ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED DECEMBER 31, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD (SM)
Kemper Variable Series
[LOGO] KEMPER VARIABLE SERIES
<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
58 Kemper Horizon 10+ Portfolio
65 Kemper Horizon 5 Portfolio
72 Kemper Small Cap Growth Portfolio
78 Kemper Technology Growth Portfolio
83 Kemper Value+Growth Portfolio
89 Kemper Contrarian Value Portfolio
94 Kemper-Dreman High Return Equity Portfolio
99 KVS Focused Large Cap Growth Portfolio
103 KVS Growth And Income Portfolio
109 KVS Growth Opportunities Portfolio
114 Kemper Index 500 Portfolio
124 Kemper Small Cap Value Portfolio
132 Kemper-Dreman Financial Services Portfolio
136 Kemper Global Income Portfolio
140 Kemper Global Blue Chip Portfolio
146 Kemper International Growth And Income Portfolio
151 Kemper International Portfolio
157 Notes To Financial Statements
165 Report Of Independent Accountants
166 Tax Information
The opinions and forecasts expressed are those of the portfolio managers as of
December 31, 1999, 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
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Dear Contract Holder:
The end of the metaphorical millennium, it turns out, was not a
disaster. Instead, it was an excuse to party. And why not? As our technological
revolution gained critical mass, its vast potential came into better focus.
Capital spending on information technology didn't slow down; it accelerated.
Inflation remained dormant. The budget surplus nearly doubled, with the promise
of oceans of black ink yet to come. Even the government delivered good news: Its
statisticians toyed with the national accounts to reveal a more productive
economy. It's no wonder the prevailing sentiment could be summed up with the
quintessentially American yelp of glee: Yahoo!
Now, with the potential Y2K crisis seemingly averted, the question
hanging over the economy is whether the Federal Reserve Board will boost
interest rates to soak up extra liquidity caused by its pre-Y2K infusion of cash
into the economy. And, unfortunately, all parties end. This one will, too. The
questions are when and how.
The "when" should be before the second half of the year. The Fed has
already raised interest rates three times and is likely to raise them again on
February 2. Fed officials said they left the rate at 5.5 percent in December
mainly because of "market uncertainties associated with the century-date
change." But the Fed expressed concern that "increases in demand" will foster
"inflationary imbalances" that could spark rate increases once the Y2K issue has
been handled.
Although some investors have expressed fear that the Fed's sucking cash
out of banks will jolt the financial system (causing some stock indexes, as well
as the bond markets, to drop sharply in early January), the "how" is likely to
be a slow winding down, thanks to persistent low inflation.
Yes, some prices are higher: Filling up the SUV's gas tank definitely
costs more. But the rate of inflation for non-energy goods and services has
actually slowed during the past year. Although most analysts are worried that
the reprieve won't last -- assuming that higher commodity prices, a softer
dollar and the scarcity of skilled workers will show up as higher prices at the
checkout counter -- we'd turn that worry on its head. If inflation hasn't
accelerated after three years of over 4-percent gross domestic product (GDP)
growth and an unprecedented credit explosion, prices aren't likely to increase
if growth slows and lenders get stingier.
More good news stems from the technological investment boom. While
executives have pared capital budgets in traditional areas such as industrial
machinery and buildings, they've boosted outlays on computers and software.
Thanks to the sheer force of technology spending, overall business investment
has grown two to four times as fast as the GDP in every year since 1993. And
that expansion should continue, with more than 20 percent growth likely in
high-tech through 2000 and even beyond. And technology hurts inflation. It saves
on labor and inventory, increases capacity, creates new competitors, cuts out
middlemen, gives shoppers comparative price information and enables global
auctions.
Our outlook is for inflation to stay centered around 2 percent, and we
expect the Fed to raise the federal funds rate and the discount rate by one
quarter of a point (0.25%) each on Feb. 2. (More extreme
3 | Kemper Variable Series
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Economic Guideposts
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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:
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Now 6 months 2 years
(12/31/99) ago 1 year ago ago
10-Year Treasury Rate^1 6.3 5.9 4.6 5.9
Prime Rate^2 8.5 7.75 7.75 8.5
Inflation Rate^3* 2.6 2.0 1.6 1.9
The U.S. Dollar^4 0.5 -1.8 -2.0 10.1
Capital Goods Orders^5* 7.6 4.3 -13.8 32.4
Industrial Production^5* 4.3 2.9 2.8 6.6
Employment Growth^6 2.1 2.1 2.3 2.7
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^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 November 30, 1999.
Source: Economics Department, Scudder Kemper Investments, Inc.
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possibilities bandied about by bearish investors -- including a half-point rise
or an emergency move before the Fed's February meeting -- are unlikely.) We
project that the result will be a gentle slowing of growth from 4 percent in
1999 to around 3.5 percent in 2000 and just under 2.5 percent in 2001.
Despite this positive outlook, the rowdiness of Y2K preparations and
celebration should be sufficient to show us that risks exist in today's markets
and remind us that we could be in for a serious hangover.
The prospect of sparkling growth with no inflation has excited equity
investors, but there's a catch: declining corporate pricing power. If companies
don't have the ability to increase prices, profit growth will decline -- and
it's already happening. For the five years ending in June 1999, S&P 500
operating earnings averaged 9 percent, two and a half percentage points per year
slower than analysts had predicted. Profits did recover strongly in the second
half of 1999, but we suspect that they will soon sputter again. And the
economy's newfound productivity won't change the rules and allow companies to
make money even if they can't raise prices. Productivity gains do produce a
windfall, but historically customers and employees have grabbed the lion's
share. Web sites and dot.coms haven't changed this one
4 | Kemper Variable Series
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iota. As a result, we expect profits to be virtually flat in all of 2000 and to
decline as the economy slows in 2001.
Debt is another drink that could bring on future headaches. America has
been swigging it in prodigious amounts. Companies have borrowed heavily to fund
mergers, share buybacks and new investments. Homeowners have increased their
debt with new home equity loans and bigger mortgages. Financial institutions
have issued record amounts of new paper to fund aggressive growth. There's no
hard and fast rule for determining if the debt America is taking on is too much,
but warning bells should sound when debt grows by orders of magnitude faster
than necessary to fund economic activity. That happened in 1985 and 1986, when
excess credit created a commercial real estate bubble and funded dubious
leveraged buyouts with suspect junk bonds, and it's happening again now. Both
the commercial real estate and the high yield markets took years to recover.
Today, the sheer size of the excesses could make the "morning after" even more
painful.
The end result: Given the continuing thrust of growth from the
technological revolution, an improving world economy and the Fed's experience
and skill, 2000 could turn out to be a good year. But it's highly unlikely to be
as good a year as 1999.
Sincerely,
Maureen F. Allyn
Managing Director,
Scudder Kemper Investments, Inc.
January 6, 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 January 6, 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.
5 | Kemper Variable Series
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Management Summary And Performance Update
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December 31, 1999
Kemper Money Market Portfolio
The events that most impacted the Kemper Money Market Portfolio in 1999 were
back-to-back interest rate increases by the Fed during the third quarter. Those
increases were prompted by concerns about strong economic growth, tight labor
markets and the potential for future inflation, and they effectively rescinded
the three rate cuts made by the Fed in 1998.
Anticipating a tightening bias, we kept the portfolio's average maturity short
throughout the third quarter, which allowed us to take advantage of higher
yields immediately. As of December 31, 1999, the effective seven-day yield was
5.75%.
We also correctly predicted that another rate increase in the fourth quarter was
the last of the year and took advantage of a number of Y2K-related values in the
market.
We expect interest rates will continue to trend upward in 2000. European and
Asian economies appear to have bottomed out and worldwide credit demand is
rising. Plus, our own economy appears to be on solid footing. Going into the new
year, we will work to ensure that the portfolio has the liquidity to act if and
when particularly appealing values appear.
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.
The Money Market yield reflects the annualized net investment income per unit as
of the date shown. Gains and losses are not included. Effective yield reflects
compounding. The yield is historical and will fluctuate.
6 | Kemper Variable Series -
Money Market Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
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(Dollars in thousands)
Kemper Money Market Portfolio
Principal
Amount Value
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Repurchase Agreements 1.3%
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State Street Bank and Trust Company, 2.8%,
1/3/2000, to be repurchased at $2,876 (b) -----------
(Cost $2,875) ...................................... $2,875 $2,875
-----------
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Certificates of Deposit 19.8%
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Allfirst Bank, 6.18%, 9/7/2000* ...................... 3,000 2,999
Bank of Nova Scotia, 5.83%, 2/3/2000 ................. 5,000 5,000
Barclays Bank PLC NY, 5.64%, 5/12/2000* .............. 2,500 2,500
Comerica, Inc. MTN, 5.65%, 3/15/2000* ................ 2,500 2,500
Commerzbank AG, 6.39%, 4/10/2000* .................... 3,000 2,999
Credit Suisse First YCD, 5.72%, 6/9/2000* ............ 3,000 2,999
Deutsche Bank of New York, 5.64%,
3/16/2000* ......................................... 1,500 1,500
Dresdner Bank PLC NY, 6.44%, 7/24/2000* .............. 3,000 2,999
Finova Capital Corp., 6.17%, 6/12/2000* .............. 3,000 3,002
J.P. Morgan, 6.47%, 7/23/2000* ....................... 3,000 3,000
Mellon Bank, 6.1%, 8/30/2000* ........................ 3,000 2,999
National City Bank of Kentucky, 6.21%,
7/7/2000* .......................................... 3,000 3,002
Old Kent Bank, 5.69%, 6/16/2000* ..................... 2,500 2,500
Skandinavia Enskilda Bank, 6.16%,
7/24/2000* ......................................... 3,000 2,999
PNC Bank NA MTN, 6.46%, 5/26/2000* ................... 2,000 2,000
Wells Fargo & Co., 6.06%, 4/20/2000* ................. 3,000 2,999
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Total Certificates of Deposit (cost $45,997) 45,997
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Commercial Paper 62.1%
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Accor SA, 6%, 3/14/2000 .............................. 5,000 4,939
Accor SA, 6.12%, 1/28/2000 ........................... 5,000 4,977
Alpine Securitization, 6.1%, 2/3/2000 ................ 5,000 4,972
Asset Securitization Corp., 6.1%,
1/24/2000 .......................................... 5,000 4,981
Atlantis One Funding, 5.89%, 2/10/2000 ............... 5,000 4,968
Banco De Galicia (BAR), 6.32%, 2/24/2000 ............. 5,000 4,953
Banco Del Istmo, 6.12%, 2/28/2000 .................... 10,000 9,904
Beta Finance, 6%, 2/10/2000 .......................... 5,000 4,967
Clipper Receivables Corp., 6.11%,
1/31/2000 .......................................... 5,000 4,975
Corporate Asset Funding, 6.11%,
1/26/2000 .......................................... 5,000 4,979
Principal
Amount Value
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Corporate Receivables Corp., 6.11%,
1/28/2000 .............................................. $ 5,000 $ 4,978
CSW Credit, Inc., 5.75%, 1/25/2000 ....................... 2,000 1,993
CXC, Inc., 6.1%, 1/26/2000 ............................... 5,000 4,979
Delaware Funding Corp., 6.2%,
1/20/2000 .............................................. 5,000 4,984
Enterprise Funding Corp., 6.2%,
1/24/2000 .............................................. 5,000 4,981
Falcon Asset Security Corp., 6.2%,
1/19/2000 .............................................. 5,000 4,985
Fortis Finance N.V., 6.04%, 2/24/2000 .................... 5,000 4,955
Galaxy Funding, 5.6%, 1/4/2000 ........................... 3,000 2,998
Galaxy Funding, 6.2%, 3/23/2000 .......................... 5,000 4,931
Galaxy Funding, 6.3%, 2/23/2000 .......................... 5,000 4,956
Household International, Inc., 6.47%,
2/14/2000 .............................................. 5,000 4,961
Intrepid Funding, 6%, 2/29/2000 .......................... 5,000 4,952
Moat Funding, 6.11%, 3/9/2000 ............................ 5,000 4,943
Morgan Stanley DW US, 6.25%, 3/28/2000 ................... 5,000 4,926
Scaldis Capital, LLC, 6.68%, 1/13/2000 ................... 5,000 4,989
Sears Roebuck Acceptance Corp., 6.23%,
2/22/2000 .............................................. 5,000 4,956
Sinochem American, 6.06%, 2/8/2000 ....................... 5,000 4,968
Spintab AB, 6.18%, 3/8/2000 .............................. 5,000 4,943
Superior Funding Capital, 6.13%,
2/10/2000 .............................................. 5,000 4,966
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Total Commercial Paper (cost $143,959) 143,959
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Short-Term Notes 16.8%
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Anheuser-Beusch Cos., 6.4%, 6/16/2000* ................... 3,000 2,999
Bank One, 6.24%,11/6/2000 ................................ 5,000 4,999
Caterpillar Finance, 6.07%, 8/14/2000* ................... 3,000 3,000
Chrysler Finance Co., 6.43%, 6/9/2000* ................... 4,000 4,000
Ford Motor Credit, 6.17%, 10/2/2000 ...................... 5,000 4,996
Heller Financial, 6.35%, 7/7/2000* ....................... 3,000 3,002
John Deere Capital Floating Rate Note,
5.65%, 3/16/2000 ....................................... 5,000 4,999
Norwest Financial, 6.5%, 9/7/2000* ....................... 3,000 2,999
SMM Trust, 6.3%, 9/13/2000 ............................... 8,000 8,000
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Total Short-Term Notes (Cost $38,994) 38,994
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Total Investment Portfolio-- 100.0% (cost $231,825) (a) $231,825
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Notes to Kemper Money Market Portfolio of Investments
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(a) The cost for federal income tax purposes was $231,825.
(b) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
* 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
December 31, 1999.
The accompanying notes are an integral part of the financial statements.
7 | Kemper Variable Series -
Money Market Portfolio
<PAGE>
Financial Statements
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(in thousands)
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Statement of Assets and Liabilities as of December 31, 1999
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<TABLE>
<CAPTION>
Assets
- -----------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $231,825) .......................... $231,825
Interest receivable .......................................................... 581
Receivable for Portfolio shares sold ......................................... 241
--------
Total assets ................................................................. 232,647
Liabilities
- -----------------------------------------------------------------------------------------
Dividends payable ............................................................ 577
Payable for Portfolio shares redeemed ........................................ 861
Accrued management fee ....................................................... 84
Other accrued expenses and payables .......................................... 26
--------
Total liabilities ............................................................ 1,548
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Net assets, at value $231,099
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Net Assets
- -----------------------------------------------------------------------------------------
Net assets consist of:
Paid-in capital .............................................................. 231,099
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Net assets, at value $231,099
- -----------------------------------------------------------------------------------------
Net Asset Value
- -----------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($231,099 / 231,099
outstanding shares of beneficial interest, $.01 par value, unlimited --------
number ofshares authorized) ................................................ $ 1.000
--------
</TABLE>
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Statement of Operations for the year ended December 31, 1999
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Investment Income
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Interest ...................................................... $ 16,459
--------
Expenses:
Management fee ................................................ 910
Services to shareholders ...................................... 7
Custodian fee ................................................. 5
Auditing ...................................................... 14
Legal ......................................................... 4
Trustees' fees and expenses ................................... 14
Reports to shareholders ....................................... 20
Registration fees ............................................. 8
Other ......................................................... 13
--------
Total expenses, before expense reductions ..................... 995
Expense reductions ............................................ (5)
--------
Total expenses, after expense reductions ...................... 990
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Net investment income (loss) 15,469
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Net increase (decrease) in net assets resulting from operations $ 15,469
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The accompanying notes are an integral part of the financial statements.
8 | Kemper Variable Series -
Money Market Portfolio
<PAGE>
(in thousands)
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Statements of Changes in Net Assets
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<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) .......................................... $ 15,469 $ 6,049
--------- ---------
Net increase (decrease) in net assets resulting from operations ....... 15,469 6,049
Distributions to shareholders:
From net investment income ............................................ (15,469) (6,049)
--------- ---------
Portfolio share transactions:
Proceeds from shares sold ............................................. 538,376 232,701
Reinvestment of dividends ............................................. 8,886 5,991
Cost of shares redeemed ............................................... (468,093) (186,905)
--------- ---------
Net increase (decrease) in net assets from Portfolio share transactions 79,169 51,787
--------- ---------
Increase (decrease) in net assets ..................................... 79,169 51,787
Net assets at beginning of period ..................................... 151,930 100,143
--------- ---------
Net assets at end of period ........................................... $ 231,099 $ 151,930
--------- ---------
Other Information
- ------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................. 151,930 100,143
--------- ---------
Shares sold ........................................................... 538,376 232,701
Shares issued to shareholders in reinvestment of distributions ........ 8,886 5,991
Shares redeemed ....................................................... (468,093) (186,905)
--------- ---------
Net increase (decrease) in Portfolio shares ........................... 79,169 51,787
--------- ---------
Shares outstanding at end of period ................................... 231,099 151,930
--------- ---------
</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>
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Years Ended December 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00
------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income .05 .05 .05 .05 .06
------------------------------------------------------------------------
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Total from investment operations
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net Investment income (.05) (.05) (.05) (.05) (.06)
------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00
------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 4.84 5.15 5.25 5.03 5.66(a)
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Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 231,099 151,930 100,143 70,601 61,078
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .54 .54 .55 .60 .55
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .54 .54 .55 .60 .55
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 8.42 5.02 5.14 4.90 5.52
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The total return for 1995 includes the effect of a capital contribution
from the investment manager. Without the capital contribution, the
total return would have been 5.11%.
The accompanying notes are an integral part of the financial statements.
9 | Kemper Variable Series -
Money Market Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Government Securities Portfolio
1999 saw continued growth in the United States, a tight labor market and new
vigor in the global economies, all of which prompted the Federal Reserve to
increase interest rates twice in the last half of the year. Anticipating these
moves, the Kemper Government Securities Portfolio maintained a relatively short
duration throughout much of the third quarter, a move that served the portfolio
well. A slight lengthening of that duration early in the fourth quarter also
helped boost performance.
Mortgage-backed securities performed well late in the year, and we increased our
exposure to that sector early in the fourth quarter.
Heading into the new year, we feel that the market has discounted much of the
potential bad news awaiting the markets in the months ahead, such as additional
Fed tightening, tightening by the European central bank and continued economic
growth around the globe. With that in mind, we believe the portfolio is
well-positioned to take advantage of opportunities in the months ahead.
Richard L. Vandenberg
Lead Portfolio Manager
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Growth of an assumed $10,000 investment in Kemper Government Securities
Portfolio from 9/3/1987 to 12/31/1999
- --------------------------------------------------------------------------------
The Salomon Brothers 30-year GNMA Index is unmanaged, is on a total return basis
with all dividends reinvested and is composed of GNMA 30-year pass-throughs of
single family and graduated payment mortgages. In order for a GNMA coupon to be
included in the index, it must have at least $200 million of outstanding coupon
product. The Consumer Price Index is a statistical measure of change, over time,
in the prices of goods and services in major expenditure groups for all urban
consumers. It is generally considered to be a measure of inflation.
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Kemper Government Salomon Brothers Consumer
Securities Portfolio 30-year GNMA Index Price Index
1987.5 $10000 $10000 $10000
1987.75 10168 10000 10000
1988 10196 10608 10037
1988.25 10386 11075 10133
1988.5 10438 11272 10264
1988.75 10537 11518 10420
1989 10529 11553 10480
1989.25 10602 11677 10637
1989.5 11413 12646 10793
1989.75 11484 12820 10871
1990 11913 13356 10967
1990.25 11730 13342 11193
1990.5 12239 13846 11298
1990.75 12316 14060 11541
1991 13082 14812 11636
1991.25 13309 15228 11741
1991.5 13441 15542 11828
1991.75 14224 16395 11932
1992 15072 17172 11993
1992.25 14664 17075 12116
1992.5 15244 17765 12193
1992.75 15939 18296 12288
1993 15962 18479 12339
1993.25 16411 19024 12487
1993.5 16698 19424 12557
1993.75 16926 19549 12618
1994 16997 19711 12679
1994.25 16578 19283 12800
1994.5 16462 19194 12870
1994.75 16500 19331 12992
1995 16530 19458 13018
1995.25 17409 20487 13165
1995.5 18466 21555 13262
1995.75 18807 22019 13323
1996 19669 22753 13348
1996.25 19277 22716 13540
1996.5 19269 22857 13626
1996.75 19664 23339 13722
1997 20172 24033 13792
1997.25 20183 24081 13914
1997.5 20887 24978 13940
1997.75 21498 25712 14019
1998 21979 26287 14028
1998.25 22321 26709 14108
1998.5 22712 27163 14176
1998.75 23404 27839 14227
1999 23524 28079 14253
1999.25 23632 28380 14347
1999.5 23531 28283 14452
1999.75 23716 28557 14600
12/31/99 23685 28645 14635
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns^1
- -----------------------------------------------------------------------------------------------------------------------------
Life of
For the periods ended December 31, 1999 1-year 5-year 10-year portfolio
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kemper Government
Securities Portfolio 0.68% 7.46% 7.12% 7.24% (Since 9/3/1987)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment
income and capital gain or loss from portfolio investments over the
periods specified, assuming reinvestment of all dividends. Average
annual total return reflects annualized change while 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.
Accumulation units are neither insured nor guaranteed by the U.S.
government.
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.
10 | Kemper Variable Series -
Kemper Government Securities Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Government Securities Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreement 0.5%
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 2.8%,
1/3/2000, to be repurchased at $706 (b) ----------
(Cost $706) ................................. $ 706 $ 706
----------
- --------------------------------------------------------------------------------
Short-Term Investments 3.7%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 1.5%, ----------
1/3/2000 (Cost $5,500) ...................... 5,500 5,500
----------
- --------------------------------------------------------------------------------
Government & Agency Obligations 91.1%
- --------------------------------------------------------------------------------
Government National Mortagage Association 44.9%
Pass-through Certificates
6.5%, 2024-2029 ............................... 30,074 28,258
7%, 2011-2029 ................................. 15,958 15,435
7.5%, 2022-2029 ............................... 12,268 12,161
8%, 2016-2029 ................................. 8,389 8,502
8.5%, 2016-2027 (c) ........................... 740 763
9%, 2016-2027 ................................. 614 644
9.5%, 2013-2022 ............................... 244 260
10%, 2016 ..................................... 205 225
----------
66,248
----------
U.S. Treasury Securities 20.2%
Bonds
6%, 2026 ...................................... 1,800 1,647
8%, 2021 ...................................... 5,100 5,788
8.875%, 2019 .................................. 800 974
10.375%, 2009-2012 ............................ 10,800 12,802
11.75%, 2014 .................................. 5,000 6,758
12.5%, 2014 ................................... 1,300 1,815
----------
29,784
----------
Federal Home Loan Mortgage Corporation 14.2%
Pass-through Certificates
6.25%, 2004 ................................... 4,100 3,998
6.5%, 2029 .................................... 6,125 5,781
7%, 2024-2029 ................................. 10,624 10,301
7.5%, 2029 .................................... 874 866
----------
20,946
----------
Federal Housing Authority 0.3%
Pass-through Certificates
7.5%, 2022 .................................... 15 15
8.5%, 2026 .................................... 21 22
8%, 2017-2022 ................................. 484 490
----------
527
----------
Principal
Amount Value
- --------------------------------------------------------------------------------
Federal National Mortgage Association 10.8%
Pass-through Certificates
6%, 2028-2029 ......................................... $ 1,639 $ 1,500
6.375%, 2009 .......................................... 5,700 5,438
6.5%, 2028-2029 ....................................... 1,234 1,164
7%, 2013-2029 ......................................... 7,528 7,297
7.5%, 2025 ............................................ 218 217
8%, 2024 .............................................. 283 285
----------
15,901
----------
Canadian Provincial Obligations 0.7%
Province of Quebec, 8.625%, 2005 ...................... 500 532
Province of Ontario, 7.625%, 2004 ..................... 500 511
----------
1,043
----------
- --------------------------------------------------------------------------------
Total Government Obligations (Cost $138,863) (d) 134,449
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporate Obligations 4.7%
- --------------------------------------------------------------------------------
American Express Master Trust,
7.6%, 2002 .......................................... 2,500 2,527
Chemical Master Trust, 5.55%, 2003 .................... 2,500 2,470
Equitable Life, 6.95%, 2005 ........................... 500 485
Ford Motor Credit, 8%, 2002 ........................... 500 510
Sears Roebuck Acceptance Corp.,
6.75%, 2005 ......................................... 500 473
Southwestern Bell Telephone,
6.625%, 2005 ........................................ 500 489
- --------------------------------------------------------------------------------
Total Corporate Obligations (Cost $7,118) 6,954
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Purchased Options 0.0%
- --------------------------------------------------------------------------------
Chicago Board of Trade Treasury Bond, ----------
Put 2/18/2000, 2/18/2000 (Cost $1) .................. 1 4
----------
- --------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $152,188) (a) $147,613
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
11 | Kemper Variable Series -
Kemper Government Securities Portfolio
<PAGE>
- --------------------------------------------------------------------------------
(Dollars in thousands)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper Government Securities Portfolio of Investments
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $152,198. At December 31,
1999, net unrealized depreciation for all securities based on tax cost
was $4,585. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over
tax cost of $320 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value
of $4,879.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or
Government agency securities.
(c) When issued or forward delivery pools.
(d) At December 31, 1999 these securities have been pledged to cover, in
whole or in part, initial margin requirements for open futures
contracts.
- --------------------------------------------------------------------------------
At December 31, 1999, open futures contracts sold short were as follows:
<TABLE>
<CAPTION>
Futures Aggregate
Face Market
Contracts Expiration Date Value ($) Value ($)
---------------------------------------------------- -------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
5 Year U.S. Treasury Note .......................... 41 March 22, 2000 4,075 4,019
U.S. Long Bond ..................................... 25 March 22, 2000 2,288 2,273
----------
Total net unrealized appreciation on open futures contracts sold short ...................... 71
----------
</TABLE>
At December 31, 1999, outstanding written options were as follows:
<TABLE>
<CAPTION>
Strike Market
Call Options Contracts Expiration Date Price Value ($)
---------------------------------------------------- -------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
10 Year U.S. Treasury Notes ........................ 9 February 18, 2000 USD 98 4
----------
Total outstanding written options (premiums received $1) ....................................... 4
----------
</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
- --------------------------------------------------------------------------------
(in thousands)
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- ------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $152,187) .......................... $ 147,609
Purchased options, at value (cost $1) ........................................ 4
Cash ......................................................................... 50
Interest receivable .......................................................... 1,214
Receivable for Portfolio shares sold ......................................... 10
Receivable for daily variation margin on open futures contracts .............. 25
---------
Total assets ................................................................. 148,912
Liabilities
- ------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 2,247
Payable for Portfolio shares redeemed ........................................ 166
Written options, at value (premiums received $1) ............................. 4
Accrued management fee ....................................................... 72
Other accrued expenses and payables .......................................... 34
---------
Total liabilities ............................................................ 2,523
- ------------------------------------------------------------------------------------------
Net assets, at value $ 146,389
- ------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................... 8,041
Net unrealized appreciation (depreciation) on:
Investment securities ........................................................ (4,578)
Futures ...................................................................... 71
Accumulated net realized gain (loss) ......................................... (5,088)
Paid-in capital .............................................................. 147,943
- ------------------------------------------------------------------------------------------
Net assets, at value $ 146,389
- ------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($146,389 / 126,625
outstanding shares of beneficial interest, $.01 par value, unlimited number of ---------
shares authorized) $ 1.156
----------
</TABLE>
- --------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- --------------------------------------------------------------------------------
Investment Income
- --------------------------------------------------------------------------------
Interest ........................................................... $ 9,281
-------
Expenses:
Management fee ..................................................... 760
Custodian fees ..................................................... 55
Auditing ........................................................... 11
Legal .............................................................. 4
Trustees' fees and expenses ........................................ 12
Reports to shareholders ............................................ 25
Registration fees .................................................. 1
Interest expense ................................................... 1
Other .............................................................. 4
-------
Total expenses, before expense reductions .......................... 873
Expense reductions ................................................. (4)
-------
Total expenses, after expense reductions ........................... 869
- --------------------------------------------------------------------------------
Net investment income (loss) 8,412
- --------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ........................................................ (1,569)
Futures ............................................................ (257)
-------
(1,826)
Net unrealized appreciation (depreciation) during the period on:
Investments ........................................................ (5,921)
Futures ............................................................ 75
-------
(5,846)
- --------------------------------------------------------------------------------
Net gain (loss) on investment transactions (7,672)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations .... $ 740
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
13 | Kemper Variable Series -
Kemper Government Securities Portfolio
<PAGE>
(in thousands)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) .......................................................... $ 8,412 $ 6,436
Net realized gain (loss) .............................................................. (1,826) 1,541
Net unrealized appreciation (depreciation) on investment transactions during the period (5,846) (1,055)
--------- ---------
Net increase (decrease) in net assets resulting from operations ....................... 740 6,922
--------- ---------
Distributions to shareholders:
From net investment income ............................................................ (6,579) (5,813)
--------- ---------
Portfolio share transactions:
Proceeds from shares sold ............................................................. 71,054 71,335
Reinvestment of distributions ......................................................... 6,579 5,813
Cost of shares redeemed ............................................................... (48,616) (41,728)
--------- ---------
Net increase (decrease) in net assets from Portfolio share transactions ............... 29,017 35,420
--------- ---------
Increase (decrease) in net assets ..................................................... 23,178 36,529
Net assets at beginning of period ..................................................... 123,211 86,682
Net assets at end of period (including undistributed net investment income (loss) of --------- ---------
$8,041 and $6,730, respectively ..................................................... $ 146,389 $ 123,211
--------- ---------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 101,983 71,799
--------- ---------
Shares sold ........................................................................... 60,486 61,860
Shares issued to shareholders in reinvestment of distributions ........................ 5,674 5,053
Shares redeemed ....................................................................... (41,518) (36,729)
--------- ---------
Net increase (decrease) in Portfolio shares ........................................... 24,642 30,184
--------- ---------
Shares outstanding at end of period ................................................... 126,625 101,983
--------- ---------
</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, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.208 1.207 1.207 1.269 1.142
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .072(a) .062 .084 .085 .084
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.064) .019 .016 (.057) .123
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .008 .081 .100 .028 .207
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.060) (.080) (.100) (.090) (.080)
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.060) (.080) (.100) (.090) (.080)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.156 1.208 1.207 1.207 1.269
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) .68 7.03 8.96 2.56 18.98
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 146,389 123,211 86,682 84,314 95,185
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .63 .65 .64 .66 .65
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .63 .65 .64 .66 .65
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 6.13 6.27 7.12 7.09 7.08
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 150 142 179 325 275
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
The accompanying notes are an integral part of the financial statements.
14 | Kemper Variable Series -
Kemper Government Securities Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Investment Grade Bond Portfolio
Two rate hikes by the Federal Reserve board in the second half of the year were
prompted by the continued growth here in the United States. Against that
backdrop, most fixed-income products fell back mid-year, although the Kemper
Investment Grade Bond Portfolio was not hit as hard due to a limited exposure to
high-yield bonds and a higher weighting in Treasuries. Late in the year, we
increased our exposure to high-yield bonds, which allowed us to participate in a
modest rally in that sector in the fourth quarter.
Concerns about further rate increases by the Fed in 2000 are taking a toll in
the government market, but we believe that the portfolio's current duration and
asset allocation should hedge the portfolio from the full brunt of a rise in
rates. We will also continue to explore attractive opportunities in the
high-yield and corporate bond markets, which we believe could benefit the
portfolio in the months ahead.
Robert S. Cessine
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Investment Grade Bond
Portfolio from 5/1/1996 to 12/31/1999
- --------------------------------------------------------------------------------
The Lehman Brothers Government/ Corporate Bond Index is an unmanaged index
composed of intermediate and long-term government and investment grade corporate
debt securities. The Consumer Price Index is a statistical measure of change,
over time, in the prices of goods and services in major expenditure groups for
all urban consumers. It is generally considered to be a measure of inflation.
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Kemper Investment Lehman Brothers Consumer
Grade Bond Government/Corporate Price
Portfolio Bond Index Index
1996.25 $10000 $10000 $10000
1996.5 10062 10133 10006
1996.75 10187 10311 10076
1997 10357 10626 10128
1997.25 10331 10535 10217
1997.5 10661 10917 10236
1997.75 10997 11300 10294
1998 11293 11663 10301
1998.25 11463 11840 10360
1998.5 11715 12149 10410
1998.75 12162 12751 10447
1999 12189 12768 10466
1999.25 12042 12615 10535
1999.5 11894 12478 10612
1999.75 11961 12545 10721
12/31/99 11938 12493 10746
- --------------------------------------------------------------------------------
Average Annual Total Return^1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life of
For the periods ended December 31, 1999 1-year portfolio
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Investment Grade Bond Portfolio -2.06% 4.95% (Since 5/1/1996)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment
income and capital gain or loss from portfolio investments over the
periods specified, assuming reinvestment of all dividends. Average
annual total return reflects annualized change while 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.
15 | Kemper Variable Series -
Kemper Investment Grade Bond Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Investment Grade Bond Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Short-Term Investments 7.1%
- --------------------------------------------------------------------------------
Countrywide Home Loans Inc., 6.6%,
1/6/2000 ........................................... $ 2,500 $ 2,498
Ford Motor Credit Corp., 6.49%,
1/4/2000 ........................................... 2,500 2,498
- --------------------------------------------------------------------------------
Total Short-Term Investments (Cost $4,996) 4,996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. Government & Agencies 45.7%
- --------------------------------------------------------------------------------
Federal National Mortgage Association,
5.75%, 2/15/2008 ................................... 1,000 923
Federal National Mortgage Association,
6%, with various maturities to 4/1/2029 ............ 6,729 6,257
Tennessee Valley Authority, 6.25%,
12/15/2017 ......................................... 100 90
U.S. Treasury Bond, 5.25%, 2/15/2029 ............... 3,025 2,501
U.S. Treasury Note, 5.5%, 8/31/2001 ................ 12,100 11,962
U.S. Treasury Note, 6%, 8/15/2004 .................. 6,400 6,300
U.S. Treasury Note, 6%, 8/15/2009 .................. 4,050 3,923
- --------------------------------------------------------------------------------
Total U.S. Government & Agencies (Cost $32,970) 31,956
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Canadian Provincial Obligations 1.1%
- --------------------------------------------------------------------------------
Province of Quebec, 8.625%, 1/19/2005 --------
(Cost $835) .......................................... 750 798
-------
- --------------------------------------------------------------------------------
Corporate Bonds 46.1%
- --------------------------------------------------------------------------------
Consumer Discretionary 3.5%
Dayton Hudson Corp., 7.5%, 7/15/2006 ................... 100 100
Dillards, Inc., 6.17%, 8/1/2001 ........................ 500 490
Federated Department Stores, Inc., 6.125%,
9/1/2001 ............................................. 500 491
Harrah's Operating Co., Inc., 7.875%,
12/15/2005 ........................................... 750 722
May Department Stores Co., 6.875%,
11/1/2005 ............................................ 50 49
Park Place Entertainment, Inc., 7.875%,
12/15/2005 ........................................... 500 478
Royal Caribbean Cruises, Ltd., 8.25%,
4/1/2005 ............................................. 120 122
-------
2,452
-------
Consumer Staples 3.4%
Phillip Morris Companies, Inc., 7.2%,
2/1/2007 ............................................. 700 655
Safeway Inc., 6.05%, 11/15/2003 ........................ 750 715
Sony Corp., 6.125%, 3/4/2003 ........................... 1,000 975
-------
2,345
-------
Communications 9.9%
AT&T Corp., 6%, 3/15/2009 .............................. 500 454
AT&T Corp., 6.5%, 3/15/2029 ............................ 500 428
Principal
Amount Value
- --------------------------------------------------------------------------------
BellSouth Telecommunications, Inc.,
6.375%, 6/1/2028 ................................... $1,000 $ 842
Cable & Wireless Communications, 6.75%,
12/1/2008 .......................................... 400 394
Intermedia Communications, Inc., 8.875%,
11/1/2007 .......................................... 750 701
Level 3 Communications, Inc., 9.125%,
5/1/2008 ........................................... 750 706
Metromedia Fiber Network, Inc., 10%,
12/15/2009 ......................................... 300 306
Qwest Communications International, 7.5%,
11/1/2008 .......................................... 1,000 972
Sprint Capital Corp., 5.875%, 5/1/2004 ............... 750 720
Sprint Capital Corp., 6.125%, 11/15/2008 ............. 400 363
WorldCom, Inc., 6.4%, 8/15/2005 ...................... 1,000 958
WorldCom, Inc., 7.75%, 4/1/2027 ...................... 100 101
-------
6,945
-------
Financial 8.8%
ABN AMRO, 8.25%, 8/1/2009 ............................ 100 101
Abbey National PLC Global Medium-Term
Note, 6.69%, 10/17/2005 ............................ 650 624
Associates Corp. of North America, 6.625%,
5/15/2001 .......................................... 200 200
Capital One Bank, 8.125%, 3/1/2000 ................... 100 100
Crestar Financial Corp., 8.25%, 7/15/2002 ............ 100 102
Den Danske Bank, 6.375%, 6/15/2008 ................... 350 338
FINOVA Capital Corp., 6.5%, 7/28/2002 ................ 600 588
Firststar Bank, 7.125%, 12/1/2009 .................... 700 676
Ford Motor Credit Co., 7.75%, 3/15/2005 .............. 100 102
General Electric Capital Corp., 8.625%,
6/15/2008 .......................................... 750 810
General Electric Capital Corp., 8.75%,
5/21/2007 .......................................... 50 54
Kansallis Osake Bank, 10%, 5/1/2002 .................. 100 106
Merrill Lynch & Co., Inc., 6%, 2/17/2009 ............. 750 672
NationsBank Corp., 9.5%, 6/1/2004 .................... 200 216
Northern Trust Co., 6.25%, 6/2/2008 .................. 500 455
PNC Funding Corp., 7%, 9/1/2004 ...................... 400 393
Scotland International, 8.8%, 1/27/2004 .............. 50 52
Svenska Handelsbanken, 7.125%,
3/29/2049 .......................................... 50 46
Wells Fargo & Co., 6.875%, 4/1/2006 .................. 500 487
-------
6,122
-------
Media 6.6%
AMFM, Inc., 8%, 11/1/2008 ............................ 750 752
Cablevision Systems Corp., 7.875%,
12/15/2007 ......................................... 1,000 982
Comcast Cable Communications, 8.5%,
5/1/2027 ........................................... 100 106
News America Holdings, Inc., 8.15%,
10/17/2036 ......................................... 300 287
News America Holdings, Inc., 9.25%,
2/1/2013 ........................................... 75 82
TCI-Communications, Inc., 8%, 8/1/2005 ............... 507 522
The accompanying notes are an integral part of the financial statements.
16 | Kemper Variable Series -
Kemper Investment Grade Bond Portfolio
<PAGE>
(Dollars in thousands)
Principal
Amount Value
- --------------------------------------------------------------------------------
Tele-Communications, Inc., 9.8%,
2/1/2012 ........................................... $ 350 $ 409
Time Warner, Inc., 9.125%, 1/15/2013 ................. 850 931
Time Warner, Inc., 9.15%, 2/1/2023 ................... 500 559
-------
4,630
-------
Durables 2.7%
Delphi Automotive Systems Corp.,
6.5%, 5/1/2009 ..................................... 500 454
Ford Motor Credit Corp., 7.375%,
10/28/2009 ......................................... 750 743
Lear Corp., 7.96%, 5/15/2005 ......................... 750 715
-------
1,912
-------
Manufacturing 0.6%
Dow Chemical Co., 7.375%, 11/1/2029 .................. 400 382
-------
Technology 1.3%
IBM Corp., 5.1%, 11/10/2003 .......................... 1,000 933
-------
Energy 4.7%
Apache Finance Canada, 7.75%,
12/15/2029 ......................................... 650 632
Conoco, Inc., 6.35%, 4/15/2009 ....................... 1,000 926
Petroleum Geo-Services, 7.5%, 3/31/2007 .............. 1,000 978
Principal
Amount Value
- --------------------------------------------------------------------------------
Williams Gas Pipeline Center, 7.375%,
11/15/2006 ........................................... $ 750 $ 741
-------
3,277
-------
Transportation 0.9%
Continental Airlines, Inc., 6.9%, 1/2/2017 ........... 49 46
Continental Airlines, Inc., 7.75%, 7/2/2014 .......... 46 46
Delta Air Lines, Inc., 7.9%, 12/15/2009 .............. 200 196
Delta Air Lines, Inc., 8.3%, 12/15/2029 .............. 350 345
-------
633
-------
Utilities 3.7%
Cincinnati Bell, Inc., 6.3%, 12/1/2028 ............... 300 228
Cleveland Electric Illumination Co., 7.67%,
7/1/2004 ............................................. 750 739
Commonwealth Edison Co., 7.375%,
1/15/2004 ............................................ 550 552
El Paso Electric Co. First Mortgage,
Series D, 8.9%, 2/1/2006 ............................. 350 364
GTE North, Inc., 6.9%, 11/1/2008 ..................... 100 97
Niagara Mohawk Power Corp., 6.625%,
7/1/2005 ............................................. 600 577
-------
2,557
-------
- --------------------------------------------------------------------------------
Total Corporate Bonds (Cost $33,385) 32,188
- --------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $72,186) (a) $ 69,938
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper Investment Grade Bond Portfolio of Investments
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $72,647. At December 31, 1999,
net unrealized depreciation for all securities based on tax cost was $2,709.
This consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $13 and aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over market value of $2,722.
The accompanying notes are an integral part of the financial statements.
17 | Kemper Variable Series -
Kemper Investment Grade Bond Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
(in thousands)
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------
Investments in securities, at value (cost $72,186) ............... $ 69,938
Interest receivable .............................................. 1,168
Receivable for Portfolio shares sold ............................. 31
--------
Total assets ..................................................... 71,137
--------
Liabilities
- --------------------------------------------------------------------------------
Due to custodian bank ............................................ 43
Payable for Portfolio shares redeemed ............................ 67
Accrued management fee ........................................... 38
Other accrued expenses and payables .............................. 11
--------
Total liabilities ................................................ 159
- --------------------------------------------------------------------------------
Net assets, at value $ 70,978
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ....................... 3,221
Net unrealized appreciation (depreciation) on investments ........ (2,248)
Accumulated net realized gain (loss) ............................. (1,989)
Paid-in capital .................................................. 71,994
- --------------------------------------------------------------------------------
Net assets, at value $ 70,978
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Net Asset Value and redemption price per share
($70,978 / 64,475 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares --------
authorized) .................................................... $ 1.100
--------
- --------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
- -------------------------------------------------------------------------------------
<S> <C>
Interest .................................................................. $ 3,913
-------
Expenses:
Management fee ............................................................ 385
Services to shareholders .................................................. 5
Custodian fees ............................................................ 6
Auditing .................................................................. 4
Legal ..................................................................... 2
Trustees' fees and expenses ............................................... 8
Reports to shareholders ................................................... 8
Registration fees ......................................................... 1
-------
Total expenses before expense reductions .................................. 419
Expense reductions ........................................................ (2)
-------
Total expenses after expense reductions ................................... 417
- -------------------------------------------------------------------------------------
Net investment income (loss) 3,496
- -------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -------------------------------------------------------------------------------------
Net realized gain (loss) from investments ................................. (1,973)
Net unrealized appreciation (depreciation) during the period
on investments ......................................................... (2,803)
- -------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (4,776)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (1,280)
- -------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 | Kemper Variable Series -
Kemper Investment Grade Bond Portfolio
<PAGE>
(in thousands)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) .......................................................... $ 3,496 $ 1,701
Net realized gain (loss) .............................................................. (1,973) 286
Net unrealized appreciation (depreciation) on investment transactions during the period (2,803) 402
-------- --------
Net increase (decrease) in net assets resulting from operations ....................... (1,280) 2,389
-------- --------
Distributions to shareholders:
From net investment income ............................................................ (1,573) (587)
-------- --------
From net realized gains ............................................................... (524) (199)
-------- --------
Portfolio share transactions:
Proceeds from shares sold ............................................................. 32,477 41,663
Reinvestment of distributions ......................................................... 2,097 785
Cost of shares redeemed ............................................................... (12,374) (7,400)
-------- --------
Net increase (decrease) in net assets from Portfolio share transactions ............... 22,200 35,048
-------- --------
Increase (decrease) in net assets ..................................................... 18,823 36,651
Net assets at beginning of period ..................................................... 52,155 15,504
-------- --------
Net assets at end of period (including undistributed net investment income (loss) of
$3,221 and $1,579, respectively) .................................................... $ 70,978 $ 52,155
-------- --------
Other Information
- --------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 44,781 13,863
-------- --------
Shares sold ........................................................................... 28,913 36,790
Shares issued to shareholders in reinvestment of distributions ........................ 1,879 715
Shares redeemed ....................................................................... (11,098) (6,587)
-------- --------
Net increase (decrease) in Portfolio shares ........................................... 19,694 30,918
-------- --------
Shares outstanding at end of period ................................................... 64,475 44,781
-------- --------
</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, 1999 1998 1997 1996(b)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.165 1.118 1.036 1.000
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .060(a) .032 .066 .031
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.085) .055 .026 .005
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.025) .087 .092 .036
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.030) (.030) (.010) --
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments transactions (.010) (.010) -- --
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.040) (.040) (.010) --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.100 1.165 1.118 1.036
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (2.06) 7.93 9.04 3.57**
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 70,978 52,155 15,504 1,998
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .65 .67 .80 .87*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .65 .67 .80 .87*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 5.42 5.50 6.23 4.93*
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 131 130 311 75*
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1996 (commencement of operations) to
December 31, 1996.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
19 | Kemper Variable Series -
Kemper Investment Grade Bond Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper High Yield Portfolio
Fears of rising inflation and strong economic growth here and abroad led the Fed
to adopt a tightening bias throughout the latter half of 1999, creating a number
of challenges for the high-yield market and the Kemper High Yield Portfolio.
Nonetheless, conditions improved late in the year and we enter the new year with
cautious optimism.
In addition to the Fed's two second-half interest rate hikes, the market was
hampered earlier in the year by an increase in default rates. Many oil companies
could not withstand the cheap oil prices in 1998 and were a large component of
the defaults in 1999, followed by a number of companies which had poor business
plans. Late in the year, though, the default outlook improved as these weak
companies fell by the wayside, resulting in gains for the portfolio. The
portfolio in fiscal 1999 continued to stress single "B" bonds. Because of the
shorter duration and better coupon rate, single "B" bonds have a tendency to
outperform the Treasury market when interest rates are rising.
Going forward into 2000, we expect a healthy start for the high-yield market and
believe that -- as buyers are lured back by higher yields -- the portfolio is
well positioned.
Harry E. Resis, Jr.
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper High Yield Portfolio from
4/6/1982 to 12/31/1999
- --------------------------------------------------------------------------------
The Salomon Brothers Long-Term Yield Bond Index is on a total return basis with
all dividends reinvested and is composed of high-yield bonds with a par value of
$50 million or higher and a remaining maturity of ten years or longer rated BB+
or lower by Standard & Poor's Corporation or Ba1 or lower by Moody's Investors
Service, Inc. This index is unmanaged. The Consumer Price Index is a statistical
measure of change, over time, in the prices of goods and services in major
expenditure groups for all urban consumers. It is generally considered to be a
measure of inflation. The DLJ High Yield Index is designed to mirror the
investable universe of the U.S. dollar-denominated high-yield market. The index
includes $302 billion in tradable securities.
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Salomon Brothers
Kemper High Yield Long-Term High Consumer Price DLJ High
Portfolio Yield Bond Index Index Yield Index
1982.25 10000 10000 10000 10000
1982.5 9972 10078 10222 10130
1982.75 11369 11992 10318 11829
1983 12395 12946 10285 13101
1983.25 13358 15087 10320 14584
1983.5 13614 15191 10486 15083
1983.75 13845 15662 10616 15299
1984 14214 15872 10677 15760
1984.25 14388 15972 10811 16030
1984.5 14201 15371 10930 15312
1984.75 15163 16886 11064 16644
1985 15995 17376 11098 17243
1985.25 16607 18523 11214 18133
1985.5 18052 19588 11338 19185
1985.75 18392 20149 11416 20765
1986 19448 21315 11518 22190
1986.25 20683 23091 11469 24147
1986.5 21609 24088 11536 25072
1986.75 21989 24228 11617 25201
1987 22876 24747 11648 25659
1987.25 24188 26436 11817 27220
1987.5 23993 26222 11965 26827
1987.75 23860 25661 12118 26706
1988 24208 25876 12163 27334
1988.25 26211 27769 12278 28888
1988.5 26969 28809 12437 29273
1988.75 27371 29474 12626 29790
1989 27998 30048 12700 30458
1989.25 28482 30817 12890 30989
1989.5 29359 31938 13079 32106
1989.75 28902 30891 13173 31443
1990 27656 29718 13289 30577
1990.25 26426 28200 13563 29788
1990.5 27941 29593 13690 31498
1990.75 24357 26826 13985 28650
1991 23383 27170 14100 28626
1991.25 29634 33227 14227 33926
1991.5 31633 34870 14332 36441
1991.75 34652 37011 14459 39229
1992 35502 38925 14533 41150
1992.25 39353 41995 14681 44519
1992.5 40399 43676 14776 45612
1992.75 41433 45727 14890 47259
1993 41810 46390 14952 48005
1993.25 44254 49523 15131 50875
1993.5 46445 52292 15216 53484
1993.75 47139 53767 15290 54694
1994 50168 55644 15364 56647
1994.25 48961 53774 15510 55631
1994.5 48729 52577 15596 55471
1994.75 49073 53187 15743 55708
1995 49039 53533 15774 55491
1995.25 51556 57854 15953 58756
1995.5 53957 62952 16070 62257
1995.75 55709 65457 16144 64253
1996 57570 69242 16175 66412
1996.25 59107 68808 16407 67848
1996.5 60168 68781 16512 69114
1996.75 63264 70966 16628 72253
1997 65664 74678 16713 75066
1997.25 65628 74797 16860 75712
1997.5 69173 79771 16892 79208
1997.75 72175 84317 16987 82805
1998 73288 87916 16999 84235
1998.25 76027 91430 17096 87183
1998.5 76614 93567 17178 87734
1998.75 71510 91343 17240 82221
1999 74352 96064 17271 84696
1999.25 76446 97434 17385 86550
1999.5 76275 96419 17512 87354
1999.75 74569 94745 17691 85905
12/31/99 75953 96332 17734 87737
- --------------------------------------------------------------------------------
Average Annual Total Return^1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life of
For the periods ended December 31, 1999 1-year 5-year 10-year portfolio
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper High Yield Portfolio 2.15% 9.15% 10.63% 12.11% (Since 4/6/1982)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment
income and capital gain or loss from portfolio investments over the
periods specified, assuming reinvestment of all dividends. Average
annual total return reflects annualized change while 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.
Investment by the portfolio in lower-rated and non-rated bonds presents
greater risk to principal and income than investments in higher-quality
securities.
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.
20 | Kemper Variable Series -
Kemper High Yield Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper High Yield Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreements 0.1%
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 2.8%,
1/3/2000, to be repurchased at $271 (b) -------
(Cost $271) ...................................... $ 271 $ 271
-------
- --------------------------------------------------------------------------------
Commercial Paper 2.9%
- --------------------------------------------------------------------------------
Conagra, Inc., 6.42%, 1/5/2000 ..................... 2,000 1,998
Countrywide Home Loans Inc., 6.6%,
1/6/2000 ......................................... 4,335 4,331
Pitney Bowes Credit Corp., 5.2%,
1/28/2000 ........................................ 5,000 4,981
- --------------------------------------------------------------------------------
Total Commercial Paper (Cost $11,310) 11,310
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporate Bonds 94.8%
- --------------------------------------------------------------------------------
Consumer Discretionary 13.4%
AFC Enterprises, 10.25%, 5/15/2007 ..................... 3,900 3,920
AMF Bowling, Inc, 10.875%, 3/15/2006 ................... 2,540 1,067
AMF Bowling, Inc., Step-up Coupon,
0% to 3/15/2001, 12.25% to 3/15/2006 ................. 2,320 766
Advantica Restaurant Co., 11.25%,
1/15/2008 ............................................ 2,875 2,149
Avis Rent A Car, 11%, 5/1/2009 ......................... 2,460 2,583
Avis Rent A Car, 11%, 5/1/2009 ......................... 250 263
Avondale Mills, 10.25%, 5/1/2006 ....................... 1,490 1,326
Boca Resorts, Inc., 9.875%, 4/15/2009 .................. 1,630 1,581
Cinemark USA, Inc., 8.5%, 8/1/2008 ..................... 1,300 1,131
Cinemark USA, Inc., Series D, 9.625%,
8/1/2008 ............................................. 100 92
Cole National Group, Inc., 9.875%,
12/31/2006 ........................................... 760 566
Cole National Group Inc., 8.625%,
8/15/2007 ............................................ 910 655
Color Tile, Inc., 10.75%, 12/15/2001* .................. 1,470 15
Eldorado Resorts, 10.5%, 8/15/2006 ..................... 2,010 2,050
Finlay Enterprises, Inc., 9%, 5/1/2008 ................. 550 501
Finlay Fine Jewelry Co., 8.375%, 5/1/2008 .............. 1,350 1,242
Galey & Lord, Inc., 9.125%, 3/1/2008 ................... 2,410 578
Guitar Center Management, 11%,
7/1/2006 ............................................. 1,570 1,539
Harvey's Casino Resorts, 10.625%,
6/1/2006 ............................................. 1,340 1,387
Hedstrom Corp., 10%, 6/1/2007 .......................... 840 50
Herff Jones, Inc., 11%, 8/15/2005 ...................... 1,100 1,167
Hines Horticulture, Inc., 11.75%,
10/15/2005 ........................................... 2,096 2,159
Hollywood Entertainment Corp., Series B,
10.63%, 8/15/2004 .................................... 2,060 1,906
Horseshoe Gaming Holdings, 8.625%,
5/15/2009 ............................................ 330 318
Principal
Amount Value
- --------------------------------------------------------------------------------
Horseshoe Gaming L.L.C.,
9.375%, 6/15/2007 ................................ $ 390 $ 388
Imperial Home Decor Group, Inc.,
11%, 3/15/2008 ................................... 1,050 199
International Game Technology,
8.375%, 5/15/2009 ................................ 1,300 1,248
Iron Age Holdings Corp., Step-up Coupon,
0% to 5/1/2003, 12.125% to 5/1/2009 .............. 570 142
Iron Age Holdings Corp.,
9.875%, 5/1/2008 ................................. 1,090 817
J. Crew Group, Step-up Coupon, 0% to
10/15/2002, 13.125% to 10/15/2008 ................ 2,930 1,524
J. Crew Group, 10.375%, 10/15/2007 ................. 1,655 1,390
Krystal Inc., 10.25%, 10/1/2007 .................... 2,210 2,188
Mohegan Tribal Gaming Authority,
8.125%, 1/1/2006 ................................. 440 427
Mohegan Tribal Gaming Authority,
8.75%, 1/1/2009 .................................. 3,330 3,280
National Vision Association, Ltd.,
12.75%, 10/15/2005 ............................... 2,480 992
Park Place Entertainment, Inc.,
7.875%, 12/15/2005 ............................... 290 277
Perkins Finance, L.P.,
10.125%, 12/15/2007 .............................. 2,250 2,272
Pillowtex Corp., 10%, 11/15/2006 ................... 80 36
Pillowtex Corp., 9%, 12/15/2007 .................... 380 169
Players International, 10.875%, 4/15/2005 .......... 880 926
Regal Cinemas, Inc., 9.5%, 6/1/2008 ................ 2,260 1,706
Regal Cinemas, Inc., 8.875%, 12/15/2010 ............ 600 423
Restaurant Co., Step-up Coupon, 0% to
5/15/2003, 11.25% to 5/15/2008 ................... 1,490 879
Sealy Mattress Co., Step-up Coupon, 0% to
12/15/2002, 10.875% to 12/15/2007 ................ 910 637
Specialty Retailers, Inc., 8.5%, 7/15/2005 ......... 540 389
Specialty Retailers, Inc., 9%, 7/15/2007 ........... 2,400 1,344
Station Casinos, Inc., 10.125%, 3/15/2006 .......... 860 875
Station Casinos, Inc., 9.75%, 4/15/2007 ............ 680 685
-------
52,224
-------
Consumer Staples 0.6%
Dyersburg Corp., 9.75%, 9/1/2007 ................... 1,260 504
Jafra Cosmetics International, Inc.,
11.75%, 5/1/2008 ................................. 1,710 1,650
-------
2,154
-------
Health 1.9%
ALARIS Medical Systems, Inc.,
Step-up Coupon, 0% to 8/1/2003,
11.125% to 8/1/2008 .............................. 1,150 472
Dade International, Inc.,
11.125%, 5/1/2006 ................................ 2,500 2,450
MEDIQ, Inc., 11%, 6/1/2008 ......................... 780 312
Magellan Health Services, Inc.,
9%, 2/15/2008 .................................... 2,410 1,952
The accompanying notes are an integral part of the financial statements.
21 | Kemper Variable Series -
Kemper High Yield Portfolio
<PAGE>
(Dollars in thousands)
Principal
Amount Value
- --------------------------------------------------------------------------------
Mariner Post-Acute Network, Inc.,
Step-up Coupon, 0% to 11/1/2002,
10.5% to 11/1/2007 ................................. $4,340 $ 65
Mariner Post-Acute Network, Inc.,
10.5%, 8/1/2006 .................................... 2,060 1,936
Vencor, Inc., 9.875%, 5/1/2005* ...................... 1,510 302
-------
7,489
-------
Communications 26.7%
21st Century Telecom Group, Inc.,
Step-up Coupon, 0% to 2/15/2003,
12.25% to 2/15/2008 ................................ 1,550 1,039
Allegiance Telecom, Inc., Step-up Coupon,
0% to 2/15/2003, 11.75% to 2/15/2008 ............... 1,790 1,289
Allegiance Telecom, Inc.,
12.875%, 5/15/2008 ................................. 2,075 2,303
American Cellular Corp.,
10.5%, 5/15/2008 ................................... 2,240 2,486
Bresnan Communications Co.,
Step-up Coupon, 0% to 2/1/2004,
9.25% to 2/1/2009 .................................. 690 476
Bresnan Communications Co.,
8%, 2/1/2009 ....................................... 330 332
Call-Net Enterprises, Inc., Step-up Coupon
0% to 8/15/2002, 9.27% to 8/15/2007 ................ 1,050 588
Call-Net Enterprises, Inc., Step-up Coupon,
0% to 5/15/2004, 10.8% to 5/15/2009 ................ 840 395
Call-Net Enterprises, Inc., Step-up Coupon,
0% to 8/15/2003, 8.94% to 8/15/2008 ................ 1,360 666
Call-Net Enterprises, Inc.,
9.375%, 5/15/2009 .................................. 710 586
Century Communications Corp.,
8.375%, 12/15/2007 ................................. 550 518
Comunicacion Cellular, S.A.,
Step-up Coupon, 0% to 9/29/2000,
14.125% to 3/1/2005 ................................ 2,400 1,320
Crown Castle International Corp.,
Step-up Coupon, 0% to 11/15/2002,
10.625% to 11/15/2007 .............................. 2,500 1,900
Crown Castle International Corp.,
9.5%, 8/1/2011 ..................................... 300 300
Dobson Communication Corp.,
11.75%, 4/15/2007 .................................. 2,520 2,873
Dolphin Telecom, PLC, Step-up Coupon,
0% to 5/15/2004, 14% to 5/15/2009 .................. 1,240 558
Esprit Telecom Group, PLC,
11.5%, 12/15/2007 .................................. 1,625 1,625
Esprit Telecom Group, PLC,
10.875%, 6/15/2008 ................................. 800 796
Global Telesystems Group,
9.875%, 2/15/2005 .................................. 930 856
ICG Holdings, Inc., Step-up Coupon, 0% to
9/15/2000, 13.5% to 9/15/2005 ...................... 5,050 4,368
IPC Communications, Inc., Step-up Coupon,
0% to 11/1/2001, 10.875% to 5/1/2008 ............... 3,840 2,842
Impsat Corp., 12.375%, 6/15/2008 ..................... 1,805 1,606
Intermedia Communications of Florida, Inc.,
Step-up Coupon, 0% to 5/15/2001,
12.5% to 5/15/2006 ................................. 1,880 1,659
Intermedia Communications of Florida, Inc.,
Step-up Coupon, 0% to 7/15/2002,
11.25% to 7/15/2007 ................................ 2,570 1,928
Principal
Amount Value
- --------------------------------------------------------------------------------
KMC Telecom Holdings, Inc.,
Step-up Coupon, 0% to 2/15/2003,
12.5% to 2/15/2008 ................................. $3,840 $2,189
KMC Telecom Holdings, Inc.,
13.5%, 5/15/2009 ................................... 1,880 1,880
Level 3 Communications, Inc.,
9.125%, 5/1/2008 ................................... 2,690 2,532
Long Distance Direct Holdings, Inc.,
12.25%, 4/15/2008 .................................. 1,300 689
MGC Communications, 13%, 10/1/2004 ................... 2,000 2,010
McLeod USA, Inc., Step-up Coupon, 0% to
3/1/2002, 10.5% to 3/1/2007 ........................ 2,420 1,960
McLeod USA, Inc., 9.25%, 7/15/2007 ................... 1,040 1,040
McLeod USA, Inc., 9.5%, 11/1/2008 .................... 1,400 1,418
MetroNet Communications Corp.,
Step-up Coupon, 0% to 6/15/2003,
9.95% to 6/15/2008 ................................... 1,440 1,138
MetroNet Communications Corp.,
Step-up Coupon, 0% to 11/1/2002,
10.75% to 11/1/2007 ................................ 780 647
MetroNet Communications Corp.,
12%, 8/15/2007 ..................................... 550 635
MetroNet Communications Corp.,
10.625%, 11/1/2008 ................................. 1,410 1,592
Metromedia Fiber Network, Inc.,
10%, 11/15/2008 .................................... 2,000 2,040
Metromedia Fiber Network, Inc.,
10%, 12/15/2009 .................................... 960 979
Millicom International Cellular, S.A.,
Step-up Coupon, 0% to 6/1/2001,
13.5% to 6/1/2006 .................................. 3,340 2,756
Netia Holdings, Step-up Coupon, 0% to
11/1/2001, 11.25% to 11/1/2007 ..................... 1,395 872
Netia Holdings, 10.25%, 11/1/2007 .................... 1,125 956
Nextel Communications, Inc.,
Step-up Coupon, 0% to 2/15/2003,
9.95% to 2/15/2008 ................................. 2,760 1,932
Nextel Communications, Inc.,
Step-up Coupon, 0% to 9/15/2002,
10.65% to 9/15/2007 ................................ 1,225 919
Nextel Communications, Inc.,
Step-up Coupon, 0% to 10/31/2002,
9.75% to 10/31/2007 ................................ 940 667
Nextel Communications, Inc.,
9.75%, 8/15/2004 ................................... 4,700 4,859
Nextlink Communications, Inc.,
Step-up Coupon, 0% to 4/15/2003,
9.45% to 4/15/2008 ................................. 920 582
Nextlink Communications, Inc.,
Step-up Coupon, 0% to 6/1/2004,
12.25% to 6/1/2009 ................................. 4,000 2,440
Nextlink Communications, Inc.,
12.5%, 4/15/2006 ................................... 950 1,017
Nextlink Communications, Inc.,
10.75%, 11/15/2008 ................................. 2,000 2,060
PTC International Finance, Step-up Coupon,
0% to 7/1/2002, 10.75% to 7/1/2007 ................. 1,440 965
PTC International Finance,
11.25%, 12/1/2009 .................................. 360 353
The accompanying notes are an integral part of the financial statements.
22 | Kemper Variable Series -
Kemper High Yield Portfolio
<PAGE>
(Dollars in thousands)
Principal
Amount Value
- --------------------------------------------------------------------------------
Pinnacle Holdings, Inc., Step-up Coupon,
0% to 3/15/2003, 10% to 3/15/2008 ................ $ 540 $ 348
Price Communications Wireless,
9.125%, 12/15/2006 ............................... 2,490 2,552
Primus Telecommunications Group,
11.75%, 8/1/2004 ................................. 1,660 1,656
Primus Telecommunications Group,
11.25%, 1/15/2009 ................................ 480 463
Primus Telecommunications Group,
12.75%, 10/15/2009 ............................... 860 890
RCN Corp., Step-up Coupon, 0% to
7/1/2003, 11% to 7/1/2008 ........................ 900 589
RCN Corp., 10%, 10/15/2007 ......................... 100 99
Rogers Cantel, 9.75%, 6/1/2016 ..................... 2,000 2,230
SBA Communications Corp.,
Step-up Coupon, 0% to 3/1/2003,
12% to 3/1/2008 ................................ 1,500 915
Telecorp PCS, Inc., Step-up Coupon, 0% to
4/1/2004, 11.625% to 4/15/2009 ..................... 750 472
Teligent, Inc., Step-up Coupon, 0% to
3/1/2003, 11.5% to 3/1/2008 ...................... 1,000 590
Teligent, Inc., 11.5%, 12/1/2007 ................... 1,150 1,121
TriTel Pcs, Inc., Step-up Coupon, 0% to
5/15/2004, 12.75% to 5/15/2009 ................... 1,820 1,147
Triton Communications, L.L.C.,
Step-up Coupon, 0% to 5/1/2003,
11% to 5/1/2008 .................................. 4,470 3,162
U.S. Xchange, L.L.C., 15%, 7/1/2008 ................ 1,140 1,060
USA Mobile Communications Holdings, Inc.,
14%, 11/1/2004 ................................... 1,070 942
United Pan-Europe Communications,
Step-up Coupon, 0% to 11/1/2004,
13.375% to 11/1/2009 ............................. 1,250 709
United Pan-Europe Communications,
10.875%, 11/1/2007 ............................... 1,500 1,534
Versatel Telecom, 13.25%, 5/15/2008 ................ 910 969
Versatel Telecom, 13.25%, 5/15/2008 ................ 520 554
Versatel Telecom, 11.875%, 7/15/2009 ............... 410 418
Viatel, Inc., Step-up Coupon, 0% to
4/15/2003, 12.5% to 4/15/2008 .................... 1,880 1,170
Viatel, Inc., 11.25%, 4/15/2008 .................... 420 415
Viatel, Inc., 11.5%, 3/15/2009 ..................... 467 462
Voicestream Wireless Corp.,
10.375%, 11/15/2009 .............................. 2,790 2,874
Western Wireless Corp., 10.5%, 2/1/2007 ............ 1,200 1,296
Winstar Equipment II, 12.5%, 3/15/2004 ............. 760 821
-------
103,894
-------
Financial 1.3%
Intertek Finance, PLC, 10.25%, 11/1/2006 ........... 940 879
Kappa Beheer BV, 10.625%, 7/15/2009 ................ 1,070 1,115
Spectrasite Holdings, Inc., Step-up Coupon,
0% to 4/15/2004, 11.25% to 4/15/2009 ............... 2,160 1,145
Spectrasite Holdings, Inc., Step-up Coupon,
0% to 7/15/2003, 12% to 7/15/2008 .................. 3,000 1,785
-------
4,924
-------
Media 16.4%
AMFM, Inc., Step-up Coupon, 0% to
2/1/2002, 12.75% to 2/1/2009 ....................... 2,570 2,262
AMFM, Inc., 9%, 10/1/2008 .......................... 480 499
AMFM, Inc., 8%, 11/1/2008 .......................... 1,900 1,905
Principal
Amount Value
- --------------------------------------------------------------------------------
Adelphia Communications Corp.,
7.875%, 5/1/2009 ................................... $ 370 $ 333
Adelphia Communications Corp.,
9.375%, 11/15/2009 ................................. 1,550 1,527
American Lawyer Media, Inc.,
Step-up Coupon, 0% to 12/15/2002,
12.25% to 12/15/2008 ............................... 1,160 803
Australis Holdings, Step-up Coupon 0% to
11/1/2000, 15% to 11/1/2002* ....................... 3,660 37
Australis Holdings, Zero coupon,
11/1/2000* ......................................... 114 87
Avalon Cable Holdings LLC,
Step-up coupon, 0% to 12/1/2003,
11.875% to 12/1/2008, 12/1/2008 .................... 1,870 1,220
Avalon Cable of Michigan,
9.375%, 12/1/2008 .................................. 280 283
CSC Holdings Inc., Senior Note,
7.25%, 7/15/2008 ................................... 500 471
CSC Holdings, Inc., 9.25%, 11/1/2005 ................. 1,000 1,023
CSC Holdings, Inc., 8.125%, 7/15/2009 ................ 400 398
CSC Holdings, Inc., 8.125%, 8/15/2009 ................ 1,010 1,001
CSC Holdings, Inc., 9.875%, 2/15/2013 ................ 1,145 1,197
CSC Holdings, Inc., 10.5%, 5/15/2016 ................. 1,640 1,812
Cablevision Systems Corp.,
7.875%, 12/15/2007 ................................. 270 265
Century Communications Corp.,
9.5%, 3/1/2005 ..................................... 140 140
Chancellor Media Corp.,
8.125%, 12/15/2007 ................................. 680 683
Charter Communication Holdings LLC,
Step-up Coupon, 0% to 4/1/2004,
9.92% to 4/1/2011 .................................. 2,380 1,392
Charter Communications Holdings LLC,
Step-up Coupon, 0% to 4/1/2004,
9.92% to 4/1/2011 .................................. 1,800 1,053
Charter Communication Holdings LLC,
8.25%, 4/1/2007 .................................... 4,200 3,885
Comcast UK Cable Partners, Ltd.,
Step-up Coupon 0% to 11/15/2000,
11.2% to 11/15/2007 ................................ 3,130 2,942
Diamond Cable Communications, PLC,
13.25%, 9/30/2004 .................................. 1,990 2,129
Echostar DBS Corp., 9.25%, 2/1/2006 .................. 1,300 1,300
Echostar DBS Corp., 9.375%, 2/1/2009 ................. 1,320 1,323
Falcon Holding Group, Step-up Coupon,
0% to 4/15/2003, 9.285% to 4/15/2010 ............... 1,840 1,366
Falcon Holding Group LP,
8.375%, 4/15/2010 .................................. 2,260 2,283
Frontiervision, 11%, 10/15/2006 ...................... 860 914
Frontiervision Holdings, LP,
Step-up Coupon, 0% to 9/15/2001,
11.875% to 9/15/2007 ............................... 1,110 980
Interep National Radio Sales, Inc.,
10%, 7/1/2008 ...................................... 1,300 1,242
NTL Communications Corp.,
Step-up Coupon 0% to 10/1/2003,
12.375% to 10/1/2008 ............................... 620 436
NTL, Inc., Step-up Coupon, 0% to 2/1/2001,
11.5% to 2/1/2006 .................................. 680 612
NTL, Inc., 11.5%, 10/1/2008 .......................... 4,540 4,903
Outdoor Systems, Inc.,
9.375%, 10/15/2006 ................................. 2,395 2,506
The accompanying notes are an integral part of the financial statements.
23 | Kemper Variable Series -
Kemper High Yield Portfolio
<PAGE>
(Dollars in thousands)
Principal
Amount Value
- --------------------------------------------------------------------------------
Panavision, Inc., Step-up Coupon, 0% to
2/1/2002, 9.625% to 2/1/2006 ....................... $ 2,680 $ 1,313
Radio Unica Corp., Step-up Coupon, 0% to
8/1/2002, 11.75% to 8/1/2006 ....................... 1,500 979
Renaissance Media Group, Step-up Coupon,
0% to 4/15/2003, 10% to 4/15/2008 .................. 1,400 973
Rogers Cablesystems Ltd.,
10%, 3/15/2005 ..................................... 630 671
SFX Entertainment, Inc.,
9.125%, 2/1/2008 ................................... 3,245 3,058
SFX Entertainment, Inc.,
9.125%, 12/1/2008 .................................. 2,300 2,168
Sinclair Broadcasting Group, Inc.,
9%, 7/15/2007 ...................................... 350 329
Sinclair Broadcasting Group, Inc.,
8.75%, 12/15/2007 .................................. 550 507
Star Choice Communications, Inc.,
13%, 12/15/2005 .................................... 750 758
TeleWest Communications, PLC,
Step-up Coupon, 0% to 4/15/2004,
9.25% to 4/15/2009 ................................. 500 317
TeleWest Communications, PLC,
Step-up Coupon, 0% to 10/1/2000,
11% to 10/1/2007 ................................... 2,895 2,692
TeleWest Communications, PLC,
9.625%, 10/1/2006 .................................. 710 724
TeleWest Communications, PLC,
11.25%, 11/1/2008 .................................. 1,650 1,803
Transwestern Publishing,
Step-up Coupon, 0% to 11/15/2002,
11.875% to 11/15/2008 .............................. 420 302
Transwestern Publishing,
9.625%, 11/15/2007 ................................. 950 943
United International Holdings,
Step-up Coupon, 0% to 2/15/2003,
10.75% to 2/15/2008 ................................ 1,650 1,052
-------
63,801
-------
Service Industries 5.2%
Burhmann US, Inc., 12.25%, 11/1/2009 ............... 2,420 2,493
Coinmach Corp., 11.75%, 11/15/2005 ................. 4,890 5,037
ImPac Group, Inc., 10.125%, 3/15/2008 .............. 4,630 4,213
Integrated Electrical Services, Inc.,
9.375%, 2/1/2009 ................................... 1,950 1,911
Kindercare Learning Centers, Inc.,
9.5%, 2/15/2009 .................................... 2,300 2,243
La Petite Academy, Inc., 10%, 5/15/2008 ............ 2,170 1,595
Spincycle, Inc., Step-up Coupon, 0% to
5/1/2001, 12.75% to 5/1/2005 ....................... 1,520 334
Verio, Inc., 11.25%, 12/1/2008 ..................... 710 745
Verio, Inc., 10.625%, 11/15/2009 ................... 1,440 1,476
-------
20,047
-------
Durables 2.4%
Accuride Corp., 9.25%, 2/1/2008 .................... 760 695
Airxcel, 11%, 11/15/2007 ........................... 1,920 1,766
DeCrane Aircraft Holdings, Inc.,
12%, 9/30/2008 ..................................... 1,180 1,086
Fairchild Corp., 10.75%, 4/15/2009 ................. 1,500 1,275
Transdigm, Inc., 10.375%, 12/1/2008 ................ 1,625 1,446
United Rentals, Inc., 9.25%, 1/15/2009 ............. 1,940 1,858
Principal
Amount Value
- --------------------------------------------------------------------------------
United Rentals, Inc., 9%, 4/1/2009 ................... $1,170 $1,100
-------
9,226
-------
Manufacturing 15.4%
Agriculture, Mining and Chemicals, Inc.,
10.75%, 9/30/2003 .................................. 2,200 1,540
Atlantis Group, Inc., 11%, 2/15/2003 ................. 1,735 1,735
BPC Holdings Corp., 12.5%, 6/15/2006 ................. 800 768
Berry Plastics Corp., 12.25%, 4/15/2004 .............. 1,530 1,568
Consolidated Container Capital, Inc.,
10.125%, 7/15/2009 ................................. 480 488
Consumers International,
10.25%, 4/1/2005 ................................... 1,330 1,037
Day International Group, Inc.,
11.125%, 6/1/2005 .................................. 1,480 1,510
Delco Remy International,
10.625%, 8/1/2006 .................................. 1,380 1,394
Eagle-Picher Holdings, Inc.,
9.375%, 3/1/2008 ..................................... 1,810 1,566
Foamex, L.P., 13.5%, 8/15/2005 ....................... 1,130 1,074
Fonda Group, 9.5%, 3/1/2007 .......................... 1,340 1,119
GS Technologies, 12%, 9/1/2004 ....................... 1,090 523
GS Technologies, 12.25%, 10/1/2005 ................... 1,340 630
Gaylord Container Corp.,
9.75%, 6/15/2007 ................................... 1,600 1,508
Gaylord Container Corp.,
9.875%, 2/15/2008 .................................. 1,880 1,631
Graham Packaging Co., Step-up Coupon,
0% to 1/15/2003, 10.75% to 1/15/2009 ............... 580 400
Graham Packaging Co.,
8.75%, 1/15/2008 ................................... 580 557
Grove Holdings L.L.C., PIK, 14.5%,
5/1/2010 ........................................... 805 64
Grove Holdings L.L.C., Step-up Coupon,
0% to 5/1/2003, 11.625% to 5/1/2009 ................ 310 31
Hayes Wheels International, Inc.,
11%, 7/15/2006 ..................................... 1,750 1,829
Huntsman Package, 11.75%, 12/1/2004 .................. 2,650 2,623
Knoll, Inc., 10.875%, 3/15/2006 ...................... 1,156 1,185
Millar Western Forest Products, Ltd.,
9.875%, 5/15/2008 .................................. 1,580 1,580
Motors and Gears, Inc.,
10.75%, 11/15/2006 ................................. 640 621
NL Industries, Inc. , Senior Note,
11.75%, 10/15/2003 ................................. 5,780 5,953
Plainwell, Inc., 11%, 3/1/2008 ....................... 4,445 2,311
Printpack, Inc., 10.625%, 8/15/2006 .................. 1,440 1,382
Riverwood International Corp.,
10.25%, 4/1/2006 ................................... 780 790
Riverwood International Corp.,
10.625%, 8/1/2007 .................................. 200 206
Riverwood International Corp.,
10.875%, 4/1/2008 .................................. 7,440 7,328
SF Holdings Group, Inc., Step-up Coupon,
0% to 3/15/2003, 12.75% to 3/15/2008 ............... 2,030 1,137
Spinnaker Industries, 10.75%, 10/15/2006 ............. 1,760 1,351
Stone Container Corp., 12.25%, 4/1/2002 .............. 1,550 1,554
Stone Container Corp.,
10.75%, 10/1/2002 .................................. 1,000 1,030
The accompanying notes are an integral part of the financial statements.
24 | Kemper Variable Series -
Kemper High Yield Portfolio
<PAGE>
(Dollars in thousands)
Principal
Amount Value
- --------------------------------------------------------------------------------
Stone Container Corp., 11.5%, 8/15/2006 ............ $ 1,585 $ 1,680
Tenneco Automotive Inc.,
11.625%, 10/15/2009 .............................. 1,290 1,309
Terex Corp., 8.875%, 4/1/2008 ...................... 3,180 3,005
Terex Corp., 8.875%, 4/1/2008 ...................... 1,110 1,049
Terra Industries, Inc., 10.5%, 6/15/2005 ........... 570 399
Texas Petrochemicals, 11.125%, 7/1/2006 ............ 710 611
U.S. Can Corp., 10.125%, 10/15/2006 ................ 1,845 1,882
Venture Holdings, 11%, 6/1/2007 .................... 60 58
-------
60,016
-------
Technology 1.5%
Cherokee International Corp.,
10.5%, 5/1/2009 .................................. 710 625
Exodus Communications, Inc.,
10.75%, 12/15/2009 ............................... 240 244
PSINet, Inc., 10%, 2/15/2005 ....................... 440 436
PSINet, Inc., 11.5%, 11/1/2008 ..................... 1,350 1,411
PSINet, Inc., 11%, 8/1/2009 ........................ 2,430 2,496
Viasystems, Inc., 9.75%, 6/1/2007 .................. 1,380 759
-------
5,971
-------
Energy 2.0%
Benton Oil & Gas Co., 11.625%, 5/1/2003 ............ 755 525
Continental Resources, Inc.,
10.25%, 8/1/2008 ................................. 1,870 1,646
Gulfmark Offshore, Inc., 8.75%, 6/1/2008 ........... 770 708
Key Energy Services, Inc., 14%, 1/15/2009 .......... 690 752
Pen Holdings, Inc., 9.875%, 6/15/2008 .............. 625 591
Pride International, Inc., 10%, 6/1/2009 ........... 690 704
R&B Falcon Corp., 11%, 3/15/2006 ................... 580 621
R&B Falcon Corp., 9.5%, 12/15/2008 ................. 1,000 1,000
RAM Energy, 11.5%, 2/15/2008 ....................... 600 270
Stone Energy Corp., 8.75%, 9/15/2007 ............... 870 839
-------
7,656
-------
Metals & Minerals 3.1%
Euramax International, PLC,
11.25%, 10/1/2006 .................................... 1,470 1,507
MMI Products, Inc., 11.25%, 4/15/2007 ................ 1,925 1,983
Metal Management, Inc., 10%, 5/15/2008 ............... 1,820 1,374
Metals USA, Inc., 8.625%, 2/15/2008 .................. 2,030 1,903
Renco Steel Holdings Co., Series B,
10.875%, 2/1/2005 .................................. 2,330 2,027
Republic Tech International,
13.75%, 7/15/2009 .................................... 2,820 1,861
Wells Aluminum Corp., 10.125%,
6/1/2005 ........................................... 1,400 1,344
-------
11,999
-------
Construction 3.3%
Building Materials Corp., 8%, 12/1/2008 .............. 1,490 1,345
Del Webb Corp., 9.75%, 1/15/2008 ..................... 1,140 1,077
Dimac Corp., 12.5%, 10/1/2008 ........................ 1,540 570
Forecast Group, L.P., 11.375%,
12/15/2000 ......................................... 1,025 1,020
Fortress Group, 13.75%, 5/15/2003 .................... 880 484
Hovnanian Enterprises, Inc.,
9.75%, 6/1/2005 .................................... 560 538
Hovnanian Enterprises, Inc.,
9.125%, 5/1/2009 ................................... 1,090 1,041
Principal
Amount Value
- --------------------------------------------------------------------------------
Kevco, Inc., 10.375%, 12/1/2007 .................... $ 1,025 $ 277
Nortek, Inc., 9.875%, 3/1/2004 ..................... 1,970 1,940
Nortek, Inc., 9.125%, 9/1/2007 ..................... 1,300 1,261
Ryland Group, Inc., 8.25%, 4/1/2008 ................ 1,170 1,065
Standard Pacific Corp., 8%, 2/15/2008 .............. 330 300
Standard Pacific Corp., 8.5%, 4/1/2009 ............. 510 473
Toll Corp., 8.75%, 11/15/2006 ...................... 180 176
Toll Corp., 7.75%, 9/15/2007 ....................... 210 188
Toll Corp., 8%, 5/1/2009 ........................... 130 118
U.S. Home Corp., Senior Subordinated
Notes, 8.875%, 2/15/2009 ......................... 1,070 971
-------
12,844
-------
Transportation 1.6%
Petro Stopping Centers, 10.5%, 2/1/2007 ............ 2,520 2,337
TFM, S.A. de C.V., 10.25%, 6/15/2007 ............... 1,130 1,040
Trans World Airlines, Inc.,
11.375%, 3/1/2006 ................................ 960 384
Transtar Holdings, Inc.,
Step-up Coupon, 0% to 12/15/1999,
13.375% to 12/15/2003 ............................ 631 645
Travelcenters America, 10.25%, 4/1/2007 ............ 1,790 1,781
-------
6,187
-------
- --------------------------------------------------------------------------------
Total Corporate Bonds (Cost $410,876) .............. 368,432
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred Stocks 1.6%
- --------------------------------------------------------------------------------
Communications 0.8%
Cellular Telephone 0.2%
Dobson Communications, PIK, preferred .................. 911 950
Telephone/Communications 0.6%
21st Century Telecom Group, Inc.,
preferred ............................................ 251 213
Nextel Communications, Inc., PIK,
preferred ............................................ 1,780 1,798
-------
2,961
-------
Financial 0.2%
Real Estate
Crown American Realty Trust, preferred ................. 25,070 887
-------
Media 0.3%
Broadcasting & Entertainment
Sinclair Capital, preferred ............................ 13,000 1,300
-------
Manufacturing 0.3%
Containers & Paper 0.1%
SF Holdings Group, Inc., PIK, preferred* ............... 6 30
SF Holdings Group, Inc., PIK, preferred* ............... 30 150
-------
180
-------
Machinery/Components 0.2%
Eagle-Picher Holdings, Inc., preferred* ................ 170 782
-------
The accompanying notes are an integral part of the financial statements.
25 | Kemper Variable Series -
Kemper High Yield Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- --------------------------------------------------------------------------------
Energy 0.0%
Oil & Gas Production
Clark USA, PIK, preferred ............................ $ 3,231 $ 48
- --------------------------------------------------------------------------------
Total Preferred Stocks (Cost $7,019) 6,158
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks 0.6%
- --------------------------------------------------------------------------------
Communications 0.4%
Telephone/Communications
21st Century Telecom Group, Inc.,
Warrants* .......................................... 200 40
Benedek Communications Corp.,
Warrants* .......................................... 5,000 10
Communicacion Cellular, S.A., Warrants* .............. 2,200 110
Econophone, Inc., Warrants* .......................... 1,260 233
Intelcom Group, Inc., Warrants* ...................... 4,851 87
Intermedia Communications of Florida, Inc.,
Warrants* .......................................... 1,140 128
KMC Telecom Holdings, Inc., Warrants* ................ 1,950 8
Long Distance Direct Holdings, Inc.,
Warrants* .......................................... 1,300 3
MGC Communications ................................... 6,954 353
MetroNet Communications Corp.,
Warrants* .......................................... 550 50
Primus Telecommunications Group,
Warrants* .......................................... 1,000 50
Tele1 Europe BV, Warrants* ........................... 360 61
Versatel Telecom, Warrants* .......................... 1,430 572
Viatel, Inc. ......................................... 3 --
-------
1,705
-------
Financial 0.0%
Other Financial Companies
Ono Finance PLC, Warrants* ........................... 1,650 165
-------
Media 0.0%
Cable Television
Star Choice Communications, Inc.,
Warrants* .......................................... 17,370 48
UIH Australia Pacific, Inc., Warrants* ............... 750 22
Australis Holdings, Warrants* ........................ 3,720 --
-------
70
-------
Shares Value
- --------------------------------------------------------------------------------
Service Industries 0.0%
Miscellaneous Consumer
Spincycle, Inc., Warrants* ............................... $ 1,520 $ --
-------
Printing/Publishing
American Banknote Corp., Warrants* ....................... 1,200 --
-------
Durables 0.0%
Aerospace
Decrane Holdings Co., Warrants* .......................... 1,350 --
-------
Manufacturing 0.2%
Containers & Paper
Gaylord Container Corp. .................................. 92,250 628
SF Holdings Group, Inc.* ................................. 517 --
-------
628
-------
Energy 0.0%
Oil/Gas Transmission
Empire Gas Corp., Warrants* .............................. 2,070 --
-------
Oilfield Services/Equipment
Key Energy Services, Inc., Warrants* ..................... 690 17
-------
Metals & Minerals 0.0%
Steel & Metals
Gulf States Steel, Warrants* ............................. 1,810 --
-------
Technology 0.0%
Prescision Instruments
Bar Technologies, Warrants* .............................. 750 15
-------
Construction 0.0%
Building Materials
Waxman Industries, Inc., Warrants* ....................... 52,274 2
-------
Homebuilding
Capital Pacific Holdings, Warrants* ...................... 3,634 2
-------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $791) 2,604
- --------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $430,267) (a) $388,775
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
(a) The cost for federal income tax purposes was $430,624. At December 31,
1999, net unrealized depreciation for all securities based on tax cost was
$41,849. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$7,658 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $49,507.
(b) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
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
- --------------------------------------------------------------------------------
(in thousands)
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- ------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $430,267) .......................... $ 388,775
Interest receivable .......................................................... 8,222
Receivable for Portfolio shares sold ......................................... 45
----------
Total assets ................................................................. 397,042
Liabilities
- ------------------------------------------------------------------------------------------
Due to custodian bank ........................................................ 56
Payable for Portfolio shares redeemed ........................................ 472
Accrued management fee ....................................................... 220
Other accrued expenses and payables .......................................... 91
----------
Total liabilities ............................................................ 839
- ------------------------------------------------------------------------------------------
Net assets, at value $ 396,203
- ------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................... 43,319
Net unrealized appreciation (depreciation) on investments .................... (41,492)
Accumulated net realized gain (loss) ......................................... (30,187)
Paid-in capital .............................................................. 424,563
- ------------------------------------------------------------------------------------------
Net assets, at value $ 396,203
- ------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($396,203 / 345,783
outstanding shares of beneficial interest, $.01 par value, unlimited ----------
number of shares authorized) ................................................. $ 1.146
----------
</TABLE>
- --------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
- --------------------------------------------------------------------------------------
<S> <C>
Dividends ................................................................. $ 642
Interest .................................................................. 47,837
--------
Total income .............................................................. 48,479
--------
Expenses:
Management fee ............................................................ 2,648
Custodian fee ............................................................. 9
Auditing .................................................................. 54
Legal ..................................................................... 20
Trustees' fees and expenses ............................................... 46
Reports to shareholders ................................................... 132
Registration fees ......................................................... 4
Other ..................................................................... 11
--------
Total expenses, before expense reductions ................................. 2,924
Expense reductions ........................................................ (9)
--------
Total expenses, after expense reductions .................................. 2,915
- --------------------------------------------------------------------------------------
Net investment income (loss) 45,564
- --------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ............................................................... (14,934)
Futures ................................................................... 47
--------
(14,887)
--------
Net unrealized appreciation (depreciation) during the period on investments (20,025)
- --------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (34,912)
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 10,652
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
27 | Kemper Variable Series -
Kemper High Yield Portfolio
<PAGE>
(in thousands)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) .......................................................... $ 45,564 $ 40,669
Net realized gain (loss) .............................................................. (14,887) 1,609
Net unrealized appreciation (depreciation) on investment transactions during the period (20,025) (33,856)
------------- ------------
Net increase (decrease) in net assets resulting from operations ....................... 10,652 8,422
Distributions to shareholders:
From net investment income ............................................................ (42,416) (29,505)
------------- ------------
Portfolio share transactions:
Proceeds from shares sold ............................................................. 116,611 196,674
Reinvestment of distributions ......................................................... 42,416 29,505
Cost of shares redeemed ............................................................... (173,185) (154,635
------------- ------------
Net increase (decrease) in net assets from Portfolio share transactions ............... (14,158) 71,544
------------- ------------
Increase (decrease) in net assets ..................................................... (45,922) 50,461
Net assets at beginning of period ..................................................... 442,125 391,664
------------- ------------
Net assets at end of period (including undistributed net investment income (loss) of ------------- ------------
$43,319 and $40,154, respectively) $ 396,203 $ 442,125
------------- ------------
Other Information
- ----------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 360,218 302,191
------------- ------------
Shares sold ........................................................................... 97,968 160,376
Shares issued to shareholders in reinvestment of distributions ........................ 36,157 23,375
Shares redeemed ....................................................................... (148,560) (125,724)
------------- ------------
Net increase (decrease) in Portfolio shares ........................................... (14,435) 58,027
------------- ------------
Shares outstanding at end of period ................................................... 345,783 360,218
------------- ------------
</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, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.227 1.296 1.281 1.259 1.185
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .122(a) .106 .116 .120 .125
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.093) (.085) .019 .042 .069
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .029 .021 .135 .162 .194
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.110) (.090) (.120) (.140) (.120)
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.110) (.090) (.120) (.140) (.120)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.146 1.227 1.296 1.281 1.259
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 2.15 1.45 11.61 14.06 17.40
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 396,203 442,125 391,664 289,315 257,377
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .67 .65 .65 .65 .65
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .67 .65 .65 .65 .65
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 10.40 9.36 9.20 9.70 10.27
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 42 74 90 98 90
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
The accompanying notes are an integral part of the financial statements.
28 | Kemper Variable Series -
Kemper High Yield Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Total Return Portfolio
The Kemper Total Return Portfolio stuck to its stock selection discipline in
1999, which helped us find good performers in nearly every stock sector despite
the market's fairly narrow focus on a relatively small group of
large-capitalization names.
Among the positive notes during the year were the performance of our technology
and telecommunications holdings, supplemented by healthy returns from select
broadcasting and biotech names as well.
We have also focused of late on attractively priced stocks in areas that we
believe will benefit from strong consumer confidence, including the retail,
leisure, entertainment, consumer services and media sectors. On the downside,
consumer-staple holding and financial services stocks took a toll on the
portfolio, although we're finding some opportunities among credit card issuers
and companies in the insurance, brokerage and investment management businesses.
Our bond holdings generally served as a stabilizing factor during periodic dips
in the market in 1999, although the struggling bond markets did prevent the
portfolio from experiencing the full measure of the stock market's strength,
especially in the fourth quarter. As a balanced portfolio, though, that is a
trade-off we willingly accept, as our investors put a premium on steady,
consistent performance.
We're looking forward to the upcoming months, despite the possibility of
upcoming action by the Fed. Inflation continues to be well-controlled and
corporate profits are on track. There's good potential for slow, steady economic
growth, which bodes well for the equity market in general and growth stocks
specifically.
Gary A. Langbaum
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Total Return Portfolio from
4/6/1982 to 12/31/1999
- --------------------------------------------------------------------------------
The Russell 1000 Growth Index is an unmanaged index composed of common stock of
larger U.S. companies with greater than average growth orientation and
represents the universe of stocks from which "earnings/growth" money managers
typically select. The Lehman Brothers Government/ Corporate Bond Index is an
unmanaged index composed of intermediate and long-term government and investment
grade corporate debt securities.
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA: From 4/6/82 through 12/31/99
Kemper Russell 1000 Lehman Brothers
Total Return Growth Government/Corporate
Portfolio Index Bond Index
1982.25 10000 10000 10000
1982.5 9781 9428 10004
1982.75 10730 10574 11380
1983 12427 12826 12324
1983.25 13525 14039 12712
1983.5 15539 15843 12918
1983.75 14976 15289 13117
1984 14617 14875 13309
1984.25 13472 13677 13376
1984.5 13078 13517 13149
1984.75 13945 14560 14248
1985 13907 14733 15309
1985.25 15133 16212 15637
1985.5 16202 17254 16924
1985.75 15635 16422 17263
1986 17860 19572 18570
1986.25 20358 22622 20153
1986.5 21572 24476 20420
1986.75 19866 21485 20830
1987 20561 22576 21467
1987.25 24128 28013 21786
1987.5 24698 29085 21373
1987.75 25517 31048 20750
1988 20689 23772 21961
1988.25 21602 24508 22748
1988.5 22380 25826 22972
1988.75 22412 25716 23402
1989 23166 26450 23627
1989.25 24318 28289 23888
1989.5 26335 31138 25809
1989.75 28627 35012 26052
1990 28764 35953 26992
1990.25 28512 34623 26683
1990.5 30935 37991 27643
1990.75 28148 32317 27808
1991 30215 35860 29224
1991.25 34725 42292 30012
1991.5 34558 41886 30463
1991.75 37598 44812 32212
1992 41667 50617 33930
1992.25 40285 48116 33420
1992.5 39000 47591 34774
1992.75 39300 49686 36474
1993 42372 53151 36501
1993.25 43369 52708 38202
1993.5 44138 51888 39350
1993.75 47241 52656 40655
1994 47511 54693 40538
1994.25 44963 52285 39263
1994.5 42500 51756 38777
1994.75 43815 55733 38971
1995 42999 56151 39115
1995.25 45871 61494 41064
1995.5 49495 67544 43731
1995.75 52022 73678 44568
1996 54164 77035 46645
1996.25 55338 81170 45553
1996.5 57166 86333 45762
1996.75 60082 89440 46567
1997 63245 94838 47991
1997.25 62681 95343 47576
1997.5 71029 113375 49304
1997.75 75077 121894 51033
1998 75868 123744 52671
1998.25 82562 142495 53472
1998.5 83174 148948 54869
1998.75 77426 135414 57585
1999 87356 171635 57663
1999.25 89771 182544 56973
1999.5 94233 189572 56352
1999.75 90587 182618 56655
12/31/99 100294 228519 56422
- --------------------------------------------------------------------------------
Average Annual Total Returns^1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life of
For the periods ended December 31, 1999 1-year 5-year 10-year portfolio
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kemper Total Return Portfolio 14.81% 18.46% 13.31% 13.88% (Since 4/6/1982)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends. Average annual total
return reflects annualized change while 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.
29 | Kemper Variable Series -
Kemper Total Return Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Total Return Portfolio
Principal
Amount Value
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Repurchase Agreements 3.3%
- ----------------------------------------------------------------------
State Street Bank and Trust Company,
2.8%, 1/3/2000 to be repurchased
at $31,695 (b) (Cost $31,688) $ 31,688 $ 31,688
- ----------------------------------------------------------------------
U.S. Government & Agencies 21.9%
- ----------------------------------------------------------------------
U.S. Treasury Bond, 10.75%, 8/15/2005 16,495 19,673
U.S. Treasury Bond, 9.375%, 2/15/2006 52,000 59,191
U.S. Treasury Bond, 10.375%, 11/15/2009 4,865 5,596
U.S. Treasury Bond, 10.625%, 8/15/2015 4,000 5,447
U.S. Treasury Bond, 8.75%, 8/15/2020 4,000 4,846
U.S. Treasury Bond, 5.25%, 2/15/2029 7,900 6,532
U.S. Treasury Bond, 9.125%, 5/15/2009 4,870 5,317
U.S. Treasury Note, 7.75%, 2/15/2001 9,000 9,146
U.S. Treasury Note, 5.5%, 8/31/2001 14,000 13,840
U.S. Treasury Note, 6.625%, 4/30/2002 3,340 3,366
U.S. Treasury Note, 5.5%, 5/31/2003 8,000 7,789
U.S. Treasury Note, 6%, 8/15/2004 700 689
U.S. Treasury Note, 7.5%, 2/15/2005 7,005 7,306
U.S. Treasury Note, 6.5%, 10/15/2006 3,500 3,491
U.S. Treasury Note, 6%, 8/15/2009 400 388
U.S. Treasury Note, 6.625%, 5/15/2007 37,000 37,145
U.S. Treasury Note, 8.75%, 8/15/2000 12,500 12,702
U.S. Treasury Bond, 10.75%, 5/15/2003 4,265 4,820
- ----------------------------------------------------------------------
Total U.S. Government & Agencies (Cost $213,171) 207,284
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Foreign Bonds -- U.S. Denominated 0.2%
- ----------------------------------------------------------------------
Province of Quebec, 8.625%, 1/19/2005 --------
(Cost $1,659) 1,500 1,595
--------
- ----------------------------------------------------------------------
Corporate Bonds 8.9%
- ----------------------------------------------------------------------
Consumer Discretionary 0.8%
AFC Enterprises, 10.25%, 5/15/2007 700 704
AMF Bowling Worldwide, Inc., Step-up
Coupon, 0% to 3/15/2001, 12.25%
to 3/15/2006 542 179
AMF Bowling, Inc, 10.875%, 3/15/2006 2,100 882
Cinemark USA, Inc., Series D, 9.625%,
8/1/2008 890 818
Cole National Group, Inc., 9.875%,
12/31/2006 2,640 1,967
Dayton Hudson Corp., 7.5%, 7/15/2006 600 602
Dillards, Inc., 6.17%, 8/1/2001 1,500 1,470
Royal Caribbean Cruises, Ltd., 8.25%,
4/1/2005 1,250 1,275
--------
7,897
--------
Principal
Amount Value
- ----------------------------------------------------------------
Health 0.2%
Magellan Health Services, Inc.,
9%, 2/15/2008 ........................... $ 2,500 $ 2,025
--------
Communications 1.6%
American Cellular Corp., 10.5%,
5/15/2008 ............................. 1,120 1,243
Esprit Telecom Group, PLC, 11.5%,
12/15/2007 ............................ 630 630
Intermedia Communications, 8.6%,
6/1/2008 .............................. 1,930 1,780
McLeod USA, Inc., Step-up Coupon,
0% to 3/1/2002, 10.5% to 3/1/2007 ..... 2,800 2,268
MetroNet Communications Corp.,
Step-up Coupon, 0% to 6/15/2003,
9.95% to 6/15/2008 .................... 3,700 2,923
Nextel Communications, Inc., Step-up
Coupon, 0% to 2/15/2003, 9.95% to
2/15/2008 ............................. 3,575 2,503
Qwest Communications International,
7.5%, 11/1/2008 ....................... 1,000 972
Rogers Cantel Inc., 8.8%, 10/1/2007 ..... 2,100 2,090
WorldCom, Inc., 6.4%, 8/15/2005 ......... 225 215
WorldCom, Inc., 7.75%, 4/1/2027 ......... 825 835
--------
15,459
--------
Financial 1.1%
Abbey National PLC Global Medium-Term
Note, 6.69%, 10/17/2005 ............... 775 744
ABN AMRO, 8.25%, 8/1/2009 ............... 1,250 1,264
AB Spintab, 7.5%, 8/14/2049 ............. 800 747
Crestar Financial Corp., 8.25%, 7/15/2002 600 613
Den Danske Bank, 6.375%, 6/15/2008 ...... 1,250 1,205
FINOVA Capital Corp., 6.5%, 7/28/2002 ... 550 539
Ford Motor Credit Co., 7.75%, 3/15/2005 . 600 611
General Electric Capital Corp., 8.75%,
5/21/2007 ............................. 1,100 1,188
General Electric Capital Corp., 8.625%,
6/15/2008 ............................. 400 432
NationsBank Corp., 9.5%, 6/1/2004 ....... 600 648
Repsol International Finance, 7%,
8/1/2005 .............................. 1,000 966
Scotland International, 8.8%, 1/27/2004 . 250 262
Svenska Handelsbanken, 7.125%,
3/29/2049 ............................. 300 278
Wells Fargo & Co., 6.875%, 4/1/2006 ..... 750 731
--------
10,228
--------
Media 1.8%
AMFM, Inc., 9%, 10/1/2008 ............... 1,240 1,290
American Radio Systems, 9%, 2/1/2006 .... 810 850
CSC Holdings, Inc., 9.25%, 11/1/2005 .... 1,820 1,861
Comcast Cable Communications, 8.5%,
5/1/2027 .............................. 325 345
Comcast Corp., 9.375%, 5/15/2005 ........ 1,500 1,575
Diamond Cable Communications, PLC,
Step-up Coupon, 0% to 2/15/2002,
10.75% to 2/15/2007 ................... 740 607
The accompanying notes are an integral part of the financial statements.
30 | Kemper Variable Series -
Kemper Total Return Portfolio
<PAGE>
(Dollars in thousands)
Principal
Amount Value
- -------------------------------------------------------------------
Diamond Cable Communications, PLC,
Step-up Coupon, 0% to 12/15/2000,
11.75% to 12/15/2005 ................... $ 260 $ 244
K-III Communications Corp., 8.5%,
2/1/2006 ............................... 750 739
NTL Communications Corp., Step-up
Coupon 0% to 10/1/2003, 12.375%
to 10/1/2008 ........................... 150 105
NTL, Inc., Step-up Coupon, 0% to 2/1/2001,
11.5% to 2/1/2006 ...................... 2,270 2,043
NTL, Inc., 11.5%, 10/1/2008 .............. 95 103
News America Holdings Inc., 9.25%,
2/1/2013 ............................... 405 441
Sinclair Broadcasting Group, Inc., 8.75%,
12/15/2007 ............................. 850 784
Tele-Communications, Inc., 9.8%,
2/1/2012 ............................... 1,100 1,285
TeleWest Communications, PLC, Step-up
Coupon, 0% to 10/1/2000, 11% to
10/1/2007 .............................. 4,020 3,739
Time Warner Inc., 9.125%, 1/15/2013 .... 425 465
Time Warner, Inc., 9.15%, 2/1/2023 ..... 450 503
--------
16,979
--------
Service Industries 0.1%
Kindercare Learning Centers, Inc.,
9.5%, 2/15/2009 ........................ 500 488
--------
Durables 0.1%
United Rentals, Inc., 9.25%, 1/15/2009 ... 760 728
--------
Manufacturing 1.1%
Delco Remy International, 10.625%,
8/1/2006 ............................... 860 868
Gaylord Container Corp., 9.875%,
2/15/2008 .............................. 2,500 2,169
Hayes Wheels International, Inc., 11%,
7/15/2006 .............................. 1,500 1,568
Neenah Corp., 11.125%, 5/1/2007 .......... 400 370
Neenah Corp., 11.125%, 5/1/2007 .......... 600 555
Plainwell, Inc., 11%, 3/1/2008 ........... 1,020 530
Riverwood International Corp.,
10.25%, 4/1/2006 ....................... 2,650 2,683
Stone Container Corp., 11.5%, 8/15/2006 .. 500 530
Stone Container Corp., 12.58%, 8/1/2016 .. 1,000 1,065
--------
10,338
--------
Technology 0.2%
PSINet, Inc., 10%, 2/15/2005 ............. 810 802
PSINet, Inc., 11.5%, 11/1/2008 ........... 1,040 1,087
--------
1,889
--------
Energy 0.7%
Benton Oil & Gas Co., 11.625%, 5/1/2003 .. 250 174
Conoco, Inc., 6.35%, 4/15/2009 ........... 4,000 3,706
Gulf Canada Resources, Inc., 9.25%,
1/15/2004 .............................. 1,500 1,482
Gulfmark Offshore, Inc., 8.75%, 6/1/2008 . 1,120 1,030
Williams Gas Pipeline Center, 7.375%,
11/15/2006 ............................. 250 247
--------
6,639
--------
Principal
Amount Value
- ----------------------------------------------------------------
Metals & Minerals 0.6%
Euramax International, PLC, 11.25%,
10/1/2006 ............................... $ 2,850 $ 2,921
MMI Products, Inc., 11.25%, 4/15/2007 ..... 400 412
Renco Steel Holdings Co., Series B,
10.875%, 2/1/2005 ....................... 2,500 2,175
-------
5,508
-------
Construction 0.3%
Del Webb Corp., 9.75%, 1/15/2008 .......... 2,280 2,154
Kevco, Inc., 10.375%, 12/1/2007 ........... 545 147
Nortek, Inc., 9.875%, 3/1/2004 ............ 90 89
-------
2,390
-------
Transportation 0.1%
Continental Airlines, Inc., 7.75%, 7/2/2014 465 458
Continental Airlines, Inc., 6.9%, 1/2/2017 396 365
Delta Air Lines, Inc., 7.9%, 12/15/2009 ... 800 786
-------
1,609
-------
Utilities 0.2%
Commonwealth Edison Co., 7.375%,
1/15/2004 ............................... 850 854
GTE North, Inc., 6.9%, 11/1/2008 .......... 1,350 1,306
-------
2,160
-------
- ----------------------------------------------------------------
Total Corporate Bonds (Cost $90,591) 84,337
- ----------------------------------------------------------------
Shares Value
- ------------------------------------------------------
- ------------------------------------------------------
Common Stocks 65.7%
- ------------------------------------------------------
Consumer Discretionary 6.7%
Department & Chain Stores 5.0%
Dayton Hudson Corp. ............. 139,000 10,208
Federated Department Stores, Inc. 128,000 6,472
Home Depot, Inc. ................ 184,500 12,650
Wal-Mart Stores, Inc. ........... 258,900 17,896
--------
47,226
--------
Hotels & Casinos 0.7%
Carnival Corp. "A" .............. 137,500 6,574
--------
Specialty Retail 1.0%
Tandy Corp. ..................... 191,600 9,424
--------
Consumer Staples 2.9%
Food & Beverage 1.9%
Bestfoods ....................... 75,000 3,943
H.J. Heinz Co. .................. 132,000 5,255
PepsiCo, Inc. ................... 245,000 8,636
--------
17,834
--------
Package Goods/Cosmetics 1.0%
Procter & Gamble Co. ............ 90,000 9,861
--------
The accompanying notes are an integral part of the financial statements.
31 | Kemper Variable Series -
Kemper Total Return Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- ---------------------------------------------------------
Health 6.5%
Biotechnology 1.6%
Amgen, Inc.* ..................... 75,000 $ 4,505
Biogen, Inc.* .................... 66,000 5,577
Genentech, Inc. .................. 38,700 5,205
-------
15,287
-------
Medical Supply & Specialty 0.4%
Baxter International, Inc. ....... 62,100 3,901
-------
Pharmaceuticals 4.5%
Allergan, Inc. ................... 102,200 5,084
American Home Products Corp. ..... 112,000 4,417
Bristol-Myers Squibb Co. ......... 104,000 6,676
Forest Laboratories, Inc. ........ 54,000 3,318
Johnson & Johnson ................ 71,000 6,612
Merck & Co., Inc. ................ 101,000 6,773
Schering-Plough Corp. ............ 85,000 3,586
Warner-Lambert Co. ............... 73,000 5,981
-------
42,447
-------
Communications 5.1%
Telephone/Communications
AT&T Corp. ....................... 152,500 7,739
Bell Atlantic Corp. .............. 145,000 8,927
BellSouth Corp. .................. 105,000 4,915
GTE Corp. ........................ 50,000 3,528
Global Crossing Ltd.* ............ 88,775 4,439
MCI WorldCom, Inc.* .............. 180,000 9,551
SBC Communications, Inc. ......... 181,280 8,838
-------
47,937
-------
Financial 9.9%
Banks 1.9%
Chase Manhattan Corp. ............ 55,000 4,273
First Tennessee National Corp. ... 127,200 3,625
J.P. Morgan & Co., Inc. .......... 31,000 3,925
Wells Fargo Co. .................. 145,000 5,864
-------
17,687
-------
Insurance 4.0%
American International Group, Inc. 88,625 9,583
Aon Corp. ........................ 138,500 5,540
Cigna Corp. ...................... 66,000 5,315
Jefferson Pilot Corp. ............ 80,400 5,487
Marsh & McLennan Companies, Inc. . 53,200 5,091
St. Paul Companies, Inc. ......... 188,000 6,333
-------
37,349
-------
Consumer Finance 3.2%
American Express Co. ............. 45,000 7,481
Capital One Finance Corp. ........ 153,600 7,402
Citigroup, Inc. .................. 177,500 9,862
Household International, Inc. .... 169,162 6,301
-------
31,046
-------
Other Financial Companies 0.8%
Merrill Lynch & Co., Inc. ........ 38,000 3,173
Morgan Stanley Dean Witter & Co. . 33,000 4,711
-------
7,884
-------
Shares Value
- ----------------------------------------------------------
Media 6.8%
Advertising 0.8%
Omnicom Group, Inc. ............... 75,300 $ 7,530
--------
Broadcasting & Entertainment 3.4%
CBS Corp.* ........................ 127,300 8,139
Clear Channel Communications, Inc.* 105,000 9,371
Infinity Broadcasting Corp. ....... 172,900 6,257
Univision Communication, Inc.* .... 78,900 8,063
--------
31,830
--------
Cable Television 1.8%
AT&T Corp-- Liberty Media Group* .. 163,000 9,251
Comcast Corp. "A" ................. 105,000 5,276
Media One Group, Inc.* ............ 36,000 2,765
--------
17,292
--------
Print Media 0.8%
Tribune Co. ....................... 138,000 7,599
--------
Service Industries 2.6%
EDP Services 2.1%
Automatic Data Processing, Inc. ... 146,000 7,866
Electronic Data Systems Corp. ..... 128,000 8,568
First Data Corp. .................. 65,000 3,205
--------
19,639
--------
Printing/Publishing 0.5%
McGraw-Hill, Inc. ................. 79,200 4,881
--------
Durables 1.3%
Aerospace 1.0%
United Technologies Corp. ......... 141,000 9,165
--------
Telecommunications Equipments 0.3%
Lucent Technologies, Inc. ......... 42,500 3,180
--------
Manufacturing 4.9%
Diversified Manufacturing 0.8%
Tyco International Ltd. (New) ..... 201,646 7,839
--------
Electrical Products 3.3%
Emerson Electric Co. .............. 56,000 3,213
General Electric Co. .............. 180,000 27,855
--------
31,068
--------
Machinery/Components 0.8%
Parker-Hannifin Corp. ............. 140,000 7,184
--------
Technology 15.1%
Computer Software 4.2%
America Online, Inc.* ............. 63,000 4,753
Microsoft Corp.* .................. 215,000 25,101
Oracle Corp.* ..................... 86,500 9,693
--------
39,547
--------
Diverse Electronic Products 3.4%
Applied Materials, Inc.* .......... 61,500 7,791
Motorola, Inc. .................... 81,500 12,001
The accompanying notes are an integral part of the financial statements.
32 | Kemper Variable Series -
Kemper Total Return Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- --------------------------------------------------------------
Solectron Corp. ...................... 74,500 $ 7,087
Teradyne, Inc. ....................... 83,000 5,478
---------
32,357
---------
Electronic Components/Distributors 2.3%
Altera Corp.* ........................ 68,000 3,370
Cisco Systems, Inc.* ................. 174,500 18,694
---------
22,064
---------
Electronic Data Processing 1.6%
Hewlett-Packard Co. .................. 70,000 7,976
Sun Microsystems, Inc.* .............. 93,500 7,240
---------
15,216
---------
Semiconductors 3.6%
Agilent Technologies, Inc. ........... 124,600 9,633
Intel Corp. .......................... 241,000 19,837
Xilinx, Inc.* ........................ 94,000 4,274
---------
33,744
---------
Shares Value
- -----------------------------------------------------------------
Energy 3.9%
Oil & Gas Production 1.5%
Coastal Corp. ............................. 117,500 $ 4,164
Conoco, Inc. "A" .......................... 130,000 3,217
Royal Dutch Petroleum Co. (New York shares) 105,000 6,346
---------
13,727
---------
Oil Companies 1.6%
Exxon Mobil Corp. ......................... 150,729 12,143
Texaco, Inc. .............................. 58,000 3,150
---------
15,293
---------
Oilfield Services/Equipment 0.8%
Schlumberger Ltd. ......................... 119,500 6,722
Transocean Offshore Inc. .................. 23,183 781
---------
7,503
---------
- -----------------------------------------------------------------
Total Common Stocks (Cost $434,288) 621,115
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $771,397) (a) $ 946,019
- -----------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper Total Return Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $771,397. At December 31,
1999, net unrealized appreciation for all securities based on tax cost was
$174,622. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$194,757 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $20,135.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
The accompanying notes are an integral part of the financial statements.
33 | Kemper Variable Series -
Kemper Total Return Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
(in thousands)
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (cost $771,397) .......................... $ 946,019
Cash ......................................................................... 2
Dividends receivable ......................................................... 551
Interest receivable .......................................................... 6,644
Other assets ................................................................. 9
----------------
Total assets ................................................................. 953,225
- ------------------------------------------------------------------------------------------
Liabilities
- ------------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed ........................................ 182
Accrued management fee ....................................................... 456
Other accrued expenses and payables .......................................... 102
----------------
Total liabilities ............................................................ 740
- ------------------------------------------------------------------------------------------
Net assets, at value $ 952,485
- ------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................... 27,661
Net unrealized appreciation (depreciation) on investments .................... 174,622
Accumulated net realized gain (loss) ......................................... 42,677
Paid-in capital .............................................................. 707,525
- ------------------------------------------------------------------------------------------
Net assets, at value $ 952,485
- ------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($952,485 / 330,477
outstanding shares of beneficial interest, $.01 par value, ----------------
unlimited number of shares authorized) ...................................... $ 2.882
----------------
- ------------------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- ------------------------------------------------------------------------------------------
Investment Income
- ------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $47) ............................. $ 6,020
Interest ..................................................................... 26,998
----------------
Total income ................................................................. 33,018
----------------
Expenses:
Management fee ............................................................... 4,935
Services to shareholders ..................................................... 11
Custodian fees ............................................................... 42
Auditing ..................................................................... 72
Legal ........................................................................ 18
Trustees' fees and expenses .................................................. 60
Reports to shareholders ...................................................... 217
Other ........................................................................ 15
----------------
Total expenses, before expense reductions .................................... 5,370
Expense reductions ........................................................... (1)
----------------
Total expenses, after expense reductions ..................................... 5,369
- ------------------------------------------------------------------------------------------
Net investment income (loss) 27,649
- ------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .................................... 45,180
Net unrealized appreciation (depreciation) during the period on investments .. 52,174
- ------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 97,354
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 125,003
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
34 | Kemper Variable Series -
Kemper Total Return Portfolio
<PAGE>
(in thousands)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) .......................................................... $ 27,649 $ 27,359
Net realized gain (loss) .............................................................. 45,180 45,478
Net unrealized appreciation (depreciation) on investment transactions during the period 52,174 43,475
--------------------------
Net increase (decrease) in net assets resulting from operations ....................... 125,003 116,312
Distributions to shareholders:
From net investment income ............................................................ (27,965) (24,932)
--------------------------
From net realized gains ............................................................... (46,607) (110,813)
--------------------------
Portfolio share transactions:
Proceeds from shares sold ............................................................. 107,466 107,163
Reinvestment of distributions ......................................................... 74,572 135,745
Cost of shares redeemed ............................................................... (145,407) (145,048)
--------------------------
Net increase (decrease) in net assets from Portfolio share transactions ............... 36,631 97,860
--------------------------
Increase (decrease) in net assets ..................................................... 87,062 78,427
Net assets at beginning of period ..................................................... 865,423 786,996
Net assets at end of period (including undistributed net investment income (loss) of --------------------------
$27,661 and $27,247, respectively) .................................................... $ 952,485 $ 865,423
--------------------------
Other Information
- ----------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 316,471 278,859
--------------------------
Shares sold ........................................................................... 39,553 26,829
Shares issued to shareholders in reinvestment of distributions ........................ 27,724 52,164
Shares redeemed ....................................................................... (53,271) (41,381)
--------------------------
Net increase (decrease) in Portfolio shares ........................................... 14,006 37,612
--------------------------
Shares outstanding at end of period ................................................... 330,477 316,471
--------------------------
</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, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $2.735 2.822 2.815 2.579 2.112
-------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .084(a) .086 .090 .084 .084
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .303 .317 .377 .322 .453
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .387 .403 .467 .406 .537
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.090) (.090) (.090) (.090) (.070)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.150) (.400) (.370) (.080) --
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.240) (.490) (.460) (.170) (.070)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $2.882 2.735 2.822 2.815 2.579
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 14.81 15.14 19.96 16.76 25.97
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 952,485 865,423 786,996 697,102 659,894
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .61 .60 .60 .59 .60
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .61 .60 .60 .59 .60
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.12 3.33 3.32 3.21 3.52
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 80 81 122 90 118
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
The accompanying notes are an integral part of the financial statements.
35 | Kemper Variable Series -
Kemper Total Return Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Blue Chip Portfolio
Drawing on strong performance from stocks in a range of sectors, the Kemper Blue
Chip Portfolio outpaced its benchmark in 1999.
Overall, holdings in the media and technology sectors led the way during the
year. Names that performed well for us during 1999 included Oracle and
Hewlett-Packard, as well as Tribune Corp, AT&T Corp.-Liberty Media and Clear
Channel.
But those sectors weren't the whole story. Thorough, disciplined stock selection
also turned up solid performers in areas that generally lagged the market,
including retailers such as Tandy and Dayton Hudson and financial services
companies including Citigroup.
On the downside, health-care stocks remained a drag on the portfolio, while
financial services stocks suffered from continued weakness overall, despite a
brief uptick midway through the fourth quarter. The upside to these minor
disappointments is that we are finding opportunities to buy names in both
sectors in light of the current price weakness.
Going forward, we believe the Kemper Blue Chip Portfolio is well-positioned to
capitalize on opportunities in 2000, as we continue to increase our exposure in
sectors and individual stocks that we think are underpriced relative to their
likely prospects for growth.
Tracy McCormick
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Blue Chip Portfolio from
5/1/1997 to 12/31/1999
- --------------------------------------------------------------------------------
The Russell 1000 Index is an unmanaged capitalization-weighted price-only index
composed of the largest-capitalized United States companies whose common stocks
are traded in the U.S. This larger capitalization, market-oriented index is
highly correlated with the S&P 500 Index.
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Kemper Blue Russell
Chip Portfolio 1000 Index
1997.25 10000 10000
1997.5 10292 11080
1997.75 11090 12047
1998 11154 12409
1998.25 12288 14068
1998.5 12254 14420
1998.75 10737 12933
1999 12698 15762
1999.25 13251 16412
1999.5 14336 17582
1999.75 13533 16422
12/31/99 15902 19059
- --------------------------------------------------------------------------------
Average Annual Total Return^1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life of
For the periods ended December 31, 1999 1-year portfolio
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Blue Chip Portfolio 25.24% 18.98% (Since 5/1/1997)
- ------------------------------------------------------------------------------------------
</TABLE>
1 Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends. Average annual total
return reflects annualized change while 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.
36 | Kemper Variable Series -
Kemper Blue Chip Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Blue Chip Portfolio
Principal
Amount Value
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Repurchase Agreements 0.3%
- -----------------------------------------------------------------
State Street Bank and Trust Company dated
12/31/1999 at 2.8%, to be repurchased ------------
at $518 on 1/3/2000 (Cost $518) (b) ..... $ 518 $ 518
------------
- -----------------------------------------------------------------
Commercial Paper 5.2%
- -----------------------------------------------------------------
Enron Corp., 7%**, 1/12/2000 ............ 4,000 3,991
Federal Home Loan Bank, 5%**, 1/31/2000 . 1,500 1,494
Ford Motor Credit, 5.84%**, 1/4/2000 .... 2,000 1,999
Ford Motor Credit, 6%**, 1/3/2000 ....... 4,000 3,999
- -----------------------------------------------------------------
Total Commercial Paper (Cost $11,483) 11,483
- -----------------------------------------------------------------
Shares Value
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Common Stocks 94.5%
- -----------------------------------------------------------------
Consumer Discretionary 8.6%
Department & Chain Stores 6.5%
Dayton Hudson Corp. .............. 38,500 2,827
Federated Department Stores, Inc.* 36,000 1,820
Home Depot, Inc. ................. 45,750 3,137
Wal-Mart Stores, Inc. ............ 58,800 4,065
-------
11,849
-------
Hotels & Casinos 0.9%
Carnival Corp. "A" ............... 37,000 1,769
-------
Specialty Retail 1.2%
Tandy Corp. ...................... 45,000 2,213
-------
Consumer Staples 4.3%
Food & Beverage 2.9%
Bestfoods ........................ 27,500 1,445
H.J. Heinz Co .................... 32,300 1,286
PepsiCo, Inc. .................... 75,000 2,644
-------
5,375
-------
Package Goods/Cosmetics 1.4%
Procter & Gamble Co. ............. 23,000 2,520
-------
Health 9.1%
Biotechnology 2.1%
Amgen, Inc.* ..................... 23,000 1,381
Biogen, Inc.* .................... 15,700 1,327
Genentech, Inc.* ................. 9,000 1,211
-------
3,919
-------
Medical Supply & Specialty 0.8%
Baxter International, Inc. ....... 22,000 1,382
-------
Shares Value
- ------------------------------------------------------------
Pharmaceuticals 6.2%
Allergan, Inc. .................... 30,800 $ 1,532
American Home Products Corp. ...... 32,800 1,293
Bristol-Myers Squibb Co. .......... 27,000 1,733
Forest Laboratories, Inc.* ........ 15,000 922
Johnson & Johnson ................. 19,000 1,769
Merck & Co., Inc. ................. 27,000 1,811
Schering-Plough Corp. ............. 19,700 831
Warner-Lambert Co. ................ 19,000 1,557
-------
11,448
-------
Communications 7.4%
Telephone/Communications
AT&T Corp. ........................ 48,500 2,461
Bell Atlantic Corp. ............... 44,500 2,740
BroadWing, Inc. ................... 60,000 2,213
Global Crossing Ltd.* ............. 19,270 963
MCI WorldCom, Inc.* ............... 48,000 2,547
SBC Communications, Inc. .......... 53,384 2,602
-------
13,526
-------
Financial 12.9%
Banks 2.4%
Chase Manhattan Corp. ............. 12,500 971
First Tennessee National Corp. .... 32,200 918
J.P. Morgan & Co., Inc. ........... 8,500 1,076
Wells Fargo & Co. ................. 36,000 1,456
-------
4,421
-------
Insurance 5.8%
American International Group, Inc. 22,875 2,473
Aon Corp. ......................... 50,000 2,000
Cigna Corp. ....................... 18,200 1,466
Jefferson Pilot Corp. ............. 18,350 1,252
Marsh & McLennan Companies, Inc. .. 20,000 1,914
St. Paul Companies, Inc. .......... 44,000 1,482
-------
10,587
-------
Consumer Finance 4.7%
American Express Co. .............. 13,600 2,261
Capital One Finance Corp. ......... 36,500 1,759
Citigroup, Inc. ................... 46,750 2,597
Household International, Inc. ..... 52,799 1,967
-------
8,584
-------
Media 8.9%
Advertising 1.1%
Young & Rubicam, Inc. ............. 28,300 2,002
-------
Broadcasting & Entertainment 4.1%
CBS Corp.* ........................ 40,600 2,596
Clear Channel Communications, Inc.* 20,994 1,874
Infinity Broadcasting Corp.* ...... 46,900 1,697
Univision Communication, Inc.* .... 12,600 1,287
-------
7,454
-------
The accompanying notes are an integral part of the financial statements.
37 | Kemper Variable Series -
Kemper Blue Chip Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- --------------------------------------------------------
Cable Television 2.9%
AT&T Corp-- Liberty Media Group* . 36,000 $2,043
Comcast Corp. "A" ................ 38,000 1,910
Media One Group, Inc.* ........... 19,000 1,459
-------
5,412
-------
Print Media 0.8%
Tribune Co. ...................... 26,000 1,432
-------
Service Industries 4.8%
EDP Services 3.0%
Automatic Data Processing, Inc. .. 37,000 1,993
Electronic Data Systems Corp. .... 40,000 2,678
First Data Corp. ................. 18,000 888
-------
5,559
-------
Environmental Services 0.1%
Transocean Offshore Inc. ......... 5,917 199
-------
Investment 0.7%
Merrill Lynch & Co., Inc. ........ 15,000 1,253
-------
Printing/Publishing 1.0%
McGraw-Hill, Inc. ................ 28,100 1,732
-------
Durables 2.0%
Aerospace 1.6%
United Technologies Corp. ........ 44,000 2,860
-------
Telecommunications Equipment 0.4%
Lucent Technologies, Inc. ........ 10,000 748
-------
Manufacturing 6.8%
Diversified Manufacturing 1.3%
Tyco International Ltd. (New) .... 60,608 2,356
-------
Electrical Products 3.8%
Emerson Electric Co. ............. 12,600 723
General Electric Co. ............. 40,600 6,283
-------
7,006
-------
Industrial Special 1.0%
Corning, Inc. .................... 14,000 1,805
-------
Machinery/Components/Controls 0.7%
Parker-Hannifin Corp. ............ 25,000 1,283
-------
Shares Value
- ------------------------------------------------------------------------------
Technology 24.1%
Computer Software 7.5%
America Online, Inc.* ................................. 27,000 $ 2,037
Intuit, Inc.* ......................................... 25,000 1,498
Microsoft Corp.* ...................................... 63,000 7,355
Oracle Corp.* ......................................... 25,000 2,802
--------
13,692
--------
Diverse Electronic Products 7.5%
Agilent Technologies, Inc.* ........................... 45,000 3,479
Applied Materials, Inc.* .............................. 21,000 2,660
Motorola, Inc. ........................................ 24,800 3,652
Solectron Corp.* ...................................... 27,400 2,606
Teradyne, Inc.* ....................................... 21,500 1,419
--------
13,816
--------
Electronic Components/Distributors 3.0%
Altera Corp.* ......................................... 17,000 843
Cisco Systems, Inc.* .................................. 44,450 4,762
--------
5,605
--------
Electronic Data Processing 2.5%
Hewlett-Packard Co. ................................... 24,200 2,757
Sun Microsystems, Inc.* ............................... 23,700 1,835
--------
4,592
--------
Semiconductors 3.6%
Intel Corp. ........................................... 67,000 5,515
Xilinx, Inc.* ......................................... 23,000 1,046
--------
6,561
--------
Energy 5.6%
Oil & Gas Production 2.2%
Coastal Corp. ......................................... 31,000 1,099
Conoco, Inc. "A" ...................................... 48,300 1,195
Royal Dutch Petroleum Co
(New York shares) ................................... 31,000 1,874
--------
4,168
--------
Oil Companies 2.4%
Exxon Mobil Corp. ..................................... 42,770 3,446
Texaco, Inc. .......................................... 19,000 1,032
--------
4,478
--------
Oilfield Services/Equipment 1.0%
Schlumberger Ltd. ..................................... 30,500 1,716
--------
- ------------------------------------------------------------------------------
Total Common Stocks (Cost $135,266) 173,322
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $147,267) (a) $185,323
- ------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper 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 $147,293. At December 31,
1999, net unrealized appreciation for all securities based on tax cost was
$38,030. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$40,518 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $2,488.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
The accompanying notes are an integral part of the financial statements.
38 | Kemper Variable Series -
Kemper Blue Chip Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
(in thousands)
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (cost $147,267) .......................... $ 185,323
Cash ......................................................................... 1
Dividends receivable ......................................................... 137
Receivable for Portfolio shares sold ......................................... 157
Foreign taxes recoverable .................................................... 3
-----------
Total assets ................................................................. 185,621
Liabilities
- ------------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed ........................................ 65
Accrued management fee ....................................................... 96
Other accrued expenses and payables .......................................... 44
-----------
Total liabilities ............................................................ 205
- ------------------------------------------------------------------------------------------
Net assets $ 185,416
- ------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................... 593
Net unrealized appreciation (depreciation) on investments .................... 38,056
Accumulated net realized gain (loss) ......................................... (2,033)
Paid-in capital .............................................................. 148,800
- ------------------------------------------------------------------------------------------
Net assets, at value $ 185,416
- ------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($185,416 / 118,172
outstanding shares of beneficial interest, $.01 par value, unlimited number of
shares authorized) ........................................................... $ 1.569
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- --------------------------------------------------------------------------------------
Investment Income
- --------------------------------------------------------------------------------------
<S> <C>
Dividends (less foreign taxes withheld of $11) ............................ $ 1,199
Interest .................................................................. 492
----------
Total investment income ................................................... 1,691
----------
Expenses:
Management fee ............................................................ 802
Custodian fees ............................................................ 13
Auditing .................................................................. 4
Legal ..................................................................... 4
Trustees' fees and expenses ............................................... 6
Reports to shareholders ................................................... 31
Other ..................................................................... 9
----------
Total expenses, before expense reductions ................................. 869
Expense reductions ........................................................ (3)
----------
Total expenses, after expense reductions .................................. 866
- --------------------------------------------------------------------------------------
Net investment income (loss) .............................................. 825
- --------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ............................................................... 1,083
Foreign currency related transactions ..................................... (7)
----------
1,076
Net unrealized appreciation (depreciation) during the period on investments 28,750
- --------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 29,826
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 30,651
- --------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
39 | Kemper Variable Series -
Kemper Blue Chip Portfolio
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) .......................................................... $ 825 $ 558
Net realized gain (loss) .............................................................. 1,076 (2,984)
Net unrealized appreciation (depreciation) on investment transactions during the period 28,750 8,770
--------------------------
Net increase (decrease) in net assets resulting from operations ....................... 30,651 6,344
Distributions to shareholders:
From net investment income ............................................................ (587) (286)
--------------------------
Portfolio share transactions:
Proceeds from shares sold ............................................................. 82,947 55,283
Reinvestment of distributions ......................................................... 587 286
Cost of shares redeemed ............................................................... (6,496) (1,734)
--------------------------
Net increase (decrease) in net assets from Portfolio share transactions ............... 77,038 53,835
--------------------------
Increase (decrease) in net assets ..................................................... 107,102 59,893
Net assets at beginning of period ..................................................... 78,314 18,421
Net assets at end of period (including undistributed net --------------------------
investment income (loss) of $593 and $993, respectively) ............................ $ 185,416 $ 78,314
--------------------------
Other Information
- ----------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 62,168 16,515
--------------------------
Shares sold ........................................................................... 60,342 47,016
Shares issued to shareholders in reinvestment of distributions ........................ 426 232
Shares redeemed ....................................................................... (4,764) (1,595)
--------------------------
Net increase (decrease) in Portfolio shares ........................................... 56,004 45,653
--------------------------
Shares outstanding at end of period ................................................... 118,172 62,168
--------------------------
</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>
- ----------------------------------------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998 1997(b)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $1.260 1.115 1.000
---------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .009(a) .010 .017
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments transactions .308 .145 .098
---------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .317 .155 .115
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (.008) (.010) --
---------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.008) (.010) --
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.569 1.260 1.115
---------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%) 25.24 13.84 11.54**
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 185,416 78,314 5,023
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .71 .76 .95*
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .70 .76 .95*
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .67 1.18 2.07*
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 64 102 78*
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period May 1, 1997 (commencement of operations) to December 31,
1997.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
40 | Kemper Variable Series -
Kemper Blue Chip Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Growth Portfolio
Despite periods of volatility and weakness in several sectors, the Kemper Growth
Portfolio outpaced the benchmark Russell 1000 Growth Index and posted strong
returns in 1999.
In general, during the second half of the year, we were rewarded for our
unflagging commitment to style consistency and quality. Earlier in the year,
large-cap growth stocks fell out of favor and the market punished quality
stocks. But the portfolio stayed its course and our patience was rewarded. Late
in the year, when the market returned to our style, we found ourselves
well-situated to take advantage of a number of attractive opportunities.
Specifically, we found performance in a number of technology stocks, including
Microsoft and Sun Microsystems, as well as in sectors such as consumer
discretionary and health. Recently, we initiated positions in both eBay, which
we believe has an excellent business model and a positive earnings outlook, and
Honeywell International, which recently completed a complementary merger with
AlliedSignal.
Conversely, the portfolio was hindered by sluggishness among large-cap health
and financials, although, by sticking to our disciplined investment strategy, we
were still able to find select, underpriced buying opportunities in those areas.
We expect that many of the moves we've made of late may reward the portfolio as
we move into 2000.
Valerie F. Malter
George P. Fraise
Co-Lead Portfolio Managers
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Growth Portfolio from
12/9/1983 to 12/31/1999
- --------------------------------------------------------------------------------
The Russell 1000 Growth Index is an unmanaged index composed of common stock of
larger U.S. companies with greater than average growth orientation and
represents the universe of stocks from which "earnings/growth" money managers
typically select. The Standard & Poor's 500 Index is an unmanaged index
generally representative of the U.S. stock market.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
Kemper Growth Russell 1000 Standard &
Portfolio Growth Index Poor's 500 Index
1983.75 10000 10000 10000
1984 10260 10000 10000
1984.25 10475 9195 9760
1984.5 10568 9088 9509
1984.75 11172 9788 10430
1985 11372 9905 10625
1985.25 12254 10899 11601
1985.5 13012 11599 12453
1985.75 12389 11040 11943
1986 14224 13158 13998
1986.25 16330 15208 15972
1986.5 17317 16455 16912
1986.75 15229 14444 15733
1987 15518 15177 16611
1987.25 19068 18832 20159
1987.5 19532 19553 21171
1987.75 20684 20873 22569
1988 15777 15981 17485
1988.25 16534 16477 18479
1988.5 17175 17363 19710
1988.75 16064 17289 19778
1989 15841 17782 20386
1989.25 16759 19018 21830
1989.5 18319 20933 23757
1989.75 20732 23538 26299
1990 20256 24171 26842
1990.25 19858 23276 26036
1990.5 22090 25541 27677
1990.75 18739 21727 23872
1991 20377 24108 26011
1991.25 24391 28432 29787
1991.5 24136 28159 29719
1991.75 26891 30126 31309
1992 32497 34029 33934
1992.25 31405 32347 33081
1992.5 29089 31994 33710
1992.75 30248 33403 34775
1993 33657 35733 36531
1993.25 33695 35435 38127
1993.5 35577 34884 38308
1993.75 39302 35400 39296
1994 38581 36769 40209
1994.25 37937 35150 38686
1994.5 34896 34795 38848
1994.75 37007 37468 40744
1995 37030 37749 40738
1995.25 40133 41341 44705
1995.5 43337 45409 48970
1995.75 47196 49533 52863
1996 49240 51789 56046
1996.25 51824 54569 59052
1996.5 54412 58040 61699
1996.75 58396 60129 63607
1997 59889 63758 68912
1997.25 56831 64097 70757
1997.5 66224 76220 83119
1997.75 73724 81948 89344
1998 72669 83191 91913
1998.25 84417 95797 104735
1998.5 83906 100136 108194
1998.75 65471 91037 97423
1999 83644 115388 118185
1999.25 90114 122722 124068
1999.5 92144 127446 132824
1999.75 88953 122771 124528
12/31/99 114695 153630 143057
- --------------------------------------------------------------------------------
Average Annual Total Returns^1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life of
For the periods ended December 31, 1999 1-year 5-year 10-year portfolio
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kemper Growth Portfolio 37.12% 25.38% 18.94% 16.40% (Since 12/9/1983)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends. Average annual total
return reflects annualized change while 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.
41 | Kemper Variable Series -
Kemper Growth Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Growth Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreements 0.1%
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 2.8%,
1/3/2000, to be repurchased at $624 on -------
(b) (Cost $624) ........................ $ 624 $ 624
-------
- --------------------------------------------------------------------------------
Commercial Paper 4.8%
- --------------------------------------------------------------------------------
Bell Atlantic Network Funding Corp.,
1/18/2000 .............................. 2,000 1,994
Conagra, Inc., 6.8%, 1/6/2000 ............ 3,000 2,997
Conagra, Inc., 6.9%, 1/14/2000 ........... 3,000 2,993
Countrywide Home Loans, 6.17%,
1/3/2000 ............................... 2,500 2,499
Countrywide Home Loans, 6.7%,
1/18/2000 .............................. 2,000 1,994
Enron Corp., 7%, 1/12/2000 ............... 6,000 5,987
Federal Home Loan Bank, 5%, 1/31/2000 .... 2,500 2,490
Federal Home Loan Bank, 5.73%,
1/14/2000 .............................. 5,500 5,488
Ford Motor Credit Corp., 6.26%, 1/5/2000 . 4,000 3,997
Pitney Bowes Credit Corp., 5.2%,
1/28/2000 .............................. 5,000 4,981
- --------------------------------------------------------------------------------
Total Commercial Paper (Cost $35,420) 35,420
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Common Stocks 95.1%
- --------------------------------------------------------------------------------
Consumer Discretionary 11.3%
Department & Chain Stores 9.2%
Costco Wholesale Corp.* ...... 108,500 9,901
Dayton Hudson Corp. .......... 118,400 8,695
Gap, Inc. .................... 138,300 6,362
Home Depot, Inc. ............. 324,150 22,224
Wal-Mart Stores, Inc. ........ 302,300 20,896
--------
68,078
--------
Recreational Products 1.1%
Hasbro, Inc. ................. 177,300 3,380
Premier Parks, Inc.* ......... 174,100 5,027
--------
8,407
--------
Specialty Retail 1.0%
Circuit City Stores, Inc. .... 157,600 7,102
--------
Consumer Staples 8.1%
Food & Beverage 2.3%
Bestfoods .................... 134,700 7,080
PepsiCo, Inc. ................ 283,800 10,004
--------
17,084
--------
Shares Value
- --------------------------------------------------------------------------------
Package Goods/Cosmetics 5.8%
Colgate-Palmolive Co. ............. 253,300 $16,465
Estee Lauder Companies "A" ........ 186,200 9,391
Procter & Gamble Co. .............. 153,700 16,840
-------
42,696
-------
Health 13.2%
Biotechnology 2.6%
Biogen, Inc.* ..................... 49,200 4,157
Immunex Corp.* .................... 55,100 6,034
MedImmune, Inc.* .................. 52,600 8,725
-------
18,916
-------
Medical Supply & Specialty 2.1%
Medtronic, Inc. ................... 379,370 13,823
VISX, Inc.* ....................... 27,100 1,403
-------
15,226
-------
Pharmaceuticals 8.5%
Allergan, Inc. .................... 53,300 2,652
Bristol-Myers Squibb Co. .......... 103,100 6,618
Johnson & Johnson ................. 118,700 11,054
Merck & Co., Inc. ................. 213,000 14,284
Pfizer, Inc. ...................... 517,900 16,799
Warner-Lambert Co. ................ 139,800 11,455
-------
62,862
-------
Communications 2.6%
Telephone/Communications
JDS Uniphase Corp.* ............... 60,400 9,743
MCI WorldCom, Inc.* ............... 175,800 9,328
-------
19,071
-------
Financial 4.9%
Insurance 2.0%
American International Group, Inc. 136,275 14,735
-------
Consumer Finance 1.7%
American Express Co. .............. 40,600 6,750
Capital One Finance Corp. ......... 124,300 5,990
-------
12,740
-------
Other Financial Companies 1.2%
Morgan Stanley Dean Witter & Co. .. 63,200 9,022
-------
Media 9.2%
Advertising 1.5%
Omnicom Group, Inc. ............... 113,800 11,380
-------
Broadcasting & Entertainments 5.7%
Clear Channel Communications, Inc.* 197,100 17,591
Infinity Broadcasting Corp.* ...... 312,800 11,319
Time Warner, Inc. ................. 33,000 2,390
Univision Communication, Inc.* .... 104,400 10,669
-------
41,969
-------
The accompanying notes are an integral part of the financial statements.
42 | Kemper Variable Series -
Kemper Growth Portfolio
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
Cable Television 2.0%
AT&T Corp -- Liberty Media Group* ..................... 165,900 $ 9,415
EchoStar Communications ............................... 56,000 5,460
--------
14,875
--------
Service Industries 3.4%
EDP Services 2.3%
Electronic Data Systems Corp. ......................... 138,500 9,271
PSINet, Inc.* ......................................... 125,900 7,774
--------
17,045
--------
Investment 0.7%
Charles Schwab Corp. .................................. 135,600 5,204
--------
Miscellaneous Consumer Service 0.4%
eBay, Inc.* ........................................... 23,400 2,929
--------
Durables 1.7%
Telecommunications Equipment
Lucent Technologies, Inc. ............................. 166,200 12,434
--------
Manufacturing 8.6%
Diversified Manufacturing 2.0%
Honeywell International, Inc. ......................... 113,900 6,571
Textron, Inc. ......................................... 108,100 8,290
--------
14,861
--------
Electrical Products 4.6%
General Electric Co. .................................. 220,400 34,107
--------
Shares Value
- -----------------------------------------------------------------------------
Industrial Specialty 2.0%
QUALCOMM Inc.* ........................................ 85,600 $ 15,076
--------
Technology 32.1%
Computer Software 8.5%
America Online, Inc.* ................................. 267,400 20,172
Microsoft Corp.* ...................................... 364,700 42,579
Momentum Business Applications, Inc.* ................. 3,428 27
--------
62,778
--------
Diverse Electronic Products 5.7%
Applied Materials, Inc.* .............................. 126,900 16,077
Motorola, Inc. ........................................ 61,400 9,041
Teradyne, Inc.* ....................................... 259,900 17,153
--------
42,271
--------
EDP Peripherals 2.4%
EMC Corp.* ............................................ 162,800 17,786
--------
Electronic Components 5.7%
Cisco Systems, Inc.* .................................. 390,100 41,789
--------
Electronic Data Processing 4.7%
International Business Machines Corp. ................. 66,800 7,214
Sun Microsystems, Inc.* ............................... 350,800 27,165
--------
34,379
--------
Semiconductos 5.1%
Intel Corp. ........................................... 384,300 31,633
Linear Technology Corp. ............................... 87,300 6,247
--------
37,880
--------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $439,354) 702,702
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $475,398) (a) $738,746
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper Growth Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $475,572. At December 31,
1999, net unrealized appreciation for all securities based on tax cost was
$263,174. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$275,159 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $11,985.
(b) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
The accompanying notes are an integral part of the financial statements.
43 | Kemper Variable Series -
Kemper Growth Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
(in thousands)
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (cost $475,398) .......................... $738,746
Dividends receivable ......................................................... 316
Receivable for Portfolio shares sold ......................................... 130
Foreign taxes recoverable .................................................... 1
--------
Total assets ................................................................. 739,193
Liabilities
- -----------------------------------------------------------------------------------------
Due to custodian bank ........................................................ 9
Payable for Portfolio shares redeemed ........................................ 977
Accrued management fee ....................................................... 374
Other accrued expenses and payables .......................................... 142
--------
Total liabilities ............................................................ 1,502
- -----------------------------------------------------------------------------------------
Net assets, at value $737,691
- -----------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments .................... 263,348
Accumulated net realized gain (loss) ......................................... 62,707
Paid-in capital .............................................................. 411,636
- -----------------------------------------------------------------------------------------
Net assets, at value $737,691
- -----------------------------------------------------------------------------------------
Net Asset Value
- -----------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($737,691 / 181,948
outstanding shares of beneficial interest, $.01 par value, ------------
unlimited number of shares authorized) ...................................... $ 4.054
------------
</TABLE>
- --------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
- ---------------------------------------------------------------------------------------
<S> <C>
Dividends (net of foreign taxes withheld of $14) .......................... $ 3,368
Interest .................................................................. 593
-----------
Total income .............................................................. 3,961
-----------
Expenses:
Management fee ............................................................ 3,808
Custodian fees ............................................................ 64
Auditing .................................................................. 80
Legal ..................................................................... 16
Trustees' fees and expenses ............................................... 52
Reports to shareholders ................................................... 177
Registration fees ......................................................... 5
Other ..................................................................... 8
-----------
Total expenses, before expense reductions ................................. 4,210
Expense reductions ........................................................ (5)
-----------
Total expenses, after expense reductions .................................. 4,205
- ---------------------------------------------------------------------------------------
Net investment income (loss) (244)
- ---------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ---------------------------------------------------------------------------------------
Net realized gain (loss) from investments ................................. 67,787
Net unrealized appreciation (depreciation) during the period on investments 138,674
- ---------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 206,461
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 206,217
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
44 | Kemper Variable Series -
Kemper Growth Portfolio
<PAGE>
(in thousands)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) .......................................................... $ (244) $ 1,675
Net realized gain (loss) .............................................................. 67,787 (4,560)
Net unrealized appreciation (depreciation) on investment transactions during the period 138,674 85,608
--------------------------
Net increase (decrease) in net assets resulting from operations ....................... 206,217 82,723
Distributions to shareholders:
From net investment income ............................................................ -- (1,863)
--------------------------
From net realized gains ............................................................... -- (93,144)
--------------------------
Portfolio share transactions:
Proceeds from shares sold ............................................................. 51,314 65,879
Reinvestment of distributions ......................................................... -- 95,007
Cost of shares redeemed ............................................................... (148,391) (83,067)
--------------------------
Net increase (decrease) in net assets from Portfolio share transactions ............... (97,077) 77,819
--------------------------
Increase (decrease) in net assets ..................................................... 109,140 65,535
Net assets at beginning of period ..................................................... 628,551 563,016
--------------------------
Net assets at end of period (including undistributed net investment income (loss) of $0
and $2,234, respectively) ............................................................. $ 737,691 $ 628,551
--------------------------
Other Information
- --------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 212,587 187,617
--------------------------
Shares sold ........................................................................... 15,490 23,253
Shares issued to shareholders in reinvestment of distributions ........................ -- 31,338
Shares redeemed ....................................................................... (46,129) (29,621)
--------------------------
Net increase (decrease) in Portfolio shares ........................................... (30,639) 24,970
--------------------------
Shares outstanding at end of period ................................................... 181,948 212,587
--------------------------
</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, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $2.957 3.001 3.371 3.262 2.665
---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.001)(a) .007 .012 .030 .034
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments transactions 1.098 .459 .448 .589 .793
---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.097 .466 .460 .619 .827
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income -- (.010) (.020) (.040) (.010)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.500) (.810) (.470) (.220)
---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions -- (.510) (.830) (.510) (.230)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.054 2.957 3.001 3.371 3.262
---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 37.12 15.10 21.34 21.63 32.97
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 737,691 628,551 563,016 487,483 414,533
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .66 .66 .65 .64 .64
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .66 .66 .65 .64 .64
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.04) .28 .42 94 1.15
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 87 109 170 175 88
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
The accompanying notes are an integral part of the financial statements.
45 | Kemper Variable Series -
Kemper Growth Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Aggressive Growth Portfolio
The Kemper Aggressive Growth Portfolio rewarded investors with strong returns in
1999, outpacing the Russell 3000 Index since its inception on May 3, 1999. That
performance came despite periods of volatility in the market as a whole and a
number of sectors that remained sluggish throughout the year.
A number of factors contributed to the portfolio's strong showing. For example,
an underweighting in 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 throughout the year. Some of the technology names
that performed well during 1999 include Mercury Interactive, Comverse
Technologies and Vitesse Semiconductor.
While technology proved the place to be in 1999, the retail sector lagged. At
certain points during the period, our forward momentum was slowed by our retail
exposure. However, we took steps to limit our presence in that sector and
instead turned our attention to other attractive components such as Internet and
telecommunications stocks, sectors we believe gave us the best opportunities for
superior growth.
Moving into 2000, we continue to see technology as a key source of potential
growth. However, we also expect the market's focus to widen at some point, and
we will remain vigilant for opportunities for capital appreciation throughout
our investment universe.
Sewall F. Hodges
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Aggressive Growth Portfolio
from 5/1/1999 to 12/31/1999
- --------------------------------------------------------------------------------
The Russell 3000 Index is an unmanaged index
composed of the largest-capitalized
U.S.-domiciled companies whose stocks trade
in the U.S. The Standard & Poor's 500 Index
is an unmanaged index generally
representative of the U.S. stock market.
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Kemper Aggressive Russell 3000 Standard & Poor's
Growth Portfolio Index 500 Index
1999.35 10000 10000 10000
1999.5 10941 10505 10556
1999.75 11029 9813 9897
2000 13989 11404 11369
- --------------------------------------------------------------------------------
Total Return^1
- --------------------------------------------------------------------------------
Life of
For the periods ended December 31, 1999 portfolio
- --------------------------------------------------------------------------------
Kemper Aggressive Growth Portfolio 39.89%* (Since 5/3/1999)
- --------------------------------------------------------------------------------
^1 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.
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 investment advisor has agreed to either limit, waive or reduce
certain fees temporarily for this portfolio; see the prospectus for
complete details. Without such limits, waivers or reductions, the
performance figures for this subaccount would be lower.
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.
* Total returns are since inception and are not annualized.
46 | Kemper Variable Series -
| Kemper Aggressive Growth Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Aggressive Growth Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreements 1.7%
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 2.8%,
1/30/2000 to be repurchased at $200 (b) ------
(Cost $200) ........................... $ 200 $ 200
------
- --------------------------------------------------------------------------------
Short-Term Investments 25.9%
- --------------------------------------------------------------------------------
Federal Home Loan Bank, 4.51%, 1/18/2000
(Cost $998) ........................... 1,000 998
Federal Home Loan Bank Discount Corp.,
5.6%, 1/7/2000 (Cost $1,998) .......... 2,000 1,998
- --------------------------------------------------------------------------------
Total Short-Term Investments (Cost $2,996) 2,996
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks 72.4%
- --------------------------------------------------------------------------------
Consumer Discretionary 6.0%
Department & Chain Stores 2.6%
Bebe Stores, Inc.* ............ 2,800 76
Dayton Hudson Corp. ........... 1,400 103
Dollar Tree Stores, Inc.* ..... 1,000 48
Men's Wearhouse, Inc.* ........ 2,600 76
-----
303
-----
Recreational Products 1.0%
Harley-Davidson, Inc. ......... 1,300 83
THQ, Inc.* .................... 1,300 30
-----
113
-----
Restaurants 0.8%
CEC Entertainment, Inc.* ...... 3,500 99
-----
Specialty Retail 1.6%
Cinar Corp.* .................. 2,300 56
Zale Corp.* ................... 2,600 126
-----
182
-----
Consumer Staples 0.5%
Food & Beverage
Hain Food Group, Inc.* ........ 2,800 63
-----
Health 5.2%
Biotechnology 1.3%
Gene Logic, Inc.* ............. 200 5
Maxygen, Inc.* ................ 200 14
QLT Phototherapeutics, Inc.* .. 2,300 135
-----
154
-----
Medical Supply & Specialty 3.9%
Biomet, Inc. .................. 1,400 56
Shares Value
- --------------------------------------------------------------------------------
Medtronic, Inc.* ..................... 3,798 $138
ResMed, Inc.* ........................ 1,600 67
VISX, Inc.* .......................... 3,600 186
------
447
------
Communications 8.5%
Telephone/Communications
Adelphia Business Solutions, Inc.* ... 2,300 110
BroadWing, Inc. ...................... 4,200 155
Davox Corp.* ......................... 1,800 35
Harmonic Inc.* ....................... 1,300 123
Pinnacle Holdings, Inc.* ............. 2,600 110
Time Warner Telecom, Inc "A"* ........ 6,700. 335
Xircom, Inc.* ........................ 1,400 105
------
973
------
Financial 0.8%
Insurance 0.5%
Providian Financial Corp. ............ 600 55
------
Real Estate 0.3%
Walden Residential Properties, Inc. .. 1,700 37
------
Media 5.3%
Advertising 1.5%
Young & Rubicam, Inc. ................ 2,400 170
------
Broadcasting & Entertainment 3.8%
CBS Corp.* ........................... 2,000 129
Infinity Broadcasting Corp.* ......... 3,075 111
Univision Communication, Inc.* ....... 2,000 204
------
444
------
Service Industries 7.0%
EDP Services 1.6%
CSG Systems International, Inc.* ..... 2,200 87
PSINet, Inc.* ........................ 1,500 93
------
180
------
Miscellaneous Commercial Services 3.4%
Concord EFS, Inc.* ................... 8,000 206
Dycom Industries, Inc.* .............. 1,700 75
Metris Companies Inc. ................ 3,000 107
------
388
------
Miscellaneous Consumer Services 2.0%
Yahoo!, Inc.* ........................ 400 173
eBay, Inc.* .......................... 500 63
------
236
------
Durables 1.1%
Telecommunications Equipment
Lucent Technologies, Inc. ............ 1,700 127
------
Manufacturing 1.7%
Electrical Products 0.8%
Anadigics, Inc.* ..................... 1,900 90
------
The accompanying notes are an integral part of the financial statements.
47 | Kemper Variable Series -
| Kemper Aggressive Growth Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- --------------------------------------------------------------------------------
Office Equipment/Supplies 0.9%
Lexmark International Group, Inc. "A"* . 1,200 $ 109
------
Technology 36.3%
Computer Software 15.8%
Advanced Digital Information Corp.* .... 4,100 199
America Online, Inc.* .................. 2,200 166
Check Point Software Technologies, Ltd.* 600 119
Comverse Technologies, Inc.* ........... 1,100 159
HNC Software, Inc.* .................... 1,100 116
Information Architects Corp.* .......... 5,000 51
Interleaf, Inc.* ....................... 1,400 47
Intuit, Inc.* .......................... 3,800 228
Metasolv Software, Inc.* ............... 100 8
Microsoft Corp.* ....................... 2,500 292
Parametric Technology Corp.* ........... 5,700 154
SAP AG (Sponsored ADR) ................. 1,700 89
Sycamore Networks, Inc.* ............... 100 31
Verity, Inc.* .......................... 2,800 119
Viasoft, Inc.* ......................... 7,200 41
Xpedior, Inc.* ......................... 200 7
------
1,826
------
Diverse Electronic Products 0.7%
Solectron Corp.* ....................... 900 86
------
Shares Value
- --------------------------------------------------------------------------------
EDP Peripherals 3.5%
Mercury Interactive Corp.* ......................... 2,200 $ 238
Symbol Technologies, Inc. .......................... 2,600 165
------
403
------
Electronic Components/Distributors 5.5%
Applied Micro Circuits Corp* ....................... 1,800 229
Cisco Systems, Inc.* ............................... 1,400 150
Jabil Circuit* ..................................... 1,700 124
Three-Five Systems, Inc.* .......................... 3,200 131
------
634
------
Office/Plant Automation 2.0%
Mercury Computer Systems, Inc.* .................... 6,600 231
------
Semiconductors 8.8%
Atmel Corp.* ....................................... 6,600 195
Linear Technology Corp. ............................ 2,200 157
QLogic Corp.* ...................................... 800 128
SDL, Inc.* ......................................... 700 153
Sanmina Corp.* ..................................... 1,400 140
Silicon Storage Technology, Inc.* .................. 2,200 91
Vitesse Semiconductor Corp.* ....................... 2,900 152
------
1,016
------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $6,755) 8,366
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $9,951) (a) $11,562
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper Aggressive Growth Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $9,960. At December 31, 1999,
net unrealized appreciation for all securities based on tax cost was
$1,602. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$1,767 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $165.
(b) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
The accompanying notes are an integral part of the financial statements.
48 | Kemper Variable Series -
| Kemper Aggressive Growth Portfolio
<PAGE>
Financial Statements
(in thousands)
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- --------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $9,951) .......................... $11,562
Cash ....................................................................... 1
Receivable for investments sold ............................................ 52
Receivable for Portfolio shares sold ....................................... 45
Due from Adviser ........................................................... 11
-------
Total assets ............................................................... 11,671
-------
Liabilities
- --------------------------------------------------------------------------------------
Other accrued expenses and payables ........................................ 1
-------
Total liabilities .......................................................... 1
- --------------------------------------------------------------------------------------
Net assets, at value $11,670
- --------------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................. 19
Net unrealized appreciation (depreciation) on investments .................. 1,611
Accumulated net realized gain (loss) ....................................... 139
Paid-in capital ............................................................ 9,901
- --------------------------------------------------------------------------------------
Net assets, at value $11,670
- --------------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($11,670 / 8,342 outstanding
shares of beneficial interest, $.01 par value, unlimited number of shares -------
authorized) ............................................................. $ 1.399
-------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999 (a)
- --------------------------------------------------------------------------------
Investment Income
- -------------------------------------------------------------------------------------
<S> <C>
Dividends ................................................................. $ 2
Interest .................................................................. 28
-------
Total income .............................................................. 30
-------
Expenses:
Management fees ........................................................... 18
Custodian and accounting fees ............................................. 29
Trustees' fees and expenses ............................................... 1
Reports to shareholders ................................................... 3
Auditing .................................................................. 8
Legal ..................................................................... 1
Registration fees ......................................................... 1
-------
Total expenses, before expense reductions ................................. 61
Expense reductions ........................................................ (50)
-------
Total expenses, after expense reductions .................................. 11
- -------------------------------------------------------------------------------------
Net investment income (loss) 19
- -------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -------------------------------------------------------------------------------------
Net realized gain (loss) from investments ................................. 139
Net unrealized appreciation (depreciation) during the period on investments 1,611
- -------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 1,750
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 1,769
- -------------------------------------------------------------------------------------
</TABLE>
(a) For the period from May 1, 1999 (commencement of operations) to December
31, 1999.
The accompanying notes are an integral part of the financial statements.
49 | Kemper Variable Series -
| Kemper Aggressive Growth Portfolio
<PAGE>
(in thousands)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period Ended
December 31,
Increase (Decrease) in Net Assets 1999(a)
- ----------------------------------------------------------------------------------------------------
<S> <C>
Operations:
Net investment income (loss) ............................................................ $ 19
Net realized gain (loss) ................................................................ 139
Net unrealized appreciation (depreciation) on investment transactions during the period . 1,611
--------
Net increase (decrease) in net assets resulting from operations ......................... 1,769
--------
Portfolio share transactions:
Proceeds from shares sold ............................................................... 8,843
Cost of shares redeemed ................................................................. (442)
--------
Net increase in net asssets from Portfolio share transactions ........................... 8,401
--------
Increase (decrease) in net assets ....................................................... 10,170
Net assets at beginning of period ....................................................... 1,500
--------
Net assets at end of period (including undistributed net investment income (loss) of $19) $ 11,670
--------
Other Information
- ----------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................... 1,500
--------
Shares sold ............................................................................. 7,189
Shares redeemed ......................................................................... (347)
--------
Net increase (decrease) in Portfolio shares ............................................. 6,842
--------
Shares outstanding at end of period ..................................................... 8,342
--------
</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>
- -----------------------------------------------------------------------------------------------------------------------------
Period Ended December 31, 1999(b)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $1.000
---------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) .006
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .393
---------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .399
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.399
---------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 39.89**
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 11,670
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.66*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .50*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .80*
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 90*
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1999 (commencement of operations) to December
31, 1999.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
50 | Kemper Variable Series -
| Kemper Aggressive Growth Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Horizon 20+ Portfolio
1999's market and its almost exclusive focus on highly priced, large-cap stocks
created many challenges for the Kemper Horizon 20+ Portfolio and its
price-conscious discipline.
Early in the second half of the year, an overweighting in financial service
stocks -- particularly insurance companies -- proved detrimental. Likewise, an
underweighting in technology companies also slowed the portfolio, as those names
turned in generally strong performance for most of the second half of the year.
Diversification into small caps also hindered overall performance.
On the positive side, individual positions in stocks like Amgen, ADC
Telecommunications and Cardinal Health paid off in the fourth quarter. Also, an
overweighting in basic industry stocks, notably manufacturing, enhanced returns
late in the year.
The portfolio's international exposure proved mixed in the second half of the
year, turning in a strong performance early and then losing steam as the
portfolio's value orientation ran counter to investor sentiment.
Moving into 2000, we still see a domestic stock market that is overvalued.
Because additional interest rate increases are not out of the question, we will
continue to tilt our value exposure slightly above a neutral 50/50 growth-value
split and will continue to stay away from the high-priced stocks we feel don't
offer good long-term opportunities.
Robert D. Tymoczko
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Horizon 20+ Portfolio from
5/1/1996 to 12/31/1999
- --------------------------------------------------------------------------------
The Standard & Poor's 500 Stock Index is an
unmanaged index generally representative of
the U.S. stock market. The Merrill Lynch 1-3
Year Treasury Index is an index consisting
of short-term U.S. Treasury securities
maturing in 1 to 3 years with coupons higher
than 4.25%. Timely payment of principal and
interest on U.S. Treasury securities is
guaranteed by the full faith and credit of
the U.S. Government. If sold prior to
maturity however, these securities do
involve the risk of principal loss.
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Kemper Horizon Standard & Poor's Merrill Lynch 1-3
20+ Portfolio 500 Stock Index Year Treasury Index
1996.25 10000 10000 10000
1996.5 10126 10038 10072
1996.75 10733 10348 10238
1997 11537 11211 10433
1997.25 11359 11512 10502
1997.5 12792 13523 10734
1997.75 14133 14536 10944
1998 13899 14953 11127
1998.25 15439 17040 11291
1998.5 15582 17602 11464
1998.75 13798 15850 11817
1999 15711 19228 11905
1999.25 15481 20185 11976
1999.5 16599 21609 12045
1999.75 15894 20260 12197
2000 17165 23274 12270
- --------------------------------------------------------------------------------
Average Annual Total Return^1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life of
For the periods ended December 31, 1999 1-year portfolio
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Kemper Horizon 20+ Portfolio 9.26% 15.87% (Since 5/1/1996)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends. Average annual total
return reflects annualized change while 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.
51 | Kemper Variable Series -
| Kemper Horizon 20+ Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Horizon 20+ Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. Government Obligations 18.4%
- --------------------------------------------------------------------------------
U.S. Treasury Securities 17.7%
U.S. Treasury Note, 5.5%, 4/15/2000 .......... $ 200 $ 200
U.S. Treasury Note, 5.5%, 12/31/2000 ......... 675 671
U.S. Treasury Note, 6.25%, 2/28/2002 ......... 830 830
U.S. Treasury Note, 6.5%, 5/31/2001 .......... 1,560 1,566
U.S. Treasury Note, 6.625%, 7/31/2001 ........ 1,700 1,709
U.S. Treasury Note, 6.75%, 4/30/2000 ......... 299 300
U.S. Treasury Note, 7.875%, 11/15/2004 ....... 261 276
U.S. Treasury Note, 8.5%, 2/15/2000 .......... 150 151
U.S. Treasury Note, 8.5%, 11/15/2000 ......... 650 663
U.S. Treasury Note, 8.875%, 5/15/2000 ........ 250 253
--------
6,619
--------
Mortgage-backed Securities 0.7%
Federal Home Loan Mortgage Corp., 6.5%
with various maturities to 10/17/2014 ..... 88 88
Federal National Mortgage Association,
6.0% with various maturities to 4/15/2006 . 24 24
Federal National Mortgage Association,
6.01% with various maturities to
7/24/2000 ................................. 150 150
--------
262
--------
- -----------------------------------------------------------------
Total U.S. Government Obligations (Cost $7,055) 6,881
- -----------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks 81.6%
- --------------------------------------------------------------------------------
Consumer Discretionary 9.0%
Apparel & Shoes 0.6%
Brown Shoe Company, Inc. .............. 1,360 19
Jones Apparel Group, Inc.* ............ 5,656 153
Liz Claiborne, Inc. ................... 1,500 56
-------
228
-------
Department & Chain Stores 5.6%
Ames Department Stores, Inc.* ......... 900 26
Burlington Coat Factory Warehouse Corp. 9,000 125
Dillard's Inc. ........................ 4,300 87
Home Depot, Inc. ...................... 12,750 874
Kingfisher PLC ........................ 4,300 48
Kmart Corp.* .......................... 3,800 38
Longs Drug Stores, Inc. ............... 2,300 59
May Department Stores ................. 900 29
Men's Wearhouse, Inc.* ................ 400 12
Neiman Marcus Group, Inc.* ............ 2,000 56
Pacific Sunwear of California Inc.* ... 4,700 150
W.H. Smith Group PLC .................. 11,600 90
Wal-Mart Stores, Inc. ................. 7,300 505
-------
2,099
-------
Shares Value
- --------------------------------------------------------------------------------
Home Furnishings 0.4%
Furniture Brands International Inc.* 2,700 $ 59
Newell Rubbermaid, Inc. ............ 2,400 70
------
129
------
Recreational Products 0.4%
Fairfield Communities, Inc.* ....... 7,500 81
THQ, Inc.* ......................... 2,200 51
------
132
------
Restaurants 0.4%
Ryan's Family Steak Houses, Inc.* .. 19,200 163
------
Specialty Retail 1.4%
AutoZone, Inc.* .................... 1,800 58
Avis Rent A Car, Inc.* ............. 6,200 158
Family Dollar Stores Inc. .......... 7,600 124
New Business Service, Inc. ......... 5,000 122
The Finish Line, Inc. "A"* ......... 3,700 20
Wet Seal, Inc. "A"* ................ 3,800 47
------
529
------
Miscellaneous 0.2%
Herman Miller, Inc. ................ 3,900 90
------
Consumer Staples 3.6%
Alcohol & Tobacco 2.1%
Adolph Coors Company ............... 900 47
Bass PLC ........................... 5,200 65
Imperial Tobacco Group PLC ......... 28,900 239
SEITA .............................. 1,900 86
UST, Inc. .......................... 9,500 239
Universal Corp. .................... 5,000 114
------
790
------
Consumer Specialties 0.2%
American Greeting Corp., "A" ....... 2,400 57
------
Food & Beverage 1.2%
Farmer Brothers Co. ................ 600 95
IBP, Inc. .......................... 2,000 36
Koninklijke Ahold NV ............... 4,298 127
Michael Foods, Inc. ................ 5,200 129
SUPERVALU, Inc. .................... 2,100 42
Seaboard Corp. ..................... 100 19
------
448
------
Package Goods/Cosmetics 0.1%
Chattem, Inc.* ..................... 1,800 34
------
Health 6.2%
Biotechnology 1.2%
Amgen, Inc.* ....................... 4,200 252
Biogen, Inc.* ...................... 2,200 186
------
438
------
Health Industry Services 1.3%
Cardinal Health, Inc. .............. 2,900 139
The accompanying notes are an integral part of the financial statements.
52 | Kemper Variable Series -
| Kemper Horizon 20+ Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- --------------------------------------------------------------------------------
Hanger Orthopedic Group, Inc.* ...... 8,900 $ 89
Shared Medical Systems Corp. ........ 2,800 142
US Oncology, Inc.* .................. 7,000 35
Wellpoint Health Networks, Inc.* .... 1,400 92
------
497
------
Hospital Management 0.7%
Trigon Healthcare, Inc.* ............ 2,200 65
Universal Health Services, Inc.* .... 4,900 176
------
241
------
Medical Supply & Specialty 1.2%
C.R. Bard, Inc. ..................... 8,200 435
NBTY Inc.* .......................... 2,200 25
VISX, Inc.* ......................... 300 16
------
476
------
Pharmaceuticals 1.8%
Advance Paradigm, Inc.* ............. 1,200 26
Johnson & Johnson ................... 1,400 130
Merck & Co., Inc. ................... 6,000 402
Suzuken Co., Ltd. ................... 4,000 121
------
679
------
Communications 1.9%
Telephone/Communications
ADC Telecommunications, Inc.* ....... 700 51
Alcatel Sel AG ...................... 369 63
BCE, Inc. ........................... 1,400 127
British Telecom PLC ................. 7,600 184
SBC Communications, Inc. ............ 1,709 83
Telecom Italia SpA .................. 5,500 78
Xircom, Inc.* ....................... 1,700 128
------
714
------
Financial 18.2%
Banks 5.4%
ABN AMRO Holding NV ................. 3,500 87
Bank of America Corp. ............... 2,914 146
Bank of Nova Scotia ................. 3,000 64
Banque Nationale de Paris ........... 2,200 203
Chase Manhattan Corp. ............... 2,300 179
Christiania Bank og Kreditkasse ..... 15,200 75
Dah Sing Financial Group ............ 7,500 30
Dime Bancorp, Inc. .................. 2,100 32
Dresdner Bank AG .................... 900 49
FleetBoston Financial Corp. ......... 4,000 139
Fuji Bank, Ltd. ..................... 13,000 126
Golden West Financial Corp. ......... 1,200 40
Hang Seng Bank Ltd. ................. 1,400 16
Istituto Bancario San Paolo di Torino 2,200 30
KeyCorp ............................. 600 13
National Bank of Canada ............. 5,800 74
PNC Bank Corp. ...................... 800 36
Sakura Bank, Ltd. ................... 47,000 272
Societe Generale .................... 200 47
St. George Bank Ltd. ................ 38,900 294
The Mitsui Trust & Banking Co., Ltd. 46,000 104
------
2,056
------
Shares Value
- --------------------------------------------------------------------------------
Insurance 4.8%
AFLAC, Inc. ........................... 1,800 $ 85
AMBAC Financial Group, Inc. ........... 2,500 130
AXA SA ................................ 2,000 279
Aetna, Inc. ........................... 3,700 207
American General Corp. ................ 1,000 76
Chubb Corp. ........................... 370 21
Cigna Corp. ........................... 600 48
Hartford Financial Services Group, Inc. 2,200 104
ING Groep N.V ......................... 2,820 170
Jefferson Pilot Corp. ................. 1,325 90
Protective Life Corp. ................. 1,700 54
Skandia Forsakrings AB ................ 7,800 236
Stewart Information Services Corp. .... 1,400 19
Torchmark Corp. ....................... 2,100 61
XL Capital Ltd. "A" ................... 3,751 195
-------
1,775
-------
Business Finance 0.4%
Heller Financial Inc. ................. 7,600 152
-------
Consumer Finance 2.5%
Citigroup, Inc. ....................... 12,550 697
SLM Holding Corp. ..................... 5,600 237
-------
934
-------
Other Financial Companies 5.0%
Compagnie Financiere Richemont AG ..... 200 477
Edwards (A.G.) Inc. ................... 6,600 212
Federal Home Loan Mortgage Corp. ...... 8,100 381
Federal National Mortgage Association . 4,500 281
GreenPoint Financial Corp. ............ 3,500 83
Legg Mason Inc. ....................... 3,700 134
Morgan Stanley Dean Witter & Co. ...... 2,000 286
-------
1,854
-------
Real Estate 0.1%
Beni Stabili SpA* ..................... 2,200 1
China Resources Enterprises Ltd. ...... 16,900 27
-------
28
-------
Media 1.0%
Cable Television 0.2%
Granada Group PLC ..................... 7,400 75
-------
Print Media 0.8%
Softbank Corp. ........................ 300 287
-------
Service Industries 5.5%
EDP Services 1.4%
Affiliated Computer Services* ......... 5,600 258
First Data Corp. ...................... 5,300 261
-------
519
-------
Investment 1.4%
Bear Stearns Companies, Inc. .......... 4,011 171
Paine Webber Group, Inc. .............. 1,100 43
Raymond James Financial, Inc. ......... 15,600 292
-------
506
-------
The accompanying notes are an integral part of the financial statements.
53 | Kemper Variable Series -
| Kemper Horizon 20+ Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- -------------------------------------------------------------
Miscellaneous Commercial 1.7%
Cap Gemini Sogeti SA ..................... 300 $ 76
Convergys Corp.* ......................... 7,300 225
Hanson PLC ............................... 7,800 65
Kelly Services, Inc. "A" ................. 2,700 68
Personnel Group of America, Inc.* ........ 7,000 71
US Foodservice Inc.* ..................... 7,900 132
-------
637
-------
Miscellaneous Consumer 0.9%
Go2Net, Inc.* ............................ 600 52
Profit Recovery Group International, Inc.* 1,800 48
United Utilities PLC ..................... 7,100 73
Yahoo!, Inc.* ............................ 400 173
-------
346
-------
Printing/Publishing 0.1%
Mail-Well, Inc.* ......................... 3,400 46
-------
Durables 3.8%
Aerospace 0.6%
Alliant Techsystems, Inc.* ............... 500 31
GenCorp, Inc. ............................ 3,500 35
Teledyne Technologies Inc.* .............. 300 3
United Technologies Corp. ................ 2,400 156
-------
225
-------
Automobiles 1.7%
Borg-Warner Automotive Inc. .............. 450 18
GKN PLC .................................. 27,300 448
Honda Motor Co., Ltd. .................... 2,000 74
Renault SA ............................... 2,200 106
-------
646
-------
Construction/Agricultural 0.2%
Terex Corp.* ............................. 2,700 75
-------
Telecommunications Equipment 1.3%
Advanced Fibre Communications, Inc.* ..... 3,600 161
LM Ericsson Telephone Co. "B" ............ 800 51
Polycom, Inc.* ........................... 1,500 96
Scientific-Atlanta, Inc. ................. 2,900 161
-------
469
-------
Manufacturing 9.0%
Chemicals 3.2%
Akzo Nobel NV ............................ 1,600 80
BASF AG .................................. 9,400 483
BOC Group PLC ............................ 15,100 325
Compania Espanola de Petroleos, SA ....... 1,200 12
Dow Chemical Co. ......................... 500 67
Praxair, Inc. ............................ 1,600 81
Rohm & Haas Co. .......................... 2,000 81
Valhi, Inc. .............................. 2,700 28
-------
1,157
-------
Containers & Paper 0.9%
FPB Holding AG ........................... 966 153
UPM-Kymmene Oyj .......................... 4,300 173
-------
326
-------
Shares Value
- -------------------------------------------------------------
Diversified Manufacturing 1.4%
Cooper Industries, Inc. .................. 1,100 $ 44
Hillenbrand Industries, Inc. ............. 2,100 67
Honeywell International, Inc. ............ 3,700 214
Man AG ................................... 2,000 75
Sulzer Brothers Ltd. (Registered) ........ 200 130
Water Pik Technologies, Inc.* ............ 105 1
-------
531
-------
Electrical Products 0.7%
SLI, Inc.* ............................... 4,300 58
Scana Corp. .............................. 3,700 99
Taiyo Yuden Co., Ltd. .................... 2,000 119
-------
276
-------
Industrial Specialty 1.2%
Carlisle Companies Inc. .................. 1,700 61
QUALCOMM Inc.* ........................... 1,600 281
Teleflex Incorporated .................... 1,300 41
Westinghouse Air Brake Company ........... 3,762 67
-------
450
-------
Machinery/Components 1.6%
Columbus McKinnon Corp. .................. 3,800 38
Illinois Tool Works, Inc. ................ 1,697 115
Ingersoll-Rand Co. ....................... 3,600 197
Mueller Industries, Inc.* ................ 900 33
Okuma Corp. .............................. 28,000 88
Reliance Steel & Aluminum Co. ............ 5,750 135
-------
606
-------
Technology 11.1%
Computer Software 3.2%
America Online, Inc.* .................... 3,700 280
Ancor Communications, Inc.* .............. 800 54
Broadvision, Inc.* ....................... 1,100 187
Microsoft Corp.* ......................... 2,000 234
MicroStrategy Inc.* ...................... 500 105
Reynolds and Reynolds Company ............ 6,300 142
Synopsys Ltd.* ........................... 2,500 167
Verity, Inc.* ............................ 1,200 51
-------
1,220
-------
Diverse Electronic Products 0.7%
Dell Computer Corp.* ..................... 3,200 163
InterVU Inc.* ............................ 1,000 105
-------
268
-------
Electronic Components 2.9%
Cisco Systems, Inc.* ..................... 4,800 514
Koninklijke (Royal) Philips Electronics NV 2,000 273
SCI Systems, Inc.* ....................... 2,000 164
Technitrol, Inc. ......................... 3,400 151
-------
1,102
-------
Military Electronics 1.3%
Computer Sciences Corp.* ................. 3,900 369
General Dynamics Corp. ................... 2,300 121
-------
490
-------
Semiconductors 3.0%
Alpha Industries* ........................ 1,000 57
The accompanying notes are an integral part of the financial statements.
54 | Kemper Variable Series -
| Kemper Horizon 20+ Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- -----------------------------------------------------------
Intel Corp. ............................ 6,400 $ 526
Linear Technology Corp. ................ 4,800 344
Transwitch Corp.* ...................... 400 29
Triquint Semiconductor, Inc.* .......... 1,300 145
-------
1,101
-------
Energy 2.3%
Oil & Gas Production 0.8%
Cabot Oil & Gas Corp. "A" .............. 5,300 85
Repsol SA .............................. 9,660 224
-------
309
-------
Oil Companies 1.3%
Ashland Inc. ........................... 900 30
ENI SpA ................................ 48,600 267
Elf Aquitaine SA ....................... 800 123
Total SA "B" ........................... 437 58
-------
478
-------
Oil/Gas Transmission 0.2%
El Paso Energy Corporation* ............ 1,500 58
-------
Oilfield Services 0.0%
Veritas DGC Inc.* ...................... 1,000 14
-------
Metals & Minerals 1.1%
Steel & Metals
AK Steel Holding Corp. ................. 910 17
AMCOL International Corp. .............. 1,815 29
Alcan Aluminium Ltd. ................... 5,500 226
Allegheny Teledyne, Inc. ............... 1,050 24
Bethlehem Steel Corp.* ................. 9,400 79
Nucor Corp. ............................ 700 38
-------
413
-------
Construction 2.5%
Building Materials 1.5%
Centex Construction Products, Inc. ..... 2,000 78
Elcor Corp. ............................ 750 23
Florida Rock Industries, Inc. .......... 2,900 99
Grupo Dragados, S.A .................... 2,100 19
Holderbank Financiere Glaris AG (Bearer) 100 136
LaFarge Corp. .......................... 2,000 55
Sumitomo Osaka Cement Co., Ltd. ........ 9,000 12
Taiheiyo Cement Corp. .................. 27,000 52
Vulcan Materials Co. ................... 2,400 96
-------
570
-------
Building Products 0.5%
Genlyte Group, Inc.* ................... 7,300 156
Nortek, Inc.* .......................... 800 22
-------
178
-------
Shares Value
- --------------------------------------------------------------------------
Homebuilding 0.4%
Del Webb Corp.* ...................................... 1,230 $ 31
Standard Pacific Corp. ............................... 9,900 109
------
140
------
Miscellaneous 0.1%
Maeda Road Construction Co., Ltd. .................... 7,000 34
------
Transportation 1.1%
Airlines 0.4%
Air New Zealand Ltd. "B" ............................. 36,300 53
SAirGroup ............................................ 400 81
------
134
------
Marine Transportation 0.2%
Newport News Shipbuilding, Inc. ...................... 3,200 88
------
Railroads 0.3%
Trinity Industries, Inc. ............................. 3,470 99
------
Trucking 0.2%
Roadway Express, Inc. ................................ 3,000 64
U.S. Xpress Enterprises, Inc. "A"* ................... 3,200 24
------
88
------
Utilities 5.3%
Electric Utilities 4.8%
AES Corp.* ........................................... 2,100 157
Black Hills Corp. .................................... 2,600 58
CH Energy Group, Inc. ................................ 900 30
Calpine Corporation* ................................. 2,000 128
Chugoku Electric Power Co., Inc. ..................... 14,400 224
El Paso Electric Co. ................................. 2,700 26
Electrabel NPV ....................................... 400 131
Empire District Electric Company ..................... 7,100 161
FPL Group, Inc. ...................................... 1,200 51
Scottish Power PLC ................................... 12,300 93
Shikoku Electric Power Co., Inc. ..................... 19,300 291
TNP Enterprises, Inc. ................................ 700 29
Texas Utilities Co., Inc. ............................ 2,100 75
Tohoku Electric Power Co., Inc. ...................... 19,300 287
WPS Resources Corp ................................... 1,700 43
------
1,784
------
Natural Gas Distribution 0.2%
Columbia Energy Group ................................ 1,150 73
------
Water Supply 0.3%
Aquarion Co. ......................................... 2,850 105
------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $27,711) 30,466
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $34,766) (a) $37,347
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper Horizon 20+ Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $34,775. At December 31,
1999, net unrealized appreciation for all securities based on tax cost
was $2,572. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over
tax cost of $5,262 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value
of $2,690.
The accompanying notes are an integral part of the financial statements.
55 | Kemper Variable Series -
| Kemper Horizon 20+ Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
(in thousands)
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- ---------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $34,766) ......................... $ 37,347
Dividends receivable ....................................................... 61
Interest receivable ........................................................ 102
Foreign taxes recoverable .................................................. 12
-------
Total assets ............................................................... 37,522
Liabilities
- ---------------------------------------------------------------------------------------
Due to custodian bank ...................................................... 55
Payable for Portfolio shares redeemed ...................................... 25
Accrued management fee ..................................................... 19
Other accrued expenses and payables ........................................ 14
-------
Total liabilities .......................................................... 113
- ---------------------------------------------------------------------------------------
Net assets, at value $ 37,409
- ---------------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................. 651
Net unrealized appreciation (depreciation) on:
Investments ............................................................. 2,581
Foreign currency related transactions ................................... (1)
Accumulated net realized gain (loss) ....................................... 3,229
Paid-in capital ............................................................ 30,949
- ---------------------------------------------------------------------------------------
Net assets, at value $ 37,409
- ---------------------------------------------------------------------------------------
Net Asset Value
- ---------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($37,409 / 23,173 outstanding
shares of beneficial interest, $.01 par value, unlimited number of shares --------
authorized) ............................................................. $ 1.614
--------
</TABLE>
- --------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- --------------------------------------------------------------------------
Investment Income
- --------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $14) ............... $ 464
Interest ....................................................... 507
-------
Total income ................................................... 971
-------
Expenses:
Management fee ................................................. 228
Custodian fees ................................................. 45
Auditing ....................................................... 3
Legal .......................................................... 1
Trustees' fees and expenses .................................... 8
Reports to shareholders ........................................ 9
Other .......................................................... 3
-------
Total expenses, before expense reductions ...................... 297
Expense reductions ............................................. (1)
-------
Total expenses, after expense reductions ....................... 296
- --------------------------------------------------------------------------
Net investment income (loss) 675
- --------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 3,359
Foreign currency related transactions .......................... (5)
-------
3,354
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (790)
Foreign currency related transactions .......................... (1)
-------
(791)
- --------------------------------------------------------------------------
Net gain (loss) on investment transactions 2,563
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 3,238
- --------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
56 | Kemper Variable Series -
| Kemper Horizon 20+ Portfolio
<PAGE>
(in thousands)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................ $ 675 $ 512
Net realized gain (loss) ................................................................ 3,354 173
Net unrealized appreciation (depreciation) on investment transactions during the period . (791) 2,240
-------- --------
Net increase (decrease) in net assets resulting from operations ......................... 3,238 2,925
-------- --------
Distributions to shareholders:
From net investment income .............................................................. (491) (159)
-------- --------
From net realized gains ................................................................. (246) (637)
-------- --------
Portfolio share transactions:
Proceeds from shares sold ............................................................... 8,127 21,619
Reinvestment of distributions ........................................................... 737 796
Cost of shares redeemed ................................................................. (12,221) (2,938)
-------- --------
Net increase (decrease) in net assets from Portfolio share transactions ................. (3,357) 19,477
-------- --------
Increase (decrease) in net assets ....................................................... (856) 21,606
Net assets at beginning of period ....................................................... 38,265 16,659
Net assets at end of period (including undistributed net investment income (loss) of $651 -------- --------
and $473, respectively) .............................................................. $ 37,409 $ 38,265
-------- --------
Other Information
- ----------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................... 25,394 12,093
-------- --------
Shares sold ............................................................................. 5,364 14,868
Shares issued to shareholders in reinvestment of distributions .......................... 486 532
Shares redeemed ......................................................................... (8,071) (2,099)
-------- --------
Net increase (decrease) in Portfolio shares ............................................. (2,221) 13,301
-------- --------
Shares outstanding at end of period ..................................................... 23,173 25,394
-------- --------
</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>
- -----------------------------------------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998 1997 1996(b)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.507 1.378 1.154 1.000
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .027(a) .019 .020 .012
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments transactions .110 .160 .214 .142
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .137 .179 .234 .154
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.020) (.010) (.010) --
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.010) (.040) -- --
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.030) (.050) (.010) --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.614 1.507 1.378 1.154
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 9.26 13.01 20.48 15.37**
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 37,409 38,265 16,659 3,759
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .78 .67 .93 1.13*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .78 .67 .93 .81*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.78 1.84 1.58 1.71*
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 62 55 75 60*
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1996 (commencement of operations) to
December 31, 1996.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
57 | Kemper Variable Series -
| Kemper Horizon 20+ Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Horizon 10+ Portfolio
1999's market and its almost exclusive focus on highly priced, large-cap stocks
created many challenges for the Kemper Horizon 10+ Portfolio and its
price-conscious discipline.
Early in the second half of the year, an overweighting in financial-service
stocks -- particularly insurance companies -- proved detrimental. Likewise, an
underweighting in technology companies also slowed the portfolio, as those names
turned in generally strong performance for most of the second half of the year.
Diversification into small caps also hindered overall performance.
On the positive side, individual positions in stocks like Amgen, ADC
Telecommunications and Cardinal Health paid off in the fourth quarter. Also, an
overweighting in basic industry stocks, notably manufacturing, enhanced returns
late in the year.
The portfolio's international exposure proved mixed in the second half of the
year, turning in a strong performance early and then losing steam as the
portfolio's value orientation ran counter to investor sentiment.
Moving into 2000, we still see a domestic stock market that is overvalued.
Because additional interest rate increases are not out of the question, we will
continue to tilt our value exposure slightly above a neutral 50/50 growth-value
split and will continue to stay away from the high-priced stocks we feel don't
offer good long-term opportunities.
Robert D. Tymoczko
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Horizon 10+ Portfolio from
5/1/1996 to 12/31/1999
- --------------------------------------------------------------------------------
The Standard & Poor's 500 Stock Index is an
unmanaged index generally representative of
the U.S. stock market. The Merrill Lynch 1-3
Year Treasury Index is an index consisting
of short-term U.S. Treasury securities
maturing in 1 to 3 years with coupons higher
than 4.25%. Timely payment of principal and
interest on U.S. Treasury securities is
guaranteed by the full faith and credit of
the U.S. Government. If sold prior to
maturity however, these securities do
involve the risk of principal loss.
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Kemper Horizon 10+ Standard & Poor's Merrill Lynch 1-3
Portfolio 500 Stock Index Year Treasury Index
1996.25 10000 10000 10000
1996.5 10103 10038 10072
1996.75 10526 10348 10238
1997 11137 11211 10433
1997.25 11043 11512 10502
1997.5 12152 13523 10734
1997.75 13152 14536 10944
1998 13004 14953 11127
1998.25 14108 17040 11291
1998.5 14175 17602 11464
1998.75 13073 15850 11817
1999 14477 19228 11905
1999.25 14250 20185 11976
1999.5 15109 21609 12045
1999.75 14814 20260 12197
2000 15691 23274 12270
- --------------------------------------------------------------------------------
Average Annual Total Return^1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life of
For the periods ended December 31, 1999 1-year portfolio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Kemper Horizon 10+ Portfolio 8.38% 13.07% (Since 5/1/1996)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment
income and capital gain or loss from portfolio investments over the
periods specified, assuming reinvestment of all dividends. Average
annual total return reflects annualized change while 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.
58 | Kemper Variable Series -
| Kemper Horizon 10+ Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Horizon 10+ Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
U.S. Government Obligations 38.5%
U.S. Treasury Securities 34.8%
U.S. Treasury Note, 5.375%, 2/15/2001 ......... $ 1,200 $ 1,190
U.S. Treasury Note, 5.5%, 12/31/2000 .......... 1,700 1,690
U.S. Treasury Note, 6.25%, 2/28/2002 .......... 6,670 6,668
U.S. Treasury Note, 6.5%, 5/31/2001 ........... 4,040 4,056
U.S. Treasury Note, 6.625%, 7/31/2001 ......... 2,650 2,666
U.S. Treasury Note, 6.75%, 4/30/2000 .......... 1,915 1,921
U.S. Treasury Note, 7.875%, 11/15/2004 ........ 750 793
U.S. Treasury Note, 8.%, 5/15/2001 ............ 1,000 1,023
U.S. Treasury Note, 8.5%, 2/15/2000 ........... 870 873
U.S. Treasury Note, 8.5%, 11/15/2000 .......... 1,100 1,122
U.S. Treasury Note, 8.875%, 5/15/2000 ......... 1,178 1,191
--------
23,193
--------
Mortgage-backed Securities 3.7%
Federal Home Loan Mortgage Corp., 6.5%
with various maturities to 10/17/14 ........ 189 188
Federal National Mortgage Association,
5.625% with various maturities to
5/15/2004 .................................. 1,750 1,670
Federal National Mortgage Association,
6.0% with various maturities to
4/15/2006 .................................. 75 74
Federal National Mortgage Association,
6.01% with various maturities to
7/24/2000 .................................. 500 499
--------
2,431
--------
- --------------------------------------------------------------------------------
Total U.S. Government Obligations (Cost $26,326) 25,624
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Common Stocks 61.5%
Consumer Discretionary 6.5%
Apparel & Shoes 0.4%
Brown Shoe Company, Inc. ..................... 2,000 28
Jones Apparel Group, Inc.* ................... 7,904 215
-------
243
-------
Department & Chain Stores 4.3%
Ames Department Stores, Inc.* ................ 1,800 52
Burlington Coat Factory Warehouse Corp. ...... 13,000 180
Dillard's Inc. ............................... 5,500 111
Federated Department Stores, Inc.* ........... 1,700 86
Home Depot, Inc. ............................. 16,050 1,101
Kingfisher PLC ............................... 17,800 198
Longs Drug Stores, Inc. ...................... 2,800 72
Men's Wearhouse, Inc.* ....................... 1,950 57
Neiman Marcus Group, Inc.* ................... 2,000 56
Pacific Sunwear of California Inc.* .......... 5,400 172
Shares Value
- -----------------------------------------------------------------
W.H. Smith Group PLC ......................... 14,300 $ 111
Wal-Mart Stores, Inc. ........................ 9,800 677
-------
2,873
-------
Home Furnishings 0.1%
Newell Rubbermaid, Inc. ...................... 2,000 58
-------
Recreational Products 0.2%
Fairfield Communities, Inc.* ................. 8,000 86
THQ, Inc.* ................................... 2,600 60
-------
146
-------
Restaurants 0.2%
Ryan's Family Steak Houses, Inc.* ............ 16,400 139
-------
Specialty Retail 1.1%
AutoZone, Inc.* .............................. 3,500 113
Avis Rent A Car, Inc.* ....................... 8,800 225
Central Garden & Pet Co.* .................... 2,800 29
Family Dollar Stores Inc. .................... 16,200 264
The Finish Line, Inc. "A"* ................... 4,400 24
Wet Seal, Inc. "A"* .......................... 4,700 58
-------
713
-------
Miscellaneous 0.2%
Herman Miller, Inc. .......................... 7,400 170
-------
Consumer Staples 2.3%
Alcohol & Tobacco 1.2%
Bass PLC ..................................... 3,000 38
Imperial Tobacco Group PLC ................... 31,000 255
Philip Morris Companies, Inc. ................ 8,300 193
SEITA ........................................ 1,400 63
UST, Inc. .................................... 6,000 151
Universal Corp. .............................. 5,500 126
-------
826
-------
Consumer Specialties 0.1%
American Greeting Corp., "A" ................. 3,300 78
-------
Food & Beverage 0.6%
Farmer Brothers Co. .......................... 300 47
Jack in the Box Inc.* ........................ 2,700 56
Michael Foods, Inc. .......................... 5,200 128
SUPERVALU, Inc. .............................. 2,800 56
Seaboard Corp. ............................... 400 78
-------
365
-------
Package Goods/Cosmetics 0.0%
Chattem, Inc.* ............................... 1,200 23
-------
Textiles 0.4%
VF Corp. ..................................... 8,500 255
-------
Health 4.6%
Biotechnology 0.9%
Amgen, Inc.* ................................. 6,700 403
The accompanying notes are an integral part of the financial statements.
59 | Kemper Variable Series -
| Kemper Horizon 10+ Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- ---------------------------------------------------------
Biogen, Inc.* ....................... 2,500 $ 211
------
614
------
Health Industry Services 1.1%
Cardinal Health, Inc. ............... 4,740 227
Hanger Orthopedic Group, Inc.* ...... 8,700 87
Shared Medical Systems Corp. ........ 3,800 193
US Oncology, Inc. ................... 8,700 43
Wellpoint Health Networks, Inc.* .... 2,800 185
------
735
------
Hospital Management 0.5%
Trigon Healthcare, Inc.* ............ 3,100 91
Universal Health Services, Inc.* .... 6,100 220
------
311
------
Medical Supply & Specialty 1.1%
Bindley Western Industries, Inc. .... 6,000 90
C.R. Bard, Inc. ..................... 10,100 535
NBTY Inc.* .......................... 4,500 52
VISX, Inc.* ......................... 500 26
------
703
------
Pharmaceuticals 1.0%
Advance Paradigm, Inc.* ............. 2,200 48
Merck & Co., Inc. ................... 6,700 449
Suzuken Co., Ltd. ................... 6,400 194
------
691
------
Communications 2.0%
Telephone/Communications
ADC Telecommunications, Inc.* ....... 700 51
BCE, Inc. ........................... 4,600 418
British Telecom PLC ................. 8,300 201
MasTec, Inc.* ....................... 500 22
Oki Electric Industry Company* ...... 7,000 41
SBC Communications, Inc. ............ 4,259 208
Telecom Italia SpA .................. 18,400 259
Xircom, Inc.* ....................... 2,000 150
------
1,350
------
Financial 13.1%
Banks 4.3%
ABN AMRO Holding NV ................. 7,700 192
Bank of America Corp. ............... 4,064 204
Bank of Nova Scotia ................. 2,000 43
Banque Nationale de Paris ........... 2,450 226
Chase Manhattan Corp. ............... 3,900 303
Christiania Bank og Kreditkasse ..... 19,200 95
Dah Sing Financial Group ............ 20,000 80
Dime Bancorp, Inc. .................. 2,600 39
Dresdner Bank AG .................... 1,900 103
FleetBoston Financial Corp. ......... 5,800 202
Fuji Bank, Ltd. ..................... 16,000 155
Hang Seng Bank Ltd. ................. 9,000 103
Istituto Bancario San Paolo di Torino 5,500 75
National Bank of Canada ............. 3,100 40
PNC Bank Corp. ...................... 900 40
Pacific Century Financial Corporation 3,200 60
Sakura Bank, Ltd. ................... 61,000 353
Shares Value
- --------------------------------------------------------------------------------
Societe Generale ...................... 500 $ 116
St. George Bank Ltd. .................. 29,400 222
The Mitsui Trust & Banking Co., Ltd. .. 62,000 140
Toronto-Dominion Bank ................. 4,000 107
------
2,898
------
Insurance 3.1%
AFLAC, Inc. ........................... 1,400 66
AMBAC Financial Group, Inc. ........... 4,000 209
AXA SA ................................ 1,700 237
Aetna, Inc. ........................... 4,500 251
American General Corp. ................ 1,800 136
Chubb Corp. ........................... 494 28
Cigna Corp. ........................... 900 72
Corporacion Mapfre, SA ................ 2,700 45
Hartford Financial Services Group, Inc. 4,100 194
ING Groep NV .......................... 4,287 259
Jefferson Pilot Corp. ................. 2,150 147
Protective life Corp. ................. 1,500 48
Skandia Forsakrings AB ................ 7,700 233
Stewart Information Services Corp. .... 5,000 66
Torchmark Corp. ....................... 2,100 61
------
2,052
------
Business Finance 0.2%
Heller Financial Inc. ................. 5,200 104
------
Consumer Finance 1.8%
Citigroup, Inc. ....................... 16,250 903
SLM Holding Corp. ..................... 7,100 300
------
1,203
------
Other Financial Companies 3.7%
Compagnie Financiere Richemont AG ..... 300 716
Edwards (A.G.) Inc. ................... 5,900 189
Federal Home Loan Mortgage Corp. ...... 9,500 447
Federal National Mortgage Association . 5,300 331
GreenPoint Financial Corp. ............ 2,300 55
Legg Mason Inc. ....................... 6,200 224
Man (ED&F) Group PLC .................. 5,800 39
Morgan Stanley Dean Witter & Co. ...... 3,200 457
------
2,458
------
Real Estate 0.0%
Beni Stabili SpA* ..................... 5,500 2
------
Media 0.6%
Print Media
Softbank Corp. ........................ 400 383
------
Service Industries 3.7%
EDP Services 1.0%
Affiliated Computer Services* ......... 7,300 336
First Data Corp. ...................... 7,100 350
------
686
------
Investment 1.0%
Bear Stearns Companies, Inc. .......... 5,512 235
Paine Webber Group, Inc. .............. 1,900 74
The accompanying notes are an integral part of the financial statements.
60 | Kemper Variable Series -
| Kemper Horizon 10+ Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- -------------------------------------------------------------------------------
Raymond James Financial, Inc. ............ 17,600 $ 329
------
638
------
Miscellaneous Commercial 1.1%
Cap Gemini Sogeti SA ..................... 800 203
Convergys Corp.* ......................... 6,600 203
Hanson PLC ............................... 13,600 114
Personnel Group of America, Inc.* ........ 9,500 96
US Foodservice Inc.* ..................... 6,000 101
------
717
------
Miscellaneous Consumer 0.5%
Go2Net, Inc.* ............................ 1,100 96
Profit Recovery Group International, Inc.* 1,800 48
United Utilities PLC ..................... 7,300 75
Yahoo!, Inc.* ............................ 300 130
------
349
------
Printing/Publishing 0.1%
Mail-Well, Inc.* ......................... 4,000 54
------
Durables 3.6%
Aerospace 1.0%
Alliant Techsystems, Inc.* ............... 2,000 125
Fairchild Corp. "A"* ..................... 3,900 35
Primex Technologies, Inc.* ............... 11,100 230
United Technologies Corp. ................ 3,800 247
------
637
------
Automobiles 1.6%
Borg-Warner Automotive Inc. .............. 3,440 139
GKN PLC .................................. 37,600 616
Honda Motor Co., Ltd. .................... 3,000 111
Monaco Coach Corp. ....................... 1,400 36
Renault SA ............................... 3,300 159
Tower Automotive, Inc.* .................. 1,600 25
Yamaha Motor Co., Ltd. ................... 1,000 7
------
1,093
------
Construction/Agricultural 0.1%
Terex Corp.* ............................. 2,100 58
------
Telecommunications Equipment 0.9%
Advanced Fibre Communications, Inc.* ..... 4,600 205
LM Ericsson Telephone Co. "B" ............ 2,100 135
Polycom, Inc.* ........................... 1,900 121
Scientific-Atlanta, Inc. ................. 3,000 167
------
628
------
Manufacturing 7.9%
Chemicals 2.5%
Akzo Nobel NV ............................ 4,400 221
BASF AG .................................. 9,200 472
BOC Group plc ............................ 18,200 392
Bayer AG ................................. 2,300 109
Compania Espanola de Petroleos, SA ....... 8,700 86
Dow Chemical Co. ......................... 600 80
Praxair, Inc. ............................ 3,800 191
Valhi, Inc. .............................. 13,800 145
------
1,696
------
Shares Value
- ----------------------------------------------------
Containers & Paper 0.8%
FPB Holding AG ................... 1,671 $ 264
UPM-Kymmene Oyj .................. 6,400 258
------
522
------
Diversified Manufacturing 1.5%
Briggs & Stratton Corp. .......... 1,400 75
Cooper Industries, Inc. .......... 1,600 65
Hillenbrand Industries, Inc. ..... 2,200 70
Honeywell International, Inc. .... 3,400 196
Man AG ........................... 2,000 75
Matthews International Corp. ..... 3,800 104
Pentair, Inc. .................... 2,100 81
Sulzer Brothers Ltd. (Registered) 400 260
Williams, PLC .................... 13,800 63
------
989
------
Electrical Products 0.7%
SLI, Inc.* ....................... 9,500 129
Scana Corp. ...................... 4,600 124
Taiyo Yuden Co., Ltd. ............ 2,000 118
Thomas & Betts Corp. ............. 2,200 70
------
441
------
Industrial Specialty 0.9%
Carlisle Companies Inc. .......... 2,500 90
QUALCOMM Inc.* ................... 2,000 352
Sherwin-Williams Co. ............. 2,700 57
Westinghouse Air Brake Company ... 4,092 73
------
572
------
Machinery/Components/Controls 1.4%
Gleason Corp. .................... 300 7
Illinois Tool Works, Inc. ........ 6,303 426
Ingersoll-Rand Co. ............... 4,900 270
Okuma Corp. ...................... 28,000 87
Reliance Steel & Aluminum Co. .... 6,700 157
------
947
------
Office Equipment/Supplies 0.1%
Xerox Corp. ...................... 3,200 73
------
Technology 8.7%
Computer Software 2.6%
America Online, Inc.* ............ 5,000 377
Ancor Communications, Inc.* ...... 700 48
Broadvision, Inc.* ............... 1,400 238
Exodus Communications, Inc.* ..... 600 53
Microsoft Corp.* ................. 2,200 257
MicroStrategy Inc.* .............. 600 126
Reynolds and Reynolds Company .... 8,000 180
Synopsys Ltd.* ................... 3,600 240
Verity, Inc.* .................... 1,400 60
VerticalNet, Inc.* ............... 800 131
------
1,710
------
Diverse Electronic Products 0.5%
Dell Computer Corp.* ............. 4,300 219
InterVU Inc.* .................... 1,300 137
------
356
------
The accompanying notes are an integral part of the financial statements.
61 | Kemper Variable Series -
| Kemper Horizon 10+ Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- --------------------------------------------------------------------------------
Electronic Components/Distributors 2.2%
Cisco Systems, Inc.* ..................... 6,400 $ 686
Koninklijke (Royal) Philips Electronics NV 3,100 421
SCI Systems, Inc.* ....................... 2,600 214
Technitrol, Inc. ......................... 3,400 151
------
1,472
------
Military Electronics 1.2%
Computer Sciences Corp.* ................. 6,840 647
General Dynamics Corp. ................... 3,500 185
------
832
------
Semiconductors 2.2%
Alpha Industries * ....................... 1,900 109
Intel Corp. .............................. 8,400 691
Linear Technology Corp. .................. 5,700 408
Transwitch Corp.* ........................ 800 58
Triquint Semiconductor, Inc.* ............ 1,500 167
------
1,433
------
Energy 1.5%
Oil & Gas Production 0.7%
Cabot Oil & Gas Corp. "A" ................ 8,900 143
Coastal Corp. ............................ 2,100 74
Repsol SA ................................ 8,880 206
------
423
------
Oil Companies 0.8%
ENI SpA .................................. 58,200 320
Elf Aquitaine SA ......................... 1,400 216
------
536
------
Metals & Minerals 0.4%
Steel & Metals
AK Steel Holding Corp. ................... 4,750 90
AMCOL International Corp. ................ 2,625 42
Nucor Corp. .............................. 2,400 132
------
264
------
Construction 2.0%
Building Materials 1.4%
Centex Construction Products, Inc. ....... 3,800 148
Elcor Corp. .............................. 1,200 36
Fletcher Challenge Building Corp. ........ 49,700 73
Florida Rock Industries, Inc. ............ 2,600 90
Holderbank Financiere Glaris AG (Bearer) . 300 411
Taiheiyo Cement Corp. .................... 106,000 202
------
960
------
Building Products 0.3%
Genlyte Group, Inc.* ..................... 10,000 214
------
Homebuilding 0.3%
Del Webb Corp.* .......................... 1,800 45
Shares Value
- --------------------------------------------------------------------------------
Pulte Corp. .......................................... 900 $ 20
Standard Pacific Corp. ............................... 9,500 105
------
170
------
Transportation 0.9%
Airlines 0.1%
Air New Zealand Ltd. "B" ............................. 12,500 18
Qantas Airways Ltd. .................................. 19,200 48
------
66
------
Marine Transportation 0.1%
Newport News Shipbuilding, Inc. ...................... 2,200 60
------
Railroads 0.5%
Railtrack Group PLC .................................. 2,800 47
Tranz Rail Holdings, ADR ............................. 33,900 63
Trinity Industries, Inc. ............................. 7,830 223
------
333
------
Trucking 0.2%
Roadway Express, Inc. ................................ 2,400 52
USFreightways Corp. .................................. 2,300 110
------
162
------
Utilities 3.7%
Electric Utilities 2.9%
AES Corp.* ........................................... 2,600 194
Black Hills Corp. .................................... 2,200 49
CH Energy Group, Inc. ................................ 1,900 63
Calpine Corporation* ................................. 2,100 134
Chugoku Electric Power Co., Inc. ..................... 20,200 314
Electrabel NPV ....................................... 600 196
FPL Group, Inc. ...................................... 500 22
Kyushu Electric Power Co. ............................ 19,500 288
Northwestern Corp. ................................... 14,400 317
Scottish & Southern Energy ........................... 9,800 78
Scottish Power PLC ................................... 7,600 58
TNP Enterprises, Inc. ................................ 1,900 78
Texas Utilities Co., Inc. ............................ 4,000 142
------
1,933
------
Natural Gas Distribution 0.2%
Columbia Energy Group ................................ 1,750 111
------
Water Supply 0.6%
Aquarion Co. ......................................... 8,200 303
Kelda Group PLC ...................................... 4,000 23
Suez Lyonnaise des Eaux .............................. 500 80
------
406
------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $36,824) 40,934
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $63,150) (a) $66,558
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper Horizon 10+ Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $63,163. At December 31,
1999, net unrealized appreciation for all securities based on tax cost
was $3,395. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over
tax cost of $7,320 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value
of $3,925.
The accompanying notes are an integral part of the financial statements.
62 | Kemper Variable Series -
| Kemper Horizon 10+ Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- ----------------------------------------------------------------------------------------
Assets
- ----------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $63,150) ......................... $ 66,558
Cash ....................................................................... 78
Dividends receivable ....................................................... 61
Interest receivable ........................................................ 385
Foreign taxes recoverable .................................................. 13
--------
Total assets ............................................................... 67,095
Liabilities
- ---------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed ...................................... 94
Accrued management fee ..................................................... 33
Other accrued expenses and payables ........................................ 5
--------
Total liabilities .......................................................... 132
- ---------------------------------------------------------------------------------------
Net assets, at value $ 66,963
- ---------------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................. 1,552
Net unrealized appreciation
(depreciation) on:
Investments ............................................................. 3,408
Foreign currency related transactions ................................... (1)
Accumulated net realized gain (loss) ....................................... 4,275
Paid-in capital ............................................................ 57,729
- ---------------------------------------------------------------------------------------
Net assets, at value $ 66,963
- ---------------------------------------------------------------------------------------
Net Asset Value
- ---------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($66,963 / 45,282 outstanding
shares of beneficial interest, $.01 par value, unlimited number of shares --------
authorized) ............................................................. $ 1.479
--------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- --------------------------------------------------------------------------------
Net Investment Income
- --------------------------------------------------------------------------------
<S> <C>
Dividends (net of foreign taxes withheld of $17) ..................... $ 592
Interest ............................................................. 1,685
----------
Total income ......................................................... 2,277
----------
Expenses:
Management fee ....................................................... 385
Custodian fees ....................................................... 48
Auditing ............................................................. 5
Legal ................................................................ 2
Trustees' fees and expenses .......................................... 9
Reports to shareholders .............................................. 11
Registration fees .................................................... 1
----------
Total expenses, before expense reductions ............................ 461
Expense reductions ................................................... --
----------
Total expenses, after expense reductions ............................. 461
- --------------------------------------------------------------------------------
Net investment income (loss) 1,816
- --------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from investments ............................ 4,274
Net unrealized appreciation (depreciation) during the period on:
Investments .......................................................... (841)
Foreign currency related transactions ................................ (1)
----------
(842)
- --------------------------------------------------------------------------------
Net gain (loss) on investment transactions 3,432
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 5,248
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
63 | Kemper Variable Series -
| Kemper Horizon 10+ Portfolio
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
- ----------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ........................................................... $ 1,816 $ 1,084
Net realized gain (loss) ............................................................... 4,274 18
Net unrealized appreciation (depreciation) on investment transactions during the period (842) 3,090
-------- --------
Net increase (decrease) in net assets resulting from operations ........................ 5,248 4,192
Distributions to shareholders:
From net investment income ............................................................. (1,329) (223)
-------- --------
From net realized gains ................................................................ -- (670)
-------- --------
Portfolio share transactions:
Proceeds from shares sold .............................................................. 16,490 34,705
Reinvestment of distributions .......................................................... 1,329 893
Cost of shares redeemed ................................................................ (12,186) (4,039)
-------- --------
Net increase (decrease) in net assets from Portfolio share transactions ................ 5,633 31,559
-------- --------
Increase (decrease) in net assets ...................................................... 9,552 34,858
Net assets at beginning of period ...................................................... 57,411 22,553
Net assets at end of period (including undistributed net investment income of $1,552 and -------- --------
$1,193, respectively) ............................................................... $ 66,963 $ 57,411
-------- --------
Other Information
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period .............................................. 41,184 17,502
-------- --------
Shares sold ............................................................................ 11,783 26,145
Shares issued to shareholders in reinvestment of distributions ......................... 956 651
Shares redeemed ........................................................................ (8,641) (3,114)
-------- --------
Net increase (decrease) in Portfolio shares ............................................ 4,098 23,682
-------- --------
Shares outstanding at end of period .................................................... 45,282 41,184
-------- --------
</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>
- -----------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998 1997 1996(b)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.394 1.289 1.114 1.000
-----------------------------------
- -----------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------
Net investment income (loss) .040(a) .020 .034 .018
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .075 .125 .151 .096
-----------------------------------
- -----------------------------------------------------------------------------------------------
Total from investment operations .115 .145 .185 .114
- -----------------------------------------------------------------------------------------------
Less distributions from
- -----------------------------------------------------------------------------------------------
Net investment income (.030) (.010) (.010) --
- -----------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.030) -- --
-----------------------------------
- -----------------------------------------------------------------------------------------------
Total distributions (.030) (.040) (.010) --
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $1.479 1.394 1.289 1.114
-----------------------------------
- -----------------------------------------------------------------------------------------------
Total return (%) 8.38 11.30 16.77 11.37**
- -----------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 66,963 57,411 22,553 5,727
- -----------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .72 .64 .83 1.01*
- -----------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .72 .64 .83 .78*
- -----------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.83 2.84 2.77 2.69*
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 50 35 67 76*
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1996 (commencement of operations) to
December 31, 1996.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
64 | Kemper Variable Series -
| Kemper Horizon 10+ Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Horizon 5 Portfolio
1999's market and its almost exclusive focus on highly priced, large-cap stocks
created many challenges for the Kemper Horizon 5 Portfolio and its
price-conscious discipline.
Early in the second half of the year, an overweighting in financial service
stocks -- particularly insurance companies -- proved detrimental. Likewise, an
underweighting in technology companies also slowed the portfolio, as those names
turned in generally strong performance for most of the second half of the year.
Diversification into small caps also hindered overall performance.
On the positive side, individual positions in stocks like Amgen, ADC
Telecommunications and Cardinal Health paid off in the fourth quarter. Also, an
overweighting in basic industry stocks, notably manufacturing, enhanced returns
late in the year.
The portfolio's international exposure proved mixed in the second half of the
year, turning in a strong performance early and then losing steam as the
portfolio's value orientation ran counter to investor sentiment.
Moving into 2000, we still see a domestic stock market that is overvalued.
Because additional interest rate increases are not out of the question, we will
continue to tilt our value exposure slightly above a neutral 50/50 growth-value
split and will continue to stay away from the high-priced stocks we feel don't
offer good long-term opportunities.
Robert D. Tymoczko
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Horizon 5 Portfolio from
5/1/1996 to 12/31/1999
- --------------------------------------------------------------------------------
The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market. The Merrill Lynch 1-3 Year Treasury
Index is an index consisting of short-term U.S. Treasury securities maturing in
1 to 3 years with coupons higher than 4.25%. Timely payment of principal and
interest on U.S. Treasury securities is guaranteed by the full faith and credit
of the U.S. Government. If sold prior to maturity however, these securities do
involve the risk of principal loss.
Kemper Horizon Standard & Poor's Merrill Lynch 1-3
5 Portfolio 500 Stock Index Year Index
1996.25 10000 10000 10000
1996.5 10099 10038 10072
1996.75 10440 10348 10238
1997 10959 11211 10433
1997.25 10897 11512 10502
1997.5 11671 13523 10734
1997.75 12346 14536 10944
1998 12350 14953 11127
1998.25 13061 17040 11291
1998.5 13137 17602 11464
1998.75 12582 15850 11817
1999 13554 19228 11905
1999.25 13426 20185 11976
1999.5 13887 21609 12045
1999.75 13673 20260 12197
2000 14213 23274 12270
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return^1
- -----------------------------------------------------------------------------------------------------------------------------
Life of
For the periods ended December 31, 1999 1-year portfolio
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kemper Horizon 5 Portfolio 4.86% 10.06% (Since 5/1/1996)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends. Average annual total
return reflects annualized change while 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.
65 | Kemper Variable Series -
| Kemper Horizon 5 Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Horizon 5 Portfolio
Principal
Amount Value
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Repurchase Agreements 1.4%
- --------------------------------------------------------------------
State Street Bank and Trust Company, dated
12/31/99 at 2.8%, to be repurchased at -------
$600 on 1/3/2000 (b) (Cost $600) ........... $ 600 $ 600
-------
- --------------------------------------------------------------------
U.S. Government Obligations 57.4%
- --------------------------------------------------------------------
U.S. Treasury Securities 52.6%
U.S. Treasury Note, 5.375%, 2/15/2001 ......... 1,000 992
U.S. Treasury Note, 5.5%, 12/31/2000 .......... 300 298
U.S. Treasury Note, 5.875%, 2/15/2000 ......... 340 340
U.S. Treasury Note, 6.125%, 12/31/2001 ........ 975 973
U.S. Treasury Note, 6.25%, 2/28/2002 .......... 5,720 5,719
U.S. Treasury Note, 6.5%, 5/31/2001 ........... 2,610 2,621
U.S. Treasury Note, 6.625%, 7/31/2001 ......... 4,150 4,175
U.S. Treasury Note, 6.75%, 4/30/2000 .......... 2,549 2,557
U.S. Treasury Note, 7.875%, 11/15/2004 ........ 650 687
U.S. Treasury Note, 8%, 5/15/2001 ............. 573 586
U.S. Treasury Note, 8.5%, 11/15/2000 .......... 1,750 1,784
U.S. Treasury Note, 8.875%, 5/15/2000 ......... 1,470 1,486
-------
22,218
-------
Mortgage-backed Securities 4.8%
Federal Home Loan Mortgage Corp.,
6.5% with various maturities to
10/17/2014 ................................. 113 112
Federal National Mortgage Association,
5.63% with various maturities to
5/15/2004 .................................. 1,570 1,498
Federal National Mortgage Association.,
6% with various maturities to 4/15/2006 .... 51 51
Federal National Mortgage Association,
6.01% with various maturities to
7/24/2000 .................................. 350 349
-------
2,010
-------
- --------------------------------------------------------------------
Total U.S. Government Obligations (Cost $24,917) 24,228
- --------------------------------------------------------------------
Shares Value
- ------------------------------------------------------
- ------------------------------------------------------
Common Stocks 41.2%
- ------------------------------------------------------
Consumer Discretionary 4.6%
Apparel & Shoes 0.2%
Brown Shoe Company, Inc. .............. 730 10
Jones Apparel Group, Inc.* ............ 3,002 81
------
91
------
Department & Chain Stores 2.8%
Ames Department Stores, Inc.* ......... 500 14
Burlington Coat Factory Warehouse Corp. 5,600 78
Dillard's Inc. ........................ 2,500 50
Home Depot, Inc. ...................... 6,600 454
Longs Drug Stores, Inc. ............... 2,300 59
Men's Wearhouse, Inc.* ................ 750 22
Metro AG .............................. 400 22
Neiman Marcus Group, Inc.* ............ 1,600 45
Shares Value
- ------------------------------------------------------
Pacific Sunwear of California Inc.* 2,300 $ 73
W.H. Smith Group PLC .............. 3,400 26
Wal-Mart Stores, Inc. ............. 4,400 304
------
1,147
------
Home Furnishings 0.2%
Furniture Brands International Inc. 2,900 64
Newell Rubbermaid, Inc. ........... 1,300 38
------
102
------
Recreational Products 0.3%
Fairfield Communities, Inc.* ...... 3,900 42
THQ, Inc.* ........................ 1,050 24
Winnebago Industries, Inc. ........ 3,000 60
------
126
------
Restaurants 0.1%
Ryan's Family Steak Houses, Inc.* . 7,000 60
------
Specialty Retail 0.8%
AutoZone, Inc.* ................... 1,700 55
Avis Rent A Car, Inc.* ............ 3,300 84
Family Dollar Stores Inc. ......... 4,200 69
Friedman's, Inc. "A" .............. .2,040 15
New England Business Service, Inc. 1,900 46
The Finish Line, Inc. "A"* ........ 1,800 10
Wet Seal, Inc. "A"* ............... 1,800 22
Wolseley PLC ...................... 4,900 38
------
339
------
Miscellaneous 0.2%
Herman Miller, Inc. ............... 2,700 62
------
Consumer Staples 2.1%
Alcohol & Tobacco 1.1%
Gallaher Group PLC ................ 4,800 20
Imperial Tobacco Group PLC ........ 16,300 135
Philip Morris Companies, Inc. ..... 3,200 74
SEITA ............................. 1,200 54
Seagram Co., Ltd. ................. 300 13
UST, Inc. ......................... 5,400 137
Universal Corp. ................... 2,900 66
------
499
------
Consumer Specialties 0.2%
American Greeting Corp., "A" ...... 1,200 28
Duane Reade Inc.* ................. 2,100 58
------
86
------
Food & Beverage 0.4%
Farmer Brothers Co. ............... 200 32
Michael Foods, Inc. ............... 3,200 79
SUPERVALU, Inc. ................... 1,000 20
Seaboard Corp. .................... 100 19
------
150
------
Package Goods/Cosmetics 0.1%
Chattem, Inc.* .................... 1,100 21
------
The accompanying notes are an integral part of the financial statements.
66 | Kemper Variable Series -
| Kemper Horizon 5 Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- -----------------------------------------------------
Textiles 0.3%
VF Corp. ............................ 3,800 $114
------
Health 3.1%
Biotechnology 0.7%
Amgen, Inc.* ........................ 2,600 156
Bio-Rad Laboratories, Inc. "A"* ..... 1,000 23
Biogen, Inc.* ....................... 1,500 127
------
306
------
Health Industry Services 0.8%
Cardinal Health, Inc. ............... 2,200 105
Hanger Orthopedic Group, Inc.* ...... 4,600 46
Shared Medical Systems Corp. ........ 1,800 92
US Oncology, Inc.* .................. 3,600 18
Wellpoint Health Networks, Inc.* .... 900 59
------
320
------
Hospital Management 0.3%
Trigon Healthcare, Inc.* ............ 1,100 32
Universal Health Services, Inc.* .... 2,700 98
------
130
------
Medical Supply & Speciality 0.6%
Bindley Western Industries, Inc. .... 2,000 30
C.R. Bard, Inc. ..................... 4,000 212
NBTY Inc.* .......................... 1,500 17
------
259
------
Pharmaceuticals 0.7%
Advance Paradigm, Inc.* ............. 800 17
Chugai Pharmaceutical Co., Ltd. ..... 3,000 32
Merck & Co., Inc. ................... 2,700 182
Suzuken Co., Ltd. ................... 2,500 76
------
307
------
Communications 1.0%
Telephone/Communications
ADC Telecommunications, Inc.* ....... 500 36
BCE, Inc. ........................... 1,600 145
British Telecom PLC ................. 2,200 53
MasTec, Inc.* ....................... 500 22
Oki Electric Industry Company* ...... 3,000 18
Telecom Italia SpA .................. 6,500 92
Xircom, Inc.* ....................... 900 68
------
434
------
Financial 9.2%
Banks 3.2%
ABN AMRO Holding NV ................. 3,900 97
Bank of America Corp. ............... 1,800 90
Bank of Nova Scotia ................. 2,500 54
Banque Nationale de Paris ........... 1,900 175
Chase Manhattan Corp. ............... 1,600 124
Christiania Bank og Kreditkasse ..... 7,500 37
Dah Sing Financial Group ............ 5,000 20
Deutsche Pfandbrief-und-Hypothekenbank
AG ............................... 300 22
Dresdner Bank AG .................... 500 27
FleetBoston Financial Corp. ......... 2,000 70
Fuji Bank, Ltd. ..................... 7,000 68
Hang Seng Bank Ltd. ................. 2,400 27
Shares Value
- ---------------------------------------------------------
National Bank of Canada ............... 1,800 $ 23
PNC Bank Corp. ........................ 500 22
Pacific Century Financial Corporation . 1,300 24
Provident Financial Group ............. 600 22
Sakura Bank, Ltd. ..................... 28,000 163
Societe Generale ...................... 100 23
St. George Bank Ltd. .................. 20,800 158
The Mitsui Trust & Banking Co., Ltd. .. 24,000 54
Toronto-Dominion Bank ................. 1,000 27
------
1,327
------
Insurance 2.2%
AXA SA ................................ 615 86
Aetna, Inc. ........................... 2,700 151
Allamerica Financial Corp. ............ 1,100 61
American General Corp. ................ 600 46
Assurances Generales de France ........ 300 16
Chubb Corp. ........................... 247 14
Corporacion Mapfre, SA ................ 900 15
Hartford Financial Services Group, Inc. 2,400 114
ING Groep N.V ......................... 2,051 124
Istituto Nazionale delle Assicurazione 13,600 36
Jefferson Pilot Corp. ................. 775 53
Progressive Corp. ..................... 400 29
Protective life Corp. ................. 600 19
Skandia Forsakrings AB ................ 4,500 136
Stewart Information Services Corp. .... 400 5
Torchmark Corp. ....................... 700 20
------
925
------
Business Finance 0.1%
Heller Financial Inc. ................. 1,800 36
------
Consumer Finance 1.2%
Citigroup, Inc. ....................... 6,300 350
SLM Holding Corp. ..................... 2,600 110
Woolwich PLC .......................... 6,300 34
------
494
------
Other Financial Companies 2.5%
Compagnie Financiere Richemont AG ..... 100 239
Edwards (A.G.) Inc. ................... 4,300 138
Federal Home Loan Mortgage Corp. ...... 4,900 231
Federal National Mortgage Association . 2,900 181
Legg Mason Inc. ....................... 1,800 65
Man (ED&F) Group PLC .................. 8,900 59
Morgan Stanley Dean Witter & Co. ...... 1,100 157
------
1,070
------
Real Estate 0.0%
DBS Land Ltd. ......................... 6,000 12
------
Media 0.5%
Cable Television 0.1%
Granada Group PLC ..................... 3,200 32
------
Print Media 0.4%
Softbank Corp. ........................ 200 191
------
The accompanying notes are an integral part of the financial statements.
67 | Kemper Variable Series -
| Kemper Horizon 5 Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- ----------------------------------------------------------
Service Industries 2.4%
EDP Services 0.7%
Affiliated Computer Services* ........... 3,800 $175
First Data Corp. ........................ 2,700 133
------
308
------
Investment 0.6%
Bear Stearns Companies, Inc. ............ 2,425 104
Raymond James Financial, Inc. ........... 7,800 145
------
249
------
Miscellaneous Commercial 0.7%
Cap Gemini Sogeti SA .................... 300 76
Convergys Corp.* ........................ 3,200 98
Hanson PLC .............................. 4,300 36
Personnel Group of America, Inc.* ....... 4,700 48
US Foodservice Inc.* .................... 2,800 47
------
305
------
Miscellaneous Consumer 0.3%
Go2Net, Inc.* ........................... 500 44
Profit Recovery Group International, Inc. 600 16
United Utilities PLC .................... 3,200 33
Yahoo!, Inc.* ........................... 100 43
------
136
------
Printing/Publishing 0.1%
Mail-Well, Inc.* ........................ 1,800 24
------
Durables 2.4%
Aerospace 0.6%
Alliant Techsystems, Inc.* .............. 1,800 111
Primex Technologies, Inc. ............... 4,700 98
United Technologies Corp. ............... 1,100 72
------
281
------
Automobiles 1.0%
Borg-Warner Automotive Inc. ............. 840 34
DaimlerChrysler AG ...................... 300 23
GKN PLC ................................. 14,000 230
Honda Motor Co., Ltd. ................... 1,000 37
Monaco Coach Corp.* ..................... 600 15
Renault SA .............................. 1,000 49
Tower Automotive, Inc.* ................. 1,000 15
------
403
------
Construction/Agricultural 0.1%
Terex Corp.* ............................ 1,200 33
------
Telecommunications Equipment 0.7%
Advanced Fibre Communications, Inc.* .... 1,900 85
LM Ericsson Telephone Co. "B" ........... 1,000 64
Polycom, Inc.* .......................... 900 57
Scientific-Atlanta, Inc. ................ 1,600 90
------
296
------
Manufacturing 4.3%
Chemicals 1.5%
Akzo Nobel NV ........................... 1,000 50
BASF AG ................................. 3,800 195
BOC Group PLC ........................... 8,600 185
Dow Chemical Co. ........................ 200 27
Kyowa Hakko Kogyp ....................... 5,000 30
Shares Value
- --------------------------------------------------
Mitsui Chemicals Inc. ............ 3,000 $ 24
Praxair, Inc. .................... 1,900 96
------
607
------
Containers & Paper 0.4%
FPB Holding AG ................... 595 94
UPM-Kymmene Oyj .................. 2,000 81
------
175
------
Diversified Manufacturing 0.7%
Cooper Industries, Inc. .......... 800 32
Hillenbrand Industries, Inc. ..... 1,900 60
Honeywell International, Inc. .... 900 52
Man AG ........................... 1,000 38
Pentair, Inc. .................... 700 27
Sulzer Brothers Ltd. (Registered) 100 65
------
274
------
Electrical Product 0.3%
SLI, Inc.* ....................... 3,100 42
Scana Corp. ...................... 1,100 30
Taiyo Yuden Co., Ltd. ............ 1,000 59
------
131
------
Industrial Specialty 0.5%
QUALCOMM Inc.* ................... 800 141
Sherwin-Williams Co. ............. 1,200 25
Westinghouse Air Brake Company ... 1,782 32
------
198
------
Machinery/Components/Controls 0.9%
Illinois Tool Works, Inc. ........ 2,235 151
Ingersoll-Rand Co. ............... 2,100 116
Okuma Corp. ...................... 12,000 38
Reliance Steel & Aluminum Co. .... 3,250 76
Rolls-Royce PLC .................. 5,000 17
------
398
------
Office Equipment /Supplies 0.0%
Xerox Corp. ...................... 500 11
------
Miscellaneous 0.0%
Hon Industries, Inc. ............. 100 2
------
Technology 5.8%
Computer Software 1.7%
America Online, Inc.* ............ 2,100 158
Ancor Communications, Inc.* ...... 400 27
Broadvision, Inc.* ............... 600 102
Exodus Communications, Inc.* ..... 200 18
MicroStrategy Inc.* .............. 300 63
Microsoft Corp.* ................. 800 93
Reynolds and Reynolds Company .... 4,100 92
Synopsys Ltd.* ................... 1,600 107
Verity, Inc. ..................... 600 26
VerticalNet, Inc.* ............... 500 82
------
768
------
Diverse Electronic Products 0.4%
Dell Computer Corp.* ............. 2,000 102
InterVU Inc.* .................... 500 53
------
155
------
The accompanying notes are an integral part of the financial statements.
68 | Kemper Variable Series -
| Kemper Horizon 5 Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- ------------------------------------------------------------
Electronic Components 1.5%
Cisco Systems, Inc.* ...................... 2,800 $299
Koninklijke (Royal) Philips Electronics N.V. 1,100 150
SCI Systems, Inc.* ........................ 1,100 90
Technitrol, Inc. .......................... 1,900 85
------
624
------
Military Electronics 0.7%
Computer Sciences Corp.* .................. 2,200 208
General Dynamics Corp. .................... 1,500 79
------
287
------
Semiconductors 1.5%
Alpha Industries* ......................... 700 40
Intel Corp. ............................... 3,800 313
Linear Technology Corp. ................... 2,700 193
Triquint Semiconductor, Inc.* ............. 700 78
------
624
------
Energy 0.9%
Oil & Gas Production 0.5%
Cabot Oil & Gas Corp. "A" ................. 6,000 96
Repsol SA ................................. 4,470 104
Tosco Corporation ......................... 1,000 27
------
227
------
Oil Companies 0.4%
ENI SpA ................................... 18,400 101
Elf Aquitaine SA .......................... 400 62
------
163
------
Metals & Minerals 0.3%
Steel & Metals
AK Steel Holding Corp. .................... 1,030 19
AMCOL International Corp. ................. 960 15
Bethlehem Steel Corp.* .................... 5,200 44
Nucor Corp. ............................... 1,200 66
------
144
------
Construction 1.4%
Building Materials 1.0%
Centex Construction Products, Inc. ........ 1,200 47
Fletcher Challenge Building Corp. ......... 17,600 26
Florida Rock Industries, Inc. ............. 900 31
Grupo Dragados, S.A ....................... 1,200 11
Holderbank Financiere Glaris AG (Bearer) .. 100 136
LaFarge Corp. ............................. 1,800 50
Taiheiyo Cement Corp. ..................... 24,000 46
Vulcan Materials Co. ...................... 1,600 64
------
411
------
Building Products 0.3%
Genlyte Group, Inc.* ...................... 4,800 102
Nortek, Inc.* ............................. 700 20
------
122
------
Shares Value
- -------------------------------------------------------------------------
Homebuilding 0.1%
Del Webb Corp.* ...................................... 650 $ 16
Standard Pacific Corp. ............................... 3,800 42
------
58
------
Transportation 0.5%
Marine Transportation 0.1%
Newport News Shipbuilding, Inc. ...................... 800 22
------
Railroads 0.3%
Tranz Rail Holdings, ADR ............................. 13,100 24
Trinity Industries, Inc. ............................. 3,490 100
------
124
------
Trucking 0.1%
Roadway Express, Inc. ................................ 2,000 43
------
Utilities 2.5%
Electric Utilities 2.0%
AES Corp.* ........................................... 800 60
Black Hills Corp. .................................... 700 16
CH Energy Group, Inc. ................................ 900 30
Calpine Corporation* ................................. 800 51
Chugoku Electric Power Co., Inc. ..................... 16,000 248
Electrabel NPV ....................................... 300 98
Endesa SA ............................................ 900 18
FPL Group, Inc. ...................................... 600 26
Kyushu Electric Power Co. ............................ 7,700 113
Northwestern Corp. ................................... 3,100 68
OGE Energy Corp. ..................................... 700 13
Scottish Power PLC ................................... 3,000 23
TNP Enterprises, Inc. ................................ 300 12
Texas Utilities Co., Inc. ............................ 1,000 36
WPS Resources Corp ................................... 700 18
------
830
------
Natural Gas Distribution 0.3%
Columbia Energy Group ................................ 1,850 117
------
Water Supply 0.2%
Aquarion Co. ......................................... 1,500 55
Kelda Group PLC ...................................... 8,500 48
------
103
------
Miscellaneous 0.2%
Miscellaneous
Shinonogi ............................................ 3,000 36
Trizec Hahn Corporation .............................. 2,400 41
------
77
------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $15,982) 17,370
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $41,499) (a) $42,198
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper Horizon 5 Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $41,499. At December 31,
1999, net unrealized appreciation for all securities based on tax cost
was $699. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax
cost of $2,834 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value
of $2,135.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or
Government agency securities.
The accompanying notes are an integral part of the financial statements.
69 | Kemper Variable Series -
| Kemper Horizon 5 Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
Assets
- ---------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $41,499) ......................... $ 42,198
Foreign currency, at value, (cost $2) ...................................... 2
Dividends receivable ....................................................... 24
Interest receivable ........................................................ 380
Receivable for Portfolio shares sold ....................................... 55
Foreign taxes recoverable .................................................. 9
--------
Total assets ............................................................... 42,668
Liabilities
- ---------------------------------------------------------------------------------------
Due to custodian bank ...................................................... 3
Payable for Portfolio shares redeemed ...................................... 8
Accrued management fee ..................................................... 22
Other accrued expenses and payables ........................................ 5
--------
Total liabilities .......................................................... 38
- ---------------------------------------------------------------------------------------
Net assets, at value $ 42,630
- ---------------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................. 1,382
Net unrealized appreciation (depreciation) on investments .................. 699
Accumulated net realized gain (loss) ....................................... 1,513
Paid-in capital ............................................................ 39,036
- ---------------------------------------------------------------------------------------
Net assets, at value $ 42,630
- ---------------------------------------------------------------------------------------
Net Asset Value
- ---------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($42,630 / 31,963 outstanding
shares of beneficial interest, $.01 par value, unlimited number of shares --------
authorized) ............................................................. $ 1.334
--------
- ---------------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- ---------------------------------------------------------------------------------------
Investment Income
- ---------------------------------------------------------------------------------------
Dividends (less foreign taxes withheld of $4) .............................. $ 234
Interest ................................................................... 1,548
--------
Total income ............................................................... 1,782
--------
Expenses:
Management fee ............................................................. 234
Custodian fees ............................................................. 40
Auditing ................................................................... 3
Legal ...................................................................... 1
Trustees' fees and expenses ................................................ 7
Reports to shareholders .................................................... 6
Other ...................................................................... 4
--------
Total expenses, before expense reductions .................................. 295
Expense reductions ......................................................... --
--------
Total expenses, after expense reductions ................................... 295
- ---------------------------------------------------------------------------------------
Net investment income (loss) 1,487
- ---------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ---------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ................................................................ 1,512
Foreign currency related transactions ...................................... (5)
--------
1,507
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................................ (1,020)
- ---------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 487
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 1,974
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
70 | Kemper Variable Series -
| Kemper Horizon 5 Portfolio
<PAGE>
(in thousands)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) .............................................................. $ 1,487 $ 894
Net realized gain (loss) .................................................................. 1,507 12
Net unrealized appreciation (depreciation) on investment transactions during the period ... (1,020) 1,250
-------- --------
Net increase (decrease) in net assets resulting from operations ........................... 1,974 2,156
Distributions to shareholders:
From net investment income ................................................................ (861) (154)
-------- --------
From net realized gains ................................................................... -- (460)
-------- --------
Portfolio share transactions:
Proceeds from shares sold ................................................................. 13,925 18,592
Reinvestment of distributions ............................................................. 861 614
Cost of shares redeemed ................................................................... (6,010) (2,265)
-------- --------
Net increase (decrease) in net assets from Portfolio share transactions ................... 8,776 16,941
-------- --------
Increase (decrease) in net assets ......................................................... 9,889 18,483
Net assets at beginning of period ......................................................... 32,741 14,258
Net assets at end of period (including undistributed net investment income (loss) of $1,382 -------- --------
and $993, respectively) ................................................................ $ 42,630 $ 32,741
-------- --------
Other Information
- -------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ................................................. 25,088 11,715
-------- --------
Shares sold ............................................................................... 10,840 14,923
Shares issued to shareholders in reinvestment of distributions ............................ 669 486
Shares redeemed ........................................................................... (4,634) (2,036)
-------- --------
Net increase (decrease) in Portfolio shares ............................................... 6,875 13,373
-------- --------
Shares outstanding at end of period ....................................................... 31,963 25,088
-------- --------
</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>
- -------------------------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998 1997 1996(b)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.305 1.224 1.096 1.000
-----------------------------------
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income (loss) .050(a) .028 .043 .023
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments transactions .009 .093 .095 .073
-----------------------------------
- -------------------------------------------------------------------------------------------------------------
Total from investment operations .059 .121 .138 .096
- -------------------------------------------------------------------------------------------------------------
Less distributions from:
- -------------------------------------------------------------------------------------------------------------
Net investment income (.030) (.010) (.010) --
- -------------------------------------------------------------------------------------------------------------
Net realized gains (loss) on investment transactions -- (.030) -- --
-----------------------------------
- -------------------------------------------------------------------------------------------------------------
Total distributions (.030) (.040) (.010) --
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.334 1.305 1.224 1.096
-----------------------------------
- -------------------------------------------------------------------------------------------------------------
Total return (%) 4.86 10.00 12.70 9.59**
- -------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 42,630 32,741 14,258 2,534
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .76 .66 .97 1.01*
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .76 .66 .97 .83*
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.81 3.85 3.63 3.60*
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 42 89 13*
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1996 (commencement of operations) to
December 31, 1996.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
71 | Kemper Variable Series -
| Kemper Horizon 5 Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Small Cap Growth Portfolio
Despite a market that generally favored larger-capitalization names throughout
the year, small-cap stocks rallied in the latter half, pushing the Russell 2000
Index slightly ahead of the Russell 1000 Index for 1999. This burst of energy
enabled the Kemper Small Cap Growth Portfolio to enjoy a successful year as it
outpaced its benchmark, the Russell 2000 Index.
Technology stocks, specifically semiconductor, communication and computer
software-based companies, fueled the portfolio's solid performance. Strong
contributors included Comverse Technology, Advanced Digital Information and
Applied Micro Circuits.
Our underweighting of lackluster sectors such as financial services and health
care also helped the portfolio stay on track.
While small-cap stocks may continue to rebound, they trailed their larger-cap
peers over the last five years. Our analysis, however, has uncovered a number of
pockets in our universe that we believe have outstanding long-term prospects,
particularly in the Internet, data management and telecommunications areas. We
will continue to deploy a bottom-up stock selection process to help identify the
most attractive potential growth opportunities.
J.C. Cabrera
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Small Cap Growth Portfolio
from 5/2/1994 to 12/31/1999
- --------------------------------------------------------------------------------
The Russell 2000 Index is a capitalization weighted
price-only index which is composed of 2,000 of the
smallest stocks (on the basis of capitalization) in
the Russell 3000 Index. The largest company in the
index has an approximate market capitalization of
$591 million. The Russell 2000 Growth Index is an
unmanaged index (with no defined investment
objective) of those securities in the Russell 2000
Growth Index with a greater-than-average growth
orientation. It includes reinvestment of dividends
and is compiled by the Frank Russell Company.
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Kemper Small Cap Russell 2000 Russell 2000
Growth Portfolio Index Growth Index
1994.25 10000 10000 10000
1994.5 9790 9660 9573
1994.75 10433 10331 10465
1995 10395 10141 10387
1995.25 11108 10609 10956
1995.5 11995 11603 12043
1995.75 13529 12750 13411
1996 13521 13027 13609
1996.25 14555 13692 14391
1996.5 15660 14377 15233
1996.75 17028 14427 15102
1997 17313 15177 15142
1997.25 16795 14393 13554
1997.5 19880 16727 15933
1997.75 23345 19216 18627
1998 23233 18572 17101
1998.25 26074 20439 19133
1998.5 26300 19484 18033
1998.75 21902 15558 14002
1999 27501 18096 17312
1999.25 26194 17115 17021
1999.5 28641 19776 19532
1999.75 28258 18526 18572
2000 37006 21942 24774
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns^1
- -----------------------------------------------------------------------------------------------------------------------------
Life of
For the periods ended December 31, 1999 1-year 5-year portfolio
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kemper Small Cap Growth Portfolio 34.56% 28.92% 25.97% (Since 5/2/1994)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment
income and capital gain or loss from portfolio investments over the
periods specified, assuming reinvestment of all dividends. Average
annual total return reflects annualized change while 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.
Investments by the portfolio in small-cap companies present greater
risk of loss than investments in larger, more established companies.
The investment advisor has agreed to either limit, waive or reduce
certain fees temporarily for this portfolio; see the prospectus for
complete details. Without such limits, waivers or reductions, the
performance figures for this subaccount would be lower.
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.
72 | Kemper Variable Series -
| Kemper Small Cap Growth Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Small Cap Growth Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Commercial Paper 9.6%
- --------------------------------------------------------------------------------
Bell Atlantic Network Funding Corp.,
1/18/2000 ........................... $ 2,000 $1,994
Conagra, Inc., 6.8%, 1/6/2000 .......... 3,000 2,996
Conagra, Inc., 6.9%, 1/14/2000 ......... 1,500 1,496
Countrywide Home Loans, 6.17%,
1/3/2000 ............................ 1,500 1,499
Enron Corp., 7%, 01/12/2000 ............ 3,000 2,994
Federal Home Loan Bank, 5.73%,
1/14/2000 ........................... 5,000 4,990
Federal Home Loan Bank, 5%, 1/31/2000 .. 1,500 1,494
Federal National Mortgage Association,
5.65% with various maturities
to 1/6/2000 ......................... 3,000 2,998
Ford Motor Credit Corp., 6.26%, 1/5/2000 2,000 1,999
Pitney Bowes Credit Corp., 5.2%,
1/28/2000 ........................... 3,000 2,988
- --------------------------------------------------------------------------------
Total Commercial Paper (Cost $25,448) 25,448
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks 90.4%
- --------------------------------------------------------------------------------
Consumer Discretionary 6.9%
Department & Chain Stores 1.6%
Men's Wearhouse, Inc.* ............. 81,000 2,379
Pacific Sunwear of California, Inc.* 58,300 1,859
-----
4,238
-----
Home Furnishings 0.7%
Linens 'n Things, Inc.* ............ 64,100 1,899
-----
Recreational Products 0.3%
THQ, Inc.* ......................... 39,400 914
-----
Restaurants 0.7%
CEC Entertainment, Inc.* ........... 66,800 1,895
-----
Specialty Retail 3.6%
Cinar Corp.* ....................... 163,400 4,003
Cost Plus, Inc.* ................... 68,250 2,432
O'Reilly Automotive* ............... 70,200 1,509
Zale Corp.* ........................ 34,600 1,674
-----
9,618
-----
Health 6.9%
Biotechnology 2.1%
Gene Logic, Inc.* .................. 17,300 458
IDEC Pharmaceuticals Corp.* ........ 12,400 1,218
Maxygen, Inc.* ..................... 5,800 413
MedImmune, Inc.* ................... 10,485 1,739
QLT Phototherapeutics Inc.* ........ 28,000, 1,647
-----
5,475
-----
Shares Value
- ------------------------------------------------------------
Medical Supply & Specialty 2.0%
Medtronic, Inc. ....................... 59,946 $ 2,184
ResMed, Inc.* ......................... 6,800 284
VISX, Inc.* ........................... 53,500 2,769
-------
5,237
-------
Pharmaceuticals 2.8%
Alpharma Inc. ......................... 60,300 1,854
Biovail Corp. Intl.* .................. 60,400 5,663
-------
7,517
-------
Communications 5.6%
Cellular Telephone 0.1%
TeleCorp. PCS, Inc.* .................. 3,200 122
-------
Telephone/Communications 5.5%
Adelphia Business Solutions, Inc. ..... 41,300 1,982
Crown Castle International Corp.* ..... 63,300 2,034
Digital Microwave Corp.* .............. 134,900 3,162
iBasis, Inc.* ......................... 6,100 175
Lightbridge, Inc.* .................... 9,800 272
Next Level Communications, Inc.* ...... 2,700 202
Pinnacle Holdings, Inc.* .............. 82,700 3,504
Proxim, Inc.* ......................... 8,900 979
Somera Communications, Inc.* .......... ,19,600 244
Time Warner Telecom, Inc. "A"* ........ 39,900 1,993
Triton PCS Holdings, Inc. "A"* ........ 200 9
-------
14,556
-------
Financial 4.6%
Banks 3.2%
Bank United Corp. ..................... 48,900 1,333
National Commerce Bancorp ............. 80,700 1,831
People's Heritage Financial Group, Inc. 95,600 1,440
Texas Regional Bancshares, Inc. ....... 73,800 2,140
U.S. Trust Corporation ................ 19,600 1,572
-------
8,316
-------
Other Financial Companies 1.4%
Bay View Capital Corp. ................ 87,800 1,246
Legg Mason, Inc. ...................... 36,800 1,334
NCO Group, Inc.* ...................... 41,000 1,235
-------
3,815
-------
Media 3.8%
Advertising 1.3%
Interep National Radio Sales, Inc.* ... 83,600 1,118
Ticketmaster Online-CitySearch, Inc.* . 60,700 2,333
-------
3,451
-------
Broadcasting & Entertainment 2.5%
Cumulus Media Inc. "A"* ............... 54,300 2,756
Hearst-Argyle Television, Inc.* ....... 30,100 801
StarMedia Network, Inc.* .............. 78,700 3,153
-------
6,710
-------
Service Industries 11.2%
EDP Services 4.0%
ChoicePoint Inc.* ..................... 77,200 3,194
The accompanying notes are an integral part of the financial statements.
73 | Kemper Variable Series -
| Kemper Small Cap Growth Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- ----------------------------------------------------------
Micromuse, Inc.* ..................... 21,300 $ 3,621
Verio Inc.* .......................... 79,800 3,686
-------
10,501
-------
Miscellaneous Commercial Services 4.6%
AnswerThink Consulting Group, Inc.* .. 79,700 2,730
Concord EFS, Inc.* ................... 108,900 2,804
FreeMarkets, Inc.* ................... 2,900 990
Metris Companies Inc. ................ 94,800 3,383
Plexus Corp.* ........................ 32,200 1,417
United Rentals, Inc.* ................ 56,300 964
-------
12,288
-------
Miscellaneous Consumer Services 2.6%
Education Management Corporation* .... 96,200 1,347
GetThere.com, Inc.* .................. 58,800 2,367
Infospace.com, Inc.* ................. 14,500 3,103
-------
6,817
-------
Durables 0.4%
Automobiles
Dura Automotive Systems, Inc.* ....... 32,400 565
Tower Automotive, Inc.* .............. 24,600 380
-------
945
-------
Manufacturing 4.3%
Electrical Products 2.0%
ATMI, Inc. ........................... 75,200 2,486
Anadigics, Inc.* ..................... 56,900 2,685
-------
5,171
-------
Industrial Specialty 1.7%
E-Tek Dynamics, Inc.* ................ 32,900 4,429
-------
Miscellaneous 0.6%
Dril-Quip, Inc.* ..................... 53,900 1,637
-------
Technology 43.3%
Computer Software 27.0%
Advanced Digital Information Corp.* .. 83,500 4,060
Allaire Corp.* ....................... 12,500 1,813
BEA Systems, Inc.* ................... 67,400 4,714
Be Free, Inc.* ....................... 8,000 575
Business Objects, S.A.* .............. 59,300 7,924
CacheFlow Inc.* ...................... 2,100 274
Comverse Technologies* ............... 53,650 7,766
Cybergold, Inc.* ..................... 106,600 1,885
Entrust Technologies Inc.* ........... 75,600 4,531
Globix Corp.* ........................ 38,400 2,304
HNC Software, Inc.* .................. 36,400 3,849
JDA Software Group, Inc* ............. 38,500 630
Marimba, Inc.* ....................... 59,100 2,722
McAfee.com Corp.* .................... 4,600 207
Mediaplex, Inc.* ..................... 17,100 1,073
Metasolv Software, Inc.* ............. 4,400 360
Mpath Interactive, Inc.* ............. 81,500 2,170
MyPoints.com* ........................ 21,000 1,554
Netcentives Inc.* .................... 13,500 841
Netegrity, Inc.* ..................... 83,900 4,777
Shares Value
- ----------------------------------------------------------------
Parametric Technology Corp.* .............. 95,000 $ 2,571
Preview Systems, Inc.* .................... 44,600 2,893
Quintus Corp.* ............................ 5,800 266
S1 Corp.* ................................. 37,000 2,891
SilverStream Software, Inc.* .............. 17,300 2,059
Verity, Inc.* ............................. 114,400 4,869
Watchguard Technologies, Inc.* ............ 33,400 1,010
Xpedior, Inc.* ............................ 29,200 840
------
71,428
------
Diverse Electronic Products 0.0%
JNI Corp.* ................................ 700 46
------
EDP Peripherals 3.0%
Mercury Interactive Corp.* ................ 42,800 4,620
Symbol Technologies, Inc. ................. 49,800 3,165
------
7,785
------
Electronic Components/Distributors 5.4%
Applied Micro CircuitsCorp* ............... 53,700 6,833
Jabil Circuit* ............................ 63,600 4,643
Photronics, Inc.* ......................... 32,800 939
Powerwave Technologies,* Inc. ............. 29,400 1,716
------
14,131
------
Electronic Data Processing 0.9%
Webtrends Corp.* .......................... 30,300 2,454
------
Semiconductors 6.0%
Alpha Industries* ......................... 76,600 4,390
Cree Research, Inc.* ...................... 53,200 4,542
QLogic Corp.* ............................. 12,800 2,046
Semitech Corporation* ..................... 65,200 3,399
Transwitch Corp.* ......................... 19,800 1,437
Virata Corp.* ............................. 2,000 60
------
15,874
------
Precision Instruments 1.0%
Harmonic Inc.* ............................ 28,600 2,715
------
Energy 1.3%
Oil & Gas Production 0.6%
Devon Energy Corp. ........................ 29,400 967
Plains Resources, Inc.* ................... 46,800 585
------
1,552
------
Oil/Gas Transmission 0.2%
Western Gas Resources, Inc. ............... 51,900 684
------
Oilfield Services/Equipment 0.5%
Cal Dive International, Inc.* ............. 39,800 1,318
------
Transportation 1.5%
Air Freight 1.1%
Expeditors International of Washington, Inc. 67,400 2,953
------
Railroads 0.4%
C.H. Robinson Worldwide, Inc. ............. 22,400 891
------
The accompanying notes are an integral part of the financial statements.
74 | Kemper Variable Series -
| Kemper Small Cap Growth Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- ----------------------------------------------------------------------------
Utilities 0.6%
Electric Utilities
Illinova Corp. ........................................ 43,000 $1,494
------
- ----------------------------------------------------------------------------
Total Common Stocks (Cost $160,285) 238,876
- ----------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $185,733) (a) $264,324
- ----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper Small Cap Growth Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $185,785. At December 31,
1999, net unrealized appreciation for all securities based on tax cost
was $78,539. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over
tax cost of $84,254 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value
of $5,715.
The accompanying notes are an integral part of the financial statements.
75 | Kemper Variable Series -
| Kemper Small Cap Growth Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (cost $185,733) .......................... $ 264,324
Dividends receivable ......................................................... 27
Receivable for Portfolio shares sold ......................................... 714
Other assets ................................................................. 1
---------
Total assets ................................................................. 265,066
Liabilities
- ------------------------------------------------------------------------------------------
Due to custodian bank ........................................................ 306
Accrued management fee ....................................................... 120
Other accrued expenses and payables .......................................... 38
---------
Total liabilities ............................................................ 464
- ------------------------------------------------------------------------------------------
Net assets, at value $ 264,602
- ------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................... (3)
Net unrealized appreciation (depreciation) on investments .................... 78,591
Accumulated net realized gain (loss) ......................................... 29,179
Paid-in capital .............................................................. 156,835
- ------------------------------------------------------------------------------------------
Net assets, at value $ 264,602
- ------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($264,602 / 99,701
outstanding shares of beneficial interest, $.01 par value, unlimited number ---------
of shares authorized) ..................................................... $ 2.654
---------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- --------------------------------------------------------------------------------------
Investment Income
- --------------------------------------------------------------------------------------
<S> <C>
Dividends ................................................................. $ 265
Interest .................................................................. 557
--------
Total income .............................................................. 822
--------
Expenses:
Management fee ............................................................ 1,298
Custodian fees ............................................................ 34
Auditing .................................................................. 12
Legal ..................................................................... 7
Trustees' fees and expenses ............................................... 20
Reports to shareholders ................................................... 43
Registration fees ......................................................... 8
Other ..................................................................... 4
--------
Total expenses, before expense reductions ................................. 1,426
Expense reductions ........................................................ (2)
--------
Total expenses, after expense reductions .................................. 1,424
- --------------------------------------------------------------------------------------
Net investment income (loss) (602)
- --------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------------
Net realized gain (loss) from investments ................................. 31,367
Net unrealized appreciation (depreciation) during the period on investments 36,188
- --------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 67,555
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 66,953
- --------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
76 | Kemper Variable Series -
| Kemper Small Cap Growth Portfolio
<PAGE>
(in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................ $ (602) $ (16)
Net realized gain (loss) on investment transactions ..................................... 31,367 (1,589)
Net unrealized appreciation (depreciation) on investment transactions during the period . 36,188 31,648
--------- ---------
Net increase (decrease) in net assets resulting from operations ......................... 66,953 30,043
Distributions to shareholders:
From net realized gains ................................................................. -- (25,813)
--------- ---------
Portfolio share transactions:
Proceeds from shares sold ............................................................... 38,056 57,595
Cost of shares redeemed ................................................................. (48,742) 25,813
--------- ---------
Net increase (decrease) in net assets from Portfolio share transactions ................. (10,686) 66,690
--------- ---------
Increase (decrease) in net assets ....................................................... 56,267 70,920
Net assets at beginning of period ....................................................... 208,335 137,415
Net assets at end of period (including undistributed net investment income (loss) of $(3) --------- ---------
and $51, respectively) ............................................................... $ 264,602 $ 208,335
--------- ---------
Other Information
- ------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................... 105,693 69,790
--------- ---------
Shares sold ............................................................................. 18,715 31,582
Shares issued to shareholders in reinvestment of distributions .......................... -- 13,797
Shares redeemed ......................................................................... (24,707) (9,476)
--------- ---------
Net increase (decrease) in Portfolio shares ............................................. (5,992) 35,903
--------- ---------
Shares outstanding at end of period ..................................................... 99,701 105,693
--------- ---------
</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, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.971 1.969 1.677 1.346 1.039
---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.006)(a) -- .004 .002 .005
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments transactions .689 .342 .488 .369 .307
---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .683 .342 .492 .371 .312
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income -- -- (.010) -- (.005)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.340) (.190) (.040) --
---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions -- (.340) (.200) (.040) (.005)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $2.654 1.971 1.969 1.677 1.346
---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 34.56 18.37 34.20 28.04 30.07
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 264,602 208,335 137,415 69,137 35,373
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .71 .70 .71 .75 .87
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .71 .70 .71 .75 .87
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.30) (.01) .20 .15 .42
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 208 276 330 156 81
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
The accompanying notes are an integral part of the financial statements.
77 | Kemper Variable Series -
| Kemper Small Cap Growth Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Technology Growth Portfolio
1999 proved to be an outstanding year for technology stocks in general and the
Kemper Technology Growth Portfolio in specific. From its inception in May
through the end of December, the portfolio posted returns far surpassing those
of its benchmark, the Russell 1000 Growth Index.
During the year, the portfolio found opportunities in nearly every corner of the
technology universe, although we generally shied away from some of the largest
and best-known Internet names, which we felt were generally overvalued. That
strategy paid off mid-year, when Internet names led a technology correction.
However, we enjoyed tremendous success with companies that are fueling the
growth of the Internet, such as Internet-infrastructure and software names. The
portfolio also enjoyed gains from some of its semiconductor holdings, which
performed well throughout the last half of the year.
Of late, we've been finding new opportunities in the broadening market. A number
of smaller-capitalization and mid-cap technologies companies have been building
momentum, thanks in part to their relatively lower prices and the strong
economic climate. In the year ahead, we will be on the lookout for ways to
incorporate the growth potential of top-quality, smaller companies in the
portfolio.
James B. Burkart
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Technology Growth Portfolio
from 5/3/1999 to 12/31/1999
- --------------------------------------------------------------------------------
The Russell 1000 Growth Index is an unmanaged index
composed of common stocks of larger U.S. companies
with greater than average growth orientation and
represents the universe of stocks from which
"earnings/growth" money managers typically select.
The Hambrecht & Quist Technology Index is a market-
capitalization-weighted index which is composed of
publicly traded stocks in approximately 275
technology companies.
Kemper Technology Russell 1000 Hambrecht & Quist
Growth Portfolio Growth Index Technology Index
1999.35 10000 10000 10000
1999.5 11014 10700 11258
1999.75 11623 10308 11910
2000 17770 12898 19493
- --------------------------------------------------------------------------------
Total Return^1
- --------------------------------------------------------------------------------
Life of
For the periods ended December 31, 1999 portfolio
- --------------------------------------------------------------------------------
Kemper Technology Growth Portfolio 77.70%* (Since 5/3/1999)
- --------------------------------------------------------------------------------
^1 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.
The portfolio may concentrate investments in specific sectors, which
creates special risk considerations.
Investments by the portfolio in small companies present greater risk of
loss than investments in larger, more established companies.
The investment advisor has agreed to either limit, waive or reduce
certain fees temporarily for this portfolio; see the prospectus for
complete details. Without such limits, waivers or reductions, the
performance figures for this subaccount would be lower.
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.
* Total returns are since inception and are not annualized.
78 | Kemper Variable Series -
| Kemper Technology Growth Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Technology Growth Portfolio
Principal
Amount Value
- --------------------------------------------------------------
- --------------------------------------------------------------
Repurchase Agreements 0.9%
- --------------------------------------------------------------
State Street Bank and Trust Company, 2.8%
1/3/2000, to be repurchased at $727 (b) ------
(Cost $727) ........................... $ 727 $ 727
------
- --------------------------------------------------------------
Commercial Paper 21.8%
- --------------------------------------------------------------
Federal Home Loan Bank, 5.73%,
1/14/2000 ............................. 1,800 1,796
Federal Home Loan Bank, 4.51%,
1/18/2000 ............................. 5,000 4,989
Federal Home Loan Mortgage Corp. 4.5%,
1/5/2000 .............................. 1,500 1,499
Federal Home Loan Mortgage Corp., 5.76%,
1/31/2000 ............................. 5,000 4,976
Federal National Mortgage Association,
5.65%, 1/6/2000 ....................... 5,000 4,996
- --------------------------------------------------------------
Total Commercial Paper (Cost $18,256) 18,256
- --------------------------------------------------------------
Shares Value
- ----------------------------------------------------------
- ----------------------------------------------------------
Common Stocks 77.3%
- ----------------------------------------------------------
Health 1.3%
Biotechnology 1.1%
Affymetrix, Inc.* ...................... 2,200 373
Genentech, Inc.* ....................... 2,200 296
QLT Phototherapeutics, Inc.* ........... 4,000 235
------
904
------
Medical Supply & Specialty 0.2%
Biomet, Inc.* .......................... 5,000 200
------
Communications 5.7%
Cellular Telephone 0.3%
Nokia Oy "A" (ADR) ..................... 1,400 266
------
Telephone/Communications 5.4%
Advanced Radio Telecom Corp* ........... 20,000 480
Inet Technologies, Inc.* ............... 1,500 105
Intermedia Communications Inc.* ........ 10,000 388
JDS Uniphase Corp.* .................... 12,000 1,936
Nortel Networks Corp. .................. 10,000 1,010
Qwest Communications International Inc.* 16,000 688
------
4,607
------
Media 1.7%
Advertising 0.8%
DoubleClick,Inc.* ...................... 2,600 658
------
Cable Television 0.9%
AT&T Corp -- Liberty Media Group* ...... 6,500 369
Shares Value
- --------------------------------------------------------
EchoStar Communications Corp.* ...... 3,700 $ 361
------
730
------
Service Industries 8.3%
EDP Services 2.8%
Electronic Data Systems Corp. ....... 15,000 1,004
First Data Corp. .................... 15,000 740
VeriSign, Inc.* ..................... 3,200 610
------
2,354
------
Miscellaneous Commercial Services 1.4%
FreeMarkets, Inc.* .................. 200 68
Siebel Systems, Inc.* ............... 8,000 672
Technology Solutions Co.* ........... 12,000 393
------
1,133
------
Miscellaneous Consumer Services 4.1%
Akamai Technologies, Inc.* .......... 100 33
Infospace.com, Inc.* ................ 6,000 1,284
Yahoo!, Inc.* ....................... 4,500 1,947
eBay, Inc.* ......................... 1,500 188
------
3,452
------
Durables 1.4%
Telecommunications Equipment
Lucent Technologies, Inc. ........... 7,335 549
Tellabs, Inc.* ...................... 10,000 642
------
1,191
------
Manufacturing 3.1%
Industrial Specialty 2.2%
Corning, Inc. ....................... 3,600 464
QUALCOMM Inc.* ...................... 8,000 1,409
------
1,873
------
Office Equipment/Supplies 0.9%
Lexmark International Group, Inc. "A"* 8,500 769
------
Technology 55.8%
Computer Software 27.2%
Advanced Digital Information Corp.* . 7,000 340
Agile Software Corp.* ............... 3,000 652
America Online, Inc.* ............... 27,936 2,107
BEA Systems, Inc.* .................. 12,000 839
Broadvision, Inc.* .................. 1,800 306
Brocade Communications Systems, Inc.* 5,000 885
Business Objects, S.A.* ............. 7,800 1,042
CacheFlow Inc.* ..................... 5,000 653
Electronic Arts, Inc.* .............. 1,000 84
Exchange Applications, Inc.* ........ 8,000 447
I2 Technologies Inc.* ............... 3,000 585
Intertrust Technologies Corp.* ...... 2,900 341
Intuit, Inc.* ....................... 30,225 1,812
Legato Systems, Inc.* ............... 4,000 275
Macromedia, Inc.* ................... 5,500 402
Metasolv Software, Inc.* ............ 6,900 564
The accompanying notes are an integral part of the financial statements.
79 | Kemper Variable Series -
| Kemper Technology Growth Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- ---------------------------------------------------
Microsoft Corp.* .............. 20,060 $ 2,342
NVIDIA Corp.* ................. 13,000 610
Oracle Corp.* ................. 22,000 2,465
Parametric Technology Corp.* .. 20,000 541
Portal Software, Inc.* ........ 4,000 412
Rational Software Corp.* ...... 15,000 737
RealNetworks, Inc.* ........... 3,000 361
Remedy Corp.* ................. 12,000 569
SAP AG (Sponsored ADR) ........ 16,000 833
Sycamore Networks, Inc.* ...... 4,000 1,232
Synopsys Ltd.* ................ 6,700 447
Vignette Corp.* ............... 3,400 554
Wind River Systems* ........... 8,000 294
------
22,731
------
Diverse Electronic Products 9.9%
Applied Materials, Inc.* ...... 14,289 1,810
Dell Computer Corp.* .......... 10,000 510
InterVoice-Brite, Inc.* ....... 15,000 349
KLA Tencor Corp.* ............. 8,000 891
Molex Incorporated ............ 2,000 113
Molex Inc. "A" ................ 8,110 367
Motorola, Inc. ................ 16,140 2,377
Solectron Corp.* .............. 11,150 1,061
Teradyne, Inc.* ............... 12,000 792
------
8,270
------
EDP Peripherals 1.9%
EMC Corp.* .................... 7,300 798
Shares Value
- --------------------------------------------------------------------------
VERITAS Software Corp.* .............................. 5,750 $ 823
------
1,621
------
Electronic Components 5.0%
Broadcom Corp.* ...................................... 2,800 763
Cisco Systems, Inc.* ................................. 20,000 2,143
Gateway, Inc.* ....................................... 1,000 72
Juniper Networks, Inc.* .............................. 3,000 1,020
SCI Systems, Inc.* ................................... 2,000 164
------
4,162
------
Electronic Data Processing 1.2%
Sun Microsystems, Inc.* .............................. 12,524 970
------
Semiconductors 10.6%
Conexant Systems, Inc.* .............................. 8,000 531
Intel Corp. .......................................... 14,000 1,152
Linear Technology Corp. .............................. 10,000 716
Maxim Integrated Products Inc.* ...................... 18,000 849
Micron Technology, Inc.* ............................. 9,000 700
PMC-Sierra, Inc.* .................................... 3,500 562
Sanmina Corp.* ....................................... 4,000 400
Texas Instruments, Inc. .............................. 15,872 1,538
Vitesse Semiconductor Corp.* ......................... 10,000 524
Xilinx, Inc.* ........................................ 42,000 1,910
------
8,882
------
- --------------------------------------------------------------------------
Total Common Stocks (Cost $44,875) 64,773
- --------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $63,858) (a) $83,756
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper Technology Growth Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $63,858. At December 31,
1999, net unrealized appreciation for all securities based on tax cost
was $19,898. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over
tax cost of $20,026 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value
of $128.
(b) Repurchase agreement is fully collateralized by the U.S. Treasury or
Government agency securities.
The accompanying notes are an integral part of the financial statements.
80 | Kemper Variable Series -
| Kemper Technology Growth Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
Assets
- ---------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $63,858) ......................... $ 83,756
Dividends receivable ....................................................... 3
Receivable for Portfolio shares sold ....................................... 521
--------
Total assets ............................................................... 84,280
Liabilities
- ---------------------------------------------------------------------------------------
Accrued management fee ..................................................... 31
Other accrued expenses and payables ........................................ 40
--------
Total liabilities .......................................................... 71
- ---------------------------------------------------------------------------------------
Net assets, at value $ 84,209
- ---------------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................. 83
Net unrealized appreciation (depreciation) on investments .................. 19,898
Accumulated net realized gain (loss) ....................................... 695
Paid-in capital ............................................................ 63,533
- ---------------------------------------------------------------------------------------
Net assets, at value $ 84,209
- ---------------------------------------------------------------------------------------
Net Asset Value
- ---------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($84,209 / 47,388 outstanding
shares of beneficial interest, $.01 par value, unlimited number of shares --------
authorized) ............................................................. $ 1.777
--------
- ---------------------------------------------------------------------------------------
Statement of Operations for the period ended December 31, 1999 (a)
- ---------------------------------------------------------------------------------------
Investment Income
- ---------------------------------------------------------------------------------------
Dividends .................................................................. $ 8
Interest ................................................................... 206
--------
Total investment income .................................................... 214
--------
Expenses:
Management fee ............................................................. 105
Custodian and accounting fees .............................................. 29
Auditing ................................................................... 8
Legal ...................................................................... 1
Trustees' fees and expenses ................................................ 1
Reports to shareholders .................................................... 3
Registration fees .......................................................... 18
Other ...................................................................... 1
--------
Total expenses, before expense reductions .................................. 166
Expense reductions ......................................................... (36)
--------
Total expenses, after expense reductions ................................... 130
- ---------------------------------------------------------------------------------------
Net investment income (loss) 84
- ---------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ---------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ................................................................ 695
Foreign currency related transactions ...................................... (1)
--------
694
Net unrealized appreciation (depreciation) during the period on investments 19,898
- ---------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 20,592
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 20,676
- ---------------------------------------------------------------------------------------
</TABLE>
(a) For the period from May 1, 1999 (commencement of operations) to
December 31, 1999.
The accompanying notes are an integral part of the financial statements.
81 | Kemper Variable Series -
| Kemper Technology Growth Portfolio
<PAGE>
(in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Period Ended
December 31,
Increase (Decrease) in Net Assets 1999(a)
- ------------------------------------------------------------------------------------------------------
<S> <C>
Operations:
Net investment income (loss) ............................................................ $ 84
Net realized gain (loss) ................................................................ 694
Net unrealized appreciation (depreciation) on investment transactions during the period . 19,898
--------
Net increase (decrease) in net assets resulting from operations ......................... 20,676
--------
Portfolio share transactions:
Proceeds from shares sold ............................................................... 63,797
Cost of shares redeemed ................................................................. (1,764)
--------
Net increase (decrease) in net assets from Portfolio share transactions ................. 62,033
--------
Increase (decrease) in net assets ....................................................... 82,709
Net assets at beginning of period ....................................................... 1,500
--------
Net assets at end of period (including undistributed net investment income (loss) of $83) $ 84,209
--------
Other Information
- ------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................... 1,500
--------
Shares sold ............................................................................. 47,160
Shares redeemed ......................................................................... (1,272)
--------
Net increase (decrease) in Portfolio shares ............................................. 45,888
--------
Shares outstanding at end of period ..................................................... 47,388
--------
</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>
- -----------------------------------------------------------------------------------------------------------------------------
Period Ended December 31, 1999(b)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $1.000
---------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) .005
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments transactions .772
---------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .777
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.777
---------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 77.70**
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 84,209
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.19*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .94*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .60*
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 34*
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1999 (commencement of operations) to
December 31, 1999.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
82 | Kemper Variable Series -
| Kemper Technology Growth Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Value+Growth Portfolio
Growth stocks propelled the Kemper Value+Growth Portfolio throughout much of
1999, as the market generally continued to shun all but a small handful of value
names.
Our technology exposure was especially beneficial during the year. In the fourth
quarter, several of the portfolio's largest positions -- such as Cisco Systems
and Sun Microsystems -- turned in solid returns, as did selected media and
advertising names. Internet companies spent heavily on advertising, a trend that
benefited many of our advertising and media holdings.
Value-oriented financial service stocks, which received a boost in October,
stumbled again late in the year amid renewed interest rate concerns. We are
monitoring that group with caution, although the current environment does afford
us the opportunity to seek out some good values.
We remain enthusiastic about the prospects for technology stocks, and we will
continue to draw on our disciplined, time-tested investment approach to seek out
high-quality names with long-term performance potential. We will also maintain
the portfolio's balance between growth and value stocks, believing there are
many buying opportunities in the value universe that will benefit the portfolio
down the road.
Donald E. Hall
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Value+Growth Portfolio from
5/1/1996 to 12/31/1999
- --------------------------------------------------------------------------------
The Russell 1000 Index is an unmanaged
capitalization-weighted price-only index composed of
the largest-capitalized United States companies whose
common stocks are traded in the U.S. This larger
capitalization, market-oriented index is highly
correlated with the S&P 500 Stock Index. The Standard
& Poor's 500 Stock Index is an unmanaged index
generally representative of the U.S. stock market.
Kemper Value+Growth Russell 1000 Standard & Poor's
Portfolio Index 500 Index
1996.25 10000 10000 10000
1996.5 10145 10011 10038
1996.75 10706 10337 10348
1997 11460 11161 11211
1997.25 11325 11334 11512
1997.5 13010 13238 13523
1997.75 14673 14392 14536
1998 14379 14825 14953
1998.25 16288 16806 17040
1998.5 16337 17227 17602
1998.75 13991 15450 15850
1999 17280 18830 19228
1999.25 16930 19608 20185
1999.5 18474 21005 21609
1999.75 17520 19619 20260
2000 20134 22770 23274
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return^1
- -----------------------------------------------------------------------------------------------------------------------------
Life of
For the periods ended December 31, 1999 1-year portfolio
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Value+Growth Portfolio 16.52% 21.02% (Since 5/1/1996)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment
income and capital gain or loss from portfolio investments over the
periods specified, assuming reinvestment of all dividends. Average
annual total return reflects annualized change while 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.
83 | Kemper Variable Series -
| Kemper Value+Growth Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Value+Growth Portfolio
Principal
Amount Value
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Repurchase Agreements 0.2%
- ------------------------------------------------------------------
State Street Bank and Trust Company, dated
12/31/1999, 2.8%, to be repurchased at ------
$409 on 1/3/2000 (Cost $409) (b) .......... $ 409 $ 409
------
- ------------------------------------------------------------------
Commercial Paper 1.2%
- ------------------------------------------------------------------
Ford Motor Credit Corp., 6.49%, 1/4/2000 ------
(Cost $1,999) ............................. 2,000 1,999
------
Shares Value
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Common Stocks 98.6%
- ------------------------------------------------------------------
Consumer Discretionary 6.8%
Apparel & Shoes 0.4%
Tommy Hilfiger Corp.* ........................ 33,400 779
------
Department & Chain Stores 4.8%
Federated Department Stores, Inc.* ........... 12,400 627
Gap Inc. ..................................... 11,125 512
Home Depot, Inc. ............................. 64,950 4,452
May Department Stores ........................ 17,200 555
TJX Companies, Inc. (New) .................... 12,800 262
Wal-Mart Stores, Inc. ........................ 26,300 1,818
------
8,226
------
Hotels & Casinos 0.2%
Carnival Corp. "A" ........................... 7,900 378
------
Recreational Products 0.2%
Harley-Davidson Inc. ......................... 6,600 423
------
Restaurants 0.9%
McDonald's Corp. ............................. 37,200 1,500
------
Specialty Retail 0.3%
Sotheby's Holdings, Inc "A" .................. .15,000 450
------
Consumer Staples 3.3%
Alcohol & Tobacco 0.9%
Anheuser-Busch Companies, Inc. ............... 9,400 666
Philip Morris Companies, Inc. ................ 13,100 304
UST, Inc. .................................... 25,500 642
------
1,612
------
Consumer Electronic & Photographic 0.3%
Whirlpool Corp. .............................. 6,700 436
------
Food & Beverage 1.0%
Bestfoods .................................... 9,900 520
Shares Value
- --------------------------------------------------
Dean Foods Co. ............... 8,400 $ 334
H.J. Heinz Co. ............... 9,900 394
PepsiCo, Inc. ................ 15,000 529
------
1,777
------
Package Goods/Cosmetics 1.1%
Kimberly-Clark Corp. ......... 15,000 979
Procter & Gamble Co. ......... 8,100 887
------
1,866
------
Health 6.9%
Biotechnology 1.3%
Amgen Inc. ................... 14,400 865
Biogen, Inc. ................. 9,800 828
MedImmune, Inc. .............. 3,200 531
------
2,224
------
Hospital Management 0.3%
Columbia/HCA Healthcare Corp. 15,000 440
------
Medical Supply & Specialty 1.2%
Baxter International, Inc. ... 8,200 515
MiniMed Inc.* ................ 11,700 857
VISX Inc.* ................... 14,200 735
------
2,107
------
Pharmaceuticals 4.1%
Abbott Laboratories .......... 12,000 436
Allergan, Inc. ............... 7,000 348
Alza Corp.* .................. 16,300 564
Bristol-Myers Squibb Co. ..... 20,400 1,309
Johnson & Johnson ............ 19,200 1,789
Merck & Co., Inc. ............ 9,000 604
Pfizer, Inc. ................. 21,000 681
Schering-Plough Corp. ........ 14,700 620
Warner-Lambert Co. ........... 9,000 737
------
7,088
------
Communications 11.0%
Cellular Telephone 1.0%
Nokia Oy A (ADR) ............. 6,800 1,292
Vodafone Group PLC (ADR) ..... 9,250 458
------
1,750
------
Telephone/Communications 10.0%
AT&T Corp. ................... 46,600 2,365
Bell Atlantic Corp. .......... 69,300 4,266
BellSouth Corp. .............. 39,500 1,849
BroadWing Inc. ............... 14,100 520
GTE Corp. .................... 31,300 2,209
MCI WorldCom, Inc.* .......... 79,200 4,203
Nortel Networks Corp. ........ 8,300 838
SBC Communications, Inc. ..... 20,100 980
------
17,230
------
Financial 16.6%
Banks 5.1%
Bank of America Corp. ........ 43,100 2,163
Chase Manhattan Corp. ........ 38,700 3,007
The accompanying notes are an integral part of the financial statements.
84 | Kemper Variable Series -
| Kemper Value+Growth Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- -------------------------------------------------------------
Compass Bancshares, Inc. ................ 34,000 $ 759
First Tennessee National Corp. .......... 14,200 405
First Union Corp. ....................... 15,000 492
J.P. Morgan & Co., Inc. ................. 4,300 544
PNC Bank Corp. .......................... 9,600 427
Wells Fargo Co. ......................... 22,400 906
------
8,703
------
Insurance 6.7%
AFLAC, Inc. ............................. 3,700 175
AMBAC Financial Group, Inc. ............. 15,300 798
Aetna Inc. .............................. 2,800 156
American International Group, Inc. ...... 16,750 1,810
Cigna Corp. ............................. 6,500 524
Everest Reinsurance Holdings, Inc. ...... 3,800 85
Financial Security Assurance Holdings Ltd. 8,700 453
Hartford Financial Services Group, Inc. . 9,600 455
Lincoln National Corp. .................. 20,900 836
MBIA, Inc. .............................. 8,400 444
MGIC Investment Corp. ................... 6,700 403
Marsh & McLennan Companies, Inc. ........ 8,500 813
Nationwide Financial Services, Inc. "A" . 22,000 615
PMI Group, Inc. ......................... 8,300 405
Providian Financial Corp. ............... 9,900 902
Radian Group, Inc. ...................... 15,533 742
St. Paul Companies, Inc. ................ 24,300 819
Travelers Property Casualty Corp. "A" ... 26,000 891
XL Capital Ltd. A ...................... 7,889 409
------
11,735
------
Consumer Finance 2.0%
Associates First Capital Corp. .......... 29,900 820
Capital One Finance Corp. ............... 13,200 636
Citigroup, Inc. ......................... 22,000 1,222
Household International, Inc. ........... 20,900 779
------
3,457
------
Other Financial Companies 2.8%
CIT Group, Inc. ......................... 18,200 384
Doral Financial Corp. ................... 22,500 277
Federal Home Loan Mortgage Corp. ........ 18,900 889
Federal National Mortgage Association ... 14,100 880
Legg Mason Inc. ......................... 10,500 381
Morgan Stanley Dean Witter & Co. ........ 13,600 1,942
------
4,753
------
Media 3.4%
Advertising 1.1%
Interpublic Group of Companies Inc. ..... 10,000 577
True North Communications, Inc. ......... 28,900 1,291
------
1,868
------
Broadcasting & Entertainment 0.2%
Time Warner, Inc. ....................... 4,700 340
------
Cable Television 0.6%
AT&T Corp -- Liberty Media Group* ....... 10,200 579
Comcast Corp. "A" ....................... 10,800 543
------
1,122
------
Shares Value
- ----------------------------------------------------------
Print Media 0.3%
Tribune Co. ........................... 7,700 $ 424
------
Miscellaneous 1.2%
TV Guide, Inc.* ....................... 47,400 2,038
------
Service Industries 2.9%
EDP Services 1.5%
Electronic Data Systems Corp. ......... 22,200 1,486
First Data Corp. ...................... 19,100 942
------
2,428
------
Investment 0.3%
Charles Schwab Corp. .................. 13,200 507
------
Miscellaneous Commercial 0.7%
Galileo International, Inc. ........... 20,300 609
Kelly Services, Inc. "A" .............. 11,200 281
Swift Transportation Co., Inc. ........ 19,200 338
------
1,228
------
Miscellaneous Consumer 0.2%
H & R Block Inc. ...................... 8,400 368
------
Printing/Publishing 0.2%
John Wiley & Sons, Inc "A" ............ .23,600 395
------
Durables 5.8%
Aerospace 1.7%
Boeing Co. ............................ 19,100 794
Northrop Grumman Corp. ................ 11,200 606
Rockwell International Corp. .......... 14,100 675
United Technologies Corp. ............. 13,542 880
------
2,955
------
Automobiles 1.8%
Dana Corp. ............................ 14,700 440
Ford Motor Co. ........................ 49,200 2,629
------
3,069
------
Construction/Agricultural Equipment 0.5%
PACCAR, Inc. .......................... 18,400 815
------
Telecommunications Equipment 1.8%
Lucent Technologies, Inc. ............. 32,265 2,414
Tellabs, Inc.* ........................ 11,800 757
------
3,171
------
Manufacturing 6.3%
Chemicals 0.6%
M.A. Hanna Company .................... 46,800 512
Praxair, Inc. ......................... 10,000 503
------
1,015
------
Diversified Manufacturing 2.6%
Barnes Group, Inc. .................... 19,800 323
General Electric Co. .................. 10,500 1,626
Honeywell International Inc. .......... 16,875 973
Minnesota Mining & Manufacturing Co. .. 8,300 812
Tyco International Ltd. (New) ......... 20,558 799
------
4,533
------
The accompanying notes are an integral part of the financial statements.
85 | Kemper Variable Series -
| Kemper Value+Growth Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- ----------------------------------------------------------
Electrical Products 0.6%
Emerson Electric Co. ................. 18,500 $ 1,061
------
Industrial Specialty 1.7%
Carlisle Companies Inc. .............. 11,300 407
Corning, Inc. ........................ 6,600 851
QUALCOMM Inc.* ....................... 8,000 1,409
Teleflex Incorporated ................ 8,500 266
------
2,933
------
Machinery/Components 0.5%
Parker-Hannifin Corp. ................ 17,000 872
------
Office Equipment/Supplies 0.3%
Lexmark International Group Inc. "A" . 4,600 416
------
Technology 26.4%
Computer Software 10.4%
America Online Inc.* ................. 46,400 3,500
Computer Associates International, Inc. 14,800 1,035
Electronic Arts Inc.* ................ 5,000 420
Jack Henry & Associates, Inc. ........ 12,300 660
Microsoft Corp.* ..................... 71,300 8,325
Oracle Systems Corp.* ................ 18,800 2,107
Parametric Technology Corp.* ......... 39,800 1,077
Reynolds and Reynolds Company ........ 37,300 839
------
17,963
------
Diverse Electronic Products 3.2%
Applied Materials, Inc.* ............. 9,400 1,191
Dell Computer Corp.* ................. 33,400 1,703
Motorola, Inc. ....................... 15,600 2,298
Solectron Corp.* ..................... 3,400 323
------
5,515
------
EDP Peripherals 2.5%
EMC Corp.* ........................... 26,400 2,884
Network Appliance, Inc.* ............. 17,600 1,462
------
4,346
------
Electronic Components/Distributors 3.5%
Altera Corp.* ........................ 14,700 729
Cisco Systems, Inc.* ................. 48,750 5,222
------
5,951
------
Electronic Data Processing 3.8%
Hewlett-Packard Co. .................. 7,300 832
International Business Machines Corp. 5,600 605
Seagate Technology, Inc.* ............ 55,300 2,574
Shares Value
- ----------------------------------------------------------------------------
Sun Microsystems, Inc.* ............................... 32,000 $2,478
------
6,489
------
Semiconductors 3.0%
Intel Corp. ........................................... 32,800 2,699
QLogic Corp.* ......................................... 3,800 608
Vitesse Semiconductor Corp.* .......................... 8,600 451
Xilinx, Inc.* ......................................... 32,000 1,455
------
5,213
------
Energy 6.3%
Oil & Gas Production 2.3%
Burlington Resources, Inc. ............................ 9,100 301
Imperial Oil Ltd. ..................................... 33,300 715
Royal Dutch Petroleum Co. (New York shares) ........... 48,500 2,931
------
3,947
------
Oil Companies 4.0%
Ashland Inc. .......................................... 28,000 922
Chevron Corp. ......................................... 17,400 1,507
Exxon Mobil Corp. ..................................... 33,453 2,695
Texaco, Inc. .......................................... 32,400 1,760
------
6,884
------
Construction 0.4%
Building Products 0.3%
USG Corp. ............................................. 11,300 532
------
Homebuilding 0.1%
D.R. Horton, Inc. ..................................... 13,300 184
------
Transportation 1.4%
Airlines 0.5%
AMR Corp.* ............................................ 13,600 911
------
Railroads 0.9%
CSX Corp. ............................................. 21,500 675
Canadian National Railway Co. ......................... 28,100 743
------
1,418
------
Utilities 1.1%
Electric Utilities
Allegheny Energy, Inc. ................................ 24,200 652
Peco Energy Co. ....................................... 10,100 351
Unicom Corp. .......................................... 25,800 864
------
1,867
------
- ----------------------------------------------------------------------------
Total Common Stocks (Cost $140,743) 169,712
- ----------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $143,151) (a) $172,120
- ----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper Value+Growth Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $143,274. At December 31,
1999, net unrealized appreciation for all securities based on tax cost
was $28,846. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over
tax cost of $35,969 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value
of $7,123.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or
Government agency securities.
The accompanying notes are an integral part of the financial statements.
86 | Kemper Variable Series -
| Kemper Value+Growth Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- -----------------------------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $143,151) .......................... $172,120
Dividends receivable ......................................................... 140
Receivable for Portfolio shares sold ......................................... 29
--------
Total assets ................................................................. 172,289
Liabilities
- -----------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed ........................................ 77
Accrued management fee ....................................................... 100
Other accrued expenses and payables .......................................... 46
--------
Total liabilities ............................................................ 223
- -----------------------------------------------------------------------------------------
Net assets, at value $172,066
- -----------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................... 694
Net unrealized appreciation (depreciation) on investments .................... 28,969
Accumulated net realized gain (loss) ......................................... 14,110
Paid-in capital .............................................................. 128,293
- -----------------------------------------------------------------------------------------
Net assets, at value $172,066
- -----------------------------------------------------------------------------------------
Net Asset Value
- -----------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($172,066 / 90,780
outstanding shares of beneficial interest, $.01 par value, unlimited number --------
of shares authorized) ..................................................... $ 1.896
--------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- --------------------------------------------------------------------------------------
Investment Income
- --------------------------------------------------------------------------------------
<S> <C>
Dividends (less foreign taxes withheld of $7) ............................. $ 1,796
Interest .................................................................. 225
--------
Total income .............................................................. 2,021
--------
Expenses:
Management fee ............................................................ 1,171
Custodian fees ............................................................ 41
Auditing .................................................................. 19
Legal ..................................................................... 6
Trustees' fees and other .................................................. 13
Reports to shareholders ................................................... 31
Registration fees ......................................................... 1
Other ..................................................................... 16
--------
Total expenses, before expense reductions ................................. 1,298
Expense reductions ........................................................ (5)
--------
Total expenses, after expense reductions .................................. 1,293
- --------------------------------------------------------------------------------------
Net investment income (loss) 728
- --------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------------
Net realized gain (loss) from investments ................................. 14,165
Net unrealized appreciation (depreciation) during the period on investments 9,769
- --------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 23,934
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 24,662
- --------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
87 | Kemper Variable Series -
| Kemper Value+Growth Portfolio
<PAGE>
(in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................................ $ 728 $ 878
Net realized gain (loss) ................................................................ 14,165 3,282
Net unrealized appreciation (depreciation) on investment transactions during the period . 9,769 14,977
--------- ---------
Net increase (decrease) in net assets resulting from operations ......................... 24,662 19,137
--------- ---------
Distributions to shareholders:
From net investment income .............................................................. (900) --
--------- ---------
From net realized gains ................................................................. (3,152) (2,504)
--------- ---------
Portfolio share transactions:
Proceeds from shares sold ............................................................... 21,193 74,841
Reinvestment of distributions ........................................................... 4,052 2,504
Cost of shares reedemed ................................................................. (26,110) (10,751)
--------- ---------
Net increase (decrease) in net assets from Portfolio share transactions ................. (865) 66,594
--------- ---------
Increase (decrease) in net assets ....................................................... 19,745 83,227
Net assets at beginning of period ....................................................... 152,321 69,094
Net assets at end of period (including undistributed net investment income (loss) of $694 --------- ---------
and $880, respectively) .............................................................. $ 172,066 $ 152,321
--------- ---------
Other Information
- -------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................... 91,158 48,483
--------- ---------
Shares sold ............................................................................. 12,605 48,725
Shares issued to shareholders in reinvestment of distributions .......................... 2,443 1,557
Shares redeemed ......................................................................... (15,426) (7,607)
--------- ---------
Net increase (decrease) in Portfolio shares ............................................. (378) 42,675
--------- ---------
Shares outstanding at end of period ..................................................... 90,780 91,158
--------- ---------
</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>
- -----------------------------------------------------------------------------------------------------------------------------
Periods ended December 31, 1999 1998 1997 1996(b)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.671 1.425 1.146 1.000
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .008(a) .008 .012 .008
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments transactions .262 .278 .277 .138
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .270 .286 .289 .146
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.010) -- (.010) --
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.035) (.040) -- --
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.045) (.040) (.010) --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.896 1.671 1.425 1.146
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 16.52 20.17 25.47 14.60**
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 172,066 152,321 69,094 10,196
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .83 .78 .84 1.01*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .82 .78 .84 .90*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .46 .80 .95 .97*
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 102 102 50 25*
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1996 (commencement of operations) to
December 31, 1996.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
88 | Kemper Variable Series -
| Kemper Value+Growth Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Contrarian Value Portfolio
Value stocks languished throughout much of 1999, despite a brief resurgence in
the middle of the year. The result was that, despite strong fundamentals and low
valuations, the prices of many of our holdings eroded and the portfolio
underperformed.
Generally, the narrow, two-tiered market we saw in 1999 favored a handful of
stocks at the expense of most of the others. Stocks trading at very high
price-to-earnings (P/E) multiples with intact fundamentals (primarily large
technology stocks) performed well, while the bulk of the market languished. Our
discipline precludes us from owning the highly valued tech names that have
dominated market returns, which means we have been largely shut out of many
recent market rallies.
On the plus side, however, we enjoyed a boost late in the year from stocks
including Raytheon, Air Products & Chemicals, and Xerox, and believe the
portfolio is unusually attractive going into the new year based on its
valuations. Despite our disappointment with current market conditions and in
spite of short-term moves in the market, we will continue to follow our low-P/E
value discipline, which we believe should be rewarded in the long run.
Thomas F. Sassi
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Contrarian Value Portfolio
from 5/1/1996 to 12/31/1999
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Kemper Contrarian Value Portfolio Standard & Poor's 500 Stock Index
1996.25 10000 10000
1996.5 10179 10038
1996.75 10765 10348
1997 11736 11211
1997.25 12048 11512
1997.5 13539 13523
1997.75 14739 14536
1998 15302 14953
1998.25 17199 17040
1998.5 17000 17602
1998.75 15797 15850
1999 18249 19228
1999.25 18139 20185
1999.5 20529 21609
1999.75 17708 20260
2000 16385 23274
The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market.
- --------------------------------------------------------------------------------
Average Annual Total Return^1
- --------------------------------------------------------------------------------
Life of
For the periods ended December 31, 1999 1-year portfolio
- --------------------------------------------------------------------------------
Kemper Contrarian Value Portfolio -10.21% 14.41% (Since 5/1/1996)
- --------------------------------------------------------------------------------
^1 Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends. Average annual total
return reflects annualized change while 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.
Kemper Variable Series | 89
Kemper Contrarian Value Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Contrarian Value Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreements 1.3%
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, dated
12/31/1999 at 2.8%, to be repurchased --------
at $3,068 on 1/3/2000 (b) (Cost $3,068) ...... $ 3,068 $ 3,068
--------
- --------------------------------------------------------------------------------
Short-Term Notes 2.9%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., --------
1.5%**, 1/3/2000 (Cost $6,999) ................ 7,000 6,999
--------
Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks 95.8%
- --------------------------------------------------------------------------------
Consumer Discretionary 8.3%
Department & Chain Stores 6.5%
J.C. Penney Co., Inc. ......................... 201,800 4,023
May Department Stores ......................... 195,000 6,289
Sears, Roebuck & Co. .......................... 168,000 5,114
--------
15,426
--------
Home Furnishings 1.8%
Newell Rubbermaid, Inc. ....................... 145,000 4,205
--------
Consumer Staples 16.7%
Alcohol & Tobacco 3.2%
Philip Morris Companies, Inc. ................. 322,500 7,478
--------
Food & Beverage 9.4%
Albertson's, Inc. ............................. 70,000 2,258
Campbell Soup Co. ............................. 106,600 4,124
H.J. Heinz Co. ................................ 105,000 4,180
Hershey Foods Corp. ........................... 50,000 2,375
Sara Lee Corp. ................................ 200,000 4,413
Unilever NV (New York Shares) ................. 90,714 4,938
--------
22,288
--------
Package Goods/Cosmetics 1.8%
International Flavors & Fragrances, Inc. ...... 114,500 4,322
--------
Textiles 2.3%
VF Corp. ...................................... 180,000 5,400
--------
Health 4.8%
Health Industry Services 0.5%
HEALTHSOUTH Corp.* ............................ 210,000 1,129
--------
Medical Supply & Specialty 1.1%
Becton, Dickinson & Co. ....................... 100,000 2,675
--------
Shares Value
- --------------------------------------------------------------------------------
Pharmaceuticals 3.2%
Abbott Laboratories ........................... 145,500 $ 5,284
American Home Products Corp. .................. 60,000 2,366
--------
7,650
--------
Financial 27.6%
Banks 11.9%
Bank One Corp. ................................ 115,320 3,697
Bank of America Corp. ......................... 110,406 5,541
First Union Corp. ............................. 170,000 5,578
KeyCorp, "New" ................................ 282,000 6,239
Wachovia Corp. ................................ 20,000 1,360
Washington Mutual, Inc. ....................... 176,704 4,594
Wells Fargo & Co. ............................. 33,200 1,343
--------
28,352
--------
Insurance 5.7%
Allstate Corp. ................................ 208,100 4,994
American General Corp. ........................ 46,200 3,506
Chubb Corp. ................................... 87,400 4,922
--------
13,422
--------
Other Financial Companies 8.9%
Federal Home Loan Mortgage Corp. .............. 229,600 10,806
Federal National Mortgage Association ......... 166,600 10,402
--------
21,208
--------
Real Estate 1.1%
BRE Properties, Inc. "A" (REIT) ............... 60,000 1,361
Post Properties Inc. (REIT) ................... 30,000 1,148
--------
2,509
--------
Service Industries 2.6%
Printing/Publishing
Equifax, Inc. ................................. 262,000 6,173
--------
Durables 3.6%
Aerospace 1.2%
United Technologies Corp. ..................... 45,000 2,925
--------
Automobiles 2.4%
Ford Motor Co. ................................ 104,500 5,584
--------
Manufacturing 17.5%
Chemicals 1.5%
Praxair, Inc. ................................. 71,400 3,592
--------
Containers & Paper 3.4%
Sonoco Products Co. ........................... 358,200 8,149
--------
Diversified Manufacturing 2.4%
Minnesota Mining & Manufacturing Co. .......... 58,000 5,677
--------
Electrical Products 4.1%
Emerson Electric Co. .......................... 129,300 7,419
The accompanying notes are an integral part of the financial statements.
90 | Kemper Variable Series-
Kemper Contrarian Value Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- --------------------------------------------------------------------------------
Thomas & Betts Corp. .......................... 73,600 $ 2,346
--------
9,765
--------
Machinery/Components 2.2%
Ingersoll-Rand Co. ............................ 25,000 1,377
Pitney Bowes, Inc. ............................ 78,000 3,768
--------
5,145
--------
Office Equipment/Supplies 1.2%
Xerox Corp. ................................... 130,000 2,949
--------
Specialty Chemicals 2.7%
Air Products & Chemicals, Inc. ................ 192,200 6,451
--------
Technology 3.5%
Diverse Electronic Products 2.5%
Diebold, Inc. ................................. 250,000 5,875
--------
Military Electronics 1.0%
Raytheon Co. "B" .............................. 91,500 2,431
--------
Shares Value
- --------------------------------------------------------------------------------
Energy 5.5%
Oil Companies
BP Amoco PLC .................................. 77,944 $ 4,623
Exxon Mobil Corp. ............................. 75,000 6,042
Texaco, Inc. .................................. 45,000 2,444
--------
13,109
--------
Construction 3.2%
Forest Products
Georgia Pacific Timber Group .................. 136,200 3,354
Louisiana-Pacific Corp. ....................... 290,000 4,132
--------
7,486
--------
Transportation 2.5%
Railroads
Burlington Northern Santa Fe Corp. ............ 100,000 2,425
CSX Corp. ..................................... 112,800 3,539
--------
5,964
--------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $265,974) 227,339
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $276,041) (a) $ 237,406
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 $276,099. At December 31,
1999, net unrealized depreciation for all securities based on tax cost was
$38,693. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$12,093 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $50,786.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 91
Kemper Contrarian Value Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
- -------------------------------------------------------------------------------------------
(in thousands)
- -------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- -------------------------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $276,041) .......................... $ 237,406
Dividends receivable ......................................................... 551
Receivable for Portfolio shares sold ......................................... 318
---------
Total assets ................................................................. 238,275
Liabilities
- -------------------------------------------------------------------------------------------
Due to custodian bank ........................................................ 216
Payable for Portfolio shares redeemed ........................................ 426
Accrued management fee ....................................................... 162
Other accrued expenses and payables .......................................... 56
---------
Total liabilities ............................................................ 860
- -------------------------------------------------------------------------------------------
Net assets, at value $ 237,415
- -------------------------------------------------------------------------------------------
Net Assets
- -------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................... 5,712
Net unrealized appreciation (depreciation) on investments .................... (38,635)
Accumulated net realized gain (loss) ......................................... 35,371
Paid-in capital .............................................................. 234,967
- -------------------------------------------------------------------------------------------
Net assets, at value $ 237,415
- -------------------------------------------------------------------------------------------
Net Asset Value
- -------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($237,415 / 161,528
outstanding shares of beneficial interest, $.01 par value, unlimited number of ---------
shares authorized) ......................................................... $ 1.470
---------
- -------------------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- -------------------------------------------------------------------------------------------
Investment Income
- -------------------------------------------------------------------------------------------
Dividends (less foreign taxes withheld of $70) ............................... $ 6,957
Interest ..................................................................... 1,191
---------
Total income ................................................................. 8,148
---------
Expenses:
Management fee ............................................................... 2,079
Custodian fees ............................................................... 18
Auditing ..................................................................... 34
Legal ........................................................................ 5
Trustees' fees and expenses .................................................. 19
Reports to shareholders ...................................................... 70
Registration fees ............................................................ 1
Other ........................................................................ 10
---------
Total expenses, before expense reductions .................................... 2,236
Expense reductions ........................................................... (7)
---------
Total expenses, after expense reductions ..................................... 2,229
- -------------------------------------------------------------------------------------------
Net investment income (loss) 5,919
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions
- -------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .................................... 35,340
Net unrealized appreciation (depreciation) during the period on investments .. (71,035)
- -------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (35,695)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (29,776)
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
92 | Kemper Variable Series-
Kemper Contrarian Value Portfolio
<PAGE>
(in thousands)
- ------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Operations:
Net investment income (loss) .......................................................... $ 5,919 $ 4,433
Net realized gain (loss) .............................................................. 35,340 15,335
Net unrealized appreciation (depreciation) on investment transactions during the period (71,035) 17,408
--------- ---------
Net increase (decrease) in net assets resulting from operations ....................... (29,776) 37,176
--------- ---------
Distributions to shareholders:
From net investment income ............................................................ (4,476) (1,327)
--------- ---------
From net realized gains ............................................................... (14,920) (5,308)
--------- ---------
Portfolio share transactions:
Proceeds from shares sold ............................................................. 50,935 98,369
Reinvestment of distributions ......................................................... 19,396 6,635
Cost of shares redeemed ............................................................... (47,519) (34,150)
--------- ---------
Net increase (decrease) in net assets from Portfolio share transactions ............... 22,812 70,854
--------- ---------
Increase (decrease) in net assets ..................................................... (26,360) 101,395
Net assets at beginning of period ..................................................... 263,775 162,380
Net assets at end of period (including undistributed net investment income (loss) of --------- ---------
$5,712 and $4,458, respectively) .................................................... $ 237,415 $ 263,775
--------- ---------
Other Information
- ------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 150,119 107,003
--------- ---------
Shares sold ........................................................................... 29,387 60,234
Shares issued to shareholders in reinvestment of distributions ........................ 10,957 3,981
Shares redeemed ....................................................................... (28,935) (21,099)
--------- ---------
Net increase (decrease) in Portfolio shares ........................................... 11,409 43,116
--------- ---------
Shares outstanding at end of period ................................................... 161,528 150,119
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
- -----------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998 1997 1996(b)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.757 1.518 1.174 1.000
-----------------------------------
- -----------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------
Net investment income (loss) .037(a) .026 .031 .015
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments transactions (.194) .263 .323 .159
-----------------------------------
- -----------------------------------------------------------------------------------------
Total from investment operations (.157) .289 .354 .174
- -----------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------
From net investment income (.030) (.010) (.010) --
- -----------------------------------------------------------------------------------------
Net realized gains on investment transactions (.100) (.040) -- --
-----------------------------------
- -----------------------------------------------------------------------------------------
Total distributions (.130) (.050) (.010) --
- -----------------------------------------------------------------------------------------
Net asset value, end of period $1.470 1.757 1.518 1.174
-----------------------------------
- -----------------------------------------------------------------------------------------
Total return (%) (10.21) 19.26 30.38 17.36**
- -----------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 237,415 263,775 162,380 21,305
- -----------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .81 .78 .80 .92*
- -----------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .80 .78 .80 .90*
- -----------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.14 2.02 2.38 2.42*
- -----------------------------------------------------------------------------------------
Portfolio turnover rate (%) 88 57 46 57*
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period of May 1, 1996, (commencement of operations) to December 31,
1996.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 93
Kemper Contrarian Value Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper-Dreman High Return Equity Portfolio
Technology and growth stocks were the market darlings throughout much of 1999, a
trend that led both value stocks and Kemper-Dreman High Return Equity Portfolio
to lag behind throughout most of the period. Investors may well remember 1999 as
one of the worst periods for value stocks in decades, although the low
valuations it has created afforded the portfolio some outstanding buying
opportunities that should serve us well if 2000 sees a shift in the market's
focus.
Underperformance in the financial sector was a particular drag on the portfolio
during the year. Strong earnings in the sector couldn't overcome rising interest
rate fears, which pushed prices down. The tobacco industry proved lackluster, as
well, causing us to reduce the portfolio's relative position in Philip Morris
slightly.
On the positive side, oil and oil service holdings performed well during much of
the year, due to increases in oil prices and declines in oil supply.
As we head into a new year, we remain confident that the narrow market we've
seen for well over a year cannot continue indefinitely. If value returns to
favor, we expect the portfolio's holdings -- which feature strong fundamentals
but depressed valuations -- to be well positioned.
David N. Dreman
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper-Dreman High Return Equity
Portfolio from 5/4/1998 to 12/31/1999
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Kemper-Dreman High Standard & Poor's
Return Equity Portfolio 500 Index Consumer Price Index
1998.25 10000 10000 10000
1998.5 9758 10406 10012
1998.75 9068 9370 10048
1999 10285 11367 10066
1999.25 9987 11933 10133
1999.5 10852 12775 10207
1999.75 9518 11977 10311
2000 9138 13759 10336
The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market. The Consumer Price Index is a
statistical measure of change, over time, in the prices of goods and services in
major expenditure groups for all urban consumers. It is generally considered to
be a measure of inflation.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Average Annual Total Return^1
- ----------------------------------------------------------------------------------------------
Life of
For the periods ended December 31, 1999 1-year portfolio
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kemper-Dreman High Return Equity Portfolio -11.16% -5.28% (Since 5/4/1998)
- ----------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends. Average annual total
return reflects annualized change while 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.
The portfolio may concentrate investments in specific sectors, which
creates special risk considerations.
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.
94 | Kemper Variable Series-
Kemper-Dreman High Return Equity Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper-Dreman High Return Equity Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Short-Term Investments 19.0%
- --------------------------------------------------------------------------------
Repurchase Agreements 4.9%
State Street Bank and Trust Company, dated
12/31/1999 at 2.8%, to be repurchased at
$5,479 on 1/3/2000 (b) ...................... $ 5,479 $ 5,479
Commercial Paper 9.7%
Ciesco L.P., 5.94%**, 2/7/2000 ................ 6,000 5,963
Variable Funding Corp., 5.85%**,
1/24/2000 ................................... 5,000 4,981
-------
10,944
-------
U.S. Treasury Obligations 4.4%
U.S. Treasury Bill, 5.16%**, 1/20/2000 (c) 5,000 4,987
- --------------------------------------------------------------------------------
Total Short-Term Investments (Cost $21,410) (d) 21,410
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks 81.0%
- --------------------------------------------------------------------------------
Consumer Discretionary 6.4%
Apparel & Shoes 0.2%
Fruit of the Loom, Inc.* ...................... 119,545 172
-------
Department & Chain Stores 1.6%
Rite Aid Corp. ................................ 161,800 1,810
-------
Specialty Retail 4.6%
Borders Group, Inc.* .......................... 210,200 3,376
Toys R Us, Inc.* .............................. 128,690 1,842
-------
5,218
-------
Consumer Staples 14.7%
Alcohol & Tobacco 12.5%
Imperial Tobacco Group ADR .................... 21,600 342
Philip Morris Companies, Inc. ................. 280,110 6,495
R.J. Reynolds Tobacco Holdings, Inc. .......... 84,103 1,482
UST, Inc. ..................................... 168,910 4,255
Universal Corp. ............................... 63,350 1,445
-------
14,019
-------
Food & Beverage 2.2%
Nabisco Group Holdings ........................ 232,610 2,471
-------
Health 11.5%
Health Industry Services 6.3%
Humana, Inc.* ................................. 337,800 2,766
McKesson HBOC, Inc. ........................... 190,400 4,296
-------
7,062
-------
Shares Value
- --------------------------------------------------------------------------------
Hospital Management 5.2%
Columbia/HCA Healthcare Corp. ................. 48,450 $ 1,420
Tenet Healthcare Corp. ........................ 187,155 4,398
-------
5,818
-------
Financial 27.1%
Banks 18.0%
Bank One Corp. ................................ 139,605 4,476
Bank of America Corp. ......................... 53,136 2,667
Bank of New York Co., Inc. .................... 16,000 640
First Union Corp. ............................. 38,171 1,252
FleetBoston Financial Corp. ................... 77,788 2,708
J.P. Morgan & Co., Inc. ....................... 3,900 494
KeyCorp ....................................... 92,455 2,046
National Bank of Canada ....................... 5,600 72
PNC Bank Corp. ................................ 64,639 2,876
Republic New York Corp. ....................... 41,784 3,008
-------
20,239
-------
Insurance 1.3%
American International Group, Inc. ............ 6,550 708
Ohio Casualty Corp. ........................... 7,800 126
Safeco Corp. .................................. 4,500 112
St. Paul Companies, Inc. ...................... 16,300 549
-------
1,495
-------
Other Financial Companies 7.8%
Federal Home Loan Mortgage Corp. .............. 69,941 3,292
Federal National Mortgage Association ......... 73,373 4,581
Prison Realty Trust, Inc.(REIT) ............... 185,060 937
-------
8,810
-------
Service Industries 2.9%
Environmental Services
Transocean Offshore, Inc. ..................... 54,600 1,839
Waste Management, Inc. ........................ 80,700 1,387
-------
3,226
-------
Energy 15.5%
Oil & Gas Production 5.7%
Conoco, Inc. "A" .............................. 174,395 4,316
Conoco, Inc. "B" .............................. 84,900 2,112
-------
6,428
-------
Oil Companies 5.3%
Atlantic Richfield Co. ........................ 28,838 2,495
Texaco, Inc. .................................. 63,505 3,449
-------
5,944
-------
Oilfield Services 4.5%
Diamond Offshore Drilling, Inc. ............... 33,200 1,015
ENSCO International, Inc. ..................... 52,600 1,203
Global Marine, Inc.* .......................... 40,600 675
Noble Drilling Corp.* ......................... 41,900 1,372
Tidewater, Inc. ............................... 22,390 806
-------
5,071
-------
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 95
Kemper-Dreman High Return Equity Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- --------------------------------------------------------------------------------
Utilities 2.9%
Natural Gas Distribution
Columbia Energy Group ................................. 40,290 $ 2,549
Shares Value
- --------------------------------------------------------------------------------
Consolidated Natural Gas Corp. ........................ 10,800 $ 701
------
3,250
------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $110,052) 91,033
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $131,462) (a) $112,443
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper-Dreman High Return Equity 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 $131,678. At December 31,
1999, net unrealized depreciation for all securities based on tax cost was
$19,235. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$6,284 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $25,519.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
(c) At December 31, 1999, these securities, in part or in whole, have been
segregated to cover initial margin requirements for open futures contracts.
- --------------------------------------------------------------------------------
At December 31, 1999, open futures contracts purchased were as follows (in
thousands):
Aggregate
Face Market
Futures Expiration Date Contracts Value ($) Value ($)
----------------------- --------------- --------- ------------ ---------
S&P 500 Index ......... March 18, 2000 50 $ 18,054 $ 18,556
----
Total unrealized appreciation on open futures contracts purchased ...... 502
----
- --------------------------------------------------------------------------------
(d) 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 $18,556 of short-term
investments. As a result, approximately 97% 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.
96 | Kemper Variable Series-
Kemper-Dreman High Return Equity Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
- -------------------------------------------------------------------------------------------
(in thousands)
- -------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- -------------------------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $131,462) .......................... $ 112,443
Cash ......................................................................... 8
Dividends receivable ......................................................... 354
Receivable for daily variation margin on open futures contracts .............. 984
---------
Total assets ................................................................. 113,789
Liabilities
- -------------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed ........................................ 80
Accrued management fee ....................................................... 195
Other accrued expenses and payables .......................................... 66
---------
Total liabilities ............................................................ 341
- -------------------------------------------------------------------------------------------
Net assets, at value $ 113,448
- -------------------------------------------------------------------------------------------
Net Assets
- -------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................... 2,155
Net unrealized appreciation (depreciation) on:
Investments ................................................................ (19,019)
Futures .................................................................... 502
Accumulated net realized gain (loss) ......................................... 3,959
Paid-in capital .............................................................. 125,851
- -------------------------------------------------------------------------------------------
Net assets, at value $ 113,448
- -------------------------------------------------------------------------------------------
Net Asset Value
- -------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($113,448 / 126,553
outstanding shares of beneficial interest, $.01 par value, unlimited number of ---------
shares authorized) ........................................................... $ 0.896
---------
- -------------------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- -------------------------------------------------------------------------------------------
Investment Income
- -------------------------------------------------------------------------------------------
Dividends (less foreign taxes withheld of $7) ................................ $ 2,469
Interest ..................................................................... 972
---------
Total income ................................................................. 3,441
---------
Expenses:
Management fee ............................................................... 752
Custodian and accounting fees ................................................ 54
Auditing ..................................................................... 8
Legal ........................................................................ 3
Trustees' fees and expenses .................................................. 8
Reports to shareholders ...................................................... 10
Registration fees ............................................................ 5
Amortization of organization expenses ........................................ 8
Other ........................................................................ 15
---------
Total expenses, before expense reductions .................................... 863
Expense reductions ........................................................... (2)
---------
Total expenses, after expense reductions ..................................... 861
- -------------------------------------------------------------------------------------------
Net investment income (loss) 2,580
- -------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................................. 2,653
Futures ...................................................................... 1,957
---------
4,610
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................................. (21,221)
Futures ...................................................................... 106
---------
(21,115)
- -------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (16,505)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (13,925)
- -------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 97
Kemper-Dreman High Return Equity Portfolio
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
- --------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------------------------
Year Ended Period Ended
December 31, December 31,
Increase (Decrease) in Net Assets 1999 1998(a)
- --------------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) .......................................................... $ 2,580 $ 464
Net realized gain (loss) .............................................................. 4,610 239
Net unrealized appreciation (depreciation) on investment transactions during the period (21,115) 2,597
--------- ---------
Net increase (decrease) in net assets resulting from operations ....................... (13,925) 3,300
--------- ---------
Distributions to shareholders:
From net investment income ............................................................ (889) --
--------- ---------
From net realized gains ............................................................... (889) --
--------- ---------
Fund share transactions:
Proceeds from shares sold ............................................................. 77,261 56,148
Reinvestment of distributions ......................................................... 1,778 --
Cost of shares redeemed ............................................................... (9,182) (155)
--------- ---------
Net increase (decrease) in net assets from Portfolio share transactions ............... 69,857 55,993
--------- ---------
Increase (decrease) in net assets ..................................................... 54,154 59,293
Net assets at beginning of period ..................................................... 59,294 1
Net assets at end of period (including undistributed net investment income (loss) of --------- ---------
$2,155 and $464, respectively) ...................................................... $ 113,448 $ 59,294
--------- ---------
Other Information
- --------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 57,650 --
--------- ---------
Shares sold ........................................................................... 76,917 57,811
Shares issued to shareholders in reinvestment of distributions ........................ 1,719 --
Shares redeemed ....................................................................... (9,733) (161)
--------- ---------
Net increase (decrease) in Portfolio shares ........................................... 68,903 57,650
--------- ---------
Shares outstanding at end of period ................................................... 126,553 57,650
--------- ---------
(a) For the period from May 4, 1998 (commencement of operations) to December 31,
1998
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements
- ---------------------------------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998(b)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 1.028 1.000
-----------------------------
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .026(a) .008
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.138) .020
-----------------------------
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations (.112) .028
- ---------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (.010) --
- ---------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.010) --
-----------------------------
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (.020) --
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ .896 1.028
-----------------------------
- ---------------------------------------------------------------------------------------------------------------------
Total return (%) (11.16) 2.80**
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 113,448 59,294
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .86 1.20*
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .86 .87*
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.57 2.77*
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 24 5*
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 4, 1998 (commencement of operations) to December
31, 1998.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
98 | Kemper Variable Series-
Kemper-Dreman High Return Equity Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
KVS Focused Large Cap Growth Portfolio
We are pleased to report that the portfolio got off to a terrific start
following its inception on October 29, 1999. From its inception through the end
of 1999, the portfolio returned 28.40% while the S&P 500 Index returned 8.04%.
The portfolio's overweighting in technology and communications certainly
benefited performance for the quarter, as these sectors continued to excel in
anticipation of the ongoing buildout of the Internet and the telecom wireless
infrastructure.
The portfolio also benefited from its relative underweighting in the financial
services and energy sectors. Financial services stocks continued to be
negatively impacted by rising interest rates. Energy stocks did not perform as
well as expected, as unseasonably warm temperatures prevailed over most of the
United States throughout the quarter.
The portfolio's overweighting in the health care sector negatively impacted
performance, as pharmaceutical stocks in particular continued to lag due to the
political uncertainty surrounding the Medicare reimbursement issue.
Looking forward, we expect a fair amount of market volatility, particularly
during the first half of 2000. With the economy showing few signs of slowing, it
appears likely that the Federal Reserve will raise interest rates at least once
in the near term. We are optimistic, however, that large-cap growth stocks will
continue to perform well in the year 2000 and beyond, with many of the
world-class, multinational companies that populate the portfolio leading the
way.
Ashi Parikh
Lead Portfolio Manager
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.
Kemper Variable Series- | 99
KVS Focused Large Cap Growth Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
KVS Focused Large Cap Growth Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
Repurchase Agreement 3.7%
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 2.8%,
1/3/2000 to be repurchased at $100,023 -----------
(b) (Cost $100,000) .................................. $100,000 $ 100,000
-----------
Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks 96.3%
- --------------------------------------------------------------------------------
Consumer Discretionary 6.8%
Department & Chain Stores
Home Depot, Inc. ....................................... 1,275 87,417
Wal-Mart Stores, Inc. .................................. 1,400 96,775
-----------
184,192
-----------
Health 9.5%
Medical Supply & Specialty 1.9%
Guidant Corp.* ......................................... 550 25,850
Medtronic, Inc. ........................................ 700 25,506
-----------
51,356
-----------
Pharmaceuticals 7.6%
Bristol-Myers Squibb Co. ............................... 1,100 70,606
Eli Lilly & Co. ........................................ 300 19,950
Johnson & Johnson ...................................... 300 27,938
Merck & Co., Inc. ...................................... 350 23,472
Pfizer, Inc. ........................................... 1,050 34,059
Schering-Plough Corp. .................................. 650 27,422
-----------
203,447
-----------
Communications 11.4%
Telephone/Communications
BroadWing, Inc. ........................................ 2,200 81,125
JDS Uniphase Corp.* .................................... 700 112,919
MCI WorldCom, Inc.* .................................... 875 46,430
Nortel Networks Corp. .................................. 650 65,650
-----------
306,124
-----------
Financial 6.9%
Insurance 2.6%
American International Group, Inc. ..................... 650 70,281
-----------
Consumer Finance 4.3%
American Express Co. ................................... 400 66,500
Citigroup, Inc. ........................................ 900 50,006
-----------
116,506
-----------
Media 8.9%
Advertising 3.5%
Omnicom Group, Inc. .................................... 950 95,000
-----------
Broadcasting & Entertainment 2.8%
Time Warner, Inc. ...................................... 1,000 72,438
-----------
Shares Value
- --------------------------------------------------------------------------------
Cable Television 2.6%
AT&T Corp-- Liberty Media Group* ....................... 1,250 $ 70,938
-----------
Service Industries 6.7%
Investment 1.6%
Goldman Sachs Group, Inc. .............................. 450 42,384
-----------
Miscellaneous Commercial 3.4%
Convergys Corp.* ....................................... 3,000 92,250
-----------
Miscellaneous Consumer 1.7%
Phone.com, Inc.* ....................................... 200 23,188
Yahoo!, Inc.* .......................................... 50 21,634
-----------
44,822
-----------
Manufacturing 7.4%
Electrical Products 4.9%
General Electric Co. ................................... 850 131,538
-----------
Industrial Specialty 2.5%
E-Tek Dynamics, Inc.* .................................. 500 67,313
-----------
Technology 38.7%
Computer Software 21.4%
America Online, Inc.* .................................. 700 52,806
Cadence Design System Inc.* ............................ 6,500 156,000
Intertrust Technologies Corp.* ......................... 150 17,644
Marimba, Inc.* ......................................... 1,100 50,669
Microsoft Corp.* ....................................... 1,450 169,288
Sycamore Networks, Inc.* ............................... 350 107,800
VA Linux Systems, Inc.* ................................ 100 20,663
-----------
574,870
-----------
Diverse Electronic Products 5.7%
Dell Computer Corp.* ................................... 3,000 153,000
-----------
EDP Peripherals 1.6%
EMC Corp.* ............................................. 400 43,700
-----------
Electronic Components/Distributors 5.3%
Caliper Technologies Corp.* ............................ 50 3,338
Cisco Systems, Inc.* ................................... 1,300 139,263
-----------
142,601
-----------
Semiconductors 4.7%
LSI Logic Corp.* ....................................... 900 60,750
National Semiconductor Corp.* .......................... 1,550 66,356
-----------
127,106
-----------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $2,234,126) 2,589,866
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $2,334,126) (a) $2,689,866
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to KVS Focused Large Cap Growth Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $2,343,819. At December 31,
1999, net unrealized appreciation for all securities based on tax cost was
$346,047. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$390,416 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $44,369.
(b) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 100
KVS Focused Large Cap Growth Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- ----------------------------------------------------------------------------------------------
Assets
- ----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $2,334,126) ........................ $ 2,689,866
Cash ......................................................................... 449,856
Receivable for investments sold .............................................. 13,677
Dividends receivable ......................................................... 559
Receivable for Portfolio shares sold ......................................... 1,357
Due from Advisor ............................................................. 12,054
-----------
Total assets ................................................................. 3,167,369
Liabilities
- ----------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 232,723
Payable for Portfolio shares redeemed ........................................ 1,224
Other accrued expenses and payables .......................................... 13,410
-----------
Total liabilities ............................................................ 247,357
- ----------------------------------------------------------------------------------------------
Net assets, at value $ 2,920,012
- ----------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments .................... 355,740
Accumulated net realized gain (loss) ......................................... 136,717
Paid-in capital .............................................................. 2,427,555
- ----------------------------------------------------------------------------------------------
Net assets, at value $ 2,920,012
- ----------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($2,920,012 / 2,274,096
outstanding shares of beneficial interest, $.01 par value, unlimited -----------
number of shares authorized) ............................................... $ 1.284
-----------
- ----------------------------------------------------------------------------------------------
Statement of Operations for the period ended December 31, 1999 (a)
- ----------------------------------------------------------------------------------------------
Net Investment Income
- ----------------------------------------------------------------------------------------------
Dividends .................................................................... $ 1,113
Interest ..................................................................... 1,896
-----------
Total income ................................................................. 3,009
-----------
Expenses:
Management fee ............................................................... 3,023
Custodian and accounting fees ................................................ 6,972
Auditing ..................................................................... 7,991
Legal ........................................................................ 143
Trustees' fees and expenses .................................................. 143
Reports to shareholders ...................................................... 686
Registration fees ............................................................ 5,917
Other ........................................................................ 145
-----------
Total expenses, before expense reductions .................................... 25,020
Expense reductions ........................................................... (21,360)
-----------
Total expenses, after expense reductions ..................................... 3,660
- ----------------------------------------------------------------------------------------------
Net investment income (loss) (651)
- ----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .................................... 137,368
Net unrealized appreciation (depreciation) on investments .................... 355,740
- ----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 493,108
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 492,457
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999.
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 101
KVS Focused Large Cap Growth Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
Period Ended
December 31,
Increase (Decrease) in Net Assets 1999(a)
- --------------------------------------------------------------------------------
Operations:
Net investment income (loss) ..................................... $ (651)
Net realized gain (loss) ......................................... 137,368
Net unrealized appreciation (depreciation) on
investment transactions during the period ...................... 355,740
-----------
Net increase (decrease) in net assets resulting from operations .. 492,457
-----------
Portfolio share transactions:
Proceeds from shares sold ........................................ 934,463
Cost of shares redeemed .......................................... (6,908)
-----------
Net increase (decrease) in net assets from Fund share transactions 927,555
-----------
Increase (decrease) in net assets ................................ 1,420,012
Net assets at beginning of period ................................ 1,500,000
-----------
Net assets at end of period ...................................... $ 2,920,012
-----------
Other Information
- --------------------------------------------------------------------------------
Shares outstanding at beginning of period ........................ 1,500,000
-----------
Shares sold ...................................................... 779,538
Shares redeemed .................................................. (5,442)
-----------
Net increase (decrease) in Portfolio shares ...................... 774,096
-----------
Shares outstanding at end of period .............................. 2,274,096
-----------
(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.
- --------------------------------------------------------------------------------
Period Ended December 31, 1999(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $1.000
---------
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) (a) --
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions .284
---------
- --------------------------------------------------------------------------------
Total from investment operations .284
- --------------------------------------------------------------------------------
Net asset value, end of period $1.284
---------
- --------------------------------------------------------------------------------
Total return (%) 28.40**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 2,920
- --------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 7.49*
- --------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.10*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.19)*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 336*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
102 | Kemper Variable Series-
KVS Focused Large Cap Growth Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
KVS Growth And Income Portfolio
Higher interest rates couldn't dispirit the bulls and stocks as they ended the
year on a positive note. The portfolio returned 14.93% from its inception on
October 29, 1999 through the end of 1999, while the S&P 500 returned 8.04% for
the same period. The increased appetite for growth resulted in the portfolio
outperforming its benchmark, the S&P 500 Index, as investors bid up their
wireless telecommunications and technology holdings. With the advent of wireless
data transfer, which would allow users to access the Internet using their
cellular phones, the outlook for companies such as Nokia and VoiceStream
Wireless remains bright. Additionally, several of our Internet infrastructure
companies also continued to shine. Meanwhile, our financial holdings had mixed
results as interest rates moved up.
Moving ahead, with interest rates possibly moving higher in the coming year,
volatility will likely persist as investors constantly reassess equity
valuations. While market fluctuations can be unsettling, we will not lose our
focus. We will continue to search for companies with the most promising
fundamentals, because over the long term the market rewards companies with the
most profitable business models.
David J. Corkins
Lead Portfolio Manager
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.
Kemper Variable Series- | 103
KVS Growth and Income Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
KVS Growth and Income Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreements 5.4%
- --------------------------------------------------------------------------------
State Street Bank and Trust Company 2.8%,
1/3/2000 to be repurchased at $700,163 -------------
(b) (Cost $700,000) ............................ $ 700,000 $ 700,000
-------------
- --------------------------------------------------------------------------------
Corporate Bonds 1.2%
- --------------------------------------------------------------------------------
Communications 0.1%
Level 3 Communications, Inc.,
9.125%, 5/1/2008 ............................... 10,000 9,413
-------------
Consumer Discretionary 0.1%
Fred Meyer,Inc., 7.45%, 3/1/2008 ................. 10,000 9,738
-------------
Financial 0.8%
Firststar Bank, 7.125%, 12/1/2009 ................ 50,000 48,294
General Electric Capital Corporation,
6.52%, 10/8/2002 ............................... 10,000 9,897
General Electric Capital Corporation,
6.81%, 11/3/2003 ............................... 50,000 49,556
-------------
107,747
-------------
Media 0.1%
Charter Communications Holdings LLC,
8.625%, 4/1/2009 ............................... 10,000 9,250
-------------
Service Industries 0.1%
Sun Microsystems, Inc., 7.5%, 8/15/2006 .......... 25,000 24,948
-------------
- --------------------------------------------------------------------------------
Total Corporate Bonds (Cost $162,017) 161,096
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Convertible Bonds 3.1%
- --------------------------------------------------------------------------------
Communications 1.0%
Telephone/Communications
NTL Incorporated, 5.75%, 12/15/2009 .............. 60,000 64,575
NTL Incorporated, 7%, 12/15/2008 ................. 25,000 65,563
-------------
130,138
-------------
Consumer Discretionary 0.6%
Specialty Retail
Amazon.com Inc., 4.75%, 2/1/2009 ................. 62,000 70,293
-------------
Media 0.2%
Advertising
Clear Channel Communications, Inc.,
1.5%, 12/1/2002 ................................ 29,000 29,653
-------------
Service Industries 1.3%
Miscellaneous Commercial Services 0.4%
i2 Technologies, Inc., 5.25%, 12/15/2006 ......... 38,000 55,100
-------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Miscellaneous Consumer Services 0.9%
BEA Systems, Inc., 4%, 12/15/2006 ................ $ 100,000 $ 116,500
-------------
- --------------------------------------------------------------------------------
Total Convertible Bonds (Cost $418,649) 401,684
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Convertible Preferred Stocks 2.1%
- --------------------------------------------------------------------------------
Consumer Discretionary 0.1%
Hotels & Casinos
Royal Caribbean Cruises Ltd., 7.25% .............. 90 13,500
-------------
Media 1.3%
Cable Television
Adelphia Communications Corp., 5.5% .............. 132 24,816
Media One Group, Inc., 6.25% ..................... 700 75,600
TCI Pacific Communications, Inc., 5% ............. 225 70,833
-------------
171,249
-------------
Utilities 0.7%
Electric Utilities
Reliant Energy Inc., 7% .......................... 735 88,568
-------------
- --------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Cost $269,801) 273,317
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred Stocks 0.3%
- --------------------------------------------------------------------------------
Durables 0.3%
Automobiles -------------
Porsche AG, preferred (Cost $35,592) ............. 13 35,608
-------------
- --------------------------------------------------------------------------------
Common Stocks 87.9%
- --------------------------------------------------------------------------------
Communications 18.4%
Cellular Telephone 7.9%
Nextel Communications, Inc. "A"* ................. 1,700 175,313
Nokia Oy A (ADR) ................................. 3,500 665,000
Sprint Corp. (PCS Group)* ........................ 1,900 194,750
-------------
1,035,063
-------------
Telephone/Communications 10.5%
Allegiance Telecom, Inc.* ........................ 450 41,513
CenturyTel, Inc. ................................. 2,800 132,650
Cox Communications, Inc. Class "A"* .............. 5000 257,500
MCI WorldCom, Inc.* .............................. 1,583 83,971
McLeodUSA Inc. "A"* .............................. 3,500 206,063
Nortel Networks Corp. ............................ 1,800 181,800
Omnipoint Corp.* ................................. 360 43,425
Telefonica SA* ................................... 5,333 133,184
The accompanying notes are an integral part of the financial statements.
104 | Kemper Variable Series-
KVS Growth and Income Portfolio
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
Voice Stream Wireless Corporation* ............ 2,000 $ 284,625
-----------------
1,364,731
-----------------
Consumer Discretionary 3.8%
Department & Chain Stores 2.3%
Costco Wholesale Corp.* ....................... 1,405 128,206
Home Depot, Inc. .............................. 2,513 172,263
-----------------
300,469
-----------------
Hotels & Casinos 0.7%
Royal Caribbean Cruises Ltd. .................. 1,755 86,543
-----------------
Recreational Products 0.1%
Mattel, Inc. .................................. 1,300 17,063
-----------------
Specialty Retail 0.7%
Staples Inc.* ................................. 4,425 91,819
-----------------
Consumer Staples 1.4%
Alcohol & Tobacco
Anheuser-Busch Companies, Inc. ................ 2,500 177,188
-----------------
Durables 1.1%
Automobiles 0.4%
Ford Motor Co. ................................ 1,045 55,842
-----------------
Telecommunications Equipment 0.7%
Lucent Technologies, Inc. ..................... 1,235 92,393
-----------------
Energy 2.2%
Oil/Gas Transmission
Enron Corp. ................................... 6,500 288,438
-----------------
Financial 6.3%
Banks 1.2%
Bank One Corp. ................................ 80 2,565
Firstar Corp. ................................. 7,605 160,656
-----------------
163,221
-----------------
Insurance 1.3%
American International Group, Inc. ............ 1,450 156,781
Progressive Corp. ............................. 160 11,700
-----------------
168,481
-----------------
Consumer Finance 3.2%
American Express Co. .......................... 1,150 191,188
Citigroup, Inc. ............................... 3,990 221,694
-----------------
412,882
-----------------
Other Financial Companies 0.6%
Federal National Mortgage Association ......... 1,315 82,105
-----------------
Health 4.5%
Biotechnology 0.7%
Genentech* .................................... 705 94,823
-----------------
Shares Value
- --------------------------------------------------------------------------------
Medical Supply & Specialty 1.2%
Medtronic ..................................... 4,050 $ 147,572
-----------------
Pharmaceuticals 2.6%
Allergan, Inc. ................................ 1,230 61,193
King Pharmaceuticals, Inc.* ................... 705 39,524
Medco Research Inc.* .......................... 535 16,083
Pfizer, Inc. .................................. 2,980 96,664
Schering-Plough Corp. ......................... 2,955 124,664
-----------------
338,128
-----------------
Manufacturing 4.4%
Diversified Machinery 3.4%
General Electric Co. .......................... 2,500 386,875
Honeywell International, Inc. ................. 1,100 63,456
-----------------
450,331
-----------------
Machinery/Components/Controls 1.0%
Mannesmann AG (Registered) .................... 530 127,824
-----------------
Media 18.9%
Advertising 1.7%
DoubleClick, Inc.* ............................ 650 164,491
Omnicom Group, Inc. ........................... 525 52,500
-----------------
216,991
-----------------
Broadcasting & Entertainment 7.8%
AMFM Inc.* .................................... 585 45,776
Clear Channel Communications, Inc.* ........... 1,060 94,605
Four Media Company* ........................... 535 7,958
Hispanic Broadcasting Corp.* .................. 800 73,775
Infinity Broadcasting Corp.* .................. 415 159,768
SFX Entertainment, Inc.* ...................... 1,180 42,701
Time Warner, Inc. ............................. 4,700 340,456
Viacom Inc. "B"* .............................. 4,225 255,348
-----------------
1,020,387
-----------------
Cable Television 9.4%
AT&T Corp-- Liberty Media Group* .............. 9,000 510,750
Adelphia Communications
Corporation-Cl "A"* ......................... 1,495 98,109
Charter Communications, Inc.* ................. 3,625 79,297
Comcast Corp. "A" ............................. 8,300 417,075
Media One Group, Inc.* ........................ 1,580 121,364
-----------------
1,226,595
-----------------
Service Industries 5.3%
EDP Services 2.6%
VeriSign, Inc.* ............................... 1,765 336,674
-----------------
Investment 0.7%
Charles Schwab Corp. .......................... 2,630 100,926
-----------------
Miscellaneous Commercial Services 1.3%
EarthLink Network, Inc.* ...................... 1,000 42,500
Official Payments Corporation* ................ 435 22,620
Paychex, Inc. ................................. 2,600 104,000
-----------------
169,120
-----------------
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 105
KVS Growth and Income Portfolio
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
Miscellaneous Consumer Services 0.7%
Phone.com, Inc.* .............................. 440 $ 51,013
eBay, Inc.* ................................... 300 37,556
--------------
88,569
--------------
Technology 21.6%
Computer Software 6.3%
America Online, Inc.* ......................... 4,500 339,462
Electronic Arts, Inc.* ........................ 600 50,400
Inktomi Corp.* ................................ 590 52,363
Microsoft Corp.* .............................. 3,175 370,681
Vignette Corp.* ............................... 25 4,075
--------------
816,981
--------------
Diverse Electronic Products 0.8%
Dell Computer Corp.* .......................... 2,030 103,530
--------------
Shares Value
- --------------------------------------------------------------------------------
EDP Peripherals 2.9%
EMC Corp.* .................................... 3,500 $ 382,375
--------------
Electronic Components/Distributors 4.2%
Cisco Systems, Inc.* .......................... 5,150 551,694
--------------
Electronic Data Processing 3.8%
Sun Microsystems, Inc.* ....................... 6,400 495,600
--------------
Semiconductors 3.6%
Intel Corp. ................................... 1,000 82,313
Maxim Integrated Products Inc.* ............... 2,000 94,375
Texas Instruments, Inc. ....................... 3,000 290,625
--------------
467,313
--------------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $10,447,135) 11,471,671
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $12,033,194) (a) $13,043,376
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to KVS Growth and Income Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $12,041,851. At December 31,
1999, net unrealized appreciation for all securities based on tax cost was
$1,001,525. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $1,159,230 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$157,705.
(b) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
The accompanying notes are an integral part of the financial statements.
106 | Kemper Variable Series-
KVS Growth and Income Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- ------------------------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------------------
<S> <C>
Investments, at value (cost $12,033,194) ..................................... $ 13,043,376
Cash ......................................................................... 3,203,982
Receivable for investments sold .............................................. 31,616
Dividends receivable ......................................................... 2,540
Interest receivable .......................................................... 4,060
Receivable for Portfolio shares sold ......................................... 150,763
Due from Advisor ............................................................. 1,348
------------
Total assets ................................................................. 16,437,685
Liabilities
- ------------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 630,734
Other accrued expenses and payables .......................................... 13,410
------------
Total liabilities ............................................................ 644,144
- ------------------------------------------------------------------------------------------------
Net assets, at value $ 15,793,541
- ------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments .................... 1,010,182
Accumulated net realized gain (loss) ......................................... 60,922
Paid-in capital .............................................................. 14,722,437
- ------------------------------------------------------------------------------------------------
Net assets, at value $ 15,793,541
- ------------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($15,793,541 / 13,740,947
outstanding shares of beneficial interest, $.01 par value, unlimited number of ------------
shares authorized) ........................................................... $ 1.149
------------
- ------------------------------------------------------------------------------------------------
Statement of Operations for the period ended December 31, 1999 (a)
- ------------------------------------------------------------------------------------------------
Investment Income
- ------------------------------------------------------------------------------------------------
Dividends .................................................................... $ 3,156
Interest ..................................................................... 10,591
------------
Total income ................................................................. 13,747
------------
Expenses:
Management fee ............................................................... 11,867
Custodian and accounting fees ................................................ 6,972
Auditing ..................................................................... 7,991
Legal ........................................................................ 143
Trustees' fees and expenses .................................................. 143
Reports to shareholders ...................................................... 686
Registration fees ............................................................ 5,917
Other ........................................................................ 145
------------
Total expenses, before expense reductions .................................... 33,864
Expense reductions ........................................................... (19,498)
------------
Total expenses, after expense reductions ..................................... 14,366
- ------------------------------------------------------------------------------------------------
Net investment income (loss) (619)
- ------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................................. 61,809
Foreign currency related transactions ........................................ (268)
------------
61,541
Net unrealized appreciation (depreciation) during the period on investments .. 1,010,182
- ------------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 1,071,723
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 1,071,104
- ------------------------------------------------------------------------------------------------
(a) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999
</TABLE>
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 107
KVS Growth and Income Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
Period Ended
December 31,
Increase (Decrease) in Net Assets 1999(a)
- --------------------------------------------------------------------------------
Operations:
Net investment income (loss) ...................... $ (619)
Net realized gain (loss) on investment transactions 61,541
Net unrealized appreciation (depreciation) on
investment transactions during the period ....... 1,010,182
------------
Net increase (decrease) in net assets resulting
from operations ................................. 1,071,104
------------
Portfolio share transactions:
Proceeds from shares sold ......................... 11,722,437
------------
Net increase (decrease) in net assets from
Portfolio share transactions .................... 11,722,437
------------
Increase (decrease) in net assets ................. 12,793,541
Net assets at beginning of period ................. 3,000,000
------------
Net assets at end of period ....................... $ 15,793,541
------------
Other Information
- --------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 3,000,000
------------
Shares sold ....................................... 10,740,947
------------
Net increase (decrease) in Portfolio shares ....... 10,740,947
------------
Shares outstanding at end of period ............... 13,740,947
------------
(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.
- --------------------------------------------------------------------------------
Period Ended December 31, 1999(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $1.000
---------
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) (a) --
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions .149
---------
- --------------------------------------------------------------------------------
Total from investment operations .149
- --------------------------------------------------------------------------------
Net asset value, end of period $1.149
---------
- --------------------------------------------------------------------------------
Total return (%) 14.93**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 15,794
- --------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.58*
- --------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.10*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.05)*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 53*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
108 | Kemper Variable Series-
KVS Growth and Income Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
KVS Growth Opportunities Portfolio
While technology stocks registered the market's most dramatic gains as 1999 drew
to a close, other sectors also fared moderately well and the market finished
higher. Notably, this strength came despite a persistent rise in interest rates,
increasing uneasiness surrounding the inflation outlook and growing concerns
that the U.S. economy was expanding too quickly for its own good.
The portfolio performed well in this environment with returns of 16.43% since
its inception on October 29, 1999 through the end of 1999, and outpaced the S&P
500, which returned 8.04% for the same period. Wireless handset leader Nokia
continued higher, aided by a strong third-quarter earnings release and
accelerating industry-wide growth. Analysts now believe the number of cellular
subscribers worldwide will top one billion by 2002, a full year ahead of earlier
estimates. This affirmed our longtime belief that the industry's impressive
growth rate is sustainable, and we look for Nokia's current dominance of the
communications market to widen in coming years.
Our media positions also turned in an impressive performance. The announced
merger in September between CBS and Viacom was well-received by the market, and
our position in Viacom gained as a result. AT&T Corp.-Liberty Media and Time
Warner also traded higher, aided by the strongest advertising market on record
and merger-related excitement.
Despite these and other gains, there were disappointments. Rising interest rates
held back rate-sensitive financial shares, and our position in Fannie Mae gave
ground as a result. Drug maker Schering-Plough also slipped, as the environment
for large-cap pharmaceuticals remained depressed.
Looking forward, continued strength in the U.S. economy, the benign passing of
the Y2K bug and a noticeable improvement in the economic outlook overseas could
pressure interest rates and keep markets volatile. Meanwhile, we will continue
to add only those positions we feel are capable of performing well in any
environment, leveraging our hands-on research in an effort to provide the very
best returns possible in an increasingly uncertain market.
E. Marc Pinto
Lead Portfolio Manager
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.
Kemper Variable Series- | 109
KVS Growth Opportunities Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
KVS Growth Opportunities Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreements 6.4%
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, dated
12/31/99 at 2.8%, to be repurchased at
$800,000 on 1/3/2000 (b) ----------------
(Cost $800,000) ............................. $800,000 $ 800,000
----------------
Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks 93.6%
- --------------------------------------------------------------------------------
Communications 12.9%
Cellular Telephone 10.6%
Nextel Communications, Inc. "A"* .............. 2,575 265,547
Nokia Oy A (ADR) .............................. 3,475 660,250
Sprint Corp. (PCS Group)* ..................... 2,375 243,438
Vodafone Group PLC (ADR) ...................... 3,025 149,738
----------------
1,318,973
----------------
Telephone/Communications 2.3%
Compania Telefonica Nacional de
Espana SA (ADR)* ............................ 3,630 286,089
----------------
Consumer Discretionary 9.2%
Department & Chain Stores 4.7%
Costco Wholesale Corp.* ....................... 2,025 184,781
Home Depot, Inc. .............................. 3,713 254,538
Wal-Mart Stores, Inc. ......................... 2,175 150,347
----------------
589,666
----------------
Hotels & Casinos 2.1%
MGM Grand, Inc.* .............................. 5,125 257,852
----------------
Specialty Retail 2.4%
Staples Inc.* ................................. 14,170 294,028
----------------
Consumer Staples 2.5%
Alcohol & Tobacco 1.5%
Anheuser-Busch Companies, Inc. ................ 2,600 184,275
----------------
Packaging Goods/Cosmetics 1.0%
Colgate-Palmolive Co. ......................... 1,950 126,750
----------------
Durables 1.7%
Telecommunications Equipment
Lucent Technologies, Inc. ..................... 2,875 215,086
----------------
Energy 2.6%
Oil/Gas Transmission
Enron Corp. ................................... 7,350 326,156
----------------
Shares Value
- --------------------------------------------------------------------------------
Financial 10.5%
Banks 2.4%
Bank of New York Co., Inc. .................... 7,575 $ 303,000
----------------
Consumer Finance 4.3%
American Express Co. .......................... 1,525 253,531
Citigroup, Inc. ............................... 4,950 275,034
----------------
528,565
----------------
Other Financial Companies 3.8%
Federal National Mortgage Association ......... 2,875 179,508
Morgan Stanley Dean Witter & Co. .............. 2,075 296,206
----------------
475,714
----------------
Health 3.3%
Pharmaceuticals
Schering-Plough Corp. ......................... 5,650 238,359
Warner-Lambert Co. ............................ 2,175 178,214
----------------
416,573
----------------
Manufacturing 4.1%
Diversified Machinery 3.9%
General Electric Co. .......................... 3,125 483,594
----------------
Machinery/Components/Controls 0.2%
Pitney Bowes, Inc. ............................ 650 31,403
----------------
Media 16.1%
Broadcasting & Entertainment 7.8%
Time Warner, Inc. ............................. 8,125 588,555
Viacom Inc. "B"* .............................. 6,250 377,734
----------------
966,289
----------------
Cable Television 8.3%
AT&T Corp-- Liberty Media Group* .............. 6,150 349,013
Cablevision Systems Corp. "A"* ................ 2,750 207,625
Comcast Corp. "A" ............................. 9,575 481,144
----------------
1,037,782
----------------
Service Industries 1.6%
Investment
Charles Schwab Corp. .......................... 5,325 204,347
----------------
Technology 28.9%
Computer Software 4.3%
Microsoft Corp. * ............................. 4,575 534,131
----------------
Diverse Electronic Products 5.9%
Applied Materials, Inc. * ..................... 2,300 291,381
Dell Computer Corp. * ......................... 8,750 446,250
----------------
737,631
----------------
EDP Peripherals 3.5%
EMC Corp. * ................................... 4,025 439,731
----------------
The accompanying notes are an integral part of the financial statements.
110 | Kemper Variable Series-
KVS Growth Opportunities Portfolio
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
Electronic Components/Distributors 3.5%
Cisco Systems, Inc. * ......................... 4,050 $433,856
--------------------
Electronic Data Processing 2.5%
Sun Microsystems, Inc. * ...................... 4,000 309,750
--------------------
Precision Instruments 2.2%
ASM Lithography NV * .......................... 2,400 273,000
--------------------
Semiconductors 7.0%
Linear Technology Corp. ....................... 6,050 432,953
Shares Value
- --------------------------------------------------------------------------------
Taiwan Semiconductor
Manufacturing Co. * ......................... 5,325 $239,625
Texas Instruments, Inc. ....................... 2,050 198,594
--------------------
871,172
--------------------
Transportation 0.2%
Airlines
Southwest Airlines Co. ........................ 1,775 28,733
--------------------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $10,458,036) 11,674,146
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $11,258,036) (a) $12,474,146
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to KVS Growth Opportunities Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $11,258,036. At December 31,
1999, net unrealized appreciation for all securities based on tax cost was
$1,216,110. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $1,285,136 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$69,026.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 111
KVS Growth Opportunities Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- -----------------------------------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $11,258,036) ....................... $ 12,474,146
Cash ......................................................................... 4,370,672
Dividends receivable ......................................................... 1,535
Interest receivable .......................................................... 62
Receivable for Portfolio shares sold ......................................... 324,077
Due from Adviser ............................................................. 1,518
------------
Total assets ................................................................. 17,172,010
Liabilities
- -----------------------------------------------------------------------------------------------
Other accrued expenses and payables .......................................... 13,428
------------
Total liabilities ............................................................ 13,428
- -----------------------------------------------------------------------------------------------
Net assets $ 17,158,582
- -----------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments .................... 1,216,110
Paid-in capital .............................................................. 15,942,472
- -----------------------------------------------------------------------------------------------
Net assets, at value $ 17,158,582
- -----------------------------------------------------------------------------------------------
Net Asset Value
- -----------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($17,158,582 / 14,736,962
outstanding shares of beneficial interest, $.01 par value, unlimited number of --------------
shares authorized) ........................................................... $ 1.164
--------------
- -----------------------------------------------------------------------------------------------
Statement of Operations for the period ended December 31, 1999 (a)
- -----------------------------------------------------------------------------------------------
Investment Income
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $15) ............................. $ 2,949
Interest ..................................................................... 6,856
------------
Total income ................................................................. 9,805
------------
Expenses:
Management fee ............................................................... 11,726
Custodian and accounting fees ................................................ 6,973
Auditing ..................................................................... 7,992
Legal ........................................................................ 143
Trustees' fees and expenses .................................................. 143
Reports to shareholders ...................................................... 686
Registration fees ............................................................ 5,917
Other ........................................................................ 143
------------
Total expenses, before expense reductions .................................... 33,723
Expense reductions ........................................................... (19,528)
------------
Total expenses, after expense reductions ..................................... 14,195
- -----------------------------------------------------------------------------------------------
Net investment income (loss) (4,390)
- -----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .................................... 802
Net unrealized appreciation (depreciation) during the period on investments .. 1,216,110
- -----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 1,216,912
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 1,212,522
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999.
The accompanying notes are an integral part of the financial statements.
112 | Kemper Variable Series-
KVS Growth Opportunities Portfolio
<PAGE>
Statements of Changes in Net Assets
Period Ended
December 31,
Increase (Decrease) in Net Assets 1999(a)
- --------------------------------------------------------------------------------
Operations:
Net investment income (loss) ................ $ (4,390)
Net realized gain (loss) .................... 802
Net unrealized appreciation (depreciation) on ------------
investment transactions during the period . 1,216,110
------------
Net increase (decrease) in net assets
resulting from operations ................. 1,212,522
------------
Portfolio share transactions:
Proceeds from shares sold ................... 12,946,060
------------
Net increase (decrease) in net assets from
Portfolio share transactions .............. 12,946,060
------------
Increase (decrease) in net assets ........... 14,158,582
Net assets at beginning of period ........... 3,000,000
------------
Net assets at end of period ................. $ 17,158,582
------------
Other Information
- --------------------------------------------------------------------------------
Shares outstanding at beginning of period ... 3,000,000
------------
Shares sold ................................. 11,736,962
------------
Net increase (decrease) in Portfolio shares . 11,736,962
------------
Shares outstanding at end of period ......... 14,736,962
------------
(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.
- --------------------------------------------------------------------------------
Period Ended December 31, 1999(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $1.000
---------
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) (a) --
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions .164
---------
- --------------------------------------------------------------------------------
Total from investment operations .164
- --------------------------------------------------------------------------------
Net asset value, end of period $1.164
---------
- --------------------------------------------------------------------------------
Total return (%) 16.43**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 17,159
- --------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.60*
- --------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.10*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.34)*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 1*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the period from October 29, 1999 (commencement of operations) to
December 31, 1999.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 113
KVS Growth Opportunities Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Index 500 Portfolio
Early in the second half of the year, broad market equity returns were negative
across the small-, mid- and large- capitalization asset classes, a situation
that reversed in the fourth quarter. Likewise, small-cap stocks, which were
outperformed by large-caps in the third quarter, staged a comeback in the fourth
quarter. Large growth stocks, however, continued to hold their lead over large
value stocks throughout the period.
While the S&P 500 Index returned 11.73%, the portfolio lagged slightly behind
with a return of 9.55% from its inception on September 9, 1999 through the end
of 1999.
The year's big news was that the Russell 2000 Index outperformed the S&P 500
Index on an annual basis for the first time in five years.
Top stocks in the S&P 500 Index in 1999 included QUALCOMM Inc., Sprint Corp
(PCS) and Nextel Communications Inc-A. The worst performers included McKesson
HBOC, Rite Aid and Service Corp International. Sectors that posted strong
returns for the year included technology, capital goods and basic materials,
while weaker performers included health care, utilities and transportation.
We saw 41 additions and deletions to the index for the twelve-month period.
Among the 13 changes to the index for the third quarter were Lexmark
International replacing Raychem and QUALCOMM replacing Transamerica. Fourth
quarter additions include Yahoo Inc., which replaced Laidlaw; Teradyne, which
replaced Case Corp.; and T. Rowe Price Associates, which replaced Data General
Corp.
James A. Creighton
Lead Portfolio Manager
"Standard & Poor's (R)," "S& P (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.
114 | Kemper Variable Series-
Kemper Index 500 Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
Kemper Index 500 Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
Repurchase Agreements 0.8%
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 2.8%,
1/3/2000 to be repurchased at $240,056 (b) ----------------
(Cost $240,000) ............................. $240,000 $ 240,000
----------------
- --------------------------------------------------------------------------------
Short-Term Notes 6.3%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. 1.5%, ----------------
1/3/2000 (Cost $1,999,833) .................. 2,000,000 1,999,833
----------------
- --------------------------------------------------------------------------------
U.S. Treasury Obligations 0.5%
- --------------------------------------------------------------------------------
U.S. Treasury Bill, 5.1%, 4/6/2000 ----------------
(Cost $157,824) (c) ......................... 160,000 157,827
----------------
Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks 92.4%
- --------------------------------------------------------------------------------
Consumer Discretionary 7.0%
Apparel & Shoes 0.2%
Liz Claiborne, Inc. ........................... 241 9,068
Nike, Inc. "B" ................................ 749 37,122
----------------
46,190
----------------
Department & Chain Stores 5.4%
Bed Bath & Beyond, Inc.* ...................... 434 15,082
Best Buy Co., Inc.* ........................... 395 19,824
CVS Corp. ..................................... 1,057 42,214
Consolidated Stores Corp.* .................... 78 1,268
Costco Wholesale Corp.* ....................... 587 53,564
Dayton Hudson Corp. ........................... 964 70,794
Dollar General Corp. .......................... 781 17,768
Federated Department Stores, Inc.* ............ 493 24,927
Gap, Inc. ..................................... 1,937 89,102
Home Depot, Inc. .............................. 5,375 368,489
J.C. Penney Co., Inc. ......................... 834 16,628
Kmart Corp.* .................................. 1,530 15,396
Kohl's Corp.* ................................. 454 32,773
Lowe's Companies, Inc. ........................ 982 58,675
May Department Stores ......................... 989 31,895
Nordstrom, Inc. ............................... 389 10,187
Rite Aid Corp. ................................ 748 8,368
Sears, Roebuck & Co. .......................... 729 22,189
TJX Companies, Inc. (New) ..................... 828 16,922
The Limited, Inc. ............................. 510 22,089
Wal-Mart Stores, Inc. ......................... 10,457 722,840
Walgreen Co. .................................. 2,548 74,529
----------------
1,735,523
----------------
Shares Value
- --------------------------------------------------------------------------------
Home Furnishings 0.1%
Newell Rubbermaid, Inc. ....................... 707 $ 20,503
----------------
Hotels & Casinos 0.4%
Carnival Corp. "A" ............................ 1,403 67,081
Hilton Hotels Corp. ........................... 1,248 12,012
Marriott International, Inc. "A" .............. 780 24,619
Mirage Resorts, Inc.* ......................... 439 6,722
----------------
110,434
----------------
Recreational Products 0.1%
Hasbro, Inc. .................................. 428 8,159
Mattel, Inc. .................................. 749 9,831
----------------
17,990
----------------
Restaurants 0.5%
McDonald's Corp. .............................. 3,387 136,538
Tricon Global Restaurants* .................... 339 13,094
Wendy's International, Inc. ................... 172 3,548
----------------
153,180
----------------
Specialty Retail 0.3%
AutoZone, Inc.* ............................... 226 7,303
Circuit City Stores, Inc. ..................... 373 16,808
Office Depot, Inc.* ........................... 480 5,250
Staples, Inc.* ................................ 1,283 26,622
Tandy Corp. ................................... 379 18,642
Toys "R" Us, Inc.* ............................ 735 10,520
----------------
85,145
----------------
Consumer Staples 6.6%
Alcohol & Tobacco 0.9%
Adolph Coors Company .......................... 25 1,313
Anheuser-Busch Companies, Inc. ................ 1,175 83,278
Brown-Forman Corp "B" ......................... 59. 3,378
Philip Morris Companies, Inc. ................. 5,788 134,209
Seagram Co., Ltd. ............................. 1,181 53,071
UST, Inc. ..................................... 206 5,189
----------------
280,438
----------------
Consumer Electronics & Photographic 0.2%
Eastman Kodak Co. ............................. 848 56,180
Maytag Corp. .................................. 193 9,264
Polaroid Corp. ................................ 195 3,668
Whirlpool Corp. ............................... 123 8,003
----------------
77,115
----------------
Farming 0.0%
Archer-Daniels-Midland Co. .................... 943 11,493
----------------
Food & Beverage 3.3%
Albertson's, Inc. ............................. 1,158 37,346
Bestfoods ..................................... 678 35,637
Campbell Soup Co. ............................. 854 33,039
Coca-Cola Co., Inc. ........................... 5,743 334,530
Coca-Cola Enterprises ......................... 1,206 24,271
ConAgra, Inc. ................................. 1,437 32,422
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 115
Kemper Index 500 Portfolio
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
General Mills, Inc. ........................... 915 $ 32,711
H.J. Heinz Co. ................................ 1,017 40,489
Hershey Foods Corp. ........................... 216 10,260
Kellogg Co. ................................... 777 23,941
Kroger Co.* ................................... 2,242 42,318
Nabisco Group Holdings ........................ 1,076 11,433
PepsiCo, Inc. ................................. 3,274 115,409
Quaker Oats Co. ............................... 346 22,706
Ralston Purina Group .......................... 975 27,178
SUPERVALU, Inc. ............................... 99 1,980
Safeway, Inc.* ................................ 1,135 40,363
Sara Lee Corp. ................................ 2,421 53,413
Unilever NV(New York Shares) .................. 1,478 80,459
William Wrigley Jr. Co. ....................... 303 25,130
Winn-Dixie Stores, Inc. ....................... 201 4,811
----------------
1,029,846
----------------
Package Goods/Cosmetics 2.2%
Avon Products, Inc. ........................... 577 19,041
Clorox Co. .................................... 657 33,096
Colgate-Palmolive Co. ......................... 1,475 95,875
Gillette Co. .................................. 2,671 110,012
Kimberly-Clark Corp. .......................... 1,399 91,285
Procter & Gamble Co. .......................... 3,075 336,905
----------------
686,214
----------------
Textiles 0.0%
VF Corp. ...................................... 80 2,400
----------------
Health 8.5%
Biotechnology 0.5%
Amgen, Inc.* .................................. 2,510 150,757
----------------
Health Industry Services 0.4%
Cardinal Health, Inc. ......................... 685 32,794
HEALTHSOUTH Corp.* ............................ 1,047 5,628
IMS Health, Inc. .............................. 857 23,300
McKesson HBOC, Inc. ........................... 438 9,882
Quintiles Transnational Corp.* ................ 326 6,092
United Healthcare Corp. ....................... 426 22,631
Wellpoint Health Networks, Inc.*............... 120 7,913
----------------
108,240
----------------
Hospital Management 0.2%
Columbia/HCA Healthcare Corp. ................. 1,514 44,379
Tenet Healthcare Corp.* ....................... 922 21,667
----------------
66,046
----------------
Medical Supply & Specialty 0.8%
Bausch & Lomb, Inc. ........................... 194 13,277
Baxter International, Inc. .................... 796 49,999
Becton, Dickinson & Co. ....................... 710 18,993
Biomet, Inc. .................................. 337 13,480
Boston Scientific Corp.* ...................... 994 21,744
C.R. Bard, Inc. ............................... 136 7,208
Guidant Corp.* ................................ 774 36,378
Medtronic, Inc. ............................... 2,681 97,689
----------------
258,768
----------------
Shares Value
- --------------------------------------------------------------------------------
Pharmaceuticals 6.6%
Abbott Laboratories ........................... 3,827 $ 138,968
Allergan, Inc. ................................ 393 19,552
Alza Corp.* ................................... 144 4,986
American Home Products Corp. .................. 3,244 127,935
Bristol-Myers Squibb Co. ...................... 4,580 293,979
Eli Lilly & Co. ............................... 2,524 167,846
Johnson & Johnson ............................. 3,211 299,024
Merck & Co., Inc. ............................. 5,440 364,820
Pfizer, Inc. .................................. 9,006 292,132
Pharmacia & Upjohn, Inc. ...................... 1,365 61,425
Schering-Plough Corp. ......................... 3,615 152,508
Warner-Lambert Co. ............................ 1,963 160,843
Watson Pharmaceuticals, Inc.* ................. 271 9,705
----------------
2,093,723
----------------
Communications 8.5%
Cellular Telephone 0.6%
Nextel Communications, Inc "A"* ............... 822. 84,769
Sprint Corp. (PCS Group)* ..................... 1,043 106,908
----------------
191,677
----------------
Telephone/Communications 7.9%
ADC Telecommunications, Inc.* ................. 401 29,098
AT&T Corp. .................................... 7,448 377,986
Alltel Corp. .................................. 836 69,127
Bell Atlantic Corp. ........................... 3,804 234,184
BellSouth Corp. ............................... 4,293 200,966
CenturyTel, Inc. .............................. 406 19,234
GTE Corp. ..................................... 2,352 165,963
Global Crossing Ltd.* ......................... 1,736 86,800
MCI WorldCom, Inc.* ........................... 6,626 351,566
Nortel Networks Corp. ......................... 3,210 324,210
SBC Communications, Inc. ...................... 7,928 386,490
Sprint Corp. .................................. 2,106 141,760
US West, Inc. ................................. 1,313 94,536
----------------
2,481,920
----------------
Financial 11.4%
Banks 4.8%
AmSouth Bancorp ............................... 590 11,394
BB&T Corp. .................................... 484 13,250
Bank One Corp. ................................ 2,964 95,033
Bank of America Corp. ......................... 3,875 194,477
Bank of New York Co., Inc. .................... 1,957 78,280
Chase Manhattan Corp. ......................... 1,855 144,110
Comerica, Inc. ................................ 528 24,651
Fifth Third Bancorp ........................... 843 61,855
First Union Corp. ............................. 2,594 85,116
Firstar Corp. ................................. 2,673 56,467
FleetBoston Financial Corp. ................... 1,888 65,726
Golden West Financial Corp. ................... 249 8,342
Huntington Bancshares, Inc. ................... 257 6,136
J.P. Morgan & Co., Inc. ....................... 344 43,559
KeyCorp ....................................... 999 22,103
MBNA Corp. .................................... 2,032 55,372
National City Corp. ........................... 1,797 42,566
The accompanying notes are an integral part of the financial statements.
116 | Kemper Variable Series-
Kemper Index 500 Portfolio
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
Northern Trust Corp. .......................... 638 $ 33,814
Old Kent Financial Corp. ...................... 200 7,075
PNC Bank Corp. ................................ 887 39,472
Regions Financial Corp. ....................... 530 13,316
Republic New York Corp. ....................... 333 23,976
SouthTrust Corp. .............................. 522 19,738
State Street Corp. ............................ 293 21,407
Summit Bancorp ................................ 143 4,379
SunTrust Banks, Inc. .......................... 880 60,555
US Bancorp .................................... 2,076 49,435
Union Planters Corp. .......................... 134 5,285
Wachovia Corp. ................................ 590 40,120
Washington Mutual, Inc. ....................... 1,419 36,894
Wells Fargo Co. ............................... 3,687 149,093
----------------
1,512,996
----------------
Insurance 2.8%
AFLAC, Inc. ................................... 574 27,086
Aetna, Inc. ................................... 418 23,330
Allstate Corp. ................................ 2,170 52,080
American General Corp. ........................ 699 53,037
American International Group, Inc. ............ 3,593 388,493
Aon Corp. ..................................... 749 29,960
Chubb Corp. ................................... 440 24,778
Cigna Corp. ................................... 530 42,698
Cincinnati Financial Corp. .................... 271 8,452
Conseco, Inc. ................................. 507 9,063
Hartford Financial Services Group, Inc. ....... 650 30,794
Jefferson Pilot Corp. ......................... 151 10,306
Lincoln National Corp. ........................ 612 24,480
MBIA, Inc. .................................... 148 7,816
MGIC Investment Corp. ......................... 175 10,533
Marsh & McLennan Companies, Inc. .............. 712 68,130
Progressive Corp. ............................. 97 7,093
Providian Financial Corp. ..................... 294 26,772
Safeco Corp. .................................. 521 12,960
St. Paul Companies, Inc. ...................... 628 21,156
Torchmark Corp. ............................... 102 2,964
UnumProvident Corp. ........................... 412 13,210
----------------
895,191
----------------
Consumer Finance 2.5%
American Express Co. .......................... 1,013 168,411
Associates First Capital Corp. ................ 1,932 53,009
Capital One Finance Corp. ..................... 385 18,552
Citigroup, Inc. ............................... 7,858 436,610
Household International, Inc. ................. 1,224 45,594
Mellon Financial Corp. ........................ 1,026 34,948
SLM Holding Corp. ............................. 333 14,069
Synovus Financial Corp. ....................... 342 6,797
----------------
777,990
----------------
Other Financial Companies 1.3%
Countrywide Credit Industries, Inc. ........... 180 4,545
Federal Home Loan Mortgage Corp. .............. 1,789 84,195
Federal National Mortgage Association ......... 2,307 144,043
Shares Value
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter & Co. .............. 1,357 $ 193,712
----------------
426,495
----------------
Media 3.4%
Advertising 0.2%
Interpublic Group of Companies, Inc. .......... 777 44,823
Omnicom Group, Inc. ........................... 477 47,700
----------------
92,523
----------------
Broadcasting & Entertainment 2.0%
CBS Corp.* .................................... 1,917 122,568
Clear Channel Communications, Inc.* ........... 560 49,980
Time Warner, Inc. ............................. 2,952 213,836
Viacom, Inc "B"* .............................. 1,766. 106,733
Walt Disney Co. ............................... 4,663 136,393
----------------
629,510
----------------
Cable Television 0.7%
Comcast Corp "A" .............................. 1,883. 94,621
Media One Group, Inc.* ........................ 1,489 114,374
----------------
208,995
----------------
Print Media 0.5%
Gannett Co., Inc. ............................. 763 62,232
Harcourt General, Inc. ........................ 207 8,332
Knight-Ridder, Inc. ........................... 264 15,708
New York Times Co "A" ......................... 489. 24,022
Times Mirror Co "A" ........................... .110 7,370
Tribune Co. ................................... 657 36,176
----------------
153,840
----------------
Service Industries 3.0%
EDP Services 0.7%
Automatic Data Processing, Inc. ............... 1,621 87,331
Electronic Data Systems Corp. ................. 1,019 68,209
First Data Corp. .............................. 1,114 54,934
----------------
210,474
----------------
Environmental Services 0.2%
Allied Waste Industries* ...................... 57 502
Transocean Offshore Inc. ...................... 473 15,943
Waste Management, Inc. ........................ 1,722 29,597
----------------
46,042
----------------
Investment 0.7%
Bear Stearns Companies, Inc. .................. 367 15,689
Charles Schwab Corp. .......................... 1,967 75,484
Franklin Resources, Inc. ...................... 420 13,466
Lehman Brothers Holdings, Inc. ................ 271 22,950
Merrill Lynch & Co., Inc. ..................... 806 67,301
Paine Webber Group, Inc. ...................... 314 12,187
T. Rowe Price & Associates, Inc. .............. 360 13,298
----------------
220,375
----------------
Miscellaneous Commercial Services 0.2%
Ecolab, Inc. .................................. 186 7,277
Paychex, Inc. ................................. 690 27,600
Sysco Corp. ................................... 925 36,595
----------------
71,472
----------------
Miscellaneous Consumer Services 1.0%
Cendant Corp.* ................................ 1,846 49,034
H & R Block, Inc. ............................. 120 5,250
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 117
Kemper Index 500 Portfolio
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
Service Corp. International ................... 476 $ 3,302
Yahoo!, Inc.* ................................. 616 266,536
----------------
324,122
----------------
Printing/Publishing 0.2%
Deluxe Corp. .................................. 300 8,231
Dow Jones & Co., Inc. ......................... 216 14,688
Dun & Bradstreet Corp. (New) .................. 238 7,021
Equifax, Inc. ................................. 148 3,487
McGraw-Hill, Inc. ............................. 354 21,815
R.R. Donnelley & Sons Co. ..................... 229 5,682
----------------
60,924
----------------
Durables 4.1%
Aerospace 0.7%
Boeing Co. .................................... 2,068 85,951
Lockheed Martin Corp. ......................... 1,129 24,697
Northrop Grumman Corp. ........................ 158 8,542
Rockwell International Corp. .................. 572 27,385
United Technologies Corp. ..................... 1,114 72,410
----------------
218,985
----------------
Automobiles 1.0%
Cummins Engine Co., Inc. ...................... 157 7,585
Dana Corp. .................................... 558 16,705
Delphi Automotive Systems Corp. ............... 1,014 15,971
Eaton Corp. ................................... 182 13,218
Ford Motor Co. ................................ 2,845 152,030
General Motors Corp. .......................... 1,410 102,489
Genuine Parts Co. ............................. 121 3,002
Navistar International Corp.* ................. 213 10,091
----------------
321,091
----------------
Construction/Agricultural 0.2%
Caterpillar, Inc. ............................. 967 45,509
Deere & Co. ................................... 389 16,873
PACCAR, Inc. .................................. 268 11,876
----------------
74,258
----------------
Leasing Companies 0.0%
Ryder System, Inc. ............................ 243 5,938
----------------
Telecommunications Equipment 2.1%
Andrew Corp.* ................................. 292 5,530
General Instrument Corp.* ..................... 365 31,025
Lucent Technologies, Inc. ..................... 7,358 550,470
Scientific-Atlanta, Inc. ...................... 206 11,459
Tellabs, Inc.* ................................ 892 57,255
----------------
655,739
----------------
Tires 0.1%
Goodyear Tire & Rubber Co. .................... 545 15,362
----------------
Manufacturing 9.6%
Chemicals 1.3%
B.F. Goodrich Co. ............................. 181 4,978
Dow Chemical Co. .............................. 580 77,503
E.I. du Pont de Nemours & Co. ................. 2,594 170,880
Eastman Chemical Co. .......................... 292 13,925
Hercules, Inc. ................................ 74 2,063
Shares Value
- --------------------------------------------------------------------------------
Mead Corp. .................................... 187 $ 8,123
Monsanto Co. .................................. 1,625 57,891
Praxair, Inc. ................................. 480 24,150
Rohm & Haas Co. ............................... 354 14,403
Sigma-Aldrich Corp. ........................... 392 11,785
Union Carbide Corp. ........................... 340 22,695
----------------
408,396
----------------
Containers & Paper 0.5%
Boise Cascade Corp. ........................... 213 8,627
Champion International Corp. .................. 304 18,829
Crown Cork & Seal Co. ......................... 251 5,616
Fort James Corp. .............................. 545 14,919
International Paper Co. ....................... 859 48,480
Owens-Illinois, Inc.* ......................... 255 6,391
Pactiv Corp.* ................................. 581 6,173
Sealed Air Corp.* ............................. 264 13,679
Temple-Inland, Inc. ........................... 208 13,715
Willamette Industries ......................... 182 8,452
----------------
144,881
----------------
Diversified Manufacturing 1.6%
Cooper Industries, Inc. ....................... 99 4,003
Dover Corp. ................................... 601 27,270
Fortune Brands, Inc. .......................... 215 7,108
Honeywell International, Inc. ................. 1,973 113,817
ITT Industries, Inc. .......................... 180 6,019
Leggett & Platt ............................... 200 4,288
Loews Corp. ................................... 351 21,301
Minnesota Mining & Manufacturing Co. .......... 1,039 101,692
TRW, Inc. ..................................... 316 16,412
Textron, Inc. ................................. 441 33,819
Tyco International Ltd. (New) ................. 3,948 153,479
----------------
489,208
----------------
Electrical Products 4.0%
Emerson Electric Co. .......................... 1,163 66,727
General Electric Co. .......................... 7,730 1,196,218
----------------
1,262,945
----------------
Hand Tools 0.1%
Black & Decker Corp. .......................... 305 15,936
Danaher Corp. ................................. 331 15,971
Stanley Works ................................. 305 9,188
----------------
41,095
----------------
Industrial Specialty 1.3%
Avery Dennison Corp. .......................... 348 25,361
Centex Corp. .................................. 261 6,443
Corning, Inc. ................................. 622 80,199
Johnson Controls, Inc. ........................ 274 15,584
PPG Industries, Inc. .......................... 276 17,267
QUALCOMM Inc.* ................................ 1,540 271,233
Sherwin-Williams Co. .......................... 578 12,138
----------------
428,225
----------------
Machinery/Components/Controls 0.5% ............
Illinois Tool Works, Inc. ..................... 807 54,523
Ingersoll-Rand Co. ............................ 488 26,871
Millipore Corp. ............................... 172 6,644
The accompanying notes are an integral part of the financial statements.
118 | Kemper Variable Series-
Kemper Index 500 Portfolio
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
PE Corp-PE Biosystems Group .................. 278 $ 33,445
Parker-Hannifin Corp. ........................ 349 17,908
Pitney Bowes, Inc. ........................... 741 35,800
Tenneco Automotive, Inc. ..................... 1 9
------------------
175,200
------------------
Office Equipment/Supplies 0.2%
Lanier Worldwide, Inc.* ...................... 164 636
Lexmark International Group, Inc "A"* ........ 348 31,494
Xerox Corp. .................................. 1,746 39,612
------------------
71,742
------------------
Specialty Chemicals 0.0%
Air Products & Chemicals, Inc. ............... 200 6,713
------------------
Wholesale Distributors 0.1%
W.W. Grainger, Inc. .......................... 327 15,633
------------------
Technology 21.5%
Computer Software 7.8%
Adobe Systems, Inc. .......................... 337 22,663
America Online, Inc.* ........................ 5,254 396,349
Autodesk, Inc. ............................... 234 7,898
BMC Software, Inc.* .......................... 527 42,127
Citrix Systems, Inc.* ........................ 216 26,568
Computer Associates International, Inc. ...... 1,339 93,646
Compuware Corp.* ............................. 880 32,780
Comverse Technologies, Inc.* ................. 194 28,082
Microsoft Corp.* ............................. 12,189 1,423,066
Oracle Corp.* ................................ 3,341 374,401
Parametric Technology Corp.* ................. 750 20,297
PeopleSoft, Inc.* ............................ 665 14,173
------------------
2,482,050
------------------
Diverse Electronic Products 2.3%
Applied Materials, Inc.* ..................... 863 109,331
Dell Computer Corp.* ......................... 5,949 303,399
KLA Tencor Corp.* ............................ 185 20,602
Molex Incorporated ........................... 438 24,829
Motorola, Inc. ............................... 1,402 206,445
Solectron Corp.* ............................. 741 70,488
Teradyne, Inc.* .............................. 354 23,364
------------------
758,458
------------------
EDP Peripherals 0.9%
EMC Corp.* ................................... 2,371 259,032
Network Appliance, Inc.* ..................... 390 32,394
------------------
291,426
------------------
Electronic Components/Distributiors 3.0%
Adaptec, Inc.* ............................... 302 15,060
Analog Devices, Inc.* ........................ 460 42,780
Cisco Systems, Inc.* ......................... 7,775 832,897
Gateway, Inc.* ............................... 695 50,083
------------------
940,820
------------------
Electronic Data Processing 3.8%
Apple Computer, Inc.* ........................ 344 35,368
Ceridian Corp.* .............................. 244 5,261
Compaq Computer Corp. ........................ 3,893 105,354
Hewlett-Packard Co. .......................... 2,464 280,742
Shares Value
- --------------------------------------------------------------------------------
International Business Machines Corp. ........ 4,223 $ 456,084
Seagate Technology, Inc.* .................... 513 23,887
Silicon Graphics, Inc.* ...................... 686 6,731
Sun Microsystems, Inc.* ...................... 3,648 282,492
Unisys Corp. ................................. 598 19,099
------------------
1,215,018
------------------
Military Electronics 0.3%
Computer Sciences Corp.* ..................... 362 34,254
General Dynamics Corp. ....................... 364 19,201
Raytheon Co "B" .............................. 945. 25,102
------------------
78,557
------------------
Office/Plant Automation 0.3%
3Com Corp.* .................................. 796 37,412
Cabletron Systems, Inc.* ..................... 483 12,558
Novell, Inc.* ................................ 883 35,265
------------------
85,235
------------------
Semiconductors 3.1%
Advanced Micro Devices, Inc.* ................ 447 12,935
Intel Corp. .................................. 7,881 648,705
LSI Logic Corp.* ............................. 410 27,675
Micron Technology, Inc.* ..................... 555 43,151
National Semiconductor Corp.* ................ 438 18,752
Texas Instruments, Inc. ...................... 1,852 179,413
Xilinx, Inc.* ................................ 821 37,330
------------------
967,961
------------------
Energy 5.5%
Engineering 0.0%
Fluor Corp. .................................. 195 8,946
McDermott International, Inc. ................ 361 3,272
------------------
12,218
------------------
Oil & Gas Production 1.4%
Anadarko Petroleum Corp. ..................... 434 14,810
Apache Corp. ................................. 361 13,332
Burlington Resources, Inc. ................... 522 17,259
Coastal Corp. ................................ 320 11,340
Conoco, Inc "B" .............................. 1,802. 44,825
Kerr-McGee Corp. ............................. 300 18,600
Occidental Petroleum Corp. ................... 836 18,079
Royal Dutch Petroleum Co. (New York
shares) ...................................... 5,027 303,819
Tosco Corporation ............................ 214 5,818
Union Pacific Resources Group ................ 299 3,812
------------------
451,694
------------------
Oil Companies 3.2%
Amerada Hess Corp. ........................... 150 8,513
Atlantic Richfield Co. ....................... 671 58,042
Chevron Corp. ................................ 1,542 133,576
Exxon Mobil Corp. (c) ........................ 8,089 651,670
Phillips Petroleum Co. ....................... 766 36,002
Texaco, Inc. ................................. 1,222 66,370
USX Marathon Group ........................... 894 22,071
Unocal Corp. ................................. 647 21,715
------------------
997,959
------------------
Oil/Gas Transmission 0.5%
El Paso Energy Corporation ................... 626 24,297
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 119
Kemper Index 500 Portfolio
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
Enron Corp. ................................... 1,754 $ 77,834
Sempra Energy ................................. 195 3,388
Sunoco, Inc. .................................. 59 1,387
Williams Companies, Inc. ...................... 1,216 37,164
--------------------
144,070
--------------------
Oilfield Services/Equipment 0.4%
Baker Hughes, Inc. ............................ 995 20,957
Halliburton Co. ............................... 1,011 40,693
Rowan Companies, Inc.* ........................ 318 6,895
Schlumberger Ltd. ............................. 1,192 67,050
--------------------
135,595
--------------------
Metals & Minerals 0.7%
Precious Metals 0.1%
Barrick Gold Corp. ............................ 1,142 20,199
Freeport McMoRan Copper &
Gold, Inc. "B"* ............................... 174. 3,676
Newmont Mining Corp. .......................... 499 12,226
Placer Dome Inc. .............................. 829 8,837
--------------------
44,938
--------------------
Steel & Metals 0.6%
Alcan Aluminium Ltd. .......................... 679 27,918
Alcoa, Inc. ................................... 1,043 86,569
Allegheny Teledyne, Inc. ...................... 300 6,731
Inco Ltd.* .................................... 441 10,364
Nucor Corp. ................................... 173 9,483
Phelps Dodge Corp. ............................ 90 6,041
Reynolds Metals Co. ........................... 215 16,474
USX-US Steel Group, Inc. ...................... 349 11,517
--------------------
175,097
--------------------
Construction 0.4%
Building Materials 0.0%
Vulcan Materials Co. .......................... 139 5,550
--------------------
Building Products 0.2 %
Armstrong World Industries, Inc. .............. 106 3,538
Georgia Pacific Group ......................... 299 15,174
Masco Corp. ................................... 1,281 32,505
Owens Corning ................................. 87 1,680
--------------------
52,897
--------------------
Forest Products 0.2%
Louisiana-Pacific Corp. ....................... 476 6,783
Weyerhaeuser Co. .............................. 642 46,104
--------------------
52,887
--------------------
Transportation 0.6%
Air Freight 0.1%
FDX Corp.* .................................... 700 28,656
--------------------
Airlines 0.2%
AMR Corp.* .................................... 264 17,688
Delta Air Lines, Inc. ......................... 358 17,833
Shares Value
- --------------------------------------------------------------------------------
Southwest Airlines Co. ........................ 1,485 $ 24,038
US Airways Group, Inc.* ....................... 147 4,713
--------------------
64,272
--------------------
Railroads 0.3%
Burlington Northern Santa Fe Corp. ............ 778 18,867
CSX Corp. ..................................... 469 14,713
Kansas City Southern Industries, Inc. ......... 311 23,208
Norfolk Southern Corp. ........................ 960 19,680
Union Pacific Corp. ........................... 740 32,283
--------------------
108,751
--------------------
Utilities 1.6%
Electric Utilities 1.4%
AES Corp.* .................................... 561 41,935
Ameren Corp. .................................. 91 2,980
American Electric Power Co. ................... 201 6,457
CINergy Corp. ................................. 117 2,823
CMS Energy Corp. .............................. 320 9,980
Carolina Power & Light Co. .................... 291 8,857
Central & South West Corp. .................... 158 3,160
Consolidated Edison, Inc. ..................... 690 23,805
Constellation Energy Group .................... 89 2,581
DTE Energy Co. ................................ 529 16,597
Dominion Resources, Inc. ...................... 648 25,434
Duke Energy Corp. ............................. 1,034 51,829
Edison International .......................... 921 24,119
Entergy Corp. ................................. 816 21,012
FPL Group, Inc. ............................... 603 25,816
FirstEnergy Corp. ............................. 654 14,838
Florida Progress Corp. ........................ 87 3,681
GPU, Inc. ..................................... 216 6,467
New Century Energies, Inc. .................... 50 1,519
Northern States Power Co. ..................... 128 2,496
P G & E Corp. ................................. 1,189 24,373
PP&L Resources, Inc. .......................... 47 1,073
Peco Energy Co. ............................... 556 19,321
Public Service Enterprise Group ............... 739 25,726
Southern Co. .................................. 1,951 45,849
Texas Utilities Co., Inc. ..................... 829 29,481
Unicom Corp. .................................. 741 24,824
--------------------
467,033
--------------------
Natural Gas Distribution 0.2%
Columbia Energy Group ......................... 230 14,548
Consolidated Natural Gas Corp. ................ 344 22,339
Eastern Enterprises ........................... 138 7,926
Reliant Energy, Inc. .......................... 323 7,389
--------------------
52,202
--------------------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $27,383,258) 29,187,306
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $29,780,915) (a) $31,584,966
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
120 | Kemper Variable Series-
Kemper Index 500 Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Notes to Kemper Index 500 Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $29,781,948. At December 31,
1999, net unrealized appreciation for all securities based on tax cost was
$1,803,018. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $2,666,647 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$863,629.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
(c) At December 31, 1999, these securities, in part or in whole, have been
segregated to cover initial margin requirements for open futures contracts.
- --------------------------------------------------------------------------------
At December 31, 1999, open futures contracts purchased were as follows:
Aggregate Market
Futures Expiration Date Contracts Face Value ($) Value ($)
--------------------- --------------- --------- ------------ -----------
S&P 500 Index ....... March 18, 2000 6 2,207,336 2,226,750
------
Total unrealized appreciation on open futures contracts ............... 19,414
------
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 121
Kemper Index 500 Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- ------------------------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $29,780,915) ....................... $ 31,584,966
Receivable for Porfolio shares sold .......................................... 721,756
Dividends receivable ......................................................... 22,133
Receivable for daily variation margin on open futures contracts .............. 3,438
Other assets ................................................................. 20,096
------------
Total assets ................................................................. 32,352,389
Liabilities
- ------------------------------------------------------------------------------------------------
Due to custodian bank ........................................................ 2,437
Payable for investments purchased ............................................ 7,971
Accrued management fee ....................................................... 4,053
Other accrued expenses and payables .......................................... 4,966
------------
Total liabilities ............................................................ 19,427
- ------------------------------------------------------------------------------------------------
Net assets, at value $ 32,332,962
- ------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................... 179,390
Net unrealized appreciation (depreciation) on:
Investments ................................................................ 1,804,051
Futures .................................................................... 19,414
Accumulated net realized gain (loss) ......................................... 84,159
Paid-in capital .............................................................. 30,245,948
- ------------------------------------------------------------------------------------------------
Net assets, at value $ 32,332,962
- ------------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($32,332,962 / 29,512,927
outstanding shares of beneficial interest, $.01 par value, unlimited number of -------------
shares authorized) ......................................................... $ 1.096
------------
- ------------------------------------------------------------------------------------------------
Statement of Operations for the period ended December 31, 1999 (a)
- ------------------------------------------------------------------------------------------------
Investment Income
- ------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $99) ............................. $ 49,626
Interest ..................................................................... 53,007
Other income ................................................................. 103,378
------------
Total income ................................................................. 206,011
------------
Expenses:
Management fee ............................................................... 21,834
Custodian and accounting fee ................................................. 11,281
Auditing ..................................................................... 2,662
Legal ........................................................................ 484
Trustees' fees and expenses .................................................. 1,915
Reports to shareholders ...................................................... 485
Other ........................................................................ 1,950
------------
Total expenses, before expense reductions .................................... 40,611
Expense reductions ........................................................... (13,986)
------------
Total expenses, after expense reductions ..................................... 26,625
- ------------------------------------------------------------------------------------------------
Net investment income (loss) 179,386
- ------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................................. 15
Futures ...................................................................... 84,149
------------
84,164
------------
Net unrealized appreciation (depreciation) during the period on
Investments .................................................................. 1,804,051
Futures ...................................................................... 19,414
------------
1,823,465
- ------------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 1,907,629
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 2,087,015
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from September 1, 1999 (commencement of operations) to
December 31, 1999.
The accompanying notes are an integral part of the financial statements.
122 | Kemper Variable Series-
Kemper Index 500 Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Period Ended
December 31,
Increase (Decrease) in Net Assets 1999(a)
- --------------------------------------------------------------------------------
Operations:
Net investment income (loss) ............................ $ 179,386
Net realized gain (loss) ................................ 84,164
Net unrealized appreciation (depreciation) on
investment transactions during the period ............. 1,823,465
------------
Net increase (decrease) in net assets resulting
from operations ....................................... 2,087,015
Portfolio share transactions:
Proceeds from shares sold ............................... 25,333,953
Cost of shares redeemed ................................. (88,006)
------------
Net increase (decrease) in net assets from
Portfolio share transactions .......................... 25,245,947
------------
Increase (decrease) in net assets ....................... 27,332,962
Net assets at beginning of period ....................... 5,000,000
Net assets at end of period (including ------------
undistributed net investment income (loss) of $179,390) $ 32,332,962
------------
Other Information
- --------------------------------------------------------------------------------
Shares outstanding at beginning of period ............... 5,000,000
------------
Shares sold ............................................. 24,596,356
Shares redeemed ......................................... (83,429)
------------
Net increase (decrease) in Portfolio shares ............. 24,512,927
------------
Shares outstanding at end of period ..................... 29,512,927
------------
(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.
- --------------------------------------------------------------------------------
Period Ended December 31, 1999(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $1.000
---------
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) (a) .010
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .086
---------
- --------------------------------------------------------------------------------
Total from investment operations .096
- --------------------------------------------------------------------------------
Net asset value, end of period $1.096
---------
- --------------------------------------------------------------------------------
Total return (%) 9.55**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 32,333
- --------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .84*
- --------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .55*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.72*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 1*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the period from September 1, 1999 (commencement of operations) to
December 31, 1999.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 123
Kemper Index 500 Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Small Cap Value Portfolio
Beginning in August, the portfolio's new management team focused on bringing the
portfolio in line with our new relative value discipline -- a process that we
believe will leave the portfolio well-positioned for the future. Specifically,
we built the number of holdings in the portfolio and trimmed stocks that had
outgrown the Russell 2000's market-cap guidelines. Our efforts also included
bringing the portfolio's sector weightings in line with those of the Russell
2000. Rather than having large sector over- or underweightings, we seek
undervalued stocks within each major economic sector.
Technology was perhaps the portfolio's strongest-performing sector during most
of the year, and it finished the year particularly well. Nonetheless, we expect
that ongoing changes to the portfolio will put us in a better position to find
and profit from potential opportunities throughout the small-cap universe when
the market's focus begins to broaden once again.
James M. Eysenbach
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Small Cap Value Portfolio from
5/1/1996 to 12/31/1999
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Kemper Small Cap
Value Portfolio Russell 2000 Index Consumer Price Index
1996.25 10000 10000 10000
1996.5 9295 9589 10006
1996.75 9528 9622 10076
1997 10186 10123 10128
1997.25 9975 9600 10217
1997.5 11620 11156 10236
1997.75 12922 12817 10294
1998 12399 12387 10301
1998.25 13567 13632 10360
1998.5 12683 12996 10410
1998.75 9833 10377 10447
1999 11004 12070 10466
1999.25 10184 11415 10535
1999.5 11662 13190 10612
1999.75 10812 12356 10721
2000 11312 14635 10746
The Russell 2000 Index is a capitalization-weighted price-only index which is
composed of 2,000 of the smallest stocks (on the basis of capitalization) in the
Russell 3000 Index. The largest company in the index has an approximate market
cap of $591 million. The Consumer Price Index is a statistical measure of
change, over time, in the prices of goods and services in major expenditure
groups for all urban consumers. It is generally considered to be a measure of
inflation.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return^1
- -----------------------------------------------------------------------------------------------------
Life of
For the periods ended December 31, 1999 1-year portfolio
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Small Cap Value Portfolio 2.80% 3.42% (Since 5/1/1996)
- -----------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends. Average annual total
return reflects annualized change while 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.
Investments by the portfolio in small companies present greater risk of loss
than investments in larger, more established companies.
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-
Kemper Small Cap Value Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Small Cap Value Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
Repurchase Agreements 2.9%
- --------------------------------------------------------------------------------
State Street Bank and Trust Company,
dated 12/31/1999 at 2.8%, to be
repurchased at $2,795 on 1/3/2000 (b) ---------
(Cost $2,794) ............................... $ 2,794 $ 2,794
---------
Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks 97.1%
- --------------------------------------------------------------------------------
Consumer Discretionary 6.0%
Apparel & Shoes 1.8%
Columbia Sportswear Co. ....................... 8,200 176
Deb Shops, Inc. ............................... 14,700 272
Genesco Inc. .................................. 17,500 228
K-Swiss Inc. "A" .............................. 10,900 202
Movado Group, Inc. ............................ 5,700 124
Tarrant Apparel Group* ........................ 9,000 87
The Buckle, Inc.* ............................. 2,900 43
Wolverine World Wide, Inc. .................... 52,000 569
---------
1,701
---------
Department & Chains Stores 0.8%
Dress Barn Inc. ............................... 12,200 203
Goody's Family Clothing, Inc. ................. 16,100 87
Pacific Sunwear of California Inc.* ........... 7,400 236
Shopko Stores, Inc. ........................... 9,100 209
---------
735
---------
Home Furnishings 0.3%
American Woodmark Corp. ....................... 8,500 206
Haverty Furniture Co., Inc. ................... 5,400 68
---------
274
---------
Hotels & Casinos 0.5%
Anchor Gaming* ................................ 5,100 221
Hollywood Park, Inc. .......................... 10,900 245
---------
466
---------
Recreational Products 0.6%
Fairfield Communities, Inc. ................... 12,600 136
THQ, Inc.* .................................... 18,900 438
---------
574
---------
Restaurants 1.7%
Applebee's International Inc. ................. 4,600 136
CEC Entertainment, Inc.* ...................... 12,200 346
Lone Star Steakhouse & Saloon, Inc.* .......... 28,400 253
NPC International, Inc.* ...................... 27,100 214
O'Charley's Inc.* ............................. 21,900 288
Ruby Tuesday, Inc. ............................ 15,200 276
Ryan's Family Steak Houses, Inc.* ............. 17,100 145
---------
1,658
---------
Shares Value
- --------------------------------------------------------------------------------
Specialty Retail 0.3%
Cellstar Corp. ................................ 16,500 $ 163
Trans World Entertainment Corp.* .............. 14,200 149
---------
312
---------
Consumer Staples 5.5%
Alcohol & Tobacco 0.2%
Schweitzer-Mauduit International, Inc. ........ 13,500 181
---------
Consumer Electronic & Photographic 0.4%
Salton, Inc.* ................................. 11,700 391
---------
Consumer Specialties 0.9%
Russ Berrie & Co., Inc. ....................... 4,800 126
Sola International, Inc.* ..................... 52,200 724
---------
850
---------
Food & Beverage 2.3%
Earthgrains Co. ............................... 12,900 208
Fresh Del Monte Produce Inc.* ................. 55,000 495
Imperial Sugar Co. ............................ 23,900 79
J & J Snack Foods Corp.* ...................... 18,600 381
Jack in the Box Inc.* ......................... 13,900 288
Michael Foods, Inc. ........................... 5,100 126
Performance Food Group Co.* ................... 17,000 414
The Grand Union Co. ........................... 18,500 187
---------
2,178
---------
Package Goods/Cosmetics 0.3%
Chattem, Inc. ................................. 13,200 251
---------
Textiles 1.4%
Nautica Enterprises, Inc.* .................... 37,700 426
Polymer Group, Inc. ........................... 11,100 203
Springs Industries, Inc. "A" .................. 18,200 727
---------
1,356
---------
Health 8.7%
Biotechnology 0.3%
Bio-Rad Laboratories, Inc. "A"* ............... 8,100 189
Catalytica, Inc.* ............................. 4,800 65
---------
254
---------
Health Industry Services 3.2%
AmeriPath, Inc.* .............................. 31,000 254
Covance, Inc. ................................. 4,300 46
Hanger Orthopedic Group, Inc.* ................ 20,100 201
Hooper Holmes ................................. 6,200 160
Magellan Health Services, Inc.* ............... 25,900 163
PAREXEL International Corporation* ............ 100,000 1,181
Quest Diagnostics Inc.* ....................... 10,000 306
Res-Care, Inc.* ............................... 17,700 226
Superior Consultant Holdings Corp.* ........... 7,900 113
Syncor International Corp.* ................... 10,300 300
US Oncology, Inc.* ............................ 29,400 145
---------
3,095
---------
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 125
Kemper Small Cap Value Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- --------------------------------------------------------------------------------
Hospital Management 1.4%
Coventry Health Care, Inc. ............................. 36,500 $ 246
Province Healthcare Co.* ............................... 17,100 325
Quorom Health Group, Inc.* ............................. 80,700 752
------
1,323
------
Medical Supply & Specialty 2.9%
Acuson Corporation* .................................... 19,000 239
Bacou USA, Inc.* ....................................... 16,600 250
Conmed Corp. ........................................... 48,500 1,255
Cooper Cos ............................................. 9,000 271
Theragenics Corp.* ..................................... 11,700 106
Twinlab Corp.* ......................................... 30,800 244
Vital Signs Inc. ....................................... 14,900 341
Wesley Jessen VisionCare, Inc.* ........................ 1,400 53
------
2,759
------
Pharmaceuticals 0.9%
Advance Paradigm, Inc.* ................................ 9,800 211
Alpharma Inc. .......................................... 3,600 111
Medco Research Inc.* ................................... 13,800 415
Rexall Sundown, Inc.* .................................. 10,700 110
------
847
------
Communications 2.7%
Telephone/Communications
AVT Corp.* ............................................. 6,900 324
CT Communications, Inc. ................................ 4,000 224
CapRock Communications Corp.* .......................... 4,300 140
Commonwealth Telephone
Enterprises, Inc. ...................................... 3,900 206
General Communication, Inc. "A" ........................ 23,700 104
IDT Corp.* ............................................. 1,700 32
North Pittsburgh Systems, Inc. ......................... 19,300 285
Pacific Gateway Exchange, Inc.* ........................ 14,900 254
Plantronics, Inc.* ..................................... 2,600 186
US LEC Corp. CL "A"* ................................... 5,000 161
Xircom, Inc.* .......................................... 8,200 615
------
2,531
------
Financial 13.5%
Banks 6.0%
BSB Bancorp, Inc. ...................................... 10,100 195
Commercial Federal Corp. ............................... 38,250 681
Cullen\Frost Bankers, Inc. ............................. 21,700 559
Dime Community Bancshares .............................. 9,700 180
Downey Financial Corp. ................................. 7,500 151
First Citizens BancShares, Inc. "A" .................... 2,500 174
First Federal Financial Corp. .......................... 17,700 249
First Republic Bank .................................... 10,400 244
First Washington Bancorp, Inc. ......................... 12,400 183
GBC Bancorp ............................................ 15,600 301
Imperial Bancorp* ...................................... 42,700 1,030
MAF Bancorp, Inc. ...................................... 7,100 149
PFF Bancorp, Inc. ...................................... 18,000 349
St. Francis Capital Corp. .............................. 14,000 261
UST Corp ............................................... 8,500 270
Webster Financial Corp. ................................ 28,100 662
------
5,638
------
Shares Value
- --------------------------------------------------------------------------------
Insurance 4.6%
AmerUS Life Holdings, Inc. ............................. 8,500 $ 196
CNA Surety Corp. ....................................... 17,700 230
Delphi Financial Group, Inc. "A" ....................... 6,528 196
Farm Family Holdings, Inc. ............................. 9,500 401
First American Financial Co. ........................... 15,700 195
Foremost Corporation of America ........................ 9,900 281
Fremont General Corp. .................................. 73,000 538
LandAmerica Financial Group, Inc. ...................... 10,000 184
PICO Holdings, Inc.* ................................... 3,300 41
PMA Capital Corp. ...................................... 12,900 256
Philadelphia Consolidated Holding Corp.* ............... 16,100 233
RLI Corp. .............................................. 10,600 360
SCPIE Holdings Inc. .................................... 6,900 222
Selective Insurance Group, Inc. ........................ 11,900 205
Stewart Information Services Corp. ..................... 11,100 148
The Midland Company .................................... 5,700 118
Trenwick Group, Inc. ................................... 9,800 166
White Mountains Insurance Group, Inc. .................. 1,600 193
Zenith National Insurance Corp. ........................ 12,100 250
------
4,413
------
Consumer Finance 0.3%
New Century Financial Corp.* ........................... 19,600 309
------
Other Financial Companies 1.1%
Advanta Corp. "A" ...................................... 10,200 186
Bay View Capital Corp. ................................. 16,100 228
Phoenix Investment Partners, Ltd. ...................... 37,700 306
Resource America, Inc. "A" ............................. 18,600 147
Walter Industries, Inc. ................................ 19,100 207
------
1,074
------
Real Estate 1.5%
Castle & Cooke, Inc.* .................................. 15,300 194
Prentiss Properties Trust (REIT) ....................... 46,500 977
Redwood Trust, Inc. .................................... 18,000 225
------
1,396
------
Media 2.1%
Broadcasting & Entertainment 0.3%
AMC Entertainment, Inc. ................................ 32,100 277
------
Print Media 1.8%
Valassis Communications, Inc.* ......................... 40,000 1,690
------
Service Industries 6.6%
EDP Services 1.5%
Analysts International Corp. ........................... 4,400 55
Keane, Inc. ............................................ 26,000 825
QRS Corp.* ............................................. 3,900 407
Systems & Computer Technology Corp.* ................... 11,300 184
------
1,471
------
Environmental Services 0.4%
URS Corp. .............................................. 16,500 358
------
The accompanying notes are an integral part of the financial statements.
126 | Kemper Variable Series-
Kemper Small Cap Value Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- --------------------------------------------------------------------------------
Investment 0.4%
Raymond James Financial, Inc. .......................... 11,500 $ 215
Southwest Securities Group, Inc. ....................... 7,500 205
------
420
------
Miscellaneous Commercial Services 2.9%
Bell & Howell Holdings Co.* ............................ 13,800 439
Century Business Services, Inc.* ....................... 24,200 204
Computer Task Group Inc. ............................... 22,600 335
First Consulting Group, Inc. ........................... 4,500 70
IT Group, Inc.* ........................................ 15,800 145
Kelly Services, Inc. "A" ............................... 9,600 241
Lason, Inc.* ........................................... 11,100 122
Mastech Corp.* ......................................... 2,000 49
Morrison Knudsen Corp.* ................................ 7,800 61
Personnel Group of America, Inc.* ...................... 15,500 157
Source Information Management Co.* ..................... 4,400 74
Syntel, Inc.* .......................................... 19,300 312
Technology Solutions Co.* .............................. 10,100 331
Volt Information Sciences, Inc.* ....................... 9,000 215
------
2,755
------
Miscellaneous Consumer Services 1.2%
CDI Corp.* ............................................. 11,700 282
Group Maintenance America Corp.* ....................... 79,100 845
------
1,127
------
Printing/Publishing 0.2%
Mail-Well, Inc.* ....................................... 13,700 185
------
Durables 4.6%
Aerospace 1.1%
Aeroflex, Inc.* ........................................ 21,500 223
Alliant Techsystems, Inc.* ............................. 10,400 648
Primex Technologies, Inc. .............................. 7,300 152
------
1,023
------
Automobiles 1.0%
Borg-Warner Automotive Inc. ............................ 16,300 660
Oshkosk Truck Corp. "B" ................................ 8,250 242
------
902
------
Construction/Agricultural Equipment 0.1%
Terex Corp. ............................................ 4,400 122
------
Leasing Companies 2.1%
Aaron Rents, Inc. ...................................... 8,100 144
Dollar Thrifty Automotive Group, Inc. .................. 79,100 1,893
------
2,037
------
Telecommunications Equipment 0.3%
Inter-Tel, Inc. ........................................ 10,300 258
------
Manufacturing 9.3%
Containers & Paper 0.2%
P.H. Glatfelter Company ................................ 13,500 197
------
Diversified Manufacturing 2.3%
Ball Corporation ....................................... 13,500 532
Briggs & Stratton Corp. ................................ 12,500 670
Myers Industries, Inc. ................................. 49,192 775
Shares Value
- --------------------------------------------------------------------------------
ThermoQuest Corp.* ..................................... 23,600 $ 243
------
2,220
------
Electrical Products 0.7%
Blount International, Inc. ............................. 1 0
Methode Electronics "A" ................................ 13,300 427
Windmere-Durable Holdings, Inc. ........................ 15,100 257
------
684
------
Industrial Specialty 2.1%
Buckeye Technologies, Inc.* ............................ 26,800 399
Fleetwood Enterprises .................................. 30,000 619
Gardner Denver Inc. .................................... 6,300 105
General Cable Corp. .................................... 27,700 209
Lydall, Inc. ........................................... 19,200 127
Thermo BioAnalysis Corp.* .............................. 14,300 263
UNOVA, Inc.* ........................................... 23,700 308
------
2,030
------
Machinery/Components/Controls 4.1%
American Axle & Manufacturing
Holdings, Inc.* ........................................ 66,800 810
CIRCOR International, Inc. ............................. 23,000 237
Intermet Corp. ......................................... 61,600 716
RadiSys Corp.* ......................................... 4,500 230
Shaw Group, Inc.* ...................................... 35,800 906
Thermo Optek Corp.* .................................... 12,200 139
Watts Industries, Inc. "A" ............................. 46,000 678
Woodward Governor Co. .................................. 2,400 66
------
3,782
------
Technology 19.7%
Computer Software 8.0%
3Dfx Interactive, Inc.* ................................ 12,300 121
Activision, Inc.* ...................................... 21,000 321
Advanced Digital Information Corp.* .................... 5,000 243
Advent Software, Inc.* ................................. 3,400 219
Best Software, Inc.* ................................... 4,000 118
Cybex Computer Products Corp. .......................... 3,400 138
Epicor Software Corp. .................................. 43,000 218
Factset Research Systems Inc. .......................... 5,900 470
Great Plains Software, Inc.* ........................... 3,400 254
Hyperion Solutions Corp.* .............................. 7,500 326
IMRglobal Corp.* ....................................... 21,200 266
ISS Group, Inc.* ....................................... 3,300 235
InfoCure Corporation* .................................. 8,200 256
JDA Software Group, Inc.* .............................. 16,000 262
MAPICS, Inc.* .......................................... 15,000 189
MICROS Systems, Inc.* .................................. 8,000 592
MTI Technology Corp.* .................................. 14,900 549
MTS Systems Corp. ...................................... 31,100 241
Metro Information Services Inc.* ....................... 21,700 521
Remedy Corp.* .......................................... 8,000 379
Santa Cruz Operations Inc.* ............................ 39,700 1,206
Structural Dynamics Research Corp.* .................... 28,300 361
Unigraphics Solutions Inc.* ............................ 1,400 38
Verity, Inc.* .......................................... 5,200 221
------
7,744
------
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 127
Kemper Small Cap Value Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- --------------------------------------------------------------------------------
Diverse Electronic Products 0.6%
Cable Design Technologies Corp.* ....................... 11,500 $ 264
DSP Group, Inc. ........................................ 2,900 270
------
534
------
EDP Peripherals 0.7%
Gerber Scientific, Inc. ................................ 15,700 344
NeoMagic Corp.* ........................................ 26,400 289
------
633
------
Electronic Components/Distributors 2.6%
Apex Inc.* ............................................. 4,500 145
Belden, Inc. ........................................... 22,900 481
Benchmark Electronics, Inc.* ........................... 8,300 190
ITI Technologies, Inc.* ................................ 9,200 276
Kent Electronics Corp.* ................................ 3,400 77
Maxwell Technologies, Inc. ............................. 5,400 54
Pioneer-Standard Electronics, Inc. ..................... 25,500 368
Technitrol, Inc. ....................................... 19,900 886
------
2,477
------
Electronic Data Processing 1.6%
Computer Network Technology, Corp. ..................... 23,600 541
Information Resources, Inc.* ........................... 18,800 174
SAGA Systems, Inc.* .................................... 24,400 487
Sunquest Information Systems, Inc.* .................... 25,800 348
------
1,550
------
Military Electronics 0.7%
Tech-Sym Corp.* ........................................ 13,400 276
Titan Corp.* ........................................... 8,700 410
------
686
------
Office/Plant Automation 1.3%
CACI International, Inc.* .............................. 18,700 423
Kronos, Inc.* .......................................... 3,700 222
Mercury Computer Systems, Inc.* ........................ 9,800 343
Pinnacle Systems, Inc.* ................................ 1,400 57
Radiant Systems Inc.* .................................. 4,300 173
------
1,218
------
Precision Instruments 0.6%
Analogic Corp. ......................................... 6,800 224
Molecular Devices Corp.* ............................... 5,200 270
Moog Inc.* ............................................. 2,500 68
------
562
------
Semiconductors 3.6%
Alliance Semiconductor Corp.* .......................... 30,800 514
Alpha Industries ....................................... 4,400 252
Burr-Brown Corp.* ...................................... 44,888 1,622
Cree Research, Inc. .................................... 5,600 478
Etec Systems, Inc. ..................................... 3,800 171
Exar Corp. ............................................. 7,600 447
------
3,484
------
Energy 2.9%
Oil & Gas Production 1.4%
Atwood Oceanics, Inc.* ................................. 10,800 417
Basin Exploration, Inc.* ............................... 5,200 92
Cross Timbers Oil Company .............................. 18,300 166
Tesoro Petroleum Corp.* ................................ 59,500 688
------
1,363
------
Shares Value
- --------------------------------------------------------------------------------
Oil Companies 0.2%
Giant Industries, Inc. ................................. 18,500 $ 155
------
Oilfield Services/Equipment 1.3%
Oceaneering International, Inc.* ....................... 24,900 372
Parker Drilling Co.* ................................... 17,000 54
Seitel, Inc. ........................................... 33,800 228
Varco International, Inc. .............................. 30,900 315
Veritas DGC Inc.* ...................................... 19,500 273
------
1,242
------
Metals & Minerals 2.7%
Steel & Metals
AMCOL International Corp. .............................. 100,350 1,618
Gibraltar Steel Corporation ............................ 5,100 119
IMCO Recycling Inc. .................................... 16,300 206
Quanex Corp. ........................................... 26,100 666
------
2,609
------
Construction 4.0%
Building Materials 2.0%
Elcor Corp. ............................................ 36,575 1,102
Florida Rock Industries, Inc. .......................... 10,200 351
Southdown, Inc. ........................................ 8,200 423
Universal Forest Products, Inc. ........................ 9,100 134
------
2,010
------
Building Products 0.6%
CoStar Group Inc. ...................................... 800 29
Emcor Group, Inc. ...................................... 10,000 182
Genlyte Group, Inc. .................................... 4,900 105
Nortek, Inc.* .......................................... 7,700 216
------
532
------
Homebuilding 1.3%
Del Webb Corp. ......................................... 26,200 653
MDC Holdings, Inc. ..................................... 12,600 198
NVR Inc.* .............................................. 4,300 205
Standard Pacific Corp. ................................. 13,200 145
------
1,201
------
Transportation 3.8%
Air Freight 0.7%
Airborne Freight Corp. ................................. 29,900 658
------
Airlines 1.7%
America West Holdings Corp. "B"* ....................... 75,500 1,567
------
Railroads 0.8%
Trinity Industries, Inc. ............................... 26,500 754
------
Trucking 0.6%
M.S. Carriers Inc.* .................................... 7,000 167
Roadway Express, Inc. .................................. 11,400 246
Yellow Corp.* .......................................... 11,400 192
------
605
------
Utilities 5.0%
Electric Utilities 3.7%
Anixter International Inc.* ............................ 16,700 344
El Paso Electric Co. ................................... 150,000 1,472
The accompanying notes are an integral part of the financial statements.
128 | Kemper Variable Series-
Kemper Small Cap Value Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- --------------------------------------------------------------------------------
Public Service Co. of New Mexico ....................... 26,100 $ 424
TNP Enterprises, Inc. .................................. 30,300 1,250
------
3,490
------
Natural Gas Distribution 1.3%
Energen Corp. .......................................... 21,800 394
Shares Value
- --------------------------------------------------------------------------------
NUI Corp. .............................................. 16,500 $ 435
ONEOK, Inc. ............................................ 4,700 118
South Jersey Industries, Inc. .......................... 11,200 319
------
1,266
------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $88,789) 92,444
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $91,583) (a) $ 95,238
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper Small Cap Value Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $91,579. At December 31, 1999,
net unrealized appreciation for all securities based on tax cost was
$3,659. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$15,362 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $11,703.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 129
Kemper Small Cap Value Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
- ------------------------------------------------------------------------------------------
(in thousands)
- ------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- ------------------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $91,583) ......................... $ 95,238
Receivable for investments sold ............................................ 307
Dividends receivable ....................................................... 78
Receivable for Portfolio shares sold ....................................... 51
---------
Total assets ............................................................... 95,674
Liabilities
- ------------------------------------------------------------------------------------------
Due to custodian bank ...................................................... 310
Payable for Portfolio shares redeemed ...................................... 87
Accrued management fee ..................................................... 61
Other accrued expenses and payables ........................................ 23
---------
Total liabilities .......................................................... 481
- ------------------------------------------------------------------------------------------
Net assets, at value $ 95,193
- ------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................. 324
Net unrealized appreciation (depreciation) on investments .................. 3,655
Accumulated net realized gain (loss) ....................................... (9,951)
Paid-in capital ............................................................ 101,165
- ------------------------------------------------------------------------------------------
Net assets, at value $ 95,193
- ------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($95,193 / 87,737 outstanding
shares of beneficial interest, $.01 par value, unlimited number of shares ---------
authorized) .............................................................. $ 1.085
---------
- ------------------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- ------------------------------------------------------------------------------------------
Investment Income
- ------------------------------------------------------------------------------------------
Dividends (less foreign taxes withheld of $3) .............................. $ 1,137
Interest ................................................................... 333
---------
Total income ............................................................... 1,470
---------
Expenses:
Management fee ............................................................. 728
Custodian fees ............................................................. 30
Auditing ................................................................... 8
Legal ...................................................................... 2
Trustees' fees and expenses ................................................ 10
Reports to shareholders .................................................... 27
Other ...................................................................... 2
---------
Total expenses, before expense reductions .................................. 807
Expense reductions ......................................................... (3)
---------
Total expenses, after expense reductions ................................... 804
- ------------------------------------------------------------------------------------------
Net investment income (loss) 666
- ------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .................................. (6,661)
Net unrealized appreciation (depreciation) during the period on investments 8,073
- ------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 1,412
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 2,078
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
130 | Kemper Variable Series-
Kemper Small Cap Value Portfolio
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
- ---------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- ---------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) .......................................... $ 666 $ 1,076
Net realized gain (loss) .............................................. (6,661) (2,547)
Net unrealized appreciation (depreciation) on investment transactions
during the period ................................................... 8,073 (10,477)
--------- ---------
Net increase (decrease) in net assets resulting from operations ....... 2,078 (11,948)
Distributions to shareholders:
From net investment income ............................................ (889) --
--------- ---------
From net realized gains ............................................... -- (2,220)
--------- ---------
Fund share transactions:
Proceeds from shares sold ............................................. 20,971 48,651
Reinvestment of distributions ......................................... 889 2,220
Cost of shares redeemed ............................................... (29,865) (10,802)
--------- ---------
Net increase (decrease) in net assets from Portfolio share transactions (8,005) 40,069
--------- ---------
Increase (decrease) in net assets ..................................... (6,816) 25,901
Net assets at beginning of period ..................................... 102,009 76,108
Net assets at end of period (including undistributed net --------- ---------
investment income (loss) of $324 and $619, respectively) ............. $ 95,193 $ 102,009
--------- ---------
Other Information
- ---------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................. 95,758 62,003
--------- ---------
Shares sold ........................................................... 19,879 41,702
Shares issued to shareholders in reinvestment of distributions ........ 842 1,664
Shares redeemed ....................................................... (28,742) (9,611)
--------- ---------
Net increase (decrease) in Portfolio shares ........................... (8,021) 33,755
--------- ---------
Shares outstanding at end of period ................................... 87,737 95,758
--------- ---------
</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>
- ---------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998 1997 1996(b)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.065 1.227 1.019 1.000
-----------------------------------
- ---------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------
Net investment income (loss) .007(a) .009 .012 .013
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .023 (.141) .206 .006
-----------------------------------
- ---------------------------------------------------------------------------------------------
Total from investment operations .030 (.132) .218 .019
- ---------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------
Net investment income (.010) -- (.010) --
- ---------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.030) -- --
-----------------------------------
- ---------------------------------------------------------------------------------------------
Total distributions (.010) (.030) (.010) --
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $1.085 1.065 1.227 1.019
-----------------------------------
- ---------------------------------------------------------------------------------------------
Total return (%) 2.80 (11.25) 21.73 1.86**
- ---------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 95,193 102,009 76,108 13,307
- ---------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .84 .80 .84 .92*
- ---------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .83 .80 .84 .90*
- ---------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .69 1.15 1.18 2.23*
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 72 43 22 61*
- ---------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1996 (commencement of operations) to December
31, 1996.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
Kemper Variable Series- | 131
Kemper Small Cap Value Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper-Dreman Financial Services Portfolio
Due to interest rate fears, financial stocks were battered throughout the second
half of 1999, hampering the performance of the Kemper-Dreman Financial Services
Portfolio. Despite relatively strong earnings, even well-known companies with
solid growth prospects traded at decade-low valuations.
One factor that hindered portfolio performance was our light weighting of online
brokerage stocks, which enjoyed the market's favor throughout much of the year.
Nonetheless, we continue to believe that those issues are too speculative. We
also reduced our exposure to some larger money center banks, believing their
valuations have climbed too high, and redeployed those assets into regional
banks, which should benefit from merger and acquisition activity from the recent
passage of the new financial services reform act (the Gramm-Leach-Bliley Act of
1999).
One large holding that experienced difficulties during the year was Bank One,
which was hit hard due to reports of a downturn in their credit card business.
In our opinion, the company's credit card business is still viable and we see
strong, long-term growth potential for the bank as a whole.
Heading into 2000, we believe that financial stocks are well-positioned for a
comeback. Many companies, particularly banks, have diversified their businesses,
realizing a greater percentage of their earnings from services and fees and less
from interest rate-related loans. If these companies' earnings exceed
expectations and the sector benefits from merger and acquisition activity, the
group should enjoy positive performance. When and if that happens, our portfolio
will be well-positioned to benefit.
David N. Dreman
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper-Dreman Financial Services
Portfolio from 5/4/1998 to 12/31/1999
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Kemper-Dreman
Financial Services Standard & Poor's Consumer
Year Portfolio 500 Index Price Index
1998.25 10000 10000 10000
1998.5 9939 10406 10012
1998.75 8130 9370 10048
1999 9779 11367 10066
1999.25 10226 11933 10133
1999.5 10566 12775 10207
1999.75 9185 11977 10311
2000 9285 13759 10336
The Standard & Poor's 500 Index is an unmanged index generally representative of
the U.S. stock market. The Consumer Price Index is a statistical measure of
change, over time, in the prices of goods and services in major expenditure
groups for all urban consumers. It is generally considered to be a measure of
inflation.
- --------------------------------------------------------------------------------
Average Annual Total Return^1
- --------------------------------------------------------------------------------
Life of
For the periods ended December 31, 1999 1-year portfolio
- --------------------------------------------------------------------------------
Kemper-Dreman Financial Services Portfolio -5.05% -4.37% (Since 5/4/1998)
^1 Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends. Average annual total
return reflects annualized change while 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.
As a non-diversified portfolio, it can invest more than 5% of its assets in
the securities of 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 investment advisor has agreed to either limit, waive or reduce certain
fees temporarily for this portfolio; see the prospectus for complete details.
Without such limits, waivers or reductions, the performance figures for this
subaccount would be lower.
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.
132 | Kemper Variable Series--
Kemper-Dreman Financial Services Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper-Dreman Financial Services Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreements 2.1%
- --------------------------------------------------------------------------------
State Street Bank and Trust Company dated
12/31/1999 at 2.8%, to be repurchased at ---------
$581 on 1/3/2000 (Cost $581) (b).................. $ 581 $ 581
---------
Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks 97.9%
- --------------------------------------------------------------------------------
Financial 97.9%
Banks 46.4%
BancWest Corp. ....................................... 18,800 367
Bank One Corp. ....................................... 36,102 1,158
Bank of America Corp. ................................ 30,073 1,509
Chase Manhattan Corp. ................................ 13,300 1,033
Colonial BancGroup, Inc. ............................. 15,800 164
Corus Bankshares, Inc ................................ 6,700 161
First Union Corp. .................................... 28,150 924
FleetBoston Financial Corp. .......................... 31,336 1,091
Golden West Financial Corp. .......................... 3,900 131
J.P. Morgan & Co., Inc. .............................. 3,750 475
KeyCorp, "New" ....................................... 31,500 697
National Bank of Canada .............................. 32,700 419
North Fork Bancorporation, Inc. ...................... 8,200 144
PNC Bank Corp. ....................................... 19,200 854
People's Heritage Financial Group, Inc. .............. 8,600 129
Popular, Inc. ........................................ 10,100 282
Provident Financial Group ............................ 4,615 165
Republic New York Corp. .............................. 10,800 778
Summit Bancorp ....................................... 6,500 199
SunTrust Banks, Inc. ................................. 6,500 447
Washington Mutual, Inc. .............................. 11,770 306
Shares Value
- --------------------------------------------------------------------------------
Wells Fargo & Co. ................................. 30,000 $ 1,213
----------
12,646
----------
Insurance 20.9%
Aegon NV (ADR) .................................... 2,280 218
Allstate Corp. .................................... 18,105 434
American International Group, Inc. ................ 26,762 2,894
Chubb Corp. ....................................... 4,000 225
Cigna Corp. ....................................... 4,200 338
Jefferson Pilot Corp. ............................. 2,300 157
Lincoln National Corp. ............................ 5,300 212
Marsh & McLennan Companies, Inc. .................. 4,250 407
Ohio Casualty Corp. ............................... 21,300 342
Safeco Corp. ...................................... 6,500 162
St. Paul Companies, Inc. .......................... 5,300 178
Torchmark Corp. ................................... 4,500 131
----------
5,698
----------
Consumer Finance 13.4%
American Express Co. .............................. 7,100 1,180
Citigroup, Inc. ................................... 29,250 1,625
Household International, Inc. ..................... 6,400 239
Mellon Financial Corp. ............................ 11,300 385
SLM Holding Corp. ................................. 5,000 211
----------
3,640
----------
Other Financial Companies 17.2%
Bear Stearns Companies, Inc. ...................... 4,740 203
Federal Home Loan Mortgage Corp. .................. 18,020 848
Federal National Mortgage Association ............. 24,440 1,526
Franklin Resources, Inc. .......................... 5,600 179
Goldman Sachs Group, Inc. ......................... 2,700 254
Lehman Brothers Holdings, Inc. .................... 2,368 201
Merrill Lynch & Co., Inc. ......................... 8,600 718
Prison Realty Trust, Inc. (REIT) .................. 153,600 778
----------
4,707
----------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $28,838) 26,691
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $29,419) (a) $ 27,272
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper-Dreman Financial Services Portfolio of Investments
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $29,506. At December 31, 1999,
net unrealized depreciation for all securities based on tax cost was
$2,234. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$2,852 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $5,086.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
The accompanying notes are an integral part of the financial statements.
133 | Kemper Variable Series--
Kemper-Dreman Financial Services Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------
(in thousands)
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- ---------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $29,419) ......................... $ 27,272
Dividends receivable ....................................................... 45
Receivable for Portfolio shares sold ....................................... 152
Due from Adviser ........................................................... 25
--------
Total assets ............................................................... 27,494
Liabilities
- ---------------------------------------------------------------------------------------
Due to custodian bank ...................................................... 109
Payable for investments purchased .......................................... 40
Other accrued expenses and payables ........................................ 26
--------
Total liabilities .......................................................... 175
- ---------------------------------------------------------------------------------------
Net assets, at value $ 27,319
- ---------------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ................................. 392
Net unrealized appreciation (depreciation) on investments .................. (2,147)
Accumulated net realized gain (loss) ....................................... (55)
Paid-in capital ............................................................ 29,129
--------
- ---------------------------------------------------------------------------------------
Net assets, at value $ 27,319
- ---------------------------------------------------------------------------------------
Net Asset Value
- ---------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($27,319 / 29,557 outstanding
shares of beneficial interest, $.01 par value, unlimited number of shares --------
authorized) $ 0.924
--------
- ---------------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- ---------------------------------------------------------------------------------------
Investment Income
- ---------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $2) ............................ $ 637
Interest ................................................................... 33
--------
Total income ............................................................... 670
--------
Expenses:
Management fee ............................................................. 184
Custodian and accounting fees .............................................. 46
Auditing ................................................................... 1
Legal ...................................................................... 10
Trustees' fees and expenses ................................................ 4
Reports to shareholders .................................................... 2
Amortization of organization expenses ...................................... 7
--------
Total expenses, before expense reductions .................................. 254
Expense reductions ......................................................... (12)
--------
Total expenses, after expense reductions ................................... 242
- ---------------------------------------------------------------------------------------
Net investment income (loss) 428
- ---------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ---------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ................................................................ (54)
Foreign currency related transactions ...................................... 1
--------
(53)
Net unrealized appreciation (depreciation) during the period on investments (2,452)
- ---------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (2,505)
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (2,077)
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
134 | Kemper Variable Series--
Kemper-Dreman Financial Services Portfolio
<PAGE>
(in thousands)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
Increase (Decrease) in Net Assets 1999 1998(b)
- -----------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) ........................................................... $ 428 $ 70
Net realized gain (loss) ............................................................... (53) 3
Net unrealized appreciation (depreciation) on investment transactions during the period (2,452) 305
-------- --------
Net increase (decrease) in net assets resulting from operations ........................ (2,077) 378
-------- --------
Distributions to shareholders:
From net investment income ............................................................. (116) --
-------- --------
Portfolio share transactions:
Proceeds from shares sold .............................................................. 20,096 15,821
Reinvestment of distributions .......................................................... 116 --
Cost of shares redeemed ................................................................ (6,216) (684)
-------- --------
Net increase (decrease) in net assets from Portfolio share transactions ................ 13,996 15,137
-------- --------
Increase (decrease) in net assets ...................................................... 11,803 15,515
Net assets at beginning of period ...................................................... 15,516 1
Net assets at end of period (including undistributed net investment income of $392 and -------- --------
$70, respectively) .................................................................. $ 27,319 $ 15,516
-------- --------
Other Information
- --------------------------------------------------------------------------------
Shares outstanding at beginning of period .............................................. 15,868 1
-------- --------
Shares sold ............................................................................ 19,794 16,660
Shares issued to shareholders in reinvestment of distributions ......................... 106 --
Shares redeemed ........................................................................ (6,211) (793)
-------- --------
Net increase (decrease) in Portfolio shares ............................................ 13,689 15,867
-------- --------
Shares outstanding at end of period .................................................... 29,557 15,868
-------- --------
</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>
- -----------------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998(b)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ .978 1.000
------------------
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------
Net investment income (loss) .018(a) .004
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.067) (.026)
------------------
- -----------------------------------------------------------------------------------------------------
Total from investment operations (.049) (.022)
- -----------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------
From net investment income (.005) --
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $ .924 .978
------------------
- -----------------------------------------------------------------------------------------------------
Total return (%) (5.05) (2.20)**
- -----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 27,319 15,516
- -----------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.04 1.73*
- -----------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .99 .99*
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.75 1.29*
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 13 6*
- -----------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 4, 1998 (commencement of operations) to December
31, 1998.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
135 | Kemper Variable Series--
Kemper-Dreman Financial Services Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Global Income Portfolio
Two interest rate hikes here and a partial hedge against currency swings
slightly hampered performance of the Kemper Global Income Portfolio early in the
second half of 1999.
Unlike the benchmark, the portfolio maintains a partial hedge to protect against
currency swings. As a result, the portfolio didn't benefit as greatly from
third-quarter strength in the Japanese yen. We slowly unwound the yen hedge, a
move that helped the portfolio late in the year. A hedge against the euro
benefited the portfolio when that currency faltered midway through the fourth
quarter.
On the positive side, Japanese bonds helped boost the portfolio's returns
overall, although our European bonds floundered amid interest rate nervousness,
particularly in the United Kingdom.
Going forward, we don't plan any significant changes to the portfolio. We still
see signs of growth in Europe and Japan and believe the portfolio's current
makeup leaves it well-positioned for near-term opportunities.
Robert Stirling
Jan Faller
Co-Lead Portfolio Managers
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Global Income Portfolio from
5/1/1997 to 12/31/1999
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINED A LINE CHART HERE
LINE CHART DATA:
Kemper Global Salomon Brothers World Consumer
Income Portfolio Government Bond Index Price Index
1997.25 10000 10000 10000
1997.5 10059 10119 10012
1997.75 10277 10248 10068
1998 10287 10270 10075
1998.25 10407 10350 10133
1998.5 10566 10556 10181
1998.75 11237 11434 10218
1999 11417 11840 10237
1999.25 11087 11383 10304
1999.5 10717 10992 10379
1999.75 10853 11489 10486
2000 10749 11336 10511
The Salomon Brothers World Government Bond Index is an unmanaged index on a U.S.
dollar total return basis with all dividends reinvested and is composed of
government bonds from 14 countries. The maximum maturity is one year. Source:
Lipper Analytical Services, Inc. The Consumer Price Index is a statistical
measure of change, over time, in the prices of goods and services in major
expenditure groups for all urban consumers. It is generally considered to be a
measure of inflation.
- --------------------------------------------------------------------------------
Average Annual Total Return^1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life of
For the periods ended December 31, 1999 1-year portfolio
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Global Income Portfolio -5.85% 2.74% (Since 5/1/1997)
- -------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends. Average annual total
return reflects annualized change while 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.
As a non-diversified portfolio, it can invest more than 5% of its assets in
the securities of particular issuer. This presents greater risk of loss of
principal as the financial condition or market's assessment of such
securities changes.
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.
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.
136 | Kemper Variable Series -
Kemper Global Income Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
Kemper Global Income Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Money Market Instrument 9.9%
- --------------------------------------------------------------------------------
Chase Euro Time Deposit, 4.875%, ----------
due 1/3/2000 (Cost $532,000) ................. $532,000 $ 532,000
----------
- --------------------------------------------------------------------------------
Bonds 90.1%
- --------------------------------------------------------------------------------
British Pounds 7.7%
General Motors Acceptance Corp., 6.875%,
9/9/2004 ..................................... 160,000 255,794
United Kingdom Treasury Bond, 9%,
7/12/2011 .................................... 75,000 157,240
---------
413,034
---------
Euro 28.0%
Depfa Pfandbrief Bank, 4.75%, 7/15/2008 ......... 150,000 141,927
Federal Republic of Germany, 6.25%,
1/4/2024 ..................................... 155,000 162,631
Ford Motor Credit Corp., 3.75%,
7/12/2004 .................................... 260,000 245,561
French Treasury Note, 4.5%, 7/12/2003 ........... 360,000 361,041
Government of Spain, 4.5%, 7/30/2004 ............ 150,000 153,010
Kredit Fuer Wiederaufbau, 5%, 1/4/2009 .......... 245,000 236,378
Rheinische Hypo Bank, 4.5%, 8/26/2003 ........... 210,000 208,700
---------
1,509,248
---------
Japanese Yen 6.3%
Republic of Italy, 3.8%, 3/27/2008 .............. 30,000,000 342,123
---------
Norwegian Kroner 6.8%
Norweigan Government, 7%, 5/31/2001 ............. 2,890,000 365,763
U. S. Dollars 41.3%
Argentine Republic, Collateralized Par
Bond, Series L, Step-up Coupon, 6%,
3/31/2023 .................................... 18,000 11,835
Banco Nacional de Comercio Exterior
S.N.C., 7.25%, 2/2/2004 ...................... 30,000 27,975
Federative Republic of Brazil, Eligible
Interest, Floating Rate Bond, LIBOR plus
.8125%, (6.125%), 4/15/2006 .................. 7,520 6,594
Federative Republic of Brazil, New Money
Bond, Floating Rate Bond, LIBOR plus
.875%, (6.188%), 4/15/2009 ................... 15,000 12,188
Principal
Amount Value
- --------------------------------------------------------------------------------
Federative Republic of Brazil Global Bond,
10.125%, 5/15/2027 ............................ $ 15,000 $ 12,825
Government of Jamaica, 10.875%,
6/10/2005 ..................................... 25,000 23,688
Kingdom of Spain, 5.875%, 7/28/2008 .............. 200,000 184,245
Petroliam Nasional BHD, 8.875%,
8/1/2004 ...................................... 6,000 6,232
Republic of Argentina, 11%, 12/4/2005 ............ 9,000 8,798
Republic of Argentina, 11.75%, 4/7/2009 .......... 5,000 5,000
Republic of Brazil, 11.625%, 4/15/2004 ........... 12,000 11,970
Republic of Bulgaria, Floating Rate Bond,
LIBOR plus .8125%, (6.5%), 7/28/2011 .......... 28,000 22,120
Republic of Colombia, 7.625%, 2/15/2007 .......... 10,000 8,450
Republic of Columbia, 9.75%, 4/23/2009 ........... 7,000 6,545
Republic of Panama, Interest Reduction
Bond, Step-up Coupon, 4.25% to
7/17/2000, LIBOR plus .8125% to
7/17/2014 ..................................... 16,000 12,380
Republic of Panama, Past Due Interest Bond,
LIBOR plus .8125%, (6.5%), 7/17/2016 .......... 11,876 9,565
Republic of Peru, Floating Rate Interest
Reduction Bond, 3.75%, 3/7/2017 ............... 15,000 9,300
Republic of South Africa, 8.5%, 6/23/2017 ........ 15,000 13,650
Republic of Turkey, 9.875%, 2/23/2005 ............ 30,000 29,100
Republic of Venezuela Global, 9.25%,
9/15/2027 .................................... 21,000 13,965
Republic of the Philippines, 9.875%,
1/15/2019 ..................................... 13,000 12,834
Slovak Republic, 9.5%, 5/28/2003 ................. 5,000 5,075
Sunamerica Institute Fund, 5.75%,
2/16/2009 ..................................... 250,000 221,275
U.S. Treasury Bond, 7.5%, 11/15/2016 ............. 260,000 278,158
U.S. Treasury Bond, 7.5%, 11/15/2024 ............. 160,000 174,675
U.S. Treasury Bond, 8.5%, 2/15/2020 .............. 60,000 70,912
U.S. Treasury Note, 5.5%, 12/31/2000 ............. 215,000 213,691
U.S. Treasury Note, 5.625%, 12/31/2002 ........... 150,000 147,234
U.S. Treasury Note, 6%, 8/15/2004 ................ 115,000 113,203
U.S. Treasury Note, 7.875%, 8/15/2001 ............ 500,000 512,500
United Mexican States, 11.5%, 5/15/2026 .......... 35,000 41,650
---------
2,227,632
---------
- --------------------------------------------------------------------------------
Total Bonds (Cost $5,084,500) 4,857,800
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $5,616,500) (a) $5,389,800
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper Global Income Portfolio of Investments
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $5,618,845. At December 31,
1999, net unrealized depreciation for all securities based on tax cost was
$229,045. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$46,793 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $275,838.
137 | Kemper Variable Series -
Kemper Global Income Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (cost $5,616,500) ......................... $ 5,389,800
Cash .......................................................................... 7,585
Interest receivable ........................................................... 126,524
Receivable for Portfolio shares sold .......................................... 38,518
Unrealized appreciation on forward currency exchange contracts ................ 71,398
----------------
Total assets .................................................................. 5,633,825
Liabilities
- -------------------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed ......................................... 746
Unrealized depreciation on forward currency exchange contracts ................ 27,193
Accrued management fee ........................................................ 3,536
Other accrued expenses and payables ........................................... 3,696
----------------
Total liabilities ............................................................. 35,171
- -------------------------------------------------------------------------------------------------
Net assets, at value $ 5,598,654
- -------------------------------------------------------------------------------------------------
Net Assets
- -------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) .................................... 82,746
Net unrealized appreciation (depreciation) on:
Investments ................................................................. (226,700)
Foreign currency related transactions ....................................... 42,788
Accumulated net realized gain (loss) .......................................... (191,089)
Paid-in capital ............................................................... 5,890,909
- -------------------------------------------------------------------------------------------------
Net assets, at value $ 5,598,654
- -------------------------------------------------------------------------------------------------
Net Asset Value
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($5,598,654 / 5,678,787
outstanding shares of beneficial interest, $.01 par value, unlimited number ----------------
of shares authorized) ...................................................... $ .986
----------------
</TABLE>
- --------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
- -------------------------------------------------------------------------------------
<S> <C>
Interest ........................................................ $ 321,957
----------------
Expenses:
Management fee .................................................. 43,290
Custodian fees .................................................. 4,960
Auditing ........................................................ 1,100
Legal ........................................................... 800
Trustees' fees and expenses ..................................... 4,500
Reports to shareholders ......................................... 2,500
Other ........................................................... 2,427
----------------
Total expenses, before expense reductions ....................... 59,577
Expense reductions .............................................. (1,292)
----------------
Total expenses, after expense reductions ........................ 58,285
- -------------------------------------------------------------------------------------
Net investment income 263,672
- -------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ...................................................... (320,606)
Foreign currency related transactions ............................ 2,548
----------------
(318,058)
Net unrealized appreciation (depreciation) during the period on:
Investments ...................................................... (325,057)
Foreign currency related transactions ............................ 40,875
----------------
(284,182)
- -------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (602,240)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (338,568)
- -------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
138 | Kemper Variable Series -
Kemper Global Income Portfolio
<PAGE>
(in thousands)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income ................................................................. $ 263,672 $ 178,043
Net realized gain (loss) .............................................................. (318,058) 127,925
Net unrealized appreciation (depreciation) on investment transactions during the period (284,182) 127,827
----------- -----------
Net increase (decrease) in net assets resulting from operations ....................... (338,568) 433,795
Distributions to shareholders:
From net investment income ............................................................ (218,189) (72,764)
----------- -----------
From net realized gains ............................................................... (109,095) (36,382)
----------- -----------
Portfolio share transactions:
Proceeds from shares sold ............................................................. 2,994,260 4,254,056
Reinvestment of distributions ......................................................... 327,284 109,146
Cost of shares redeemed ............................................................... (2,080,297) (1,809,393)
----------- -----------
Net increase (decrease) in net assets from Portfolio share transactions ............... 1,241,247 2,553,809
----------- -----------
Increase (decrease) in net assets ..................................................... 575,395 2,878,458
Net assets at beginning of period ..................................................... 5,023,259 2,144,801
Net assets at end of period (including undistributed net investment income (loss) of ----------- -----------
$82,746 and $182,000, respectively) ................................................. $ 5,598,654 $ 5,023,259
----------- -----------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 4,529,726 2,084,993
----------- -----------
Shares sold ........................................................................... 2,902,609 4,042,721
Shares issued to shareholders in reinvestment of distributions ........................ 321,374 106,948
Shares redeemed ....................................................................... (2,074,922) (1,704,935)
----------- -----------
Net increase (decrease) in Portfolio shares ........................................... 1,149,061 2,444,733
----------- -----------
Shares outstanding at end of period ................................................... 5,678,787 4,529,726
----------- -----------
</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>
- -----------------------------------------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998 1997(b)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $1.109 1.029 1.000
---------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .047(a) .024 .036
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.110) .086 (.007)
---------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.063) .110 .029
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.040) (.020) --
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.020) (.010) --
---------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.060) (.030) --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ .986 1.109 1.029
---------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (5.85) 10.98 2.87**
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 5,599 5,023 2,145
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.03 1.08 1.10*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.01 1.08 1.10*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 4.57 4.32 5.36*
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 212 330 290*
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 1, 1997 (commencement of operations) to December
31, 1997.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
139 | Kemper Variable Series -
Kemper Global Income Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper Global Blue Chip Portfolio
The Kemper Global Blue Chip Portfolio posted strong numbers for 1999, soundly
outpacing its benchmark, the MSCI World Index.
Much of our success during the year can be attributed to our Empowered Consumer
and Ultimate Subcontractor themes. The Empowered Consumer, through holdings such
as Sony, Oracle and Sun Microsystems, seeks those companies that build the
Internet infrastructure, thereby allowing the Internet to enable consumers. The
Ultimate Subcontractor provides exposure to the consolidating cyclical economy
through holdings in oil and mining companies such as Rio Tinto and Shell.
Other smaller themes include Secure Streams Of Income and Virtuality. Secure
Streams Of Income provides defensive investments through energy and
infrastructure utilities. Virtuality is an emerging theme that seeks companies
from varying industries that have successful virtual business models.
As we enter 2000, we will continue to focus our barbell strategy of technology
(Empowered Consumer and Virtuality) on one end and consolidation among
commodity-producing companies (Ultimate Subcontractors) on the other. We will
avoid companies caught between the deflation caused by technology and the
favorable pricing environment enjoyed currently by commodity producers.
Diego Espinosa
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Global Blue Chip Portfolio
from 5/5/1998 to 12/31/1999
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Kemper Global MSCI
Blue Chip Portfolio World Index
1998.25 10000 10000
1998.5 9880 10236
1998.75 8990 9008
1999 9790 10910
1999.25 9832 11301
1999.5 10720 11840
1999.75 10480 11665
12/31/99 12404 13632
The MSCI World Index is an unmanaged index generally accepted as a benchmark for
world equity markets.
- --------------------------------------------------------------------------------
Average Annual Total Return^1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life of
For the periods ended December 31, 1999 1-year portfolio
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Global Blue Chip Portfolio 26.70% 13.86% (Since 5/5/1998)
- --------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends. Average annual total
return reflects annualized change while 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.
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.
The investment advisor has agreed to either limit, waive or reduce certain
fees temporarily for this portfolio; see the prospectus for complete details.
Without such limits, waivers or reductions, the performance figures for this
subaccount would be lower.
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.
140 | Kemper Variable Series -
Kemper Global Blue Chip Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper Global Blue Chip Portfolio
<TABLE>
<CAPTION>
Principal
Amount Value
- -----------------------------------------------------------------------------------------------
Repurchase Agreements 2.4%
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette dated
12/31/1999 at 2.25%, to be
repurchased at $400 on 1/3/2000 (b) -------
(Cost $400) ........................................................... $ 400 $ 400
-------
Shares Value
- -----------------------------------------------------------------------------------------------
Common Stocks 97.6%
- -----------------------------------------------------------------------------------------------
Australia 1.9%
Broken Hill Proprietary Co., Ltd. ........................................
(Petroleum, mineral and steel exploration
production) ........................................................... 12,500 164
Woodside Petroleum, Ltd. .................................................
(Major oil and gas producer) .......................................... 20,800 154
-------
318
-------
Brazil 2.0%
Aracruz Celulose SA (ADR) (Producer of
eucalyptus kraft pulp) ................................................ 6,900 181
Companhia Vale do Rio Doce (ADR) (Mining, rail transportation, and mineral
sales in iron ore, aluminum, manganese, titanium,
gold, & copper) ....................................................... 5,300 147
-------
328
-------
Canada 5.6%
Alberta Energy Co., Ltd. (Major oil and gas
producer) ............................................................. 7,600 237
BCE, Inc. (Telecommunication services) ................................... 2,000 181
Barrick Gold Corp. (Gold exploration and
production in North and South America) ................................ 6,100 108
Canadian National Railway Co. (Railroad
operator) ............................................................. 9,600 254
Molson Cos., Ltd. "A" (Brewery) .......................................... 8,100 150
-------
930
-------
Finland 2.3%
Sonera Oyj (Telecommunication services) .................................. 5,700 390
-------
France 6.7%
AXA SA (Insurance group providing
insurance, finance and real estate
services) ............................................................. 1,355 189
Aventis SA (Pharmaceutical company) ...................................... 3,078 179
Canal Plus (Provider of television
programs) ............................................................. 1,914 278
Compagnie de Saint-Gobain (Glass
manufacturer) ......................................................... 829 156
STMicroelectronics (Manufacturer of
semiconductor integrated circuits) .................................... 1,205 185
Suez Lyonnaise des Eaux (Water and
electric utility) ..................................................... 824 132
-------
1,119
-------
Shares Value
- --------------------------------------------------------------------------------
Germany 4.9%
BASF AG (International chemical
producer) .............................................................. 4,985 $ 256
Commerzbank AG (Bank) ..................................................... 3,564 131
HypoVereinsbank AG (Bank) ................................................. 3,466 237
Muenchener Rueckversicherungs-
Gesellschaft AG (Registered) (Insurance
company) ............................................................... 746 189
-------
813
-------
Japan 19.5%
Canon, Inc. (Producer of visual image and
information equipment) ................................................. 5,000 199
Credit Saison Co., Ltd. (Consumer credit
company) ............................................................... 6,000 105
DDI Corp. (Long distance telephone and
cellular operator) ..................................................... 12 164
Daiwa Securities Co., Ltd. (Provider of
brokerage and other financial services)................................. 16,000 250
East Japan Railway Co. (Railroad operator)................................. 32 173
Fuji Bank, Ltd. (Commercial bank) ......................................... 10,000 97
Fujitsu, Ltd. (Manufacturer of computers) ................................. 4,000 182
Matsushita Electric Industrial Co., Ltd.
(Manufacturer of consumer electronic
products) .............................................................. 9,000 249
Mitsubishi Estate Co., Ltd. (Real estate
company) ............................................................... 13,000 127
Mitsui Fudosan Co., Ltd. (Real estate
company) ............................................................... 8,000 54
NTT Mobile Communications Network, Inc.
(Provider of various telecommunication
services and equipment) ................................................ 9 346
Nippon Telegraph & Telephone Corp.
(Telecommunication services) ........................................... 3 51
Nissan Motor Co., Ltd. (Manufacturer of
motor vehicles) ........................................................ 21,000 83
Sakura Bank, Ltd. (Bank) .................................................. 22,000 127
Sharp Corp. (Manufacturer of consumer and
industrial electronics) ................................................ 12,000 307
Sony Corp. (Manufacturer of consumer
electronic products) ................................................... 900 267
TDK Corp. (Manufacturer of magnetic tapes
and floppy discs) ...................................................... 2,000 276
Yamanouchi Pharmaceutical Co., Ltd.
(Pharmaceutical company) ............................................... 5,000 175
-------
3,232
-------
Netherlands 0.7%
United Pan-Europe Communications NV*
(Telecommunication services) ........................................... 970 124
-------
Spain 2.4%
Repsol SA (Manufacturer of crude oil and
natural gas) ........................................................... 8,326 193
Telefonica SA* (Telecommunication
services) .............................................................. 8,484 212
-------
405
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
141 | Kemper Variable Series -
Kemper Global Blue Chip Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- --------------------------------------------------------------------------------
Switzerland 2.5%
Nestle SA (Registered) (Food
manufacturer) ......................... 122 $ 223
Novartis AG (Registered) (Pharmaceutical
company) .............................. 125 184
-------
407
-------
United Kingdom 14.0%
British Telecom PLC (Telecommunication
services) ............................. 16,945 410
Carlton Communications PLC (Television
post production products and services) 21,318 208
EMAP PLC (Publisher of magazines) ........ 7,718 160
Flextech PLC* (Broadcaster of
entertainment programs) ............... 8,577 163
National Grid Group PLC (Owner and
operator of electric transmission
systems) .............................. 17,478 133
Prudential Corp. PLC (Provider of broad
range of financial services) .......... 12,070 235
Railtrack Group PLC (Operator of railway
infrastructure) ....................... 3,970 67
Reuters Group PLC (International news and
information agency) ................... 6,600 92
Rio Tinto PLC (Registered)
(Mining company) ...................... 19,774 474
Scottish Power PLC (Electric utility) .... 22,736 173
Shell Transport & Trading PLC (Petroleum
company) .............................. 25,685 213
-------
2,328
-------
United States 35.1%
AT&T Corp -- Liberty Media Group*
(Holding company of entertainment
networks) ............................. 5,500 312
AT&T Corp. (Telecommunication services) .. 4,895 248
America Online, Inc.* (Provider of online
computer services) .................... 1,200 91
Anadarko Petroleum Corp. (Oil and gas
exploration and production) ........... 8,200 280
Apple Computer, Inc.* (Leading
manufacturer of personal computers) ... 2,600 267
Azurix Corp.* (Provider of wastewater
related services) ..................... 11,700 105
Burlington Resources, Inc. (Oil and
natural gas exploration and production) 8,800 291
CSX Corp. (Railroad, integrated
transportation systems and shipping
container company) .................... 3,400 107
eBay, Inc.* (Person-to-person trading
community on the internet) ............ 500 62
Electronic Arts, Inc.* (Developer and
marketer of entertainment software) ... 1,200 101
Enron Corp. (Producer of natural gas and
electricity) .......................... 3,500 155
Shares Value
- --------------------------------------------------------------------------------
Homestake Mining Co. (Major international
gold producer) ................................... 12,800 $ 100
Immunex Corp.* (Pharmaceutical
company) ......................................... 2,100 230
International Business Machines Corp. ...............
(Manufacturer of computers and servicer
of information processing units) ................. 1,000 108
Lockheed Martin Corp. (Manufacturer of
aircraft, missiles and space equipment) .......... 2,600 57
Motorola, Inc. (Manufacturer of
telecommunication products and
semiconductors) .................................. 2,600 383
Nabors Industries, Inc. (Land drilling
contractor) ...................................... 2,300 71
Newmont Mining Corp. (International gold
exploration and mining company) .................. 5,900 144
Nextel Communications, Inc. "A"* (Provider
of mobile communication services) ................ 1,800 186
Northrop Grumman Corp. (Manufacturer
of aircraft, aircraft assemblies and
electronic systems for military and
commercial use) .................................. 2,200 119
Oracle Corp.* (Database management
software) ........................................ 2,350 263
Peco Energy Co. (Electric and gas utility) .......... 5,000 174
ProLogis Trust (REIT) (Global owner of
corporate distribution facilities) ............... 8,000 154
Progressive Corp. (Property and casualty
insurance company) ............................... 2,900 212
Sabre Group Holdings, Inc. "A"* (Travel
reservation system provider) ..................... 3,100 159
Stillwater Mining Co.* (Exploration and
development of mines in Montana
producing platinum, palladium and
associated metals) ............................... 3,450 110
Sun Microsystems, Inc.* (Manufacturer of
high-performance workstations, servers
and software) .................................... 4,200 325
US Airways Group, Inc. (Major airline) .............. 2,500 80
USEC, Inc. (Provider of enriched uranium
products and services) ........................... 6,400 45
USX-US Steel Group, Inc. (Integrated steel
producer) ........................................ 4,200 139
Unicom Corp. (Electric utility) ..................... 5,500 184
Unocal Corp. (Explorer and producer of oil
and gas) ......................................... 400 13
UnumProvident Corp. (Provider of group
disability and special risk insurance) ........... 4,800 154
Viacom, Inc. B* (Diverse entertainment and
communications company) .......................... 4,800 290
Yamada Denki Co., Ltd. (Sells and repairs
home appliances) ................................. 1,000 109
------
5,828
------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $13,345) 16,222
- --------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $13,745) (a) $16,622
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
142 | Kemper Variable Series -
Kemper Global Blue Chip Portfolio
<PAGE>
(Dollars in thousands)
- --------------------------------------------------------------------------------
At December 31, 1999, the Kemper Global Blue Chip Portfolio had the following
industry diversification:
- --------------------------------------------------------------------------------
Industry Value Percent
- --------------------------------------------------------------------------------
Technology ........................ $ 2,431 14.6%
Communications .................... 2,315 13.9
Financial ......................... 2,261 13.6
Energy ............................ 1,607 9.7
Metals and Minerals ............... 1,431 8.6
Media ............................. 1,411 8.5
Manufacturing ..................... 941 5.7
Consumer Staples .................. 796 4.8
Utilities ......................... 795 4.8
Transportation .................... 680 4.1
Health ............................ 588 3.5
Service Industries ................ 527 3.1
Durables .......................... 258 1.6
Construction ...................... 181 1.1
- --------------------------------------------------------------------------------
Total Common Stocks 16,222 97.6
- --------------------------------------------------------------------------------
Money Market Instruments........... 400 2.4
- --------------------------------------------------------------------------------
Total Investment Portfolio $16,622 100.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper Global Blue Chip Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $13,796. At December 31, 1999,
net unrealized appreciation for all securities based on tax cost was
$2,826. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$3,649 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $823.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
The accompanying notes are an integral part of the financial statements.
143 | Kemper Variable Series -
Kemper Global Blue Chip Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
(in thousands)
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (cost $13,745) ......................... $ 16,622
Cash ....................................................................... 696
Receivable for Portfolio shares sold ....................................... 49
Dividends receivable ....................................................... 18
Foreign taxes recoverable .................................................. 2
Due from Adviser ........................................................... 148
--------
Total assets ............................................................... 17,535
Liabilities
- ----------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed ...................................... 2
Other accrued expenses and payables ........................................ 124
--------
Total liabilities .......................................................... 126
- ----------------------------------------------------------------------------------------
Net assets, at value $ 17,409
- ----------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ........................................ 24
Net unrealized appreciation (depreciation) on investments .................. 2,877
Accumulated net realized gain (loss) ....................................... 105
Paid-in capital ............................................................ 14,403
- ----------------------------------------------------------------------------------------
Net assets, at value $ 17,409
- ----------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($17,409 / 14,068 outstanding
shares of beneficial interest, $.01 par value, unlimited number of shares --------
authorized) ............................................................ $ 1.237
--------
- ----------------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- ----------------------------------------------------------------------------------------
Investment Income
- ----------------------------------------------------------------------------------------
Dividends (less foreign taxes withheld of $9) .............................. $ 135
Interest ................................................................... 48
--------
Total income ............................................................... 183
--------
Expenses:
Management fee ............................................................. 94
Custodian and accounting fees .............................................. 214
Auditing ................................................................... 1
Legal ...................................................................... 2
Trustees' fees and expenses ................................................ 4
Reports to shareholders .................................................... 2
Registration fees .......................................................... 1
Amortization of organization expenses ...................................... 8
--------
Total expenses, before expense reductions .................................. 326
Expense reductions ......................................................... (179)
--------
Total expenses, after expense reductions ................................... 147
- ----------------------------------------------------------------------------------------
Net investment income (loss) 36
- ----------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ................................................................ 146
Foreign currency related transactions ...................................... 7
--------
153
--------
Net unrealized appreciation (depreciation) during the period on investments 2,730
- ----------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 2,883
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 2,919
- ----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
144 | Kemper Variable Series -
Kemper Global Blue Chip Portfolio
<PAGE>
(in thousands)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
Increase (Decrease) in Net Assets 1999 1998(a)
- ---------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) ........................................................... $ 36 $ 10
Net realized gain (loss) ............................................................... 153 (53)
Net unrealized appreciation (depreciation) on investment transactions during the period 2,730 147
-------- --------
Net increase (decrease) in net assets resulting from operations ........................ 2,919 104
Distributions to shareholders:
From net investment income ............................................................. (17) --
-------- --------
Portfolio share transactions:
Proceeds from shares sold .............................................................. 12,326 3,561
Reinvestment of distributions .......................................................... 17 --
Cost of shares redeemed ................................................................ (1,420) (82)
-------- --------
Net increase (decrease) in net assets from Portfolio share transactions ................ 10,923 3,479
-------- --------
Increase (decrease) in net assets ...................................................... 13,825 3,583
Net assets at beginning of period ...................................................... 3,584 1
Net assets at end of period (including undistributed net investment income (loss) of $24 -------- --------
and $8, respectively) $ 17,409 $ 3,584
-------- --------
Other Information
- ---------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period .............................................. 3,661 1
-------- --------
Shares sold ............................................................................ 11,724 3,745
Shares issued to shareholders in reinvestment of distributions ......................... 17 --
Shares redeemed ........................................................................ (1,334) (85)
-------- --------
Net increase (decrease) in Portfolio shares ............................................ 10,407 3,660
-------- --------
Shares outstanding at end of period .................................................... 14,068 3,661
-------- --------
</TABLE>
(a) For the period from May 5, 1998 (commencement of operations) to December
31, 1998.
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>
- ---------------------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998(b)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ .979 1.000
------------------
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) .004(a) .003
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .257 (.024)
------------------
- ---------------------------------------------------------------------------------------------------------
Total from investment operations .261 (.021)
- ---------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------
Net investment income (.003) --
- ---------------------------------------------------------------------------------------------------------
Total distributions (.003) --
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.237 .979
------------------
- ---------------------------------------------------------------------------------------------------------
Total return (%) 26.70 (2.10)**
- ---------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 17,409 3,584
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 3.47 12.32*
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.56 1.56*
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .39 .91*
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 65 67*
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 5, 1998 (commencement of operations) to December
31, 1998.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
145 | Kemper Variable Series -
Kemper Global Blue Chip Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper International Growth And Income Portfolio
In 1999, the Kemper International Growth And Income Portfolio lagged its
benchmark, the MSCI EAFE + Canada, in part because our commitment to relative
yield blocked the portfolio's participation in the current narrow market, which
has been driven primarily by technology names. In general, such companies
typically don't provide much income and are usually rather expensive for the
portfolio's value-oriented investment approach.
Overall, we have tried recently to position the portfolio to provide steady
current income, so that it could act as a buffer in the event the tech-driven
market slows.
The portfolio's performance, especially in the second half of the year, came
from a variety of sources. For example, Japanese financials got a boost in the
third quarter, in part due to merger euphoria in that country. By the fourth
quarter, we began to take profits in that sector and began moving into
additional Japanese non-export-driven stocks, including Asahi Glass.
On the downside, certain oil holdings, which had bolstered the portfolio early
in the year, lagged in the second half as that sector began to correct.
Looking forward to 2000, we will keep the portfolio focused on its fundamental,
value-inclined investment discipline, which we believe offers our investors the
greatest potential rewards over the long term.
Sheridan P. Reilly
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper International Growth And
Income Portfolio from 5/5/1998 to 12/31/1999
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Kemper International MSCI EAFE +
Growth and Income Portfolio Canada Index
1998.25 10000 10000
1998.5 9973 10053
1998.75 8283 8574
1999 9117 10328
1999.25 8874 10490
1999.5 9218 10794
1999.75 9451 11256
13/31/99 10401 13211
MSCI EAFE + Canada Index is generally representative of Canadian, Europe, Asian
and Far East international markets.
Average Annual Total Return^1
<TABLE>
<CAPTION>
Life of
For the periods ended December 31, 1999 1-year portfolio
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper International Growth And Income Portfolio 14.09% 2.40% (Since 5/5/1998)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends. Average annual total
return reflects annualized change while 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.
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.
The investment advisor has agreed to either limit, waive or reduce certain
fees temporarily for this portfolio; see the prospectus for complete details.
Without such limits, waivers or reductions, the performance figures for this
subaccount would be lower.
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.
The accompanying notes are an integral part of the financial statements.
146 | Kemper Variable Series -
Kemper International Growth And Income Portfolio
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
Kemper International Growth and Income Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreements 4.7%
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette dated
12/31/1999 at 2.25%, to be repurchased
at $300,056 on 1/3/2000 (b) --------
(Cost $300,000) ........................ $300,000 $ 300,000
--------
- --------------------------------------------------------------------------------
Convertible Bonds 1.5%
- --------------------------------------------------------------------------------
Merrill Lynch & Co., 2%, 4/14/2004 --------
(Cost $111,506) ........................ 114,000 96,330
--------
Shares Value
- --------------------------------------------------------------------------------
Common Stocks 93.8%
- --------------------------------------------------------------------------------
Canada 2.7%
BCE, Inc. (Telecommunication services) ...... 1,905 172,936
--------
Finland 2.9%
UPM-Kymmene Oyj (Manufacturer of paper
and pulp products) ....................... 4,535 182,670
--------
France 11.4%
Accor SA (Operator of hotels, travel agencies
and restaurants) ......................... 2,775 134,049
Dexia France (Provider of municipal and local
development financing) ................... 910 150,743
Lafarge SA (Producer of cement, concrete
and aggregates) .......................... 1,100 128,050
Schneider SA (Manufacturer of electronic
components and automated
manufacturing systems) ................... 2,342 183,837
Scor SA (Property, casualty and life
reinsurance company) ..................... 2,900 127,909
--------
724,588
--------
Germany 7.0%
Bayerische Motoren Werke (BMW) AG
(Manufacturer of luxury cars and
motorcycles) ............................. 5,918 180,571
SAP AG (Computer software
manufacturer) ............................ 533 262,461
--------
443,032
--------
Italy 5.0%
Telecom Italia Mobile SpA (Cellular
telecommunication services) .............. 28,300 316,044
--------
Japan 23.7%
Asahi Glass Co., Ltd. (Manufacturer of glass
products) ................................ 10,000 77,397
Canon, Inc. (Producer of visual image and
information equipment) ................... 5,000 198,630
East Japan Railway Co. (Railroad operator) .. 15 80,871
Shares Value
- --------------------------------------------------------------------------------
Matsushita Electric Industrial Co., Ltd. .....
(Manufacturer of consumer electronic
products) ................................. 7,000 $ 193,836
Matsushita Electric Works, Ltd. (Leading
maker of building materials and lighting
equipment) ................................ 14,000 138,356
Nintendo Co., Ltd. (Manufacturer of game
equipment) ................................ 800 132,916
Nomura Securities Co., Ltd. (Financial
advisor, securities broker and underwriter) 12,000 216,634
Sakura Bank, Ltd. (Bank) ..................... 21,000 121,643
Sekisui House, Ltd. (Home builder) ........... 11,000 97,407
Sumitomo Trust & Banking Co., Ltd. ...........
(Commercial Bank) ......................... 18,000 121,526
Teijin, Ltd. (Manufacturer of polyester
products) ................................. 34,000 125,421
--------
1,504,637
--------
Netherlands 7.7%
DSM NV (Chemical manufacturer) ............... 4,460 178,750
Koninklijke KPN NV (Telecommunications
services) ................................. 1,880 183,447
Royal Dutch Petroleum Co. (Petroleum
company) .................................. 2,140 131,130
--------
493,327
--------
Spain 3.0%
Union Electrica Fenosa SA (Producer and
distributor of electrical energy) ......... 10,846 189,386
--------
Sweden 4.9%
Avesta-Sheffield AB (Manufacturer of
stainless steel products) ................. 30,400 158,645
Investor AB (Investment Company) ............. 10,800 152,327
--------
310,972
--------
Switzerland 4.9%
ABB, Ltd. (Manufacturer of equipment for
power generation and distribution) ........ 1,654 202,271
Novartis AG (Registered) (Pharmaceutical
company) .................................. 76 111,578
--------
313,849
--------
United Kingdom 20.6%
British Aerospace PLC (Producer of military
aircraft) ................................. 29,148 191,556
Corus Group PLC (Manufacturer and
distributor of metal products) ............ 66,558 173,029
EMI Group PLC (Music recording and
retailing company) ........................ 16,672 164,214
HSBC Holdings PLC (International banking
and financial services company) ........... 13,600 190,699
J Sainsbury PLC (Retail distributor of food
through supermarkets) ..................... 16,348 92,324
Lasmo PLC (Oil production and
exploration) .............................. 70,152 135,929
National Power PLC (Electricity generation
company) .................................. 13,100 75,515
The accompanying notes are an integral part of the financial statements.
147 | Kemper Variable Series -
Kemper International Growth And Income Portfolio
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
Peninsular and Oriental Steam Navigation
Co. (Shipping and transportation
company) ............................ 8,983 $148,965
Shares Value
- --------------------------------------------------------------------------------
Royal & Sun Alliance Insurance Group PLC
(Insurance company) ................. 17,700 $ 132,613
----------
1,304,844
----------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $5,253,877) 5,956,285
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $5,665,383) (a) $6,352,615
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At December 31, 1999, the Kemper International Growth and Income Portfolio had
the following industry diversification:
- --------------------------------------------------------------------------------
Industry Value Percent
- --------------------------------------------------------------------------------
Financial ................ $1,310,424 20.6
Manufacturing ............ 1,295,051 20.4
Communications ........... 672,427 10.6
Technology ............... 640,134 10.1
Consumer Discretionary ... 523,503 8.2
Metals and Minerals ...... 331,675 5.2
Energy ................... 267,059 4.2
Utilities ................ 264,901 4.2
Transportation ........... 229,836 3.6
Construction ............. 225,457 3.6
Durables ................. 180,570 2.8
Health ................... 111,578 1.8
- --------------------------------------------------------------------------------
Total Equities 6,052,615 95.3
- --------------------------------------------------------------------------------
Money Market Instruments 300,000 4.7
- --------------------------------------------------------------------------------
Total Investment Portfolio $6,352,615 100.0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper International Growth and Income Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $5,678,828 At December 31,
1999, net unrealized appreciation for all securities based on tax cost was
$673,787. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$865,582 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $191,795.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
The accompanying notes are an integral part of the financial statements.
148 | Kemper Variable Series -
Kemper International Growth And Income Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $5,665,383) .................................................. $ 6,352,615
Cash ................................................................................................... 141,957
Dividends receivable ................................................................................... 3,581
Interest receivable .................................................................................... 1,646
Receivable for Portfolio shares sold ................................................................... 31,188
Foreign taxes recoverable .............................................................................. 6,302
Due from Adviser ....................................................................................... 191,574
----------------
Total assets ........................................................................................... 6,728,863
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Other accrued expenses and payables .................................................................... 52,326
----------------
Total liabilities ...................................................................................... 52,326
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, at value $ 6,676,537
- -----------------------------------------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ............................................................. 18,401
Net unrealized appreciation (depreciation) on investments .............................................. 687,232
Foreign currency related transactions .................................................................. (253)
Accumulated net realized gain (loss) ................................................................... (6,492)
Paid-in capital ........................................................................................ 5,977,649
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, at value ................................................................................... $ 6,676,537
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($6,676,537 / 6,453,838
outstanding shares of beneficial interest, $.01 par value, unlimited number --------------
of shares authorized) ............................................................................... $ 1.035
--------------
- -----------------------------------------------------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------
Dividends (less foreign taxes withheld of $7,103) ...................................................... $ 98,512
Interest ............................................................................................... 22,928
----------------
Total income 121,440
----------------
Expenses:
Management fee ......................................................................................... 47,998
Custodian and accounting fees .......................................................................... 140,989
Auditing ............................................................................................... 535
Legal .................................................................................................. 125
Trustees' fees and expenses ............................................................................ 6,320
Reports to shareholders ................................................................................ 1,635
Registration fees ...................................................................................... 100
Amortization of organization expenses .................................................................. 7,836
----------------
Total expenses, before expense reductions .............................................................. 205,538
Expense reductions ..................................................................................... (152,719)
----------------
Total expenses, after expense reductions ............................................................... 52,819
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 68,621
- -----------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ............................................................................................ 103,478
Foreign currency related transactions .................................................................. (9,609)
----------------
93,869
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................................................................ 632,498
Foreign currency related transactions .................................................................. 1,240
----------------
633,738
- -----------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 727,607
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 796,228
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
149 | Kemper Variable Series -
Kemper International Growth And Income Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
Increase (Decrease) in Net Assets 1999 1998(a)
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) .......................................................... $ 68,621 $ 10,634
Net realized gain (loss) .............................................................. 93,869 (110,045)
Net unrealized appreciation (depreciation) on investment transactions during the period 633,738 53,241
---------------- ----------------
Net increase (decrease) in net assets resulting from operations ....................... 796,228 (46,170)
Distributions to shareholders:
From net investment income ............................................................ (51,177) --
---------------- ----------------
Portfolio shares transactions:
Proceeds from shares sold ............................................................. 9,523,749 (3,073,291)
Reinvestment of distributions ......................................................... 51,177 --
Cost of shares redeemed ............................................................... (6,646,496) (25,065)
---------------- ----------------
Net increase (decrease) in net assets from Portfolio share transactions ............... 2,928,430 3,048,226
---------------- ----------------
Increase (decrease) in net assets ..................................................... 3,673,481 3,002,056
Net assets at beginning of period ..................................................... 3,003,056 1,000
Net assets at end of period (including undistributed net investment income (loss) of ---------------- ----------------
$18,401 and $10,566, respectively) ................................................. $ 6,676,537 $ 3,003,056
---------------- ----------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................. 3,294,058 1,000
---------------- ----------------
Shares sold ........................................................................... 10,350,608 3,321,728
Shares issued to shareholders in reinvestment of distributions ........................ 56,319 --
Shares redeemed ....................................................................... (7,247,147) (28,670)
---------------- ----------------
Net increase (decrease) in Portfolio shares ........................................... 3,159,780 3,293,058
---------------- ----------------
Shares outstanding at end of period ................................................... 6,453,838 3,294,058
---------------- ----------------
</TABLE>
(a) For the period from May 5, 1998 (commencement of operations) to December
31, 1998.
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>
- -----------------------------------------------------------------------------------------------------------------------------
Periods Ended December 31, 1999 1998(b)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ .912 1.000
------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .013(a) .003
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .115 (.091)
------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .128 (.088)
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.005) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.005) --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.035 .912
------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 14.09 (8.80)**
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 6,677 3,003
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 4.30 19.55*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.10 1.13*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.44 1.13*
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 146 100*
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period from May 5, 1998 (commencement of operations) to December
31, 1998.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
150 | Kemper Variable Series -
Kemper International Growth And Income Portfolio
<PAGE>
Management Summary And Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Kemper International Portfolio
International markets did well in 1999 on the strength of favorable liquidity
conditions, powerful corporate earnings growth and ongoing corporate
restructuring. European markets produced impressive returns, particularly in the
final quarter. Japanese stocks responded favorably to corporate reform and signs
of growth. And, of course, technology and telecommunications stocks rallied
around the globe.
Against this backdrop, the Kemper International Portfolio significantly outpaced
its benchmark, the MSCI EAFE Index. We attribute our strong showing to expert
stock selection across all sectors and regions, particularly in tech and
telecom. Our attention to macroeconomics helped in Europe, where we benefited
from exposure to European cyclicals, recently fueled by the region's growth.
Another sector that performed particularly well for us was Japanese banks, which
we picked up prior to the much-publicized merger-driven rally.
Looking ahead, we are confident that the improving fundamentals of the major
overseas markets will continue to support strong stock market performance,
albeit with a higher level of volatility. While higher interest rates and
potential weakness in the U.S. market continue to represent potential risks, we
believe that the portfolio is well positioned.
Irene Cheng
Lead Portfolio Manager
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper International Portfolio from
1/6/1992 to 12/31/1999
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Kemper International Portfolio MSCI EAFE Index
1992 10000 10000
1992.25 10061 9006
1992.5 10316 9196
1992.75 9625 9335
1993 9928 8974
1993.25 10318 10050
1993.5 10921 11061
1993.75 12065 11795
1994 13186 11896
1994.25 12590 12311
1994.5 12725 12940
1994.75 13212 12952
1995 12713 12820
1995.25 12616 13059
1995.5 13218 13155
1995.75 14259 13704
1996 14345 14258
1996.25 15406 14670
1996.5 15936 14902
1996.75 15812 14884
1997 16710 15121
1997.25 16884 14885
1997.5 18771 16816
1997.75 19526 16697
1998 18290 15389
1998.25 20608 17653
1998.5 21085 17840
1998.75 17433 15302
1999 20123 18462
1999.25 20010 18718
1999.5 20350 19193
1999.75 22376 20037
12/31/99 29321 23441
The MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia,
Far East Index) is an unmanaged index generally accepted as a benchmark for
major overseas markets.
Average Annual Total Returns^1
<TABLE>
<CAPTION>
Life of
For the periods ended December 31, 1999 1-year 5-year portfolio
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Kemper International Portfolio 45.71% 18.19% 14.42% (Since 1/6/1992)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
^1 Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends. Average annual total
return reflects annualized change while 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.
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.
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.
151 | Kemper Variable Series -
Kemper International Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Kemper International Portfolio
Principal
Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Short Term Investments 6.8%
- --------------------------------------------------------------------------------
United States
Chase Euro Time Deposit, 4.875%,
1/3/2000 ....................................... $ 6,956 $ 6,956
Federal Home Loan, 1.3%, 1/3/2000 ................. 10,000 10,000
- --------------------------------------------------------------------------------
Total Short Term Investments (Cost $16,956) 16,956
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bonds 0.0%
- --------------------------------------------------------------------------------
United Kingdom
British Aerospace plc, 7.45%, 11/30/2003 ----------
(Manufacturer of airplanes) (Cost $27) ......... 26,329 42
----------
Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks 93.2%
- --------------------------------------------------------------------------------
Australia 1.8%
Broken Hill Proprietary Co., Ltd. .................
(Petroleum, mineral and steel exploration
production) .................................... 173,600 2,279
WMC, Ltd. (Mineral exploration and
production) .................................... 287,100 1,584
Woodside Petroleum, Ltd. (Major oil and gas
producer) ...................................... 109,600 809
----------
4,672
----------
Canada 0.7%
Canadian National Railway Co. (Railroad
operator) ...................................... 68,400 1,809
----------
Finland 3.6%
Nokia Oyj (Manufacturer of
telecommunication networks and
equipment) ..................................... 32,500 5,891
Sonera Oyj (Telecommunication services) ........... 45,300 3,104
----------
8,995
----------
France 15.1%
AXA SA (Insurance group providing insurance,
finance and real estate services) .............. 13,326 1,857
Aventis SA (Pharmaceutical company) ............... 69,718 4,050
Carrefour SA (Hypermarket operator and
food retailer) ................................. 7,820 1,442
Christian Dior (Fashion house) .................... 8,948 2,217
Club Mediterranee SA (Operator of vacation
resorts) ....................................... 3,464 400
Etablissements Economiques du Casino
Guichard-Perrachon SA (Operator of
supermarkets and convenience stores) ........... 20,900 1,611
Eurotunnel SA (Channel Tunnel
consortium) .................................... 1,839,970 2,168
Shares Value
- --------------------------------------------------------------------------------
LVMH (Louis Vuitton Moet Hennessy)
(Producer of wines, spirits and luxury
products) .......................................... 3,592 $ 1,609
Lafarge SA (Producer of cement, concrete
and aggregates) .................................... 16,049 1,868
Pinault-Printemps-Redoute SA (Operator of
department stores) ................................. 7,524 1,985
Renault SA (Manufacturer of automobiles,
buses, industrial and agricultural
vehicles) .......................................... 18,250 880
Rhodia SA (Drug manufacturer and chemicals
specialist) ........................................ 92,296 2,086
STMicroelectronics (Manufacturer of
semiconductor integrated circuits) ................. 27,538 4,237
Schneider SA (Manufacturer of electronic
components and automated
manufacturing systems) ............................. 17,834 1,400
Societe BIC SA (Manufacturer of office
supplies) .......................................... 33,995 1,547
Total SA "B" (Explorer, developer and
producer of oil and gas) ........................... 35,378 4,720
Union des Assurances Federales (Insurance
group) ............................................. 7,942 933
Usinor Sacilor (Producer of flat steel and
stainless steel) ................................... 56,603 1,063
Vivendi (Industrial services group services) .......... 19,659 1,775
----------
37,848
----------
Germany 12.8%
Allianz AG (Multi-line insurance company) ............. 5,571 1,870
BASF AG (International chemical
producer) .......................................... 43,990 2,259
Celanese AG (Manufacturer and distributor
of industrial chemicals) ........................... 5,076 93
Commerzbank AG (Bank) ................................. 27,600 1,013
Deutsche Telekom AG (Telecommunication
services) .......................................... 18,481 1,316
Dresdner Bank AG (Bank) ............................... 31,147 1,694
Epcos AG* (Producer of electronic
components and integrated circuits) ................ 42,174 3,164
HypoVereinsbank AG* (Bank) ............................ 22,462 1,534
Mannesmann AG (Registered)* (Manufacturer
of production machinery and assembly
systems) ........................................... 33,100 7,958
SAP AG (pfd.) (Computer software
manufacturer) ...................................... 5,030 3,029
Siemens AG (Electrical engineering and
electronics company) ............................... 31,299 3,981
Thyssen Krupp AG (Manufacturer of building
and industrial steel materials) .................... 85,595 2,607
VEBA AG (Electric utility, distributor of oil
and chemicals) ..................................... 32,060 1,558
----------
32,076
----------
Hong Kong 1.1%
Cheung Kong Holdings, Ltd. (Real estate
company) ........................................... 111,000 1,406
Citic Pacific, Ltd. (Diversified holding
company) ........................................... 172,000 646
The accompanying notes are an integral part of the financial statements.
152 | Kemper Variable Series -
Kemper International Portfolio
<PAGE>
(Dollars in thousands)
Shares Value
- --------------------------------------------------------------------------------
New World China Land, Ltd. (Property
development) ................................... 2,110 $ 1
New World Development Co., Ltd. (Property
investment and development company) ............ 318,000 716
----------
2,769
----------
Italy 4.0%
Arnoldo Mondadori Editore SpA (Book
publisher) ..................................... 43,000 1,363
Banca Nazionale del Lavoro* (Bank) ................ 344,000 1,147
Gruppo Editoriale L'Espresso (Publisher) .......... 135,433 1,567
Mediaset SpA (Operator of broadcasting
and television networks) ....................... 123,400 1,919
Seat Pagine Gialle SpA (Publisher of
telecommunications directories and
provider of advertising services) .............. 1,880,900 4,148
----------
10,144
----------
Japan 29.5%
Advantest Corp. (Producer of measuring
instruments and semiconductor testing
devices) ....................................... 8,700 2,298
Asahi Glass Co., Ltd. (Manufacturer of glass
products) ...................................... 135,000 1,045
Benesse Corp. (Provider of educational
services) ...................................... 4,000 963
CSK Corp. (Provider of computer related
services) ...................................... 10,300 1,673
Canon, Inc. (Producer of visual image and
information equipment) ......................... 31,000 1,231
DDI Corp. (Telecommunication service) ............. 225 3,082
Daiwa Securities Co., Ltd. (Provider of
brokerage and other financial services) ........ 229,000 3,583
Fanuc Ltd. (Manufacturer of numerically
controlled equipment for machine
tools) ......................................... 8,400 1,069
Fuji Bank, Ltd. (Commercial bank) ................. 167,000 1,623
Fujisawa Pharmaceutical Co. (Manufacturer
of marketer of antibiotics) .................... 17,000 412
Fujitsu Ltd. (Manufacturer of computers) .......... 96,000 4,377
Fujitsu Support and Service Inc. (Provider of
information services) .......................... 3,000 1,471
Hitachi, Ltd. (Manufacturer of general
electronics) ................................... 187,000 3,001
Kyocera Corp. (Manufacturer of electrical
equipment) ..................................... 13,000 3,371
Matsushita Electric Industrial Co., Ltd.
(Manufacturer of consumer electronic
products) ...................................... 96,000 2,658
Murata Manufacturing Co., Ltd. ....................
(Manufacturer of ceramic applied
electronic computers) .......................... 21,000 4,931
NEC Corp. (Manufacturer of
telecommunication and computer
equipment) ..................................... 152,000 3,622
NSK Ltd. (Manufacturer of bearings and
motor vehicle machine parts) ................... 166,000 1,135
NTT Mobile Communications Network, Inc.
(Provider of various telecommunication
services and equipment) ........................ 154 5,922
Nikko Securities Co., Ltd. (Securities broker
and dealer) .................................... 184,000 2,328
Nippon Telegraph & Telephone Corp.
(Telecommunication services) ................... 180 3,082
Shares Value
- --------------------------------------------------------------------------------
Nissan Motor Co., Ltd. (Manufacturer of
motor vehicles) .................................. 337,000 $ 1,326
Nomura Securities Co., Ltd. (Provider of
financial services) .............................. 133,000 2,401
SMC Corp. (Manufacturer of directional
control devices) ................................. 3,600 796
Sakura Bank, Ltd. (Bank) ............................ 280,000 1,622
Sanwa Bank, Ltd. (Bank) ............................. 9,000 109
Sony Corp. (Manufacturer of consumer
electronic products) ............................. 16,600 4,922
Sumitomo Trust & Banking Co., Ltd.
(Commercial Bank) ................................ 227,000 1,533
THK Co., Ltd. (Manufacturer of linear motion
systems for industrial machinery) ................ 21,900 885
Teijin, Ltd. (Manufacturer of polyester
products) ........................................ 29,000 107
Tokyo Electron Ltd. (Manufacturer of
semiconductor production equipment) .............. 26,000 3,562
Toray Industries, Inc. (Manufacturer
of synthetic fibers, leather and
polyester fil) ................................... 179,000 694
Toshiba Corp. (Manufacturer of electric
machinery) ....................................... 269,000 2,053
Yamanouchi Pharmaceutical Co., Ltd.
(Pharmaceutical company) ......................... 31,000 1,083
----------
73,970
----------
Korea 3.0%
Dacom Corp. (Provider of domestic
long-distance and internet services) ............. 2,540 1,309
SK Telecom Co., Ltd. (Provider of mobile
telecommunication services) ...................... 910 3,262
Samsung Electronics Co. (Electronics
manufacturer) .................................... 12,960 3,035
----------
7,606
----------
Netherlands 5.7%
AEGON Insurance Group NV (Insurance
company) ......................................... 13,160 1,271
Akzo Nobel NV (Producer and marketer of
healthcare products, coatings, chemicals
and fibers) ...................................... 28,970 1,453
Equant NV (Provider of international data
network services) ................................ 30,756 3,490
Fortis (NL) NV (Bank) ............................... 29,860 1,075
Gucci Group NV (New York Shares)
(Registered)(Designer and producer
of personal luxury accessories and
apparel) ......................................... 19,800 2,267
KPNQuest NV* (Provider of Internet services
to businesses) ................................... 10,870 724
Koninklijke KPN NV (Telecommunications
services) ........................................ 17,210 1,679
Laurus NV (International food retailer) ............. 42,810 772
United Pan-Europe Communications NV
(Telecommunication services) ..................... 12,450 1,592
----------
14,323
----------
Singapore 0.6%
DBS Group Holdings Ltd.* (Provider of
banking and financing services) .................. 53,498 877
Oversea-Chinese Banking Corp., Ltd.
(Bank) ........................................... 60,900 559
----------
1,436
----------
The accompanying notes are an integral part of the financial statements.
153 | Kemper Variable Series -
Kemper International Portfolio
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
Spain 0.8%
Telefonica Publicidad e Informacion, S.A
(Publisher of telephone directories) ........... 5,467 $ 237
Telefonica SA* (Telecommunication
services) ...................................... 71,951 1,797
----------
2,034
----------
Sweden 0.5%
LM Ericsson Telephone Co. "B"*
(Manufacturer telecommunications
equipment) ..................................... 19,200 1,234
----------
Switzerland 1.4%
Nestle SA (Registered) (Food
manufacturer) .................................. 814 1,491
Novartis AG (Registered) (Pharmaceutical
company) ....................................... 710 1,042
Roche Holdings AG (PC) (Producer of drugs
and medicines) ................................. 93 1,104
----------
3,637
----------
Taiwan 1.0%
Taiwan Semiconductor Manufacturing Co.
(Manufacturer of integrated circuits) .......... 53,259 2,397
----------
United Kingdom 11.6%
BOC Group PLC (Producer of industrial
gases) ......................................... 72,553 1,564
BP Amoco PLC (Explorer and producer of
oil and natural gas) ........................... 205,348 2,072
Shares Value
- --------------------------------------------------------------------------------
Billiton PLC (International mining and
metals group) ..................................... 221,443 $ 1,312
British Aerospace PLC (Producer of military
aircraft) ......................................... 304,978 2,004
Glaxo Wellcome PLC (Pharmaceutical
company) .......................................... 37,491 1,062
Marconi PLC (Provider of
telecommunications equipment) ..................... 78,332 1,381
Prudential Corp. PLC (Provider of broad
range of financial services) ...................... 152,415 2,973
Rentokil Initial PLC (Environmental services
company) .......................................... 409,178 1,487
Reuters Group PLC (International news and
information agency) ............................... 241,713 3,357
Rio Tinto PLC (Registered) (Mining
company) .......................................... 202,527 4,860
Royal & Sun Alliance Insurance Group PLC
(Insurance company) ............................... 138,057 1,034
Shell Transport & Trading PLC (Petroleum
company) .......................................... 354,547 2,945
SmithKline Beecham PLC (Manufacturer of
ethical drugs and healthcare products) ............ 79,436 1,007
Standard Chartered PLC (International
banking group) .................................... 127,395 2,026
----------
29,084
----------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $156,702) 234,034
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $173,685) (a) $ 251,032
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At December 31, 1999, the Kemper International Portfolio had the following
industry diversification (dollars in thousands):
- --------------------------------------------------------------------------------
Industry Value Percent
- --------------------------------------------------------------------------------
Finance ...................................... $ 35,831 14.27
Manufacturing ................................ 41,619 16.58
Communications ............................... 32,273 12.86
Service Industries ........................... 14,766 5.88
Technology ................................... 47,969 19.11
Consumer Discretionary ....................... 6,043 2.41
Consumer Staples ............................. 12,671 5.05
Health Care .................................. 5,710 2.27
Energy ....................................... 10,547 4.20
Metals and Minerals .......................... 11,098 4.42
Media ........................................ 3,283 1.31
Construction ................................. 4,036 1.61
Utilities .................................... 1,558 0.62
Durables ..................................... 4,821 1.92
Transportation ............................... 1,809 0.72
- --------------------------------------------------------------------------------
Total Common Stock 234,034 93.23
- --------------------------------------------------------------------------------
Bonds ........................................ 42 0.02
Money Market Instruments ..................... 16,956 6.75
- --------------------------------------------------------------------------------
Total Investment Portfolio $251,032 100.0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Kemper International Portfolio of Investments
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $173,787. At December 31,
1999, net unrealized appreciation for all securities based on tax cost was
$78,889. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$82,957 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $4,058.
The accompanying notes are an integral part of the financial statements.
154 | Kemper Variable Series -
Kemper International Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- -----------------------------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (cost $173,685) ......................... $ 251,032
Cash ........................................................................ 4
Foreign currency, at value (cost $33,056) ................................... 33
Dividends receivable ........................................................ 63
Interest receivable ......................................................... 1
Receivable for Portfolio shares sold ........................................ 686
Foreign taxes recoverable ................................................... 188
Other assets ................................................................ 14
---------
Total assets ................................................................ 252,021
Liabilities
- -----------------------------------------------------------------------------------------
Accrued management fee ...................................................... 151
Other accrued expenses and payables ......................................... 239
---------
Total liabilities ........................................................... 390
- -----------------------------------------------------------------------------------------
Net assets, at value $ 251,631
- -----------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) .................................. 271
Net unrealized appreciation (depreciation) on:
Investments .............................................................. 77,347
Foreign currency related transactions .................................... (10)
Accumulated net realized gain (loss) ........................................ 31,051
Paid-in capital ............................................................. 142,972
- -----------------------------------------------------------------------------------------
Net assets, at value $ 251,631
- -----------------------------------------------------------------------------------------
Net Asset Value
- -----------------------------------------------------------------------------------------
Net Asset Value and redemption price per share ($251,631 / 117,314 outstanding
shares of beneficial interest, $.01 par value, unlimited number of shares ----------
authorized) .............................................................. $ 2.145
----------
- -----------------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- -----------------------------------------------------------------------------------------
Investment Income
- -----------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $220) ........................... $ 2,441
Interest .................................................................... 246
---------
Total income ................................................................ 2,687
---------
Expenses:
Management fee .............................................................. 1,506
Custodian fees .............................................................. 291
Auditing .................................................................... 18
Legal ....................................................................... 6
Reports to shareholders ..................................................... 54
Registration fees ........................................................... 8
Other ....................................................................... 12
---------
Total expenses, before expense reductions ................................... 1,895
Expense reductions .......................................................... (3)
---------
Total expenses, after expense reductions .................................... 1,892
- -----------------------------------------------------------------------------------------
Net investment income (loss) 795
- -----------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -----------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ................................................................. 32,051
Foreign currency related transactions ....................................... (2)
---------
32,049
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................................. 48,098
Foreign currency related transactions ....................................... (26)
---------
48,072
- -----------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 80,121
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 80,916
- -----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
155 | Kemper Variable Series -
Kemper International Portfolio
<PAGE>
(in thousands)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) ............................................................ $ 795 $ 2,029
Net realized gain (loss) ................................................................ 32,049 24,326
Net unrealized appreciation (depreciation) on investment transactions during the period . 48,072 (6,982)
--------- ---------
Net increase (decrease) in net assets resulting from operations ......................... 80,916 19,373
Distributions to shareholders:
From net investment income .............................................................. (2,324) (2,412)
--------- ---------
From net realized gains ................................................................. (24,985) (7,437
--------- ---------
Portfolio share transactions:
Proceeds from shares sold ............................................................... 161,882 36,727
Reinvestment of distributions ........................................................... 27,309 9,901
Cost of shares redeemed ................................................................. (204,366) (42,999)
--------- ---------
Net increase (decrease) in net assets from Portfolio share transactions ................. (15,175) 3,629
--------- ---------
Increase (decrease) in net assets ....................................................... 38,432 13,153
Net assets at beginning of period ....................................................... 213,199 200,046
Net assets at end of period (including undistributed net investment income (loss) of $271 --------- ---------
and $1,755,720, respectively) ........................................................ $ 251,631 $ 213,199
--------- ---------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ............................................... 125,411 123,869
--------- ---------
Shares sold ............................................................................. 99,135 25,667
Shares issued to shareholders in reinvestment of distributions .......................... 17,967 1,492
Shares redeemed ......................................................................... (125,199) (25,617)
--------- ---------
Net increase (decrease) in Portfolio shares ............................................. (8,097) 1,542
--------- ---------
Shares outstanding at end of period ..................................................... 117,314 125,411
--------- ---------
</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, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.700 1.615 1.564 1.371 1.244
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .007(a) .017 .011 .011 .018
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .673 .148 .130 .212 .139
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .680 .165 .141 .223 .157
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.020) (.020) (.020) (.020) (.010)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.215) (.060) (.070) (.010) (.020)
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.235) (.080) (.090) (.030) (.030)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $2.145 1.700 1.615 1.564 1.371
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 45.71 10.02 9.46 16.49 12.83
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 251,631 213,199 200,046 163,475 134,481
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .94 .93 .91 .96 .92
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .94 .93 .91 .96 .92
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .40 .96 .71 .89 1.39
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 136 90 79 87 126
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
The accompanying notes are an integral part of the financial statements.
156 | Kemper Variable Series -
Kemper International Portfolio
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
December 31, 1999
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.
157 | Kemper Variable Series
<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
Kemper-Dreman High Return Equity Portfolio and the Kemper 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 Global Income 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.
158 | Kemper Variable Series
<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:
Capital Loss Expiration
Portfolio Carryforward ($) Date
- --------------------------------------------------------------------------------
Kemper Money Market Portfolio .................. 2,000 12/31/2007
Kemper Government Securities Portfolio ......... 2,526,000 12/31/2002
524,000 12/31/2004
116,000 12/31/2006
1,797,000 12/31/2007
Kemper Investment Grade Bond Portfolio ......... 946,000 12/31/2007
Kemper High Yield Portfolio .................... 6,697,000 12/31/2000
6,999,000 12/31/2002
2,026,000 12/31/2003
10,328,000 12/31/2007
Kemper Blue Chip Portfolio ..................... 2,008,000 12/31/2006
Kemper Small Cap Value Portfolio ............... 1,882,000 12/31/2006
6,067,000 12/31/2007
Kemper Global Income Portfolio ................. 178,000 12/31/2007
In addition, from November 1, 1999 through December 31, 1999, the following
portfolios incurred net realized capital losses as follows:
Net Realized
Portfolio Capital Loss ($)
- ---------------------------------------------------------------------------
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 Global Income Portfolio ........................... 12,000
Kemper International Growth and Income 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
159 | Kemper Variable Series
<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 year ended December 31, 1999, investment transactions (excluding
short-term instruments) are as follows (in thousands):
Proceeds
Portfolio Purchases ($) from sales ($)
- --------------------------------------------------------------------------------
Kemper Government Securities Portfolio ............ 62,885 72,940
Kemper Investment Grade Bond Portfolio ............ 91,389 67,534
Kemper High Yield Portfolio ....................... 189,869 209,859
Kemper Total Return Portfolio ..................... 690,271 728,879
Kemper Blue Chip Portfolio ........................ 148,669 73,519
Kemper Growth Portfolio ........................... 531,252 655,709
Kemper Aggressive Growth Portfolio (a) ............ 8,566 1,950
Kemper Horizon 20+ Portfolio ...................... 23,038 25,044
Kemper Horizon 10+ Portfolio ...................... 39,278 31,177
Kemper Horizon 5 Portfolio ........................ 22,026 12,252
Kemper Small Cap Growth Portfolio ................. 400 428
Kemper Technology Growth Portfolio (a) ............ 48,563 4,380
Kemper Value+Growth Portfolio ..................... 156,193 155,287
Kemper Contrarian Value Portfolio ................. 250,382 219,341
Kemper-Dreman High Return Equity Portfolio ........ 82,842 18,945
KVS Focused Large Cap Growth Portfolio (c) ........ 3,235 1,139
KVS Growth and Income Portfolio (c) ............... 11,923 651
KVS Growth Opportunities Portfolio (c) ............ 10,468 11
Kemper Index 500 Portfolio (b) .................... 27,405 45
Kemper Small Cap Value Portfolio .................. 64,996 67,508
Kemper-Dreman Financial Services Portfolio ........ 17,511 2,995
Kemper Global Income Portfolio .................... 11,915 11,234
Kemper Global Blue Chip Portfolio ................. 15,736 5,693
Kemper International Growth and Income Portfolio .. 8,810 6,319
Kemper International Portfolio .................... 269,884 322,886
(a) For the period from May 1, 1999 to December 31, 1999.
(b) For the period from September 1, 1999 to December 31, 1999.
(c) For the period from October 29, 1999 to December 31, 1999.
For the year ended December 31, 1999, transactions for written options were as
follows for the Kemper Government Securities Portfolio:
Contracts Premium ($)
- -----------------------------------------------------------------------------
Beginning of period ....................... -- --
Written ................................... 37 18
Closed .................................... 28 17
End of period ............................. 9 1
The aggregate face value of futures contracts opened and closed during the year
ended December 31, 1999 was as follows (in thousands):
Portfolio Opened ($) Closed ($)
- --------------------------------------------------------------------------------
Kemper Government Securities Portfolio ........ 128,796 125,089
Kemper-Dreman High Return Equity Portfolio .... 66,809 57,655
Kemper Index 500 Portfolio .................... 14,581 377
160 | Kemper Variable Series
<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 Global Income Portfolio ............................ 0.75%
Kemper International Portfolio ............................ 0.75%
The Kemper Aggressive Growth Portfolio, Kemper Technology Growth Portfolio,
Kemper-Dreman High Return Equity Portfolio and Kemper-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 $12.5 billion ......................................... 0.62%
For the period ended December 31, 1999, the portfolios incurred the following
management fees:
<TABLE>
<CAPTION>
Management Fees Waived
Fee by Scudder Effective
Portfolio Imposed ($) Kemper ($) Rate (%)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kemper Aggressive Growth Portfolio ............... -- 18,000 --
Kemper Technology Growth Portfolio ............... 105,000 -- 0.75
Kemper-Dreman High Return Equity Portfolio ....... 752,000 -- 0.75
Kemper-Dreman Financial Services Portfolio ....... 172,000 12,000 0.70
</TABLE>
161 | Kemper Variable Series
<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 $2.5 billion ................................... 0.850%
For the period ended December 31, 1999, the portfolios incurred the following
management fees:
Management Fees Waived
Fee by Scudder Effective
Portfolio Imposed ($) Kemper ($) Rate (%)
- --------------------------------------------------------------------------------
KVS Focused Large Cap Portfolio .......... -- 3,023 --
KVS Growth and Income Portfolio .......... -- 11,867 --
KVS Growth Opportunities Portfolio ....... -- 11,726 --
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 period ended December 31, 1999, Scudder Kemper imposed all of its fee
amounting to $21,834, which was equivalent to an annual effective rate of 0.45%.
In addition, during the period ended December 31, 1999, Scudder Kemper paid the
portfolio $103,378 for losses incurred in connection with certain portfolio
transactions.
The Kemper Global Blue Chip Portfolio pays Scudder Kemper a graduated investment
management fee, based on the average daily net assets of the portfolio, payable
monthly, at the annual rates shown below:
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%
For the year ended December 31, 1999, Scudder Kemper did not impose any of its
management fee amounting to $94,000.
The Kemper International Growth and Income Portfolio pays the investment manager
an investment management fee, payable monthly, based on an annual rate of 1% of
the average daily net assets of the portfolio. For the period ended December 31,
1999, Scudder Kemper did not impose any of its management fee amounting to
$48,000.
Dreman Value Management, L.L.C. serves as sub-adviser with respect to the
investment and reinvestment of assets in the Kemper-Dreman High Return Equity
and Kemper-Dreman Financial Services Portfolios, and is paid by Scudder Kemper
for its services.
Eagle Asset Management, Inc. serves as sub-adviser with respect to the
investment and reinvestment of assets in the KVS Focused Large Cap Growth
Portfolio, and is paid by Scudder Kemper for its services.
162 | Kemper Variable Series
<PAGE>
Janus Capital Corporation serves as sub-adviser with respect to investment and
reinvestment of assets in the KVS Growth and Income and KVS Growth Opportunities
Portfolios, and is paid by Scudder Kemper for its services.
Bankers Trust Company serves as sub-adviser with respect to investment and
reinvestment of assets in the Kemper Index 500 Portfolio, and is paid by Scudder
Kemper for its services.
Scudder Investments Ltd. (U.K.), serves as sub-adviser with respect to foreign
securities investments in the Kemper International and Kemper Global Income
Portfolios, and is paid by Scudder Kemper for its services.
Fund Accounting Agent. Scudder Fund Accounting Corporation (SFAC), is
responsible for determining the daily net asset value per share and maintaining
the general accounting records of each portfolio. For the period ended December
31, 1999, SFAC received the following fee for its services for the following
portfolios:
<TABLE>
<CAPTION>
Fees Waived Unpaid at
Fee by Scudder December 31,
Portfolio Imposed ($) Kemper ($) 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kemper Aggressive Growth Portfolio ................. 3,000 22,000 --
Kemper Technology Growth Portfolio ................. 25,000 -- 16,000
Kemper-Dreman High Return Equity Portfolio ......... 41,000 -- 5,000
KVS Focused Large Cap Growth Portfolio ............. -- 6,000 --
KVS Growth and Income Portfolio .................... -- 6,000 --
KVS Growth Opportunities Portfolio ................. -- 6,000 --
Kemper Index 500 Portfolio ......................... 9,000 -- --
Kemper-Dreman Financial Services Portfolio ......... 38,000 -- 16,000
Kemper Global Blue Chip Portfolio .................. -- 50,000 --
Kemper International Growth and Income Portfolio ... -- 50,000 --
</TABLE>
Officers and Trustees. Certain officers or trustees of the Trust are also
officers or directors of Scudder Kemper. For the year ended December 31, 1999,
the Trust made no direct payments to its officers and incurred trustees' fees of
$341,000 to independent trustees.
D. Expense Off-Set Arrangements
The portfolios have entered into arrangements with its custodian whereby credits
realized as a result of uninvested cash balances were used to reduce a portion
of the portfolio's expenses. During the period, the portfolios' custodian fees
were reduced as follows under these arrangements:
Portfolio Amount ($)
- --------------------------------------------------------------------------------
Kemper Money Market Portfolio ................................... 5,000
Kemper Government Securities Portfolio .......................... 4,000
Kemper Investment Grade Bond Portfolio .......................... 2,000
Kemper High Yield Portfolio ..................................... 9,000
Kemper Total Return Portfolio ................................... 1,000
Kemper Blue Chip Portfolio ...................................... 3,000
Kemper Growth Portfolio ......................................... 5,000
Kemper Aggressive Growth Portfolio .............................. --
Kemper Horizon 20+ Portfolio .................................... 1,000
Kemper Horizon 10+ Portfolio .................................... --
Kemper Horizon 5 Portfolio ...................................... --
Kemper Small Cap Growth Portfolio ............................... 2,000
Kemper Technology Growth ........................................ --
Kemper Value+Growth Portfolio ................................... 5,000
Kemper Contrarian Value Portfolio ............................... 7,000
Kemper-Dreman High Return Equity Portfolio ...................... 2,000
Kemper Index 500 Portfolio ...................................... --
Kemper Small Cap Value Portfolio ................................ 3,000
Kemper-Dreman Financial Services Portfolio ...................... --
Kemper Global Income Portfolio .................................. 1,292
Kemper Global Blue Chip Portfolio ............................... --
Kemper International Growth And Income Portfolio ................ 449
Kemper International Portfolio .................................. 3,000
163 | Kemper Variable Series
<PAGE>
E. Commitments
As of December 31, 1999, Kemper Global Income Portfolio had entered into the
following forward foreign currency exchange contracts resulting in net realized
appreciation of $44,205:
Net Unrealized
Appreciation
Settlement (Depreciation)
Contracts to Deliver In Exchange For Date (U.S.$)
- --------------------------------------------------------------------------------
USD 158,000 CAD 233,153 1/18/2000 3,440
USD 368,869 EUR 253,086 1/31/2000 (12,549)
USD 208,812 EUR 203,521 1/31/2000 (3,427)
EUR 910,200 USD 966,541 1/31/2000 48,004
USD 83,861 GBP 51,607 2/14/2000 (521)
USD 196,000 GBP 120,389 2/14/2000 (1,585)
USD 123,200 JPY 12,615,729 2/14/2000 1,091
GBP 88,533 USD 146,346 2/14/2000 3,374
NOK 1,118,716 USD 143,287 2/14/2000 3,672
GBP 118,882 USD 197,998 2/14/2000 6,017
JPY 10,090,575 USD 99,000 2/14/2000 (414)
USD 120,000 CAD 174,876 3/7/2000 1,232
USD 146,987 CAD 218,616 3/7/2000 4,568
CAD 393,492 USD 264,089 3/7/2000 (8,697)
------
44,205
------
Abbreviations
- -----------------------------
USD United States Dollar
CAD Canadian Dollar
GBP Great British Pound
EUR Euro
JPY Japanese Yen
164 | Kemper Variable Series
<PAGE>
Report of Independent Auditors
- --------------------------------------------------------------------------------
The Board of Trustees and the Shareholders of Kemper Variable Series:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the Kemper Money Market, Kemper Government
Securities, Kemper Investment Grade Bond, Kemper High Yield, Kemper Total
Return, Kemper Blue Chip, Kemper Growth, Kemper Aggressive Growth, Kemper
Horizon 20+, Kemper Horizon 10+, Kemper Horizon 5, Kemper Small Cap Growth,
Kemper Technology Growth, Kemper Value+Growth, Kemper Contrarian Value,
Kemper-Dreman High Return Equity, KVS Focused Large Cap Growth, KVS Growth And
Income, KVS Growth Opportunities, Kemper Index 500, Kemper Small Cap Value,
Kemper-Dreman Financial Services, Kemper Global Income, Kemper Global Blue Chip,
Kemper International Growth And Income and Kemper International Portfolios,
comprising the Kemper Variable Series (the "Fund") as of December 31, 1999, and
the related statements of operations and changes in net assets and the financial
highlights for the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1999, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the portfolios of the Kemper Variable Series at December 31, 1999, the
results of their operations, the changes in their net assets and the financial
highlights for the periods indicated therein in conformity with accounting
principles generally accepted in the United States.
Chicago, Illinois ERNST & YOUNG LLP
February 15, 1999
165 | Kemper Variable Series
<PAGE>
Tax Information (Unaudited)
- --------------------------------------------------------------------------------
December 31, 1999
The following portfolios paid distributions from net long-term capital gains
during the year ended December 31, 1999:
Distribution % representing
Portfolio per share ($) 20% rate gains
- --------------------------------------------------------------------------------
Kemper Total Return Portfolio ................ 0.14 100%
Kemper Horizon 20+ Portfolio ................. 0.01 100%
Kemper Value+Growth Portfolio ................ 0.035 100%
Kemper Contrarian Value Portfolio ............ 0.02 100%
Kemper-Dreman High Return Equity Portfolio ... 0.01 100%
Kemper International Portfolio ............... 0.215 100%
Pursuant to Section 852 of the Internal Revenue Code, the following portfolios
designate capital gain dividends for the year ended December 31, 1999 as
follows:
<TABLE>
<CAPTION>
Capital Gain % representing
Portfolio Dividends ($) 20% rate gains
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Kemper Total Return Portfolio .......................... 49,036,000 100%
Kemper Growth Portfolio ................................ 63,000,000 100%
Kemper Horizon 20+ Portfolio ........................... 1,600,000 100%
Kemper Horizon 10+ Portfolio ........................... 2,300,000 100%
Kemper Horizon 5 Portfolio ............................. 783,000 100%
Kemper Small Cap Growth Portfolio ...................... 14,090,000 100%
Kemper Value+Growth Portfolio .......................... 6,873,000 100%
Kemper Contrarian Value Portfolio ...................... 21,338,000 100%
Kemper-Dreman High Return Equity Portfolio ............. 1,431,000 100%
Kemper Index 500 Portfolio ............................. 70,000 100%
Kemper-Dreman Financial Services Portfolio ............. 31,600 100%
Kemper Global Blue Chip Portfolio ...................... 109,000 100%
Kemper International Growth and Income Portfolio ....... 1,300 100%
Kemper International Portfolio ......................... 24,176,000 100%
</TABLE>
For corporate shareholders, the following percentage of income dividends paid
during the following portfolios' fiscal year ended December 31, 1999 qualified
for the dividends received deduction:
Portfolio %
- --------------------------------------------------------------------------------
Kemper Total Return Portfolio .......................................... 18
Kemper Blue Chip Portfolio ............................................. 100
Kemper Horizon 20+ Portfolio ........................................... 52
Kemper Horizon 10+ Portfolio ........................................... 24
Kemper Horizon 5 Portfolio ............................................. 17
Kemper Value+Growth Portfolio .......................................... 100
Kemper Contrarian Value Portfolio ...................................... 38
Kemper-Dreman High Return Equity Portfolio ............................. 100
Kemper Small Cap Value Portfolio ....................................... 90
Kemper-Dreman Financial Services Portfolio ............................. 100
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare you tax returns. If you have specific questions
about your account, please call 1-800-621-1048.
166 | Kemper Variable Series
<PAGE>
This annual 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 are not available for direct investment. Variable
annuities are long-term, tax-deferred retirement planning 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
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