-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nx6IDGIcb5b5mfhVjX5SP4/ab8yM7xbeSI2anNKm8cAovVp0RyUfsE8GzxXG7vOW 3UDtbjimReL7ycMJzYN9NQ== /in/edgar/work/0000950137-00-004581/0000950137-00-004581.txt : 20001102 0000950137-00-004581.hdr.sgml : 20001102 ACCESSION NUMBER: 0000950137-00-004581 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000831 FILED AS OF DATE: 20001031 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEMPER FUNDS TRUST CENTRAL INDEX KEY: 0001072010 STANDARD INDUSTRIAL CLASSIFICATION: [ ] FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-09057 FILM NUMBER: 750290 BUSINESS ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 2123266200 MAIL ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 N-30D 1 c57480n-30d.txt ANNUAL REPORT 1 LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM) ANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED AUGUST 31, 2000 Seeking growth of capital KEMPER S&P 500 INDEX FUND "... The fund began operating in a challenging market environment marked by increased volatility, weakness in many Internet-related stocks and higher short-term interest rates. ..." [KEMPER FUNDS LOGO] 2 CONTENTS 3 ECONOMIC OVERVIEW 7 PERFORMANCE UPDATE 11 INDUSTRY SECTORS 12 LARGEST HOLDINGS 13 PORTFOLIO OF INVESTMENTS 25 FINANCIAL STATEMENTS 28 FINANCIAL HIGHLIGHTS 29 NOTES TO FINANCIAL STATEMENTS 33 REPORT OF INDEPENDENT AUDITORS AT A GLANCE KEMPER S&P 500 INDEX FUND CUMULATIVE TOTAL RETURNS FOR THE FIVE-MONTH PERIOD ENDED AUGUST 31, 2000 (UNADJUSTED FOR ANY SALES CHARGE) [BAR GRAPH] Kemper S&P 500 Index Fund Class A 0.95% Kemper S&P 500 Index Fund Class B 0.74% Kemper S&P 500 Index Fund Class C 0.74% S&P 500 Index 0.78% Lipper S&P Funds Category Average* 1.53%
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. *LIPPER, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF SALES CHARGES; IF SALES CHARGES HAD BEEN INCLUDED, RESULTS MIGHT HAVE BEEN LESS FAVORABLE. LIPPER DATA ARE FOR THE PERIOD 3/31/00 TO 8/31/00. NET ASSET VALUE
AS OF AS OF 8/31/00 4/3/00 ......................................................... KEMPER S&P 500 INDEX FUND CLASS A $9.59 $9.50 ......................................................... KEMPER S&P 500 INDEX FUND CLASS B $9.57 $9.50 ......................................................... KEMPER S&P 500 INDEX FUND CLASS C $9.57 $9.50 .........................................................
TERMS TO KNOW BALANCE SHEET A condensed financial statement showing what a company owns, what it owes and the ownership interest in the company of its stockholders, at a certain time. LIQUIDITY The ease with which a stock can be bought or sold. Due to higher recognition and a greater quantity of shares, large-cap stocks are typically more liquid than small-cap stocks. Reduced liquidity offers the potential of greater risk and return: Investors who wish to sell a less liquid stock may find it difficult to find a buyer, but they may also be able to dictate a higher price if the stock is in demand. MARKET CAPITALIZATION A measure of the size of a company that offers publicly traded stock, as determined by multiplying the current share price by the number of shares outstanding. VOLATILITY The characteristic of a security, commodity or market to rise or fall sharply in price within a short period of time. A stock may be volatile due to uncertainty in a company, industry, market or economy. Compared with many other types of stocks, technology stocks are subject to a higher degree of volatility. 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: Times have been good. During the first half of 2000, the global economy put on more speed than it has in over a decade. All regions participated. The United States, of course, was still powering ahead. The growth rate in Europe was nearly 4 percent. Asia fed off an electronics boom and a revitalized China. South America got a boost from an improved credit rating. New money pumped up energy producers from Mexico to the Middle East. Now for the bad news, which is that the best news is probably behind us. Global growth peaked in the spring, and in the United States, at least, the slowdown was abrupt. After 6 percent growth in the year ending June 30, we estimate that the economy grew at a rate of less 3 percent rate during the summer. It seems that expensive energy, currency volatility and more widespread profit problems, are bringing the exuberant global economy, including the United States, to heel. Let's explore these factors in more detail. OIL, OIL, TOIL AND TROUBLE Everyone's talking about oil prices, and with good reason: They have a particularly pernicious history of disrupting the economy. Of the seven recessions since World War II, six were preceded by a spike in crude oil prices. Oil prices have already been strong enough for long enough to crimp growth, and they're biting the rest of the world even harder than the United States. But there are two factors working to our advantage. First, oil prices are still historically low. Oil is slightly more than $30 per barrel today, but it peaked at over $75 per barrel back in 1980 (stated in today's dollars). Second, our dependence on oil has decreased: The United States uses only roughly half as much oil to produce a unit of gross domestic product (GDP) as it did thirty years ago. This gives us hope that the economy can escape recession this time around. What would make us worry more? Outright energy shortages or a political crisis. If either happens, the odds of a recession occurring would rise steeply. People panic or become excessively cautious when they have to fret. Can I fill up my oil tank? Will there be a war? Their loss of confidence can be much more devastating than price increases alone. CURRENCY CONCERNS Currency turmoil is a second danger to the economy. Central bankers have intervened to halt the euro's decline, and they're right that the euro is fundamentally undervalued. But intervention is a hazardous game. Let's hope they don't convince the markets that the euro should rise a lot very quickly. A suddenly weak dollar might make Europeans think about selling all those American stocks and bonds they've been buying, and would greatly complicate the Fed's inflation fight. BUSINESS: BIG PLANS BUT PROFIT DISAPPOINTMENTS Profit warnings escalated late this summer, and we believe there's fire amid that smoke. Sure, businesses have had a voracious appetite for money -- and corporate treasurers are finding it easily. Banks increased business lending by 11.5 percent in the past year, and the bond markets are healthy, with only the lowest credit-quality companies experiencing any difficulty issuing bonds. Capital goods orders reflect executives' enthusiasm -- they've been accelerating since early in the year, and in August were up more than 15 percent compared to a year ago. Still, we expect total capital spending to slow, from this year's estimated 14 percent to 12.5 percent in 2001. The reason? A profit squeeze is about to take some of the edge off executives' animal spirits. We've always been more cautious than Wall Street about 2001 profits, and our forecast hasn't changed. Profits are likely to be flat to down next year for several reasons. First, growth slowdown will make it harder to keep up the productivity gains that have kept labor costs under control. Second, interest expense will surge (thanks to higher rates and all that new debt). Third, depreciation costs are escalating. And finally, the excessively weak euro and higher oil costs will sap earnings. SAVING GRACES: FISCAL POLICY AND CONSUMER SPENDING While growth has peaked and is now slowing, we can be thankful that growth probably won't slow too much, thanks in part to a more stimulative fiscal policy and consumer spending. 3 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]
NOW (9/30/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO ------------- ------------ ---------- ----------- 10-year Treasury rate (1) 5.80 6.30 5.90 4.80 Prime rate (2) 9.50 9.00 8.25 8.50 Inflation rate (3)* 3.30 3.20 2.30 1.70 The U.S. dollar (4) 8.40 0.60 -3.30 4.10 Capital goods orders (5)* 16.10 8.40 1.90 15.60 Industrial production (5)* 5.80 5.30 3.10 4.40 Employment growth (6) 1.90 2.30 2.20 2.50
(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 8/31/00. SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC. Fiscal policy is likely to be more stimulative no matter who wins the presidential election. Of course, most economists agree that the last thing this pumped-up economy needs is another shot of stimulants -- too much stimulus, after all, is widely believed to cause inflation. But economists aren't running for office. Politicians are. And inflation risk is about the last thing on the minds of politicians in the heat of their election campaigns. They want to win votes, and the time-tested way to do so is to make promises. Whatever their political differences, neither candidate is planning a lot of fiscal restraint. The good news is that neither candidate's plan is likely to be enacted until 2002 at the earliest. And even then, each candidate's plan maintains a portion of the surplus stemming from Social Security receipts -- a surplus that should reach new heights in 2001. Second, consumers continue to spend, spend, spend. The personal savings rate keeps falling, from an already low 2.2 percent last year to a nearly invisible 0.1 percent this year. Critics of this admittedly squishy statistic claim it doesn't adequately capture households' growing wealth. As it turns out, however, the average American not only doesn't save much, but he's not getting wealthier in leaps and bounds, either. Net worth for the median family where the head of the household is over 45 (and where thoughts are presumably beginning to turn to retirement) rose less than $13,000 between 1995 and 1998. That's less than a 12 percent gain during the same three years the stock market nearly doubled and the market value of owner-occupied homes jumped 21 percent. Why didn't the average family get richer? Because they were borrowing and spending like crazy. House values were up 21 percent -- but mortgage debt rose even faster, by 25 percent! Consumers' profligacy worries many financial professionals. Some people aren't saving enough for retirement because they have inflated expectations of future investment returns. Other people aren't saving enough for retirement because they don't realize just how much money they'll need. Either way, people aren't saving. Still, no one wants consumers to change their profligate ways too fast. After all, hearty consumer spending is a prime reason America's growth has stayed on a fast track so far. Most economists would like to see shoppers be a bit more moderate -- but only a bit. If Americans suddenly turned thrifty, the economy would lurch into reverse. 4 5 ECONOMIC OVERVIEW Luckily, there's little chance of that happening, unless lenders get cold feet. So far, they're hot to trot. In the past year, mortgage lending by banks rocketed nearly 17 percent while loans to consumers jumped 10 percent. Brokers are selling the loans banks don't want on their balance sheets to mortgage pools and the asset-backed securities market, where eager non-bank lenders are snapping them up. In the past year, these markets provided $625 billion of new credit, a leap of more than 12 percent. With so much money at their disposal, consumers won't stay out of the shopping centers and restaurants for long. We expect consumer spending growth to move back above 3 percent by early next year and stay there. OMINOUS SIGNS? Decelerations are always tricky, to be sure. But barring some unexpected shock, growth should pop back into the 3.5 percent to 4 percent range in 2001. Why? Borrowing costs a little more than it did last year, but banks and the bond market are still lending freely. Capital goods orders are strong, so there's a lot of life left in business spending. Shoppers are a little pickier, but they're still more interested in visiting the mall than in filling their piggy banks. And after the election, no matter who wins, fiscal policy is likely to be more stimulative than it has been for years. The price to pay will likely be a rise in core inflation (inflation excluding food and energy). We expect it to hit 3 percent next year, up from its recent rate of 2.5 percent. We believe we'll make it safely through 2001, but investors should keep their hands on the wheel and their eyes peeled. Sincerely, Kemper Distributors, Inc. THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER INVESTMENTS, INC. AS OF OCTOBER 5, 2000, AND MAY NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION. TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048. THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. 5 6 ECONOMIC OVERVIEW [THIS PAGE INTENTIONALLY LEFT BLANK] 6 7 PERFORMANCE UPDATE JAMES A. CREIGHTON IS THE LEAD PORTFOLIO MANAGER FOR THE KEMPER S&P 500 INDEX FUND, WHICH IS SUBADVISED BY BANKERS TRUST COMPANY. CREIGHTON IS A MANAGING DIRECTOR AND HEAD OF GLOBAL INDEX MANAGEMENT FOR DEUTSCHE ASSET MANAGEMENT. HE RECEIVED HIS MSC IN ACTUARIAL SCIENCE FROM NORTHEASTERN UNIVERSITY AND BSC IN MATHEMATICS FROM DALHOUSIE. THE SUBADVISOR FOR KEMPER S&P 500 INDEX FUND IS BANKERS TRUST COMPANY, 885 THIRD AVENUE, 32ND FLOOR, NEW YORK, NY. BANKERS TRUST COMPANY MANAGES THE FUND IN ACCORDANCE WITH THE FUND'S INVESTMENT OBJECTIVE AND STATED INVESTMENT POLICIES. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEW IS SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER CONDITIONS. THE S&P 500 INDEX HIT AN ALL-TIME HIGH OF 1552.87 THE WEEK BEFORE THE FUND BEGAN OPERATIONS ON APRIL 3, 2000. FROM APRIL THROUGH JULY 31 THE INDEX DECLINED AMID TECHNOLOGY STOCK WEAKNESS. THE INDEX BOUNCED BACK DURING AUGUST AS IT APPEARED THAT THE FEDERAL RESERVE HAD EFFECTIVELY SLOWED U.S. ECONOMIC GROWTH. Q HOW DID THE OVERALL EQUITY MARKET AND KEMPER S&P 500 INDEX FUND PERFORM BETWEEN APRIL 3, 2000, AND AUGUST 31, 2000? A Kemper S&P 500 Index Fund began operating in a challenging market environment marked by increased volatility, weakness in many Internet-related stocks and higher short-term interest rates. The fund's total return was 0.95 percent (Class A shares, unadjusted for a sales charge) for its initial fiscal period from April 3, 2000, to August 31, 2000. This slightly outpaced the 0.78 percent total return of the unmanaged Standard & Poor's 500 index, a group of established large-company stocks, for the same period. We attribute the funds better-than-benchmark results of 8.8 percent of net assets as of August 31, 2000, to several reasons. The composition of the S&P 500 index and the stocks held by the fund may occasionally diverge. The timing of cash inflows from investors buying shares could create balances of uninvested cash. Conversely, the timing and magnitude of cash outflows to investors selling shares could require ready reserves of uninvested cash. Either situation would likely cause the fund's performance to deviate from the fully invested S&P 500 index. To maintain a certain amount of liquidity, the fund will make a limited (or minimal) investment in stock index futures or options. The fund will not use these derivatives for speculative purposes or as a leveraged investment that magnify the gains or losses of an investment. The fund invests in derivatives to keep cash on hand to meet shareholder redemptions. The Kemper S&P 500 Index Fund's objective is to match, as closely as possible, before the deductions of expenses, the performance of the S&P 500 index. The S&P 500 index hit an all-time high of 1552.87 the week before the fund began operations on April 3, 2000. From April through July 31 the index declined, in part as a result of uncertain earnings prospects for some technology stocks. The index bounced back during August as it appeared that the Federal Reserve had effectively slowed U.S. economic growth to a more sustainable, noninflationary pace. Q HOW CLOSELY DOES THE FUND'S PORTFOLIO MIRROR THE S&P 500 INDEX? A It's not an exact duplicate. In some sectors such as technology and financials, the portfolio's weightings were less than the index as of August 31, 2000. The management team's goal is to create a portfolio that mirrors many of the characteristics of the S&P 500, while minimizing costs and avoiding stocks that may be difficult to trade efficiently. To build the portfolio, the management team buys the stocks that make up the larger portions of the S&P 500's value, in roughly the same proportions as in the index. Next, the team analyzes and selects stock with lower market capitalizations, seeking to match the industry and risk characteristics of 7 8 PERFORMANCE UPDATE the index without purchasing every stock in its exact weighting. Q MANY S&P 500 COMPANIES ARE MERGING, SELLING AND SPINNING OFF PARTS OF THEMSELVES AND MAKING ACQUISITIONS ALL THE TIME. WHAT DOES THIS MEAN FOR THE FUND? A Since Standard & Poor's periodically changes the components of the S&P 500 index, we expect that the fund will have modest annual portfolio turnover. Our holdings will change over time to reflect the changes of stocks being added to and deleted from the index. The effect on fund performance will vary, depending on investors' perceptions and market reactions to specific changes to the S&P 500 index. For example, one of the best-performing stocks in both the index and the fund during the fund's initial fiscal period was Nabisco Holdings, a cookie and snack maker, which agreed to be acquired by Philip Morris, the tobacco and food company, another index component and fund holding. A transaction that had a negative effect on fund and index performance was computer printer maker Hewlett-Packard's spin-off of Agilent Technologies. One long-term trend is that technology firms represent a growing portion of the S&P 500. As of August 31, 2000, technology firms represented 32.56 percent of the index. Just 12 years ago, technology firms made up only 10.3 percent of the index. This trend reflects changes in America's economy as well as the relatively greater confidence that investors have in technology-sector growth compared with so-called Old Economy industries such as steel, autos, paper and chemicals. Q REALIZING THAT THE FUND DOES NOT SELECT STOCKS IN THE SAME WAY AS A MORE ACTIVELY MANAGED MUTUAL FUND, WHAT IS YOUR OUTLOOK FOR THE YEAR AHEAD? A The consensus estimate among securities analysts is that stocks in the S&P 500 can expand profits (as measured by earnings per share) by 10.5 percent over the next five years. This compares with what analysts expect will be a 13.5 percent increase in average earnings per share for the 12 months ending October 2000. Given this view and what many economists believe is a slowdown in overall U.S. economic growth, we believe it is reasonable to assume that the high returns many stock market investors have reaped over the past five years will be difficult to achieve in the months ahead. Indeed, this past summer some of the many multinational companies that make up the S&P 500 index reduced their growth forecasts because of the devaluation of the euro and higher energy costs. Stocks of all sizes have been hurt by the Federal Reserve Board's efforts to raise interest rates since last summer. Between June 1999 and August 2000, the cumulative increase in short-term interest rates was 175 basis points. While most of the increase occurred before the fund began operating, the effects take time to wind their way through the economy. Fortunately, we think we are close to or at an end of the cycle for domestic interest-rate increases. In our view, the market is looking ahead and sees potential stability in rates. Over the long-term, that should create a positive framework for large-company stocks. 8 9 PERFORMANCE UPDATE COMPOSITION OF THE S&P 500 INDEX [BARCHART]
ON 8/31/00 ---------- TECHNOLOGY 32.6% FINANCIALS 14.1% HEALTH CARE 10.9% CONSUMER STAPLES 10.1% CAPITAL GOODS 8.0% CONSUMER CYCLICALS 7.3% COMMUNICATION SERVICES 6.6% ENERGY 5.3% UTILITIES 2.6% BASIC MATERIALS 1.9% TRANSPORTATION 0.6%
INDEX COMPOSITION IS SUBJECT TO MARKET CHANGE. TOP FIVE PERFORMING S&P 500 INDEX STOCKS APRIL 3, 2000, TO AUGUST 31, 2000 NABISCO GROUP HOLDINGS 131.44% ............................................................................. REEBOK INTERNATIONAL 103.31% ............................................................................. SANMINA 96.46% ............................................................................. MERCURY INTERACTIVE 96.29% ............................................................................. ALZA 95.16% .............................................................................
TOP PERFORMING S&P 500 INDEX STOCKS FROM 4/3/00 TO 8/31/00 WORST FIVE PERFORMING S&P 500 INDEX STOCKS APRIL 3, 2000, TO AUGUST 31, 2000 OWENS CORNING -74.54% ............................................................................. CITRIX SYSTEMS -66.92% ............................................................................. QUALCOMM -57.46% ............................................................................. GAP -55.13% ............................................................................. CIRCUIT CITY -54.89% .............................................................................
WORST PERFORMING S&P 500 INDEX STOCKS FROM 4/3/00 TO 8/31/00 SOURCE: BLOOMBERG BUSINESS NEWS. RETURNS FROM ANY OF THE ABOVE STOCKS HELD BY THE FUND DURING ITS INITIAL PERIOD MAY DIFFER FROM MARKET RESULTS. 9 10 PERFORMANCE UPDATE CUMULATIVE TOTAL RETURNS* FOR THE FOUR-MONTH PERIOD ENDED AUGUST 31, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
LIFE OF FUND - --------------------------------------------------------------------------------------------------- KEMPER S&P 500 INDEX FUND CLASS A -3.62% (since 4/3/00) ................................................................................................... KEMPER S&P 500 INDEX FUND CLASS B 0.74 (since 4/3/00) ................................................................................................... KEMPER S&P 500 INDEX FUND CLASS C 0.74 (since 4/3/00) ...................................................................................................
* RETURNS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE PERFORMANCE. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. 10 11 INDUSTRY SECTORS A SECTOR BREAKOUT FOR YOUR FUND* Data shows the percentage of the common stocks in the portfolio that each sector represented on August 31, 2000. [BAR GRAPH]
KEMPER S&P 500 INDEX FUND ON 8/31/00 ------------------------------------ Technology 27.4% Consumer nondurable 14.7% Finance 13.4% Capital goods 12.4% Communication services 12.3% Health care 10.5% Energy 6.2% Other 2.4% Basic materials 0.7%
*PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE. 11 12 LARGEST HOLDINGS THE FUND'S 10 LARGEST HOLDINGS* Representing 23.7 percent of the fund's total net assets on August 31, 2000
HOLDINGS DESCRIPTION PERCENT - --------------------------------------------------------------------------------------------- 1. GENERAL ELECTRIC General Electric Company develops, 3.9% manufactures, and markets products for the generation, distribution, and utilization of electricity. The Company, through General Electric Capital Services, Inc., offers a variety of financial services including mutual fund management, financing, asset management, and insurance, General Electric also owns the National Broadcasting Company. - --------------------------------------------------------------------------------------------- 2. INTEL Intel Corporation designs, manufactures, and 3.4% sells computer components and related products. The Company's major products include microprocessors, chipsets, embedded processors and microcontrollers, flash memory products, graphics products, network and communications products, systems management software, conferencing products, and digital imaging products. - --------------------------------------------------------------------------------------------- 3. CISCO SYSTEMS Cisco Systems, Inc. supplies data networking 3.3% products to the corporate enterprise and public wide area service provider markets. The Company's products offer a variety of end-to-end networking hardware, software, and services. Cisco's clients include utilities, corporations, universities, governments, and small to medium-size businesses worldwide. - --------------------------------------------------------------------------------------------- 4. MICROSOFT Microsoft Corporation develops, manufactures, 2.5% licenses, sells, and supports software products. The Company offers operating system software, server application software, business and consumer applications software, software development tools, and Internet and intranet software. Microsoft also develops the MSN network of Internet products and services. - --------------------------------------------------------------------------------------------- 5. EXXON MOBIL Exxon Mobil Corporation operates petroleum 1.9% and petrochemicals businesses on a worldwide basis. The Company's operations include exploration and production of oil and gas, electric power generation, and coal and minerals operations. Exxon Mobil also manufactures and markets fuels, lubricants, and chemicals. - --------------------------------------------------------------------------------------------- 6. PFIZER Pfizer Inc. is a research-based, global 1.8% pharmaceutical company that discovers, develops, manufactures, and markets medicines for humans and animals. The Company's products include prescription pharmaceuticals, non-prescription self-medications, and animal health products such as anti-infective medicines and vaccines. - --------------------------------------------------------------------------------------------- 7. CITIGROUP Citigroup Inc. is a diversified financial 1.8% services holding company that provides a broad range of financial services to consumer and corporate customers around the world. The Company's services include investment banking, retail brokerage, corporate banking, and cash management products and services. - --------------------------------------------------------------------------------------------- 8. ORACLE Oracle Corporation supplies software for 1.8% enterprise information management. The Company offers databases and relational servers, application development and decision support tools, and enterprise business applications. Oracle's software runs on network computers, personal digital assistants, set-top devices, work-stations, PCs, minicomputers, mainframes, and massively parallel computers. - --------------------------------------------------------------------------------------------- 9. NORTEL NETWORKS Nortel Networks Corporation is an Internet 1.7% and communications provider with capabilities spanning optical, wireless, local Internet, and electronic business. The Company serves carrier, service provider, and enterprise customers around the world. Nortel provides access products, business applications and services, data and Internet products, and other products and services. - --------------------------------------------------------------------------------------------- 10. INTERNATIONAL BUSINESS International Business Machines Corporation 1.6% MACHINES (IBM) provides customer solutions through the use of advanced information technology. The Company's solutions include technologies, systems, products, services, software, and financing. IBM offers its products through its global sales and distribution organization, as well as through a variety of third party distributors and resellers. - ---------------------------------------------------------------------------------------------
*Portfolio composition and holdings are subject to change. 12 13 PORTFOLIO OF INVESTMENTS KEMPER S&P 500 INDEX FUND Portfolio of Investments at August 31, 2000
REPURCHASE AGREEMENTS--8.3% PRINCIPAL AMOUNT VALUE State Street Bank and Trust Company, 6.57%, to be repurchased at $2,219,405 on 9/1/2000** (Cost $2,219,000) $2,219,000 $ 2,219,000 ----------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS--0.5% U.S. Treasury Bill, 5.93%, 10/19/2000 (Cost $138,888) 140,000 138,888 ----------------------------------------------------------------------------------- COMMON STOCKS--91.2% NUMBER OF SHARES CONSUMER DISCRETIONARY--4.8% APPAREL & SHOES--0.1% Liz Claiborne, Inc. 129 5,668 Nike, Inc. "B" 559 22,115 Reebok International Ltd.* 56 1,075 ----------------------------------------------------------------------------------- 28,858 DEPARTMENT & CHAIN STORES--3.7% Bed Bath & Beyond, Inc.* 596 10,467 Best Buy Co., Inc.* 346 21,365 CVS Corp. 673 24,985 Costco Wholesale Corp.* 741 25,518 Dollar General Corp. 715 14,702 Federated Department Stores, Inc.* 476 13,149 Gap, Inc. 1,580 35,451 Home Depot, Inc. 4,174 200,613 J.C. Penney Co., Inc. 632 8,848 Kmart Corp.* 1,185 8,295 Kohl's Corp.* 608 34,048 Lowe's Companies, Inc. 760 34,057 May Department Stores 771 17,685 Nordstrom, Inc. 121 2,087 Sears, Roebuck & Co. 767 23,921 TJX Companies, Inc. (New) 540 10,159 Target Corp. 1,547 35,968 The Limited, Inc. 773 15,460 Wal-Mart Stores, Inc. 8,073 382,963 Walgreen Co. 1,942 63,843 ----------------------------------------------------------------------------------- 983,584 HOME FURNISHINGS--0.1% Newell Rubbermaid, Inc. 568 14,733 ----------------------------------------------------------------------------------- HOTELS & CASINOS--0.2% Carnival Corp. "A" 1,213 24,184 Harrah's Entertainment, Inc.* 237 6,725 Hilton Hotels Corp. 808 8,080 Marriott International, Inc. "A" 379 14,971 ----------------------------------------------------------------------------------- 53,960 RECREATIONAL PRODUCTS--0.1% Brunswick Corp. 82 1,538 Harley-Davidson, Inc. 589 29,340 Mattel, Inc. 732 7,229 ----------------------------------------------------------------------------------- 38,107
The accompanying notes are an integral part of the financial statements. 13 14 PORTFOLIO OF INVESTMENTS
NUMBER OF SHARES VALUE RESTAURANTS--0.4% McDonald's Corp. 2,508 $ 74,926 Starbucks Corp.* 395 14,467 Tricon Global Restaurants* 267 7,776 Wendy's International, Inc. 97 1,831 ----------------------------------------------------------------------------------- 99,000 SPECIALTY RETAIL--0.2% AutoZone, Inc.* 298 6,705 Circuit City Stores, Inc. 419 10,868 Office Depot, Inc.* 707 5,170 Staples, Inc.* 960 14,760 Tiffany & Co. 213 8,866 Toys "R" Us, Inc.* 447 8,130 ----------------------------------------------------------------------------------- 54,499 - ------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES--5.4% ALCOHOL & TOBACCO--1.0% Adolph Coors Company 94 5,599 Anheuser-Busch Companies, Inc. 848 66,833 Brown-Forman Corp. "B" 36 1,908 Philip Morris Companies, Inc. 4,289 127,062 Seagram Co., Ltd. 872 52,483 UST, Inc. 142 3,071 ----------------------------------------------------------------------------------- 256,956 CONSUMER ELECTRONICS & PHOTOGRAPHIC--0.2% Eastman Kodak Co. 639 39,778 Energizer Holdings, Inc.* 1 20 Maytag Corp. 200 7,625 Whirlpool Corp. 200 7,600 ----------------------------------------------------------------------------------- 55,023 FARMING--0.0% Archer-Daniels-Midland Co. 1,255 11,057 ----------------------------------------------------------------------------------- FOOD & BEVERAGE--2.6% Albertson's, Inc. 883 18,985 Bestfoods 439 31,004 Campbell Soup Co. 603 15,301 Coca-Cola Co. 4,448 234,076 Coca-Cola Enterprises 620 11,547 ConAgra, Inc. 991 18,148 General Mills, Inc. 651 20,913 H.J. Heinz Co. 752 28,670 Hershey Foods Corp. 299 12,764 Kellogg Co. 573 13,286 Kroger Co.* 1,682 38,160 Nabisco Group Holdings 677 18,998 PepsiCo, Inc. 2,735 116,579 Quaker Oats Co. 287 19,498 Ralston Purina Group 402 9,095 Safeway, Inc.* 922 45,466 Sara Lee Corp. 1,760 32,780 William Wrigley Jr. Co. 141 10,443 ----------------------------------------------------------------------------------- 695,713 PACKAGE GOODS/ COSMETICS--1.6% Avon Products, Inc. 465 18,222 Clorox Co. 521 18,854 Colgate-Palmolive Co. 1,132 57,661 Gillette Co. 2,024 60,720 Kimberly-Clark Corp. 1,106 64,701 Procter & Gamble Co. 2,319 143,343 Unilever NV (New York Shares) 1,142 53,959 ----------------------------------------------------------------------------------- 417,460
14 The accompanying notes are an integral part of the financial statements. 15 PORTFOLIO OF INVESTMENTS
NUMBER OF SHARES VALUE TEXTILES--0.0% VF Corp. 132 $ 3,020 ----------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------ HEALTH--9.6% BIOTECHNOLOGY--1.3% Amgen, Inc.* 1,845 139,874 Biogen, Inc.* 239 16,521 MedImmune, Inc.* 352 29,612 PE Corp-PE Biosystems Group 378 37,186 Pharmacia Corp. 2,250 131,766 ----------------------------------------------------------------------------------- 354,959 HEALTH INDUSTRY SERVICES--0.4% Cardinal Health, Inc. 549 44,915 HEALTHSOUTH Corp.* 255 1,562 Humana Inc.* 442 3,785 IMS Health, Inc. 341 6,436 McKesson HBOC, Inc. 612 15,262 PerkinElmer, Inc. 126 11,332 Quintiles Transnational Corp.* 271 3,777 Wellpoint Health Networks, Inc.* 88 7,596 ----------------------------------------------------------------------------------- 94,665 HOSPITAL MANAGEMENT--0.3% HCA--The Healthcare Corporation 1,072 36,984 Tenet Healthcare Corp. 683 21,173 UnitedHealth Group Inc. 263 24,854 ----------------------------------------------------------------------------------- 83,011 MEDICAL SUPPLY & SPECIALTY--1.0% Bausch & Lomb, Inc. 41 1,466 Baxter International, Inc. 554 46,120 Becton, Dickinson & Co. 350 10,544 Biomet, Inc. 417 14,083 Boston Scientific Corp.* 805 15,245 C.R. Bard, Inc. 142 6,931 Guidant Corp.* 529 35,608 Mallinckrodt, Inc. 180 8,111 Medtronic, Inc. 2,113 108,291 St. Jude Medical, Inc.* 183 7,251 ----------------------------------------------------------------------------------- 253,650 PHARMACEUTICALS--6.6% Abbott Laboratories 2,918 127,662 Allergan, Inc. 264 19,305 Alza Corp.* 146 11,041 American Home Products Corp. 2,461 133,355 Bristol-Myers Squibb Co. 3,527 186,931 Eli Lilly & Co. 2,123 154,979 Johnson & Johnson 2,495 229,384 Merck & Co., Inc. 4,142 289,422 Pfizer, Inc. 11,421 493,958 Schering-Plough Corp. 2,767 111,026 Watson Pharmaceuticals, Inc.* 228 14,065 ----------------------------------------------------------------------------------- 1,771,128 - ------------------------------------------------------------------------------------------------------------------------------ COMMUNICATIONS--8.1% CELLULAR TELEPHONE--0.6% Nextel Communications, Inc. "A"* 1,342 74,397 Sprint Corp. (PCS Group)* 1,704 85,519 ----------------------------------------------------------------------------------- 159,916
The accompanying notes are an integral part of the financial statements. 15 16 PORTFOLIO OF INVESTMENTS
NUMBER OF SHARES VALUE TELEPHONE/ COMMUNICATIONS--7.5% ADC Telecommunications, Inc.* (b) 1,282 $ 52,482 AT&T Corp. 6,755 212,782 Alltel Corp. 655 33,118 BellSouth Corp. 3,576 133,429 CenturyTel, Inc. 148 4,264 Global Crossing Ltd.* 1,669 50,174 JDS Uniphase Corp.* 1,686 210,118 Nortel Networks Corp. 5,460 445,331 Qwest Communications International Inc.* 2,925 151,003 SBC Communications, Inc. 6,127 255,802 Sprint Corp. 1,678 56,213 Verizon Communications 4,872 212,541 WorldCom, Inc.* 5,301 193,486 ----------------------------------------------------------------------------------- 2,010,743 - ------------------------------------------------------------------------------------------------------------------------------ FINANCIAL--12.2% BANKS--4.7% AmSouth Bancorp. 424 7,738 BB&T Corp. 484 13,098 Bank One Corp. 2,248 79,242 Bank of America Corp. 2,919 156,349 Bank of New York Co., Inc. 1,328 69,637 Chase Manhattan Corp. 2,266 126,613 Comerica, Inc. 350 19,709 Fifth Third Bancorp. 956 44,155 First Union Corp. 1,994 57,701 Firstar Corp. 1,918 45,792 FleetBoston Financial Corp. 1,794 76,581 Golden West Financial Corp. 169 8,049 Huntington Bancshares, Inc. 205 3,459 J.P. Morgan & Co., Inc. 254 42,466 KeyCorp 881 17,785 MBNA Corp. 1,649 58,230 National City Corp. 907 18,990 Northern Trust Corp. 475 40,048 Old Kent Financial Corp. 101 2,961 PNC Bank Corp. 636 37,484 Regions Financial Corp. 172 3,741 SouthTrust Corp. 472 13,305 State Street Corp. 299 35,207 Summit Bancorp. 127 3,516 SunTrust Banks, Inc. 655 32,341 US Bancorp 1,567 34,082 Union Planters Corp. 78 2,364 Wachovia Corp. 472 27,051 Washington Mutual, Inc. 1,187 41,545 Wells Fargo Co. 3,084 133,190 ----------------------------------------------------------------------------------- 1,252,429
16 The accompanying notes are an integral part of the financial statements. 17 PORTFOLIO OF INVESTMENTS
NUMBER OF SHARES VALUE CONSUMER FINANCE--2.9% American Express Co. 2,362 $ 139,653 Associates First Capital Corp. 1,442 40,556 Capital One Finance Corp. 293 17,672 Citigroup, Inc. 8,134 474,822 Household International, Inc. 951 45,648 Mellon Financial Corp. 918 41,539 Synovus Financial Corp. 264 5,198 ----------------------------------------------------------------------------------- 765,088 INSURANCE--2.8% AFLAC, Inc. (b) 554 29,916 Aetna, Inc. 204 11,411 Allstate Corp. 1,408 40,920 American General Corp. 527 38,372 American International Group, Inc. 4,161 370,849 Aon Corp. 544 20,298 Chubb Corp. 348 26,644 Cigna Corp. 348 33,843 Cincinnati Financial Corp. 301 11,701 Conseco, Inc. 684 5,771 Hartford Financial Services Group, Inc. 401 26,717 Jefferson Pilot Corp. 105 6,950 Lincoln National Corp. 431 23,274 MBIA, Inc. 120 7,890 MGIC Investment Corp. 223 13,115 Progressive Corp. 90 6,823 Providian Financial Corp. 230 26,436 Safeco Corp. 326 8,578 St. Paul Companies, Inc. 435 20,717 Torchmark Corp. 94 2,638 UnumProvident Corp. 340 7,374 ----------------------------------------------------------------------------------- 740,237 OTHER FINANCIAL COMPANIES--1.8% CIT Group, Inc. 576 10,080 Charter One Financial, Inc. 191 4,536 Countrywide Credit Industries, Inc. 248 9,393 Federal Home Loan Mortgage Corp. 1,362 57,374 Federal National Mortgage Association 1,843 99,061 Lehman Brothers Holdings, Inc. 197 28,565 Marsh & McLennan Companies, Inc. 526 62,462 Morgan Stanley Dean Witter & Co. 2,028 218,137 USA Education Inc. 202 7,916 ----------------------------------------------------------------------------------- 497,524 - ------------------------------------------------------------------------------------------------------------------------------ MEDIA--3.1% ADVERTISING--0.2% Interpublic Group of Companies, Inc. 640 24,480 Omnicom Group, Inc. 348 29,036 Young & Rubicam, Inc. 78 4,563 ----------------------------------------------------------------------------------- 58,079 BROADCASTING & ENTERTAINMENT--2.3% Clear Channel Communications, Inc.* 1,039 75,198 The Walt Disney Co. 3,681 143,329 Time Warner, Inc. 2,351 201,010 Viacom, Inc "B"* 2,761 185,850 ----------------------------------------------------------------------------------- 605,387 CABLE TELEVISION--0.3% Comcast Corp. "A" * 1,753 65,299 -----------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 17 18 PORTFOLIO OF INVESTMENTS
NUMBER OF SHARES VALUE PRINT MEDIA--0.3% Gannett Co., Inc. 572 $ 32,390 Harcourt General, Inc. 165 9,787 Knight-Ridder, Inc. 184 10,051 New York Times Co. "A" 182 7,132 Tribune Co. 678 24,196 ----------------------------------------------------------------------------------- 83,556 - ------------------------------------------------------------------------------------------------------------------------------ SERVICE INDUSTRIES--3.3% EDP SERVICES--0.6% Automatic Data Processing, Inc. 1,200 71,550 Electronic Data Systems Corp. 811 40,398 First Data Corp. 662 31,569 Sapient Corp.* 240 12,600 ----------------------------------------------------------------------------------- 156,117 ENVIRONMENTAL SERVICES--0.2% Transocean Sedo Forex, Inc. 312 18,642 Waste Management, Inc. 1,262 23,899 ----------------------------------------------------------------------------------- 42,541 INVESTMENT--1.1% Bear Stearns Companies, Inc. 247 16,564 Charles Schwab Corp. 2,447 93,445 Franklin Resources, Inc. 548 20,824 Merrill Lynch & Co., Inc. 679 98,455 Paine Webber Group, Inc. 300 21,450 Stilwell Financial, Inc.* 484 23,413 T. Rowe Price & Associates, Inc. 283 12,806 ----------------------------------------------------------------------------------- 286,957 MISCELLANEOUS COMMERCIAL SERVICES--0.6% Convergys Corp.* 311 12,168 Ecolab, Inc. 122 4,750 NCR Corp.* 203 8,196 Paychex, Inc. 752 33,558 Sabre Group Holdings, Inc. "A" 158 4,404 Siebel Systems, Inc.* 354 69,738 Sysco Corp. 709 30,000 Tektronix Inc. 117 8,914 ----------------------------------------------------------------------------------- 171,728 MISCELLANEOUS CONSUMER SERVICES--0.6% Cendant Corp.* 1,378 18,172 H & R Block, Inc. 85 3,049 Txu Corp. 567 19,810 Yahoo!, Inc.* 981 119,191 ----------------------------------------------------------------------------------- 160,222 PRINTING/PUBLISHING--0.2% Dow Jones & Co., Inc. 226 14,139 Dun & Bradstreet Corp. (New) 143 4,719 Equifax, Inc. 118 3,002 McGraw-Hill, Inc. 427 26,447 ----------------------------------------------------------------------------------- 48,307 - ------------------------------------------------------------------------------------------------------------------------------ DURABLES--2.8% AEROSPACE--0.7% B.F. Goodrich Co. 88 3,592 Boeing Co. 1,565 83,923 Lockheed Martin Corp. 783 22,218 Northrop Grumman Corp. 171 13,306 Rockwell International Corp. 380 15,366 United Technologies Corp. 936 58,442 ----------------------------------------------------------------------------------- 196,847
18 The accompanying notes are an integral part of the financial statements. 19 PORTFOLIO OF INVESTMENTS
NUMBER OF SHARES VALUE AUTOMOBILES--0.7% Cummins Engine Co., Inc. 129 $ 4,580 Dana Corp. 349 8,616 Delphi Automotive Systems Corp. 978 16,076 Eaton Corp. 186 12,346 Ford Motor Co. 3,317 80,230 General Motors Corp. 907 65,474 Genuine Parts Co. 124 2,550 ----------------------------------------------------------------------------------- 189,872 CONSTRUCTION/AGRICULTURAL EQUIPMENT--0.2% Caterpillar, Inc. 745 27,379 Deere & Co. 304 10,013 PACCAR, Inc. 225 9,548 ----------------------------------------------------------------------------------- 46,940 LEASING COMPANIES--0.0% Ryder System, Inc. 209 4,010 ----------------------------------------------------------------------------------- TELECOMMUNICATIONS EQUIPMENT--1.2% Andrew Corp.* 176 5,214 Lucent Technologies, Inc. 5,895 246,485 Scientific-Atlanta, Inc. 264 20,576 Tellabs, Inc.* 713 40,062 ----------------------------------------------------------------------------------- 312,337 TIRES--0.0% Goodyear Tire & Rubber Co. 363 8,485 ----------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------ MANUFACTURING--8.5% CHEMICALS--0.7% Dow Chemical Co. 1,300 34,044 E.I. du Pont de Nemours & Co. 2,005 89,974 Eastman Chemical Co. 181 7,806 Hercules, Inc. 347 4,598 Mead Corp. 309 8,285 Praxair, Inc. 365 16,151 Rohm & Haas Co. 466 13,485 Sigma-Aldrich Corp. 253 7,353 Union Carbide Corp. 149 5,969 ----------------------------------------------------------------------------------- 187,665 CONTAINERS & PAPER--0.3% Boise Cascade Corp. 175 5,228 Crown Cork & Seal Co. 107 1,384 Fort James Corp. 408 12,903 International Paper Co. 773 24,639 Sealed Air Corp.* 182 9,339 Temple-Inland, Inc. 145 6,153 Willamette Industries 265 8,083 ----------------------------------------------------------------------------------- 67,729 DIVERSIFIED MANUFACTURING--5.4% Cooper Industries, Inc. 51 1,801 Dover Corp. 444 21,700 Fortune Brands, Inc. 229 5,840 General Electric Co. 18,003 1,056,551 Honeywell International, Inc. 1,433 55,260 ITT Industries, Inc. 210 7,061 Leggett & Platt 284 5,023 Loews Corp. 229 18,535 Minnesota Mining & Manufacturing Co. 659 61,287 TRW, Inc. 156 7,127 Textron, Inc. 279 15,641 Thermo Electron Corp.* 378 8,789 Tyco International Ltd. 3,021 172,197 ----------------------------------------------------------------------------------- 1,436,812
The accompanying notes are an integral part of the financial statements. 19 20 PORTFOLIO OF INVESTMENTS
NUMBER OF SHARES VALUE ELECTRICAL PRODUCTS--0.2% American Power Conversion Corp.* 418 $ 9,954 Emerson Electric Co. 853 56,458 ----------------------------------------------------------------------------------- 66,412 HAND TOOLS--0.1% Black & Decker Corp. 146 5,849 Danaher Corp. 313 17,587 Stanley Works 21 562 ----------------------------------------------------------------------------------- 23,998 INDUSTRIAL SPECIALTY--1.2% Avery Dennison Corp. 259 14,002 Corning, Inc. 528 173,151 Johnson Controls, Inc. 192 10,260 Novellus Systems* 257 15,822 PPG Industries, Inc. 395 15,998 Pall Corp. 353 7,545 QUALCOMM Inc.* 1,327 79,454 Sherwin-Williams Co. 376 8,648 ----------------------------------------------------------------------------------- 324,880 MACHINERY/COMPONENTS/ CONTROLS--0.4% Illinois Tool Works, Inc. 623 34,927 Ingersoll-Rand Co. 352 16,038 Millipore Corp. 123 7,488 Parker-Hannifin Corp. 291 10,130 Pitney Bowes, Inc. 522 19,086 Visteon Corporation 349 5,483 ----------------------------------------------------------------------------------- 93,152 OFFICE EQUIPMENT/ SUPPLIES--0.1% Lexmark International Group, Inc. "A"* 272 18,445 Xerox Corp. 1,294 20,785 ----------------------------------------------------------------------------------- 39,230 SPECIALTY CHEMICALS--0.1% Air Products & Chemicals, Inc. 453 16,450 F M C Corp. 40 2,713 ----------------------------------------------------------------------------------- 19,163 WHOLESALE DISTRIBUTORS--0.0% W.W. Grainger, Inc. 196 5,660 ----------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------ TECHNOLOGY--24.9% COMPUTER SOFTWARE--5.8% Adobe Systems, Inc. 221 28,730 America Online, Inc.* 4,215 247,104 Autodesk, Inc. 172 4,838 BMC Software, Inc.* 481 12,987 Citrix Systems, Inc.* 398 8,756 Computer Associates International, Inc. 1,145 36,354 Compuware Corp.* 728 7,690 Comverse Technologies, Inc.* 308 28,317 Microsoft Corp.* 9,594 669,781 Oracle Corp.* 5,166 469,783 Parametric Technology Corp.* 540 7,223 PeopleSoft, Inc.* 583 18,802 ----------------------------------------------------------------------------------- 1,540,365 DIVERSE ELECTRONIC PRODUCTS--2.1% Applied Materials, Inc.* 1,442 124,463 Dell Computer Corp.* 4,645 202,638 Molex Incorporated 385 20,333 Motorola, Inc. 3,863 139,309 Solectron Corp.* 1,101 49,889 Teradyne, Inc.* 271 17,564 ----------------------------------------------------------------------------------- 554,196
20 The accompanying notes are an integral part of the financial statements. 21 PORTFOLIO OF INVESTMENTS
NUMBER OF SHARES VALUE EDP PERIPHERALS--2.1% EMC Corp.* 3,942 $ 386,316 Mercury Interactive Corp.* 164 20,039 Network Appliance, Inc.* 578 67,626 VERITAS Software Corp.* 696 83,912 ----------------------------------------------------------------------------------- 557,893 ELECTRONIC COMPONENTS/ DISTRIBUTORS--4.2% Adaptec, Inc.* 234 5,733 Altera Corp.* 683 44,267 Analog Devices, Inc.* 663 66,631 Broadcom Corp. "A"* 402 100,500 Cisco Systems, Inc.* 12,687 869,059 Gateway, Inc.* 628 42,767 ----------------------------------------------------------------------------------- 1,128,957 ELECTRONIC DATA PROCESSING--4.5% Apple Computer, Inc.* 546 33,272 Ceridian Corp.* 143 3,459 Compaq Computer Corp. 3,027 103,107 Hewlett-Packard Co. 1,856 224,112 International Business Machines Corp. 3,210 423,720 Radio Shack Corp. 308 18,172 Seagate Technology, Inc.* 400 23,750 Sun Microsystems, Inc.* 2,879 365,453 Unisys Corp.* 701 9,113 ----------------------------------------------------------------------------------- 1,204,158 MILITARY ELECTRONICS--0.2% Computer Sciences Corp.* 269 21,268 General Dynamics Corp. 435 27,378 Raytheon Co. "B" 737 20,498 ----------------------------------------------------------------------------------- 69,144 OFFICE/PLANT AUTOMATION--0.3% Cabletron Systems, Inc.* 391 14,638 Novell, Inc.* 664 8,134 Palm, Inc.* 1,086 47,784 ----------------------------------------------------------------------------------- 70,556 SEMICONDUCTORS--5.5% Advanced Micro Devices, Inc.* 622 23,403 Conexant Systems, Inc.* 425 15,805 Intel Corp. 12,201 913,550 KLA Tencor Corp.* 289 18,966 LSI Logic Corp.* 611 21,958 Linear Technology Corp. 609 43,810 Maxim Integrated Products Inc.* 555 48,667 Micron Technology, Inc.* 987 80,687 National Semiconductor Corp.* 369 16,421 Sanmina Corp.* 275 32,450 Texas Instruments, Inc. 3,148 210,719 Xilinx, Inc.* 559 49,681 ----------------------------------------------------------------------------------- 1,476,117 MISCELLANEOUS--0.2% Agilent Technologies, Inc.* 790 47,645 ----------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------ ENERGY--5.6% ENGINEERING--0.0% Fluor Corp. 208 6,227 -----------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 21 22 PORTFOLIO OF INVESTMENTS
NUMBER OF SHARES VALUE OIL & GAS PRODUCTION--3.6% Anadarko Petroleum Corp. 409 $ 26,960 Apache Corp. 171 10,773 Burlington Resources, Inc. 422 16,590 Coastal Corp. 431 29,685 Conoco, Inc. "B" 1,198 31,298 Devon Energy Corp.* 223 13,059 Exxon Mobil Corp. 6,297 513,993 Kerr-McGee Corp. 89 5,624 Occidental Petroleum Corp. 753 16,284 Royal Dutch Petroleum Co. (New York shares) 4,020 245,974 Texaco, Inc. 887 45,680 Tosco Corp. 381 11,621 ----------------------------------------------------------------------------------- 967,541 OIL COMPANIES--0.7% Amerada Hess Corp. 226 15,467 Chevron Corp. 1,119 94,555 Phillips Petroleum Co. 560 34,650 USX Marathon Group 618 16,956 Unocal Corp. 527 17,589 ----------------------------------------------------------------------------------- 179,217 OIL/GAS TRANSMISSION--0.7% El Paso Energy Corporation 449 26,154 Enron Corp. 1,304 110,677 Sempra Energy 491 9,575 Williams Companies, Inc. 888 40,903 ----------------------------------------------------------------------------------- 187,309 OILFIELD SERVICES/ EQUIPMENT--0.6% Baker Hughes, Inc. 683 24,972 Halliburton Co. 864 45,792 Rowan Companies, Inc.* 240 7,440 Schlumberger Ltd. 975 83,180 ----------------------------------------------------------------------------------- 161,384 - ------------------------------------------------------------------------------------------------------------------------------ METALS & MINERALS--0.5% PRECIOUS METALS--0.1% Barrick Gold Corp. 832 13,260 Newmont Mining Corp. 427 7,926 Placer Dome Inc. 270 2,413 ----------------------------------------------------------------------------------- 23,599 STEEL & METALS--0.4% Alcan Aluminium Ltd. 535 17,542 Alcoa, Inc. 1,700 56,525 Nucor Corp. 207 7,607 Phelps Dodge Corp. 197 8,767 USX-US Steel Group, Inc. 359 6,238 ----------------------------------------------------------------------------------- 96,679 - ------------------------------------------------------------------------------------------------------------------------------ CONSTRUCTION--0.2% BUILDING MATERIALS--0.0% Vulcan Materials Co. 79 3,501 ----------------------------------------------------------------------------------- BUILDING PRODUCTS--0.1% Georgia-Pacific Group 241 6,447 Masco Corp. 1,016 19,812 Owens Corning 57 296 ----------------------------------------------------------------------------------- 26,555 FOREST PRODUCTS--0.1% Westvaco Corp. 269 7,364 Weyerhaeuser Co. 444 20,563 ----------------------------------------------------------------------------------- 27,927
22 The accompanying notes are an integral part of the financial statements. 23 PORTFOLIO OF INVESTMENTS
NUMBER OF SHARES VALUE TRANSPORTATION--0.5% AIR FREIGHT--0.1% FedEx Corp.* 462 $ 18,642 ----------------------------------------------------------------------------------- AIRLINES--0.2% AMR Corp. (b) 327 10,730 Delta Air Lines, Inc. 163 8,069 Southwest Airlines Co. 1,053 23,824 US Airways Group, Inc.* 69 2,346 ----------------------------------------------------------------------------------- 44,969 RAILROADS--0.2% Burlington Northern Santa Fe Corp. 683 15,282 CSX Corp. 462 11,030 Norfolk Southern Corp. 510 8,192 Union Pacific Corp. 560 22,260 ----------------------------------------------------------------------------------- 56,764 - ------------------------------------------------------------------------------------------------------------------------------ UTILITIES--1.7% ELECTRIC UTILITIES--1.5% AES Corp.* (b) 839 53,486 Ameren Corp. 79 3,195 American Electric Power Co. 637 22,454 CINergy Corp. 137 4,024 CMS Energy Corp. 286 7,472 Carolina Power and Light, Inc. 92 3,404 Consolidated Edison, Inc. 486 15,218 Constellation Energy Group 386 14,764 DTE Energy Co. 139 4,830 Dominion Resources, Inc. 554 29,362 Duke Energy Corp. 763 57,082 Edison International 746 15,433 Entergy Corp. 537 16,345 FPL Group, Inc. 438 23,378 FirstEnergy Corp. 271 6,707 Florida Progress Corp. 257 13,332 GPU, Inc. 409 12,526 PG&E Corp. 465 13,456 Peco Energy Co. 248 11,951 Pinnacle West Capital Corp. 74 3,048 Public Service Enterprise Group 473 17,146 Southern Co. 1,330 39,817 Unicom Corp. 402 18,366 ----------------------------------------------------------------------------------- 406,796 NATURAL GAS DISTRIBUTION--0.2% Columbia Energy Group 198 13,897 Eastern Enterprises 24 1,518 KeySpan Corporation 244 8,403 PPL Corp. 74 2,479 Reliant Energy, Inc. 614 22,795 ----------------------------------------------------------------------------------- 49,092 MISCELLANEOUS--0.0% Xcel Energy Inc. 149 3,734 ----------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost $23,800,260) 24,305,672 ----------------------------------------------------------------------------------- TOTAL INVESTMENT PORTFOLIO--100.0% (Cost $26,158,148) (a) 26,663,560 -----------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 23 24 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. (a) The cost for federal income tax purposes was $26,161,638. At August 31, 2000, net unrealized appreciation for all securities based on tax cost was $501,922. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over tax cost of $1,617,312 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over market value of $1,115,390. (b) At August 31, 2000, this security has been pledged to cover, in whole or in part, initial margin requirements for open futures contracts. At August 31, 2000, open futures contracts purchased were as follows:
AGGREGATE MARKET FUTURES EXPIRATION CONTRACTS FACE VALUE($) VALUE($) --------------------------------------------------------------------------------------------------------------------- S&P 500 Index 9/15/2000 6 2,210,736 $2,281,500 --------------------------------------------------------------------------------------------------------------------- Total unrealized appreciation on open futures contracts 70,764 ---------------------------------------------------------------------------------------------------------------------
24 The accompanying notes are an integral part of the financial statements. 25 FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES as of August 31, 2000 ASSETS Investments in securities, at value (cost $26,158,148) $26,663,560 - --------------------------------------------------------------------------- Cash 284 - --------------------------------------------------------------------------- Dividends receivable 29,456 - --------------------------------------------------------------------------- Interest receivable 707 - --------------------------------------------------------------------------- Receivable for Fund shares sold 24,050 - --------------------------------------------------------------------------- Receivable for daily variation margin on open futures contracts 26,100 - --------------------------------------------------------------------------- Due from Adviser 64,785 - --------------------------------------------------------------------------- TOTAL ASSETS 26,808,942 - --------------------------------------------------------------------------- LIABILITIES Payable for investments purchased 50,665 - --------------------------------------------------------------------------- Payable for Fund shares redeemed 101,060 - --------------------------------------------------------------------------- Other accrued expenses 20,480 - --------------------------------------------------------------------------- Total liabilities 172,205 - --------------------------------------------------------------------------- NET ASSETS, AT VALUE $26,636,737 - --------------------------------------------------------------------------- NET ASSETS Net assets consist of: Undistributed net investment income $ 34,228 - --------------------------------------------------------------------------- Net unrealized appreciation (depreciation) on: Investments 505,412 - --------------------------------------------------------------------------- Futures 70,764 - --------------------------------------------------------------------------- Accumulated net realized gain (loss) (18,362) - --------------------------------------------------------------------------- Paid-in capital 26,044,695 - --------------------------------------------------------------------------- NET ASSETS, AT VALUE $26,636,737 - --------------------------------------------------------------------------- NET ASSET VALUE AND OFFERING PRICE CLASS A SHARES Net asset value and redemption price per share ($21,780,877/2,270,454 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) $ 9.59 - --------------------------------------------------------------------------- Maximum offering price per share (100/95.50 of $9.59) $10.04 - --------------------------------------------------------------------------- CLASS B SHARES Net asset value, offering and redemption price (subject to contingent deferred sales charge) per share ($2,524,702/263,891 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) $ 9.57 - --------------------------------------------------------------------------- CLASS C SHARES Net asset value, offering and redemption price (subject to contingent deferred sales charge) per share ($2,331,158/243,670 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) $ 9.57 - ---------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 25 26 FINANCIAL STATEMENTS STATEMENT OF OPERATIONS For the period April 3, 2000 (commencement of operations) to August 31, 2000 INVESTMENT INCOME Income: Dividends (net of foreign taxes withheld of $537) $ 57,126 - ------------------------------------------------------------------------- Interest 40,204 - ------------------------------------------------------------------------- Total income 97,330 - ------------------------------------------------------------------------- Expenses: Management fee 20,347 - ------------------------------------------------------------------------- Services to shareholders 15,044 - ------------------------------------------------------------------------- Custodian and accounting fees 17,114 - ------------------------------------------------------------------------- Distribution services fees 11,373 - ------------------------------------------------------------------------- Administrative services fees 12,616 - ------------------------------------------------------------------------- Auditing 10,300 - ------------------------------------------------------------------------- Legal 11,700 - ------------------------------------------------------------------------- Trustees' fees 5,000 - ------------------------------------------------------------------------- Reports to shareholders 11,422 - ------------------------------------------------------------------------- Registration fees 55,800 - ------------------------------------------------------------------------- Other 9,050 - ------------------------------------------------------------------------- Total expenses, before expense reductions 179,766 - ------------------------------------------------------------------------- Expense reductions (116,664) - ------------------------------------------------------------------------- Total expenses, after expense reductions 63,102 - ------------------------------------------------------------------------- NET INVESTMENT INCOME 34,228 - ------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized gain (loss) from: Investments 1,474 - ------------------------------------------------------------------------- Futures (19,836) - ------------------------------------------------------------------------- (18,362) - ------------------------------------------------------------------------- Net unrealized appreciation (depreciation) during the period on: Investments 505,412 - ------------------------------------------------------------------------- Futures 70,764 - ------------------------------------------------------------------------- 576,176 - ------------------------------------------------------------------------- Net gain (loss) on investment transactions 557,814 - ------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 592,042 - -------------------------------------------------------------------------
26 The accompanying notes are an integral part of the financial statements. 27 FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD APRIL 3, 2000 (COMMENCEMENT OF OPERATIONS) TO AUGUST 31, 2000 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income $ 34,228 - ------------------------------------------------------------------------------------------------------ Net realized gain (loss) on investment transactions (18,362) - ------------------------------------------------------------------------------------------------------ Net unrealized appreciation (depreciation) on investment transactions during the period 576,176 - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 592,042 - ------------------------------------------------------------------------------------------------------ Fund share transactions: Proceeds from shares sold 23,369,331 - ------------------------------------------------------------------------------------------------------ Cost of shares redeemed (2,324,636) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets from Fund share transactions 21,044,695 - ------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets 21,636,737 - ------------------------------------------------------------------------------------------------------ Net assets at beginning of period 5,000,000 - ------------------------------------------------------------------------------------------------------ Net assets at end of period (including undistributed net investment income of $34,228) 26,636,737 - ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 27 28 FINANCIAL HIGHLIGHTS THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS
PER SHARE OPERATING PERFORMANCE CLASS A CLASS B CLASS C 2000(a) 2000(a) 2000(a) Net asset value, beginning of period $9.50 9.50 9.50 - -------------------------------------------------------- ---------------- ---------------- ---------------- Income from investment operations: Net investment income (b) 0.03 0.00 0.00 - -------------------------------------------------------- ---------------- ---------------- ---------------- Net realized and unrealized gain (loss) on investment transactions 0.06 0.07 0.07 - -------------------------------------------------------- ---------------- ---------------- ---------------- Total from investment operations 0.09 0.07 0.07 - -------------------------------------------------------- ---------------- ---------------- ---------------- Net asset value, end of period $9.59 9.57 9.57 - -------------------------------------------------------- ---------------- ---------------- ---------------- TOTAL RETURN (%)(C)(D) 0.95** 0.74** 0.74** RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA Net assets, end of period ($ thousands) 21,781 2,525 2,331 - -------------------------------------------------------- ---------------- ---------------- ---------------- Ratio of expenses before expense reductions (%) 3.19* 4.18* 4.13* - -------------------------------------------------------- ---------------- ---------------- ---------------- Ratio of expenses after expense reductions (%) 1.00* 1.75* 1.75* - -------------------------------------------------------- ---------------- ---------------- ---------------- Ratio of net investment income (%) 0.90* 0.09* 0.09* - -------------------------------------------------------- ---------------- ---------------- ---------------- Portfolio turnover rate (%) 43* 43* 43* - -------------------------------------------------------- ---------------- ---------------- ----------------
* Annualized ** Not annualized (a) For the period April 3, 2000 (commencement of operations) to August 31, 2000. (b) Based on monthly average shares outstanding during the period. (c) Total return does not reflect the effect of sales charge. (d) Total return would have been lower had certain expenses not been waived. 28 The accompanying notes are an integral part of the financial statements. 29 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1 SIGNIFICANT ACCOUNTING POLICIES Kemper S&P 500 Index Fund (the "Fund") is a diversified series of Kemper Funds Trust (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 Fund offers multiple classes of shares. Class A shares are offered to investors subject to an initial sales charge. Class B shares are offered without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are offered without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class C shares do not convert into another class. Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares except that each class bears certain expenses unique to that class such as distribution services, shareholder services, administrative services and certain other class specific expenses. Differences in class expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class specific arrangements. The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The policies described below are followed by the Fund in the preparation of its financial statements. SECURITY VALUATION. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange. Securities which are traded on U.S. or foreign stock exchanges are valued at the most recent sale price reported on the exchange on which the security is traded most extensively. If no sale occurred, the security is then valued at the calculated mean between the most recent bid and asked quotations. If there are no such bid and asked quotations, the most recent bid quotation is used. Securities quoted on the Nasdaq Stock Market ("Nasdaq"), for which there have been sales, are valued at the most recent sale price reported. If there are no such sales, the value is the most recent bid quotation. Securities which are not quoted on Nasdaq but are traded in another over-the-counter market are valued at the most recent sale price, or if no sale occurred, at the calculated mean between the most recent bid and asked quotations on such market. If there are no such bid and asked quotations, the most recent bid quotation shall be used. Money market instruments purchased with an original maturity of sixty days or less are valued at amortized cost. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board of Trustees. REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund, through its 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 29 30 NOTES TO FINANCIAL STATEMENTS 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. FUTURES CONTRACTS. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). During the period, the Fund purchased index futures as a temporary substitute for purchasing selected investments. Upon entering into a futures contract, the Fund is required to deposit with a financial intermediary an amount ("initial margin") equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments ("variation margin") are made or received by the Fund dependent upon the daily fluctuations in the value of the underlying security and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize a gain or loss equal to the difference between the value of the futures contract to sell and the futures contract to buy. Futures contracts are valued at the most recent settlement price. Certain risks may arise upon entering into futures contracts, including the risk that an illiquid secondary market will limit the Fund's ability to close out a futures contract prior to the settlement date and that a change in the value of a futures contract may not correlate exactly with the changes in the value of the securities or currencies hedged. When utilizing futures contracts to hedge, the Fund gives up the opportunity to profit from favorable price movements in the hedged positions during the term of the contract. FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Accordingly, the Fund paid no federal income taxes and no federal income tax provision was required. From April 3, 2000 (commencement of operations) through August 31, 2000, the Fund incurred approximately $14,872 of net realized capital losses. As permitted by tax regulations, the Fund intends to elect to defer these losses and treat them as arising in the fiscal year ended August 31, 2001. 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 the 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 accounting principles generally accepted in the United States. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. 30 31 NOTES TO FINANCIAL STATEMENTS INVESTMENT TRANSACTIONS AND INVESTMENT INCOME. Investment transactions are accounted for on the trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Realized gains and losses from investment transactions are recorded on an identified cost basis. All discounts are accreted for both tax and financial reporting purposes. EXPENSES. Expenses arising in connection with a specific Fund are allocated to that Fund. Other Trust expenses are allocated between the Funds in proportion to their relative net assets. - -------------------------------------------------------------------------------- 2 PURCHASES AND SALES OF SECURITIES For the period ended August 31, 2000, investment transactions (excluding short-term investments) are as follows: Purchases $26,120,119 Proceeds from sales 2,321,333 - -------------------------------------------------------------------------------- 3 TRANSACTIONS WITH AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management agreement with Scudder Kemper Investments, Inc. (Scudder Kemper) and pays a monthly investment management fee of 1/12 of the annual rate of .40% of the first $100 million of average daily net assets, .36% of the next $100 million, and .34% of average daily net assets in excess of $200 million. Bankers Trust Company serves as sub-adviser with respect to the investment and reinvestment of assets in the Fund, and is paid by Scudder Kemper for its services. The Adviser has agreed to maintain the annualized expenses of the classes of the Fund until April 3, 2001 as follows: Class A shares 1.00%, Class B shares 1.75% and Class C shares 1.75%. The Fund incurred no management fee after an expense waiver by Scudder Kemper for the period ended August 31, 2000. Scudder Kemper agreed to temporarily waive and reimburse certain operating expenses of the Fund. Under this arrangement, Scudder Kemper waived expenses of $71,364 for the period ended August 31, 2000. UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT. The Fund has an underwriting and distribution services agreement with Kemper Distributors, Inc. (KDI). Underwriting commissions retained by KDI in connection with the distribution of Class A shares for the period ended August 31, 2000 aggregated $2,084. For services under the distribution services agreement, the Fund pays KDI a fee of .75% of average daily net assets of the Class B and Class C shares pursuant to separate Rule 12b-1 plans for the Class B and Class C shares. Pursuant to the agreement, KDI enters into related selling group agreements with various firms at various rates for sales of Class B and Class C shares. In addition, KDI receives any contingent deferred sales charges (CDSC) from redemptions of Class B and Class C shares. For the period ended August 31, 2000, the Distribution Fees for Class B shares and Class C shares were $5,716 and $5,657, respectively. ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an administrative services agreement with KDI. For providing information and administrative services to shareholders, the Fund pays KDI a fee at an annual rate of up to .25% of average daily net assets of the Fund. KDI in turn has various agreements with financial services firms that provide these services and pays these firms based on assets of fund accounts the firms service. Administrative services were not 31 32 NOTES TO FINANCIAL STATEMENTS imposed after an expense waiver by Scudder Kemper for the period ended August 31, 2000. SHAREHOLDER SERVICES AGREEMENT. Pursuant to a services agreement with the Fund's transfer agent, Kemper Service Company (KSvC) is the shareholder service agent of the Fund. Under the agreement, shareholder services fees of $10,892 were not imposed after an expense waiver by Scudder Kemper for the period ended August 31, 2000. FUND ACCOUNTING FEES. Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of Scudder Kemper, is responsible for determining the daily net asset value per share and maintaining the portfolio and general accounting records of the fund. Fund accounting fees of $1,292 were not imposed after an expense waiver by Scudder Kemper for the period ended August 31, 2000. OFFICERS AND TRUSTEES. Certain officers or trustees of the Fund are also officers or directors of Scudder Kemper. During the period ended August 31, 2000, the Fund made no payments to its officers and trustees. - -------------------------------------------------------------------------------- 4 CAPITAL SHARE TRANSACTIONS The following table summarizes the activity in capital shares of the Fund:
FOR THE PERIOD APRIL 3, 2000 (COMMENCEMENT OF OPERATIONS) TO AUGUST 31, 2000 ----------------------------- SHARES AMOUNT SHARES SOLD Class A 2,498,742 $18,423,848 ---------------------------------------------------------------------------- Class B 271,874 2,565,854 ---------------------------------------------------------------------------- Class C 251,264 2,363,275 ---------------------------------------------------------------------------- SHARES REDEEMED Class A (230,036) (2,174,460) ---------------------------------------------------------------------------- Class B (6,231) (59,889) ---------------------------------------------------------------------------- Class C (7,594) (73,933) ---------------------------------------------------------------------------- CONVERSION OF SHARES Class A 1,748 16,354 ---------------------------------------------------------------------------- Class B (1,752) (16,354) ---------------------------------------------------------------------------- NET INCREASE FROM CAPITAL SHARE TRANSACTIONS $21,044,695 ----------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 5 EXPENSE OFF-SET ARRANGEMENTS The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expense. During the period ended August 31, 2000, the Fund's custodian fees were reduced by $153 under this arrangement. 32 33 REPORT OF INDEPENDENT AUDITORS THE BOARD OF TRUSTEES AND SHAREHOLDERS KEMPER S&P 500 INDEX FUND We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Kemper S&P 500 Index Fund, as of August 31, 2000, the related statements of operations and changes in net assets, and the financial highlights for the period April 3, 2000 to August 31, 2000. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with accounting principles generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned as of August 31, 2000, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Kemper S&P 500 Index Fund at August 31, 2000, the results of its operations, the changes in its net assets and the financial highlights for the period April 3, 2000 to August 31, 2000, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LOGO Chicago, Illinois October 18, 2000 33 34 NOTES 34 35 NOTES 35 36 TRUSTEES&OFFICERS TRUSTEES OFFICERS JAMES E. AKINS MARK S. CASADY Trustee President CAROLINE PEARSON Assistant Secretary LINDA C. COUGHLIN PHILIP J. COLLORA Trustee Vice President and Secretary BRENDA LYONS Assistant Treasurer JAMES R. EDGAR JOHN R. HEBBLE Trustee Treasurer ARTHUR R. GOTTSCHALK ANN M. MCCREARY Trustee Vice President FREDERICK T. KELSEY WILLIAM F. TRUSCOTT Trustee Vice President THOMAS W. LITTAUER LINDA J. WONDRACK Chairman, Trustee and Vice President Vice President MAUREEN E. KANE KATHRYN L. QUIRK Assistant Secretary Trustee and Vice President FRED B. RENWICK Trustee JOHN G. WEITHERS Trustee
............................................................................................. LEGAL COUNSEL DECHERT Ten Post Office Square South Boston, MA 02109 ............................................................................................. SHAREHOLDER KEMPER SERVICE COMPANY SERVICE AGENT P.O. Box 219557 Kansas City, MO 64121 ............................................................................................. CUSTODIAN AND STATE STREET BANK AND TRUST COMPANY TRANSFER AGENT 225 Franklin Street Boston, MA 02110 ............................................................................................. INDEPENDENT AUDITORS ERNST & YOUNG LLP 233 South Wacker Drive Chicago, IL 60606 ............................................................................................. PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC. 222 South Riverside Plaza Chicago, IL 60606 www.kemper.com
[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 Equity Funds/Growth Style prospectus. KSPF - 2 (10/25/00) 1123120 LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM) -----END PRIVACY-ENHANCED MESSAGE-----