segregate cash or liquid
assets equal to the exercise price.
Except when a Portfolio enters into a forward contract for the purchase
or sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates a Portfolio to buy or sell
currency will generally require a Portfolio to hold an amount of that currency
or liquid assets denominated in that currency equal to a Portfolio's obligations
or to segregate cash or liquid assets equal to the amount of a Portfolio's
obligation.
OTC options entered into by a Portfolio, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when a
Portfolio sells these instruments it will only segregate an amount of cash or
liquid assets equal to its accrued net obligations, as there is no requirement
for payment or delivery of amounts in excess of the net amount. These amounts
will equal 100% of the exercise price in the case of a non cash-settled put, the
same as an OCC guaranteed listed option sold by a Portfolio, or the in-the-money
amount plus any sell-back formula amount in the case of a cash-settled put or
call. In addition, when a Portfolio sells a call option on an index at a time
when the in-the-money amount exceeds the exercise price, a Portfolio will
segregate, until the option expires or is closed out, cash or cash equivalents
equal in value to such excess. OCC issued and exchange listed options sold by a
Portfolio other than those above generally settle with physical delivery, or
with an election of either physical delivery or cash settlement and a Portfolio
will segregate an amount of cash or liquid assets equal to the full value of the
option. OTC options settling with physical delivery, or with an election of
either physical delivery or cash settlement will be treated the same as other
options settling with physical delivery.
In the case of a futures contract or an option thereon, a Portfolio
must deposit initial margin and possible daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, a Portfolio will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid assets
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to a Portfolio's net obligation, if
any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. A Portfolio may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, a Portfolio could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by a Portfolio. Moreover, instead of segregating cash or liquid assets if a
Portfolio held a futures or forward contract, it could purchase a put option on
the same futures or forward contract with a strike price as high or higher than
the price of the contract held. Other Strategic Transactions may also be offset
in combinations. If the offsetting transaction terminates at the time of or
after the primary transaction no segregation is required, but if it terminates
prior to such time, cash or liquid assets equal to any remaining obligation
would need to be segregated.
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Delayed Delivery Transactions. The Total Return, High Yield, Growth, Government
Securities, Investment Grade Bond, Horizon, Global Income, Financial Services,
Global Blue Chip, Aggressive Growth, Technology , International Growth and
Income, Focused Large Cap Growth, Growth And Income, Growth Opportunities and
Index 500 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.
Real Estate Investment Trusts (REITs). The Aggressive Growth Portfolio may
invest in REITs. REITs are sometimes informally characterized as equity REITs,
mortgage REITs and hybrid REITs. Investment in REITs may subject the Portfolio
to risks associated with the direct ownership of real estate, such as decreases
in real estate values, overbuilding, increased competition and other risks
related to local or general economic conditions, increases in operating costs
and property taxes, changes in zoning laws, casualty or condemnation losses,
possible environmental liabilities, regulatory limitations on rent and
fluctuations in rental income. Equity REITs generally experience these risks
directly through fee or leasehold interests, whereas mortgage REITs generally
experience these risks indirectly through mortgage interests, unless the
mortgage REIT forecloses on the underlying real estate. Changes in interest
rates may also affect the value of the Portfolio's investment in REITs. For
instance, during periods of declining interest rates, certain mortgage REITs may
hold mortgages that the mortgagors elect to prepay, which prepayment may
diminish the yield on securities issued by those REITs.
Certain REITs have relatively small market capitalization, which may tend to
increase the volatility of the market price of their securities. Furthermore,
REITs are dependent upon specialized management skills, have limited
diversification and are, therefore, subject to risks inherent in operating and
financing a limited number of projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free pass-through of income under the Code and to maintain exemption
from the registration requirements of the 1940 Act. By investing in REITs
indirectly through the Fund, a shareholder will bear not only his or her
proportionate share of the expenses of the Portfolio, but also, indirectly,
similar expenses of the REITs. In addition, REITs depend generally on their
ability to generate cash flow to make distributions to shareholders.
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.
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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
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.
A Portfolio will currently invest in only those collateralized obligations that
are fully collateralized and that meet the quality standards otherwise
applicable to the Portfolio's investments. Fully collateralized means that the
collateral will generate cash flows sufficient to meet obligations to holders of
the collateralized obligations under even the most conservative prepayment and
interest rate projections. Thus, the collateralized obligations are structured
to anticipate a worst case prepayment condition and to minimize the reinvestment
rate risk for cash flows between coupon dates for the collateralized
obligations. A worst case prepayment condition generally assumes immediate
prepayment of all securities purchased at a premium and zero prepayment of all
securities purchased at a discount. Reinvestment rate risk may be minimized by
assuming very conservative reinvestment rates and by other means such as by
maintaining the flexibility to increase principal distributions in a low
interest rate environment. The effective credit quality of the collateralized
obligations in such instances is the credit quality of the issuer of the
collateral. The requirements as to collateralization are determined by the
issuer or sponsor of the collateralized obligation in order to satisfy rating
agencies, if rated. None of the Portfolios currently intends to invest more than
5% of its total assets in collateralized obligations that are collateralized by
a pool of credit card or automobile receivables or other types of assets rather
than a pool of mortgages, mortgage-backed securities or U.S. Government
securities. Currently, none of the Portfolios intends to invest more than 5% of
its net assets in inverse floaters as described in the prospectus (see
"Investment Techniques -- Collateralized Obligations"). The Money Market
Portfolio does not invest in inverse floaters.
Payments of principal and interest on the underlying collateral securities are
not passed through directly to the holders of the collateralized obligations as
such. Collateralized obligations, 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. 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.
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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 20% of its net assets in zero coupon U.S. Government securities
during the current year.
SPECIAL RISK FACTORS. There are risks inherent in investing in any security,
including shares of each Portfolio. The investment manager attempts to reduce
risk through fundamental research and, for certain Portfolios, the use of a
sub-adviser; however, there is no guarantee that such efforts will be successful
and each Portfolio's returns and net asset value will fluctuate over time. There
are special risks associated with each Portfolio's investments that are
discussed below.
Special Risk Factors -- Foreign Securities. The Total Return, High Yield,
Growth, Small Cap Growth, Investment Grade Bond, Value+Growth, Blue Chip,
Aggressive Growth, Technology, Financial Services and Focused Large Cap Growth
Portfolios invest primarily in securities that are publicly traded in the United
States; but, they have discretion to invest a portion of their assets in foreign
securities that are traded principally in securities markets outside the United
States. As a non-fundamental policy, these Portfolios (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 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. 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 Financial Services Portfolio
may invest up to 30% of its total assets in foreign securities, including ADRs.
The Value and Small Cap Value Portfolios may invest up to 20% of their assets in
securities of foreign companies in the form of ADRs. High Return Equity may
invest up to 20% of its assets in securities of foreign companies through the
acquisition of ADRs as well as through the purchase of securities of foreign
companies that are publicly traded in the United States and securities of
foreign companies that are traded principally in securities markets outside the
United States. . 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
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and asset value of the foreign entity issuing the security. Dividend and
interest payments may be repatriated based on the exchange rate at the time of
disbursement or payment, and restrictions on capital flows may be imposed.
Losses and other expenses may be incurred in converting between various
currencies in connection with purchases and sales of foreign securities.
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 and the markets for such securities may be less liquid. 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 (except for the International
Growth and Income Portfolio, which does not invest in emerging markets) may make
investments in developing or "emerging" countries, which involve exposure to
economic structures that are generally less diverse and mature than in the
United States, and to political systems that may be less stable. A developing or
emerging market country can be considered to be a country that is in the initial
stages of its industrialization cycle. Currently, emerging markets generally
include every country in the world other than the United States, Canada, Japan,
Australia, New Zealand, Hong Kong, Singapore and most Western European
countries. Currently, investing in many emerging markets may not be desirable or
feasible because of the lack of adequate custody arrangements for a Portfolio's
assets, overly burdensome repatriation and similar restrictions, the lack of
organized and liquid securities markets, unacceptable political risks or other
reasons. As opportunities to invest in securities in emerging markets develop, a
Portfolio may expand and further broaden the group of emerging markets in which
it invests. In the past, markets of developing or emerging market countries have
been more volatile than the markets of developed countries; however, such
markets often have provided higher rates of return to investors. The investment
manager believes that these characteristics can be expected to continue in the
future.
Many of the risks described above relating to foreign securities generally will
be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing markets.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which they
trade.
Also, the securities markets of developing countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure, regulatory and
accounting standards in many respects are less stringent than in the United
States and other developed markets. There also may be a lower level of
monitoring and regulation of developing markets and the activities of investors
in such markets, and enforcement of existing regulations has been extremely
limited.
In addition, brokerage commissions, custodial services and other needs relating
to investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Such settlement problems may cause emerging market securities to be illiquid.
The inability of a Portfolio to make intended securities purchases because of
settlement problems could cause the Portfolio to miss attractive investment
opportunities. Inability to dispose of a portfolio security because of
settlement problems could result in losses to a Portfolio from subsequent
declines in value of the portfolio security or, if a Portfolio has entered into
a contract to
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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 Fund's Board of Trustees.
Investment in certain emerging market securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain emerging market securities and increase the costs
and expenses of a Portfolio. Emerging markets may require governmental approval
for the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market country's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.
Fixed-Income. Since most foreign fixed-income securities are not rated, a
Portfolio will invest in foreign fixed-income securities based upon the
investment manager's analysis without relying on published ratings. Since such
investments will be based upon the investment manager's analysis rather than
upon published ratings, achievement of a Portfolio's goals may depend more upon
the abilities of the investment manager than would otherwise be the case.
The value of the foreign fixed-income securities held by a Portfolio, and thus
the net asset value of the Portfolio's shares, generally will fluctuate with (a)
changes in the perceived creditworthiness of the issuers of those securities,
(b) movements in interest rates, and (c) changes in the relative values of the
currencies in which a Portfolio's investments in fixed-income securities are
denominated with respect to the U.S. Dollar. The extent of the fluctuation will
depend on various factors, such as the average maturity of a Portfolio's
investments in foreign fixed-income securities, and the extent to which a
Portfolio hedges its interest rate, credit and currency exchange rate risks.
Many of the foreign fixed-income obligations in which a Portfolio will invest
will have long maturities. A longer average maturity generally is associated
with a higher level of volatility in the market value of such securities in
response to changes in market conditions.
Investments in sovereign debt, including Brady Bonds, involve special risks.
Brady Bonds are debt securities issued under a plan implemented to allow debtor
nations to restructure their outstanding commercial bank indebtedness. Foreign
governmental issuers of debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or pay
interest when due. In the event of default, there may be limited or no legal
recourse in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Political conditions, especially a sovereign entity's
willingness to meet the terms of its fixed-income securities, are of
considerable significance. Also, there can be no assurance that the holders of
commercial bank loans to the same sovereign entity may not contest payments to
the holders of sovereign debt in the event of default under commercial bank loan
agreements. In addition, there is no bankruptcy proceeding with respect to
sovereign debt on which a sovereign has defaulted, and a Portfolio may be unable
to collect all or any part of its investment in a particular issue.
Foreign investment in certain sovereign debt is restricted or controlled to
varying degrees, including requiring governmental approval for the repatriation
of income, capital or proceeds of sales by foreign investors. These restrictions
or controls may at times limit or preclude foreign investment in certain
sovereign debt or increase the costs and expenses of a Portfolio. A significant
portion of the sovereign debt in which a Portfolio may invest is issued as part
of debt restructuring and such debt is to be considered speculative. There is a
history of defaults with respect to commercial bank loans by public and private
entities issuing Brady Bonds. All or a portion of the interest payments and/or
principal repayment with respect to Brady Bonds may be uncollateralized.
Privatized Enterprises. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. A Portfolio's investments in the
securities of privatized enterprises include privately negotiated investments in
a
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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 sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), International Depositary Receipts ("IDRs") and
other types of Depositary Receipts (which, together with ADRs, GDRs and IDRs are
hereinafter referred to as "Depositary Receipts"). Depositary Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. In addition, the issuers of the stock of
unsponsored Depositary Receipts are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of the Depositary Receipts. ADRs
are Depository Receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
GDRs, IDRs and other types of Depositary Receipts are typically issued by
foreign banks or trust companies, although they also may be issued by United
States banks or trust companies, and evidence ownership of underlying securities
issued by either a foreign or a United States corporation. Generally, Depositary
Receipts in registered form are designed for use in the United States securities
markets and Depositary Receipts in bearer form are designed for use in
securities markets outside the United States. Depositary Receipts may be subject
to foreign currency exchange rate risk. Certain Depositary Receipts may not be
listed on an exchange and therefore may be illiquid securities.
Investment Company Securities. Each Portfolio may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act. The Portfolio will indirectly bear
its proportionate share of any management fees and other expenses paid by such
other investment companies. For example, a Portfolio may invest in a variety of
investment companies which seek to track the composition and performance of
specific indexes or a specific portion of an index. These index-based
investments hold substantially all of their assets in securities representing
their specific index or a specific portion of an index. Accordingly, the main
risk of investing in index-based investments is the same as investing in a
portfolio of equity securities comprising the index. The market prices of
index-based investments will fluctuate in accordance with both changes in the
market value of their underlying portfolio securities and due to supply and
demand for the instruments on the exchanges on which they are traded (which may
result in their trading at a discount or premium to their NAVs).
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Index-based investments may not replicate exactly the performance of their
specified index because of transaction costs and because of the temporary
unavailability of certain component securities of the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on
17country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to generally correspond to the price and yield performance of a specific
Morgan Stanley Capital International Index.
High Yield, High Risk Securities. Below investment grade securities, commonly
referred to as "junk bonds," (rated below Baa by Moody's and below BBB by S&P)
or unrated securities of equivalent quality in the Adviser's judgment, carry a
high degree of risk (including the possibility of default or bankruptcy of the
issuers of such securities), generally involve greater volatility of price and
risk of principal and income, and may be less liquid, than securities in the
higher rating categories and are considered speculative. The lower the ratings
of such debt securities, the greater their risks render them like equity
securities. See the Appendix to this Statement of Additional Information for a
more complete description of the ratings assigned by ratings organizations and
their respective characteristics.
An economic downturn could disrupt the high-yield market and impair the ability
of issuers to repay principal and interest. Also, an increase in interest rates
would likely have a greater adverse impact on the value of such obligations
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than on higher quality debt securities. During an economic downturn or period of
rising interest rates, highly leveraged issues may experience financial stress
which could adversely affect their ability to service their principal and
interest payment obligations. Prices and yields of high-yield securities will
fluctuate over time and, during periods of economic uncertainty, volatility of
high-yield securities may adversely affect a Fund's net asset value. In
addition, investments in high-yield zero coupon or pay-in-kind bonds, rather
than income-bearing high-yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.
The trading market for high-yield securities may be thin to the extent that
there is no established retail secondary market. A thin trading market may limit
the ability of a Fund to accurately value high-yield securities in its portfolio
and to dispose of those securities. Adverse publicity and investor perceptions
may decrease the values and liquidity of high-yield securities. These securities
may also involve special registration responsibilities, liabilities and costs,
and liquidity and valuation difficulties.
Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of a Fund's
investment objective by investment in such securities may be more dependent on
the Adviser's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Adviser will determine
whether it is in the best interest of a Fund to retain or dispose of such
security.
Prices for below investment-grade securities may be affected by legislative and
regulatory developments. For example, new federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
recent legislation restricts the issuer's tax deduction for interest payments on
these securities. Such legislation may significantly depress the prices of
outstanding securities of this type. For more information regarding tax issues
related to high-yield securities (see "TAXES").
Warrants. Certain Portfolios may invest in warrants up to a certain percentage
of the value of its respective net assets. The holder of a warrant has the
right, until the warrant expires, to purchase a given number of shares of a
particular issuer at a specified price. Such investments can provide a greater
potential for profit or loss than an equivalent investment in the underlying
security. Prices of warrants do not necessarily move, however, in tandem with
the prices of the underlying securities and are, therefore, considered
speculative investments. Warrants pay no dividends and confer no rights other
than a purchase option. Thus, if a warrant held by a Fund were not exercised by
the date of its expiration, the Fund would lose the entire purchase price of the
warrant.
Non-Diversified Portfolios. The Global Income and Financial Services Portfolios
operate as a "non-diversified" portfolios 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 each Portfolio. This allows a 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 Portfolios may invest a relatively high
percentage of its assets in the obligations of a limited number of issuers, the
Portfolios may be more susceptible to any single economic, political or
regulatory occurrence than a diversified portfolio. The Aggressive Growth
Portfolio also operates as a "non-diversified" portfolio. As a non-diversified
Portfolio, the Aggressive Growth Portfolio may invest a greater proportion of
its assets in the obligations of a small number of issuers, and may be subject
to greater risk and substantial losses as a result of changes in the financial
condition or the market's assessment of the issuers. While not limited by the
1940 Act as to the proportion of its assets that it may invest in obligations of
a single issuer, the Aggressive Growth Fund will comply with the diversification
requirements imposed by the Internal Revenue Code for qualification as a
regulated investment company. Accordingly, the Aggressive Growth Fund will not,
as a non-fundamental policy: (i) purchase more than 10% of any class of voting
securities of any issuer; (ii) with respect to 50% of its total assets, purchase
securities of any issuer (other than U.S. Government Securities) if, as a
result, more than 5% of the total value of the Portfolio's assets would be
invested in securities of that issuer; and (iii) invest more than 25% of its
total assets in a single issuer (other than U.S. Government Securities). The
Aggressive Growth Fund does not currently expect that it would invest more than
10% of its total assets in a single issuer (other than U.S. Government
Securities).
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Special Risk Factors -- Small Cap Securities. The Small Cap Growth and Small Cap
Value Portfolios intend to invest a substantial portion of their assets in small
capitalization stocks similar in size to those comprising the Russell 2000.
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, Focused Large Cap Growth, Growth And
Income, Growth Opportunities and Index 500 Portfolios are listed under
"Financial Highlights" in the prospectus. 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. 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. Frequency of portfolio turnover will not
be a limiting factor should a Portfolio's investment manager deem it desirable
to purchase or sell securities. Purchases and sales are made for a Portfolio
whenever necessary, in management's opinion, to meet a Portfolio's objective.
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" herein.
The Global Income Portfolio may take full advantage of the entire range of
maturities of fixed-income securities, including zero-coupon 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).
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
tends 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
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(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%.
The Portfolios do 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.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, each Portfolio may lend securities (principally to broker-dealers)
without limit 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. A
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, as a non-fundamental policy, limit securities lending to not more
than 5% of the value of the Portfolio's total assets.
Borrowing. 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.
Interfund Borrowing and Lending Program. The Portfolios have received exemptive
relief from the SEC which permits a portfolio to participate in an interfund
lending program among certain investment companies advised by the investment
manager. The interfund lending program allows the participating portfolios to
borrow money from and loan money to each other for temporary or emergency
purposes. The program is subject to a number of conditions designed to ensure
fair and equitable treatment of all participating funds, including the
following: (1) no Portfolio may borrow money through the program unless it
receives a more favorable interest rate than a rate approximating the lowest
interest rate at which bank loans would be available to any of the participating
portfolio under a loan agreement; and (2) no Portfolio may lend money through
the program unless it receives a more favorable return than that available from
an investment in repurchase agreements and, to the extent applicable, money
market cash sweep arrangements. In addition, a Portfolio may participate in the
program only if and to the extent that such participation is consistent with the
Portfolio's investment objectives and policies (for instance, money market funds
would normally participate only as lenders and tax exempt funds only as
borrowers). Interfund loans and borrowings may extend overnight, but could have
a maximum duration of seven days. Loans may be called on one day's notice. A
Portfolio may have to borrow from a bank at a higher interest rate if an
interfund loan is called or not renewed. Any delay in repayment to a lending
Portfolio could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of the
participating funds. To the extent a Portfolio is actually engaged in borrowing
through the interfund lending program, the Portfolio, as a matter of
non-fundamental policy, may not borrow for other than temporary or emergency
purposes (and not for leveraging), except that the Portfolio may engage in
reverse repurchase agreements and dollar rolls for any purpose.
Short Sales Against-the-Box. The Technology, Global Blue Chip, Focused Large
Cap, International Growth and Income, Growth And Income, Growth Opportunities,
Aggressive Growth and Blue Chip Portfolios may make short sales against-the-box
for the purpose of, but not limited to, deferring realization of loss when
deemed advantageous for federal income tax purposes. A short sale
"against-the-box" is a short sale in which a Portfolio owns at least an equal
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amount of the securities sold short or securities convertible into or
exchangeable for, without payment of any further consideration, securities of
the same issue as, and at least equal in amount to, the securities sold short.
As a non-fundamental policy, a Portfolio may engage in such short sales only to
the extent that not more than 10% of the Portfolio's total assets (determined at
the time of the short sale) is held as collateral for such sales. Each Portfolio
does not currently intend, however, to engage in such short sales to the extent
that more than 5% of its net assets will be held as collateral therefor during
the current year.
Repurchase Agreements. Each Portfolio may invest in repurchase agreements, which
are instruments under which it acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which is higher than the purchase price), thereby
determining the yield during the Portfolio's holding period. 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. The securities underlying a repurchase agreement will be
marked-to-market every business day so that the value of such securities is at
least equal to the investment value of the repurchase agreement, including any
accrued interest thereon.
Reverse Repurchase Agreements. Global Income, Technology, Global Blue Chip,
Focused Large Cap, International Growth and Income, Growth And Income, Growth
Opportunities, Aggressive Growth and Blue Chip Portfolios may each enter into
"reverse 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.
Section 4(2) Paper. Subject to its investment objectives and policies, each
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 investment manager monitors the liquidity of each Portfolio's
investments in Section 4(2) paper on a continuing basis.
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
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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, that is, bonds, notes,
debentures, preferred stocks and other securities which are convertible into
common stock. Investments in convertible securities can provide an opportunity
for capital appreciation and/or income through interest and dividend payments by
virtue of their conversion or exchange features.
The convertible securities in which a Portfolio may invest are either
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. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Convertible securities may be issued as fixed-income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes ("LYONs"(TM)). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
PORTFOLIO TRANSACTIONS
Brokerage -- Scudder Kemper
Allocation of brokerage is supervised by the investment manager (which also
includes Scudder UK for purposes of the following disclosure).
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The primary objective of the investment manager 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 manager seeks to evaluate the overall
reasonableness of brokerage commissions paid (to the extent applicable) through
the familiarity of Scudder Investor Services, Inc. ("SIS"), a corporation
registered as a broker-dealer and a subsidiary of Scudder Kemper, with
commissions charged on comparable transactions, as well as by comparing
commissions paid by a Portfolio to reported commissions paid by others. The
investment manager routinely reviews commission rates, execution and settlement
services performed and makes 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 manager's practice to place such orders with
broker/dealers who supply brokerage and research services to the investment
manager or a Portfolio. The term "research services" 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 manager is authorized when placing portfolio transactions, if
applicable, 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 execution services and the receipt of research services. The investment
manager has negotiated arrangements, which are not applicable to most
fixed-income transactions, with certain broker/dealers pursuant to which a
broker/dealer will provide research services to the investment manager or a
Portfolio in exchange for the direction by the investment manager of brokerage
transactions to the broker/dealer. These arrangements regarding receipt of
research services generally apply to equity security transactions. The
investment manager may place orders with a broker/dealer on the basis that the
broker/dealer has or has not sold shares of a fund managed by Scudder Kemper. 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.
Subject to the foregoing, the investment manager may consider sales of variable
life insurance policies and variable annuity contracts for which the Portfolios
are an investment option as a factor in the selection of firms to execute
portfolio transactions.
To the maximum extent feasible, it is expected that the investment managers will
place orders for portfolio transactions through SIS. 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.
In addition to the discounts or commissions described above, SIS will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash, to firms that sell shares of the Portfolios. In
some instances, such discounts, commissions or other incentives will be offered
only to certain firms that sell, or are expected to sell during specified time
periods, certain minimum amounts of shares of the Portfolios, or other funds
underwritten by SIS.
Although certain research services from broker/dealers may be useful to a
Portfolio and to the investment manager, it is the opinion of the investment
manager that such information only supplements the investment manager's 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.
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<PAGE>
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.
Brokerage -- Dreman Value Management, L.L.C.
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 Portfolios.
On the other hand, the ability of the Portfolios to participate in volume
transactions may produce better executions for the Portfolios in some cases. The
Board of Trustees 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 Portfolios, will implement each 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 Portfolios 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
Portfolios 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 Portfolios 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.
Brokerage Commissions -- Bankers Trust Company
Under the sub-advisory agreement between Scudder Kemper and Bankers Trust
Company ("Bankers Trust"), Bankers Trust will place orders for the purchase and
sale of the Index 500 Portfolio's securities.
The primary objective of Bankers Trust in placing orders for the purchase and
sale of securities for the Portfolio is to obtain the most favorable net
results, taking into account such factors as price, commission, where
applicable, size of
39
<PAGE>
order, difficulty of execution and skill required of the executing
broker/dealer. Bankers Trust routinely reviews commission rates, execution and
settlement services performed and makes internal and external comparisons.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is Bankers Trust's practice to place orders with broker/dealers
who supply brokerage and research services to Bankers Trust or the Portfolio.
The term "research services" 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. Bankers Trust is authorized
when placing portfolio transactions, as applicable, for the Portfolio to pay a
brokerage commission in excess of that which another broker might charge for
executing the same transaction on account of execution services and the receipt
of research services. Bankers Trust has negotiated arrangements, which are not
applicable to most fixed-income transactions, with certain broker/dealers
pursuant to which a broker/dealer will provide research services to Bankers
Trust or the Portfolio in exchange for the direction by Bankers Trust of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity transactions. Bankers
Trust will not place orders with broker/dealers on the basis that the
broker/dealer has or has not sold variable life insurance policies and variable
annuity contracts for which the Portfolio is an investment option. 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.
Although certain research services from broker/dealers may be useful to the
Portfolio and to Bankers Trust, it is the opinion of Bankers Trust that such
information only supplements Bankers Trust's own research effort since the
information must still be analyzed, weighed, and reviewed by Bankers Trust's
staff. Such information may be useful to Bankers Trust in providing services to
clients other than the Portfolio, and not all such information is used by
Bankers Trust in connection with the Portfolio. Conversely, such information
provided to Bankers Trust by broker/dealers through whom other clients of
Bankers Trust effect securities transactions may be useful to Bankers Trust in
providing services to the Portfolio.
The Trustees review, from time to time, whether the recapture for the benefit of
the Portfolio of some portion of the brokerage commissions or similar fees paid
by the Portfolio on portfolio transactions is legally permissible and advisable.
Brokerage Commissions -- Eagle Asset Management and Janus Capital
Corporation
Under the sub-advisory agreements between Scudder Kemper and Eagle Asset
Management, Inc. ("EAM") and Scudder Kemper and Janus Capital Corporation
("JCC"), EAM places all orders for purchases and sales of the Focused Large Cap
Portfolios' securities and JCC places all orders for the purchase of Growth And
Income and Growth Opportunities 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 EAM or JCC,
respectively. 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 a 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 a Portfolio. On
the other hand, the ability of a Portfolio to participate in volume transactions
may produce better executions for a Portfolio in some cases. The Board of
Trustees believes that the benefits of EAM and JCC's organizations each outweigh
any limitations that may arise from simultaneous transactions or position
limitations.
EAM and JCC, in effecting purchases and sales of portfolio securities for the
account of the Portfolios, will implement the Portfolios' policy of seeking best
execution of orders. EAM and JCC may each be permitted to pay higher brokerage
commissions for research services as described below. Consistent with this
policy, orders for portfolio transactions are placed with broker-dealer firms
giving consideration to the quality, quantity and nature of each firm's
professional services, which include execution, financial responsibility,
responsiveness, clearance procedures, wire service quotations and statistical
and other research information provided to the Portfolios, EAM and JCC. Subject
to seeking best execution of an order, brokerage is allocated on the basis of
all services provided. Any research benefits
40
<PAGE>
derived are available for all clients of EAM and JCC. In selecting among firms
believed to meet the criteria for handling a particular transaction, EAM and JCC
may each give consideration to those firms that have sold or are selling shares
of the Portfolios 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, EAM and JCC, although EAM and JCC are not
authorized to pay higher commissions to firms that provide such services, except
as described below.
EAM and JCC 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 EAM and JCC in cash. Subject to Section 28(e) and
procedures adopted by the Board of Trustees, the Portfolios 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 EAM and JCC 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 EAM and JCC's overall responsibilities to the
Portfolios and other clients. Not all of such research services may be useful or
of value in advising the Portfolios. Research benefits will be available for all
clients of EAM and JCC. The sub-advisory fees paid by Scudder Kemper to EAM and
JCC are not reduced because these research services are received.
Brokerage Commissions
The table below shows total brokerage commissions paid by each Portfolio (other
than the Aggressive Growth and Technology Portfolios, which commenced operations
on May 1, 1999, the Index 500 Portfolio, which commenced operations on September
1, 1999 and the Focused Large Cap Growth, Growth And Income, and Growth
Opportunities Portfolios, which each commenced operations on October 29, 1999)
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 in
Portfolio Fiscal 1999 Fiscal 1999+ Fiscal 1998 Fiscal 1997
- --------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Money Market $ 0 $ 0
Total Return 2,772,000 1,512,000
High Yield 4,933,000 3,627,000
Growth 1,325,000 1,936,000
Government Securities 14,000 16,000
International 928,000 747,000
Small Cap Growth 1,115,000 2,658,000
Investment Grade Bond 37,000 31,000
Contrarian Value 292,000 92,000
High Return Equity* 38,000 N/A
Financial Services* 8,000 N/A
Small Cap Value 190,000 31,000
Value+Growth 275,000 97,000
Horizon 20+ 79,000 35,000
Horizon 10+ 82,000 37,000
Horizon 5 37,000 17,000
Blue Chip 134,000 31,000**
Global Income 0 0**
International Growth and Income* 10,000 N/A
Global Blue Chip* 6,000 N/A
</TABLE>
41
<PAGE>
* Commencement of Operations on (May 4, 1998 for High Return Equity and
Financial Services, May 5, 1998 for International Growth and Income and
Global Blue Chip) through December 31, 1998.
** Commencement of Operations on May 1, 1997 through December 31, 1997.
INVESTMENT MANAGER AND DISTRIBUTOR
Investment Manager. Scudder Kemper Investments, Inc., 345 Park Avenue, New York,
New York is the 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 its officers and
employees. Pursuant to investment management agreements, 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 investment management agreements provide that each Portfolio
shall pay the charges and expenses of its operations, including the fees and
expenses of the trustees (except those who are affiliates of Scudder Kemper),
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 SEC and the cost of
qualifying and maintaining the qualification of the Fund's shares for sale under
the securities laws of the various states, if any.
The investment management agreements provide 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 agreements relate, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Scudder Kemper in the performance of its obligations and duties, or by
reason of its reckless disregard of its obligations and duties under each
agreement.
Each investment management agreement continues in effect from year to year so
long as its continuation is approved at least annually by a majority of the
trustees who are not parties to such agreement or interested persons of any such
party except in their capacity as trustees of the Fund and by the shareholders
of the Portfolio subject thereto or the Board of Trustees. Each Portfolio's
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. If additional Portfolios may become subject to an 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.
Certain investments may be appropriate for the Portfolios and for other clients
advised by the investment manager or subadvisers. Investment decisions for the
Portfolios and other clients are made with a view to achieving their respective
investment objectives and after consideration of such factors as their current
holdings, availability of cash for investment and the size of their investments
generally. Frequently, a particular security may be bought or sold for only one
client or in different amounts and at different times for more than one but less
than all clients. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security. In addition,
purchases or sales of the same security may be made for two or more clients on
the same day. In such event, such transactions will be allocated among the
clients in a manner believed by the investment manager or subadviser to be
equitable to each. In some cases, this procedure could have an adverse effect on
the price or amount of the securities purchased or sold by a Portfolio. Purchase
and sale orders for a Portfolio may be combined with those of other clients of
the investment manager or subadviser in the interest of the most favorable net
results to a Portfolio.
In certain cases, the investments for the Portfolios are managed by the same
individuals who manage one or more other mutual funds advised by Scudder Kemper
that have similar names, objectives and investment styles as a Portfolio. You
should be aware that the Portfolios are likely to differ from these other mutual
funds in size, cash flow pattern and tax matters. Accordingly, the holdings and
performance of the Portfolios can be expected to vary from those of the other
mutual funds.
42
<PAGE>
The investment manager maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The investment manager receives
published reports and statistical compilations from issuers and other sources,
as well as analyses from brokers and dealers who may execute portfolio
transactions for the investment manager's clients. However, the investment
manager regards this information and material as an adjunct to its own research
activities. The investment manager's international investment management team
travels the world, researching hundreds of companies. In selecting the
securities in which each Portfolio may invest, the conclusions and investment
decisions of the investment manager with respect to the Fund are based primarily
on the analyses of its own research department.
Responsibility for overall management of each Portfolio rests with the Fund's
Board of Trustees and officers. Professional investment supervision is provided
by Scudder Kemper. The investment management agreements provide that Scudder
Kemper shall act as each Portfolio's investment adviser, manage its investments
and provide it with various services and facilities.
On December 31, 1997, 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") and Zurich Kemper Value Advisors, Inc. ("ZKVA"),
former subsidiaries of Zurich. ZKI, the former investment manager for each
Portfolio. 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.
On September 7, 1998, the businesses of Zurich (including Zurich's 70% interest
in Scudder Kemper) and the financial services businesses of B.A.T Industries
p.l.c. ("B.A.T") were combined to form a new global insurance and financial
services company known as Zurich Financial Services Group. By way of a dual
holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services, Inc., with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, each Portfolio's then existing investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. The Board approved new investment management agreements
with Scudder Kemper, which are substantially identical to the then current
investment management agreements, except for the date of execution (now
September 7, 1998) and termination. These agreements became effective upon the
termination of the then current investment management agreements and were
approved by shareholders at a special meeting which concluded in December 1998.
The investment management agreements for the Aggressive Growth Portfolio and the
Technology Portfolio are effective as of their inception, May 1, 1999, for the
Index 500 Portfolio, September 1, 1999 and for the Focused Large Cap Growth,
Growth And Income and Growth Opportunities Portfolios, October 29, 1999.
Each Portfolio pays Scudder Kemper an investment management fee, based on the
average daily net assets of the Portfolio, payable monthly, at the annual rates
shown below:
Portfolio Annual Management Fee Rate
- --------- --------------------------
43
<PAGE>
Money Market 0.50%
Total Return 0.55%
High Yield 0.60%
Growth 0.60%
Government Securities 0.55%
International 0.75%
Small Cap Growth 0.65%
Investment Grade Bond 0.60%
Contrarian Value 0.75%
Small Cap Value 0.75%
Value+ Growth 0.75%
Horizon 20+ 0.60%
Horizon 10+ 0.60%
Horizon 5 0.60%
Blue Chip 0.65%
Global Income 0.75%
International Growth and Income 1.00%
Index 500 Portfolio 1.00%
The High Return Equity, Financial Services, Aggressive Growth, and Technology
Portfolios each pays Scudder Kemper a graduated investment management fee, based
on the average daily net assets of the Portfolio, payable monthly, at the annual
rates shown below:
Average Daily Net Assets of the Portfolio Annual Management Fee Rate
- ----------------------------------------- --------------------------
$0-$250 million 0.75%
$250 million-$1 billion 0.72%
$1 billion-$2.5 billion 0.70%
$2.5 billion-$5 billion 0.68%
$5 billion-$7.5 billion 0.65%
$7.5 billion-$10 billion 0.64%
$10 billion-$12.5 billion 0.63%
Over $12.5 billion 0.62%
The Global Blue Chip Portfolio pays Scudder Kemper a graduated investment
management fee, based on the average daily net assets of the Portfolio, payable
monthly, at the annual rates shown below:
Average Daily Net Assets of the Portfolio Annual Management Fee Rate
- ----------------------------------------- --------------------------
$0-$250 million 1.00%
$250 million-$1 billion 0.95%
Over $1 billion 0.90%
The Index 500 Portfolio pays Scudder Kemper a graduated investment management
fee, based on 1% of the average daily net assets of the Portfolio, payable
monthly, at the annual rates shown below:
Average Daily Net Assets of the Portfolio Annual Management Fee Rate
$0-$200 million 0.45%
$200 million-$750 million 0.42%
$750 million-$2.0 billion 0.40%
$2.0 billion-$5.0 billion 0.38%
44
<PAGE>
Over $5.0 billion 0.35%
KVS Focused Large Cap Growth Portfolio, KVS Growth And Income Portfolio and KVS
Growth Opportunities Portfolio each pay the investment manager a graduated
investment management fee based on the average daily net assets of the
Portfolio, payable monthly, at the annual rates shown below:
Average Daily Net Assets of the Portfolio Annual Management Fee Rate
- ----------------------------------------- --------------------------
$0-$250 million 0.950%
$250 million-$500 million 0.925%
$500 million-$1 billion 0.900%
$1 billion-$2.5 billion 0.875%
Over $2.5 billion 0.850%
The investment management fees paid by each Portfolio (other than the Aggressive
Growth and Technology Portfolios, which commenced operations on May 1, 1999, the
Index 500 Portfolio, which commenced operations on September 1, 1999 and the
Focused Large Cap Growth, Growth And Income and Growth Opportunities Portfolios,
which each commenced operations on October 29, 1999) for its last three fiscal
years are shown in the table below.
<TABLE>
<CAPTION>
Portfolio Fiscal 1999 Fiscal 1998 Fiscal 1997
- --------- ----------- ----------- -----------
<S> <C> <C> <C>
Money Market $ 600,000 $497,000
Total Return 4,521,000 4,072,000
High Yield 2,606,000 1,991,000
Growth 3,600,000 3,142,000
Government Securities 564,000 460,000
International 1,613,000 1,419,000
Small Cap Growth 1,060,000 633,000
Investment Grade Bond 184,000 46,000
Contrarian Value 1,641,000 604,000
Small Cap Value 702,000 307,000
Value+Growth 825,000 257,000
Horizon 20+ 164,000 56,000
Horizon 10+ 223,000 77,000
Horizon 5 137,000 44,000
Blue Chip 306,000 27,000*
Global Income 31,000 9,000*
High Return Equity 100,000**+ N/A
Financial Services 26,000**+ N/A
International Growth and Income 6,000**# N/A
Global Blue Chip 9,000**# N/A
</TABLE>
* Commencement of Operations on May 1, 1997 through December 31, 1997.
** Commencement of Operations on (May 4, 1998 for High Return Equity and
Financial Services, May 5, 1998 for International Growth and Income and
Global Blue Chip) through December 31, 1998.
+ Amount shown after voluntary fee waiver by the investment manager of
$25,000 and $15,000 for the High Return Equity and Financial Services
Portfolios, respectively. The actual level of this voluntary waiver
shall be in the investment manager's discretion and, upon notice to the
Portfolio, the investment manager may at any time terminate this
waiver.
# Amount shown after contractual fee reduction by the investment manager
of $2,000 and $3,000 for the International Growth and Income, and
Global Blue Chip Portfolios, respectively.
45
<PAGE>
Fund Sub-Adviser for the International and Global Income Portfolios. Scudder
Investments (U.K.) Ltd. ("Scudder UK"), 1 South Place, London, U.K. EC2M 2ZS, an
affiliate of Scudder Kemper, is the sub-adviser for the International and Global
Income Portfolios. Scudder UK acts as sub-adviser pursuant to the terms of a
sub-advisory agreement between it and Scudder Kemper for the Portfolios. Scudder
UK is subject to regulation by the Investment Management Regulatory Organization
in England as well as the SEC.
Under the terms of the sub-advisory agreement for the International and Global
Income Portfolios, Scudder UK renders investment advisory and management
services with regard to that portion of a Portfolio's assets as may be allocated
to Scudder UK by the investment manager from time to time for management,
including services related to foreign securities, foreign currency transactions
and related investments. Scudder UK may, under the terms of the sub-advisory
agreement, render similar services to others including other investment
companies. For its services, Scudder UK 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
Scudder UK for management: 0.35% for the International Portfolio and 0.30% for
the Global Income Portfolio. Scudder UK permits any of its officers or employees
to serve without compensation as trustees or officers of the Fund if elected to
such positions.
Each sub-advisory agreement provides that Scudder UK 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 Scudder UK in the performance of its duties or from reckless disregard
by Scudder UK of its obligations and duties under the sub-advisory agreement.
Each sub-advisory agreement continues in effect from year to year so long as its
continuation is approved at least annually 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 of the Portfolio
subject thereto or the Board of Trustees. Each sub-advisory agreement may be
terminated at any time for a Portfolio upon 60 days' notice by Scudder Kemper,
Scudder UK 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
PortfoliobyPortfolio basis. Additional Portfolios may be subject to a different
agreement.
The sub-adviser fees paid by Scudder Kemper to Scudder UK 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, for fiscal year 1998 were
(estimated) $753,000 and $12,000, respectively and for fiscal year 1999 were
$____________and $___________, respectively..
Fund Sub-Adviser for the High Return Equity and Financial Services Portfolios.
Dreman Value Management, L.L.C. ("DVM"), Ten Exchange Place, Jersey City, New
Jersey 07302, 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
the Scudder Kemper for each Portfolio. DVM was formed in April 1997 and has
served as sub-adviser for these Portfolios since their inception.
Under the terms of each sub-advisory agreement, DVM manages the investment and
reinvestment of each Portfolio's assets and will provide such investment advice,
research and assistance as the investment manager may, from time to time,
reasonably request.
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
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<PAGE>
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 each sub-advisory agreement prior to May 1,
2001. Thereafter, DVM may terminate the sub-advisory agreement upon 90 days'
notice to the investment manager.
The investment manager pays DVM for its services a sub-advisory fee, payable
monthly, the annual rates shown below:
Average Daily Net Assets of the Portfolio Annual Sub-Adviser Fee Rate
- ----------------------------------------- ---------------------------
$0-$250 million 0.240%
$250 million-$1 billion 0.230%
$1 billion-$2.5 billion 0.224%
$2.5 billion-$5 billion 0.218%
$5 billion-$7.5 billion 0.208%
$7.5 billion-$10 billion 0.205%
$10 billion-$12.5 billion 0.202%
Over $12.5 billion 0.198%
The sub-adviser fees paid by Scudder Kemper Investments, Inc. to DVM for the
High Return Equity and Dreman Financial Services Portfolios for the period from
May 4, 1998 (inception) through December 31, 1998 were $13,268 and $40,717,
respectively and for fiscal year 1999 were $_____________and $_____________,
respectively..
Fund Sub-Adviser for the Index 500 Portfolio. Pursuant to a sub-advisory
agreement entered into between Scudder Kemper and Bankers Trust Company
("Bankers Trust") on September 1, 1999, Bankers Trust provides sub-advisory
services relating to the management of the Index 500 Portfolio. Bankers Trust, a
New York banking corporation with principal offices at 130 Liberty Street, New
York, New York, 10006, is a wholly owned subsidiary of Deutsche Bank AG, and one
of the nation's leading managers of index funds.
Under the terms of the sub-advisory agreement, Bankers Trust 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 sub-advisory agreement provides that Bankers Trust 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 Bankers Trust in the performance of its duties or from
reckless disregard by Bankers Trust of its obligations and duties under the
sub-advisory agreement.
The sub-advisory agreement shall remain in full force and effect through
September 30, 2000, and is renewable annually thereafter by specific approval of
the Board of Trustees of the Fund or by the affirmative vote of a majority of
the outstanding voting securities of the Portfolio. Any such renewal shall be
approved by the vote of a majority of the Trustees of the Fund who are not
interested persons under the 1940 Act, cast in person at a meeting called for
the purpose of voting on such renewal. The sub-advisory agreement may be
terminated without penalty at any time by the Trustees, by vote of a majority of
the outstanding voting securities of the Portfolio, or by the Adviser or Bankers
Trust upon 60 days' written notice, and will automatically terminate in the
event of its assignment by either party to the agreement, as defined in the 1940
Act, or upon termination of the Investment Management Agreement between the
Scudder Kemper and the Portfolio. In addition, the Adviser or the Portfolio may
terminate the sub-advisory agreement upon immediate notice if Bankers Trust
becomes statutorily disqualified from performing its duties under this agreement
or otherwise is legally prohibited from operating as an investment adviser.
The fee paid to Bankers Trust is calculated on a monthly basis and is based upon
the average daily net assets in the Portfolio. The annual fee rate decreases as
the level of the Portfolio's net assets increases. The minimum annual fee is
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<PAGE>
not applicable for the first year of the sub-advisory agreement. The fee is paid
to Bankers Trust monthly, at the annual rates shown below:
Average Daily Net Assets of the Portfolio Annual Management Fee Rate
- ----------------------------------------- --------------------------
$0-$200 million 0.08%
$200 million-$750 million 0.05%
Over $750 million 0.025%
Fund Sub-Adviser for the Focused Large Cap Growth Portfolio. Eagle Asset
Management, 880 Carillon Parkway, St. Petersburg, Florida, 33716, is the
sub-adviser for the Focused Large Cap Growth Portfolio. EAM manages more than
$5.5 billion in assets for institutional, high net worth individuals and
subadvisory clients.
Under the terms of the sub-advisory agreement, EAM manages the investment and
reinvestment of the Portfolio's assets and will provide such investment advice,
research and assistance as the investment manager may, from time to time,
reasonably request.
Each sub-advisory agreement provides that EAM 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 EAM in the performance of its duties or from reckless disregard by EAM
of its obligations and duties under the sub-advisory agreement.
The sub-advisory Agreement with EAM shall continue in effect through September
30, 2001 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 EAM, 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.
The investment manager pays EAM for its services a sub-advisory fee, payable
monthly, at the annual rates shown below:
Average Daily Net Assets of the Portfolio Annual Subadviser Fee Rate
----------------------------------------- --------------------------
$0-$50 million 0.45%
$50 million-$300 million 0.40%
On the balance over $300 million 0.30%
Fund Sub-Adviser for the Growth Opportunities Portfolio and the Growth And
Income Portfolio. Janus Capital Corporation, 100 Fillmore Street, Denver,
Colorado 80206-4928, is the sub-adviser for the Growth Opportunities Portfolio
and the Growth And Income Portfolio. JCC began serving as investment adviser to
Janus Fund in 1970 and currently serves as investment adviser to all of the
Janus Funds, acts as sub-adviser for a number of private-label mutual funds and
provides separate account advisory services for institutional accounts.
Under the terms of each sub-advisory agreement, JCC manages the investment and
reinvestment of each Portfolio's assets and will provide such investment advice,
research and assistance as the investment manager may, from time to time,
reasonably request.
Each sub-advisory agreement provides that JCC 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 JCC in the performance of its duties or from reckless disregard by JCC
of its obligations and duties under the sub-advisory agreement.
Each sub-advisory agreement with JCC shall continue in effect through September
30, 2001 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
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<PAGE>
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
JCC, 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.
The investment manager pays JCC for its services a sub-advisory fee, payable
monthly, at the annual rates shown below:
Average Daily Net Assets of the Portfolios Annual Subadviser Fee Rate
------------------------------------------ --------------------------
$0-$100 million 0.55%
$100 million-$500 million 0.50%
On the balance over $500 million 0.45%
Fund Accounting Agent. Scudder Fund Accounting Corp. ("SFAC"), Two International
Place, Boston, Massachusetts, 02210-4103, a subsidiary of Scudder Kemper, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of each Portfolio. SFAC receives no
fee for its services to each Portfolio, other than the High Return Equity,
Financial Services, Focused Large Cap Growth, Growth And Income, Growth
Opportunities, Global Blue Chip, International Growth and Income, Aggressive
Growth, and Technology 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 agreements with Aggressive Growth,
Technology, High Return Equity and Financial Services Portfolios shall each pay
SFAC an annual fee equal to 0.025% of the first $150 million of average daily
net assets of the Portfolio, 0.0075% of the next $850 million of such assets and
0.0045% of such assets in excess of $1 billion, plus holding and transaction
charges for this service. The agreement with Global Blue Chip and International
Growth and Income Portfolios state that the portfolio shall each pay SFAC an
annual fee equal to 0.065% of the first $150 million of average daily net assets
of the Portfolio, 0.04% of the next $850 million of such assets and 0.02% of
such assets in excess of $1 billion, plus holding and transaction charges for
this service. However, the Portfolios incurred no accounting fees for the period
ended December 31, 1999, after a fee reduction by SFAC.
Principal Underwriter. Kemper Distributors, Inc. ("KDI"), 222 South Riverside
Plaza, Chicago, Illinois 60606, a wholly owned subsidiary of Scudder Kemper, is
the distributor and principal underwriter for shares of each Portfolio 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 sixty days' notice.
In addition, KDI may, from time to time, from its own resources pay certain
firms additional amounts for ongoing administrative services and assistance
provided to their customers and clients who are shareholders of the Fund.
Custodian and Transfer Agent. State Street Bank and Trust Company ("State
Street"), 225 Franklin Street, Boston, Massachusetts 02110, as custodian, has
custody of all securities and cash of each Portfolio (other than the Global
Income, International, Global Blue Chip, and International Growth and Income
Portfolios). The Chase Manhattan Bank, Chase MetroTech Center, Brooklyn, New
York 11245, as custodian, has custody of all securities and cash of the Global
Income and International Portfolios. Brown Brothers Harriman & Co., as
custodian, has custody of all securities and cash of the Global Blue Chip and
International Growth and Income Portfolios. Each custodian attends to the
collection of principal and income, and payment for and collection of proceeds
of securities bought and sold by those Portfolios. Investors Fiduciary Trust
Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105 is the
transfer agent and dividend-paying agent for each Portfolio. For the fiscal year
ended December 31, 1999, no fees were paid to IFTC by any Portfolio.
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 Portfolios' annual financial statements, review certain
regulatory reports and the Portfolios' federal income tax returns, and perform
other professional accounting,
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<PAGE>
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, International Growth and Income, Focused Large Cap
Growth, Growth And Income, Growth Opportunities and Index 500 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 below. (See "Net Asset Value").
Upon receipt by a Portfolio's Transfer Agent of a request for redemption, shares
will be redeemed by the Fund, on behalf of a particular Portfolio, at the
applicable net asset value as described below.
The Fund, on behalf of a particular Portfolio, 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 Fund's activities are supervised by the Fund's Board of 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 Scudder UK, 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.
JAMES R. EDGAR (07/22/46), Trustee, 1927 County Road, 150E, Seymour, Illinois;
Distinguished Fellow, Institute of Government and Public Affairs, University of
Illinois; Director, Kemper Insurance Companies; formerly, Governor of the State
of Illinois , 1991-1999.
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 Northern Institutional Funds; formerly,
Trustee of the Pilot Fund.
THOMAS W. LITTAUER* (4/26/55), Chairman, Trustee and Vice President, Two
International Place, Boston, Massachusetts; Managing Director, Scudder Kemper,
formerly, Head of Broker Dealer Division of an unaffiliated investment
management firm during 1997; prior thereto, President of Client Management
Services of an unaffiliated investment management firm from 1991 to 1996.
50
<PAGE>
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.
JOHN G. WEITHERS (08/08/33), Trustee, 311 Spring Lake, 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.
James Burkart ( / / ), Vice President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
J.C. Cabera ( / / ), Vice President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
Irene Cheng (6/6/54), Vice President, 345 Park Avenue, New York, New York;
Managing Director; Scudder Kemper.
MARK S. CASADY* (9/21/60), President, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper; formerly Institutional Sales
Manager of an unaffiliated mutual fund distributor.
ROBERT S. CESSINE* (01/05/50), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Scudder Kemper; formerly, Vice President,
Wellington Management Company.
PHILIP J. COLLORA* (11/15/45), Vice President and Secretary, 222 South Riverside
Plaza, Chicago, Illinois; Attorney, Senior Vice President, Scudder Kemper.
James M. Eysenbach (4/1/62), Vice President, 333 South Hope Street, Los Angeles,
California; Senior Vice President, Scudder Kemper.
Jan C. Faller (8/8/66), Vice President, Two International Place, Boston,
Massachusetts; Vice President, Scudder Kemper.
George P. Fraise (9/28/64), Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
Donald E. Hall ( / / ) Vice President, 333 South Hope Street, Los Angeles,
California, Managing Director, Scudder Kemper.
Sewall Hodges ( / / ) Vice President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
Gary A Langbaum (12/16/48), Vice President, 222 South Riverside Plaza, Chicago,
Illinois; Managing Director, Scudder Kemper;
Valerie F. Malter (7/25/58), Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
TRACY McCORMICK* (9/27/54), Vice President, 222 South Riverside Plaza, Chicago,
Illinois; Managing Director, Scudder Kemper; formerly, senior vice president and
portfolio manager for an investment management company from August 1992 to
September 1995.
ANN M. McCREARY* (11/6/56), Vice President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
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<PAGE>
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; Managing Director, Scudder Kemper.
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.
WILLIAM F. TRUSCOTT* (9/14/60), Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
ROBERT D. TYMOCZKO* (2/3/70), Vice President, 101 California Street, San
Francisco, California; Assistant Vice President, Scudder Kemper.
RICHARD L. VANDENBERG* (11/16/49), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, 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), 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; formerly, Assistant Vice
President of an unaffiliated investment management firm; prior there to,
Associate Staff Attorney of an unaffiliated investment management firm;
Associate, Peabody & Arnold (law firm).
CAROLINE PEARSON* (4/1/62), Assistant Secretary, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper; formerly,
Associate, Dechert Price & Rhoads (law firm), 1989 to 1997.
BRENDA LYONS* (2/21/63) Assistant Treasurer, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
SHERIDAN P. REILLY* (2/27/52) Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.
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<PAGE>
DIEGO ESPINOSA* (6/30/62) Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.
* Interested persons of the Fund as defined in the 1940 Act.
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 1999 calendar year.
<TABLE>
<CAPTION>
Aggregate Total Compensation From Fund and
Name of Trustee Compensation From Fund Fund Complex Paid to Trustees***
- --------------- ---------------------- --------------------------------
<S> <C> <C>
James E. Akins
James R. Edgar*
Arthur R. Gottschalk**
Frederick T. Kelsey
Fred B. Renwick
John G. Weithers
</TABLE>
* James R. Edgar became a trustee on May 27, 1999
** Includes deferred fees. Pursuant to deferred compensation agreements
with the Portfolios,deferred amounts accrue interest monthly at a rate
approximate to the yield of Zurich Money Funds -- Zurich Money Market
Fund. Total deferred fees (including interest thereon) for the latest
fiscal year payable from the portfolios to Mr. Gottschalk was
$__________.
*** Includes compensation for service on the Boards of 15 funds managed by
Scudder Kemper and its affiliates with 53 fund portfolios during
calendar year 1999. Each trustee currently serves as a board member of
15 funds managed by Scudder Kemper and its affiliates with 55 fund
portfolios.
As of ___________________, the trustees and officers as a group owned
beneficially less than 1% of the outstanding shares of each Portfolio of the
Fund.
Except as otherwise noted, as of ________________, all the shares of the
Portfolios were held of record by KILICO Variable Annuity Separate Account
("KVASA"), KILICO Variable Separate Account ("KVSA"), KILICO Variable Series II
("KVS II"), KILICO Variable Series III ("KVS III"), KILICO Variable Series VI
("KVS VI") Separate Account KGC ("KGC"), Separate Account KG ("KG"), Prudential
Variable Contract Account GI-2 ("PVCA"), Cova Variable Annuity Account One
("Cova One"), Cova Variable Annuity Account Five ("Cova Five") and Lincoln Life
Variable Annuity Account N ("LLVAA") 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, KVSA KVSA, KVS II, KVS
III and KVS VI, Allmerica Financial Life Insurance and Annuity Company
("Allmerica") will vote the shares held of record by KGC and KG, Prudential
Insurance Company of America ("Prudential") will vote the shares held of record
by PVCA, 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, and Lincoln National Life Insurance Company ("Lincoln")
will vote the shares held of record by LLVAA 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, KVSA, KVS
II, KVS III and KVS VI, and Allmerica disclaims beneficial ownership of the
shares of these portfolios held of record by KGC and KG, and Prudential
disclaims
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<PAGE>
beneficial ownership of the shares of these portfolios held of record by PVCA,
and Cova disclaims beneficial ownership of the shares of these portfolios held
of record by Cova One and Cova Five and Lincoln disclaims beneficial ownership
of the shares of these portfolios held of record by LLVAA.
As of ____________, Scudder Kemper holds less than 5% of each Portfolio.
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 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.
All Portfolios (other than the Money Market Portfolio):
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 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.
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<PAGE>
Money Market Portfolio: The net asset value per share of the Money Market
Portfolio is determined 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.
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.
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 qualify as a regulated investment company under
subchapter M of the Internal Revenue Code ("Code") in order to avoid taxation of
the Portfolio and its shareholders.
Pursuant to the requirements of Section 817(h) of the Code, with certain limited
exceptions, the only shareholders of the 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.
55
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SHAREHOLDER RIGHTS
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" and on May 1, 1999 the Fund changed
its name from "Investors Fund Series" to "Kemper Variable 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 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 reflect the Accounts as
the continuing entities.
Information about the Portfolios' investment performance is contained in the
Fund's 1999 Annual Report to Shareholders, which may be obtained without charge
from the Fund or from Participating Insurance companies which offer the
Portfolios.
Shareholder inquiries should be made by writing the Fund at the address shown on
the front cover or from Participating Insurance companies which offer the
Portfolios.
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.
56
<PAGE>
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.
Effective May 1, 1999, the Fund's Board of Trustees approved a name change of
the Fund from Investors Fund Series to Kemper Variable Series.
57
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ADDITIONAL INFORMATION
Other Information
The CUSIP number of each Portfolio is as follows:
Kemper Money Market Portfolio 488439 10 0
Kemper Government Securities Portfolio 488439 30 8
Kemper Investment Grade Bond Portfolio 488439 40 7
Kemper High Yield Portfolio 488439 50 6
Kemper Total Return Portfolio 488439 60 5
Kemper Blue Chip Portfolio 488439 70 4
KVS Index 500 Portfolio 488439 73 8
Kemper Growth Portfolio 488439 80 3
Kemper Aggressive Growth Portfolio 488439 88 6
Kemper Horizon 20+ Portfolio 488439 87 8
Kemper Horizon 10+ Portfolio 488439 86 0
Kemper Horizon 5 Portfolio 488439 85 2
Kemper Small Cap Growth Portfolio 488439 84 5
Kemper Technology Growth Portfolio 488439 83 7
Kemper Value+Growth Portfolio 488439 82 9
Kemper Contrarian Value Portfolio 488439 74 6
KVS Dreman High Return Equity Portfolio 488439 20 9
KVS Focused Large Cap Growth Portfolio 488439 72 0
KVS Growth And Income Portfolio 488439 69 6
KVS Growth Opportunities Portfolio 488439 71 2
Kemper Small Cap Value Portfolio 488439 81 1
KVS Dreman Financial Services Portfolio 488439 79 5
Kemper Global Income Portfolio 488439 78 7
Kemper Global Blue Chip Portfolio 488439 76 1
Kemper International Growth and Income Portfolio 488439 77 9
Kemper International Portfolio 488439 75 3
The Fund has a fiscal year ending December 31.
Many of the investment changes in the Fund will be made at prices different from
those prevailing at the time they may be reflected in a regular report to
shareholders of the Fund. These transactions will reflect investment decisions
made by the investment manager in light of the Fund's investment objectives and
policies, its other portfolio holdings and tax considerations, and should not be
construed as recommendations for similar action by other investors.
The Fund, or the investment manager (including any affiliate of the investment
manager), or both, may pay unaffiliated third parties for providing
recordkeeping and other administrative services with respect to accounts of
participants in retirement plans or other beneficial owners of Fund shares whose
interests are generally held in an omnibus account.
The Portfolios' prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement and its amendments
which the Fund has filed with the SEC under the Securities Act of 1933 and
reference is hereby made to the Registration Statement for further information
with respect to the Fund and the securities
58
<PAGE>
offered hereby. The Registration Statement and its amendments, are available for
inspection by the public at the SEC in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolios of each Portfolio,
together with the Report of Independent Accountants, Financial Highlights and
notes to financial statements in the Annual Report to the Shareholders of each
Portfolio dated December 31, 1999 are incorporated herein by reference and are
hereby deemed to be a part of this Statement of Additional Information.
59
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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 Ratings Services 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.
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.
<PAGE>
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.
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KEMPER VARIABLE SERIES
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
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<S><C> <C>
(a)(1) Amended and Restated Agreement and Declaration of Trust, dated April 24,
1998.
(Incorporated by reference to Post-Effective Amendment No. 22 to the
Registration Statement)
(a)(2) Amendment to the Declaration of Trust, dated March 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 24 to the
Registration Statement, filed on April 29, 1999)
(b) By-laws.
(Incorporated by reference to Post-Effective Amendment No. 14 to the
Registration Statement, filed on April 27, 1995)
(c) Text of Share Certificate.
(Incorporated by reference to Post-Effective Amendment No. 14 to the
Registration Statement, filed on April 27, 1995)
(d)(1) Investment Management Agreement between the Registrant, on behalf of Kemper
Money Market Portfolio, and Scudder Kemper Investments, Inc., dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(2) Investment Management Agreement between the Registrant, on behalf of Kemper
High Yield Portfolio, and Scudder Kemper Investments, Inc., dated September
7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(3) Investment Management Agreement between the Registrant, on behalf of Kemper
Growth Portfolio, and Scudder Kemper Investments, Inc., dated September 7,
1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(4) Investment Management Agreement between the Registrant, on behalf of Kemper
Government Securities Portfolio, and Scudder Kemper Investments, Inc., dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(5) Investment Management Agreement between the Registrant, on behalf of Kemper
International Portfolio, and Scudder Kemper Investments, Inc., dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
2
<PAGE>
(d)(6) Investment Management Agreement between the Registrant, on behalf of Kemper
Small Cap Growth Portfolio, and Scudder Kemper Investments, Inc., dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(7) Investment Management Agreement between the Registrant, on behalf of Kemper
Investment Grade Bond Portfolio, and Scudder Kemper Investments, Inc., dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(8) Investment Management Agreement between the Registrant, on behalf of Kemper
Value+Growth Portfolio, and Scudder Kemper Investments, Inc., dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(9) Investment Management Agreement between the Registrant, on behalf of Kemper
Horizon 20+ Portfolio, and Scudder Kemper Investments, Inc., dated September
7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(10) Investment Management Agreement between the Registrant, on behalf of Kemper
Horizon 10+ Portfolio, and Scudder Kemper Investments, Inc., dated September
7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(11) Investment Management Agreement between the Registrant, on behalf of Kemper
Horizon 5 Portfolio, and Scudder Kemper Investments, Inc., dated September
7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(12) Investment Management Agreement between the Registrant, on behalf of Kemper
Contrarian Value Portfolio, and Scudder Kemper Investments, Inc., dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
3
<PAGE>
(d)(13) Investment Management Agreement between the Registrant, on behalf of Kemper
Small Cap Value Portfolio, and Scudder Kemper Investments, Inc., dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(14) Investment Management Agreement between the Registrant, on behalf of Kemper
Blue Chip Portfolio, and Scudder Kemper Investments, Inc., dated September
7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(15) Investment Management Agreement between the Registrant, on behalf of Kemper
Global Income Portfolio, and Scudder Kemper Investments, Inc., dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(16) Investment Management Agreement between the Registrant, on behalf of KVS
Dreman High Return Equity Portfolio (formerly Kemper-Dreman High Return
Equity Portfolio), and Scudder Kemper Investments, Inc., dated September 7,
1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(17) Investment Management Agreement between the Registrant, on behalf of KVS
Dreman Financial Services Portfolio (formerly, Kemper Dreman Financial
Services Portfolio), and Scudder Kemper Investments, Inc., dated September
7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(18) Investment Management Agreement between the Registrant, on behalf of Kemper
Global Blue Chip Portfolio, and Scudder Kemper Investments, Inc., dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(19) Investment Management Agreement between the Registrant, on behalf of Kemper
International Growth and Income Portfolio, and Scudder Kemper Investments,
Inc., dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(20) Investment Management Agreement between the Registrant, on behalf of Kemper
Total Return Portfolio, and Scudder Kemper Investments, Inc., dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
4
<PAGE>
(d)(21) Investment Management Agreement between the Registrant, on behalf of Kemper
Aggressive Growth Portfolio, and Scudder Kemper Investments, Inc., dated May
1, 1999.
(Incorporated by reference to Post-Effective Amendment No. 24 to the
Registration Statement, filed on April 29, 1999)
(d)(22) Investment Management Agreement between the Registrant, on behalf of Kemper
Technology Portfolio, and Scudder Kemper Investments, Inc., dated May 1,
1999.
(Incorporated by reference to Post-Effective Amendment No. 24 to the
Registration Statement, filed on April 29, 1999)
(d)(23) Investment Management Agreement between the Registrant, on behalf of KVS
Index 500 Portfolio, and Scudder Kemper Investments, Inc., dated September
1, 1999.
(Incorporated by reference to Post-Effective Amendment No. 27 to the
Registration Statement.)
(d)(24) Investment Management Agreement between the Registrant, on behalf of the KVS
Focused Large Cap Growth Portfolio and Scudder Kemper Investments, Inc. is
filed herein.
(d)(25) Investment Management Agreement between the Registrant, on behalf of the KVS
Growth and Income Portfolio and Scudder Kemper Investments, Inc. is filed
herein.
(d)(26) Investment Management Agreement between the Registrant, on behalf of the KVS
Growth Opportunities Portfolio and Scudder Kemper Investments, Inc. is filed
herein.
(d)(27) Subadvisory Agreement between Scudder Kemper Investments, Inc. and Dreman
Value Management, L.L.C., dated September 7, 1998, for KVS Dreman High
Return Equity Portfolio.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(28) Subadvisory Agreement between Scudder Kemper Investments, Inc., on behalf of
Investors Fund Series, and Dreman Value Management, L.L.C., dated September
7, 1998, for KVS Dreman Financial Services Portfolio. (Incorporated by
reference to Post-Effective Amendment No. 23 to the Registration Statement,
filed on February 12, 1999)
(d)(29) Subadvisory Agreement between Scudder Kemper Investments, Inc. and Scudder
Investments (U.K.) Limited, dated September 7, 1998, for Kemper Global
Income Portfolio.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(d)(30) Subadvisory Agreement between Scudder Kemper Investments, Inc. and Scudder
Investments (U.K.) Limited, dated September 7, 1998, for Kemper
International Portfolio.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
5
<PAGE>
Registration Statement, filed on February 12, 1999)
(d)(31) Subadvisory Agreement between Scudder Kemper Investments, Inc. and Banker
Trust Company, dated September 1, 1999, for Kemper Index 500 Portfolio.
(Incorporated by reference to Post-Effective Amendment No. 27 to the
Registration Statement.)
(d)(32) Subdvisory Agreement between Scudder Kemper Investments, Inc. and Eagle
Asset Management, dated October 29, 1999, for KVS Focused Large Cap Growth
Portfolio is filed herein.
(d)(33) Subdvisory Agreement between Scudder Kemper Investments, Inc. and Janus
Capital Corporation, dated October 29, 1999, for KVS Growth and Income
Portfolio is filed herein.
(d)(34) Subdvisory Agreement between Scudder Kemper Investments, Inc. Janus Capital
Corporatoin, dated October 29, 1999, for KVS Growth Opportunities Portfolio
is filed herein.
(e)(1) Underwriting Agreement between Investors Fund Series and Kemper
Distributors, Inc., dated August 1, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(e)(2) Underwriting Agreement between Investors Fund Series and Kemper
Distributors, Inc., dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(f) Inapplicable.
(g)(1) Custody Agreement between the Registrant, on behalf of 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 Value+Growth Portfolio, Kemper
Horizon 20+ Portfolio, Kemper Horizon 10+ Portfolio, Kemper Horizon 5
Portfolio, Kemper Contrarian Portfolio, Kemper Small Cap Value Portfolio,
Kemper Blue Chip Portfolio and Kemper Global Income Portfolio, and Investors
Fiduciary Trust Company, dated March 1, 1995.
(Incorporated herein by reference to Post-Effective Amendment No. 14 to the
Registration Statement, filed on April 27, 1995.)
(g)(2) Foreign Custodian Agreement between Chase Manhattan Bank and Kemper
Investors Fund, dated January 2, 1990.
(Incorporated herein by reference to Post-Effective Amendment No. 14 to the
Registration Statement, filed on April 27, 1995.)
(g)(3) Custody Agreement between the Registrant, on behalf of KVS Dreman High
Return Equity Portfolio and KVS Dreman Financial Services Portfolio, and
State Street Bank and Trust Company, dated April 24, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
6
<PAGE>
Registration Statement, filed on February 12, 1999)
(g)(4) Custody Agreement between the Registrant, on behalf of Kemper International
Growth and Income Portfolio and Kemper Global Blue Chip Portfolio, and Brown
Brothers Harriman & Co., dated May 1, 1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(g)(5) Addendum to the Custody Agreement between the Registrant, on behalf of
Kemper Aggressive Growth Portfolio and Kemper Technology Growth Portfolio,
and State Street Bank and Trust Company, dated May 1, 1999.
(Incorporated herein by reference to Post-Effective Amendment No. 24 to the
Registration Statement, filed on April 29, 1999.)
(h)(1) Agency Agreement between Kemper Investors Fund and Investors Fiduciary Trust
Company, dated March 24, 1987.
(Incorporated herein by reference to Post-Effective Amendment No. 14 to the
Registration Statement, filed on April 27, 1995.)
(h)(2) Supplement to Agency Agreement.
(Incorporated by reference to Post-Effective Amendment No. 24 to the
Registration Statement, filed on April 29, 1999)
(h)(3) Fund Accounting Services Agreements between the Registrant, on behalf of
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 Value+Growth
Portfolio, Kemper Horizon 20+ Portfolio, Kemper Horizon 10+ Portfolio,
Kemper Horizon 5 Portfolio, Kemper Value Portfolio, Kemper Small Cap Value
Portfolio, Kemper Blue Chip Portfolio and Kemper Global Income Portfolio,
and Scudder Fund Accounting Corporation, dated December 31, 1997.
(Incorporated herein by reference to Post-Effective Amendment No. 21 to the
Registration Statement, filed on March 26, 1998.)
(h)(4) Fund Accounting Services Agreements between the Registrant, on behalf of KVS
Dreman High Return Equity Portfolio, KVS Dreman Financial Services
Portfolio, Kemper Global Blue Chip Portfolio and Kemper International Growth
and Income Portfolio, and Scudder Fund Accounting Corporation, dated May 1,
1998.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(h)(5) Fund Accounting Services Agreement between the Registrant, on behalf of
Kemper Aggressive Growth Portfolio, and Scudder Fund Accounting Corporation,
dated May 1, 1999.
(Incorporated by reference to Post-Effective Amendment No. 24 to the
Registration Statement, filed on April 29, 1999)
(h)(6) Fund Accounting Services Agreement between the Registrant, on behalf of
Kemper Technology Growth Portfolio, and Scudder Fund Accounting Corporation,
dated May 1, 1999.
(Incorporated by reference to Post-Effective Amendment No. 24 to the
7
<PAGE>
Registration Statement, filed on April 29, 1999)
(h)(12) Fund Accounting Services Agreement between the Registrant, on behalf of KVS
Index 500 Portfolio (formerly, Kemper Index 500 Portfolio), and Scudder Fund
Accounting Corporation, dated September 1, 1999.
(Incorporated by reference to Post-Effective Amendment No. 27 to the
Registration Statement.)
(h)(13) Fund Accounting Services Agreement between the Registrant, on behalf of KVS
Focused Large Cap Portfolio, and Scudder Fund Accounting Corporation, dated
October 29, 1999 is filed herein.
(h)(14) Fund Accounting Services Agreement between the Registrant, on behalf of KVS
Growth and Income Portfolio, and Scudder Fund Accounting Corporation, dated
October 29, 1999 is filed herein.
(h)(15) Fund Accounting Services Agreement between the Registrant, on behalf of KVS
Growth Opportunities Portfolio, and Scudder Fund Accounting Corporation,
dated October 29, 1999 is filed herein.
(h)(16) Amended and Restated Establishment and Designation of Series, on behalf of
Kemper Aggressive Growth Portfolio and Kemper Technology Growth Portfolio,
dated March 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 27 to the
Registration Statement.)
(h)(17) Amended and Restated Establishment and Designation of Series, on behalf of
KVS Index 500 Portfolio, dated July 14, 1999.
(Incorporated by reference to Post-Effective Amendment No. 27 to the
Registration Statement.)
(h)(18) Amended and Restated Establishment and Designation of Series, on behalf of
KVS Growth Opportunities Portfolio, KVS Growth And Income Portfolio and KVS
Focused Large Cap Growth Portfolio dated September 29, 1999. (Incorporated
by reference to Post-Effective Amendment No. 29 to the Registration
Statement.)
(i) (1) Opinion of Counsel from Vedder, Price, Kaufman & Kammholz to be filed by
amendment.
(2) Opinion of Counsel from Dechert Price & Rhoads to be filed by amendment.
(j) Consent from Ernst & Young LLP to be filed by amendment.
(k) Inapplicable.
(l) Inapplicable.
(m) Inapplicable.
(n) Inapplicable.
(o) Inapplicable.
</TABLE>
8
<PAGE>
Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------
None
Item 25. Indemnification.
- -------- ----------------
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 23(a) hereto, which is incorporated herein by reference) provides in
effect that the Registrant will indemnify its officers and trustees under
certain circumstances. However, in accordance with Section 17(h) and 17(i) of
the Investment Company Act of 1940 and its own terms, said Article of the
Agreement and Declaration of Trust does not protect any person against any
liability to the Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question as to whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding
Corp. ("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"), Scudder, Stevens &
Clark, Inc. ("Scudder") and the representatives of the beneficial owners of the
capital stock of Scudder ("Scudder Representatives") entered into a transaction
agreement ("Transaction Agreement") pursuant to which Zurich became the majority
stockholder in Scudder with an approximately 70% interest, and ZKI was combined
with Scudder ("Transaction"). In connection with the trustees' evaluation of the
Transaction, Zurich agreed to indemnify the Registrant and the trustees who were
not interested persons of ZKI or Scudder (the "Independent Trustees") for and
against any liability and expenses based upon any action or omission by the
Independent Trustees in connection with their consideration of and action with
respect to the Transaction. In addition, Scudder has agreed to indemnify the
Registrant and the Independent Trustees for and against any liability and
expenses based upon any misstatements or omissions by Scudder to the Independent
Trustees in connection with their consideration of the Transaction.
Item 26. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Chairman of the Board, Scudder, Stevens & Clark (Luxembourg) S.A.#
Director, Scudder Investments (UK) Ltd. Ooo
Chairman of the Board, Scudder Investments Asia, Ltd. @
Chairman of the Board, Scudder Investments Japan, Inc.&
Senior Vice President, Scudder Investor Services, Inc.**
Director, Scudder Trust (Cayman) Ltd. Xxx
Director, Scudder, Stevens & Clark Australia @@
9
<PAGE>
Director, Korea Bond Fund Management Co., Ltd.+
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company o
Nick Bratt Director and Vice President, Scudder Kemper Investments, Inc.**
Vice President, Scudder MAXXUM Company***
Vice President, Scudder, Stevens & Clark Corporation**
Vice President, Scudder, Stevens & Clark Overseas Corporation oo
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO, Member Group Executive Board, Zurich Financial Services, Inc. ##
CEO/Branch Offices, Zurich Life Insurance Company ##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
Director, Scudder Investments (UK) Ltd. Ooo
Director, Scudder Investments Japan, Inc. &
Director, Scudder Kemper Holdings (UK) Ltd. Ooo
President and Director, Zurich Investment Management, Inc. Xx
</TABLE>
* Two International Place, Boston, MA
X 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C.
Luxembourg B 34.564
*** Toronto, Ontario, Canada
Xxx Grand Cayman, Cayman Islands, British West Indies
Oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
Xx 222 S. Riverside, Chicago, IL
O Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman,
British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
Ooo 1 South Place 5th floor, London EC2M 2ZS England
@ One Exchange Square 29th Floor, Hong Kong
& Kamiyachyo Mori Building, 12F1, 4-3-20, Toranomon, Minato-ku,
Tokyo 105-0001
10
<PAGE>
@@ Level 3, 5 Blue Street North Sydney, NSW 2060
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper
Funds.
(b)
Information on the officers and directors of Kemper Distributors, Inc.,
principal underwriter for the Registrant is set forth below. The
principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C>
James L. Greenawalt President None
Thomas W. Littauer Director, Chief Executive Officer Trustee and Vice President
Kathryn L. Quirk Director, Secretary, Chief Legal Vice President
Officer and Vice President
James J. McGovern Chief Financial Officer and Vice None
President
Linda J. Wondrack Vice President and Chief Compliance Vice President
Officer
Paula Gaccione Vice President None
Michael E. Harrington Vice President None
Robert A. Rudell Vice President None
William M. Thomas Vice President None
Todd N. Gierke Assistant Treasurer None
Philip J. Collora Assistant Secretary Vice President and Secretary
Paul J. Elmlinger Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
Mark S. Casady Director, Vice Chairman President
Stephen R. Beckwith Director None
</TABLE>
(c) Not applicable
Item 28. Location of Accounts and Records
- -------- --------------------------------
11
<PAGE>
Accounts, books and other documents are maintained at the offices of
the Registrant, the offices of Registrant's investment adviser, Scudder Kemper
Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the
offices of the Registrant's principal underwriter, Kemper Distributors, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60606 or, in the case of records
concerning custodial functions, at the offices of the custodian, Investors
Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri
64105 or, in the case of records concerning transfer agency functions, at the
offices of IFTC and of the shareholder service agent, Kemper Service Company,
811 Main Street, Kansas City, Missouri 64105.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
12
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago and State of Illinois on the 17th day of
February, 2000.
By /s/ Mark S. Casady
---------------------
Mark S. Casady, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on February 17th, 2000 on behalf of
the following persons in the capacities indicated.
SIGNATURE TITLE
--------- -----
/s/Mark S. Casady
- --------------------------------------
Mark S. Casady President
/s/Thomas W. Littauer* Chairman and Trustee
- --------------------------------------
/s/James E. Akins* Trustee
- --------------------------------------
/s/Arthur R. Gottschalk* Trustee
- --------------------------------------
/s/Frederick T. Kelsey* Trustee
- --------------------------------------
/s/Fred B. Renwick* Trustee
- --------------------------------------
/s/James R. Edgar* Trustee
- --------------------------------------
/s/John G. Weithers* Trustee
- --------------------------------------
/s/ John Hebble Treasurer
- --------------------------------------
John Hebble
*Philip J. Collara signs this document pursuant to powers of attorney filed with
Post Effective Amendment No. 2 to the Registration Statement on Form N-1A, filed
March 26, 1998.
/s/ Philip J. Collora
---------------------
Philip J. Collora
<PAGE>
File No. 33-11802
File No. 811-5002
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 30
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 31
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER VARIABLE SERIES
<PAGE>
KEMPER VARIABLE SERIES
EXHIBIT INDEX
(d)(24)
(d)(25)
(d)(26)
(d)(32)
(d)(33)
(d)(34)
(h)(13)
(h)(14)
(h)(15)
14
Exhibit d (24)
INVESTMENT MANAGEMENT AGREEMENT
Kemper Variable Series
222 South Riverside Plaza
Chicago, Illinois 60606
October 29, 1999
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
KVS Focused Large Cap Growth Portfolio
Ladies and Gentlemen:
KEMPER VARIABLE SERIES (the "Trust") has been established as a Massachusetts
business trust to engage in the business of an investment company. Pursuant to
the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees is authorized to issue the Trust's shares
of beneficial interest (the "Shares"), in separate series, or funds. The Board
of Trustees has authorized Kemper Focused Large Cap Growth Portfolio (the
"Fund"). Series may be abolished and dissolved, and additional series
established, from time to time by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the investment
manager of the Fund and to provide certain other services, as more fully set
forth below, and you have indicated that you are willing to act as such
investment manager and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Trust on behalf of the Fund agrees with
you as follows:
1. Delivery of Documents. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
(a) The Declaration, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-
Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders
of the Fund selecting you as investment manager and approving
the form of this Agreement.
(d) Establishment and Designation of Series of Shares of
Beneficial Interest relating to the Fund, as applicable.
The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations
<PAGE>
thereunder; and all other applicable federal and state laws and regulations of
which you have knowledge; subject always to policies and instructions adopted by
the Trust's Board of Trustees. In connection therewith, you shall use reasonable
efforts to manage the Fund so that it will qualify as a regulated investment
company under Subchapter M of the Code and regulations issued thereunder. The
Fund shall have the benefit of the investment analysis and research, the review
of current economic conditions and trends and the consideration of long-range
investment policy generally available to your investment advisory clients. In
managing the Fund in accordance with the requirements set forth in this section
2, you shall be entitled to receive and act upon advice of counsel to the Trust.
You shall also make available to the Trust promptly upon request all of the
Fund's investment records and ledgers as are necessary to assist the Trust in
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith; establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining the amount of dividends and distributions
available to be paid by the Fund to its shareholders, preparing and arranging
for the printing of dividend notices to shareholders, and providing the transfer
and dividend paying agent, the custodian, and the accounting agent with such
information as is required for such parties to effect the payment of dividends
and distributions; and otherwise assisting the Trust as it may reasonably
request in the conduct of the Fund's business, subject to the direction and
control of the Trust's Board of Trustees. Nothing in this Agreement shall be
2
<PAGE>
deemed to shift to you or to diminish the obligations of any agent of the Fund
or any other person not a party to this Agreement which is obligated to provide
services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Fund shall pay you in United States Dollars on the last day of
each month the unpaid balance of a fee equal to the excess of 1/12 of 0.95 of 1
percent of the average daily net assets as defined below of the Fund for such
month; provided that, for any calendar month during which the average of such
values exceeds $250 million, the fee payable for that month based on the portion
of the average of such values in excess of $250 million up to and including $500
million shall be 1/12 of 0.925 of 1 percent of such portion; provided further
that, for any calendar month during which the average of such values exceeds
$500 million, the fee payable for that month based on the portion of the average
of such values in excess of $500 million up to and including $1.0 billion shall
be 1/12 of 0.90 of 1 percent of such portion; provided that, for any calendar
month during which the average of such values exceeds $1.0 billion, the fee
payable for that month based on the
3
<PAGE>
portion of the average of such values in excess of $1.0 billion up to and
including $ 2.5 billion shall be 1/12 of 0.875 of 1 percent of such portion;
provided that, for any calendar month during which the average of such values
exceeds $2.5 billion, the fee payable for that month based on the portion of the
average of such values in excess of $2.5 billion shall be 1/12 of 0.85 of 1
percent of such portion over the lowest applicable expense fully described below
or over any compensation waived by you from time to time (as more fully
described below). You shall be entitled to receive during any month such interim
payments of your fee hereunder as you shall request, provided that no such
payment shall exceed 75 percent of the amount of your fee then accrued on the
books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 5, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, the Fund
or its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
8. Duration and Termination of This Agreement. This Agreement shall remain in
force until September 30, 2001, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Trustees who are not parties
to this Agreement or
4
<PAGE>
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Trustees of
the Trust, or by the vote of a majority of the outstanding voting securities of
the Fund. The aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations thereunder and any
applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time, without
the payment of any penalty, by the vote of a majority of the outstanding voting
securities of the Fund or by the Trust's Board of Trustees on 60 days' written
notice to you, or by you on 60 days' written notice to the Trust. This Agreement
shall terminate automatically in the event of its assignment.
This Agreement may be terminated with respect to the Fund at any time without
the payment of any penalty by the Board of Trustees or by vote of a majority of
the outstanding voting securities of the Fund in the event that it shall have
been established by a court of competent jurisdiction that you or any of your
officers or directors has taken any action which results in a breach of your
covenants set forth herein.
9. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
10. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Kemper Variable
Series" refers to the Trustees under the Declaration collectively as Trustees
and not as individuals or personally, and that no shareholder of the Fund, or
Trustee, officer, employee or agent of the Trust, shall be subject to claims
against or obligations of the Trust or of the Fund to any extent whatsoever, but
that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or any other
series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart
5
<PAGE>
of this letter and return such counterpart to the Trust, whereupon this letter
shall become a binding contract effective as of the date of this Agreement.
Yours very truly,
KEMPER VARIABLE SERIES, on behalf of
KVS Focused Large Cap Growth Portfolio
By: /s/ Mark S. Casady
----------------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/ Cornelia M. Small
-----------------------------------
Managing Director
6
Exhibit d(25)
INVESTMENT MANAGEMENT AGREEMENT
Kemper Variable Series
222 South Riverside Plaza
Chicago, Illinois 60606
October 29, 1999
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
KVS Growth Opportunities Portfolio
Ladies and Gentlemen:
KEMPER VARIABLE SERIES (the "Trust") has been established as a Massachusetts
business trust to engage in the business of an investment company. Pursuant to
the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees is authorized to issue the Trust's shares
of beneficial interest (the "Shares"), in separate series, or funds. The Board
of Trustees has authorized Kemper Growth Opportunities Portfolio (the "Fund").
Series may be abolished and dissolved, and additional series established, from
time to time by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the investment
manager of the Fund and to provide certain other services, as more fully set
forth below, and you have indicated that you are willing to act as such
investment manager and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Trust on behalf of the Fund agrees with
you as follows:
1. Delivery of Documents. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
(a) The Declaration, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-
Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders
of the Fund selecting you as investment manager and approving
the form of this Agreement.
(d) Establishment and Designation of Series of Shares of
Beneficial Interest relating to the Fund, as applicable.
The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations
<PAGE>
thereunder; and all other applicable federal and state laws and regulations of
which you have knowledge; subject always to policies and instructions adopted by
the Trust's Board of Trustees. In connection therewith, you shall use reasonable
efforts to manage the Fund so that it will qualify as a regulated investment
company under Subchapter M of the Code and regulations issued thereunder. The
Fund shall have the benefit of the investment analysis and research, the review
of current economic conditions and trends and the consideration of long-range
investment policy generally available to your investment advisory clients. In
managing the Fund in accordance with the requirements set forth in this section
2, you shall be entitled to receive and act upon advice of counsel to the Trust.
You shall also make available to the Trust promptly upon request all of the
Fund's investment records and ledgers as are necessary to assist the Trust in
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith; establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining the amount of dividends and distributions
available to be paid by the Fund to its shareholders, preparing and arranging
for the printing of dividend notices to shareholders, and providing the transfer
and dividend paying agent, the custodian, and the accounting agent with such
information as is required for such parties to effect the payment of dividends
and distributions; and otherwise assisting the Trust as it may reasonably
request in the conduct of the Fund's business, subject to the direction and
control of the Trust's Board of Trustees. Nothing in this Agreement shall be
2
<PAGE>
deemed to shift to you or to diminish the obligations of any agent of the Fund
or any other person not a party to this Agreement which is obligated to provide
services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Fund shall pay you in United States Dollars on the last day of
each month the unpaid balance of a fee equal to the excess of 1/12 of 0.95 of 1
percent of the average daily net assets as defined below of the Fund for such
month; provided that, for any calendar month during which the average of such
values exceeds $250 million, the fee payable for that month based on the portion
of the average of such values in excess of $250 million up to and including $500
million shall be 1/12 of 0.925 of 1 percent of such portion; provided further
that, for any calendar month during which the average of such values exceeds
$500 million, the fee payable for that month based on the portion of the average
of such values in excess of $500 million up to and including $1.0 billion shall
be 1/12 of 0.90 of 1 percent of such portion; provided that, for any calendar
month during which the average of such values exceeds $1.0 billion, the fee
payable for that month based on the
3
<PAGE>
portion of the average of such values in excess of $1.0 billion up to and
including $ 2.5 billion shall be 1/12 of 0.875 of 1 percent of such portion;
provided that, for any calendar month during which the average of such values
exceeds $2.5 billion, the fee payable for that month based on the portion of the
average of such values in excess of $2.5 billion shall be 1/12 of 0.85 of 1
percent of such portion over the lowest applicable expense fully described below
or over any compensation waived by you from time to time (as more fully
described below). You shall be entitled to receive during any month such interim
payments of your fee hereunder as you shall request, provided that no such
payment shall exceed 75 percent of the amount of your fee then accrued on the
books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 5, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, the Fund
or its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
8. Duration and Termination of This Agreement. This Agreement shall remain in
force until September 30, 2001, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Trustees who are not parties
to this Agreement or
4
<PAGE>
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Trustees of
the Trust, or by the vote of a majority of the outstanding voting securities of
the Fund. The aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations thereunder and any
applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time, without
the payment of any penalty, by the vote of a majority of the outstanding voting
securities of the Fund or by the Trust's Board of Trustees on 60 days' written
notice to you, or by you on 60 days' written notice to the Trust. This Agreement
shall terminate automatically in the event of its assignment.
This Agreement may be terminated with respect to the Fund at any time without
the payment of any penalty by the Board of Trustees or by vote of a majority of
the outstanding voting securities of the Fund in the event that it shall have
been established by a court of competent jurisdiction that you or any of your
officers or directors has taken any action which results in a breach of your
covenants set forth herein.
9. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
10. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Kemper Variable
Series" refers to the Trustees under the Declaration collectively as Trustees
and not as individuals or personally, and that no shareholder of the Fund, or
Trustee, officer, employee or agent of the Trust, shall be subject to claims
against or obligations of the Trust or of the Fund to any extent whatsoever, but
that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or any other
series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart
5
<PAGE>
of this letter and return such counterpart to the Trust, whereupon this letter
shall become a binding contract effective as of the date of this Agreement.
Yours very truly,
KEMPER VARIABLE SERIES, on behalf of
KVS Growth Opportunities Portfolio
By: /s/ Mark S. Casady
------------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/ Cornelia M. Small
-------------------------------
Managing Director
6
Exhibit d(26)
INVESTMENT MANAGEMENT AGREEMENT
Kemper Variable Series
222 South Riverside Plaza
Chicago, Illinois 60606
October 29, 1999
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
KVS Growth and Income Portfolio
Ladies and Gentlemen:
KEMPER VARIABLE SERIES (the "Trust") has been established as a Massachusetts
business trust to engage in the business of an investment company. Pursuant to
the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees is authorized to issue the Trust's shares
of beneficial interest (the "Shares"), in separate series, or funds. The Board
of Trustees has authorized Kemper Growth and Income Portfolio (the "Fund").
Series may be abolished and dissolved, and additional series established, from
time to time by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the investment
manager of the Fund and to provide certain other services, as more fully set
forth below, and you have indicated that you are willing to act as such
investment manager and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Trust on behalf of the Fund agrees with
you as follows:
1. Delivery of Documents. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
(a) The Declaration, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-
Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders
of the Fund selecting you as investment manager and approving
the form of this Agreement.
(d) Establishment and Designation of Series of Shares of
Beneficial Interest relating to the Fund, as applicable.
The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations
<PAGE>
thereunder; and all other applicable federal and state laws and regulations of
which you have knowledge; subject always to policies and instructions adopted by
the Trust's Board of Trustees. In connection therewith, you shall use reasonable
efforts to manage the Fund so that it will qualify as a regulated investment
company under Subchapter M of the Code and regulations issued thereunder. The
Fund shall have the benefit of the investment analysis and research, the review
of current economic conditions and trends and the consideration of long-range
investment policy generally available to your investment advisory clients. In
managing the Fund in accordance with the requirements set forth in this section
2, you shall be entitled to receive and act upon advice of counsel to the Trust.
You shall also make available to the Trust promptly upon request all of the
Fund's investment records and ledgers as are necessary to assist the Trust in
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith; establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining the amount of dividends and distributions
available to be paid by the Fund to its shareholders, preparing and arranging
for the printing of dividend notices to shareholders, and providing the transfer
and dividend paying agent, the custodian, and the accounting agent with such
information as is required for such parties to effect the payment of dividends
and distributions; and otherwise assisting the Trust as it may reasonably
request in the conduct of the Fund's business, subject to the direction and
control of the Trust's Board of Trustees. Nothing in this Agreement shall be
2
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deemed to shift to you or to diminish the obligations of any agent of the Fund
or any other person not a party to this Agreement which is obligated to provide
services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Fund shall pay you in United States Dollars on the last day of
each month the unpaid balance of a fee equal to the excess of 1/12 of 0.95 of 1
percent of the average daily net assets as defined below of the Fund for such
month; provided that, for any calendar month during which the average of such
values exceeds $250 million, the fee payable for that month based on the portion
of the average of such values in excess of $250 million up to and including $500
million shall be 1/12 of 0.925 of 1 percent of such portion; provided further
that, for any calendar month during which the average of such values exceeds
$500 million, the fee payable for that month based on the portion of the average
of such values in excess of $500 million up to and including $1.0 billion shall
be 1/12 of 0.90 of 1 percent of such portion; provided that, for any calendar
month during which the average of such values exceeds $1.0 billion, the fee
payable for that month based on the
3
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portion of the average of such values in excess of $1.0 billion up to and
including $ 2.5 billion shall be 1/12 of 0.875 of 1 percent of such portion;
provided that, for any calendar month during which the average of such values
exceeds $2.5 billion, the fee payable for that month based on the portion of the
average of such values in excess of $2.5 billion shall be 1/12 of 0.85 of 1
percent of such portion over the lowest applicable expense fully described below
or over any compensation waived by you from time to time (as more fully
described below). You shall be entitled to receive during any month such interim
payments of your fee hereunder as you shall request, provided that no such
payment shall exceed 75 percent of the amount of your fee then accrued on the
books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 5, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, the Fund
or its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
8. Duration and Termination of This Agreement. This Agreement shall remain in
force until September 30, 2001, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Trustees who are not parties
to this Agreement or
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interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Trustees of
the Trust, or by the vote of a majority of the outstanding voting securities of
the Fund. The aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations thereunder and any
applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time, without
the payment of any penalty, by the vote of a majority of the outstanding voting
securities of the Fund or by the Trust's Board of Trustees on 60 days' written
notice to you, or by you on 60 days' written notice to the Trust. This Agreement
shall terminate automatically in the event of its assignment.
This Agreement may be terminated with respect to the Fund at any time without
the payment of any penalty by the Board of Trustees or by vote of a majority of
the outstanding voting securities of the Fund in the event that it shall have
been established by a court of competent jurisdiction that you or any of your
officers or directors has taken any action which results in a breach of your
covenants set forth herein.
9. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
10. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Kemper Variable
Series" refers to the Trustees under the Declaration collectively as Trustees
and not as individuals or personally, and that no shareholder of the Fund, or
Trustee, officer, employee or agent of the Trust, shall be subject to claims
against or obligations of the Trust or of the Fund to any extent whatsoever, but
that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or any other
series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart
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of this letter and return such counterpart to the Trust, whereupon this letter
shall become a binding contract effective as of the date of this Agreement.
Yours very truly,
KEMPER VARIABLE SERIES, on behalf of
KVS Growth and Income Portfolio
By: /s/ Mark S. Casady
-------------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/ Cornelia M. Small
--------------------------------
Managing Director
6
Exhibit d (32)
KVS: EAGLE
SUBADVISORY AGREEMENT
AGREEMENT made as of the 1st day of October, 1999, between Scudder
Kemper Investments, Inc., a Delaware corporation (hereinafter called the
"Manager"), and Eagle Asset Management, Inc., a Florida corporation (hereinafter
called the "Subadviser").
W I T N E S S E T H :
WHEREAS, Kemper Variable Series (the "Trust") is a Massachusetts
business trust organized with one or more series of shares, and is registered as
an investment company under the Investment Company Act of 1940 (the " 1940
Act"); and
WHEREAS, the Manager desires to utilize the services of the Subadviser
to provide subadvisory services with respect to the investment portfolio of KVS
Focused Large Cap Growth Portfolio (the "Series"), being one of the portfolio
series of the Trust, which is under the management of the Manager pursuant to an
Investment Management Agreement between the Manager and the Trust dated October
1, 1999; and
WHEREAS, the Subadviser is willing to perform such services on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, it is agreed as follows:
1. The Subadviser's Services. The Subadviser will serve the Manager as
investment counsel with respect to the Series.
The Subadviser is hereby authorized and directed and hereby agrees,
subject to the stated investment policies and restrictions of the Series as set
forth in the current Prospectus and Statement of Additional Information of the
Trust (including amendments) and in accordance with the Declaration of Trust and
By-laws of the Trust, as both may be amended from time to time, governing the
offering of its shares and subject to such resolutions, policies and procedures
as from time to time may be adopted by the Trustees of the Trust and furnished
to the Subadviser, to develop, recommend and implement such investment program
and strategy for the Series, to provide research and analysis relative to the
investment program and investments of the Series, to determine what securities
should be purchased and sold and to monitor on a continuing basis the
performance of the portfolio securities of the Series. In addition, the
Subadviser will place orders for the purchase and sale of portfolio securities
and, subject to the provisions of the following paragraph, will take reasonable
steps to assure that portfolio transactions are effected at the best price and
execution available. The Subadviser will advise the Fund's custodian and the
Manager on a prompt basis of each purchase and sale of a portfolio security
specifying the name of the issuer, the CUSIP number (if available), the
description and amount or number of shares of the security purchased, the market
price, commission and gross or net price, trade date, settlement date and
identity of the effecting broker or
<PAGE>
dealer. From time to time as the Trustees of the Trust or the Manager may
reasonably request, the Subadviser will furnish to the Manager, Trust's officers
and to each of its Trustees reports on portfolio transactions and reports on
assets held in the Series, all in such detail as the Trust or the Manager may
reasonably request. The Subadviser will also inform the Manager, Trust's
officers and Trustees on a current basis of changes in investment strategy or
tactics or any other developments materially affecting the Series. The
Subadviser will make its officers and employees available to meet with the
Manager and officers and Trustees of the Trust at least quarterly on due notice
and at such other times as may be mutually agreeable, to review the investments
and investment performance of the Series in the light of the Trust's investment
objectives and policies and market conditions.
It shall be the duty of the Subadviser to furnish to the Trustees of
the Trust such information as may reasonably be requested in order for such
Trustees to evaluate this Agreement or any proposed amendments thereto for the
purposes of casting a vote pursuant to Section 9 hereof.
In the performance of its duties hereunder, the Subadviser is and shall
be an independent contractor and except as otherwise expressly provided herein
or otherwise authorized in writing, shall have no authority to act for or
represent the Trust, the Series or the Manager in any way or otherwise be deemed
to be an agent of the Trust, the Series or the Manager.
In furnishing the services under this Agreement, the Subadviser will
comply with the requirements of the 1940 Act applicable to it, the regulations
promulgated thereunder, and all other applicable laws and regulations. The
Subadviser will immediately notify the Manager and the Trust in the event that
the Subadviser: (i) becomes subject to a statutory disqualification that
prevents the Subadviser from serving as an investment adviser pursuant to this
Agreement; or (ii) is or expects to become the subject of an administrative
proceeding or enforcement action by the Securities and Exchange Commission or
other regulatory authority. The Subadviser will immediately forward, upon
receipt, to the Manager any correspondence from the Securities and Exchange
Commission or other regulatory authority that relates to the Series.
The Subadviser's primary consideration in effecting a security
transaction will be to obtain the best execution for the Series, taking into
account the factors specified in the prospectus and/or statement of additional
information for the Trust and/or the Series. Subject to such policies as the
Board of Trustees of the Trust may determine and consistent with Section 28(e)
of the Securities Exchange Act of 1934, the Subadviser shall not be deemed to
have acted unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of its having caused the Series to pay a broker
dealer for effecting a portfolio investment transaction an amount of commission
in excess of the amount of commission another broker-dealer would have charged
for effecting that transaction, if the Subadviser determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer with respect to
the Series.
Subadviser shall not be liable for any loss resulting from any act or
omission of the custodian for the Series other than acts or omissions arising in
reliance on instructions of the Subadviser.
2. Delivery of Documents to Subadviser. The Manager will furnish to the
Subadviser copies of each of the following documents:
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(a) The Declaration of Trust of the Trust as in effect on the date
hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement of the
Subadviser as subadviser to the Series and approving the form of this
agreement;
(d) The resolutions of the Trustees selecting the Manager as investment
manager to the Trust and approving the form of the Investment
Management Agreement with the Trust, on behalf of the Series;
(e) The Investment Management Agreement with the Trust, on behalf of
the Series;
(f) The Code of Ethics of the Trust and of the Manager as currently in
effect;
(g) Current copies of the Series' Prospectus and Statement of
Additional Information; and
(h) Resolutions, policies and procedures adopted by the Trustees of the
Trust in respect of the management or operation of the Series.
The Manager will furnish the Subadviser from time to time with copies,
properly certified or otherwise authenticated, of all amendments of or
supplements to the foregoing, if any. Such amendments or supplements as to Items
(a) though (g) above will be provided within 30 days of the time such materials
became available to the Manager and until so provided the Subadviser may
continue to rely on those documents previously provided.
During the term of this Agreement, the Manager also will furnish to the
Subadviser prior to use thereof copies of all Trust documents, proxy statements,
reports to shareholders, sales literature, or other material prepared for
distribution to shareholders of the Series or the public that refer in any way
to the Subadviser, and will not use such material if the Subadviser reasonably
objects in writing within five business days (or such other time period as may
be mutually agreed) after receipt thereof. However, the Manager and the
Subadviser may agree amongst themselves that certain of the above-mentioned
documents do not need to be furnished to the Subadviser prior to the document's
use.
In the event of termination of this Agreement, the Manager will
continue to furnish to the Subadviser copies of any of the above-mentioned
materials that refer in any way to the Subadviser. The Manager shall furnish or
otherwise make available to the Subadviser such other information relating to
the business affairs of the Trust as the Subadviser at any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.
3. Delivery of Documents to the Manager. The Subadviser will furnish
the Manager with copies of each of the following documents:
(a) The Subadviser's most recent balance sheet;
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(b) Separate lists of persons who the Subadviser wishes to have
authorized to give written and/or oral instructions to Custodians and
the fund accounting agent of Trust assets for the Series;
(c) The Code of Ethics of the Subadviser as currently in effect; and
(d) Any compliance manuals, trading, commission and other reports,
insurance policies, and such other management or operational documents
as the Manager may reasonably request in writing (on behalf of itself
or the Trustees of the Trust) in assessing the Subadviser.
The Subadviser will maintain a written code of ethics complying with
the requirements of Rule 17j -I under the 1940 Act and will provide Trust with a
copy of the code of ethics, including any amendments thereto, and evidence of
its adoption. Within 45 days of the end of each year while this Agreement is in
effect (or more frequently if required by Rule 17j-1 or as the Trust may
reasonably request), an officer of the Subadviser shall certify in writing to
Trust that the Subadviser has complied with the requirements of Rule 17j-1
during the previous year and that there has been no violation of its code of
ethics or, if such a violation has occurred, that appropriate action was taken
in response to such violation. Subadviser shall also certify to the Trust with
respect to such other matters as may be required by Rule 17j-1. Upon the written
request of the Trust, the Subadviser shall permit Trust to examine the reports
to be made by the Subadviser under Rule 17j-1 (d) and the records the Subadviser
maintains pursuant to Rule 17j-1(f).
The Subadviser will furnish the Manager from time to time with copies,
properly certified or otherwise authenticated, of all material amendments of or
supplements to the foregoing, if any. Additionally, the Subadviser will provide
to the Manager such other documents relating to its services under this
Agreement as the Manager may reasonably request on a periodic basis. Such
amendments or supplements as to items (a) through (c) above will be provided
within 30 days of the time such materials became available to the Subadviser.
The Subadviser will promptly notify the Manager of any proposed
transaction or other event that could reasonably be expected to result in an
"assignment" of this Agreement within the meaning of the 1940 Act. In addition,
the Subadviser will promptly complete and return to the Manager or the Trust any
compliance questionnaires or other inquiries submitted to the Subadviser in
writing.
4. Other Agreements, etc. It is understood that any of the
shareholders, Trustees, officers and employees of the Trust or the Series may be
a shareholder, director, officer or employee of, or be otherwise interested in,
the Subadviser, any interested person of the Subadviser, any organization in
which the Subadviser may have an interest or any organization which may have an
interest in the Subadviser, and that any such interested person or any such
organization may have an interest in the Trust or the Series. It is also
understood that the Subadviser, the Manager and the Trust may have advisory,
management, service or other contracts with other individuals or entities, and
may have other interests and businesses. On occasions when the Subadviser deems
the purchase or sale of a security to be in the best interest of the Series, as
well as other clients of the Subadviser, the Subadviser, to the extent permitted
by applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be sold or purchased in order to obtain the most
favorable price or lower brokerage commissions and efficient execution. In such
event, allocation of the
4
<PAGE>
securities so purchased or sold, as well as the expenses incurred in the
transactions, will be made by the Subadviser in the manner the Subadviser
considers to be most equitable and consistent with its fiduciary obligations to
the Series and to such other clients. Nothing in this Agreement shall impose
upon the Subadviser any obligation to purchase or sell, or recommend for
purchase or sale, for the Series any security which it or its officers,
directors, affiliates or employees may purchase or sell for the Subadviser or
such officer's, director's, affiliate's or employee's own accounts or for the
account of any of the Subadviser's clients, advisory or otherwise.
The Subadviser may give advice and take action with respect to other
funds or clients, or for its own account which may differ from the advice or the
timing or nature of action taken with respect to the Series.
Nothing in this Agreement shall be implied to prevent the (i) Manager
from engaging other subadvisers to provide investment advice and other services
in relation to portfolios of the Trust for which the Subadviser does not provide
such services, or to prevent the Manager from providing such services itself in
relation to such portfolios; or (ii) the Subadviser from providing investment
advice and other services to other funds or clients.
5. Fees, Expenses and Other Charges.
(a) For its services hereunder, the Subadviser shall be paid a
management fee by the Manager according to the fee schedule attached
hereto as Schedule A.
(b) The Subadviser, at its expense, will furnish all necessary
investment facilities, including salaries of personnel required for it
to execute its duties under this Agreement.
6. Confidential Treatment. It is understood that any information or
recommendation supplied by the Subadviser in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Manager, the Trust or such persons as the Manager may designate in
connection with the Series. It is also understood that any information supplied
to the Subadviser in connection with the performance of its obligations
hereunder, particularly, but not limited to, any list of securities which, on a
temporary basis, may not be bought or sold for the Series, is to be regarded as
confidential and for use only by the Subadviser in connection with its
obligation to provide investment advice and other services to the Series.
The Subadviser will maintain and enforce adequate security procedures
with respect to all materials, records, documents and data relating to any of
its responsibilities pursuant to this Agreement including all means for the
effecting of securities transactions.
7. Representations and Covenants of the Parties. The Subadviser hereby
acknowledges that it is registered as an investment adviser under the Investment
Advisers Act of 1940 (the "Adviser's Act") and neither it nor any "affiliated
person" of it, as defined in the 1940 Act, is subject to any disqualification
that would make the Subadviser unable to serve as an investment adviser to a
registered investment company under Section 9 of the 1940 Act. The Subadviser
covenants that it will carry out appropriate compliance procedures necessary to
the operation of the Series as the Subadviser and the Manager may agree. The
Subadviser also covenants that it will manage the Series in conformity with all
applicable rules and regulations of the Securities and Exchange
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Commission in all material respects and so that the Trust will qualify as a
regulated investment company under Subchapter M and Section 817 of the Internal
Revenue Code.
8. Reports by the Subadviser and Records of the Series. The Subadviser
shall furnish the Manager monthly, quarterly and annual reports concerning
transactions and performance of the Series, including information required to be
disclosed in the Trust's registration statement, in such form as may be mutually
agreed, to review the Series and discuss the management of it. The Subadviser
shall permit its financial statements, books and records with respect to the
Series to be inspected and audited by the Trust, the Manager or their agents at
all reasonable times during normal business hours. The Subadviser shall
immediately notify and forward to both the Manager and legal counsel for the
Series any legal process served upon it on behalf of the Manager or the Trust.
The Subadviser shall promptly notify the Manager of any changes in any
information concerning the Subadviser of which the Subadviser becomes aware that
would be required to be disclosed in the Trust's registration statement.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Subadviser agrees that all records it maintains for the Trust are the
property of the Trust and further agrees to surrender promptly to the Trust or
the Manager any such records upon the Trust's or the Manager's request. The
Subadviser further agrees to maintain for the Trust the records the Trust is
required to maintain under Rule 31a-1(b) insofar as such records relate to the
investment affairs of the Trust. The Subadviser further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records it maintains
for the Trust.
9. Continuance and Termination. This Agreement shall remain in full
force and effect through September 30, 2001, and is renewable annually
thereafter by specific approval of the Board of Trustees of the Trust or by the
affirmative vote of a majority of the outstanding voting securities of the
Series. Any such renewal shall be approved by the vote of a majority of the
Trustees of the Trust who are not interested persons under the 1940 Act, cast in
person at a meeting called for the purpose of voting on such renewal. This
Agreement may be terminated without penalty at any time by the Trustees, by vote
of a majority of the outstanding voting securities of the Series, or by the
Manager or by the Subadviser upon 60 days written notice, and will automatically
terminate in the event of its assignment by either party to this Agreement, as
defined in the 1940 Act, or upon termination of the Manager's Investment
Management Agreement with the Trust. In addition, the Manager or the Trust may
terminate this Agreement upon immediate notice if the Subadviser becomes
statutorily disqualified from performing its duties under this Agreement or
otherwise is legally prohibited from operating as an investment adviser.
10. Voting Rights. The Manager shall be responsible for exercising any
voting rights of any securities of the Series.
11. Indemnification. The Subadviser agrees to indemnify and hold
harmless the Manager, any affiliated person within the meaning of Section
2(a)(3) of the 1940 Act ("affiliated person") of the Manager and each person, if
any, who, within the meaning of Section 15 of the Securities Act of 1933 (the
"1933 Act"), controls ("controlling person") the Manager, against any and all
losses, claims damages, liabilities or litigation (including reasonable legal
and other expenses), to which the Manager or such affiliated person or
controlling person may become subject under the 1933 Act, the 1940 Act, the
Advisers Act, under any other statute, at common law or otherwise, arising out
of
6
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Subadviser's responsibilities as portfolio manager of the Series (1) to the
extent of and as a result of the willful misconduct, bad faith, or gross
negligence by the Subadviser, any of the Subadviser's employees or
representatives or any affiliate of or any person acting on behalf of the
Subadviser, or (2) as a result of any untrue statement or alleged untrue
statement of a material fact contained in a prospectus or statement of
additional information covering the Series or the Trust or any amendment thereof
or any supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading, if such a statement or omission was made in reliance
upon written information furnished by the Subadviser to the Manager, the Trust
or any affiliated person of the Manager or the Trust expressly for use in the
Trust's registration statement, or upon verbal information confirmed by the
Subadviser in writing expressly for use in the Trust's registration statement or
(3) to the extent of, and as a result of, the failure of the Subadviser to
execute, or cause to be executed, portfolio transactions according to the
standards and requirements of the 1940 Act.
In no case shall the Subadviser's indemnity in favor of the Manager or
any affiliated person or controlling person of the Manager, or any other
provision of this Agreement, be deemed to protect such person against any
liability to which any such person would otherwise be subject by reason of
willful misconduct, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
under this Agreement.
The Manager agrees to indemnify and hold harmless the Subadviser, any
affiliated person within the meaning of Section 2(a)(3) of the 1940 Act
("affiliated person") of the Subadviser and each person, if any, who, within the
meaning of Section 15 of the 1933 Act, controls ("controlling person") the
Subadviser, against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which the
Subadviser or such affiliated person or controlling person may become subject
under the 1933 Act, the 1940 Act, the Advisers Act, under any other statute, at
common law or otherwise, arising out of the Manager's responsibilities as
investment manager of the Series (1) to the extent of and as a result of the
willful misconduct, bad faith, or gross negligence by the Manager, any of the
Manager's employees or representatives or any affiliate of or any person acting
on behalf of the Manager, or (2) as a result of any untrue statement or alleged
untrue statement of a material fact contained in a prospectus or statement of
additional information covering the Series or the Trust or any amendment thereof
or any supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading, if such a statement or omission was made by the Trust
other than in reliance upon written information furnished by the Subadviser, or
any affiliated person of the Subadviser, expressly for use in the Trust's
registration statement or other than upon verbal information confirmed by the
Subadviser in writing expressly for use in the Trust's registration statement.
In no case shall the Manager's indemnity in favor of the Subadviser or
any affiliated person or controlling person of the Subadviser, or any other
provision of this Agreement, deemed to protect such person against any liability
to which any such person would otherwise be subject by reason of willful
misconduct, bad faith or gross negligence in the performance of its duties or by
reason of its reckless disregard of its obligations and duties under this
Agreement.
12. Certain Definitions. For the purposes of this Agreement, the "vote
of a majority of the outstanding voting securities of the Series" means the
affirmative vote, at a duly called and held
7
<PAGE>
meeting of shareholders of the Series, (a) of the holders of 67% or more of the
shares of the Series present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Series entitled to vote at such meeting are present in person or by proxy, or
(b) of the holders of more than 50% of the outstanding shares of the Series
entitled to vote at such meeting, whichever is less.
For the purposes of this Agreement, the terms "interested person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act.
13. Notices. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered or sent by
pre-paid first class letter post to the following addresses or to such other
address as the relevant addressee shall hereafter notify for such purpose to the
others by notice in writing and shall be deemed to have been given at the time
of delivery.
If to the Manager: SCUDDER KEMPER INVESTMENTS, INC.
345 Park Avenue
New York, NY 10154
Attention: General Counsel
If to the Trust: KEMPER VARIABLE SERIES
KVS FOCUSED LARGE CAP GROWTH
PORTFOLIO
Two International Place
Boston, MA 02110
Attention: Secretary
If to the Subadviser: EAGLE ASSET MANAGEMENT, INC.
880 Carillon Parkway
St. Petersburg, FL 33716
Attention: President
14. Instructions. The Subadviser is authorized to honor and act on any
notice, instruction or confirmation given by the Trust or Manager in writing
signed or sent by one of the persons whose names, addresses and specimen
signatures will be provided by the Trust or Manager from time to time.
15. Law. This Agreement is governed by and shall be construed in
accordance with the laws of the State of New York in a manner not in conflict
with the provisions of the 1940 Act, except with respect to Section 16, which
shall be construed in accordance with the laws of the State of Massachusetts.
16. Limitation of Liability of the Trust, Trustees, and Shareholders.
It is understood and expressly stipulated that none of the trustees, officers,
agents, or shareholders of the Trust shall be personally liable hereunder. It is
understood and acknowledged that all persons dealing with the Series must look
solely to the property of such Series for the enforcement of any claims against
such
8
<PAGE>
Series as neither the trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Trust or the
Series. No series of the Trust shall be liable for the obligations of any other
series.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have each caused this instrument
to be signed in duplicate on its behalf by the officer designated below
thereunto duly authorized.
SCUDDER KEMPER INVESTMENTS,
INC.
Attest: /s/Kathryn L. Quirk By: /s/Thomas W. Littauer
------------------- ---------------------
Name: Kathryn L. Quirk Name: Thomas W. Littauer
Title: Secretary Title: Managing Director
SUBADVISER: EAGLE ASSET,
MANAGEMENT, INC.
Attest: /s/Brian C. Lee By: /s/Barry Schneirov
--------------- ------------------
Name: Brian C. Lee Name: Barry Schneirov
Title: Executive Vice Pres. Title: Senior Vice President
9
<PAGE>
Schedule A to the Subadvisory Agreement
for the KVS Focused Large Cap Growth Portfolio (the "Series"), a series of
Kemper Variable Series (the "Trust") dated as of October 1, 1999 between
Scudder Kemper Investments, Inc. ("Manager")
and Eagle Asset Management, Inc. ("Subadviser")
FEE SCHEDULE
As compensation for its services described herein, Subadviser shall receive from
the Manager a monthly fee based on a percentage of average daily net assets of
the Series calculated according to the following annualized fee schedule:
Series Net Assets Annualized Rate
----------------- ---------------
On the first $ 50 million 0.45 of 1%
On the next $250 million 0.40 of 1%
On the balance over $300 million 0.30 of 1%
The "average daily net assets" of the Series shall be calculated at such time or
times as the Trustees of the Trust may determine in accordance with the
provisions of the Investment Company Act of 1940. The value of the net assets of
the Series shall always be determined pursuant to the applicable provisions of
the Declaration of Trust and the Registration Statement of the Trust. If the
determination of net asset value does not take place for any particular day, for
the purposes of this Schedule A, the net asset value shall be deemed to be the
net asset value determined as of the close of business on the last day on which
such calculation was made for the purpose of the foregoing computation. If the
Series determines the value of the net assets of its portfolio more than once on
any day, then the last such determination thereof on that day shall be deemed to
be the sole determination thereof on that day for the purposes of this Schedule
A. Fees are charged monthly in arrears based on one-twelfth of the annual fee
rate. Fees will be prorated appropriately if Subadviser does not perform
services pursuant to this Subadvisory Agreement for a full month.
10
Exhibit (d)(33)
KVS: GROWTH AND INCOME PORTFOLIO (JANUS)
SUBADVISORY AGREEMENT
AGREEMENT made as of the 1st day of October, 1999, between Scudder
Kemper Investments, Inc., a Delaware corporation (hereinafter called the
"Manager"), and Janus Capital Corporation, a Colorado corporation (hereinafter
called the "Subadviser").
W I T N E S S E T H :
WHEREAS, Kemper Variable Series (the "Trust") is a Massachusetts
business trust organized with one or more series of shares, and is registered as
an investment company under the Investment Company Act of 1940 (the "1940 Act");
and
WHEREAS, the Manager desires to utilize the services of the Subadviser
to provide subadvisory services with respect to the investment portfolio of KVS
Growth and Income Portfolio (the "Series"), being one of the portfolio series of
the Trust, which is under the management of the Manager pursuant to an
Investment Management Agreement between the Manager and the Trust dated October
1, 1999; and
WHEREAS, the Subadviser is willing to perform such services on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, it is agreed as follows:
1. The Subadviser's Services. The Subadviser will serve the Manager as
investment counsel with respect to the Series.
The Subadviser is hereby authorized and directed and hereby agrees,
subject to the stated investment policies and restrictions of the Series as set
forth in the current Prospectus and Statement of Additional Information of the
Trust (including amendments) furnished to the Subadviser and in accordance with
the Declaration of Trust and By-laws of the Trust, as both may be amended from
time to time and furnished to the Subadviser, governing the offering of its
shares and subject to such resolutions, policies and procedures as from time to
time may be adopted by the Trustees of the Trust and furnished to the
Subadviser, to develop, recommend and implement such investment program and
strategy for the Series, to provide research and analysis relative to the
investment program and investments of the Series, to determine what securities
should be purchased and sold and to monitor on a continuing basis the
performance of the portfolio securities of the Series. In addition, the
Subadviser will place orders for the purchase and sale of portfolio securities
and, subject to the provisions of the following paragraph, will take
<PAGE>
reasonable steps to assure that portfolio transactions are effected at the best
price and execution available. The Subadviser will advise the Fund's custodian
and the Manager on a prompt basis of each purchase and sale of a portfolio
security specifying the name of the issuer, the CUSIP number (if available), the
description and amount or number of shares of the security purchased, the market
price, commission and gross or net price, trade date, settlement date and
identity of the effecting broker or dealer. From time to time as the Trustees of
the Trust or the Manager may reasonably request, the Subadviser will furnish to
the Manager, Trust's officers and to each of its Trustees reports on portfolio
transactions and reports on assets held in the Series, all in such detail as the
Trust or the Manager may reasonably request. The Subadviser will also inform the
Manager, Trust's officers and Trustees on a current basis of changes in
investment strategy or tactics or any other developments materially affecting
the Series. The Subadviser will make its officers and employees available to
meet with the Manager and officers and Trustees of the Trust at least quarterly
on due notice and at such other times as may be mutually agreeable, to review
the investments and investment performance of the Series in the light of the
Trust's investment objectives and policies and market conditions.
Absent written instructions to the Manager to the contrary, the
Subadviser shall place all orders for the purchase and sale of investment
instruments for the Series with brokers or dealers selected by the Subadviser
consistent with best execution, which, subject to and consistent with the
policies and procedures of the Trust relating to Rule 17e-1 under the 1940 Act,
may include brokers or dealers affiliated with the Subadviser. Purchase or sell
orders for the Series may be aggregated with contemporaneous purchase or sell
orders of other clients of the Subadviser. The Subadviser shall use its best
efforts to obtain execution of portfolio transactions at prices that are
advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. The Subadviser may select brokers or dealers
on the basis that they provide brokerage, research or other services or products
to the Series and/or other accounts serviced by the Subadviser. The Subadviser
may place portfolio transactions with a broker or dealer with which it has
negotiated a commission in excess of the commission another broker or dealer
would have charged for effecting that transaction if the Subadviser determines
in good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research provided by such broker or dealer, viewed in
terms of either that particular transaction or the overall responsibilities that
the Subadviser has with respect to the Series and to accounts over which it
exercises investment discretion, and not all such services or products will
necessarily be used by the Subadviser in managing the Series. In addition,
consistent with best execution, the Subadviser may execute portfolio
transactions through brokers and dealers that sell shares of mutual funds
advised by the Subadviser or recommend to their customers that they purchase
shares of such funds. If the Subadviser determines that any product or service
furnished by a broker-dealer has a mixed use, such that it also serves functions
that do not assist the Subadviser in carrying out its investment decision-making
process, the Subadviser shall be responsible for making and documenting a
reasonable allocation of the costs of such service or product. The portion of
the product or service that the Subadviser determines will assist it in carrying
out its investment decision-making process may be paid for in brokerage
commission dollars.
2
<PAGE>
It shall be the duty of the Subadviser to furnish to the Trustees of
the Trust such information as may reasonably be requested in order for such
Trustees to evaluate this Agreement or any proposed amendments thereto for the
purposes of casting a vote pursuant to Section 9 hereof, including any
information requested pursuant to section 15(c) of the 1940 Act. Any information
reasonably deemed proprietary by the Subadviser shall be subject to the
provisions of Section 6 hereof.
The Subadviser shall not be responsible for fund accounting nor shall
it be required to generate fund accounting data.
The Series assets shall be maintained in the custody of the custodian
identified by the Manager in writing (the "Custodian"). Any assets added to the
Series shall be delivered directly to the Custodian. The Subadviser shall have
no liability for the acts or omissions of any Custodian, other than (subject to
Section 11) for acts or omissions arising in reliance on instructions from the
Subadviser.
In the performance of its duties hereunder, the Subadviser is and shall
be an independent contractor and except as otherwise expressly provided herein
or otherwise authorized in writing, shall have no authority to act for or
represent the Trust, the Series or the Manager in any way or otherwise be deemed
to be an agent of the Trust, the Series or the Manager.
In furnishing the services under this Agreement, the Subadviser will
comply with the requirements of the 1940 Act applicable to it, the regulations
promulgated thereunder, and all other applicable laws and regulations. The
Subadviser will immediately notify the Manager and the Trust in the event that
the Subadviser: (i) becomes subject to a statutory disqualification that
prevents the Subadviser from serving as an investment adviser pursuant to this
Agreement; or (ii) becomes the subject of an administrative proceeding or
enforcement action by the Securities and Exchange Commission or other regulatory
authority, which proceeding or action could reasonably be deemed material to the
Subadviser's performance of its duties under this Agreement (unless the
Subadviser is prohibited by applicable law or regulation from disclosing such
proceeding or action). The Subadviser will immediately forward, upon receipt, to
the Manager any correspondence from the Securities and Exchange Commission or
other regulatory authority that relates to the Series.
The Subadviser shall be responsible for the preparation and filing of
reports on Schedule 13G and Form 13F with respect to securities held by the
Series, but unless otherwise expressly agreed to in writing, the Subadviser
shall not be responsible for the preparation or filing of any other reports
required of the Series by any governmental or regulatory agency.
The Subadviser may request information from the Manager or from the
fund accountant, the Custodian or other service providers to the Series to
enable the Subadviser to monitor
3
<PAGE>
compliance with portfolio restrictions of the Series. In the event such
information is not made available to the Subadviser reasonably promptly upon
request, the Subadviser shall notify the Manager in writing. If the Manager does
not provide (or arrange for the provision of) such information to the Subadviser
reasonably promptly upon receipt of written notice from the Subadviser, the
Manager shall assume responsibility for the monitoring to which the requested
information relates.
2. Delivery of Documents to Subadviser. The Manager will furnish to the
Subadviser copies of each of the following documents:
(a) The Declaration of Trust of the Trust as in effect on the date
hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement of the
Subadviser as subadviser to the Series and approving the form of this
agreement;
(d) The resolutions of the Trustees selecting the Manager as investment
manager to the Trust and approving the form of the Investment
Management Agreement with the Trust, on behalf of the Series;
(e) The Investment Management Agreement with the Trust, on behalf of
the Series;
(f) The Code of Ethics of the Trust and of the Manager as currently in
effect;
(g) Current copies of the Series' Prospectus and Statement of
Additional Information;
(h) Resolutions, policies and procedures adopted by the Trustees of the
Trust in respect of the management or operation of the Series; and
(i) Such other information as the Subadviser may reasonably request in
connection with the performance of its duties under this Agreement.
The Manager will furnish the Subadviser from time to time with copies,
properly certified or otherwise authenticated, of all amendments of or
supplements to the foregoing, if any. Such amendments or supplements as to Items
(a) though (g) above will be provided within 30 days of the time such materials
became available to the Manager and until so provided the Subadviser may
continue to rely on those documents previously provided.
During the term of this Agreement, the Manager will provide the
Subadviser with a reasonable opportunity to review any amendments to the Series'
Prospectus or Statement of Additional Information prior to filing with the
Securities and Exchange Commission. The
4
<PAGE>
Manager will also furnish to the Subadviser prior to use thereof copies of all
other Trust documents, proxy statements, reports to shareholders, sales
literature, or other material prepared for distribution to shareholders of the
Series or the public that refer in any way to the Subadviser, and will not use
such material if the Subadviser reasonably objects in writing after reasonable
opportunity to review such material after receipt thereof. However, the Manager
and the Subadviser may agree amongst themselves that certain of the
above-mentioned documents do not need to be furnished to the Subadviser prior to
the document's use.
The Manager will cooperate with the Subadviser in establishing and
maintaining brokerage and other accounts that the Subadviser deems advisable to
allow for the purchase and sale of various forms of securities or other
instruments by the Series pursuant to this Agreement.
In the event of termination of this Agreement, the Manager will
continue to furnish to the Subadviser copies of any of the above-mentioned
materials that refer in any way to the Subadviser. The Manager shall furnish or
otherwise make available to the Subadviser such other information relating to
the business affairs of the Trust as the Subadviser at any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.
3. Delivery of Documents to the Manager. The Subadviser will furnish
the Manager with copies of each of the following documents:
(a) The Subadviser's most recent balance sheet;
(b) Separate lists of persons who the Subadviser wishes to have
authorized to give written and/or oral instructions to Custodians and
the fund accounting agent of Trust assets for the Series;
(c) The Code of Ethics of the Subadviser as currently in effect; and
(d) Such other documents or information as the Manager may reasonably
request in writing (on behalf of itself or the Trustees of the Trust)
in assessing the Subadviser.
The Subadviser will maintain a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and will provide the Trust
with a copy of the code of ethics, including any amendments thereto, together
with evidence of its adoption and a certification to the effect that the
Subadviser has adopted procedures reasonably necessary to prevent its "access
persons" from violating its code of ethics. The Subadviser will be subject to
its code of ethics and will not be subject to any other code of ethics,
including that of the Manager, unless specifically adopted by the Subadviser. At
least annually (or more frequently if required by Rule 17j-1 or as the Trust or
the Manager may reasonably request), the Subadviser shall provide a written
report as to the matters required to be provided to the Trust by the Subadviser
under Rule 17j-1, including the certification provided for therein. Upon the
written request of the Trust, the
5
<PAGE>
Subadviser shall permit Trust to examine the policies and procedures the
Subadviser maintains pursuant to Rule 17j-1 to the extent material to the
assessment of the Subadviser's performance of its duties under this Agreement.
Upon request by the Manager, the Subadviser will furnish the Manager
with copies of all material amendments of or supplements to the foregoing, if
any. Additionally, the Subadviser will provide to the Manager such other
documents relating to its services under this Agreement as the Manager may
reasonably request on a periodic basis. Such amendments or supplements as to
item (a) will be provided upon the reasonable request of the Manager, and such
amendments or supplements as to items (b) through (c) above will be provided
within 30 days of the time such materials became available to the Subadviser.
Any information reasonably deemed proprietary by the Subadviser shall
be subject to the provisions of Section 6 hereof.
The Subadviser will promptly notify the Manager of any proposed
transaction or other event that could reasonably be expected to result in an
"assignment" of this Agreement within the meaning of the 1940 Act. In addition,
the Subadviser will promptly complete and return to the Manager or the Trust any
reasonable compliance questionnaires or other reasonable inquiries submitted to
the Subadviser in writing.
4. Other Agreements, etc. It is understood that any of the
shareholders, Trustees, officers and employees of the Trust or the Series may be
a shareholder, director, officer or employee of, or be otherwise interested in,
the Subadviser, any interested person of the Subadviser, any organization in
which the Subadviser may have an interest or any organization which may have an
interest in the Subadviser, and that any such interested person or any such
organization may have an interest in the Trust or the Series. It is also
understood that the Subadviser, the Manager and the Trust may have advisory,
management, service or other contracts with other individuals or entities, and
may have other interests and businesses. When a security proposed to be
purchased or sold for the Series is also to be purchased or sold for other
accounts managed by the Subadviser at the same time, the Subadviser shall make
such purchases or sales on a pro-rata, rotating or other equitable basis so as
to avoid any one account's being preferred over any other account.
The Subadviser may give advice and take action with respect to other
funds or clients, or for its own account which may differ from the advice or the
timing or nature of action taken with respect to the Series. The Subadviser
makes no representation or warranty, express or implied, that any level of
investment performance or investment results will be achieved by the Series or
that the Series will perform comparably with any standard or index, including
other clients of the Subadviser, whether public or private.
6
<PAGE>
Nothing in this Agreement shall be implied to prevent the (i) Manager
from engaging other subadvisers to provide investment advice and other services
in relation to portfolios of the Trust for which the Subadviser does not provide
such services, or to prevent the Manager from providing such services itself in
relation to such portfolios; or (ii) the Subadviser from providing investment
advice and other services to other funds or clients.
5. Fees, Expenses and Other Charges.
--------------------------------
(a) For its services hereunder, the Subadviser shall be paid a
management fee by the Manager by the 20th day of each month according
to the fee schedule attached hereto as Schedule A.
(b) The Subadviser, at its expense, will furnish all necessary
investment facilities, including salaries of personnel required for it
to execute its duties under this Agreement.
(c) The Manager, the Series and the Trust shall assume and pay their
respective organizational, operational and business expenses not
specifically assumed or agreed to be paid by the Subadviser pursuant to
this Agreement. The Subadviser shall pay its own organizational,
operational and business expenses but shall not be obligated to pay any
expenses of the Manager, the Trust, or the Series, including without
limitation (i) interest and taxes, (ii) brokerage commissions and other
costs in connection with the purchase or sale of securities or other
investment instruments for the Series, and (iii) custodian fees and
expenses. Any reimbursement to the Series of management fees required
by any expense limitation provision set forth in the Prospectus or
Statement of Additional Information of the Series, and any liability to
the Series arising out of a violation of Section 36(b) of the 1940 Act
by the Manager, shall be the sole responsibility of the Manager.
6. Confidentiality, etc. It is understood that any information or
recommendation supplied by the Subadviser in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Manager, the Trust or such persons as the Manager may designate in
connection with the Series, and further understood that any information
reasonably designated as proprietary by the Subadviser shall be subject to such
limitations on access or use as the Subadviser and the Manager or the Trust
shall reasonably agree. It is also understood that any information supplied to
the Subadviser in connection with the performance of its obligations hereunder,
particularly, but not limited to, any list of securities which, on a temporary
basis, may not be bought or sold for the Series, is to be regarded as
confidential and for use only by the Subadviser in connection with its
obligation to provide investment advice and other services to the Series.
The Manager will not, directly or indirectly, use, disclose or furnish,
to any person or entity, records or information concerning the business of the
Subadviser, except as necessary for
7
<PAGE>
the performance of its duties under this Agreement or the Investment Management
Agreement, or as required by applicable law or regulation, upon prior written
notice to the Subadviser. Subadviser is the sole owner of the name and mark
"Janus." Other than as permitted by Section 2 hereof, the Manager will not, and
will not permit the Series to, without prior written consent of the Subadviser,
use the name or mark "Janus" or make representations regarding the Subadviser or
its affiliates. Upon termination of this Agreement for any reason, the Manager
shall cease, and the Manager shall cause the Series to cease, as promptly as
practicable, all use of the Janus name or any Janus mark (except to the extent
necessary in describing the management of the Series during the term of this
Agreement).
The Subadviser will maintain and enforce adequate security procedures
with respect to all materials, records, documents and data relating to any of
its responsibilities pursuant to this Agreement including all means for the
effecting of securities transactions.
7. Representations and Covenants of the Parties. The Subadviser hereby
represents and warrants that (a) it is registered as an investment adviser under
the Investment Advisers Act of 1940 (the "Advisers Act"), (b) neither it nor any
"affiliated person" of it, as defined in the 1940 Act, is subject to any
disqualification that would make the Subadviser unable to serve as an investment
adviser to a registered investment company under Section 9 of the 1940 Act, (c)
it is validly existing and in good standing as a corporation under the laws of
Colorado, (d) it has all requisite corporate power and authority to execute,
deliver and perform this Agreement, and (e) such execution, delivery and
performance have been duly authorized by all necessary corporate proceedings of
the Subadviser. The Subadviser covenants that it will carry out appropriate
compliance procedures necessary to the operation of the Series as the Subadviser
and the Manager may agree. The Subadviser also covenants that it will manage the
Series in conformity with all applicable rules and regulations of the Securities
and Exchange Commission in all material respects and so that the Trust will
qualify as a regulated investment company under Subchapter M and Section 817 of
the Internal Revenue Code.
The Manager hereby represents and warrants that (a) it is registered as
an investment adviser under the Advisers Act, (b) it is validly existing and in
good standing as a corporation under the laws of Delaware, (c) it has all
requisite corporate power and authority to execute, deliver and perform this
Agreement, (d) such execution, delivery and performance have been duly
authorized by all necessary corporate proceedings of the Manager, (e) it has
authority under the Investment Management Agreement to execute, deliver and
perform this Agreement, and (f) it has received a copy of Part II of the
Subadviser's Form ADV.
8. Reports by the Subadviser and Records of the Series. The Subadviser
shall furnish the Manager monthly, quarterly and annual reports concerning
transactions and performance of the Series, including information required to be
disclosed in the Trust's registration statement, in such form as may be mutually
agreed, to review the Series and discuss the management of it. The Subadviser
shall permit the financial statements, books and records with respect to the
Series to
8
<PAGE>
be inspected and audited by the Trust, the Manager or their agents at all
reasonable times during normal business hours. The Subadviser shall immediately
notify and forward to both the Manager and legal counsel for the Series any
legal process served upon it on behalf of the Manager or the Trust. The
Subadviser shall promptly notify the Manager of any changes in any information
concerning the Subadviser of which the Subadviser becomes aware that would be
required to be disclosed in the Trust's registration statement.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Subadviser agrees that all records it maintains for the Trust are the
property of the Trust and further agrees to surrender promptly to the Trust or
the Manager any such records upon the Trust's or the Manager's request. The
Subadviser further agrees to maintain for the Trust the records the Trust is
required to maintain under Rule 31a-1 (b) insofar as such records relate to the
investment affairs of the Trust. The Subadviser further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records it maintains
for the Trust.
9. Continuance and Termination; Amendment. This Agreement shall remain
in full force and effect through September 30, 2001, and is renewable annually
thereafter by specific approval of the Board of Trustees of the Trust or by the
affirmative vote of a majority of the outstanding voting securities of the
Series. Any such renewal shall be approved by the vote of a majority of the
Trustees of the Trust who are not interested persons under the 1940 Act, cast in
person at a meeting called for the purpose of voting on such renewal. This
Agreement may be terminated without penalty at any time by the Trustees, by vote
of a majority of the outstanding voting securities of the Series, or by the
Manager or by the Subadviser upon 60 days written notice, and will automatically
terminate in the event of its assignment by either party to this Agreement, as
defined in the 1940 Act, or upon termination of the Manager's Investment
Management Agreement with the Trust. In addition, the Manager or the Trust may
terminate this Agreement upon immediate notice if the Subadviser becomes
statutorily disqualified from performing its duties under this Agreement or
otherwise is legally prohibited from operating as an investment adviser.
This Agreement may be amended only in accordance with applicable law,
and only by a written instrument signed by all the parties to this Agreement.
10. Voting Rights. The Manager shall be responsible for exercising any
voting rights of any securities of the Series.
11. Indemnification, etc. The Subadviser agrees to indemnify and hold
harmless the Manager, any affiliated person within the meaning of Section
2(a)(3) of the 1940 Act ( "affiliated person") of the Manager and each person,
if any, who, within the meaning of Section 15 of the Securities Act of 1933 (the
"1933 Act"), controls ("controlling person") the Manager, against any and all
losses, claims damages, liabilities or litigation (including reasonable legal
and other expenses), to which the Manager or such affiliated person or
controlling person may become
9
<PAGE>
subject under the 1933 Act, the 1940 Act, the Advisers Act, under any other
statute, at common law or otherwise, arising out of Subadviser's
responsibilities as portfolio manager of the Series (1) to the extent of and as
a result of the willful misconduct, bad faith, or gross negligence by the
Subadviser, any of the Subadviser's employees or representatives or any
affiliate of or any person acting on behalf of the Subadviser, or (2) as a
result of any untrue statement or alleged untrue statement of a material fact
contained in a prospectus or statement of additional information covering the
Series or the Trust or any amendment thereof or any supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, if
such a statement or omission was made in reliance upon written information
furnished by the Subadviser to the Manager, the Trust or any affiliated person
of the Manager or the Trust expressly for use in the Trust's registration
statement, or upon verbal information confirmed by the Subadviser in writing
expressly for use in the Trust's registration statement or (3) to the extent of,
and as a result of, the failure of the Subadviser to execute, or cause to be
executed, portfolio transactions according to the standards and requirements of
the 1940 Act.
In no case shall the Subadviser's indemnity in favor of the Manager or
any affiliated person or controlling person of the Manager, or any other
provision of this Agreement, be deemed to protect such person against any
liability to which any such person would otherwise be subject by reason of
willful misconduct, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
under this Agreement.
Except as may otherwise be provided under the 1933 Act, the 1940 Act,
the Advisers Act, under any other statute, at common law or otherwise, neither
the Subadviser nor any of its affiliates, officers, directors, shareholders,
employees or agents shall be liable to the Manager for any loss, liability,
cost, damage or expense, including reasonable attorneys' fees and costs
(collectively referred to in this Agreement as "Losses"), including without
limitation Losses in connection with pricing information or other information
provided by Subadviser, except for Losses resulting from the gross negligence,
bad faith or willful misconduct, or reckless disregard of obligations and duties
under this Agreement, of the Subadviser or of its affiliates, officers,
directors, shareholders, employees or agents, as the case may be.
The Manager agrees to indemnify and hold harmless the Subadviser, any
affiliated person within the meaning of Section 2(a)(3) of the 1940 Act
("affiliated person") of the Subadviser and each person, if any, who, within the
meaning of Section 15 of the 1933 Act, controls ("controlling person") the
Subadviser, against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which the
Subadviser or such affiliated person or controlling person may become subject
under the 1933 Act, the 1940 Act, the Advisers Act, under any other statute, at
common law or otherwise, arising out of the Manager's responsibilities as
investment manager of the Series (1) to the extent of and as a result of the
willful misconduct, bad faith, or gross negligence by the Manager, any of the
Manager's employees or representatives or any affiliate of or any person acting
on behalf of the Manager, or
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<PAGE>
(2) as a result of any untrue statement or alleged untrue statement of a
material fact contained in a prospectus or statement of additional information
covering the Series or the Trust or any amendment thereof or any supplement
thereto or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading, if such a statement or omission was made by the Trust other than in
reliance upon written information furnished by the Subadviser, or any affiliated
person of the Subadviser, expressly for use in the Trust's registration
statement or other than upon verbal information confirmed by the Subadviser in
writing expressly for use in the Trust's registration statement.
In no case shall the Manager's indemnity in favor of the Subadviser or
any affiliated person or controlling person of the Subadviser, or any other
provision of this Agreement, deemed to protect such person against any liability
to which any such person would otherwise be subject by reason of willful
misconduct, bad faith or gross negligence in the performance of its duties or by
reason of its reckless disregard of its obligations and duties under this
Agreement.
Except as may otherwise be provided under the 1933 Act, the 1940 Act,
the Advisers Act, under any other statute, at common law or otherwise, neither
the Manager nor any of its affiliates, officers, directors, shareholders,
employees or agents shall be liable to the Subadviser for any Losses, including
without limitation Losses in connection with information provided by the
Manager, except for Losses resulting from the gross negligence, bad faith or
willful misconduct, or reckless disregard of obligations and duties under this
Agreement, of the Manager or of its affiliates, officers, directors,
shareholders, employees or agents, as the case may be.
The obligations of this Section 11 shall survive the termination of
this Agreement.
12. Certain Definitions. For the purposes of this Agreement, the "vote
of a majority of the outstanding voting securities of the Series" means the
affirmative vote, at a duly called and held meeting of shareholders of the
Series, (a) of the holders of 67% or more of the shares of the Series present
(in person or by proxy) and entitled to vote at such meeting, if the holders of
more than 50% of the outstanding shares of the Series entitled to vote at such
meeting are present in person or by proxy, or (b) of the holders of more than
50% of the outstanding shares of the Series entitled to vote at such meeting,
whichever is less.
For the purposes of this Agreement, the terms "interested person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act.
13. Notices. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered or sent by
pre-paid first class letter post to the following addresses or to such other
address as the relevant addressee shall hereafter notify for such purpose to the
others by notice in writing and shall be deemed to have been given at the time
of delivery.
11
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If to the Manager: SCUDDER KEMPER INVESTMENTS, INC.
345 Park Avenue
New York, NY 10154
Attention: General Counsel
If to the Trust: KEMPER VARIABLE SERIES
KVS Growth and Income Portfolio
Two International Place
Boston, MA 02110
Attention: Secretary
If to the Subadviser: Janus Capital Corporation
100 Fillmore Street
Denver, CO 80206
Attention: General Counsel
14. Instructions. The Subadviser is authorized to honor and act on any
notice, instruction or confirmation given by the Trust or Manager in writing
signed or sent by one of the persons whose names, addresses and specimen
signatures will be provided by the Trust or Manager from time to time.
15. Law. This Agreement is governed by and shall be construed in
accordance with the laws of the State of New York in a manner not in conflict
with the provisions of the 1940 Act, except with respect to Section 16, which
shall be construed in accordance with the laws of the State of Massachusetts.
16. Limitation of Liability of the Trust, Trustees, and Shareholders.
It is understood and expressly stipulated that none of the trustees, officers,
agents, or shareholders of the Trust shall be personally liable hereunder. It is
understood and acknowledged that all persons dealing with the Series must look
solely to the property of such Series for the enforcement of any claims against
such Series as neither the trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Trust or the
Series. No series of the Trust shall be liable for the obligations of any other
series.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute a single instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this instrument
to be signed in duplicate on its behalf by the officer designated below
thereunto duly authorized.
MANAGER:
SCUDDER KEMPER INVESTMENTS, INC.
Attest: /s/Kathryn L. Quirk By: /s/Thomas W. Littauer
Secretary ---------------------
Name: Thomas W. Littauer
Title: Managing Director
SUBADVISER:
JANUS CAPITAL CORPORATION
Attest: /s/Verna Morris By: /s/Bonnie Howe
Secretary --------------
Name: Bonnie M. Howe
Title: Assistant Vice President
<PAGE>
Schedule A to the Subadvisory Agreement
for the KVS Growth and Income Portfolio (the "Series"), a series of Kemper
Variable Series (the "Trust") dated as of October 1, 1999 between Scudder Kemper
Investments, Inc. ("Manager")
and Janus Capital Corporation ("Subadviser")
FEE SCHEDULE
As compensation for its services described herein, Subadviser shall receive from
the Manager a monthly fee based on a percentage of the combined average daily
net assets of the Series and of the KVS Growth Opportunities Portfolio,
calculated as the product of (a) the monthly fee determined on the basis of the
combined average daily net assets of the Series and of the KVS Growth
Opportunities Portfolio as provided in the schedule below, and (b) the quotient
of (i) average daily net assets of the Series for the period in question divided
by (ii) the combined average daily net assets of the Series and of the KVS
Growth Opportunities Portfolio for such period.
Net Assets* Annualized Rate
----------- ---------------
On the first $100 million 0.55%
On the next $400 million 0.50%
On the balance over $500 million 0.45%
* Combined net assets of the KVS Growth and Income Portfolio
and the KVS Growth Opportunities Portfolio.
The "average daily net assets" of the Series and of the KVS Growth Opportunities
Portfolio shall be calculated at such time or times as the Trustees of the Trust
may determine in accordance with the provisions of the Investment Company Act of
1940. The value of the net assets shall always be determined pursuant to the
applicable provisions of the Declaration of Trust and the Registration Statement
of the Trust. If the determination of net asset value does not take place for
any particular day, for the purposes of this Schedule A, the net asset value
shall be deemed to be the net asset value determined as of the close of business
on the last day on which such calculation was made for the purpose of the
foregoing computation. If the value of the net assets of a portfolio is
determined more than once on any day, then the last such determination thereof
on that day shall be deemed to be the sole determination thereof on that day for
the purposes of this Schedule A. Fees are charged monthly in arrears based on
one-twelfth of the annual fee rate. Fees will be prorated appropriately if
Subadviser does not perform services pursuant to this Subadvisory Agreement for
a full month.
2
Exhibit d (34)
KVS: GROWTH OPPORTUNITIES PORTFOLIO (JANUS)
SUBADVISORY AGREEMENT
AGREEMENT made as of the 1st day of October, 1999, between Scudder
Kemper Investments, Inc., a Delaware corporation (hereinafter called the
"Manager"), and Janus Capital Corporation, a Colorado corporation (hereinafter
called the "Subadviser").
W I T N E S S E T H :
WHEREAS, Kemper Variable Series (the "Trust") is a Massachusetts
business trust organized with one or more series of shares, and is registered as
an investment company under the Investment Company Act of 1940 (the "1940 Act");
and
WHEREAS, the Manager desires to utilize the services of the Subadviser
to provide subadvisory services with respect to the investment portfolio of KVS
Growth Opportunities Portfolio (the "Series"), being one of the portfolio series
of the Trust, which is under the management of the Manager pursuant to an
Investment Management Agreement between the Manager and the Trust dated October
1, 1999; and
WHEREAS, the Subadviser is willing to perform such services on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, it is agreed as follows:
1. The Subadviser's Services. The Subadviser will serve the Manager as
investment counsel with respect to the Series.
The Subadviser is hereby authorized and directed and hereby agrees,
subject to the stated investment policies and restrictions of the Series as set
forth in the current Prospectus and Statement of Additional Information of the
Trust (including amendments) furnished to the Subadviser and in accordance with
the Declaration of Trust and By-laws of the Trust, as both may be amended from
time to time and furnished to the Subadviser, governing the offering of its
shares and subject to such resolutions, policies and procedures as from time to
time may be adopted by the Trustees of the Trust and furnished to the
Subadviser, to develop, recommend and implement such investment program and
strategy for the Series, to provide research and analysis relative to the
investment program and investments of the Series, to determine what securities
should be purchased and sold and to monitor on a continuing basis the
performance of the portfolio securities of the Series. In addition, the
Subadviser will place orders for the purchase and sale of portfolio securities
and, subject to the provisions of the following paragraph, will take reasonable
steps to assure that portfolio transactions are effected at the best price and
execution
<PAGE>
available. The Subadviser will advise the Fund's custodian and the Manager on a
prompt basis of each purchase and sale of a portfolio security specifying the
name of the issuer, the CUSIP number (if available), the description and amount
or number of shares of the security purchased, the market price, commission and
gross or net price, trade date, settlement date and identity of the effecting
broker or dealer. From time to time as the Trustees of the Trust or the Manager
may reasonably request, the Subadviser will furnish to the Manager, Trust's
officers and to each of its Trustees reports on portfolio transactions and
reports on assets held in the Series, all in such detail as the Trust or the
Manager may reasonably request. The Subadviser will also inform the Manager,
Trust's officers and Trustees on a current basis of changes in investment
strategy or tactics or any other developments materially affecting the Series.
The Subadviser will make its officers and employees available to meet with the
Manager and officers and Trustees of the Trust at least quarterly on due notice
and at such other times as may be mutually agreeable, to review the investments
and investment performance of the Series in the light of the Trust's investment
objectives and policies and market conditions.
Absent written instructions to the Manager to the contrary, the
Subadviser shall place all orders for the purchase and sale of investment
instruments for the Series with brokers or dealers selected by the Subadviser
consistent with best execution, which, subject to and consistent with the
policies and procedures of the Trust relating to Rule 17e-1 under the 1940 Act,
may include brokers or dealers affiliated with the Subadviser. Purchase or sell
orders for the Series may be aggregated with contemporaneous purchase or sell
orders of other clients of the Subadviser. The Subadviser shall use its best
efforts to obtain execution of portfolio transactions at prices that are
advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. The Subadviser may select brokers or dealers
on the basis that they provide brokerage, research or other services or products
to the Series and/or other accounts serviced by the Subadviser. The Subadviser
may place portfolio transactions with a broker or dealer with which it has
negotiated a commission in excess of the commission another broker or dealer
would have charged for effecting that transaction if the Subadviser determines
in good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research provided by such broker or dealer, viewed in
terms of either that particular transaction or the overall responsibilities that
the Subadviser has with respect to the Series and to accounts over which it
exercises investment discretion, and not all such services or products will
necessarily be used by the Subadviser in managing the Series. In addition,
consistent with best execution, the Subadviser may execute portfolio
transactions through brokers and dealers that sell shares of mutual funds
advised by the Subadviser or recommend to their customers that they purchase
shares of such funds. If the Subadviser determines that any product or service
furnished by a broker-dealer has a mixed use, such that it also serves functions
that do not assist the Subadviser in carrying out its investment decision-making
process, the Subadviser shall be responsible for making and documenting a
reasonable allocation of the costs of such service or product. The portion of
the product or service that the Subadviser determines will assist it in carrying
out its investment decision-making process may be paid for in brokerage
commission dollars.
2
<PAGE>
It shall be the duty of the Subadviser to furnish to the Trustees of
the Trust such information as may reasonably be requested in order for such
Trustees to evaluate this Agreement or any proposed amendments thereto for the
purposes of casting a vote pursuant to Section 9 hereof, including any
information requested pursuant to section 15(c) of the 1940 Act. Any information
reasonably deemed proprietary by the Subadviser shall be subject to the
provisions of Section 6 hereof.
The Subadviser shall not be responsible for fund accounting nor shall
it be required to generate fund accounting data.
The Series assets shall be maintained in the custody of the custodian
identified by the Manager in writing (the "Custodian"). Any assets added to the
Series shall be delivered directly to the Custodian. The Subadviser shall have
no liability for the acts or omissions of any Custodian, other than (subject to
Section 11) for acts or omissions arising in reliance on instructions from the
Subadviser.
In the performance of its duties hereunder, the Subadviser is and shall
be an independent contractor and except as otherwise expressly provided herein
or otherwise authorized in writing, shall have no authority to act for or
represent the Trust, the Series or the Manager in any way or otherwise be deemed
to be an agent of the Trust, the Series or the Manager.
In furnishing the services under this Agreement, the Subadviser will
comply with the requirements of the 1940 Act applicable to it, the regulations
promulgated thereunder, and all other applicable laws and regulations. The
Subadviser will immediately notify the Manager and the Trust in the event that
the Subadviser: (i) becomes subject to a statutory disqualification that
prevents the Subadviser from serving as an investment adviser pursuant to this
Agreement; or (ii) becomes the subject of an administrative proceeding or
enforcement action by the Securities and Exchange Commission or other regulatory
authority, which proceeding or action could reasonably be deemed material to the
Subadviser's performance of its duties under this Agreement (unless the
Subadviser is prohibited by applicable law or regulation from disclosing such
proceeding or action). The Subadviser will immediately forward, upon receipt, to
the Manager any correspondence from the Securities and Exchange Commission or
other regulatory authority that relates to the Series.
The Subadviser shall be responsible for the preparation and filing of
reports on Schedule 13G and Form 13F with respect to securities held by the
Series, but unless otherwise expressly agreed to in writing, the Subadviser
shall not be responsible for the preparation or filing of any other reports
required of the Series by any governmental or regulatory agency.
The Subadviser may request information from the Manager or from the
fund accountant, the Custodian or other service providers to the Series to
enable the Subadviser to monitor compliance with portfolio restrictions of the
Series. In the event such information is not made
3
<PAGE>
available to the Subadviser reasonably promptly upon request, the Subadviser
shall notify the Manager in writing. If the Manager does not provide (or arrange
for the provision of) such information to the Subadviser reasonably promptly
upon receipt of written notice from the Subadviser, the Manager shall assume
responsibility for the monitoring to which the requested information relates.
2. Delivery of Documents to Subadviser. The Manager will furnish to the
Subadviser copies of each of the following documents:
(a) The Declaration of Trust of the Trust as in effect on the date
hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement of the
Subadviser as subadviser to the Series and approving the form of this
agreement;
(d) The resolutions of the Trustees selecting the Manager as investment
manager to the Trust and approving the form of the Investment
Management Agreement with the Trust, on behalf of the Series;
(e) The Investment Management Agreement with the Trust, on behalf of
the Series;
(f) The Code of Ethics of the Trust and of the Manager as currently in
effect;
(g) Current copies of the Series' Prospectus and Statement of
Additional Information;
(h) Resolutions, policies and procedures adopted by the Trustees of the
Trust in respect of the management or operation of the Series; and
(i) Such other information as the Subadviser may reasonably request in
connection with the performance of its duties under this Agreement.
The Manager will furnish the Subadviser from time to time with copies,
properly certified or otherwise authenticated, of all amendments of or
supplements to the foregoing, if any. Such amendments or supplements as to Items
(a) though (g) above will be provided within 30 days of the time such materials
became available to the Manager and until so provided the Subadviser may
continue to rely on those documents previously provided.
During the term of this Agreement, the Manager will provide the
Subadviser with a reasonable opportunity to review any amendments to the Series'
Prospectus or Statement of Additional Information prior to filing with the
Securities and Exchange Commission. The Manager will also furnish to the
Subadviser prior to use thereof copies of all other Trust
4
<PAGE>
documents, proxy statements, reports to shareholders, sales literature, or other
material prepared for distribution to shareholders of the Series or the public
that refer in any way to the Subadviser, and will not use such material if the
Subadviser reasonably objects in writing after reasonable opportunity to review
such material after receipt thereof. However, the Manager and the Subadviser may
agree amongst themselves that certain of the above-mentioned documents do not
need to be furnished to the Subadviser prior to the document's use.
The Manager will cooperate with the Subadviser in establishing and
maintaining brokerage and other accounts that the Subadviser deems advisable to
allow for the purchase and sale of various forms of securities or other
instruments by the Series pursuant to this Agreement.
In the event of termination of this Agreement, the Manager will
continue to furnish to the Subadviser copies of any of the above-mentioned
materials that refer in any way to the Subadviser. The Manager shall furnish or
otherwise make available to the Subadviser such other information relating to
the business affairs of the Trust as the Subadviser at any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.
3. Delivery of Documents to the Manager. The Subadviser will furnish
the Manager with copies of each of the following documents:
(a) The Subadviser's most recent balance sheet;
(b) Separate lists of persons who the Subadviser wishes to have
authorized to give written and/or oral instructions to Custodians and
the fund accounting agent of Trust assets for the Series;
(c) The Code of Ethics of the Subadviser as currently in effect; and
(d) Such other documents or information as the Manager may reasonably
request in writing (on behalf of itself or the Trustees of the Trust)
in assessing the Subadviser.
The Subadviser will maintain a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and will provide the Trust
with a copy of the code of ethics, including any amendments thereto, together
with evidence of its adoption and a certification to the effect that the
Subadviser has adopted procedures reasonably necessary to prevent its "access
persons" from violating its code of ethics. The Subadviser will be subject to
its code of ethics and will not be subject to any other code of ethics,
including that of the Manager, unless specifically adopted by the Subadviser. At
least annually (or more frequently if required by Rule 17j-1 or as the Trust or
the Manager may reasonably request), the Subadviser shall provide a written
report as to the matters required to be provided to the Trust by the Subadviser
under Rule 17j-1, including the certification provided for therein. Upon the
written request of the Trust, the
5
<PAGE>
Subadviser shall permit Trust to examine the policies and procedures the
Subadviser maintains pursuant to Rule 17j-1 to the extent material to the
assessment of the Subadviser's performance of its duties under this Agreement.
Upon request by the Manager, the Subadviser will furnish the Manager
with copies of all material amendments of or supplements to the foregoing, if
any. Additionally, the Subadviser will provide to the Manager such other
documents relating to its services under this Agreement as the Manager may
reasonably request on a periodic basis. Such amendments or supplements as to
item (a) will be provided upon the reasonable request of the Manager, and such
amendments or supplements as to items (b) through (c) above will be provided
within 30 days of the time such materials became available to the Subadviser.
Any information reasonably deemed proprietary by the Subadviser shall
be subject to the provisions of Section 6 hereof.
The Subadviser will promptly notify the Manager of any proposed
transaction or other event that could reasonably be expected to result in an
"assignment" of this Agreement within the meaning of the 1940 Act. In addition,
the Subadviser will promptly complete and return to the Manager or the Trust any
reasonable compliance questionnaires or other reasonable inquiries submitted to
the Subadviser in writing.
4. Other Agreements, etc. It is understood that any of the
shareholders, Trustees, officers and employees of the Trust or the Series may be
a shareholder, director, officer or employee of, or be otherwise interested in,
the Subadviser, any interested person of the Subadviser, any organization in
which the Subadviser may have an interest or any organization which may have an
interest in the Subadviser, and that any such interested person or any such
organization may have an interest in the Trust or the Series. It is also
understood that the Subadviser, the Manager and the Trust may have advisory,
management, service or other contracts with other individuals or entities, and
may have other interests and businesses. When a security proposed to be
purchased or sold for the Series is also to be purchased or sold for other
accounts managed by the Subadviser at the same time, the Subadviser shall make
such purchases or sales on a pro-rata, rotating or other equitable basis so as
to avoid any one account's being preferred over any other account.
The Subadviser may give advice and take action with respect to other
funds or clients, or for its own account which may differ from the advice or the
timing or nature of action taken with respect to the Series. The Subadviser
makes no representation or warranty, express or implied, that any level of
investment performance or investment results will be achieved by the Series or
that the Series will perform comparably with any standard or index, including
other clients of the Subadviser, whether public or private.
6
<PAGE>
Nothing in this Agreement shall be implied to prevent the (i) Manager
from engaging other subadvisers to provide investment advice and other services
in relation to portfolios of the Trust for which the Subadviser does not provide
such services, or to prevent the Manager from providing such services itself in
relation to such portfolios; or (ii) the Subadviser from providing investment
advice and other services to other funds or clients.
5. Fees, Expenses and Other Charges.
(a) For its services hereunder, the Subadviser shall be paid a
management fee by the Manager by the 20th day of each month according
to the fee schedule attached hereto as Schedule A.
(b) The Subadviser, at its expense, will furnish all necessary
investment facilities, including salaries of personnel required for it
to execute its duties under this Agreement.
(c) The Manager, the Series and the Trust shall assume and pay their
respective organizational, operational and business expenses not
specifically assumed or agreed to be paid by the Subadviser pursuant to
this Agreement. The Subadviser shall pay its own organizational,
operational and business expenses but shall not be obligated to pay any
expenses of the Manager, the Trust, or the Series, including without
limitation (i) interest and taxes, (ii) brokerage commissions and other
costs in connection with the purchase or sale of securities or other
investment instruments for the Series, and (iii) custodian fees and
expenses. Any reimbursement to the Series of management fees required
by any expense limitation provision set forth in the Prospectus or
Statement of Additional Information of the Series, and any liability to
the Series arising out of a violation of Section 36(b) of the 1940 Act
by the Manager, shall be the sole responsibility of the Manager.
6. Confidentiality etc. It is understood that any information or
recommendation supplied by the Subadviser in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Manager, the Trust or such persons as the Manager may designate in
connection with the Series, and further understood that any information
reasonably designated as proprietary by the Subadviser shall be subject to such
limitations on access or use as the Subadviser and the Manager or the Trust
shall reasonably agree. It is also understood that any information supplied to
the Subadviser in connection with the performance of its obligations hereunder,
particularly, but not limited to, any list of securities which, on a temporary
basis, may not be bought or sold for the Series, is to be regarded as
confidential and for use only by the Subadviser in connection with its
obligation to provide investment advice and other services to the Series.
The Manager will not, directly or indirectly, use, disclose or furnish,
to any person or entity, records or information concerning the business of the
Subadviser, except as necessary for
7
<PAGE>
the performance of its duties under this Agreement or the Investment Management
Agreement, or as required by applicable law or regulation, upon prior written
notice to the Subadviser. Subadviser is the sole owner of the name and mark
"Janus." Other than as permitted by Section 2 hereof, the Manager will not, and
will not permit the Series to, without prior written consent of the Subadviser,
use the name or mark "Janus" or make representations regarding the Subadviser or
its affiliates. Upon termination of this Agreement for any reason, the Manager
shall cease, and the Manager shall cause the Series to cease, as promptly as
practicable, all use of the Janus name or any Janus mark (except to the extent
necessary in describing the management of the Series during the term of this
Agreement).
The Subadviser will maintain and enforce adequate security procedures
with respect to all materials, records, documents and data relating to any of
its responsibilities pursuant to this Agreement including all means for the
effecting of securities transactions.
7. Representations and Covenants of the Parties. The Subadviser hereby
represents and warrants that (a) it is registered as an investment adviser under
the Investment Advisers Act of 1940 (the "Advisers Act"), (b) neither it nor any
"affiliated person" of it, as defined in the 1940 Act, is subject to any
disqualification that would make the Subadviser unable to serve as an investment
adviser to a registered investment company under Section 9 of the 1940 Act, (c)
it is validly existing and in good standing as a corporation under the laws of
Colorado, (d) it has all requisite corporate power and authority to execute,
deliver and perform this Agreement, and (e) such execution, delivery and
performance have been duly authorized by all necessary corporate proceedings of
the Subadviser. The Subadviser covenants that it will carry out appropriate
compliance procedures necessary to the operation of the Series as the Subadviser
and the Manager may agree. The Subadviser also covenants that it will manage the
Series in conformity with all applicable rules and regulations of the Securities
and Exchange Commission in all material respects and so that the Trust will
qualify as a regulated investment company under Subchapter M and Section 817 of
the Internal Revenue Code.
The Manager hereby represents and warrants that (a) it is registered as
an investment adviser under the Advisers Act, (b) it is validly existing and in
good standing as a corporation under the laws of Delaware, (c) it has all
requisite corporate power and authority to execute, deliver and perform this
Agreement, (d) such execution, delivery and performance have been duty
authorized by all necessary corporate proceedings of the Manager, (e) it has
authority under the Investment Management Agreement to execute, deliver and
perform this Agreement, and (f) it has received a copy of Part II of the
Subadviser's Form ADV.
8. Reports by the Subadviser and Records of the Series. The Subadviser
shall furnish the Manager monthly, quarterly and annual reports concerning
transactions and performance of the Series, including information required to be
disclosed in the Trust's registration statement, in such form as may be mutually
agreed, to review the Series and discuss the management of it. The Subadviser
shall permit the financial statements, books and records with respect to the
Series to
8
<PAGE>
be inspected and audited by the Trust, the Manager or their agents at all
reasonable times during normal business hours. The Subadviser shall immediately
notify and forward to both the Manager and legal counsel for the Series any
legal process served upon it on behalf of the Manager or the Trust. The
Subadviser shall promptly notify the Manager of any changes in any information
concerning the Subadviser of which the Subadviser becomes aware that would be
required to be disclosed in the Trust's registration statement.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Subadviser agrees that all records it maintains for the Trust are the
property of the Trust and further agrees to surrender promptly to the Trust or
the Manager any such records upon the Trust's or the Manager's request. The
Subadviser further agrees to maintain for the Trust the records the Trust is
required to maintain under Rule 31a-1 (b) insofar as such records relate to the
investment affairs of the Trust. The Subadviser further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records it maintains
for the Trust.
9. Continuance and Termination; Amendment. This Agreement shall remain
in full force and effect through September 30, 2001, and is renewable annually
thereafter by specific approval of the Board of Trustees of the Trust or by the
affirmative vote of a majority of the outstanding voting securities of the
Series. Any such renewal shall be approved by the vote of a majority of the
Trustees of the Trust who are not interested persons under the 1940 Act, cast in
person at a meeting called for the purpose of voting on such renewal. This
Agreement may be terminated without penalty at any time by the Trustees, by vote
of a majority of the outstanding voting securities of the Series, or by the
Manager or by the Subadviser upon 60 days written notice, and will automatically
terminate in the event of its assignment by either party to this Agreement, as
defined in the 1940 Act, or upon termination of the Manager's Investment
Management Agreement with the Trust. In addition, the Manager or the Trust may
terminate this Agreement upon immediate notice if the Subadviser becomes
statutorily disqualified from performing its duties under this Agreement or
otherwise is legally prohibited from operating as an investment adviser.
This Agreement may be amended only in accordance with applicable law,
and only by a written instrument signed by all the parties to this Agreement.
10. Voting Rights. The Manager shall be responsible for exercising any
voting rights of any securities of the Series.
11. Indemnification, etc. The Subadviser agrees to indemnify and hold
harmless the Manager, any affiliated person within the meaning of Section
2(a)(3) of the 1940 Act ( "affiliated person") of the Manager and each person,
if any, who, within the meaning of Section 15 of the Securities Act of 1933 (the
"1933 Act"), controls ("controlling person") the Manager, against any and all
losses, claims damages, liabilities or litigation (including reasonable legal
and other expenses), to which the Manager or such affiliated person or
controlling person may become
9
<PAGE>
subject under the 1933 Act, the 1940 Act, the Advisers Act, under any other
statute, at common law or otherwise, arising out of Subadviser's
responsibilities as portfolio manager of the Series (1) to the extent of and as
a result of the willful misconduct, bad faith, or gross negligence by the
Subadviser, any of the Subadviser's employees or representatives or any
affiliate of or any person acting on behalf of the Subadviser, or (2) as a
result of any untrue statement or alleged untrue statement of a material fact
contained in a prospectus or statement of additional information covering the
Series or the Trust or any amendment thereof or any supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, if
such a statement or omission was made in reliance upon written information
furnished by the Subadviser to the Manager, the Trust or any affiliated person
of the Manager or the Trust expressly for use in the Trust's registration
statement, or upon verbal information confirmed by the Subadviser in writing
expressly for use in the Trust's registration statement or (3) to the extent of,
and as a result of, the failure of the Subadviser to execute, or cause to be
executed, portfolio transactions according to the standards and requirements of
the 1940 Act.
In no case shall the Subadviser's indemnity in favor of the Manager or
any affiliated person or controlling person of the Manager, or any other
provision of this Agreement, be deemed to protect such person against any
liability to which any such person would otherwise be subject by reason of
willful misconduct, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
under this Agreement.
Except as may otherwise be provided under the 1933 Act, the 1940 Act,
the Advisers Act, under any other statute, at common law or otherwise, neither
the Subadviser nor any of its affiliates, officers, directors, shareholders,
employees or agents shall be liable to the Manager for any loss, liability,
cost, damage or expense, including reasonable attorneys' fees and costs
(collectively referred to in this Agreement as "Losses"), including without
limitation Losses in connection with pricing information or other information
provided by Subadviser, except for Losses resulting from the gross negligence,
bad faith or willful misconduct, or reckless disregard of obligations and duties
under this Agreement, of the Subadviser or of its affiliates, officers,
directors, shareholders, employees or agents, as the case may be.
The Manager agrees to indemnify and hold harmless the Subadviser, any
affiliated person within the meaning of Section 2(a)(3) of the 1940 Act
("affiliated person") of the Subadviser and each person, if any, who, within the
meaning of Section 15 of the 1933 Act, controls ("controlling person") the
Subadviser, against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which the
Subadviser or such affiliated person or controlling person may become subject
under the 1933 Act, the 1940 Act, the Advisers Act, under any other statute, at
common law or otherwise, arising out of the Manager's responsibilities as
investment manager of the Series (1) to the extent of and as a result of the
willful misconduct, bad faith, or gross negligence by the Manager, any of the
Manager's employees or representatives or any affiliate of or any person acting
on behalf of the Manager, or
10
<PAGE>
(2) as a result of any untrue statement or alleged untrue statement of a
material fact contained in a prospectus or statement of additional information
covering the Series or the Trust or any amendment thereof or any supplement
thereto or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading, if such a statement or omission was made by the Trust other than in
reliance upon written information furnished by the Subadviser, or any affiliated
person of the Subadviser, expressly for use in the Trust's registration
statement or other than upon verbal information confirmed by the Subadviser in
writing expressly for use in the Trust's registration statement.
In no case shall the Manager's indemnity in favor of the Subadviser or
any affiliated person or controlling person of the Subadviser, or any other
provision of this Agreement, deemed to protect such person against any liability
to which any such person would otherwise be subject by reason of willful
misconduct, bad faith or gross negligence in the performance of its duties or by
reason of its reckless disregard of its obligations and duties under this
Agreement.
Except as may otherwise be provided under the 1933 Act, the 1940 Act,
the Advisers Act, under any other statute, at common law or otherwise, neither
the Manager nor any of its affiliates, officers, directors, shareholders,
employees or agents shall be liable to the Subadviser for any Losses, including
without limitation Losses in connection with information provided by the
Manager, except for Losses resulting from the gross negligence, bad faith or
willful misconduct, or reckless disregard of obligations and duties under this
Agreement, of the Manager or of its affiliates, officers, directors,
shareholders, employees or agents, as the case may be.
The obligations of this Section 11 shall survive the termination of
this Agreement.
12. Certain Definitions. For the purposes of this Agreement, the "vote
of a majority of the outstanding voting securities of the Series" means the
affirmative vote, at a duly called and held meeting of shareholders of the
Series, (a) of the holders of 67% or more of the shares of the Series present
(in person or by proxy) and entitled to vote at such meeting, if the holders of
more than 50% of the outstanding shares of the Series entitled to vote at such
meeting are present in person or by proxy, or (b) of the holders of more than
50% of the outstanding shares of the Series entitled to vote at such meeting,
whichever is less.
For the purposes of this Agreement, the terms "interested person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act.
13. Notices. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered or sent by
pre-paid first class letter post to the following addresses or to such other
address as the relevant addressee shall hereafter notify for such purpose to the
others by notice in writing and shall be deemed to have been given at the time
of delivery.
11
<PAGE>
If to the Manager: SCUDDER KEMPER INVESTMENTS, INC.
345 Park Avenue
New York, NY 10154
Attention: General Counsel
12
<PAGE>
If to the Trust: KEMPER VARIABLE SERIES
KVS Growth Opportunities Portfolio
Two International Place
Boston, MA 02110
Attention: Secretary
If to the Subadviser: Janus Capital Corporation
100 Fillmore Street
Denver, CO 80206
Attention: General Counsel
14. Instructions. The Subadviser is authorized to honor and act on any
notice, instruction or confirmation given by the Trust or Manager in writing
signed or sent by one of the persons whose names, addresses and specimen
signatures will be provided by the Trust or Manager from time to time.
15. Law. This Agreement is governed by and shall be construed in
accordance with the laws of the State of New York in a manner not in conflict
with the provisions of the 1940 Act, except with respect to Section 16, which
shall be construed in accordance with the laws of the State of Massachusetts.
16. Limitation of Liability of the Trust, Trustees, and Shareholders.
It is understood and expressly stipulated that none of the trustees, officers,
agents, or shareholders of the Trust shall be personally liable hereunder. It is
understood and acknowledged that all persons dealing with the Series must look
solely to the property of such Series for the enforcement of any claims against
such Series as neither the trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Trust or the
Series. No series of the Trust shall be liable for the obligations of any other
series.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute a single instrument.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this instrument
to be signed in duplicate on its behalf by the officer designated below
thereunto duly authorized.
MANAGER:
SCUDDER KEMPER INVESTMENTS,
INC.
Attest: /s/Kathryn L. Quirk By: /s/Thomas W. Littauer
Secretary ---------------------
Name: Thomas W. Littauer
Title: Managing Director
SUBADVISER:
JANUS CAPITAL CORPORATION
Attest: /s/Verna Morris By: /s/Bonnie Howe
Secretary --------------
Name: Bonnie M. Howe
Title: Assistant Vice President
14
<PAGE>
Schedule A to the Subadvisory Agreement
for the KVS Growth Opportunities Portfolio (the "Series"), a series of Kemper
Variable Series (the "Trust") dated as of October 1, 1999 between Scudder
Kemper Investments, Inc.("Manager")
and Janus Capital Corporation ("Subadviser")
FEE SCHEDULE
As compensation for its services described herein, Subadviser shall receive from
the Manager a monthly fee based on a percentage of the combined average daily
net assets of the Series and of the KVS Growth and Income Portfolio, calculated
as the product of (a) the monthly fee determined on the basis of the combined
average daily net assets of the Series and of the KVS Growth and Income
Portfolio as provided in the schedule below, and (b) the quotient of (i) average
daily net assets of the Series for the period in question divided by (ii) the
combined average daily net assets of the Series and of the KVS Growth and Income
Portfolio for such period.
Net Assets* Annualized Rate
----------- ---------------
On the first $100 million 0.55%
On the next $400 million 0.50%
On the balance over $500 million 0.45%
* Combined net assets of the KVS Growth Opportunities
Portfolio and the KVS Growth and Income Portfolio.
The "average daily net assets" of the Series and of the KVS Growth and Income
Portfolio shall be calculated at such time or times as the Trustees of the Trust
may determine in accordance with the provisions of the Investment Company Act of
1940. The value of the net assets shall always be determined pursuant to the
applicable provisions of the Declaration of Trust and the Registration Statement
of the Trust. If the determination of net asset value does not take place for
any particular day, for the purposes of this Schedule A, the net asset value
shall be deemed to be the net asset value determined as of the close of business
on the last day on which such calculation was made for the purpose of the
foregoing computation. If the value of the net assets of a portfolio is
determined more than once on any day, then the last such determination thereof
on that day shall be deemed to be the sole determination thereof on that day for
the purposes of this Schedule A. Fees are charged monthly in arrears based on
one-twelfth of the annual fee rate. Fees will be prorated appropriately if
Subadviser does not perform services pursuant to this Subadvisory Agreement for
a full month.
15
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 29th day of October, 1999 between Kemper Variable
Series (the "Fund"), on behalf of KVS Focused Large Cap Portfolio (hereinafter
called the "Portfolio"), a registered open-end management investment company
with its principal place of business in Chicago, Illinois, and Scudder Fund
Accounting Corporation, with its principal place of business in Boston,
Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need to determine its net asset value which service
FUND ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
to calculate the net asset value of the Portfolio as provided in the
prospectus of the Portfolio and in connection therewith shall:
a. Maintain and preserve all accounts, books, financial records
and other documents as are required of the Fund under Section
31 of the Investment Company Act of 1940 (the "1940 Act") and
Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal
and state laws and any other law or administrative rules or
procedures which may be applicable to the Fund on behalf of
the Portfolio, other than those accounts, books and financial
records required to be maintained by the Fund's investment
adviser, custodian or transfer agent and/or books and records
maintained by all other service providers necessary for the
Fund to conduct its business as a registered open-end
management investment company. All such books and records
shall be the property of the Fund and shall at all times
during regular business hours be open for inspection by, and
shall be surrendered promptly upon request of, duly authorized
officers of the Fund. All such books and records shall at all
times during regular business hours be open for inspection,
upon request of duly authorized officers of the Fund, by
employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Portfolio's public offering price and/or its daily
dividend rates and money market yields, if applicable, in
accordance with Section 3 of the Agreement and notify the Fund
and such other persons as the Fund may reasonably request of
the
<PAGE>
net asset value per share, the public offering price and/or
its daily dividend rates and money market yields.
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily
Dividend Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
2
<PAGE>
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel for the Fund at the reasonable expense of the Portfolio and
shall be without liability for any action taken or thing done in good
faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 6. Standard of Care
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled,
if agreed to by the Fund on behalf of the Portfolio, to recover its
reasonable telephone, courier or delivery service, and all other
reasonable out-of-pocket, expenses as incurred, including, without
limitation, reasonable attorneys' fees and reasonable fees for pricing
services.
3
<PAGE>
FUND ACCOUNTING shall be contractually bound hereunder by the terms of
any publicly announced fee cap or waiver of its fee or by the terms of
any written document provided to the Board of Trustees of the Fund
announcing a fee cap or waiver of its fee, or any limitation of the
Fund's expenses, as if such fee cap, fee waiver or expense limitation
were fully set forth herein.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than sixty (60) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 10. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn.: Vice President
If to the Fund - Portfolio: Kemper Variable Series
222 South Riverside Plaza
Chicago, IL 60606
Attn.: President, Secretary or Treasurer
Section 11. Miscellaneous
4
<PAGE>
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of The Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
written above.
Kemper Variable Series, on behalf of
KVS Focused Large Cap Portfolio
By: /s/ Mark S. Casady
--------------------------------
Mark S. Casady
President
SCUDDER FUND ACCOUNTING CORPORATION
By: /s/ John R. Hebble
--------------------------------
John R. Hebble
5
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 29th day of October, 1999 between Kemper Variable
Series (the "Fund"), on behalf of KVS Growth and Income Portfolio (hereinafter
called the "Portfolio"), a registered open-end management investment company
with its principal place of business in Chicago, Illinois, and Scudder Fund
Accounting Corporation, with its principal place of business in Boston,
Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need to determine its net asset value which service
FUND ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
to calculate the net asset value of the Portfolio as provided in the
prospectus of the Portfolio and in connection therewith shall:
a. Maintain and preserve all accounts, books, financial records
and other documents as are required of the Fund under Section
31 of the Investment Company Act of 1940 (the "1940 Act") and
Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal
and state laws and any other law or administrative rules or
procedures which may be applicable to the Fund on behalf of
the Portfolio, other than those accounts, books and financial
records required to be maintained by the Fund's investment
adviser, custodian or transfer agent and/or books and records
maintained by all other service providers necessary for the
Fund to conduct its business as a registered open-end
management investment company. All such books and records
shall be the property of the Fund and shall at all times
during regular business hours be open for inspection by, and
shall be surrendered promptly upon request of, duly authorized
officers of the Fund. All such books and records shall at all
times during regular business hours be open for inspection,
upon request of duly authorized officers of the Fund, by
employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Portfolio's public offering price and/or its daily
dividend rates and money market yields, if applicable, in
accordance with Section 3 of the Agreement and notify the Fund
and such other persons as the Fund may reasonably request of
the
<PAGE>
net asset value per share, the public offering price and/or
its daily dividend rates and money market yields.
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily
Dividend Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
2
<PAGE>
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel for the Fund at the reasonable expense of the Portfolio and
shall be without liability for any action taken or thing done in good
faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 6. Standard of Care
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled,
if agreed to by the Fund on behalf of the Portfolio, to recover its
reasonable telephone, courier or delivery service, and all other
reasonable out-of-pocket, expenses as incurred, including, without
limitation, reasonable attorneys' fees and reasonable fees for pricing
services.
3
<PAGE>
FUND ACCOUNTING shall be contractually bound hereunder by the terms of
any publicly announced fee cap or waiver of its fee or by the terms of
any written document provided to the Board of Trustees of the Fund
announcing a fee cap or waiver of its fee, or any limitation of the
Fund's expenses, as if such fee cap, fee waiver or expense limitation
were fully set forth herein.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than sixty (60) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 10. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn.: Vice President
If to the Fund - Portfolio: Kemper Variable Series
222 South Riverside Plaza
Chicago, IL 60606
Attn.: President, Secretary or Treasurer
Section 11. Miscellaneous
4
<PAGE>
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of The Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
written above.
Kemper Variable Series, on behalf of
KVS Growth and Income Portfolio
By: /s/ Mark S. Casady
--------------------------------
Mark S. Casady
President
SCUDDER FUND ACCOUNTING CORPORATION
By: /s/ John R. Hebble
--------------------------------
John R. Hebble
5
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 29th day of October, 1999 between Kemper Variable
Series (the "Fund"), on behalf of KVS Growth Opportunities Portfolio
(hereinafter called the "Portfolio"), a registered open-end management
investment company with its principal place of business in Chicago, Illinois,
and Scudder Fund Accounting Corporation, with its principal place of business in
Boston, Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need to determine its net asset value which service
FUND ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
to calculate the net asset value of the Portfolio as provided in the
prospectus of the Portfolio and in connection therewith shall:
a. Maintain and preserve all accounts, books, financial records
and other documents as are required of the Fund under Section
31 of the Investment Company Act of 1940 (the "1940 Act") and
Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal
and state laws and any other law or administrative rules or
procedures which may be applicable to the Fund on behalf of
the Portfolio, other than those accounts, books and financial
records required to be maintained by the Fund's investment
adviser, custodian or transfer agent and/or books and records
maintained by all other service providers necessary for the
Fund to conduct its business as a registered open-end
management investment company. All such books and records
shall be the property of the Fund and shall at all times
during regular business hours be open for inspection by, and
shall be surrendered promptly upon request of, duly authorized
officers of the Fund. All such books and records shall at all
times during regular business hours be open for inspection,
upon request of duly authorized officers of the Fund, by
employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Portfolio's public offering price and/or its daily
dividend rates and money market yields, if applicable, in
accordance with Section 3 of the Agreement and notify the Fund
and such other persons as the Fund may reasonably request of
the
<PAGE>
net asset value per share, the public offering price and/or
its daily dividend rates and money market yields.
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily
Dividend Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
2
<PAGE>
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel for the Fund at the reasonable expense of the Portfolio and
shall be without liability for any action taken or thing done in good
faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 6. Standard of Care
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled,
if agreed to by the Fund on behalf of the Portfolio, to recover its
reasonable telephone, courier or delivery service, and all other
reasonable out-of-pocket, expenses as incurred, including, without
limitation, reasonable attorneys' fees and reasonable fees for pricing
services.
3
<PAGE>
FUND ACCOUNTING shall be contractually bound hereunder by the terms of
any publicly announced fee cap or waiver of its fee or by the terms of
any written document provided to the Board of Trustees of the Fund
announcing a fee cap or waiver of its fee, or any limitation of the
Fund's expenses, as if such fee cap, fee waiver or expense limitation
were fully set forth herein.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than sixty (60) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 10. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn.: Vice President
If to the Fund - Portfolio: Kemper Variable Series
222 South Riverside Plaza
Chicago, IL 60606
Attn.: President, Secretary or Treasurer
Section 11. Miscellaneous
4
<PAGE>
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of The Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
written above.
Kemper Variable Series, on behalf of
KVS Growth Opportunities Portfolio
By: /s/ Mark S. Casady
--------------------------------
Mark S. Casady
President
SCUDDER FUND ACCOUNTING CORPORATION
By: /s/ John R. Hebble
--------------------------------
John R. Hebble
5
