<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD (SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED JULY 31, 1999
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
"... Our goal is to provide shareholders strong, risk-adjusted returns. We
remain particularly focused on Europe and Japan, concentrating on opportunities
created by the economic renewal in those markets. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
Contents
3
Economic Overview
5
Performance Update
9
Country Concentrations
10
Largest Holdings
11
Portfolio of Investments
17
Report of Independent Auditors
18
Financial Statements
20
Notes to Financial Statements
23
Financial Highlights
- --------------------------------------------------------------------------------
AT A GLANCE
- --------------------------------------------------------------------------------
ABOUT YOUR REPORT
PLEASE NOTE THAT ON JUNE 1, IRENE CHENG BECAME LEAD PORTFOLIO MANAGER OF KEMPER
WORLDWIDE 2004 FUND. IRENE JOINED SCUDDER KEMPER INVESTMENTS IN 1993 AND HAS
BEEN MANAGING INTERNATIONAL ASSETS FOR SIX YEARS. HER EXPERTISE INCLUDES A
CAREER IN PRIVATE EQUITY INVESTING, EQUITY ANALYSIS AND IN CORPORATE FINANCE.
CHENG RECEIVED A BACHELOR'S DEGREE SUMMA CUM LAUDE FROM HARVARD/RADCLIFFE
COLLEGE, A MASTER'S DEGREE FROM THE MASSACHUSETTS INSTITUTE OF TECHNOLOGY AND AN
MBA FROM HARVARD BUSINESS SCHOOL.
- --------------------------------------------------------------------------------
KEMPER WORLDWIDE 2004 FUND
TOTAL RETURN*
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 1999 (UNADJUSTED FOR ANY SALES CHARGE)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
KEMPER WORLDWIDE 2004 FUND 1.12%
- --------------------------------------------------------------------------------
</TABLE>
RETURNS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE PERFORMANCE. INVESTMENT
RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, 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.
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
7/31/99 7/31/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER WORLDWIDE 2004 FUND $10.32 $11.77
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE YEAR ENDED JULY 31, 1999, KEMPER WORLDWIDE 2004 FUND MADE THE
FOLLOWING DISTRIBUTIONS 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
- --------------------------------------------------------------------------------
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, because
when investments are converted back into U.S. dollars it takes more of the
foreign currency to purchase U.S. dollars.
CYCLICAL STOCKS Cyclical stocks carry a higher degree of economic sensitivity.
In accelerating economies, cyclical stocks tend to rise quickly. In decelerating
economies, cyclicals tend to decline quickly. Cyclical stocks include industrial
machinery, paper and forestry, automobiles and construction.
NARROW MARKET Describes a stock market environment where only a few stocks
perform strongly, while the majority struggle. In contrast, in a broad market,
overall market gains are driven by a larger group of stocks.
<PAGE> 3
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 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:
In a widely anticipated move, the Federal Reserve Board raised its key
interest rate -- the overnight bank lending rate -- by one quarter of a point
(0.25%) in August in an effort to slow the U.S. economy and keep inflation under
control. The rate hike frustrates many investors, who do not understand why the
Fed is tightening when there are no signs of inflation.
Talk of rising interest rates began last spring, and on June 30 the Fed
boosted the overnight bank lending rate one quarter of a point (0.25%). With
this move the Fed said it was not inclined to increase rates again anytime
soon -- although it noted that it was alert to the potential emergence of
inflationary pressures that could undermine economic growth. Talk of a second
rate hike began in July after Fed Chairman Alan Greenspan's commentary to the
House Banking Committee, which was part of the Fed's twice-yearly outlook report
required by the Humphrey-Hawkins Full Employment and Balanced Growth Act of
1978. While Greenspan didn't say that the Fed definitely would raise the
overnight bank loan rate at its next meeting, the tone of his report included
more warnings than expected about the need to follow the June rate increase with
another, and speculation about another hike became reality at the August 24 Fed
meeting.
Many investors are frustrated by a rate hike when there are no signs of
inflation, but Fed policymakers look at the rate hike another way: If the June
30 increase was not enough to bring inflation risks into balance, a "euphoric"
rise in stocks may fuel increased consumer spending, which could necessitate a
more disruptive adjustment later. In its August 24 rate hike, the Fed was acting
promptly to prevent such an adjustment. In other words, the Fed strongly
believes that "a stitch in time saves nine" -- it wants to be preemptive by
raising interest rates and slowing the economy before an inflation problem
arises.
What data may confirm the Fed's theory? To start, the Fed forecasts that the
consumer price index (CPI), the average value of an imaginary "basket" of goods
and services in the economy, could rise as much as 2.5 percent this year, up
from 1.6 percent in 1998. The CPI is the standard measure of inflation in the
United States, so a marked increase would suggest rising inflation.
Employment growth also suggests inflation. Job creation has exceeded the
growth of the working-age population by almost one-half a percentage point
(0.50%) in the past year. The Fed believes that if the pool of job seekers
shrinks sufficiently, upward pressures on wage costs are likely. Such cost
increases have invariably presaged rising inflation in that past, and presumably
would in the future.
The Fed also believes that gross domestic product (GDP), the value of all
goods and services produced in the United States, is growing faster than it
would grow without inflation. The Fed believes that GDP can grow 3.0 percent to
3.5 percent per year without generating inflation. Actual 1998 GDP growth was
4.3 percent, and 1999 GDP growth is projected to be 3.8 percent.
Productivity growth is another indicator of inflation pressure. After
languishing at about 1 percent in the 1970s and 1980s, productivity growth has
been above 2 percent in each of the past three years. Over the past four
quarters it has increased 2.8 percent, and could reach 3.5 percent if
second-quarter productivity growth comes in close to 4 percent. According to the
Fed, this has enabled output to grow beyond what normally would have been
expected -- and has held down inflationary pressures. But productivity must
continue to grow at an ever faster pace to keep inflation from accelerating. The
Fed is concerned that the gains in technology that have fostered the
productivity growth will slow, and any inflationary pressures in the labor
market could ultimately show in product prices.
The improving global economy could also contribute to inflation. Improving
economic conditions around the world mean that the U.S. economy will no longer
experience declines in basic commodity and import prices that curtailed
inflation in recent years. A rise in the price of imported crude oil -- which is
used to make everything from gasoline to plastic bags -- is already up 57
percent this year. To the Fed, which cut interest rates by 75 basis points last
year because of a slowdown in the global economy, raising interest rates in June
and again in August was only "taking back" some of what it gave last year.
Clearly, then, Fed raised interest rates to slow the economy. As a result,
consumer spending will likely decrease, leading to a decline in corporate
profits. That will have negative effects on capital spending. The end result
could be a decline in the value of equities in general.
Although many economic analysts have moved past the August 24 rate hike and
are now speculating about what the Fed will do at its October 5 meeting, the
August rate hike will likely be the end of the Fed's interest in interest rates
for the next six months. The Fed is unlikely to raise rates between November and
February because of the Y2K issue: It doesn't want to encourage Y2K fears or
appear responsible for Y2K-related volatility in the financial markets.
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 (8/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate 1 5.94 5.00 5.34 6.30
Prime rate 2 8.06 7.75 8.50 8.50
Inflation rate 3* 2.00 1.60 1.68 2.16
The U.S. dollar 4 -6.36 -1.53 8.17 10.10
Capital goods orders 5* 11.84 5.11 3.05 10.30
Industrial production 5* 3.58 1.55 2.71 5.59
Employment growth 6* 2.17 2.37 2.67 2.39
</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 7/31/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
The long-term possibility of interest rate hikes is likely to be affected by
political considerations. Election primaries begin in February 2000. Will
candidates be talking about tax cuts? Medicare reform? Social Security reform?
These will be the issues to consider when we look at the economy in early- to
mid-2000.
Hopefully it will be as easy for investors to obtain information about Fed
policies at that time as it is today. The Humphrey-Hawkins hearings were created
to give Congress and the public some idea of economic growth and inflation. But
this round of Humphrey-Hawkins hearings could be the last, because the
Humphrey-Hawkins law expires this year. Although Greenspan has said he thinks it
is important for the Fed to report to Congress, and House Banking Committee
Chairman Jim Leach intends to press for a new law, there has been no move to
enact a new reporting requirement. Although the Fed could still provide
hearings, without a law forcing it to do so within a certain framework, we would
likely have no consistent basis for analyzing monetary policy.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
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 SCUDDER KEMPER INVESTMENTS ECONOMICS GROUP
AS OF AUGUST 27, 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.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
[CHENG PHOTO]
IRENE CHENG JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1993. PRIOR TO JOINING
THE COMPANY, HER CAREER ENCOMPASSED PRIVATE EQUITY INVESTING, EQUITY ANALYSIS AS
WELL AS CORPORATE FINANCE. CHENG RECEIVED A BACHELOR'S DEGREE SUMMA CUM LAUDE
FROM HARVARD/RADCLIFFE COLLEGE, A MASTER'S DEGREE FROM THE MASSACHUSETTS
INSTITUTE OF TECHNOLOGY AND AN MBA FROM HARVARD BUSINESS SCHOOL.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
FOR THE ANNUAL PERIOD ENDED JULY 31, 1999, KEMPER WORLDWIDE 2004 FUND WEATHERED
SOME DIFFICULT PERIODS IN INTERNATIONAL EQUITY MARKETS THAT WERE FOLLOWED BY
RECOVERIES OF RECENT MARKET LAGGARDS. A CHANGE IN LEAD PORTFOLIO MANAGEMENT
DROVE A REPOSITIONING OF THE PORTFOLIO TO INCLUDE GREATER FOCUS ON A REBOUNDING
JAPAN AND ON THE STRENGTH OF CYCLICAL STOCKS. FOLLOWING, MANAGEMENT DISCUSSES
THESE CHANGES AND THE COURSE OF INTERNATIONAL MARKETS.
Q LET'S START WITH AN OVERVIEW OF THE EVENTS THAT IMPACTED GLOBAL MARKETS
DURING THIS 12-MONTH PERIOD.
A The fund began its fiscal year in August 1998, one of the most turbulent
months for global markets. In late August, Russia defaulted on its debt, sending
shock waves across the global economy. Investors were already jittery about the
economic strength of Asia, Brazil and Latin America; news of Russia's default
unleashed a steep global market correction.
The Federal Reserve Bank stepped in quickly, cutting interest rates to
stimulate economic growth. Other countries followed suit. Leading nations came
together and developed plans to shore up the sagging economies.
These quick and cohesive actions by the Federal Reserve Bank were well
received by investors, and global markets began to come back in the fourth
quarter of 1998. Yet, not all types of stocks fared equally well. Because
investors remained nervous about global market volatility, they tended to
gravitate toward stocks that offered the perception of stability. These were
typically large-cap, household-name companies. Markets were unusually narrow,
and only a handful of these large growth companies propelled the performance of
the stock market.
After struggling mightily since the Asian economic crisis of 1997, technology
stocks saw the tides turn in their favor particularly in December and January.
Low valuations, an improving supply/demand environment and the explosive growth
of the Internet propelled an enthusiastic rally in many untested ".com" stocks.
1999 brought a change in market direction. The narrow, large-cap growth market
began to broaden out to the benefit of more cyclical issues, and more small- and
mid-cap stocks. Cyclical stocks typically thrive during times of accelerating
economic growth, and many investors believed that the economy was indeed
positioned to grow more rapidly. Oil, chemical, and industrial stocks benefited
from the change of market direction, while growth-oriented health care and
consumer nondurable stocks faltered. Concerns about trendy, high-priced
technology stocks came home to roost, and many Internet stocks dropped
precipitously.
European market performance was broadly mixed. While select markets did move
higher throughout the period, a weak debut of the euro -- the single currency
launched on January 1 -- dampened performance. We believe the early expectations
on monetary union were simply too high and, in July, we did see the currency
coming back a bit. Uncertain political leadership and disappointing prospects
for economic growth were
5
<PAGE> 6
PERFORMANCE UPDATE
also factors affecting European market performance.
A definite standout was Japan, which showed signs of renewed vigor and
increased productivity. Year-to-date, the Japanese market is up 32.3 percent.*
At the macro-economic level, the banking system has been stabilized with an
injection of public monies and interest rates held near zero. The recent release
of stronger economic data added to expectations that the economy's long decline
may finally be over. At the same time, numerous restructuring initiatives at
major Japanese corporations suggest a greater focus on profitability and
shareholder interest than has been the case in the past. All of this has fueled
the growth of investor confidence.
* MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) JAPAN INDEX. THIS IS A GENERALLY
ACCEPTED BENCHMARK FOR JAPAN STOCK MARKET PERFORMANCE. THE INDEX CANNOT BE
INVESTED IN DIRECTLY.
Q THE FUND WAS UP 1.12 PERCENT (UNADJUSTED FOR ANY SALES CHARGE) FOR THE
YEAR, COMPARED TO A RETURN OF 10.02 PERCENT FOR THE ALL-EQUITY MSCI EAFE
INDEX**. WHILE THIS IS NOT A COMPLETELY APPROPRIATE BENCHMARK BECAUSE THE FUND
HAS A BOND COMPONENT WHILE THE INDEX DOES NOT, THE GAP IS VERY PRONOUNCED. WHAT
HAPPENED?
A Prior to June when the management approach to the fund was changed,
performance suffered from being too cautious in moving into Japan. The recovery
there happened quickly and we were positioned somewhat conservatively, trying to
protect money instead of placing it into certain markets and sectors that had
performed so terribly up to that point. Instead, the fund was heavily weighted
in growth stocks in Europe that were largely out of favor during the cyclical
rally. In June, we brought up the Japanese exposure to be more closely aligned
with the index and added more raw material and industrial exposure to capitalize
on the cyclical stock strength. In general, our current focus on more
economically sensitive names in Europe and Japan seems to be in line with the
flavor of international equity markets today.
Also keep in mind that the portfolio typically invests only a portion of
assets in stocks, and the remainder in zero-coupon U.S. Treasury bonds, as noted
in the question. The bonds anchor the fund's guaranteed return of principal.
(Remember, the guaranteed return of original principal applies only to
shareholders who hold their investment to the maturity date, and who reinvest
all dividends. Please see the prospectus for more details.) But, they also limit
the fund's ability to participate fully in the equity market. Following the
Russian debt default in August of 1998, the zero-coupon bonds did provide a
degree of stability during the turmoil that rocked the equity markets. But when
global markets rebounded early in the new year, the zero-coupon exposure
prevented the fund's full participation in the strong equity markets.
** THE MSCI EAFE INDEX IS A GENERALLY ACCEPTED BENCHMARK OF STOCK MARKET
PERFORMANCE IN EUROPE, AUSTRALIA AND THE FAR EAST. THIS INDEX CANNOT BE
INVESTED IN DIRECTLY.
Q YOU MENTIONED THE ZERO-COUPON BONDS. COULD YOU EXPLAIN WHAT THEY ARE AND
HOW THEY REACT TO MARKET SHIFTS?
A Zero-coupon U.S. Treasury bonds are sold at considerable discount to
their face value. "Zero-coupon" means that the bondholder receives no periodic
interest payments. When the bonds mature, the bondholder receives the face value
of the bond. Because the U.S. government backs the bonds, the payment is
guaranteed.
Prior to maturity, the principal value of a zero-coupon bond is subject to
volatility, especially when interest rates are shifting. Generally, zero-coupon
bonds have higher prices when interest rates are low.
Q CAN YOU EXPAND ON THE CHANGES YOU AND YOUR TEAM HAVE MADE SINCE TAKING
OVER MANAGEMENT OF THE PORTFOLIO?
A As mentioned, the most dramatic move we've made has been gradually adding
more Japanese exposure to the portfolio. In Japan, the long awaited economic
recovery appears to be a reality. The surprisingly strong first quarter gross
domestic product (GDP) number lent credence to the financial markets' forecast
of economic recovery. While there are many examples of change underway, the
restructuring path is a long journey. We continue to make our investment
decisions in this country based on our bottom-up, independent company research.
This allows us to identify opportunities that are not simply dependent on an
unsure economic and political outlook, such as Toshiba and Daiwa Securities, 1.2
percent and 1.3 percent of the portfolio's common stock respectively, as of July
31, 1999.
For several years, the fund has been outweighted in Europe. Currently, much of
Europe's export competitiveness is being achieved through a weak currency. This
is making European exports easier to sell and is precisely the practice that the
architects of the EMU so loudly decried in the past. Eventually, of course,
Europe's competitiveness must come from the real economy.
6
<PAGE> 7
PERFORMANCE UPDATE
It must be the result of increased efficiencies on the factory floor, in the
labor market, and in the boardroom. With our investments, we have been
identifying those companies we believe are at the forefront of these
restructuring efforts and investing in them prudently. An example includes
Siemens [Germany], 1.3 percent of the portfolio's total common stock, as of July
31, 1999.
Kemper Worldwide 2004 Fund is now repositioned to better capitalize on the
continued strength of cyclical names, with leanings toward oil and steel, raw
materials and consumer stocks. In essence, the fund has moved away from the
"tried-and-true" to more economically sensitive names in Europe and Japan.
Our goal is to provide shareholders strong, risk-adjusted returns. We remain
particularly focused on Europe and Japan, concentrating on opportunities created
by the economic renewal in those markets.
Q WHAT DO YOU ANTICIPATE YOUR APPROACH TO EUROPE WILL BE IN MONTHS AHEAD?
A European economies across the board have suffered recently, some worse
than others. But there are some compelling reasons to be hopeful. The weaker
currency has given European companies a pricing advantage against their American
competitors. If you look at the trade account deficit in the United States, you
can see that it is having an effect.
We're not abandoning European stocks, we're simply moving from a very
overweight position to a more neutral one. We are focusing on sectors that can
perform well in any economic environment and have increased our exposure to
companies that are more sensitive to shifts in the economy. While we still see
long-term opportunity in Europe, there are other areas of the world where we
expect performance to be stronger in the short-term, and we want to employ our
money where we see the most potential.
Q DO YOU STILL CONSIDER THIS AN OPPORTUNISTIC TIME TO BE INVESTED IN
INTERNATIONAL FUNDS?
A The global environment continues to be dynamic and exciting for those
investors who are willing to sustain some inherent risk. Many European companies
continue to be undervalued. Japan's stock market presages an economic recovery,
and Japan may continue to become more and more attractive to investors with the
right blend of healthy government policies and corporate restructuring.
The same restructuring, consolidation, cost-cutting efforts and deregulation
that helped boost the U.S. stock market so powerfully in the 1980s and 1990s is
now spreading throughout the globe. And while the past cannot predict the
future, we are optimistic that international markets will continue to be
propelled by the prospect of further recovery in Asia, better prospects for
economic growth, greater corporate focus on profitability through restructuring,
and the discipline of increased corporate activity.
7
<PAGE> 8
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED JULY 31, 1999
(ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1 5 LIFE
YEAR YEAR OF FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KEMPER WORLDWIDE 2004 FUND -3.94% 8.29% 8.40%
(since
5/3/94)
- ------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
KEMPER WORLDWIDE 2004 FUND
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Worldwide 2004 Fund shares
from 5/31/94 to 7/31/99
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KEMPER WORLDWIDE LEHMAN BROTHERS
20041 GOVT/CORP' MSCI EAFE"
---------------- --------------- ----------
<S> <C> <C> <C>
5/31/94 10000 10000 10000
9457 10063 10063
12/31/95 11508 11999 11226
12197 12347 11940
12/31/97 13631 13552 12186
15208 14838 14663
7/31/99 15091 14460 15723
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE PERFORMANCE. INVESTMENT RETURNS
AND PRINCIPAL ASSET VALUES FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH
MORE OR LESS THAN ORIGINAL COST.
*AVERAGE ANNUAL TOTAL RETURN AND 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. WHILE TOTAL
RETURN MEASURES AGGREGATE CHANGE. DURING THE PERIODS NOTED, SECURITIES PRICES
FLUCTUATED. FOR ADDITIONAL INFORMATION, SEE THE PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION AND THE FINANCIAL HIGHLIGHTS AT THE END OF THIS REPORT.
(1) PERFORMANCE INCLUDES REINVESTMENT OF DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE OF 5.0%. WHEN COMPARING KEMPER WORLDWIDE 2004 FUND TO
THE EAFE INDEX++ AND THE LEHMAN BROTHERS GOV'T/CORP. BOND INDEX+ YOU
SHOULD NOTE THAT THE FUND'S PERFORMANCE REFLECTS THE MAXIMUM SALES CHARGE,
WHILE NO SUCH CHARGES ARE REFLECTED IN THE PERFORMANCE OF THE INDICES.
(+) THE 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 CDA WIESENBERGER.
(++) THE EAFE INDEX (MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA,
FAR EAST INDEX) IS AN UNMANAGED INDEX GENERALLY ACCEPTED AS A BENCHMARK FOR
MAJOR OVERSEAS MARKETS. SOURCE IS CDA WIESENBERGER.
8
<PAGE> 9
COUNTRY CONCENTRATIONS
THE FUND'S COMMON STOCK GEOGRAPHIC DISTRIBUTION*
Common stocks comprise 37.3 percent of the fund's total investments on July 31,
1999
[BAR GRAPH]
<TABLE>
<S> <C>
JAPAN 30.5%
UNITED KINGDOM 21.0%
FRANCE 14.7%
GERMANY 10.7%
NETHERLANDS 6.3%
ITALY 5.7%
HONG KONG 2.8%
AUSTRALIA 2.1%
SWITZERLAND 2.1%
FINLAND 1.7%
SPAIN 1.0%
CANADA 0.9%
SINGAPORE 0.5%
</TABLE>
* PLEASE SEE PAGES 11 THROUGH 16 FOR A DETAILED LISTING.
9
<PAGE> 10
LARGEST HOLDINGS
YOUR FUND'S 20 LARGEST STOCK HOLDINGS*
Representing 34.2 percent of the fund's total common stock on July 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
HOLDINGS PERCENT OF COMMON STOCK HOLDINGS
- --------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------
1. NTT MOBILE COMMUNICATIONS 3.6%
(JAPAN)
- --------------------------------------------------------------------------------------
2. ELF AQUITAINE 3.0%
(FRANCE)
- --------------------------------------------------------------------------------------
3. RIO TINTO 2.1%
(UNITED KINGDOM)
- --------------------------------------------------------------------------------------
4. ROYAL & SUN ALLIANCE INSURANCE 2.0%
GROUP
(UNITED KINGDOM)
- --------------------------------------------------------------------------------------
5. SONY 1.8%
(JAPAN)
- --------------------------------------------------------------------------------------
6. NOKIA 1.7%
(FINLAND)
- --------------------------------------------------------------------------------------
7. REUTERS GROUP 1.7%
(UNITED KINGDOM)
- --------------------------------------------------------------------------------------
8. FUJITSU 1.7%
(JAPAN)
- --------------------------------------------------------------------------------------
9. VODAFONE GROUP 1.6%
(UNITED KINGDOM)
- --------------------------------------------------------------------------------------
10. MANNESMANN 1.5%
(GERMANY)
- --------------------------------------------------------------------------------------
11. SHELL TRANSPORT & TRADING 1.5%
(UNITED KINGDOM)
- --------------------------------------------------------------------------------------
12. ORANGE 1.4%
(UNITED KINGDOM)
- --------------------------------------------------------------------------------------
13. TOKYO ELECTRON 1.4%
(JAPAN)
- --------------------------------------------------------------------------------------
14. RHONE-POULENC 1.4%
(FRANCE)
- --------------------------------------------------------------------------------------
15. NIPPON TELEGRAPH & TELEPHONE 1.3%
(JAPAN)
- --------------------------------------------------------------------------------------
16. DAIWA SECURITIES 1.3%
(JAPAN)
- --------------------------------------------------------------------------------------
17. SIEMENS 1.3%
(GERMANY)
- --------------------------------------------------------------------------------------
18. BP AMOCO 1.3%
(UNITED KINGDOM)
- --------------------------------------------------------------------------------------
19. EUROTUNNEL 1.3%
(FRANCE)
- --------------------------------------------------------------------------------------
20. REED INTERNATIONAL 1.3%
(UNITED KINGDOM)
- --------------------------------------------------------------------------------------
</TABLE>
*Portfolio holdings are subject to change.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER WORLDWIDE 2004 FUND
Portfolio of Investments at July 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT U.S. Treasury, zero coupon, 2004
OBLIGATIONS--62.7% (Cost: $16,276) $24,100 $17,532
------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
EUROPE
- ---------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--7.8% BOC Group, PLC
(PRODUCER OF INDUSTRIAL GASES) 4,130 85
BP Amoco, PLC
(OIL COMPANY) 6,990 137
Carlton Communications, PLC
(TELEVISION POST PRODUCTION PRODUCTS AND
SERVICES) 7,987 65
General Electric Co., PLC
(MANUFACTURER OF POWER, COMMUNICATIONS AND
DEFENSE EQUIPMENT) 10,340 104
Glaxo Wellcome, PLC
(PHARMACEUTICAL COMPANY) 2,833 73
J. Sainsbury, PLC
(RETAIL DISTRIBUTOR OF FOOD THROUGH
SUPERMARKETS) 11,840 72
Marks & Spencer, PLC
(RETAILER OF CONSUMER GOODS AND FOODS) 19,400 120
(a) Orange, PLC
(OPERATOR OF DIGITAL MOBILE TELEPHONE NETWORK) 9,200 146
Prudential Corporation, PLC
(PROVIDER OF BROAD RANGE OF FINANCIAL
SERVICES) 7,620 113
Reed International, PLC
(PUBLISHER OF SCIENTIFIC, PROFESSIONAL AND
BUSINESS TO BUSINESS MATERIALS) 17,500 134
Rentokil Initial, PLC
(ENVIRONMENTAL SERVICES COMPANY) 25,520 99
Reuters Group, PLC
(INTERNATIONAL NEWS AGENCY) 12,660 180
Rio Tinto, PLC
(MINING COMPANY) 11,300 215
Royal & Sun Alliance Insurance Group, PLC
(INSURANCE COMPANY) 24,871 205
(a) Select Appointments Holdings, PLC
(RECRUITMENT SERVICES COMPANY) 3,880 50
Shell Transport & Trading, PLC
(PETROLEUM COMPANY) 18,800 153
SmithKline Beecham, PLC
(MANUFACTURER OF ETHICAL DRUGS AND HEALTHCARE
PRODUCTS) 5,820 72
Vodafone Group, PLC
(TELECOMMUNICATION SERVICES) 8,041 171
------------------------------------------------------------------------------
2,194
- ---------------------------------------------------------------------------------------------------------------------
FRANCE--5.5% AXA SA
(INSURANCE GROUP PROVIDING INSURANCE, FINANCE
AND REAL ESTATE SERVICES) 565 66
Accor SA
(PROVIDER OF CATERING, HOTEL AND TRAVEL
SERVICES) 356 85
Carrefour SA
(HYPERMARKET OPERATOR AND FOOD RETAILER) 520 72
Christian Dior
(LEADING FASHION HOUSE) 584 87
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C>
(a) Club Mediterranee SA
(Operator of vacation resorts) 200 $ 20
Elf Aquitaine SA
(PETROLEUM COMPANY) 1,850 317
Etablissements Economiques du Casino Guichard-
Perrachon SA
(OPERATOR OF SUPERMARKETS AND CONVENIENCE
STORES) 1,200 65
(a) Eurotunnel SA (Bearer)
(CHANNEL TUNNEL CONSORTIUM) 87,700 136
LVMH (Louis Vuitton Moet Hennessy)
(PRODUCER OF WINES, SPIRITS AND LUXURY
PRODUCTS) 190 54
Lafarge SA
(PRODUCER OF CEMENT, CONCRETE AND AGGREGATES) 774 84
Pinault-Printemps-Redoute SA
(OPERATOR OF DEPARTMENT STORES) 469 78
Renault SA
(MANUFACTURER OF AUTOMOBILES, BUSES,
INDUSTRIAL AND AGRICULTURAL VEHICLES) 1,180 63
Rhone-Poulenc SA "A"
(PHARMACEUTICAL COMPANY) 2,900 142
Societe BIC SA
(MANUFACTURER OF OFFICE SUPPLIES) 2,026 110
Suez Lyonnaise des Eaux
(WATER AND ELECTRIC UTILITY) 599 106
Union des Assurances Federales
(INSURANCE GROUP) 457 53
------------------------------------------------------------------------------
1,538
- ---------------------------------------------------------------------------------------------------------------------
GERMANY--4.0% BASF AG
(INTERNATIONAL CHEMICAL PRODUCER) 2,750 125
Commerzbank AG
(BANK) 1,600 53
Dresdner Bank AG
(BANK) 1,800 77
Hoechst AG
(CHEMICAL PRODUCER) 2,840 120
HypoVereinsbank AG
(BANK) 2,250 128
Karstadt AG
(OPERATOR OF DEPARTMENT STORE CHAIN) 145 69
Mannesmann AG
(DIVERSIFIED CONSTRUCTION AND TECHNOLOGY
COMPANY) 1,060 161
Metro AG
(OPERATOR OF BUILDING, CLOTHING, DEPARTMENT,
ELECTRONIC AND FOOD STORES) 415 23
SAP AG (pfd.)
(COMPUTER SOFTWARE MANUFACTURER) 260 98
Siemens AG
(ELECTRICAL ENGINEERING AND ELECTRONICS
COMPANY) 1,660 137
VEBA AG
(ELECTRIC UTILITY, DISTRIBUTOR OF OIL AND
CHEMICALS) 2,070 127
------------------------------------------------------------------------------
1,118
- ---------------------------------------------------------------------------------------------------------------------
NETHERLANDS--2.3% Akzo Nobel NV
(PRODUCER AND MARKETER OF HEALTHCARE PRODUCTS,
COATINGS, CHEMICALS AND FIBERS) 1,650 71
DSM NV
(PLASTICS PRODUCER) 350 44
(a) Equant NV
(PROVIDER OF INTERNATIONAL DATA NETWORK
SERVICES) 1,020 90
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
Gucci Group
(DESIGNER AND PRODUCER OF PERSONAL LUXURY
accessories and apparel) 1,500 $ 110
Heineken Holding NV "A"
(PRODUCER AND DISTRIBUTOR OF BEERS, SPIRITS,
WINES, SOFT DRINKS) 1,330 54
ING Groep NV
(PROVIDER OF INSURANCE AND FINANCIAL SERVICES) 1,167 60
Koninklijke Ahold NV
(INTERNATIONAL FOOD RETAILER) 1,693 59
STMicroelectronics
(MANUFACTURER OF SEMICONDUCTOR INTEGRATED
CIRCUITS) 1,080 77
(a)United Pan-Europe Communications NV
(PROVIDER OF TELEVISION AND TELECOMMUNICATION
SERVICES) 670 44
VNU NV
(INTERNATIONAL PUBLISHING COMPANY) 1,320 48
------------------------------------------------------------------------------
657
- ---------------------------------------------------------------------------------------------------------------------
ITALY--2.1% Arnoldo Mondadori Editore SpA
(BOOK PUBLISHER) 2,200 38
Assicurazioni Generali
(LIFE AND PROPERTY INSURANCE COMPANY) 1,550 50
(a)Banca Nazionale del Lavoro
(BANK) 24,900 72
Class Editori SpA
(PUBLISHING HOUSE) 2,600 22
(a)Finmeccanica SpA
(DESIGNER AND DEVELOPER OF COMMERCIAL AND
MILITARY AIRCRAFT, SPACE SYSTEMS AND AIR
DEFENSE SYSTEMS) 65,700 56
Gruppo Editoriale L'Espresso
(PUBLISHER) 2,000 36
Mediaset SpA
(BROADCASTING AND TELEVISION NETWORKS) 6,200 56
Seat Pagine Gialle SpA
(PUBLISHER OF TELECOMMUNICATION DIRECTORIES
AND PROVIDER OF ADVERTISING SERVICES) 72,600 102
(a)Tecnost SpA
(DEVELOPER OF INFORMATION SYSTEMS) 21,400 53
Telecom Italia SpA
(PROVIDER OF TELECOMMUNICATIONS, ELECTRONICS
AND NETWORK CONSTRUCTION) 11,100 110
------------------------------------------------------------------------------
595
- ---------------------------------------------------------------------------------------------------------------------
SWITZERLAND--.8% Clariant AG
(MANUFACTURER OF DYE CHEMICALS) 72 35
Nestle SA
(FOOD MANUFACTURER) 57 112
Novartis AG
(PHARMACEUTICAL COMPANY) 48 69
------------------------------------------------------------------------------
216
- ---------------------------------------------------------------------------------------------------------------------
FINLAND--.7% Nokia OYJ
(MANUFACTURER OF TELECOMMUNICATION NETWORKS
AND EQUIPMENT) 2,100 182
------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
SPAIN--.4% (a) Telefonica SA
(TELECOMMUNICATION SERVICES) 6,231 $ 100
------------------------------------------------------------------------------
TOTAL EUROPEAN COUNTRIES--23.6% 6,600
------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PACIFIC REGION
- ---------------------------------------------------------------------------------------------------------------------
JAPAN--11.4% Advantest Corp.
(PRODUCER OF MEASURING INSTRUMENTS AND
SEMICONDUCTOR TESTING DEVICES) 500 64
Asahi Glass Co., Ltd.
(MANUFACTURER OF GLASS PRODUCTS) 8,000 49
Benesse Corp.
(PROVIDER OF EDUCATIONAL SERVICES) 500 63
Canon, Inc.
(LEADING PRODUCER OF VISUAL IMAGE AND
INFORMATION EQUIPMENT) 2,000 63
Daiwa Securities Co., Ltd.
(PROVIDER OF BROKERAGE AND OTHER FINANCIAL
SERVICES) 16,000 139
Fanuc, Ltd.
(MANUFACTURER OF NUMERICALLY CONTROLLED
EQUIPMENT FOR MACHINE TOOLS) 500 30
Fuji Bank, Ltd.
(COMMERCIAL BANK) 11,000 85
Fujisawa Pharmaceutical Co.
(MANUFACTURER OF ANTIBIOTICS) 7,000 132
Fujitsu, Ltd.
(MANUFACTURER OF COMPUTERS) 6,000 180
Hitachi, Ltd.
(GENERAL ELECTRONICS MANUFACTURER) 11,000 111
Komatsu, Ltd.
(MANUFACTURER OF CONSTRUCTION MACHINERY) 5,000 31
Matsushita Electric Industrial Co., Ltd.
(MANUFACTURER OF CONSUMER ELECTRONIC PRODUCTS) 5,000 119
Murata Manufacturing Co., Ltd.
(LEADING MANUFACTURER OF CERAMIC APPLIED
ELECTRONIC COMPUTERS) 1,000 74
NEC Corp.
(MANUFACTURER OF TELECOMMUNICATION AND
COMPUTER EQUIPMENT) 8,000 126
NSK, Ltd.
(LEADING MANUFACTURER OF BEARINGS AND MOTOR
VEHICLE MACHINE PARTS) 9,000 55
NTT Mobile Communications Network, Inc.
(PROVIDER OF VARIOUS TELECOMMUNICATION
SERVICES AND EQUIPMENT) 3 47
(a) NTT Mobile Communications Network, Inc.
(PROVIDER OF VARIOUS TELECOMMUNICATION
SERVICES AND EQUIPMENT) 24 371
Nikko Securities Co., Ltd.
(SECURITIES BROKER AND DEALER) 12,000 96
Nippon Telegraph & Telephone Corp.
(TELECOMMUNICATION SERVICES) 11 140
Nissan Motor Co., Ltd.
(MANUFACTURER OF MOTOR VEHICLES) 11,000 66
Nomura Securities Co., Ltd.
(FINANCIAL ADVISOR, SECURITIES BROKER AND
UNDERWRITER) 6,000 84
SMC Corp.
(MANUFACTURER OF DIRECTIONAL CONTROL DEVICES) 200 25
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
Sakura Bank, Ltd.
(Bank) 20,000 $ 83
Sanwa Bank, Ltd.
(BANK) 7,000 77
Shin-Etsu Chemical Co., Ltd.
(PRODUCER AND DISTRIBUTOR OF SYNTHETIC RESINS
AND CHEMICALS) 2,000 73
Sony Corp.
(MANUFACTURER OF CONSUMER ELECTRONIC PRODUCTS) 1,500 191
Sumitomo Trust & Banking Co., Ltd.
(COMMERCIAL BANK) 16,000 101
TDK Corp.
(MANUFACTURER OF MAGNETIC TAPES AND FLOPPY
DISCS) 900 90
THK Co., Ltd.
(MANUFACTURER OF LINEAR MOTION SYSTEMS FOR
INDUSTRIAL MACHINERY) 800 23
Teijin, Ltd.
(MANUFACTURER OF POLYESTER PRODUCTS) 10,000 40
Tokyo Electron, Ltd.
(LEADING SEMICONDUCTOR PRODUCTION EQUIPMENT
MANUFACTURER) 2,000 143
Toshiba Corp.
(MANUFACTURER OF ELECTRIC MACHINERY) 15,000 121
Yamanouchi Pharmaceutical Co., Ltd.
(PHARMACEUTICAL COMPANY) 2,000 93
------------------------------------------------------------------------------
3,185
- ---------------------------------------------------------------------------------------------------------------------
HONG KONG--1.0% Cheung Kong Holdings, Ltd.
(REAL ESTATE COMPANY) 10,000 87
Citic Pacific, Ltd.
(DIVERSIFIED HOLDING COMPANY) 27,000 76
New World Development Co., Ltd.
(PROPERTY INVESTMENT AND DEVELOPMENT) 22,000 58
Sun Hung Kai Properties, Ltd.
(REAL ESTATE DEVELOPER AND FINANCE COMPANY) 8,000 69
------------------------------------------------------------------------------
290
- ---------------------------------------------------------------------------------------------------------------------
SINGAPORE--.2% Development Bank of Singapore
(BANKING AND FINANCIAL SERVICES) 2,000 26
Oversea-Chinese Banking Corp., Ltd.
(COMMERCIAL BANK) 3,000 25
------------------------------------------------------------------------------
51
------------------------------------------------------------------------------
TOTAL PACIFIC REGION--12.6% 3,526
------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
COMMONWEALTH COUNTRIES
- ---------------------------------------------------------------------------------------------------------------------
AUSTRALIA--.8% Broken Hill Proprietary Co., Ltd.
(PETROLEUM AND MINERAL EXPLORATION AND STEEL
PRODUCTION) 9,000 99
WMC, Ltd.
(MINERAL EXPLORATION AND PRODUCTION) 18,600 81
Woodside Petroleum, Ltd.
(MAJOR OIL AND GAS PRODUCER) 6,300 45
------------------------------------------------------------------------------
225
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
CANADA--.3% Canadian National Railway Co.
(RAILROAD OPERATOR) 1,400 $ 94
------------------------------------------------------------------------------
TOTAL COMMONWEALTH COUNTRIES--1.1% 319
------------------------------------------------------------------------------
TOTAL COMMON STOCKS--37.3%
(Cost: $9,331) 10,445
------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $25,607) $27,977
------------------------------------------------------------------------------
</TABLE>
At July 31, 1999, the fund's portfolio of investments had the following industry
diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
--------------------------------------------------------------------------------------
<S> <C> <C>
Financial $ 1,884 6.7
--------------------------------------------------------------------------------------
Communications 1,310 4.7
--------------------------------------------------------------------------------------
Manufacturing 1,754 6.3
--------------------------------------------------------------------------------------
Technology 1,115 4.0
--------------------------------------------------------------------------------------
Service Industries 760 2.7
--------------------------------------------------------------------------------------
Consumer Staples 765 2.7
--------------------------------------------------------------------------------------
Energy 652 2.3
--------------------------------------------------------------------------------------
Health 440 1.6
--------------------------------------------------------------------------------------
Consumer Discretionary 421 1.5
--------------------------------------------------------------------------------------
Metals and Minerals 395 1.4
--------------------------------------------------------------------------------------
Utilities 233 0.8
--------------------------------------------------------------------------------------
Construction 220 0.8
--------------------------------------------------------------------------------------
Media 217 0.8
--------------------------------------------------------------------------------------
Durables 185 0.7
--------------------------------------------------------------------------------------
Transportation 94 0.3
--------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 10,445 37.3
--------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 17,532 62.7
--------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO $27,977 100
--------------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
Based on the cost of investments of $25,626,000 for federal income tax purposes
at July 31, 1999, the gross unrealized appreciation was $2,764,000, the gross
unrealized depreciation was $413,000 and the net unrealized appreciation on
investments was $2,351,000.
See accompanying Notes to Financial Statements.
16
<PAGE> 17
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TARGET EQUITY FUND--
KEMPER WORLDWIDE 2004 FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Target Equity Fund--Kemper
Worldwide 2004 Fund as of July 31, 1999 and the related statement of operations
for the year then ended and changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the fiscal
periods since 1995. 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, 1999, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Target Equity Fund--Kemper Worldwide 2004 Fund at July 31, 1999, 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 16, 1999
17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ---------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------
Investments, at value
(Cost: $25,607) $27,977
- ---------------------------------------------------------------------
Foreign taxes recoverable 12
- ---------------------------------------------------------------------
Receivable for:
Investments sold 9
- ---------------------------------------------------------------------
Dividends 11
- ---------------------------------------------------------------------
TOTAL ASSETS 28,009
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------
Cash overdraft 83
- ---------------------------------------------------------------------
Payable for:
Investments purchased 69
- ---------------------------------------------------------------------
Fund shares redeemed 2
- ---------------------------------------------------------------------
Management fee 14
- ---------------------------------------------------------------------
Administrative services fees 6
- ---------------------------------------------------------------------
Custodian and transfer agent and related expenses 4
- ---------------------------------------------------------------------
Trustees' fees and other 21
- ---------------------------------------------------------------------
Total liabilities 199
- ---------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE $27,810
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------
Net assets consist of:
- ---------------------------------------------------------------------
Undistributed net investment income $ 554
- ---------------------------------------------------------------------
Net unrealized appreciation on
Investments 2,370
- ---------------------------------------------------------------------
Undistributed net realized gain on investments 1,581
- ---------------------------------------------------------------------
Paid-in capital 23,305
- ---------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE $27,810
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
THE PRICING OF SHARES
- ---------------------------------------------------------------------
SHARES OUTSTANDING 2,694
- ---------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
(net assets / shares outstanding) $10.32
- ---------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
18
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Interest income $ 1,251
- -----------------------------------------------------------------------
Dividends (less foreign taxes withheld of $14) 138
- -----------------------------------------------------------------------
Total investment income 1,389
- -----------------------------------------------------------------------
Expenses:
Management fee 182
- -----------------------------------------------------------------------
Administrative services fee 75
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 73
- -----------------------------------------------------------------------
Reports to shareholders 45
- -----------------------------------------------------------------------
Audit 7
- -----------------------------------------------------------------------
Legal 1
- -----------------------------------------------------------------------
Trustees fees 6
- -----------------------------------------------------------------------
Other 6
- -----------------------------------------------------------------------
Total expenses 395
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 994
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized gain (loss) from:
- -----------------------------------------------------------------------
Investments 2,033
- -----------------------------------------------------------------------
Foreign currency related transactions (25)
- -----------------------------------------------------------------------
Net realized gain 2,008
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments (2,703)
- -----------------------------------------------------------------------
Net loss on investments (695)
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 299
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1999 1998
- ------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 994 1,177
- ------------------------------------------------------------------------------------------------
Net realized gain 2,008 2,956
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (2,703) (593)
- ------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 299 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 decrease from capital share transactions (1,348) (3,276)
- ------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (5,260) (2,655)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------
Beginning of year 33,070 35,725
- ------------------------------------------------------------------------------------------------
END OF YEAR
(including undistributed net investment income
of $554 and $658, respectively) $27,810 33,070
- ------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
1 DESCRIPTION OF THE
FUND Kemper Worldwide 2004 Fund (the "fund") is a
diversified series of Kemper Target Equity Fund
(the "trust") which is registered under the
Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment
company, organized as a Massachusetts business
trust. 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.
Fund shares were sold to the public during a
limited offering period which ended in 1996 and are
redeemable on a continuous basis. 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.
The fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the fund in the
preparation of its financial statements.
- --------------------------------------------------------------------------------
2 SIGNIFICANT ACCOUNTING
POLICIES SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. 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, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used.
Portfolio debt securities purchased with an
original maturity greater than sixty days are
valued by pricing agents approved by the officers
of the trust, whose 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 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
exchange rates at period end. Purchases and sales
of investment securities,
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
income and expenses are translated into U.S.
dollars at the prevailing exchange rates on the
respective dates of the transactions.
Net realized and unrealized gains and losses on
foreign currency transactions represent net gains
and losses between trade and settlement dates on
securities transactions, the disposition of forward
foreign currency exchange contracts and foreign
currencies, and the difference between the amount
of net investment income accrued and the U.S.
dollar amount actually received. That portion of
both realized and unrealized gains and losses on
investments that results from fluctuations in
foreign currency exchange rates is not separately
disclosed but is included with net realized and
unrealized gains and losses on investment
securities.
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.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Certain dividends from
foreign securities may be recorded subsequent to
the ex-dividend date as soon as the fund is
informed of such dividends. Realized gains and
losses from investment transactions are recorded on
an identified cost basis. All discounts are
accreted for both tax and financial reporting
purposes.
EXPENSES. Expenses arising in connection with a
specific fund are allocated to that fund. Other
trust expenses are allocated between the funds in
proportion to their relative net assets.
- --------------------------------------------------------------------------------
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 $182,000 for the year ended July
31, 1999.
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
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
annual rate of up to .25% of average daily net
assets. KDI in turn has various agreements with
financial services firms that provide these
services and pays these firms based on assets of
fund accounts the firms service. For the year ended
July 31, 1999, the fund paid administrative
services fees of $75,000, all of which KDI remitted
to financial services firms.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the trust's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent for the fund. For the year ended July
31, 1999, KSvC received shareholder services fees
of $39,000.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the trust are also officers or directors of
Scudder Kemper. For the year ended July 31, 1999,
the fund made no payments to its officers and
incurred trustees' fees of $6,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended July 31, 1999 investment
transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<S> <C>
Purchases $23,392
Proceeds from sales 26,758
</TABLE>
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1999 1998
---------------- ----------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued in reinvestment of dividends 408 $4,216 266 $ 2,828
-------------------------------------------------------------------------------
Shares redeemed (523) (5,564) (537) (6,104)
-------------------------------------------------------------------------------
Net decrease from capital share
transactions $(1,348) $(3,276)
-------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, MONTH ENDED YEAR ENDED JUNE 30,
----------------------- 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 .35 .42 .03 .42 .36 .27
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.22) .77 .44 .71 .63 .79
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .13 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 $ 10.32 11.77 11.60 11.13 10.60 9.96
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.12% 11.17 4.22 11.08 10.05 11.91
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------
Expenses 1.30% 1.19 1.19 1.19 1.32 1.29
- -----------------------------------------------------------------------------------------------------------
Net investment income 3.28% 3.49 3.20 3.63 3.60 3.77
- -----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $27,810 33,070 35,725 34,766 37,818 30,699
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 62% 27 30 25 50 75
- -----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Per share
data for the year ended July 31, 1999 was determined based on average shares
outstanding.
TAX INFORMATION
The fund paid distributions of $1.07 per share from net long-term capital gains
during its year ended July 31, 1999, of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the fund designates
$1,746,000 as capital gain dividends for its year ended July 31, 1999, of which
100% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-Scudder.
23
<PAGE> 24
TRUSTEES&OFFICERS
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY CORNELIA SMALL
Trustee President Vice President
JAMES R. EDGAR PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK MAUREEN E. KANE
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
FREDERICK T. KELSEY CAROLINE PEARSON
Trustee TRACY MCCORMICK Assistant Secretary
Vice President
THOMAS W. LITTAUER BRENDA LYONS
Trustee and Vice President ANN M. MCCREARY Assistant Treasurer
Vice President
FRED B. RENWICK
Trustee KATHRYN L. QUIRK
Vice President
JOHN G. WEITHERS
Trustee
..............................................................................
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
..............................................................................
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
..............................................................................
CUSTODIAN THE CHASE MANHATTAN BANK
Chase Metro Tech Center
Brooklyn, NY 11245
..............................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
..............................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
KWF - 2(9/27/99) 1086180
