SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED JUNE 30, 2000
Kemper Variable Series
[LOGO] KEMPER VARIABLE SERIES
SIDE INFORMATION READS:
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
<PAGE>
Contents
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3 Economic Overview
Management Summary, Performance Update, Portfolio Of Investments, Financial
Statements, Financial Highlights For:
6 Kemper Money Market Portfolio
10 Kemper Government Securities Portfolio
15 Kemper Investment Grade Bond Portfolio
20 Kemper High Yield Portfolio
29 Kemper Total Return Portfolio
36 Kemper Blue Chip Portfolio
41 Kemper Growth Portfolio
46 Kemper Aggressive Growth Portfolio
51 Kemper Horizon 20+ Portfolio
61 Kemper Horizon 10+ Portfolio
71 Kemper Horizon 5 Portfolio
81 Kemper Small Cap Growth Portfolio
87 Kemper Technology Growth Portfolio
92 Kemper Value+Growth Portfolio
98 Kemper Contrarian Value Portfolio
103 KVS Dreman High Return Equity Portfolio (formerly Kemper-Dreman High
Return Equity Portfolio)
108 KVS Focused Large Cap Growth Portfolio
113 KVS Growth And Income Portfolio
119 KVS Growth Opportunities Portfolio
124 KVS Index 500 Portfolio (formerly Kemper Index 500 Portfolio)
134 Kemper Small Cap Value Portfolio
142 KVS Dreman Financial Services Portfolio (formerly Kemper-Dreman
Financial Services Portfolio)
147 Kemper Strategic Income Portfolio (formerly Kemper Global Income
Portfolio)
152 Kemper Global Blue Chip Portfolio
159 Kemper New Europe Portfolio (formerly Kemper International Growth and
Income Portfolio)
166 Kemper International Portfolio
174 Notes To Financial Statements
The opinions and forecasts expressed are those of the portfolio managers as of
June 30, 2000, and may not actually come to pass. This information is subject to
change at any time, based on market and other conditions and should not be
construed as a recommendation of any specific security.
2 | Kemper Variable Series
<PAGE>
Economic Overview
--------------------------------------------------------------------------------
Dear Contract Holder:
When an irresistible force such as the ebullient U.S. economy meets an
immovable object, such as a determined Federal Reserve Board, the old song is
right: Something's gotta give. One possibility -- the economy could slow down as
the Fed has ordered. Or, if market volatility becomes true distress, the Fed
could back off, as it has in the past. A third possibility is that neither the
Fed nor the economy will give way until it until it's too late, which could lead
to a recession. Recent evidence suggests, however, that the economy probably
will slow down as ordered.
Before explaining why, perhaps it's best to start with a review of how
monetary policy works. Central bankers often sound like witch doctors reading
animal entrails, so it's understandable that many people are confused about
monetary policy. But monetary policy still works in the same way it always has.
First, it changes the price and availability of money. More subtly, it alters
people's perceptions about and confidence in the future, thereby adjusting their
willingness to take risks.
It's a bit early to tell how the Fed's monetary policy is working so
far. The policymakers only started raising interest rates about a year ago, and
it takes at least that long for higher rates to impact borrowers. There are two
reasons. First, interest rates on many existing loans are fixed. And, a family
who has just selected a dream house isn't going to walk away if mortgage rates
rise a notch. Similarly, a company that has just approved an expansion program
won't stop cold because the prime rate is higher. So it's foolish to think that
America's economy has become less interest-sensitive because the economy roared
through the first several months of this year. Americans are more in hock than
ever, so higher interest rates will hurt more than ever. The May dip in housing
starts and auto sales -- especially the higher priced, gas guzzling sport
utility vehicles -- is probably the first sign that higher rates are biting.
They will bite harder in coming months. We look for both housing starts and
vehicle sales to drop about 10 percent in 2001.
Confidence is harder to measure, but there are some early flutters of
weakness. It's true that consumers remain cheerily upbeat. But corporate bond
markets, the most sensitive barometer of business confidence and a vital source
of corporate funds, have been nervous. Investors are demanding a big premium
before they'll buy lower quality bonds, which means there's less new money for
companies to spend. Corporate bond issuance through mid-June was 35 percent
below the first five and a half months of 1999.
So far, companies have been able to get around the bond market
stinginess by turning to their bankers. Banks lent businesses 8 percent more
from January through May of this year than they did during the first five months
of 1999. But some banks are beginning to worry, too. Bank examiners have been
questioning the quality of loans and the level of reserves. In response, more
bankers are tightening lending standards and raising rates. This is a textbook
case of how tighter monetary policy eventually slows an economy.
Aren't bond market and banker concerns overdone? As long as the economy
keeps growing at 3 percent or so, won't that guarantee such good profits that
paying the bills will be a cinch? Not
Kemper Variable Series | 3
<PAGE>
--------------------------------------------------------------------------------
Economic Guideposts
--------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The 10-year
Treasury rate and the prime rate are prevailing interest rates. The other data
report year-to-year percentage changes.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Now (6/30/00) 6.1 9.5 3.1 0.7 14.1 5.9 2.3
6 months ago 6.3 8.5 2.6 0.5 7.3 4.2 2.2
1 year ago 5.9 7.75 2.1 -1.8 4.3 2.9 2.3
2 years ago 5.5 8.5 1.7 9.0 12.7 5.2 2.6
-------------------------------------------------------------------------------------------------------------------
10-year Prime rate^2 Inflation The U.S. Capital goods Industrial Employment
Treasury rate^1 rate3^* dollar^4 orders^5* production^5* growth^6
-------------------------------------------------------------------------------------------------------------------
</TABLE>
^1 Falling interest rates in recent years have been a big plus for
financial assets.
^2 The interest rate that commercial lenders charge their best borrowers.
^3 Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of
the last few years has meant high real returns.
^4 Changes in the exchange value of the dollar impact U.S. exporters and
the value of U.S. firms' foreign profits.
^5 These influence corporate profits and equity performance.
^6 An influence on family income and retail sales.
* Data as of May 31, 2000.
Source: Economics Department, Scudder Kemper Investments, Inc.
--------------------------------------------------------------------------------
necessarily. Profits are far more cyclical than economic growth. Earnings
actually fell during 1998, even though the economy continued to roll. That was a
global crisis, when foreign earnings fell sharply. But take a look at the last
"soft landing" during 1995. Revenue growth dipped and pricing power fell,
squeezing profits. The same thing is likely to happen again in the coming
slowdown -- and this time, tight labor markets could make it even tougher for
companies to control costs quickly. Assuming growth is between 2.5 percent and 3
percent by the end of 2001, we believe year-over-year profit comparisons will
have turned slightly negative.
A profit slowdown when new lines of credit are hard to come by will take
its toll on capital spending. We expect growth in business outlays for buildings
and equipment to slip from over 12 percent this year to around 8 percent in
2001. That's still quite robust, and the "high-tech imperative" is the reason
why. Executives believe that they have no option but to keep up with the
technological revolution that is transforming the world. The fact that high-tech
gear keeps getting cheaper year after year and also helps save on expensive
labor makes the decision to buy it easy. Indeed, unit sales of computers and
peripherals to businesses have sustained growth rates in excess of 40 percent
since 1995. And the rush is on to lay down the infrastructure for the next
generation of wireless communications. We estimate that
4 | Kemper Variable Series
<PAGE>
the sector will see unit growth of about 50 percent this year, double the growth
in 1999. It's hard even for superstars to sustain these stratospheric compound
growth rates forever, and we do expect some moderation next year. However,
high-tech orders continue to ratchet upwards, and the shortage in semiconductors
and other components has persisted long enough to cause major players to
announce huge capacity additions.
Another battle the Fed must win before is succeeds in slowing the
economy is bringing consumers to heel. Most families still feel better off than
they were last year and much richer than they were five years ago. That's a
powerful incentive to spend and enjoy. Indeed, total real consumption has been
galloping at a 5 percent rate or better since early 1998. But consumers are so
important to the economy that if they don't start spending less freely, there
won't be a slowdown. We expect the Fed to be successful and slow down shoppers
in the months ahead -- but the victory won't be an easy one. We expect at least
one more rate hike and a few more financial fireworks before consumers and the
economy hoist the white flag.
So what will the slowdown look like? During the spring, retail sales,
housing starts and job creation slowed, but strength in high-tech orders and
capital equipment production probably will help keep the slowdown from becoming
too abrupt. We expect about 3.5 percent growth in the second half. That would
still produce a hearty 5 percent growth for full year 2000. During 2001, the
full impact of the Fed's recent tightening will probably rein growth in to just
3 percent.
Sincerely,
Maureen F. Allyn
Managing Director,
Scudder Kemper Investments, Inc.
June 29, 2000
The information contained in this piece has been taken from sources believed to
be reliable, but the accuracy of the information is not guaranteed. The opinions
and forecasts expressed are those of the economic advisors of Scudder Kemper
Investments, Inc. as of June 29, 2000, and may not actually come to pass. This
information is subject to change. No part of this material is intended as an
investment recommendation.
To obtain a Kemper Variable Series prospectus, talk to your financial
representative. The prospectus contains more complete information, including
management fees and expenses. Please read it carefully before you invest or send
money.
Kemper Variable Series | 5
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Money Market Portfolio
During the first six months of fiscal year 2000, strong economic growth prompted
the Federal Reserve Board to raise its short-term interest-rate target three
times by a total of 100 basis points (1 percent) to 6.50 percent. This past
winter, the government also announced a buyback plan for 30-year Treasuries. The
buyback has helped support long-term bond prices even as the Fed has tightened
short-term credit. The result has been an inversion of the yield curve.
Between December 31, 1999, and June 30, 2000, yields for three-month Treasury
bills rose 54 basis points (0.54 percent) while yields for long-term bonds fell
58 basis points (0.58 percent). At mid-year, three-month Treasury bills yielded
5.86 percent, only 4 basis points less than 30-year Treasury bonds.
To maintain maximum portfolio flexibility, we kept average maturity in the 20-
to 30-day range during the first half of fiscal 2000. In the coming months, we
expect to continue to keep the funds' average maturity relatively short, given
mixed signals about the strength of the U.S. economy and the lack of additional
yield for securities maturing in more than a month.
We think the jury is still out on whether there will continue to be a downdraft
in economic growth or whether recent numbers were a statistical aberration.
There is not enough hard evidence that the Fed won't have to tighten again.
Inflation could continue to move up.
Frank J. Rachwalski, Jr.
Lead Portfolio Manager
An investment in the Kemper Money Market 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 $1.00
per unit, it is possible to lose money by investing in the Portfolio.
6 | Kemper Variable Series --
Money Market Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Money Market Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreements 4.0%
--------------------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at
$8,938,824 on 7/03/2000*** -----------
(Cost $8,934,000) .......................... 8,934,000 8,934,000
-----------
--------------------------------------------------------------------------------
Short-Term Obligations 11.7%
--------------------------------------------------------------------------------
Bank One, 6.65%,11/6/2000 ..................... 5,000,000 4,999,887
Golman Prom, 6.13%, 12/20/2000 ................ 10,000,000 10,000,000
Heller Financial, 6.49%, 7/7/2000**............ 3,000,000 3,000,056
SMM Trust, 6.40%, 9/13/2000 ................... 8,000,000 8,000,000
--------------------------------------------------------------------------------
Total Short-Term Obligations (Cost $25,999,943) 25,999,943
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Certificates of Deposit 20.5%
--------------------------------------------------------------------------------
Allfirst Bank, 6.85%, 9/7/2000 ................ 3,000,000 2,999,782
Amex Centurian Bank, 6.62%-6.63%,
6/5/2000-6/19/2000 ......................... 7,500,000 7,499,310
Bank of America, 6.67%, 3/22/2001 ............. 5,000,000 5,000,000
Comerica, Inc. MTN, 6.59%,
1/12/2001 .................................. 2,500,000 2,499,475
Dresdner Bank of New York, 6.62%,
7/24/2000 .................................. 3,000,000 2,999,927
First Union National Bank, 6.68%,
3/2/2001 ................................... 2,500,000 2,500,000
Harris Trust & Savings Bank, 6.58%,
6/12/2001 .................................. 5,000,000 4,998,104
Key Bank, 6.76%, 5/25/2001..................... 5,000,000 4,998,381
Mellon Bank, 6.82%, 8/30/2000 ................. 3,000,000 2,999,852
J.P. Morgan, 6.65%, 7/3/2000 .................. 3,000,000 3,000,000
National City Bank of Kentucky, 6.35%,
7/7/2000 ................................... 3,000,000 3,000,052
Skandinavia Enskilda Banken, 6.63%,
7/24/2000 .................................. 3,000,000 2,999,944
--------------------------------------------------------------------------------
Total Certificates of Deposit (Cost $45,494,827) 45,494,827
--------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Commercial Paper 63.8%
--------------------------------------------------------------------------------
Associates Corporation, 6.77%,
6/15/2001 ................................ 5,000,000 5,000,000
Bavaria Universal Funding, 6.33%,
7/25/2000* ............................... 10,000,000 9,958,466
CIT Group Holdings, Inc.,
6.61%-6.64%, 3/27/2001-5/9/2001 10,000,000 9,995,365
Caterpillar Finance, 6.72%, 8/14/2000 ....... 3,000,000 2,999,926
Comerica Bank, 6.56%, 2/14/2001 ............. 2,500,000 2,499,003
Countrywide Home Loan, 6.72%,
5/21/2001 ................................ 10,000,000 10,000,000
Ford Motor Credit, 6.77%, 10/2/2000 ......... 5,000,000 4,998,759
Forrestal Funding, 6.69% 7/17/2000* ......... 10,000,000 9,970,578
GTE Corp., 6.66% 7/11/2000* ................. 10,000,000 9,981,667
Galaxy Funding, 6.92% 12/17/2000* ........... 10,000,000 9,704,083
Heller Financial, Inc., 6.25%,
3/1/2001 ................................. 1,050,000 1,045,676
Moat Funding, LLC, 6.67%-6.78%,
7/28/00-10/2/2000* ....................... 10,000,000 9,889,225
Norwest Financial, Inc., 6.64%,
9/7/2000 ................................. 3,000,000 2,999,677
Park Avenue Receivables, 6.6%,
7/12/2000* ............................... 9,093,000 9,074,774
Pemex Capital, Inc., 6.49%,
9/21/2000* ............................... 1,994,000 1,965,432
Preferred Receivable Fund, 6.63%,
7/7/2000* ................................ 2,613,000 2,610,134
Scaldis Capital, LLC, 6.60%,
7/12/2000* ............................... 10,000,000 9,979,956
Sheffield Receivables Corp., 6.62%,
7/3/2000* ................................ 5,000,000 4,998,172
Surrey Funding Corp., 6.63%,
7/12/2000* ............................... 10,000,000 9,979,833
Sweetwater Capital Corp., 6.62%,
7/13/2000* ............................... 9,197,000 9,176,797
Thunder Bay Funding, Inc., 6.63%,
7/13/2000* ............................... 5,000,000 4,989,033
--------------------------------------------------------------------------------
Total Commercial Paper (Cost $141,816,556) 141,816,556
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $222,245,326) (a) 222,245,326
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Money Market Portfolio of Investments
--------------------------------------------------------------------------------
* Annualized yield at time of purchase; not a coupon rate.
** Floating rate notes are securities whose yields vary with a designated
market index or market rate, such as the coupon-equivalent of the
Treasury bill rate. These securities are shown at their rate as of June
30, 2000.
*** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $222,245,326.
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 7
Money Market Portfolio
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
Assets
----------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (cost $222,245,326) ...................... $ 222,245,326
Interest receivable .......................................................... 674,074
Other assets ................................................................. 1,000
-------------
Total assets ................................................................. 222,920,400
Liabilities
----------------------------------------------------------------------------------------------
Due to custodian bank ........................................................ 9,782
Dividends payable ............................................................ 490,571
Payable for Portfolio shares redeemed ........................................ 9,182,428
Accrued management fee ....................................................... 81,490
Other accrued expenses and payables .......................................... 49,110
-------------
Total liabilities ............................................................ 9,813,381
----------------------------------------------------------------------------------------------
Net assets, at value $ 213,107,019
----------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------
Net assets consist of:
Paid-in capital .............................................................. $ 213,107,019
----------------------------------------------------------------------------------------------
Net assets, at value $ 213,107,019
----------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($213,107,019 / 213,104,862
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized)...................................................... $ 1.000
-------------
----------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
Investment Income
----------------------------------------------------------------------------------------------
Income:
Interest ..................................................................... $ 7,059,781
-------------
Expenses:
Management fee ............................................................... 563,917
Custodian fees ............................................................... 10,344
Auditing ..................................................................... 27,897
Legal ........................................................................ 6,750
Trustees' fees and expenses .................................................. 13,579
Reports to shareholders ...................................................... 24,591
Registration fees ............................................................ 13,357
Other ........................................................................ 5,208
-------------
Total expenses, before expense reductions .................................... 665,262
Expense reductions ........................................................... (381)
-------------
Total expenses, after expense reductions ..................................... 665,262
----------------------------------------------------------------------------------------------
Net investment income 6,394,519
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 6,394,519
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8 | Kemper Variable Series --
Money Market Portfolio
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended
2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................................. $ 6,394,519 $ 15,469,031
------------- -------------
Net increase (decrease) in net assets resulting from operations ....... 6,394,519 15,469,031
Distributions to shareholders from:
Net investment income ................................................. (6,394,519) (15,469,031)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold ............................................. 591,798,877 538,375,861
Reinvestment of distributions ......................................... 6,488,686 8,886,458
Cost of shares redeemed ............................................... (616,279,811) (468,093,052)
------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions (17,992,248) 79,169,267
------------- -------------
Increase (decrease) in net assets ..................................... (17,992,248) 79,169,267
Net assets at beginning of period ..................................... 231,099,267 151,930,000
------------- -------------
Net assets at end of period ........................................... $ 213,107,019 $ 231,099,267
------------- -------------
Other Information
--------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................. 231,099,569 151,930,000
------------- -------------
Shares sold ........................................................... 591,796,419 538,376,563
Shares issued to shareholders in reinvestment of distributions ........ 6,488,686 8,886,458
Shares redeemed ....................................................... (616,279,812) (468,093,452)
------------- -------------
Net increase (decrease) in Portfolio shares ........................... (17,994,707) 79,169,569
------------- -------------
Shares outstanding at end of period ................................... 213,104,862 231,099,569
------------- -------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.000 1.000 1.000 1.000 1.000 1.000
--------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
------------------------------------------------------------------------------------------------------------------------------------
Net investment income .028 .050 .050 .050 .050 .060
--------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .028 .050 .050 .050 .050 .060
------------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
------------------------------------------------------------------------------------------------------------------------------------
Net investment income (.028) (.050) (.050) (.050) (.050) (.060)
--------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.028) (.050) (.050) (.050) (.050) (.060)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.000 1.000 1.000 1.000 1.000 1.000
--------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Total Return (%) 2.87** 4.84 5.15 5.25 5.03 5.66(b)
------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 213,107 231,099 151,930 100,143 70,601 61,078
------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .59* .54 .54 .55 .60 .55
------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .59* .54 .54 .55 .60 .55
------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 5.67* 8.42 5.02 5.14 4.90 5.52
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) 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%
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 9
Money Market Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Government Securities Portfolio
The first six months of the year was a rewarding time for government bond
investors. Despite Federal Reserve monetary tightening and increased bond market
volatility, government securities provided positive returns for the first six
months of fiscal year 2000.
During the period, strong economic growth prompted the Federal Reserve Board to
raise its short-term interest-rate target three times by a total of 100 basis
points (1 percent) to 6.50 percent. This past winter, the government also
announced a buyback plan for 30-year Treasuries. The buyback has helped support
long-term bond prices even as the Fed has tightened short-term credit. The
result has been an inversion of the yield curve.
Between December 31, 1999, and June 30, 2000, yields for two-year Treasuries
rose 12 basis points (0.12 percent) while yields for long-term bonds fell 58
basis points (0.58 percent). At mid-year, two-year Treasury notes yielded 6.36
percent, 46 basis points more than 30-year Treasury bonds.
This past spring, spreads (the difference in interest rates between Treasuries
and non-Treasury debt) narrowed and long-term bond prices continued to rise in
response to economic indicators that suggest the Fed's efforts to slow U.S.
economic growth have been working. The data has been market friendly. We're in a
very balanced environment. Jobless claims have consistently been higher than
expectations. This has offset other signs such as rising gasoline prices that
suggest the potential for rising inflation. Yields have been coming down since
mid-May.
The dual dynamic of the Fed's attempt to keep inflation in check and an overall
reduction in bond supply may dictate what happens in the second half. While a
substantial increase in rates seems unlikely given the inflation numbers we've
seen so far, that could easily change if U.S. economic growth doesn't slow from
the current 5.5 percent pace (as measured by Gross Domestic Product).
Richard L. Vandenberg
Lead Portfolio Manager
f
Accumulation units are neither insured nor guaranteed by the U.S. government.
10 | Kemper Variable Series --
Kemper Government Securities Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Government Securities Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Short-Term Obligations 3.6%
--------------------------------------------------------------------------------
Federal Home Loan Bank, 6.57%, ----------
7/1/2000* (Cost $4,998,175) ..... 5,000,000 4,998,175
----------
--------------------------------------------------------------------------------
Government & Agency Obligations 81.8%
--------------------------------------------------------------------------------
Government National Mortgage
Association 63.8%
Pass-through Certificates
6.5%, 2024-2029 (b) ................ 32,111,218 30,453,759
7%, 2022-2030 (b) .................. 27,545,972 26,709,712
7.5%, 2013-2030 .................... 14,681,597 14,603,873
8%, 2016-2030 (b) .................. 9,703,189 9,818,174
8.5%, 2016-2027 (b) ................ 4,402,406 4,505,766
9%, 2016-2027 (b) .................. 1,837,341 1,899,351
9.5%, 2013-2022 .................... 241,770 252,650
10%, 2016 .......................... 170,902 188,153
----------
88,431,438
----------
U.S. Treasury Securities 10.0%
Bonds
8%, 2021 ........................... 5,150,000 6,225,887
10.375%, 2009 ...................... 5,000,000 5,725,800
12.5%, 2014 ........................ 1,300,000 1,842,542
----------
13,794,229
----------
Federal Home Loan Mortgage
Corporation 4.4%
Pass-through Certificates
6.5%, 2029 ......................... 70,975 67,038
7%, 2024-2030 ...................... 3,272,520 3,176,617
7.5%, 2029 ......................... 859,825 847,868
8.5%, 2030 (b) ..................... 2,000,000 2,040,000
----------
6,131,523
----------
Federal Housing Authority 0.3%
Pass-through Certificates
7.5%, 2022 ......................... 15,135 15,083
8%, 2017-2022 ...................... 460,018 467,062
8.5%, 2026 ......................... 20,759 21,265
----------
503,410
----------
Federal National Mortgage
Association 2.5%
Pass-through Certificates
6%, 2028-2029 ...................... 1,577,351 1,441,551
6.5%, 2028-2030 .................... 158,516 149,400
7%, 2013-2029 ...................... 1,372,136 1,334,485
7.5%, 2025 ......................... 201,483 199,280
8%, 2024 ........................... 268,205 269,463
----------
3,394,179
----------
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
Canadian Provincial Obligations 0.8%
Province of Ontario, 7.625%, 2004 .. 500,000 508,000
Province of Quebec, 8.625%, 2005 ... 500,000 526,875
----------
1,034,875
----------
--------------------------------------------------------------------------------
Total Government & Agency Obligations
(Cost $115,317,078) (c) 113,289,654
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Corporate Obligations 14.6%
--------------------------------------------------------------------------------
American Express Master Trust,
7.6%, 2002 ...................... 2,500,000 2,507,800
Chemical Master Trust, 5.55%, 2003.. 2,500,000 2,475,775
Equitable Life, 6.95%, 2005 ........ 500,000 490,765
Federal Home Loan Bank,
6.25%, 2004 ..................... 4,100,000 3,978,271
Federal Home Loan Mortgage Corp.,
5.75%, 2015 ..................... 1,000,000 910,780
Federal National Mortgage
Association, 6.375%-7.25%,
2009-2010 ....................... 8,700,000 8,448,744
Ford Motor Credit, 8%, 2002 ........ 500,000 504,355
Sears Roebuck Acceptance Corp.,
6.75%, 2005 ..................... 500,000 476,705
Southwestern Bell Telephone,
6.625%, 2005 .................... 500,000 482,325
--------------------------------------------------------------------------------
Total Corporate Obligations (Cost $20,847,898) 20,275,520
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $141,163,151)(a) 138,563,349
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 11
Kemper Government Securities Portfolio
<PAGE>
--------------------------------------------------------------------------------
Notes to Kemper Government Securities Portfolio of Investments
--------------------------------------------------------------------------------
* Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $141,163,151. At June 30,
2000, net unrealized depreciation for all securities based on tax cost
was $2,599,802. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $763,633 and aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over value
of $3,363,435.
(b) When-issued or forward delivery pools.
(c) At June 30, 2000 these securities have been pledged to cover, in whole
or in part, initial margin requirements for open futures contracts.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
At June 30, 2000, open futures contracts sold short were as follows:
Unrealized
Aggregate Appreciation
Futures Contracts Expiration Date Face Value ($) Value ($) (Depreciation) ($)
--------- --------------- -------------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
10 Year U.S. Treasury Note ....... 7 August 19, 2000 681,286 689,391 (8,105)
U.S. Long Bond ................... 53 August 19, 2000 5,088,977 5,159,219 (70,242)
At June 30, 2000, long open futures contracts were as follows:
5 Year U.S. Treasury Note ........ 26 August 19, 2000 2,554,453 2,574,406 19,953
---------
Total net unrealized appreciation (depreciation) on open futures contracts ............. (58,394)
---------
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The investments in mortgage-backed securities of the Government National
Mortgage Association are interests in separate pools of mortgages. A separate
investment in each of these issues which have similar coupon rates have been
aggregated for presentation purposes in the Investment Portfolio. Effective
maturities of these investments will be shorter than stated maturities due to
prepayments.
The accompanying notes are an integral part of the financial statements.
12 | Kemper Variable Series --
Kemper Government Securities Portfolio
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $141,163,151) ...................... $ 138,563,349
Cash ......................................................................... 43,892
Interest receivable .......................................................... 1,127,110
Receivable for daily variation margin on open futures contracts .............. 17,110
-------------
Total assets ................................................................. 139,751,461
Liabilities
----------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 2,500,873
Payable for Portfolio shares redeemed ........................................ 64,752
Accrued management fee ....................................................... 62,815
Other accrued expenses and payables .......................................... 33,845
-------------
Total liabilities ............................................................ 2,662,285
----------------------------------------------------------------------------------------------
Net assets, at value $ 137,089,176
----------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 3,233,286
Net unrealized appreciation (depreciation) on:
Investments ............................................................... (2,599,802)
Futures ................................................................... (58,394)
Accumulated net realized gain (loss) ......................................... (6,261,699)
Paid-in capital .............................................................. 142,775,785
----------------------------------------------------------------------------------------------
Net assets, at value $ 137,089,176
----------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($137,089,176 / 122,374,217
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized)...................................................... $ 1.120
-------------
----------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
Investment Income
----------------------------------------------------------------------------------------------
Income:
Interest ..................................................................... $ 5,057,780
-------------
Expenses:
Management fee ............................................................... 379,472
Custodian fees ............................................................... 5,124
Auditing ..................................................................... 17,429
Legal ........................................................................ 2,253
Trustees' fees and expenses .................................................. 6,032
Reports to shareholders ...................................................... 12,833
Registration fees ............................................................ 291
Other ........................................................................ 3,517
-------------
Total expenses, before expense reductions .................................... 426,951
Expense reductions ........................................................... (278)
-------------
Total expenses, after expense reductions ..................................... 426,673
----------------------------------------------------------------------------------------------
Net investment income (loss) 4,631,107
----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
----------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................................. (959,940)
Futures ...................................................................... (197,270)
Written options .............................................................. (16,682)
-------------
(1,173,892)
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................................. 1,978,350
Futures ...................................................................... (129,412)
-------------
1,848,938
----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 675,046
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 5,306,153
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 13
Kemper Government Securities Portfolio
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Ended June 30, December 31,
Increase (Decrease) in Net Assets 2000 (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................. $ 4,631,107 $ 8,411,814
Net realized gain (loss) on investment transactions ...................................... (1,173,892) (1,826,548)
Net unrealized appreciation (depreciation) on investment transactions during the period .. 1,848,938 (5,845,961)
---------------- ----------------
Net increase (decrease) in net assets resulting from operations .......................... 5,306,153 739,305
---------------- ----------------
Distributions to shareholders from:
Net investment income .................................................................... (9,438,853) (6,578,763)
---------------- ----------------
Portfolio share transactions:
Proceeds from shares sold ................................................................ 12,699,615 71,054,426
Reinvestment of distributions ............................................................ 9,438,853 6,578,763
Cost of shares redeemed .................................................................. (27,305,539) (48,615,628)
---------------- ----------------
Net increase (decrease) in net assets from Portfolio share transactions .................. (5,167,071) 29,017,561
---------------- ----------------
Increase (decrease) in net assets ........................................................ (9,299,771) 23,178,103
Net assets at beginning of period ........................................................ 146,388,947 123,210,844
Net assets at end of period (including undistributed net investment income of $3,233,286 --------------- ----------------
and $8,041,032, respectively) ......................................................... $ 137,089,176 $ 146,388,947
---------------- ----------------
Other Information
-----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ................................................ 126,625,276 101,983,052
---------------- ----------------
Shares sold .............................................................................. 15,000,121 60,485,588
Shares issued to shareholders in reinvestment of distributions ........................... 8,579,758 5,674,233
Shares redeemed .......................................................................... (27,830,938) (41,517,597)
---------------- ----------------
Net increase (decrease) in Portfolio shares .............................................. (4,251,059) 24,642,224
---------------- ----------------
Shares outstanding at end of period ...................................................... 122,374,217 126,625,276
---------------- ----------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.156 1.208 1.207 1.207 1.269 1.142
--------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .037(b) .072(b) .062 .084 .085 .084
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .007 (.064) .019 .016 (.057) .123
--------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .044 .008 .081 .100 .028 .207
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (.080) (.060) (.080) (.100) (.090) (.080)
--------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.080) (.060) (.080) (.100) (.090) (.080)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.120 1.156 1.208 1.207 1.207 1.269
--------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) 3.92** .68 7.03 8.96 2.56 18.98
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 137,089 146,389 123,211 86,682 84,314 95,185
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .61* .63 .65 .64 .66 .65
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .61* .63 .65 .64 .66 .65
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 6.65* 6.13 6.27 7.12 7.09 7.08
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 151* 150 142 179 325 275
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
14 | Kemper Variable Series --
Kemper Government Securities Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Investment Grade Bond Portfolio
The six-month period ended June 30, 2000 was a volatile time for investment
grade bonds as the Federal Reserve Board raised its short-term interest rate
target to 6.50% and the U.S. economy began showing signs of a slowdown in
growth.
We began the calendar year underweighted in long-term Treasuries and other
government securities such as mortgages. When the corporate bond market fell
sharply in January, our strong positioning in corporate bonds hurt portfolio
performance. By late spring, however, corporate bonds began to rebound and the
portfolio's results improved.
Since January, normal relationships between Treasury bonds of different
maturities have been obscured. Usually, 30-year bonds provide more yield than
securities maturing in 10 years or less, since they involve more interest-rate
risk. However, this past winter, the yield curve inverted after the Treasury
announced plans to reduce auctions and buy back debt. Also, the difference in
interest rates between high-quality, long-term corporate bonds and
comparable-maturity Treasury bonds widened to over 200 basis points (2.0
percent).
As spreads grew larger, we upgraded the average quality of the fund's corporate
bond portfolio. We also added more Treasuries in the spring during periods of
market weakness. We were mindful of the fact that the Fed was on the move, and
we sought to maximize the fund's flexibility to respond to dynamic market
conditions without taking undue risk.
Looking ahead, we believe the bond market may remain somewhat unsettled for the
balance of fiscal year 2000. We believe the Fed can effectively control
inflation and that the U.S. economy will continue to cool. Compared to the start
of the year, we now have a portfolio with a higher degree of liquidity and
diversification that we believe has the potential to offer attractive
risk-adjusted returns.
Robert S. Cessine
Lead Portfolio Manager
Kemper Variable Series | 15
Kemper Investment Grade Bond Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Investment Grade Bond Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreements 1.2%
--------------------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at
$851,468 on 7/3/2000** -----------
(Cost $851,000) .................... 851,000 851,000
-----------
--------------------------------------------------------------------------------
Commercial Paper 2.9%
--------------------------------------------------------------------------------
Goldman Sachs, 6.75%, 7/7/2000 ........ 1,000,000 998,875
Sara Lee Corp., 6.74%, 7/6/2000 ....... 1,000,000 999,064
--------------------------------------------------------------------------------
Total Commercial Paper (Cost $1,997,939) 1,997,939
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Short-Term Obligations 3.7%
--------------------------------------------------------------------------------
Federal Home Loan Bank Discount
Note, 6.44%, 7/10/2000* -----------
(Cost $2,495,975) .................. 2,500,000 2,495,975
-----------
--------------------------------------------------------------------------------
U.S. Government & Agencies 44.8%
--------------------------------------------------------------------------------
Federal National Mortgage Association:
5.125%, 2/13/2004 .................. 875,000 821,266
7.125%, 2/15/2005 .................. 675,000 677,741
6%, 5/15/2008 ...................... 4,750,000 4,429,708
U.S. Treasury Bond:
6.125%, 8/15/2029 .................. 5,660,000 5,716,600
6.5%, 2/15/2010 .................... 1,500,000 1,551,330
6.25%, 5/15/2030 ................... 3,185,000 3,341,766
U.S. Treasury Note:
6.625%, 5/31/2002................... 8,500,000 8,531,875
6.75%, 5/15/2005.................... 5,425,000 5,551,294
--------------------------------------------------------------------------------
Total U.S. Government & Agencies
(Cost $30,806,111) 30,621,580
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Foreign Bonds 1.6%
--------------------------------------------------------------------------------
Den Danske Bank, 6.375%,
6/15/2008 .......................... 175,000 169,309
Province of Quebec, 8.625%,
1/19/2005 .......................... 750,000 790,313
Royal Caribbean Cruises, Ltd.,
8.25%, 4/1/2005 .................... 120,000 114,785
--------------------------------------------------------------------------------
Total Foreign Bonds
(Cost $1,136,723) 1,074,407
--------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Corporate Bonds 45.8%
--------------------------------------------------------------------------------
Consumer Discretionary 4.7%
Dillards, Inc., 6.17%, 8/1/2001 ...... 500,000 478,890
Federated Department Stores, 8.5%,
6/15/2003 ......................... 1,000,000 1,009,170
MGM Grand Inc., 9.75%, 6/1/2007 ...... 300,000 304,500
May Department Stores Co., 6.875%,
11/1/2005 ......................... 50,000 48,738
Park Place Entertainment, Inc.,
8.5%, 11/15/2006 .................. 200,000 196,518
Target Corp., 7.5%, 2/15/2005 ........ 750,000 761,880
Tricon Global Restaurants, 7.65%,
5/15/2008 ......................... 450,000 404,199
---------
3,203,895
---------
Consumer Staples 2.3%
Bass North America Inc., 6.625%,
3/1/2003 .......................... 1,000,000 975,880
Safeway Inc., 7.25%, 9/15/2004 ....... 625,000 614,787
---------
1,590,667
---------
Communications 5.5%
Deutsch Telekom International Finance,
7.75%, 6/15/2005 .................. 625,000 623,912
Intermedia Communications, Inc.,
8.875%, 11/1/2007 ................. 750,000 693,750
Level 3 Communications Inc., 9.125%,
5/1/2008 .......................... 750,000 673,125
Nextel Communications, 9.375%,
11/15/2009 ........................ 500,000 482,500
Qwest Communications
International, 7.5%, 11/1/2008 .... 650,000 622,056
Sprint Capital Corp., 6.125%,
11/15/2008 ........................ 700,000 623,959
---------
3,719,302
---------
Financial 13.2%
ABN AMRO, 8.25%, 8/1/2009 ............ 100,000 100,206
Bank of America Corp., 7.8%,
2/15/2010 ......................... 650,000 646,672
BankBoston NA, 6.375%, 4/15/2008 ..... 400,000 364,456
Bell Atlantic Financial Services,
7.6%, 3/15/2007 ................... 500,000 498,980
Capital One Bank, 8.25%, 6/15/2005 ... 450,000 447,633
Chase Manhattan Corp., 5.75%,
4/15/2004 ......................... 1,000,000 941,160
Firststar Bank, 7.125%, 12/1/2009 .... 300,000 284,646
Ford Motor Credit Co., 7.375%,
10/28/2009 ........................ 1,050,000 1,015,634
General Electric Capital Corp., 7%,
2/3/2003 .......................... 750,000 746,738
The accompanying notes are an integral part of the financial statements.
16 | Kemper Variable Series
Kemper Investment Grade Bond Portfolio
<PAGE>
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
General Motors Acceptance Corp.,
6.15%, 4/5/2007 .................. 300,000 276,207
Goldman Sachs Group, Inc., 7.8%,
1/28/2010 ........................ 650,000 643,292
Merrill Lynch & Co., Inc., 6%,
2/17/2009 ........................ 825,000 735,628
National Westminster Bank, 7.375%,
10/1/2009 ........................ 300,000 291,567
PNC Funding Corp., 7%, 9/1/2004 ..... 400,000 387,964
Prudential Insurance Co., 6.375%,
7/23/2006 ........................ 1,000,000 922,400
Wells Fargo & Company, 7.55%,
6/21/2010 ........................ 700,000 697,669
---------
9,000,852
---------
Media 7.2%
AMFM, Inc., 8%, 11/1/2008 ........... 750,000 752,812
AT&T Corp.-- Liberty Media Group,
7.875%, 7/15/2009 ................ 300,000 286,977
British Sky Broadcasting, 6.875%,
2/23/2009 ........................ 800,000 702,808
Cablevision Systems Corp., 7.875%,
12/15/2007 ....................... 1,000,000 960,000
Charter Communications Holdings LLC,
8.25%, 4/1/2007 .................. 750,000 663,750
News America Holdings, Inc., 9.25%,
2/1/2013 ......................... 75,000 81,046
TCI-Communications, Inc., 8%,
8/1/2005 ......................... 507,000 517,698
Time Warner, Inc., 9.125%, 1/15/2013 850,000 931,515
---------
4,896,606
---------
Durables 1.5%
Daimler-Chrysler NA Holdings, 7.375%,
9/15/2006 ........................ 650,000 639,301
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
Lear Corp., 7.96%, 5/15/2005 ........ 375,000 351,727
---------
991,028
---------
Manufacturing 1.0%
International Paper Co., 8.125%,
7/8/2005 ......................... 700,000 704,767
---------
Energy 5.4%
Conoco, Inc., 6.35%, 4/15/2009 ...... 700,000 651,154
Petroleum Geo-Services, 7.5%,
3/31/2007 ........................ 1,000,000 959,910
Phillips Petroleum, 8.75%, 5/25/2010 650,000 684,723
Pioneer Natural Resources, 6.5%,
1/15/2008 ........................ 250,000 210,000
Pioneer Natural Resources, 9.625%,
4/1/2010 ......................... 450,000 463,500
Williams Gas Pipeline Center, 7.375%,
11/15/2006 ....................... 750,000 730,140
---------
3,699,427
---------
Transportation 0.3%
Delta Air Lines, 7.9%, 12/15/2009 ... 200,000 186,920
---------
Utilities 4.7%
Alabama Power Co., 7.125%,
8/15/2004 ........................ 1,000,000 989,200
Cleveland Electric Illumination Co.,
7.67%, 7/1/2004 .................. 1,050,000 1,034,617
Detroit Edison Co., 7.5%, 2/1/2005 .. 650,000 643,597
Niagara Mohawk Power Corp.,
6.625%, 7/1/2005 ................. 600,000 570,888
---------
3,238,302
---------
--------------------------------------------------------------------------------
Total Corporate Bonds (Cost $31,785,208) 31,231,766
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $69,072,956) (a) 68,272,667
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Investment Grade Bond Portfolio of Investments
--------------------------------------------------------------------------------
* Annualized yield at time of purchase: not a coupon rate.
** Repurchase agreement is fully collateralized by the U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $69,072,956. At June 30,
2000, net unrealized depreciation for all securities based on tax cost
was $800,289. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of value over tax cost
of $304,721 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value of
$1,105,010.
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series | 17
Kemper Investment Grade Bond Portfolio
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
---------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $69,072,956) ....................... $ 68,272,667
Cash ......................................................................... 833
Receivable for investments sold .............................................. 994,827
Interest receivable .......................................................... 988,597
Receivable for Portfolio shares sold ......................................... 48,516
------------
Total assets ................................................................. 70,305,440
------------
Liabilities
---------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 958,757
Accrued management fee ....................................................... 34,449
Other accrued expenses and payables .......................................... 13,581
------------
Total liabilities ............................................................ 1,006,787
---------------------------------------------------------------------------------------------
Net assets, at value $ 69,298,653
---------------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 1,668,816
Net unrealized appreciation (depreciation) on investments .................... (800,289)
Accumulated net realized gain (loss) ......................................... (3,742,672)
Paid-in capital .............................................................. 72,172,798
---------------------------------------------------------------------------------------------
Net assets, at value $ 69,298,653
---------------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($69,298,653 / 64,679,404
outstanding shares of beneficial interest, $.01 par value, unlimited number ------------
of shares authorized) ..................................................... $ 1.072
------------
---------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
Investment Income
---------------------------------------------------------------------------------------------
Income:
Interest ..................................................................... $ 2,419,263
------------
Expenses:
Management fee ............................................................... 204,343
Custodian fees ............................................................... 3,044
Auditing ..................................................................... 10,256
Legal ........................................................................ 2,059
Trustees' fees and expenses .................................................. 5,896
Reports to shareholders ...................................................... 7,700
Registration fees ............................................................ 356
Other ........................................................................ 665
------------
Total expenses, before expense reductions .................................... 234,319
Expense reductions ........................................................... (99)
------------
Total expenses, after expense reductions ..................................... 234,220
---------------------------------------------------------------------------------------------
Net investment income (loss) 2,185,043
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
---------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .................................... (1,754,446)
Net unrealized appreciation (depreciation) during the period on investments .. 1,447,433
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (307,013)
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 1,878,030
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 | Kemper Variable Series
Kemper Investment Grade Bond Portfolio
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Ended June 30, December 31,
Increase (Decrease) in Net Assets 2000 (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) ........................................................... $ 2,185,043 $ 3,496,040
Net realized gain (loss) on investment transactions .................................... (1,754,446) (1,972,757)
Net unrealized appreciation (depreciation) on investment transactions during the period 1,447,433 (2,802,822)
------------ ------------
Net increase (decrease) in net assets resulting from operations ........................ 1,878,030 (1,279,539)
------------ ------------
Distributions to shareholders from:
Net investment income .................................................................. (3,737,486) (1,572,997)
------------ ------------
Net realized gains ..................................................................... -- (524,333)
------------ ------------
Portfolio share transactions:
Proceeds from shares sold .............................................................. 6,991,389 32,476,506
Reinvestment of distributions .......................................................... 3,737,486 2,097,331
Cost of shares redeemed ................................................................ (10,548,679) (12,374,222)
------------ ------------
Net increase (decrease) in net assets from Portfolio share transactions ................ 180,196 22,199,615
------------ ------------
Increase (decrease) in net assets ...................................................... (1,679,260) 18,822,746
Net assets at beginning of period ...................................................... 70,977,913 52,155,166
Net assets at end of period (including undistributed net investment income of $1,668,816 ------------ ------------
and $3,221,258, respectively) $ 69,298,653 $ 70,977,913
------------ ------------
Other Information
-----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period .............................................. 64,475,079 44,780,514
------------ ------------
Shares sold ............................................................................ 6,360,168 28,913,488
Shares issued to shareholders in reinvestment of distributions ......................... 3,528,360 1,879,110
Shares redeemed ........................................................................ (9,684,203) (11,098,033)
------------ ------------
Net increase (decrease) in Portfolio shares ............................................ 204,325 19,694,565
------------ ------------
Shares outstanding at end of period .................................................... 64,679,404 64,475,079
------------ ------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997 1996(b)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.100 1.165 1.118 1.036 1.000
-------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .034(c) .060(c) .032 .066 .031
----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.002) (.085) .055 .026 .005
-------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .032 (.025) .087 .092 .036
----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
----------------------------------------------------------------------------------------------------------------------------
Net investment income (.060) (.030) (.030) (.010) --
----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.010) (.010) -- --
-------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Total distributions (.060) (.040) (.040) (.010) --
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.072 1.100 1.165 1.118 1.036
-------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Total Return (%) 2.86** (2.06) 7.93 9.04 3.57**
----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 69,299 70,978 52,155 15,504 1,998
----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .68* .65 .67 .80 .87*
----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .68* .65 .67 .80 .87*
----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 6.38* 5.42 5.50 6.23 4.93*
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 337* 131 130 311 75*
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from May 1, 1996 (commencement of operations) to
December 31, 1996.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series | 19
Kemper Investment Grade Bond Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper High Yield Portfolio
After three years of tough high yield market conditions, we see light at the end
of the tunnel. This past spring, investors began to commit new money to the
asset class, halting a long trend in net outflows.
The Federal Reserve appears to be near the end of the current monetary
tightening cycle. At more than 650 basis points over Treasuries as of June 30,
high yield spreads are historically attractive (historical average spread is 500
basis points). New issuance is down markedly, suggesting defaults could be
trending down a year from now. Given the strides U.S. corporations made in
inventory management in the 1990s and new developments in technology, we think
the Fed is in a much better position to engineer a soft landing for the U.S.
economy than they were in the 1970s and 1980s.
During the first six months of fiscal year 2000, we focused our research efforts
in sectors and companies where we thought we had a competitive advantage. We
gradually increased the percentage of the portfolio's bond rated BB, the highest
quality tier within the high-yield market. Double B's have been the best
performing sector of the high yield market and we plan to spend more time on
this area.
Double B's give you two advantages: number one, they're much safer if we have a
slow down; and just as importantly, if the Treasury market rallies due to the
weakening economy, they have the potential to outperform other high yield bonds.
Overall, our main goal is to deliver a total return with as little risk to
principal as is possible within a high yield investment framework.
Harry E. Resis, Jr.
Lead Portfolio Manager
Investments by the Portfolio in lower-rated and non-rated bonds present greater
risk to principal and income than investments in higher-quality securities.
20 | Kemper Variable Series --
Kemper High Yield Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper High Yield Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreements 0.1%
--------------------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at
$368,199 on 7/3/2000** ---------
(Cost $368,000) ......................... 368,000 368,000
---------
--------------------------------------------------------------------------------
Commercial Paper 7.7%
--------------------------------------------------------------------------------
Countrywide Home Loans Corp.:
6.88%, 7/6/2000 ......................... 5,000,000 4,995,222
6.8%, 7/10/2000 ......................... 5,000,000 4,991,500
Detroit Edison Co., 7.15%, 7/14/2000 ....... 3,500,000 3,490,963
FCAR Owner Trust I, 6.58%, 7/5/2000 ........ 2,000,000 1,998,538
Florida Power and Light Co., 6.68%,
7/17/2000 ............................... 3,500,000 3,489,609
Ford Motor Credit Co., 6.6%,
7/11/2000 ............................... 3,500,000 3,492,300
IBM Credit Corp., 6.51%, 7/7/2000 .......... 4,500,000 4,495,065
--------------------------------------------------------------------------------
Total Commercial Paper (Cost $26,953,197) 26,953,197
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Foreign Bonds 0.2%
--------------------------------------------------------------------------------
Kappa Beheer BV, 10.625%, ---------
7/15/2009 (Cost $530,000) ............... 530,000 533,975
---------
--------------------------------------------------------------------------------
Corporate Bonds 90.4%
--------------------------------------------------------------------------------
Consumer Discretionary 12.9%
AFC Enterprises, 10.25%, 5/15/2007 ......... 4,100,000 3,895,000
AMF Bowling, Inc:
10.875%, 6/15/2006 ...................... 2,540,000 685,800
Step-up Coupon, 0% to 3/15/2001,
12.25% to 3/15/2006 ................... 2,320,000 464,000
Advantica Restaurant Co., 11.25%,
1/15/2008 ............................... 614,706 408,779
Avis Rent A Car, 11%, 5/1/2009 ............. 3,580,000 3,732,150
Avondale Mills, 10.25%, 5/1/2006 ........... 1,490,000 1,400,600
Boca Resorts, Inc., 9.875%, 4/15/2009 ...... 2,810,000 2,634,375
Cinemark USA, Inc.:
8.5%, 8/1/2008 .......................... 1,300,000 715,000
Series D, 9.625%, 8/1/2008 .............. 100,000 59,000
Color Tile, Inc., 10.75%, 12/15/2001* ...... 1,470,000 14,700
Eldorado Resorts, 10.5%, 8/15/2006 ......... 2,010,000 2,010,000
Finlay Enterprises, Inc., 9%, 5/1/2008 ..... 350,000 308,000
Finlay Fine Jewelry Co., 8.375%,
5/1/2008 ................................ 1,540,000 1,370,600
Galey & Lord, Inc., 9.125%, 3/1/2008 ....... 2,410,000 1,096,550
Guitar Center Management, 11%,
7/1/2006 ................................ 1,730,000 1,678,100
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
Harvey's Casino Resorts, 10.625%,
6/1/2006 ................................ 2,210,000 2,254,200
Herff Jones, Inc., 11%, 8/15/2005 .......... 1,100,000 1,145,375
Hines Horticulture, Inc., 11.75%,
10/15/2005 .............................. 2,096,000 2,116,960
Hollywood Entertainment Corp.,
Series B, 10.63%, 8/15/2004 ............. 2,060,000 1,766,450
Horseshoe Gaming LLC, 9.375%,
6/15/2007 ............................... 470,000 466,475
Horseshoe Gaming Holdings, 8.625%,
5/15/2009 ............................... 370,000 348,725
Imperial Home Decor Group, Inc.,
11%, 3/15/2008* ......................... 1,050,000 10,500
International Game Technology,
8.375%, 5/15/2009 ....................... 1,300,000 1,225,250
J. Crew Group:
10.375%, 10/15/2007 ..................... 2,125,000 1,721,250
Step-up Coupon, 0% to 10/15/2002,
13.125% to 10/15/2008 ................. 480,000 240,000
Krystal Inc., 10.25%, 10/1/2007 ............ 2,050,000 1,271,000
MGM Grand Inc., 9.75%, 6/1/2007 ............ 2,700,000 2,740,500
National Vision Association, Ltd.,
12.75%, 10/15/2005* ..................... 2,480,000 917,600
Park Place Entertainment, Inc.,
9.375%, 2/15/2007 ....................... 1,670,000 1,670,000
Perkins Finance, L.P., 10.125%,
12/15/2007 .............................. 1,950,000 1,872,000
Regal Cinemas, Inc.:
9.5%, 6/1/2008 .......................... 1,130,000 271,200
8.875%, 12/15/2010 ...................... 300,000 69,000
Restaurant Co., Step-up Coupon,
0% to 5/15/2003, 11.25% to
5/15/2008 ............................... 2,010,000 1,165,800
Sealy Mattress Co.:
9.875%, 12/15/2007 ...................... 1,600,000 1,536,000
Step-up Coupon, 0% to
12/15/2002,10.875% to
12/15/2007 ............................ 910,000 646,100
Specialty Retailers, Inc.:
8.5%, 7/15/2005* ........................ 540,000 32,400
9%, 7/15/2007* .......................... 2,400,000 2
Station Casinos, Inc.:
10.125%, 3/15/2006 ...................... 440,000 445,500
9.75%, 4/15/2007 ........................ 680,000 676,600
---------
45,081,541
----------
Consumer Staples 0.6%
Dyersburg Corp., 9.75%, 9/1/2007 ........... 1,260,000 126,000
Grove Worldwide LLC, 9.25%,
5/1/2008 ................................ 1,180,000 448,400
Jafra Cosmetics International, Inc.,
11.75%, 5/1/2008 ........................ 1,710,000 1,641,600
---------
2,216,000
---------
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 21
Kemper High Yield Portfolio
<PAGE>
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
Health 2.0%
Dade International, Inc., 11.125%,
5/1/2006 ................................ 2,380,000 1,142,400
MEDIQ, Inc., 11%, 6/1/2008* ................ 400,000 40,000
Magellan Health Services, Inc., 9%,
2/15/2008 ............................... 2,180,000 1,111,800
Mariner Post-Acute Network, Inc.:
10.5%, 8/1/2006 ......................... 2,060,000 1,874,600
Step-up Coupon, 0% to 11/1/2002,
10.5% to 11/1/2007 .................... 4,340,000 21,700
Tenet Healthcare Corp., 9.25%,
9/1/2010 ................................ 2,680,000 2,700,100
Vencor, Inc., 9.875%, 5/1/2005* ............ 1,510,000 151,000
---------
7,041,600
---------
Communications 24.8%
Allegiance Telecom, Inc., 12.875%,
5/15/2008 ............................... 2,305,000 2,489,400
Call-Net Enterprises, Inc.:
9.375%, 5/15/2009 ....................... 990,000 594,000
Step-up Coupon, 0% to 8/15/2003,
8.94% to 8/15/2008 .................... 225,000 99,000
Step-up Coupon, 0% to 5/15/2004,
10.8% to 5/15/2009 .................... 370,000 140,600
Century Communications Corp.,
8.375%, 12/15/2007 ...................... 550,000 484,000
Comunicacion Cellular, S.A.,
Step-up Coupon, 0% to
9/29/2000, 14.125% to 3/1/2005 .......... 2,400,000 1,752,000
Crown Castle International Corp.:
9.5%, 8/1/2011 .......................... 300,000 285,000
10.75%, 8/1/2011 ........................ 780,000 793,650
Step-up Coupon, 0% to
11/15/2002, 10.625% to
11/15/2007 ............................ 790,000 586,575
Step-up Coupon, 0% to 8/1/2004,
11.25% to 8/1/2011 .................... 580,000 355,250
Dobson Communications Corp.,
10.875%, 7/1/2010 ....................... 460,000 463,450
Dolphin Telecom plc, Zero Coupon,
5/15/2009 ............................... 1,240,000 446,400
Esprit Telecom Group, plc:
11.5%, 12/15/2007 ....................... 1,625,000 1,170,000
10.875%, 6/15/2008 ...................... 800,000 552,000
FairPoint Communications, Inc., 12.5%,
5/1/2010 ................................ 1,350,000 1,363,500
Global Crossing Holdings Ltd., 9.5%,
11/15/2009 .............................. 2,780,000 2,668,800
Global Telesystems Group, 9.875%,
2/15/2005 ............................... 620,000 427,800
Hermes Europe Railtel BV, 11.5%,
8/15/2007 ............................... 210,000 181,650
ICG Holdings, Inc., Step-up Coupon,
0% to 9/15/2000, 13.5% to
9/15/2005 ............................... 4,190,000 4,043,350
IPC Communications, Inc., Step-up
Coupon, 0% to 11/1/2001,
10.875% to 5/1/2008 ..................... 3,840,000 3,513,600
Impsat Corp., 12.375%, 6/15/2008 ........... 1,805,000 1,444,000
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
Intermedia Communications of
Florida, Inc.:
Step-up Coupon, 0% to
5/15/2001, 12.5% to 5/15/2006 ......... 1,880,000 1,804,800
Step-up Coupon, 0% to 7/15/2002,
11.25% to 7/15/2007 ................... 2,570,000 2,004,600
KMC Telecom Holdings, Inc.:
13.5%, 5/15/2009 ........................ 2,550,000 2,295,000
Step-up Coupon, 0% to 2/15/2003,
12.5% to 2/15/2008 .................... 3,840,000 1,920,000
Level 3 Communications Inc.:
11%, 3/15/2008 .......................... 1,000,000 986,250
9.125%, 5/1/2008 ........................ 210,000 188,475
11.25%, 3/15/2010 ....................... 680,000 666,400
MGC Communications, 13%,
10/1/2004 ............................... 2,000,000 2,040,000
McLeod USA, Inc.:
9.25%, 7/15/2007 ........................ 1,040,000 1,008,800
9.5%, 11/1/2008 ......................... 1,400,000 1,365,000
Step-up Coupon, 0% to 3/1/2002,
10.5% to 3/1/2007 ..................... 795,000 663,825
MetroNet Communications Corp.:
12%, 8/15/2007 .......................... 550,000 616,688
10.625%, 11/1/2008 ...................... 1,410,000 1,542,187
Step-up Coupon, 0% to 11/1/2003,
10.75% to 11/1/2007 ................... 780,000 644,475
Step-up Coupon, 0% to 6/15/2005,
9.95%, 6/15/2008 ...................... 1,440,000 1,161,000
Metromedia Fiber Network, Inc.,
10%, 11/15/2008 ......................... 2,000,000 1,965,000
Millicom International Cellular, S.A.,
Step-up Coupon, 0% to 6/1/2001,
13.5% to 6/1/2006 ....................... 3,060,000 2,601,000
Netia Holdings, 10.25%, 11/1/2007 .......... 935,000 776,050
Nextel Communications, Inc.:
9.375%, 11/15/2009 ...................... 5,610,000 5,413,650
Step-up Coupon, 0% to 9/15/2002,
10.65% to 9/15/2007 ................... 1,225,000 967,750
Nextlink Communications, Inc.:
12.5%, 4/15/2006 ........................ 950,000 988,000
10.75%, 11/15/2008 ...................... 2,000,000 1,965,000
Step-up Coupon, 0% to 4/15/2003,
9.45% to 4/15/2008 .................... 920,000 579,600
Step-up Coupon, 0% to 6/1/2004,
12.25% to 6/1/2009 .................... 2,000,000 1,230,000
PTC International Finance, Step-up
Coupon, 0% to 7/1/2002,
10.75% to 7/1/2007 ...................... 1,440,000 1,022,400
PTC International Finance II, 11.25%,
12/1/2009 ............................... 360,000 367,200
Price Communications Wireless,
9.125%, 12/15/2006 ...................... 2,490,000 2,527,350
Primus Telecommunications Group:
11.75%, 8/1/2004 ........................ 1,660,000 1,427,600
11.25%, 1/15/2009 ....................... 480,000 393,600
12.75%, 10/15/2009 ...................... 860,000 731,000
The accompanying notes are an integral part of the financial statements.
22 | Kemper Variable Series --
Kemper High Yield Portfolio
<PAGE>
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
Rogers Cantel, 9.75%, 6/1/2016 ............. 3,000,000 3,240,000
SBA Communications Corp., Step-up
Coupon, 0% to 3/1/2003,
12% to 3/1/2008 ......................... 1,500,000 1,050,000
Spectrasite Holdings, Inc.:
10.75%, 3/15/2010 ....................... 310,000 313,100
Step-up Coupon, 0% to 7/15/2003,
12% to 7/15/2008 ...................... 3,220,000 2,076,900
Step-up Coupon, 0% to 4/15/2004,
11.25% to 4/15/2009 ................... 2,580,000 1,467,375
Telecorp PCS, Inc., Step-up-Coupon,
0% to 4/15/2004, 11.625% to
4/15/2009 ............................... 500,000 328,750
Teligent, Inc.:
11.5%, 12/1/2007 ........................ 1,230,000 965,550
Step-up Coupon, 0% to 3/1/2003,
11.5% to 3/1/2008 ..................... 840,000 390,600
Tritel PCS Inc., Step-up Coupon, 0% to
5/1/2004, 12.75% to 5/15/2009 ........... 1,320,000 871,200
Triton Communications, LLC, Step-up
Coupon, 0% to 5/1/2003, 11% to
5/1/2008 ................................ 1,470,000 1,062,075
U.S. Xchange, LLC, 15%, 7/1/2008 ........... 1,140,000 1,242,600
USA Mobile Communications Holdings,
Inc., 14%, 11/1/2004 .................... 560,000 470,400
Versatel Telecom:
13.25%, 5/15/2008 ....................... 1,430,000 1,458,600
11.875%, 7/15/2009 ...................... 410,000 403,850
Viatel, Inc.:
11.25%, 4/15/2008 ....................... 130,000 98,800
11.5%, 3/15/2009 ........................ 466,000 358,820
Step-up Coupon, 0% to 4/15/2003,
12.5% to 4/15/2008 .................... 1,880,000 864,800
Voicestream Wireless Corp., 10.375%,
11/15/2009 .............................. 2,390,000 2,485,600
Western Wireless Corp., 10.5%,
2/1/2007 ................................ 1,200,000 1,266,000
----------
86,131,745
----------
Financial 0.2%
HMH Properties, 7.875%, 8/1/2008 ........... 380,000 339,150
Intertek Finance, plc, 10.25%,
11/1/2006 ............................... 540,000 442,800
----------
781,950
----------
Media 17.5% AMFM, Inc.:
9%, 10/1/2008 ........................... 480,000 489,600
8%, 11/1/2008 ........................... 1,900,000 1,907,125
Step-up Coupon, 0% to
2/1/2002, 12.75% to 2/1/2009 .......... 2,570,000 2,338,700
Adelphia Communications Corp.:
7.875%, 5/1/2009 ........................ 370,000 310,800
9.375%, 11/15/2009 ...................... 1,110,000 1,026,750
American Lawyer Media, Inc., Step-up
Coupon, 0% to 12/15/2002, 12.25%
to 12/15/2008 ........................... 2,660,000 1,702,400
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
Australis Holdings:
Step-up Coupon, 0% to 11/1/2000,
15% to 1, 1/1/2002* ................... 3,660,000 36,600
Zero Coupon, 11/1/2000 .................. 113,568 85,176
Avalon Cable Holdings LLC, Step-up
Coupon, 0% to 12/1/2003, 11.875%
to 12/1/2008 ............................ 1,870,000 1,215,500
CSC Holdings, Inc.:
9.25%, 11/1/2005 ........................ 1,000,000 1,002,500
8.125%, 7/15/2009 ....................... 400,000 388,000
8.125%, 8/15/2009 ....................... 1,010,000 979,700
9.875%, 2/15/2013 ....................... 1,145,000 1,179,350
10.5%, 5/15/2016 ........................ 1,640,000 1,754,800
Century Communications Corp., 9.5%,
3/1/2005 ................................ 140,000 133,000
Chancellor Media Corp., 8.125%,
12/15/2007 .............................. 680,000 681,700
Charter Communications Holdings
LLC:
8.25%, 4/1/2007 ......................... 4,980,000 4,407,300
10%, 4/1/2009 ........................... 1,530,000 1,484,100
Step-Up Coupon, 0% to 4/1/2004,
9.92% to 4/1/2011 ..................... 1,650,000 940,500
Comcast UK Cable Partners, Ltd.,
Step-up Coupon, 0% to 11/15/2000,
11.2% to 11/15/2007 ..................... 3,130,000 2,950,025
Diamond Cable Communications,
plc, 13.25%, 9/30/2004 .................. 1,990,000 2,114,375
Echostar DBS Corp.:
9.25%, 2/1/2006 ......................... 1,510,000 1,457,150
9.375%, 2/1/2009 ........................ 1,320,000 1,273,800
Frontiervision LP, 11%, 10/15/2006 ......... 860,000 868,600
Interep National Radio Sales, Inc.,
10%, 7/1/2008 ........................... 1,530,000 1,361,700
NTL Communications Corp., Step-up
Coupon, 0% to 10/1/2003,
12.375% to 10/1/2008 .................... 620,000 390,600
NTL, Inc., 11.5%, 10/1/2008 ................ 4,540,000 4,540,000
Outdoor Systems, Inc., 9.375%,
10/15/2006 .............................. 2,395,000 2,436,913
Panavision, Inc., Step-up Coupon,
0% to 2/1/2002, 9.625% to
2/1/2006 ................................ 2,680,000 1,072,000
Renaissance Media Group, Step-up
Coupon, 0% to 4/15/2003, 10%
to 4/15/2008 ............................ 1,400,000 924,000
Rogers Cablesystems Ltd., 10%,
3/15/2005 ............................... 630,000 645,750
SFX Entertainment, Inc.:
9.125%, 2/1/2008 ........................ 3,245,000 3,277,450
9.125%, 12/1/2008 ....................... 2,300,000 2,323,000
Sinclair Broadcasting Group, Inc.:
9%, 7/15/2007 ........................... 350,000 314,125
8.75%, 12/15/2007 ....................... 550,000 482,625
Star Choice Communications, Inc.,
13%, 12/15/2005 ......................... 750,000 766,875
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 23
Kemper High Yield Portfolio
<PAGE>
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
TeleWest Communications, plc:
9.625%, 10/1/2006 ....................... 1,920,000 1,804,800
11.25%, 11/1/2008 ....................... 1,650,000 1,650,000
Step-up Coupon, 0% to 10/1/2000,
11% to 10/1/2007 ...................... 2,895,000 2,764,725
Transwestern Publishing:
9.625%, 11/15/2007 ...................... 950,000 923,875
Step-up Coupon, 0% to 11/15/2002,
11.875% to 11/15/2008 ................. 420,000 308,700
United International Holdings, Step-up
Coupon, 0% to 2/15/2003, 10.75%
to 2/15/2008 ............................ 3,150,000 2,173,500
United Pan-Europe Communications,
10.875%, 11/1/2007 ...................... 2,200,000 1,991,000
----------
60,879,189
----------
Service Industries 4.0%
Coinmach Corp., 11.75%, 11/15/2005 ......... 4,890,000 4,694,400
ImPac Group, Inc., 10.125%,
3/15/2008 ............................... 4,830,000 5,192,250
Integrated Electrical Services, Inc.,
9.375%, 2/1/2009 ........................ 880,000 704,000
Kindercare Learning Centers, Inc.,
9.5%, 2/15/2009 ......................... 2,100,000 1,932,000
La Petite Academy, Inc., 10%,
5/15/2008 ............................... 1,890,000 1,115,100
Spincycle, Inc., Step-up Coupon, 0%
to 5/1/2001, 12.75% to 5/1/2005 ......... 1,520,000 456,000
----------
14,093,750
----------
Durables 1.8%
Airxcel, 11%, 11/15/2007 ................... 1,150,000 816,500
DeCrane Aircraft Holdings, Inc., 12%,
9/30/2008 ............................... 1,180,000 1,050,200
Fairchild Corp., 10.75%, 4/15/2009 ......... 1,500,000 1,035,000
Federal-Mogul Corp.:
7.75%, 7/1/2006 ......................... 870,000 639,450
Series 1999, 7.375%, 1/15/2006 .......... 160,000 110,400
United Rentals, Inc.:
9.25%, 1/15/2009 ........................ 1,940,000 1,726,600
9%, 4/1/2009 ............................ 1,170,000 1,029,600
----------
6,407,750
----------
Manufacturing 14.7%
Agriculture, Mining and Chemicals,
Inc., 10.75%, 9/30/2003 ................. 2,200,000 1,364,000
Atlantis Group, Inc., 11%, 2/15/2003 ....... 1,735,000 1,735,000
BPC Holdings Corp., 12.5%,
6/15/2006 ............................... 852,666 682,133
Berry Plastics Corp., 12.25%,
4/15/2004 ............................... 1,530,000 1,461,150
Consolidated Container Capital, Inc.,
10.125%, 7/15/2009 ...................... 660,000 653,400
Consumers International, 10.25%,
4/1/2005 ................................ 1,330,000 638,400
Day International Group, Inc.,
11.125%, 6/1/2005 ....................... 1,480,000 1,465,200
Delco Remy International, 10.625%,
8/1/2006 ................................ 1,380,000 1,345,500
Eagle-Picher Holdings, Inc., 9.375%,
3/1/2008 ................................ 1,810,000 1,529,450
Foamex, L.P., 13.5%, 8/15/2005 ............. 1,130,000 960,500
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
Fonda Group, 9.5%, 3/1/2007 ................ 1,340,000 1,031,800
GS Technologies:
12%, 9/1/2004 ........................... 1,090,000 381,500
12.25%, 10/1/2005 ....................... 1,340,000 469,000
Gaylord Container Corp.:
9.75%, 6/15/2007 ........................ 1,860,000 1,469,400
9.875%, 2/15/2008 ....................... 300,000 183,000
Graham Packaging Co.:
8.75%, 1/15/2008 ........................ 580,000 501,700
Step-up Coupon, 0% to 1/15/2003,
10.75% to 1/15/2009 ................... 580,000 336,400
Grove Holdings LLC:
14.5%, 5/1/2010 ......................... 864,423 30,255
Step-up Coupon, 0% to 5/1/2003,
11.625% to 5/1/2009 ................... 310,000 24,800
Hayes Wheels International, Inc.,
11%, 7/15/2006 .......................... 1,750,000 1,728,125
Huntsman Package, 11.75%,
12/1/2004 ............................... 2,650,000 2,650,000
Knoll, Inc., 10.875%, 3/15/2006 ............ 886,000 903,720
Millar Western Forest Products, Ltd.,
9.875%, 5/15/2008 ....................... 1,120,000 1,050,000
Motors and Gears, Inc., 10.75%,
11/15/2006 .............................. 580,000 556,800
NL Industries, Inc., Senior Note,
11.75%, 10/15/2003 ...................... 3,280,000 3,345,600
Plainwell, Inc., 11%, 3/1/2008 ............. 4,445,000 1,022,350
Printpack, Inc., 10.625%, 8/15/2006 ........ 1,440,000 1,339,200
Riverwood International Corp.:
10.25%, 4/1/2006 ........................ 900,000 864,000
10.625%, 8/1/2007 ....................... 340,000 329,800
10.875%, 4/1/2008 ....................... 6,470,000 5,693,600
SF Holdings Group, Inc., Step-up
Coupon, 0% to 3/15/2003,
12.75% to 3/15/2008 ..................... 2,030,000 1,015,000
Stone Container Corp.:
12.25%, 4/1/2002 ........................ 1,550,000 1,557,750
10.75%, 10/1/2002 ....................... 1,000,000 1,025,000
11.5%, 8/15/2006 ........................ 1,585,000 1,640,475
Tenneco Automotive, Inc., 11.625%,
10/15/2009 .............................. 4,090,000 3,629,875
Terex Corp., 8.875%, 4/1/2008 .............. 4,090,000 3,681,000
Terra Industries, Inc., 10.5%,
6/15/2005 ............................... 570,000 330,600
Texas Petrochemicals, 11.125%,
7/1/2006 ................................ 710,000 582,200
U.S. Can Corp., 10.125%, 10/15/2006 ........ 1,875,000 1,921,875
----------
51,129,558
----------
Technology 2.4%
Exodus Communications, Inc.,
11.625%, 7/15/2010 ...................... 1,340,000 1,346,700
Flextronics International, 9.875%,
7/1/2010 ................................ 840,000 848,400
PSINet, Inc.:
10%, 2/15/2005 .......................... 900,000 825,750
11.5%, 11/1/2008 ........................ 1,350,000 1,296,000
11%, 8/1/2009 ........................... 1,970,000 1,827,175
The accompanying notes are an integral part of the financial statements.
24 | Kemper Variable Series --
Kemper High Yield Portfolio
<PAGE>
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
Verio, Inc.:
11.25%, 12/1/2008 ........................ 710,000 788,100
10.625%, 11/15/2009 ...................... 1,440,000 1,584,000
-----------
8,516,125
-----------
Energy 1.7%
Continental Resources, Inc., 10.25%,
8/1/2008 ................................. 1,470,000 1,308,300
Key Energy Services, Inc., 14%,
1/15/2009 ................................ 690,000 776,250
Pen Holdings, Inc., 9.875%, 6/15/2008 ....... 625,000 506,250
Pride International, Inc., 10%, 6/1/2009 .... 1,320,000 1,353,000
R&B Falcon Corp.:
11%, 3/15/2006 ........................... 580,000 620,600
9.5%, 12/15/2008 ......................... 370,000 370,000
Stone Energy Corp., 8.75%, 9/15/2007 ........ 870,000 826,500
-----------
5,760,900
-----------
Metals & Minerals 2.4%
Euramax International, plc, 11.25%,
10/1/2006 ................................ 1,610,000 1,529,500
MMI Products, Inc., 11.25%, 4/15/2007 ....... 2,115,000 2,083,275
Metal Management, Inc., 10%,
5/15/2008 ................................ 1,820,000 1,092,000
Metals USA, Inc., 8.625%, 2/15/2008 ......... 2,030,000 1,766,100
Renco Steel Holdings Co., Series B,
10.875%, 2/1/2005 ........................ 2,060,000 1,689,200
Republic Technologies International,
13.75%, 7/15/2009 ........................ 2,820,000 352,500
-----------
8,512,575
-----------
Construction 3.2%
Dayton Superior Corp., 13%,
6/15/2009 ................................ 680,000 673,200
Del Webb Corp., 9.75%, 1/15/2008 ............ 1,260,000 1,099,350
Dimac Corp., 12.5%, 10/1/2008* .............. 1,540,000 15,400
Forecast Group, L.P., 11.375%,
12/15/2000 ............................... 1,025,000 1,025,000
Fortress Group, 13.75%, 5/15/2003 ........... 880,000 492,800
Hovnanian Enterprises, Inc.:
9.75%, 6/1/2005 .......................... 560,000 512,400
9.125%, 5/1/2009 ......................... 1,090,000 972,825
Lennar Corp.:
7.625%, 3/1/2009 ......................... 600,000 522,000
9.95%, 5/1/2010 .......................... 270,000 265,950
Nortek, Inc.:
9.875%, 3/1/2004 ......................... 1,970,000 1,871,500
9.125%, 9/1/2007 ......................... 1,300,000 1,202,500
Ryland Group, Inc., 8.25%, 4/1/2008 ......... 1,170,000 959,400
Standard Pacific Corp.:
8%, 2/15/2008 ............................ 330,000 287,925
8.5%, 4/1/2009 ........................... 510,000 456,450
Toll Corp.:
8.75%, 11/15/2006 ........................ 500,000 478,750
7.75%, 9/15/2007 ......................... 210,000 187,950
8.125%, 2/1/2009 ......................... 100,000 90,500
8%, 5/1/2009 ............................. 230,000 204,700
-----------
11,318,600
-----------
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
Transportation 1.6%
Petro Stopping Centers, 10.5%,
2/1/2007 ................................. 2,520,000 2,230,200
TFM, S.A. de C.V., 10.25%, 6/15/2007 ........ 1,130,000 971,800
Transtar Holdings, Inc., Step-up
Coupon, 0% to 12/15/1999,
13.375% to 12/15/2003 .................... 631,000 631,000
Travelcenters America, 10.25%,
4/1/2007 ................................. 1,790,000 1,803,425
-----------
5,636,425
-----------
Utilities 0.6% Azurix Corp.:
10.375%, 2/15/2007 ....................... 690,000 665,850
10.75%, 2/15/2010 ........................ 1,630,000 1,564,800
-----------
2,230,650
-----------
--------------------------------------------------------------------------------
Total Corporate Bonds (Cost $371,409,780) 315,738,358
--------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Convertible Preferred Stocks* 0.2%
--------------------------------------------------------------------------------
Communications
Telephone/Communications -----------
World Access, Inc. (Cost $1,389,748) ........ 866 831,360
-----------
--------------------------------------------------------------------------------
Preferred Stocks 1.1%
--------------------------------------------------------------------------------
Communications 0.3%
Cellular Telephone
Dobson Communications, PIK .................. 968 982,520
-----------
Financial 0.3%
Real Estate
Crown American Realty Trust ................. 25,070 946,393
-----------
Media 0.3%
Broadcasting & Entertainment
Sinclair Capital ............................ 13,000 1,176,500
-----------
Manufacturing 0.2%
Containers & Paper 0.0%
SF Holdings Group, Inc.:
PIK* ..................................... 6 25,200
PIK ...................................... 30 126,000
-----------
151,200
-----------
Machinery/Components/Controls 0.1%
Eagle-Picher Holdings, Inc.* ................ 170 425,000
--------------------------------------------------------------------------------
Total Preferred Stocks (Cost $4,871,736) 3,681,613
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 25
Kemper High Yield Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Common Stocks* 0.2%
--------------------------------------------------------------------------------
Communications 0.1%
Telephone/Communications
AT&T Canada Inc. ......................... 1,885 62,558
ICG Communications, Inc. ................. 4,851 107,025
Intermedia Communications Inc. ........... 4,258 126,676
Tele1 Europe Holding AB-- ADR ............ 6,340 76,476
-----------
372,735
-----------
Manufacturing 0.1%
Containers & Paper
Gaylord Container Corp. .................. 92,250 247,922
SF Holdings Group, Inc. .................. 517 5
-----------
247,927
-----------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $445,609) 620,662
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Warrants* 0.1%
--------------------------------------------------------------------------------
Communications 0.1%
Telephone/Communications
Benedek Communications Corp. ............. 5,000 10,000
Communicacion Cellular, S.A .............. 2,200 35,200
Econophone Inc. .......................... 1,260 138,600
KMC Telecom Holdings, Inc. ............... 1,950 13,650
Primus Telecommunications Group .......... 1,000 30,750
Star Choice Communications ............... 17,370 112,905
-----------
341,105
-----------
Financial 0.0%
Other Financial Companies
Ono Finance plc .......................... 1,650 198,000
-----------
Media 0.0%
Cable Television 0.0%
UIH Australia Pacific, Inc. .............. 750 22,500
-----------
Shares Value ($)
--------------------------------------------------------------------------------
Miscellaneous 0.0%
Australis Holdings ....................... 3,720 0
-----------
Service Industries 0.0%
Miscellaneous Consumer Services
Spincycle, Inc. .......................... 1,520 15
Printing/Publishing
-----------
American Banknote Corp. .................. 1,200 12
-----------
Durables 0.0%
Aerospace
Decrane Holdings Co. ..................... 1,350 0
-----------
Energy 0.0%
Oil/Gas Transmission
Empire Gas Corp. ......................... 2,070 207
-----------
Metals & Minerals 0.0%
Steel & Metals 0.0%
Gulf States Steel ........................ 1,810 18
Republic Technologies International ...... 2,820 28
-----------
46
-----------
Miscellaneous 0.0%
Bar Technologies ......................... 750 15,000
-----------
Construction 0.0%
Building Materials 0.0%
Waxman Industries, Inc. .................. 52,274 523
-----------
Homebuilding 0.0%
Capital Pacific Holdings ................. 3,634 1,817
-----------
--------------------------------------------------------------------------------
Total Warrants (Cost $371,208) 579,225
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $406,339,278) (a) 349,306,390
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper High Yield Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security. In the case of a bond, generally denotes
that issuer has defaulted on the payment of interest or has filed for
bankruptcy.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $406,339,278. At June 30,
2000, net unrealized depreciation for all securities based on tax cost
was $57,032,888. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $3,452,670 and aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over value
of $60,485,558.
PIK denotes that interest or dividend is paid in kind.
The accompanying notes are an integral part of the financial statements.
26 | Kemper Variable Series --
Kemper High Yield Portfolio
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (cost $406,339,278) ...................... $ 349,306,390
Cash ......................................................................... 663,451
Receivable for investments sold .............................................. 1,223,903
Interest receivable .......................................................... 7,186,706
Receivable for Portfolio shares sold ......................................... 80,878
Other assets ................................................................. 1,000
-------------
Total assets ................................................................. 358,462,328
Liabilities
-----------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 1,340,000
Accrued management fee ....................................................... 174,795
Other accrued expenses and payables .......................................... 103,394
-------------
Total liabilities ............................................................ 1,618,189
-----------------------------------------------------------------------------------------------
Net assets, at value $ 356,844,139
-----------------------------------------------------------------------------------------------
Net Assets
-----------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 19,658,629
Net unrealized appreciation (depreciation) on investments .................... (57,032,888)
Accumulated net realized gain (loss) ......................................... (41,174,033)
Paid-in capital .............................................................. 435,392,431
-----------------------------------------------------------------------------------------------
Net assets, at value $ 356,844,139
-----------------------------------------------------------------------------------------------
Net Asset Value
-----------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($356,844,139 / 362,708,676
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized) ..................................................... $ 0.984
-------------
-----------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
-----------------------------------------------------------------------------------------------
Investment Income
-----------------------------------------------------------------------------------------------
Income:
Dividends .................................................................... $ 335,843
Interest ..................................................................... 20,627,777
-------------
Total Income ................................................................. 20,963,620
-------------
Expenses:
Management fee ............................................................... 1,065,443
Custodian fees ............................................................... 18,832
Auditing ..................................................................... 47,733
Legal ........................................................................ 30,358
Trustees' fees and expenses .................................................. 22,140
Reports to shareholders ...................................................... 34,043
Registration fees ............................................................ 4,140
Interest expense ............................................................. 4,588
Other ........................................................................ 2,702
-------------
Total expenses, before expense reductions .................................... 1,229,979
Expense reductions ........................................................... (1,761)
-------------
Total expenses, after expense reductions ..................................... 1,228,218
-----------------------------------------------------------------------------------------------
Net investment income (loss) 19,735,402
-----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
-----------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................................. (10,969,612)
Futures ...................................................................... (17,005)
-------------
(10,986,617)
-------------
Net unrealized appreciation (depreciation) during the period on investments .. (15,541,012)
-----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (26,527,629)
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (6,792,227)
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 27
Kemper High Yield Portfolio
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Ended June 30, December 31,
Increase (Decrease) in Net Assets 2000 (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................ $ 19,735,402 $ 45,563,581
Net realized gain (loss) on investment transactions ..................................... (10,986,617) (14,886,753)
Net unrealized appreciation (depreciation) on investment transactions during the period . (15,541,012) (20,024,876)
------------- -------------
Net increase (decrease) in net assets resulting from operations ......................... (6,792,227) 10,651,952
Distributions to shareholders from:
Net investment income ................................................................... (43,395,484) (42,416,234)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold ............................................................... 50,407,870 116,611,231
Reinvestment of distributions ........................................................... 43,395,484 42,416,234
Cost of shares redeemed ................................................................. (82,974,401) (173,185,353)
------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions ................. 10,828,953 (14,157,888)
------------- -------------
Increase (decrease) in net assets ....................................................... (39,358,758) (45,922,170)
Net assets at beginning of period ....................................................... 396,202,897 442,125,067
Net assets at end of period (including undistributed net investment income of $19,658,629 ------------- -------------
and $43,318,711, respectively) ....................................................... $ 356,844,139 $ 396,202,897
------------- -------------
Other Information
--------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................... 345,783,280 360,218,000
------------- -------------
Shares sold ............................................................................. 51,377,088 97,968,309
Shares issued to shareholders in reinvestment of distributions .......................... 44,120,810 36,157,082
Shares redeemed ......................................................................... (78,572,502) (148,560,111)
------------- -------------
Net increase (decrease) in Portfolio shares ............................................. 16,925,396 (14,434,720)
------------- -------------
Shares outstanding at end of period ..................................................... 362,708,676 345,783,280
------------- -------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.146 1.227 1.296 1.281 1.259 1.185
-----------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .058(b) .122(b) .106 .116 .120 .125
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.080) (.093) (.085) .019 .042 .069
-----------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.022) .029 .021 .135 .162 .194
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (.140) (.110) (.090) (.120) (.140) (.120)
-----------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.140) (.110) (.090) (.120) (.140) (.120)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ .984 1.146 1.227 1.296 1.281 1.259
-----------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (1.90)** 2.15 1.45 11.61 14.06 17.40
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 356,844 396,203 442,125 391,664 289,315 257,377
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .69* .67 .65 .65 .65 .65
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .69* .67 .65 .65 .65 .65
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 11.03* 10.40 9.36 9.20 9.70 10.27
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 44* 42 74 90 98 90
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
28 | Kemper Variable Series --
Kemper High Yield Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Total Return Portfolio
Despite a period in which market strength was generally narrow and weakness was
broad, the Kemper Total Return Portfolio's disciplined investment style reduced
our downside during this extremely volatile environment.
Early in the period, we were hurt somewhat as the market moved away from
large-cap growth stocks. But a wide variety of holdings did well. We also
boosted holdings in select consumer product and telecommunications stocks, and
we eliminated America Online due to concerns about its valuation.
Late in the period, the portfolio's large-cap pharmaceuticals and consumer
staples led the way and top performers included Pfizer, PepsiCo and Viacom. This
offset weaknesses in some of the portfolio's technology and retail holdings,
such as Motorola, Target, and Microsoft. We believe an increased slowdown in the
economy should help jump-start performance in the flat financial services
sector, and we have already witnessed this increasing slowdown benefit our
health care holdings. However, it is important to note that the slowdown could
adversely affect consumer-oriented sectors such as communications services,
specifically wireless communication and media stocks.
Moving forward, we are very optimistic that the economy still has room to grow,
albeit at a slower pace, and believe the portfolio is well positioned to take
advantage of this challenging market environment.
Gary A. Langbaum
Lead Portfolio Manager
Kemper Variable Series -- | 29
Kemper Total Return Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Total Return Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreements 1.6%
--------------------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at
$14,320,729 on 7/3/2000** -----------
(Cost $14,313,000) ...................... 14,313,000 14,313,000
-----------
--------------------------------------------------------------------------------
U.S. Government & Agencies 25.8%
--------------------------------------------------------------------------------
U.S. Treasury Bonds:
9.375%, 2/15/2006 ....................... 52,000,000 59,475,000
6.5%, 2/15/2010 ......................... 25,350,000 26,217,477
10.625%, 8/15/2015 ...................... 4,000,000 5,696,880
8%, 11/15/2021 .......................... 3,800,000 4,593,858
6.125%, 8/15/2029 ....................... 11,800,000 11,918,000
U.S. Treasury Notes:
8.75%, 8/15/2000 ........................ 8,500,000 8,523,885
6.625%, 5/31/2002 ....................... 30,000,000 30,112,500
7.25%, 8/15/2004 ........................ 14,800,000 15,301,868
7.5%, 2/15/2005 ......................... 7,005,000 7,342,081
6.75%, 5/15/2005 ........................ 19,050,000 19,493,484
6.625%, 5/15/2007 ....................... 37,000,000 37,774,780
Federal National Mortgage Association:
5.125%, 2/13/2004 ....................... 4,300,000 4,035,937
7.125%, 2/15/2005 ....................... 3,375,000 3,388,703
--------------------------------------------------------------------------------
Total U.S. Government & Agencies
(Cost $234,195,344) 233,874,453
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Foreign Bonds 0.5%
--------------------------------------------------------------------------------
Den Danske Bank, 6.375%, 6/15/2008 ......... 625,000 604,675
Province of Quebec, 8.625%,
1/19/2005 ............................... 1,500,000 1,580,625
Repsol International Finance,
7%, 8/1/2005 ............................ 1,000,000 958,460
Royal Caribbean Cruises, Ltd.,
8.25%, 4/1/2005 ......................... 1,250,000 1,195,675
--------------------------------------------------------------------------------
Total Foreign Bonds (Cost $4,562,944) 4,339,435
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Corporate Bonds 8.7%
--------------------------------------------------------------------------------
Consumer Discretionary 0.7%
AFC Enterprises, 10.25%, 5/15/2007 ......... 700,000 665,000
AMF Bowling, Inc:
10.875%, 6/15/2006 ...................... 2,100,000 567,000
Step-up Coupon, 0% to 3/15/2001,
12.25% to 3/15/2006 ................... 542,000 108,400
Cinemark USA, Inc., 8.5%, 8/1/2008 ......... 890,000 489,500
Dillards, Inc., 6.17%, 8/1/2001 ............ 1,500,000 1,436,670
MGM Grand Inc., 9.75%, 6/1/2007 ............ 1,450,000 1,471,750
Park Place Entertainment, Inc., 8.5%,
11/15/2006 .............................. 1,000,000 982,590
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
Target Corp., 7.5%, 2/15/2005 .............. 1,000,000 1,015,840
-----------
6,736,750
-----------
Health 0.1%
Magellan Health Services, Inc., 9%,
2/15/2008 ............................... 2,270,000 1,157,700
-----------
Communications 2.2%
Esprit Telecom Group, plc, 11.5%,
12/15/2007 .............................. 630,000 453,600
Intermedia Communications, 8.6%,
6/1/2008 ................................ 1,930,000 1,761,125
McLeod USA, Inc., Step-up Coupon,
0% to 3/1/2002, 10.5%
to 3/1/2007 ............................. 2,800,000 2,338,000
MetroNet Communications Corp.,
Step-up Coupon, 0% to 6/15/2003,
9.95%, 6/15/2008 ........................ 3,700,000 2,983,125
Nextel Communications, 9.375%,
11/15/2009 .............................. 2,080,000 2,007,200
Qwest Communications International,
7.5%, 11/1/2008 ......................... 2,350,000 2,248,973
Rogers Cantel Inc., 8.8%, 10/1/2007 ........ 2,100,000 2,100,000
Sprint Capital Corp., 6.375%,
5/1/2009 ................................ 2,575,000 2,324,762
Vodafone Airtouch plc, 6.25%,
2/15/2010 ............................... 3,550,000 3,462,883
-----------
19,679,668
-----------
Financial 1.8%
ABN AMRO, 8.25%, 8/1/2009 .................. 1,250,000 1,252,575
Chase Manhattan Corp., 5.75%,
4/15/2004 ............................... 1,000,000 941,160
Ford Motor Credit Co.:
6.7%, 7/16/2004 ......................... 1,450,000 1,404,847
7.375%, 10/28/2009 ...................... 3,200,000 3,095,264
General Electric Capital Corp., 7%,
2/3/2003 ................................ 2,500,000 2,489,125
General Motors Acceptance Corp.,
6.15%, 4/5/2007 ......................... 1,150,000 1,058,793
Merrill Lynch & Co., Inc., 6%,
2/17/2009 ............................... 1,900,000 1,694,173
PNC Funding Corp., 7.5%, 11/1/2009 ......... 3,350,000 3,260,153
Wells Fargo & Co., 6.875%, 4/1/2006 ........ 750,000 722,925
-----------
15,919,015
-----------
Media 1.4%
AMFM, Inc., 9%, 10/1/2008 .................. 1,240,000 1,264,800
Cablevision Systems Corp., 7.875%,
12/15/2007 .............................. 2,000,000 1,920,000
Charter Communications Holdings
LLC, 8.625%, 4/1/2009 ................... 500,000 441,250
Diamond Cable Communications, plc:
Step-up Coupon, 0% to 12/15/2000,
11.75% to 12/15/2005 .................. 260,000 243,100
Step-up Coupon, 0% to 2/15/2002,
10.75% to 2/15/2007 ................... 740,000 569,800
K-III Communications Corp., 8.5%,
2/1/2006 ................................ 750,000 708,750
The accompanying notes are an integral part of the financial statements.
30 | Kemper Variable Series --
Kemper Total Return Portfolio
<PAGE>
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
NTL, Inc., Step-up Coupon, 0% to
2/1/2001, 11.5% to 2/1/2006 ............... 2,270,000 2,088,400
News America Holdings, Inc., 9.25%,
2/1/2013 .................................. 405,000 437,647
Sinclair Broadcasting Group, Inc.,
8.75%, 12/15/2007 ......................... 850,000 745,875
TeleWest Communications, plc,
Step-up Coupon, 0% to 10/1/2000,
11% to 10/1/2007 .......................... 4,020,000 3,839,100
Time Warner, Inc., 9.125%, 1/15/2013 ......... 425,000 465,757
----------
12,724,479
----------
Durables 0.3%
Daimler-Chrysler NA Holdings, 7.375%,
9/15/2006 ................................. 1,550,000 1,524,487
United Rentals, Inc., 9.25%, 1/15/2009 ....... 760,000 676,400
----------
2,200,887
----------
Manufacturing 0.9%
Delco Remy International, 10.625%,
8/1/2006 .................................. 860,000 838,500
Gaylord Container Corp.:
9.75%, 6/15/2007 .......................... 780,000 616,200
9.875%, 2/15/2008 ......................... 720,000 439,200
Hayes Wheels International, Inc.,
11%, 7/15/2006 ............................ 1,500,000 1,481,250
Neenah Corp.,11.125%, 5/1/2007 ............... 1,000,000 765,000
Plainwell, Inc., 11%, 3/1/2008 ............... 1,020,000 234,600
Riverwood International Corp.:
10.25%, 4/1/2006 .......................... 2,470,000 2,371,200
10.625%, 8/1/2007 ......................... 180,000 174,600
Stone Container Corp.:
11.5%, 8/15/2006 .......................... 500,000 517,500
12.58%, 8/1/2016 .......................... 1,000,000 1,040,000
----------
8,478,050
----------
Technology 0.2%
PSINet, Inc.:
10%, 2/15/2005 ............................ 810,000 743,175
11.5%, 11/1/2008 .......................... 1,040,000 998,400
----------
1,741,575
----------
Energy 0.2%
Gulf Canada Resources, Inc., 9.25%,
1/15/2004 ................................. 1,500,000 1,506,285
Williams Gas Pipeline Center, 7.375%,
11/15/2006 ................................ 250,000 243,380
----------
1,749,665
----------
Metals & Minerals 0.5%
Euramax International, plc, 11.25%,
10/1/2006 ................................. 2,850,000 2,707,500
MMI Products, Inc., 11.25%,
4/15/2007 ................................. 400,000 394,000
Renco Steel Holdings Co., Series B,
10.875%, 2/1/2005 ......................... 2,210,000 1,812,200
----------
4,913,700
----------
Construction 0.2%
Del Webb Corp., 9.75%, 1/15/2008 ............. 2,280,000 1,989,300
----------
Principal
Amount ($) - Value ($)
--------------------------------------------------------------------------------
Transportation 0.1%
Delta Air Lines, 7.9%, 12/15/2009 ............ 800,000 747,680
----------
Utilities 0.1%
Alabama Power Co., 7.125%,
8/15/2004 ................................. 800,000 791,360
----------
--------------------------------------------------------------------------------
Total Corporate Bonds (Cost $85,759,393) 78,829,829
--------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Common Stocks 63.4%
--------------------------------------------------------------------------------
Consumer Discretionary 5.1%
Department & Chain Stores 4.1%
Home Depot, Inc. ............................. 184,500 9,213,469
Kohl's Corp.* ................................ 112,500 6,257,813
Target Corp. ................................. 108,000 6,264,000
Wal-Mart Stores, Inc. ........................ 258,900 14,919,113
----------
36,654,395
----------
Specialty Retail 1.0%
Radioshack Corp. ............................. 191,600 9,077,050
----------
Consumer Staples 3.6%
Food & Beverage 2.6%
H.J. Heinz Co. ............................... 183,300 8,019,375
PepsiCo, Inc. ................................ 340,000 15,108,750
----------
23,128,125
----------
Package Goods/Cosmetics 1.0%
Clorox Co. ................................... 64,000 2,868,000
Colgate-Palmolive Co. ........................ 100,000 5,987,500
----------
8,855,500
----------
Health 10.3%
Biotechnology 1.4%
Amgen Inc.* .................................. 86,000 6,041,500
Genentech, Inc.* ............................. 20,200 3,474,400
PE Corp-PE Biosystems Group .................. 47,800 3,148,825
----------
12,664,725
----------
Medical Supply & Specialty 1.9%
Baxter International, Inc. ................... 169,600 11,925,000
Becton, Dickinson & Co. ...................... 197,000 5,651,438
----------
17,576,438
----------
Pharmaceuticals 7.0%
Abbott Laboratories .......................... 241,000 10,739,562
Allergan, Inc. ............................... 93,200 6,943,400
Alza Corp. ................................... 65,000 3,843,125
Eli Lilly & Co. .............................. 87,000 8,689,125
Forest Laboratories, Inc.* ................... 35,500 3,585,500
Merck & Co., Inc. ............................ 115,000 8,811,875
Pfizer, Inc. ................................. 300,750 14,436,000
Schering-Plough Corp. ........................ 120,000 6,060,000
----------
63,108,587
----------
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 31
Kemper Total Return Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Communications 1.7%
Telephone/Communications
Bell Atlantic Corp. ...................... 84,000 4,268,250
BroadWing, Inc.* ......................... 208,000 5,395,000
Qwest Communications
International Inc.* ................... 122,000 6,061,875
----------
15,725,125
----------
Financial 10.5%
Banks 0.9%
FleetBoston Financial Corp. .............. 115,500 3,927,000
Wells Fargo Co. .......................... 109,500 4,243,125
----------
8,170,125
----------
Insurance 4.2%
American International Group, Inc. ....... 88,625 10,413,437
Aon Corp. ................................ 166,500 5,171,906
Cigna Corp. .............................. 66,000 6,171,000
Hartford Financial Services Group, Inc. .. 100,500 5,621,718
Jefferson Pilot Corp. .................... 80,400 4,537,575
St. Paul Companies, Inc. ................. 188,000 6,415,500
----------
38,331,136
----------
Consumer Finance 3.2%
American Express Co. ..................... 135,000 7,036,875
Capital One Finance Corp. ................ 141,600 6,318,900
Citigroup, Inc. .......................... 151,500 9,127,875
Household International, Inc. ............ 149,162 6,199,545
----------
28,683,195
----------
Other Financial Companies 2.2%
Federal National Mortgage
Association ........................... 104,500 5,453,594
Marsh & McLennan Companies, Inc. ......... 53,200 5,556,075
Merrill Lynch & Co., Inc. ................ 33,000 3,795,000
Morgan Stanley Dean Witter & Co. ......... 58,500 4,870,125
----------
19,674,794
----------
Media 4.8%
Advertising 0.5%
Omnicom Group, Inc. ...................... 50,300 4,479,843
----------
Broadcasting & Entertainment 3.6%
Clear Channel Communications, Inc. ....... 82,500 6,187,500
Infinity Broadcasting Corp. "A" .......... 215,900 7,866,856
Univision Communication, Inc. ............ 40,400 4,181,400
Viacom, Inc. "B"* ........................ 132,120 9,008,933
Walt Disney Co. .......................... 146,000 5,666,625
----------
32,911,314
----------
Cable Television 0.7%
AT&T Corp. -- Liberty Media Group
"A"* .................................. 266,000 6,450,500
----------
Service Industries 1.2%
EDP Services 0.4%
First Data Corp. ......................... 82,000 4,069,250
----------
Miscellaneous Commercial Services 0.3%
Siebel Systems, Inc. ..................... 14,000 2,289,875
----------
Shares Value ($)
--------------------------------------------------------------------------------
Printing/Publishing 0.5%
McGraw-Hill, Inc. ........................ 79,200 4,276,800
----------
Durables 1.8%
Aerospace
Boeing Co. ............................... 145,000 6,062,813
United Technologies Corp. ................ 171,000 10,067,625
----------
16,130,438
----------
Manufacturing 3.7%
Diversified Manufacturing 2.9%
General Electric Co. ..................... 425,500 22,551,500
Tyco International Ltd. .................. 77,646 3,678,479
----------
26,229,979
----------
Machinery/Components/Controls 0.3%
Parker-Hannifin Corp. .................... 80,500 2,757,125
----------
Office Equipment/Supplies 0.5%
Lexmark International Group, Inc. "A" .... 70,000 4,707,500
----------
Technology 16.2%
Computer Software 3.7%
Microsoft Corp.* ......................... 274,000 21,920,000
Oracle Corp.* ............................ 139,000 11,684,688
----------
33,604,688
----------
Diverse Electronic Products 2.9%
Dell Computer Corp.* ..................... 189,500 9,344,718
General Motors Corp. "H" (New) ........... 57,300 5,028,075
Motorola Inc. ............................ 160,500 4,664,531
Solectron Corp.* ......................... 185,000 7,746,875
----------
26,784,199
----------
EDP Peripherals 0.3%
VERITAS Software Corp.* .................. 22,000 2,486,344
----------
Electronic Components/Distributors 2.4%
Cisco Systems, Inc.* ..................... 349,000 22,183,313
----------
Electronic Data Processing 1.9%
International Business Machines
Corp .................................. 82,000 8,984,125
Sun Microsystems, Inc.* .................. 93,500 8,502,656
----------
17,486,781
----------
Semiconductors 5.0%
Applied Materials, Inc.* ................. 68,500 6,207,813
Intel Corp. .............................. 186,700 24,959,456
Teradyne, Inc.* .......................... 59,000 4,336,500
Texas Instruments, Inc. .................. 100,000 6,868,750
Xilinx, Inc. ............................. 32,000 2,642,000
----------
45,014,519
----------
Energy 4.5%
Oil & Gas Production 2.3%
Burlington Resources, Inc. ............... 107,000 4,092,750
Exxon Mobil Corp. ........................ 150,729 11,832,227
Royal Dutch Petroleum Co. ................
(New York shares) ..................... 85,000 5,232,813
----------
21,157,790
----------
The accompanying notes are an integral part of the financial statements.
32 | Kemper Variable Series --
Kemper Total Return Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Oilfield Services/Equipment 2.2%
Halliburton Co. .......................... 124,500 5,874,843
Schlumberger Ltd. ........................ 119,500 8,917,688
Shares Value ($)
--------------------------------------------------------------------------------
Transocean Sedo Forex, Inc. .............. 102,135 5,457,839
----------
20,250,370
----------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $429,499,303) 574,919,823
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $768,329,984) (a) 906,276,540
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Total Return Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreement is fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $768,329,984. At June 30,
2000, net unrealized appreciation for all securities based on tax cost
was $137,946,556. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $161,257,606 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over value of $23,311,050.
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 33
Kemper Total Return Portfolio
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
----------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (cost $768,329,984) ...................... $ 906,276,540
Cash ......................................................................... 567
Receivable for investments sold .............................................. 7,220,485
Dividends receivable ......................................................... 310,275
Interest receivable .......................................................... 6,554,012
Receivable for Portfolio shares sold ......................................... 14,841
Other assets ................................................................. 2,000
-------------
Total assets ................................................................. 920,378,720
Liabilities
----------------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed ........................................ 6,361,249
Accrued management fee ....................................................... 417,054
Other accrued expenses and payables .......................................... 253,547
-------------
Total liabilities ............................................................ 7,031,850
----------------------------------------------------------------------------------------------
Net assets, at value $ 913,346,870
----------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 11,193,014
Net unrealized appreciation (depreciation) on investments .................... 137,946,556
Accumulated net realized gain (loss) ......................................... 28,065,174
Paid-in capital .............................................................. 736,142,126
----------------------------------------------------------------------------------------------
Net assets, at value $ 913,346,870
----------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($913,346,870 / 341,163,426
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized) ..................................................... $ 2.677
-------------
----------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
Investment Income
----------------------------------------------------------------------------------------------
Income:
Dividends .................................................................... $ 2,246,003
Interest ..................................................................... 13,228,520
-------------
Total Income ................................................................. 15,474,523
-------------
Expenses:
Management fee ............................................................... 2,487,965
Custodian fees ............................................................... 36,456
Auditing ..................................................................... 149,924
Legal ........................................................................ 22,772
Trustees' fees and expenses .................................................. 27,231
Reports to shareholders ...................................................... 192,149
Registration fees ............................................................ 10,159
Other ........................................................................ 3,476
-------------
Total expenses, before expense reductions .................................... 2,930,132
Expense reductions ........................................................... (1,007)
-------------
Total expenses, after expense reductions ..................................... 2,929,125
----------------------------------------------------------------------------------------------
Net investment income (loss) 12,545,398
----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
----------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .................................... 28,908,145
Net unrealized appreciation (depreciation) during the period on investments .. (36,675,243)
----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (7,767,098)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 4,778,300
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
34 | Kemper Variable Series --
Kemper Total Return Portfolio
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................ $ 12,545,398 $ 27,648,617
Net realized gain (loss) on investment transactions ..................................... 28,908,145 45,180,101
Net unrealized appreciation (depreciation) on investment transactions during the period . (36,675,243) 52,174,093
------------- -------------
Net increase (decrease) in net assets resulting from operations ......................... 4,778,300 125,002,811
Distributions to shareholders from:
Net investment income ................................................................... (29,012,969) (27,964,602)
------------- -------------
Net realized gains ...................................................................... (43,519,453) (46,607,670)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold ............................................................... 10,828,831 107,465,092
Reinvestment of distributions ........................................................... 72,532,422 74,572,272
Cost of shares redeemed ................................................................. (54,744,811) (145,406,836)
------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions ................. 28,616,442 36,630,528
------------- -------------
Increase (decrease) in net assets ....................................................... (39,137,680) 87,061,067
Net assets at beginning of period ....................................................... 952,484,550 865,423,483
Net assets at end of period (including undistributed net investment income of $11,193,014 ------------- -------------
and $27,660,585, respectively) ....................................................... $ 913,346,870 $ 952,484,550
------------- -------------
Other Information
-----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................... 330,477,010 316,471,412
------------- -------------
Shares sold ............................................................................. 3,933,911 39,553,132
Shares issued to shareholders in reinvestment of distributions .......................... 26,801,324 27,723,580
Shares redeemed ......................................................................... (20,048,819) (53,271,114)
------------- -------------
Net increase (decrease) in Portfolio shares ............................................. 10,686,416 14,005,598
------------- -------------
Shares outstanding at end of period ..................................................... 341,163,426 330,477,010
------------- -------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $2.882 2.735 2.822 2.815 2.579 2.112
-----------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .593(b) .084(b) .086 .090 .084 .084
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.573) .303 .317 .377 .322 .453
-----------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .020 .387 .403 .467 .406 .537
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (.090) (.090) (.090) (.090) (.090) (.070)
-----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.135) (.150) (.400) (.370) (.080) --
-----------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.225) (.240) (.490) (.460) (.170) (.070)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $2.677 2.882 2.735 2.822 2.815 2.579
-----------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) .61** 14.81 15.14 19.96 16.76 25.97
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 913,347 952,485 865,423 786,996 697,102 659,894
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .64* .61 .60 .60 .59 .60
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .64* .61 .60 .60 .59 .60
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.75* 3.12 3.33 3.32 3.21 3.52
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47* 80 81 122 90 118
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 35
Kemper Total Return Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Blue Chip Portfolio
Kemper Blue Chip Portfolio was up for the semiannual period, outperforming the
S&P 500 for the month of June. A wide range of stocks pushed performance.
Specifically, portfolio holdings in health care, such as Baxter International
and Pfizer, rebounded from lows earlier in the year. Select technology issues in
the portfolio, such as Intel and Oracle, also performed well. Despite the recent
downturn in this sector, we remain bullish and believe Microsoft will pick up
momentum as Windows 2000 gains more market acceptance. This, in turn, could
indirectly benefit other established names in the sector such as computer
hardware manufacturer Dell.
Areas that hampered performance included wireless communications, retail and
financial services. These sectors fell victim to swaying consumer confidence in
a challenging market environment created by an increased economic slowdown
brought on by interest rate hikes. However, the conservative nature of the
portfolio typically enables it to hold up better than the market during bouts of
volatility.
Going forward, we believe the Kemper Blue Chip Portfolio is well positioned to
capitalize on opportunities that might arise in the blue-chip universe as a
result of uncertainty in the markets.
Tracy McCormick
Lead Portfolio Manager
36 | Kemper Variable Series --
Kemper Blue Chip Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Blue Chip Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Commercial Paper 6.2%
--------------------------------------------------------------------------------
Bell South Telecomunications Corp.,
6.3%, 7/12/2000 .............................. 2,000,000 1,995,948
Countrywide Home Loans Corp.:
6.8%, 7/10/2000 .............................. 1,500,000 1,497,450
6.83%, 7/11/2000 ............................. 2,000,000 1,996,206
Enron Corp, 6.9%, 7/7/2000 ...................... 3,000,000 2,996,550
Ford Motor Credit Co., 6.53%,
7/5/2000 ..................................... 2,000,000 1,998,549
Renaissance Energy Ltd., 7%,
7/16/2000 .................................... 3,000,000 2,997,083
--------------------------------------------------------------------------------
Total Commercial Paper (Cost $13,481,786) 13,481,786
--------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------
Common Stocks 93.8%
--------------------------------------------------------------------------------
Consumer Discretionary 6.8%
Department & Chain Stores 5.4%
Home Depot, Inc. ................................ 50,750 2,534,328
Kohl's Corp.* ................................... 41,500 2,308,438
Target Corp. .................................... 40,500 2,349,000
Wal-Mart Stores, Inc. ........................... 78,800 4,540,850
----------
11,732,616
----------
Specialty Retail 1.4%
Radioshack Corp ................................. 65,000 3,079,375
----------
Consumer Staples 5.4%
Food & Beverage 3.9%
H.J. Heinz Co. .................................. 70,500 3,084,375
PepsiCo, Inc. ................................... 125,000 5,554,688
----------
8,639,063
----------
Package Goods/Cosmetics 1.5%
Clorox Co. ...................................... 25,000 1,120,313
Colgate-Palmolive Co. ........................... 35,000 2,095,625
----------
3,215,938
----------
Health 15.8%
Biotechnology 2.3%
Amgen Inc.* ..................................... 34,000 2,388,500
Genentech, Inc.* ................................ 6,000 1,032,000
PE Corp-PE Biosystems Group ..................... 26,000 1,712,750
----------
5,133,250
----------
Medical Supply & Specialty 2.9%
Baxter International, Inc. ...................... 62,500 4,394,531
Becton, Dickinson & Co. ......................... 71,000 2,036,813
----------
6,431,344
----------
Pharmaceuticals 10.6%
Abbott Laboratories ............................. 88,000 3,921,500
Shares Value ($)
--------------------------------------------------------------------------------
Allergan, Inc. .................................. 33,800 2,518,100
Alza Corp.* ..................................... 30,000 1,773,750
Eli Lilly & Co. ................................. 33,000 3,295,875
Forest Laboratories, Inc.* ...................... 13,100 1,323,100
Merck & Co., Inc. ............................... 42,000 3,218,250
Pfizer, Inc. .................................... 105,250 5,052,000
Schering-Plough Corp. ........................... 40,500 2,045,250
----------
23,147,825
----------
Communications 2.8%
Telephone/Communications
Bell Atlantic Corp. ............................. 36,500 1,854,656
BroadWing, Inc.* ................................ 80,000 2,075,000
Qwest Communications
International Inc.* .......................... 43,000 2,136,563
----------
6,066,219
----------
Financial 14.6%
Banks 1.3%
FleetBoston Financial Corp. ..................... 46,000 1,564,000
Wells Fargo Co. ................................. 35,200 1,364,000
----------
2,928,000
----------
Insurance 5.7%
American International Group, Inc. .............. 29,875 3,510,313
Aon Corp. ....................................... 55,000 1,708,438
Cigna Corp. ..................................... 22,200 2,075,700
Hartford Financial Services
Group, Inc. .................................. 40,000 2,237,500
Jefferson Pilot Corp. ........................... 18,350 1,035,628
St. Paul Companies, Inc. ........................ 59,000 2,013,375
----------
12,580,954
----------
Consumer Finance 4.8%
American Express Co. ............................ 52,800 2,752,200
Capital One Finance Corp. ....................... 53,500 2,387,438
Citigroup, Inc. ................................. 47,750 2,876,938
Household International, Inc. ................... 57,799 2,402,271
----------
10,418,847
----------
Other Financial Companies 2.8%
Federal National Mortgage Association ........... 37,000 1,930,938
Marsh & McLennan Companies, Inc. ................ 23,000 2,402,063
Merrill Lynch & Co., Inc. ....................... 15,000 1,725,000
----------
6,058,001
----------
Media 5.9%
Broadcasting & Entertainment 5.1%
Clear Channel Communications, Inc.* ............. 20,994 1,574,550
Infinity Broadcasting Corp. "A"* ................ 81,900 2,984,231
Univision Communication, Inc.* .................. 11,600 1,200,600
Viacom, Inc. "B"* ............................... 50,051 3,412,853
Walt Disney Co.* ................................ 53,000 2,057,063
----------
11,229,297
----------
Cable Television 0.8%
AT&T Corp. -- Liberty Media Group
"A"* ......................................... 72,000 1,745,990
----------
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 37
Kemper Blue Chip Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Service Industries 2.6%
EDP Services 0.8%
First Data Corp. .............................. 34,500 1,712,063
-----------
Miscellaneous Commercial Services 0.8%
Siebel Systems, Inc.* ......................... 11,000 1,799,188
-----------
Printing/Publishing 1.0%
McGraw-Hill, Inc. ............................. 40,100 2,165,400
-----------
Durables 2.5%
Aerospace
Boeing Co. .................................... 51,000 2,132,438
United Technologies Corp. ..................... 58,000 3,414,750
-----------
5,547,188
-----------
Manufacturing 5.5%
Diversified Manufacturing 3.4%
General Electric Co. .......................... 121,800 6,455,400
Tyco International Ltd. ....................... 20,608 976,304
-----------
7,431,704
-----------
Industrial Specialty 0.7%
Corning, Inc. ................................. 6,000 1,619,250
-----------
Machinery/Components/Controls 0.5%
Parker-Hannifin Corp. ......................... 30,000 1,027,500
-----------
Office Equipment/Supplies 0.9%
Lexmark International Group, Inc. .............
"A"* ....................................... 28,000 1,883,000
-----------
Technology 25.1%
Computer Software 5.9%
Intuit, Inc.* ................................. 28,000 1,158,500
Microsoft Corp.* .............................. 99,000 7,920,000
Oracle Corp.* ................................. 47,000 3,950,938
-----------
13,029,438
-----------
Diverse Electronic Products 4.6%
Dell Computer Corp.* .......................... 68,000 3,353,250
Shares Value ($)
--------------------------------------------------------------------------------
General Motors Corp. "H"* ..................... 25,000 2,193,750
Motorola Inc.* ................................ 61,400 1,784,438
Solectron Corp.* .............................. 64,800 2,713,500
-----------
10,044,938
-----------
EDP Peripherals 0.5%
VERITAS Software Corp.* ....................... 10,000 1,130,156
-----------
Electronic Components/Distributors 3.0%
Cisco Systems, Inc.* .......................... 102,900 6,540,581
-----------
Electronic Data Processing 2.5%
International Business Machines Corp. ......... 30,900 3,385,481
Sun Microsystems, Inc.* ....................... 23,700 2,155,219
-----------
5,540,700
-----------
Semiconductors 8.6%
Applied Materials, Inc.* ...................... 27,000 2,446,875
Intel Corp. ................................... 67,000 8,957,063
KLA Tencor Corp.* ............................. 29,000 1,698,313
Teradyne, Inc.* ............................... 18,000 1,323,000
Texas Instruments, Inc. ....................... 51,000 3,503,063
Xilinx, Inc.* ................................. 12,000 990,750
-----------
18,919,064
-----------
Energy 6.8%
Oil & Gas Production 3.7%
Burlington Resources, Inc. .................... 40,000 1,530,000
Exxon Mobil Corp. ............................. 52,770 4,142,445
Royal Dutch Petroleum Co.
(New York shares) .......................... 38,000 2,339,375
-----------
8,011,820
-----------
Oilfield Services/Equipment 3.1%
Halliburton Co. ............................... 43,000 2,029,063
Schlumberger Ltd. ............................. 43,500 3,246,188
Transocean Sedo Forex, Inc. ................... 29,904 1,597,995
-----------
6,873,246
-----------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $169,968,075) 205,681,955
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $183,449,861) (a) 219,163,741
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Blue Chip Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $183,449,861. At June 30,
2000, net unrealized appreciation for all securities based on tax cost
was $35,713,880. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $41,657,192 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over value of $5,943,312.
The accompanying notes are an integral part of the financial statements.
38 | Kemper Variable Series --
Kemper Blue Chip Portfolio
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
-----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $183,449,861) ...................... $ 219,163,741
Receivable for investments sold .............................................. 1,655,029
Dividends receivable ......................................................... 107,438
Receivable for Portfolio shares sold ......................................... 154,298
-------------
Total assets ................................................................. 221,080,506
Liabilities
-----------------------------------------------------------------------------------------------
Due to custodian bank ........................................................ 238,257
Payable for investments purchased ............................................ 1,949,750
Payable for Portfolio shares redeemed ........................................ 29,549
Accrued management fee ....................................................... 111,456
Other accrued expenses and payables .......................................... 30,723
-------------
Total liabilities ............................................................ 2,359,735
-----------------------------------------------------------------------------------------------
Net assets $ 218,720,771
-----------------------------------------------------------------------------------------------
Net Assets
-----------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 175,518
Net unrealized appreciation (depreciation) on investments .................... 35,713,880
Accumulated net realized gain (loss) ......................................... (72,067)
Paid-in capital .............................................................. 182,903,440
-----------------------------------------------------------------------------------------------
Net assets, at value $ 218,720,771
-----------------------------------------------------------------------------------------------
Net Asset Value
-----------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($218,720,771/ 140,416,189
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized) ..................................................... $ 1.557
-------------
-----------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
-----------------------------------------------------------------------------------------------
Investment Income
-----------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $6,044) .......................... $ 713,258
Interest ..................................................................... 336,631
-------------
Total Income ................................................................. 1,049,889
-------------
Expenses:
Management fee ............................................................... 646,429
Custodian fees ............................................................... 16,625
Auditing ..................................................................... 15,544
Legal ........................................................................ 2,834
Trustees' fees and expenses .................................................. 8,288
Reports to shareholders ...................................................... 945
Registration fees ............................................................ 550
-------------
Total expenses, before expense reductions .................................... 691,215
Expense reductions ........................................................... (116)
-------------
Total expenses, after expense reductions ..................................... 691,099
-----------------------------------------------------------------------------------------------
Net investment income (loss) 358,790
-----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
-----------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .................................... 1,960,679
-------------
Net unrealized appreciation (depreciation) during the period on investments .. (2,342,060)
-----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (381,381)
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (22,591)
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 39
Kemper Blue Chip Portfolio
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................. $ 358,790 $ 825,215
Net realized gain (loss) on investment transactions ...................................... 1,960,679 1,076,081
Net unrealized appreciation (depreciation) on investment transactions during the period .. (2,342,060) 28,749,940
------------- -------------
Net increase (decrease) in net assets resulting from operations .......................... (22,591) 30,651,236
Distributions to shareholders from:
Net investment income .................................................................... (776,598) (587,311)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold ................................................................ 39,664,364 82,946,795
Reinvestment of distributions ............................................................ 776,598 587,311
Cost of shares redeemed .................................................................. (6,337,436) (6,495,609)
------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions .................. 34,103,526 77,038,497
------------- -------------
Increase (decrease) in net assets ........................................................ 33,304,337 107,102,422
Net assets at beginning of period ........................................................ 185,416,434 78,314,012
Net assets at end of period (including undistributed net investment income of $175,518 and ------------- -------------
$593,326, respectively) ............................................................... $ 218,720,771 $ 185,416,434
------------- -------------
Other Information
-----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ................................................ 118,171,531 62,167,000
------------- -------------
Shares sold .............................................................................. 25,986,636 60,342,144
Shares issued to shareholders in reinvestment of distributions ........................... 487,472 426,104
Shares redeemed .......................................................................... (4,229,450) (4,763,717)
------------- -------------
Net increase (decrease) in Portfolio shares .............................................. 22,244,658 56,004,531
------------- -------------
Shares outstanding at end of period ...................................................... 140,416,189 118,171,531
------------- -------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997(b)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.569 1.260 1.115 1.000
-----------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .002(c) .009(c) .010 .017
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.008) .308 .145 .098
-----------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.006) .317 .155 .115
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (.006) (.008) (.010) --
-----------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.006) (.008) (.010) --
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.557 1.569 1.260 1.115
-----------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (.35)** 25.24 13.84 11.54**
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 218,721 185,416 78,314 5,023
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .70* .71 .76 .95*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .70* .70 .76 .95*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .36* .67 1.18 2.07*
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 79* 64 102 78*
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period May 1, 1997 (commencement of operations) to December 31,
1997.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
40 | Kemper Variable Series --
Kemper Blue Chip Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Growth Portfolio
Savvy technology stock selection early in the second quarter of fiscal year 2000
helped power the portfolio to solid six-month returns. The fund's returns were
in line with the unmanaged Russell 1000 Growth Index, which was up 4.23% for the
six months ended June 30.
In the second calendar quarter, there was a sharp market correction in retail
stocks, increased volatility in most sectors, especially technology, and a high
degree of uncertainty about the future course of Federal Reserve monetary
policy. In our view, the Fed will need to stop raising interest rates to restore
more confidence in the market. That could help reduce short-term volatility.
During the first quarter, we suspected early on there would be a shift in
investor psychology about technology, and we had a wish list ready to go when
the group corrected in the spring. In April, Malter increased the fund's
technology exposure amid market weakness, adding Juniper Networks, Broadcom and
Ariba, and each made a positive contribution to first half results. Health care
stocks, particularly biotech, did well during the period.
Within technology, strength was found in individual stocks. Wireless
communication, personal computer and Internet sectors were hurt but many
companies with solid earnings prospects outperformed the broader market.
The portfolio's management team swapped positions in the media, satellite TV and
retail sectors, replacing stocks that showed signs of fundamental weakness with
companies with brighter earnings prospects. We shifted our media focus in favor
of content-oriented companies rather than distribution companies. Overall, we
believe the portfolio's disciplined investment style reduced our downside risk
during an extremely volatile period. We continue to focus on selecting companies
with the best growth prospects in a broad range of sectors.
Valerie F. Malter
Lead Portfolio Manager
Kemper Variable Series -- | 41
Kemper Growth Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Growth Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreements 0.0%
--------------------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at
$322,174 on 7/3/2000** ----------
(Cost $322,000) ....................... 322,000 322,000
----------
--------------------------------------------------------------------------------
Commercial Paper 3.0%
--------------------------------------------------------------------------------
Countrywide Home Loans Corp.,
6.8%, 7/10/2000 ....................... 5,000,000 4,991,500
Detroit Edison Co., 7.15%,
7/14/2000 ............................. 4,000,000 3,989,672
Enron Corp, 6.9%, 7/6/2000 ............... 5,000,000 4,995,208
Ford Motor Credit Co., 6.53%,
7/5/2000 .............................. 4,500,000 4,496,655
IBM Credit Corp., 6.51%, 7/7/2000 ........ 4,000,000 3,995,613
--------------------------------------------------------------------------------
Total Commercial Paper (Cost $22,468,648) 22,468,648
--------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Common Stocks 97.0%
--------------------------------------------------------------------------------
Consumer Discretionary 7.1%
Department & Chain Stores 6.1%
Gap, Inc. ................................ 169,800 5,306,250
Home Depot, Inc. ......................... 225,750 11,273,391
Kohl's Corp.* ............................ 139,300 7,748,563
Target Corp. ............................. 118,400 6,867,200
Wal-Mart Stores, Inc. .................... 260,400 15,005,550
----------
46,200,954
----------
Recreational Products 0.3%
Premier Parks, Inc. ...................... 114,200 2,598,050
----------
Specialty Retail 0.7%
Circuit City Stores, Inc. ................ 157,600 5,230,350
----------
Consumer Staples 6.6%
Food & Beverage 1.9%
PepsiCo, Inc. ............................ 320,600 14,246,663
----------
Package Goods/Cosmetics 4.7%
Colgate-Palmolive Co. .................... 251,600 15,064,550
Estee Lauder Companies Inc. "A" .......... 213,900 10,574,681
Gillette Co. ............................. 275,400 9,621,788
----------
35,261,019
----------
Shares Value ($)
--------------------------------------------------------------------------------
Health 16.1%
Biotechnology 3.1%
Genentech, Inc.* ......................... 68,000 11,696,000
MedImmune, Inc.* ......................... 157,800 11,677,200
----------
23,373,200
----------
Medical Supply & Specialty 2.5%
Medtronic, Inc. .......................... 379,370 18,897,368
----------
Pharmaceuticals 10.5%
Allergan, Inc. ........................... 99,600 7,420,200
Johnson & Johnson, Inc. .................. 118,700 12,092,563
Merck & Co., Inc. ........................ 213,000 16,321,125
Pfizer, Inc. ............................. 902,350 43,312,800
----------
79,146,688
----------
Communications 4.6%
Cellular Telephone 2.5%
American Tower Corp. "A"* ................ 109,100 4,548,106
Nokia Oyj (ADR) .......................... 155,950 7,787,753
Vodafone AirTouch plc (ADR) .............. 149,700 6,203,194
----------
18,539,053
----------
Telephone/Communications 2.1%
JDS Uniphase Corp.* ...................... 131,840 15,804,320
----------
Financial 2.8%
Insurance 1.0%
American International Group, Inc. ....... 65,475 7,693,313
----------
Consumer Finance 0.8%
American Express Co. ..................... 121,800 6,348,825
----------
Other Financial Companies 1.0%
Morgan Stanley Dean Witter & Co. ......... 88,700 7,384,275
----------
Media 6.4%
Advertising 0.9%
Omnicom Group, Inc. ...................... 77,800 6,929,063
----------
Broadcasting &
Entertainment 4.4%
Clear Channel
Communications, Inc.* ................. 135,600 10,170,000
Univision Communication, Inc.* ........... 69,300 7,172,550
Viacom, Inc. "B"* ........................ 131,000 8,932,562
Walt Disney Co. .......................... 184,500 7,160,906
----------
33,436,018
----------
Cable Television 1.1%
AT&T Corp. -- Liberty Media
Group "A"* ............................ 331,800 8,046,150
----------
The accompanying notes are an integral part of the financial statements.
42 | Kemper Variable Series --
Kemper Growth Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Service Industries 2.7%
EDP Services 0.9%
Electronic Data Systems Corp. ............ 155,750 6,424,687
-----------
Investment 0.9%
Charles Schwab Corp. ..................... 203,400 6,839,325
-----------
Miscellaneous Commercial
Services 0.9%
Siebel Systems, Inc.* .................... 39,410 6,445,998
-----------
Durables 1.4%
Telecommunications Equipment
Lucent Technologies, Inc. ................ 180,400 10,688,700
-----------
Manufacturing 6.0%
Diversified Manufacturing
General Electric Co. ..................... 661,200 35,043,600
Textron, Inc. ............................ 191,500 10,400,844
-----------
45,444,444
-----------
Technology 42.0%
Computer Software 8.9%
America Online, Inc.* .................... 267,400 14,105,350
Computer Associates International,
Inc ................................... 108,470 5,552,308
I2 Technologies Inc.* .................... 42,860 4,468,825
Microsoft Corp.* ......................... 397,950 31,836,000
Oracle Corp.* ............................ 131,630 11,065,147
-----------
67,027,630
-----------
Diverse Electronic Products 6.9%
Aether Systems, Inc.* .................... 47,480 9,733,400
Shares Value ($)
--------------------------------------------------------------------------------
Applied Materials, Inc.* ................. 191,790 17,380,968
Dell Computer Corp.* ..................... 132,890 6,553,138
General Motors Corp. "H" (New) ........... 83,840 7,356,960
Teradyne, Inc.* .......................... 148,190 10,891,965
-----------
51,916,431
-----------
EDP Peripherals 3.0%
Ariba, Inc.* ............................. 104,490 10,244,918
EMC Corp.* ............................... 157,620 12,126,888
-----------
22,371,806
-----------
Electronic Components/
Distributors 8.3%
Broadcom Corp.* .......................... 33,410 7,314,702
Cisco Systems, Inc.* ..................... 782,400 49,731,300
Juniper Networks, Inc.* .................. 35,000 5,094,688
-----------
62,140,690
-----------
Electronic Data Processing 4.8%
International Business Machines
Corp .................................. 70,010 7,670,471
Sun Microsystems, Inc.* .................. 310,910 28,273,378
-----------
35,943,849
-----------
Semiconductors 10.1%
Intel Corp. .............................. 386,640 51,688,935
Linear Technology Corp. .................. 190,530 12,182,012
Vitesse Semiconductor Corp.* ............. 167,060 12,289,351
-----------
76,160,298
-----------
Energy 1.3%
Oilfield Services/Equipment
Schlumberger Ltd. ........................ 126,200 9,417,675
-----------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $486,985,440) 729,956,842
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $509,776,088) (a) 752,747,490
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Growth Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $509,776,088. At June 30,
2000, net unrealized appreciation for all securities based on tax cost
was $242,971,402. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $266,331,652 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over value of $23,360,250.
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- 43
Kemper Growth Portfolio
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
-----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $509,776,088) ...................... $ 752,747,490
Cash ......................................................................... 388
Receivable for investments sold .............................................. 4,566,158
Dividends receivable ......................................................... 214,662
Interest receivable .......................................................... 58
Foreign taxes recoverable .................................................... 626
-------------
Total assets ................................................................. 757,529,382
Liabilities
-----------------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed ........................................ 436,439
Accrued management fee ....................................................... 370,653
Other accrued expenses and payables .......................................... 141,092
-------------
Total liabilities ............................................................ 948,184
-----------------------------------------------------------------------------------------------
Net assets, at value $ 756,581,198
-----------------------------------------------------------------------------------------------
Net Assets
-----------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated net investment loss .............................................. $ (497,957)
Net unrealized appreciation (depreciation) on:
Investment securities ........................................................ 242,971,402
Foreign currency related transactions ........................................ (122)
Accumulated net realized gain (loss) ......................................... 49,313,386
Paid-in capital .............................................................. 464,794,489
-----------------------------------------------------------------------------------------------
Net assets, at value $ 756,581,198
-----------------------------------------------------------------------------------------------
Net Asset Value
-----------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($756,581,198 / 194,923,645
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized) $ 3.881
-------------
-----------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
-----------------------------------------------------------------------------------------------
Investment Income
-----------------------------------------------------------------------------------------------
Income:
Dividends .................................................................... $ 1,398,728
Interest ..................................................................... 483,694
-------------
Total Income ................................................................. 1,882,422
-------------
Expenses:
Management fee ............................................................... 2,196,650
Custodian fees ............................................................... 17,694
Auditing ..................................................................... 73,321
Legal ........................................................................ 13,111
Trustees' fees and expenses .................................................. 16,453
Reports to shareholders ...................................................... 44,368
Registration fees ............................................................ 12,459
Interest expense ............................................................. 1,814
Other ........................................................................ 5,598
-------------
Total expenses, before expense reductions .................................... 2,381,468
Expense reductions ........................................................... (1,145)
-------------
Total expenses, after expense reductions ..................................... 2,380,323
-----------------------------------------------------------------------------------------------
Net investment income (loss) (497,901)
-----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
-----------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .................................... 51,292,014
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................................. (20,375,875)
Foreign currency related transactions ........................................ (122)
-------------
(20,375,997)
-----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 30,916,017
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 30,418,116
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
44 | Kemper Variable Series --
Kemper Growth Portfolio
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................. $ (497,901) $ (244,056)
Net realized gain (loss) on investment transactions ...................................... 51,292,014 67,787,535
Net unrealized appreciation (depreciation) on investment transactions during the period .. (20,375,997) 138,673,190
------------- -------------
Net increase (decrease) in net assets resulting from operations .......................... 30,418,116 206,216,669
Distributions to shareholders from:
Net realized gains ....................................................................... (64,685,654) --
------------- -------------
Portfolio share transactions:
Proceeds from shares sold ................................................................ 43,853,956 51,314,647
Reinvestment of distributions ............................................................ 64,685,654 --
Cost of shares redeemed .................................................................. (55,381,914) (148,391,395)
------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions .................. 53,157,696 (97,076,748)
------------- -------------
Increase (decrease) in net assets ........................................................ 18,890,158 109,139,921
Net assets at beginning of period ........................................................ 737,691,040 628,551,119
Net assets at end of period (including accumulated net investment loss of ------------- -------------
$497,957 at June 30, 2000) ............................................................ $ 756,581,198 $ 737,691,040
------------- -------------
Other Information
---------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ................................................ 181,948,508 212,587,320
------------- -------------
Shares sold .............................................................................. 11,098,562 15,490,628
Shares issued to shareholders in reinvestment of distributions ........................... 16,086,477 --
Shares redeemed .......................................................................... (14,209,902) (46,129,440)
------------- -------------
Net increase (decrease) in Portfolio shares .............................................. 12,975,137 (30,638,812)
------------- -------------
Shares outstanding at end of period ...................................................... 194,923,645 181,948,508
------------- -------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $4.054 2.957 3.001 3.371 3.262 2.665
------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.003)(b)(.001)(b) .007 .012 .030 .034
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .190 1.098 .459 .448 .589 .793
------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .187 1.097 .466 .460 .619 .827
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income -- -- (.010) (.020) (.040) (.010)
-----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.360) -- (.500) (.810) (.470) (.220)
------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.360) -- (.510) (.830) (.510) (.230)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.881 4.054 2.957 3.001 3.371 3.262
------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) 4.30** 37.12 15.10 21.34 21.63 32.97
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 756,581 737,691 628,551 563,016 487,483 414,533
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .65* .66 .66 .65 .64 .64
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .65* .66 .66 .65 .64 .64
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.14)* (.04) .28 .42 94 1.15
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 58* 87 109 170 175 88
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- 45
Kemper Growth Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Aggressive Growth Portfolio
The Kemper Aggressive Growth Portfolio posted strong returns for the semiannual
period, outpacing both the S&P 500 and the Russell 3000 Index. That performance
came despite periods of market volatility and a hostile technology environment.
The portfolio's strong showing can be attributed to a number of factors. For
example, an underweighting in retail and financial stocks helped us avoid
general weakness in that sector, while our large technology exposure allowed us
to capitalize on a number of attractive opportunities. Some of the names that
performed well during the quarter include Time Warner Telecom, Applied Micro
Circuits and Vitesse.
Technology was a mixed bag for the fund, as the portfolio's best and worst
performing issues came from this sector. Most notably, Microsoft, which lost
ground in the wake of anti-trust proceedings, recently rebounded as legal news
surrounding the software giant took a backseat and investors re-focused on
fundamentals and solid earnings.
Even in the face of volatile market conditions, there are positive long
term-growth trends that look especially promising in technology. The fiber
optics area is one place where we have not seen any profit warnings and demand
is increasing. The portfolio also benefited from its stock selection. As most
retailers declined in the slowing economy, portfolio holding Kohl's gained. As
we move forward, we remain focused on companies in exciting growth industries
with proper values.
Sewall F. Hodges
Lead Portfolio Manager
As a non-diversified portfolio, it can invest more than 5% of its assets in the
securities of a particular issuer. This presents greater risk of loss of
principal as the financial condition or market's assessment of such securities
changes.
46 | Kemper Variable Series --
Kemper Aggressive Growth Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Aggressive Growth Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreements 1.2%
--------------------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at
$510,275 on 7/3/2000** ---------
(Cost $510,000) .......................... 510,000 510,000
---------
--------------------------------------------------------------------------------
Short-Term Obligations 20.9%
--------------------------------------------------------------------------------
Federal Home Loan Bank Discount Note:
6.4%, 7/5/2000*** ........................ 3,500,000 3,497,507
6.45%, 7/6/2000*** ....................... 4,000,000 3,996,411
Federal National Mortgage Association
Discount Note, 6.45%, 7/7/2000*** ........ 1,500,000 1,498,400
--------------------------------------------------------------------------------
Total Short-Term Obligations (Cost $8,992,318) 8,992,318
--------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Common Stocks 77.9%
--------------------------------------------------------------------------------
Consumer Discretionary 2.2%
Department & Chain Stores 1.3%
Kohl's Corp.* ............................... 9,900 550,683
---------
Recreational Products 0.5%
Harley-Davidson, Inc. ....................... 5,400 207,895
---------
Restaurants 0.4%
CEC Entertainment, Inc.* .................... 7,200 184,500
---------
Health 6.7%
Biotechnology 3.2%
Immunex Corp.* .............................. 7,400 365,838
Invitrogen Corp.* ........................... 2,000 150,406
QLT PhotoTheraputics, Inc.* ................. 4,500 349,497
Waters Corp.* ............................... 4,000 499,250
---------
1,364,991
---------
Medical Supply & Specialty 3.3%
Andrx Corp.* ................................ 11,300 722,317
Medtronic, Inc. ............................. 10,698 532,894
ResMed, Inc.* ............................... 7,000 187,250
---------
1,442,461
---------
Pharmaceuticals 0.1%
Charles River Laboratories
International, Inc.* ..................... 2,900 64,344
---------
Communications 4.1%
Telephone/Communications 4.1%
Adelphia Business Solutions, Inc.* .......... 10,600 245,788
Shares Value ($)
--------------------------------------------------------------------------------
BroadWing, Inc. ............................. 12,600 326,813
Pinnacle Holdings, Inc.* .................... 6,600 356,400
Time Warner Telecom, Inc. "A"* .............. 13,200 849,750
---------
1,778,751
---------
Media 2.4%
Broadcasting & Entertainment
Citadel Communications Corp.* ............... 9,300 324,919
Cumulus Media, Inc. "A"* .................... 1,800 16,425
Univision Communication, Inc.* .............. 3,700 382,950
Viacom, Inc. "B"* ........................... 4,504 307,117
---------
1,031,411
---------
Service Industries 6.6%
EDP Services 3.6%
CSG Systems International, Inc.* ............ 6,600 370,013
Fiserv Inc.* ................................ 16,300 704,975
PSINet, Inc.* ............................... 10,100 253,763
Sapient Corp.* .............................. 1,900 203,181
---------
1,531,932
---------
Miscellaneous Commercial Services 2.6%
CMG Information Services, Inc.* ............. 2,600 119,113
Concord EFS, Inc.* .......................... 30,000 780,000
Internap Network Services Corp.* ............ 4,900 203,427
---------
1,102,540
---------
Miscellaneous Consumer Services 0.5%
eBay, Inc.* ................................. 3,600 195,525
---------
Durables 2.3%
Telecommunications Equipment
Antec Corp.* ................................ 9,300 386,531
Spectrasite Holdings, Inc.* ................. 13,900 394,413
Tellabs, Inc.* .............................. 2,900 198,469
---------
979,413
---------
Manufacturing 3.2%
Electrical Products 1.8%
Anadigics, Inc.* ............................ 10,100 344,031
Nanometrics, Inc.* .......................... 10,300 424,231
---------
768,262
---------
Industrial Specialty 0.9%
Corning, Inc. ............................... 1,400 377,825
---------
Office Equipment/Supplies 0.6%
Lexmark International Group,
Inc. "A"* ................................ 3,600 242,100
---------
Technology 48.5%
Computer Software 10.2%
Advanced Digital Information Corp.* ......... 8,500 135,469
Broadvision, Inc.* .......................... 6,882 349,692
Check Point Software
Technologies, Ltd. ....................... 3,800 804,650
Comverse Technologies, Inc.* ................ 6,100 567,300
Davox Corp.* ................................ 9,600 124,200
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 47
Kemper Aggressive Growth Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Evolving Software, Inc.* ................. 9,000 52,875
FirstWorld Communications Inc. "B"* ...... 500 5,250
HNC Software, Inc.* ...................... 3,300 203,775
Information Architects Corp.* ............ 10,900 75,619
Intuit, Inc.* ............................ 10,900 450,988
MetaCreations Corp.* ..................... 5,900 70,800
Microsoft Corp.* ......................... 7,700 616,000
PeopleSoft, Inc.* ........................ 13,500 226,125
SAP AG (Sponsored ADR) ................... 6,200 291,013
Verity, Inc.* ............................ 9,800 372,400
VocalTec, Ltd.* .......................... 4,200 96,600
----------
4,442,756
----------
Diverse Electronic Products 3.3%
Dell Computer Corp.* ..................... 7,100 350,119
Natural Microsystems Corp.* .............. 2,400 269,850
RF Micro Devices, Inc.* .................. 3,900 341,738
Solectron Corp.* ......................... 10,900 456,438
----------
1,418,145
----------
EDP Peripherals 6.6%
EMC Corp.* ............................... 7,700 592,419
Mercury Interactive Corp.* ............... 10,000 967,500
Network Appliance, Inc.* ................. 4,700 378,350
Symbol Technologies, Inc. ................ 16,950 915,300
----------
2,853,569
----------
Electronic Components/Distributors 7.3%
Analog Devices, Inc.* .................... 4,300 326,800
Applied Micro Circuits Corp.* ............ 6,700 661,625
Cisco Systems, Inc.* ..................... 5,800 368,663
Jabil Circuit* ........................... 9,800 486,325
Three-Five Systems, Inc.* ................ 10,000 590,000
Vishay Intertechnology, Inc.* ............ 18,450 699,947
----------
3,133,360
----------
Shares Value ($)
--------------------------------------------------------------------------------
Office/Plant Automation 1.4%
3Com Corp.* .............................. 2,800 161,350
Mercury Computer Systems, Inc.* .......... 14,000 452,375
----------
613,725
----------
Precision Instruments 3.5%
Credence Systems Corp.* .................. 6,800 375,275
Excel Technology, Inc.* .................. 10,900 548,406
Photon Dynamics, Inc.* ................... 7,600 567,625
----------
1,491,306
----------
Semiconductors 16.2%
Atmel Corp.* ............................. 13,700 505,188
California Micro Devices Corp.* .......... 4,800 145,800
Elantec Semiconductor, Inc.* ............. 3,500 243,688
Intel Corp. .............................. 4,800 641,700
Intersil Holding Corp.* .................. 7,600 410,875
Linear Technology Corp.* ................. 7,700 492,319
Pericom Semiconductor Corp.* ............. 8,000 544,000
QLogic Corp.* ............................ 6,600 436,013
SDL, Inc.* ............................... 3,100 884,081
Sanmina Corp.* ........................... 9,700 829,350
Silicon Storage Technology, Inc.* ........ 8,300 732,994
Siliconix, Inc.* ......................... 2,000 135,000
Vitesse Semiconductor Corp.* ............. 13,300 978,381
----------
6,979,389
----------
Energy 1.9%
Oil & Gas Production
Anadarko Petroleum Corp. ................. 8,300 409,294
Nabors Industries, Inc.* ................. 9,400 390,688
----------
799,982
----------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $30,817,738) 33,554,865
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $40,320,056) (a) 43,057,183
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Aggressive Growth Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
*** Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $40,320,056. At June 30,
2000, net unrealized appreciation for all securities based on tax cost
was $2,737,127. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $5,217,496 and aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over value
of $2,480,369.
The accompanying notes are an integral part of the financial statements.
48 | Kemper Variable Series --
Kemper Aggressive Growth Portfolio
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $40,320,056) ......................... $ 43,057,183
Cash ........................................................................... 49,911
Receivable for investments sold ................................................ 94,336
Interest receivable ............................................................ 92
Receivable for Portfolio shares sold ........................................... 281,892
Foreign taxes recoverable ...................................................... 121
------------
Total assets ................................................................... 43,483,535
------------
Liabilities
------------------------------------------------------------------------------------------------
Payable for investments purchased .............................................. 48,205
Other accrued expenses and payables ............................................ 22,999
------------
Total liabilities .............................................................. 71,204
------------------------------------------------------------------------------------------------
Net assets, at value $ 43,412,331
------------------------------------------------------------------------------------------------
Net Assets
------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ............................................ $ 150,826
Net unrealized appreciation (depreciation) on investments ...................... 2,737,127
Accumulated net realized gain (loss) ........................................... (391,070)
Paid-in capital ................................................................ 40,915,448
------------------------------------------------------------------------------------------------
Net assets, at value $ 43,412,331
------------------------------------------------------------------------------------------------
Net Asset Value
------------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($43,412,331 / 28,345,106
outstanding shares of beneficial interest, $.01 par value, unlimited number ------------
of shares authorized) $ 1.532
------------
------------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
------------------------------------------------------------------------------------------------
Investment Income
------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $74) ............................... $ 3,130
Interest ....................................................................... 259,315
------------
Total Income ................................................................... 262,445
------------
Expenses:
Management fee ................................................................. 102,832
Custodian and accounting fees .................................................. 30,712
Auditing ....................................................................... 1,400
Legal .......................................................................... 1,115
Trustees' fees and expenses .................................................... 10,995
Reports to shareholders ........................................................ 1,000
Registration fees .............................................................. 5,270
Other .......................................................................... 50
------------
Total expenses, before expense reductions ...................................... 153,374
Expense reductions ............................................................. (23,105)
------------
Total expenses, after expense reductions ....................................... 130,269
------------------------------------------------------------------------------------------------
Net investment income (loss) 132,176
------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................................... (333,847)
Foreign currency related transactions .......................................... (33)
------------
(333,880)
Net unrealized appreciation (depreciation) during the period on Investments .... 1,125,605
------------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 791,725
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 923,901
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 49
Kemper Aggressive Growth Portfolio
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Period Ended
Ended December 31,
June 30, 2000 1999(a)
Increase (Decrease) in Net Assets (Unaudited)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................. $ 132,176 $ 18,653
Net realized gain (loss) on investment transactions ...................................... (333,880) 138,836
Net unrealized appreciation (depreciation) on investment transactions during the period .. 1,125,605 1,611,522
------------ ------------
Net increase (decrease) in net assets resulting from operations .......................... 923,901 1,769,011
Distribution to shareholders from:
Net realized gains ....................................................................... (196,026) --
------------ ------------
Portfolio share transactions:
Proceeds from shares sold ................................................................ 32,232,384 8,842,615
Reinvestment of distributions ............................................................ 196,026 --
Cost of shares redeemed .................................................................. (1,413,976) (441,604)
------------ ------------
Net increase (decrease) in net asssets from Portfolio share transactions ................. 31,014,434 8,401,011
------------ ------------
Increase (decrease) in net assets ........................................................ 31,742,309 10,170,022
Net assets at beginning of period ........................................................ 11,670,022 1,500,000
Net assets at end of period (including undistributed net investment income of $150,826 and
$18,650, respectively)
......................................................................................... $ 43,412,331 $ 11,670,022
Other Information
-----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ................................................ 8,342,278 1,500,000
------------ ------------
Shares sold .............................................................................. 20,856,226 7,189,659
Shares issued to shareholders in reinvestment of distributions ........................... 121,102 --
Shares redeemed .......................................................................... (974,500) (347,381)
------------ ------------
Net increase (decrease) in Portfolio shares .............................................. 20,002,828 6,842,278
------------ ------------
Shares outstanding at end of period ...................................................... 28,345,106 8,342,278
------------ ------------
</TABLE>
(a) For the period from May 1, 1999 (commencement of operations) to
December 31, 1999.
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
2000(a) 1999(b)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $1.399 1.000
------------------
----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
----------------------------------------------------------------------------------------------------------
Net investment income (loss) (c) .008 .006
----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .135 .393
------------------
----------------------------------------------------------------------------------------------------------
Total from investment operations .143 .399
----------------------------------------------------------------------------------------------------------
Less distributions from:
----------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investment transactions (.010) --
------------------
----------------------------------------------------------------------------------------------------------
Total distributions (.010) --
----------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.532 1.399
------------------
----------------------------------------------------------------------------------------------------------
Total Return (%) 10.16** 39.89**
----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 43,412 11,670
----------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.12* 2.66*
----------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .95* .95*
----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .97* .80*
----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 1.77* 90*
----------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from May 1, 1999 (commencement of operations) to
December 31, 1999.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
50 | Kemper Variable Series --
Kemper Aggressive Growth Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Horizon 20+ Portfolio
The first six months of calendar year 2000 was a challenging period for Horizon
20+ Portfolio. Growth stocks outpaced value stocks. Based on price fluctuations
of Nasdaq-traded stocks, equities were more volatile than at any point since the
early 1990s. It was a time we believe illustrated by the potential benefits of
maintaining a diverse global portfolio. Bonds, particularly Treasuries,
generally outperformed large-cap domestic stocks.
In the first quarter, we attempted to reduce the effects of short-term stock
price volatility on equity returns by realigning assets to more closely match a
diverse, unmanaged blend of domestic and international stocks. In the
fixed-income area, we stuck by our mandate to focus on high quality,
shorter-term securities. This positioning helped preserve principal and enhance
income potential as the Federal Reserve Board raised short-term interest rates.
The portfolio was underweighted in technology companies relative to its
composite benchmark because we believed many stocks in this sector were
overpriced. This positioning helped reduce volatility when the Nasdaq Composite
Index declined sharply in early spring.
In the second quarter, strong returns from large holdings such as Pfizer and
Merck helped lift results. This was offset by weakness in selected technology
shares such as Microsoft and Cisco Systems.
Throughout the first half of the year, the portfolio's domestic stock holdings
had a lower-than-average price/earnings ratio (P/E) compared to the portfolio's
equity benchmark (an unmanaged blend of 70% Russell 1000 Index stocks and 30%
Russell 2000 Index stocks). We believe this valuation discipline should serve
the portfolio well in the coming months.
Robert D. Tymoczko
Lead Portfolio Manager
Kemper Variable Series -- | 51
Kemper Horizon 20+ Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Horizon 20+ Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreements 2.4%
--------------------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at $787,425 ---------
on 7/3/2000** (Cost $787,000) ................ 787,000 787,000
---------
--------------------------------------------------------------------------------
U.S. Government & Agencies 18.3%
--------------------------------------------------------------------------------
U.S. Treasury Notes:
8.5%, 11/15/2000 ............................. 650,000 655,077
5.5%, 12/31/2000 ............................. 675,000 672,044
6.5%, 5/31/2001 .............................. 1,560,000 1,560,000
6.625%, 7/31/2001 ............................ 1,700,000 1,702,125
6.25%, 2/28/2002 ............................. 830,000 827,145
7.875%, 11/15/2004 ........................... 501,000 530,514
--------------------------------------------------------------------------------
Total U.S. Government & Agencies (Cost $6,115,309) 5,946,905
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. Government Agency Pass-Thrus 0.7%
--------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,:
6% with various maturities to
4/15/2006 .................................. 14,218 14,138
6.5% with various maturities to
10/17/2014 ................................. 54,001 53,798
Federal National Mortgage Association,
6.01% with various maturities to
7/24/2000 .................................... 150,000 149,976
--------------------------------------------------------------------------------
Total U.S. Government Agency Pass-Thrus
(Cost $217,291) 217,912
--------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------
Preferred Stocks 0.1%
--------------------------------------------------------------------------------
Service Industries
Printing/Publishing
News Corp. Ltd. Preferred ordinary ---------
(Cost $41,043) ............................... 3,200 38,552
---------
--------------------------------------------------------------------------------
Common Stocks 78.5%
--------------------------------------------------------------------------------
Consumer Discretionary 4.3%
Apparel & Shoes 0.1%
Jones Apparel Group, Inc.* ...................... 1,956 45,966
---------
Department & Chain Stores 2.6%
Ames Department Stores, Inc.* ................... 900 6,975
AnnTaylor Stores Corp.* ......................... 700 23,187
Burlington Coat Factory Warehouse
Corp ......................................... 2,900 31,356
Shares Value ($)
--------------------------------------------------------------------------------
Dillard's Inc. .................................. 4,300 52,675
Home Depot, Inc. ................................ 3,450 172,284
Kingfisher plc .................................. 4,300 39,244
Longs Drug Stores, Inc. ......................... 2,700 58,725
May Department Stores ........................... 900 21,600
Neiman Marcus Group, Inc.* ...................... 2,000 59,125
Pacific Sunwear of California, Inc. ............. 1,000 18,750
W.H. Smith Group plc ............................ 7,900 47,947
Wal-Mart Stores, Inc. ........................... 5,000 288,125
---------
819,993
---------
Home Furnishings 0.3%
Furniture Brands International Inc.* ............ 4,200 63,525
Newell Rubbermaid, Inc. ......................... 900 23,175
---------
86,700
---------
Recreational Products 0.3%
Fairfield Communities, Inc.* .................... 5,800 45,675
Nintendo Co., Ltd. .............................. 300 52,472
---------
98,147
---------
Restaurants 0.3%
Applebee's International Inc.* .................. 1,500 45,469
Ryan's Family Steak Houses, Inc.* ............... 6,300 53,156
---------
98,625
---------
Specialty Retail 0.6%
Amazon.com, Inc.* ............................... 100 3,631
AutoZone, Inc.* ................................. 2,600 57,200
Avis Rent A Car, Inc.* .......................... 1,200 22,500
Central Garden & Pet Co. ........................ 3,500 31,391
Family Dollar Stores Inc. ....................... 1,500 29,344
New Business Service, Inc. ...................... 1,200 19,500
The Finish Line, Inc. "A"* ...................... 2,300 18,831
Wet Seal, Inc. "A"* ............................. 1,200 15,750
---------
198,147
---------
Miscellaneous 0.1%
Herman Miller, Inc. ............................. 1,200 31,050
---------
Consumer Staples 3.4%
Alcohol & Tobacco 1.5%
Adolph Coors Company ............................ 500 30,250
Bass plc ........................................ 4,900 55,240
Imperial Tobacco Group plc ...................... 8,500 81,638
Philip Morris Companies, Inc. ................... 5,700 151,406
SEITA ........................................... 1,000 41,928
UST, Inc. ....................................... 3,400 49,938
Universal Corp. ................................. 2,500 52,813
---------
463,213
---------
Consumer Electronic & Photographic 0.3%
Sony Corp.* ..................................... 1,000 93,498
---------
Consumer Specialties 0.3%
American Greeting Corp., "A" .................... 2,400 45,600
Duane Reade Inc.* ............................... 1,700 43,775
---------
89,375
---------
The accompanying notes are an integral part of the financial statements.
52 | Kemper Variable Series --
Kemper Horizon 20+ Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Food & Beverage 1.0%
Coca-Cola Co. ............................ 2,800 160,825
Farmer Brothers Co. ...................... 400 70,000
Seaboard Corp. ........................... 200 34,400
Suiza Foods Corp.* ....................... 600 29,325
SUPERVALU, Inc. .......................... 2,100 40,031
---------
334,581
---------
Package Goods/Cosmetics 0.2%
Chattem, Inc.* ........................... 1,100 15,056
Procter & Gamble Co. ..................... 1,100 62,975
---------
78,031
---------
Textiles 0.1%
VF Corp. ................................. 1,500 35,719
---------
Health 8.4%
Biotechnology 1.8%
Affymetrix, Inc.* ........................ 200 33,025
Alkermes, Inc.* .......................... 600 28,275
Amgen Inc.* .............................. 1,600 112,400
Bio-Rad Laboratories, Inc. "A"* .......... 1,400 35,000
Biogen, Inc.* ............................ 700 45,150
Enzo Biochem Inc.* ....................... 300 20,700
Enzon, Inc.* ............................. 600 25,500
Human Genome Sciences, Inc. .............. 600 80,025
IDEC Pharmaceuticals Corp.* .............. 500 58,656
Incyte Pharmaceuticals, Inc.* ............ 200 16,437
Millennium Pharmaceuticals, Inc.* ........ 800 89,500
Protein Design Labs, Inc.* ............... 200 32,991
Triangle Pharmaceuticals, Inc.* .......... 1,000 9,063
---------
586,722
---------
Health Industry Services 0.9%
Cardinal Health, Inc. .................... 1,900 140,600
Hanger Orthopedic Group, Inc.* ........... 6,000 29,625
MedQuist, Inc.* .......................... 600 20,400
Shared Medical Systems Corp. ............. 800 58,350
Wellpoint Health Networks, Inc.* ......... 700 50,706
---------
299,681
---------
Hospital Management 0.2%
Trigon Healthcare, Inc.* ................. 500 25,781
Universal Health Services, Inc.* ......... 500 33,000
---------
58,781
---------
Medical Supply & Specialty 0.5%
C.R. Bard, Inc. .......................... 2,200 105,875
Cytyc Corp.* ............................. 200 10,675
Medtronic, Inc. .......................... 900 44,831
NBTY Inc.* ............................... 1,800 11,475
---------
172,856
---------
Pharmaceuticals 5.0%
Abgenix, Inc. ............................ 400 47,944
Advance Paradigm, Inc.* .................. 1,100 22,550
American Home Products Corp. ............. 2,200 129,250
COR Therapeutics, Inc.* .................. 300 25,594
Celegne Corp. ............................ 300 17,662
Cephalon, Inc. ........................... 300 17,962
Shares Value ($)
--------------------------------------------------------------------------------
Eli Lilly & Co. .......................... 1,200 119,850
Gilead Sciences, Inc. .................... 700 49,787
Glaxo Wellcome plc ....................... 1,800 52,629
ImClone Systems Inc.* .................... 300 22,931
Johnson & Johnson, Inc. .................. 1,400 142,625
Jones Pharma Inc. ........................ 750 29,953
King Pharmaceuticals, Inc.* .............. 300 13,163
Medicis Pharmaceutical Corp.* ............ 500 28,500
Merck & Co., Inc. ........................ 3,900 298,838
Pfizer, Inc. ............................. 4,750 228,000
Sankyo Co., Ltd. ......................... 1,000 22,619
Schering-Plough Corp. .................... 1,500 75,750
SmithKline Beecham plc ................... 5,500 72,186
Suzuken Co., Ltd. ........................ 900 34,849
Taisho Pharmaceutical Co., Ltd. .......... 4,000 143,552
---------
1,596,194
---------
Communications 8.0%
Cellular Telephone 0.4%
Leap Wireless International, Inc.* ....... 400 18,800
Sprint Corp. (PCS Group)* ................ 500 29,750
Telecom Italia Mobile SpA ................ 6,400 65,285
---------
113,835
---------
Telephone/Communications 7.3%
ADC Telecommunications, Inc.* ............ 873 73,223
AT&T Corp.* .............................. 3,600 113,850
BCE, Inc. ................................ 900 21,335
Bell Atlantic Corp. ...................... 1,500 76,219
BellSouth Corp. .......................... 1,400 59,675
British Telecom plc ...................... 7,600 98,479
CapRock Communications Corp.* ............ 300 5,850
Deutsche Telekom AG ...................... 2,600 147,483
Digital Microwave Corp.* ................. 700 26,687
Ericsson LM-B Shs ........................ 7,200 142,939
France Telecom S.A ....................... 900 125,613
IDT Corp. ................................ 600 20,362
ITC DeltaCom Inc. ........................ 500 11,156
InterDigital Communication Corp.* ........ 1,100 18,219
Intermedia Communications Inc.* .......... 700 20,825
JDS Uniphase Corp.* ...................... 800 95,900
Koninklinjke Kpn NV ...................... 1,300 58,064
Level 3 Communications, Inc.* ............ 300 26,400
MasTec, Inc.* ............................ 600 22,913
MRV Communications Inc.* ................. 400 26,900
NEXTLINK Communications, Inc. "A" ........ 586 22,231
Nokia Oyj ................................ 4,700 239,496
Nortel Networks Corp. .................... 1,413 98,004
Nortel Networks Corp. .................... 400 27,300
Oki Electric Industry Company* ........... 6,000 46,749
P-Com Inc.* .............................. 700 3,981
Proxim, Inc. ............................. 100 9,897
SBC Communicatons, Inc. .................. 2,810 121,533
Sirius Satellite Radio Inc.* ............. 300 13,294
TALK.com, Inc.* .......................... 1,400 8,138
Tekelec* ................................. 300 14,456
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 53
Kemper Horizon 20+ Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Telecom Italia SpA ....................... 7,200 98,843
Telefonica S.A.* ......................... 1,300 27,885
Terayon Communication Systems, Inc.* ..... 400 25,694
Viatel, Inc.* ............................ 400 11,425
Vodafone AirTouch plc .................... 63,000 255,225
WorldCom, Inc.* .......................... 3,100 142,213
Xircom, Inc.* ............................ 700 33,250
---------
2,391,706
---------
Miscellaneous 0.3%
C-Cube Microsystems Inc.* ................ 600 11,775
Emmis Communications Class A* ............ 1,700 70,337
Metricom, Inc.* .......................... 300 8,363
VoiceStream Wireless Corp.* .............. 105 12,211
---------
102,686
---------
Financial 12.5%
Banks 4.7%
ABN AMRO Holding N.V ..................... 7,500 183,472
Bank of America Corp. .................... 1,914 82,302
Bank of Nova Scotia ...................... 3,000 73,546
Bank of Tokyo-Mitsubishi, Ltd. ........... 4,000 48,392
Banque Nationale de Paris ................ 1,000 96,098
Barclays plc ............................. 1,900 47,366
Chase Manhattan Corp. .................... 2,400 110,550
Christiania Bank og Kreditkasse .......... 15,200 81,542
Credit Suisse Group (Registered) ......... 300 59,607
Dresdner Bank AG ......................... 1,800 74,476
FleetBoston Financial Corp. .............. 4,000 136,000
Fuji Bank, Ltd. .......................... 5,000 38,060
Golden West Financial Corp. .............. 1,200 48,975
Lloyds TSB Group plc ..................... 6,000 56,808
PNC Bank Corp. ........................... 800 37,500
Sakura Bank, Ltd. ........................ 9,000 62,303
San Paolo-- IMI S.p.A .................... 2,200 38,990
Societe Generale ......................... 800 48,049
St. George Bank Ltd. ..................... 4,000 27,246
Sumitomo Bank, Ltd. ...................... 3,000 36,832
UBS AG (Registered) ...................... 400 58,535
Wells Fargo Co. .......................... 2,000 77,500
---------
1,524,149
---------
Insurance 3.0%
AMBAC Financial Group, Inc. .............. 2,500 137,031
AXA S.A .................................. 700 110,112
Aetna, Inc. .............................. 500 32,094
American General Corp. ................... 1,000 61,000
Chubb Corp. .............................. 370 22,755
Cigna Corp. .............................. 100 9,350
Fidelity National Financial, Inc. ........ 1,900 34,794
Hartford Financial Services Group, Inc. .. 400 22,375
ING Groep N.V ............................ 1,520 102,596
Jefferson Pilot Corp. .................... 1,325 74,780
Muenchener Rueckversicherungs-
Gesellschaft AG (Registered) .......... 250 78,890
Protective Life Corp. .................... 1,700 45,263
Skandia Forsakrings AB ................... 3,400 90,128
Shares Value ($)
--------------------------------------------------------------------------------
Stewart Information Services Corp. ....... 1,400 20,475
Torchmark Corp. .......................... 2,100 51,844
XL Capital Ltd. "A" ...................... 1,651 89,360
---------
982,847
---------
Business Finance 0.3%
Heller Financial Inc. .................... 4,100 84,050
---------
Consumer Finance 1.4%
Citigroup, Inc. .......................... 5,650 340,412
Promise Co., Ltd. ........................ 400 31,657
SLM Holding Corp. ........................ 1,500 56,156
Takefuji Corp. ........................... 300 36,294
---------
464,519
---------
Other Financial Companies 2.9%
ACOM Co., Ltd. ........................... 300 25,273
Edwards (A.G.) Inc. ...................... 2,300 89,700
Federal Home Loan Mortgage Corp. ......... 2,300 93,150
Federal National Mortgage Association .... 2,900 151,344
GreenPoint Financial Corp. ............... 2,900 54,375
HSBC Holdings plc ........................ 5,500 63,048
Halifax Group plc ........................ 5,000 48,098
Legg Mason, Inc. ......................... 2,400 120,000
Man (ED&F) Group plc ..................... 10,600 85,403
Morgan Stanley Dean Witter & Co. ......... 1,800 149,850
Nichiei Co., Ltd. ........................ 800 13,146
Nomura Securities Co., Ltd. .............. 2,000 49,015
---------
942,402
---------
Real Estate 0.2%
Cheung Kong Holdings Ltd. ................ 4,000 43,999
Sun Hung Kai Properties Ltd. ............. 3,200 22,987
---------
66,986
---------
Media 1.8%
Advertising 0.0%
DoubleClick, Inc.* ....................... 200 7,625
---------
Broadcasting & Entertainment 0.6%
British Sky Broadcasting Group plc ....... 2,300 45,088
EM.TV & Merchandising AG ................. 100 5,882
NBC Internet Inc.-A* ..................... 1,200 15,000
Pegasus Communications Corp.* ............ 800 39,250
Walt Disney Co. .......................... 2,200 85,387
---------
190,607
---------
Cable Television 1.0%
ACTV, Inc.* .............................. 800 11,950
AT&T Corp.-- Liberty Media
Group "A"* ............................ 3,600 87,300
Canal Plus S.A ........................... 200 33,558
Comcast Corp. "A" ........................ 1,600 64,800
Granada Group plc ........................ 7,000 70,099
Media One Group, Inc.* ................... 700 46,638
---------
314,345
---------
Print Media 0.2%
Softbank Corp. ........................... 500 67,998
---------
The accompanying notes are an integral part of the financial statements.
54 | Kemper Variable Series --
Kemper Horizon 20+ Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Service Industries 3.6%
EDP Services 0.7%
Affiliated Computer Services* ............ 1,200 39,675
First Data Corp. ......................... 2,600 129,025
Micromuse, Inc.* ......................... 300 49,645
VeriSign, Inc.* .......................... 100 17,650
---------
235,995
---------
Investment 0.8%
Bear Stearns Companies, Inc. ............. 1,911 79,545
Charles Schwab Corp. ..................... 1,200 40,350
Paine Webber Group, Inc. ................. 1,400 63,700
Raymond James Financial, Inc. ............ 3,000 67,500
---------
251,095
---------
Miscellaneous Commercial Services 0.7%
Aspect Communications Corp.* ............. 700 27,519
CMG Information Services, Inc. ........... 200 9,162
Cap Gemini SA ............................ 300 52,768
Diamond Technology Partners Inc. ......... 200 17,600
Hanson plc ............................... 7,800 55,269
Kelly Services, Inc. "A" ................. 600 13,875
Personnel Group of America, Inc.* ........ 3,200 9,400
Vivendi .................................. 600 52,882
---------
238,475
---------
Miscellaneous Consumer Services 0.8%
Akamai Technologies, Inc.* ............... 59 7,005
Go2Net, Inc.* ............................ 200 10,062
Navigant Consulting, Inc.* ............... 3,000 12,750
Peregrine Systems, Inc.* ................. 1,250 43,359
Profit Recovery Group
International, Inc.* .................. 1,300 21,613
TXU Corporation .......................... 2,100 61,950
United Utilities plc ..................... 7,100 70,454
Yahoo!, Inc.* ............................ 200 24,775
---------
251,968
---------
Printing/Publishing 0.2%
Mail-Well, Inc.* ......................... 3,700 31,913
Reuters Group plc ........................ 2,000 34,200
---------
66,113
---------
Miscellaneous 0.4%
Adecco S.A ............................... 100 84,864
Metris Companies Inc. .................... 1,200 30,150
Startek Inc.* ............................ 400 20,150
---------
135,164
---------
Durables 3.3%
Aerospace 0.9%
Alliant Techsystems, Inc.* ............... 500 33,719
Boeing Co. ............................... 1,300 54,356
GenCorp, Inc. ............................ 2,300 18,400
Primex Technologies, Inc. ................ 2,000 44,000
Teledyne Technologies Inc.* .............. 300 5,025
United Technologies Corp. ................ 2,400 141,300
---------
296,800
---------
Automobiles 1.1%
Borg-Warner Automotive Inc. .............. 550 19,319
DaimlerChrysler AG ....................... 700 36,771
Shares Value ($)
--------------------------------------------------------------------------------
GKN plc .................................. 5,000 63,954
Honda Motor Co., Ltd. .................... 2,000 68,187
Monaco Coach Corp.* ...................... 1,200 16,350
Toyota Motor Corp. ....................... 3,000 136,847
---------
341,428
---------
Construction/Agricultural Equipment 0.1%
Terex Corp.* ............................. 2,200 31,075
---------
Telecommunications Equipment 1.2%
Advanced Fibre Communications, Inc.* ..... 700 31,719
Alcatel .................................. 1,000 65,495
Antec Corp. .............................. 800 33,250
Com21, Inc.* ............................. 400 10,000
Lucent Technologies, Inc. ................ 3,300 195,525
Polycom, Inc.* ........................... 200 18,819
Scientific-Atlanta, Inc. ................. 500 37,250
---------
392,058
---------
Manufacturing 7.1%
Chemicals 1.0%
Akzo Nobel N.V ........................... 1,600 67,879
BASF AG .................................. 2,300 92,971
BOC Group plc ............................ 3,900 56,216
Dow Chemical Co. ......................... 600 18,112
Praxair, Inc. ............................ 1,600 59,900
Rohm & Haas Co. .......................... 300 10,350
Valhi, Inc. .............................. 2,700 28,013
---------
333,441
---------
Containers & Paper 0.6%
FPB Holding AG ........................... 966 149,652
UPM-Kymmene Oyj .......................... 1,800 44,617
---------
194,269
---------
Diversified Manufacturing 3.5%
Briggs & Stratton Corp. .................. 1,700 58,225
Cooper Industries, Inc. .................. 1,100 35,819
General Electric Co. ..................... 10,500 556,500
Hillenbrand Industries, Inc. ............. 2,100 65,756
Honeywell International, Inc. ............ 2,400 80,850
Hutchison Whampoa, Ltd. .................. 4,180 52,548
Koninklijke Philips Electronics N.V ...... 2,100 98,901
Man AG ................................... 900 27,456
Siemens AG ............................... 500 75,076
Sulzer Brothers Ltd. (Registered) ........ 100 66,434
Tyco International Ltd. .................. 1 47
Water Pik Technologies, Inc.* ............ 105 656
---------
1,118,268
---------
Electrical Products 0.3%
ABB, Ltd. ................................ 300 35,865
Anadigics, Inc.* ......................... 250 8,516
Power-One, Inc.* ......................... 450 51,272
---------
95,653
---------
Industrial Specialty 0.7%
Carlisle Companies Inc. .................. 1,700 76,500
Corning, Inc. ............................ 400 107,950
Kulicke & Soffa Industries, Inc. ......... 400 23,750
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 55
+ Kemper Horizon 20+ Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Qualcomm Inc.* ........................... 500 30,000
---------
238,200
---------
Machinery/Components/Controls 0.9%
Asyst Technologies, Inc.* ................ 400 13,700
Illinois Tool Works, Inc. ................ 1,297 73,929
Ingersoll-Rand Co. ....................... 2,100 84,525
Okuma Corp. .............................. 10,000 43,821
Reliance Steel & Aluminum Co. ............ 3,950 75,544
---------
291,519
---------
Office Equipment/Supplies 0.1%
Olivetti SpA* ............................ 6,200 22,520
---------
Technology 16.7%
Computer Software 4.5%
Actuate Corp.* ........................... 200 10,675
Advanced Digital Information Corp.* ...... 400 6,375
America Online, Inc.* .................... 2,000 105,500
Ancor Communications, Inc.* .............. 500 17,883
Avant! Corp.* ............................ 2,600 48,709
BEA Systems, Inc.* ....................... 600 29,662
Broadvision, Inc.* ....................... 900 45,731
Celera Genomics .......................... 500 46,750
Citrix Systems, Inc.* .................... 300 5,681
Computer Associates
International, Inc. ................... 900 46,069
Echelon Corp.* ........................... 300 17,381
Entrust Technologies Inc.* ............... 300 24,825
Exchange Applications, Inc.* ............. 600 15,975
Exodus Communications, Inc.* ............. 200 9,212
HNC Software, Inc.* ...................... 400 24,700
Hyperion Solutions Corp.* ................ 400 12,975
I2 Technologies Inc.* .................... 220 22,938
ISS Group, Inc. .......................... 500 49,367
InfoCure Corp.* .......................... 1,900 10,687
Informatica Corp.* ....................... 200 16,387
MTI Technology Corp.* .................... 600 4,800
Macrovision Corp.* ....................... 500 31,961
Manugistics Group Inc.* .................. 100 4,675
Mercator Software Inc.* .................. 200 13,750
Micrel Inc.* ............................. 600 26,063
MicroStrategy Inc.* ...................... 700 21,000
Microsoft Corp.* ......................... 4,700 376,000
Oracle Corp.* ............................ 1,800 151,313
RSA Security, Inc.* ...................... 600 41,550
Rare Medium Group, Inc.* ................. 400 6,325
Remedy Corp.* ............................ 400 22,300
Reynolds and Reynolds Co. ................ 1,200 21,900
S1 Corp.* ................................ 300 6,994
Sybase Inc.* ............................. 1,300 29,900
Synopsys Ltd.* ........................... 900 31,106
THQ, Inc.* ............................... 1,000 12,188
Verity, Inc.* ............................ 200 7,600
VerticalNet, Inc.* ....................... 600 22,163
Wave Systems Corp.* ...................... 300 4,744
Shares Value ($)
--------------------------------------------------------------------------------
Wind River Systems* ...................... 600 22,725
---------
1,426,539
---------
Diverse Electronic Products 0.9%
Applied Materials, Inc.* ................. 1,200 108,750
DSP Group, Inc.* ......................... 400 22,400
Dell Computer Corp.* ..................... 2,500 123,281
Motorola Inc. ............................ 1,500 43,594
---------
298,025
---------
EDP Peripherals 1.1%
EMC Corp.* ............................... 2,000 153,875
Iomega Corp.* ............................ 2,800 11,200
MMC Networks, Inc.* ...................... 400 21,375
Mercury Interactive Corp.* ............... 1,000 96,750
Network Appliance, Inc.* ................. 200 16,100
SCM Microsystems, Inc. ................... 200 12,113
VERITAS Software Corp.* .................. 450 50,857
---------
362,270
---------
Electronic Components/Distributors 2.5%
Altera Corp.* ............................ 300 30,581
Analog Devices, Inc.* .................... 400 30,400
Broadcom Corp.* .......................... 100 21,894
Cisco Systems, Inc.* ..................... 7,400 470,362
Kyocera Corp. ............................ 300 50,970
PMC-Sierra, Inc.* ........................ 200 35,538
Powerwave Technologies, Inc.* ............ 400 17,600
SCI Systems, Inc.* ....................... 300 11,756
Sandisk Corp.* ........................... 300 18,356
Sawtek, Inc.* ............................ 400 23,025
Technitrol, Inc. ......................... 1,200 116,250
---------
826,732
---------
Electronic Data Processing 2.0%
Apple Computer, Inc.* .................... 600 31,425
Compaq Computer Corp. .................... 2,700 69,019
Fujitsu, Ltd. ............................ 2,000 69,320
Hewlett-Packard Co. ...................... 900 112,387
International Business Machines Corp. .... 2,100 230,081
Sun Microsystems, Inc.* .................. 1,500 136,406
---------
648,638
---------
Military Electronics 0.6%
Computer Sciences Corp.* ................. 700 52,281
General Dynamics Corp. ................... 2,300 120,175
Titan Corp.* ............................. 700 31,325
---------
203,781
---------
Office/Plant Automation 0.1%
3Com Corp.* .............................. 500 28,813
Cognex Corp. ............................. 100 5,175
---------
33,988
---------
Precision Instruments 0.4%
ADTRAN, Inc.* ............................ 400 23,950
Credence Systems Corp.* .................. 600 33,112
Harmonic Inc.* ........................... 725 17,944
Lam Research Corp.* ...................... 1,200 45,000
---------
120,006
---------
Semiconductors 4.3%
ARM Holdings plc* ........................ 500 5,371
The accompanying notes are an integral part of the financial statements.
56 | Kemper Variable Series --
Kemper Horizon 20+ Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Alpha Industries, Inc.* .................. 300 13,219
Burr-Brown Corp.* ........................ 800 69,350
Cree Research, Inc.* ..................... 300 40,050
Cymer, Inc.* ............................. 500 23,875
Cypress Semiconductor Corp.* ............. 1,500 63,375
Emcore Corp.* ............................ 100 12,000
Emulex Corp.* ............................ 400 26,275
Integrated Device Technology, Inc. ....... 1,200 71,850
Intel Corp. .............................. 3,900 521,381
International Rectifier Corp* ............ 800 44,800
KEMET Corp.* ............................. 1,400 35,088
Kopin Corp.* ............................. 400 27,700
Lattice Semiconductor Corp.* ............. 700 48,388
Linear Technology Corp. .................. 300 19,181
Micron Technology, Inc.* ................. 200 17,613
Rohm Company Ltd. ........................ 200 58,554
S3 Inc.* ................................. 700 10,325
STMicroelectronics N.V ................... 900 56,629
Semitech Corp.* .......................... 500 38,242
Texas Instruments, Inc. .................. 1,600 109,900
Transwitch Corp.* ........................ 400 30,875
Triquint Semiconductor, Inc.* ............ 400 38,275
---------
1,382,316
---------
Miscellaneous 0.3%
Advanced Radio Telecom Corp.* ............ 400 5,850
Agilent Technologies, Inc.* .............. 343 25,315
Amkor Technology, Inc.* .................. 800 28,250
iGATE Capital Corp.* ..................... 900 12,375
Wabtec ................................... 3,762 39,031
---------
110,821
---------
Energy 3.4%
Oil & Gas Production 0.8%
Cabot Oil & Gas Corp. "A" ................ 3,700 78,394
Marine Drilling Companies, Inc. .......... 1,000 28,000
Repsol SA ................................ 4,460 88,653
Tosco Corp. .............................. 2,300 65,119
---------
260,166
---------
Oil Companies 1.1%
Ashland Inc. ............................. 900 31,556
ENI SpA .................................. 19,000 109,588
Elf Aquitaine SA ......................... 400 81,797
Total Fina ELF S.A. "B" .................. 937 143,462
---------
366,403
---------
Oil/Gas Transmission 0.2%
El Paso Energy Corporation* .............. 700 35,656
Enron Corp. .............................. 700 45,150
---------
80,806
---------
Oilfield Services/Equipment 1.3%
BP Amoco plc ............................. 22,800 219,329
Key Energy Group, Inc.* .................. 2,400 23,100
National-Oilwell, Inc. ................... 2,300 75,613
Patterson Energy, Inc.* .................. 1,300 37,050
Pride International Inc.* ................ 1,700 42,075
---------
397,167
---------
Shares Value ($)
--------------------------------------------------------------------------------
Metals & Minerals 0.3%
Coal Mining 0.0%
Arch Coal Inc. ........................... 221 1,703
---------
Precious Metals 0.1%
Stillwater Mining Co.* ................... 600 16,725
---------
Steel & Metals 0.2%
Allegheny Technologies, Inc. ............. 1,050 18,900
Bethlehem Steel Corp. .................... 1,600 5,700
Nucor Corp. .............................. 1,500 49,781
---------
74,381
---------
Construction 2.0%
Building Materials 1.5%
Centex Construction Products, Inc. ....... 1,400 31,763
Elcor Corp. .............................. 750 17,250
Fletcher Challenge Building Corp. ........ 33,000 34,982
Florida Rock Industries, Inc. ............ 1,100 39,187
Grupo Dragados, S.A ...................... 2,100 15,035
Holderbank Financiere Glaris AG
(Bearer) .............................. 100 122,459
LaFarge Corp. ............................ 3,400 71,400
Taiheiyo Cement Corp. .................... 27,000 56,609
Vulcan Materials Co. ..................... 1,700 72,569
---------
461,254
---------
Building Products 0.2%
Genlyte Group, Inc. ...................... 1,800 37,912
Nortek, Inc. ............................. 1,800 35,550
---------
73,462
---------
Homebuilding 0.2%
Del Webb Corp.* .......................... 1,230 18,834
Standard Pacific Corp. ................... 5,000 50,000
---------
68,834
---------
Miscellaneous 0.1%
Quanta Services, Inc.* ................... 600 33,000
---------
Transportation 0.5%
Marine Transportation 0.1%
Newport News Shipbuilding, Inc. .......... 800 29,400
---------
Railroads 0.2%
Trinity Industries, Inc. ................. 3,470 64,195
---------
Trucking 0.2%
Roadway Express, Inc. .................... 1,800 42,188
U.S. Xpress Enterprises, Inc. "A"* ....... 1,400 11,288
---------
53,476
---------
Utilities 2.9%
Electric Utilities 2.5%
AES Corp.* ............................... 1,000 45,625
Avista Corp. ............................. 1,400 24,413
Black Hills Corp. ........................ 2,600 58,662
CH Energy Group, Inc. .................... 900 30,544
Chugoku Electric Power Co., Inc. ......... 14,400 208,755
El Paso Electric Co. ..................... 1,200 13,425
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 57
Kemper Horizon 20+ Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Electrabel NPV ........................... 300 74,047
Scottish Power plc ....................... 12,300 104,512
Shikoku Electric Power Co., Inc. ......... 11,900 160,600
Tohoku Electric Power Co., Inc. .......... 3,800 51,320
WPS Resources Corp. ...................... 1,700 51,106
---------
823,009
----------
Natural Gas Distribution 0.2%
Columbia Energy Group .................... 1,150 75,469
----------
Miscellaneous 0.2%
SCANA Corp. .............................. 2,335 56,332
---------
Shares Value ($)
--------------------------------------------------------------------------------
Miscellaneous 0.3%
Miscellaneous
GKN plc Class B .......................... 5,000 835
Michael Stores, Inc. ..................... 1,300 59,556
Talbots Inc. ............................. 900 49,444
---------
109,835
---------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $26,261,317) 25,433,808
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $33,421,960) (a) 32,424,177
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Horizon 20+ Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreement is fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $33,421,960. At June 30,
2000, net unrealized depreciation for all securities based on tax cost
was $997,783. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of value over tax cost
of $3,057,557 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value of
$4,055,340.
The accompanying notes are an integral part of the financial statements.
58 | Kemper Variable Series --
Kemper Horizon 20+ Portfolio
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $33,421,960) ....................... $ 32,424,177
Foreign currency, at value (cost $15,070) .................................... 15,073
Dividends receivable ......................................................... 19,456
Interest receivable .......................................................... 89,924
Foreign taxes recoverable .................................................... 12,779
Other assets ................................................................. 11,499
------------
Total assets ................................................................. 32,572,908
Liabilities
----------------------------------------------------------------------------------------------
Due to custodian bank ........................................................ 54
Payable for Portfolio shares redeemed ........................................ 50,759
Accrued management fee ....................................................... 16,381
Other accrued expenses and payables .......................................... 35,486
------------
Total liabilities ............................................................ 102,680
----------------------------------------------------------------------------------------------
Net assets, at value $ 32,470,228
----------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 337,254
Net unrealized appreciation (depreciation) on:
Investments ............................................................... (997,783)
Foreign currency related transactions ..................................... (537)
Accumulated net realized gain (loss) ......................................... 1,491,913
Paid-in capital .............................................................. 31,639,381
----------------------------------------------------------------------------------------------
Net assets, at value $ 32,470,228
----------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($32,470,228 / 23,826,431
outstanding shares of beneficial interest, $.01 par value, unlimited number ------------
of shares authorized) ..................................................... $ 1.363
------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
Investment Income
----------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $9,698) .......................... $ 248,903
Interest ..................................................................... 233,891
------------
Total Income ................................................................. 482,794
------------
Expenses:
Management fee ............................................................... 101,254
Custodian fees ............................................................... 26,006
Auditing ..................................................................... 5,435
Legal ........................................................................ 2,666
Trustees' fees and expenses .................................................. 5,377
Reports to shareholders ...................................................... 4,512
Other ........................................................................ 2,378
------------
Total expenses, before expense reductions .................................... 147,628
Expense reductions ........................................................... (156)
------------
Total expenses, after expense reductions ..................................... 147,472
----------------------------------------------------------------------------------------------
Net investment income (loss) 335,322
----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
----------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................................. 1,621,444
Foreign currency related transactions ........................................ (2,715)
------------
1,618,729
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................................. (3,578,804)
Foreign currency related transactions ........................................ 231
------------
(3,578,573)
----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (1,959,844)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (1,624,522)
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series -- | 59
Kemper Horizon 20+ Portfolio
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................. $ 335,322 $ 674,626
Net realized gain (loss) on investment transactions ...................................... 1,618,729 3,353,823
Net unrealized appreciation (depreciation) on investment transactions during the period .. (3,578,573) (790,431)
------------ ------------
Net increase (decrease) in net assets resulting from operations .......................... (1,624,522) 3,238,018
------------ ------------
Distributions to shareholders from:
Net investment income .................................................................... (649,416) (491,192)
------------ ------------
Net realized gains ....................................................................... (3,355,318) (245,596)
------------ ------------
Portfolio share transactions:
Proceeds from shares sold ................................................................ 1,684,002 8,126,926
Reinvestment of distributions ............................................................ 4,004,734 736,788
Cost of shares redeemed .................................................................. (4,997,907) (12,221,092)
------------ ------------
Net increase (decrease) in net assets from Portfolio share transactions .................. 690,829 (3,357,378)
------------ ------------
Increase (decrease) in net assets ........................................................ (4,938,427) (856,148)
Net assets at beginning of period ........................................................ 37,408,655 38,264,803
Net assets at end of period (including undistributed net investment income of $316,139 and ------------ ------------
$651,348, respectively) ............................................................... $ 32,470,228 $ 37,408,655
------------ ------------
Other Information
-----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ................................................ 23,172,830 25,393,872
------------ ------------
Shares sold .............................................................................. 1,159,489 5,363,764
Shares issued to shareholders in reinvestment of distributions ........................... 2,861,833 485,960
Shares redeemed .......................................................................... (3,367,721) (8,070,766)
------------ ------------
Net increase (decrease) in Portfolio shares .............................................. 653,601 (2,221,042)
------------ ------------
Shares outstanding at end of period ...................................................... 23,826,431 23,172,830
------------ ------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997 1996(b)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.614 1.507 1.378 1.154 1.000
--------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .014(c) .027(c) .019 .020 .012
---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.080) .110 .160 .214 .142
--------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Total from investment operations (.066) .137 .179 .234 .154
---------------------------------------------------------------------------------------------------------------------
Less distributions from:
---------------------------------------------------------------------------------------------------------------------
Net investment income (.030) (.020) (.010) (.010) --
---------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.155) (.010) (.040) -- --
--------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Total distributions (.185) (.030) (.050) (.010) --
---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.363 1.614 1.507 1.378 1.154
--------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Total Return (%) (4.33)** 9.26 13.01 20.48 15.37**
---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 32,470 37,409 38,265 16,659 3,759
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .87* .78 .67 .93 1.13*
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .87* .78 .67 .93 .81*
---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.98* 1.78 1.84 1.58 1.71*
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 100* 62 55 75 60*
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from May 1, 1996 (commencement of operations) to
December 31, 1996.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
60 | Kemper Variable Series --
Kemper Horizon 20+ Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Horizon 10+ Portfolio
Horizon 10+ Portfolio maintained a 60 percent weighting in domestic and
international stocks during the first six months of calendar year 2000, the most
volatile period for U.S. equities since the early 1990s.
For most of the period, the portfolio was underweighted in technology companies
relative to its composite benchmark because we believed many domestic stocks in
this sector were overpriced. This positioning helped reduce volatility when the
Nasdaq Composite Index declined sharply in early spring.
On a global basis, growth stocks generally outpaced value stocks. By maintaining
a diverse mix of stocks in the U.S. and abroad, the portfolio limited its losses
to a greater extent than would have been possible if we had invested in one
asset class. In the first quarter, we attempted to reduce the effects of
short-term stock price volatility on equity returns by realigning assets to more
closely match a diverse, unmanaged blend of domestic and international stocks.
The portfolio's 40 percent weighting in bonds between December and June helped
preserve principal amid a rising interest rate environment. U. S. bonds,
particularly Treasuries, generally outperformed large-cap domestic stocks during
the period. Central banks around the world generally raised rates except for
Japan, which maintained a near zero interest rate policy to stimulate growth.
By focusing on high-quality, shorter-term securities, we enhanced income
potential as the Federal Reserve Board raised short-term interest rates. Most of
the portfolio's bond holdings were U.S. government securities maturing in three
years or less. Because the U.S. yield curve inverted during the period, we were
able to provide all of the yield of the longest-term domestic bonds with a lower
risk profile.
Throughout the first half of the year, the portfolio's domestic stock holdings
had a lower-than-average price/earnings ratio (P/E) compared to the portfolio's
equity benchmark (an unmanaged blend of 70% Russell 1000 Index stocks and 30%
Russell 2000 Index stocks). We believe this valuation discipline should serve
the portfolio well in the coming months.
Robert D. Tymoczko
Lead Portfolio Manager
61 | Kemper Variable Series --
Kemper Horizon 10+ Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Horizon 10+ Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreements 1.8%
--------------------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at
$1,071,578 on 7/3/2000** ----------
(Cost $1,071,000) ..................... 1,071,000 1,071,000
----------
--------------------------------------------------------------------------------
U.S. Government Obligations 39.2%
--------------------------------------------------------------------------------
U.S. Treasury Securities 35.3%
U.S. Treasury Note:
8.5%, 11/15/2000 ...................... 1,100,000 1,108,591
5.5%, 12/31/2000 ...................... 1,700,000 1,692,554
5.375%, 2/15/2001 ..................... 1,200,000 1,192,128
8%, 5/15/2001 ......................... 1,000,000 1,012,340
6.5%, 5/31/2001 ....................... 4,040,000 4,040,000
6.625%, 7/31/2001 ..................... 2,650,000 2,653,312
6.25%, 2/28/2002 ...................... 6,670,000 6,647,055
7.875%, 11/15/2004 .................... 2,380,000 2,520,206
----------
20,866,186
----------
Mortgage-backed Securities 3.9%
Federal Home Loan Mortgage Corp.:
6% with various maturities to
4/15/2006 ........................... 46,918 46,654
6.5% with various maturities to
10/17/2014 .......................... 116,076 115,641
Federal National Mortgage Association:
6.01% with various maturities to
7/24/2000 ........................... 500,000 499,920
5.63% with various maturities to
5/15/2004 ........................... 1,750,000 1,667,155
----------
2,329,370
----------
--------------------------------------------------------------------------------
Total U.S. Government Obligations
(Cost $23,776,927) 23,195,556
--------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Preferred Stocks 0.1%
--------------------------------------------------------------------------------
Service Industries
Printing/Publishing
News Corp. Ltd. Preferred ordinary ----------
(Cost $44,891) ........................ 3,500 42,167
----------
--------------------------------------------------------------------------------
Common Stocks 58.9%
--------------------------------------------------------------------------------
Consumer Discretionary 3.2%
Apparel & Shoes 0.2%
Jones Apparel Group, Inc.* ............... 1,604 37,694
----------
Shares Value ($)
--------------------------------------------------------------------------------
Talbots Inc. ............................. 1,400 76,912
----------
114,606
----------
Department & Chain Stores 1.9%
Ames Department Stores, Inc.* ............ 1,600 12,400
AnnTaylor Stores Corp.* .................. 1,500 49,688
Burlington Coat Factory Warehouse
Corp .................................. 4,100 44,331
Dillard's Inc. ........................... 5,500 67,375
Home Depot, Inc. ......................... 4,950 247,191
Kingfisher plc ........................... 9,100 83,052
Longs Drug Stores, Inc. .................. 4,000 87,000
Neiman Marcus Group, Inc.* ............... 2,000 59,125
Pacific Sunwear of California, Inc.* ..... 1,100 20,625
W.H. Smith Group plc ..................... 11,200 67,975
Wal-Mart Stores, Inc. .................... 6,500 374,563
----------
1,113,325
----------
Home Furnishings 0.2%
Furniture Brands International Inc.* ..... 4,300 65,037
Newell Rubbermaid, Inc. .................. 1,200 30,900
----------
95,937
----------
Recreational Products 0.2%
Fairfield Communities, Inc.* ............. 8,000 63,000
Nintendo Co., Ltd. ....................... 400 69,963
----------
132,963
----------
Restaurants 0.1%
Ryan's Family Steak Houses, Inc.* ........ 6,100 51,469
----------
Specialty Retail 0.6%
Amazon.com, Inc.* ........................ 100 3,631
AutoZone, Inc.* .......................... 3,500 77,000
Avis Rent A Car, Inc.* ................... 900 16,875
Central Garden & Pet Co.* ................ 5,000 44,844
Family Dollar Stores Inc. ................ 2,800 54,775
Michael Stores, Inc.* .................... 1,600 73,300
New Business Service, Inc. ............... 4,200 68,250
The Finish Line, Inc. "A"* ............... 2,600 21,288
Wet Seal, Inc. "A"* ...................... 1,400 18,375
----------
378,338
----------
Consumer Staples 2.5%
Alcohol & Tobacco 1.0%
Bass plc ................................. 3,000 33,821
Imperial Tobacco Group plc ............... 12,200 117,175
Philip Morris Companies, Inc. ............ 8,300 220,469
SEITA .................................... 1,400 58,700
UST, Inc. ................................ 3,500 51,406
Universal Corp. .......................... 4,500 95,062
----------
576,633
----------
The accompanying notes are an integral part of the financial statements.
62 | Kemper Variable Series --
Kemper Horizon 10+ Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Consumer Electronic & Photographic 0.2%
Sony Corp. .............................. 1,400 130,897
---------
Consumer Specialties 0.2%
American Greeting Corp., "A" ............ 3,300 62,700
Duane Reade Inc.* ....................... 2,000 51,500
---------
114,200
---------
Food & Beverage 0.8%
Coca-Cola Co. ........................... 3,500 201,031
Farmer Brothers Co. ..................... 300 52,500
Michael Foods, Inc. ..................... 1,700 41,650
SUPERVALU, Inc. ......................... 2,800 53,375
Seaboard Corp. .......................... 400 68,800
Suiza Foods Corp.* ...................... 1,200 58,650
---------
476,006
---------
Package Goods/Cosmetics 0.2%
Chattem, Inc. ........................... 1,900 26,006
Procter & Gamble Co. .................... 1,400 80,150
---------
106,156
---------
Textiles 0.1%
VF Corp. ................................ 4,000 95,250
---------
Health 6.3%
Biotechnology 1.3%
Affymetrix, Inc.* ....................... 300 49,538
Alkermes, Inc.* ......................... 600 28,275
Amgen Inc.* ............................. 1,700 119,425
Bio-Rad Laboratories, Inc. "A"* ......... 1,700 42,500
Biogen, Inc.* ........................... 900 58,050
Entremed Inc.* .......................... 300 8,981
Enzo Biochem Inc.* ...................... 500 34,500
Enzon, Inc.* ............................ 900 38,250
Human Genome Sciences, Inc.* ............ 700 93,363
IDEC Pharmaceuticals Corp.* ............. 700 82,119
Incyte Pharmaceuticals, Inc.* ........... 300 24,656
Millennium Pharmaceuticals, Inc.* ....... 800 89,500
Protein Design Labs, Inc.* .............. 400 65,981
Triangle Pharmaceuticals, Inc.* ......... 1,400 12,688
---------
747,826
---------
Health Industry Services 0.8%
Aegon NV ................................ 2,000 71,063
Cardinal Health, Inc. ................... 3,140 232,360
Hanger Orthopedic Group, Inc.* .......... 8,700 42,956
MedQuist, Inc.* ......................... 900 30,600
Shared Medical Systems Corp. ............ 900 65,644
Wellpoint Health Networks, Inc.* ........ 800 57,950
---------
500,573
---------
Hospital Management 0.1%
Universal Health Services, Inc.* ........ 900 59,400
---------
Medical Supply & Specialty 0.4%
C.R. Bard, Inc. ......................... 2,700 129,937
Cytyc Corp.* ............................ 400 21,350
Medtronic, Inc. ......................... 1,700 84,681
Shares Value ($)
--------------------------------------------------------------------------------
NBTY Inc.* .............................. 1,500 9,562
---------
245,530
---------
Pharmaceuticals 3.7%
Abgenix, Inc.* .......................... 400 47,944
Advance Paradigm, Inc.* ................. 1,100 22,550
American Home Products Corp. ............ 2,700 158,625
Bristol-Myers Squibb Co. ................ 1,300 75,725
COR Therapeutics, Inc.* ................. 300 25,594
Celegne Corp.* .......................... 400 23,550
Cephalon, Inc. .......................... 300 17,963
Eli Lilly & Co. ......................... 1,700 169,788
Gilead Sciences, Inc.* .................. 1,100 78,237
Glaxo Wellcome plc ...................... 2,100 61,401
ImClone Systems Inc.* ................... 400 30,575
Johnson & Johnson, Inc. ................. 1,000 101,875
Jones Pharma Inc. ....................... 1,050 41,934
King Pharmaceuticals, Inc.* ............. 450 19,744
Medicis Pharmaceutical Corp.* ........... 600 34,200
Merck & Co., Inc. ....................... 5,500 421,437
Novartis AG (Registered) ................ 100 158,217
Pfizer, Inc. ............................ 5,900 283,200
Sankyo Co., Ltd. ........................ 3,000 67,857
Schering-Plough Corp. ................... 1,900 95,950
SmithKline Beecham plc .................. 5,100 66,936
Suzuken Co., LTD ........................ 2,700 104,547
Takeda Chemical Industries, Ltd. ........ 1,000 65,732
---------
2,173,581
---------
Communications 5.7%
Cellular Telephone 0.3%
Leap Wireless International, Inc.* ...... 500 23,500
Sprint Corp. (PCS Group)* ............... 600 35,700
Telecom Italia Mobile SpA ............... 9,400 95,888
---------
155,088
---------
Telephone/Communications 5.2%
ADC Telecommunications, Inc.* ........... 903 75,739
AT&T Corp. .............................. 4,900 154,962
BCE, Inc. ............................... 1,200 28,446
Bell Atlantic Corp. ..................... 1,400 71,138
BellSouth Corp. ......................... 2,200 93,775
British Telecom plc ..................... 10,100 130,873
CapRock Communications Corp.* ........... 500 9,750
Deutsche Telekom AG ..................... 3,800 215,552
Digital Microwave Corp.* ................ 500 19,062
Ericsson LM "B" ......................... 9,600 190,586
France Telecom S.A ...................... 1,400 195,399
IDT Corp.* .............................. 1,000 33,937
ITC DeltaCom Inc.* ...................... 800 17,850
InterDigital Communication Corp.* ....... 1,500 24,844
Intermedia Communications Inc.* ......... 1,100 32,725
JDS Uniphase Corp.* ..................... 900 107,887
Koninklinjke Kpn NV ..................... 1,450 64,763
Level 3 Communications, Inc.* ........... 400 35,200
MasTec, Inc.* ........................... 600 22,912
The accompanying notes are an integral part of the financial statements.
63 | Kemper Variable Series --
Kemper Horizon 10+ Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
MRV Communications Inc.* ................ 400 26,900
NEXTLINK Communications, Inc. "A"* ...... 714 27,087
Nokia Oyj ............................... 5,500 280,261
Nortel Networks Corp .................... 1,884 130,673
Nortel Networks Corp. ................... 1,200 81,900
Oki Electric Industry Company* .......... 6,000 46,749
P-Com Inc.* ............................. 1,500 8,531
Proxim, Inc.* ........................... 100 9,897
SBC Communications, Inc. ................ 4,259 184,202
Sirius Satellite Radio Inc.* ............ 400 17,725
TALK.com, Inc.* ......................... 2,000 11,625
Tekelec* ................................ 500 24,094
Telecom Italia SpA ...................... 8,300 113,944
Telefonica S.A.* ........................ 2,600 55,771
Terayon Communication Systems, Inc.* .... 600 38,541
Viatel, Inc.* ........................... 400 11,425
Vodafone AirTouch plc ................... 65,300 264,543
WorldCom, Inc.* ......................... 4,400 201,850
Xircom, Inc.* ........................... 800 38,000
---------
3,099,118
---------
Miscellaneous 0.2%
C-Cube Microsystems Inc.* ............... 700 13,737
Emmis Communications "A"* ............... 1,900 78,612
Metricom, Inc.* ......................... 400 11,150
VoiceStream Wireless Corp.* ............. 157 18,259
---------
121,758
---------
Financial 9.6%
Banks 3.5%
ABN AMRO Holding N.V. ................... 8,100 198,150
Bank of America Corp. ................... 2,764 118,852
Bank of Nova Scotia ..................... 2,000 49,031
Bank of Tokyo-Mitsubishi, Ltd. .......... 6,000 72,588
Banque Nationale de Paris ............... 1,250 120,122
Barclays plc ............................ 3,600 89,745
Chase Manhattan Corp. ................... 3,750 172,734
Christiania Bank og Kreditkasse ......... 19,200 103,000
Credit Suisse Group (Registered) ........ 300 59,607
Dime Bancorp, Inc. ...................... 200 3,150
Dresdner Bank AG ........................ 1,900 78,613
FleetBoston Financial Corp. ............. 5,800 197,200
Fuji Bank, Ltd. ......................... 5,000 38,060
Lloyds TSB Group plc .................... 10,300 97,520
PNC Bank Corp. .......................... 900 42,187
Pacific Century Financial Corporation ... 3,200 46,800
Provident Financial Group ............... 1,000 23,812
Sakura Bank, Ltd. ....................... 7,000 48,458
San Paolo-IMI S.p.A ..................... 5,500 97,475
Societe Generale ........................ 2,000 120,122
St. George Bank Ltd. .................... 8,400 57,217
Sumitomo Bank, Ltd. ..................... 3,000 36,832
UBS AG (Registered) ..................... 600 87,803
Wells Fargo Co. ......................... 2,300 89,125
---------
2,048,203
---------
Shares Value ($)
--------------------------------------------------------------------------------
Insurance 2.5%
AFLAC, Inc. ............................. 800 36,750
AMBAC Financial Group, Inc. ............. 3,900 213,769
AXA S.A ................................. 900 141,572
Aetna, Inc. ............................. 600 38,513
American General Corp. .................. 1,800 109,800
Chubb Corp. ............................. 494 30,381
Cigna Corp. ............................. 600 56,100
Corporacion Mapfre, S.A ................. 2,100 26,567
Fidelity National Financial, Inc. ....... 3,000 54,937
Hartford Financial Services Group, Inc. . 1,200 67,125
ING Groep N.V ........................... 3,187 215,113
Jefferson Pilot Corp. ................... 2,150 121,341
Muenchener Rueckversicherungs-
Gesellschaft AG ...................... 350 110,446
Protective life Corp. ................... 1,900 50,587
Skandia Forsakrings AB .................. 4,400 116,636
Stewart Information Services Corp. ...... 2,000 29,250
Torchmark Corp. ......................... 2,100 51,844
---------
1,470,731
---------
Business Finance 0.2%
Heller Financial Inc. ................... 5,200 106,600
---------
Consumer Finance 1.0%
Citigroup, Inc. ......................... 7,550 454,888
Promise Co., Ltd. ....................... 600 47,485
SLM Holding Corp. ....................... 1,900 71,131
Takefuji Corp. .......................... 400 48,392
---------
621,896
---------
Other Financial Companies 2.3%
ACOM Co., Ltd. .......................... 300 25,273
Edwards (A.G.) Inc. ..................... 4,100 159,900
Federal Home Loan Mortgage Corp. ........ 3,000 121,500
Federal National Mortgage Association ... 3,800 198,313
GreenPoint Financial Corp. .............. 2,300 43,125
HSBC Holdings plc ....................... 10,300 118,071
Halifax Group plc ....................... 7,700 74,072
Legg Mason, Inc. ........................ 2,900 145,000
Man (ED&F) Group plc .................... 14,300 115,213
Morgan Stanley Dean Witter & Co. ........ 3,100 258,075
Nichiei Co., Ltd. ....................... 1,700 27,936
Nomura Securities Co., Ltd. ............. 3,000 73,523
---------
1,360,001
---------
Real Estate 0.1%
Cheung Kong Holdings Ltd. ............... 5,100 56,099
Sun Hung Kai Properties Ltd. ............ 3,200 22,987
---------
79,086
---------
Media 1.3%
Advertising 0.0%
DoubleClick, Inc.* ...................... 200 7,625
---------
Broadcasting & Entertainment 0.6%
British Sky Broadcasting Group plc* ..... 3,600 70,573
The accompanying notes are an integral part of the financial statements.
64 | Kemper Variable Series --
Kemper Horizon 10+ Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
EM.TV & Merchandising AG ................ 100 5,882
NBC Internet Inc "A"* ................... 1,400 17,500
Pegasus Communications Corp.* ........... 1,000 49,063
Viacom, Inc. "B"* ....................... 1,085 73,983
Walt Disney Co. ......................... 3,900 151,369
-------
368,370
-------
Cable Television 0.5%
ACTV, Inc.* ............................. 1,000 14,937
AT&T Corp.-- Liberty Media
Group "A"* ........................... 4,800 116,400
Canal Plus S.A .......................... 300 50,337
Comcast Corp. "A"* ...................... 2,100 85,050
Media One Group, Inc.* .................. 800 53,300
-------
320,024
-------
Print Media 0.2%
Softbank Corp. .......................... 700 95,198
-------
Service Industries 2.4%
EDP Services 0.5%
Affiliated Computer Services* ........... 1,200 39,675
First Data Corp. ........................ 3,500 173,688
Micromuse, Inc.* ........................ 400 66,194
VeriSign, Inc.* ......................... 200 35,300
-------
314,857
-------
Investment 0.5%
Bear Stearns Companies, Inc. ............ 2,212 92,074
Charles Schwab Corp. .................... 1,500 50,437
Paine Webber Group, Inc. ................ 2,600 118,300
Raymond James Financial, Inc. ........... 2,700 60,750
-------
321,561
-------
Miscellaneous Commercial Services 0.4%
Aspect Communications Corp.* ............ 900 35,381
CMG Information Services, Inc.* ......... 200 9,162
Cap Gemini S.A .......................... 200 35,179
Convergys Corp.* ........................ 700 36,313
Diamond Technology Partners Inc.* ....... 400 35,200
Personnel Group of America, Inc.* ....... 4,800 14,100
Vivendi ................................. 700 61,696
-------
227,031
-------
Miscellaneous Consumer Services 0.6%
Akamai Technologies, Inc.* .............. 119 14,129
Go2Net, Inc.* ........................... 400 20,125
Navigant Consulting, Inc.* .............. 4,500 19,125
Peregrine Systems, Inc.* ................ 1,600 55,500
Profit Recovery Group
International, Inc.* ................. 1,800 29,925
TXU Corporation ......................... 4,000 118,000
United Utilities plc .................... 7,300 72,439
Yahoo!, Inc.* ........................... 200 24,775
-------
354,018
-------
Printing/Publishing 0.2%
Mail-Well, Inc.* ........................ 4,400 37,950
Reuters Group plc ....................... 2,900 49,590
-------
87,540
-------
Shares Value ($)
--------------------------------------------------------------------------------
Miscellaneous 0.2%
Adecco S.A .............................. 100 84,864
Metris Companies Inc. ................... 1,200 30,150
Startek Inc.* ........................... 500 25,187
-------
140,201
-------
Durables 2.4%
Aerospace 0.6%
Alliant Techsystems, Inc.* .............. 1,000 67,438
Primex Technologies, Inc. ............... 1,700 37,400
United Technologies Corp. ............... 3,800 223,725
-------
328,563
-------
Automobiles 0.8%
Borg-Warner Automotive Inc. ............. 2,240 78,680
DaimlerChrysler AG ...................... 1,200 63,035
Honda Motor Co., Ltd. ................... 3,000 102,281
Monaco Coach Corp.* ..................... 1,400 19,075
Renault S.A ............................. 700 31,766
Toyota Motor Corp. ...................... 4,000 182,462
-------
477,299
-------
Construction/Agricultural Equipment 0.1%
Terex Corp.* ............................ 3,000 42,375
-------
Telecommunications Equipment 0.9%
Advanced Fibre Communications, Inc.* .... 1,100 49,844
Alcatel ................................. 1,000 65,495
Antec Corp.* ............................ 800 33,250
Com21, Inc.* ............................ 500 12,500
Lucent Technologies, Inc. ............... 4,900 290,325
Polycom, Inc.* .......................... 400 37,637
Scientific-Atlanta, Inc. ................ 600 44,700
-------
533,751
-------
Miscellaneous 0.0%
GKN plc ................................. 400 5,116
GKN plc "B"* ............................ 9,400 1,569
-------
6,685
-------
Manufacturing 5.8%
Chemicals 0.9%
Akzo Nobel N.V .......................... 3,900 165,454
BASF AG ................................. 2,500 101,055
BOC Group plc ........................... 6,100 87,928
Praxair, Inc. ........................... 3,300 123,544
Valhi, Inc. ............................. 4,700 48,762
-------
526,743
-------
Containers & Paper 0.5%
FPB Holding AG* ......................... 1,671 258,870
UPM-Kymmene Oyj ......................... 2,300 57,010
-------
315,880
-------
Diversified Manufacturing 2.5%
Briggs & Stratton Corp. ................. 2,500 85,625
Cooper Industries, Inc. ................. 1,600 52,100
General Electric Co. .................... 14,100 747,300
Hillenbrand Industries, Inc. ............ 2,200 68,888
Honeywell International, Inc. ........... 3,400 114,537
The accompanying notes are an integral part of the financial statements.
65 | Kemper Variable Series --
Kemper Horizon 10+ Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Hutchison Whampoa, Ltd. ................. 4,730 59,462
Koninklijke Philips Electronics N.V ..... 1,600 75,353
Man AG .................................. 500 15,254
Matthews International Corp. ............ 3,800 110,200
Siemens AG .............................. 600 90,092
Sulzer Brothers Ltd. (Registered) ....... 100 66,434
Williams, plc ........................... 1,500 8,762
---------
1,494,007
---------
Electrical Products 0.4%
ABB, Ltd. ............................... 400 47,820
Amphenol Corp "A" ....................... 1,000 66,188
Anadigics, Inc.* ........................ 300 10,219
Power-One, Inc.* ........................ 450 51,272
Taiyo Yuden Co., Ltd. ................... 1,000 62,710
---------
238,209
---------
Industrial Specialty 0.7%
Carlisle Companies Inc. ................. 2,500 112,500
Corning, Inc. ........................... 500 134,938
Kulicke & Soffa Industries, Inc. ........ 700 41,563
QUALCOMM Inc.* .......................... 700 42,000
Sherwin-Williams Co. .................... 2,700 57,206
---------
388,207
---------
Machinery/Components/Controls 0.7%
Asyst Technologies, Inc.* ............... 400 13,700
Illinois Tool Works, Inc. ............... 2,403 136,971
Ingersoll-Rand Co. ...................... 2,700 108,675
Okuma Corp. ............................. 18,000 78,878
Reliance Steel & Aluminum Co. ........... 4,200 80,325
---------
418,549
---------
Office Equipment/Supplies 0.1%
Olivetti SpA* ........................... 9,200 33,417
---------
Technology 12.7%
Computer Software 3.4%
Actuate Corp.* .......................... 500 26,688
Advanced Digital Information Corp.* ..... 600 9,563
America Online, Inc.* ................... 2,700 142,425
Ancor Communications, Inc.* ............. 600 21,459
Avant! Corp.* ........................... 3,700 69,317
BEA Systems, Inc.* ...................... 700 34,606
Broadvision, Inc.* ...................... 1,400 71,138
Celera Genomics* ........................ 700 65,450
Citrix Systems, Inc.* ................... 400 7,575
Computer Associates
International, Inc. .................. 1,200 61,425
Echelon Corp.* .......................... 400 23,175
Entrust Technologies Inc.* .............. 200 16,550
Exodus Communications, Inc.* ............ 400 18,425
HNC Software, Inc.* ..................... 600 37,050
Hyperion Solutions Corp.* ............... 600 19,463
I2 Technologies Inc.* ................... 275 28,673
ISS Group, Inc.* ........................ 600 59,241
InfoCure Corp.* ......................... 1,400 7,875
Informatica Corp* ....................... 300 24,581
MTI Technology Corp.* ................... 600 4,800
Shares Value ($)
--------------------------------------------------------------------------------
Macrovision Corp.* ...................... 700 44,745
Manugistics Group Inc.* ................. 300 14,025
Mercator Software Inc.* ................. 300 20,625
Micrel Inc.* ............................ 800 34,750
MicroStrategy Inc.* ..................... 900 27,000
Microsoft Corp.* ........................ 6,500 520,000
Oracle Corp.* ........................... 2,800 235,375
RSA Security, Inc.* ..................... 800 55,400
Rare Medium Group, Inc.* ................ 500 7,906
Remedy Corp.* ........................... 600 33,450
Reynolds and Reynolds Co. ............... 1,200 21,900
S1 Corp.* ............................... 400 9,325
SAP AG .................................. 300 55,485
Sybase Inc.* ............................ 2,200 50,600
Synopsys Ltd.* .......................... 400 13,825
THQ, Inc.* .............................. 800 9,750
Verity, Inc.* ........................... 500 19,000
VerticalNet, Inc.* ...................... 800 29,550
Wave Systems Corp.* ..................... 600 9,488
Wind River Systems* ..................... 900 34,088
---------
1,995,766
---------
Diverse Electronic Products 0.7%
Applied Materials, Inc.* ................ 1,600 145,000
DSP Group, Inc.* ........................ 700 39,200
Dell Computer Corp.* .................... 3,100 152,869
Motorola Inc. ........................... 1,800 52,312
---------
389,381
---------
EDP Peripherals 0.8%
EMC Corp.* .............................. 2,600 200,037
Iomega Corp.* ........................... 3,300 13,200
MMC Networks, Inc.* ..................... 800 42,750
Mercury Interactive Corp.* .............. 1,200 116,100
Network Appliance, Inc.* ................ 300 24,150
SCM Microsystems, Inc.* ................. 300 18,169
VERITAS Software Corp.* ................. 550 62,159
---------
476,565
---------
Electronic Components/Distributors 2.0%
Altera Corp.* ........................... 500 50,969
Analog Devices, Inc.* ................... 700 53,200
Broadcom Corp.* ......................... 100 21,894
Cisco Systems, Inc.* .................... 10,000 635,625
Kyocera Corp. ........................... 400 67,961
PMC-Sierra, Inc.* ....................... 300 53,306
Powerwave Technologies, Inc.* ........... 600 26,400
SCI Systems, Inc.* ...................... 700 27,431
Sandisk Corp.* .......................... 600 36,712
Sawtek, Inc.* ........................... 600 34,538
Technitrol, Inc. ........................ 1,600 155,000
---------
1,163,036
---------
Electronic Data Processing 1.4%
Apple Computer, Inc.* ................... 800 41,900
Compaq Computer Corp. ................... 2,900 74,131
Fujitsu, Ltd. ........................... 3,000 103,981
Hewlett-Packard Co. ..................... 1,500 187,312
The accompanying notes are an integral part of the financial statements.
66 | Kemper Variable Series --
Kemper Horizon 10+ Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
International Business Machines Corp. ... 2,900 317,731
Sun Microsystems, Inc.* ................. 1,500 136,406
---------
861,461
---------
Military Electronics 0.5%
Computer Sciences Corp.* ................ 1,140 85,144
General Dynamics Corp. .................. 3,500 182,875
Titan Corp.* ............................ 1,300 58,175
---------
326,194
---------
Office/Plant Automation 0.1%
3Com Corp.* ............................. 600 34,575
Cognex Corp.* ........................... 300 15,525
---------
50,100
---------
Precision Instruments 0.2%
ADTRAN, Inc.* ........................... 600 35,925
Credence Systems Corp.* ................. 600 33,113
Harmonic Inc.* .......................... 879 21,755
Lam Research Corp.* ..................... 1,400 52,500
---------
143,293
---------
Semiconductors 3.3%
ARM Holdings plc* ....................... 1,500 16,114
Alpha Industries, Inc.* ................. 400 17,625
Burr-Brown Corp.* ....................... 1,300 112,694
Cree Research, Inc.* .................... 300 40,050
Cymer, Inc.* ............................ 800 38,200
Cypress Semiconductor Corp.* ............ 2,100 88,725
Emcore Corp.* ........................... 200 24,000
Emulex Corp.* ........................... 500 32,844
Integrated Device Technology, Inc.* ..... 1,300 77,837
Intel Corp. ............................. 5,200 695,175
International Rectifier Corp* ........... 1,200 67,200
KEMET Corp.* ............................ 1,400 35,087
Kopin Corp.* ............................ 600 41,550
Lattice Semiconductor Corp.* ............ 1,000 69,125
Linear Technology Corp. ................. 1,200 76,725
Micron Technology, Inc.* ................ 400 35,225
Rohm Company Ltd. ....................... 200 58,554
S3 Inc.* ................................ 1,700 25,075
STMicroelectronics N.V .................. 900 56,629
Semitech Corp.* ......................... 700 53,539
Texas Instruments, Inc. ................. 2,200 151,112
Transwitch Corp.* ....................... 800 61,750
Triquint Semiconductor, Inc.* ........... 600 57,412
---------
1,932,247
---------
Miscellaneous 0.3%
Advanced Radio Telecom Corp.* ........... 800 11,700
Agilent Technologies, Inc.* ............. 572 42,192
Amkor Technology, Inc.* ................. 1,100 38,844
iGATE Capital Corp.* .................... 1,600 22,000
Wabtec .................................. 4,092 42,454
---------
157,190
---------
Energy 2.8%
Oil & Gas Production 0.9%
Cabot Oil & Gas Corp. "A" ............... 6,100 129,244
Shares Value ($)
--------------------------------------------------------------------------------
Coastal Corp. ........................... 600 36,525
Exxon Mobil Corp. ....................... 1,500 117,750
Marine Drilling Companies, Inc.* ........ 1,700 47,600
Repsol S.A .............................. 5,580 110,916
Tosco Corp. ............................. 4,000 113,250
---------
555,285
---------
Oil Companies 0.7%
ENI SpA ................................. 21,800 125,737
Elf Aquitaine S.A ....................... 400 81,797
Total Fina ELF S.A. "B" ................. 1,300 199,040
---------
406,574
---------
Oil/Gas Transmission 0.3%
Enron Corp. ............................. 900 58,050
Questar Corp. ........................... 5,800 112,375
---------
170,425
---------
Oilfield Services/Equipment 0.9%
BP Amoco plc ............................ 32,900 316,488
Key Energy Group, Inc.* ................. 2,900 27,912
National-Oilwell, Inc.* ................. 1,900 62,462
Patterson Energy, Inc.* ................. 2,100 59,850
Pride International Inc.* ............... 2,700 66,825
---------
533,537
---------
Metals & Minerals 0.2%
Precious Metals 0.0%
Stillwater Mining Co.* .................. 900 25,088
---------
Steel & Metals 0.2%
AK Steel Holding Corp. .................. 2,350 18,800
AMCOL International Corp. ............... 1,025 16,913
Nucor Corp. ............................. 2,400 79,650
---------
115,363
---------
Construction 1.2%
Building Materials 0.8%
Centex Construction Products, Inc. ...... 1,900 43,106
Elcor Corp. ............................. 1,200 27,600
Fletcher Challenge Building Corp. ....... 49,700 52,685
Florida Rock Industries, Inc. ........... 1,400 49,875
LaFarge Corp. ........................... 6,300 132,300
Taiheiyo Cement Corp. ................... 57,000 119,507
---------
425,073
---------
Building Products 0.2%
Genlyte Group, Inc.* .................... 2,600 54,763
Nortek, Inc. ............................ 3,000 59,250
114,013
---------
Homebuilding 0.1%
Del Webb Corp.* ......................... 1,800 27,562
Standard Pacific Corp. .................. 5,500 55,000
---------
82,562
---------
Miscellaneous 0.1%
Quanta Services, Inc.* .................. 1,050 57,750
---------
The accompanying notes are an integral part of the financial statements.
67 | Kemper Variable Series --
Kemper Horizon 10+ Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Transportation 0.4%
Marine Transportation 0.1%
Newport News Shipbuilding, Inc. ......... 2,000 73,500
---------
Railroads 0.2%
Trinity Industries, Inc. ................ 4,530 83,805
---------
Trucking 0.1%
Roadway Express, Inc. ................... 2,400 56,250
U.S. Xpress Enterprises, Inc. "A"* ...... 200 1,612
---------
57,862
---------
Utilities 2.4%
Electric Utilities 1.9%
AES Corp.* .............................. 1,600 73,000
Avista Corp. ............................ 1,700 29,644
Black Hills Corp. ....................... 2,200 49,637
CH Energy Group, Inc. ................... 1,900 64,481
Calpine Corp.* .......................... 1,000 65,750
Shares Value ($)
--------------------------------------------------------------------------------
Chugoku Electric Power Co., Inc. ........ 20,200 292,837
Electrabel NPV .......................... 300 74,047
Kyushu Electric Power Co. ............... 14,400 208,075
Northwestern Corp. ...................... 1,700 39,312
Scottish Power plc ...................... 8,400 71,374
Tokyo Electric Power Co. ................ 6,200 151,362
---------
1,119,519
---------
Natural Gas Distribution 0.2%
Columbia Energy Group ................... 1,750 114,844
---------
Water Supply 0.2%
Suez Lyonnaise des Eaux S.A ............. 500 87,470
---------
Miscellaneous 0.1%
SCANA Corp. ............................. 2,903 70,035
---------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $35,900,091) 34,803,219
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $60,792,909) (a) 59,111,942
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Horizon 10+ Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
(a) The cost for federal income tax purposes was $60,792,909. At June 30, 2000,
net unrealized depreciation for all securities based on tax cost was
$1,680,967. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$4,096,001 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $5,776,968.
The accompanying notes are an integral part of the financial statements.
68 | Kemper Variable Series --
Kemper Horizon 10+ Portfolio
<PAGE>
Financial Statements
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
-----------------------------------------------------------------------------------------------------------------------------
Assets
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $60,792,909) ................................................. $ 59,111,942
Foreign currency, at value (cost $33,010) .............................................................. 33,006
Dividends receivable ................................................................................... 25,443
Interest receivable .................................................................................... 334,934
Receivable for Portfolio shares sold ................................................................... 16,221
Foreign taxes recoverable .............................................................................. 17,449
----------------
Total assets ........................................................................................... 59,538,995
Liabilities
-----------------------------------------------------------------------------------------------------------------------------
Due to custodian bank .................................................................................. 26,979
Accrued management fee ................................................................................. 29,833
Other accrued expenses and payables .................................................................... 17,759
----------------
Total liabilities ...................................................................................... 74,571
-----------------------------------------------------------------------------------------------------------------------------
Net assets, at value $ 59,464,424
-----------------------------------------------------------------------------------------------------------------------------
Net Assets
-----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................................................... $ 708,643
Net unrealized appreciation (depreciation) on:
Investments ......................................................................................... (1,680,967)
Foreign currency related transactions ............................................................... (435)
Accumulated net realized gain (loss) ................................................................... 2,695,430
Paid-in capital ........................................................................................ 57,741,753
-----------------------------------------------------------------------------------------------------------------------------
Net assets, at value $ 59,464,424
-----------------------------------------------------------------------------------------------------------------------------
Net Asset Value
-----------------------------------------------------------------------------------------------------------------------------
NetAsset Value and redemption price per share ($59,464,424 / 45,460,760
outstanding shares of beneficial interest, $.01 par value, unlimited number ----------------
of shares authorized) ............................................................................... $ 1.308
----------------
-----------------------------------------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
-----------------------------------------------------------------------------------------------------------------------------
Investment Income
-----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $10,547) ................................................... $ 301,340
Interest ............................................................................................... 817,185
----------------
Total Income ........................................................................................... 1,118,525
----------------
Expenses:
Management fee ......................................................................................... 185,704
Custodian fees ......................................................................................... 24,358
Auditing ............................................................................................... 11,799
Legal .................................................................................................. 1,416
Trustees' fees and expenses ............................................................................ 6,167
Reports to shareholders ................................................................................ 9,581
Registration fees ...................................................................................... 562
0ther .................................................................................................. 2,605
----------------
Total expenses, before expense reductions .............................................................. 242,192
Expense reductions ..................................................................................... (138)
----------------
Total expenses, after expense reductions ............................................................... 242,054
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 876,471
-----------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
-----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ............................................................................................ 2,722,361
Foreign currency related transactions .................................................................. (3,027)
----------------
2,719,334
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................................................................ (5,088,775)
Foreign currency related transactions .................................................................. 338
----------------
....................................................................................................... (5,088,437)
-----------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (2,369,103)
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (1,492,632)
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
69 | Kemper Variable Series --
Kemper Horizon 10+ Portfolio
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................. $ 876,471 $ 1,816,318
Net realized gain (loss) on investment transactions ...................................... 2,719,334 4,274,902
Net unrealized appreciation (depreciation) on investment transactions during the period .. (5,088,437) (841,874)
------------ ----------------
Net increase (decrease) in net assets resulting from operations .......................... (1,492,632) 5,248,346
Distributions to shareholders from:
Net investment income .................................................................... (1,719,538) (1,329,005)
------------ ----------------
Net realized gains ....................................................................... (4,298,847) --
------------ ----------------
Portfolio share transactions:
Proceeds from shares sold ................................................................ 2,640,079 16,490,075
Reinvestment of distributions ............................................................ 6,018,385 1,329,005
Cost of shares redeemed .................................................................. (8,646,296) (12,185,621)
------------ ----------------
Net increase (decrease) in net assets from Portfolio share transactions .................. 12,168 5,633,459
------------ ----------------
Increase (decrease) in net assets ........................................................ (7,498,849) 9,552,800
Net assets at beginning of period ........................................................ 66,963,273 57,410,473
Net assets at end of period (including undistributed net investment income of $708,643 and ------------ ----------------
$1,551,710, respectively) ............................................................. $ 59,464,424 $ 66,963,273
------------ ---------------
Other Information
-----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ................................................ 45,281,650 41,183,869
------------ ----------------
Shares sold .............................................................................. 1,911,041 11,782,300
Shares issued to shareholders in reinvestment of distributions ........................... 4,537,692 956,610
Shares redeemed .......................................................................... (6,269,623) (8,641,129)
------------ ----------------
Net increase (decrease) in Portfolio shares .............................................. 179,110 4,097,781
------------ ----------------
Shares outstanding at end of period ...................................................... 45,460,760 45,281,650
------------ ----------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997 1996(b)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.479 1.394 1.289 1.114 1.000
---------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .019(c) .040(c) .020 .034 .018
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.050) .075 .125 .151 .096
---------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.031) .115 .145 .185 .114
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (.040) (.030) (.010) (.010) --
-----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.100) -- (.030) -- --
---------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.140) (.030) (.040) (.010) --
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.308 1.479 1.394 1.289 1.114
---------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (2.21)** 8.38 11.30 16.77 11.37**
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 59,464 66,963 57,411 22,553 5,727
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .79* .72 .64 .83 1.01*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .79* .72 .64 .83 .78*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.85* 2.83 2.84 2.77 2.69*
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 80* 50 35 67 76*
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from May 1, 1996 (commencement of operations) to December 31,
1996.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
70 | Kemper Variable Series --
Kemper Horizon 10+ Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Horizon 5 Portfolio
By maintaining a 60 percent weighting in shorter-term fixed-income securities
during the first six months of calendar year 2000, Horizon 5 Portfolio was in a
good position to preserve principal amid a rising interest rate environment and
a volatile domestic equity market.
We focused on high-quality securities and enhanced income potential as the
Federal Reserve Board increased the interest rate banks charge each other for
overnight loans to 6.50%, the highest level in nine years. Most of the
portfolio's bond holdings were U.S. government securities maturing in three
years or less. The yield curve inverted during the period, enabling us to
provide all of the yield of the longest-term bonds with a lower risk profile.
The fund also maintained a 40 percent weighting in domestic and international
stocks. In the first quarter, we attempted to reduce the effects of short-term
stock price volatility on equity returns by realigning assets to more closely
match a diverse, unmanaged blend of domestic and international stocks.
For most of the period, the portfolio was underweighted in technology companies
relative to its composite benchmark because we believed many stocks in this
sector were overpriced. This positioning helped reduce volatility when the
Nasdaq Composite Index declined sharply in early spring.
Growth stocks generally outpaced value stocks between December and June both in
the U.S. and abroad. By maintaining a diverse global portfolio, the portfolio
limited its losses to a greater extent than would have been possible if we had
invested a majority of assets in domestic equities.
Through the first half of the year, the portfolio's domestic stock holdings had
a lower-than-average price/earnings ratio (P/E) compared to the portfolio's
equity benchmark (an unmanaged blend of 70% Russell 1000 Index stocks and 30%
Russell 2000 Index stocks). We believe this valuation discipline should serve
the portfolio well in the coming months.
Robert D. Tymoczko
Lead Portfolio Manager
71 | Kemper Variable Series --
Kemper Horizon 5 Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Horizon 5 Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Short-Term Obligations 3.1%
--------------------------------------------------------------------------------
Federal Home Loan Discount Notes,
6.57%, 7/3/2000** ----------
(Cost $1,199,562) .............................. 1,200,000 1,199,562
----------
--------------------------------------------------------------------------------
U.S. Government Obligations 53.6%
--------------------------------------------------------------------------------
U.S. Treasury Note:
8.5%, 11/15/2000 ............................... 1,250,000 1,259,763
5.5%, 12/31/2000 ............................... 300,000 298,686
5.375%, 2/15/2001 .............................. 1,000,000 993,440
8%, 5/15/2001 .................................. 573,000 580,071
6.5%, 5/31/2001 ................................ 2,610,000 2,610,000
6.625%, 7/31/2001 .............................. 4,150,000 4,155,188
6.125%, 12/31/2001 ............................. 975,000 970,281
6.25%, 2/28/2002 ............................... 5,720,000 5,700,323
7.875%, 11/15/2004 ............................. 4,185,000 4,431,538
--------------------------------------------------------------------------------
Total U.S. Government Obligations (Cost $21,501,851) 20,999,290
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Mortgage-Backed Securities 5.0%
--------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
6% with various maturities
to 4/15/2006 ................................. 29,857 29,689
6.5% with various maturities
to 10/17/2014 ................................ 71,160 70,893
Federal National Mortgage Association:
6.01% with various maturities
to 7/24/2000 ................................. 350,000 349,943
5.63% with various maturities
to 5/15/2004 ................................. 1,570,000 1,495,676
--------------------------------------------------------------------------------
Total Mortgage-Backed Securities (Cost $1,990,912) 1,946,201
--------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Preferred Stocks 0.0%
--------------------------------------------------------------------------------
Service Industries
Printing/Publishing
News Corp. Ltd. Preferred ordinary ----------
(Cost $17,956) ................................. 1,400 16,867
----------
--------------------------------------------------------------------------------
Common Stocks 38.3%
--------------------------------------------------------------------------------
Consumer Discretionary 2.0%
Apparel & Shoes 0.1%
Jones Apparel Group, Inc.* ........................ 1,002 23,547
Shares Value ($)
--------------------------------------------------------------------------------
Talbots Inc. ...................................... 600 32,963
----------
56,510
----------
Department & Chain Stores 1.3%
Ames Department Stores, Inc.* ..................... 500 3,875
AnnTaylor Stores Corp.* ........................... 1,000 33,124
Burlington Coat Factory Warehouse
Corp ........................................... 2,200 23,788
Dillard's Inc. .................................... 2,500 30,625
Home Depot, Inc. .................................. 2,100 104,869
Kingfisher plc .................................... 2,900 26,467
Longs Drug Stores, Inc. ........................... 1,500 32,625
Neiman Marcus Group, Inc. ......................... 900 26,606
Pacific Sunwear of California, Inc.* .............. 500 9,375
W.H. Smith Group plc .............................. 3,400 20,635
Wal-Mart Stores, Inc. ............................. 2,800 161,350
----------
473,339
----------
Home Furnishings 0.1%
Furniture Brands International Inc. ............... 2,900 43,862
----------
Recreational Products 0.1%
Fairfield Communities, Inc.* ...................... 3,200 25,200
Nintendo Co., Ltd. ................................ 100 17,491
----------
42,691
----------
Restaurants 0.1%
Applebee's International Inc. ..................... 800 24,250
Ryan's Family Steak Houses, Inc.* ................. 1,800 15,188
----------
39,438
----------
Specialty Retail 0.3%
AutoZone, Inc.* ................................... 1,700 37,400
Avis Rent A Car, Inc.* ............................ 700 13,125
Central Garden & Pet Co. .......................... 1,800 16,144
Family Dollar Stores Inc. ......................... 1,100 21,519
New Business Service, Inc. ........................ 1,300 21,125
The Finish Line, Inc. "A"* ........................ 1,000 8,187
----------
117,500
----------
Consumer Staples 1.4%
Alcohol & Tobacco 0.4%
Imperial Tobacco Group plc ........................ 1,700 16,328
Philip Morris Companies, Inc. ..................... 3,200 85,000
UST, Inc. ......................................... 1,900 27,906
Universal Corp. ................................... 500 10,563
----------
139,797
----------
Consumer Electronic &
Photographic 0.1%
Sony Corp. ........................................ 600 56,099
----------
Consumer Specialties 0.1%
American Greeting Corp., "A" ...................... 2,000 38,000
----------
The accompanying notes are an integral part of the financial statements.
72 | Kemper Variable Series --
Kemper Horizon 5 Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Food & Beverage 0.5%
Coca-Cola Co. ........................... 1,400 80,413
Farmer Brothers Co. ..................... 200 35,000
Michael Foods, Inc. ..................... 900 22,050
Seaboard Corp. .......................... 100 17,200
Suiza Foods Corp.* ...................... 300 14,663
Supervalu, Inc. ......................... 1,000 19,063
-------
188,389
-------
Package Goods/Cosmetics 0.1%
Chattem, Inc. ........................... 500 6,844
Procter & Gamble Co. .................... 600 34,350
-------
41,194
-------
Textiles 0.2%
VF Corp. ................................ 3,200 76,200
-------
Health 3.8%
Biotechnology 0.9%
Affymetrix, Inc.* ....................... 100 16,513
Alkermes, Inc.* ......................... 400 18,850
Amgen Inc.* ............................. 1,300 91,325
Bio-Rad Laboratories, Inc. "A"* ......... 1,000 25,000
Biogen, Inc.* ........................... 300 19,350
Entremed Inc.* .......................... 100 2,994
Enzo Biochem Inc.* ...................... 200 13,800
Enzon, Inc.* ............................ 400 17,000
Human Genome Sciences, Inc.* ............ 300 40,013
IDEC Pharmaceuticals Corp.* ............. 300 35,194
Incyte Pharmaceuticals, Inc.* ........... 200 16,437
Millennium Pharmaceuticals, Inc.* ....... 400 44,750
Protein Design Labs, Inc.* .............. 100 16,495
Triangle Pharmaceuticals, Inc.* ......... 600 5,438
-------
363,159
-------
Health Industry Services 0.5%
Aegon NV ................................ 400 14,213
Cardinal Health, Inc. ................... 1,100 81,400
Hanger Orthopedic Group, Inc.* .......... 3,800 18,763
Shared Medical Systems Corp. ............ 600 43,763
US Oncology, Inc.* ...................... 500 2,500
Wellpoint Health Networks, Inc.* ........ 400 28,975
-------
189,614
-------
Hospital Management 0.1%
Universal Health Services, Inc.* ........ 300 19,800
Medical Supply & Specialty 0.3%
C.R. Bard, Inc. ......................... 1,400 67,374
Cytyc Corp.* ............................ 200 10,675
Medtronic, Inc. ......................... 600 29,888
NBTY Inc.* .............................. 1,700 10,838
-------
118,775
-------
Pharmaceuticals 2.0%
Abgenix, Inc.* .......................... 200 23,972
Advance Paradigm, Inc.* ................. 200 4,100
American Home Products Corp. ............ 1,200 70,500
Bristol-Myers Squibb Co. ................ 500 29,125
Shares Value ($)
--------------------------------------------------------------------------------
COR Therapeutics, Inc.* ................. 200 17,063
Celgene Corp.* .......................... 300 17,663
Eli Lilly & Co. ......................... 600 59,925
Gilead Sciences, Inc.* .................. 400 28,450
Glaxo Wellcome plc ...................... 800 23,391
ImClone Systems Inc.* ................... 200 15,287
Johnson & Johnson, Inc. ................. 700 71,312
Jones Pharma Inc. ....................... 450 17,972
King Pharmaceuticals, Inc.* ............. 300 13,162
Medicis Pharmaceutical Corp.* ........... 300 17,100
Merck & Co., Inc. ....................... 2,200 168,575
Pfizer, Inc. ............................ 2,975 142,800
Schering-Plough Corp. ................... 800 40,400
Suzuken Co., Ltd. ....................... 900 34,849
-------
795,646
-------
Communications 3.9%
Cellular Telephone 0.2%
Leap Wireless International, Inc.* ...... 200 9,400
Sprint Corp. (PCS Group)* ............... 200 11,900
Telecom Italia Mobile SpA ............... 4,400 44,884
-------
66,184
-------
Telephone/Communications 3.6%
ADC Telecommunications, Inc.* ........... 773 64,835
AT&T Corp.* ............................. 2,000 63,250
BCE, Inc. ............................... 500 11,853
Bell Atlantic Corp. ..................... 800 40,650
BellSouth Corp. ......................... 1,000 42,624
British Telecom plc ..................... 4,700 60,901
CapRock Communications Corp.* ........... 200 3,900
Deutsche Telekom AG ..................... 1,600 90,759
Digital Microwave Corp. ................. 500 19,063
Ericsson LM "B" ......................... 4,000 79,411
France Telecom S.A ...................... 500 69,785
IDT Corp.* .............................. 200 6,787
InterDigital Communications Corp.* ...... 300 4,969
Intermedia Communications Inc.* ......... 500 14,875
JDS Uniphase Corp.* ..................... 400 47,950
Koninklinjke Kpn NV ..................... 400 17,866
Level 3 Communications, Inc.* ........... 200 17,600
MasTec, Inc. ............................ 150 5,728
MRV Communications Inc.* ................ 200 13,450
NEXTLINK Communications,
Inc. "A"* ............................ 257 9,750
Nokia Oyj ............................... 2,000 101,913
Nortel Networks Corp. ................... 1,985 136,347
Oki Electric Industry Company ........... 4,000 31,166
P-Com Inc.* ............................. 700 3,981
SBC Communications, Inc. ................ 1,800 77,850
Sirius Satellite Radio Inc.* ............ 100 4,431
TALK.com, Inc.* ......................... 700 4,069
Tekelec* ................................ 200 9,638
Telecom Italia SpA ...................... 4,000 54,913
Telefonica S.A .......................... 1,100 23,595
Terayon Communication
Systems, Inc.* ....................... 200 12,847
The accompanying notes are an integral part of the financial statements.
73 | Kemper Variable Series --
Kemper Horizon 5 Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Viatel, Inc.* ........................... 200 5,713
Vodafone AirTouch plc ................... 39,600 160,427
WorldCom, Inc.* ......................... 1,700 77,988
Xircom, Inc.* ........................... 400 19,000
---------
1,409,884
---------
Miscellaneous 0.1%
C-Cube Microsystems Inc.* ............... 300 5,887
Emmis Communications "A"* ............... 600 24,825
Metricom, Inc.* ......................... 200 5,575
VoiceStream Wireless Corp.* ............. 52 6,047
---------
42,334
---------
Financial 6.9%
Banks 2.6%
ABN AMRO Holding N.V .................... 9,700 237,291
Bank of America Corp. ................... 1,100 47,300
Bank of Nova Scotia ..................... 2,500 61,289
Bank of Tokyo-Mitsubishi, Ltd. .......... 3,000 36,294
Banque Nationale de Paris ............... 500 48,049
Barclays plc ............................ 1,600 39,887
Chase Manhattan Corp.* .................. 1,500 69,093
Christiania Bank og Kreditkasse ......... 7,500 40,234
Credit Suisse Group (Registered) ........ 100 19,869
Dresdner Bank AG ........................ 900 37,238
FleetBoston Financial Corp. ............. 2,000 68,000
Fuji Bank, Ltd. ......................... 2,000 15,224
Lloyds TSB Group plc .................... 3,000 28,404
PNC Bank Corp. .......................... 500 23,438
Pacific Century Financial Corporation ... 1,300 19,013
Provident Financial Group ............... 600 14,288
Sakura Bank, Ltd. ....................... 6,000 41,536
San Paolo -- IMI SpA .................... 1,900 33,673
Societe Generale ........................ 400 24,024
St. George Bank Ltd. .................... 4,400 29,971
Sumitomo Bank, Ltd. ..................... 1,000 12,277
The Chuo Mitsui Trust and Banking
Co., Ltd. ............................ 2,000 8,726
UBS AG (Registered) ..................... 200 29,268
Wells Fargo Co. ......................... 1,200 46,500
---------
1,030,886
---------
Insurance 1.3%
AXA S.A ................................. 315 49,550
Aetna, Inc. ............................. 800 51,350
American General Corp. .................. 600 36,600
Assurances Generales de France .......... 300 15,830
Chubb Corp. ............................. 247 15,191
Corporacion Mapfre, S.A ................. 900 11,386
Fidelity National Financial, Inc. ....... 700 12,819
Hartford Financial Services
Group, Inc. .......................... 500 27,969
ING Groep N.V ........................... 1,551 104,688
Jefferson Pilot Corp. ................... 775 43,739
Muenchener Rueckversicherungs-
Gesellschaft AG ...................... 125 39,445
Protective Life Corp. ................... 1,200 31,950
Shares Value ($)
--------------------------------------------------------------------------------
Skandia Forsakrings AB .................. 1,600 42,413
Torchmark Corp. ......................... 700 17,281
---------
500,211
---------
Business Finance 0.1%
Heller Financial Inc. ................... 1,800 36,900
---------
Consumer Finance 0.6%
Citigroup, Inc. ......................... 3,000 180,750
Promise Co., Ltd. ....................... 200 15,828
SLM Holding Corp. ....................... 800 29,950
Takefuji Corp. .......................... 200 24,196
---------
250,724
---------
Other Financial Companies 2.2%
ACOM Co., Ltd. .......................... 100 8,424
Compagnie Financiere
Richemont AG ......................... 100 269,103
Edwards (A.G.) Inc. ..................... 1,700 66,300
Federal Home Loan Mortgage Corp. ........ 1,200 48,600
Federal National Mortgage
Association .......................... 1,600 83,500
GreenPoint Financial Corp. .............. 1,600 30,000
HSBC Holdings plc ....................... 4,200 48,145
Halifax Group plc ....................... 1,700 16,353
Legg Mason, Inc.* ....................... 1,500 75,000
Man (ED&F) Group plc .................... 7,100 57,204
Morgan Stanley Dean Witter & Co. ........ 1,100 91,575
Nichiei Co., Ltd. ....................... 800 13,146
Nomura Securities Co., Ltd. ............. 2,000 49,015
---------
856,365
---------
Real Estate 0.1%
Cheung Kong Holdings Ltd. ............... 2,000 22,000
Sun Hung Kai Properties Ltd. ............ 1,400 10,057
---------
32,057
---------
Media 0.8%
Advertising 0.0%
DoubleClick, Inc.* ...................... 100 3,813
---------
Broadcasting & Entertainment 0.3%
British Sky Broadcasting Group plc* ..... 1,200 23,524
EM.TV & Merchandising AG ................ 100 5,882
NBC Internet Inc "A"* ................... 500 6,250
Pegasus Communications Corp.* ........... 200 9,813
Viacom, Inc. "B"* ....................... 434 29,593
Walt Disney Co. ......................... 1,400 54,337
---------
129,399
---------
Cable Television 0.4%
ACTV, Inc.* ............................. 400 5,975
AT&T Corp. -- Liberty Media
Group "A" ............................ 2,200 53,350
Canal Plus S.A .......................... 100 16,779
Comcast Corp. "A" ....................... 700 28,350
Granada Group plc ....................... 3,200 32,045
Media One Group, Inc.* .................. 300 19,988
---------
156,487
---------
The accompanying notes are an integral part of the financial statements.
74 | Kemper Variable Series --
Kemper Horizon 5 Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Print Media 0.1%
Softbank Corp. .......................... 300 40,799
-------
Service Industries 1.7%
EDP Services 0.3%
Affiliated Computer Services* ........... 800 26,450
First Data Corp. ........................ 1,400 69,475
Micromuse, Inc.* ........................ 200 33,097
-------
129,022
-------
Investment 0.3%
Bear Stearns Companies, Inc. ............ 725 30,178
Paine Webber Group, Inc. ................ 1,000 45,500
Raymond James Financial, Inc. ........... 1,500 33,750
-------
109,428
-------
Miscellaneous Commercial
Services 0.5%
Aspect Communications Corp.* ............ 400 15,725
CMG Information Services, Inc.* ......... 100 4,581
Cap Gemini S.A .......................... 200 35,179
Convergys Corp.* ........................ 700 36,313
Diamond Technology Partners Inc.* ....... 200 17,600
Hanson plc .............................. 4,300 30,469
Personnel Group of America, Inc.* ....... 2,200 6,463
Siebel Systems, Inc.* ................... 100 16,356
Vivendi ................................. 300 26,441
-------
189,127
-------
Miscellaneous Consumer
Services 0.4%
Akamai Technologies, Inc.* .............. 58 6,938
Go2Net, Inc.* ........................... 200 10,063
Navigant Consulting, Inc.* .............. 3,100 13,175
Open Market, Inc. ....................... 400 5,525
Peregrine Systems, Inc.* ................ 775 26,883
Profit Recovery Group International,
Inc.* ................................ 700 11,638
TXU Corporation ......................... 1,000 29,500
United Utilities plc .................... 3,200 31,754
Yahoo!, Inc.* ........................... 200 24,775
-------
160,251
-------
Printing/Publishing 0.1%
Mail-Well, Inc.* ........................ 3,100 26,738
Reuters Group plc ....................... 1,400 23,940
-------
50,678
-------
Miscellaneous 0.1%
Metris Companies Inc. ................... 750 18,844
Startek Inc.* ........................... 200 10,075
-------
28,919
-------
Durables 1.6%
Aerospace 0.4%
Alliant Techsystems, Inc.* .............. 700 47,206
Boeing Co. .............................. 700 29,268
Primex Technologies, Inc. ............... 1,500 33,000
United Technologies Corp. ............... 1,100 64,763
-------
174,237
-------
Shares Value ($)
--------------------------------------------------------------------------------
Automobiles 0.4%
Borg-Warner Automotive Inc. ............. 840 29,505
DaimlerChrysler AG ...................... 600 31,518
Honda Motor Co., Ltd. ................... 1,000 34,094
Monaco Coach Corp.* ..................... 600 8,175
Renault S.A ............................. 400 18,152
Toyota Motor Corp. ...................... 1,000 45,616
-------
167,060
-------
Construction/Agricultural
Equipment 0.0%
Terex Corp. ............................. 1,200 16,950
-------
Telecommunications
Equipment 0.6%
Advanced Fibre
Communications, Inc.* ................ 400 18,125
Alcatel ................................. 500 32,748
Antec Corp.* ............................ 400 16,625
Com21, Inc.* ............................ 100 2,500
Lucent Technologies, Inc. ............... 2,000 118,500
Polycom, Inc.* .......................... 100 9,409
Scientific-Atlanta, Inc. ................ 400 29,800
-------
227,707
-------
Miscellaneous 0.1%
GKN plc* ................................ 4,000 51,163
GKN plc "B"* ............................ 4,000 668
-------
51,831
-------
Manufacturing 3.6%
Chemicals 0.5%
Akzo Nobel N.V .......................... 1,000 42,424
BASF AG ................................. 1,300 52,549
BOC Group plc ........................... 2,600 37,477
Dow Chemical Co. ........................ 300 9,056
Praxair, Inc. ........................... 1,300 48,669
-------
190,175
-------
Containers & Paper 0.3%
FPB Holding AG .......................... 595 92,177
UPM-Kymmene Oyj ......................... 1,000 24,787
-------
116,964
-------
Diversified Manufacturing 1.8%
Briggs & Stratton Corp. ................. 700 23,975
Cooper Industries, Inc. ................. 800 26,050
General Electric Co. .................... 6,000 318,000
Hillenbrand Industries, Inc. ............ 1,600 50,100
Honeywell International, Inc. ........... 1,500 50,531
Hutchison Whampoa, Ltd. ................. 2,200 27,657
Koninklijke Philips Electronics N.V ..... 1,600 75,353
Man AG .................................. 400 12,203
Pentair, Inc. ........................... 200 7,100
Siemens AG .............................. 250 37,538
Sulzer Brothers Ltd. (Registered) ....... 100 66,434
-------
694,941
-------
Electrical Products 0.0%
Anadigics, Inc.* ........................ 100 3,406
The accompanying notes are an integral part of the financial statements.
75 | Kemper Variable Series --
Kemper Horizon 5 Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Power-One, Inc.* ........................ 100 11,394
-------
14,800
-------
Industrial Specialty 0.4%
ASM Lithography Holding N.V.* ........... 300 12,876
Carlisle Companies Inc. ................. 500 22,500
Corning, Inc. ........................... 200 53,975
Kulicke & Soffa Industries, Inc. ........ 300 17,812
QUALCOMM Inc.* .......................... 500 30,000
Sherwin-Williams Co. .................... 1,200 25,425
-------
162,588
-------
Machinery/Components/
Controls 0.5%
Asyst Technologies, Inc.* ............... 200 6,850
Illinois Tool Works, Inc. ............... 1,035 58,995
Ingersoll-Rand Co. ...................... 1,200 48,300
Okuma Corp. ............................. 6,000 26,293
Reliance Steel & Aluminum Co. ........... 2,050 39,206
Rolls-Royce plc ......................... 5,000 17,790
-------
197,434
-------
Office Equipment/Supplies 0.1%
Olivetti SpA ............................ 3,800 13,803
Xerox Corp. ............................. 500 10,375
-------
24,178
-------
Miscellaneous 0.0%
Leading Spirit High-Tech Co. Ltd. ....... 40,000 918
-------
Technology 7.8%
Computer Software 1.9%
Actuate Corp.* .......................... 100 5,338
Advanced Digital Information Corp.* ..... 300 4,781
America Online, Inc.* ................... 1,100 58,025
Ancor Communications, Inc.* ............. 200 7,153
Avant! Corp.* ........................... 1,500 28,101
Broadvision, Inc.* ...................... 500 25,406
Celera Genomics* ........................ 200 18,700
Citrix Systems, Inc.* ................... 100 1,893
Computer Associates
International, Inc. .................. 500 25,594
Echelon Corp.* .......................... 100 5,793
Entrust Technologies Inc.* .............. 100 8,275
Exchange Applications, Inc. ............. 100 2,663
HNC Software, Inc.* ..................... 200 12,350
Hyperion Solutions Corp.* ............... 200 6,487
I2 Technologies Inc.* ................... 165 17,204
ISS Group, Inc.* ........................ 100 9,873
InfoCure Corp.* ......................... 600 3,375
Informatica Corp.* ...................... 100 8,194
MTI Technology Corp.* ................... 200 1,600
Macrovision Corp.* ...................... 200 12,784
Manugistics Group Inc.* ................. 200 9,350
MicroStrategy Inc.* ..................... 400 12,000
Microsoft Corp.* ........................ 2,800 224,000
Oracle Corp.* ........................... 1,100 92,469
RSA Security, Inc.* ..................... 400 27,700
Rare Medium Group, Inc.* ................ 100 1,581
Shares Value ($)
--------------------------------------------------------------------------------
Remedy Corp.* ........................... 300 16,725
Reynolds and Reynolds Co. ............... 500 9,125
S1 Corp.* ............................... 200 4,663
Sybase Inc.* ............................ 900 20,700
Synopsys Ltd.* .......................... 500 17,281
THQ, Inc.* .............................. 350 4,266
Verity, Inc.* ........................... 300 11,400
VerticalNet, Inc.* ...................... 400 14,775
Wave Systems Corp.* ..................... 200 3,163
Wind River Systems* ..................... 400 15,150
-------
747,937
-------
Diverse Electronic Products 0.4%
Applied Materials, Inc.* ................ 600 54,375
DSP Group, Inc.* ........................ 100 5,600
Dell Computer Corp.* .................... 1,300 64,106
Motorola Inc. ........................... 600 17,438
-------
141,519
-------
EDP Peripherals 0.5%
EMC Corp.* .............................. 1,200 92,325
Iomega Corp.* ........................... 3,500 14,000
MMC Networks, Inc.* ..................... 100 5,344
Mercury Interactive Corp.* .............. 500 48,375
Network Appliance, Inc.* ................ 200 16,100
SCM Microsystems, Inc.* ................. 100 6,056
VERITAS Software Corp.* ................. 250 28,254
-------
210,454
-------
Electronic Components/
Distributors 1.2%
Altera Corp.* ........................... 200 20,387
Analog Devices, Inc.* ................... 200 15,199
Broadcom Corp.* ......................... 100 21,893
Cisco Systems, Inc.* .................... 4,200 266,962
Flextronics International Ltd.* ........ 83 5,701
Kyocera Corp. ........................... 100 16,990
Powerwave Technologies, Inc.* ........... 300 13,200
SCI Systems, Inc.* ...................... 400 15,675
Sandisk Corp.* .......................... 100 6,119
Sawtek, Inc.* ........................... 300 17,269
Technitrol, Inc. ........................ 700 67,813
-------
467,208
-------
Electronic Data Processing 1.1%
Apple Computer, Inc.* ................... 400 20,950
Compaq Computer Corp. ................... 1,600 40,900
Fujitsu, Ltd. ........................... 1,000 34,660
Hewlett-Packard Co. ..................... 500 62,437
International Business Machines
Corp ................................. 1,300 142,431
Sun Microsystems, Inc.* ................. 1,200 109,125
-------
410,503
-------
Military Electronics 0.4%
Computer Sciences Corp.* ................ 500 37,343
General Dynamics Corp. .................. 1,500 78,375
Titan Corp.* ............................ 500 22,375
-------
138,093
-------
The accompanying notes are an integral part of the financial statements.
76 | Kemper Variable Series --
Kemper Horizon 5 Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Office/Plant Automation 0.0%
3Com Corp.* ............................. 300 17,288
-------
Precision Instruments 0.2%
ADTRAN, Inc.* ........................... 300 17,962
Credence Systems Corp.* ................. 400 22,075
Harmonic Inc.* .......................... 362 8,960
Lam Research Corp.* ..................... 600 22,500
-------
71,497
-------
Semiconductors 2.0%
ARM Holdings plc* ....................... 1,000 10,742
Alpha Industries, Inc.* ................. 100 4,406
Burr-Brown Corp.* ....................... 200 17,337
Cree Research, Inc.* .................... 200 26,700
Cymer, Inc.* ............................ 300 14,325
Cypress Semiconductor Corp.* ............ 800 33,800
Emulex Corp.* ........................... 200 13,138
Integrated Device Technology, Inc.* ..... 700 41,912
Intel Corp. ............................. 2,400 320,850
KEMET Corp.* ............................ 600 15,037
Kopin Corp.* ............................ 200 13,850
Lattice Semiconductor Corp.* ............ 300 20,737
Linear Technology Corp. ................. 600 38,363
Micron Technology, Inc. ................. 200 17,613
Rohm Company Ltd. ....................... 100 29,277
STMicroelectronics N.V .................. 300 18,876
Semitech Corp. .......................... 300 22,945
Texas Instruments, Inc. ................. 1,000 68,688
Transwitch Corp.* ....................... 350 27,016
Triquint Semiconductor, Inc.* ........... 200 19,138
-------
774,750
-------
Miscellaneous 0.2%
Advanced Radio Telecom Corp.* ........... 200 2,925
Agilent Technologies, Inc.* ............. 191 14,064
Amkor Technology, Inc.* ................. 500 17,656
Wabtec .................................. 1,782 18,488
iGATE Capital Corp.* .................... 800 11,000
-------
64,133
-------
Energy 1.7%
Oil & Gas Production 0.5%
Cabot Oil & Gas Corp. "A" ............... 1,700 36,019
Exxon Mobil Corp. ....................... 600 47,100
Marine Drilling Companies, Inc.* ........ 1,000 28,000
Repsol SA ............................... 2,470 49,097
Tosco Corp. ............................. 1,600 45,300
-------
205,516
-------
Oil Companies 0.5%
ENI SpA ................................. 10,100 58,254
Elf Aquitaine S.A ....................... 200 40,899
Total Fina ELF S.A. "B" ................. 500 76,554
-------
175,707
-------
Oil/Gas Transmission 0.1%
Enron Corp. ............................. 400 25,800
Shares Value ($)
--------------------------------------------------------------------------------
Questar Corp. ........................... 1,300 25,188
-------
50,988
-------
Oilfield Services/Equipment 0.6%
BP Amoco plc ............................ 16,100 154,877
Key Energy Group, Inc.* ................. 2,400 23,100
National-Oilwell, Inc.* ................. 400 13,150
Patterson Energy, Inc.* ................. 500 14,250
Pride International Inc.* ............... 1,000 24,750
-------
230,127
-------
Metals & Minerals 0.1%
Precious Metals 0.0%
Stillwater Mining Co.* .................. 400 11,150
-------
Steel & Metals 0.1%
AK Steel Holding Corp. .................. 1,030 8,240
Nucor Corp. ............................. 1,000 33,188
-------
41,428
-------
Construction 1.0%
Building Materials 0.8%
Centex Construction Products, Inc. ...... 1,100 24,956
Elcor Corp. ............................. 500 11,500
Fletcher Challenge Building Corp. ....... 19,800 20,989
Florida Rock Industries, Inc. ........... 600 21,375
Holderbank Financiere Glaris AG
(Bearer) ............................. 100 122,459
LaFarge Corp. ........................... 1,800 37,800
Taiheiyo Cement Corp. ................... 20,000 41,932
Vulcan Materials Co. .................... 1,100 46,956
-------
327,967
-------
Building Products 0.1%
Genlyte Group, Inc.* .................... 700 14,743
Nortek, Inc. ............................ 900 17,775
-------
32,518
-------
Homebuilding 0.1%
Del Webb Corp. .......................... 650 9,953
Standard Pacific Corp. .................. 2,800 28,000
-------
37,953
-------
Miscellaneous 0.0%
Quanta Services, Inc.* .................. 200 11,000
-------
Transportation 0.2%
Railroads 0.1%
Trinity Industries, Inc. ................ 1,990 36,815
-------
Trucking 0.1%
Roadway Express, Inc. ................... 1,300 30,469
U.S. Xpress Enterprises, Inc. "A"* ...... 1,800 14,513
-------
44,982
-------
Utilities 1.7%
Electric Utilities 1.5%
AES Corp.* .............................. 600 27,375
Avista Corp. ............................ 300 5,231
Black Hills Corp. ....................... 700 15,793
CH Energy Group, Inc. ................... 900 30,543
Calpine Corp.* .......................... 600 39,450
The accompanying notes are an integral part of the financial statements.
77 | Kemper Variable Series --
Kemper Horizon 5 Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Chugoku Electric Power Co., Inc. ........ 11,100 160,915
Electrabel NPV .......................... 200 49,364
Endesa S.A .............................. 900 17,409
FPL Group, Inc. ......................... 600 29,700
Kyushu Electric Power Co. ............... 6,400 92,478
Northwestern Corp. ...................... 1,200 27,750
OGE Energy Corp. ........................ 700 12,950
Scottish Power plc ...................... 3,500 29,739
Tokyo Electric Power Co. ................ 1,700 41,503
WPS Resources Corp. ..................... 700 21,044
-------
601,244
-------
Natural Gas Distribution 0.2%
Columbia Energy Group ................... 1,250 82,031
-------
Shares Value ($)
--------------------------------------------------------------------------------
Miscellaneous 0.0%
SCANA Corp. ............................. 694 16,743
-------
Miscellaneous 0.1%
Shinonogi ............................... 1,000 19,030
-------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $15,416,594) 15,031,845
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $40,126,875) (a) 39,193,765
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Horizon 5 Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $40,126,875. At June 30, 2000,
net unrealized depreciation for all securities based on tax cost was
$933,110. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost of $1,883,446
and aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value of $2,816,556.
The accompanying notes are an integral part of the financial statements.
78 | Kemper Variable Series --
Kemper Horizon 5 Portfolio
<PAGE>
Financial Statements
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------------------------------------------------------
Assets
--------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $40,126,875) .......................................................... $ 39,193,765
Cash ............................................................................................................ 95,060
Foreign currency, at value (cost $13,585) ....................................................................... 13,661
Dividends receivable ............................................................................................ 12,610
Interest receivable ............................................................................................. 353,911
Foreign taxes recoverable ....................................................................................... 9,899
Other assets .................................................................................................... 10,484
------------
Total assets .................................................................................................... 39,689,390
Liabilities
--------------------------------------------------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed ........................................................................... 287,882
Accrued management fee .......................................................................................... 19,588
Other accrued expenses and payables ............................................................................. 51,374
------------
Total liabilities 358,844
--------------------------------------------------------------------------------------------------------------------------------
Net assets, at value $ 39,330,546
--------------------------------------------------------------------------------------------------------------------------------
Net Assets
--------------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ............................................................................. $ 623,196
Net unrealized appreciation (depreciation) on:
Investments ..................................................................................................... (933,110)
Foreign currency related transactions ........................................................................... (485)
Accumulated net realized gain (loss) ............................................................................ 346,348
Paid-in capital ................................................................................................. 39,294,597
--------------------------------------------------------------------------------------------------------------------------------
Net assets, at value $ 39,330,546
--------------------------------------------------------------------------------------------------------------------------------
Net Asset Value
--------------------------------------------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($39,330,546 / 32,283,405
outstanding shares of beneficial interest, $.01 par value, ------------
unlimited number of shares authorized) ....................................................................... $ 1.218
------------
</TABLE>
--------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Investment Income
--------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $5,981) ............ $ 145,234
Interest ....................................................... 802,545
-----------
Total Income ................................................... 947,779
-----------
Expenses:
Management fee ................................................. 120,170
Custodian fees ................................................. 43,585
Auditing ....................................................... 6,158
Legal .......................................................... 2,274
Trustees' fees and expenses .................................... 7,218
Reports to shareholders ........................................ 4,953
Registration fees .............................................. 554
Other .......................................................... 2,079
-----------
Total expenses, before expense reductions ...................... 186,991
Expense reductions ............................................. (100)
-----------
Total expenses, after expense reductions ....................... 186,891
--------------------------------------------------------------------------------
Net investment income (loss) 760,888
--------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
--------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 657,465
Foreign currency related transactions .......................... (335)
-----------
657,130
-----------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (1,632,045)
Foreign currency related transactions .......................... (485)
-----------
(1,632,530)
--------------------------------------------------------------------------------
Net gain (loss) on investment transactions (975,400)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (214,512)
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
79 | Kemper Variable Series --
Kemper Horizon 5 Portfolio
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................. $ 760,888 $ 1,486,830
Net realized gain (loss) on investment transactions ...................................... 657,130 1,507,728
Net unrealized appreciation (depreciation) on investment transactions during the period .. (1,632,530) (1,020,199)
------------ ----------------
Net increase (decrease) in net assets resulting from operations .......................... (214,512) 1,974,359
Distributions to shareholders from:
Net investment income .................................................................... (1,519,440) (861,073)
------------ ----------------
Net realized gains ....................................................................... (1,823,283) --
------------ ----------------
Portfolio share transactions:
Proceeds from shares sold ................................................................ 2,232,877 13,924,699
Reinvestment of distributions ............................................................ 3,342,723 861,073
Cost of shares redeemed .................................................................. (5,317,972) (6,010,248)
------------ ----------------
Net increase (decrease) in net assets from Portfolio share transactions .................. 257,628 8,775,523
------------ ----------------
Increase (decrease) in net assets ........................................................ (3,299,607) 9,888,810
Net assets at beginning of period ........................................................ 42,630,153 32,741,343
Net assets at end of period (including undistributed net investment income ------------ ----------------
of $623,196 and $1,381,748, respectively) ........................................... $ 39,330,546 $ 42,630,153
------------ ----------------
Other Information
-----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ................................................ 31,962,639 25,150,832
------------ ----------------
Shares sold .............................................................................. 1,773,935 10,777,091
Shares issued to shareholders in reinvestment of distributions ........................... 2,735,915 669,101
Shares redeemed .......................................................................... (4,189,084) (4,634,385)
------------ ----------------
Net increase (decrease) in Portfolio shares .............................................. 320,766 6,811,807
------------ ----------------
Shares outstanding at end of period ...................................................... 32,283,405 31,962,639
------------ ----------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997 1996(b)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.334 1.305 1.224 1.096 1.000
--------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .024(c) .050(c) .028 .043 .023
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.030) .009 .093 .095 .073
--------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.006) .059 .121 .138 .096
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (.050) (.030) (.010) (.010) --
-----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.060) -- (.030) -- --
--------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.110) (.030) (.040) (.010) --
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.218 1.334 1.305 1.224 1.096
--------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (.30)** 4.86 10.00 12.70 9.59**
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 39,331 42,630 32,741 14,258 2,534
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .93* .76 .66 .97 1.01*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .93* .76 .66 .97 .83*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.80* 3.81 3.85 3.63 3.60*
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 87* 33 42 89 13*
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from May 1, 1996 (commencement of operations) to December 31,
1996.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
80 | Kemper Variable Series --
Kemper Horizon 5 Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Small Cap Growth Portfolio
A strong rally in technology and biotechnology stocks helped lift the portfolio
during the first half of fiscal year 2000. For the six-month period ended June
30, the portfolio substantially outpaced the 1.23% six-month return of the
fund's benchmark, the Russell 2000 Growth Index.
Investors have renewed their focus on stocks with strong earnings growth
prospects. Based on internal and consensus earnings estimates, most companies in
the portfolio appear poised to maintain strong growth rates even as the overall
U.S. economy slows. We think that the outlook is just as bright as it was six
months ago.
Six-month performance benefited from being underweighted in consumer cyclical
stocks and overweighted in computer software, semiconductors and semiconductor
equipment stocks. Strong stock selection in basic materials, capital goods,
communications services and consumer cyclicals helped provide solid returns in a
broad range of sectors. Biotech stocks did especially well during the first half
as investors eagerly sought non-tech companies with above-average growth
potential.
We look for superior companies first and foremost. To meet out strict criteria,
a company must have sustainable and consistent earnings-growth potential for a
two- to three-year horizon. We favor firms with dominant or increasing market
positions, niche players and those with innovative products, services or
distribution strategies.
Our investment approach incorporates qualitative and quantitative measures. We
scrutinize company fundamentals, including product positioning, business models,
management capability and competitive positioning. Further, we analyze and
project revenue and earnings growth along with the company's cash flow
requirements. Above all, a stock has got to trade at the right price relative to
its rate of earnings growth.
J.C. Cabrera
Lead Portfolio Manager
Investments by the Portfolio in small companies present greater risk of loss
than investments in larger, more established companies.
81 | Kemper Variable Series --
Kemper Small Cap Growth Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Small Cap Growth Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreements 0.2%
--------------------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at
$803,434 on 7/3/2000** ----------
(Cost $803,000) ....................... 803,000 803,000
----------
--------------------------------------------------------------------------------
Commercial Paper 2.4%
--------------------------------------------------------------------------------
Conagra Inc., 6.92, 7/5/2000 ............. 4,000,000 3,996,800
Enron Corp, 6.9%, 7/6/2000 ............... 4,000,000 3,996,017
--------------------------------------------------------------------------------
Total Commercial Paper (Cost $7,992,817) 7,992,817
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Preferred Stocks 0.7%
--------------------------------------------------------------------------------
Health
Pharmaceuticals ----------
Biovail Corp. (Cost $2,000,000) .......... 40,000 2,165,000
----------
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Common Stocks 96.7%
--------------------------------------------------------------------------------
Consumer Discretionary 1.2%
Recreational Products 0.3%
The 3DO Company* ......................... 143,700 1,127,147
----------
Restaurants 0.4%
CEC Entertainment, Inc.* ................. 53,300 1,365,813
----------
Specialty Retail 0.5%
Cinar Corp.* ............................. 70,900 372,225
Cost Plus, Inc.* ......................... 43,750 1,255,078
----------
1,627,303
----------
Consumer Staples 0.3%
Consumer Specialties
Valence Technology Inc.* ................. 62,000 1,143,125
----------
Health 8.4%
Biotechnology 2.8%
Enzon, Inc.* ............................. 67,900 2,885,750
Gene Logic, Inc.* ........................ 77,800 2,776,487
Genome Therapeutics Corp.* ............... 34,600 1,053,137
Genset S.A.* (ADR) ....................... 43,900 1,015,187
IDEC Pharmaceuticals Corp.* .............. 12,400 1,454,675
----------
9,185,236
----------
Pharmaceuticals 5.6%
Allos Therapeutics Inc.* ................. 63,900 623,025
Biovail Corp.* ........................... 148,200 8,215,837
Charles River Laboratories
International, Inc.* .................. 21,000 465,938
Shares Value ($)
--------------------------------------------------------------------------------
COR Therapeutics, Inc.* .................. 44,200 3,770,813
Intermune Pharmaceuticals Inc.* .......... 69,300 2,862,956
Oxford GlycoSciences plc* ................ 88,473 2,577,411
----------
18,515,980
----------
Communications 6.1%
Cellular Telephone 0.4%
Research in Motion Ltd.* ................. 29,900 1,346,883
----------
Telephone/Communications 5.2%
Adelphia Business Solutions, Inc.* ....... 60,100 1,393,569
Carrier 1 International S.A.* ............ 107,100 1,245,038
Digital Microwave Corp.* ................. 82,265 3,136,353
Efficient Networks, Inc.* ................ 59,200 4,354,900
Pinnacle Holdings, Inc.* ................. 38,000 2,052,000
Time Warner Telecom, Inc. "A"* ........... 39,900 2,568,563
Westell Technologies, Inc.* .............. 162,700 2,440,500
----------
17,190,923
----------
Miscellaneous 0.5%
MCK Communications Inc. .................. 67,800 1,567,875
----------
Financial 1.4%
Banks 0.6%
Bank United Corp. ........................ 31,200 1,097,850
Texas Regional Bancshares, Inc. .......... 39,200 994,700
----------
2,092,550
----------
Business Finance 0.5%
Heller Financial Inc. .................... 75,300 1,543,650
----------
Other Financial Companies 0.3%
Bay View Capital Corp. ................... 87,800 861,537
----------
Media 2.2%
Advertising 0.3%
Ticketmaster Online-CitySearch,
Inc.* ................................. 72,800 1,160,250
----------
Broadcasting & Entertainment 1.2%
Regent Communications, Inc.* ............. 224,300 1,927,578
StarMedia Network, Inc.* ................. 107,900 2,036,613
----------
3,964,191
----------
Miscellaneous 0.7%
About.com Inc.* .......................... 70,200 2,211,300
----------
Service Industries 3.8%
EDP Services 2.7%
ChoicePoint Inc.* ........................ 40,100 1,784,450
Micromuse, Inc.* ......................... 43,400 7,182,022
----------
8,966,472
----------
Miscellaneous Commercial
Services 0.7%
AnswerThink Consulting Group, Inc.* ...... 137,700 2,289,263
----------
The accompanying notes are an integral part of the financial statements.
82 | Kemper Variable Series --
Kemper Small Cap Growth Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Miscellaneous Consumer
Services 0.4%
Exult Inc.* ............................. 147,200 1,472,000
-----------
Durables 1.9%
Telecommunications Equipment 1.9%
Celeritek, Inc.* ........................ 47,700 1,563,119
Com21, Inc.* ............................ 82,200 2,055,000
Stanford Microdevices, Inc.* ............ 59,700 2,593,219
-----------
6,211,338
-----------
Manufacturing 4.9%
Electrical Products 2.0%
ATMI, Inc.* ............................. 46,000 2,139,000
Anadigics, Inc.* ........................ 95,850 3,264,891
Nanometrics, Inc.* ...................... 31,600 1,301,525
-----------
6,705,416
-----------
Industrial Specialty 2.1%
E-Tek Dynamics, Inc.* ................... 25,600 6,753,599
-----------
Machinery/Components/Controls 0.4%
Brooks Automation Inc.* ................. 22,000 1,406,625
-----------
Miscellaneous 0.4%
Dril-Quip, Inc.* ........................ 26,500 1,238,875
-----------
Technology 59.5%
Computer Software 35.2%
Allaire Corp.* .......................... 85,800 3,153,150
BEA Systems, Inc.* ...................... 236,800 11,706,800
Business Objects, S.A.* ................. 101,700 8,962,312
Centillium Communications* .............. 71,200 4,912,800
Clarent Corp.* .......................... 46,900 3,353,350
Comverse Technologies, Inc.* ............ 79,500 7,393,500
Corillian Corp.* ........................ 117,700 1,956,763
Descartes Systems Group, Inc.* .......... 58,300 1,792,725
Entrust Technologies Inc.* .............. 75,600 6,255,900
Extreme Networks, Inc.* ................. 68,300 7,205,650
Globix Corp.* ........................... 126,700 3,713,893
HNC Software, Inc.* ..................... 31,100 1,920,425
Hyperion Solutions Corp.* ............... 142,300 4,615,856
IONA Technologies plc (ADR)* ............ 46,500 2,929,500
InterWorld Corp.* ....................... 58,900 1,207,450
Intranet Solutions, Inc.* ............... 173,500 6,658,063
Keynote Systems, Inc.* .................. 41,000 2,893,063
Net Perceptions, Inc.* .................. 115,500 1,833,563
Netegrity, Inc.* ........................ 95,600 7,199,875
Packeteer, Inc.* ........................ 148,971 4,338,780
Preview Systems, Inc.* .................. 129,600 1,684,800
Sanchez Computer Associates, Inc.* ...... 111,900 2,657,625
Software Technologies Corp.* ............ 57,600 1,767,600
USinternetworking, Inc.* ................ 100,250 2,048,859
Verity, Inc.* ........................... 140,300 5,331,400
Watchgaurd Technologies, Inc.* .......... 141,700 7,784,644
-----------
115,278,346
-----------
Shares Value ($)
--------------------------------------------------------------------------------
Diverse Electronic Products 2.0%
Aether Systems, Inc.* ................... 20,000 4,100,000
Foundry Networks, Inc.* ................. 16,900 1,867,450
Natural Microsystems Corp.* ............. 5,100 573,431
-----------
6,540,881
-----------
EDP Peripherals 3.5%
Mercury Interactive Corp.* .............. 99,100 9,587,925
Symbol Technologies, Inc.* .............. 34,800 1,879,200
-----------
11,467,125
-----------
Electronic Components/Distributors 6.9%
Applied Micro Circuits Corp.* ........... 73,000 7,208,750
Bookham Technology plc* ................. 68,100 4,034,925
Jabil Circuit* .......................... 139,300 6,912,763
Photronics, Inc.* ....................... 32,800 930,700
Powerwave Technologies, Inc.* ........... 38,400 1,689,600
Sawtek, Inc.* ........................... 30,600 1,761,413
-----------
22,538,151
-----------
Electronic Data Processing 0.6%
Webtrends Corp.* ........................ 51,000 1,973,063
-----------
Precision Instruments 2.5%
Coherent, Inc.* ......................... 89,400 7,498,424
Harmonic Inc.* .......................... 23,400 579,150
-----------
8,077,574
-----------
Semiconductors 8.8%
Alpha Industries, Inc.* ................. 102,900 4,534,031
Cree Research, Inc.* .................... 33,000 4,405,500
Emcore Corp.* ........................... 29,500 3,540,000
Fairchild Semiconductor Corp.* .......... 72,300 2,928,150
Pericom Semiconductor Corp.* ............ 60,000 4,080,000
QLogic Corp.* ........................... 108,700 7,180,994
Transwitch Corp.* ....................... 27,400 2,114,938
-----------
28,783,613
-----------
Energy 7.0%
Oil & Gas Production 3.7%
3TEC Energy Corporation* ................ 120,300 1,203,000
Cabot Oil & Gas Corp. "A" ............... 58,100 1,230,993
Cross Timbers Oil Company ............... 111,100 2,458,087
Devon Energy Corp. ...................... 29,400 1,651,913
Ocean Energy Inc* ....................... 163,500 2,319,656
Plains Resources, Inc.* ................. 107,700 1,716,469
Talisman Energy Inc.* ................... 45,200 1,497,305
-----------
12,077,423
-----------
Oil Companies 0.7%
Louis Dreyfus Natural Gas Corp.* ........ 77,100 2,414,194
-----------
Oil/Gas Transmission 0.9%
Western Gas Resources, Inc. ............. 147,500 3,097,500
-----------
Oilfield Services/Equipment 1.1%
Cal Dive International, Inc.* ........... 24,200 1,311,338
Newpark Resources, Inc.* ................ 232,900 2,197,994
-----------
3,509,332
-----------
The accompanying notes are an integral part of the financial statements.
83 | Kemper Variable Series --
Kemper Small Cap Growth Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Miscellaneous 0.6%
Dynegy Inc. ............................. 28,300 1,933,243
-----------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $250,450,035) 317,637,796
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $261,245,852) (a) 328,598,613
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Small Cap Growth Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
(a) The cost for federal income tax purposes was $261,245,852. At June 30, 2000,
net unrealized appreciation for all securities based on tax cost was
$67,352,761. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$105,108,788 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $37,756,027.
The accompanying notes are an integral part of the financial statements.
84 | Kemper Variable Series --
Kemper Small Cap Growth Portfolio
<PAGE>
Financial Statements
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
Assets
----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $261,245,852) ...................... $ 328,598,613
Receivable for investments sold .............................................. 6,017,891
Dividends receivable ......................................................... 13,974
Interest receivable .......................................................... 145
Receivable for Portfolio shares sold ......................................... 2,155,820
Other assets ................................................................. 999
-------------
Total assets ................................................................. 336,787,442
Liabilities
----------------------------------------------------------------------------------------------
Due to custodian bank ........................................................ 107,735
Payable for investments purchased ............................................ 5,335,913
Accrued management fee ....................................................... 170,757
Other accrued expenses and payables .......................................... 87,939
-------------
Total liabilities ............................................................ 5,702,344
----------------------------------------------------------------------------------------------
Net assets, at value $ 331,085,098
----------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated net investment loss .............................................. $ (568,782)
Net unrealized appreciation (depreciation) on investments .................... 67,352,761
Accumulated net realized gain (loss) ......................................... 32,160,845
Paid-in capital .............................................................. 232,140,274
----------------------------------------------------------------------------------------------
Net assets, at value $ 331,085,098
----------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------
NetAsset Value and redemption price per share ($331,085,098 / 125,404,405
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized) $ 2.640
-------------
----------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
Investment Income
----------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $5,513) .......................... $ 172,601
Interest ..................................................................... 419,668
-------------
Total Income ................................................................. 592,269
-------------
Expenses:
Management fee ............................................................... 1,025,366
Custodian fees ............................................................... 20,071
Auditing ..................................................................... 40,269
Legal ........................................................................ 13,935
Trustees' fees and expenses .................................................. 10,263
Reports to shareholders ...................................................... 40,433
Registration fees ............................................................ 1,190
Interest expense ............................................................. 3,552
Other ........................................................................ 5,769
-------------
Total expenses, before expense reductions .................................... 1,160,848
Expense reductions ........................................................... (2,797)
-------------
Total expenses, after expense reductions ..................................... 1,158,051
----------------------------------------------------------------------------------------------
Net investment income (loss) ................................................. (565,782)
----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
----------------------------------------------------------------------------------------------
Net realized gain (loss) from
Investments .................................................................. 32,976,482
Foreign currency related transactions ........................................ 7,974
-------------
32,984,456
-------------
Net unrealized appreciation (depreciation) during the period on investments .. (11,238,381)
----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 21,746,075
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 21,180,293
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
85 | Kemper Variable Series --
Kemper Small Cap Growth Portfolio
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) .......................................................... $ (565,782) $ (602,400)
Net realized gain (loss) on investment transactions ................................... 32,984,456 31,366,734
Net unrealized appreciation (depreciation) on investment transactions during the period (11,238,381) 36,188,607
------------- ------------------
Net increase (decrease) in net assets resulting from operations ....................... 21,180,293 66,952,941
Distributions to shareholders from:
Net realized gains .................................................................... (30,002,610) --
------------- ------------------
Portfolio share transactions:
Proceeds from shares sold ............................................................. 107,128,194 38,056,731
Reinvestment of distribututions ....................................................... 30,002,610 --
Cost of shares redeemed ............................................................... (61,825,403) (48,742,329)
------------- ------------------
Net increase (decrease) in net assets from Portfolio share transactions ............... 75,305,401 (10,685,598)
------------- ------------------
Increase (decrease) in net assets ..................................................... 66,483,084 56,267,343
Net assets at beginning of period ..................................................... 264,602,014 208,334,671
Net assets at end of period (including accumulated net investment loss of $568,782 and ------------- ------------------
$3,000, respectively) $ 331,085,098 $ 264,602,014
------------- ------------------
Other Information
-----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 99,700,599 105,692,352
------------- ------------------
Shares sold ........................................................................... 39,462,022 18,715,517
Shares issued to shareholders in reinvestment of distributions ........................ 10,164,157 --
Shares redeemed ....................................................................... (23,922,373) (24,707,270)
------------- ------------------
Net increase (decrease) in Portfolio shares ........................................... 25,703,806 (5,991,753)
------------- ------------------
Shares outstanding at end of period ................................................... 125,404,405 99,700,599
------------- ------------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $2.654 1.971 1.969 1.677 1.346 1.039
------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.005)(b)(.006)(b) -- .004 .002 .005
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .271 .689 .342 .488 .369 .307
------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .266 .683 .342 .492 .371 .312
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income -- -- -- (.010) -- (.005)
-----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.280) -- (.340) (.190) (.040) --
------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.280) -- (.340) (.200) (.040) (.005)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $2.640 2.654 1.971 1.969 1.677 1.346
------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) 8.91** 34.56 18.37 34.20 28.04 30.07
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 331,085 264,602 208,335 137,415 69,137 35,373
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .75* .71 .70 .71 .75 .87
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .75* .71 .70 .71 .75 .87
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.37)* (.30) (.01) .20 .15 .42
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 135* 208 276 330 156 81
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
86 | Kemper Variable Series --
Kemper Small Cap Growth Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Technology Growth Portfolio
The Kemper Technology Growth Portfolio's semiannual period was characterized by
volatility brought about by a market propelled by the explosive growth of
technology stocks, particularly those of Internet-related companies. Despite
this volatile environment, the fund posted strong returns for this period.
While we were pleased with the fund's overall gain, the figures do not reflect
the degree of volatility present during this period. This swing in performance
illustrates the powerful ups and downs of technology stocks. As momentum in this
sector increased, new, smaller high-flying stocks were grabbing headlines with
strong performance. But with a dramatic downturn taking place in April,
investors began to debate whether the high valuations in this group of companies
were justified.
Although the entire technology sector suffered, it was the Internet-related
companies that declined most dramatically. Larger, more established technology
companies, like those held by this fund, declined less.
On the positive side, we enjoyed strong performance from our investments in
semiconductors and component-based technology companies. These companies produce
computer chips: the building blocks for cellular and wireless
telecommunications, computers and a host of other goods. Top-performing
semiconductor stocks included Xilinx and Applied Materials.
Despite light activity in June, we believe that over time, companies with strong
franchises, skilled management and consistent earnings growth can produce
superior long-term returns. In times of market turbulence, it's important to
maintain a long-term outlook. We continue to believe that quality technology
stocks offer excellent prospects for investors.
James B. Burkart
Deborah L. Koch
Co-Lead Portfolio Managers
Investments by the Portfolio in small companies present greater risk of loss
than investments in larger, more established companies.
The Portfolio may concentrate investments in specific sectors, which creates
special risk considerations.
87 | Kemper Variable Series --
Kemper Technology Growth Fund
<PAGE>
Kemper Technology Growth Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreements 0.2%
--------------------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at
$383,207 on 7/3/2000** ----------
(Cost $383,000) ........................... 383,000 383,000
----------
--------------------------------------------------------------------------------
Short-Term Obligations 16.4%
--------------------------------------------------------------------------------
Federal Home Loan Bank Discount Note:
6.4%, 7/5/2000 ............................ 9,500,000 9,493,244
6.45%, 7/6/2000 ........................... 5,000,000 4,995,521
6.44%, 7/10/2000 .......................... 3,000,000 2,995,170
6.44%, 7/12/2000 .......................... 8,500,000 8,483,274
6.44%, 7/13/2000 .......................... 8,500,000 8,481,753
Federal National Mortgage Association
Discount Note ............................. 6,000,000 5,993,600
--------------------------------------------------------------------------------
Total Short-Term Obligations (Cost $40,442,562) 40,442,562
--------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Common Stocks 83.4%
--------------------------------------------------------------------------------
Health 1.9%
Biotechnology
Affymetrix, Inc.* ............................ 2,200 363,275
Diversa Corp.* ............................... 30,000 993,750
Genentech, Inc.* ............................. 2,200 378,400
PE Corp-PE Biosystems Group* ................. 38,700 2,549,363
QLT Inc.* .................................... 4,000 310,664
----------
4,595,452
----------
Communications 3.8%
Cellular Telephone 0.7%
Nextel Communications, Inc. "A" .............. 20,000 1,223,750
Nokia Oyj (ADR) .............................. 8,600 429,463
----------
1,653,213
----------
Telephone/Communications 3.1%
JDS Uniphase Corp.* .......................... 42,000 5,034,750
Nortel Networks Corp. ........................ 30,000 2,047,500
Sierra Wireless Inc.* ........................ 11,200 602,700
----------
7,684,950
----------
Media 0.6%
Cable Television
AT&T Corp.-- Liberty Media
Group "A"* ................................ 13,000 315,250
EchoStar Communications Corp. ................
"A"* ...................................... 31,400 1,039,634
----------
1,354,884
----------
Service Industries 8.4%
EDP Services 2.8%
Electronic Data Systems Corp. ................ 15,000 618,750
Shares Value ($)
--------------------------------------------------------------------------------
First Data Corp. ............................. 36,000 1,786,500
Sapient Corp.* ............................... 16,000 1,711,000
VeriSign, Inc.* .............................. 16,200 2,859,300
----------
6,975,550
----------
Miscellaneous Commercial Services 3.6%
Aspect Communications Corp.* ................. 50,000 1,965,625
Diamond Technology Partners Inc.* ............ 22,000 1,936,000
Siebel Systems, Inc.* ........................ 31,000 5,070,438
----------
8,972,063
----------
Miscellaneous Consumer Services 1.9%
eBay, Inc.* .................................. 8,000 434,500
Yahoo!, Inc.* ................................ 35,000 4,335,625
----------
4,770,125
----------
Durables 1.9%
Telecommunications Equipment
Tellabs, Inc.* ............................... 70,000 4,790,625
----------
Manufacturing 3.9%
Electrical Products 1.2%
Amphenol Corp "A"* ........................... 20,000 1,323,750
Nanometrics, Inc.* ........................... 40,000 1,647,500
----------
2,971,250
----------
Industrial Specialty 2.4%
Corning, Inc.* ............................... 18,600 5,019,675
Electro Scientific Industries, Inc.* ......... 20,000 880,625
----------
5,900,300
----------
Office Equipment/Supplies 0.3%
Lexmark International Group, Inc. ............
"A"* ...................................... 11,500 773,375
----------
Technology 62.9%
Computer Software 25.2%
Advanced Digital Information
Corp.* .................................... 14,000 223,125
Agile Software Corp.* ........................ 32,000 2,262,000
BEA Systems, Inc.* ........................... 62,000 3,065,125
Broadbase Software, Inc.* .................... 54,200 1,659,875
Brocade Communications Systems,
Inc.* ..................................... 30,000 5,504,531
Business Objects, S.A.* ...................... 15,600 1,374,750
Celera Genomics* ............................. 8,000 748,000
Check Point Software Technologies,
Ltd ....................................... 10,000 2,117,500
Computer Associates International,
Inc ....................................... 60,000 3,071,250
Cysive Inc.* ................................. 50,000 1,193,750
I2 Technologies Inc.* ........................ 22,000 2,293,844
Intuit, Inc.* ................................ 80,225 3,319,309
Microsoft Corp.* ............................. 97,660 7,812,800
NVIDIA Corp.* ................................ 6,000 381,375
National Instruments Corp.* .................. 30,000 1,308,750
Oracle Corp.* ................................ 73,000 6,136,563
PC-Tel, Inc.* ................................ 20,000 760,000
The accompanying notes are an integral part of the financial statements.
88 | Kemper Variable Series --
Kemper Technology Growth Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Portal Software, Inc.* .................. 67,000 4,279,625
Precise Software Solutions* ............. 7,300 175,200
Rational Software Corp.* ................ 27,000 2,509,313
Reynolds and Reynolds Co.* .............. 75,000 1,368,750
Storagenetworks Inc.* ................... 3,100 279,775
Sycamore Networks, Inc.* ................ 22,000 2,428,250
Vignette Corp.* ......................... 40,200 2,091,028
Watchgaurd Technologies, Inc.* .......... 42,500 2,334,844
Webmethods, Inc. ........................ 20,000 3,143,750
----------
61,843,082
----------
Diverse Electronic Products 7.1%
Applied Materials, Inc.* ................ 41,778 3,786,131
Dell Computer Corp.* .................... 99,375 4,900,430
Foundry Networks, Inc.* ................. 17,000 1,878,500
Molex Incorporated* ..................... 2,500 120,313
Motorola Inc.* .......................... 71,420 2,075,644
Solectron Corp.* ........................ 32,300 1,352,563
Teradyne, Inc.* ......................... 46,800 3,439,800
----------
17,553,381
----------
EDP Peripherals 2.5%
Ariba, Inc. ............................. 16,000 1,568,750
EMC Corp.* .............................. 14,600 1,123,288
Mercury Interactive Corp.* .............. 17,400 1,683,450
VERITAS Software Corp.* ................. 16,125 1,822,377
----------
6,197,865
----------
Electronic Components/Distributors 8.7%
Applied Micro Circuits Corp.* ........... 12,000 1,185,000
Broadcom Corp.* ......................... 7,600 1,663,925
Celestica Inc. .......................... 33,300 1,652,513
Shares Value ($)
--------------------------------------------------------------------------------
Cisco Systems, Inc.* .................... 124,000 7,881,750
Juniper Networks, Inc. .................. 36,000 5,240,250
Molex Inc. "A" .......................... 69,638 2,437,313
PMC-Sierra, Inc.* ....................... 7,000 1,243,813
----------
21,304,564
----------
Electronic Data Processing 3.9%
Compaq Computer Corp. ................... 130,000 3,323,125
Seagate Technology, Inc.* ............... 60,000 3,300,000
Sun Microsystems, Inc.* ................. 32,524 2,957,645
----------
9,580,770
----------
Semiconductors 15.3%
Conexant Systems, Inc. .................. 8,000 389,000
Intel Corp. ............................. 62,000 8,288,625
KLA Tencor Corp.* ....................... 67,000 3,923,688
Linear Technology Corp. ................. 48,000 3,069,000
Maxim Integrated Products Inc. .......... 36,000 2,445,750
Micron Technology, Inc.* ................ 18,000 1,585,125
QLogic Corp.* ........................... 20,000 1,321,250
SDL, Inc.* .............................. 10,000 2,851,875
Sanmina Corp.* .......................... 54,000 4,617,000
Silicon Image, Inc.* .................... 50,000 2,493,750
Texas Instruments, Inc. ................. 56,744 3,897,604
Xilinx, Inc.* ........................... 32,000 2,642,000
----------
37,524,667
----------
Miscellaneous 0.2%
Advanced Radio Telecom Corp.* ........... 40,000 585,000
----------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $169,800,810) 205,031,116
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $210,626,372) (a) 245,856,678
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Technology Growth Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreement is fully collateralized by the U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $210,626,372. At June 30,
2000, net unrealized appreciation for all securities based on tax cost was
$35,230,306. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$44,554,431 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $9,324,125.
The accompanying notes are an integral part of the financial statements.
89 | Kemper Variable Series --
Kemper Technology Growth Portfolio
<PAGE>
Financial Statements
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
Assets
----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $210,626,372) ...................... $ 245,856,678
Cash ......................................................................... 750
Receivable for investments sold .............................................. 199,208
Dividends receivable ......................................................... 15,475
Interest receivable .......................................................... 69
Receivable for Portfolio shares sold ......................................... 691,469
Foreign taxes recoverable .................................................... 389
-------------
Total assets ................................................................. 246,764,038
Liabilities
----------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 401,519
Accrued management fee ....................................................... 130,891
Other accrued expenses and payables .......................................... 69,884
-------------
Total liabilities ............................................................ 602,294
----------------------------------------------------------------------------------------------
Net assets, at value $ 246,161,744
----------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 215,412
Net unrealized appreciation (depreciation) on investments .................... 35,230,306
Accumulated net realized gain (loss) ......................................... (630,296)
Paid-in capital .............................................................. 211,346,322
----------------------------------------------------------------------------------------------
Net assets, at value $ 246,161,744
----------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($246,161,744 / 121,810,617
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized) ..................................................... $ 2.021
-------------
----------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
Investment Income
----------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $572) ............................ $ 53,916
Interest ..................................................................... 777,318
-------------
Total Income ................................................................. 831,234
-------------
Expenses:
Management fee ............................................................... 624,353
Custodian and accounting fees ................................................ 31,456
Auditing ..................................................................... 1,140
Legal ........................................................................ 2,626
Trustees' fees and expenses .................................................. 8,252
Reports to shareholders ...................................................... 12,284
Registration fees ............................................................ 21,759
Other ........................................................................ 325
-------------
Total expenses, before expense reductions .................................... 702,195
Expense reductions ........................................................... (3,475)
-------------
Total expenses, after expense reductions ..................................... 698,720
----------------------------------------------------------------------------------------------
Net investment income (loss) 132,514
----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
----------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .................................... (451,334)
Net unrealized appreciation (depreciation) during the period on investments .. 15,332,069
----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 14,880,735
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 15,013,249
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
90 | Kemper Variable Series --
Kemper Technology Growth Portfolio
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------------------------
Six Months Period Ended
Ended December 31,
June 30, 2000 1999(a)
Increase (Decrease) in Net Assets (Unaudited)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................. $ 132,514 $ 83,898
Net realized gain (loss) on investment transactions ...................................... (451,334) 693,828
Net unrealized appreciation (depreciation) on investment transactions during the period .. 15,332,069 19,898,237
------------- ---------------
Net increase (decrease) in net assets resulting from operations .......................... 15,013,249 20,675,963
Distributions to shareholders from net realized gains .................................... (873,790) --
------------- ---------------
Portfolio share transactions:
Proceeds from shares sold ................................................................ 156,586,908 63,796,809
Reinvestment of distributions ............................................................ 873,790 --
Cost of shares redeemed .................................................................. (9,647,703) (1,763,482)
------------- ---------------
Net increase (decrease) in net assets from Portfolio share transactions .................. 147,812,995 62,033,327
------------- ---------------
Increase (decrease) in net assets ........................................................ 161,952,454 82,709,290
Net assets at beginning of period ........................................................ 84,209,290 1,500,000
Net assets at end of period (including undistributed net investment income of $215,412 and ------------- ---------------
$82,898, respectively) $ 246,161,744 $ 84,209,290
------------- ---------------
Other Information
-----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ................................................ 47,388,450 1,500,000
------------- ---------------
Shares sold .............................................................................. 79,359,999 47,160,757
Shares issued to shareholders in reinvestment of distributions ........................... 411,089 --
Shares redeemed .......................................................................... (5,348,921) (1,272,307)
------------- ---------------
Net increase (decrease) in Portfolio shares .............................................. 74,422,167 45,888,450
------------- ---------------
Shares outstanding at end of period ...................................................... 121,810,617 47,388,450
------------- ---------------
</TABLE>
(a) For the period from May 1, 1999 (commencement of operations) to December
31, 1999.
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
2000(a) 1999(b)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $1.777 1.000
------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (c) .002 .005
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .252 .772
------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .254 .777
------------------
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
-----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.010) --
------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.010) --
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $2.021 1.777
------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) 14.25** 77.70**
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 246,162 84,209
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .84* 1.19*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .84* .94*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .16* .60*
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 93* 34*
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from May 1, 1999 (commencement of operations) to December
31, 1999.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
91 | Kemper Variable Series --
Kemper Technology Growth Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Value+Growth Portfolio
Interest rate hikes, a technology correction and increased volatility
characterized the Kemper Value+Growth Portfolio's semiannual period. Investors
left the technology market for more defensive, value-oriented stocks such as
energy and financial services. As this occurred, the huge disparity in the
valuations between growth stocks and value stocks began to narrow. The extreme
disparity in the market wasn't erased, but certainly the market broadened its
favor beyond just a small group of technology-related growth stocks.
The fund's relative performance was hurt by the decline in technology stocks and
our tilt toward growth stocks in general. After the severe technology sector
correction, however, the valuations of some of the stocks we had sold looked
attractive to us again. We added to our position in Intel. Despite their
volatility, tech names such as Intel, Oracle, Seagate and EMC were among the
fund's best performers over the six-month period.
During this period, we've been building our position in the energy sector --
specifically oil stocks, a traditionally value-oriented segment of the market.
The energy sector, like the technology sector, is enjoying positive earnings
revisions, which is a nice diversifier along the value spectrum.
We expected a slowing economy but neither of the two scenarios that would most
certainly take the market down sharply, namely recession or significantly higher
inflation. Our disciplined process and balance between growth and value
investments is meant to exploit the tension between fear and greed that is
always present in the markets.
Donald E. Hall
Lead Portfolio Manager
92 | Kemper Variable Series --
Kemper Value+Growth Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Value+Growth Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreement 0.3%
--------------------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at
$445,240 on 7/3/2000** ----------
(Cost $445,000) ....................... 445,000 445,000
----------
--------------------------------------------------------------------------------
Commercial Paper 4.9%
--------------------------------------------------------------------------------
Countrywide Home Loans Corp.:
6.88%, 7/6/2000 ....................... 1,000,000 999,044
6.8%, 7/10/2000 ....................... 2,000,000 1,996,600
Detroit Edison Co., 7.15%, 7/14/2000 ..... 2,000,000 1,994,836
Enron Corp, 6.9%, 7/7/2000 ............... 1,000,000 998,850
Florida Power and Light Co., 6.68%,
7/17/2000 ............................. 2,000,000 1,994,062
--------------------------------------------------------------------------------
Total Commercial Paper (Cost $7,983,392) .. 7,983,392
--------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------
Common Stocks 94.8%
--------------------------------------------------------------------------------
Consumer Discretionary 3.2%
Department & Chain Stores
Gap, Inc. ................................ 11,125 347,656
Home Depot, Inc. ......................... 55,650 2,779,022
Wal-Mart Stores, Inc. .................... 35,400 2,039,925
----------
5,166,603
----------
Consumer Staples 2.4%
Alcohol & Tobacco 0.4%
Anheuser-Busch Companies, Inc. ........... 5,900 440,656
UST, Inc. ................................ 15,400 226,188
----------
666,844
----------
Food & Beverage 1.2%
Bestfoods ................................ 9,900 685,575
Coca-Cola Co. ............................ 8,900 511,194
PepsiCo, Inc. ............................ 15,000 666,563
----------
1,863,332
----------
Package Goods/Cosmetics 0.8%
Kimberly-Clark Corp. ..................... 15,000 860,625
Procter & Gamble Co. ..................... 8,100 463,725
----------
1,324,350
----------
Health 8.2%
Biotechnology 1.3%
Amgen Inc.* .............................. 14,400 1,011,600
MedImmune, Inc.* ......................... 9,600 710,400
PE Corp-PE Biosystems Group .............. 6,800 447,950
----------
2,169,950
----------
Shares Value ($)
--------------------------------------------------------------------------------
Hospital Management 0.8%
HCA-The Heathcare Corporation ............ 18,100 549,788
UnitedHealth Group Inc. .................. 8,800 754,600
----------
1,304,388
----------
Medical Supply & Specialty 0.4%
Baxter International, Inc. ............... 8,200 576,562
----------
Pharmaceuticals 5.7%
Abbott Laboratories ...................... 23,300 1,038,306
Bristol-Myers Squibb Co. ................. 42,100 2,452,325
Johnson & Johnson, Inc. .................. 17,100 1,742,063
Merck & Co., Inc. ........................ 17,300 1,325,613
Pfizer, Inc. ............................. 45,750 2,196,000
Schering-Plough Corp. .................... 8,200 414,100
----------
9,168,407
----------
Communications 9.1%
Cellular Telephone 1.1%
Nokia Oyj (ADR) .......................... 27,200 1,358,300
Vodafone AirTouch plc (ADR) .............. 9,250 383,297
----------
1,741,597
----------
Telephone/Communications 8.0%
AT&T Corp. ............................... 39,400 1,246,025
Bell Atlantic Corp. ...................... 61,800 3,140,212
BellSouth Corp. .......................... 24,300 1,035,787
GTE Corp. ................................ 31,300 1,948,425
Nortel Networks Corp. .................... 16,600 1,132,950
SBC Communicatons, Inc. .................. 28,200 1,219,650
WorldCom, Inc.* .......................... 68,200 3,128,675
----------
12,851,724
----------
Financial 17.1%
Banks 4.0%
Bank of America Corp. .................... 35,000 1,505,000
Chase Manhattan Corp. .................... 58,050 2,673,928
Compass Bancshares, Inc. ................. 34,000 580,125
First Union Corp. ........................ 15,000 372,188
J.P. Morgan & Co., Inc. .................. 4,300 473,538
PNC Bank Corp. ........................... 9,600 450,000
Wells Fargo Co. .......................... 10,700 414,625
----------
6,469,404
----------
Insurance 5.1%
AFLAC, Inc. .............................. 3,700 169,968
AMBAC Financial Group, Inc. .............. 15,300 838,631
American General Corp. ................... 13,500 823,500
American International Group, Inc. ....... 10,350 1,216,125
Cigna Corp. .............................. 6,500 607,750
Hartford Financial Services Group, Inc. .. 9,600 537,000
Lincoln National Corp. ................... 20,900 755,013
MBIA, Inc. ............................... 8,400 404,775
MGIC Investment Corp. .................... 14,100 641,550
The accompanying notes are an integral part of the financial statements.
93 | Kemper Variable Series --
Kemper Value+Growth Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Nationwide Financial Services, Inc. "A" . 22,000 723,250
PMI Group, Inc. ......................... 4,700 223,250
Providian Financial Corp. ............... 9,900 891,000
XL Capital Ltd. "A" ..................... 7,889 426,992
----------
8,258,804
----------
Consumer Finance 3.5%
Associates First Capital Corp. .......... 29,900 667,143
Citigroup, Inc. ......................... 62,500 3,765,625
Household International, Inc. ........... 20,900 868,656
SLM Holding Corp. ....................... 8,600 321,963
----------
5,623,387
----------
Other Financial Companies 4.4%
CIT Group, Inc. ......................... 18,200 295,750
Federal Home Loan Mortgage Corp. ........ 13,700 554,850
Federal National Mortgage Association ... 14,100 735,844
Legg Mason, Inc. ........................ 24,500 1,225,000
Lehman Brothers Holdings, Inc. .......... 10,300 973,994
Marsh & McLennan Companies, Inc. ........ 8,500 887,719
Morgan Stanley Dean Witter & Co. ........ 29,800 2,480,850
----------
7,154,007
----------
Media 3.0%
Advertising 0.9%
Interpublic Group of Companies, Inc. .... 10,000 430,000
True North Communications, Inc. ......... 24,600 1,082,400
----------
1,512,400
----------
Broadcasting & Entertainment 0.2%
Time Warner, Inc. ....................... 4,700 357,200
----------
Print Media 0.8%
Gannett Co., Inc. ....................... 22,700 1,357,744
----------
Miscellaneous 1.0%
TV Guide, Inc. .......................... 47,400 1,623,450
----------
Service Industries 3.0%
EDP Services 1.4%
Automatic Data Processing, Inc. ......... 7,800 417,787
Electronic Data Systems Corp. ........... 22,200 915,750
First Data Corp. ........................ 19,100 947,838
----------
2,281,375
----------
Investment 1.3%
Bear Stearns Companies, Inc. ............ 8,900 370,462
Charles Schwab Corp. .................... 19,800 665,775
Goldman Sachs Group, Inc. ............... 4,500 426,938
Merrill Lynch & Co., Inc. ............... 5,700 655,500
----------
2,118,675
----------
Miscellaneous Consumer Services 0.2%
H & R Block, Inc. ....................... 11,300 365,838
----------
Durables 6.0%
Aerospace 2.4%
Boeing Co. .............................. 30,200 1,262,738
Northrop Grumman Corp. .................. 11,200 742,000
Rockwell International Corp. ............ 35,300 1,111,950
Shares Value ($)
--------------------------------------------------------------------------------
United Technologies Corp. ............... 13,542 797,285
----------
3,913,973
----------
Automobiles 1.8%
Eaton Corp. ............................. 5,600 375,200
Ford Motor Co. .......................... 49,200 2,115,600
General Motors Corp. .................... 6,619 384,316
----------
2,875,116
----------
Construction/Agricultural Equipment 0.5%
PACCAR, Inc. ............................ 18,400 730,250
----------
Telecommunications Equipment 1.4%
Lucent Technologies, Inc. ............... 23,365 1,384,376
Tellabs, Inc.* .......................... 11,800 807,563
----------
2,191,939
----------
Manufacturing 5.2%
Chemicals 0.6%
E.I. du Pont de Nemours & Co. ........... 14,800 647,500
Praxair, Inc. ........................... 10,000 374,375
----------
1,021,875
----------
Diversified Manufacturing 2.3%
General Electric Co. .................... 42,700 2,263,100
Koninklijke (Royal) Philips
Electronics N.V ...................... 8,500 403,750
Tyco International Ltd. ................. 20,560 974,030
----------
3,640,880
----------
Electrical Products 0.7%
Emerson Electric Co. .................... 18,500 1,116,938
----------
Industrial Specialty 1.2%
Corning, Inc. ........................... 4,300 1,160,463
QUALCOMM Inc.* .......................... 8,000 480,000
Teleflex Incorporated ................... 8,500 315,031
----------
1,955,494
----------
Machinery/Components/Controls 0.4%
Parker-Hannifin Corp. ................... 17,000 582,250
Visteon Corporation* .................... 6,442 78,913
----------
661,163
----------
Technology 24.3%
Computer Software 7.5%
America Online, Inc.* ................... 12,700 669,925
Computer Associates International,
Inc .................................. 32,600 1,668,713
Jack Henry & Associates, Inc. ........... 24,600 1,233,075
Microsoft Corp.* ........................ 58,500 4,680,000
Oracle Corp.* ........................... 37,600 3,160,750
Rational Software Corp.* ................ 6,700 622,681
----------
12,035,144
----------
Diverse Electronic Products 2.3%
Applied Materials, Inc.* ................ 14,700 1,332,187
Dell Computer Corp.* .................... 17,100 843,244
General Motors Corp. "H" (New) .......... 2,322 203,756
Motorola Inc. ........................... 46,800 1,360,125
----------
3,739,312
----------
The accompanying notes are an integral part of the financial statements.
94 | Kemper Variable Series --
Kemper Value+Growth Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
EDP Peripherals 1.2%
EMC Corp.* ............................... 25,200 1,938,825
-----------
Electronic Components/Distributors 3.8%
Cisco Systems, Inc.* ..................... 97,500 6,197,344
-----------
Electronic Data Processing 4.3%
Apple Computer, Inc.* .................... 8,200 429,475
Hewlett-Packard Co. ...................... 7,300 911,588
International Business Machines Corp. .... 5,600 613,550
Seagate Technology, Inc.* ................ 37,500 2,062,500
Sun Microsystems, Inc.* .................. 32,000 2,910,000
-----------
6,927,113
-----------
Semiconductors 5.1%
Intel Corp. .............................. 38,300 5,120,231
Maxim Integrated Products Inc.* .......... 7,500 509,531
QLogic Corp.* ............................ 7,600 502,075
Texas Instruments, Inc. .................. 13,800 947,888
Vitesse Semiconductor Corp.* ............. 14,800 1,088,725
-----------
8,168,450
-----------
Miscellaneous 0.1%
Agilent Technologies, Inc.* .............. 2,784 205,336
-----------
Energy 9.3%
Oil & Gas Production 5.6%
Anadarko Petroleum Corp. ................. 13,000 641,062
Exxon Mobil Corp. ........................ 33,453 2,626,061
Imperial Oil Ltd.* ....................... 33,300 812,990
Royal Dutch Petroleum Co. ................
(New York shares) ..................... 56,700 3,490,594
Shares Value ($)
-----------------------------------------------------------------------
Texaco, Inc. ............................. 27,400 1,459,050
-----------
9,029,757
-----------
Oil Companies 3.7%
Ashland Inc. ............................. 28,000 981,750
Chevron Corp. ............................ 21,500 1,823,469
Phillips Petroleum Co. ................... 36,600 1,855,163
Repsol S.A. (ADR) ........................ 61,800 1,224,413
-----------
5,884,795
-----------
Metals & Minerals 0.2%
Steel & Metals
Alcoa, Inc. .............................. 9,600 278,400
-----------
Transportation 0.7%
Airlines 0.2%
Delta Air Lines, Inc. .................... 7,100 358,994
-----------
Railroads 0.5%
Canadian National Railway Co. ............ 28,100 817,931
-----------
Utilities 3.1%
Electric Utilities
Allegheny Energy, Inc. ................... 24,200 662,475
DPL Inc. ................................. 41,200 903,825
Northeast Utilities ...................... 70,100 1,524,675
Peco Energy Co. .......................... 10,100 407,156
Southern Co. ............................. 23,900 557,169
Unicom Corp. ............................. 25,800 998,138
-----------
5,053,438
-----------
-----------------------------------------------------------------------
Total Common Stocks (Cost $133,486,021) 152,698,508
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $141,914,413) (a) 161,126,900
-----------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Value+Growth Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
(a) The cost for federal income tax purposes was $141,914,413. At June 30,
2000, net unrealized appreciation for all securities based on tax cost was
$19,212,487. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$30,196,734 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $10,984,247.
The accompanying notes are an integral part of the financial statements.
95 | Kemper Variable Series --
Kemper Value+Growth Portfolio
<PAGE>
Financial Statements
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
Assets
----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $141,914,413) ...................... $ 161,126,900
Foreign currency, at value (cost $2,827) ..................................... 2,823
Dividends receivable ......................................................... 97,697
Interest receivable .......................................................... 80
Receivable for Portfolio shares sold ......................................... 88,314
Other assets ................................................................. 402
-------------
Total assets ................................................................. 161,316,216
Liabilities
----------------------------------------------------------------------------------------------
Due to custodian bank ........................................................ 2,397
Payable for Portfolio shares redeemed ........................................ 29,487
Accrued management fee ....................................................... 101,973
Other accrued expenses and payables .......................................... 37,694
-------------
Total liabilities ............................................................ 171,551
----------------------------------------------------------------------------------------------
Net assets, at value $ 161,144,665
----------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------
Net assets consist of:
Overdistributed net investment loss .......................................... $ (645,303)
Net unrealized appreciation (depreciation) on:
Investments .................................................................. 19,212,487
Foreign currency related transactions ........................................ 21
Accumulated net realized gain (loss) ......................................... 6,753,588
Paid-in capital .............................................................. 135,823,872
----------------------------------------------------------------------------------------------
Net assets, at value $ 161,144,665
----------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($161,144,665 / 95,026,666
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized) ..................................................... $ 1.695
-------------
----------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
Investment Income
----------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $10,499) ......................... $ 38,468
Interest ..................................................................... 145,107
-------------
Total Income ................................................................. 183,575
-------------
Expenses:
Management fee ............................................................... 607,874
Custodian fees ............................................................... 5,331
Auditing ..................................................................... 17,858
Legal ........................................................................ 4,457
Trustees' fees and expenses .................................................. 11,438
Reports to shareholders ...................................................... 12,762
Registration fees ............................................................ 450
-------------
Total expenses, before expense reductions .................................... 660,170
Expense reductions ........................................................... (234)
-------------
Total expenses, after expense reductions ..................................... 659,936
----------------------------------------------------------------------------------------------
Net investment income (loss) (476,361)
----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
----------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................................. 7,316,696
Foreign currency related transactions ........................................ (15)
-------------
7,316,681
-------------
Net unrealized appreciation (depreciation) during the period on investments .. (9,756,266)
----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (2,439,564)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (2,915,925)
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
96 | Kemper Variable Series --
Kemper Value+Growth Portfolio
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) .......................................................... $ (476,361) $ 727,711
Net realized gain (loss) on investment transactions ................................... 7,316,681 14,165,134
Net unrealized appreciation (depreciation) on investment transactions during the period (9,756,245) 9,768,753
------------- -------------
Net increase (decrease) in net assets resulting from operations ....................... (2,915,925) 24,661,598
Distributions to shareholders from:
Net investment income ................................................................. (863,095) (900,474)
------------- -------------
Net realized gains .................................................................... (14,672,601) (3,151,621)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold ............................................................. 7,883,728 21,193,317
Reinvestment of distributions ......................................................... 15,535,695 4,052,095
Cost of shares reedemed ............................................................... (15,889,101) (26,109,692)
------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions ............... 7,530,322 (864,280)
------------- -------------
Increase (decrease) in net assets ..................................................... (10,921,299) 19,745,223
Net assets at beginning of period ..................................................... 172,065,964 152,320,741
Net assets at end of period (including undistributed (overdistributed) net investment ------------- -------------
income (loss) of $(645,303) and $694,153, respectively) ............................ $ 161,144,665 $ 172,065,964
------------- -------------
Other Information
-----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 90,779,505 91,158,000
------------- -------------
Shares sold ........................................................................... 4,436,230 12,603,956
Shares issued to shareholders in reinvestment of distributions ........................ 8,648,816 2,443,385
Shares redeemed ....................................................................... (8,837,885) (15,425,836)
------------- -------------
Net increase (decrease) in Portfolio shares ........................................... 4,247,161 (378,495)
------------- -------------
Shares outstanding at end of period ................................................... 95,026,666 90,779,505
------------- -------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997 1996(b)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.896 1.671 1.425 1.146 1.000
--------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.005)(c) .008(c) .008 .012 .008
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.016) .262 .278 .277 .138
--------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.021) .270 .286 .289 .146
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (.010) (.010) -- (.010) --
-----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.170) (.035) (.040) -- --
--------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.180) (.045) (.040) (.010) --
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.695 1.896 1.671 1.425 1.146
--------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (1.57)** 16.52 20.17 25.47 14.60**
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 161,145 172,066 152,321 69,094 10,196
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .81* .83 .78 .84 1.01*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .81* .82 .78 .84 .90*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.59)* .46 .80 .95 .97*
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 44* 102 102 50 25*
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from May 1, 1996 (commencement of operations) to December
31, 1996.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
97 | Kemper Variable Series --
Kemper Value+Growth Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Contrarian Value Portfolio
After outperforming strongly in both April and May, Kemper Contrarian Value
Portfolio gave a little back in June, but remained in positive territory for the
quarter and outperformed its benchmark, the Russell 1000 Value Index. The
portfolio declined 6.53% in June and gained 0.10% for the second quarter. By
comparison, the Russell 1000 Value lost 4.57% in June and 4.69% in the second
quarter. The disparity in performance late in the quarter can be attributed to
the reconstitution of the Russell 1000 Index and broad selling by institutional
investors. "This is of course a `technical' not a fundamental issue with the
markets and we believe it will reverse itself soon," comments Lead Portfolio
Manager Tom Sassi. "In general, we believe the markets are once again focused on
earnings and valuations rather than momentum, which should be positive for the
portfolio's investments."
The portfolio's stock selection and sector allocation both contributed to
performance during the quarter. Financials, however, were a drag on performance
as concern over higher rates lingered. Sassi remains true to his contrarian
discipline and is focused less on macroeconomic events and more on upgrading the
portfolio's fundamentals and valuation characteristics.
Thomas F. Sassi
Lead Portfolio Manager
98 | Kemper Variable Series --
Kemper Contrarian Value Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Contrarian Value Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Short-Term Obligations 10.9%
--------------------------------------------------------------------------------
Fed Home Loan Discount Notes,
6.57%, 7/3/2000** ----------
(Cost $21,353,203) .................... 21,361,000 21,353,203
----------
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Common Stocks 89.1%
--------------------------------------------------------------------------------
Consumer Discretionary 7.0%
Department & Chain Stores 4.9%
J.C. Penney Co., Inc. .................... 157,800 2,909,438
May Department Stores .................... 200,000 4,800,000
Sears, Roebuck & Co. ..................... 58,000 1,892,250
----------
9,601,688
----------
Home Furnishings 2.1%
Newell Rubbermaid, Inc. .................. 161,700 4,163,775
----------
Consumer Staples 15.5%
Alcohol & Tobacco 4.0%
Philip Morris Companies, Inc. ............ 292,500 7,769,531
----------
Food & Beverage 6.2%
Albertson's, Inc. ........................ 70,000 2,327,500
H.J. Heinz Co. ........................... 108,200 4,733,750
Sara Lee Corp. ........................... 264,800 5,113,950
----------
12,175,200
----------
Package Goods/Cosmetics 3.0%
International Flavors &
Fragrances, Inc. ...................... 64,500 1,947,094
Unilever NV (New York Shares) ............ 90,714 3,900,702
----------
5,847,796
----------
Textiles 2.3%
VF Corp. ................................. 185,000 4,405,313
----------
Health 9.4%
Medical Supply & Specialty 3.0%
Becton, Dickinson & Co. .................. 200,000 5,737,500
----------
Pharmaceuticals 6.4%
Abbott Laboratories ...................... 95,500 4,255,718
Bristol-Myers Squibb Co. ................. 70,000 4,077,500
Johnson & Johnson, Inc. .................. 19,000 1,935,625
Merck & Co., Inc. ........................ 30,000 2,298,750
----------
12,567,593
----------
Financial 20.4%
Banks 10.0%
Bank of America Corp. .................... 58,906 2,532,958
First Union Corp. ........................ 170,000 4,218,125
Shares Value ($)
--------------------------------------------------------------------------------
KeyCorp .................................. 224,000 3,948,000
PNC Bank Corp. ........................... 37,200 1,743,750
Wachovia Corp. ........................... 35,000 1,898,750
Washington Mutual, Inc. .................. 126,704 3,658,578
Wells Fargo Co. .......................... 40,000 1,550,000
----------
19,550,161
----------
Insurance 1.7%
Allstate Corp. ........................... 149,100 3,317,475
----------
Other Financial Companies 7.8%
Federal Home Loan
Mortgage Corp. ........................ 184,600 7,476,300
Federal National Mortgage
Association ........................... 151,600 7,911,625
----------
15,387,925
----------
Real Estate 0.9%
BRE Properties, Inc. "A" (REIT) .......... 60,000 1,732,500
----------
Service Industries 2.8%
Printing/Publishing
Equifax, Inc. ............................ 207,000 5,433,750
----------
Durables 3.3%
Aerospace 1.5%
United Technologies Corp. ................ 51,000 3,002,625
----------
Automobiles 1.8%
Dana Corp. ............................... 75,000 1,589,062
Ford Motor Co. ........................... 44,500 1,913,500
----------
3,502,562
----------
Manufacturing 14.9%
Chemicals 1.8%
E.I. du Pont de Nemours & Co. ............ 40,000 1,750,000
Praxair, Inc. ............................ 46,400 1,737,100
----------
3,487,100
----------
Containers & Paper 3.1%
Sonoco Products Co. ...................... 293,200 6,028,925
----------
Diversified Manufacturing 1.4%
Minnesota Mining &
Manufacturing Co. ..................... 33,000 2,722,500
----------
Electrical Products 2.7%
Emerson Electric Co. ..................... 62,300 3,761,363
Thomas & Betts Corp. ..................... 81,700 1,562,513
----------
5,323,876
----------
Machinery/Components/
Controls 2.5%
Pitney Bowes, Inc. ....................... 120,800 4,832,000
Visteon Corporation* ..................... 5,827 71,375
----------
4,903,375
----------
The accompanying notes are an integral part of the financial statements.
99 | Kemper Variable Series --
Kemper Contrarian Value Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Office Equipment/Supplies 1.5%
Xerox Corp. .............................. 145,000 3,008,750
-----------
Specialty Chemicals 1.9%
Air Products & Chemicals, Inc. ........... 117,200 3,611,225
-----------
Technology 5.1%
Computer Software 1.6%
Computer Associates
International, Inc. ................... 63,000 3,224,812
-----------
Diverse Electronic Products 2.6%
Diebold, Inc. ............................ 180,000 5,017,500
-----------
Military Electronics 0.9%
Raytheon Co. "B" ......................... 91,500 1,761,375
-----------
Energy 6.3%
Oil & Gas Production
BP Amoco plc ............................. 62,944 3,560,270
Shares Value ($)
--------------------------------------------------------------------------------
Exxon Mobil Corp. ........................ 53,000 4,160,500
Texaco, Inc. ............................. 88,200 4,696,650
-----------
12,417,420
-----------
Construction 1.4%
Forest Products
Louisiana-Pacific Corp. .................. 250,000 2,718,750
-----------
Transportation 3.0%
Air Freight 1.3%
FedEx Corp.* ............................. 69,000 2,622,000
-----------
Railroads 1.7%
Burlington Northern Santa Fe Corp. ....... 50,000 1,146,875
CSX Corp. ................................ 97,800 2,072,137
-----------
3,219,012
-----------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $213,511,516) 174,262,014
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $234,864,719) (a) 195,615,217
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Contrarian Value Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $234,864,719. At June 30,
2000, net unrealized depreciation for all securities based on tax cost was
$39,249,502. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$6,012,101 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $45,261,603.
The accompanying notes are an integral part of the financial statements.
100 | Kemper Variable Series --
Kemper Contrarian Value Portfolio
<PAGE>
Financial Statements
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
<S> <C>
Assets
----------------------------------------------------------------------------------------------
Investments in securities, at value (cost $234,864,719) ...................... $ 195,615,217
Cash ......................................................................... 12,114
Dividends receivable ......................................................... 376,214
Receivable for Portfolio shares sold ......................................... 128,229
-------------
Total assets ................................................................. 196,131,774
Liabilities
----------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 1,250,604
Payable for Portfolio shares redeemed ........................................ 54,952
Accrued management fee ....................................................... 126,751
Other accrued expenses and payables .......................................... 36,028
-------------
Total liabilities ............................................................ 1,468,335
----------------------------------------------------------------------------------------------
Net assets, at value $ 194,663,439
----------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 2,552,263
Net unrealized appreciation (depreciation) on investments .................... (39,249,502)
Accumulated net realized gain (loss) ......................................... (16,013,559)
Paid-in capital .............................................................. 247,374,237
----------------------------------------------------------------------------------------------
Net assets, at value $ 194,663,439
----------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($194,663,439 / 177,179,437
outstanding shares of beneficial interest, $.01 par value, unlimited number
of shares authorized)
$ 1.098
----------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
Investment Income
----------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $15,038) ......................... $ 3,014,875
Interest ..................................................................... 335,361
-------------
Total Income ................................................................. 3,350,236
-------------
Expenses:
Management fee ............................................................... 753,983
Custodian fees ............................................................... 3,908
Auditing ..................................................................... 25,390
Legal ........................................................................ 9,824
Trustees' fees and expenses .................................................. 9,788
Reports to shareholders ...................................................... 10,316
Registration fees ............................................................ 2,059
-------------
Total expenses, before expense reductions .................................... 815,268
Expense reductions ........................................................... (56)
-------------
Total expenses, after expense reductions ..................................... 815,212
----------------------------------------------------------------------------------------------
Net investment income (loss) 2,535,024
----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
----------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .................................... (14,367,898)
Net unrealized appreciation (depreciation) during the period on investments .. (614,295)
----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (14,982,193)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (12,447,169)
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
101 | Kemper Variable Series --
Kemper Contrarian Value Portfolio
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
----------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ........................................................... $ 2,535,024 $ 5,919,003
Net realized gain (loss) on investment transactions .................................... (14,367,898) 35,340,216
Net unrealized appreciation (depreciation) on investment transactions during the period (614,295) (71,035,207)
------------- -------------
Net increase (decrease) in net assets resulting from operations ........................ (12,447,169) (29,775,988)
Distributions to shareholders from:
Net investment income .................................................................. (5,694,925) (4,476,122)
------------- -------------
Net realized gains ..................................................................... (37,017,013) (14,920,485)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold .............................................................. 14,873,050 50,935,084
Reinvestment of distributions .......................................................... 42,711,938 19,396,607
Cost of shares redeemed ................................................................ (45,177,482) (47,519,228)
------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions ................ 12,407,506 22,812,463
------------- -------------
Increase (decrease) in net assets ...................................................... (42,751,601) (26,360,132)
Net assets at beginning of period ...................................................... 237,415,040 263,775,172
Net assets at end of period (including undistributed net investment income ------------- -------------
of $2,552,263 and $5,712,164, respectively) ......................................... $ 194,663,439 $ 237,415,040
------------- -------------
Other Information
----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period .............................................. 161,528,464 150,119,000
------------- -------------
Shares sold ............................................................................ 12,193,203 29,388,019
Shares issued to shareholders in reinvestment of distributions ......................... 38,917,838 10,956,506
Shares redeemed ........................................................................ (35,460,068) (28,935,061)
------------- -------------
Net increase (decrease) in Portfolio shares ............................................ 15,650,973 11,409,464
------------- -------------
Shares outstanding at end of period .................................................... 177,179,437 161,528,464
------------- -------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997 1996(b)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.470 1.757 1.518 1.174 1.000
--------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .015(c) .037(c) .026 .031 .015
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.087) (.194) .263 .323 .159
--------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.072) (.157) .289 .354 .174
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (.040) (.030) (.010) (.010) --
-----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.260) (.100) (.040) -- --
--------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.300) (.130) (.050) (.010) --
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.098 1.470 1.757 1.518 1.174
--------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (4.82)** (10.21) 19.26 30.38 17.36**
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 194,663 237,415 263,775 162,380 21,305
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .80* .81 .78 .80 .92*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .80* .80 .78 .80 .90*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.49* 2.14 2.02 2.38 2.42*
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 48* 88 57 46 57*
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period of May 1, 1996, (commencement of operations) to December 31,
1996.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
102 | Kemper Variable Series --
Kemper Contrarian Value Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
KVS Dreman High Return Equity Portfolio
After a long period of underperformance for value stocks, the tide began to
shift during KVS Dreman High Return Equity Portfolio's semiannual period. In
March, the lofty valuations of Internet-related companies began to spook the
market, and investors fled these high-priced technology stocks in search of
safety in more tried and true companies with experienced management, good
balance sheets, and long-term records of strong earnings. Investors once again
began to consider company fundamentals as part of their investment criteria.
This shift in market sentiment favored the types of companies that this fund
holds -- companies with good, long-term track records currently out of favor
with the market and trading at low price-to-earnings multiples. The volatility,
therefore, was extremely positive for the fund, helping it recover ground lost
earlier in the technology-driven momentum market.
As money flew out of the technology market, financial services stocks rallied.
Investors poured into these stocks because of their strong fundamentals and
deeply discounted prices. They saw safety in familiar names, such as Bank of
America, that has a strong franchise and a solid long-term earnings track
record. Financial stock performance improved throughout the remainder of the
period. We expect the stocks to continue gaining, even in a higher interest-rate
environment.
We are encouraged by the broadening in the market that we've seen lately and the
attention investors are now paying to company fundamentals. We fully expect that
we'll see more market volatility and probably more losses coming out of the
technology sector. If this happens, investors will likely continue their recent
trend of investing based on strong company fundamentals and reasonable
valuations.
David N. Dreman
Lead Portfolio Manager
The Portfolio may concentrate investments in specific sectors, which creates
special risk considerations.
103 | Kemper Variable Series --
KVS Dreman High Return Equity Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
KVS Dreman High Return Equity Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreements 11.1%
--------------------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at
$12,192,580 on 7/3/2000*** ----------
(Cost $12,192,580) ..................... 12,186,000 12,186,000
----------
--------------------------------------------------------------------------------
Commercial Paper 9.1%
--------------------------------------------------------------------------------
Bellsouth Corp., 6.4%, 7/14/2000 (b) ...... 5,000,000 4,988,444
Variable Funding Corp., 6.5%,
8/3/2000** (b) ......................... 5,000,000 4,970,208
--------------------------------------------------------------------------------
Total Commercial Paper (Cost $9,958,652) (c) 9,958,652
--------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Common Stocks 79.8%
--------------------------------------------------------------------------------
Consumer Discretionary 5.6%
Apparel & Shoes 0.0%
Fruit of the Loom, Inc.* .................. 95,945 25,905
----------
Department & Chain Stores 0.7%
Rite Aid Corp. ............................ 123,800 812,438
----------
Specialty Retail 4.9%
Borders Group, Inc.* ...................... 212,700 3,310,144
Toys "R" Us, Inc.* ........................ 139,190 2,026,954
5,337,098
----------
Consumer Staples 18.9%
Alcohol & Tobacco 13.2%
Imperial Tobacco Group ADR ................ 21,600 418,500
Philip Morris Companies, Inc. ............. 288,110 7,652,922
R.J. Reynolds Tobacco Holdings, Inc. ...... 94,103 2,629,003
UST, Inc. ................................. 168,910 2,480,866
Universal Corp. ........................... 63,350 1,338,269
----------
14,519,560
----------
Food & Beverage 5.7%
Nabisco Group Holdings .................... 240,110 6,227,853
----------
Health 10.6%
Health Industry Services 5.7%
Humana Inc.* .............................. 350,800 1,710,150
McKesson HBOC, Inc. ....................... 214,500 4,491,094
----------
6,201,244
----------
Hospital Management 5.0%
Tenet Healthcare Corp. .................... 201,855 5,450,085
----------
Shares Value ($)
--------------------------------------------------------------------------------
Financial 21.0%
Banks 12.3%
Bank One Corp. ............................ 147,605 3,920,767
Bank of America Corp. ..................... 37,136 1,596,848
First Union Corp. ......................... 51,771 1,284,568
FleetBoston Financial Corp. ............... 71,588 2,433,992
KeyCorp ................................... 84,455 1,488,519
PNC Bank Corp. ............................ 59,239 2,776,828
----------
13,501,522
----------
Insurance 0.7%
Ohio Casualty Corp. ....................... 7,800 82,875
Safeco Corp. .............................. 7,000 139,125
St. Paul Companies, Inc. .................. 16,300 556,238
----------
778,238
----------
Other Financial Companies 7.9%
Federal Home Loan Mortgage Corp. .......... 93,941 3,804,611
Federal National Mortgage
Association ............................ 83,373 4,351,028
Prison Realty Trust, Inc. (REIT) .......... 185,060 566,746
----------
8,722,385
----------
Service Industries 4.5%
Environmental Services
Transocean Sedo Forex, Inc. ............... 61,200 3,270,375
Waste Management, Inc. .................... 88,200 1,675,800
----------
4,946,175
----------
Energy 16.6%
Oil & Gas Production 11.8%
BP Amoco plc .............................. 37,494 2,120,754
Conoco, Inc. "A" .......................... 174,395 3,836,690
Conoco, Inc. "B" .......................... 109,900 2,699,419
Nabors Industries, Inc.* .................. 3,500 145,469
Texaco, Inc. .............................. 77,705 4,137,791
----------
12,940,123
----------
Oilfield Services/Equipment 4.8%
Diamond Offshore Drilling, Inc. ........... 18,100 635,763
ENSCO International, Inc. ................. 52,600 1,883,738
Global Marine Inc.* ....................... 38,300 1,079,581
Noble Drilling Corp.* ..................... 40,800 1,680,450
----------
5,279,532
----------
Utilities 2.6%
Natural Gas Distribution
Columbia Energy Group ..................... 43,290 2,840,906
----------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $105,373,854) 87,583,064
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $127,518,506) (a) 109,727,716
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
104 | Kemper Variable Series --
KVS Dreman High Return Equity Portfolio
<PAGE>
--------------------------------------------------------------------------------
Notes to KVS Dreman High Return Equity Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate.
*** Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
(a) The cost for federal income tax purposes was $127,518,506. At June 30,
2000, net unrealized depreciation for all securities based on tax cost was
$17,790,790. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$9,031,260 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $26,822,050.
(b) At June 30, 2000, these securities, in part or in whole, have been
segregated to cover initial margin requirements for open futures contracts.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
At June 30, 2000, open futures contracts purchased were as follows:
Aggregate
Expiration Face
Futures Date Contracts Value ($) Value ($)
---------------------------------------------------- -------------- --------- ------------ ------------
<S> <C> <C> <C> <C>
S&P 500 Index ................................... Sept. 15, 2000 37 13,711,093 15,602,125
-----------
Total unrealized depreciation on open futures contracts purchased ......................... (108,966)
-----------
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(c) The portfolio has entered into exchange traded S&P 500 index futures
contracts in order to take advantage of anticipated market conditions and
effectively invest in equities approximately $13,602,125 of short-term
investments. As a result, approximately 91% of the portfolio's net assets
are effectively invested in equities. (See Notes to Financial Statements.)
The accompanying notes are an integral part of the financial statements.
105 | Kemper Variable Series --
KVS Dreman High Return Equity Portfolio
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
<S> <C>
Assets
----------------------------------------------------------------------------------------------
Investments in securities, at value (cost $127,518,506) ...................... $ 109,727,716
Cash ......................................................................... 764
Dividends receivable ......................................................... 341,378
Interest receivable .......................................................... 2,193
Receivable for Portfolio shares sold ......................................... 169,179
Receivable for daily variation margin on open futures contracts .............. 115,625
Due from Adviser ............................................................. 54,877
Other assets ................................................................. 693,782
-------------
Total assets ................................................................. 111,105,514
Liabilities
----------------------------------------------------------------------------------------------
Organization fees ............................................................ 11,000
Accrued management fee ....................................................... 74,510
Other accrued expenses and payables .......................................... 43,720
-------------
Total liabilities ............................................................ 184,107
----------------------------------------------------------------------------------------------
Net assets, at value $ 110,921,407
----------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 1,352,189
Net unrealized appreciation (depreciation) on:
Investments ............................................................... (17,790,790)
Futures ................................................................... (108,966)
Accumulated net realized gain (loss) ......................................... (2,590,541)
Paid-in capital .............................................................. 130,059,515
----------------------------------------------------------------------------------------------
Net assets, at value $ 110,921,407
----------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($110,921,407 / 131,668,705
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized) ..................................................... $ 0.842
-------------
----------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
Investment Income
----------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $1,237) .......................... $ 1,385,389
Interest ..................................................................... 550,048
-------------
Total Income ................................................................. 1,935,437
-------------
Expenses:
Management fee ............................................................... 390,450
Custodian and accounting fees ................................................ 25,210
Auditing ..................................................................... 6,188
Legal ........................................................................ 1,500
Trustees' fees and expenses .................................................. 4,004
Reports to shareholders ...................................................... 5,049
Registration fees ............................................................ 3,640
Other ........................................................................ 1,457
-------------
Total expenses, before expense reductions .................................... 437,498
Expense reductions ........................................................... (639)
-------------
Total expenses, after expense reductions ..................................... 436,859
----------------------------------------------------------------------------------------------
Net investment income (loss) 1,498,578
----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
----------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................................. (338,204)
Futures ...................................................................... (382,723)
-------------
(720,927)
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................................. 1,152,481
Futures ...................................................................... (610,966)
-------------
541,515
----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (179,412)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 1,319,166
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
106 | Kemper Variable Series --
KVS Dreman High Return Equity Portfolio
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------------------------
Six Months Year Ended
Ended June 30, December 31,
Increase (Decrease) in Net Assets 2000 (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ........................................................... $ 1,498,578 $ 2,579,821
Net realized gain (loss) on investment transactions .................................... (720,927) 4,608,507
Net unrealized appreciation (depreciation) on investment transactions during the period 541,515 (21,113,904)
------------- -------------
Net increase (decrease) in net assets resulting from operations ........................ 1,319,166 (13,925,576)
Distributions to shareholders from:
Net investment income .................................................................. (2,301,094) (888,695)
------------- -------------
Net realized gains ..................................................................... (5,752,737) (888,734)
------------- -------------
Fund share transactions:
Proceeds from shares sold .............................................................. 14,578,275 77,262,014
Reinvestment of distributions .......................................................... 8,053,831 1,777,429
Cost of shares redeemed ................................................................ (18,423,694) (9,181,943)
------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions ................ 4,208,412 69,857,500
------------- -------------
Increase (decrease) in net assets ...................................................... (2,526,253) 54,154,495
Net assets at beginning of period ...................................................... 113,447,660 59,293,165
Net assets at end of period (including undistributed net investment income of $1,352,189 ------------- --------------
and $2,154,705, respectively) $ 110,921,407 $ 113,447,660
------------- --------------
Other Information
-----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period .............................................. 126,553,336 57,649,580
------------- -------------
Shares sold ............................................................................ 17,328,951 76,917,647
Shares issued to shareholders in reinvestment of distributions ......................... 9,905,702 1,719,138
Shares redeemed ........................................................................ (22,119,284) (9,733,029)
------------- -------------
Net increase (decrease) in Portfolio shares ............................................ 5,115,369 68,903,756
------------- --------------
Shares outstanding at end of period .................................................... 131,668,705 126,553,336
------------- --------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2000(a) 1999 1998(b)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ .896 1.028 1.000
---------------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .011(c) .026(c) .008
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .005 (.138) .020
---------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .016 (.112) .028
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (.020) (.010) --
-----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.050) (.010) --
---------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.070) (.020) --
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ .842 .896 1.028
---------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) 2.07** (11.16) 2.80**
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 110,921 113,448 59,294
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .84* .86 1.20*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .84* .86 .87*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.88* 2.57 2.77*
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 13* 24 5*
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from May 4, 1998 (commencement of operations) to December
31, 1998.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
107 | Kemper Variable Series --
KVS Dreman High Return Equity Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
KVS Focused Large Cap Growth Portfolio
For the six months ended June 30, 2000, the KVS Focused Large Cap Growth
Portfolio returned 11.08% which handily beat the 4.23% return of the Russell
1000 Growth Index and the negative 0.42% return of the S&P 500 Index.
During the first half of 2000, the Portfolio benefited from being overweight in
the technology and telecommunications sectors. In order to compete globally,
companies across virtually every industry must learn to leverage the Internet's
capabilities or risk becoming irrelevant. Thus, we see tremendous investment
opportunities in those companies that are using the Internet as a weapon to gain
market share. Consumer demand for all things digital has also created what we
believe is a terrific investment opportunity in those semiconductor companies
that are producing the chips and circuits to operate these devices. Lastly,
current voice and data demands are simply too great for the existing
copper-based telecommunications infrastructure. The need for greater capacity
has created an explosive growth opportunity which we believe the optics and
other wireless technology companies in the Portfolio are well positioned to
exploit.
Entering 2000, we anticipated ongoing strength in the domestic economy and so we
have been, and continue to be, underweight in the financial services sector. It
is more difficult for financials to generate revenue in a rising interest rate
environment, so our underweighting in this sector helped performance. Another
decision benefiting portfolio performance was our underweighting in the health
care sector. We believe the continuing uncertainty over the Medicare
reimbursement issue will suppress valuations in this sector until a political
resolution is achieved.
On the flip side, our underweighting in the energy sector hurt us in the first
half. We simply did not expect the price of oil to rise so dramatically and to
remain at such lofty prices.
We expect continued market volatility until the Federal Reserve finishes raising
interest rates, but we believe the long-term outlook for the U.S. equity markets
is still very favorable. Corporate earnings have been and should remain strong
as economies overseas continue to improve. The Federal Reserve also appears to
be successfully engineering a "soft landing" for the U.S. economy, which should
cause interest rates to stabilize or perhaps even decline by the end of the
year. Historically, equities and growth stocks in particular have performed well
in such environments so, understandably, we are very optimistic heading into the
second half of the year.
Ashi Parikh
Lead Portfolio Manager
108 | Kemper Variable Series --
KVS Dreman High Return Equity Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
KVS Focused Large Cap Growth Portfolio
Principal
Amount ($) Value ($)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Repurchase Agreements 4.4%
-------------------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at $600,324 ---------
on 7/3/2000** (Cost $600,000) ......... 600,000 600,000
---------
Shares
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Common Stocks 92.9%
-------------------------------------------------------------------------------
Consumer Discretionary 11.3%
Department & Chain Stores
Costco Wholesale Corp.* .................. 9,400 310,200
Home Depot, Inc. ......................... 10,675 533,083
Target Corp. ............................. 2,800 162,400
Wal-Mart Stores, Inc. .................... 9,450 544,556
---------
1,550,239
---------
Health 5.5%
Medical Supply & Specialty 1.6%
Guidant Corp.* ........................... 4,350 215,325
---------
Pharmaceuticals 3.9%
Johnson & Johnson, Inc. .................. 1,800 183,375
Pfizer, Inc. ............................. 7,350 352,800
---------
536,175
---------
Communications 10.0%
Cellular Telephone 3.1%
Nokia Oyj (ADR) .......................... 8,450 421,972
---------
Telephone/Communications 7.0%
JDS Uniphase Corp.* ...................... 3,450 413,569
Nortel Networks Corp. .................... 8,000 546,000
---------
959,569
---------
Financial 9.3%
Insurance 2.9%
American International Group, Inc. ....... 2,050 240,875
Providian Financial Corp. ................ 1,800 162,000
---------
402,875
---------
Consumer Finance 4.4%
American Express Co. ..................... 5,650 294,506
Citigroup, Inc. .......................... 5,200 313,300
---------
607,806
---------
Other Financial Companies 2.0%
Morgan Stanley Dean Witter & Co. ......... 3,250 270,562
---------
Media 4.2%
Broadcasting & Entertainment 2.5%
AMFM Inc.* ............................... 5,000 345,000
---------
Shares Value ($)
-------------------------------------------------------------------------------
Cable Television 1.7%
Adelphia Communications
Corporation-Cl A* ..................... 4,900 229,688
---------
Service Industries 4.2%
Investment 3.0%
Charles Schwab Corp. ..................... 4,425 148,791
Goldman Sachs Group, Inc. ................ 2,750 260,906
---------
409,697
---------
Miscellaneous Consumer Services 1.2%
Yahoo!, Inc.* ............................ 1,300 161,037
---------
Durables 3.1%
Telecommunications Equipment
Lucent Technologies, Inc. ................ 7,250 429,562
---------
Manufacturing 1.0%
Diversified Manufacturing
General Electric Co. ..................... 2,600 137,800
---------
Technology 41.5%
Computer Software 13.0%
America Online, Inc.* .................... 7,650 403,538
Extreme Networks, Inc.* .................. 500 52,750
Microsoft Corp.* ......................... 12,200 976,000
Sycamore Networks, Inc.* ................. 3,250 358,719
---------
1,791,007
---------
Diverse Electronic Products 7.5%
Applied Materials, Inc.* ................. 2,650 240,156
Dell Computer Corp.* ..................... 16,050 791,466
---------
1,031,622
---------
EDP Peripherals 4.5%
EMC Corp.* ............................... 5,750 442,391
VERITAS Software Corp.* .................. 1,550 175,174
---------
617,565
---------
Electronic Components/Distributors 6.5%
Cisco Systems, Inc.* ..................... 10,900 692,831
Gateway, Inc.* ........................... 3,550 201,463
---------
894,294
---------
Electronic Data Processing 3.1%
SCG Holding Corp.* ....................... 8,450 184,844
Sun Microsystems, Inc.* .................. 2,700 245,531
---------
430,375
---------
Semiconductors 6.9%
Intel Corp. .............................. 5,400 721,912
LSI Logic Corp.* ......................... 2,700 146,137
National Semiconductor Corp.* ............ 1,400 79,450
---------
947,499
---------
The accompanying notes are an integral part of the financial statements.
109 | Kemper Variable Series --
KVS Dreman High Return Equity Portfolio
<PAGE>
Shares Value ($)
-------------------------------------------------------------------------------
Energy 2.8%
Oil/Gas Transmission 1.2%
Enron Corp. .................................... 2,550 164,475
---------
Oilfield Services/Equipment 1.6%
Weatherford International, Inc. ................ 5,500 218,969
---------
Shares Value ($)
-------------------------------------------------------------------------------
Miscellaneous 2.8%
Miscellaneous
NASDAQ-100 Shares* ............................. 4,100 382,069
---------
-------------------------------------------------------------------------------
Total Common Stocks (Cost $12,050,746) 13,155,182
-------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $12,650,746) (a) 13,755,182
-------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to KVS Focused Large Cap Growth Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $12,650,746. At June 30, 2000,
net unrealized appreciation for all securities based on tax cost was
$1,104,436. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$1,280,699 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $176,263.
The accompanying notes are an integral part of the financial statements.
110 | Kemper Variable Series --
KVS Dreman High Return Equity Portfolio
<PAGE>
Financial Statements
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
<S> <C>
Assets
---------------------------------------------------------------------------------------------
Investments in securities, at value (cost $12,650,746) ....................... $ 13,755,182
Cash ......................................................................... 434,250
Receivable for investments sold .............................................. 526,914
Dividends receivable ......................................................... 528
Interest receivable .......................................................... 108
Receivable for Portfolio shares sold ......................................... 29,705
------------
Total assets ................................................................. 14,746,687
Liabilities
---------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 725,965
Accrued management fee ....................................................... 3,138
Other accrued expenses and payables .......................................... 34,307
------------
Total liabilities ............................................................ 763,410
---------------------------------------------------------------------------------------------
Net assets, at value $ 13,983,277
---------------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated net investment loss .............................................. $ (27,791)
Net unrealized appreciation (depreciation) on investments .................... 1,104,436
Accumulated net realized gain (loss) ......................................... 128,295
Paid-in capital .............................................................. 12,778,337
---------------------------------------------------------------------------------------------
Net assets, at value $ 13,983,277
---------------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($13,983,277 / 10,040,577
outstanding shares of beneficial interest, $.01 par value, unlimited number ------------
of shares authorized) $ 1.393
------------
---------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
Investment Income
---------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $88) ............................. $ 8,120
Interest ..................................................................... 9,166
------------
Total Income ................................................................. 17,286
------------
Expenses:
Management fee ............................................................... 37,243
Custodian and accounting fees ................................................ 15,834
Auditing ..................................................................... 3,080
Legal ........................................................................ 2,912
Trustees' fees and expenses .................................................. 5,050
Reports to shareholders ...................................................... 224
Registration fees ............................................................ 129
Other ........................................................................ 169
------------
Total expenses, before expense reductions .................................... 64,641
Expense reductions ........................................................... (19,564)
------------
Total expenses, after expense reductions ..................................... 45,077
---------------------------------------------------------------------------------------------
Net investment income (loss) (27,791)
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
---------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .................................... 189,883
Net unrealized appreciation (depreciation) during the period on investments .. 748,696
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 938,579
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 910,788
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
111 | Kemper Variable Series --
KVS Dreman High Return Equity Portfolio
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------------------------
Six Months Period Ended
Ended June 30, December 31,
Increase (Decrease) in Net Assets 2000 (Unaudited) 1999(a)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................ $ (27,791) $ (651)
Net realized gain (loss) on investment transactions ..................................... 189,883 137,368
Net unrealized appreciation (depreciation) on investment transactions during the period . 748,696 355,740
------------ ------------
Net increase (decrease) in net assets resulting from operations ......................... 910,788 492,457
Distributions to shareholders from:
Net realized gains ...................................................................... (198,306) --
------------ ------------
Portfolio share transactions:
Proceeds from shares sold ............................................................... 12,919,613 934,463
Reinvestment of distributions ........................................................... 198,306 --
Cost of shares redeemed ................................................................. (2,767,136) (6,908)
------------ ------------
Net increase (decrease) in net assets from Fund share transactions ...................... 10,350,783 927,555
------------ ------------
Increase (decrease) in net assets ....................................................... 11,063,265 1,420,012
Net assets at beginning of period ....................................................... 2,920,012 1,500,000
Net assets at end of period (including accumulated net investment loss of ------------ ------------
$27,791 at June 30, 2000) $ 13,983,277 $ 2,920,012
------------ ------------
Other Information
-----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................... 2,274,096 1,500,000
------------ ------------
Shares sold ............................................................................. 9,721,832 779,538
Shares issued to shareholders in reinvestment of distributions .......................... 138,296 --
Shares redeemed ......................................................................... (2,093,647) (5,442)
------------ ------------
Net increase (decrease) in Portfolio shares ............................................. 7,766,481 774,096
------------ ------------
Shares outstanding at end of period ..................................................... 10,040,577 2,274,096
------------ ------------
</TABLE>
(a) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999.
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
2000(a) 1999(b)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $1.284 1.000
------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (c) (.005) --
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .149 .284
------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .144 .284
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (.035) --
------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.035) --
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.393 1.284
------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) 11.08** 28.40**
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 13,983 2,920
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.65* 7.49*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.15* 1.10*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.71)* (.19)*
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 374* 336*
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
112 | Kemper Variable Series --
KVS Dreman High Return Equity Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
KVS Growth And Income Portfolio
For the six months ended June 30, 2000, the Portfolio returned (0.66%) --
trailing the (0.42%) return posted by the S&P 500 Index, the portfolio's
benchmark.
The subpar performance can be traced in part to the general cooling the market
experienced during the second quarter. Tech stocks stormed into 2000 riding the
momentum built through the final quarter of 1999, but three successive interest
rate increases halted the rally. While some money rotated out of the tech and
into previously unpopular sectors like energy, the threat of an overheated
economy and its by-product, inflation, continued to weigh heavily on the market.
At its late June meeting, the Federal Reserve decided its aggressive stance had
paid off and left rates alone.
In spite of the rising cost of borrowing money, Citigroup performed well for us.
With franchises that include Citibank, Travelers Insurance, and Salomon Smith
Barney, Citigroup's strengths extend overseas, where we believe it has
exceptional growth opportunities. Nokia and EMC also turned in solid gains. As
the top wireless handset company in the world, Nokia is in a prime position to
capitalize on market consolidation between Europe and the U.S., as well as the
huge opportunities in China. EMC's business has boomed as the surge in
information on the Internet has translated into increased demand for data
storage.
When we find fundamentally strong companies, we stick with them, even during
slower stretches. That's why we're standing by AT&T Liberty Media Group and
Comcast. AT&T Liberty is doing extremely well, but its stock declined in
sympathy with some of AT&T's other holdings. Comcast, a cable company, also owns
the home shopping channel QVC, which had a bit of a hiccup as it expanded into
Europe.
What gives me confidence in our companies is that even though some have pulled
back, the fundamentals remain strong. Backed by our thorough research, we
continue to believe in the companies we hold.
David J. Corkins
Lead Portfolio Manager
113 | Kemper Variable Series --
KVS Growth And Income Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
KVS Growth and Income Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreements 6.8%
--------------------------------------------------------------------------------
State Street Bank and Trust Company
6.48%, to be repurchased at
$3,501,890 on 7/3/2000** ---------
(Cost $3,500,000) ............................ 3,500,000 3,500,000
---------
--------------------------------------------------------------------------------
Corporate Bonds 2.8%
--------------------------------------------------------------------------------
Financial 2.4%
Firststar Bank, 7.125%, 12/1/2009 ............... 250,000 237,205
General Electric Capital Corporation:
7%, 3/1/2002 ................................. 395,000 394,076
6.52%, 10/8/2002 ............................. 10,000 9,869
7%, 2/3/2003 ................................. 550,000 547,608
6.81%, 11/3/2003 ............................. 50,000 49,408
---------
1,238,166
---------
Media 0.0%
Telewest Communications plc,
9.875%, 2/1/2010 ............................. 20,000 18,600
---------
Service Industries 0.4%
Sun Microsystems, Inc., 7.5%,
8/15/2006 .................................... 175,000 174,626
---------
--------------------------------------------------------------------------------
Total Corporate Bonds (Cost $1,436,357) 1,431,392
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Convertible Bonds 2.5%
--------------------------------------------------------------------------------
Communications 0.6%
Cellular Telephone 0.4%
American Tower Corp. ............................ 200,000 202,500
---------
Telephone/Communications 0.2% NTL Incorporated:
7%, 12/15/2008 ............................... 25,000 40,905
5.75%, 12/15/2009 ............................ 100,000 79,000
---------
119,905
---------
Media 0.6%
Advertising 0.2%
Clear Channel Communications, Inc.,
1.5%, 12/1/2002 .............................. 100,000 98,000
---------
Cable Television 0.4%
Comcast Corp., 2.0%, 10/15/2029 ................. 1,600 186,400
---------
Service Industries 1.3%
EDP Services 0.6%
PSINet Inc., 7.0%, 12/31/2049 ................... 8,470 292,215
---------
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
Miscellaneous Commercial Services 0.3%
i2 Technologies, Inc., 5.25%,
12/15/2006 ................................... 89,000 137,283
---------
Miscellaneous Consumer Services 0.4%
BEA Systems, Inc., 4%, 12/15/2006 ............... 155,000 244,415
---------
--------------------------------------------------------------------------------
Total Convertible Bonds (Cost $1,387,525) 1,280,718
--------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Convertible Preferred Stocks 0.9%
--------------------------------------------------------------------------------
Media 0.6%
Cable Television
Media One Group, Inc., 6.25% .................... 3,655 328,722
---------
Utilities 0.3%
Electric Utilities
Reliant Energy Inc., 7% ......................... 1,230 152,981
---------
--------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Cost $561,076) 481,703
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Preferred Stocks 1.2%
--------------------------------------------------------------------------------
Durables
Automobiles ---------
Porsche AG ...................................... 220 597,750
---------
--------------------------------------------------------------------------------
Common Stocks 85.8%
--------------------------------------------------------------------------------
Consumer Discretionary 3.0%
Department & Chain Stores 0.7%
Home Depot, Inc. ................................ 7,335 366,292
---------
Hotels & Casinos 0.5%
Royal Caribbean Cruises Ltd. .................... 14,001 259,015
---------
Recreational Products 0.5%
Harley-Davidson, Inc. ........................... 5,205 200,393
Mattel, Inc. .................................... 4,490 59,212
---------
259,605
---------
Specialty Retail 0.5%
Staples, Inc.* .................................. 17,500 269,063
---------
The accompanying notes are an integral part of the financial statements.
114 | Kemper Variable Series --
KVS Growth And Income Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Miscellaneous 0.8%
Park Place Entertainment, Inc.* ......... 30,280 369,038
---------
Consumer Staples 1.5%
Alcohol & Tobacco 0.9%
Anheuser-Busch Companies, Inc. .......... 6,155 459,702
---------
Consumer Electronic & Photographic 0.5%
Sony Corp. .............................. 2,400 224,394
---------
Food & Beverage 0.1%
Bestfoods ............................... 895 61,978
---------
Health 4.0%
Biotechnology 0.3%
PE Corp-PE Biosystems Group ............. 2,000 131,750
---------
Medical Supply & Specialty 1.0%
Medtronic, Inc.* ........................ 9,980 497,129
---------
Pharmaceuticals 2.8%
Allergan, Inc. .......................... 8,130 605,685
Pfizer, Inc. ............................ 16,705 801,840
---------
1,407,525
---------
Communications 16.8%
Cellular Telephone 7.2%
Nextel Communications, Inc. "A"* ........ 13,000 795,438
Nokia Oyj (ADR) ......................... 45,375 2,265,914
Sprint Corp. (PCS Group)* ............... 10,500 624,750
---------
3,686,102
---------
Telephone/Communications 7.2%
Allegiance Telecom, Inc.* ............... 4,500 288,000
McLeodUSA Inc. "A"* ..................... 42,001 868,894
Nortel Networks Corp. ................... 8,400 573,300
Telefonica S.A.* ........................ 36,987 793,385
Telefonos de Mexico S.A. de C.V .........
"L" (ADR) ............................ 7,500 428,438
Vodafone AirTouch plc ................... 180,956 733,088
---------
3,685,105
---------
Miscellaneous 2.4%
Cox Communications, Inc. Class A* ....... 11,250 512,578
VoiceStream Wireless Corp.* ............. 6,270 729,181
---------
1,241,759
---------
Financial 7.2%
Banks 1.3%
Firstar Corp. ........................... 31,070 654,412
---------
Insurance 1.0%
American International Group, Inc. ...... 3,020 354,850
ReliaStar Financial Corp. ............... 3,000 157,313
---------
512,163
---------
Consumer Finance 4.2%
American Express Co. .................... 13,935 726,361
Associates First Capital Corp. .......... 17,970 400,956
Citigroup, Inc. ......................... 14,590 879,047
Shares Value ($)
--------------------------------------------------------------------------------
Household International, Inc. ........... 4,200 174,563
---------
2,180,927
---------
Other Financial Companies 0.7%
John Hancock Financial
Services, Inc.* ...................... 15,100 357,681
---------
Media 13.5%
Advertising 1.0%
Avenue A, Inc.* ......................... 12,805 112,844
DoubleClick, Inc.* ...................... 9,290 354,181
Omnicom Group, Inc. ..................... 685 61,008
---------
528,033
---------
Broadcasting & Entertainment 5.4%
AMFM Inc.* .............................. 1,975 136,275
Clear Channel Communications,
Inc.* ................................ 3,050 228,750
Hispanic Broadcasting Corp.* ............ 3,930 130,181
Infinity Broadcasting Corp. "A"* ........ 11,250 409,922
SFX Entertainment, Inc.* ................ 4,065 184,195
Time Warner, Inc. ....................... 13,000 988,000
Viacom, Inc. "B"* ....................... 9,900 675,056
---------
2,752,379
---------
Cable Television 6.4%
AT&T Corp.-- Liberty Media
Group "A"* ........................... 78,050 1,892,712
Comcast Corp. "A"* ...................... 34,000 1,377,000
---------
3,269,712
---------
Print Media 0.7%
Valassis Communications, Inc.* .......... 9,290 354,181
---------
Service Industries 5.2%
EDP Services 3.3%
PSINet, Inc.* ........................... 12,895 323,987
Register.com, Inc.* ..................... 6,895 210,728
VeriSign, Inc.* ......................... 6,538 1,153,957
---------
1,688,672
---------
Investment 0.5%
Charles Schwab Corp. .................... 7,620 256,223
---------
Miscellaneous Commercial Services 1.3%
Paychex, Inc. ........................... 16,132 677,544
---------
Miscellaneous Consumer Services 0.1%
eBay, Inc.* ............................. 930 50,511
---------
Durables 1.7%
Automobiles 0.4%
Ford Motor Co. .......................... 4,415 189,845
---------
Telecommunications Equipment 1.3%
L.M. Ericsson Telephone Co. "B"
(ADR) ................................ 35,015 700,300
---------
The accompanying notes are an integral part of the financial statements.
115 | Kemper Variable Series --
KVS Growth And Income Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Manufacturing 5.6%
Chemicals 0.5%
E.I. du Pont de Nemours & Co. ............ 5,445 238,219
----------
Diversified Manufacturing 3.5%
General Electric Co. ..................... 34,545 1,830,885
----------
Industrial Specialty 1.6%
Corning, Inc. ............................ 3,000 809,625
----------
Machinery/Components/Controls 0.0%
Visteon Corporation* ..................... 578 7,081
----------
Technology 24.3%
Computer Software 3.0%
America Online, Inc.* .................... 7,715 406,966
Electronic Arts, Inc.* ................... 1,630 118,888
Inktomi Corp.* ........................... 1,525 180,331
Macromedia, Inc.* ........................ 3,200 309,400
Oracle Corp.* ............................ 6,000 504,375
----------
1,519,960
----------
EDP Peripherals 3.3%
EMC Corp.* ............................... 20,000 1,538,750
VERITAS Software Corp.* .................. 1,287 145,451
----------
1,684,201
----------
Shares Value ($)
--------------------------------------------------------------------------------
Electronic Components/Distributors 10.6%
Brightpoint, Inc.* ....................... 1,160 10,041
Cisco Systems, Inc.* ..................... 24,275 1,542,979
Genuity Inc. Internet Software ........... 423,475 3,917,144
----------
5,470,164
----------
Electronic Data Processing 2.5%
Sun Microsystems, Inc.* .................. 13,820 1,256,756
----------
Semiconductors 4.9%
Advanced Micro Devices, Inc.* ............ 1,515 117,033
Intel Corp. .............................. 3,260 435,821
Maxim Integrated Products Inc.* .......... 4,345 295,188
SDL, Inc.* ............................... 580 165,409
Texas Instruments, Inc. .................. 21,800 1,497,388
----------
2,510,839
----------
Energy 3.0%
Oil & Gas Production 0.3%
Coastal Corp. ............................ 2,320 141,230
----------
Oil/Gas Transmission 2.7%
Enron Corp. .............................. 21,290 1,373,205
Kinder Morgan, Inc. ...................... 1,400 48,388
----------
1,421,593
----------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $43,175,077) 43,981,593
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $50,660,755) (a) 51,273,156
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to KVS Growth and Income Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or Government
agency securities.
(a) The cost for federal income tax purposes was $50,660,755. At June 30, 2000,
net unrealized appreciation for all securities based on tax cost was $612,401.
This consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of value over tax cost of $4,072,613 and aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over value of $3,460,212.
The accompanying notes are an integral part of the financial statements.
116 | Kemper Variable Series --
KVS Growth And Income Portfolio
<PAGE>
Financial Statements
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
Assets
---------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $50,660,755) ....................... $ 51,273,156
Cash ......................................................................... 21,349,805
Foreign currency, at value (cost $1,064) ..................................... 1,052
Receivable for investments sold .............................................. 1,780,323
Dividends receivable ......................................................... 8,764
Interest receivable .......................................................... 38,720
Receivable for Portfolio shares sold ......................................... 420,749
------------
Total assets ................................................................. 74,872,569
Liabilities
---------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 3,594,255
Unrealized depreciation on forward currency exchange contracts ............... 227
Accrued management fee ....................................................... 42,895
Other accrued expenses and payables .......................................... 74,187
------------
Total liabilities ............................................................ 3,711,564
---------------------------------------------------------------------------------------------
Net assets, at value $ 71,161,005
---------------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated net investment loss .............................................. $ (85,146)
Net unrealized appreciation (depreciation) on:
Investments ................................................................ 612,401
Foreign currency related transactions ...................................... 1,038
Accumulated net realized gain (loss) ......................................... (1,199,778)
Paid-in capital .............................................................. 71,832,490
---------------------------------------------------------------------------------------------
Net assets, at value $ 71,161,005
---------------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($71,161,005 / 62,604,822
outstanding shares of beneficial interest, $.01 par value, unlimited number ------------
of shares authorized) ..................................................... $ 1.137
------------
---------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
Investment Income
---------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $1,500) .......................... $ 57,683
Interest ..................................................................... 98,192
------------
Total Income ................................................................. 155,875
------------
Expenses:
Management fee ............................................................... 199,066
Custodian and accounting fees ................................................ 24,703
Auditing ..................................................................... 3,262
Legal ........................................................................ 5,085
Trustees' fees and expenses .................................................. 9,836
Reports to shareholders ...................................................... 6,547
Registration fees ............................................................ 6,303
Other ........................................................................ 15,743
------------
Total expenses, before expense reductions .................................... 270,545
Expense reductions ........................................................... (29,524)
------------
Total expenses, after expense reductions ..................................... 241,021
---------------------------------------------------------------------------------------------
Net investment income (loss) (85,146)
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
---------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................................. (1,080,599)
Foreign currency related transactions ........................................ (483)
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................................ (397,782)
Foreign currency related transactions ...................................... 1,038
------------
(396,744)
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (1,477,826)
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (1,562,972)
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
117 | Kemper Variable Series --
KVS Growth And Income Portfolio
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------------------------
Six Months Period Ended
Ended June 30, December 31,
Increase (Decrease) in Net Assets 2000 (Unaudited) 1999(a)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) .......................................................... $ (85,146) $ (619)
Net realized gain (loss) on investment transactions ................................... (1,081,082) 61,541
Net unrealized appreciation (depreciation) on investment transactions during the period (396,744) 1,010,182
------------ ------------
Net increase (decrease) in net assets resulting from operations ....................... (1,562,972) 1,071,104
Distributions to shareholders from:
Net realized gains .................................................................... (179,619) --
------------ ------------
Portfolio share transactions:
Proceeds from shares sold ............................................................. 61,025,600 11,722,437
Reinvestment of distributions ......................................................... 179,619 --
Cost of shares redeemed ............................................................... (4,095,164) --
------------ ------------
Net increase (decrease) in net assets from Portfolio share transactions ............... 57,110,055 11,722,437
------------ ------------
Increase (decrease) in net assets ..................................................... 55,367,464 12,793,541
Net assets at beginning of period ..................................................... 15,793,541 3,000,000
Net assets at end of period (including accumulated net investment loss of ($85,146) at ------------ ------------
June 30, 2000) ..................................................................... $ 71,161,005 $ 15,793,541
------------ ------------
Other Information
-----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 13,740,947 3,000,000
------------ ------------
Shares sold ........................................................................... 52,257,705 10,740,947
Shares issued to shareholders in reinvestment of distributions ........................ 145,390 --
Shares redeemed ....................................................................... (3,539,220) --
------------ ------------
Net increase (decrease) in Portfolio shares ........................................... 48,863,875 10,740,947
------------ ------------
Shares outstanding at end of period ................................................... 62,604,822 13,740,947
------------ ------------
</TABLE>
(a) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999.
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
2000(a) 1999(b)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $1.149 1.000
------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (c) (.002) --
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.005) .149
------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.007) .149
------------------
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
-----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.005) --
------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.005) --
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.137 1.149
------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (.66)** 14.93**
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 71,161 15,794
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.29* 2.58*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.15* 1.10*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.41)* (.05)*
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33* 53*
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
118 | Kemper Variable Series --
KVS Growth And Income Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
KVS Growth Opportunities Portfolio
Although markets entered the year on a positive note, a retreat by technology
stocks that begarch weighed against stocks for much of the period as
investors re-examined the extreme valuations placed on a number of the market's
highest fliers. By June, however, things had changed. A series of interest rate
increases finally appeared to be having an effect on the economy and growth
began to moderate. As a result, the market staged a comeback that partially
erased the losses sustained during the spring volatility, but not before a
healthy winnowing out of companies whose prospects for long-term success were
marginal. We are extremely pleased with the portfolio's results in this
challenging environment, which amounted to a 6.78% gain vs. a (0.42%) loss
posted by our benchmark, the S&P 500 Index.
Standouts during the period included our semiconductor stocks. Semiconductor
manufacturers across the globe are running at full capacity to keep up with
burgeoning demand created by booming sales of sophisticated electronic devices.
Texas Instruments and Linear Technologies, whose microchips are widely used in
telecommunications devices, continued to outperform as a result of explosive
growth in cellular penetration rates worldwide.
Several of our financial services positions also gained ground, including
Charles Schwab and Morgan Stanley Dean Witter. Trading volumes at Schwab's
on-line unit continued to outpace even the most optimistic estimates. Morgan
Stanley also surprised analysts by reporting back-to-back quarters of
estimate-beating results. The company's solid performance was led by higher
trading volumes as well as strength at its merger advisory and underwriting
units.
On the downside, several of our retail positions traded lower as a result of
fears of a slowdown in consumer spending. For example, Costco fell sharply after
the company hinted that profit growth would slow for the remainder of the year.
We believe the market's reaction was somewhat overdone and consequently
maintained our position in Costco.
Looking forward, while a return to the extreme volatility that rattled the
market during the first quarter of 2000 seems unlikely, a range of factors that
include interest rate uncertainty may keep markets unsettled in coming months.
However, we believe the market will continue to reward companies capable of
long-term growth and hope to participate by leveraging our hands-on research to
identify individual standouts.
E. Marc Pinto
Lead Portfolio Manager
119 | Kemper Variable Series --
KVS Growth Opportunities Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
KVS Growth Opportunities Portfolio
Principal
Amount ($) Value ($)
----------------------------------------------------------------------
----------------------------------------------------------------------
Repurchase Agreements 5.0%
----------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at
$4,302,322 on 7/3/2000** ------------
(Cost $4,300,000) ..................... 4,300,000 4,300,000
------------
Shares
--------------------------------------------------------------------
--------------------------------------------------------------------
Common Stocks 95.0%
--------------------------------------------------------------------
Consumer Discretionary 7.7%
Department & Chain Stores 3.6%
Costco Wholesale Corp.* .................. 21,950 724,350
Home Depot, Inc. ......................... 27,013 1,348,937
Wal-Mart Stores, Inc. .................... 17,705 1,020,251
------------
3,093,538
------------
Hotels & Casinos 2.9%
Carnival Corp. "A" ....................... 26,925 525,038
MGM Grand, Inc. .......................... 60,050 1,929,106
------------
2,454,144
------------
Specialty Retail 1.2%
Staples, Inc.* ........................... 66,270 1,018,901
------------
Consumer Staples 2.7%
Alcohol & Tobacco 1.3%
Anheuser-Busch Companies, Inc. ........... 15,025 1,122,180
------------
Package Goods/Cosmetics 1.4%
Colgate-Palmolive Co. .................... 19,800 1,185,525
------------
Health 5.4%
Biotechnology 2.9%
Genentech, Inc.* ......................... 7,080 1,217,760
PE Corp-PE Biosystems Group .............. 19,585 1,290,162
------------
2,507,922
------------
Pharmaceuticals 2.5%
Pfizer, Inc. ............................. 27,287 1,309,776
Schering-Plough Corp. .................... 17,275 872,388
------------
2,182,164
------------
Communications 14.5%
Cellular Telephone 12.7%
Nextel Communications, Inc. "A"* ......... 42,780 2,617,601
Nokia Oyj (ADR) .......................... 90,850 4,536,822
Sprint Corp. (PCS Group)* ................ 42,050 2,501,975
Vodafone AirTouch plc (ADR) .............. 28,700 1,189,256
------------
10,845,654
------------
Shares Value ($)
----------------------------------------------------------
Telephone/Communications 1.8%
Compania Telefonica Nacional de
Espana SA (ADR)* .............. 24,480 1,568,250
----------
Financial 8.6%
Banks 1.9%
Bank of New York Co., Inc. ....... 35,625 1,656,562
----------
Consumer Finance 3.8%
American Express Co. ............. 27,650 1,441,256
Citigroup, Inc. .................. 30,225 1,821,056
----------
3,262,312
----------
Other Financial Companies 2.9%
Federal National Mortgage
Association ................... 15,750 821,953
Morgan Stanley Dean Witter & Co. . 20,550 1,710,788
----------
2,532,741
----------
Media 19.5%
Broadcasting & Entertainment 10.3%
Grupo Televisa S.A. de C.V. (GDR)* 13,375 922,039
Time Warner, Inc. ................ 52,025 3,953,900
Univision Communication, Inc.* ... 8,025 830,588
Viacom, Inc. "B"* ................ 45,550 3,105,941
-----------
8,812,468
-----------
Cable Television 9.2%
AT&T Corp.-- Liberty Media
Group* "A" .................... 88,775 2,152,794
Cablevision Systems Corp. "A"* ... 23,050 1,564,518
Comcast Corp. "A"* ............... 104,105 4,216,253
-----------
7,933,565
-----------
Service Industries 3.3%
EDP Services 1.6%
VeriSign, Inc.* .................. 7,875 1,389,938
-----------
Investment 1.7%
Charles Schwab Corp. ............. 44,013 1,479,920
-----------
Durables 0.5%
Telecommunications Equipment 0.5%
Lucent Technologies, Inc. ........ 7,485 443,486
-----------
Manufacturing 4.3%
Diversified Manufacturing
General Electric Co. ............. 69,075 3,660,975
-----------
The accompanying notes are an integral part of the financial statements.
120 | Kemper Variable Series --
KVS Growth Opportunities Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------
Technology 26.9%
Computer Software 2.2%
Microsoft Corp.* ...................... 23,800 1,904,000
-----------
Diverse Electronic Products 5.5%
Applied Materials, Inc.* .............. 29,125 2,639,452
Dell Computer Corp.* .................. 8,315 410,033
General Motors Corp. "H" (New)* ....... 19,275 1,691,381
-----------
4,740,866
-----------
EDP Peripherals 4.2%
EMC Corp.* ............................ 47,100 3,623,756
-----------
Electronic Components/Distributors 3.6%
Cisco Systems, Inc.* .................. 48,275 3,068,480
-----------
Electronic Data Processing 3.1%
Sun Microsystems, Inc.* ............... 29,325 2,666,742
-----------
Shares Value ($)
----------------------------------------------------------------
Precision Instruments 2.0%
ASM Lithography Holding NV* ......... 38,650 1,705,431
-----------
Semiconductors 6.3%
Linear Technology Corp. ............. 47,125 3,013,055
Taiwan Semiconductor
Manufacturing Co. ................ 22,842 885,128
Texas Instruments, Inc. ............. 20,925 1,437,286
-----------
5,335,469
-----------
Energy 1.6%
Oil/Gas Transmission
Enron Corp. ......................... 21,850 1,409,325
-----------
----------------------------------------------------------------
Total Common Stocks (Cost $77,272,156) 81,604,314
----------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $81,572,156) (a) 85,904,314
----------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to KVS Growth Opportunities Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreement is fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $81,572,156. At June 30,
2000, net unrealized appreciation for all securities based on tax cost
was $4,332,158. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $7,062,560 and aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over value
of $2,730,402.
The accompanying notes are an integral part of the financial statements.
121 | Kemper Variable Series --
KVS Growth Opportunities Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
Assets
---------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $81,572,156) ....................... $ 85,904,314
Cash ......................................................................... 9,333,662
Dividends receivable ......................................................... 3,222
Interest receivable .......................................................... 774
Receivable for Portfolio shares sold ......................................... 1,073,802
----------------
Total assets ................................................................. 96,315,774
Liabilities
---------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 5,401,830
Accrued management fee ....................................................... 86,132
Other accrued expenses and payables .......................................... 38,030
----------------
Total liabilities ............................................................ 5,525,992
---------------------------------------------------------------------------------------------
Net assets, at value $ 90,789,782
---------------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated net investment loss .............................................. $ (138,491)
Net unrealized appreciation (depreciation) on investments .................... 4,332,158
Accumulated net realized gain (loss) ......................................... (451,263)
Paid-in capital .............................................................. 87,047,378
---------------------------------------------------------------------------------------------
Net assets, at value $ 90,789,782
---------------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($90,789,782 / 73,021,467
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized) ..................................................... $ 1.243
-------------
---------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
Investment Income
---------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $1,143) .......................... $ 68,798
Interest ..................................................................... 71,701
----------------
Total Income ................................................................. 140,499
----------------
Expenses:
Management fee ............................................................... 230,578
Custodian and accounting fees ................................................ 22,212
Auditing ..................................................................... 3,000
Legal ........................................................................ 4,872
Trustees' fees and expenses .................................................. 6,472
Reports to shareholders ...................................................... 14,055
Registration fees ............................................................ 17,460
Other ........................................................................ 423
----------------
Total expenses, before expense reductions .................................... 299,072
Expense reductions ........................................................... (20,082)
----------------
Total expenses, after expense reductions ..................................... 278,990
---------------------------------------------------------------------------------------------
Net investment income (loss) (138,491)
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
---------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .................................... (451,263)
Net unrealized appreciation (depreciation) during the period on investments .. 3,116,048
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 2,664,785
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 2,526,294
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
122 | Kemper Variable Series --
KVS Growth Opportunities Portfolio
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------------------------
Six Months Period Ended
Ended June 30, December 31,
Increase (Decrease) in Net Assets 2000 (Unaudited) 1999(a)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................. $ (138,491) $ (4,390)
Net realized gain (loss) on investment transactions ...................................... (451,263) 802
Net unrealized appreciation (depreciation) on investment transactions during the period .. 3,116,048 1,216,110
--------------- --------------
Net increase (decrease) in net assets resulting from operations .......................... 2,526,294 1,212,522
--------------- --------------
Portfolio share transactions:
Proceeds from shares sold ................................................................ 76,534,656 12,946,060
Cost of shares redeemed .................................................................. (5,429,750) --
--------------- --------------
Net increase (decrease) in net assets from Portfolio share transactions .................. 71,104,906 12,946,060
--------------- --------------
Increase (decrease) in net assets ........................................................ 73,631,200 14,158,582
Net assets at beginning of period ........................................................ 17,158,582 3,000,000
Net assets at end of period (including accumulated net investment loss of $138,491 at June --------------- --------------
30, 2000) ............................................................................. $ 90,789,782 $ 17,158,582
--------------- --------------
Other Information
-------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ................................................ 14,736,962 3,000,000
--------------- --------------
Shares sold .............................................................................. 62,795,957 11,736,962
Shares redeemed .......................................................................... (4,511,452) --
--------------- --------------
Net increase (decrease) in Portfolio shares .............................................. 58,284,505 11,736,962
--------------- --------------
Shares outstanding at end of period ...................................................... 73,021,467 14,736,962
--------------- --------------
</TABLE>
(a) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999.
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
2000(a) 1999(b)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $1.164 1.000
------------------
-----------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------
Net investment income (loss) (c) (.003) --
-----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .082 .164
------------------
-----------------------------------------------------------------------------------------------
Total from investment operations .079 .164
-----------------------------------------------------------------------------------------------
Net asset value, end of period $1.243 1.164
------------------
-----------------------------------------------------------------------------------------------
Total Return (%) 6.78** 16.43**
-----------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-----------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 90,790 17,159
-----------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.19* 2.60*
-----------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.13* 1.10*
-----------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.56)* (.34)*
-----------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 2* 1*
-----------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
123 | Kemper Variable Series --
KVS Growth Opportunities Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
KVS Index 500 Portfolio
The S&P 500 Index turned in virtually flat performance for the first six months
of 2000. Equity markets struggled, weighed down by fears of economic overheating
and higher interest rates and then by concerns about profit growth in a slowing
economic environment. Throughout the period, the market remained extremely
narrow, but interestingly, Microsoft alone more than accounted for the largely
flat return. As has been the case for the past several years, large-cap
growth-oriented stocks outperformed their value counterparts for the semi-annual
period. Large-cap stocks underperformed small- and mid-cap stocks.
Volatility was high during the first quarter of 2000. The technology sector
dominated the Index, although within the sector, the disparity in returns was
significant. Intel and Cisco were the top contributors on a capitalization
basis, while Microsoft, Lucent Technologies, Yahoo!, and America Online were
among the top negative contributors. Other sectors posting strong results were
utilities and financials.
The S&P Index posted a decline for the second quarter as virtually all major
U.S. equity indices were down dramatically due to the Nasdaq Composite
correction that began in March and April and more aggressive interest rate hikes
by the Fed during the quarter. Health care was the best performing sector for
the quarter. Also turning in good performance were consumer staples and
utilities. Technology, communication services and consumer cyclicals were among
the weaker sectors.
Going forward, we continue to view the most likely outcome for the U.S. economy
to be a "soft landing." That is, we still expect that a combination of higher
interest rates relative to a year ago, moderating equity markets, and higher oil
prices may bring demand more in line with the economy's supply potential by late
2000/early 2001, thus keeping inflation pressures from becoming too entrenched.
James A. Creighton
Lead Portfolio Manager
"Standard & Poor's (R)," "S&P 500 (R)," "Standard & Poor's 500 (R)" and "500"
are trademarks of The McGraw-Hill Companies, Inc., and have been licensed for
use by Scudder Kemper Investments, Inc. The Kemper Index 500 Portfolio is not
sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard &
Poor's makes no representation regarding the advisability of investing in the
Portfolio.
Total return measures net investment income and capital gain or loss from
portfolio investments over the periods specified, assuming reinvestment of
all dividends. Total return reflects aggregate change. Performance is net
of the portfolio's management fee and other operating expenses but does not
include any deduction at the separate account or contract level for any
insurance or surrender charges that may be incurred under a contract.
Please see the prospectus for more details.
Past performance is not a guarantee of future results. Returns and
principal values will fluctuate so that accumulation units, when redeemed,
may be worth more or less than original cost.
124 | Kemper Variable Series --
KVS Index 500 Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
KVS Index 500 Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------
--------------------------------------------------------------------
Short-Term Obligations 4.3%
--------------------------------------------------------------------
Federal Home Loan Discount Notes,
7/3/2000, 6.57%, 7/3/2000*** -----------
(Cost $3,198,832) ..................... 3,200,000 3,198,832
-----------
--------------------------------------------------------------------
Repurchase Agreements 0.3%
--------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at
$240,130 on 7/3/2000** -----------
(Cost $240,000) ....................... 240,000 240,000
-----------
--------------------------------------------------------------------
U.S. Government & Agencies 0.2%
--------------------------------------------------------------------
U.S. Treasury Bill, 5.62%, -----------
7/13/2000 (Cost $179,683) (b) ......... 180,000 179,683
-----------
Shares
-------------------------------------------------------------------
--------------------------------------------------------------------
Common Stocks 95.2%
--------------------------------------------------------------------
Consumer Discretionary 5.8%
Apparel & Shoes 0.1%
Liz Claiborne, Inc. ...................... 325 11,456
Nike, Inc. "B" ........................... 1,448 57,649
Reebok International Ltd.* ............... 418 6,662
Russell Corp. ............................ 100 2,000
-----------
77,767
-----------
Department & Chain Stores 4.6%
Bed Bath & Beyond, Inc.* ................. 796 28,855
Best Buy Co., Inc.* ...................... 1,123 71,030
CVS Corp. ................................ 2,255 90,200
Consolidated Stores Corp.* ............... 580 6,960
Costco Wholesale Corp.* .................. 2,627 86,691
Dillard's Inc. ........................... 551 6,750
Dollar General Corp. ..................... 1,972 38,454
Federated Department Stores, Inc.* ....... 1,228 41,445
Gap, Inc. ................................ 4,862 151,937
Home Depot, Inc. ......................... 13,175 657,902
J.C. Penney Co., Inc. .................... 1,367 25,204
Kmart Corp.* ............................. 2,654 18,080
Kohl's Corp.* ............................ 1,810 100,681
Longs Drug Stores, Inc. .................. 200 4,350
Lowe's Companies, Inc. ................... 2,206 90,584
May Department Stores .................... 1,800 43,200
Nordstrom, Inc. .......................... 738 17,804
Rite Aid Corp. ........................... 1,553 10,192
Sears, Roebuck & Co. ..................... 2,035 66,392
TJX Companies, Inc. (New) ................ 1,748 32,775
Target Corp. ............................. 2,567 148,886
The Limited, Inc. ........................ 2,354 50,905
Shares Value ($)
-------------------------------------------------------------------
Wal-Mart Stores, Inc. .................... 25,456 1,466,902
Walgreen Co. ............................. 5,683 182,922
-----------
3,439,101
-----------
Home Furnishings 0.1%
Newell Rubbermaid, Inc. .................. 1,480 38,110
Tupperware Corp. ......................... 509 11,198
-----------
49,308
-----------
Hotels & Casinos 0.2%
Carnival Corp. "A" ....................... 3,432 66,924
Harrah's Entertainment, Inc.* ............ 819 17,148
Hilton Hotels Corp. ...................... 1,809 16,959
Marriott International, Inc. "A" ......... 1,328 47,891
-----------
148,922
-----------
Recreational Products 0.2%
Brunswick Corp. .......................... 421 6,973
Harley-Davidson, Inc. .................... 1,688 64,988
Hasbro, Inc. ............................. 927 13,963
Mattel, Inc. ............................. 2,363 31,162
-----------
117,086
-----------
Restaurants 0.4%
Darden Restaurants Inc. .................. 490 7,962
McDonald's Corp. ......................... 7,501 247,064
Starbucks Corp.* ......................... 990 37,806
Tricon Global Restaurants* ............... 877 24,775
Wendy's International, Inc. .............. 911 16,227
-----------
333,834
-----------
Specialty Retail 0.2%
AutoZone, Inc.* .......................... 809 17,798
Circuit City Stores, Inc. ................ 1,123 37,270
Office Depot, Inc.* ...................... 1,698 10,613
Staples, Inc.* ........................... 2,693 41,405
Tiffany & Co. ............................ 400 27,000
Toys "R" Us, Inc.* ....................... 1,492 21,727
-----------
155,813
-----------
Consumer Staples 6.1%
Alcohol & Tobacco 1.0%
Adolph Coors Company ..................... 168 10,164
Anheuser-Busch Companies, Inc. ........... 2,540 189,706
Brown-Forman Corp. "B" ................... 389 20,909
Philip Morris Companies, Inc. ............ 12,708 337,556
Seagram Co., Ltd. ........................ 2,473 143,434
UST, Inc. ................................ 1,111 16,318
-----------
718,087
-----------
Consumer Electronic & Photographic 0.2%
Eastman Kodak Co. ........................ 1,700 101,150
Energizer Holdings, Inc.* ................ 1 18
Maytag Corp. ............................. 448 16,520
Polaroid Corp. ........................... 353 6,376
Whirlpool Corp. .......................... 375 17,484
-----------
141,548
-----------
The accompanying notes are an integral part of the financial statements.
125 | Kemper Variable Series --
KVS Index 500 Portfolio
<PAGE>
Shares Value ($)
-----------------------------------------------------------------
Consumer Specialties 0.0%
American Greeting Corp., "A" ............. 300 5,700
-----------
Farming 0.1%
Archer-Daniels-Midland Co. ............... 3,429 33,647
-----------
Food & Beverage 3.1%
Albertson's, Inc. ........................ 2,548 84,721
Bestfoods ................................ 1,598 110,661
Campbell Soup Co. ........................ 2,371 69,055
Coca-Cola Co. ............................ 14,153 812,913
Coca-Cola Enterprises .................... 2,356 38,432
ConAgra, Inc. ............................ 3,009 57,359
General Mills, Inc. ...................... 1,625 62,156
Great Atlantic & Pacific Tea Company,
Inc ................................... 200 3,325
H.J. Heinz Co. ........................... 1,961 85,794
Hershey Foods Corp. ...................... 776 37,636
Kellogg Co. .............................. 2,337 69,526
Kroger Co.* .............................. 4,576 100,958
Nabisco Group Holdings ................... 1,910 49,541
PepsiCo, Inc. ............................ 8,234 365,898
Quaker Oats Co. .......................... 702 52,738
Ralston Purina Group ..................... 1,712 34,133
SUPERVALU, Inc. .......................... 770 14,678
Safeway, Inc.* ........................... 2,769 124,951
Sara Lee Corp. ........................... 4,826 93,202
William Wrigley Jr. Co. .................. 605 48,513
Winn-Dixie Stores, Inc. .................. 757 10,835
-----------
2,327,025
-----------
Package Goods/Cosmetics 1.7%
Alberto-Culver Co. "B" ................... 300 9,169
Avon Products, Inc. ...................... 1,323 58,873
Clorox Co. ............................... 1,308 58,615
Colgate-Palmolive Co. .................... 3,255 194,893
Gillette Co. ............................. 5,925 207,005
International Flavors & Fragrances, Inc. . 590 17,811
Kimberly-Clark Corp. ..................... 3,114 178,666
Procter & Gamble Co. ..................... 7,500 429,375
Unilever NV (New York Shares) ............ 3,244 139,492
-----------
1,293,899
-----------
Textiles 0.0%
Springs Industries, Inc. "A" ............. 100 3,219
VF Corp. ................................. 603 14,359
-----------
17,578
-----------
Health 11.2%
Biotechnology 1.3%
Amgen Inc.* .............................. 5,858 411,524
Biogen, Inc.* ............................ 925 59,662
MedImmune, Inc.* ......................... 1,200 88,800
PE Corp-PE Biosystems Group .............. 1,137 74,900
Pharmacia Corp. .......................... 7,154 369,772
-----------
1,004,658
-----------
Health Industry Services 0.3%
Cardinal Health, Inc. .................... 1,511 111,814
Shares Value ($)
----------------------------------------------------------------
HEALTHSOUTH Corp.* ....................... 2,335 16,783
Humana Inc.* ............................. 800 3,900
IMS Health, Inc. ......................... 1,616 29,088
McKesson HBOC, Inc. ...................... 1,759 36,829
PerkinElmer, Inc. ........................ 301 19,904
Quintiles Transnational Corp.* ........... 911 12,868
Shared Medical Systems Corp. ............. 196 14,296
Wellpoint Health Networks, Inc.* ......... 306 22,166
-----------
267,648
-----------
Hospital Management 0.3%
HCA-The Heathcare Corporation ............ 3,055 92,796
Manor Care, Inc.* ........................ 549 3,843
Tenet Healthcare Corp. ................... 1,687 45,549
UnitedHealth Group Inc. .................. 1,012 86,779
-----------
228,967
-----------
Medical Supply & Specialty 1.0%
Bausch & Lomb, Inc. ...................... 279 21,588
Baxter International, Inc. ............... 1,626 114,328
Becton, Dickinson & Co. .................. 1,419 40,708
Biomet, Inc. ............................. 672 25,830
Boston Scientific Corp.* ................. 2,277 49,952
C.R. Bard, Inc. .......................... 240 11,550
Guidant Corp.* ........................... 1,668 82,566
Mallinckrodt, Inc. ....................... 392 17,028
Medtronic, Inc. .......................... 6,764 336,932
St. Jude Medical, Inc.* .................. 511 23,442
-----------
723,924
-----------
Pharmaceuticals 8.3%
Abbott Laboratories ...................... 8,762 390,457
Allergan, Inc. ........................... 691 51,479
Alza Corp.* .............................. 649 38,372
American Home Products Corp. ............. 7,448 437,570
Bristol-Myers Squibb Co. ................. 11,202 652,516
Eli Lilly & Co. .......................... 6,419 641,098
Johnson & Johnson, Inc. .................. 7,897 804,507
Merck & Co., Inc. ........................ 13,058 1,000,569
Pfizer, Inc. ............................. 35,859 1,721,232
Schering-Plough Corp. .................... 8,304 419,352
Watson Pharmaceuticals, Inc.* ............ 704 37,840
-----------
6,194,992
-----------
Communications 8.1%
Cellular Telephone 0.8%
Nextel Communications, Inc. "A"* ......... 4,346 265,921
Sprint Corp. (PCS Group)* ................ 5,220 310,590
-----------
576,511
-----------
Telephone/Communications 7.3%
ADC Telecommunications, Inc.* ............ 1,776 148,962
AT&T Corp. ............................... 18,357 580,540
Alltel Corp. ............................. 1,847 114,399
Bell Atlantic Corp. ...................... 8,743 444,254
BellSouth Corp. .......................... 10,671 454,851
CenturyTel, Inc. ......................... 933 26,824
GTE Corp. ................................ 5,496 342,126
Global Crossing Ltd.* .................... 4,920 129,458
The accompanying notes are an integral part of the financial statements.
126 | Kemper Variable Series --
KVS Index 500 Portfolio
<PAGE>
Shares Value ($)
-----------------------------------------------------------------
Nortel Networks Corp. .................... 16,941 1,156,223
Qwest Communications International
Inc.* ................................. 151 7,503
SBC Communicatons, Inc. .................. 19,389 838,574
Sprint Corp. ............................. 4,970 253,470
US West, Inc. ............................ 2,850 244,388
WorldCom, Inc.* .......................... 16,234 744,712
-----------
5,486,284
-----------
Financial 11.1%
Banks 4.2%
AmSouth Bancorp .......................... 2,149 33,847
BB&T Corp. ............................... 1,934 46,174
Bank One Corp. ........................... 6,470 171,859
Bank of America Corp. .................... 9,453 406,479
Bank of New York Co., Inc. ............... 4,162 193,533
Chase Manhattan Corp. .................... 7,047 324,579
Comerica, Inc. ........................... 897 40,253
Fifth Third Bancorp ...................... 1,720 108,790
First Union Corp. ........................ 5,581 138,479
Firstar Corp. ............................ 5,640 118,793
FleetBoston Financial Corp. .............. 5,102 173,468
Golden West Financial Corp. .............. 903 36,854
Huntington Bancshares, Inc. .............. 1,513 23,924
J.P. Morgan & Co., Inc. .................. 909 100,104
KeyCorp .................................. 2,438 42,970
MBNA Corp. ............................... 4,307 116,827
National City Corp. ...................... 3,361 57,347
Northern Trust Corp. ..................... 1,268 82,499
Old Kent Financial Corp. ................. 720 19,260
PNC Bank Corp. ........................... 1,643 77,016
Regions Financial Corp. .................. 1,364 27,110
SouthTrust Corp. ......................... 901 20,385
State Street Corp. ....................... 940 99,699
Summit Bancorp ........................... 922 22,704
SunTrust Banks, Inc. ..................... 1,678 76,664
US Bancorp ............................... 4,251 81,832
Union Planters Corp. ..................... 784 21,903
Wachovia Corp. ........................... 1,091 59,187
Washington Mutual, Inc. .................. 3,128 90,321
Wells Fargo Co. .......................... 9,158 354,873
-----------
3,167,733
-----------
Insurance 2.6%
AFLAC, Inc. .............................. 1,483 68,125
Aetna, Inc. .............................. 850 54,559
Allstate Corp. ........................... 4,224 93,984
American General Corp. ................... 1,397 85,217
American International Group, Inc. ....... 8,720 1,024,600
Aon Corp. ................................ 1,401 43,519
Chubb Corp. .............................. 947 58,240
Cigna Corp. .............................. 984 92,004
Cincinnati Financial Corp. ............... 979 30,777
Conseco, Inc. ............................ 2,117 20,641
Hartford Financial Services Group, Inc. .. 1,163 65,055
Jefferson Pilot Corp. .................... 519 29,291
Lincoln National Corp. ................... 1,094 39,521
Shares Value ($)
----------------------------------------------------------------
MBIA, Inc. ............................... 413 19,901
MGIC Investment Corp. .................... 501 22,796
Progressive Corp. ........................ 424 31,376
Providian Financial Corp. ................ 808 72,720
Safeco Corp. ............................. 905 17,987
St. Paul Companies, Inc. ................. 1,192 40,677
Torchmark Corp. .......................... 789 19,478
UNUMProvident Corp. ...................... 1,416 28,409
-----------
1,958,877
-----------
Consumer Finance 2.6%
American Express Co. ..................... 7,578 395,003
Associates First Capital Corp. ........... 3,919 87,443
Capital One Finance Corp. ................ 1,013 45,205
Citigroup, Inc. .......................... 19,297 1,162,644
Household International, Inc. ............ 2,566 106,649
Mellon Financial Corp. ................... 2,799 101,989
SLM Holding Corp. ........................ 832 31,148
Synovus Financial Corp. .................. 1,557 27,442
-----------
1,957,523
-----------
Other Financial Companies 1.7%
Charter One Financial, Inc. .............. 1,200 27,600
Countrywide Credit Industries, Inc. ...... 721 21,855
Federal Home Loan Mortgage Corp. ......... 3,746 151,713
Federal National Mortgage Association .... 5,575 290,945
Lehman Brothers Holdings, Inc. ........... 730 69,031
Marsh & McLennan Companies, Inc. ......... 1,500 156,656
Morgan Stanley Dean Witter & Co. ......... 6,475 539,044
-----------
1,256,844
-----------
Media 3.5%
Advertising 0.2%
Interpublic Group of Companies, Inc. ..... 1,573 67,639
Omnicom Group, Inc. ...................... 931 82,917
Young & Rubicam, Inc. .................... 417 23,847
-----------
174,403
-----------
Broadcasting & Entertainment 2.3%
Clear Channel Communications, Inc.* ...... 1,875 140,625
Time Warner, Inc. ........................ 7,347 558,372
Viacom, Inc. "B"* ........................ 8,692 592,686
Walt Disney Co. .......................... 11,805 458,182
-----------
1,749,865
-----------
Cable Television 0.6%
Comcast Corp. "A"* ....................... 5,160 208,980
Media One Group, Inc.* ................... 3,310 220,529
-----------
429,509
-----------
Print Media 0.4%
Gannett Co., Inc. ........................ 1,516 90,676
Harcourt General, Inc. ................... 411 22,348
Knight-Ridder, Inc. ...................... 409 21,754
Meredith Corp. ........................... 300 10,125
New York Times Co. "A" ................... 961 37,960
Times Mirror Co. "A" ..................... 315 28,547
Tribune Co. .............................. 1,246 43,610
-----------
255,020
-----------
The accompanying notes are an integral part of the financial statements.
127 | Kemper Variable Series --
KVS Index 500 Portfolio
<PAGE>
Shares Value ($)
-----------------------------------------------------------------
Service Industries 3.2%
EDP Services 0.6%
Automatic Data Processing, Inc. .......... 3,606 193,146
Electronic Data Systems Corp. ............ 2,769 114,221
First Data Corp. ......................... 2,240 111,160
Sapient Corp.* ........................... 307 32,830
-----------
451,357
-----------
Environmental Services 0.2%
Allied Waste Industries* ................. 939 9,390
Transocean Sedo Forex, Inc. .............. 1,198 64,031
Waste Management, Inc. ................... 3,382 64,258
-----------
137,679
-----------
Investment 0.9%
Bear Stearns Companies, Inc. ............. 695 28,929
Charles Schwab Corp. ..................... 7,737 260,140
Franklin Resources, Inc. ................. 1,536 46,656
Merrill Lynch & Co., Inc. ................ 2,244 258,060
Paine Webber Group, Inc. ................. 878 39,949
T. Rowe Price & Associates, Inc. ......... 753 32,003
-----------
665,737
-----------
Miscellaneous Commercial Services 0.6%
Convergys Corp.* ......................... 847 43,938
Ecolab, Inc. ............................. 743 29,023
NCR Corp.* ............................... 507 19,741
Paychex, Inc. ............................ 2,223 93,366
Sabre Group Holdings, Inc. "A" ........... 662 18,867
Siebel Systems, Inc.* .................... 1,128 184,499
Sysco Corp. .............................. 1,873 78,900
Tektronix Inc. ........................... 262 19,388
-----------
487,722
-----------
Miscellaneous Consumer Services 0.7%
Cendant Corp.* ........................... 4,138 57,932
H & R Block, Inc. ........................ 738 23,893
TXU Corporation .......................... 1,783 52,599
Yahoo!, Inc.* ............................ 3,161 391,569
-----------
525,993
-----------
Printing/Publishing 0.2%
Deluxe Corp. ............................. 309 7,281
Dow Jones & Co., Inc. .................... 591 43,291
Dun & Bradstreet Corp. (New) ............. 875 25,047
Equifax, Inc. ............................ 680 17,850
McGraw-Hill, Inc. ........................ 1,103 59,562
R.R. Donnelley & Sons Co. ................ 612 13,808
-----------
166,839
-----------
Durables 3.5%
Aerospace 0.7%
B.F. Goodrich Co. ........................ 547 18,632
Boeing Co. ............................... 5,192 217,090
Lockheed Martin Corp. .................... 2,227 55,257
Northrop Grumman Corp. ................... 365 24,181
Rockwell International Corp. ............. 1,256 39,564
United Technologies Corp. ................ 2,691 158,433
-----------
513,157
-----------
Shares Value ($)
----------------------------------------------------------------
Automobiles 0.8%
Cummins Engine Co., Inc. ................. 462 12,589
Dana Corp. ............................... 935 19,810
Delphi Automotive Systems Corp. .......... 3,183 46,352
Eaton Corp. .............................. 387 25,929
Ford Motor Co. ........................... 6,834 293,862
General Motors Corp. ..................... 3,104 180,226
Genuine Parts Co. ........................ 909 18,180
Navistar International Corp.* ............ 319 9,909
-----------
606,857
-----------
Construction/Agricultural Equipment 0.2%
Caterpillar, Inc. ........................ 1,965 66,564
Deere & Co. .............................. 1,258 46,546
PACCAR, Inc. ............................. 444 17,621
-----------
130,731
-----------
Leasing Companies 0.0%
Ryder System, Inc. ....................... 952 18,029
-----------
Telecommunications Equipment 1.8%
Andrew Corp.* ............................ 517 17,352
Lucent Technologies, Inc. ................ 18,616 1,102,998
Scientific-Atlanta, Inc. ................. 858 63,921
Tellabs, Inc.* ........................... 2,306 157,817
-----------
1,342,088
-----------
Tires 0.0%
Cooper Tire & Rubber Co. ................. 300 3,337
Goodyear Tire & Rubber Co. ............... 920 18,400
-----------
21,737
-----------
Manufacturing 8.6%
Chemicals 0.8%
Dow Chemical Co. ......................... 3,853 116,312
E.I. du Pont de Nemours & Co. ............ 5,978 261,537
Eastman Chemical Co. ..................... 543 25,928
Engelhard Corp. .......................... 800 13,650
Great Lakes Chemicals Corp. .............. 300 9,450
Hercules, Inc. ........................... 707 9,942
Mead Corp. ............................... 738 18,635
Praxair, Inc. ............................ 934 34,967
Rohm & Haas Co. .......................... 1,226 42,297
Sigma-Aldrich Corp. ...................... 468 13,689
Union Carbide Corp. ...................... 803 39,749
W.R. Grace & Co.* ........................ 400 4,850
-----------
591,006
-----------
Containers & Paper 0.3%
Bemis Company, Inc. ...................... 300 10,087
Boise Cascade Corp. ...................... 469 12,135
Crown Cork & Seal Co. .................... 649 9,735
Fort James Corp. ......................... 1,203 27,819
International Paper Co. .................. 2,691 80,225
Owens-Illinois, Inc.* .................... 764 8,929
Pactiv Corp.* ............................ 798 6,284
Sealed Air Corp.* ........................ 495 25,926
Temple-Inland, Inc. ...................... 268 11,256
The accompanying notes are an integral part of the financial statements.
128 | Kemper Variable Series --
KVS Index 500 Portfolio
<PAGE>
Shares Value ($)
----------------------------------------------------------------
Willamette Industires .................... 613 16,704
-----------
209,100
-----------
Diversified Manufacturing 5.4%
Ball Corporation ......................... 100 3,219
Briggs & Stratton Corp. .................. 80 2,740
Cooper Industries, Inc. .................. 751 24,454
Crane Co. ................................ 300 7,294
Dover Corp. .............................. 1,168 47,377
Fortune Brands, Inc. ..................... 1,009 23,270
General Electric Co. ..................... 56,317 2,984,801
Honeywell International, Inc. ............ 4,525 152,436
ITT Industries, Inc. ..................... 461 14,003
Leggett & Platt .......................... 1,057 17,441
Loews Corp. .............................. 693 41,580
Minnesota Mining & Manufacturing
Co .................................... 2,293 189,173
National Service Industries, Inc. ........ 200 3,900
TRW, Inc. ................................ 638 27,673
Textron, Inc. ............................ 927 50,348
Thermo Electron Corp.* ................... 905 19,062
Tyco International Ltd. .................. 9,568 453,284
-----------
4,062,055
-----------
Electrical Products 0.3%
American Power Conversion Corp.* ......... 1,323 53,995
Emerson Electric Co. ..................... 2,562 154,681
Thomas & Betts Corp. ..................... 727 13,904
-----------
222,580
-----------
Hand Tools 0.1%
Black & Decker Corp. ..................... 494 19,420
Danaher Corp. ............................ 747 36,930
Snap-On, Inc. ............................ 240 6,390
Stanley Works* ........................... 414 9,833
-----------
72,573
-----------
Industrial Specialty 1.1%
Avery Dennison Corp. ..................... 615 41,282
Centex Corp. ............................. 484 11,374
Corning, Inc. ............................ 1,547 417,497
Johnson Controls, Inc. ................... 467 23,963
Novellus Systems* ........................ 701 39,650
PPG Industries, Inc. ..................... 1,005 44,534
Pall Corp. ............................... 853 15,781
QUALCOMM Inc.* ........................... 4,171 250,260
Sherwin-Williams Co. ..................... 1,004 21,272
-----------
865,613
-----------
Machinery/Components/Controls 0.3%
Illinois Tool Works, Inc. ................ 1,677 95,589
Ingersoll-Rand Co. ....................... 1,011 40,693
Millipore Corp. .......................... 272 20,502
Parker-Hannifin Corp. .................... 707 24,215
Pitney Bowes, Inc. ....................... 1,491 59,640
Timken Co. ............................... 200 3,725
Visteon Corporation* ..................... 895 10,961
-----------
255,325
-----------
Shares Value ($)
----------------------------------------------------------------
Office Equipment/Supplies 0.2%
Lexmark International Group,
Inc. "A"* ............................. 770 51,783
Xerox Corp. .............................. 3,784 78,518
-----------
130,301
-----------
Specialty Chemicals 0.1%
Air Products & Chemicals, Inc. ........... 1,285 39,594
FMC Corp ................................. 143 8,294
-----------
47,888
-----------
Wholesale Distributors 0.0%
W.W. Grainger, Inc. ...................... 502 15,468
-----------
Technology 25.5%
Computer Software 6.6%
Adobe Systems, Inc. ...................... 707 91,910
America Online, Inc.* .................... 13,166 694,506
Autodesk, Inc. ........................... 403 13,979
BMC Software, Inc.* ...................... 1,378 50,275
Citrix Systems, Inc.* .................... 1,186 22,460
Computer Associates
International, Inc. ................... 3,286 168,202
Compuware Corp.* ......................... 2,080 21,580
Comverse Technologies, Inc.* ............. 902 83,886
Microsoft Corp.* ......................... 29,994 2,399,520
Oracle Corp.* ............................ 16,197 1,361,560
Parametric Technology Corp.* ............. 1,815 19,965
PeopleSoft, Inc.* ........................ 1,408 23,584
-----------
4,951,427
-----------
Diverse Electronic Products 2.3%
Applied Materials, Inc.* ................. 4,614 418,144
Dell Computer Corp.* ..................... 14,652 722,527
Molex Incorporated ....................... 1,092 52,540
Motorola Inc. ............................ 12,254 356,132
Solectron Corp.* ......................... 3,408 142,710
Teradyne, Inc.* .......................... 968 71,148
-----------
1,763,201
-----------
EDP Peripherals 1.8%
EMC Corp.* ............................... 12,372 951,871
Mercury Interactive Corp.* ............... 46 4,451
Network Appliance, Inc.* ................. 1,697 136,609
VERITAS Software Corp.* .................. 2,239 253,042
-----------
1,345,973
-----------
Electronic Components/Distributors 4.2%
Adaptec, Inc.* ........................... 620 14,105
Altera Corp.* ............................ 1,147 116,922
Analog Devices, Inc.* .................... 2,035 154,660
Broadcom Corp.* .......................... 1,200 262,725
Cisco Systems, Inc.* ..................... 39,682 2,522,287
Gateway, Inc.* ........................... 1,860 105,555
-----------
3,176,254
-----------
Electronic Data Processing 4.2%
Apple Computer, Inc.* .................... 1,896 99,303
Ceridian Corp.* .......................... 739 17,782
Compaq Computer Corp. .................... 9,683 247,522
The accompanying notes are an integral part of the financial statements.
129 | Kemper Variable Series --
KVS Index 500 Portfolio
<PAGE>
Shares Value ($)
-----------------------------------------------------------------
Hewlett-Packard Co. ...................... 5,671 708,166
International Business Machines Corp. .... 10,153 1,112,388
Radioshack Corp .......................... 1,024 48,512
Seagate Technology, Inc.* ................ 1,278 70,290
Sun Microsystems, Inc.* .................. 9,078 825,531
Unisys Corp.* ............................ 1,754 25,543
-----------
3,155,037
-----------
Military Electronics 0.2%
Computer Sciences Corp.* ................. 934 69,758
General Dynamics Corp. ................... 1,080 56,430
Raytheon Co. "B" ......................... 1,833 35,285
-----------
161,473
-----------
Office/Plant Automation 0.2%
3Com Corp.* .............................. 2,067 119,111
Cabletron Systems, Inc.* ................. 993 25,073
Novell, Inc.* ............................ 2,060 19,055
-----------
163,239
-----------
Semiconductors 5.7%
Advanced Micro Devices, Inc.* ............ 873 67,439
Conexant Systems, Inc.* .................. 1,227 59,663
Intel Corp. .............................. 19,121 2,556,239
KLA Tencor Corp.* ........................ 1,095 64,126
LSI Logic Corp.* ......................... 1,796 97,209
Linear Technology Corp. .................. 1,732 110,740
Maxim Integrated Products Inc.* .......... 1,583 107,545
Micron Technology, Inc.* ................. 3,134 275,988
National Semiconductor Corp. ............. 999 56,693
Sanmina Corp.* ........................... 700 59,850
Texas Instruments, Inc. .................. 9,327 640,648
Xilinx, Inc.* ............................ 1,786 147,457
-----------
4,243,597
-----------
Miscellaneous 0.3%
Agilent Technologies, Inc.* .............. 2,610 192,514
-----------
Energy 5.8%
Engineering 0.0%
Fluor Corp. .............................. 446 14,105
McDermott International, Inc. ............ 372 3,278
-----------
17,383
-----------
Oil & Gas Production 3.9%
Anadarko Petroleum Corp. ................. 697 34,371
Apache Corp. ............................. 613 36,052
Burlington Resources, Inc. ............... 1,214 46,435
Coastal Corp. ............................ 1,194 72,685
Conoco, Inc. "B" ......................... 3,538 86,902
Exxon Mobil Corp. ........................ 19,811 1,555,163
Kerr-McGee Corp. ......................... 501 29,528
Occidental Petroleum Corp. ............... 2,376 50,045
Royal Dutch Petroleum Co. (New York
shares) ............................... 12,145 747,677
Texaco, Inc. ............................. 3,165 168,536
Tosco Corp. .............................. 755 21,376
Union Pacific Resources Group ............ 1,457 32,054
-----------
2,880,824
-----------
Shares Value ($)
----------------------------------------------------------------
Oil Companies 0.7%
Amerada Hess Corp. ....................... 676 41,743
Ashland Inc. ............................. 615 21,563
Chevron Corp. ............................ 3,642 308,887
Phillips Petroleum Co. ................... 1,429 72,432
USX Marathon Group ....................... 1,722 43,158
Unocal Corp. ............................. 1,323 43,824
-----------
531,607
-----------
Oil/Gas Transmission 0.6%
El Paso Energy Corporation ............... 1,246 63,468
Enron Corp. .............................. 4,153 267,868
Niagara Mohawk Holdings, Inc.* ........... 678 9,450
Sempra Energy ............................ 1,376 23,392
Sunoco, Inc. ............................. 502 14,778
Williams Companies, Inc. ................. 2,434 101,467
-----------
480,423
-----------
Oilfield Services/Equipment 0.6%
Baker Hughes, Inc. ....................... 1,847 59,104
Halliburton Co. .......................... 2,417 114,052
Rowan Companies, Inc. .................... 518 15,734
Schlumberger Ltd. ........................ 3,184 237,606
-----------
426,496
-----------
Metals & Minerals 0.5%
Precious Metals 0.1%
Barrick Gold Corp. ....................... 2,189 39,812
Freeport McMoRan Copper & Gold,
Inc. "B"* ............................. 487 4,505
Homestake Mining Co. ..................... 600 4,125
Newmont Mining Corp. ..................... 1,215 26,274
Placer Dome Inc. ......................... 1,946 18,268
-----------
92,984
-----------
Steel & Metals 0.4%
Alcan Aluminium Ltd. ..................... 1,177 36,565
Alcoa, Inc. .............................. 4,900 142,100
Allegheny Technologies, Inc. ............. 493 8,874
Bethlehem Steel Corp.* ................... 1,667 5,939
Inco Ltd.* ............................... 1,018 15,652
Nucor Corp. .............................. 469 15,565
Phelps Dodge Corp. ....................... 425 15,805
USX-US Steel Group, Inc. ................. 761 14,126
Worthington Industries, Inc. ............. 300 3,150
-----------
257,776
-----------
Construction 0.3%
Building Materials 0.1%
Vulcan Materials Co. ..................... 581 24,801
-----------
Building Products 0.1%
Armstrong Holdings, Inc. ................. 209 3,200
Georgia-Pacific Group .................... 897 23,546
Masco Corp. .............................. 2,485 44,885
Owens Corning ............................ 256 2,368
-----------
73,999
-----------
Forest Products 0.1%
Louisiana-Pacific Corp. .................. 490 5,329
The accompanying notes are an integral part of the financial statements.
130 | Kemper Variable Series --
KVS Index 500 Portfolio
<PAGE>
Shares Value ($)
---------------------------------------------------------------------
Potlatch Corp. ........................... 100 3,313
Westvaco Corp. ........................... 518 12,853
Weyerhaeuser Co. ......................... 1,332 57,276
-----------
78,771
-----------
Homebuilding 0.0%
Kaufman & Broad Home Corp. ............... 200 3,963
Pulte Corp. .............................. 295 6,379
-----------
10,342
-----------
Transportation 0.5%
Air Freight 0.1%
FedEx Corp. .............................. 1,658 63,004
-----------
Airlines 0.1%
AMR Corp. ................................ 847 22,393
Delta Air Lines, Inc. .................... 710 35,899
Southwest Airlines Co. ................... 2,724 51,586
US Airways Group, Inc. ................... 376 14,664
-----------
124,542
-----------
Railroads 0.3%
Burlington Northern Santa Fe Corp. ....... 2,479 56,862
CSX Corp. ................................ 1,135 24,048
Kansas City Southern Industries, Inc. .... 578 51,261
Norfolk Southern Corp. ................... 2,085 31,014
Union Pacific Corp. ...................... 1,357 50,463
-----------
213,648
-----------
Utilities 1.5%
Electric Utilities 1.4%
AES Corp.* ............................... 2,344 106,945
Ameren Corp. ............................. 753 25,414
American Electric Power Co. .............. 1,668 49,414
CINergy Corp. ............................ 698 17,755
CMS Energy Corp. ......................... 590 13,054
Carolina Power and Light, Inc. ........... 1,085 34,652
Shares Value ($)
--------------------------------------------------------------------
Consolidated Edison, Inc. ................ 1,369 40,557
Constellation Energy Group ............... 710 23,119
DTE Energy Co. ........................... 1,046 31,968
Dominion Resources, Inc. ................. 1,422 60,968
Duke Energy Corp. ........................ 2,018 113,765
Edison International ..................... 2,267 46,473
Entergy Corp. ............................ 1,403 38,144
FPL Group, Inc. .......................... 979 48,460
FirstEnergy Corp. ........................ 1,183 27,653
Florida Progress Corp. ................... 458 21,469
GPU, Inc. ................................ 1,080 29,227
New Century Energies, Inc. ............... 511 15,330
Northern States Power Co. ................ 647 13,061
PG&E Corp. ............................... 2,129 52,427
Peco Energy Co. .......................... 975 39,305
Pinnacle West Capital Corp. .............. 320 10,840
Public Service Enterprise Group .......... 1,394 48,267
Southern Co. ............................. 3,530 82,293
Unicom Corp. ............................. 1,141 44,142
-----------
1,034,702
-----------
Natural Gas Distribution 0.1%
Columbia Energy Group .................... 535 35,109
Eastern Enterprises ...................... 205 12,915
NICOR, Inc. .............................. 200 6,525
PPL Corp. ................................ 579 12,702
Peoples Energy Corp. ..................... 100 3,238
Reliant Energy, Inc. ..................... 1,551 45,851
-----------
116,340
-----------
--------------------------------------------------------------------
Total Common Stocks (Cost $68,858,728) 71,412,265
--------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $72,477,243) (a) 75,030,780
--------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to KVS Index 500 Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreement is fully collateralized by U.S. Treasury or
Government agency securities.
*** Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $72,477,243. At June 30,
2000, net unrealized appreciation for all securities based on tax cost
was $2,553,537. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $7,105,592 and aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over value
of $4,552,055.
(b) At June 30, 2000, these securities, in part or in whole, have been
segregated to cover initial margin requirements for open futures
contracts.
--------------------------------------------------------------------------------
At June 30, 2000, open futures contracts purchased were as follows:
<TABLE>
<CAPTION>
Expiration Aggregate
Futures Date Contracts Face Value($) Value ($)
---------------------------------------------------- -------------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
S&P 500 Index Sept. 15, 2000 8 2,931,273 2,941,000
----------
Total unrealized appreciation on open futures contracts .................................... 9,727
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
131 | Kemper Variable Series --
KVS Index 500 Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
Assets
---------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $72,477,243) ....................... $ 75,030,780
Receivable for investments sold .............................................. 3,222
Dividends receivable ......................................................... 53,328
Interest receivable .......................................................... 73
Receivable for Porfolio shares sold .......................................... 236,384
Receivable for daily variation margin on open futures contracts .............. 25,563
Due from Adviser ............................................................. 77,655
----------------
Total assets ................................................................. 75,427,005
Liabilities
---------------------------------------------------------------------------------------------
Due to custodian bank ........................................................ 333
Payable for investments purchased ............................................ 271,223
Other accrued expenses and payables .......................................... 29,524
----------------
Total liabilities ............................................................ 301,080
---------------------------------------------------------------------------------------------
Net assets, at value $ 75,125,925
---------------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 158,165
Net unrealized appreciation (depreciation) on:
Investments ............................................................... 2,553,537
Futures ................................................................... 9,727
Accumulated net realized gain (loss) ......................................... (859,510)
Paid-in capital .............................................................. 73,264,006
---------------------------------------------------------------------------------------------
Net assets, at value $ 75,125,925
---------------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($75,125,925 / 69,859,401
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized) ..................................................... $ 1.075
-------------
---------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
Investment Income
---------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $1,849) .......................... $ 302,803
Interest ..................................................................... 79,272
----------------
Total Income ................................................................. 382,075
----------------
Expenses:
Management fee ............................................................... 121,312
Custodian and accounting fees ................................................ 162,665
Auditing ..................................................................... 6,426
Legal ........................................................................ 8,824
Trustees' fees and expenses .................................................. 6,252
Reports to shareholders ...................................................... 2,005
Registration fees ............................................................ 9,298
Other ........................................................................ 9,482
----------------
Total expenses, before expense reductions .................................... 326,264
Expense reductions ........................................................... (177,512)
----------------
Total expenses, after expense reductions ..................................... 148,752
---------------------------------------------------------------------------------------------
Net investment income (loss) 233,323
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
---------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................................. (751,659)
Futures ...................................................................... 62,538
----------------
(689,121)
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................................. 749,486
Futures ...................................................................... (9,687)
----------------
739,799
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 50,678
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 284,001
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
132 | Kemper Variable Series --
KVS Index 500 Portfolio
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------------------------
Six Months Period Ended
Ended June 30, December 31,
Increase (Decrease) in Net Assets 2000 (Unaudited) 1999(a)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................. $ 233,323 $ 179,386
Net realized gain (loss) on investment transactions ...................................... (689,121) 84,164
Net unrealized appreciation (depreciation) on investment transactions during the period .. 739,799 1,823,465
-------------- -------------
Net increase (decrease) in net assets resulting from operations .......................... 284,001 2,087,015
Distributions to shareholders from:
Net investment income .................................................................... (254,548) --
-------------- -------------
Net realized gains ....................................................................... (254,548) --
-------------- -------------
Portfolio share transactions:
Proceeds from shares sold ................................................................ 50,515,009 25,333,953
Reinvestment of distributions ............................................................ 509,096 --
Cost of shares redeemed .................................................................. (8,006,047) (88,006)
-------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions .................. 43,018,058 25,245,947
-------------- -------------
Increase (decrease) in net assets ........................................................ 42,792,963 27,332,962
Net assets at beginning of period ........................................................ 32,332,962 5,000,000
Net assets at end of period (including undistributed net investment income of $158,165 and -------------- -------------
$179,390, respectively) ............................................................... $ 75,125,925 $ 32,332,962
-------------- -------------
Other Information
-------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ................................................ 29,512,927 5,000,000
-------------- -------------
Shares sold .............................................................................. 47,486,385 24,596,356
Shares issued to shareholders in reinvestment of distributions ........................... 459,208 --
Shares redeemed .......................................................................... (7,599,119) (83,429)
-------------- -------------
Net increase (decrease) in Portfolio shares .............................................. 40,346,474 24,512,927
-------------- -------------
Shares outstanding at end of period ...................................................... 69,859,401 29,512,927
-------------- -------------
</TABLE>
(a) For the period from September 1, 1999 (commencement of operations) to
December 31, 1999.
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
2000(a) 1999(b)
--------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $1.096 1.000
------------------
--------------------------------------------------------------------------------------------
Income (loss) from investment operations:
--------------------------------------------------------------------------------------------
Net investment income (loss) (c) .005 .010
--------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.016) .086
------------------
--------------------------------------------------------------------------------------------
Total from investment operations (.011) .096
--------------------------------------------------------------------------------------------
Less distributions from:
--------------------------------------------------------------------------------------------
Net investment income (.005) --
--------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.005) --
------------------
--------------------------------------------------------------------------------------------
Total distributions (.010) --
--------------------------------------------------------------------------------------------
Net asset value, end of period $1.075 1.096
------------------
--------------------------------------------------------------------------------------------
Total Return (%) (.96)** 9.55**
--------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
--------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 75,126 32,333
--------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.21* .84*
--------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .55* .55*
--------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .86* 3.72*
--------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 49* 1*
--------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from September 1, 1999 (commencement of operations) to
December 31, 1999.
(c) Based on monthly average shares outstanding during the period.
* Annualized ** Not annualized
The accompanying notes are an integral part of the financial statements.
133 | Kemper Variable Series --
KVS Index 500 Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Small Cap Value Portfolio
Wild swings in the stock market effectively divided the semiannual period into
distinct halves. During the first three months, investors continued to turn a
blind eye toward fundamentals, choosing instead to fuel the fire in so-called
new-economy stocks that had burned since early in 1999. In the second half of
the period, a drop in the Nasdaq caused a dramatic shift in the markets. The
correction in TMT gave rise to more value-oriented investment opportunities than
we have seen in the past 18 months, during which the market was particularly
inhospitable to value investors.
During these market conditions, our commitment to a rigorous, long-term value
investment strategy prohibited us from fully participating in the hottest stocks
in the TMT sectors. Most of these stocks did not fit our criteria, in terms of
either their valuations or their size.
On the positive side, the best-performing economic sectors were utilities and
energy. The strength in utility stocks came in the second half of the period as
investors looked for "safety." The continuing rise of oil prices prompted a
rebound in oil and gas stocks, making energy the top-performing market sector
for the period. Our stock selections outperformed the averages in utilities but
trailed in energy.
Likewise, our selections did not keep pace in the strong-performing health care
and technology sectors. We recognize that our unwillingness to invest in some of
the hot, new-economy stocks has been detrimental to short-term performance. But
we believe that over time, these companies will be confronted by the imperative
to earn a profit, and failing that, their stock prices will collapse.
Moving forward, we are optimistic about a rebound in small-cap value stocks. The
market may be driven to extremes by emotion in the short run, but logic and
rationalism tend to prevail over time. There are excellent value-investment
opportunities to be uncovered.
James M. Eysenbach
Lead Portfolio Manager
Investments by the Portfolio in small companies present greater risk of loss
than investments in larger, more established companies.
134 | Kemper Variable Series --
Kemper Small Cap Value Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Small Cap Value Portfolio
Principal
Amount ($) Value ($)
-------------------------------------------------------------------
-------------------------------------------------------------------
Repurchase Agreements 5.7%
-------------------------------------------------------------------
State Street Bank and Trust Company,
6.48%, to be repurchased at
$5,124,766 on 7/3/2000** -----------
(Cost $5,122,000) ..................... 5,122,000 5,122,000
-----------
Shares
-------------------------------------------------------------------
-------------------------------------------------------------------
Common Stocks 94.3%
-------------------------------------------------------------------
Consumer Discretionary 5.6%
Apparel & Shoes 1.5%
Columbia Sportswear Co.* ................. 8,200 220,375
Genesco Inc.* ............................ 17,500 281,094
K-Swiss Inc. "A" ......................... 10,900 173,719
Tarrant Apparel Group* ................... 9,000 80,438
The Buckle, Inc.* ........................ 2,900 34,075
Wolverine World Wide, Inc. ............... 52,000 513,500
-----------
1,303,201
-----------
Department & Chain Stores 1.1%
Deb Shops, Inc. .......................... 14,700 183,750
Dress Barn Inc.* ......................... 19,300 427,012
Goody's Family Clothing, Inc.* ........... 16,100 88,550
Pacific Sunwear of California, Inc.* ..... 5,200 97,500
Shopko Stores, Inc.* ..................... 9,100 139,913
-----------
936,725
-----------
Home Furnishings 0.3%
American Woodmark Corp. .................. 8,500 174,250
Haverty Furniture Co., Inc. .............. 7,300 62,050
-----------
236,300
-----------
Hotels & Casinos 0.5%
Anchor Gaming* ........................... 5,100 244,481
Pinnacle Entertainment, Inc.* ............ 10,900 211,869
-----------
456,350
-----------
Recreational Products 0.1%
Fairfield Communities, Inc.* ............. 12,600 99,225
-----------
Restaurants 1.8%
Applebee's International Inc. ............ 4,600 139,437
CEC Entertainment, Inc.* ................. 12,200 312,625
NPC International, Inc.* ................. 27,100 243,053
O'Charley's Inc.* ........................ 21,900 298,388
Ruby Tuesday, Inc. ....................... 40,400 507,525
Ryan's Family Steak Houses, Inc.* ........ 17,100 144,281
-----------
1,645,309
-----------
Specialty Retail 0.3%
Cellstar Corp.* .......................... 16,500 45,891
Trans World Entertainment Corp.* ......... 21,100 255,838
-----------
301,729
-----------
Shares Value ($)
-------------------------------------------------------------------
Consumer Staples 4.8%
Alcohol & Tobacco 0.2%
Schweitzer-Mauduit International, Inc. ... 13,500 168,750
-----------
Consumer Electronic & Photographic 0.8%
Applica Inc.* ............................ 21,700 245,481
Salton, Inc.* ............................ 11,700 431,438
-----------
676,919
-----------
Consumer Specialties 0.2%
Russ Berrie & Co., Inc. .................. 4,800 92,400
Sola International, Inc.* ................ 21,800 106,275
-----------
198,675
-----------
Food & Beverage 2.2%
Earthgrains Co. .......................... 12,900 250,744
Fresh Del Monte Produce Inc.* ............ 55,000 378,125
Imperial Sugar Co. ....................... 23,900 31,369
J & J Snack Foods Corp.* ................. 18,600 332,475
Jack in the Box Inc.* .................... 13,900 342,287
Michael Foods, Inc. ...................... 5,100 124,950
Performance Food Group Co.* .............. 17,000 544,000
-----------
2,003,950
-----------
Package Goods/Cosmetics 0.2%
Chattem, Inc.* ........................... 13,200 180,675
-----------
Textiles 1.2%
Nautica Enterprises, Inc.* ............... 37,700 402,919
Polymer Group, Inc. ...................... 11,100 102,675
Springs Industries, Inc. "A" ............. 18,200 585,813
-----------
1,091,407
-----------
Health 12.6%
Biotechnology 0.5%
Bio-Rad Laboratories, Inc. "A"* .......... 16,700 417,500
Catalytica, Inc.* ........................ 4,800 52,800
-----------
470,300
-----------
Health Industry Services 3.8%
AmeriPath, Inc.* ......................... 39,000 346,125
Covance, Inc.* ........................... 4,300 37,894
Hanger Orthopedic Group, Inc.* ........... 20,100 99,244
Hooper Holmes, Inc. ...................... 23,600 188,800
Magellan Health Services, Inc.* .......... 25,900 32,375
PAREXEL International Corp.* ............. 90,000 860,625
Quest Diaagnostics Inc.* ................. 10,000 715,625
Res-Care, Inc.* .......................... 17,700 95,138
Superior Consultant Holdings Corp.* ...... 2,400 11,400
Syncor International Corp.* .............. 10,300 741,600
US Oncology, Inc.* ....................... 53,800 269,000
-----------
3,397,826
-----------
Hospital Management 2.2%
Coventry Health Care, Inc.* .............. 36,500 486,477
The accompanying notes are an integral part of the financial statements.
135 | Kemper Variable Series --
Kemper Small Cap Value Portfolio
<PAGE>
Shares Value ($)
----------------------------------------------------------------
Province Healthcare Co.* ................. 17,100 617,738
Quorom Health Group, Inc.* ............... 80,700 832,219
-----------
1,936,434
-----------
Medical Supply & Specialty 4.8%
Acuson Corporation* ...................... 19,000 256,500
Bacou USA, Inc.* ......................... 16,600 332,000
Conmed Corp.* ............................ 48,500 1,254,937
Cooper Companies, Inc. ................... 15,800 574,725
Impath Inc.* ............................. 7,000 379,750
Laboratory Corp. of America
Holdings* ............................. 4,000 308,500
ResMed, Inc.* ............................ 8,100 216,675
Theragenics Corp.* ....................... 26,200 224,338
Twinlab Corp.* ........................... 30,800 196,350
Ventana Medical Systems, Inc.* ........... 6,500 152,750
Vital Signs Inc. ......................... 18,300 331,688
Wesley Jessen VisionCare, Inc.* .......... 1,400 52,588
-----------
4,280,801
-----------
Pharmaceuticals 1.3%
Advance Paradigm, Inc.* .................. 22,100 453,050
Alpharma Inc. ............................ 3,600 224,100
Pharmaceutical Product
Development* .......................... 8,800 184,800
Sicor Inc* ............................... 38,500 308,000
-----------
1,169,950
-----------
Communications 2.9%
Telephone/Communications 2.7%
AVT Corp.* ............................... 41,100 303,113
CT Communications, Inc. .................. 12,000 341,250
CapRock Communications Corp.* ............ 4,300 83,850
Commonwealth Telephone Enterprises,
Inc.* ................................. 3,900 183,544
General Communication, Inc. "A"* ......... 34,000 174,250
IDT Corp.* ............................... 1,700 57,694
North Pittsburgh Systems, Inc. ........... 19,300 284,675
Plantronics, Inc.* ....................... 2,600 300,300
US LEC Corp.CL A* ........................ 5,000 85,000
Westell Technologies, Inc.* .............. 15,600 234,000
Xircom, Inc.* ............................ 8,200 389,500
-----------
2,437,176
-----------
Miscellaneous 0.2%
Tut Systems, Inc.* ....................... 3,600 206,550
-----------
Financial 10.4%
Banks 4.0%
BSB Bancorp, Inc. ........................ 10,100 202,631
Commercial Federal Corp. ................. 27,650 430,303
Dime Community Bancshares ................ 9,700 157,625
Downey Financial Corp. ................... 10,800 313,200
First Federal Financial Corp.* ........... 17,700 250,012
First Republic Bank* ..................... 10,400 207,350
First Washington Bancorp, Inc. ........... 12,400 172,825
GBC Bancorp .............................. 15,600 456,300
Imperial Bancorp ......................... 46,116 720,562
MAF Bancorp, Inc. ........................ 7,100 129,131
Shares Value ($)
----------------------------------------------------------------
PFF Bancorp, Inc. ........................ 18,000 328,500
St. Francis Capital Corp. ................ 14,000 211,750
-----------
3,580,189
-----------
Insurance 3.8%
AmerUS Life Holdings, Inc. ............... 13,500 278,437
CNA Surety Corp. ......................... 25,800 307,987
Delphi Financial Group, Inc. "A" ......... 6,528 221,544
Farm Family Holdings, Inc.* .............. 9,500 293,906
First American Financial Co. ............. 15,700 224,706
LandAmerica Financial Group, Inc. ........ 10,000 229,375
PMA Capital Corp. ........................ 12,900 245,100
Philadelphia Consolidated Holding
Corp.* ............................... 16,100 270,681
RLI Corp. ................................ 10,600 368,350
SCPIE Holdings Inc. ...................... 6,900 141,450
Selective Insurance Group, Inc. .......... 14,800 281,200
Stewart Information Services Corp. ....... 11,100 162,338
The Midland Co. .......................... 5,700 139,650
White Mountains Insurance
Group, Inc. ........................... 1,600 256,000
-----------
3,420,724
-----------
Consumer Finance 0.2%
New Century Financial Corp.* ............. 19,600 170,888
-----------
Other Financial Companies 1.1%
Advanta Corp. "A" ........................ 14,200 173,063
Bay View Capital Corp. ................... 16,100 157,981
Phoenix Investment Partners, Ltd. ........ 37,700 395,850
Walter Industries, Inc. .................. 19,100 218,456
-----------
945,350
-----------
Real Estate 1.3%
Castle & Cooke, Inc.* .................... 15,300 295,481
Prentiss Properties Trust (REIT) ......... 36,500 876,000
-----------
1,171,481
-----------
Media 1.7%
Print Media
Valassis Communications, Inc.* ........... 40,000 1,525,000
-----------
Service Industries 5.8%
EDP Services 1.2%
Analysts International Corp. ............. 11,800 109,887
Keane, Inc.* ............................. 26,000 562,250
Systems & Computer Technology
Corp.* ................................ 15,900 368,000
-----------
1,040,137
-----------
Environmental Services 0.3%
URS Corp.* ............................... 16,500 231,000
-----------
Investment 0.8%
Raymond James Financial, Inc. ............ 18,500 416,250
Southwest Securities Group, Inc. ......... 7,500 279,375
-----------
695,625
-----------
Miscellaneous Commercial Services 2.5%
AnswerThink Consulting Group, Inc.* ...... 8,000 133,000
The accompanying notes are an integral part of the financial statements.
136 | Kemper Variable Series --
Kemper Small Cap Value Portfolio
<PAGE>
Shares Value ($)
-----------------------------------------------------------------
Bell & Howell Holdings Co.* .............. 13,800 334,650
Century Business Services, Inc.* ......... 42,800 82,925
Computer Task Group Inc. ................. 22,600 114,412
eLoyalty Corp.* .......................... 10,100 128,775
Encompass Services Corp.* ................ 56,026 315,146
First Consulting Group, Inc.* ............ 4,500 25,031
IT Group, Inc.* .......................... 15,800 77,025
Kelly Services, Inc. "A"* ................ 9,600 222,000
Morrison Knudsen Corp.* .................. 24,000 174,000
Personnel Group of America, Inc.* ........ 15,500 45,531
Source Information Management Co.* ....... 4,400 67,100
Syntel, Inc.* ............................ 19,300 193,000
Technology Solutions Co. ................. 10,100 62,494
Volt Information Sciences, Inc.* ......... 9,000 296,438
-----------
2,271,527
-----------
Miscellaneous Consumer Services 0.8%
CDI Corp.* ............................... 11,700 238,387
Infocus Corporation* ..................... 9,500 305,781
Peregrine Systems, Inc.* ................. 4,800 166,500
-----------
710,668
-----------
Printing/Publishing 0.1%
Mail-Well, Inc.* ......................... 13,700 118,162
-----------
Miscellaneous 0.1%
Interlogix Inc* .......................... 4,209 57,874
-----------
Durables 5.5%
Aerospace 2.1%
Aeroflex, Inc.* .......................... 21,500 1,068,281
Alliant Techsystems, Inc.* ............... 5,400 364,163
Primex Technologies, Inc. ................ 19,500 429,000
-----------
1,861,444
-----------
Automobiles 1.0%
Borg-Warner Automotive Inc. .............. 16,300 572,537
Oshkosh Truck Corp. ...................... 8,250 294,938
-----------
867,475
-----------
Construction/Agricultural Equipment 0.1%
Terex Corp.* ............................. 4,400 62,150
-----------
Leasing Companies 1.8%
Aaron Rents, Inc. ........................ 8,100 101,756
Dollar Thrifty Automotive
Group, Inc.* .......................... 79,100 1,458,406
-----------
1,560,162
-----------
Telecommunications Equipment 0.5%
Brooktrout Technology Inc.* .............. 11,000 239,937
Inter-Tel, Inc. .......................... 14,100 226,481
-----------
466,418
-----------
Manufacturing 11.0%
Chemicals 0.1%
Albany Molecular Research, Inc.* ......... 1,100 59,881
-----------
Containers & Paper 0.2%
P.H. Glatfelter Co. ...................... 13,500 137,531
-----------
Shares Value ($)
----------------------------------------------------------------
Diversified Manufacturing 1.6%
Ball Corporation ......................... 13,500 434,531
Briggs & Stratton Corp. .................. 12,500 428,125
Myers Industries, Inc. ................... 49,192 528,814
-----------
1,391,470
-----------
Electrical Products 0.4%
Methode Electronics "A" .................. 8,300 320,588
-----------
Industrial Specialty 2.2%
Buckeye Technologies, Inc.* .............. 26,800 587,925
FSI International, Inc.* ................. 12,900 279,769
Fleetwood Enterprises, Inc. .............. 30,000 427,500
Gardner Denver Inc.* ..................... 10,700 191,262
General Cable Corp. ...................... 27,700 225,062
UNOVA, Inc.* ............................. 29,700 217,181
-----------
1,928,699
-----------
Machinery/Components/Controls 5.5%
American Axle & Manufacturing
Holdings, Inc.* ....................... 66,800 947,725
CIRCOR International, Inc. ............... 23,000 188,312
Intermet Corp. ........................... 61,600 423,500
RadiSys Corp.* ........................... 9,700 550,475
Shaw Group, Inc.* ........................ 20,400 961,350
Varco International Inc.* ................ 22,016 511,872
Watts Industries, Inc. "A" ............... 46,000 580,750
Woodward Governor Co. .................... 25,100 710,644
-----------
4,874,628
-----------
Wholesale Distributors 0.3%
WESCO International, Inc.* ............... 24,500 234,281
-----------
Miscellaneous 0.7%
MKS Instruments Inc.* .................... 6,300 246,487
Sipex Corp.* ............................. 12,400 343,325
-----------
589,812
-----------
Technology 19.2%
Computer Software 7.5%
3DFX Interactive, Inc.* .................. 33,600 261,450
Activision, Inc.* ........................ 21,000 136,500
Advanced Digital Information Corp.* ...... 19,600 312,375
Advent Software, Inc.* ................... 6,800 438,600
Axent Technologies, Inc.* ................ 8,500 210,906
Cybex Computer Products Corp.* ........... 5,100 219,300
Epicor Software Corp.* ................... 43,000 107,500
Factset Research Systems Inc. ............ 13,100 370,075
Great Plains Software, Inc.* ............. 5,400 105,975
Hyperion Solutions Corp.* ................ 7,500 243,281
IMRglobal Corp.* ......................... 21,200 276,925
ISS Group, Inc.* ......................... 1,500 148,102
InfoCure Corp.* .......................... 8,200 46,125
JDA Software Group, Inc.* ................ 16,000 307,000
MAPICS, Inc.* ............................ 15,000 86,250
MICROS Systems, Inc.* .................... 9,600 178,200
MTI Technology Corp. ..................... 34,000 272,000
MTS Systems Corp. ........................ 31,100 194,375
Mercator Software Inc.* .................. 6,600 453,750
The accompanying notes are an integral part of the financial statements.
137 | Kemper Variable Series --
Kemper Small Cap Value Portfolio
<PAGE>
Shares Value ($)
-----------------------------------------------------------------
Metro Information Services Inc.* ......... 21,700 217,000
Progress Software Corp.* ................. 19,100 342,606
Remedy Corp.* ............................ 8,000 446,000
Santa Cruz Operations Inc.* .............. 39,700 253,088
Structural Dynamics Research Corp.* ...... 28,300 426,269
THQ, Inc.* ............................... 18,900 230,344
Unigraphics Solutions Inc. ............... 5,600 109,200
Verity, Inc.* ............................ 7,700 292,600
-----------
6,685,796
-----------
Diverse Electronic Products 0.8%
Cable Design Technologies Corp.* ......... 11,900 398,650
DSP Group, Inc.* ......................... 5,800 324,800
-----------
723,450
-----------
EDP Peripherals 0.3%
Gerber Scientific, Inc. .................. 17,400 200,100
NeoMagic Corp.* .......................... 26,400 80,025
-----------
280,125
-----------
Electronic Components/Distributors 2.2%
Apex Inc.* ............................... 4,500 196,875
Benchmark Electronics, Inc.* ............. 3,200 117,000
Brightpoint, Inc.* ....................... 29,000 251,031
Kent Electronics Corp.* .................. 10,300 307,069
Maxwell Technologies, Inc.* .............. 5,400 72,900
Pioneer-Standard Electronics, Inc. ....... 25,500 376,125
Technitrol, Inc. ......................... 7,000 678,125
-----------
1,999,125
-----------
Electronic Data Processing 0.5%
Epresence Inc* ........................... 10,700 77,575
SAGA Systems, Inc.* ...................... 4,100 50,994
Sunquest Information Systems, Inc.* ...... 25,800 277,350
-----------
405,919
-----------
Military Electronics 0.4%
Titan Corp.* ............................. 8,700 389,325
-----------
Office/Plant Automation 1.7%
CACI International, Inc.* ................ 21,500 419,250
FileNet Corp.* ........................... 16,800 308,700
Kronos, Inc.* ............................ 3,700 96,200
Mercury Computer Systems, Inc.* .......... 9,800 316,663
Pinnacle Systems, Inc.* .................. 2,800 62,956
Radiant Systems Inc.* .................... 14,450 346,800
-----------
1,550,569
-----------
Precision Instruments 1.1%
Analogic Corp. ........................... 7,100 284,000
Molecular Devices Corp.* ................. 6,300 435,881
Moog Inc. "A"* ........................... 6,200 163,525
Silicon Valley Group Inc.* ............... 5,200 134,550
-----------
1,017,956
-----------
Semiconductors 4.2%
Actel Corp.* ............................. 4,000 182,500
Alliance Semiconductor Corp.* ............ 30,800 756,525
Alpha Industries, Inc.* .................. 8,800 387,750
Burr-Brown Corp.* ........................ 6,287 545,004
Cree Research, Inc.* ..................... 4,600 614,100
Shares Value ($)
----------------------------------------------------------------
Exar Corp.* .............................. 11,400 993,937
General Semiconductor, Inc.* ............. 16,600 244,850
-----------
3,724,666
-----------
Miscellaneous 0.5%
iGATE Capital Corp.* ..................... 2,000 27,500
Phoenix Technologies Ltd.* ............... 7,700 125,606
SEREMA Software, Inc.* ................... 6,300 286,059
-----------
439,165
-----------
Energy 3.4%
Oil & Gas Production 2.0%
Atwood Oceanics, Inc.* ................... 10,800 479,250
Basin Exploration, Inc.* ................. 15,600 278,850
Cross Timbers Oil Company ................ 18,300 404,887
Tesoro Petroleum Corp.* .................. 59,500 602,438
-----------
1,765,425
-----------
Oil Companies 0.2%
Giant Industries, Inc.* .................. 18,500 145,687
-----------
Oilfield Services/Equipment 1.2%
Oceaneering International, Inc.* ......... 24,900 473,100
Seitel, Inc.* ............................ 12,300 99,938
Veritas DGC Inc.* ........................ 19,500 507,000
-----------
1,080,038
-----------
Metals & Minerals 0.5%
Steel & Metals
Gibraltar Steel Corporation .............. 5,100 71,400
Quanex Corp. ............................. 26,100 388,238
-----------
459,638
-----------
Construction 3.3%
Building Materials 1.5%
Elcor Corp. .............................. 16,575 381,225
Florida Rock Industries, Inc. ............ 10,200 363,375
Southdown, Inc. .......................... 8,200 473,550
Universal Forest Products, Inc. .......... 9,100 125,125
-----------
1,343,275
-----------
Building Products 0.7%
Emcor Group, Inc.* ....................... 10,000 231,875
Genlyte Group, Inc.* ..................... 9,900 208,519
Nortek, Inc.* ............................ 7,700 152,075
-----------
592,469
-----------
Homebuilding 1.1%
Del Webb Corp.* .......................... 26,200 401,188
MDC Holdings, Inc. ....................... 12,600 234,675
NVR Inc.* ................................ 4,300 245,100
Standard Pacific Corp. ................... 13,200 132,000
-----------
1,012,963
-----------
Transportation 3.1%
Air Freight 0.6%
Airborne Freight Corp. ................... 29,900 566,231
-----------
Airlines 1.4%
America West Holdings Corp. "B"* ......... 75,500 1,292,937
-----------
The accompanying notes are an integral part of the financial statements.
138 | Kemper Variable Series --
Kemper Small Cap Value Portfolio
<PAGE>
Shares Value ($)
--------------------------------------------------------------------
Railroads 0.5%
Trinity Industries, Inc. ................. 26,500 490,250
-----------
Trucking 0.6%
M.S. Carriers Inc.* ...................... 7,000 123,375
Roadway Express, Inc. .................... 11,400 267,188
Yellow Corp.* ............................ 11,400 168,150
-----------
558,713
-----------
Utilities 4.5%
Electric Utilities 2.8%
Anixter International Inc.* .............. 16,700 442,550
Shares Value ($)
--------------------------------------------------------------------
El Paso Electric Co.* .................... 144,500 1,616,594
Public Service Co. of New Mexico ......... 26,100 402,919
-----------
2,462,063
-----------
Natural Gas Distribution 1.7%
Energen Corp. ............................ 21,800 475,512
NUI Corp. ................................ 16,500 445,500
ONEOK, Inc. .............................. 12,600 326,813
South Jersey Industries, Inc. ............ 11,200 298,900
-----------
1,546,725
-----------
--------------------------------------------------------------------
Total Common Stocks (Cost $84,262,773) 84,023,926
--------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $89,384,773) (a) 89,145,926
--------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Small Cap Value Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreement is fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $89,384,773. At June 30,
2000, net unrealized depreciation for all securities based on tax cost
was $238,847. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of value over tax cost
of $14,936,323 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value of
$15,175,170.
The accompanying notes are an integral part of the financial statements.
139 | Kemper Variable Series --
Kemper Small Cap Value Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
Assets
---------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $89,384,773) ....................... $ 89,145,926
Receivable for investments sold .............................................. 2,196,762
Dividends receivable ......................................................... 47,555
Interest receivable .......................................................... 922
----------------
Total assets ................................................................. 91,391,165
Liabilities
---------------------------------------------------------------------------------------------
Due to custodian bank ........................................................ 1,405,502
Payable for investments purchased ............................................ 3,175,344
Payable for Portfolio shares redeemed ........................................ 1,712
Accrued management fee ....................................................... 53,451
Other accrued expenses and payables .......................................... 24,683
----------------
Total liabilities ............................................................ 4,660,692
---------------------------------------------------------------------------------------------
Net assets, at value $ 86,730,473
---------------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated distributions in excess of net investment income ................. $ (121,453)
Net unrealized appreciation (depreciation) on investments .................... (238,847)
Accumulated net realized gain (loss) ......................................... (7,881,445)
Paid-in capital .............................................................. 94,972,218
---------------------------------------------------------------------------------------------
Net assets, at value $ 86,730,473
---------------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($86,730,473 / 81,912,541
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized) ..................................................... $ 1.059
-------------
---------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
Investment Income
---------------------------------------------------------------------------------------------
Income:
Dividends .................................................................... $ 336,286
Interest ..................................................................... 63,658
----------------
Total Income ................................................................. 399,944
----------------
Expenses:
Management fee ............................................................... 324,046
Custodian fees ............................................................... 1,226
Auditing ..................................................................... 13,357
Legal ........................................................................ 4,734
Trustees' fees and expenses .................................................. 7,061
Reports to shareholders ...................................................... 7,743
Registration fees ............................................................ 910
Other ........................................................................ 995
----------------
Total expenses, before expense reductions .................................... 360,072
Expense reductions ........................................................... (220)
----------------
Total expenses, after expense reductions ..................................... 359,852
---------------------------------------------------------------------------------------------
Net investment income (loss) 40,092
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
---------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .................................... 2,069,075
Net unrealized appreciation (depreciation) during the period on investments .. (3,893,098)
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (1,824,023)
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (1,783,931)
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
140 | Kemper Variable Series --
Kemper Small Cap Value Portfolio
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) .......................................................... $ 40,092 $ 665,603
Net realized gain (loss) on investment transactions ................................... 2,069,075 (6,659,700)
Net unrealized appreciation (depreciation) on investment transactions during the period (3,893,098) 8,072,251
---------------- ----------------
Net increase (decrease) in net assets resulting from operations ....................... (1,783,931) 2,078,154
Distributions to shareholders from:
Net investment income ................................................................. (485,490) (888,505)
---------------- ----------------
Net realized gains .................................................................... -- --
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ............................................................. 6,195,550 20,971,954
Reinvestment of distributions ......................................................... 485,490 888,505
Cost of shares redeemed ............................................................... (12,874,586) (29,865,433)
---------------- ----------------
Net increase (decrease) in net assets from Portfolio share transactions ............... (6,193,546) (8,004,974)
---------------- ----------------
Increase (decrease) in net assets ..................................................... (8,462,967) (6,815,325)
Net assets at beginning of period ..................................................... 95,193,440 102,008,765
Net assets at end of period (including undistributed (overdistributed) net investment ---------------- ----------------
income (loss) of $(121,453) and $323,945, respectively) ............................ $ 86,730,473 $ 95,193,440
---------------- ----------------
Other Information
-----------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 87,737,274 95,758,232
---------------- ----------------
Shares sold ........................................................................... 5,904,998 19,879,295
Shares issued to shareholders in reinvestment of distributions ........................ 449,416 841,898
Shares redeemed ....................................................................... (12,179,147) (28,742,151)
---------------- ----------------
Net increase (decrease) in Portfolio shares ........................................... (5,824,733) (8,020,958)
---------------- ----------------
Shares outstanding at end of period ................................................... 81,912,541 87,737,274
---------------- ----------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997 1996(b)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.085 1.065 1.227 1.019 1.000
---------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .001(c) .007(c) .009 .012 .013
-------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.021) .023 (.141) .206 .006
---------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.020) .030 (.132) .218 .019
------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
------------------------------------------------------------------------------------------------------------------------------
Net investment income (.006) (.010) -- (.010) --
------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- -- (.030) -- --
---------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Total distributions (.006) (.010) (.030) (.010) --
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.059 1.085 1.065 1.227 1.019
---------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (1.87)** 2.80 (11.25) 21.73 1.86**
------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 86,730 95,193 102,009 76,108 13,307
------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .83* .84 .80 .84 .92*
------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .83* .83 .80 .84 .90*
------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .09* .69 1.15 1.18 2.23*
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 28* 72 43 22 61*
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from May 1, 1996 (commencement of operations) to
December 31, 1996.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
141 | Kemper Variable Series --
Kemper Small Cap Value Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
KVS Dreman Financial Services Portfolio
The performance of financial services stocks varied dramatically during the
semiannual period. During the first three months, financials as a whole
continued to struggle. Adding to the sector's difficulties were the successive
rate hikes by the Federal Reserve Board. Although revenues did not fall off,
investors were concerned, and this concern brought down the prices of financial
stocks. In March, we began to see some improved performance in the sector. The
defensive characteristics of most financial services stocks made them a logical
alternative for investors looking for some "security."
During this period, we attribute the portfolio's underperformance compared with
its peers and the S&P Financial index to our more conservative investment style.
The financial sector's largest gains during the period came early from the
hottest but most speculative area of the financial services sector -- brokerage,
on-line trading and speculative lending companies.
The valuations of most of the sector's leaders were exceedingly high. They
therefore didn't fit our low price-to- earnings investment criteria. But more
important, we believed their businesses to be quite vulnerable. As the market
shifted, these issues declined, while the portfolio's more conservative holdings
began to gain ground.
Moving forward, we are very optimistic about the financial services sector. Many
fundamentally solid companies are trading at depressed prices. We've seen some
improvement as the market has broadened, and we anticipate this to continue.
Specifically, we're expecting improving performance from regional banks, and
property and casualty insurance companies. All in all, we believe we have
constructed a good defensive all-weather portfolio.
David N. Dreman
Lead Portfolio Manager
As a non-diversified portfolio, it can invest more than 5% of its assets in the
securities of a particular issuer. This presents greater risk of loss of
principal as the financial condition or market's assessment of such securities
changes.
The Portfolio may concentrate investments in specific sectors, which creates
special risk considerations.
The accompanying notes are an integral part of the financial statements.
142 | Kemper Variable Series --
KVS Dreman Financial Services Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
KVS Dreman Financial Services Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreements 14.2%
--------------------------------------------------------------------------------
State Street Bank and Trust Company
6.48%, to be repurchased at
$4,456,405 on 7/3/2000* -----------
(Cost $4,454,000) ..................... 4,454,000 4,454,000
-----------
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Common Stocks 85.8%
--------------------------------------------------------------------------------
Financial 80.9%
Banks 37.7%
BancWest Corp. ........................... 22,350 367,378
Bank One Corp. ........................... 43,352 1,151,537
Bank of America Corp. .................... 30,073 1,293,139
Banknorth Group, Inc. .................... 10,100 154,656
Chase Manhattan Corp. .................... 21,900 1,008,769
Colonial BancGroup, Inc. ................. 18,600 179,025
Corus Bankshares, Inc. ................... 7,850 207,534
First Union Corp. ........................ 18,700 463,994
FleetBoston Financial Corp. .............. 37,086 1,260,924
Golden West Financial Corp. .............. 4,450 181,616
J.P. Morgan & Co., Inc. .................. 4,150 457,019
KeyCorp .................................. 37,075 653,447
National Bank of Canada .................. 39,300 586,567
North Fork Bancorporation, Inc. .......... 9,650 145,956
PNC Bank Corp. ........................... 22,850 1,071,094
Popular, Inc. ............................ 12,000 228,750
Provident Financial Group ................ 5,415 128,945
Summit Bancorp ........................... 7,750 190,844
SunTrust Banks, Inc. ..................... 7,600 347,225
Washington Mutual, Inc. .................. 14,020 404,828
Wells Fargo Co. .......................... 35,800 1,387,250
-----------
11,870,497
-----------
Shares Value ($)
---------------------------------------------------------------------
Insurance 20.0%
Aegon NV (ADR) ........................... 4,760 169,575
Allstate Corp. ........................... 11,205 249,311
American International Group, Inc. ....... 25,082 2,947,135
Chubb Corp. .............................. 4,650 285,975
Cigna Corp. .............................. 4,600 430,100
Jefferson Pilot Corp. .................... 2,475 139,683
Lincoln National Corp. ................... 6,000 216,750
Ohio Casualty Corp. ...................... 57,600 612,000
Safeco Corp. ............................. 26,850 533,644
St. Paul Companies, Inc. ................. 16,850 575,006
Torchmark Corp. .......................... 5,250 129,609
-----------
6,288,788
-----------
Consumer Finance 12.7%
American Express Co. ..................... 23,100 1,204,087
Citigroup, Inc. .......................... 29,250 1,762,312
Household International, Inc. ............ 7,550 313,797
Mellon Financial Corp. ................... 13,500 491,906
SLM Holding Corp. ........................ 6,100 228,369
-----------
4,000,471
-----------
Other Financial Companies 10.5%
Federal Home Loan Mortgage Corp. ......... 13,095 530,347
Federal National Mortgage
Association ........................... 29,240 1,525,963
Lehman Brothers Holdings, Inc. ........... 2,218 209,740
Marsh & McLennan Companies, Inc. ......... 5,050 527,409
Morgan Stanley Dean Witter & Co. ......... 400 33,300
Prison Realty Trust, Inc. (REIT) ......... 153,600 470,400
-----------
3,297,159
-----------
Service Industries 4.9%
Investment
Bear Stearns Companies, Inc. ............. 5,240 218,115
Charles Schwab Corp. ..................... 3,600 121,050
Franklin Resources, Inc. ................. 6,450 195,919
Merrill Lynch & Co., Inc. ................ 8,900 1,023,500
-----------
1,558,584
-----------
---------------------------------------------------------------------
Total Common Stocks (Cost $30,745,958) 27,015,499
---------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $35,199,958) (a) 31,469,499
---------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to KVS Dreman Financial Services Portfolio of Investments
--------------------------------------------------------------------------------
* Repurchase agreement is fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $35,199,958. At June 30,
2000, net unrealized depreciation for all securities based on tax cost
was $3,730,459. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $2,837,454 and aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over value
of $6,567,913.
The accompanying notes are an integral part of the financial statements.
143 | Kemper Variable Series --
KVS Dreman Financial Services Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
Assets
---------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $35,199,958) ....................... $ 31,469,499
Cash ......................................................................... 470
Receivable for investments sold .............................................. 12,806
Dividends receivable ......................................................... 50,926
Interest receivable .......................................................... 802
Receivable for Portfolio shares sold ......................................... 39,675
Foreign taxes recoverable .................................................... 155
----------------
Total assets ................................................................. 31,574,333
Liabilities
---------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 4,800
Organization fees ............................................................ 11,000
Accrued management fee ....................................................... 13,738
Other accrued expenses and payables .......................................... 11,609
----------------
Total liabilities ............................................................ 41,147
---------------------------------------------------------------------------------------------
Net assets, at value $ 31,533,186
---------------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 71,781
Net unrealized appreciation (depreciation) on:
Investments ............................................................... (3,711,941)
Foreign currency related transactions ..................................... (29)
Accumulated net realized gain (loss) ......................................... (71,487)
Paid-in capital .............................................................. 35,244,862
---------------------------------------------------------------------------------------------
Net assets, at value $ 31,533,186
---------------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($31,533,186 / 36,217,929
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized) ..................................................... $ 0.871
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
144 | Kemper Variable Series --
KVS Dreman Financial Services Portfolio
<PAGE>
-------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Investment Income
--------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $2,006) ............ $ 275,061
Interest ....................................................... 36,394
----------------
Total Income ................................................... 311,455
----------------
Expenses:
Management fee ................................................. 103,573
Custodian and accounting fees .................................. 23,078
Auditing ....................................................... 1,555
Legal .......................................................... 979
Trustees' fees and expenses .................................... 4,810
Reports to shareholders ........................................ 860
Registration fees .............................................. 179
----------------
Total expenses, before expense reductions ...................... 135,034
Expense reductions ............................................. (1,153)
----------------
Total expenses, after expense reductions ....................... 133,881
------------------------------------------------------------------------------
Net investment income (loss) 177,574
------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 50,315
Foreign currency related transactions .......................... (39)
----------------
50,276
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (1,564,215)
Foreign currency related transactions .......................... (41)
----------------
(1,564,256)
------------------------------------------------------------------------------
Net gain (loss) on investment transactions (1,513,980)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(1,336,406)
------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
145 | Kemper Variable Series --
KVS Dreman Financial Services Portfolio
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------------------------
Six Months Year Ended
Ended June 30, December 31,
Increase (Decrease) in Net Assets 2000 (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................ $ 177,574 $ 428,221
Net realized gain (loss) on investment transactions ..................................... 50,276 (52,906)
Net unrealized appreciation (depreciation) on investment transactions during the period . (1,564,256) (2,452,714)
-------------- -------------
Net increase (decrease) in net assets resulting from operations ......................... (1,336,406) (2,077,399)
Distributions to shareholders from:
Net investment income ................................................................... (497,354) (115,816)
-------------- -------------
Net realized gains ...................................................................... (66,314) --
-------------- -------------
Portfolio share transactions:
Proceeds from shares sold ............................................................... 12,799,096 20,095,510
Reinvestment of distributions ........................................................... 563,668 115,816
Cost of shares redeemed ................................................................. (7,248,170) (6,215,518)
-------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions ................. 6,114,594 13,995,808
-------------- -------------
Increase (decrease) in net assets ....................................................... 4,214,520 11,802,593
Net assets at beginning of period ....................................................... 27,318,666 15,516,073
Net assets at end of period (including undistributed net investment income of $71,781 and -------------- -------------
$391,561, respectively) .............................................................. $ 31,533,186 $ 27,318,666
-------------- -------------
Other Information
------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................... 29,557,781 15,868,000
-------------- -------------
Shares sold ............................................................................. 14,212,285 19,794,583
Shares issued to shareholders in reinvestment of distributions .......................... 615,728 106,582
Shares redeemed ......................................................................... (8,167,865) (6,211,384)
-------------- -------------
Net increase (decrease) in Portfolio shares ............................................. 6,660,148 13,689,781
-------------- -------------
Shares outstanding at end of period ..................................................... 36,217,929 29,557,781
-------------- -------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Year Ended December 31, 2000(a) 1999 1998(b)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ .924 .978 1.000
---------------------------
------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
------------------------------------------------------------------------------------------------
Net investment income (loss) .006(c) .018(c) .004
------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.042) (.067) (.026)
---------------------------
------------------------------------------------------------------------------------------------
Total from investment operations (.036) (.049) (.022)
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net investment income (.015) (.005) --
------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.002) -- --
---------------------------
------------------------------------------------------------------------------------------------
Total distributions (.017) (.005) (.022)
------------------------------------------------------------------------------------------------
Net asset value, end of period $ .871 .924 .978
---------------------------
------------------------------------------------------------------------------------------------
Total Return (%) (4.05)** (5.05) (2.20)**
------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 31,533 27,319 15,516
------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .98* 1.04 1.73*
------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .98* .99 .99*
------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.28* 1.75 1.29*
------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 15* 13 6*
------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from May 4, 1998 (commencement of operations) to
December 31, 1998.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
146 | Kemper Variable Series --
KVS Dreman Financial Services Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Strategic Income Portfolio
The period between December 31, 1999, and June 30, 2000, was a challenging time
for fixed-income investors around the world. Emerging market bonds were the
portfolio's bright spot, as returns from domestic high-yield bonds were weak. In
most established bond markets, returns for the first half of fiscal year 2000
were modest, but higher than returns from equities. Preserving capital was
challenging as the Federal Reserve tightened monetary policy.
One reason for the high-yield market's weakness was anemic investor demand for
most of the period. This past winter, the lure of potentially higher returns
from equity investments, particularly technology stocks, prompted some investors
to liquidate high-yield holdings and redeploy assets. As the U.S. economy
enjoyed solid growth, some investors behaved as if high-yield bonds faced the
worst of times. Ironically, in January, February, April and May, high-yield
bonds outperformed the unmanaged Standard & Poor's 500 Index.
During the period, we focused on larger, more liquid bond issues, and on
companies with relatively solid cash flow and proven management. Since December,
the difference in yield, or spread, between 10-year Treasuries and
comparable-maturity high-yield bonds widened. As of June 30, high-yield bonds
offered double the yield of government bonds. That's why we had a majority of
the portfolio's assets in the high-yield category.
Investors are expecting that growth will pick up steam in emerging markets in
the coming months. Bonds in some countries such as Mexico have rallied since
December as rating services have upgraded certain government debt to
investment-grade. The portfolio benefited because we had made Mexico one of the
portfolio's largest emerging market holdings.
Although we think short-term bond market volatility may continue for the rest of
fiscal year 2000, a robust U.S. economy and a recovering global economy are
helping debtors meet their bond obligations.
J. Patrick Beimford
Lead Portfolio Manager
Special risk considerations are associated with investments in non-U.S.
companies, including fluctuating foreign exchange rates, foreign governmental
regulations and differing degrees of liquidity that may adversely affect the
Portfolio.
Investments by the Portfolio in lower-rated and non-rated bonds present greater
risk to principal and income than investments in higher-quality securities.
The Portfolio may engage, to a limited extent, in certain futures and options
transactions which may increase the portfolio's share price volatility. Please
see the prospectus for complete details.
Effective 5/1/2000 the Portfolio had name and investment objective changes:
Kemper Global Income Portfolio name was changed to Kemper Strategic Income
Portfolio.
147 | Kemper Variable Series --
Kemper Strategic Income Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Strategic Income Portfolio
Principal
Amount ($) Value ($)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Fixed Time Deposits 3.0%
---------------------------------------------------------------------------
Chase Euro Time Deposit, 6.375%, -----------
7/3/2000 (Cost $168,000) ..................... 168,000 168,000
-----------
---------------------------------------------------------------------------
U.S. Government & Agencies 29.6%
---------------------------------------------------------------------------
U.S. Treasury Bond:
7.5%, 11/15/2016 ............................. 260,000 293,636
8.5%, 2/21/2020 .............................. 60,000 75,244
7.5%, 11/15/2024 ............................. 160,000 186,450
U.S. Treasury Note:
7.875%, 8/15/2001 ............................ 500,000 507,345
5.625%, 12/31/2002 ........................... 150,000 147,351
6%, 8/15/2004 ................................ 455,000 450,732
---------------------------------------------------------------------------
Total U.S. Government & Agencies (Cost $1,669,708) 1,660,758
---------------------------------------------------------------------------
---------------------------------------------------------------------------
U.S. Government Agency Pass-Thrus 10.5%
---------------------------------------------------------------------------
Federal National Mortgage Association,
2.13% with various maturities to -----------
10/9/2007 (Cost $559,920) .................... 60,000,000 591,019
-----------
---------------------------------------------------------------------------
Bonds 56.9%
---------------------------------------------------------------------------
British Pounds 4.3%
General Motors Acceptance Corp.,
6.875%, 9/9/2004 ............................. 160,000 243,205
-----------
Canadian Dollars 4.3%
Government of Canada, 8.5%,
4/1/2002 ..................................... 350,000 245,955
-----------
Euro 19.6%
Depfa Pfandbrief Bank, 4.75%,
7/15/2008 .................................... 150,000 134,108
Federal Republic of Germany, 6.25%,
1/4/2024 ..................................... 155,000 159,739
Ford Motor Credit Corp., 3.75%,
7/12/2004 .................................... 260,000 229,263
French Treasury Note, 4.5%,
7/12/2003 .................................... 60,000 56,291
Government of Spain:
4.5%, 7/30/2004 .............................. 200,000 185,713
4.5%, 7/30/2004 .............................. 155,000 143,927
Rheinische Hypo Bank, 4.5%,
8/26/2003 .................................... 210,000 194,978
-----------
1,104,019
-----------
Japanese Yen 5.1%
Province of Ontario, 1.875%,
1/25/2010 .................................... 30,000,000 283,950
-----------
Principal
Amount ($) Value ($)
---------------------------------------------------------------------------
Norwegian Kroner 6.0%
Norwegian Government, 7%,
5/31/2001 .................................... 2,890,000 335,598
-----------
U.S. Dollars 17.6%
Argentine Republic, Collateralized Par
Bond, Series L, Step-up Coupon, 6%,
3/31/2023 .................................... 18,000 11,947
Banco Nacional de Comercio Exterior
S.N.C., 7.25%, 2/2/2004 ...................... 30,000 28,500
Federative Republic of Brazil
11.625%, 4/15/2004 ........................... 12,000 12,102
12.75%, 1/15/2020 ............................ 65,000 62,010
Global Bond, 10.125%, 5/15/2027 .............. 15,000 11,812
"New" Money Bond, Floating Rate
Bond, LIBOR plus .875% (7%),
4/15/2009 .................................. 15,000 12,619
Government of Jamaica, 10.875%,
6/10/2005 .................................... 10,000 9,700
Kingdom of Spain, 5.875%,
7/28/2008 .................................... 200,000 183,720
Petroleos Mexicanos S.A., 9.5%,
9/15/2027 .................................... 20,000 19,300
Petroliam Nasional BHD, 8.875%,
8/1/2004 ..................................... 6,000 6,183
Republic of Argentina:
11%, 12/4/2005 ............................... 9,000 8,505
11.75%, 4/7/2009 ............................. 5,000 4,663
12%, 2/1/2020 ................................ 65,000 60,450
Republic of Bulgaria:
Collateralized Floating Rate Interest
Reduction Bond, "A", Step-up
Coupon, 2.75%,7/28/2012 .................... 50,000 36,750
Floating Rate Bond, LIBOR plus
.8125%, (6.5%), 07/28/2011 ................. 13,000 10,254
Republic of Colombia:
7.625%, 2/15/2007 ............................ 10,000 7,250
9.75%, 4/23/2009 ............................. 7,000 5,443
Republic of Panama, Interest Reduction
Bond, Step-up Coupon 4.25% to
7/17/2000, LIBOR plus .8125% to
07/17/2014 ................................... 15,000 12,000
Republic of Peru, Floating Rate Interest
Reduction Bond, 3.75%, 3/7/2017 .............. 45,000 27,450
Republic of South Africa, 8.5%,
6/23/2017 .................................... 7,000 6,212
Republic of Turkey:
11.875%, 11/5/2004 ........................... 5,000 5,175
9.875%, 2/23/2005 ............................ 10,000 9,850
9.875%, 2/23/2005 ............................ 5,000 4,925
Republic of the Philippines, 9.875%,
1/15/2019 .................................... 13,000 10,611
Slovak Republic, 9.5%, 5/28/2003 ................ 5,000 5,037
Sunamerica Institute Fund, 5.75%,
2/16/2009 .................................... 250,000 219,135
The accompanying notes are an integral part of the financial statements.
148 | Kemper Variable Series --
Kemper Strategic Income Portfolio
<PAGE>
Principal
Amount ($) Value ($)
------------------------------------------------------------
United Kingdom Treasury Bond, 9%,
7/12/2011 ...................... 75,000 149,758
United Mexican States:
11.5%, 5/15/2026 ............... 15,000 18,000
Global Bond, 11.375%, 9/15/2016 25,000 28,625
-----------
987,986
-----------
------------------------------------------------------------
Total Bonds (Cost $3,487,863) 3,200,713
------------------------------------------------------------
------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $5,885,491) (a) 5,620,490
------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Strategic Income Portfolio of Investments
--------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $5,885,491. At June 30,
2000, net unrealized depreciation for all securities based on tax cost
was $265,001. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of value over tax cost
of $39,067 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value of
$304,068.
The accompanying notes are an integral part of the financial statements.
149 | Kemper Variable Series --
Kemper Strategic Income Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------------------
Assets
--------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $5,885,491) ........................ $ 5,620,490
Cash ......................................................................... 1,499,603
Interest receivable .......................................................... 137,736
Receivable for Portfolio shares sold ......................................... 30,927
Other assets ................................................................. 8,934
----------------
Total assets ................................................................. 7,297,690
Liabilities
--------------------------------------------------------------------------------------------
Unrealized appreciation on forward currency exchange contracts ............... 8,376
Accrued management fee ....................................................... 3,345
Other accrued expenses and payables .......................................... 6,949
----------------
Total liabilities ............................................................ 18,670
--------------------------------------------------------------------------------------------
Net assets, at value $ 7,297,690
--------------------------------------------------------------------------------------------
Net Assets
--------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 94,416
Net unrealized appreciation (depreciation) on:
Investments ................................................................ (265,001)
Foreign currency related transactions ...................................... (10,331)
Accumulated net realized gain (loss) ......................................... (216,072)
Paid-in capital .............................................................. 7,676,008
--------------------------------------------------------------------------------------------
Net assets, at value $ 7,279,020
--------------------------------------------------------------------------------------------
Net Asset Value
--------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($7,279,020 / 7,570,559
outstanding shares of beneficial interest, $.01 par value, unlimited number ------------
of shares authorized) ..................................................... $ 0.961
------------
-----------------------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
-----------------------------------------------------------------------------------------------
Investment Income
-----------------------------------------------------------------------------------------------
Income:
Dividends .................................................................... $ 109
Interest ..................................................................... 193,188
----------------
Total Income ................................................................. 193,297
----------------
Expenses:
Management fee ............................................................... 22,111
Custodian fees ............................................................... 1,196
Auditing ..................................................................... 213
Legal ........................................................................ 2,739
Trustees' fees and expenses .................................................. 6,459
Reports to shareholders ...................................................... 7,915
Registration fees ............................................................ 587
Other ........................................................................ 781
----------------
Total expenses, before expense reductions .................................... 42,001
Expense reductions ........................................................... (9,338)
----------------
Total expenses, after expense reductions ..................................... 32,663
--------------------------------------------------------------------------------------------
Net investment income (loss) 160,634
--------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
--------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................................. (29,146)
Foreign currency related transactions ........................................ 4,163
----------------
(24,983)
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................................. (38,301)
Foreign currency related transactions ........................................ (53,119)
----------------
(91,420)
--------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (116,403)
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 44,231
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
150 | Kemper Variable Series --
Kemper Strategic Income Portfolio
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
----------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
June 30, 2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) .......................................................... $ 160,634 $ 263,672
Net realized gain (loss) on investment transactions ................................... (24,983) (318,058)
Net unrealized appreciation (depreciation) on investment transactions during the period (91,420) (284,182)
------------ -------------
Net increase (decrease) in net assets resulting from operations ....................... 44,231 (338,568)
Distributions to shareholders from:
Net investment income ................................................................. (148,964) (218,189)
------------ -------------
Net realized gains .................................................................... -- (109,095)
------------ -------------
Portfolio share transactions:
Proceeds from shares sold ............................................................. 3,574,058 2,994,260
Reinvestment of distributions ......................................................... 148,964 327,284
Cost of shares redeemed ............................................................... (1,937,923) (2,080,297)
------------ -------------
Net increase (decrease) in net assets from Portfolio share transactions ............... 1,785,099 1,241,247
------------ -------------
Increase (decrease) in net assets ..................................................... 1,678,891 575,395
Net assets at beginning of period ..................................................... 5,598,654 5,023,259
Net assets at end of period (including undistributed net investment income of $94,416 ------------ -------------
and $82,746, respectively) ......................................................... $ 7,279,020 $ 5,598,654
------------ -------------
Other Information
--------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 5,678,787 4,529,726
------------ -------------
Shares sold ........................................................................... 3,722,090 2,902,609
Shares issued to shareholders in reinvestment of distributions ........................ 155,436 321,374
Shares redeemed ....................................................................... (1,985,754) (2,074,922)
------------ -------------
Net increase (decrease) in Portfolio shares ........................................... 1,891,772 1,149,061
------------ -------------
Shares outstanding at end of period ................................................... 7,570,559 5,678,787
------------ -------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997(b)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ .986 1.109 1.029 1.000
-----------------------------------
-------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-------------------------------------------------------------------------------------------------------
Net investment income (loss) .025(c) .047(c) .024 .036
-------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.025) (.110) .086 (.007)
-----------------------------------
-------------------------------------------------------------------------------------------------------
Total from investment operations -- (.063) .110 .029
-------------------------------------------------------------------------------------------------------
Less distributions from:
-------------------------------------------------------------------------------------------------------
Net investment income (.025) (.040) (.020) --
-------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.020) (.010) --
-----------------------------------
-------------------------------------------------------------------------------------------------------
Total distributions (.025) (.060) (.030) --
-------------------------------------------------------------------------------------------------------
Net asset value, end of period $ .961 .986 1.109 1.029
-----------------------------------
-------------------------------------------------------------------------------------------------------
Total Return (%) (0.06)** (5.85) 10.98 2.87**
-------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 7,278 5,599 5,023 2,145
-------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.35* 1.03 1.08 1.10*
-------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.05* 1.01 1.08 1.10*
-------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 5.15* 4.57 4.32 5.36*
-------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 76* 212 330 290*
-------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from May 1, 1997 (commencement of operations) to
December 31, 1997.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
151 | Kemper Variable Series --
Kemper Strategic Income Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper Global Blue Chip Portfolio
Throughout the six-month period, world markets struggled with the euro and yen
weakness, fluctuating liquidity, rising global interest rates and dramatic
movement in the technology sector. The Global Blue Chip Portfolio, like most of
its peers, ended the period in the red. However, it did prove more resilient
than its benchmark. We attribute this relative buoyancy to the fund's
underweighting in pure technology and overweighting in lower-priced, rather than
higher-priced, media and telecommunication. Energy stocks, under our "Ultimate
Subcontractor" theme of more traditional, stalwart companies, also contributed
to the fund's outperformance.
Despite recent market volatility, we remain confident about our "Empowered
Consumer" theme -- largely tech and tech-related companies that seek to supply
the infrastructure and content for the ever-increasing number of tech-savvy
households. The Internet enables both businesses and consumers to leap
geographic boundaries and physical barriers, creating new markets for
consumer-to-business and business-to-business commerce, and so intensifying
competition in the traditional economy. The rollout of the infrastructure that
empowers the consumer will continue, but technology share prices are at levels
that imply perfect execution. Investors will remain very sensitive to even the
slightest disappointment for a while.
Japan, our second largest geographic stake, is still subject to persistent
concern about its progress with economic reform and the resulting low levels of
investor confidence. This, together with the country's sluggish response to
fiscal stimuli, made it the weakest major market contributor for the period
overall. With that said, however, holdings in Japan still were a major
contributor to fund performance. We attribute the gains to astute stock
selection within the technology sector and so-called "old economy" companies
that are finally beginning to reap the benefits of restructuring. In the long
run, corporate restructuring will benefit the Japanese economy; in the short
term, however, we will be lightening our heavily overweighted position in Japan,
as compared with our benchmark, as the pressures of the difficult macroeconomic
position temporarily outweigh the benefits of microeconomic reform.
In an effort to reduce portfolio volatility, we are continuing to look for
opportunities in energy, and other more "traditional" sectors. We are looking
specifically for companies with pricing power or those that are likely to
benefit from corporate restructuring activity. Among our biggest winners was
Anadarko Petroleum, the U.S. oil and gas company. Throughout the period, we
added to our position in the stock as a defense, which proved successful. Rising
oil and gas prices and improved production volumes contributed to the stock's
gains.
Anadarko Petroleum serves as an example of the enormous opportunity for new
winners to emerge from today's tumultuous markets. This is a time for us to
identify them and to establish our positions in companies that are adapting
successfully to the rigors of the increasingly competitive environment that is
the wider effect of technology on the global economy.
Diego Espinosa
Lead Portfolio Manager
Special risk considerations are associated with investments in non-U.S.
companies, including fluctuating foreign exchange rates, foreign governmental
regulations and differing degrees of liquidity that may adversely affect the
Portfolio.
152 | Kemper Variable Series --
Kemper Global Blue Chip Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper Global Blue Chip Portfolio
Principal
Amount ($) Value ($)
-------------------------------------------------------------------
-------------------------------------------------------------------
Short-Term Obligations 12.7%
-------------------------------------------------------------------
Federal Home Loan Discount
Notes, 6.57%, 7/3/2000** -----------
(Cost $3,595,687) ..................... 3,597,000 3,595,687
-----------
Shares
-------------------------------------------------------------------
-------------------------------------------------------------------
Common Stocks 87.3%
-------------------------------------------------------------------
Australia 1.8%
Broken Hill Proprietary Co., Ltd. ........
(Petroleum, mineral and steel
exploration and production) ........... 20,200 238,353
Woodside Petroleum, Ltd. .................
(Producer of oil and gas) ............. 34,200 265,626
-----------
503,979
-----------
Brazil 1.6%
Aracruz Celulose S.A. (ADR)
(Producer of eucalyptus kraft pulp) ... 11,400 220,163
Companhia Vale do Rio Doce (ADR)
(Diverse mining and industrial
complex) .............................. 8,300 237,328
-----------
457,491
-----------
Canada 5.8%
Alberta Energy Co., Ltd. (Major oil
and gas producer) ..................... 13,700 553,292
Barrick Gold Corp. (Explorer and
producer of gold in North and
South America) ........................ 14,800 269,175
Canadian National Railway Co. ............
(Railroad operator) ................... 22,800 663,659
Molson Cos., Ltd. "A" (Brewery) .......... 7,500 146,637
-----------
1,632,763
-----------
Finland 1.0%
Sonera Oyj (Provider of
telecommunication services) ........... 6,200 282,239
-----------
France 4.7%
Aventis S.A. (Manufacturer of life
science products) ..................... 7,450 538,582
STMicroelectronics N.V. (Manufacturer
of semiconductor integrated
circuits) ............................. 5,357 337,068
Suez Lyonnaise des Eaux S.A ..............
(Water and electric utility) .......... 2,591 453,269
-----------
1,328,919
-----------
Germany 4.9%
BASF AG (International chemical
producer) ............................. 5,411 218,724
Commerzbank AG (Provider of
banking services) ..................... 8,356 295,546
HypoVereinsbank (Bank) ................... 5,720 371,360
Shares Value ($)
-------------------------------------------------------------------
Muenchener Rueckversicherungs-
Gesellschaft AG* (Registered)
(Insurance company) ................... 1,569 495,112
-----------
1,380,742
-----------
Italy 1.6%
Assicurazioni Generali (Multi-line
insurance and financial services
company) .............................. 12,800 438,083
-----------
Japan 13.2%
Daiwa Securities Group, Inc. .............
(Provider of brokerage and other
financial services) ................... 25,000 330,547
Fujitsu, Ltd. (Manufacturer of
computers) ............................ 7,000 242,622
Kyorin Pharmaceutical Co., Ltd. ..........
(Retailer of prescription medicines) .. 2,000 83,109
Matsushita Electric Industrial Co., Ltd. .
(Manufacturer of consumer electronic
products) ............................. 14,000 363,602
Mitsubishi Estate Co., Ltd. (Real estate
company) .............................. 21,000 247,514
Mitsui Fudosan Co., Ltd. (Real estate
company) .............................. 14,000 152,052
Nintendo Co., Ltd. (Manufacturer of
game equipment) ....................... 1,500 262,360
Nissan Motor Co., Ltd.* (Manufacturer
of motor vehicles) .................... 54,000 318,742
Sakura Bank, Ltd. (Provider of banking
services) ............................. 36,000 249,214
Sharp Corp. (Manufacturer of consumer
and industrial electronics) ........... 13,000 230,203
Sony Corp. (Manufacturer of
consumer and industrial electronic
equipment) ............................ 2,200 205,695
TDK Corp. (Manufacturer of magnetic
tapes and floppy discs) ............... 2,000 287,859
Yamada Denki Co., Ltd. (Seller and
repairer consumer electronic
equipment) ............................ 4,000 359,258
Yamanouchi Pharmaceutical Co., Ltd. ......
(Manufacturer and marketer of a wide
variety of pharmaceuticals) ........... 7,000 382,774
-----------
3,715,551
-----------
New Zealand 0.9%
ASM Lithography Holding N.V.*
(Developer, manufacturer and
marketer of photolithography
projections systems) .................. 5,704 244,815
-----------
Spain 1.1%
Repsol S.A. (Manufacturer of crude oil
and natural gas) ...................... 15,491 307,920
-----------
Switzerland 2.5%
Nestle S.A. (Registered)
(Food manufacturer) ................... 238 475,796
The accompanying notes are an integral part of the financial statements.
153 | Kemper Variable Series --
Kemper Global Blue Chip Portfolio
<PAGE>
Shares Value ($)
---------------------------------------------------------------------
Roche Holding AG (Developer and
manufacturer of pharmaceutical and
chemical products) .................... 25 243,081
-----------
718,877
-----------
United Kingdom 11.7%
British Telecom plc (Provider of
telecommunication services) ........... 23,155 300,037
Carlton Communications plc
(Television post production products
and services) ......................... 33,474 431,716
EMAP plc (Publisher of magazines) ........ 16,441 265,175
EMI Group plc (Music recording and
retailing company) .................... 28,378 258,348
National Power plc (Electricity
generation company) ................... 56,050 358,038
Prudential Corp. plc (Provider of a
broad range of financial services) .... 15,947 234,221
Rio Tinto plc (Mining company) ........... 32,680 535,522
Scottish Power plc (Electric utility) .... 52,527 446,316
Shell Transport & Trading plc
(Petroleum company) ................... 55,629 465,499
-----------
3,294,872
-----------
United States 36.5%
AT&T Corp. (Provider of
telecommunications services) .......... 9,395 297,117
AT&T Corp.-- Liberty Media Group
"A"* (Holding company of
entertainment networks) ............... 12,200 295,850
Anadarko Petroleum Corp. (Explorer
and producer of crude oil and
natural gas) .......................... 14,200 700,238
Apple Computer, Inc.* (Manufacturer
of personal computers) ................ 10,500 549,933
Azurix Corp.* (Provider of wastewater
related services) ..................... 17,200 120,400
Burlington Resources, Inc. (Explorer
and producer of crude oil and
natural gas) .......................... 10,300 393,975
Electronic Arts, Inc.* (Developer and
marketer of entertainment
software) ............................. 5,400 393,863
Electronic Data Systems Corp. ............
(Provider of information technology
systems) .............................. 5,300 218,625
Enron Corp. (Producer of natural
gas and electricity) .................. 3,800 245,100
Exxon Mobil Corp. (International oil
company) .............................. 3,100 243,350
FPL Group, Inc. (Electric energy
generation, transmission and
distribution) ......................... 7,700 381,150
Homestake Mining Co.* (International
gold producer) ........................ 21,600 148,500
Shares Value ($)
---------------------------------------------------------------------
International Business Machines
Corp. (Manufacturer of computers
and servicer of information
processing units) ..................... 3,800 416,338
Intuit, Inc.* (Leading provider of
financial software for households
and small businesses) ................. 10,600 438,575
Lockheed Martin Corp. (Manufacturer
of aircraft, missiles and space
equipment) ............................ 9,500 235,719
Motorola Inc. (Manufacturer of
telecommunication products and
semiconductors) ....................... 13,000 377,813
Nabors Industries, Inc.* (Land drilling
contractor) ........................... 3,900 162,094
Newmont Mining Corp. (International
gold exploration and mining
company) .............................. 12,000 259,500
Nextel Communications Inc.*
(Provider of telecommunication
services) ............................. 5,300 324,294
Nextel Communications, Inc. "A"*
(Provider of telecommunication
services) ............................. 3,600 220,275
Northrop Grumman Corp. ...................
(Manufacturer of aircraft, aircraft
assemblies and electronic systems for
military and commercial use) .......... 3,600 238,500
Peco Energy Co. (Provider of electric
and gas utility) ...................... 8,000 322,500
ProLogis Trust (REIT) (Global owner of
corporate distribution facilities) .... 15,700 334,606
Progressive Corp. (Provider of property
and casualty insurance) ............... 6,800 503,200
SBC Communications, Inc. (Provider of
telecommunication services) ........... 9,400 406,550
Sabre Group Holdings, Inc. "A"
(Provider of online travel reservation
capabilities) ......................... 15,700 447,450
Sun Microsystems, Inc.* (Manufacturer
of high-performance workstations,
servers and software) ................. 3,300 300,094
USEC, Inc. (Provider of enriched
uranium products and services) ........ 6,400 29,600
USX-US Steel Group, Inc. (Integrated
steel producer) ....................... 8,800 163,350
Unicom Corp. (Electric utility) .......... 9,000 348,188
UNUMProvident Corp. (Provider of
group disability and special risk
insurance) ............................ 12,100 242,756
Viacom, Inc. "B"* (Diverse
entertainment and communications
company) .............................. 8,000 545,500
-----------
10,305,003
-----------
---------------------------------------------------------------------
Total Common Stocks (Cost $22,944,740) 24,611,254
---------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $26,540,427) (a) 28,206,941
---------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
154 | Kemper Variable Series --
Kemper Global Blue Chip Portfolio
<PAGE>
--------------------------------------------------------------------------------
At June 30, 2000, the Kemper Global Blue Chip Portfolio had the following
industry diversification:
--------------------------------------------------------------------------------
Industry Value Percent
--------------------------------------------------------------------------------
Technology ................................ $ 3,707,767 13.1%
Consumer Discretionary .................... 520,708 1.8
Communications ............................ 1,830,512 6.5
Financial ................................. 3,894,211 13.8
Energy .................................... 3,337,094 11.8
Metals and Minerals ....................... 1,881,328 6.7
Media ..................................... 1,538,241 5.5
Manufacturing ............................. 1,004,736 3.6
Consumer Staples .......................... 828,128 2.9
Utilities ................................. 2,309,461 8.2
Transportation ............................ 663,659 2.4
Health .................................... 936,552 3.3
Service Industries ........................ 1,145,733 4.1
Durables .................................. 792,961 2.8
Construction .............................. 220,163 0.8
--------------------------------------------------------------------------------
Total Common Stocks 24,611,254 87.3
--------------------------------------------------------------------------------
Money Market Instruments .................. 3,595,687 12.7
--------------------------------------------------------------------------------
Total Investment Portfolio $28,206,941 100.0%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper Global Blue Chip Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $26,540,427. At June 30,
2000, net unrealized appreciation for all securities based on tax cost
was $1,666,514. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $2,760,024 and aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over value
of $1,093,510.
The accompanying notes are an integral part of the financial statements.
155 | Kemper Variable Series --
Kemper Global Blue Chip Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
Assets
---------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $26,540,427) ....................... $ 28,206,941
Cash ......................................................................... 74,070
Foreign currency, at value (cost $11,818) .................................... 11,796
Receivable for investments sold .............................................. 396,369
Dividends receivable ......................................................... 24,963
Receivable for Portfolio shares sold ......................................... 87,168
Foreign taxes recoverable .................................................... 10,572
Unrealized appreciation on forward currency exchange contracts ............... 60
Due from Adviser ............................................................. 88,313
----------------
Total assets ................................................................. 28,900,252
Liabilities
---------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 1,646,715
Payable for Portfolio shares redeemed ........................................ 27
Unrealized depreciation on forward currency exchange contracts ............... 402
Other accrued expenses and payables .......................................... 101,162
----------------
Total liabilities ............................................................ 1,748,306
---------------------------------------------------------------------------------------------
Net assets, at value $ 27,151,946
---------------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 62,531
Net unrealized appreciation (depreciation) on:
Investments ............................................................... 1,666,514
Foreign currency related transactions ..................................... (225)
Accumulated net realized gain (loss) ......................................... 999,533
Paid-in capital .............................................................. 24,423,593
---------------------------------------------------------------------------------------------
Net assets, at value $ 27,151,946
---------------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($27,151,946 / 22,418,518
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized) ..................................................... $ 1.211
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
156 | Kemper Variable Series --
Kemper Global Blue Chip Portfolio
<PAGE>
------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
------------------------------------------------------------------------------
Investment Income
------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $8,316) ............ $ 157,568
Interest ....................................................... 47,414
----------------
Total Income ................................................... 204,982
----------------
Expenses:
Management fee ................................................. 90,696
Custodian and accounting fees .................................. 96,412
Auditing ....................................................... 2,317
Legal .......................................................... 3,609
Trustees' fees and expenses .................................... 13,209
Reports to shareholders ........................................ 3,835
Registration fees .............................................. 2,808
Amortization of organization expenses .......................... 512
Other .......................................................... 4,699
----------------
Total expenses, before expense reductions ...................... 218,097
Expense reductions ............................................. (51,719)
----------------
Total expenses, after expense reductions ....................... 166,378
------------------------------------------------------------------------------
Net investment income (loss) 38,604
------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 1,204,146
Foreign currency related transactions .......................... (51,655)
----------------
1,152,491
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (1,210,468)
Foreign currency related transactions .......................... (183)
----------------
(1,210,651)
------------------------------------------------------------------------------
Net gain (loss) on investment transactions (58,160)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (19,556)
------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
157 | Kemper Variable Series --
Kemper Global Blue Chip Portfolio
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
June 30, 2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................ $ 38,604 $ 36,270
Net realized gain (loss) on investment transactions ..................................... 1,152,491 153,170
Net unrealized appreciation (depreciation) on investment transactions during the period . (1,210,651) 2,729,940
--------------- ---------------
Net increase (decrease) in net assets resulting from operations ......................... (19,556) 2,919,380
Distributions to shareholders from:
Net realized gains ...................................................................... (258,443) (17,292)
--------------- ---------------
Portfolio share transactions:
Proceeds from shares sold ............................................................... 10,815,029 12,326,198
Reinvestment of distributions ........................................................... 258,443 17,292
Cost of shares redeemed ................................................................. (1,052,551) (1,420,390)
--------------- ---------------
Net increase (decrease) in net assets from Portfolio share transactions ................. 10,020,921 10,923,100
--------------- ---------------
Increase (decrease) in net assets ....................................................... 9,742,922 13,825,188
Net assets at beginning of period ....................................................... 17,409,024 3,583,836
Net assets at end of period (including undistributed net investment income of $62,531 --------------- ---------------
and $23,927, respectively) ........................................................... $ 27,151,946 $ 17,409,024
--------------- ---------------
Other Information
------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................... 14,068,294 3,660,806
--------------- ---------------
Shares sold ............................................................................. 9,009,065 11,724,188
Shares issued to shareholders in reinvestment of distributions .......................... 209,895 16,883
Shares redeemed ......................................................................... (868,736) (1,333,583)
--------------- ---------------
Net increase (decrease) in Portfolio shares ............................................. 8,350,224 10,407,488
--------------- ---------------
Shares outstanding at end of period ..................................................... 22,418,518 14,068,294
--------------- ---------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Year Ended December 31, 2000(a) 1999 1998(b)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $1.237 .979 1.000
---------------------------
-------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-------------------------------------------------------------------------------------------------
Net investment income (loss) .002(c) .004(c) .003
-------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.013) .257 (.024)
---------------------------
-------------------------------------------------------------------------------------------------
Total from investment operations (.011) .261 (.021)
-------------------------------------------------------------------------------------------------
Less distributions from:
-------------------------------------------------------------------------------------------------
Net investment income -- (.003) --
-------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (.015) -- --
---------------------------
-------------------------------------------------------------------------------------------------
Total distributions (.015) (.003) --
-------------------------------------------------------------------------------------------------
Net asset value, end of period $1.211 1.237 .979
---------------------------
-------------------------------------------------------------------------------------------------
Total Return (%) (.93)** 26.70 (2.10)**
-------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 27,152 17,409 3,584
-------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.19* 3.47 12.32*
-------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.56* 1.56 1.56*
-------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 36* .39 .91*
-------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 63* 65 67*
-------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from May 5, 1998 (commencement of operations) to
December 31, 1998.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
158 | Kemper Variable Series --
Kemper Global Blue Chip Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper New Europe Portfolio
On a relative basis, Kemper New Europe Portfolio's performance was strong
despite a challenging investment environment marked by extreme volatility and
euro weakness; it proved more resilient than our benchmark, the MSCI Europe
Index. Many of the fund's top holdings struggled in the wake of the global
correction in the technology, media and telecommunications sectors. Licensing
concerns in the United Kingdom also put downward pressure on telecom operators,
and media stocks retreated after strong gains earlier in the year. As a
defensive measure, we have trimmed our exposure to these sectors, though we
remain optimistic. Sector fundamentals are excellent and many companies are
aggressively exploiting opportunities created by booming advertising demand,
media convergence potential and consolidation.
Additionally, we have increased exposure to positions in banks and financial
companies with strong fundamentals that we believe can withstand the pressure of
rising interest rates. We also increased our weighting in utility stocks.
The European macroenvironment is positive, with growth for the euro-zone
expected to expand at a rate of 3.5 percent in 2000, the fastest pace in a
decade. Germany's economy, which accounts for roughly a third of the region's
economy, appears quite healthy. Stronger growth is generating jobs, and
countries like Germany and Italy are reporting the lowest level of unemployment
in years. Consumer confidence is high and business investment has accelerated.
There is some evidence that inflation is rising in the euro-zone on the back of
higher oil prices, and with a weak euro pushing the cost of imports, businesses
are passing the higher costs to customers. We believe that this uptick in
inflation should be offset to a certain extent by ongoing deregulation of
telecom, gas and utilities, in addition to tech-driven improvements in
productivity. We do not expect that recent European Central bank tightenings
will be a major deterrent to growth.
On a sectoral basis, we are particularly positive on oil for the following
reasons: a buoyant global demand/supply picture, restructuring and cost-cutting
potential, improved margins on the refining side, strong cash flow, and the
announcement of share buybacks. We also see select opportunities in the banking
sector.
We believe that European markets will remain lackluster over the summer months.
Despite downward pressure on share prices in the recent market volatility,
valuations in certain sectors are still stretched in a rising interest-rate
environment. Nonetheless, Europe is an exciting investment arena over the medium
term. Globalization and the single market continue to drive corporate
restructuring and consolidations. Governments are moving toward badly needed tax
and pension reform. Fostered by deregulation and a developing entrepreneurial
culture, new companies are coming to market. Against this backdrop, our
portfolio is diversified to help balance the risks and capture the rewards of
the current investment landscape.
Carol L. Franklin
Lead Portfolio Manager
Special risk considerations are associated with investments in non-U.S.
companies, including fluctuating foreign exchange rates, foreign governmental
regulations and differing degrees of liquidity that may adversely affect the
Portfolio.
Effective 5/1/2000 the Portfolio had name and investment objective changes:
Kemper International Growth And Income Portfolio name was changed to Kemper New
Europe Portfolio.
The accompanying notes are an integral part of the financial statements.
159 | Kemper Variable Series --
Kemper New Europe Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper New Europe Portfolio
Principal
Amount ($) Value ($)
-----------------------------------------------------------------
-----------------------------------------------------------------
Short-Term Obligations 6.8%
-----------------------------------------------------------------
Federal Home Loan Discount Notes, -----------
6.57%, 7/3/2000** (Cost $670,755) ..... 671,000 670,755
-----------
-----------------------------------------------------------------
Convertible Bonds 1.0%
-----------------------------------------------------------------
Merrill Lynch & Co., 2%, 4/14/2004 -----------
(Cost $111,783) ....................... 114,000 100,035
-----------
Shares
-----------------------------------------------------------------
-----------------------------------------------------------------
Common Stocks 92.2%
-----------------------------------------------------------------
Belgium 1.5%
Dexia (Provider of municipal lending
services) ............................. 932 9
Dexia (Offeror of municipal lending
services) ............................. 987 150,553
-----------
150,562
-----------
Finland 4.8%
Kone Oyj, "B" (Manufacturer of
elevators) ............................ 980 58,860
Nokia Oyj (International
telecommunications company) ........... 6,300 321,026
Sonera Oyj (Provider of
telecommunication services) ........... 2,100 95,597
-----------
475,483
-----------
France 18.8%
Accor S.A. (Operator of hotels,
travel agencies and restaurants) ...... 1,261 51,609
Alcatel (Manufacturer of
telecommunications equipment) ......... 3,360 220,064
Altran Technologies S.A ..................
(Provider of engineering and
consulting services) .................. 256 50,056
Aventis S.A. (Manufacturer of life
science products) ..................... 2,570 187,311
Banque Nationale de Paris (Bank) ......... 1,262 121,275
Bouygues S.A. (Conglomerate:
public works, real estate and
industrial development, engineering
services, television and motion
pictures) ............................. 123 82,083
Cap Gemini S.A. (Provider of computer
consulting services) .................. 260 45,732
Galeries Lafayette (Department
store chain) .......................... 547 110,815
Lafarge Warrant (expires 3/20/2001)
(Producer of building materials)* ..... 333 1,111
Lagardere S.C.A. (Holding company
with interests in publishing,defense,
audiovisual production and services,
telecommunications and media) ......... 1,677 127,901
Legrand S.A. (Manufacturer of
low-voltage electrical devices) ....... 215 48,168
Shares Value ($)
-----------------------------------------------------------------
Publicis S.A. (International advertising
company) .............................. 69 27,036
STMicroelectronics N.V. (Manufacturer
of semiconductor integrated
circuits) ............................ 2,945 185,303
Schneider Electric S.A. (Manufacturer of
electronic components and
automated manufacturing systems) ...... 2,185 152,064
Suez Lyonnaise des Eaux S.A ..............
(Water and electric utility) .......... 960 167,942
Total Fina ELF S.A. "B" (Explorer,
developer, producer, transporter and
marketer of oil and natural gas) ...... 1,830 280,188
-----------
1,858,658
-----------
Germany 15.9%
Allianz AG (Multi-line insurance
company) .............................. 367 132,779
BASF AG (International chemical
producer) ............................. 1,205 48,709
Bayer AG (Chemical producer) ............. 1,493 58,073
Commerzbank AG (Provider of
banking services) ..................... 2,076 73,427
Deutsche Bank AG (Registered)
(Provider of financial services) ...... 1,308 107,365
Deutsche Telekom AG
(Telecommunication services) .......... 1,040 58,993
Dresdner Bank AG (Provider of
banking services) ..................... 1,973 81,634
Epcos AG (Producer of electronic
components and integrated
circuits)* ............................ 1,040 104,602
HypoVereinsbank (Bank) ................... 1,632 105,955
Marschollek, Lautenschlaeger und
Partner AG (Independent life
insurance company) .................... 415 207,315
Muenchener Rueckversicherungs-
Gesellschaft AG (Registered)
(Insurance company) ................... 331 104,450
SAP AG (Computer software
manufacturer) ......................... 654 96,953
Schering AG (Pharmaceutical and
chemical producer) .................... 2,870 158,695
Siemens AG (Electrical engineering
and electronics company) .............. 1,565 234,989
-----------
1,573,939
-----------
Italy 4.1%
Assicurazioni Generali (Multi-line
insurance and financial services
company) .............................. 3,500 119,788
Banco Intesa SpA (Bank) .................. 32,425 144,979
ENI SpA (Explorer and distributor of
petroleum products) ................... 8,600 49,603
Saipem SpA (International contractor in
oil and gas exploration and drilling,
construction of refineries and
pipelines) ............................ 12,500 73,885
San Paolo SpA (Personal, investment
and commercial banking) ............... 800 14,178
-----------
402,433
-----------
The accompanying notes are an integral part of the financial statements.
160 | Kemper Variable Series --
Kemper New Europe Portfolio
<PAGE>
Shares Value ($)
-------------------------------------------------------------------
Netherlands 10.8%
ABN AMRO Holding N.V. (Diversified
financial services) ................... 2,980 72,900
Akzo Nobel N.V. (Producer and
marketer of healthcare products,
coatings, chemicals and fibers) ....... 3,540 150,181
ING Groep NV (Provider of insurance
and financial services) ............... 730 49,274
Koninklijke Philips Electronics N.V ......
(Diversifed manufacturer) ............. 4,560 214,755
Koninklinjke Kpn NV (Provider of
telecommunications services) .......... 4,100 183,124
Qiagen NV (Biopharmaceutical
company)* ............................. 300 52,200
Royal Dutch Petroleum Co. ................
(Petroleum company) ................... 4,240 263,147
VNU NV (International publishing
company) .............................. 1,600 82,522
-----------
1,068,103
-----------
Spain 6.7%
Banco Popular Espanol SA (Retail
banking networks throughout
Europe) ............................... 4,100 126,643
Cortefiel SA (Owner and operator of
various retail clothing stores) ....... 3,470 75,161
Grupo Prisa, S.A. (Media company) ........ 908 21,035
Repsol SA (Manufacturer of crude
oil and natural gas) .................. 3,000 59,632
Telefonica S.A.* (Provider of
telecommunication services)* .......... 9,450 202,706
Union Electrica Fenosa S.A. (Producer
and distributor of electrical energy) . 10,131 183,026
-----------
668,203
-----------
Sweden 2.1%
Ericsson LM-B Shs (Producer of
advanced systems and products
for wired and mobile
communications.) ...................... 10,355 205,574
-----------
Switzerland 5.1%
ABB, Ltd. (Manufacturer of equipment
for power generation and
distribution) ......................... 717 85,718
Credit Suisse Group (Registered)
(Provider of universal banking and
financial services) ................... 457 90,801
Nestle SA (Registered) (Food
manufacturer) ......................... 94 187,919
Novartis AG (Registered)
(Pharmaceutical company) .............. 42 66,451
Roche Holding AG (Developer and
manufacturer of pharmaceutical and
chemical products) .................... 8 77,786
-----------
508,675
-----------
Shares Value ($)
-------------------------------------------------------------------
United Kingdom 22.4%
Aegis Group plc (Independent media
services group)* ...................... 25,625 75,429
BOC Group plc (Divisified
chemical company) ..................... 4,510 65,009
BP Amoco plc (Integrated world oil
company) .............................. 17,500 168,345
Barclays plc (Commercial and
investment banking, insurance and
other financial services) ............. 4,200 104,703
Billiton plc (Resource group that
explores, produces and markets
aluminum and other metal products) .... 15,050 61,427
British Aerospace plc (Producer of
military aircraft) .................... 16,938 105,884
British Telecom plc (Provider of
telecommunication services) ........... 3,415 44,251
Cable and Wireless plc (International
telecommunication services in the
United Kingdom and Hong Kong) ......... 2,730 46,352
Compass Group plc (International
catering group) ....................... 4,460 58,908
Diageo plc (Producer and distributor of
food products, beer and liquor; owner
of fast food restaurants) ............. 13,590 122,277
EMI Group plc (Music recording and
retailing company) .................... 14,200 129,274
Glaxo Wellcome plc (Pharmaceutical
company) .............................. 3,100 90,639
HSBC Holdings plc (International
banking and financial services
company) .............................. 8,400 96,170
J Sainsbury plc (Retail distributor of
food through supermarkets) ............ 22,840 103,965
Lasmo plc (Oil production and
exploration) .......................... 81,932 174,663
National Power plc (Electricity
generation company) ................... 18,000 114,981
Prudential Corp. plc (Provider of a
broad range of financial services) .... 7,120 104,575
Rio Tinto plc (Mining company) ........... 3,720 60,959
Royal & Sun Alliance Insurance Group
plc (Insurance company) ............... 15,815 102,943
Serco Group plc (Facilities management
company) .............................. 9,390 73,374
SmithKline Beecham plc (Manufacturer
of ethical drugs and healthcare
products) ............................. 7,600 99,747
Vodafone AirTouch plc (Provider of
mobile telecommunication services) .... 23,680 95,932
Zeneca Group plc (Manufacturer of
pharmaceutical and agrochemical
products and specialty chemicals) ..... 2,425 113,511
-----------
2,213,318
-----------
-------------------------------------------------------------------
Total Common Stocks (Cost $8,907,198) 9,124,948
-------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $9,689,736) (a) 9,895,738
-------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
161 | Kemper Variable Series --
Kemper New Europe Portfolio
<PAGE>
--------------------------------------------------------------------------------
At June 30, 2000, the Kemper New Europe Portfolio had the following industry
diversification:
--------------------------------------------------------------------------------
Industry Value Percent
--------------------------------------------------------------------------------
Financial ................................... $2,211,751 22.4%
Manufacturing .............................. 1,468,552 14.8
Communications ............................. 1,429,527 14.5
Technology ................................. 538,922 5.4
Consumer Discretionary ..................... 1,167,041 11.9
Metals and Minerals ........................ 122,386 1.2
Energy ..................................... 1,069,463 10.8
Utilities .................................. 465,949 4.7
Construction ............................... 83,194 0.8
Durables ................................... 220,064 2.2
Health ..................................... 448,134 4.5
--------------------------------------------------------------------------------
Total 9,224,983 93.2
--------------------------------------------------------------------------------
Money Market Instruments ................... 670,755 6.8
--------------------------------------------------------------------------------
Total Investment Portfolio $9,895,738 100.0%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper New Europe Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $9,689,736. At June 30,
2000, net unrealized appreciation for all securities based on tax cost
was $206,002. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of value over tax cost
of $484,089 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value of
$278,087.
The accompanying notes are an integral part of the financial statements.
162 | Kemper Variable Series --
Kemper New Europe Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
Assets
---------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $9,689,736) ........................ $ 9,895,738
Cash ......................................................................... 8,738
Foreign currency, at value (cost $2,840) ..................................... 2,840
Receivable for investments sold .............................................. 253,325
Dividends receivable ......................................................... 14,550
Interest receivable .......................................................... 488
Receivable for Portfolio shares sold ......................................... 77,449
Foreign taxes recoverable .................................................... 14,542
Unrealized appreciation on forward currency exchange contracts ............... 78
Due from Adviser ............................................................. 166,119
Other assets ................................................................. 29
----------------
Total assets ................................................................. 10,433,896
Liabilities
---------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 170,655
Payable for Fund shares redeemed ............................................. 31,440
Unrealized depreciation on forward currency exchange contracts ............... 1,666
Organization fees ............................................................ 11,000
Other accrued expenses and payables .......................................... 14,945
----------------
Total liabilities ............................................................ 229,706
---------------------------------------------------------------------------------------------
Net assets, at value $ 10,204,190
---------------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 294,275
Net unrealized appreciation (depreciation) on:
Investments .................................................................. 206,002
Foreign currency related transactions ........................................ (434)
Accumulated net realized gain (loss) ......................................... 94,311
Paid-in capital .............................................................. 9,610,036
---------------------------------------------------------------------------------------------
Net assets, at value $ 10,204,190
---------------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($10,204,190 / 10,097,737
outstanding shares of beneficial interest, $.01 par value, unlimited number -------------
of shares authorized) ..................................................... $ 1.010
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
163 | Kemper Variable Series --
Kemper New Europe Portfolio
<PAGE>
----------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
----------------------------------------------------------------------------
Investment Income
----------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $6,641) ............ $ 321,758
Interest ....................................................... 23,277
----------------
Total Income ................................................... 345,035
----------------
Expenses:
Management fee ................................................. 40,544
Custodian and accounting fees .................................. 29,809
Auditing ....................................................... 1,076
Legal .......................................................... 2,746
Trustees' fees and expenses .................................... 5,038
Reports to shareholders ........................................ 5,642
Registration fees .............................................. 1,192
Other .......................................................... 322
----------------
Total expenses, before expense reductions ...................... 86,369
Expense reductions ............................................. (40,852)
----------------
Total expenses, after expense reductions ....................... 45,517
----------------------------------------------------------------------------
Net investment income (loss) 299,518
----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
----------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 125,789
Foreign currency related transactions .......................... (1,339)
----------------
124,450
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (481,230)
Foreign currency related transactions .......................... (181)
----------------
(481,411)
----------------------------------------------------------------------------
Net gain (loss) on investment transactions (356,961)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (57,443)
----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
164 | Kemper Variable Series --
Kemper New Europe Portfolio
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
June 30, 2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................. $ 299,518 $ 68,621
Net realized gain (loss) on investment transactions ...................................... 124,450 93,869
Net unrealized appreciation (depreciation) on investment transactions during the period .. (481,411) 633,738
-------------- -------------
Net increase (decrease) in net assets resulting from operations .......................... (57,443) 796,228
Distributions to shareholders from:
Net investment income .................................................................... (23,644) (51,177)
-------------- -------------
Net realized gains ....................................................................... (23,647) --
-------------- -------------
Portfolio shares transactions:
Proceeds from shares sold ................................................................ 6,153,246 9,523,749
Reinvestment of distributions ............................................................ 47,291 51,177
Cost of shares redeemed .................................................................. (2,568,150) (6,646,496)
-------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions .................. 3,632,387 2,928,430
-------------- -------------
Increase (decrease) in net assets ........................................................ 3,527,653 3,673,481
Net assets at beginning of period ........................................................ 6,676,537 3,003,056
Net assets at end of period (including undistributed net investment income of $294,275 and -------------- -------------
$18,401, respectively) ................................................................ $ 10,204,190 $ 6,676,537
-------------- -------------
Other Information
-------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ................................................ 6,453,838 3,294,058
-------------- -------------
Shares sold .............................................................................. 6,154,489 10,350,608
Shares issued to shareholders in reinvestment of distributions ........................... 45,722 56,319
Shares redeemed .......................................................................... (2,556,312) (7,247,147)
-------------- -------------
Net increase (decrease) in Portfolio shares .............................................. 3,643,899 3,159,780
-------------- -------------
Shares outstanding at end of period ...................................................... 10,097,737 6,453,838
-------------- -------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Year Ended December 31, 2000(a) 1999 1998(b)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $1.035 .912 1.000
---------------------------
-------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-------------------------------------------------------------------------------------------------
Net investment income (loss) .036(c) .013(c) .003
-------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.055) .115 (.091)
---------------------------
-------------------------------------------------------------------------------------------------
Total from investment operations (.019) .128 (.088)
-------------------------------------------------------------------------------------------------
Less distributions from:
-------------------------------------------------------------------------------------------------
Net investment income (.003) (.005) --
-------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.003) -- --
-------------------------------------------------------------------------------------------------
Total distributions (.006) (.005) --
-------------------------------------------------------------------------------------------------
Net asset value, end of period $1.010 1.035 .912
---------------------------
-------------------------------------------------------------------------------------------------
Total Return (%) (1.76)** 14.09 (8.80)**
-------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 10,204 6,677 3,003
-------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.13* 4.30 19.55*
-------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.12* 1.10 1.13*
-------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 6.39* 1.44 1.13*
-------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 119* 146 100*
-------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) For the period from May 5, 1998 (commencement of operations) to
December 31, 1998.
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
165 | Kemper Variable Series --
Kemper New Europe Portfolio
<PAGE>
Management Summary
--------------------------------------------------------------------------------
June 30, 2000
Kemper International Portfolio
The broad correction in global equity markets that began toward the end of the
first quarter continued into the second. The environment for international
equities proved challenging, as persistent bouts of heightened volatility
whipped markets. High growth "new-economy" sectors such as technology, media and
telecommunications (TMT) particularly suffered a sharp sell off. Concerns about
interest-rate hikes in the United States, Europe and even Japan combined with
uncertain growth prospects in these markets, led to a more cautious overall
investment environment. This generally benefited the performance of a number of
traditionally defensive sectors such as pharmaceuticals, food producers and
utilities.
In this environment, Kemper International Portfolio underperformed its
benchmark, the MSCI EAFE index, which is consistent with the sharp switch in
investor sentiment away from the higher growth, higher valuation TMT sectors in
favor of more traditional, value-oriented sectors. The unexpectedly high price
paid in the United Kingdom for next-generation telecom spectrum had a negative
impact on most European telecom operators, including a number of our holdings.
We were also hurt by declines in electronic-components suppliers. These declines
were partially offset by strong performance among our telecom equipment
suppliers and Japanese electricals. Our positions in pharmaceuticals,
commodities and financials also helped.
We continued the process of reducing our exposure to those areas where
valuations had become less fundamentally grounded, particularly in TMT. Our
actions do not reflect a view that the tech innovation is about to end, though.
We continue to commit funds to this area, but are placing greater emphasis on
blue chip companies where we feel growth prospects are still undervalued. Our
increased stake in telecom infrastructure providers is an example of this
strategy.
We've also reduced our exposure to the more economically sensitive areas of our
portfolio, as it became clearer that the central banks in the United States, and
to a lesser extent Europe, are committed to slowing economic growth. This
changed the risk/reward profile of some of our more cyclical holdings.
The funds were largely redeployed to European financials. Financials, banks in
particular, had declined significantly over the past couple years. As further
consolidation hopes had died down, the Internet threatened the demise of
traditional banking models and interest rates were on the rise. We suspect that
this news is now fully discounted. In addition, there has been growing evidence
that the restructuring is once again picking up pace, and quality management has
been able to define promising strategies to use the Internet to their advantage.
Irene Cheng
Lead Portfolio Manager
Special risk considerations are associated with investments in non-U.S.
companies, including fluctuating foreign exchange rates, foreign governmental
regulations and differing degrees of liquidity that may adversely affect the
Portfolio.
166 | Kemper Variable Series --
Kemper International Portfolio
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Kemper International Portfolio
Principal
Amount ($) Value ($)
--------------------------------------------------------------------
--------------------------------------------------------------------
Short-Term Obligations 1.6%
--------------------------------------------------------------------
Federal Home Loan Discount Notes,
6.57%, 7/3/2000** -----------
(Cost $3,498,723) ..................... 3,500,000 3,498,723
-----------
--------------------------------------------------------------------
Fixed Time Deposits 0.1%
--------------------------------------------------------------------
Chase Euro Time Deposit, 6.375%, -----------
7/3/2000 (Cost $161,000) .............. 161,000 161,000
-----------
--------------------------------------------------------------------
Bonds 0.0%
--------------------------------------------------------------------
United Kingdom
British Aerospace plc, 7.45%,
11/30/2003 (Producer of military -----------
aircraft) (Cost $27,000) .............. 26,329 38,751
-----------
Shares
--------------------------------------------------------------------
--------------------------------------------------------------------
Common Stocks 98.3%
--------------------------------------------------------------------
Australia 1.6%
Broken Hill Proprietary Co., Ltd. ........
(Petroleum, mineral and steel
exploration and production) ........... 142,500 1,681,449
WMC Ltd. (Mineral exploration and
production) ........................... 263,500 1,176,460
Woodside Petroleum, Ltd. (Producer of
oil and gas) .......................... 82,100 637,658
-----------
3,495,567
-----------
Canada 1.7%
Canadian National Railway Co. ............
(Railroad operator) ................... 63,400 1,845,438
Nortel Networks Corp. (Provider of
telephony, data and wireless
products) ............................. 25,900 1,796,400
-----------
3,641,838
-----------
Finland 1.5%
Nokia Oyj (International
telecommunications company) ........... 64,700 3,296,888
-----------
France 19.2%
AXA S.A. (Insurance group providing
insurance, finance and real estate
services) ............................. 12,466 1,960,936
Alcatel (Manufacturer of
telecommunications equipment) ......... 53,310 3,491,545
Aventis S.A. (Manufacturer of life
science products) ..................... 58,469 4,261,430
Banque Nationale de Paris (Bank) ......... 26,511 2,547,645
Bouygues S.A. (Conglomerate: public
works, real estate and industrial
development, engineering services,
television and motion pictures) ....... 2,411 1,608,968
Shares Value ($)
--------------------------------------------------------------------
Christian Dior S.A. (Fashion house) ...... 8,948 2,026,011
Credit Lyonnais S.A. (Provider of
diversified banking services) ......... 41,510 1,970,763
Dassault Systemes S.A. (Computer
aided design, manufacturing and
engineering software) ................. 8,771 816,951
Etablissements Economiques du Casino
Guichard-Perrachon S.A. (Operator
of supermarkets and convenience
stores) ............................... 20,900 1,282,174
Eurotunnel S.A.* (Designer, financer and
constructor of a tunnel that runs
under the English Channel and
connects England to France) ........... 1,665,168 1,508,113
Lagardere S.C.A. (Holding company
with interests in publishing, defense,
audiovisual production and services,
telecommunications and media) ......... 12,133 925,359
Pinault-Printemps-Redoute S.A ............
(Operator of department stores) ....... 10,629 2,357,985
Rhodia S.A. (Drug manufacturer and
chemicals specialist) ................. 99,182 1,664,170
STMicroelectronics N.V. (Manufacturer
of semiconductor integrated
circuits) ............................. 60,387 3,799,615
Schneider Electric S.A. (Manufacturer of
electronic components and
automated manufacturing systems) ...... 16,314 1,135,365
Societe BIC S.A. (Manufacturer of office
supplies) ............................. 33,995 1,662,588
Suez Lyonnaise des Eaux S.A. (Water
and electric utility) ................. 17,146 2,999,516
Total Fina ELF S.A. "B" (Explorer,
developer, producer, transporter and
marketer of oil and natural gas) ...... 34,178 5,232,924
-----------
41,252,058
-----------
Germany 11.0%
Allianz AG (Multi-line insurance
company) .............................. 6,772 2,450,084
Bayer AG (Chemical producer) ............. 48,138 1,872,408
Celanese AG (Manufacturer and
distributor of industrial chemicals) .. 5,076 98,236
Commerzbank AG (Provider of
banking services) ..................... 23,720 838,959
Deutsche Telekom AG
(Telecommunication services) .......... 16,580 940,489
Dresdner Bank AG (Provider of
banking services) ..................... 27,128 1,122,431
ERGO Versicherungs Gruppe AG
(Insurance provider) .................. 8,432 954,187
Epcos AG (Producer of electronic
components and integrated
circuits) ............................. 21,694 2,181,948
HypoVereinsbank (Bank) ................... 34,075 2,212,255
Muenchener Rueckversicherungs-
Gesellschaft AG (Registered)
(Insurance company) ................... 7,360 2,322,512
SAP AG (Manufacturer of computer
software) ............................. 5,688 1,051,995
The accompanying notes are an integral part of the financial statements.
167 | Kemper Variable Series --
Kemper International Portfolio
<PAGE>
Shares Value ($)
------------------------------------------------------------------
Siemens AG (Electrical engineering
and electronics company) .............. 21,166 3,178,130
VEBA AG (Electric utility, distributor of
oil and chemicals) .................... 92,341 4,524,910
-----------
23,748,544
-----------
Hong Kong 1.4%
China Telecom Ltd.* (Provider of cellular
telecommunication services) ........... 150,000 1,322,862
Hutchison Whampoa, Ltd. ..................
(Diversified investment holding
company) .............................. 79,200 995,639
Legend Holdings Ltd. (Manufacturer of
computers and related products) ....... 440,000 426,138
Li & Fung Ltd. (Exporter of consumer
products) ............................. 56,000 280,158
-----------
3,024,797
-----------
Italy 6.1%
Alleanza Assicurazioni SpA
(Life insurance company) .............. 61,100 812,583
Assicurazioni Generali (Multi-line
insurance and financial services
company) .............................. 69,300 2,371,810
Banco Intesa SpA (Bank) .................. 448,464 2,005,177
Holding di Partecipazioni Industraili
SpA (Holding company) ................. 410,300 547,623
Mediobanca SpA (Provider of loans
and credit to manufacturing and
service firms) ........................ 229,800 2,366,061
Riunione Adriatica di Sicurta SpA
(Insurance company) ................... 81,750 896,268
San Paolo-- IMI SpA. (Personal,
investment and commercial
banking) .............................. 102,900 1,823,673
Seat Pagine Gialle SpA (Publisher of
telecommunications directories) ....... 651,200 2,247,373
-----------
13,070,568
-----------
Japan 24.7%
Advantest Corp. (Producer of measuring
instruments and semiconductor
testing devices) ...................... 5,200 1,161,449
Benesse Corp. (Provider of educational
services) ............................. 8,000 555,319
Chugai Pharmaceutical Co., Ltd. ..........
(Pharmaceutical company) .............. 107,000 2,026,113
DDI Corp. (Provider of
telecommunication services) ........... 93 895,878
Daiwa Securities Group, Inc. (Provider
of brokerage and other financial
services) ............................. 106,000 1,401,520
East Japan Railway Co. (Railroad
operator) ............................. 362 2,105,983
Fuji Bank, Ltd. (Provider of
commercial banking services) .......... 238,000 1,811,664
Fujisawa Pharmaceutical Co. ..............
(Manufacturer and marketer of
antibiotics) .......................... 17,000 688,766
Fujitsu, Ltd. (Manufacturer of
computers) ............................ 89,000 3,084,762
Kyocera Corp. (Manufacturer of
ceramic packaging) .................... 13,000 2,208,717
Shares Value ($)
------------------------------------------------------------------
Matsushita Electric Industrial Co., Ltd.
(Manufacturer of consumer
electronic products) .................. 96,000 2,493,271
Mitsubishi Estate Co., Ltd. ..............
(Real estate company) ................. 110,000 1,296,501
Mitsui Fudosan Co., Ltd. .................
(Real estate company) ................. 128,000 1,390,187
Murata Manufacturing Co., Ltd. ...........
(Manufacturer of ceramic applied
electronic computers) ................. 15,000 2,156,113
NEC Corp. (Manufacturer of
telecommunication and computer
equipment) ............................ 92,000 2,893,328
NTT Mobile Communications
Network, Inc. (Provider of various
telecommunication services and
equipment) ............................ 85 2,303,915
Nikko Securities Co., Ltd. ...............
(Securities broker and dealer) ........ 134,000 1,328,800
Nintendo Co., Ltd. (Manufacturer of
game equipment) ....................... 10,900 1,906,483
Nippon Telegraph & Telephone Corp. .......
(Provider of telecommunication
services) ............................. 116 1,544,695
Nissan Motor Co., Ltd. (Manufacturer
of motor vehicles) .................... 222,000 1,310,384
Nomura Securities Co., Ltd. (Financial
advisor, securities broker and
underwriter) .......................... 105,000 2,573,311
Ricoh Co., Ltd. (Manufacturer of
copiers and information
equipment) ............................ 64,000 1,356,944
Sakura Bank, Ltd. (Provider of banking
services) ............................. 292,000 2,021,401
Sankyo Co., Ltd. (Leading ethical drug
producer) ............................. 86,000 1,945,224
Sanyo Electric Co., Ltd. (Manufacturer
of consumer electronics) .............. 125,000 1,126,222
Softbank Corp. (Provider of electronic
commerce, software and peripheral
hardware equipment) ................... 3,600 489,588
Sony Corp. (Manufacturer of consumer
and industrial electronic
equipment) ............................ 22,000 2,056,949
Sumitomo Electric Industries, Ltd. .......
(Manufacturer of electric wires and
cables) ............................... 91,000 1,562,431
Tokyo Electron Ltd. (Manufacturer of
semiconductor production
equipment) ............................ 8,000 1,097,039
Toshiba Corp. (Manufacturer of electric
machinery) ............................ 229,000 2,588,780
Yamanouchi Pharmaceutical Co., Ltd. ......
(Manufacturer and marketer of a
wide variety of pharmaceuticals) ...... 31,000 1,695,141
-----------
53,076,878
-----------
Korea 3.2%
SK Telecom Co., Ltd. (Provider of
mobile telecommunications
services) ............................. 10,600 3,469,877
The accompanying notes are an integral part of the financial statements.
168 | Kemper Variable Series --
Kemper International Portfolio
<PAGE>
Shares Value ($)
----------------------------------------------------------------------
Samsung Electronics Co. ..................
(Electronics manufacturer) ............ 10,180 3,368,911
-----------
6,838,788
-----------
Netherlands 3.9%
ABN AMRO Holding N.V .....................
(Diversified financial services) ...... 89,390 2,186,743
Akzo Nobel N.V. (Producer and
marketer of health care products,
coatings, chemicals and fibers) ....... 23,280 987,632
Gucci Group N.V. (New York Shares)
(Designer and producer of personal
luxury accessories and apparel) ....... 18,400 1,743,400
Koninklinjke Kpn NV (Provider of
telecommunications services) .......... 42,100 1,880,373
Laurus NV (International food retailer) .. 42,810 512,202
VNU NV (International publishing
company) .............................. 19,820 1,022,241
-----------
8,332,591
-----------
New Zealand 0.6%
ASM Lithography Holding N.V.*
(Developer, manufacturer and
marketer of photolithography
projections systems) .................. 32,880 1,411,203
-----------
Singapore 0.4%
Chartered Semiconductor (ADR)*
(Provider of wafer fabrication
services to semiconductor
suppliers) ............................ 9,700 873,000
-----------
Spain 0.9%
Telefonica S.A.* (Provider of
telecommunication services) ........... 86,538 1,856,272
-----------
Sweden 1.4%
Ericsson LM-"B" (Producer of
advanced systems and products for
wired and mobile
communications) ....................... 150,800 2,993,783
-----------
Switzerland 3.2%
Nestle S.A. (Registered)
(Food manufacturer) ................... 1,317 2,632,871
Roche Holding AG (Developer and
manufacturer of pharmaceutical and
chemical products) .................... 139 1,351,531
Schweizerische Rueckversicherungs-
Gesellschaft (Registered) (Life,
accident and health insurance
company) .............................. 516 1,050,514
UBS AG (Registered) (Provider of
banking and asset management
services) ............................. 11,898 1,741,135
-----------
6,776,051
-----------
Taiwan 2.3%
Far Eastern Textile Ltd. (Manufacturer
of natural and synthetic textile
products) ............................. 518,000 644,023
GigaMedia Ltd. (Provider of broadband
Internet access services and
content) .............................. 17,400 210,975
Shares Value ($)
----------------------------------------------------------------------
Hon Hai Precision Industry Co., Ltd. .....
(Manufacturer of electronic
products) ............................. 94,000 850,513
Taiwan Semiconductor Manufacturing
Co.* (Manufacturer of integrated
circuits) ............................. 298,240 1,417,186
United Microelectronics Corp., Ltd.*
(Manufacturer of integrated
circuits) ............................. 648,000 1,803,222
-----------
4,925,919
-----------
United Kingdom 15.2%
ARM Holdings plc (Designer of RISC
microprocessors and related
technology) ........................... 57,650 619,305
BOC Group plc (Divisified chemical
company) .............................. 72,553 1,045,805
BP Amoco plc (Integrated world oil
company) .............................. 341,897 3,288,943
Billiton plc (Resource group that
explores, produces and markets
aluminum and other metal
products) ............................. 187,543 765,464
British Aerospace plc (Producer of
military aircraft) .................... 276,378 1,727,716
British Airways plc (Provider of
passenger and cargo airline
services) ............................. 179,519 1,035,060
Cable and Wireless plc (International
telecommunication services in the
United Kingdom and Hong Kong) ......... 104,443 1,773,296
Glaxo Wellcome plc (Pharmaceutical
company) .............................. 35,705 1,043,957
Prudential Corp. plc (Provider of a
broad range of financial services) .... 125,896 1,849,094
Reed International plc (Publisher of
scientific, professional and business
to business materials) ................ 304,134 2,653,411
Rentokil Initial plc (Environmental
services company) ..................... 234,518 533,752
Reuters Group plc (International news
and information agency) ............... 163,787 2,800,755
Rio Tinto plc (Mining company) ........... 176,107 2,885,839
Shell Transport & Trading plc
(Petroleum company) ................... 365,107 3,055,184
SmithKline Beecham plc (Manufacturer
of ethical drugs and health care
products) ............................. 80,362 1,054,723
Standard Chartered plc (International
banking group) ........................ 116,935 1,460,213
Vodafone AirTouch plc (Provider of
mobile telecommunication
services) ............................. 1,263,632 5,119,218
-----------
32,711,735
-----------
----------------------------------------------------------------------
Total Common Stocks (Cost $178,856,441) 211,326,480
----------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $182,543,164) (a) 215,024,954
----------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
169 | Kemper Variable Series --
Kemper International Portfolio
<PAGE>
--------------------------------------------------------------------------------
At June 30, 2000, the Kemper International Portfolio had the following industry
diversification:
--------------------------------------------------------------------------------
Industry Value Percent
--------------------------------------------------------------------------------
Finance .................................. $ 47,594,208 22.1%
Manufacturing ............................ 24,839,250 11.6
Communications ........................... 29,193,946 13.6
Service Industries ....................... 10,023,826 4.7
Technology ............................... 33,012,690 15.4
Consumer Discretionary ................... 6,290,479 2.9
Consumer Staples ......................... 9,997,841 4.6
Health Care .............................. 9,805,455 4.6
Energy ................................... 12,214,709 5.7
Metals and Minerals ...................... 6,509,212 3.0
Media .................................... 1,414,947 0.7
Construction ............................. 3,117,081 1.4
Utilities ................................ 7,524,426 3.5
Durables ................................. 4,801,929 2.2
Transportation ........................... 4,986,481 2.3
--------------------------------------------------------------------------------
Total Common Stocks 211,326,480 98.3
--------------------------------------------------------------------------------
Bonds .................................... 38,751 0.0
Money Market Instruments ................. 3,659,723 1.7
--------------------------------------------------------------------------------
Total Investment Portfolio $215,024,954 100.0%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes to Kemper International Portfolio of Investments
--------------------------------------------------------------------------------
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $182,543,164. At June 30,
2000, net unrealized appreciation for all securities based on tax cost
was $32,481,790. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $43,196,546 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over value of $10,714,756.
The accompanying notes are an integral part of the financial statements.
170 | Kemper Variable Series --
Kemper International Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------
Assets
----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $182,543,164) ...................... $ 215,024,954
Foreign currency, at value (cost $1,426,043) ................................. 1,423,965
Receivable for investments sold .............................................. 2,687,001
Dividends receivable ......................................................... 107,369
Interest receivable .......................................................... 1,777
Receivable for Portfolio shares sold ......................................... 3,600,731
Foreign taxes recoverable .................................................... 361,168
Unrealized appreciation on forward currency exchange contracts ............... 18,305
Other assets ................................................................. 1,000
----------------
Total assets ................................................................. 223,226,270
Liabilities
----------------------------------------------------------------------------------------------
Due to custodian bank ........................................................ 103,324
Payable for Fund shares redeemed ............................................. 4,052,647
Unrealized appreciation on forward currency exchange contracts ............... 17,805
Accrued management fee ....................................................... 138,996
Other accrued expenses and payables .......................................... 259,555
----------------
Total liabilities ............................................................ 4,572,327
----------------------------------------------------------------------------------------------
Net assets, at value $ 218,653,943
----------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... $ 1,247,575
Net unrealized appreciation (depreciation) on:
Investments ............................................................... 32,481,790
Foreign currency related transactions ..................................... (9,695)
Accumulated net realized gain (loss) ......................................... 22,684,845
Paid-in capital .............................................................. 162,249,428
----------------------------------------------------------------------------------------------
Net assets, at value $ 218,653,943
----------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($218,653,943 / 130,688,627
outstanding shares of beneficial interest, $.01 par value, unlimited number --------------
of shares authorized) ..................................................... $ 1.673
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
171 | Kemper Variable Series --
Kemper International Portfolio
<PAGE>
-------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
-------------------------------------------------------------------------------
Investment Income
-------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $82,280) ........... $ 1,991,210
Interest ....................................................... 37,977
----------------
Total Income ................................................... 2,029,187
----------------
Expenses:
Management fee ................................................. 842,574
Custodian fees ................................................. 122,129
Auditing ....................................................... 29,507
Legal .......................................................... 7,211
Trustees' fees and expenses .................................... 8,282
Reports to shareholders ........................................ 28,153
Registration fees .............................................. 1,264
Interest expense ............................................... 14,543
----------------
Total expenses, before expense reductions ...................... 1,053,663
Expense reductions ............................................. (570)
----------------
Total expenses, after expense reductions ....................... 1,053,093
-------------------------------------------------------------------------------
Net investment income (loss) 976,094
-------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
-------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 24,007,805
Foreign currency related transactions .......................... 4,873
----------------
24,012,678
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (44,864,765)
Foreign currency related transactions .......................... 449
----------------
(44,864,316)
-------------------------------------------------------------------------------
Net gain (loss) on investment transactions (20,851,638)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(19,875,544)
-------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
172 | Kemper Variable Series --
Kemper International Portfolio
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------------------------
Six Months Year Ended
Ended June 30, December 31,
Increase (Decrease) in Net Assets 2000 (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ........................................................... $ 976,094 $ 794,530
Net realized gain (loss) on investment transactions .................................... 24,012,678 32,048,866
Net unrealized appreciation (depreciation) on investment transactions during the period (44,864,316) 48,070,654
---------------- ----------------
Net increase (decrease) in net assets resulting from operations ........................ (19,875,544) 80,914,050
Distributions to shareholders from:
Net investment income .................................................................. -- (2,324,133)
---------------- ----------------
Net realized gains ..................................................................... (32,378,429) (24,984,428)
---------------- ----------------
Portfolio share transactions:
Proceeds from shares sold .............................................................. 131,498,267 161,883,485
Reinvestment of distributions .......................................................... 32,378,429 27,308,561
Cost of shares redeemed ................................................................ (144,599,896) (204,365,528)
---------------- ----------------
Net increase (decrease) in net assets from Portfolio share transactions ................ 19,276,800 (15,173,482)
---------------- ----------------
Increase (decrease) in net assets ...................................................... (32,977,173) 38,432,007
Net assets at beginning of period ...................................................... 251,631,116 213,199,109
Net assets at end of period (including undistributed net investment income of ---------------- ----------------
$1,247,575 and $271,481, respectively) .............................................. $ 218,653,943 $ 251,631,116
---------------- ----------------
Other Information
-------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period .............................................. 117,313,812 125,410,668
---------------- ----------------
Shares sold ............................................................................ 69,235,261 99,135,352
Shares issued to shareholders in reinvestment of distributions ......................... 17,687,525 17,966,513
Shares redeemed ........................................................................ (73,547,971) (125,198,721)
---------------- ----------------
Net increase (decrease) in Portfolio shares ............................................ 13,374,815 (8,096,856)
---------------- ----------------
Shares outstanding at end of period .................................................... 130,688,627 117,313,812
---------------- ----------------
</TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000(a) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $2.145 1.700 1.615 1.564 1.371 1.244
-----------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .008(b) .007(b) .017 .011 .011 .018
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.190) .673 .148 .130 .212 .139
-----------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.182) .680 .165 .141 .223 .157
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income -- (.020) (.020) (.020) (.020) (.010)
-----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.290) (.215) (.060) (.070) (.010) (.020)
-----------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.290) (.235) (.080) (.090) (.030) (.030)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.673 2.145 1.700 1.615 1.564 1.371
-----------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (9.65)** 45.71 10.02 9.46 16.49 12.83
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 218,654 251,631 213,199 200,046 163,475 134,481
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .93* .94 .93 .91 .96 .92
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .93* .94 .93 .91 .96 .92
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .86* .40 .96 .71 .89 1.39
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 115* 136 90 79 87 126
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
173 | Kemper Variable Series --
Kemper International Portfolio
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
June 30, 2000 (Unaudited)
A. Significant Accounting Policies
Kemper Variable Series (the "Trust") (formerly known as Investors Fund Series)
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end, diversified management investment company organized as a
Massachusetts business trust. The Trust offers twenty six portfolios (the
"portfolio(s)").
The Trust's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Trust in the
preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated mean between the
most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used. Securities quoted on the
Nasdaq Stock Market ("Nasdaq"), for which there have been sales, are valued at
the most recent sale price reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are not quoted on Nasdaq but are
traded in another over-the-counter market are valued at the most recent sale
price, or if no sale occurred, at the calculated mean between the most recent
bid and asked quotations on such market. If there are no such bid and asked
quotations, the most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Trust, whose
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased with an original maturity of
sixty days or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
Foreign Currency Translation. The books and records of the Trust are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
Repurchase Agreements. The portfolios may enter into repurchase agreements with
certain banks and broker/dealers whereby the portfolios, through their custodian
or sub-custodian bank, receive delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
Options. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the portfolio if the option is exercised. During the
period, the Kemper Government Securities Portfolio purchased put options on
securities as a hedge against potential adverse price movements in the value of
portfolio assets. In addition, during the period, the Kemper Government
Securities Portfolio wrote put options on securities as a temporary substitute
for purchasing selected investments and to enhance potential gain.
The liability representing the portfolio's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
prices or at the most recent asked price (bid for purchased options) if no bid
and asked price are available.
174
<PAGE>
Over-the-counter written or purchased options are valued using dealer supplied
quotations. Gain or loss is recognized when the option contract expires or is
closed.
If the portfolio writes a covered call option, the portfolio foregoes, in
exchange for the premium, the opportunity to profit during the option period
from an increase in the market value of the underlying security above the
exercise price. If the portfolio writes a put option it accepts the risk of a
decline in the market value of the underlying security below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The portfolio's maximum
exposure to purchased options is limited to the premium initially paid. In
addition, certain risks may arise upon entering into option contracts including
the risk that an illiquid secondary market will limit the portfolio's ability to
close out an option contract prior to the expiration date and that a change in
the value of the option contract may not correlate exactly with changes in the
value of the securities or currencies hedged.
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of a financial
instrument at a specified price on a specific date (settlement date). During the
period, the Kemper Government Securities Portfolio purchased interest rate
futures to manage the duration of the portfolio. Also during the period, the KVS
Dreman High Return Equity Portfolio and the KVS Index 500 Portfolio purchased
securities index futures as a temporary substitute for purchasing selected
investments. In addition, the Kemper Government Securities Portfolio and the
Kemper High Yield Portfolio sold interest rate futures to hedge against declines
in the value of portfolio securities.
Upon entering into a futures contract, the portfolio is required to deposit with
a financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the portfolio dependent
upon the daily fluctuations in the value of the underlying security and are
recorded for financial reporting purposes as unrealized gains or losses by the
portfolio. When entering into a closing transaction, the portfolio will realize
a gain or loss equal to the difference between the value of the futures contract
to sell and the futures contract to buy. Futures contracts are valued at the
most recent settlement price.
Certain risks may arise upon entering into futures contracts, including the risk
that an illiquid secondary market will limit the portfolio's ability to close
out a futures contract prior to the settlement date and that a change in the
value of a futures contract may not correlate exactly with the changes in the
value of the securities or currencies hedged. When utilizing futures contracts
to hedge, the portfolio gives up the opportunity to profit from favorable price
movements in the hedged positions during the term of the contract.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Kemper Growth and Income Portfolio, Kemper Strategic Income Portfolio, Kemper
Global Blue Chip Portfolio, Kemper New Europe Portfolio and Kemper International
Portfolio utilized forward contracts as a hedge against changes in the exchange
rates relating to foreign currency denominated assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Sales and
purchases of forward contracts having the same settlement date and broker are
offset and any gain (loss) is realized on the date of offset; otherwise, gain
(loss) is realized on settlement date. Realized and unrealized gains and losses
which represent the difference between the value of a forward contract to buy
and a forward contract to sell are included in net realized and unrealized gain
(loss) from foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the portfolio gives up the
opportunity to profit from favorable exchange rate movements during the term of
the contract.
When Issued/Delayed Delivery Securities. Several of the portfolios may purchase
securities with delivery or payment to occur at a later date beyond the normal
settlement period. At the time the portfolio enters into a commitment to
purchase a security, the transaction is recorded and the value of the security
is reflected in the net asset value. The value of the security may vary with
market fluctuations. No interest accrues to the portfolio until payment takes
place. At the time the portfolio enters into this type of transaction it is
required to segregate cash or other liquid assets at least equal to the amount
of the commitment.
175
<PAGE>
Federal Income Taxes. The portfolios' policy is to comply with the requirements
of the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the portfolios paid no federal income taxes and no
federal income tax provision was required.
At December 31, 1999, the following portfolios had a net tax basis capital loss
carryforward which may be applied against any realized net taxable capital gains
of each succeeding year until fully utilized or until the following expiration
dates:
<TABLE>
<CAPTION>
Capital Loss Expiration
Portfolio Carryforward ($) Date
-----------------------------------------------------------------------------------------
<S> <C> <C>
Kemper Money Market Portfolio ........................... 2,000 12/31/2007
Kemper Government Securities Portfolio .................. 2,526,000 12/31/2002
524,000 12/31/2004
116,000 12/31/2006
1,797,000 12/31/2007
Kemper Investment Grade Bond Portfolio .................. 946,000 12/31/2007
Kemper High Yield Portfolio ............................. 6,697,000 12/31/2000
6,999,000 12/31/2002
2,026,000 12/31/2003
10,328,000 12/31/2007
Kemper Blue Chip Portfolio .............................. 2,008,000 12/31/2006
Kemper Small Cap Value Portfolio ........................ 1,882,000 12/31/2006
6,067,000 12/31/2007
Kemper Strategic Income Portfolio ....................... 178,000 12/31/2007
</TABLE>
In addition, from November 1, 1999 through December 31, 1999, the following
portfolios incurred net realized capital losses as follows:
Net Realized
Portfolio Capital Loss ($)
----------------------------------------------------------------------
Kemper Money Market Portfolio ........................ 800
Kemper Government Securities Portfolio ............... 33,000
Kemper Investment Grade Bond Portfolio ............... 582,000
Kemper High Yield Portfolio .......................... 2,593,000
Kemper Growth Portfolio .............................. 300,000
Kemper Small Cap Value Portfolio ..................... 1,996,000
Kemper Strategic Income Portfolio .................... 12,000
Kemper New Europe Portfolio .......................... 15,000
As permitted by tax regulations, the portfolios intend to elect to defer these
losses and treat them as arising in the fiscal year ended December 31, 2000.
Distribution of Income and Gains. Distributions of net investment income, if
any, for all portfolios except the Kemper Money Market Portfolio, are made
annually. Net realized gains from investment transactions, in excess of
available capital loss carryforwards, would be taxable to the portfolio if not
distributed, and, therefore, will be distributed to shareholders at least
annually.
All the net investment income of the Kemper Money Market Portfolio is declared
as a daily dividend and is distributed to shareholders monthly. Net investment
income includes all realized gains (losses) on portfolio securities.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the portfolio may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
portfolio.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Certain
176
<PAGE>
dividends from foreign securities may be recorded subsequent to the ex-dividend
date as soon as the portfolio is informed of such dividends. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
Expenses. Expenses arising in connection with a specific portfolio are allocated
to that portfolio. Other Trust expenses are allocated between the portfolios in
proportion to their relative net assets.
B. Investment Transactions
For the six months ended June 30, 2000, investment transactions (excluding
short-term instruments) are as follows:
Proceeds
Portfolio Purchases ($) from sales ($)
--------------------------------------------------------------------------------
Kemper Government Securities Portfolio ........... 101,881,813 110,738,587
Kemper Investment Grade Bond Portfolio ........... 106,672,740 108,433,778
Kemper High Yield Portfolio ...................... 76,061,241 109,447,843
Kemper Total Return Portfolio .................... 416,029,409 431,350,557
Kemper Blue Chip Portfolio ....................... 106,901,716 74,151,240
Kemper Growth Portfolio .......................... 210,558,183 214,214,183
Kemper Aggressive Growth Portfolio ............... 42,044,839 17,657,337
Kemper Horizon 20+ Portfolio ..................... 16,508,869 20,332,916
Kemper Horizon 10+ Portfolio ..................... 24,348,624 30,550,795
Kemper Horizon 5 Portfolio ....................... 14,323,447 16,974,915
Kemper Small Cap Growth Portfolio ................ 257,772,231 198,612,593
Kemper Technology Growth Portfolio ............... 191,144,925 65,760,215
Kemper Value+Growth Portfolio .................... 37,790,903 52,364,948
Kemper Contrarian Value Portfolio ................ 46,254,358 84,342,660
KVS Dreman High Return Equity Portfolio .......... 7,605,402 11,868,873
KVS Focused Large Cap Growth Portfolio ........... 23,841,252 14,214,515
KVS Growth and Income Portfolio .................. 42,111,989 5,203,837
KVS Growth Opportunities Portfolio ............... 68,353,678 1,088,316
KVS Index 500 Portfolio .......................... 54,849,774 12,622,236
Kemper Small Cap Value Portfolio ................. 14,985,309 21,581,555
KVS Dreman Financial Services Portfolio .......... 6,262,942 4,424,112
Kemper Strategic Income Portfolio ................ 3,852,980 3,193,169
Kemper Global Blue Chip Portfolio ................ 14,497,368 6,101,729
Kemper New Europe Portfolio ...................... 9,493,358 5,965,826
Kemper International Portfolio ................... 127,182,313 129,049,378
For the six months ended June 30, 2000, transactions for written options were as
follows for the Kemper Government Securities Portfolio:
Contracts Premium ($)
-------------------------------------------------------------
Beginning of period .............. 9 930
Written .......................... 26 17,069
Closed ........................... 35 17,999
-------- --------
End of period .................... -- --
-------- --------
177
<PAGE>
C. Transactions with Affiliates
Management agreement. Under the Trust's management agreement with Scudder Kemper
Investments, Inc. (Scudder Kemper) the portfolios pay a monthly investment
management fee, based on the average daily net assets of each portfolio, payable
monthly, at the annual rates shown below:
Annual Management
Portfolio Fee Rate
-----------------------------------------------------------------
Kemper Money Market Portfolio ................ 0.50%
Kemper Government Securities Portfolio ....... 0.55%
Kemper Investment Grade Bond Portfolio ....... 0.60%
Kemper High Yield Portfolio .................. 0.60%
Kemper Total Return Portfolio ................ 0.55%
Kemper Blue Chip Portfolio ................... 0.65%
Kemper Growth Portfolio ...................... 0.60%
Kemper Horizon 20+ Portfolio ................. 0.60%
Kemper Horizon 10+ Portfolio ................. 0.60%
Kemper Horizon 5 Portfolio ................... 0.60%
Kemper Small Cap Growth Portfolio ............ 0.65%
Kemper Value+Growth Portfolio ................ 0.75%
Kemper Contrarian Value Portfolio ............ 0.75%
Kemper Small Cap Value Portfolio ............. 0.75%
Kemper Strategic Income Portfolio ............ 0.75%
Kemper International Portfolio ............... 0.75%
The Kemper Aggressive Growth Portfolio, Kemper Technology Growth Portfolio, KVS
Dreman High Return Equity Portfolio and KVS Dreman Financial Services Portfolio
each pays Scudder Kemper a graduated investment management fee, based on the
average daily net assets of the portfolio, payable monthly, at the annual rates
shown below:
Annual Management
Average Daily Net Assets of the Portfolio 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 $12.5 billion ................................ 0.62%
For the six months ended June 30, 2000, the portfolios incurred the following
management fees:
<TABLE>
<CAPTION>
Management Fees Waived
Fee by Scudder Effective
Portfolio Imposed ($) Kemper ($) Rate (%)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kemper Aggressive Growth Portfolio .................. 79,848 22,984 .58
Kemper Technology Growth Portfolio .................. 624,353 -- .75
KVS Dreman High Return Equity Portfolio ............. 390,450 -- .75
KVS Dreman Financial Services Portfolio ............. 103,573 -- .75
</TABLE>
178
<PAGE>
KVS Focused Large Cap Growth Portfolio, KVS Growth and Income Portfolio and KVS
Growth Opportunities Portfolio 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:
Annual Management
Average Daily Net Assets of the Portfolio 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 $2.5 billion ................................ 0.850%
For the six months ended June 30, 2000, the portfolios incurred the following
management fees:
Management Fees Waived
Fee by Scudder Effective
Portfolio Imposed ($) Kemper ($) Rate (%)
-------------------------------------------------------------------------------
KVS Focused Large Cap Portfolio ....... 21,475 15,768 0.55
KVS Growth and Income Portfolio ....... 175,598 23,468 0.83
KVS Growth Opportunities Portfolio .... 214,105 16,473 0.86
Kemper Index 500 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:
Annual Management
Average Daily Net Assets of the Portfolio Fee Rate
----------------------------------------------------------------------
$0-$200 million ................................... 0.45%
$200 million-$750 million ......................... 0.42%
$750 million-$2 billion ........................... 0.40%
$2 billion-$5 billion ............................. 0.38%
Over $5 billion ................................... 0.35%
For the six months ended June 30, 2000, Scudder Kemper did not impose any of its
management fee amounting to $121,312.
From December 31, 1999 to May 31, 2000, the Kemper Global Blue Chip Portfolio
paid 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:
Annual Management
Average Daily Net Assets of the Portfolio Fee Rate
---------------------------------------------------------------------
$0-$250 million ................................. 1.00%
$250 million-$1 billion ......................... 0.95%
Over $1 billion ................................. 0.90%
Effective June 1, 2000, the portfolio's Board of Trustees approved a new
investment management fee, based on the average daily net assets of the
portfolio, payable monthly, at the annual rates shown below:
Annual Management
Average Daily Net Assets of the Portfolio Fee Rate
----------------------------------------------------------------------
$0-$250 million ................................... 1.00%
$250 million-$750 million ......................... 0.95%
$750 million-$1.5 billion ......................... 0.90%
$1.5-$3 billion ................................... 0.85%
Over $3 billion ................................... 0.80%
179
<PAGE>
For the six months ended June 30, 2000, Kemper Global Blue Chip Portfolio paid
Scudder Kemper its management fee amounting to $39,348, after an expense
reduction of $51,348, which was equivalent to an annual effective rate of 0.37%.
From December 31, 1999 to May 31, 2000, the Kemper New Europe Portfolio paid the
investment manager an investment management fee, payable monthly, based on an
annual rate of 1% of the average daily net assets of the portfolio.
Effective June 1, 2000, the portfolio's Board of Trustees approved a new
investment management fee, based on the average daily net assets of the
portfolio, payable monthly, at the annual rates shown below:
Annual Management
Average Daily Net Assets of the Portfolio Fee Rate
-----------------------------------------------------------------------
$0-$250 million .................................... 1.00%
$250 million-$750 million .......................... 0.95%
$750 million-$1.5 billion .......................... 0.90%
$1.5-$3 billion .................................... 0.85%
Over $3 billion .................................... 0.80%
For the six months ended June 30, 2000, Scudder Kemper did not impose any of its
management fee amounting to $40,544.
Dreman Value Management, L.L.C. serves as sub-adviser with respect to the
investment and reinvestment of assets in the KVS Dreman High Return Equity and
KVS Dreman Financial Services Portfolios, and is paid by Scudder Kemper for its
services.
Eagle Asset Management, Inc. serves as sub-adviser with respect to the
investment and reinvestment of assets in the KVS Focused Large Cap Growth
Portfolio, and is paid by Scudder Kemper for its services.
Janus Capital Corporation serves as sub-adviser with respect to investment and
reinvestment of assets in the KVS Growth and Income and KVS Growth Opportunities
Portfolios, and is paid by Scudder Kemper for its services.
Bankers Trust Company serves as sub-adviser with respect to investment and
reinvestment of assets in the KVS Index 500 Portfolio, and is paid by Scudder
Kemper for its services.
Scudder Investments Ltd. (U.K.), serves as sub-adviser with respect to foreign
securities investments in the Kemper International and Kemper Strategic Income
Portfolios, and is paid by Scudder Kemper for its services.
Fund Accounting Agent. Scudder Fund Accounting Corporation (SFAC), is
responsible for determining the daily net asset value per share and maintaining
the general accounting records of each portfolio. For the six months ended June
30, 2000, SFAC received the following fee for its services for the following
portfolios:
<TABLE>
<CAPTION>
Fees Waived
Fee by Scudder Unpaid at June
Portfolio Imposed ($) Kemper ($) 30, 2000
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kemper Aggressive Growth Portfolio .......... 31,120 -- 1,256
Kemper Technology Growth Portfolio .......... 13,150 -- 5,726
KVS Dreman High Return Equity Portfolio ..... 18,065 -- 4,557
KVS Focused Large Cap Growth Portfolio ...... 12,112 -- 18,969
KVS Growth and Income Portfolio ............. 18,540 -- 24,823
KVS Growth Opportunities Portfolio .......... 18,540 -- 24,823
Kemper Index 500 Portfolio .................. 64,023 56,020 --
KVS Dreman Financial Services Portfolio ..... 18,162 -- 3,125
Kemper Global Blue Chip Portfolio ........... 26,041 -- --
Kemper New Europe Portfolio ................. 25,000 -- --
</TABLE>
Officers and Trustees. Certain officers or trustees of the Trust are also
officers or directors of Scudder Kemper. For the six months ended June 30, 2000,
the Trust made no direct payments to its officers and incurred trustees' fees of
$245,590 to independent trustees.
180
<PAGE>
D. Expense Off-Set Arrangements
The portfolios have entered into arrangements with its custodian whereby credits
realized as a result of uninvested cash balances were used to reduce a portion
of the portfolio's expenses. During the period, the portfolios' custodian fees
were reduced as follows under these arrangements:
Portfolio Amount ($)
-----------------------------------------------------------------
Kemper Money Market Portfolio ...................... 381
Kemper Government Securities Portfolio.............. 278
Kemper Investment Grade Bond Portfolio.............. 99
Kemper High Yield Portfolio ........................ 1,761
Kemper Total Return Portfolio ...................... 1,007
Kemper Blue Chip Portfolio ......................... 116
Kemper Growth Portfolio ............................ 1,145
Kemper Aggressive Growth Portfolio ................. 121
Kemper Horizon 20+ Portfolio ....................... 156
Kemper Horizon 10+ Portfolio ....................... 138
Kemper Horizon 5 Portfolio ......................... 100
Kemper Small Cap Growth Portfolio .................. 2,797
Kemper Technology Growth ........................... 3,475
Kemper Value+Growth Portfolio ...................... 234
Kemper Contrarian Value Portfolio .................. 56
KVS Dreman High Return Equity Portfolio............. 639
KVS Focused Large Cap Growth Portfolio ............. 3,796
KVS Growth and Income Portfolio .................... 6,056
KVS Growth Opportunities Portfolio ................. 3,609
KVS Index 500 Portfolio ............................ 180
Kemper Small Cap Value Portfolio ................... 220
KVS Dreman Financial Services Portfolio............. 1,153
Kemper Strategic Income Portfolio .................. 405
Kemper Global Blue Chip Portfolio .................. 371
Kemper New Europe Portfolio ........................ 371
Kemper International Portfolio ..................... 570
E. Commitments
As of June 30, 2000, the portfolios had entered into the following forward
foreign currency exchange contracts resulting in the following:
KVS Growth and Income Portfolio:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Settlement (Depreciation)
Contracts to Deliver In Exchange For Date (U.S.$)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
USD 408,894 GBP 269,333 7/6/2000 (227)
---------------
Kemper Strategic Income Portfolio:
Net Unrealized
Appreciation
Settlement (Depreciation)
Contracts to Deliver In Exchange For Date (U.S.$)
-------------------------------------------------------------------------------------
NOK 1,118,716 USD 123,752 8/15/2000 (6,438)
GBP 35,419 USD 53,630 8/15/2000 (154)
JPY 64,617,812 USD 610,175 7/17/2000 (1,542)
EUR 27,758 USD 26,303 8/22/2000 (242)
---------------
(8,376)
---------------
181
<PAGE>
Kemper Global Blue Chip Portfolio:
Net Unrealized
Appreciation
Settlement (Depreciation)
Contracts to Deliver In Exchange For Date (U.S.$)
-------------------------------------------------------------------------------------
USD 63,336 CAD 93,655 7/4/2000 (85)
USD 1,910 EUR 2,006 7/6/2000 2
USD 43,164 EUR 45,239 7/31/2000 41
CAD 25,830 USD 17,421 7/5/2000 (23)
USD 22,558 EUR 23,603 7/7/2000 (53)
USD 85,371 GBP 56,184 7/6/2000 (122)
USD 83,189 GBP 54,748 7/6/2000 (119)
CAD 48,223 USD 32,585 7/5/2000 17
---------------
(342)
---------------
Kemper New Europe Portfolio:
Net Unrealized
Appreciation
Settlement (Depreciation)
Contracts to Deliver In Exchange For Date (U.S.$)
-------------------------------------------------------------------------------------
USD 4,660 GBP 3,108 7/3/2000 55
EUR 47,049 USD 50,277 7/31/2000 (967)
EUR 3,429 USD 3,646 7/31/2000 (53)
GBP 13,053 USD 8,720 7/3/2000 (177)
EUR 356 USD 376 7/31/2000 (2)
GBP 55,062 USD 36,581 7/5/2000 (442)
GBP 4,662 USD 3,073 7/6/2000 (1)
EUR 15,748 USD 16,515 7/31/2000 (24)
EUR 9,734 USD 10,185 7/7/2000 23
---------------
(1,588)
---------------
Kemper International Portfolio:
Net Unrealized
Appreciation
Settlement (Depreciation)
Contracts to Deliver In Exchange For Date (U.S.$)
-------------------------------------------------------------------------------------
EUR 14,963 USD 14,096 7/3/2000 (168)
GBP 189,256 USD 283,306 7/3/2000 (3,853)
USD 238,075 EUR 252,479 7/3/2000 2,626
USD 1,431,759 EUR 1,516,613 7/5/2000 14,104
GBP 224,728 USD 338,266 7/5/2000 (2,715)
GBP 18,889 USD 28,656 7/6/2000 (4)
USD 127,937 EUR 134,933 7/31/2000 928
USD 257,887 EUR 270,285 7/31/2000 244
USD 218,499 EUR 228,269 7/31/2000 (495)
EUR 124,959 USD 117,536 7/31/2000 (1,803)
EUR 349,755 USD 328,852 7/31/2000 (5,175)
EUR 134,718 USD 127,262 7/31/2000 (1,399)
EUR 198,158 USD 187,388 7/31/2000 (1,859)
EUR 233,100 USD 222,284 7/31/2000 (334)
EUR 96,765 USD 92,817 7/31/2000 403
---------------
500
---------------
</TABLE>
Abbreviations
-----------------------------
USD United States Dollar
CAD Canadian Dollar
GBP Great British Pound
EUR Euro
JPY Japanese Yen
NOK Norwegian Kroner
182
<PAGE>
F. Borrowings
At June 30, 2000, the weighted average outstanding daily balance of all loans
for the Kemper International Portfolio (based on the number of days the loans
were outstanding) was approximately $3,199,600, with an average interest rate of
6.39%. Interest expense for the six months ended June 30, 2000 is $14,543. The
maximum borrowings outstanding during the six months ended June 30, 2000 is
$9,900,000.
183
<PAGE>
This report must be preceded or accompanied by the current prospectus.
These portfolios are only available as variable subaccount options in a variety
of variable annuities and life products and are not available for direct
investment. Variable annuities and variable universal life are long-term,
tax-deferred vehicles that have insurance features, such as annuitization
options and death benefits.
Investment Manager:
Scudder Kemper Investments, Inc.
222 South Riverside Plaza Chicago, IL 60606
(Tel) 800-778-1482
[LOGO] KEMPER VARIABLE SERIES
