<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED JANUARY 31, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS 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 global tottering of equity and
bond markets moved the Federal Reserve Board to
do something twice within one month that
it had not done since 1996 -- cut interest rates. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
8
LARGEST HOLDINGS
9
PORTFOLIO OF INVESTMENTS
13
FINANCIAL STATEMENTS
15
NOTES TO FINANCIAL STATEMENTS
18
FINANCIAL HIGHLIGHTS
19
SHAREHOLDERS' MEETING
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER WORLDWIDE 2004 FUND
TOTAL RETURN*
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED JANUARY 31,1999
(UNADJUSTED FOR ANY SALES CHARGE)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
KEMPER WORLDWIDE 2004 FUND 2.59%
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. INVESTMENT IN FOREIGN
SECURITIES PRESENTS SPECIAL RISK CONSIDERATIONS INCLUDING FLUCTUATING CURRENCY
EXCHANGE RATES, GOVERNMENT REGULATION AND DIFFERENCES IN LIQUIDITY.
* 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
1/31/99 7/31/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER WORLDWIDE 2004 FUND $10.47 $11.77
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER WORLDWIDE 2004 FUND
RANKINGS AS OF 1/31/99
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER BALANCED TARGET MATURITY CATEGORY**
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
KEMPER WORLDWIDE 2004 FUND
- --------------------------------------------------------------------------------
<S> <C>
1-YEAR #8 of 13 funds
- --------------------------------------------------------------------------------
3-YEAR #8 of 12 funds
- --------------------------------------------------------------------------------
</TABLE>
** LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES
IN NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE
EFFECT OF SALES CHARGES AND, IF THEY HAD, RESULTS MAY HAVE BEEN LESS
FAVORABLE.
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE SIX-MONTH PERIOD ENDED JANUARY 31, 1999, 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 $0.42 $0.09 $1.07
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
Source: Morningstar, Inc., Chicago, IL 312-696-6000. The Equity 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.
THE STYLE BOX REPRESENTS A SNAPSHOT OF A FUND'S PORTFOLIO ON A SINGLE DAY.
PLEASE NOTE THAT STYLE BOXES DO NOT REPRESENT AN EXACT ASSESSMENT OF RISK AND DO
NOT REPRESENT FUTURE PERFORMANCE. THE FUND'S PORTFOLIO CHANGES FROM DAY-TO-DAY.
A LONGER-TERM VIEW IS REPRESENTED BY THE FUND'S MORNINGSTAR CATEGORY, WHICH IS
BASED ON ITS ACTUAL INVESTMENT STYLE AS MEASURED BY ITS UNDERLYING PORTFOLIO
HOLDINGS OVER THE PAST THREE YEARS. PLEASE CONSULT THE PROSPECTUS FOR A
DESCRIPTION OF INVESTMENT POLICIES.
CURRENCY DEVALUATION A significant decline of a currency's value relative to
other currencies, such as the U.S. dollar. This may be prompted by trading or
central bank intervention (or the lack of intervention) in the currency markets.
For U.S. investors who are investing overseas, a devaluation of a foreign
currency can have the effect of reducing an investment's total return.
EUROPEAN MONETARY UNION An economic and monetary unification of European
countries to introduce a single currency and create a more economically
competitive region.
LIQUIDITY A characteristic of an investment or an asset referring to the ease of
convertibility into cash within a reasonably short period of time.
<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'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND 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
IN THE WORLD, MANAGING MORE THAN $280 BILLION IN ASSETS FOR INSTITUTIONAL AND
CORPORATE CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL
FUND INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE
OF INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION
OF PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
If you think the first quarter of 1999 has seemed rather anticlimactic compared
to 1998, you're not alone. The year began with a quiet bang in the U.S. stock
market, with the Dow Jones Industrial Average hitting an all-time high of 9643
points in the first week of January. While stock market volatility has
continued, it seems to be phasing investors less and less. Even global events
are being taken in stride. Europe's Economic and Monetary Union (EMU) was
launched without much notice. And when Brazil's economy recently took a turn for
the worse, Wall Street was only mildly concerned. Also contributing to today's
laid-back attitude -- the impeachment trial of President Clinton has all but
fizzled into obscurity without significantly affecting the U.S. economy or
markets.
Indeed, the U.S. economy looks good. The fundamentals by which we measure the
state of the economy remain strong. We continue to see solid consumer spending
growth, continued investment spending and low inflation. This suggests that
there are no internal problems for continued U.S. economic growth.
Additionally, we can expect the Federal Reserve Board to keep short-term
interest rates steady. On February 3, the Fed left interest rates unchanged. It
is likely that this "hands-off" approach will continue at the Fed's March 30
meeting, particularly if U.S. inflation remains in check and there is a degree
of financial instability in the international arena.
The U.S. budget surplus for 1998 came in at $60 billion, with another budget
surplus of between $80 billion and $100 billion expected for fiscal 1999. Growth
in the nation's gross domestic product (GDP), which represents the total value
of all goods and services produced within the U.S. economy, has remained steady.
GDP, driven by consumer spending, is expected to grow at an annualized rate of
approximately 3 to 3.5 percent in 1999. We also anticipate modest capital
spending growth and inventory growth.
The consumer price index (CPI) remains in the vicinity of 2 percent. However,
energy prices, which were down 6 to 7 percent last year and helped keep the CPI
down, are unlikely to remain so low this year. For 1999, inflation should
register at 2 to 2.5 percent.
Employment growth has slowed to 2 percent, but combined with real wage growth
of between 2 percent and 2.5 percent, produces real income growth between 4
percent and 5 percent. In addition, gains in household net worth, which tends to
fuel consumer spending, are on the rise. Banks appear to be only a little less
willing to lend in 1999, so the threat of a general credit crunch is minimal. As
a result of all these factors, consumer spending should continue to grow this
year.
On a less positive note, corporate profits have slowed in 1999, growing at a
rate of 1 percent to 3 percent on a year-over-year basis. As a result, we may
see a slowdown in capital spending this year. The current U.S. account deficit
is rising, which suggests the U.S. economy is increasingly dependent on foreign
capital inflows to finance its economic activity. This is acceptable as long as
foreign money continues to flow in. But if foreign investors, particularly the
Japanese, no longer wish to invest in the United States, we can expect pressure
on interest rates and the dollar, as well as increased uncertainty and market
volatility.
Given the events of the last two years, investors may be comforted by the fact
that the U.S. markets and economy have withstood the test of tumultuous times.
While certain countries, such as Malaysia, Indonesia, Brazil and Russia, are
still suffering from economic crises, others, including the Philippines, South
Korea, Thailand and China, continue to recover and grow. As long as the Fed and
the Group of Eight leading industrial nations (G8) are committed to avoiding
recession on national and global levels respectively, investors have a good
chance of experiencing a more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as some analysts expected.
Indeed, Asian turmoil has not affected U.S. export
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 (2/28/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 5 5.34 5.57 6.42
Prime rate(2) 7.75 8.5 8.5 8.25
Inflation rate(3) 1.6 1.68 1.63 3.04
The U.S. dollar(4) -1.53 8.17 5.05 7.67
Capital goods orders(5)* 5.53 3.05 12.61 3.93
Industrial production(5)* 1.72 2.71 5.92 6.44
Employment growth(6) 2.23 2.69 2.78 2.47
</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 JANUARY 31, 1999.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
volumes as much as it has lowered import prices and helped reduce global
interest rates.
Ultimately, Europe's recently inaugurated EMU is likely to bring more
flexibility and growth potential for the region. European equities may be the
beneficiaries of increased spending, as governments seek to ease fiscal and
monetary policy, foster growth and reduce unemployment. It's going to be
interesting to watch as the monetary union continues to evolve. One lesson for
investors -- particularly those with international holdings -- is to diversify.
With the democratization of the world, the globalization of trade and more free
market economies at our fingertips, international markets are becoming more and
more attractive. But if you subscribe to the concept of international
investment, be cautious -- don't put all of your investment eggs in one basket
(i.e. country or region).
Other key elements to watch in 1999: the race for the next presidency and
information technology preparedness for the year 2000. And remember, while it is
nearly impossible to predict the next big crisis, preparedness through
diversification and risk management are key.
Thank you for choosing to invest with Kemper Funds. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/S/ John E. Silvia
John E. Silvia
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN E. SILVIA AS OF MARCH 8, 1999, AND
MAY NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
4
<PAGE> 5
PERFORMANCE UPDATE
[DEXTER PHOTO]
STEPHEN DEXTER IS A MEMBER OF SCUDDER KEMPER INVESTMENTS GLOBAL EQUITY GROUP AND
IS CO-LEAD PORTFOLIO MANAGER OF KEMPER WORLDWIDE 2004 FUND. STEVE HAS GEOGRAPHIC
RESPONSIBILITY FOR LATIN AMERICA, AFRICA, CANADA, ASIA, AUSTRALIA AND NEW
ZEALAND. HE JOINED SCUDDER KEMPER INVESTMENTS, INC. AS AN EQUITY ANALYST IN 1986
AND HAS TWICE BEEN NAMED "BEST OF THE BUY SIDE" BY INSTITUTIONAL INVESTOR. STEVE
RECEIVED A BACHELOR'S DEGREE IN ECONOMICS AND AN M.B.A. IN FINANCE FROM THE
UNIVERSITY OF WISCONSIN. HE HAS ALSO GRADUATED FROM THE WISCONSIN APPLIED
SECURITIES ANALYSIS PROGRAM.
[SLENDEBROEK PHOTO]
MARC SLENDEBROEK JOINED SCUDDER KEMPER INVESTMENTS IN 1994 AND IS BASED IN OUR
LONDON OFFICE. AS CO-LEAD PORTFOLIO MANAGER OF KEMPER WORLDWIDE 2004 FUND HE
FOCUSES ON THE EUROPEAN REGION. PRIOR TO JOINING SCUDDER KEMPER INVESTMENTS,
MARC WAS WITH KLEINWORT BENSON SECURITIES IN LONDON WHERE HE WAS MANAGER OF
DUTCH RESEARCH. HE ALSO WORKED FOR ENSKILDA SECURITIES IN LONDON AS AN EQUITY
ANALYST. MARC HOLDS A MASTER'S DEGREE IN CIVIL LAW FROM THE UNIVERSITY OF
LEIDEN, IN THE NETHERLANDS. HE IS FLUENT IN ENGLISH, DUTCH, GERMAN, SWEDISH, AND
NORWEGIAN.
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.
THIS FISCAL PERIOD BEGAN AND ENDED WITH MARKET VOLATILITY CAUSED BY CURRENCY
DEVALUATIONS IN RUSSIA AND BRAZIL. WHILE FILLING OUT THE MIDDLE MONTHS, OCTOBER
THROUGH DECEMBER SAW GLOBAL MARKETS RALLY. FOLLOWING, CO-LEAD PORTFOLIO MANAGERS
STEPHEN DEXTER AND MARC SLENDEBROEK DISCUSS THE MARKETS AND KEMPER WORLDWIDE
2004 FUND'S PERFORMANCE.
Q CAN YOU PROVIDE AN OVERVIEW OF THE EVENTS THAT DROVE INTERNATIONAL
MARKETS FROM AUGUST 1998 THROUGH JANUARY 31, 1999?
A This fiscal period began and ended with uncertainty as the economic
problems in Russia and Latin America came to the world's attention. In August,
the Russian debt default set world markets on edge and caused investors to flee
to safer ground. The global tottering of equity and bond markets moved the
Federal Reserve Board to do something twice within one month that it had not
done since 1996 -- cut interest rates, by 0.25 percent on September 29 and by
the same amount on October 16. The second cut finally had the effect the Fed was
looking for -- appeasing markets. Several European markets mirrored these cuts.
This combined effort effectively showed a global commitment to supporting
economies worldwide. This show of support sparked a second rally in the fourth
quarter. But, after much speculation, the Brazilian currency faltered in January
with a devaluation that again sent shockwaves across all markets.
There were times when developed markets swung 10 percent in a single day
due largely to shifts in investor sentiment. Banking stocks, for example, saw
dramatic drops following the Russian debt default due to investor fears that
these large institutions would suffer if loans made in emerging regions went
unpaid. Then, during the fourth quarter rally, we saw strong companies founder
and leveraged firms flourish, sometimes against common sense.
Q KEMPER WORLDWIDE 2004 FUND WAS UP 2.59 PERCENT FOR THE SIX-MONTH PERIOD.
BY COMPARISON, THE MSCI EAFE INDEX*, AN ALL-EQUITY INTERNATIONAL MARKET INDEX,
WAS UP 2.32 PERCENT. WHAT WAS YOUR INVESTMENT APPROACH AND HOW DID THIS ENABLE
YOU TO OUTPACE THE INDEX?
A We've always focused on the fundamentals of valuation and growth to try
and achieve a strong, long-term track record. We don't change the way we run the
fund to suit short-term circumstances. We're facing a different environment
today where deflation is a major concern rather than inflation. We haven't
experienced this since the 1950s. In a deflationary environment, a company
cannot simply increase the cost of its products to boost profit margins. With
this in mind, we looked for companies that are aware of this difference and are
adjusting their business approach for this new environment. Management needs to
know how to cut costs and use the capital they do have at a greater rate.
While we made some adjustments late in the period, our focus on Europe
was a positive for performance. Europe is the only major non-U.S. region
offering ongoing profit growth, strong consumer spending and continued
restructuring in industries to maximize profit margins.
5
<PAGE> 6
PERFORMANCE UPDATE
This mirrors the restructuring that American companies implemented so
successfully in the early 1980s. In addition, the run up to the launch of a
single currency on January 1, 1999 forced markets such as Spain and Italy to
bring their interest rates in line with their European neighbors which was very
positive for these markets and their economies.
As we mentioned, markets outside of Europe took some dramatic turns
during the period. Nearly all global markets fell sharply in August but then an
October rebound allowed recent market dogs to have their day as Latin American
and Southeast Asian markets surged. We missed some short-term gains offered by
this bounce because of our practice of limiting exposure to emerging markets in
this fund but, the January devaluation in Brazil wiped much of the previous
month's moves off the board. We saw, and continue to see, ongoing political and
economic strife and eroding fundamentals in these markets. Until we see true
steps taken to create political, economic and currency stability in the emerging
markets, we are likely to steer clear of them. We won't attempt to ride a
bucking market trend to try and capture some incremental returns.
* THE MSCI EAFE INDEX IS A GENERALLY ACCEPTED BENCHMARK OF STOCK MARKET
PERFORMANCE IN EUROPE, AUSTRALIA AND THE FAR EAST.
Q A SIGNIFICANT PORTION OF THIS FUND IS MADE UP OF ZERO COUPON BONDS. HOW
DID THEIR PERFORMANCE IMPACT THE PORTFOLIO?
A The zero coupon bonds were a positive contributor to overall performance.
During the upheaval we saw in equity markets in August, the "zeros" offered a
degree of stability to the portfolio. When rates were decreased in September and
October, the zero coupon bond component of the fund benefited because of their
inverse relationship to interest rates: when rates come down, bond performance
goes up.
Q HOW HAVE YOUR ALLOCATIONS CHANGED DURING THE SIX MONTHS?
A Within Europe, our biggest increase was in the United Kingdom. It has
been underperforming the region and, as a result, is offering very attractive
stock valuations. The UK has also been cutting interest rates, which should be
positive for the economy going forward. Similarly, we increased exposure to
France as recent rate cuts are expected to benefit their lagging economy. As we
moved into 1999, we did decide to rebalance the portfolio slightly, taking down
our overall European exposure to look for value in other regions.
Some profits taken from Europe were selectively reinvested in Japan.
While this market continues to struggle with the effects of a recession, we are
starting to find better value in certain industries.
We also decreased our Canadian exposure. Canada is a politically stable
country and we found some good value and growth stories there but we sold a few
Canadian positions to invest the money in other markets where we are seeing
better growth opportunities overall.
Q WHAT ABOUT BUSINESS SECTORS -- WHAT KINDS OF COMPANIES WITHIN THESE
REGIONS LOOK PROMISING, AND CAN YOU SHARE SOME PERFORMANCE STORIES WITH US?
A In Europe, we are still very attracted to corporate services. This area
supports the European trend toward corporate restructuring. In the UK, Rentokil,
a provider of a wide range of corporate services, has been a very strong
performer. We've also benefited from our heavy emphasis on telecommunications
holdings, a sector that has been booming in Europe. German-based Mannesman and
Telecom Italia were top performers for the fund in this sector.
In Japan our focus has mainly been in the outsourcing and technology
industries. Bellsystems 24 is a Japanese call center company that has done very
well for us. Murata Manufacturing, an electronics components manufacturer, has
also been a top performer.
We did own some poorer performers too. Kimberly Clark de Mexico is a very
well run consumer products company that we felt could still prosper in a
difficult economy. However, its performance tracked the Mexican market and
dropped when emerging markets were hit. Petro-Canada was also weak due to
declining oil prices. Finally, Sony is a company with great management and
phenomenal technology that was unfortunately hurt by the global slowdown. The
company is still fundamentally very strong so we are holding on to it because,
over the long haul, it could reward handsomely.
Q IN JANUARY 1999, THE SINGLE EUROPEAN CURRENCY, THE EURO, WAS LAUNCHED.
HOW DO YOU EXPECT THE CONVERSION TO AFFECT YOUR MANAGEMENT OF THE FUND?
A In terms of how to position the fund to profit from the European Economic
and Monetary Union (EMU), we feel that game
6
<PAGE> 7
PERFORMANCE UPDATE
has already been played. Going forward, the direct management of the European
component of the fund will not change significantly. Our bottom-up process
remains in place. The convergence to a single currency should boost consumer
spending in Europe as well as increase outside investor interest. With Europe
operating for the first time as a single market, pricing differences on similar
products will be much more difficult for companies to sustain, which is also
good for inflation. In industrial as well as consumer products we are seeing
some significant price cuts.
Our thoughts are focused on what the impact of the closer integration of
Europe will be on several industries. Do not forget that an integral part of the
euro introduction has been the creation of competitive markets in previously
national or non-liberalized industries. There are significant opportunities for
utility, telecommunications and corporate services. Companies that operate in a
low cost environment can now enter new markets previously closed to outside
competition or to operators that have been enabled to cut costs through
deregulation.
Q SO WHERE DO YOU SEE THINGS GOING FROM HERE?
A We are positive about the prospects for Europe. We believe this region is
poised to generate superior economic and profit performance versus the United
States in the near future. We are seeing a new shareholder focus among European
companies that, historically, did not appreciate the value of rewarding
investors. These companies are increasing dividend payments, buying back shares
and cleaning up the corporate profiles. They are also streamlining operations to
focus on business areas of strength while eliminating peripheral businesses
dragging down the bottom line. If you consider the success of U.S. corporations
that began restructuring in the early 1980s, you see the potential for European
companies (of course past performance cannot predict future results). Europe is
only a year or two into this process. They have a long, long way to go. A
similar restructuring trend seems to be kicking-off in Japan as well.
Q ARE THERE ANY RISKS TO THIS OUTLOOK?
A While valuations seem in line with the current interest rate environment,
an increase in rates could negatively impact Europe. A second risk as we move
through 1999 to the year 2000, is a growing concern about the millennium bug. As
coverage of this issue heightens throughout the year, we could see some backlash
in the markets.
We recognize that volatile market conditions, like those seen during
recent months, make it difficult to focus on the significant potential that
remains in developed international markets. However, we firmly believe the
investor who is comfortable riding through some bumpy market patches may be
rewarded as huge economic regions such as Europe and Japan finally hit their
full stride.
7
<PAGE> 8
LARGEST HOLDINGS
THE FUND'S 20 LARGEST STOCK HOLDINGS*
Representing 56.9 percent of the fund's total common stocks on January 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
HOLDINGS PERCENT
- ---------------------------------------------------------------------------------------
<S> <C> <C>
1. AAPT LIMITED 5.4%
AUSTRALIA
- ---------------------------------------------------------------------------------------
2. KONINKLIJKE AHOLD 3.9%
NETHERLANDS
- ---------------------------------------------------------------------------------------
3. GLAXO WELLCOME 3.8%
UNITED KINGDOM
- ---------------------------------------------------------------------------------------
4. BANK OF IRELAND 3.5%
IRELAND
- ---------------------------------------------------------------------------------------
5. EMPRESA NACIONAL DE 3.2%
ELECTRICIDAD
SPAIN
- ---------------------------------------------------------------------------------------
6. TELECOM ITALIA 3.2%
ITALY
- ---------------------------------------------------------------------------------------
7. BCE 3.0%
CANADA
- ---------------------------------------------------------------------------------------
8. NOVARTIS 2.9%
SWITZERLAND
- ---------------------------------------------------------------------------------------
9. KONINKLIJKE NUMICO 2.9%
NETHERLANDS
- ---------------------------------------------------------------------------------------
10. NIDEC 2.6%
JAPAN
- ---------------------------------------------------------------------------------------
11. BRITISH TELECOM 2.6%
UNITED KINGDOM
- ---------------------------------------------------------------------------------------
12. RENTOKIL INITIAL 2.6%
UNITED KINGDOM
- ---------------------------------------------------------------------------------------
13. GETRONICS 2.4%
NETHERLANDS
- ---------------------------------------------------------------------------------------
14. VIAG 2.4%
GERMANY
- ---------------------------------------------------------------------------------------
15. BELLSYSTEM 24 2.4%
JAPAN
- ---------------------------------------------------------------------------------------
16. VODAFONE GROUP 2.2%
UNITED KINGDOM
- ---------------------------------------------------------------------------------------
17. MANNESMANN 2.1%
GERMANY
- ---------------------------------------------------------------------------------------
18. NESTLE 2.0%
SWITZERLAND
- ---------------------------------------------------------------------------------------
19. ST. GEORGE BANK 1.9%
AUSTRALIA
- ---------------------------------------------------------------------------------------
20. FUJI PHOTO FILM CO. 1.9%
JAPAN
- ---------------------------------------------------------------------------------------
</TABLE>
*THE FUND'S HOLDINGS ARE SUBJECT TO CHANGE.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER WORLDWIDE 2004 FUND
PORTFOLIO OF INVESTMENTS AT JANUARY 31, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT
OBLIGATIONS--63.5%
U.S. Treasury, zero coupon, 2004
(Cost: $17,189) $ 28,200 $19,958
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
EUROPE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED KINGDOM--6.8%
Glaxo Wellcome, PLC
PHARMACEUTICAL COMPANY 12,982shs. 438
British Telecom, PLC
TELECOMMUNICATION SERVICES 19,100 293
Rentokil Initial, PLC
ENVIRONMENTAL SERVICES COMPANY 39,700 293
Vodafone Group, PLC
TELECOMMUNICATION SERVICES 12,845 250
(a) Orange, PLC
OPERATOR OF DIGITAL MOBILE TELEPHONE
NETWORK 13,550 201
BBA Group, PLC
MANUFACTURER OF AUTOMOTIVE COMPONENTS AND
INDUSTRIAL MATERIALS 31,152 195
Royal Bank of Scotland
BANK 10,170 181
National Westminster Bank
BANK 7,587 140
BP Amoco, PLC
MAJOR INTEGRATED WORLD OIL COMPANY 8,619 117
Marks & Spencer, PLC
CONSUMER GOODS AND FOODS RETAILER 6,900 41
---------------------------------------------------------------------------
2,149
- ----------------------------------------------------------------------------------------------------------------------
NETHERLANDS--5.4%
Koninklijke Ahold, N.V.
INTERNATIONAL FOOD RETAILER 11,631 452
Koninklijke Numico, N.V.
NUTRITIONAL FOOD MANUFACTURER 6,800 333
Getronics, N.V.
PROVIDER OF COMPUTER INSTALLATION AND
MAINTENANCE SERVICES 5,400 275
Aalberts Industries
CAPITAL GOODS AND COMPONENTS 7,280 182
ING Groep, N.V.
INSURANCE AND FINANCIAL SERVICES 2,987 174
Vedior N.V. CVA
TEMPORARY EMPLOYMENT SERVICES 9,000 171
Unique International, N.V.
OPERATOR OF RETAIL CLOTHING STORES,
EMPLOYMENT AGENCIES, TECHNICAL TRADE
SCHOOLS AND ENGINEERING SERVICES 5,203 113
AEGON Insurance Group, N.V.
INSURANCE COMPANY 11 1
---------------------------------------------------------------------------
1,701
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FRANCE--2.7%
Television Francaise
TELEVISION BROADCASTING 980 $ 195
Suez Lyonnaise des Eaux, S.A.
WATER UTILITY 926 191
AXA S.A.
INSURANCE GROUP PROVIDING INSURANCE,
FINANCE AND REAL ESTATE SERVICES 1,310 190
Groupe Danone
PRODUCER OF PACKAGED FOODS AND BEVERAGES 465 131
Elf Aquitaine, S.A.
OIL AND GAS PRODUCER 1,000 108
Compagnie Francaise d'Etudes et de
Construction Technip
DESIGNS AND CONSTRUCTS INDUSTRIAL
FACILITIES 391 35
---------------------------------------------------------------------------
850
- ----------------------------------------------------------------------------------------------------------------------
GERMANY--2.6%
VIAG, A.G.
PROVIDER OF ELECTRICAL POWER AND NATURAL
GAS SERVICES, ALUMINUM PRODUCTS,
CHEMICALS, CERAMIC AND GLASS 500 271
Mannesmann A.G.
DIVERSIFIED CONSTRUCTION AND TECHNOLOGY
COMPANY 1,700 241
GEHE A.G.
PHARMACEUTICALS DISTRIBUTOR 3,300 191
Bayerische Vereinsbank A.G.
COMMERCIAL BANK 1,600 104
---------------------------------------------------------------------------
807
- ----------------------------------------------------------------------------------------------------------------------
ITALY--2.4%
Telecom Italia, SpA
TELECOMMUNICATIONS, ELECTRONICS AND
NETWORK CONSTRUCTION 39,000 366
(a)Assicurazioni Generali, SpA
LIFE AND PROPERTY INSURANCE COMPANY 3,250 138
Istituto Bancario San Paolo di Torino
COMMERCIAL BANK 8,360 137
Telecom Italia Mobile, SpA
CELLULAR TELECOMMUNICATION SERVICE 17,500 119
---------------------------------------------------------------------------
760
- ----------------------------------------------------------------------------------------------------------------------
SWITZERLAND--1.8%
Novartis, A.G.
PHARMACEUTICAL COMPANY 180 338
Nestle, S.A.
FOOD MANUFACTURER 125 229
---------------------------------------------------------------------------
567
- ----------------------------------------------------------------------------------------------------------------------
SPAIN--1.8%
(a)Empresa Nacional de Electricidad S.A.
ELECTRIC UTILITY 13,150 366
Compania Telefonica Nacional de Espana S.A.
TELECOMMUNICATIONS SERVICES 9,883 190
---------------------------------------------------------------------------
556
- ----------------------------------------------------------------------------------------------------------------------
IRELAND--1.2%
Bank of Ireland, PLC
BANK 17,628 396
---------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SWEDEN--.7%
Securitas A.B.
INSTALLS SECURITY SYSTEMS AND PROVIDER OF
GUARD SERVICES 28,000 $ 220
---------------------------------------------------------------------------
TOTAL EUROPEAN COUNTRIES--25.4% 8,006
---------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
PACIFIC REGION
- ----------------------------------------------------------------------------------------------------------------------
JAPAN--3.7%
Nidec Corp.
MANUFACTURER OF SMALL-SCALE MOTORS FOR
HARD DISC DRIVES 2,300 294
Bellsystem 24, Inc.
CALL CENTER OPERATOR 1,000 270
Fuji Photo Film Co., Ltd.
LEADING FILM AND CAMERA MANUFACTURER 6,000 222
Sony Corp.
CONSUMER ELECTRONIC PRODUCTS MANUFACTURER 2,900 211
Nikko Securities Co., Ltd.
LEADING SECURITIES BROKER AND DEALER 38,000 111
Murata Manufacturing Co., Ltd.
LEADING MAKER OF CERAMIC CAPACITORS AND
FILTERS 1,000 46
---------------------------------------------------------------------------
1,154
- ----------------------------------------------------------------------------------------------------------------------
TAIWAN--.3%
Winbond Electronics Corp., GDR
ELECTRONICS COMPONENTS MANUFACTURER 7,200 86
---------------------------------------------------------------------------
TOTAL PACIFIC REGION--4.0% 1,240
---------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
COMMONWEALTH COUNTRIES
- ----------------------------------------------------------------------------------------------------------------------
AUSTRALIA--4.1%
AAPT Limited
TELECOMMUNICATION SERVICES 225,000 623
St. George Bank, Ltd.
COMMERCIAL BANK 34,078 223
Leighton Holdings
CONSTRUCTION SERVICES AND CONSULTING 53,000 215
(a) Cable & Wireless Optus, Ltd.
PROVIDERS OF COMMUNICATION AND
TELECOMMUNICATIONS SERVICES 90,000 214
---------------------------------------------------------------------------
1,275
- ----------------------------------------------------------------------------------------------------------------------
CANADA--2.2%
BCE, Inc.
TELECOMMUNICATION SERVICES 7,700 346
(a) Boardwalk Equities, Inc.
REAL ESTATE MANAGEMENT COMPANY 14,500 140
(a) Husky Injection Molding Systems, Ltd.
SUPPLIER OF INJECTION MOLDING EQUIPMENT
AND SERVICES FOR THE PLASTIC INDUSTRY 14,000 125
Petro-Canada
OIL EXPLORATION AND REFINING 8,000 95
---------------------------------------------------------------------------
706
---------------------------------------------------------------------------
TOTAL COMMONWEALTH COUNTRIES--6.3% 1,981
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
LATIN AMERICA
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MEXICO--.8%
Fomento Economico Mexicano S.A. de C.V.
PRODUCER OF BEER AND SOFT DRINKS 84,000 $ 186
Kimberly-Clark de Mexico S.A. de C.V.
PRODUCER OF CONSUMER PAPER PRODUCTS 22,700 65
---------------------------------------------------------------------------
TOTAL LATIN AMERICAN COUNTRIES--.8% 251
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--36.5%
(Cost: $9,532) 11,478
---------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $26,721) $31,436
---------------------------------------------------------------------------
</TABLE>
At January 31, 1999, the fund's portfolio of investments had the following
industry diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
------------------------------------------------------------------------------------
<S> <C> <C>
Communications $ 2,872 9.1
------------------------------------------------------------------------------------
Finance 1,935 6.2
------------------------------------------------------------------------------------
Consumer Cyclicals 1,172 3.7
------------------------------------------------------------------------------------
Technology 1,107 3.5
------------------------------------------------------------------------------------
Health Care 967 3.1
------------------------------------------------------------------------------------
Basic Industries 855 2.7
------------------------------------------------------------------------------------
Consumer Staples 769 2.4
------------------------------------------------------------------------------------
Capital Goods 653 2.1
------------------------------------------------------------------------------------
Energy 591 1.9
------------------------------------------------------------------------------------
Utilities 557 1.8
------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 11,478 36.5
------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 19,958 63.5
------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO $31,436 100
------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $26,721,000 for federal income tax purposes
at January 31, 1999, the gross unrealized appreciation was $5,298,000, the gross
unrealized depreciation was $583,000 and the net unrealized appreciation on
investments was $4,715,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ---------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------
Investments, at value
(Cost: $26,721) $31,436
- ---------------------------------------------------------------------
Receivables for:
Investments sold 464
- ---------------------------------------------------------------------
Dividends 26
- ---------------------------------------------------------------------
TOTAL ASSETS 31,926
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ---------------------------------------------------------------------
Cash overdraft 91
- ---------------------------------------------------------------------
Payable for:
Investments purchased 394
- ---------------------------------------------------------------------
Management fee 16
- ---------------------------------------------------------------------
Administrative services fee 6
- ---------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 31
- ---------------------------------------------------------------------
Trustees' fees 14
- ---------------------------------------------------------------------
Total liabilities 552
- ---------------------------------------------------------------------
NET ASSETS $31,374
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
ANALYSIS OF NET ASSET
- ---------------------------------------------------------------------
Paid-in capital $26,415
- ---------------------------------------------------------------------
Undistributed net realized gain on investments and foreign
currency transactions 208
- ---------------------------------------------------------------------
Net unrealized appreciation on investments 4,717
- ---------------------------------------------------------------------
Undistributed net investment income 34
- ---------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $31,374
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
THE PRICING OF SHARES
- ---------------------------------------------------------------------
SHARES OUTSTANDING 2,997
- ---------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
(Net assets / shares outstanding) $10.47
- ---------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ---------------------------------------------------------------------
NET INVESTMENT INCOME
- ---------------------------------------------------------------------
Interest $ 655
- ---------------------------------------------------------------------
Dividends (less foreign taxes withheld of $6) 54
- ---------------------------------------------------------------------
Total investment income 709
- ---------------------------------------------------------------------
Expenses:
Management fee 95
- ---------------------------------------------------------------------
Administrative services fee 39
- ---------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 47
- ---------------------------------------------------------------------
Professional fees 8
- ---------------------------------------------------------------------
Reports to shareholders 15
- ---------------------------------------------------------------------
Trustees' fees and other 9
- ---------------------------------------------------------------------
Total expenses 213
- ---------------------------------------------------------------------
NET INVESTMENT INCOME 496
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ---------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 620
- ---------------------------------------------------------------------
Change in net unrealized appreciation on investments and
assets and liabilities in foreign currencies (356)
- ---------------------------------------------------------------------
Net gain on investments 264
- ---------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 760
- ---------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JANUARY 31, YEAR ENDED
1999 JULY 31,
(UNAUDITED) 1998
- ----------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 496 1,177
- ----------------------------------------------------------------------------------------------
Net realized gain 620 2,956
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (356) (593)
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 760 3,540
- ----------------------------------------------------------------------------------------------
Distribution from net investment income (1,120) (1,402)
- ----------------------------------------------------------------------------------------------
Distribution from net realized gain (3,091) (1,517)
- ----------------------------------------------------------------------------------------------
Total dividends to shareholders (4,211) (2,919)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions 1,755 (3,276)
- ----------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (1,696) (2,655)
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------
Beginning of period 33,070 35,725
- ----------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment income
of $34 and $658, respectively) $31,374 33,070
- ----------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
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 SECURITY VALUATION. Investments are stated at
value. 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. 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. Forward foreign currency exchange
contracts are valued at the prevailing forward
exchange rate of the underlying currencies on that
day.
Portfolio debt securities 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. All other securities are valued at
their fair market value as determined in good faith
by the Valuation Committee of 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 rates 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.
Net realized and unrealized gains and losses on
foreign currency transactions represent net gains
and losses from sales and maturities of forward
foreign currency exchange contracts, disposition of
foreign currencies, and the difference between the
amount of net investment income accrued and the
U.S. dollar
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
amount actually received. That portion of both
realized and unrealized gains and losses on
investments that result from fluctuations in
foreign currency exchange rates is not separately
disclosed.
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
securities. Realized gains and losses from
investment transactions are reported on an
identified cost basis.
EXPENSES. Expenses arising in connection with a
series of the trust are allocated to that series.
Other trust expenses are allocated among the series
in proportion to their relative net assets.
FUND SHARE VALUATION. Fund shares were sold during
a limited offering period which ended in 1996, and
are redeemed on a continuous basis. Fund shares
were sold and are redeemed at net asset value (plus
a commission on most sales). On each day the New
York Stock Exchange is open for trading, the net
asset value per share is determined as of the 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 fund 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 $95,000 for the six months ended
January 31, 1999.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurich's businesses to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, the fund's
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Trustees of the fund has
approved a new investment management agreement with
Scudder Kemper, which is substantially identical to
the former investment management agreement, except
for the
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
dates of execution and termination. Shareholders
approved the new investment management agreement
through a proxy solicitation that concluded in
mid-December.
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 paid by the fund to
KDI for the six months ended January 31, 1999 are
$39,000.
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 six months
ended January 31, 1999, KSvC received shareholder
services fees of $13,000.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the trust are also officers or directors of
Scudder Kemper. For the six months ended January
31, 1999, the fund made no payments to its officers
and incurred trustees' fees of $2,000 to
independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended January 31, 1999,
investment transactions (excluding short-term
instruments) are as follows (in thousands):
Purchases $5,848
Proceeds from sales 6,708
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, JULY 31,
1999 1998
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued in reinvestment of
dividends 407 $4,211 266 $ 2,828
----------------------------------------------------------------------------------
Shares redeemed (219) (2,456) (537) (6,104)
----------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $1,755 $(3,276)
----------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED MONTH ENDED YEAR ENDED JUNE 30,
JANUARY 31, JULY 31, JULY 31, ------------------------------
1999 1998 1997 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 11.77 11.60 11.13 10.60 9.96 9.02
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .20 .42 .03 .42 .36 .27
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .08 .77 .44 .71 .63 .79
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .28 1.19 .47 1.13 .99 1.06
- ----------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income .42 .49 -- .44 .35 .12
- ----------------------------------------------------------------------------------------------------------------------------
Distribution from net realized
gain 1.16 .53 -- .16 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total dividends 1.58 1.02 -- .60 .35 .12
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.47 11.77 11.60 11.13 10.60 9.96
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 2.59% 11.17 4.22 11.08 10.05 11.91
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO A AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------------------
Expenses 1.35% 1.19 1.19 1.19 1.32 1.29
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 3.15% 3.49 3.20 3.63 3.60 3.77
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $31,374 33,070 35,725 34,766 37,818 30,699
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(annualized) 33% 27 30 25 50 75
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Data for
the period ended January 31, 1999 is unaudited.
18
<PAGE> 19
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held and adjourned for
certain purposes to January 15, 1999. Kemper Worldwide 2004 Fund shareholders
were asked to vote on three separate issues: approval of the new Investment
Management Agreement between the fund and Scudder Kemper Investments, Inc.,
approval of the new Sub-Advisory Agreement for the fund with Scudder Investments
(U.K.) Limited, and to modify or eliminate certain policies and to eliminate the
shareholder approval requirements as to certain other matters. The following are
the results.
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,521,885 22,741 51,144
</TABLE>
2) Approval of the new Sub-Advisory Agreement for the fund with Scudder
Investments (U.K.) Limited. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,510,096 20,938 64,736
</TABLE>
3) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Investment objectives
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,256,552 71,545 145,739
</TABLE>
Investment policies
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,254,066 74,032 145,739
</TABLE>
Diversification
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,255,613 72,485 145,739
</TABLE>
Borrowing
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,254,566 73,531 145,739
</TABLE>
Senior securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,254,337 73,761 145,739
</TABLE>
Concentration
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,255,613 72,485 145,739
</TABLE>
Underwriting of securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,254,976 73,122 145,739
</TABLE>
Investment in real estate
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,255,402 72,695 145,739
</TABLE>
Purchase of commodities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,254,135 73,963 145,739
</TABLE>
Lending
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,255,613 72,485 145,739
</TABLE>
Margin purchases and short sales
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,249,386 78,712 145,739
</TABLE>
Pledging of assets
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,254,346 73,752 145,739
</TABLE>
Purchases of securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,255,613 72,485 145,739
</TABLE>
Purchases of options and warrants
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,255,613 72,485 145,739
</TABLE>
19
<PAGE> 20
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY CORNELIA SMALL
Chairman and Trustee President Vice President
JAMES E. AKINS PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK MAUREEN E. KANE
Trustee STEPHEN P. DEXTER Assistant Secretary
Vice President
FREDERICK T. KELSEY CAROLINE PEARSON
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
THOMAS W. LITTAUER ELIZABETH C. WERTH
Trustee and Vice President TRACY MCCORMICK Assistant Secretary
Vice President
FRED B. RENWICK BRENDA LYONS
Trustee ANN M. MCCREARY Assistant Treasurer
Vice President
JOHN G. WEITHERS
Trustee KATHRYN L. QUIRK
Vice President
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LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
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SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
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CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania Avenue
Kansas City, MO 64105
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FOREIGN CUSTODIAN THE CHASE MANHATTAN BANK
Chase Metro Tech Center
Brooklyn, NY 11245
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PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com
KEMPER FUNDS LOGO
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed on recycled paper in the U.S.A.
KWF - 3 (3/24/99) 1068920
