<PAGE> 1
Kemper Retirement Fund
Series VI
SEMIANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED DECEMBER 31, 1995
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
"Low inflation and declining interest rates to a certain extent gave
us the best of both worlds--strong performance for both the
stock and bond portions of the portfolio."
<PAGE> 2
Table of
Contents
3
General
Economic Overview
5
Performance Update
7
Terms to Know
9
Individual Holdings
10
Portfolio of
Investments
13
Financial Statements
15
Notes to
Financial Statements
18
Financial Highlights
At A Glance
Total Return*
FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 1995
(UNADJUSTED FOR ANY SALES CHARGE):
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------
KEMPER RETIREMENT FUND
SERIES VI 9.68%
</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>
- ------------------------------------------------------------------------------
NET ASSET VALUE
- ------------------------------------------------------------------------------
AS OF AS OF
12/31/95 6/30/95
- ------------------------------------------------------------------------------
<S> <C> <C>
KEMPER RETIREMENT FUND
SERIES VI $9.91 $9.26
- ------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
DIVIDEND REVIEW
- ------------------------------------------------------------------------------
DURING THE REPORTING PERIOD, KEMPER RETIREMENT FUND SERIES VI 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>
About Your Report
SHAREHOLDER REPORTS REVISED
Your fund's semiannual and annual reports are one of your best sources for
tracking the progress of your investment. This report includes several changes
that have been made in an effort to provide additional information to you as
well as explain significant changes to the fund during the six-month period
ended December 31, 1995. In addition, the performance update includes
commentary from your fund's portfolio manager on what might be expected in the
coming months.
Specifically, your report now includes:
- Terms you need to know related to your fund
- A look at your fund's largest individual holdings
If you have any comments about the revised format, please write
to:
Kemper Funds
Shareholder Communications
120 South LaSalle Street
Chicago, IL 60603
2
<PAGE> 3
General Economic Overview
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER
OF KEMPER FINANCIAL SERVICES, INC. (KFS). KFS AND ITS AFFILIATES MANAGE
APPROXIMATELY $70 BILLION IN ASSETS, INCLUDING $43 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER:
Last year -- a year in which both the equity and the fixed-income markets
produced strong above-average returns -- will be a difficult year to follow.
However, based on what we see a few months into the new year, we believe 1996
also will be capable of rewarding investors. Unlike last year, however, we
expect there will be more volatility from markets and a wider range of winners
and losers in 1996. This is the time for careful decision-making.
What has changed? We continue to experience low interest rates, an
acceptable rate of economic growth and low inflation. Although certain
government reports have been late in coming due to the federal government
shutdown, there's little in the economic data that suggests cause for
concern.
Yet, this year we must begin to consider the possibility of a recession
within the next 24 months. We have enjoyed one of the longest economic
expansions in the 20th century. By virtue of the length of the expansion alone,
it is reasonable to expect an eventual slowdown or negative growth. Moreover, a
recession can be triggered by a surprise not forecastable by current available
data. It could take the form of political turmoil in the Middle East,
instability in Russia or even a further downturn in Japan's economic health. Any
type of surprise has the potential to reverse the growth we have become
accustomed to.
Having enjoyed an almost uninterrupted climb in 1995, the markets also
are vulnerable to correction. A key reason that stock prices have been rising is
that there have been large cash flows directed to the market. Whenever positive
liquidity is the driving force in the market -- as opposed to investors'
reactions to individual companies' fundamentals -- one has to be cautious.
Moreover, corporate earnings will not continue to grow at their earlier,
breakneck paces. In 1996, we expect profit growth to be in the single-digit.
Despite all, at this point early in the year, we think the stock market has the
potential to return close to its historical average of about 10 percent.+
Remember, of course, that in January alone the Standard & Poor's 500 Stock Index
gained 3.4 percent. Our forecast assumes added stock market volatility this
year.
Our equities forecast assumes some help from the bond market. As you
know, the Federal Reserve Board has begun to ease short-term interest rates, and
we expect rates to drop further. The relationship between short and long-term
rates at this point in the economic cycle is an intriguing one, and one that
would argue against a recession forecast. Short-term interest rates are falling.
Yet, rates typically rise in an economy headed toward recession.
As is typical after a strong year in the domestic markets, many
investors will be looking overseas for superior return opportunities in 1996.
This move makes good sense to us, as well. Foreign economies' expansions often
follow the U.S. In fact, improvement abroad could help sustain this country's
expansion as it could boost the demand for exports.
The value of the dollar, having had a roller coaster year in 1995,
should settle down. Strength in foreign markets could boost those countries'
currencies, which would bring an end to the current dollar rally later this
year.
As we head toward the November presidential elections, we can expect
continued discussion from both political parties about balancing the federal
budget and related taxation issues. Frankly, we see the candidates as waging a
war in sameness -- there's really little difference between the Republican
primary platform and what President Bill Clinton has committed to about a
balanced budget. Economically as well as socially, the trend in government is
toward conservativism.
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
February 20, 1996
+SOURCE: BASED UPON THE AVERAGE OF THE STANDARD & POOR'S 500 STOCK INDEX SINCE
1928 (TOWERS DATA SYSTEMS). THIS DATA IS HISTORICAL AND DOES NOT REFLECT FUTURE
RESULTS. THE S&P 500 IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE U.S.
STOCK MARKET.
3
<PAGE> 4
General Economic Overview
ECONOMIC GUIDEPOSTS
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The 10-year
Treasury rate and the prime rate are prevailing interest rates. The other data
report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
Now (1/31/96) 6 Months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 5.65 6.49 7.47 5.97
Prime rate(2) 8.50 8.75 9.00 6.00
Inflation rate(3) 2.60 2.90 2.87 2.52
The U.S. dollar(4) -0.57 -4.11 -5.54 -0.07
Capital goods orders(5)* 11.63 7.10 23.00 15.48
Industrial production(6) 0.07 3.17 5.41 4.21
Employment growth(7) 1.18 2.03 3.15 2.49
</TABLE>
* Data as of December 31, 1995
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 corporate profits and equity performance.
7 An influence on family income and retail sales.
SOURCE: ECONOMICS DEPARTMENT, KEMPER FINANCIAL SERVICES, INC.
4
<PAGE> 5
Performance Update
[CHESTER PHOTO]
TRACY MCCORMICK CHESTER JOINED KEMPER FINANCIAL SERVICES, INC. (KFS) IN 1994
AND IS NOW A FIRST VICE PRESIDENT OF KFS AND VICE PRESIDENT AND PORTFOLIO
MANAGER OF KEMPER RETIREMENT FUND SERIES VI. MS. 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.
THE SECOND HALF OF 1995 WAS MARKED BY SLOWER CORPORATE EARNINGS GROWTH AND
DECLINING INTEREST RATES. PORTFOLIO MANAGER TRACY MCCORMICK CHESTER EXPLAINS
HOW THESE TRENDS INFLUENCED THE MARKETS AND HER STRATEGY FOR THE KEMPER
RETIREMENT FUND SERIES VI.
Q. DURING THE SECOND HALF OF 1995 -- THE PERIOD THIS REPORT COVERS -- WE
SAW INCREASING VOLATILITY FOR A NUMBER OF STOCKS. WHAT BROUGHT THIS ABOUT?
A. To a large extent, I think investors were reacting (and in some cases
OVERreacting) to mixed economic data. Some reports suggested the economy would
maintain a "soft landing", others anticipated a strengthening economy, and a
few economists even began to warn about recession. Investors became confused
and the market became very rotational. Certain sectors were heavily favored one
week, then virtually ignored the next. In this environment some stocks
experienced striking price moves in both directions.
Keep in mind that the market had been very strong -- and grown
increasingly speculative -- since late 1994. By the fourth quarter of 1995
quite a few stocks were overextended in terms of valuation. When some
disappointing earnings announcements began to emerge, investors wondered
whether the party might be over, and many chose to lock in their profits. This
was particularly true in the technology sector.
From our perspective, the slowdown in corporate earnings reflected an
inventory correction rather than a slide toward recession. For example, the
strong performance of semiconductor and wireless telephone manufacturers had
been fueled by expectations of demand continuing to outpace supply. In the
third quarter, analysts began to question that assumption and, by the fourth
quarter, those concerns were validated by reports from several of those
companies. Sales were slowing, inventories were rising and it was apparent that
many companies were going to have to reduce prices. This, of course, translates
into smaller profit margins down the line.
Q. HOW DID YOU POSITION KEMPER RETIREMENT FUND SERIES VI FOR THIS
ENVIRONMENT?
A. We did our best to stay disciplined with regard to fundamentals. Even
though short-term prospects were not as dazzling as they had been, the
long-term picture is still positive for many of these companies. In cases where
a stock had enjoyed very strong gains and reached our price targets, it was
trimmed or eliminated; on the other hand, if a stock had taken a beating but
its fundamentals were still favorable, we took the opportunity to add to our
position.
5
<PAGE> 6
Performance Update
Q. TECHNOLOGY STOCKS WERE THE TALK OF 1995 -- FOR THEIR STELLAR PERFORMANCE
THROUGH MOST OF THE YEAR AND SOME SHARP CORRECTIONS AT YEAR-END. HOW LARGE IS
THE FUND'S TECHNOLOGY EXPOSURE, AND HOW DID THE CORRECTION AMONG TECHNOLOGY
STOCKS AFFECT PERFORMANCE?
A. I started to trim our technology positions -- particularly those in
semiconductor and software companies -- in early summer. In our analysis, most
of these companies had become fully valued. When tech stocks rallied in July
and August, our reduced exposure did limit the fund's gains. But for the rest
of the period it served us quite well. Of course, it would have been better to
have an even lower exposure when tech stocks corrected at year-end, but the
impact on performance was far less severe than it could have been. More
recently, I've become a bit more positive on tech stocks. We're seeing some
better-quality companies trading at very reasonable valuations. As of December
31, the fund was about 7.9% in technology.
Q. HEALTH CARE AND FINANCIAL STOCKS WERE ALSO STRONG PERFORMERS IN 1995.
HOW WAS THE FUND POSITIONED IN THESE SECTORS?
A. As of December 31, we only had about 3.8% in health care stocks. That's
down somewhat from earlier in the year. While these stocks definitely
contributed to performance in 1995, and I think the sector still offers some
potential, we're going to have to be selective. Again, it comes down to
fundamentals and discipline. In hindsight, a higher weighting in financials may
have boosted performance. But the fund's interest rate exposure is already
significant because of the zero-coupon bond component. In the interest of
diversification, I chose to add value in other areas like basic industries
(Monsanto) and aerospace (Boeing, GM Hughes, Allied-Signal, Textron) where
there is little down-side potential and a lot of room for growth.
Q. DOES THE FUND OWN ANY FOREIGN STOCKS?
A. Not at this time. However, modest inflation and a trend toward lower
interest rates is making some of the overseas markets more attractive. I'm
currently working with our analysts to evaluate some possible opportunities.
Q. AS OF DECEMBER 31, ZERO-COUPON BONDS ACCOUNTED FOR 58% OF THE FUND'S
ASSETS. HOW DID THESE BONDS PERFORM DURING THE PERIOD?
A. Very well. Low inflation and declining interest rates to a certain
extent gave us the best of both worlds -- strong performance for both the stock
AND bond portions of the portfolio. Because zero coupon bonds don't make
periodic interest payments, their values are very sensitive to movements
in interest rates. When rates fall, as they did during 1995, the value of
zero-coupon bonds -- especially those with longer maturities -- tends to rise
rapidly. This is because they offer a fixed rate of reinvestment, which becomes
more attractive the farther rates fall.
Q. SINCE KEMPER RETIREMENT FUND SERIES VI INVESTS IN COMMON STOCKS AND
ZERO-COUPON BONDS, HOW SHOULD SHAREHOLDERS EVALUATE THE FUND'S PROGRESS?
A. To evaluate their fund as a whole, shareholders will do best to look at
total return, which measures any realized or unrealized appreciation or
depreciation of the fund's holdings.
Performance of the fund's equity (stock) investments can be compared
with the Russell 1000(R) Growth Index. However, it's important to realize that
there will always be some variance in the performance of the fund and that of
the index. This is because of differences in the composition of the fund's
portfolio and the index, which is unmanaged, meaning its composition is fixed.
The bond portion of the fund is unmanaged; those securities will stay
in the portfolio until maturity. But it's important to be aware of the
influence these securities have on the fund's total return. As I mentioned, the
value of a zero-coupon bond is very sensitive to changing interest rates.
So if we were to see rates climb back up, the value of these bonds would
decline. But as they get closer to maturity, at which time they'll attain their
face value, the influence of interest rates declines.
Competitive rankings, such as those provided by Lipper Analytical
Services are often helpful in measuring a fund's performance relative to funds
with similar investment objectives. However, since the concept of a target
equity fund is fairly new, Kemper Retirement Fund Series accounts for 6 of 13
funds in the category (as of December 31, 1995).
6
<PAGE> 7
Performance Update
Q. WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A. Generally positive. Continued low inflation and steady or declining
interest rates should favor the series' growth stock investments as well as its
bond holdings. We've positioned Kemper Retirement Fund Series VI for continued
slow growth, with the potential for a positive bounce in the first half of
1996. I think discussion of an impending recession is very much at odds with an
environment of low inflation and declining interest rates. Anything's possible,
but I just don't see recession as an immediate threat. Now if the economy were
to begin to overheat, we'd be in a difficult position. But based on what I see
right now, I don't consider that to be likely in the coming months.
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.
INDEX An unmanaged group of stocks that is considered representative of the
stock or bond markets. An index does not take into account any fees or expenses
related to the individual securities that it tracks. However, for performance
comparisons, the index is adjusted to reflect the reinvestment of dividends of
the securities in the index.
SECTOR A specific industry group.
TOTAL RETURN A fund's total return figure measures both the net investment
income generated by, and the effect of, any realized and unrealized
appreciation or depreciation of the underlying investments in its portfolio for
the period. Total return assumes the reinvestment of all dividends and it
represents the aggregate percentage or dollar value change over the period.
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.
7
<PAGE> 8
Performance Update
- -------------------------------------------------------------------------------
Total Return*
- -------------------------------------------------------------------------------
FOR PERIOD ENDED DECEMBER 31, 1995 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
FUND
- -------------------------------------------------------------------------------
<S> <C> <C>
KEMPER RETIREMENT FUND SERIES VI 7.25% (Since 5/1/95)
</TABLE>
[Line Graph]
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Retirement
Fund Series VI from 5/1/95 through 12/31/95
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/1/95 6/30/95 9/30/95 12/31/95
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- - KEMPER RETIREMENT FUND SERIES VI(1) $10,000 10,748 11,725 12,259
- - RUSSELL 1000(R) GROWTH INDEX+ $10,000 9,778 10,106 10,725
</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.
* 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.
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,+ you should note that the fund's
performance reflects the maximum sales charge, while no such charges are
reflected in the performance of the index.
+ The Russell 1000(R) Growth Index is an unmanaged index comprised of common
stocks of larger U.S. companies with greater than average growth orientation
and represents the universe of stocks from which "earnings/growth" money
managers typically select. Assumes reinvestment of dividends. Source is Lipper
Analytical Services, Inc.
8
<PAGE> 9
Individual Holdings
THE FUND'S 10 LARGEST STOCK HOLDINGS
REPRESENTING 7.27% OF THE FUND'S TOTAL NET ASSET ON DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Holdings Percent
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Circus Circus Owns and operates casinos and hotels. 0.89%
Enterprises
2. Monsanto Co. Manufactures and sells a wide variety of agricultural 0.86%
and chemical products, manmade fiber, plastics and resin
products, prescription drugs and artificial sweeteners.
3. Mobil Corp. Produces, transports, refines and markets petroleum and 0.79%
natural gas and related products.
4. Enron Corp. Gathers, transports and markets natural gas. 0.73%
5. Pharmacia & Engaged in the discovery, development, manufacturing and 0.73%
Upjohn Inc. marketing of human pharmaceuticals, specialty chemicals and
Corp. animal health products.
6. GM Hughes A world leader in the design, manufacture and marketing 0.68%
Electronics of advanced electronic systems for automotive,
Corp. telecommunications and defense applications; a leading
manufacturer and private owner and operator of commercial
communications satellites.
7. BMC Software Develops, markets and supports standard systems software 0.68%
products to enhance IBM's database management and data
communications systems.
8. Cincinnati Provides telecommunications services, information systems and 0.66%
Bell marketing services.
9. R.P. Scherer International developer and manufacturer of drug delivery 0.63%
Corp. systems and the world's largest producer of soft gelatin
capsules.
10. Textron Inc. A multi-industry company with operations in manufacturing 0.62%
and financial services; its business services include aircraft,
automotive, industrial, systems and components, finance
and Paul Revere.
</TABLE>
9
<PAGE> 10
Portfolio of Investments
KEMPER RETIREMENT FUND--SERIES VI
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT
OBLIGATIONS--57.8%
U.S. Treasury, zero coupon, 2004
(Cost: $16,882) $32,500 $18,00
-------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVERTISING,
BROADCASTING AND
PUBLISHING--1.7%
(a) Cox Communications Inc. 3,000 58
Harcourt General 2,500 105
Interpublic Group of Companies 1,750 76
Liberty Media Group "A" 3,600 97
(a) Tele-Communications, International 3,000 60
(a) Viacom International "A" 2,800 128
========================================================================
524
------------------------------------------------------------------------
CHEMICALS--2.1%
Air Products & Chemicals 2,000 105
B.F. Goodrich Co. 1,000 68
E.I. DuPont de Nemours & Co. 1,500 105
Monsanto Co. 2,200 270
Praxair, Inc. 3,300 111
========================================================================
659
------------------------------------------------------------------------
COMPUTER SOFTWARE,
ELECTRONIC DATA
PROCESSING AND
ELECTRONIC
COMPONENTS--5.5%
(a) Atmel Corporation 1,300 29
(a) BMC Software 5,000 214
(a) Cisco Systems 2,000 149
(a) Compaq Computer Corp. 3,700 178
First Data Corporation 1,800 120
General Motors-Electronic Data Systems 1,900 99
Hewlett-Packard, Co. 1,500 125
Intel Corp. 3,000 170
Linear Technology Corp. 1,000 39
(a) LSI Logic Corp. 2,800 92
(a) Microsoft Corp. 2,000 176
(a) Parametric Technology Corp. 1,300 86
(a) Silicon Graphics Inc. 2,800 77
(a) Softkey International 3,000 69
(a) Sun Microsystems 2,000 91
========================================================================
1,714
------------------------------------------------------------------------
CONSUMER PRODUCTS
AND SERVICES--2.8%
Gillette Co. 2,000 104
PepsiCo 3,450 193
Philip Morris Companies 2,000 181
Procter & Gamble Co. 2,000 166
Sara Lee Corp. 4,000 128
Warnaco Group 3,700 92
========================================================================
864
------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
Portfolio of Investments
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DRUGS AND
HEALTHCARE--3.8%
Astra AB 4,000 $ 156
Baxter International 2,500 105
(a) Caremark International, Inc. 1,800 33
Columbia/HCA Healthcare Corp. 2,400 122
Johnson & Johnson 1,000 86
Medtronic, Inc. 3,000 168
Merck & Co., Inc. 1,500 99
Pharmacia & Upjohn Inc. 5,900 229
(a) R. P. Scherer Corp. 4,000 196
========================================================================
1,194
------------------------------------------------------------------------
ENERGY AND
RELATED SERVICES--2.3%
Enron Corp. 6,000 229
Enron Oil & Gas Co. 3,800 91
Mobil Corp. 2,200 246
Schlumberger Ltd. 2,000 139
========================================================================
705
------------------------------------------------------------------------
ENTERTAINMENT AND
RESTAURANTS--2.2%
Carnival Corp. 5,000 122
(a) Circus Circus Enterprises 10,000 279
Walt Disney Co. 2,800 165
Wendy's International 5,000 106
========================================================================
672
------------------------------------------------------------------------
FINANCIAL SERVICES--2.2%
Bank of Boston 2,000 92
Boatmen's Bancshares 1,500 61
Dean Witter Discover 3,000 141
Marsh & McLennan Companies, Inc. 1,200 107
MBIA Inc. 2,000 150
Northern Trust Co. 2,500 140
========================================================================
691
------------------------------------------------------------------------
MANUFACTURING--6.5%
Allied-Signal 4,000 190
Armstrong World Industries 1,100 68
Boeing Co. 2,300 180
Emerson Electric Co. 2,300 188
Fluor Corp. 2,000 132
FMC Corp. 2,250 152
GM Hughes Electronics Corp. 4,300 211
General Electric Co. 2,000 144
Georgia-Pacific Corp. 1,000 69
Leggett & Platt Incorporated 5,100 124
Magna International Inc. 2,500 108
Shaw Industries 10,000 147
Textron Inc. 2,900 196
York International Corp. 2,500 118
========================================================================
2,027
------------------------------------------------------------------------
RETAILING--1.9%
(a) Federated Department Stores 3,900 107
Home Depot 2,000 96
May Department Stores Co. 3,250 137
(a) Office Depot 4,200 83
(a) OfficeMax 2,500 56
Pep Boys-Manny Moe & Jack 5,000 128
========================================================================
607
------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
Portfolio of Investments
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELECOMMUNICATIONS--2.4%
(a) AirTouch Communications 5,500 $ 155
Cincinnati Bell 6,000 209
(a) DSC Communication 1,300 48
SBC Communications, Inc. 2,100 121
(a) Tellabs Operations 2,000 74
(a) WorldCom, Inc. 4,000 141
=======================================================================
748
-----------------------------------------------------------------------
TOTAL COMMON STOCKS--33.4%
(Cost: $10,161) 10,405
=======================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET
INSTRUMENTS--9.9%
Yield--5.90% and 5.51%
Due--January 1996
Cooper Industries, Inc. $ 1,600 1,599
Federal Home Loan Mortgage Corporation 1,500 1,499
=============================================================================
TOTAL MONEY MARKET INSTRUMENTS--9.9%
(Cost: $3,098) 3,098
=============================================================================
TOTAL INVESTMENTS--101.1%
(Cost: $30,141) 31,504
=============================================================================
LIABILITIES, LESS CASH AND OTHER
ASSETS--(1.1)% (347)
=============================================================================
NET ASSETS--100% $31,157
=============================================================================
</TABLE>
- ----------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- ----------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $30,141,000 for federal income tax purposes
at December 31, 1995, the aggregate gross unrealized appreciation was
$1,681,000, the aggregate gross unrealized depreciation was $318,000 and the net
unrealized appreciation on investments was $1,363,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 13
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at value
(Cost: $30,141) $31,504
Cash 162
Receivable for:
Fund shares sold 281
Dividends and interest 15
TOTAL ASSETS 31,962
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Payable for:
Investments purchased 770
Management fee 12
Administrative services fee 5
Other 18
Total liabilities 805
NET ASSETS $31,157
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $29,771
Undistributed net realized gain on investments 2
Net unrealized appreciation on investments 1,363
Undistributed net investment income 21
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $31,157
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($31,157 + 3,144 shares outstanding) 9.91
- -------------------------------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE
(net asset value, plus 5.26% of
net asset value or 5.00% of offering price) $10.43
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE> 14
Financial Statements
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------------
<S> <C>
Interest $ 474
Dividends 25
Total investment income 499
Expenses:
Management fee 48
Administrative services fee 19
Custodian and transfer agent fees and related expenses 29
Professional fees 4
Reports to shareholders 3
Trustees' fees and other 12
Total expenses 115
NET INVESTMENT INCOME 384
===================================================================================================
- ---------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ---------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 35
Net realized gain from futures transactions 305
Net realized gain 340
Change in net unrealized appreciation on investments 1,320
Net gain on investments 1,660
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,044
===================================================================================================
<CAPTION>
- ---------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------
SIX MONTHS MAY 1, 1995
ENDED TO
DECEMBER 31, 1995 JUNE 30, 1995
- ---------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 384 20
Net realized gain (loss) 340 (14)
Change in net unrealized appreciation 1,320 43
Net increase in net assets resulting from operations 2,044 49
Distribution from net investment income (383) --
Distribution from net realized gain (324) --
Total dividends to shareholders (707) --
Net increase from capital share transactions 22,631 7,040
TOTAL INCREASE IN NET ASSETS 23,968 7,089
===================================================================================================
- ---------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------
Beginning of period 7,189 100
END OF PERIOD (including undistributed net investment
income of $21 and $20) $31,157 7,189
===================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
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 Kemper Financial Services, Inc.
(KFS), 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
premium and discount amortization on money market
instruments; it also includes original issue and
market discount amortization on long-term 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
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
redeemed at net asset value (plus a commission on
most sales). On each 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 for the six
months ended December 31, 1995.
DIVIDENDS TO SHAREHOLDERS. The Trust declares and
pays dividends of net investment income and net
realized capital gains on an annual basis, 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 MANAGEMENT AGREEMENT. The Trust has a management
AFFILIATES agreement with KFS and the Fund pays a management
fee at an annual rate of .50% of average daily net
assets. The Fund incurred a management fee of
$48,000 for the six months ended December 31, 1995.
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>
Six months ended December 31, 1995 $ 109,000 899,000 124,000
</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>
Six months ended December 31, 1995 $19,000 20,000 3,000
</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 six months ended December
31, 1995, the transfer agent remitted shareholder
services fees to KSvC of $16,000 with respect to
the Fund.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of KFS.
During the six months ended December 31, 1995, the
Trust made no payments to its officers and the Fund
incurred trustees' fees of $8,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT For the six months ended December 31, 1995,
TRANSACTIONS investment transactions (excluding short-term
instruments) are as follows (in thousands):
Purchases $24,521
Proceeds from sales 1,014
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
MAY 1, 1995
SIX MONTHS ENDED TO
DECEMBER 31, 1995 JUNE 30, 1995
-------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,369 $22,641 770 $7,084
----------------------------------------------------------------------------
Shares issued in
reinvestment of
dividends 71 686 -- --
----------------------------------------------------------------------------
Less shares redeemed 72 696 5 44
----------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE
TRANSACTIONS 2,368 $22,631 765 $7,040
----------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
SIX MONTHS MAY 1, 1995
ENDED TO
DECEMBER 31, 1995 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 .11 .06
Net realized and unrealized gain .78 .20
Total from investment operations .89 .26
Less dividends:
Distribution from net investment income .13 --
Distribution from net realized gain .11 --
Total dividends .24 --
Net asset value, end of period $ 9.91 9.26
TOTAL RETURN (NOT ANNUALIZED) 9.68% 2.89
==================================================================================================
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------
Expenses 1.19% 1.09
Net investment income 3.98% 3.91
- --------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $31,157 7,189
==================================================================================================
Portfolio turnover rate (annualized) 11% --
- --------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
18
<PAGE> 19
Special Shareholders' Meeting
SPECIAL SHAREHOLDERS' MEETING
On September 19, 1995, the results of the proxy solicitation were announced at a
special shareholder meeting. Kemper Target Equity Fund shareholders were asked
to vote on three separate issues: election of eight Trustees to the Board of
Trustees, ratification of Ernst & Young LLP as independent auditors and approval
of a new investment management agreement with Kemper Financial Services, Inc. or
its successor on the same terms as the current agreement. All seven series of
Kemper Target Equity Fund voted together on items one and two which is why the
number of votes is higher for these items. We are pleased to report that all
nominees were elected and all other items were approved. Following are the
results for each issue:
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Akins 37,666,268 2,382,927
Arthur R. Gottschalk 37,676,278 2,374,917
Frederick T. Kelsey 37,662,263 2,386,932
David B. Mathis 37,770,396 2,278,799
Fred B. Renwick 37,690,297 2,358,898
Stephen B. Timbers 37,718,332 2,330,863
John B. Tingleff 37,762,386 2,286,809
John G. Weithers 38,014,696 2,034,499
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund
For Against Abstain
37,794,664 521,615 1,732,910
3) Approval of new investment management agreement
For Against Abstain
396,954 763 18,873
19
<PAGE> 20
Trustees and Officers
TRUSTEES
STEPHEN B. TIMBERS
President and Trustee
JAMES E. AKINS
Trustee
ARTHUR R. GOTTSCHALK
Trustee
FREDERICK T. KELSEY
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
JOHN E. PETERS
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
- --------------------------------------------------------------------------------
INVESTMENT MANAGER KEMPER FINANCIAL SERVICES, INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street
Chicago, IL 60603
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preceded or accompanied by a Kemper Retirement
Fund Series VI prospectus.
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