<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED JULY 31, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[LOGO]
Seeks to provide a guaranteed return of investment on the designated maturity
date to investors who reinvest all dividends and hold their shares to the
maturity date, and seeks to provide a total return, a combination of capital
growth and income
KEMPER TARGET EQUITY FUND
KEMPER WORLDWIDE 2004 FUND
"... The past year clearly separated the winners from the
laggards. Because of the region's favorable political,
fiscal and economic backdrop, Europe posted the
strongest international returns for the period. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
9
COUNTRY CONCENTRATIONS
10
LARGEST HOLDINGS
11
PORTFOLIO OF
INVESTMENTS
16
REPORT OF
INDEPENDENT AUDITORS
17
FINANCIAL STATEMENTS
19
NOTES TO
FINANCIAL STATEMENTS
22
FINANCIAL HIGHLIGHTS
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER WORLDWIDE 2004 FUND
TOTAL RETURN*
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
KEMPER WORLDWIDE 2004 FUND 11.17%
- --------------------------------------------------------------------------------
</TABLE>
Returns are historical and do not represent future performance. Investment
returns and principal value fluctuate. So that when shares are redeemed they may
be worth more or less than original cost.
* Total return measures net investment income and capital gain or loss from
portfolio investments, assuming reinvestment of all dividends. During the
period noted, securities prices fluctuated. For additional information, see
the Prospectus and Statement of Additional Information and the Financial
Highlights at the end of this report.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
7/31/98 7/31/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER WORLDWIDE 2004 FUND $11.77 $11.60
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE YEAR ENDED JULY 31, 1998, KEMPER WORLDWIDE 2004 FUND PAID THE
FOLLOWING DIVIDENDS PER SHARE:
<TABLE>
<CAPTION>
INCOME SHORT-TERM LONG-TERM
DIVIDEND CAPITAL GAIN CAPITAL GAIN
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER
WORLDWIDE
2004 FUND $.49 $.07 $.46
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
Source: Data provided by Morningstar, Inc., Chicago (312) 696-6000. The Equity
funds style box placement is based on a fund's price-to-earnings and
price-to-book ratios relative to the S&P 500, as well as the size of the
companies in which it invests, or median market capitalization.
Please note that style boxes do not represent an exact assessment of risk and do
not represent future performance. Please consult the prospectus for a
description of investment policies.
EAFE INDEX The EAFE Index (Morgan Stanley Capital International Europe,
Australasia, Far East Index) is an unmanaged index generally accepted as a
benchmark for major overseas markets.
HEDGING Strategy used to help protect an investment. Financial managers can use
any number of technical and nontechnical procedures to hedge or help reduce the
possibility of a loss on an investment.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR OF ARTS AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND HAS A MASTER'S DEGREE IN ECONOMICS FROM BROWN
UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS
WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $218 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS. IT IS ONE OF
THE 10 LARGEST MUTUAL FUND COMPLEXES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
It's been a bumpy ride for many investors in the third quarter of 1998. Economic
and political instability in Russia, terrorist bombings and U.S. retaliation
overseas, lingering effects of the "contagion" in Asia, not to mention weak
corporate profits and political scandal in the United States were responsible
for considerable uncertainty and market volatility. A series of market dips and
drops continued to fuel the debate about whether we would finally see the end of
our long-running bull market -- or even plummet into a recession.
But investors who are riding out the stock market's abrupt short-term
adjustments should find comfort in the fact that economic fundamentals continue
to favor financial assets in the U.S. -- particularly Treasury bonds. In a
nutshell, the nation's economy remains strong despite its slowdown in the second
half of the year. Short-term interest rates are expected to remain low -- the
federal funds rate is holding at 5.5 percent and will most likely stay put or
could even move lower during the remainder of the year. There are no major tax
or regulatory threats waiting in the wings. And our economy continues to draw
investors from around the world, although perhaps not as fervently as last year.
The nation's gross domestic product (GDP), which represents the total value of
all goods and services produced within the U.S. economy, grew at an annualized
rate of 1.4 percent in the second quarter of 1998. While this was the slowest
growing quarter in the last three years, it was much stronger than consensus.
Slower growth can be attributed to several one-time factors, including a
domestic correction in inventory levels and the General Motors strike, which has
since been resolved, as well as the long-term loss of trade with Asia.
Real capital spending and employment growth have remained solid. Consumer
confidence remains fairly high. Home sales remain robust. Economic policy
continues to support the nation's fiscal budget surplus projection of $65
billion.
As far as inflation goes, there are two tales to be told. Prices for consumer
goods, as measured by the consumer price index (CPI), are steady. Compare this
to prices for services, which have risen between 3 and 4 percent. For investors,
this difference in pricing flexibility translates into a difference in profit
expectations. Profits of domestic, service firms should be much stronger than
commodity producers dependent on export markets.
Across the Atlantic, Europe's economy appears to be growing at an even pace as
the region progresses toward the Economic and Monetary Union (EMU) slated for
January 1, 1999. One effect of the union may be a slight rise in short-term
interest rates in Europe -- not because there will be an overt change in policy,
but simply because of the convergence of some very disparate interest rates. The
average rate will likely be higher than the relatively attractive rate the
German Central Bank currently offers, for example.
In Asia, which has been making headlines around the world for more than a year
now, the latest news is from Japan, which recently installed a new prime
minister as well as a new finance minister. Much discussion will be focused on
changes in Japan's economic policy, particularly in terms of taxation and
banking reform -- and patience is in order. Most of the changes in taxation will
impact Japan in the first half of 1999. But as far as banking reform goes, those
of us familiar with bank reform in the U.S. know that this will be a two- to
five-year process. Certainly, investors are looking to Japan to spark recovery
for Asia as a whole, which continues to suffer from the "contagion" of low
currency values, seriously reduced consumer spending and general economic
malaise.
Indeed, while its full effects remain to be seen -- and felt -- by the
majority of American businesses and individuals, the Asian economic crisis has
contributed to the general uncertainty of the emotion-driven U.S. markets.
Whether it's an economic crisis abroad or political scandal at home, current
events move the investors who move the markets.
One might conclude that, as a result of 1998's slow corporate profit growth
and turmoil in Russia and Asia, the psychology of the markets is
shifting -- even some of Wall Street's most resolute bulls appear to be
reconsidering their long-held convictions. But with the economy's strong
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The 10-year
Treasury rate and the prime rate are prevailing interest rates. The other data
report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (8/31/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1)* 5.46 5.57 6.3 6.64
PRIME RATE(2)* 8.5 8.5 8.5 8.25
INFLATION RATE(3)* 1.68 1.44 2.22 2.88
THE U.S. DOLLAR(4) 8.19 4.88 8.76 3.32
CAPITAL GOODS ORDERS(5)* 2.81 8.1 8.2 8.2
INDUSTRIAL PRODUCTION(5)* 1.82 4.31 5.03 3.3
EMPLOYMENT GROWTH(6) 2.68 2.57 2.6 2.13
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of the
last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of July 31, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
fundamentals in place, that outlook may be premature. In any case, prudent
investors are wise to watch for the following economic warning signs: inflation
in the form of rising wages and/or prices; residual fallout from Asia, which
could appear in the form of reduced sales and earnings for American businesses;
and a continued widening of our trade deficit, an imbalance caused by heightened
American demand for foreign goods and services. In the months to come, investors
are likely to maintain their bias in favor of investments that have historically
been considered more conservative: larger capitalization stocks, U.S. Treasuries
and only the highest-grade corporate bonds.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
September 1, 1998
4
<PAGE> 5
PERFORMANCE UPDATE
[DEXTER PHOTO]
STEPHEN DEXTER JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1986, AND IS A
CO-PORTFOLIO MANAGER OF KEMPER WORLDWIDE 2004 FUND. HE HOLDS A BACHELOR'S DEGREE
AND AN M.B.A. FROM THE UNIVERSITY OF WISCONSIN.
[SLENDEBROEK PHOTO]
MARC SLENDEBROEK JOINED THE SCUDDER KEMPER INVESTMENTS, INC. ORGANIZATION IN
1994 AND IS A CO- PORTFOLIO MANAGER OF KEMPER WORLDWIDE 2004 FUND. HE IS AN
ASSOCIATE DIRECTOR OF SCUDDER INVESTMENTS (U.K.) LIMITED, THE FUND'S SUB-ADVISER
AND HAS A MASTER'S DEGREE IN CIVIL LAW FROM THE UNIVERSITY OF LEIDEN IN THE
NETHERLANDS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
KEMPER WORLDWIDE 2004 FUND BENEFITED FROM THE STRONG ECONOMIC AND CORPORATE
GROWTH THAT TOOK PLACE IN EUROPE DURING THE YEAR ENDED JULY 31, 1998, WHILE
AVOIDING MOST OF THE ASIAN MARKET'S TUMBLE. CO-LEAD PORTFOLIO MANAGERS STEPHEN
DEXTER AND MARC SLENDEBROEK DISCUSS SOME OF THE BEST PERFORMING INTERNATIONAL
GROWTH AREAS AND THE OPPORTUNITIES THAT INTERNATIONAL MARKETS OFFER.
Q HOW DID THE FUND PERFORM DURING THE 12-MONTH PERIOD?
A Kemper Worldwide 2004 Fund returned 11.17 percent (unadjusted for any
sales charge) for the year, thanks in large part to the remarkable growth in the
European market. For the same period, the EAFE Index returned 5.75 percent.
Q WHAT WAS THE INVESTMENT ENVIRONMENT LIKE IN EACH OF THE KEY REGIONS:
EUROPE, JAPAN, SOUTHEAST ASIA, AND LATIN AMERICA?
A The past year clearly separated the winners from the laggards. Because of
the region's favorable political, fiscal and economic backdrop, Europe posted
the strongest international returns for the period. As the continent marched
closer to a unified currency, many member countries made important strides
toward reducing their debt, cutting expenditures and improving their balance
sheets. As a result, interest rates generally fell or continued at low levels,
inflation remained subdued, consumer confidence rose and economic growth
expanded. The move toward a single currency proved to be the catalyst for change
on the corporate front as well. No longer able to hide behind national borders
and trade barriers, European companies cut costs, restructured their businesses
to shed unprofitable operations and merged or acquired to gain economies of
scale, all in their bid to become more regionally and globally competitive.
In Asia the opposite was true and conditions went from bad to worse
during the 12 months. Although it rallied for a brief period in early 1998, the
Japanese market suffered major losses amid worries about the yen and growing
pessimism about newly-elected Prime Minister Keizo Obuchi's ability to pull
Japan out of its worst recession since World War II. What's more, investors
became increasingly skeptical that Japan's government would follow through on
its promise to pass legislation to help stimulate the economy. Other Southeast
Asian markets also posted losses as the region struggled to come to grips with
slowing economies, sharply depreciated currencies, weakening corporate balance
sheets and a reduced flow of investor capital.
Since Latin America is considered an emerging market, it had a trying
time during the past year. Every time Asian stocks tumbled, there was a domino
effect on Latin American markets. However, we believe that many Latin stocks
have been unfairly painted with the Asian brush. Unlike those that make up
Southeast Asia, several Latin American countries, such as Mexico, continue to
post solid economic growth.
Q IN LIGHT OF THESE CONDITIONS, HOW DID YOU POSITION THE FUND?
A The fund was primarily invested in Europe throughout
5
<PAGE> 6
PERFORMANCE UPDATE
the period. Within the region, one area of focus was financial services firms,
which have been buoyed by a combination of falling interest rates and increased
personal savings by the continent's aging population. The sector got an added
boost from a wave of consolidation that took place in the banking and insurance
industries, as well as expanding global market share. Among our financial
services holdings, UBS and Italian insurance company Assicurazioni Generali
performed well.
Another important European emphasis was corporate services companies, which
provide services such as security, office cleaning and temporary employment to
companies that are looking to outsource as a way of enhancing profitability. In
this sector, we were quite happy with the performance of rapidly growing
temporary services companies.
Q GIVEN ITS LONG LIST OF ECONOMIC AND FISCAL CHALLENGES, WHAT WAS YOUR
STRATEGY IN THE ASIAN MARKETS OVER THE PAST YEAR?
A We remained significantly underweighted in Japan and Southeast Asia. We
continued to trim our Japanese holdings to 12.1 percent at the end of July, from
21.9 percent a year earlier. We also pared back our Southeast Asian holdings to
1.5 percent, from 7.0 percent. In our view, Japan's economy is overly burdened
by an unhealthy banking system, excruciating corporate and individual taxes and
a government that has exhibited very little desire to address its country's
problems. As for the rest of the region, exceptional levels of corporate debt
and a weak banking system hamstring it as well.
We continued to find attractively priced, fast-growing opportunities among
globally competitive companies in Japan. Fuji Photo Film -- having won the
hard-fought battle against AGFA and Kodak -- now dominates the world's
photographic film industry. The company is financially sound with more than $5
billion in cash in its coffers. Another example is Murata Manufacturing, which
is the world's leading producer of ceramic capacitors, which are used for a
variety of electronic products. Not only has Murata continued to steal market
share from its competitors, but it has done so at a very high profit margin.
Q OUTSIDE OF EUROPE AND SELECTED COMPANIES IN ASIA, WHERE ELSE DID YOU FIND
ATTRACTIVE OPPORTUNITIES?
A Canada presented some attractive opportunities. Companies such as BCE, the
holding company for Bell Canada, has similar growth prospects as their U.S.
counterparts, but sell at more attractive valuations. And although we kept our
Latin American position relatively light, we found good values there as well.
Mexican beer and Coca-Cola bottler FEMSA, is a good example of a company that
continues to post rapid growth. In Brazil we favored telephone company TELEBRAS
which is among the attractively valued options relative to the world's
utilities.
Q DID YOU HEDGE THE FUND AT ALL?
A After partially hedging the fund early in the period, we have not hedged
since last October. Our policy is to hedge only when we think there is a high
level of risk for the base currency of our investors' U.S. dollars; otherwise,
our normal posture is to remain unhedged. We felt that the currencies we were
exposed to would trade in a fairly narrow range around a central point against
the dollar and that there was not an above-average amount of risk. For the most
part, we kept our investors out of currencies which had large depreciation.
Hedging also adds additional volatility to the portfolio, which we didn't think
made sense given our range-trading outlook. In fact, most currencies did stay
range bound and avoiding hedges and the costs associated with them was a plus
for the fund's performance.
Q U.S. INTEREST RATES CAME DOWN DURING THE PAST YEAR. WHAT AFFECT DID THIS
HAVE ON THE ZERO-COUPON BOND COMPONENT OF THE FUND?
A Zero-coupon bonds are very sensitive to movements in rates. Because
interest rates fell, zero coupon bond prices rose and were among the
fixed-income market's best performers.
Q WHAT IS YOUR OUTLOOK GOING FORWARD?
A We don't see a reversal of Asia's problems over the near term and we're
concerned that the region's economies will continue to suffer until there is a
major restructuring of Japan's and Southeast Asia's banking systems and a
reduction in corporate debt in the region. Unfortunately, the Japanese
government has been reluctant to undertake the unpopular reform programs needed
to rectify these problems. Until conditions improve, we'll likely keep our
exposure to the region relatively light. Despite its ongoing problems, we expect
that Asia will offer selected opportunities to buy globally dominant companies
at bargain prices. And while Latin America's emerging market status
6
<PAGE> 7
PERFORMANCE UPDATE
likely will keep its stock markets under pressure, we believe there will be
opportunities to buy fast-growing companies at very attractive prices.
It's our view, however, that Europe will continue to offer exciting
investment opportunities. Not only do we expect European economic growth to
accelerate, but we also expect corporate profitability to improve as companies
continue their restructuring and rationalizing their businesses. We believe that
those companies that are successful in doing so should be rewarded by rising
share prices. And while they may temporarily pause to take their breath after
their extraordinary advances over the past year, we believe European stocks are
poised to perform well over the next several years.
Q IS THIS STILL A GOOD TIME TO BE INVESTED IN INTERNATIONAL FUNDS?
A In a global economy, exciting opportunities can be found almost anywhere
in the world and investors who want to partake in them need to look beyond U.S.
borders. Investors should consider investing in funds that give them exposure to
the best companies outside the United States as a natural complement to their
domestic portfolios.
7
<PAGE> 8
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED JULY 31, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER WORLDWIDE 2004 FUND 5.62% 10.19% (since 5/3/94)
</TABLE>
[LINE GRAPHS CLASS A, B & C]
KEMPER WORLDWIDE 2004 FUND
<TABLE>
<CAPTION>
5/3/94 12/31/95 12/31/97 7/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Worldwide 10000 11642 13789 15097
2004 Fund(1) 9525 11587 14482
9567 11730 14930
9856 11808
10659 12339
11119 12198
13030
13627
- --------------------------------------------------------------------------------
Lehman Brothers 10000 11977 13527 14103
Gov't/Corp. 9958 11697 13732
Bond Index+ 10044 11752 14091
10545 11959
11229 12325
11444 12218
12663
13107
- --------------------------------------------------------------------------------
Europe-Australasia- 10000 10825 11328 13155
Far East (EAFE) 10033 11095 12947
Index++ 9893 11228 13038
10036 11168
10068 11301
10445 11080
12471
12339
- --------------------------------------------------------------------------------
</TABLE>
Past performance does not guarantee future performance. Investment returns and
principal value fluctuate. So that when shares are redeemed they may be worth
more or less than original cost.
* Average annual total return measures net investment income and capital
gain or loss from portfolio investments, assuming reinvestment of all
dividends. Average annual total return reflects annualized change. During
the periods noted, securities prices fluctuated. For additional
information, see the Prospectus and Statement of Additional Information and
the Financial Highlights at the end of this report.
(1) Performance includes reinvestment of dividends and adjustment for the
maximum sales charge of 5.0%. When comparing Kemper Worldwide 2004 Fund to
Lehman Brothers Gov't/Corp. Bond Index+ and EAFE Index++, you should note
that the fund's performance reflects the maximum sales charge, while no
such charges are reflected in the performance of the indices.
+ The Lehman Brothers Government/ Corporate Bond Index is an unmanaged index
comprised of intermediate and long-term government and investment grade
corporate debt securities. Source is Towers Data Systems.
++ The EAFE Index (Morgan Stanley Capital International Europe, Australasia,
Far East Index) is an unmanaged index generally accepted as a benchmark for
major overseas markets. Source is Towers Data Systems.
Kemper Worldwide 2004 Fund
Kemper Worldwide 2004 Fund(1)
Lehman Brothers Gov't/Corp. bond Index
Europe-Australasia-Far East (EAFE) Index
8
<PAGE> 9
COUNTRY CONCENTRATIONS
THE FUND'S COMMON STOCK GEOGRAPHIC DISTRIBUTION*
Common stocks comprise 37.7 percent of the portfolio and the remainder is
invested in zero-coupon bonds.
[BAR GRAPH]
NETHERLANDS 15.1%
UNITED KINGDOM 14.9%
JAPAN 12.1%
FRANCE 12.0%
SWITZERLAND 10.0%
ITALY 8.7%
CANADA 5.5%
GERMANY 4.4%
SPAIN 4.1%
AUSTRALIA 3.3%
IRELAND 3.0%
MEXICO 2.8%
BRAZIL 1.6%
HONG KONG 1.5%
SWEDEN 1.0%
*Please see pages 11 through 15 for a detailed listing.
9
<PAGE> 10
LARGEST HOLDINGS
YOUR FUND'S 20 LARGEST STOCK HOLDINGS
REPRESENTING 54.4 PERCENT OF THE FUND'S TOTAL COMMON STOCKS ON JULY 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
HOLDINGS PERCENT
<S> <C> <C>
- --------------------------------------------------------------------------------
1. TELECOM ITALIA MOBILE 5.0%
(ITALY)
- --------------------------------------------------------------------------------
2. AXA-UAP 3.8%
(FRANCE)
- --------------------------------------------------------------------------------
3. RENTOKIL INITIAL 3.8%
(UNITED KINGDOM)
- --------------------------------------------------------------------------------
4. ELF AQUITAINE 3.4%
(FRANCE)
- --------------------------------------------------------------------------------
5. ADECCO 3.2%
(SWITZERLAND)
- --------------------------------------------------------------------------------
6. BANK OF IRELAND 3.0%
(IRELAND)
- --------------------------------------------------------------------------------
7. VIAG 2.9%
(GERMANY)
- --------------------------------------------------------------------------------
8. BARCLAYS 2.8%
(UNITED KINGDOM)
- --------------------------------------------------------------------------------
9. UBS 2.7%
(SWITZERLAND)
- --------------------------------------------------------------------------------
10. BCE 2.6%
(CANADA)
- --------------------------------------------------------------------------------
11. GETRONICS 2.5%
(NETHERLANDS)
- --------------------------------------------------------------------------------
12. GLAXO WELLCOME 2.5%
(UNITED KINGDOM)
- --------------------------------------------------------------------------------
13. KONINKLIJKE AHOLD 2.4%
(NETHERLANDS)
- --------------------------------------------------------------------------------
14. FOMENTO ECONOMICO MEXICANO 2.2%
(MEXICO)
- --------------------------------------------------------------------------------
15. UNIQUE INTERNATIONAL 2.2%
(NETHERLANDS)
- --------------------------------------------------------------------------------
16. SONY 2.0%
(JAPAN)
- --------------------------------------------------------------------------------
17. BBA GROUP 1.9%
(UNITED KINGDOM)
- --------------------------------------------------------------------------------
18. ING GROEP 1.9%
(NETHERLANDS)
- --------------------------------------------------------------------------------
19. FUJI FILM CO. 1.8%
(JAPAN)
- --------------------------------------------------------------------------------
20. VEDIOR 1.8%
(NETHERLANDS)
- --------------------------------------------------------------------------------
</TABLE>
*The Fund's holdings are subject to change.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER WORLDWIDE 2004 FUND
PORTFOLIO OF INVESTMENTS AT JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT U.S. Treasury, zero coupon, 2004
OBLIGATIONS--60.3% (Cost: $17,911) $28,200 $19,946
---------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EUROPE
- --------------------------------------------------------------------------------------------------------------------
NETHERLANDS--5.5% Getronics, N.V.
INFORMATION AND COMMUNICATION SERVICES 5,400 301
Koninklijke Ahold, N.V.
FOOD RETAILER 9,252 285
Unique International, N.V.
TEMPORARY EMPLOYMENT 5,948 263
ING Groep, N.V.
FINANCIAL SERVICES 2,958 224
Vedior, N.V.
TEMPORARY EMPLOYMENT 7,000 221
Aegon, N.V.
INSURANCE COMPANY 2,276 209
Aalberts Industries, N.V.
CAPITAL GOODS AND COMPONENTS 7,280 207
Akzo Nobel, N.V.
HEALTHCARE, COATINGS AND CHEMICAL PRODUCTS 2,150 110
---------------------------------------------------------------------------
1,820
- --------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--5.4% Rentokil Initial, PLC
SERVICES COMPANY 71,700 457
Barclays, PLC
BANKING 11,978 343
Glaxo Wellcome, PLC
PHARMACEUTICAL COMPANY 9,579 296
BBA Group, PLC
DIVERSIFIED ENGINEERING COMPANY 31,152 228
Royal Bank of Scotland
BANKING 10,170 163
Norwich Union, PLC
INSURANCE COMPANY 17,500 137
British Petroleum
INTEGRATED OIL COMPANY 8,550 114
Marks & Spencer, PLC
CONSUMER GOODS AND FOODS RETAILER 6,900 58
---------------------------------------------------------------------------
1,796
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FRANCE--4.4% AXA-UAP, S.A.
INSURANCE COMPANY 3,385 $ 464
Elf Aquitaine
OIL AND GAS PRODUCER 3,160 410
Technip, S.A.
ENGINEERING COMPANY 1,741 213
Societe Generale
BANKING 670 161
Carrefour, S.A.
FOOD RETAILER 200 126
Groupe Danone, S.A.
FOOD PROCESSOR 260 78
---------------------------------------------------------------------------
1,452
- --------------------------------------------------------------------------------------------------------------------
SWITZERLAND--3.6% Adecco, S.A.
PERSONNEL SERVICES 740 391
UBS
BANKING 760 330
Nestle, S.A.
FOOD PROCESSOR 135 280
Novartis
PHARMACEUTICAL COMPANY 120 202
---------------------------------------------------------------------------
1,203
- --------------------------------------------------------------------------------------------------------------------
ITALY--3.2% Telecom Italia Mobile
MOBILE TELECOMMUNICATIONS PROVIDER 90,000 601
Telecom Italia, S.p.A.
MOBILE TELECOMMUNICATIONS PROVIDER 18,000 155
(a)Assicurazioni Generali
INSURANCE COMPANY 4,000 153
Istituto Mobilare Italiano, S.p.A.
BANKING 8,000 147
---------------------------------------------------------------------------
1,056
- --------------------------------------------------------------------------------------------------------------------
GERMANY--1.6% Viag, A.G.
DIVERSIFIED MANUFACTURING COMPANY 500 355
Mannesmann A. G.
CAPITAL GOODS PRODUCER 1,700 181
---------------------------------------------------------------------------
536
- --------------------------------------------------------------------------------------------------------------------
SPAIN--1.5% Banco Bilbao Vizcaya, S.A.
BANKING 9,282 175
Bankinter, S.A.
BANKING 3,600 127
Banco Santander, S.A.
BANKING 3,900 110
Telefonica de Espana, S.A.
TELECOMMUNICATIONS SERVICES 1,700 83
---------------------------------------------------------------------------
495
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IRELAND--1.1% Bank of Ireland
BANKING 17,628 $ 358
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SWEDEN--.4% ABB
ENGINEERING COMPANY 8,650 120
---------------------------------------------------------------------------
---------------------------------------------------------------------------
TOTAL EUROPEAN COUNTRIES--26.7% 8,836
- --------------------------------------------------------------------------------------------------------------------
PACIFIC REGION
- --------------------------------------------------------------------------------------------------------------------
JAPAN--4.4% Sony Corp.
ELECTRONICS MANUFACTURER 2,900 247
Fuji Photo Film Co., Ltd.
PRECISION INSTRUMENTS MANUFACTURER 6,000 221
Nidec Corp.
ELECTRONICS COMPONENTS MANUFACTURER 2,300 175
Bellsystem 24, Inc.
TELEMARKETING FIRM 1,000 173
Ricoh Co., Ltd.
PRECISION INSTRUMENTS MANUFACTURER 14,000 157
Nikko Securities Co., Ltd.
FINANCIAL SERVICES 38,000 150
Honda Motor Co., Ltd.
AUTOMOBILE MANUFACTURER 4,000 149
Sanwa Bank Ltd.
BANKING 4,000 85
Canon, Inc.
PRECISION INSTRUMENTS MANUFACTURER 3,000 69
Murata Manufacturing
ELECTRONICS COMPONENTS MANUFACTURER 1,000 34
---------------------------------------------------------------------------
1,460
- --------------------------------------------------------------------------------------------------------------------
HONG KONG--.6% HSBC Holdings, PLC
BANKING 5,489 134
CITIC Pacific, Ltd.
CONGLOMERATE 31,000 50
---------------------------------------------------------------------------
184
---------------------------------------------------------------------------
TOTAL PACIFIC REGION--5.0% 1,644
---------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMONWEALTH COUNTRIES
- --------------------------------------------------------------------------------------------------------------------
CANADA--2.0%
BCE, Inc.
TELECOMMUNICATION SERVICES 7,700 $ 310
(a)Boardwalk Equities, Inc.
REAL ESTATE COMPANY 14,500 163
Petro-Canada
OIL AND GAS COMPANY 8,000 115
Hudson's Bay Co.
DEPARTMENT STORE RETAILER 3,650 74
---------------------------------------------------------------------------
662
- --------------------------------------------------------------------------------------------------------------------
AUSTRALIA--1.2% St. George Bank Limited
BANKING 34,078 219
Qantas Airways Limited
AIRLINES COMPANY 118,000 179
---------------------------------------------------------------------------
398
---------------------------------------------------------------------------
TOTAL COMMONWEALTH COUNTRIES--3.2% 1,060
- --------------------------------------------------------------------------------------------------------------------
LATIN AMERICAN
- --------------------------------------------------------------------------------------------------------------------
MEXICO--1.0.% Fomento Economico Mexicano,
S.A. de C.V., "B," ADR
BEER AND SOFT DRINK MANUFACTURER 84,000 263
Kimberly-Clark de Mexico, S.A. de C.V.
PAPER PRODUCTS PRODUCER 22,700 70
---------------------------------------------------------------------------
333
- --------------------------------------------------------------------------------------------------------------------
BRAZIL--.6% Telecommunicoes Brasileiro, S.A.
TELEPHONE COMPANY 1,600 194
---------------------------------------------------------------------------
TOTAL LATIN AMERICAN COUNTRIES--1.6% 527
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--36.5%
(Cost: $9,029) 12,067
---------------------------------------------------------------------------
TOTAL INVESTMENTS--96.8%
(Cost: $26,940) 32,013
---------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--3.2% 1,057
---------------------------------------------------------------------------
NET ASSETS--100% $33,070
---------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
At July 31, 1998, the Fund's portfolio of investments had the following industry
diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
- --------------------------------------------------------------------------------
<S> <C> <C>
Finance $ 3,902 11.8
- --------------------------------------------------------------------------------
Technology 2,106 6.4
- --------------------------------------------------------------------------------
Capital Goods 1,700 5.1
- --------------------------------------------------------------------------------
Consumer Cyclicals 1,604 4.9
- --------------------------------------------------------------------------------
Consumer Staples 752 2.3
- --------------------------------------------------------------------------------
Basic Industries 672 2.0
- --------------------------------------------------------------------------------
Energy 639 1.9
- --------------------------------------------------------------------------------
Health Care 498 1.5
- --------------------------------------------------------------------------------
Utilities 194 0.6
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS 12,067 36.5
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 19,946 60.3
- --------------------------------------------------------------------------------
OTHER NET ASSETS 1,057 3.2
- --------------------------------------------------------------------------------
NET ASSETS $33,070 100
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $26,940,000 for federal income tax purposes
at July 31, 1998, the gross unrealized appreciation was $5,438,000, the gross
unrealized depreciation was $365,000 and the net unrealized appreciation on
investments was $5,073,000.
See accompanying Notes to Financial Statements.
15
<PAGE> 16
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TARGET EQUITY FUND--
KEMPER WORLDWIDE 2004 FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Target Equity Fund--Kemper
Worldwide 2004 Fund as of July 31, 1998 and the related statement of operations
for the year then ended and changes in net assets for the year then ended, the
month ended July 31, 1997 and for the year 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, 1998, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Target Equity Fund--Kemper Worldwide 2004 Fund at July 31, 1998, 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
September 17, 1998
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------
Investments, at value
(Cost: $26,940) $32,013
- -----------------------------------------------------------------------
Cash 857
- -----------------------------------------------------------------------
Receivables for:
Investments sold 360
- -----------------------------------------------------------------------
Dividends 18
- -----------------------------------------------------------------------
TOTAL ASSETS 33,248
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -----------------------------------------------------------------------
Payable for:
Fund shares redeemed 127
- -----------------------------------------------------------------------
Management fee 17
- -----------------------------------------------------------------------
Administrative services fee 7
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 22
- -----------------------------------------------------------------------
Trustees' fees 5
- -----------------------------------------------------------------------
Total liabilities 178
- -----------------------------------------------------------------------
NET ASSETS $33,070
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -----------------------------------------------------------------------
Paid-in capital $24,660
- -----------------------------------------------------------------------
Undistributed net realized gain on investments and foreign
currency transactions 2,679
- -----------------------------------------------------------------------
Net unrealized appreciation on investments 5,073
- -----------------------------------------------------------------------
Undistributed net investment income 658
- -----------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $33,070
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
THE PRICING OF SHARES
- -----------------------------------------------------------------------
SHARES OUTSTANDING 2,809
- -----------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
(Net assets / shares outstanding) $11.77
- -----------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Interest $1,397
- -------------------------------------------------------------------------------------------------------
Dividends (less foreign taxes withheld of $26) 181
- -------------------------------------------------------------------------------------------------------
Total investment income 1,578
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee 202
- -------------------------------------------------------------------------------------------------------
Administrative services fee 83
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 68
- -------------------------------------------------------------------------------------------------------
Professional fees 14
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 29
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 5
- -------------------------------------------------------------------------------------------------------
Total expenses 401
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,177
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 2,956
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments and
assets and liabilities in foreign currencies (593)
- -------------------------------------------------------------------------------------------------------
Net gain on investments 2,363
- -------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,540
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MONTH ENDED YEAR ENDED
JULY 31, JULY 31, JUNE 30,
1998 1997 1997
- -------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income $ 1,177 95 1,303
- -------------------------------------------------------------------------------------------------------
Net realized gain 2,956 396 1,096
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (593) 944 1,324
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,540 1,435 3,723
- -------------------------------------------------------------------------------------------------------
Distribution from net investment income (1,402) -- (1,451)
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain (1,517) -- (528)
- -------------------------------------------------------------------------------------------------------
Total dividends to shareholders (2,919) -- (1,979)
- -------------------------------------------------------------------------------------------------------
Net decrease from capital share transactions (3,276) (476) (4,796)
- -------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (2,655) 959 (3,052)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
Beginning of period 35,725 34,766 37,818
- -------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment
income of $658, $954 and $737, respectively) $33,070 35,725 34,766
- -------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF
THE FUND Kemper Worldwide 2004 Fund (the Fund) is a series
of Kemper Target Equity Fund (the Trust), an
open-end management investment company organized as
a business trust under the laws of Massachusetts.
The objectives of the Fund are to provide a
guaranteed return of investment on the Maturity
Date (November 15, 2004) to investors who reinvest
all dividends and hold their shares to the Maturity
Date, and to provide 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 Scudder Kemper
Investments, Inc., the Fund's investment manager.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
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.
FOREIGN CURRENCY TRANSLATION. The books and records
of the Fund are maintained in U.S. dollars.
Investment securities and other assets and
liabilities denominated in a foreign currency are
translated into U.S. dollars at the prevailing
rates of exchange. Purchases and sales of
investment securities, income and expenses are
translated into U.S. dollars at the prevailing
exchange rate on the respective dates of the
transactions. The Fund includes that portion of the
results of operations resulting from changes in
foreign exchange rates with net realized and
unrealized gain (loss) on investments, as
appropriate.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date. 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
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
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 at 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's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was 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
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the annual rate of .60%
of average daily net assets. The Fund incurred a
management fee of $202,000 for the year ended July
31, 1998.
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with Kemper
Distributors, Inc. (KDI). For providing information
and administrative services to shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets. KDI in turn has
various agreements with financial services firms
that provide these services and pays these firms
based on assets of Fund accounts the firms service.
For the year ended July 31, 1998, the Fund paid
administrative services fees of $83,000, all of
which KDI remitted to financial services firms.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Trust's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent for the Fund. For the year ended July
31, 1998, KSvC received shareholder services fees
of $32,000.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of
Scudder Kemper. For the year ended July 31, 1998,
the Fund made no payments to its officers and
incurred trustees' fees of $4,000 to independent
trustees.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended July 31, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $ 9,085
Proceeds from sales 13,442
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MONTH ENDED YEAR ENDED
JULY 31, JULY 31, JUNE 30,
1998 1997 1997
---------------- --------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued in
reinvestment of
dividends 266 $2,828 -- $ -- 192 $ 1,997
-----------------------------------------------------------------------------
Shares redeemed (537) (6,104) (42) (476) (637) (6,793)
-----------------------------------------------------------------------------
NET DECREASE
FROM CAPITAL SHARE
TRANSACTIONS $(3,276) $(476) $(4,796)
-----------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MONTH
YEAR ENDED ENDED YEAR ENDED JUNE 30, MAY 3 TO
JULY 31, JULY 31, ------------------------ JUNE 30,
1998 1997 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.60 11.13 10.60 9.96 9.02 9.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .42 .03 .42 .36 .27 .02
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .77 .44 .71 .63 .79 --
- --------------------------------------------------------------------------------------------------------
Total from investment operations 1.19 .47 1.13 .99 1.06 .02
- --------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .49 -- .44 .35 .12 --
- --------------------------------------------------------------------------------------------------------
Distribution from net realized gain .53 -- .16 -- -- --
- --------------------------------------------------------------------------------------------------------
Total dividends 1.02 -- .60 .35 .12 --
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.77 11.60 11.13 10.60 9.96 9.02
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 11.17% 4.22 11.08 10.05 11.91 .22
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------
Expenses 1.19% 1.19 1.19 1.32 1.29 1.32
- --------------------------------------------------------------------------------------------------------
Net investment income 3.49% 3.20 3.63 3.60 3.77 2.59
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $33,070 35,725 34,766 37,818 30,699 5,900
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 27% 30 25 50 75 --
- --------------------------------------------------------------------------------------------------------
NOTE: Total return does not reflect the effect of any sales charges.
- --------------------------------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------------------------------
</TABLE>
The Fund paid distributions of $.46 per share from net long-term capital gains
during the year ended July 31, 1998, of which 57% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$2,780,000 as capital gain dividends for the year ended July 31, 1998, of which
96% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
22
<PAGE> 23
23
NOTES
<PAGE> 24
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
TRUSTEE OFFICERS
<S> <C> <C>
DANIEL PIERCE MARK S. CASADY STEVEN H. REYNOLDS
Chairman and Trustee President Vice President
JAMES E. AKINS PHILIP J. COLLORA KATHRYN L. QUIRK
Trustee Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK LINDA J. WONDRACK
Trustee JOHN R. HEBBLE Vice President
Treasurer
FREDERICK T. KELSEY MAUREEN E. KANE
Trustee TRACY MCCORMICK CHESTER Assistant Secretary
Vice President
FRED B. RENWICK CAROLINE PEARSON
Trustee JERARD K. HARTMAN Assistant Secretary
Vice President
JOHN B. TINGLEFF ELIZABETH C. WERTH
Trustee THOMAS W. LITTAUER Assistant Secretary
Vice President
EDMOND D. VILLANI BRENDA LYONS
Trustee ANN C. McCREARY Assistant Treasurer
Vice President
JOHN G. WEITHERS
Trustee
</TABLE>
<TABLE>
<S> <C>
..........................................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
..........................................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
..........................................................................................................
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania Avenue
Kansas City, MO 64105
..........................................................................................................
FOREIGN CUSTODIAN THE CHASE MANHATTAN BANK
Chase Metro Tech Center
Brooklyn, NY 11245
..........................................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
..........................................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
[KEMPER LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by
a Kemper Target Equity prospectus.
KWF-2 (9/98) 1055730
