<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED JANUARY 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
"... in our view, volatility isn't necessarily
a bad thing. For example, short-term volatility
can open up excellent opportunities for the
timely purchase and sale of stocks. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
8
LARGEST HOLDINGS
10
PORTFOLIO OF INVESTMENTS
20
FINANCIAL STATEMENTS
24
FINANCIAL HIGHLIGHTS
28
NOTES TO FINANCIAL STATEMENTS
AT A GLANCE
KEMPER RETIREMENT FUND
SERIES II-VII TOTAL RETURNS*
FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 2000 (UNADJUSTED FOR ANY SALES
CHARGE)
<TABLE>
<CAPTION>
<S> <C>
SERIES II 5.96%
.........................................................
SERIES III 5.41%
.........................................................
SERIES IV 4.57%
.........................................................
SERIES V 4.75%
.........................................................
SERIES VI 3.70%
.........................................................
SERIES VII 2.08%
.........................................................
</TABLE>
RETURNS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS
AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED (IF BEFORE
MATURITY DATE), 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. DURING THE PERIOD
NOTED, SECURITIES PRICES FLUCTUATED. FOR ADDITIONAL INFORMATION, SEE THE
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION AND THE FINANCIAL HIGHLIGHTS
AT THE END OF THIS REPORT.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
1/31/00 7/31/99
........................................................
<S> <C> <C>
SERIES II $12.40 $12.54
........................................................
SERIES III $10.58 $10.62
........................................................
SERIES IV $10.59 $10.79
........................................................
SERIES V $10.04 $10.18
........................................................
SERIES VI $11.05 $11.22
........................................................
SERIES VII $10.89 $10.95
........................................................
</TABLE>
DIVIDEND REVIEW
DURING THE SIX-MONTH PERIOD ENDED JANUARY 31, 2000, KEMPER RETIREMENT FUND
SERIES II-VII MADE THE FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
LONG-TERM
INCOME CAPITAL
DIVIDEND GAIN
..........................................................
<S> <C> <C>
SERIES II $0.475 $0.415
..........................................................
SERIES III $0.300 $0.320
..........................................................
SERIES IV $0.310 $0.390
..........................................................
SERIES V $0.250 $0.380
..........................................................
SERIES VI $0.245 $0.345
..........................................................
SERIES VII $0.290 --
..........................................................
</TABLE>
TERMS TO KNOW
BALANCE SHEET A condensed financial statement showing what a company owns, what
it owes and its stockholders' ownership interest, at a fixed point in time.
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 when 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.
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 that 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
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
The end of the metaphorical millennium, it turns out, was not a disaster.
Instead, it was an excuse to party. And why not? As our technological revolution
gained critical mass, its vast potential came into better focus. Capital
spending on information technology didn't slow down; it accelerated. Inflation
remained dormant. The budget surplus nearly doubled, with the promise of oceans
of black ink yet to come. Even the government delivered good news: Its
statisticians toyed with the national accounts to reveal a more productive
economy. It's no wonder the prevailing sentiment could be summed up with the
quintessentially American yelp of glee: Yahoo!
With the potential Y2K crisis seemingly behind us, the main question hanging
over the economy has been how much the Federal Reserve Board will boost interest
rates to soak up extra liquidity caused by its pre-Y2K infusion of cash into the
economy. The Fed began that process on Feb. 2. Fearing that "increases in
demand" would foster "inflationary imbalances," the policymakers raised interest
rates by a quarter of a percentage point (0.25%). Later, in his Feb. 17
Humphrey-Hawkins testimony before the House of Representatives, Fed Chairman
Alan Greenspan made it clear that he was still concerned about the economy's
imbalances. We thus expect a quarter-point rate hike at the March 21 Fed
meeting, and another quarter-point increase in May.
Although some investors have expressed fear that the Fed's sucking cash out of
banks will jolt the financial system, we're more likely to see a slow winding
down, thanks to persistent low inflation. Yes, some prices are higher: Filling
up the SUV's gas tank definitely costs more. But the rate of inflation for
non-energy goods and services has actually slowed during the past year. Although
most analysts are worried that the reprieve won't last -- assuming that higher
commodity prices, a softer dollar and the scarcity of skilled workers will show
up as higher prices at the checkout counter -- we'd turn that worry on its head.
If inflation hasn't accelerated after three years of over 4-percent gross
domestic product (GDP) growth and an unprecedented credit explosion, prices
aren't likely to increase if growth slows and lenders get stingier.
More good news stems from the technological investment boom. While executives
have pared capital budgets in traditional areas such as industrial machinery and
buildings, they've boosted outlays on computers and software. Thanks to the
sheer force of technology spending, overall business investment has grown two to
four times as fast as GDP in every year since 1993. And that expansion should
continue, with more than 20 percent growth likely in high-tech through 2000 and
even beyond. And technology hurts inflation. It saves on labor and inventory,
increases capacity, creates new competitors, cuts out middlemen, gives shoppers
comparative price information and enables global auctions.
Our outlook is for inflation to stay centered around 2 percent, and we expect
a gentle slowing of growth from 4 percent in 1999 to around 3.5 percent in 2000
and just under 2.5 percent in 2001.
Despite this positive outlook, pre-Y2K fears were sufficient to show many
investors that risks still exist in today's markets and remind them that they
could be in for a serious hangover.
The prospect of sparkling growth with no inflation has excited equity
investors, but there's a catch: declining corporate pricing power. If companies
don't have the ability to increase prices, profit growth will decline -- and
it's already happening. For the five years ending in June 1999, S&P 500
operating earnings averaged 9 percent, two and a half percentage points per year
slower than analysts had predicted. Profits did recover strongly in the second
half of 1999, but we suspect that they will soon sputter again. And the
economy's newfound productivity won't change the rules and allow companies to
make money even if they can't raise prices. Productivity gains do produce a
windfall, but historically customers and employees have grabbed the lion's
share. Web sites and dot.coms haven't changed this one iota. As a result, we
expect profits to be virtually flat in all of 2000 and to decline as the economy
slows in 2001.
Debt is another drink that could bring on future headaches. America has been
swigging it in prodigious amounts. Companies have borrowed heavily to fund
mergers, share buybacks and new investments. Homeowners have increased their
debt with new home equity loans and bigger mortgages. Financial institutions
have issued record amounts of new paper to fund aggressive growth. There's no
hard and fast rule for determining if the debt America is
3
<PAGE> 4
- --------------------------------------------------------------------------------
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (1/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.70 5.80 4.70 5.50
Prime rate (2) 8.50 7.75 7.75 8.50
Inflation rate (3)* 2.70 2.00 1.60 1.70
The U.S. dollar (4) 1.50 -2.2 -4.2 9.40
Capital goods orders (5)* 18.30 -0.2 10.60 6.50
Industrial production (5)* 5.00 3.90 2.40 6.70
Employment growth (6) 2.30 2.40 2.20 2.80
</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 12/31/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
taking on is too much, but warning bells should sound when debt grows by orders
of magnitude faster than necessary to fund economic activity. That happened in
1985 and 1986, when excess credit created a commercial real estate bubble and
funded dubious leveraged buyouts with suspect junk bonds, and it's happening
again now. Both the commercial real estate and the high yield markets took years
to recover. Today, the sheer size of the excesses could make the "morning after"
even more painful.
The end result: Given the continuing thrust of growth from the technological
revolution, an improving world economy and the Fed's experience and skill, 2000
could turn out to be a good year. But it's highly unlikely to be as good a year
as 1999.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF MARCH 1, 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 JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1994 AND SERVES AS A
MANAGING DIRECTOR. MCCORMICK RECEIVED BOTH HER BACHELOR OF ARTS AND HER MASTER
OF BUSINESS ADMINISTRATION DEGREES FROM MICHIGAN STATE UNIVERSITY. SHE
CONTRIBUTES MORE THAN 15 YEARS OF INVESTMENT INDUSTRY EXPERIENCE TO THE FUND.
[LANGBAUM PHOTO]
[DOLAN PHOTO]
PORTFOLIO MANAGERS GARY LANGBAUM AND SCOTT DOLAN ALSO CONTRIBUTE TO THE
MANAGEMENT OF THE FUND. LANGBAUM, A MANAGING DIRECTOR OF SCUDDER KEMPER
INVESTMENTS, JOINED THE ORGANIZATION IN 1988. HE IS A CHARTERED FINANCIAL
ANALYST WHO CONTRIBUTES MORE THAN 28 YEARS OF INDUSTRY EXPERIENCE TO THE FUND. A
SPECIALIST IN FIXED-INCOME INVESTING, SCOTT DOLAN IS A VICE PRESIDENT OF SCUDDER
KEMPER INVESTMENTS, HIS EMPLOYER SINCE 1989.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
LEAD PORTFOLIO MANAGER TRACY MCCORMICK PROVIDES AN
OVERVIEW OF THE STOCK MARKET DURING THE SEMIANNUAL
PERIOD. SHE ALSO DISCUSSES HER INVESTMENT
PHILOSOPHY, AND HOW SHE KEPT KEMPER RETIREMENT FUND
SERIES ON TRACK DESPITE THE CHALLENGES OF A NARROW
MARKET CLIMATE.
Q
FOR THE SIX MONTHS ENDING JANUARY 31, 2000, HOW DID THE PORTFOLIOS
PERFORM?
A
The returns for the portfolios ranged from 5.96 percent (Series II) to
2.08 percent (Series VII) (unadjusted for any sales charges.) For the same
period, the Standard & Poor's 500 (S&P 500) index gained 5.59 percent. This
index -- an unmanaged pool of large cap stocks -- is often cited as a benchmark
for the performance of the stock market.
Keep in mind, however, that there are important differences between the
portfolios and the S&P 500. The index is made up entirely of stocks, but Kemper
Retirement Fund Series invests only a portion of its assets in stocks.
Fixed-income securities, specifically zero-coupon U.S. Treasury bonds, make up
the remainder of each portfolio. The zero-coupon bonds underpin the guaranteed
return of original investment.
As a result, the portfolios aren't able to participate fully in stock market
rallies. It's a classic example of the risk/reward trade-off: less participation
in market upswings, but protection of original investment even during market
declines. (See the sidebar for important information about the assured return of
original investment.)
Q
WHY DIDN'T EACH PORTFOLIO EARN THE SAME AMOUNT?
A
That's a good question. 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. Let's take a
closer look:
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 interest-rate environments, different amounts of
zero-coupon bonds were required to cover the guarantee.
So, Kemper Retirement Fund -- Series II began operations during a period when
interest rates were high. Fewer bonds needed to be purchased to support the
guarantee, freeing more assets to be invested in the stock market. Series VII,
meanwhile, began operations during a lower-interest-rate environment. A
5
<PAGE> 6
PERFORMANCE UPDATE
greater percentage of the portfolio must therefore be invested in bonds.
Q BEFORE YOU TALK MORE ABOUT HOW KEMPER RETIREMENT FUND PERFORMED, COULD
YOU DISCUSS THE MARKET CLIMATE? WHAT TYPES OF INVESTMENTS PERFORMED PARTICULARLY
WELL?
A By far, technology stocks were the markets' strongest performers during
the semiannual period. Although investors were anxious about the possible
consequences of year 2000, they were ultimately more attentive to the excellent
growth potential of the technology companies and the Internet. Media companies
also posted excellent gains. Many media companies benefited from a dramatic
inflow of advertising dollars from technology companies, particularly younger
Internet-oriented firms trying to establish name recognition within the
marketplace.
But, nonetheless, the overall market remained quite narrow. By "narrow," we
mean that only a small number of stocks enjoyed investor favor, while the
majority struggled. Financial services continued to languish. A rising-rate
environment took a toll on the group, and several disappointing developments
among individual banks cast a shadow of negative sentiment across the group.
The market became particularly anxious about potential health-care regulation
and legislation. With a presidential election coming up, health care becomes a
hot topic of debate and controversy, and the uncertainty takes a toll on the
stocks of the sector. Large-cap pharmaceutical stocks also faced a particularly
inhospitable climate. Also, instead of being viewed as a potential catalyst for
growth, the consolidation that occurred within the pharmaceutical group received
a lukewarm response from the market. Finally, slowing product pipelines didn't
improve the sentiment surrounding the group.
However, not all health care stumbled. A pocket of strong performance emerged
from the biotech group. Biotech companies aren't as hindered by the election
climate, and many offer excellent product pipelines.
Q THE STOCK PORTION OF THE FUND DID QUITE WELL DURING THE SEMIANNUAL
PERIOD. WITH ALL THE INFORMATION TO SORT THROUGH, COULD YOU TELL US HOW YOU
SELECT STOCKS?
A Well, to preface, not all information is equally valuable, and you have
to sift through plenty of rumors and a lot of wishful thinking. Ultimately,
successful stock selection is about the quality of information, and about using
the most relevant facts in the most appropriate way.
We apply a rigorous, growth-at-a-reasonable price discipline. We 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 the 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 preestablished price targets or when we see signs of potential
deterioration in fundamentals or earnings growth.
Q COULD YOU GIVE US SOME EXAMPLES OF YOUR INVESTMENT DISCIPLINE IN ACTION?
A We purchased Motorola in early 1998 -- a point when the company received
little positive attention from the Wall Street crowd. We, however, used our
independent analysis to reach a different conclusion about the company. We're
impressed by the company's clarified focus on semiconductors, as well as by
forward-thinking management. Our analysis has been on track: Motorola has staged
a brisk -- and profitable -- turnaround, which continued through the semiannual
period. Today, the stock is one of our largest holdings. We see excellent
catalysts for continued growth, notably a solid positioning in new wireless data
applications. Oracle was another standout performer. We initiated our position
when the stock was unloved by Wall Street. We looked deeper and determined that
the company was extremely well positioned for the build-out of the Internet.
Here, too, our investment discipline was well rewarded.
Q COULD YOU HIGHLIGHT SOME AREAS THAT WORKED OUT WELL FOR THE FUND?
A Technology and media stocks continued to contribute standout performance.
Our list of strong-performing technology stocks is quite long and diverse,
ranging from semiconductors (Motorola) to software (Oracle) to computer hardware
(Hewlett-Packard) and networking (Cisco Systems).
6
<PAGE> 7
PERFORMANCE UPDATE
Within our media holdings, stocks such as AT&T Liberty Media, CBS, Clear
Channel, Comcast and Infinity all benefited performance. As we mention in our
discussion of the market climate, media stocks benefited from a combination of
factors, including the strong consumer advertising market, buried
Internet-related assets and various new media development.
Biotech holdings also contributed good gains. Here, the fund holds positions
in Amgen, Genentech and Biogen.
Q WHAT HINDERED OVERALL PERFORMANCE?
A Exposure to the financial services sector hurt overall gains. As we
noted, interest-rate anxiety took a toll on the group. We had lightened up on
more rate-sensitive banks in favor of insurance companies and consumer
financials. Unfortunately, this repositioning didn't serve the fund well during
the period -- the market pummeled these groups as well. We're not throwing in
the towel, however. For instance, we're finding insurance companies with good
balance sheets and increasing revenues. The valuations are excellent, and the
prospects for growth are compelling. We'll just need to be patient.
Exposure to large-cap pharmaceutical companies also clipped returns. We did
pare back many positions during the year, but in retrospect, we were not
aggressive enough. Among our sales, we eliminated our position in American Home
Products. We still believe that the company offers good partnership material in
a consolidating industry. Unfortunately, the litigation surrounding the diet
drug phen-fen has compressed the price of American Home Products' stock and
casts doubt as to whether the company's shareholders (including the fund) could
profit from a merger.
Q AS YOU MOVE FORWARD INTO THE SECOND HALF OF THE FISCAL YEAR, WHERE ARE
YOU FINDING OPPORTUNITIES?
A We continue to like media stocks. In fact, media stocks represent the
fund's biggest overweight relative to the S&P 500. We're also continuing to find
many attractive technology stocks. Certainly, the prices of many technology
stocks may seem high in absolute terms, but our analysis indicates that the
quality companies we own offer even stronger prospects for long-term earnings
growth. Within the technology sector, we've favored semiconductor and
semiconductor equipment stocks.
Wall Street has a generally negative view of financial services stocks, but
our analysis suggests that now may be a great time to build exposure -- while
valuations on quality stocks are particularly attractive. Within the group,
we're more interested in insurance companies, as opposed to banks.
Also, an improving global economy and increasing oil prices bode well for
energy stocks. We've built positions in oil service companies, such as
Schlumberger and Trans Ocean.
Q TRACY, WE SAW PLENTY OF MARKET VOLATILITY DURING THE SEMIANNUAL PERIOD.
WILL INVESTORS BE ABLE TO BREATHE EASIER FOR THE REMAINDER OF 2000, OR WILL
VOLATILITY CONTINUE?
A Stocks will always bring ups and downs, so we encourage investors to keep
a long-term focus. No one can know what will happen next, especially when it
comes to predicting what's in store for the stock market or economy. At best, we
can be prepared for continued volatility.
But, in our view, volatility isn't necessarily a bad thing. For example,
short-term volatility can open up excellent opportunities for the timely
purchase and sale of stocks. Rather than try to guess what will happen, we feel
that we add the most value by devoting ourselves to the analysis of individual
stock opportunities.
Finally, we'd emphasize the unique benefits that this fund
offers -- particularly for more cautious investors. By combining an assured
return of original investment with the opportunity for capital appreciation,
Kemper Retirement Fund provides a more sheltered way to participate in the stock
market. Shareholders just need to stay the course until the fund's maturity date
and reinvest all dividends. All in all, we think it's a great way to have your
cake and eat it, too!
IMPORTANT INFORMATION FOR SHAREHOLDERS: HOW THE KEMPER RETIREMENT FUND
ASSURANCE WORKS
Kemper Retirement Fund invests in a combination of U.S. government zero-coupon
bonds and equity securities, primarily growth stocks. If shares are held to
maturity (see page 27 for maturity dates) and all dividends reinvested,
shareholders are assured of receiving their original investment at maturity,
plus any returns that the stocks in the portfolio may 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
LARGEST HOLDINGS
THE FUND'S LARGEST STOCK HOLDINGS*
Percentages based on the fund's total common stock holdings as of January 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 6.24% 4.42% 4.26% 4.89% 5.26% 3.50%
- -------------------------------------------------------------------------------------------------------
2. INTEL 4.89% 3.59% 3.68% 3.35% 3.44% 2.80%
- -------------------------------------------------------------------------------------------------------
3. MICROSOFT 4.65% 3.55% 3.12% 3.62% 3.57% 4.62%
- -------------------------------------------------------------------------------------------------------
4. GENERAL 4.46% 3.47% 3.02% 3.62% 3.54% 3.92%
ELECTRIC
- -------------------------------------------------------------------------------------------------------
5. LINEAR 2.70% 2.19% 1.34% 1.75% 1.88% --
TECHNOLOGY
- -------------------------------------------------------------------------------------------------------
6. HEWLETT-PACKARD 2.63% 1.95% 1.99% 1.92% 1.90% 2.30%
- -------------------------------------------------------------------------------------------------------
7. ORACLE 2.51% 1.42% 1.52% 1.52% 1.42% 1.57%
- -------------------------------------------------------------------------------------------------------
8. WAL-MART 2.50% 1.99% 2.13% 2.03% 2.05% 2.24%
- -------------------------------------------------------------------------------------------------------
9. BELL ATLANTIC 2.35% 1.68% 1.70% 1.77% 1.85% 1.79%
- -------------------------------------------------------------------------------------------------------
10. MOTOROLA 2.34% 1.58% 1.69% 1.90% 1.81% 2.15%
- -------------------------------------------------------------------------------------------------------
11. ELECTRONIC DATA 2.31% 1.56% 1.56% 0.15% 1.57% 1.88%
SYSTEMS
- -------------------------------------------------------------------------------------------------------
12. EXXON MOBIL 2.27% 1.75% 1.64% 1.45% 1.48% 1.78%
- -------------------------------------------------------------------------------------------------------
</TABLE>
* The fund's holdings are subject to change.
8
<PAGE> 9
LARGEST 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. MICROSOFT Develops, markets and supports a variety of
software, operating systems, Internet
services, and language and application
programs.
- -------------------------------------------------------------------------------------
4. GENERAL ELECTRIC A broadly diversified company with major
businesses in power generators, appliances,
lighting, plastics, medical systems,
aircraft engines, financial services and
broadcasting.
- -------------------------------------------------------------------------------------
5. LINEAR TECHNOLOGY Designs, manufactures and markets
integrated circuits for a variety of
products, including telecommunications
equipment, computers, satellites and
automotive systems.
- -------------------------------------------------------------------------------------
6. HEWLETT-PACKARD Large supplier of enterprise computer
systems, including low-cost printers and
personal computers.
- -------------------------------------------------------------------------------------
7. ORACLE A leading global provider of database
management software.
- -------------------------------------------------------------------------------------
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. Sells branded
merchandise under the Popular Mechanics,
Better Homes & Gardens and Sam's American
Choice labels.
- -------------------------------------------------------------------------------------
9. BELL ATLANTIC Provider of information and
telecommunications services. Subsidiaries
provide telephone services to the
mid-Atlantic region, cellular
telecommunications, software, network
support and computer maintenance.
- -------------------------------------------------------------------------------------
10. MOTOROLA Manufactures components, notably
semiconductors and wireless communications
equipment.
- -------------------------------------------------------------------------------------
11. ELECTRONIC DATA SYSTEMS Provides information technology services,
including managing computers, networks,
information systems and processing
facilities, and related business
operations.
- -------------------------------------------------------------------------------------
12. EXXON MOBIL Engaged in the exploration, production,
manufacture, transportation and sale of
oil, natural gas and petroleum products.
- -------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER RETIREMENT FUND
SERIES II THROUGH SERIES VII
Portfolio of Investments at January 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------
SERIES II SERIES III
------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHORT TERM
INVESTMENTS--1.5%, 2.2%,
.1%, 1.9%, 1.0%, .0%
Repurchase agreement
State Street Bank and
Trust Co., 5.68% to
be repurchased at
$499,787, $167,026,
$292,461, $674,106
on 02/01/2000** $ 499,000 $ 499,000 $ -- $ --
Xerox Capital (Europe) PLC,
5.544%, 02/04/2000*** 1,700,000 1,699,214 2,500,000 2,498,844
-----------------------------------------------------------------------------------
TOTAL SHORT-TERM INSTRUMENTS
(Cost: $2,198,214, $2,498,844, $167,000,
$2,291,075, $674,000) 2,198,214 2,498,844
-----------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
OBLIGATIONS--48.8%,
45.0%, 50.3%, 43.3%,
52.3%, 61.3%
U.S. Treasury Strip, zero
coupon, 1999 through 2006 74,800,000 72,454,272 59,000,000 51,696,980
(Cost: $71,639,641,
$50,620,331, $58,127,492,
$49,196,080, $34,249,720,
$32,953,004)
-----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
COMMON STOCKS SHARES SHARES
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSUMER DISCRETIONARY--
3.8%, 4.4%, 4.2%, 4.4%,
3.8%, 3.1%
DEPARTMENT & CHAIN
STORES--2.7%, 3.2%, 3.2%,
3.3%, 2.9%, 2.2%
Federated Department Stores,
Inc.* 14,000 582,750 12,600 524,475
Home Depot, Inc. 19,500 1,104,188 19,500 1,104,188
Target Corp. 15,500 1,021,063 12,500 823,438
Wal-Mart Stores, Inc. 24,000 1,314,000 22,000 1,204,500
-----------------------------------------------------------------------------------
4,022,001 3,656,601
HOTELS & CASINOS--.4%,
.4%, .4%, .5%, .4%, .4%
Carnival Corp. "A" 13,700 617,356 11,200 504,700
-----------------------------------------------------------------------------------
SPECIALTY RETAIL--.7%,
.8%, .6%, .7%, .6%, .5%
Tandy Corp. 19,000 928,625 18,000 879,750
-----------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--2.6%, 2.5%,
2.6%, 2.8%, 2.5%, 1.9%
FOOD & BEVERAGE--1.5%, 1.4%, 1.4%,
1.5%, 1.4%, 1.1%
Bestfoods 11,000 478,500 8,500 369,750
H.J. Heinz Co. 14,600 542,938 9,900 368,156
PepsiCo, Inc. 33,000 1,126,125 25,200 859,950
-----------------------------------------------------------------------------------
2,147,563 1,597,856
PACKAGE GOODS/
COSMETICS--1.1%, 1.1%,
1.1%, 1.3%, 1.1%, .8%
Colgate-Palmolive Co. 8,000 474,000 6,000 355,500
Procter & Gamble Co. 11,500 1,160,063 9,500 958,312
-----------------------------------------------------------------------------------
1,634,063 1,313,812
--------------------------------------------------------------------------------------------------------------------
HEALTH--5.1%, 5.3%,
5.3%, 5.4%, 4.8%, 4.1%
BIOTECHNOLOGY--1.3%, 1.4%, 1.4%,
1.3%, 1.1%, 1.0%
Amgen, Inc.* 11,000 700,563 9,000 573,187
Biogen, Inc.* 7,200 621,000 5,900 508,875
Genentech, Inc.* 4,100 576,050 3,400 477,700
-----------------------------------------------------------------------------------
1,897,613 1,559,762
</TABLE>
10 The accompanying notes are an integral part of the financial statements.
<PAGE> 11
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>
167,000
$ $ 167,000 $ 292,000 $ 292,000 $ 674,000 $ 674,000 $ -- $ --
-- -- 2,000,000 1,999,075 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
167,000 2,291,075 674,000 --
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
70,000,000 57,273,020 71,050,000 51,366,115 51,400,000 33,761,062 52,700,000 30,245,607
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
11,600 482,850 12,600 524,475 5,200 216,450 2,500 104,063
19,500 1,104,188 19,500 1,104,187 9,750 552,094 4,800 271,800
13,000 856,375 14,000 922,250 7,000 461,125 4,000 263,500
22,000 1,204,500 24,000 1,314,000 11,300 618,675 7,800 427,050
- ----------------------------------------------------------------------------------------------------------------------
3,647,913 3,864,912 1,848,344 1,066,413
11,200 504,700 12,500 563,281 5,000 225,312 4,400 198,275
- ----------------------------------------------------------------------------------------------------------------------
13,000 635,375 17,000 830,875 8,000 391,000 5,000 244,375
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
8,500 369,750 8,500 369,750 4,800 208,800 3,000 130,500
9,900 368,156 12,000 446,250 6,000 223,125 3,300 122,719
25,200 859,950 27,500 938,438 13,600 464,100 8,300 283,238
- ----------------------------------------------------------------------------------------------------------------------
1,597,856 1,754,438 896,025 536,457
6,000 355,500 6,000 355,500 3,000 177,750 2,000 118,500
9,500 958,313 11,500 1,160,063 5,500 554,813 2,750 277,406
- ----------------------------------------------------------------------------------------------------------------------
1,313,813 1,515,563 732,563 395,906
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
9,000 573,188 9,500 605,031 3,600 229,275 2,500 159,219
5,900 508,875 5,900 508,875 2,700 232,875 1,825 157,406
3,400 477,700 3,400 477,700 1,700 238,850 1,300 182,650
- ----------------------------------------------------------------------------------------------------------------------
1,559,763 1,591,606 701,000 499,275
</TABLE>
The accompanying notes are an integral part of the financial statements. 11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
----------------------------------------------------------
SERIES II SERIES III
----------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MEDICAL SUPPLY &
SPECIALTY--.4%, .5%, .5%,
.6%, .5%, .4%
Baxter International,
Inc. 10,800 $ 689,850 9,800 $ 625,975
-----------------------------------------------------------------------------------
PHARMACEUTICALS--3.4%,
3.4%, 3.4%, 3.5%, 3.2%,
2.7%
Allergan, Inc. 15,400 877,800 12,400 706,800
Bristol-Myers Squibb Co. 9,000 594,000 7,000 462,000
Forest Laboratories,
Inc.* 8,500 573,750 6,500 438,750
Johnson & Johnson 8,000 688,500 5,000 430,312
Merck & Co., Inc. 14,000 1,103,375 11,000 866,937
Pfizer, Inc. 10,000 363,750 8,000 291,000
Warner-Lambert Co. 8,500 806,969 7,000 664,563
-----------------------------------------------------------------------------------
5,008,144 3,860,362
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--4.1%, 4.2%,
4.1%, 4.5%, 3.6%, 3.0%
CELLULAR TELEPHONE--.2%,
.2%, .2%, .3%, .2%, .2%
Vodafone Group PLC (ADR) 7,000 392,000 5,000 280,000
-----------------------------------------------------------------------------------
TELEPHONE/
COMMUNICATIONS--3.9%,
4.0%, 3.9%, 4.2%, 3.3%,
2.8%
AT&T Corp. 14,500 764,875 12,500 659,375
Bell Atlantic Corp. 20,000 1,238,750 16,500 1,021,969
BroadWing, Inc. 16,000 608,000 14,000 532,000
Global Crossing Ltd.* 12,810 650,108 9,300 471,975
MCI WorldCom, Inc.* 24,300 1,116,281 18,000 826,875
Qwest Communications
International Inc.* 15,000 590,625 11,000 433,125
SBC Communications, Inc. 18,160 783,150 14,644 631,522
-----------------------------------------------------------------------------------
5,751,789 4,576,841
- --------------------------------------------------------------------------------------------------------------------
FINANCIAL--6.2%, 6.5%, 6.4%,
7.1%, 5.7%, 4.9%
BANKS--.8%, .9%, .9%, .9%,
.8%, .7%
Chase Manhattan Corp. 6,000 482,625 5,000 402,188
First Tennessee National
Corp. 12,000 313,500 11,000 287,375
Wells Fargo Co. 11,000 440,000 9,000 360,000
-----------------------------------------------------------------------------------
1,236,125 1,049,563
INSURANCE--2.5%, 2.6%, 2.5%,
2.8%, 2.3%, 1.8%
American International
Group, Inc. 11,000 1,145,375 9,750 1,015,219
Aon Corp. 17,400 450,225 14,400 372,600
Cigna Corp. 8,100 581,175 6,000 430,500
Jefferson Pilot Corp. 13,500 793,125 9,500 558,125
St. Paul Companies, Inc. 25,000 754,688 19,000 573,562
-----------------------------------------------------------------------------------
3,724,588 2,950,006
CONSUMER FINANCE--
2.4%, 2.5%, 2.5%,
2.9%, 2.2%, 2.0%
American Express Co. 5,000 824,063 3,500 576,844
Capital One Finance Corp. 19,000 779,000 15,000 615,000
Citigroup, Inc. 20,000 1,148,750 18,500 1,062,594
Household International,
Inc. 21,919 772,645 17,932 632,103
-----------------------------------------------------------------------------------
3,524,458 2,886,541
OTHER FINANCIAL
COMPANIES--.5%, .5%, .5%,
.5%, .4%, .4%
Marsh & McLennan
Companies, Inc. 8,000 752,000 6,000 564,000
-----------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MEDIA--4.6%, 5.1%, 4.3%,
5.1%, 4.2%, 3.4%
ADVERTISING--.3%, .4%, .3%,
.4%, .3%, .3%
Young & Rubicam, Inc. 8,300 447,163 8,300 447,163
-----------------------------------------------------------------------------------
</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
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
9,000 $ 574,875 10,800 $ 689,850 5,000 $ 319,375 3,000 $ 191,625
- ------------------------------------------------------------------------------------------------------------------------
12,400 706,800 12,400 706,800 5,800 330,600 3,400 193,800
7,000 462,000 9,000 594,000 3,500 231,000 2,350 155,100
6,500 438,750 7,000 472,500 3,500 236,250 2,500 168,750
5,000 430,313 5,000 430,312 3,000 258,187 2,000 172,125
11,000 866,938 11,000 866,937 6,000 472,875 4,500 354,656
8,000 291,000 8,000 291,000 4,000 145,500 3,000 109,125
7,000 664,562 8,000 759,500 4,000 379,750 2,000 189,875
- ------------------------------------------------------------------------------------------------------------------------
3,860,363 4,121,049 2,054,162 1,343,431
- ------------------------------------------------------------------------------------------------------------------------
5,000 280,000 6,000 336,000 2,500 140,000 2,000 112,000
- ------------------------------------------------------------------------------------------------------------------------
11,500 606,625 12,500 659,375 6,000 316,500 4,025 212,319
15,500 960,031 18,500 1,145,844 9,000 557,437 5,500 340,656
14,000 532,000 16,000 608,000 7,000 266,000 -- --
9,300 471,975 9,300 471,975 -- -- 3,280 166,460
18,000 826,875 21,000 964,687 10,500 482,344 6,525 299,742
11,000 433,125 11,000 433,125 5,000 196,875 3,500 137,813
13,928 600,645 16,844 726,398 7,922 341,636 4,816 207,690
- ------------------------------------------------------------------------------------------------------------------------
4,431,276 5,009,404 2,160,792 1,364,680
- ------------------------------------------------------------------------------------------------------------------------
4,000 321,750 5,000 402,187 2,500 201,094 1,500 120,656
11,000 287,375 11,000 287,375 5,500 143,687 3,000 78,375
9,000 360,000 9,000 360,000 4,000 160,000 3,000 120,000
- ------------------------------------------------------------------------------------------------------------------------
969,125 1,049,562 504,781 319,031
9,750 1,015,219 11,000 1,145,375 4,750 494,594 3,000 312,375
14,400 372,600 14,400 372,600 6,700 173,362 4,200 108,675
6,000 430,500 7,000 502,250 3,000 215,250 2,100 150,675
8,500 499,375 12,500 734,375 5,500 323,125 2,850 167,438
19,000 573,562 19,000 573,563 9,000 271,688 5,000 150,938
- ------------------------------------------------------------------------------------------------------------------------
2,891,256 3,328,163 1,478,019 890,101
3,500 576,844 5,000 824,062 1,550 255,459 1,300 214,256
14,000 574,000 17,000 697,000 7,000 287,000 5,000 205,000
18,500 1,062,594 19,500 1,120,031 8,750 502,578 5,850 336,009
17,932 632,103 21,932 773,103 9,813 345,908 6,759 238,255
- ------------------------------------------------------------------------------------------------------------------------
2,845,541 3,414,196 1,390,945 993,520
6,000 564,000 6,000 564,000 3,000 282,000 2,000 188,000
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
7,100 382,512 8,100 436,388 3,300 177,788 3,100 167,013
- ------------------------------------------------------------------------------------------------------------------------
</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>
BROADCASTING &
ENTERTAINMENT--2.8%, 3.0%,
2.5%, 3.0%, 2.4%, 2.0%
CBS Corp. 20,300 $ 1,183,744 17,300 $ 1,008,806
Clear Channel
Communications, Inc.* 9,258 799,660 7,522 649,713
Infinity Broadcasting
Corp.* 19,900 646,750 16,900 549,250
Univision Communication,
Inc.* 9,400 1,006,975 8,500 910,562
Walt Disney Co. 12,000 435,750 9,000 326,813
-------------------------------------------------------------------------------------
4,072,879 3,445,144
CABLE TELEVISION--
1.5%, 1.7%, 1.5%,
1.7%, 1.5%, 1.1%
AT&T Corp - Liberty Media
Group* 17,000 869,125 14,000 715,750
Comcast Corp. "A" 15,000 690,000 12,000 552,000
Media One Group, Inc.* 9,000 715,500 8,000 636,000
-------------------------------------------------------------------------------------
2,274,625 1,903,750
PRINT MEDIA--.0%, .0%, .0%,
.0%, .0%, 0.%
Tribune Co. 200 8,438 100 4,219
-------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--
2.8%, 2.9%, 2.8%,
3.1%, 2.5%, 2.2%
EDP SERVICES--1.9%, 1.9%,
1.8%, 2.0%, 1.7%, 1.5%
Automatic Data Processing,
Inc. 16,800 796,950 13,200 626,175
Electronic Data Systems
Corp. 18,000 1,217,239 14,000 946,750
First Data Corp. 15,500 760,469 12,500 613,281
-------------------------------------------------------------------------------------
2,774,658 2,186,206
ENVIRONMENTAL
SERVICES--.2%, .2%, .2%,
.3%, .2%, .1%
Transocean Sedo Forex, Inc. 9,400 299,025 8,936 284,277
-------------------------------------------------------------------------------------
INVESTMENT--.3%, .3%, .3%,
.4%, .3%, .3%
Merrill Lynch & Co., Inc. 5,000 433,750 4,000 347,000
-------------------------------------------------------------------------------------
PRINTING/PUBLISHING--.4%,
.5%, .4%, .5%, .4%, .3%
McGraw-Hill, Inc. 11,900 667,144 9,600 538,200
-------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
DURABLES--.8%, .8%, .8%,
.8%, .6%, .6%
AEROSPACE--.8%, .8%, .8%,
.8%, .7%, .6%
United Technologies Corp. 21,000 1,111,688 18,000 952,875
-------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MANUFACTURING--4.0%, 4.5%,
4.1%, 4.6%, 4.0%, 3.5%
CHEMICALS--.6%, .7%, .7%,
.7%, .6%, .5%
E.I. du Pont de Nemours &
Co. 10,000 590,000 9,000 531,000
Praxair, Inc. 8,000 324,500 6,000 243,375
-------------------------------------------------------------------------------------
914,500 774,375
DIVERSIFIED
MANUFACTURING--.7%, .7%,
.6%, .7%, .6%, .5%
Tyco International Ltd. 23,108 987,867 19,170 819,517
-------------------------------------------------------------------------------------
ELECTRICAL PRODUCTS--1.9%,
2.1%, 1.8%, 2.3%, 1.9%,
1.7%
Emerson Electric Co. 7,800 429,488 6,200 341,387
General Electric Co. 17,600 2,347,400 15,800 2,107,325
-------------------------------------------------------------------------------------
2,776,888 2,448,712
</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>
13,300 $ 775,556 17,900 $ 1,043,794 8,600 $ 501,487 5,400 $ 314,888
7,522 649,713 8,101 699,724 3,471 299,808 1,504 129,908
14,900 484,250 18,900 614,250 6,900 224,250 5,700 185,250
5,500 589,187 8,500 910,563 3,500 374,938 2,000 214,250
9,000 326,812 9,000 326,813 4,500 163,406 3,500 127,094
- ------------------------------------------------------------------------------------------------------------------------
2,825,518 3,595,144 1,563,889 971,390
12,000 613,500 16,000 818,000 8,000 409,000 4,500 230,056
12,000 552,000 12,000 552,000 5,000 230,000 2,000 92,000
7,000 556,500 8,000 636,000 4,000 318,000 3,000 238,500
- ------------------------------------------------------------------------------------------------------------------------
1,722,000 2,006,000 957,000 560,556
100 4,219 100 4,219 100 4,219 -- --
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
13,200 626,175 14,400 683,100 6,000 284,625 4,600 218,213
13,000 879,125 14,000 946,750 7,000 473,375 5,300 358,413
11,500 564,219 14,200 696,687 6,300 309,094 3,000 147,188
- ------------------------------------------------------------------------------------------------------------------------
2,069,519 2,326,537 1,067,094 723,814
8,742 278,105 9,129 290,416 2,968 94,420 2,216 70,490
- ------------------------------------------------------------------------------------------------------------------------
4,000 347,000 5,000 433,750 2,000 173,500 1,500 130,125
- ------------------------------------------------------------------------------------------------------------------------
9,000 504,562 10,300 577,444 4,700 263,494 3,000 168,188
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
18,000 952,875 18,000 952,875 8,000 423,500 5,500 291,156
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
9,000 531,000 9,000 531,000 5,000 295,000 3,000 177,000
6,000 243,375 6,000 243,375 3,000 121,688 2,000 81,125
- ------------------------------------------------------------------------------------------------------------------------
774,375 774,375 416,688 258,125
17,020 727,605 19,000 812,250 9,000 384,750 6,000 256,500
- ------------------------------------------------------------------------------------------------------------------------
5,200 286,325 6,800 374,425 3,000 165,187 2,000 110,125
12,800 1,707,200 17,600 2,347,400 8,000 1,067,000 5,600 746,900
- ------------------------------------------------------------------------------------------------------------------------
1,993,525 2,721,825 1,232,187 857,025
</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>
MACHINERY/COMPONENTS--.4%, .5%,
.5%, .5%, .5%, .4%
Parker-Hannifin Corp. 15,000 $ 648,750 14,000 $ 605,500
------------------------------------------------------------------------------
OFFICE EQUIPMENT/SUPPLIES--.4%,
.5%, .5%, .5%, .4%, .4%
Lexmark International
Group, Inc. "A"* 7,000 659,750 6,000 565,500
------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--13.1%, 13.7%, 12.4%,
14.1%, 12.6%, 9.9%
COMPUTER SOFTWARE--2.5%, 2.6%,
2.3%, 2.8%, 2.3%, 2.4%
Microsoft Corp.* 25,000 2,446,875 22,000 2,153,250
Oracle Corp.* 26,400 1,318,763 17,200 859,194
------------------------------------------------------------------------------
3,765,638 3,012,444
DIVERSE ELECTRONIC PRODUCTS--
2.5%, 2.6%, 2.5%, 2.8%, 2.4%,
2.3%
Applied Materials, Inc. 8,000 1,098,000 5,000 686,250
Motorola, Inc.* 9,000 1,230,750 7,000 957,250
Solectron Corp.* 11,000 798,875 10,000 726,250
Teradyne, Inc.* 10,000 647,500 10,000 647,500
------------------------------------------------------------------------------
3,775,125 3,017,250
ELECTRONIC COMPONENTS--2.6%,
2.7%, 2.5%, 3.1%, 2.8%, 1.7%
Altera Corp.* 8,500 558,875 6,500 427,375
Cisco Systems, Inc.* 30,000 3,285,000 24,500 2,682,750
------------------------------------------------------------------------------
3,843,875 3,110,125
ELECTRONIC DATA PROCESSING--
1.7%, 1.7%, 1.6%, 1.7%, 1.6%,
1.6%
Hewlett-Packard Co. 12,800 1,385,600 10,900 1,179,925
Sun Microsystems, Inc.* 14,200 1,115,588 9,300 730,631
------------------------------------------------------------------------------
2,501,188 1,910,556
SEMICONDUCTORS--3.1%, 3.5%,
2.9%, 3.2%, 2.9%, 1.4%
Intel Corp. 26,000 2,572,375 22,000 2,176,625
Linear Technology Corp. 15,000 1,420,313 14,000 1,325,625
Xilinx, Inc.* 14,000 640,500 10,400 475,800
------------------------------------------------------------------------------
4,633,188 3,978,050
MISCELLANEOUS--.7%, .6%, .6%,
.6%, .5%, .5%
Agilent Technologies,
Inc.* 15,000 992,814 10,000 661,875
------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
ENERGY--2.6%, 2.9%, 2.6%, 2.9%,
2.4%, 2.1%
OIL & GAS PRODUCTION--1.0%, 1.0%,
1.0%, 1.1%, 1.0%, .6%
Conoco, Inc. "A" 18,300 426,619 14,700 342,694
Royal Dutch Petroleum
Co. (New York shares) 18,000 991,125 15,000 825,937
------------------------------------------------------------------------------
1,417,744 1,168,631
OIL COMPANIES--1.1%, 1.3%, 1.2%
1.2%, 1.0%, 1.0%
Exxon Mobil Corp. 14,297 1,193,800 12,712 1,061,452
Texaco, Inc. 9,500 502,313 7,200 380,700
------------------------------------------------------------------------------
1,696,113 1,442,152
OILFIELD SERVICES--.5%, .6%,
.5%, .6%,.5%, .5%
Schlumberger Ltd. 12,400 757,175 12,000 732,750
------------------------------------------------------------------------------
TOTAL COMMON STOCKS--49.7%,
52.8%, 49.6%, 54.8%, 46.7%, 38.7%
(Cost: $52,920,675, $44,212,467,
$41,798,067, $46,865,003,
$22,019,467, $15,242,742) 73,786,160 60,662,040
------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $126,758,531, $97,331,642,
$100,092,559, $98,352,158,
$56,943,187, $48,195,746) $148,438,646 $114,857,864
------------------------------------------------------------------------------
</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>
14,000 $ 605,500 14,000 $ 605,500 7,000 $ 302,750 4,100 $ 177,325
- ----------------------------------------------------------------------------------------------------------------
6,000 565,500 6,000 565,500 3,000 282,750 2,000 188,500
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
18,000 1,761,750 24,000 2,349,000 11,000 1,076,625 9,000 880,875
17,200 859,194 19,800 989,072 8,600 429,597 6,000 299,719
- ----------------------------------------------------------------------------------------------------------------
2,620,944 3,338,072 1,506,222 1,180,594
5,000 686,250 5,000 686,250 2,500 343,125 1,700 233,325
7,000 957,250 9,000 1,230,750 4,000 547,000 3,000 410,250
10,000 726,250 10,000 726,250 4,200 305,025 3,000 217,875
7,000 453,250 10,000 647,500 5,000 323,750 4,400 284,900
- ----------------------------------------------------------------------------------------------------------------
2,823,000 3,290,750 1,518,900 1,146,350
6,500 427,375 7,000 460,250 3,800 249,850 2,300 151,225
22,000 2,409,000 29,000 3,175,500 14,500 1,587,750 6,100 667,950
- ----------------------------------------------------------------------------------------------------------------
2,836,375 3,635,750 1,837,600 819,175
10,400 1,125,800 11,500 1,244,875 5,300 573,725 4,050 438,413
9,300 730,631 9,300 730,631 6,100 479,231 4,200 329,963
- ----------------------------------------------------------------------------------------------------------------
1,856,431 1,975,506 1,052,956 768,376
21,000 2,077,688 22,000 2,176,625 10,500 1,038,844 5,400 534,263
8,000 757,500 12,000 1,136,250 6,000 568,125
10,400 475,800 11,000 503,250 6,000 274,500 3,200 146,400
- ----------------------------------------------------------------------------------------------------------------
3,310,988 3,816,125 1,881,469 680,663
10,000 661,875 10,000 661,875 5,000 330,937 4,000 264,750
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
14,200 331,037 16,000 373,000 7,300 170,181 2,800 65,275
14,000 770,875 16,000 881,000 8,000 440,500 4,500 247,781
- ----------------------------------------------------------------------------------------------------------------
1,101,912 1,254,000 610,681 313,056
11,128 929,188 11,241 938,623 5,356 447,226 4,064 339,344
7,200 380,700 9,500 502,313 4,000 211,500 3,300 174,488
- ----------------------------------------------------------------------------------------------------------------
1,309,888 1,440,936 658,726 513,832
9,000 549,562 12,000 732,750 5,000 305,313 3,700 225,932
- ----------------------------------------------------------------------------------------------------------------
56,499,646 64,880,886 30,171,151 19,076,024
- ----------------------------------------------------------------------------------------------------------------
$113,939,666 $118,538,076 $64,606,213 $49,321,631
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security.
** Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
*** Annualized yield at time of purchase; not a coupon rate.
(a) Based on the cost of investments for federal income tax purposes at January
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 $126,758,531 $97,331,642 $100,092,559 $98,352,158 $56,943,187 $48,195,746
- ----------------------------------------------------------------------------------------------------------------------------
Gross unrealized appreciation 23,090,829 18,681,713 15,860,546 21,580,443 8,745,311 4,362,677
- ----------------------------------------------------------------------------------------------------------------------------
Gross unrealized depreciation 1,410,714 1,155,491 2,013,439 1,394,525 1,082,285 3,236,792
- ----------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation 21,680,115 17,526,222 13,847,107 20,185,918 7,663,026 1,125,885
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
18 The accompanying notes are an integral part of the financial statements.
<PAGE> 19
(This page intentionally left blank.)
19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
as of January 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES
--------------------------------------------------------------------------------
II III IV V VI VII
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------------------------
Investments at value, (Cost:
$126,758,531, $97,331,642,
$100,092,559, $98,352,158,
$56,943,187, and $48,195,746) $148,438,646 114,857,864 113,939,666 118,538,076 64,606,213 49,321,631
- ------------------------------------------------------------------------------------------------------------------
Cash 726 -- 20 415 834 --
- ------------------------------------------------------------------------------------------------------------------
Receivable for investments sold 433,794 373,713 347,945 425,336 210,567 90,093
- ------------------------------------------------------------------------------------------------------------------
Dividends receivable 29,040 23,868 22,578 26,328 12,340 7,551
- ------------------------------------------------------------------------------------------------------------------
Interest receivable 79 -- 26 46 106 --
- ------------------------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 1,606 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Foreign taxes recoverable -- 4,284 816 4,284 2,040 816
- ------------------------------------------------------------------------------------------------------------------
Other assets 9,304 10,617 3,000 6,072 834 10,347
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 148,913,195 115,270,346 114,314,051 119,000,557 64,832,934 49,430,438
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------------------
Due to custodian bank -- 24,725 -- -- -- 128,563
- ------------------------------------------------------------------------------------------------------------------
Payable for investments
purchased 226,682 151,121 151,121 151,121 113,341 75,561
- ------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed 120,892 41,657 188,313 106,815 49,536 93,004
- ------------------------------------------------------------------------------------------------------------------
Accrued management fee 60,770 49,236 46,815 48,619 26,446 21,203
- ------------------------------------------------------------------------------------------------------------------
Other accrued expenses and
payables 184,403 203,770 201,992 223,518 116,674 105,821
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 592,747 470,509 588,241 530,073 305,997 424,152
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS, AT VALUE $148,320,448 114,799,837 113,725,810 118,470,484 64,526,937 49,006,286
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment
income (loss) $ 410,382 573,180 244,035 838,042 121,504 163,231
- ------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) on investment
securities 21,680,115 17,526,222 13,847,107 20,185,918 7,663,026 1,125,885
- ------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain
(loss) 4,665,634 3,416,084 3,122,057 3,729,370 1,767,169 551,514
- ------------------------------------------------------------------------------------------------------------------
Paid-in-capital 121,564,317 93,284,351 96,512,611 93,717,154 54,975,238 47,165,656
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS, AT VALUE $148,320,448 114,799,837 113,725,810 118,470,484 64,526,937 49,006,286
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE
- ------------------------------------------------------------------------------------------------------------------
Shares outstanding 11,959,213 10,846,788 10,741,445 11,796,699 5,839,636 4,500,610
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE
(Net assets/shares of capital
stock outstanding $.01 par
value, unlimited number of
shares authorized) $ 12.40 10.58 10.59 10.04 11.05 10.89
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
20 The accompanying notes are an integral part of the financial statements.
<PAGE> 21
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
Six months ended January 21, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SERIES
---------------------------------------------------------------------------
II III IV V VI VII
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------------------------------------------------------
Dividends (a) $ 321,842 262,926 249,863 282,860 135,652 82,577
- ----------------------------------------------------------------------------------------------------------------------
Interest 3,017,753 2,018,271 1,874,561 1,998,649 1,153,606 951,650
- ----------------------------------------------------------------------------------------------------------------------
Total income 3,339,595 2,281,197 2,124,424 2,281,509 1,289,258 1,034,227
- ----------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee 379,538 293,879 297,818 303,794 167,463 126,760
- ----------------------------------------------------------------------------------------------------------------------
Services to shareholders 118,868 99,820 105,471 95,497 65,794 49,202
- ----------------------------------------------------------------------------------------------------------------------
Custodian fees 4,357 10,436 9,111 11,353 6,044 4,272
- ----------------------------------------------------------------------------------------------------------------------
Administrative services fees 189,769 146,939 148,909 151,897 83,732 63,380
- ----------------------------------------------------------------------------------------------------------------------
Auditing 16,386 12,088 13,947 26,360 7,583 5,655
- ----------------------------------------------------------------------------------------------------------------------
Legal 4,000 1,648 1,977 2,384 736 3,140
- ----------------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 15,001 7,503 9,443 10,944 7,584 2,938
- ----------------------------------------------------------------------------------------------------------------------
Reports to shareholders 19,853 15,377 27,391 24,867 16,758 21,890
- ----------------------------------------------------------------------------------------------------------------------
Other 8,130 2,689 5,168 10,896 3,097 10,555
- ----------------------------------------------------------------------------------------------------------------------
Total expenses, before expenses
reductions 755,902 590,379 619,235 637,992 358,791 287,792
- ----------------------------------------------------------------------------------------------------------------------
Expense reductions (4,283) (3,252) (3,206) (3,404) (4,448) (1,394)
- ----------------------------------------------------------------------------------------------------------------------
Total expenses, after expenses reductions 751,619 587,127 616,029 634,588 354,343 286,398
- ----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,587,976 1,694,070 1,508,395 1,646,921 934,915 747,829
- ----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments 4,916,166 3,446,983 3,997,240 3,783,864 1,789,552 560,614
- ----------------------------------------------------------------------------------------------------------------------
Foreign currency related transactions -- 24 23 23 12 7
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) during the period on
investments 1,240,532 1,037,100 (234,083) 191,406 (294,974) (200,728)
- ----------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investment
transactions 6,156,698 4,484,107 3,763,180 3,975,293 1,494,590 359,893
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASES (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $8,744,674 6,178,177 5,271,575 5,622,214 2,429,505 1,107,722
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Net of foreign taxes withheld of $2,335, $2,108, $2,003, $2,003, $1,048, and
$531.
The accompanying notes are an integral part of the financial statements. 21
<PAGE> 22
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
--------------------------- --------------------------
SERIES II SERIES III
--------------------------- --------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JANUARY 31, YEAR JANUARY 31, YEAR
ENDED ENDED
2000 JULY 31, 2,000 JULY 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
Operations:
Net investment income (loss) $ 2,587,976 5,623,320 1,694,070 3,578,452
- -------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 4,916,166 4,575,390 3,447,007 3,323,614
- -------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on
investment transactions during the period 1,240,532 6,548,376 1,037,100 5,877,115
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 8,744,674 16,747,086 6,178,177 12,779,181
- -------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (5,426,846) (6,056,874) (3,144,868) (3,970,781)
- -------------------------------------------------------------------------------------------------------------------
From net realized gains (4,740,208) (8,476,202) (3,354,526) (7,192,415)
- -------------------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Reinvestment of distributions 9,836,912 15,059,197 6,341,323 12,108,402
- -------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (11,682,740) (24,121,207) (7,849,292) (15,179,335)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions (1,845,828) (9,062,010) (1,507,969) (3,070,933)
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS (3,268,208) (6,848,000) (1,829,186) (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 $148,320,448 151,588,656 114,799,837 116,629,023
- -------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED OF NET INVESTMENT
INCOME (LOSS) $ 410,382 3,249,252 573,180 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 790,749 1,285,829 594,313 1,207,579
- -------------------------------------------------------------------------------------------------------------------
Shares redeemed (918,826) (1,968,488) (725,834) (1,451,579)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in Portfolio shares (128,077) (682,659) (131,521) (244,000)
- -------------------------------------------------------------------------------------------------------------------
Shares outstanding at end of period 11,959,213 12,087,290 10,846,788 10,978,309
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
22 The accompanying notes are an integral part of the financial statements.
<PAGE> 23
FINANCIAL Statements
<TABLE>
<CAPTION>
------------------------- ------------------------- ------------------------ ------------------------
SERIES IV SERIES V SERIES VI SERIES VII
------------------------- ------------------------- ------------------------ ------------------------
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JANUARY 31, YEAR JANUARY 31, YEAR JANUARY 31, YEAR JANUARY 31, YEAR
ENDED ENDED ENDED ENDED
2000 JULY 31, 2000 JULY 31, 2000 JULY 31, 2000 JULY 31,
(UNAUDITED) 1999 (UNAUDITED) 1999 (UNAUDITED) 1999 (UNAUDITED) 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1,508,395 3,350,342 1,646,921 3,581,118 934,915 2,045,269 747,829 1,105,828
-----------------------------------------------------------------------------------------------------------
3,997,263 3,242,202 3,783,887 4,314,876 1,789,564 1,941,130 560,621 (4,775)
-----------------------------------------------------------------------------------------------------------
(234,083) 5,677,914 191,406 4,968,640 (294,974) 1,988,171 (200,728) 270,391
-----------------------------------------------------------------------------------------------------------
5,271,575 12,270,458 5,622,214 12,864,634 2,429,505 5,974,570 1,107,722 1,371,444
-----------------------------------------------------------------------------------------------------------
(3,214,001) (3,676,488) (2,830,545) (3,913,327) (1,386,930) (2,772,993) (1,323,563) (698,775)
-----------------------------------------------------------------------------------------------------------
(4,045,163) (6,907,606) (4,301,894) (8,413,286) (1,953,023) (3,257,619) -- (65,937)
-----------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- 6,023,187 25,523,247
-----------------------------------------------------------------------------------------------------------
7,053,024 10,296,406 6,955,298 11,943,373 3,263,522 5,871,453 1,292,763 737,299
-----------------------------------------------------------------------------------------------------------
(12,280,146) (15,459,315) (8,589,102) (16,753,175) (5,308,836) (8,819,786) (5,685,195) (5,063,143)
-----------------------------------------------------------------------------------------------------------
(5,227,122) (5,162,945) (1,633,804) (4,809,802) (2,045,314) (2,948,333) 1,630,755 21,197,403
-----------------------------------------------------------------------------------------------------------
(7,214,711) (3,476,581) (3,144,029) (4,271,781) (2,955,762) (3,004,375) 1,414,914 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
-----------------------------------------------------------------------------------------------------------
113,725,810 120,940,521 118,470,484 121,614,513 64,526,937 67,482,699 49,006,286 47,591,372
-----------------------------------------------------------------------------------------------------------
244,035 1,949,641 838,042 2,021,666 121,504 573,519 163,231 738,965
-----------------------------------------------------------------------------------------------------------
11,207,722 11,653,309 11,944,843 12,374,910 6,015,686 6,263,765 4,347,361 2,427,586
-----------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- 551,210 2,310,285
-----------------------------------------------------------------------------------------------------------
659,161 999,612 685,268 1,228,742 292,693 534,254 117,735 66,483
-----------------------------------------------------------------------------------------------------------
(1,125,438) (1,445,199) (833,412) (1,658,809) (468,743) (782,333) (515,696) (456,993)
-----------------------------------------------------------------------------------------------------------
(466,277) (445,587) (148,144) (430,067) (176,050) (248,079) 153,249 1,919,775
-----------------------------------------------------------------------------------------------------------
10,741,445 11,207,722 11,796,699 11,944,843 5,839,636 6,015,686 4,500,610 4,347,361
-----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 23
<PAGE> 24
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
------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JULY MONTH YEAR ENDED
JANUARY 31, 31, ENDED JUNE 30,
2000 ----------------- JULY 31, ---------------------------
(UNAUDITED) 1999 1998 1997 1997 1996 1995
<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 12.30
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .22(b) .45(b) .52 .05 .56 .58 .60
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .54 .88 .23 .56 1.29 .77 1.25
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .76 1.33 .75 .61 1.85 1.35 1.85
- ----------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.48) (.50) (.54) -- (.59) (.57) (.57)
- ----------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.42) (.70) (1.18) -- (1.50) (.71) (.64)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (.90) (1.20) (1.72) -- (2.09) (1.28) (1.21)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.40 12.54 12.41 13.38 12.77 13.01 12.94
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 5.96** 11.42 6.46 4.78** 15.56 10.92 16.52
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ in thousands) 148,320 151,589 158,437 173,383 167,170 168,425 173,337
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) 1.00* .98 .94 .90* .92 .94 .96
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) .99* .98 .94 .90* .92 .94 .96
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.41* 3.64 3.80 3.98* 4.08 4.16 4.54
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 39* 40 57 67* 70 54 47
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
SERIES III
--------------------------------------------------------------------------
SIX MONTHS
ENDED
JANUARY YEAR ENDED MONTH YEAR ENDED
31, JULY 31, ENDED JUNE 30,
2000 ----------------- JULY 31, ---------------------------
(UNAUDITED) 1999 1998 1997 1997 1996 1995
<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 9.87
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .16(b) .32(b) .39 .04 .42 .43 .44
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .42 .82 .27 .54 1.22 .78 1.24
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .58 1.14 .66 .58 1.64 1.21 1.68
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.30) (.37) (.40) -- (.43) (.44) (.43)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.32) (.67) (1.07) -- (1.41) (.57) (.37)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.62) (1.04) (1.47) -- (1.84) (1.01) (.80)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 10.58 10.62 10.52 11.33 10.75 10.95 10.75
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 5.41** 11.47 6.68 5.40** 16.38 11.72 18.37
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ in thousands) 114,800* 116,629 118,084 127,098 122,334 121,488 124,681
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) 1.01* 1.04 .95 .83* .95 .96 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) 1.00* 1.04 .95 .83* .95 .96 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)(%) 2.88* 3.06 3.36 3.63* 3.61 3.67 4.14
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) .42* 44 67 79* 74 59 52
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
SERIES IV
--------------------------------------------------------------------------
SIX MONTHS
ENDED
JANUARY YEAR ENDED JULY MONTH YEAR ENDED
31, 31, ENDED JUNE 30,
2000 ----------------- JULY 31, ---------------------------
(UNAUDITED) 1999 1998 1997 1997 1996 1995
<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 8.83
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .14(b) .29(b) .35 .03 .39 .40 .39
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .36 .77 .38 .56 1.17 .64 1.22
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .50 1.06 .73 .59 1.56 1.04 1.61
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.31) (.33) (.37) -- (.38) (.41) (.37)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.39) (.62) (.96) -- (1.19) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.70) (.95) (1.33) -- (1.57) (.41) (.37)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 10.59 10.79 10.68 11.28 10.69 10.70 10.07
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 4.57** 10.35 7.27 5.52** 15.73 10.47 18.95
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ in thousands) 113,726 120,941 124,417 135,930 131,225 138,858 152,179
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) 1.04* 1.03 .98 .88* .96 .95 .97
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) 1.03* 1.03 .98 .88* .96 .95 .97
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)(%) 2.53* 2.71 2.98 3.22* 3.35 3.46 4.01
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 34* 36 59 66* 66 52 45
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 26
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------------------------------
SERIES V
------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JULY MONTH
JANUARY 31, 31, ENDED YEAR ENDED JUNE 30,
2000 ----------------- JULY 31, ---------------------------
(UNAUDITED) 1999 1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.18 10.17 10.86 10.22 10.20 9.53 8.15
- -------------------------------------------------------------------------------------------------------------------------
Income from investments operations:
Net investment income (loss) .14(b) .29(b) .35 .03 .39 .39 .28
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments transactions .35 .76 .39 .61 1.22 .64 1.31
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations .75 1.05 .74 .64 1.61 1.03 1.59
- -------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.33) (.38) -- (.39) (.36) (.21)
- -------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.38) (.71) (1.05) -- (1.20) -- --
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.63) (1.04) (1.43) -- (1.59) (.36) (.21)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 10.04 10.18 10.17 10.86 10.22 10.20 9.53
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 4.75** 10.81 7.76 6.26** 17.14 10.95 19.97
- -------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ in thousands) 118,470 121,615 125,886 137,131 130,675 129,747 134,937
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.05* 1.03 .99 .94* .96 .96 1.07
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.05* 1.03 .99 .94* .96 .96 1.07
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.71* 2.87 3.16 3.34* 3.59 3.64 4.01
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 42* 40 66 76* 79 58 73
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------
SERIES VI
---------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JULY MONTH YEAR ENDED MAY 1(A)
JANUARY 31, 31, ENDED JUNE 30, TO
2000 --------------- JULY 31, --------------- JUNE 30,
(UNAUDITED) 1999 1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.22 11.25 11.57 10.86 9.83 9.26 9.00
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .16(b) .33(b) .38 .03 .33 .24 .06
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .27 .64 .50 .68 1.26 .57 .20
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .43 .97 .88 .71 1.59 .81 .26
- ----------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.46) (.39) -- (.28) (.13) --
- ----------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.35) (.54) (.81) -- (.28) (.11) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (.60) (1.00) (1.20) -- (.56) (.24) --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 11.05 11.22 11.25 11.57 10.86 9.83 9.26
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 3.70** 8.81 8.32 6.54** 16.64 8.79 2.89**
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ in thousands) 64,527 67,483 70,487 73,171 69,392 49,689 7,189
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.07* 1.02 1.01 1.00* 1.02 1.27 1.09*
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.06* 1.02 1.01 1.00* 1.02 1.27 1.09*
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.79* 2.90 3.18 3.43* 3.43 3.47 3.91*
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 34* 33 54 65* 74 34 --*
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 27
FINANCIAL Highlights
<TABLE>
<CAPTION>
SERIES VII
SIX MONTHS
ENDED YEAR ENDED JULY MONTH MAY 1(A)
JANUARY 31, 31, ENDED TO
2000 --------------- JULY 31, JUNE 30,
(UNAUDITED) 1999 1998 1997 1997
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.95 10.62 9.78 9.23 9.00
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .16(b) .32(b) .21 .01 .02
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .07 .24 .73 .54 .21
- -----------------------------------------------------------------------------------------------------
Total from investment operations .23 .56 .94 .55 .23
- -----------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.29) (.21) (.10) -- --
- -----------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.02) -- -- --
- -----------------------------------------------------------------------------------------------------
Total distributions (.29) (.23) (.10) -- --
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period 10.89 10.95 10.62 9.78 9.23
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 2.08** 5.25 9.68 5.96** 2.56**
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 49,006 47,591 25,787 4,550 2,043
- -----------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.14* 1.18 1.21 .95* 1.17*
- -----------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.13* 1.18 1.21 .95* 1.17*
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.95* 2.86 2.79 3.45* 3.16*
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 48* 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 would have been lower had certain expenses not been reduced.
27
<PAGE> 28
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 by 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.
The Funds' financial statements are prepared in
accordance with generally accepted accounting
principals, which require the use of management
estimates. The policies described below are
followed consistently by the Funds in the
preparation of their financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used.
Portfolio debt securities purchased with an
original maturity greater than sixty days are
valued by pricing agents approved by the officers
of the Trust, whose quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost.
28
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS
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 this 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, receives 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.
At July 31, 1999 Series VII had a net tax basis
capital loss carryforward of approximately $4,000
which may be applied against any realized net
taxable capital gains of each succeeding year until
fully utilized or until July 31, 2007, the
expiration date.
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.
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 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.
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
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 six months ended January 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 $29,132,267 24,027,465 23,228,672 24,848,565 11,273,087
Proceeds from sales $41,320,011 32,329,984 34,970,993 32,931,453 16,971,365
<CAPTION>
SERIES VII
----------
<S> <C>
Purchases 13,823,309
Proceeds from sales 11,918,113
</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 $1,569,252 for the six
months ended January 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 six months ended January 31,
2000 are $29,315.
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 paid by the Funds to KDI for the six
months ended January 31, 2000 are $784,626, of
which $176,089 is unpaid. Additionally, $2,020 was
paid by KDI to affiliates.
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 $419,381
for the six months ended January 31, 2000 of which
$419,381 is unpaid.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of
Scudder Kemper. For the six months ended January
31, 2000, the Funds made no payments to its
officers and incurred trustees' fees of $53,413 to
independent trustees.
- --------------------------------------------------------------------------------
4 EXPENSE OFF-SET
ARRANGEMENTS The Funds have entered into arrangements with their
custodian whereby credits realized as a result of
uninvested cash balances were used to reduce a
portion of each the Fund's expenses. During the
period, the Funds' custodian fees were reduced by
$19,987 under these arrangements.
30
<PAGE> 31
NOTES
31
<PAGE> 32
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY WILLIAM F. TRUSCOTT
Trustee President Vice President
PHILLIP J. COLLORA
JAMES R. EDGAR Vice President LINDA J. WONDRACK
Trustee and Secretary Vice President
ARTHUR R. GOTTSCHALK JOHN R. HEBBLE MAUREEN E. KANE
Trustee Treasurer Assistant Secretary
FREDERICK T. KELSEY IRENE CHENG CAROLINE PEARSON
Trustee Vice President Assistant Secretary
THOMAS W. LITTAUER TRACY MCCORMICK BRENDA LYONS
Chairman, Trustee and Vice President Assistant Treasurer
Vice President
ANN M. MCCREARY
FRED B. RENWICK Vice President
Trustee
KATHRYN L. QUIRK
JOHN G. WEITHERS Vice President
Trustee
</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 STATE STREET BANK AND TRUST
225 Franklin Street
Boston, MA 02110
.............................................................................................
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
[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 - 3(3/25/00) 1105620
