<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1997.
1933 ACT REGISTRATION NO. 33-30876
1940 ACT REGISTRATION NO. 811-5896
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _ [ ]
Post-Effective Amendment No. 25 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 27 [X]
</TABLE>
(Check appropriate box or boxes)
------------------
KEMPER TARGET EQUITY FUND
(Exact name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
222 South Riverside Plaza, Chicago, Illinois 60606
(Address of Principal Executive Office) (Zip Code)
</TABLE>
Registrant's Telephone Number, including Area Code: (312) 537-7000
<TABLE>
<C> <C>
Philip J. Collora With a copy to:
Vice President and Secretary Cathy G. O'Kelly
Kemper Target Equity Fund David A. Sturms
222 South Riverside Plaza Vedder, Price, Kaufman & Kammholz
Chicago, Illinois 60606-5808 222 North LaSalle Street
(Name and Address of Agent for Service) Chicago, Illinois 60601
</TABLE>
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on November 1 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 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.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
Kemper Target Equity Fund ("Registrant") is a series fund with eight 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, Kemper
Worldwide 2004 Fund and Kemper Retirement Fund Series VII. Shares of Kemper
Retirement Fund Series I-VI and Kemper Worldwide 2004 Fund are no longer offered
and sold to the public. Shares of Kemper Retirement Fund Series VII 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 VII 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 VII
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
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....................... Inapplicable
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")
KEMPER RETIREMENT FUND SERIES VI ("SERIES VI")
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 VII 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 for Series VI is May 15, 2006 and shares of Series I,
Series II, Series III, Series IV, Series V and Series VI 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 VII 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, Series V - April 30, 1995 and Series VI - March 31, 1997.
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 VII prospectus filed herewith, except that the shares of Series I,
Series II, Series III, Series IV, Series V and Series VI 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 VII prospectus filed herewith, except that shares of
Series I, Series II, Series III, Series IV, Series V and Series VI 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 VII prospectus filed
herewith, except that shares of Series I, Series II, Series III, Series IV,
Series V and Series VI are no longer available for purchase.
ITEM 9. PENDING LEGAL PROCEEDINGS
Inapplicable.
<PAGE> 5
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. For
information about the investment management and sub-adviser see "Investment
Manager and Underwriter" in the Kemper Retirement Fund Series VII prospectus
filed herewith.
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.
<PAGE> 6
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 13
- ------------------------------------------------
Net Asset Value 13
- ------------------------------------------------
Purchase of Shares 14
- ------------------------------------------------
Redemption or Repurchase of Shares 19
- ------------------------------------------------
Special Features 21
- ------------------------------------------------
Performance 24
- ------------------------------------------------
Capital Structure 25
- ------------------------------------------------
</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 November 1, 1997, 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 VII
PROSPECTUS NOVEMBER 1, 1997
KEMPER RETIREMENT FUND SERIES VII
222 S. Riverside Plaza, Chicago, Illinois 60606, 1-800-621-1048.
The objectives of Kemper Retirement Fund Series VII (the "Fund") are to provide
a guaranteed return of investment on the Maturity Date (May 15, 2008) 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> 7
KEMPER RETIREMENT FUND SERIES VII
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606, TELEPHONE 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES; PERMITTED INVESTMENTS. Kemper Retirement Fund Series VII
(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, 2008) 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. Zurich Investment
Management Limited ("ZIML"), an affiliate of ZKI, is the sub-adviser for the
Fund and is paid by ZKI a fee of .35% of the portion of the average daily net
assets of the Fund allocated by ZKI to ZIML for management. Zurich Kemper
Distributors, Inc. ("ZKDI"), 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 ZKDI. The Fund pays
an administrative services fee at the annual rate of up to .25% of average daily
net assets of the Fund, which ZKDI pays to financial services firms. See
"Investment Manager and Underwriter."
1
<PAGE> 8
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 May 15, 1998 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.............................................. .60%
----
Total Operating Expenses.................................... 1.10%
====
</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." The table does not include the $9.00
quarterly small account fee. See "Redemption or Repurchase 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."
2
<PAGE> 9
EXAMPLE
<TABLE>
<S> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming 1 YEAR 3 YEARS
(1)5% annual return and (2) redemption at the end of each
time period: $61 $83
</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.
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 1997 Annual Report to Shareholders are
incorporated herein by reference and may be obtained by writing or calling the
Fund. The Fund commenced operations on May 1, 1997 and its initial fiscal year
end was June 30. Subsequently, the Trust changed its fiscal year end to July 31.
The financial highlights for both fiscal periods is presented below.
<TABLE>
<CAPTION>
ONE MONTH MAY 1, 1997
ENDED TO
JULY 31, 1997 JUNE 30, 1997
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.23 9.00
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .01 .02
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain .54 .21
- -------------------------------------------------------------------------------------------
Total from investment operations .55 .23
- -------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.78 9.23
- -------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED): 5.96% 2.56
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses .95% 1.17
- -------------------------------------------------------------------------------------------
Net investment income 3.45% 3.16
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $4,550 2,043
- -------------------------------------------------------------------------------------------
Portfolio turnover rate 6% 12
- -------------------------------------------------------------------------------------------
Average commission rates paid per share on stock
transactions $.0602 .0597
- -------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of sales charges. The Fund was
organized as the eighth series of the Trust, which is a business trust under the
laws of Massachusetts. No significant transactions were effected prior to May 1,
1997.
3
<PAGE> 10
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, 2008) 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 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.
4
<PAGE> 11
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
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
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<PAGE> 12
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, 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
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<PAGE> 13
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 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 $660 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
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<PAGE> 14
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 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
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<PAGE> 15
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 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
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<PAGE> 16
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.
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 other liquid 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,
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<PAGE> 17
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 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-nine years. ZKI and its
affiliates provide investment advice and manage investment portfolios for the
Kemper Funds, Zurich Money Market Funds, affiliated insurance companies and
other corporate, pension, profit-sharing and individual accounts representing
approximately $85 billion under management. ZKI acts as investment manager for
32 open-end and seven closed-end investment companies, with 86 separate
investment portfolios, representing more than 2.5 million shareholder accounts.
ZKI is an indirect subsidiary of Zurich Insurance Company ("Zurich"), a leading
internationally recognized provider of insurance and financial services in
property/casualty and life insurance, reinsurance and structured financial
solutions as well as asset management.
Zurich has entered into a definitive agreement with Scudder, Stevens & Clark,
Inc. ("Scudder") pursuant to which Zurich will acquire approximately 70% of
Scudder. Upon completion of the transaction, Scudder will change its name to
Scudder Kemper Investments, Inc. ("SKI"), and ZKI will be operated either as a
subsidiary of SKI or as part of SKI. Consummation of the transaction is subject
to a number of contingencies. Because the transaction would constitute an
assignment of the Fund's investment management agreement with ZKI under the
Investment Company Act of 1940, ZKI is seeking approval of a new agreement. The
Fund's board has approved a new agreement subject to shareholder approval. If
the contingencies are timely met, the transaction is expected to close in the
fourth quarter of 1997. Zurich will own 69.5% of SKI and senior employees of SKI
will hold the remaining 30.5%. SKI will be headquartered in New York City and
the chief executive officer of SKI will be Edmond D. Villani, Scudder's
president and chief executive officer. Mr. Villani will also join Zurich's
Corporate Executive Board. A transition team comprised of representatives from
ZKI, Zurich, and Scudder has been formed to make recommendations regarding
combining the operations of Scudder and ZKI.
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. Zurich Investment Management Limited ("ZIML"),
1 Fleet Place, London, U.K. EC4M 7RQ, an affiliate of ZKI, is the sub-adviser
for the Fund. ZIML is an indirect subsidiary of Zurich Insurance Company and has
served as sub-adviser for mutual funds since December, 1996 and investment
adviser for certain institutional accounts since August, 1988. Under the terms
of the sub-advisory agreement between ZIML and ZKI, ZIML renders investment
advisory and management services with regard to such portion of the Fund's
portfolio as may be allocated to ZIML by ZKI from time to time for management of
foreign securities, including foreign currency transactions and related
investments. ZKI pays ZIML for its services a sub-advisory fee, payable monthly
at the
11
<PAGE> 18
annual rate of .35% of the portion of the average daily net assets of the Fund
allocated by ZKI to ZIML for management.
Tracy McCormick Chester is the portfolio manager of the Fund. She has served in
this capacity since the Fund commenced operations in May 1997. 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, Zurich Kemper
Distributors, Inc. ("ZKDI"), 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. ZKDI 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 ZKDI, 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," ZKDI 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. ZKDI also provides information and administrative services for
Fund shareholders pursuant to an administrative services agreement
("administrative agreement"). ZKDI enters into related arrangements with various
broker-dealer firms and other service or administrative firms ("firms") that
provide services and facilities for their customers or clients who are investors
in the Fund. Such administrative services and assistance may include, but are
not limited to, establishing and maintaining accounts and records, processing
purchase and redemption transactions, answering routine inquiries regarding the
Fund and its special features, and such other administrative services as may be
agreed upon from time to time and permitted by applicable statute, rule or
regulation. ZKDI 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 ZKDI a fee, payable
monthly, at the annual rate of up to .25% of average daily net assets of the
Fund. ZKDI 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 affiliates of ZKDI. 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
ZKDI or the Fund. The fees are calculated monthly and paid quarterly.
ZKDI 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 ZKDI is based only upon Fund assets in
accounts for which a firm provides administrative services and it is intended
that ZKDI 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 a firm provides administrative services. In addition, ZKDI
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"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, as
custodian and State Street Bank and Trust Company,
12
<PAGE> 19
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, Zurich 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, ZKI and ZIML
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.
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
13
<PAGE> 20
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.
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
14
<PAGE> 21
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 determinations 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
As a Percentage Dealers as a
As a Percentage of Net Asset Percentage of
Amount of Purchase of Offering Price 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 ZKDI as discussed below.
Shares will only be offered to the public during the Offering Period, which is
expected to end on May 15, 1998. 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
ZKDI. 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 and may not be
available for certain types of account registrations. 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. ZKDI, 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, ZKDI may
15
<PAGE> 22
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 ZKDI 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.
ZKDI may from time to time, pay or allow to firms a 1% commission on the amount
of shares of the Fund sold under the following conditions: (i) the purchased
shares are held in a Kemper IRA account, (ii) the shares are purchased as a
direct "roll over" of a distribution from a qualified retirement plan account
maintained on a participant subaccount record keeping system provided by Zurich
Kemper Service Company, (iii) the registered representative placing the trade is
a member of ProStar, a group of persons designated by ZKDI in acknowledgment of
their dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, ZKDI 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
ZKDI.
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. ZKDI 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 or a participant-directed qualified
retirement plan described in Code Section 403(b)(7) which is not sponsored by a
K-12 school district, provided in each 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
16
<PAGE> 23
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 or a participant-directed
qualified uretirement plan described in Code Section 403(b)(7) which is not
sponsored by a K-12 school district; (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 ZKDI 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.
ZKDI 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 the Shareholder Service Agent. For purposes of determining the
appropriate commission percentage to be applied to a particular sale, ZKDI 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 of the Fund may be purchased at net asset value by persons who purchase
such shares through bank trust departments that process such trades through an
automated, integrated mutual fund clearing program provided by a third party
clearing firm.
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 ZKDI, for themselves or members of their families. ZKDI
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 of the Fund may be purchased at net asset value by persons who purchase
shares of the Fund through ZKDI as part of an automated billing and wage
deduction program administered by Rewards Plus of America for the benefit of
employees of participating employer groups.
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 ZKDI 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 Value Fund, Inc. ("KVF") on September 8, 1995, and have
continuously owned shares of KVF (or a
17
<PAGE> 24
Kemper Fund acquired by exchange of KVF 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 ZKDI 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
Ranson & Associates, Inc. In addition, unitholders of unit investment trusts
sponsored by Ranson & Associates, 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 ZKDI, including a requirement that such shares be sold for the
benefit of their clients participating in an investment advisory program under
which such clients pay a fee to the investment adviser or other firm for
portfolio management and other services. 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.
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, ZKDI 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 of purchase and the concession continues until terminated
by ZKDI. The privilege of purchasing shares of a Fund at net asset value under
this privilege is not available if another net asset value purchase privilege
also applies (including the purchase of Class A shares of the Cash Reserves
Fund).
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
18
<PAGE> 25
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 ZKDI, 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 ZKDI 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
ZKDI 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 Zurich 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 (i.e., purchases by
check, EXPRESS-Transfer or Bank Direct Deposit), it may delay transmittal of
redemption proceeds until it has
19
<PAGE> 26
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").
Because of the high cost of maintaining small accounts, effective January 1998,
the Fund may assess a quarterly fee of $9 on any account with a balance below
$1,000 for the quarter. The fee will not apply to accounts enrolled in an
automatic investment program, individual retirement accounts, or employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent.
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 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 ZKDI, which the Fund has authorized to act as its agent. There
is no charge by ZKDI 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 ZKDI. 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 ZKDI prior to the close of ZKDI'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.
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<PAGE> 27
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 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 Series, 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
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<PAGE> 28
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S.
Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper Value Fund,
Inc., Kemper Value+Growth Fund, Kemper Horizon Fund, Kemper Quantitative Equity
Fund, Kemper Europe Fund, Kemper Asian Growth Fund and Kemper Aggressive Growth
Fund ("Kemper Mutual Funds"). Except as noted below, there is no combined
purchase credit for direct purchases of shares of Zurich Money Funds, Cash
Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust,
Investors Municipal Cash 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 ZKDI. 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 ZKDI
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 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 of a Kemper
Mutual Fund with a value in excess of $1,000,000 (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 (the "15 Day Hold Policy"). For purposes of determining whether the 15 Day
Hold Policy applies to a particular exchange, the value of the shares to be
exchanged shall be computed by aggregating the value of shares being exchanged
for all accounts under common control, direction, or advice, including without
limitation, accounts administered by a financial services firm
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<PAGE> 29
offering market timing, asset allocation or similar services. 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, Investors Municipal
Cash Fund and Investors Cash Trust are available on exchange but only through a
financial services firm having a services agreement with ZKDI. 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 the portfolios of Investors Municipal Cash Fund are
available for sale only in certain states.
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 ZKDI. Exchanges may be accomplished by a written
request to Zurich 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 $50,000) 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 Zurich 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 up to $50,000 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.
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<PAGE> 30
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 ZKDI can establish investor accounts
in any of the following types of retirement plans:
- - Individual Retirement Accounts ("IRAs") with IFTC as custodian. This includes
Savings Incentive Match Plan for Employees of Small Employers ("SIMPLE") IRA
accounts and 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, SIMPLE 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 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
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<PAGE> 31
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 eight
series of shares: Kemper Retirement Fund Series I, Series II, Series III, Series
IV, Series V, Series VI and Kemper Worldwide 2004 Fund, which are no longer
offered, and Kemper Retirement Fund Series VII, 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, 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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November 1, 1997
Prospectus
KEMPER TARGET EQUITY FUND
Kemper Retirement Fund Series VII
Investment Manager
Zurich Kemper Investments, Inc.
Principal Underwriter
Zurich Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048
[RECYCLE LOGO] Printed on recycled paper.
(ZKDI) 710168 (11/97)
<TABLE>
<S> <C>
[KEMPER FUNDS LOGO] [KEMPER FUND LOGO]
Long-term investing in a short-term world(SM) Long-term investing in a short-term world
</TABLE>
<PAGE> 33
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.
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> 34
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> 35
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> 36
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> 37
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> 38
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> 39
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> 40
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
7
<PAGE> 41
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
8
<PAGE> 42
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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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> 44
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> 45
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> 46
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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<PAGE> 47
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.
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<PAGE> 48
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> 49
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> 50
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
17
<PAGE> 51
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> 52
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
19
<PAGE> 53
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
20
<PAGE> 54
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> 55
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.
22
<PAGE> 56
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
23
<PAGE> 57
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
24
<PAGE> 58
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.
25
<PAGE> 59
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,
26
<PAGE> 60
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
27
<PAGE> 61
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
28
<PAGE> 62
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.
29
<PAGE> 63
KEMPER TARGET EQUITY FUND
KEMPER RETIREMENT FUND SERIES VII
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART B
OF FORM N-1A AND STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
LOCATION IN STATEMENT OF
ITEM NUMBER ADDITIONAL INFORMATION
OF FORM N-1A ------------------------
<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> 64
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")
KEMPER RETIREMENT FUND SERIES VI ("SERIES VI")
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
VII 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 VII 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 VII
Statement of Additional Information filed herewith. In addition, neither Series
I, Series II, Series III, Series IV, Series V nor Series VI 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
VII 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' 1997 fiscal year except that the
information in the last column is for calendar year 1996.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE KEMPER FUNDS
COMPENSATION PAID TO
NAME OF TRUSTEE FROM SERIES I-VI TRUSTEES(2)
--------------- ---------------- ------------
<S> <C> <C>
James B. Akins.............................................. $16,400 $ 94,300
Arthur R. Gottschalk(1)..................................... $16,600 $102,700
Frederick T. Kelsey......................................... $16,400 $106,800
Fred B. Renwick............................................. $16,400 $ 94,300
John B. Tingleff............................................ $16,400 $ 94,300
John G. Weithers............................................ $16,400 $ 94,300
</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 Zurich Money Funds--Zurich Money
Market Fund. The total deferred amount and interest accrued through July 31,
1997 for Series I-VI is $48,500 for Mr. Gottschalk.
<PAGE> 65
(2) Includes compensation for service on the boards of 13 Kemper funds with 36
fund portfolios. Each trustee currently serves as a board member of 13
Kemper Funds with 46 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 VII Statement of Additional Information filed
herewith, except for the following:
a. As of October 17, 1997, 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 October 17, 1997, no person owned of record more than 5% of the
shares of Series I, Series II, Series III, Series IV, Series V or Series
VI except as noted below:
<TABLE>
<CAPTION>
NAME & ADDRESS PERCENTAGE SERIES
- -------------- ---------- ------
<S> <C> <C>
EVEREN Clearing Corp. ...................................... (5.76%) Series I
77 W. Wacker Drive
Chicago, IL
National Financial Svcs Corp. .............................. (5.05%) Series IV
One World Financial Center (7.95%)
Series
V
200 Liberty Street (11.45%)
Series
VI
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 VII Statement of Additional
Information filed herewith, except for the following:
a. During the thirteen month period ended July 31, 1997 and the fiscal
years ended June 30, 1996 and 1995, ZKI received management fees from
Series I aggregating $591,000, $539,000 and $514,000, respectively.
b. During the thirteen month period ended July 31, 1997 and the fiscal
years ended June 30, 1996 and 1995, ZKI received management fees from
Series II aggregating $906,000, $862,000 and $848,000, respectively.
c. During the thirteen month period ended July 31, 1997 and the fiscal
years ended June 30, 1996 and 1995, ZKI received management fees from
Series III aggregating $657,000, $623,000 and $604,000, respectively.
d. During the thirteen month period ended July 31, 1997 and the fiscal
years ended June 30, 1996 and 1995, ZKI received management fees from
Series IV aggregating $730,000, $734,000 and $731,000, respectively.
e. During the thirteen month period ended July 31, 1997 and the fiscal
years ended June 30, 1996 and 1995, ZKI received management fees from
Series V aggregating $704,000, $672,000 and $514,000, respectively.
f. During the thirteen month period ended July 31, 1997 and the fiscal
year ended June 30, 1996, and the fiscal period from May 1, 1995 to
June 30, 1995 ZKI received management fees from Series VI aggregating
$332,000, $152,000 and $3,000, respectively.
g. During the thirteen month period ended July 31, 1997, ZKDI received
administrative services fees from Series I, Series II, Series III,
Series IV, Series V and Series VI aggregating $1,915,000 and paid
service fees to firms in the amount of $1,918,000, including $26,000
paid to firms affiliated with ZKDI.
h. During the thirteen month period ended July 31, 1997, Investors
Fiduciary Trust Company remitted shareholder service fees in the amount
of $635,000 to Zurich Kemper Service Company as Shareholder Service
Agent for Series I, Series II, Series III, Series IV, Series V and
Series VI.
<PAGE> 66
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES
Reference is made to the section entitled "Portfolio Transactions" in the
Kemper Retirement Fund Series VII Statement of Additional Information filed
herewith, except for the following:
a. During the thirteen month period ended July 31, 1997, Series I paid
total portfolio brokerage commissions of $245,000 and of this amount,
88% was allocated to broker-dealers on the basis of research information
and during the fiscal years ended June 30, 1996 and 1995, Series I paid
portfolio brokerage commissions of $208,000 and $197,000, respectively.
b. During the thirteen month period ended July 31, 1997, Series II paid
total portfolio brokerage commissions of $283,000 and of this amount,
88% was allocated to broker-dealers on the basis of research information
and during the fiscal years ended June 30, 1996 and 1995, Series II paid
portfolio brokerage commissions of $250,000 and $236,000, respectively.
c. During the thirteen month period ended July 31, 1997, Series III paid
total portfolio brokerage commissions of $222,000 and of this amount,
88% was allocated to broker-dealers on the basis of research information
and during the fiscal years ended June 30, 1996 and 1995, Series III
paid portfolio brokerage commissions of $204,000 and $188,000,
respectively.
d. During the thirteen month period ended July 31, 1997, Series IV paid
total portfolio brokerage commissions of $221,000 and of this amount,
88% was allocated to broker-dealers on the basis of research information
and during the fiscal years ended June 30, 1996 and 1995, Series IV paid
portfolio brokerage commissions of $210,000 and $196,000, respectively.
e. During the thirteen month period ended July 31, 1997, Series V paid
total portfolio brokerage commissions of $244,000 and of this amount,
88% was allocated to broker-dealers on the basis of research information
and during the fiscal years ended June 30, 1996 and 1995, Series V paid
portfolio brokerage commissions of $212,000 and $159,000, respectively.
f. During the thirteen month period ended July 31, 1997, Series VI paid
total portfolio brokerage commissions of $105,000 and of this amount,
90% was allocated to broker-dealers on the basis of research information
and during the fiscal year ended June 30, 1996 and the fiscal period
from May 1, 1995 to June 30, 1995, Series VI paid portfolio brokerage
commissions of $49,000 and $0, 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 VII 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 VII Statement of Additional
Information filed herewith, except that shares of Series I, Series II, Series
III, Series IV, Series V and Series VI 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 VII 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 VII Statement of Additional
Information filed herewith, except for the following:
a. During the period from November 15, 1993 to June 30, 1994 and the
fiscal year ended June 30, 1995, ZKDI retained underwriting
commissions with respect to Series V of $344,000 and
<PAGE> 67
$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 ZKDI.
b. For the thirteen month period ended July 31, 1997, the fiscal year
ended June 30, 1996 and for the period May 1, 1995 to June 30, 1995
ZKDI retained underwriting commissions with respect to Series VI of
$96,000, $214,000 and $35,000, respectively, after allowing $736,000,
$1,755,000 and $300,000, respectively, as commissions to firms
including $0, $211,000 and $37,000, respectively, paid to firms
affiliated with ZKDI.
ITEM 22. CALCULATION OF PERFORMANCE DATA
Inapplicable.
ITEM 23. FINANCIAL STATEMENTS
Attached.
<PAGE> 68
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 Worldwide 2004 Fund
Statement of Additional Information filed herewith, and for information about
the investment management and sub-adviser see "Investment Manager and
Underwriter" in the Kemper Retirement Fund Series VII prospectus 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 1997 fiscal year except that the
information in the last column is for calendar year 1996.
<TABLE>
<CAPTION>
AGGREGATE TOTAL
COMPENSATION COMPENSATION
FROM KEMPER KEMPER FUNDS
WORLDWIDE PAID TO
NAME OF TRUSTEE 2004 FUND TRUSTEES(2)
--------------- ------------ ------------
<S> <C> <C>
James B. Akins.............................................. $ 900 $ 94,300
Arthur R. Gottschalk(1)..................................... $1,000 $102,700
Frederick T. Kelsey......................................... $ 900 $106,800
Fred B. Renwick............................................. $ 900 $ 94,300
John B. Tingleff............................................ $ 900 $ 94,300
John G. Weithers............................................ $ 900 $ 94,300
</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 Zurich Money Funds -- Zurich Money
Market Fund. The total deferred amount and interest accrued through June 30,
1997 for the Fund is $4,800 for Mr. Gottschalk.
(2) Includes compensation for service on the boards of 13 Kemper funds with 36
fund portfolios. Each trustee currently serves as a board member of 13
Kemper Funds with 46 fund portfolios.
<PAGE> 69
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 October 17, 1997, 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 October 17, 1997, 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. ...................................... (6.58%)
77 W. Wacker Drive
Chicago, IL
National Financial Svcs Corp. .............................. (7.48%)
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 thirteen month period ended July 31, 1997 and the fiscal
years ended June 30, 1996 and 1995, ZKI received management fees from
Kemper Worldwide 2004 Fund of $233,000, $214,000, and $129,000,
respectively.
b. During the thirteen month period ended July 31, 1997, ZKDI received
administrative service fees from Kemper Worldwide 2004 Fund of $96,000
and paid service fees to firms in the amount of $96,000.
c. During the thirteen month period ended July 31, 1997, Investors
Fiduciary Trust Company remitted shareholder service fees in the
amount of $38,000 to Zurich 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 Series III Fund Statement of Additional Information filed
herewith, except for the following:
During the fiscal year ended June 30, 1997, Kemper Retirement Series VII
Fund paid total portfolio brokerage commissions of $56,000, and of this
amount, 83% was allocated to broker-dealers on the basis of research
information and during the fiscal years ended June 30, 1996 and 1995,
Kemper Worldwide 2004 Fund paid portfolio brokerage commissions of
$121,000 and $179,000, 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.
<PAGE> 70
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.
<PAGE> 71
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1997
KEMPER RETIREMENT FUND SERIES VII
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 VII (the
"Fund") dated November 1, 1997. 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-11
Portfolio Transactions...................................... B-14
Purchase and Redemption of Shares........................... B-15
Officers and Trustees....................................... B-15
Shareholder Rights.......................................... B-17
</TABLE>
The financial statements appearing in the Fund's 1997 Annual Report to
Shareholders are incorporated herein by reference. The Annual Report accompanies
this document.
KRF-13 11/97 [LOGO] printed on recycled paper
<PAGE> 72
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 VII (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) 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.
(9) 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.
(10) 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.
(11) Issue senior securities as defined in the Investment Company Act of 1940.
B-1
<PAGE> 73
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.
(vii) 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.
(viii) 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.
(ix) Invest for the purpose of exercising control or management of another
issuer.
(x) 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.
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.
B-2
<PAGE> 74
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> 75
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
B-4
<PAGE> 76
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.
B-5
<PAGE> 77
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
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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
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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 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 reinvested shares, or (b) the sales charge incurred on the
redeemed shares, is included in the basis of the reinvested 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.
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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.
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, a leading internationally recognized provider of
insurance and financial services in property/casualty and life insurance,
reinsurance and structured financial solutions as well as 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
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various states. Kemper Retirement Fund Series I, Series II, Series III, Series
IV, Series V and Series VI (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.
Currently, there are no state expense limitations in effect.
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.
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.
FUND SUB-ADVISER. Zurich Investment Management Limited ("ZIML"), 1 Fleet Place,
London, U.K. EC4M 7R0, an affiliate of ZKI, is the sub-adviser for the foreign
securities portion of the Fund. ZIML acts as sub-adviser pursuant to the terms
of a sub-advisory agreement between it and ZKI.
Under the terms of the sub-advisory agreement for the Fund, ZIML renders
investment advisory and management services with regard to that portion of the
Fund's portfolio as may be allocated to ZIML by ZKI from time to time for
management of foreign securities, including foreign currency transactions and
related investments. ZIML may, under the terms of the sub-advisory agreement,
render similar services to others including other investment companies. For its
services, ZIML will receive from ZKI a monthly fee at the annual rate of .35% of
the portion of the average daily net assets of the Fund allocated by ZKI to ZIML
for management. ZIML permits any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions.
Kemper Retirement Fund Series I, Series II, Series III, Series IV, Series V and
Series VI (which are no longer being offered) and the Fund are subject to the
Sub-Advisory Agreement.
The sub-advisory agreement provides that ZIML will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the sub-advisory agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
ZIML in the performance of its duties or from reckless disregard by ZIML of its
obligations and duties under the sub-advisory agreement.
The sub-advisory agreement continues in effect from year to year so long as its
continuation is approved at least annually (a) by 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 Fund and (b) by the shareholders or the
Board of Trustees. The sub-advisory agreement may be terminated at any time for
the Fund upon 60 days notice by ZKI, ZIML or the Board of Trustees, or by a
majority vote of the outstanding shares of the Fund, and will terminate
automatically upon assignment or upon the termination of the Fund's investment
management agreement. If additional Funds
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become subject to the sub-advisory agreement, the provisions concerning
continuation, amendment and termination shall be on a Fund-by-Fund basis.
Additional Funds may be subject to a different agreement. Kemper Worldwide 2004
Fund, a series of the Trust, is subject to a different sub-advisory agreement.
PRINCIPAL UNDERWRITER. Zurich Kemper Distributors, Inc. ("ZKDI"), 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 ZKDI pays for the printing and
distribution of copies thereof used in connection with the offering of shares to
prospective investors. ZKDI 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.
ADMINISTRATIVE SERVICES. Administrative services are provided to the Trust under
an administrative services agreement ("administrative agreement") with ZKDI.
ZKDI bears all its expenses of providing services pursuant to the administrative
agreement between ZKDI and the Trust, including the payment of any service fees.
The Trust pays ZKDI an administrative services fee, payable monthly, at the
annual rate of up to .25% of average daily net assets of the Trust.
ZKDI enters into related arrangements with various broker-dealer firms and other
service or administrative firms ("firms"), that provide services and facilities
for their customers or clients who are investors in 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 accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Trust, and
such other administrative services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. ZKDI 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 ZKDI.
ZKDI 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 ZKDI is based only upon Trust assets in
accounts for which a firm provides administrative services and it is intended
that ZKDI 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 a firm of record provides administrative services. The
Board of Trustees of the Trust, in its discretion, may approve basing the fee to
ZKDI on all Trust assets in the future.
Certain trustees or officers of the Trust are also directors or officers of ZKI,
ZIML or ZKDI as indicated under "Officers and Trustees."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 801 Pennsylvania Avenue, 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, Zurich Kemper Service Company ("ZKSVC"), 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 ZKSVC, annual account fees of $6 per account
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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.
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, Zurich Money Market Funds and other clients including affiliated
insurance companies. ZIML is the sub-adviser for the Fund and other Kemper
Funds. 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.
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. 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 execution, financial responsibility, responsiveness, 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 of ZKI and its affiliates. 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. ZKI and ZIML may attempt to direct
sufficient commissions and in the case of transactions for certain types of
clients, dealer selling concessions on new issues of securities, to ensure the
continued receipt of such research products 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 brokerage
and 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
and other clients. Not all of such research services may be
B-14
<PAGE> 86
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
received.
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.
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, ZIML, the sub-adviser of the Fund, and ZKDI, the Fund's principal
B-15
<PAGE> 87
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 E. 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; formerly, Illinois State Senator;
formerly, Vice President, The Reuben H. Donnelly Corp.
FREDERICK T. KELSEY (4/25/27), Trustee (13), 738 York Court, Northbrook,
Illinois; 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 Funds; Trustee of the Pilot
Funds (through 1997).
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 Investment Program, Inc.; Director, the Wartburg Home Foundation; Chairman,
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly, member of the Investment Committee
of Atlanta University Board of Trustees; formerly, Director of Board of Pensions
Evangelical Lutheran Church of America.
STEPHEN B. TIMBERS (8/8/44), President and Trustee* (39), 222 South Riverside
Plaza, Chicago, Illinois; President, Chief Executive Officer, Chief Investment
Officer and Director, ZKI; Director, ZKDI, Zurich Kemper Value Advisors, Inc.
and LTV Corporation; formerly, President and Chief Operating Officer of Kemper
Corporation.
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.
CHARLES R. MANZONI, JR. (1/23/47), Vice President* (39), 222 South Riverside
Plaza, Chicago, Illinois; Executive Vice President, Secretary and General
Counsel of ZKI; Secretary, 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, ZKI; formerly, Senior Vice
President and Portfolio Manager for Fiduciary Management; prior thereto, managed
private accounts.
JOHN E. NEAL (3/9/50), Vice President* (39), 222 South Riverside Plaza, Chicago,
Illinois; President, Kemper Funds Group, a unit of ZKI; Director, ZKI, Zurich
Kemper Value Advisors, Inc. and ZKDI.
JEROME L. DUFFY (6/29/36), Treasurer* (39), 222 South Riverside Plaza, Chicago,
Illinois; Senior Vice President, ZKI.
PHILIP J. COLLORA (11/15/45), Vice President and Secretary* (39), 222 South
Riverside Plaza, Chicago, Illinois; Attorney, Senior Vice President and
Assistant Secretary, ZKI.
B-16
<PAGE> 88
ELIZABETH C. WERTH (10/1/47), Assistant Secretary* (32), 222 South Riverside
Plaza, Chicago, Illinois; Vice President and Director of State Registrations,
ZKI and ZKDI.
* 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. The table below shows amounts paid or
accrued to those trustees who are not designated "interested persons" during the
Trust's 1997 fiscal year, except that the information in the last column is for
calendar year 1996.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE KEMPER FUNDS
COMPENSATION PAID TO
NAME OF TRUSTEE FROM TRUST TRUSTEES(2)
--------------- ------------ ------------
<S> <C> <C>
James B. Akins.............................................. $17,300 $ 94,300
Arthur R. Gottschalk(1)..................................... $17,600 $102,700
Frederick T. Kelsey......................................... $17,300 $106,800
Fred B. Renwick............................................. $17,300 $ 94,300
John B. Tingleff............................................ $17,300 $ 94,300
John G. Weithers............................................ $17,300 $ 94,300
</TABLE>
- ---------------
(1) 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 Zurich Money Funds--Zurich Money
Market Fund. The total deferred amount and interest accrued through July 31,
1997 for the Trust is $53,300 for Mr. Gottschalk.
(2) Includes compensation for service on the boards of 13 Kemper funds with 46
fund portfolios.
As of October 17, 1997, the trustees and officers as a group owned less than 1%
of the outstanding shares of any series of the Trust and no person owned of
record 5% or more of the shares of Series VII except as noted below:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
- ---------------- ----------
<S> <C>
Donaldson Lufkin & Jenrette................................. 5.52%
P.O. Box 2052
Jersey City, NJ
National Financial Svc's Corp. ............................. 8.23%
One World Financial Center
200 Liberty Street
New York, NY
BHC Securities, Inc. ....................................... 17.11%
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
</TABLE>
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
B-17
<PAGE> 89
("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 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 ZKDI 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-18
<PAGE> 90
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)printed on recycled paper
<PAGE> 91
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
B-1
<PAGE> 92
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> 93
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> 94
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
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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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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.
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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.
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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;
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(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.
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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.
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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> 102
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> 103
(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> 104
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> 105
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> 106
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> 107
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> 108
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> 109
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> 110
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> 111
PORTFOLIOS OF INVESTMENTS
KEMPER RETIREMENT FUND -- SERIES I THROUGH SERIES VI
PORTFOLIOS OF INVESTMENTS AT JULY 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
------------------- ---------------------
SERIES I SERIES II
------------------- ---------------------
PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT U.S. Treasury, zero coupon,
OBLIGATIONS--38.8%, 1999 through 2006
53.6%, 49.9%, 55.0%, (Cost: $42,509, $87,290,
48.4% AND 56.8% $58,971, $74,327, $59,132
and $40,346) $51,800 $45,509 $110,700 $92,962
--------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER NUMBER
COMMON STOCKS OF SHARES VALUE OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES--3.3%, Air Products & Chemicals 8,000 706 7,000 617
2.5%, 2.8%, 2.5%, Betz Dearborn Inc. 9,400 616 11,500 753
2.8% AND 2.2% Cementos Mexicanos, S.A. de
C.V., "B" 3,400 19 4,000 22
Crown Cork & Seal Co. 20,000 1,011 23,000 1,163
E.I. DuPont De Nemours 5,000 335 6,000 402
W.R. Grace & Co. 11,000 677 14,000 861
Rentokil Initial PLC 3,800 14 4,400 16
Technip S.A. 116 15 136 17
Temple-Inland Inc. 6,500 438 7,500 505
Toray Industries 2,000 13 2,000 13
--------------------------------------------------------------------------------
3,844 4,369
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--6.2%, 5.0%, Emerson Electric Co. 10,400 614 13,800 814
5.3%, 5.0%, 5.4% AND 5.0% General Electric Co. 10,600 744 12,600 884
B.F. Goodrich Co. 18,100 818 22,700 1,026
Honda Motor Co., Ltd. 500 17 500 17
Honeywell 14,000 1,046 16,200 1,210
Matsushita Electric Industrial
Co., Ltd. 800 17 900 19
Murata Manufacturing 400 19 500 24
Raytheon Co. 18,000 1,006 19,000 1,062
Sony Corp. 100 10 200 20
Sundstrand Corp. 16,000 992 19,000 1,178
(a)U.S. Industries 6,000 242 8,000 323
United Technologies 11,000 930 13,000 1,099
WMX Technologies Inc. 27,000 864 30,000 960
--------------------------------------------------------------------------------
7,319 8,636
- --------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--7.4%, CVS Corp. 8,400 478 11,200 637
5.6%, 6.1%, 5.5%, (a)Clear Channel Communications 7,900 492 9,500 591
6.5% AND 5.4% Dillard Department Stores 23,000 870 25,000 945
R.R. Donnelley & Sons Co. 26,000 1,045 31,000 1,246
Harcourt General 13,000 614 15,000 709
Hudson's Bay Co. 1,350 30 1,600 36
May Department Stores Co. 21,100 1,179 23,000 1,285
Reed International PLC 1,556 16 1,814 18
Sears, Roebuck & Co. 19,000 1,203 20,500 1,298
Stanley Works 28,700 1,300 29,800 1,350
Time Warner Inc. 13,000 709 14,000 764
Tribune Co. 9,000 476 10,500 556
Wm. Wrigley Jr. Co. 2,600 200 2,600 200
--------------------------------------------------------------------------------
8,612 9,635
</TABLE>
12
<PAGE> 112
PORTFOLIOS OF INVESTMENTS
<TABLE>
<CAPTION>
- ----------------- ----------------- ----------------- --------------------
SERIES III SERIES IV SERIES V SERIES VI
- ----------------- ----------------- ----------------- --------------------
- -------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$82,400 $63,399 $103,400 $74,750 $102,600 $66,319 $70,700 $41,553
- -------------------------------------------------------------------------------
<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>
7,000 617 6,000 529 8,000 706 3,000 265
8,500 557 8,900 583 9,400 616 5,000 327
3,400 19 3,400 19 3,400 19 1,700 9
20,000 1,011 19,000 961 20,000 1,011 8,900 450
4,000 268 4,000 268 5,000 335 2,000 134
10,000 615 10,000 615 10,000 615 5,400 332
3,800 14 3,800 14 3,800 14 1,880 7
116 15 116 15 116 15 58 7
5,500 370 5,500 370 6,500 438 1,500 101
2,000 13 2,000 13 2,000 13 1,000 7
- ------------------------------------------------------------------------------
3,499 3,387 3,782 1,639
- ------------------------------------------------------------------------------
10,200 602 10,200 602 10,800 637 5,200 307
10,800 758 11,800 828 12,600 884 6,000 421
18,100 818 18,100 818 18,100 818 10,000 452
500 17 500 17 500 17 200 7
13,200 986 13,200 986 14,000 1,046 5,800 433
800 17 800 17 800 17 400 8
400 19 400 19 400 19 200 9
14,000 782 14,000 782 18,000 1,006 9,000 503
100 10 100 10 100 10 100 10
13,000 806 13,000 806 15,000 930 7,600 471
6,000 242 6,000 242 6,000 242 3,000 121
10,000 846 10,000 846 11,000 930 6,000 507
27,000 864 25,000 800 27,000 864 13,000 416
- ------------------------------------------------------------------------------
6,767 6,773 7,420 3,665
- ------------------------------------------------------------------------------
8,200 466 8,200 466 8,400 478 5,000 284
7,300 454 7,300 454 7,900 492 3,600 224
20,000 756 19,000 718 23,000 870 10,000 378
23,000 924 23,000 924 27,000 1,085 13,000 522
13,000 614 12,000 567 13,000 614 6,000 284
1,350 30 1,350 30 1,350 30 700 16
16,000 894 16,000 894 20,900 1,168 9,200 514
1,556 16 1,556 16 1,556 16 778 8
18,000 1,140 17,000 1,076 21,000 1,330 9,000 570
24,250 1,099 24,250 1,099 28,800 1,305 13,300 603
13,000 709 12,000 655 15,000 818 6,000 327
8,000 423 8,000 423 9,000 476 4,500 238
2,100 162 2,100 162 2,600 200 -- --
- ------------------------------------------------------------------------------
7,687 7,484 8,882 3,968
</TABLE>
13
<PAGE> 113
PORTFOLIOS OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
-------------------- ----------------------
SERIES I SERIES II
-------------------- ----------------------
- -----------------------------------------------------------------------------------------------------------------------------
NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSUMER STAPLES--4.8%, Avon Products 3,000 $ 218 4,000 $ 290
3.6%, 3.9%, 3.7%, 4.0% CPC International 2,000 192 3,000 288
AND 2.9% H.J. Heinz Co. 12,000 554 13,000 600
International Flavors &
Fragrances 13,000 690 14,000 743
PepsiCo 19,200 736 21,200 812
Philip Morris Companies 25,900 1,169 27,000 1,218
Procter & Gamble Co. 2,500 380 3,000 456
Sara Lee Corp. 20,000 876 18,000 789
Unilever N.V., ADR 3,500 763 5,000 1,090
----------------------------------------------------------------------------------
5,578 6,286
- ---------------------------------------------------------------------------------------------------------------------------
ENERGY--2.6%, AMOCO Corp. 10,000 940 12,000 1,128
2.2%, 2.2%, 2.2%, 2.2% British Petroleum 1,060 14 1,248 17
AND 2.0% Mobil Corp. 16,400 1,255 20,600 1,576
Unocal Corp. 14,000 560 15,000 600
(a)Western Atlas 4,000 318 6,000 477
----------------------------------------------------------------------------------
3,087 3,798
- ---------------------------------------------------------------------------------------------------------------------------
FINANCE--7.3%, American Express Co. 8,000 670 8,000 670
5.6%, 6.3%, 5.7%, 6.3% American General Corp. 21,000 1,118 25,000 1,331
AND 5.4% Banc One Corp. 20,800 1,167 22,800 1,280
Banco Santander, S.A. 321 9 372 10
Bank of Ireland 1,893 23 2,210 27
BankAmerica Corp. 6,000 453 7,000 529
CITIC Pacific Ltd. 2,000 13 3,000 19
Cheung Kong Holdings Ltd. 1,000 11 1,000 11
Development Bank of
Singapore 1,000 13 1,000 13
First Bank System 5,200 463 6,200 552
Fleet Financial Group, Inc. 7,000 475 7,000 475
ING Groep N.V. 494 24 573 28
ITT Hartford Group 5,300 462 6,200 540
Jefferson-Pilot Corp. 23,000 1,634 24,000 1,705
Mellon Bank Corp. 6,000 303 7,000 353
Morgan Stanley Dean Witter 25,000 1,308 28,000 1,465
Washington Mutual 6,000 415 9,000 622
----------------------------------------------------------------------------------
8,561 9,630
</TABLE>
14
<PAGE> 114
PORTFOLIOS OF INVESTMENTS
<TABLE>
<CAPTION>
- ----------------- --------------- ------------- --------------------
SERIES III SERIES IV SERIES V SERIES VI
- ----------------- --------------- ------------- ---------------------
- -----------------------------------------------------------------------------------------
NUMBER NUMBER NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3,000 $ 218 3,000 $ 218 3,000 $ 218 2,000 $ 145
2,000 192 2,000 192 2,000 192 1,000 96
9,000 416 9,000 416 12,000 554 5,000 231
12,000 637 11,000 584 13,000 690 6,000 318
18,000 690 18,000 690 19,200 736 7,200 276
24,000 1,083 24,600 1,110 24,600 1,110 10,400 469
2,500 380 2,500 380 2,500 380 -- --
14,000 613 14,000 613 20,000 876 6,000 263
3,500 763 3,500 763 3,500 763 1,500 327
- -----------------------------------------------------------------------------------------
4,992 4,966 5,519 2,125
- -----------------------------------------------------------------------------------------
9,000 846 10,000 940 11,000 1,034 5,000 470
1,060 14 1,060 14 1,060 14 302 4
15,600 1,193 16,400 1,255 16,000 1,224 8,400 643
12,000 480 12,000 480 12,000 480 6,000 240
4,000 318 4,000 318 4,000 318 1,500 119
- -----------------------------------------------------------------------------------------
2,851 3,007 3,070 1,476
- -----------------------------------------------------------------------------------------
6,000 503 6,000 503 8,000 670 3,000 251
19,000 1,012 19,000 1,012 21,000 1,118 10,000 533
19,400 1,089 17,400 976 21,600 1,212 10,200 572
321 9 321 9 321 9 162 5
1,893 23 1,893 23 1,893 23 945 12
6,000 453 6,000 453 6,000 453 3,000 227
2,000 13 2,000 13 2,000 13 1,000 6
1,000 11 1,000 11 1,000 11 1,000 11
1,000 13 1,000 13 1,000 13 500 6
5,300 472 5,300 472 5,200 463 3,000 267
7,000 475 7,000 475 7,000 475 3,500 238
494 24 494 24 494 24 243 12
6,400 558 6,400 558 6,300 549 3,100 270
20,000 1,421 20,000 1,421 22,000 1,563 9,000 640
6,000 303 6,000 303 6,000 303 3,000 151
25,000 1,308 22,000 1,151 25,000 1,308 10,000 523
5,500 380 5,500 380 6,000 415 3,000 207
- -----------------------------------------------------------------------------------------
8,067 7,797 8,622 3,931
</TABLE>
15
<PAGE> 115
PORTFOLIOS OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
------------------ -------------------
SERIES I SERIES II
------------------ -------------------
- -----------------------------------------------------------------------------------------------------------------
NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HEALTH CARE--8.7%, (a)ALZA Corp. 27,200 $ 879 31,200 $ 1,008
6.9%, 7.3%, 6.8%,
7.4% AND 6.1%
Abbott Laboratories 14,000 916 16,000 1,047
American Home Products Corp. 9,000 742 10,000 824
C.R. Bard 8,000 301 10,000 376
(a)Biogen 14,000 539 15,000 578
Biomet, Inc. 25,000 498 31,000 618
Bristol-Myers Squibb Co. 7,000 549 11,000 863
(a)British Biotech PLC 3,000 8 4,000 10
(a)Fresenius Medical Care AG 166 11 192 13
(a)HealthCare COMPARE Corp. 14,000 798 17,000 969
(a)Healthsouth Corp. 20,000 530 21,000 557
Eli Lilly & Co. 4,000 452 5,500 622
McKesson Corp. 8,700 754 8,100 702
Medtronic, Inc. 5,000 436 5,000 436
Perkin-Elmer Corp. 7,600 620 9,600 784
Pfizer Inc. 7,000 417 11,000 656
Pharmacia & Upjohn, Inc. 11,000 415 12,000 453
Roche Holding AG 2 19 2 19
(a)Tenet Healthcare Corp. 27,700 829 28,600 856
United Healthcare Corp. 8,000 456 10,000 570
--------------------------------------------------------------------------
10,169 11,961
- -----------------------------------------------------------------------------------------------------------------
TECHNOLOGY--11.9%, AMP Inc. 10,000 523 12,000 627
9.7%, 10.0%, 9.2%, (a)Analog Devices 35,000 1,100 40,333 1,268
10.1% AND 8.5% (a)Applied Materials Inc. 3,000 276 4,000 367
(a)Cadence Design Systems 13,700 609 17,800 791
(a)Cisco Systems 14,000 1,114 17,000 1,353
Computer Associates
International 7,000 476 8,000 545
L.M. Ericsson Telephone Co.,
"B" 408 18 476 21
Harris Corp. 6,000 521 7,000 608
Hewlett-Packard Co. 16,400 1,149 22,800 1,597
Intel Corp. 4,000 367 6,000 551
Linear Technology Corp. 7,000 468 9,000 602
(a)Microsoft Corp. 4,000 566 4,000 566
Motorola 12,500 1,004 14,800 1,189
(a)Oracle Corp. 17,000 925 20,000 1,089
(a)Parametric Technology Corp. 12,000 588 13,500 661
Pitney Bowes Inc. 14,000 1,052 16,000 1,202
(a)Sun Microsystems 25,000 1,142 27,200 1,243
(a)Tellabs, Inc. 8,000 479 12,000 719
(a)Teradyne 12,500 584 15,000 701
Texas Instruments 2,500 288 3,500 402
(a)Xilinx, Inc. 14,000 663 16,000 758
-----------------------------------------------------------------------------
13,912 16,860
</TABLE>
16
<PAGE> 116
<TABLE>
<CAPTION>
- ----------------- ----------------- ---------------- ------------------
SERIES III SERIES IV SERIES V SERIES VI
- ----------------- ----------------- ---------------- ------------------
- -------------------------------------------------------------------------------------
NUMBER NUMBER NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
24,400 $ 788 24,400 $ 788 27,200 $ 879 9,900 $ 320
14,000 916 14,000 916 14,000 916 7,500 491
9,000 742 9,000 742 9,000 742 4,000 330
7,000 263 7,000 263 8,000 301 4,000 150
14,000 539 14,000 539 14,000 539 7,000 270
26,000 518 26,000 518 25,000 498 10,000 199
7,000 549 7,000 549 7,000 549 4,000 314
3,000 8 3,000 8 3,000 8 1,500 4
166 11 166 11 166 11 84 6
12,000 684 12,000 684 14,000 798 6,000 342
15,000 398 15,000 398 20,000 530 7,000 185
4,000 452 4,000 452 4,000 452 2,000 226
6,000 520 6,000 520 8,700 754 3,000 260
4,000 349 4,000 349 5,000 436 2,000 175
7,600 620 7,600 620 7,600 620 3,500 286
7,000 417 7,000 417 7,000 417 3,000 179
10,000 378 10,000 378 11,000 415 5,000 189
2 19 2 19 2 19 1 10
22,000 659 22,000 659 27,700 829 11,100 332
7,000 399 7,000 399 8,000 456 3,200 182
- -------------------------------------------------------------------------------------
9,229 9,229 10,169 4,450
- -------------------------------------------------------------------------------------
10,000 523 10,000 523 10,000 523 5,000 261
36,000 1,132 32,000 1,006 36,000 1,132 14,666 461
3,000 276 3,000 276 3,000 276 2,000 184
12,500 555 12,500 555 13,700 609 7,000 311
13,000 1,034 13,000 1,034 14,000 1,114 6,000 477
7,000 476 6,000 408 7,000 476 4,000 272
408 18 408 18 408 18 204 9
5,000 434 5,000 434 6,000 521 3,000 261
14,400 1,009 14,400 1,009 16,400 1,149 7,500 525
4,000 367 4,000 367 4,000 367 2,000 184
7,000 468 7,000 468 6,000 401 3,000 201
3,000 425 4,000 566 4,000 566 -- --
10,400 835 10,400 835 12,000 964 5,600 450
15,000 817 15,000 817 17,000 925 8,000 435
10,500 514 10,500 514 12,000 588 4,500 221
13,000 977 13,000 977 14,000 1,052 6,000 451
21,000 959 18,000 822 25,000 1,142 10,000 457
7,000 419 7,000 419 8,000 479 5,000 299
12,400 580 11,400 533 12,400 580 5,200 243
2,500 288 2,500 288 2,500 288 1,500 172
14,000 663 14,000 663 14,000 663 6,500 308
- -------------------------------------------------------------------------------------
12,769 12,532 13,833 6,182
</TABLE>
17
<PAGE> 117
PORTFOLIOS OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------- ------------------
SERIES I SERIES II
----------------- ------------------
- --------------------------------------------------------------------------------------------------------------------
NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TRANSPORTATION--2.1%, CSX Corp. 16,000 $ 988 18,000 $ 1,112
1.6%, 1.7%, 1.5%, 1.8% Norfolk Southern Corp. 10,000 1,107 11,000 1,219
AND 1.5% Swire Pacific Ltd., "A" 1,000 9 1,000 9
Union Pacific Corp. 5,500 394 6,500 466
------------------------------------------------------------------------------
2,498 2,806
- -----------------------------------------------------------------------------------------------------------------------
UTILITIES--1.2%, AT&T 16,000 589 18,000 663
.9%, 1.0%, 1.0%, 1.0% (a)AirTouch Communications 8,000 264 9,000 296
AND .9% SBC Communications Inc. 8,600 509 10,000 592
Telefonica de Espana S.A. 515 14 600 16
Telefonica del Peru, S.A.,
ADS 500 12 500 12
------------------------------------------------------------------------------
1,388 1,579
------------------------------------------------------------------------------
TOTAL COMMON STOCKS--55.5%, 43.6%,
46.6%, 43.1%, 47.5% AND 39.9%
(Cost: $50,983, $58,733, $46,587,
$45,850, $51,293 and $23,386) 64,968 75,560
<CAPTION>
------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MONEY MARKET Yield--5.55% to 5.80%
INSTRUMENTS--5.7%, Due--August and
2.7%, 3.3%, 1.8%, 4.2% September 1997
AND 2.7% Sanwa Business Credit $ 3,900 3,888 $3,000 2,984
Other 2,800 2,797 1,700 1,699
------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS
(Cost: $6,686, $4,682,
$4,188, $2,394, $5,800 and
$1,989) 6,685 4,683
------------------------------------------------------------------------------
TOTAL INVESTMENTS--100.0%, 99.9%, 99.8%,
99.9%, 100.1% AND 99.4%
(Cost: $100,178, $150,705, $109,746,
$122,571, $116,225 and $65,721) 117,162 173,205
------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS
LIABILITIES--0%, .1%, .2%, .1%,
(.1%) AND .6% (45) 178
------------------------------------------------------------------------------
NET ASSETS--100% $117,117 $173,383
------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIOS OF INVESTMENTS
(a) Non-income producing security.
Based on the cost of investments for federal income tax purposes at July 31,
1997, the unrealized appreciation and depreciation on investments is as follows
(in thousands):
<TABLE>
<CAPTION>
SERIES I SERIES II SERIES III SERIES IV SERIES V SERIES VI
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Cost of investments for federal income tax
purposes $100,178 $150,705 $109,746 $122,571 $116,225 $65,721
- ------------------------------------------------------------------------------------------------------------------------
Gross unrealized appreciation 17,021 22,543 17,173 13,237 21,080 7,040
- ------------------------------------------------------------------------------------------------------------------------
Gross unrealized depreciation 37 43 37 36 39 16
- ------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation 16,984 22,500 17,136 13,201 21,041 7,024
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
18
<PAGE> 118
PORTFOLIOS OF INVESTMENTS
<TABLE>
<CAPTION>
- ------------------ ------------------- ------------------ --------------------
SERIES III SERIES IV SERIES V SERIES VI
- ------------------ ------------------- ------------------ --------------------
- ----------------------------------------------------------------------------------------------
NUMBER NUMBER NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
14,000 $ 865 14,000 $ 865 16,000 $ 988 7,000 $ 432
8,000 886 8,000 886 10,000 1,107 4,500 498
1,000 9 1,000 9 1,000 9 500 5
5,000 358 5,000 358 5,500 394 2,500 179
- ----------------------------------------------------------------------------------------------
2,118 2,118 2,498 1,114
- ----------------------------------------------------------------------------------------------
16,000 589 16,000 589 16,000 589 8,000 295
8,000 264 8,000 264 8,000 264 3,000 99
7,400 438 7,700 456 8,000 474 4,100 243
515 14 515 14 515 14 260 7
500 12 500 12 500 12 350 9
- ----------------------------------------------------------------------------------------------
1,317 1,335 1,353 653
- ----------------------------------------------------------------------------------------------
59,296 58,628 65,148 29,203
- ----------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- -- $1,000 995 $3,900 3,888 $2,000 1,989
4,200 4,187 1,400 1,399 1,929 1,911 -- --
- ----------------------------------------------------------------------------------------------
4,187 2,394 5,799 1,989
- ----------------------------------------------------------------------------------------------
126,882 135,772 137,266 72,745
- ----------------------------------------------------------------------------------------------
216 158 (135) 426
- ----------------------------------------------------------------------------------------------
$127,098 $135,930 $137,131 $ 73,171
- ----------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 119
PORTFOLIOS OF INVESTMENTS
KEMPER RETIREMENT FUND
SERIES I THROUGH SERIES VI
Portfolios of Investments at June 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
-------------------- --------------------
SERIES I SERIES II
-------------------- --------------------
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT U.S. Treasury, zero coupon,
OBLIGATIONS--40.1%, 1999 through 2006
55.4%, 51.3%, 56.0%, (Cost: $42,195, $88,041,
49.7% AND 59.6% $59,645, $75,167, $60,046
and $42,000) $51,800 $44,815 $112,400 $92,683
--------------------------------------------------------------------------------
NUMBER NUMBER
COMMON STOCKS OF SHARES VALUE OF SHARES VALUE
BASIC INDUSTRIES--2.5%, Air Products & Chemicals 5,000 406 5,000 406
2.0%, 2.1%, 1.9%,
2.1% AND 1.6%
Betz Dearborn Inc. 9,400 620 11,500 759
Cementos Mexicanos, S.A. de
C.V., "B" 3,400 16 4,000 19
Crown Cork & Seal Co. 15,000 802 18,000 962
W.R. Grace & Co. 11,000 606 14,000 772
Rentokil Initial PLC 3,800 13 4,400 15
Technip S.A. 116 13 136 16
Temple-Inland Inc. 5,000 270 6,000 324
Toray Industries 2,000 14 2,000 14
--------------------------------------------------------------------------------
2,760 3,287
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--6.3%, 5.0%, Boeing Co. 4,000 212 6,400 340
5.3%, 5.0%, 5.5% AND 5.1%
Emerson Electric Co. 10,400 573 13,800 760
General Electric Co. 10,600 693 12,600 824
B.F. Goodrich Co. 18,100 784 22,700 983
Honda Motor Co., Ltd. 500 15 500 15
Honeywell 14,000 1,062 16,200 1,229
Matsushita Electric Industrial
Co., Ltd. 800 16 900 18
Murata Manufacturing 400 16 500 20
Raytheon Co. 18,000 918 19,000 969
Sony Corp. 100 9 200 17
Sundstrand Corp. 16,000 893 19,000 1,060
(a)Tubos de Acero de Mexico,
S.A., ADR 800 15 800 15
(a)U.S. Filter Corp. 10,000 273 14,000 382
United Technologies 11,000 913 13,000 1,079
WMX Technologies Inc. 20,000 642 22,000 707
--------------------------------------------------------------------------------
7,034 8,418
</TABLE>
20
<PAGE> 120
PORTFOLIOS OF INVESTMENTS
<TABLE>
<CAPTION>
----------------- ----------------- ----------------- -----------------
SERIES III SERIES IV SERIES V SERIES VI
----------------- ----------------- ----------------- -----------------
- ------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$83,900 $62,781 $105,100 $73,525 $104,900 $64,954 $74,000 $41,344
- ------------------------------------------------------------------------------
<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>
5,000 406 4,000 325 5,000 406 2,000 162
8,500 561 8,900 587 9,400 620 5,000 330
- ------------------------------------------------------------------------------
3,400 16 3,400 16 3,400 16 1,700 8
15,000 802 14,000 748 15,000 802 5,900 315
10,000 551 10,000 551 10,000 551 5,400 298
3,800 13 3,800 13 3,800 13 1,880 7
116 13 116 13 116 13 58 7
4,000 216 4,000 216 5,000 270 -- --
2,000 14 2,000 14 2,000 14 1,000 7
- ------------------------------------------------------------------------------
2,592 2,483 2,705 1,134
- ------------------------------------------------------------------------------
4,000 212 4,000 212 4,000 212 2,000 106
10,200 562 10,200 562 10,800 595 5,200 286
10,800 706 11,800 771 12,600 824 6,000 392
18,100 784 18,100 784 18,100 784 10,000 433
500 15 500 15 500 15 200 6
13,200 1,002 13,200 1,002 14,000 1,062 5,800 440
800 16 800 16 800 16 400 8
400 16 400 16 400 16 200 8
14,000 714 14,000 714 18,000 918 9,000 459
100 9 100 9 100 9 100 9
13,000 726 13,000 726 15,000 837 7,600 424
800 15 800 15 800 15 400 7
10,000 273 10,000 273 11,000 300 5,000 136
10,000 830 10,000 830 11,000 913 6,000 498
19,000 610 19,000 610 20,000 642 9,000 289
- ------------------------------------------------------------------------------
6,490 6,555 7,158 3,501
</TABLE>
21
<PAGE> 121
PORTFOLIOS OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------- --------------------
SERIES I SERIES II
----------------- --------------------
- ---------------------------------------------------------------------------------------------------------------------------
NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSUMER CYCLICALS--7.5%, CVS Corp. 8,400 $ 431 11,200 $ 574
5.5%, 5.9%, 5.4%, 6.5% (a)Clear Channel Communications 5,900 363 7,500 461
AND 5.5% Dillard Department Stores 18,000 623 20,000 692
R.R. Donnelley & Sons Co. 26,000 952 31,000 1,135
Harcourt General 13,000 619 15,000 714
Hilton Hotels Corp. 17,000 452 20,000 531
Hudson's Bay Co. 1,350 30 1,600 36
(a)MGM Grand 15,000 555 14,000 518
May Department Stores Co. 19,100 902 20,000 945
Reed International PLC 1,556 15 1,814 18
Sears, Roebuck & Co. 15,000 806 13,500 726
Stanley Works 28,700 1,148 29,800 1,192
Time Warner Inc. 12,000 579 11,000 531
Tribune Co. 16,000 769 18,500 889
Wm. Wrigley Jr. Co. 2,600 174 2,600 174
----------------------------------------------------------------------------------
8,418 9,136
- ---------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--4.3%, Avon Products 3,000 212 4,000 282
3.3%, 3.6%, 3.4%, 3.6% CPC International 8,000 739 10,000 923
AND 2.7% H.J. Heinz Co. 14,000 646 15,000 692
PepsiCo 19,200 721 21,200 796
Philip Morris Companies 30,900 1,371 30,000 1,331
Procter & Gamble Co. 2,500 353 3,000 424
Unilever N.V., ADR 3,500 763 5,000 1,090
----------------------------------------------------------------------------------
4,805 5,538
- ---------------------------------------------------------------------------------------------------------------------------
ENERGY--2.1%, AMOCO Corp. 10,000 869 12,000 1,043
1.7%, 1.8%, 1.8%, 1.8% British Petroleum 1,060 13 1,248 16
AND 1.7% Mobil Corp. 16,400 1,146 20,600 1,439
Unocal Corp. 8,000 311 9,000 349
----------------------------------------------------------------------------------
2,339 2,847
- ---------------------------------------------------------------------------------------------------------------------------
FINANCE--7.2%, American Express Co. 9,000 670 9,000 670
5.2%, 5.8%, 5.4%, American General Corp. 21,000 1,003 25,000 1,194
6.1% AND 5.1% Banc One Corp. 18,800 911 18,800 911
Banco Santander, S.A. 321 10 372 11
Bank of Ireland 1,864 20 2,176 24
CITIC Pacific Ltd. 2,000 12 3,000 19
Cheung Kong Holdings Ltd. 1,000 10 1,000 10
Development Bank of Singapore 1,000 13 1,000 13
First Bank System 7,200 615 7,200 615
Fleet Financial Group, Inc. 7,000 443 7,000 443
ING Groep N.V. 494 23 573 26
ITT Hartford Group 5,300 439 6,200 513
Jefferson-Pilot Corp. 23,000 1,607 24,000 1,677
Mellon Bank Corp. 6,000 271 7,000 316
Morgan Stanley Dean Witter 25,000 1,077 26,000 1,120
Provident Companies Inc. 5,000 268 5,000 268
Travelers/Aetna Property
Casualty Corp. 3,400 136 4,000 159
Washington Mutual 8,000 478 12,000 717
----------------------------------------------------------------------------------
8,006 8,706
</TABLE>
22
<PAGE> 122
PORTFOLIOS OF INVESTMENTS
<TABLE>
<CAPTION>
---------------- ------------- --------------- ----------------
SERIES III SERIES IV SERIES V SERIES VI
---------------- ------------- --------------- ----------------
- -------------------------------------------------------------------------------------
NUMBER NUMBER NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
8,200 $ 420 8,200 $ 420 8,400 $ 431 5,000 $ 256
5,300 326 5,300 326 5,900 363 2,600 160
15,000 519 14,000 485 18,000 623 8,000 277
23,000 842 23,000 842 27,000 989 13,000 476
13,000 619 12,000 571 13,000 619 6,000 286
16,000 425 16,000 425 19,000 505 9,000 239
1,350 30 1,350 30 1,350 30 700 16
12,000 444 12,000 444 15,000 555 6,000 222
14,000 662 14,000 662 17,900 846 8,200 387
1,556 15 1,556 15 1,556 15 778 8
12,000 645 12,000 645 15,000 806 6,000 322
24,250 970 24,250 970 28,800 1,152 13,300 532
10,000 482 9,000 434 12,000 579 5,000 241
15,000 721 15,000 721 16,000 769 8,000 384
2,100 141 2,100 141 2,600 174 -- --
- --------------------------------------------------------------------------------------
7,261 7,131 8,456 3,806
- --------------------------------------------------------------------------------------
3,000 212 3,000 212 3,000 212 2,000 141
7,000 646 7,000 646 8,000 739 4,000 369
11,000 507 11,000 507 14,000 646 6,000 277
18,000 676 18,000 676 19,200 721 7,200 270
27,000 1,198 27,600 1,225 27,600 1,225 11,400 506
2,500 353 2,500 353 2,500 353 -- --
3,500 763 3,500 763 3,500 763 1,500 327
- --------------------------------------------------------------------------------------
4,355 4,382 4,659 1,890
- --------------------------------------------------------------------------------------
9,000 782 10,000 869 11,000 956 5,000 435
1,060 13 1,060 13 1,060 13 302 4
15,600 1,090 16,400 1,146 16,000 1,118 8,400 587
8,000 311 8,000 311 8,000 311 4,000 155
- --------------------------------------------------------------------------------------
2,196 2,339 2,398 1,181
- --------------------------------------------------------------------------------------
6,000 447 6,000 447 9,000 670 3,000 224
19,000 907 19,000 907 21,000 1,003 10,000 478
15,400 746 15,400 746 17,600 852 8,200 397
321 10 321 10 321 10 162 5
1,864 20 1,864 20 1,864 20 931 10
2,000 12 2,000 12 2,000 12 1,000 6
1,000 10 1,000 10 1,000 10 1,000 10
1,000 13 1,000 13 1,000 13 500 6
6,300 538 6,300 538 7,200 615 3,600 307
7,000 443 7,000 443 7,000 443 3,500 221
494 23 494 23 494 23 243 11
6,400 530 6,400 530 6,300 521 3,100 257
20,000 1,398 20,000 1,398 22,000 1,537 9,000 629
6,000 271 6,000 271 6,000 271 3,000 135
22,000 947 22,000 947 25,000 1,077 10,000 431
4,000 214 4,000 214 5,000 268 2,000 107
2,900 116 2,900 116 3,400 136 1,700 68
7,500 448 7,500 448 8,000 478 4,000 239
- --------------------------------------------------------------------------------------
7,093 7,093 7,959 3,541
</TABLE>
23
<PAGE> 123
PORTFOLIOS OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
------------------- --------------------
SERIES I SERIES II
------------------- --------------------
- ---------------------------------------------------------------------------------------------------------------------
NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HEALTH CARE--9.3%, (a)ALZA Corp. 22,200 $ 644 26,200 $ 760
7.2%, 7.3%, 6.9%, Abbott Laboratories 19,000 1,268 21,000 1,402
7.9% AND 6.3% American Home Products Corp. 7,000 536 8,000 612
(a)Biogen 14,000 474 15,000 508
Biomet, Inc. 40,000 745 46,000 857
Bristol-Myers Squibb Co. 7,000 567 11,000 891
(a)British Biotech PLC 3,000 11 4,000 15
(a)Fresenius Medical Care AG 166 12 192 14
(a)HealthCare COMPARE Corp. 21,000 1,100 20,000 1,048
(a)Healthsouth Corp. 20,000 499 21,000 524
Eli Lilly & Co. 6,000 656 8,000 874
McKesson Corp. 8,700 674 9,100 705
Medtronic, Inc. 7,000 567 8,000 648
Perkin-Elmer Corp. 10,600 843 13,600 1,082
Pfizer Inc. 6,000 717 8,000 956
Roche Holding AG 2 18 2 18
(a)Tenet Healthcare Corp. 25,700 760 26,600 786
United Healthcare Corp. 6,000 312 7,000 364
----------------------------------------------------------------------------
10,403 12,064
- ----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--11.6%, (a)Analog Devices 30,000 797 35,333 939
9.5%, 9.5%, 8.9%, 9.8% (a)Applied Materials Inc. 5,000 354 7,000 496-
AND 8.1% (a)Cadence Design Systems 13,700 459 16,800 563
(a)Cisco Systems 14,000 940 17,000 1,141
Computer Associates
International 5,000 278 6,000 334
L.M. Ericsson Telephone Co.,
"B" 408 16 476 19
Harris Corp. 7,000 588 9,000 756
Hewlett-Packard Co. 18,400 1,030 24,800 1,389
Intel Corp. 2,000 284 3,000 425
Linear Technology Corp. 7,000 362 9,000 466
(a)Microsoft Corp. 4,000 506 4,000 506
Motorola 16,500 1,254 18,800 1,429
(a)Oracle Corp. 20,000 1,007 24,000 1,209
(a)Parametric Technology
Corp. 12,000 511 13,500 575
(a)PeopleSoft Inc. 10,000 528 12,000 633
Pitney Bowes Inc. 14,000 973 16,000 1,112
(a)Sun Microsystems 22,000 819 23,200 863
(a)Tellabs, Inc. 17,000 950 24,000 1,341
(a)Teradyne 13,500 530 16,000 628
Texas Instruments 3,000 252 4,000 336
(a)Xilinx, Inc. 12,000 589 14,000 687
----------------------------------------------------------------------------
13,027 15,847
- ----------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.1%, CSX Corp. 16,000 888 18,000 999
1.6%, 1.7%, 1.5%, 1.8% Norfolk Southern Corp. 10,000 1,007 11,000 1,108-
AND 1.5% Swire Pacific Ltd., "A" 1,000 9 1,000 9
Union Pacific Corp. 6,500 458 8,000 564
----------------------------------------------------------------------------
2,362 2,680
</TABLE>
24
<PAGE> 124
PORTFOLIOS OF INVESTMENTS
<TABLE>
<CAPTION>
- ----------------- -------------- --------------- -------------------
SERIES III SERIES IV SERIES V SERIES VI
- ----------------- -------------- --------------- -------------------
- --------------------------------------------------------------------------------------
NUMBER NUMBER NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
19,400 $ 563 19,400 $ 563 22,200 $ 644 6,900 $ 200
17,000 1,135 17,000 1,135 19,000 1,268 8,500 567
7,000 536 7,000 536 7,000 536 3,000 230
14,000 474 14,000 474 14,000 474 7,000 237
36,000 671 36,000 671 40,000 745 18,000 335
7,000 567 7,000 567 7,000 567 4,000 324
3,000 11 3,000 11 3,000 11 1,500 6
166 12 166 12 166 12 84 6
15,000 786 15,000 786 20,000 1,048 7,000 367
15,000 374 15,000 374 20,000 499 7,000 175
5,000 547 5,000 547 6,000 656 2,500 273
7,000 542 7,000 542 8,700 674 3,000 232
5,000 405 5,000 405 7,000 567 3,000 243
9,600 764 9,600 764 10,600 843 5,000 398
6,000 717 6,000 717 6,000 717 3,000 358
2 18 2 18 2 18 1 9
20,000 591 20,000 591 25,700 760 10,100 299
5,000 260 5,000 260 6,000 312 2,000 104
- -------------------------------------------------------------------------------------
8,973 8,973 10,351 4,363
- -------------------------------------------------------------------------------------
28,000 744 28,000 744 28,000 744 11,666 310
5,000 354 5,000 354 5,000 354 3,000 212
12,500 419 12,500 419 13,700 459 7,000 235
13,000 873 13,000 873 14,000 940 6,000 403
5,000 278 4,000 223 5,000 278 2,000 111
408 16 408 16 408 16 204 8
7,000 588 7,000 588 7,000 588 4,000 336
16,400 918 16,400 918 18,400 1,030 8,500 476
2,000 284 2,000 284 2,000 284 1,000 142
7,000 362 7,000 362 6,000 310 3,000 155
3,000 379 4,000 506 4,000 506 -- --
13,400 1,018 13,400 1,018 15,500 1,178 6,600 502
18,000 907 18,000 907 20,000 1,007 9,500 479
10,500 447 10,500 447 12,000 511 4,500 192
8,000 422 8,000 422 10,000 528 3,500 185
13,000 904 13,000 904 14,000 973 6,000 417
15,000 558 15,000 558 21,000 782 9,000 335
15,000 838 15,000 838 17,000 950 8,000 447
13,400 526 12,400 486 13,400 526 5,700 224
3,000 252 3,000 252 3,000 252 2,000 168
12,000 589 12,000 589 12,000 589 6,000 294
- -------------------------------------------------------------------------------------
11,676 11,708 12,805 5,631
- -------------------------------------------------------------------------------------
14,000 777 14,000 777 16,000 888 7,000 389
8,000 806 8,000 806 10,000 1,007 4,500 453
1,000 9 1,000 9 1,000 9 500 5
6,000 423 6,000 423 6,500 458 3,000 211
- -------------------------------------------------------------------------------------
2,015 2,015 2,362 1,058
</TABLE>
25
<PAGE> 125
PORTFOLIOS OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
-------------------- ---------------------
SERIES I SERIES II
-------------------- ---------------------
- -----------------------------------------------------------------------------------------------------------------------
NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UTILITIES--1.0%, AT&T 16,000 $ 561 18,000 $ 631
.8%, .9%, .8%, .8% SBC Communications Inc. 8,600 532 10,000 619
AND .8% Telefonica de Espana S.A. 515 15 600 17
Telefonica del Peru, S.A.,
ADS 500 13 500 13
------------------------------------------------------------------------------
1,121 1,280
------------------------------------------------------------------------------
TOTAL COMMON STOCKS--53.9%, 41.8%,
43.9%, 41.0%, 45.9% AND 38.4%
(Cost: $49,986, $57,307, $44,402,
$44,320, $49,844 and $22,552) 60,275 69,803
------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MONEY MARKET Yield--5.66% to 6.50%
INSTRUMENTS--3.6%, Due--July 1997
1.8%, 3.6%, 1.2%, 3.3% (Cost: $3,991, $2,996,
AND 1.4% $4,395, $1,595, $4,287 and
$1,000) $4,000 3,991 $3,000 2,996
------------------------------------------------------------------------------
TOTAL INVESTMENTS--97.6%, 99.0%, 98.8%,
98.2%, 98.9% AND 99.4%
(Cost: $96,172, $148,344, $108,442,
$121,082, $114,177 and $65,552) 109,081 165,482
------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS
LIABILITIES--2.4%, 1.0%, 1.2%,
1.8%, 1.1% AND .6% 2,729 1,688
------------------------------------------------------------------------------
NET ASSETS--100% $111,810 $167,170
------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIOS OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments for federal income tax purposes at June 30,
1997, the unrealized appreciation and depreciation on investments is as follows
(in thousands):
<TABLE>
<CAPTION>
SERIES I SERIES II SERIES III SERIES IV SERIES V SERIES VI
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cost of investments for federal income tax
purposes $96,172 $148,344 $108,442 $121,082 $114,177 $65,552
- --------------------------------------------------------------------------------------------------------------------------
Gross unrealized appreciation 13,088 17,371 12,604 9,596 15,260 4,189
- --------------------------------------------------------------------------------------------------------------------------
Gross unrealized depreciation 179 233 172 1,814 259 740
- --------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation 12,909 17,138 12,432 7,782 15,001 3,449
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
26
<PAGE> 126
PORTFOLIOS OF INVESTMENTS
<TABLE>
<CAPTION>
- ------------------------ ------------------ ----------------- -----------------------
SERIES III SERIES IV SERIES V SERIES VI
- ------------------------ ------------------ ----------------- -----------------------
- --------------------------------------------------------------------------------------------------
NUMBER NUMBER NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
16,000 $ 561 16,000 $ 561 16,000 $ 561 8,000 $ 281
7,400 458 7,700 476 8,000 495 4,100 254
515 15 515 15 515 15 260 8
500 13 500 13 500 13 350 9
- --------------------------------------------------------------------------------------------------
1,047 1,065 1,084 552
- --------------------------------------------------------------------------------------------------
53,698 53,744 59,937 26,657
- --------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$4,400 4,395 $1,600 1,595 $4,300 4,287 $1,000 1,000
- --------------------------------------------------------------------------------------------------
120,874 128,864 129,178 69,001
- --------------------------------------------------------------------------------------------------
1,460 2,361 1,497 391
- --------------------------------------------------------------------------------------------------
$122,334 $131,225 $130,675 $ 69,392
- --------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 127
THIS PAGE INTENTIONALLY LEFT BLANK
28
<PAGE> 128
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TARGET EQUITY FUND--
KEMPER RETIREMENT FUND SERIES I, II, III, IV, V AND VI
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, V and VI as of July 31, 1997 and June 30,
1997, the related statements of operations for the month ended July 31, 1997 and
the year ended June 30, 1997, and changes in net assets for the month ended July
31, 1997 and for each of the two years in the period ended June 30, 1997, and
the financial highlights for each of the fiscal periods since 1993. These
financial statements and financial highlights are the responsibility of the
Funds' 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 July
31, 1997 and June 30, 1997, 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 each
of Kemper Target Equity Fund--Kemper Retirement Fund Series I, II, III, IV, V
and VI at July 31, 1997 and June 30, 1997, the results of their operations, the
changes in their 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 20, 1997
29
<PAGE> 129
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------ ------------------------
SERIES I SERIES II
------------------------ ------------------------
JULY 31, JUNE 30, JULY 31, JUNE 30,
1997 1997 1997 1997
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $100,178, $96,172, $150,705, $148,344,
$109,746, $108,442, $122,571, $121,082, $116,225,
$114,177, $65,721 and $65,552) $117,162 109,081 173,205 165,482
- -------------------------------------------------------------------------------------------------------------------
Cash 108 696 658 679
- -------------------------------------------------------------------------------------------------------------------
Receivable for:
Investments sold 544 2,664 462 1,859
- -------------------------------------------------------------------------------------------------------------------
Dividends and interest 66 55 79 77
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 117,880 112,496 174,404 168,097
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
Payable for:
Investments purchased 641 524 715 657
- -------------------------------------------------------------------------------------------------------------------
Fund shares redeemed 20 61 162 134
- -------------------------------------------------------------------------------------------------------------------
Management fee 48 47 71 70
- -------------------------------------------------------------------------------------------------------------------
Administrative services fee 23 23 35 35
- -------------------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related
expenses 21 22 31 21
- -------------------------------------------------------------------------------------------------------------------
Trustees' fees 10 9 7 10
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 763 686 1,021 927
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS $117,117 111,810 173,383 167,170
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
Paid-in capital $ 89,138 89,919 136,874 138,648
- -------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain on investments 8,641 6,954 10,037 7,980
- -------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 16,984 12,908 22,500 17,137
- -------------------------------------------------------------------------------------------------------------------
Undistributed net investment income 2,354 2,029 3,972 3,405
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $117,117 111,810 173,383 167,170
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------------------
Shares outstanding 9,877 9,943 12,959 13,094
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE (net
assets / shares outstanding) $11.86 11.24 13.38 12.77
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
30
<PAGE> 130
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ----------------------- ------------------- ------------------- -------------------
SERIES III SERIES IV SERIES V SERIES VI
- ----------------------- ------------------- ------------------- -------------------
JULY 31, JUNE 30, JULY 31, JUNE 30, JULY 31, JUNE 30, JULY 31, JUNE 30,
1997 1997 1997 1997 1997 1997 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
126,882 120,874 135,772 128,864 137,266 129,178 72,745 69,001
- -----------------------------------------------------------------------------------------
489 522 486 610 99 434 612 176
- -----------------------------------------------------------------------------------------
414 1,602 415 2,443 544 1,790 213 628
- -----------------------------------------------------------------------------------------
60 49 61 50 65 54 31 26
- -----------------------------------------------------------------------------------------
127,845 123,047 136,734 131,967 137,974 131,456 73,601 69,831
=========================================================================================
- -----------------------------------------------------------------------------------------
562 536 562 536 562 524 273 271
- -----------------------------------------------------------------------------------------
70 60 127 90 163 146 53 68
- -----------------------------------------------------------------------------------------
52 51 56 55 56 55 30 29
- -----------------------------------------------------------------------------------------
26 25 28 28 28 28 15 15
- -----------------------------------------------------------------------------------------
30 31 25 24 28 22 56 53
- -----------------------------------------------------------------------------------------
7 10 6 9 6 6 3 3
- -----------------------------------------------------------------------------------------
747 713 804 742 843 781 430 439
- -----------------------------------------------------------------------------------------
127,098 122,334 135,930 131,225 137,131 130,675 73,171 69,392
=========================================================================================
- -----------------------------------------------------------------------------------------
99,147 100,970 112,512 114,986 104,269 106,033 61,188 61,920
- -----------------------------------------------------------------------------------------
8,252 6,750 7,618 6,220 9,042 7,238 3,580 2,851
- -----------------------------------------------------------------------------------------
17,136 12,431 13,201 7,781 21,041 15,000 7,024 3,449
- -----------------------------------------------------------------------------------------
2,563 2,183 2,599 2,238 2,779 2,404 1,379 1,172
- -----------------------------------------------------------------------------------------
127,098 122,334 135,930 131,225 137,131 130,675 73,171 69,392
=========================================================================================
- -----------------------------------------------------------------------------------------
11,213 11,377 12,053 12,279 12,624 12,791 6,325 6,390
11.33 10.75 11.28 10.69 10.86 10.22 11.57 10.86
- -----------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 131
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
--------------------------- ----------------------------
SERIES I SERIES II
--------------------------- ----------------------------
ONE MONTH ONE MONTH
ENDED YEAR ENDED ENDED YEAR ENDED
JULY 31, JUNE 30, JULY 31, JUNE 30,
1997 1997 1997 1997
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------------
Interest $ 335 4,130 613 7,429
- -------------------------------------------------------------------------------------------------------------
Dividends 70 796 83 926
- -------------------------------------------------------------------------------------------------------------
Total investment income 405 4,926 696 8,355
- -------------------------------------------------------------------------------------------------------------
Expenses:
Management fee 48 543 71 835
- -------------------------------------------------------------------------------------------------------------
Administrative services fee 23 262 35 406
- -------------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and
related expenses 9 149 21 210
- -------------------------------------------------------------------------------------------------------------
Professional fees -- 27 1 42
- -------------------------------------------------------------------------------------------------------------
Reports to shareholders -- 13 -- 17
- -------------------------------------------------------------------------------------------------------------
Trustees' fees and other -- 21 1 28
- -------------------------------------------------------------------------------------------------------------
Total expenses 80 1,015 129 1,538
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 325 3,911 567 6,817
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 1,687 11,460 2,057 13,354
- -------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on
investments 4,076 3,032 5,363 3,964
- -------------------------------------------------------------------------------------------------------------
Net gain on investments 5,763 14,492 7,420 17,318
- -------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $6,088 18,403 7,987 24,135
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
32
<PAGE> 132
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ---------------------------- ---------------------- ---------------------- ----------------------
SERIES III SERIES IV SERIES V SERIES VI
- ---------------------------- ---------------------- ---------------------- ----------------------
ONE MONTH ONE MONTH ONE MONTH ONE MONTH
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JULY 31, JUNE 30, JULY 31, JUNE 30, JULY 31, JUNE 30, JULY 31, JUNE 30,
1997 1997 1997 1997 1997 1997 1997 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
403 4,781 396 5,055 411 5,096 233 2,330
- ------------------------------------------------------------------------------------------------------
64 745 62 753 70 794 33 353
- ------------------------------------------------------------------------------------------------------
467 5,526 458 5,808 481 5,890 266 2,683
- ------------------------------------------------------------------------------------------------------
52 605 56 674 56 648 30 302
- ------------------------------------------------------------------------------------------------------
26 297 28 333 28 319 14 144
- ------------------------------------------------------------------------------------------------------
8 188 13 212 21 208 15 164
- ------------------------------------------------------------------------------------------------------
-- 30 -- 31 -- 33 -- --
- ------------------------------------------------------------------------------------------------------
-- 11 -- 15 -- 14 -- --
- ------------------------------------------------------------------------------------------------------
1 24 -- 26 1 24 -- 3
- ------------------------------------------------------------------------------------------------------
87 1,155 97 1,291 106 1,246 59 613
- ------------------------------------------------------------------------------------------------------
380 4,371 361 4,517 375 4,644 207 2,070
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
1,502 11,164 1,398 10,377 1,804 11,793 729 3,804
- ------------------------------------------------------------------------------------------------------
4,705 2,920 5,420 4,714 6,041 4,036 3,575 3,566
- ------------------------------------------------------------------------------------------------------
6,207 14,084 6,818 15,091 7,845 15,829 4,304 7,370
- ------------------------------------------------------------------------------------------------------
6,587 18,455 7,179 19,608 8,220 20,473 4,511 9,440
- ------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 133
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------- -----------------------------
SERIES I SERIES II
---------------------------- -----------------------------
ONE ONE
MONTH YEAR ENDED MONTH YEAR ENDED
ENDED JUNE 30, ENDED JUNE 30,
JULY 31, ------------------ JULY 31, ------------------
1997 1997 1996 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- --------------------------------------------------------------------------------------------------------------
Net investment income $ 325 3,911 3,965 567 6,817 7,175
- --------------------------------------------------------------------------------------------------------------
Net realized gain 1,687 11,460 15,205 2,057 13,354 18,830
- --------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 4,076 3,032 (5,077) 5,363 3,964 (8,163)
- --------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 6,088 18,403 14,093 7,987 24,135 17,842
- --------------------------------------------------------------------------------------------------------------
Distribution from net investment income -- (3,911) (3,962) -- (7,159) (7,198)
- --------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- (14,931) (6,844) -- (18,195) (8,965)
- --------------------------------------------------------------------------------------------------------------
Total dividends to shareholders -- (18,842) (10,806) -- (25,354) (16,163)
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share
transactions (781) 4,946 (2,466) (1,774) (36) (6,591)
- --------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 5,307 4,507 821 6,213 (1,255) (4,912)
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------------
Beginning of period 111,810 107,303 106,482 167,170 168,425 173,337
- --------------------------------------------------------------------------------------------------------------
END OF PERIOD $117,117 111,810 107,303 173,383 167,170 168,425
- --------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME
AT END OF PERIOD $ 2,354 2,029 2,041 3,972 3,405 3,759
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
34
<PAGE> 134
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ----------------------------- ---------------------------- --------------------------- ---------------------------
SERIES III SERIES IV SERIES V SERIES VI
- ----------------------------- ---------------------------- --------------------------- ---------------------------
ONE ONE ONE ONE
MONTH YEAR ENDED MONTH YEAR ENDED MONTH YEAR ENDED MONTH YEAR ENDED
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
JULY 31, ----------------- JULY 31, ----------------- JULY 31, ----------------- JULY 31, ---------------
1997 1997 1996 1997 1997 1996 1997 1997 1996 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
380 4,371 4,570 361 4,517 5,079 375 4,644 4,885 207 2,070 1,051
- -----------------------------------------------------------------------------------------------------------------------
1,502 11,164 14,496 1,398 10,377 13,801 1,804 11,793 13,996 729 3,804 978
- -----------------------------------------------------------------------------------------------------------------------
4,705 2,920 (5,249) 5,420 4,714 (4,109) 6,041 4,036 (4,790) 3,575 3,566 (160)
- -----------------------------------------------------------------------------------------------------------------------
6,587 18,455 13,817 7,179 19,608 14,771 8,220 20,473 14,091 4,511 9,440 1,869
- -----------------------------------------------------------------------------------------------------------------------
-- (4,464) (4,807) -- (4,509) (5,653) -- (4,663) (4,780) -- (1,591) (382)
- -----------------------------------------------------------------------------------------------------------------------
-- (14,623) (6,226) -- (14,118) -- -- (14,346) -- -- (1,589) (324)
- -----------------------------------------------------------------------------------------------------------------------
-- (19,087) (11,033) -- (18,627) (5,653) -- (19,009) (4,780) -- (3,180) (706)
- -----------------------------------------------------------------------------------------------------------------------
(1,823) 1,478 (5,977) (2,474) (8,614) (22,439) (1,764) (536) (14,501) (732) 13,443 41,337
- -----------------------------------------------------------------------------------------------------------------------
4,764 846 (3,193) 4,705 (7,633) (13,321) 6,456 928 (5,190) 3,779 19,703 42,500
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
122,334 121,488 124,681 131,225 138,858 152,179 130,675 129,747 134,937 69,392 49,689 7,189
- -----------------------------------------------------------------------------------------------------------------------
127,098 122,334 121,488 135,930 131,225 138,858 137,131 130,675 129,747 73,171 69,392 49,689
- -----------------------------------------------------------------------------------------------------------------------
2,563 2,183 2,288 2,599 2,238 2,239 2,779 2,404 2,428 1,379 1,172 696
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 135
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF Kemper Retirement Fund Series I, II, III, IV, V and
THE FUNDS VI (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
Series VI May 15, 2006
</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.
In 1997, the Trust changed its fiscal year end from
June 30 to July 31. As a result, the financial
statements for the year ended June 30, 1997, and
the one month ended July 31, 1997 are presented
together in this report to shareholders.
- --------------------------------------------------------------------------------
2 SIGNIFICANT INVESTMENT VALUATION. Investments are stated at
ACCOUNTING 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. 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. 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
36
<PAGE> 136
NOTES TO FINANCIAL STATEMENTS
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
limited offering periods which ended during the
years 1990 through 1997, 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 any 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 MANAGEMENT AGREEMENT. The Trust has a management
AFFILIATES 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
$313,000 for the one month ended July 31, 1997 and
$3,607,000 for the year ended June 30, 1997. Zurich
Investment Management Limited, an affiliate of ZKI,
serves as sub-adviser with respect to foreign
securities investments in the Funds, and is paid by
ZKI for its services.
UNDERWRITING AGREEMENT. The Trust has an
underwriting agreement with Zurich Kemper
Distributors, Inc. (ZKDI) (formerly known as Kemper
Distributors, Inc.). Underwriting commissions paid
in connection with the distribution of fund shares
of Series VI are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED BY COMMISSIONS ALLOWED
ZKDI BY ZKDI TO FIRMS
----------- -------------------
<C> <C>
Year ended June 30, 1997 $96,000 736,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with ZKDI. For
providing information and administrative services
to shareholders, the Funds pay ZKDI a fee at an
annual rate of up to .25% of average daily net
assets. ZKDI 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 ZKDI
ASF PAID BY ----------------------------
THE FUNDS TO ZKDI TO ALL FIRMS TO AFFILIATES
----------------- ------------ -------------
<S> <C> <C> <C>
One month ended July 31, 1997 $ 154,000 157,000 2,000
Year ended June 30, 1997 1,761,000 1,761,000 24,000
</TABLE>
37
<PAGE> 137
NOTES TO FINANCIAL STATEMENTS
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Trust's transfer agent,
Zurich Kemper Service Company (ZKSvC) (formerly
known as Kemper Service Company) is the shareholder
service agent for the Funds. Under the agreement,
ZKSvC received shareholder services fees of $39,000
for the one month ended July 31, 1997 and $596,000
for the year ended June 30, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of ZKI.
For the one month period ended July 31, 1997 and
the year ended June 30, 1997, the Funds made no
payments to their officers and incurred trustees'
fees of $2,000 and $96,000, respectively, to
independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT Investment transactions (excluding short-term
TRANSACTIONS instruments) are as follows (in thousands):
<TABLE>
<CAPTION>
SERIES I SERIES II SERIES III SERIES IV SERIES V SERIES VI
-------- --------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
One month ended
July 31, 1997:
---------------------
Purchases $ 7,727 9,175 7,834 7,193 8,162 3,778
Proceeds from sales 8,103 10,557 7,825 7,901 9,431 5,327
Year ended
June 30, 1997:
---------------------
Purchases $102,479 120,670 92,432 92,455 102,744 59,066
Proceeds from sales 112,453 137,112 109,140 116,660 116,293 46,994
</TABLE>
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Funds (in thousands):
<TABLE>
<CAPTION>
ONE MONTH ENDED YEAR ENDED JUNE 30,
JULY 31, 1997 1997 1996
--------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SERIES I
- -----------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of
dividends -- $ -- 1,818 $ 18,601 995 $ 10,634
- -----------------------------------------------------------------------------------------------------------------------
Shares redeemed (66) (781) (1,235) (13,655) (1,153) (13,100)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital
share transactions (66) $ (781) 583 $ 4,946 (158) $ (2,466)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
SERIES II
- -----------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of
dividends -- $ -- 2,129 $ 25,117 1,286 $ 15,951
- -----------------------------------------------------------------------------------------------------------------------
Shares redeemed (135) (1,774) (1,983) (25,153) (1,732) (22,542)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital
share transactions (135) $ (1,774) 146 $ (36) (446) $ (6,591)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
SERIES III
- -----------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of
dividends -- $ -- 1,937 $ 19,255 1,056 $ 11,016
- -----------------------------------------------------------------------------------------------------------------------
Shares redeemed (164) (1,823) (1,658) (17,777) (1,557) (16,993)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital
share transactions (164) $ (1,823) 279 $ 1,478 (501) $ (5,977)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 138
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ONE MONTH ENDED YEAR ENDED JUNE 30,
JULY 31, 1997 1997 1996
--------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SERIES IV
- -----------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of
dividends -- $ -- 1,866 $ 18,506 559 $ 5,780
- -----------------------------------------------------------------------------------------------------------------------
Shares redeemed (226) (2,474) (2,563) (27,120) (2,689) (28,219)
- -----------------------------------------------------------------------------------------------------------------------
Net decrease from capital share
transactions (226) $ (2,474) (697) $ (8,614) (2,130) $(22,439)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
SERIES V
- -----------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of
dividends -- $ -- 2,001 $ 18,814 478 $ 4,701
- -----------------------------------------------------------------------------------------------------------------------
Shares redeemed (167) (1,764) (1,929) (19,350) (1,922) (19,202)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital
share transactions (167) $ (1,764) 72 $ (536) (1,444) $(14,501)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
SERIES VI
- -----------------------------------------------------------------------------------------------------------------------
Shares sold -- $ -- 1,919 $ 19,497 4,459 $ 43,103
- -----------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of
dividends -- -- 311 3,125 71 688
- -----------------------------------------------------------------------------------------------------------------------
Shares redeemed (65) (732) (894) (9,179) (252) (2,454)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital
share transactions (65) $ (732) 1,336 $ 13,443 4,278 $ 41,337
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 139
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
SERIES I
---------------------------------------------------------------------------
ONE MONTH
ENDED YEAR ENDED JUNE 30,
JULY 31, -----------------------------------------------------------
1997 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.24 11.46 11.19 10.67 12.57 12.01
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .03 .42 .44 .45 .42 .41
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .59 1.48 1.03 1.20 (.78) 1.59
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations .62 1.90 1.47 1.65 (.36) 2.00
- --------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .44 .44 .41 .40 .42
- --------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- 1.68 .76 .72 1.14 1.02
- --------------------------------------------------------------------------------------------------------------------------
Total dividends -- 2.12 1.20 1.13 1.54 1.44
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.86 11.24 11.46 11.19 10.67 12.57
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.52% 18.43 13.91 17.03 (3.76) 17.47
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------------
Expenses .84% .93 .95 .97 .91 .92
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 3.38% 3.60 3.68 3.96 3.32 3.19
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $117,117 111,810 107,303 106,482 103,764 122,340
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 86% 94 71 63 59 61
- --------------------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the one month period ended July 31, 1997 and the years
ended June 30, 1997 and June 30, 1996 were $.0601, $.0590 and $.0586, respectively.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
SERIES II
---------------------------------------------------------------------------
ONE MONTH
ENDED YEAR ENDED JUNE 30,
JULY 31, -----------------------------------------------------------
1997 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.77 13.01 12.94 12.30 13.95 12.40
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .05 .56 .58 .60 .56 .53
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .56 1.29 .77 1.25 (1.04) 1.67
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations .61 1.85 1.35 1.85 (.48) 2.20
- --------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .59 .57 .57 .58 .49
- --------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- 1.50 .71 .64 .59 .16
- --------------------------------------------------------------------------------------------------------------------------
Total dividends -- 2.09 1.28 1.21 1.17 .65
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.38 12.77 13.01 12.94 12.30 13.95
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.78% 15.56 10.92 16.52 (4.07) 18.18
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------------
Expenses .90% .92 .94 .96 .90 .95
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 3.98% 4.08 4.16 4.54 3.91 3.83
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $173,383 167,170 168,425 173,337 173,055 202,794
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 67% 70 54 47 44 51
- --------------------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the one month period ended July 31, 1997 and the years
ended June 30, 1997 and June 30, 1996 were $.0602, $.0590 and $.0585, respectively.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR ALL SERIES: Total return does not reflect the effect of any sales
charges.
40
<PAGE> 140
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------------------
SERIES III
-----------------------------------------------------------
ONE MONTH
ENDED YEAR ENDED JUNE 30,
JULY 31, -----------------------------------------------
1997 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.75 10.95 10.75 9.87 10.72 9.10
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .04 .42 .43 .44 .40 .29
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .54 1.22 .78 1.24 (.88) 1.51
- -------------------------------------------------------------------------------------------------------------
Total from investment operations .58 1.64 1.21 1.68 (.48) 1.80
- -------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .43 .44 .43 .37 .18
- -------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- 1.41 .57 .37 -- --
- -------------------------------------------------------------------------------------------------------------
Total dividends -- 1.84 1.01 .80 .37 .18
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.33 10.75 10.95 10.75 9.87 10.72
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.40% 16.38 11.72 18.37 (4.76) 19.96
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------------
Expenses .83% .95 .96 1.00 .95 .95
- -------------------------------------------------------------------------------------------------------------
Net investment income 3.63% 3.61 3.67 4.14 3.59 3.46
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $127,098 122,334 121,488 124,681 123,132 143,632
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 79% 74 59 52 47 59
- -------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the one month period ended July 31, 1997
and the years ended June 30, 1997 and June 30, 1996 were $.0602, $.0590 and $.0585, respectively.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------
SERIES IV
-----------------------------------------------------------
ONE MONTH
ENDED YEAR ENDED JUNE 30, JANUARY 15
JULY 31, ------------------------------------- TO JUNE 30,
1997 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.69 10.70 10.07 8.83 9.57 9.00
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .03 .39 .40 .39 .26 .06
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .56 1.17 .64 1.22 (.85) .51
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .59 1.56 1.04 1.61 (.59) .57
- -----------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .38 .41 .37 .15 --
- -----------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- 1.19 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Total dividends -- 1.57 .41 .37 .15 --
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.28 10.69 10.70 10.07 8.83 9.57
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.52% 15.73 10.47 18.95 (6.31) 6.33
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------------
Expenses .88% .96 .95 .97 .97 1.21
- -----------------------------------------------------------------------------------------------------------------
Net investment income 3.22% 3.35 3.46 4.01 3.43 2.87
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $135,930 131,225 138,858 152,179 146,655 61,882
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 66% 66 52 45 51 31
- -----------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the one month period ended July 31, 1997 and
the years ended June 30, 1997 and June 30, 1996 were $.0602, $.0590 and $.0586, respectively.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 141
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------------------------
SERIES V
------------------------------------------------------------------
ONE MONTH NOVEMBER 15,
ENDED YEAR ENDED JUNE 30, 1993 TO
JULY 31, --------------------------------- JUNE 30,
1997 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.22 10.20 9.53 8.15 9.00
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .03 .39 .39 .28 .15
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .61 1.22 .64 1.31 (1.00)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations .64 1.61 1.03 1.59 (.85)
- ---------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .39 .36 .21 --
- ---------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- 1.20 -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total dividends -- 1.59 .36 .21 --
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.86 10.22 10.20 9.53 8.15
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.26% 17.14 10.95 19.97 (9.44)
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------------------
Expenses .94% .96 .96 1.07 1.29
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 3.34% 3.59 3.64 4.01 3.13
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $137,131 130,675 129,747 134,937 64,275
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 76% 79 58 73 35
- ---------------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the one month period ended July 31, 1997 and the
years ended June 30, 1997 and June 30, 1996 were $.0602, $.0590 and $.0587, respectively.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------
SERIES VI
--------------------------------------------------
ONE MONTH
ENDED YEAR ENDED JUNE 30, MAY 1 TO
JULY 31, -------------------- JUNE 30,
1997 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.86 9.83 9.26 9.00
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .03 .33 .24 .06
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .68 1.26 .57 .20
- ------------------------------------------------------------------------------------------------------
Total from investment operations .71 1.59 .81 .26
- ------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .28 .13 --
- ------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- .28 .11 --
- ------------------------------------------------------------------------------------------------------
Total dividends -- .56 .24 --
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.57 10.86 9.83 9.26
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.54% 16.64 8.79 2.89
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------------
Expenses 1.00% 1.02 1.27 1.09
- ------------------------------------------------------------------------------------------------------
Net investment income 3.43% 3.43 3.47 3.91
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $73,171 69,392 49,689 7,189
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 65% 74 34 --
- ------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the one month period ended July 31,
1997 and the years ended June 30, 1997 and June 30, 1996 were $.0603, $.0586 and $.0582, respectively.
- ------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 142
PORTFOLIO OF INVESTMENTS
KEMPER RETIREMENT FUND SERIES VII
PORTFOLIO OF INVESTMENTS AT JULY 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT U.S. Treasury, zero coupon, 2008
OBLIGATIONS--52.1% (Cost: $2,282,000) $4,600,000 $2,371,000
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES--2.2%
Air Products & Chemicals 300 26,000
Betz Dearborn Inc. 300 20,000
Crown Cork & Seal Co. 300 15,000
E.I. DuPont De Nemours 200 13,000
W.R. Grace & Co. 200 12,000
Temple-Inland Inc. 200 13,000
-----------------------------------------------------------------------------
99,000
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--3.1% Emerson Electric Co. 300 18,000
General Electric Co. 200 14,000
B.F. Goodrich Co. 300 14,000
Honeywell 300 22,000
Raytheon Co. 300 17,000
(a)U.S. Industries 300 12,000
United Technologies 250 21,000
WMX Technologies Inc. 700 22,000
-----------------------------------------------------------------------------
140,000
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--5.0% CVS Corp. 300 17,000
(a)Clear Channel Communications 400 25,000
Dillard Department Stores 600 23,000
R.R. Donnelley & Sons Co. 400 16,000
Harcourt General 500 24,000
May Department Stores Co. 500 28,000
Sears, Roebuck & Co. 500 32,000
Stanley Works 600 27,000
Time Warner Inc. 400 22,000
Tribune Co. 100 5,000
Wm. Wrigley Jr. Co. 100 8,000
-----------------------------------------------------------------------------
227,000
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--1.5%
CPC International 100 10,000
H.J. Heinz Co. 100 5,000
International Flavors & Fragrances 400 21,000
PepsiCo 300 12,000
Sara Lee Corp. 500 22,000
-----------------------------------------------------------------------------
70,000
- ----------------------------------------------------------------------------------------------------------------------
ENERGY--2.5% AMOCO Corp. 300 28,000
Mobil Corp. 400 31,000
Pennzoil Co. 100 8,000
Unocal Corp. 600 24,000
(a)Western Atlas 300 24,000
-----------------------------------------------------------------------------
115,000
</TABLE>
8
<PAGE> 143
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTILITIES--1.4% AT&T 400 $ 15,000
(a)AirTouch Communications 300 10,000
Ameritech Corp. 300 20,000
SBC Communications Inc. 300 18,000
-----------------------------------------------------------------------------
63,000
-----------------------------------------------------------------------------
TOTAL COMMON STOCKS--32.4%
(Cost: $1,377,000) 1,474,000
-----------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C
MONEY MARKET Yield--5.42% to 5.43%
INSTRUMENTS--19.7% Due--August 1997
Federal Home Loan Bank $ 400,000 400,000
Federal National Mortgage Association 500,000 498,000
-----------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS
(Cost: $898,000) 898,000
-----------------------------------------------------------------------------
TOTAL INVESTMENTS--104.2%
(Cost: $4,557,000) 4,743,000
-----------------------------------------------------------------------------
LIABILITIES, LESS CASH
AND OTHER ASSETS--(4.2)% (193,000)
-----------------------------------------------------------------------------
NET ASSETS--100% $4,550,000
-----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $4,557,000 for federal income tax purposes
at July 31, 1997, the gross unrealized appreciation was $188,000, the gross
unrealized depreciation was $2,000 and the net unrealized appreciation on
investments was $186,000.
See accompanying Notes to Financial Statements.
10
<PAGE> 144
PORTFOLIO OF INVESTMENTS
KEMPER RETIREMENT FUND SERIES VII
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT U.S. Treasury, zero coupon, 2008
OBLIGATIONS--47.5% (Cost: $963,000) $2,000,000 $ 970,000
-----------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--1.7% Air Products & Chemicals 200 16,000
Betz Dearborn Inc. 100 7,000
Crown Cork & Seal Co. 100 5,000
W.R. Grace & Co. 100 6,000
-----------------------------------------------------------------------------
34,000
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--3.9% Emerson Electric Co. 100 5,000
General Electric Co. 100 7,000
B.F. Goodrich Co. 200 9,000
Honeywell 200 15,000
Raytheon Co. 200 10,000
United Technologies 250 21,000
WMX Technologies Inc. 400 13,000
-----------------------------------------------------------------------------
80,000
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--5.5% CVS Corp. 100 5,000
(a)Clear Channel Communications 100 6,000
Dillard Department Stores 200 7,000
R.R. Donnelley & Sons Co. 200 7,000
Harcourt General 300 14,000
Hilton Hotels Corp. 100 3,000
(a)MGM Grand 200 7,000
May Department Stores Co. 200 9,000
Sears, Roebuck & Co. 300 16,000
Stanley Works 400 16,000
Time Warner Inc. 200 10,000
Tribune Co. 100 5,000
Wm. Wrigley Jr. Co. 100 7,000
-----------------------------------------------------------------------------
112,000
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--.9% CPC International 100 9,000
H.J. Heinz Co. 100 5,000
PepsiCo 100 4,000
-----------------------------------------------------------------------------
18,000
- ----------------------------------------------------------------------------------------------------------------------
ENERGY--1.5% AMOCO Corp. 100 9,000
Mobil Corp. 200 14,000
Pennzoil Co. 100 8,000
-----------------------------------------------------------------------------
31,000
</TABLE>
11
<PAGE> 145
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE--4.5% American Express Co. 100 $ 7,000
American General Corp. 300 14,000
Banc One Corp. 200 10,000
BankBoston 100 7,000
First Bank System 100 9,000
Fleet Financial Group, Inc. 70 4,000
ITT Hartford Group 100 8,000
Jefferson-Pilot Corp. 100 7,000
Mellon Bank Corp. 200 9,000
Morgan Stanley Dean Witter 250 11,000
Washington Mutual 100 6,000
-----------------------------------------------------------------------------
92,000
- ----------------------------------------------------------------------------------------------------------------------
HEALTH CARE--4.3% (a)ALZA Corp. 400 12,000
Abbott Laboratories 100 7,000
American Home Products Corp. 100 8,000
C.R. Bard 100 4,000
(a)Biogen 100 3,000
Biomet, Inc. 200 4,000
(a)HealthCare COMPARE Corp. 100 5,000
(a)Healthsouth Corp. 300 7,000
Eli Lilly & Co. 100 11,000
McKesson Corp. 100 8,000
Perkin-Elmer Corp. 100 8,000
(a)Tenet Healthcare Corp. 200 6,000
United Healthcare Corp. 100 5,000
-----------------------------------------------------------------------------
88,000
- ----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--5.5% (a)Cadence Design Systems 100 3,000
(a)Cisco Systems 200 13,000
Computer Associates International 100 6,000
Harris Corp. 100 8,000
Hewlett-Packard Co. 200 11,000
Intel Corp. 100 14,000
Motorola 200 15,000
(a)Oracle Corp. 100 5,000
(a)Parametric Technology Corp. 100 4,000
(a)PeopleSoft Inc. 100 5,000
Pitney Bowes Inc. 100 7,000
(a)Sun Microsystems 300 11,000
(a)Tellabs, Inc. 200 11,000
-----------------------------------------------------------------------------
113,000
- ----------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.3% CSX Corp. 300 17,000
Norfolk Southern Corp. 100 10,000
-----------------------------------------------------------------------------
27,000
- ----------------------------------------------------------------------------------------------------------------------
UTILITIES--1.0% AT&T 200 7,000
Ameritech Corp. 100 7,000
SBC Communications Inc. 100 6,000
-----------------------------------------------------------------------------
20,000
-----------------------------------------------------------------------------
TOTAL COMMON STOCKS--30.1%
(Cost: $598,000) 615,000
-----------------------------------------------------------------------------
</TABLE>
12
<PAGE> 146
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--5.50%
INSTRUMENT--17.1% Due--July 1997
Federal Home Loan Bank
(Cost: $350,000) $350,000 $ 350,000
-----------------------------------------------------------------------------
TOTAL INVESTMENTS--94.7%
(Cost: $1,911,000) 1,935,000
-----------------------------------------------------------------------------
CASH AND OTHER ASSETS,
LESS LIABILITIES--5.3% 108,000
-----------------------------------------------------------------------------
NET ASSETS--100% $2,043,000
-----------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $1,911,000 for federal income tax purposes
at June 30, 1997, the gross unrealized appreciation was $30,000, the gross
unrealized depreciation was $6,000 and the net unrealized appreciation on
investments was $24,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 147
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TARGET EQUITY FUND--
KEMPER RETIREMENT FUND SERIES VII
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Kemper Target Equity Fund--Kemper
Retirement Fund Series VII as of July 31, 1997 and June 30, 1997, the related
statements of operations and changes in net assets and the financial highlights
for the month ended July 31, 1997 and the period from May 1, 1997 (commencement
of operations) to June 30, 1997. 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 July
31, 1997 and June 30, 1997, 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 VII at July 31, 1997 and June
30, 1997, 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 20, 1997
14
<PAGE> 148
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JULY 31, JUNE 30,
1997 1997
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $4,557,000 and $1,911,000, respectively) $4,743,000 1,935,000
- -------------------------------------------------------------------------------------------------
Cash 189,000 49,000
- -------------------------------------------------------------------------------------------------
Receivable for:
Investments sold 4,000 5,000
- -------------------------------------------------------------------------------------------------
Fund shares sold 389,000 108,000
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS 5,325,000 2,097,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------
Payable for:
Investments purchased 772,000 52,000
- -------------------------------------------------------------------------------------------------
Management fee and other 3,000 2,000
- -------------------------------------------------------------------------------------------------
Total liabilities 775,000 54,000
- -------------------------------------------------------------------------------------------------
NET ASSETS $4,550,000 2,043,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------
Paid-in capital $4,353,000 2,016,000
- -------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (3,000) (2,000)
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 186,000 24,000
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 14,000 5,000
- -------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $4,550,000 2,043,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------
Shares outstanding 465,000 221,000
- -------------------------------------------------------------------------------------------------
Net asset value and redemption price per share $ 9.78 9.23
- -------------------------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE
(net asset value, plus 5.26% of
net asset value or 5.00% of offering price) $ 10.29 9.72
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 149
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ONE MONTH
ENDED MAY 1(A) TO
JULY 31, JUNE 30,
1997 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Interest and dividend income $ 11,000 7,000
- -------------------------------------------------------------------------------------------------------
Management fee and other expenses (2,000) (2,000)
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 9,000 5,000
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized loss on sales of investments (1,000) (2,000)
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 162,000 24,000
- -------------------------------------------------------------------------------------------------------
Net gain on investments 161,000 22,000
- -------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 170,000 27,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ONE MONTH
ENDED MAY 1(A) TO
JULY 31, JUNE 30,
1997 1997
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
OPERATIONS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------------------
Net investment income $ 9,000 5,000
- -------------------------------------------------------------------------------------------------------
Net realized loss (1,000) (2,000)
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 162,000 24,000
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 170,000 27,000
- -------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 2,337,000 1,916,000
- -------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 2,507,000 1,943,000
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
Beginning of period 2,043,000 100,000
- -------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment
income of $14,000 and $5,000, respectively) $4,550,000 2,043,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of operations.
See accompanying Notes to Financial Statements.
16
<PAGE> 150
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF Kemper Retirement Fund Series VII (the Fund) is a
THE FUND 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, 2008) 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.
The Fund commenced operations on May 1, 1997 and
its initial fiscal year end was June 30.
Subsequently, the Trust changed its fiscal year end
to July 31. As a result, financial statements for
the two month period ended June 30, 1997 and the
one month period ended July 31, 1997 are presented
together in this report to shareholders.
- --------------------------------------------------------------------------------
2 SIGNIFICANT INVESTMENT VALUATION. Investments are stated at
ACCOUNTING 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. 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. 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 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. The
accumulated net realized loss on sales of
investments for federal income tax purposes at July
31, 1997, amounting to approximately $3,000, is
available to offset future taxable gains. If not
applied, the loss carryover expires during the
period 2004 through 2005.
17
<PAGE> 151
NOTES TO FINANCIAL STATEMENTS
DIVIDENDS TO SHAREHOLDERS. The Trust declares and
pays dividends of any 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 MANAGEMENT AGREEMENT. The Trust has a management
AFFILIATES agreement with ZKI and the Fund pays a management
fee at an annual rate of .50% of average daily net
assets. The Fund incurred a management fee of
$1,000 for the one month ended July 31, 1997 and
$1,000 for the period ended June 30, 1997. Zurich
Investment Management Limited, an affiliate of ZKI,
serves as sub-adviser with respect to foreign
securities investments in the Fund, and is paid by
ZKI for its services.
UNDERWRITING AGREEMENT. The Trust has an
underwriting agreement with Zurich Kemper
Distributors, Inc. (ZKDI). Underwriting commissions
paid in connection with the distribution of the
Fund's shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED
RETAINED BY ZKDI BY ZKDI TO FIRMS
---------------- -------------------
<S> <C> <C>
One month ended July 31, 1997 $8,000 71,000
Period ended June 30, 1997 8,000 71,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with ZKDI. For
providing information and administrative services
to shareholders, the Fund pays ZKDI a fee at an
annual rate of up to .25% of average daily net
assets. ZKDI 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
ZKDI TO FIRMS
-------------
<S> <C>
One month ended July 31, 1997 $1,000
Period ended June 30, 1997 1,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Trust's transfer agent,
Zurich Kemper Service Company (ZKSvC) is the
shareholder service agent for the Fund.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of ZKI.
For the one month ended July 31, 1997 and the
period ended June 30, 1997, the Fund made no
payments to its officers or trustees.
- --------------------------------------------------------------------------------
4 TRANSACTIONS INVESTMENT Investment transactions (excluding short-term
instruments) are as follows:
<TABLE>
<CAPTION>
ONE MONTH ENDED MAY 1 TO
JULY 31, 1997 JUNE 30, 1997
--------------- -------------
<S> <C> <C>
Purchases $2,112,000 1,577,000
Proceeds from sales 13,000 14,000
</TABLE>
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund:
<TABLE>
<CAPTION>
ONE MONTH ENDED MAY 1 TO
JULY 31, 1997 JUNE 30, 1997
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 253,000 $2,422,000 212,000 $1,930,000
-----------------------------------------------------------------------------
Shares redeemed (9,000) (85,000) (2,000) (14,000)
-----------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE
TRANSACTIONS 244,000 $2,337,000 210,000 $1,916,000
-----------------------------------------------------------------------------
</TABLE>
18
<PAGE> 152
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ONE MONTH
ENDED MAY 1(A) TO
JULY 31, JUNE 30,
1997 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.23 9.00
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .01 .02
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain .54 .21
- ---------------------------------------------------------------------------------------------------
Total from investment operations .55 .23
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $9.78 9.23
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.96% 2.56
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------
Expenses .95% 1.17
- ---------------------------------------------------------------------------------------------------
Net investment income 3.45% 3.16
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Net assets at end of period $4,550,000 2,043,000
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 6% 12
- ---------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions were $.0602 and $.0597 for the one
month ended July 31, 1997 and the period ended June 30, 1997, respectively.
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges.
(a) Commencement of operations.
19
<PAGE> 153
PORTFOLIO OF INVESTMENTS
KEMPER WORLDWIDE 2004 FUND
PORTFOLIO OF INVESTMENTS AT JULY 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT U.S. Treasury, zero coupon, 2004
OBLIGATIONS--59.4% (Cost: $19,329) $32,800 $21,210
-----------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EUROPE
- --------------------------------------------------------------------------------------------------------------
United Kingdom--5.1% Barclays PLC
BANKING 20,358 429
Rentokil Initial PLC
SERVICES COMPANY 100,000 356
Glaxo Wellcome
PHARMACEUTICAL COMPANY 15,751 333
Prudential Corp. PLC
FINANCIAL SERVICES/LIFE INSURANCE COMPANY 20,000 191
BBA Group PLC
DIVERSIFIED ENGINEERING COMPANY 30,974 173
Reed International PLC
PUBLISHER 15,748 158
(a)British Bio-Technology Group
PHARMACEUTICAL COMPANY 56,250 144
----------------------------------------------------------------------
1,784
- ---------------------------------------------------------------------------------------------------------------
Switzerland--4.4% Novartis
PHARMACEUTICAL COMPANY 400 643
Ciba Specialty Chemicals
CHEMICAL PRODUCER 5,544 511
Roche Holding A.G.
PHARMACEUTICAL COMPANY 45 435
---------------------------------------------------------------------
1,589
- --------------------------------------------------------------------------------------------------------------
Netherlands--4.2% Aegon N.V.
INSURANCE COMPANY 7,355 559
Koninklijke Ahold N.V.
FOOD RETAILER 8,982 260
Royal Dutch Petroleum
PETROLEUM PRODUCER 3,880 218
Goudsmit N.V.
TEMPORARY EMPLOYMENT AGENCY 5,865 166
IHC Caland N.V.
ENGINEERING SERVICES COMPANY 2,885 156
De Boer Unigro
FOOD RETAILER 3,700 132
---------------------------------------------------------------------
1,491
- --------------------------------------------------------------------------------------------------------------
France--2.9% Elf Aquitaine
OIL AND GAS PRODUCER 4,500 514
Carrefour S.A.
FOOD RETAILER 450 304
Technip S.A.
ENGINEERING COMPANY 1,741 220
---------------------------------------------------------------------
1,038
- --------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 154
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION> NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ireland--2.5% Bank of Ireland
BANKING 35,636 $ 436
Independent Newspapers PLC
PUBLISHER 60,436 366
Greencore Group PLC
FOOD PRODUCER 20,900 100
------------------------------------------------------------------------
902
- -----------------------------------------------------------------------------------------------------------------
Spain--1.7% Empresa Nacional de Electricidad S.A.
ELECTRIC UTILITY 10,800 223
Prosegur, Cia de Seguridad S.A.
SECURITY SERVICES 14,500 167
Banco Bilbao Vizcaya
BANKING 5,844 153
Banco Santander, S.A.
BANKING 1,950 54
------------------------------------------------------------------------
597
- -----------------------------------------------------------------------------------------------------------------
Germany--1.4% Bayer A.G.
CHEMICAL COMPANY 7,000 295
Veba, A.G.
ELECTRIC UTILITY 2,250 131
Mannesmann A.G.
CAPITAL GOODS PRODUCER/
MOBILE TELECOMMUNICATIONS OPERATOR 170 79
------------------------------------------------------------------------
505
- -----------------------------------------------------------------------------------------------------------------
Italy--1.3% Telecom Italia Mobile
MOBILE TELECOMMUNICATIONS PROVIDER 90,000 304
Bulgari SpA
LUXURY GOODS MANUFACTURER 28,000 159
------------------------------------------------------------------------
463
- -----------------------------------------------------------------------------------------------------------------
Sweden--1.0% L.M. Ericsson Telephone Co., "B"
TELECOMMUNICATIONS EQUIPMENT MANUFACTURER 6,452 291
Skandia Forsak
FINANCIAL SERVICES COMPANY 1,900 77
------------------------------------------------------------------------
368
------------------------------------------------------------------------
TOTAL EUROPEAN COUNTRIES--24.5% 8,737
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 155
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION> NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PACIFIC REGION
- ----------------------------------------------------------------------------------------------------------------
Japan--7.8% Ricoh Co. Ltd.
PRECISION INSTRUMENTS MANUFACTURER 29,000 $ 448
Sony Corp.
ELECTRONICS MANUFACTURER 3,900 389
Canon Inc.
PRECISION INSTRUMENTS MANUFACTURER 11,000 351
Fuji Photo Film Co., Ltd.
PRECISION INSTRUMENTS MANUFACTURER 6,000 252
Honda Motor Co., Ltd.
AUTOMOBILE MANUFACTURER 7,000 234
Toray Industries
TEXTILE MANUFACTURER 31,000 204
Noritsu Koki Co., Ltd.
PRECISION INSTRUMENTS MANUFACTURER 4,000 186
Shohkoh Fund & Co., Ltd.
FINANCING COMPANY 600 178
Seven Eleven Japan Co., Ltd.
CONVENIENCE RETAILER 2,000 159
Bellsystem 24, Inc.
TELEMARKETING FIRM 1,000 155
Circle K Japan
CONVENIENCE RETAILER 2,400 141
Murata Manufacturing
ELECTRONICS COMPONENTS MANUFACTURER 2,000 94
-----------------------------------------------------------------------
2,791
- ----------------------------------------------------------------------------------------------------------------
Hong Kong--2.0% CITIC Pacific Ltd.
CONGLOMERATE 31,000 197
HSBC Holdings PLC
BANKING 5,349 186
Henderson Land Development Co., Ltd.
PROPERTY DEVELOPMENT 12,000 117
Hutchison Whampoa Ltd.
CONGLOMERATE 11,000 107
Cheung Kong Holdings Ltd.
REAL ESTATE 9,000 100
-----------------------------------------------------------------------
707
- ----------------------------------------------------------------------------------------------------------------
Singapore--.3% Development Bank of Singapore
BANKING 5,000 65
City Developments Ltd.
PROPERTY DEVELOPMENT 6,000 51
-----------------------------------------------------------------------
116
- ----------------------------------------------------------------------------------------------------------------
Malaysia--.2% Malayan Bank Berhad
BANKING 7,000 66
-----------------------------------------------------------------------
TOTAL PACIFIC REGION--10.3% 3,680
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 156
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMONWEALTH COUNTRIES
- -----------------------------------------------------------------------------------------------------------------
Canada--.2% Hudson's Bay Co.
RETAIL 3,650 $ 82
- -----------------------------------------------------------------------------------------------------------------
LATIN AMERICA
- -----------------------------------------------------------------------------------------------------------------
Mexico--.7% Cementos Mexicanos, S.A. de C.V., "B"
CEMENT PRODUCER 44,500 247
------------------------------------------------------------------------
TOTAL COMMON STOCKS--35.7%
(Cost: $8,949) $12,746
------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--5.40%
INSTRUMENTS--3.9% Due--August and September 1997
(Cost: $1,394) 1,400 1,394
------------------------------------------------------------------------
TOTAL INVESTMENTS--99.0%
(Cost: $29,672) 35,350
------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.0% 375
------------------------------------------------------------------------
NET ASSETS--100% $35,725
------------------------------------------------------------------------
</TABLE>
At July 31, 1997, the Fund's portfolio of
investments had the following industry
diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
--------------------------------------------------------------------------
<S> <C> <C>
Finance $ 2,966 8.4
--------------------------------------------------------------------------
Consumer Cyclicals 2,334 6.6
--------------------------------------------------------------------------
Technology 1,622 4.5
--------------------------------------------------------------------------
Health Care 1,555 4.4
--------------------------------------------------------------------------
Basic Industries 1,257 3.5
--------------------------------------------------------------------------
Capital Goods 1,218 3.4
--------------------------------------------------------------------------
Energy 732 2.0
--------------------------------------------------------------------------
Utilities 658 1.8
--------------------------------------------------------------------------
Consumer Staples 404 1.1
--------------------------------------------------------------------------
TOTAL COMMON STOCKS 12,746 35.7
--------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 21,210 59.4
--------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS AND OTHER NET ASSETS 1,769 4.9
--------------------------------------------------------------------------
NET ASSETS $35,725 100.0
--------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $29,672,000 for federal income tax purposes
at July 31, 1997, the gross unrealized appreciation was $5,779,000, the gross
unrealized depreciation was $101,000 and the net unrealized appreciation on
investments was $5,678,000.
See accompanying Notes to Financial Statements.
14
<PAGE> 157
PORTFOLIO OF INVESTMENTS
KEMPER WORLDWIDE 2004 FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT U.S. Treasury, zero coupon, 2004
OBLIGATIONS--60.1% (Cost: $19,736) $33,700 $20,880
---------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EUROPE
- --------------------------------------------------------------------------------------------------------------------
Netherlands--5.8% Aegon N.V.
INSURANCE COMPANY 7,355 514
(a)Baan Company N.V.
SERVICE SOFTWARE APPLICATIONS 4,100 278
Koninklijke Ahold N.V.
FOOD RETAILER 2,994 253
Gucci Group N.V.
LUXURY GOODS MANUFACTURER 3,450 225
Royal Dutch Petroleum
PETROLEUM PRODUCER 3,880 202
Goudsmit N.V.
TEMPORARY EMPLOYMENT AGENCY 5,865 179
IHC Caland N.V.
ENGINEERING SERVICES COMPANY 2,840 156
De Boer Unigro
FOOD RETAILER 3,700 131
GTI Holding
ENGINEERING SERVICES COMPANY 4,100 90
---------------------------------------------------------------------------
2,028
- --------------------------------------------------------------------------------------------------------------------
United Kingdom--5.3% Barclays PLC
BANKING 20,358 404
Rentokil Initial PLC
SERVICES COMPANY 100,000 351
Glaxo Wellcome
PHARMACEUTICAL COMPANY 15,751 325
(a)British Bio-Technology Group
PHARMACEUTICAL COMPANY 56,250 213
Prudential Corp. PLC
FINANCIAL SERVICES/LIFE INSURANCE COMPANY 20,000 194
BBA Group PLC
DIVERSIFIED ENGINEERING COMPANY 30,974 183
Reed International PLC
PUBLISHER 15,748 153
---------------------------------------------------------------------------
1,823
- --------------------------------------------------------------------------------------------------------------------
Switzerland--4.5% Novartis
PHARMACEUTICAL COMPANY 400 640
Ciba Specialty Chemicals
CHEMICAL PRODUCER 5,544 513
Roche Holding A.G.
PHARMACEUTICAL COMPANY 45 408
---------------------------------------------------------------------------
1,561
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 158
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
France--2.9% Elf Aquitaine
OIL AND GAS PRODUCER 4,500 $ 486
Carrefour S.A.
FOOD RETAILER 450 327
Technip S.A.
ENGINEERING COMPANY 1,741 202
-------------------------------------------------------------------------
1,015
- ------------------------------------------------------------------------------------------------------------------
Ireland--2.4% Bank of Ireland
BANKING 35,078 385
Independent Newspapers PLC
PUBLISHER 60,436 351
Greencore Group PLC
FOOD PRODUCER 20,900 104
-------------------------------------------------------------------------
840
- ------------------------------------------------------------------------------------------------------------------
Spain--1.8% Empresa Nacional de Electricidad S.A.
ELECTRIC UTILITY 2,700 227
Prosegur, Cia de Seguridad S.A.
SECURITY SERVICES 14,500 177
Banco Bilbao Vizcaya
BANKING 1,948 159
Banco Santander, S.A.
BANKING 1,950 60
-------------------------------------------------------------------------
623
- ------------------------------------------------------------------------------------------------------------------
Germany--1.4% Bayer A.G.
CHEMICAL COMPANY 7,000 269
Veba, A.G.
ELECTRIC UTILITY 2,250 127
Mannesmann A.G.
CAPITAL GOODS PRODUCER/
MOBILE TELECOMMUNICATIONS OPERATOR 170 76
-------------------------------------------------------------------------
472
- ------------------------------------------------------------------------------------------------------------------
Italy--1.3% Telecom Italia Mobile
MOBILE TELECOMMUNICATIONS PROVIDER 90,000 291
Bulgari SpA
LUXURY GOODS MANUFACTURER 28,000 158
-------------------------------------------------------------------------
449
- ------------------------------------------------------------------------------------------------------------------
Sweden--.7% L.M. Ericsson Telephone Co., "B"
TELECOMMUNICATIONS EQUIPMENT MANUFACTURER 6,452 254
-------------------------------------------------------------------------
TOTAL EUROPEAN COUNTRIES--26.1% 9,065
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 159
PORTFOLIO OF INVESTMENTS
DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PACIFIC REGION
- --------------------------------------------------------------------------------------------------------------------
Japan--7.5% Sony Corp.
ELECTRONICS MANUFACTURER 3,900 $ 340
Canon Inc.
PRECISION INSTRUMENTS MANUFACTURER 11,000 300
Fuji Photo Film Co., Ltd.
PRECISION INSTRUMENTS MANUFACTURER 6,000 242
Toray Industries
TEXTILE MANUFACTURER 31,000 221
Honda Motor Co., Ltd.
AUTOMOBILE MANUFACTURER 7,000 211
Daifuku Co., Ltd.
DIVERSIFIED MACHINERY MANUFACTURER 15,000 198
Noritsu Koki Co., Ltd.
PRECISION INSTRUMENTS MANUFACTURER 4,000 198
Ricoh Co. Ltd.
PRECISION INSTRUMENTS MANUFACTURER 14,000 184
Shohkoh Fund & Co., Ltd.
FINANCING COMPANY 600 182
Eisai Co., Ltd.
PHARMACEUTICAL COMPANY 8,000 152
Seven Eleven Japan Co., Ltd.
CONVENIENCE RETAILER 2,000 151
Circle K Japan
CONVENIENCE RETAILER 2,400 138
Murata Manufacturing
ELECTRONICS COMPONENTS MANUFACTURER 2,000 80
---------------------------------------------------------------------------
2,597
- --------------------------------------------------------------------------------------------------------------------
Hong Kong--1.6% CITIC Pacific Ltd.
CONGLOMERATE 31,000 194
HSBC Holdings PLC
BANKING 5,349 161
Hutchison Whampoa Ltd.
CONGLOMERATE 11,000 95
Cheung Kong Holdings Ltd.
REAL ESTATE 9,000 89
---------------------------------------------------------------------------
539
- --------------------------------------------------------------------------------------------------------------------
Malaysia--.5% RHB Capital
BANKING 30,000 95
Magnum Corporation Berhad
ENTERTAINMENT AND GAMING 51,000 77
Hume Industries Bhd
CONSTRUCTION MATERIAL MANUFACTURER 6,000 27
---------------------------------------------------------------------------
199
- --------------------------------------------------------------------------------------------------------------------
Singapore--.5% Development Bank of Singapore
BANKING 5,000 63
Cycle & Carriage Ltd.
AUTOMOBILE SALES AND DISTRIBUTION 6,000 62
DBS Land Ltd.
PROPERTY INVESTMENT 18,000 57
---------------------------------------------------------------------------
182
---------------------------------------------------------------------------
TOTAL PACIFIC REGION--10.1% 3,517
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 160
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
COMMONWEALTH COUNTRIES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Canada--.2% Hudson's Bay Co.
RETAIL 3,650 $ 82
- --------------------------------------------------------------------------------------------------------------------
LATIN AMERICA
- --------------------------------------------------------------------------------------------------------------------
Mexico--1.5% (a)Tubos de Acero de Mexico, S.A., ADR
STEEL MANUFACTURER 16,200 299
Cementos Mexicanos, S.A. de C.V., "B"
CEMENT PRODUCER 44,500 215
---------------------------------------------------------------------------
TOTAL LATIN AMERICAN COUNTRIES--1.5% 514
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--37.9%
(Cost: $9,595) 13,178
---------------------------------------------------------------------------
TOTAL INVESTMENTS--98.0%
(Cost: $29,331) 34,058
---------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--2.0% 708
---------------------------------------------------------------------------
NET ASSETS--100% $34,766
---------------------------------------------------------------------------
</TABLE>
At June 30, 1997, the Fund's portfolio of investments had the following industry
diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
----------------------------------------------------------------------------
<S> <C> <C>
Finance $ 2,652 7.6
----------------------------------------------------------------------------
Consumer Cyclicals 2,326 6.7
----------------------------------------------------------------------------
Health Care 1,738 5.0
----------------------------------------------------------------------------
Basic Industries 1,544 4.4
----------------------------------------------------------------------------
Technology 1,536 4.4
----------------------------------------------------------------------------
Capital Goods 1,467 4.2
----------------------------------------------------------------------------
Energy 688 2.0
----------------------------------------------------------------------------
Utilities 645 1.9
----------------------------------------------------------------------------
Consumer Staples 582 1.7
----------------------------------------------------------------------------
TOTAL COMMON STOCKS 13,178 37.9
----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 20,880 60.1
----------------------------------------------------------------------------
OTHER NET ASSETS 708 2.0
----------------------------------------------------------------------------
NET ASSETS $34,766 100.0
----------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $29,331,000 for federal income tax purposes
at June 30, 1997, the gross unrealized appreciation was $4,807,000, the gross
unrealized depreciation was $80,000 and the net unrealized appreciation on
investments was $4,727,000.
See accompanying Notes to Financial Statements.
18
<PAGE> 161
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TARGET EQUITY FUND--
KEMPER WORLDWIDE 2004 FUND
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Kemper Target Equity Fund--Kemper
Worldwide 2004 Fund as of July 31, 1997 and June 30, 1997, and the related
statements of operations for the month ended July 31, 1997 and the year ended
June 30, 1997, and changes in net assets for the month ended July 31, 1997 and
for each of the two years in the period ended June 30, 1997, 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 July
31, 1997 and June 30, 1997, 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 Worldwide 2004 Fund at July 31, 1997 and June 30,
1997, 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 20, 1997
19
<PAGE> 162
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31, JUNE 30,
1997 1997
<S> <C> <C>
- --------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------
Investments, at value
(Cost: $29,672 and $29,331, respectively) $35,350 34,058
- --------------------------------------------------------------------------------------------
Cash 62 610
- --------------------------------------------------------------------------------------------
Receivable for:
Investments sold 492 235
- --------------------------------------------------------------------------------------------
Dividends and interest 24 44
- --------------------------------------------------------------------------------------------
TOTAL ASSETS 35,928 34,947
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------------------------
Payable for:
Investments purchased 106 45
- --------------------------------------------------------------------------------------------
Fund shares redeemed 34 79
- --------------------------------------------------------------------------------------------
Management fee 18 17
- --------------------------------------------------------------------------------------------
Administrative services fee 7 7
- --------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 33 28
- --------------------------------------------------------------------------------------------
Trustees' fees 5 5
- --------------------------------------------------------------------------------------------
Total liabilities 203 181
- --------------------------------------------------------------------------------------------
NET ASSETS $35,725 34,766
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------------------------
Paid-in capital $27,936 28,412
- --------------------------------------------------------------------------------------------
Undistributed net realized gain on investments and
foreign currency transactions 1,169 895
- --------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and
assets and liabilities in foreign currencies 5,666 4,722
- --------------------------------------------------------------------------------------------
Undistributed net investment income 954 737
- --------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $35,725 34,766
- --------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------------------------
SHARES OUTSTANDING 3,080 3,122
- --------------------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
(Net assets / shares outstanding) $11.60 11.13
- --------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
20
<PAGE> 163
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONE MONTH
ENDED YEAR ENDED
JULY 31, JUNE 30,
1997 1997
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------
Interest $ 123 1,531
- -----------------------------------------------------------------------------------------------
Dividends (less foreign taxes withheld of $21 at June 30,
1997) 5 198
- -----------------------------------------------------------------------------------------------
Total investment income 128 1,729
- -----------------------------------------------------------------------------------------------
Expenses:
Management fee 18 215
- -----------------------------------------------------------------------------------------------
Administrative services fee 7 89
- -----------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 8 94
- -----------------------------------------------------------------------------------------------
Professional fees -- 9
- -----------------------------------------------------------------------------------------------
Reports to shareholders -- 5
- -----------------------------------------------------------------------------------------------
Trustees' fees and other -- 14
- -----------------------------------------------------------------------------------------------
Total expenses 33 426
- -----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 95 1,303
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -----------------------------------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 396 1,096
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments
and assets and liabilities in foreign currencies 944 1,324
- -----------------------------------------------------------------------------------------------
Net gain on investments 1,340 2,420
- -----------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,435 3,723
- -----------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONE MONTH
ENDED
JULY 31, YEAR ENDED JUNE 30,
1997 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- --------------------------------------------------------------------------------------------------------
Net investment income $ 95 1,303 1,282
- --------------------------------------------------------------------------------------------------------
Net realized gain 396 1,096 1,486
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 944 1,324 507
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,435 3,723 3,275
- --------------------------------------------------------------------------------------------------------
Distribution from net investment income -- (1,451) (1,157)
- --------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- (528) --
- --------------------------------------------------------------------------------------------------------
Total dividends to shareholders -- (1,979) (1,157)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions (476) (4,796) 5,001
- --------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 959 (3,052) 7,119
- --------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------
Beginning of period 34,766 37,818 30,699
- --------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment
income of $954, $737 and $827, respectively) $35,725 34,766 37,818
- --------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 164
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF Kemper Worldwide 2004 Fund (the Fund) is a series
THE FUND 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 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 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.
In 1997, the Trust changed its fiscal year end from
June 30 to July 31. As a result, the financial
statements for the year ended June 30, 1997 and the
one month ended July 31, 1997 are presented
together in this report to shareholders.
- --------------------------------------------------------------------------------
2 SIGNIFICANT INVESTMENT VALUATION. Investments are stated at
ACCOUNTING POLICIES value. 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 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.
All other securities not so traded 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. 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. 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,
22
<PAGE> 165
NOTES TO FINANCIAL STATEMENTS
the rates of exchange are 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 rates of exchange
prevailing on the respective dates of such
transactions. The Fund includes that portion of the
results of operations resulting from changes in
foreign exchange rates with the net realized and
unrealized gain (loss) on investments.
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 any 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.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH MANAGEMENT AGREEMENT. The Trust has a management
AFFILIATES agreement with ZKI and the Fund pays a management
fee at an annual rate of .60% of average daily net
assets. The Fund incurred a management fee of
$18,000 for the one month period ended July 31,
1997 and $215,000 for the year ended June 30, 1997.
Zurich Investment Management Limited, an affiliate
of ZKI, serves as sub-adviser with respect to
foreign securities investments in the Fund, and is
paid by ZKI for its services.
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with Zurich
Kemper Distributors, Inc. (ZKDI) (formerly known as
Kemper Distributors, Inc.). For providing
information and administrative services to
shareholders, the Fund pays ZKDI a fee at an
23
<PAGE> 166
NOTES TO FINANCIAL STATEMENTS
annual rate of up to .25% of average daily net
assets. ZKDI 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. For the one month
period ended July 31, 1997 and the year ended June
30, 1997, the Fund paid administrative services
fees of $7,000 and $89,000, respectively, all of
which ZKDI remitted to financial services firms.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Trust's transfer agent,
Zurich Kemper Service Company (ZKSvC) (formerly
known as Kemper Service Company) is the shareholder
service agent for the Fund. For the one month
period ended July 31, 1997 and the year ended June
30, 1997, ZKSvC received shareholder services fees
of $2,000 and $36,000, respectively.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of ZKI.
For the one month period ended July 31, 1997, the
Fund made no payments to its officers or directors.
For the year ended June 30, 1997, the Fund made no
payments to its officers and incurred trustees'
fees of $9,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT Investment transactions (excluding short-term
TRANSACTIONS instruments) are as follows (in thousands):
<TABLE>
<CAPTION>
ONE MONTH
ENDED YEAR ENDED
JULY 31, JUNE 30,
1997 1997
--------- ----------
<S> <C> <C>
Purchases $ 856 9,711
Proceeds from sales 2,183 15,583
</TABLE>
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
ONE MONTH
ENDED YEAR ENDED YEAR ENDED
JULY 31, JUNE 30, JUNE 30,
1997 1997 1996
--------------- ---------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares sold - $ -- -- $ -- 958 $ 9,921
--------------------------------------------------------------------------
Shares issued in
reinvestment of
dividends - -- 192 1,997 108 1,110
--------------------------------------------------------------------------
Shares redeemed 42) (476) (637) (6,793) (581) (6,030)
--------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARE
TRANSACTIONS 42) $(476) (445) $(4,796) 485 $ 5,001
--------------------------------------------------------------------------
</TABLE>
24
<PAGE> 167
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 (loss) on these contracts is reflected in the
accompanying financial statements. The Fund also
bears the credit risk (which is limited to the
unrealized gain, if any) if the counterparty fails
to perform under the contract. At July 31, 1997 and
June 30, 1997, the Fund had the following forward
foreign currency contracts outstanding with
settlement dates in October 1997 and July 1997,
respectively:
FORWARD FOREIGN CURRENCY CONTRACTS AT JULY 31,
1997:
<TABLE>
<CAPTION>
FOREIGN CURRENCY CONTRACT AMOUNT UNREALIZED
TO BE DELIVERED IN U.S. DOLLARS LOSS
----------------------------------------------------------------
<S> <C> <C> <C>
900,000 Dutch Guilders $ 435,000 $ (3,000)
--------------------------------------------------------------
1,600,000 French Francs 258,000 (1,000)
--------------------------------------------------------------
225,000 German Marks 123,000 (1,000)
--------------------------------------------------------------
160,000 Irish Punts 233,000 --
--------------------------------------------------------------
25,000,000 Spanish Pesetas 161,000 (1,000)
--------------------------------------------------------------
600,000 Swiss Francs 398,000 (2,000)
--------------------------------------------------------------
Net unrealized loss $ (8,000)
--------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS AT JUNE 30, 1997:
<CAPTION>
FOREIGN CURRENCY CONTRACT AMOUNT UNREALIZED
TO BE DELIVERED IN U.S. DOLLARS GAIN (LOSS)
----------------------------------------------------------------
<S> <C> <C> <C>
2,400,000 Dutch Guilders $1,241,000 $ 14,000
--------------------------------------------------------------
2,650,000 French Francs 458,000 6,000
--------------------------------------------------------------
400,000 German Marks 233,000 3,000
--------------------------------------------------------------
295,000 Irish Punts 438,000 (7,000)
--------------------------------------------------------------
24,000,000 Japanese Yen 193,000 (18,000)
--------------------------------------------------------------
33,200,000 Spanish Pesetas 227,000 1,000
--------------------------------------------------------------
1,340,000 Swiss Francs 920,000 (2,000)
--------------------------------------------------------------
Net unrealized loss $ (3,000)
--------------------------------------------------------------
</TABLE>
25
<PAGE> 168
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ONE MONTH
ENDED YEAR ENDED JUNE 30,
JULY 31, ------------------------ MAY 3 TO
1997 1997 1996 1995 JUNE 30, 1994
- --------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.13 10.60 9.96 9.02 9.00
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .03 .42 .36 .27 .02
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain .44 .71 .63 .79 --
- --------------------------------------------------------------------------------------------------
Total from investment operations .47 1.13 .99 1.06 .02
- --------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .44 .35 .12 --
- --------------------------------------------------------------------------------------------------
Distribution from net realized gain -- .16 -- -- --
- --------------------------------------------------------------------------------------------------
Total dividends -- .60 .35 .12 --
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $11.60 11.13 10.60 9.96 9.02
- --------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.22% 11.08 10.05 11.91 .22
- --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------
Expenses 1.12% 1.19 1.32 1.29 1.32
- --------------------------------------------------------------------------------------------------
Net investment income 3.20% 3.63 3.60 3.77 2.59
- --------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $35,725 34,766 37,818 30,699 5,900
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 30% 25 50 75 --
- --------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the one month period ended July 31,
1997 and the years ended June 30, 1997 and June 30, 1996 were $.0385, $.0209 and $.0253, respectively.
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.
26
<PAGE> 169
KEMPER TARGET EQUITY FUND
KEMPER RETIREMENT FUND SERIES VII
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 VII.
(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, Kemper Retirement Fund Series V and Kemper
Retirement Fund Series VI.
Statement of Assets and Liabilities--July 31, 1997 and June 30,
1997.
Statement of Operations for the one month ended July 31, 1997 and
for the year ended June 30, 1997.
Statement of Changes in Net Assets for the one month ended July 31,
1997 and fiscal years
ended June 30, 1997 and June 30, 1996.
Portfolio of Investments--July 31, 1997 and for the year ended June
30, 1997.
Notes to Financial Statements.
Kemper Retirement Fund Series VII
Statement of Assets and Liabilities--July 31, 1997 and June 30,
1997.
Statement of Operations for the one month ended July 31, 1997 and
May 1(commencement of operations) to June 30,
1997.
Statement of Changes in Net Assets for the period one month ended
July 31, 1997 and
from May 1 to June 30, 1997.
Portfolio of Investments--July 31, 1997 and June 30, 1997.
Notes to Financial Statements.
Kemper Worldwide 2004 Fund:
Statement of Assets and Liabilities--July 31, 1997.
Statement of Operations for the one month ended July 31, 1997 and
the year ended June 30, 1997.
Statement of Changes in Net Assets for the one month ended July 31,
1997 and fiscal years
ended June 30, 1997 and June 30, 1996.
Portfolio of Investments--July 31, 1997 and June 30, 1996.
Notes to Financial Statements.
Financial Highlights
Schedules I, II, III, IV and V are omitted as the required information is not
present.
(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 VII(4).
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).(2)
99.B5.(b) Notification of Additional Portfolio (Series VII).(4)
99.B5.(c) Investment Management Agreement (Kemper Worldwide 2004
Fund).(2)
99.B5.(d) Sub-Advisory Agreement--Retirement Fund Series.(4)
99.B5.(e) Sub-Advisory Agreement--Worldwide 2004.(4)
99.B5.(f) Notification of Additional Portfolio (Series VII).(4)
99.B6.(a) Underwriting Agreement.(2)
99.B6.(b) Form of Selling Group Agreement.(4)
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.(2)
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)
</TABLE>
C-1
<PAGE> 170
<TABLE>
<S> <C>
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.B9.(l) Guaranty Agreement--Kemper Retirement Fund Series VII.(4)
99.B10. Inapplicable.
99.B11. Consent and Report of Independent Auditors.
99.B12. Inapplicable.
99.B13. Inapplicable.
99.B14.(a) Kemper Retirement Plan Prototype.(3)
99.B14.(b) Model Individual Retirement Account.(3)
99.B15. Inapplicable.
99.B16. Performance Calculations.(1)
99.B24. Powers of Attorney.(3)
99.485(b) Representation of Counsel (Rule 485(b)).
27. Financial Data Schedules.
</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. 22 to
Registrant's Registration Statement on Form N-1A filed on October 11,
1996.
(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.
(4) Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registrant's Registration Statement on Form N-1A filed on April 28,
1997.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of October 17, 1997 there were holders of record of the shares of
Registrant as follows:
<TABLE>
<CAPTION>
SERIES NUMBER
------ ------
<S> <C>
Kemper Retirement Fund Series I................... 5,428
Kemper Retirement Fund Series II.................. 8,822
Kemper Retirement Fund Series III................. 7,189
Kemper Retirement Fund Series IV.................. 8,282
Kemper Retirement Fund Series V................... 8,552
Kemper Retirement Fund Series VI.................. 4,977
Kemper Retirement Fund Series VII................. 732
Kemper Worldwide 2004 Fund........................ 2,503
</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.
C-2
<PAGE> 171
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 Manager and Underwriter"
and to the section of the Statement of Additional Information captioned
"Investment Manager and Underwriter".
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 National Tax-Free Income Series
Kemper Diversified Income Fund
Kemper High Yield Series
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
Investors Municipal Cash Fund
Kemper Value Plus Growth Fund
Kemper Quantitative Equity Fund
Kemper Horizon Fund
Kemper Europe Fund
Kemper Asian Growth Fund
Kemper Aggressive 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 Money Funds
Zurich YieldWise Money Fund
Zurich Kemper Investments, Inc. also furnishes investment advice to and
manages investment portfolios for other clients including Investors Fund Series
and Kemper International Bond Fund.
<PAGE> 172
Item 28(b)(i) Business and Other Connections of Officers
and Directors of Zurich Kemper Investments, Inc.,
the Investment Adviser
TIMBERS, STEPHEN B.
Director, President, Chief Executive Officer and Chief Investment
Officer, Zurich Kemper Investments, Inc.
Director, Zurich Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Chairman, Zurich Kemper Service Company
Director, Zurich Kemper 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, Zurich Kemper Service Company
Director, Zurich Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Zurich Kemper 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
<PAGE> 173
CHAPMAN, II, WILLIAM E.
President, Kemper Retirement Plans Group, a unit of Zurich Kemper
Investments, Inc.
Director, Executive Vice President, Zurich Kemper Distributors, Inc.
Executive Vice President, Zurich Kemper Service Company
VOGEL, VICTOR E.
Senior Executive Vice President, Zurich Kemper Investments, Inc.
Trustee, Zurich Kemper Investments, Inc. Profit Sharing Plan & Money
Purchase Pension Plan
Executive Vice President, Zurich Kemper Service Company
BEIMFORD, JR., JOSEPH P.
Executive Vice President, 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, Zurich 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
<PAGE> 174
Managing Director, Zurich Investment Management, Inc.
DUDASIK, PATRICK H.
Executive Vice President and Chief Financial Officer, Zurich Kemper
Investments, Inc.
Executive Vice President, Chief Financial Officer and Treasurer,
Zurich Kemper Value Advisors, Inc.
Chief Financial Officer and Treasurer, Zurich Investment Management, Inc.
Treasurer and Chief Financial Officer, Zurich Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Zurich Kemper Service Company
Treasurer, ZKI Agency, Inc.
FROEHLICH, PH.D, ROBERT J.
Executive Vice President, Chief Investment Strategist, Zurich Kemper
Investments, Inc.
GREENAWALT, JAMES L.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, President, Zurich Kemper Distributors, Inc.
Director, President, ZKI Agency, Inc.
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.
Secretary, Zurich Kemper Service Company
Secretary, Zurich Kemper Distributors, Inc.
Secretary, ZKI Holding Corporation
Secretary, Zurich Investment Management, Inc.
Secretary, Dreman Value Advisors, Inc.
MURRIHY, MAURA J.
Executive Vice President, Zurich Kemper Investments, Inc.
PECK, JR., ROBERT C.
Executive Vice President, Chief
Investment Officer-Fixed Income, Zurich Kemper Investments, Inc.
Vice President, Zurich Money Funds
Vice President, Kemper Income & Capital Preservation Fund
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Yield Fund
Vice President, Cash Equivalent Fund
Vice President, Kemper U.S. Government Securities Fund
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Portfolios
Vice President, Tax-Exempt + California Money Market Fund
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Global Income Fund
Vice President, Cash Account Trust
Vice President, Investors Cash Trust
Vice President, Investors Municipal Cash Fund
Vice President, Zurich YieldWise Money Fund
Vice President, Investors Fund Series
Vice President, Kemper High Income Trust
Vice President, Kemper Intermediate Government Trust
Vice President, Kemper Municipal Income Trust
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Municipal Income Trust
Vice President, Kemper Strategic Income Fund
Vice President, Kemper International Bond Fund
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
<PAGE> 175
ROBERTS, SCOTT A.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Senior Managing Director, Zurich Investment Management, Inc.
SILIGMUELLER, DALE S.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Zurich Kemper Service Company
SWANSON, DAVID
Executive Vice President Zurich Kemper Investments, Inc.
WEISS, ROBERT D.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Senior Managing Director, Zurich Investment Management, Inc.
BERCHER, LINDA A.
Senior Vice President, Zurich Kemper Investments, Inc.
BRUNS, THOMAS V.
Senior Vice President, Zurich Kemper Investments, Inc.
BERCHER, LINDA A.
Senior Vice President, Zurich Kemper Investments, Inc.
BRUNS, THOMAS V.
Senior Vice President, Zurich Kemper Investments, 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
CHIEN, CHRISTINE
Senior Vice President, Zurich Kemper Investments, Inc.
CIARLELLI, ROBERT W.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Zurich Kemper Service Company
COLLORA, PHILIP J.
Senior Vice President and Assistant Secretary, Zurich Kemper
Investments, Inc.
Vice President and Secretary, Kemper Funds
<PAGE> 176
Assistant Secretary, Kemper International Management, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
Assistant Secretary, Dreman Value Advisors, Inc.
Assistant Secretary, ZKI Agency, Inc.
DUFFY, JEROME L.
Senior Vice President, Zurich Kemper Investments, Inc.
Treasurer, Kemper Funds
FENGER, JAMES E.
Senior Vice President, Zurich Kemper Investments, Inc.
FINK, THOMAS M.
Senior Vice President, Zurich Kemper Investments, Inc.
Managing Director, Zurich Investment Management, Inc.
GALLAGHER, MICHAEL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Kemper Service Company
GOERS, RICHARD A.
Senior Vice President, Zurich Kemper Investments, Inc.
GREENWALD, MARSHALL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Managing Director, Zurich Investment Management, Inc.
HARRINGTON, MICHAEL E.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Zurich Kemper Distributors, Inc.
KEITH, GEORGE
Senior Vice President, Zurich Kemper Investments, Inc.
KLEIN, GEORGE
Senior Vice President, Zurich Kemper Investments, Inc.
Director, Managing Director, Zurich Investment Management, Inc.
KLEIN, MARTIN
Senior Vice President, Zurich Kemper Investments, Inc.
Managing Director, Zurich Investment Management, Inc.
KOCHER, GARY
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
<PAGE> 177
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
MOELLER, JAMES V.
Senior Vice President, Zurich Kemper Investments, Inc.
Managing Director, Zurich Investment Management, Inc.
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, Zurich 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, Zurich Money Funds
Vice President, Kemper Portfolios
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market 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
ROBISON, JR., JOHN H.
Senior Vice President, Zurich Kemper Investments, Inc.
SCHULTHESZ, HENRY J.
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.
STALZER, KURT
Senior Vice President, Zurich Kemper Investments, Inc.
Urbaszewski, Kenneth T.
Senior Vice President, Zurich Kemper Investments, Inc.
<PAGE> 178
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.
Managing Director, Zurich Investment Management, Inc.
WONNACOTT, LARRY R.
Senior Vice President, Zurich Kemper Investments, Inc.
Managing Director, 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.
BODEM, RICHARD A.
First Vice President, Zurich Kemper Investments, Inc.
First Vice President, Zurich Kemper Service Company
BOEHM, JONATHAN J.
First Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Kemper Service Company
BURROW, DALE R.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Strategic Municipal Income Trust
BURSHTAN, DAVID H.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Investors Fund Series
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
CARNEY, ANNE T.
First Vice President, Zurich Kemper Investments, Inc.
CHRISTIANSEN, HERBERT A.
First Vice President, Zurich Kemper Investments, Inc.
First Vice President, Zurich 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, Zurich Kemper Service
Company
<PAGE> 179
DEXTER, STEPHEN P.
First Vice President, Zurich Kemper Investments, Inc.
DOYLE, DANIEL J.
First Vice President, Zurich Kemper Investments, Inc.
HAUSKEN, PHILIP D.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Zurich Kemper Distributors, Inc.
Assistant Secretary, Zurich Investment Management, 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.
KIEL, CAROL L.
First Vice President, Zurich Kemper Investments, Inc.
KNAPP, WILLIAM M.
First Vice President, Zurich Kemper Investments, Inc.
KOCH, DEBORAH L.
First Vice President, Zurich Kemper Investments, Inc.
LASKA, ROBERTA E.
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.
McGOVERN, KAREN
First Vice President, Zurich Kemper Investments, Inc.
MICHAEL, DIANNE
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, Zurich Kemper Service Company
NORRIS, JOHNSTON A.
First Vice President, Zurich Kemper Investments, Inc.
<PAGE> 180
PANOZZO, ROBERTA L.
First Vice President, Zurich Kemper Investments, Inc.
PECARD, ANN M.
First Vice President, Zurich Kemper Investments, Inc.
PONTECORE, SUSAN E.
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, Zurich Kemper Distributors, Inc.
SMITH, ROBERT G.
First Vice President, Zurich Kemper Investments, 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.
Assistant Secretary, Zurich Investment Management, Inc.
TOOLE, W. TIMOTHY
First Vice President, Zurich Kemper Investments, Inc.
TRUTTER, JONATHAN W.
First Vice President, Zurich Kemper Investments, Inc.
Managing Director, Zurich Investment Management, 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.
WITTNEBEL, MARK E.
First Vice President, Zurich Kemper Investments, Inc.
ALLEN, PATRICIA L.
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.
BARSANTI, WILLIAM
Vice President, Zurich Kemper Investments, Inc.
<PAGE> 181
BIEBERLY, CHRISTINE A.
Vice President, Zurich Kemper Investments, Inc.
BRENNAN, ELEANOR R.
Vice President, Zurich Kemper Investments, Inc.
BUCHANAN, PAMELA S.
Vice President, Zurich Kemper Investments, Inc.
BURKE, MARY PAT
Vice President, Zurich Kemper Investments, Inc.
CACCIOLA, RONALD
Vice President, Zurich Kemper Investments, Inc.
Managing Director, Zurich Investment Management, Inc.
CARTER, PAUL J.
Vice President and Compliance Manager, Zurich Kemper Investments, Inc.
CECOLA, MARY
Vice President, Zurich Kemper Investments, Inc.
CRAWSHAW, SUSAN
Vice President, Zurich Kemper Investments, Inc.
ESOLA, CHARLES J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Zurich Kemper Service Company
FERRY, JOHN A.
Vice President, Zurich Kemper Investments, Inc.
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.
GRAY, PATRICK
Vice President, Zurich Kemper Investments, Inc.
GROOTENDORST, TONYA
Vice President, Zurich Kemper Investments, Inc.
HAMMAN, JR., JAMES S.
Vice President, Zurich Kemper Investments, Inc.
HECHT, MARC L.
Vice President, Zurich Kemper Investments, Inc.
Assistant Secretary, Zurich Kemper Distributors, Inc.
Assistant Secretary, ZKI Holding Corporation
Assistant Secretary, ZKI Agency, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
Assistant Secretary, Dreman Value Advisors, Inc.
<PAGE> 182
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.
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, Zurich Kemper Service Company
LAUTZ, STEPHEN
Vice President, Zurich Kemper Investments, Inc.
LITTLE, BRUCE A.
Vice President, Zurich Kemper Investments, Inc.
MARKLEY, DAVID
Vice President, Zurich Kemper Investments, Inc.
MATZA, LINDA
Vice President, Zurich Kemper Investments, Inc.
McGINN, MARTHA R.
Vice President, Zurich Kemper Investments, Inc.
MEROLD, CARLENE D.
Vice President, Zurich Kemper Investments, Inc.
MILLER, GARY L.
Vice President, Zurich Kemper Investments, Inc.
MILLIGAN, BRIAN J.
Vice President, Zurich Kemper Investments, Inc.
<PAGE> 183
MULLEN, TERRENCE
Vice President, Zurich Kemper Investments, Inc.
MURPHY, THOMAS W.
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.
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.
ROSE, KATIE M.
Vice President, Zurich Kemper Investments, Inc.
RUDIN, MICHELLE I.
Vice President, Zurich Kemper Investments, Inc.
SAENGER, MARYELLEN
Vice President, Zurich Kemper Investments, Inc.
SCHUERINGS, ROBERT F.
Vice President, Zurich Kemper Investments, Inc.
SCHULDT, STUART N.
Vice President, Zurich Kemper Investments, Inc.
SCHWARZ, LOUIS E.
Vice President, Zurich Kemper Investments, Inc.
SOPHER, EDWARD O.
Vice President, Zurich Kemper Investments, Inc.
<PAGE> 184
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.
STURM, EILEEN A.
Vice President, Zurich Kemper Investments, Inc.
SUGAR, TAMARA B.
Vice President, Zurich Kemper Investments, Inc.
THOMAS, JILL
Vice President, Zurich Kemper Investments, Inc.
TRUNSKY, JUDITH C.
Vice President, Zurich Kemper Investments, Inc.
WALKER, ANGELA
Vice President, Zurich Kemper Investments, Inc.
WATKINS, JAMES K.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Zurich Kemper Service Company
WERTH, ELIZABETH C.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Zurich Kemper Distributors, Inc.
Assistant Secretary, Kemper Open-End 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.
<PAGE> 185
Item 28(b)(ii) Business and Other Connections of Officers and Directors of
Zurich Investment Management Limited, the Investment Sub-Advisor
JOHNS, GORDON K.
Director, Managing Director, Zurich Investment Management Limited
Director, Thames Heritage Parade Limited
FERRO, DENNIS H.
Director, Chief Executive Officer and Managing Director-Equities,
Zurich Investment Management Limited
CHENG, LAURENCE W.
Director, Member of Corporate Executive Board and Chief Investment Officer
for Investments and International Asset Management, Zurich Insurance Company
HAAS, RICHARD D.W.
Director, Finance Director, Compliance Officer and Joint Secretary, Zurich
Investment Management Limited
<PAGE> 186
DUDASIK, PATRICK H.
Director and Treasurer, Zurich Investment Management Limited
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, Zurich Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Zurich Kemper Service Company
Treasurer, ZKI Agency, Inc.
THOUIN-LEERKAMP, EDITH A.
Director-European Equities, Zurich Investment Management Limited
PRIDEAUX, TERENCE C.
Director, Zurich Investment Management Limited
KOMAROMY, LESLIE J.S.
Director, Zurich Investment Management Limited
WALLIS, STEPHEN P.
Director, Zurich Investment Management Limited
MASON, ANDREW
Director-Asian Equities, Zurich Investment Management Limited
SHANKAR, RAVI
Director-Fixed Income Strategy, Zurich Investment Management
Limited
SLENDEBROEK, MARC J.
Associate Director, Zurich Investment Management Limited
GRAHAM, ANDREW
Associate Director, Zurich Investment Management Limited
BOORMAN, JONATHAN J.
Associate Director, Zurich Investment Management Limited
<PAGE> 187
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Zurich Kemper Distributors, Inc. acts as principal underwriter of
the Registrant's shares and acts as principal underwriter of the Kemper Funds,
Investors Fund Series and Kemper International Bond Fund.
(b) Information on the officers and directors of Zurich 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
Philip D. Hausken Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Charles R. Manzoni, Jr. Secretary Vice President
Marc L. Hecht Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
</TABLE>
(c) Not applicable.
<PAGE> 188
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, Zurich 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, Zurich 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> 189
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 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 28th day of
October, 1997.
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 28, 1997 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/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 filed
on October 16, 1995.
/s/ Philip J. Collora
--------------------------------
Philip J. Collora
<PAGE> 190
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
<S> <C> <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 VII.(4)
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).(2)
99.B5.(b) Notification of Additional Portfolio (Series VII).(4)
99.B5.(c) Investment Management Agreement (Kemper Worldwide 2004
Fund).(2)
99.B5.(d) Sub-Advisory Agreement--Retirement Fund Series.(4)
99.B5.(e) Sub-Advisory Agreement--Worldwide 2004.(4)
99.B5.(f) Notification of Additional Portfolio (Series VII).(4)
99.B6.(a) Underwriting Agreement.(2)
99.B6.(b) Form of Selling Group Agreement.(4)
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.(2)
99.B9.(c) Administrative Services Agreement.
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.B9.(l) Guaranty Agreement--Kemper Retirement Fund Series VII.(4)
99.B10. Inapplicable.
99.B11. Consent and Report of Independent Auditors.
99.B12. Inapplicable.
99.B13. Inapplicable.
99.B14.(a) Kemper Retirement Plan Prototype.(3)
99.B14.(b) Model Individual Retirement Account.(3)
99.B15. Inapplicable.
99.B16. Performance Calculations.(1)
99.B24. Powers of Attorney.(3)
99.485(b) Representation of Counsel (Rule 485(b)).
27. Financial Data Schedules.
</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. 22 to
Registrant's Registration Statement on Form N-1A filed on October 11, 1996.
(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.
(4) Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registrant's Registration Statement on Form N-1A filed on April 28, 1997.
<PAGE> 1
EXHIBIT-99.B9(c)
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT dated this 1st day of April, 1997, by and between
KEMPER TARGET EQUITY FUND, a Massachusetts business trust (the
"Fund"), and KEMPER DISTRIBUTORS, INC., a Delaware corporation
("KDI").
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 KDI to provide information and
administrative services for the benefit of the Fund and its
shareholders. In this regard, KDI shall appoint various broker-
dealer firms and other service or administrative firms ("Firms")
to provide related services and facilities for persons who are
investors in the Fund ("investors"). The Firms shall provide
such office space and equipment, telephone facilities, personnel
or other services as may be necessary or beneficial for providing
information and services to investors in the Fund. Such services
and assistance may include, but are not limited to, establishing
and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding
the Fund and its special features, assistance to investors in
changing dividend and investment options, account designations
and addresses, and such other administrative services as the Fund
or KDI may reasonably request. Firms may include affiliates of
KDI. KDI may also provide some of the above services for the
Fund directly.
KDI accepts such appointment and agrees during such period to
render such services and to assume the obligations herein set
forth for the compensation herein provided. KDI 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.
KDI, by separate agreement with the Fund, may also serve the Fund
in other capacities. In carrying out its duties and
responsibilities hereunder, KDI will appoint various Firms to
provide administrative and other services described herein
directly to or for the benefit of investors in the Fund. Such
Firms shall at all times be deemed to be independent contractors
retained by KDI and not the Fund. KDI and not the Fund will be
responsible for the payment of compensation to such Firms for
such services.
<PAGE> 2
2. For the administrative services and facilities described in
Section 1, the Fund will pay to KDI at the end of each calendar
month an administrative service fee computed at an annual rate of
up to 0.25 of 1% of the average daily net assets of the Fund
(except assets attributable to Class I Shares). The current fee
schedule is set forth as Appendix I hereto. The administrative
service fee will be calculated separately for each class of each
series of the Fund as an expense of each such class; provided,
however, no administrative service fee shall be payable with
respect to Class I Shares. 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 such month and year, respectively.
The services of KDI to the Fund under this Agreement are not to
be deemed exclusive, and KDI shall be free to render similar
services or other services to others.
The net asset value for each share of the Fund shall be
calculated in accordance with the provisions of the Fund's
current prospectus. On each day when net asset value is not
calculated, the net asset value of a share of the Fund 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.
3. The Fund shall assume and pay all charges and expenses of
its operations not specifically assumed or otherwise to be
provided by KDI under this Agreement.
4. This Agreement may be terminated at any time without the
payment of any penalty by the Fund or by KDI on sixty (60) days
written notice to the other party. Termination of this Agreement
shall not affect the right of KDI to receive payments on any
unpaid balance of the compensation described in Section 2 hereof
earned prior to such termination. This Agreement may not be
amended for any class of any series of the Fund to increase the
amount to be paid to KDI for services hereunder above .25 of 1%
of the average daily net assets of such class without the vote of
a majority of the outstanding voting securities of such class.
All material amendments to this Agreement must in any event be
approved by vote of the Board of the Fund.
5. 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.
6. 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.
2
<PAGE> 3
7. 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.
8. This Agreement shall be construed in accordance with
applicable federal law and (except as to Section 7 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 KDI have caused this Agreement
to be executed as of the day and year first above written.
KEMPER TARGET EQUITY FUND KEMPER DISTRIBUTORS, INC.
By: /s/ John E. Neal By: /s/ James L. Greenawalt
--------------------------- ---------------------------
Title: Vice President Title: President
------------------------ ------------------------
3
<PAGE> 4
APPENDIX I
KEMPER TARGET EQUITY FUND
FEE SCHEDULE FOR ADMINISTRATIVE
SERVICES AGREEMENT
Pursuant to Section 2 of the Administrative Services Agreement to
which this Appendix is attached, the Fund and KDI agree that the
administrative service fee will be computed at an annual rate of
.25 of 1% (the "Fee Rate") based upon assets with respect to
which a Firm provides administrative services.
Dated: April 1, 1997
KEMPER TARGET EQUITY FUND KEMPER DISTRIBUTORS, INC.
By: /s/ John E. Neal By: /s/ James L. Greenawalt
--------------------------- --------------------------
Title: Vice President Title: President
------------------------ -----------------------
<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-Retirement Fund Series I,
II, III, IV, V, VI and VII, and Kemper Target Equity Fund-Kemper Worldwide
2004 Fund dated August 20, 1997 in the Registration Statement (Form N-1A) of
Kemper Target Equity Fund and their incorporation by reference in the related
Prospectus and Statement of Additional Information filed with the Securities
and Exchange Commission in this Post-Effective Amendment No. 25 to the
Registration Statement under the Securities Act of 1933 (Registration No.
33-30876) and this Amendment No. 27 to the Registration Statement under the
Investment Company Act of 1940 (Registration No. 811-5896).
ERNST & YOUNG LLP
Chicago, Illinois
October 24, 1997
<PAGE> 2
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Kemper Target Equity Fund-
Kemper Retirement Fund Series I, II, III, IV, V, and VI
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, V, and VI as of July 31, 1997 and June
30, 1997, the related statements of operations for the month ended July 31,
1997 and the year ended June 30, 1997, and changes in net assets for the month
ended July 31, 1997 and for each of the two years in the period ended June 30,
1997, and the financial highlights for each of the fiscal periods since 1993.
The financial statements and financial highlights are the responsibility of the
Funds' 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 July 31, 1997 and June 30, 1997, 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 each
of Kemper Target Equity Fund-Kemper Retirement Fund Series I, II, III, IV, V,
and VI at July 31, 1997 and June 30, 1997, the results of their operations, the
changes in their 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 20, 1997
<PAGE> 3
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Kemper Target Equity Fund-
Kemper Worldwide 2004 Fund
We have audited the accompanying statements of assets and liabilities,
including the portfolio of investments, of Kemper Target Equity Fund-Kemper
Worldwide 2004 Fund as of July 31, 1997 and June 30, 1997, and the related
statements of operations for the month ended July 31, 1997 and the year ended
June 30, 1997, and changes in net assets for the month ended July 31, 1997 and
for each of the two years in the period ended June 30, 1997, 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 July 31, 1997 and June 30, 1997, 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 Worldwide 2004 Fund at July 31, 1997 and June
30, 1997, 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 20, 1997
<PAGE> 1
[VEDDER, PRICE, KAUFMAN & KAMMHOLZ Letterhead]
October 28, 1997
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. 25 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, 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
DAS/COK/acs
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JULY 31,
1997 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> KEMPER RETIREMENT FUND I
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 100,178
<INVESTMENTS-AT-VALUE> 117,162
<RECEIVABLES> 610
<ASSETS-OTHER> 108
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 117,880
<PAYABLE-FOR-SECURITIES> 641
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 122
<TOTAL-LIABILITIES> 763
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89,138
<SHARES-COMMON-STOCK> 9,877
<SHARES-COMMON-PRIOR> 9,943
<ACCUMULATED-NII-CURRENT> 2,354
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,641
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,984
<NET-ASSETS> 117,117
<DIVIDEND-INCOME> 70
<INTEREST-INCOME> 325
<OTHER-INCOME> 0
<EXPENSES-NET> (80)
<NET-INVESTMENT-INCOME> 325
<REALIZED-GAINS-CURRENT> 1,687
<APPREC-INCREASE-CURRENT> 4,076
<NET-CHANGE-FROM-OPS> 6,088
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (66)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,307
<ACCUMULATED-NII-PRIOR> 2,029
<ACCUMULATED-GAINS-PRIOR> 6,954
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 48
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 80
<AVERAGE-NET-ASSETS> 114,464
<PER-SHARE-NAV-BEGIN> 11.24
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> .59
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.86
<EXPENSE-RATIO> .84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JULY 31,
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TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> KEMPER RETIREMENT FUND 2
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 150,705
<INVESTMENTS-AT-VALUE> 173,205
<RECEIVABLES> 541
<ASSETS-OTHER> 658
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 174,404
<PAYABLE-FOR-SECURITIES> 715
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 306
<TOTAL-LIABILITIES> 1,021
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 136,874
<SHARES-COMMON-STOCK> 12,959
<SHARES-COMMON-PRIOR> 13,094
<ACCUMULATED-NII-CURRENT> 3,972
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,027
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22,500
<NET-ASSETS> 173,303
<DIVIDEND-INCOME> 83
<INTEREST-INCOME> 613
<OTHER-INCOME> 0
<EXPENSES-NET> (129)
<NET-INVESTMENT-INCOME> 567
<REALIZED-GAINS-CURRENT> 2,057
<APPREC-INCREASE-CURRENT> 5,363
<NET-CHANGE-FROM-OPS> 7,907
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (135)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,213
<ACCUMULATED-NII-PRIOR> 3,405
<ACCUMULATED-GAINS-PRIOR> 7,980
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 71
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 129
<AVERAGE-NET-ASSETS> 170,277
<PER-SHARE-NAV-BEGIN> 12.77
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> .56
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.38
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JULY 31,
1997 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<SERIES>
<NUMBER> 03
<NAME> KEMPER RETIREMENT FUND 3
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 109,746
<INVESTMENTS-AT-VALUE> 126,882
<RECEIVABLES> 474
<ASSETS-OTHER> 489
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127,845
<PAYABLE-FOR-SECURITIES> 562
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 185
<TOTAL-LIABILITIES> 747
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99,147
<SHARES-COMMON-STOCK> 11,213
<SHARES-COMMON-PRIOR> 11,377
<ACCUMULATED-NII-CURRENT> 2,563
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,252
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,136
<NET-ASSETS> 127,098
<DIVIDEND-INCOME> 64
<INTEREST-INCOME> 403
<OTHER-INCOME> 0
<EXPENSES-NET> (87)
<NET-INVESTMENT-INCOME> 380
<REALIZED-GAINS-CURRENT> 1,502
<APPREC-INCREASE-CURRENT> 4,705
<NET-CHANGE-FROM-OPS> 6,587
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (164)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,764
<ACCUMULATED-NII-PRIOR> 2,183
<ACCUMULATED-GAINS-PRIOR> 6,750
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 52
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 87
<AVERAGE-NET-ASSETS> 124,716
<PER-SHARE-NAV-BEGIN> 10.75
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> .54
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.33
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE LCONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JULY
31, 1997 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 04
<NAME> KEMPER RETIREMENT FUND 4
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 122,571
<INVESTMENTS-AT-VALUE> 135,772
<RECEIVABLES> 476
<ASSETS-OTHER> 486
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 136,734
<PAYABLE-FOR-SECURITIES> 562
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 242
<TOTAL-LIABILITIES> 804
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 112,512
<SHARES-COMMON-STOCK> 12,053
<SHARES-COMMON-PRIOR> 12,279
<ACCUMULATED-NII-CURRENT> 2,599
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,610
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,201
<NET-ASSETS> 135,930
<DIVIDEND-INCOME> 62
<INTEREST-INCOME> 396
<OTHER-INCOME> 0
<EXPENSES-NET> (97)
<NET-INVESTMENT-INCOME> 361
<REALIZED-GAINS-CURRENT> 1,398
<APPREC-INCREASE-CURRENT> 5,420
<NET-CHANGE-FROM-OPS> 7,179
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (226)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,705
<ACCUMULATED-NII-PRIOR> 2,238
<ACCUMULATED-GAINS-PRIOR> 6,220
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 56
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 97
<AVERAGE-NET-ASSETS> 133,578
<PER-SHARE-NAV-BEGIN> 10.69
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> .56
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.28
<EXPENSE-RATIO> .88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JULY 31,
1997 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 05
<NAME> KEMPER RETIREMENT FUND 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 118,225
<INVESTMENTS-AT-VALUE> 137,266
<RECEIVABLES> 609
<ASSETS-OTHER> 99
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 137,974
<PAYABLE-FOR-SECURITIES> 562
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 281
<TOTAL-LIABILITIES> 843
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,269
<SHARES-COMMON-STOCK> 12,624
<SHARES-COMMON-PRIOR> 12,791
<ACCUMULATED-NII-CURRENT> 2,779
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,042
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,041
<NET-ASSETS> 137,131
<DIVIDEND-INCOME> 70
<INTEREST-INCOME> 411
<OTHER-INCOME> 0
<EXPENSES-NET> (106)
<NET-INVESTMENT-INCOME> 375
<REALIZED-GAINS-CURRENT> 1,804
<APPREC-INCREASE-CURRENT> 6,041
<NET-CHANGE-FROM-OPS> 8,220
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (167)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 67,456
<ACCUMULATED-NII-PRIOR> 2,404
<ACCUMULATED-GAINS-PRIOR> 7,238
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 56
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 106
<AVERAGE-NET-ASSETS> 133,903
<PER-SHARE-NAV-BEGIN> 10.22
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> .61
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 10.86
<EXPENSE-RATIO> .94
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JULY 31,
1997 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 06
<NAME> KEMPER WORLDWIDE 2004
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 29,672
<INVESTMENTS-AT-VALUE> 35,350
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<ACCUM-APPREC-OR-DEPREC> 5,666
<NET-ASSETS> 35,725
<DIVIDEND-INCOME> 5
<INTEREST-INCOME> 123
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<EXPENSES-NET> (33)
<NET-INVESTMENT-INCOME> 95
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-REDEEMED> (42)
<SHARES-REINVESTED> 0
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<ACCUMULATED-NII-PRIOR> 737
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<PER-SHARE-NAV-END> 11.60
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<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JULY 31,
1997 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 07
<NAME> KEMPER RETIREMENT FUND 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUL-31-1997
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<DIVIDEND-INCOME> 33
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<EXPENSES-NET> (59)
<NET-INVESTMENT-INCOME> 207
<REALIZED-GAINS-CURRENT> 729
<APPREC-INCREASE-CURRENT> 3,575
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<SHARES-REINVESTED> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 59
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<PER-SHARE-NAV-BEGIN> 10.86
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<PER-SHARE-NAV-END> 11.57
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JULY 31,
1997 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> 08
<NAME> KEMPER RETIREMENT FUND 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 4,557
<INVESTMENTS-AT-VALUE> 4,743
<RECEIVABLES> 393
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<ACCUMULATED-NII-CURRENT> 14
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<ACCUMULATED-NET-GAINS> (3)
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<ACCUM-APPREC-OR-DEPREC> 186
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<DIVIDEND-INCOME> 1
<INTEREST-INCOME> 10
<OTHER-INCOME> 0
<EXPENSES-NET> (2)
<NET-INVESTMENT-INCOME> 9
<REALIZED-GAINS-CURRENT> (1)
<APPREC-INCREASE-CURRENT> 162
<NET-CHANGE-FROM-OPS> 170
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 253
<NUMBER-OF-SHARES-REDEEMED> (9)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,507
<ACCUMULATED-NII-PRIOR> 5
<ACCUMULATED-GAINS-PRIOR> (2)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2
<AVERAGE-NET-ASSETS> 3,297
<PER-SHARE-NAV-BEGIN> 9.23
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> .54
<PER-SHARE-DIVIDEND> 0
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.78
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 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> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 96,172
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<OTHER-ITEMS-ASSETS> 0
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 162
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89,919
<SHARES-COMMON-STOCK> 9,943
<SHARES-COMMON-PRIOR> 9,360
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,954
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,908
<NET-ASSETS> 111,810
<DIVIDEND-INCOME> 796
<INTEREST-INCOME> 4,130
<OTHER-INCOME> 0
<EXPENSES-NET> (1,015)
<NET-INVESTMENT-INCOME> 3,911
<REALIZED-GAINS-CURRENT> 11,460
<APPREC-INCREASE-CURRENT> 3,032
<NET-CHANGE-FROM-OPS> 18,403
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,911)
<DISTRIBUTIONS-OF-GAINS> (14,931)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (1,235)
<SHARES-REINVESTED> 1,818
<NET-CHANGE-IN-ASSETS> 4,507
<ACCUMULATED-NII-PRIOR> 2,041
<ACCUMULATED-GAINS-PRIOR> 10,413
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 543
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,015
<AVERAGE-NET-ASSETS> 108,647
<PER-SHARE-NAV-BEGIN> 11.46
<PER-SHARE-NII> .42
<PER-SHARE-GAIN-APPREC> 1.48
<PER-SHARE-DIVIDEND> (.44)
<PER-SHARE-DISTRIBUTIONS> (1.68)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.24
<EXPENSE-RATIO> .93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE
30, 1997 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> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 148,344
<INVESTMENTS-AT-VALUE> 165,482
<RECEIVABLES> 1,936
<ASSETS-OTHER> 679
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 168,097
<PAYABLE-FOR-SECURITIES> 657
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 270
<TOTAL-LIABILITIES> 927
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 138,648
<SHARES-COMMON-STOCK> 13,094
<SHARES-COMMON-PRIOR> 12,948
<ACCUMULATED-NII-CURRENT> 3,405
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<ACCUMULATED-NET-GAINS> 7,980
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,137
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<DIVIDEND-INCOME> 926
<INTEREST-INCOME> 7,429
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<EXPENSES-NET> (1,538)
<NET-INVESTMENT-INCOME> 6,817
<REALIZED-GAINS-CURRENT> 13,354
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<DISTRIBUTIONS-OF-GAINS> (18,195)
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<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (1,983)
<SHARES-REINVESTED> 2,129
<NET-CHANGE-IN-ASSETS> (1,255)
<ACCUMULATED-NII-PRIOR> 3,759
<ACCUMULATED-GAINS-PRIOR> 12,809
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 835
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<AVERAGE-NET-ASSETS> 166,963
<PER-SHARE-NAV-BEGIN> 13.01
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<PER-SHARE-GAIN-APPREC> 1.29
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<PER-SHARE-DISTRIBUTIONS> (1.50)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.77
<EXPENSE-RATIO> .92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 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> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 108,442
<INVESTMENTS-AT-VALUE> 120,874
<RECEIVABLES> 1,651
<ASSETS-OTHER> 522
<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 536
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 713
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 11,377
<SHARES-COMMON-PRIOR> 11,098
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<ACCUMULATED-NET-GAINS> 6,750
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,431
<NET-ASSETS> 122,334
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<INTEREST-INCOME> 4,781
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<NET-INVESTMENT-INCOME> 4,371
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<DISTRIBUTIONS-OF-GAINS> (14,623)
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<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (1,658)
<SHARES-REINVESTED> 1,937
<NET-CHANGE-IN-ASSETS> 846
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<ACCUMULATED-GAINS-PRIOR> 10,197
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<AVERAGE-NET-ASSETS> 120,887
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<PER-SHARE-NII> .42
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 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> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,781
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<EXPENSES-NET> (1,291)
<NET-INVESTMENT-INCOME> 4,517
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 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>
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<NAME> KEMPER RETIREMENT FUND 5
<MULTIPLIER> 1,000
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 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> 1,000
<S> <C>
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<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (637)
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<NET-CHANGE-IN-ASSETS> (3,052)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 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> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 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> 08
<NAME> KEMPER RETIREMENT FUND 7
<MULTIPLIER> 1,000
<S> <C>
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<EXPENSES-NET> (2)
<NET-INVESTMENT-INCOME> 5
<REALIZED-GAINS-CURRENT> (2)
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</TABLE>
