<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED JULY 31, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Seeks to provide long-term capital growth with guaranteed return of investment
on the maturity date to investors who reinvest all dividends and hold their
shares to the maturity date.
KEMPER
TARGET EQUITY FUND
KEMPER
RETIREMENT FUND SERIES VII
"... We add value through our ability to get ahead of
conventional Wall Street wisdom, and uncover stocks with
great growth potential the market is overlooking. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
9
LARGEST HOLDINGS
10
PORTFOLIO OF INVESTMENTS
13
REPORT OF INDEPENDENT AUDITORS
14
FINANCIAL STATEMENTS
16
NOTES TO FINANCIAL STATEMENTS
19
FINANCIAL HIGHLIGHTS
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER RETIREMENT FUND SERIES VII
TOTAL RETURN*
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
SERIES VII 9.68%
- --------------------------------------------------------------------------------
</TABLE>
Returns are historical and do not guarantee future performance. Investment
returns and principal value will 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>
SERIES VII $10.62 $9.78
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
During the year ended July 31, 1998, the fund paid the following dividends per
share:
<TABLE>
<CAPTION>
INCOME
DIVIDEND
- --------------------------------------------------------------------------------
<S> <C>
SERIES VII $0.10
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
- --------------------------------------------------------------------------------
Blue chip stock Stock of a large, well-known, high quality company with an
established record of [making money] and paying dividends.
Gray Monday The name used to identify Monday, October 27, 1997. On that day,
turmoil in Southeast Asian markets triggered a one-day drop of 7 percent in the
U.S. equity market.
Volatility Characteristic of a security, commodity or market to rise or fall
sharply in price within a short period of time. A stock may be volatile because
the outlook for the company is particularly uncertain or because of various
other reasons.
Zero-coupon bond A bond that makes no periodic interest payments but instead is
sold at a deep discount to its face value. The buyer of such a bond receives the
rate of return by the gradual appreciation of the security due to accrual of
interest. The security is redeemed at face value at maturity.
<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
[CHESTER PHOTO]
TRACY MCCORMICK CHESTER JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1994 AND
SERVES AS A MANAGING DIRECTOR. SHE IS ALSO A VICE PRESIDENT AND PORTFOLIO
MANAGER OF KEMPER RETIREMENT FUND SERIES VII. MCCORMICK CHESTER RECEIVED BOTH
HER BACHELOR OF ARTS AND M.B.A. DEGREES FROM MICHIGAN STATE UNIVERSITY.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE REPORT PERIOD, AS STATED ON THE COVER. THE MANAGER'S
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON THE MARKET AND OTHER
CONDITIONS.
DESPITE A FROTHY MARKET, LEAD PORTFOLIO MANAGER TRACY MCCORMICK CHESTER LED
KEMPER RETIREMENT FUND SERIES VII TO A ONE-YEAR RETURN THAT SURPASSED ITS PEER
GROUP'S AVERAGE (SEE PAGE 8 FOR COMPLETE PERFORMANCE). BELOW, SHE DISCUSSES THE
CHALLENGES AND OPPORTUNITIES PRESENTED BY THE MARKET.
Q HOW DID THE FUND PERFORM DURING THE FISCAL YEAR?
A For the one-year period ending July 31, 1998, Kemper Retirement Fund
Series VII gained 9.68 percent (unadjusted for any sales charge). The fund
handily outpaced the Lipper Balanced Target Maturity category average of 5.76
percent.
Q THROUGHOUT THE PAST YEAR, THE NEWS HAS BEEN FULL OF STORIES OF MARKET
VOLATILITY. AGAINST WHAT BACKDROP DID THE FUND EARN ITS GAINS?
A The past year has certainly reminded us what shorter-term volatility is
all about. As we entered the fiscal year, the domestic markets were enjoying a
period of strong performance. However, on October 27, 1997, the U.S. equity
market declined 7 percent. This one-day drop, now referred to as "Gray Monday,"
was triggered by currency turmoil in Southeast Asia. Although American companies
had been posting solid earnings for the past few years, the collapse in Asia
cast a ripple of doubt through the U.S. markets. Investors began to question the
sustainability of domestic growth and corporate earnings.
The U.S. equity market bounced back with surprising speed. On the global
front, the International Monetary Fund developed various bailout plans for Asia.
Additionally, many American companies announced strong earnings. There was a
collective sigh of relief, and investors returned to the market with renewed
vigor.
Despite the first quarter rally, market volatility has continued to be a
dominant theme, however. Investors have been extremely jittery; and companies
that have fallen short of earnings expectations have felt the very sharp sting
of Wall Street's disapprobation. And although small company and technology
stocks have borne the brunt of the volatility, no sector has remained unscathed.
As the fund's fiscal year-end wound down, it was apparent that the clouds of the
Asian contagion have not cleared. July was marked by particularly strong
downside volatility, as investors reacted negatively to disappointing earnings
announcements.
Q COULD YOU SUMMARIZE HOW THE EQUITY PORTION OF THE FUND WAS POSITIONED?
A The fund's equity allocation (about 36%) is invested in common stocks.
Within the equity allocation, we favor domestic large-company stocks issued by
established companies. This served us in good stead, as the market has favored
large-cap stocks over their smaller peers. The portfolio is well diversified
across market sectors. This diversification can serve to help mitigate
volatility. As the fiscal year concluded, the fund's four largest allocations
were in finance, technology, consumer nondurables and health care stocks.
5
<PAGE> 6
PERFORMANCE UPDATE
In the fall of 1997, we adopted a more defensive stance. Concerned that
technology stocks might be due for a dip after their very strong rally last
summer, we reduced the fund's exposure to that sector. This helped to limit the
fund's exposure to Asia and shielded it from some of the more dramatic stock
implosions. However, our more cautious outlook may have clipped performance in
the first quarter's rally.
Q HOW DO YOU FIND STOCKS THAT EXHIBIT STRONG LONG-TERM PERFORMANCE
POTENTIAL?
A Intensive research and disciplined adherence to growth-at-the-right price
(GARP) are cornerstones of our stock evaluation process. We add value through
our ability to get ahead of conventional Wall Street wisdom, and uncover stocks
with great growth potential that the market is overlooking. Shareholders benefit
by our early recognition of changing conditions, both within specific companies
and across industries. Through this intensive research process, we hone in on
companies undergoing management or other structural changes and on firms
launching new products. On an industry level, we seek out those areas poised for
significant events, such as consolidations.
We seek out companies that have sustainable earnings growth, and good
market positions or potential. We don't let ourselves get carried away by the
market's vicissitudes. Because we adhere strictly to a growth-at-the-right price
discipline, we may miss out on some short-term gains when the market favors
high-flyers, as it has for much of the past year. By searching out stocks with
good fundamentals and sensible valuations, we believe that we'll generate
healthy, long-term return potential. And, our strict discipline gets us out of
stocks before their valuations get too high.
Q COULD YOU GIVE US SOME EXAMPLES?
A Our attentiveness to company and market trends led us to several companies
undergoing restructuring. For instance, we own Stanley Works, a global hardware
firm that boasts a strong franchise and new management, and R.R. Donnelley &
Sons, a publishing firm that is also benefiting from restructuring.
Another good example of where our research paid off is ALZA, a
pharmaceutical manufacturer. We saw the potential of its drug delivery
technology before the company came into the spotlight, and added it before it
attracted the Wall Street buzz. This year, we've seen the stock post significant
gains. However, in keeping with our disciplined strategy, as ALZA's valuations
rise, we are paring the fund's position.
Our research also drew us to Alcatel Alsthom (ADR), an attractively valued
American depository receipt from a French telecommunications company. Alcatel
Alsthom has been making positive strategic moves, such as spinning off
divisions. In many ways, Alcatel Alsthom harkens back to what Lucent
Technologies was two years ago.
Q WHAT DIDN'T TURN OUT AS WELL AS EXPECTED?
A We were surprised by how speedily the market bounced back in the first
quarter of the year. In hindsight, we perhaps missed opportunities to purchase
some stocks at low prices. We anticipated that money-center banks would be more
susceptible to the effects of the Asian turmoil, and instead favored
high-quality regional banks. Money-center banks performed better than expected,
however.
The fund's returns have also been hindered by its exposure to energy
stocks, such as Chevron Corp. Supply and demand concerns have plagued oil
services stocks for many months. However, we believe that many of these stocks
still offer the opportunity for price appreciation.
The fund's performance relative to the S&P 500 Index has trailed due to
the "flight to quality" we've seen since Gray Monday. In this uncertain market
climate, nervous investors have raced to the perceived security offered by
blue-chip stocks -- the sort of stocks that Kemper Retirement Fund favors. The
prices of these stocks have risen dramatically, and have been pushed well beyond
the range that we feel is appropriate and sustainable.
Because of our valuation discipline, we were sidelined for some portions
of the market's upward momentum. For instance, we've been limited in our
selection of consumer nondurable stocks, a sector that has been quite profitable
over the past year. We've also had to hunt for health care stocks that meet our
valuation parameters.
However, that's certainly not to say that we've been left out in the cold.
As prices of stocks have returned to sounder levels, we've reaped rewards within
both sectors, while maintaining our GARP focus.
Q WHERE HAVE YOU BEEN FINDING OPPORTUNITIES?
A We're continuing to find good values in the insurance industry. We think
that insurance stocks could hold considerable potential. The insurance industry
is trending toward consolidation; and as bank deregulation continues, insurance
6
<PAGE> 7
PERFORMANCE UPDATE
stocks will continue to gain appeal. The portfolio's larger holdings include
American General Corp. and Jefferson-Pilot Corp., two stocks we back with
particular conviction. During the year, we also initiated a position in
Torchmark, a provider of insurance and financial services, including direct
response marketing for banks.
We think that the telecommunications sector will continue to thrive in the
current economic climate. The portfolio includes long-distance carriers such as
Sprint and WorldCom, as well as regional bell operators including Ameritech and
SBC Communications. The fund also holds Cincinnati Bell, a nicely diversified
company with direct marketing billing as well as regional telecommunications
services.
Large, established technology firms are well represented in the portfolio.
Based on valuations, we're favoring component- and PC-based companies over
software firms. We think that many of the firms in these subsectors have
addressed the impact of the Asian turmoil, and that their stock prices are
reasonable. We're sticklers for demonstrated growth potential and quality
operations. The fund's technology exposure is anchored by some of the
most-tested names in the industry, including Texas Instruments, Computer
Sciences Corp., Sun Microsystems and International Business Machines.
Q WHAT IMPACT DID THE FUND'S BOND STAKE HAVE ON PERFORMANCE?
A In keeping with its structure as a guaranteed target maturity fund, the
fund holds the lion's share of its assets (about 60%) in zero-coupon Treasury
bonds. These bonds provide stability, and can offer a degree of shelter when the
equity markets tumble. For instance, fixed-income exposure helped the portfolio
during the most severe pockets of the Asia-borne turbulence. However, because of
its large bond stake, the fund won't always fully participate during equity
rallies, such as the first quarter's. And although they did provide stability
during the Asian turmoil, zero coupon bonds are not without volatility,
particularly when interest rates move.
Q HOW HAS THE RECENT MARKET CLIMATE HIGHLIGHTED THE ROLE THAT KEMPER
RETIREMENT FUND VII COULD FILL IN A PORTFOLIO?
A Volatility is an inherent part of investing, and cannot be sidestepped.
However, Kemper Retirement Fund Series VII offers more conservative investors a
chance to participate in the equity markets without jeopardizing their principal
investment. Investors who remain in the fund until its maturity date (May 15,
2008), and adhere to a disciplined reinvestment approach are guaranteed the
return of their principal. In a volatile environment such as the one we've seen
in the past year, this fund offers an added degree of security. We believe that
it is important to keep a long-term focus, and this fund encourages that
discipline.
Q THE PAST YEAR HAS CERTAINLY HAD ITS SHARE OF UPS AND DOWNS. IS THERE ANY
SIGN OF THE TURMOIL LETTING UP?
A We continue to be positive about the long-term growth prospects for the
U.S. markets. Inflation is low, the economy is slowing and interest rates remain
low. However, short-term volatility will continue, and investors need to be
prepared for ups and downs. Downside volatility can be frustrating, but it also
opens up new opportunities as stock prices dip. We believe that our research
capabilities put us in a very good position to use the market's short-term
fluctuations to the long-term advantage of shareholders. By sticking to a
stock-by-stock approach, we are confident that our focus on well-researched,
large-cap companies will continue to provide shareholders with the opportunity
to reap the long-term potential of the equity market.
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 RETIREMENT FUND SERIES VII 4.25% 10.47% (since 5/1/97)
- --------------------------------------------------------------------------------------
</TABLE>
Past performance does not guarantee future performance. Returns and net asset
value fluctuate. Shares are redeemable at current net asset value, which may
be more or less than original cost.
[LINE GRAPH]
- --------------------------------------------------------------------------------
Kemper Retirement Fund Series VII
Growth of an assumed $10,000 investment from 5/1/97 to 7/31/98
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/1/97 1/31/98 7/31/98
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kemper Retirement Fund Series VII(1) 10000 10327 10338 10826 11327 11327
Russell 1000(R) Growth Index+ 10000 12137 11545 12535 11938 12228
Lehman Bros. Gov't/Corp. Bond Index++ 10000 10527 10742 11065 11133 11376
</TABLE>
* Average annual total return measures net investment income and capital
gain or loss from portfolio investments, assuming reinvestment of all
dividends. Average annual total return reflects annualized change. During
the periods noted, securities prices fluctuated. For additional
information, see the Prospectus and Statement of Additional Information and
the Financial Highlights at the end of this report.
(1) Performance includes reinvestment of dividends and adjustment for the
maximum sales charge of 5.0%. When comparing Kemper Retirement Fund Series
VII to the Russell 1000(R) Growth 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 index.
+ The Russell 1000(R) Growth Index is an unmanaged index comprised of common
stocks of larger U.S. companies with greater than average growth
orientation and represents the universe of stocks from which "earnings/
growth" money managers typically select. Assumes reinvestment of dividends.
Source is Lipper Analytical Services, Inc.
++ The Lehman Brothers Government/ Corporate Bond Index is an unmanaged
index comprised of intermediate and long-term government and investment
grade corporate debt securities. Source is Towers Data System.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
Representing 21.0 percent of the fund's total common stocks on July 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. UNIVISION COMMUNICATIONS The Company is a leading Spanish-language T.V. 2.4%
broadcaster.
2. TEXAS INSTRUMENTS A high technology company with sales or manufacturing 2.3%
operations in more than 30 countries. Products and
services include semiconductors, defense electronic
systems, software productivity tools, computer and
peripheral products and consumer products.
3. INTERNATIONAL BUSINESS Manufactures data processing equipment and systems in 2.2%
MACHINES the information handling field.
4. CIGNA A leading provider of insurance and related financial 2.2%
services throughout the United States and the world.
5. CINCINNATI BELL Provides telecommunications services, information 2.1%
systems, and marketing services.
6. COMPUTER SCIENCES A major developer and systems integrator of computers 2.1%
and communication systems, and a provider of
information technology and outsourcing consulting.
7. TEXTRON A global, multi-industry company with operations in 2.0%
aircraft technology, automotive component manufacturing
and financial services.
8. ABBOTT LABORATORIES Engaged in the discovery, development, manufacture and 2.0%
sale of a broad and diversified line of health care
products and services.
9. AMERICAN EXPRESS A diversified travel and financial services company. It 1.9%
is a leader in charge and credit cards, Travelers
cheques, travel, financial planning, investment
products, insurance and international banking.
10. FIRST CHICAGO NBD The company is a multi-bank holding company with 1.8%
subsidiaries engaged in consumer banking, commercial
banking, trust and investment services, investment
management, real estate operating lease financing, and
international banking.
</TABLE>
*The fund's holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER RETIREMENT FUND -- SERIES VII
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, 2008
OBLIGATIONS--61.6% (Cost: $15,275) $27,500 $15,877
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNICATION--3.2% (a)AirTouch Communications, Inc. 300 18
(a)American Tower Systems Corp. 100 2
Ameritech Corp. 1,600 79
Cincinnati Bell Inc. 6,000 193
Frontier Corp. 3,000 101
SBC Communications, Inc. 2,500 102
Sprint Corp. 1,500 105
(a)US West, Inc. 2,000 107
(a)WorldCom, Inc. 2,000 106
--------------------------------------------------------------------------
813
- -------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--1.7% (a)Consolidated Stores Corp. 1,000 34
May Department Stores 1,700 109
(a)Mirage Resorts, Inc. 3,000 64
Newell Companies Inc. 2,100 108
(a)Proffitt's, Inc. 4,000 126
--------------------------------------------------------------------------
441
- -------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--2.5% Dial Corp. 4,000 95
General Mills, Inc. 1,200 74
Gillette Co. 1,000 52
H.J. Heinz Co. 2,000 110
McCormick & Company, Inc. 3,500 113
Procter & Gamble Co. 2,000 159
Sara Lee Corp. 1,000 50
--------------------------------------------------------------------------
653
- -------------------------------------------------------------------------------------------------------------------
DURABLES--1.9% Dana Corp. 1,700 85
Federal-Mogul Corp. 2,000 120
Goodyear Tire & Rubber Co. 1,000 61
Stanley Works 3,400 148
(a)Tellabs, Inc. 1,000 75
--------------------------------------------------------------------------
489
- -------------------------------------------------------------------------------------------------------------------
ENERGY--1.2% Chevron Corp. 1,400 116
Mobil Corp. 1,200 84
Royal Dutch Petroleum Co. 1,000 51
Texaco Inc. 1,000 61
--------------------------------------------------------------------------
312
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE--7.9% AFLAC, Inc. 1,900 $ 65
American Express Company 1,600 177
American General Corp. 1,500 102
Associates First Capital Corp. 2,000 155
Cigna Corp. 3,000 198
Compass Bancshares Inc. 1,000 41
Federal National Mortgage Association 2,000 124
First Chicago NBD Corp. 2,000 168
First Security Corp. 3,000 66
First Tennessee National Corp. 2,000 63
Household International, Inc. 2,259 112
Jefferson-Pilot Corp. 2,400 135
Marsh & McLennan Companies, Inc. 1,500 92
Mellon Bank Corp. 600 40
Morgan Stanley Dean Witter & Co. 1,650 144
NationsBank Corp. 1,200 96
Torchmark Corp. 3,100 136
Travelers Group, Inc. 1,700 114
--------------------------------------------------------------------------
2,028
- -----------------------------------------------------------------------------------------------------------------------
HEALTH CARE--4.7% Abbott Laboratories 4,400 183
ALZA Corp. 1,000 39
American Home Products Corp. 2,500 129
Bausch & Lomb, Inc. 3,000 153
Becton, Dickinson & Co. 2,000 165
Bristol-Myers Squibb Co. 700 80
Eli Lilly & Co. 2,000 134
(a)HEALTHSOUTH Corp. 1,300 33
Merck & Co., Inc. 500 62
Schering-Plough Corp. 1,300 126
(a)Wellpoint Health Networks Inc. 1,700 104
--------------------------------------------------------------------------
1,208
- -----------------------------------------------------------------------------------------------------------------------
MANUFACTURING--3.0% Bowater, Inc. 1,500 69
Emerson Electric Co. 1,900 113
General Electric Co. 400 36
Monsanto Co. 2,000 113
PPG Industries, Inc. 1,600 101
Raytheon Co. 2,962 160
Textron, Inc. 2,500 185
--------------------------------------------------------------------------
777
- -----------------------------------------------------------------------------------------------------------------------
MEDIA--2.4% CBS Corp. 3,900 132
R.R. Donnelley & Sons Co. 3,000 127
(a)Univision Communications Inc. 6,000 219
Walt Disney Co. 2,400 83
(a)Young & Rubicam Inc. 2,000 60
--------------------------------------------------------------------------
621
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--6.7% Alcatel Alsthom (ADR) 4,000 $ 157
(a)Analog Devices, Inc. 3,500 75
(a)Cadence Design Systems Inc. 2,000 58
(a)Cisco Systems, Inc. 1,200 115
(a)Computer Sciences Corp. 3,000 192
GM-Hughes Electronics Corp. 1,500 64
(a)Gartner Group, Inc. 1,500 46
Hewlett-Packard Co. 2,100 117
International Business Machines Corp. 1,500 199
Motorola Inc. 3,000 157
(a)Parametric Technology Corp. 3,300 45
(a)Seagate Technology, Inc. 2,500 57
(a)Sterling Commerce, Inc. 1,000 40
(a)Sun Microsystems, Inc. 2,700 128
(a)Teradyne Inc. 1,500 34
Texas Instruments Inc. 3,500 207
(a)Xilinx Inc. 1,000 37
--------------------------------------------------------------------------
1,728
- -----------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--.4% Canadian National Railway 1,000 53
Norfolk Southern Corp. 1,500 45
--------------------------------------------------------------------------
98
--------------------------------------------------------------------------
TOTAL COMMON STOCKS--35.6%
(Cost: $8,714) 9,168
--------------------------------------------------------------------------
TOTAL INVESTMENTS--97.1%
(Cost: $23,989) 25,045
--------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--2.9% 742
--------------------------------------------------------------------------
NET ASSETS--100% $25,787
--------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $23,989,000 for federal income tax purposes
at July 31, 1998, the gross unrealized appreciation was $1,371,000, the gross
unrealized depreciation was $315,000 and the net unrealized appreciation on
investments was $1,056,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 13
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TARGET EQUITY FUND--
KEMPER RETIREMENT FUND SERIES VII
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Target Equity Fund--Kemper
Retirement Fund Series VII as of July 31, 1998, the related statement of
operations for the year then ended and the statement of changes in net assets
and the financial highlights for the year ended July 31, 1998, 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, 1998, 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, 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
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------
Investments, at value
(Cost: $23,989) $25,045
- -----------------------------------------------------------------------
Cash 773
- -----------------------------------------------------------------------
Receivable for:
Investments sold 37
- -----------------------------------------------------------------------
Fund shares sold 34
- -----------------------------------------------------------------------
Dividends 11
- -----------------------------------------------------------------------
TOTAL ASSETS 25,900
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -----------------------------------------------------------------------
Payable for:
Investments purchased 75
- -----------------------------------------------------------------------
Management fee 10
- -----------------------------------------------------------------------
Administrative services fee 5
- -----------------------------------------------------------------------
Trustees' fees and other 23
- -----------------------------------------------------------------------
Total liabilities 113
- -----------------------------------------------------------------------
NET ASSETS $25,787
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -----------------------------------------------------------------------
Paid-in capital $24,337
- -----------------------------------------------------------------------
Undistributed net realized gain on investments 62
- -----------------------------------------------------------------------
Net unrealized appreciation on investments 1,056
- -----------------------------------------------------------------------
Undistributed net investment income 332
- -----------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $25,787
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
THE PRICING OF SHARES
- -----------------------------------------------------------------------
Shares outstanding 2,428
- -----------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE $10.62
- -----------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE
(net asset value, plus 5.26% of
net asset value or 5.00% of offering price) $11.18
- -----------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- ----------------------------------------------------------------------
NET INVESTMENT INCOME
- ----------------------------------------------------------------------
Interest $ 549
- ----------------------------------------------------------------------
Dividends 83
- ----------------------------------------------------------------------
Total investment income 632
- ----------------------------------------------------------------------
Expenses:
Management fee 76
- ----------------------------------------------------------------------
Administrative services fee 38
- ----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 45
- ----------------------------------------------------------------------
Professional fees 7
- ----------------------------------------------------------------------
Reports to shareholders 12
- ----------------------------------------------------------------------
Trustees' fees and other 11
- ----------------------------------------------------------------------
Total expenses 189
- ----------------------------------------------------------------------
NET INVESTMENT INCOME 443
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ----------------------------------------------------------------------
Net realized gain on sales of investments 65
- ----------------------------------------------------------------------
Change in net unrealized appreciation on investments 870
- ----------------------------------------------------------------------
Net gain on investments 935
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,378
- ----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR MONTH
ENDED ENDED MAY 1(A) TO
JULY 31, JULY 31, JUNE 30,
1998 1997 1997
- ------------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income $ 443 9 5
- ------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 65 (1) (2)
- ------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 870 162 24
- ------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,378 170 27
- ------------------------------------------------------------------------------------------------------------
Distribution from net investment income (125) -- --
- ------------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 19,984 2,337 1,916
- ------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 21,237 2,507 1,943
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Beginning of period 4,550 2,043 100
- ------------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of
$332, $14 and $5, respectively) $25,787 4,550 2,043
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of operations.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Retirement Fund Series VII (the Fund) is a
series of Kemper Target Equity Fund (the Trust), an
open-end, management investment company, organized
as a business trust under the laws of
Massachusetts. The objectives of the Fund are to
provide a guaranteed return of investment on the
Maturity Date (May 15, 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 Scudder Kemper Investments, Inc.,
the Fund's investment manager.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Portfolio securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported on Nasdaq. If there are no such sales, the
value is the most recent bid quotation. Securities
which are not quoted on Nasdaq but are traded in
another over-the-counter market are valued at the
most recent sale price on such market. If no sale
occurred, the security is then valued at the
calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation
shall be used.
Portfolio debt securities other than money market
securities with an original maturity over sixty
days are valued by pricing agents approved by the
officers of the Fund, which quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost. All other
securities are valued at their fair market value as
determined in good faith by the Valuation Committee
of the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date. Dividend income is recorded on the ex-
dividend date, and interest income is recorded on
the accrual basis. Interest income includes
discount amortization of 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 close of
the Exchange by dividing the total value of the
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
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.
- --------------------------------------------------------------------------------
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 .50%
of average daily net assets. The Fund incurred a
management fee of $76,000 for the year ended July
31, 1998.
UNDERWRITING AGREEMENT. The Trust has an
underwriting agreement with Kemper Distributors,
Inc. (KDI). Underwriting commissions paid in
connection with the distribution of the Fund's
shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED
RETAINED BY KDI BY KDI TO FIRMS
--------------- -------------------
<S> <C> <C>
Year ended July 31, 1998 $96,000 $853,000
</TABLE>
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.
Administrative services fees (ASF) paid are as
follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY
THE FUND TO KDI KDI TO FIRMS
--------------- ------------
<S> <C> <C>
Year ended July 31, 1998 $38,000 $39,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Trust's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent for the Fund. Under the agreement,
KSvC received shareholder service fees of $18,000
for the year ended July 31, 1998.
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 $2,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended July 31, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<S> <C>
Purchases $26,947
Proceeds from sales 6,682
</TABLE>
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MONTH ENDED MAY 1 TO
JULY 31, 1998 JULY 31, 1997 JUNE 30, 1997
---------------- --------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 2,064 $21,046 253 $2,422 212 $1,930
-----------------------------------------------------------------------
Shares issued in
reinvestment of
dividends 16 151 -- -- -- --
-----------------------------------------------------------------------
Shares redeemed (117) (1,213) (9) (85) (2) (14)
-----------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE
TRANSACTIONS $19,984 $2,337 $1,916
-----------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MONTH
YEAR ENDED ENDED MAY 1(A) TO
JULY 31, JULY 31, JUNE 30,
1998 1997 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.78 9.23 9.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .21 .01 .02
- --------------------------------------------------------------------------------
Net realized and unrealized gain .73 .54 .21
- --------------------------------------------------------------------------------
Total from investment operations .94 .55 .23
- --------------------------------------------------------------------------------
Less distribution from net investment
income .10 -- --
- --------------------------------------------------------------------------------
Net asset value, end of period $10.62 9.78 9.23
- --------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 9.68% 5.96 2.56
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------
Expenses 1.21% .95 1.17
- --------------------------------------------------------------------------------
Net investment income 2.79% 3.45 3.16
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $25,787 4,550 2,043
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 43% 6 12
- --------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges.
(a) Commencement of operations.
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$33,000 as capital gain dividends for the year ended July 31, 1998, of which
100% represents 20% rate gains.
For corporate shareholders, 15% of the income earned during the year ended July
31, 1998 qualified for the dividends received deduction.
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.
19
<PAGE> 20
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY
Chairman and Trustee President
JAMES E. AKINS PHILIP J. COLLORA
Trustee Vice President and
Secretary
ARTHUR R. GOTTSCHALK JOHN R. HEBBLE
Trustee Treasurer
FREDERICK T. KELSEY TRACY MCCORMICK CHESTER
Trustee Vice President
FRED B. RENWICK JERARD K. HARTMAN
Trustee Vice President
JOHN B. TINGLEFF THOMAS W. LITTAUER
Trustee Vice President
EDMOND D. VILLANI ANN M. MCCREARY
Trustee Vice President
JOHN G. WEITHERS KATHRYN L. QUIRK
Trustee Vice President
STEVEN H. REYNOLDS
Vice President
LINDA J. WONDRACK
Vice President
MAUREEN E. KANE
Assistant Secretary
CAROLINE PEARSON
Assistant Secretary
ELIZABETH C. WERTH
Assistant Secretary
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
INDEPENDENT ERNST & YOUNG LLP
AUDITORS 233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS 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 Fund VII prospectus.
KRF7 - 2 (9/98) 1055610
