Filed electronically with the Securities and Exchange Commission on
May 1, 2000
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. 32 /X/
and/or --
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /_/
Amendment No. 33 /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)
/X/ On May 1, 2000 pursuant to paragraph (b)
/_/ On _______________ 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>
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Kemper Variable Series
222 South Riverside Plaza
Chicago, Illinois 60606
(800) 778-1482
Kemper Variable Series offers a choice of 26 investment portfolios to investors
applying for certain variable life insurance and variable annuity contracts
offered by participating insurance companies.
Prospectus
May 1, 2000
<TABLE>
<S> <C>
Kemper Aggressive Growth Portfolio Kemper Small Cap Growth Portfolio
Kemper Blue Chip Portfolio Kemper Small Cap Value Portfolio
Kemper Contrarian Value Portfolio Kemper Strategic Income Portfolio
(formerly Kemper Global Income Portfolio)
Kemper Global Blue Chip Portfolio
Kemper Technology Growth Portfolio
Kemper Government Securities Portfolio
Kemper Total Return Portfolio
Kemper Growth Portfolio
Kemper Value+Growth Portfolio
Kemper High Yield Portfolio
KVS Dreman Financial Services Portfolio
Kemper Horizon 5 Portfolio
KVS Dreman High Return Equity Portfolio
Kemper Horizon 10+ Portfolio
KVS Focused Large Cap Growth Portfolio
Kemper Horizon 20+ Portfolio
KVS Growth And Income Portfolio
Kemper International Portfolio
KVS Growth Opportunities Portfolio
Kemper Investment Grade Bond Portfolio
KVS Index 500 Portfolio
Kemper Money Market Portfolio
Kemper New Europe Portfolio
(formerly Kemper International Growth and Income Portfolio)
</TABLE>
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
<TABLE>
<CAPTION>
About The Portfolios About Your Investment
<S> <C> <C>
3 Kemper Aggressive Growth 44 Kemper Small Cap Growth 77 Investment Advisor
Portfolio Portfolio
84 Share Price
5 Kemper Blue Chip Portfolio 47 Kemper Small Cap Value
Portfolio 84 Purchase And Redemption
8 Kemper Contrarian Value
Portfolio 50 Kemper Strategic Income 85 Distributions And Taxes
Portfolio
11 Kemper Global Blue Chip
Portfolio 53 Kemper Technology Growth
Portfolio
14 Kemper Government
Securities Portfolio 55 Kemper Total Return Portfolio
17 Kemper Growth Portfolio 58 Kemper Value+Growth
Portfolio
20 Kemper High Yield Portfolio
61 KVS Dreman Financial
23 Kemper Horizon 5 Portfolio Services Portfolio
26 Kemper Horizon 10+ Portfolio 64 KVS Dreman High Return
Equity Portfolio
29 Kemper Horizon 20+ Portfolio
67 KVS Focused Large Cap
32 Kemper International Growth Portfolio
Portfolio
69 KVS Growth And Income
35 Kemper Investment Grade Portfolio
Bond Portfolio
72 KVS Growth Opportunities
38 Kemper Money Market Portfolio
Portfolio
74 KVS Index 500 Portfolio
41 Kemper New Europe Portfolio
76 Other Policies And Risks
</TABLE>
About The Portfolios
Kemper Variable Series is an open-end, registered management investment company,
currently comprising 26 portfolios. Additional portfolios may be created from
time to time. The portfolios are intended to be a funding vehicle for variable
life insurance contracts and variable annuity contracts offered by the separate
accounts of certain life insurance companies. Kemper Variable Series currently
does not foresee any disadvantages to the holders of these contracts arising
from the fact that the interests of the various contract holders may differ.
Nevertheless, Kemper Variable Series' 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 contracts are
described in the separate prospectuses issued by the participating insurance
companies. Kemper Variable Series assumes no responsibility for such
prospectuses.
Individual contract holders are not the "shareholders" of Kemper Variable
Series. Rather, the participating insurance companies and their separate
accounts are the shareholders or investors, although such companies may pass
through voting rights to their contract holders.
2 | About the Portfolios
<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 total assets in equities --
mainly common stocks -- 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 total assets in foreign securities.
The Main Risks Of Investing In The Portfolio
There are several risk 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 funds, 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 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 appropriate for long-term investors who can accept an
above-average level of risk to their investment in exchange for potentially
higher performance.
Kemper Aggressive Growth Portfolio | 3
<PAGE>
Performance
No performance information is provided because the portfolio has not yet been in
operation for a full calendar year.
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 in 1984
o Began investment career in 1978 o Joined the advisor in 1999
o Joined the advisor in 1995 o Joined the portfolio team in 1999
o Joined the portfolio team in 1999
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
Kemper Aggressive Growth Portfolio
- --------------------------------------------------------------------------------
Period Ended December 31, 1999(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $1.000
---------
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) (a) .006
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .393
---------
- --------------------------------------------------------------------------------
Total from investment operations .399
- --------------------------------------------------------------------------------
Net asset value, end of period $1.399
---------
- --------------------------------------------------------------------------------
Total return (%) 39.89**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 11,670
- --------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.66*
- --------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .50*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .80*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 90*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1999 (commencement of operations) to December
31, 1999.
* Annualized
** Not annualized
4 | Kemper Aggressive Growth Portfolio
<PAGE>
Kemper Blue Chip Portfolio
Portfolio Goal
The portfolio seeks growth of capital and of income.
The Portfolio's Main Strategy
The portfolio normally invests at least 65% of total assets in common stocks of
large U.S. companies (those with market values of $1 billion or more). 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. common stocks, it could invest up to
25% of total assets in foreign securities.
The Main Risks Of Investing In The Portfolio
There are several risk 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 funds, 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 stocks of 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 may be out of favor for certain periods o 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.
Kemper Blue Chip Portfolio | 5
<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
1998 13.84
1999 25.24
Best Quarter: 18.26%, Q4 1998 Worst Quarter: -12.38%, Q3 1998
Year-to-date Total Return as of 3/31/2000: 1.91%
Average Annual Total Returns as of 12/31/1999
1 Year Since 5/1/97
Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio 25.24% 18.98%
Index 1 21.04 27.40
Index 2 20.91 27.37
- --------------------------------------------------------------------------------
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 that includes the 1000 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 in 1970
o Began investment career in 1980 o Joined the advisor in 1988
o Joined the advisor in 1994 o Joined the portfolio team in 1998
o Joined the portfolio team in 1997
6 | Kemper Blue Chip Portfolio
<PAGE>
Kemper Blue Chip Portfolio
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
Kemper Blue Chip Portfolio
- --------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998 1997(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $1.260 1.115 1.000
---------------------------
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) .009(a) .010 .017
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments transactions .308 .145 .098
---------------------------
- --------------------------------------------------------------------------------
Total from investment operations .317 .155 .115
- --------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------
Net investment income (.008) (.010) --
---------------------------
- --------------------------------------------------------------------------------
Total distributions (.008) (.010) --
- --------------------------------------------------------------------------------
Net asset value, end of period $1.569 1.260 1.115
---------------------------
- --------------------------------------------------------------------------------
Total return (%) 25.24 13.84 11.54**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 185,416 78,314 5,023
- --------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .71 .76 .95*
- --------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .70 .76 .95*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .67 1.1 8 2.07*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 64 102 78*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the period May 1, 1997 (commencement of operations) to December 31,
1997.
* Annualized
** Not annualized
Kemper Blue Chip Portfolio | 7
<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% of total assets 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 may favor securities from different sectors and industries at different
times while still maintaining variety in terms of the 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 managers'
expectations.
Other investments
The portfolio may also invest up to 20% of assets in U.S. dollar-denominated
American Depositary 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 funds, 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 may be out of favor for certain periods
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.
8 | 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
1997 30.38
1998 19.26
1999 -10.21
Best Quarter: 15.52%, Q4 1998 Worst Quarter: -13.74%, Q3 1999
Year-to-date Total Return as of 3/31/2000: -4.92%
Average Annual Total Returns as of 12/31/1999
Since 5/1/96
1 Year Life of Portfolio
- ----------------------------------------------------------------------
Portfolio -10.21% 14.41%
Index 21.04 26.78
- ----------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index (S&P 500), an unmanaged
capitalization-weighted index that includes 500 large-cap U.S. stocks.
The Portfolio Managers
The following people handle the portfolio's day-to-day management:
Thomas F. Sassi Frederick L. Gaskin
Lead Portfolio Manager o Began investment career in 1986
o Began investment career in 1971 o Joined the advisor in 1996
o Joined the advisor in 1996 o Joined the portfolio team in 1997
o Joined the portfolio team in 1997
Kemper Contrarian Value Portfolio | 9
<PAGE>
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
<TABLE>
<CAPTION>
Kemper Contrarian Value Portfolio
- -------------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998 1997 1996(b)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.757 1.518 1.174 1.000
------------------------------------
- -------------------------------------------------------------------------------------------------
Income from investment operations:
- -------------------------------------------------------------------------------------------------
Net investment income (loss) .037(a) .026 .031 .015
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments transactions (.194) .263 .323 .159
------------------------------------
- -------------------------------------------------------------------------------------------------
Total from investment operations (.157) .289 .354 .174
- -------------------------------------------------------------------------------------------------
Less distributions from:
- -------------------------------------------------------------------------------------------------
From net investment income (.030) (.010) (.010) --
- -------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.100) (.040) -- --
------------------------------------
- -------------------------------------------------------------------------------------------------
Total distributions (.130) (.050) (.010) --
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $1.470 1.757 1.518 1.174
------------------------------------
- -------------------------------------------------------------------------------------------------
Total return (%) (10.21) 19.26 30.38 17.36**
- -------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 237,415 263,775 162,380 21,305
- -------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .81 .78 .80 .92*
- -------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .80 .78 .80 .90*
- -------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.14 2.02 2.38 2.42*
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 88 57 46 57*
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period of May 1, 1996 (commencement of operations) to December 31,
1996.
* Annualized
** Not annualized
10 | Kemper Contrarian Value Portfolio
<PAGE>
Kemper Global Blue Chip Portfolio
Portfolio Goal
The portfolio seeks long-term capital growth.
The Portfolio's Main Strategy
The portfolio normally invests at least 65% of 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, easy access to credit, 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 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, when its fundamental factors have changed or when
adjusting its exposure to a given country or industry.
Other investments
While most of the portfolio's equities are common stocks, some may be other
types of equities, such as convertible stocks or preferred stocks. While the
fund invests mainly in developed countries, it may invest up to 15% of total
assets in emerging market debt or equity securities of emerging markets (of
which, 5% of net assets may be junk bonds, i.e., grade BB and below), including
closed-end investment companies 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 fall, especially prices of large company stocks, you should expect
the value of your investment to fall 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 at times
may not perform as well as stocks of smaller 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. 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 appropriate for you.
Kemper Global Blue Chip Portfolio | 11
<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
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
1999 26.70
Best Quarter: 18.36%, Q4 1999 Worst Quarter: -2.24%, Q3 1999
Year-to-date Total Return as of 3/31/2000: 0.72%
Average Annual Total Returns as of 12/31/1999
Since 5/5/98
1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio 26.70% 13.86%
Index 21.04 19.85%*
- --------------------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index (S&P 500), an unmanaged
capitalization-weighted index that includes 500 large-cap U.S. stocks.
* Since 4/30/98.
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 in 1970
o Began investment career in 1991 o Joined the advisor in 1980
o Joined the advisor in 1996 o Joined the portfolio team in 1998
o Joined the portfolio team in 1998
Nicholas Bratt
o Began investment career in 1974
o Joined the advisor in 1976
o Joined the portfolio team in 1998
12 | Kemper Global Blue Chip Portfolio
<PAGE>
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
Kemper Global Blue Chip Portfolio
- -------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $ .979 1.000
--------------------
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) .004(a) .003
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions .257 (.024)
-------------------
- --------------------------------------------------------------------------------
Total from investment operations .261 (.021)
- --------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------
Net investment income (.003) --
- --------------------------------------------------------------------------------
Total distributions (.003) --
- --------------------------------------------------------------------------------
Net asset value, end of period $1.237 .979
-------------------
- --------------------------------------------------------------------------------
Total return (%) 26.70 (2.10)**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 17,409 3,584
- --------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 3.47 12.32*
- --------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.56 1.56*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .39 .91*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 65 67*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 5, 1998 (commencement of operations) to December
31, 1998.
* Annualized
** Not annualized
Kemper Global Blue Chip Portfolio | 13
<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 normally invests at least 65% of 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
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 U.S. Treasury obligations 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, 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 funds, one of the most important factors is market interest
rates. A rise in interest rates generally means a fall in bond prices -- and, in
turn, a fall 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. The 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 fall 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
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.
14 | 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
1990 9.81
1991 15.22
1992 5.92
1993 6.48
1994 -2.74
1995 18.98
1996 2.56
1997 8.96
1998 7.03
1999 0.68
Best Quarter: 6.22%, Q4 1990 Worst Quarter: -2.71%, Q1 1992
Year-to-date Total Return as of 3/31/2000: 2.04%
Average Annual Total Returns as of 12/31/1999
Since 9/3/87
1 Year 5 Years 10 Years Life of Portfolio
- -------------------------------------------------------------------------------
Portfolio 0.68% 7.46% 7.12% 7.24%
Index 1.99 8.04 7.93 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.
The Portfolio Managers
The following people handle the portfolio's day-to-day management:
Richard L. Vandenberg John E. Dugenske
Lead Portfolio Manager o Began investment career in 1990
o Began investment career in 1973 o Joined the advisor in 1998
o Joined the advisor in 1996 o Joined the portfolio team in 1998
o Joined the portfolio 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
Kemper Government Securities Portfolio | 15
<PAGE>
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
<TABLE>
<CAPTION>
Kemper Government Securities Portfolio
- ----------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.208 1.207 1.207 1.269 1.142
---------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
- ----------------------------------------------------------------------------------------------------------
Net investment income (loss) .072(a) .062 .084 .085 .084
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions (.064) .019 .016 (.057) .123
---------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Total from investment operations .008 .081 .100 .028 .207
- ----------------------------------------------------------------------------------------------------------
Less distributions from
- ----------------------------------------------------------------------------------------------------------
Net investment income (.060) (.080) (.100) (.090) (.080)
---------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Total distributions (.060) (.080) (.100) (.090) (.080)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.156 1.208 1.207 1.207 1.269
---------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Total return (%) .68 7.03 8.96 2.56 18.98
- ----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ----------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 146,389 123,211 86,682 84,314 95,185
- ----------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .63 .65 .64 .66 .65
- ----------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .63 .65 .64 .66 .65
- ----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 6.13 6.27 7.12 7.09 7.08
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 150 142 179 325 275
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
16 | Kemper Government Securities 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 total assets in common stocks of
U.S. companies. The portfolio typically invests in stocks of small, less
well-known companies; but securities of large, well-known companies,
particularly when the portfolio manager considers them to be attractively priced
favorably compared with stocks of smaller companies. Companies in which the
portfolio invests generally have market capitalizations in excess of $1 billion.
In choosing stocks, the portfolio manager looks for individual companies that
have strong product lines, effective management and leadership positions within
core markets. The manager also analyzes each company's, valuation, stock price
movements and other factors.
Based on the above analysis, the manager classifies stocks as follows:
Stable Growth (typically at least 70% of portfolio): companies with strong
business lines and potentially sustainable earnings growth at a rapid rate
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 manager intends to keep the portfolio's holdings diversified across
industries and companies, and generally keep its sector weightings similar to
those of the Russell 1000 Growth Index.
The portfolio normally will sell a stock when the manager believes its earnings
potential or its fundamental qualities have deteriorated or when other
investments offer better opportunities.
Other investments
The portfolio could invest up to 25% of total assets in foreign securities.
The Main Risks Of Investing In The Portfolio
There are several risk 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 funds, 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 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. 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.
Kemper Growth Portfolio | 17
<PAGE>
Other factors that could affect performance include:
o the manager could be wrong in the 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
1990 0.60
1991 59.46
1992 3.58
1993 14.62
1994 -4.62
1995 32.97
1996 21.63
1997 21.34
1998 15.10
1999 37.12
Best Quarter: 28.94%, Q4 1999 Worst Quarter: -21.97%, Q3 1998
Year-to-date Total Return as of 3/31/2000: 8.06%
Average Annual Total Returns as of 12/31/1999
Since 12/31/89
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Portfolio 37.12% 25.38% 18.94%
Index 1 21.04 28.56 18.21
Index 2 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: Russell 1000 Growth Index, an unmanaged capitalization-weighted index
containing the growth stocks in the Russell 1000 Index.
18 | Kemper Growth Portfolio
<PAGE>
The Portfolio Manager
The following person handles the portfolio's day-to-day management:
Valerie F. Malter
Lead Portfolio Manager
o Began investment career in 1985
o Joined the advisor in 1995
o Joined the portfolio team in 1999
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
<TABLE>
<CAPTION>
Kemper Growth Portfolio
- -----------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $2.957 3.001 3.371 3.262 2.665
---------------------------------------------
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------
Net investment income (loss) (.001)(a) .007 .012 .030 .034
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments transactions 1.098 .459 .448 .589 .793
---------------------------------------------
- -----------------------------------------------------------------------------------------------------
Total from investment operations 1.097 .466 .460 .619 .827
- -----------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------
Net investment income -- (.010) (.020) (.040) (.010)
- -----------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.500) (.810) (.470) (.220)
---------------------------------------------
- -----------------------------------------------------------------------------------------------------
Total distributions -- (.510) (.830) (.510) (.230)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $4.054 2.957 3.001 3.371 3.262
---------------------------------------------
- -----------------------------------------------------------------------------------------------------
Total return (%) 37.12 15.10 21.34 21.63 32.97
- -----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 737,691 628,551 563,016 487,483 414,533
- -----------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .66 .66 .65 .64 .64
- -----------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .66 .66 .65 .64 .64
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.04) .28 .42 94 1.15
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 87 109 170 175 88
- -----------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
Kemper Growth Portfolio | 19
<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 normally invests at least 65% of total assets 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 who 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, 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).
Compared to investment grade bonds, junk bonds may pay higher yields and have
higher volatility and risk of default.
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 fall in bond prices -- and, in turn, a fall in the value of your
investment. An increase in the portfolio's duration could make the portfolio
more sensitive to this risk.
Because the economy has a strong impact on corporate bond performance, the
portfolio will tend to perform less well than other types of bond funds 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.
20 | 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
1990 -15.45
1991 51.82
1992 17.75
1993 19.99
1994 -2.24
1995 17.40
1996 14.06
1997 11.61
1998 1.45
1999 2.15
Best Quarter: 26.74%, Q1 1991 Worst Quarter: -12.83%, Q3 1990
Year-to-date Total Return as of 3/31/2000: -1.99%
Average Annual Total Returns as of 12/31/1999
Since 4/6/82
1 Year 5 Years 10 Years Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio 2.15% 9.15% 10.63% 12.11%
Index 0.27 12.47 12.48 N/A*
- --------------------------------------------------------------------------------
Index: Salomon Brothers Long-Term High Yield Bond Index, a measure of the total
return of high yield bond issues with a par value of at least $50 million and a
remaining maturity of at least ten years.
* The index was not in existence on the portfolio's inception date.
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 career in 1984
o Began investment career in 1968 o Joined the advisor in 1986
o Joined the advisor in 1988 o Joined the portfolio team in 1999
o Joined the portfolio team in 1992
Kemper High Yield Portfolio | 21
<PAGE>
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
<TABLE>
<CAPTION>
Kemper High Yield Portfolio
- ------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.227 1.296 1.281 1.259 1.185
---------------------------------------------
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------
Net investment income (loss) .122(a) .106 .116 .120 .125
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions (.093) (.085) .019 .042 .069
---------------------------------------------
- ------------------------------------------------------------------------------------------------------
Total from investment operations .029 .021 .135 .162 .194
- ------------------------------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------------------------------
Net investment income (.110) (.090) (.120) (.140) (.120)
---------------------------------------------
- ------------------------------------------------------------------------------------------------------
Total distributions (.110) (.090) (.120) (.140) (.120)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.146 1.227 1.296 1.281 1.259
---------------------------------------------
- ------------------------------------------------------------------------------------------------------
Total return (%) 2.15 1.45 11.61 14.06 17.40
- ------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 396,203 442,125 391,664 289,315 257,377
- ------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .67 .65 .65 .65 .65
- ------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .67 .65 .65 .65 .65
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 10.40 9.36 9.20 9.70 10.27
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 42 74 90 98 90
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
22 | Kemper High Yield 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.
Although the managers may adjust the duration (a measure of sensitivity to
interest rates) of the portfolio's fixed-income portion, they generally intend
to keep it between 1.5 and 3.5 years, with an average of approximately 2.5
years.
Equity portion. Most of this portion is normally invested in common stocks.
The equity portion is normally allocated approximately 70% U.S. equities and 30%
foreign equities. 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 general 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.
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 American. 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
Kemper Horizon 5 Portfolio | 23
<PAGE>
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.
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
1997 12.70
1998 10.00
1999 4.86
Best Quarter: 7.73%, Q4 1998 Worst Quarter: -4.22%, Q3 1998
Year-to-date Total Return as of 3/31/2000: -0.16%
Average Annual Total Returns as of 12/31/1999
Since 5/1/96
1 Year Life of Portfolio
- ----------------------------------------------------------------
Portfolio 4.86% 10.06%
Index 1 21.04 26.78
Index 2 -2.15 6.21
- ----------------------------------------------------------------
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
that includes intermediate and long-term government and investment-grade
corporate debt securities.
24 | Kemper Horizon 5 Portfolio
<PAGE>
The Portfolio Managers
The following people handle the portfolio's day-to-day management:
Robert D. Tymoczko Josephine Chu
Lead Portfolio Manager o Began investment career in 1996
o Began investment career in 1996 o Joined the advisor in 1997
o Joined the advisor in 1997 o Joined the portfolio team in 1999
o Joined the portfolio team in 1999 Mark Berroth
o Began investment career in 1993
Shahram Tajbakhsh o Joined the advisor in 1993
o Began investment career in 1991 o Joined the portfolio team in 2000
o Joined the advisor in 1996
o Joined the portfolio team in 1999
Almond G. Goduti
o Began investment career in 1985
o Joined the advisor in 1996
o Joined the portfolio team in 1999
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
<TABLE>
<CAPTION>
Kemper Horizon 5 Portfolio
- -----------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998 1997 1996(b)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $1.305 1.224 1.096 1.000
------------------------------------
- -----------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------
Net investment income (loss) .050(a) .028 .043 .023
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments transactions .009 .093 .095 .073
------------------------------------
- -----------------------------------------------------------------------------------------------
Total from investment operations .059 .121 .138 .096
- -----------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------
Net investment income (.030) (.010) (.010) --
- -----------------------------------------------------------------------------------------------
Net realized gains (loss) on investment transactions -- (.030) -- --
------------------------------------
- -----------------------------------------------------------------------------------------------
Total distributions (.030) (.040) (.010) --
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $1.334 1.305 1.224 1.096
------------------------------------
- -----------------------------------------------------------------------------------------------
Total return (%) 4.86 10.00 12.70 9.59**
- -----------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 42,630 32,741 14,258 2,534
- -----------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .76 .66 .97 1.01*
- -----------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .76 .66 .97 .83*
- -----------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.81 3.85 3.63 3.60*
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 42 89 13*
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1996 (commencement of operations) to December
31, 1996.
* Annualized
** Not annualized
Kemper Horizon 5 Portfolio | 25
<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.
The equity portion is normally allocated approximately 70% U.S. equities and 30%
foreign equities. 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. All of the portfolio's
fixed-income securities will 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.
Although the managers may adjust the duration (a measure of sensitivity to
interest rates) of the portfolio's fixed-income portion, they generally intend
to keep it between 1.5 and 3.5 years, with an average of approximately 2.5
years.
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 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, 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 American 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 general 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:
26 | Kemper Horizon 10+ Portfolio
<PAGE>
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.
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
1997 16.77
1998 11.30
1999 8.38
Best Quarter: 10.74%, Q4 1998 Worst Quarter: -7.77%, Q3 1998
Year-to-date Total Return as of 3/31/2000: -0.86%
Average Annual Total Returns as of 12/31/1999
Since 5/1/96
1 Year Life of Portfolio
- ----------------------------------------------------------------
Portfolio 8.38% 13.07%
Index 1 21.04 26.78
Index 2 -2.15 6.21
- ----------------------------------------------------------------
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
that includes intermediate and long-term government and investment-grade
corporate debt securities.
Kemper Horizon 10+ Portfolio | 27
<PAGE>
The Portfolio Managers
The following people handle the portfolio's day-to-day management:
Robert D. Tymoczko Josephine Chu
Lead Portfolio Manager o Began investment career in 1996
o Began investment career in 1996 o Joined the advisor in 1997
o Joined the advisor in 1997 o Joined the portfolio team in 1999
o Joined the portfolio team in 1999 Mark Berroth
o Began investment career in 1993
Shahram Tajbakhsh o Joined the advisor in 1993
o Began investment career in 1991 o Joined the portfolio team in 2000
o Joined the advisor in 1996
o Joined the portfolio team in 1999
Almond G. Goduti
o Began investment career in 1985
o Joined the advisor in 1996
o Joined the portfolio team in 1999
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
<TABLE>
<CAPTION>
Kemper Horizon 10+ Portfolio
- -------------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998 1997 1996(b)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.394 1.289 1.114 1.000
------------------------------------
- -------------------------------------------------------------------------------------------------
Income from investment operations:
- -------------------------------------------------------------------------------------------------
Net investment income (loss) .040(a) .020 .034 .018
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .075 .125 .151 .096
------------------------------------
- -------------------------------------------------------------------------------------------------
Total from investment operations .115 .145 .185 .114
- -------------------------------------------------------------------------------------------------
Less distributions from
- -------------------------------------------------------------------------------------------------
Net investment income (.030) (.010) (.010) --
- -------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.030) -- --
------------------------------------
- -------------------------------------------------------------------------------------------------
Total distributions (.030) (.040) (.010) --
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $1.479 1.394 1.289 1.114
------------------------------------
- -------------------------------------------------------------------------------------------------
Total return (%) 8.38 11.30 16.77 11.37**
- -------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 66,963 57,411 22,553 5,727
- -------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .72 .64 .83 1.01*
- -------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .72 .64 .83 .78*
- -------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.83 2.84 2.77 2.69*
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 50 35 67 76*
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1996 (commencement of operations) to December
31, 1996.
* Annualized
** Not annualized
28 | Kemper Horizon 10+ 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.
The equity portion is normally allocated approximately 70% U.S. equities and 30%
foreign equities. 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.
Although the managers may adjust the duration (a measure of sensitivity to
interest rates) of the portfolio's fixed-income portion, they generally intend
to keep it between 1.5 and 3.5 years, with an average of approximately 2.5
years.
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 fall, the value of your investment is likely to fall 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 American 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
Kemper Horizon 20+ Portfolio | 29
<PAGE>
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.
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
1997 20.48
1998 13.01
1999 9.26
Best Quarter: 13.86%, Q4 1998 Worst Quarter: -11.44%, Q3 1998
Year-to-date Total Return as of 3/31/2000: -1.86%
Average Annual Total Returns as of 12/31/1999
Since 5/1/96
1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio 9.26% 15.87%
Index 1 21.04 26.56
Index 2 -2.15 6.21
- --------------------------------------------------------------------------------
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
that includes intermediate and long-term government and investment-grade
corporate debt securities.
30 | Kemper Horizon 20+ Portfolio
<PAGE>
The Portfolio Managers
The following people handle the portfolio's day-to-day management:
Robert D. Tymoczko Josephine Chu
Lead Portfolio Manager o Began investment career in 1996
o Began investment career in 1996 o Joined the advisor in 1997
o Joined the advisor in 1997 o Joined the portfolio team in 1999
o Joined the portfolio team in 1999 Mark Berroth
o Began investment career in 1993
Shahram Tajbakhsh o Joined the advisor in 1993
o Began investment career in 1991 o Joined the portfolio team in 2000
o Joined the advisor in 1996
o Joined the portfolio team in 1999
Almond G. Goduti
o Began investment career in 1985
o Joined the advisor in 1996
o Joined the portfolio team in 1999
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
<TABLE>
<CAPTION>
Kemper Horizon 20+ Portfolio
- --------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998 1997 1996(b)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.507 1.378 1.154 1.000
------------------------------------
- --------------------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------------------
Net investment income (loss) .027(a) .019 .020 .012
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments transactions .110 .160 .214 .142
------------------------------------
- --------------------------------------------------------------------------------------------
Total from investment operations .137 .179 .234 .154
- --------------------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------------------
Net investment income (.020) (.010) (.010) --
- --------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.010) (.040) -- --
------------------------------------
- --------------------------------------------------------------------------------------------
Total distributions (.030) (.050) (.010) --
- --------------------------------------------------------------------------------------------
Net asset value, end of period $1.614 1.507 1.378 1.154
------------------------------------
- --------------------------------------------------------------------------------------------
Total return (%) 9.26 13.01 20.48 15.37**
- --------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 37,409 38,265 16,659 3,759
- --------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .78 .67 .93 1.13*
- --------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .78 .67 .93 .81*
- --------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.78 1.84 1.58 1.71*
- --------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 62 55 75 60*
- --------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1996 (commencement of operations) to December
31, 1996.
* Annualized
** Not annualized
Kemper Horizon 20+ Portfolio | 31
<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 normally invests at least 80% of total assets in securities issued
by foreign-based issuers. The portfolio generally focuses on common stocks of
established companies. The portfolio may invest more than 25% of total assets in
any given developed country that the managers believe 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 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.
32 | 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
1993 32.79
1994 -3.59
1995 12.83
1996 16.49
1997 9.46
1998 10.02
1999 45.71
Best Quarter: 31.03%, Q4 1999 Worst Quarter: -17.32%, Q3 1998
Year-to-date Total Return as of 3/31/2000: -1.16%
Average Annual Total Returns as of 12/31/1999
Since 1/6/92
1 Year 5 Years Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio 45.71% 18.19% 14.42%
Index 26.96 11.22 11.36
- --------------------------------------------------------------------------------
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.
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 in 1990
o Began investment career in 1985 o Joined the advisor in 1994
o Joined the advisor in 1993 o Joined the portfolio team in 1998
o Joined the portfolio team in 1999
Carol L. Franklin
Nicholas Bratt o Began investment career in 1975
o Began investment career in 1974 o Joined the advisor in 1981
o Joined the advisor in 1976 o Joined the portfolio team in 2000
o Joined the portfolio team in 2000
Kemper International Portfolio | 33
<PAGE>
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
<TABLE>
<CAPTION>
Kemper International Portfolio
- -------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.700 1.615 1.564 1.371 1.244
---------------------------------------------
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
- -------------------------------------------------------------------------------------------------------
Net investment income (loss) .007(a) .017 .011 .011 .018
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions .673 .148 .130 .212 .139
---------------------------------------------
- -------------------------------------------------------------------------------------------------------
Total from investment operations .680 .165 .141 .223 .157
- -------------------------------------------------------------------------------------------------------
Less distributions from:
- -------------------------------------------------------------------------------------------------------
Net investment income (.020) (.020) (.020) (.020) (.010)
- -------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.215) (.060) (.070) (.010) (.020)
---------------------------------------------
- -------------------------------------------------------------------------------------------------------
Total distributions (.235) (.080) (.090) (.030) (.030)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $2.145 1.700 1.615 1.564 1.371
---------------------------------------------
- -------------------------------------------------------------------------------------------------------
Total return (%) 45.71 10.02 9.46 16.49 12.83
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 251,631 213,199 200,046 163,475 134,481
- -------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .94 .93 .91 .96 .92
- -------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .94 .93 .91 .96 .92
- -------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .40 .96 .71 .89 1.39
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 136 90 79 87 126
- -------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
34 | Kemper International Portfolio
<PAGE>
Kemper Investment Grade Bond Portfolio
Portfolio Goal
The portfolio seeks high current income.
The Portfolio's Main Strategy
The portfolio pursues its goal by investing primarily in a diversified portfolio
of fixed-income securities.
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% 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 risk of
default.
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 funds, the most important factor is market interest rates. A
rise in interest rates generally means a fall in bond prices -- and, in turn, a
fall in the value of your investment. Changes in interest rates will also affect
the portfolio's yield: when rates fall, the portfolio's yield tends to fall as
well.
Because the economy affects corporate bond performance, the portfolio will tend
to perform less well than other types of bond funds 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 investment portfolio that seeks high current
income.
Kemper Investment Grade Bond Portfolio | 35
<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
1997 9.04
1998 7.93
1999 -2.06
Best Quarter: 3.82%, Q3 1998 Worst Quarter: -1.23%, Q2 1999
Year-to-date Total Return as of 3/31/2000: 1.64%
Average Annual Total Returns as of 12/31/1999
Since 5/1/96
1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio -2.06% 4.95%
Index -2.15 6.21
- --------------------------------------------------------------------------------
Index: Lehman Brothers Government/Corporate Bond Index, an unmanaged index that
includes intermediate- and long-term government and investment-grade corporate
debt securities.
The Portfolio Manager
The following person handles the portfolio's day-to-day management:
Robert S. Cessine
Lead Portfolio Manager
o Began investment career in 1982
o Joined the advisor in 1993
o Joined the portfolio team in 1996
36 | Kemper Investment Grade Bond Portfolio
<PAGE>
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
<TABLE>
<CAPTION>
Kemper Investment Grade Bond Portfolio
- ---------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997 1996(b)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.165 1.118 1.036 1.000
------------------------------------
- ---------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------
Net investment income (loss) .060(a) .032 .066 .031
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions (.085) .055 .026 .005
------------------------------------
- ---------------------------------------------------------------------------------------------
Total from investment operations (.025) .087 .092 .036
- ---------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------
Net investment income (.030) (.030) (.010) --
- ---------------------------------------------------------------------------------------------
Net realized gains on investments transactions (.010) (.010) -- --
------------------------------------
- ---------------------------------------------------------------------------------------------
Total distributions (.040) (.040) (.010) --
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $1.100 1.165 1.118 1.036
------------------------------------
- ---------------------------------------------------------------------------------------------
Total return (%) (2.06) 7.93 9.04 3.57**
- ---------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 70,978 52,155 15,504 1,998
- ---------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .65 .67 .80 .87*
- ---------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .65 .67 .80 .87*
- ---------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 5.42 5.50 6.23 4.93*
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 131 130 311 75*
- ---------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1996 (commencement of operations) to December
31, 1996.
* Annualized
** Not annualized
Kemper Investment Grade Bond Portfolio | 37
<PAGE>
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 invests 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 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 fund 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.
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:
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 ratings 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 funds, 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.
38 | Kemper Money Market Portfolio
<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 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
1990 8.08
1991 5.90
1992 3.43
1993 2.85
1994 3.95
1995 5.66
1996 5.03
1997 5.25
1998 5.15
1999 4.84
Best Quarter: 1.99%, Q2 1990 Worst Quarter: 0.69%, Q2 1993
Year-to-date Total Return as of 3/31/2000: 1.38%
Average Annual Total Returns as of 12/31/1999
1 Year 5 Years 10 Years Since 4/6/82
Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio 4.84% 5.18% 5.00% 6.56%
- --------------------------------------------------------------------------------
On 12/31/1999, the portfolio's 7-day annualized yield was 5.75%.
The Portfolio Managers
The following people handle the portfolio's day-to-day management:
Frank Rachwalski, Jr. Jerri I. Cohen
Lead Portfolio Manager o Began investment career in 1992
o Began investment career in 1973 o Joined the advisor in 1981
o Joined the advisor in 1973 o Joined the portfolio team in 1998
o Joined the portfolio team in 1984
Kemper Money Market Portfolio | 39
<PAGE>
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
<TABLE>
<CAPTION>
Kemper Money Market Portfolio
- ------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 1.00 1.00 1.00 1.00
---------------------------------------------
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------
Net investment income .05 .05 .05 .05 .06
---------------------------------------------
- ------------------------------------------------------------------------------------------------------
Total from investment operations
- ------------------------------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------------------------------
Net Investment income (.05) (.05) (.05) (.05) (.06)
---------------------------------------------
- ------------------------------------------------------------------------------------------------------
Total distributions
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00 1.00
---------------------------------------------
- ------------------------------------------------------------------------------------------------------
Total return (%) 4.84 5.15 5.25 5.03 5.66(a)
- ------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 231,099 151,930 100,143 70,601 61,078
- ------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .54 .54 .55 .60 .55
- ------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .54 .54 .55 .60 .55
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 8.42 5.02 5.14 4.90 5.52
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a)The total return for 1995 includes the effect of a capital contribution from
the investment manager. Without the capital contribution, the total return
would have been 5.11%.
40 | Kemper Money Market Portfolio
<PAGE>
Kemper New Europe Portfolio
(formerly Kemper International Growth and Income Portfolio)
Portfolio Goal
The portfolio seeks long-term capital appreciation.
The Portfolio's Main Strategy
The portfolio normally invests at least 65% of total assets in European common
stocks and other equities (equities that are traded mainly on European markets
or are issued by companies that are based in Europe or do more than half of
their business there). The portfolio generally focuses on common stocks of
companies in the more established markets of Western and Southern Europe such as
Finland, Germany, France, Italy, Spain and Portugal.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies with new or
dominant products or technologies, among other factors.
Growth orientation. The managers look for stocks that seem to offer the
potential for sustainable above-average growth of revenues or earnings relative
to each stock's own market and whose market prices are reasonable in light of
their potential growth.
Top-down analysis. The managers consider the outlook for economic, political,
industrial and demographic trends and how they may affect various countries,
sectors and industries represented.
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 it has reached a target price, the
managers believe other investments offer better opportunities or when adjusting
its exposure to a given country or industry.
Other investments
The portfolio may invest up to 20% of total assets in European debt securities
of any credit quality, including junk bonds (i.e., grade BB and below). Compared
to investment-grade bonds, junk bonds may pay higher yields and have higher
volatility and risk of default.
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 European stock markets
perform -- something that depends on a large number of factors, including
economic, political and demographic trends. When European stock prices fall, you
should expect the value of your investment to fall as well.
The fact that the portfolio focuses on a single geographical region could affect
portfolio performance. For example, European companies could be hurt by such
factors as regional economic downturns or difficulties with the European
Economic and Monetary Union (EMU). Eastern European companies can be very
sensitive to political and economic developments. 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. In addition, changing currency rates could add to the
portfolio's investment losses or reduce its investment gains.
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.
Kemper New Europe Portfolio | 41
<PAGE>
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 growth stocks may be out of favor for certain periods
o bond investments could be hurt by rising interest rates or declines in
credit quality
o at times, market conditions might make it hard to value some investments or
to get an attractive price for them
This fund may appeal to investors who seek long-term growth and want to gain
exposure to Europe's established markets.
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.
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*
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
1999 14.09
Best Quarter: 10.04%, Q4 1999 Worst Quarter: -2.66%, Q1 1999
Year-to-date Total Return as of 3/31/2000: 0.57%
Average Annual Total Returns as of 12/31/1999*
Since 5/5/98
1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio 14.09% 2.40%
Index 26.96 18.33**
- --------------------------------------------------------------------------------
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.
* Prior to 5/1/2000, the portfolio was named Kemper International Growth and
Income Portfolio and operated with a different goal and investment
strategy. Performance would have been different if the portfolio's current
policies had been in effect.
** Since 4/30/98.
42 | Kemper New Europe Portfolio
<PAGE>
The Portfolio Managers
The following people handle the portfolio's day-to-day management:
Carol L. Franklin Joan R. Gregory
Lead Portfolio Manager o Began investment career in 1989
o Began investment career in 1975 o Joined the advisor in 1992
o Joined the advisor in 1981 o Joined the portfolio team in 2000
o Joined the portfolio team in 2000
Marc Slendebroek
Nicholas Bratt o Began investment career in 1990
o Began investment career in 1974 o Joined the advisor in 1994
o Joined the advisor in 1976 o Joined the portfolio team in 2000
o Joined the portfolio team in 2000
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482. Prior to 5/1/2000, the
portfolio was named International Growth and Income Portfolio and operated with
a different goal and investment strategy. Performance would have been different
if the portfolio's current policies had been in effect.
Kemper New Europe Portfolio
- --------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $ .912 1.000
------------------
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) .013(a) .003
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions .115 (.091)
------------------
- --------------------------------------------------------------------------------
Total from investment operations .128 (.088)
- --------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------
Net investment income (.005) --
- --------------------------------------------------------------------------------
Total distributions (.005) --
- --------------------------------------------------------------------------------
Net asset value, end of period $1.035 .912
------------------
- --------------------------------------------------------------------------------
Total return (%) 14.09 (8.80)**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 6,677 3,003
- --------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 4.30 19.55*
- --------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.10 1.13*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.44 1.13*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 146 100*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 5, 1998 (commencement of operations) to December
31, 1998.
* Annualized
** Not annualized
Kemper New Europe Portfolio | 43
<PAGE>
Kemper Small Cap Growth Portfolio
Portfolio Goal
The portfolio seeks maximum appreciation of investors' capital.
The Portfolio's Main Strategy
The portfolio normally invests at least 65% of total assets in small
capitalization stocks similar in size to those comprising the Russell 2000
Index.
In choosing stocks, the portfolio manager looks for individual companies with a
history of revenue growth, effective management and strong balance sheets, among
other factors. In particular, the manager seeks companies that may benefit from
technological advances, new marketing methods and economic and demographic
changes.
The manager also considers the economic outlooks for various sectors and
industries, typically favoring those where high growth companies tend to be
clustered, such as medical technology, software and specialty retailing.
The manager 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 manager believes its price is
unlikely to go much higher, its fundamental qualities have deteriorated or other
investments offer better opportunities. The portfolio also may sell 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
total assets in foreign securities.
The Main Risks Of Investing In The Portfolio
There are several risk 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 funds, 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 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 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 industry, any factors
affecting that industry 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 manager could be wrong in the 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
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.
44 | Kemper Small Cap 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 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:
30.07 28.04 34.20 18.37 34.56
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: 30.96%, Q4 1999 Worst Quarter: -16.72%, Q3 1998
Year-to-date Total Return as of 3/31/2000: 21.77%
Average Annual Total Returns as of 12/31/1999
Since 5/2/94
1 Year 5 Years Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio 34.56% 28.92% 25.97%
Index 1 21.04 28.56 25.68
Index 2 21.26 16.69 14.65
Index 3 43.09 18.99 16.90
- --------------------------------------------------------------------------------
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 capitalization-weighted index
containing the growth stocks in the Russell 2000.
The Portfolio Manager
The following person handles the portfolio's day-to-day management:
Jesus A. Cabrera
Lead Portfolio Manager
o Began investment career in 1984
o Joined the advisor in 1999
o Joined the portfolio team in 1999
45 | Kemper Small Cap Growth Portfolio
<PAGE>
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
Kemper Small Cap Growth Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.971 1.969 1.677 1.346 1.039
---------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.006)(a) -- .004 .002 .005
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments transactions .689 .342 .488 .369 .307
---------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .683 .342 .492 .371 .312
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income -- -- (.010) -- (.005)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.340) (.190) (.040) --
---------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions -- (.340) (.200) (.040) (.005)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $2.654 1.971 1.969 1.677 1.346
---------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) 34.56 18.37 34.20 28.04 30.07
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 264,602 208,335 137,415 69,137 35,373
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .71 .70 .71 .75 .87
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .71 .70 .71 .75 .87
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.30) (.01) .20 .15 .42
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 208 276 330 156 81
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
46 | Kemper Small Cap Growth 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 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 (market
values of $1.4 billion or less as of December 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's investments 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
total assets in securities of foreign companies in the form of U.S.
dollar-denominated American Depositary 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 funds, 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 fall, you should expect the value
of your investment to fall 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 may be out of favor for certain periods
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
This portfolio may make sense for value-oriented investors who are interested in
small-cap market exposure with potentially lower risk than a growth-oriented
small-cap portfolio.
47 | Kemper Small Cap 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:
21.73 -11.25 2.80
- --------------------------------------------------------------------------------
1997 1998 1999
Best Quarter: 16.49%, Q2 1997 Worst Quarter: -22.47%, Q3 1998
Year-to-date Total Return as of 3/31/2000: 0.19%
Average Annual Total Returns as of 12/31/1999
Since 5/1/96
1 Year Life of Portfolio
- ----------------------------------------------------------------------
Portfolio 2.80% 3.42%
Index 21.26 12.12
- ----------------------------------------------------------------------
Index: Russell 2000 Index, an unmanaged capitalization-weighted measure of
approximately 2000 small U.S stocks.
The Portfolio Managers
The following people handle the portfolio's day-to-day management:
James M. Eysenbach Calvin S. Young
Lead Portfolio Manager o Began investment career in 1988
o Began investment career in 1984 o Joined the advisor in 1990
o Joined the advisor in 1991 o Joined the portfolio team in 1999
o Joined the portfolio team in 1999
48 | Kemper Small Cap Value Portfolio
<PAGE>
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
Kemper Small Cap Value Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998 1997 1996(b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.065 1.227 1.019 1.000
------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .007(a) .009 .012 .013
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .023 (.141) .206 .006
------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .030 (.132) .218 .019
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (.010) -- (.010) --
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.030) -- --
------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.010) (.030) (.010) --
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.085 1.065 1.227 1.019
------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) 2.80 (11.25) 21.73 1.86**
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 95,193 102,009 76,108 13,307
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .84 .80 .84 .92*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .83 .80 .84 .90*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .69 1.15 1.18 2.23*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 72 43 22 61*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1996 (commencement of operations) to
December 31, 1996.
* Annualized
** Not annualized
49 | Kemper Small Cap Value Portfolio
<PAGE>
Kemper Strategic Income Portfolio
(formerly Kemper Global Income Portfolio)
Portfolio Goal
The portfolio seeks high current return.
The Portfolio's Main Strategy
The portfolio invests mainly in bonds issued by U.S. and foreign corporations
and governments. The portfolio may invest up to 50% of total assets in foreign
bonds, including emerging market issuers.
In deciding which types of securities to buy and sell, the portfolio managers
evaluate each major type of security the portfolio invests in -- U.S. junk
bonds, investment-grade corporate bonds, emerging markets securities, foreign
government bonds and U.S. government and agency securities. The managers
typically consider a number of factors, including the relative attractiveness of
different types of securities, the potential impact of interest rate movements,
the outlook for various types of foreign bonds (including currency
considerations) and the relative yields and risks of bonds of various
maturities.
The managers may shift the proportions of the portfolio's holdings, favoring
different types of securities at different times, while still maintaining
variety in terms of the issuers and industries represented.
The managers may adjust the duration (a measure of sensitivity to interest rate
movements) of the portfolio, depending on their outlook for interest rates.
Credit quality policies
The credit quality of the portfolio's investments may vary; the portfolio may
invest up to 100% of total assets in either investment-grade bonds or in junk
bonds, which are those below the fourth credit grade (i.e., grade BB/Ba and
below). Compared to investment-grade bonds, junk bonds may pay higher yields and
have higher volatility and risk of default.
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.
For this portfolio, the main risk factor will vary depending on the portfolio's
weighting of various types of securities. To the extent that the portfolio
invests in junk bonds, one of the main risk 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. In some cases, bonds may
decline in credit quality or go into default. Also, negative corporate news may
have a significant impact on individual bond prices.
To the extent that the portfolio invests in higher quality bonds, a major factor
is market interest rates. A rise in interest rates generally means a fall in
bond prices -- and, in turn, a fall in the value of your investment. An increase
in the portfolio's duration could make the portfolio more sensitive to this
risk.
Foreign securities 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. To the extent the portfolio
emphasizes emerging markets where these risks are greater, it takes on greater
risk.
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 currency fluctuations could cause foreign investments to lose value
o some bonds could be paid off earlier than expected, which could hurt
the portfolio's performance
o at times, it could be hard to value some investments or to get an
attractive price for them
Investors looking for a bond portfolio that emphasizes different types of bonds
depending on market and economic outlooks, and who can accept risk of loss of
principal, may want to invest in this portfolio.
50 | Kemper Strategic 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:
10.98 -5.85
- --------------------------------------------------------------------------------
1998 1999
Best Quarter: 6.35%, Q3 1998 Worst Quarter: -3.33%, Q2 1999
Year-to-date Total Return as of 3/31/2000: -0.28%
Average Annual Total Returns as of 12/31/1999*
1 Year Since 5/1/97
Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio -5.85% 2.74%
Index -4.27 5.87
- --------------------------------------------------------------------------------
Index: The Salomon Brothers World Government Bond Index, an unmanaged index
comprised of government bonds from 18 developed countries (including the U.S.)
with maturities greater than one year.
* Prior to 5/1/2000, the portfolio was named Kemper Global Income
Portfolio and operated with a different goal and investment strategy.
Performance would have been different if the portfolio's current
policies were in effect.
The Portfolio Managers
The following people handle the portfolio's day-to-day management:
J. Patrick Beimford M. Isabel Saltzman
Lead Portfolio Manager o Began investment career in 1981
o Began investment career in 1976 o Joined the advisor in 1990
o Joined the advisor in 1976 o Joined the fund team in 1999
o Joined the fund team in 1996
Richard L. Vandenberg
Robert S. Cessine o Began investment career in 1973
o Began investment career in 1982 o Joined the advisor in 1996
o Joined the advisor in 1993 o Joined the fund team in 1999
o Joined the fund team in 1994
Daniel J. Doyle
o Began investment career in 1984
o Joined the advisor in 1986
o Joined the fund team in 1999
51 | Kemper Strategic Income Portfolio
<PAGE>
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482. Prior to 5/1/2000, the
portfolio was named International Growth and Income Portfolio and operated with
a different goal and investment strategy. Performance would have been different
if the portfolio's current policies had been in effect.
<TABLE>
<CAPTION>
Kemper Strategic Income Portfolio
- ---------------------------------------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998 1997(b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $1.109 1.029 1.000
---------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .047(a) .024 .036
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.110) .086 (.007)
---------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.063) .110 .029
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (.040) (.020) --
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.020) (.010) --
---------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.060) (.030) --
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ .986 1.109 1.029
---------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) (5.85) 10.98 2.87**
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 5,599 5,023 2,145
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.03 1.08 1.10*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.01 1.08 1.10*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 4.57 4.32 5.36*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 212 330 290*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1997 (commencement of operations) to
December 31, 1997.
* Annualized
** Not annualized
52 | Kemper Strategic Income 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 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 individual 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
total assets in foreign securities.
The Main Risks Of Investing In The Portfolio
There are several risk 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 funds, 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 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 appeal to investors who want exposure to a sector that offers
attractive long-term growth potential and who can accept above-average risks.
Performance
No performance information is provided because the portfolio has not yet been in
operation for a full calendar year.
53 | Kemper Technology Growth Portfolio
<PAGE>
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 in 1993
o Began investment career in 1970 o Joined the advisor in 1996
o Joined the advisor in 1998 o Joined the portfolio team in 1999
o Joined the portfolio team in 1999
Tracy McCormick
Deborah L. Koch o Began investment career in 1980
Co-lead Portfolio Manager o Joined the advisor in 1994
o Began investment career in 1985 o Joined the portfolio team in 1998
o Joined the advisor in 1992
o Joined the portfolio team in 1999 Virginea Stuart
o Began investment career in 1995
J. Brooks Dougherty o Joined the advisor in 1996
o Began investment career in 1984 o Joined the portfolio team in 1999
o Joined the advisor in 1993
o Joined the portfolio team in 1999
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
Kemper Technology Growth Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Period Ended December 31, 1999(b)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $1.000
---------
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) .005
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments transactions .772
---------
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .777
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.777
---------
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) 77.70**
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 84,209
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.19*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .94*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .60*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 34*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1999 (commencement of operations) to
December 31, 1999.
* Annualized
** Not annualized
54 | Kemper Technology Growth 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.
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). Compared to investment-grade bonds, junk bonds may pay higher yields and
have higher volatility and risk of default.
The Main Risks Of Investing In The Portfolio
There are several risk 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.
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.
55 | 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 growth stocks may be out of favor for certain periods
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
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
investment 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
<TABLE>
<S> <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 14.81
- -------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter: 14.92%, Q1 1991 Worst Quarter: -9.01%, Q3 1990
Year-to-date Total Return as of 3/31/2000: 1.69%
Average Annual Total Returns as of 12/31/1999
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Portfolio 14.81% 18.46% 13.31%
Index 1 21.04 28.56 18.84
Index 2 -2.15 7.61 8.07
Index 3 33.16 32.41 21.61
- --------------------------------------------------------------------------------
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
that includes 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.
56 | 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 in 1980
o Began investment career in 1970 o Joined the advisor in 1994
o Joined the advisor in 1988 o Joined the portfolio team in 1998
o Joined the portfolio team in 1995
Robert S. Cessine
o Began investment career in 1982
o Joined the advisor in 1993
o Joined the portfolio team in 1999
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
Kemper Total Return Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $2.735 2.822 2.815 2.579 2.112
---------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .084(a) .086 .090 .084 .084
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .303 .317 .377 .322 .453
---------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .387 .403 .467 .406 .537
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (.090) (.090) (.090) (.090) (.070)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.150) (.400) (.370) (.080) --
---------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.240) (.490) (.460) (.170) (.070)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $2.882 2.735 2.822 2.815 2.579
---------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) 14.81 15.14 19.96 16.76 25.97
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 952,485 865,423 786,996 697,102 659,894
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .61 .60 .60 .59 .60
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .61 .60 .60 .59 .60
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.12 3.33 3.32 3.21 3.52
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 80 81 122 90 118
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
57 | Kemper Total Return Portfolio
<PAGE>
Kemper Value+Growth Portfolio
Portfolio Goal
The portfolio seeks growth of capital through a portfolio of growth and value
stocks. 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 total assets in U.S. common
stocks. Although the portfolio can invest in companies of any size, it mainly
chooses stocks from the 1,000 largest companies (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 manager looks 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 manager looks
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 manager believes 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. common stocks, it could invest up to
25% of total assets in foreign securities.
The Main Risks Of Investing In The Portfolio
There are several risk 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 funds, 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 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.
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 manager could be wrong in the 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.
58 | 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:
25.47 20.17 16.52
- -------------------------------------------------------------------------------
1997 1998 1999
Best Quarter: 23.51%, Q4 1998 Worst Quarter: -14.36%, Q3 1998
Year-to-date Total Return as of 3/31/2000: 4.27%
Average Annual Total Returns as of 12/31/1999
Since 5/1/96
1 Year Life of Portfolio
- ----------------------------------------------------------------
Portfolio 16.52% 21.02%
Index 1 21.04 26.78
Index 2 20.91 25.98
- ----------------------------------------------------------------
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 that includes the 1000 largest capitalized U.S. companies whose common
stocks are traded in the United States.
The Portfolio Manager
The following person handles the portfolio's day-to-day management:
Donald E. Hall
Lead Portfolio Manager
o Began investment career in 1982
o Joined the advisor in 1982
o Joined the portfolio team in 1999
59 | Kemper Value+Growth Portfolio
<PAGE>
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
Kemper Value+Growth Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Periods ended December 31, 1999 1998 1997 1996(b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.671 1.425 1.146 1.000
------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .008(a) .008 .012 .008
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments transactions .262 .278 .277 .138
------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .270 .286 .289 .146
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (.010) -- (.010) --
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.035) (.040) -- --
------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.045) (.040) (.010) --
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.896 1.671 1.425 1.146
------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) 16.52 20.17 25.47 14.60**
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 172,066 152,321 69,094 10,196
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .83 .78 .84 1.01*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .82 .78 .84 .90*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .46 .80 .95 .97*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 102 102 50 25*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1996 (commencement of operations) to
December 31, 1996.
* Annualized
** Not annualized
60 | Kemper Value+Growth 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 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 manager begins by screening for financial services 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.
The manager assembles 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 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
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.
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 funds, 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 stock than a diversified fund, factors affecting
that stock could affect the portfolio's 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 manager could be wrong in the analysis of companies, industries,
economic trends or other matters
o value 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 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
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.
61 | KVS Dreman Financial Services 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.
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
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
-5.05
- --------------------------------------------------------------------------------
1999
Best Quarter: 4.57%, Q1 1999 Worst Quarter: -13.07%, Q3 1999
Year-to-date Total Return as of 3/31/2000: 0.89%
Average Annual Total Returns as of 12/31/1999
Since 5/4/98
1 Year Life of Portfolio
- --------------------------------------------------------------------------------
Portfolio -5.05% -4.37%
Index 21.04 19.85%*
- --------------------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index (S&P 500), an unmanaged
capitalization-weighted index that includes 500 large-cap U.S. stocks.
* Since 4/30/98.
The Portfolio Manager
The portfolio manager is David N. Dreman, founder and chairman of Dreman Value
Management, the portfolio's subadvisor. 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 its inception.
62 | KVS Dreman Financial Services Portfolio
<PAGE>
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
KVS Dreman Financial Services Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998(b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ .978 1.000
-------------------
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .018(a) .004
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.067) (.026)
-------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.049) (.022)
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.005) --
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ .924 .978
-------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) (5.05) (2.20)**
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 27,319 15,516
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.04 1.73*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .99 .99*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.75 1.29*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 13 6*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 4, 1998 (commencement of operations) to
December 31, 1998.
* Annualized
** Not annualized
63 | KVS Dreman Financial Services Portfolio
<PAGE>
KVS 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 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 manager
believes 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 $17 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 total assets in U.S. dollar-denominated
American Depositary Receipts and in securities of foreign companies traded
principally in securities markets outside the U.S.
The manager may, but is 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.
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 funds, 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 not
perform as well as stocks of smaller 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 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 manager could be wrong in the analysis of companies, industries,
economic trends or other matters
o value stocks may be out of favor for certain periods
o derivatives could produce disproportionate losses
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 may focus on certain sectors of the economy.
64 | KVS Dreman High Return Equity 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.
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
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
-11.16
- --------------------------------------------------------------------------------
1999
Best Quarter: 8.66%, Q2 1999 Worst Quarter: -12.29%, Q3 1999
Year-to-date Total Return as of 3/31/2000: -1.49%
Average Annual Total Returns as of 12/31/1999
Since 5/4/98
1 Year Life of Portfolio
- -------------------------------------------------------------------------------
Portfolio -11.16% -5.28%
Index 21.04 19.85*
- -------------------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index (S&P 500), an unmanaged
capitalization-weighted index that includes 500 large-cap U.S. stocks.
* Since 4/30/98.
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 its inception.
65 | KVS Dreman High Return Equity Portfolio
<PAGE>
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
KVS Dreman High Return Equity Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998(b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $1.028 1.000
------------------
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .026(a) .008
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.138) .020
------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.112) .028
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (.010) --
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.010) --
------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.020) --
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ .896 1.028
------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) (11.16) 2.80**
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 113,448 59,294
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .86 1.20*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .86 .87*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.57 2.77*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 24 5*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 4, 1998 (commencement of operations) to
December 31, 1998.
* Annualized
** Not annualized
66 | KVS Dreman High Return Equity 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 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
portfolio seeks companies that 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.
Main Risks Of Investing In The Portfolio
There are several risk 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 funds, 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 prices of these stocks fall, you should expect the value of
your investment to fall as well. Large company stocks at times may not perform
as well as stocks of smaller 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 manufacturers of consumer goods.
Other factors that could affect performance include:
o the manager could be wrong in the analysis of companies, industries,
risk factors 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
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.
67 | KVS Focused Large Cap Growth Portfolio
<PAGE>
Past Performance
No performance information is provided because the portfolio has not yet been in
operation for a full calendar year.
The Portfolio Manager
The portfolio's subadvisor is Eagle Asset Management, Inc., St. Petersburg,
Florida. The portfolio manager is Ashi Parikh. Mr. Parikh joined Eagle Asset
Management, Inc. in 1999 and has managed the portfolio since its inception.
Prior to 1999 he was employed by an unaffiliated investment advisor.
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
KVS Focused Large Cap Growth Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Period Ended December 31, 1999(b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $1.000
---------
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) --
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .284
---------
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .284
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.284
---------
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) 28.40**
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 2,920
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 7.49*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.10*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.19)*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 336*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999.
* Annualized
** Not annualized
68 | 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 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
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.
69 | KVS Growth And Income Portfolio
<PAGE>
The Main Risks Of Investing In The Portfolio
There are several risk 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 funds, 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 prices of these stocks fall, you should expect the value of
your investment to fall as well. Large company stocks at times may not perform
as well as stocks of smaller 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 manufacturers of consumer goods.
Other factors that could affect performance include:
o the manager could be wrong in the analysis of companies, industries,
risk factors 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
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
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 subadvisor is Janus Capital Corporation, Denver, Colorado. The
portfolio manager is David J. Corkins. Mr. Corkins joined Janus Capital
Corporation in 1995 and has managed the portfolio since its inception.
70 | KVS Growth And Income Portfolio
<PAGE>
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
KVS Growth And Income Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Period Ended December 31, 1999(b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $1.000
---------
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) --
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .149
---------
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .149
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.149
---------
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) 14.93**
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 15,794
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.58*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.10*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.05)*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 53*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999.
* Annualized
** Not annualized
71
<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 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
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 several risk 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 funds, 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 prices of these stocks fall, you should expect the value of
your investment to fall as well. Large company stocks at times may not perform
as well as stocks of smaller 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 manufacturers of consumer goods.
Other factors that could affect performance include:
o the manager could be wrong in the analysis of companies, industries,
risk factors 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
72 | KVS Growth Opportunities Portfolio
<PAGE>
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 subadvisor is Janus Capital Corporation, Denver, Colorado. The
portfolio manager is E. Marc Pinto. Mr. Pinto joined Janus Capital Corporation
in 1994 and has managed the portfolio since its inception.
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
KVS Growth Opportunities Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Period Ended December 31, 1999(b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $1.000
---------
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) --
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .164
---------
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .164
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.164
---------
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) 16.43**
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 17,159
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.60*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.10*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.34)*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 1*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999.
* Annualized
** Not annualized
73 | KVS Growth Opportunities 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 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. The portfolio buys
the largest stocks of the S&P 500 Index in roughly the same proportion as the
index. With the smaller stocks, the portfolio manager uses a statistical process
known as sampling to select stocks whose overall performance is expected to be
similar to that of the smaller companies in the S&P 500 Index. 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 manager seeks 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.
The portfolio normally will sell a stock when it is removed from the index or as
a result of its statistical process.
Other investments
The portfolio may also 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 portfolio performance, cause you
to lose money or make the portfolio perform less well than other investments.
As with most stock funds, 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 at times may not
perform as well as stocks of smaller 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.
The portfolio's index strategy involves several risks. 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. In addition, derivatives could
produce disproportionate losses.
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.
74 | 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's subadvisor is Bankers Trust Company. The portfolio manager is
Kai Yee Wong. Ms. Wong joined Bankers Trust Company in 1993 and began day-to-day
management of the portfolio in 1999.
Financial Highlights
This table is designed to help you understand the portfolio's financial
performance for the period reflected below. The figures in the first part of the
table are for a single share. The total return figures show what a shareholder
in the portfolio would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the portfolio's financial statements, is
included in the portfolio's annual report, which is available upon request by
calling Scudder Kemper Investments at 1-800-778-1482.
KVS Index 500 Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Period Ended December 31, 1999(b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $1.000
---------
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) .010
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .086
---------
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .096
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.096
---------
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) 9.55**
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 32,333
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .84*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .55*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.72*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 1*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from September 1, 1999 (commencement of operations) to
December 31, 1999.
* Annualized
** Not annualized
75 | KVS Index 500 Portfolio
<PAGE>
Other Policies And Risks
While the previous pages describe the main points of each portfolio's strategy
and risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, Kemper Variable Series'
Board could change a portfolio's investment goal without seeking
shareholder approval.
o As a temporary defensive measure, each of the non-money market
portfolios could shift 100% of its 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 all the portfolios except the Money Market Portfolio 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, and might not use
them at all. 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 Although most of the portfolios' equity investments are in common
stocks, they may include other types of equities, such as convertible
and preferred stocks.
o Scudder Kemper establishes a security's 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.
76 | Other Policies And Risks
<PAGE>
About Your Investment
Investment Advisor
The portfolios' investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, New York. 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 fund investors,
retirement and pension plans, institutional and corporate clients, and private
family and individual accounts.
Each portfolio pays the investment advisor a monthly investment management fee.
Management fees paid for the most recently completed fiscal year for the
portfolios operating at least one year are shown below:
<TABLE>
<CAPTION>
% of Average Net Assets on an % of Average Net Assets on an
Annual Basis (including effect of Annual Basis (without effect of
Portfolio Name any fee waivers) fee waivers)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Kemper Aggressive Growth Portfolio 0.75% 0.00%
Kemper Blue Chip Portfolio 0.65% 0.65%
Kemper Contrarian Value Portfolio 0.75% 0.75%
Kemper Global Blue Chip Portfolio 1.00% 0.00%
Kemper Government Securities Portfolio 0.55% 0.55%
Kemper Growth Portfolio 0.60% 0.60%
Kemper High Yield Portfolio 0.60% 0.60%
Kemper Horizon 5 Portfolio 0.60% 0.60%
Kemper Horizon 10+ Portfolio 0.60% 0.60%
Kemper Horizon 20+ Portfolio 0.60% 0.60%
Kemper International Portfolio 0.75% 0.75%
Kemper Investment Grade Bond Portfolio 0.60% 0.60%
Kemper Money Market Portfolio 0.50% 0.50%
Kemper New Europe Portfolio 1.00% 0.00%
Kemper Small Cap Growth Portfolio 0.65% 0.65%
Kemper Small Cap Value Portfolio 0.75% 0.75%
Kemper Strategic Income Portfolio* 0.75% 0.75%
Kemper Technology Growth Portfolio 0.75% 0.50%
Kemper Total Return Portfolio 0.55% 0.55%
Kemper Value+Growth Portfolio 0.75% 0.75%
KVS Dreman Financial Services Portfolio 0.75% 0.70%
KVS Dreman High Return Equity Portfolio 0.75% 0.75%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Effective 5/1/2000, the new advisory fee for the Strategic Income
Portfolio is 0.65% of average net assets.
77 | About Your Investment
<PAGE>
KVS Focused Large Cap Growth Portfolio, KVS Growth And Income Portfolio and KVS
Growth Opportunities Portfolio each pay the investment advisor 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 advisor 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 0.450%
$200 million-$750 million 0.420%
$750 million-$2 billion 0.400%
$2 billion-$5 billion 0.380%
Over $5 billion 0.350%
- --------------------------------------------------------------------------------
Subadvisor for Kemper Index 500 Portfolio
Bankers Trust Company, 130 Liberty Street, New York, New York, is the
portfolio's subadvisor. Bankers Trust Company is a New York banking corporation
and 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 funds,
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 subadvisor has
managed stock index investments since 1977.
Scudder Kemper Investments, Inc. pays a fee to Bankers Trust Company for acting
as subadvisor to the KVS Index 500 Portfolio. 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.
The fee is calculated as follows:
Average Daily Net Assets of the Portfolio Annual Subadvisor Fee Rate
- --------------------------------------------------------------------------------
$0-$200 million 0.080%
$550 million-$750 million 0.050%
Over $750 million 0.025%
- --------------------------------------------------------------------------------
78 | About Your Investment
<PAGE>
Subadvisor for KVS Focused Large Cap Growth Portfolio
Eagle Asset Management, Inc., 880 Carillon Parkway, St. Petersburg, Florida, is
the portfolio's subadvisor. 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.
Scudder Kemper Investments, Inc. pays a fee to Eagle Asset Management, Inc. for
acting as subadvisor to the KVS Focused Large Cap Growth Portfolio.
The fee is calculated as follows:
Average Daily Net Assets of the Portfolio Annual Subadvisor Fee Rate
- -------------------------------------------------------------------------------
$0-$50 million 0.450%
$50 million-$300 million 0.400%
Over $300 million 0.300%
- -------------------------------------------------------------------------------
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. The
Growth Equity Composite is comprised of institutional large cap growth accounts
of $2 million or more with respect to which Eagle Asset Management, Inc. has
trading discretion and does not include the KVS Focused Large Cap Growth
Portfolio. One of the accounts is a registered investment company. The accounts
that comprise the Growth Equity 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 KVS Focused
Large Cap Growth 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 KVS Focused Large Cap Growth Portfolio is an investment option. These
charges and fees will reduce returns. If KVS Focused Large Cap Growth Portfolio
fees and expenses had been used in calculating the Growth Equity 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 KVS Focused Large Cap Growth Portfolio, the investment manager or the
subadvisor to KVS Focused Large Cap Growth Portfolio.
The performance information below is for Growth Equity Composite and is
presented net of fees and expenses. Certain of the accounts that comprise the
Growth Equity Composite are private accounts, which are not subject to frequent
inflows and outflows of assets as are most mutual funds, including KVS Focused
Large Cap Growth 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 Investment Company Act of
1940 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.
79 | About Your Investment
<PAGE>
Total returns of the Growth Equity Composite as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-9.32 37.44 9.22 17.10 -1.74 27.26 23.57 37.53 37.11 62.18
- -------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter: 42.13%, Q4 1999 Worst Quarter: -15.58%, Q3 1990
Year-to-date Total Return as of 3/31/2000: 15.12%
Average Annual Total Returns (as of 12/31/1999)
One Year Five Years Ten Years
- --------------------------------------------------------------------------------
Growth Equity Composite 62.18% 36.90% 22.37%
Index 21.04 28.56 18.21
- --------------------------------------------------------------------------------
Index: The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Subadvisor for KVS Growth And Income Portfolio and KVS Growth Opportunities
Portfolio
Janus Capital Corporation, 100 Fillmore Street, Denver, Colorado, is the
subadvisor for the portfolios. As of December 31, 1999, Janus Capital
Corporation managed more than $248 billion in assets for variable annuities,
mutual funds and separately managed institutional accounts. They began serving
as investment advisor to Janus Fund in 1970 and currently serve as investment
advisor to all of the Janus Funds, act as subadvisor for a number of
private-label mutual funds and provide separate account advisory services for
institutional accounts. Janus Capital Corporation will handle day-to-day
investment and trading functions for the portfolios under the guidance of the
portfolio managers.
Scudder Kemper Investments, Inc. pays a fee to Janus Capital Corporation for
acting as subadvisor to the KVS Growth And Income Portfolio and the KVS Growth
Opportunities Portfolio.
The fee is calculated as follows:
Average Daily Net Assets of the Portfolios Annual Subadvisor Fee Rate
- --------------------------------------------------------------------------------
$0-$100 million 0.550%
$100 million-$500 million 0.500
On the balance over $500 million 0.450
- --------------------------------------------------------------------------------
80 | About Your Investment
<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 Composite. This composite is comprised
of Janus Growth and Income Fund and Janus Aspen Series Growth and Income Fund,
two registered investment companies for which Janus Capital Corporation serves
as investment advisor. The funds that comprise the Growth And Income 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 funds, as measured against a specified market index, and does not
represent the performance of the KVS Growth And Income 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 KVS Growth And Income Portfolio is
an investment option. These charges and fees will reduce returns. If KVS Growth
And Income 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 subadvisor to KVS
Growth And Income Portfolio.
The performance information below is for the subadvisor's Growth And Income
Composite and is presented net of fees and expenses.
Total returns of the Growth And Income Composite as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
5.34 6.68 -4.88 36.35 26.05 34.67 34.87 51.30
- --------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: 29.28%, Q4 1999 Worst Quarter: -8.96%, Q3 1998
Year-to-date Total Return as of 3/31/2000: 9.00%
Average Annual Total Returns as of 12/31/1999
<TABLE>
<CAPTION>
One Year Five Years Since Inception*
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth And Income Composite 51.30% 36.41% 25.27%
Index 21.04 28.56 20.36
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Index: The Standard & Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
* Since 10/91.
81 | About Your Investment
<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. The Large Cap Growth
Composite is comprised of institutional large cap accounts of $5 million or more
for which Janus Capital Corporation has trading discretion as well as mutual
funds. Prior to 1995, all discretionary accounts are included regardless of
asset size, and there has been no restatement of pre-1995 performance. The
accounts that comprise the Large Cap Growth 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,
measured against a specified market indices, and does not represent the
performance of the KVS Growth Opportunities 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 KVS Growth Opportunities Portfolio
fees and expenses had been used in calculating the composite's performance, the
performance of the Large Cap Growth 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 subadvisor to KVS Growth
Opportunities Portfolio.
The performance information below is for the subadvisor's Large Cap Growth
Composite and is presented net of fees and expenses. Certain of the accounts
that comprise the Large Cap Growth 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 Investment Company Act of
1940 and Subchapter M of the Internal Revenue Code. Consequently, the
performance results for the Large Cap Growth 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 Large Cap Growth Composite as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-0.3 63.99 1.78 4.43 -6.24 40.24 25.63 26.47 42.29 44.20
- -------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter: 30.98%, Q4 1999 Worst Quarter: -17.10%, Q3 1990
Year-to-date Total Return as of 3/31/2000: 11.78%
Average Annual Total Returns as of 12/31/1999
<TABLE>
<CAPTION>
One Year Five Years Ten Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Large Cap Growth Composite 44.20% 35.53% 22.24%
Index 1 21.04 28.56 18.21
Index 2 33.16 32.41 20.32
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Index 1: The Standard & 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.
82 | About Your Investment
<PAGE>
Subadvisor for Kemper International Portfolio
Scudder Investments (U.K.) Limited, 1 South Place, London, U.K., an affiliate of
Scudder Kemper Investments, Inc., is the subadvisor for Kemper International
Portfolio. Scudder Investments (U.K.) Limited has served as subadvisor for
mutual funds since December 1996, and investment advisor for certain
institutional accounts since August 1998.
For its services as subadvisor, Scudder Investments (U.K.) received an annual
fee from Scudder Kemper Investments of 0.35% for Kemper International Portfolio
for the fiscal year ended December 31, 1999.
Subadvisor for KVS Dreman Financial Services Portfolio and KVS Dreman High
Return Equity Portfolio
Dreman Value Management L.L.C., 10 Exchange Place, Jersey City, New Jersey, is
the subadvisor for the KVS Dreman Financial Services Portfolio and KVS Dreman
High Return Equity 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 a fee to Dreman Value Management, L.L.C.
for acting as subadvisor to the KVS Dreman Financial Services Portfolio and the
KVS Dreman High Return Equity Portfolio.
The fee is calculated as follows:
Average Daily Net Assets of each Portfolio Annual Subadvisor 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%
- --------------------------------------------------------------------------------
Euro conversion
Portfolios that invest in foreign securities could be affected by accounting
differences, changes in tax treatment or other issues related to the conversion
of certain European currencies into the euro, which is already underway. Scudder
Kemper is working to address euro-related issues as they occur and understands
that other key service providers are taking similar steps. Still, there's some
risk that this problem could materially affect a portfolio's operation
(including its ability to calculate net asset value and to handle purchases and
redemptions), its investments or securities markets in general.
83 | About Your Investment
<PAGE>
Share Price
Scudder Fund 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.
For the Money Market Portfolio, net asset value per share of the portfolio is
normally $1.00 calculated at amortized cost in accordance with a rule of the
Securities and Exchange Commission (Rule 2a-7). For all other portfolios, market
prices are used to determine the value of a portfolio's assets, but when
reliable market quotations are unavailable, a portfolio may use procedures
established by the Kemper Variable Series' 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.
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 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, Kemper Variable Series 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.
Kemper Variable Series 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.
84 | About Your Investment
<PAGE>
Distributions And Taxes
Dividends and capital gains distributions
All portfolios except Money Market Portfolio. These portfolios normally declare
and distribute dividends of net investment income annually. Each portfolio
distributes any net realized short-term and long-term capital gains at least
annually.
Money Market Portfolio. The Money Market Portfolio declares its net investment
income 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 advisors as to whether portfolio 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.
Because each shareholder and contract holder's tax situation is unique, it's
always a good idea to ask your tax professional about the tax consequences of
your investments.
85 | About Your Investment
<PAGE>
Additional information about the portfolios may be found in Kemper Variable
Series; 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: Call Kemper at:
1-800-778-1482
In Person: Public Reference Room
Securities and Exchange Commission,
Washington, D.C.
(Call 1-202-942-8090
for more information.)
By Mail: Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
or
Public Reference Section,
Securities and Exchange Commission,
Washington, D.C. 20549-0102
(a duplication fee is charged)
By Internet: http://www.sec.gov
http://www.kemper.com
e-mail: [email protected]
- --------------------------------------------------------------------------------
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
SEC File Number:
Kemper Variable Series 811-5002
<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 Securities and Exchange Commission 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:
<TABLE>
<S> <C>
Kemper Aggressive Growth Portfolio "Aggressive Growth Portfolio"
Kemper Blue Chip Portfolio "Blue Chip Portfolio"
Kemper Contrarian Value Portfolio "Contrarian Portfolio"
Kemper Global Blue Chip Portfolio "Global Blue Chip Portfolio"
Kemper Government Securities Portfolio "Government Securities Portfolio"
Kemper Growth Portfolio "Growth Portfolio"
Kemper High Yield Portfolio "High Yield Portfolio"
Kemper Horizon 5 Portfolio
Kemper Horizon 10+ Portfolio Collectively, the "Horizon Portfolios"
Kemper Horizon 20+ Portfolio
Kemper International Portfolio "International Portfolio"
Kemper Investment Grade Bond Portfolio "Investment Grade Bond Portfolio"
Kemper Money Market Portfolio "Money Market Portfolio"
Kemper New Europe Portfolio "New Europe Portfolio"
(formally Kemper International Growth and
Income Portfolio)
Kemper Small Cap Growth Portfolio "Small Cap Growth Portfolio"
Kemper Small Cap Value Portfolio "Small Cap Value Portfolio"
Kemper Strategic Income Portfolio "Strategic Income Portfolio"
(formally Kemper Global Income Portfolio)
Kemper Total Return Portfolio "Total Return Portfolio"
Kemper Technology Growth Portfolio "Technology Portfolio"
Kemper Value+Growth Portfolio "Value+Growth Portfolio"
KVS Dreman Financial Services Portfolio "Financial Services 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"
KVS Index 500 Portfolio "Index 500 Portfolio"
</TABLE>
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT RESTRICTIONS.........................................3
INVESTMENT POLICIES AND TECHNIQUES..............................4
PORTFOLIO TRANSACTIONS.........................................21
INVESTMENT MANAGER AND DISTRIBUTOR.............................25
PURCHASE AND REDEMPTION OF SHARES..............................33
OFFICERS AND TRUSTEES..........................................33
NET ASSET VALUE................................................37
DIVIDENDS AND TAXES............................................38
SHAREHOLDER RIGHTS.............................................38
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.
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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 and Aggressive Growth Portfolios is
classified as a diversified open-end management investment company. The
Financial Services and Aggressive Growth 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:
As a matter of non-fundamental policy, each Portfolio, except Money Market
Portfolio, does not intend to:
(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 portfolios' registration statement which
may be deemed to be borrowings;
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<PAGE>
(2) purchase securities on margin or make short sales, except (i) short
sales against the box, (ii) in connection with arbitrage transactions,
(iii) for margin deposits in connection with futures contracts, options
or other permitted investments, (iv) that transactions in futures
contracts and options shall not be deemed to constitute selling
securities short, and (v) that the Portfolio may obtain such short term
credits as may be deemed necessary for the clearance of securities
transactions;
(3) 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;
(4) 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;
(5) 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 purpose, warrants acquired in
units or attached to securities will be deemed to have no value);
(6) Investment more than 15% of net assets in illiquid securities.
For all portfolios except Money Market Portfolio, Strategic Income Portfolio,
Government Securities Portfolio, High Yield Portfolio and Investment Grade Bond
Portfolio:
(7) Enter into either of reverse repurchase agreements or dollar rolls in
an amount greater than 5% of its total assets.
For Global Blue Chip Portfolio only
(8) Lend portfolio securities in an amount greater than 5% of its total
assets
For all portfolios except Global Blue Chip
(9) Lend portfolio securities in an amount greater than one third of its
total assets.
For Kemper Money Market Portfolio
(10) borrow money in an amount greater than 5% of its total assets, except
for temporary emergency purposes; and
(11) lend portfolio securities in an amount greater than 5% of its total
assets.
Except as specifically noted, if a percentage restriction is adhered to at the
time of investment, a later increase or decrease in percentage beyond the
specified limit resulting from a change in values or net assets will not be
considered a violation.
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", "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.
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<PAGE>
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 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.
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<PAGE>
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, 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.
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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.
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
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<PAGE>
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.
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
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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.
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
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("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 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,
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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.
Delayed Delivery Transactions. The Total Return, High Yield, Growth, Government
Securities, Investment Grade Bond, Horizon, Strategic Income, Financial
Services, Global Blue Chip, Aggressive Growth, Technology , New Europe, 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). Certain Portfolios 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. 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, along with Growth and
Income and Growth Opportunities Portfolio 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, Strategic Income, Global Blue Chip Growth and
Income, Growth Opportunities and International Growth and Income Portfolios may
invest without limit in foreign securities and may engage in foreign currency
exchange transactions and may purchase and sell foreign currency options and
foreign currency futures contracts. See "Investment Techniques -- Options and
Financial Futures Transactions -- Foreign Currency Transactions." The Money
Market Portfolio and Government Securities Portfolio, each within its quality
standards, may also invest in securities of foreign issuers. However, such
investments will be in U.S. Dollar denominated instruments.
Foreign securities involve currency risks. The U.S. Dollar value of a foreign
security tends to decrease when the value of the U.S. Dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the U.S. Dollar falls against such currency. Fluctuations in
exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be repatriated
based on the exchange rate at the time of disbursement or payment, and
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.
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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 New Europe
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 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.
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Investment in certain emerging market securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain emerging market securities and increase the costs
and expenses of a Portfolio. Emerging markets may require governmental approval
for the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market country's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.
Fixed-Income. Since most foreign fixed-income securities are not rated, a
Portfolio will invest in foreign fixed-income securities based upon the
investment manager's analysis without relying on published ratings. Since such
investments will be based upon the investment manager's analysis rather than
upon published ratings, achievement of a Portfolio's goals may depend more upon
the abilities of the investment manager than would otherwise be the case.
The value of the foreign fixed-income securities held by a Portfolio, and thus
the net asset value of the Portfolio's shares, generally will fluctuate with (a)
changes in the perceived creditworthiness of the issuers of those securities,
(b) movements in interest rates, and (c) changes in the relative values of the
currencies in which a Portfolio's investments in fixed-income securities are
denominated with respect to the U.S. Dollar. The extent of the fluctuation will
depend on various factors, such as the average maturity of a Portfolio's
investments in foreign fixed-income securities, and the extent to which a
Portfolio hedges its interest rate, credit and currency exchange rate risks.
Many of the foreign fixed-income obligations in which a Portfolio will invest
will have long maturities. A longer average maturity generally is associated
with a higher level of volatility in the market value of such securities in
response to changes in market conditions.
Investments in sovereign debt, including Brady Bonds, involve special risks.
Brady Bonds are debt securities issued under a plan implemented to allow debtor
nations to restructure their outstanding commercial bank indebtedness. Foreign
governmental issuers of debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or pay
interest when due. In the event of default, there may be limited or no legal
recourse in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Political conditions, especially a sovereign entity's
willingness to meet the terms of its fixed-income securities, are of
considerable significance. Also, there can be no assurance that the holders of
commercial bank loans to the same sovereign entity may not contest payments to
the holders of sovereign debt in the event of default under commercial bank loan
agreements. In addition, there is no bankruptcy proceeding with respect to
sovereign debt on which a sovereign has defaulted, and a Portfolio may be unable
to collect all or any part of its investment in a particular issue.
Foreign investment in certain sovereign debt is restricted or controlled to
varying degrees, including requiring governmental approval for the repatriation
of income, capital or proceeds of sales by foreign investors. These restrictions
or controls may at times limit or preclude foreign investment in certain
sovereign debt or increase the costs and expenses of a Portfolio. A significant
portion of the sovereign debt in which a Portfolio may invest is issued as part
of debt restructuring and such debt is to be considered speculative. There is a
history of defaults with respect to commercial bank loans by public and private
entities issuing Brady Bonds. All or a portion of the interest payments and/or
principal repayment with respect to Brady Bonds may be uncollateralized.
Privatized Enterprises. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. A Portfolio's investments in the
securities of privatized enterprises include privately negotiated investments in
a government or state-owned or controlled company or enterprise that has not yet
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.
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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.
Depositary 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 (except S&P 500 Portfolio). 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).
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
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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 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. All Portfolios (except Money Market Portfolio) 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
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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. Each of the Financial Services and Aggressive Growth
Portfolios operates as a "non-diversified" portfolio so that it will be able to
invest more than 5% of its assets in the obligations of an issuer, subject to
the diversification requirements of Subchapter M of the Internal Revenue Code
applicable to the Portfolio. This allows the 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. Since the Portfolio may
invest a relatively high percentage of its assets in the obligations of a
limited number of issuers, the Portfoliomay be more susceptible to any single
economic, political or regulatory occurrence than a diversified portfolio.
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 Portfolio, 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.
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, New Europe, 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 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
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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. Each Portfolio (except Money Market Portfolio)
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 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, each
Portfolio(except Money Market Portfolio 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,
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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).
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
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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.
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.
22
<PAGE>
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) 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 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 purchase and sales of the Focused Large Cap
Portfolios' securities and JCC places all orders for the purchase of Growth And
Income and Growth Opportunities
23
<PAGE>
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 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) 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>
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
- ----------------------------------------------------------------------------------------------------------------------------
24
<PAGE>
Allocated to Firms
Based on
Research in
Portfolio Fiscal 1999 Fiscal 1999+ Fiscal 1998 Fiscal 1997
- --------- ----------- ------------ ----------- -----------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
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**
- ----------------------------------------------------------------------------------------------------------------------------
Strategic Income 0 0**
- ----------------------------------------------------------------------------------------------------------------------------
New Europe* 10,000 N/A
- ----------------------------------------------------------------------------------------------------------------------------
Global Blue Chip* 6,000 N/A
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations on May 4, 1998 for High Return Equity and
Financial Services, May 5, 1998 for New Europe 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
25
<PAGE>
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.
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, 1999) 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 1999.
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
- --------- --------------------------
26
<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%
Strategic Income 0.65%*
New Europe 1.00%*
* Prior to May 1, 2000, the advisory fee rate paid by the Strategic Income
Portfolio was 0.75%.
The High Return Equity, Financial Services, Aggressive Growth, and Technology
Portfolios each pay 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%
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:
27
<PAGE>
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>
Blue Chip 802,000 $306,000 $27,000*
Contrarian Value 2,079,000 1,641,000 604,000
Financial Services 184,000 26,000**+ N/A
Global Blue Chip 94,000 9,000**# N/A
Government Securities 760,000 564,000 460,000
Growth 3,808,000 3,600,000 3,142,000
High Return Equity 752,000 100,000**+ N/A
High Yield 2,648,000 2,606,000 1,991,000
Horizon 10+ 385,000 223,000 77,000
Horizon 20+ 228,000 164,000 56,000
Horizon 5 234,000 137,000 44,000
International 1,506,000 1,613,000 1,419,000
Investment Grade Bond 385,000 184,000 46,000
Money Market 910,000 600,000 497,000
New Europe 47,998 6,000**# N/A
Small Cap Growth 1,298,000 1,060,000 633,000
Small Cap Value 728,000 702,000 307,000
Strategic Income## 43,290 3 1,000 9,000*
Total Return 4,935,000 4,521,000 4,072,000
Value+Growth 1,171,000 825,000 257,000
</TABLE>
* Commencement of Operations on May 1, 1997 through December 31, 1997.
** Commenc ement of Operations on (May 4, 1998 for High Return Equity and
Financial Services, May 5, 1998 for New Europe 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, respectivel y. 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 invest ment manager
of $2,000 and $3,000 for the New Europe, and Global Blue Chip
Portfolios, respectively.
Fund Sub-Adviser for the International Portfolio. 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 Portfolio and prior to
May 1, 2000 served as subadviser to the Strategic Income Portfolio. Scudder UK
acts as sub-adviser pursuant to the terms of a sub-advisory agreem ent between
it and Scudder Kemper for the International Portfolio. 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 Portfolio,
Scudder UK renders investment advisory and management services with regard to
that portion of the 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
the Portfolio allocated by Scudder Kemper to Scudder UK for management: 0.35%
for the International Portfolio. Scudder UK
28
<PAGE>
permits any of its officers or employees to serve without compensation as
trustees or officers if elected to such positions.
The 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, ba d 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.
The 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. The sub-advisory agreement may be
terminated at any time for the 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 Portfolio's investment management agreement. If
additional Portfolios become subject to the sub-advisory ag reement, the
provisions concerning continuation, amendment and termination shall be on a
Portfolio by Portfolio 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 Strategic 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
$813,000 and $0, 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 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%
29
<PAGE>
$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 or the investment manager 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 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%
On March 11, 1999, Bankers Trust announced that it had reached an agreement with
the United States Attorney's Office in the Southern District of New York to
resolve an investigation concerning inappropriate transfers of unclaimed funds
and related record-keeping problems that occurred between 1994 and early 1996.
Bankers Trust pleaded guilty to misstating entries in the bank's books and
records and agreed to pay a $63.5 million fine to state and federal authorities.
On July 26, 1999, the federal criminal proceedings were concluded with Bankers
Trust's formal sentencing. The events leading up to the guilty pleas did not
arise out of the investment advisory or mutual fund management activities of
Bankers Trust or its affiliates.
As a result of the plea, absent an order from the SEC, Bankers Trust would not
be able to continue to provide investment advisory services to the Fund. The SEC
has granted a temporary order to permit Bankers Trust and its affiliates to
continue to provide investment advisory services to registered investment
companies. There is no assurance that the SEC will grant a permanent order.
30
<PAGE>
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 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:
31
<PAGE>
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%
Code of Ethics. The Fund, the Adviser and sub-Advisers, and principal
underwriter have each adopted codes of ethics under rule 17j-1 of the Investment
Company Act. Board members, officers of the Fund and employees of the Adviser or
sub-Advisers, and principal underwriter are permitted to make personal
securities transactions, including transactions in securities that may be
purchased or held by the Fund, subject to requirements and restrictions set
forth in the applicable Code of Ethics. The Adviser's Code of Ethics contains
provisions and requirements designed to identify and address certain conflicts
of interest between personal investment activities and the interests of the
Fund. Among other things, the Adviser's Code of Ethics prohibits certain types
of transactions absent prior approval, imposes time periods during which
personal transactions may not be made in certain securities, and requires the
submission of duplicate broker confirmations and quarterly reporting of
securities transactions. Additional restrictions apply to portfolio managers,
traders, research analysts and others involved in the investment advisory
process. Exceptions to these and other provisions of the Adviser's Code of
Ethics may be granted in particular circumstances after review by appropriate
personnel.
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, New Europe, 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 state that each portfolio 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 agreements with Global Blue Chip and
New Europe 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. Certain of the Portfolios incurred no accounting fees for the period
ended December 31, 1999, after a fee reduction by SFAC. Technology Growth
Portfolio. High Return Equity and Financial Services Portfolios incurred
accounting fees, for the period ended December 31, 1999, of $25,000, $41,000 and
$38,000, respectively, of which $16,000, $5,000 and $16,000, respectively, was
unpaid at December 31, 1999.
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 Strategic
Income, International, Global Blue Chip, and New Europe Portfolios). The Chase
Manhattan Bank, Chase MetroTech Center, Brooklyn, New York 11245, as custodian,
has custody of all securities and cash of the Strategic Income and International
Portfolios. Brown Brothers Harriman & Co., as custodian, has custody of all
securities and cash of the Global Blue Chip and New Europe 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.
32
<PAGE>
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, 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, New Europe, 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 New Europe 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.
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 Foundation; Chairman
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society
33
<PAGE>
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 (2/16/47), Vice President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
JESUS A. CABRERA (12/25/61), 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 (8/22/52) Vice President, 333 South Hope Street, Los Angeles,
California, Managing Director, Scudder Kemper.
SEWALL HODGES (1/9/55) 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.
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.
34
<PAGE>
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.
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.
35
<PAGE>
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 $57,833 168,700
James R. Edgar* 29,049 84,583
Arthur R. Gottschalk** 15,764 67,933
Frederick T. Kelsey 56,036 168,700
Fred B. Renwick 57,832 168,700
John G. Weithers 57,684 171,200
</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 64 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"), Lincoln Life
Variable Annuity Account N ("LLVAA") American General Life Insurance Company
Separate Account VL-R, Farmera Annuity Separate Account A ("Farmers VAA") and
Farmers Variable Life Separate Account A ("Farmers VLA") 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 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.
36
<PAGE>
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.
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
37
<PAGE>
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.
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.
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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.
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.
39
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ADDITIONAL INFORMATION
Other Information
The CUSIP number of each Portfolio is as follows:
Kemper Aggressive Growth Portfolio 488439 88 6
Kemper Blue Chip Portfolio 488439 70 4
Kemper Contrarian Value Portfolio 488439 74 6
Kemper Global Blue Chip Portfolio 488439 76 1
Kemper Government Securities Portfolio 488439 30 8
Kemper Growth Portfolio 488439 80 3
Kemper High Yield Portfolio 488439 50 6
Kemper Horizon 10+ Portfolio 488439 86 0
Kemper Horizon 20+ Portfolio 488439 87 8
Kemper Horizon 5 Portfolio 488439 85 2
Kemper International Portfolio 488439 75 3
Kemper Investment Grade Bond Portfolio 488439 40 7
Kemper Money Market Portfolio 488439 10 0
Kemper New Europe Portfolio 488439 77 9
Kemper Small Cap Growth Portfolio 488439 84 5
Kemper Small Cap Value Portfolio 488439 81 1
Kemper Strategic Income Portfolio 488439 78 7
Kemper Technology Growth Portfolio 488439 83 7
Kemper Total Return Portfolio 488439 60 5
Kemper Value+Growth Portfolio 488439 82 9
KVS Dreman Financial Services Portfolio 488439 79 5
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
KVS Index 500 Portfolio 488439 73 8
Each Portfolio 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 o f the Fund. These transactions will reflect investment deci sions
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 resp ect 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 1 933 and
reference is hereby made to the Registration Statement for further information
with respect to the Fund and the securities offered hereby. The Registration
Statement and its amendments, are available for inspection by the public at the
SEC in Washington, D.C.
40
<PAGE>
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 A nnual Report to the Sha reholders 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.
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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 ratio s are adequate to meet cash requir ements.
Long-term senior debt is rated "A" or better. The issuer has access to at le ast
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 mana gement 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 sm allest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of
<PAGE>
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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<TABLE>
<CAPTION>
KEMPER VARIABLE SERIES
PART C. OTHER INFORMATION
Item 23. Exhibits.
- -------- ---------
<S> <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)
(a)(3) Amended and Restated Establishment and Designation of Series of Shares of
Beneficial Interest dated March 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 27 to the
Registration Statement, filed on September 1, 1999)
(a)(4) Amended and Restated Establishment and Designation of Series of Shares of
Beneficial Interest dated September 29, 1999.
(Incorporated by reference to Post-Effective Amendment No. 29 to the
Registration Statement, filed on October 29, 1999)
(a)(5) Redesignation of Series dated May 1, 2000 is filed herein.
(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)
2
<PAGE>
(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)
(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.
3
<PAGE>
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement, filed on February 12, 1999)
(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.
(Incorporated by reference to Post-Effective Amendment No. 30 to the
Registration Statement.)
(d)(25) Investment Management Agreement between the Registrant, on behalf of the KVS
Growth and Income Portfolio and Scudder Kemper Investments, Inc.
(Incorporated by reference to Post-Effective Amendment No. 30 to the
Registration Statement.)
(d)(26) Investment Management Agreement between the Registrant, on behalf of the KVS
Growth Opportunities Portfolio and Scudder Kemper Investments, Inc.
(Incorporated by reference to Post-Effective Amendment No. 30 to the
Registration Statement.).
(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)
5
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(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
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. (Incorporated by reference to Post-Effective Amendment No. 30 to
the Registration Statement.)
(d)(33) Subdvisory Agreement between Scudder Kemper Investments, Inc. and Janus
Capital Corporation, dated October 29, 1999, for KVS Growth and Income
Portfolio (Incorporated by reference to Post-Effective Amendment No. 30 to
the Registration Statement.).
(d)(34) Subdvisory Agreement between Scudder Kemper Investments, Inc. Janus Capital
Corporatoin, dated October 29, 1999, for KVS Growth Opportunities Portfolio.
(Incorporated by reference to Post-Effective Amendment No. 30 to the
Registration Statement.).
(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.)
6
<PAGE>
(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
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)
7
<PAGE>
(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
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. (Incorporated by reference to Post-Effective Amendment No.
30 to the Registration Statement.)
(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. (Incorporated by reference to Post-Effective Amendment No.
30 to the Registration Statement.)
(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. (Incorporated by reference to Post-Effective
Amendment No. 30 to the Registration Statement.)
(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 is filed herein.
8
<PAGE>
(2) Opinion of Counsel from Dechert Price & Rhoads is filed herein.
(j) Consent from Ernst & Young LLP is filed herein.
(k) Inapplicable.
(l) Inapplicable.
(m) Inapplicable.
(n) Inapplicable.
(o) Inapplicable.
(p) (1) Code of Ethics for Scudder Kemper Investments, Inc. is filed herein.
(2) Code of Ethics for Kemper Variable Series is filed herein.
(3) Code of Ethics for Eagle Asset Management is filed herein.
(4) Code of Ethics for Janus Capital Corporation is filed herein.
</TABLE>
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,
9
<PAGE>
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 @@
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**
10
<PAGE>
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
@@ Level 3, 5 Blue Street North Sydney, NSW 2060
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Scudder Investor Services, Inc. acts as principal underwriter of the
Registrant's shares and also acts as principal underwriter for other
funds managed by Scudder Kemper Investments, Inc.
(b)
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 27.
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C>
Lynn S. Birdsong Senior Vice President
345 Park Avenue
New York, NY 10154
Mark S. Casady Director, President and Assistant
Two International Place Treasurer
Boston, MA 02110
11
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Linda Coughlin Director and Senior Vice President
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant
345 Park Avenue Clerk
New York, NY 10154
Philip S. Fortuna Vice President
101 California Street
San Francisco, CA 94111
William F. Glavin Vice President
Two International Place
Boston, MA 02110
Margaret D. Hadzima Assistant Treasurer
Two International Place
Boston, MA 02110
John R. Hebble Assistant Treasurer
Two International Place
Boston, MA 02110
James J. McGovern Chief Financial Officer and Treasurer
345 Park Avenue
New York, NY 10154
Lorie C. O'Malley Vice President
Two International Place
Boston, MA 02110
Caroline Pearson Clerk
Two International Place
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President, Chief
345 Park Avenue Legal Officer and Assistant Clerk
New York, NY 10154
12
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Robert A. Rudell Director and Vice President
Two International Place
Boston, MA 02110
William M. Thomas Vice President
Two International Place
Boston, MA 02110
Benjamin Thorndike Vice President
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President and Chief Compliance
Two International Place Officer
Boston, MA 02110
</TABLE>
Item 28. Location of Accounts and Records
- -------- --------------------------------
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.
13
<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 28th day of
April, 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 April 28, 2000 on behalf of the
following persons in the capacities indicated.
<TABLE>
SIGNATURE TITLE
--------- -----
<S> <C>
/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
</TABLE>
*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. 32
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 33
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER VARIABLE SERIES
<PAGE>
KEMPER VARIABLE SERIES
EXHIBIT INDEX
Exhibit (a)(5)
Exhibit (i)(1)
Exhibit (i)(2)
Exhibit (j)
Exhibit (p)(1)
Exhibit (p)(2)
Exhibit (p)(3)
Exhibit (p)(4)
15
Exhibit (a)(5)
KEMPER VARIABLE SERIES
Redesignation of Series
The undersigned, being a majority of the Trustees of Kemper Variable
Series, a Massachusetts business trust (the "Trust"), acting pursuant to Article
III, Section 1 of the Trust's Declaration of Trust dated January 22, 1987, as
amended (the "Declaration of Trust"), do hereby amend the Amended and Restated
Establishment and Designation of Series of Shares of Beneficial Interest dated
September 29, 1999, as filed with the Secretary of The Commonwealth of
Massachusetts, as follows:
1. The Portfolio presently designated as Kemper Global Income Portfolio
is hereby redesignated Kemper Strategic Income Portfolio; and
2. The Portfolio presently designated as Kemper International Growth
and Income Portfolio is hereby redesignated Kemper New Europe Portfolio.
All other terms and conditions of the Amended and Restated
Establishment and Designation of Series dated September 29, 1999 shall remain in
effect.
The foregoing Redesignation of Series shall be effective May 1, 2000.
/s/James E. Akins
---------------------------------
James E. Akins, Trustee
/s/James R. Edgar
---------------------------------
James R. Edgar, Trustee
/s/Arthur R. Gottschalk
---------------------------------
Arthur R. Gottschalk, Trustee
/s/Frederick T. Kelsey
---------------------------------
Frederick T. Kelsey, Trustee
/s/Thomas W. Littauer
---------------------------------
Thomas W. Littauer, Trustee
/s/Fred B. Renwick
---------------------------------
Fred B. Renwick, Trustee
/s/John G. Weithers
---------------------------------
John G. Weithers, Trustee
Exhibit (i)(1)
[LOGO] VEDDER PRICE VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601-1003
312-609-7500
FACSIMILE: 312-609-5005
A PARTNERSHIP INCLUDING VEDDER,
PRICE, KAUFMAN & KAMMHOLZ, P.C.
WITH OFFICES IN CHICAGO AND NEW YORK CITY
April 18, 2000
Kemper Variable Series
222 South Riverside Plaza
Chicago, Illinois 60606
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 32 to the
Registration Statement on Form N-1A under the Securities Act of 1933 being filed
by Kemper Variable Series (the "Fund") in connection with the proposed public
offering of units of beneficial interest, no par value ("Shares"), in the Kemper
Money Market Portfolio, Kemper Total Return Portfolio, Kemper High Yield
Portfolio, Kemper Growth Portfolio, Kemper Government Securities Portfolio,
Kemper International Portfolio, Kemper Small Cap Growth Portfolio, Kemper
Investment Grade Bond Portfolio, Kemper Contrarian Value Portfolio, Kemper Small
Cap Value Portfolio, Kemper Value+Growth Portfolio, Kemper Horizon 20+
Portfolio, Kemper Horizon 10+ Portfolio, Kemper Horizon 5 Portfolio, Kemper Blue
Chip Portfolio, Kemper Global Income Portfolio (to be named Strategic Income
Portfolio, effective May 1, 2000), Kemper-Dreman High Return Equity Portfolio,
Kemper Aggressive Growth Portfolio, and Kemper Technology Growth Portfolio
(each, a "Portfolio" and collectively, the "Portfolios").
We have acted as counsel to the Fund, and in such capacity are familiar
with the Fund's organization and have counseled the Fund regarding various legal
matters. We have examined such Fund records and other documents and certificates
as we have considered necessary or appropriate for the purposes of this opinion.
In our examination of such materials, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us.
Based upon the foregoing and assuming that the Fund's Amended and
Restated Agreement and Declaration of Trust dated April 24, 1998, as amended by
the Certificate of Amendment of Declaration of Trust adopted on March 31, 1999
and effective as of May 1, 1999, the Amended and Restated Establishment and
Designation of Shares of Beneficial Interest dated March 31, 1999, the Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest dated September 29, 1999, the Redesignation of Series to be effective
May 1, 2000, and the By-Laws of the Fund adopted January 22, 1987, are presently
in full force and effect and have not been amended in any respect except as
provided in the above-referenced documents and that the resolutions adopted by
the Board of Trustees of the Fund on January 22, 1987, July 24, 1991,
<PAGE>
[LOGO] VEDDER PRICE
Kemper Variable Series
April 18, 2000
Page 2
February 16, 1994, January 17, 1996, March 11, 1997, March 18, 1998, January 20,
1999, March 31, 1999, September 29, 1999 and March 22, 2000 relating to
organizational matters, securities matters and the issuance of shares are
presently in full force and effect and have not been amended in any respect, we
advise you and opine that (a) the Fund is a validly existing voluntary
association with transferrable shares under the laws of the Commonwealth of
Massachusetts and is authorized to issue an unlimited number of Shares in the
Portfolios; and (b) presently and upon such further issuance of the Shares in
accordance with the Fund's Agreement and Declaration of Trust and the receipt by
the Fund of a purchase price not less than the net asset value per Share and
when the pertinent provisions of the Securities Act of 1933 and such "blue-sky"
and securities laws as may be applicable have been complied with, and assuming
that the Fund continues to validly exist as provided in (a) above, the Shares
are and will be legally issued and outstanding, fully paid and nonassessable.
The Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund or any
Portfolio. However, the Trust Agreement disclaims shareholder liability for acts
and obligations of the Fund or of a particular Portfolio and requires that
notice of such disclaimer be given in each note, bond, contract, instrument,
certificate share or undertaking made or issued by the Trustees or officers of
the Fund. The Trust Agreement provides for indemnification out of the property
of a particular Portfolio for all loss and expense of any shareholder of that
Portfolio held personally liable for the obligations of such Portfolio. Thus,
the risk of liability is limited to circumstances in which the relevant
Portfolio would be unable to meet its obligations.
This opinion is solely for the benefit of the Fund, the Fund's Board of
Trustees and the Fund's officers and may not be relied upon by any other person
without our prior written consent. We hereby consent to the use of this opinion
in connection with said Post-Effective Amendment.
Very truly yours,
/s/Vedder, Price, Kaufman & Kammholz
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
DAS/COK
Exhibit(i)(2)
LAW OFFICES OF
DECHERT PRICE & RHOADS
Ten Post Office Square - South
Boston, MA 02109-4603
Telephone: (617) 728-7100
Fax: (617) 426-6567
April 30, 2000
Kemper Variable Series
222 South Riverside Plaza
Chicago, Illinois 60606
Re: Post-Effective Amendment No. 32 to the Registration Statement
on Form N-1A (SEC File No. 33-11802)
Ladies and Gentlemen:
Kemper Variable Series, formerly Investors Fund Series and Kemper
Investors Fund (the "Trust"), is a trust created under a written Declaration of
Trust dated January 22, 1987. The Declaration of Trust, as amended from time to
time, is referred to as the "Declaration of Trust." The beneficial interest
under the Declaration of Trust is represented by transferable shares without par
value ("Shares"). The Trustees have the powers set forth in the Declaration of
Trust, subject to the terms, provisions and conditions therein provided.
We are of the opinion that all legal requirements have been complied
with in the creation of the Trust and that said Declaration of Trust is legal
and valid.
Under Article III, Section 3 of the Declaration of Trust, the Trustees
may issue Shares on such terms and for such consideration as they may from time
to time authorize. Under Article III, Section 1, it is provided that the number
of Shares authorized under the Declaration of Trust is unlimited. Under Article
III, Section 1, the Shares shall be issued in one or more Series as the Trustees
may authorize from time to time. By written instruments, the Trustees have from
time to time established various series of the Trust. The Shares are currently
divided into twenty-seven active series (the "Funds").
By vote adopted on July 14, 1999, the Trustees of the Trust authorized
the President, any Vice President, the Secretary and the Treasurer, from time to
time, to cause to be registered with the Securities and Exchange Commission an
indefinite number of Shares of the Trust and its series and to cause such Shares
to be issued and sold to the public.
We understand that you are about to file with the Securities and
Exchange Commission, on Form N-1A, Post-Effective Amendment No. 32 to the
Trust's Registration Statement (the "Registration Statement") under the
Securities Act of 1933, as amended (the
<PAGE>
"Securities Act"), in connection with the continuous offering of the Shares of
the Funds. We understand that our opinion is required to be filed as an exhibit
to the Registration Statement.
We are of the opinion that all necessary Trust action precedent to the
issue of the Shares of the Fund named above has been duly taken, and that all
such Shares may be legally and validly issued for cash, and when sold will be
fully paid and non-assessable by the Trust upon receipt by the Trust or its
agent of consideration for such Shares in accordance with the terms in the
Registration Statement, subject to compliance with the Securities Act, the
Investment Company Act of 1940, as amended, and applicable state laws regulating
the sale of securities.
We consent to your filing this opinion with the Securities and Exchange
Commission as an Exhibit to Post-Effective Amendment No. 32 to the Registration
Statement.
Very truly yours,
/s/Dechert Price & Rhoads
Exhibit (j)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors and Reports to Shareholders" and to the
use of our report with respect to Kemper Variable Series - Kemper Money Market,
Kemper Total Return, Kemper High Yield, Kemper Growth, Kemper Government
Securities, Kemper International, Kemper Small Cap Growth, Kemper Investment
Grade Bond, Kemper Contrarian Value, Kemper Small Cap Value, Kemper Value +
Growth, Kemper Horizon 20+, Kemper Horizon 10+, Kemper Horizon 5, Kemper Blue
Chip, Kemper Strategic Income (formerly Kemper Global Income), KVS Dreman High
Return Equity, KVS Dreman Financial Services, Kemper Global Blue Chip, Kemper
Technology Growth, Kemper Aggressive Growth, KVS Index 500, KVS Focused Large
Cap Growth, KVS Growth And Income, KVS Growth Opportunities and Kemper New
Europe (formerly Kemper International Growth and Income) Portfolios dated
February 15, 2000 in the Registration Statement of Kemper Investors Fund on Form
N-1A and the related Prospectus and Statement of Additional Information of
Kemper Variable Series filed with the Securities and Exchange Commission in this
Post-Effective Amendment No. 32 to the Registration Statement under the
Securities Act of 1933 (File No. 33-11802) and in this Amendment No. 33 to the
Registration Statement under the Investment Company Act of 1940 (File No.
811-5002).
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Chicago, Illinois
April 27, 2000
Exhibit (p)(1)
SCUDDER KEMPER INVESTMENTS, INC.
CODE OF ETHICS
- --------------------------------------------------------------------------------
Preamble
We will at all times conduct ourselves with integrity and distinction, putting
first the interests of our clients.
From the time of our Firm's inception, we have looked on our obligations to our
clients as fiduciary in nature. Our relationships were to be unencumbered in
fact or appearance by conflicts of interest, and the needs of our clients thus
represented a benchmark for assessing our own business decisions.
We believe and have always believed that our own long-term business interests
are best served by strict adherence to these principles. They are reflected in
the following internal policies and prescriptions and are implicit in the
judgment that our responsibilities exceed in scope and depth the literal
restrictions imposed by law on investor behavior (e.g., the prohibition on use
of inside information.).
The rules set forth in this Code have been adopted by Scudder Kemper
Investments, Inc. ("Scudder Kemper") and certain of its subsidiaries (the
"Covered Companies"), including Scudder Investor Services, Inc., Kemper
Distributors, Inc., Scudder Financial Services, Inc., Kemper Service
Corporation, Scudder Service Corporation, Scudder Trust Company, Scudder Fund
Accounting Corporation, and by Scudder Kemper-sponsored investment companies as
their codes of ethics applicable to Scudder Kemper-affiliated personnel.
Part 1: Conflicts of Interest
This Code does not attempt to spell out all possible cases of conflicts of
interest and we believe that members of the organization should be conscious
that areas other than personal investment transactions may involve conflicts of
interest. One such area would be accepting favors from brokers or other vendors
or service providers. We are a natural object of cultivation by firms wishing to
do business with us and it is possible that this consideration could impair our
objectivity.
A conflict of interest could also occur in securities which have a thin market
or are being purchased or sold in volume by any client or clients. Likewise, the
purchase of stocks or bonds in anticipation of (1) an upwards change to "Buy" in
the price rating, (2) their being added to the Investment Universe with a "Buy"
rating, or (3) their being purchased by a large account or group of accounts
would clearly be in conflict with our clients' interest.
Other examples of such conflicts would include the purchase or sale of a
security by a member of the organization prior to initiating a similar
recommendation to a client. Analysts occupy a particularly visible position. It
follows that analysts should be particularly careful to avoid the appearance of
"jumping the gun" before recommending a change in the rating on one of the
stocks for which he or she is responsible.
<PAGE>
Accordingly, all personnel are required to adhere to the following rules
governing their investment activities. These rules cannot cover all situations
which may involve a possible conflict of interest. If an employee becomes aware
of a personal interest that is, or might be, in conflict with the interest of a
client, that person should disclose the potential conflict to the Legal
Department for appropriate consideration, before any transaction is executed.
We are anxious to give every member of the Firm reasonable freedom with respect
to his/her own and family's investment activities. Furthermore, we believe that
we will be stronger and our product better if the members of the organization
have a personal interest in investing and the courage of their convictions with
respect to investment decisions. At the same time, in a profession such as ours,
it is possible to abuse the trust which has been placed in us and there could be
conflicts of interest between our clients and our personal investment
activities. In many cases such conflicts might be somewhat theoretical. On the
other hand, in a matter of this nature we must be almost as careful of
appearances as we are of the actual facts.
Our underlying philosophy has always been to avoid conflicts of interest
wherever possible and, where they unavoidably occur, to resolve them in favor of
the client. When a conflict does occur, an individual in an investment counsel
organization must recognize that the client's interests supercede the interests
of the Firm's employees and those of any members of the person's family whom he
or she may advise. This condition inevitably places some restriction on freedom
of investment for members of the organization and their families.
When any member of the organization thinks it possible that a personal
transaction can be misinterpreted as involving a conflict of interest, that
person is encouraged to write a short explanatory memorandum and attach it to
the confidential quarterly Personal Transaction Report (Form 1). Such a
memorandum should, of course, briefly document any discussion with and approval
by the Legal Department.
Personal Transaction Reports are reviewed by designees of the Ethics Committee,
who are responsible for determining whether violations have occurred, giving the
person involved an opportunity to supply additional information, and
recommending appropriate follow-up action including disciplinary measures for
late reports or other infractions.
Part 2: Personal Investments
Definitions
a. Access Person includes employees who have access to timely
information relating to investment management activities,
research and/or client portfolio holdings.
b. Affiliated person letter (407 letter) is a letter from the
compliance department on behalf of Scudder Kemper Investments,
Inc. authorizing an employee to open a brokerage account and
providing for the direction of duplicate trade confirmations
and account statements to the compliance department. All
access persons must apply for an affiliated person letter for
each personal account prior to making any personal trades for
the account. Employees who
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are not deemed access persons will receive an affiliated
person letter on request, but such letter will NOT require the
direction of duplicate trade confirmations and account
statements.
c. Beneficial Interest. You will be considered to have a
Beneficial Interest in any investment that is (whether
directly or indirectly) held by you, or by others for your
benefit (such as custodians, trustees, executors, etc.); held
by you as a trustee for members of your immediate family
(spouse, children, stepchildren, grandchildren, parents,
stepparents, grandparents, siblings, parents-in-law,
children-in-law, siblings-in-law); and held in the name of
your spouse, or minor children (including custodians under the
Uniform Gifts to Minors Act) or any relative of yours or of
your spouse (including an adult child) who is sharing your
home, whether or not you supervise such investments. You will
also be considered to have a Beneficial Interest in any
investment as to which you have a contract, understanding,
relationship, agreement or other arrangement that gives you,
or any person described above, a present or future benefit
substantially equivalent to an ownership interest in that
investment. For example, you would be considered to have a
Beneficial Interest in the following:
o an investment held by a trust of which you are the
settlor, if you have the power to revoke the trust
without obtaining the consent of all the
beneficiaries;
o an investment held by any partnership in which you
are a partner;
o an investment held by an investment club of which you
are a member;
o an investment held by a personal holding company
controlled by you alone or jointly with others.
If you have any question as to whether you have a Beneficial Interest in an
investment, you should review it with the Legal Department.
d. Covered Company is defined in the Preamble on page 1.
e. Derivative includes options, futures contracts, options on
futures contracts, swaps, caps and the like, where the
underlying instrument is a Security, a securities index, a
financial indicator, or a precious metal.
f. Employees includes all employees of each of the Covered
Companies who do not fall within the definition of Access
Person, Investment Personnel or Portfolio Manager.
g. Initial Public Offering shall include initial offerings in
equities.
h. Investment Personnel are traders, analysts, and other
employees who work directly with Portfolio Managers in an
assistant capacity, as well as those who in the course of
their job regularly receive access to client trading activity
(this
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would generally include members of the Investment Operations
and Mutual Fund Accounting groups). As those responsible for
providing information or advice to Portfolio Managers or
otherwise helping to execute or implement the Portfolio
Managers' recommendations, Investment Personnel occupy a
comparably sensitive position, and thus additional rules
outlined herein apply to such individuals.
i. Personal Account means an account through which an employee of
a Covered Company has a Beneficial Interest in any Security or
Derivative.
j. Personal Transaction means an investment transaction in a
Security or Derivative in which an employee of a Covered
Company has a Beneficial Interest.
k. Portfolio Managers are those employees of a Covered Company
entrusted with the direct responsibility and authority to make
investment decisions affecting a client. PIC Consultants are
included in this definition. In their capacities as
fiduciaries, Portfolio Managers occupy a more sensitive
position than many members of the Scudder Kemper organization
because they are originating transactions for their clients.
l. Private Placement is defined as an offering of a security,
which is being acquired in connection with an offering not
being made to "the public" but to a limited number of
investors and which has been deemed not to require
registration with the SEC.
m. Reportable Transaction includes any transaction in a Security
or Derivative; provided that Reportable Transaction does not
include any transaction in (i) direct obligations of the US
Government, or (ii) open-end investment companies for which
none of the Advisers serves as investment adviser.
n. Security includes without limitation stocks, bonds,
debentures, notes, bills and any interest commonly known as a
security, and all rights or contracts to purchase or sell a
security.
o. Scudder Kemper Funds means each registered investment company
to which an Adviser renders advisory services, other than
funds sponsored by an organization unaffiliated with Scudder
Kemper.
p. Waiver from preclearance exempts certain accounts from the
preclearance requirements. An access person may receive a
certificate of waiver from preclearance under the following
circumstances:
i. Account under the exclusive discretion of an access
person's spouse, where the spouse is employed by an
investment firm where the spouse is subject to
comparable preclearance requirements;
ii. The account is under the exclusive discretion of an
outside money manager; or
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iii. Any other situation where a waiver of preclearance is
appropriate.
A certificate of waiver from preclearance is available at the discretion of the
Ethics Committee. All accounts receiving a certificate of waiver from
preclearance must apply for a 407 letter. Transactions occurring in accounts
which have obtained a waiver from preclearance are not exempt from the quarterly
reporting requirement.
Specific Rules and Restrictions Applicable to all Employees
The following rules and restrictions are applicable to all Employees (including
Access Persons, Investment Personnel and Portfolio Managers):
a. Every Employee must file by the seventh day of the month
following the end of each quarter with the individual
designated by the Ethics Committee a confidential Personal
Transaction Report for the immediately preceding quarter (Form
1: Quarterly Personal Transaction Report). Each report must
set forth every Reportable Transaction for any Personal
Account in which the Employee has any Beneficial Interest.
In filing the reports for accounts within these rules please
note:
i. You must file a report every quarter whether or not
there were any Reportable Transactions. All
Reportable Transactions should be listed if possible
on a single form. For every Security listed on the
report, the information called for in each column
must be completed by all reporting individuals.
ii. Reports must show sales, purchases, or other
acquisitions, or dispositions, including gifts,
exercise of conversion rights and the exercise or
sale of subscription rights. Approved Personal
Transaction Preclearance Forms must be attached for
all applicable transactions. Reinvestment of
dividends (but not additional share purchases)
through dividend reinvestment plans of publicly held
companies need be indicated only on the line provided
above PURCHASES on the reverse side of the report.
iii. Quarterly reports on family and other accounts that
are fee-paying firm clients need merely list the
Scudder Kemper account number under Item #1 on Page 1
of the report; these securities transactions do not
have to be itemized.
iv. Employees may not purchase securities issued as part
of an initial public offering until three business
days after the public offering date (i.e., the
settlement date), and then only at the prevailing
market price. In addition, employees may not
participate in new issues of municipal bonds until a
CUSIP number has been identified.
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b. Employees are not permitted to serve on the boards of publicly
traded companies unless such service is approved in advance by
the Ethics Committee or its designee on the basis that it
would be consistent with the interests of the Firm. In the
case of Investment Personnel service on the board of a public
company must be consistent with the interests of the Fund with
which the Investment Personnel is associated as well as the
shareholders of such Fund, and the Investment Personnel must
be isolated from participating in investment decisions
relating to that company. See Part 7: Fiduciary and Corporate
Activities for further detail on the approval process.
c. For purposes of this Code, a prohibition or requirement
applicable to any given person applies also to transactions in
securities for any of that person's Personal Accounts,
including transactions executed by that person's spouse or
relatives living in that person's household, unless such
account is specifically exempted from such requirement by the
Ethics Committee or its designee.
d. Employees may not purchase or sell securities on the
Restricted List absent a special exception from the Legal
Department. Employees may not disclose the identities of
issuers on the Restricted List to others outside the firm.
Please See Part 3: Insider Trading, which is incorporated by
reference.
Specific Rules and Restrictions Applicable to all Access Persons
a. Access Persons are subject to each of the foregoing rules and
restrictions applicable to Employees.
b. Access Persons may not purchase or sell a "private placement"
security without the prior written approval of the Ethics
Committee or its designee and, in the case of Portfolio
Managers and research analysts, the additional approval of
their departmental reviewer (see Form 3: Special Preclearance
Form). Typically, a purchase of a private placement will not
be approved where any part of the offering is being acquired
by a client.
c. All Access Persons must disclose promptly to the Ethics
Committee or its designee the existence of any Personal
Account and must direct their brokers to supply duplicate
confirmations of all Reportable Transactions and copies of
periodic statements for all such accounts to an individual
designated by the Ethics Committee. (Use Form 5: Affiliated
Persons Letter.) These confirmations will be used to check for
conflicts of interest by comparing the information on the
confirmations against the Firm's pre-clearance records (see
sub-section (f) below) and quarterly Personal Transaction
Reports.
d. All Access Persons are required to "pre-clear" their personal
transactions with the Ethics Committee's designee. (Use Form
2: Preclearance Form.) If circumstances are such that the Firm
lacks the ability to preclear a particular transaction,
permission to execute that transaction will not be granted.
Submissions for request of trade approval must be submitted no
later than 3:30pm. If preclearance is granted, the Access
Person has until the end of the day preclearance is granted to
execute his or her trade. After such time the
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<PAGE>
Access Person must obtain preclearance again. (Limit orders
which have been precleared and placed within this time limit
need not be precleared on subsequent days so long as the terms
of the order are not changed.) Prior approval is not required
for the exercise of rights, the rounding out of fractional
shares and receipt of stock dividends or stock splits.
Similarly, prior approval is not required for transactions in
shares of registered open-end investment companies (except in
the case of a Portfolio Manager who wishes to purchase or sell
shares of his/her Fund when the Fund is other than a money
market fund) and U.S. Government securities transactions.
e. Access Persons may not purchase any Security where the
investment rating is upgraded to "Buy" (or any Security added
to the Investment Universe with a "Buy" rating until two weeks
after the date of the rating change or addition. (See SP&P
#31-5 regarding Price Rating System.)
f. Access Persons may not sell any Security where the investment
rating is downgraded to "Unattractive" until two weeks after
the date of the rating change.
g. Access Persons may not purchase securities that are added to
the PIC Universe until two weeks after the date of the
addition.
h. In the event that an Access Person desires to trade less than
$10,000 of a Security that has a market capitalization of at
least $5 billion, pre-clearance will be granted absent special
circumstances. (However, please note that even trades falling
within this de minimus exception must be pre-cleared with the
Ethics Committee or its designee.)
i. No Access Person will receive approval to execute a securities
transaction when any client has a pending "buy" or "sell"
order in that same (or a related) Security until that order is
executed or withdrawn. Examples of related securities include
options, warrants, rights, convertible securities and American
Depository Receipts, each of which is considered "related" to
the Security into which it can be converted or exchanged.
j. Within 10 days of the commencement of employment (or within 10
days of obtaining Access Person status) all Access Persons
must disclose all holdings of securities and/or derivatives in
which they have a Beneficial Interest (and indicate which of
those holdings are private placements). Access Persons must
file an initial report even if they have no holdings. Holdings
in direct obligations of the U.S. Government and mutual (i.e.,
open-end) funds other than Scudder Kemper Funds need not be
listed.
k. Access Persons shall submit an Annual Statement of Securities
Holdings as part of the annual ethics questionnaire. The
Annual Statement of Securities Holdings shall only include
holdings that are not received by the Legal Department in the
form of duplicate statements.
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Specific Rules and Restrictions Applicable to Investment Personnel
a. Investment Personnel are subject to each of the foregoing
rules and restrictions applicable to Employees and Access
Persons.
b. Investment Personnel are prohibited from profiting from the
buying and selling, or selling and buying, of the same (or
related) securities within a 60 calendar-day period.
c. Investment Personnel who hold a privately placed Security of
an issuer whose securities are being considered for purchase
by a client must disclose to their departmental reviewer that
preexisting interest where they are involved in the
consideration of the investment by the client (using Form 3:
Special Transaction Preclearance Form). The client's purchase
of such securities must be approved by the relevant
departmental reviewer.
d. Research analysts are required to obtain special preclearance
(using Form 3: Special Transaction Preclearance Form) and
approval from their supervisor prior to purchasing or selling
a Security in an industry or country he or she follows.
Specific Rules and Restrictions Applicable to Portfolio Managers
a. Portfolio Managers are subject to each of the foregoing rules
and restrictions applicable to Employees, Access Persons and
Investment Personnel.
b. Portfolio Managers may not buy or sell a Security within seven
calendar days before and after a portfolio that he or she
manages trades in that Security.
c. When a Portfolio Manager wants to sell from his or her
Personal Account securities held by his or her clients, the
Portfolio Manager must receive prior written approval from the
Ethics Committee or its designee (Using Form 3) before acting
for the Personal Account. The Portfolio Manager must explain
his or her reasons for selling the securities.
d. When a Portfolio Manager wants to purchase for a Personal
Account a Security eligible for purchase by one of his or her
clients, the Portfolio Manager must receive prior written
approval from the Ethics Committee or its designee (Using Form
3) before acting for the Personal Account. The Portfolio
Manager must explain his or her reasons for purchasing the
securities.
e. A Portfolio Manager may not engage in short sales other than
"short sales against the box" for which both Regular and
Special Preclearance are required.
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General
a. Apart from these specific rules, purchases and sales should be
arranged in such a way as to avoid any conflict with clients
in order to implement the intent of this Code. Any attempt by
an employee to do indirectly what this Code is meant to
prohibit will be deemed a direct violation of the Code. If
there is any doubt whether you may be in conflict with
clients, particularly with respect to securities with thin
markets, you should check before buying or selling with the
Ethics Committee or its designee.
b. Hardship exceptions may be granted, in the sole discretion of
the Ethics Committee or its designee, with respect to certain
provisions of this Code in rare instances where unique
circumstances exist.
c. The Ethics Committee or its designee, on behalf of the Firm,
will report annually to each Scudder Kemper Fund's board of
directors concerning existing procedures and any material
changes to those procedures as well as any instances requiring
significant remedial action during the past year which relate
to that Fund.
d. Access Persons are permitted to maintain Margin Accounts.
Nonetheless, sales by Access Persons pursuant to margin calls
must be precleared in accordance with standard preclearance
procedures.
Excessive Trading
The firm believes that it is appropriate for its members to participate in the
public securities markets as part of their overall personal investment programs.
As in other areas, however, this should be done in a way that creates no
potential conflicts with the interests of our clients or our firm. Further, it
is important that members recognize that otherwise appropriate trading, if
excessive (measured in terms of frequency, complexity of trading programs or
numbers of trades), or if conducted during work-time or using firm resources,
can give rise to conflicts of a different category such as by distracting time,
focus, and energy from our efforts on behalf of our clients or by exceeding a
reasonable standard of firm accommodation of members' basic personal needs.
Accordingly, personal trading rising to such dimension as to create this
possibility is not consistent with the Code of Ethics, should be avoided, and
will not be approved. This provision is consistent with Group policies and by
Zurich Basics, which sets out the Group's core values and basic principles.
Disgorgement; Other Penalties
Any profits realized from a transaction that was not precleared or from a
transaction that otherwise violates a provision of this Code will be disgorged
to an appropriate charity. The Ethics Committee, in its discretion, may waive
disgorgement in exceptional circumstances. The Ethics Committee also reserves
the right to impose other penalties for violations of the Code, including
requiring reversal of a trade, fines, suspension of trading privileges and,
under the most serious of violations, termination of employment.
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Part 3: Insider Trading
I. Introduction
Employees may not transact in a security while in possession of material,
nonpublic information relating to the issuer of the security. This prohibition
applies to trading on behalf of client accounts and personal accounts. In
addition, employees may not convey material, nonpublic information about public
traded issuers to others outside the company.
SP&P 16 -11B sets forth the company policy on Insider Trading, and is
incorporated into the Code of Ethics by reference.
II. General guidelines
Employees may not transact in a security, on behalf of a client account or a
personal account, while in possession of material, nonpublic information
concerning the issuer of the security.
a. Employees who receive information which they believe may be
material and nonpublic are required to contact the Legal
Department immediately. In such circumstances, employees
should not share the information with other employees,
including supervisors. Employees may not share material,
nonpublic information with others outside the firm.
b. Employees may not purchase or sell securities on the
Restricted List absent a special exception from the Legal
Department. Employees may not disclose the identities of
issuers on the Restricted List to others outside the firm.
c. Employees may not solicit material, nonpublic information from
officers, directors or employees of public issuers.
d. Employees may not knowingly transact in securities prior to
trades made on behalf of clients, or prior to the publication
of research relating to the security.
e. Employees may not cause nonpublic information about a security
to be passed across a firewall.
III. Definitions
Material information is information that a reasonable investor would find
relevant to making an investment decision. Any information which if announced to
the public, would likely cause a change in the price of a security, is likely to
be material.
The following types of information are likely to be material: earnings, mergers
and acquisitions, dividends and special dividends, product developments,
licenses, changes in management, major litigation or regulatory action, and/or
actions by prominent investors.
Nonpublic information is information that has not been disclosed to the public.
Information available in newspapers, magazines, radio, television, and/or news
services is generally public information.
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Restricted List is a document disseminated by the Legal Department setting forth
securities which employees may not buy and/or sell for personal and client
accounts.
A firewall is a procedure designed to prevent the misuse of material, nonpublic
information received by the firm in the course of its business. Employees with
questions concerning firewall procedures and their applicability should contact
the Legal Department for further guidance. SP&P 16 -11C sets forth the company
policy on Firewall Procedures, and is incorporated into the Code of Ethics by
reference.
Part 4: Confidentiality
Our obligation as fiduciaries to act at all times in our clients' best interests
requires that we share information concerning our clients -- including
particularly information concerning their identities, holdings and account
transactions -- with those outside the Firm only on a "need to know" basis.
Accordingly, no member of the organization may discuss with, or otherwise inform
others of, the identity of any client, or any actual or contemplated transaction
for the account of a client, except in the performance of employment duties or
in an official capacity and then only for the benefit of the client, and in no
event for a direct or indirect personal benefit.
Part 5: Proprietary Rights of the Firm
When a member of the organization leaves the firm, for whatever reason, certain
business principles and procedures should be observed. Some are obvious and
inherent in the basic ethical relationship between any person and his or her
firm. In our case, there are many additional constraints as a result of our
being a confidential fiduciary in a field involving special ethical, regulatory
and professional considerations.
By way of background, the firm does not wish to deter any individuals from
furthering their careers, if they think their situation can be improved with
another firm. But if any member of the organization does move on to another
firm, he or she does so subject to those constraints.
The collective efforts of everyone at Scudder Kemper have contributed over a
period of years to what our firm is today. This includes our recognized
reputation as professional investors with a high sense of personal integrity and
ethics. Many persons have contributed to the investment product we offer and
have participated in the development of our roster of existing and prospective
clients. The central principle is that the client has retained the firm, not any
individual. Members of the firm should also understand that our clients and our
employees are central to the value of the firm. Accordingly, for at least six
quarters after the departure (unless a longer period has been agreed to),
departing members of the firm may not solicit clients to retain, or other firm
employees to join, another investment management firm.
Any member of the organization must recognize that these elements of our
business are the property of the firm and its clients. In addition, the firm has
certain obligations not to disclose the confidential and proprietary information
of third party suppliers. None of such materials
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or information may be removed from the firm or used in any way outside of
Scudder Kemper either during or after association with the firm.
In brief, the actions of anyone in the organization or of any departing member
of the organization are expected to be consistent with the spirit and intent of
this memorandum which reasserts the fact that no one of us can take away, use or
otherwise make available to a third party what belongs to the firm or its
supplier.
For example, the following items are representative of the property of the firm
or its suppliers and are not to be removed whether they are original documents,
copies, tapes or reproductions of any kind:
o Names, addresses, telephone numbers and other client contact
and correspondence procedures.
o Records and files of our clients' accounts including the
computer database.
o Account operational procedures and instructions.
o Asset listings for clients and prospects including cost
prices, dates of acquisition and the like.
o All firm research memoranda, procedures and files, including
drafts thereof, as well as procedures, notes or tapes of
research interviews, discussions, annual reports and company
releases, brokers' reports, outside consultants' reports and
any other material pertaining to investments.
o All operating memoranda such as Standard Policy and Procedures
memoranda, operations manuals, procedures and memoranda, and
compliance checklists, manuals, procedures and memoranda.
o All computer software programs, databases and related
documentation pertaining to account or research operations,
procedures or controls including access to and use of such
programs.
o Presentation materials (including drafts, memoranda and other
materials related thereto) prepared for marketing purposes or
client meetings, including computer software programs and
documentation of third party suppliers.
o All information pertaining to investment counsel and fund
prospects including lists and contact logs.
o Account performance data for all accounts which have been or
are under the supervision of the firm.
o Internal analyses, management information reports and
worksheets such as marketing and business plans, profit margin
studies, and compensation reviews.
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These examples are only illustrative and not intended as all inclusive. In
addition, you are reminded of our long and strong tradition of confidentiality
with respect to client affairs and the confidential information of third party
suppliers and the representations we make to our clients and our suppliers in
this regard.
In order to maintain the professional nature of the firm, we have an obligation
to protect vigorously the rights of our clients and the firm. The firm may
enforce these rights pursuant to appropriate judicial proceedings.
Alternatively, the firm, in its discretion, may initiate proceedings before the
American Arbitration Association in order to resolve any controversy or claim it
may have arising out of or relating to this policy, or breach of it, and
judgment on an award rendered by the arbitrator may be entered in any court
having jurisdiction.
Part 6: Gifts and Entertainment
I. Overview
It is appropriate for employees to maintain friendly but professional
relationships with persons with whom Scudder Kemper conducts its business. These
business counterparts may include persons who are associated with Scudder
Kemper's vendors, contractors, providers of service, and members of the
investment community. It is appropriate for employees to give and/or receive
gifts, business meals and/or entertainment from such business counterparts,
provided that they are not excessive in value or frequency. The good judgment of
our employees and their supervisors is of paramount importance in ensuring
compliance with this provision.
SP&P 16-11A sets forth the company policy on Gifts and Entertainment, and is
incorporated into the Code of Ethics by reference.
II. General Guidelines
a. Employees may not accept gifts that are excessive in value or
frequency.
b. The following types of transactions should be approved by a
supervisor using Form 6 (The Scudder Kemper Gift Form; See
Section III):
i. Gifts valued in excess of $100;
ii. Business meals valued in excess of $200; and
iii. Entertainment valued in excess of $300.
c. Invitations which involve the payment of substantial expenses
generally should be avoided (See SP&P 16-2A). Under most
circumstances lodging and transportation charges should be
considered the obligation of Scudder Kemper.
d. The frequency of invitations should also be taken into
account, especially entertainment. Employees generally should
not accept more than three invitations a year from any single
individual, group or organization, subject to
13
<PAGE>
approval from a supervisor.
e. When analysts and product leaders accept broker invitations to
research and investment meetings, an effort should be made to
use firms on our "Approved List" or those which are bona fide
candidates for the list. It is not good business practice to
accept assistance and invitations from firms with which we are
not likely to do business.
f. Employees may not accept gifts of cash. Employees may not
accept gifts of favorable rates on financial transactions such
as loans or brokerage commissions.
III. Reporting and Supervision
As described above, gifts valued at over $100 and the other items outlined in
II(b) hereof, must be approved by a supervisor. The supervisor must have a
corporate title of Managing Director or Senior Vice President, and must be in
the same department as the employee receiving the gift. The Scudder Kemper Gift
Form (Form 6) must be completed within ten days of receipt of the gift.
Completed gift forms are sent to Carol Beckett, at 345 Park Avenue, NY, NY
10154. In addition, gifts subject to Form 6 must be reported on the Quarterly
Personal Transaction Report.
Part 7: Fiduciary and Corporate Activities
In many fiduciary and corporate activities, members of the organization are, or
will become, engaged in responsible duties involving the expenditure of time and
the application of information and experience which properly belong to the firm
or are derived from the Scudder Kemper relationship. With certain exceptions
referred to below, any compensation or profits from these activities are,
accordingly, considered to be Scudder Kemper's income.
The Ethics Committee must give written approval to all existing or prospective
relationships and activities as described below, and no new relationship should
be initiated without written authorization on Form 7: Request For Approval of
Fiduciary, Corporate or Other Outside Activity. In those instances when approval
of a prospective fiduciary relationship, e.g., executor or trustee, has been
given and the individual subsequently is in a position to qualify and act in the
fiduciary capacity, that person is required to reapply for approval if the
character of the activity changes. The same procedures should be followed as
those for the approval of any fiduciary activity except that reference should be
made to the earlier obtained approval under "Salient Facts" on the approval
form.
Executorships
The duties of an executor are often arduous, time consuming and, to a
considerable extent, foreign to our business. As a general rule, Scudder Kemper
wishes to discourage acceptance of executorships by members of the organization.
However, business considerations or family relationships may make it desirable
to accept executorships under certain wills. In these instances follow the
procedures set forth in SP&P #16-15, Acting As Executor Under A Client's Will.
In all cases, it is necessary for the individual to have the written
authorization
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of the firm to act as an executor.
When members of the organization accept executorships under clients' wills, the
organization has consistently held to the belief that these individuals are
acting for Scudder Kemper and that fees received for executors' services
rendered while associated with the firm are exclusively Scudder Kemper income.
In such instances, the firm will indemnify the individual, and the individual
will be required at the time of qualifying as executor to make a written
assignment to the firm of any executor's fees due under such executorship.
Copies of this assignment and Scudder Kemper's authorization to act as executor
are to be filed in the client's file.
Generally speaking, it is not desirable for members of the organization to
accept executorships under the wills of non-clients. Normally, however,
authorization will be given in the case of executorships for members of an
individual's immediate family assuming that arrangements for the anticipated
work load can be made without undue interference with the individual's
responsibilities to Scudder Kemper. (For example, this may require the
employment of an agent to handle the large amount of detail which is usually
involved.) In such a case, the firm would expect the individual to retain the
commission. There may be other exceptions which will be determined by the facts
of each case. All such existing or prospective relationships should be reported
in writing.
Trusteeships
It is often desirable for members of the organization to act individually as
trustees for clients' trusts. Such relationships are not inconsistent with the
nature of our business. As a general rule, Scudder Kemper does not accept
trustee's commissions where it acts as investment counsel. As in the case of
executorships, all trusteeships must have the written approval of the firm.
It is our standard practice to indemnify those individuals who act as trustees
for clients' trusts at the request of the firm. In this connection, the
individual member of the organization acting as a trustee will be asked to agree
not to claim or accept trustee's commissions for acting. This applies to trusts
which employ Scudder Kemper as investment counsel or those which are invested in
one or more of the Funds administered by Scudder Kemper.
It is recognized that individuals may be asked to serve as trustees of trusts
which do not employ Scudder Kemper. As in the case of executorships, the firm
will normally authorize individuals to act as trustees for trusts of their
immediate family. Other non-client trusteeships can conflict with our clients'
interests so that acceptance of such trusteeships will be authorized only in
unusual circumstances.
Custodianships for Minors
It is expected that most custodianships will be for minors of an individual's
immediate family. These will be considered as automatically authorized and do
not require written approval of the firm. However, the written approval of
Scudder Kemper is required for all other custodianships for minors.
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<PAGE>
Directorships and Consultant Positions in Business Corporations
Occasionally, members of the organization are asked to serve as directors or
consultants in business organizations. As a general policy, Scudder Kemper
considers it inadvisable for such individuals to serve in these capacities. No
such position may be accepted without the written authorization of the Ethics
Committee or its designee. In the exceptional instances where such authorization
is granted, the fees or other income resulting from such a relationship are to
be turned over to Scudder Kemper (unless the firm decides otherwise) to
compensate it for the resources made available. Scudder Kemper reserves the
right to require that any member of the organization relinquish any outside
business connection when it believes that such connection is unduly time
consuming or conflicts with the interests of the firm or its clients.
Public and Charitable Positions
Scudder Kemper has consistently encouraged members of the organization to take
part in community activities and to take an active role in public and charitable
organizations. The firm expects that when accepting such duties, members of the
organization will consider possible conflicts of interest with our business as
well as the demands that such positions make upon their time. Several examples
of possible conflicts might be helpful.
When agreeing to serve in a public or charitable position, a member of the
organization should clarify in advance in writing that he or she will not
provide free continuous investment advice and management. This should be made
particularly clear where Investment Committee responsibilities are considered.
Serving without compensation on the Investment Committee of a charity which
might appropriately employ Scudder Kemper would ordinarily not be in our best
interest and prior written approval is required.
Another example of a possible conflict which should be avoided arises when a
charity is involved in fund raising. Our work gives us access to detailed
knowledge of each client's capacity to contribute and is compounded by the close
relationship which should exist between consultant and client. For any member of
the organization in the course of a charitable solicitation to take advantage of
this confidential relationship -- or even to seem to do so -- would be
unprofessional. Even under the best circumstances, the solicitation of a client
by a member of the organization is awkward and discouraged.
Members of the organization should also make it clear in writing to the public
or charitable organization that they will not participate in any search or
selection process for a future investment adviser. It is expected that the
participation of a member of the Scudder Kemper organization in a charitable
organization will not preclude the firm from being a candidate for employment as
investment counsel to that organization.
Outside Activities
The foregoing does not cover all situations in which a member of the
organization may be in a position to realize financial gain which should be
treated as belonging to Scudder Kemper. It is expected that opportunities for
substantial compensation or profit from sources outside of the firm may, for
example, be offered to a member of the organization by reason of his association
with the firm or because of his investment and financial skill or experience.
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Scudder Kemper reserves the right to decide if such compensation or profit
should be accepted and, if accepted, whether or not it should be turned over to
Scudder Kemper. All such cases must be reported promptly in writing for Ethics
Committee review and before they are operative.
New Employees
It is desirable that any fiduciary or corporate activities of a prospective
employee be reviewed by Scudder Kemper prior to the conclusion of arrangements
for employment. However, if such activities have not been reported prior to
employment, they should be reported in writing as promptly as possible
thereafter. It is recognized that there may be justification for treating such
activities which ante-date the individual's association with the firm on a
different basis than might otherwise apply. However, Scudder Kemper reserves the
right to make what it considers an appropriate determination in each case. It
also reserves the right to require that any employee give up any fiduciary or
corporate activity which it finds in conflict with the best interests of the
firm or any of its clients.
Written Approval
Where written approval is required, Form 7 should be filed with the Ethics
Committee. A separate form should be filed for each trust, executorship and the
like. Note that once an activity has been approved, no additional requests for
approval need be filed unless the character of the activity changes, e.g., if a
member of the organization has obtained approval to be named as a prospective
executor or trustee, that individual should submit a new request to qualify and
serve in this capacity by resubmitting a new Form 7 for review.
Part 8: External Communications
In our sales, marketing, client reporting and corporate communications
activities, the Firm's products, services, capabilities, and past and potential
accomplishments must be presented fairly, accurately and clearly. All marketing
materials must be reviewed by the Global Compliance Group in accordance with
SP&P #12-7. All press interviews must be cleared in advance by Public Relations.
Reports to clients, including client account valuation and performance data,
must be fair.
Part 9: Reporting Apparent Violations
Scudder Kemper believes that maintaining a strong compliance culture is in the
best interest of the firm and its clients, in that it helps both to maintain
client and employee confidence, and to avoid the costs (both reputational and
monetary) associated with compliance violations. While reducing compliance
violations to a minimum is our goal, realistically speaking, violations may
occur from time to time in an organization as large as ours. When violations
occur, it is important that they be dealt with immediately by the appropriate
members of the organization. We encourage all Scudder Kemper employees to report
apparent compliance violations to the Legal Department. Violations that go
unreported have the potential to cause far more damage than violations that are
taken care of immediately upon discovery.
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It is extremely important that apparent compliance violations be reported
through the appropriate channels. The Legal Department should be contacted in
all cases except cases involving potential violations of Human Resources
policies, which should be reported directly to Human Resources. While resolving
apparent compliance violations should virtually always involve the management of
the business unit involved, it is not necessarily appropriate (nor is it
required) that an employee report apparent violations to his or her manager, as
well as to the Legal Department.
Reports of apparent compliance violations will be treated confidentially to the
fullest extent possible. In no event will the firm tolerate retaliation against
persons who report apparent compliance violations. We realize that employees may
lack the training to distinguish actual from apparent compliance violations, and
accordingly, the fact that a reported incident proves, after investigation, not
to have involved a compliance violation will not result in any sanction against
the reporter, provided that the report was made in good faith.
Part 10: Condition of Employment or Service
Compliance with the Code of Ethics is a condition of employment or continued
affiliation with Scudder Kemper and the Scudder Kemper Funds, and conduct not in
accordance shall constitute grounds for actions including termination of
employment or removal from office.
Employees must certify annually that they have read and agree to comply in all
respects with this Code of Ethics and that they have disclosed or reported all
personal transactions it requires to be disclosed or reported. (See Form 4:
Annual Acknowledgement of Obligations Under Code of Ethics). In addition, each
year every member of the organization is required to file with the Legal
Department a complete list of all fiduciary, corporate, and other relationships
of the nature described in Part 7 above. The report is titled Form 8: Annual
Review of Personal Activities and is attached to this memorandum.
18
Exhibit (p)(2)
KEMPER VARIABLE SERIES
CODE OF ETHICS
--------------
While affirming its confidence in the integrity and good faith of all
of its officers and directors (references to a "director" apply to a trustee if
the Fund is a business trust), the Fund recognizes that the knowledge of present
or future portfolio transactions and, in certain instances, the power to
influence portfolio transactions which may be possessed by certain of its
officers and directors could place such individuals, if they engage in personal
securities transactions, in a position where their personal interests may
conflict with that of the Fund. In view of this and of the provisions of Rule
17j-1(b)(1) under the Investment Company Act of 1940 ("1940 Act"), the Fund has
determined to adopt this Code of Ethics to specify and prohibit certain types of
personal securities transactions that may create conflicts of interest and to
establish reporting requirements and enforcement procedures.
This Code is divided into three parts. The first part contains
provisions applicable to officers, directors and portfolio managers who are
directors, officers or employees of Scudder Kemper Investments, Inc. (or an
affiliate thereof) which is the investment adviser to the Fund (the "Adviser");
the second part pertains to directors and honorary directors unaffiliated with
the Adviser; and the third part contains record-keeping and other provisions.
The Adviser imposes stringent reporting requirements and restrictions
on the personal securities transactions of its personnel. The Fund has
determined that the high standards established by the Adviser may be
appropriately applied by the Fund to its officers and portfolio managers (all of
whom are affiliated with the Adviser) and those of its directors who are
affiliated with the Adviser and, accordingly, may have frequent opportunities
for knowledge of and, in some cases, influence over, Fund portfolio
transactions.
In the experience of the Fund, directors and honorary directors who are
unaffiliated with the Adviser have comparatively less current knowledge and
considerably less influence over specific purchases and sales of securities by
the Fund. Therefore, this Code contains separate provisions applicable to
unaffiliated directors.
I. Rules Applicable to Fund Officers, Directors and Portfolio Managers
-------------------------------------------------------------------
Employed by the Adviser or by an Affiliate thereof.
---------------------------------------------------
A. Incorporation of Adviser's Code of Ethics.
------------------------------------------
(1) Part 2, Part 6 and Part 10 of the Adviser's Code of
Ethics, which is attached as Appendix A hereto, are hereby
incorporated herein by reference as the Fund's Code of Ethics
applicable to officers, directors and portfolio managers of
the Fund who are directors, officers or employees of the
Adviser or an affiliate thereof.
(2) A violation of Part 2 or Part 6 of the Adviser's Code of
Ethics shall constitute a violation of the Fund's Code.
<PAGE>
B. Reports.
--------
(1) Officers, directors and portfolio managers of the Fund who
are directors, officers or employees of the Adviser shall file
the reports required under the Adviser's Code of Ethics with a
Fund officer designated from time to time by the board of
directors to receive such reports (the "Review Officer"), who
shall be an officer of the Fund.
(2) The Review Officer shall submit confidential quarterly
reports with respect to his/her personal securities
transactions to an officer designated to receive his/her
reports ("Alternate Review Officer"), who shall act in all
respects in the manner prescribed herein for the Review
Officer.
(3) A report filed with the Review Officer (or in the case of
a report of the Review Officer, with the Alternate Review
Officer) shall be deemed to be filed with each of the
registered investment companies sponsored and/or managed by
the Adviser of which the reporting individual is an officer,
director, trustee or portfolio manager for which such officer
acts as Review Officer.
C. Review.
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(1) The Review Officer shall compare the reported personal
holdings and personal securities transactions with completed
and contemplated portfolio transactions of the Fund to
determine whether a violation of this Code may have occurred.
Before making any determination that a violation has been
committed by any person, the Review Officer shall give such
person an opportunity to supply additional explanatory
material.
(2) If the Review Officer determines that a violation of this
Code has or may have occurred, he/she shall submit his/her
written determination, together with the confidential
quarterly report and any additional explanatory material
provided by the individual to the President of the Fund, who
shall make an independent determination of whether a violation
has occurred.
D. Sanctions.
----------
(1) If the President finds that a violation has occurred,
he/she shall impose upon the individual such sanctions as he
or she deems appropriate and shall report the violation and
the sanction imposed to the board of directors of the Fund.
The sanctions that may be imposed hereunder include, without
limitation, reversing the improper personal securities
transaction and/or disgorging any profit realized, censure,
imposition of restrictions on personal trading, fines, and
termination of employment.
(2) No person shall participate in a determination of whether
he/she has committed a violation of the Code or of the
imposition of any sanction against himself. If a securities
transaction of the President is under consideration, the
Chairman of the Board or, in the absence of a Chairman of the
Board, the
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Executive Vice President or, in the absence of an Executive
Vice President, any Vice President shall act in all respects
in the manner prescribed herein for the President.
II. Rules Applicable to Unaffiliated Directors and Honorary Directors.
------------------------------------------------------------------
A. Definitions.
------------
(1) "Beneficial ownership" shall be interpreted in the same
manner as it would be in determining whether a person is
subject to the provisions of Section 16 of the Securities
Exchange Act of 1934 and the rules and regulations thereunder,
except that the determination of direct or indirect beneficial
ownership shall apply to all securities which an unaffiliated
director has or acquires. Application of this definition is
explained in more detail in the Adviser's Code of Ethics, set
forth as Appendix A hereto.
(2) "Control" shall have the same meaning as that set forth in
Section 2(a)(9) of the 1940 Act. Section 2(a)(9) provides in
general that "control" means the power to exercise a
controlling influence over the management or policies of a
company, unless such power is solely the result of an official
position with such company.
(3) "Disinterested director" means a director or honorary
director of the Fund who is not an "interested person" of the
Fund within the meaning of Section 2(a)(19) of the 1940 Act.
(4) "Purchase or sale of a security" includes, among other
things, the writing of an option to purchase or sell a
security.
(5) "Security" shall have the same meaning as that set forth
in Section 2(a)(36) of the 1940 Act (in effect, all
securities), except that it shall not include direct
obligations issued or guaranteed by the United States,
bankers' acceptances, bank certificates of deposit, commercial
paper, other high quality short-term debt instruments and
shares of registered open-end investment companies. The term
"security" includes any separate security which is convertible
into, exchangeable for or which carries a right to purchase a
security.
(6) "Unaffiliated director" means, for purposes of this Code,
a director or honorary director of the Fund who is not a
director, officer or employee of the Adviser or an affiliate
thereof.
B. Prohibited Purchases and Sales.
-------------------------------
No unaffiliated director shall purchase or sell, directly or
indirectly, any security in which he/she has or by reason of
such transaction acquires, any direct or indirect beneficial
ownership and which to his/her actual knowledge at the time of
such purchase or sale:
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(1) is being considered for purchase or sale by the Fund or
the Adviser, or was being so considered, within the most
recent 15 days; or
(2) is being purchased or sold by the Fund or was purchased or
sold by the Fund within the most recent 15 days.
A security will be deemed "being considered for purchase or
sale" when a recommendation formulated by the Adviser to
purchase or sell a security has been communicated to a Fund
portfolio manager.
C. Preclearance.
-------------
Unaffiliated directors are not generally required to preclear
their personal trades. In the event any such director has,
however, within the 15 days prior to the personal trade he/she
is considering, discussed (other than discussions held during
the course of Fund board meetings) a specific security or
company with a Fund officer or other person in a position to
know about contemplated Fund transactions, preclearance with
the Pre-Clearing Officer or Alternate Pre-Clearing Officer is
required prior to trading such security or in any other
security issued by such company.
D. Exempted Transactions.
----------------------
The Prohibitions of Section IIB and the procedures designated
in Section C of this Code shall not apply to:
(1) purchases or sales effected in any account over which the
unaffiliated director has no direct or indirect influence or
control;
(2) purchases or sales which are non-volitional on the part of
either the unaffiliated director or the Fund;
(3) purchases which are part of an automatic dividend
reinvestment plan;
(4) purchases effected upon the exercise of rights issued by
an issuer pro rata to all holders of a class of its
securities, to the extent such rights were acquired from such
issuer, and sales of such rights so acquired;
(5) purchases or sales of securities which are not permitted
to be held or acquired by the Fund, provided that the
securities that are the subject of the transaction are not
convertible or exercisable into securities which are permitted
to be held or acquired by the Fund; and
(6) purchases or sales previously approved and confirmed in
writing by the Pre-Clearing Officer or Alternate Pre-Clearing
Officer appointed from time to time by the Board for this
purpose.
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If in doubt, directors should discuss their situations with
the Review Officer prior to relying on one of the exceptions
listed above.
E. Reporting.
----------
(1) Every unaffiliated director who is not a disinterested
director shall file with the Review Officer a report
containing the information described below in Section IIE(3)
of this Code with respect to transactions in any security in
which such person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership, whether
or not one of the exemptions listed in IID applies; provided,
however, that no person shall be required to make a report
with respect to (i) transactions effected for any account over
which such person does not have any direct or indirect
influence or control, or (ii) transactions in securities which
are not permitted to be held or acquired by the Fund, provided
that the securities that are the subject of the transaction
are not convertible or exercisable into securities which are
permitted to be held or acquired by the Fund. Each such
director shall file with the Review Officer a report
containing the information described in Section IE(6) below.
(2) Disinterested directors do not need to report personal
security transactions except in the circumstances noted in
this paragraph. Every disinterested director shall file with
the Review Officer a report containing the information
described in Section IIE(3) of this Code with respect to
transactions in any security in which such disinterested
director has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership, whether or not one of
the exemptions listed in Section IID applies, if such director
at the time of that transaction, knew or, in the ordinary
course of fulfilling his/her official duties as a director of
the Fund, should have known that, during the 15-day period
immediately preceding or after the date of the transaction by
the director: (i) such security was purchased or sold by the
Fund; or (ii) such security was being considered for purchase
or sale by the Fund or the Adviser; provided, however, that a
disinterested director shall not be required to make a report
with respect to (a) transactions effected for any account over
which such person does not have any direct or indirect
influence or control, or (b) transactions in securities which
are not permitted to be held or acquired by the Fund, provided
that the securities that are the subject of the transaction
are not convertible or exercisable into securities which are
permitted to be held or acquired by the Fund.
(3) Every transaction report shall be made not later than 10
days after the end of the calendar quarter in which the
transaction to which the report relates was effected, and
shall contain the following information:
(a) the date of the transaction, the title and the
number of shares, interest rate and maturity (if
applicable) and the principal amount of each security
involved;
(b) the nature of the transaction (i.e., purchase,
sale or any other type of acquisition or
disposition);
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<PAGE>
(c) the price at which the transaction was effected;
and
(d) the name of the broker, dealer or bank with or
through whom the transaction was effected.
(4) Every report concerning a purchase or sale, including
those prohibited under Section IIB hereof, with respect to
which the reporting person relies upon one of the exemptions
provided in Section IID shall contain a brief statement of the
exemption relied upon and the circumstances of the
transaction.
(5) Any such report may contain a statement that the report
shall not be construed as an admission by the person making
such report that he/she has any direct or indirect beneficial
ownership in the security to which the report relates.
(6) Within ten (10) days of commencing service as a director,
each unaffiliated director who is not disinterested must
disclose all holdings of securities (as defined above) in
which he has beneficial ownership. Interested directors must
file a report even if they have no holdings. Such report shall
include the title, number of shares and principal amount of
each security. Interested directors shall submit an Annual
Statement of Securities Holdings as part of the annual ethics
questionnaire.
F. Review.
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(1) The Review Officer shall compare the reported personal
holdings and personal securities transactions with completed
and contemplated portfolio transactions of the Fund to
determine whether any transactions ("Reviewable Transactions")
listed in Section IIB (disregarding exemptions provided by
Section IID(1) through (6)) may have occurred.
(2) If the Review Officer determines that a Reviewable
Transaction may have occurred, he/she shall submit the report
and pertinent information concerning completed or contemplated
portfolio transactions of the Fund to counsel for the
unaffiliated directors. Such counsel shall determine whether a
violation of this Code may have occurred, taking into account
all the exemptions provided under Section IID. Before making
any determination that a violation has been committed by an
unaffiliated director, such counsel shall give such person an
opportunity to supply additional information regarding the
transaction in question.
G. Sanctions.
----------
If such counsel determines that a violation of this Code has
occurred, such counsel shall so advise the President of the
Fund and a committee consisting of the unaffiliated directors,
other than the person whose transaction is under
consideration, and shall provide the committee with the
report, the record of pertinent actual or contemplated
portfolio transactions of the Fund and any additional material
supplied by such person. The committee, at its option, shall
6
<PAGE>
either impose such sanction as it deems appropriate or refer
the matter to the board of directors, which shall impose such
sanctions as are deemed appropriate. The sanctions that may be
imposed hereunder include, without limitation, reversing the
improper personal securities transaction and/or disgorging any
profit realized, censure, imposition of restrictions on
personal trading and fines.
III. Miscellaneous.
--------------
A. Amendments to Adviser's Code of Ethics.
---------------------------------------
Any amendment to Part 2, Part 6 or Part 10 of the Adviser's
Code of Ethics shall be deemed an amendment to Section IA of
this Code provided that any material amendment to the
Adviser's Code of Ethics must be approved by the board of
directors within six (6) months of the change.
B. The officers of the Fund or their designees will report
annually to the board of directors concerning material issues
arising under the Code, existing procedures and any material
changes to those procedures, as well as any instances
requiring significant remedial action during the past year
which related to that Fund. Such report shall be in writing
and include any certification required by law. Such report may
be made jointly with the report provided by the Adviser
pursuant to the Code or, if made separately, need not
duplicate information provided in the Adviser's report.
C. Records.
--------
The Fund shall maintain records in the manner and to the
extent set forth below, which records may be maintained on
microfilm or such other permitted medium under the conditions
described in Rule 31a-2(f)(1) under the 1940 Act and shall be
available for examination by representatives of the Securities
and Exchange Commission.
(1) A copy of this Code and any other code which is, or at any
time within the past five years has been, in effect shall be
preserved in an easily accessible place;
(2) A record of any violation of such code(s) of ethics and of
any action taken as a result of such violation shall be
preserved in an easily accessible place for a period of not
less than five years following the end of the fiscal year in
which the violation occurs;
(3) A copy of each report made by an officer or director
pursuant to such code(s) of ethics shall be preserved for a
period of not less than five years from the end of the fiscal
year in which it is made, the first two years in an easily
accessible place;
(4) A list of all persons who are, or within the past five
years have been, required to make reports pursuant to such
code(s) of ethics shall be maintained in an easily accessible
place;
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(5) A list of names of all persons who are, or within the past
five years, have been responsible for reviewing any
transaction and holdings reports filed pursuant to such
code(s); and
(6) A copy of each report made to the Fund directors pursuant
to such code(s) must be maintained for at least five (5) years
after the end of the fiscal year in which it was made, the
first two (2) years in an easily accessible place.
D. Confidentiality.
----------------
All reports of securities transactions and any other
information filed with the Fund pursuant to this Code shall be
treated as confidential, except as otherwise provided herein.
E. Interpretation of Provisions.
-----------------------------
The board of directors may from time to time adopt such
interpretations of this Code as it deems appropriate.
8
Exhibit (p)(3)
EAGLE ASSET MANAGEMENT, INC.
----------------------------
CODE OF ETHICS
--------------
A. Important General Prohibitions
------------------------------
The specific provisions and reporting requirements of this Code are
concerned with certain investment activities of "Access Persons," as herein
defined, who may benefit by, or interfere with, the purchase and sale of
securities by an "investment company," as defined herein. Rule 17j-1 (the
"Rule") under the Investment Company Act of 1940 (the "Act") prohibits an access
person of an investment adviser from using information concerning the
investments or investment intentions of an investment company, or from using
their ability to influence such investment intentions, for personal gain or in a
manner detrimental to the interest of an investment company. Specifically, the
Rule makes it unlawful, and it shall be a violation of this Code, for an access
person, directly or indirectly, in connection with the purchase or sale of a
security held or to be acquired by an investment company:
1. to employ any device, scheme or artifice to defraud the investment
company;
2. to make to the investment company (or its agents or affiliates) any
untrue statement of a material fact, or to omit to state to the
investment company (or its agents or affiliates) a material fact
necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading;
3. to engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon the investment company; or
4. to engage in any manipulative practice with respect to the
investment company.
B. Definitions
-----------
1. Access Person. The term "access person" means any director, officer,
or advisory person of Eagle Asset Management, Inc. ("Eagle").
2. Investment Company. The term "investment company" means a company
registered as such under the Investment Company Act of 1940 and for which Eagle
is the investment adviser.
3. Advisory Person. The term "advisory person" of Eagle means (a) any
employee of Eagle (or of any company in a control relationship to Eagle) who, in
connection with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of a security by an
investment company, or whose functions
1
<PAGE>
Exhibit (p)(3)
relate to the making of any recommendations with respect to such purchases or
sales; and (b) any natural person in a control relationship to Eagle who obtains
information concerning recommendations made to an investment company with regard
to the purchase or sale of a security.
4. Beneficial Ownership. "Beneficial ownership" shall be interpreted in
the same manner as it would be in determining whether a person is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934 and the rules
and regulations thereunder. "Beneficial ownership" includes accounts of a
spouse, minor children and relatives resident in the access person's home, as
well as accounts of another person if by reason of any contract, understanding,
relationship, agreement or other arrangement the access person obtains therefrom
benefits substantially equivalent to those of ownership. Access person should
contact the designated compliance officer regarding any questions they have
concerning what constitutes beneficial ownership.
5. Control. The term "control shall have the same meaning as that set
forth in Section 2(a)(9) of the Investment Company Act of 1940. A natural person
shall be presumed not to be a "control person for this purpose, unless a
contrary determination is made by the Securities and Exchange Commission.
6. Purchase or Sale of a Security. "Purchase or sale of a security"
includes, inter alia, the writing of an option to purchase or sell a security.
7. Security. The term `security' shall have the same meaning as set
forth in Section 2(a)(36) of the Investment Company Act of 1940, except that it
shall not include securities issued by the Government of the United States,
bankers' acceptances, bank certificates of deposit, commercial paper and shares
of registered open-end investment companies. Any questions as to whether a
particular investment constitutes a "security" should be referred to the
designated compliance officer.
8. Designated Compliance Officer. The term "designated compliance
officer" shall mean the Eagle officer(s) designated by Eagle's President as
being responsible for receiving reports or notices and performing such other
duties as required by this Code of Ethics.
C. Prohibited Transactions.
------------------------
1. Purchases and Sales of a Security. Transactions which are prohibited
under the rules of Eagle's Employee Security Transaction Guidelines, which are
incorporated herein by reference, shall be considered prohibited transactions
for access persons under this Code.
2
<PAGE>
Exhibit (p)(3)
D. Exempt Transactions.
--------------------
Exempt transactions shall include:
1. Purchases or sales in any account over which the access person has
no direct or indirect influence or control.
2. Purchases or sales which are non-volitional on the part of either
the access person or an investment company.
3. Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities to the extent such rights
were acquired from such issuer, and sales of such rights so acquired.
4. Purchases or sales which receive the prior approval of Eagle's
Compliance Officer, pursuant to Eagle's Employee Security Transaction
Guidelines, which are incorporated herein by reference.
E. Reporting.
----------
1. In accordance with the reporting requirements of the Employee
Security Transaction Guidelines, every access person shall report to the
designated compliance officer the following information with respect to
transactions in any security in which such access person has, or by reason of
such transaction acquires, any direct or indirect beneficial ownership in the
security:
(a) The date of the transaction, the title and the number of
shares, and the principal amount of each security involved;
(b) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(c) The price at which the transaction was effected; and,
(d) The name of the broker, dealer, or bank with or through whom
the transaction was effected.
2.(a) A person who becomes an access person on or after March 1, 2000
must file an initial holdings report with the designated compliance
officers within 10 days of becoming an access person. The report will
contain the following information:
(i) The title, number of shares and principal amount of
each security in which the access person had any
direct or indirect beneficial ownership when the
person became an access person;
3
<PAGE>
Exhibit (p)(3)
(ii) The name of any broker, dealer or bank with whom the
access person maintained an account in which any
securities were held for the direct or indirect
benefit of the access person as of the date the
person became an access person; and
(iii) The date that the report is submitted by the access
person.
(b) Every access person must submit an annual holdings report
containing the following information (which must be current as
of a date no more than 30 days before the date of the report):
(i) The title, number of shares and principal amount of
each security in which the access person had any
direct or indirect beneficial ownership;
(ii) The name of any broker, dealer or bank with whom the
access person maintains an account in which any
securities are held for the direct or indirect
benefit of the access person; and
(iii) The date that the report is submitted by the access
person.
3. Any report pursuant to this Section E. shall not be construed as an
admission by the person making the report that he or she has any direct or
indirect beneficial ownership in the security to which the report relates.
4. The designated compliance officer shall review all reports to
determine if a violation has occurred. Upon finding a material violation, the
officer shall submit a report to the Chief Compliance Officer of Eagle, who
shall review the events to determine what remedial action, if any, will be
recommended to the President of Eagle.
F. Sanctions.
----------
Upon discovering a violation of this Code, Eagle may impose such
sanctions as it deems appropriate, including inter alia, a letter of censure,
suspension or termination of the employment of the violator. All material
violations of this Code and any sanctions imposed with respect thereto shall be
reported periodically to the board of directors of the investment company with
respect to whose securities the violation occurred.
4
Exhibit(p)(4)
[LOGO] JANUS
JANUS ETHICS RULES
"ACT IN THE BEST INTEREST OF OUR INVESTORS. EARN THEIR
CONFIDENCE WITH EVERY ACTION"
- --------------------------------------------------------------------------------
CODE OF ETHICS
INSIDER TRADING POLICY
GIFT POLICY
OUTSIDE EMPLOYMENT POLICY
- --------------------------------------------------------------------------------
LAST REVISED MARCH 1, 2000
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
DEFINITIONS..........................................................................................1
INTRODUCTION.........................................................................................4
CAUTION REGARDING PERSONAL TRADING ACTIVITIES.............................................4
COMMUNICATIONS WITH OUTSIDE TRUSTEES/DIRECTORS............................................4
CODE OF ETHICS.......................................................................................5
OVERVIEW..................................................................................5
GENERAL PROHIBITIONS......................................................................5
TRADING RESTRICTIONS......................................................................6
EXCLUDED TRANSACTIONS...........................................................6
DISCLOSURE OF CONFLICTS.........................................................7
PRECLEARANCE....................................................................7
TRADING BAN ON PORTFOLIO MANAGERS AND ASSISTANT PORTFOLIO MANAGERS..............8
BAN ON IPOs AND HOT ISSUES......................................................8
60 DAY RULE.....................................................................8
BLACKOUT PERIOD.................................................................8
FIFTEEN DAY RULE................................................................8
SEVEN DAY RULE..................................................................9
SHORT SALES.....................................................................9
HEDGE FUNDS, INVESTMENT CLUBS, AND OTHER INVESTMENTS............................9
PRECLEARANCE PROCEDURES...................................................................9
GENERAL PRECLEARANCE............................................................9
PRECLEARANCE REQUIREMENTS FOR INVESTMENT PERSONNEL.............................10
PRECLEARANCE OF COMPANY STOCK..................................................10
PRECLEARANCE OF TENDER OFFERS AND STOCK PURCHASE PLANS.........................11
FOUR DAY EFFECTIVE PERIOD......................................................11
REPORTING REQUIREMENTS...................................................................11
ACCOUNT STATEMENTS.............................................................11
HOLDINGS REPORTS...............................................................12
PERSONAL SECURITIES TRANSACTION REPORTS........................................12
NON-INFLUENCE AND NON-CONTROL ACCOUNTS.........................................12
OTHER REQUIRED FORMS.....................................................................13
ACKNOWLEDGMENT OF RECEIPT FORM.................................................13
ANNUAL CERTIFICATION FORM......................................................13
OUTSIDE DIRECTOR/TRUSTEE REPRESENTATION FORM...................................13
INSIDER TRADING POLICY..............................................................................14
BACKGROUND INFORMATION...................................................................14
WHO IS AN INSIDER?.............................................................15
WHEN IS INFORMATION NONPUBLIC?.................................................15
WHAT IS MATERIAL INFORMATION?..................................................15
WHEN IS INFORMATION MISAPPROPRIATED?...........................................15
PENALTIES FOR INSIDER TRADING..................................................16
WHO IS A CONTROLLING PERSON?...................................................16
PROCEDURES TO IMPLEMENT POLICY...........................................................16
<PAGE>
IDENTIFYING MATERIAL INSIDE INFORMATION........................................16
REPORTING INSIDE INFORMATION...................................................17
WATCH AND RESTRICTED LISTS.....................................................17
PROTECTING INFORMATION.........................................................18
RESPONSIBILITY TO MONITOR TRANSACTIONS.........................................19
RECORD RETENTION...............................................................19
TENDER OFFERS..................................................................19
GIFT POLICY.........................................................................................20
GIFT GIVING..............................................................................20
GIFT RECEIVING...........................................................................20
CUSTOMARY BUSINESS AMENITIES.............................................................20
OUTSIDE EMPLOYMENT POLICY...........................................................................21
PENALTY GUIDELINES..................................................................................22
OVERVIEW.................................................................................22
PENALTY GUIDELINES.......................................................................22
SUPERVISORY AND COMPLIANCE PROCEDURES...............................................................23
SUPERVISORY PROCEDURES...................................................................23
PREVENTION OF VIOLATIONS.......................................................23
DETECTION OF VIOLATIONS........................................................23
COMPLIANCE PROCEDURES....................................................................24
REPORTS OF POTENTIAL DEVIATIONS OR VIOLATIONS..................................24
ANNUAL REPORTS.................................................................24
RECORDS........................................................................24
INSPECTION.....................................................................25
CONFIDENTIALITY................................................................25
FILING OF REPORTS..............................................................25
THE ETHICS COMMITTEE.....................................................................25
MEMBERSHIP OF THE COMMITTEE....................................................25
COMMITTEE MEETINGS.............................................................25
SPECIAL DISCRETION.............................................................26
GENERAL INFORMATION ABOUT THE ETHICS RULES..........................................................27
DESIGNEES......................................................................27
ENFORCEMENT....................................................................27
INTERNAL USE...................................................................27
FORMS...............................................................................................28
</TABLE>
<PAGE>
JANUS ETHICS RULES
"ACT IN THE BEST INTEREST OF OUR INVESTORS - EARN THEIR
CONFIDENCE WITH EVERY ACTION"
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
The following definitions are used throughout this document. You are responsible
for reading and being familiar with each definition.
1. "Access Person" shall mean:
1) Any trustee, director, officer or Advisory Person of the Janus Funds
or JCC;
2) Any director or officer of JDI who in the ordinary course of his or
her business makes, participates in or obtains information regarding
the purchase or sale of securities for the Janus Funds or for the
advisory clients or whose functions or duties as part of the ordinary
course of his or her business relate to the making of any
recommendation to the Janus Funds or advisory clients regarding the
purchase or sale of securities; and
3) Any other persons designated by the Ethics Committee as having access
to current trading information.
2. "Advisory Person" shall mean:
1) Any employee of the Janus Funds or JCC (or of any company in a control
relationship to the Janus Funds or JCC) who in connection with his or
her regular functions or duties, makes, participates in or obtains
information regarding the purchase or sale of a security by the Funds
or for the account of advisory clients, or whose functions relate to
the making of any recommendations with respect to such purchases and
sales; and
2) Any natural person in a control relationship to the Funds or JCC who
obtains information concerning recommendations made to the Funds or
for the account of Clients with regard to the purchase or sale of a
security.
3. "Beneficial Ownership" shall be interpreted in the same manner as it would
be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in
determining whether a person is subject to the provisions of Section 16
except that the determination of direct or indirect Beneficial Ownership
shall apply to all Covered Securities which an Access Person has or
acquires. For example, in addition to a person's own accounts the term
"Beneficial Ownership" encompasses securities held in the name of a spouse
or equivalent domestic partnership, minor children, a relative sharing your
home, or certain trusts under which you or a related party is a
beneficiary, or held under other arrangements indicating a sharing of
financial interest.
4. "Company Stock" is any stock or option issued by Janus, Stilwell Financial,
Inc. ("Stilwell") or Kansas City Southern Industries, Inc. ("KCSI").
1
<PAGE>
5. "Control" shall have the same meaning as that set forth in Section 2(a)(9)
of the 1940 Act.
6. "Covered Persons" are all Directors, Trustees, officers, and full-time,
part-time or temporary employees of Janus, and persons working at Janus on
a contract basis.
7. "Covered Securities" generally include all securities (including Company
Stock), whether publicly or privately traded, and any option, future,
forward contract or other obligation involving a security or index thereof,
including an instrument whose value is derived or based on any of the above
(a "derivative"). The term Covered Security includes any separate security,
which is convertible into or exchangeable for, or which confers a right to
purchase such security. The following investments are not Covered
Securities:
o shares of registered open-end investment companies (e.g., mutual
funds);
o direct obligations of the U.S. government (e.g., Treasury securities),
or any derivative thereof;
o securities representing a limited partnership interest in a real
estate limited partnership;
o high-quality money market instruments, such as certificates of
deposit, bankers acceptances, repurchase agreements, commercial paper,
and U.S. government agency obligations;
o insurance contracts, including life insurance or annuity contracts;
o direct investments in real estate, business franchises or similar
ventures; and
o physical commodities (including foreign currencies), or any
derivatives thereof.
8. "Designated Compliance Representatives" are David Kowalski and Ernie
Overholt or their designee(s).
9. "Designated Legal Representatives" are Bonnie Howe and Heidi Walter or
their designee(s).
10. "Designated Trading Operations Representatives" are Lesa Finney, John
Porro, and Mark Farrell.
11. "Directors" are directors of JCC.
12. "Executive Committee" is comprised of Thomas Bailey, Jim Craig, Thomas
Early, Steve Goodbarn, Margie Hurd, and Mark Whiston.
13. "Executive Investment Committee" is comprised of Jim Craig, Jim Goff, Helen
Hayes, Warren Lammert, and Scott Schoelzel.
14. "Ethics Committee" is comprised of Thomas Early, Steve Goodbarn, David
Kowalski and Ernie Overholt.
15. "Initial Public Offering" means an offering of securities registered under
the Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of sections 13
or 15(d) of the Securities Exchange Act of 1934.
16. "Inside Trustees and Directors" are Trustees and Directors who are also
employed by Janus.
2
<PAGE>
17. "Investment Personnel" shall mean (i) a person who makes decisions
regarding the purchase or sale of securities by or on behalf of the Janus
Funds or advisory clients and any person such as an analyst or trader who
directly assists in the process, and (ii) any natural person who controls
the Janus Funds or JCC and who obtains information concerning
recommendations made to the Funds regarding the purchase or sale of Covered
Securities by the Funds.
18. "Janus" is Janus Investment Fund, Janus Aspen Series, Janus Capital
Corporation, Janus Service Corporation, Janus Distributors, Inc., Janus
Capital International Ltd., Janus International (UK) Ltd., Janus Capital
Trust Manager Ltd., Janus Universal Funds, and Janus World Funds Plc.
19. "Janus Funds" are Janus Investment Fund, Janus Aspen Series, Janus
Universal Funds, and Janus World Funds Plc.
20. "JCC" is Janus Capital Corporation, Janus Capital International Ltd., Janus
International (UK) Ltd. and Janus Capital Trust Manager Ltd.
21. "JDI" is Janus Distributors, Inc.
22. "JDI's Operations Manager" is Dana Stephens and/or her designee(s).
23. "Limited Offering" means an offering that is exempt from registration under
the Securities Act of 1933 pursuant to section 4(2) or section 4(6) or
pursuant to rule 504, rule 505 or rule 506 thereunder.
24. "NASD" is the National Association of Securities Dealers, Inc.
25. "Non-Access Person" is any person that is not an Access Person.
26. "Outside Directors" are Directors who are not employed by Janus.
27. "Outside Trustees" are Trustees who are not "interested persons" of the
Janus Funds within the meaning of Section 2(a)(9) of the 1940 Act.
28. "Registered Persons" are persons registered with the NASD by JDI.
29. "Security Held or to be Acquired" means any Covered Security which, within
the most recent 15 days (i) is or has been held by the Janus Funds; or (ii)
is being or has been considered by the Janus Funds or JCC for purchase.
30. "SEC" is Securities and Exchange Commission.
31. "Trustees" are trustees of Janus Investment Fund and Janus Aspen Series.
These definitions may be updated from time to time to reflect changes in
personnel.
3
<PAGE>
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
These Ethics Rules ("Rules") apply to all Covered Persons. The Rules
apply to transactions for your personal accounts and any other accounts you
Beneficially Own. You may be deemed the beneficial owner of any account in which
you have a direct or indirect financial interest. Such accounts include, among
others, accounts held in the name of your spouse or equivalent domestic
partnership, your minor children, a relative sharing your home, or certain
trusts under which you or such persons are a beneficiary.
The Rules are intended to ensure that you (i) at all times place first
the interests of the Janus Funds, investment companies for which Janus serves as
subadviser, and other advisory clients ("Clients"); (ii) conduct all personal
trading consistent with the Rules and in such a manner as to avoid any actual or
potential conflict of interest or any abuse of your position of trust and
responsibility; and (iii) not use any material nonpublic information in
securities trading. The Rules also establish policies regarding other matters,
such as outside employment and the giving or receiving of gifts.
You are required to read and retain these Rules and to sign and return
the attached Acknowledgment of Receipt Form to Compliance upon commencement of
employment or other services. On an annual basis thereafter, you will be
required to complete an Annual Certification Form. The Annual Certification Form
confirms that (i) you have received, read and asked any questions necessary to
understand the Rules; (ii) you agree to conduct yourself in accordance with the
Rules; and (iii) you have complied with the Rules during such time as you have
been associated with Janus. Depending on your status, you may be required to
submit additional reports and/or obtain clearances as discussed more fully
below.
Unless otherwise defined, all capitalized terms shall have the same
meaning as set forth in the Definitions section.
CAUTION REGARDING PERSONAL TRADING ACTIVITIES
Certain personal trading activities may be risky not only because of
the nature of the transactions, but also because action necessary to close out a
position may become prohibited for some Covered Persons while the position
remains open. For example, you may not be able to close out short sales and
transactions in derivatives. Furthermore, if JCC becomes aware of material
nonpublic information, or if a Client is active in a given security, some
Covered Persons may find themselves "frozen" in a position. JCC will not bear
any losses in personal accounts resulting from the application of these Rules.
COMMUNICATIONS WITH OUTSIDE TRUSTEES/DIRECTORS
As a regular business practice, JCC attempts to keep Directors and
Trustees informed with respect to its investment activities through reports and
other information provided to them in connection with board meetings and other
events. In addition, Janus personnel are encouraged to respond to inquiries from
Directors and Trustees, particularly as they relate to general strategy
considerations or economic or market conditions affecting Janus. However, it is
JCC's policy not to communicate specific trading information and/or advice on
specific issues to Outside Directors and Outside Trustees (i.e., no information
should be given on securities for which current activity is being considered for
Clients). Any pattern of repeated requests by such Directors or Trustees should
be reported to the Chief Compliance Officer or the Compliance Manager.
4
<PAGE>
- --------------------------------------------------------------------------------
CODE OF ETHICS
- --------------------------------------------------------------------------------
OVERVIEW
In general, it is unlawful for persons affiliated with investment
companies, their principal underwriters or their investment advisers to engage
in personal transactions in securities held or to be acquired by a registered
investment company, if such personal transactions are made in contravention of
rules which the SEC has adopted to prevent fraudulent, deceptive and
manipulative practices. Such rules require each registered investment company,
investment adviser and principal underwriter to adopt its own written code of
ethics containing provisions reasonably necessary to prevent its employees from
engaging in such conduct, and to maintain records, use reasonable diligence, and
institute such procedures as are reasonably necessary to prevent violations of
such code. This Code of Ethics ("Code") and information reported hereunder will
enable Janus to fulfill these requirements.
GENERAL PROHIBITIONS
The following activities are prohibited for applicable Covered Persons
(remember, if you work at Janus full-time, part-time, temporarily or on a
contract basis, or you are a Trustee or Director, you are a Covered Person).
Persons who violate any prohibition may be required to disgorge any profits
realized in connection with such violation to a charitable organization selected
by the Ethics Committee and may be subject to other sanctions imposed by the
Ethics Committee, as outlined in the Penalty Guidelines.
1. Covered Persons may not cause a Client to take action, or to
fail to take action, for personal benefit, rather than to
benefit such Client. For example, a Covered Person would
violate this Code by causing a Client to purchase a security
owned by the Covered Person for the purpose of supporting or
increasing the price of that security or by causing a Client
to refrain from selling a security in an attempt to protect a
personal investment, such as an option on that security.
2. Covered Persons may not use knowledge of portfolio
transactions made or contemplated for Clients to profit, or
cause others to profit, by the market effect of such
transactions.
3. Covered Persons may not disclose current portfolio
transactions made or contemplated for Clients as well as any
other nonpublic information to anyone outside of Janus.
4. Covered Persons may not engage in fraudulent conduct in
connection with the purchase or sale of a Security Held or to
be Acquired by a Client, including without limitation:
1) Employing any device, scheme or artifice to defraud
any Client;
2) Making to any Client any untrue statement of material
fact or omitting to state to any Client a material
fact necessary in order to make the statements made,
in light of the circumstances under which they are
made, not misleading;
3) Engaging in any act, practice or course of business
which operates or would operate as a fraud or deceit
upon any Client;
4) Engaging in any manipulative practice with respect to
any Client; or
5
<PAGE>
5) Investing in derivatives to evade the restrictions of
this Code. Accordingly, individuals may not use
derivatives to take positions in securities that
would be otherwise prohibited by the Code if the
positions were taken directly.
5. Investment Personnel may not serve on the board of directors
of a publicly traded company without prior written
authorization from the Ethics Committee. No such service shall
be approved without a finding by the Ethics Committee that the
board service would not be inconsistent with the interests of
Clients. If board service is authorized by the Ethics
Committee, the Investment Personnel serving as director
normally should be isolated from those making investment
decisions with respect to the company involved through
"Chinese Walls" or other procedures.
TRADING RESTRICTIONS
The trading restrictions of the Code apply to all direct or indirect
acquisitions or dispositions of Covered Securities, whether by purchase, sale,
tender offers, stock purchase plan, gift, inheritance, or otherwise. Unless
otherwise noted, the following trading restrictions are applicable to any
transaction in a Covered Security Beneficially Owned by a Covered Person.
Outside Directors and Outside Trustees are exempt from certain trading
restrictions because of their limited access to current information regarding
Client investments.
Any disgorgement of profits required under any of the following
provisions shall be donated to a charitable organization selected by the Ethics
Committee, as outlined in the Penalty Guidelines. However, if disgorgement is
required as a result of trades by a portfolio manager that conflicted with that
manager's own Clients, disgorgement proceeds shall be paid directly to such
Clients. If disgorgement is required under more than one provision, the Ethics
Committee shall determine in its sole discretion the provision that shall
control.^1
EXCLUDED TRANSACTIONS
Some or all of the trading restrictions listed below do not apply to
the following transactions; however, these transactions must still be reported
to Compliance (see Reporting Requirements):
o Tender offer transactions are exempt from all trading restrictions
except preclearance.
- --------
^1 Unless otherwise noted, restrictions on personal transactions apply
to transactions involving Covered Securities, including any derivative thereof.
When determining the amount of disgorgement required with respect to a
derivative, consideration will be given to price differences in both the
derivative and the underlying securities, with the lesser amount being used for
purposes of computing disgorgement. For example, in determining whether
reimbursement is required when the applicable personal trade is in a derivative
and the Client transaction is in the underlying security, the amount shall be
calculated using the lesser of (a) the difference between the price paid or
received for the derivative and the closing bid or ask price (as appropriate)
for the derivative on the date of the Client transaction, or (b) the difference
between the last sale price, or the last bid or ask price (as appropriate) of
the underlying security on the date of the derivative transaction, and the price
received or paid by the Client for the underlying security. Neither preclearance
nor disgorgement shall be required if such person=s transaction is to close,
sell or exercise a derivative within five days of its expiration.
6
<PAGE>
o The acquisition of securities through stock purchase plans are exempt
from all trading restrictions except preclearance, the trading ban on
portfolio managers and assistant portfolio managers, and the seven day
rule. (Note: the sales of securities acquired through a stock purchase
plan are subject to all of the trading restrictions of the Code).
o The acquisition of securities through stock dividends, automatic
dividend reinvestment plans, stock splits, reverse stock splits,
mergers, consolidations, spin-offs, or other similar corporate
reorganizations or distributions generally applicable to all holders
of the same class of such securities are exempt from all trading
restrictions. The acquisition of securities through the exercise of
rights issued by an issuer pro rata to all holders of a class of
securities, to the extent the rights were acquired in the issue are
exempt from all trading restrictions.
o Non-discretionary transactions in Company Stock (e.g., the acquisition
of securities through Stilwell or KCSI's Employee Stock Purchase Plan
("ESPP") or the receipt of options in Company Stock as part of a
compensation or benefit plan) are exempt from all trading
restrictions. Discretionary transactions in Company Stock issued by
JCC are exempt from all trading restrictions. Discretionary
transactions in Company Stock issued by Stilwell or KCSI (e.g.,
exercising options or selling ESPP Stock) are exempt from all trading
restrictions except preclearance (See procedures for Preclearance of
Company Stock).
o The acquisition of securities by gift or inheritance is exempt from
all trading restrictions. (Note: the sales of securities acquired by
gift or inheritance are subject to all trading restrictions of the
Code).
o Transactions in options on and securities based on the following
indexes are exempt from all trading restrictions: S&P 500 Index, S&P
MidCap 400 Index, S&P 100 Index, FTSE 100 Index or Nikkei 225 Index.
DISCLOSURE OF CONFLICTS
If an Investment Person is planning to invest or make a recommendation
to invest in a security for a Client, and such person has a material interest in
the security, such person must first disclose such interest to his or her
manager or the Chief Investment Officer. The manager or Chief Investment Office
shall conduct an independent review of the recommendation to purchase the
security for Clients. The manager or Chief Investment Officer may review the
recommendation only if he or she has no material interest in the security. A
material interest is Beneficial Ownership of any security (including
derivatives, options, warrants or rights), offices, directorships, significant
contracts, or interests or relationships that are likely to affect such person's
judgment.
PRECLEARANCE
Access Persons (except Outside Directors and Outside Trustees) must
obtain preclearance prior to engaging in any personal transaction in Covered
Securities. (See Preclearance Procedures below).
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TRADING BAN ON PORTFOLIO MANAGERS AND ASSISTANT PORTFOLIO MANAGERS
Portfolio managers and their assistants are prohibited from trading
personally in Covered Securities. However, the following types of transactions
are exempt from this policy, but are subject to all applicable provisions of the
Rules, including preclearance:
o Purchases or sales of Company Stock;
o The sale of any security that is not held by any Client; and
o The sale of any security in order to raise capital to fund a
significant life event. For example, purchasing a home or automobile,
or paying medical or education expenses.
BAN ON IPOs AND HOT ISSUES
Covered Persons (except Outside Directors and Outside Trustees) may not
purchase securities in an initial public offering or in a secondary offering
that constitutes a "hot issue" as defined in NASD rules. Such securities may be
purchased or received, however, where the individual has an existing right to
purchase the security based on his or her status as an investor, policyholder or
depositor of the issuer. In addition, securities issued in reorganizations are
also outside the scope of this prohibition if the transaction involves no
investment decision on the part of the Covered Person except in connection with
a shareholder vote.
60 DAY RULE
Access Persons (except Outside Directors and Outside Trustees) shall
disgorge any profits realized in the purchase and sale, or sale and purchase, of
the same or equivalent Covered Securities within sixty (60) calendar days if a
Client held or traded the security during the sixty (60) calendar day period.
BLACKOUT PERIOD
No Access Person may engage in a transaction in a Covered Security when
such person knows or should have known at the time there to be pending, on
behalf of any Client, a "buy" or "sell" order in that same security. The
existence of pending orders will be checked by Compliance as part of the
Preclearance process. Preclearance may be given when any pending Client order is
completely executed or withdrawn.
FIFTEEN DAY RULE
Any Access Person (except Outside Directors and Outside Trustees) who
buys or sells a Covered Security within fifteen calendar days before such
security is bought or sold on behalf of any Client must disgorge any price
advantage realized. The price advantage shall be the favorable spread, if any,
between the price paid or received by such person and the least favorable price
paid or received by a Client during such period.^2 The Ethics Committee has the
authority by unanimous action to exempt any person from the fifteen-day rule if
such person is selling a security to raise capital to fund a significant life
event. For example, purchasing a home or automobile, or paying medical or
education expenses. In order for the Ethics Committee
- --------
^2 Personal purchases are matched only against subsequent Client
purchases and personal sales are matched only against subsequent Client sales
for purposes of this restriction.
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to consider such exemption, the life event must occur within thirty (30)
calendar days of the security transaction, and the person must provide written
confirmation of the event.
SEVEN DAY RULE
Any portfolio manager or assistant portfolio manager who buys or sells
a Covered Security within seven calendar days before or after he or she trades
in that security on behalf of a Client shall disgorge any profits realized on
such transaction.
SHORT SALES
Any Access Person who sells short a Covered Security that such person
knows or should have known is held long by any Client shall disgorge any profit
realized on such transaction. This prohibition shall not apply, however, to
securities indices or derivatives thereof (such as futures contracts on the S&P
500 index). Client ownership of Covered Securities will be checked as part of
the Preclearance process.
HEDGE FUNDS, INVESTMENT CLUBS, AND OTHER INVESTMENTS
No Access Person (except Outside Directors and Outside Trustees) may
participate in hedge funds, partnerships, investment clubs, or similar
investment vehicles, unless such person does not have any direct or indirect
influence or control over the trading. Covered Persons wishing to rely upon this
provision must submit a Certification of Non-Influence and Non-Control Form to
the Compliance Manager for approval. (See Non-Influence and Non-Control Accounts
section below.)
PRECLEARANCE PROCEDURES
Access Persons must obtain preclearance for all applicable transactions
in Covered Securities in which such person has a Beneficial Interest. A
Preclearance Form must be completed and forwarded to Compliance. Compliance
shall promptly notify the person of approval or denial of the transaction.
Notification of approval or denial of the transaction may be given verbally;
however, it shall be confirmed in writing within seventy-two (72) hours of
verbal notification. When preclearance has been approved, the person then has
four business days from and including the day of first notification to execute
the trade.
GENERAL PRECLEARANCE
General preclearance shall be obtained from an authorized person from
each of the following three groups:
o A DESIGNATED LEGAL OR COMPLIANCE REPRESENTATIVE, who will present the
personal investment to the attendees of the weekly investment meeting,
whereupon an opportunity will be given to orally object. An attendee
of the weekly investment meeting shall object to such clearance if
such person knows of a conflict with a pending Client transaction or a
transaction known by such attendee to be under consideration for a
Client. Objections to such clearance should also take into account,
among other factors, whether the investment opportunity should be
reserved for a Client. If no objections are raised, the Designated
Legal or Compliance Representative shall so indicate by signing the
Preclearance Form. Such approval shall not be required for sales of
securities not held by any Clients.
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In place of this authorization, Investment Personnel are required to
obtain approvals from all Executive Investment Committee members as
noted in the section below entitled Preclearance Requirements for
Investment Personnel.
o A DESIGNATED TRADING OPERATIONS REPRESENTATIVE, who may provide
clearance if such Representative knows at the time of the request of
no pending "buy" or "sell" order in the security on behalf of a Client
and no such trades are known by such person to be under consideration.
o The COMPLIANCE MANAGER, OR A DESIGNATED LEGAL OR COMPLIANCE
REPRESENTATIVE IF THE COMPLIANCE MANAGER IS NOT AVAILABLE, who may
provide clearance if no legal prohibitions are known by such person to
exist with respect to the proposed trade. Approvals for such clearance
should take into account, among other factors, the existence of any
Watch List or Restricted List and, to the extent reasonably
practicable, recent trading activity and holdings of Clients.
No authorized person may preclear a transaction in which such person
has a Beneficial Interest.
PRECLEARANCE REQUIREMENTS FOR INVESTMENT PERSONNEL
Trades by Investment Personnel may not be precleared by presentation at
the weekly investment meeting. Instead, Investment Personnel must obtain the
following management approvals. However, such approvals shall not be required
for sales of securities not held by any Clients:
o TRADES IN EQUITY SECURITIES require prior written approval from all
members of the Executive Investment Committee, Investment Person's
manager and either Ron Speaker or Sandy Rufenacht;
o TRADES IN DEBT SECURITIES require prior written approval from all
senior fixed income portfolio managers, either Jim Craig or two other
Executive Investment Committee members, and Investment Person's
manager.
A portfolio manager may not preclear his or her own transaction.
PRECLEARANCE OF COMPANY STOCK
Officers of Janus and certain persons designated by Compliance who wish
to make discretionary transactions in Stilwell or KCSI securities, or
derivatives thereon, must preclear such transactions. A Company Stock
Preclearance Form must be completed and forwarded to Compliance. Compliance
shall promptly notify the person of approval or denial for the transaction.
Notification of approval or denial for the transaction may be given verbally;
however, it shall be confirmed in writing within seventy-two (72) hours of
verbal notification. When preclearance has been approved, the person then has
four business days from and including the day of first notification to execute
the trade.
If such persons are subject to the provisions of Section 16(b) of the
Securities Exchange Act of 1934, trading will generally be allowed only in the
ten (10) business day period beginning seventy-two (72) hours after Stilwell or
KCSI files its quarterly results with the SEC (e.g., 10Q or 10K filing, not
earnings release). To preclear the trade, the Compliance Manager or such other
Representative shall discuss the transaction with Janus's General Counsel or
Chief Financial Officer.
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PRECLEARANCE OF TENDER OFFERS AND STOCK PURCHASE PLANS
Access Persons (other than Outside Directors and Outside Trustees) who
wish to participate in a tender offer or stock purchase plan must preclear such
trades only with the Compliance Manager prior to submitting notice to
participate in such tender offer or notice of participation in such stock
purchase plan to the applicable company. To preclear the trade, the Compliance
Manager shall consider all material factors relevant to a potential conflict of
interest between the Access Person and Clients. In addition, any increase of
$100 or more to a pre-existing stock purchase plan must be precleared.
FOUR DAY EFFECTIVE PERIOD
Clearances to trade will be in effect for only four trading/business
days from and including the date of the last Authorized Person's signature
(which may not be provided more than one day after the first Authorized Person's
signature). For tender offers, stock purchase plans, exercise of Company Stock
and similar transactions, the date the request is submitted to the company
processing the transaction will be considered the trade date for purposes of
this requirement. Open orders, including stop loss orders, will generally not be
allowed unless such order is expected to be completed within the four day
effective period. It is necessary to re-preclear transactions not executed
within the four day effective period.
REPORTING REQUIREMENTS
ACCOUNT STATEMENTS
ACCESS PERSONS (other than Outside Trustees) and REGISTERED PERSONS
must notify Compliance of each brokerage account in which they have a Beneficial
Interest and must arrange for their brokers or financial institutions to provide
to Compliance, on a timely basis, duplicate account statements and confirmations
showing all transactions in brokerage or commodities accounts in which they have
a Beneficial Interest. A Personal Brokerage Account Disclosure Form should be
completed for this purpose.
Please note that, even if such person does not trade Covered Securities
in a particular brokerage or commodities account (e.g., trading mutual funds in
a Schwab account), the reporting of duplicate account statements and
confirmations is still required. However, if such person only uses a particular
brokerage account for checking account purposes, and not investment purposes, he
or she may in lieu of reporting duplicate account statements, report duplicate
trade confirmations and make a quarterly representation to Compliance indicating
that no investment transactions occurred in the account during the calendar
quarter. Reporting of accounts that do not allow any trading in Covered
Securities (e.g., a mutual fund account held directly with the fund sponsor) is
not required.
Covered Persons must notify Compliance of each reportable account at
the time it is opened, and annually thereafter, including the name of the firm
and the name under which the account is carried. A Personal Brokerage Account
Disclosure Form should be completed for this purpose.
Certain transactions might not be reported through a brokerage account,
such as private placements, inheritances or gifts. In these instances, Access
Persons must report these transactions within ten (10) calendar days using a
Personal Securities Transaction Report as noted below.
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Registered Persons are reminded that they must also inform any brokerage firm
with which they open an account, at the time the account is opened, that they
are registered with JDI.
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NON-ACCESS PERSONS who engage in an aggregate of $25,000 or more of
transactions in Covered Securities within a calendar year must provide
Compliance with an Annual Transaction Report listing all such transactions in
all accounts in which such person has a Beneficial Interest. Compliance will
request this information annually and will spot check all or a portion of such
transactions or accounts.
HOLDINGS REPORTS
ACCESS PERSONS (other than Outside Trustees) must, within ten (10)
calendar days after becoming an Access Person, provide Compliance with a
Holdings Report which lists all Covered Securities beneficially held and any
brokerage accounts through which such securities are maintained. In addition,
such persons must provide a brief description of any positions held (e.g.,
director, officer, other) with for-profit entities other than Janus. The report
must contain information current as of no more than thirty (30) calendar days
from the time the report is submitted.
PERSONAL SECURITIES TRANSACTION REPORTS
ACCESS PERSONS (other than Outside Trustees) must provide a Personal
Securities Transaction Report within ten (10) calendar days after any month end
showing all transactions in Covered Securities for which confirmations are known
by such person to not have been timely provided to Janus, and all such
transactions that are not effected in brokerage or commodities accounts,
including without limitation non-brokered private placements, and transactions
in securities that are in certificate form, which may include gifts,
inheritances, and other transactions in Covered Securities.
OUTSIDE TRUSTEES need only report a transaction in a Covered Security
if such person, at the time of that transaction, knew or, in the ordinary course
of fulfilling his or her official duties as a Trustee should have known, that,
during the fifteen-day period immediately preceding the date of his or her
personal transaction, such security was purchased or sold by, or was being
considered for purchase or sale on behalf of, any Janus Fund for which such
person acts as Trustee.
SUCH PERSONS MUST PROMPTLY COMPLY WITH ANY REQUEST OF THE COMPLIANCE MANAGER TO
PROVIDE TRANSACTION REPORTS REGARDLESS OF WHETHER THEIR BROKER HAS BEEN
INSTRUCTED TO PROVIDE DUPLICATE CONFIRMATIONS. SUCH REPORTS MAY BE REQUESTED,
FOR EXAMPLE, TO CHECK THAT ALL APPLICABLE CONFIRMATIONS ARE BEING RECEIVED OR TO
SUPPLEMENT THE REQUESTED CONFIRMATIONS WHERE A BROKER IS DIFFICULT TO WORK WITH
OR OTHERWISE FAILS TO PROVIDE DUPLICATE CONFIRMATIONS ON A TIMELY BASIS.
NON-INFLUENCE AND NON-CONTROL ACCOUNTS
The Rules shall not apply to any account, partnership, or similar
investment vehicle over which a Covered Person has no direct or indirect
influence or control. Covered Persons wishing to rely upon this provision are
required to receive approval from the Ethics Committee. In order to request such
approval, a Certification of Non-Influence and Non-Control Form must be
submitted to the Compliance Manager.
Any account beneficially owned by a Covered Person that is managed by
JCC in a discretionary capacity is not covered by these Rules so long as such
person has no direct or indirect influence or control over the account. The
employment relationship between the account-holder and the individual managing
the
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account, in the absence of other facts indicating control, will not be deemed to
give such account-holder influence or control over the account.
OTHER REQUIRED FORMS
In addition to the Preclearance Form, Preclearance Form for Company
Stock, Personal Brokerage Account Disclosure Form, Holdings Report, Report of
Personal Securities Transactions, Annual Transaction Report, and Certification
of Non-Influence and Non-Control Form discussed above, the following forms
(available through Lotus Notes) must be completed if applicable to you:
ACKNOWLEDGMENT OF RECEIPT FORM
Each Covered Person must provide Compliance with an Acknowledgment of
Receipt Form within ten (10) calendar days of commencement of employment or
other services certifying that he or she has received a current copy of the
Rules and acknowledges, as a condition of employment, that he or she will comply
with the Rules in their entirety.
ANNUAL CERTIFICATION FORM
Each Covered Person must provide Compliance annually within thirty (30)
calendar days from date of request with an Annual Certification Form certifying
that he or she:
1) Has received, read and understands the Rules;
2) Has complied with the requirements of the Rules; and
3) Has disclosed or reported all open brokerage and commodities
accounts, personal holdings and personal securities transactions
required to be disclosed or reported pursuant to the requirements
of the Rules.
OUTSIDE DIRECTOR/TRUSTEE REPRESENTATION FORM
All Outside Directors and Outside Trustees must, upon commencement of
services and annually thereafter, provide Compliance with an Outside
Director/Trustee Representation Form. The Form declares that such persons agree
to refrain from trading in any securities when they are in possession of any
information regarding trading recommendations made or proposed to be made to any
Client by Janus or its officers or employees.
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INSIDER TRADING POLICY
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BACKGROUND INFORMATION
The term "insider trading" is not defined in the federal securities
statutes, but generally is used to refer to the use of material nonpublic
information to trade in securities (whether or not one is an "insider") or to
communications of material nonpublic information to others.
While the law concerning insider trading can be complex and unclear,
you should assume that the law prohibits:
o Trading by an insider, while in possession of material
nonpublic information,
o Trading by a non-insider, while in possession of material
nonpublic information, where the information was disclosed to
the non-insider (either directly or through one or more
intermediaries) in violation of an insider's duty to keep it
confidential,
o Communicating material nonpublic information to others in
breach of a duty not to disclose such information, and
o Misappropriating confidential information for securities
trading purposes, in breach of a duty owed to the source of
the information to keep the information confidential.
Trading based on material nonpublic information about an issuer does
not violate this policy unless the trader (i) is an "insider" with respect to an
issuer; (ii) receives the information from an insider or from someone that the
trader knows received the information from an insider, either directly or
indirectly, or (iii) misappropriates the nonpublic information or obtains or
misuses it in breach of a duty of trust and confidence owed to the source of the
information. Accordingly, trading based on material nonpublic information about
an issuer can be, but is not necessarily, a violation of this Policy. Trading
while in possession of material nonpublic information relating to a tender offer
is prohibited under this Policy regardless of how such information was obtained.
Application of the law of insider trading to particular transactions
can be difficult, particularly if it involves a determination about trading
based on material nonpublic information. You legitimately may be uncertain about
the application of this Policy in particular circumstances. If you have any
questions regarding the application of the Policy or you have any reason to
believe that a violation of the Policy has occurred or is about to occur, you
should contact the Chief Compliance Officer or the Compliance Manager.
The following discussion is intended to help you understand the
principal concepts involved in insider trading.
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WHO IS AN INSIDER?
The concept of "insider" is broad. It includes officers, directors and
employees of a company. In addition, a person can be a "temporary insider" if he
or she enters into a special confidential relationship in the conduct of a
company's affairs and as a result is given access to information solely for the
company's purposes. A temporary insider can include, among others, a company's
attorneys, accountants, consultants, bank lending officers, and the employees of
such organizations. In addition, one or more of the Janus entities may become a
temporary insider of a company it advises or for which it performs other
services. To be considered an insider, the company must expect the outsider to
keep the disclosed nonpublic information confidential and/or the relationship
must at least imply such a duty.
WHEN IS INFORMATION NONPUBLIC?
Information remains nonpublic until it has been made public.
Information becomes public when it has been effectively communicated to the
marketplace, such as by a public filing with the SEC or other governmental
agency, inclusion in the Dow Jones "tape" or publication in The Wall Street
Journal or another publication of general circulation. Moreover, sufficient time
must have passed so that the information has been disseminated widely.
WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally means information for
which there is a substantial likelihood that a reasonable investor would
consider it important in making his or her investment decisions, or information
that is reasonably certain to have a substantial effect on the price of a
company's securities. Information that should be considered material includes,
but is not limited to: dividend changes, earnings estimates, changes in
previously released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation problems, and
extraordinary management developments.
Material information may also relate to the market for a company's
securities. Information about a significant order to purchase or sell securities
may, in some contexts, be deemed material. Similarly, prepublication information
regarding reports in the financial press also may be deemed material. For
example, the Supreme Court upheld the criminal convictions of insider trading
defendants who capitalized on prepublication information about The Wall Street
Journal's "Heard on the Street" column.
WHEN IS INFORMATION MISAPPROPRIATED?
The misappropriation theory prohibits trading on the basis of
non-public information by a corporate "outsider" in breach of a duty owed not to
a trading party, but to the source of confidential information. Misappropriation
of information occurs when a person obtains the non-public information through
deception or in breach of a duty of trust and loyalty to the source of the
information.
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PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material nonpublic
information are severe, both for individuals involved in such unlawful conduct
and their employers or other controlling persons. A person can be subject to
some or all of the penalties below even if he or she does not personally benefit
from the violation. Penalties include:
o Civil injunctions
o Treble damages
o Disgorgement of profits
o Jail sentences for up to 10 years
o Fines up to $1,000,000 (or $2,500,000 for corporations and
other entities)
o Civil penalties for the person who committed the violation of
up to three times the profit gained or loss avoided, whether
or not the person actually benefited, and
o Civil penalties for the employer or other controlling person
of up to the greater of $1,000,000 or three times the amount
of the profit gained or loss avoided.
In addition, any violation of the law may result in serious sanctions
by Janus, including termination of employment.
WHO IS A CONTROLLING PERSON?
Included as controlling persons are Janus and its Directors, Trustees
and officers. If you are a Director, Trustee or officer, you have a duty to act
to prevent insider trading. Failure to fulfill such a duty may result in
penalties as described above.
PROCEDURES TO IMPLEMENT POLICY
The following procedures have been established to aid the Directors,
Trustees, officers and employees of Janus in avoiding insider trading, and to
aid Janus in preventing, detecting and imposing sanctions against insider
trading.
IDENTIFYING MATERIAL INSIDE INFORMATION
Before trading for yourself or others, including the Janus Funds or
other Clients, in the securities of a company about which you may have potential
inside information, ask yourself the following questions:
o To whom has this information been provided? Has the
information been effectively communicated to the marketplace?
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o Has this information been obtained from either the issuer or
from another source in breach of a duty to that source to keep
the information confidential?
o Is the information material? Is this information that an
investor would consider important in making his or her
investment decisions? Is this information that would affect
the market price of the securities if generally disclosed?
Special caution should be taken with respect to potential inside
information regarding JCC. Although JCC's shares are not publicly traded, JCC's
parent, KCSI, is a publicly traded company. KCSI owns 82% of the stock of JCC.
As a result, potential inside information regarding JCC may affect trading in
KCSI stock and should be reported pursuant to the procedures set forth below.
The following is a non-exclusive list of situations that Investment Personnel
should report immediately pursuant to the procedures below: (i) participation in
private placements; (ii) the receipt of any information from an issuer pursuant
to a confidentiality agreement; (iii) participation on or receipt of information
from a bankruptcy committee of an issuer; and (iv) receipt of information
regarding earnings or sales figures in advance of the public release of those
numbers.
REPORTING INSIDE INFORMATION
If, after consideration of the above, you believe that the information
is material and nonpublic, or if you have questions as to whether the
information is material and nonpublic, you should take the following steps:
o Do not purchase or sell the securities on behalf of yourself
or others, including Clients.
o Do not communicate the information inside or outside of Janus,
other than to the Chief Compliance Officer or the Compliance
Manager.
o Immediately advise the Chief Compliance Officer or Compliance
Manager of the nature and source of such information. The
Chief Compliance Officer or Compliance Manager will review the
information with the Ethics Committee.
o Depending upon the determination made by the Ethics Committee,
or by the Chief Compliance Officer until the Committee can be
convened, you may be instructed to continue the prohibition
against trading and communication and the Compliance Manager
will place the security on a Restricted List or Watch List, as
described below. Alternatively, if it is determined that the
information obtained is not material nonpublic information,
you may be allowed to trade and communicate the information.
WATCH AND RESTRICTED LISTS
Whenever the Ethics Committee or the Chief Compliance Officer
determines that a Director, Trustee, officer or employee of Janus is in
possession of material nonpublic information with respect to a company
(regardless of whether it is currently owned by any Client) such company will
either be placed on a Watch List or on a Restricted List.
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WATCH LIST
If the security is placed on a Watch List, the flow of the information
to other Janus personnel will be restricted in order to allow such persons to
continue their ordinary investment activities. This procedure is commonly
referred to as a "Chinese Wall."
RESTRICTED LIST
If the Ethics Committee or the Chief Compliance Officer determines that
material nonpublic information is in the possession of a Director, Trustee,
officer, or employee of Janus and cannot be adequately isolated through the use
of a Chinese Wall, the company will be placed on the Restricted List. While a
company is on the Restricted List, no Investment Person shall initiate or
recommend any transaction in any Client account, and no Access Person shall be
precleared to transact in any account in which he or she has a beneficial
interest, with respect to the securities of such company. The Ethics Committee
or the Chief Compliance Officer will also have the discretion of placing a
company on the Restricted List even though no "break in the Chinese Wall" has or
is expected to occur with respect to the material nonpublic information about
the company. Such action may be taken by such persons for the purpose of
avoiding any appearance of the misuse of material nonpublic information.
The Ethics Committee or the Chief Compliance Officer will be
responsible for determining whether to remove a particular company from the
Watch List or Restricted List. The only persons who will have access to the
Watch List or Restricted List are members of the Ethics Committee, Designated
Legal or Compliance Representatives and such persons who are affected by the
information. The Watch List and Restricted List are highly confidential and
should, under no circumstances, be discussed with or disseminated to anyone
other than the persons noted above.
PROTECTING INFORMATION
Directors, Trustees, officers and employees of Janus shall not disclose
any nonpublic information (whether or not it is material) relating to Janus or
its securities transactions to any person outside Janus (unless such disclosure
has been authorized by the Chief Compliance Officer). Material nonpublic
information may not be communicated to anyone, including any Director, Trustee,
officer or employee of Janus, except as provided in this Policy. Access to such
information must be restricted. For example, access to files containing material
nonpublic information and computer files containing such information should be
restricted, and conversations containing such information, if appropriate at
all, should be conducted in private.
To insure the integrity of the Chinese Wall and to avoid unintended
disclosures, it is important that all employees take the following steps with
respect to confidential or nonpublic information:
o Do not discuss confidential information in public places such
as elevators, hallways or social gatherings.
o To the extent practical, limit access to the areas of the firm
where confidential information could be observed or overheard
to employees with a business need for being in the area.
o Avoid use of speakerphones in areas where unauthorized persons
may overhear conversations.
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o Avoid use of wireless and cellular phones, or other means of
communication, which may be intercepted.
o Where appropriate, maintain the confidentiality of Client
identities by using code names or numbers for confidential
projects.
o Exercise care to avoid placing documents containing
confidential information in areas where they may be read by
unauthorized persons and to store such documents in secure
locations when they are not in use.
o Destroy copies of confidential documents no longer needed for
a project unless required to be saved pursuant to applicable
record keeping policies or requirements.
RESPONSIBILITY TO MONITOR TRANSACTIONS
Compliance will monitor transactions of Clients and employees for which
reports are received to detect the existence of any unusual trading activities
with respect to companies on the Watch and Restricted Lists. Compliance will
immediately report any unusual trading activity directly to the Compliance
Manager, and in his or her absence, the Chief Compliance Officer, who will be
responsible for determining what, if any, action should be taken.
RECORD RETENTION
Compliance shall maintain copies of the Watch List and Restricted List
for a minimum of six years.
TENDER OFFERS
Tender offers represent a particular concern in the law of insider
trading for two reasons. First, tender offer activity often produces
extraordinary fluctuations in the price of the target company's securities.
Trading during this time period is more likely to attract regulatory attention
(and produces a disproportionate percentage of insider trading cases). Second,
the SEC has adopted a rule which expressly forbids trading and "tipping" while
in possession of material nonpublic information regarding a tender offer
received from the tender offeror, the target company or anyone acting on behalf
of either. Janus employees and others subject to this Policy should exercise
particular caution any time they become aware of nonpublic information relating
to a tender offer.
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Exhibit(p)(4)
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GIFT POLICY
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Gifts may be given (or accepted) only if they are in accordance with
normally accepted business practices and do not raise any question of
impropriety. A question of impropriety may be raised if a gift influences or
gives the appearance of influencing the recipient. The following outlines
Janus's policy on giving and receiving gifts to help us maintain those standards
and is applicable to all Inside Directors and Inside Trustees, officers and
employees of Janus.
GIFT GIVING
Neither you nor members of your immediate family may give any gift,
series of gifts, or other thing of value, including cash, loans, personal
services, or special discounts ("Gifts") in excess of $100 per year to any
Client or any one person or entity that does or seeks to do business with or on
behalf of Janus or any Client (collectively referred to herein as "Business
Relationships").
GIFT RECEIVING
Neither you nor members of your immediate family may receive any Gift
of material value from any single Business Relationship. A Gift will be
considered material in value if it influences or gives the appearance of
influencing the recipient.
In the event the aggregate fair market value of all Gifts received by
you from any single Business Relationship is estimated to exceed $250 in any
12-month period, you must immediately notify your manager. Managers that receive
such notification must report this information to the Compliance Manager if it
appears that such Gifts may have improperly influenced the receiver. If the Gift
is made in connection with the sale or distribution of registered investment
company or variable contract securities, the aggregate fair market value of all
such Gifts received by you from any single Business Relationship may never
exceed $100 in any 12-month period.
Occasionally, Janus employees are invited to attend or participate in
conferences, tour a company's facilities, or meet with representatives of a
company. Such invitations may involve traveling and may require overnight
lodging. Generally, Janus must pay for all travel and lodging expenses provided
in connection with such activities. However, if appropriate, and with prior
approval from your manager, you may accept travel related amenities if the costs
are considered insubstantial and are not readily ascertainable.
The solicitation of a Gift is prohibited (i.e., you may not request a
Gift, such as tickets to a sporting event, be given to you).
CUSTOMARY BUSINESS AMENITIES
Customary business amenities are not considered Gifts so long as such
amenities are business related (e.g., if you are accepting tickets to a sporting
event, the offerer must go with you), reasonable in cost, appropriate as to time
and place, and neither so frequent nor so costly as to raise any question of
impropriety. Customary business amenities which you and, if appropriate, your
guests, may accept (or give) include an occasional meal, a ticket to a sporting
event or the theater, greens fees, an invitation to a reception or cocktail
party, or comparable entertainment.
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Exhibit(p)(4)
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OUTSIDE EMPLOYMENT POLICY
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No Inside Director, Inside Trustee, officer or employee of Janus shall
accept employment or compensation as a result of any business activity (other
than a passive investment), outside the scope of his relationship with Janus
unless such person has provided prompt written notice of such employment or
compensation to the Chief Compliance Officer (or, for Registered Persons, to
JDI's Operations Manager), and, in the case of securities-related employment or
compensation, has received the prior written approval of the Ethics Committee.
Registered Persons are reminded to update and submit their Outside Business
Activity Disclosure forms as appropriate pursuant to JDI's Written Supervisory
Procedures and applicable NASD rules.
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Exhibit(p)(4)
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PENALTY GUIDELINES
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OVERVIEW
Covered Persons who violate any of the requirements, restrictions, or
prohibitions of the Rules may be subject to sanctions imposed by the Ethics
Committee. The following guidelines shall be used by the Compliance Manager for
recommending remedial actions for Covered Persons who violate prohibitions or
disregard requirements of the Rules. Deviations from the Fifteen-Day Rule are
not considered to be violations under the Rules and, therefore, are not subject
to the penalty guidelines.
Upon learning of a potential deviation from, or violation of the Rules,
the Compliance Manager will provide a written recommendation of remedial action
to the Ethics Committee. The Ethics Committee has full discretion to approve
such recommendation or impose other sanctions it deems appropriate. The Ethics
Committee will take into consideration, among other things, whether the
violation was a technical violation of the Rules or inadvertent oversight (i.e.,
ill-gotten profits versus general oversight). The guidelines are designed to
promote consistency and uniformity in the imposition of sanctions and
disciplinary matters.
PENALTY GUIDELINES
Outlined below are the guidelines for the sanctions that may be imposed
on Covered Persons who fail to comply with the Rules:
o 1st violation- Compliance will send a memorandum of reprimand
to the person, copying his or her supervisor. The memorandum
will generally reinforce the person's responsibilities under
the Rules, educate the person on the severity of personal
trading violations and inform the person of the possible
penalties for future violations of the Rules;
o 2nd violation- Janus's Chief Investment Officer, James Craig,
will meet with the person to discuss the violations in detail
and will reinforce the importance of complying with the Rules;
o 3rd violation- Janus's Chairman of the Board, Thomas Bailey,
will meet with the person to discuss the violations in detail
and will reinforce the importance of complying with the Rules;
o 4th violation- The Executive Committee will impose such
sanctions as it deems appropriate, including without
limitation, a letter of censure, fines, withholding of bonus
payments, or suspension or termination of employment or
personal trading privileges.
In addition to the above disciplinary sanctions, such persons may be
required to disgorge any profits realized in connection with such violation. All
disgorgement proceeds collected will be donated to a charitable organization
selected by the Ethics Committee. The Ethics Committee may determine to impose
any of the sanctions set forth in item 4 above, including termination,
immediately and without notice if it determines that the severity of any
violation or violations warrants such action. All sanctions imposed will be
documented in such person's personal trading file maintained by Janus, and will
be reported to the Executive Committee.
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Exhibit(p)(4)
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SUPERVISORY AND COMPLIANCE PROCEDURES
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The Chief Compliance Officer and Compliance Manager are responsible for
implementing supervisory and compliance review procedures. Supervisory
procedures can be divided into two classifications: prevention of violations and
detection of violations. Compliance review procedures include preparation of
special and annual reports, record maintenance and review, and confidentiality
preservation.
SUPERVISORY PROCEDURES
PREVENTION OF VIOLATIONS
To prevent violations of the Rules, the Compliance Manager should, in
addition to enforcing the procedures outlined in the Rules:
1. Review and update the Rules as necessary, at least once
annually, including but not limited to a review of the Code by
the Chief Compliance Officer, the Ethics Committee and/or
counsel;
2. Answer questions regarding the Rules, or refer the same to the
Chief Compliance Officer;
3. Request from all persons upon commencement of services, and
annually thereafter, any applicable forms and reports as
required by the Rules;
4. Identify all Access Persons and notify them of their
responsibilities and reporting requirements;
5. Write letters to the securities firms requesting duplicate
confirmations and account statements where necessary; and
6. With such assistance from the Human Resources Department as
may be appropriate, maintain a continuing education program
consisting of the following:
1) Orienting Covered Persons who are new to Janus to the
Rules, and
2) Further educating Covered Persons by distributing
memos or other materials that may be issued by
outside organizations such as the Investment Company
Institute discussing the issue of insider trading and
other issues raised by the Rules.
DETECTION OF VIOLATIONS
To detect violations of these Rules, the Compliance Manager should, in
addition to enforcing the procedures outlined in the Rules:
o Implement procedures to review holding and transaction
reports, confirmations, forms and statements relative to
applicable restrictions, as provided under the Code; and
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o Implement procedures to review the Restricted and Watch Lists
relative to applicable personal and Client trading activity,
as provided under the Policy.
Spot checks of certain information are permitted as noted under the
Code.
COMPLIANCE PROCEDURES
REPORTS OF POTENTIAL DEVIATIONS OR VIOLATIONS
Upon learning of a potential deviation from, or violation of the Rules,
the Compliance Manager shall report such violation to the Chief Compliance
Officer, together with all documents relating to the matter. The Chief
Compliance Officer shall either present the information at the next regular
meeting of the Ethics Committee, or conduct a special meeting. The Ethics
Committee shall thereafter take such action as it deems appropriate (see Penalty
Guidelines).
ANNUAL REPORTS
The Compliance Manager shall prepare a written report to the Ethics
Committee and the Trustees at least annually. The written report to the Trustees
shall include any certification required by Rule 17j-1. This report shall set
forth the following information, and shall be confidential:
o Copies of the Rules, as revised, including a summary of any
changes made since the last report;
o Identification of any material issues arising under the Rules
including material violations requiring significant remedial
action since the last report;
o Identification of any material conflicts that arose since the
last report; and
o Recommendations, if any, regarding changes in existing
restrictions or procedures based upon Janus's experience under
these Rules, evolving industry practices, or developments in
applicable laws or regulations.
The Trustees must initially approve these Rules within the time frame
required by Rule 17-1. Any material changes to these Rules must be approved
within six months.
RECORDS
Compliance shall maintain the following records on behalf of each
Janus entity:
o A copy of this Code and any amendment thereof which is or at
any time within the past five years has been in effect.
o A record of any violation of this Code, or any amendment
thereof, and of any action taken as a result of such
violation.
o Files for personal securities transaction confirmations and
account statements, all reports and other forms submitted by
Covered Persons pursuant to these Rules and any other
pertinent information.
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o A list of all persons who are, or have been, required to make
reports pursuant to these Rules.
o A list of persons who are, or within the last five years have
been responsible for, reviewing transaction and holdings
reports.
o A copy of each report made to the Trustees pursuant to this
Code.
INSPECTION
The records and reports maintained by Compliance pursuant to the Rules
shall at all times be available for inspection, without prior notice, by any
member of the Ethics Committee.
CONFIDENTIALITY
All procedures, reports and records monitored, prepared or maintained
pursuant to these Rules shall be considered confidential and proprietary to
Janus and shall be maintained and protected accordingly. Except as otherwise
required by law or this Policy, such matters shall not be disclosed to anyone
other than to members of the Ethics Committee, as requested.
FILING OF REPORTS
To the extent that any report, form acknowledgment or other document is
required to be in writing and signed, such documents may be submitted in by
e-mail or other electronic form approved by Compliance. Any report filed with
the Chief Compliance Officer or Compliance Manager of JCC shall be deemed filed
with the Janus Funds.
THE ETHICS COMMITTEE
The purpose of this Section is to describe the Ethics Committee. The
Ethics Committee is created to provide an effective mechanism for monitoring
compliance with the standards and procedures contained in the Rules and to take
appropriate action at such times as violations or potential violations are
discovered.
MEMBERSHIP OF THE COMMITTEE
The Committee consists of Thomas A. Early, Vice President and General
Counsel; Steven R. Goodbarn, Vice President of Finance, Treasurer and Chief
Financial Officer; David Kowalski, Vice President and Chief Compliance Officer;
and Ernie C. Overholt, Compliance Manager. The Compliance Manager currently
serves as the Chairman of the Committee. The composition of the Committee may be
changed from time to time.
COMMITTEE MEETINGS
The Committee shall generally meet every four months or as often as
necessary to review operation of the compliance program and to consider
technical deviations from operational procedures, inadvertent oversights, or any
other potential violation of the Rules. Deviations alternatively may be
addressed by including them in the employee's personnel records maintained by
Janus. Committee meetings are primarily intended for consideration of the
general operation of the compliance program and substantive or serious
departures from standards and procedures in the Rules.
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Such other persons may attend a Committee meeting, at the discretion of
the Committee, as the Committee shall deem appropriate. Any individual whose
conduct has given rise to the meeting also may be called upon, but shall not
have the right, to appear before the Committee.
It is not required that minutes of Committee meetings be maintained; in
lieu of minutes the Committee may issue a report describing any action taken.
The report shall be included in the confidential file maintained by the
Compliance Manager with respect to the particular employee or employees whose
conduct has been the subject of the meeting.
SPECIAL DISCRETION
The Committee shall have the authority by unanimous action to exempt
any person or class of persons or transaction or class of transactions from all
or a portion of the Rules, provided that:
o The Committee determines, on advice of counsel, that the
particular application of all or a portion of the Rules is not
legally required;
o The Committee determines that the likelihood of any abuse of
the Rules by such exempted person(s) or as a result of such
exempted transaction is remote;
o The terms or conditions upon which any such exemption is
granted is evidenced in writing; and
o The exempted person(s) agrees to execute and deliver to the
Compliance Manager, at least annually, a signed Acknowledgment
Form, which Acknowledgment shall, by operation of this
provision, include such exemptions and the terms and
conditions upon which it was granted.
The Committee shall also have the authority by unanimous action to
impose such additional requirements or restrictions as it, in its sole
discretion, determines appropriate or necessary, as outlined in the Penalty
Guidelines.
Any exemption, and any additional requirement or restriction, may be
withdrawn by the Committee at any time (such withdrawal action is not required
to be unanimous).
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GENERAL INFORMATION ABOUT THE ETHICS RULES
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DESIGNEES
The Compliance Manager and the Chief Compliance Officer may appoint
designees to carry out their functions pursuant to these Rules.
ENFORCEMENT
In addition to the penalties described in the Penalty Guidelines and
elsewhere in the Rules, upon discovering a violation of the Rules, the Janus
entity with which you are associated may impose such sanctions as it deems
appropriate, including without limitation, a letter of censure or suspension or
termination of employment or personal trading privileges of the violator. All
material violations of the Rules and any sanctions imposed with respect thereto
shall be reported periodically to the Directors and Trustees and the directors
of any other Janus entity which has been directly affected by the violation.
INTERNAL USE
The Rules are intended solely for internal use by Janus and do not
constitute an admission, by or on behalf of such companies, their controlling
persons or persons they control, as to any fact, circumstance or legal
conclusion. The Rules are not intended to evidence, describe or define any
relationship of control between or among any persons. Further, the Rules are not
intended to form the basis for describing or defining any conduct by a person
that should result in such person being liable to any other person, except
insofar as the conduct of such person in violation of the Rules may constitute
sufficient cause for Janus to terminate or otherwise adversely affect such
person's relationship with Janus.
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