<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED JULY 31, 2000
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 II, III, IV, V, VI AND VII
"... Virtually all technology stocks took a nosedive during the [spring]
correction; however, only the quality companies with sound business fundamentals
bounced back. Many of the speculative Internet-related issues didn't rebound.
Since we had only minor exposure to the Internet sector, the fund came through
the downturn virtually unscathed. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
10
LARGEST HOLDINGS
11
INDIVIDUAL HOLDINGS
12
PORTFOLIO OF INVESTMENTS
22
FINANCIAL STATEMENTS
26
FINANCIAL HIGHLIGHTS
30
NOTES TO FINANCIAL
STATEMENTS
34
REPORT OF AUDITORS
AT A GLANCE
KEMPER RETIREMENT FUND
SERIES II-VII TOTAL RETURNS*
FOR THE YEAR ENDED JULY 31, 2000 (UNADJUSTED FOR ANY SALES CHARGE)
<TABLE>
<S> <C> <C> <C>
SERIES II 10.45%
........................................................
SERIES III 10.49%
........................................................
SERIES IV 9.41%
........................................................
SERIES V 10.07%
........................................................
SERIES VI 9.80%
........................................................
SERIES VII 8.73%
........................................................
</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, STATEMENT OF ADDITIONAL INFORMATION AND THE
FINANCIAL HIGHLIGHTS TABLE AT THE END OF THIS REPORT.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
7/31/00 7/31/99
.........................................................
<S> <C> <C> <C> <C>
SERIES II $11.92 $12.54
.........................................................
SERIES III $11.09 $10.62
.........................................................
SERIES IV $11.08 $10.79
.........................................................
SERIES V $10.55 $10.18
.........................................................
SERIES VI $11.70 $11.22
.........................................................
SERIES VII $11.60 $10.95
.........................................................
</TABLE>
DIVIDEND REVIEW
DURING THE REPORTING PERIOD, KEMPER RETIREMENT FUND SERIES II-VI MADE THE
FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
INCOME LONG-TERM
DIVIDEND CAPITAL GAIN
......................................................
<S> <C> <C> <C> <C>
SERIES II $0.67 $1.24
......................................................
SERIES III $0.30 $0.32
......................................................
SERIES IV $0.31 $0.39
......................................................
SERIES V $0.25 $0.38
......................................................
SERIES VI $0.25 $0.35
......................................................
SERIES VII $0.29 --
......................................................
</TABLE>
TERMS TO KNOW
BENCHMARK A gauge of relative performance, often a broad market index. When
comparing the performance of a fund and a benchmark, it's important to note any
differences between the two. For instance, Kemper Retirement Fund invests only a
portion of its assets in large-cap stocks, while the S&P 500 is composed
entirely of stocks.
NARROW MARKET A period in which only a few holdings drive the performance of the
overall market. Since 1998, the domestic stock market has generally been narrow,
with only a handful of large-cap growth and technology stocks contributing the
majority of gains.
PRICE-TO-EARNINGS (P/E) RATIO An indication of how much investors are paying for
a company's earning power. The higher the P/E, the more investors are paying and
the more earnings growth they are expecting.
VOLATILITY The characteristic of a security (such as a stock or bond), commodity
or market to rise and fall sharply in price within a short period of time. A
stock may be volatile due to company, industry, market or economic factors.
ZERO-COUPON BOND A bond that makes no periodic payments of interest and is sold
at a deep discount to its face value. Instead of receiving periodic payments,
the buyer receives the face value of the bond at maturity. For U.S. Treasury
bonds, this payment is guaranteed. Although the payment is guaranteed, U.S.
Treasury bonds can be quite volatile prior to their maturity, particularly
during periods of fluctuating interest rates.
<PAGE> 3
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.
ECONOMIC OVERVIEW
DEAR KEMPER FUNDS SHAREHOLDER,
When an irresistible force such as the ebullient U.S. economy meets an immovable
object, such as a determined Federal Reserve Board, the old song is right:
Something's gotta give. One possibility -- the economy could slow down as the
Fed has ordered. Or, if market volatility becomes truly distressful, the Fed
could back off, as it has in the past. A third possibility is that neither the
Fed nor the economy will give way until it's too late, which could lead to a
recession. Recent evidence suggests, however, that the economy probably will
slow down as ordered. The Fed decided to leave rates unchanged at both its June
and August meetings, and in his testimony before Congress in late July, Fed
Chairman Alan Greenspan said he believes a slowdown has indeed arrived.
Before explaining why we agree with the Fed that a slowdown is a good bet,
let's review how monetary policy works. Central bankers often sound like witch
doctors reading animal entrails, so it's understandable that many people are
confused about monetary policy. But monetary policy still works in the same way
it always has. First, it changes the price and availability of money. More
subtly, it alters people's perceptions about and confidence in the future,
thereby adjusting their willingness to take risks.
The Fed only started raising interest rates a little over year ago, and it
takes at least that long for higher rates to impact borrowers. There are two
reasons. First, interest rates on many existing loans are fixed. And, a family
who has just selected a dream house isn't going walk away if mortgage rates rise
a notch. Similarly, a company that has just approved an expansion program won't
stop cold because the prime rate is higher. So it's foolish to think that
America's economy has become less interest-sensitive because the economy roared
through the first several months of this year. Americans are more in hock than
ever, so higher interest rates will hurt more than ever. The sharp drop in
housing starts and auto sales from their February peak is probably the first
sign that higher rates are biting. They will bite harder in coming months. We
look for both housing starts and vehicle sales to continue to drop and to be
lower in 2001 than in 2000.
Confidence is harder to measure, but there are some early flutters of
weakness. It's true that consumers remain cheerily upbeat. But corporate bond
markets, the most sensitive barometer of business confidence and a vital source
of corporate funds, have been nervous. Investors are demanding a big premium
before they'll buy lower quality bonds, which means there's less new money for
companies to spend.
So far, companies have been able to get around the bond market stinginess by
turning to their bankers. Banks lent businesses 9 percent more from January
through July of this year than they did during the first seven months of 1999.
But some banks are beginning to worry, too. Bank examiners have been questioning
the quality of loans and the level of reserves. In response, more bankers are
tightening lending standards and raising rates. This is a textbook case of how
tighter monetary policy eventually slows an economy.
Aren't bond market and banker concerns overdone? As long as the economy keeps
growing at 3 percent or so, won't that guarantee such good profits that paying
the bills will be a cinch? Not necessarily. Profits are far more cyclical than
economic growth. Earnings actually fell during 1998, even though the economy
continued to roll. That was a global crisis, when foreign earnings fell sharply.
But take a look at the last "soft landing" during 1995. Revenue growth dipped
and pricing power fell, squeezing profits. The same thing is likely to happen
again in the coming slowdown -- and this time, tight labor markets could make it
even tougher for companies to control costs quickly. Assuming growth is between
2.5 percent and 3 percent by the end of 2001, we believe year-over-year profit
comparisons will have turned slightly negative.
A profit slowdown when new lines of credit are hard to come by will take its
toll on capital spending. We expect growth in business outlays for buildings and
equipment to slip from over 12 percent this year to around 8 percent in 2001.
That's still quite robust, and the "high-tech imperative" is the reason why.
Executives believe that they have no option but to keep up with the
technological revolution that is transforming the world. The fact that high-tech
gear keeps getting cheaper year after year and also helps save on expensive
labor makes the decision to buy it easy. Indeed, unit sales of computers and
peripherals to businesses have sustained growth rates in excess of 40 percent
since 1995. And the rush is on to lay down the infrastructure for the next
generation of wireless communications. We estimate that the telecommunications
sector will see unit growth of more than 30 percent this year, double the
average growth of the past six years. It's hard even for
3
<PAGE> 4
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 (8/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.8 6.5 5.9 5.3
Prime rate (2) 9.5 8.75 8.25 8.5
Inflation rate (3)* 3.6 2.7 2.1 1.7
The U.S. dollar (4) 5.1 2.3 -5.7 8
Capital goods orders (5)* 13.2 11.4 8.4 6.4
Industrial production (5)* 5.8 5.2 4.6 3.2
Employment growth (6) 1.9 2 2.2 2.7
</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 7/31/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
ECONOMIC OVERVIEW
superstars to sustain these stratospheric compound growth rates forever, and we
do expect some moderation next year. However, high-tech orders continue to
ratchet upwards, and the shortage in semiconductors and other components has
persisted long enough to cause major players to announce huge capacity
additions.
Another battle the Fed must win before it succeeds in slowing the economy is
bringing consumers to heel. Most families still feel better off than they were
last year and much richer than they were five years ago. That's a powerful
incentive to spend and enjoy. Indeed, total real consumption has been galloping
at a 5 percent rate or better since early 1998. But consumers are so important
to the economy that if they don't start spending less freely, there won't be a
slowdown. However, there is some evidence of moderation. Retailers have been
reporting sluggish summer sales, and the back-to-school season is getting off to
a slow start. This is music to the Fed's ears, because the policymakers would
like nothing better than to sit on the sidelines until well after the
Presidential election.
So what will the slowdown look like? It will be concentrated in retail sales,
housing starts and job creation slowed (at least that's where it has surfaced so
far). However, strength in high tech orders and capital equipment production
probably will help keep the slowdown from becoming too abrupt. We expect about
3.5 percent growth in the second half. That would still produce a hearty 5
percent growth for full year 2000. During 2001, the full impact of the Fed's
earlier tightening will probably rein growth in to just 3 percent.
Sincerely,
Kemper Distributors, Inc.
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF SEPTEMBER 5, 2000, AND MAY NOT ACTUALLY COME TO PASS.
THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS
AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER 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. AND
LEAD PORTFOLIO MANAGER OF KEMPER RETIREMENT FUND. SHE HAS MORE THAN 20 YEARS OF
INVESTMENT INDUSTRY EXPERIENCE.
[LANGBAUM PHOTO]
[DOLAN PHOTO]
PORTFOLIO MANAGERS GARY LANGBAUM, C.F.A., AND SCOTT DOLAN ALSO CONTRIBUTE TO THE
MANAGEMENT OF THE FUND. THE MANAGEMENT TEAM IS SUPPORTED BY SCUDDER KEMPER
INVESTMENTS, INC.'S LARGE STAFF OF ANALYSTS, RESEARCHERS AND ECONOMISTS.
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 MANAGER'S VIEWS
ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON THE MARKET AND OTHER CONDITIONS AND
SHOULD NOT BE CONSIDERED AS A RECOMMENDATION OF ANY SPECIFIC SECURITY.
KEMPER RETIREMENT FUND'S RECENT ANNUAL PERIOD -- AUGUST 1, 1999, THROUGH JULY
31, 2000 -- WAS ONE OF RISING INTEREST RATES AND MARKET VOLATILITY. BELOW, LEAD
PORTFOLIO MANAGER TRACY MCCORMICK DISCUSSES HOW SHE GUIDED KEMPER RETIREMENT
FUND PORTFOLIOS THROUGH THE CHALLENGING ONE-YEAR PERIOD.
Q BEFORE YOU DISCUSS THE PERFORMANCE OF THE FUNDS, WILL YOU REVIEW THE PAST
YEAR'S MARKET CLIMATE?
A In the past year, we witnessed two distinct periods. From August 1999
through February 2000, the market posted strong returns dominated by high-flying
technology issues. Along with an active initial public offering (IPO) market
advances in technology -- specifically semiconductors and wireless communication
business -- drove this performance. The technology-dominated market spiraled
upward even as the Federal Reserve Board continued to increase interest rates.
After stocks reached new highs in February, investors became skeptical about
the technology-driven market's ability to maintain its lofty perch. The market
experienced a sharp correction in March. This correction was the result of
investors' retreating from high-P/E technology and Internet-related stocks, and
moving into other areas of the market with more reasonable valuations. Since the
correction, the market has remained volatile with no dominant sector.
Q HOW DID THE KEMPER RETIREMENT FUND PORTFOLIOS PERFORM FOR THE 12 MONTHS
ENDING JULY 31, 2000?
A The portfolios gained between 8.73 percent (Series VII) and 10.49 percent
(Series III), both returns unadjusted for any sales charge. For the same period,
the all-equity S&P 500 gained 8.97 percent.
While our return figures may seem modest compared with fund returns on which
the media focus, keep in mind that the portfolios typically invest only a
portion of assets in stocks; the remainder is invested 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, 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 WHY DIDN'T EACH KEMPER RETIREMENT FUND PORTFOLIO PERFORM IDENTICALLY?
A The variance among returns is due to the fact that each Kemper Retirement
Fund portfolio has a unique maturity date and, consequently, a different
percentage of assets invested in bonds. For example, while we typically buy the
same stocks for every portfolio (as cash flows permit), each portfolio's assets
are divided differently between stocks and bonds. As we've noted, the bonds
underpin the guaranteed return of original investment. Typically, zero-coupon
bonds carry lower price tags when interest rates are high. That's because
accrued interest makes up the difference between the price at purchase and the
face value at maturity. Because the portfolios began operations in varying
5
<PAGE> 6
PERFORMANCE UPDATE
interest-rate environments, different amounts of zero-coupon bonds were required
to cover the guarantee. Kemper Retirement Fund -- Series II began operations
during a period when interest rates were high. We needed to purchase fewer bonds
needed to support the guarantee, freeing more assets that could be invested in
the stock market. Series VII, meanwhile, began operations during a
lower-interest-rate environment. A greater percentage of the portfolio was
therefore invested in bonds.
Q
WILL YOU TELL US MORE ABOUT THE ZERO-COUPON BONDS THAT THE KEMPER
RETIREMENT FUND PORTFOLIOS HOLD?
A
Zero-coupon U.S. Treasury bonds are debt obligations issued by the federal
government and sold at a considerable discount from 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 the instrument's 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.
Q
HOW DID THE TECHNOLOGY-FUELED MARKET CORRECTION IN MARCH AFFECT THE KEMPER
RETIREMENT FUND PORTFOLIOS?
A
Virtually all technology stocks took a nosedive during the [spring]
correction; however, only quality companies with sound business fundamentals
bounced back. Many speculative Internet-related issues didn't rebound. Since we
had only minor exposure to the Internet sector, the funds came through the
downturn virtually unscathed.
Although many Internet companies enjoyed strong performance before the
correction, most never met our strict investment criteria. We look for companies
with seasoned management, and an ability to deliver sustainable, consistent
earnings growth. We were also concerned about valuations. While we maintained a
market weighting in technology during the period, finding reasonably priced
technology companies was difficult. Since the correction, we've seen valuations
in this sector decline to what we believe are more reasonable levels.
The fund's semiconductor stocks experienced dramatic increases leading up to
the technology correction but they have continued to struggle since March. The
semiconductor industry builds the computer hardware and chips that are an
integral part of cellular and wireless communications, computers and
calculators, among many other goods. Although we're disappointed with the
industry's most recent performance, we believe these stocks are experiencing a
temporary downturn. The demand for the products these companies provide
continues to grow at a rapid rate. We've used the recent weakness in this area
to add to some of the technology stocks. We've added to our positions in
Veritas, Dell, IBM, Siebel Systems and Nortel.
Q
PLEASE TELL US ABOUT YOUR STOCK SELECTION PROCESS.
A
Successful stock selection is about both quality of information and using
the most relevant facts in the most appropriate way. We use a rigorous,
"growth-at-a-reasonable price" discipline and seek to uncover quality large-cap
stocks that are trading at attractive prices relative to their growth potential.
Intensive, proprietary research is key to our process. We don't make our
decisions based on the Wall Street crowd, unsubstantiated rumors or wishful
thinking. We evaluate companies' balance sheets, management and product lines,
as well as industry trends and competitive positioning. Here, our goal is to
find a catalyst for excellent long-term growth. These catalysts come from a
variety of sources, including innovative product developments, cost-cutting
strategies and management changes, to name just a few.
Our investment process is also grounded in discipline. That's true for both
our buy and sell strategies. We begin to put an exit strategy into play when a
stock reaches our pre-established price targets or when we see signs of
potential deterioration in fundamentals or earnings growth.
Q
PLEASE PROVIDE SOME EXAMPLES OF YOUR INVESTMENT DISCIPLINE IN ACTION.
A
One area that has been successful for the portfolios is the consumer
staples sector, where the portfolios are concentrated in media stocks. Companies
such as Disney, Viacom, Infinity and Univision were some of the portfolio's
strongest performers during the year. As these companies appreciated to our
preset price targets, we began to reduce our position. The companies were
continuing to gain at that point, but nothing had changed fundamentally, so we
didn't sway from our sell discipline. We reduced our positions slowly as their
prices continued to rise.
6
<PAGE> 7
PERFORMANCE UPDATE
Q WILL YOU HIGHLIGHT SOME OTHER AREAS THAT WORKED OUT WELL FOR THE KEMPER
RETIREMENT PORTFOLIOS?
A The health care, financial services and energy sectors were some of the
portfolios' strongest performers during the year.
The pharmaceutical companies in the portfolios boosted their portfolios'
health care sector performance. Pharmaceuticals rallied as investors fled
high-priced technology issues for these more conservative stocks. New products
and good pipelines helped propel Forest Labs, ALZA and Amgen during the period.
Although we're pleased with the sector's strong performance, we're also
cautiously optimistic. We expect the industry to remain volatile at least until
the November presidential election and possibly beyond.
The portfolios' financial stocks, despite rising interest rates, posted strong
performance. We stayed away from the most spread-sensitive stocks, such as
regional banks, many of which performed poorly as rates rose. Instead, we
invested in insurance companies -- specifically, property and casualty firms,
such as Hartford Insurance, which benefited from improved pricing. We also
invested in large diversified financial institutions, such as Marsh & McLennan,
and consumer finance firms, such as Household Finance and Capital One.
As oil prices rose during the period, the portfolios' investment in oil
service companies enjoyed strong gains. Higher oil prices fueled an increase in
capital expenditures. Holdings such as Schlumberger, Transocean Sedco Forex and
Halliburton were direct beneficiaries of the increase in budgets.
Q WHAT HINDERED OVERALL PERFORMANCE?
A Retail stocks have been disappointing. We're invested in discount
retailers such as Home Depot, Target and Wal-Mart, which typically fare better
than department store retailers do as interest rates rise. However, these
retailers have struggled with most others as the economy has begun to slow. We
believe, however, that interest rates have peaked, and we expect to see improved
performance from these retailers.
Q HOW DID THE RECENT LEGAL PROCEEDINGS INVOLVING MICROSOFT, ONE OF THE
KEMPER RETIREMENT FUND'S TOP HOLDINGS, IMPACT PORTFOLIO PERFORMANCE?
A This spring, in an antitrust lawsuit, Microsoft was handed an order by a
federal court to break up its operations. Although the case is currently under
appeal, the news caused a swift decline in the software giant's stock price,
which in turn hurt the fund's performance. We believe the market overreacted, so
despite the media hype, we added to our Microsoft investment. Since that time,
the stock price has rebounded strongly, and we expect more gains as Microsoft's
fundamentals continue to improve. The company is making great strides in
developing products that will help it compete in the new Web-enabled technology
market. We believe the company's new Office 2000 product line will win wide
marketplace acceptance this year. Microsoft is also well positioned to expand
market share in computer servers, where it currently runs second to Sun
Microsystems/ IBM's Unix platform and faces stiff competition from the Linux
platform.
We expect Microsoft to win its appeal. However, even if it doesn't and the
company is forced to split in two, we believe there is plenty of value to
compensate investors.
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A We believe that the Fed has completed its interest-rate increases and the
economy is slowing. This should be favorable for the markets. Despite the
technology correction, we are still bullish on semiconductors. We also expect
continued growth in the property and casualty areas of insurance. And we see
stability in oil prices, which should be positive for our energy holdings. Right
now the market lacks notable trends, and investors are looking ahead for signs
of where to move next. We have continued to enhance the quality of the portfolio
by adding growth companies that have excellent long-term potential and superior
fundamentals.
IMPORTANT INFORMATION FOR SHAREHOLDERS: HOW THE KEMPER RETIREMENT FUND
ASSURANCE WORKS
Kemper Retirement Fund invests in a combination of zero-coupon U.S. Treasury
bonds and equity securities, primarily growth stocks. If shares are held to
maturity (see page 30 for maturity dates) and all dividends are reinvested,
shareholders are assured of receiving their original investment at maturity,
plus any returns that the stocks in the portfolio have earned. You may redeem
your investment on any business day at the then-current net asset value. Keep
in mind that shares redeemed prior to maturity do not benefit from this
assurance. Also, if you do not reinvest all dividends, this assurance does not
apply. Shares will fluctuate in value.
7
<PAGE> 8
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED JULY 31, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR LIFE OF FUND
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SERIES II 4.93% 10.62% 12.29% (since 9/10/90)
..................................................................................................
SERIES III 4.96 11.17 10.66 (since 3/10/92)
..................................................................................................
SERIES IV 3.92 10.58 9.39 (since 1/15/93)
..................................................................................................
SERIES V 4.52 11.44 9.81 (since 11/15/93)
..................................................................................................
SERIES VI 4.31 10.68 10.76 (since 5/1/95)
..................................................................................................
SERIES VII 3.26 n/a 8.31 (since 5/1/97)
..................................................................................................
</TABLE>
KEMPER RETIREMENT FUND-SERIES II
Growth of an assumed $10,000 investment in Series II
shares from 9/30/90 to 7/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS LEHMAN BROTHERS
KEMPER RETIREMENT RUSSELL 1000 GROWTH GOVERNMENT/CORPORATE GOVERNMENT BOND
FUND - SERIES II1 INDEX+ BOND INDEX++ INDEX+++
----------------- ------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
9/30/90 9496.00 10000.00 10000.00 10000.00
10322.00 11095.00 10549.00 10549.00
14642.00 15662.00 12165.00 12165.00
12/31/92 15090.00 16446.00 13045.00 13045.00
16977.00 16923.00 14435.00 14435.00
15824.00 17373.00 13948.00 13948.00
19550.00 23833.00 16505.00 16505.00
12/31/96 21647.00 29343.00 17312.00 17312.00
24636.00 38289.00 18970.00 18970.00
27373.00 53109.00 20839.00 20839.00
31436.00 70711.00 20371.00 20371.00
7/31/00 31994.00 70629.00 21362.00 21381.00
</TABLE>
KEMPER RETIREMENT FUND-SERIES III
Growth of an assumed $10,000 investment in Series III
shares from 3/31/92 to 7/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS LEHMAN BROTHERS
KEMPER RETIREMENT RUSSELL 1000 GROWTH GOVERNMENT/CORPORATE GOVERNMENT BOND
FUND - SERIES III1 INDEX+ BOND INDEX++ INDEX+++
------------------ ------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
3/31/92 9496.00 10000.00 10000.00 10000.00
10547.00 11045.00 10922.00 10914.00
11982.00 11366.00 12127.00 12077.00
12/31/94 11112.00 11668.00 11701.00 11670.00
14020.00 16006.00 13953.00 13809.00
15620.00 19708.00 14358.00 14484.00
12/31/97 17875.00 25716.00 15759.00 15872.00
20055.00 35669.00 17254.00 17435.00
22835.00 47490.00 16881.00 17043.00
7/31/00 23254.00 47436.00 17771.00 17688.00
</TABLE>
KEMPER RETIREMENT FUND-SERIES IV
Growth of an assumed $10,000 investment in Series IV
shares from 1/31/93 to 7/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS LEHMAN BROTHERS
KEMPER RETIREMENT RUSSELL 1000 GROWTH GOVERNMENT/CORPORATE GOVERNMENT BOND
FUND - SERIES IV1 INDEX+ BOND INDEX++ INDEX+++
----------------- ------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
1/31/93 9496.00 10000.00 10000.00 10000.00
10421.00 10410.00 10867.00 10635.00
9569.00 10686.00 10485.00 10469.00
12/31/95 12202.00 14660.00 12503.00 12389.00
13359.00 18050.00 12866.00 12995.00
15302.00 23552.00 14122.00 14239.00
12/31/98 17277.00 32668.00 15461.00 15642.00
19254.00 43495.00 15127.00 15291.00
7/31/00 19554.00 43445.00 15924.00 16049.00
</TABLE>
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 MEASURES
NET INVESTMENT INCOME AND CAPITAL
GAIN OR LOSS FROM PORTFOLIO
INVESTMENTS, ASSUMING REINVESTMENT
OF ALL DIVIDENDS. AVERAGE ANNUAL
TOTAL RETURN REFLECTS ANNUALIZED
CHANGE. DURING THE PERIODS NOTED,
SECURITIES PRICES FLUCTUATED. FOR
ADDITIONAL INFORMATION, SEE THE
PROSPECTUS, STATEMENT OF ADDITIONAL
INFORMATION AND THE FINANCIAL
HIGHLIGHTS TABLE AT THE END OF THIS
REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT
OF DIVIDENDS AND ADJUSTMENT FOR
THE MAXIMUM SALES CHARGE OF 5%.
WHEN COMPARING KEMPER RETIREMENT
FUND SERIES WITH 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 LEHMAN BROTHERS
GOVERNMENT BOND INDEX, A MORE
REPRESENTATIVE INDEX FOR THE FUND,
WILL BE SHOWN INSTEAD OF THE
LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX.
+ THE RUSSELL 1000(R) GROWTH INDEX IS
AN UNMANAGED INDEX COMPRISED OF
COMMON STOCKS OF LARGER U.S.
COMPANIES WITH GREATER THAN AVERAGE
GROWTH ORIENTATION, IT REPRESENTS
THE UNIVERSE OF STOCKS FROM WHICH
"EARNINGS/GROWTH" MONEY MANAGERS
TYPICALLY SELECT. IT ASSUMES
REINVESTMENT OF DIVIDENDS. SOURCE
IS 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 WIESENBERGER.
+++ THE LEHMAN BROTHERS GOVERNMENT
BOND INDEX IS A MARKET VALUE
WEIGHTED INDEX OF U.S. TREASURY
AND GOVERNMENT AGENCY SECURITIES
(OTHER THAN MORTGAGE SECURITIES)
WITH MATURITIES OF ONE YEAR OR
MORE. SOURCE IS LEHMAN BROTHERS.
8
<PAGE> 9
PERFORMANCE UPDATE
KEMPER RETIREMENT FUND-SERIES V
Growth of an assumed $10,000 investment in Series V
shares from 11/30/93 to 7/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS LEHMAN BROTHERS
KEMPER RETIREMENT RUSSELL 1000 GROWTH GOVERNMENT/CORPORATE GOVERNMENT BOND
FUND - SERIES V1 INDEX+ BOND INDEX++ INDEX+++
----------------- ------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
11/30/93 9500.00 10000.00 10000.00 10000.00
9553.00 10173.00 10044.00 10039.00
8841.00 10443.00 9691.00 9700.00
12/31/95 11404.00 14327.00 11556.00 11479.00
12540.00 17639.00 11892.00 12040.00
12/31/97 14597.00 23017.00 13052.00 13193.00
16613.00 31926.00 14290.00 14493.00
18539.00 42507.00 13981.00 14168.00
7/31/00 18879.00 42458.00 14718.00 14870.00
</TABLE>
KEMPER RETIREMENT FUND-SERIES VI
Growth of an assumed $10,000 investment in Series VI
shares from 5/31/95 to 7/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS LEHMAN BROTHERS
KEMPER RETIREMENT RUSSELL 1000 GROWTH GOVERNMENT/CORPORATE GOVERNMENT BOND
FUND - SERIES VI1 INDEX+ BOND INDEX++ INDEX+++
----------------- ------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
5/31/95 9505.00 10000.00 10000.00 10000.00
9556.00 10386.00 10080.00 10077.00
9876.00 11329.00 10273.00 10255.00
10481.00 11845.00 10752.00 10723.00
10333.00 12481.00 10500.00 10481.00
10397.00 13274.00 10549.00 10530.00
10798.00 13753.00 10736.00 10708.00
12/31/96 11301.00 14583.00 11064.00 11248.00
11077.00 14662.00 10968.00 11156.00
12127.00 17434.00 11366.00 11542.00
12920.00 18745.00 11765.00 11929.00
13198.00 19029.00 12143.00 12325.00
13994.00 21912.00 12328.00 12511.00
14181.00 22906.00 12642.00 12841.00
9/30/98 14081.00 20825.00 13279.00 13551.00
15132.00 26394.00 13295.00 13539.00
15105.00 28072.00 13136.00 13345.00
15485.00 29153.00 12993.00 13232.00
15091.00 28083.00 13061.00 13319.00
16218.00 35142.00 13008.00 13235.00
16719.00 37647.00 13356.00 13678.00
16704.00 36629.00 13550.00 13848.00
7/31/00 16719.00 35102.00 13693.00 13891.00
</TABLE>
KEMPER RETIREMENT FUND-SERIES VII
Growth of an assumed $10,000 investment in Series VII
shares from 5/31/97 to 7/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS LEHMAN BROTHERS
KEMPER RETIREMENT RUSSELL 1000 GROWTH GOVERNMENT/CORPORATE GOVERNMENT BOND
FUND - SERIES VII1 INDEX+ BOND INDEX++ INDEX+++
------------------ ------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
5/31/97 9496.00 10000.00 10000.00 10000.00
9695.00 10400.00 10120.00 10112.00
10305.00 11182.00 10475.00 10451.00
10589.00 11352.00 10812.00 10798.00
11162.00 13072.00 10976.00 10961.00
11385.00 13664.00 11256.00 11250.00
9/30/98 11470.00 12423.00 11823.00 11872.00
12173.00 15745.00 11837.00 11862.00
11989.00 16746.00 11696.00 11692.00
12086.00 17391.00 11568.00 11592.00
11740.00 16753.00 11629.00 11669.00
12/31/99 12383.00 20964.00 11581.00 11595.00
12828.00 22458.00 11891.00 11984.00
12884.00 21850.00 12064.00 11957.00
7/31/00 12895.00 20939.00 12192.00 12170.00
</TABLE>
9
<PAGE> 10
LARGEST HOLDINGS
THE FUND'S LARGEST STOCK HOLDINGS*
Percentages based on the fund's total common stock holdings as of July 31, 2000.
<TABLE>
<CAPTION>
HOLDINGS SERIES II SERIES III SERIES IV SERIES V SERIES VI SERIES VII
<S> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------
1. CISCO SYSTEMS 4.5% 4.2% 4.6% 4.9% 5.0% 3.9%
-------------------------------------------------------------------------------------------------------
2. INTEL 4.4% 4.4% 4.1% 4.3% 4.4% 4.2%
-------------------------------------------------------------------------------------------------------
3. GENERAL 3.6% 3.8% 3.6% 4.1% 4.1% 3.6%
ELECTRIC
-------------------------------------------------------------------------------------------------------
4. MICROSOFT 3.5% 3.4% 2.9% 3.3% 3.5% 3.4%
-------------------------------------------------------------------------------------------------------
5. PEPSICO 2.9% 3.0% 2.9% 2.8% 2.7% 2.8%
-------------------------------------------------------------------------------------------------------
6. PFIZER 2.1% 2.1% 2.3% 2.1% 2.3% 2.1%
-------------------------------------------------------------------------------------------------------
7. LINEAR 2.1% 2.5% 1.6% 2.0% 2.1% --
TECHNOLOGY
-------------------------------------------------------------------------------------------------------
8. WAL-MART 2.1% 2.3% 2.0% 2.3% 2.4% 2.0%
-------------------------------------------------------------------------------------------------------
9. BAXTER 2.0% 2.1% 2.3% 2.1% 2.0% 2.1%
INTERNATIONAL
-------------------------------------------------------------------------------------------------------
10. UNITED 1.8% 1.8% 2.0% 1.9% 1.6% 1.9%
TECHNOLOGIES
-------------------------------------------------------------------------------------------------------
</TABLE>
*The fund's holdings are subject to change.
10
<PAGE> 11
INDIVIDUAL HOLDINGS
DESCRIPTION OF YOUR FUND'S LARGEST HOLDINGS
<TABLE>
<CAPTION>
HOLDINGS
<S> <C> <C>
---------------------------------------------------------------------------------
1. CISCO SYSTEMS Large, comprehensive supplier of routing
software and related systems that direct
the flow of data between local networks
and the Internet.
---------------------------------------------------------------------------------
2. INTEL Designs, develops, manufactures and sells
advanced microcomputer components, such
as semiconductors.
---------------------------------------------------------------------------------
3. GENERAL ELECTRIC A broadly diversified company with major
businesses in power generators,
appliances, lighting, plastics, medical
systems, aircraft engines, financial
services and broadcasting.
---------------------------------------------------------------------------------
4. MICROSOFT Develops, markets and supports a variety
of software, operating systems, Internet
services, and language and application
programs.
---------------------------------------------------------------------------------
5. PEPSICO One of the largest international snack
food and soft drink producers.
---------------------------------------------------------------------------------
6. PFIZER A research-based pharmaceutical company
involved in the discovery, development,
manufacturing and marketing of medicines
for humans and animals.
---------------------------------------------------------------------------------
7. LINEAR TECHNOLOGY Designs, manufactures and markets
integrated circuits for a variety of
products, including telecommunications
equipment, computers, satellites and
automotive systems.
---------------------------------------------------------------------------------
8. WAL-MART Large, global retailer with operations in
the United States, Asia and Latin
America. Wal-Mart operates Wal-Marts,
Wal-Mart Supercenters and Sam's Clubs and
sells branded merchandise under the
Popular Mechanics, Better Homes & Gardens
and Sam's American Choice labels.
---------------------------------------------------------------------------------
9. BAXTER INTERNATIONAL An international market-leader in health
care that develops, manufactures and
distributes a diversified line of
products, systems and services to
hospitals, clinical and medical research
laboratories, blood and dialysis centers,
rehabilitation centers and nursing homes.
---------------------------------------------------------------------------------
10. UNITED TECHNOLOGIES Designs, develops, manufactures, sells
and services mechanical products,
including aircraft engines and parts,
elevators, and air conditioning, heating
and refrigeration systems and equipment.
---------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
KEMPER RETIREMENT FUND
SERIES II THROUGH VII
Portfolio of Investments at July 31, 2000
<TABLE>
<CAPTION>
SERIES II SERIES III
SHORT-TERM NOTES--0.6%, 4.0%, PRINCIPAL PRINCIPAL
2.2%, 2.2%, 2.2% AND 0.0% SECURITY NAME AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS--0.6%, 0.9%,
0.8%, 0.6%, 1.0% AND 0.0%
State Street Bank and
Trust Company, 6.53%,
to be repurchased at
$811,147, $991,180,
$884,160, $740,134 and
$617,112 on 08/01/2000** $ 811,000 $ 811,000 $ 991,000 $ 991,000
(Cost $811,000, $991,000,
$884,000, $740,000,
$617,000 and $0)
---------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
PAPER--0.0%, 3.1%, 1.4%, 1.6%,
1.2% AND 0.0%
Countrywide Home Loans,
6.52%***, 08/02/2000 -- -- 1,000,000 999,818
Xerox Credit Corp.,
6.72%***, 08/01/2000 -- -- 2,500,000 2,500,000
---------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost $0, $3,499,818, $1,500,000,
$1,799,818, $800,050 and $0) -- 3,499,818
---------------------------------------------------------------------------------------
TOTAL SHORT-TERM NOTES
(Cost $811,000, $4,490,818, $2,384,000,
$2,539,818, $1,417,000 and $0) 811,000 4,490,818
---------------------------------------------------------------------------------------
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS--49.2%, 45.2%, 50.1%, 43.5%,
52.4% AND 63.6%
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Separate
Trading Registered
Interest and Principal
Securities, zero coupon,
08/15/2000, 02/15/2002,
02/15/2003, 11/15/2004,
5/15/2006 and 5/15/2008 68,000,000 67,844,960 55,700,000 50,884,178
---------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $67,848,339, $49,588,908,
$54,105,519, $46,648,909, $32,187,987 and
30,707,936) 67,844,960 50,884,178
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS--50.2%, 50.8%, 47.7%, 54.3%, 45.4% AND NUMBER OF NUMBER OF
36.4% SHARES SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
COMMUNICATIONS--2.5%, 2.3%, 2.4%,
2.8%, 2.2% AND 1.9%
TELEPHONE AND
COMMUNICATIONS--2.3%, 2.1%,
2.2%, 2.6%,
2.0% AND 1.8%
BroadWing, Inc.* 21,300 559,125 16,300 427,875
JDS Uniphase Corp.* 2,000 236,258 1,500 177,188
Nortel Networks Corp. 15,000 1,115,625 11,000 818,125
Qwest Communications
International, Inc.* 14,300 671,206 11,700 549,169
Verizon Communications 13,000 611,000 9,500 446,500
---------------------------------------------------------------------------------------
3,193,206 2,418,857
MISCELLANEOUS--0.2%,
0.2%, 0.2%, 0.2%,
0.2% AND 0.1%
Tycom, Ltd.* 7,600 257,338 6,000 203,162
---------------------------------------------------------------------------------------
</TABLE>
12 The accompanying notes are an integral part of the financial statements.
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SERIES IV SERIES V SERIES VI SERIES VII
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 884,000 $ 884,000 $ 740,000 $ 740,000 $ 617,000 $ 617,000 -- --
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
-- -- 1,000,000 999,818 -- -- -- --
1,500,000 1,500,000 800,000 800,000 800,000 800,000 -- --
----------------------------------------------------------------------------------------------------------------------
1,500,000 1,799,818 800,000 --
----------------------------------------------------------------------------------------------------------------------
2,384,000 2,539,818 1,417,000 --
----------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
63,700,000 54,294,331 64,850,000 49,504,917 46,900,000 32,937,401 47,900,000 29,772,724
----------------------------------------------------------------------------------------------------------------------
54,294,331 49,504,917 32,937,401 29,772,724
----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
16,300 427,875 18,300 480,375 8,600 225,750 5,200 136,500
1,500 177,188 2,000 236,250 1,000 118,125 500 59,063
11,000 818,125 14,000 1,041,250 5,500 409,063 4,000 297,500
9,700 455,294 11,700 549,169 4,500 211,219 3,500 164,281
10,500 493,500 13,500 634,500 6,500 305,500 3,500 164,500
----------------------------------------------------------------------------------------------------------------------
2,371,982 2,941,544 1,269,657 821,844
6,000 203,162 7,600 257,338 2,900 98,188 2,100 71,107
----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SERIES II SERIES III
NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
CONSUMER
DISCRETIONARY--3.0%,
3.3%, 3.1%, 3.5%,
3.0% AND 2.2%
DEPARTMENT & CHAIN
STORES
Gap, Inc. 6,000 $ 214,875 8,000 $ 286,500
Home Depot, Inc. 17,500 905,625 16,500 853,875
Kohl's Corp.* 12,500 709,375 10,000 567,500
Target Corp. 29,000 841,000 25,000 725,000
Wal-Mart Stores, Inc. 26,000 1,428,375 24,000 1,318,500
--------------------------------------------------------------------------------------
4,099,250 3,751,375
------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--
2.9%, 2.9%, 2.7%,
2.9%, 2.4% AND 2.0%
FOOD & BEVERAGE--2.1%,
2.2%, 2.0%, 2.2%, 1.7% AND
1.5%
H.J. Heinz Co. 22,700 906,581 18,500 738,844
PepsiCo, Inc. 44,000 2,015,750 37,200 1,704,225
--------------------------------------------------------------------------------------
2,922,331 2,443,069
PACKAGE GOODS AND
COSMETICS--0.8%,
0.7%, 0.7%, 0.7%,
0.7% AND 0.5%
Clorox Co. 9,000 371,813 7,000 289,187
Colgate-Palmolive Co. 12,000 668,250 10,000 556,875
--------------------------------------------------------------------------------------
1,040,063 846,062
------------------------------------------------------------------------------------------------------------------------
DURABLES--1.7%,
1.7%, 1.7%, 1.9%,
1.4% AND 1.3%
AEROSPACE--1.4%,
1.5%, 1.4%, 1.6%,
1.1% AND 1.1%
Boeing Co. 15,000 735,000 12,000 588,000
United Technologies Corp. 21,000 1,225,875 18,000 1,050,750
--------------------------------------------------------------------------------------
1,960,875 1,638,750
TELECOMMUNICATIONS
EQUIPMENT--0.3%,
0.2%, 0.3%, 0.3%,
0.3% AND 0.2%
Lucent Technologies, Inc. 9,000 393,750 6,000 262,500
--------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
ENERGY--2.5%, 2.7%,
2.4%, 2.7%, 2.3%,
AND 2.1%
OIL & GAS
PRODUCTION--1.5%,
1.5%, 1.4%, 1.5%,
1.3% AND 1.2%
Exxon Mobil Corp. 14,297 1,143,760 11,712 936,960
Royal Dutch Petroleum Co.
(New York shares) 15,000 873,750 13,000 757,250
--------------------------------------------------------------------------------------
2,017,510 1,694,210
OILFIELD SERVICES AND
EQUIPMENT--1.0%, 1.2%,
1.0%, 1.2%, 1.0%, AND 0.9%
Halliburton Co. 9,000 415,125 10,000 461,250
Schlumberger Ltd. 14,400 1,064,700 12,000 887,250
--------------------------------------------------------------------------------------
1,479,825 1,348,500
------------------------------------------------------------------------------------------------------------------------
FINANCIAL--8.4%, 8.6%,
8.4%, 9.1% 7.4%,
AND 6.1%
BANKS--0.9%, 1.0%,
1.0%, 1.1%, 0.8%,
AND 0.7%
Chase Manhattan Corp. 7,000 347,813 6,000 298,125
FleetBoston Financial Corp. 12,000 429,750 11,000 393,937
Wells Fargo Co. 12,400 512,275 10,800 446,175
--------------------------------------------------------------------------------------
1,289,838 1,138,237
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SERIES IV SERIES V SERIES VI SERIES VII
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8,000 $ 286,500 9,000 $ 322,313 4,000 $ 143,250 3,000 $ 107,437
14,500 750,375 17,500 905,625 8,250 426,938 4,600 238,050
10,000 567,500 10,000 567,500 5,000 283,750 2,000 113,500
24,000 696,000 26,000 754,000 11,400 330,600 7,000 203,000
19,000 1,043,813 26,000 1,428,375 12,300 675,731 6,300 346,106
----------------------------------------------------------------------------------------------------------
3,344,188 3,977,813 1,860,269 1,008,093
----------------------------------------------------------------------------------------------------------
15,900 635,006 18,500 738,844 8,200 327,488 5,500 219,656
33,200 1,520,975 37,500 1,717,969 16,600 760,488 10,300 471,869
----------------------------------------------------------------------------------------------------------
2,155,981 2,456,813 1,087,976 691,525
6,000 247,875 7,000 289,187 3,000 123,938 2,000 82,625
10,000 556,875 10,000 556,875 5,000 278,438 3,000 167,062
----------------------------------------------------------------------------------------------------------
804,750 846,062 402,376 249,687
----------------------------------------------------------------------------------------------------------
10,000 490,000 13,000 637,000 5,000 245,000 3,500 171,500
18,000 1,050,750 20,000 1,167,500 8,000 467,000 5,500 321,063
----------------------------------------------------------------------------------------------------------
1,540,750 1,804,500 712,000 492,563
6,000 262,500 8,000 350,000 3,500 153,125 2,500 109,375
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
10,128 810,240 11,241 899,280 5,356 428,480 3,864 309,120
12,000 699,000 14,500 844,625 7,000 407,750 4,500 262,125
----------------------------------------------------------------------------------------------------------
1,509,240 1,743,905 836,230 571,245
7,000 322,875 10,000 461,250 4,000 184,500 2,500 115,313
11,000 813,312 12,000 887,250 6,000 443,625 3,700 273,569
----------------------------------------------------------------------------------------------------------
1,136,187 1,348,500 628,125 388,882
----------------------------------------------------------------------------------------------------------
5,000 248,437 7,000 347,812 3,000 149,063 2,000 99,375
10,000 358,125 11,000 393,937 4,000 143,250 3,000 107,437
10,800 446,175 10,800 446,175 5,200 214,825 3,400 140,463
----------------------------------------------------------------------------------------------------------
1,052,737 1,187,924 507,138 347,275
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SERIES II SERIES III
NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
CONSUMER FINANCE--3.3%,
3.3%, 3.2%, 3.5%,
2.7% AND 2.4%
American Express Co. 20,000 $ 1,133,750 17,500 $ 992,031
Capital One Finance Corp. 21,000 1,231,125 17,000 996,625
Citigroup, Inc. 17,000 1,199,562 14,500 1,023,156
Household International, Inc. 20,919 932,203 15,932 709,970
---------------------------------------------------------------------------------------
4,496,640 3,721,782
INSURANCE--3.5%,
3.7%, 3.5%, 3.9%,
3.3% AND 2.5%
American International Group,
Inc. 13,500 1,183,781 11,625 1,019,367
Aon Corp. 19,400 698,400 14,400 518,400
Cigna Corp. 5,900 589,263 5,000 499,375
Hartford Financial Services
Group, Inc. 12,000 771,000 12,000 771,000
Jefferson Pilot Corp. 10,500 640,500 8,000 488,000
St. Paul Companies, Inc. 21,000 933,188 19,000 844,313
---------------------------------------------------------------------------------------
4,816,132 4,140,455
OTHER FINANCIAL
COMPANIES--0.7%,
0.6%, 0.7%, 0.6%,
0.6% AND 0.5%
Marsh & McLennan Companies, Inc. 8,000 976,000 6,000 732,000
---------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
HEALTH--6.9%, 7.1%,
7.1%, 7.7%, 6.4%,
AND 5.5%
BIOTECHNOLOGY--1.4%,
1.4%, 1.4%, 1.5%,
1.2% AND 1.2%
Amgen, Inc.* 9,000 584,438 9,000 584,437
Genentech, Inc.* 2,600 395,525 2,000 304,250
PE Corp-PE Biosystems Group 11,000 959,063 8,500 741,094
---------------------------------------------------------------------------------------
1,939,026 1,629,781
MEDICAL SUPPLY AND
SPECIALTY--1.4%,
1.6%, 1.5%, 1.6%,
1.3% AND 1.0%
Baxter International, Inc. 18,000 1,399,500 15,800 1,228,450
Becton, Dickinson & Co. 23,400 590,850 21,500 542,875
---------------------------------------------------------------------------------------
1,990,350 1,771,325
PHARMACEUTICALS--4.1%,
4.1%, 4.2%, 4.6%,
3.9% AND 3.3%
Abbott Laboratories 25,100 1,044,787 20,300 844,987
Allergan, Inc. 9,300 622,519 7,500 502,031
Alza Corp.* 9,000 582,750 8,000 518,000
Eli Lilly & Co. 7,000 727,125 6,000 623,250
Forest Laboratories, Inc.* 3,200 342,400 2,900 310,300
Merck & Co., Inc. 12,000 860,250 9,000 645,188
Pfizer, Inc. 33,375 1,439,297 27,250 1,175,156
---------------------------------------------------------------------------------------
5,619,128 4,618,912
-------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--2.3%,
2.4%, 2.2%, 2.7%,
2.4% AND 1.8%
DIVERSIFIED MANUFACTURING
General Electric Co. 47,800 2,458,712 42,400 2,180,950
Tyco International Ltd. 14,108 754,778 10,170 544,095
---------------------------------------------------------------------------------------
3,213,490 2,725,045
-------------------------------------------------------------------------------------------------------------------------
MEDIA--3.0%,
3.0%, 2.6%, 3.2%,
2.6% AND 2.0%
BROADCASTING AND
ENTERTAINMENT--2.5%,
2.4%, 2.2%, 2.6%,
2.1% AND 1.6%
Clear Channel Communications,
Inc.* 6,258 476,781 4,522 344,520
Infinity Broadcasting Corp. "A"* 19,900 701,475 15,900 560,475
The Walt Disney Co. 17,000 657,688 11,000 425,563
Univision Communication, Inc.* 4,500 559,125 4,000 497,000
Viacom, Inc. "B"* 15,025 996,345 13,770 913,123
---------------------------------------------------------------------------------------
3,391,414 2,740,681
</TABLE>
16 The accompanying notes are an integral part of the financial statements.
<PAGE> 17
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SERIES IV SERIES V SERIES VI SERIES VII
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15,500 $ 878,656 17,000 $ 963,687 7,650 $ 433,659 5,000 $ 283,437
16,000 938,000 19,000 1,113,875 7,500 439,688 5,000 293,125
13,000 917,312 16,500 1,164,281 6,750 476,297 4,350 306,947
15,932 709,970 16,932 754,532 7,813 348,167 5,259 234,354
----------------------------------------------------------------------------------------------------------
3,443,938 3,996,375 1,697,811 1,117,863
11,625 1,019,367 13,500 1,183,781 6,375 559,008 3,750 328,828
14,400 518,400 14,400 518,400 6,700 241,200 4,200 151,200
5,000 499,375 6,000 599,250 2,500 249,688 1,100 109,862
10,000 642,500 11,000 706,750 5,500 353,375 3,000 192,750
7,500 457,500 10,500 640,500 5,000 305,000 2,350 143,350
16,000 711,000 19,000 844,313 9,000 399,938 5,000 222,188
----------------------------------------------------------------------------------------------------------
3,848,142 4,492,994 2,108,209 1,148,178
6,000 732,000 6,000 732,000 3,000 366,000 2,000 244,000
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
7,000 454,563 9,500 616,906 3,600 233,775 2,500 162,344
2,000 304,250 2,000 304,250 1,000 152,125 700 106,487
8,000 697,500 8,500 741,094 4,000 348,750 3,200 279,000
----------------------------------------------------------------------------------------------------------
1,456,313 1,662,250 734,650 547,831
15,000 1,166,250 16,800 1,306,200 7,500 583,125 4,500 349,875
18,200 459,550 20,600 520,150 8,600 217,150 5,350 135,087
----------------------------------------------------------------------------------------------------------
1,625,800 1,826,350 800,275 484,962
20,300 844,988 21,300 886,612 10,200 424,575 7,000 291,375
6,600 441,788 7,500 502,031 3,900 261,056 2,600 174,037
8,000 518,000 9,000 582,750 4,000 259,000 2,500 161,875
6,000 623,250 8,000 831,000 3,500 363,563 1,800 186,975
2,250 240,750 2,700 288,900 1,250 133,750 1,000 107,000
10,000 716,875 12,000 860,250 5,500 394,281 3,600 258,075
27,250 1,175,156 30,000 1,293,750 15,000 646,875 8,500 366,563
----------------------------------------------------------------------------------------------------------
4,560,807 5,245,293 2,483,100 1,545,900
----------------------------------------------------------------------------------------------------------
36,400 1,872,325 49,800 2,561,588 23,000 1,183,063 12,000 617,250
10,020 536,070 10,000 535,000 6,000 321,000 4,000 214,000
----------------------------------------------------------------------------------------------------------
2,408,395 3,096,588 1,504,063 831,250
----------------------------------------------------------------------------------------------------------
4,522 344,520 5,101 388,632 2,471 188,259 1,204 91,730
14,900 525,225 18,900 666,225 7,900 278,475 5,700 200,925
11,000 425,563 11,000 425,562 5,500 212,781 3,500 135,406
2,500 310,625 4,000 497,000 1,500 186,375 700 86,975
11,430 757,952 14,421 956,293 6,831 452,981 3,773 250,197
----------------------------------------------------------------------------------------------------------
2,363,885 2,933,712 1,318,871 765,233
</TABLE>
The accompanying notes are an integral part of the financial statements. 17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SERIES II SERIES III
NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
CABLE TELEVISION--0.5%,
0.6%, 0.4%, 0.6%,
0.5% AND 0.4%
AT&T Corp.--Liberty Media "A"* 31,000 $ 689,750 28,000 $ 623,000
---------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--1.9%,
2.0%, 1.8%, 2.1%
1.6% AND 1.5%
ENVIRONMENTAL
SERVICES--0.5%, 0.5%,
0.5%, 0.5%, 0.4%,
AND 0.3%
Transocean Sedco Forex, Inc. 12,400 613,780 10,936 541,332
---------------------------------------------------------------------------------------
INVESTMENT--0.4%,
0.5%, 0.4%, 0.6%,
0.4% AND 0.4%
Merrill Lynch & Co., Inc. 4,500 581,625 4,000 517,000
---------------------------------------------------------------------------------------
MISCELLANEOUS
COMMERCIAL--0.5%,
0.5%, 0.4%, 0.5%,
0.4% AND 0.4%
Siebel Systems, Inc.* 4,700 681,500 4,000 580,000
---------------------------------------------------------------------------------------
PRINTING AND
PUBLISHING--0.5%,
0.5%, 0.5%, 0.5%,
0.4% AND 0.4%
McGraw-Hill, Inc. 11,900 707,306 9,600 570,600
---------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--15.1%,
14.8%, 13.3%, 15.6%,
13.7% AND 10.1%
COMPUTER SOFTWARE--2.9%,
2.5%, 2.1%, 2.7%, 2.5%
AND 2.0%
Intuit, Inc.* 7,000 238,000 6,000 204,000
Microsoft Corp.* 34,500 2,408,531 27,500 1,919,844
Oracle Corp.* 17,400 1,308,262 9,200 691,725
---------------------------------------------------------------------------------------
3,954,793 2,815,569
DIVERSE ELECTRONIC
PRODUCTS--3.0%, 3.0%,
2.9%, 3.1%, 2.7%
AND 2.3%
Applied Materials, Inc.* 9,600 728,400 7,500 569,062
Dell Computer Corp.* 21,500 944,656 17,000 746,937
General Motors Corp. "H" (New)* 24,000 621,000 21,000 543,375
Motorola Inc. 21,000 694,313 16,000 529,000
Solectron Corp.* 16,000 645,000 14,000 564,375
Teradyne, Inc.* 7,400 468,975 6,200 392,925
---------------------------------------------------------------------------------------
4,102,344 3,345,674
EDP PERIPHERALS--0.3%,
0.2%, 0.2%, 0.2%,
0.2%, AND 0.2%
VERITAS Software Corp.* 3,500 356,781 2,500 254,844
---------------------------------------------------------------------------------------
ELECTRONIC
COMPONENTS--2.4%,
2.4%, 2.4%, 2.9%,
2.4% AND 1.6%
Cisco Systems, Inc.* 48,000 3,141,000 37,000 2,421,188
Juniper Networks, Inc.* 2,000 284,875 1,500 213,656
---------------------------------------------------------------------------------------
3,425,875 2,634,844
ELECTRONIC DATA
PROCESSING--2.4%,
2.3%, 2.1%, 2.4%,
2.2% AND 1.8%
International Business Machines
Corp. 10,000 1,124,375 8,000 899,500
Radioshack Corp 15,500 873,813 12,500 704,688
Sun Microsystems, Inc.* 12,200 1,286,337 9,300 980,569
---------------------------------------------------------------------------------------
3,284,525 2,584,757
</TABLE>
18 The accompanying notes are an integral part of the financial statements.
<PAGE> 19
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SERIES IV SERIES V SERIES VI SERIES VII
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
22,000 $ 489,500 31,000 $ 689,750 15,500 $ 344,875 8,500 $ 189,125
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
10,742 531,729 11,129 550,886 4,688 231,066 2,716 134,432
----------------------------------------------------------------------------------------------------------
3,500 452,375 5,000 646,250 2,000 258,500 1,500 193,875
----------------------------------------------------------------------------------------------------------
2,500 362,500 4,000 580,000 1,500 217,500 1,300 188,500
----------------------------------------------------------------------------------------------------------
9,000 534,937 10,300 612,206 4,700 279,356 3,000 178,313
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
6,000 204,000 7,000 238,000 3,000 102,000 1,500 51,000
21,300 1,487,006 29,000 2,024,563 14,300 998,319 8,400 586,425
8,200 616,537 10,800 812,025 6,000 451,125 4,000 300,750
----------------------------------------------------------------------------------------------------------
2,307,543 3,074,588 1,551,444 938,175
6,500 493,188 7,500 569,062 3,800 288,325 2,000 151,750
17,000 746,937 17,000 746,937 7,500 329,531 5,500 241,656
18,000 465,750 21,000 543,375 12,000 310,500 7,500 194,062
16,000 529,000 20,000 661,250 9,000 297,563 5,500 181,844
13,000 524,062 15,000 604,688 7,000 282,188 4,500 181,406
5,000 316,875 7,400 468,975 3,100 196,463 2,000 126,750
----------------------------------------------------------------------------------------------------------
3,075,812 3,594,287 1,704,570 1,077,468
2,500 254,844 2,500 254,844 1,300 132,519 1,000 101,938
----------------------------------------------------------------------------------------------------------
36,000 2,355,750 46,000 3,010,125 22,000 1,439,625 10,200 667,462
1,500 213,656 2,000 284,875 750 106,828 500 71,219
----------------------------------------------------------------------------------------------------------
2,569,406 3,295,000 1,546,453 738,681
8,000 899,500 8,500 955,719 4,000 449,750 2,500 281,094
9,500 535,563 13,500 761,063 6,800 383,350 3,900 219,863
8,300 875,131 9,300 980,569 5,100 537,731 3,200 337,400
----------------------------------------------------------------------------------------------------------
2,310,194 2,697,351 1,370,831 838,357
</TABLE>
20 The accompanying notes are an integral part of the financial statements.
<PAGE> 20
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SERIES II SERIES III
NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
SEMICONDUCTORS--4.1%,
4.4%, 3.6%, 4.3%,
3.7% AND 2.2%
Intel Corp. 46,000 $ 3,070,500 38,000 $ 2,536,500
Linear Technology Corp. 26,000 1,436,500 26,000 1,436,500
Texas Instruments, Inc. 13,000 762,938 11,500 674,906
Xilinx, Inc.* 6,000 450,375 4,400 330,275
--------------------------------------------------------------------------------------
5,720,313 4,978,181
--------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $49,807,222, $41,860,736,
$38,186,644, $44,609,163, $20,712,924
and $13,607,005) 69,214,758 57,270,504
--------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $118,466,561, $95,940,462,
$94,676,163, $93,797,890, $54,317,911
and $44,314,941) $137,870,718 $112,645,500
--------------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
*** Annualized yield at time of purchase; not a coupon rate.
(a) Based on the cost of investments for federal income tax purposes at July 31,
2000, the unrealized appreciation and depreciation on investments is as
follows:
<TABLE>
<CAPTION>
SERIES II SERIES III SERIES IV SERIES V SERIES VI SERIES VII
--------- ---------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cost of investments for federal
income tax purposes $118,580,754 $95,988,274 $94,723,975 $93,876,604 $54,357,269 $44,340,099
----------------------------------------------------------------------------------------------------------------------
Gross unrealized appreciation 21,284,731 18,255,061 15,102,109 21,724,954 9,525,049 4,100,549
----------------------------------------------------------------------------------------------------------------------
Gross unrealized depreciation 1,994,767 1,597,835 1,556,256 1,814,012 994,990 1,606,522
----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation 19,289,964 16,657,226 13,545,853 19,910,942 8,530,059 2,494,027
----------------------------------------------------------------------------------------------------------------------
</TABLE>
20 The accompanying notes are an integral part of the financial statements.
<PAGE> 21
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SERIES IV SERIES V SERIES VI SERIES VII
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
32,000 $ 2,136,000 40,000 $ 2,670,000 19,000 $ 1,268,250 10,800 $ 720,900
15,000 828,750 22,000 1,215,500 11,000 607,750 -- --
10,000 586,875 10,000 586,875 4,500 264,094 4,000 234,750
4,400 330,275 5,000 375,313 2,500 187,656 1,200 90,075
----------------------------------------------------------------------------------------------------------------
3,881,900 4,847,688 2,327,750 1,045,725
----------------------------------------------------------------------------------------------------------------
51,591,497 61,742,811 28,532,927 17,061,402
----------------------------------------------------------------------------------------------------------------
$108,269,828 $113,787,546 $62,887,328 $46,834,126
----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 21
<PAGE> 22
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
As of July 31, 2000
<TABLE>
<CAPTION>
SERIES
--------------------------------------------------------------------------------
II III IV V VI VII
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments at value,
(Cost: $118,466,561,
$95,940,462, $94,676,163,
$93,797,890, $54,317,911,
$44,314,941) $137,870,718 112,645,500 108,269,828 113,787,546 62,887,328 46,834,126
-------------------------------------------------------------------------------------------------------------------
Cash 577 29,018 299 720 330 22,846
-------------------------------------------------------------------------------------------------------------------
Receivable for investments sold 379,265 379,265 1,232,315 1,144,126 157,147 93,368
-------------------------------------------------------------------------------------------------------------------
Dividends receivable 20,670 16,269 15,922 16,702 7,870 5,190
-------------------------------------------------------------------------------------------------------------------
Interest receivable 147 180 160 134 112 --
-------------------------------------------------------------------------------------------------------------------
Receivable for Fund shares sold -- -- -- -- -- 67
-------------------------------------------------------------------------------------------------------------------
Foreign taxes recoverable -- 816 816 825 -- --
-------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 138,271,377 113,071,048 109,519,340 114,950,053 63,052,787 46,955,597
-------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 479,057 501,859 501,859 592,644 247,870 183,868
-------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed 717,992 128,165 136,256 89,057 30,593 37,765
-------------------------------------------------------------------------------------------------------------------
Accrued management fee 60,109 48,298 46,676 49,055 26,868 19,969
-------------------------------------------------------------------------------------------------------------------
Other accrued expenses and
payables 112,435 98,670 119,990 137,017 90,206 99,161
-------------------------------------------------------------------------------------------------------------------
Total liabilities 1,369,593 776,992 804,781 867,773 395,537 340,763
-------------------------------------------------------------------------------------------------------------------
NET ASSETS, AT VALUE $136,901,784 112,294,056 108,714,559 114,082,280 62,657,250 46,614,834
-------------------------------------------------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Undistributed net investment
income (loss) $ 352,270 2,270,526 1,712,913 2,442,894 980,761 873,143
-------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) on investments 19,404,157 16,705,038 13,593,665 19,989,656 8,569,417 2,519,185
-------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain
(loss) 2,205,268 7,870,290 7,028,159 8,061,305 3,633,971 1,486,942
-------------------------------------------------------------------------------------------------------------------
Paid-in capital 114,940,089 85,448,202 86,379,822 83,588,425 49,473,101 41,735,564
-------------------------------------------------------------------------------------------------------------------
NET ASSETS, AT VALUE $136,901,784 112,294,056 108,714,559 114,082,280 62,657,250 46,614,834
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
Shares outstanding 11,488,533 10,126,525 9,810,218 10,815,657 5,356,545 4,017,529
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE
(Net assets / outstanding shares
of beneficial interest, $.01 par
value, unlimited number of shares
authorized) $ 11.92 11.09 11.08 10.55 11.70 11.60
-------------------------------------------------------------------------------------------------------------------
</TABLE>
22 The accompanying notes are an integral part of the financial statements.
<PAGE> 23
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
Year ended July 31, 2000
<TABLE>
<CAPTION>
SERIES
-------------------------------------------------------------------------------
II III IV V VI VII
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (a) $ 591,799 483,290 457,786 518,977 244,356 150,633
----------------------------------------------------------------------------------------------------------------------
Interest 5,423,427 3,997,426 3,650,952 3,903,143 2,238,112 1,840,917
----------------------------------------------------------------------------------------------------------------------
Total income 6,015,226 4,480,716 4,108,738 4,422,120 2,482,468 1,991,550
----------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee 747,052 580,036 578,587 598,461 327,511 245,625
----------------------------------------------------------------------------------------------------------------------
Services to shareholders 186,085 100,837 129,375 178,647 113,062 87,664
----------------------------------------------------------------------------------------------------------------------
Custodian fees 14,448 3,091 8,933 18,614 5,056 6,944
----------------------------------------------------------------------------------------------------------------------
Administrative services fees 370,774 288,951 287,173 298,597 162,566 122,407
----------------------------------------------------------------------------------------------------------------------
Auditing 44,142 48,056 41,389 38,029 17,564 16,512
----------------------------------------------------------------------------------------------------------------------
Legal 6,822 6,786 3,979 3,339 1,458 4,001
----------------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 22,733 14,965 21,539 14,253 15,065 9,000
----------------------------------------------------------------------------------------------------------------------
Reports to shareholders 28,227 29,209 40,360 11,242 36,524 22,405
----------------------------------------------------------------------------------------------------------------------
Other 10,027 10,327 12,389 4,790 7,913 18,516
----------------------------------------------------------------------------------------------------------------------
Total expenses, before expense
reductions 1,430,310 1,082,258 1,123,724 1,165,972 686,719 533,074
----------------------------------------------------------------------------------------------------------------------
Expense reductions (10,915) (8,528) (8,647) (8,853) (4,855) (3,687)
----------------------------------------------------------------------------------------------------------------------
Total expenses, after expense
reductions 1,419,395 1,073,730 1,115,077 1,157,119 681,864 529,387
----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 4,595,831 3,406,986 2,993,661 3,265,001 1,800,604 1,462,163
----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments 11,290,962 7,901,213 7,903,365 8,115,813 3,656,363 1,491,717
----------------------------------------------------------------------------------------------------------------------
Foreign currency related transactions 29 24 23 24 12 7
----------------------------------------------------------------------------------------------------------------------
11,290,991 7,901,237 7,903,388 8,115,837 3,656,375 1,491,724
----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) during the period on
investments (1,035,425) 215,986 (487,524) (4,857) 611,314 1,192,573
----------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investment
transactions 10,255,566 8,117,223 7,415,864 8,110,980 4,267,689 2,684,297
----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $14,851,397 11,524,209 10,409,525 11,375,981 6,068,293 4,146,460
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Net of foreign taxes withheld of $5,885, $4,216, $3,714, $4,236, $2,536 and
$1,293, respectively.
The accompanying notes are an integral part of the financial statements. 23
<PAGE> 24
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SERIES II SERIES III
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
--------------------------- --------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ 4,595,831 5,623,320 3,406,986 3,578,452
-------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions 11,290,991 4,575,390 7,901,237 3,323,614
-------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on
investment transactions during the period (1,035,425) 6,548,376 215,986 5,877,115
-------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 14,851,397 16,747,086 11,524,209 12,779,181
-------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (7,474,285) (6,056,874) (3,144,693) (3,970,781)
-------------------------------------------------------------------------------------------------------------------
Net realized gains (13,575,370) (8,476,202) (3,354,526) (7,192,415)
-------------------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold -- -- -- --
-------------------------------------------------------------------------------------------------------------------
Reinvestment of distributions 21,049,655 15,059,197 6,499,219 12,108,402
-------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (29,538,269) (24,121,207) (15,859,176) (15,179,335)
-------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions (8,488,614) (9,062,010) (9,359,957) (3,070,933)
-------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS (14,686,872) (6,848,000) (4,334,967) (1,454,948)
-------------------------------------------------------------------------------------------------------------------
Net assets at beginning of period 151,588,656 158,436,656 116,629,023 118,083,971
-------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD 136,901,784 151,588,656 112,294,056 116,629,023
-------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME $ 352,270 3,249,252 2,270,526 2,023,978
-------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Shares outstanding at beginning of period 12,087,290 12,769,949 10,978,309 11,222,309
-------------------------------------------------------------------------------------------------------------------
Shares sold -- -- -- --
-------------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
distributions 1,743,574 1,285,829 638,991 1,207,579
-------------------------------------------------------------------------------------------------------------------
Shares redeemed (2,342,331) (1,968,488) (1,490,775) (1,451,579)
-------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in Fund shares (598,757) (682,659) (851,784) (244,000)
-------------------------------------------------------------------------------------------------------------------
Shares outstanding at end of period 11,488,533 12,087,290 10,126,525 10,978,309
-------------------------------------------------------------------------------------------------------------------
</TABLE>
24 The accompanying notes are an integral part of the financial statements.
<PAGE> 25
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SERIES IV SERIES V SERIES VI SERIES VII
YEAR ENDED JULY 31, YEAR ENDED JULY 31, YEAR ENDED JULY 31, YEAR ENDED JULY 31,
------------------------- ------------------------- ------------------------ ------------------------
2000 1999 2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C>
2,993,661 3,350,342 3,265,001 3,581,118 1,800,604 2,045,269 1,462,163 1,105,828
-----------------------------------------------------------------------------------------------------------
7,903,388 3,242,202 8,115,837 4,314,876 3,656,375 1,941,130 1,491,724 (4,775)
-----------------------------------------------------------------------------------------------------------
(487,524) 5,677,914 (4,857) 4,968,640 611,314 1,988,171 1,192,573 270,391
-----------------------------------------------------------------------------------------------------------
10,409,525 12,270,458 11,375,981 12,864,634 6,068,293 5,974,570 4,146,460 1,371,444
-----------------------------------------------------------------------------------------------------------
(3,214,001) (3,676,488) (2,830,545) (3,913,327) (1,387,066) (2,772,993) (1,323,612) (698,775)
-----------------------------------------------------------------------------------------------------------
(4,045,163) (6,907,606) (4,301,894) (8,413,286) (1,953,023) (3,257,619) -- (65,937)
-----------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- 6,029,655 25,523,247
-----------------------------------------------------------------------------------------------------------
7,259,164 10,296,406 7,124,818 11,943,373 3,337,031 5,871,453 1,292,763 737,299
-----------------------------------------------------------------------------------------------------------
(22,635,487) (15,459,403) (18,900,593) (16,753,175) (10,890,684) (8,819,786) (11,121,804) (5,063,143)
-----------------------------------------------------------------------------------------------------------
(15,376,323) (5,162,997) (11,775,775) (4,809,802) (7,553,653) (2,948,333) (3,799,386) 21,197,403
-----------------------------------------------------------------------------------------------------------
(12,225,962) (3,476,633) (7,532,233) (4,271,781) (4,825,449) (3,004,375) (976,538) 21,804,135
-----------------------------------------------------------------------------------------------------------
120,940,521 124,417,154 121,614,513 125,886,294 67,482,699 70,487,074 47,591,372 25,787,237
-----------------------------------------------------------------------------------------------------------
108,714,559 120,940,521 114,082,280 121,614,513 62,657,250 67,482,699 46,614,834 47,591,372
-----------------------------------------------------------------------------------------------------------
1,712,913 1,949,641 2,442,894 2,021,666 980,761 573,519 873,143 738,965
-----------------------------------------------------------------------------------------------------------
11,207,722 11,653,309 11,944,843 12,374,910 6,015,686 6,263,765 4,347,361 2,427,586
-----------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- 551,784 2,310,285
-----------------------------------------------------------------------------------------------------------
687,891 999,612 724,713 1,228,742 301,160 534,254 117,736 66,483
-----------------------------------------------------------------------------------------------------------
(2,085,395) (1,445,199) (1,853,899) (1,658,809) (960,301) (782,333) (999,352) (456,993)
-----------------------------------------------------------------------------------------------------------
(1,397,504) (445,587) (1,129,186) (430,067) (659,141) (248,079) (329,832) 1,919,775
-----------------------------------------------------------------------------------------------------------
9,810,218 11,207,722 10,815,657 11,944,843 5,356,545 6,015,686 4,017,529 4,347,361
-----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 25
<PAGE> 26
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLES INCLUDE SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
SERIES II
MONTH YEAR ENDED
YEAR ENDED JULY 31, ENDED JUNE 30,
------------------------ JULY 31, -------------
2000 1999 1998 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $12.54 12.41 13.38 12.77 13.01 12.94
-------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .39(b) .45(b) .52 .05 .56 .58
-------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .90 .88 .23 .56 1.29 .77
-------------------------------------------------------------------------------------------------------
Total from investment operations 1.29 1.33 .75 .61 1.85 1.35
-------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.67) (.50) (.54) -- (.59) (.57)
-------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (1.24) (.70) (1.18) -- (1.50) (.71)
-------------------------------------------------------------------------------------------------------
Total distributions (1.91) (1.20) (1.72) -- (2.09) (1.28)
-------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.92 12.54 12.41 13.38 12.77 13.01
-------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(C) 10.45 11.42 6.46 4.78** 15.56 10.92
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 137 152 158 173 167 168
-------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) .97 .98 .94 .90* .92 .94
-------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .96 .98 .94 .90* .92 .94
-------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.10 3.64 3.80 3.98* 4.08 4.16
-------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 69 40 57 67* 70 54
-------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 27
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SERIES III
MONTH
YEAR ENDED JULY 31, ENDED YEAR ENDED JUNE 30,
------------------------ JULY 31, -------------------
2000 1999 1998 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.62 10.52 11.33 10.75 10.95 10.75
--------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .32(b) .32(b) .39 .04 .42 .43
--------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .77 .82 .27 .54 1.22 .78
--------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.09 1.14 .66 .58 1.64 1.21
--------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.30) (.37) (.40) -- (.43) (.44)
--------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.32) (.67) (1.07) -- (1.41) (.57)
--------------------------------------------------------------------------------------------------------------------
Total distributions (.62) (1.04) (1.47) -- (1.84) (1.01)
--------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.09 10.62 10.52 11.33 10.75 10.95
--------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(C) 10.49 11.47 6.68 5.40** 16.38 11.72
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 112 117 118 127 122 121
--------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .94 1.04 .95 .83* .95 .96
--------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .93 1.04 .95 .83* .95 .96
--------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.95 3.06 3.36 3.63* 3.61 3.67
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 40 44 67 79* 74 59
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SERIES IV
MONTH
YEAR ENDED JULY 31, ENDED YEAR ENDED JUNE 30,
------------------------ JULY 31, -------------------
2000 1999 1998 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.79 10.68 11.28 10.69 10.70 10.07
--------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .28(b) .29(b) .35 .03 .39 .40
--------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .71 .77 .38 .56 1.17 .64
--------------------------------------------------------------------------------------------------------------------
Total from investment operations .99 1.06 .73 .59 1.56 1.04
--------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.31) (.33) (.37) -- (.38) (.41)
--------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.39) (.62) (.96) -- (1.19) --
--------------------------------------------------------------------------------------------------------------------
Total distributions (.70) (.95) (1.33) -- (1.57) (.41)
--------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.08 10.79 10.68 11.28 10.69 10.70
--------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(C) 9.41 10.35 7.27 5.52** 15.73 10.47
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 109 121 124 136 131 139
--------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .98 1.03 .98 .88* .96 .95
--------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .97 1.03 .98 .88* .96 .95
--------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.61 2.71 2.98 3.22* 3.35 3.46
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 82 36 59 66* 66 52
--------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SERIES V
MONTH
YEAR ENDED JULY 31, ENDED YEAR ENDED JUNE 30,
----------------------- JULY 31, -------------------
2000 1999 1998 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.18 10.17 10.86 10.22 10.20 9.53
-------------------------------------------------------------------------------------------------------------------
Income from investments operations:
Net investment income (loss) .28(b) .29(b) .35 .03 .39 .39
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments transactions .72 .76 .39 .61 1.22 .64
-------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.00 1.05 .74 .64 1.61 1.03
-------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.33) (.38) -- (.39) (.36)
-------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.38) (.71) (1.05) -- (1.20) --
-------------------------------------------------------------------------------------------------------------------
Total distributions (.63) (1.04) (1.43) -- (1.59) (.36)
-------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.55 10.18 10.17 10.86 10.22 10.20
-------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(C) 10.07 10.81 7.76 6.26** 17.14 10.95
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 114 122 126 137 131 130
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .98 1.03 .99 .94* .96 .96
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .98 1.03 .99 .94* .96 .96
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.75 2.87 3.16 3.34* 3.59 3.64
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 40 40 66 76* 79 58
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SERIES VI
MONTH
YEAR ENDED JULY 31, ENDED YEAR ENDED JUNE 30,
------------------------ JULY 31, -------------------
2000 1999 1998 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.22 11.25 11.57 10.86 9.83 9.26
--------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .32(b) .33(b) .38 .03 .33 .24
--------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .76 .64 .50 .68 1.26 .57
--------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.08 .97 .88 .71 1.59 .81
--------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.46) (.39) -- (.28) (.13)
--------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.35) (.54) (.81) -- (.28) (.11)
--------------------------------------------------------------------------------------------------------------------
Total distributions (.60) (1.00) (1.20) -- (.56) (.24)
--------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.70 11.22 11.25 11.57 10.86 9.83
--------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(C) 9.80 8.81 8.32 6.54** 16.64 8.79
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 63 67 70 73 69 50
--------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.06 1.02 1.01 1.00* 1.02 1.27
--------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.05 1.02 1.01 1.00* 1.02 1.27
--------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.77 2.90 3.18 3.43* 3.43 3.47
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 32 33 54 65* 74 34
--------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 29
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SERIES VII
MONTH MAY 1(A)
YEAR ENDED JULY 31, ENDED TO
--------------------------- JULY 31, JUNE 30,
2000 1999 1998 1997 1997
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.95 10.62 9.78 9.23 9.00
---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .33(b) .32(b) .21 .01 .02
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions .61 .24 .73 .54 .21
---------------------------------------------------------------------------------------------------------------
Total from investment operations .94 .56 .94 .55 .23
---------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.29) (.21) (.10) -- --
---------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.02) -- -- --
---------------------------------------------------------------------------------------------------------------
Total distributions (.29) (.23) (.10) -- --
---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.60 10.95 10.62 9.78 9.23
---------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(C) 8.73 5.25 9.68 5.96** 2.56**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 47 48 26 5 2
---------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.09 1.18 1.21 .95* 1.17*
---------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.08 1.18 1.21 .95* 1.17*
---------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.99 2.86 2.79 3.45* 3.16*
---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 43 26 43 6* 12*
---------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
* Annualized
** Not annualized
(a) Commencement of operations.
(b) Based on monthly average shares outstanding during the period.
(c) Total return does not reflect the effect of any sales charge.
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Kemper Retirement Fund Series II, III, IV, V, VI
and VII (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 II August 15, 2000
Series III February 15, 2002
Series IV February 15, 2003
Series V November 15, 2004
Series VI May 15, 2006
Series VII May 15, 2008
</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. This
assurance is further backed by an agreement entered
into with Scudder Kemper Investments, Inc., the
Funds' investment manager. Fund shares were sold
during limited offering periods, which ended during
the years 1991 through 1999, and are redeemable on
a continuous basis. Series VII's offering period
closed on November 30, 1999.
On May 23, 2000, the Board of Trustees of the Trust
elected to continue operation of Series II after
the August 15, 2000 maturity date, with a new
maturity date of August 15, 2011. The Board of
Trustees also approved changing the name of the
Fund to "Kemper Target Fund 2011" and approved the
offering of shares of the Fund for a new limited
offering period commencing on August 15, 2000.
The Funds' financial statements are prepared in
accordance with accounting principles generally
accepted in the United States which require the use
of management estimates. The policies described
below are followed consistently by the Funds in the
preparation of their financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used.
Portfolio debt securities purchased with an
original maturity greater than sixty days are
valued by pricing agents approved by the officers
of the Trust, whose
30
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS
quotations reflect broker/dealer-supplied
valuations and electronic data processing
techniques. If the pricing agents are unable to
provide such quotations, the most recent bid
quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased
with an original maturity of sixty days or less are
valued at amortized cost.
All other securities are valued at their fair value
as determined in good faith by the Valuation
Committee of the Board of Trustees.
FOREIGN CURRENCY TRANSLATIONS. The books and
records of the Funds are maintained in U.S.
dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are
translated into U.S. dollars at the prevailing
exchange rates at period end. Purchases and sales
of investment securities, income and expenses are
translated into U.S. dollars at the prevailing
exchange rates on the respective dates of the
transactions.
Net realized and unrealized gains and losses on
foreign currency transactions represent net gains
and losses between trade and settlement dates on
securities transactions, the disposition of forward
foreign currency exchange contracts and foreign
currencies, and the difference between the amount
of net investment income accrued and the U.S.
dollar amount actually received. That portion of
both realized and unrealized gains and losses on
investments that results from fluctuations in
foreign currency exchange rates is not separately
disclosed but is included with net realized and
unrealized gains and losses on investment
securities.
REPURCHASE AGREEMENTS. The 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 Funds paid no federal income taxes
and no federal income tax provision was required.
DISTRIBUTION 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. These differences relate primarily to
certain securities sold at a loss. As a result, net
investment income (loss) and net realized gain
(loss) on investment transactions for a reporting
period may differ significantly from distributions
during such period. Accordingly, the Fund may
periodically make reclassifications among certain
of its capital accounts without impacting the net
asset value of the Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Certain dividends
31
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS
from foreign securities may be recorded subsequent
to the ex-dividend date as soon as each Fund is
informed of such dividends. 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.
--------------------------------------------------------------------------------
2 PURCHASE AND SALES
OF SECURITIES For the year ended July 31, 2000, investment
transactions (excluding short-term instruments) are
as follows:
<TABLE>
<CAPTION>
SERIES II SERIES III SERIES IV SERIES V SERIES VI
----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Purchases $54,713,635 45,385,137 92,905,998 46,942,413 20,810,505
Proceeds from sales $68,875,053 63,403,858 117,930,225 65,991,162 32,798,985
<CAPTION>
SERIES VII
----------
<S> <C>
Purchases 20,609,220
Proceeds from sales 24,401,947
</TABLE>
--------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Funds have a management
agreement with Scudder Kemper Investments, Inc.
("Scudder Kemper"). The Funds 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 $3,077,272 for the
year ended July 31, 2000.
UNDERWRITING AGREEMENT. The Trust has an
underwriting agreement with Kemper Distributors,
Inc. ("KDI"). Underwriting commissions retained by
KDI in connection with the distribution of the
Funds' shares for the year ended July 31, 2000 are
$29,116.
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with 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 provided these
services and pays these firms based on assets of
Fund accounts the firms service. Administrative
services fees incurred by the Funds to KDI for the
year ended July 31, 2000 are $1,530,468, of which
$208,639 is unpaid at July 31, 2000.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Funds' transfer agent,
Kemper Service Company ("KSvC") is the shareholder
service agent of the Funds. Under the agreement,
KSvC received shareholder services fees of $817,152
for the year ended July 31, 2000, of which $174,519
is unpaid at July 31, 2000.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or trustees of
Scudder Kemper. For the year ended July 31, 2000,
the Funds made no payments to its officers and
incurred trustees' fees of $97,555 to independent
trustees.
32
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4 EXPENSE OFF-SET
ARRANGEMENTS The Funds have entered into arrangements with their
custodian and transfer agent whereby credits
realized as a result of uninvested cash balances
were used to reduce a portion of each Fund's
expenses. During the year ended July 31, 2000, the
Funds' custodian and transfer agent fees were
reduced by $5,838 and $39,647, respectively, under
these arrangements.
--------------------------------------------------------------------------------
5 LINE OF CREDIT The Funds and several Kemper funds (the
"Participants") share in a $1 billion revolving
credit facility with Chase Manhattan Bank for
temporary or emergency purposes, including the
meeting of redemption requests that otherwise might
require the untimely disposition of securities. The
Participants are charged an annual commitment fee
which is allocated pro rata among each of the
Participants. Interest is calculated based on the
market rates at the time of the borrowing. The
Funds may borrow up to a maximum of 33 percent of
their net assets under the agreement.
33
<PAGE> 34
REPORT OF AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TARGET EQUITY FUND --
KEMPER RETIREMENT FUND SERIES II, III, IV, V, VI AND VII
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Kemper Target Equity Fund -- Kemper
Retirement Fund Series II, III, IV, V, VI and VII as of July 31, 2000, 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 1996. These financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits 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, 2000, 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 II, III, IV, V, VI
and VII at July 31, 2000, the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended and the financial highlights for the periods referred to above in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
September 12, 2000
34
<PAGE> 35
TAX INFORMATION
TAX INFORMATION (UNAUDITED)
Kemper Retirement Fund -- Series II, III, IV, V, VI and VII paid distributions
of $1.24, $.32, $.39, $.38, $.35 and $.00 per share, respectively, from net
long-term capital gains during the year ended July 31, 2000, of which 100%
represent 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, Kemper Retirement
Fund -- Series II, III, IV, V, VI and VII designate $12,000,000, $8,350,000,
$8,400,000, $8,954,000, $3,900,000 and $1,590,000, respectively, as capital gain
dividends for the year ended July 31, 2000, of which 100% represent 20% gains.
For corporate shareholders of Kemper Retirement Fund -- Series II, III, IV, V,
VI and VII 8%, 15%, 14%, 18%, 17% and 11%, respectively, of the income earned
during the year ended July 31, 2000 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
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY WILLIAM F. TRUSCOTT
Trustee President Vice President
JAMES R. EDGAR PHILLIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President Vice President
and Secretary
ARTHUR R. GOTTSCHALK MAUREEN E. KANE
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
FREDERICK T. KELSEY CAROLINE PEARSON
Trustee IRENE CHENG Assistant Secretary
Vice President
THOMAS W. LITTAUER BRENDA LYONS
Chairman, Trustee and TRACY MCCORMICK Assistant Treasurer
Vice President Vice President
FRED B. RENWICK ANN M. MCCREARY
Trustee Vice President
JOHN G. WEITHERS KATHRYN L. QUIRK
Trustee Vice President
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
.............................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
CUSTODIAN AND STATE STREET BANK AND TRUST COMPANY
TRANSFER AGENT 225 Franklin Street
Boston, MA 02110
.............................................................................................
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
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TRUSTEES&OFFICERS
[KEMPER FUNDS LOGO] Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Target Equity Fund Prospectus.
KRF - 2(9/20/00) 1120240
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
