<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED JULY 31, 2000
Provides long-term capital growth with
guaranteed return of investment on the
maturity date to investors who reinvest
all dividends and hold their shares to
the maturity date.
KEMPER TARGET
2010 FUND
"... Virtually all technology stocks took a nosedive during the [Spring]
correction; however, the quality companies with sound business fundamentals
bounced back. Many speculative Internet- related issues didn't rebound. Since we
had only minor exposure to the Internet sector, the fund came through the
downturn virtually unscathed. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
9
INDIVIDUAL HOLDINGS
10
PORTFOLIO OF INVESTMENTS
14
FINANCIAL STATEMENTS
17
FINANCIAL HIGHLIGHTS
18
NOTES TO FINANCIAL STATEMENTS
22
REPORT OF INDEPENDENT AUDITORS
23
TAX INFORMATION
AT A GLANCE
KEMPER TARGET 2010 FUND
TOTAL RETURN*
FOR THE YEAR ENDED JULY 31, 2000 (UNADJUSTED FOR ANY SALES CHARGE).
<TABLE>
<S> <C> <C> <C>
.......................................................
KEMPER TARGET 2010 FUND 11.49%
.......................................................
</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 STATEMENT OF ADDITIONAL INFORMATION AND THE FINANCIAL HIGHLIGHTS
TABLE AT THE END OF THIS REPORT.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
7/31/00 7/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER TARGET 2010 FUND $11.34 $10.96
.........................................................
</TABLE>
DIVIDEND REVIEW
DURING THE REPORTING PERIOD, KEMPER TARGET 2010 FUND MADE THE FOLLOWING
DISTRIBUTIONS PER SHARE.
<TABLE>
<CAPTION>
INCOME LONG-TERM
DIVIDEND CAPITAL GAINS
......................................................
<S> <C> <C> <C> <C>
KEMPER TARGET 2010
FUND $0.36 $0.43
......................................................
</TABLE>
TERMS TO KNOW
BENCHMARK A gauge of relative performance, often a broad market index. When
comparing the performance of a fund and a benchmark, it's important to note any
differences between the two. For instance, Kemper Target 2010 Fund invests only
a portion of its assets in large-cap stocks, while the S&P 500 is composed
entirely of stocks.
NARROW MARKET A period in which only a few holdings drive the performance of the
overall market. Since 1998, the domestic stock market has generally been narrow,
with only a handful of large-cap growth and technology stocks contributing the
majority of gains.
PRICE-TO-EARNINGS (P/E) RATIO An indication of how much investors are paying for
a company's earning power. The higher the P/E, the more investors are paying and
the more earnings growth they are expecting.
VOLATILITY The characteristic of a security (such as a stock or bond), commodity
or market to rise and fall sharply in price within a short period of time. A
stock may be volatile due to company, industry, market or economic factors.
ZERO-COUPON BOND A bond that makes no periodic payments of interest and is sold
at a deep discount to its face value. Instead of receiving periodic payments,
the buyer receives the face value of the bond at maturity. For U.S. Treasury
bonds, this payment is guaranteed. Although the payment is guaranteed, U.S.
Treasury bonds can be quite volatile prior to their maturity, particularly
during periods of fluctuating interest rates.
<PAGE> 3
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.
ECONOMIC OVERVIEW
DEAR KEMPER FUNDS SHAREHOLDER,
When an irresistible force such as the ebullient U.S. economy meets an immovable
object, such as a determined Federal Reserve Board, the old song is right:
Something's gotta give. One possibility -- the economy could slow down as the
Fed has ordered. Or, if market volatility becomes truly distressful, the Fed
could back off, as it has in the past. A third possibility is that neither the
Fed nor the economy will give way until it's too late, which could lead to a
recession. Recent evidence suggests, however, that the economy probably will
slow down as ordered. The Fed decided to leave rates unchanged at both its June
and August meetings, and in his testimony before Congress in late July, Fed
Chairman Alan Greenspan said he believes a slowdown has indeed arrived.
Before explaining why we agree with the Fed that a slowdown is a good bet,
let's review how monetary policy works. Central bankers often sound like witch
doctors reading animal entrails, so it's understandable that many people are
confused about monetary policy. But monetary policy still works in the same way
it always has. First, it changes the price and availability of money. More
subtly, it alters people's perceptions about and confidence in the future,
thereby adjusting their willingness to take risks.
The Fed only started raising interest rates a little over year ago, and it
takes at least that long for higher rates to impact borrowers. There are two
reasons. First, interest rates on many existing loans are fixed. And, a family
who has just selected a dream house isn't going walk away if mortgage rates rise
a notch. Similarly, a company that has just approved an expansion program won't
stop cold because the prime rate is higher. So it's foolish to think that
America's economy has become less interest-sensitive because the economy roared
through the first several months of this year. Americans are more in hock than
ever, so higher interest rates will hurt more than ever. The sharp drop in
housing starts and auto sales from their February peak is probably the first
sign that higher rates are biting. They will bite harder in coming months. We
look for both housing starts and vehicle sales to continue to drop and to be
lower in 2001 than in 2000.
Confidence is harder to measure, but there are some early flutters of
weakness. It's true that consumers remain cheerily upbeat. But corporate bond
markets, the most sensitive barometer of business confidence and a vital source
of corporate funds, have been nervous. Investors are demanding a big premium
before they'll buy lower quality bonds, which means there's less new money for
companies to spend.
So far, companies have been able to get around the bond market stinginess by
turning to their bankers. Banks lent businesses 9 percent more from January
through July of this year than they did during the first seven months of 1999.
But some banks are beginning to worry, too. Bank examiners have been questioning
the quality of loans and the level of reserves. In response, more bankers are
tightening lending standards and raising rates. This is a textbook case of how
tighter monetary policy eventually slows an economy.
Aren't bond market and banker concerns overdone? As long as the economy keeps
growing at 3 percent or so, won't that guarantee such good profits that paying
the bills will be a cinch? Not necessarily. Profits are far more cyclical than
economic growth. Earnings actually fell during 1998, even though the economy
continued to roll. That was a global crisis, when foreign earnings fell sharply.
But take a look at the last "soft landing" during 1995. Revenue growth dipped
and pricing power fell, squeezing profits. The same thing is likely to happen
again in the coming slowdown -- and this time, tight labor markets could make it
even tougher for companies to control costs quickly. Assuming growth is between
2.5 percent and 3 percent by the end of 2001, we believe year-over-year profit
comparisons will have turned slightly negative.
A profit slowdown when new lines of credit are hard to come by will take its
toll on capital spending. We expect growth in business outlays for buildings and
equipment to slip from over 12 percent this year to around 8 percent in 2001.
That's still quite robust, and the "high-tech imperative" is the reason why.
Executives believe that they have no option but to keep up with the
technological revolution that is transforming the world. The fact that high-tech
gear keeps getting cheaper year after year and also helps save on expensive
labor makes the decision to buy it easy. Indeed, unit sales of computers and
peripherals to businesses have sustained growth rates in excess of 40 percent
since 1995. And the rush is on to lay down the infrastructure for the next
generation of wireless communications. We estimate that the telecommunications
sector will see unit growth of more than 30 percent this year, double the
average growth of the past six years. It's hard even for
3
<PAGE> 4
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 (8/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.8 6.5 5.9 5.3
Prime rate (2) 9.5 8.75 8.25 8.5
Inflation rate (3)* 3.6 2.7 2.1 1.7
The U.S. dollar (4) 5.1 2.3 -5.7 8
Capital goods orders (5)* 13.2 11.4 8.4 6.4
Industrial production (5)* 5.8 5.2 4.6 3.2
Employment growth (6) 1.9 2 2.2 2.7
</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 7/31/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
ECONOMIC OVERVIEW
superstars to sustain these stratospheric compound growth rates forever, and we
do expect some moderation next year. However, high-tech orders continue to
ratchet upwards, and the shortage in semiconductors and other components has
persisted long enough to cause major players to announce huge capacity
additions.
Another battle the Fed must win before it succeeds in slowing the economy is
bringing consumers to heel. Most families still feel better off than they were
last year and much richer than they were five years ago. That's a powerful
incentive to spend and enjoy. Indeed, total real consumption has been galloping
at a 5 percent rate or better since early 1998. But consumers are so important
to the economy that if they don't start spending less freely, there won't be a
slowdown. However, there is some evidence of moderation. Retailers have been
reporting sluggish summer sales, and the back-to-school season is getting off to
a slow start. This is music to the Fed's ears, because the policymakers would
like nothing better than to sit on the sidelines until well after the
Presidential election.
So what will the slowdown look like? It will be concentrated in retail sales,
housing starts and job creation slowed (at least that's where it has surfaced so
far). However, strength in high tech orders and capital equipment production
probably will help keep the slowdown from becoming too abrupt. We expect about
3.5 percent growth in the second half. That would still produce a hearty 5
percent growth for full year 2000. During 2001, the full impact of the Fed's
earlier tightening will probably rein growth in to just 3 percent.
Sincerely,
Kemper Distributors, Inc.
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 THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF SEPTEMBER 5, 2000, 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
[McCORMICK PHOTO]
TRACY MCCORMICK IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC. AND
LEAD PORTFOLIO MANAGER OF KEMPER TARGET 2010 FUND. SHE HAS MORE THAN 20 YEARS OF
INVESTMENT INDUSTRY EXPERIENCE.
[LANGBAUM PHOTO]
[DOLAN PHOTO]
PORTFOLIO MANAGERS GARY LANGBAUM, C.F.A., AND SCOTT DOLAN CONTRIBUTE TO THE
MANAGEMENT OF THE FUND. THE MANAGEMENT TEAM IS SUPPORTED BY SCUDDER KEMPER
INVESTMENTS, INC.'S LARGE STAFF OF ANALYSTS, RESEARCHERS AND ECONOMISTS.
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 THE MARKET AND OTHER
CONDITIONS AND SHOULD NOT BE CONSIDERED AS A RECOMMENDATION OF ANY SPECIFIC
SECURITY.
PERFORMANCE UPDATE
THE FUND'S RECENT ANNUAL PERIOD -- AUGUST 1, 1999,
THROUGH JULY 31, 2000 -- WAS ONE OF RISING INTEREST
RATES AND MARKET VOLATILITY. BELOW, LEAD PORTFOLIO
MANAGER TRACY MCCORMICK DISCUSSES HOW SHE GUIDED
KEMPER TARGET 2010 FUND THROUGH THIS CHALLENGING
ONE-YEAR PERIOD.
Q BEFORE YOU DISCUSS HOW KEMPER TARGET 2010 FUND PERFORMED, WILL YOU REVIEW
THE PAST YEAR'S MARKET CLIMATE?
A In the past year, we witnessed two distinct periods. From August 1999
through February 2000, the market posted strong returns dominated by high-flying
technology issues. An active initial public offering (IPO) market as well as
advances in technology -- specifically semiconductors and wireless
communications, -- drove this performance. The technology-dominated market
spiraled upward even as the Federal Reserve Board continued to increase interest
rates.
After stocks reached new highs in February, investors became skeptical about
the technology-driven market's ability to maintain its lofty perch. The market
experienced a sharp correction in March. This correction was the result of
investors' retreating from high-P/E technology and Internet-related stocks, and
moving into other areas of the market with more reasonable valuations. Since the
correction, the market has remained volatile with no dominant sector.
Q HOW DID THE FUND PERFORM FOR THE ANNUAL PERIOD ENDING JULY 31, 2000?
A Kemper Target 2010 Fund kept pace with its peers and benchmark, rising
11.49 percent (unadjusted for any sales charge). For the same period, the Lipper
Balanced Target Maturity category average rose 12.76 percent, and the all-equity
S&P 500 gained 8.97 percent.
While our return figure may seem modest compared with fund returns on which
the media focus, keep in mind that the portfolio typically invests only a
portion of assets in stocks; the remainder is invested in zero-coupon U.S.
Treasury bonds. The bonds anchor the fund's guaranteed return of original
investment, but they also limit the fund's ability to participate fully in the
equity market.
Remember, guaranteed return of original investment applies only to
shareholders who hold their investment to the portfolio's maturity date and who
reinvest all dividends. Please see the prospectus for more details.
Q WHAT ARE ZERO-COUPON BONDS, AND HOW DO THEY FIT INTO YOUR INVESTMENT
PROFILE?
A Zero-coupon U.S. Treasury bonds are debt obligations issued by the federal
government and sold at a considerable discount from 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 the instrument's maturity, the principal value of a zero-coupon bond
is subject to volatility, especially when interest rates are shifting.
Generally, zero-coupon bonds
5
<PAGE> 6
PERFORMANCE UPDATE
have higher prices when interest rates are low.
Q HOW DID THE TECHNOLOGY-FUELED MARKET CORRECTION IN MARCH AFFECT THE FUND?
A Virtually all technology stocks took a nosedive during the [Spring]
correction; however, the quality companies with sound business fundamentals
bounced back. Many speculative Internet-related issues didn't rebound. Since we
had only minor exposure to the Internet sector, the fund came through the
downturn virtually unscathed.
Although many Internet companies enjoyed strong performance before the
correction, most never met our strict investment criteria. We look for companies
with seasoned management and an ability to deliver sustainable, consistent
earnings growth. We were also concerned about valuations. While we maintained a
market weighting in technology during the period, finding reasonably priced
technology companies was difficult. Since the correction, we've seen valuations
in this sector decline to what we believe are more reasonable levels.
The fund's semiconductor stocks experienced dramatic increases leading up to
the technology correction, but have continued to struggle since March. The
semiconductor industry builds the computer hardware and chips that are an
integral part of cellular and wireless communications, computers and
calculators, among many other goods. Although we're disappointed with the
industry's most recent performance, we believe these stocks are experiencing a
temporary downturn. The demand for the products these companies provide
continues to grow at a rapid rate. We've used the recent weakness in this area
to add to some of the better technology stocks. We've added to our positions in
Veritas, Dell, IBM, Siebel Systems and Nortel.
Q PLEASE TELL US ABOUT YOUR STOCK SELECTION PROCESS.
A Successful stock selection is about both quality of information and using
the most relevant facts in the most appropriate way. We use a rigorous,
"growth-at-a-reasonable price" discipline and seek to uncover quality large-cap
stocks that are trading at attractive prices relative to their growth potential.
Intensive, proprietary research is key to our process. We don't make our
decisions based on the Wall Street crowd, unsubstantiated rumors or wishful
thinking. We evaluate companies' balance sheets, management and product lines,
as well as industry trends and competitive positioning. Here, our goal is to
find a catalyst for excellent long-term growth. These catalysts come from a
variety of sources, including innovative product developments, cost-cutting
strategies and management changes, to name just a few.
Our investment process is also grounded in discipline. That's true for both
our buy and sell strategies. We begin to put an exit strategy into play when a
stock reaches our pre-established price targets or when we see signs of
potential deterioration in fundamentals or earnings growth.
Q PLEASE PROVIDE SOME EXAMPLES OF YOUR INVESTMENT DISCIPLINE IN ACTION.
A One area that has been successful for Kemper Target 2010 Fund's is the
consumer staples sector, where the portfolio is concentrated in media stocks.
Companies such as Disney, Viacom, Infinity and Univision were some of the fund's
strongest performers during the year. As these companies appreciated to our
preset price targets, we began to reduce our positions. The companies were
continuing to gain at that point, but nothing had changed fundamentally, so we
didn't sway from our sell discipline. We reduced our positions slowly as their
prices continued to rise.
Q WILL YOU HIGHLIGHT SOME OTHER AREAS THAT WORKED OUT WELL FOR KEMPER TARGET
2010 FUND?
A The health care, financial services and energy sectors were some of the
fund's strongest performers during the year.
The pharmaceutical companies in the portfolio boosted Kemper Target 2010
Fund's health care sector performance. Pharmaceuticals rallied as investors fled
high-priced technology issues for these more conservative stocks. New products
and good pipelines helped propel Forest Labs, Alza and Amgen during the period.
Although we're pleased with the sector's strong performance, we're also
cautiously optimistic. We expect the industry to remain volatile at least until
the November presidential election and possibly beyond.
The fund's financial stocks, despite rising interest rates, posted strong
performance. We stayed away from the most spread-sensitive stocks, such as
regional banks, many of which performed poorly as rates rose. Instead, we
invested in insurance companies, -- specifically, property and casualty firms,
such as Hartford Financial Services Group, which benefited from improved
pricing. We also invested in large diversified financial institutions, such as
Marsh & McLennan, and consumer finance companies, such as Household
International and Capital One.
6
<PAGE> 7
PERFORMANCE UPDATE
As oil prices rose during the period, the fund's investment in oil service
companies enjoyed strong gains. Higher oil prices fueled an increase in capital
expenditures. Fund holdings such as Schlumberger, Transocean Sedco Forex and
Halliburton were direct beneficiaries of the increase in budgets.
Q WHAT HINDERED OVERALL PERFORMANCE?
A Retail stocks have been disappointing. We're invested in discount
retailers such as Home Depot, Target and Wal-Mart, which typically fare better
than department store retailers do as interest rates rise. However, these
retailers have struggled with most others as the economy has begun to slow. We
believe, however, that interest rates have peaked, and we expect to see improved
performance from these retailers.
Q HOW DID THE RECENT LEGAL PROCEEDINGS INVOLVING MICROSOFT, ONE OF THE
FUND'S TOP HOLDINGS, IMPACT PORTFOLIO PERFORMANCE?
A This spring, in an antitrust lawsuit, Microsoft was handed an order by a
federal court to break up its operations. Although the case is currently under
appeal, the news caused a swift decline in the software giant's stock price,
which in turn hurt the fund's performance. We believe the market overreacted, so
despite the media hype, we added to our Microsoft investment. Since that time,
the stock price has rebounded strongly, and we expect more gains as Microsoft's
fundamentals continue to improve. The company is making great strides in
developing products that will help it compete in the new Web-enabled technology
market. We believe the company's new Office 2000 product line will win wide
marketplace acceptance this year. Microsoft is also well positioned to expand
market share in computer servers, where it currently runs second to Sun
Microsystems/IBM's Unix platform and faces stiff competition from the Linux
platform.
We expect Microsoft to win its appeal. However, even if it doesn't and the
company is forced to split in two, we believe there is plenty of value to
compensate investors.
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A We believe that the Fed has completed its interest-rate increases, and the
economy is slowing. This should be favorable for the markets. Despite the
technology correction, we are still bullish on semiconductors. We also expect
continued growth in the property and casualty areas of insurance. And we see
stability in oil prices, which should be positive for our energy holdings. Right
now the market lacks notable trends, and investors are looking ahead for signs
of where to move next. We have continued to enhance the quality of the portfolio
by adding growth companies that have excellent long-term potential and superior
fundamentals.
IMPORTANT INFORMATION FOR SHAREHOLDERS
HOW THE KEMPER TARGET 2010 FUND ASSURANCE WORKS
On August 15, Kemper Target 2010 Fund reached the end of its limited offering
period, as outlined in the prospectus. For more information, please refer to
the recent correspondence you received in the mail. If you require additional
clarification, please contact your financial representative or call Kemper
Shareholder Services at (800) 621-1048.
Kemper Target 2010 Fund invests in a combination of zero-coupon U.S. Treasury
bonds and equity securities, primarily growth stocks. If shares are held to
maturity (November 15, 2010) and all dividends are reinvested, shareholders
are assured of receiving their original investment at maturity, plus any
returns that the stocks in the portfolio have earned. You may redeem your
investment on any business day at the then-current net asset value. Keep in
mind that shares redeemed prior to maturity do not benefit from this
assurance. Also, if you do not reinvest all dividends, this assurance does not
apply. Shares will fluctuate in value.
7
<PAGE> 8
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED JULY 31, 2000
(ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1- 5- 10-
YEAR YEAR YEAR LIFE OF FUND
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER TARGET 2010 FUND 5.89% 12.48% 12.29% 12.96% (since
2/5/90)
............................................................................................
</TABLE>
KEMPER TARGET 2010 FUND
Growth of an assumed $10,000 investment in Target 2010 Fund shares
from 02/28/90 to 07/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
Lehman Brothers
Kemper Target 2010 Russell 1000(R) Growth Government/Corporate
Fund(1) Index+ Bond Index++
------------------ ---------------------- --------------------
<S> <C> <C> <C>
2/28/90 9502 10000 10000
10508 10770 10955
15065 15203 12721
15352 15963 13685
12/31/93 17098 16427 15195
16028 16863 14662
19834 23133 17483
22693 28482 17991
12/31/97 26244 37166 19746
29446 51550 21620
33659 68636 21152
7/31/00 35309 68556 22267
</TABLE>
[LINE GRAPH]
<TABLE>
<CAPTION>
Lehman Brothers
Kemper Target 2010 Russell 1000(R) Growth Government Bond
Fund(1) Index+ Index+++
------------------ ---------------------- ---------------
<S> <C> <C> <C>
2/28/90 9502 10000 10000
10508 10770 11006
15065 15203 12691
15352 15963 13609
12/31/93 17098 16427 15058
16028 16863 14551
19834 23133 17219
22693 28482 18061
12/31/97 26244 37166 19791
29446 51550 21741
33659 68636 21252
7/31/00 35309 68556 22306
</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.
*AVERAGE ANNUAL TOTAL RETURN MEASURES
NET INVESTMENT INCOME AND CAPITAL GAIN
OR LOSS FROM PORTFOLIO INVESTMENTS,
ASSUMING REINVESTMENT OF ALL
DIVIDENDS. AVERAGE ANNUAL TOTAL RETURN
REFLECTS ANNUALIZED CHANGE. DURING THE
PERIODS NOTED, SECURITIES PRICES
FLUCTUATED. FOR ADDITIONAL
INFORMATION, SEE THE PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION
AND THE FINANCIAL HIGHLIGHTS TABLE AT
THE END OF THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT OF
DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE OF 5%. WHEN
COMPARING KEMPER TARGET 2010 FUND
WITH THE RUSSELL 1000(R) GROWTH
INDEX,+ YOU SHOULD NOTE THAT THE
FUND'S PERFORMANCE REFLECTS THE
MAXIMUM SALES CHARGE, WHILE NO SUCH
CHARGES ARE REFLECTED IN THE
PERFORMANCE OF THE INDICES.
BEGINNING WITH THE NEXT ANNUAL
REPORT, THE LEHMAN BROTHERS
GOVERNMENT BOND INDEX, A MORE
REPRESENTATIVE INDEX FOR THE FUND,
WILL BE SHOWN INSTEAD OF THE LEHMAN
BROTHERS GOVERNMENT/CORPORATE BOND
INDEX. BECAUSE THE INDICES ARE
SIMILAR IN DOLLAR AMOUNTS, THEY ARE
BROKEN OUT INTO TWO SEPARATE CHARTS
FOR A BETTER COMPARISON.
+THE RUSSELL 1000(R) GROWTH INDEX IS
AN UNMANAGED INDEX COMPRISED OF
COMMON STOCKS OF LARGER U.S.
COMPANIES WITH GREATER THAN AVERAGE
GROWTH ORIENTATION. IT REPRESENTS THE
UNIVERSE OF STOCKS FROM WHICH
"EARNINGS/ GROWTH" MONEY MANAGERS
TYPICALLY SELECT. ASSUMES
REINVESTMENT OF DIVIDENDS. SOURCE IS
LIPPER, INC.
++THE LEHMAN BROTHERS GOVERNMENT/
CORPORATE BOND INDEX IS AN UNMANAGED
INDEX COMPRISED OF INTERMEDIATE- AND
LONG-TERM GOVERNMENT AND
INVESTMENT-GRADE CORPORATE DEBT
SECURITIES. SOURCE IS WIESENBERGER.
+++THE LEHMAN BROTHERS GOVERNMENT BOND
INDEX IS A MARKET VALUE WEIGHTED
INDEX OF U.S. TREASURY AND GOVERNMENT
AGENCY SECURITIES (OTHER THAN
MORTGAGE SECURITIES) WITH MATURITIES
OF ONE YEAR OR MORE. SOURCE IS LEHMAN
BROTHERS.
8
<PAGE> 9
INDIVIDUAL HOLDINGS
THE FUND'S 10 LARGEST STOCK HOLDINGS*
Representing 12.3 percent of the fund's total common stocks on July 31, 2000.
<TABLE>
<CAPTION>
HOLDINGS PERCENT
<S> <C> <C> <C>
--------------------------------------------------------------------------------------
1. CISCO SYSTEMS Large, comprehensive supplier of 1.8%
routing software and related
systems that direct the flow of
data between local networks and
the Internet.
--------------------------------------------------------------------------------------
2. GENERAL ELECTRIC A broadly diversified company with 1.7%
major businesses in power
generators, appliances, lighting,
plastics, medical systems,
aircraft engines, financial
services and broadcasting.
--------------------------------------------------------------------------------------
3. INTEL Designs, develops, manufactures 1.6%
and sells advanced microcomputer
components, such as
semiconductors.
--------------------------------------------------------------------------------------
4. MICROSOFT Develops, markets and supports a 1.6%
variety of software, operating
systems, Internet services, and
language and application programs.
--------------------------------------------------------------------------------------
5. PEPSICO One of the largest international 1.3%
snack food and soft drink
producers.
--------------------------------------------------------------------------------------
6. BAXTER INTERNATIONAL An international market-leader in 1.0%
health care that develops,
manufactures and distributes a
diversified line of products,
systems and services to hospitals,
clinical and medical research
laboratories, blood and dialysis
centers, rehabilitation centers
and nursing homes.
--------------------------------------------------------------------------------------
7. PFIZER A research-based pharmaceutical 0.9%
company involved in the discovery,
development, manufacturing and
marketing of medicines for humans
and animals.
--------------------------------------------------------------------------------------
8. UNITED TECHNOLOGIES Designs, develops, manufactures, 0.8%
sells and services mechanical
products, including aircraft
engines and parts, elevators, and
air conditioning, heating and
refrigeration systems and
equipment.
--------------------------------------------------------------------------------------
9. EXXON MOBIL Engaged in the exploration, 0.8%
production, manufacture,
transportation and sale of crude
oil, natural gas and petroleum
products.
--------------------------------------------------------------------------------------
10. IBM Manufactures and distributes 0.8%
computer hardware equipment,
applications and system software
equipment.
--------------------------------------------------------------------------------------
</TABLE>
*The fund's holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER TARGET 2010
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENTS--1.0% AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
State Street Bank and Trust Company, 6.530%,
to be repurchased at $811,147 on
08/01/2000** (Cost $811,000) $ 811,000 $ 811,000
---------------------------------------------------------------------------
<CAPTION>
COMMERCIAL PAPER--1.8%
<S> <C> <C> <C> <C> <C>
Conagra Inc, 6.600%, 08/03/2000 500,000 499,817
Xerox Credit Corp., 6.720%, 08/01/2000 1,000,000 1,000,000
---------------------------------------------------------------------------
Total Commercial Paper
(Cost $1,499,817) 1,499,817
---------------------------------------------------------------------------
<CAPTION>
U. S. GOVERNMENT & AGENCIES--53.9%
<S> <C> <C> <C> <C> <C>
U.S. Treasury Separate Trading Registered
Interest and Principal Securities,
Principal only, 11/15/2010 (Cost
$45,271,752) 86,000,000 45,818,220
---------------------------------------------------------------------------
<CAPTION>
NUMBER OF
COMMON STOCKS--43.3% SHARES
<S> <C> <C> <C> <C> <C>
CONSUMER DISCRETIONARY--2.6%
DEPARTMENT & CHAIN STORES
Gap, Inc. 6,000 214,875
Home Depot, Inc. 9,250 478,688
Kohl's Corp.* 6,700 380,225
Target Corp. 17,000 493,000
Wal-Mart Stores, Inc. 12,000 659,250
---------------------------------------------------------------------------
2,226,038
------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--2.6%
FOOD & BEVERAGE--1.9%
H.J. Heinz Co. 12,200 487,238
PepsiCo, Inc. 24,750 1,133,859
---------------------------------------------------------------------------
1,621,097
PACKAGE GOODS/ COSMETICS--0.7%
Clorox Co. 5,000 206,562
Colgate-Palmolive Co. 7,000 389,812
---------------------------------------------------------------------------
596,374
------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--2.1%
TELEPHONE/ COMMUNICATIONS--1.9%
BroadWing, Inc.* 13,000 341,250
JDS Uniphase Corp.* 1,000 118,125
Nortel Networks Corp. 7,000 520,625
Qwest Communications International Inc.* 7,500 352,031
Verizon Communications 6,750 317,250
---------------------------------------------------------------------------
1,649,281
MISCELLANEOUS--0.2%
Tycom, Ltd.* 3,700 125,283
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
DURABLES--1.5%
AEROSPACE--1.3%
Boeing Co. 8,000 392,000
United Technologies Corp. 12,000 700,500
---------------------------------------------------------------------------
1,092,500
TELECOMMUNICATIONS EQUIPMENT--0.2%
Lucent Technologies, Inc. 4,000 175,000
---------------------------------------------------------------------------
</TABLE>
10 The accompanying notes are an integral part of the financial statements.
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<S> <C> <C> <C> <C> <C>
ENERGY--2.2%
OIL & GAS PRODUCTION--1.3%
Exxon Mobil Corp. 8,488 $ 679,040
Royal Dutch Petroleum Co. (New York shares) 7,000 407,750
---------------------------------------------------------------------------
1,086,790
OILFIELD SERVICE--0.9%
Halliburton Co. 5,000 230,625
Schlumberger Ltd. 8,000 591,500
---------------------------------------------------------------------------
822,125
------------------------------------------------------------------------------------------------------------------------
FINANCIAL--7.5%
BANKS--0.9%
Chase Manhattan Corp. 4,000 198,750
FleetBoston Financial Corp. 7,000 250,687
Wells Fargo Co. 6,500 268,531
---------------------------------------------------------------------------
717,968
INSURANCE--3.0%
American International Group, Inc. 6,675 585,314
Aon Corp. 12,000 432,000
CIGNA Corp. 3,000 299,625
Hartford Financial Services Group, Inc. 8,000 514,000
Jefferson Pilot Corp. 5,000 305,000
St. Paul Companies, Inc. 10,000 444,375
---------------------------------------------------------------------------
2,580,314
INVESTMENT--0.3%
Merrill Lynch & Co., Inc. 2,000 258,500
---------------------------------------------------------------------------
CONSUMER FINANCE--2.7%
American Express Co. 10,250 581,047
Capital One Finance Corp. 9,500 556,937
Citigroup, Inc. 8,750 617,422
Household International, Inc. 11,946 532,344
---------------------------------------------------------------------------
2,287,750
OTHER FINANCIAL COMPANIES--0.6%
Marsh & McLennan Companies, Inc. 4,500 549,000
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
HEALTH--6.2%
BIOTECHNOLOGY--1.3%
Amgen Inc.* 5,000 324,687
Genentech, Inc.* 1,400 212,975
PE Corp-PE Biosystems Group 6,500 566,719
---------------------------------------------------------------------------
1,104,381
MEDICAL SUPPLY & SPECIALTY--1.3%
Baxter International, Inc. 10,400 808,600
Becton, Dickinson & Co. 11,700 295,425
---------------------------------------------------------------------------
1,104,025
PHARMACEUTICALS--3.6%
Abbott Laboratories 14,200 591,075
Allergan, Inc. 4,700 314,606
Alza Corp.* 5,500 356,125
Eli Lilly & Co. 4,000 415,500
Forest Laboratories, Inc.* 1,600 171,200
Merck & Co., Inc. 6,000 430,125
Pfizer, Inc. 18,375 792,422
---------------------------------------------------------------------------
3,071,053
------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--2.2%
DIVERSIFIED MANUFACTURING
General Electric Co. 27,250 1,401,672
Tyco International Ltd. 8,098 433,243
---------------------------------------------------------------------------
1,834,915
</TABLE>
The accompanying notes are an integral part of the financial statements. 11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<S> <C> <C> <C> <C> <C>
MEDIA--2.4%
BROADCASTING & ENTERTAINMENT--2.0%
Clear Channel Communications, Inc.* 3,043 $ 231,838
Infinity Broadcasting Corp. "A"* 9,450 333,113
The Walt Disney Co.* 8,000 309,500
Univision Communication, Inc.* 2,250 279,563
Viacom, Inc. Class "B"* 7,710 511,269
---------------------------------------------------------------------------
1,665,283
CABLE TELEVISION--0.4%
AT&T Corp. -- Liberty Media Corp. Class "A"* 15,000 333,750
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--1.4%
OIL SERVICES--0.4%
Transocean Sedco Forex, Inc. 6,548 324,126
---------------------------------------------------------------------------
PRINTING/PUBLISHING--0.5%
McGraw-Hill, Inc. 7,600 451,725
---------------------------------------------------------------------------
RETAIL--0.5%
Radioshack Corp 7,800 439,725
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--12.6%
COMPUTER SOFTWARE--3.2%
Intuit, Inc.* 4,500 153,000
Microsoft Corp.* 19,000 1,326,438
Oracle Corp.* 8,300 624,056
Siebel Systems, Inc.* 3,000 435,000
VERITAS Software Corp.* 2,000 203,875
---------------------------------------------------------------------------
2,742,369
DIVERSE ELECTRONIC PRODUCTS--2.7%
Applied Materials, Inc.* 4,800 364,200
Dell Computer Corp.* 12,000 527,250
General Motors Corp.* "H" (New)* 13,500 349,313
Motorola Inc. 12,000 396,750
Solectron Corp.* 10,000 403,125
Teradyne, Inc.* 3,500 221,813
---------------------------------------------------------------------------
2,262,451
ELECTRONIC COMPONENTS--2.0%
Cisco Systems, Inc.* 24,000 1,570,500
Juniper Networks, Inc.* 1,000 142,438
---------------------------------------------------------------------------
1,712,938
ELECTRONIC DATA PROCESSING--1.6%
International Business Machines Corp. 6,000 674,625
Sun Microsystems, Inc.* 6,000 632,625
---------------------------------------------------------------------------
1,307,250
SEMICONDUCTORS--3.1%
Intel Corp. 20,000 1,335,000
Linear Technology Corp. 12,000 663,000
Texas Instruments, Inc. 8,000 469,500
Xilinx, Inc.* 2,500 187,656
---------------------------------------------------------------------------
2,655,156
---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $28,389,231) 36,797,167
---------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $75,971,800)(a) $84,926,204
---------------------------------------------------------------------------
</TABLE>
12 The accompanying notes are an integral part of the financial statements.
<PAGE> 13
PORTFOLIO OF INVESTMENTS
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $76,047,081. At July 31,
2000, net unrealized appreciation for all securities based on tax cost
was $8,879,123. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of value over tax cost of
$10,189,994 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value of
$1,310,871.
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
As of July 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $75,971,800) $84,926,204
---------------------------------------------------------------------------
Cash 552
---------------------------------------------------------------------------
Receivable for Fund shares sold 211,175
---------------------------------------------------------------------------
Receivable for investments sold 186,737
---------------------------------------------------------------------------
Dividends receivable 11,807
---------------------------------------------------------------------------
Interest receivable 147
---------------------------------------------------------------------------
TOTAL ASSETS 85,336,622
---------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 350,387
---------------------------------------------------------------------------
Payable for Fund shares redeemed 49,085
---------------------------------------------------------------------------
Accrued management fee 35,920
---------------------------------------------------------------------------
Other accrued expenses and payables 98,615
---------------------------------------------------------------------------
Total liabilities 534,007
---------------------------------------------------------------------------
NET ASSETS, AT VALUE $84,802,615
---------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Undistributed net investment income (loss) $ 992,779
---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments 8,954,404
---------------------------------------------------------------------------
Accumulated net realized gain (loss) 11,949,946
---------------------------------------------------------------------------
Paid-in capital 62,905,486
---------------------------------------------------------------------------
NET ASSETS, AT VALUE $84,802,615
---------------------------------------------------------------------------
NET ASSET VALUE
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($84,802,615 / 7,479,486 outstanding shares of beneficial
interest $.01 par value, unlimited number of shares
authorized) $11.34
---------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE (100/95.00 of $11.34) $11.94
---------------------------------------------------------------------------
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended July 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $4,120) $ 371,223
---------------------------------------------------------------------------
Interest 2,970,372
---------------------------------------------------------------------------
Total Income 3,341,595
---------------------------------------------------------------------------
Expenses:
Management fee 440,374
---------------------------------------------------------------------------
Services to shareholders 110,098
---------------------------------------------------------------------------
Custodian fees 18,402
---------------------------------------------------------------------------
Administrative services fees 218,715
---------------------------------------------------------------------------
Auditing 44,938
---------------------------------------------------------------------------
Legal 40,367
---------------------------------------------------------------------------
Trustees' fees and expenses 13,937
---------------------------------------------------------------------------
Reports to shareholders 33,610
---------------------------------------------------------------------------
Registration fees 3,250
---------------------------------------------------------------------------
Other 1,446
---------------------------------------------------------------------------
Total expenses, before expense reductions 925,137
---------------------------------------------------------------------------
Expense reductions (6,790)
---------------------------------------------------------------------------
Total expenses, after expense reductions 918,347
---------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 2,423,248
---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments 14,069,898
---------------------------------------------------------------------------
Foreign currency related transactions 21
---------------------------------------------------------------------------
14,069,919
---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments (6,807,822)
---------------------------------------------------------------------------
Net gain (loss) on investment transactions 7,262,097
---------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 9,685,345
---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31, 2000 JULY 31, 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment gain (loss) $ 2,423,248 $ 3,188,826
------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions 14,069,919 3,803,251
------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period (6,807,822) 6,413,223
------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 9,685,345 13,405,300
------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (3,098,754) (3,552,923)
------------------------------------------------------------------------------------------------------
Net realized gains (3,826,461) (7,757,515)
------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 9,908,800 --
------------------------------------------------------------------------------------------------------
Reinvestment of distributions 6,651,384 11,230,575
------------------------------------------------------------------------------------------------------
Cost of shares redeemed (38,542,683) (15,639,930)
------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions (21,982,499) (4,409,355)
------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS (19,222,369) (2,314,493)
------------------------------------------------------------------------------------------------------
Net assets at beginning of period 104,024,984 106,339,477
------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $1,165,545 and $1,838,905,
respectively) $ 84,802,615 $104,024,984
------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Shares outstanding at beginning of period 9,494,566 9,845,043
------------------------------------------------------------------------------------------------------
Shares sold 905,125 --
------------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
distributions 648,679 1,123,011
------------------------------------------------------------------------------------------------------
Shares redeemed (3,568,884) (1,473,488)
------------------------------------------------------------------------------------------------------
Net increase (decrease) in Fund shares (2,015,080) (350,477)
------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING AT END OF PERIOD 7,479,486 9,494,566
------------------------------------------------------------------------------------------------------
</TABLE>
16 The accompanying notes are an integral part of the financial statements.
<PAGE> 17
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
FOR THE
ONE MONTH
ENDED YEAR ENDED
YEAR ENDED JULY 31, JULY 31, JUNE 30,
------------------------ --------- ---------------
2000 1999 1998 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.96 10.80 11.86 11.24 11.46 11.19
-----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .30(a) .32(a) .40 .03 .42 .44
-----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .87 1.05 .25 .59 1.48 1.03
-----------------------------------------------------------------------------------------------------------
Total from investment operations 1.17 1.37 .65 .62 1.90 1.47
-----------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.36) (.38) (.42) -- (.44) (.44)
-----------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.43) (.83) (1.29) -- (1.68) (.76)
-----------------------------------------------------------------------------------------------------------
Total distributions (.79) (1.21) (1.71) -- (2.12) (1.20)
-----------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.34 10.96 10.80 11.86 11.24 11.46
-----------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(B) 11.49 13.75 6.56 5.52** 18.43 13.91
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 85 104 106 117 112 107
-----------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.06 1.00 .94 .84* .93 .95
-----------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.05 1.00 .94 .84* .93 .95
-----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.77 3.06 3.30 3.38* 3.60 3.68
-----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 97 52 80 86* 94 71
-----------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
On July 12, 1999, the Fund's Board of Trustees elected to continue operation of
the Fund after the original November 15, 1999 maturity date with a new maturity
date of November 15, 2010.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1
SIGNIFICANT
ACCOUNTING POLICIES Kemper Target 2010 Fund (formerly called Kemper
Retirement Fund Series I), (the "Fund") is a
diversified series of Kemper Target 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
objective of the Fund is to provide a guaranteed
return of investment on the Maturity Date (November
15, 2010) to investors who reinvest all dividends
and hold their shares to the Maturity Date, and to
provide long-term growth of capital.
On July 12, 1999, the Fund's Board of Trustees
elected to continue operation of the Fund after the
original November 15, 1999 maturity date with a new
maturity date of November 15, 2010. The Board of
Trustees also approved the offering of shares of
the Fund for a new limited offering period
commencing on November 15, 1999 and ending on or
about August 15, 2000.
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. This assurance
is further backed by an agreement entered into by
Scudder Kemper Investments, Inc., the Fund's
investment manager. Fund shares are sold during a
limited offering period, and are redeemable on a
continuous basis.
The Fund's financial statements are prepared in
accordance with accounting principles generally
accepted in the United States, which require the
use of management estimates. The policies described
below are followed consistently by the Fund in the
preparation of its financial statements.
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.
18
<PAGE> 19
FOREIGN CURRENCY TRANSLATIONS. 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, 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.
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
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. Earnings and profits distributed
to shareholders on redemption of Fund shares ("tax
equalization") may be utilized by the Fund, to the
extent permissible, as part of the Fund's dividends
paid deduction on its federal income tax return.
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. These differences relate primarily to
certain securities sold at a loss and the
utilization of tax equalization. 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. 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.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
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.
--------------------------------------------------------------------------------
2
PURCHASES AND SALES
OF SECURITIES For the year ended July 31, 2000, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $ 83,402,454
Proceeds from sales 111,327,778
--------------------------------------------------------------------------------
3
TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the annual rate of .50%
of average daily net assets. The Fund incurred a
management fee of $440,374 for the year ended July
31, 2000.
UNDERWRITING AGREEMENT. The Fund has an
underwriting agreement with Kemper Distributors,
Inc. (KDI). Underwriting commissions retained by
KDI in connection with the distribution of the
Fund's shares for the year ended July 31, 2000 are
$3,942.
ADMINISTRATIVE SERVICES AGREEMENT. The Fund 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 provided these services and pays these firms
based on assets of fund accounts the firms service.
Administrative services fees incurred by the Fund
for the year ended July 31, 2000 are $218,715, of
which $32,462 is unpaid at July 31, 2000.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC incurred shareholder services fees of $111,170
for the year ended July 31, 2000 of which $16,978
is unpaid at July 31, 2000.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or trustees of
Scudder Kemper. For the year ended July 31, 2000,
the Fund made no payments to its officers and
incurred trustees' fees of $13,937 to independent
trustees.
--------------------------------------------------------------------------------
4
EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian and transfer agent whereby credits
realized as a result of uninvested cash balances
were used to reduce a portion of the Fund's
expenses. For the year ended July 31, 2000, the
Fund's custodian and transfer agent fees were
reduced by $1,577 and $5,213, respectively, under
these arrangements.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
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5
LINE OF CREDIT The Fund and several Kemper funds (the
"Participants") share in a $750 million revolving
credit facility with Chase Manhattan Bank for
temporary or emergency purposes, including the
meeting of redemption requests that otherwise might
require the untimely disposition of securities. The
Participants are charged an annual commitment fee
which is allocated, pro rata based upon net assets,
among each of the Participants. Interest is
calculated based on the market rates at the time of
the borrowing. The Fund may borrow up to a maximum
of 33 percent of its net assets under the
agreement.
21
<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TARGET 2010 FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Target 2010 Fund (formerly
Kemper Retirement Fund Series I) as of July 31, 2000, and the related statements
of operations for the year then ended, 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 1996. 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 auditing standards generally
accepted in the United States. 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, 2000, 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 2010 Fund at July 31, 2000, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the fiscal periods
since 1996, in conformity with accounting principles generally accepted in the
United States.
ERNST & YOUNG LLP
Chicago, Illinois
September 11, 2000
22
<PAGE> 23
TAX INFORMATION
TAX INFORMATION (UNAUDITED)
The Fund paid distributions of $0.43 per share from net long-term capital gains
during its year ended July 31, 2000 of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$14,337,000 as capital gain dividends for its year ended July 31, 2000.
For corporate shareholders, 12% of the income dividends paid during the Fund's
fiscal year ended July 31, 2000 qualified for the dividends received deduction.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-Scudder.
23
<PAGE> 24
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY WILLIAM F. TRUSCOTT
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 IRENE CHENG Assistant Secretary
THOMAS W. LITTAUER Vice President
Chairman, Trustee and Vice BRENDA LYONS
President TRACY MCCORMICK Assistant Treasurer
Vice President
FRED B. RENWICK
Trustee ANN M. MCCREARY
Vice President
JOHN G. WEITHERS
Trustee KATHRYN L. QUIRK
Vice President
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
.............................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
CUSTODIAN AND STATE STREET BANK AND TRUST COMPANY
TRANSFER AGENT 225 Franklin Street
Boston, MA 02110
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
TRUSTEES&OFFICERS
KEMPER FUNDS LOGO Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Target 2010 Fund prospectus.
KTF2010 - 2 (9/20/00) 1120250
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
