<PAGE> 1
Kemper Target Equity Fund
Kemper Retirement Fund Series I, II, III, IV and V
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED JUNE 30, 1996
Provides a guaranteed return of investment on the designated maturity date to
investors who reinvest all dividends and hold their shares to the maturity
date, and seeks to provide long-term growth of capital
" . . .It is a very rotational market right now. . . . The moves you'd
expect to see in a year's time are happening in a matter of months and
that is where active management comes into play."
[KEMPER FUNDS LOGO]
<PAGE> 2
3
Economic Overview
5
Performance Update
8
Largest Stock Holdings
10
Portfolios of
Investments
19
Report of
Independent Auditors
20
Financial Statements
24
Notes to
Financial Statements
28
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER RETIREMENT FUND
SERIES I-V TOTAL RETURNS*
- --------------------------------------------------------------------------------
For the year ended June 30, 1996 (unadjusted for any sales charge)
<TABLE>
<S> <C>
SERIES I 13.91%
SERIES II 10.92%
SERIES III 11.72%
SERIES IV 10.47%
SERIES V 10.95%
</TABLE>
Returns are historical and do not represent future performance. Returns and net
asset value fluctuate. Shares are redeemable at current net asset value, which
may be more or less than original cost.
*Total return measures net investment income and capital gain or loss from
portfolio investments, assuming reinvestment of all dividends. During the period
noted, securities prices fluctuated. For additional information, see the
Prospectus and Statement of Additional Information and the Financial Highlights
at the end of this report.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
6/30/96 6/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
SERIES I $11.46 $11.19
SERIES II $13.01 $12.94
SERIES III $10.95 $10.75
SERIES IV $10.70 $10.07
SERIES V $10.20 $ 9.53
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE REPORTING PERIOD, KEMPER RETIREMENT FUND SERIES I-V PAID THE
FOLLOWING DIVIDENDS:
<TABLE>
<CAPTION>
INCOME SHORT-TERM LONG-TERM
DIVIDEND CAPITAL GAIN CAPITAL GAIN
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SERIES I $0.44 $0.31 $0.45
SERIES II $0.57 $0.27 $0.44
SERIES III $0.44 $0.23 $0.34
SERIES IV $0.41 -- --
SERIES V $0.36 -- --
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
CORRECTION A sharp, relatively short price decline that temporarily interrupts
a persistent upward trend in the market or the price of a stock. Technical
analysts note that markets do not move straight up or down and that corrections
are to be expected during any long-term move.
SECTOR A specific industry group.
VOLATILITY Characteristic of a security, commodity or market to rise or fall
sharply in price within a short period of time. A stock may be volatile because
the outlook for the company is particularly uncertain or because of various
other reasons.
ZERO-COUPON BOND A bond that makes no periodic interest payments but instead is
sold at a deep discount from its face value. The buyer of such a bond receives
the rate of return by the gradual appreciation of the security due to the
accrual of interest. The security is redeemed at face value at maturity.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
Stephen B. Timbers is President, Chief Executive and Chief Investment Officer of
Zurich Kemper Investments, Inc. (ZKI). ZKI and its affiliates manage
approximately $78 billion in assets, including $45 billion in retail Mutual
Funds. Timbers is a graduate of Yale University and holds an M.B.A. from
Harvard University.
DEAR SHAREHOLDER,
We have just completed a period of some discomfort for bond and stock market
traders. Concerns about rising interest rates, the possibility of higher price
inflation and Federal Reserve tightening of credit contributed to considerable
market volatility. But while the professional investors tend to fret over every
economic release, individuals who invest in mutual funds for the long term were
wise to stay the course -- at least until the direction of the economy became
clearer. Indeed, several recent economic measures are quite reassuring and argue
in favor of a continued healthy economy with low inflation.
The economy expanded at a 4.2% annual rate in the second quarter, the fastest
pace since the second quarter of 1994. This robust growth is welcome in general
but has tended to roil markets, which fear strong growth will lead to
overheating and inflationary pressures. So far, however, such fears have been
largely unwarranted. With the exception of food prices, whose increases were
weather-related, there have been no significant signs of inflationary pressures.
As it has so often recently, the economy is in the process of slowing itself
down. While the Federal Reserve Board stands by ready to attempt to moderate
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their investment
rationale that may help your investment decision-making. The 10-year Treasury
rate and the prime rate are prevailing interest rates. The other data report
year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
Now (6/30/96) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-Year Treasury rate(1) 6.91 5.65 6.28 7.30
Prime Rate(2) 8.25 8.50 8.80 7.25
Inflation rate(3) 2.75 2.72 2.76 2.77
The U.S. dollar(4) 9.15 -0.57 -7.06 -3.24
Capital goods orders(5) 1.19 4.72 5.60 18.66
Industrial production(5) 3.54 0.56 2.65 6.25
Employment growth(6) 2.10 1.57 2.47 3.23
</TABLE>
1 Falling interest rates in recent years have been a big plus for financial
assets.
2 The interest rate that commercial lenders charge their best borrowers.
3 Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last few
years has meant high real returns.
4 Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
5 These influence corporate profits and equity performance.
6 An influence on family income and retail sales.
Source: Economics Department, Zurich Kemper Investments, Inc.
3
<PAGE> 4
ECONOMIC OVERVIEW
economic growth with either interest rate cuts or increases, such intervention
can run the risk of going too far in one direction. It appears that our economy
today is self-regulating.
Based on these snapshots of the economy, then, we look for a relatively calmer
second half of 1996. Our forecast calls for growth to slow down in the third and
fourth quarters, to result in an advance of about 2.5% for the entire year.
Assuming that bond and stock market investors concur that there is no chance of
an overheating economy or significantly rising interest rates, the markets
should relax, as well.
What was the meaning of the market volatility that we experienced in May, June
and July? Investors were nervous about the broad economy, and some disappointing
earnings reports made them pessimistic. Yet, the markets performed the way that
history suggests they should: an overall correction in the stock market was
accentuated in technology and small capitalization stocks -- the industry
sectors whose performance tends to be the most volatile. Once the stock market
corrected, the bond market rallied. Finally, while not producing spectacular
results, international markets provided a stabilizing influence when compared to
U.S. markets.
Our market forecast eight months into the year is not much different from what
we forecasted in January. The bond market, which is climbing back from a decline
this year, may produce a 5% total return in 1996. The stock market, after the
correction is completed, may advance 5% to 10% for the year. Naturally, future
market conditions cannot be predicted with assurance.
In addition, we are projecting that long-term (30-year) interest rates will
hover in the 6.5% to 7.5% range. Short-term interest rates may drop below their
current levels. Finally, we would be surprised if the Federal Reserve Board
moved to adjust interest rates more than 25 basis points either way for the
remainder of the year.
Given the economic environment, we do not look for an upset in the upcoming
presidential election. Much more interesting will be which party wins the most
congressional seats. If the Democrats regain control of Congress, a bond market
selloff could be expected.
While U.S. markets are expected to provide modest returns, we continue to
advocate the benefits of diversification into alternate markets. Many overseas
markets are forecasted to grow at a rate well above our 2.5% growth expectation
for the U.S., and there are many equity and fixed-income opportunities abroad.
The value of the U.S. dollar, always a concern to international investors, will
probably not strengthen much against other currencies for the foreseeable
future.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including an interview with your fund's portfolio
management. Thank you for your continued support. We appreciate the opportunity
to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
President, Chief Investment and Executive Officer
Zurich Kemper Investments, Inc.
August 2, 1996
4
<PAGE> 5
PERFORMANCE UPDATE
[MCCORMICK PHOTO]
Tracy McCormick Chester joined Zurich Kemper Investments, Inc., (ZKI) in 1994
and is a senior vice president of ZKI and vice president and portfolio manager
of Kemper Retirement Fund Series. McCormick Chester received both her B.A. and
M.B.A. degrees from Michigan State University.
The views expressed in this report reflect those of the portfolio manager only
through the end of the period of the report, as stated on the cover. The
manager's views are subject to change at any time, based on market and other
conditions.
DESPITE THE LACKLUSTER PERFORMANCE OF THE ZERO-COUPON BOND PORTION OF THE
PORTFOLIOS, KEMPER RETIREMENT FUND SERIES HAD NOTEWORTHY RETURNS FOR THE 12
MONTH PERIOD. BELOW, PORTFOLIO MANAGER TRACY MCCORMICK CHESTER DISCUSSES HOW
ANTICIPATING CHANGE HELPED HER ACHIEVE GREATER RETURNS.
Q. TRACY, A VOLATILE MARKET AND FLUCTUATING INTEREST RATES OBVIOUSLY AFFECTED
THE HOLDINGS IN THE KEMPER RETIREMENT FUND SERIES, BUT YOU STILL SUCCEEDED IN
ACHIEVING RETURNS AS HIGH AS 13.91 PERCENT (SERIES I) FOR THE 12 MONTH PERIOD.
HOW HAVE YOU BEEN ABLE TO MAINTAIN THESE HEALTHY RETURNS IN THIS LESS THAN IDEAL
INVESTMENT ENVIRONMENT?
A. A main approach we have taken in managing this fund series has been to
strive to recognize change early. Investors react to a company's prospects. If
we can succeed in recognizing a change in those prospects before the overall
market does, we stand to benefit. The funds' performance in the last 12 months
is the result of our identifying and acquiring several stocks that enjoyed a
significant runup in price, in part because of a broader market recognition
after we owned the stock. It is a very rotational market right now. In some
cases, the moves you'd expect to see in a year's time are happening in a matter
of months and that is where active management comes into play. We are constantly
watching the movement of the market, analyzing the trends we see and acting
accordingly.
Q. WHAT TYPE OF CHANGE DO YOU LOOK FOR?
A. Many kinds of changes can influence a company's prospects. A turn in the
economic cycle can have an effect on an economically-dependent company. A trend
toward consolidation in a given industry can strengthen some companies while
weakening others. And then there are company-specific changes: new management, a
maturing of the product cycle, a redirection of the corporate philosophy. All of
these can have an effect on a company's profitability and, in the kinds of
growth companies that we invest in, most will eventually attract the attention
of investors. Our objective is to spot these changes early.
Q. CAN YOU GIVE AN EXAMPLE OF HOW THIS STRATEGY RECENTLY WORKED FOR THE FUNDS?
A. Cincinnati Bell is a good example. It is a company that most people
overlooked because the regional carrier business is considered boring and
predictable. But when we looked into the company further, we found that the
regional carrier business is just one-third of Cincinnati Bell's business. It's
also in the fast-growing business of direct marketing and cellular billing. We
saw the stock make a huge move to $49.25 per share on April 30, 1996, from $27,
the price of the first shares we bought in October.
Q. ALTHOUGH THEY ARE AN UNMANAGED COMPONENT OF THE
5
<PAGE> 6
PERFORMANCE UPDATE
PORTFOLIO, CAN YOU DISCUSS THE PERFORMANCE OF THE ZERO-COUPON BONDS DURING THIS
PERIOD AND HOW THEY AFFECTED THE FUNDS' OVERALL RETURNS?
A. Zero-coupon bonds really serve as a barometer of what is happening with
interest rates. When interest rates go up, the value of the bonds go down.
During the first quarter of this year, the funds were definitely impacted by
poor performance in the bond market. Recently though, we have seen interest rate
fluctuations ease and bonds are beginning to do better which should help
stabilize the funds' net asset values.
An indirect way the zero-coupon bonds affected the portfolio composition was
in our approach to financials. Having a highly interest rate-sensitive component
like the zero-coupons in the portfolios, we tend to be underweight in financial
stocks in the funds because we don't want to increase the exposure to interest
rates. However, financials did do quite well last summer so that may have been
an area where we missed some opportunity.
Q. WERE THERE ANY OTHER DISAPPOINTMENTS OR MISCALCULATIONS DURING THE LAST 12
MONTHS?
A. Technology was a sector that had a lot of investors on edge this past year.
A correction was expected and there was a great deal of anticipation as to when
that would happen. Last summer, we decided to cut our technology holdings in
companies like Intel and Informix fairly significantly. The stocks were very
poor performers in the fourth quarter of 1995. While we bought some back in the
first quarter of 1996, we could have more aggressively traded them. We have
begun to dabble in technology once again by accumulating depressed shares of
high-quality stocks that we expect to improve such as Xilinx and Compaq
Computer. We have been underweighted in semiconductors for the past nine months
and more focused on software and servicing businesses (Computer Science and
Electronic Arts).
Q. WHAT CHANGES DID YOU MAKE TO THE FUNDS' COMPOSITION IN RESPONSE TO RECENT
MARKET VOLATILITY?
A. We are trying not to "round trip" our holdings. By that I mean we don't
want to buy them at one price, watch them become fully valued and then hold on
to them as they start back down again. This is not an environment where we can
be complacent about any of our holdings. When we discover a questionable area in
a stock, we'd better be ready to let it go.
Recent trading activity positions the funds more defensively against this
volatile market. Late last year, we started repositioning the funds' portfolios
to include more consumer cyclical stocks in retail, gaming and conglomerates.
During the first quarter, that worked pretty well for us. We maintained our
position in health care although we did shuffle between subsectors such as
pharmaceuticals and medical devices. We also added some financials in April when
we bought Travelers, FNMA and Bank of Boston. We favored specific subsectors in
this industry as well and tried to avoid having consumer credit card exposure.
Conglomerates like Textron and Allied Signal did very well for us but we
recently cut back in this area because our holdings had reached expected
valuations. We also cut back on basic industry holdings such as Monsanto and
Georgia-Pacific. Several large retail holdings were eliminated (May Department
Stores and Harcourt General) and the assets were used to increase selected niche
retail holdings (Melville and Consolidated Stores) with more attractive
valuations and upside potential.
We are avoiding food stocks due to worries about food inflation but, to take
advantage of that, we have included Sysco, the leading distributor of food and
related products to the foodservice industry, which will benefit from food
inflation. A problem for one company provides an opportunity for another. We are
also holding on to our positions in consumer staples like Duracell, Clorox and
Procter & Gamble. We are watching the gaming industry again as well. While
holdings like Circus Circus reached their peaks in the first quarter of this
year, we are seeing signs that they are coming back again.
Q. WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A. Going forward, we expect more of the same with the markets remaining fairly
volatile throughout the rest of the year. The presidential election also
promises to have an effect. We will continue to look for opportunities the
market doesn't recognize. In this cyclical environment, it is important to have
reliable information gained through in-depth research.
6
<PAGE> 7
PERFORMANCE UPDATE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Average Annual Total Returns*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED JUNE 30, 1996 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
LIFE OF
1-YEAR 5-YEAR FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
SERIES I 8.20% 10.98% 12.51% (Since 2/5/90)
- -----------------------------------------------------------------------------------------------------
SERIES II 5.38% 10.49% 12.53% (Since 9/11/90)
- -----------------------------------------------------------------------------------------------------
SERIES III 6.10% N/A 9.04% (Since 3/10/92)
- -----------------------------------------------------------------------------------------------------
SERIES IV 4.95% N/A 6.52% (Since 1/15/93)
- -----------------------------------------------------------------------------------------------------
SERIES V 5.42% N/A 5.30% (Since 11/15/93)
- -----------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Growth of an assumed $10,000 investment
KEMPER RETIREMENT FUND - SERIES I
- ----------------------------------------------------------------------------------------------------
2/5/90 12/31/92 12/31/94 6/30/96
<S> <C> <C> <C> <C>
- - KEMPER RETIREMENT FUND(1) $10,000 $15,611 $16,298 $21,264
- - RUSSELL 1000(R) GROWTH INDEX+ 10,000 16,076 16,983 23,015
- - LEHMAN BROTHERS GOV'T/CORP. BOND INDEX++ 10,000 13,715 14,694 17,192
</TABLE>
[LINE GRAPH]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Growth of an assumed $10,000 investment
KEMPER RETIREMENT FUND - SERIES II
- ----------------------------------------------------------------------------------------------------
9/11/90 12/31/92 12/31/94 6/30/96
<S> <C> <C> <C> <C>
- - KEMPER RETIREMENT FUND(1) $10,000 $14,851 $15,573 $19,851
- - RUSSELL 1000(R) GROWTH INDEX+ 10,000 16,447 16,858 22,845
- - LEHMAN BROTHERS GOV'T/CORP. BOND INDEX++ 10,000 13,238 14,183 16,594
</TABLE>
[LINE GRAPH]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Growth of an assumed $10,000 investment
KEMPER RETIREMENT FUND - SERIES III
- ----------------------------------------------------------------------------------------------------
3/10/92 12/31/92 12/31/94 6/30/96
<S> <C> <C> <C> <C>
- - KEMPER RETIREMENT FUND(1) $10,000 $10,614 $11,182 $14,519
- - RUSSELL 1000(R) GROWTH INDEX+ 10,000 11,046 11,670 15,814
- - LEHMAN BROTHERS GOV'T/CORP. BOND INDEX++ 10,000 10,862 11,638 13,616
</TABLE>
[LINE GRAPH]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Growth of an assumed $10,000 investment
KEMPER RETIREMENT FUND - SERIES IV
- ----------------------------------------------------------------------------------------------------
1/15/93 12/31/94 12/31/95 6/30/96
<S> <C> <C> <C> <C>
- - KEMPER RETIREMENT FUND(1) $10,000 $ 9,630 $12,279 $12,442
- - RUSSELL 1000(R) GROWTH INDEX+ 10,000 10,369 14,226 14,052
- - LEHMAN BROTHERS GOV'T/CORP. BOND INDEX++ 10,000 10,714 12,775 12,535
</TABLE>
[LINE GRAPH]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Growth of an assumed $10,000 investment
KEMPER RETIREMENT FUND - SERIES V
- ----------------------------------------------------------------------------------------------------
1/15/93 12/31/94 12/31/95 6/30/96
<S> <C> <C> <C> <C>
- - KEMPER RETIREMENT FUND(1) $10,000 $ 8,775 $11,320 $11,455
- - RUSSELL 1000(R) GROWTH INDEX+ 10,000 10,146 13,785 13,616
- - LEHMAN BROTHERS GOV'T/CORP. BOND INDEX++ 10,000 9,582 11,426 11,211
</TABLE>
Past performance is not predictive of future performance. Returns and
net asset value fluctuate. Shares are redeemable at current net asset value,
which may be more or less than original cost.
* Average annual total return measures net investment income and capital
gain or loss from portfolio investments, assuming reinvestment of all
dividends. Average annual total return reflects annualized change. During the
periods noted, securities prices fluctuated. For additional information, see
the Prospectus and Statement of Additional Information and the Financial
Highlights at the end of this report.
1 Performance includes reinvestment of dividends and adjustment for the
maximum sales charge of 5.0%. When comparing Kemper Retirement Fund Series to
Russell 1000(R) Growth Index+ and the Lehman Brothers Gov't/Corp. Bond Index++,
you should note that the fund's performance reflects the maximum sales charge,
while no such charges are reflected in the performance of the indices.
+ The Russell 1000(R) Growth Index is an unmanaged index comprised of
common stocks of larger U.S. companies with greater than average growth
orientation and represents the universe of stocks from which "earnings/growth"
money managers typically select. Assumes reinvestment of dividends. Source is
Lipper Analytical Services, Inc.
++ The Lehman Brothers Government/Corporate Bond Index is an unmanaged
index comprised of intermediate and long-term government and investment grade
corporate debt securities. Source is Towers Data Systems.
7
<PAGE> 8
LARGEST STOCK HOLDINGS
THE FUNDS' LARGEST STOCK HOLDINGS*
PERCENTAGES BASED ON THE FUNDS' TOTAL COMMON STOCK HOLDINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Holdings Series I Series II Series III Series IV Series V
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Eli Lilly 1.85% 1.91% 1.88% 1.86% 1.83%
- ---------------------------------------------------------------------------------------------------
Philip Morris Companies 1.83% 1.78% 1.69% 1.82% 1.80%
- ---------------------------------------------------------------------------------------------------
Baxter International 1.79% 1.85% 1.82% 1.80% 1.77%
- ---------------------------------------------------------------------------------------------------
Enron 1.77% 1.85% 1.80% 1.77% 1.91%
- ---------------------------------------------------------------------------------------------------
Mobil 1.74% 1.88% 1.69% 1.75% 1.68%
- ---------------------------------------------------------------------------------------------------
General Electric 1.72% 1.69% 1.75% 1.73% 1.95%
- ---------------------------------------------------------------------------------------------------
Compaq Computer 1.68% 1.68% 1.73% 1.69% 1.68%
- ---------------------------------------------------------------------------------------------------
Harris 1.62% 1.79% 1.65% 1.63% 1.60%
- ---------------------------------------------------------------------------------------------------
Boeing 1.57% 1.59% 1.39% 1.50% 1.63%
- ---------------------------------------------------------------------------------------------------
Duracell International 1.55% 1.55% 1.58% 1.56% 1.54%
- ---------------------------------------------------------------------------------------------------
Procter & Gamble 1.55% 1.63% 1.49% 1.38% 1.53%
- ---------------------------------------------------------------------------------------------------
Cincinnati Bell 1.52% 1.43% 1.55% 1.53% 1.51%
- ---------------------------------------------------------------------------------------------------
Marsh & McLennan Companies 1.46% 1.53% 1.49% 1.53% 1.56%
- ---------------------------------------------------------------------------------------------------
</TABLE>
*The funds' holdings are subject to change.
8
<PAGE> 9
LARGEST STOCK HOLDINGS
DESCRIPTION OF YOUR FUNDS' LARGEST STOCK HOLDINGS
- -------------------------------------------------------------------------------
Holdings
- -------------------------------------------------------------------------------
Eli Lilly Engaged in the discovery, development, manufacture
and sale of a broad line of pharmaceutical and
animal health products.
Philip Morris Companies The largest cigarette maker in the U.S. Through its
Miller Brewing subsidiary, it is also the country's
second-largest brewer. This company is also a major
branded food producer through its Kraft and General
Foods subsidiaries.
Baxter International Engaged in worldwide development, manufacture and
distribution of products, systems and services for
hospitals and patients at home, laboratories,
industrial research and manufacturing facilities.
Enron Transports and markets natural gas throughout the
United States via 44,000 miles of pipelines. The
company also sells and produces cogenerated steam
and electricity.
Mobil Produces, transports, refines and markets petroleum
and natural gas and related products.
General Electric Operates in major businesses including power
generators, appliances, lighting, plastics, medical
systems, aircraft engines, financial services and
broadcasting.
Compaq Computer Designs, develops, manufactures and markets
personal computers for business and professional
users.
Harris Engaged in advanced research, development, design
and production of high-technology systems for
government and commercial organizations.
Boeing Manufactures commercial transportation equipment,
primarily passenger and cargo jetliners. Also
develops military aircraft and missiles and space
systems.
Duracell International The world's leading producer of consumer alkaline
batteries.
Procter & Gamble Engaged in the manufacture and distribution of a
wide variety of household products, consisting of
laundry and cleaning products, diapers, personal
care products and food products.
Cincinnati Bell Provides telecommunications services, information
systems and marketing services.
Marsh & McLennan Companies A professional services firm with insurance and
reinsurance brokerage, consulting and investment
management businesses.
9
<PAGE> 10
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> 11
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> 12
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> 13
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> 14
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> 15
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> 16
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> 17
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> 18
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> 19
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> 20
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> 21
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> 22
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> 23
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> 24
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> 25
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> 26
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> 27
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> 28
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> 29
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> 30
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> 31
Notes
31
<PAGE> 32
TRUSTEES & OFFICERS
TRUSTEES
STEPHEN B. TIMBERS
President and Trustee
JAMES E. AKINS
Trustee
ARTHUR R. GOTTSCHALK
Trustee
FREDERICK T. KELSEY
Trustee
DOMINIQUE P. MORAX
Trustee
FRED B. RENWICK
Trustee
JOHN B. TINGLEFF
Trustee
JOHN G. WEITHERS
Trustee
OFFICERS
TRACY M. CHESTER
Vice President
DENNIS H. FERRO
Vice President
JOHN E. NEAL
Vice President
STEVEN H. REYNOLDS
Vice President
PHILIP J. COLLORA
Vice President and
Secretary
CHARLES F. CUSTER
Vice President and
Assistant Secretary
JEROME L. DUFFY
Treasurer
ELIZABETH C. WERTH
Assistant Secretary
- --------------------------------------------------------------------------------
LEGAL COUNSEL
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT
KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT
INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER
KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street Chicago, IL 60603
http://www.kemper.com
[RECYCLE LOGO] [KEMPER FUNDS LOGO]
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