KEMPER, SCUDDER ATTEMPT MIND MELD: A CHALLENGING TREK, GIVEN EXEC EXITS AND OTHER MERGER CHALLENGES

Zurich Group has taken the first steps to meld its Kemper Funds subsidiary with newly acquired Scudder Stevens & Clark Inc.

It has put together a management team following the exit of several top Kemper executives and changed portfolio managers at 14 of its 129 mutual funds.

It has tapped several Kemper managers to run money-market and bond funds at Scudder. At the same time, the Swiss financial giant called on several managers of Scudder’s well-regarded international and global funds to establish five similar funds under the Kemper banner.

Scudder Kemper Investments, the result of the merger of Chicago-based Zurich Kemper Investments with New York-based Scudder, manages more than $200 billion. The Scudder Funds are no-load products sold directly to investors; the Kemper Funds have loads and are distributed largely through commissioned advisers.

WHO HAS BETTER STOCK FUNDS?

Conspicuously absent from the firm’s personnel moves were any changes in the management of equity funds, though observers consider Scudder’s stock funds generally superior to Kemper’s.

“You have to wonder about the Kemper Growth Fund, which is kind of an eyesore,” says Mark Wright, senior analyst with Chicago-based mutual fund researcher Morningstar Inc. “Will they do something about that?”

The fund, rated two stars on Morningstar’s five-star scale, returned 16.8% in 1997, well below the 33.35% of the Standard & Poor’s 500. Over three years, it’s returned 21.46% on average compared with 31.13% for the S&P.

No more manager changes are expected in the near term, a Scudder Kemper spokeswoman says.

Running the North American mutual fund business for the combined operation is Mark S. Casady, who oversaw Scudder’s mutual fund operations before the merger.

As expected, Stephen Timbers, formerly president and CEO of Zurich Kemper Investments, is leaving the company this month, the spokeswoman says. Former Kemper Funds chief John Neal already has left, replaced by Thomas W. Littauer. Scudder Kemper plucke
d him late last month from Boston-based Putnam Financial Services, where he ran the broker-dealer division.

Meanwhile, earlier whispers that star Kemper portfolio manager David Dreman might quit have proven false. The manager of the $1.3 billion Kemper Dreman High Return Equity Fund signed a five-year agreement to remain with Scudder Kemper and will launch a new fund this year.

In addition, Kemper Funds, which has wrestled with how to break into the international arena, is wasting no time rolling out a package of international and global funds, led by Scudder managers. The five new funds are: International Growth and Income, Global Blue Chip, Emerging Markets Income, Emerging Markets Growth and Latin America.

Nudging aside bond rivals

In the bond and money-market areas, where Zurich has consolidated portfolio manager positions, Kemper managers in many cases have nudged out Scudder managers.

Perhaps that’s not surprising, given that Kemper’s money funds total $11.4 billion while Scudder’s have just $3 billion, according to Boston-based Financial Research Corp.

For example, Frank Rachwalski Jr., who heads all of Kemper’s money-market funds, has taken over six money funds sold by Scudder Funds and the Scudder-advised AARP Investment Program, which markets mutual funds to members of the American Association of Retired Persons.

In addition, Richard L. Vandenberg, manager of several Kemper bond and mortgage funds, has replaced Tom Poor as manager of the AARP GNMA & U.S. Treasury Fund. Mr. Poor, who has left the company, also managed the Scudder Short-term Bond Fund, now run by Stephen A. Wohler.