KEMPER TARGET EQUITY FUND, PRE 14A, 1995-06-20

KEMPER TARGET EQUITY FUND
PRE 14A, 1995-06-20

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<PAGE> 1

SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the registrant /X/

Filed by a party other than the registrant / /

Check the appropriate box:

/X/ Preliminary proxy statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))

/ / Definitive proxy statement

/ / Definitive additional materials

/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
KEMPER TARGET EQUITY FUND
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
KEMPER TARGET EQUITY FUND
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of filing fee (Check the appropriate box):

/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.

/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

- --------------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

- --------------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):

- --------------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

- --------------------------------------------------------------------------------

(5) Total fee paid:

- --------------------------------------------------------------------------------

/ / Fee paid previously with preliminary materials.

- --------------------------------------------------------------------------------

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.

(1) Amount previously paid:

- --------------------------------------------------------------------------------

(2) Form, schedule or registration statement no.:

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(3) Filing party:

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(4) Date filed:

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<PAGE> 2

PRELIMINARY COPY --

IMPORTANT NEWS
FOR KEMPER TARGET EQUITY FUND SHAREHOLDERS

WHILE WE ENCOURAGE YOU TO READ THE FULL TEXT OF THE ENCLOSED PROXY STATEMENT,
HERE'S A BRIEF OVERVIEW OF MAJOR MATTERS TO BE VOTED UPON.

Q & A ABOUT THE ENCLOSED PROXY MATERIALS

<TABLE>
<S> <C>
Q. WHAT IS HAPPENING?
A. Kemper Corporation -- NOT YOUR FUND -- has agreed to be acquired
by an investor group led by Zurich Insurance Company through a
merger. Zurich is an internationally recognized market leader in
life and nonlife insurance, financial services and reinsurance.
As part of the merger, your fund's investment manager, Kemper
Financial Services, Inc. (KFS), will be sold to a subsidiary of
Zurich. In order for KFS to serve as investment manager of your
fund after the merger, it is necessary for your fund to approve a
new investment management agreement.
The following pages elaborate on Zurich, the proposed new
investment management agreement and the fund board's evaluation
of Zurich's plans for KFS. A vote is also being sought on the
election of trustees to the Board of Trustees and the selection
of independent auditors.
Q. WHY AM I BEING ASKED TO VOTE ON THE PROPOSED NEW INVESTMENT
MANAGEMENT AGREEMENT?
A. The Investment Company Act of 1940 requires a vote whenever there
is a change in control of an investment manager. Kemper
Corporation's merger with Zurich is such a change of control and
requires fund shareholder approval of a new investment management
agreement with your fund.
Q. WHAT HAPPENED WITH KEMPER CORPORATION'S INTENTION LAST YEAR TO
MERGE WITH CONSECO, INC.?
A. The agreement was terminated by mutual consent of Kemper and
Conseco.
Q. HOW WILL THE KEMPER/ZURICH MERGER AFFECT ME AS A FUND
SHAREHOLDER?
A. Your fund and your fund investment will not change. You will
still own the same shares in the same fund.
The terms of the new management agreement are the same as the
current management agreement. If the new investment management
agreement is approved, your fund shares will not change and the
advisory fees charged to your fund will not change.
Zurich has committed to provide all resources necessary to
provide your fund with top quality investment management and
shareholder services.
Q. WILL THE INVESTMENT ADVISORY FEES BE THE SAME?
A. Yes, the investment advisory fees paid by your fund will remain
the same.
Q. HOW DO THE BOARD MEMBERS OF MY FUND SUGGEST THAT I VOTE?
A. After careful consideration, the board members of your fund,
including the independent members, recommend that you vote "For"
all the items on the enclosed proxy card.
</TABLE>
<PAGE> 3

<TABLE>
<S> <C>
Q. WHO IS PAYING THE COST OF THE SHAREHOLDER MEETING AND THIS PROXY
SOLICITATION?
A. Kemper Corporation and Zurich Insurance Company -- not your fund
-- are paying all costs of the fund's shareholder meeting and
proxy solicitation.
Q. WHOM DO I CALL FOR MORE INFORMATION?
A. Please call Kemper Shareholder Services at 1-800-621-1048.
</TABLE>

ABOUT THE PROXY CARD

<TABLE>
<S><C>
For Withhold For All
1. To elect the following as trustees: All All Except
/ / / / / /

01) James B. Akins, 02) Arthur R. Gottschalk, 03) Frederick T. Kelsey,
04) David B. Mathis, 05) Fred B. Renwick, 06) Stephen B. Timbers,
07) John B. Tingleoff, 08) John G. Weithers

---------------------------------------------------------------------------------------------------------
To withhold authority to vote on any individual nominee(s), please print the number(s) on the line above.

2. Ratify or reject the selection of For Against Abstain
/ / / / / /
Ernst & Young LLP as the Fund's independent auditors for
the current fiscal year.

3. Approve or disapprove a new investment management agreement / / / / / /
with Kemper Financial Services, Inc. or its successor on
the same terms as the current agreement.

Signature(s) (All registered owners of accounts shown to the left must sign. If signing for
a corporation, estate or trust, please indicate your capacity or title.)

X
- ----------------------------------------------------------------------------------------
Signature Date

PLEASE VOTE TODAY!

</TABLE>

Because each fund must vote separately, you are being sent a proxy card for each
fund account that you have. Please vote all issues shown on each proxy card that
you receive.

Please vote on each issue using blue or black ink to mark an X in one of the
three boxes provided on each proxy card. On Item 1 (election of Trustees), mark
- -- For All, Withhold All or For All Except. If you mark an X in the For All
Except box, you should print the number(s) relating to the individual(s) for
whom you wish to withhold authority. On all other Items, mark -- For, Against or
Abstain. Then sign, date and return each of your proxy cards in the accompanying
postage-paid envelope. All registered owners of an account, as shown in the
address on the proxy card, must sign the proxy card. If you are signing for a
corporation, trust or estate, please indicate your title or position.

THANK YOU FOR MAILING YOUR PROXY CARD PROMPTLY!
<PAGE> 4

KEMPER TARGET EQUITY FUND
KEMPER RETIREMENT FUND SERIES I
KEMPER RETIREMENT FUND SERIES II
KEMPER RETIREMENT FUND SERIES III
KEMPER RETIREMENT FUND SERIES IV
KEMPER RETIREMENT FUND SERIES V
KEMPER RETIREMENT FUND SERIES VI
KEMPER WORLDWIDE 2004 FUND

120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603
TELEPHONE 1-800-621-1048

July 7, 1995

Dear Kemper Target Equity Fund Shareholder:

As you read in the Questions and Answers (Q & A) on page 1, Kemper Corporation
has agreed to be acquired by an investor group led by Zurich Insurance Company
through a merger. Zurich is an internationally recognized market leader in life
and non-life insurance, financial services and reinsurance. (More information
about Zurich can be found inside the proxy statement.)

We're sending this proxy statement to you because your vote is important to
the planned Kemper merger. Your fund's investment manager, Kemper Financial
Services, Inc. (KFS), is a subsidiary of Kemper Corporation. Because of the
Zurich/Kemper merger, it is necessary for your fund to approve a new investment
management agreement.

As you review these materials, please keep in mind that Kemper Corporation and
KFS -- NOT YOUR FUND -- are being acquired by Zurich. If the new investment
management agreement is approved, YOUR FUND SHARES WILL NOT CHANGE AND THE
ADVISORY FEES CHARGED TO YOUR FUND WILL NOT CHANGE. Further, you should continue
to receive the high quality investment management and shareholder services that
you have come to expect over the years.

Your Fund Board has approved the proposals and recommends them for your
approval. I encourage you to vote in favor of the proposals. PLEASE VOTE NOW TO
HELP SAVE THE COST OF ADDITIONAL SOLICITATIONS.

As always, we thank you for your confidence and support.

Sincerely,

Stephen B. Timbers
President
<PAGE> 5

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER 19, 1995 AND PROXY STATEMENT
July 7, 1995

To the Shareholders:

You are invited to attend a special meeting of shareholders of Kemper Target
Equity Fund (the "Fund"). The meeting will be held in Room 17L on the 17th Floor
at the offices of the Fund, 120 South LaSalle Street, Chicago, Illinois on
Tuesday, September 19, 1995 at 2:30 p.m., Chicago time, for the following
purposes and to transact such other business as may properly come before the
meeting or any adjournment of the meeting:

1. To elect eight (8) Trustees to the Board of Trustees.

2. To ratify or reject the selection of Ernst & Young LLP as independent
auditors for the current fiscal year.

3. To approve or disapprove a new investment management agreement with
Kemper Financial Services, Inc. or its successor on the same terms as
the current agreement.

The Board of Trustees of the Fund has selected the close of business on June 23,
1995 as the record date for the determination of shareholders of the Fund
entitled to notice of and to vote at the meeting. Shareholders are entitled to
one vote for each share held.

- --------------------------------------------------------------------------------

PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD. SIGN, DATE
AND RETURN IT IN THE ENVELOPE PROVIDED. TO SAVE THE COST OF ADDITIONAL
SOLICITATIONS, PLEASE MAIL YOUR PROXY PROMPTLY.

- --------------------------------------------------------------------------------
<PAGE> 6

The accompanying proxy is solicited by the Board of Trustees (the "Board") of
the Fund for voting at the special meeting of shareholders of the Fund to be
held on Tuesday, September 19, 1995, and at any and all adjournments thereof
(the "Meeting"). The Fund is a "series company" that issues various series of
shares. (Each series also is sometimes described herein as a Fund.) Each series
has its own investment objective and policies and operates independently for
purposes of investments, dividends and redemptions. The series of the Fund are:
Kemper Retirement Fund Series I ("KRF-I"); Kemper Retirement Fund Series II
("KRF-II"); Kemper Retirement Fund Series III ("KRF-III"); Kemper Retirement
Fund Series IV ("KRF-IV"); Kemper Retirement Fund Series V ("KRF-V"); Kemper
Retirement Fund Series VI ("KRF-VI") and Kemper Worldwide 2004 Fund ("KWF4").
This proxy statement was first mailed to shareholders on or about July 7, 1995.

The shareholders of the Fund are being asked to vote on three items. On Item 1
(election of trustees) and Item 2 (ratification of selection of auditors), the
Fund will vote in aggregate and not by series. On Item 3 (approval of new
investment management agreement), each series of the Fund will vote separately.
The Board recommends an affirmative vote on all items. The vote required to
approve each item is described under the section of this proxy statement
entitled "Miscellaneous."

The Board has fixed the close of business on June 23, 1995 as the record date
for the determination of shareholders of the Fund entitled to notice of and to
vote at the meeting. As of May 31, 1995, shares of the Fund were issued and
outstanding as follows:

<TABLE>
<CAPTION>
SERIES SHARES
------------------------------------ ----------
<S> <C>
KRF-I............................... 9,630,413
KRF-II.............................. 13,574,211
KRF-III............................. 11,724,387
KRF-IV.............................. 15,374,773
KRF-V............................... 14,384,586
KRF-VI.............................. 277,764
KWF4................................ 3,017,313
</TABLE>

ITEM 1. ELECTION OF BOARD OF TRUSTEES

At the meeting, eight (8) trustees are to be elected to constitute the Board of
the Fund. Currently, the Board consists of six trustees. Two additional trustee
positions have been proposed in order to meet the requirements of Section 15(f)
of the Investment Company Act of 1940 described below under Item 3. All of the
nominees (except Messrs. Akins, Mathis and Renwick) were elected to the Board at
a special meeting of shareholders held on June , 1994. Mr. Mathis was
appointed to the Board on March 2, 1995 to fill a vacancy and Messrs. Akins and
Renwick have been nominated to fill vacancies created by increasing the size of
the Board to eight (8) from six (6) trustees.

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<PAGE> 7

It is intended that the proxies will be voted for the election of the nominees
described below. Each trustee so elected will serve as a trustee of the Fund
until the next meeting of shareholders, if any, called for the purpose of
electing trustees and until the election and qualification of a successor or
until such trustee sooner dies, resigns or is removed as provided in the
Agreement and Declaration of Trust of the Fund ("Declaration of Trust"). Since
the Fund does not hold annual meetings, trustees will hold office for an
indeterminate period.

All the nominees listed below have consented to serve as trustees of the Fund,
if elected. In case any nominee shall be unable or shall fail to act as a
trustee by virtue of an unexpected occurrence, the proxies may be voted for such
other person(s) as shall be determined by the persons acting under the proxies
in their discretion.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME (DATE OF BIRTH), PRINCIPAL YEAR FIRST BECAME OWNED AS OF
OCCUPATION AND AFFILIATIONS A TRUSTEE MAY 31, 1995
- ------------------------------------- ----------------- -------------------
<S> <C> <C>
James E. Akins (10/15/26)............ Nominee 0
Consultant on International,
Political, and Economic Affairs.
Arthur R. Gottschalk (2/13/25)....... 1989 0
Retired; formerly, President,
Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical
Center; Member, Board of Governors,
Heartland Institute/Illinois;
formerly, Illinois State Senator.
Frederick T. Kelsey (4/25/27)........ 1989 0
Retired; formerly, consultant to
Goldman, Sachs & Co.; formerly
President, Treasurer and Trustee of
Institutional Liquid Assets and its
affiliated mutual funds, Trustee of
the Benchmark Fund and the Pilot
Fund.
David B. Mathis* (4/13/38)........... 1995 0
Chairman, Chief Executive Officer
and Director, Kemper Corporation;
Director, Kemper Financial
Services, Inc. ("KFS"), Kemper
Financial Companies, Inc. ("KFC"),
several other Kemper Corporation
subsidiaries and IMC Global Inc.
</TABLE>

3
<PAGE> 8

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME (DATE OF BIRTH), PRINCIPAL YEAR FIRST BECAME OWNED AS OF
OCCUPATION AND AFFILIATIONS A TRUSTEE MAY 31, 1995
- ------------------------------------- ----------------- -------------------
<S> <C> <C>
Fred B. Renwick (2/1/30)............. Nominee 0
Professor of Finance, New York
University, Stern School of
Business; Director, TIFF Investment
Program, Inc.; Director, The
Wartberg Home Foundation; Chairman,
Investment Committee of Morehouse
College Board of Trustees;
Director, American Bible Society
Investment Committee; previously
member of the Investment Committee
of Atlanta University Board of
Trustees; previously Director of
Board of Pensions Evangelical
Lutheran Church in America.
Stephen B. Timbers* (8/8/44)......... 1992 0
President, Chief Operating
Officer/and Director, Kemper
Corporation; Chairman, Chief
Executive Officer, Chief Investment
Officer and Director, KFS;
Director, KFC, several other Kemper
Corporation subsidiaries, Gillett
Holdings, Inc. and LTV Corporation
John B. Tingleff (5/4/35)............ 1991 512
Retired; formerly, President, shares
Tingleff & Associates (management of KRF-V
consulting firm), formerly, Senior
Vice President, Continental
Illinois National Bank & Trust
Company
John G. Weithers (8/8/33)............ 1993 0
Retired; formerly, Chairman of the
Board and Chief Executive Officer,
Chicago Stock Exchange; Director,
Federal Life Insurance Company;
President of the Members of the
Corporation and Trustee, DePaul
University
</TABLE>

- ---------------
* Interested persons of the Fund as defined in the Investment Company Act of
1940 ("1940 Act") because of their positions with KFS, the investment manager
of the Fund.

Messrs. Gottschalk, Kelsey, Tingleff and Weithers serve as board members of 10
Kemper Funds. Mr. Mathis serves as a board member of 28 Kemper Funds and Mr.
Timbers serves as a board member and president of 31 Kemper Funds. Mr. Mathis
has been nominated to serve as board member of 31 Kemper Funds. A "Kemper Fund"
is an investment company for which KFS serves as investment

4
<PAGE> 9

manager. In addition, each nominee has been nominated to serve as a board member
of the Dreman Mutual Group, Inc. (an investment company for which it is proposed
that a subsidiary of KFS serves as investment manager.)

The Board has an audit and nominating committee that is composed of Messrs.
Gottschalk, Kelsey, Tingleff and Weithers. The committee of the Fund met [twice]
during the fiscal year ended June 30, 1995. The committee makes recommendations
regarding the selection of independent auditors for the Fund, confers with the
independent auditors regarding the Fund's financial statements, the results of
audits and related matters, seeks and reviews Board nominees and performs such
other tasks as the Board assigns. The committee proposed the nominees for
election by the shareholders; and the Board of Trustees, including the
non-interested trustees, concurred. Shareholders wishing to submit the name of a
candidate for consideration by the committee should submit their recommendations
to the secretary of the Fund.

The Fund pays trustees who are not interested persons of the Fund an annual
retainer fee, plus expenses, and an attendance fee for each Fund Board meeting
and committee meeting attended. As reflected above, the trustees currently serve
as trustees of various investment companies for which KFS serves as investment
manager. Trustees or officers who are "interested persons" receive no
compensation from such Fund. The Board met five times during the fiscal year
ended June 30, 1995. Each then current Trustee attended 75% or more of the
respective meetings of the Board and the audit and nominating committee (if a
member thereof) held during the fiscal year ended June 30, 1995.

The table below shows, for each trustee entitled to receive compensation from
the Fund, the aggregate compensation paid or accrued during the Fund's fiscal
year ended June 30, 1995 and the total compensation that Kemper Funds paid to
each trustee during the calendar year 1994.

<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE COMPENSATION KEMPER FUNDS PAID
NAME OF BOARD TRUSTEES FROM FUND TO BOARD TRUSTEES(2)
- ------------------------------- ---------------------- --------------------
<S> <C> <C>
Arthur R. Gottschalk(1)........
Frederick T. Kelsey(1).........
John B. Tingleff...............
John G. Weithers...............
</TABLE>

- ---------------
(1) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with the Funds. Deferred amounts accrue interest
monthly at a rate equal to the yield of Kemper Money Market Fund -- Money
Market Portfolio.

(2) Includes compensation for service on the boards of ten Kemper Funds. Also
includes amounts for new portfolios estimated as if they had existed at the
beginning of the year.

FUND OFFICERS. Information about the executive officers of the Fund, with their
respective dates of birth and terms as Fund officers indicated, is set forth
below (other than information about Mr. Timbers, president of the Fund since
3/2/95, which is reflected above).

5
<PAGE> 10

Tracy M. Chester (9/27/54), vice president of the Fund since 12/7/94, is senior
vice president of KFS.

Philip J. Collora (11/15/45), vice president of the Fund since 2/1/90 and
secretary of the Fund since 3/2/95, is senior vice president and assistant
secretary of KFS.

C. Beth Cotner (4/20/52), vice president of the Fund since 3/2/95, is executive
vice president and director of equity mutual fund portfolio management of KFS.

Jerome L. Duffy (6/29/36), treasurer of the Fund since 8/3/88, is senior vice
president of KFS.

Dennis H. Ferro (6/20/45), vice president of the Fund since 9/8/94, is executive
vice president and director of international equity investments of KFS.

John E. Peters (11/4/47), vice president of the Fund since 11/1/89, is senior
executive vice president of KFS and president of Kemper Distributors, Inc.
("KDI").

Elizabeth C. Werth, (10/1/47), assistant secretary of the Fund since 7/26/90, is
vice president and director of state registrations of KFS.

The officers of the Fund are elected by the Board of the Fund on an annual basis
to serve until their successors are elected and qualified.

SHAREHOLDINGS. As of May 31, 1995, the trustees and officers of the Fund as a
group owned beneficially shares of KRF-I, shares of KRF-II,
shares of KRF-III, shares of KRF-IV, shares of
KRF-V, shares of KRF-VI and shares of KWF4, which, in each
case, is less than 1% of the outstanding shares of each series and no person is
known to the Fund to own beneficially more than five percent of the shares of
any series of the Fund.

ITEM 2. SELECTION OF INDEPENDENT AUDITORS

A majority of the members of the Board who are not "interested" persons of the
Fund has selected Ernst & Young LLP, independent auditors, to audit the books
and records of the Fund for the current fiscal year. This firm has served in
this capacity for the Fund since it was organized and has no direct or indirect
financial interest in the Fund except as independent auditors. The selection of
Ernst & Young LLP as independent auditors of the Fund is being submitted to the
shareholders for ratification. A representative of Ernst & Young LLP is expected
to be present at the Meeting and will be available to respond to any appropriate
questions raised at the Meeting and may make a statement.

BOARD OF TRUSTEES RECOMMENDATION

The Board recommends that shareholders vote FOR the ratification of the
selection of independent auditors.

6
<PAGE> 11

ITEM 3. NEW INVESTMENT MANAGEMENT AGREEMENT

INTRODUCTION

Kemper Financial Services, Inc. ("KFS") is the investment adviser and manager
for the Fund. The indirect parent of KFS, which is Kemper Corporation
("Kemper"), has entered into an Agreement and Plan of Merger dated as of May 15,
1995 (the "Merger Agreement"), with Zurich Insurance Company ("Zurich"),
Insurance Partners, L.P. ("IP"), Insurance Partners Offshore (Bermuda), L.P.
("IP Bermuda" and, together with IP, "Insurance Partners") and ZIP Acquisition
Corp. ("ZIP"), whereby ZIP will be merged with and into Kemper and Kemper will
continue as the surviving corporation (the "Kemper merger"). In connection with
the Kemper merger, Kemper has agreed to sell KFS to KFS Acquisition Corp. ("New
KFS"), a wholly-owned, indirect subsidiary of Zurich, by merging KFS into New
KFS, and with New KFS continuing as the surviving corporation (the "KFS Sale").
Upon consummation of the KFS Sale, it is anticipated that New KFS will change
its name to "Kemper Financial Services, Inc." The terms of the KFS Sale are set
forth in a separate Agreement and Plan of Merger among Kemper, KFS, KFC and New
KFS dated May 15, 1995 (the "KFS Merger Agreement"). It is currently
contemplated that the KFS Sale will occur immediately before or immediately
after the Kemper merger, although it is possible that KFS Sale could be deferred
until a later date. (The Kemper merger and related KFS Sale are hereinafter
referred to together as the "Merger").

Consummation of the Merger would constitute an "assignment," as that term is
defined in the Investment Company Act of 1940 (the "1940 Act"), of the Fund's
current investment management agreement with KFS. As required by the 1940 Act,
the current investment management agreement provides for its automatic
termination in the event of its assignment. In anticipation of the Merger, a new
investment management agreement between the Fund and KFS or its successor
("management agreement") is being proposed for approval by shareholders of the
Fund. A copy of the form of the new management agreement is attached hereto as
Exhibit A. THE NEW MANAGEMENT AGREEMENT IS ON THE SAME TERMS AS THE CURRENT
MANAGEMENT AGREEMENT.

BOARD OF TRUSTEES RECOMMENDATION

The Board met on May 4, 1995, June 2, 1995 and June 20, 1995 to consider the
Merger and its anticipated effects upon KFS and the investment management and
other services provided to the Fund by KFS and its affiliates. On June 20, 1995,
the Board, including a majority of the trustees who are not parties to such
agreement or interested persons of any such party, voted to approve the new
management agreement and to recommend it to shareholders for their approval.

For information about the Board's deliberations and the reasons for its
recommendation, please see "Board of Trustees Evaluation" near the end of this
Item 3.

The Board recommends that shareholders vote FOR approval of the new management
agreement.

7
<PAGE> 12

INVESTMENT MANAGEMENT AGREEMENT

The current and new management agreement (sometimes collectively referred to as
the "management agreement") each provides that the Fund's investment manager
will act as investment adviser, manage the Fund's investments, administer its
business affairs, furnish offices, necessary facilities and equipment, provide
clerical, bookkeeping and administrative services, provide shareholder and
information services and permit any of its officers or employees to serve
without compensation as trustees or officers of the Fund if duly elected to such
positions. Under the management agreement, the Fund agrees to assume and pay the
charges and expenses of its operations including, by way of example, the
compensation of the trustees other than those affiliated with the investment
manager, charges and expenses of independent auditors, of legal counsel, of any
transfer or dividend disbursing agent, of any registrar of the Fund and of the
custodian (including fees for safekeeping of securities), costs of calculating
net asset value, all costs of acquiring and disposing of portfolio securities,
interest, if any, on obligations incurred by the Fund, costs of share
certificates, membership dues in the Investment Company Institute or any similar
organization, reports and notices to shareholders, other like miscellaneous
expenses and all taxes and fees to federal, state or other governmental
agencies. KFS from time to time, at its own expense, uses the services of Kemper
Investment Management Company Limited ("KIMCO"), 1 Fleet Place, London EC4M 7RQ,
a wholly owned subsidiary of KFS, with respect to foreign investments for the
Fund, including analysis, research, execution and trading services. It is
expected that the investment manager would continue to use KIMCO (or its
successor) after consummation of the Merger.

For the services and facilities furnished, the Fund pays KFS an annual
investment management fee for each series (except for KWF4) of .50 of 1% of
average daily net assets of the series. For KWF4, the Fund pays KFS .60 of 1% of
average daily net assets of the series. Exhibit B reflects the management fees
paid by the Fund to KFS for the fiscal year ended June 30, 1994.

The management agreement provides that the Fund's investment manager will
reimburse the Fund should the operating expenses of the Fund, including the
investment management fee of the Fund's investment manager, but excluding taxes,
interest, distribution fees (if any), extraordinary expenses, brokerage
commissions or transaction costs and any other properly excludable expenses,
exceed on an annual basis the most restrictive state expense limitation. The
Fund believes that the most restrictive state expense limitation currently in
effect would require that such operating expenses not exceed 2.5% of the first
$30 million of average daily net assets, 2% of the next $70 million and 1.5% of
average daily net assets over $100 million. Under such state expense limitation,
custodian costs attributable to foreign securities that are in excess of similar
domestic custodian costs are excluded from operating expenses. The investment
management fee and the expense limitation are computed based on average daily
net assets of each series of the Fund separately.

The management agreement provides that the Fund's investment manager shall not
be liable for any error of judgment or of law, or for any loss suffered by the

8
<PAGE> 13

Fund in connection with the matters to which the management agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Fund's investment manager in the performance of its
obligations and duties or by reason of its reckless disregard of its obligations
and duties under the management agreement.

The management agreement may be terminated for the Fund or series thereof
without penalty upon sixty (60) days written notice by either party, or by a
majority vote of the outstanding shares of the Fund or series thereof, and
automatically terminates in the event of its assignment.

The new management agreement will be dated as of the date of the consummation of
the Kemper merger. The Kemper merger is expected to occur in the fourth quarter
of 1995, but in no event later than February 28, 1996. The new management
agreement will continue in effect for an initial term ending on the date that
the current management agreement had previously been continued prior to the
Kemper merger, and may continue thereafter from year to year if specifically
approved at least annually by vote of "a majority of the outstanding voting
securities" of such Fund, as defined under the 1940 Act, or by the Board, and,
in either event, the vote of a majority of the trustees who are not parties to
the agreement or interested persons of any such party, cast in person at a
meeting called for such purpose.

KFS has acted as investment adviser and manager for each series since it
commenced public offering of its shares as shown below. Also shown is the date
of each current management agreement, the date when the current management
agreement was last approved by the trustees and the shareholders of each series,
the purpose of the last submission to shareholders of the current management
agreement and the date to which the current management agreement continues.

<TABLE>
<CAPTION>
COMMENCEMENT APPROVAL OF CURRENT CURRENT
OF DATE OF AGREEMENT BY AGREEMENT
INVESTMENT CURRENT ------------------------ CONTINUED BY
SERIES OPERATIONS AGREEMENT TRUSTEES SHAREHOLDERS* TRUSTEE TO
- --------- ------------ --------------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
KRF-I.... 02/05/90 06/14/94 03/02/95 06/14/94 04/01/96
KRF-II... 09/11/90 06/14/94 03/02/95 06/14/94 04/01/96
KRF-III... 03/10/92 06/14/94 03/02/95 06/14/94 04/01/96
KRF-IV... 01/15/93 06/14/94 03/02/95 06/14/94 04/01/96
KRF-V.... 11/15/93 06/14/94 03/02/95 06/14/94 04/01/96
KRF-VI... 05/01/95 06/14/94 03/02/95 06/14/94 04/01/96
KRF4..... 05/03/94 05/03/94 03/02/95 05/02/94 04/01/96
</TABLE>

- ---------------
* The purpose of the last submission to shareholders was to approve an amendment
to the current management agreement, except that for KRF-VI and KWF4 it was
for approval by KFS as sole shareholder prior to public offering.

On September 9, 1994, the Board approved a new investment management agreement
with KFS in anticipation of the termination of the current agreement because
of a proposed merger involving Kemper and Conseco, Inc. (the "Conseco/Kemper
Merger"). As with the Merger, consummation of the Conseco/Kemper Merger would
have constituted an "assignment" and, therefore, a termination of the
management agreement. In anticipation of the Conseco/Kemper Merger and in
order to

9
<PAGE> 14

assure that KFS could continue to serve as investment manager to the Fund, a new
agreement was approved by the Board and submitted to shareholders for approval.
By agreement of Kemper and Conseco, Inc., the Conseco/Kemper Merger did not
occur, and, therefore, the new agreement was not voted upon by shareholders.

INFORMATION CONCERNING ZURICH AND THE MERGER.

The following information concerning Zurich and the Merger has been provided to
the Fund by Zurich.

Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of the Zurich Insurance
Group. Zurich and the Zurich Insurance Group provide an extensive range of
insurance products and services, while having branch offices and subsidiaries in
more than 40 countries throughout the world. Zurich Insurance Group is
particularly strong in the insurance of international companies and
organizations. Over the past few years, Zurich's global presence, particularly
in the United States, has been strengthened by means of selective acquisitions.
IP and IP Bermuda are parallel investment partnerships established to
participate jointly in acquisitions, recapitalizations, demutualizations and
other structured transactions in the insurance industry. (IP and IP Bermuda are
together referred to as "Insurance Partners"). Insurance Partners was formed by
Centre Reinsurance Holdings Limited (a subsidiary of Zurich), Keystone, Inc.
(formerly the Robert M. Bass Group, Inc.) and The Chase Manhattan Corporation.
IP is located at 201 Main Street, Fort Worth, TX 76102 and IP Bermuda is located
at 41 Cedar Avenue, Hamilton HM-EX, Bermuda. ZIP is a newly-formed
majority-owned subsidiary of Zurich. ZIP is approximately 80% owned by Zurich
Holding Company of America, Inc. (which, in turn, is a wholly-owned subsidiary
of Zurich) and 13.274% and 6.726% owned by IP and IP Bermuda, respectively. ZIP
is located at 1400 American Lane, Schaumburg, IL 60196. New KFS is a
newly-formed wholly-owned subsidiary of Zurich Holding Company of America, Inc.
which in turn is a wholly-owned subsidiary of Zurich. Prior to consummation of
the Merger, New KFS will be registered as an investment adviser under the
Investment Advisers Act of 1940. New KFS, a Delaware corporation, and Zurich
Holding Company of America, Inc., a Delaware corporation, are both located at
1400 American Lane, Schaumburg, IL 60196.

Under the Merger Agreement, ZIP will merge with and into Kemper, with Kemper as
the surviving corporation. Each share of Kemper common stock will be converted
in the Kemper merger into the right to receive $49.50 cash, for an aggregate
acquisition price of approximately $2.1 billion. The closing of the Kemper
merger will take place on the third business day after all the closing
conditions are satisfied. It is expected that the Kemper merger will close in
the fourth quarter of 1995. However, ZIP may elect to delay the closing of the
Kemper merger to a later date (not later than January 4, 1996). It is currently
contemplated that contemporaneously with the Kemper merger closing (either
immediately before or immediately after) Kemper will sell KFS to Zurich by

10
<PAGE> 15

merging KFS with and into New KFS. It is possible, however, that the Kemper
merger could be consummated, but that the KFS Sale could be deferred until a
later date (not later than January 4, 1996). Immediately prior to the KFS Sale,
KFS will cause those of its wholly-owned subsidiaries designated by Zurich to be
merged with and into, direct or indirect, wholly-owned subsidiaries of New KFS.
Upon consummation of the KFS Sale, it is anticipated that New KFS will change
its name to "Kemper Financial Services, Inc." The consideration for the KFS Sale
is $900 million although, at the election of Zurich, it may be increased to $1
billion.

It is further contemplated that prior to the Merger: (1) an employee stock
ownership plan will acquire from KFC approximately 55% of the voting common
stock of a new corporation ("Newco") formed to acquire Kemper's securities
brokerage segment, principally Kemper Securities, Inc. ("KSI"); (2) non-voting
common stock representing an approximately 1% equity interest in Newco will be
distributed to the management of KSI; and (3) the balance of Newco's voting
common stock will be distributed to the holders of Kemper common stock (the "KSI
ESOP Sale").

It is further contemplated that prior to the Merger: (1) KFS will attempt to
sell State Street Boston Corporation stock owned by KFS (estimated value of $97
million as of , 1995) and that the net cash proceeds from such sale
will be transferred from KFS to Kemper (if, upon consummation of the Merger, KFS
has not sold all such State Street Boston Corporation stock, KFS will transfer
any remaining such stock to Kemper); (2) KFS will transfer $50 million in cash
to Kemper; (3) KFS will transfer to Kemper the proceeds of its sale of
Supervised Services Company (approximately $23 million); and (4) at the written
request of ZIP, KFS or any of its subsidiaries will dividend or otherwise
transfer cash to Kemper in such amounts as ZIP may reasonably request.

To confirm and clarify certain contractual relationships between Kemper and
Lumbermens Mutual Casualty Company ("Lumbermens") prior to, as a result of and
following the Merger, Lumbermens, Zurich, Insurance Partners, ZIP, Kemper and
KFS entered into a letter agreement dated May 15, 1995 (the "Lumbermens
Agreement"). The Lumbermens Agreement, among other things, (1) permits the
continued use of the "Kemper" name by Kemper and New KFS and (2) obligates New
KFS to reimburse Lumbermens for certain amounts that may be due to Lumbermens by
Kemper, if Kemper has not paid such amounts. As of March 31, 1995, the total
potential liability was $35.2 million.

The Lumbermens Agreement provides, to the extent permitted by law, that
Lumbermens intends to continue to engage KFS (or its successor), or its
subsidiaries, for at least three years to provide investment management services
for not less than 80% of the investment assets of Lumbermens (excluding benefit
plan assets held in trust) managed by KFS or its subsidiaries as of May 15,
1995. In connection therewith, the Lumbermens Agreement permits Lumbermens, and
Lumbermens intends, contemporaneously with the KFS Sale to invest in New KFS an
aggregate amount of up to $100 million or such lesser amount as is necessary to
purchase (1) either 9.9% of the shares of common stock of New KFS or an amount
of convertible preferred stock of New KFS that is convertible into

11
<PAGE> 16

9.9% of the shares of New KFS and (2) pro rata with Zurich, all other equity and
debt securities purchased from New KFS by Zurich. In the event of such
investment, Lumbermens will receive representation on the Board of Directors of
New KFS that is proportionate to Lumbermens' equity interest in New KFS; but in
any event, at least one individual designated by Lumbermens will be elected to
the Board of Directors of New KFS. It is currently contemplated that Lumbermens
would designate Mr. David B. Mathis for election to the Board of Directors of
New KFS (see "Other Information -- KFS"). The address of Lumbermens is: One
Kemper Drive, Long Grove, Illinois 60049. If the percentage of Lumbermens'
investment assets managed by New KFS drops below 50% of Lumbermens' investment
assets (excluding benefit plan assets held in trust), then Zurich or New KFS may
purchase Lumbermens investment in New KFS at fair market value. On the seventh
anniversary of the closing of the KFS Sale, Lumbermens will have the right to
demand that all its shares of New KFS be registered under the Securities Act of
1933.

Zurich has informed the Fund that as of May 31, 1995, no stockholder of Zurich,
either individually or as a "group" (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended), is known to beneficially own more
than 10% of the outstanding shares of Zurich's voting securities. KFS informed
the Fund that, as of May 31, 1995, KFS shared power to vote and dispose
of shares of Zurich (approximately % of the shares
outstanding), which were held by various non-investment company clients of KFS.

The common stockholders of Kemper will be voting on the Kemper merger. The
Merger is subject to various conditions such as governmental and insurance
regulatory approvals and filings and consummation of the KSI ESOP Sale. Neither
the Kemper merger nor the KFS Sale is subject to financing, although each may
involve financing. Zurich has guaranteed the obligations of ZIP and Insurance
Partners to consummate the Kemper merger and has guaranteed the obligations of
New KFS to consummate the KFS Sale.

It is a condition to the closing of the Merger that all directors and officers
of Kemper and its subsidiaries (including KFS), whose resignations have been
requested by ZIP, not less than ten days prior to the closing, shall have
resigned or been removed from office, effective as of the closing. No such
resignations have been requested nor are currently contemplated for KFS and its
subsidiaries.

The Merger Agreement also provides as a condition to the closing of the Merger
that the shareholders of registered investment companies for which Kemper or any
subsidiary acts as investment adviser or sub-adviser (the "KFS Advised Funds")
representing at least 90% of the total net assets of the KFS Advised Funds as of
April 30, 1995 shall have approved the new management agreements (the "90%
condition"). At that date, net assets of the KFS Advised Funds totalled
approximately $ billion. If, for example, a "majority" (as defined under
"Miscellaneous") of the shares of each of enough KFS Advised Funds to total at
least $ billion (90% of $ billion) were voted to approve new management
agreements, then the 90% condition would be satisfied. If the shareholders of
the Fund do not approve the new management agreement, Kemper, Zurich and
Insurance Partners nevertheless intend to proceed with the Merger (assuming all

12
<PAGE> 17

conditions precedent have been satisfied or waived, including the 90%
condition). In that event, the Board would take such action as it deemed to be
in the best interests of the shareholders, including, if necessary, seeking
exemptive relief from the SEC so that KFS (or its successor) could provide
investment management services to the Fund on an interim basis. If the Merger is
not consummated for any reason, then the current management agreement with the
Fund will continue.

BOARD OF TRUSTEES EVALUATION

On April 10, 1995, the Board was informed that Kemper had entered into an
agreement in principle with an investor group led by Zurich pursuant to which
Kemper would be acquired by the investor group in a merger transaction and KFS
would be sold. Thereafter, the Board was given Zurich financial reports and
other information regarding Zurich. In addition, counsel to the Fund and the
independent trustees prepared and distributed an analysis of the Board's
fiduciary obligations. At a special meeting on May 4, 1995, the trustees
discussed the initial information provided about Zurich and reviewed their
fiduciary obligations. Zurich senior management personnel, who were present by
invitation, presented a review of matters including Zurich's history, strategy
and general plans. There was extended discussion of, and questioning about,
Zurich's plans for KFS and the Fund, some of which were to be addressed in
definitive merger documents (which had not yet been executed). The Board agreed
at that time to hold another special meeting for further consideration of the
Merger and its effect on the Fund. Prior to that meeting, and from time to time
thereafter, the Board received a variety of materials concerning Zurich and the
Merger. The definitive merger documents were signed on May 15, 1995 and the
special Board meeting was held on June 2, 1995. There was further discussion of,
and questioning about, the terms of the Merger and Zurich's plans for New KFS
and the Fund, including the financial aspects of the Merger and proforma
financial statements of New KFS. As a result of its investigation and
consideration of the Merger and the new management agreement, at its meeting on
June 20, 1995, the Board voted to approve the new management agreement and to
recommend it to the shareholders of the Fund for their approval.

During its deliberations, the Board used outside assistance in its analysis of
financial and other aspects of the Merger to help evaluate the potential effects
upon KFS and the Fund. Throughout the review process the independent trustees of
the Board had the assistance of legal counsel.

The Board obtained from KFS and Zurich information regarding the respective
organizations, the Merger, and the future plans of the parties. Included in the
information furnished to and discussed with the Board were financial statements
and other representations of financial condition of Zurich and certain of its
subsidiaries, independent reports and analyses regarding Zurich and pro forma
financial statements of New KFS giving effect to the Merger. The New KFS pro
forma financial statements reflected anticipated borrowings by New KFS of $650
million, the sale of State Street Boston Corporation stock holdings and transfer
of

13
<PAGE> 18

the proceeds thereof, the $50 million dividend to Kemper and the sale of
Supervised Services Company and transfer of the proceeds thereof.

In connection with their deliberations, the Board obtained certain assurances
from Zurich, including the following:

- - Zurich looks upon New KFS as a core business in a core strategic market and
expects it to be an important part of Zurich's global asset management
strategy. With that focus, Zurich will devote to New KFS and its affairs all
attention and resources that are necessary to provide for the Fund top quality
investment management, shareholder, administrative and product distribution
services.

- - The Merger will not result in any change in the Fund's investment objectives
or policies.

- - The Merger is not expected to result in any adverse change in the investment
management or operations of the Fund, or the investment personnel managing the
Fund; Zurich neither plans nor proposes at the present time to make any
material change in the composition of senior management or personnel of KFS,
except to fill certain open positions; and Zurich neither plans nor proposes
at the present time to make any adverse change in the manner in which
investment advisory services are rendered to the Fund.

- - Zurich is committed to the continuance, without interruption, of services of
the type and quality currently provided by KFS and its subsidiaries, or
superior thereto.

- - Zurich plans to maintain or enhance the KFS facilities and organization.

- - The KFS senior management and the Board will be involved in decisions
materially affecting the KFS organization as it relates to the Fund.

- - In order to retain and attract key personnel, Zurich intends for New KFS to
maintain overall compensation and performance incentive policies and practices
at market levels or better.

Zurich, Kemper and KFS assured the Board that they intend to comply with Section
15(f) of the 1940 Act. Section 15(f) provides a non-exclusive safe harbor for an
investment adviser to an investment company or any of its affiliated persons to
receive any amount or benefit in connection with a change in control of the
investment adviser so long as two conditions are met. First, for a period of
three years after the transaction, at least 75% of the board members of the
investment company must not be interested persons of such investment adviser.
The Board presently consists of six trustees, two of whom, Messrs. David B.
Mathis and Stephen B. Timbers, are interested persons of KFS. Accordingly,
although the current composition of the Board is not in compliance with this
provision of Section 15(f), if Messrs. Akins and Renwick are elected (see Item 1
- -- Election of Board of Trustees), then the Fund would be in compliance with
this provision of Section 15(f). Second, an "unfair burden" must not be imposed

- ---------------

* After consummation of the Merger and subject to compliance with Section 15(f),
it is expected that
a senior executive of Zurich will be proposed to be nominated to the Board.

14
<PAGE> 19

upon the investment company as a result of such transaction or any express or
implied terms, conditions or understandings applicable thereto. The term "unfair
burden" is defined in Section 15(f) to include any arrangement during the two-
year period after the transaction whereby the investment adviser, or any
interested person of any such adviser, receives or is entitled to receive any
compensation, directly or indirectly, from the investment company or its
shareholders (other than fees for bona fide investment advisory or other
services) or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the investment company
(other than bona fide ordinary compensation as principal underwriter for such
investment company). Zurich, Kemper and KFS are not aware of any express or
implied term, condition, arrangement or understanding that would impose an
"unfair burden" on the Fund as a result of the Merger. Zurich, Kemper and KFS
have agreed that they, and their affiliates, will take no action that would have
the effect of imposing an "unfair burden" on the Fund as a result of the Merger.
Zurich and Kemper have undertaken to pay the costs of preparing and distributing
proxy materials to and of holding the meetings of the Fund's shareholders as
well as other fees and expenses in connection with the Merger, including the
fees and expenses of legal counsel to the Fund and the independent trustees and
for other outside assistance to help analyze the Merger from a financial
perspective.

In connection with the Board's approval of the new management agreement, the
Board considered that the terms of the Merger Agreement and the KFS Merger
Agreement do not require any change in the Fund's investment objective or
policies, the investment management or operation of the Fund, or the investment
personnel managing the Fund. If, after the Merger, changes in New KFS are
proposed that might materially affect its services to the Fund, the Board will
consider the effect of those changes and take such action as it deems advisable
under the circumstances.

In evaluating the new management agreement, the Board took into account that the
new management agreement for the Fund, including the terms relating to the
services to be provided and the fees and expenses payable by the Fund, is on the
same terms as the current management agreement. The Board noted that, in
previously approving the continuation of the current management agreement, the
Board had considered a number of factors, including the nature and quality of
services provided by KFS; investment performance, both of the Fund itself and
relative to that of competitive investment companies; investment management fees
and expense ratios of the Fund and competitive investment companies; KFS
profitability from managing the Fund; fall-out benefits to KFS from its
relationship to the Fund, including revenues derived from services provided to
the Fund by affiliates of KFS; and the potential benefits to KFS and to the Fund
and their shareholders of receiving research services from broker/dealer firms
in connection with the allocation of portfolio transactions to such firms.

The Board discussed the Merger, the financial condition of Zurich and the pro
forma financial statements of New KFS with the senior management of KFS and
Zurich and among themselves. Zurich senior management personnel and
representatives advised the Board that Zurich expects the operating cash flows
from

15
<PAGE> 20

New KFS to be more than sufficient to service debt and pay for operating and
other expenses. The Board also considered that Zurich is a large,
well-established company with substantial resources and, as noted above, has
undertaken to devote such resources as are necessary to provide the Fund with
top quality services.

As a result of its investigation and consideration of the Merger and the new
management agreement, at its meeting on June 20, 1995, the Board voted to
approve the new management agreement and to recommend it to the shareholders of
the Fund for their approval.

The Board recommends that shareholders vote FOR approval of the new management
agreement.

OTHER INFORMATION

KFS

KFS is a wholly owned subsidiary of Kemper Financial Companies, Inc., ("KFC"), a
financial services holding company. Kemper, an insurance and financial services
holding company, owns more than 99% of the voting securities of KFC. The address
of KFS is 120 South LaSalle Street, Chicago, Illinois 60603. The address of KFC
and Kemper is One Kemper Drive, Long Grove, Illinois 60049.

Since May 31, 1994, no trustee or nominee for election as a trustee of the Fund
purchased or sold securities, or as of May 31, 1995, beneficially owned in the
aggregate, more than 1% of the outstanding securities of KFC, Kemper or Zurich.
As of May 31, 1995, none of the non-interested trustees, or non-interested
nominees, beneficially owned any securities of KFC, Kemper or Zurich.

The investment companies to which KFS renders investment management services,
and the related management fees, are identified in Exhibit B.

The names, addresses and principal occupations of the principal executive
officer and the directors of KFS are as follows:

<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ------------------------------ ------------------------------------
<S> <C>
James R. Boris, Director Chairman and Chief Executive
77 West Wacker Drive Officer, Kemper Securities, Inc. and
Chicago, Illinois 60601 Executive Vice President, Kemper
David B. Mathis, Director Chairman and Chief Executive
One Kemper Drive Officer, Kemper
Long Grove, Illinois 60049
John E. Neal, Director President and Chief Operating
120 South LaSalle Street Officer, KFS
Chicago, Illinois 60603
</TABLE>

16
<PAGE> 21

<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ------------------------------ ------------------------------------
<S> <C>
John E. Peters, Director Senior Executive Vice President, KFS
120 South LaSalle Street
Chicago, Illinois 60603
Stephen B. Timbers, Chairman President and Chief Operating
Chief Executive Officer and Officer, Kemper; Chairman, Chief
Director Executive Officer and Chief
120 South LaSalle Street Investment Officer, KFS
Chicago, Illinois 60603
</TABLE>

Upon consummation of the KFS Sale, it is expected that Messrs. Mathis, Neal,
Peters and Timbers and one or more senior executive officers of Zurich will
become directors of KFS.

CUSTODIAN AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary Trust Company
("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as custodian, and
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02210, as sub-custodian, have custody of all securities and cash of the Fund
maintained in the United States. The Chase Manhattan Bank, N.A., Chase MetroTech
Center, Brooklyn, New York 11245, as custodian, has custody of all securities
and cash of the Fund held outside the United States. They attend to the
collection of principal and income, and payment for and collection of proceeds
of securities bought and sold by the Fund. IFTC is also the Fund's transfer
agent and divided-paying agent. Prior to February 1, 1995, IFTC was owned
equally by KFS and DST Systems, Inc., a company that is not affiliated with KFS.
On January 31, 1995, KFS and DST Systems, Inc. sold IFTC to State Street Boston
Corporation. Pursuant to a services agreement with IFTC, Kemper Service Company
("KSVC"), an affiliate of KFS, serves as "Shareholder Service Agent."

IFTC receives an annual fee, payable monthly as custodian for the Fund of $0.085
per $1,000 of average monthly net assets of the Fund held in custody by IFTC
plus certain transaction charges and an out-of-pocket expense reimbursement. In
addition, there is an annual charge of $15 for each security held in the Fund's
portfolio. IFTC currently receives from the Fund as transfer agent, and pays to
KSVC, annual account fees of $6 plus account set up, maintenance, and
transaction charges and an out-of-pocket expense reimbursement. IFTC's fee is
reduced by certain earnings credits in favor of the Fund.

For the fiscal year ended June 30, 1994, the Fund incurred custodian and
transfer agent fees to IFTC as set forth in Exhibit C. Also set forth in Exhibit
C are the shareholder service fees IFTC remitted to KSVC. It is anticipated that
KSVC (or its successor) will continue to provide transfer agent services after
consummation of the Merger.

ADMINISTRATIVE SERVICES. Various financial services firms, such as broker-dealer
firms or banks ("firms"), provide information and administrative services and
facilities for their customers or clients who are shareholders of the Fund
pursuant to agreements with KDI. Before February 1, 1995, KFS served as the
Fund's administrator. KDI has entered into an administrative services agreement
with the Fund ("administrative agreement") to provide information and
administrative services to Fund shareholders. Such administrative services and
assistance

17
<PAGE> 22

may include, but are not limited to, establishing and maintaining shareholder
accounts and records, processing purchase and redemption transactions, answering
routine inquiries regarding the Fund and its special features, and such other
services as may be agreed upon from time to time and permitted by applicable
statute, rule or regulation. KDI bears all its expenses of providing services
pursuant to the administrative agreement, including the payment of any service
fees. For services under the administrative agreement, the Fund pays KDI a fee,
payable monthly, at the annual rate of up to .25 of 1% of average daily net
assets of the Fund. KDI then pays each firm a service fee at an annual rate of
up to .25 of 1% of net assets of those accounts in the Fund that it maintains
and services. The fees are calculated monthly and payable quarterly until
terminated by KDI or the Fund. Firms to which service fees may be paid include
broker-dealers affiliated with KDI.

KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreements not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, however,
the administrative services fee payable to KFS is based only upon assets of the
Fund in accounts for which there is a firm listed on the Fund's records and it
is intended that KDI will pay all the administrative services fee that it
receives from the Funds to firms in the form of service fees. The effective
administrative services fee rate to be charged against all assets of the Funds
while this procedure is in effect will depend upon the proportion of Fund assets
in accounts for which there is a firm of record. The Board may, in the future,
approve basing the fee to KDI on all Fund assets or increasing the fee to .25 of
1% of average daily net assets without regard to the date of purchase.

Set forth in Exhibit D are the administrative services fees paid by the Fund to
KFS (as predecessor to KDI) during the fiscal year ended June 30, 1994 and the
effective rate at which the Fund paid administrative services fees during that
fiscal year. It is anticipated that KDI (or its successor) will continue to
provide administrative services after consummation of the Merger.

UNDERWRITER. KDI is the principal underwriter for the Fund and acts as agent in
the offering of the Fund's shares. The Fund pays the cost for the prospectus and
shareholder reports to be set in type and printed for existing shareholders, and
KDI pays for the printing and distribution of copies thereof used in connection
with the offering of shares to prospective investors. KDI also pays for
supplementary sales literature and advertising costs. Before February 1, 1995,
KFS served as the Fund's principal underwriter. It is expected that KDI (or its
successor) will continue to serve as the Fund's underwriter after consummation
of the Merger.

ALLOCATION OF PORTFOLIO TRANSACTIONS. KFS is the investment manager for the Fund
and KFS and its affiliates also furnish investment management services to other
clients including the KFS Advised Funds, Kemper and the Kemper insurance
companies. KFS is the sole shareholder of Kemper Asset Management Company and
Kemper Investment Management Company Limited. These three entities share some
common research and trading facilities. At times investment decisions may be
made to purchase or sell the same investment securities for the

18
<PAGE> 23

Fund and for one or more of the other clients advised by KFS. When two or more
of such clients are simultaneously engaged in the purchase or sale of the same
security, the transactions are allocated as to amount and price in a manner
considered equitable to each and so that each receives, to the extent
practicable, the average price of such transactions.

National securities exchanges have established limitations governing the maximum
number of options in each class that may be written by a single investor or
group of investors acting in concert. An exchange may order the liquidation of
positions found to be in violation of these limits, and it may impose certain
other sanctions. These position limits may restrict the number of options the
Fund will be able to write on a particular security.

The above mentioned factors may have a detrimental effect on the quantities or
prices of securities available to a Fund. On the other hand, the ability of the
Fund to participate in volume transactions may produce better execution for the
Fund in some cases. The Board believes that the benefits of KFS' organization
outweigh any limitations that may arise from simultaneous transactions.

KFS, in effecting purchases and sales of portfolio securities for the account of
the Fund, implements the Fund's policy of seeking best execution of orders,
which includes best net prices, except to the extent that KFS may be permitted
to pay higher brokerage commissions for research services as described below.
Consistent with this policy, orders for portfolio transactions are placed with
broker-dealer firms giving consideration to the quality, quantity and nature of
each firm's professional services which include execution, clearance procedures,
wire service quotations and statistical and other research information provided
to the Fund and KFS. Any research benefits derived are available for all
clients, including clients of affiliated companies. Since statistical and other
research information is only supplementary to research efforts of KFS and still
must be analyzed and reviewed by its staff, the receipt of research information
is not expected to materially reduce its expenses. In selecting among firms
believed to meet the criteria for handling a particular transaction, KFS may
give consideration to those firms that have sold or are selling shares of the
Kemper Mutual Funds, as well as to those firms that provide market, statistical
and other research information to the Fund and KFS. KFS is not authorized to pay
higher commissions or in the case of principal trades, higher prices, to firms
that provide such services, except as provided below. The Fund may purchase
instruments issued by banks that are receiving service payments or commissions;
however, no preferences will be given in making such portfolio purchases. Money
market instruments are normally purchased in principal transactions directly
from the issuer or from an underwriter or market maker. There are normally no
brokerage commissions paid for such purchases. Purchases from underwriters
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers include the spread between the
bid and ask prices.

KFS may in certain instances be permitted to pay higher brokerage commissions
solely for receipt of market, statistical and other research services. Subject
to Section 28(e) of the Securities Exchange Act of 1934 and procedures adopted
by the Board the Fund could pay to a firm that provides research services to KFS
a

19
<PAGE> 24

commission for effecting a securities transaction for the Fund in excess of the
amount other firms would have charged for the transaction. The Fund could do
this if KFS determines in good faith that the greater commission is reasonable
in relation to the value of the research services provided by the executing firm
viewed in terms either of a particular transaction or KFS's overall
responsibilities to a particular Fund or other clients. Not all such research
services may be useful or of value in advising a particular Fund. Research
benefits will be available for all clients of KFS and its subsidiaries. In
addition, the investment management fee paid by the Fund to KFS is not reduced
because KFS receives these research services.

Set forth in Exhibit C are the total brokerage commissions paid by the Fund for
the fiscal year ended June 30, 1994, as well as the percentage of such amounts
that was allocated to broker-dealer firms on the basis of research information
or on the basis of sales of Kemper Mutual Fund shares.

MISCELLANEOUS

GENERAL

The cost of preparing, printing and mailing the enclosed proxy, accompanying
notice and proxy statement and all other costs in connection with solicitation
of proxies will be paid by Kemper and Zurich, including any additional
solicitation made by letter, telephone or telegraph. In addition to solicitation
by mail, certain officers and representatives of the Fund, officers and
employees of KFS and certain financial services firms and their representatives,
who will receive no extra compensation for their services, may solicit proxies
by telephone, telegram or personally. In addition, Kemper and Zurich may retain
a firm to solicit proxies on behalf of the Board and the boards of the other KFS
Advised Funds; the fee for which will be borne by Kemper and Zurich. A COPY OF
YOUR FUND'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 1994 AND ITS MORE
RECENT SEMI-ANNUAL REPORT ARE AVAILABLE WITHOUT CHARGE UPON REQUEST BY WRITING
TO THE FUND, 120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603 OR BY CALLING
1-800-294-4366. THE ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 1995 IS
EXPECTED TO BE AVAILABLE ON OR BEFORE AUGUST 30, 1995.

PROPOSALS OF SHAREHOLDERS

As a Massachusetts business trust, the Fund is not required to hold annual
shareholder meetings, but it will hold special meetings as required or deemed
desirable. Since the Fund does not hold regular meetings of shareholders, the
anticipated date of the next special shareholder meeting cannot be provided. Any
shareholder proposal which may properly be included in the proxy solicitation
material for a special shareholder meeting must be received by the Fund no later
than four months prior to the date proxy statements are mailed to shareholders.

OTHER MATTERS TO COME BEFORE THE MEETING

The Board is not aware of any matters that will be presented for action at the
Meeting other than the matters set forth herein. Should any other matters

20
<PAGE> 25

requiring a vote of shareholders arise, the proxy in the accompanying form will
confer upon the person or persons entitled to vote the shares represented by
such proxy the discretionary authority to vote the shares as to any such other
matters in accordance with their best judgment in the interest of the Fund.

VOTING, QUORUM

Each share of the Fund is entitled to one vote on each matter submitted to a
vote of the shareholders at the Meeting; no shares have cumulative voting
rights.

Each valid proxy will be voted in accordance with your instructions and as the
persons named in the proxy determine on such other business as may come before
the Meeting. If no instructions are given, the proxy will be voted FOR the
election of the persons who have been nominated as trustees for the Fund and FOR
Items 2 and 3. Shareholders who execute proxies may revoke them at any time
before they are voted, either by writing to the Fund or in person at the time of
the Meeting. Proxies given by telephone or electronically transmitted
instruments may be counted if obtained pursuant to procedures designed to verify
that such instructions have been authorized.

Item 1 (election of Board Trustees) requires a plurality vote of the shares of
the Fund. This means that the eight nominees receiving the largest number of
votes will be elected. Item 2 (ratification of selection of independent
auditors) requires the affirmative vote of a majority of the shares voting on
the matter. Item 3 (approval of new investment management agreement) requires
the affirmative vote of a "majority of the outstanding voting securities" of the
Fund. The term "majority of the outstanding voting securities" as defined in the
1940 Act means: the affirmative vote of the lesser of (1) 67% of the voting
securities of the Fund present at the meeting if more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (2) more
than 50% of the outstanding shares of the Fund.

On Item 1 and Item 2, the Fund will vote in the aggregate and not by series. On
Item 3, each series will vote separately.

The Declaration of Trust of the Fund provides that the presence at a shareholder
meeting in person or by proxy of at least 30% of the shares of the Fund
constitutes a quorum. Thus, the meeting for the Fund could not take place on its
scheduled date if less than 30% of the shares of the Fund were represented. If,
by the time scheduled for the meeting, a quorum of shareholders of a Fund is not
present or if a quorum is present but sufficient votes in favor of any of the
items are not received, the persons named as proxies may propose one or more
adjournments of the Meeting for the Fund to permit further soliciting of proxies
from shareholders of the Fund. Any such adjournment will require the affirmative
vote of a majority of the shares of the Fund (or series) present (in person or
by proxy) at the session of the meeting to be adjourned. The persons named as
proxies will vote in favor of any such adjournment if they determine that such
adjournment and additional solicitation are reasonable and in the interest of
the Fund's shareholders.

21
<PAGE> 26

In tallying shareholder votes, abstentions and "broker non-votes" (i.e., shares
held by brokers or nominees as to which (i) instructions have not been received
from the beneficial owners or persons entitled to vote and (ii) the broker or
nominee does not have discretionary voting power on a particular matter) will be
counted for purposes of determining whether a quorum is present for purposes of
convening the Meeting. On Item 1, abstentions and broker non-votes will have no
effect; the eight nominees receiving the largest number of votes will be
elected. On Item 2, abstentions and broker non-votes will not be counted as
"votes cast" and will have no effect on the result of the vote. On Item 3
abstentions and broker non-votes will be considered to be both present at the
Meeting and issued and outstanding and, as a result, will have the effect of
being counted as voted against the Items.

The Board of Trustees of the Fund recommends an affirmative vote on all items.

PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.

By order of the Board of Trustees,
Philip J. Collora
Secretary

22
<PAGE> 27

EXHIBIT A

FORM OF
INVESTMENT MANAGEMENT AGREEMENT

AGREEMENT made this day of , 199 , by and between KEMPER TARGET
EQUITY FUND, a Massachusetts business trust (the "Fund"), and KEMPER FINANCIAL
SERVICES, INC., a Delaware corporation (the "Adviser").

WHEREAS, the Fund is an open-end management investment company registered under
the Investment Company Act of 1940, the shares of beneficial interest ("Shares")
of which are registered under the Securities Act of 1933;

WHEREAS, the Fund is authorized to issue Shares in separate series or portfolios
with each representing the interests in a separate portfolio of securities and
other assets;

WHEREAS, the Fund wants to retain the Adviser under this Agreement to render
investment advisory and management services to the portfolios of the Fund known
as Kemper Retirement Fund Series I, Kemper Retirement Fund Series II, Kemper
Retirement Fund Series III, Kemper Retirement Fund Series IV, Kemper Retirement
Fund Series V, Kemper Retirement Fund Series VI (collectively the "Kemper
Retirement Fund Series Portfolios") and Kemper Worldwide 2004 Fund (the "Kemper
Worldwide Fund Portfolio") (the Kemper Retirement Fund Series Portfolios and the
Kemper Worldwide Fund Portfolio are collectively referred to as the "Initial
Portfolios"), together with any other Fund portfolios which may be established
later and served by the Adviser hereunder, being herein referred to collectively
as the "Portfolios" and individually referred to as a "Portfolio"; and

WHEREAS, the Adviser is willing to render such investment advisory and
management services for the Initial Portfolios;

NOW THEREFORE, in consideration of the mutual covenants hereinafter contained,
it is hereby agreed by and between the parties hereto as follows:

1. The Fund hereby employs the Adviser to act as the investment adviser for the
Initial Portfolios and other Portfolios hereunder and to manage the investment
and reinvestment of the assets of each such Portfolio in accordance with the
applicable investment objectives and policies and limitations, and to administer
the affairs of each such Portfolio to the extent requested by and subject to the
supervision of the Board of Trustees of the Fund for the period and upon the
terms herein set forth, and to place orders for the purchase or sale of
portfolio securities for the Fund's account with brokers or dealers selected by
it; and, in connection therewith, the Adviser is authorized as the agent of the
Fund to give instructions to the Custodian of the Fund as to the deliveries of
securities and payments of cash for the account of the Fund. In connection with
the selection of such brokers or dealers and the placing of such orders, the
Adviser is directed to seek for the Fund best execution of orders. Subject to
such policies as the Board

A-1
<PAGE> 28

of Trustees of the Fund determines, the Adviser shall not be deemed to have
acted unlawfully or to have breached any duty, created by this Agreement or
otherwise, solely by reason of its having caused the Fund to pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction, if the Adviser determined in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer viewed in terms of
either that particular transaction or the Adviser's overall responsibilities
with respect to the clients of the Adviser as to which the Adviser exercises
investment discretion. The Fund recognizes that all research services and
research that the Adviser receives or generates are available for all clients,
and that the Fund and other clients may benefit thereby. The investment of funds
shall be subject to all applicable restrictions of the Agreement and Declaration
of Trust and By-Laws of the Fund as may from time to time be in force.

The Adviser accepts such employment and agrees during such period to render such
services, to furnish office facilities and equipment and clerical, bookkeeping
and administrative services for the Fund, to permit any of its officers or
employees to serve without compensation as trustees or officers of the Fund if
elected to such positions and to assume the obligations herein set forth for the
compensation herein provided. The Adviser shall for all purposes herein provided
be deemed to be an independent contractor and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the Fund
in any way or otherwise be deemed an agent of the Fund. It is understood and
agreed that the Adviser, by separate agreements with the Fund, may also serve
the Fund in other capacities.

2. In the event that the Fund establishes one or more portfolios other than the
Initial Portfolios with respect to which it desires to retain the Adviser to
render investment advisory and management services hereunder, it shall notify
the Adviser in writing. If the Adviser is willing to render such services, it
shall notify the Fund in writing whereupon such portfolio or portfolios shall
become a Portfolio or Portfolios hereunder.

3. For the services and facilities described in Section 1, the Fund will pay to
the Adviser at the end of each calendar month, an investment management fee
computed at an annual rate of .50 of 1% of the average daily net assets of each
Kemper Retirement Fund Series Portfolio; and of .60 of 1% of the average daily
net assets of the Kemper Worldwide Fund Portfolio. [For Kemper Retirement Fund
Series Portfolios: The fee as computed above shall be computed separately for,
and charged as an expense of, each Portfolio based upon the average daily net
assets of such Portfolio.] [For Kemper Worldwide Fund Portfolio: The fee as
computed above shall be allocated as an expense of each Portfolio based upon the
relative daily net assets of such Portfolios.] For the month and year in which
this Agreement becomes effective or terminates, there shall be an appropriate
proration on the basis of the number of days that the Agreement is in effect
during the month and year, respectively.

A-2
<PAGE> 29

4. The services of the Adviser to the Fund under this Agreement are not to be
deemed exclusive, and the Adviser shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.

5. In addition to the fee of the Adviser, the Fund shall assume and pay any
expenses for services rendered by a custodian for the safekeeping of the Fund's
securities or other property, for keeping its books of account, for any other
charges of the custodian, and for calculating the net asset value of the Fund as
provided in the prospectus of the Fund. The Adviser shall not be required to pay
and the Fund shall assume and pay the charges and expenses of its operations,
including compensation of the trustees (other than those affiliated with the
Adviser), charges and expenses of independent auditors, of legal counsel, of any
transfer or dividend disbursing agent, and of any registrar of the Fund, costs
of acquiring and disposing of portfolio securities, interest, if any, on
obligations incurred by the Fund, costs of share certificates and of reports,
membership dues in the Investment Company Institute or any similar organization,
costs of reports and notices to shareholders, other like miscellaneous expenses
and all taxes and fees payable to federal, state or other governmental agencies
on account of the registration of securities issued by the Fund, filing of trust
documents or otherwise. The Fund shall not pay or incur any obligation for any
expenses for which the Fund intends to seek reimbursement from the Adviser as
herein provided without first obtaining the written approval of the Adviser. The
Adviser shall arrange, if desired by the Fund, for officers or employees of the
Adviser to serve, without compensation from the Fund, as trustees, officers or
agents of the Fund if duly elected or appointed to such positions and subject to
their individual consent and to any limitations imposed by law.

If expenses borne by the Fund for those Portfolios which the Adviser manages in
any fiscal year (including the Adviser's fee, but excluding interest, taxes,
fees incurred in acquiring and disposing of portfolio securities, distribution
services fees, extraordinary expenses and any other expenses excludable under
state securities law limitations) exceed any applicable limitation arising under
state securities laws, the Adviser will reduce its fee or reimburse the Fund for
any excess to the extent required by such state securities laws. If for any
month the expenses of the Fund properly chargeable to the income account shall
exceed 1/12 of the percentage of average net assets allowable as expenses, the
payment to the Adviser for that month shall be reduced and if necessary the
Adviser shall make a refund payment to the Fund so that the total net expense
will not exceed such percentage. As of the end of the Fund's fiscal year,
however, the foregoing computations and payments shall be readjusted so that the
aggregate compensation payable to the Adviser for the year is equal to the
percentage calculated in accordance with Section 3 hereof of the average net
asset value as determined as described herein throughout the fiscal year,
diminished to the extent necessary so that the total of the aforementioned
expense items of the Fund shall not exceed the expense limitation. The aggregate
of repayments, if any, by the Adviser to the Fund for the year shall be the
amount necessary to limit the said net expense to said percentage in accordance
with the foregoing.

A-3
<PAGE> 30

The net asset value for each Portfolio shall be calculated in accordance with
the provisions of the Fund's prospectus or as the trustees may determine in
accordance with the provisions of the Investment Company Act of 1940. On each
day when net asset value is not calculated, the net asset value of a Portfolio
shall be deemed to be the net asset value of such Portfolio as of the close of
business on the last day on which such calculation was made for the purpose of
the foregoing computations.

6. Subject to applicable statutes and regulations, it is understood that
trustees, officers or agents of the Fund are or may be interested in the Adviser
as officers, directors, agents, shareholders or otherwise, and that the
officers, directors, shareholders and agents of the Adviser may be interested in
the Fund otherwise than as a trustee, officer or agent.

7. The Adviser shall not be liable for any error of judgment or of law or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser in the performance of its
obligations and duties or by reason of its reckless disregard of its obligations
and duties under this Agreement.

8. This Agreement shall become effective with respect to the Initial Portfolios
on the date hereof and shall remain in full force until , 199 , unless
sooner terminated as hereinafter provided. This Agreement shall continue in
force from year to year thereafter with respect to each Portfolio, but only as
long as such continuance is specifically approved for each Portfolio at least
annually in the manner required by the Investment Company Act of 1940 and the
rules and regulations thereunder; provided, however, that if the continuation of
this Agreement is not approved for a Portfolio, the Adviser may continue to
serve in such capacity for such Portfolio in the manner and to the extent
permitted by the Investment Company Act of 1940 and the rules and regulations
thereunder.

This Agreement shall automatically terminate in the event of its assignment and
may be terminated at any time without the payment of any penalty by the Fund or
by the Adviser on sixty (60) days written notice to the other party. The Fund
may effect termination with respect to any Portfolio by action of the Board of
Trustees or by vote of a majority of the outstanding voting securities of such
Portfolio.

This Agreement may be terminated with respect to any Portfolio at any time
without the payment of any penalty by the Board of Trustees or by vote of a
majority of the outstanding voting securities of such Portfolio in the event
that it shall have been established by a court of competent jurisdiction that
the Adviser or any officer or director of the Adviser has taken any action which
results in a breach of the covenants of the Adviser set forth herein.

The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Investment Company Act of
1940 and the rules and regulations thereunder.

A-4
<PAGE> 31

Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation described in Section
3 earned prior to such termination.

9. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.

10. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.

11. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the trustees, officers, or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund. With
respect to any claim by the Adviser for recovery of that portion of the
investment management fee (or any other liability of the Fund arising hereunder)
allocated to a particular Portfolio, whether in accordance with the express
terms hereof or otherwise, the Adviser shall have recourse solely against the
assets of that Portfolio to satisfy such claim and shall have no recourse
against the assets of any other Portfolio for such purpose.

12. This Agreement shall be construed in accordance with applicable federal law
and (except as to Section 11 hereof which shall be construed in accordance with
the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.

13. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.

A-5
<PAGE> 32

IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to be
executed as of the day and year first above written.

KEMPER TARGET EQUITY FUND

By:

Title:

ATTEST:

Title:

KEMPER FINANCIAL SERVICES, INC.

By:

Title:

ATTEST:

Title:

A-6
<PAGE> 33

EXHIBIT B

FUNDS AND MANAGEMENT FEES

<TABLE>
<CAPTION>
TOTAL NET ASSETS* MANAGEMENT
FUND (MILLIONS) FEE**
- ------------------------------------------------------------------ ----------
<S> <C> <C>
Kemper Technology Fund........................... $ 786 A
Kemper Total Return Fund......................... 2,842 A
Kemper Growth Fund............................... 2,269 A
Kemper Small Capitalization Equity Fund.......... 655 F
Kemper Income and Capital Preservation Fund...... 548 B
Kemper National Tax-Free Income Series
1. Kemper Municipal Bond Fund.................. 3,634 C
2. Kemper Intermediate Municipal Bond Fund..... 13 B
Kemper Diversified Income Fund................... 768 A
Kemper High Yield Fund........................... 3,517 A
Kemper U.S. Government Securities Fund........... 4,889 C
Kemper International Fund........................ 369 D
Kemper International Bond Fund................... 7 D
Kemper State Tax-Free Income Series
1. Kemper California Tax-Free Income Fund...... 1,139 B
2. Kemper New York Tax-Free Income Fund........ 329 B
3. Kemper Florida Tax-Free Income Fund......... 123 B
4. Kemper Texas Tax-Free Income Fund........... 16 B
5. Kemper Ohio Tax-Free Income Fund............ 31 B
6. Kemper Michigan Tax-Free Income Fund........ 2 B
7. Kemper New Jersey Tax-Free Income Fund...... 4 B
8. Kemper Pennsylvania Tax-Free Income Fund.... 2 B
Kemper Portfolios
1. Kemper Cash Reserves Fund................... 214 E
2. Kemper U.S. Mortgage Fund................... 3,652 B
3. Kemper Short-Intermediate Government Fund... 250 B
Kemper Adjustable Rate U.S. Government Fund...... 150 B
Kemper Blue Chip Fund............................ 155 A
Kemper Global Income Fund........................ 172 D
Kemper Money Market Fund......................... G
1. Money Market Portfolio...................... 3,998
2. Government Securities Portfolio............. 586
3. Tax-Exempt Portfolio........................ 738
Cash Equivalent Fund
1. Money Market Portfolio...................... 3,451 H
2. Government Securities Portfolio............. 1,687 H
Cash Equivalent Fund
1. Tax-Exempt Portfolio........................ 1,020 H
Tax-Exempt California Money Market Fund.......... 94 H
Cash Account Trust............................... H
1. Money Market Portfolio...................... 397
2. Government Securities Portfolio............. 150
3. Tax-Exempt Portfolio........................ 70
Investors Cash Trust
1. Government Securities Portfolio............. 197 0.15%
2. Treasury Portfolio.......................... 67 0.15%
</TABLE>

B-1
<PAGE> 34

<TABLE>
<CAPTION>
TOTAL NET ASSETS* MANAGEMENT
FUND (MILLIONS) FEE**
- ------------------------------------------------------------------ ----------
<S> <C> <C>
Tax-Exempt New York Money Market Fund............ 15 H
Kemper High Income Trust......................... 200 0.85%
Kemper Intermediate Government Trust............. 278 0.80%
Kemper Municipal Income Trust.................... 672 0.55%
Kemper Multi-Market Income Trust................. 215 0.85%
Kemper Strategic Municipal Income Trust.......... 126 0.60%
The Growth Fund of Spain, Inc. .................. 221 1.00%
Kemper Strategic Income Fund..................... 45 0.85%
Kemper Investors Fund
1. Money Market Portfolio...................... 65 0.50%
2. Total Return Portfolio...................... 626 0.55%
3. High Yield Portfolio........................ 265 0.60%
4. Equity Portfolio............................ 336 0.60%
5. Government Securities Portfolio............. 96 0.55%
6. International Portfolio..................... 125 0.75%
7. Small Capitalization Equity Portfolio....... 18 0.65%
Kemper Target Equity Fund
1. Kemper Retirement Fund Series I............. 105 0.50%
2. Kemper Retirement Fund Series II ........... 172 0.50%
3. Kemper Retirement Fund Series III .......... 123 0.50%
4. Kemper Retirement Fund Series IV ........... 151 0.50%
5. Kemper Retirement Fund Series V............. 134 0.50%
6. Kemper Retirement Fund Series VI............ 3 0.50%
7. Kemper Worldwide 2004 Fund.................. 30 0.60%
Sterling Funds
1. Equity Fund................................. 0 I
2. Total Return Fund........................... 0 I
3. U.S. Government Securities Fund............. 0 J
4. Municipal Bond Fund......................... 0 J
5. Government Money Market Fund................ 0 K
Amway Mutual Fund, Inc.***....................... 63 0.45%
</TABLE>

- ---------------
* Total Net Assets, in millions, as of May 31, 1995.

** Scheduled annual management fees payable to KFS as a percentage of average
daily net assets.

*** KFS serves as sub-adviser.

(A) .58 of 1% of the first $250 million, .55 of 1% of the next $750 million, .53
of 1% of the next $1.5 billion, .51 of 1% of the next $2.5 billion, .48 of
1% of the next $2.5 billion, .46 of 1% of the next $2.5 billion, .44 of 1%
of the next $2.5 billion and .42 of 1% thereafter.

(B) .55 of 1% of the first $250 million, .52 of 1% of the next $750 million, .50
of 1% of the next $1.5 billion, .48 of 1% of the next $2.5 billion, .45 of
1% of the next $2.5 billion, .43 of 1% of the next $2.5 billion, .41 of 1%
of the next $2.5 billion and .40 of 1% thereafter. KFS is currently waiving
its management fee for Kemper Intermediate Municipal Bond Fund, Kemper
Michigan Tax-Free Income Fund, Kemper New Jersey Tax-Free Income Fund and
Kemper Pennsylvania Tax-Free Income Fund.

B-2
<PAGE> 35

(C) .45 of 1% of the first $250 million, .43 of 1% of the next $750 million, .41
of 1% of the next $1.5 billion, .40 of 1% of the next $2.5 billion, .38 of
1% of the next $2.5 billion, .36 of 1% of the next $2.5 billion, .34 of 1%
of the next $2.5 billion and .32 of 1% thereafter.

(D) .75 of 1% of the first $250 million, .72 of 1% of the next $750 million, .70
of 1% of the next $1.5 billion, .68 of 1% of the next $2.5 billion, .65 of
1% of the next $2.5 billion, .64 of 1% of the next $2.5 billion, .63 of 1%
of the next $2.5 billion and .62 of 1% thereafter.

(E) .40 of 1% of the first $250 million, .38 of 1% of the next $750 million, .35
of 1% of the next $1.5 billion, .32 of 1% of the next $2.5 billion, .30 of
1% of the next $2.5 billion, .28 of 1% of the next $2.5 billion, .26 of 1%
of the next $2.5 billion and .25 of 1% thereafter.

(F) Base investment management fee of .65 of 1% of average daily net assets plus
or minus an incentive fee based upon the investment performance of the fund
as compared with the performance of the Standard & Poor's 500 Stock Index
which may result in a total fee ranging from .35 of 1% to .95 of 1%.

(G) .50% of the first $215 million; .375% of the next $335 million; .30% of the
next $250 million; .25% thereafter (on the identified series in the
aggregate).

(H) .22% of the first $500 million; .20% of the next $500 million; .175% of the
next $1 billion; .16% of the next $1 billion; .15% thereafter (on the
identified series in the aggregate).

(I) .80% of the first $250 million; .79% of the next $750 million; .77% of the
next $1.5 billion; .75% thereafter.

(J) .65% of the first $250 million; .64% of the next $750 million; .62% of the
next $1.5 billion; .60% thereafter.

(K) .50% of the first $250 million; .49% of the next $750 million; .47% of the
next $1.5 billion; .45% thereafter.

B-3
<PAGE> 36

EXHIBIT C

FEES AND EXPENSES

<TABLE>
<CAPTION>
KTEF(C)
---------------------------------------------------------------
KRF-I KRF-II KRF-III KRF-IV KRF-V(A) KWF4(B)
-------- ------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year End..................... 6/30/94 6/30/94 6/30/94 6/30/94 6/30/94 6/30/94
Management Fees Paid
to KFS............................. $593,000 984,000 703,000 730,000 117,000 3,000
Effective Management
Fee Rate........................... .50% .50 .50 .50 .50 .60
Custodian, Transfer Agent Fees Paid
by Fund
to IFTC............................ $134,000 213,000 168,000 206,000 96,000 0
Shareholder Service Fees Paid by
IFTC to KSVC....................... $103,000 175,000 134,000 165,000 79,000 0
Administrative Services Fees Paid by
Fund to KFS........................ $283,000 473,000 343,000 338,000 48,000 0
Maximum Administrative Service Fee
Rate
Payable............................ .25% .25 .25 .25 .25 .25
Effective Administrative Service Fee
Rate............................... .24% .24 .24 .23 .21 0
Commissions Retained
by KFS............................. $ 0 0 0 72,000 344,000 27,000
Commissions Allowed to Affiliates of
KFS................................ $ 0 0 0 1,076,000 381,000 90,000
Brokerage Commissions Paid by
Fund............................... $223,000 285,000 209,000 218,000 53,000 8,000
Percent of Brokerage Commissions
Paid by Fund Allocated on Basis of
Research/Sales..................... 96% 96 96 96 94 100
</TABLE>

- ---------------
(a) For the period from November 15, 1993 (commencement of operations) to June
30, 1994.

(b) For the period from May 3, 1994 (commencement of operations) to June 30,
1994.

C-1
<PAGE> 37

Thank you for mailing your proxy card promptly!
We appreciate your continuing support and look
forward to serving your future investment needs.
<PAGE> 38

Printed on recycled paper
<PAGE> 39
<TABLE>
<S><C>
For Withhold For All
1. To elect the following as trustees: All All Except
/ / / / / /

01) James B. Akins, 02) Arthur R. Gottschalk, 03) Frederick T. Kelsey,
04) David B. Mathis, 05) Fred B. Renwick, 06) Stephen B. Timbers,
07) John B. Tingleoff, 08) John G. Weithers

2. Ratify or reject the selection of For Against Abstain
/ / / / / /
Ernst & Young LLP as the Fund's independent auditors for
the current fiscal year.

3. Approve or disapprove a new investment management agreement / / / / / /
with Kemper Financial Services, Inc. or its successor on
the same terms as the current agreement.

Signature(s) (All registered owners of accounts shown to the left must sign. If signing for
a corporation, estate or trust, please indicate your capacity or title.)

X
- ----------------------------------------------------------------------------------------
Signature Date

PLEASE VOTE TODAY!

</TABLE>

<PAGE> 40
PLEASE VOTE PROMPTLY!

Your vote is needed! Please vote on the reverse side of this form and sign in
the space provided. Return your completed proxy in the enclosed envelope
today.

You may receive additional proxies for your other accounts with Kemper. These
are not duplicates: you should sign and return each proxy card in order for
your votes to be counted. Please return them as soon as possible to help
save the cost of additional mailings.

The signers of this proxy hereby appoint Stephen B. Timbers and Arthur R .
Gottschalk, and each of them, attorneys and proxies, with power of substitution
in each, to vote all shares for the signers at the special meeting of
shareholders to be held September 19, 1995, and at any adjournments thereof, as
specified herein, and in accordance with their best judgement, on any
other business that may properly come before this meeting. If no specification
is made herein, all shares will be voted "FOR" the Proposals set forth on this
proxy.

The proxy is solicited by the Board of the Fund which recommends a vote "FOR"
all matters.