<PAGE> 1
KEMPER TARGET EQUITY FUND
KEMPER RETIREMENT FUND
SERIES VI
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED JUNE 30, 1996
Provides a guaranteed return of investment on the designated maturity date
to investors who reinvest all dividends and hold their shares to the maturity
date, and seeks to provide long-term growth of capital
" . . . It is a very rotational market right now . . . .The moves
you'd expect to see in a year's time are happening in a matter of
months and that is where active management comes into play."
[KEMPER FUNDS LOGO]
<PAGE> 2
Table of
Contents
3
Economic Overview
5
Performance Update
8
Largest Stock Holdings
9
Portfolio of
Investments
13
Report of
Independent Auditors
14
Financial Statements
16
Notes to
Financial Statements
19
Financial Highlights
AT A GLANCE
- --------------------------------------------
KEMPER RETIREMENT FUND
SERIES VI TOTAL RETURN*
- --------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1996
(UNADJUSTED FOR ANY SALES CHARGE)
<TABLE>
<S> <C>
- --------------------------------------------
SERIES VI 8.79%
- --------------------------------------------
</TABLE>
Returns are historical and do not represent future performance. Returns and net
asset value fluctuate. Shares are redeemable at current net asset value, which
may be more or less than original cost.
*Total return measures net investment income and capital gain or loss from
portfolio investments, assuming reinvestment of all dividends. During the period
noted, securities prices fluctuated. For additional information, see the
Prospectus and Statement of Additional Information and the Financial Highlights
at the end of this report.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
NET ASSET VALUE
- ---------------------------------------------------------------------
AS OF AS OF
6/30/96 6/30/95
- ---------------------------------------------------------------------
<S> <C> <C>
SERIES VI $9.83 $9.26
- ---------------------------------------------------------------------
</TABLE>
- ---------------------------------------------------------------------
DIVIDEND REVIEW
- ---------------------------------------------------------------------
DURING THE REPORTING PERIOD, THE FUND PAID THE FOLLOWING DIVIDENDS:
<TABLE>
<CAPTION>
INCOME SHORT-TERM LONG-TERM
DIVIDEND CAPITAL GAIN CAPITAL GAIN
- ---------------------------------------------------------------------
<S> <C> <C> <C>
SERIES VI $ 0.13 $ 0.04 $ 0.07
- ---------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
CORRECTION A sharp, relatively short price decline that temporarily interrupts a
persistent upward trend in the market or the price of a stock. Technical
analysts note that markets do not move straight up or down and that corrections
are to be expected during any long-term move.
SECTOR A specific industry group.
VOLATILITY Characteristic of a security, commodity or market to rise or fall
sharply in price within a short period of time. A stock may be volatile because
the outlook for the company is particularly uncertain or because of various
other reasons.
ZERO-COUPON BOND A bond that makes no periodic interest payments but instead is
sold at a deep discount from its face value. The buyer of such a bond receives
the rate of return by the gradual appreciation of the security due to the
accrual of interest. The security is redeemed at face value at maturity.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
Stephen B. Timbers is President, Chief Executive and Chief Investment Officer of
Zurich Kemper Investments, Inc. (ZKI). ZKI and its affiliates manage
approximately $78 billion in assets, including $45 billion in retail Mutual
Funds. Timbers is a graduate of Yale University and holds an M.B.A. from
Harvard University.
DEAR SHAREHOLDER,
We have just completed a period of some discomfort for bond and stock market
traders. Concerns about rising interest rates, the possibility of higher price
inflation and Federal Reserve tightening of credit contributed to considerable
market volatility. But while the professional investors tend to fret over every
economic release, individuals who invest in mutual funds for the long term were
wise to stay the course -- at least until the direction of the economy became
clearer. Indeed, several recent economic measures are quite reassuring and argue
in favor of a continued healthy economy with low inflation.
The economy expanded at a 4.2% annual rate in the second quarter, the fastest
pace since the second quarter of 1994. This robust growth is welcome in general
but has tended to roil markets, which fear strong growth will lead to
overheating and inflationary pressures. So far, however, such fears have been
largely unwarranted. With the exception of food prices, whose increases were
weather-related, there have been no significant signs of inflationary pressures.
As it has so often recently, the economy is in the process of slowing itself
down. While the Federal Reserve Board stands by ready to attempt to moderate
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their investment
rationale that may help your investment decision-making. The 10-year Treasury
rate and the prime rate are prevailing interest rates. The other data report
year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
Now (6/30/96) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-Year Treasury rate(1) 6.91 5.65 6.28 7.30
Prime Rate(2) 8.25 8.50 8.80 7.25
Inflation rate(3) 2.75 2.72 2.76 2.77
The U.S. dollar(4) 9.15 -0.57 -7.06 -3.24
Capital goods orders(5) 1.19 4.72 5.60 18.66
Industrial production(5) 3.54 0.56 2.65 6.25
Employment growth(6) 2.10 1.57 2.47 3.23
</TABLE>
1 Falling interest rates in recent years have been a big plus for financial
assets.
2 The interest rate that commercial lenders charge their best borrowers.
3 Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last few
years has meant high real returns.
4 Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
5 These influence corporate profits and equity performance.
6 An influence on family income and retail sales.
Source: Economics Department, Zurich Kemper Investments, Inc.
3
<PAGE> 4
ECONOMIC OVERVIEW
economic growth with either interest rate cuts or increases, such intervention
can run the risk of going too far in one direction. It appears that our economy
today is self-regulating.
Based on these snapshots of the economy, then, we look for a relatively calmer
second half of 1996. Our forecast calls for growth to slow down in the third and
fourth quarters, to result in an advance of about 2.5% for the entire year.
Assuming that bond and stock market investors concur that there is no chance of
an overheating economy or significantly rising interest rates, the markets
should relax, as well.
What was the meaning of the market volatility that we experienced in May, June
and July? Investors were nervous about the broad economy, and some disappointing
earnings reports made them pessimistic. Yet, the markets performed the way that
history suggests they should: an overall correction in the stock market was
accentuated in technology and small capitalization stocks -- the industry
sectors whose performance tends to be the most volatile. Once the stock market
corrected, the bond market rallied. Finally, while not producing spectacular
results, international markets provided a stabilizing influence when compared to
U.S. markets.
Our market forecast eight months into the year is not much different from what
we forecasted in January. The bond market, which is climbing back from a decline
this year, may produce a 5% total return in 1996. The stock market, after the
correction is completed, may advance 5% to 10% for the year. Naturally, future
market conditions cannot be predicted with assurance.
In addition, we are projecting that long-term (30-year) interest rates will
hover in the 6.5% to 7.5% range. Short-term interest rates may drop below their
current levels. Finally, we would be surprised if the Federal Reserve Board
moved to adjust interest rates more than 25 basis points either way for the
remainder of the year.
Given the economic environment, we do not look for an upset in the upcoming
presidential election. Much more interesting will be which party wins the most
congressional seats. If the Democrats regain control of Congress, a bond market
selloff could be expected.
While U.S. markets are expected to provide modest returns, we continue to
advocate the benefits of diversification into alternate markets. Many overseas
markets are forecasted to grow at a rate well above our 2.5% growth expectation
for the U.S., and there are many equity and fixed-income opportunities abroad.
The value of the U.S. dollar, always a concern to international investors, will
probably not strengthen much against other currencies for the foreseeable
future.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including an interview with your fund's portfolio
management. Thank you for your continued support. We appreciate the opportunity
to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
President, Chief Investment and Executive Officer
Zurich Kemper Investments, Inc.
August 2, 1996
4
<PAGE> 5
PERFORMANCE UPDATE
[MCCORMICK PHOTO]
TRACY MCCORMICK CHESTER JOINED ZURICH KEMPER INVESTMENTS, INC., (ZKI) IN 1994
AND IS A SENIOR VICE PRESIDENT OF ZKI AND VICE PRESIDENT AND PORTFOLIO MANAGER
OF KEMPER RETIREMENT FUND SERIES VI. MCCORMICK CHESTER RECEIVED BOTH HER B.A.
AND M.B.A. DEGREES FROM MICHIGAN STATE UNIVERSITY.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED
ON MARKET AND OTHER CONDITIONS.
DESPITE THE LACKLUSTER PERFORMANCE OF THE ZERO-COUPON BOND PORTION OF THE
PORTFOLIO, KEMPER RETIREMENT FUND SERIES VI HAD A NOTEWORTHY RETURN FOR THE 12
MONTH PERIOD. BELOW, PORTFOLIO MANAGER TRACY MCCORMICK CHESTER DISCUSSES HOW
ANTICIPATING CHANGE HELPED HER ACHIEVE GREATER RETURNS.
Q. TRACY, A VOLATILE MARKET AND FLUCTUATING INTEREST RATES OBVIOUSLY AFFECTED
THE HOLDINGS IN KEMPER RETIREMENT FUND SERIES VI, BUT YOU STILL SUCCEEDED IN
ACHIEVING A RETURN OF 8.79 PERCENT FOR THE 12 MONTH PERIOD. HOW HAVE YOU BEEN
ABLE TO MAINTAIN SUCH A HEALTHY RETURN IN THIS LESS THAN IDEAL INVESTMENT
ENVIRONMENT?
A. A main approach we have taken in managing this fund series has been to
strive to recognize change early. Investors react to a company's prospects. If
we can succeed in recognizing a change in those prospects before the overall
market does, we stand to benefit. The fund's performance in the last 12
months is the result of our identifying and acquiring several stocks that
enjoyed a significant runup in price, in part because of a broader market
recognition after we owned the stock. It is a very rotational market right now.
In some cases, the moves you'd expect to see in a year's time are happening in
a matter of months and that is where active management comes into play. We are
constantly watching the movement of the market, analyzing the trends we see and
acting accordingly.
Q. WHAT TYPE OF CHANGE DO YOU LOOK FOR?
A. Many kinds of changes can influence a company's prospects. A turn in the
economic cycle can have an effect on an economically-dependent company. A trend
toward consolidation in a given industry can strengthen some companies while
weakening others. And then there are company-specific changes: new management, a
maturing of the product cycle, a redirection of the corporate philosophy. All of
these can have an effect on a company's profitability and, in the kinds of
growth companies that we invest in, most will eventually attract the attention
of investors. Our objective is to spot these changes early.
Q. CAN YOU GIVE AN EXAMPLE OF HOW THIS STRATEGY RECENTLY WORKED FOR THE FUND?
A. Cincinnati Bell is a good example. It is a company that most people
overlooked because the regional carrier business is considered boring and
predictable. But when we looked into the company further, we found that the
regional carrier business is just one-third of Cincinnati Bell's business. It's
also in the fast-growing business of direct marketing and cellular billing. We
saw the stock make a huge move to $49.25 per share on April 30, 1996, from $27,
the price of the first shares we bought in October.
5
<PAGE> 6
PERFORMANCE UPDATE
Q. ALTHOUGH THEY ARE AN UNMANAGED COMPONENT OF THE PORTFOLIO, CAN YOU DISCUSS
THE PERFORMANCE OF THE ZERO-COUPON BONDS DURING THIS PERIOD AND HOW THEY
AFFECTED THE FUND'S OVERALL RETURN?
A. Zero-coupon bonds really serve as a barometer of what is happening with
interest rates. When interest rates go up, the value of the bonds go down.
During the first quarter of this year, the fund was definitely impacted by poor
performance in the bond market. Recently though, we have seen interest rate
fluctuations ease and bonds are beginning to do better which should help
stabilize the fund's net asset value.
An indirect way the zero-coupon bonds affected the portfolio composition
was in our approach to financials. Having a highly interest
rate-sensitive component like the zero-coupons in the portfolio, we tend to be
underweight in financial stocks in the fund because we don't want to increase
the exposure to interest rates. However, financials did do quite well last
summer so that may have been an area where we missed some opportunity.
Q. WERE THERE ANY OTHER DISAPPOINTMENTS OR MISCALCULATIONS DURING THE LAST 12
MONTHS?
A. Technology was a sector that had a lot of investors on edge this past year.
A correction was expected and there was a great deal of anticipation as to when
that would happen. Last summer, we decided to cut our technology holdings in
companies like Intel and Informit fairly significantly. The stocks were very
poor performers in the fourth quarter of 1995. While we bought some back in the
first quarter of 1996, we could have more aggressively traded them. We have
begun to dabble in technology once again by accumulating depressed shares of
high-quality stocks that we expect to improve such as Xilinx and Compaq
Computer. We had been underweighted in semiconductors for the past nine months
and focused more on software and servicing businesses (Computer Science and
Electronic Arts).
Q. WHAT CHANGES DID YOU MAKE TO THE FUND'S COMPOSITION IN RESPONSE TO RECENT
MARKET VOLATILITY?
A. We are trying not to "round trip" our holdings. By that I mean we don't
want to buy them at one price, watch them become fully valued and then hold on
to them as they start back down again. This is not an environment where we can
be complacent about any of our holdings. When we discover a questionable area in
a stock, we'd better be ready to let it go.
Recent trading activity positions the fund more defensively against this
volatile market. Late last year, we started repositioning the fund's portfolio
to include more consumer cyclical stocks in retail, gaming and conglomerates.
During the first quarter, that worked pretty well for us. We maintained our
position in health care although we did shuffle between subsectors such as
pharmaceuticals and medical devices. We also added some financials in April when
we bought Travelers, FNMA and Bank of Boston. We favored specific subsectors in
this industry as well and tried to avoid having consumer credit card exposure.
Conglomerates like Textron and Allied Signal did very well for us but we
recently cut back in this area because our holdings had reached expected
valuations. We also cut back on basic industry holdings such as Monsanto and
Georgia-Pacific. Several large retail holdings were eliminated (May Department
Stores and Harcourt General) and the assets were used to increase selected
niche retail holdings (Melville and Consolidated Stores) with more attractive
valuations and upside potential.
We are avoiding food stocks due to worries about food inflation but, to
take advantage of that, we have included Sysco, the leading distributor
of food and related products to the foodservice industry, which will benefit
from food inflation. A problem for one company provides an opportunity for
another. We are also holding on to our positions in consumer staples like
Duracell and Procter & Gamble. We are watching the gaming industry again as
well. While holdings like Circus Circus reached their peaks in the first
quarter of this year, we are seeing signs that they are coming back again.
Q. WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A. Going forward, we expect more of the same with the markets remaining fairly
volatile throughout the rest of the year. The presidential election also
promises to have an effect. We will continue to look for opportunities the
market doesn't recognize. In this cyclical environment, it is important to have
reliable information gained through in-depth research.
6
<PAGE> 7
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
Average Annual Total Return*
- --------------------------------------------------------------------------------
FOR PERIOD ENDED JUNE 30, 1996 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR FUND
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SERIES VI 3.33% 5.43% (Since 5/1/95)
- -------------------------------------------------------------------------------------------------------
</TABLE>
[Line Graph]
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Retirement
Fund Series VI from 5/1/95 to 6/30/96
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/1/95 9/30/95 12/31/95 3/31/96 6/30/96
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- - KEMPER RETIREMENT FUND SERIES VI(1) $10,000 10,106 10,725 10,573 10,638
- - RUSSELL 1000(R) GROWTH INDEX + $10,000 11,725 12,259 12,040 12,109
- - LEHMAN BROTHERS GOV'T/CORP. BOND INDEX ++ $10,000 10,703 11,202 10,940 10,991
</TABLE>
Past performance is not predictive of future performance. Returns and net
asset value fluctuate. Shares are redeemable at current net asset value, which
may be more or less than original cost.
*Average annual total return measures net investment income and capital gain
or loss from portfolio investments, assuming reinvestment of all dividends.
Average annual total return reflects annualized change. During the periods
noted, securities prices fluctuated. For additional information, see the
Prospectus and Statement of Additional Information and the Financial Highlights
at the end of this report.
1 Performance includes reinvestment of dividends and adjustment for the maximum
sales charge of 5.0%. When comparing Kemper Retirement Fund Series VI to the
Russell 1000(R) Growth Index+ and the Lehman Brothers Gov't/Corp. Bond Index++,
you should note that the fund's performance reflects the maximum sales charge,
while no such charges are reflected in the performance of the indices.
+ The Russell 1000(R) Growth Index is an unmanaged index comprised of common
stocks of larger U.S. companies with greater than average growth orientation and
represents the universe of stocks from which "earnings/growth" money managers
typically select. Assumes reinvestment of dividends. Source is Lipper Analytical
Services, Inc.
++ The Lehman Brothers Government/Corporate Bond Index is an unmanaged index
comprised of intermediate and long-term government and investment grade
corporate debt securities. Source is Towers Data Systems.
7
<PAGE> 8
LARGEST STOCK HOLDINGS
THE FUND'S 10 LARGEST STOCK HOLDINGS*
REPRESENTING 20.2% OF THE FUND'S TOTAL COMMON STOCKS ON JUNE 30, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Holdings Percent
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Philip The largest cigarette maker in the U.S. Through its 2.4%
Morris Miller Brewing subsidiary, it is also the country's
Companies second-largest brewer. This company is also a major
branded food producer through its Kraft and General
Foods subsidiaries.
2 American Engaged in the manufacturing and marketing of health 2.3%
Home care products, including pharmaceuticals, consumer
Products health care products and medical supplies.
3 B. F. Provider of aerospace (brakes) and specialty 2.3%
Goodrich chemicals.
4 General Operates in major businesses including power 2.2%
Electric generators, appliances, lighting, plastics, medical
systems, aircraft engines, financial services and
broadcasting.
5 Mobil Produces, transports, refines and markets petroleum 2.2%
and natural gas and related products.
6 Sandoz, A global research-based pharmaceutical and nutrition 1.9%
Ltd. group. The company's additional activities include
seeds, crop protection and construction technologies
7 Boeing Manufactures commercial transportation equipment, 1.8%
primarily passenger and cargo jetliners. Also
develops military aircraft and missiles and space
systems.
8 Marsh & A professional services firm with insurance and 1.8%
McLennan reinsurance brokerage, consulting and investment
Companies management businesses.
9 Circuit The nation's largest retailer of brand name consumer 1.7%
City electronics and major appliances.
Stores
10 Hewlett-Packard One of the largest suppliers of enterprise computer 1.6%
systems. Huge success in low-cost printers for use
with personal computers is being followed up with
rapid growth in its own PC business.
</TABLE>
*The fund's holdings are subject to change.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER RETIREMENT FUND--SERIES VI
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT
OBLIGATIONS--55.0%
U.S. Treasury, zero coupon, 2006
(Cost: $28,566) $53,300 $27,334
------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--3.5%
Air Products & Chemicals 3,000 173
Alco Standard Corporation 5,000 226
Betz Laboratories 4,400 193
Crown Cork & Seal Co. 4,400 198
(a)FMC Corp. 3,250 212
Monsanto Co. 9,000 292
Pall Corp. 8,000 193
Praxair, Inc. 5,400 228
Sumitomo Metal Industries 2,000 6
Toray Industries 1,000 7
========================================================================
1,728
------------------------------------------------------------------------
CAPITAL GOODS--5.2%
Boeing Co. 4,300 375
Emerson Electric Co. 3,300 298
Fluor Corp. 4,500 294
GM Hughes Electronics Corp. 2,000 120
General Electric Co. 5,500 476
B.F. Goodrich Co. 13,000 486
Honda Motor Co., Ltd. 200 5
Mitsubishi Heavy Industries 1,000 9
Technip S.A. 29 3
Xerox Corporation 4,500 241
York International Corp. 4,800 248
========================================================================
2,555
------------------------------------------------------------------------
CONSUMER CYCLICALS--6.1%
Burton Group PLC 3,125 8
Carnival Corp. 6,000 173
Circuit City Stores 10,000 361
(a)Circus Circus Enterprises 2,200 90
(a)Consolidated Stores Corporation 8,000 294
Walt Disney Company 4,200 264
(a)Federated Department Stores 3,400 116
Hilton Hotels 2,250 253
(a)Liberty Media Group, "A" 3,600 95
Manpower Inc. 3,000 118
Marriott International 5,500 296
Melville Corp. 7,000 283
Moet Hennessy Louis Vuitton 29 7
Pep Boys-Manny Moe & Jack 4,000 136
Reynolds & Reynolds Co., "A" 3,000 160
Tele-Communications, Inc. 12,000 217
(a)Toys R Us 6,000 171
========================================================================
3,042
------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER DURABLES--1.2%
Armstrong World Industries 1,100 $ 63
Leggett & Platt Incorporated 5,100 142
Magna International Inc. 2,500 115
Shaw Industries 20,000 262
========================================================================
582
------------------------------------------------------------------------
CONSUMER STAPLES--3.5%
Avon Products 2,000 90
Duracell International 5,000 216
Hannaford Bros. Co. 4,000 131
Heineken N.V. 34 8
PepsiCo 6,900 244
Philip Morris Companies 5,000 520
Procter & Gamble Co. 3,000 272
Reed International PLC 389 7
Sysco Corp. 5,000 171
Warnaco Group 2,600 67
========================================================================
1,726
------------------------------------------------------------------------
ENERGY--2.7%
Amerada Hess Corp. 5,000 268
Enron Corp. 6,000 245
Enron Oil & Gas Co. 3,800 106
Mobil Corp. 4,200 471
Schlumberger Ltd. 3,000 253
========================================================================
1,343
------------------------------------------------------------------------
FINANCE--4.0%
Allstate Corp. 3,500 160
Bank of Boston 4,000 198
Bank of Ireland 901 6
Boatmen's Bancshares 2,500 100
CITIC Pacific Ltd. 1,000 4
Cheung Kong Holdings Ltd. 1,000 7
Dean Witter Discover 1,500 86
Development Bank of Singapore 500 6
Federal National Mortgage Association 6,000 201
ITT Hartford Group 3,000 160
(a)Internationale Nederlanden Groep 237 7
Krung Thai Bank Public Co. Ltd. 1,200 6
MBIA Inc. 2,000 156
MGIC Investment Corp. 2,000 112
Marsh & McLennan Companies, Inc. 4,000 386
Northern Trust Co. 3,000 173
Swire Pacific Limited, "A" 500 4
Travelers Group 4,500 205
========================================================================
1,977
------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE--6.4%
Abbott Laboratories 8,000 $ 348
American Home Products 8,000 481
Astra AB 147 6
C.R. Bard 2,000 68
Baxter International 4,500 213
(a)Biogen 2,000 110
Caremark International, Inc. 1,100 28
Glaxo Wellcome 5,000 134
Eli Lilly & Co. 3,000 195
Medtronic, Inc. 1,800 101
Merck & Co., Inc. 4,000 259
Omnicare 9,000 238
Perkin-Elmer Corp. 5,000 241
(a)R.P. Scherer Corp. 3,000 136
Roche Holding AG 1 8
(a)St. Jude Medical 6,500 218
(a)Sandoz, Ltd. 7,000 398
========================================================================
3,182
------------------------------------------------------------------------
TECHNOLOGY--8.0%
(a)Analog Devices 3,900 99
Automatic Data Processing 6,000 232
(a)Ceridian Corp. 3,000 152
(a)Cisco Systems 2,000 113
(a)Compaq Computer Corp. 7,000 345
(a)Computer Sciences Corp. 3,300 247
(a)Electronic Arts 8,000 214
LM Ericsson Telephone Co., "B" 204 4
Electronic Data Systems 3,800 204
First Data Corporation 1,800 143
Harris Corp. 5,500 335
Hewlett-Packard, Co. 3,500 349
Intel Corp. 1,700 125
Kyocera Corporation 100 7
(a)LSI Logic Corp. 3,800 99
Linear Technology Corp. 3,000 90
Matsushita Electric Industrial Co., Ltd. 400 7
(a)Microsoft Corp. 2,000 240
Murata Manufacturing 200 8
(a)Newbridge Networks Corp. 2,000 131
(a)Seagate Technology 3,000 135
(a)Softkey International 7,000 133
(a)Sun Microsystems 4,500 265
Texas Instruments 2,500 125
(a)3Com Corporation 2,700 124
(a)Xilinx, Inc. 3,500 111
========================================================================
4,037
------------------------------------------------------------------------
TRANSPORTATION--.3%
Canadian National Railway Company 355 7
Conrail 2,000 133
Nippon Express 600 6
========================================================================
146
------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTILITIES--1.8%
AT&T 3,000 $ 186
(a)AirTouch Communications 5,500 155
Cincinnati Bell 4,500 235
Iberdrola, S.A. 563 6
SBC Communications Inc. 2,100 103
(a)WorldCom 4,000 222
========================================================================
907
------------------------------------------------------------------------
TOTAL COMMON STOCKS--42.7%
(Cost: $20,110) 21,225
========================================================================
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET
INSTRUMENT--1.2% Yield--5.57%
Due--July 1996
(Cost: $597) $ 600 597
============================================================================
TOTAL INVESTMENTS--98.9%
(Cost: $49,273) 49,156
============================================================================
CASH AND OTHER ASSETS,
LESS LIABILITIES--1.1% 533
============================================================================
NET ASSETS--100% $49,689
============================================================================
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $49,273,000 for federal income tax purposes
at June 30, 1996, the gross unrealized appreciation was $1,615,000, the gross
unrealized depreciation was $1,733,000 and the net unrealized depreciation on
investments was $118,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 13
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TARGET EQUITY FUND--
KEMPER RETIREMENT FUND SERIES VI
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Target Equity Fund--Kemper
Retirement Fund Series VI as of June 30, 1996, the related statements of
operations for the year then ended and changes in net assets and the financial
highlights for the year then ended and for the period from May 1, 1995
(commencement of operations) to June 30, 1995. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of June
30, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Target Equity Fund--Kemper Retirement Fund Series VI at June 30, 1996, the
results of its operations, the changes in its net assets and the financial
highlights for the periods referred to above in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 16, 1996
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at value
(Cost: $49,273) $49,156
Cash 424
Receivable for:
Investments sold 755
Fund shares sold 130
Dividends and interest 24
TOTAL ASSETS 50,489
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Payable for:
Investments purchased 718
Management fee 20
Administrative services fee 10
Custodian and transfer agent fees and related expenses 11
Trustees' fees and other 41
Total liabilities 800
NET ASSETS $49,689
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $48,477
Undistributed net realized gain on investments 633
Net unrealized depreciation on investments (117)
Undistributed net investment income 696
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $49,689
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($49,689,000 divided by 5,054,000 shares outstanding) $9.83
- -------------------------------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE
(net asset value, plus 5.26% of
net asset value or 5.00% of offering price) $10.35
- -------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
<S> <C>
Interest $1,302
Dividends 137
Total investment income 1,439
Expenses:
Management fee 152
Administrative services fee 68
Custodian and transfer agent fees and related expenses 82
Professional fees 14
Reports to shareholders 21
Trustees' fees and other 51
Total expenses 388
NET INVESTMENT INCOME 1,051
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 665
Net realized gain from futures transactions 313
Net realized gain 978
Change in net unrealized appreciation on investments (160)
Net gain on investments 818
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,869
=======================================================================================================
<CAPTION>
- -------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 1, 1995
JUNE 30, TO
1996 JUNE 30, 1995
- -------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
<S> <C> <C>
Net investment income $ 1,051 20
Net realized gain (loss) 978 (14)
Change in net unrealized appreciation (160) 43
Net increase in net assets resulting from operations 1,869 49
Distribution from net investment income (382) --
Distribution from net realized gain (324) --
Total dividends to shareholders (706) --
Net increase from capital share transactions 41,337 7,040
TOTAL INCREASE IN NET ASSETS 42,500 7,089
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
Beginning of period 7,189 100
END OF PERIOD (including undistributed net investment
income of $696,000 and $20,000, respectively) $49,689 7,189
=======================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUND Kemper Retirement Fund Series VI (the Fund) is a
series of Kemper Target Equity Fund (the Trust), an
open-end, management investment company, organized
as a business trust under the laws of
Massachusetts. The objectives of the Fund are to
provide a guaranteed return of investment on the
Maturity Date (May 15, 2006) to investors who
reinvest all dividends and hold their shares to the
Maturity Date, and to provide long-term growth of
capital. The assurance that investors who reinvest
all dividends and hold their shares until the
Maturity Date will receive at least their original
investment on the Maturity Date is provided by the
principal amount of the zero coupon U.S. Treasury
obligations in the Fund's portfolio, as well as by
a guarantee from Zurich Kemper Investments, Inc.
(ZKI), the Fund's investment manager.
- --------------------------------------------------------------------------------
2 SIGNIFICANT ACCOUNTING INVESTMENT VALUATION. Investments are stated at
POLICIES value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued
at the preceding closing values of such securities
on their respective exchanges where primarily
traded. Securities not so traded or listed are
valued at the last current bid quotation if market
quotations are available. Fixed income securities
are valued by using market quotations, or
independent pricing services that use prices
provided by market makers or estimates of market
values obtained from yield data relating to
instruments or securities with similar
characteristics. Options are valued at the last
sale price unless the bid price is higher or the
asked price is lower, in which event such bid or
asked price is used. Financial futures and options
thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts are valued at the forward rates
prevailing on the day of valuation. Other
securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis. Interest income includes
discount amortization on fixed income securities.
Realized gains and losses from investment
transactions are reported on an identified cost
basis.
EXPENSES. Expenses arising in connection with a
series of the Trust are allocated to that series.
Other Trust expenses are allocated among the series
in proportion to their relative net assets.
FUND SHARE VALUATION. Fund shares are sold to the
public during a limited offering period, which may
be extended or shortened at the option of the Fund.
Fund shares are redeemed on a continuous basis and
are sold and redeemed at net asset value (plus a
commission on most sales). On each
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
day the New York Stock Exchange is open for
trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange by dividing the
total value of the Fund's investments and other
assets, less liabilities, by the number of shares
outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required.
DIVIDENDS TO SHAREHOLDERS. The Trust declares and
pays dividends of net investment income and net
realized capital gains annually, which are recorded
on the ex-dividend date. Dividends are determined
in accordance with income tax principles which may
treat certain transactions differently from
generally accepted accounting principles.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Trust has a management
agreement with ZKI and pays a management fee at an
annual rate of .50% of average daily net assets.
The Fund incurred a management fee of $152,000 for
the year ended June 30, 1996.
UNDERWRITING AGREEMENT. The Trust has an
underwriting agreement with Kemper Distributors,
Inc. (KDI). Underwriting commissions paid in
connection with the distribution of the Fund's
shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY KDI
COMMISSIONS ----------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended June 30, 1996 $ 214,000 1,755,000 211,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with KDI. For
providing information and administrative services
to shareholders, the Fund pays KDI a fee at an
annual rate of up to .25% of average daily net
assets. KDI in turn has various agreements with
financial services firms that provide these
services and pays these firms based on assets of
Fund accounts the firms service. Administrative
services fees (ASF) paid are as follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY ----------------------------
THE FUND TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended June 30, 1996 $68,000 68,000 8,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Trust's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent for the Fund. Under the agreement,
KSvC received shareholder services fees of $45,000
for the year ended June 30, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of ZKI.
During the year ended June 30, 1996, the Trust made
no payments to its officers and the Fund incurred
trustees' fees of $18,000 to independent trustees.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended June 30, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $54,060
Proceeds from sales 9,550
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MAY 1, 1995
JUNE 30, TO
1996 JUNE 30, 1995
-------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,459 $43,103 770 $7,084
---------------------------------------------------------------------------
Share issued in
reinvestment of
dividends 71 688 -- --
---------------------------------------------------------------------------
4,530 43,791 770 7,084
Shares redeemed (252) (2,454) (5) (44)
---------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE
TRANSACTIONS 4,278 $41,337 765 $7,040
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FORWARD FOREIGN
CURRENCY CONTRACTS In order to protect itself against a decline in the
value of particular foreign currencies against the
U.S. Dollar, the Fund has entered into forward
contracts to deliver foreign currency in exchange
for U.S. Dollars as described below. The Fund bears
the market risk that arises from changes in foreign
exchange rates, and accordingly, the net unrealized
gain on these contracts is reflected in the
accompanying financial statements. The Fund also
bears the credit risk if the counterparty fails to
perform under the contract. At June 30, 1996, the
Fund had the following forward foreign currency
contracts outstanding with settlement dates in
July, 1996:
<TABLE>
<CAPTION>
UNREALIZED
FOREIGN CURRENCY GAIN
TO BE DELIVERED CONTRACT AMOUNT AT 6/30/96
-------------------------------------------------------------------
<S> <C> <C>
5,000 British Pounds $ 7,000 $ --
-------------------------------------------------------------------
8,000 Dutch Guilders 4,000 --
-------------------------------------------------------------------
26,000 French Francs 5,000 --
-------------------------------------------------------------------
3,423,000 Japanese Yen 32,000 1,000
-------------------------------------------------------------------
7,000 Swiss Francs 6,000 --
-------------------------------------------------------------------
Net unrealized gain $1,000
-------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED MAY 1, 1995
JUNE 30, TO
1996 JUNE 30, 1995
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.26 9.00
Income from investment operations:
Net investment income .24 .06
Net realized and unrealized gain .57 .20
Total from investment operations .81 .26
Less dividends:
Distribution from net investment income .13 --
Distribution from net realized gain .11 --
Total dividends .24 --
Net asset value, end of period $ 9.83 9.26
TOTAL RETURN (NOT ANNUALIZED) 8.79% 2.89
====================================================================================================
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------
Expenses 1.27% 1.09
Net investment income 3.47% 3.91
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $49,689 7,189
====================================================================================================
Portfolio turnover rate 34% --
- ----------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended June 30, 1996
was $.0582.
- ----------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
19
<PAGE> 20
TRUSTEES & OFFICERS
TRUSTEES
STEPHEN B. TIMBERS
President and Trustee
JAMES E. AKINS
Trustee
ARTHUR R. GOTTSCHALK
Trustee
FREDERICK T. KELSEY
Trustee
DOMINIQUE P. MORAX
Trustee
FRED B. RENWICK
Trustee
JOHN B. TINGLEFF
Trustee
JOHN G. WEITHERS
Trustee
OFFICERS
TRACY M. CHESTER
Vice President
DENNIS H. FERRO
Vice President
JOHN E. NEAL
Vice President
STEVEN H. REYNOLDS
Vice President
PHILIP J. COLLORA
Vice President and
Secretary
CHARLES F. CUSTER
Vice President and
Assistant Secretary
JEROME L. DUFFY
Treasurer
ELIZABETH C. WERTH
Assistant Secretary
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
120 S. LaSalle Street Chicago, IL 60603
http://www.kemper.com
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Printed on recycled paper.
This report is not to be distributed unless
preceded or accompanied by a Kemper Retirement
Fund Series VI prospectus.
KRF6 - 2 (8/96) [KEMPER FUNDS LOGO]
1019630
Printed in the U.S.A.
