<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED JULY 31, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Provides long-term capital growth with guaranteed return of investment
on the maturity date to investors who reinvest all dividends and hold their
shares to the maturity date.
KEMPER TARGET EQUITY FUND
KEMPER RETIREMENT FUND
SERIES I, II, III, IV, V AND VI
"... when it comes to the stock market, you need to
keep a long-term focus...as we saw during the annual
period, long-term opportunities can often emerge out of
short-term volatility. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
12
Largest Holdings
14
Portfolio of Investments
23
Report of Auditors
24
Financial Statements
28
Notes to Financial Statements
32
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER RETIREMENT FUND SERIES I-VI
TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
SERIES I 13.75%
- ------------------------------------------------------
SERIES II 11.42%
- ------------------------------------------------------
SERIES III 11.47%
- ------------------------------------------------------
SERIES IV 10.35%
- ------------------------------------------------------
SERIES V 10.81%
- ------------------------------------------------------
SERIES VI 8.81%
- ------------------------------------------------------
</TABLE>
RETURNS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE PERFORMANCE. INVESTMENT
RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN ORIGINAL COST.
* TOTAL RETURN MEASURES NET INVESTMENT INCOME AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS, ASSUMING REINVESTMENT OF ALL DIVIDENDS AND CAPITAL
GAINS. DURING THE PERIOD NOTED, SECURITIES PRICES FLUCTUATED. FOR ADDITIONAL
INFORMATION, SEE THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION AND
THE FINANCIAL HIGHLIGHTS AT THE END OF THIS REPORT.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
7/31/99 7/31/98
- ---------------------------------------------------------
<S> <C> <C>
SERIES I $10.96 $10.80
- ---------------------------------------------------------
SERIES II $12.54 $12.41
- ---------------------------------------------------------
SERIES III $10.62 $10.52
- ---------------------------------------------------------
SERIES IV $10.79 $10.68
- ---------------------------------------------------------
SERIES V $10.18 $10.17
- ---------------------------------------------------------
SERIES VI $11.22 $11.25
- ---------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- -------------------------------------------------------------------------------
DURING THE YEAR ENDED JULY 31, 1999, KEMPER RETIREMENT FUND SERIES I-VI MADE
THE FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
INCOME SHORT-TERM LONG-TERM
DIVIDEND CAPITAL GAIN CAPITAL GAIN
- ---------------------------------------------------------
<S> <C> <C> <C>
SERIES I $0.38 $0.34 $0.49
- ---------------------------------------------------------
SERIES II $0.50 $0.23 $0.47
- ---------------------------------------------------------
SERIES III $0.37 $0.26 $0.41
- ---------------------------------------------------------
SERIES IV $0.33 $0.26 $0.36
- ---------------------------------------------------------
SERIES V $0.33 $0.27 $0.44
- ---------------------------------------------------------
SERIES VI $0.46 $0.22 $0.32
- ---------------------------------------------------------
</TABLE>
TERMS TO KNOW
BALANCE SHEET A listing of assets and liabilities and net worth showing the
position of a company at a certain time.
CYCLICAL STOCKS Cyclical stocks carry a higher degree of economic sensitivity.
In accelerating economies, cyclical stocks tend to rise quickly. In decelerating
economies, cyclicals tend to decline quickly. Cyclical stocks include industrial
machinery, paper and forestry, automobiles and construction.
GROWTH STOCKS Growth stocks are shares in companies that are expected to
experience rapid growth resulting from strong sales, talented management and
dominant market position. Because these stocks are typically in demand, they
tend to carry relatively high price tags and can also be volatile, based on
changing perceptions of the companies' growth.
NARROW MARKET Describes a stock market environment where only a few stocks
perform strongly, while the majority struggle. In contrast, in a broad market,
overall market gains are driven by a larger group of stocks.
<PAGE> 3
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
In a widely anticipated move, the Federal Reserve Board raised its key
interest rate -- the overnight bank lending rate -- by one quarter of a point
(0.25%) in August in an effort to slow the U.S. economy and keep inflation under
control. The rate hike frustrates many investors, who do not understand why the
Fed is tightening when there are no signs of inflation.
Talk of rising interest rates began last spring, and on June 30 the Fed
boosted the overnight bank lending rate one quarter of a point (0.25%). With
this move the Fed said it was not inclined to increase rates again anytime
soon -- although it noted that it was alert to the potential emergence of
inflationary pressures that could undermine economic growth. Talk of a second
rate hike began in July after Fed Chairman Alan Greenspan's commentary to the
House Banking Committee, which was part of the Fed's twice-yearly outlook report
required by the Humphrey-Hawkins Full Employment and Balanced Growth Act of
1978. While Greenspan didn't say that the Fed definitely would raise the
overnight bank loan rate at its next meeting, the tone of his report included
more warnings than expected about the need to follow the June rate increase with
another, and speculation about another hike became reality at the August 24 Fed
meeting.
Many investors are frustrated by a rate hike when there are no signs of
inflation, but Fed policymakers look at the rate hike another way: If the June
30 increase was not enough to bring inflation risks into balance, a "euphoric"
rise in stocks may fuel increased consumer spending, which could necessitate a
more disruptive adjustment later. In its August 24 rate hike, the Fed was acting
promptly to prevent such an adjustment. In other words, the Fed strongly
believes that "a stitch in time saves nine" -- it wants to be preemptive by
raising interest rates and slowing the economy before an inflation problem
arises.
What data may confirm the Fed's theory? To start, the Fed forecasts that the
consumer price index (CPI), the average value of an imaginary "basket" of goods
and services in the economy, could rise as much as 2.5 percent this year, up
from 1.6 percent in 1998. The CPI is the standard measure of inflation in the
United States, so a marked increase would suggest rising inflation.
Employment growth also suggests inflation. Job creation has exceeded the
growth of the working-age population by almost one-half a percentage point
(0.50%) in the past year. The Fed believes that if the pool of job seekers
shrinks sufficiently, upward pressures on wage costs are likely. Such cost
increases have invariably presaged rising inflation in that past, and presumably
would in the future.
The Fed also believes that gross domestic product (GDP), the value of all
goods and services produced in the United States, is growing faster than it
would grow without inflation. The Fed believes that GDP can grow 3.0 percent to
3.5 percent per year without generating inflation. Actual 1998 GDP growth was
4.3 percent, and 1999 GDP growth is projected to be 3.8 percent.
Productivity growth is another indicator of inflation pressure. After
languishing at about 1 percent in the 1970s and 1980s, productivity growth has
been above 2 percent in each of the past three years. Over the past four
quarters it has increased 2.8 percent, and could reach 3.5 percent if
second-quarter productivity growth comes in close to 4 percent. According to the
Fed, this has enabled output to grow beyond what normally would have been
expected -- and has held down inflationary pressures. But productivity must
continue to grow at an ever faster pace to keep inflation from accelerating. The
Fed is concerned that the gains in technology that have fostered the
productivity growth will slow, and any inflationary pressures in the labor
market could ultimately show in product prices.
The improving global economy could also contribute to inflation. Improving
economic conditions around the world mean that the U.S. economy will no longer
experience declines in basic commodity and import prices that curtailed
inflation in recent years. A rise in the price of imported crude oil -- which is
used to make everything from gasoline to plastic bags -- is already up 57
percent this year. To the Fed, which cut interest rates by 75 basis points last
year because of a slowdown in the global economy, raising interest rates in June
and again in August was only "taking back" some of what it gave last year.
Clearly, then, Fed raised interest rates to slow the economy. As a result,
consumer spending will likely decrease, leading to a decline in corporate
profits. That will have negative effects on capital spending. The end result
could be a decline in the value of equities in general.
Although many economic analysts have moved past the August 24 rate hike and
are now speculating about what the Fed will do at its October 5 meeting, the
August rate hike will likely be the end of the Fed's interest in interest rates
for the next six months. The Fed is unlikely to raise rates between November and
February because of the Y2K issue: It doesn't want to encourage Y2K fears or
appear responsible for Y2K-related volatility in the financial markets.
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND SHAREHOLDER
DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR DEFLATION, CREDIT
EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE 10-YEAR
TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES. THE OTHER DATA
REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (8/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate 1 5.94 5.00 5.34 6.30
Prime rate 2 8.06 7.75 8.50 8.50
Inflation rate 3* 2.00 1.60 1.68 2.16
The U.S. dollar 4 -6.36 -1.53 8.17 10.10
Capital goods orders 5* 11.84 5.11 3.05 10.30
Industrial production 5* 3.58 1.55 2.71 5.59
Employment growth 6* 2.17 2.37 2.67 2.39
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
* DATA AS OF 7/31/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
The long-term possibility of interest rate hikes is likely to be affected by
political considerations. Election primaries begin in February 2000. Will
candidates be talking about tax cuts? Medicare reform? Social Security reform?
These will be the issues to consider when we look at the economy in early- to
mid-2000.
Hopefully it will be as easy for investors to obtain information about Fed
policies at that time as it is today. The Humphrey-Hawkins hearings were created
to give Congress and the public some idea of economic growth and inflation. But
this round of Humphrey-Hawkins hearings could be the last, because the
Humphrey-Hawkins law expires this year. Although Greenspan has said he thinks it
is important for the Fed to report to Congress, and House Banking Committee
Chairman Jim Leach intends to press for a new law, there has been no move to
enact a new reporting requirement. Although the Fed could still provide
hearings, without a law forcing it to do so within a certain framework, we would
likely have no consistent basis for analyzing monetary policy.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
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 SCUDDER KEMPER INVESTMENTS ECONOMICS GROUP
AS OF AUGUST 27, 1999, AND MAY NOT ACTUALLY COME TO PASS. THIS INFORMATION IS
SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS AN INVESTMENT
RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
[MCCORMICK PHOTO]
TRACY MCCORMICK IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC. SHE
IS ALSO A VICE PRESIDENT AND PORTFOLIO MANAGER OF KEMPER RETIREMENT FUND. TRACY
MCCORMICK RECEIVED BOTH HER B.A. AND M.B.A. DEGREES FROM MICHIGAN STATE
UNIVERSITY. SHE BRINGS MORE THAN 15 YEARS OF INVESTMENT INDUSTRY EXPERIENCE.
[LANGBAUM PHOTO]
[DOLAN PHOTO]
PORTFOLIO MANAGERS GARY LANGBAUM, CFA, AND SCOTT DOLAN ALSO CONTRIBUTE TO THE
MANAGEMENT OF THE FUND. THE TEAM IS SUPPORTED BY SCUDDER KEMPER INVESTMENTS,
INC.'S LARGE STAFF OF ANALYSTS, RESEARCHERS AND TRADERS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE REPORT PERIOD, AS STATED ON THE COVER. THE MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON THE MARKET AND OTHER
CONDITIONS.
INTEREST-RATE SHIFTS, INVESTOR ANXIETY AND GLOBAL UNCERTAINTY WERE JUST A FEW OF
THE FACTORS THAT CONTRIBUTED TO A TURBULENT MARKET CLIMATE DURING THE FUND'S
FISCAL YEAR. DESPITE THIS VOLATILITY, LEAD PORTFOLIO MANAGER TRACY MCCORMICK LED
THE PORTFOLIOS OF KEMPER RETIREMENT FUND SERIES TO RESPECTABLE GAINS. BELOW,
MCCORMICK PROVIDES AN OVERVIEW OF THE MARKET, THE FUND'S PERFORMANCE AND HER
INVESTMENT STRATEGY.
Q BEFORE YOU DISCUSS THE FUND, COULD YOU PROVIDE AN OVERVIEW OF SOME OF THE
IMPORTANT EVENTS AND THEMES THAT DROVE THE MARKET?
A The fund began its fiscal year in August 1998, one of the most turbulent
months for the stock market. In late August, Russia defaulted on its debt,
sending shock waves across the global economy. Investors were already jittery
about the economic strength of Asia, Brazil and Latin America; news of Russia's
default unleashed a steep global market correction.
The Federal Reserve Bank stepped in quickly, cutting interest rates to
stimulate economic growth. Other countries followed suit. Leading nations came
together and developed plans to shore up the sagging economies.
These quick and cohesive actions were well received by investors, and the
domestic stock market rallied briskly in the fourth quarter of 1998. Strong
consumer confidence, low unemployment, low inflation, and steady, modest
corporate growth also contributed to an optimistic environment.
Yet, not all types of domestic stocks fared equally well. Because
investorsremained nervous about market volatility, they tended to gravitate
toward stocks that offered the perception of stability. These were typically
large-cap, household-name companies. The domestic market was unusually narrow
(see Terms To Know on page 2), and only a handful of these large growth
companies propelled the performance of the stock market.
In a climate of high consumer confidence, retail and media stocks were
among those posting brisk gains. But technology stocks stole the show in the
fourth quarter. After struggling mightily since the Asian economic crisis of
1997, technology stocks saw the tides turn in their favor. Low valuations, an
improving supply/demand environment and the explosive growth of the Internet
propelled an enthusiastic rally.
In April, however, the markets changed direction, rotating from growth
stocks into more-cyclical issues, and broadening out to include more small- and
mid-cap stocks. Cyclical stocks (see Terms To Know on page 2) typically thrive
during times of accelerating economic growth, and many investors believed that
the economy was indeed positioned to grow more rapidly. The Federal Reserve's
move in June to tighten interest rates reinforced this view. Oil, chemical, and
industrial stocks benefited from the change of market direction, while
growth-oriented health-care and consumer-nondurable stocks faltered. Concerns
about trendy, high-priced technology stocks came home to roost, and many
Internet stocks dropped precipitously.
5
<PAGE> 6
PERFORMANCE UPDATE
By June, however, this cyclical rotation slowed. At the close of the fund's
fiscal year, the domestic-stock market isn't moving with uniform momentum
towards either cyclical or growth-style stocks. Investors are paying more
attention to company fundamentals, but the possibility of additional
interest-rate hikes continues to leave many individuals ill at ease.
Q HOW DID KEMPER RETIREMENT FUND PERFORM?
A For the one-year period ending July 31, 1999, the returns of the
portfolios ranged from 13.75 percent to 8.81 percent (unadjusted for any sales
charges). (Please see page 2 for more information.)
While these returns may seem modest compared to the fund returns that you
may see in the headlines, keep in mind that the portfolios typically invest only
a portion of assets in stocks, and the remainder in zero-coupon U.S. Treasury
bonds. The bonds anchor the fund's guaranteed return of original investment, but
they also limit the fund's ability to participate fully in the equity market.
Remember, the guaranteed return of original investment applies only to
shareholders who hold their investment to the portfolios' maturity date, and who
reinvest all dividends. Please see the prospectus for more details.
Q TELL US MORE ABOUT ZERO-COUPON U.S. TREASURY BONDS.
A Zero-coupon U.S. Treasury bonds are sold at considerable discount to their
face value. "Zero-coupon" means that the bondholder receives no periodic
interest payments. When the bonds mature, the bondholder receives the face value
of the bond. Because the U.S. government backs the bonds, the payment is
guaranteed.
Prior to maturity, the principal value of a zero-coupon bond is subject to
volatility, especially when interest rates are shifting. Generally, zero-coupon
bonds have higher prices when interest rates are low. Because the portfolios
were launched at different times, in different interest-rate environments, the
amount of zero-coupon bonds in each portfolio varies.
Q HOW DO YOU SELECT STOCKS?
A We follow a disciplined, research-intensive process. We invest primarily
in the stocks of established, large-cap, domestic companies. Before we buy a
stock, we require:
- Excellent company fundamentals
- Strong earnings-growth prospects
- Catalysts for potential growth, such as new management, products,
services or business strategies
- Attractive stock prices
In order to determine which stocks to buy, we rely on rigorous,
independent analysis. We need to understand a company inside and out. To do
this, we'll meet with a company's management, visit facilities, dig into balance
sheets (see Terms To Know on page 2), and apply thorough quantitative screens.
We don't let the conventional Wall Street buzz sway our judgement.
Another important element of our strategy involves analyzing secular or
industry trends, and targeting companies that are well-positioned to benefit
from those trends.
Q HOW DO YOU DECIDE WHAT STOCKS TO SELL?
A We'll begin to sell stocks when their prices reach the pre-established
targets we set for them. This sort of selling is often referred to as "profit
taking." Profit taking requires strict discipline, but we believe that this
discipline can keep us from getting caught up in emotion. We also eliminate
stocks when we see signs that company fundamentals could be weakening or
indications that growth potential could be deteriorating.
6
<PAGE> 7
PERFORMANCE UPDATE
Q PLEASE HIGHLIGHT SOME EXAMPLES OF WHERE YOUR STOCK-SELECTION PROCESS
ENHANCED PERFORMANCE.
A Media and technology stocks were two groups that contributed especially
good gains.
MEDIA: Because they derive significant revenues from advertising, media
stocks have profited from high consumer confidence. As lengthening commute times
keep people in cars for longer periods, radio and outdoor advertising have
become increasing lucrative. Companies like Clear Channel Communications, a
leading provider of outdoor advertising and radio broadcasting, have taken
advantage of these trends. Certain media companies, such as AT&T -- Liberty
Media Group, also offer exposure to the growth of the Internet. In addition to
providing television programming, AT&T -- Liberty Media Group also has a corner
on some highly valued band-width. We believe that many of the largest Internet
players would be willing to pay a premium price for this bandwidth.
Tribune Company, Time Warner, and Univision Communications also earned
solid gains. Tribune and Time Warner are well-known companies, operating a
variety of diversified media services. Both have demonstrated the ability to
address -- and profit from -- the evolving needs of the marketplace. Univision
is a leading player in a rapidly growing market segment -- Spanish-language
radio and television. Univision may not be a household name today, but it's a
good example of an excellently managed company that is well positioned to
dominate its niche.
TECHNOLOGY: Our analysis had also led us to profitable technology stocks,
notably semiconductor and computer hardware stocks, including Motorola and
Hewlett-Packard. These, and other technology stocks, have provided the fund with
robust gains.
Motorola and Hewlett-Packard both demonstrate the benefits of our
independent research. We invested in Motorola in 1997, at a time when many Wall
Street analysts did not have a favorable view of the stock. We tuned out the
buzz and relied on our own research. In our analysis, Motorola offered several
catalysts for growth: the firm had clarified its focus, redefined its business
groups, and initiated cost-control measures. Our decision paid off: Motorola has
since posted very attractive earnings, and we've reaped an excellent return from
the stock.
Hewlett-Packard is also a good example of our stock-selection process in
action. Throughout the fall and summer of 1997, when many investors felt that
Hewlett-Packard wasn't a worthwhile proposition, we built exposure to the stock.
The company had been frank about recent problems with top-line growth and also
had significant exposure to troubled Asian markets. We considered these factors
carefully, but also looked deeper. Hewlett-Packard was battening down the
hatches on expenses, offered a healthy product cycle and had developed plans to
spin-off a portion of its operations. The firm had also brought in well-
regarded senior management from outside the firm. In short, we were seeing the
catalysts that we like to see. Our judgement proved on-track: Hewlett Packard
has made considerable progress in getting its house in order, and its stock
price has risen accordingly.
Q WHAT FACTORS HINDERED PERFORMANCE?
A In more general terms, the portfolios' hefty exposure in zero-coupon bonds
limited our ability to fully participate in the stock market's rebound. When the
market rotated toward value-oriented cyclicals in the spring, our more growth-
oriented style faced added challenges as well.
Waste Management Services proved to be a poor investment. We bought the
stock at an attractive valuation -- and saw its price rise dramatically through
the first portion of 1999. We were aware that Waste Management was grappling
with some accounting issues, but felt that its acquisition by USA Waste could
address these situations. Regrettably, our conviction in Waste Management was
not merited. In July, the firm fell short of earnings expectations. We saw that
the management did not have a firm hold on the company and had not appropriately
addressed the accounting issues. We exited the stock ahead of many of other
investors who placed less weight on what was -- to us -- a significant
development. Thanks to our prompt liquidation, we were able to sidestep much of
the price decline that was to follow. Overall, we ended up just a moderate
degree behind where we started.
7
<PAGE> 8
PERFORMANCE UPDATE
Some of our health-care stocks also fell short of expectations. Many
pharmaceutical stocks became richly valued, despite slowing product pipelines.
Although we had been paring back the fund's exposure, in retrospect we would
have been better served by a more-aggressive reduction. When the market took on
a more cyclical tilt in the spring, our pharmaceutical exposure clipped overall
gains, as stocks such as Abbott Laboratories and Pfizer stumbled. American Home
Products has faced uphill ground in the wake of legislation surrounding its diet
drug "fen-phen." Our analysis indicates that the market has over-discounted the
impact of possible judgements against the company, so we continue to hold the
stock.
Q TECHNOLOGY STOCKS ARE WELL REPRESENTED IN THE FUND. COULD YOU TELL US MORE
ABOUT THE FUND'S TECHNOLOGY EXPOSURE?
A We've found many attractively valued technology stocks. Throughout the
annual period, we've favored component, networking and hardware companies. We're
particularly interested in companies that have embraced the electronic-commerce
revolution with compelling business models and product plans. Companies that fit
this criteria include Intuit, Novell and Oracle Systems.
We're also interested in technology companies that are leveraging the
potential of contract manufacturing, or outsourcing. A contract-manufacturing
arrangement allows a company to focus and build on its core competencies, such
as product development, while outsourcing the manufacturing to another company.
Typically, the contract manufacturer can produce the goods at a reduced cost.
We've been particularly impressed with the ways that companies such as Cisco
Systems have used outsourcing to enhance growth. We also hold a position in
Solectron, a leading contract manufacturer.
Meanwhile, we're steering clear of the trendy, untested ".com" stocks.
Simply put, we need quality fundamentals, not hype. We're also being very
vigilant about companies that could be most susceptible to Year 2000 spending
slowdowns.
Q WHERE ELSE ARE YOU FINDING OPPORTUNITIES?
A Within the financial-services industry, we've built exposure to property
and casualty insurance companies, such as St. Paul Companies. Many insurers have
endured a long down-cycle, characterized by weak cash flow and overcapacity.
More recently, however, pricing has improved and there are signs of improved
retention.
We've also added stocks that provide cyclical exposure without sacrificing
growth. Stocks that have met these dual criteria include industrial-machinery
producer Parker-Hannifin, and chemical manufacturer Air Products & Chemicals.
Air Products hasn't yet performed as briskly as we had anticipated, but our
analysis suggests that the stock still offers good longer-term potential.
We've also done some repositioning of our health-care stocks. The
valuations of many pharmaceutical companies are stretched. Also, many of the
pharmaceutical giants have experienced slowdowns in their product pipelines. In
contrast, many biotech and medical supply companies offer more attractive
valuations and opportunities for growth. So, our analysis has encouraged us to
pare back exposure to pharmaceuticals in favor of these other segments of the
health-care sector.
Apart from media stocks, the portfolios do include some other
consumer-staples stocks, but we've been particularly selective here. Recently,
we haven't found many consumer-staple stocks that offer the attractively valued
growth potential that we seek. Many have experienced difficulties generating
top-line growth. PepsiCo is one stock that makes the grade, however. Here, we're
seeing improved cost-controls, and reinvigorated management. PepsiCo has
sharpened its focus, spinning off its restaurant and bottling divisions to focus
on the more lucrative potential of its core beverage market and the Frito-Lay
brand. In fact, PepsiCo is one of the fund's largest holdings, and we also have
exposure to its spin-off, Pepsi Bottling Group.
8
<PAGE> 9
PERFORMANCE UPDATE
Q TRACY, GIVEN THE VOLATILITY OF THIS PAST YEAR, DO YOU HAVE ANY CLOSING
THOUGHTS FOR SHAREHOLDERS?
A The past year reminds us that stock investing brings both ups and downs.
The events of the past year also emphasize that, when it comes to the stock
market, you need to keep a long-term focus. Short-term market volatility can be
uncomfortable, but we encourage shareholders to look to the benefits of the
investment program they have established with Kemper Retirement Fund. Through
its zero-coupon bonds, Kemper Retirement Fund provides shareholders with a
guaranteed return of initial investment and a more secure way to participate in
the stock market. The target-maturity structure supports a long-term investment
discipline. (Please see the prospectus for important details and conditions
about the guarantee.)
Lastly, as we saw during the annual period, long-term opportunities can
often emerge out of short-term volatility. We are committed to using Scudder
Kemper Investments' disciplined, independent research to pursue these
opportunities on behalf of the shareholders.
- --------------------------------------------------------------------------------
IMPORTANT NOTICE FOR SHAREHOLDERS OF KEMPER RETIREMENT FUND -- SERIES I
- --------------------------------------------------------------------------------
On November 15, 1999, Kemper Retirement Fund -- Series I matures, as outlined
in the prospectus. Under separate cover, shareholders should have received
information about this event and the options available to them. If you have
any questions or would like more information, please contact your financial
representative or Kemper Shareholder Services at (800) 621-1048.
9
<PAGE> 10
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED JULY 31, 1999 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SERIES I 8.05% 13.48% 13.12% (since 2/5/90)
...................................................................................................
SERIES II 5.88% 11.55% 12.51% (since 9/10/90)
...................................................................................................
SERIES III 5.93% 12.41% 10.68% (since 3/10/92)
...................................................................................................
SERIES IV 4.85% 12.00% 9.39% (since 1/15/93)
...................................................................................................
SERIES V 5.22% 12.93% 9.77% (since 11/15/93)
...................................................................................................
SERIES VI 3.39% n/a 10.99% (since 5/1/95)
...................................................................................................
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER RETIREMENT FUND-SERIES I
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Series I shares from 2/28/90 to
7/31/99
<TABLE>
<CAPTION>
LEHMAN BROTHERS
KEMPER RETIREMENT GOV'T/CORP. BOND S&P 500 STOCK
FUND - SERIES I RUSSELL 1000 GROWTH INDEX INDEX"'
----------------- ------------------- ---------------- -------------
<S> <C> <C> <C> <C>
2/28/90 9502.00 10000.00 10000.00 10000.00
10508.00 10770.00 10955.00 10256.00
15065.00 15203.00 12721.00 13379.00
15352.00 15963.00 13685.00 14398.00
12/31/93 17098.00 16427.00 15195.00 15850.00
16028.00 16863.00 14662.00 16059.00
19834.00 23133.00 17483.00 22095.00
12/31/96 22693.00 28482.00 17991.00 27166.00
26244.00 37166.00 19746.00 36230.00
29446.00 51550.00 21620.00 46582.00
7/31/99 31671.00 55127.00 21070.00 50723.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER RETIREMENT FUND-SERIES II
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Series II shares from 9/30/90 to
7/31/99
<TABLE>
<CAPTION>
LEHMAN BROTHERS
KEMPER RETIREMENT GOV'T/CORP. BOND S&P 500 STOCK
FUND - SERIES II RUSSELL 1000 GROWTH INDEX INDEX"'
----------------- ------------------- ---------------- -------------
<S> <C> <C> <C> <C>
9/30/90 10000.00 10000.00 10000.00 10000.00
10322.00 11095.00 10509.00 10896.00
14642.00 15662.00 12204.00 14216.00
15090.00 16446.00 13129.00 15299.00
12/31/93 16977.00 16923.00 14578.00 16841.00
15824.00 17373.00 14066.00 17064.00
19550.00 23833.00 16773.00 23477.00
12/31/96 21647.00 29343.00 17260.00 28866.00
24636.00 38289.00 18944.00 38497.00
27373.00 53109.00 20741.00 49497.00
7/31/99 28967.00 56794.00 20213.00 53897.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER RETIREMENT FUND-SERIES III
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Series III shares from 3/31/92 to
7/31/99
<TABLE>
<CAPTION>
LEHMAN BROTHERS
KEMPER RETIREMENT GOV'T/CORP. BOND S&P 500 STOCK
FUND - SERIES III RUSSELL 1000 GROWTH INDEX INDEX"'
----------------- ------------------- ---------------- -------------
<S> <C> <C> <C> <C>
3/31/92 10000.00 10000.00 10000.00 10000.00
9916.00 10334.00 10671.00 11041.00
11476.00 10590.00 11848.00 12153.00
12/31/94 11142.00 11122.00 11833.00 12314.00
13010.00 14619.00 13031.00 16942.00
14151.00 16888.00 13723.00 20831.00
12/31/97 17698.00 25644.00 15202.00 27781.00
18880.00 30750.00 16433.00 35719.00
7/31/99 21045.00 38144.00 16815.00 38894.00
</TABLE>
- -KEMPER RETIREMENT FUND(I)
- -RUSSELL 1000 GROWTH INDEX+
- -LEHMAN BROTHERS GOV'T/CORP. BOND INDEX++
- -S&P STOCK INDEX+++
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE PERFORMANCE. INVESTMENT RETURNS
AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
*AVERAGE ANNUAL TOTAL RETURN AND TOTAL RETURN MEASURES NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM PORTFOLIO INVESTMENTS, ASSUMING REINVESTMENT
OF ALL DIVIDENDS. AVERAGE ANNUAL TOTAL RETURN REFLECTS ANNUALIZED CHANGE
WHILE TOTAL RETURN REFLECTS AGGREGATE CHANGE. DURING THE PERIODS NOTED,
SECURITIES PRICES FLUCTUATED. FOR ADDITIONAL INFORMATION, SEE THE PROSPECTUS
AND STATEMENT OF ADDITIONAL INFORMATION AND THE FINANCIAL HIGHLIGHTS AT THE
END OF THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT OF DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE OF 5.0%. WHEN COMPARING KEMPER RETIREMENT FUND SERIES
TO THE INDICES, YOU SHOULD NOTE THAT THE FUND'S PERFORMANCE REFLECTS THE
MAXIMUM SALES CHARGE, WHILE NO SUCH CHARGES ARE REFLECTED IN THE PERFORMANCE
OF THE INDICES. BEGINNING WITH THE NEXT ANNUAL REPORT, THE S&P 500 STOCK
INDEX, A MORE REPRESENTATIVE INDEX FOR THE STOCK PORTION OF THE FUND, WILL
BE SHOWN INSTEAD OF THE RUSSELL 1000 GROWTH INDEX.
+THE RUSSELL 1000 GROWTH INDEX IS AN UNMANAGED INDEX COMPRISED 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. ASSUMES REINVESTMENT OF DIVIDENDS. SOURCE IS CDA
WIESENBERGER.
++THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX IS AN UNMANAGED INDEX
COMPRISED OF INTERMEDIATE AND LONG-TERM GOVERNMENT AND INVESTMENT GRADE
CORPORATE DEBT SECURITIES. SOURCE IS CDA WIESENBERGER.
+++THE S&P 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF
THE U.S. STOCK MARKET. SOURCE IS CDA WIESENBERGER.
10
<PAGE> 11
PERFORMANCE UPDATE
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER RETIREMENT FUND-SERIES-IV
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Series IV shares from 1/31/93 TO
7/31/99
<TABLE>
<CAPTION>
LEHMAN BROTHERS
KEMPER RETIREMENT GOV'T/CORP. BOND S&P 500 STOCK
FUND -IV RUSSELL 1000 GROWTH INDEX+ INDEX++ INDEX+++
----------------- -------------------------- ---------------- -------------
<S> <C> <C> <C> <C>
1/31/93 10000.00 10000.00 10000.00 10000.00
10421.00 10410.00 10867.00 10917.00
12/31/95 12202.00 14660.00 12503.00 15218.00
12202.00 14660.00 12503.00 15218.00
12/31/97 15302.00 23552.00 14122.00 24954.00
15302.00 23552.00 14122.00 24954.00
17277.00 32668.00 15461.00 32084.00
7/31/99 17873.00 34935.00 15068.00 34936.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER RETIREMENT FUND-SERIES-V
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Series V shares from 11/30/93 TO
7/31/99
<TABLE>
<CAPTION>
LEHMAN BROTHERS
KEMPER RETIREMENT GOV'T/CORP. BOND S&P 500 STOCK
FUND -V RUSSELL 1000 GROWTH INDEX+ INDEX++ INDEX+++
----------------- -------------------------- ---------------- -------------
<S> <C> <C> <C> <C>
11/30/93 10000.00 10000.00 10000.00 10000.00
9553.00 10173.00 10044.00 10121.00
8841.00 10443.00 9691.00 10255.00
12/31/95 11404.00 14327.00 11556.00 14109.00
12540.00 17639.00 11892.00 17347.00
12/31/97 14597.00 23017.00 13052.00 29135.00
16613.00 31926.00 14290.00 29745.00
7/31/99 17152.00 34141.00 13927.00 32389.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER RETIREMENT FUND-SERIES-VI
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Series VI shares from 5/31/95 TO
7/31/99
<TABLE>
<CAPTION>
LEHMAN BROTHERS
KEMPER RETIREMENT GOV'T/CORP. BOND S&P 500 STOCK
FUND -VI RUSSELL 1000 GROWTH INDEX+ INDEX++ INDEX+++
----------------- -------------------------- ---------------- -------------
<S> <C> <C> <C> <C>
11/30/93 10000.00 10000.00 10000.00 10000.00
9553.00 10173.00 10044.00 10121.00
8841.00 10443.00 9691.00 10255.00
12/31/95 11404.00 14327.00 11556.00 14109.00
12540.00 17639.00 11892.00 17347.00
12/31/97 14597.00 23017.00 13052.00 29135.00
16613.00 31926.00 14290.00 29745.00
7/31/99 17152.00 34141.00 13927.00 32389.00
</TABLE>
- - Kemper Retirement Fund 1
- - Russell 1000 Growth Index+
- - Lehman Brothers Gov't/Corp. Bond Index++
- - S&P Stock Index+++
11
<PAGE> 12
LARGEST HOLDINGS
THE FUND'S LARGEST STOCK HOLDINGS*
Percentages based on the funds' total common stock holdings
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
HOLDINGS SERIES I SERIES II SERIES III SERIES IV SERIES V SERIES VI
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
CISCO SYSTEMS 2.9% 2.6% 2.6% 2.4% 2.9% 3.0%
- ------------------------------------------------------------------------------------------------------------------
GENERAL ELECTRIC 2.7% 2.7% 2.9% 3.2% 3.1% 2.9%
- ------------------------------------------------------------------------------------------------------------------
MICROSOFT 2.5% 2.5% 2.3% 2.7% 2.5% 2.9%
- ------------------------------------------------------------------------------------------------------------------
MOTOROLA 2.3% 2.0% 2.2% 1.9% 2.3% 2.0%
- ------------------------------------------------------------------------------------------------------------------
HEWLETT-PACKARD 2.3% 2.7% 2.4% 2.5% 2.2% 2.6%
- ------------------------------------------------------------------------------------------------------------------
INTEL 2.0% 2.0% 2.2% 2.2% 2.1% 2.3%
- ------------------------------------------------------------------------------------------------------------------
MEDTRONIC 1.8% 1.7% 1.6% 1.7% 1.8% 1.8%
- ------------------------------------------------------------------------------------------------------------------
RAYTHEON 1.7% 1.5% 1.5% 1.3% 1.6% 1.4%
- ------------------------------------------------------------------------------------------------------------------
CITIGROUP 1.6% 1.6% 1.8% 1.8% 1.7% 1.8%
- ------------------------------------------------------------------------------------------------------------------
PEPSICO. 1.6% 1.8% 1.7% 1.7% 1.7% 1.8%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* The fund's holdings are subject to change.
12
<PAGE> 13
LARGEST HOLDINGS
DESCRIPTION OF YOUR FUND'S LARGEST HOLDINGS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
HOLDINGS
- --------------------------------------------------------------------------------
<S> <C>
CISCO SYSTEMS Large, comprehensive supplier of routing
software and related systems that direct the
flow of data between local networks.
- --------------------------------------------------------------------------------
GENERAL ELECTRIC A broadly diversified company with major
businesses in power generators, appliances,
lighting, plastics, medical systems,
aircraft engines, financial services and
broadcasting.
- --------------------------------------------------------------------------------
MICROSOFT Develops, markets and supports a variety of
microcomputer software, operating systems,
language and application programs, related
books and peripheral devices.
- --------------------------------------------------------------------------------
MOTOROLA Manufactures components, notably
semiconductors and electronic communications
equipment.
- --------------------------------------------------------------------------------
HEWLETT-PACKARD Large supplier of enterprise computer
systems. Products include low-cost printers
and personal computers.
- --------------------------------------------------------------------------------
INTEL Engaged in the design, development,
manufacture and sale of advanced
microcomputer components, such as integrated
circuits and other related products.
- --------------------------------------------------------------------------------
MEDTRONIC Develops, manufactures and markets
therapeutical medical devices designed to
improve cardiovascular and neurological
health.
- --------------------------------------------------------------------------------
RAYTHEON A diversified technology-based company
active in electronics, aircraft products and
energy and environmental services.
- --------------------------------------------------------------------------------
CITIGROUP Leading global financial-service provider.
Operations include a wide variety of
insurance products and banking services,
managed health-care programs, asset
management, investment services and
credit-card services.
- --------------------------------------------------------------------------------
PEPSICO. Leading global provider of beverages and
snack foods. Brands include 7-UP, Pepsi,
Diet Pepsi, Tropicana Products and
Frito-Lay.
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
KEMPER RETIREMENT FUND SERIES I THROUGH SERIES VI
PORTFOLIO OF INVESTMENTS AT JULY 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SERIES I SERIES II
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
OBLIGATIONS--36.6%,
51.2%, 47.5%, 52.1%,
45.7% AND 54.8%
U.S. Treasury Strip, zero coupon,
1999 through 2006 $38,600 $38,050 $81,900 $77,474
(Cost: $37,649, $75,412, $53,047,
$62,726, $51,052 and $36,165)
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
COMMON STOCKS SHARES VALUE SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMUNICATIONS--4.1%,
3.2%, 3.5%, 3.2%, 3.6%
AND 2.8%
TELEPHONE/COMMUNICATIONS
Ameritech Corp. 8,000 586 8,000 586
AT&T Corp. 9,500 493 9,500 493
Bell Atlantic Corp. 15,500 988 18,000 1,147
BellSouth Corp. 8,000 384 10,000 480
Frontier Corp. 4,000 222 5,500 305
(a)MCI WorldCom, Inc. 11,000 907 12,000 990
SBC Communications, Inc. 11,200 641 14,000 801
--------------------------------------------------------------------------------
4,221 4,802
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--4.3%,
3.3%, 3.7%, 3.5%, 3.8% AND 3.2%
DEPARTMENT & CHAIN
STORES--3.3%, 2.4%, 2.8%,
2.6%, 2.9% AND 2.3%
CVS Corp. 7,000 348 8,000 398
Dayton Hudson Corp. 11,000 712 13,500 873
Dollar General Corp. 25,000 661 27,500 727
Home Depot, Inc. 14,000 893 13,000 830
Wal-Mart Stores, Inc. 20,000 845 20,000 845
--------------------------------------------------------------------------------
3,459 3,673
HOTELS & CASINOS--.4%,
.4%, .4%, .4%, .4% AND .4%
(a)Mirage Resorts, Inc. 28,500 401 36,500 513
--------------------------------------------------------------------------------
RESTAURANTS--.6%, .5%,
.5%, .5%, .5% AND .5%
McDonald's Corp. 16,000 667 19,000 792
--------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--3.9%, 3.3%,
3.4%, 3.3%, 3.5% AND 2.9%
FOOD & BEVERAGE--2.9%, 2.5%, 2.5%,
2.4%, 2.7% AND 2.2%
Albertson's, Inc. 10,500 522 12,000 596
Dean Foods Co. 9,000 390 10,000 434
H.J. Heinz Co. 12,000 565 14,600 688
Pepsi Bottling Group, Inc. 25,000 591 35,000 827
PepsiCo., Inc. 25,500 998 33,000 1,291
--------------------------------------------------------------------------------
3,066 3,836
PACKAGE GOODS/ COSMETICS--1.0%,
.8%, .9%, .9%, .8% AND .7%
Procter & Gamble Co. 11,000 996 13,500 1,222
--------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
DURABLES--.2%, .2%, .2%, .2%, .2%
AND .2%
TELECOMMUNICATIONS EQUIPMENT
Lucent Technologies, Inc. 4,000 260 4,000 260
--------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
ENERGY--3.7%, 2.7%, 3.1%, 2.8%,
3.2% AND 2.7%
OIL & GAS PRODUCTION--1.2%, .9%,
1.1%, 1.0%, 1.0% AND .9%
Conoco, Inc. "A" 14,200 370 16,300 425
Royal Dutch Petroleum Co. 15,000 915 16,000 976
--------------------------------------------------------------------------------
1,285 1,401
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SERIES III SERIES IV SERIES V SERIES VI
- -------------------------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$64,100 $ 55,414 $77,700 $ 63,041 $76,500 $ 55,542 $55,900 $37,024
- -------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
8,000 586 6,000 439 8,000 586 4,000 293
8,500 441 7,500 390 8,500 441 4,000 208
16,500 1,052 16,500 1,052 16,500 1,052 7,000 446
8,000 384 8,000 384 8,000 384 4,000 192
4,000 222 4,000 222 4,000 222 -- --
10,000 825 10,000 825 12,000 990 5,000 413
10,800 618 10,400 595 12,000 686 6,000 343
- -------------------------------------------------------------------------------------------------
4,128 3,907 4,361 1,895
- -------------------------------------------------------------------------------------------------
7,000 348 7,000 348 7,000 348 3,000 149
10,500 679 11,000 712 12,000 776 6,000 388
21,250 562 17,500 462 25,000 661 8,125 215
13,000 830 13,000 830 13,000 830 6,500 415
20,000 845 20,000 845 20,000 845 9,500 401
- -------------------------------------------------------------------------------------------------
3,264 3,197 3,460 1,568
31,600 444 31,600 444 32,500 457 16,200 228
- -------------------------------------------------------------------------------------------------
15,000 625 15,000 625 16,000 667 8,000 334
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
9,500 472 9,500 472 10,500 522 4,300 214
9,000 390 9,000 390 9,000 390 4,000 173
9,900 467 9,900 467 12,000 565 6,000 283
25,000 591 25,000 591 30,000 709 11,000 260
25,200 986 25,200 986 27,500 1,077 13,600 532
- -------------------------------------------------------------------------------------------------
2,906 2,906 3,263 1,462
11,500 1,041 11,500 1,041 11,500 1,041 5,500 498
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
4,000 260 4,000 260 4,000 260 2,000 130
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
12,700 331 12,200 318 14,000 366 6,800 177
15,000 915 14,000 854 14,000 854 7,500 458
- -------------------------------------------------------------------------------------------------
1,246 1,172 1,220 635
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SERIES I SERIES II
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OIL COMPANIES--2.1%, 1.6%, 1.7%,
1.6%, 1.9% AND 1.5%
Chevron Corp. 6,600 $ 602 6,400 $ 584
Mobil Corp. 6,400 654 8,800 900
Texaco, Inc. 8,500 530 9,500 592
Unocal Corp. 9,000 357 9,000 357
------------------------------------------------------------------------------
2,143 2,433
OILFIELD SERVICES/EQUIPMENT--.4%,
.2%, .3%, .2%, .3% AND .3%
Schlumberger, Ltd. 6,000 363 5,700 345
------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL--9.3%, 7.1%, 7.6%, 7.2%,
7.8% AND 6.8%
BANKS--2.6%, 2.1%, 2.1%, 2.1%,
2.1% AND 1.9%
Bank of America Corp. 8,184 543 11,579 769
Chase Manhattan Corp. 8,000 615 9,000 692
Compass Bancshares, Inc. 20,400 587 20,700 596
First Tennessee National
Corp. 11,000 403 12,000 440
J.P. Morgan & Co., Inc. 4,000 512 5,000 639
------------------------------------------------------------------------------
2,660 3,136
CONSUMER FINANCE--2.3%, 1.7%,
1.9%, 1.8%, 1.9% AND 1.7%
American Express Credit
Corp. 7,500 988 7,500 988
Capital One Finance Corp. 9,000 417 9,000 417
Citigroup, Inc. 22,750 1,014 25,000 1,114
------------------------------------------------------------------------------
2,419 2,519
INSURANCE--3.4%, 2.6%, 2.8%, 2.6%,
3.0% AND 2.4%
American International
Group, Inc. 8,000 929 8,000 929
CIGNA Corp. 8,000 705 9,300 820
Jefferson Pilot Corp. 11,000 804 13,500 987
St. Paul Companies, Inc. 20,000 622 25,000 778
UnumProvident Corp. 9,000 466 8,000 414
------------------------------------------------------------------------------
3,526 3,928
OTHER FINANCIAL COMPANIES--1.0%,
.7%, .8%, .7%, .8% AND .8%
(a) Goldman Sachs Group,
Inc. 2,600 167 3,100 199
Household International,
Inc. 19,946 857 21,919 941
------------------------------------------------------------------------------
1,024 1,140
- ------------------------------------------------------------------------------------------------------------------------
HEALTH--7.3%, 5.6%, 6.2%, 5.6%,
6.2% AND 5.5%
BIOTECHNOLOGY--.2%, .1%, .2%, .1%,
.2% AND .1%
(a) Biogen, Inc. 2,500 172 3,000 206
------------------------------------------------------------------------------
HEALTH INDUSTRY SERVICES--.5%,
.3%, .5%, .4%, .5% AND .4%
(a) Wellpoint Health
Networks, Inc. 7,000 575 6,000 493
------------------------------------------------------------------------------
MEDICAL SUPPLY & SPECIALTY--1.9%,
1.4%, 1.5%, 1.5%, 1.6% AND 1.4%
Baxter International, Inc. 12,000 824 13,000 893
Medtronic, Inc. 15,909 1,147 16,735 1,206
------------------------------------------------------------------------------
1,971 2,099
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SERIES III SERIES IV SERIES V SERIES VI
- -------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5,400 $ 493 5,400 $ 493 6,600 $ 602 2,600 $ 238
6,600 675 6,400 654 7,000 716 3,300 337
7,200 448 7,200 448 9,500 592 4,000 249
9,000 357 9,000 357 9,000 357 4,500 179
- -------------------------------------------------------------------------------------------------
1,973 1,952 2,267 1,003
6,000 363 4,000 242 6,000 363 3,000 182
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
8,184 543 8,184 543 8,184 543 4,526 300
8,000 615 8,000 615 8,000 615 4,000 308
14,900 429 15,900 458 15,900 458 8,200 236
11,000 403 11,000 403 11,000 403 5,500 201
4,000 512 4,000 512 4,000 512 2,000 256
- -------------------------------------------------------------------------------------------------
2,502 2,531 2,531 1,301
6,000 791 6,000 791 6,500 856 3,250 428
8,000 371 7,000 324 9,000 417 4,500 209
23,500 1,047 23,500 1,047 23,500 1,047 11,750 523
- -------------------------------------------------------------------------------------------------
2,209 2,162 2,320 1,160
7,000 813 7,000 813 8,000 929 3,800 441
8,300 732 8,300 732 8,300 732 4,000 353
9,500 694 8,500 621 12,500 913 5,500 402
19,000 591 19,000 591 19,000 591 9,000 280
8,000 414 7,000 362 8,000 414 3,000 155
- -------------------------------------------------------------------------------------------------
3,244 3,119 3,579 1,631
2,600 167 2,600 167 2,600 167 1,300 84
17,932 770 17,932 770 19,932 856 9,813 421
- -------------------------------------------------------------------------------------------------
937 937 1,023 505
- -------------------------------------------------------------------------------------------------
2,500 172 2,500 172 2,500 172 1,200 83
- -------------------------------------------------------------------------------------------------
7,000 575 5,000 411 7,000 575 3,000 246
- -------------------------------------------------------------------------------------------------
12,000 824 12,000 824 12,000 824 6,000 412
13,083 943 13,083 943 15,909 1,146 7,541 543
- -------------------------------------------------------------------------------------------------
1,767 1,767 1,970 955
</TABLE>
17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SERIES I SERIES II
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PHARMACEUTICALS--4.7%, 3.8%,
4.0%, 3.6%, 3.9% AND 3.6%
Abbott Laboratories 22,000 $ 945 25,000 $ 1,073
Allergan, Inc. 800 76 1,100 104
American Home Products
Corp. 16,100 821 18,500 943
Bristol-Meyers Squibb Co. 14,300 951 15,000 998
Pfizer, Inc. 16,000 543 21,000 713
Schering-Plough Corp. 14,500 710 19,200 941
Warner-Lambert Co. 12,000 792 14,000 924
------------------------------------------------------------------------------
4,838 5,696
- ------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--5.3%, 4.2%, 4.5%,
4.5%, 4.7% AND 4.0%
DIVERSIFIED MANUFACTURING--2.3%,
1.9%, 2.0%, 2.0%, 2.1% AND 1.7%
General Electric Co. 15,600 1,700 17,600 1,918
Tyco International, Ltd. 7,049 689 9,054 885
------------------------------------------------------------------------------
2,389 2,803
ELECTRICAL PRODUCTS--.9%, .7%,
.8%, .7%, .7% AND .7%
Emerson Electric Co. 15,400 919 18,800 1,122
------------------------------------------------------------------------------
MACHINERY/COMPONENTS/
CONTROLS--1.4%, 1.0%, 1.1%,
1.1%, 1.2% AND 1.0%
Federal-Mogul Corp. 15,200 737 17,200 834
Parker-Hannifin Corp. 14,000 661 15,000 708
------------------------------------------------------------------------------
1,398 1,542
OFFICE EQUIPMENT/SUPPLIES--.3%,
.2%, .3%, .3%, .3% AND .2%
Xerox Corp. 6,800 332 6,800 332
-----------------------------------------------------------------------------
SPECIALTY CHEMICALS--.4%, .4%,
.3%, .4%, .4% AND .4%
Air Products & Chemicals,
Inc. 14,000 468 16,000 535
------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
MEDIA--5.4%, 4.5%, 4.8%, 4.2%,
4.6% AND 3.9%
ADVERTISING--.7%, .5%, .6%, .5%,
.5% AND .4%
Young & Rubicam, Inc. 16,300 739 16,300 739
------------------------------------------------------------------------------
BROADCASTING &
ENTERTAINMENT--2.9%, 2.5%, 2.5%,
2.2%, 2.5% AND 2.1%
(a) CBS Corp. 17,900 786 20,300 892
(a) Clear Channel
Communications, Inc. 6,943 483 9,258 644
(a) Infinity Broadcasting
Corp. 14,900 411 18,900 521
Time Warner, Inc. 10,400 749 12,400 893
(a) Univision
Communications, Inc. 8,500 589 11,400 789
------------------------------------------------------------------------------
3,018 3,739
CABLE TELEVISION--1.2%, 1.0%,
1.1%, 1.0%, 1.1% AND 1.0%
(a) AT&T Corp -- Liberty
Media Group 18,000 666 22,000 814
(a) Media One Group, Inc. 8,000 579 10,000 724
------------------------------------------------------------------------------
1,245 1,538
PRINT MEDIA--.6%, .5%, .6%, .5%,
.5% AND .4%
Tribune Co. 7,000 616 9,000 793
------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SERIES III SERIES IV SERIES V SERIES VI
- -------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
22,000 $ 945 19,000 $ 816 23,000 $ 988 11,000 $ 472
800 76 800 76 800 76 500 47
15,600 796 14,100 719 15,600 796 7,500 383
13,000 864 11,000 732 13,000 864 6,500 432
16,000 543 16,000 543 16,000 543 7,500 255
14,500 710 14,500 710 14,500 710 9,100 446
11,000 726 11,000 726 12,000 792 6,000 396
- -------------------------------------------------------------------------------------------------
4,660 4,322 4,769 2,431
- -------------------------------------------------------------------------------------------------
15,800 1,722 16,800 1,831 17,600 1,918 8,000 872
6,085 594 6,010 587 7,000 684 3,000 293
- -------------------------------------------------------------------------------------------------
2,316 2,418 2,602 1,165
15,200 907 15,200 907 15,800 943 8,400 501
- -------------------------------------------------------------------------------------------------
13,200 640 13,200 640 15,200 737 7,100 345
14,000 661 14,000 661 14,000 661 7,000 330
- -------------------------------------------------------------------------------------------------
1,301 1,301 1,398 675
6,800 332 6,800 332 6,800 331 3,000 146
- -------------------------------------------------------------------------------------------------
13,000 435 13,000 435 13,000 435 7,000 234
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
16,300 739 14,100 639 14,100 639 6,300 285
- -------------------------------------------------------------------------------------------------
17,300 760 13,300 585 17,900 786 7,600 334
7,522 523 7,522 523 8,101 564 3,471 242
13,900 383 13,900 383 13,900 383 6,400 176
9,400 677 9,400 677 10,400 749 5,200 374
8,500 589 6,500 450 8,500 589 4,000 277
- -------------------------------------------------------------------------------------------------
2,932 2,618 3,071 1,403
20,000 740 16,000 592 20,000 740 10,000 370
8,000 579 8,000 579 8,000 579 4,000 290
- -------------------------------------------------------------------------------------------------
1,319 1,171 1,319 660
7,000 616 7,000 616 7,000 616 3,500 308
- -------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SERIES I SERIES II
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SERVICE INDUSTRIES--1.3%, 1.0%,
1.1%, 1.0%, 1.1%
AND 1.0%
EDP SERVICES
Automatic Data Processing,
Inc. 14,500 $ 581 16,800 $ 673
Electronic Data Systems
Corp. 12,000 724 14,000 844
--------------------------------------------------------------------------
1,305 1,517
- --------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--14.2%, 11.4%,
11.5%, 10.7%, 12.2% AND 10.6%
COMPUTER SOFTWARE--2.7%, 2.2%,
2.2%, 2.2%, 2.4% AND 2.2%
(a)Intuit, Inc. 8,000 654 9,000 736
(a)Microsoft Corp. 18,000 1,545 21,000 1,802
(a)Oracle Systems Corp. 16,900 643 21,200 807
--------------------------------------------------------------------------
2,842 3,345
DIVERSE ELECTRONIC
PRODUCTS--2.7%, 1.9%, 2.1%,
1.7%, 2.3% AND 1.7%
(a)Applied Materials, Inc. 11,000 791 12,000 863
Motorola, Inc. 16,000 1,460 16,000 1,460
(a)Solectron Corp. 9,000 580 9,000 580
--------------------------------------------------------------------------
2,831 2,903
ELECTRONIC COMPONENTS/
DISTRIBUTORS--1.8%, 1.2%, 1.3%,
1.1%, 1.5% AND 1.3%
(a)Cisco Systems, Inc. 29,500 1,833 30,000 1,864
--------------------------------------------------------------------------
ELECTRONIC DATA
PROCESSING--2.6%, 2.5%, 2.3%,
2.2%, 2.2% AND 2.1%
Hewlett-Packard Co. 13,400 1,403 18,800 1,968
International Business
Machines Corp. 6,000 754 8,000 1,006
(a)Sun Microsystems, Inc. 7,600 516 10,600 719
--------------------------------------------------------------------------
2,673 3,693
MILITARY ELECTRONICS--1.0%, .7%,
.7%, .6%, .8% AND .6%
Raytheon Co. "A" 15,524 1,079 15,948 1,108
--------------------------------------------------------------------------
OFFICE/PLANT AUTOMATION--.5%,
.4%, .4%, .4%, .4% AND .3%
(a)Novell, Inc. 20,800 536 25,000 644
--------------------------------------------------------------------------
SEMICONDUCTORS--2.9%, 2.5%,
2.5%, 2.5%, 2.6% AND 2.4%
Intel Corp. 18,000 1,242 21,000 1,449
Linear Technology Corp. 14,000 859 18,000 1,105
Texas Instruments, Inc. 3,700 533 4,700 677
(a)Xilinx, Inc. 6,000 374 8,000 499
--------------------------------------------------------------------------
3,008 3,730
- --------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.0%, .9%, .9%,
.8%, .9% AND .8%
RAILROADS
Canadian National Railway
Co. 8,800 592 10,800 727
Norfolk Southern Corp. 17,000 497 22,600 661
--------------------------------------------------------------------------
1,089 1,388
--------------------------------------------------------------------------
TOTAL COMMON STOCKS--60.0%, 47.4%, 50.5%, 47.0%,
51.8% AND 44.4%
(Cost: $47,005, $53,451, $44,691,
$43,088, $47,372 and $22,878) 62,366 71,829
--------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SERIES III SERIES IV SERIES V SERIES VI
- -------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
13,200 $ 529 13,200 $ 529 14,400 $ 577 6,000 $ 240
12,000 724 11,000 663 12,000 724 6,000 362
- -------------------------------------------------------------------------------------------------
1,253 1,192 1,301 602
- -------------------------------------------------------------------------------------------------
7,000 572 7,000 572 8,000 654 4,000 327
16,000 1,373 18,000 1,545 18,000 1,545 10,000 858
14,600 556 15,600 594 17,900 681 8,800 335
- -------------------------------------------------------------------------------------------------
2,501 2,711 2,880 1,520
9,000 647 8,000 576 11,000 791 4,000 288
14,000 1,278 12,000 1,095 16,000 1,460 6,500 593
7,000 451 7,000 451 9,000 580 3,600 232
- -------------------------------------------------------------------------------------------------
2,376 2,122 2,831 1,113
24,500 1,522 22,000 1,367 29,000 1,802 14,500 901
- -------------------------------------------------------------------------------------------------
13,400 1,403 13,400 1,403 13,400 1,403 7,500 785
6,000 754 6,000 754 6,000 754 3,000 377
7,000 475 7,000 475 7,000 475 4,000 272
- -------------------------------------------------------------------------------------------------
2,632 2,632 2,632 1,434
12,299 855 10,899 757 14,024 975 5,812 404
- -------------------------------------------------------------------------------------------------
19,500 502 18,000 464 21,000 541 9,000 232
- -------------------------------------------------------------------------------------------------
19,000 1,311 18,000 1,242 19,000 1,311 10,000 690
14,000 859 14,000 859 12,000 737 6,000 368
3,250 468 4,050 583 5,000 720 2,050 295
5,200 325 5,200 325 6,500 405 4,000 250
- -------------------------------------------------------------------------------------------------
2,963 3,009 3,173 1,603
- -------------------------------------------------------------------------------------------------
8,800 592 8,800 592 8,800 592 4,300 289
13,800 404 13,800 404 17,000 498 8,700 255
- -------------------------------------------------------------------------------------------------
996 996 1,090 544
- -------------------------------------------------------------------------------------------------
58,813 56,854 62,877 29,977
- -------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SERIES I SERIES II
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MONEY MARKET
INSTRUMENTS--3.4%, 1.4%, 2.0%,
.9%, 2.5% AND .8%
(b)Repurchase agreement
State Street Bank and
Trust Company dated
7/30/99, 5.04%, due
8/2/99 $ -- $ -- $ 1,040 $ 1,040
Commercial paper
Yield--4.88% to 5.06%
Due--August, 1999 3,500 3,490 1,100 1,096
-----------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS
(Cost: $3,490, $2,136, $2,356, $1,063,
$2,984 and $598) 3,490 2,136
-----------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $88,144, $130,999, $100,094,
$106,877, $101,408 and $59,641) $103,906 $151,439
-----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
Based on the cost of investments for federal income tax purposes at July 31,
1999, the unrealized appreciation and depreciation on investments is as follows
(in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
SERIES I SERIES II SERIES III SERIES IV SERIES V SERIES VI
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cost of investments for federal income tax
purposes $88,146 $131,001 $100,094 $106,877 $101,410 $59,642
- --------------------------------------------------------------------------------------------------------------------------
Gross unrealized appreciation 16,313 21,062 17,017 14,628 20,548 8,216
- --------------------------------------------------------------------------------------------------------------------------
Gross unrealized depreciation 553 624 528 547 555 259
- --------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation 15,760 20,438 16,489 14,081 19,993 7,957
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
22
<PAGE> 23
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SERIES III SERIES IV SERIES V SERIES VI
- -------------------------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 358 $ 358 $ 1,063 $ 1,063 $ 486 $ 486 $ 598 $ 598
2,000 1,998 -- -- 2,500 2,498 -- --
- -------------------------------------------------------------------------------------------------
2,356 1,063 2,984 598
- -------------------------------------------------------------------------------------------------
$116,583 $120,958 $121,403 $67,599
- -------------------------------------------------------------------------------------------------
</TABLE>
REPORT OF AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TARGET EQUITY FUND--
KEMPER RETIREMENT FUND SERIES I, II, III, IV, V AND VI
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Kemper Target Equity Fund--Kemper
Retirement Fund Series I, II, III, IV, V and VI as of July 31, 1999, the related
statements of operations for the year then ended and changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the fiscal periods since 1995. 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 generally accepted auditing
standards. 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 investments owned as of July
31, 1999, by correspondence with the custodian. 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 Kemper Target Equity Fund--Kemper Retirement Fund Series I, II, III, IV, V
and VI at July 31, 1999, the results of their operations, the changes in their
net assets and the financial highlights for the periods referred to above in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 16, 1999
23
<PAGE> 24
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES
----------------------------------------------------------
I II III IV V VI
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------------
Investments, at value (Cost: $88,144,
$130,999, $100,094, $106,877, $101,408
and $59,641) $103,906 151,439 116,583 120,958 121,403 67,599
- ----------------------------------------------------------------------------------------------------------
Cash -- -- -- 1 1 --
- ----------------------------------------------------------------------------------------------------------
Receivable for:
Investments sold 788 889 788 684 788 373
- ----------------------------------------------------------------------------------------------------------
Dividends and interest 39 44 39 37 39 19
- ----------------------------------------------------------------------------------------------------------
Foreign taxes recoverable 4 5 4 4 4 2
- ----------------------------------------------------------------------------------------------------------
Other assets -- -- -- -- 51 --
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS 104,737 152,377 117,414 121,684 122,286 67,993
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------------------------------------
Cash overdraft 103 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------
Payable for:
Investments purchased 437 532 455 470 437 226
- ----------------------------------------------------------------------------------------------------------
Fund shares redeemed 6 51 116 67 19 165
- ----------------------------------------------------------------------------------------------------------
Management fee 42 59 48 47 48 26
- ----------------------------------------------------------------------------------------------------------
Administrative services fee 31 40 29 28 29 12
- ----------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and
related expenses 56 68 117 104 49 42
- ----------------------------------------------------------------------------------------------------------
Trustees' fees and other 37 38 20 27 89 39
- ----------------------------------------------------------------------------------------------------------
Total liabilities 712 788 785 743 671 510
- ----------------------------------------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE $104,025 151,589 116,629 120,941 121,615 67,483
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income $ 1,839 3,249 2,024 1,950 2,022 574
- ----------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 15,762 20,440 16,489 14,081 19,995 7,958
- ----------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 3,799 4,490 3,324 3,170 4,247 1,931
- ----------------------------------------------------------------------------------------------------------
Paid-in capital 82,625 123,410 94,792 101,740 95,351 57,020
- ----------------------------------------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE $104,025 151,589 116,629 120,941 121,615 67,483
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- ----------------------------------------------------------------------------------------------------------
Shares outstanding 9,495 12,087 10,978 11,208 11,945 6,016
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
(net assets / shares outstanding) $ 10.96 12.54 10.62 10.79 10.18 11.22
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
24
<PAGE> 25
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended July 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES
--------------------------------------------------------
I II III IV V VI
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------------------------------
Interest income $ 3,526 6,338 4,149 3,998 4,158 2,431
- ---------------------------------------------------------------------------------------------------------------------
Dividends (a) 704 798 649 626 704 336
- ---------------------------------------------------------------------------------------------------------------------
Total investment income 4,230 7,136 4,798 4,624 4,862 2,767
- ---------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee 521 772 587 618 623 353
- ---------------------------------------------------------------------------------------------------------------------
Administrative services fee 261 386 293 309 312 174
- ---------------------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 169 235 226 240 241 121
- ---------------------------------------------------------------------------------------------------------------------
Trustee fees 27 35 28 24 21 16
- ---------------------------------------------------------------------------------------------------------------------
Audit 22 32 24 26 26 15
- ---------------------------------------------------------------------------------------------------------------------
Legal 2 4 5 3 3 1
- ---------------------------------------------------------------------------------------------------------------------
Reports to shareholders 35 40 46 51 50 36
- ---------------------------------------------------------------------------------------------------------------------
Other 4 9 11 3 5 6
- ---------------------------------------------------------------------------------------------------------------------
Total expenses 1,041 1,513 1,220 1,274 1,281 722
- ---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 3,189 5,623 3,578 3,350 3,581 2,045
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 3,803 4,575 3,324 3,242 4,315 1,941
- ---------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation
on investments 6,413 6,549 5,877 5,678 4,969 1,988
- ---------------------------------------------------------------------------------------------------------------------
Net gain on investments 10,216 11,124 9,201 8,920 9,284 3,929
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $13,405 16,747 12,779 12,270 12,865 5,974
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Net of foreign taxes withheld of $5, $6, $5, $5, $5 and $2, respectively.
25
<PAGE> 26
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
For the years ended July 31, 1999 and 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SERIES I SERIES II
- ------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 3,189 3,705 5,623 6,273
- ------------------------------------------------------------------------------------------------------------
Net realized gain 3,803 11,237 4,575 12,702
- ------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 6,413 (7,635) 6,549 (8,609)
- ------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 13,405 7,307 16,747 10,366
- ------------------------------------------------------------------------------------------------------------
Distribution from net investment income (3,553) (3,920) (6,057) (6,567)
- ------------------------------------------------------------------------------------------------------------
Distribution from net realized gain (7,757) (12,075) (8,476) (14,360)
- ------------------------------------------------------------------------------------------------------------
Total dividends to shareholders (11,310) (15,995) (14,533) (20,927)
- ------------------------------------------------------------------------------------------------------------
Net decrease from capital share transactions (4,409) (2,090) (9,062) (4,385)
- ------------------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (2,314) (10,778) (6,848) (14,946)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Beginning of year 106,339 117,117 158,437 173,383
- ------------------------------------------------------------------------------------------------------------
END OF YEAR $104,025 106,339 151,589 158,437
- ------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT
INCOME AT END OF YEAR $ 1,839 2,129 3,249 3,667
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
26
<PAGE> 27
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
SERIES III SERIES IV SERIES V SERIES VI
- ---------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3,578 4,139 3,350 3,891 3,581 4,156 2,045 2,290
-------------------------------------------------------------------------------
3,324 10,444 3,242 10,153 4,315 11,794 1,941 4,581
-------------------------------------------------------------------------------
5,877 (6,524) 5,678 (4,798) 4,969 (6,015) 1,988 (1,054)
-------------------------------------------------------------------------------
12,779 8,059 12,270 9,246 12,865 9,935 5,974 5,817
-------------------------------------------------------------------------------
(3,971) (4,303) (3,676) (4,220) (3,913) (4,539) (2,773) (2,370)
-------------------------------------------------------------------------------
(7,192) (11,501) (6,907) (10,945) (8,413) (12,545) (3,257) (4,917)
-------------------------------------------------------------------------------
(11,163) (15,804) (10,583) (15,165) (12,326) (17,084) (6,030) (7,287)
-------------------------------------------------------------------------------
(3,071) (1,269) (5,163) (5,594) (4,810) (4,096) (2,948) (1,214)
-------------------------------------------------------------------------------
(1,455) (9,014) (3,476) (11,513) (4,271) (11,245) (3,004) (2,684)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
118,084 127,098 124,417 135,930 125,886 137,131 70,487 73,171
-------------------------------------------------------------------------------
116,629 118,084 120,941 124,417 121,615 125,886 67,483 70,487
-------------------------------------------------------------------------------
2,024 2,389 1,950 2,261 2,022 2,390 574 1,296
-------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1 DESCRIPTION OF THE Kemper Retirement Fund Series I, II, III, IV, V and
FUND VI (the "funds") are diversified series of Kemper
Target Equity Fund (the "trust"), which is
registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end
management investment company, organized as a
Massachusetts business trust. The objectives of the
funds are to provide a guaranteed return of
investment on the Maturity Date to investors who
reinvest all dividends and hold their shares to the
Maturity Date, and to provide long-term growth of
capital. The Maturity Date for each fund is as
follows:
<TABLE>
<CAPTION>
FUND MATURITY DATE
---- -------------
<S> <C>
Series I November 15, 1999
Series II August 15, 2000
Series III February 15, 2002
Series IV February 15, 2003
Series V November 15, 2004
Series VI May 15, 2006
</TABLE>
The assurance that investors who reinvest all
dividends and hold their shares until the Maturity
Date will receive at least their original
investment on the Maturity Date is provided by the
principal amount of the zero coupon U.S. Treasury
obligations in the funds' portfolios, as well as by
a guarantee from Scudder Kemper Investments, Inc.,
the funds' investment manager. Fund shares were
sold during limited offering periods which ended
during the years 1990 through 1997, and are
redeemable on a continuous basis.
On July 12, 1999, the Board of Trustees of the
Trust elected to continue operation of Series I
after the November 15, 1999 maturity date, with a
new maturity date of November 15, 2010. The Board
of Trustees also approved changing the name of the
fund to "Kemper Target Equity Fund 2010" and
approved the offering of shares of the fund for a
new limited offering period commencing on November
15, 1999.
For investors who purchased shares in Series I
during the original offering period and who
continue in the fund for the new term, the amount
of their original investment for purposes of the
guaranteed return of investment on the November 15,
2010 maturity date will be the net asset value of
their fund shares on November 15, 1999.
The funds' financial statements are prepared in
accordance with generally accepted accounting
principals which require the use of management
estimates. The policies described below are
followed consistently by the funds in the
preparation of their financial statements.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES 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
28
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS
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.
REPURCHASE AGREEMENTS. The funds may enter into
repurchase agreements with certain banks and
broker/dealers whereby the funds, 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.
FEDERAL INCOME TAXES. Each fund's 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 fund paid no federal income taxes
and no federal income tax provision was required.
DISTRIBUTIONS OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to each fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
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.
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. Realized gains and losses
from investment transactions are recorded on an
identified cost basis. All discounts are accreted
for both tax and financial reporting purposes.
EXPENSES. Expenses arising in connection with a
specific fund are allocated to that fund. Other
trust expenses are allocated between the funds in
proportion to their relative net assets.
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH MANAGEMENT AGREEMENT. The funds have a management
AFFILIATES agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pay a monthly investment
management fee of 1/12 of the annual rate of .50%
of average daily net assets. The funds incurred a
management fee of $3,474,000 for the year ended
July 31, 1999.
ADMINISTRATIVE SERVICES AGREEMENT. The trust has an
administrative services agreement with Kemper
Distributors, Inc. (KDI). For providing information
and administrative services to shareholders, the
funds pay KDI a fee at an annual rate of up to .25%
of average daily net assets. KDI in turn has
various agreements with financial services firms
that provide these services and pays these firms
based on assets of fund accounts the firms service.
Administrative services fees paid by the funds to
KDI for the year ended July 31, 1999 are
$1,735,000, of which $5,000 was paid by KDI to
affiliates.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the trust's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent for the funds. Under the agreement,
KSvC received shareholder services fees of $751,000
for the year ended July 31, 1999.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the trust are also officers or directors of
Scudder Kemper. During the year ended July 31,
1999, the funds made no payments to their officers
and incurred trustees' fees of $151,000 to
independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended July 31, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<CAPTION>
SERIES I SERIES II SERIES III SERIES IV SERIES V SERIES VI
-------- --------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Purchases $51,914 60,152 50,007 48,164 52,300 25,171
Proceeds from sales 63,463 75,323 60,007 60,586 65,552 31,150
</TABLE>
30
<PAGE> 31
NOTES TO Financial Statements
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the funds (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------
1999 1998
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
SERIES I
- ------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of dividends 1,178 $ 11,812 1,563 $ 15,719
- ------------------------------------------------------------------------------------------------------
Shares redeemed (1,528) (16,221) (1,595) (17,809)
- ------------------------------------------------------------------------------------------------------
Net decrease from capital share transactions $ (4,409) $ (2,090)
- ------------------------------------------------------------------------------------------------------
SERIES II
- ------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of dividends 1,286 $ 15,059 1,810 $ 21,124
- ------------------------------------------------------------------------------------------------------
Shares redeemed (1,969) (24,121) (1,999) (25,509)
- ------------------------------------------------------------------------------------------------------
Net decrease from capital share transactions $ (9,062) $ (4,385)
- ------------------------------------------------------------------------------------------------------
SERIES III
- ------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of dividends 1,208 $ 12,108 1,693 $ 16,384
- ------------------------------------------------------------------------------------------------------
Shares redeemed (1,452) (15,179) (1,684) (17,653)
- ------------------------------------------------------------------------------------------------------
Net decrease from capital share transactions $ (3,071) $ (1,269)
- ------------------------------------------------------------------------------------------------------
SERIES IV
- ------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of dividends 1,000 $ 10,296 1,532 $ 15,350
- ------------------------------------------------------------------------------------------------------
Shares redeemed (1,445) (15,459) (1,932) (20,944)
- ------------------------------------------------------------------------------------------------------
Net decrease from capital share transactions $ (5,163) $ (5,594)
- ------------------------------------------------------------------------------------------------------
SERIES V
- ------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of dividends 1,229 $ 11,943 1,782 $ 16,939
- ------------------------------------------------------------------------------------------------------
Shares redeemed (1,659) (16,753) (2,031) (21,035)
- ------------------------------------------------------------------------------------------------------
Net decrease from capital share transactions $ (4,810) $ (4,096)
- ------------------------------------------------------------------------------------------------------
SERIES VI
- ------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of dividends 534 $ 5,871 696 $ 7,349
- ------------------------------------------------------------------------------------------------------
Shares redeemed (782) (8,819) (757) (8,563)
- ------------------------------------------------------------------------------------------------------
Net decrease from capital share transactions $ (2,948) $ (1,214)
- ------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 32
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
SERIES I
- -------------------------------------------------------------------------------------------------------
MONTH
YEAR ENDED JULY 31, ENDED YEAR ENDED JUNE 30,
------------------- JULY 31, ---------------------------
1999 1998 1997 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.80 11.86 11.24 11.46 11.19 10.67
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .32 .40 .03 .42 .44 .45
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 1.05 .25 .59 1.48 1.03 1.20
- -------------------------------------------------------------------------------------------------------
Total from investment operations 1.37 .65 .62 1.90 1.47 1.65
- -------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .38 .42 -- .44 .44 .41
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain .83 1.29 -- 1.68 .76 .72
- -------------------------------------------------------------------------------------------------------
Total dividends 1.21 1.71 -- 2.12 1.20 1.13
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.96 10.80 11.86 11.24 11.46 11.19
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 13.75% 6.56 5.52 18.43 13.91 17.03
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------
Expenses 1.00% .94 .84 .93 .95 .97
- -------------------------------------------------------------------------------------------------------
Net investment income 3.06% 3.30 3.38 3.60 3.68 3.96
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $104,025 106,339 117,117 111,810 107,303 106,482
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 52% 80 86 94 71 63
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
SERIES II
- -------------------------------------------------------------------------------------------------------
MONTH
YEAR ENDED JULY 31, ENDED YEAR ENDED JUNE 30,
------------------- JULY 31, ---------------------------
1999 1998 1997 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.41 13.38 12.77 13.01 12.94 12.30
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .45 .52 .05 .56 .58 .60
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .88 .23 .56 1.29 .77 1.25
- -------------------------------------------------------------------------------------------------------
Total from investment operations 1.33 .75 .61 1.85 1.35 1.85
- -------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .50 .54 -- .59 .57 .57
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain .70 1.18 -- 1.50 .71 .64
- -------------------------------------------------------------------------------------------------------
Total dividends 1.20 1.72 -- 2.09 1.28 1.21
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.54 12.41 13.38 12.77 13.01 12.94
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 11.42% 6.46 4.78 15.56 10.92 16.52
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------
Expenses .98% .94 .90 .92 .94 .96
- -------------------------------------------------------------------------------------------------------
Net investment income 3.64% 3.80 3.98 4.08 4.16 4.54
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $151,589 158,437 173,383 167,170 168,425 173,337
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 40% 57 67 70 54 47
- -------------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR ALL SERIES: Total return does not reflect the effect of any sales
charges. Per share data for the year ended July 31, 1999 was determined based on
average shares outstanding.
32
<PAGE> 33
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SERIES III
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED JULY MONTH
31, ENDED YEAR ENDED JUNE 30,
------------------ JULY 31, ------------------
1999 1998 1997 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.52 11.33 10.75 10.95 10.75 9.87
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .32 .39 .04 .42 .43 .44
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .82 .27 .54 1.22 .78 1.24
- ----------------------------------------------------------------------------------------------------------
Total from investment operations 1.14 .66 .58 1.64 1.21 1.68
- ----------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .37 .40 -- .43 .44 .43
- ----------------------------------------------------------------------------------------------------------
Distribution from net realized gain .67 1.07 -- 1.41 .57 .37
- ----------------------------------------------------------------------------------------------------------
Total dividends 1.04 1.47 -- 1.84 1.01 .80
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.62 10.52 11.33 10.75 10.95 10.75
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 11.47% 6.68 5.40 16.38 11.72 18.37
- ----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------
Expenses 1.04% .95 .83 .95 .96 1.00
- ----------------------------------------------------------------------------------------------------------
Net investment income 3.06% 3.36 3.63 3.61 3.67 4.14
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $116,629 118,084 127,098 122,334 121,488 124,681
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 44% 67 79 74 59 52
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SERIES IV
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED JULY MONTH
31, ENDED YEAR ENDED JUNE 30,
------------------ JULY 31, ---------------------------
1999 1998 1997 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.68 11.28 10.69 10.70 10.07 8.83
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .29 .35 .03 .39 .40 .39
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .77 .38 .56 1.17 .64 1.22
- ----------------------------------------------------------------------------------------------------------
Total from investment operations 1.06 .73 .59 1.56 1.04 1.61
- ----------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .33 .37 -- .38 .41 .37
- ----------------------------------------------------------------------------------------------------------
Distribution from net realized gain .62 .96 -- 1.19 -- --
- ----------------------------------------------------------------------------------------------------------
Total dividends .95 1.33 -- 1.57 .41 .37
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.79 10.68 11.28 10.69 10.70 10.07
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 10.35% 7.27 5.52 15.73 10.47 18.95
- ----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------
Expenses 1.03% .98 .88 .96 .95 .97
- ----------------------------------------------------------------------------------------------------------
Net investment income 2.71% 2.98 3.22 3.35 3.46 4.01
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $120,941 124,417 135,930 131,225 138,858 152,179
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 36% 59 66 66 52 45
- ----------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 34
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
SERIES V
- -------------------------------------------------------------------------------------------------------
YEAR ENDED JULY MONTH
31, ENDED YEAR ENDED JUNE 30,
------------------ JULY 31, ----------------------------
1999 1998 1997 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.17 10.86 10.22 10.20 9.53 8.15
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .29 .35 .03 .39 .39 .28
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .76 .39 .61 1.22 .64 1.31
- -------------------------------------------------------------------------------------------------------
Total from investment operations 1.05 .74 .64 1.61 1.03 1.59
- -------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .33 .38 -- .39 .36 .21
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain .71 1.05 -- 1.20 -- --
- -------------------------------------------------------------------------------------------------------
Total dividends 1.04 1.43 -- 1.59 .36 .21
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.18 10.17 10.86 10.22 10.20 9.53
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 10.81% 7.76 6.26 17.14 10.95 19.97
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------
Expenses 1.03% .99 .94 .96 .96 1.07
- -------------------------------------------------------------------------------------------------------
Net investment income 2.87% 3.16 3.34 3.59 3.64 4.01
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $121,615 125,886 137,131 130,675 129,747 134,937
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 40% 66 76 79 58 73
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
SERIES VI
- -------------------------------------------------------------------------------------------------------
YEAR ENDED JULY MONTH YEAR ENDED JUNE MAY 1,
31, ENDED 30, TO
------------------ JULY 31, ----------------- JUNE 30,
1999 1998 1997 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.25 11.57 10.86 9.83 9.26 9.00
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .33 .38 .03 .33 .24 .06
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .64 .50 .68 1.26 .57 .20
- -------------------------------------------------------------------------------------------------------
Total from investment operations .97 .88 .71 1.59 .81 .26
- -------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .46 .39 -- .28 .13 --
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain .54 .81 -- .28 .11 --
- -------------------------------------------------------------------------------------------------------
Total dividends 1.00 1.20 -- .56 .24 --
- -------------------------------------------------------------------------------------------------------
Net assets value, end of period $ 11.22 11.25 11.57 10.86 9.83 9.26
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 8.81% 8.32 6.54 16.64 8.79 2.89
- -------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------
Expenses 1.02% 1.01 1.00 1.02 1.27 1.09
- -------------------------------------------------------------------------------------------------------
Net investment income 2.90% 3.18 3.43 3.43 3.47 3.91
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $ 67,483 70,487 73,171 69,392 49,689 7,189
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 33% 54 65 74 34 --
- -------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 35
FINANCIAL Highlights
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
Kemper Retirement Fund--Series I, II, III, IV, V and VI paid distributions of
$.49, $.47, $.41, $.36, $.44 and $.32 per share, respectively, from net
long-term capital gains during the year ended July 31, 1999, of which 100%
represent 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, Kemper Retirement
Fund--Series I, II, III, IV, V and VI designate $4,000,000, $4,810,000,
$3,490,000, $3,405,000, $4,535,000 and $2,040,000, respectively, as capital gain
dividends for the year ended July 31, 1999, of which 100% represent 20% rate
gains.
For corporate shareholders of Kemper Retirement Fund--Series I, II, III, IV, V
and VI 19%, 13%, 16%, 16%, 19% and 12%, respectively, of the income earned
during the year ended July 31, 1999 qualified for the dividends received
deduction.
Please contact a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-Scudder.
35
<PAGE> 36
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY LINDA J. WONDRACK
Trustee President Vice President
JAMES R. EDGAR PHILLIP J. COLLORA MAUREEN E. KANE
Trustee Vice President Assistant Secretary
ARTHUR R. GOTTSCHALK and Secretary CAROLINE PEARSON
Trustee JOHN R. HEBBLE Assistant Secretary
FREDERICK T. KELSEY Treasurer BRENDA LYONS
Trustee TRACY MCCORMICK Assistant Treasurer
THOMAS W. LITTAUER Vice President
Trustee and Vice President ANN M. MCCREARY
FRED B. RENWICK Vice President
Trustee KATHRYN L. QUIRK
JOHN G. WELTHERS Vice President
Trustee CORNELIA SMALL
Vice President
---------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
---------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
---------------------------------------------------------------------------
CUSTODIAN STATE STREET BANK AND TRUST
225 Franklin Street
Boston, MA 02110
---------------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
---------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
---------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
KRF - 2 (9/22/99) 1086200
