<PAGE> 1
Kemper Target Equity Fund
Kemper Worldwide 2004 Fund
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 a total return, a combination
of capital growth and income
" ...I suppose everyone believes that a tradeoff is inevitable and, when you
consider the length of the U.S. bull market, it makes sense that its upward
momentum will slow or lose steam at some point."
[KEMPER LOGO]
<PAGE> 2
Table of
Contents
3
Economic Overview
5
Performance Update
9
Country Concentrations
Largest Stock Holdings
10
Portfolio of
Investments
16
Report of
Independent Auditors
17
Financial Statements
19
Notes to
Financial Statements
23
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER WORLDWIDE 2004 FUND
TOTAL RETURN*
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1996 (UNADJUSTED FOR ANY SALES CHARGE)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
KEMPER WORLDWIDE
2004 FUND 10.05%
- --------------------------------------------------------------------------------
</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>
KEMPER WORLDWIDE 2004 FUND $10.60 $9.96
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
During the fiscal year, the fund paid the following dividends:
<TABLE>
<CAPTION>
INCOME
DIVIDEND
- --------------------------------------------------------------------------------
<S> <C>
KEMPER WORLDWIDE
2004 FUND $ 0.35
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
INDEX An unmanaged group of securities 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 reinvestment of dividends of the
securities in the index.
MARKET CAPITALIZATION Capitalization is a measure of the size of a publicly
traded company, as determined by multiplying the current price by the number of
shares outstanding. The market capitalization of a company has bearing on its
perceived earnings potential and risk. Small cap companies (less than $1
billion) may present the potential for greater growth than larger, more
established companies. On the other hand, the stock of small cap companies may
be expected to be more volatile and therefore greater risk to capital.
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.
<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
[FERRO PHOTO]
DENNIS FERRO JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI) IN 1994 AND IS AN
EXECUTIVE VICE PRESIDENT OF ZKI AND VICE PRESIDENT AND PORTFOLIO MANAGER OF
KEMPER WORLDWIDE 2004 FUND. FERRO HOLDS AN M.B.A. IN FINANCE FROM ST. JOHN'S
UNIVERSITY IN NEW YORK AND A BACHELOR'S DEGREE FROM VILLANOVA UNIVERSITY IN
PENNSYLVANIA. HE IS A CHARTERED FINANCIAL ANALYST.
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 LAST 12 MONTHS SAW A STRENGTHENING OF MULTIPLE OVERSEAS MARKETS BUT ALSO A
DECLINE IN ZERO COUPON BOND VALUES DUE TO INTEREST RATE SPECULATION IN THE U.S.
BELOW, PORTFOLIO MANAGER DENNIS FERRO DISCUSSES THE STRENGTH OF CERTAIN
INTERNATIONAL MARKETS AND THE PERFORMANCE OF KEMPER WORLDWIDE 2004 FUND.
Q INTERNATIONAL MARKETS HAVE DONE QUITE WELL DURING THE PAST 12 MONTHS. WHAT'S
RESPONSIBLE FOR THE IMPROVED PERFORMANCE?
A There is a perception that growth on a global basis is in place. In some
cases--Europe, for example--the growth is slow but it continues to be positive.
Governmental policies in general are predisposed toward accommodating growth
and, in Japan, growth has been supported by strong fiscal and monetary medicine.
Q FOR OVER A YEAR, MARKET EXPERTS HAVE BEEN EXPECTING INTERNATIONAL MARKETS TO
CATCH UP WITH AND ULTIMATELY OUTPACE THE U.S. EQUITY MARKET. IS THIS WHAT WE ARE
BEGINNING TO SEE?
A I suppose everyone believes that a tradeoff is inevitable
and, when you consider the length of the U.S. bull market, it makes sense that
its upward momentum will slow or lose steam at some point. For the 12-month
period ended June 30, 1996, international markets measured by the EAFE Index*
advanced 13.62 percent. That's quite a bit lower than the 25.98 percent return
of the Standard & Poor's 500 Stock Index** over the same time period. Although
EAFE has outperformed the S&P 500 during selected months, the international
markets still have a way to go before they catch up with the U.S.
* THE EAFE INDEX (MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA, FAR
EAST INDEX) IS AN UNMANAGED INDEX THAT IS A GENERALLY ACCEPTED BENCHMARK FOR
MAJOR OVERSEAS MARKETS.
** THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX THAT IS GENERALLY
CONSIDERED REPRESENTATIVE OF THE U.S. STOCK MARKET.
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 RETURNS?
A Zero coupon bonds are greatly affected by interest rates. When interest
rates go up, the value of the bonds go down. During the first quarter of this
year, the fund was hurt by the poor bond market performance. Shareholders should
recall that the bond component of the fund provides the guarantee of their
investment. The shorter term volatility will give way to steady appreciation as
these discounted bonds move toward maturity.
Q FOR THE 12-MONTH PERIOD, KEMPER WORLDWIDE 2004 FUND RETURNED 10.05
PERCENT. THIS PERFORMANCE IS NOTEWORTHY ESPECIALLY WHEN YOU CONSIDER THE
STRAIN THE ZERO COUPON BONDS PUT ON THE FUND. HOW DID YOU POSITION THE EQUITY
PORTION OF THE PORTFOLIO TO ACCOMPLISH THIS POSITIVE PERFORMANCE?
A The fund's overweighted position in Europe as com- pared to the EAFE index
was a strong contributor. European holdings continued to perform well as
industrial production picked up and consumer spending continued to rise.
Mid-capitalization holdings in Ireland, Spain and the Netherlands were strong
performers during the period.
In late 1995, we began to gradually heighten our exposure
5
<PAGE> 6
PERFORMANCE UPDATE
to Japan as well as broaden our exposure to other markets. We have seen a lot of
rotation in markets in the last several months--Southeast Asia was strong for
the first several weeks of 1996, for example, and then went flat. At that point,
Japan moved higher then it turned quiet, as well. Our earlier decision to more
broadly diversify our holdings in multiple markets provided us with the
opportunity to always have some portion of our equities moving forward. This is
a strategy that can work well when markets are mostly positive, as they have
been lately.
Q WOULD YOU ELABORATE ON HOW YOUR OPINION TOWARD JAPAN HAS CHANGED?
A The last 12 months represented the fund's return in a meaningful way to
Japan. At its lowest point in this period, 14 percent of the equity holdings
were invested in Japan. Encouraged by signs that an economic recovery was
finally underway, we've steadily increased our exposure to about 27
percent by the end of June. That's still an underweighted position compared
to the composition of the EAFE index which is 41 percent in Japan-based
equities.
We like what we're seeing in Japan. Its monetary policy is accommodative
toward growth. The value of the yen against the dollar has declined steadily
since its peak about one year ago, and that also helps stimulate growth and
exports. Retail sales are up and, for the first time in five years, Japanese
property rental prices are on the rise. We have a fairly broad-based exposure in
Japan--25 stocks each represent about 1 percent positions.
Q THE FUND'S FAITH IN EUROPEAN MARKETS BOLSTERED PERFORMANCE LAST YEAR.
WHAT'S YOUR CURRENT THINKING ABOUT EUROPE?
A Growth has been slow during the past two years and it appears to be
bottoming out without turning negative. Our reaction to the slowdown has been to
modestly reduce our overall exposure and focus on stocks with strong noncyclical
profit momentum. We were very overweighted in Europe in 1995--with European
stocks representing as much as 63 percent of the portfolio in November. At the
end of June, a little more than half of the portfolio was Europe-based, which is
more in line with EAFE.
Our specific exposure, however, has a very different composition than EAFE.
In particular, we have about half the exposure to the United Kingdom. Sixteen
percent of the EAFE is in UK equities versus about 9 percent of Kemper Worldwide
2004 Fund. Economic fundamentals just don't appear to support growth in the UK
right now. The prospect of political change is keeping real interest rates high
and inflation is higher than what you'll find elsewhere in much of Europe. On
the other hand, we have an overweighted position in Netherlands, Sweden and
France where we find many companies with strong growth characteristics.
One of our most recent successes in Europe has been in finding
opportunities among middle capitalization companies. These companies, with
capitalizations of about $500 million to $1 billion, offer attractive valuations
and growth prospects. Companies like Getronics in the Netherlands, WM-data in
Sweden and British Bio-Technology in the UK are a few examples.
For liquidity reasons, we tend not to own small capitalization stocks.
We've recently increased our portfolio exposure to retail and other
consumer-oriented stocks in anticipation of economic growth taking hold and
consumers beginning to spend again.
Q WHICH OTHER MARKETS HAS THE FUND DIVERSIFIED INTO?
A As we've broadened our exposure, we've added a number of companies to our
Southeast Asian holdings. Hong Kong and Malaysia were two markets we found
attractive. Japan serves as an engine of growth for all of Asia, and its
improvement can have a ripple effect throughout the region.
Q WHICH INDUSTRY SECTORS ARE YOU FAVORING NOW?
A We continue to like the pharmaceutical industry, especially those companies
with strong research and development and growing cash flow. In addition, we like
companies that help other companies become more efficient. These include a
variety of technology, telecommunication and work force management companies.
Q WHICH INDIVIDUAL STOCKS, IN PARTICULAR, WERE TOP PERFORMERS?
A During the past 12 months, several of the mid-cap
6
<PAGE> 7
PERFORMANCE UPDATE
stocks performed quite well. These include British Bio- Technology and Tabcorp.
Ciba-Geigy and Carrefour were among the larger companies that made significant
contributions.
Q WHAT ABOUT THE VALUE OF THE DOLLAR? WHAT EFFECT HAS ITS STRENGTHENING HAD ON
THE FUND'S PERFORMANCE?
A Our philosophy on currencies is purely defensive. As the U.S. deficit has
moderated and inflation has dropped to lower levels, we have used currency
hedges against a portion of our equity exposure. We use currency forward
contracts to help protect the portfolio against uncertainty in the level of
future foreign exchange rates, which enables us to benefit from any positive
returns resulting from stock movement while helping to protect us from any
adverse currency moves.
Q INTERNATIONAL MARKETS ARE KNOWN FOR THEIR UNPREDICTABLE WAYS, YET IT SOUNDS
AS THOUGH THEY HAVE BEEN BEHAVING RECENTLY. HAVE THERE BEEN ANY SURPRISES?
A The strength in Latin American markets--Mexico and Brazil, in
particular--has been a surprise. The ongoing fiscal challenges facing these
countries contribute a great deal of volatility to these markets. Evidently,
investors are looking out a year or two and reacting to what could be an
improving situation. We continue to tread cautiously around these markets.
Q WHAT ARE YOU FORECASTING FOR THE NEXT SEVERAL MONTHS?
A A relatively positive environment that supports economic growth and
corporate earnings, which should lead to improved equity markets. We believe
Japan has the ability to surprise on the upside, and we look for a resumption of
growth in Europe in 1997.
Q AND WHAT ARE THE RISKS TO YOUR FORECAST? WHAT COULD STAND IN THE WAY OF
GROWTH NOT MATERIALIZING AS YOU EXPECT IT TO?
A The primary risks to our positive scenario appear to be in three areas:
First, political risk. Several elections have the potential for a negative
surprise. The second would be trade tensions. While the last few years have been
characterized by steady growth in world trade, the potential for trade disputes
remains very real. Third, a reversal in the trend toward lower inflation would
result in tighter monetary policies and higher bond rates. However, we believe
that inflation will remain within a satisfactory range, even if it does move
modestly higher over time.
7
<PAGE> 8
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
Average Annual Total Returns*
- --------------------------------------------------------------------------------
For periods ended June 30, 1996 (adjusted for the maximum sales charge)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR FUND
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER WORLDWIDE 2004 FUND 4.59% 7.67% (Since 5/3/94)
---------------------------------------------------------------------------------------------------
</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.
- -----------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Worldwide
2004 Fund from 5/3/94 through 6/30/96
- -----------------------------------------------------------
<TABLE>
<CAPTION>
5/3/94 12/31/94 12/31/95 6/30/96
<S> <C> <C> <C> <C>
- -Kemper Worldwide 2004 Fund(1) $10,000 $ 9,567 $11,642 $11,730
- -Lehman Brothers Gov't/Corp. Bond Index 10,000 10,044 11,977 11,752
- -Europe-Australasia-Far East Index (EAFE Index) ++ 10,000 10,008 11,164 11,685
</TABLE>
*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 Worldwide 2004 Fund to the
Lehman Brothers Gov't/Corp. Bond Index+ and the EAFE 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 special risk considerations associated with an investment in the
fund, including risks related to foreign investments are discussed in the
prospectus. Risks associated with foreign securities, including fluctuating
exchange rates, government regulations and differences in liquidity, may affect
your investment.
+ 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.
++ The EAFE Index (Morgan Stanley Capital International Europe,
Australasia, Far East Index) is an unmanaged index generally accepted as a
benchmark for major overseas markets. Source is Towers Data Systems.
8
<PAGE> 9
COUNTRY CONCENTRATIONS
THE FUND'S COMMON STOCK GEOGRAPHIC DISTRIBUTION
<TABLE>
<S> <C>
JAPAN 26.5%
NETHERLANDS 14.2%
UNITED KINGDOM 8.5%
FRANCE 8.3%
SWITZERLAND 6.9%
SPAIN 5.2%
SWEDEN 5.0%
IRELAND 4.7%
HONG KONG 4.7%
MALAYSIA 3.1%
GERMANY 3.0%
OTHER* 9.9%
</TABLE>
* PLEASE SEE PAGES 10 THROUGH 15 FOR A COMPLETE LISTING.
LARGEST HOLDINGS
YOUR FUND'S FIVE LARGEST STOCK HOLDINGS*
REPRESENTING 14.6% OF THE FUND'S TOTAL COMMON STOCKS ON JUNE 30, 1996
- -----------------------------------------------------------------------------
Percent
- -----------------------------------------------------------------------------
1 CIBA-GEIGY Leading worldwide biological and chemical group; 4.4%
LIMITED engaged in research, development, production and sale
of healthcare products, agricultural products and
industrial specialties.
2 AEGON Offers primarily a full range of life insurance and 2.7%
N.V. associated financial services.
3 MOET Engaged in the product and sale of quality and prestige 2.6%
HENNESSY products, namely champagne and wines, cognac and
LOUIS spirits, leather goods and accessories, perfumes and
VUITTON beauty products and fashion.
4 ROCHE Researches, develops and manufactures pharmaceuticals, 2.5%
HOLDING drugs, vitamins, fine chemicals, fragrances, flavors
AG and diagnostic equipment; products are distributed
throughout Europe, the U.S., Asia and Latin America.
5 TSUBAKIMOTO Japan's largest maker of chains, conveyors and physical 2.4%
CHAIN distribution systems and is the core of the Tsubakimoto
CO. Group.
*The fund's holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER WORLDWIDE 2004 FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT U.S. Treasury, zero coupon, 2004
OBLIGATIONS--62.2% (Cost: $22,419) $41,200 $23,523
==========================================================================
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EUROPE
--------------------------------------------------------------------------
DENMARK--.3% Copenhagen Airports
AIRPORT OPERATOR 1,200 119
--------------------------------------------------------------------------
FRANCE--3.1% Carrefour S.A.
FOOD RETAILER 300 251
Christian Dior S.A.
LUXURY GOODS MANUFACTURER 660 86
Elf Aquitaine
OIL AND GAS PRODUCER 3,000 221
Grand Optical Photoservice
PHOTODEVELOPING AND PRESCRIPTION OPTICAL
MANUFACTURING 630 81
Moet Hennessy Louis Vuitton
LUXURY GOODS MANUFACTURER 1,542 366
Technip S.A.
ENGINEERING COMPANY 1,741 160
==========================================================================
1,165
--------------------------------------------------------------------------
GERMANY--1.1% Bayer A.G.
CHEMICAL COMPANY 7,000 247
Mannesmann A.G.
CAPITAL GOODS PRODUCER 170 59
Veba, A.G.
ELECTRIC UTILITY 2,250 119
==========================================================================
425
--------------------------------------------------------------------------
IRELAND--1.8% Bank of Ireland
BANKING 20,360 139
Greencore Group PLC
FOOD PRODUCER 40,126 210
Independent Newspapers PLC
PUBLISHER 50,000 228
Kerry Group PLC
FOOD PROCESSING 8,370 86
==========================================================================
663
--------------------------------------------------------------------------
ITALY--.8% Bulgari SpA
LUXURY GOODS MANUFACTURER 7,000 112
Telecom Italia Mobile
MOBILE TELECOMMUNICATIONS PROVIDER 90,000 201
==========================================================================
313
--------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NETHERLANDS--5.2% Aegon N.V.
INSURANCE COMPANY 8,156 $ 376
GTI Holding
ENGINEERING SERVICES 1,100 106
Getronics N.V.
INFORMATION TECHNOLOGY SERVICES 6,072 134
(a)Gucci Group N.V.
LUXURY GOODS MANUFACTURER 3,450 224
Heineken N.V.
BREWERY 919 205
IHC Caland N.V.
MARINE TECHNOLOGY HOLDING COMPANY 2,600 128
Koninklijke Ahold N.V.
FOOD RETAILER 2,907 158
Randstad Holding N.V.
BUSINESS SERVICES 3,000 221
Royal Dutch Petroleum
PETROLEUM PRODUCER 970 150
Schuttersveld Holding N.V.
HOLDING COMPANY 1,350 52
Wolters Kluwer
PUBLISHER 2,000 227
==========================================================================
1,981
--------------------------------------------------------------------------
NORWAY--.1% Schibsted A/S
PUBLISHER 3,700 48
--------------------------------------------------------------------------
SPAIN--1.9% Banco Bilbao Vizcaya
BANKING 3,948 160
Empresa Nacional de Electricidad S.A.
ELECTRIC UTILITY 2,700 168
Iberdrola, S.A.
ELECTRIC UTILITY 15,000 154
PRYCA Centros, S.A.
FOOD RETAILER 10,000 249
==========================================================================
731
--------------------------------------------------------------------------
SWEDEN--1.9% Astra AB
PHARMACEUTICAL COMPANY 7,098 313
LM Ericsson Telephone Co. "B"
TELECOMMUNICATIONS EQUIPMENT MANUFACTURER 6,452 139
Getinge Industrier AB
MEDICAL SUPPLY COMPANY 3,225 61
Hoganas AB
ENGINEERING COMPANY 2,890 101
WM-data AB
INFORMATION TECHNOLOGY SERVICES 1,340 85
==========================================================================
699
--------------------------------------------------------------------------
SWITZERLAND--2.6% Ciba-Geigy Limited
PHARMACEUTICAL COMPANY 510 621
Roche Holding AG
PHARMACEUTICAL COMPANY 90 345
==========================================================================
966
--------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED KINGDOM--3.1% BBA Group PLC
AUTOMOTIVE PRODUCTS MANUFACTURER 30,391 $ 145
(a)British Bio-Technology Group
PHARMACEUTICAL COMPANY 5,000 193
Burton Group PLC
RETAILER 83,047 201
Dixons Group PLC
ELECTRONICS RETAILER 28,900 238
Glaxo Wellcome PLC
PHARMACEUTICAL COMPANY 7,635 103
(a)Millenium & Copthorne
HOTEL OPERATOR 17,500 90
Next PLC
RETAILER 10,000 87
Reed International PLC
PUBLISHER 7,874 132
==========================================================================
1,189
==========================================================================
TOTAL EUROPEAN COUNTRIES--21.9% 8,299
--------------------------------------------------------------------------
PACIFIC REGION
--------------------------------------------------------------------------
HONG KONG--1.8% CITIC Pacific Ltd.
CONGLOMERATE 31,000 125
Cheung Kong Holding Ltd.
REAL ESTATE 14,000 101
Dao Heng Bank Ltd.
BANKING 40,000 154
Guangdong Investment Ltd.
CONGLOMERATE 150,000 95
HSBC Holdings PLC
BANKING 5,990 91
Swire Pacific Ltd.
CONGLOMERATE 11,000 94
==========================================================================
660
--------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
JAPAN--9.8% Bridgestone Corp.
RUBBER RELATED PRODUCTS MANUFACTURER 8,000 $ 152
Canon, Inc.
PRECISION INSTRUMENTS MANUFACTURER 7,000 146
Circle K Japan
CONVENIENCE RETAILER 2,000 104
Daicel Chemical Industries, Ltd.
CHEMICAL COMPANY 16,000 98
Daifuku Co., Ltd.
DIVERSIFIED MACHINERY MANUFACTURER 15,000 230
Honda Motor Co., Ltd.
AUTOMOBILE MANUFACTURER 6,000 155
Ishikawajima-Harima Heavy Industries
HEAVY MACHINERY MANUFACTURER 30,000 146
Kyocera Corp.
ELECTRONICS MANUFACTURER 2,000 141
Mabuchi Motor Co., Ltd.
ENGINE MANUFACTURER 4,000 255
Mitsubishi Bank Ltd.
BANKING 400 9
Murata Manufacturing
ELECTRONIC COMPONENTS MANUFACTURER 2,000 76
NEC Corporation
ELECTRONICS MANUFACTURER 3,000 33
(a)NKK Corp.
STEEL MANUFACTURER 25,000 76
Olympus Optical Co., Ltd.
CAMERA AND OPTICAL EQUIPMENT MANUFACTURER 14,000 140
Seven Eleven Japan Co., Ltd.
CONVENIENCE RETAILER 2,000 127
Shimizu Corp.
CONSTRUCTION COMPANY 18,000 199
Sony Music Entertainment
ENTERTAINMENT SOFTWARE COMPANY 3,000 139
Sumitomo Bank Ltd.
BANKING 10,000 193
Sumitomo Metal Industries
STEEL MANUFACTURER 50,000 153
Sumitomo Trust & Banking
BANKING 10,000 137
Taisei Corp.
CONSTRUCTION COMPANY 29,000 206
Teijin Ltd.
TEXTILE MANUFACTURER 16,000 87
Tokyu Department Store
RETAILER 26,000 177
Toray Industries
TEXTILE MANUFACTURER 27,000 186
Tsubakimoto Chain Co.
CHAIN AND CONVEYOR MANUFACTURER 50,000 341
==========================================================================
3,706
--------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MALAYSIA--1.1% DCB Holdings Bhd
BANKING 40,000 $ 137
Edaran Otomobil Nasional Berhad
AUTOMOBILE DISTRIBUTOR 3,000 29
Hong Leong Industries Berhad
CONGLOMERATE 12,000 58
Hume Industries Bhd
CONSTRUCTION MATERIAL MANUFACTURER 15,000 73
Renong Berhad
CONGLOMERATE 77,000 123
Sungei Way Holdings Berhad
BUILDING MATERIALS COMPANY 2,000 9
==========================================================================
429
--------------------------------------------------------------------------
SINGAPORE--.4% Development Bank of Singapore
BANKING 6,000 75
Fraser & Neave Ltd.
BEER AND SOFT DRINK MANUFACTURER 6,800 70
==========================================================================
145
--------------------------------------------------------------------------
THAILAND--.5% Advanced Info Service Ltd.
TELECOMMUNICATION SERVICES 4,700 74
Shinawatra Computer Co.
COMPUTER EQUIPMENT DISTRIBUTOR 1,800 39
Siam Cement Co. Ltd.
BUILDING MATERIALS PRODUCER 700 34
Siam City Bank
BANKING 25,000 27
==========================================================================
174
==========================================================================
TOTAL PACIFIC REGION--13.6% 5,114
--------------------------------------------------------------------------
COMMONWEALTH COUNTRIES
--------------------------------------------------------------------------
AUSTRALIA--.7% Tabcorp Holdings Ltd.
ENTERTAINMENT AND GAMING 59,300 268
--------------------------------------------------------------------------
CANADA--.1% Canadian National Railway Company
RAILWAY COMPANY 1,888 35
--------------------------------------------------------------------------
NEW ZEALAND--.7% Lion Nathan Ltd.
BEER AND SOFT DRINK MANUFACTURER 101,800 266
==========================================================================
TOTAL COMMONWEALTH COUNTRIES--1.5% 569
==========================================================================
TOTAL COMMON STOCKS--37.0%
(Cost: $11,744) 13,982
==========================================================================
--------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--5.28%
INSTRUMENTS--.5% Due--July 1996
(Cost: $199) $ 200 $ 199
==========================================================================
TOTAL INVESTMENTS--99.7%
(Cost: $34,362) 37,704
==========================================================================
CASH AND OTHER ASSETS,
LESS LIABILITIES--.3% 114
==========================================================================
NET ASSETS--100% $37,818
==========================================================================
At June 30, 1996, the Fund's portfolio of investments had the following
industry diversification (dollars in thousands):
<CAPTION>
VALUE %
<S> <C> <C> <C>
--------------------------------------------------------------------------
Consumer Cyclicals $ 2,599 6.9
--------------------------------------------------------------------------
Finance 2,367 6.2
--------------------------------------------------------------------------
Health Care 1,717 4.5
--------------------------------------------------------------------------
Consumer Staples 1,653 4.4
--------------------------------------------------------------------------
Capital Goods 1,499 4.0
--------------------------------------------------------------------------
Basic Industries 1,469 3.9
--------------------------------------------------------------------------
Technology 1,223 3.2
--------------------------------------------------------------------------
Utilities 642 1.7
--------------------------------------------------------------------------
Energy 371 1.0
--------------------------------------------------------------------------
Consumer Durables 288 .8
--------------------------------------------------------------------------
Transportation 154 .4
--------------------------------------------------------------------------
TOTAL COMMON STOCKS 13,982 37.0
--------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 23,523 62.2
--------------------------------------------------------------------------
OTHER NET ASSETS 313 .8
--------------------------------------------------------------------------
NET ASSETS $37,818 100.0
==========================================================================
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Based on the cost of investments of $34,362,000 for federal income tax
purposes at June 30, 1996, the gross unrealized appreciation was $3,439,000,
the gross unrealized depreciation was $97,000 and the net unrealized
appreciation on investments was $3,342,000.
See accompanying Notes to Financial Statements.
15
<PAGE> 16
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TARGET EQUITY FUND--
KEMPER WORLDWIDE 2004 FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Target Equity Fund--Kemper
Worldwide 2004 Fund as of June 30, 1996, and the related statements of
operations for the year then ended and changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
fiscal periods since 1994. 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. 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 Worldwide 2004 Fund at June 30, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the fiscal periods since 1994, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 16, 1996
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
(in thousands)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $34,362) $37,704
Cash 88
Receivable for:
Investments sold 77
Dividends and interest 55
TOTAL ASSETS 37,924
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Payable for:
Fund shares redeemed 54
Management fee 19
Administrative services fee 8
Custodian and transfer agent fees and related expenses 14
Trustees' fees and other 11
Total liabilities 106
- -------------------------------------------------------------------------------------------------------
NET ASSETS $37,818
=======================================================================================================
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $33,208
Undistributed net realized gain on investments and foreign currency transactions 385
Net unrealized appreciation on investments and assets and liabilities in foreign currencies 3,398
Undistributed net investment income 827
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $37,818
=======================================================================================================
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($37,818,000 divided by 3,567,000 shares outstanding) $10.60
- -------------------------------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE
(net asset value, plus 5.26% of
net asset value or 5.00% of offering price) $11.16
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended June 30, 1996
(in thousands)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Interest $1,482
Dividends 304
- -------------------------------------------------------------------------------------------------------
1,786
Less foreign taxes withheld 34
Total investment income 1,752
Expenses:
Management fee 214
Administrative services fee 88
Custodian and transfer agent fees and related expenses 95
Professional fees 8
Reports to shareholders 42
Trustees' fees and other 23
Total expenses 470
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,282
=======================================================================================================
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on sales of investments and foreign currency transactions 1,486
Change in net unrealized appreciation on investments and assets and liabilities in foreign
currencies 507
Net gain on investments 1,993
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,275
=======================================================================================================
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- --------------------------------------------------------------------------------------------------------
Net investment income $ 1,282 809
Net realized gain (loss) 1,486 (916)
Change in net unrealized appreciation 507 2,964
Net increase in net assets resulting from operations 3,275 2,857
Distribution from net investment income (1,157) (301)
Net increase from capital share transactions 5,001 22,243
TOTAL INCREASE IN NET ASSETS 7,119 24,799
========================================================================================================
- --------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------
Beginning of year 30,699 5,900
- --------------------------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment
income of $827,000 and $491,000, respectively) $37,818 30,699
========================================================================================================
</TABLE>
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUND Kemper Worldwide 2004 Fund (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 (November 15, 2004) to investors who reinvest
all dividends and hold their shares to the Maturity
Date, and to provide total return, a combination of
capital growth and income. The Fund pursues its
objectives by investing a portion of its assets in
zero coupon U.S. Treasury obligations and the
balance of its assets primarily in an
internationally diversified portfolio of foreign
securities. 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. Any portfolio securities that are primarily
traded on a domestic securities exchange are valued
at the last sale price on that exchange or, if
there is no recent last sale price available, 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.
A security that is listed or traded on more than
one exchange is valued at the quotation on the
exchange determined to be the primary market for
such security by the Board of Trustees or its
delegates. 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 and foreign currencies are
valued at the forward and current exchange rates,
respectively, 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.
CURRENCY TRANSLATION. The books and records of the
Fund are maintained in U.S. dollars. All assets and
liabilities initially expressed in foreign currency
values are converted into U.S. dollar values at the
mean between the bid and offered quotations of such
currencies against U.S. dollars as last quoted by a
recognized dealer. If such quotations are not
readily available, the rate of exchange is
determined in good faith by the Board of Trustees.
Income and expenses and purchases and sales of
investments are translated into U.S. dollars at the
rate of exchange prevailing on the respective dates
of such transactions. The Fund includes that
portion of
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
the results of operations resulting from changes in
foreign exchange rates with the net realized and
unrealized gain (loss) on investments, as
appropriate.
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, except that certain dividends
from foreign securities are recorded as soon as the
information is available to the Fund. Interest
income is recorded on the accrual basis and
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 were sold during
a limited offering period which ended in 1996, and
are redeemed on a continuous basis. Fund shares
were sold and are 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 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. These
differences are primarily due to differing
treatments for certain transactions such as foreign
currency transactions.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Trust has a management
agreement with ZKI and pays a management fee at an
annual rate of .60% of average daily net assets.
The Fund incurred a management fee of $214,000 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
PAID BY KDI
COMMISSIONS ----------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended June 30, 1996 $42,000 362,000 21,000
</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 $88,000 88,000 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 $39,000
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.
- --------------------------------------------------------------------------------
4 INVESTMENT TRANSACTIONS For the year ended June 30, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $23,158
Proceeds from sales 17,526
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1996 1995
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 958 $ 9,921 2,657 $24,385
--------------------------------------------------------------------------
Shares issued in
reinvestment of
dividends 108 1,110 32 290
--------------------------------------------------------------------------
1,066 11,031 2,689 24,675
Shares redeemed (581) (6,030) (261) (2,432)
--------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE
TRANSACTIONS 485 $ 5,001 2,428 $22,243
--------------------------------------------------------------------------
</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
GAIN
FOREIGN CURRENCY CONTRACT AMOUNT (LOSS)
TO BE DELIVERED IN U.S. DOLLARS AT 6/30/96
---------------------------------------------------------------------
<S> <C> <C>
331,000 British Pounds $ 500,000 $ (14,000)
---------------------------------------------------------------------
1,520,000 Dutch Guilders 899,000 7,000
---------------------------------------------------------------------
3,585,000 French Francs 698,000 1,000
---------------------------------------------------------------------
203,800,000 Japanese Yen 1,914,000 53,000
---------------------------------------------------------------------
551,000 Swiss Francs 450,000 9,000
---------------------------------------------------------------------
Net unrealized gain $ 56,000
---------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MAY 3, 1994
YEAR ENDED JUNE 30, TO
1996 1995 JUNE 30, 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.96 9.02 9.00
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .36 .27 .02
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .63 .79 --
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .99 1.06 .02
- --------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .35 .12 --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.60 9.96 9.02
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 10.05% 11.91 .22
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------
Expenses 1.32% 1.29 1.32
- --------------------------------------------------------------------------------------------------------------
Net investment income 3.60% 3.77 2.59
==============================================================================================================
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $37,818 30,699 5,900
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 50% 75 --
- --------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended June 30, 1996 was $.0253. Foreign
commissions usually are lower than U.S. commissions when expressed as cents per share due to the lower per share
price of many non-U.S. securities.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
23
<PAGE> 24
TRUSTEES AND 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
- --------------------------------------------------------------------------------
FOREIGN CUSTODIAN
THE CHASE MANHATTAN BANK
Chase Metro Tech Center
Brooklyn, NY 11245
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER
KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street Chicago, IL 60603
http://www.kemper.com
[LOGO]
Printed on recycled paper.
KWF4-2 (8/96) [KEMPER FUNDS LOGO]
Printed in the U.S.A. 1019610
