<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1996.
1933 ACT REGISTRATION NO. 33-30876
1940 ACT REGISTRATION NO. 811-5896
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
<TABLE>
<CAPTION>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
<S> <C>
Pre-Effective Amendment No. _ / /
Post-Effective Amendment No. 22 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 24 /X/
</TABLE>
(Check appropriate box or boxes)
------------------
KEMPER TARGET EQUITY FUND
(Exact name of Registrant as Specified in Charter)
<TABLE>
<CAPTION>
222 South Riverside Plaza, Chicago, Illinois 60606
<S> <C>
(Address of Principal Executive Office) (Zip Code)
</TABLE>
Registrant's Telephone Number, including Area Code: (312) 781-1121
<TABLE>
<S> <C>
Philip J. Collora With a copy to:
Vice President and Secretary Charles F. Custer
Kemper Target Equity Fund Vedder, Price, Kaufman & Kammholz
222 South Riverside Plaza 222 North LaSalle Street
Chicago, Illinois 60606-5808 Chicago, Illinois 60601
(Name and Address of Agent for Service)
</TABLE>
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Rule 24f-2 Notice for Registrant's fiscal year ended June 30, 1996
was filed on or about August 27, 1996.
It is proposed that this filing will become effective (check appropriate
box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on October 15, 1996 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
Kemper Target Equity Fund ("Registrant") is a series fund with seven series
currently established: Kemper Retirement Fund Series I, Kemper Retirement Fund
Series II, Kemper Retirement Fund Series III, Kemper Retirement Fund Series IV,
Kemper Retirement Fund Series V, Kemper Retirement Fund Series VI and Kemper
Worldwide 2004 Fund. Shares of Kemper Retirement Fund Series I-V and Kemper
Worldwide 2004 Fund are no longer offered and sold to the public. Shares of
Kemper Retirement Fund Series VI are currently offered and sold to the public.
The purpose of this Amendment to the Registration Statement of Registrant on
Form N-1A is (a) to amend the Registrant Statement of Registrant with respect to
all series pursuant to Rule 8b-16 of the Investment Company Act of 1940 and (b)
to amend the Registration Statement of Registrant with respect to Kemper
Retirement Fund Series VI to bring the contents thereof into compliance with
Section 10(a)(3) of the Securities Act of 1933.
<PAGE> 3
KEMPER TARGET EQUITY FUND
KEMPER RETIREMENT FUND SERIES VI
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART A
OF FORM N-1A AND PROSPECTUS
<TABLE>
<CAPTION>
ITEM NUMBER
OF FORM N-1A LOCATION IN PROSPECTUS
<S> <C> <C>
1. Cover Page............................. Cover Page
2. Synopsis............................... Summary; Summary of Expenses
3. Condensed Financial Information........ Performance; Financial Highlights
4. General Description of Registrant...... Summary; Investment Objectives, Policies and
Risk Factors; Capital Structure
5. Management of the Fund................. Summary; Investment Manager and Underwriter
5A. Management's Discussion of
Fund Performance....................... Performance
6. Capital Stock and Other Securities..... Summary; Investment Objectives, Policies and
Risk Factors; Dividends and Taxes; Net Asset
Value; Purchase of Shares; Capital Structure
7. Purchase of Securities Being Offered... Summary; Investment Manager and Underwriter;
Net Asset Value; Purchase of Shares; Special
Features
8. Redemption or Repurchase............... Summary; Redemption or Repurchase of Shares
9. Pending Legal Proceedings.............. Inapplicable
</TABLE>
<PAGE> 4
KEMPER RETIREMENT FUND SERIES I ("SERIES I")
KEMPER RETIREMENT FUND SERIES II ("SERIES II")
KEMPER RETIREMENT FUND SERIES III ("SERIES III")
KEMPER RETIREMENT FUND SERIES IV ("SERIES IV")
KEMPER RETIREMENT FUND SERIES V ("SERIES V")
PART A:
INFORMATION REQUIRED IN A PROSPECTUS
ITEM 1. COVER PAGE
Inapplicable.
ITEM 2. SYNOPSIS
Inapplicable.
ITEM 3. CONDENSED FINANCIAL INFORMATION
Inapplicable.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
Reference is made to the sections entitled "Summary," "Investment
Objectives, Policies and Risk Factors" and "Capital Structure" in the Kemper
Retirement Fund Series VI prospectus filed herewith, except that the Maturity
Date for Series I is November 15, 1999, for Series II is August 15, 2000, for
Series III is February 15, 2002, for Series IV is February 15, 2003, for Series
V is November 15, 2004 and shares of Series I, Series II, Series III, Series IV
and Series V are no longer available for purchase.
ITEM 5. MANAGEMENT OF THE FUND
Reference is made to the sections entitled "Summary" and "Investment
Manager and Underwriter" in the Kemper Retirement Fund Series VI prospectus
filed herewith except that shares were sold to the public during Offering
Periods that ended on or about the dates indicated: Series I - August 29, 1990,
Series II - March 9, 1992, Series III - January 15, 1993, Series IV - November
15, 1993 and Series V - April 30, 1995.
ITEM 5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Inapplicable.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
Reference is made to the sections entitled "Summary," "Investment
Objectives, Policies and Risk Factors," "Dividends and Taxes," "Net Asset
Value," "Purchase of Shares" and "Capital Structure" in the Kemper Retirement
Fund Series VI prospectus filed herewith, except that the shares of Series I,
Series II, Series III, Series IV and Series V are no longer available for
purchase.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED
Reference is made to the sections entitled "Summary," "Purchase of Shares,"
"Investment Manager and Underwriter" and "Special Features" in the Kemper
Retirement Fund Series VI prospectus filed herewith, except that shares of
Series I, Series II, Series III, Series IV and Series V are no longer available
for purchase.
ITEM 8. REDEMPTION OR REPURCHASE
Reference is made to the sections entitled "Summary" and "Redemption or
Repurchase of Shares" in the Kemper Retirement Fund Series VI prospectus filed
herewith, except that shares of Series I, Series II, Series III, Series IV and
Series V are no longer available for purchase.
ITEM 9. PENDING LEGAL PROCEEDINGS
Inapplicable.
A-1
<PAGE> 5
TABLE OF CONTENTS
- ---------------------------------------------------------
<TABLE>
<S> <C>
Summary 1
- ------------------------------------------------
Summary of Expenses 2
- ------------------------------------------------
Financial Highlights 3
- ------------------------------------------------
Investment Objectives, Policies and Risk 3
Factors
- ------------------------------------------------
Investment Manager and Underwriter 11
- ------------------------------------------------
Dividends and Taxes 12
- ------------------------------------------------
Net Asset Value 14
- ------------------------------------------------
Purchase of Shares 14
- ------------------------------------------------
Redemption or Repurchase of Shares 18
- ------------------------------------------------
Special Features 21
- ------------------------------------------------
Performance 23
- ------------------------------------------------
Capital Structure 24
- ------------------------------------------------
</TABLE>
This prospectus contains information about the Fund that you should know before
investing and should be retained for future reference. A Statement of Additional
Information dated October 15, 1996, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. It is available
upon request without charge from the Fund at the address or telephone number on
this cover or the firm from which this prospectus was received.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENT IN FUND
SHARES INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
KEMPER LOGO
KEMPER
RETIREMENT
FUND SERIES VI
PROSPECTUS OCTOBER 15, 1996
KEMPER RETIREMENT FUND SERIES VI
222 S. Riverside Plaza, Chicago, Illinois 60606, 1-800-621-1048.
The objectives of Kemper Retirement Fund Series VI (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 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 common stocks. The Fund is intended for
long-term investors and is not appropriate for investors seeking current income.
The assurance that investors who reinvest dividends and hold their shares until
the Maturity Date will receive on the Maturity Date at least their original
investment is provided by the par value of the zero coupon U.S. Treasury
obligations in the Fund's portfolio on that date as well as by a guarantee from
Zurich Kemper Investments, Inc., the Fund's investment manager. There is no
assurance that the Fund's objective of long-term growth of capital will be
achieved. The Fund's shares are not guaranteed by the U.S. Government. The Fund
is a series of Kemper Target Equity Fund.
<PAGE> 6
KEMPER RETIREMENT FUND SERIES VI
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606, TELEPHONE 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES; PERMITTED INVESTMENTS. Kemper Retirement Fund Series VI
(the "Fund") is a diversified series of Kemper Target Equity Fund (the "Trust"),
which is an open-end, management investment company that may issue shares in one
or more series. The Fund's investment objectives 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 Fund pursues its objectives by
investing a portion of its assets in "zero coupon" U.S. Treasury Obligations
("Zero Coupon Treasuries") and the balance of its assets primarily in common
stocks. The assurance that investors who reinvest all dividends and hold their
shares until the Maturity Date will receive on the Maturity Date at least their
original investment is provided by the par value of the Zero Coupon Treasuries
as well as by a guarantee from Zurich Kemper Investments, Inc., the Fund's
investment manager. The Fund's returns will fluctuate and there is no assurance
that the Fund will achieve its objective of long-term capital growth. The Zero
Coupon Treasuries are normally purchased at a substantial discount and represent
the right to receive par value at a fixed date from the U.S. Government. The
amount invested in common stocks provides appreciation potential. See
"Investment Objectives, Policies and Risk Factors."
SPECIAL RISK FACTORS. The Fund is intended for long-term investors and is not
appropriate for investors seeking current income. The Fund is designed so that
shareholders who reinvest all dividends and hold their shares until the Maturity
Date will receive on the Maturity Date an amount at least equal to their
investment, including any sales charge ("Investment Protection"), even if the
value of the investments of the Fund other than the Zero Coupon Treasuries were
to decrease to zero, which the Fund's investment manager considers highly
unlikely. The Fund does not seek to provide a specific return on investors'
capital or to protect principal on an after-tax or present value basis. An
investor who reinvested all dividends and who, upon redemption at the Maturity
Date, received only the principal amount invested, would have received a zero
rate of return on such investment. Investors who do not reinvest all dividends
or who redeem all or part of their shares in the Fund prior to the Maturity Date
will not benefit from the Fund's Investment Protection, and upon redemption may
receive more or less than their original investment; provided, however, in the
event of a partial redemption, the Fund's Investment Protection will continue as
to that part of the original investment that remains invested (with all
dividends thereon reinvested) until the Maturity Date. The government guarantee
of the Zero Coupon Treasuries in the Fund's portfolio does not guarantee the
market value of the Zero Coupon Treasuries or the shares of the Fund, whose net
asset value will fluctuate. Zero Coupon Treasuries normally are subject to
substantially greater price fluctuations during periods of changing interest
rates than are securities of comparable quality that make regular interest
payments. Investors subject to tax should be aware that any portion of the
amount returned to them upon redemption of shares that constitutes accretion of
interest on the Zero Coupon Treasuries will have been taxable as ordinary income
over the period that the shares were held. The Fund may invest a small portion
of its assets in options and foreign securities and may engage in financial
futures and foreign currency transactions. See "Investment Objectives, Policies
and Risk Factors" and "Dividends and Taxes."
INVESTMENT MANAGER AND UNDERWRITER. Zurich Kemper Investments, Inc. ("ZKI") is
the Fund's investment manager. ZKI is paid an investment management fee at the
annual rate of .50% of average daily net assets of the Fund. Kemper
Distributors, Inc. ("KDI"), a wholly owned subsidiary of ZKI, is the Fund's
principal underwriter and administrator. Administrative services are provided to
shareholders under an administrative services agreement with KDI. The Fund pays
an administrative services fee at the annual rate of up to .25% of average daily
net assets of the Fund, which KDI pays to financial services firms. See
"Investment Manager and Underwriter."
PURCHASES AND REDEMPTIONS. Investors may purchase the Fund's shares only during
a limited offering period (the "Offering Period"). Purchases may be made at net
asset value plus a maximum sales charge of 5.0% of the offering price. Reduced
sales charges apply to purchases of $100,000 or more. The minimum initial
investment is $1,000 and the minimum subsequent investment is $100. The minimum
initial investment for an employee benefit plan or Individual Retirement Account
is $250 and the minimum subsequent investment is $50. It is anticipated that the
1
<PAGE> 7
Offering Period will continue until March 31, 1997 but the period may be
shortened or extended at the option of the Fund. Shareholders will still be
permitted to reinvest dividends in shares of the Fund after the end of the
Offering Period. Shares may be redeemed without charge or penalty at net asset
value, which may be more or less than original cost. Shares purchased at net
asset value under the Large Order NAV Purchase Privilege may be subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase and a
.50% contingent deferred sales charge if redeemed during the second year of
purchase. See "Purchase of Shares" and "Redemption or Repurchase of Shares."
INVESTORS IN THE FUND. The Fund is designed for long-term investors who seek
principal protection as well as the opportunity for capital growth, such as
investors who want to provide for future health care costs, fund college
education costs or fund IRAs or other tax-qualified retirement plans. Through a
single investment in shares of the Fund, investors receive the benefits of
diversification, professional management and liquidity, and relief from
administrative details such as accounting for distributions and the safekeeping
of securities.
DIVIDENDS. The Fund normally distributes annual dividends of net investment
income and any net realized short-term and long-term capital gains. Investors
may have income and capital gain dividends automatically reinvested in the Fund
without a sales charge and must do so in order to receive the benefit of the
Fund's Investment Protection. See "Dividends and Taxes."
GENERAL INFORMATION AND CAPITAL. The Trust is organized as a business trust
under the laws of Massachusetts and may issue an unlimited number of shares of
beneficial interest in one or more series, one of such series being the Fund.
Shares are fully paid and nonassessable when issued, are transferable without
restriction and have no preemptive or conversion rights. The Trust is not
required to hold annual shareholder meetings; but it will hold special meetings
as required or deemed desirable for such purposes as electing trustees, changing
fundamental policies or approving an investment management agreement. See
"Capital Structure."
SUMMARY OF EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Charge on Purchases (as a percentage of offering price)................... 5.0 %
Maximum Sales Charge on Reinvested Dividends............................................ None
Deferred Sales Charge................................................................... None (2)
Redemption Fees......................................................................... None
Exchange Fee............................................................................ None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management Fees......................................................................... .50 %
12b-1 Fees.............................................................................. None
Other Expenses.......................................................................... .77 %
----
Total Operating Expenses................................................................ 1.27 %
====
</TABLE>
- ---------------
(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details. Reduced sales charges apply to purchases of $100,000
or more. See "Purchase of Shares."
(2) The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege may be subject to a contingent deferred sales charge
of 1% the first year and .50% the second year. See "Purchase of Shares."
EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 10
investment, assuming 1 YEAR 3 YEARS 5 YEARS YEARS
(1)5% annual return and (2) redemption at the end of
each time period: $62 $88 $116 $196
</TABLE>
2
<PAGE> 8
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The Example assumes a 5% annual rate of return pursuant to
requirements of the Securities and Exchange Commission. This hypothetical rate
of return is not intended to be representative of past or future performance of
the Fund. THE EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The table below shows financial information expressed in terms of one share
outstanding throughout the period. The information in the table is covered by
the report of the Fund's independent auditors. The report is contained in the
Trust's Registration Statement and is available from the Fund. The financial
statements contained in the Fund's 1996 Annual Report to Shareholders are
incorporated herein by reference and may be obtained by writing or calling the
Fund.
<TABLE>
<CAPTION>
MAY 1, 1995
YEAR ENDED TO JUNE 30,
JUNE 30, 1996 1995
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.26 9.00
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .24 .06
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .57 .20
- ---------------------------------------------------------------------------------------------------------
Total from investment operations .81 .26
- ---------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .13 --
- ---------------------------------------------------------------------------------------------------------
Distribution from net realized gain .11 --
- ---------------------------------------------------------------------------------------------------------
Total dividends .24 --
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.83 9.26
=========================================================================================================
TOTAL RETURN (NOT ANNUALIZED) 8.79% 2.89
=========================================================================================================
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.27% 1.09
- ---------------------------------------------------------------------------------------------------------
Net investment income 3.47% 3.91
- ---------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $49,689 7,189
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 34% --
- ---------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended June 30, 1996 was $.0582.
=========================================================================================================
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
OBJECTIVES. 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. As a fundamental policy, the Fund pursues its objectives by
investing a portion of its assets in "zero coupon" U.S. Treasury obligations
("Zero Coupon Treasuries") and the balance of its assets primarily in common
stocks ("Equity Securities").
The Fund is intended for long-term investors who seek principal protection as
well as the opportunity for capital growth, such as investors who want to
provide for future health care costs, fund college education costs or fund
3
<PAGE> 9
IRAs or other tax-qualified retirement plans. The Fund is designed so that
shareholders who reinvest all dividends and hold their investment until the
Maturity Date will receive on the Maturity Date an amount at least equal to
their original investment, including any sales charge ("Investment Protection").
This will occur even if the value of the investments of the Fund other than the
Zero Coupon Treasuries were to decrease to zero, which the investment manager
considers highly unlikely. The assurance that investors who reinvest all
dividends and hold their shares until the Maturity Date will receive on the
Maturity Date at least their original investment is provided by the par value of
the Zero Coupon Treasuries in the Fund's portfolio as well as by a guarantee
from Zurich Kemper Investments, Inc. ("ZKI"), the Fund's investment manager. See
"How the Fund Works" below. Investors who do not reinvest all dividends or who
redeem part or all of their investment in the Fund other than on the Maturity
Date will not receive the benefit of the Fund's Investment Protection, and upon
the redemption may receive more or less than the amount of their original
investment; provided, however, in the event of a partial redemption, the Fund's
Investment Protection will continue as to that part of the original investment
that remains invested (with all dividends thereon reinvested) until the Maturity
Date. The Fund may not be appropriate for investors who expect to redeem their
investment in the Fund prior to the Maturity Date or who will require cash
distributions from the Fund. Since the benefit of Investment Protection is an
inherent characteristic of the Fund's shares, it continues in the event of a
transfer of the shares by gift, under a will or otherwise, provided dividends on
the shares continue to be reinvested and the shares continue to be held until
the Maturity Date.
The opportunity for capital growth for an investor arises to the extent that the
value of the Fund's assets, including Equity Securities, is greater than the par
value of the Zero Coupon Treasuries on the Maturity Date. Thus, the Fund in
effect will have two major portfolio segments: one consisting of Zero Coupon
Treasuries to pursue Investment Protection and the other consisting of Equity
Securities to pursue long-term capital growth. The Fund's returns and net asset
value will fluctuate. There is no assurance that the Fund will achieve its
objective of long-term capital growth.
HOW THE FUND WORKS. As noted above, the Fund will invest in Zero Coupon
Treasuries and Equity Securities in pursuing its objectives. Zero Coupon
Treasuries evidence the right to receive a fixed payment at a specific future
date from the U.S. Government. The Fund will offer its shares during a limited
offering period (the "Offering Period") at net asset value plus the applicable
sales charge. See "Purchase of Shares." The Zero Coupon Treasuries that the Fund
acquires with the proceeds of the sale of its shares during the Offering Period
will be selected so as to mature at a specific par value on or about the
Maturity Date. The Fund's investment manager will continuously adjust the
proportion of the Fund's assets that are invested in Zero Coupon Treasuries so
that the value of the Zero Coupon Treasuries on the Maturity Date (i.e., the
aggregate par value of the Zero Coupon Treasuries in the portfolio) will be
sufficient to enable investors who reinvest all dividends and hold their
investment in the Fund until the Maturity Date to receive on the Maturity Date
the full amount of such investment, including any sales charge. Thus, the
minimum par value of Zero Coupon Treasuries per Fund share necessary to provide
for the Fund's Investment Protection will be continuously determined and
maintained.
In order to provide further assurance that the Fund's Investment Protection will
be maintained, ZKI has entered into a Guaranty Agreement. Under the Guaranty
Agreement, ZKI has agreed to make sufficient payments on the Maturity Date to
enable shareholders who have reinvested all dividends and held their investment
in the Fund until the Maturity Date to receive on the Maturity Date an aggregate
amount of redemption proceeds and payments under the Guaranty Agreement equal to
the amount of their original investment, including any sales charge.
The portion of the Fund's assets that will be allocated to the purchase of Zero
Coupon Treasuries will fluctuate during the Offering Period. This is because the
value of the Zero Coupon Treasuries and Equity Securities, and therefore the
offering price of the Fund's shares, will fluctuate with changes in interest
rates and other market value fluctuations. If the offering price of the Fund's
shares increases during the Offering Period, the minimum par value of Zero
Coupon Treasuries per Fund share necessary to provide for the Fund's Investment
Protection will increase and this amount will be fixed by the highest offering
price during the Offering Period. The Fund may hold Zero Coupon Treasuries in an
amount in excess of the amount necessary to provide for the Fund's Investment
4
<PAGE> 10
Protection in the discretion of the Fund's investment manager. During the
Offering Period, under normal market conditions, the proportion of the Fund's
portfolio invested in Zero Coupon Treasuries may be expected to range from 50%
to 65%; but a greater or lesser percentage is possible.
As the percentage of Zero Coupon Treasuries in the Fund's portfolio increases,
the percentage of Equity Securities in the portfolio will necessarily decrease.
This will result in less potential for capital growth from equity securities. In
order to help ensure at least a minimum level of exposure to the equity markets
for shareholders, the Fund will cease offering its shares if their continued
offering would cause more than 70% of its assets to be allocated to Zero Coupon
Treasuries. After the Offering Period is over, no additional assets will be
allocated to the purchase of Zero Coupon Treasuries. However, since the values
of the Zero Coupon Treasuries and Equity Securities are often affected in
different ways by changes in interest rates and other market conditions and will
often fluctuate independently, the percentage of the Fund's net asset value
represented by Zero Coupon Treasuries will continue to fluctuate after the end
of the Offering Period. Zero Coupon Treasuries may be liquidated before the
Maturity Date to meet redemptions and pay cash dividends, provided that the
minimum amount necessary to provide for the Fund's Investment Protection is
maintained.
Shareholders who elect to receive dividends in cash are in effect withdrawing a
portion of the accreted income on the Zero Coupon Treasuries that are held to
protect their original principal investment at the Maturity Date. These
shareholders will receive the same net asset value per share for any Fund shares
redeemed at the Maturity Date as shareholders who reinvest dividends, but they
will have fewer shares to redeem than shareholders similarly situated who had
reinvested all dividends. Shareholders who redeem some or all of their shares
before the Maturity Date lose the benefit of Investment Protection with respect
to those shares redeemed. Thus, investors are encouraged to reinvest all
dividends and to evaluate their need to receive some or all of their investment
prior to the Maturity Date before making an investment in the Fund.
ZERO COUPON TREASURIES. The Zero Coupon Treasuries held by the Fund will
consist of U.S. Treasury notes or bonds that have been stripped of their
unmatured interest coupons or will consist of unmatured interest coupons from
U.S. Treasury notes or bonds. The Zero Coupon Treasuries evidence the right to
receive a fixed payment at a future date (i.e., the Maturity Date) from the U.S.
Government, and are backed by the full faith and credit of the U.S. Government.
The guarantee of the U.S. Government does not apply to the market value of the
Zero Coupon Treasuries owned by the Fund or to the shares of the Fund. The
market value of Zero Coupon Treasuries generally will fluctuate inversely with
changes in interest rates. As interest rates rise, the value of the Zero Coupon
Treasuries will tend to decline and as interest rates fall the value of the Zero
Coupon Treasuries will tend to increase. Zero Coupon Treasuries are purchased at
a deep discount because the buyer obtains only the right to a fixed payment at a
fixed date in the future and does not receive any periodic interest payments.
The effect of owning deep discount bonds that do not make current interest
payments (such as the Zero Coupon Treasuries) is that a fixed yield is earned
not only on the original investment but also, in effect, on all earnings during
the life of the discount obligation. This implicit reinvestment of earnings at
the same rate eliminates the risk of being unable to reinvest the income on such
obligations at a rate as high as the implicit yield on the discount obligation,
but at the same time eliminates the holder's ability to reinvest at higher rates
in the future. For this reason, the Zero Coupon Treasuries normally are subject
to substantially greater price fluctuations during periods of changing interest
rates than are securities of comparable quality that make regular interest
payments. As the maturity of the Zero Coupon Treasuries becomes shorter (i.e.,
as the period to the Maturity Date is shorter), the degree of price fluctuation
will become less. Additional information concerning Zero Coupon Treasuries
appears in the Statement of Additional Information of the Fund under "Investment
Policies and Techniques."
EQUITY SECURITIES. With respect to Fund assets not invested in Zero Coupon
Treasuries, the Fund will seek long-term capital growth through professional
management and diversification of investments in securities the Fund's
investment manager believes to have possibilities for capital growth. In seeking
to achieve capital growth, it will be the Fund's policy to invest assets not
otherwise invested in Zero Coupon Treasuries primarily in securities that the
Fund's investment manager believes offer the potential for increasing the Fund's
total asset value. While it is anticipated that most investments will be in
common stocks of companies with above-average growth prospects,
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<PAGE> 11
investments may also be made to a limited degree in other common stocks,
warrants and in convertible securities, such as bonds and preferred stocks.
Factors that the Fund's investment manager may consider in making its equity
investments are patterns of growth in sales and earnings, the development of new
or improved products or services, a favorable outlook for growth in the
industry, the probability of increased operating efficiencies, emphasis on
research and development, cyclical conditions, and other signs that a company is
expected to show greater than average capital growth and earnings growth. The
Fund's investment policy with respect to these assets may involve a somewhat
greater risk than is inherent in some other investment securities. Also, any
income received from such securities will be incidental.
In seeking to obtain capital growth, the Fund may trade to some degree in
securities for the short-term. To this extent, the Fund will be engaged in
trading operations based on short-term market considerations as distinct from
long-term investment based upon fundamental valuation of securities.
The Fund may also purchase options on securities and index options, may purchase
and sell financial futures contracts and options on financial futures contracts,
may purchase foreign securities and engage in related foreign currency
transactions and may at times lend its portfolio securities. There may also be
times when a significant portion of the Fund's assets not invested in Zero
Coupon Treasuries may be held temporarily in cash or defensive type securities
such as high-grade debt securities, securities of the U.S. Government and its
agencies and high quality money market instruments, including repurchase
agreements, depending upon the investment manager's analysis of business and
economic conditions and the outlook for security prices.
SPECIAL RISK FACTORS. The value of the Zero Coupon Treasuries and the Equity
Securities in the Fund's portfolio will fluctuate prior to the Maturity Date and
the value of the Zero Coupon Treasuries will equal their par value on the
Maturity Date. As noted previously (see "Zero Coupon Treasuries"), the value of
the Zero Coupon Treasuries may be expected to experience more volatility than
U.S. Government securities that have similar yields and maturities but that make
current distributions of interest. Thus, the net asset value of the Fund's
shares will fluctuate with changes in interest rates and other market conditions
prior to the Maturity Date. As an open-end investment company, the Fund will
redeem its shares at the request of a shareholder at the net asset value per
share next determined after a request is received in proper form. Thus,
shareholders who redeem their shares prior to the Maturity Date may receive more
or less than their acquisition cost, including any sales charge, whether or not
they reinvest their dividends. Such shares, therefore, would not receive the
benefit of the Fund's Investment Protection. Any shares not redeemed prior to
the Maturity Date by a shareholder would continue to receive the benefit of the
Fund's Investment Protection provided that all dividends with respect to such
shares are reinvested. Accordingly, the Fund may not be appropriate for
investors who expect to redeem their investment in the Fund prior to the
Maturity Date.
Each year the Fund will be required to accrue an increasing amount of income on
its Zero Coupon Treasuries utilizing the effective interest method. However, to
maintain its tax status as a pass-through entity under Subchapter M of the
Internal Revenue Code and also to avoid imposition of excise taxes, the Fund
will be required to distribute dividends equal to substantially all of its net
investment income, including the accrued income on its Zero Coupon Treasuries
for which it receives no payments in cash prior to their maturity. Dividends of
the Fund's investment income and short-term capital gains will be taxable to
shareholders as ordinary income for federal income tax purposes, whether
received in cash or reinvested in additional shares. See "Dividends and Taxes."
However, shareholders who elect to receive dividends in cash, instead of
reinvesting these amounts in additional shares of the Fund, may realize an
amount upon redemption of their investment on the Maturity Date that is less or
greater than their acquisition cost and, therefore, will not receive the benefit
of the Fund's Investment Protection. Accordingly, the Fund may not be
appropriate for investors who will require cash distributions from the Fund in
order to meet current tax obligations resulting from their investment or for
other needs.
As noted previously, the Fund will maintain a minimum par value of Zero Coupon
Treasuries per share in order to provide for the Fund's Investment Protection.
In order to generate sufficient cash to meet dividend
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<PAGE> 12
requirements and other operational needs and to redeem Fund shares on request,
the Fund may be required to limit reinvestment of capital on the disposition of
Equity Securities and may be required to liquidate Equity Securities at a time
when it is otherwise disadvantageous to do so, which may result in the
realization of losses on the disposition of such securities, and may also be
required to borrow money to satisfy dividend and redemption requirements. The
liquidation of Equity Securities and the expenses of borrowing money in such
circumstances could impair the ability of the Fund to meet its objective of
long-term capital growth.
The Fund provides Investment Protection to investors who reinvest all dividends
and do not redeem their shares before the Maturity Date. In addition, as noted
above, dividends from the Fund will be taxable to shareholders whether received
in cash or reinvested in additional shares. Thus, the Fund does not provide a
specific return on investors' capital or protect principal on an after-tax or
present value basis. An investor who reinvested all dividends and who, upon
redemption at the Maturity Date, received only the original amount invested
including any sales charge, would have received a zero rate of return on such
investment. This could only happen if the value of the Fund's investments other
than Zero Coupon Treasuries were to decrease to zero, an event that the Fund's
investment manager considers highly unlikely. The present value of $1,000 on the
Maturity Date discounted for inflation assumed to be at an annual rate of 4% is
approximately $687 on the date of this prospectus.
Investors subject to tax should be aware that any portion of the amount returned
to them upon redemption of shares that constitutes accretion of interest on the
Zero Coupon Treasuries will have been taxable each year as ordinary income over
the period during which shares were held. See "Dividends and Taxes."
The Fund may purchase options on securities and index options, may purchase and
sell financial futures contracts and options on financial futures contracts, may
purchase foreign securities and engage in related foreign currency transactions
and may at times lend its portfolio securities. See "Additional Investment
Information" below for a discussion of these investment techniques and the
related risks.
MATURITY DATE. The Board of Trustees of the Trust may in its sole discretion
elect, without shareholder approval, to continue the operation of the Fund after
the Maturity Date with a new maturity date ("New Maturity Date"). Such a
decision may be made to provide shareholders with the opportunity of continuing
their investment in the Fund for a new term without recognizing any taxable
capital gains as a result of a redemption. In that event, shareholders of the
Fund may either continue as such or redeem their shares in the Fund.
Shareholders who reinvest all dividends and hold their shares to the Maturity
Date will be entitled to the benefit of the Fund's Investment Protection on the
Maturity Date whether they continue as shareholders or redeem their shares. If
this alternative were to be elected, the Fund would at the Maturity Date collect
the proceeds of the Zero Coupon Treasuries that mature on such date and, after
allowing for any redemption requests by shareholders, reinvest such proceeds in
Zero Coupon Treasuries and Equity Securities as necessary to provide for the
Fund's Investment Protection benefit on the New Maturity Date. For such
purposes, the principal investment of shareholders then in the Fund would be
deemed to be the net asset value of their investment in the Fund at the current
Maturity Date. Thus, in effect, the total value of such shareholders' investment
in the Fund on the current Maturity Date will be treated as an investment for
the new term and will benefit from the Fund's Investment Protection for the new
term if they reinvest all dividends and maintain their investment in the Fund
until the New Maturity Date. If the Board of Trustees elects to continue the
Fund, shareholders will be given 60 days' prior notice of such election and the
New Maturity Date. In that event, it is anticipated that the offering of the
Fund's shares would commence again after the Maturity Date with a new prospectus
for such period as the Board of Trustees shall determine.
On the Maturity Date, the Fund may also be terminated at the election of the
Board of Trustees of the Trust in its sole discretion and without approval by
shareholders, upon 60 days' prior notice to shareholders. In such event, the
proceeds of the Zero Coupon Treasuries maturing on such date shall be collected
and the Equity Securities and other assets then owned by the Fund shall be sold
or otherwise reduced to cash, the liabilities of the Fund will be discharged or
otherwise provided for, the Fund's outstanding shares will be mandatorily
redeemed at the net asset value per share determined on the Maturity Date and,
within seven days thereafter, the Fund's net assets
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<PAGE> 13
will be distributed to shareholders and the Fund shall be thereafter terminated.
Termination of the Fund may require the disposition of the Equity Securities at
a time when it is otherwise disadvantageous to do so and may involve selling
securities at a substantial loss. The estimated expenses of liquidation and
termination of the Fund, however, are not expected to affect materially the
ability of the Fund to provide for its Investment Protection benefit. In the
event of termination of the Fund as noted above, the redemption of shares
effected in connection with such termination would for current federal income
tax purposes constitute a sale upon which a gain or loss may be realized
depending upon whether the value of the shares being redeemed is more or less
than the shareholder's adjusted cost basis of such shares.
Subject to shareholder approval, other alternatives may be pursued by the Fund
after the Maturity Date. For instance, the Board of Trustees may consider the
possibility of a tax-free reorganization between the Fund and another registered
open-end management investment company or any other series of the Trust. The
Board of Trustees has not considered any possibilities regarding the operation
of the Fund after the Maturity Date.
ADDITIONAL INVESTMENT INFORMATION. The annual turnover rate of the Fund's
portfolio may vary from year to year, and may also be affected by cash
requirements for redemptions and repurchases of Fund shares, and by the
necessity of maintaining the Fund as a regulated investment company under the
Internal Revenue Code in order to receive certain favorable tax treatment. The
Fund's portfolio turnover rate is listed under "Financial Highlights."
The Fund may not borrow money except as a temporary measure for extraordinary or
emergency purposes, and then only in an amount up to one-third of the value of
its total assets, in order to meet redemption requests without immediately
selling any portfolio securities or other assets. If, for any reason, the
current value of the Fund's total assets falls below an amount equal to three
times the amount of its indebtedness from money borrowed, the Fund will, within
three days (not including Sundays and holidays), reduce its indebtedness to the
extent necessary. The Fund will not borrow for leverage purposes. The Fund may
pledge up to 15% of its total assets to secure any such borrowings. The Fund
will not purchase illiquid securities, including repurchase agreements maturing
in more than seven days, if, as a result thereof, more than 10% of the Fund's
net assets, valued at the time of the transaction, would be invested in such
securities. The Fund may invest in securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933. This rule permits otherwise
restricted securities to be sold to certain institutional buyers, such as the
Fund. Such securities may be illiquid and subject to the Fund's limitation on
illiquid securities. A "Rule 144A" security may be treated as liquid, however,
if so determined pursuant to procedures adopted by the Board of Trustees.
Investing in Rule 144A securities could have the effect of increasing the level
of illiquidity in the Fund to the extent that qualified institutional buyers
become uninterested for a time in purchasing Rule 144A securities.
The Trust has adopted for the Fund certain fundamental investment restrictions
which are presented in the Statement of Additional Information and which,
together with its investment objectives and any policies of the Fund
specifically designated in this prospectus as fundamental, cannot be changed
without approval by holders of a majority of its outstanding voting shares. As
defined in the Investment Company Act of 1940, this means the lesser of the vote
of (a) 67% of the shares of the Fund present at a meeting where more than 50% of
the outstanding shares are present in person or by proxy; or (b) more than 50%
of the outstanding shares of the Fund. Policies of the Fund that are neither
designated as fundamental nor incorporated into any of the fundamental
investment restrictions referred to above may be changed by the Board of
Trustees of the Fund without shareholder approval. Notwithstanding the
foregoing, the Board of Trustees may, in its discretion and without shareholder
approval, determine that the Fund should be terminated on the Maturity Date or
continued thereafter with a New Maturity Date as more fully described under
"Maturity Date" above.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. The Fund may invest up to five
percent of its net assets in put and call options on securities. A put option
gives the holder (buyer) the right to sell a security at a specified price (the
exercise price) at any time until a certain date (the expiration date). A call
option gives the holder (buyer) the right to purchase a security or other asset
at a specified price (the exercise price) at any time until a certain date (the
expiration date). The Fund will only invest in options that are traded on
securities exchanges and for which
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<PAGE> 14
it pays a premium (cost of option). As part of its options transactions, the
Fund may also purchase options on securities indices in an attempt to hedge
against market conditions affecting the values of securities that the Fund owns
or intends to purchase, and not for speculation. Options on securities indices
are similar to options on a security except that, rather than the right to take
or make delivery of a security at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the securities index upon which the
option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. In connection with its foreign
securities investments, the Fund may also purchase foreign currency options. The
Fund may enter into closing transactions, exercise its options or permit them to
expire.
The Fund may engage in financial futures transactions. Financial futures
contracts are commodity contracts that obligate the long or short holder to take
or make delivery of a specified quantity of a financial instrument, such as a
security, or the cash value of a securities index during a specified future
period at a specified price. The Fund will "cover" futures contracts sold by the
Fund and maintain in a segregated account certain liquid assets in connection
with futures contracts purchased by the Fund as described under "Investment
Policies and Techniques" in the Statement of Additional Information. In
connection with its foreign securities investments, the Fund may also engage in
foreign currency financial futures transactions. The Fund will not enter into
any futures contracts or options on futures contracts if the aggregate of the
contract value of the outstanding futures contracts of the Fund and futures
contracts subject to outstanding options written by the Fund would exceed 50% of
the total assets of the Fund.
The Fund may engage in financial futures transactions as an attempt to hedge
against market risks. For example, when the near-term market view is bearish but
the portfolio composition is judged satisfactory for the longer term, exposure
to temporary declines in the market may be reduced by entering into futures
contracts to sell securities or the cash value of a securities index.
Conversely, where the near-term view is bullish, but the Fund is believed to be
well positioned for the longer term with a high cash position, the Fund can
hedge against market increases by entering into futures contracts to buy
securities or the cash value of a securities index. In either case, the use of
futures contracts would tend to reduce portfolio turnover and facilitate the
Fund's pursuit of its investment objectives.
Futures contracts entail risks. If the investment manager's judgment about the
general direction of interest rates, markets or exchange rates is wrong, the
overall performance may be poorer than if no such contracts had been entered
into. There may be an imperfect correlation between movements in prices of
futures contracts and portfolio assets being hedged. In addition, the market
prices of futures contracts may be affected by certain factors. For example, if
participants in the futures market elect to close out their contracts rather
than meet margin requirements, distortions in the normal relationship between
the underlying assets and futures markets could result. Price distortions also
could result if investors in futures contracts decide to make or take delivery
of underlying securities or other assets rather than engage in closing
transactions because of the resultant reduction in the liquidity of the futures
market. In addition, because, from the point of view of speculators, margin
requirements in the futures market are less onerous than margin requirements in
the cash market, increased participation by speculators in the futures market
could cause temporary price distortions. Due to the possibility of price
distortions in the futures market and because of the imperfect correlation
between movements in the prices of securities or other assets and movements in
the prices of futures contracts, a correct forecast of market trends by the
investment manager still may not result in a successful hedging transaction. If
any of these events should occur, the Fund could lose money on the financial
futures contracts and also on the value of its portfolio assets. The costs
incurred in connection with futures transactions could reduce the Fund's return.
Index options involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by the
Fund may expire worthless, in which case the Fund would lose the premium paid
therefor.
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The Fund may engage in futures transactions only on commodities exchanges or
boards of trade. The Fund will not engage in transactions in financial futures
contracts or related options for speculation, but only as an attempt to hedge
against changes in market conditions affecting the values of securities that the
Fund owns or intends to purchase.
DERIVATIVES. In addition to options and financial futures, consistent with its
objective, the Fund may invest in a broad array of financial instruments and
securities in which the value of the instrument or security is "derived" from
the performance of an underlying asset or a "benchmark" such as a security
index, an interest rate or a currency ("derivatives"). Derivatives are most
often used to manage investment risk, to increase or decrease exposure to an
asset class or benchmark (as a hedge or to enhance return), or to create an
investment position indirectly (often because it is more efficient or less
costly than direct investment). The types of derivatives used by the Fund and
the techniques employed by the investment manager may change over time as new
derivatives and strategies are developed or regulatory changes occur.
RISK FACTORS. The Statement of Additional Information contains further
information about the characteristics, risks and possible benefits of options,
futures and other derivatives transactions. See "Investment Policies and
Techniques" in the Statement of Additional Information. The principal risks are:
(a) possible imperfect correlation between movements in the prices of options,
futures or other derivatives contracts and movements in the prices of the
securities or currencies hedged, used for cover or that the derivatives intended
to replicate; (b) lack of assurance that a liquid secondary market will exist
for any particular option, futures or other derivatives contract at any
particular time; (c) the need for additional skills and techniques beyond those
required for normal portfolio management; (d) losses on futures contracts
resulting from market movements not anticipated by the investment manager; (e)
the possible need to defer closing out certain options, futures or other
derivatives contracts in order to continue to qualify for beneficial tax
treatment afforded "regulated investment companies" under the Internal Revenue
Code; and (f) the possible non-performance of the counter-party to the
derivatives contract.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities (principally to
broker-dealers) without limit where such loans are callable at any time and are
continuously secured by segregated collateral (cash or U.S. Government
securities) equal to no less than the market value, determined daily, of the
securities loaned. The Fund will receive amounts equal to dividends or interest
on the securities loaned. It will also earn income for having made the loan. Any
cash collateral pursuant to these loans will be invested in short-term money
market instruments. As with other extensions of credit, there are risks of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. However, the loans would be made only to firms
deemed by the Fund's investment manager to be of good standing, and when the
Fund's investment manager believes the potential earnings to justify the
attendant risk. Management will limit such lending to not more than one-third of
the value of the Fund's total assets.
FOREIGN SECURITIES. Although the Fund will invest primarily in securities that
are publicly traded in the United States, it has the discretion to invest a
portion of its assets in foreign securities that are traded principally in
securities markets outside the United States. The Fund currently limits
investment in foreign securities not publicly traded in the United States to
less than 10% of its total assets. The Fund may also invest in U.S. Dollar
denominated American Depository Receipts ("ADRs"), which are bought and sold in
the United States and are not subject to the preceding limitation. Foreign
securities present certain risks in addition to those presented by domestic
securities, including risks associated with currency fluctuations, possible
imposition of foreign governmental regulations or taxes adversely affecting
portfolio securities and generally different degrees of liquidity, market
volatility and availability of information. However, the Fund intends to invest
in foreign securities only when the potential benefits to it are deemed by the
Fund's investment manager to outweigh those risks. The Fund may make investments
in developing countries that are in the initial stages of their
industrialization cycle. In the past, markets of developing countries have been
more volatile than the markets of developed countries; however such markets
often have provided higher rates of return to investors. Investments in foreign
securities may include securities issued by enterprises that have undergone or
are currently undergoing privatization. In connection with
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<PAGE> 16
its foreign securities investments, the Fund may, to a limited extent, engage in
foreign currency exchange transactions, purchase foreign currency options and
purchase and sell foreign currency futures contracts. More complete information
concerning foreign securities and related techniques is contained under
"Investment Policies and Techniques--Foreign Securities and Foreign Currency
Transactions" in the Statement of Additional Information.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Zurich Kemper Investments, Inc. ("ZKI"), 222 South Riverside
Plaza, Chicago, Illinois 60606, is the investment manager of the Fund and
provides the Fund with continuous professional investment supervision. ZKI is
one of the largest investment managers in the country and has been engaged in
the management of investment funds for more than forty-eight years. ZKI and its
affiliates provide investment advice and manage investment portfolios for the
Kemper Funds, affiliated insurance companies and other corporate, pension,
profit-sharing and individual accounts representing approximately $78 billion
under management. ZKI acts as investment manager for 29 open-end and seven
closed-end investment companies, with 76 separate investment portfolios,
representing more than 3 million shareholder accounts. ZKI is an indirect
subsidiary of Zurich Insurance Company, an internationally recognized company
providing services in life and non-life insurance, reinsurance and asset
management.
Responsibility for overall management of the Fund rests with the Board of
Trustees and officers of the Trust. Professional investment supervision is
provided by ZKI. The investment management agreement provides that ZKI shall act
as the Fund's investment adviser, manage its investments and provide it with
various services and facilities. ZKI will utilize the services of Zurich
Investment Management Limited ("ZIML"), 1 Fleet Place, London EC4M 7RQ, a wholly
owned subsidiary of ZKI, with respect to foreign securities investments of the
Fund, including analysis, research, execution and trading services.
Tracy McCormick Chester is the portfolio manager of the Fund. She has served in
this capacity since 1994. Ms. McCormick Chester joined ZKI in September 1994.
She is a vice president of the Trust and senior vice president of ZKI. Prior to
coming to ZKI, she was a senior vice president and portfolio manager of an
investment management company and prior thereto, she managed private accounts.
She received a B.A. and a M.B.A. in Finance from Michigan State University, East
Lansing, Michigan.
The Fund pays ZKI an investment management fee, payable monthly, at the annual
rate of .50% of average daily net assets of the Fund. The investment management
agreement provides that the Fund shall pay the charges and expenses of its
operations, including the fees and expenses of the trustees (except those
affiliated with ZKI), independent auditors, counsel, custodian and transfer
agent and the cost of share certificates, reports and notices to shareholders,
brokerage commissions or transaction costs, costs of calculating net asset
value, taxes and membership dues.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting agreement, Kemper
Distributors, Inc. ("KDI"), a wholly owned subsidiary of ZKI, is the principal
underwriter of the Fund's shares and acts as agent of the Fund in the sale of
its shares. KDI receives no compensation from the Fund as principal underwriter
and pays all expenses of distribution of the Fund's shares under the
underwriting agreement not otherwise paid by dealers or other financial services
firms. The Fund bears the expense of registration of its shares with the
Securities and Exchange Commission, while KDI, as underwriter, pays the cost of
qualifying and maintaining the qualification of the Fund's shares for sale under
the securities laws of the various states. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays or
allows concessions or discounts to firms for the sale of Fund shares.
ADMINISTRATOR. KDI also provides information and administrative services for
Fund shareholders pursuant to an administrative services agreement
("administrative agreement"). KDI enters into related arrangements with various
financial services firms, such as broker-dealer firms or banks ("firms"), that
provide services and facilities
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<PAGE> 17
for their customers or clients who are shareholders of the Fund. Such
administrative services and assistance may include, but are not limited to,
establishing and maintaining shareholder accounts and records, processing
purchase and redemption transactions, answering routine inquiries regarding the
Fund and its special features, and such other services as may be agreed upon
from time to time and permitted by applicable statute, rule or regulation. KDI
bears all its expenses of providing services pursuant to the administrative
agreement, including the payment of any service fees. For services under the
administrative agreement, the Fund pays KDI a fee, payable monthly, at the
annual rate of up to .25% of average daily net assets of the Fund. KDI then pays
each firm a service fee at an annual rate of up to .25% of net assets of those
accounts in the Fund maintained and serviced by the firm. Firms to which service
fees may be paid include broker-dealers affiliated with KDI. A firm becomes
eligible for the service fee based on assets in the accounts in the month
following the month of purchase and the fee continues until terminated by KDI or
the Fund. The fees are calculated monthly and paid quarterly.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which there is a firm listed on the Fund's records and it is
intended that KDI will pay all the administrative services fees that it receives
from the Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of the Fund while this
procedure is in effect would depend upon the proportion of Fund assets that is
in accounts for which there is a firm of record. In addition, KDI may, from time
to time, from its own resources pay certain firms additional amounts for ongoing
administration services and assistance provided to their customers and clients
who are shareholders of the Fund.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as
custodian and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of the Fund maintained in the United States. The Chase Manhattan Bank, Chase
MetroTech Center, Brooklyn, New York 11245, as custodian, has custody of all
securities and cash of the Fund held outside the United States. They attend to
the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by the Fund. IFTC also is the Fund's
transfer agent and dividend-paying agent. Pursuant to a services agreement with
IFTC, Kemper Service Company, an affiliate of ZKI, serves as "Shareholder
Service Agent" of the Fund and, as such, performs all of IFTC's duties as
transfer agent and dividend paying agent. For a description of transfer agent
and shareholder service agent fees payable to IFTC and the Shareholder Service
Agent, see "Investment Manager and Underwriter" in the Statement of Additional
Information.
PORTFOLIO TRANSACTIONS. ZKI and ZIML place all orders for purchases and sales of
the Fund's securities. Subject to seeking best execution of orders, they may
consider sales of shares of the Fund and other funds managed by ZKI or its
affiliates as a factor in selecting broker-dealers. See "Portfolio Transactions"
in the Statement of Additional Information.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund will normally distribute annual dividends of net investment
income and any net realized short-term and long-term capital gains.
Income dividends and capital gain dividends, if any, will be credited to
shareholder accounts in full and fractional Fund shares at net asset value on
the reinvestment date without sales charge except that, upon written request to
the Shareholder Service Agent, a shareholder may select one of the following
options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares at net asset value; or
(2) To receive income and capital gain dividends in cash.
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Any dividends that are reinvested will be reinvested in shares of the Fund. The
Fund will reinvest dividend checks (and future dividends) in shares of the Fund
if checks are returned as undeliverable. Dividends and other distributions in
the aggregate amount of $10 or less are automatically reinvested in shares of
the Fund unless the shareholder requests that such policy not be applied to the
shareholder's account. Upon written request by a shareholder to the Shareholder
Service Agent, a share certificate will be issued for any or all full shares
credited to the shareholder's account. As noted previously (see "Investment
Objectives, Policies and Risk Factors--How the Fund Works and Special Risk
Factors"), only shareholders who reinvest all their dividends in the Fund and
hold their shares until the Maturity Date will receive the benefit of the Fund's
Investment Protection.
TAXES. The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code ("Code") and, if so qualified,
will not be liable for federal income taxes to the extent its earnings are
distributed. Dividends derived from net investment income and net short-term
capital gains are taxable to shareholders as ordinary income and long-term
capital gain dividends are taxable to shareholders as long-term capital gain
regardless of how long the shares have been held and whether received in cash or
shares. Long-term capital gain dividends received by individual shareholders are
taxed at a maximum rate of 28%. Dividends declared in October, November or
December to shareholders of record as of a date in one of those months and paid
during the following January are treated as paid on December 31 of the calendar
year declared. It is anticipated that a portion of the ordinary income dividends
paid by the Fund will qualify for the dividends received deduction available to
corporate shareholders.
The Zero Coupon Treasuries will be treated as bonds that were issued to the Fund
at an original issue discount. Original issue discount is treated as interest
for federal income tax purposes and the amount of original issue discount
generally will be the difference between the bond's purchase price and its
stated redemption price at maturity. The Fund will be required to include in
gross income for each taxable year the daily portions of original issue discount
attributable to the Zero Coupon Treasuries held by the Fund as such original
issue discount accrues. Dividends derived from such original issue discount that
accrues for such year will be taxable to shareholders as ordinary income. In
general, original issue discount accrues daily under a constant interest rate
method which takes into account the semi-annual compounding of accrued interest.
In the case of the Zero Coupon Treasuries, this method will generally result in
an increasing amount of income to the Fund each year.
A dividend received by a shareholder shortly after the purchase of shares
reduces the net asset value of the shares by the amount of the dividend and,
although in effect a return of capital, will be taxable to the shareholder. If
the net asset value of shares were reduced below the shareholder's cost by
dividends representing gains realized on sales of securities, such dividends
would be a return of investment though taxable as stated above.
Fund dividends that are derived from interest on the Zero Coupon Treasuries and
other direct obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states. In
other states, arguments can be made that such distributions should be exempt
from state and local taxes based on federal law, 31 U.S.C. Section 3124, and the
U.S. Supreme Court's interpretation of that provision in AMERICAN BANK AND TRUST
CO. v. DALLAS COUNTY, 463 U.S. 855 (1983). The Fund currently intends to advise
shareholders of the proportion of its dividends that consists of such interest.
Shareholders should consult their tax advisers regarding the possible exclusion
of such portion of their dividends for state and local income tax purposes.
The Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Trustees of qualified retirement plans and
403(b)(7) accounts are required by law to withhold 20% of the taxable portion of
any distribution that is eligible to be "rolled over." The 20% withholding
requirement does not apply to distributions from Individual Retirement Accounts
("IRAs") or any part of a distribution that is transferred directly to another
qualified retirement plan, 403(b)(7) account, or IRA. Shareholders should
consult their tax advisers regarding the 20% withholding requirement.
13
<PAGE> 19
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving dividend reinvestment and periodic
investment and redemption programs. Information for income tax purposes will be
provided after the end of the calendar year. Shareholders are encouraged to
retain copies of their account confirmation statements or year-end statements
for tax reporting purposes. However, those who have incomplete records may
obtain historical account transaction information at a reasonable fee.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.
NET ASSET VALUE
The net asset value per share is determined by calculating the total value of
the Fund's assets, which will normally be composed chiefly of investment
securities, deducting total liabilities and dividing the result by the number of
shares outstanding. Fixed income securities, including Zero Coupon Treasuries,
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.
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 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. Securities not so traded or listed
are valued at the last current bid quotation if market quotations are available.
Equity 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.
Other securities and assets are valued at fair value as determined in good faith
by the Board of Trustees. For purposes of determining the Fund's net asset
value, all assets and liabilities initially expressed in foreign currency values
will be 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 an event were to occur after the value of a security was
so established but before the net asset value per share was determined, which
was likely to materially change the net asset value, then that security would be
valued using fair value considerations determined by the Board of Trustees or
its delegates. On each day the New York Stock Exchange (the "Exchange") is open
for trading, the net asset value is determined as of the earlier of 3:00 p.m.
Chicago time or the close of the Exchange.
PURCHASE OF SHARES
Shares of the Fund may be purchased from investment dealers during the Offering
Period described below at the public offering price, which is the net asset
value next determined plus a sales charge that is a percentage of the public
offering price and varies as shown below. The minimum initial investment is
$1,000 and the minimum subsequent investment is $100. The minimum initial
investment for an Individual Retirement Account or
14
<PAGE> 20
employee benefit plan account is $250 and the minimum subsequent investment is
$50. These minimum amounts may be changed at any time in management's
discretion.
<TABLE>
<CAPTION>
Sales Charge
------------------------------------------------------------
Allowed to
Dealers as a
As a Percentage As a Percentage Percentage of
Amount of Purchase of Offering Price of Net Asset Value* Offering Price
- ------------------------------------------------- ----------------- ------------------- --------------
<S> <C> <C> <C>
Less than $100,000............................... 5.00% 5.26% 4.50%
$100,000 but less than $250,000.................. 4.00 4.17 3.60
$250,000 but less than $500,000.................. 3.00 3.09 2.70
$500,000 but less than $1 million................ 2.00 2.04 1.80
$1 million and over.............................. 0.00** 0.00** ***
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as
discussed below.
*** Commission is payable by KDI as discussed below.
Shares will only be offered to the public during the Offering Period, which is
expected to end on December 31, 1996. The Fund may at its option extend or
shorten the Offering Period. The offering of shares of the Fund shall be subject
to suspension or termination as provided under "Investment Objectives, Policies
and Risk Factors-- How the Fund Works." In addition, the offering of Fund shares
may be suspended from time to time during the Offering Period in the discretion
of KDI. During any period in which the public offering of shares is suspended or
terminated, shareholders will still be permitted to reinvest dividends in shares
of the Fund.
Share certificates will not be issued unless requested in writing. It is
recommended that investors not request share certificates unless needed for a
specific purpose. You cannot redeem shares by telephone or wire transfer or use
the telephone exchange privilege if share certificates have been issued. A lost
or destroyed certificate is difficult to replace and can be expensive to the
shareholder (a bond worth 2% or more of the certificate value is normally
required).
The Fund receives the entire net asset value of all shares sold. KDI, the Fund's
principal underwriter, retains the sales charge from which it allows discounts
from the applicable public offering price to investment dealers, which discounts
are uniform for all dealers in the United States and its territories. The normal
discount allowed to dealers is set forth in the above table. Upon notice to all
dealers with whom it has sales agreements, KDI may reallow up to the full
applicable sales charge, as shown in the above table, during periods and for
transactions specified in such notice and such reallowances may be based upon
attainment of minimum sales levels. During periods when 90% or more of the sales
charge is reallowed, such dealers may be deemed to be underwriters as that term
is defined in the Securities Act of 1933.
Banks and other financial services firms may provide administrative services
related to order placement and payment to facilitate transactions in shares of
the Fund for their clients, and KDI may pay them a transaction fee up to the
level of the discount or other concession allowable to dealers as described
above. Banks currently are prohibited under the Glass-Steagall Act from
providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. Management does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts or promotional incentives, in the
form of cash or other compensation, to firms that sell shares of the Fund.
Non-cash compensation includes luxury merchandise and trips to luxury resorts.
In some instances, such
15
<PAGE> 21
discounts or other incentives will be offered only to certain firms that sell or
are expected to sell during specified time periods certain minimum amounts of
shares of the Fund, or other funds underwritten by KDI.
Shares of the Fund may be purchased at net asset value to the extent that the
amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which neither ZKI nor an affiliate serve as investment manager
("non-Kemper Fund") provided that: (a) the investor has previously paid either
an initial sales charge in connection with the purchase of the non-Kemper Fund
shares redeemed or a contingent deferred sales charge in connection with the
redemption of the non-Kemper Fund shares, and (b) the purchase of Fund shares is
made within 90 days after the date of such redemption. To make such a purchase
at net asset value, the investor or the investor's dealer must, at the time of
purchase, submit a request that the purchase be processed at net asset value
pursuant to this privilege. KDI may in its discretion compensate firms for sales
of shares under this privilege at a commission rate of .50% of the purchase
price of the Fund shares purchased. The redemption of the shares of the
non-Kemper Fund is, for federal income tax purposes, a sale upon which a gain or
loss may be realized.
Shares of the Fund may be purchased at net asset value by: (a) any purchaser
provided that the amount invested in the Fund or other Kemper Mutual Funds
described under "Special Features--Combined Purchases" totals at least
$1,000,000 including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features described under "Special Features";
or (b) a participant-directed qualified retirement plan described in Code
Section 401(a) or a participant-directed non-qualified deferred compensation
plan described in Code Section 457 provided in either case that such plan has
not less than 200 eligible employees (the "Large Order NAV Purchase Privilege").
A contingent deferred sales charge may be imposed upon redemption of shares of
the Fund that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and .50% if they
are redeemed during the second year following purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of (a) redemptions by a participant-directed qualified retirement plan
described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under the Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares by a
shareholder whose dealer of record at the time of investment notifies KDI that
the dealer waives the discretionary commission applicable to such Large Order
NAV Purchase.
Shares of the Fund purchased under the Large Order NAV Purchase Privilege may be
exchanged for shares of another Kemper Mutual Fund or a Money Market Fund under
the exchange privilege described under "Special Features--Exchange Privilege"
without paying any contingent deferred sales charge at the time of exchange. If
the shares received on exchange are redeemed thereafter, a contingent deferred
sales charge may be imposed in accordance with the foregoing requirements
provided that the shares redeemed will retain their original cost and purchase
date for purposes of the contingent deferred sales charge.
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of shares of the Fund at net asset
value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, .50% on the next $45 million and .25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount recordkeeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, KDI will
16
<PAGE> 22
consider the cumulative amount invested by the purchaser in the Fund and other
Kemper Mutual Funds listed under "Special Features--Combined Purchases,"
including purchases pursuant to the "Combined Purchases," "Letter of Intent" and
"Cumulative Discount" features referred to above. The privilege of purchasing
shares of the Fund at net asset value under the Large Order NAV Purchase
Privilege is not available if another net asset value purchase privilege is also
applicable.
Shares of the Fund may be purchased at net asset value in any amount by certain
professionals who assist in the promotion of Kemper Funds pursuant to personal
services contracts with KDI, for themselves or members of their families. KDI in
its discretion may compensate financial services firms for sales of shares under
this privilege at a commission rate of .50% of the amount of shares purchased.
Shares may be sold at net asset value in any amount to: (a) officers, trustees,
directors, employees (including retirees) and sales representatives of the Fund,
its investment manager, its principal underwriter or certain affiliated
companies, for themselves or members of their families; (b) registered
representatives and employees of broker-dealers having selling group agreements
with KDI and officers, directors and employees of service agents of the Fund,
for themselves or their spouses or dependent children; (c) shareholders who
owned shares of Kemper-Dreman Fund, Inc. ("KDF") on September 8, 1995, and have
continuously owned shares of KDF (or a Kemper Fund acquired by exchange of KDF
shares) since that date, for themselves or members of their families; and (d)
any trust, pension, profit-sharing or other benefit plan for only such persons.
Shares may be sold at net asset value in any amount to selected employees
(including their spouses and dependent children) of banks and other financial
services firms that provide administrative services related to order placement
and payment to facilitate transactions in shares of the Fund for their clients
pursuant to an agreement with KDI or one of its affiliates. Only those employees
of such banks and other firms who as part of their usual duties provide services
related to transactions in Fund shares may purchase Fund shares at net asset
value hereunder. Shares may be sold at net asset value in any amount to unit
investment trusts sponsored by Everen Securities, Inc. In addition, unitholders
of unit investment trusts sponsored by Everen Securities, Inc. may purchase Fund
shares at net asset value through reinvestment programs described in the
prospectuses of such trusts which have such programs. Shares of the Fund may be
sold at net asset value through certain investment advisers registered under the
Investment Advisers Act of 1940 and other financial services firms that adhere
to certain standards established by KDI, including a requirement that such
shares be sold for the benefit of their clients participating in a "wrap
account" or similar program under which such clients pay a fee to the investment
adviser or other firm. Such shares are sold for investment purposes and on the
condition that they will not be resold except through redemption or repurchase
by the Fund. The Fund may also issue shares at net asset value in connection
with the acquisition of the assets of or merger or consolidation with another
investment company, or to shareholders in connection with the investment or
reinvestment of income and capital gain dividends.
Effective February 1, 1996, shares of the Fund or any other Kemper Mutual Fund
listed under "Special Features Combined Purchases" may be purchased at net asset
value in any amount by members of the plaintiff class in the proceeding known as
HOWARD AND AUDREY TABANKIN, ET AL. V. KEMPER SHORT-TERM GLOBAL INCOME FUND, ET
AL., Case No. 93 C 5231 (N.D. IL). This privilege is generally non-transferrable
and continues for the lifetime of individual class members and for a ten year
period for non-individual class members. To make a purchase at net asset value
under this privilege, the investor must, at the time of purchase, submit a
written request that the purchase be processed at net asset value pursuant to
this privilege specifically identifying the purchaser as a member of the
"Tabankin Class." Shares purchased under this privilege will be maintained in a
separate account that includes only shares purchased under this privilege. For
more details concerning this privilege, class members should refer to the Notice
of (1) Proposed Settlement with Defendants; and (2) Hearing to Determine
Fairness of Proposed Settlement, dated August 31, 1995, issued in connection
with the aforementioned court proceeding. For sales of Fund shares at net asset
value pursuant to this privilege, KDI may at its discretion pay investment
dealers and other financial services firms a concession, payable quarterly, at
an annual rate of up to .25% of net assets attributable to such shares
maintained and serviced by the firm. A firm becomes eligible for the concession
based upon assets in accounts attributable to shares purchased under this
privilege in the month after the month
17
<PAGE> 23
of purchase and the concession continues until terminated by KDI. The privilege
of purchasing shares of the Fund at net asset value under this privilege is not
available if another net asset value purchase privilege also applies.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem Fund shares. Some may establish higher minimum
investment requirements than set forth above. Firms may arrange with their
clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
Fund shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Fund through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
Orders for the purchase of shares of the Fund will be confirmed at a price based
on the net asset value next determined after receipt by KDI of the order
accompanied by payment. However, orders received by dealers or other firms prior
to the determination of net asset value (see "Net Asset Value") and received by
KDI prior to the close of its business day will be confirmed at a price based on
the net asset value effective on that day. The Fund reserves the right to
determine the net asset value more frequently than once a day if deemed
desirable. Dealers and other financial services firms are obligated to transmit
orders promptly. Collection may take significantly longer for a check drawn on a
foreign bank than for a check drawn on a domestic bank. Therefore, if an order
is accompanied by a check drawn on a foreign bank, funds must normally be
collected before shares will be purchased. See "Purchase and Redemption of
Shares" in the Statement of Additional Information.
The Fund reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require the Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Fund's transfer agent,
the shareholder may redeem them by making a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and
18
<PAGE> 24
accompanied by a written request for redemption. Redemption requests and a stock
power must be endorsed by the account holder with signatures guaranteed by a
commercial bank, trust company, savings and loan association, federal savings
bank, member firm of a national securities exchange or other eligible financial
institution. The redemption request and stock power must be signed exactly as
the account is registered including any special capacity of the registered
owner. Additional documentation may be requested, and a signature guarantee is
normally required, from institutional and fiduciary account holders, such as
corporations, custodians (e.g., under the Uniform Transfers to Minors Act),
executors, administrators, trustees or guardians. As noted previously (see
"Investment Objectives, Policies and Risk Factors--How the Fund Works and
Special Risk Factors"), only shareholders who hold their shares in the Fund
until the Maturity Date and reinvest their dividends in the Fund will
necessarily receive the benefit of the Fund's Investment Protection.
The redemption price will be the net asset value next determined following
receipt by the Shareholder Service Agent of a properly executed request with any
required documents as described above. Payment for shares redeemed will be made
in cash as promptly as practicable but in no event later than seven days after
receipt of a properly executed request accompanied by any outstanding share
certificates in proper form for transfer. When the Fund is requested to redeem
shares for which it may not have yet received good payment (i.e., purchases by
check, EXPRESS-Transfer or Bank Direct Deposit), it may delay transmittal of
redemption proceeds until it has determined that collected funds have been
received for the purchase of such shares, which will be up to 10 days from
receipt by the Fund of the purchase amount. The redemption within two years of
shares purchased at net asset value under the Large Order NAV Purchase Privilege
may be subject to a contingent deferred sales charge (see "Purchase of Shares").
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agent
reasonably believes, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The SHAREHOLDER WILL BEAR THE RISK OF LOSS,
including loss resulting from fraudulent or unauthorized transactions, as long
as the reasonable verification procedures are followed. The verification
procedures include recording instructions, requiring certain identifying
information before acting upon instructions and sending written confirmations.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption are $50,000 or less and
the proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional or
guardian account holder by written instruction to the Shareholder Service Agent
with signatures guaranteed. Telephone requests may be made by calling
1-800-621-1048. Shares purchased by check, through EXPRESS-Transfer or Bank
Direct Deposit may not be redeemed under this privilege of redeeming shares by
telephone request until such shares have been owned for at least 10 days. This
privilege of redeeming shares by telephone request or by written request without
a signature guarantee may not be used to redeem shares held in certificated form
and may not be used if the shareholder's account has had an address change
within 30 days of the redemption request. During periods when it is difficult to
contact the Shareholder Service Agent by telephone, it may be difficult to use
the telephone
19
<PAGE> 25
redemption privilege, although investors can still redeem by mail. The Fund
reserves the right to terminate or modify this privilege at any time.
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value next determined after receipt of a request by KDI.
However, requests for repurchases received by dealers or other firms prior to
the determination of net asset value (see "Net Asset Value") and received by KDI
prior to the close of KDI's business day will be confirmed at the net asset
value effective on that day. The offer to repurchase may be suspended at any
time. Requirements as to stock powers, certificates, payments and delay of
payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares can be redeemed and proceeds sent by federal wire transfer
to a single previously designated account. Requests received by the Shareholder
Service Agent prior to the determination of net asset value will result in
shares being redeemed that day at the net asset value effective on that day and
normally the proceeds will be sent to the designated account the following
business day. Delivery of the proceeds of a wire redemption request of $250,000
or more may be delayed by the Fund for up to seven days if ZKI deems it
appropriate under then current market conditions. Once authorization is on file,
the Shareholder Service Agent will honor requests by telephone at 1-800-621-1048
or in writing, subject to the limitations on liability described under "General"
above. The Fund is not responsible for the efficiency of the federal wire system
or the account holder's financial services firm or bank. The Fund currently does
not charge the account holder for wire transfers. The account holder is
responsible for any charges imposed by the account holder's firm or bank. There
is a $1,000 wire redemption minimum. To change the designated account to receive
wire redemption proceeds, send a written request to the Shareholder Service
Agent with signatures guaranteed as described above or contact the firm through
which shares of the Fund were purchased. Shares purchased by check, through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed by wire transfer
until such shares have been owned for at least 10 days. Account holders may not
use this procedure to redeem shares held in certificated form. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the expedited wire transfer redemption privilege. The
Fund reserves the right to terminate or modify this privilege at any time.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed shares of the Fund or
Class A shares of any other Kemper Mutual Fund listed under "Special
Features--Combined Purchases" (other than shares of Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in shares of the
Fund or in Class A shares of the other listed Kemper Mutual Funds. A shareholder
of the Fund or any other Kemper Mutual Fund who redeems shares purchased under
the Large Order NAV Purchase Privilege (see "Purchase of Shares") and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value at the time of the reinvestment in shares of the Fund or Class A
shares of other Kemper Mutual Funds. The amount of any contingent deferred sales
charge also will be reinvested. These reinvested shares will retain their
original cost and purchase date for purposes of the contingent deferred sales
charge. Also, a holder of Class B shares of another Kemper Mutual Fund who has
redeemed shares of that fund may reinvest up to the full amount redeemed, less
any applicable contingent deferred sales charge that may have been imposed upon
the redemption of such shares, at net asset value in the Fund or in Class A
shares of the other Kemper Mutual Funds listed under "Special Features--Combined
Purchases." Purchases through the reinvestment privilege are subject to the
minimum investment requirements applicable to the shares being purchased and may
only be made for funds available for sale in the shareholder's state of
residence as listed under "Special Features--Exchange Privilege." The
reinvestment privilege can be used only once as to any specific shares and
reinvestment must be effected within six months of the redemption. If a loss is
realized on the redemption of Fund shares, the reinvestment in the same Fund may
be subject to the "wash
20
<PAGE> 26
sale" rules if made within 30 days of the redemption, resulting in the
postponement of the recognition of such loss for federal income tax purposes.
The reinvestment privilege may be terminated or modified at any time and is
subject to the limited Offering Period of the Fund.
SPECIAL FEATURES
COMBINED PURCHASES. The Fund's shares may be purchased at the rate applicable to
the discount bracket attained by combining concurrent investments in Class A
shares (or the equivalent) of any of the following funds: Kemper Technology
Fund, Kemper Total Return Fund, Kemper Growth Fund, Kemper Small Capitalization
Equity Fund, Kemper Income and Capital Preservation Fund, Kemper Municipal Bond
Fund, Kemper Diversified Income Fund, Kemper High Yield Fund, Kemper U.S.
Government Securities Fund, Kemper International Fund, Kemper State Tax-Free
Income Series, Kemper Adjustable Rate U.S. Government Fund, Kemper Blue Chip
Fund, Kemper Global Income Fund, Kemper Target Equity Fund (series are subject
to a limited offering period), Kemper Intermediate Municipal Bond Fund, Kemper
Cash Reserves Fund, Kemper U.S. Mortgage Fund, Kemper Short-Intermediate
Government Fund, Kemper-Dreman Fund, Inc., Kemper Value+Growth Fund, Kemper
Horizon Fund, Kemper Quantitative Equity Fund and Kemper Europe Fund ("Kemper
Mutual Funds"). Except as noted below, there is no combined purchase credit for
direct purchases of shares of Kemper Money Funds, Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Tax-Exempt New York
Money Market Fund or Investors Cash Trust ("Money Market Funds"), which are not
considered "Kemper Mutual Funds" for purposes hereof. For purposes of the
Combined Purchases feature described above, as well as for the Letter of Intent
and Cumulative Discount features described below, employer sponsored employee
benefit plans using the subaccount record keeping system made available through
the Shareholder Service Agent may include (a) Money Market Funds as "Kemper
Mutual Funds," (b) all classes of shares of any Kemper Mutual Fund and (c) the
value of any other plan investment, such as guaranteed investment contracts and
employer stock, maintained on such subaccount record keeping system.
LETTER OF INTENT. The same reduced sales charges, as shown in the applicable
prospectus, also apply to the aggregate amount of purchases of such Kemper
Mutual Funds listed above made by any purchaser within a 24-month period under a
written Letter of Intent ("Letter") provided by KDI. As noted under "Purchase of
Shares," the Offering Period for the purchase of shares of the Fund is limited.
However, shares of other Kemper Mutual Funds noted above would be available
beyond that period. The Letter, which imposes no obligation to purchase or sell
additional shares, provides for a price adjustment depending upon the actual
amount purchased within such period. The Letter provides that the first purchase
following execution of the Letter must be at least 5% of the amount of the
intended purchase, and that 5% of the amount of the intended purchase normally
will be held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed shares will be redeemed and the proceeds used
toward satisfaction of the obligation to pay the increased sales charge. The
Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Mutual Funds held of record as of the initial purchase date under
the Letter as an "accumulation credit" toward the completion of the Letter, but
no price adjustment will be made on such shares.
CUMULATIVE DISCOUNT. The Fund's shares also may be purchased at the rate
applicable to the discount bracket attained by adding to the cost of Fund shares
being purchased the value of all shares of the above mentioned Kemper Mutual
Funds (computed at the maximum offering price at the time of the purchase for
which the discount is applicable) already owned by the investor.
AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the investor's dealer or
other financial services firm must notify the Shareholder Service Agent or KDI
whenever a quantity discount or reduced sales charge is applicable to
21
<PAGE> 27
a purchase. Upon such notification, the investor will receive the lowest
applicable sales charge. Quantity discounts described above may be modified or
terminated at any time.
EXCHANGE PRIVILEGE. Subject to the following limitations, shares of the Kemper
Mutual Funds and Money Market Funds listed under "Special Features--Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Shares purchased by
check or through EXPRESS-Transfer may not be exchanged until they have been
owned for at least 15 days. In addition, shares of a Kemper Mutual Fund (except
Kemper Cash Reserves Fund) acquired by exchange from another Kemper Mutual Fund,
or from a Money Market Fund, may not be exchanged thereafter until they have
been owned for 15 days. A series of Kemper Target Equity Fund will be available
on exchange only during the Offering Period for such series as described in the
applicable prospectus. Cash Equivalent Fund, Tax-Exempt California Money Market
Fund, Cash Account Trust, Tax-Exempt New York Money Market Fund and Investors
Cash Trust are available on exchange but only through a financial services firm
having a services agreement with KDI. Exchanges may only be made for funds that
are available for sale in the shareholder's state of residence. Currently,
Tax-Exempt California Money Market Fund is available for sale only in California
and Tax-Exempt New York Money Market Fund is available for sale only in New
York, Connecticut, New Jersey and Pennsylvania.
The total value of shares being exchanged must at least equal the minimum
investment requirement of the Kemper Fund into which they are being exchanged.
Exchanges are made based on relative dollar values of the shares involved in the
exchange. There is no service fee for an exchange; however, dealers or other
firms may charge for their services in effecting exchange transactions.
Exchanges will be effected by redemption of shares of the fund held and purchase
of shares of the other fund. For federal income tax purposes, any such exchange
constitutes a sale upon which a gain or loss may be realized, depending upon
whether the value of the shares being exchanged is more or less than the
shareholder's adjusted cost basis of such shares. Shareholders interested in
exercising the exchange privilege may obtain prospectuses of the other funds
from dealers, other firms or KDI. Exchanges may be accomplished by a written
request to Kemper Service Company, Attention: Exchange Department, P.O. Box
419557, Kansas City, Missouri 64141-6557, or by telephone if the shareholder has
given authorization. Once the authorization is on file, the Shareholder Service
Agent will honor requests by telephone at 1-800-621-1048 or in writing, subject
to the limitations on liability under "Redemption or Repurchase of Shares
- --General." Any share certificates must be deposited prior to any exchange of
such shares. During periods when it is difficult to contact the Shareholder
Service Agent by telephone, it may be difficult to use the telephone exchange
privilege. The exchange privilege is not a right and may be suspended,
terminated or modified at any time. Except as otherwise permitted by applicable
regulations, 60 days' prior written notice of any termination or material change
will be provided.
EXPRESS-TRANSFER. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $2,500) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege of redeeming shares by EXPRESS-Transfer until such shares have been
owned for at least 10 days. By enrolling in EXPRESS-Transfer, the shareholder
authorizes the Shareholder Service Agent to rely upon telephone instructions
from ANY PERSON to transfer the specified amounts between the shareholder's Fund
account and the predesignated bank, savings and loan or credit union account,
subject to the limitations on liability under "Redemption or Repurchase of
Shares--General." Once enrolled in EXPRESS-Transfer, a shareholder can initiate
a transaction by calling Kemper Shareholder Services toll free at 1-800-621-1048
Monday through Friday, 8:00 a.m. to 3:00 p.m. Chicago time. Shareholders may
terminate this privilege by sending written notice to Kemper Service Company,
P.O. Box 419415, Kansas City, Missouri 64141-6415. Termination will become
22
<PAGE> 28
effective as soon as the Shareholder Service Agent has had a reasonable time to
act upon the request. EXPRESS-Transfer cannot be used with passbook savings
accounts or for tax-deferred plans such as Individual Retirement Accounts
("IRAs").
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of the Fund's shares at
the offering price (net asset value plus the sales charge) may provide for the
payment from the owner's account of any requested dollar amount to be paid to
the owner or a designated payee monthly, quarterly, semiannually or annually.
The $5,000 minimum account size is not applicable to Individual Retirement
Accounts. The minimum periodic payment is $100. Shares are redeemed so that the
payee will receive payment approximately the first of the month. A sufficient
number of full and fractional shares will be redeemed to make the designated
payment. Depending upon the size of the payments requested and fluctuations in
the net asset value of the shares redeemed, redemptions for the purpose of
making such payments may reduce or even exhaust the account.
The purchase of shares while participating in a systematic withdrawal plan
ordinarily will be disadvantageous to the investor because the investor will be
paying a sales charge on the purchase of shares at the same time that the
investor is redeeming shares upon which a sales charge may already have been
paid. Therefore, the Fund will not knowingly permit additional investments of
less than $2,000 if the investor is at the same time making systematic
withdrawals. (See "Purchase of Shares" regarding the limited Offering Period for
the Fund's shares.) The right is reserved to amend the systematic withdrawal
plan on 30 days' notice. The plan may be terminated at any time by the investor
or the Fund. As noted previously (see "Investment Objectives, Policies and Risk
Factors--How the Fund Works and Special Risk Factors"), only shareholders who
hold their shares in the Fund until the Maturity Date and reinvest their
dividends in the Fund will necessarily receive the benefit of the Fund's
Investment Protection.
TAX-SHELTERED RETIREMENT PLANS. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
- - Individual Retirement Accounts ("IRAs") with IFTC as custodian. This includes
Simplified Employee Pension Plan ("SEP") IRA accounts and prototype documents.
- - 403(b)(7) Custodial Accounts also with IFTC as custodian. This type of plan is
available to employees of most non-profit organizations.
- - Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans and materials for establishing
them are available from the Shareholder Service Agent upon request. The
brochures for plans with IFTC as custodian describe the current fees payable to
IFTC for its services as custodian. Investors should consult with their own tax
advisers before establishing a retirement plan. In view of the limited Offering
Period of the Fund (see "Purchase of Shares"), the Fund may not be appropriate
for periodic contribution plans.
PERFORMANCE
The Fund may advertise several types of performance information, including
"average annual total return" and "total return." Each of these figures is based
upon historical results and is not representative of the future performance of
the Fund.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in the Fund
during a specified period. Average annual total return will be quoted for at
least the one, five and ten year periods ending on a recent calendar quarter (or
if such periods have
23
<PAGE> 29
not yet elapsed, at the end of a shorter period corresponding to the life of the
Fund for performance information purposes). Average annual total return figures
represent the average annual percentage change over the period in question.
Total return figures represent the aggregate percentage or dollar value change
over the period in question.
The Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged indexes including the Standard & Poor's 500 Stock Index, the
Russell 1000(R) Growth Index. The Fund's performance may also be compared to the
performance of other mutual funds or mutual fund indexes as reported by
independent mutual fund reporting services such as Lipper Analytical Services,
Inc. ("Lipper"). Lipper performance calculations are based upon changes in net
asset value with all dividends reinvested and do not include the effect of any
sales charges.
Information may be quoted from publications such as MORNINGSTAR, INC., THE WALL
STREET JOURNAL, MONEY MAGAZINE, FORBES, BARRON'S, FORTUNE, THE CHICAGO TRIBUNE,
USA TODAY, INSTITUTIONAL INVESTOR and REGISTERED REPRESENTATIVE. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit, money market funds and U.S. Treasury
obligations. Bank product performance may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) or various certificate of deposit indexes.
Money market fund performance may be based upon, among other things, the
IBC/Donoghue Money Fund Report(R) or Money Market Insight(R), reporting services
on money market funds. Performance of U.S. Treasury obligations may be based
upon, among other things, various U.S. Treasury bill indexes. Certain of these
alternative investments may offer fixed rates of return and guaranteed principal
and may be insured.
The Fund may depict the historical performance of the securities in which the
Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments,
performance indexes of those investments or economic indicators. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund.
The Fund's shares are sold at net asset value plus a maximum sales charge of
5.0% of the offering price. While the maximum sales charge is normally reflected
in the Fund's performance figures, certain total return calculations may not
include such charge and those results would be reduced if it were included. The
Fund's returns and net asset value will fluctuate. Shares of the Fund are
redeemable by an investor at the then current net asset value, which may be more
or less than original cost. Additional information concerning the Fund's
performance and concerning the historical performance of various types of
investments that may be used to provide for retirement needs appears in the
Statement of Additional Information. Additional information about the Fund's
performance also appears in its Annual Report to Shareholders, which is
available without charge from the Fund.
CAPITAL STRUCTURE
The Trust is an open-end, management investment company, organized as a business
trust under the laws of Massachusetts on August 3, 1988. Effective May 1, 1994,
the Trust changed its name from Kemper Retirement Fund to Kemper Target Equity
Fund. The Trust may issue an unlimited number of shares of beneficial interest
in one or more series, all having no par value. The Trust has established seven
series of shares: Kemper Retirement Fund Series I, Series II, Series III, Series
IV, Series V and Kemper Worldwide 2004 Fund, which are no longer offered, and
Kemper Retirement Fund Series VI, which is the Fund. The Board of Trustees may
authorize the issuance of additional series if deemed desirable, each with its
own investment objective, policies and restrictions. Since the Trust may offer
multiple series, it is known as a "series company." Shares of a series have
equal noncumulative voting rights and equal rights with respect to dividends,
assets and liquidation of such series. Shares are fully paid and nonassessable
when issued, are transferable without restriction and have no preemptive or
conversion rights. The Trust is not required to hold annual shareholders'
meetings and does not intend to do so. However, it will hold special meetings as
required or deemed desirable for such purposes as electing trustees,
24
<PAGE> 30
changing fundamental policies or approving an investment management agreement.
Subject to the Agreement and Declaration of Trust of the Trust, shareholders may
remove trustees. Shareholders will vote by series and not in the aggregate
except when voting in the aggregate is required under the Investment Company Act
of 1940, such as for the election of trustees. Any series of the Trust,
including the Fund, may be divided by the Board of Trustees into classes of
shares, subject to compliance with the Securities and Exchange Commission
regulations permitting the creation of separate classes of shares. The Trust's
shares currently are not divided into classes. Shares of a series would be
subject to any preferences, rights or privileges of any classes of shares of the
series. Generally each class of shares issued by a particular series of the
Trust would differ as to the allocation of certain expenses of the series such
as distribution and administrative expenses permitting, among other things,
different levels of service or methods of distribution among various classes.
25
<PAGE> 31
PROSPECTUS
KEMPER
RETIREMENT
FUND SERIES VI
OCTOBER 15, 1996
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60603
KRF-1 (10/96)
[LOGO] KEMPER FUNDS
<PAGE> 32
KEMPER TARGET EQUITY FUND
KEMPER RETIREMENT FUND SERIES VI
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART B
OF FORM N-1A AND STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM NUMBER LOCATION IN STATEMENT OF
OF FORM N-1A ADDITIONAL INFORMATION
----------------------------------------- ---------------------------------------------
<S> <C> <C>
10. Cover Page............................... Cover Page
11. Table of Contents........................ Table of Contents
12. General Information and History.......... Inapplicable
13. Investment Objectives and Policies....... Investment Restrictions; Investment Policies
and Techniques
14. Management of the Fund................... Investment Manager and Underwriter;
Officers and Trustees
15. Control Persons and Principal Holders of
Securities............................... Officers and Trustees
16. Investment Advisory and Other Services... Investment Manager and Underwriter
17. Brokerage Allocation and Other
Practices................................ Portfolio Transactions
18. Capital Stock and Other Securities....... Dividends and Taxes;
Shareholder Rights
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Purchase and Redemption of Shares
20. Tax Status............................... Dividends and Taxes
21. Underwriters............................. Investment Manager and Underwriter
22. Calculation of Performance Data.......... Performance
23. Financial Statements..................... Financial Statements
</TABLE>
<PAGE> 33
KEMPER RETIREMENT FUND SERIES I ("SERIES I")
KEMPER RETIREMENT FUND SERIES II ("SERIES II")
KEMPER RETIREMENT FUND SERIES III ("SERIES III")
KEMPER RETIREMENT FUND SERIES IV ("SERIES IV")
KEMPER RETIREMENT FUND SERIES V ("SERIES V")
PART B:
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
ITEM 10. COVER PAGE
Reference is made to the Cover Page in the Kemper Retirement Fund Series VI
Statement of Additional Information filed herewith.
ITEM 11. TABLE OF CONTENTS
Reference is made to the section entitled "Table of Contents" in the Kemper
Retirement Fund Series VI Statement of Additional Information filed herewith.
ITEM 12. GENERAL INFORMATION AND HISTORY
Inapplicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES
Reference is made to the sections entitled "Investment Restrictions" and
"Investment Policies and Techniques" in the Kemper Retirement Fund Series VI
Statement of Additional Information filed herewith. In addition, neither Series
I, Series II, Series III, Series IV nor Series V borrowed as permitted by
investment restriction number four during the latest fiscal year.
ITEM 14. MANAGEMENT OF THE FUND
Reference is made to the sections entitled "Investment Manager and
Underwriter" and "Officers and Trustees" in the Kemper Retirement Fund Series VI
Statement of Additional Information filed herewith, except for the following:
The table below shows amounts paid to those trustees who are not designated
"interested persons" during the Series' 1996 fiscal year except that the
information in the last column is for calendar year 1995.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE KEMPER FUNDS
COMPENSATION PAID TO
NAME OF TRUSTEE FROM SERIES I-V TRUSTEES(3)
- ------------------------------------------------------------------ --------------- ------------
<S> <C> <C>
James B. Akins(1)................................................. $12,000 $ 26,100
Arthur R. Gottschalk(2)........................................... $17,200 $ 90,300
Frederick T. Kelsey(2)............................................ $18,000 $ 90,700
Fred B. Renwick(1)................................................ $12,000 $ 26,100
John B. Tingleff.................................................. $15,400 $ 81,700
John G. Weithers.................................................. $15,400 $ 81,900
</TABLE>
- ---------------
(1) Elected to the Board of certain Kemper Funds on September 19, 1995.
(2) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with the Fund. Deferred amounts accrue interest
monthly at a rate equal to the yield of Kemper Money Funds--Money Market
Fund. Total deferred amounts and interest accrued through June 30, 1996 are
$38,200 and $57,000 for Messrs. Gottschalk and Kelsey, respectively.
B-1
<PAGE> 34
(3) Includes compensation for service on the boards of 11 Kemper funds with 25
fund portfolios. Each trustee currently serves as a board member of 13
Kemper Funds with 36 fund portfolios.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Reference is made to the section entitled "Officers and Trustees" in the
Kemper Retirement Fund Series VI Statement of Additional Information filed
herewith, except for the following:
a. As of September 19, 1996, the trustees and officers of Registrant as a
group owned less than 1% of the then outstanding shares of each series
of Registrant.
b. As of September 19, 1996, no person owned of record more than 5% of the
shares of Series I, Series II, Series III, Series IV or Series V except
as noted below:
<TABLE>
<CAPTION>
NAME & ADDRESS PERCENTAGE SERIES
---------------------------------------------------------------- ---------- ----------
<S> <C> <C>
EVEREN Clearing Corp............................................ (6.34%) Series I
77 W Wacker Drive (5.96%) Series IV
Chicago, IL
Donaldson Lufkin & Jenrette..................................... (5.83%) Series III
P.O. Box 2052 (5.33%) Series V
Jersey City, NJ
National Financial Svcs Corp.................................... (7.40%) Series V
One World Financial Center
200 Liberty Street
New York, NY
</TABLE>
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES
Reference is made to the section entitled "Investment Manager and
Underwriter" in the Kemper Retirement Fund Series VI Statement of Additional
Information filed herewith, except for the following:
a. During the fiscal years ended June 30, 1996, 1995 and 1994, ZKI received
management fees from Series I aggregating $539,000, $514,000 and
$593,000, respectively.
b. During the fiscal years ended June 30, 1996, 1995 and 1994, ZKI received
management fees from Series II aggregating $862,000, $848,000 and
$984,000, respectively.
c. During the fiscal years ended June 30, 1996, 1995 and 1994, ZKI received
management fees from Series III aggregating $623,000, $604,000 and
$703,000, respectively.
d. During the fiscal years ended June 30, 1996, 1995 and 1994, ZKI received
management fees from Series IV aggregating $734,000, $731,000 and
$730,000, respectively.
e. During the fiscal years ended June 30, 1996 and 1995 and the fiscal
period from November 15, 1993 to June 30, 1994, ZKI received management
fees from Series V aggregating $672,000, $514,000 and $117,000,
respectively.
f. During the fiscal year ended June 30, 1996, KDI received administrative
services fees from Series I, Series II, Series III, Series IV and Series
V aggregating $1,690,000 and paid service fees to firms in the amount of
$1,690,000, including $137,000 paid to firms affiliated with KDI.
g. During the fiscal year ended June 30, 1996, Investors Fiduciary Trust
Company remitted shareholder service fees in the amount of $555,000 to
Kemper Service Company as Shareholder Service Agent for Series I, Series
II, Series III, Series IV and Series V.
B-2
<PAGE> 35
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES
Reference is made to the section entitled "Portfolio Transactions" in the
Kemper Retirement Fund Series VI Statement of Additional Information filed
herewith, except for the following:
a. During the fiscal year ended June 30, 1996, Series I paid total
portfolio brokerage commissions of $208,000 and of this amount, 89% was
allocated to broker-dealers on the basis of research information and
during the fiscal years ended June 30, 1995 and 1994, Series I paid
portfolio brokerage commissions of $197,000 and $223,000, respectively.
b. During the fiscal year ended June 30, 1996, Series II paid total
portfolio brokerage commissions of $250,000 and of this amount, 88% was
allocated to broker-dealers on the basis of research information and
during the fiscal years ended June 30, 1995 and 1994, Series II paid
portfolio brokerage commissions of $236,000 and $285,000, respectively.
c. During the fiscal year ended June 30, 1996, Series III paid total
portfolio brokerage commissions of $204,000 and of this amount, 88% was
allocated to broker-dealers on the basis of research information and
during the fiscal years ended June 30, 1995 and 1994, Series III paid
portfolio brokerage commissions of $188,000 and $209,000, respectively.
d. During the fiscal year ended June 30, 1996, Series IV paid total
portfolio brokerage commissions of $210,000 and of this amount 88% was
allocated to broker-dealers on the basis of research information and
during the fiscal years ended June 30, 1995 and 1994, Series IV paid
portfolio brokerage commissions of $196,000 and $218,000, respectively.
e. During the fiscal year ended June 30, 1996, Series V paid total
portfolio brokerage commissions of $212,000 and of this amount 88% was
allocated to broker-dealers on the basis of research information and
during the fiscal year ended June 30, 1995 and the fiscal period from
November 15, 1993 to June 30, 1994 Series V paid portfolio brokerage
commissions of $159,000 and $53,000, respectively.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES
Reference is made to the sections entitled "Dividends and Taxes" and
"Shareholder Rights" in the Kemper Retirement Fund Series VI Statement of
Additional Information filed herewith.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
Reference is made to the section entitled "Purchase and Redemption of
Shares" in the Kemper Retirement Fund Series VI Statement of Additional
Information filed herewith, except that shares of Series I, Series II, Series
III, Series IV and Series V are no longer available for purchase.
ITEM 20. TAX STATUS
Reference is made to the section entitled "Dividends and Taxes" in the
Kemper Retirement Fund Series VI Statement of Additional Information filed
herewith.
ITEM 21. UNDERWRITERS
Reference is made to the section entitled "Investment Manager and
Underwriter" in the Kemper Retirement Fund Series VI Statement of Additional
Information filed herewith, except for the following:
a. During the period from July 1, 1992 to January 15, 1993, KDI retained
underwriting commissions with respect to Series III of $317,000 and
$316,000, respectively, after allowing $2,894,000 and $2,676,000,
respectively, as commissions to firms, including $478,000 and $609,000,
respectively, paid to firms affiliated with KDI.
b. During the period from January 15, 1993 to June 30, 1993 and the period
from July 1, 1993 to November 15, 1993, KDI retained underwriting
commissions with respect to Series IV of $314,000
B-3
<PAGE> 36
and $72,000, respectively, after allowing $2,557,000 and $5,623,000,
respectively, as commissions to firms, including $341,000 and $1,076,000,
respectively, paid to firms affiliated with KDI.
c. During the period from November 15, 1993 to June 30, 1994 and the fiscal
year ended June 30, 1995, KDI retained underwriting commissions with
respect to Series V of $344,000 and $300,000, respectively, after
allowing $2,933,000 and $2,993,000, respectively, as commissions to
firms, including $381,000 and $434,000, respectively, paid to firms
affiliated with KDI.
ITEM 22. CALCULATION OF PERFORMANCE DATA
Inapplicable.
ITEM 23. FINANCIAL STATEMENTS
Attached.
B-4
<PAGE> 37
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 15, 1996
KEMPER RETIREMENT FUND SERIES VI
222 SOUTH RIVERSIDE PLAZA STREET, CHICAGO, ILLINOIS 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of Kemper Retirement Fund Series VI (the
"Fund") dated October 15, 1996. The prospectus may be obtained without charge
from the Fund. The Fund is a series of Kemper Target Equity Fund.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
- --------------------------------------------------------------------------
<S> <C>
Investment Restrictions............................................ B-1
Investment Policies and Techniques................................. B-2
Dividends and Taxes................................................ B-9
Performance........................................................ B-11
Investment Manager and Underwriter................................. B-13
Portfolio Transactions............................................. B-15
Purchase and Redemption of Shares.................................. B-16
Officers and Trustees.............................................. B-17
Shareholder Rights................................................. B-19
</TABLE>
The financial statements appearing in the Fund's 1996 Annual Report to
Shareholders are incorporated herein by reference. The Annual Report accompanies
this document.
KRF 13 10/96 (LOGO)Kprinted on recycled paper
<PAGE> 38
INVESTMENT RESTRICTIONS
Kemper Target Equity Fund (the "Trust") has adopted the following fundamental
investment restrictions which cannot be changed with respect to Kemper
Retirement Fund Series VI (the "Fund"), without approval of a "majority" of its
outstanding shares, which means the lesser of (1) 67% of the Fund's shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy; or (2) more than 50% of the Fund's
outstanding shares.
The Fund may not, as a fundamental policy:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities) if, as a result,
more than 5% of the total value of the Fund's assets would be invested in
securities of that issuer.
(2) Purchase more than 10% of any class of voting securities of any issuer.
(3) Make loans to others provided that the Fund may purchase debt obligations or
repurchase agreements and it may lend its securities in accordance with its
investment objectives and policies.
(4) Borrow money except as a temporary measure for extraordinary or emergency
purposes, and then only in an amount up to one-third of the value of its total
assets, in order to meet redemption requests without immediately selling any
portfolio securities. If, for any reason, the current value of the Fund's total
assets falls below an amount equal to three times the amount of its indebtedness
from money borrowed, the Fund will, within three days (not including Sundays and
holidays), reduce its indebtedness to the extent necessary. The Fund will not
borrow for leverage purposes and will not purchase securities or make
investments while borrowings are outstanding.
(5) Pledge, hypothecate, mortgage or otherwise encumber more than 15% of its
total assets and then only to secure borrowings permitted by restriction 4
above. (The collateral arrangements with respect to options, financial futures
and delayed delivery transactions and any margin payments in connection
therewith are not deemed to be pledges or other encumbrances.)
(6) Purchase securities on margin, except to obtain such short-term credits as
may be necessary for the clearance of transactions; however, the Fund may make
margin deposits in connection with options and financial futures transactions.
(7) Make short sales of securities or other assets or maintain a short position
for the account of the Fund unless at all times when a short position is open it
owns an equal amount of such securities or other assets or owns securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities or other assets of the same issue as, and equal in
amount to, the securities or other assets sold short and unless not more than
10% of the Fund's total assets is held as collateral for such sales at any one
time.
(8) Write or sell put or call options, combinations thereof or similar options;
nor may the Fund purchase put or call options if more than 5% of the Fund's net
assets would be invested in premiums on put and call options, combinations
thereof or similar options; however, the Fund may buy or sell options on
financial futures contracts.
(9) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Trust or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(10) Invest for the purpose of exercising control or management of another
issuer.
(11) Purchase securities (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if as a result of such purchase
25% or more of the Fund's total assets would be invested in any one industry.
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<PAGE> 39
(12) Invest in commodities or commodity futures contracts, although it may buy
or sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate (including real estate limited
partnerships), although it may invest in securities which are secured by real
estate and securities of issuers which invest or deal in real estate including
real estate investment trusts.
(13) Invest in interests in oil or gas exploration or development programs,
although it may invest in the securities of issuers which invest in or sponsor
such programs.
(14) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(15) Issue senior securities as defined in the Investment Company Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number (4) in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental restrictions, which may
be changed by the Board of Trustees without shareholder approval.
The Fund may not, as a non-fundamental policy:
(i) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(ii) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(iii) Invest in oil, gas or other mineral leases.
(iv) Invest more than 5% of the Fund's total assets in securities of issuers
(other than obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities) which with their predecessors have a record of less than
three years continuous operation and equity securities of issuers which are not
readily marketable.
(v) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 10% of total assets.
(vi) Invest more than 10% of its total assets in securities of real estate
investment trusts.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL. The Fund may invest in Zero Coupon Treasuries and Equity Securities (as
defined in the prospectus) and engage in futures, options and other derivatives
transactions and other investment techniques in accordance with its investment
objectives and policies. See "Investment Objectives, Policies and Risk Factors"
in the prospectus. Supplemental information concerning the Fund's investments
and certain investment techniques is set forth below.
ZERO COUPON TREASURIES. There are currently two basic types of zero coupon
securities, those created by separating the interest and principal components of
a previously issued interest-paying security and those originally issued in the
form of a face amount only security paying no interest. Zero coupon securities
of the U.S.
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<PAGE> 40
Government and certain of its agencies and instrumentalities and of private
corporate issuers are currently available, although the Fund will purchase only
those that represent direct obligations of the U.S. Government.
Zero coupon securities of the U.S. Government that are currently available are
called STRIPS (Separate Trading of Registered Interest and Principal of
Securities) or CUBES (Coupon Under Book-Entry Safekeeping). STRIPS and CUBES are
issued under programs introduced by the U.S. Treasury and are direct obligations
of the U.S. Government. The U.S. Government does not issue zero coupon
securities directly. The STRIPS program, which is ongoing, is designed to
facilitate the secondary market stripping of selected Treasury notes and bonds
into individual interest and principal components. Under the program, the U.S.
Treasury continues to sell its notes and bonds through its customary auction
process. However, a purchaser of those notes and bonds who has access to a
book-entry account at a Federal Reserve bank may separate the specified Treasury
notes and bonds into individual interest and principal components. The selected
Treasury securities may thereafter be maintained in the book-entry system
operated by the Federal Reserve in a manner that permits the separate trading
and ownership of the interest and principal payments. The Federal Reserve does
not charge a fee for this service; however, the book-entry transfer of interest
or principal components is subject to the same fee schedule generally applicable
to the transfer of Treasury securities.
Under the program, in order for a book-entry Treasury security to be separated
into its component parts, the face amount of the security must be an amount
which, based on the stated interest rate of the security, will produce a
semi-annual interest payment of $1,000 or a multiple of $1,000. Once a
book-entry security has been separated, each interest and principal component
may be maintained and transferred in multiples of $1,000 regardless of the face
amount initially required for separation or the resulting amount required for
each interest payment.
CUBES, like STRIPS, are direct obligations of the U.S. Government. CUBES are
coupons that have previously been physically stripped from Treasury notes and
bonds, but which were deposited with the Federal Reserve and are now carried and
transferable in book-entry form only. Only stripped Treasury coupons maturing on
or after January 15, 1988, that were stripped prior to January 5, 1987, were
eligible for conversion to book-entry form under the CUBES program.
Investment banks may also strip Treasury securities and sell them under
proprietary names. These securities may not be as liquid as STRIPS and CUBES and
the Fund has no present intention of investing in these instruments.
STRIPS and CUBES are purchased at a discount from $1,000. Absent a default by
the U.S. Government, a purchaser will receive face value for each of the STRIPS
and CUBES provided the STRIPS and CUBES are held to their due dates. While
STRIPS and CUBES can be purchased on any business day, they all currently come
due on February 15, May 15, August 15 or November 15.
FINANCIAL FUTURES CONTRACTS. The Fund may enter into financial futures contracts
for the future delivery of a financial instrument, such as a security, or an
amount of foreign currency or the cash value of a securities index. This
investment technique is designed primarily to hedge (i.e., protect) against
anticipated future changes in market conditions or foreign exchange rates which
otherwise might adversely affect the value of securities or other assets which
the Fund holds or intends to purchase. A "sale" of a futures contract means the
undertaking of a contractual obligation to deliver the securities or the cash
value of an index or foreign currency called for by the contract at a specified
price during a specified delivery period. A "purchase" of a futures contract
means the undertaking of a contractual obligation to acquire the securities or
cash value of an index or foreign currency at a specified price during a
specified delivery period. At the time of delivery, in the case of fixed income
securities pursuant to the contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
interest rate than that specified in the contract. In some cases, securities
called for by a futures contract may not have been issued at the time the
contract was written.
Although some financial futures contracts by their terms call for the actual
delivery or acquisition of securities or other assets, in most cases a party
will close out the contractual commitment before delivery without having to make
or take delivery of the underlying assets by purchasing (or selling, as the case
may be) on a commodities
B-3
<PAGE> 41
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, if effected through a member of an exchange, cancels the
obligation to make or take delivery of the underlying securities or other
assets. All transactions in the futures market are made, offset or fulfilled
through a clearing house associated with the exchange on which the contracts are
traded. The Fund will incur brokerage fees when it purchases or sells contracts,
and will be required to maintain margin deposits. At the time the Fund enters
into a futures contract, it is required to deposit with its custodian, on behalf
of the broker, a specified amount of cash or eligible securities, called
"initial margin." The initial margin required for a futures contract is set by
the exchange on which the contract is traded. Subsequent payments, called
"variation margin," to and from the broker are made on a daily basis as the
market price of the futures contract fluctuates. The costs incurred in
connection with futures transactions could reduce the Fund's return. Futures
contracts entail risks. If the investment manager's judgment about the general
direction of markets or exchange rates is wrong, the overall performance may be
poorer than if no such contracts had been entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators, the
margin requirements in the futures market are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager may still not result in a successful hedging
transaction. If any of these events should occur, the Fund could lose money on
the financial futures contracts and also on the value of its assets.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Fund may purchase and write call and
put options on financial futures contracts. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. The Fund would be required
to deposit with its custodian initial margin and maintenance margin with respect
to put and call options on futures contracts written by it. The Fund will
establish segregated accounts or will provide cover with respect to written
options on financial futures contracts in a manner similar to that described
under "Options on Securities" below. Options on futures contracts involve risks
similar to those risks relating to transactions in financial futures contracts
described above. Also, an option purchased by the Fund may expire worthless, in
which case the Fund would lose the premium paid therefor.
OPTIONS ON SECURITIES. The Fund may invest in put and call options on
securities. The Fund will only invest in options which are traded on securities
exchanges and for which it pays a premium (cost of option). The Fund may enter
into closing transactions, exercise its options or permit them to expire. A put
option gives the holder (buyer) the "right to sell" a security at a specified
price (the exercise price) at any time until a certain date (the expiration
date). A call option gives the holder (buyer) the "right to purchase" a security
at a specified price (the exercise price) at any time until a certain date (the
expiration date). The Fund may purchase spread options which are options for
which the exercise price may be a fixed dollar spread or yield spread between
the security underlying the option and another security that is used as a bench
mark. The exercise price of an option may be below, equal to or above the
current market value of the underlying security at the time the option is
written. Options traded on national securities exchanges are issued by The
Options Clearing Corporation.
In effect, the buyer of a put option who also owns the related security is
protected by ownership of the put option against any decline in that security's
price below the exercise price less the amount paid for the option. The ability
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<PAGE> 42
to purchase put options allows the Fund to protect capital gains in an
appreciated security it owns, without being required to sell that security.
At times the Fund may wish to establish a position in a security upon which call
options are available. By purchasing a call option the Fund is able to fix the
cost of acquiring the security, this being the cost of the call option plus the
exercise price of the option. This procedure also provides some protection from
an unexpected downturn in the market because the Fund would be at risk only for
the amount of the premium paid for the call option which it can, if it chooses,
permit to expire.
When the Fund purchases a call option it pays a premium. The Fund will benefit
only if the market price of the related investment is above the call price plus
the premium during the exercise period and the call is either exercised or sold
at a profit. If it is not exercised or sold, it will become worthless at its
expiration date and the Fund will lose its premium payment. If the Fund buys a
put option, it also pays a premium. If the market price of the related
investment is above the exercise price and, as a result, the put is not
exercised or sold, the put will become worthless at its expiration date.
OPTIONS ON SECURITIES INDICES. The Fund also may purchase call and put options
on securities indices in an attempt to hedge against market conditions affecting
the value of securities that the Fund owns or intends to purchase, and not for
speculation. Through the purchase of index options, the Fund can achieve many of
the same objectives as through the use of options on individual securities.
Options on securities indices are similar to options on a security except that,
rather than the right to take or make delivery of a security at a specified
price, an option on a securities index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to the difference between the closing price of the
index and the exercise price of the option. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike security options, all settlements are in cash and gain or loss depends
upon price movements in the market generally (or in a particular industry or
segment of the market) rather than upon price movements in individual
securities. Price movements in securities that the Fund owns or intends to
purchase will probably not correlate perfectly with movements in the level of an
index since the prices of such securities may be affected by somewhat different
factors. Therefore, the Fund bears the risk that a loss on an index option would
not be completely offset by movements in the price of such securities.
Options on a securities index involve risks similar to those risks relating to
transactions in financial futures contracts described above. Also, an option
purchased by the Fund may expire worthless, in which case the Fund would lose
the premium paid therefor.
REGULATORY RESTRICTIONS. To the extent required to comply with applicable
regulation, when purchasing a futures contract, or entering into a forward
foreign currency exchange purchase, the Fund will maintain eligible securities
in a segregated account. The Fund will use cover in connection with selling a
futures contract.
The Fund will not engage in transactions in financial futures contracts or
options thereon for speculation, but only to attempt to hedge against changes in
market conditions affecting the values of securities which the Fund holds or
intends to purchase.
FOREIGN SECURITIES. Although the Fund will invest primarily in securities that
are publicly traded in the United States, it has the discretion to invest a
portion of its assets in foreign securities that are traded principally in
securities markets outside the United States. The Fund currently limits
investment in foreign securities not publicly traded in the United States to
less than 10% of its total assets. As discussed below, American Depository
Receipts are publicly traded in the United States and, therefore, are not
subject to the preceding limitation. The Fund intends to invest in foreign
securities that are not publicly traded in the United States only when the
potential benefits to the Fund are deemed to outweigh the risks.
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Foreign securities involve currency risks. The U.S. Dollar value of a foreign
security tends to decrease when the value of the U.S. Dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the dollar falls against such currency. Fluctuations in exchange
rates may also affect the earning power and asset value of the foreign entity
issuing the security. Dividend and interest payments may be repatriated based on
the exchange rate at the time of disbursement, and restrictions on capital flows
may be imposed.
Foreign securities may be subject to foreign government taxes that reduce their
attractiveness. Other risks of investing in such securities include political or
economic instability in the country involved, the difficulty of predicting
international trade patterns and the possible imposition of exchange controls.
The prices of such securities may be more volatile than those of domestic
securities and the markets for foreign securities may be less liquid. In
addition, there may be less publicly available information about foreign issuers
than about domestic issuers. Many foreign issuers are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic issuers. There is generally less regulation of stock
exchanges, brokers, banks and listed companies abroad than in the United States.
Settlement of Foreign Securities trades may take longer and present more risk
than for domestic securities. With respect to certain foreign countries, there
is a possibility of expropriation or diplomatic developments that could affect
investment in these countries. Losses and other expenses may be incurred in
converting between various currencies in connection with purchases and sales of
foreign securities.
EMERGING MARKETS. While the Fund's investments in foreign securities will
principally be in developed countries, the Fund may invest a portion of its
assets in countries considered by the Fund's investment manager to be developing
or "emerging" markets, which involve exposure to economic structures that are
generally less diverse and mature than in the United States, and to political
systems that may be less stable. A developing or emerging market country can be
considered to be a country that is in the initial stages of its
industrialization cycle. Currently, emerging markets generally include every
country in the world other than the United States, Canada, Japan, Australia, New
Zealand, Hong Kong, Singapore and most Western European countries. Currently,
investing in many emerging markets may not be desirable or feasible because of
the lack of adequate custody arrangements for the Fund's assets, overly
burdensome repatriation and similar restrictions, the lack of organized and
liquid securities markets, unacceptable political risks or other reasons. As
opportunities to invest in securities in emerging markets develop, the Fund may
expand and further broaden the group of emerging markets in which it invests. In
the past, markets of developing countries have been more volatile than the
markets of developed countries; however, such markets often have provided higher
rates of return to investors. The investment manager believes that these
characteristics can be expected to continue in the future.
Many of the risks described above relating to foreign securities generally will
be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic product,
rates of inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing markets.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which they
trade.
Also, the securities markets of developing countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure, regulatory and
accounting standards in many respects are less stringent than in the United
States and other developed markets. There also may be a lower level of
monitoring and regulation of developing markets and the activities of investors
in such markets, and enforcement of existing regulations has been extremely
limited.
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In addition, brokerage commissions, custodial services and other costs relating
to investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Such settlement problems may cause emerging market securities to be illiquid.
The inability of the Fund to make intended securities purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser. Certain
emerging markets may lack clearing facilities equivalent to those in developed
countries. Accordingly, settlements can pose additional risks in such markets
and ultimately can expose the Fund to the risk of losses resulting from the
Fund's inability to recover from a counterparty.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for the Fund's portfolio securities in such
markets may not be readily available. The Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Trustees.
Investment in certain emerging market securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain emerging market securities and increase the cost
and expenses of the Fund. Emerging markets may require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.
PRIVATIZED ENTERPRISES. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. The Fund's investments in the
securities of privatized enterprises include privately negotiated investments in
a government- or state-owned or controlled company or enterprise that has not
yet conducted an initial equity offering, investments in the initial offering of
equity securities of a state enterprise or former state enterprise and
investments in the securities of a state enterprise following its initial equity
offering.
In certain jurisdictions, the ability of foreign entities, such as the Fund, to
participate in privatizations may be limited by local law, or the price or terms
on which the Fund may be able to participate may be less advantageous than for
local investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be successful or that
governments will not re-nationalize enterprises that have been privatized.
In the case of the enterprises in which the Fund may invest, large blocks of the
stock of those enterprises may be held by a small group of stockholders, even
after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization of management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as the enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which the Fund may
invest enjoy the protection of and receive preferential treatment from the
respective sovereigns that own or control them. After making an initial equity
offering these enterprises may no longer have such protection or receive such
preferential treatment and
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may become subject to market competition from which they were previously
protected. Some of these enterprises may not be able to effectively operate in a
competitive market and may suffer losses or experience bankruptcy due to such
competition.
DEPOSITORY RECEIPTS. The Fund may invest in securities of foreign issuers in the
form of American Depositary Receipts ("ADRs"). For many foreign securities,
there are U.S. Dollar-denominated ADRs, which are bought and sold in the United
States and are generally issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in the domestic bank or a
correspondent bank. ADRs do not eliminate all the risk inherent in investing in
the securities of foreign issuers. However, by investing in ADRs rather than
directly in foreign issuers' stock, the Fund will avoid currency risks during
the settlement period for either purchases or sales. In general, there is a
large, liquid market in the United States for most ADRs. The Fund may also
invest in securities of foreign issuers in the form of European Depository
Receipts ("EDRs") and Global Depositary Receipts ("GDRs"), which are receipts
evidencing an arrangement with a European bank similar to that for ADRs and are
designed for use in the European and other foreign securities markets. EDRs and
GDRs are not necessarily denominated in the currency of the underlying security.
FOREIGN CURRENCY TRANSACTIONS. As indicated above (see "Foreign Securities"),
the Fund may invest a limited portion of its assets in securities denominated in
foreign currencies. The value of the assets of the Fund invested in such
securities as measured in U.S. Dollars may be affected favorably or unfavorably
by changes in foreign currency exchange rates and exchange control regulations,
and the Fund may incur costs in connection with conversions between various
currencies. The Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract.
By entering into a forward contract in U.S. Dollars for the purchase or sale of
the amount of foreign currency involved in an underlying security transaction,
the Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the U.S. Dollar and such foreign currency. However, this tends to limit gains
which might result from a positive change in such currency relationships.
When the Fund's investment manager believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. Dollar, it may
enter into a forward contract to sell an amount of foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. It is extremely difficult to forecast
short-term currency market movements, and whether such a short-term hedging
strategy would be successful is highly uncertain.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a contract. Accordingly, it may be
necessary for the Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency the Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction with respect to a forward contract, the Fund will incur a gain or a
loss (as described below) to the extent that there has been movement in forward
contract prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between the Fund's entering into
a forward contract for the sale of foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, the Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the
B-8
<PAGE> 46
value of the hedged currency, they also tend to limit any gain which might
result should the value of such currency increase. The Fund may have to convert
its holdings of foreign currencies into U.S. Dollars from time to time in order
to meet such needs as Fund expenses and redemption requests.
The Fund does not enter into forward contracts or maintain a net exposure in
such contracts where the Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Fund's portfolio securities or other
assets denominated in that currency. The Fund does not intend to enter into
forward contracts for the purchase of a foreign currency if the Fund would have
more than 5% of the value of its total assets committed to such contracts. The
Fund segregates eligible securities to the extent required by applicable
regulations in connection with forward foreign currency exchange contracts
entered into for the purchase of a foreign currency. The Fund generally does not
enter into a forward contract with a term longer than one year.
The Fund may also hedge its foreign currency exchange rate risk by engaging in
foreign currency financial futures transactions and by purchasing foreign
currency options. A foreign currency call rises in value if the underlying
currency appreciates. Conversely, a put rises in value if the underlying
currency depreciates. Through the purchase or sale of foreign currency financial
futures contracts, the Fund may be able to achieve many of the same objectives
as through forward foreign currency exchange contracts more effectively and
perhaps at a lower cost. Unlike forward foreign currency exchange contracts,
foreign currency futures contracts and options on foreign currency futures
contracts are standardized as to amount and delivery period and are traded on
boards of trade and commodities exchanges. Such contracts may provide greater
liquidity and lower cost than forward foreign currency exchange contracts. For
additional information concerning options transactions and financial futures
transactions, please see "Investment Objectives, Policies and Risk
Factors--Additional Investment Information" in the prospectus and related
subsections above under "Investment Policies and Techniques."
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements, which are
instruments under which the Fund acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the Fund's holding period. In the event of
a bankruptcy or other default of a seller of a repurchase agreement, the Fund
might incur expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. The securities underlying a repurchase agreement will be
marked-to-market every business day so that the value of such securities is at
least equal to the investment value of the repurchase agreement, including any
accrued interest thereon. The Fund currently does not intend to invest more than
5% of its net assets in repurchase agreements during the current year.
SHORT SALES AGAINST-THE-BOX. The Fund may make short sales against-the-box for
the purpose of deferring realization of gain or loss for federal income tax
purposes. A short sale "against-the-box" is a short sale in which the Fund owns
at least an equal amount of the securities sold short or securities convertible
into or exchangeable for, without payment of any further consideration,
securities of the same issue as, and at least equal in amount to, the securities
or other assets sold short. The Fund may engage in such short sales only to the
extent that not more than 10% of the Fund's total assets (determined at the time
of the short sale) is held as collateral for such sales. The Fund currently does
not intend, however, to engage in such short sales to the extent that more than
5% of its net assets will be held as collateral therefor during the current
year.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund will normally distribute annual dividends of net investment
income and any net realized short-term and long-term capital gains. The Fund may
at any time vary the foregoing dividend practice and, therefore, reserves the
right from time to time either to distribute or to retain for reinvestment such
of its net investment income and its net short-term and long-term capital gains
as the Board of Trustees determines appropriate under then current
circumstances. In particular, and without limiting the foregoing, the Fund may
make additional distributions of net investment income or capital gain net
income in order to satisfy the minimum distribution requirements contained in
the Internal Revenue Code (the "Code"). Dividends will be reinvested in
B-9
<PAGE> 47
shares of the Fund unless shareholders indicate in writing that they wish to
receive them in cash or in shares of other Kemper Funds. As reflected in the
prospectus (see "Dividends and Taxes"), shareholders must reinvest all dividends
and hold their shares until the Maturity Date in order to be assured of the
benefit of the Fund's Investment Protection.
TAXES. The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Code and, if so qualified, will not be liable for
federal income taxes to the extent its earnings are distributed. One of the
Subchapter M requirements to be satisfied is that less than 30% of the Fund's
gross income during the fiscal year must be derived from gains (not reduced by
losses) from the sale or other disposition of securities and certain other
investments held for less than three months. The Fund may be limited in its
options, futures and foreign currency transactions in order to prevent
recognition of such gains.
The Fund's options, futures and foreign currency transactions are subject to
special tax provisions that may accelerate or defer recognition of certain gains
or losses, change the character of certain gains or losses, or alter the holding
periods of certain of the Fund's securities.
The mark-to-market rules of the Code may require the Fund to recognize
unrealized gains and losses on certain options and futures held by the Fund at
the end of the fiscal year. Under these provisions, 60% of any capital gain net
income or loss recognized will generally be treated as long-term and 40% as
short-term. However, although certain forward contracts and futures contracts on
foreign currency are mark-to-market, the gain or loss is generally ordinary
under Section 988 of the Code. In addition, the straddle rules of the Code would
require deferral of certain losses realized on positions of a straddle to the
extent that the Fund had unrealized gains in offsetting positions at year end.
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of the Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 in the prior calendar year, minus any overdistribution
in the prior calendar year. For purposes of calculating the required
distribution, foreign currency gains or losses occurring after October 31 are
taken into account in the following calendar year. The Fund intends to declare
or distribute dividends during the appropriate periods of an amount sufficient
to prevent imposition of the 4% excise tax.
A portion of the ordinary income dividends from the Fund may be eligible for the
dividends received deduction available to corporate shareholders. The aggregate
amount eligible for the dividends received deduction may not exceed the
aggregate qualifying dividends received by the Fund for the fiscal year.
A shareholder who redeems shares of the Fund will recognize capital gain or loss
for federal income tax purposes measured by the difference between the value of
the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of Fund shares held six months or less will be
treated as long-term capital loss to the extent that the shareholder has
received any long-term capital gain dividends on such shares. A shareholder who
has redeemed shares of the Fund or any other Kemper Mutual Fund listed in the
prospectus under "Special Features--Combined Purchases" (other than shares of
Kemper Cash Reserves Fund not acquired by exchange from another Kemper Mutual
Fund) may reinvest the amount redeemed at net asset value at the time of the
reinvestment in shares of the Fund or in shares of the other Kemper Mutual Funds
within six months of the redemption as described in the prospectus under
"Redemption or Repurchase of Shares--Reinvestment Privilege." If the redeemed
shares were held less than 91 days, then the lesser of (a) the sales charge
waived on the reinvestment shares, or (b) the sales charge incurred on the
redeemed shares, is included in the basis of the reinvestment shares and is not
included in the basis of the redeemed shares. If a shareholder realizes a loss
on the redemption or exchange of Fund shares and reinvests in the same Fund's
shares within 30 days before or after the redemption or exchange, the
transactions may be subject to the wash sale rules resulting in a postponement
of the recognition of such loss for federal income tax purposes. An exchange of
Fund shares for shares of another fund is treated as a redemption and
reinvestment for federal income tax purposes.
B-10
<PAGE> 48
PERFORMANCE
As described in the prospectus, the Fund's historical performance or return may
be shown in the form of "average annual total return" and "total return"
figures. These various measures of performance are described below.
The Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for the Fund for a specific period
is found by first taking a hypothetical $1,000 investment ("initial investment")
in the Fund's shares on the first day of the period, adjusting to deduct the
maximum sales charge, and computing the "redeemable value" of that investment at
the end of the period. The redeemable value is then divided by the initial
investment, and this quotient is taken to the Nth root (N representing the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. The calculation assumes that all income and
capital gains dividends paid by the Fund have been reinvested at net asset value
on the reinvestment dates during the period. Average annual total return may
also be calculated without deducting the maximum sales charge.
Calculation of the Fund's total return is not subject to a standardized formula,
except when calculated for the Fund's "Financial Highlights" table in the Fund's
financial statements and prospectus. Total return performance for a specific
period is calculated by first taking a hypothetical investment ("initial
investment") in the Fund's shares on the first day of the period, either
adjusting or not adjusting to deduct the maximum sales charge, and computing the
"ending value" of that investment at the end of the period. The total return
percentage is then determined by subtracting the initial investment from the
ending value and dividing the remainder by the initial investment and expressing
the result as a percentage. The calculation assumes that all income and capital
gains dividends paid by the Fund have been reinvested at net asset value on the
reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period. Total
return calculations that do not include the effect of the sales charge would be
reduced if such charge were included.
The Fund's performance figures are based upon historical results and are not
representative of future performance. The Fund's shares are sold at net asset
value plus a maximum sales charge of 5.0% of the offering price. Returns and net
asset value will fluctuate. Factors affecting the Fund's performance include
general market conditions, operating expenses and investment management. Any
additional fees charged by a dealer or other financial services firm would
reduce returns described in this section. Shares of the Fund are redeemable at
the then current net asset value, which may be more or less than original cost.
The figures below show performance information for the period ended June 30,
1996. Comparative information with respect to the Russell 1000(R) Growth Index,
the Standard & Poor's 500 Stock Index, the Consumer Price Index and the Lipper
Balanced Target Maturity Fund Index is also included, where available. There are
differences and similarities between the investments which the Fund may purchase
for its portfolio and the investments measured by such indexes. The Russell
1000(R) Growth Index is an unmanaged index 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.
The Standard & Poor's 500 Stock Index is an unmanaged index of common stocks
which is considered to be generally representative of the U.S. stock market. The
market prices and yields of those stocks will fluctuate. The Consumer Price
Index is generally considered to be a measure of inflation. The Lipper Balanced
Target Maturity Fund Index is an unweighted performance average of other mutual
funds that invest to provide a guaranteed return of investment at maturity. The
Fund primarily invests in zero coupon bonds and common stocks in pursuing its
objectives of providing 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 of providing long-term growth of capital. Its net asset
value and returns fluctuate.
B-11
<PAGE> 49
No adjustment has been made for taxes payable on dividends. The period indicated
was one of fluctuating securities prices.
<TABLE>
<CAPTION>
VALUE OF FUND JUNE 30, 1996
---------------------------------------------------------------------------------------------------------
CAPITAL
TOTAL INITIAL GAIN INCOME ENDING PERCENTAGE ENDING PERCENTAGE
RETURN $10,000 DIVIDENDS DIVIDENDS VALUE INCREASE VALUE INCREASE
TABLE INVESTMENT(1) REINVESTED REINVESTED(2) (ADJUSTED)(1) (ADJUSTED)(1) (UNADJUSTED)(3) (UNADJUSTED)(3)
- -------------------------- ------------- ---------- ------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(8) $10,380 $ 75 $183 $ 10,638 6.4 $ 11,194 11.9
One Year 10,083 73 177 10,333 3.3 10,879 8.8
<CAPTION>
COMPARED TO
---------------------------------------
LIPPER
RUSSELL BALANCED
TOTAL 1000(R) STANDARD CONSUMER TARGET
RETURN GROWTH & POOR'S PRICE MATURITY
TABLE INDEX(4) 500(5) INDEX(6) FUND(7)
- -------------------------- ------ -------- -------- --------
<S> <C> <C> <C> <C>
Life of Fund(8) 37.4 34.3 3.2 15.3
One Year 27.8 25.9 2.8 8.6
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
---------------------------------------------
LIPPER
RUSSELL BALANCED
1000(R) STANDARD CONSUMER TARGET
AVERAGE ANNUAL FUND GROWTH & POOR'S PRICE MATURITY
TOTAL RETURN TABLE SHARES INDEX(4) 500(5) INDEX(6) FUND(7)
- ------------------- ------ ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Life of Fund(8) 5.4% 31.3 28.7 2.7 13.0
One Year 3.3% 27.8 25.9 2.8 8.6
</TABLE>
- ---------------
(1) The initial investment was adjusted for the maximum sales charge at the
beginning of the period.
(2) Includes short-term capital gain dividends, if any.
(3) The initial investment was not adjusted for the maximum sales charge at the
beginning of the period.
(4) 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.
Assumes reinvestment of dividends. Source is Lipper Analytical Services,
Inc.
(5) The Standard & Poor's 500 Stock Index is an unmanaged unweighted average of
500 stocks, over 95% of which are listed on the New York Stock Exchange.
Assumes reinvestment of dividends. Source is Towers Data Systems.
(6) The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. Source is Towers Data Systems.
(7) Lipper Balanced Target Maturity Fund Average is an unweighted average of the
performance of the mutual funds in that category. Performance is based on
changes in net asset value with all dividends reinvested and with no
adjustment for sales charges. Source is Lipper Analytical Services, Inc.
(8) Since May 1, 1995.
The following table illustrates an assumed $10,000 investment in shares of the
Fund on May 1, 1995, which includes the current maximum sales charge of 5.0%,
with income and capital gain dividends, if any, reinvested in additional shares.
The table covers the period through June 30, 1996.
<TABLE>
<CAPTION>
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
-------------------------- ----------------------------------------------------
CAPITAL REINVESTED
PERIOD INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
6/30 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- ------ ----------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 0 $ 0 $ 9,778 $ 0 $ 0 $ 9,778
1996 180 74 10,380 183 75 10,638
</TABLE>
- ---------------
* Includes short-term capital gain dividends, if any.
B-12
<PAGE> 50
The following table compares the performance of the Fund with that of other
mutual funds within the category described below according to data reported by
Lipper Analytical Services, Inc. ("Lipper"), New York, New York, which is a
mutual fund reporting service. Lipper performance figures are based on changes
in net asset value, with all income and capital gain dividends reinvested. Such
calculations do not include the effect of any sales charges. Future performance
cannot be guaranteed. Lipper publishes performance analyses on a regular basis.
<TABLE>
<CAPTION>
LIPPER
BALANCED TARGET
MATURITY FUNDS
---------------
<S> <C>
One Year (Period ended 6/30/96).................................................... 10 of 14
</TABLE>
The Lipper Balanced Target Maturity Fund category includes funds which invest to
provide a guaranteed return of investment at maturity (target periods).
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Zurich Kemper Investments, Inc. ("ZKI"), 222 South Riverside
Plaza, Chicago, Illinois 60606, is the Fund's investment manager. ZKI is wholly
owned by ZKI Holding Corp. ZKI Holding Corp. is a more than 90% owned subsidiary
of Zurich Holding Company of America, Inc., which is a wholly owned subsidiary
of Zurich Insurance Company, an internationally recognized company providing
services in life and non-life insurance, reinsurance and asset management.
Pursuant to an investment management agreement, ZKI acts as the Fund's
investment adviser, manages its investments, administers its business affairs,
furnishes office facilities and equipment, provides clerical, bookkeeping and
administrative services, and permits any of its officers or employees to serve
without compensation as trustees or officers of the Trust if elected to such
positions. The investment management agreement provides that the Fund shall pay
the charges and expenses of its operations, including the fees and expenses of
the trustees (except those who are affiliated with ZKI), independent auditors,
counsel, custodian and transfer agent and the cost of share certificates,
reports and notices to shareholders, brokerage commissions or transaction costs,
costs of calculating net asset value, taxes and membership dues. The Fund bears
the expenses of registration of its shares with the Securities and Exchange
Commission, while the principal underwriter, pays the cost of qualifying and
maintaining the qualification of the Fund's shares for sale under the securities
laws of the various states. Kemper Retirement Fund Series I, Series II, Series
III, Series IV and Series V (which are no longer being offered), and the Fund
are subject to the investment management agreement. The Trust's expenses are
generally allocated among the series on the basis of relative net assets at the
time of allocation, except that expenses directly attributable to a particular
series are charged to that series.
The Fund pays ZKI an investment management fee, payable monthly, at an annual
rate of .50% of average daily net assets of the Fund. ZKI has agreed to
reimburse the Fund to the extent required by applicable state expense
limitations should all operating expenses of the Fund, including the investment
management fees of ZKI but excluding taxes, interest, distribution fees,
extraordinary expenses, brokerage commissions or transaction costs and any other
properly excludable expenses, exceed the applicable state expense limitations.
The Fund believes that the most restrictive state expense limitation currently
in effect would require that such operating expenses not exceed 2.5% of the
first $30 million of average daily net assets, 2% of the next $70 million and
1.5% of average daily net assets over $100 million. Under such state expense
limitation, custodian costs attributable to foreign securities that are in
excess of similar domestic custodian costs are excluded from operating expenses.
The investment management agreement provides that ZKI shall not be liable for
any error of judgment or of law, or for any loss suffered by the Fund in
connection with the matters to which the agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
ZKI in the performance of its obligations and duties, or by reason of its
reckless disregard of its obligations and duties under the agreement.
B-13
<PAGE> 51
The investment management agreement continues in effect from year to year for
each series subject to the agreement so long as its continuation is approved at
least annually by (a) a majority of the trustees who are not parties to such
agreement or interested persons of any such party except in their capacity as
trustees of the Trust and (b) by the shareholders of each series or the Board of
Trustees. It may be terminated at any time upon 60 days' notice by either party,
or by a majority vote of the outstanding shares of a series with respect to that
series, and will terminate automatically upon assignment. If continuation is not
approved for a series, the investment management agreement nevertheless may
continue in effect for the series for which it is approved and ZKI may continue
to serve as investment manager for the series for which it is not approved to
the extent permitted by the Investment Company Act of 1940. The management fee
and the expense limitation are computed based upon the average daily net assets
of all series subject to the agreement and are allocated among such series based
upon the relative net assets of each such series. Additional series may be
subject to the same or a different agreement. Kemper Worldwide 2004 Fund, a
series of the Trust, has a different agreement.
For the services and facilities furnished to the Fund pursuant to the investment
management agreement for the fiscal year ended June 30, 1996, ZKI received
investment management fees of $152,000, and during the period from May 1, 1995
to June 30, 1995, ZKI received management fees of $3,000.
PRINCIPAL UNDERWRITER. Kemper Distributors, Inc. ("KDI"), a wholly owned
subsidiary of ZKI, is the principal underwriter for shares of the Trust and acts
as agent of the Trust in the continuous offering of its shares. The Trust pays
the cost for the prospectus and shareholder reports to be set in type and
printed for existing shareholders, and KDI pays for the printing and
distribution of copies thereof used in connection with the offering of shares to
prospective investors. KDI also pays for supplementary sales literature and
advertising costs. Terms of continuation, termination and assignment under the
underwriting agreement are identical to those described above with regard to the
investment management agreement, except that termination other than upon
assignment requires six months' notice and continuation, amendment and
termination need not be on a series by series basis.
As principal underwriter for the Fund during the fiscal year ended June 30, 1996
and the period from May 1, 1995 to June 30, 1995 KDI retained commissions of
$214,000 and $35,000, respectively, after allowing $1,755,000 and $300,000,
respectively, as commissions to retail firms of which $211,000 and $37,000 was
paid to firms affiliated with KDI.
ADMINISTRATIVE SERVICES. Administrative services are provided to the Trust under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and the Trust, including the payment of any service fees.
The Trust pays KDI an administrative services fee, payable monthly, at the
annual rate of up to .25% of average daily net assets of the Trust.
KDI enters into related arrangements with various financial services firms, such
as broker-dealers or banks ("firms"), that provide services and facilities for
their customers or clients who are shareholders of the Trust. The firms shall
provide such office space and equipment, telephone facilities and personnel as
is necessary or appropriate for providing information and services to their
clients. Such services and assistance may include, but are not limited to,
establishing and maintaining shareholder accounts and records, processing
purchase and redemption transactions, answering routine inquiries regarding the
Trust, and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. KDI pays such firms a
service fee, payable quarterly, at an annual rate of up to .25% of the net
assets in Trust accounts that they maintain and service commencing with the
month after investment. Firms to which service fees may be paid include broker-
dealers affiliated with KDI.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Trust. Currently, the
administrative services fee payable to KDI is based only upon Trust assets in
accounts for which there is a firm listed on the Trust's records and it is
intended that KDI will pay all the administrative services fees that it receives
from the Trust to firms in the form of service fees. The effective
administrative services fee rate to be charged
B-14
<PAGE> 52
against all assets of the Trust while this procedure is in effect would depend
upon the proportion of Trust assets that is in accounts for which there is a
firm of record. The Board of Trustees of the Trust, in its discretion, may
approve basing the fee to KDI on all Trust assets in the future.
For the fiscal year ended June 30, 1996, the Fund incurred an administrative
services fee of $68,000, all of which KDI paid to firms including $8,000 to
firms affiliated with KDI. For the period from May 1, 1995 to June 30, 1995, the
Fund incurred an administrative services fee of $1,000, all of which KDI paid to
firms.
Certain trustees or officers of the Trust are also directors or officers of ZKI
and/or KDI as indicated under "Officers and Trustees."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as
custodian and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of the Trust maintained in the United States. The Chase Manhattan Bank, Chase
MetroTech Center, Brooklyn, New York 11245, as custodian, has custody of all
securities and cash of the Trust held outside the United States. They attend to
the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by the Fund. IFTC is also the Trust's
transfer agent and dividend-paying agent. Pursuant to a services agreement with
IFTC, Kemper Service Company ("KSVC"), an affiliate of ZKI, serves as
"Shareholder Service Agent" of the Fund, and, as such, performs all of IFTC's
duties as transfer agent and dividend paying agent. IFTC receives from the Fund
as transfer agent, and pays to KSVC, annual account fees of $6 per account plus
account set up, transaction and maintenance charges and out-of-pocket expense
reimbursement. IFTC's fee is reduced by certain earnings credits in favor of the
Fund. For the fiscal year ended June 30, 1996, IFTC remitted shareholder service
fees of $45,000 to KSVC.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Trust's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Trust. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
PORTFOLIO TRANSACTIONS
ZKI and its affiliates furnish investment management services for the Kemper
Funds and other clients including affiliated insurance companies. As described
in the Fund's prospectus, Zurich Investment Management Limited ("ZIML") provides
analysis, research, execution and trading services with respect to foreign
securities. ZKI and its affiliates share some common research and trading
facilities. At times investment decisions may be made to purchase or sell the
same investment securities for the Fund and for one or more of the other clients
advised by ZKI or its affiliates. When two or more of such clients are
simultaneously engaged in the purchase or sale of the same security through the
same trading facility, the transactions are allocated as to amount and price in
a manner considered equitable to each.
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities and options and futures contracts available to the Fund. On
the other hand, the ability of the Fund to participate in volume transactions
may produce better executions for the Fund in some cases. The Board of Trustees
of the Trust believes that the benefits of ZKI's and ZIML's organization
outweigh any limitations that may arise from simultaneous transactions or
position limitations.
ZKI and ZIML, in effecting purchases and sales of portfolio securities for the
account of the Fund, will implement the Fund's policy of seeking best execution
of orders, which includes best net prices, except to the extent that ZKI and
ZIML may be permitted to pay higher brokerage commissions for research services
as described below. Consistent with this policy, orders for portfolio
transactions are placed with broker-dealer firms giving consideration to the
quality, quantity and nature of each firm's professional services, which include
B-15
<PAGE> 53
execution, clearance procedures, wire service quotations and statistical and
other research information provided to the Fund and ZKI and its affiliates.
Subject to the policy of seeking best execution of an order, brokerage is
allocated on the basis of all services provided. Any research benefits derived
are available for all clients, including clients of affiliated companies. Since
it is only supplementary to ZKI's and ZIML's own research efforts and must be
analyzed and reviewed by their staff, the receipt of research information is not
expected to materially reduce expenses. In selecting among firms believed to
meet the criteria for handling a particular transaction, ZKI and ZIML may give
consideration to those firms that have sold or are selling shares of the Fund
and other funds managed by ZKI or its affiliates, as well as to those firms that
provide market, statistical and other research information to the Fund and ZKI
and its affiliates, although ZKI and ZIML are not authorized to pay higher
commissions to firms that provide such services, except as described below.
ZKI and ZIML may in certain instances be permitted to pay higher brokerage
commissions solely for receipt of market, statistical and other research
services as defined in Section 28(e) of the Securities Exchange Act of 1934 and
interpretations thereunder. Such services may include, among other things:
economic, industry or company research reports or investment recommendations;
computerized databases; quotation equipment and software; and research or
analytical computer software and services. Where products or services have a
"mixed use," a good faith effort is made to make a reasonable allocation of the
cost of the products or services in accordance with the anticipated research and
non-research uses and the cost attributable to non-research use is paid by ZKI
or one of its affiliates in cash. Subject to Section 28(e) and procedures
adopted by the Board of Trustees of the Trust, the Fund could pay a firm that
provides research services commissions for effecting a securities transaction
for the Fund in excess of the amount other firms would have charged for the
transaction if ZKI or ZIML determines in good faith that the greater commission
is reasonable in relation to the value of the research services provided by the
executing firm viewed in terms either of a particular transaction or ZKI's or
ZIML's overall responsibilities to the Fund or other clients. Not all of such
research services may be useful or of value in advising a particular Fund.
Research benefits will be available for all clients of ZKI and its affiliates.
The investment management fee paid by the Fund to ZKI is not reduced because
these research services are renewed.
During the fiscal year ended June 30, 1996, the Fund paid portfolio brokerage
commissions of $49,000; and of this amount 93% was allocated to broker-dealer
firms on the basis of research information and during the period from May 1,
1995 to June 30, 1995, the Fund paid no portfolio brokerage commissions.
PURCHASE AND REDEMPTION OF SHARES
During the Offering Period described in the prospectus (see "Purchase of
Shares"), Fund shares are sold at their public offering price, which is the net
asset value next determined after an order is received in proper form plus a
sales charge as described in the Fund's prospectus. The minimum initial
investment is $1,000 and the minimum subsequent investment is $100, but such
minimum amounts may be changed at any time. See the prospectus for certain
exceptions to these minimums. An order for the purchase of shares that is
accompanied by a check drawn on a foreign bank (other than a check drawn on a
Canadian bank in U.S. Dollars) will not be considered in proper form and will
not be processed unless and until the Fund determines that it has received
payment of the proceeds of the check. The time required for such determination
will vary and cannot be determined in advance. The amount received by a
shareholder upon redemption or repurchase may be more or less than the amount
paid for such shares depending on the market value of the Fund's portfolio
securities at the time; provided, however, shareholders who hold their shares to
the Maturity Date and reinvest their dividends will receive the benefit of the
Fund's Investment Protection.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares will be redeemed by the Fund at the applicable net asset value as
described in the Fund's prospectus.
Scheduled variations in or the elimination of the sales charge for purchases by
certain classes of persons or through certain types of transactions as described
in the prospectus is provided because of anticipated economies in sales and
sales-related efforts.
B-16
<PAGE> 54
The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange (the "Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of the Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of its net assets, or (c) for such other periods as
the Securities and Exchange Commission may by order permit for the protection of
the Fund's shareholders.
Although it is the Fund's present policy to redeem in cash, if the Board of
Trustees determines that a material adverse effect would be experienced by the
remaining shareholders if payment were made wholly in cash, the Fund will
satisfy the redemption request in whole or in part by a distribution of
portfolio securities in lieu of cash, in conformity with the applicable rules of
the Securities and Exchange Commission, taking such securities at the same value
used to determine net asset value, and selecting the securities in such manner
as the Board of Trustees may deem fair and equitable. If such a distribution
occurred, shareholders receiving securities and selling them could receive less
than the redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be as liquid as a redemption
entirely in cash. The Trust has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940 pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets of
the Fund during any 90-day period for any one shareholder of record.
OFFICERS AND TRUSTEES
The officers and trustees of the Trust, their birthdates, their principal
occupations and their affiliations, if any, with ZKI, the Fund's investment
adviser and KDI, the Fund's principal underwriter, are as follows (The number
following each person's title is the number of investment companies managed by
ZKI or an affiliate for which he or she holds similar positions):
JAMES B. AKINS (10/15/26), Director (13), 2904 Garfield Terrace N.W.,
Washington, D.C.; Consultant on International, Political and Economic Affairs;
formerly a career United States Foreign Service Officer; Energy Adviser for the
White House; United States Ambassador to Saudi Arabia.
ARTHUR R. GOTTSCHALK (2/13/25), Trustee (13), 10642 Brookridge Drive, Frankfort,
Illinois; Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; Member, Board of Governors, Heartland
Institute/Illinois; formerly, Illinois State Senator.
FREDERICK T. KELSEY (4/25/27), Trustee (13), 3133 Laughing Gull Court, John's
Island, South Carolina; Retired; formerly, consultant to Goldman, Sachs & Co.;
formerly, President, Treasurer and Trustee of Institutional Liquid Assets and
its affiliated mutual funds; Trustee of the Benchmark Fund and the Pilot Fund.
DOMINIQUE P. MORAX (10/2/48), Trustee* (36), 222 South Riverside Plaza, Chicago,
Illinois; Member, Extended Corporate Executive Board, Zurich Insurance Company;
Director, ZKI.
FRED B. RENWICK (2/1/30), Director (13), 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director;
TIFF Industrial Program, Inc.; Director, The Wartberg Home Foundation; Chairman
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; previously member of the Investment
Committee of Atlanta University Board of Trustees; previously Director of Board
of Pensions Evangelical Lutheran Church in America.
STEPHEN B. TIMBERS (8/8/44), President and Trustee* (36), 222 South Riverside
Plaza, Chicago, Illinois; Chairman, Chief Executive Officer, Chief Investment
Officer and Director, ZKI; Director, KDI, Dreman Value Advisors, Inc. and LTV
Corporation.
B-17
<PAGE> 55
JOHN B. TINGLEFF (5/4/35), Trustee (13), 2015 South Lake Shore Drive, Harbor
Springs, Michigan; Retired; formerly President, Tingleff & Associates
(management consulting firm); formerly, Senior Vice President, Continental
Illinois National Bank & Trust Company.
JOHN G. WEITHERS (8/8/33), Trustee (13), 311 Springlake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University; Director, Systems
Imagineering and Records Management Services, Inc.
CHARLES R. MANZONI, JR. (1/23/47), Vice President* (36), 222 South Riverside
Plaza, Chicago, Illinois; Executive Vice President, Secretary and General
Counsel of ZKI, Secretary of ZKI Holding Corp., Secretary ZKI Agency, Inc.;
formerly, Partner, Gardner Carton & Douglas (attorneys).
STEVEN H. REYNOLDS (9/11/43), Vice President* (12), 222 South Riverside Plaza,
Chicago, Illinois, Executive Vice President and Chief Investment
Officer--Equities, ZKI.
TRACY McCORMICK CHESTER (9/27/54), Vice President* (3), 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President and Portfolio Manager, ZKI;
formerly, Portfolio Manager for Fiduciary Management; prior thereto, independent
consultant managing private accounts.
DENNIS H. FERRO (6/20/45), Vice President* (3), 222 South Riverside Plaza,
Chicago, Illinois; Executive Vice President and Director of International Equity
Investments, ZKI; prior thereto, President, Managing Director and Chief
Investment Officer of an international investment advisory firm.
CHARLES F. CUSTER (8/19/28), Vice President and Assistant Secretary* (13), 222
North LaSalle Street, Chicago, Illinois; Partner, Vedder, Price, Kaufman &
Kammholz (attorneys), Legal Counsel to the Fund.
JOHN E. NEAL (3/9/50), Vice President* (36), 222 South Riverside Plaza, Chicago,
Illinois; President, Kemper Funds Group, a unit of ZKI; Director, ZKI, Dreman
Value Advisors, Inc. and KDI.
JEROME L. DUFFY (6/29/36), Treasurer* (36), 222 South Riverside Plaza, Chicago,
Illinois; Senior Vice President, ZKI.
PHILIP J. COLLORA (11/15/45), Vice President and Secretary* (36), 222 South
Riverside Plaza, Chicago, Illinois; Attorney, Senior Vice President and
Assistant Secretary, ZKI.
ELIZABETH C. WERTH (10/1/47), Assistant Secretary* (28), 222 South Riverside
Plaza, Chicago, Illinois; Vice President and Director of State Registrations,
ZKI and KDI.
* Interested persons as defined in the Investment Company Act of 1940.
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Trust, except that Mr. Custer's law firm
receives fees from the Trust as counsel to the Trust. The table below shows
amounts paid or accrued to those trustees who are not designated "interested
persons" during the Fund's 1996 fiscal year, except that the information in the
last column is for calendar year 1995.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE KEMPER FUNDS
COMPENSATION PAID TO
NAME OF TRUSTEE FROM FUND TRUSTEES(3)
- ---------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
James B. Akins(1)..................................................... $2,100 $ 26,100
Arthur R. Gottschalk(2)............................................... $2,900 $ 90,300
Frederick T. Kelsey(2)................................................ $2,900 $ 90,700
Fred B. Renwick(1).................................................... $2,100 $ 26,100
John B. Tingleff...................................................... $2,800 $ 81,700
John G. Weithers...................................................... $2,800 $ 81,900
</TABLE>
- ---------------
(1) Elected to the Boards of certain Kemper Funds on September 19, 1995.
B-18
<PAGE> 56
(2) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with the Trust. Deferred amounts accrue interest
monthly at a rate equal to the yield of Kemper Money Funds--Kemper Money
Market Fund. Total deferred amounts and interest accrued through June 30,
1996 are $1,900 and $3,700 for Messrs. Gottschalk and Kelsey, respectively.
(3) Includes compensation for service on the boards of 11 Kemper funds with 25
fund portfolios. Each trustee currently serves as a board member of 13
Kemper Funds with 36 fund portfolios.
As of September 13, 1996, the trustees and officers as a group owned less than
1% of the outstanding shares of the Fund and no person owned of record 5% or
more of the outstanding shares of the Fund, except that National Financial
Services Corp., One World Financial Center, 200 Liberty Street, New York, New
York owned of record 10.8% and Donaldson, Lufkin & Jenrette, P.O. Box 2052,
Jersey City, New Jersey owned of record 6.1% of the outstanding shares of the
Fund.
SHAREHOLDER RIGHTS
The Trust generally is not required to hold meetings of its shareholders. Under
the Agreement and Declaration of Trust of the Trust ("Declaration of Trust"),
however, shareholder meetings will be held in connection with the following
matters: (a) the election or removal of trustees if a meeting is called for such
purpose; (b) the adoption of any contract for which approval by shareholders is
required by the Investment Company Act of 1940 ("1940 Act"); (c) any termination
of the Trust, a series or a class to the extent and as provided in the
Declaration of Trust; (d) any amendment of the Declaration of Trust (other than
amendments changing the name of the Trust, establishing a series, supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision thereof); (e) as to whether a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the shareholders, to the same
extent as the stockholders of a Massachusetts business corporation; and (f) such
additional matters as may be required by law, the Declaration of Trust, the
By-laws of the Trust, or any registration of the Trust with the Securities and
Exchange Commission or any state, or as the trustees may consider necessary or
desirable. The shareholders also would vote upon changes in fundamental
investment objectives, policies or restrictions.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Trust will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Trustees may be removed from office by a vote of the holders of a majority of
the outstanding shares at a meeting called for that purpose, which meeting shall
be held upon the written request of the holders of not less than 10% of the
outstanding shares. Upon the written request of ten or more shareholders who
have been such for at least six months and who hold shares constituting at least
1% of the outstanding shares of the Trust stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Trust has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
The Declaration of Trust provides that the presence at a shareholder meeting in
person or by proxy of at least 30% of the shares entitled to vote on a matter
shall constitute a quorum. Thus, a meeting of shareholders of the Trust could
take place even if less than a majority of the shareholders were represented on
its scheduled date. Shareholders would in such a case be permitted to take
action which does not require a larger vote than a majority of a quorum, such as
the election of trustees and ratification of the selection of auditors. Some
matters requiring a larger vote under the Declaration of Trust, such as
termination or reorganization of the Trust and certain
B-19
<PAGE> 57
amendments of the Declaration of Trust, would not be affected by this provision;
nor would matters which under the 1940 Act require the vote of a "majority of
the outstanding voting securities" as defined in the 1940 Act.
The Declaration of Trust specifically authorizes the Board of Trustees to
terminate the Trust (or any series or class) by notice to the shareholders
without shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Trust. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Trust or the trustees. Moreover, the Declaration of Trust provides for
indemnification out of Trust property for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust and the
Trust will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by ZKI and KDI as remote
and not material, since it is limited to circumstances in which a disclaimer is
inoperative and the Trust itself is unable to meet its obligations.
B-20
<PAGE> 58
PORTFOLIOS OF INVESTMENTS
KEMPER RETIREMENT FUND--
SERIES I THROUGH SERIES V
PORTFOLIOS OF INVESTMENTS AT JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
SERIES I
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT
OBLIGATIONS--44.6%, U.S. Treasury, zero coupon, 1999 through 2004
59.5%, 55.4%, (Cost: $44,185, $94,206, $63,823, $87,106 and
60.4% AND 53.4% $64,676) $59,100 $47,820
====================================================================================================================
<CAPTION>
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS
BASIC INDUSTRIES--2.5%, Air Products & Chemicals 4,000 $ 231
1.8%, 2.2%, 1.9% Alco Standard Corporation 6,000 271
AND 2.1% Betz Laboratories 17,400 763
Crown Cork & Seal Co. 6,700 302
Monsanto Co. 20,000 650
Pall Corp. 10,000 241
Praxair, Inc. 4,500 190
Sumitomo Metal Industries 4,000 12
Toray Industries 2,000 14
=============================================================================
2,674
-----------------------------------------------------------------------------
CAPITAL GOODS--5.4%, 4.0%, Boeing Co. 9,500 828
4.6%, 4.2% AND 4.6% Emerson Electric Co. 7,500 678
Fluor Corp. 12,000 784
GM Hughes Electronics Corp. 7,000 421
General Electric Co. 10,500 908
B.F. Goodrich Co. 16,100 602
Honda Motor Co., Ltd. 500 13
Mitsubishi Heavy Industries 1,500 13
Sundstrand Corp. 14,000 513
Technip S.A. 58 5
Xerox Corporation 13,500 722
York International Corp. 6,900 357
=============================================================================
5,844
-----------------------------------------------------------------------------
</TABLE>
10
<PAGE> 59
PORTFOLIOS OF INVESTMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SERIES II SERIES III SERIES IV SERIES V
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$130,100 $100,256 $96,600 $67,268 $129,300 $83,910 $121,500 $69,329
=========================================================================================================
<CAPTION>
NUMBER NUMBER NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
4,800 277 3,700 214 4,000 231 4,000 231
6,000 271 6,000 271 6,000 271 6,000 271
20,500 899 17,000 746 17,400 763 17,700 777
7,500 338 6,800 306 6,800 306 6,800 306
22,000 715 20,000 650 20,000 650 20,000 650
12,000 290 10,000 241 10,000 241 10,000 241
5,200 220 4,100 173 4,100 173 4,600 194
5,000 15 4,000 12 4,000 12 4,000 12
2,000 14 2,000 14 2,000 14 2,000 14
=========================================================================================================
3,039 2,627 2,661 2,696
- ---------------------------------------------------------------------------------------------------------
11,200 976 8,300 723 9,000 785 10,000 871
7,800 705 7,300 660 7,300 660 7,700 696
13,000 850 11,000 719 12,000 784 12,000 784
8,000 481 7,000 421 7,000 421 7,000 421
12,000 1,038 10,500 908 10,500 908 12,000 1,038
19,700 736 16,100 602 16,100 602 16,100 602
500 13 500 13 500 13 500 13
2,000 17 1,500 13 1,500 13 1,500 13
17,000 623 14,000 513 14,000 513 14,000 513
68 6 58 5 58 5 58 5
16,500 883 13,500 722 13,500 722 13,500 722
7,700 398 5,900 305 6,900 357 6,900 357
=========================================================================================================
6,726 5,604 5,783 6,035
- ---------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 60
PORTFOLIOS OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SERIES I
- --------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER CYCLICALS--7.1%, Burton Group PLC 6,249 $ 15
5.3%, 6.1%, 5.4% Carnival Corp. 25,000 722
AND 5.9% Circuit City Stores 15,000 542
(a)Circus Circus Enterprises 8,300 340
(a)Consolidated Stores Corporation 20,000 735
Walt Disney Company 11,500 723
(a)Federated Department Stores 10,000 341
Hilton Hotels 5,000 562
(a)Liberty Media Group, "A" 20,000 530
Marriott International 13,000 699
Melville Corp. 12,000 486
Moet Hennessey Louis Vuitton 58 14
Pep Boys-Manny Moe & Jack 16,000 544
Reynolds & Reynolds Co., "A" 8,000 426
Tele-Communications, Inc. 30,000 544
(a)Toys R Us 12,000 342
========================================================================
7,565
------------------------------------------------------------------------
CONSUMER DURABLES--1.5%, Armstrong World Industries 4,000 231
1.1%, 1.4%, 1.2% Leggett & Platt Incorporated 20,000 555
AND 1.3% Magna International Inc. 10,000 460
Shaw Industries 30,000 394
========================================================================
1,640
------------------------------------------------------------------------
CONSUMER STAPLES--5.7%, Avon Products 10,000 451
4.2%, 4.8%, 4.2% Clorox Company 5,000 443
AND 4.8% Duracell International Inc. 19,000 819
Hannaford Bros. Co. 15,000 489
Heineken N.V. 67 15
Kimberly-Clark Corp. 5,000 386
PepsiCo 17,000 601
Philip Morris Companies 9,300 967
Procter & Gamble Co. 9,000 816
Reed International PLC 778 13
Sara Lee Corp. 14,000 453
Sysco Corp. 15,000 514
Warnaco Group 7,000 180
========================================================================
6,147
------------------------------------------------------------------------
ENERGY--3.1%, Amerada Hess Corp. 10,000 536
2.4%, 2.7%, 2.3% Enron Corp. 22,800 932
AND 2.6% Enron Oil & Gas Co. 15,000 418
Mobil Corp. 8,200 919
Schlumberger Ltd. 6,000 506
========================================================================
3,311
------------------------------------------------------------------------
</TABLE>
12
<PAGE> 61
PORTFOLIOS OF INVESTMENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SERIES II SERIES III SERIES IV SERIES V
- ----------------------------------------------------------------------------------------------------------
NUMBER NUMBER NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
7,291 $ 18 6,249 $ 15 6,249 $ 15 6,249 $ 15
30,000 866 23,000 664 25,000 722 25,000 722
18,000 650 15,000 542 15,000 542 15,000 542
8,800 361 8,300 340 8,300 340 8,300 340
24,000 882 20,000 735 20,000 735 20,000 735
13,000 817 11,500 723 11,500 723 11,500 723
10,000 341 10,000 341 10,000 341 10,000 341
6,000 675 5,000 562 5,000 562 5,000 562
22,000 583 20,000 530 20,000 530 20,000 530
15,000 806 13,000 699 13,000 699 13,000 699
15,000 608 12,000 486 12,000 486 12,000 486
68 16 58 14 58 14 58 14
20,000 680 16,000 544 16,000 544 16,000 544
9,000 479 8,000 426 8,000 426 9,000 479
36,000 653 30,000 544 30,000 544 30,000 544
14,000 399 10,000 285 10,000 285 12,000 342
========================================================================================================
8,834 7,450 7,508 7,618
- --------------------------------------------------------------------------------------------------------
5,000 288 4,000 231 4,000 231 4,000 231
22,000 610 20,000 555 20,000 555 20,000 555
12,000 552 10,000 460 10,000 460 10,000 460
32,000 420 30,000 394 30,000 394 30,000 394
========================================================================================================
1,870 1,640 1,640 1,640
- --------------------------------------------------------------------------------------------------------
12,000 541 10,000 451 10,000 451 10,000 451
6,000 532 5,000 443 5,000 443 5,000 443
22,000 949 19,000 819 19,000 819 19,000 819
18,000 587 15,000 489 15,000 489 15,000 489
79 18 67 15 67 15 67 15
6,000 463 5,000 386 5,000 386 5,000 386
18,000 637 17,000 601 17,000 601 19,000 672
10,500 1,092 8,400 874 9,200 957 9,200 957
11,000 997 8,500 770 8,000 725 9,000 816
907 15 778 13 778 13 778 13
16,000 518 14,000 453 14,000 453 14,000 453
17,000 582 15,000 514 15,000 514 15,000 514
8,000 206 2,000 52 2,000 52 7,000 180
========================================================================================================
7,137 5,880 5,918 6,208
- --------------------------------------------------------------------------------------------------------
12,000 643 9,000 483 9,000 483 10,000 536
27,700 1,132 22,800 932 22,700 928 24,900 1,018
18,900 527 15,000 418 15,000 418 15,000 418
10,300 1,155 7,800 875 8,200 919 8,000 897
6,500 548 6,000 506 6,000 506 6,000 506
========================================================================================================
4,005 3,214 3,254 3,375
- --------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 62
PORTFOLIOS OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SERIES I
- -------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE--4.6%, Allstate Corp. 7,000 $ 319
3.4%, 4.1%, 3.6% Bank of Boston 10,000 495
AND 3.9% Bank of Ireland 1,802 12
Boatmen's Bancshares 13,000 522
CITIC Pacific Ltd. 2,000 8
Cheung Kong Holdings Ltd. 1,000 7
Development Bank of Singapore 1,000 12
Federal National Mortgage Association 18,000 603
ITT Hartford Group 10,000 532
(a)Internationale Nederlanden Groep 480 14
Krung Thai Bank Public Co. Ltd. 2,400 11
MBIA Inc. 5,900 459
MGIC Investment Corp. 7,000 393
Marsh & McLennan Companies, Inc. 8,000 772
Northern Trust Co. 6,000 347
Swire Pacific Limited, "A" 1,000 9
Travelers Group 10,000 456
========================================================================
4,971
------------------------------------------------------------------------
HEALTH CARE--7.6%, Abbott Laboratories 15,000 652
5.8%, 6.7%, 5.8% American Home Products 13,000 782
AND 6.2% Astra AB 293 13
C.R. Bard 6,000 204
Baxter International 20,000 945
(a)Biogen 7,000 384
Glaxo Wellcome 5,000 134
Eli Lilly & Co. 15,000 975
Mallinckrodt Group 10,000 389
Medtronic, Inc. 6,000 336
Merck & Co., Inc. 8,000 517
Omnicare 12,600 334
Perkin-Elmer Corp. 14,600 704
(a)R.P. Scherer Corp. 10,000 454
Roche Holding AG 2 15
(a)St. Jude Medical 16,000 536
(a)Sandoz, Ltd. 13,000 739
(a)U.S. Bioscience -- --
========================================================================
8,113
------------------------------------------------------------------------
</TABLE>
14
<PAGE> 63
PORTFOLIOS OF INVESTMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
SERIES II SERIES III SERIES IV SERIES V
- --------------------------------------------------------------------------------------------------------
NUMBER NUMBER NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
8,000 $ 365 7,000 $ 319 7,000 $ 319 7,000 $ 319
11,000 544 10,000 495 10,000 495 10,000 495
2,103 14 1,802 12 1,802 12 1,802 12
14,500 582 12,500 502 13,000 522 13,500 542
3,000 12 2,000 8 2,000 8 2,000 8
1,000 7 1,000 7 1,000 7 1,000 7
1,000 12 1,000 12 1,000 12 1,000 12
18,000 603 18,000 603 18,000 603 18,000 603
13,000 692 10,000 532 10,000 532 10,000 532
557 17 480 14 480 14 480 14
2,800 13 2,400 11 2,400 11 2,400 11
6,300 491 5,900 459 5,900 459 5,900 459
8,000 449 7,000 393 7,000 393 7,000 393
9,700 936 8,000 772 8,300 801 8,600 830
7,000 404 7,000 404 6,000 347 6,000 347
1,000 9 1,000 9 1,000 9 1,000 9
12,000 548 10,000 456 10,000 456 10,000 456
========================================================================================================
5,698 5,008 5,000 5,049
- --------------------------------------------------------------------------------------------------------
18,000 783 15,000 652 15,000 652 15,000 652
16,000 962 13,000 782 13,000 782 13,000 782
342 15 293 13 293 13 293 13
7,000 238 6,000 204 6,000 204 6,000 204
24,000 1,134 20,000 945 20,000 945 20,000 945
9,000 494 7,000 384 7,000 384 7,000 384
5,000 134 5,000 134 5,000 134 5,000 134
18,000 1,170 15,000 975 15,000 975 15,000 975
12,000 466 10,000 389 10,000 389 10,000 389
7,000 392 6,000 336 6,000 336 6,000 336
9,000 582 8,000 517 8,000 517 8,000 517
15,200 403 12,600 334 12,600 334 12,600 334
18,600 897 14,600 704 14,600 704 14,600 704
12,000 545 10,000 454 10,000 454 10,000 454
2 15 2 15 2 15 2 15
19,000 637 16,000 536 16,000 536 16,000 536
14,000 796 13,000 739 13,000 739 13,000 739
470 11 -- -- -- -- -- --
========================================================================================================
9,674 8,113 8,113 8,113
- --------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 64
PORTFOLIOS OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SERIES I
- --------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--8.4%, (a)Analog Devices 9,700 $ 247
6.3%, 7.4%, 6.8% (a)Cisco Systems 8,000 453
AND 7.1% (a)Compaq Computer Corp. 18,000 886
(a)Computer Sciences Corp. 10,000 748
(a)Electronic Arts 8,000 214
Electronic Data Systems 10,000 538
LM Ericsson Telephone Co., "B" 408 9
First Data Corporation 4,000 319
Harris Corp. 14,000 854
Hewlett-Packard, Co. 6,600 658
Intel Corp. 4,900 360
Kyocera Corporation 200 14
(a)LSI Logic Corp. 14,000 364
Linear Technology Corp. 7,000 210
Matsushita Electrical Industrial Co., Ltd. 800 15
(a)Microsoft Corp. 5,000 601
Murata Manufacturing 400 15
(a)Newbridge Networks Corp. 5,000 328
(a)Seagate Technology 10,000 450
(a)Sun Microsystems 12,400 730
Texas Instruments 10,000 499
(a)3Com Corporation 6,000 275
(a)Xilinx, Inc. 8,000 254
========================================================================
9,041
------------------------------------------------------------------------
TRANSPORTATION--.6%, Canadian National Railway Company 709 13
.4%, .5%, .4% Nippon Express 1,300 13
AND .5% Union Pacific Corp. 8,500 594
========================================================================
620
------------------------------------------------------------------------
UTILITIES--2.6%, AT&T 8,800 546
1.8%, 2.2%, 2.0% (a)AirTouch Communications 20,000 565
AND 2.1% Cincinnati Bell 15,400 803
Iberdrola, S.A. 1,125 12
SBC Communications Inc. 10,600 522
(a)WorldCom 6,800 377
========================================================================
2,825
------------------------------------------------------------------------
TOTAL COMMON STOCKS--49.1%, 36.5%, 42.7%,
37.8% AND 41.1%
(Cost: $46,510, $54,230, $45,768, $46,209 and $46,970) 52,751
========================================================================
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--5.49% to 5.56%
INSTRUMENTS--5.4%, Due--July and August 1996
4.2%, 1.2%, 1.8% Baxter International $ 4,300 4,292
AND 5.5% Other 1,500 1,496
========================================================================
TOTAL MONEY MARKET INSTRUMENTS--5.4%,
4.2%, 1.2%, 1.8% AND 5.5%
(Cost: $5,790, $7,084, $1,488, $2,494 and $7,185) 5,788
========================================================================
TOTAL INVESTMENTS--99.1%, 100.2%, 99.3%, 100% AND 100%
(Cost: $96,485, $155,520, $111,079, $135,809 and $118,831) 106,359
========================================================================
CASH AND OTHER ASSETS, LESS LIABILITIES--.9%,
(.2)%, .7%, -- and -- 944
========================================================================
NET ASSETS--100% $107,303
========================================================================
</TABLE>
See accompanying Notes to Portfolios of Investments.
16
<PAGE> 65
PORTFOLIOS OF INVESTMENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SERIES II SERIES III SERIES IV SERIES V
- -------------------------------------------------------------------------------------------------------------
NUMBER NUMBER NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
11,700 $ 298 9,700 $ 247 9,700 $ 247 9,700 $ 247
11,000 623 9,600 544 10,200 578 9,000 510
20,900 1,029 18,200 896 18,000 886 18,200 896
12,000 897 10,000 748 10,000 748 10,000 748
9,000 241 8,000 214 8,000 214 8,000 214
10,400 559 10,000 538 10,000 538 10,000 538
476 10 408 9 408 9 408 9
5,000 398 4,100 326 4,000 319 4,000 319
18,000 1,098 14,000 854 14,000 854 14,000 854
6,500 648 6,200 618 6,800 677 6,800 677
5,100 375 4,900 360 4,900 360 5,300 389
200 14 200 14 200 14 200 14
17,000 442 14,000 364 14,000 364 14,000 364
9,000 270 7,000 210 7,000 210 6,000 180
900 17 800 15 800 15 800 15
6,000 721 4,500 541 5,500 661 6,000 721
500 19 400 15 400 15 400 15
6,000 393 5,000 328 5,000 328 5,000 328
10,000 450 10,000 450 10,000 450 10,000 450
15,300 901 12,000 706 12,400 730 12,400 730
11,000 549 10,000 499 10,000 499 10,000 499
7,000 320 6,000 275 6,000 275 6,000 275
9,000 286 8,000 254 8,000 254 8,000 254
================================================================================================================
10,558 9,025 9,245 9,246
- ----------------------------------------------------------------------------------------------------------------
827 15 709 13 709 13 709 13
1,500 15 1,300 13 1,300 13 1,300 13
10,000 699 8,500 594 8,500 594 8,500 594
================================================================================================================
729 620 620 620
- ----------------------------------------------------------------------------------------------------------------
10,300 639 8,000 496 9,000 558 8,800 546
20,000 565 16,000 452 16,000 452 16,000 452
16,800 876 15,400 803 15,400 803 15,400 803
1,315 13 1,125 12 1,125 12 1,125 12
12,000 591 10,400 512 10,700 527 10,000 493
7,200 399 6,800 377 6,800 377 6,800 377
================================================================================================================
3,083 2,652 2,729 2,683
- ----------------------------------------------------------------------------------------------------------------
61,353 51,833 52,471 53,283
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,700 3,693 $ -- -- $ -- -- $ 5,400 5,390
3,400 3,389 1,500 1,487 2,500 2,493 1,800 1,791
================================================================================================================
7,082 1,487 2,493 7,181
================================================================================================================
168,691 120,588 138,874 129,793
================================================================================================================
(266) 900 (16) (46)
================================================================================================================
$168,425 $121,488 $138,858 $129,747
================================================================================================================
</TABLE>
17
<PAGE> 66
NOTES TO PORTFOLIOS OF INVESTMENTS
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIOS OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments for federal income tax purposes at June 30,
1996, the unrealized appreciation and depreciation on investments is as follows:
<TABLE>
<CAPTION>
SERIES I SERIES II SERIES III SERIES IV SERIES V
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of investments for federal income tax purposes $ 96,485 $ 155,520 $ 111,079 $ 135,809 $118,831
- ---------------------------------------------------------------------------------------------------------------------------
Gross unrealized appreciation 10,935 14,387 10,542 7,289 12,167
- ---------------------------------------------------------------------------------------------------------------------------
Gross unrealized depreciation 1,061 1,216 1,033 4,224 1,205
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation 9,874 13,171 9,509 3,065 10,962
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
18
<PAGE> 67
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TARGET EQUITY FUND--
KEMPER RETIREMENT FUND SERIES I, II, III, IV AND V
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Kemper Target Equity Fund--Kemper
Retirement Fund Series I, II, III, IV and V as of June 30, 1996, 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 financial highlights for
each of the fiscal periods since 1992. 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 Retirement Fund Series I, II, III, IV and V at June
30, 1996, the results of their operations for the year then ended, the changes
in their net assets for each of the two years in the period then ended, and
financial highlights for each of the fiscal periods since 1992, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 16, 1996
19
<PAGE> 68
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES
------------------------------------------------
I II III IV V
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
- -------------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $96,485, $155,520, $111,079, $135,809 and
$118,831) $106,359 168,691 120,588 138,874 129,793
Cash 828 -- 780 7 63
Receivable for:
Investments sold 1,704 2,078 1,797 1,798 1,760
Dividends and interest 70 83 69 70 72
TOTAL ASSETS 108,961 170,852 123,234 140,749 131,688
=============================================================================================================
</TABLE>
<TABLE>
------------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash overdraft -- 317 -- -- --
Payable for:
Fund shares redeemed 48 63 123 254 313
Investments purchased 1,511 1,899 1,511 1,511 1,511
Management fee 45 70 51 58 54
Administrative services fee 21 35 25 29 27
Custodian and transfer agent fees and related expenses 12 21 14 20 25
Trustees' fees and other 21 22 22 19 11
Total liabilities 1,658 2,427 1,746 1,891 1,941
NET ASSETS $107,303 168,425 121,488 138,858 129,747
=============================================================================================================
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Paid-in capital $ 84,973 138,684 99,492 123,600 106,569
Undistributed net realized gain on investments 10,413 12,809 10,197 9,952 9,786
Net unrealized appreciation on investments 9,876 13,173 9,511 3,067 10,964
Undistributed net investment income 2,041 3,759 2,288 2,239 2,428
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $107,303 168,425 121,488 138,858 129,747
=============================================================================================================
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHARES OUTSTANDING 9,360 12,948 11,098 12,976 12,719
=============================================================================================================
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
(net assets / shares outstanding) $11.46 13.01 10.95 10.70 10.20
=============================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
20
<PAGE> 69
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended June 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES
-----------------------------------------------
I II III IV V
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------
Interest $ 4,226 7,902 5,030 5,719 5,393
Dividends 764 893 736 760 778
Total investment income 4,990 8,795 5,766 6,479 6,171
Expenses:
Management fee 539 862 623 734 672
Administrative services fee 261 423 308 365 333
Custodian and transfer agent fees and related expenses 151 234 187 211 211
Professional fees 21 34 25 30 24
Reports to shareholders 26 38 29 33 20
Trustees' fees and other 27 29 24 27 26
Total expenses 1,025 1,620 1,196 1,400 1,286
NET INVESTMENT INCOME 3,965 7,175 4,570 5,079 4,885
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 15,205 18,830 14,496 13,801 13,996
Change in net unrealized appreciation on investments (5,077) (8,163) (5,249) (4,109) (4,790)
Net gain on investments 10,128 10,667 9,247 9,692 9,206
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $14,093 17,842 13,817 14,771 14,091
===========================================================================================================
</TABLE>
21
<PAGE> 70
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------- --------------------------
SERIES I SERIES II
----------------------------- --------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS, DIVIDENDS AND
CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------------------
Net investment income $ 3,965 4,073 7,175 7,693
Net realized gain (loss) 15,205 2,405 18,830 3,240
Change in net unrealized appreciation (5,077) 9,708 (8,163) 14,922
Net increase in net assets resulting from
operations 14,093 16,186 17,842 25,855
Distribution from net investment income (3,962) (3,759) (7,198) (7,527)
Distribution from net realized gain (6,844) (6,595) (8,965) (8,450)
Total dividends to shareholders (10,806) (10,354) (16,163) (15,977)
Net increase (decrease) from capital
share transactions (2,466) (3,114) (6,591) (9,596)
TOTAL INCREASE (DECREASE) IN NET ASSETS 821 2,718 (4,912) 282
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------
Beginning of year 106,482 103,764 173,337 173,055
END OF YEAR $107,303 106,482 168,425 173,337
UNDISTRIBUTED NET INVESTMENT INCOME
AT END OF YEAR $ 2,041 2,029 3,759 3,772
===========================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
22
<PAGE> 71
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ------------------- --------------------- --------------------
SERIES III SERIES IV SERIES V
- ------------------- --------------------- --------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
1996 1995 1996 1995 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------
4,570 5,003 5,079 5,865 4,885 4,118
14,496 1,948 13,801 (1,684) 13,996 (3,553)
(5,249) 13,385 (4,109) 21,482 (4,790) 20,561
13,817 20,336 14,771 25,663 14,091 21,126
(4,807) (5,019) (5,653) (5,860) (4,780) (2,533)
(6,226) (4,317) -- -- -- --
(11,033) (9,336) (5,653) (5,860) (4,780) (2,533)
(5,977) (9,451) (22,439) (14,279) (14,501) 52,069
(3,193) 1,549 (13,321) 5,524 (5,190) 70,662
===================================================================
- -------------------------------------------------------------------
- -------------------------------------------------------------------
124,681 123,132 152,179 146,655 134,937 64,275
121,488 124,681 138,858 152,179 129,747 134,937
2,288 2,485 2,239 2,804 2,428 2,315
===================================================================
</TABLE>
23
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS
1 DESCRIPTION OF THE FUNDS Kemper Retirement Fund Series I, II, III, IV and V
(the Funds) are 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 Funds
are to provide a guaranteed return of investment on
the Maturity Date to investors who reinvest all
dividends and hold their shares to the Maturity
Date, and to provide long-term growth of capital.
The Maturity Date for each Fund is as follows:
<TABLE>
<CAPTION>
FUND MATURITY DATE
---------- ------------------
<S> <C>
Series I November 15, 1999
Series II August 15, 2000
Series III February 15, 2002
Series IV February 15, 2003
Series V November 15, 2004
</TABLE>
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 Funds' portfolios, as well as by
a guarantee from Zurich Kemper Investments, Inc.
(ZKI), the Funds' investment manager.
2 SIGNIFICANT ACCOUNTING
POLICIES INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued
at the preceding closing values of such securities
on their respective exchanges where primarily
traded. Securities not so traded or listed are
valued at the last current bid quotation if market
quotations are available. Fixed income securities
are valued by using market quotations, or
independent pricing services that use prices
provided by market makers or estimates of market
values obtained from yield data relating to
instruments or securities with similar
characteristics. Options are valued at the last
sale price unless the bid price is higher or the
asked price is lower, in which event such bid or
asked price is used. Financial futures and options
thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts are valued at the forward rates
prevailing on the day of valuation. Other
securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis. Interest income includes
discount amortization on fixed income securities.
Realized gains and losses from investment
transactions are reported on an identified cost
basis.
24
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS
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
limited offering periods which ended during the
years 1990 through 1995, 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 each Fund's investments
and other assets, less liabilities, by the
respective number of shares outstanding.
FEDERAL INCOME TAXES. Each Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required.
DIVIDENDS TO SHAREHOLDERS. The Trust declares and
pays dividends of net investment income and net
realized capital gains annually, which are recorded
on the ex-dividend date. Dividends are determined
in accordance with income tax principles which may
treat certain transactions differently from
generally accepted accounting principles.
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Trust has a management
agreement with ZKI and the Funds pay a management
fee at an annual rate of .50% of average daily net
assets. The Funds incurred a management fee of
$3,430,000 for the year ended June 30, 1996.
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with Kemper
Distributors, Inc. (KDI). For providing information
and administrative services to shareholders, the
Funds pay 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 FUNDS TO KDI TO ALL FIRMS TO AFFILIATES
---------------- ------------ -------------
<S> <C> <C> <C>
Year ended June 30, 1996 $1,690,000 1,690,000 137,000
</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 Funds. Under the agreement,
KSvC received shareholder services fees of $555,000
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 Funds incurred
trustees' fees of $98,000 to independent trustees.
25
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENT TRANSACTIONS For the year ended June 30, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<CAPTION>
SERIES I SERIES II SERIES III SERIES IV SERIES V
-------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Purchases $ 75,483 92,635 75,367 76,923 76,688
Proceeds from sales 87,380 111,440 88,036 98,486 93,008
</TABLE>
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Funds (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SERIES I
-------------------------------------------------------------------------------
Shares issued in
reinvestment of dividends 995 $ 10,634 1,053 $ 10,275
-------------------------------------------------------------------------------
Shares redeemed (1,153) (13,100) (1,260) (13,389)
-------------------------------------------------------------------------------
NET DECREASE FROM CAPITAL
SHARE TRANSACTIONS (158) $ (2,466) (207) $ (3,114)
-------------------------------------------------------------------------------
SERIES II
-------------------------------------------------------------------------------
Shares issued in
reinvestment of dividends 1,286 $ 15,951 1,415 $ 15,925
-------------------------------------------------------------------------------
Shares redeemed (1,732) (22,542) (2,086) (25,521)
-------------------------------------------------------------------------------
NET DECREASE FROM CAPITAL
SHARE TRANSACTIONS (446) $ (6,591) (671) $ (9,596)
-------------------------------------------------------------------------------
SERIES III
-------------------------------------------------------------------------------
Shares issued in
reinvestment of dividends 1,056 $ 11,016 1,037 $ 9,388
-------------------------------------------------------------------------------
Shares redeemed (1,557) (16,993) (1,919) (18,839)
-------------------------------------------------------------------------------
NET DECREASE FROM CAPITAL
SHARE TRANSACTIONS (501) $ (5,977) (882) $ (9,451)
-------------------------------------------------------------------------------
SERIES IV
-------------------------------------------------------------------------------
Shares issued in
reinvestment of dividends 559 $ 5,780 680 $ 5,848
-------------------------------------------------------------------------------
Shares redeemed (2,689) (28,219) (2,191) (20,127)
-------------------------------------------------------------------------------
NET DECREASE FROM CAPITAL
SHARE TRANSACTIONS (2,130) $(22,439) (1,511) $(14,279)
-------------------------------------------------------------------------------
SERIES V
-------------------------------------------------------------------------------
Shares sold 3 $ 32 7,150 $ 59,864
-------------------------------------------------------------------------------
Shares issued in
reinvestment of dividends 475 4,669 299 2,422
-------------------------------------------------------------------------------
478 4,701 7,449 62,286
Shares redeemed (1,922) (19,202) (1,175) (10,217)
-------------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARE
TRANSACTIONS (1,444) $(14,501) 6,274 $ 52,069
===============================================================================
</TABLE>
26
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS
6 FORWARD FOREIGN
CURRENCY CONTRACTS In order to protect themselves against a decline in
the value of particular foreign currencies against
the U.S. Dollar, the Funds have entered into
forward contracts to deliver foreign currency in
exchange for U.S. Dollars as described below. The
Funds bear 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 Funds
also bear the credit risk if the counterparty fails
to perform under the contract. At June 30, 1996,
the Funds had the following forward foreign
currency contracts outstanding with settlement
dates in July, 1996:
<TABLE>
<CAPTION>
-----------------------------
SERIES I, III, IV AND V
------------------------------
UNREALIZED
FOREIGN CURRENCY CONTRACT AMOUNT GAIN
TO BE DELIVERED IN U.S. DOLLARS AT 6/30/96
-----------------------------------------------------------------
<S> <C> <C>
10,000 British Pounds $15,000 $ --
-----------------------------------------------------------------
15,000 Dutch Guilders 9,000 --
-----------------------------------------------------------------
52,000 French Francs 10,000 --
-----------------------------------------------------------------
6,526,000 Japanese Yen 62,000 2,000
-----------------------------------------------------------------
14,000 Swiss Francs 11,000 --
-----------------------------------------------------------------
Net unrealized gain $2,000
=================================================================
</TABLE>
<TABLE>
<CAPTION>
-----------------------------
SERIES II
-----------------------------
UNREALIZED
FOREIGN CURRENCY CONTRACT AMOUNT GAIN
TO BE DELIVERED IN U.S. DOLLARS AT 6/30/96
-----------------------------------------------------------------
<S> <C> <C>
11,000 British Pounds $17,000 $ --
-----------------------------------------------------------------
18,000 Dutch Guilders 10,000 --
-----------------------------------------------------------------
60,000 French Francs 12,000 --
-----------------------------------------------------------------
7,733,000 Japanese Yen 73,000 2,000
-----------------------------------------------------------------
14,000 Swiss Francs 11,000 --
-----------------------------------------------------------------
Net unrealized gain $2,000
=================================================================
</TABLE>
27
<PAGE> 76
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------------------
SERIES I
--------------------------------------------------------
YEAR ENDED JUNE 30,
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 11.19 10.67 12.57 12.01 11.05
Income from investment operations:
Net investment income .44 .45 .42 .41 .42
Net realized and unrealized gain (loss) 1.03 1.20 (.78) 1.59 1.53
Total from investment operations 1.47 1.65 (.36) 2.00 1.95
Less dividends:
Distribution from net investment income .44 .41 .40 .42 .45
Distribution from net realized gain .76 .72 1.14 1.02 .54
Total dividends 1.20 1.13 1.54 1.44 .99
Net asset value, end of year $ 11.46 11.19 10.67 12.57 12.01
======================================================================================================
TOTAL RETURN 13.91% 17.03 (3.76) 17.47 17.58
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------------
Expenses .95% .97 .91 .92 .92
Net investment income 3.68% 3.96 3.32 3.19 3.37
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $107,303 106,482 103,764 122,340 116,041
Portfolio turnover rate 71% 63 59 61 57
- ------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended June 30, 1996 was $.0586.
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------
SERIES II
--------------------------------------------------------
YEAR ENDED JUNE 30,
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 12.94 12.30 13.95 12.40 10.75
Income from investment operations:
Net investment income .58 .60 .56 .53 .38
Net realized and unrealized gain (loss) .77 1.25 (1.04) 1.67 1.59
Total from investment operations 1.35 1.85 (.48) 2.20 1.97
Less dividends:
Distribution from net investment income .57 .57 .58 .49 .25
Distribution from net realized gain .71 .64 .59 .16 .07
Total dividends 1.28 1.21 1.17 .65 .32
Net asset value, end of year $ 13.01 12.94 12.30 13.95 12.40
=================================================================================================================
TOTAL RETURN 10.92% 16.52 (4.07) 18.18 18.35
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------------------------
Expenses .94% .96 .90 .95 .93
Net investment income 4.16% 4.54 3.91 3.83 3.98
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $168,425 173,337 173,055 202,794 187,438
Portfolio turnover rate 54% 47 44 51 51
- -----------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended June 30, 1996 was $.0585.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 77
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------------------
SERIES III
----------------------------------------------------------
MARCH 10,
1992 TO
YEAR ENDED JUNE 30, JUNE 30,
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.75 9.87 10.72 9.10 9.00
Income from investment operations:
Net investment income .43 .44 .40 .29 .12
Net realized and unrealized gain (loss) .78 1.24 (.88) 1.51 (.02)
Total from investment operations 1.21 1.68 (.48) 1.80 .10
Less dividends:
Distribution from net investment income .44 .43 .37 .18 --
Distribution from net realized gain .57 .37 -- -- --
Total dividends 1.01 .80 .37 .18 --
Net asset value, end of period $ 10.95 10.75 9.87 10.72 9.10
===================================================================================================================
TOTAL RETURN (NOT ANNUALIZED) 11.72% 18.37 (4.76) 19.96 1.11
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------------------
Expenses .96% 1.00 .95 .95 .97
Net investment income 3.67% 4.14 3.59 3.46 3.95
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $121,488 124,681 123,132 143,632 62,536
Portfolio turnover rate (annualized) 59% 52 47 59 12
- -------------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended June 30, 1996 was $.0585.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------
SERIES IV
-------------------------------------------------
January 15,
1993 TO
YEAR ENDED JUNE 30, JUNE 30,
1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.07 8.83 9.57 9.00
Income from investment operations:
Net investment income .40 .39 .26 .06
Net realized and unrealized gain (loss) .64 1.22 (.85) .51
Total from investment operations 1.04 1.61 (.59) .57
Less dividends from net investment income .41 .37 .15 --
Net asset value, end of period $ 10.70 10.07 8.83 9.57
==============================================================================================
TOTAL RETURN (NOT ANNUALIZED) 10.47% 18.95 (6.31) 6.33
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------
Expenses .95% .97 .97 1.21
Net investment income 3.46% 4.01 3.43 2.87
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $138,858 152,179 146,655 61,882
Portfolio turnover rate (annualized) 52% 45 51 31
- ----------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended June 30, 1996
was $.0586.
- ----------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 78
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------
SERIES V
--------------------------------------
NOVEMBER 15,
1993 TO
YEAR ENDED JUNE 30, JUNE 30,
1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.53 8.15 9.00
Income from investment operations:
Net investment income .39 .28 .15
Net realized and unrealized gain (loss) .64 1.31 (1.00)
Total from investment operations 1.03 1.59 (.85)
Less dividends from net investment income .36 .21 --
Net asset value, end of period $ 10.20 9.53 8.15
=================================================================================================
TOTAL RETURN (NOT ANNUALIZED) 10.95% 19.97 (9.44)
- -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses .96% 1.07 1.29
Net investment income 3.64% 4.01 3.13
- -------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $129,747 134,937 64,275
Portfolio turnover rate (annualized) 58% 73 35
- -------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended June 30, 1996 was
$.0587.
- -------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR ALL SERIES: Total return does not reflect the effect of any sales
charges.
30
<PAGE> 79
PORTFOLIO OF INVESTMENTS
KEMPER RETIREMENT FUND--SERIES VI
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT
OBLIGATIONS--55.0%
U.S. Treasury, zero coupon, 2006
(Cost: $28,566) $53,300 $27,334
------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--3.5%
Air Products & Chemicals 3,000 173
Alco Standard Corporation 5,000 226
Betz Laboratories 4,400 193
Crown Cork & Seal Co. 4,400 198
(a)FMC Corp. 3,250 212
Monsanto Co. 9,000 292
Pall Corp. 8,000 193
Praxair, Inc. 5,400 228
Sumitomo Metal Industries 2,000 6
Toray Industries 1,000 7
========================================================================
1,728
------------------------------------------------------------------------
CAPITAL GOODS--5.2%
Boeing Co. 4,300 375
Emerson Electric Co. 3,300 298
Fluor Corp. 4,500 294
GM Hughes Electronics Corp. 2,000 120
General Electric Co. 5,500 476
B.F. Goodrich Co. 13,000 486
Honda Motor Co., Ltd. 200 5
Mitsubishi Heavy Industries 1,000 9
Technip S.A. 29 3
Xerox Corporation 4,500 241
York International Corp. 4,800 248
========================================================================
2,555
------------------------------------------------------------------------
CONSUMER CYCLICALS--6.1%
Burton Group PLC 3,125 8
Carnival Corp. 6,000 173
Circuit City Stores 10,000 361
(a)Circus Circus Enterprises 2,200 90
(a)Consolidated Stores Corporation 8,000 294
Walt Disney Company 4,200 264
(a)Federated Department Stores 3,400 116
Hilton Hotels 2,250 253
(a)Liberty Media Group, "A" 3,600 95
Manpower Inc. 3,000 118
Marriott International 5,500 296
Melville Corp. 7,000 283
Moet Hennessy Louis Vuitton 29 7
Pep Boys-Manny Moe & Jack 4,000 136
Reynolds & Reynolds Co., "A" 3,000 160
Tele-Communications, Inc. 12,000 217
(a)Toys R Us 6,000 171
========================================================================
3,042
------------------------------------------------------------------------
</TABLE>
9
<PAGE> 80
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER DURABLES--1.2%
Armstrong World Industries 1,100 $ 63
Leggett & Platt Incorporated 5,100 142
Magna International Inc. 2,500 115
Shaw Industries 20,000 262
========================================================================
582
------------------------------------------------------------------------
CONSUMER STAPLES--3.5%
Avon Products 2,000 90
Duracell International 5,000 216
Hannaford Bros. Co. 4,000 131
Heineken N.V. 34 8
PepsiCo 6,900 244
Philip Morris Companies 5,000 520
Procter & Gamble Co. 3,000 272
Reed International PLC 389 7
Sysco Corp. 5,000 171
Warnaco Group 2,600 67
========================================================================
1,726
------------------------------------------------------------------------
ENERGY--2.7%
Amerada Hess Corp. 5,000 268
Enron Corp. 6,000 245
Enron Oil & Gas Co. 3,800 106
Mobil Corp. 4,200 471
Schlumberger Ltd. 3,000 253
========================================================================
1,343
------------------------------------------------------------------------
FINANCE--4.0%
Allstate Corp. 3,500 160
Bank of Boston 4,000 198
Bank of Ireland 901 6
Boatmen's Bancshares 2,500 100
CITIC Pacific Ltd. 1,000 4
Cheung Kong Holdings Ltd. 1,000 7
Dean Witter Discover 1,500 86
Development Bank of Singapore 500 6
Federal National Mortgage Association 6,000 201
ITT Hartford Group 3,000 160
(a)Internationale Nederlanden Groep 237 7
Krung Thai Bank Public Co. Ltd. 1,200 6
MBIA Inc. 2,000 156
MGIC Investment Corp. 2,000 112
Marsh & McLennan Companies, Inc. 4,000 386
Northern Trust Co. 3,000 173
Swire Pacific Limited, "A" 500 4
Travelers Group 4,500 205
========================================================================
1,977
------------------------------------------------------------------------
</TABLE>
10
<PAGE> 81
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE--6.4%
Abbott Laboratories 8,000 $ 348
American Home Products 8,000 481
Astra AB 147 6
C.R. Bard 2,000 68
Baxter International 4,500 213
(a)Biogen 2,000 110
Caremark International, Inc. 1,100 28
Glaxo Wellcome 5,000 134
Eli Lilly & Co. 3,000 195
Medtronic, Inc. 1,800 101
Merck & Co., Inc. 4,000 259
Omnicare 9,000 238
Perkin-Elmer Corp. 5,000 241
(a)R.P. Scherer Corp. 3,000 136
Roche Holding AG 1 8
(a)St. Jude Medical 6,500 218
(a)Sandoz, Ltd. 7,000 398
========================================================================
3,182
------------------------------------------------------------------------
TECHNOLOGY--8.0%
(a)Analog Devices 3,900 99
Automatic Data Processing 6,000 232
(a)Ceridian Corp. 3,000 152
(a)Cisco Systems 2,000 113
(a)Compaq Computer Corp. 7,000 345
(a)Computer Sciences Corp. 3,300 247
(a)Electronic Arts 8,000 214
LM Ericsson Telephone Co., "B" 204 4
Electronic Data Systems 3,800 204
First Data Corporation 1,800 143
Harris Corp. 5,500 335
Hewlett-Packard, Co. 3,500 349
Intel Corp. 1,700 125
Kyocera Corporation 100 7
(a)LSI Logic Corp. 3,800 99
Linear Technology Corp. 3,000 90
Matsushita Electric Industrial Co., Ltd. 400 7
(a)Microsoft Corp. 2,000 240
Murata Manufacturing 200 8
(a)Newbridge Networks Corp. 2,000 131
(a)Seagate Technology 3,000 135
(a)Softkey International 7,000 133
(a)Sun Microsystems 4,500 265
Texas Instruments 2,500 125
(a)3Com Corporation 2,700 124
(a)Xilinx, Inc. 3,500 111
========================================================================
4,037
------------------------------------------------------------------------
TRANSPORTATION--.3%
Canadian National Railway Company 355 7
Conrail 2,000 133
Nippon Express 600 6
========================================================================
146
------------------------------------------------------------------------
</TABLE>
11
<PAGE> 82
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTILITIES--1.8%
AT&T 3,000 $ 186
(a)AirTouch Communications 5,500 155
Cincinnati Bell 4,500 235
Iberdrola, S.A. 563 6
SBC Communications Inc. 2,100 103
(a)WorldCom 4,000 222
========================================================================
907
------------------------------------------------------------------------
TOTAL COMMON STOCKS--42.7%
(Cost: $20,110) 21,225
========================================================================
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET
INSTRUMENT--1.2% Yield--5.57%
Due--July 1996
(Cost: $597) $ 600 597
============================================================================
TOTAL INVESTMENTS--98.9%
(Cost: $49,273) 49,156
============================================================================
CASH AND OTHER ASSETS,
LESS LIABILITIES--1.1% 533
============================================================================
NET ASSETS--100% $49,689
============================================================================
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $49,273,000 for federal income tax purposes
at June 30, 1996, the gross unrealized appreciation was $1,615,000, the gross
unrealized depreciation was $1,733,000 and the net unrealized depreciation on
investments was $118,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 83
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TARGET EQUITY FUND--
KEMPER RETIREMENT FUND SERIES VI
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Target Equity Fund--Kemper
Retirement Fund Series VI as of June 30, 1996, the related statements of
operations for the year then ended and changes in net assets and the financial
highlights for the year then ended and for the period from May 1, 1995
(commencement of operations) to June 30, 1995. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of June
30, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Target Equity Fund--Kemper Retirement Fund Series VI at June 30, 1996, the
results of its operations, the changes in its net assets and the financial
highlights for the periods referred to above in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 16, 1996
13
<PAGE> 84
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at value
(Cost: $49,273) $49,156
Cash 424
Receivable for:
Investments sold 755
Fund shares sold 130
Dividends and interest 24
TOTAL ASSETS 50,489
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Payable for:
Investments purchased 718
Management fee 20
Administrative services fee 10
Custodian and transfer agent fees and related expenses 11
Trustees' fees and other 41
Total liabilities 800
NET ASSETS $49,689
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $48,477
Undistributed net realized gain on investments 633
Net unrealized depreciation on investments (117)
Undistributed net investment income 696
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $49,689
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($49,689,000 divided by 5,054,000 shares outstanding) $9.83
- -------------------------------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE
(net asset value, plus 5.26% of
net asset value or 5.00% of offering price) $10.35
- -------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 85
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
<S> <C>
Interest $1,302
Dividends 137
Total investment income 1,439
Expenses:
Management fee 152
Administrative services fee 68
Custodian and transfer agent fees and related expenses 82
Professional fees 14
Reports to shareholders 21
Trustees' fees and other 51
Total expenses 388
NET INVESTMENT INCOME 1,051
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 665
Net realized gain from futures transactions 313
Net realized gain 978
Change in net unrealized appreciation on investments (160)
Net gain on investments 818
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,869
=======================================================================================================
<CAPTION>
- -------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 1, 1995
JUNE 30, TO
1996 JUNE 30, 1995
- -------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
<S> <C> <C>
Net investment income $ 1,051 20
Net realized gain (loss) 978 (14)
Change in net unrealized appreciation (160) 43
Net increase in net assets resulting from operations 1,869 49
Distribution from net investment income (382) --
Distribution from net realized gain (324) --
Total dividends to shareholders (706) --
Net increase from capital share transactions 41,337 7,040
TOTAL INCREASE IN NET ASSETS 42,500 7,089
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
Beginning of period 7,189 100
END OF PERIOD (including undistributed net investment
income of $696,000 and $20,000, respectively) $49,689 7,189
=======================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 86
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUND Kemper Retirement Fund Series VI (the Fund) is a
series of Kemper Target Equity Fund (the Trust), an
open-end, management investment company, organized
as a business trust under the laws of
Massachusetts. The objectives of the Fund are to
provide a guaranteed return of investment on the
Maturity Date (May 15, 2006) to investors who
reinvest all dividends and hold their shares to the
Maturity Date, and to provide long-term growth of
capital. The assurance that investors who reinvest
all dividends and hold their shares until the
Maturity Date will receive at least their original
investment on the Maturity Date is provided by the
principal amount of the zero coupon U.S. Treasury
obligations in the Fund's portfolio, as well as by
a guarantee from Zurich Kemper Investments, Inc.
(ZKI), the Fund's investment manager.
- --------------------------------------------------------------------------------
2 SIGNIFICANT ACCOUNTING INVESTMENT VALUATION. Investments are stated at
POLICIES value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued
at the preceding closing values of such securities
on their respective exchanges where primarily
traded. Securities not so traded or listed are
valued at the last current bid quotation if market
quotations are available. Fixed income securities
are valued by using market quotations, or
independent pricing services that use prices
provided by market makers or estimates of market
values obtained from yield data relating to
instruments or securities with similar
characteristics. Options are valued at the last
sale price unless the bid price is higher or the
asked price is lower, in which event such bid or
asked price is used. Financial futures and options
thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts are valued at the forward rates
prevailing on the day of valuation. Other
securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis. Interest income includes
discount amortization on fixed income securities.
Realized gains and losses from investment
transactions are reported on an identified cost
basis.
EXPENSES. Expenses arising in connection with a
series of the Trust are allocated to that series.
Other Trust expenses are allocated among the series
in proportion to their relative net assets.
FUND SHARE VALUATION. Fund shares are sold to the
public during a limited offering period, which may
be extended or shortened at the option of the Fund.
Fund shares are redeemed on a continuous basis and
are sold and redeemed at net asset value (plus a
commission on most sales). On each
16
<PAGE> 87
NOTES TO FINANCIAL STATEMENTS
day the New York Stock Exchange is open for
trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange by dividing the
total value of the Fund's investments and other
assets, less liabilities, by the number of shares
outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required.
DIVIDENDS TO SHAREHOLDERS. The Trust declares and
pays dividends of net investment income and net
realized capital gains annually, which are recorded
on the ex-dividend date. Dividends are determined
in accordance with income tax principles which may
treat certain transactions differently from
generally accepted accounting principles.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Trust has a management
agreement with ZKI and pays a management fee at an
annual rate of .50% of average daily net assets.
The Fund incurred a management fee of $152,000 for
the year ended June 30, 1996.
UNDERWRITING AGREEMENT. The Trust has an
underwriting agreement with Kemper Distributors,
Inc. (KDI). Underwriting commissions paid in
connection with the distribution of the Fund's
shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY KDI
COMMISSIONS ----------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended June 30, 1996 $ 214,000 1,755,000 211,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with KDI. For
providing information and administrative services
to shareholders, the Fund pays KDI a fee at an
annual rate of up to .25% of average daily net
assets. KDI in turn has various agreements with
financial services firms that provide these
services and pays these firms based on assets of
Fund accounts the firms service. Administrative
services fees (ASF) paid are as follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY ----------------------------
THE FUND TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended June 30, 1996 $68,000 68,000 8,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Trust's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent for the Fund. Under the agreement,
KSvC received shareholder services fees of $45,000
for the year ended June 30, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of ZKI.
During the year ended June 30, 1996, the Trust made
no payments to its officers and the Fund incurred
trustees' fees of $18,000 to independent trustees.
17
<PAGE> 88
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended June 30, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $54,060
Proceeds from sales 9,550
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MAY 1, 1995
JUNE 30, TO
1996 JUNE 30, 1995
-------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,459 $43,103 770 $7,084
---------------------------------------------------------------------------
Share issued in
reinvestment of
dividends 71 688 -- --
---------------------------------------------------------------------------
4,530 43,791 770 7,084
Shares redeemed (252) (2,454) (5) (44)
---------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE
TRANSACTIONS 4,278 $41,337 765 $7,040
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FORWARD FOREIGN
CURRENCY CONTRACTS In order to protect itself against a decline in the
value of particular foreign currencies against the
U.S. Dollar, the Fund has entered into forward
contracts to deliver foreign currency in exchange
for U.S. Dollars as described below. The Fund bears
the market risk that arises from changes in foreign
exchange rates, and accordingly, the net unrealized
gain on these contracts is reflected in the
accompanying financial statements. The Fund also
bears the credit risk if the counterparty fails to
perform under the contract. At June 30, 1996, the
Fund had the following forward foreign currency
contracts outstanding with settlement dates in
July, 1996:
<TABLE>
<CAPTION>
UNREALIZED
FOREIGN CURRENCY GAIN
TO BE DELIVERED CONTRACT AMOUNT AT 6/30/96
-------------------------------------------------------------------
<S> <C> <C>
5,000 British Pounds $ 7,000 $ --
-------------------------------------------------------------------
8,000 Dutch Guilders 4,000 --
-------------------------------------------------------------------
26,000 French Francs 5,000 --
-------------------------------------------------------------------
3,423,000 Japanese Yen 32,000 1,000
-------------------------------------------------------------------
7,000 Swiss Francs 6,000 --
-------------------------------------------------------------------
Net unrealized gain $1,000
-------------------------------------------------------------------
</TABLE>
18
<PAGE> 89
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED MAY 1, 1995
JUNE 30, TO
1996 JUNE 30, 1995
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.26 9.00
Income from investment operations:
Net investment income .24 .06
Net realized and unrealized gain .57 .20
Total from investment operations .81 .26
Less dividends:
Distribution from net investment income .13 --
Distribution from net realized gain .11 --
Total dividends .24 --
Net asset value, end of period $ 9.83 9.26
TOTAL RETURN (NOT ANNUALIZED) 8.79% 2.89
====================================================================================================
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------
Expenses 1.27% 1.09
Net investment income 3.47% 3.91
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $49,689 7,189
====================================================================================================
Portfolio turnover rate 34% --
- ----------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended June 30, 1996
was $.0582.
- ----------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
19
<PAGE> 90
KEMPER WORLDWIDE 2004 FUND
PART A:
INFORMATION REQUIRED IN A PROSPECTUS
ITEM 1. COVER PAGE
Inapplicable.
ITEM 2. SYNOPSIS
Inapplicable.
ITEM 3. CONDENSED FINANCIAL INFORMATION
Inapplicable.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
Reference is made to the sections entitled "Summary," "Investment
Objectives, Policies and Risk Factors" and "Capital Structure" in the Kemper
Worldwide 2004 Fund prospectus filed herewith, except that shares are no longer
available for purchase.
ITEM 5. MANAGEMENT OF THE FUND
Reference is made to the sections entitled "Summary" and "Investment
Manager and Underwriter" in the Kemper Worldwide 2004 Fund prospectus filed
herewith except that shares of Kemper Worldwide 2004 Fund were sold to the
public during the Offering Period that ended on or about March 31, 1996 and
except that Kemper Financial Services, Inc., the investment manager for the
Fund, has changed its name to Zurich Kemper Investments, Inc. ("ZKI"). ZKI is an
indirect subsidiary of Zurich Insurance Company, an internationally recognized
company providing services in life and non-life insurance, reinsurance and asset
management.
ITEM 5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Inapplicable.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
Reference is made to the sections entitled "Summary," "Investment
Objectives, Policies and Risk Factors," "Dividends and Taxes," "Net Asset
Value," "Purchase of Shares" and "Capital Structure" in the Kemper Worldwide
2004 Fund prospectus filed herewith, except that the shares of Kemper Worldwide
2004 Fund are no longer available for purchase.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED
Reference is made to the sections entitled "Summary," "Purchase of Shares,"
"Investment Manager and Underwriter" and "Special Features" in the Kemper
Worldwide 2004 Fund prospectus filed herewith, except that shares of Kemper
Worldwide 2004 Fund are no longer available for purchase.
ITEM 8. REDEMPTION OR REPURCHASE
Reference is made to the sections entitled "Summary" and "Redemption or
Repurchase of Shares" in the Kemper Worldwide 2004 Fund prospectus filed
herewith, except that shares of Kemper Worldwide 2004 Fund are no longer
available for purchase, and except that, if shares of the Fund to be redeemed
were purchased by check or through EXPRESS-Transfer or Bank Direct Deposit, the
Fund may delay transmittal of redemption proceeds until it has determined that
collected proceeds have been received for the purchase of such shares, which may
be up to 10 calendar days from receipt by the Fund of the purchase amount.
ITEM 9. PENDING LEGAL PROCEEDINGS
Inapplicable.
A-1
<PAGE> 91
TABLE OF CONTENTS
- ---------------------------------------------------------
<TABLE>
<S> <C>
Summary 1
- ------------------------------------------------
Summary of Expenses 3
- ------------------------------------------------
Financial Highlights 4
- ------------------------------------------------
Investment Objectives, Policies and Risk
Factors 4
- ------------------------------------------------
Investment Manager and Underwriter 15
- ------------------------------------------------
Dividends and Taxes 17
- ------------------------------------------------
Net Asset Value 18
- ------------------------------------------------
Purchase of Shares 19
- ------------------------------------------------
Redemption or Repurchase of Shares 23
- ------------------------------------------------
Special Features 25
- ------------------------------------------------
Performance 27
- ------------------------------------------------
Capital Structure 28
- ------------------------------------------------
</TABLE>
This prospectus contains information about the Fund that you should know before
investing and should be retained for future reference. A Statement of Additional
Information dated October 25, 1995, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. It is available
upon request without charge from the Fund at the address or telephone number on
this cover or the firm from which this prospectus was received.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENT IN FUND
SHARES INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
IJKLM
()KEMPER
WORLDWIDE
2004 FUND
PROSPECTUS OCTOBER 25, 1995
KEMPER WORLDWIDE 2004 FUND
120 South LaSalle Street, Chicago, Illinois 60603 1-800-621-1048. The objectives
of Kemper Worldwide 2004 Fund (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 a 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 Fund is intended for long-term
investors and is not appropriate for investors seeking current income. The
assurance that investors who reinvest dividends and hold their shares until the
Maturity Date will receive on the Maturity Date at least their original
investment is provided by the par value of the zero coupon U.S. Treasury
obligations in the Fund's portfolio on that date as well as by a guarantee from
Kemper Financial Services, Inc., the Fund's investment manager. There is no
assurance that the Fund's objective of total return will be achieved. The Fund's
shares are not guaranteed by the U.S. Government. The Fund is a series of Kemper
Target Equity Fund.
<PAGE> 92
KEMPER WORLDWIDE 2004 FUND
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603, TELEPHONE 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES; PERMITTED INVESTMENTS. Kemper Worldwide 2004 Fund (the
"Fund") is a diversified series of Kemper Target Equity Fund (the "Trust"),
which is an open-end, management investment company that may issue shares in one
or more series. The Fund's investment objectives 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 a 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 ("Zero Coupon Treasuries") and the balance of its
assets primarily in an internationally diversified portfolio of foreign
securities ("Foreign Securities"). The Fund's investments in Foreign Securities
will primarily be common stocks of established non-U.S. companies. The assurance
that investors who reinvest all dividends and hold their shares until the
Maturity Date will receive on the Maturity Date at least their original
investment is provided by the par value of the Zero Coupon Treasuries as well as
by a guarantee from Kemper Financial Services, Inc., the Fund's investment
manager. The Fund's returns will fluctuate and there is no assurance that the
Fund will achieve its objective of total return. The Zero Coupon Treasuries are
normally purchased at a substantial discount and represent the right to receive
par value at a fixed date from the U.S. Government. The amount invested in
Foreign Securities provides total return potential. The Fund may engage in
options, financial futures and foreign currency transactions and may lend its
securities. See "Investment Objectives, Policies and Risk Factors."
SPECIAL RISK FACTORS. The Fund is intended for long-term investors and is not
appropriate for investors seeking current income. The Fund is designed so that
shareholders who reinvest all dividends and hold their shares until the Maturity
Date will receive on the Maturity Date an amount at least equal to their
investment, including any sales charge ("Investment Protection"), even if the
value of the investments of the Fund other than the Zero Coupon Treasuries were
to decrease to zero, which the investment manager considers highly unlikely. The
Fund does not seek to provide a specific return on investors' capital or to
protect principal on an after-tax or present value basis. An investor who
reinvested all dividends and who, upon redemption at the Maturity Date, received
only the principal amount invested, would have received a zero rate of return on
such investment. Investors who do not reinvest all dividends or who redeem all
or part of their shares in the Fund prior to the Maturity Date will not benefit
from the Fund's Investment Protection, and upon redemption may receive more or
less than their original investment; provided, however, in the event of a
partial redemption, the Fund's Investment Protection will continue as to that
part of the original investment that remains invested (with all dividends
thereon reinvested) until the Maturity Date. The government guarantee of the
Zero Coupon Treasuries in the Fund's portfolio does not guarantee the market
value of the Zero Coupon Treasuries or the shares of the Fund, whose net asset
value will fluctuate. Zero Coupon Treasuries normally are subject to
substantially greater price fluctuations during periods of changing interest
rates than are securities of comparable quality that make regular interest
payments. Investors subject to tax should be aware that any portion of the
amount returned to them upon redemption of shares that constitutes accretion of
interest on the Zero Coupon Treasuries will have been taxable as ordinary income
over the period that the shares were held. Foreign Securities investments
involve risk and opportunity considerations not typically associated with
investing in United States companies. The U.S. Dollar value of a Foreign
Security tends to decrease when the value of the U.S. Dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the U.S. Dollar falls against such currency. Thus, the U.S. Dollar
value of Foreign Securities in the Fund's portfolio, and the Fund's net asset
value, may change in response to changes in currency exchange rates even though
the value of the Foreign Securities in local currency terms may not have
changed. While the Fund's investments in Foreign Securities will principally be
in developed countries, the Fund may invest a portion of its assets in
developing or "emerging" markets, which involve exposure to economic structures
that are generally less diverse and mature than in the United States, and to
political systems that may be less stable. There are special risks associated
with options, financial futures and
1
<PAGE> 93
foreign currency transactions and there is no assurance that the use of these
investment techniques will be successful. See "Investment Objectives, Policies
and Risk Factors" and "Dividends and Taxes."
INVESTMENT MANAGER AND UNDERWRITER. Kemper Financial Services, Inc. ("KFS") is
the Fund's investment manager. KFS is paid an investment management fee at the
annual rate of .60 of 1% of average daily net assets of the Fund. Kemper
Distributors, Inc. ("KDI"), a wholly owned subsidiary of KFS, is the Fund's
principal underwriter and administrator. Administrative services are provided to
shareholders under an administrative services agreement with KDI. The Fund pays
an administrative services fee at the annual rate of up to .25 of 1% of average
daily net assets of the Fund, which KDI pays to financial services firms. See
"Investment Manager and Underwriter."
PURCHASES AND REDEMPTIONS. Investors may purchase the Fund's shares only during
a limited offering period (the "Offering Period"). Purchases may be made at net
asset value plus a maximum sales charge of 5.0% of the offering price. Reduced
sales charges apply to purchases of $100,000 or more. The minimum initial
investment is $1,000 and the minimum subsequent investment is $100. The minimum
initial investment for an employee benefit plan or Individual Retirement Account
is $250 and the minimum subsequent investment is $50. It is anticipated that the
Offering Period will continue until December 31, 1995 but the period may be
shortened or extended at the option of the Fund. Shareholders will still be
permitted to reinvest dividends in shares of the Fund after the end of the
Offering Period. Shares may be redeemed without charge or penalty at net asset
value, which may be more or less than original cost. The redemption within one
year of shares purchased at net asset value under the Large Order NAV Purchase
Privilege may be subject to a 1% contingent deferred sales charge. See "Purchase
of Shares" and "Redemption or Repurchase of Shares."
INVESTORS IN THE FUND. The Fund is designed for long-term investors who seek
protection of their original investment as well as the opportunity for total
return. Through a single investment in shares of the Fund, investors receive the
benefits of diversification, professional management and liquidity, and relief
from administrative details such as accounting for distributions and the
safekeeping of securities. However, since Foreign Securities present special
risks, investment in the Fund should not be considered a complete investment
program.
DIVIDENDS. The Fund normally distributes annual dividends of net investment
income and any net realized short-term and long-term capital gains. Investors
may have income and capital gain dividends automatically reinvested in the Fund
without a sales charge and must do so in order to receive the benefit of the
Fund's Investment Protection. See "Dividends and Taxes."
GENERAL INFORMATION AND CAPITAL. The Trust is organized as a business trust
under the laws of Massachusetts and may issue an unlimited number of shares of
beneficial interest in one or more series, one of such series being the Fund.
Shares are fully paid and nonassessable when issued, are transferable without
restriction and have no preemptive or conversion rights. The Trust is not
required to hold annual shareholder meetings; but it will hold special meetings
as required or deemed desirable for such purposes as electing trustees, changing
fundamental policies or approving an investment management agreement. See
"Capital Structure."
2
<PAGE> 94
SUMMARY OF EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Charge on Purchases (as a percentage of offering price)................... 5.0 %
Maximum Sales Charge on Reinvested Dividends............................................ None
Deferred Sales Charge................................................................... None (2)
Redemption Fees......................................................................... None
Exchange Fee............................................................................ None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management Fees......................................................................... .60 %
12b-1 Fees.............................................................................. None
Other Expenses.......................................................................... .69 %
----
Total Operating Expenses................................................................ 1.29 %
====
</TABLE>
- ---------------
(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details. Reduced sales charges apply to purchases of $100,000
or more. See "Purchase of Shares."
(2) The redemption within one year of shares purchased at net asset value under
the Large Order NAV Purchase Privilege may be subject to a 1% contingent
deferred sales charge. See "Purchase of Shares."
EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, 10
assuming 1 YEAR 3 YEARS 5 YEARS YEARS
(1) 5% annual return and (2) redemption at the end of each time
period: $62 $89 $117 $198
</TABLE>
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The Example assumes a 5% annual rate of return pursuant to
requirements of the Securities and Exchange Commission. This hypothetical rate
of return is not intended to be representative of past or future performance of
the Fund. THE EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
3
<PAGE> 95
FINANCIAL HIGHLIGHTS
The table below shows financial information expressed in terms of one share
outstanding throughout the period. The information in the table is covered by
the report of the Fund's independent auditors. The report is contained in the
Trust's Registration Statement and is available from the Fund. The financial
statements contained in the Fund's 1995 Annual Report to Shareholders are
incorporated herein by reference and may be obtained by writing or calling the
Fund.
<TABLE>
<CAPTION>
MAY 3,
YEAR ENDED 1994 TO
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.02 9.00
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .27 .02
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .79 --
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 1.06 .02
- ---------------------------------------------------------------------------------------------------------
Less distribution from net investment income .12 --
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.96 9.02
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 11.91 .22
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.29 1.32
- ---------------------------------------------------------------------------------------------------------
Net investment income 3.77 2.59
- ---------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $30,699 5,900
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 75 --
================================================================================================
</TABLE>
NOTES:
Ratios have been determined on an annualized basis. Total, return is not
annualized and does not reflect the effect of any sales charges.
The Fund was organized as the sixth series of the Trust, which is a business
trust under the laws of Massachusetts. No significant transactions were effected
prior to May 3, 1994.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
OBJECTIVES. 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 a total
return, a combination of capital growth and income. As a fundamental policy, the
Fund pursues its objectives by investing a portion of its assets in "zero
coupon" U.S. Treasury obligations ("Zero Coupon Treasuries") and the balance of
its assets primarily in an internationally diversified portfolio of foreign
securities. ("Foreign Securities"). Under normal market conditions, as a
non-fundamental policy, at least 65% of the Fund's total assets will be invested
in the securities of issuers located in at least three countries, one of which
may be the United States.
4
<PAGE> 96
The Fund is intended for long-term investors who seek protection of their
original investment as well as the opportunity for total return. The Fund is
designed so that shareholders who reinvest all dividends and hold their
investment until the Maturity Date will receive on the Maturity Date an amount
at least equal to their original investment, including any sales charge
("Investment Protection"). This will occur even if the value of the investments
of the Fund other than the Zero Coupon Treasuries were to decrease to zero,
which the investment manager considers highly unlikely. The assurance that
investors who reinvest all dividends and hold their shares until the Maturity
Date will receive on the Maturity Date at least their original investment is
provided by the par value of the Zero Coupon Treasuries in the Fund's portfolio
as well as by a guarantee from Kemper Financial Services, Inc. ("KFS"), the
Fund's investment manager. See "How the Fund Works" below. Investors who do not
reinvest all dividends or who redeem part or all of their investment in the Fund
other than on the Maturity Date will not receive the benefit of the Fund's
Investment Protection, and upon the redemption may receive more or less than the
amount of their original investment; provided, however, in the event of a
partial redemption, the Fund's Investment Protection will continue as to that
part of the original investment that remains invested (with all dividends
thereon reinvested) until the Maturity Date. The Fund may not be appropriate for
investors who expect to redeem their investment in the Fund prior to the
Maturity Date or who will require cash distributions from the Fund. Since the
benefit of Investment Protection is an inherent characteristic of the Fund's
shares, it continues in the event of a transfer of the shares by gift, under a
will or otherwise, provided dividends on the shares continue to be reinvested
and the shares continue to be held until the Maturity Date.
The opportunity for total return for an investor arises to the extent that the
value of the Fund's assets, including Foreign Securities, is greater than the
par value of the Zero Coupon Treasuries on the Maturity Date. Thus, the Fund in
effect will have two major portfolio segments: one consisting of Zero Coupon
Treasuries to pursue Investment Protection and the other consisting of Foreign
Securities to pursue total return. The Fund's returns and net asset value will
fluctuate. There is no assurance that the Fund will achieve its objective of
total return. Since Foreign Securities present special risks, investment in the
Fund should not be considered a complete investment program.
HOW THE FUND WORKS. As noted above, the Fund will invest in Zero Coupon
Treasuries and Foreign Securities in pursuing its objectives. Zero Coupon
Treasuries evidence the right to receive a fixed payment at a specific future
date from the U.S. Government. The Fund will offer its shares during a limited
offering period (the "Offering Period") at net asset value plus the applicable
sales charge. See "Purchase of Shares." The Zero Coupon Treasuries that the Fund
acquires with the proceeds of the sale of its shares during the Offering Period
will be selected so as to mature at a specific par value on or about the
Maturity Date. The Fund's investment manager will continuously adjust the
proportion of the Fund's assets that are invested in Zero Coupon Treasuries so
that the value of the Zero Coupon Treasuries on the Maturity Date (i.e., the
aggregate par value of the Zero Coupon Treasuries in the portfolio) will be at
least sufficient to enable investors who reinvest all dividends and hold their
investment in the Fund until the Maturity Date to receive on the Maturity Date
the full amount of such investment, including any sales charge. Thus, the
minimum par value of Zero Coupon Treasuries per Fund share necessary to provide
for the Fund's Investment Protection will be continuously determined and
maintained.
In order to provide further assurance that the Fund's Investment Protection will
be maintained, KFS has entered into a Guaranty Agreement. Under the Guaranty
Agreement, KFS has agreed to make sufficient payments on the Maturity Date to
enable shareholders who have reinvested all dividends and held their investment
in the Fund until the Maturity Date to receive on the Maturity Date an aggregate
amount of redemption proceeds and payments under the Guaranty Agreement equal to
the amount of their original investment, including any sales charge.
The portion of the Fund's assets that will be allocated to the purchase of Zero
Coupon Treasuries will fluctuate during the Offering Period. This is because the
value of the Zero Coupon Treasuries and Foreign Securities, and therefore the
offering price of the Fund's shares, will fluctuate with changes in interest
rates and other market value fluctuations. If the offering price of the Fund's
shares increases during the Offering Period, the minimum par value of Zero
Coupon Treasuries per Fund share necessary to provide for the Fund's Investment
Protection will
5
<PAGE> 97
increase and this amount will be fixed by the highest offering price during the
Offering Period. The Fund may hold Zero Coupon Treasuries in an amount in excess
of the amount necessary to provide for the Fund's Investment Protection in the
discretion of the Fund's investment manager. During the first year of
operations, under normal market conditions, the proportion of the Fund's
portfolio invested in Zero Coupon Treasuries may be expected to range from 50%
to 65%; but a greater or lesser percentage is possible.
As the percentage of Zero Coupon Treasuries in the Fund's portfolio increases,
the percentage of Foreign Securities in the portfolio will necessarily decrease.
This will result in less potential for total return from Foreign Securities. In
order to help ensure at least a minimum level of exposure to the foreign markets
for shareholders, the Fund will cease offering its shares if their continued
offering would cause more than 70% of its assets to be allocated to Zero Coupon
Treasuries. After the Offering Period is over, no additional assets will be
allocated to the purchase of Zero Coupon Treasuries. However, since the values
of the Zero Coupon Treasuries and Foreign Securities are often affected in
different ways by changes in interest rates and other market conditions and will
often fluctuate independently, the percentage of the Fund's net asset value
represented by Zero Coupon Treasuries will continue to fluctuate after the end
of the Offering Period. Zero Coupon Treasuries may be liquidated before the
Maturity Date to meet redemptions and pay cash dividends, provided that the
minimum amount necessary to provide for the Fund's Investment Protection is
maintained.
Shareholders who elect to receive dividends in cash are in effect withdrawing a
portion of the accreted income on the Zero Coupon Treasuries that are held to
protect their original principal investment at the Maturity Date. These
shareholders will receive the same net asset value per share for any Fund shares
redeemed at the Maturity Date as shareholders who reinvest dividends, but they
will have fewer shares to redeem than shareholders similarly situated who had
reinvested all dividends. Shareholders who redeem some or all of their shares
before the Maturity Date lose the benefit of Investment Protection with respect
to those shares redeemed. Thus, investors are encouraged to reinvest dividends
and to evaluate their need to receive some or all of their investment prior to
the Maturity Date before making an investment in the Fund.
ZERO COUPON TREASURIES. The Zero Coupon Treasuries held by the Fund will
consist of U.S. Treasury notes or bonds that have been stripped of their
unmatured interest coupons or will consist of unmatured interest coupons from
U.S. Treasury notes or bonds. The Zero Coupon Treasuries evidence the right to
receive a fixed payment at a future date (i.e., the Maturity Date) from the U.S.
Government, and are backed by the full faith and credit of the U.S. Government.
The guarantee of the U.S. Government does not apply to the market value of the
Zero Coupon Treasuries owned by the Fund or to the shares of the Fund. The
market value of Zero Coupon Treasuries generally will fluctuate inversely with
changes in interest rates. As interest rates rise, the value of the Zero Coupon
Treasuries will tend to decline and as interest rates fall the value of the Zero
Coupon Treasuries will tend to increase. Zero Coupon Treasuries are purchased at
a deep discount because the buyer obtains only the right to a fixed payment at a
fixed date in the future and does not receive any periodic interest payments.
The effect of owning deep discount bonds that do not make current interest
payments (such as the Zero Coupon Treasuries) is that a fixed yield is earned
not only on the original investment but also, in effect, on all earnings during
the life of the discount obligation. This implicit reinvestment of earnings at
the same rate eliminates the risk of being unable to reinvest the income on such
obligations at a rate as high as the implicit yield on the discount obligation,
but at the same time eliminates the holder's ability to reinvest at higher rates
in the future. For this reason, the Zero Coupon Treasuries normally are subject
to substantially greater price fluctuations during periods of changing interest
rates than are securities of comparable quality that make regular interest
payments. As the maturity of the Zero Coupon Treasuries becomes shorter (i.e.,
as the period to the Maturity Date is shorter), the degree of price fluctuation
will become less. Additional information concerning Zero Coupon Treasuries
appears in the Statement of Additional Information of the Fund under "Investment
Policies and Techniques."
FOREIGN SECURITIES. With respect to Fund assets not invested in Zero Coupon
Treasuries, the Fund will seek a total return, a combination of capital growth
and income. In seeking to achieve a total return, it will be the Fund's policy
to invest assets not otherwise invested in Zero Coupon Treasuries primarily in
an internationally diversified portfolio of foreign securities ("Foreign
Securities"). Investments in Foreign Securities will be made primarily for
6
<PAGE> 98
capital growth and secondarily for income for the purpose of achieving a high
overall return. While there is no specific limitation on the percentage or
amount of the Fund's Foreign Securities that may be invested for growth or
income, the investment emphasis for Foreign Securities normally will be
primarily on growth of capital and only secondarily on income. While the Fund's
Foreign Securities will principally be equity securities of non-U.S. issuers,
the Fund may also invest in convertible and debt securities. Under normal
circumstances, more than 80% of the Fund's assets not invested in Zero Coupon
Treasuries will be invested in securities of non-U.S. issuers. In determining to
what extent the Fund's Foreign Securities will be invested for capital growth or
income, the Fund's investment manager analyzes the international equity and
fixed income markets and seeks to assess the degree of risk and level of return
that can be expected from each market.
In pursuing its objective of total return, the Fund invests primarily in common
stocks of established non-U.S. companies believed to have potential primarily
for capital growth and secondarily for income. However, there is no requirement
that the Fund's Foreign Securities be exclusively common stocks or other equity
securities. The Fund may invest in any other type of security including, but not
limited to, convertible securities (including warrants), preferred stocks,
bonds, notes and other debt securities of companies (including Euro-currency
instruments and securities) or obligations of governments and their political
subdivisions. When the investment manager believes that the total return
potential in debt securities equals or exceeds the potential return on equity
securities, the Fund may increase its Foreign Securities holdings in such debt
securities. However, with respect to Fund assets not invested in Zero Coupon
Treasuries, under normal circumstances, it is currently intended that no more
than 5% of the Fund's net assets will be invested (and, therefore, at risk) in
fixed income obligations. Additional information concerning foreign fixed income
securities appears under "Investment Policies and Techniques--Foreign Debt
Securities" in the Statement of Additional Information.
The Fund makes investments in various countries. Under normal circumstances,
business activities in not less than three different foreign countries will be
represented in the Fund's portfolio of Foreign Securities. The Fund may, from
time to time, have more than 25% of its Foreign Securities investments invested
in any major industrial or developed country which in the view of the investment
manager poses no unique investment risk. The Fund may purchase securities of
companies, wherever organized, that have their principal activities and
interests outside the United States. Investments in Foreign Securities may
include securities issued by enterprises that have undergone or are currently
undergoing privatization. However, it is currently intended that no more than 5%
of the Fund's net assets will be invested (and, therefore, at risk) in
securities of enterprises recently privatized (within one year of initial public
offering). Additional information concerning privatized enterprises appears
under "Investment Policies and Techniques--Privatized Enterprises" in the
Statement of Additional Information.
In determining the appropriate distribution of investments in Foreign Securities
among various countries and geographic regions, the Fund's investment manager
ordinarily considers such factors as prospects for relative economic growth
among foreign countries; expected levels of inflation; relative price levels of
the various capital markets; government policies influencing business
conditions; the outlook for currency relationships and the range of individual
investment opportunities available to the international investor. Currently,
more than 60% of the world market capitalization of equity securities are
represented by securities in currencies other than the U.S. Dollar.
Generally, the Fund will not trade in securities for short-term profits but,
when circumstances warrant, securities may be sold without regard to the length
of time held.
The Fund may also purchase and write options on securities and foreign
currencies and index options, may purchase and sell financial futures contracts
and options on financial futures contracts and may engage in foreign currency
transactions as a hedge and not for speculation and may at times lend its
portfolio securities. See "Additional Investment Information" below. When the
investment manager deems it appropriate to invest for temporary defensive
purposes, such as during periods of adverse market conditions, a significant
portion of the Fund's assets not invested in Zero Coupon Treasuries may be held
temporarily in cash (including foreign currency) or foreign or domestic cash
equivalent short-term obligations, either rated as high quality or considered
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to be of comparable quality in the opinion of the Fund's investment manager,
including, but not limited to, certificates of deposit, time deposits, bankers'
acceptances, commercial paper, short-term notes, obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities,
and repurchase agreements secured thereby. In particular, for defensive purposes
a larger portion of the Fund's assets not invested in Zero Coupon Treasuries may
be invested in U.S. Dollar-denominated obligations to reduce the risks inherent
in non-U.S. Dollar-denominated assets.
SPECIAL RISK FACTORS. The value of the Zero Coupon Treasuries and the Foreign
Securities in the Fund's portfolio will fluctuate prior to the Maturity Date and
the value of the Zero Coupon Treasuries will equal their par value on the
Maturity Date. As noted previously (see "Zero Coupon Treasuries"), the value of
the Zero Coupon Treasuries may be expected to experience more volatility than
U.S. Government securities that have similar yields and maturities but that make
current distributions of interest. Thus, the net asset value of the Fund's
shares will fluctuate with changes in interest rates and other market conditions
prior to the Maturity Date. As an open-end investment company, the Fund will
redeem its shares at the request of a shareholder at the net asset value per
share next determined after a request is received in proper form. Thus,
shareholders who redeem their shares prior to the Maturity Date may receive more
or less than their acquisition cost, including any sales charge, whether or not
they reinvest their dividends. Such shares, therefore, would not receive the
benefit of the Fund's Investment Protection. Any shares not redeemed prior to
the Maturity Date by a shareholder would continue to receive the benefit of the
Fund's Investment Protection provided that all dividends with respect to such
shares are reinvested. Accordingly, the Fund may not be appropriate for
investors who expect to redeem their investment in the Fund prior to the
Maturity Date.
Each year the Fund will be required to accrue an increasing amount of income on
its Zero Coupon Treasuries utilizing the effective interest method. However, to
maintain its tax status as a pass-through entity under Subchapter M of the
Internal Revenue Code and also to avoid imposition of excise taxes, the Fund
will be required to distribute dividends equal to substantially all of its net
investment income, including the accrued income on its Zero Coupon Treasuries
for which it receives no payments in cash prior to their maturity. Dividends of
the Fund's investment income and short-term capital gains will be taxable to
shareholders as ordinary income for federal income tax purposes, whether
received in cash or reinvested in additional shares. See "Dividends and Taxes."
However, shareholders who elect to receive dividends in cash, instead of
reinvesting these amounts in additional shares of the Fund, may realize an
amount upon redemption of their investment on the Maturity Date that is less or
greater than their acquisition cost and, therefore, will not receive the benefit
of the Fund's Investment Protection. Accordingly, the Fund may not be
appropriate for investors who will require cash distributions from the Fund in
order to meet current tax obligations resulting from their investment or for
other needs.
As noted previously, the Fund will maintain a minimum par value of Zero Coupon
Treasuries per share in order to provide for the Fund's Investment Protection.
In order to generate sufficient cash to meet dividend requirements and other
operational needs and to redeem Fund shares on request, the Fund may be required
to limit reinvestment of capital on the disposition of Foreign Securities and
may be required to liquidate Foreign Securities at a time when it is otherwise
disadvantageous to do so, which may result in the realization of losses on the
disposition of such securities, and may also be required to borrow money to
satisfy dividend and redemption requirements. The liquidation of Foreign
Securities and the expenses of borrowing money in such circumstances could
impair the ability of the Fund to meet its objective of total return.
The Fund provides Investment Protection to investors who reinvest all dividends
and do not redeem their shares before the Maturity Date. In addition, as noted
above, dividends from the Fund will be taxable to shareholders whether received
in cash or reinvested in additional shares. Thus, the Fund does not provide a
specific return on investors' capital or protect principal on an after-tax or
present value basis. An investor who reinvested all dividends and who, upon
redemption at the Maturity Date, received only the original amount invested
including any sales charge, would have received a zero rate of return on such
investment. This could only happen if the value of the Fund's investments other
than Zero Coupon Treasuries were to decrease to zero, an event that the
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<PAGE> 100
investment manager considers highly unlikely. The present value of $1,000 on the
Maturity Date discounted for inflation assumed to be at an annual rate of 4% is
approximately $701 on the date of this prospectus.
Investors subject to tax should be aware that any portion of the amount returned
to them upon redemption of shares that constitutes accretion of interest on the
Zero Coupon Treasuries will have been taxable each year as ordinary income over
the period during which shares were held. See "Dividends and Taxes."
Foreign Securities involve currency risks. The U.S. Dollar value of a Foreign
Security tends to decrease when the value of the U.S. Dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the U.S. Dollar falls against such currency. Fluctuations in
exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be repatriated
based on the exchange rate at the time of disbursement or payment, and
restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies in connection with purchases
and sales of Foreign Securities.
Foreign Securities may be subject to foreign government taxes that reduce their
attractiveness. Other risks of investing in such securities include political or
economic instability in the country involved, the difficulty of predicting
international trade patterns and the possible imposition of exchange controls.
The prices of such securities may be more volatile than those of domestic
securities and the markets for Foreign Securities may be less liquid. In
addition, there may be less publicly available information about foreign issuers
than about domestic issuers. Many foreign issuers are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic issuers. There is generally less regulation of stock
exchanges, brokers, banks and listed companies abroad than in the United States.
Settlement of Foreign Securities trades may take longer and present more risk
than for domestic securities. With respect to certain foreign countries, there
is a possibility of expropriation or diplomatic developments that could affect
investment in these countries.
While the Fund's investments in Foreign Securities will principally be in
developed countries, the Fund may invest a portion of its assets in developing
or "emerging" markets, which involve exposure to economic structures that are
generally less diverse and mature than in the United States, and to political
systems that may be less stable. A developing or emerging market country can be
considered to be a country that is in the initial stages of its
industrialization cycle. Currently, emerging markets generally include every
country in the world other than the United States, Canada, Japan, Australia, New
Zealand, Hong Kong, Singapore and most Western European countries. Currently,
investing in many emerging markets may not be desirable or feasible because of
the lack of adequate custody arrangements for the Fund's assets, overly
burdensome repatriation and similar restrictions, the lack of organized and
liquid securities markets, unacceptable political risks or other reasons. As
opportunities to invest in securities in emerging markets develop, the Fund may
expand and further broaden the group of emerging markets in which it invests. In
the past, markets of developing countries have been more volatile than the
markets of developed countries; however, such markets often have provided higher
rates of return to investors. The investment manager believes that these
characteristics can be expected to continue in the future.
Many of the risks described above relating to Foreign Securities generally will
be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic product,
rates of inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing markets.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which they
trade.
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<PAGE> 101
Also, the securities markets of developing countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure, regulatory and
accounting standards in many respects are less stringent than in the United
States and other developed markets. There also may be a lower level of
monitoring and regulation of developing markets and the activities of investors
in such markets, and enforcement of existing regulations has been extremely
limited.
In addition, brokerage commissions, custodial services and other costs relating
to investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Such settlement problems may cause emerging market securities to be illiquid.
The inability of the Fund to make intended securities purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser. Certain
emerging markets may lack clearing facilities equivalent to those in developed
countries. Accordingly, settlements can pose additional risks in such markets
and ultimately can expose the Fund to the risk of losses resulting from the
Fund's inability to recover from a counterparty.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for the Fund's portfolio securities in such
markets may not be readily available. The Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Trustees.
Investment in certain emerging market securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain emerging market securities and increase the costs
and expenses of the Fund. Emerging markets may require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.
For many Foreign Securities, there are U.S. Dollar-denominated American
Depository Receipts ("ADRs"), which are bought and sold in the United States and
are generally issued by domestic banks. ADRs represent the right to receive
securities of foreign issuers deposited in the domestic bank or a correspondent
bank. ADRs do not eliminate all the risk inherent in investing in the securities
of foreign issuers. However, by investing in ADRs rather than directly in
foreign issuers' stock, the Fund will avoid currency risks during the settlement
period for either purchases or sales. In general, there is a large, liquid
market in the United States for most ADRs. The Fund may also invest in European
Depository Receipts ("EDRs"), which are receipts evidencing an arrangement with
a European bank similar to that for ADRs and are designed for use in the
European securities markets. EDRs are not necessarily denominated in the
currency of the underlying security.
The Fund may purchase and write options on securities and index options, may
purchase and sell financial futures contracts and options on financial futures
contracts and may engage in foreign currency transactions. See "Additional
Investment Information" below for a discussion of these investment techniques
and the related risks.
MATURITY DATE. The Board of Trustees of the Trust may in its sole discretion
elect, without shareholder approval, to continue the operation of the Fund after
the Maturity Date with a new maturity date ("New Maturity Date"). Such a
decision may be made to provide shareholders with the opportunity of continuing
their investment in the Fund for a new term without recognizing any taxable
capital gains as a result of a redemption. In that event, shareholders of the
Fund may either continue as such or redeem their shares in the Fund.
Shareholders who reinvest all dividends and hold their shares to the Maturity
Date will be entitled to the benefit of the Fund's Investment Protection on the
Maturity Date whether they continue as shareholders or redeem their shares. If
this alternative were to be elected, the Fund would at the Maturity Date collect
the proceeds of the Zero Coupon
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<PAGE> 102
Treasuries that mature on such date and, after allowing for any redemption
requests by shareholders, reinvest such proceeds in Zero Coupon Treasuries and
Foreign Securities as necessary to provide for the Fund's Investment Protection
benefit on the New Maturity Date. For such purposes, the principal investment of
shareholders then in the Fund would be deemed to be the net asset value of their
investment in the Fund at the current Maturity Date. Thus, in effect, the total
value of such shareholders' investment in the Fund on the current Maturity Date
will be treated as an investment for the new term and will benefit from the
Fund's Investment Protection for the new term if they reinvest dividends and
maintain their investment in the Fund until the New Maturity Date. If the Board
of Trustees elects to continue the Fund, shareholders will be given 60 days'
prior notice of such election and the New Maturity Date. In that event, it is
anticipated that the offering of the Fund's shares would commence again after
the Maturity Date with a new prospectus for such period as the Board of Trustees
shall determine.
On the Maturity Date, the Fund may also be terminated at the election of the
Board of Trustees of the Trust in its sole discretion and without approval by
shareholders, upon 60 days' prior notice to shareholders. In such event, the
proceeds of the Zero Coupon Treasuries maturing on such date shall be collected
and the Foreign Securities and other assets then owned by the Fund shall be sold
or otherwise reduced to cash, the liabilities of the Fund will be discharged or
otherwise provided for, the Fund's outstanding shares will be mandatorily
redeemed at the net asset value per share determined on the Maturity Date and,
within seven days thereafter, the Fund's net assets will be distributed to
shareholders and the Fund shall be thereafter terminated. Termination of the
Fund may require the disposition of the Foreign Securities at a time when it is
otherwise disadvantageous to do so and may involve selling securities at a
substantial loss. The estimated expenses of liquidation and termination of the
Fund, however, are not expected to affect materially the ability of the Fund to
provide for its Investment Protection benefit. In the event of termination of
the Fund as noted above, the redemption of shares effected in connection with
such termination would for current federal income tax purposes constitute a sale
upon which a gain or loss may be realized depending upon whether the value of
the shares being redeemed is more or less than the shareholder's adjusted cost
basis of such shares.
Subject to shareholder approval, other alternatives may be pursued by the Fund
after the Maturity Date. For instance, the Board of Trustees may consider the
possibility of a tax-free reorganization between the Fund and another registered
open-end management investment company or any other series of the Trust. The
Board of Trustees has not considered any possibilities regarding the operation
of the Fund after the Maturity Date.
ADDITIONAL INVESTMENT INFORMATION. The annual turnover rate of the Fund's
portfolio may vary from year to year, and may also be affected by cash
requirements for redemptions and repurchases of Fund shares, and by the
necessity of maintaining the Fund as a regulated investment company under the
Internal Revenue Code in order to receive certain favorable tax treatment. The
Fund's portfolio turnover rate is listed under "Financial Highlights."
The Fund may not borrow money except as a temporary measure for extraordinary or
emergency purposes, and then only in an amount up to one-third of the value of
its total assets, in order to meet redemption requests without immediately
selling any portfolio securities or other assets. If, for any reason, the
current value of the Fund's total assets falls below an amount equal to three
times the amount of its indebtedness from money borrowed, the Fund will, within
three days (not including Sundays and holidays), reduce its indebtedness to the
extent necessary. The Fund will not borrow for leverage purposes. The Fund may
pledge up to 15% of its total assets to secure any such borrowings. The Fund
will not purchase illiquid securities, including repurchase agreements maturing
in more than seven days, if, as a result thereof, more than 15% of the Fund's
net assets valued at the time of the transaction would be invested in such
securities. See "Investment Policies and Techniques--Over-the-Counter Options"
in the Statement of Additional Information for a description of the extent to
which over-the-counter traded options are in effect considered as illiquid for
purposes of the Fund's limit on illiquid securities.
The Trust has adopted for the Fund certain fundamental investment restrictions
which are presented in the Statement of Additional Information and which,
together with its investment objectives and any policies of the
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<PAGE> 103
Fund specifically designated in this prospectus as fundamental, cannot be
changed without approval by holders of a majority of its outstanding voting
shares. As defined in the Investment Company Act of 1940, this means the lesser
of the vote of (a) 67% of the shares of the Fund present at a meeting where more
than 50% of the outstanding shares are present in person or by proxy; or (b)
more than 50% of the outstanding shares of the Fund. Policies of the Fund that
are neither designated as fundamental nor incorporated into any of the
fundamental investment restrictions referred to above may be changed by the
Board of Trustees of the Fund without shareholder approval. Notwithstanding the
foregoing, the Board of Trustees may, in its discretion and without shareholder
approval, determine that the Fund should be terminated on the Maturity Date or
continued thereafter with a New Maturity Date as more fully described under
"Maturity Date" above.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. The Fund may deal in options on
securities, securities indexes and foreign currencies, which options may be
listed for trading on a national securities exchange or traded over-the-counter.
The Fund may write (sell) covered call options and secured put options on up to
25% of its net assets and may purchase put and call options provided that no
more than 5% of its net assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security or other asset at the exercise price
during the option period. A put option gives the purchaser the right to sell,
and the writer the obligation to buy, the underlying security or other asset at
the exercise price during the option period. The writer of a covered call owns
securities or other assets that are acceptable for escrow and the writer of a
secured put invests an amount not less than the exercise price in eligible
securities or other assets to the extent that it is obligated as a writer. If a
call written by the Fund is exercised, the Fund foregoes any possible profit
from an increase in the market price of the underlying security or other asset
over the exercise price plus the premium received. In writing puts, there is a
risk that the Fund may be required to take delivery of the underlying security
or other asset at a disadvantageous price.
Over-the-counter traded options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer as a result of the insolvency of such dealer or otherwise, in which event
the Fund may experience material losses. However, in writing options the premium
is paid in advance by the dealer. OTC options are available for a greater
variety of securities and other assets, and a wider range of expiration dates
and exercise prices, than are exchange traded options.
The Fund may engage in financial futures transactions. Financial futures
contracts are commodity contracts that obligate the long or short holder to take
or make delivery of a specified quantity of a financial instrument, such as a
security, or an amount of foreign currency or the cash value of a securities
index during a specified future period at a specified price. The Fund will
"cover" futures contracts sold by the Fund and maintain in a segregated account
certain liquid assets in connection with futures contracts purchased by the Fund
as described under "Investment Policies and Techniques" in the Statement of
Additional Information. The Fund will not enter into any futures contracts or
options on futures contracts if the aggregate of the contract value of the
outstanding futures contracts of the Fund and futures contracts subject to
outstanding options written by the Fund would exceed 50% of the total assets of
the Fund.
The Fund may engage in financial futures transactions as an attempt to hedge
against market risks. For example, when the near-term market view is bearish but
the portfolio composition is judged satisfactory for the longer term, exposure
to temporary declines in the market may be reduced by entering into futures
contracts to sell securities or the cash value of a securities index.
Conversely, where the near-term view is bullish, but the Fund is believed to be
well positioned for the longer term with a high cash position, the Fund can
hedge against market increases by entering into futures contracts to buy
securities or the cash value of a securities index. In either case, the use of
futures contracts would tend to reduce portfolio turnover and facilitate the
Fund's pursuit of its investment objectives.
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<PAGE> 104
Futures contracts entail risks. If the investment manager's judgment about the
general direction of interest rates, markets or exchange rates is wrong, the
overall performance may be poorer than if no such contracts had been entered
into. There may be an imperfect correlation between movements in prices of
futures contracts and portfolio assets being hedged. In addition, the market
prices of futures contracts may be affected by certain factors. For example, if
participants in the futures market elect to close out their contracts rather
than meet margin requirements, distortions in the normal relationship between
the underlying assets and futures markets could result. Price distortions also
could result if investors in futures contracts decide to make or take delivery
of underlying securities or other assets rather than engage in closing
transactions because of the resultant reduction in the liquidity of the futures
market. In addition, because, from the point of view of speculators, margin
requirements in the futures market are less onerous than margin requirements in
the cash market, increased participation by speculators in the futures market
could cause temporary price distortions. Due to the possibility of price
distortions in the futures market and because of the imperfect correlation
between movements in the prices of securities or other assets and movements in
the prices of futures contracts, a correct forecast of market trends by the
investment manager still may not result in a successful hedging transaction. If
any of these events should occur, the Fund could lose money on the financial
futures contracts and also on the value of its portfolio assets. The costs
incurred in connection with futures transactions could reduce the Fund's return.
Index options involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by the
Fund may expire worthless, in which case the Fund would lose the premium paid
therefor.
The Fund may engage in futures transactions only on commodities exchanges or
boards of trade. The Fund will not engage in transactions in financial futures
contracts or related options for speculation, but only as an attempt to hedge
against changes in market conditions affecting the values of securities that the
Fund owns or intends to purchase.
FOREIGN CURRENCY TRANSACTIONS. The Fund may engage in foreign currency
transactions in connection with its investments in Foreign Securities. The Fund
will not speculate in foreign currency exchange. The value of the Foreign
Securities investments of the Fund as measured in U.S. Dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through forward
contracts to purchase or sell foreign currencies. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded directly between currency traders (usually large
commercial banks) and their customers.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the U.S. Dollar cost
or proceeds, as the case may be. By entering into a forward contract in U.S.
Dollars for the purchase or sale of the amount of foreign currency involved in
an underlying security transaction, the Fund is able to protect itself against a
possible loss between trade and settlement dates resulting from an adverse
change in the relationship between the U.S. Dollar and such foreign currency.
However, this tends to limit potential gains which might result from a positive
change in such currency relationships. The Fund may also hedge its foreign
currency exchange rate risk by engaging in currency financial futures and
options transactions.
When the investment manager believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. The forecasting of short-term currency market movement is
extremely difficult and whether such a short-term hedging strategy will be
successful is highly uncertain.
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It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a contract. Accordingly, it may be
necessary for the Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency the Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
The Fund will not speculate in foreign currency exchange. The Fund does not
enter into forward foreign currency exchange contracts or maintain a net
exposure in such contracts where the Fund would be obligated to deliver an
amount of foreign currency in excess of the value of the Fund's portfolio
securities or other assets denominated in that currency. The Fund does not
intend to enter into forward foreign currency exchange contracts if it would
have more than 15% of the value of its total assets committed to such contracts.
The Fund's custodian bank segregates cash or liquid high-grade debt securities
in an amount not less than the value of the Fund's total assets committed to
forward foreign currency exchange contracts entered into for the purchase of a
foreign currency. If the value of the securities segregated declines, additional
cash or securities are added so that the segregated amount is not less than the
amount of the Fund's commitments with respect to such contracts. The Fund
generally does not enter into a forward contract with a term longer than one
year.
DERIVATIVES. In addition to options, financial futures and foreign currency
transactions, consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities in which the value of the
instrument or security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, an interest rate or a currency
("derivatives"). Derivatives are most often used to manage investment risk, to
increase or decrease exposure to an asset class or benchmark (as a hedge or to
enhance return), or to create an investment position indirectly (often because
it is more efficient or less costly than direct investment). The types of
derivatives used by the Fund and the techniques employed by the investment
manager may change over time as new derivatives and strategies are developed or
regulatory changes occur.
RISK FACTORS. The Statement of Additional Information contains further
information about the characteristics, risks and possible benefits of options,
futures, foreign currency and other derivatives transactions. See "Investment
Policies and Techniques" in the Statement of Additional Information. The
principal risks are: (a) possible imperfect correlation between movements in the
prices of options, futures or other derivatives contracts and movements in the
prices of the securities or currencies hedged, used for cover or that the
derivatives intended to replicate; (b) lack of assurance that a liquid secondary
market will exist for any particular option, futures or other derivatives
contract at any particular time; (c) the need for additional skills and
techniques beyond those required for normal portfolio management; (d) losses on
futures contracts resulting from market movements not anticipated by the
investment manager; (e) the possible need to defer closing out certain options,
futures and other derivatives contracts in order to continue to qualify for
beneficial tax treatment afforded "regulated investment companies" under the
Internal Revenue Code; and (f) the possible non-performance of the counter-party
to the derivatives contract.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities (principally to
broker-dealers) without limit where such loans are callable at any time and are
continuously secured by segregated collateral (cash or U.S. Government
securities) equal to no less than the market value, determined daily, of the
securities loaned. The Fund will receive amounts equal to dividends or interest
on the securities loaned. It will also earn income for having made the loan. Any
cash collateral pursuant to these loans will be invested in short-term money
market instruments. As with other extensions of credit, there are risks of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. However, the loans would be made only to firms
deemed by the investment manager to be of good standing, and when the Fund's
investment manager believes the potential earnings to justify the attendant
risk. Management will limit such lending to not more than one-third of the value
of the Fund's total assets.
14
<PAGE> 106
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Kemper Financial Services, Inc. ("KFS"), 120 South LaSalle
Street, Chicago, Illinois 60603, is the investment manager of the Fund and
provides the Fund with continuous professional investment supervision. KFS is
one of the largest investment managers in the country and has been engaged in
the management of investment funds for more than forty-five years. KFS and its
affiliates provide investment advice and manage investment portfolios for the
Kemper Funds, the Kemper insurance companies, Kemper Corporation and other
corporate, pension, profit-sharing and individual accounts representing
approximately $60 billion under management. KFS acts as investment manager or
principal underwriter for 26 open-end and seven closed-end investment companies,
with 64 separate investment portfolios, representing more than 3 million
shareholder accounts. KFS is a wholly owned subsidiary of Kemper Financial
Companies, Inc., which is a financial services holding company that is more than
99% owned by Kemper Corporation ("Kemper"), a diversified insurance and
financial services holding company.
Kemper has entered into a definitive agreement with an investor group led by
Zurich Insurance Company ("Zurich") pursuant to which Kemper would be acquired
by the investor group in a merger transaction. As part of the transaction,
Zurich or an affiliate would purchase KFS. The Kemper and Zurich boards have
approved the transaction. In addition, because the transaction would constitute
an assignment of the Fund's investment management agreement with KFS under the
Investment Company Act of 1940, and therefore a termination of such agreements,
KFS has received approval of new agreements from the Trust's board and the
shareholders of the Fund. Consummation of the transaction is subject to
remaining contingencies, including approval by the stockholders of Kemper and
state insurance department regulatory approvals. The investor group has informed
Kemper that it expects the transaction to close early in 1996.
Responsibility for overall management of the Fund rests with the Board of
Trustees and officers of the Trust. Professional investment supervision is
provided by KFS. The investment management agreement provides that KFS shall act
as the Fund's investment adviser, manage its investments and provide it with
various services and facilities. KFS will utilize the services of Kemper
Investment Management Company Limited, 1 Fleet Place, London EC4M 7RQ, a wholly
owned subsidiary of KFS, with respect to Foreign Securities investments of the
Fund, including analysis, research, execution and trading services.
Dennis H. Ferro is the portfolio manager for the Fund and has served in this
capacity since its inception. Mr. Ferro joined KFS in March 1994 and is
currently an Executive Vice President of KFS. Prior to coming to KFS, Mr. Ferro
was President, Managing Director and Chief Investment Officer of an
international investment advisory firm. He received a B.A. in Political Science
from Villanova University, Villanova, Pennsylvania and an M.B.A. in Finance from
St. Johns University, Jamaica, New York. Mr. Ferro is a Chartered Financial
Analyst.
KFS has an Equity Investment Committee that determines overall investment
strategy for equity portfolios managed by KFS. The Equity Investment Committee
is currently comprised of the following members: Daniel J. Bukowski, Tracy
McCormick Chester, James H. Coxon, Richard A. Goers, Karen A. Hussey, Frank D.
Korth, Gary A. Langbaum, Maura J. Murrihy, Thomas M. Regner, Steven H. Reynolds
and Stephen B. Timbers. The portfolio manager works with the Equity Investment
Committee and various equity analysts and equity traders to manage the Fund's
investments. Equity analysts--through research, analysis and evaluation--work to
develop investment ideas appropriate for the Fund. These ideas are studied and
debated by the Equity Investment Committee and, if approved, are added to a list
of eligible investments. The portfolio manager uses the list of eligible
investments to help structure the Fund's portfolio in a manner consistent with
the Fund's objective. The KFS International Equity Investments area, directed by
Dennis H. Ferro, provides research and analysis regarding foreign investments to
the portfolio manager. After investment decisions are made, equity traders
execute the portfolio manager's instructions through various broker-dealer
firms.
The Fund pays KFS an investment management fee, payable monthly, at the annual
rate of .60 of 1% of average daily net assets of the Fund. The investment
management agreement provides that the Fund shall pay the charges
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<PAGE> 107
and expenses of its operations, including the fees and expenses of the trustees
(except those affiliated with KFS), independent auditors, counsel, custodian and
transfer agent and the cost of share certificates, reports and notices to
shareholders, brokerage commissions or transaction costs, costs of calculating
net asset value, taxes and membership dues.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting agreement, Kemper
Distributors, Inc. ("KDI"), a wholly owned subsidiary of KFS, is the principal
underwriter of the Fund's shares and acts as agent of the Fund in the sale of
its shares. KDI receives no compensation from the Fund as principal underwriter
and pays all expenses of distribution of the Fund's shares under the
underwriting agreement not otherwise paid by dealers or other financial services
firms. The Fund bears the expenses of registration of its shares with the
Securities and Exchange Commission, while KDI, as underwriter, pays the cost of
qualifying and maintaining the qualification of the Fund's shares for sale under
the securities laws of the various states. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays or
allows concessions or discounts to firms for the sale of Fund shares.
ADMINISTRATOR. KDI also provides information and administrative services for
Fund shareholders pursuant to an administrative services agreement
("administrative agreement"). KDI enters into related arrangements with various
financial services firms, such as broker-dealer firms or banks ("firms"), that
provide services and facilities for their customers or clients who are
shareholders of the Fund. Such administrative services and assistance may
include, but are not limited to, establishing and maintaining shareholder
accounts and records, processing purchase and redemption transactions, answering
routine inquiries regarding the Fund and its special features, and such other
services as may be agreed upon from time to time and permitted by applicable
statute, rule or regulation. KDI bears all its expenses of providing services
pursuant to the administrative agreement, including the payment of any service
fees. For services under the administrative agreement, the Fund pays KDI a fee,
payable monthly, at the annual rate of up to .25 of 1% of average daily net
assets of the Fund. KDI then pays each firm a service fee at an annual rate of
up to .25 of 1% of net assets of those accounts in the Fund that it maintains
and services. Firms to which service fees may be paid include broker-dealers
affiliated with KDI. A firm becomes eligible for the service fee based on assets
in the accounts in the month following the month of purchase and the fee
continues until terminated by KDI or the Fund. The fees are calculated monthly
and paid quarterly.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which there is a firm listed on the Fund's records and it is
intended that KDI will pay all the administrative services fees that it receives
from the Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of the Fund while this
procedure is in effect would depend upon the proportion of Fund assets that is
in accounts for which there is a firm of record.
CUSTODIAN AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary Trust Company
("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as custodian, and
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, as sub-custodian, have custody of all securities and cash of the Fund
maintained in the United States. The Chase Manhattan Bank, N.A., Chase MetroTech
Center, Brooklyn, New York 11245, as custodian, has custody of all securities
and cash of the Fund held outside the United States. They attend to the
collection of principal and income, and payment for and collection of proceeds
of securities bought and sold by the Fund. IFTC also is the Fund's transfer
agent and dividend-paying agent. Pursuant to a services agreement with IFTC,
Kemper Service Company, an affiliate of KFS, serves as "Shareholder Service
Agent" of the Fund and, as such, performs all of IFTC's duties as transfer agent
and dividend paying agent. For a description of transfer agent and shareholder
service agent fees payable to IFTC and the Shareholder Service Agent, see
"Investment Manager and Underwriter" in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS. KFS places all orders for purchases and sales of the
Fund's securities. Subject to seeking best execution of orders, KFS may consider
sales of shares of the Fund and other funds managed by KFS or its
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<PAGE> 108
affiliates as a factor in selecting broker-dealers. See "Portfolio Transactions"
in the Statement of Additional Information.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund will normally distribute annual dividends of net investment
income and any net realized short-term and long-term capital gains.
Income dividends and capital gain dividends, if any, will be credited to
shareholder accounts in full and fractional Fund shares at net asset value on
the reinvestment date without sales charge except that, upon written request to
the Shareholder Service Agent, a shareholder may select one of the following
options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares at net asset value; or
(2) To receive income and capital gain dividends in cash.
Any dividends that are reinvested will be reinvested in shares of the Fund. As
noted previously (see "Investment Objectives, Policies and Risk Factors--How the
Fund Works and Special Risk Factors"), only shareholders who reinvest all their
dividends in the Fund and hold their shares until the Maturity Date will receive
the benefit of the Fund's Investment Protection.
TAXES. The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code ("Code") and, if so qualified,
will not be liable for federal income taxes to the extent its earnings are
distributed. Dividends derived from net investment income and net short-term
capital gains are taxable to shareholders as ordinary income and long-term
capital gain dividends are taxable to shareholders as long-term capital gain
regardless of how long the shares have been held and whether received in cash or
shares. Long-term capital gain dividends received by individual shareholders are
taxed at a maximum rate of 28%. Dividends declared in October, November or
December to shareholders of record as of a date in one of those months and paid
during the following January are treated as paid on December 31 of the calendar
year declared. It is anticipated that only a small portion, if any, of the
dividends paid by the Fund will qualify for the dividends received deduction
available to corporate shareholders.
The Zero Coupon Treasuries will be treated as bonds that were issued to the Fund
at an original issue discount. Original issue discount is treated as interest
for federal income tax purposes and the amount of original issue discount
generally will be the difference between the bond's purchase price and its
stated redemption price at maturity. The Fund will be required to include in
gross income for each taxable year the daily portions of original issue discount
attributable to the Zero Coupon Treasuries held by the Fund as such original
issue discount accrues. Dividends derived from such original issue discount that
accrues for such year will be taxable to shareholders as ordinary income. In
general, original issue discount accrues daily under a constant interest rate
method which takes into account the semi-annual compounding of accrued interest.
In the case of the Zero Coupon Treasuries, this method will generally result in
an increasing amount of income to the Fund each year.
A dividend received by a shareholder shortly after the purchase of shares
reduces the net asset value of the shares by the amount of the dividend and,
although in effect a return of capital, will be taxable to the shareholder. If
the net asset value of shares were reduced below the shareholder's cost by
dividends representing gains realized on sales of securities, such dividends
would be a return of investment though taxable as stated above.
Fund dividends that are derived from interest on the Zero Coupon Treasuries and
other direct obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states. In
other states, arguments can be made that such distributions should be exempt
from state and local taxes based on federal law, 31 U.S.C. Section 3124, and the
U.S. Supreme Court's interpretation of that provision in AMERICAN BANK AND TRUST
CO. v. DALLAS COUNTY, 463 U.S. 855 (1983). The Fund currently intends to advise
shareholders of the proportion of its dividends that consists of such interest.
Shareholders should consult
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<PAGE> 109
their tax advisers regarding the possible exclusion of such portion of their
dividends for state and local income tax purposes.
If more than 50% of the value of the Fund's total assets at the close of a
fiscal year consists of Foreign Securities, the Fund may make the election
permitted under Section 853 of the Code so that shareholders will be able to
claim a credit or deduction on their income tax returns for, and will be
required to treat as part of the amounts distributed to them, their pro rata
portion of the income taxes paid by the Fund to foreign countries (which taxes
relate primarily to investment income). The shareholders of the Fund may claim a
credit by reason of the Fund's election, subject to certain limitations imposed
by Section 904 of the Code. Also, under the Code, no deduction for foreign taxes
may be claimed by individual shareholders who do not elect to itemize deductions
on their federal income tax returns; although such a shareholder may claim a
credit for foreign taxes and in any event will be treated as having taxable
income in the amount of the shareholder's pro rata share of foreign taxes paid
by the Fund.
The Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Trustees of qualified retirement plans and
403(b)(7) accounts are required by law to withhold 20% of the taxable portion of
any distribution that is eligible to be "rolled over." The 20% withholding
requirement does not apply to distributions from Individual Retirement Accounts
("IRA") or any part of a distribution that is transferred directly to another
qualified retirement plan, 403(b)(7) account, or IRA. Shareholders should
consult their tax advisers regarding the 20% withholding requirement.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for dividend reinvestment and periodic investment and redemption
programs. Information for income tax purposes will be provided after the end of
the calendar year. Shareholders are encouraged to retain copies of their account
confirmation statements or year-end statements for tax reporting purposes.
However, those who have incomplete records may obtain historical account
transaction information at a reasonable fee.
NET ASSET VALUE
The net asset value per share is determined by calculating the total value of
the Fund's assets, which will normally be composed chiefly of investment
securities, deducting total liabilities and dividing the result by the number of
shares outstanding. Fixed income securities, including Zero Coupon Treasuries,
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.
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 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. Equity 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. Over-the-counter traded options are
valued based upon current prices provided by market makers. 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. Other securities and
assets are valued at fair value as determined in good faith by the Board of
Trustees. Because of the need to obtain prices as of the close of trading on
various exchanges throughout the world, the calculation of net asset value does
not necessarily take place contemporaneously with the determination of the
prices of many of the portfolio securities.
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<PAGE> 110
For purposes of determining the Fund's net asset value, all assets and
liabilities initially expressed in foreign currency values will be 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
an event were to occur after the value of a security was so established but
before the net asset value per share was determined, which was likely to
materially change the net asset value, then that security would be valued using
fair value considerations by the Board of Trustees or its delegates. On each day
the New York Stock Exchange (the "Exchange") is open for trading, the net asset
value is determined as of the earlier of 3:00 p.m. Chicago time or the close of
the Exchange.
PURCHASE OF SHARES
Shares of the Fund may be purchased from investment dealers during the Offering
Period described below at the public offering price, which is the net asset
value next determined plus a sales charge that is a percentage of the public
offering price and varies as shown below. The minimum initial investment is
$1,000 and the minimum subsequent investment is $100. The minimum initial
investment for an Individual Retirement Account or employee benefit plan account
is $250 and the minimum subsequent investment is $50. These minimum amounts may
be changed at any time in management's discretion.
<TABLE>
<CAPTION>
Sales Charge
----------------------------------------
Allowed
to
Dealers
As a As a as a
Percentage Percentage Percentage
of of Net of
Offering Asset Offering
Amount of Purchase Price Value* Price
------ ------ ------
<S> <C> <C> <C>
Less than $100,000................................... 5.00 % 5.26 % 4.50 %
$100,000 but less than $250,000...................... 4.00 4.17 3.60
$250,000 but less than $500,000...................... 3.00 3.09 2.70
$500,000 but less than $1 million.................... 2.00 2.04 1.80
$1 million and over.................................. 0.00** 0.00** ***
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as
discussed below.
*** Commission is payable by KDI as discussed below.
Shares will only be offered to the public during the Offering Period, which is
expected to end on December 31, 1995. The Fund may at its option extend or
shorten the Offering Period. The offering of shares of the Fund shall be subject
to suspension or termination as provided under "Investment Objectives, Policies
and Risk Factors-- How the Fund Works." In addition, the offering of Fund shares
may be suspended from time to time during the Offering Period in the discretion
of KDI. During any period in which the public offering of shares is suspended or
terminated, shareholders will still be permitted to reinvest dividends in shares
of the Fund.
Share certificates will not be issued unless requested in writing. It is
recommended that investors not request share certificates unless needed for a
specific purpose. You cannot redeem shares by telephone or wire transfer or use
the telephone exchange privilege if share certificates have been issued. A lost
or destroyed certificate is difficult to replace and can be expensive to the
shareholder (a bond worth 2% or more of the certificate value is normally
required).
The Fund receives the entire net asset value of all shares sold. KDI, the Fund's
principal underwriter, retains the sales charge from which it allows discounts
from the applicable public offering price to investment dealers, which discounts
are uniform for all dealers in the United States and its territories. The normal
discount allowed to dealers is set forth in the above table. Upon notice to all
dealers with whom it has sales agreements, KDI may reallow up to the full
applicable sales charge, as shown in the above table, during periods and for
transactions specified in such notice and such reallowances may be based upon
attainment of minimum sales levels. During
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<PAGE> 111
periods when 90% or more of the sales charge is reallowed, such dealers may be
deemed to be underwriters as that term is defined in the Securities Act of 1933.
Banks and other financial services firms may provide administrative services
related to order placement and payment to facilitate transactions in shares of
the Fund for their clients, and KDI may pay them a transaction fee up to the
level of the discount or other concession allowable to dealers as described
above. Banks currently are prohibited under the Glass-Steagall Act from
providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. Management does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts or promotional incentives, in the
form of cash or other compensation, to firms that sell shares of the Fund.
Non-cash compensation includes luxury merchandise and trips to luxury resorts.
In some instances, such discounts or other incentives will be offered only to
certain firms that sell or are expected to sell during specified time periods
certain minimum amounts of shares of the Fund, or other funds underwritten by
KDI.
Class A shares of a Fund may be purchased at net asset value to the extent that
the amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which neither KFS nor Dreman Value Advisors, Inc. serve as
investment manager ("non-Kemper fund") provided that: (a) the investor has
previously paid either an initial sales charge in connection with the purchase
of the non-Kemper fund shares redeemed or a contingent deferred sales charge in
connection with the redemption of the non-Kemper fund shares, and (b) the
purchase of Fund shares is made within 90 days after the date of such
redemption. To make such a purchase at net asset value, the investor or the
investor's dealer must, at the time of purchase, submit a request that the
purchase be processed at net asset value pursuant to this privilege. The
redemption of the shares of the non-Kemper fund is, for federal income tax
purposes, a sale upon which a gain or loss may be realized.
Shares of the Fund may be purchased at net asset value by: (a) any purchaser
provided that the amount invested in the Fund or other Kemper Mutual Funds
described under "Special Features--Combined Purchases" totals at least
$1,000,000 including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features described under "Special Features";
or (b) a participant-directed qualified retirement plan described in Code
Section 401(a) or a participant-directed non-qualified deferred compensation
plan described in Code Section 457 provided in either case that such plan has
not less than 200 eligible employees (the "Large Order NAV Purchase Privilege").
A contingent deferred sales charge of 1% may be imposed upon redemption of
shares of the Fund that are purchased under the Large Order NAV Purchase
Privilege if they are redeemed within one year of purchase. The charge will not
be imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of (a) redemptions by a participant-directed qualified retirement plan
described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); and
(e) redemptions under the Fund's Systematic Withdrawal Plan at a maximum of 10%
per year of the net asset value of the account.
Shares of the Fund purchased under the Large Order NAV Purchase Privilege may be
exchanged for shares of another Kemper Mutual Fund or a Money Market Fund under
the exchange privilege described under "Special Features--Exchange Privilege"
without paying any contingent deferred sales charge at the time of exchange. If
the
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<PAGE> 112
shares received on exchange are redeemed thereafter, a contingent deferred sales
charge may be imposed in accordance with the foregoing requirements provided
that the shares redeemed will retain their original cost and purchase date for
purposes of the contingent deferred sales charge.
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of shares of the Fund to employer
sponsored employee benefit plans using the subaccount recordkeeping system made
available through the Shareholder Service Agent at net asset value in accordance
with the Large Order NAV Purchase Privilege up to the following amounts: 1.00%
of the net asset value of shares sold on amounts up to $5 million in any
calendar year, .50% on the next $5 million and .25% on amounts over $10 million
in such calendar year. KDI may in its discretion compensate investment dealers
or other financial services firms in connection with the sale of shares of the
Fund to other purchasers at net asset value in accordance with the Large Order
NAV Purchase Privilege up to the following amounts: 1.00% of the net asset value
of shares sold on amounts up to $3 million, .50% on the next $2 million and .25%
on amounts over $5 million. For purposes of determining the appropriate
commission percentage to be applied to a particular sale under the foregoing
schedule, KDI will consider the cumulative amount invested by the purchaser in
the Fund and other Kemper Mutual Funds listed under "Special Features--Combined
Purchases," including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features referred to above. The privilege of
purchasing shares of the Fund at net asset value under the Large Order NAV
Purchase Privilege is not available if another net asset value purchase
privilege is also applicable.
Shares may be sold at net asset value in any amount to: (a) officers, trustees,
directors, employees (including retirees) and sales representatives of the Fund,
its investment manager, its principal underwriter or certain affiliated
companies, for themselves or members of their families; (b) registered
representatives and employees of broker-dealers having selling group agreements
with KDI and officers, directors and employees of service agents of the Fund,
themselves or their spouses or dependent children; (c) shareholders who owned
shares of Kemper-Dreman Fund, Inc. ("KDF") on September 8, 1995, and have
continuously owned shares of KDF (or a Kemper Fund acquired by exchange of KDF
shares) since that date, for themselves or members of their families; and (d)
any trust, pension, profit-sharing or other benefit plan for only such persons.
Shares may be sold at net asset value in any amount to selected employees
(including their spouses and dependent children) of banks and other financial
services firms that provide administrative services related to order placement
and payment to facilitate transactions in shares of the Fund for their clients
pursuant to an agreement with KDI or one of its affiliates. Only those employees
of such banks and other firms who as part of their usual duties provide services
related to transactions in Fund shares may purchase Fund shares at net asset
value hereunder. Shares may be sold at net asset value in any amount to unit
investment trusts sponsored by Everen Securities, Inc. In addition, unitholders
of unit investment trusts sponsored by Everen Securities, Inc. may purchase Fund
shares at net asset value through reinvestment programs described in the
prospectuses of such trusts which have such programs. Shares of the Fund may be
sold at net asset value through certain investment advisers registered under the
Investment Advisers Act of 1940 and other financial services firms that adhere
to certain standards established by KDI, including a requirement that such
shares be sold for the benefit of their clients participating in a "wrap
account" or similar program under which such clients pay a fee to the investment
adviser or other firm. Such shares are sold for investment purposes and on the
condition that they will not be resold except through redemption or repurchase
by the Fund. The Fund may also issue shares at net asset value in connection
with the acquisition of the assets of or merger or consolidation with another
investment company, or to shareholders in connection with the investment or
reinvestment of income and capital gain dividends.
Effective on a date discussed below, shares of the Fund may be purchased at net
asset value in any amount by members of the plaintiff class in the proceeding
known as HOWARD AND AUDREY TABANKIN, ET AL. V. KEMPER SHORT-TERM GLOBAL INCOME
FUND, ET AL., Case No. 93 C 5231 (N.D. IL). This privilege is generally
non-transferrable and continues for the lifetime of individual class members and
for a ten year period for non-individual class members. This privilege is
subject to final approval by the court in the aforementioned proceeding and will
become effective on a date as described in appropriate court documents, now
estimated to be February 1, 1996. To make a
21
<PAGE> 113
purchase at net asset value under this privilege, the investor must, at the time
of purchase, submit a written request that the purchase be processed at net
asset value pursuant to this privilege specifically identifying the purchaser as
a member of the "Tabankin Class." Shares purchased under this privilege will be
maintained in a separate account that includes only shares purchased under this
privilege. For more details concerning this privilege, class members should
refer to the Notice of (1) Proposed Settlement with Defendants; and (2) Hearing
to Determine Fairness of Proposed Settlement dated August 31, 1995, issued in
connection with the aforementioned court proceeding. For sales of Fund shares at
net asset value pursuant to this privilege, KDI may at its discretion pay
investment dealers and other financial services firms a concession, payable
quarterly, at an annual rate of up to .25 of 1% of net assets attributable to
such shares maintained and serviced by the firm. A firm becomes eligible for the
concession based upon assets in accounts attributable to shares purchased under
this privilege in the month after the month of purchase and the concession
continues until terminated by KDI. The privilege of purchasing shares of the
Fund at net asset value under this privilege is not available if another net
asset value purchase privilege also applies.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes an individual, or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem Fund shares. Some may establish higher minimum
investment requirements than set forth above. Firms may arrange with their
clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
Fund shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Fund through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
Orders for the purchase of shares of the Fund will be confirmed at a price based
on the net asset value next determined after receipt by KDI of the order
accompanied by payment. However, orders received by dealers or other firms prior
to the determination of net asset value (see "Net Asset Value") and received by
KDI prior to the close of its business day will be confirmed at a price based on
the net asset value effective on that day. The Fund reserves the right to
determine the net asset value more frequently than once a day if deemed
desirable. Dealers and other financial services firms are obligated to transmit
orders promptly. Collection may take significantly longer for a check drawn on a
foreign bank than for a check drawn on a domestic bank. Therefore, if an order
is accompanied by a check drawn on a foreign bank, funds must normally be
collected before shares will be purchased. See "Purchase and Redemption of
Shares" in the Statement of Additional Information.
The Fund reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders.
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<PAGE> 114
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require the Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Fund's transfer agent,
the shareholder may redeem them by making a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is normally required, from
institutional and fiduciary account holders, such as corporations, custodians
(e.g., under the Uniform Transfers to Minors Act), executors, administrators,
trustees or guardians. As noted previously (see "Investment Objectives, Policies
and Risk Factors--How the Fund Works and Special Risk Factors"), only
shareholders who hold their shares in the Fund until the Maturity Date and
reinvest their dividends in the Fund will necessarily receive the benefit of the
Fund's Investment Protection.
The redemption price will be the net asset value next determined following
receipt by the Shareholder Service Agent of a properly executed request with any
required documents as described above. Payment for shares redeemed will be made
in cash as promptly as practicable but in no event later than seven days after
receipt of a properly executed request accompanied by any outstanding share
certificates in proper form for transfer. When the Fund is requested to redeem
shares for which it may not have yet received good payment, it may delay
transmittal of redemption proceeds until it has determined that collected funds
have been received for the purchase of such shares, which will be up to 15 days
from receipt by the Fund of the purchase amount. The redemption within one year
of shares purchased at net asset value under the Large Order NAV Purchase
Privilege may be subject to a 1% contingent deferred sales charge (see "Purchase
of Shares").
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agent
reasonably believes, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The SHAREHOLDER WILL BEAR THE RISK OF LOSS,
including loss resulting from fraudulent or unauthorized transactions, as long
as the reasonable verification procedures are followed. The verification
procedures include recording instructions, requiring certain identifying
information before acting upon instructions and sending written confirmations.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption are $50,000 or less and
the proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject
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<PAGE> 115
to the same conditions as individual account holders and subject to the
limitations on liability described under "General" above, provided that this
privilege has been pre-authorized by the institutional or guardian account
holder by written instruction to the Shareholder Service Agent with signatures
guaranteed. Telephone requests may be made by calling 1-800-621-1048. Shares
purchased by check or through EXPRESS-Transfer may not be redeemed under this
privilege of redeeming shares by telephone request until such shares have been
owned for at least 15 days. This privilege of redeeming shares by telephone
request or by written request without a signature guarantee may not be used to
redeem shares held in certificated form and may not be used if the shareholder's
account has had an address change within 30 days of the redemption request.
During periods when it is difficult to contact the Shareholder Service Agent by
telephone, it may be difficult to use the telephone redemption privilege,
although investors can still redeem by mail. The Fund reserves the right to
terminate or modify this privilege at any time.
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value next determined after receipt of a request by KDI.
However, requests for repurchases received by dealers or other firms prior to
the determination of net asset value (see "Net Asset Value") and received by KDI
prior to the close of KDI's business day will be confirmed at the net asset
value effective on that day. The offer to repurchase may be suspended at any
time. Requirements as to stock powers, certificates, payments and delay of
payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares can be redeemed and proceeds sent by federal wire transfer
to a single previously designated account. Requests received by the Shareholder
Service Agent prior to the determination of net asset value will result in
shares being redeemed that day at the net asset value effective on that day and
normally the proceeds will be sent to the designated account the following
business day. Delivery of the proceeds of a wire redemption request of $250,000
or more may be delayed by the Fund for up to seven days if KFS deems it
appropriate under then current market conditions. Once authorization is on file,
the Shareholder Service Agent will honor requests by telephone at 1-800-621-1048
or in writing, subject to the limitations on liability described under "General"
above. The Fund is not responsible for the efficiency of the federal wire system
or the account holder's financial services firm or bank. The Fund currently does
not charge the account holder for wire transfers. The account holder is
responsible for any charges imposed by the account holder's firm or bank. There
is a $1,000 wire redemption minimum. To change the designated account to receive
wire redemption proceeds, send a written request to the Shareholder Service
Agent with signatures guaranteed as described above or contact the firm through
which shares of the Fund were purchased. Shares purchased by check or through
EXPRESS-Transfer may not be redeemed by wire transfer until such shares have
been owned for at least 15 days. Account holders may not use this procedure to
redeem shares held in certificated form. During periods when it is difficult to
contact the Shareholder Service Agent by telephone, it may be difficult to use
the expedited redemption privilege. The Fund reserves the right to terminate or
modify this privilege at any time.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed shares of the Fund or
any other Kemper Mutual Fund listed under "Special Features--Combined Purchases"
may reinvest up to the full amount redeemed at net asset value at the time of
the reinvestment in shares of the Fund or in shares of the other listed Kemper
Mutual Funds. A shareholder of the Fund or any other Kemper Mutual Fund who
redeems shares purchased under the Large Order NAV Purchase Privilege (see
"Purchase of Shares") and incurs a contingent deferred sales charge may reinvest
up to the full amount redeemed at net asset value at the time of the
reinvestment in shares of the Fund or shares of other Kemper Mutual Funds. The
amount of any contingent deferred sales charge also will be reinvested. These
reinvested shares will retain their original cost and purchase date for purposes
of the contingent deferred sales charge. Also, a holder of Class B shares of
another Kemper Mutual Fund who has redeemed shares of that fund may reinvest up
to the full amount redeemed, less any applicable contingent deferred sales
charge
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<PAGE> 116
that may have been imposed upon the redemption of such shares, at net asset
value in the Fund or in Class A shares of the other Kemper Mutual Funds listed
under "Special Features--Combined Purchases." Purchases through the reinvestment
privilege are subject to the minimum investment requirements applicable to the
shares being purchased and may only be made for funds available for sale in the
shareholder's state of residence as listed under "Special Features--Exchange
Privilege." The reinvestment privilege can be used only once as to any specific
shares and reinvestment must be effected within six months of the redemption. If
a loss is realized on the redemption of Fund shares, the reinvestment may be
subject to the "wash sale" rules if made within 30 days of the redemption,
resulting in the postponement of the recognition of such loss for federal income
tax purposes. The reinvestment privilege may be terminated or modified at any
time and is subject to the limited Offering Period of the Fund.
SPECIAL FEATURES
COMBINED PURCHASES. The Fund's shares may be purchased at the rate applicable to
the discount bracket attained by combining concurrent investments in Class A
shares (or the equivalent) of any of the following funds: Kemper Technology
Fund, Kemper Total Return Fund, Kemper Growth Fund, Kemper Small Capitalization
Equity Fund, Kemper Income and Capital Preservation Fund, Kemper Municipal Bond
Fund, Kemper Diversified Income Fund, Kemper High Yield Fund, Kemper U.S.
Government Securities Fund, Kemper International Fund, Kemper State Tax-Free
Income Series, Kemper Adjustable Rate U.S. Government Fund, Kemper Blue Chip
Fund, Kemper Global Income Fund, Kemper Target Equity Fund (series are subject
to a limited offering period) Kemper Intermediate Municipal Bond Fund, Kemper
Cash Reserves Fund, Kemper U.S. Mortgage Fund, Kemper Short-Intermediate
Government Fund, Kemper-Dreman Fund, Inc. and Kemper Value+Growth Fund ("Kemper
Mutual Funds"). Except as noted below, there is no combined purchase credit for
direct purchases of shares of Kemper Money Market Fund, Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Tax-Exempt New York
Money Market Fund or Investors Cash Trust ("Money Market Funds"), which are not
considered "Kemper Mutual Funds" for purposes hereof. For purposes of the
Combined Purchases feature described above, as well as for the Letter of Intent
and Cumulative Discount features described below, employer sponsored employee
benefit plans using the subaccount record keeping system made available through
the Shareholder Service Agent may include: (a) Money Market Funds as "Kemper
Mutual Funds," (b) all classes of shares of any Kemper Mutual Fund and (c) the
value of any other plan investment, such as guaranteed investment contracts and
employer stock, maintained on such subaccount record keeping system.
LETTER OF INTENT. The same reduced sales charges, as shown in the applicable
prospectus, also apply to the aggregate amount of purchases of such Kemper
Mutual Funds listed above made by any purchaser within a 24-month period under a
written Letter of Intent ("Letter") provided by KDI. As noted under "Purchase of
Shares," the Offering Period for the purchase of shares of the Fund is limited.
However, shares of other Kemper Mutual Funds noted above would be available
beyond that period. The Letter, which imposes no obligation to purchase or sell
additional shares, provides for a price adjustment depending upon the actual
amount purchased within such period. The Letter provides that the first purchase
following execution of the Letter must be at least 5% of the amount of the
intended purchase, and that 5% of the amount of the intended purchase normally
will be held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed shares will be redeemed and the proceeds used
toward satisfaction of the obligation to pay the increased sales charge. The
Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Mutual Funds held of record as of the initial purchase date under
the Letter as an "accumulation credit" toward the completion of the Letter, but
no price adjustment will be made on such shares.
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<PAGE> 117
CUMULATIVE DISCOUNT. The Fund's shares also may be purchased at the rate
applicable to the discount bracket attained by adding to the cost of Fund shares
being purchased the value of all shares of the above mentioned Kemper Mutual
Funds (computed at the maximum offering price at the time of the purchase for
which the discount is applicable) already owned by the investor.
AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the investor's dealer or
other financial services firm must notify the Shareholder Service Agent or KDI
whenever a quantity discount or reduced sales charge is applicable to a
purchase. Upon such notification, the investor will receive the lowest
applicable sales charge. Quantity discounts described above may be modified or
terminated at any time.
EXCHANGE PRIVILEGE. Subject to the following limitations, shares of the Kemper
Mutual Funds and Money Market Funds listed under "Special Features--Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds that were acquired by purchase (not
including shares acquired by dividend reinvestment) are subject to the
applicable sales charge on exchange. Shares purchased by check or through
EXPRESS-Transfer may not be exchanged until they have been owned for at least 15
days. In addition, shares of a Kemper Mutual Fund acquired by exchange from
another Kemper Mutual Fund, or from a Money Market Fund, may not be exchanged
thereafter until they have been owned for 15 days. A series of Kemper Target
Equity Fund will be available on exchange only during the Offering Period for
such series as described in the applicable prospectus. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Tax-Exempt New York
Money Market Fund and Investors Cash Trust are available on exchange but only
through a financial services firm having a services agreement with KDI.
Exchanges may only be made for funds that are available for sale in the
shareholder's state of residence. Currently, Tax-Exempt California Money Market
Fund is available for sale only in California and Tax-Exempt New York Money
Market Fund is available for sale only in New York, Connecticut, New Jersey and
Pennsylvania.
The total value of shares being exchanged must at least equal the minimum
investment requirement of the fund into which they are being exchanged.
Exchanges are made based on relative dollar values of the shares involved in the
exchange. There is no service fee for an exchange; however, dealers or other
firms may charge for their services in effecting exchange transactions.
Exchanges will be effected by redemption of shares of the fund held and purchase
of shares of the other fund. For federal income tax purposes, any such exchange
constitutes a sale upon which a gain or loss may be realized, depending upon
whether the value of the shares being exchanged is more or less than the
shareholder's adjusted cost basis of such shares. Shareholders interested in
exercising the exchange privilege may obtain prospectuses of the other funds
from dealers, other firms or KDI. Exchanges may be accomplished by a written
request to Kemper Mutual Funds, Attention: Exchange Department, P.O. Box 419557,
Kansas City, Missouri 64141-6557, or by telephone if the shareholder has given
authorization. Once the authorization is on file, the Shareholder Service Agent
will honor requests by telephone at 1-800-621-1048 or in writing, subject to the
limitations on liability under "Redemption or Repurchase of Shares--General."
Any share certificates must be deposited prior to any exchange of such shares.
During periods when it is difficult to contact the Shareholder Service Agent by
telephone, it may be difficult to use the telephone exchange privilege. The
exchange privilege is not a right and may be suspended, terminated or modified
at any time. Except as otherwise permitted by applicable regulations, 60 days'
prior written notice of any termination or material change will be provided.
EXPRESS-TRANSFER. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $2,500) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem shares (minimum $500 and maximum
$2,500) from their Fund account and transfer the proceeds to their bank, savings
and loan, or credit union checking account. By enrolling in EXPRESS-Transfer,
the shareholder authorizes the Shareholder Service Agent to rely upon telephone
instructions from ANY PERSON to transfer the specified amounts between the
shareholder's Fund account and the predesignated bank, savings and loan or
credit union account, subject to the limitations on liability under "Redemption
or Repurchase of Shares--General." Once enrolled in EXPRESS-Transfer, a
shareholder can initiate a transaction by calling Kemper Shareholder Services
toll free at 1-800-621-1048 Monday through Friday,
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8:00 a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege
by sending written notice to Kemper Service Company, P.O. Box 419415, Kansas
City, Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable time to act upon the request.
EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of the Fund's shares at
the offering price (net asset value plus the sales charge) may provide for the
payment from the owner's account of any requested dollar amount to be paid to
the owner or a designated payee monthly, quarterly, semiannually or annually.
The $5,000 minimum account size is not applicable to Individual Retirement
Accounts. The minimum periodic payment is $100. Shares are redeemed so that the
payee will receive payment approximately the first of the month. Any income and
capital gain dividends will be automatically reinvested at net asset value. A
sufficient number of full and fractional shares will be redeemed to make the
designated payment. Depending upon the size of the payments requested and
fluctuations in the net asset value of the shares redeemed, redemptions for the
purpose of making such payments may reduce or even exhaust the account.
The purchase of shares while participating in a systematic withdrawal plan
ordinarily will be disadvantageous to the investor because the investor will be
paying a sales charge on the purchase of shares at the same time that the
investor is redeeming shares upon which a sales charge may already have been
paid. Therefore, the Fund will not knowingly permit additional investments of
less than $2,000 if the investor is at the same time making systematic
withdrawals. (See "Purchase of Shares" regarding the limited Offering Period for
the Fund's shares.) The right is reserved to amend the systematic withdrawal
plan on 30 days' notice. The plan may be terminated at any time by the investor
or the Fund. As noted previously (see "Investment Objectives, Policies and Risk
Factors--How the Fund Works and Special Risk Factors"), only shareholders who
hold their shares in the Fund until the Maturity Date and reinvest their
dividends in the Fund will necessarily receive the benefit of the Fund's
Investment Protection.
TAX-SHELTERED RETIREMENT PLANS. KFS provides retirement plan services and
documents and KDI can establish investor accounts in any of the following types
of retirement plans:
- - Individual Retirement Accounts ("IRAs") trusteed by IFTC. This includes
Simplified Employee Pension Plan ("SEP") IRA accounts and prototype documents.
- - 403(b)(7) Custodial Accounts also trusteed by IFTC. This type of plan is
available to employees of most non-profit organizations.
- - Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans and materials for establishing
them are available from KDI upon request. The brochures for plans trusteed by
IFTC describe the current fees payable to IFTC for its services as trustee.
Investors should consult with their own tax advisers before establishing a
retirement plan. In view of the limited Offering Period of the Fund (see
"Purchase of Shares"), the Fund may not be appropriate for periodic contribution
plans.
PERFORMANCE
The Fund may advertise several types of performance information, including
"average annual total return" and "total return." Each of these figures is based
upon historical results and is not representative of the future performance of
the Fund.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the
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change in the value of an investment in the Fund during a specified period.
Average annual total return will be quoted for at least the one, five and ten
year periods ending on a recent calendar quarter (or if such periods have not
yet elapsed, at the end of a shorter period corresponding to the life of the
Fund). Average annual total return figures represent the average annual
percentage change over the period in question. Total return figures represent
the aggregate percentage or dollar value change over the period in question.
The Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged indexes including the Dow Jones Industrial Average, the
Standard & Poor's 500 Stock Index and the Europe Australia Far East ("EAFE")
Index. The Fund's performance may also be compared to the performance of other
mutual funds or mutual fund indexes as reported by independent mutual fund
reporting services such as Lipper Analytical Services, Inc. ("Lipper"). Lipper
performance calculations are based upon changes in net asset value with all
dividends reinvested and do not include the effect of any sales charges.
The Fund may quote information from publications such as MORNINGSTAR, INC., THE
WALL STREET JOURNAL, MONEY MAGAZINE, FORBES, BARRON'S, FORTUNE, THE CHICAGO
TRIBUNE, USA TODAY, INSTITUTIONAL INVESTOR and REGISTERED REPRESENTATIVE. Also,
investors may want to compare the historical returns of various investments,
performance indexes of those investments or economic indicators, including but
not limited to stocks, bonds, certificates of deposit, money market funds and
U.S. Treasury obligations. Bank product performance may be based upon, among
other things, the BANK RATE MONITOR National Index(TM) or various certificate of
deposit indexes. Money market fund performance may be based upon, among other
things, the IBC/Donoghue Money Fund Report(R) or Money Market Insight(R),
reporting services on money market funds. Performance of U.S. Treasury
obligations may be based upon, among other things, various U.S. Treasury bill
indexes. Certain of these alternative investments may offer fixed rates of
return and guaranteed principal and may be insured.
The Fund may depict the historical performance of the securities in which the
Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments,
performance indexes of those investments or economic indicators. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund.
The Fund's shares are sold at net asset value plus a maximum sales charge of
5.0% of the offering price. While the maximum sales charge is normally reflected
in the Fund's performance figures, certain total return calculations may not
include such charge and those results would be reduced if it were included. The
Fund's returns and net asset value will fluctuate. Shares of the Fund are
redeemable by an investor at the then current net asset value, which may be more
or less than original cost. Additional information concerning the Fund's
performance and concerning the historical performance of various types of
investments that may be used to provide for retirement needs appears in the
Statement of Additional Information. Additional information about the Fund's
performance also appears in its Annual Report to Shareholders, which is
available without charge from the Fund.
CAPITAL STRUCTURE
The Trust is an open-end, diversified management investment company, organized
as a business trust under the laws of Massachusetts on August 3, 1988. Effective
May 1, 1994, the Trust changed its name from Kemper Retirement Fund to Kemper
Target Equity Fund. The Trust may issue an unlimited number of shares of
beneficial interest in one or more series, all having no par value. The Trust
has established seven series of shares: Kemper Retirement Fund Series I, Kemper
Retirement Fund Series II, Kemper Retirement Fund Series III, Kemper Retirement
Fund Series IV, Kemper Retirement Fund Series V, which are no longer offered,
and Kemper Retirement Fund Series VI, which is currently offered under another
prospectus, and the Fund. The Board of Trustees may authorize the issuance of
additional series if deemed desirable, each with its own investment objective,
policies and restrictions. Since the Trust may offer multiple series, it is
known as a "series company." Shares of a series have equal noncumulative voting
rights and equal rights with respect to dividends, assets and liquidation of
such series. Shares are fully paid and nonassessable when issued, are
transferable without restriction
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<PAGE> 120
and have no preemptive or conversion rights. The Trust is not required to hold
annual shareholders' meetings and does not intend to do so. However, it will
hold special meetings as required or deemed desirable for such purposes as
electing trustees, changing fundamental policies or approving an investment
management agreement. Subject to the Agreement and Declaration of Trust of the
Trust, shareholders may remove trustees. Shareholders will vote by series and
not in the aggregate except when voting in the aggregate is required under the
Investment Company Act of 1940, such as for the election of trustees. Any series
of the Trust, including the Fund, may be divided by the Board of Trustees into
classes of shares, subject to compliance with the Securities and Exchange
Commission regulations permitting the creation of separate classes of shares.
The Trust's shares currently are not divided into classes. Shares of a series
would be subject to any preferences, rights or privileges of any classes of
shares of the series. Generally each class of shares issued by a particular
series of the Trust would differ as to the allocation of certain expenses of the
series such as distribution and administrative expenses permitting, among other
things, different levels of service or methods of distribution among various
classes.
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PROSPECTUS
KEMPER
WORLDWIDE
2004
FUND
OCTOBER 25, 1996
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60603
KWF-4-1 (10/96)
[LOGO] KEMPER FUNDS
<PAGE> 122
KEMPER WORLDWIDE 2004 FUND
PART B:
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
ITEM 10. COVER PAGE
Reference is made to the Cover Page in the Kemper Worldwide 2004 Fund
Statement of Additional Information filed herewith.
ITEM 11. TABLE OF CONTENTS
Reference is made to the section entitled "Table of Contents" in the Kemper
Worldwide 2004 Fund Statement of Additional Information filed herewith.
ITEM 12. GENERAL INFORMATION AND HISTORY
Inapplicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES
Reference is made to the sections entitled "Investment Restrictions" and
"Investment Policies and Techniques" in the Kemper Worldwide 2004 Fund Statement
of Additional Information filed herewith. In addition, Kemper Worldwide 2004
Fund did not borrow as permitted by investment restriction number four during
the latest fiscal year.
ITEM 14. MANAGEMENT OF THE FUND
Reference is made to the sections entitled "Investment Manager and
Underwriter" in the Kemper Worldwide 2004 Fund Statement of Additional
Information and "Officers and Trustees" in the Kemper Retirement Fund Series VI
Statement of Additional Information filed herewith, except for the following:
The table below shows amounts paid to those trustees who are not designated
"interested persons" during the Fund's 1996 fiscal year except that the
information in the last column is for calendar year 1995.
<TABLE>
<CAPTION>
AGGREGATE TOTAL
COMPENSATION COMPENSATION
FROM KEMPER KEMPER FUNDS
WORLDWIDE PAID TO
NAME OF TRUSTEE 2004 FUND TRUSTEES(3)
- ------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
James B. Akins(1).................................................. $2,100 $ 26,100
Arthur R. Gottschalk(2)............................................ $3,000 $ 90,300
Frederick T. Kelsey(2)............................................. $3,100 $ 90,700
Fred B. Renwick(1)................................................. $2,100 $ 26,100
John B. Tingleff................................................... $2,800 $ 81,700
John G. Weithers................................................... $2,800 $ 81,900
</TABLE>
- ---------------
(1) Elected to the Board of certain Kemper Funds on September 19, 1995.
(2) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with the Fund. Deferred amounts accrue interest
monthly at a rate equal to the yield of Kemper Money Funds--Money Market
Fund. Total deferred amounts and interest accrued through June 30, 1996 are
$4,000 and $6,900 for Messrs. Gottschalk and Kelsey, respectively.
(3) Includes compensation for service on the boards of 11 Kemper funds with 25
fund portfolios. Each trustee currently serves as a board member of 13
Kemper Funds with 36 fund portfolios.
B-1
<PAGE> 123
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Reference is made to the section entitled "Officers and Trustees" in the
Kemper Worldwide 2004 Fund Statement of Additional Information filed herewith,
except for the following:
b. As of September 13, 1996, the trustees and officers of Registrant as a
group owned less than 1% of the then outstanding shares of each series
of Registrant.
c. As of September 19, 1996, no person owned of record more than 5% of the
shares of Kemper Worldwide 2004 Fund except as noted below:
<TABLE>
<CAPTION>
NAME & ADDRESS PERCENTAGE
-------------------------------------------------------------------------- ----------
<S> <C>
EVEREN Clearing Corp...................................................... (7.27%)
77 W Wacker Drive
Chicago, IL
National Financial Svcs Corp.............................................. (6.37%)
One World Financial Center
200 Liberty Street
New York, NY
</TABLE>
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES
Reference is made to the section entitled "Investment Manager and
Underwriter" in the Kemper Worldwide 2004 Fund Statement of Additional
Information filed herewith, except for the following:
a. During the fiscal years ended June 30, 1996 and 1995 and the period from
May 3, 1994 to June 30, 1994, ZKI received management fees from Kemper
Worldwide 2004 Fund of $214,000, $129,000, and $3,000, respectively.
b. During the fiscal year ended June 30, 1996, KDI received administrative
service fees from Kemper Worldwide 2004 Fund of $88,000 and paid service
fees to firms in the amount of $88,000, including $8,000 paid to firms
affiliated with KDI.
c. During the fiscal year ended June 30, 1996, Investors Fiduciary Trust
Company remitted shareholder service fees in the amount of $39,000 to
Kemper Service Company as Shareholder Service Agent for Kemper Worldwide
2004 Fund.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES
Reference is made to the section entitled "Portfolio Transactions" in the
Kemper Retirement Fund Series VI Statement of Additional Information filed
herewith, except for the following:
During the fiscal year ended June 30, 1996, Kemper Worldwide 2004 Fund
paid total portfolio brokerage commissions of $121,000, and of this
amount, 45% was allocated to broker-dealers on the basis of research
information and during the fiscal year ended June 30, 1995 and the period
from May 3, 1994 to June 30, 1994, Kemper Worldwide 2004 Fund paid
portfolio brokerage commissions of $159,000 and $53,000, respectively.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES
Reference is made to the sections entitled "Dividends and Taxes" and
"Shareholder Rights" in the Kemper Worldwide 2004 Fund Statement of Additional
Information filed herewith, except for the following: Dividends and other
distributions in the aggregate amount of $10 or less are automatically
reinvested in shares of the Fund unless the Shareholder request that such policy
not be applied to the Shareholder's account.
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<PAGE> 124
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
Reference is made to the section entitled "Purchase and Redemption of
Shares" in the Kemper Worldwide 2004 Fund Statement of Additional Information
filed herewith, except that shares of Kemper Worldwide 2004 Fund are no longer
available for purchase.
ITEM 20. TAX STATUS
Reference is made to the section entitled "Dividends and Taxes" in the
Kemper Worldwide 2004 Fund Statement of Additional Information filed herewith.
ITEM 21. UNDERWRITERS
Reference is made to the section entitled "Investment Manager and
Underwriter" in the Kemper Worldwide 2004 Fund Statement of Additional
Information filed herewith.
ITEM 22. CALCULATION OF PERFORMANCE DATA
Reference is made to the section entitled "Performance" in the Kemper
Worldwide 2004 Fund Statement of Additional Information filed herewith.
ITEM 23. FINANCIAL STATEMENTS
Attached.
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<PAGE> 125
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 25, 1995
KEMPER WORLDWIDE 2004 FUND
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603
1-800-621-1048
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of Kemper Worldwide 2004 Fund (the "Fund"), a
series of Kemper Target Equity Fund (the "Trust"), dated October 25, 1995. The
prospectus may be obtained without charge from the Fund.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Investment Restrictions........................................... B-1
Investment Policies and Techniques................................ B-3
Dividends and Taxes............................................... B-10
Performance....................................................... B-11
Investment Manager and Underwriter................................ B-13
Portfolio Transactions............................................ B-16
Purchase and Redemption of Shares................................. B-17
Officers and Trustees............................................. B-18
Shareholder Rights................................................ B-19
</TABLE>
The financial statements appearing in the Fund's 1995 Annual Report to
Shareholders are incorporated herein by reference. The Annual Report accompanies
this document.
KWF4 13 10/95 (LOGO)Kprinted on recycled paper
<PAGE> 126
INVESTMENT RESTRICTIONS
Kemper Target Equity Fund (the "Trust") has adopted the following fundamental
investment restrictions which cannot be changed with respect to Kemper Worldwide
2004 Fund (the "Fund") without approval of a "majority" of its outstanding
shares, which means the lesser of (1) 67% of the Fund's shares present at a
meeting at which the holders of more than 50% of the outstanding shares are
present in person or by proxy; or (2) more than 50% of the Fund's outstanding
shares.
The Fund may not, as a fundamental policy:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States or any foreign government or their agencies or
instrumentalities) if, as a result, more than 5% of the Fund's total assets
would be invested in securities of that issuer. With respect to 75% of its total
assets, the Fund will limit its investments in the securities of any one foreign
government issuer to 5% of the Fund's total assets.
(2) Purchase more than 10% of any class of voting securities of any issuer.
(3) Make loans to others provided that the Fund may purchase debt obligations or
repurchase agreements and it may lend its securities in accordance with its
investment objectives and policies.
(4) Borrow money except as a temporary measure for extraordinary or emergency
purposes, and then only in an amount up to one-third of the value of its total
assets, in order to meet redemption requests without immediately selling any
portfolio securities. If, for any reason, the current value of the Fund's total
assets falls below an amount equal to three times the amount of its indebtedness
from money borrowed, the Fund will, within three days (not including Sundays and
holidays), reduce its indebtedness to the extent necessary. The Fund will not
borrow for leverage purposes and will not purchase securities or make
investments while borrowings are outstanding.
(5) Pledge, hypothecate, mortgage or otherwise encumber more than 15% of its
total assets and then only to secure borrowings permitted by restriction 4
above. (The collateral arrangements with respect to options, financial futures
and delayed delivery transactions and any margin payments in connection
therewith are not deemed to be pledges or other encumbrances.)
(6) Purchase securities on margin, except to obtain such short-term credits as
may be necessary for the clearance of transactions; however, the Fund may make
margin deposits in connection with options and financial futures transactions.
(7) Make short sales of securities or other assets or maintain a short position
for the account of the Fund unless at all times when a short position is open it
owns an equal amount of such securities or other assets or owns securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities or other assets of the same issue as, and equal in
amount to, the securities or other assets sold short and unless not more than
10% of the Fund's total assets is held as collateral for such sales at any one
time.
(8) Write or sell put or call options, combinations thereof or similar options
on more than 25% of the Fund's net assets; nor may the Fund purchase put or call
options if more than 5% of the Fund's net assets would be invested in premiums
on put and call options, combinations thereof or similar options; however, the
Fund may buy or sell options on financial futures contracts.
(9) Purchase securities (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if as a result of such purchase
25% or more of the Fund's total assets would be invested in any one industry.
(10) Invest in commodities or commodity futures contracts, although it may buy
or sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate (including
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<PAGE> 127
real estate limited partnerships), although it may invest in securities which
are secured by real estate and securities of issuers which invest or deal in
real estate including real estate investment trusts.
(11) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities. The Fund may buy and sell
securities outside the United States which are not registered with the
Securities and Exchange Commission or marketable in the United States.
(12) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number (4) in the latest
fiscal period and it has no present intention of borrowing during the current
year. The Trust has adopted the following non-fundamental restrictions, which
may be changed by the Board of Trustees without shareholder approval.
The Fund may not, as a non-fundamental policy:
(i) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(ii) Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by the Fund, (ii)
5% of the Fund's total assets would be invested in any one such company, and
(iii) 10% of the Fund's total assets would be invested in such securities.
(iii) Invest more than 15% of its net assets in illiquid securities.
(iv) Invest in interests in oil, gas or other mineral exploration or development
programs or leases, although it may invest in the securities of issuers which
invest in or sponsor such programs.
(v) Invest more than 5% of the Fund's total assets in securities of issuers
(other than obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities) which with their predecessors have a record of less than
three years continuous operation and equity securities of issuers which are not
readily marketable.
(vi) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Trust or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(vii) Invest for the purpose of exercising control or management of another
issuer.
(viii) Invest more than 5% of its total assets in restricted securities,
excluding restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities will not exceed 10% of total
assets.
(ix) Invest more than 10% of its total assets in securities of real estate
investment trusts.
B-2
<PAGE> 128
INVESTMENT POLICIES AND TECHNIQUES
GENERAL. The Fund may invest in Zero Coupon Treasuries and Foreign Securities
(as defined in the prospectus) and engage in futures and options transactions
and other investment techniques in accordance with its investment objectives and
policies. See "Investment Objectives, Policies and Risk Factors" in the
prospectus. Supplemental information concerning the Fund's investments and
certain investment techniques is set forth below.
ZERO COUPON TREASURIES. There are currently two basic types of zero coupon
securities, those created by separating the interest and principal components of
a previously issued interest-paying security and those originally issued in the
form of a face amount only security paying no interest. Zero coupon securities
of the U.S. Government and certain of its agencies and instrumentalities and of
private corporate issuers are currently available, although the Fund will
purchase only those that represent direct obligations of the U.S. Government.
Zero coupon securities of the U.S. Government that are currently available are
called STRIPS (Separate Trading of Registered Interest and Principal of
Securities) or CUBES (Coupon Under Book-Entry Safekeeping). STRIPS and CUBES are
issued under programs introduced by the U.S. Treasury and are direct obligations
of the U.S. Government. The U.S. Government does not issue zero coupon
securities directly. The STRIPS program, which is ongoing, is designed to
facilitate the secondary market stripping of selected Treasury notes and bonds
into individual interest and principal components. Under the program, the U.S.
Treasury continues to sell its notes and bonds through its customary auction
process. However, a purchaser of those notes and bonds who has access to a
book-entry account at a Federal Reserve bank may separate the specified Treasury
notes and bonds into individual interest and principal components. The selected
Treasury securities may thereafter be maintained in the book-entry system
operated by the Federal Reserve in a manner that permits the separate trading
and ownership of the interest and principal payments. The Federal Reserve does
not charge a fee for this service; however, the book-entry transfer of interest
or principal components is subject to the same fee schedule generally applicable
to the transfer of Treasury securities.
Under the program, in order for a book-entry Treasury security to be separated
into its component parts, the face amount of the security must be an amount
which, based on the stated interest rate of the security, will produce a
semi-annual interest payment of $1,000 or a multiple of $1,000. Once a
book-entry security has been separated, each interest and principal component
may be maintained and transferred in multiples of $1,000 regardless of the face
amount initially required for separation or the resulting amount required for
each interest payment.
CUBES, like STRIPS, are direct obligations of the U.S. Government. CUBES are
coupons that have previously been physically stripped from Treasury notes and
bonds, but which were deposited with the Federal Reserve and are now carried and
transferable in book-entry form only. Only stripped Treasury coupons maturing on
or after
January 15, 1988, that were stripped prior to January 5, 1987, were eligible for
conversion to book-entry form under the CUBES program.
Investment banks may also strip Treasury securities and sell them under
proprietary names. These securities may not be as liquid as STRIPS and CUBES and
the Fund has no present intention of investing in these instruments.
STRIPS and CUBES are purchased at a discount from $1,000. Absent a default by
the U.S. Government, a purchaser will receive face value for each of the STRIPS
and CUBES provided the STRIPS and CUBES are held to their due dates. While
STRIPS and CUBES can be purchased on any business day, they all currently come
due on February 15, May 15, August 15 or November 15.
FINANCIAL FUTURES CONTRACTS. The Fund may enter into financial futures contracts
for the future delivery of a financial instrument, such as a security, or an
amount of foreign currency, or the cash value of a securities index. This
investment technique is designed primarily to hedge (i.e., protect) against
anticipated future changes in market conditions or foreign exchange rates which
otherwise might adversely affect the value of securities or other assets which
the Fund holds or intends to purchase. A "sale" of a futures contract means the
undertaking of a contractual obligation to deliver the securities or the cash
value of an index or foreign currency called for by the
B-3
<PAGE> 129
contract at a specified price during a specified delivery period. A "purchase"
of a futures contract means the undertaking of a contractual obligation to
acquire the securities or cash value of an index or foreign currency at a
specified price during a specified delivery period. At the time of delivery in
the case of fixed income securities pursuant to the contract, adjustments are
made to recognize differences in value arising from the delivery of securities
with a different interest rate than that specified in the contract. In some
cases, securities called for by a futures contract may not have been issued at
the time the contract was written.
Although some financial futures contracts by their terms call for the actual
delivery or acquisition of securities or other assets, in most cases a party
will close out the contractual commitment before delivery without having to make
or take delivery of the underlying assets by purchasing (or selling, as the case
may be) on a commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, if effected through a member of
an exchange, cancels the obligation to make or take delivery of the underlying
securities or other assets. All transactions in the futures market are made,
offset or fulfilled through a clearing house associated with the exchange on
which the contracts are traded. The Fund will incur brokerage fees when it
purchases or sells contracts, and will be required to maintain margin deposits.
At the time the Fund enters into a futures contract, it is required to deposit
with its custodian, on behalf of the broker, a specified amount of cash or
eligible securities, called "initial margin." The initial margin required for a
futures contract is set by the exchange on which the contract is traded.
Subsequent payments, called "variation margin," to and from the broker are made
on a daily basis as the market price of the futures contract fluctuates. The
costs incurred in connection with futures transactions could reduce the Fund's
return. Futures contracts entail risks. If the investment manager's judgment
about the general direction of markets or exchange rates is wrong, the overall
performance may be poorer than if no such contracts had been entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators, the
margin requirements in the futures market are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager may still not result in a successful hedging
transaction. If any of these events should occur, the Fund could lose money on
the financial futures contracts and also on the value of its assets.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Fund may purchase and write call and
put options on financial futures contracts. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. The Fund would be required
to deposit with its custodian initial margin and maintenance margin with respect
to put and call options on futures contracts written by it. The Fund will
establish segregated accounts or will provide cover with respect to written
options on financial futures contracts in a manner similar to that described
under "Options on Securities." Options on futures contracts involve risks
similar to those risks relating to transactions in financial futures contracts
described above. Also, an option purchased by the Fund may expire worthless, in
which case the Fund would lose the premium paid therefor.
OPTIONS ON SECURITIES. The Fund may write (sell) "covered" call options on
securities so long as it owns the underlying securities subject to the option or
an option to purchase the same underlying securities, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain for the term of the option a segregated account
consisting of cash, U.S. Government securities or other liquid high
B-4
<PAGE> 130
grade debt obligations ("eligible securities") having a value at least equal to
the fluctuating market value of the optioned securities. The Fund may write
"covered" put options provided that, as long as the Fund is obligated as a
writer of a put option, the Fund will own an option to sell the underlying
securities subject to the option, having an exercise price equal to or greater
than the exercise price of the "covered" option, or it will deposit and maintain
in a segregated account eligible securities having a value equal to or greater
than the exercise price of the option. A call option gives the purchaser the
right to buy, and the writer the obligation to sell, the underlying security at
the exercise price during the option period. A put option gives the purchaser
the right to sell, and the writer has the obligation to buy, the underlying
security at the exercise price during the option period. The premium received
for writing an option will reflect, among other things, the current market price
of the underlying security, the relationship of the exercise price to such
market price, the price volatility of the underlying security, the option
period, supply and demand and interest rates. The exercise price of an option
may be below, equal to or above the current market value of the underlying
security at the time the option is written. The Fund may write or purchase
spread options, which are options for which the exercise price may be a fixed
dollar spread or yield spread between the security underlying the option and
another security it does not own, but that is used as a bench mark. The buyer of
a put who also owns the related security is protected by ownership of a put
option against any decline in that security's price below the exercise price
less the amount paid for the option. The ability to purchase put options allows
the Fund to protect capital gains in an appreciated security it owns, without
being required to actually sell that security. At times the Fund would like to
establish a position in a security upon which call options are available. By
purchasing a call option, the Fund is able to fix the cost of acquiring the
security, this being the cost of the call plus the exercise price of the option.
This procedure also provides some protection from an unexpected downturn in the
market because the Fund is only at risk for the amount of the premium paid for
the call option which it can, if it chooses, permit to expire.
During the option period the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying asset rise
in value, and the secured put writer retains the risk of loss should the
underlying asset decline in value. For the covered call writer, substantial
appreciation in the value of the underlying asset would result in the asset
being "called away." For the secured put writer, substantial depreciation in the
value of the underlying asset would result in the asset being "put to" the
writer. If a covered call option expires unexercised, the writer realizes a gain
and the buyer a loss in the amount of the premium. If the covered call option
writer has to sell the underlying asset because of the exercise of the call
option, it realizes a gain or loss from the sale of the underlying asset, with
the proceeds being increased by the amount of the premium.
If a secured put option expires unexercised, the writer realizes a gain and the
buyer a loss in the amount of the premium. If the secured put writer has to buy
the underlying asset because of the exercise of the put option, the secured put
writer incurs an unrealized loss to the extent that the current market value of
the underlying asset is less than the exercise price of the put option minus the
premium received.
OVER-THE-COUNTER OPTIONS. As indicated in the prospectus (see "Investment
Objectives and Policies"), the Fund may deal in over-the-counter traded options
("OTC options"). OTC options differ from exchange traded options in several
respects. They are transacted directly with dealers and not with a clearing
corporation, and there is a risk of nonperformance by the dealer as a result of
the insolvency of such dealer or otherwise, in which event the Fund may
experience material losses. However, in writing options the premium is paid in
advance by the dealer. OTC options are available for a greater variety of
securities, and a wider range of expiration dates and exercise prices, than are
exchange traded options. Since there is no exchange, pricing is normally done by
reference to information from market makers, which information is carefully
monitored by the investment manager and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there can be
no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, the Fund may be able to
realize the value of an OTC option it has purchased only by exercising it or
entering into a closing sale transaction with the dealer that issued it.
Similarly, when the Fund writes an OTC option, it generally can close out that
option prior to its
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<PAGE> 131
expiration only by entering into a closing purchase transaction with the dealer
to which the Fund originally wrote it. If a covered call option writer cannot
effect a closing transaction, it cannot sell the underlying asset until the
option expires or the option is exercised. Therefore, a covered call option
writer of an OTC option may not be able to sell an underlying asset even though
it might otherwise be advantageous to do so. Likewise, a secured put writer of
an OTC option may be unable to sell the assets pledged to secure the put for
other investment purposes while it is obligated as a put writer. Similarly, a
purchaser of such put or call option might also find it difficult to terminate
its position on a timely basis in the absence of a secondary market.
The Fund understands the position of the staff of the Securities and Exchange
Commission ("SEC") to be that purchased OTC options and the assets used as
"cover" for written OTC options are illiquid securities. The investment manager
disagrees with this position and has found the dealers with which it engages in
OTC options transactions generally agreeable to and capable of entering into
closing transactions. The Fund has adopted procedures for engaging in OTC
options for the purpose of reducing any potential adverse effect of such
transactions upon the liquidity of the Fund's portfolio. A brief description of
such procedures is set forth below.
The Fund will only engage in OTC options transactions with dealers approved by
the investment manager pursuant to procedures adopted by the Trust's Board of
Trustees. The investment manager believes that the approved dealers should be
able to enter into closing transactions if necessary and, therefore, present
minimal credit risks to the Fund. The investment manager will monitor the
creditworthiness of the approved dealers on an on-going basis. The Fund
currently will not engage in OTC options transactions if the amount invested by
the Fund in OTC options, plus a "liquidity charge" related to OTC options
written by the Fund, plus the amount invested by the Fund in illiquid
securities, would exceed 15% of the Fund's net assets. The "liquidity charge"
referred to above is computed as described below.
The Fund anticipates entering into agreements with dealers to which the Fund
sells OTC options. Under these agreements the Fund would have the absolute right
to repurchase the OTC options from the dealer at any time at a price no greater
than a price established under the agreements (the "Repurchase Price"). The
"liquidity charge" referred to above for a specific OTC option transaction will
be the Repurchase Price related to the OTC option less the intrinsic value of
the OTC option. The intrinsic value of an OTC call option for such purposes will
be the amount by which the current market value of the underlying security
exceeds the exercise price. In the case of an OTC put option, intrinsic value
will be the amount by which the exercise price exceeds the current market value
of the underlying security. If there is no such agreement requiring a dealer to
allow the Fund to repurchase a specific OTC option written by the Fund, the
"liquidity charge" will be the current market value of the assets serving as
"cover" for such OTC option.
OPTIONS ON SECURITIES INDICES. The Fund also may purchase and write call and put
options on securities indices in an attempt to hedge against market conditions
affecting the values of securities that the Fund owns or intends to purchase,
and not for speculation. Through the writing or purchase of index options, the
Fund can achieve many of the same objectives as through the use of options on
individual securities. Options on securities indices are similar to options on a
security except that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the securities index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. This amount of cash is equal to the difference between the
closing price of the index and the exercise price of the option. The writer of
the option is obligated, in return for the premium received, to make delivery of
this amount. Unlike security options, all settlements are in cash and gain or
loss depends upon price movements in the market generally (or in a particular
industry or segment of the market), rather than upon price movements in
individual securities. Price movements in securities that the Fund owns or
intends to purchase will probably not correlate perfectly with movements in the
level of an index since the prices of such securities may be affected by
somewhat different factors and, therefore, the Fund bears the risk that a loss
on an index option would not be completely offset by movements in the price of
such securities.
B-6
<PAGE> 132
The Fund will cover call options written on a securities index by owning
securities whose price changes, in the opinion of the Fund's investment manager,
are expected to be similar to those of the index, or in such other manner as may
be in accordance with applicable laws, regulations and exchange rules. Price
changes of the securities owned will probably not be perfectly correlated with
the index. The Fund will secure put options written on a securities index by
segregating liquid high-grade securities equal to the exercise price, or in such
other manner as may be in accordance with applicable laws, regulations and
exchange rules. When the Fund writes an option on a securities index, it will be
required to deposit with its custodian and mark-to-market eligible securities
equal in value to at least 100% of the exercise price in the case of a put, or
the contract value in the case of a call. In addition, if the Fund writes a call
option on a securities index at a time when the contract value exceeds the
exercise price, the Fund will segregate and mark-to-market, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess.
The Fund may also purchase and write options on other appropriate indices, as
available, such as foreign currency indices. Options on futures contracts and
index options involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by the
Fund may expire worthless, in which case the Fund would lose the premium paid
therefor.
FOREIGN CURRENCY OPTIONS. A foreign currency option provides the option buyer
with the right to buy or sell a stated amount of foreign currency at the
exercise price at a specified date or during the option period. A call option
gives its owner the right, but not the obligation, to buy the currency, while a
put option gives its owner the right, but not the obligation, to sell the
currency. The option seller (writer) is obligated to fulfill the terms of the
option sold if it is exercised. However, either seller or buyer may close its
position during the option period in the secondary market for such options any
time prior to expiration.
A call rises in value if the underlying currency appreciates. Conversely, a put
rises in value if the underlying currency depreciates. While purchasing a
foreign currency option can protect the Fund against an adverse movement in the
value of a foreign currency, it does not limit the gain which might result from
a favorable movement in the value of such currency. For example, if the Fund
were holding securities denominated in an appreciating foreign currency and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, it would not have to exercise its put. Similarly, if the Fund has
entered into a contract to purchase a security denominated in a foreign currency
and had purchased a foreign currency call to hedge against a rise in value of
the currency but instead the currency had depreciated in value between the date
of purchase and the settlement date, the Fund would not have to exercise its
call but could acquire in the spot market the amount of foreign currency needed
for settlement.
FOREIGN CURRENCY FUTURES TRANSACTIONS. As part of its financial futures
transactions (see "Financial Futures Contracts" and "Options on Financial
Futures Contracts" above), the Fund may use foreign currency futures contracts
and options on such futures contracts. Through the purchase or sale of such
contracts, the Fund may be able to achieve many of the same objectives as
through forward foreign currency exchange contracts more effectively and
possibly at a lower cost.
Unlike forward foreign currency exchange contracts, foreign currency futures
contracts and options on foreign currency futures contracts are standardized as
to amount and delivery period and are traded on boards of trade and commodities
exchanges. It is anticipated that such contracts may provide greater liquidity
and lower cost than forward foreign currency exchange contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days ("term") from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded directly between currency traders (usually large
commercial banks) and their customers. The Fund's investment manager believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that to do so is in the best interests of a Fund. A
Fund will not speculate in foreign currency.
B-7
<PAGE> 133
If the Fund retains the portfolio security and engages in an offsetting
transaction with respect to a forward contract, the Fund will incur a gain or a
loss (as described below) to the extent that there has been movement in forward
contract prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between the Fund's entering into
a forward contract for the sale of foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, the Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain which might result should the value of such currency increase.
The Fund will have to convert its holdings of foreign currencies into U.S.
Dollars from time to time. Although foreign exchange dealers do not charge a fee
for conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
The Fund will not enter into such forward contracts or maintain a net exposure
in such contracts when the Fund would be obligated to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency. The Fund does not intend to enter
into forward contracts for the purchase of a foreign currency if it would have
more than 15% of the value of its total assets committed to such contracts. The
Fund's custodian bank segregates cash or liquid high-grade securities in an
amount not less than the value of the Fund's total assets committed to forward
foreign currency exchange contracts entered into for the purchase of a foreign
currency. If the value of the securities segregated declines, additional cash or
securities is added so that the segregated amount is not less than the amount of
the Fund's commitments with respect to such contracts. The Fund generally does
not enter into a forward contract with a term longer than one year.
REGULATORY RESTRICTIONS. To the extent required to comply with SEC Release No.
IC-10666, when purchasing a futures contract, writing a put option or entering
into a forward foreign currency exchange purchase, the Fund will maintain in a
segregated account cash, U.S. Government securities or liquid high-grade debt
obligations equal to the value of such contracts. The Fund will use cover in
connection with selling a futures contract.
The Fund will not engage in transactions in financial futures contracts or
options thereon for speculation, but only to attempt to hedge against changes in
market conditions affecting the values of securities or other assets which the
Fund holds or intends to purchase.
FOREIGN DEBT SECURITIES. As reflected in the prospectus, the Fund as part of its
investments in Foreign Securities may invest in fixed income securities
(normally limited to 5% of net assets). The Fund will invest in foreign fixed
income securities based on KFS's analysis without relying on published ratings.
The Fund will invest in a particular security if in the view of KFS the
increased yield offered, regardless of published ratings, is sufficient to
compensate for the assumed risk. Since investments will be based upon KFS's
analysis rather than upon published ratings, achievement of the Fund's goals may
depend more upon the abilities of KFS than would otherwise be the case.
Investment in lower rated securities, while providing greater income and
opportunity for gain than investment in higher rated securities, entails
relatively greater risk of loss of income and principal.
The Fund may invest in emerging market and other foreign fixed income
securities. Investments in emerging market and other foreign securities involve
certain risk considerations not typically associated with investing in
securities of U.S. issuers, including: (a) currency devaluations and other
currency exchange rate fluctuations; (b) political uncertainty and instability,
including military coups and armed conflict; (c) more substantial government
involvement in the economy; (d) higher rates of inflation; (e) less government
supervision and regulation of the securities markets and participants in those
markets; (f) controls on foreign investment and limitations on repatriation of
invested capital and on the Fund's ability to exchange local currencies for U.S.
Dollars; (g) greater price volatility, substantially less liquidity and
significantly smaller capitalization of securities markets; (h) absence of
uniform accounting and auditing standards; (i) generally higher commission
expenses;
B-8
<PAGE> 134
(j) delay in settlement of securities transactions; and (k) greater difficulty
in enforcing shareholder rights and remedies.
Emerging markets may also present greater risks of nationalization,
expropriation and other confiscation than do developed markets. Such risks are
present in markets in Eastern Europe, for example, and these and the other risks
discussed above could affect adversely the economies of such markets or the
Fund's investments in such markets.
Income on Foreign Securities may be subject to withholding and other taxes,
which would reduce the yield on such securities to the Fund and which may not be
recoverable by the Fund or its shareholders. Because the Fund may invest in
foreign currency denominated securities, changes in foreign currency exchange
rates will affect the Fund's net asset value, the value of interest earned, and
gains and losses realized on the sale of securities denominated in foreign
currencies.
The value of the fixed income securities held by the Fund, and thus the net
asset value of the Fund's shares, generally will fluctuate with (a) changes in
the perceived creditworthiness of the issuers of those securities, (b) movements
in interest rates, and (c) changes in the relative values of the currencies in
which the Fund's investments in fixed income securities are denominated with
respect to the U.S. Dollar. The extent of the fluctuation will depend on various
factors, such as the average maturity of the Fund's investments in foreign fixed
income securities, and the extent to which the Fund hedges its interest rate,
credit and currency exchange rate risks. Many of the foreign fixed income
obligations in which the Fund will invest will have long maturities. A longer
average maturity generally is associated with a higher level of volatility in
the market value of such securities in response to changes in market conditions.
Investments in sovereign debt involve special risks. Foreign governmental
issuers of debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal or pay interest when due.
In the event of default, there may be limited or no legal recourse in that,
generally, remedies for defaults must be pursued in the courts of the defaulting
party. Political conditions, especially a sovereign entity's willingness to meet
the terms of its fixed income securities, are of considerable significance.
Also, there can be no assurance that the holders of commercial bank loans to the
same sovereign entity may not contest payments to the holders of sovereign debt
in the event of default under commercial bank loan agreements. In addition,
there is no bankruptcy proceeding with respect to sovereign debt on which a
sovereign has defaulted, and the Fund may be unable to collect all or any part
of its investment in a particular issue.
Foreign investment in certain sovereign debt is restricted or controlled to
varying degrees, including requiring governmental approval for the repatriation
of income, capital or proceed of sales by foreign investors. These restrictions
or controls may at times limit or preclude foreign investment in certain
sovereign debt or increase the costs and expenses of the Fund. A significant
portion of the sovereign debt in which the Fund may invest is issued as part of
debt restructuring and such debt is to be considered speculative.
PRIVATIZED ENTERPRISES. The governments of certain foreign countries have, to
varying degrees, embarked on privatization programs contemplating the sale of
all or part of their interests in state enterprises. The Fund's investments in
the securities of privatized enterprises include privately negotiated
investments in a government- or state-owned or controlled company or enterprise
that has not yet conducted an initial equity offering, investments in the
initial offering of equity securities of a state enterprise or former state
enterprise and investments in the securities of a state enterprise following its
initial equity offering.
In certain jurisdictions, the ability of foreign entities, such as the Fund, to
participate in privatizations may be limited by local law, or the price or terms
on which the Fund may be able to participate may be less advantageous than for
local investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be successful or that
governments will not re-nationalize enterprises that have been privatized.
B-9
<PAGE> 135
In the case of the enterprises in which the Fund may invest, large blocks of the
stock of those enterprises may be held by a small group of stockholders, even
after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization or management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as the enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which the Fund may
invest enjoy the protection of and receive preferential treatment from the
respective sovereigns that own or control them. After making an initial equity
offering these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements, which are
instruments under which the Fund acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the Fund's holding period. In the event of
a bankruptcy or other default of a seller of a repurchase agreement, the Fund
might incur expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. The securities underlying a repurchase agreement will be
marked-to-market every business day so that the value of such securities is at
least equal to the investment value of the repurchase agreement, including any
accrued interest thereon. The Fund currently does not intend to invest more than
5% of its net assets in repurchase agreements during the current year.
SHORT SALES AGAINST-THE-BOX. The Fund may make short sales against-the-box for
the purpose of deferring realization of gain or loss for federal income tax
purposes. A short sale "against-the-box" is a short sale in which the Fund owns
at least an equal amount of the securities or other assets sold short or
securities convertible into or exchangeable for, without payment of any further
consideration, securities or other assets of the same issue as, and at least
equal in amount to, the securities or other assets sold short. The Fund may
engage in such short sales only to the extent that not more than 10% of the
Fund's total assets (determined at the time of the short sale) is held as
collateral for such sales. The Fund currently does not intend, however, to
engage in such short sales to the extent that more than 5% of its net assets
will be held as collateral therefor during the current year.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund will normally distribute annual dividends of net investment
income and any net realized short-term and long-term capital gains. The Fund may
at any time vary the foregoing dividend practice and, therefore, reserves the
right from time to time either to distribute or to retain for reinvestment such
of its net investment income and its net short-term and long-term capital gains
as the Board of Trustees determines appropriate under then current
circumstances. In particular, and without limiting the foregoing, the Fund may
make additional distributions of net investment income or capital gain net
income in order to satisfy the minimum distribution requirements contained in
the Internal Revenue Code (the "Code"). Dividends will be reinvested in shares
of the Fund unless shareholders indicate in writing that they wish to receive
them in cash or in shares of other Kemper Funds. As reflected in the prospectus
(see "Dividends and Taxes"), shareholders must reinvest all dividends and hold
their shares until the Maturity Date in order to be assured of the benefit of
the Fund's Investment Protection.
B-10
<PAGE> 136
TAXES. The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Code and, if so qualified, will not be liable for
federal income taxes to the extent its earnings are distributed. One of the
Subchapter M requirements to be satisfied is that less than 30% of the Fund's
gross income during the fiscal year must be derived from gains (not reduced by
losses) from the sale or other disposition of securities and certain other
investments held for less than three months. The Fund may be limited in its
options, futures and foreign currency transactions in order to prevent
recognition of such gains.
The Fund's options, futures and foreign currency transactions are subject to
special tax provisions that may accelerate or defer recognition of certain gains
or losses, change the character of certain gains or losses, or alter the holding
periods of certain of the Fund's securities.
Gains and losses attributable to fluctuations in the value of foreign currencies
will be characterized generally as ordinary gain or loss under Section 988 of
the Code. For example, if the Fund sold a foreign bond and part of the gain or
loss on the sale was attributable to an increase or decrease in the value of a
foreign currency, then the currency gain or loss would be treated as ordinary
income or loss. If such transactions result in greater net ordinary income, the
dividends paid by the Fund will be increased; if the result of such transactions
is lower net ordinary income, a portion of dividends paid could be classified as
a return of capital.
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of the Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 in the prior calendar year, minus any overdistribution
in the prior calendar year. For purposes of calculating the required
distribution, foreign currency gains or losses occurring after October 31 are
taken into account in the following calendar year. The Fund intends to declare
or distribute dividends during the appropriate periods of an amount sufficient
to prevent imposition of the 4% excise tax.
A shareholder who redeems shares of the Fund will recognize capital gain or loss
for federal income tax purposes measured by the difference between the value of
the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of Fund shares held six months or less will be
treated as long-term capital loss to the extent that the shareholder has
received any long-term capital gain dividends on such shares. A shareholder who
has redeemed shares of the Fund or any other Kemper Mutual Fund listed in the
prospectus under "Special Features--Combined Purchases" may reinvest the amount
redeemed at net asset value at the time of the reinvestment in shares of the
Fund or in shares of the other Kemper Mutual Funds within six months of the
redemption as described in the prospectus under "Redemption or Repurchase of
Shares--Reinvestment Privilege." If the redeemed shares were held less than 91
days, then the lesser of (a) the sales charge waived on the reinvestment shares,
or (b) the sales charge incurred on the redeemed shares is included in the basis
of the reinvestment shares and is not included in the basis of the redeemed
shares. If a shareholder realizes a loss on the redemption or exchange of Fund
shares and reinvests in the same Fund's shares within 30 days before or after
the redemption or exchange, the transactions may be subject to the wash sale
rules resulting in a postponement of the recognition of such loss for federal
income tax purposes. An exchange of Fund shares for shares of another fund is
treated as a redemption and reinvestment for federal income tax purposes.
Shareholders who are non-resident aliens are subject to U.S. withholding tax on
ordinary income dividends (whether received in cash or shares) at a rate of 30%
or such lower rate as prescribed by any applicable tax treaty.
PERFORMANCE
As described in the prospectus, the Fund's historical performance or return may
be shown in the form of "average annual total return" and "total return"
figures. These various measures of performance are described below.
The Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for the Fund for
B-11
<PAGE> 137
a specific period is found by first taking a hypothetical $1,000 investment
("initial investment") in the Fund's shares on the first day of the period,
adjusting to deduct the maximum sales charge, and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is then
divided by the initial investment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. The calculation assumes that
all income and capital gains dividends paid by the Fund have been reinvested at
net asset value on the reinvestment dates during the period. Average annual
total return may also be calculated without deducting the maximum sales charge.
Calculation of the Fund's total return is not subject to a standardized formula,
except when calculated for the Fund's "Financial Highlights" table in the Fund's
financial statements. Total return performance for a specific period is
calculated by first taking an investment (normally assumed to be $10,000)
("initial investment") in the Fund's shares on the first day of the period,
either adjusting or not adjusting to deduct the maximum sales charge, and
computing the "ending value" of that investment at the end of the period. The
total return percentage is then determined by subtracting the initial investment
from the ending value and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all income
and capital gains dividends paid by the Fund have been reinvested at net asset
value on the reinvestment dates during the period. Total return may also be
shown as the increased dollar value of the hypothetical investment over the
period. Total return calculations that do not include the effect of the sales
charge would be reduced if such charge were included.
The Fund's performance figures are based upon historical results and are not
representative of future performance. The Fund's shares are sold at net asset
value plus a maximum sales charge of 5.0% of the offering price. Returns and net
asset value will fluctuate. Factors affecting the Fund's performance include
general market conditions, operating expenses and investment management. Any
additional fees charged by a dealer or other financial services firm would
reduce returns described in this section. Shares of the Fund are redeemable at
the then current net asset value, which may be more or less than original cost.
The figures below show performance information for the period ended June 30,
1994. Comparative information with respect to the Dow Jones Industrial Average,
the Standard & Poor's 500 Stock Index, Europe Australia Far East ("EAFE") Index,
the Consumer Price Index and the Lipper Balanced Target Maturity Fund Index is
also included, where available. There are differences and similarities between
the investments which the Fund may purchase for its portfolio and the
investments measured by such indexes. The Fund primarily invests in zero coupon
bonds and international equities in pursuing its objectives of providing 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 of providing a total return. Its net asset value and returns fluctuate. No
adjustment has been made for taxes payable on dividends. The period indicated
was one of fluctuating securities prices.
<TABLE>
<CAPTION>
COMPARED
TO
VALUE OF FUND JUNE 30, 1995 ---------
--------------------------------------------------------------------------------------------------------
CAPITAL
TOTAL INITIAL GAIN INCOME ENDING PERCENTAGE ENDING PERCENTAGE DOW JONES
RETURN $10,000 DIVIDENDS DIVIDENDS VALUE INCREASE VALUE INCREASE INDUSTRIAL
TABLE INVESTMENT(1) REINVESTED REINVESTED(2) (ADJUSTED)(1) (ADJUSTED)(1) (UNADJUSTED)(3) (UNADJUSTED)(3) AVERAGE(4)
- ------------- ------------ ---------- ------------ ------------ ------------ -------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund(9) $ 10,518 $0 $141 $ 10,659 6.6% $ 11,216 12.2% 26.9%
One Year 10,495 0 141 10,636 6.4 11,191 11.9 29.1
<CAPTION>
LIPPER
STANDARD EUROPE BALANCED
TOTAL & POOR'S AUSTRALIA CONSUMER TARGET
RETURN 500(5) FAR EAST PRICE MATURITY
TABLE INDEX INDEX(6) INDEX(7) FUND(8)
- ------------- --------- --------- -------- --------
<S> <<C> <C> <C> <C>
Life of
Fund(9) 25.1% 2.8% 3.5% 14.4%
One Year 26.0 2.0 3.0 16.1
</TABLE>
<TABLE>
<CAPTION>
AVERAGE
ANNUAL TOTAL DOW JONES STANDARD & POOR'S EUROPE AUSTRALIA CONSUMER
RETURN TABLE FUND INDUSTRIAL AVERAGE(4) 500 INDEX(5) FAR EAST INDEX(6) PRICE INDEX(7)
- ------------------------- ---- ---------------------- ------------------ -------------------- ---------------
<S> <C> <C> <C> <C> <C>
Life of Fund(9) 5.7 % 22.8% 21.3% 2.5% 3.0%
One Year 6.4 29.1 26.0 2.0 3.0
<CAPTION>
AVERAGE LIPPER
ANNUAL TOTAL BALANCED TARGET
RETURN TABLE MATURITY FUND(8)
- ------------------------- ----------------
<S> <C>
Life of Fund(9) 12.3%
One Year 16.1
</TABLE>
- ---------------
(1) The initial investment was adjusted for the maximum sales charge at the
beginning of the period.
B-12
<PAGE> 138
(2) Includes short-term capital gain dividends, if any.
(3) The initial investment was not adjusted for the maximum sales charge at the
beginning of the period.
(4) The Dow Jones Industrial Average is an unmanaged weighted average of thirty
blue chip industrial corporations listed on the New York Stock Exchange.
Assumes reinvestment of dividends. Source is Towers Data Systems.
(5) The Standard & Poor's 500 Stock Index is an unmanaged unweighted average of
500 stocks, over 95% of which are listed on the New York Stock Exchange.
Assumes reinvestment of dividends. Source is Towers Data Systems.
(6) The EAFE Index (Morgan Stanley Capital International Europe, Australia, Far
East Index) is a generally accepted benchmark for performance of major
overseas markets. This Index is unmanaged and is U.S. Dollar adjusted.
Assumes reinvestment of dividends. Source is Towers Data Systems.
(7) The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. Source is Towers Data Systems.
(8) Lipper Balanced Target Maturity Fund Average is an unweighted average of
the performance of the mutual funds in that category. Performance is based
on changes in net asset value with all dividends reinvested and with no
adjustment for sales charges. Source is Lipper Analytical Services, Inc.
(9) Since May 3, 1994.
The following table illustrates an assumed $10,000 investment in shares of the
Fund on May 3, 1994, which includes the current maximum sales charge of 5.0%,
with income and capital gain dividends, if any, reinvested in additional shares.
The table covers the period through June 30, 1995.
<TABLE>
<CAPTION>
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
------------------------- ----------------------------------------------------
CAPITAL REINVESTED
PERIOD INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
6/30 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- ------ ---------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1994 $ 0 $0 $ 9,525 $ 0 $0 $ 9,525
1995 $126 $0 $ 10,518 $141 $0 $10,659
</TABLE>
- ---------------
* Includes short-term capital gain dividends, if any.
The following table compares the performance of the Fund with that of other
mutual funds within the Balanced Target Maturity Fund category according to data
reported by Lipper Analytical Services, Inc. ("Lipper"), New York, New York,
which is a mutual fund reporting service. Lipper performance figures are based
on changes in net asset value, with all income and capital gain dividends
reinvested. Such calculations do not include the effect of any sales charges.
Future performance cannot be guaranteed. Lipper publishes performance analyses
on a regular basis.
<TABLE>
<CAPTION>
LIPPER BALANCED
TARGET MATURITY
FUND
---------------
<S> <C>
1 Year (Period ended 6/30/95).................................................... 10 of 13
</TABLE>
The Lipper Balanced Target Maturity Fund category includes funds which invest to
provide a guaranteed return of investment at maturity (target periods).
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Kemper Financial Services, Inc. ("KFS"), 120 South LaSalle
Street, Chicago, Illinois 60603, is the Fund's investment manager. Pursuant to
an investment management agreement, KFS acts as the Fund's investment adviser,
manages its investments, administers its business affairs, furnishes office
facilities and equipment, provides clerical, bookkeeping and administrative
services, and permits any of its officers or employees
B-13
<PAGE> 139
to serve without compensation as trustees or officers of the Trust if elected to
such positions. The investment management agreement provides that the Trust
shall pay the charges and expenses of its operations, including the fees and
expenses of the trustees (except those who are officers or employees of KFS),
independent auditors, counsel, custodian and transfer agent and the cost of
share certificates, reports and notices to shareholders, brokerage commissions
or transaction costs, costs of calculating net asset value, taxes and membership
dues. The Fund bears the expenses of registration of its shares with the
Securities and Exchange Commission, while KDI, as principal underwriter, pays
the cost of qualifying and maintaining the qualification of the Fund's shares
for sale under the securities laws of the various states. Kemper Retirement Fund
Series I through VI, each of which is a series of the Trust, are currently
subject to a different investment management agreement. The Trust's expenses are
generally allocated among the series on the basis of relative net assets at the
time of allocation, except that expenses directly attributable to a particular
series are charged to that series.
The Fund pays KFS an investment management fee, payable monthly, at an annual
rate of .60 of 1% of average daily net assets of the Fund. KFS has agreed to
reimburse the Fund to the extent required by applicable state expense
limitations should all operating expenses of the Fund, including the investment
management fees of KFS but excluding taxes, interest, distribution fees,
extraordinary expenses, brokerage commissions or transaction costs and any other
properly excludable expenses, exceed the applicable state expense limitations.
The Fund believes that the most restrictive state expense limitation currently
in effect would require that such operating expenses not exceed 2.5% of the
first $30 million of average daily net assets, 2% of the next $70 million and
1.5% of average daily net assets over $100 million. Under such state expense
limitation, custodian costs attributable to foreign securities that are in
excess of similar domestic custodian costs are excluded from operating expenses.
The investment management agreement provides that KFS shall not be liable for
any error of judgment or of law, or for any loss suffered by the Fund in
connection with the matters to which the agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
KFS in the performance of its obligations and duties, or by reason of its
reckless disregard of its obligations and duties under the agreement.
The investment management agreement continues in effect from year to year for
each series subject to the agreement so long as its continuation is approved at
least annually by (a) a majority of the trustees who are not parties to such
agreement or interested persons of any such party except in their capacity as
trustees of the Trust and (b) by the shareholders of each series or the Board of
Trustees. It may be terminated at any time upon 60 days' notice by either party,
or by a majority vote of the outstanding shares of a series with respect to that
series, and will terminate automatically upon assignment. If continuation is not
approved for a series, the investment management agreement nevertheless may
continue in effect for the series for which it is approved and KFS may continue
to serve as investment manager for the series for which it is not approved to
the extent permitted by the Investment Company Act of 1940. The management fee
and the expense limitation are computed based upon the average daily net assets
of all series subject to the agreement and are allocated among such series based
upon the relative net assets of each such series. Additional series may be
subject to the same or a different agreement.
For the services and facilities furnished to the Fund pursuant to the investment
management agreement during the fiscal year ended June 30, 1995 and the period
from May 3, 1994 to June 30, 1994, KFS received management fees aggregating
$129,000 and $3,000, respectively.
PRINCIPAL UNDERWRITER. Kemper Distributors, Inc. ("KDI"), a wholly owned
subsidiary of KFS, is the principal underwriter for shares of the Trust and acts
as agent of the Trust in the continuous offering of its shares. The Trust pays
the cost for the prospectus and shareholder reports to be set in type and
printed for existing shareholders, and KDI pays for the printing and
distribution of copies thereof used in connection with the offering of shares to
prospective investors. KDI also pays for supplementary sales literature and
advertising costs. Terms of continuation, termination and assignment under the
underwriting agreement are identical to those described above with regard to the
investment management agreement, except that termination other than upon
assignment requires six months' notice and continuation, amendment and
termination need not be on a series by series basis.
B-14
<PAGE> 140
As principal underwriter for the Fund during the fiscal year ended June 30, 1995
and the period from May 3, 1994 to June 30, 1994, KDI retained commissions of
$119,000 and $27,000, respectively, after allowing $1,286,000 and $250,000,
respectively, as commissions to retail firms of which $328,000 and $90,000,
respectively, was paid to firms affiliated with KDI.
ADMINISTRATIVE SERVICES. Administrative services are provided to the Trust
under an administrative services agreement ("administrative agreement") with
KDI. KDI bears all its expenses of providing services pursuant to the
administrative agreement between KDI and the Trust, including the payment of any
service fees. The Trust pays KDI an administrative services fee, payable
monthly, at the annual rate of up to .25 of 1% of average daily net assets of
the Trust.
KDI enters into related arrangements with various financial services firms, such
as broker-dealers or banks ("firms"), that provide services and facilities for
their customers or clients who are shareholders of the Trust. The firms shall
provide such office space and equipment, telephone facilities and personnel as
is necessary or appropriate for providing information and services to their
clients. Such services and assistance may include, but are not limited to,
establishing and maintaining shareholder accounts and records, processing
purchase and redemption transactions, answering routine inquiries regarding the
Trust, and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. KDI pays such firms a
service fee, payable quarterly, at an annual rate of up to .25 of 1% of the net
assets in Trust accounts that they maintain and service commencing with the
month after investment. Firms to which service fees may be paid include broker-
dealers affiliated with KDI.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Trust. Currently, the
administrative services fee payable to KDI is based only upon Trust assets in
accounts for which there is a firm listed on the Trust's records and it is
intended that KDI will pay all the administrative services fees that it receives
from the Trust to firms in the form of service fees. The effective
administrative services fee rate to be charged against all assets of the Trust
while this procedure is in effect would depend upon the proportion of Trust
assets that is in accounts for which there is a firm of record. The Board of
Trustees, in its discretion, may approve basing the fee to KDI on all Trust
assets in the future.
During the fiscal year ended June 30, 1995 and the period from May 3, 1994 to
June 30, 1994, the Fund incurred an administrative services fee of $49,000 and
less than $1,000, respectively, all of which was paid as services fees to firms,
including $14,000 and less than $1,000, respectively, to firms affiliated with
KDI.
Certain trustees or officers of the Trust are also directors or officers of KFS
and/or KDI as indicated under "Officers and Trustees."
CUSTODIAN AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary Trust Company
("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as custodian and
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, as sub-custodian, have custody of all securities and cash of the Trust
maintained in the United States. The Chase Manhattan Bank, N.A., Chase MetroTech
Center, Brooklyn, New York 11245, as custodian, has custody of all securities
and cash of the Trust held outside the United States. They attend to the
collection of principal and income, and payment for and collection of proceeds
of securities bought and sold by the Fund. IFTC is also the Trust's transfer
agent and dividend-paying agent. Pursuant to a services agreement with IFTC,
Kemper Service Company ("KSVC"), an affiliate of KFS, serves as "Shareholder
Service Agent of the Fund and, as such, performs all of IFTC's duties as
transfer agent and dividend paying agent." IFTC receives from the Fund as
transfer agent, and pays to KSVC, annual account fees of $6 per account plus
account set up, transaction and maintenance charges and out-of-pocket expense
reimbursement. IFTC's fee is reduced by certain earnings credits in favor of the
Fund. During the 1995 fiscal year, IFTC remitted shareholder service fees of
$40,000 to KSVC as Shareholder Service Agent.
B-15
<PAGE> 141
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Trust's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Trust. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
PORTFOLIO TRANSACTIONS
KFS is the investment manager for the Kemper Funds and KFS and its affiliates
also furnish investment management services to other clients including Kemper
Corporation and the Kemper insurance companies. KFS is the sole shareholder of
Kemper Asset Management Company and Kemper Investment Management Company
Limited. These three entities share some common research and trading facilities.
At times investment decisions may be made to purchase or sell the same
investment securities for the Fund and for one or more of the other clients
advised by KFS. When two or more of such clients are simultaneously engaged in
the purchase or sale of the same security through the same trading facility, the
transactions are allocated as to amount and price in a manner considered
equitable to each.
National securities exchanges have established limitations governing the maximum
number of options in each class which may be written by a single investor or
group of investors acting in concert. An exchange may order the liquidation of
positions found to be in violation of these limits, and it may impose certain
other sanctions. These position limits may restrict the number of options the
Fund will be able to write on a particular security.
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities and options and futures contracts available to the Fund. On
the other hand, the ability of the Fund to participate in volume transactions
may produce better executions for the Fund in some cases. The Board of Trustees
of the Trust believes that the benefits of KFS's organization outweigh any
limitations that may arise from simultaneous transactions or position
limitations.
KFS, in effecting purchases and sales of portfolio securities for the account of
the Fund, will implement the Fund's policy of seeking best execution of orders,
which includes best net prices, except to the extent that KFS may be permitted
to pay higher brokerage commissions for research services as described below.
Consistent with this policy, orders for portfolio transactions are placed with
broker-dealer firms giving consideration to the quality, quantity and nature of
each firm's professional services which include execution, clearance procedures,
wire service quotations and statistical and other research information provided
to the Fund and KFS. Any research benefits derived are available for all
clients, including clients of affiliated companies. Since it is only
supplementary to KFS's research efforts and must be analyzed and reviewed by
KFS's staff, the receipt of research information is not expected to materially
reduce expenses. In selecting among firms believed to meet the criteria for
handling a particular transaction, KFS may give consideration to those firms
that have sold or are selling shares of the Fund and other funds managed by KFS
and its affiliates, as well as to those firms that provide market, statistical
and other research information to the Fund and KFS, although KFS is not
authorized to pay higher commissions or, in the case of principal trades, higher
prices to firms that provide such services, except as described below.
KFS may in certain instances be permitted to pay higher brokerage commissions
(not including principal trades) solely for receipt of market, statistical and
other research services. Subject to Section 28(e) of the Securities Exchange Act
of 1934 and procedures adopted by the Board of Trustees of the Trust, the Fund
could pay a firm that provides research services to KFS a commission for
effecting a securities transaction for the Fund in excess of the amount other
firms would have charged for the transaction if KFS determines in good faith
that the greater commission is reasonable in relation to the value of the
research services provided by the executing firm viewed in terms either of a
particular transaction or KFS's overall responsibilities to the Fund or other
clients. Not all of such research services may be useful or of value in advising
the Fund. Research benefits will be available for all clients of KFS and its
subsidiaries. The investment management fee paid by the Fund to KFS is not
reduced because KFS receives these research services.
B-16
<PAGE> 142
During the fiscal year ended June 30, 1995, the Fund paid portfolio brokerage
commissions of $179,000; and of this amount 6% was allocated to broker-dealer
firms either on the basis of research information or sales of Kemper Mutual Fund
shares and during the period from May 3, 1994 to June 30, 1994, the Fund paid
portfolio brokerage commissions of $8,000.
PURCHASE AND REDEMPTION OF SHARES
During the Offering Period described in the prospectus (see "Purchase of
Shares"), Fund shares are sold at their public offering price, which is the net
asset value next determined after an order is received in proper form plus a
sales charge as described in the Fund's prospectus. The minimum initial
investment is $1,000 and the minimum subsequent investment is $100, but such
minimum amounts may be changed at any time. See the prospectus for certain
exceptions to these minimums. An order for the purchase of shares that is
accompanied by a check drawn on a foreign bank (other than a check drawn on a
Canadian bank in U.S. Dollars) will not be considered in proper form and will
not be processed unless and until the Fund determines that it has received
payment of the proceeds of the check. The time required for such determination
will vary and cannot be determined in advance. The amount received by a
shareholder upon redemption or repurchase may be more or less than the amount
paid for such shares depending on the market value of the Fund's portfolio
securities at the time; provided, however, shareholders who hold their shares to
the Maturity Date and reinvest their dividends will receive the benefit of the
Fund's Investment Protection.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares will be redeemed by the Fund at the applicable net asset value as
described in the Fund's prospectus. The redemption within one year of shares
purchased at net asset value under the Large Order NAV Purchase Privilege
described in the prospectus may be subject to a 1% contingent deferred sales
charge (see "Purchase of Shares" in the prospectus). When the Fund is asked to
redeem shares for which it may not yet have received good payment, it may delay
the mailing of a redemption check until it has determined that collected funds
have been received for the purchase of such shares, which will be up to 15 days.
Scheduled variations in or the elimination of the sales charge for purchases by
certain classes of persons or through certain types of transactions as described
in the prospectus is provided because of expected economies in sales and
sales-related efforts.
The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange (the "Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of the Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of its net assets, or (c) for such other periods as
the Securities and Exchange Commission may by order permit for the protection of
the Fund's shareholders.
Although it is the Fund's present policy to redeem in cash, if the Board of
Trustees determines that a material adverse effect would be experienced by the
remaining shareholders if payment were made wholly in cash, the Fund will
satisfy the redemption request in whole or in part by a distribution of
portfolio securities in lieu of cash, in conformity with the applicable rules of
the Securities and Exchange Commission, taking such securities at the same value
used to determine net asset value, and selecting the securities in such manner
as the Board of Trustees may deem fair and equitable. If such a distribution
occurred, shareholders receiving securities and selling them could receive less
than the redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be as liquid as a redemption
entirely in cash. The Trust has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940 pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets of
the Fund during any 90-day period for any one shareholder of record.
B-17
<PAGE> 143
OFFICERS AND TRUSTEES
The officers and trustees of the Trust, their birthdates, their principal
occupations and their affiliations, if any, with KFS, the Fund's investment
adviser and KDI, the Fund's principal underwriter, are as follows (The number
following each person's title is the number of investment companies managed by
KFS or an affiliate for which he or she holds similar positions):
JAMES B. AKINS (10/15/26), Director (11), 2904 Garfield Terrace N.W.,
Washington, D.C.; Consultant on International, Political and Economic Affairs;
formerly a career United States Foreign Service Officer; Energy Adviser for the
White House; United States Ambassador to Saudi Arabia.
ARTHUR R. GOTTSCHALK (2/13/25), Trustee (11), 10642 Brookridge Drive, Frankfort,
Illinois; Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; Member, Board of Governors, Heartland
Institute/Illinois; formerly, Illinois State Senator.
FREDERICK T. KELSEY (4/25/27), Trustee (11), 3133 Laughing Gull Court, John's
Island, South Carolina; Retired; formerly, consultant to Goldman, Sachs & Co.;
formerly, President, Treasurer and Trustee of Institutional Liquid Assets and
its affiliated mutual funds; Trustee of the Benchmark Fund and the Pilot Fund.
DAVID B. MATHIS* (4/13/38), Trustee (33), Kemper Center, Long Grove, Illinois;
Chairman, Chief Executive Officer and Director of Kemper Corporation; Director,
KFS, Kemper Financial Companies, Inc., several other Kemper Corporation
subsidiaries and IMC Global Inc.; Chairman of the Board, Lumbermens Mutual
Casualty Company.
FRED B. RENWICK (2/1/30), Director (11), 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director;
TIFF Industrial Program, Inc.; Director, The Wartberg Home Foundation; Chairman
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; previously member of the Investment
Committee of Atlanta University Board of Trustees; previously Director of Board
of Pensions Evangelical Lutheran Church in America.
STEPHEN B. TIMBERS (8/8/44), President and Trustee* (33), 120 S. LaSalle St.,
Chicago, Illinois; Chairman, Chief Executive Officer, Chief Investment Officer
and Director, KFS; President, Chief Operating Officer and Director, Kemper
Corporation; Director, Kemper Financial Companies, Inc., KDI; Gillett Holdings,
Inc. and LTV Corporation.
JOHN B. TINGLEFF (5/4/35), Trustee (11), 2015 South Lake Shore Drive, Harbor
Springs, Michigan; Retired; formerly President, Tingleff & Associates
(management consulting firm); formerly, Senior Vice President, Continental
Illinois National Bank & Trust Company.
JOHN G. WEITHERS (8/8/33), Trustee (11), 311 Springlake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University.
JOHN E. PETERS (11/4/47), Vice President* (33), 120 South LaSalle Street,
Chicago, Illinois; Senior Executive Vice President, KFS; President and Director,
KDI.
TRACY McCORMICK CHESTER (9/27/54), Vice President* (3), 120 South LaSalle
Street, Chicago, Illinois; Senior Vice President and Portfolio Manager, Kemper
Financial Services, Inc.; formerly, Portfolio Manager for Fiduciary Management;
prior thereto, independent consultant managing private accounts.
DENNIS H. FERRO (6/20/45), Vice President* (3), 120 South LaSalle Street,
Chicago, Illinois; Executive Vice President and Director of International Equity
Investments, Kemper Financial Services, Inc.; prior thereto, President, Managing
Director and Chief Investment Officer of an international investment advisory
firm.
CHARLES F. CUSTER (8/19/28), Vice President and Assistant Secretary* (33), 222
North LaSalle Street, Chicago, Illinois; Partner, Vedder, Price, Kaufman &
Kammholz (attorneys), Legal Counsel to the Fund.
B-18
<PAGE> 144
JEROME L. DUFFY (6/29/36), Treasurer* (33), 120 South LaSalle Street, Chicago,
Illinois; Senior Vice President, KFS.
PHILIP J. COLLORA (11/15/45), Vice President and Secretary* (33), 120 South
LaSalle Street, Chicago, Illinois; Attorney, Senior Vice President and Assistant
Secretary, KFS.
ELIZABETH C. WERTH (10/1/47), Assistant Secretary* (25), 120 South LaSalle
Street, Chicago, Illinois; Vice President and Director of State Registrations,
KFS and KDI.
* Interested persons as defined in the Investment Company Act of 1940.
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Trust, except that Mr. Custer's law firm
receives fees from the Trust as counsel to the Trust. The table below shows
amounts estimated to be paid or accrued to those trustees who are not designated
"interested persons" during the Fund's 1995 fiscal year as if the Fund had
existed for the entire fiscal year except that the information in the last
column is for calendar year 1994.
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT BENEFITS KEMPER FUNDS
COMPENSATION ACCRUED AS PART OF PAID TO
NAME OF TRUSTEE FROM FUND(3) FUND EXPENSES TRUSTEES(2)
- ------------------------------------------------ ------------ ------------------- ------------
<S> <C> <C> <C>
James B. Akins.................................. $2,300 $ 0 $ 66,600
Arthur R. Gottschalk(1)......................... $2,500 $ 0 $ 72,000
Frederick T. Kelsey(1).......................... $2,500 $ 0 $ 73,800
Fred B. Renwick................................. $2,300 $ 0 $ 66,600
John B. Tingleff................................ $2,500 $ 0 $ 70,500
John G. Weithers................................ $2,500 $ 0 $ 70,100
</TABLE>
- ---------------
(1) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with the Fund. Deferred amounts accrue interest
monthly at a rate equal to the yield of Kemper Money Market Fund-- Money
Market Portfolio. Total deferred amounts and interest accrued through June
30, 1995 are $2,400 and $3,800 for Messrs. Gottschalk and Kelsey,
respectively.
(2) Includes estimated compensation for service for calendar year 1994 on the
boards of 11 Kemper funds with 25 fund portfolios and amounts for new funds
as if the fund had existed at the beginning of the year and, for Kemper
Dreman Fund, Inc. as if it had been affiliated with the Kemper funds in 1994
and the Board Members had been such for all the Kemper funds during the
period.
(3) Estimated compensation that assumes all Board Members served on Board for
all of 1995 fiscal year.
As of September 29, 1995, the trustees and officers as a group owned less than
1% of the outstanding shares of the Fund and no person owned of record 5% or
more of the outstanding shares of the Fund, except that EVEREN Clearing Corp.,
77 W. Wacker Drive, Chicago, Illinois owned of record 8.7% of the outstanding
shares of the Fund.
SHAREHOLDER RIGHTS
The Trust generally is not required to hold meetings of its shareholders. Under
the Agreement and Declaration of Trust of the Trust ("Declaration of Trust"),
however, shareholder meetings will be held in connection with the following
matters: (a) the election or removal of trustees if a meeting is called for such
purpose; (b) the adoption of any contract for which approval by shareholders is
required by the Investment Company Act of 1940 ("1940 Act"); (c) any termination
of the Trust, a series or a class to the extent and as provided in the
Declaration of Trust; (d) any amendment of the Declaration of Trust (other than
amendments changing the name of the Trust, establishing a series, supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision thereof); (e) as to whether a court action,
proceeding or claim should or
B-19
<PAGE> 145
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or the shareholders, to the same extent as the stockholders of a
Massachusetts business corporation; and (f) such additional matters as may be
required by law, the Declaration of Trust, the By-laws of the Trust, or any
registration of the Trust with the Securities and Exchange Commission or any
state, or as the trustees may consider necessary or desirable. The shareholders
also would vote upon changes in fundamental investment objectives, policies or
restrictions.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Trust will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Trustees may be removed from office by a vote of the holders of a majority of
the outstanding shares at a meeting called for that purpose, which meeting shall
be held upon the written request of the holders of not less than 10% of the
outstanding shares. Upon the written request of ten or more shareholders who
have been such for at least six months and who hold shares constituting at least
1% of the outstanding shares of the Trust stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Trust has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
The Declaration of Trust provides that the presence at a shareholder meeting in
person or by proxy of at least 30% of the shares entitled to vote on a matter
shall constitute a quorum. Thus, a meeting of shareholders of the Trust could
take place even if less than a majority of the shareholders were represented on
its scheduled date. Shareholders would in such a case be permitted to take
action which does not require a larger vote than a majority of a quorum, such as
the election of trustees and ratification of the selection of auditors. Some
matters requiring a larger vote under the Declaration of Trust, such as
termination or reorganization of the Trust and certain amendments of the
Declaration of Trust, would not be affected by this provision; nor would matters
which under the 1940 Act require the vote of a "majority of the outstanding
voting securities" as defined in the 1940 Act.
The Declaration of Trust specifically authorizes the Board of Trustees to
terminate the Trust (or any series) by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Trust. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Trust or the trustees. Moreover, the Declaration of Trust provides for
indemnification out of Trust property for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust and the
Trust will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by KFS and KDI as remote
and not material, since it is limited to circumstances in which a disclaimer is
inoperative and the Trust itself is unable to meet its obligations.
B-20
<PAGE> 146
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> 147
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> 148
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> 149
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> 150
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> 151
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> 152
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> 153
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> 154
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> 155
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> 156
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> 157
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> 158
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> 159
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> 160
KEMPER TARGET EQUITY FUND
PART C.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(i) Financial Statements included in Part A of the Registration
Statement: Financial Highlights, Kemper Retirement Fund Series VI.
(ii) Financial Statements included in Part B of the Registration
Statement: Kemper Retirement Fund Series I, Kemper Retirement Fund
Series II, Kemper Retirement Fund Series III, Kemper Retirement
Fund Series IV and Kemper Retirement Fund Series V
Statement of Assets and Liabilities--June 30, 1996.
Statement of Operations for the year ended June 30, 1996.
Statement of Changes in Net Assets for the fiscal years ended June
30, 1995 and June 30,
1996.
Portfolio of Investments--June 30, 1996.
Notes to Financial Statements.
Kemper Retirement Fund Series VI
Statement of Assets and Liabilities--June 30, 1996.
Statement of Operations for the year end June 30, 1996.
Statement of Changes in Net Assets for the period from May 1, 1995
to June 30, 1995 and
the fiscal year ended June 30, 1996.
Portfolio of Investments--June 30, 1996.
Notes to Financial Statements.
Kemper Worldwide 2004 Fund:
Statement of Assets and Liabilities--June 30, 1996.
Statement of Operations for the year ended June 30, 1996.
Statement of Changes in Net Assets for the fiscal years ended June
30, 1995 and June 30,
1996.
Portfolio of Investments--June 30, 1996.
Notes to Financial Statements.
Schedules II, III, IV and V are omitted as the required information is
not present. Schedule 1 has been omitted as the required information is
presented in the portfolio of investments at June 30, 1996.
(b) Exhibits
<TABLE>
<S> <C>
99.B1.(a) Amended and Restated Agreement and Declaration of Trust.(1)
99.B1.(b) Written Instrument Establishing and Designating Kemper Retirement Fund
Series VI.(1)
99.B2. By-Laws.(1)
99.B3. Inapplicable.
99.B4. Text of Share Certificate.(1)
99.B5.(a) Investment Management Agreement (Kemper Retirement Fund Series).
99.B5.(b) Investment Management Agreement (Kemper Worldwide 2004 Fund).
99.B6.(a) Underwriting Agreement.
99.B6.(b) Form of Selling Group Agreement.(1)
99.B7. Inapplicable.
99.B8.(a) Custody Agreement.(1)
99.B8.(b) Foreign Custody Agreement.(1)
99.B9.(a) Agency Agreement.(1)
99.B9.(b) Supplement to Agency Agreement.
99.B9.(c) Administrative Services Agreement.(1)
99.B9.(d) Guaranty Agreement--Kemper Retirement Fund Series I.(1)
99.B9.(e) Guaranty Agreement--Kemper Retirement Fund Series II.(1)
99.B9.(f) Guaranty Agreement--Kemper Retirement Fund Series III.(1)
99.B9.(g) Guaranty Agreement--Kemper Retirement Fund Series IV.(1)
99.B9.(h) Guaranty Agreement--Kemper Retirement Fund Series V.(1)
99.B9.(i) Guaranty Agreement--Kemper Retirement Fund Series VI.(1)
99.B9.(j) Guaranty Agreement--Kemper Worldwide 2004 Fund.(1)
99.B9.(k) Assignment and Assumption Agreement.(1)
99.B10. Inapplicable.
</TABLE>
C-1
<PAGE> 161
<TABLE>
<S> <C>
99.B11. Consent and Report of Independent Auditors.
99.B12. Inapplicable.
99.B13. Inapplicable.
99.B14.(a) Kemper Retirement Plan Prototype.
99.B14.(b) Model Individual Retirement Account.
99.B15. Inapplicable.
99.B16. Performance Calculations.(1)
99.B24. Powers of Attorney.
99.B27.1 Financial Data Schedule--Kemper Retirement Fund Series I.
99.B27.2 Financial Data Schedule--Kemper Retirement Fund Series II.
99.B27.3 Financial Data Schedule--Kemper Retirement Fund Series III.
99.B27.4 Financial Data Schedule--Kemper Retirement Fund Series IV.
99.B27.5 Financial Data Schedule--Kemper Retirement Fund Series V.
99.B27.6 Financial Data Schedule--Kemper Retirement Fund Series VI.
99.B27.7 Financial Data Schedule--Kemper Worldwide 2004 Fund.
99.485.(b) Representation of Counsel (Rule 485(b) ).
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A filed on or about April
20, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A filed on October 16, 1995.
(3) Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A filed on October 16, 1995,
except for the Power of Attorney of Dominique P. Morax, which is filed
herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of September 19, 1996 there were holders of record of the shares of
Registrant as follows:
<TABLE>
<CAPTION>
SERIES NUMBER
-------------------------------------------------- ------
<S> <C>
Kemper Retirement Fund Series I................... 6,107
Kemper Retirement Fund Series II.................. 10,073
Kemper Retirement Fund Series III................. 8,072
Kemper Retirement Fund Series IV.................. 9,559
Kemper Retirement Fund Series V................... 9,730
Kemper Retirement Fund Series VI.................. 4,597
Kemper Worldwide 2004 Fund........................ 2,958
</TABLE>
ITEM 27. INDEMNIFICATION
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 1 hereto, which is incorporated herein by reference) provides in effect
that the Registrant will indemnify its officers and trustees under certain
circumstances. However, in accordance with Section 17(h) and 17(i) of the
Investment Company Act of 1940 and its own terms, said Article of the Agreement
and Declaration of Trust does not protect any person against any liability to
the Registrant or its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question as to whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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ITEM 28(a) BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information pertaining to business and other connections of the
Registrant's investment advisers is hereby incorporated by reference to the
section of the Prospectus captioned "Investment Managers" and "Distributor"
and to the section of the Statement of Additional Information
captioned "Investment Managers and Distributor."
Zurich Kemper Investments, Inc., investment adviser of the Registrant, is
investment adviser of:
Kemper Mutual Funds:
Kemper Technology Fund
Kemper Total Return Fund
Kemper Growth Fund
Kemper Small Capitalization Equity Fund
Kemper Income and Capital Preservation Fund
Kemper Money Funds
Kemper National Tax-Free Income Series
Kemper Diversified Income Fund
Kemper High Yield Fund
Cash Equivalent Fund
Kemper U.S. Government Securities Fund
Kemper International Fund
Kemper Portfolios
Kemper State Tax-Free Income Series
Tax-Exempt California Money Market Fund
Kemper Adjustable Rate U.S. Government Fund
Kemper Blue Chip Fund
Kemper Global Income Fund
Kemper Target Equity Fund
Cash Account Trust
Investors Cash Trust
Tax-Exempt New York Money Market Fund
Kemper Value Plus Growth Fund
Kemper Quantitative Equity Fund
Kemper Horizon Fund
Kemper Europe Fund
Kemper Asian Growth Fund
Kemper Closed-End Funds:
Kemper High Income Trust
Kemper Intermediate Government Trust
Kemper Municipal Income Trust
Kemper Multi-Market Income Trust
Kemper Strategic Municipal Income Trust
The Growth Fund of Spain, Inc.
Kemper Strategic Income Fund
Zurich Kemper Investments, Inc. also furnishes investment advice to and
manages investment portfolios for other clients including Kemper Investors Fund
and Kemper International Bond Fund.
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Item 28(b)(i) Business and Other Connections of Officers
and Directors of Zurich Kemper Investments, Inc.,
the Investment Advisor
TIMBERS, STEPHEN B.
Director, President, Chief Executive Officer and Chief Investment
Officer, Zurich Kemper Investments, Inc.
Director, Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Chairman, Kemper Service Company
Director, Dreman Value Advisors, Inc.
Director, ZKI Agency, Inc.
Director, President, Kemper International Management, Inc.
Trustee and President, Kemper Funds
Director, The LTV Corporation
Governor, Investment Company Institute
NEAL, JOHN E.
Director, Zurich Kemper Investments, Inc.
President, Kemper Funds Group, a unit of Zurich Kemper
Investments, Inc.
Director, President, Kemper Service Company
Director, Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Dreman Value Advisors, Inc.
Director, ZKI Agency, Inc.
Director, Community Investment Corporation
Director, Continental Community Development Corporation
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
Director, RespiteCare
Director, Urban Shopping Centers, Inc.
Vice President, Kemper Funds
CHENG, LAURENCE W.
Director, Zurich Kemper Investments, Inc.
President and Chief Executive Officer, Zurich Investment
Management Group
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MORAX, DOMINQUE P.
Director, Zurich Kemper Investments, Inc.
Senior Vice President, Member Extended Corporate Executive Board,
Zurich Insurance Company
Trustee, Kemper Funds
CHAPMAN, II, WILLIAM E.
President, Kemper Retirement Plans Group, a unit of Zurich Kemper
Investments, Inc.
Director, Executive Vice President, Kemper Distributors, Inc.
VOGEL, VICTOR E.
Senior Executive Vice President, Zurich Kemper Investments, Inc.
Trustee, Zurich Kemper Investments, Inc. Profit Sharing Plan & Money
Purchase Pension Plan
BEIMFORD, JR., JOSEPH P.
Executive Vice President, Chief Investment Officer - Fixed
Income, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
Vice President, Galaxy Offshore, Inc.
Vice President, Investors Cash Trust
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Global Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Income and Capital Preservation Fund
Vice President, Kemper Intermediate Government Trust
Vice President, Kemper International Bond Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Money Funds
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Municipal Income Trust
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Portfolios
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Strategic Income Fund
Vice President, Kemper Strategic Municipal Income Trust
Vice President, Kemper U.S. Government Securities Fund
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund
COXON, JAMES H.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Vice President, Galaxy Offshore, Inc.
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Executive Vice President, Zurich Investment Management, Inc.
FERRO, DENNIS H.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Managing Director-Equities, Zurich Investment
Management Limited
Vice President, Kemper International Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Target Equity Fund
Vice President, The Growth Fund of Spain, Inc.
Vice President, Kemper Europe Fund
GREENAWALT, JAMES L.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, President, Kemper Distributors, Inc.
Director, President, ZKI Agency, Inc.
JOHNS, GORDON K.
Executive Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Global Income Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper International Bond Fund
Vice President, Kemper International Management, Inc.
Managing Director, Zurich Investment Management Limited
Vice President, Kemper Multi-Market Income Trust
Director, Thames Heritage Parade Limited
LANGBAUM, GARY A.
Executive Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Total Return Fund
Vice President, Kemper Investors Fund
MANZONI, JR., CHARLES R.
Executive Vice President, Secretary & General Counsel, Zurich Kemper
Investments, Inc.
Vice President, Kemper Funds
Secretary, ZKI Agency, Inc.
MURRIHY, MAURA J.
Executive Vice President, Zurich Kemper Investments, Inc.
REYNOLDS, STEVEN H.
Executive Vice President, Chief Investment Officer - Equities, Zurich
Kemper Investments, Inc.
Vice President, Kemper Technology Fund
Vice President, Kemper Total Return Fund
Vice President, Kemper Growth Fund
Vice President, Kemper Small Capitalization Equity Fund
Vice President, Kemper International Fund
Vice President, Kemper Blue Chip Fund
Vice President, Kemper Value Plus Growth Fund
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Target Equity Fund
Vice President, Kemper Horizon Fund
Vice President, Kemper Investors Fund
Vice President, The Growth Fund of Spain, Inc.
Vice President, Kemper Europe Fund
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ROBERTS, SCOTT A.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Zurich Investment Management, Inc.
SILIGMUELLER, DALE S.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Kemper Service Company
WEISS, ROBERT D.
Executive Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Zurich Investment Management, Inc.
BUKOWSKI, DANIEL J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Value Plus Growth Fund
Vice President, Kemper Investors Fund
BUTLER, DAVID H.
Senior Vice President, Zurich Kemper Investments, Inc.
CERVONE, DAVID M.
Senior Vice President, Zurich Kemper Investments, Inc.
CESSINE, ROBERT S.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Income and Capital Preservation Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Investors Fund
CHESTER, TRACY McCORMICK
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Blue Chip Fund
Vice President, Kemper Target Equity Fund
CIARLELLI, ROBERT W.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Kemper Service Company
COLLECCHIA, FRANK E.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
Senior Investment Officer, Federal Kemper Life Assurance
Company
Senior Investment Officer, Fidelity Life Association
Vice President, Galaxy Offshore, Inc.
Senior Investment Officer, Kemper Investors Life Insurance
Company
COLLORA, PHILIP J.
Senior Vice President and Assistant Secretary, Zurich Kemper
Investments, Inc.
Vice President and Secretary, Kemper Funds
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Assistant Secretary, Kemper International Management, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
Assistant Secretary, Dreman Value Advisors, Inc.
Assistant Secretary, ZKI Agency, Inc.
DUDASIK, PATRICK H.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Chief Financial Officer and Treasurer,
Dreman Value Advisors, Inc.
Vice President and Treasurer, Zurich Investment Management, Inc.
Treasurer and Chief Financial Officer, Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Kemper Service Company
Director and Treasurer, Zurich Investment Management Limited
Treasurer, ZKI Agency, Inc.
DUFFY, JEROME L.
Senior Vice President, Zurich Kemper Investments, Inc.
Treasurer, Kemper Funds
FINK, THOMAS M.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
GALLAGHER, MICHAEL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Kemper Service Company
GOERS, RICHARD A.
Senior Vice President, Zurich Kemper Investments, Inc.
GREENWALD, MARSHALL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
HARRINGTON, MICHAEL E.
Senior Vice President, Zurich Kemper Investments, Inc.
KLEIN, GEORGE
Senior Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Zurich Investment Management, Inc.
KLEIN, MARTY
Senior Vice President, Zurich Kemper Investments, Inc.
KORTH, FRANK D.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Technology Fund
McNAMARA, MICHAEL A.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
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Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
MOORE, C. PERRY
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, ZKI Agency, Inc.
MIER, CHRISTOPHER J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Municipal Income Trust
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Strategic Municipal Income Trust
RABIEGA, CRAIG F.
Senior Vice President, Zurich Kemper Investments, Inc.
First Vice President, Kemper Service Company
RACHWALSKI, JR. FRANK J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
Vice President, Investors Cash Trust
Vice President, Kemper Investors Fund
Vice President, Kemper Money Funds
Vice President, Kemper Portfolios
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund
REGNER, THOMAS M.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Horizon Fund
Vice President, Kemper Investors Fund
RESIS, JR., HARRY E.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
SCHUMACHER, ROBERT T.
Senior Vice President, Zurich Kemper Investments, Inc.
SILVIA, JOHN E.
Senior Vice President, Zurich Kemper Investments, Inc.
SMITH, JR., EDWARD BYRON
Senior Vice President, Zurich Kemper Investments, Inc.
SWANSON, DAVID
Senior Vice President, Zurich Kemper Investments, Inc.
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THOUIN-LEERKAMP, EDITH A.
Senior Vice President, Zurich Kemper Investments, Inc.
Director-European Equities, Zurich Investment Management Limited
Vice President, Kemper Europe Fund
VANDENBERG, RICHARD
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper U.S. Government Securities Fund
Vice President, Kemper Portfolios
Vice President, Kemper Adjustable Rate U.S. Government Fund
VINCENT, CHRISTOPHER T.
Senior Vice President, Zurich Kemper Investments, Inc.
First Vice President, Zurich Investment Management, Inc.
WONNACOTT, LARRY R.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
BAZAN, KENNETH M.
First Vice President, Zurich Kemper Investments, Inc.
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
BOEHM, JONATHAN J.
First Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Kemper Service Company
BURROW, DALE R.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Strategic Municipal Income Trust
BYRNES, ELIZABETH A.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Intermediate Government Trust
CHIEN, CHRISTINE
First Vice President, Zurich Kemper Investments, Inc.
CHRISTIANSEN, HERBERT A.
First Vice President, Zurich Kemper Investments, Inc.
First Vice President, Kemper Service Company
COHEN, JERRI I.
First Vice President, Zurich Kemper Investments, Inc.
DeMAIO, CHRIS C.
First Vice President, Zurich Kemper Investments, Inc.
Vice President and Chief Accounting Officer, Kemper Service
Company
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DEXTER, STEPHEN P.
First Vice President, Zurich Kemper Investments, Inc.
DOYLE, DANIEL J.
First Vice President, Zurich Kemper Investments, Inc.
FENGER, JAMES E.
First Vice President, Zurich Kemper Investments, Inc.
HALE, DAVID D.
First Vice President, Zurich Kemper Investments, Inc.
HORTON, ROBERT J.
First Vice President, Zurich Kemper Investments, Inc.
INNES, BRUCE D.
First Vice President, Zurich Kemper Investments, Inc.
Co-President, International Association of Corporate and
Professional Recruiters
JACOBS, PETER M.
First Vice President, Zurich Kemper Investments, Inc.
KEELEY, MICHELLE M.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Intermediate Government Trust
Vice President, Kemper Portfolios
KIEL, CAROL L.
First Vice President, Zurich Kemper Investments, Inc.
KNAPP, WILLIAM M.
First Vice President, Zurich Kemper Investments, Inc.
LAUGHLIN, ANN M.
First Vice President, Zurich Kemper Investments, Inc.
LENTZ, MAUREEN P.
First Vice President, Zurich Kemper Investments, Inc.
McCRINDLE-PETRARCA, SUSAN
First Vice President, Zurich Kemper Investments, Inc.
MINER, EDWARD
First Vice President, Zurich Kemper Investments, Inc.
MURRAY, SCOTT S.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
NORRIS, JOHNSTON A.
First Vice President, Zurich Kemper Investments, Inc.
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PANOZZO, ROBERTA L.
First Vice President, Zurich Kemper Investments, Inc.
RADIS, STEVE A.
First Vice President, Zurich Kemper Investments, Inc.
RATEKIN, DIANE E.
First Vice President, Assistant General Counsel and Assistant
Secretary, Zurich Kemper Investments, Inc.
Assistant Secretary, Kemper Distributors, Inc.
STUEBE, JOHN W.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
TEPPER, SHARYN A.
First Vice President, Zurich Kemper Investments, Inc.
TRUTTER, JONATHAN W.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
WETHERALD, ROBERT F.
First Vice President, Zurich Kemper Investments, Inc.
WILLSON, STEPHEN R.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Strategic Municipal Income Trust
WITTNEBEL, MARK E.
First Vice President, Zurich Kemper Investments, Inc.
ADAMS, DONALD
Vice President, Zurich Kemper Investments, Inc.
ALLEN, PATRICIA L.
Vice President, Zurich Kemper Investments, Inc.
ANDREASEN, AMY
Vice President, Zurich Kemper Investments, Inc.
ANTONAK, GEORGE A.
Vice President, Zurich Kemper Investments, Inc.
BALASUBRAMANIAM, KALAMADI
Vice President, Zurich Kemper Investments, Inc.
BARRY, JOANN M.
Vice President, Zurich Kemper Investments, Inc.
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BIEBERLY, CHRISTINE A.
Vice President, Zurich Kemper Investments, Inc.
BODEM, RICHARD A.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
BUCHANAN, PAMELA S.
Vice President, Zurich Kemper Investments, Inc.
BURKE, MARY PAT
Vice President, Zurich Kemper Investments, Inc.
BURSHTAN, DAVID H.
Vice President, Zurich Kemper Investments, Inc.
CARNEY, ANNE T.
Vice President, Zurich Kemper Investments, Inc.
CACCIOLA, RONALD
Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
CARTER, PAUL J.
Vice President and Compliance Manager, Zurich Kemper Investments, Inc.
COHEN, JERRI I.
Vice President, Zurich Kemper Investments, Inc.
ESOLA, CHARLES J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
FRIHART, THORA A.
Vice President, Zurich Kemper Investments, Inc.
GERACI, AUGUST L.
Vice President, Zurich Kemper Investments, Inc.
GOLAN, JAMES S.
Vice President, Zurich Kemper Investments, Inc.
GOODWIN, JUDITH C.
Vice President, Zurich Kemper Investments, Inc.
GRAY, PATRICK
Vice President, Zurich Kemper Investments, Inc.
GROOTENDORST, TONYA
Vice President, Zurich Kemper Investments, Inc.
HECHT, MARC L.
Vice President, Zurich Kemper Investments, Inc.
Assistant Secretary, ZKI Agency, Inc.
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HUM, CHI H.
Vice President, Zurich Kemper Investments, Inc.
HUOT, LISA L.
Vice President, Zurich Kemper Investments, Inc.
JASINSKI, R. ANTHONY
Vice President, Zurich Kemper Investments, Inc.
KARWOWSKI, KENNETH F.
Vice President, Zurich Kemper Investments, Inc.
KENNEDY, PATRICK J.
Vice President, Zurich Kemper Investments, Inc.
KOCH, DEBORAH L.
Vice President, Zurich Kemper Investments, Inc.
KOURY, KATHRYN E.
Vice President, Zurich Kemper Investments, Inc.
KOWALCZYK, MARK A.
Vice President, Zurich Kemper Investments, Inc.
Vice President, ZKI Agency, Inc.
KRANZ, KATHY J.
Vice President, Zurich Kemper Investments, Inc.
KRUEGER, PAMELA D.
Vice President, Zurich Kemper Investments, Inc.
KYCE, JOYCE
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
LASKA, ROBERTA E.
Vice President, Zurich Kemper Investments, Inc.
LAUTZ, STEPHEN
Vice President, Zurich Kemper Investments, Inc.
LeFEBVRE, THOMAS J.
Vice President, Zurich Kemper Investments, Inc.
McGOVERN, KAREN B.
Vice President, Zurich Kemper Investments, Inc.
MILLER, GARY L.
Vice President, Zurich Kemper Investments, Inc.
MILLIGAN, BRIAN J.
Vice President, Zurich Kemper Investments, Inc.
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MULLEN, TERRENCE
Vice President, Zurich Kemper Investments, Inc.
MURPHY, THOMAS M.
Vice President, Zurich Kemper Investments, Inc.
NEVILLE, BRIAN P.
Vice President, Zurich Kemper Investments, Inc.
NORMAN, JR., DONALD L.
Vice President, Zurich Kemper Investments, Inc.
NOWAK, GREGORY J.
Vice President, Zurich Kemper Investments, Inc.
PANOZZO, ALBERT R.
Vice President, Zurich Kemper Investments, Inc.
PAXTON, THOMAS
Vice President, Zurich Kemper Investments, Inc.
PONTECORE, SUSAN E.
Vice President, Zurich Kemper Investments, Inc.
QUADRINI, LISA L.
Vice President, Zurich Kemper Investments, Inc.
RANDALL, JR., WALTER R.
Vice President, Zurich Kemper Investments, Inc.
ROBINSON, DEBRA A.
Vice President, Zurich Kemper Investments, Inc.
RODGERS, JOHN B.
Vice President, Zurich Kemper Investments, Inc.
ROKOSZ, PAUL A.
Vice President, Zurich Kemper Investments, Inc.
ROSE, KATIE M.
Vice President, Zurich Kemper Investments, Inc.
RUDIN, MICHELLE I.
Vice President, Zurich Kemper Investments, Inc.
SHULTZ, KAREN D.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
SMITH, ROBERT G.
Vice President, Zurich Kemper Investments, Inc.
SOPHER, EDWARD O.
Vice President, Zurich Kemper Investments, Inc.
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SPILLER, KATHLEEN A.
Vice President, Zurich Kemper Investments, Inc.
SPURLING, CHRIS
Vice President, Zurich Kemper Investments, Inc.
STROMM, LAWRENCE D.
Vice President, Zurich Kemper Investments, Inc.
THOMAS, JILL
Vice President, Zurich Kemper Investments, Inc.
VANDEMERKT, RICHARD J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
WALKER, ANGELA
Vice President, Zurich Kemper Investments, Inc.
WATKINS, JAMES K.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
WERTH, ELIZABETH C.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Distributors, Inc.
Assistant Secretary, Kemper Open-End Mutual Funds
WILNER, MITCHELL
Vice President, Zurich Kemper Investments, Inc.
WIZER, BARBARA K.
Vice President, Zurich Kemper Investments, Inc.
ZURAWSKI, CATHERINE N.
Vice President, Zurich Kemper Investments, Inc.
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ITEM 29. PRINCIPAL UNDERWRITERS
(a) Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper Mutual
Funds, Kemper Investors Fund, Kemper International Bond Fund and Kemper-Dreman
Fund, Inc.
(b) Information on the officers and directors of Kemper Distributors,
Inc., principal underwriter for the Registrant is set forth below. The
principal business address is 222 South Riverside Plaza, Chicago, Illinois
60606.
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
---- ---------------- ----------
<S> <C> <C>
James L. Greenawalt Director, President None
William E. Chapman, II Director, Executive Vice President None
John E. Neal Director Vice President
Stephen B. Timbers Director President/Trustee
Patrick H. Dudasik Financial Principal, Treasurer
and Chief Financial Officer None
Linda A. Bercher Senior Vice President None
Terry Cunningham Senior Vice President None
John H. Robison, Jr. Senior Vice President None
Henry J. Schulthesz Senior Vice President None
Thomas V. Bruns Vice President None
Carlene D. Merold Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Diane E. Ratekin Assistant Secretary None
</TABLE>
(c) Not applicable.
C-17
<PAGE> 177
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All such accounts, books and other documents are maintained at the offices
of the Registrant, at the offices of Registrant's investment manager, 222 South
Riverside Plaza, Chicago, Illinois 60606, at the offices of Registrant's
principal underwriter, Kemper Distributors, Inc., 222 South Riverside Plaza,
Chicago, Illinois 60606, at the offices of the Registrant's custodian and
transfer agent, Investors Fiduciary Trust Company, 127 West 10th Street, Kansas
City, Missouri 64105 or at the offices of the Registrant's shareholder services
agent, Kemper Service Company, 811 Main Street, Kansas City, Missouri 64105.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-18
<PAGE> 178
S I G N A T U R E S
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago and State of Illinois, on the 10th day
of October, 1996.
KEMPER TARGET EQUITY FUND
By /s/ Stephen B. Timbers
-----------------------------
Stephen B. Timbers, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on October 10, 1996 on behalf of
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ Stephen B. Timbers President (Principal
- ---------------------------------------- Executive Officer) and
Stephen B. Timbers Trustee
/s/James E. Akins* Trustee
- ----------------------------------------
/s/Arthur R. Gottschalk* Trustee
- ----------------------------------------
/s/Frederick T. Kelsey* Trustee
- ----------------------------------------
/s/Dominque P. Morax* Trustee
- ----------------------------------------
/s/Fred B. Renwick* Trustee
- ----------------------------------------
/s/John B. Tingleff* Trustee
- ----------------------------------------
/s/John G. Weithers* Trustee
- ----------------------------------------
/s/Jerome L. Duffy Treasurer (Principal
- ---------------------------------------- Financial and
Jerome L. Duffy Accounting Officer)
*Philip J. Collora signs this document pursuant to powers of attorney filed
with the Registration Statement on Form N-1A of Registrant on October 16, 1995
(except for the Power of Attorney of Dominique P. Morax, which is filed
herewith).
/s/ Philip J. Collora
--------------------------
Philip J. Collora
<PAGE> 179
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
99.B1.(a) Amended and Restated Agreement and Declaration of Trust.(1)
99.B1.(b) Written Instrument Establishing and Designating Kemper Retirement
Fund Series VI.(1)
99.B2. By-Laws.(1)
99.B3. Inapplicable.
99.B4. Text of Share Certificate.(1)
99.B5.(a) Investment Management Agreement (Kemper Retirement Fund Series).
99.B5.(b) Investment Management Agreement (Kemper Worldwide 2004 Fund).
99.B6.(a) Underwriting Agreement.
99.B6.(b) Form of Selling Group Agreement.(1)
99.B7. Inapplicable.
99.B8.(a) Custody Agreement.(1)
99.B8.(b) Foreign Custody Agreement.(1)
99.B9.(a) Agency Agreement.(1)
99.B9.(b) Supplement to Agency Agreement.
99.B9.(c) Administrative Services Agreement.(1)
99.B9.(d) Guaranty Agreement--Kemper Retirement Fund Series I.(1)
99.B9.(e) Guaranty Agreement--Kemper Retirement Fund Series II.(1)
99.B9.(f) Guaranty Agreement--Kemper Retirement Fund Series III.(1)
99.B9.(g) Guaranty Agreement--Kemper Retirement Fund Series IV.(1)
99.B9.(h) Guaranty Agreement--Kemper Retirement Fund Series V.(1)
99.B9.(i) Guaranty Agreement--Kemper Retirement Fund Series VI.(1)
99.B9.(j) Guaranty Agreement--Kemper Worldwide 2004 Fund.(1)
99.B9.(k) Assignment and Assumption Agreement.(1)
99.B10. Inapplicable.
99.B11. Consent and Report of Independent Auditors.
99.B12. Inapplicable.
99.B13. Inapplicable.
99.B14.(a) Kemper Retirement Plan Prototype.(2)
99.B14.(b) Model Individual Retirement Account.(2)
99.B15. Inapplicable.
99.B16. Performance Calculations.(1)
99.B24. Powers of Attorney.(3)
99.B27.1 Financial Data Schedule--Kemper Retirement Fund Series I.
99.B27.2 Financial Data Schedule--Kemper Retirement Fund Series II.
99.B27.3 Financial Data Schedule--Kemper Retirement Fund Series III.
99.B27.4 Financial Data Schedule--Kemper Retirement Fund Series IV.
99.B27.5 Financial Data Schedule--Kemper Retirement Fund Series V.
99.B27.7 Financial Data Schedule--Kemper Worldwide 2004 Fund.
99.B27.6 Financial Data Schedule--Kemper Retirement Fund Series VI.
99.485.(b) Representation of Counsel (Rule 485(b) ).
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A filed on or about April 20,
1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A filed on October 16, 1995.
(3) Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A filed on October 16, 1995,
except for the Power of Attorney of Dominique P. Morax, which is filed
herein.
<PAGE> 1
EXHIBIT 99.B5(a)
INVESTMENT MGMT. AG. - KEMPER RET. FUND SERIES
INVESTMENT MANAGEMENT AGREEMENT
[Kemper Retirement Fund Series]
AGREEMENT made this 4th day of January, 1996, by and between KEMPER TARGET
EQUITY FUND, a Massachusetts business trust (the "Fund"), and KEMPER FINANCIAL
SERVICES, INC., a Delaware corporation (the "Adviser").
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, the shares of beneficial interest
("Shares") of which are registered under the Securities Act of 1933;
WHEREAS, the Fund is authorized to issue Shares in separate series or
portfolios with each representing the interests in a separate portfolio of
securities and other assets;
WHEREAS, the Fund wants to retain the Adviser under this Agreement to
render investment advisory and management services to the portfolios of the
Fund known as Kemper Retirement Fund Series I, Kemper Retirement Fund Series
II, Kemper Retirement Fund Series III, Kemper Retirement Fund Series IV, Kemper
Retirement Fund Series V and Kemper Retirement Fund Series VI (the "Initial
Portfolios"), together with any other Fund portfolios which may be established
later and served by the Adviser hereunder, being herein referred to
collectively as the "Portfolios" and individually referred to as a "Portfolio";
and
WHEREAS, the Adviser is willing to render such investment advisory and
management services for the Initial Portfolios;
NOW THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. The Fund hereby employs the Adviser to act as the investment adviser for
the Initial Portfolios and other Portfolios hereunder and to manage the
investment and reinvestment of the assets of each such Portfolio in accordance
with the applicable investment objectives and policies and limitations, and to
administer the affairs of each such Portfolio to the extent requested by and
subject to the supervision of the Board of Trustees of the Fund for the period
and upon the terms herein set forth, and to place orders for the purchase or
sale of portfolio securities for the Fund's account with brokers or dealers
selected by it;
<PAGE> 2
and, in connection therewith, the Adviser is authorized as the agent of the
Fund to give instructions to the Custodian of the Fund as to the deliveries of
securities and payments of cash for the account of the Fund. In connection
with the selection of such brokers or dealers and the placing of such orders,
the Adviser is directed to seek for the Fund best execution of orders. Subject
to such policies as the Board of Trustees of the Fund determines, the Adviser
shall not be deemed to have acted unlawfully or to have breached any duty,
created by this Agreement or otherwise, solely by reason of its having caused
the Fund to pay a broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if the Adviser
determined in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the clients of the Adviser
as to which the Adviser exercises investment discretion. The Fund recognizes
that all research services and research that the Adviser receives or generates
are available for all clients, and that the Fund and other clients may benefit
thereby. The investment of funds shall be subject to all applicable
restrictions of the Agreement and Declaration of Trust and By-Laws of the Fund
as may from time to time be in force.
The Adviser accepts such employment and agrees during such period to
render such services, to furnish office facilities and equipment and clerical,
bookkeeping and administrative services for the Fund, to permit any of its
officers or employees to serve without compensation as trustees or officers of
the Fund if elected to such positions and to assume the obligations herein set
forth for the compensation herein provided. The Adviser shall for all purposes
herein provided be deemed to be an independent contractor and, unless otherwise
expressly provided or authorized, shall have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund. It
is understood and agreed that the Adviser, by separate agreements with the
Fund, may also serve the Fund in other capacities.
2. In the event that the Fund establishes one or more portfolios other than
the Initial Portfolios with respect to which it desires to retain the Adviser
to render investment advisory and management services hereunder, it shall
notify the Adviser in writing. If the Adviser is willing to render such
services, it shall notify the Fund in writing whereupon such portfolio or
portfolios shall become a Portfolio or Portfolios hereunder.
2
<PAGE> 3
3. For the services and facilities described in Section 1, the Fund will pay
to the Adviser at the end of each calendar month, an investment management fee
computed at an annual rate of .50 of 1% of the combined average daily net
assets of the Portfolios. The fee as computed above shall be computed
separately for, and charged as an expense of, each Portfolio based upon the
average daily net assets of such Portfolio. For the month and year in which
this Agreement becomes effective or terminates, there shall be an appropriate
proration on the basis of the number of days that the Agreement is in effect
during the month and year, respectively.
4. The services of the Adviser to the Fund under this Agreement are not to be
deemed exclusive, and the Adviser shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.
5. In addition to the fee of the Adviser, the Fund shall assume and pay any
expenses for services rendered by a custodian for the safekeeping of the Fund's
securities or other property, for keeping its books of account, for any other
charges of the custodian, and for calculating the net asset value of the Fund
as provided in the prospectus of the Fund. The Adviser shall not be required
to pay and the Fund shall assume and pay the charges and expenses of its
operations, including compensation of the trustees (other than those affiliated
with the Adviser), charges and expenses of independent auditors, of legal
counsel, of any transfer or dividend disbursing agent, and of any registrar of
the Fund, costs of acquiring and disposing of portfolio securities, interest,
if any, on obligations incurred by the Fund, costs of share certificates and of
reports, membership dues in the Investment Company Institute or any similar
organization, costs of reports and notices to shareholders, other like
miscellaneous expenses and all taxes and fees payable to federal, state or
other governmental agencies on account of the registration of securities issued
by the Fund, filing of trust documents or otherwise. The Fund shall not pay or
incur any obligation for any expenses for which the Fund intends to seek
reimbursement from the Adviser as herein provided without first obtaining the
written approval of the Adviser. The Adviser shall arrange, if desired by the
Fund, for officers or employees of the Adviser to serve, without compensation
from the Fund, as trustees, officers or agents of the Fund if duly elected or
appointed to such positions and subject to their individual consent and to any
limitations imposed by law.
If expenses borne by the Fund for those Portfolios which the Adviser
manages in any fiscal year (including the
3
<PAGE> 4
Adviser's fee, but excluding interest, taxes, fees incurred in acquiring and
disposing of portfolio securities, distribution services fees, extraordinary
expenses and any other expenses excludable under state securities law
limitations) exceed any applicable limitation arising under state securities
laws, the Adviser will reduce its fee or reimburse the Fund for any excess to
the extent required by such state securities laws. If for any month the
expenses of the Fund properly chargeable to the income account shall exceed
1/12 of the percentage of average net assets allowable as expenses, the payment
to the Adviser for that month shall be reduced and if necessary the Adviser
shall make a refund payment to the Fund so that the total net expense will not
exceed such percentage. As of the end of the Fund's fiscal year, however, the
foregoing computations and payments shall be readjusted so that the aggregate
compensation payable to the Adviser for the year is equal to the percentage
calculated in accordance with Section 3 hereof of the average net asset value
as determined as described herein throughout the fiscal year, diminished to the
extent necessary so that the total of the aforementioned expense items of the
Fund shall not exceed the expense limitation. The aggregate of repayments, if
any, by the Adviser to the Fund for the year shall be the amount necessary to
limit the said net expense to said percentage in accordance with the foregoing.
The net asset value for each Portfolio shall be calculated in accordance
with the provisions of the Fund's prospectus or as the trustees may determine
in accordance with the provisions of the Investment Company Act of 1940. On
each day when net asset value is not calculated, the net asset value of a
Portfolio shall be deemed to be the net asset value of such Portfolio as of the
close of business on the last day on which such calculation was made for the
purpose of the foregoing computations.
6. Subject to applicable statutes and regulations, it is understood that
trustees, officers or agents of the Fund are or may be interested in the
Adviser as officers, directors, agents, shareholders or otherwise, and that the
officers, directors, shareholders and agents of the Adviser may be interested
in the Fund otherwise than as a trustee, officer or agent.
7. The Adviser shall not be liable for any error of judgment or of law or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser in the performance of its
obligations and duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
4
<PAGE> 5
8. This Agreement shall become effective with respect to the Initial
Portfolios on the date hereof and shall remain in full force until April 1,
1996, unless sooner terminated as hereinafter provided. This Agreement shall
continue in force from year to year thereafter with respect to each Portfolio,
but only as long as such continuance is specifically approved for each
Portfolio at least annually in the manner required by the Investment Company
Act of 1940 and the rules and regulations thereunder; provided, however, that
if the continuation of this Agreement is not approved for a Portfolio, the
Adviser may continue to serve in such capacity for such Portfolio in the manner
and to the extent permitted by the Investment Company Act of 1940 and the rules
and regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by the Adviser on sixty (60) days written notice to the other
party. The Fund may effect termination with respect to any Portfolio by action
of the Board of Trustees or by vote of a majority of the outstanding voting
securities of such Portfolio.
This Agreement may be terminated with respect to any Portfolio at any time
without the payment of any penalty by the Board of Trustees or by vote of a
majority of the outstanding voting securities of such Portfolio in the event
that it shall have been established by a court of competent jurisdiction that
the Adviser or any officer or director of the Adviser has taken any action
which results in a breach of the covenants of the Adviser set forth herein.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Investment Company Act of
1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation described in Section
3 earned prior to such termination.
9. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
10. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for the receipt of such notice.
5
<PAGE> 6
11. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the trustees, officers, or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund.
With respect to any claim by the Adviser for recovery of that portion of the
investment management fee (or any other liability of the Fund arising
hereunder) allocated to a particular Portfolio, whether in accordance with the
express terms hereof or otherwise, the Adviser shall have recourse solely
against the assets of that Portfolio to satisfy such claim and shall have no
recourse against the assets of any other Portfolio for such purpose.
12. This Agreement shall be construed in accordance with applicable federal
law and (except as to Section 11 hereof which shall be construed in accordance
with the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
6
<PAGE> 7
13. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed as of the day and year first above written.
KEMPER TARGET EQUITY FUND
By: /s/ John E. Peters
-----------------------------
Title: Vice President
--------------------------
ATTEST:
/s/ Philip J. Collora
- ------------------------------
Title: Secretary
-----------------------
KEMPER FINANCIAL SERVICES, INC.
By: /s/ Patrick H. Dudasik
-----------------------------
Title: Senior Vice President
--------------------------
ATTEST:
/s/ David F. Dierenfeldt
- ------------------------------
Title: Assistant Secretary
-----------------------
7
<PAGE> 1
EXHIBIT 99.B5(b)
INVESTMENT MANAGEMENT AGREEMENT
(Worldwide)
AGREEMENT made this 4th day of January, 1996, by and between KEMPER TARGET
EQUITY FUND, a Massachusetts business trust (the "Fund"), and KEMPER FINANCIAL
SERVICES, INC., a Delaware corporation (the "Adviser").
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, the shares of beneficial interest
("Shares") of which are registered under the Securities Act of 1933;
WHEREAS, the Fund is authorized to issue Shares in separate series or
portfolios with each representing the interests in a separate portfolio of
securities and other assets;
WHEREAS, the Fund wants to retain the Adviser under this Agreement to
render investment advisory and management services to the portfolio of the Fund
known as Kemper Worldwide 2004 Fund (the "Initial Portfolio"), together with
any other Fund portfolios that hereafter become subject to this Agreement
pursuant to Section 2 hereof, being herein referred to collectively as the
"Portfolios" and individually referred to as a "Portfolio"; and
WHEREAS, the Adviser is willing to render such investment advisory and
management services for the Initial Portfolio;
NOW THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. The Fund hereby employs the Adviser to act as the investment adviser for
the Initial Portfolio and other Portfolios hereunder and to manage the
investment and reinvestment of the assets of each such Portfolio in accordance
with the applicable investment objectives and policies and limitations, and to
administer the affairs of each such Portfolio to the extent requested by and
subject to the supervision of the Board of Trustees of the Fund for the period
and upon the terms herein set forth, and to place orders for the purchase or
sale of portfolio securities for the Fund's account with brokers or dealers
selected by it; and, in connection therewith, the Adviser is authorized as the
agent of the Fund to give instructions to the Custodian
<PAGE> 2
of the Fund as to the deliveries of securities and payments of cash for the
account of the Fund. In connection with the selection of such brokers or
dealers and the placing of such orders, the Adviser is directed to seek for the
Fund best execution of orders. Subject to such policies as the Board of
Trustees of the Fund determines, the Adviser shall not be deemed to have acted
unlawfully or to have breached any duty, created by this Agreement or
otherwise, solely by reason of its having caused the Fund to pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction, if the Adviser determined in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer viewed in terms of
either that particular transaction or the Adviser's overall responsibilities
with respect to the clients of the Adviser as to which the Adviser exercises
investment discretion. The Fund recognizes that all research services and
research that the Adviser receives or generates are available for all clients,
and that the Fund and other clients may benefit thereby. The investment of
funds shall be subject to all applicable restrictions of the Agreement and
Declaration of Trust and By-Laws of the Fund as may from time to time be in
force.
The Adviser accepts such employment and agrees during such period to
render such services, to furnish office facilities and equipment and clerical,
bookkeeping and administrative services for the Fund, to permit any of its
officers or employees to serve without compensation as trustees or officers of
the Fund if elected to such positions and to assume the obligations herein set
forth for the compensation herein provided. The Adviser shall for all purposes
herein provided be deemed to be an independent contractor and, unless otherwise
expressly provided or authorized, shall have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund. It
is understood and agreed that the Adviser, by separate agreements with the
Fund, may also serve the Fund in other capacities.
2. In the event that the Fund establishes one or more portfolios other than
the Initial Portfolio with respect to which it desires to retain the Adviser to
render investment advisory and management services hereunder, it shall notify
the Adviser in writing. If the Adviser is willing to render such services, it
shall notify the Fund in writing whereupon such portfolio or portfolios shall
become a Portfolio or Portfolios hereunder.
2
<PAGE> 3
3. For the services and facilities described in Section 1, the Fund will pay
to the Adviser at the end of each calendar month, an investment management fee
computed at an annual rate of .60 of 1% of the combined average daily net
assets of the Portfolios. The fee as computed above shall be allocated as an
expense of each Portfolio based upon the relative daily net assets of such
Portfolios. For the month and year in which this Agreement becomes effective
or terminates, there shall be an appropriate proration on the basis of the
number of days that the Agreement is in effect during the month and year,
respectively.
4. The services of the Adviser to the Fund under this Agreement are not to be
deemed exclusive, and the Adviser shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.
5. In addition to the fee of the Adviser, the Fund shall assume and pay any
expenses for services rendered by a custodian for the safekeeping of the Fund's
securities or other property, for keeping its books of account, for any other
charges of the custodian, and for calculating the net asset value of the Fund
as provided in the prospectus of the Fund. The Adviser shall not be required
to pay and the Fund shall assume and pay the charges and expenses of its
operations, including compensation of the trustees (other than those affiliated
with the Adviser), charges and expenses of independent auditors, of legal
counsel, of any transfer or dividend disbursing agent, and of any registrar of
the Fund, costs of acquiring and disposing of portfolio securities, interest,
if any, on obligations incurred by the Fund, costs of share certificates and of
reports, membership dues in the Investment Company Institute or any similar
organization, costs of reports and notices to shareholders, other like
miscellaneous expenses and all taxes and fees payable to federal, state or
other governmental agencies on account of the registration of securities issued
by the Fund, filing of trust documents or otherwise. The Fund shall not pay or
incur any obligation for any expenses for which the Fund intends to seek
reimbursement from the Adviser as herein provided without first obtaining the
written approval of the Adviser. The Adviser shall arrange, if desired by the
Fund, for officers or employees of the Adviser to serve, without compensation
from the Fund, as trustees, officers or agents of the Fund if duly elected or
appointed to such positions and subject to their individual consent and to any
limitations imposed by law.
If expenses borne by the Fund for those Portfolios which the Adviser
manages in any fiscal year (including the Adviser's fee, but excluding
interest, taxes, fees incurred
3
<PAGE> 4
in acquiring and disposing of portfolio securities, distribution services fees,
extraordinary expenses and any other expenses excludable under state securities
law limitations) exceed any applicable limitation arising under state
securities laws, the Adviser will reduce its fee or reimburse the Fund for any
excess to the extent required by such state securities laws. The expense
limitation guarantee shall be allocated to each such Portfolio upon a fee
reduction or reimbursement based upon the relative average daily net assets of
each such Portfolio. If for any month the expenses of the Fund properly
chargeable to the income account shall exceed 1/12 of the percentage of average
net assets allowable as expenses, the payment to the Adviser for that month
shall be reduced and if necessary the Adviser shall make a refund payment to
the Fund so that the total net expense will not exceed such percentage. As of
the end of the Fund's fiscal year, however, the foregoing computations and
payments shall be readjusted so that the aggregate compensation payable to the
Adviser for the year is equal to the percentage set forth in Section 3 hereof
of the average net asset value as determined as described herein throughout the
fiscal year, diminished to the extent necessary so that the total of the
aforementioned expense items of the Fund shall not exceed the expense
limitation. The aggregate of repayments, if any, by the Adviser to the Fund
for the year shall be the amount necessary to limit the said net expense to
said percentage in accordance with the foregoing.
The net asset value for each Portfolio shall be calculated in accordance
with the provisions of the Fund's prospectus or as the trustees may determine
in accordance with the provisions of the Investment Company Act of 1940. On
each day when net asset value is not calculated, the net asset value of a share
of a Portfolio shall be deemed to be the net asset value of such a share as of
the close of business on the last day on which such calculation was made for
the purpose of the foregoing computations.
6. Subject to applicable statutes and regulations, it is understood that
trustees, officers or agents of the Fund are or may be interested in the
Adviser as officers, directors, agents, shareholders or otherwise, and that the
officers, directors, shareholders and agents of the Adviser may be interested
in the Fund otherwise than as a trustee, officer or agent.
7. The Adviser shall not be liable for any error of judgment or of law or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser in the performance of its
obligations and duties or by reason of its
4
<PAGE> 5
reckless disregard of its obligations and duties under this Agreement.
8. This Agreement shall become effective with respect to the Initial
Portfolio on the date hereof and shall remain in full force until April 1,
1996, unless sooner terminated as hereinafter provided. This Agreement shall
continue in force from year to year thereafter with respect to each Portfolio,
but only as long as such continuance is specifically approved for each
Portfolio at least annually in the manner required by the Investment Company
Act of 1940 and the rules and regulations thereunder; provided, however, that
if the continuation of this Agreement is not approved for a Portfolio, the
Adviser may continue to serve in such capacity for such Portfolio in the manner
and to the extent permitted by the Investment Company Act of 1940 and the rules
and regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by the Adviser on sixty (60) days written notice to the other
party. The Fund may effect termination with respect to any Portfolio by action
of the Board of Trustees or by vote of a majority of the outstanding voting
securities of such Portfolio.
This Agreement may be terminated with respect to any Portfolio at any time
without the payment of any penalty by the Board of Trustees or by vote of a
majority of the outstanding voting securities of such Portfolio in the event
that it shall have been established by a court of competent jurisdiction that
the Adviser or any officer or director of the Adviser has taken any action
which results in a breach of the covenants of the Adviser set forth herein.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Investment Company Act of
1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation described in Section
3 earned prior to such termination.
9. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
10. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the
5
<PAGE> 6
other party at such address as such other party may designate for the receipt
of such notice.
11. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the trustees, officers, or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund.
With respect to any claim by the Adviser for recovery of that portion of the
investment management fee (or any other liability of the Fund arising
hereunder) allocated to a particular Portfolio, whether in accordance with the
express terms hereof or otherwise, the Adviser shall have recourse solely
against the assets of that Portfolio to satisfy such claim and shall have no
recourse against the assets of any other Portfolio for such purpose.
6
<PAGE> 7
12. This Agreement shall be construed in accordance with applicable federal
law and (except as to Section 11 hereof which shall be construed in accordance
with the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed as of the day and year first above written.
KEMPER TARGET EQUITY FUND
By: /s/ John E. Peters
-----------------------
Title: Vice President
-----------------------
ATTEST:
/s/ Philip J. Collora
- -------------------------------
Title: Secretary
-----------------------
KEMPER FINANCIAL SERVICES, INC.
By: /s/ Patrick H. Dudasik
------------------------
Title: Senior Vice President
---------------------
ATTEST:
/s/ David F. Dierenfeldt
- ---------------------------
Title: Assistant Secretary
-------------------
7
<PAGE> 1
EX 99.B6(a)
UNDERWRITING AGREEMENT
AGREEMENT made as of this 4th day of January, 1996 between KEMPER TARGET
EQUITY FUND, a Massachusetts business trust (hereinafter called the "Fund"),
and KEMPER DISTRIBUTORS, INC., a Delaware corporation (hereinafter called the
"Underwriter");
W I T N E S S E T H:
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Fund hereby appoints the Underwriter its agent for the
distribution of shares of beneficial interest (hereinafter called "shares") of
the Fund in jurisdictions wherein shares of the Fund may legally be offered for
sale; provided, however, that the Fund in its absolute discretion may (a) issue
or sell shares directly to holders of shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the
payment or reinvestment of dividends or distributions, or otherwise; or (b)
issue or sell shares at net asset value to the shareholders of any other
investment company, for which the Underwriter shall act as exclusive
distributor, who wish to exchange all or a portion of their investment in
shares of such other investment company for shares of the Fund.
2. The Underwriter hereby accepts appointment as agent for the
distribution of the shares of the Fund and agrees that it will use its best
efforts with reasonable promptness to sell such part of the authorized shares
of the Fund remaining unissued as from time to time shall be effectively
registered under the Securities Act of 1933 ("Securities Act"), at prices
determined as hereinafter provided and on terms hereinafter set forth, all
subject to applicable Federal and state laws and regulations and to the
Agreement and Declaration of Trust of the Fund.
3. The Fund agrees that it will use its best efforts to keep effectively
registered under the Securities Act for sale as herein contemplated such shares
as the Underwriter shall reasonably request and as the Securities and Exchange
Commission shall permit to be so registered.
4. Notwithstanding any other provision hereof, the Fund may terminate,
suspend or withdraw the offering of shares
<PAGE> 2
whenever, in its sole discretion, it deems such action to be desirable.
5. The Underwriter shall sell shares of the Fund to or through qualified
dealers or others in such manner, not inconsistent with the provisions hereof
and the then effective registration statement of the Fund under the Securities
Act (and related prospectus), as the Underwriter may determine from time to
time, provided that no dealer or other person shall be appointed or authorized
to act as agent of the Fund without the prior consent of the Fund. It is
mutually agreed that, in addition to sales made by it as agent of the Fund, the
Underwriter may, in its discretion, also sell shares of the Fund as principal
to persons with whom it does not have dealer selling group agreements.
6. Shares of the Fund offered for sale or sold by the Underwriter shall
be so offered or sold at a price per share determined in accordance with the
then current prospectus relating to the sale of such shares except as departure
from such prices shall be permitted by the rules and regulations of the
Securities and Exchange Commission; provided, however, that any public offering
price for shares of the Fund shall be the net asset value per share plus a
distribution charge in the amount set forth in the then current prospectus of
the Fund relating to such shares. The net asset value per share shall be
determined in the manner and at the times set forth in the then current
prospectus of the Fund relating to such shares.
7. The price the Fund shall receive for all shares purchased from the
Fund shall be the net asset value used in determining the public offering price
applicable to the sale of such shares. The excess, if any, of the sales price
over the net asset value of the shares of the Fund sold by the Underwriter as
agent shall be retained by the Underwriter as a commission for its services
hereunder. Out of such commission the Underwriter may allow commissions or
concessions to dealers and may allow them to others in its discretion in such
amounts as the Underwriter shall determine from time to time. Except as may be
otherwise determined by the Underwriter and the Fund from time to time, such
commissions or concessions shall be uniform to all dealers.
8. The Underwriter shall issue and deliver on behalf of the Fund such
confirmations of sales made by it as agent pursuant to this agreement as may be
required. At or prior to the time of issuance of shares, the Underwriter will
pay or cause to be paid to the Fund the amount due the Fund for the sale of
such shares. Certificates shall be issued or shares registered on the transfer
books of the Fund in such names and denominations as the Underwriter may
specify.
2
<PAGE> 3
9. The Fund will execute any and all documents and furnish any and all
information which may be reasonably necessary in connection with the
qualification of its shares for sale (including the qualification of the Fund
as a dealer where necessary or advisable) in such states as the Underwriter may
reasonably request (it being understood that the Fund shall not be required
without its consent to comply with any requirement which in its opinion is
unduly burdensome).
10. The Fund will furnish to the Underwriter from time to time such
information with respect to the Fund and its shares as the Underwriter may
reasonably request for use in connection with the sale of shares of the Fund.
The Underwriter agrees that it will not use or distribute or authorize the use,
distribution or dissemination by its dealers or others in connection with the
sale of such shares any statements, other than those contained in the Fund's
current prospectus, except such supplemental literature or advertising as shall
be lawful under Federal and state securities laws and regulations, and that it
will furnish the Fund with copies of all such material.
11. The Underwriter shall order shares of the Fund from the Fund only to
the extent that it shall have received purchase orders therefor. The
Underwriter will not make, or authorize any dealers or others to make: (a) any
short sales of shares of the Fund; or (b) any sales of such shares to any
trustee or officer of the Fund or to any officer or director of the Underwriter
or of any corporation or association furnishing investment advisory, managerial
or supervisory services to the Fund, or to any such corporation or association,
unless such sales are made in accordance with the then current prospectus
relating to the sale of such shares.
12. The Underwriter, as agent of and for the account of the Fund, may
repurchase the shares of the Fund at such prices and upon such terms and
conditions as shall be specified in the current prospectus of the Fund.
13. In selling or reacquiring shares of the Fund for the account of the
Fund, the Underwriter will in all respects conform to the requirements of all
state and Federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., relating to such sale or
reacquisition, as the case may be, and will indemnify and save harmless the
Fund from any damage or expense on account of any wrongful act by the
Underwriter or any employee, representative or agent of the Underwriter. The
Underwriter will observe and be bound by all the provisions of the Agreement
and Declaration of Trust of the Fund (and of any fundamental policies adopted
by the Fund pursuant to the Investment Company Act of 1940, notice of which
shall have been given to the Underwriter) which at the time in
3
<PAGE> 4
any way require, limit, restrict or prohibit or otherwise regulate any action
on the part of the Underwriter.
14. The Underwriter will require each dealer to conform to the provisions
hereof and the Registration Statement (and related prospectus) at the time in
effect under the Securities Act with respect to the public offering price of
the Fund's shares, and neither the Underwriter nor any such dealers shall
withhold the placing of purchase orders so as to make a profit thereby.
15. The Fund shall assume and pay all charges and expenses of its
operations not specifically assumed or otherwise to be provided by the
Underwriter under this Agreement. The Fund will pay or cause to be paid
expenses (including the fees and disbursements of its own counsel) of any
registration of the Fund and its shares under the United States securities laws
and expenses incident to the issuance of shares of beneficial interest, such as
the cost of share certificates, issue taxes, and fees of the transfer agent.
The Underwriter will pay all expenses (other than expenses which one or more
Firms may bear pursuant to any agreement with the Underwriter) incident to the
sale and distribution of the shares issued or sold hereunder, including,
without limiting the generality of the foregoing, all (a) expenses of printing
and distributing any prospectus and of preparing, printing and distributing or
disseminating any other literature, advertising and selling aids in connection
with the offering of the shares for sale (except that such expenses need not
include expenses incurred by the Fund in connection with the preparation,
typesetting, printing and distribution of any registration statement,
prospectus or report or other communication to shareholders in their capacity
as such), (b) expenses of advertising in connection with such offering and (c)
expenses (other than the Fund's auditing expenses) of qualifying or continuing
the qualification of the shares for sale and, in connection therewith, of
qualifying or continuing the qualification of the Fund as a dealer or broker
under the laws of such states as may be designated by the Underwriter under the
conditions herein specified. No transfer taxes, if any, which may be payable
in connection with the issue or delivery of shares sold as herein contemplated
or of the certificates for such shares shall be borne by the Fund, and the
Underwriter will indemnify and hold harmless the Fund against liability for all
such transfer taxes.
16. This agreement shall become effective on the date hereof and shall
continue in effect until April 1, 1996 and from year to year thereafter, but
only so long as such continuance is approved in the manner required by the
Investment Company Act of 1940. Either party hereto may terminate this
agreement on any date by giving the other party at least six months prior
written notice of such termination specifying the date fixed therefor. Without
prejudice to any other remedies of the Fund in any such
4
<PAGE> 5
event the Fund may terminate this agreement at any time immediately upon any
failure of fulfillment of any of the obligations of the Underwriter hereunder.
17. This agreement shall automatically terminate in the event of its
assignment.
18. Any notice under this agreement shall be in writing, addressed and
delivered or mailed, postage postpaid, to the other party at such address as
such other party may designate for the receipt of such notice.
19. All parties hereto are expressly put on notice of the Fund's
Agreement and Declaration of Trust and all amendments thereto, all of which are
on file with the Secretary of The Commonwealth of Massachusetts, and the
limitation of shareholder and trustee liability contained therein. This
Agreement has been executed by and on behalf of the Fund by its representatives
as such representatives and not individually, and the obligations of the Fund
hereunder are not binding upon any of the Trustees, officers or shareholders of
the Fund individually but are binding upon only the assets and the property of
the Fund. With respect to any claim by the Underwriter for recovery of any
liability of the Fund arising hereunder allocated to a particular series of the
Fund, if there be more than one, whether in accordance with the express terms
hereof or otherwise, the Underwriter shall have
5
<PAGE> 6
recourse solely against the assets of that series to satisfy such claim and
shall have no recourse against the assets of any other Portfolio for such
purpose.
IN WITNESS WHEREOF, the Fund and the Underwriter have each caused this
agreement to be executed on the day and year first above written.
KEMPER TARGET EQUITY FUND
By: /s/ John E. Peters
----------------------------
Title: Vice President
-------------------------
Attest: /s/ Philip J. Collora
----------------------------
Title: Secretary
-----------------------------
KEMPER DISTRIBUTORS, INC.
By: /s/ Patrick H. Dudasik
----------------------------
Title: Chief Financial Officer
-------------------------
and Treasurer
Attest: /s/ David F. Dierenfeldt
----------------------------
Title: Secretary
-----------------------------
6
<PAGE> 1
EXHIBIT 99.B9(b)
SUPPLEMENT TO AGENCY AGREEMENT
SUPPLEMENT TO AGENCY AGREEMENT
Supplement to Agency Agreement ("Supplement") made as of April 1, 1995
and between the registered investment company executing this document (the
"Fund") and Investors Fiduciary Trust Company ("Agent").
WHEREAS, the Fund and Agent are parties to an Agency Agreement ("Agency
Agreement"), as supplemented from time to time;
WHEREAS, Section 5.A. of the Agency Agreement provides that the fees
payable by the Fund to Agent thereunder shall be as set forth in a separate
schedule to be agreed to by the Fund and Agent; and
WHEREAS, the parties desire to reflect in this Supplement the revised
fee schedule for the Agency Agreement as in effect as of the date hereof;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein provided, the parties agree as follows:
1. The revised fee schedule for services provided by Agent to the
Fund under the Agency Agreement as in effect as of the date hereof is set
forth in Exhibit A attached hereto.
2. This Supplement shall become a part of the Agency Agreement and
subject to its terms and shall supersede all previous fee schedules under
such agreement as of the date hereof.
IN WITNESS WHEREOF, the Fund and Agent have duly executed this
Supplement as of the day and year first set forth above.
KEMPER TARGET EQUITY FUND
By: /s/ John E. Peters
--------------------------------
Title: Vice President
-----------------------------
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ Stephen R. Hilliard
--------------------------------
Title: Executive Vice President
-----------------------------
<PAGE> 2
EXHIBIT A
FEE SCHEDULE
<TABLE>
<CAPTION>
Transfer Agency Function Fee Payable by Fund
- ------------------------ -------------------
<S> <C> <C>
1. Annual open shareholder $6.00 per year per account.
account fee.
2. Annual closed shareholder $6.00 per year per account.
account fee.
3. Establishment of new shareholder $4.00 per new account.
account.
4. Payment of dividend. $.40 per dividend payment
per account.
5. Automated ACH/UIT transaction. $.50 per transaction.
6. Process purchase or redemption of $1.25 per transaction.
shares transaction.
7. Non-monetary transactions fee. $2.00 per year per open
account.
8. All other shareholder inquiry, $1.25 per transaction.
correspondence and research
transactions.
</TABLE>
The out-of-pocket expenses of IFTC will be reimbursed by Fund in accordance
with the provisions of Section 5 of the Agency Agreement. All fees will be
subject to offset by earnings allowances under the Custody Agreement between
Fund and IFTC.
<PAGE> 1
EXHIBIT 99.B11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors and Reports to Shareholders" and to the
use of our reports on the Kemper Target Equity Fund-Kemper Retirement Fund
Series I, II, III, IV, and V, Kemper Target Equity Fund-Kemper Retirement Fund
Series VI and Kemper Target Equity Fund-Kemper Worldwide 2004 Fund dated August
16, 1996 in the Registration Statement (Form N-1A) of Kemper Target Equity Fund
and their incorporation by reference in the related Prospectuses and Statements
of Additional Information of Kemper Retirement Fund Series VI and Kemper
Worldwide 2004 Fund, respectively, filed with the Securities and Exchange
Commission in this Post-Effective Amendment No. 22 to the Registration
Statement under the Securities Act of 1933 (Registration No. 33-30876) and this
Amendment No. 24 to the Registration Statement under the Investment Company Act
of 1940 (Registration No. 811-5896).
Ernst & Young
ERNST & YOUNG LLP
Chicago, Illinois
October 8, 1996
<PAGE> 2
REPORT OF INDEPENDENT AUDITOR
The Board of Trustees and Shareholders
Kemper Target Equity Fund--
Kemper Retirement Fund Series I, II, III, IV and V
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Kemper Target Equity Fund-Kemper
Retirement Fund Series I, II, III, IV and V as of June 30, 1996, 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 financial highlights for
each of the fiscal periods since 1992. 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 Retirement Fund Series I, II, III, IV and V at
June 30, 1996, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and financial highlights for each of the fiscal periods since 1992, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
August 16, 1996
<PAGE> 3
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Kemper Target Equity Fund--
Kemper Retirement Fund Series VI
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Kemper Target Equity Fund-Kemper Retirement
Fund Series VI as of June 30, 1996, the related statements of operations for
the year then ended and changes in net assets and the financial highlights for
the year then ended and for the period from May 1, 1995 (commencement of
operations) to June 30, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of June 30, 1996, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Kemper Target Equity Fund-Kemper Retirement Fund Series VI at June 30, 1996, the
results of its operations, the changes in its net assets and the financial
highlights for the periods referred to above in conformity with generally
accepted accounting principles.
Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
August 16, 1996
<PAGE> 4
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 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
ERNST & YOUNG LLP
Chicago, Illinois
August 16, 1996
<PAGE> 1
EXHIBIT 99.B24
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Charles F.
Custer, Stephen B. Timbers and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Kemper Target Equity Fund.
Signature Title Date
--------- ----- ----
/s/ Dominique P. Morax Trustee September 2, 1996
- ---------------------------
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT
TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000854905
<NAME> KEMPER TARGET EQUITY FUND
<SERIES>
<NUMBER> 01
<NAME> KEMPER RETIREMENT FUND 1
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 96,485
<INVESTMENTS-AT-VALUE> 106,359
<RECEIVABLES> 1,774
<ASSETS-OTHER> 828
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 108,961
<PAYABLE-FOR-SECURITIES> 1,511
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 147
<TOTAL-LIABILITIES> 1,658
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,973
<SHARES-COMMON-STOCK> 9,360
<SHARES-COMMON-PRIOR> 9,518
<ACCUMULATED-NII-CURRENT> 2,041
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,413
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,876
<NET-ASSETS> 107,303
<DIVIDEND-INCOME> 764
<INTEREST-INCOME> 4,226
<OTHER-INCOME> 0
<EXPENSES-NET> (1,025)
<NET-INVESTMENT-INCOME> 3,965
<REALIZED-GAINS-CURRENT> 15,205
<APPREC-INCREASE-CURRENT> (5,077)
<NET-CHANGE-FROM-OPS> 14,093
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,962)
<DISTRIBUTIONS-OF-GAINS> (6,844)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (1,153)
<SHARES-REINVESTED> 995
<NET-CHANGE-IN-ASSETS> 821
<ACCUMULATED-NII-PRIOR> 2,029
<ACCUMULATED-GAINS-PRIOR> 2,061
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 539
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,025
<AVERAGE-NET-ASSETS> 107,876
<PER-SHARE-NAV-BEGIN> 11.19
<PER-SHARE-NII> .44
<PER-SHARE-GAIN-APPREC> 1.03
<PER-SHARE-DIVIDEND> (.44)
<PER-SHARE-DISTRIBUTIONS> (.76)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.46
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT
TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000854905
<NAME> KEMPER TARGET EQUITY FUND
<SERIES>
<NUMBER> 02
<NAME> KEMPER RETIREMENT FUND 2
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 155,520
<INVESTMENTS-AT-VALUE> 168,691
<RECEIVABLES> 2,161
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 170,852
<PAYABLE-FOR-SECURITIES> 1,899
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 528
<TOTAL-LIABILITIES> 2,427
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 138,684
<SHARES-COMMON-STOCK> 12,948
<SHARES-COMMON-PRIOR> 13,394
<ACCUMULATED-NII-CURRENT> 3,759
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,809
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,173
<NET-ASSETS> 168,425
<DIVIDEND-INCOME> 893
<INTEREST-INCOME> 7,902
<OTHER-INCOME> 0
<EXPENSES-NET> (1,620)
<NET-INVESTMENT-INCOME> 7,175
<REALIZED-GAINS-CURRENT> 18,830
<APPREC-INCREASE-CURRENT> (8,163)
<NET-CHANGE-FROM-OPS> 17,842
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,198)
<DISTRIBUTIONS-OF-GAINS> (8,965)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (1,732)
<SHARES-REINVESTED> 1,286
<NET-CHANGE-IN-ASSETS> (4,912)
<ACCUMULATED-NII-PRIOR> 3,772
<ACCUMULATED-GAINS-PRIOR> 2,954
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 862
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,620
<AVERAGE-NET-ASSETS> 172,420
<PER-SHARE-NAV-BEGIN> 12.94
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> .77
<PER-SHARE-DIVIDEND> (.57)
<PER-SHARE-DISTRIBUTIONS> (.71)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.01
<EXPENSE-RATIO> .94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT
TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000854905
<NAME> KEMPER TARGET EQUITY FUND
<SERIES>
<NUMBER> 03
<NAME> KEMPER RETIREMENT FUND 3
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 111,079
<INVESTMENTS-AT-VALUE> 120,588
<RECEIVABLES> 1,866
<ASSETS-OTHER> 780
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 123,234
<PAYABLE-FOR-SECURITIES> 1,511
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 235
<TOTAL-LIABILITIES> 1,746
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99,492
<SHARES-COMMON-STOCK> 11,098
<SHARES-COMMON-PRIOR> 11,599
<ACCUMULATED-NII-CURRENT> 2,288
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,197
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,511
<NET-ASSETS> 121,488
<DIVIDEND-INCOME> 736
<INTEREST-INCOME> 5,030
<OTHER-INCOME> 0
<EXPENSES-NET> (1,196)
<NET-INVESTMENT-INCOME> 4,570
<REALIZED-GAINS-CURRENT> 14,496
<APPREC-INCREASE-CURRENT> (5,249)
<NET-CHANGE-FROM-OPS> 13,817
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,807)
<DISTRIBUTIONS-OF-GAINS> (6,226)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (1,557)
<SHARES-REINVESTED> 1,056
<NET-CHANGE-IN-ASSETS> (3,193)
<ACCUMULATED-NII-PRIOR> 2,485
<ACCUMULATED-GAINS-PRIOR> 1,967
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 623
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,196
<AVERAGE-NET-ASSETS> 124,722
<PER-SHARE-NAV-BEGIN> 10.75
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> .78
<PER-SHARE-DIVIDEND> (.44)
<PER-SHARE-DISTRIBUTIONS> (.57)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.95
<EXPENSE-RATIO> .96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT
TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000854905
<NAME> KEMPER TARGET EQUITY FUND
<SERIES>
<NUMBER> 04
<NAME> KEMPER RETIREMENT FUND 4
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 135,809
<INVESTMENTS-AT-VALUE> 138,874
<RECEIVABLES> 1,868
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 140,749
<PAYABLE-FOR-SECURITIES> 1,511
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 380
<TOTAL-LIABILITIES> 1,891
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 123,600
<SHARES-COMMON-STOCK> 12,976
<SHARES-COMMON-PRIOR> 15,106
<ACCUMULATED-NII-CURRENT> 2,239
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,952
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,067
<NET-ASSETS> 138,858
<DIVIDEND-INCOME> 760
<INTEREST-INCOME> 5,719
<OTHER-INCOME> 0
<EXPENSES-NET> (1,400)
<NET-INVESTMENT-INCOME> 5,079
<REALIZED-GAINS-CURRENT> 13,801
<APPREC-INCREASE-CURRENT> (4,109)
<NET-CHANGE-FROM-OPS> 14,771
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,653)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (2,689)
<SHARES-REINVESTED> 559
<NET-CHANGE-IN-ASSETS> (13,321)
<ACCUMULATED-NII-PRIOR> 2,804
<ACCUMULATED-GAINS-PRIOR> (3,840)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 734
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,400
<AVERAGE-NET-ASSETS> 146,957
<PER-SHARE-NAV-BEGIN> 10.07
<PER-SHARE-NII> .40
<PER-SHARE-GAIN-APPREC> .64
<PER-SHARE-DIVIDEND> (.41)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.70
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT
TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000854905
<NAME> KEMPER TARGET EQUITY FUND
<SERIES>
<NUMBER> 05
<NAME> KEMPER RETIREMENT FUND 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 118,831
<INVESTMENTS-AT-VALUE> 129,793
<RECEIVABLES> 1,832
<ASSETS-OTHER> 63
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 131,688
<PAYABLE-FOR-SECURITIES> 1,511
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 430
<TOTAL-LIABILITIES> 1,941
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 106,569
<SHARES-COMMON-STOCK> 12,719
<SHARES-COMMON-PRIOR> 14,163
<ACCUMULATED-NII-CURRENT> 2,428
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,786
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,964
<NET-ASSETS> 129,747
<DIVIDEND-INCOME> 778
<INTEREST-INCOME> 5,393
<OTHER-INCOME> 0
<EXPENSES-NET> (1,286)
<NET-INVESTMENT-INCOME> 4,885
<REALIZED-GAINS-CURRENT> 13,996
<APPREC-INCREASE-CURRENT> (4,790)
<NET-CHANGE-FROM-OPS> 14,091
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,780)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3
<NUMBER-OF-SHARES-REDEEMED> (1,922)
<SHARES-REINVESTED> 475
<NET-CHANGE-IN-ASSETS> (5,190)
<ACCUMULATED-NII-PRIOR> 2,315
<ACCUMULATED-GAINS-PRIOR> (4,202)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 672
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,286
<AVERAGE-NET-ASSETS> 134,369
<PER-SHARE-NAV-BEGIN> 9.53
<PER-SHARE-NII> .39
<PER-SHARE-GAIN-APPREC> .64
<PER-SHARE-DIVIDEND> (.36)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.20
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT
TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000854905
<NAME> KEMPER TARGET EQUITY FUND
<SERIES>
<NUMBER> 06
<NAME> KEMPER WORLDWIDE 2004
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 34,362
<INVESTMENTS-AT-VALUE> 37,704
<RECEIVABLES> 132
<ASSETS-OTHER> 88
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<TOTAL-ASSETS> 37,924
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 106
<TOTAL-LIABILITIES> 106
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,208
<SHARES-COMMON-STOCK> 3,567
<SHARES-COMMON-PRIOR> 3,082
<ACCUMULATED-NII-CURRENT> 827
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 385
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,398
<NET-ASSETS> 37,818
<DIVIDEND-INCOME> 270
<INTEREST-INCOME> 1,482
<OTHER-INCOME> 0
<EXPENSES-NET> (470)
<NET-INVESTMENT-INCOME> 1,282
<REALIZED-GAINS-CURRENT> 1,486
<APPREC-INCREASE-CURRENT> 507
<NET-CHANGE-FROM-OPS> 3,275
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,157)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 958
<NUMBER-OF-SHARES-REDEEMED> (581)
<SHARES-REINVESTED> 108
<NET-CHANGE-IN-ASSETS> 7,119
<ACCUMULATED-NII-PRIOR> 491
<ACCUMULATED-GAINS-PRIOR> (890)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 214
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 470
<AVERAGE-NET-ASSETS> 35,567
<PER-SHARE-NAV-BEGIN> 9.96
<PER-SHARE-NII> .36
<PER-SHARE-GAIN-APPREC> .63
<PER-SHARE-DIVIDEND> (.35)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.60
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT
TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000854905
<NAME> KEMPER TARGET EQUITY FUND
<SERIES>
<NUMBER> 07
<NAME> KEMPER RETIREMENT FUND 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 49,273
<INVESTMENTS-AT-VALUE> 49,156
<RECEIVABLES> 909
<ASSETS-OTHER> 424
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,489
<PAYABLE-FOR-SECURITIES> 718
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 82
<TOTAL-LIABILITIES> 800
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,477
<SHARES-COMMON-STOCK> 5,054
<SHARES-COMMON-PRIOR> 776
<ACCUMULATED-NII-CURRENT> 696
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 633
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (117)
<NET-ASSETS> 49,689
<DIVIDEND-INCOME> 137
<INTEREST-INCOME> 1,302
<OTHER-INCOME> 0
<EXPENSES-NET> (388)
<NET-INVESTMENT-INCOME> 1,051
<REALIZED-GAINS-CURRENT> 978
<APPREC-INCREASE-CURRENT> (160)
<NET-CHANGE-FROM-OPS> 1,869
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (382)
<DISTRIBUTIONS-OF-GAINS> (324)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,459
<NUMBER-OF-SHARES-REDEEMED> (252)
<SHARES-REINVESTED> 71
<NET-CHANGE-IN-ASSETS> 42,500
<ACCUMULATED-NII-PRIOR> 20
<ACCUMULATED-GAINS-PRIOR> (14)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 152
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 388
<AVERAGE-NET-ASSETS> 30,263
<PER-SHARE-NAV-BEGIN> 9.26
<PER-SHARE-NII> .24
<PER-SHARE-GAIN-APPREC> .57
<PER-SHARE-DIVIDEND> (.13)
<PER-SHARE-DISTRIBUTIONS> (.11)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.83
<EXPENSE-RATIO> 1.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.485(B)
[VEDDER PRICE LETTERHEAD]
October 8, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Kemper Target Equity Fund
To The Commission:
We are counsel to the above-referenced investment company (the "Fund")
and as such have participated in the preparation and review of Post-Effective
Amendment No. 22 to the Fund's registration statement being filed pursuant to
Rule 485(b) under the Securities Act of 1933. In accordance with paragraph
(b)(4) of Rule 485 and in reliance upon the oral approval of the staff of the
Commission, acting on behalf of the Commission, under Rule 485(b)(l)(ix) for
certain of the disclosures to be contained in the amendment, we hereby
represent that such amendment does not contain disclosures which would render
it ineligible to become effective pursuant to paragraph (b) thereof.
Very truly yours,
/s/ Vedder, Price, Kaufman & Kammholz
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
