<PAGE> 1
Kemper Technology Fund
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED OCTOBER 31, 1995
Seeking growth of capital
"...global demand fueled earnings growth that surpassed even the more
optimistic projections..."
[KEMPER MUTUAL FUNDS LOGO]
<PAGE> 2
Table of
Contents
<TABLE>
<S> <C>
General
Economic Overview 3
Performance Update 5
Terms to Know 8
Industry Sectors 10
Largest Holdings 11
Portfolio of
Investments 12
Report of
Independent Auditors 15
Financial Statements 16
Notes to
Financial Statements 18
Financial Highlights 22
</TABLE>
At A Glance
Kemper Technology Fund Total Returns for the year ended October 31, 1995
(unadjusted for any sales charge):
<TABLE>
<CAPTION>
LIPPER
SCIENCE &
TECHNOLOGY
FUNDS CATEGORY
CLASS A CLASS B CLASS C AVERAGE*
<S> <C> <C> <C>
47.30% 45.65% 46.23% 42.60%
</TABLE>
Returns are historical and do not represent future performance. Returns and net
asset value fluctuate. Shares are redeemable at current net asset value, which
may be more or less than original cost.
*Lipper Analytical Services, Inc. returns and rankings are based upon changes
in net asset value with all dividends reinvested and do not include the
effect of sales charges and, if they had, results may have been less favorable.
Returns and rankings are historical and do not reflect future performance.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
10/31/95 10/31/94
<S> <C> <C>
KEMPER TECHNOLOGY FUND
CLASS A $14.63 $11.50
KEMPER TECHNOLOGY FUND
Class B $14.39 $11.45
KEMPER TECHNOLOGY FUND
CLASS C $14.45 $11.45
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND
LIPPER RANKINGS
- --------------------------------------------------------------------------------
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER SCIENCE AND TECHNOLOGY FUNDS
CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
1-YEAR # 14 OF # 18 OF # 17 OF
32 FUNDS 32 FUNDS 32 FUNDS
5-YEAR # 12 OF
15 FUNDS N/A N/A
10-YEAR # 8 OF
13 FUNDS N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE FISCAL YEAR, KEMPER TECHNOLOGY FUND PAID THE FOLLOWING DIVIDENDS:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
LONG-TERM
CAPITAL GAIN: $1.50 $1.50 $1.50
- --------------------------------------------------------------------------------
</TABLE>
About Your Report
SHAREHOLDER REPORTS REVISED
Your fund's annual report is one of your best sources for tracking the progress
of your investment. This report includes several changes that have been made in
an effort to provide additional information to you as well as explain
significant changes to the fund over the last fiscal year. In addition, the
performance update includes commentary from your fund's portfolio manager or
management team on what might be expected in the coming months.
Specifically, your report now includes:
- - Terms you need to know related to your fund
- - A look at your fund's sector weightings and how they have changed
- - A comparison of your fund and its benchmark sector weightings
- - Your fund's largest individual holdings
If you have any comments about the revised format or if you have
suggestions for additional changes, please write to:
Kemper Mutual Funds
Shareholder Communications
120 South LaSalle Street
Chicago, IL 60603
2
<PAGE> 3
General Economic Overview
STEPHEN B. TIMBERS IS CHIEF EXECUTIVE AND CHIEF INVESTMENT
[PHOTO] OFFICER OF KEMPER FINANCIAL SERVICES, INC. (KFS). KFS AND
OF ITS AFFILIATES MANAGE APPROXIMATELY $63 BILLION IN ASSETS,
STEPHEN B. TIMBERS INCLUDING $44 BILLION IN RETAIL MUTUAL FUNDS. TIMBERS IS A
GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
Investors enjoyed generally positive performance in both the fixed income and
stock markets in the first 10 months of 1995. At this point in the year, the
returns of most leading securities markets worldwide are significantly higher
than they were at the same time in 1994.
We have an excellent environment for financial assets. After several
quarters of robust growth, the United States economy seems to be growing at a
pace that investors find comfortable. Contrary to isolated reports that caused
some observers to become concerned, the economy is in no jeopardy of recession.
Its health was confirmed with the news that the economy grew (as measured by
real gross domestic product [GDP]) at an annual rate of 4.2% in the third
quarter. This follows much lower growth in the first two quarters, as the
economy was adjusting to the Federal Reserve Board's series of interest rate
increases. The slowdown, in fact, was acknowledged by the Fed when it eased
short-term rates by a small but symbolic 25 basis points in July. Now we know
that the economy was rebounding from July through September.
The economy's continued growth without a corresponding increase in
inflation is very encouraging. Although we are well along in the economic cycle
and at a point when prices often start hiking up, inflationary pressures have
actually been reduced somewhat.
Will the Federal Reserve Board adjust interest rates again? As of this
date -- which precedes any resolution on the federal budget issue -- we doubt
that the Fed has motivation to either ease or (which would be even less likely)
raise interest rates. Our forecast calls for lower growth ranging between 2% to
3% for the next few quarters, with the momentum likely to come from exports and
nonresidential construction.
MARKET OUTLOOK
Slow growth and low inflation is the optimal combination for investors in the
fixed income markets, and we expect them to continue to perform well.
We believe that the opportunities for common stock investors will be
increasingly concentrated in higher quality investments. After hitting new highs
and showing considerable strength for most of the year, the stock market showed
some vulnerability when it took a tumble in the summer. The market recovered
after a brief period and has gained ground since. But such a sudden, severe
mini-correction served to remind investors that the current bull market will
inevitably come to an end someday and that some sectors may even be overextended
today.
As we view the remainder of the year, companies cannot necessarily count
on the economy to provide above-average earnings support. Rather, stocks that
have proven themselves with a pattern of consistent earnings are likely to
attract investor support. Specifically, sectors that produce more consistent
earnings, such as health care, consumer nondurables, selected technology and
selected capital goods can be expected to do well. Picking the right sectors to
invest in will be the key challenge for equity investors during the next few
quarters.
International investing continues to be quite complex. After sinking to
its post-World War II low in April, the value of the U.S. dollar has gained
strength against most foreign currencies. While a stronger dollar favors the
U.S. economy because it reduces the cost of American imports and attracts
foreign capital, a strong dollar in relation to a local currency has the effect
of devaluing a foreign investment. The value of the dollar and the
attractiveness of U.S. investments to foreign investors will be key factors in
the next few months.
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.
<TABLE>
<CAPTION>
Now (10/31/95) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 6.04 6.63 7.96 5.72
Prime rate(2) 8.75 9.00 8.15 6.00
Inflation(3) 2.74 3.18 2.60 2.74
Dollar(4) -1.05 -10.02 -5.65 1.23
Capital goods orders(5)* 7.60 17.84 13.93 23.75
Industrial production(6) 2.20 3.31 6.58 2.98
Employment growth(7) 1.79 2.30 3.25 2.47
</TABLE>
* Data as of September 30, 1995
(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%. 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 corporate profits and equity performance.
(7) An influence on family income and retail sales.
We are in the midst of a global recovery, and the same fundamentals that
have driven markets higher in the U.S. can be found in many foreign countries
currently. However, leading international economies continue to lag the U.S.
Japan and Germany, whose economies typically follow U.S. growth, are not as
robust as in past cycles. Moreover, conditions in emerging market countries
underline the importance of careful research and experience in understanding how
these markets work.
Political leadership also has some bearing on the progress of the
economy and the state of the financial markets. In the months preceding a
presidential election year, it has been common for incumbents to attempt to
stimulate growth. Given our Republican Congress and Democratic President,
however, we do not consider this as likely this time.
With the rest of the country, we are closely following political
initiatives to produce a balanced federal budget. This is a political wild
card, but we would expect both the stock and fixed-income markets to react
with enthusiasm if progress can be made.
With that as an economic backdrop, we encourage you to read the
following detailed report of your fund, including a question-and-answer
interview with your fund's portfolio managers. Thank you for your continued
support. We appreciate the opportunity to serve your investment needs.
Sincerely,
Stephen B. Timbers
Stephen B. Timbers
CHIEF INVESTMENT AND EXECUTIVE OFFICER
November 6, 1995
4
<PAGE> 5
Richard Goers is senior vice president of Kemper Financial Services,
[PHOTO Inc. and portfolio co-manager of Kemper Technology Fund. Mr. Goers
OF began his career with Kemper in 1968. He received his B.S. degree in
RICHARD Business Administration from Iowa State University and went on to
GOERS] receive his MBA at Northwestern University.
Frank Korth is senior vice president of Kemper Financial Services,
[PHOTO Inc. and portfolio co-manager of Kemper Technology Fund. Mr. Korth
OF received his B.A. degree from Mankato State University of Minnesota in
FRANK mathematics and his masters of business in finance from Bernard M.
KORTH] Baruch College.
Performance Update
KEMPER TECHNOLOGY FUND'S FISCAL YEAR COINCIDED WITH A STRONG BULL MARKET
DOMINATED BY TECHNOLOGY STOCKS. DICK GOERS AND FRANK KORTH -- PORTFOLIO
CO-MANAGERS OF KEMPER TECHNOLOGY FUND -- DISCUSS THE FUND'S PERFORMANCE AND
THEIR STRATEGY FOR THE COMING MONTHS.
Q THE TECHNOLOGY SECTOR HAS ENJOYED SOME TERRIFIC PERFORMANCE OVER THE
PAST YEAR. WAS THIS GROWTH IN LINE WITH YOUR EXPECTATIONS?
A DICK GOERS: We were confident that technology stocks would do well
this year but, quite honestly, we had no idea they would be this strong.
Tremendous global demand fueled earnings growth that surpassed even the more
optimistic projections. (See sidebar on page 8 for some of the secular growth
drivers for technology).
Q DID THESE STOCKS MOVE STRAIGHT UP THROUGH THE YEAR?
A FRANK KORTH: Not really. In general, technology issues picked up
steam last November and remained strong through February. But then they seemed
to stall out relative to other stock groups. What happened was many investors
- -- and even the managements of some companies -- expected business to slow down
in the spring. After several months of strong returns we grew cautious as well,
adding to our health care positions as a defensive play and hedging the
portfolio so that it would act like one with about 20% cash. As it turned out,
business actually accelerated, the stocks continued to rise and that
"insurance" wasn't necessary.
DG: It became apparent that the anticipated slowdown wasn't going to
happen -- at least not as soon or as sharply as expected. So our caution was
limiting the fund's participation in an extended rally. We quickly reduced the
hedge and got the portfolio back into the market completely. Since late spring
the fund's been fully invested.
Q ALTHOUGH THE FUND HAS ENJOYED STRONG ABSOLUTE PERFORMANCE OVER THE
LONG-TERM, ITS RETURNS ARE ABOUT IN THE MIDDLE OF THE PACK RELATIVE TO ITS
PEERS. WHAT DO YOU ATTRIBUTE THIS TO?
A FK: I think our broader diversification plays a part.
DG: That's probably true. A lot of the funds in the Lipper Science and
Technology group have a more narrow investment focus, concentrating on only one
or two subsectors. That can provide some stellar returns when those particular
sectors are hot, and boost relative rankings. But those funds are also
especially vulnerable when their sectors fall out of favor.
FK: We try to avoid that kind of volatility by diversifying. As of
October 31, the fund held 136 stocks, spread across a number of subsectors.
This can help reduce
5
<PAGE> 6
Performance Update
the potential for large declines in the portfolio because weakness in one
subsector will often be offset by strength in another.
DG: Some shareholders may be wondering about the fund's low relative
ranking for the five-years ended in October. A big factor for that period was
weakness in our health care positions during 1992 and 1993. You may recall that
a number of stocks in this sector stumbled when it appeared the Clinton
administration was going to make some significant changes to the nation's
health care system. Since then, however, health care stocks have generally
recovered. At this point they're actually doing rather well.
FK: Of course none of this is to say that we're satisfied with
middle-of-the-pack performance. We're actively working with our analysts to
fine-tune our stock picking and to help improve our relative performance going
forward.
Q WHAT SECTORS ARE YOU CONCENTRATING ON NOW?
A DG: We're currently focused on five primary areas:
- - Semiconductors. Through the past year this has been one of the
best-performing technology subsectors. Supply has been tight relative to
demand, so margins have increased. Intel, which produces microprocessor
chips, and Micron Technology, which makes memory chips, are two of our
largest holdings.
- - Communications. This area includes wireless telecommunications and data
communications, both of which continue to show promise. The proliferation of
data traffic, rapid adoption of wireless communication and huge investments
by developing countries should support growth for a good while to come. In
wireless communications we own names like Nokia Telecom and Motorola. In data
communications, we own companies like Cisco Systems, 3Com and U.S. Robotics,
that should benefit from the growing activity on the Internet.
- - Personal Computers. The PC is quickly becoming the dominant "information
appliance" for homes. In addition, these companies are benefiting from
corporate upgrades in hardware and software and continuing industry
consolidation. In this sector we own market leaders like Compaq, Dell and
Microsoft.
- - Systems, Software and Services. We see attractive growth opportunities in
this area as more companies choose to outsource their data processing
operations in order to focus on core operations. Electronic Data Systems
(General Motors "E") and First Data are two big players. Companies like
Oracle and Hewlett-Packard are benefitting from the continued trend toward
distributed computing.
- - Life Sciences. In late 1994 and early 1995 we increased our position in drug
stocks as a defensive measure. Companies like Abbott Labs, Merck and Pfizer
enjoyed strong sales both domestically and abroad, and the weak dollar made
foreign profits even better when translated back to dollars. As the dollar
strengthened and those stocks began to lose some of their sparkle, we turned
to biotechnology and medical devices. We like Amgen, a leader in new drug
development with some promising new products on the horizon. We also own
Cephalon, which has had successful trials for a drug to treat Lou Gehrig's
disease. In medical devices we own Medtronic, manufacturer of cardiac
pacemakers, and Boston Scientific which makes a wide variety of catheters.
Both have been winners for us this year.
Q IN THIS STRONG MARKET, WERE THERE ANY DISAPPOINTMENTS?
A FK: There were a few companies that underperformed, mostly for
reasons specific to their particular operations.
DG: Apple Computer was one example. It's been gradually losing market
share to "Wintel" PCs that use Microsoft's Windows and Intel microprocessors.
FK: Dick is a big Apple Macintosh user; selling that stock was like
cutting off an arm.
DG: Fortunately it wasn't a huge holding. But still, it was a
disappointment. Along the same lines we had EMC Corp., a company that makes
data storage systems. It had been doing well against its main competitor, IBM.
But things have gotten a lot tougher in terms of product pricing. We grew
increasingly concerned about its
6
<PAGE> 7
Performance Update
long-term prospects and decided to walk away. Another company, Sybase, a
manufacturer of database management software, had trouble bringing a new
version of its key product to market.
FK: In addition to stocks that underperformed for one reason or another,
there are certain cases where we wish we'd jumped aboard sooner. For example,
Ascend Communications is up by almost 400% for the year. Unfortunately, we were
late getting into it and missed a lot of that appreciation.
DG: The Internet is a more general example. We knew this was going to be
an important play down the road, but we underestimated just how rapidly the
whole phenomenon would develop. Had we known, we might have established a
greater exposure to this area somewhat sooner.
Q COULD YOU DESCRIBE YOUR PROCESS AS CO-MANAGERS OF THE FUND?
A FK: We try to play upon our respective strengths. Dick tends to
buy and hold. I like to trade a bit more actively. My background includes time
as a quantitative strategist -- so that brings a different perspective than
Dick's approach, which is more qualitative. In the end, those differences tend
to complement each other and create a certain balance.
DG: Typically, I'll hear about a company or meet with its management and
if I like their story I'll talk with Frank about it. He'll focus on how the
stock's trading and how it's likely to do in the coming weeks or months. Of
course, we also get information and opinions from our analysts and other
sources. Where we disagree on big questions we can usually arrive at a
compromise.
Q LAST YEAR KEMPER TECHNOLOGY FUND PAID $1.50 PER SHARE IN LONG-TERM
CAPITAL GAINS. WHAT IS YOUR EXPECTED DISTRIBUTION FOR 1995? DO YOU TRY TO LIMIT
THESE TAXABLE DISTRIBUTIONS?
A FK: At this time we're projecting a somewhat higher distribution
than in 1994 -- most of that being long-term capital gains. A final figure
should be available to shareholders closer to the end of the calendar year,
around mid-December.
DG: My dad, who is a shareholder, complains about capital gain
distributions because he has to pay taxes on them. I suspect that's a pretty
common concern. In 1992 we eliminated dividend income as an objective of the
fund, since most technology firms retain their profits for research and
development rather than paying dividends. That essentially eliminated the
occurrence of taxable ordinary income. But in a bull market like the one we've
seen this year, there's really no way to avoid some capital gains.
FK: We do try to limit the capital gain distributions. For example, when
trimming positions we'll sell the highest-cost blocks of shares to hold down
taxable gains. At the same time, however, we manage the fund for long-term
total return. We're not going to let a potential taxable gain dictate our
management of the portfolio.
Q WHAT'S YOUR OUTLOOK FOR THE COMING YEAR?
A FK: We still see a lot of potential for growth, although not at
the pace we've seen during the past year. We're beginning to see earnings
level off and down the line there are definitely going to be some
disappointments. As fund managers, this means we'll have to be increasingly
selective. This, of course, plays to our research strengths.
DG: The important point is that technology has become so pervasive -- at
home, at work and even at play -- that it's very much a secular, long-term
growth story. We're managing the fund with that view.
7
<PAGE> 8
Technology Bull Market
WHAT'S BEHIND THE TECHNOLOGY BULL MARKET?
According to Dick Goers, portfolio co-manager of Kemper Technology Fund,
businesses in the technology sector are being helped by several ongoing trends.
Among them:
- - A stress by companies of all sizes and geographies on productivity. The way
to boost productivity is usually to invest in computer -- or
communications-based systems.
- - An outbreak of competition, especially in the communications field. For
example, wireless operators, cable TV companies and long-distance carriers
are all looking to compete with traditional telephone companies to provide
local service. Each will invest in infrastructure and, as competition
escalates, consumers should see lower prices and a number of innovative
services which ought to grow the overall market. This is even more evident
in developing countries.
- - Reaching price/performance flashpoints. Electronic systems get lower in cost
and higher in capability year in and year out. Big markets are created when
certain critical points are reached. Examples: Low-cost, high-speed CD-ROM
players that expand the capabilities of home computers; new digital
technology for cellular telephones that multiplies capacity and cuts costs;
18-inch satellite dishes (down from six feet) that make direct broadcast
television appealing; and high-speed modems and friendlier interface
software that make the Internet a global happening.
Terms to Know
CYCLICAL Pertaining to a variable -- such as housing starts, car sales or the
price of a stock -- that is subject to regular or irregular up- and-down
movements.
HEDGE A security transaction that reduces the risk of an existing investment
position. An example is the purchase of a put option in order to offset, at
least partially, the potential losses from owned stock. While hedges reduce
potential losses, they also tend to reduce potential profits.
SECULAR TREND Relatively consistent movement of a variable over a long time
period.
8
<PAGE> 9
Performance Update
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns*
- --------------------------------------------------------------------------------------------------------------------
FOR PERIODS ENDED OCTOBER 31, 1995 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
LIFE OF
1-YEAR 5-YEAR 10-YEAR CLASS
------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
KEMPER TECHNOLOGY FUND CLASS A 38.85% 21.99% 16.13% 13.19% (SINCE 9/7/48)
KEMPER TECHNOLOGY FUND CLASS B 42.65% N/A N/A 41.64 (SINCE 5/31/94)
KEMPER TECHNOLOGY FUND CLASS C 46.23% N/A N/A 43.86 (SINCE 5/31/94)
- --------------------------------------------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Technology Fund Class A from 1/1/79 through 10/31/95
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
1/1/79 10/31/95
<S> <C> <C>
- - KEMPER TECHNOLOGY FUND CLASS A(1) $10,000 $117,033
- - RUSSELL 1000 GROWTH INDEX** 10,000 106,180
- - WILSHIRE LARGE COMPANY GROWTH INDEX+ 10,000 120,006
- - STANDARD & POOR'S 500 STOCK INDEX++ 10,000 116,098
- --------------------------------------------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Technology Fund Class B from 5/31/94 through 10/31/95
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
5/31/94 12/31/94 10/31/95
<S> <C> <C> <C>
- - KEMPER TECHNOLOGY FUND CLASS B(1) $10,000 $11,276 $16,693
- - RUSSELL 1000 GROWTH INDEX** 10,000 10,529 13,825
- - WILSHIRE LARGE COMPANY GROWTH INDEX+ 10,000 10,492 13,941
- - STANDARD & POOR'S 500 STOCK INDEX++ 10,000 10,284 13,269
- --------------------------------------------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Technology Fund Class C from 5/31/94 through 10/31/95
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
5/31/94 12/31/94 10/31/95
<S> <C> <C> <C>
- - KEMPER TECHNOLOGY FUND CLASS C(1) $10,000 $11,286 $16,760
- - RUSSELL 1000 GROWTH INDEX** 10,000 10,529 13,825
- - WILSHIRE LARGE COMPANY GROWTH INDEX+ 10,000 10,492 13,941
- - STANDARD & POOR'S 500 STOCK INDEX++ 10,000 10,284 13,269
</TABLE>
Past performance is not predictive of future performance. Returns and net asset
value fluctuate. Shares are redeemable at current net asset value, which may be
more or less than original cost.
* Average annual total return measures net investment income and capital gain
or loss from portfolio investments, assuming reinvestment of all dividends and
for Class A Shares adjustment for the maximum sales charge of 5.75% and for
Class B Shares adjustment for the applicable contingent deferred sales charge
of 3%. The maximum contingent deferred sales charge is 4%. There is no sales
charge for Class C Shares. Average annual returns reflect annualized change.
During the periods noted, securities prices fluctuated. For additional
information, see the Prospectus and Statement of Additional Information and the
Financial Highlights at the end of this report.
(1) Performance includes reinvestment of dividends and adjustment for the
maximum sales charge for A Shares and the contingent deferred sales charge in
effect at the end of the period for B Shares. When reviewing the performance
chart, please note that the inception date for the Russell 1000 Growth Index is
1/1/79. As a result, we are not able to illustrate the life of fund performance
(since 9/7/48) for the Kemper Technology Fund. In comparing the fund to the two
indices, you should also 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, we will stop showing the
Wilshire Large Company Growth Index and will instead show the Russell 1000
Growth Index, a more readily available index.
** The Russell 1000 Growth Index is an unmanaged index comprised of common
stocks of larger U.S. companies with greater than average growth orientation
and represents the universe of stocks from which "earnings/growth" money
managers typically select.
+ The Wilshire Large Company Growth Index is an unmanaged index, which
generally represents the market for stocks of larger companies (selected on the
basis of sales growth, return on equity, and dividend payout). Source is
Wilshire Associates Incorporated.
++ The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market. Source is Towers Data Systems.
9
<PAGE> 10
Industry Sectors
A YEAR-TO-YEAR COMPARISON
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS (BASED ON TOTAL NET ASSETS) IN
THE PORTFOLIO THAT EACH SECTOR REPRESENTED ON OCTOBER 31, 1995, APRIL 30, 1995
AND ON OCTOBER 31, 1994.
<TABLE>
<CAPTION>
KEMPER TECHNOLOGY KEMPER TECHNOLOGY KEMPER TECHNOLOGY
FUND AS OF FUND AS OF FUND AS OF
10/31/95 4/30/95 10/31/94
<S> <C> <C> <C>
ELECTRONIC PARTS 29.8% 19.6% 17.0%
PERSONAL COMPUTING 14.5% 11.0% 9.5%
COMMUNICATIONS 19.6% 12.6% 20.1%
SYSTEMS, SOFTWARE & SERVICES 16.6% 24.1% 21.0%
LIFE SCIENCES 14.6% 22.1% 13.8%
INDUSTRIAL TECHNOLOGY/MISC. 4.1% 7.2% 12.2%
CASH & EQUIVALENT 0.8% 3.3% 6.4%
</TABLE>
A COMPARISON WITH THE HAMBRECHT & QUIST INDEX
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS (BASED ON TOTAL NET ASSETS) IN
THE PORTFOLIO THAT EACH SECTOR OF THE KEMPER TECHNOLOGY FUND REPRESENTED ON
OCTOBER 31, 1995, COMPARED WITH THE INDUSTRY SECTORS THAT MAKE UP THE
HAMBRECHT & QUIST (H&Q) TECHNOLOGY INDEX. IN CONTRAST WITH BROADER INDICES SUCH
AS THE WILSHIRE GROWTH INDEX, THE RUSSELL 1000 GROWTH INDEX OR THE S&P 500
STOCK INDEX, THE H&Q IS COMPRISED ONLY OF TECHNOLOGY STOCKS AND, AS SUCH, IS
USED BY MANAGEMENT OF KEMPER TECHNOLOGY FUND AS AN INTERNAL PERFORMANCE
BENCHMARK.
<TABLE>
<CAPTION>
KEMPER TECHNOLOGY H & Q TECHNOLOGY
FUND AS OF INDEX AS OF
10/31/95 10/31/95
<S> <C> <C>
ELECTRONIC PARTS 29.8% 18.9%
PERSONAL COMPUTING 14.5% 15.2%
COMMUNICATIONS 19.6% 21.2%
SYSTEMS, SOFTWARE & SERVICES 16.6% 27.1%
LIFE SCIENCES 14.6% 17.2%
INDUSTRIAL TECHNOLOGY/MISC. 4.1% 0.5%
CASH & EQUIVALENTS 0.8% 0.0%
</TABLE>
10
<PAGE> 11
Largest Holdings
THE FUND'S 10 LARGEST HOLDINGS
REPRESENTING 31.1% OF THE FUND'S TOTAL NET ASSETS ON OCTOBER 31, 1995
- --------------------------------------------------------------------------------
Holdings Percent
- --------------------------------------------------------------------------------
1. Hewlett One of the largest suppliers of enterprise computer systems. 4.6%
Packard Huge success in low-cost printers for use with personal
[LOGO] computers is being followed up with rapid growth in its own
PC business.
2. Cisco Largest, most comprehensive supplier of routing software and 3.8%
Systems related systems that direct the flow of data between local
[LOGO] area networks. A play on the explosive growth of the Internet.
3. Intel Longest-standing investment of the Fund. In microprocessors 3.4%
[LOGO] for personal computers, Intel is dominant and has gotten even
stronger over the past year. A new opportunity is in larger
computer systems using multiple Pentium or Pentium Pro chips.
4. Microsoft The other overwhelming beneficiary of personal computer 3.3%
[LOGO] growth. Its Windows 95 operating system seems to be selling
well. Additional potential over the next few years will be
in more capable systems for corporations and in on-line
networking.
5. Texas One of the inventors of the integrated circuit that really 2.9%
Instruments fuels the onward march of technology. Big positions in
[LOGO] memory and digital signal processing chips. Marginal
businesses have been trimmed.
6. Medtronic Largest supplier of medical technology (e.g., implantable 2.8%
[LOGO] heart pacers and defibrillators) for treating cardiovascular
conditions. Strong research and marketing capabilities.
7. Micron Scrappy company thriving in the brutally competitive memory 2.8%
[LOGO] chip market. We like Micron's low cost culture and customer
desires for ever-growing amounts of memory in PCs and other
electronic systems.
8. Compaq Leading personal computer vendor worldwide. It has the 2.7%
[LOGO] advantages of scale, an increasingly efficient manufacturing
operation and the better margins that come with its upscale
computer "server" business.
9. Dell World's largest direct marketer of PCs and a major 2.7%
[LOGO] manufacturer of them as well. The focus on direct
distribution leads to low costs and the ability to react
quickly to changing market conditions. Management has
been strengthened in recent years.
10. Linear Major supplier of high-end linear semiconductors -- ones 2.1%
Technology that deal with the continuously variable real world, not
[LOGO] just that of the digital computer. This is a terrific
business in that the products tend to be long-lived and
high-margined.
Microsoft is either a registered trademark or a trademark of Microsoft
Corporation in the United States and/or other countries. The Dell logo is a
trademark of Dell Computer Corporation. All other brands and names are property
of their respective owners.
11
<PAGE> 12
Portfolio of Investments
KEMPER TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Number of shares Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS
ELECTRONIC
COMPONENTS - 21.6%
(b) Actel Corp. 166,346 $ 1,955
(b) Atmel Corporation 550,000 17,188
AVX Inc. 125,000 3,891
(b) Cirrus Logic Inc. 50,000 2,106
(b) C. P. Clare Corp. 100,000 2,587
(b) Cypress Semiconductor 200,000 7,050
(b) Information Storage Devices 75,000 1,631
(b) Integrated Device Technology Inc. 150,000 2,850
Intel Corporation 500,000 34,937
(b) Lattice Semiconductor Corp. 50,000 1,963
Linear Technology Corporation 500,000 21,875
(b) LSI Logic Corp. 400,000 18,850
(b) Maxim Integrated Products, Inc. 150,000 11,213
(b) MEMC Electronic Materials 10,000 320
(b) Microchip Technology Incorporated 150,000 5,953
Micron Technology 400,000 28,250
Molex Incorporated, "A" 312,500 9,609
(b) SGS-Thomson Microelectronics 100,000 4,525
Texas Instruments Inc. 425,000 29,006
Vishay Intertechnology 80,000 2,820
(b) VLSI Technology Inc., convertible, 8.25%, 2005 $2,500 2,362
(b) Xilinx, Inc. 200,000 9,200
=====================================================================
220,141
=====================================================================
SEMICONDUCTOR
PRODUCTION
EQUIPMENT - 8.2%
(b) Applied Materials Inc. 400,000 20,050
(b) Electroglas Inc. 100,000 7,025
(b) KLA Instruments Corp. 200,000 8,550
(b) Lam Research 100,000 6,088
Murata Manufacturing Co. 20,000 704
(b) Novellus Systems, Inc. 125,000 8,609
(b) Silicon Valley Group Inc. 190,000 6,151
(b) Tencor Instruments 175,000 7,459
(b) Teradyne Inc. 250,000 8,344
(b) Ultratech Stepper 210,000 8,400
Veeco Instruments 100,000 2,400
=====================================================================
83,780
=====================================================================
PERSONAL COMPUTING - 14.5% Adobe Systems Incorporated 54,600 3,112
(b) COMPAQ Computer 500,000 27,875
(b) Conner Peripherals Inc. 400,000 7,200
(b) Data Translation 60,000 960
Dell Computer Corp. 580,524 27,067
(b) Learning Co. 125,000 7,375
McAfee Associates, Inc. 100,000 5,825
(b) Microsoft Corporation 340,000 34,000
(b) Seagate Technology 300,000 13,425
(b) 7th Level, Inc. 250,000 3,688
(b) Smartflex Systems 40,000 585
(b) S3 Inc. 400,000 6,850
(b) Stormedia 100,000 4,600
(b) Symantec Corp. 200,000 4,862
=====================================================================
147,424
=====================================================================
</TABLE>
12
<PAGE> 13
Portfolio of Investments
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------
Number of shares Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNICATIONS - 19.6%
(b) ADC Telecommunications 125,000 $ 5,000
Allen Group 75,000 1,838
(b) America On-Line Inc. 30,000 2,400
(b) Ascend Communications Inc. 150,000 9,750
(b) Bay Networks Inc. 250,000 16,563
(b) Black Box Corp. 125,000 2,031
(b) Cisco Systems, Inc. 500,000 38,750
(b) Colonial Data Technologies Corp. 175,000 2,406
(b) DSC Communications 250,000 9,250
(b) FORE Systems Inc. 100,000 5,300
(b) LM Ericsson
"B" shares 130,000 2,759
ADRs 160,000 3,418
(b) Mobile Media Corp. 75,000 1,969
Motorola, Inc. 100,000 6,562
(b) NETCOM On-Line Communications
Services, Inc. 100,000 5,825
(b) Netscape Communications 70,000 6,160
Oy Nokia, AB
"A" shares 100,000 5,721
ADRs 20,000 1,115
(b) Paging Network, Inc. 180,000 4,140
(b) PSINet Inc. 100,000 1,775
Sirti SpA 126,730 772
(a) Socket Communications 134,756 472
(b) Spyglass Inc. 50,000 2,488
(b) Stratacom, Inc. 150,000 9,225
Telekom Malaysia 93,000 666
(b) Tellabs, Inc. 100,000 3,400
(b) 3Com Corp. 461,300 21,681
U.S. Robotics 210,000 19,425
(b) UUNET Technologies Inc. 100,000 6,075
Vodafone Group 507,832 2,095
=====================================================================
199,031
- -----------------------------------------------------------------------------------------------------------
SYSTEMS, SOFTWARE
AND SERVICES - 16.6%
(b) Alternative Resources Corp. 75,000 2,325
(b) Avid Technology Inc. 50,000 2,188
(b) Cadence Design Systems 180,000 5,805
(b) Checkfree Corp. 75,000 1,584
Computer Associates
International, Inc. 50,000 2,750
Cooper & Chyan Technology 50,000 706
(b) Epic Design Technology 75,000 3,450
First Data Corporation 318,943 21,090
General Motors Corporation, "E" 200,000 9,425
Getronics 53,791 2,563
HBO & Co. 50,000 3,537
Hewlett-Packard Company 500,000 46,313
(b) Informix Corp. 400,000 11,650
(b) Mentor Graphics Corp. 125,000 2,625
(b) Oracle Systems Corporation 200,000 8,725
(b) Parametric Technology Corporation 250,000 16,750
(b) PeopleSoft, Inc. 50,000 4,300
(b) PLATINUM technology Inc. 250,000 4,562
(b) Silicon Graphics, Inc. 400,000 13,300
(b) Transaction Systems Architects, "A" 75,000 1,950
(b) Wonderware Corp. 100,000 3,175
=====================================================================
168,773
</TABLE>
13
<PAGE> 14
Portfolio of Investments
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------
Number of shares Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIFE SCIENCES - 14.6%
(b) Agouron Pharmaceuticals, Inc. 30,000 $ 780
(b) Alteon Inc. 150,000 1,406
(b) Amgen Inc. 450,000 21,600
(b) Angeion Corporation 250,000 2,281
Astra AB Fria, "A" 250,000 9,182
Athena Neurosciences Inc. 80,000 750
BioChem Pharma 25,000 956
(b) Boston Scientific Corp. 273,216 11,509
Cephalon Inc. 150,000 4,500
Genzyme Corp. 207,500 12,087
(b) Gilead Sciences Inc. 100,000 1,950
Guidant Corp. 58,663 1,877
(b) IDEXX Laboratories 210,000 8,558
(b) Isis Pharmaceuticals, Inc. 400,692 4,057
Lifecore Biomedical, Inc. 200,000 1,975
Ligand Pharmaceutical 100,000 787
Magainin Pharmaceuticals 100,000 813
Medtronic, Inc. 500,000 28,875
Neurogen Corp. 40,000 890
Pfizer, Inc. 300,000 17,212
(b) Pharmos Corporation 387,111 750
Schering-Plough Corporation 150,000 8,044
(b) St. Jude Medical, Inc. 50,000 2,663
(b) Thermedics Inc. 130,000 2,389
(b) ThermoTrex Corporation 40,000 1,435
(b) Vidamed Inc. 200,000 1,425
=====================================================================
148,751
=====================================================================
INDUSTRIAL TECHNOLOGY
AND MISCELLANEOUS -
4.1%
(a)(b) Advanced Technology Ventures II,
17.9% limited partnership interest -- 1,434
Ashland Coal, Inc. 35,000 831
(a)(b) Crosspoint Venture Partners 1993,
3.1% limited partnership interest -- 1,744
(a)(b) GEO Capital III, L.P.,
5.0% limited partnership interest -- 4,069
(b) ITI Technologies 50,000 1,263
Omron Corp. 67,000 1,570
(b) Solectron Corp. 200,000 8,050
(b) Thermo Electron Corporation 325,000 14,950
ThermoSpectra Corp. 65,000 1,056
(b) Zebra Technologies Corporation 120,000 7,140
=====================================================================
42,107
=====================================================================
TOTAL INVESTMENTS--99.2%
(Cost: $634,559) 1,010,007
=====================================================================
OTHER ASSETS, LESS LIABILITIES--.8% 7,948
=====================================================================
NET ASSETS--100% $1,017,955
=====================================================================
</TABLE>
See accompanying Notes to Portfolio of Investments.
14
<PAGE> 15
Portfolio of Investments
- -------------------------------------------------------------------------------
Notes to Portfolio of Investments
- -------------------------------------------------------------------------------
(a) The following securities may require registration under the Securities
Act of 1933 or an exemption therefrom in order to effect sale in the ordinary
course of business; they were valued at cost on the dates of acquisition. No
market quotations were available for unrestricted securities of the same class
on the dates of acquisition or on October 31, 1995, with the exception of
Socket Communications, which was valued at 70% of current market value. These
securities are valued at fair value as determined in good faith by the Board of
Trustees of the Fund. At October 31, 1995, the aggregate value of the Fund's
restricted securities was $7,719,000, which represented .76% of net assets.
<TABLE>
<CAPTION>
Date of Number
Security Description Acquisition of Shares Cost
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
17.9% limited
Advanced Technology Ventures II December 1994 partnership interest $ 1,899,604
April 1993
to 3.1% limited
Crosspoint Venture Partners 1993 October 1995 partnership interest $ 1,400,000
December 1993
to 5.0% limited
GEO Capital III, L.P. September 1995 partnership interest $ 1,484,080
May 1994
to
Socket Communications December 1994 134,756 shs. 4.62 per share
</TABLE>
(b) Non-income producing security.
Based on the cost of investments of $634,559,000 for federal income tax
purposes at October 31, 1995, the aggregate gross unrealized appreciation was
$381,732,000, the aggregate gross unrealized depreciation was $6,284,000 and
the net unrealized appreciation on investments was $375,448,000.
See accompanying Notes to Financial Statements.
Report of Independent Auditors
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TECHNOLOGY FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Technology Fund, as of
October 31, 1995, and the related statements 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 1991.
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
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Kemper Technology Fund at October 31, 1995, 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 1991, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 28, 1995
15
<PAGE> 16
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------
Assets
- ----------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $634,559) $1,010,007
- ----------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 1,604
- ----------------------------------------------------------------------------------------------------------
Investments sold 15,299
- ----------------------------------------------------------------------------------------------------------
Dividends and interest 82
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS 1,026,992
==========================================================================================================
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Cash overdraft 729
- ----------------------------------------------------------------------------------------------------------
Payable for:
Fund shares redeemed 686
- ----------------------------------------------------------------------------------------------------------
Investments purchased 6,720
- ----------------------------------------------------------------------------------------------------------
Management fee 460
- ----------------------------------------------------------------------------------------------------------
Distribution services fee 27
- ----------------------------------------------------------------------------------------------------------
Administrative services fee 126
- ----------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 180
- ----------------------------------------------------------------------------------------------------------
Other 109
- ----------------------------------------------------------------------------------------------------------
Total liabilities 9,037
- ----------------------------------------------------------------------------------------------------------
NET ASSETS $1,017,955
==========================================================================================================
- ----------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Paid-in capital $ 512,232
- ----------------------------------------------------------------------------------------------------------
Undistributed net realized gain on investments 126,537
- ----------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and assets and liabilities in foreign currencies 375,537
- ----------------------------------------------------------------------------------------------------------
Undistributed net investment income 3,649
- ----------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $1,017,955
==========================================================================================================
- ----------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- ----------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($957,565 / 65,450 shares outstanding) $14.63
- ----------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $15.52
- ----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($41,034 / 2,851 shares outstanding) $14.39
- ----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price per share
($1,577 / 109 shares outstanding) $14.45
- ----------------------------------------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($17,779 / 1,214 shares outstanding) $14.64
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE> 17
Financial Statements
STATEMENT OF OPERATIONS
Year ended October 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------------
Dividends $3,489
Interest 1,788
Total investment income 5,277
Expenses:
Management fee 4,542
Distribution services fee 173
Administrative services fee 1,245
Custodian and transfer agent fees and related expenses 1,059
Professional fees 81
Reports to shareholders 115
Trustees' fees and other 80
Total expenses 7,295
NET INVESTMENT LOSS (2,018)
============================================================================================================
- ------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments (including options purchased) 142,619
Net realized loss from options written (14,813)
Net realized gain 127,806
Change in net unrealized appreciation on investments and assets and
liabilities in foreign currencies 196,817
Net gain on investments 324,623
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $322,605
============================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ------------------------------------------------------------------------------------------------------------
Net investment income (loss) $(2,018) 309
Net realized gain 127,806 92,337
Change in net unrealized appreciation 196,817 (2,709)
Net increase in net assets resulting from operations 322,605 89,937
Net equalization credits 114 123
Distributions from net realized gain (92,581) (38,179)
Net increase from capital share transactions 74,163 49,169
TOTAL INCREASE IN NET ASSETS 304,301 101,050
============================================================================================================
- ------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Beginning of year 713,654 612,604
END OF YEAR (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME
OF $3,649 AND $5,095, RESPECTIVELY) $1,017,955 713,654
============================================================================================================
</TABLE>
17
<PAGE> 18
Notes to Financial Statements
1 DESCRIPTION OF THE FUND
Kemper Technology Fund is an open-end management investment company organized as
a business trust under the laws of Massachusetts. The Fund currently offers four
classes of shares. Class A shares are sold to investors subject to an initial
sales charge. Class B shares are sold without an initial sales charge but are
subject to higher ongoing expenses than Class A shares and a contingent deferred
sales charge payable upon certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance. Class C shares are sold
without an initial or a contingent deferred sales charge but are subject to
higher ongoing expenses than Class A shares and do not convert into another
class. Class I shares, which are sold to a limited group of investors, are not
subject to initial or contingent deferred sales charges and have lower ongoing
expenses than other classes. Each share represents an identical interest in the
investments of the Fund and has the same rights.
2 SIGNIFICANT
ACCOUNTING POLICIES
INVESTMENT VALUATION. Investments are stated at value. Portfolio securities that
are traded on a domestic securities exchange or securities listed on the NASDAQ
National Market are valued at the last sale price on the exchange or market
where primarily traded or listed or, if there is no recent sale, at the last
current bid quotation. Portfolio securities that are primarily traded on foreign
securities exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges where primarily traded. Securities
not so traded or listed are valued at the last current bid quotation if market
quotations are available. Fixed income securities are valued by using market
quotations, or independent pricing services that use prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Equity options are
valued at the last sale price unless the bid price is higher or the asked price
is lower, in which event such bid or asked price is used. Financial futures and
options thereon are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. Forward foreign currency
contracts are valued at the forward rates prevailing on the day of valuation.
Other securities and assets are valued at fair value as determined in good faith
by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Dividend income is recorded on the ex-dividend date, and interest income is
recorded on the accrual basis and includes amortization of money market
instrument premium and discount. Realized gains and losses from investment
transactions are reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and redeemed on a continuous basis
at net asset value (plus an initial sales charge on most sales of Class A
shares). Proceeds payable on redemption of Class B shares will be reduced by the
amount of any applicable contingent deferred sales charge. On each day the New
York Stock Exchange is open
18
<PAGE> 19
Notes to Financial Statements
for trading, the net asset value per share is determined as of the earlier of
3:00 p.m. Chicago time or the close of the Exchange. The net asset value per
share is determined separately for each class by dividing the Fund's net assets
attributable to that class by the number of shares of the class outstanding.
FEDERAL INCOME TAXES AND DIVIDENDS TO SHAREHOLDERS. The Fund has complied with
the special provisions of the Internal Revenue Code available to investment
companies and therefore no federal income tax provision is required.
Differences in dividends per share are due to different class expenses.
Dividends payable to its shareholders are recorded by the Fund on the
ex-dividend date.
Dividends are determined in accordance with income tax principles which may
treat certain transactions differently from generally accepted accounting
principles.
EQUALIZATION ACCOUNTING. A portion of proceeds from sales and cost of
redemptions of Fund shares is credited or charged to undistributed net
investment income so that income per share available for distribution is not
affected by sales or redemptions of shares.
3 TRANSACTIONS
WITH AFFILIATES
MANAGEMENT AGREEMENT. The Fund has a management agreement with Kemper Financial
Services, Inc. (KFS) and pays a management fee at an annual rate of .58% of the
first $250 million of average daily net assets declining gradually to .42%
of average daily net assets in excess of $12.5 billion. The Fund incurred a
management fee of $4,542,000 for the year ended October 31, 1995.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT. The Fund has an underwriting
and distribution services agreement with Kemper Distributors, Inc. (KDI).
Underwriting commissions paid in connection with the distribution of Class A
shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED BY KDI
RETAINED -------------------------------------
BY KDI TO ALL FIRMS TO AFFILIATES
------------ ------------ -------------
<S> <C> <C> <C>
Year ended October 31, 1995 $116,000 840,000 218,000
</TABLE>
For services under the distribution services agreement, the Fund pays KDI a fee
of .75% of average daily net assets of the Class B and Class C shares. Pursuant
to the agreement, KDI enters into related selling group agreements with
various firms at various rates for sales of Class B and Class C shares. In
addition, KDI receives any contingent deferred sales charges
19
<PAGE> 20
Notes to Financial Statements
(CDSC) from redemptions of Class B shares. Distribution fees and commissions
paid in connection with the sale of Class B and Class C shares and the CDSC
received in connection with the redemption of Class B shares are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION COMMISSIONS AND DISTRIBUTION
FEES AND FEES PAID BY KDI
CDSC RECEIVED ------------------------------------
BY KDI TO ALL FIRMS TO AFFILIATES
-------------- ------------ -------------
<S> <C> <C> <C>
Year ended October 31, 1995 $229,000 658,000 152,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an administrative services
agreement with KDI. For providing information and administrative services to
Class A, Class B and Class C shareholders, the Fund pays KDI a fee at an
annual rate of up to .25% of average daily net assets of each class. KDI in turn
has various agreements with financial services firms that provide these services
and pays these firms based on assets of Fund accounts the firms service.
Administrative services fees (ASF) paid are as follows:
<TABLE>
<CAPTION>
ASF ASF PAID BY KDI
PAID BY THE ------------------------------
FUND TO KDI TO ALL FIRMS TO AFFILIATES
----------- ------------ -------------
<S> <C> <C> <C>
Year ended October 31, 1995 $1,245,000 1,269,000 116,000
</TABLE>
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. For the year ended October 31, 1995, the transfer agent
remitted shareholder services fees to KSvC of $724,000.
OFFICERS AND TRUSTEES. Certain officers or trustees of the Fund are
also officers or directors of KFS. For the year ended October 31, 1995, the
Fund made no payments to its officers and incurred trustees' fees of $24,000 to
independent trustees.
4 INVESTMENT
TRANSACTIONS
For the year ended October 31, 1995, investment transactions (excluding
short-term instruments) are as follows (dollars in thousands):
<TABLE>
<S> <C>
Purchases $879,630
Proceeds from sales 876,222
</TABLE>
<TABLE>
<CAPTION>
OPTIONS WRITTEN: CONTRACTS PREMIUMS
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at beginning of year -- $ --
Option contracts written and terminated
by repurchase 800 6,901
Options outstanding at end of year -- --
</TABLE>
20
<PAGE> 21
Notes to Financial Statements
5 CAPITAL SHARE
TRANSACTIONS
The following table summarizes the activity in capital shares of the Fund (in
thousands):
<TABLE>
<CAPTION>
Year ended October 31,
1995 1994
--------------------- -------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
- -----------------------------------------------------------------------------------------------
Class A 8,774 $104,886 7,279 $ 75,132
Class B 4,556 54,618 496 5,352
Class C 123 1,490 16 150
Class I 1,586 20,709 -- --
- -----------------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF
DIVIDENDS
- -----------------------------------------------------------------------------------------------
Class A 7,693 73,098 3,032 30,078
Class B 114 1,080 -- --
Class C 3 33 -- --
- -----------------------------------------------------------------------------------------------
SHARES REDEEMED
- -----------------------------------------------------------------------------------------------
Class A (12,664) (149,299) (8,355) (85,317)
Class B (2,221) (26,954) (45) (495)
Class C (28) (335) (5) (57)
Class I (372) (5,163) -- --
- -----------------------------------------------------------------------------------------------
CONVERSION OF SHARES
- -----------------------------------------------------------------------------------------------
Class A 46 574 2 20
Class B (47) (574) (2) (20)
- -----------------------------------------------------------------------------------------------
SHARES ISSUED IN ACQUISITION (A)
- -----------------------------------------------------------------------------------------------
Class A -- -- 2,294 24,326
===============================================================================================
NET INCREASE
FROM CAPITAL
SHARE TRANSACTIONS $74,163 $49,169
===============================================================================================
</TABLE>
(a) On August 26, 1994, the Fund acquired the assets of Kemper Environmental
Services Fund in a tax-free exchange.
6 FORWARD FOREIGN
CURRENCY CONTRACTS
In order to protect itself against a decline in the value of particular foreign
currencies against the U.S. Dollar, the Fund has entered into a forward contract
to deliver foreign currency in exchange for U.S. Dollars as described below. The
Fund bears the market risk that arises from changes in foreign exchange rates,
and accordingly, the unrealized gain on this contract is reflected in the
accompanying financial statements. The Fund also bears the credit risk if the
counterparty fails to perform under the contract. At October 31, 1995, the
Fund has the following forward foreign currency contract outstanding:
<TABLE>
<CAPTION>
Contract amount Unrealized gain
Foreign currency to be delivered in U.S. dollars Settlement at 10/31/95
(in thousands) (in thousands) date (in thousands)
-------------------------------- --------------- ---------- ----------------
<S> <C> <C> <C>
295,380 Japanese Yen $3,000 December 1995 $89
</TABLE>
21
<PAGE> 22
Financial Highlights
<TABLE>
<CAPTION>
----------------------------------------------
CLASS A
----------------------------------------------
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 11.50 10.68 9.95 12.42 9.37
Income from investment operations:
Net investment income (loss) (.03) -- (.01) .01 .13
Net realized and unrealized gain 4.66 1.49 2.03 .04 3.35
Total from investment operations 4.63 1.49 2.02 .05 3.48
Less dividends:
Distribution from net investment income -- -- -- .03 .20
Distribution from net realized gain 1.50 .67 1.29 2.49 .23
Total dividends 1.50 .67 1.29 2.52 .43
Net asset value, end of year $ 14.63 11.50 10.68 9.95 12.42
=======================================================================================================================
TOTAL RETURN 47.30% 14.95 21.76 .32 38.58
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
=======================================================================================================================
Expenses .88% 89 .81 .82 .81
Net investment income (loss) (.23) .05 (.06) .07 1.24
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS I
----------------------- ----------------------- ------------
MAY 31, MAY 31, JULY 31,
YEAR ENDED 1994 TO YEAR ENDED 1994 TO 1995 TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.45 9.99 11.45 9.99 12.72
Income from investment operations:
Net investment loss (.15) (.05) (.15) (.05) (.02)
Net realized and unrealized gain 4.59 1.51 4.65 1.51 1.94
Total from investment operations 4.44 1.46 4.50 1.46 1.92
Less distribution from net realized gain 1.50 -- 1.50 -- --
Net asset value, end of period $ 14.39 11.45 14.45 11.45 14.64
=======================================================================================================================
TOTAL RETURN (NOT ANNUALIZED) 45.65% 14.61 46.23 14.61 15.09
- -----------------------------------------------------------------------------------------------------------------------
ANNUALIZED RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
Expenses 1.82% 1.99 1.76 1.83 .65
Net investment loss (1.17) (1.08) (1.11) (.92) (.33)
- -----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL FUND DATA
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $1,017,955 713,654 612,604 559,279 606,295
Portfolio turnover rate 105% 81 95 95 81
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. Per
share data for 1995 was determined based on average shares outstanding.
22
<PAGE> 23
Shareholder's Meeting
SPECIAL SHAREHOLDER'S MEETING
On September 19, 1995 a joint special shareholders' meeting was held. Kemper
Technology Fund shareholders were asked to vote on four separate issues:
election of nine Trustees to the Board of Trustees, ratification of Ernst &
Young LLP as independent auditors, approval of a new investment management
agreement with Kemper Financial Services, Inc. or its successor on the same
terms as the current agreement and for Class B and Class C shareholders only,
approval of a new 12b-1 distribution plan with Kemper Distributors, Inc. or its
successor on the same terms as the current plan. We are pleased to report that
all nominees were elected and all other items are approved. Following are the
results for each issue:
- - Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
David W. Belin 46,340,989 1,276,139
Lewis A. Burnham 46,479,079 1,138,049
Donald L. Dunaway 46,364,798 1,252,330
Robert B. Hoffman 46,374,321 1,242,807
Donald R. Jones 46,474,317 1,142,811
David B. Mathis 46,464,794 1,152,334
Shirley D. Peterson 46,460,032 1,157,096
William P. Sommers 46,350,512 1,266,616
Stephen B. Timbers 46,493,364 1,123,764
</TABLE>
- - Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund
For Against Abstain
46,077,064 394,576 1,145,488
- - Approval of new investment management agreement
For Against Abstain
44,305,327 1,188,412 2,123,389
- - Approval of new 12b-1 distribution plan
For Against Abstain
Class B
Shares 942,487 50,002 64,836
Class C
Shares 33,072 13 1,617
23
<PAGE> 24
Trustees and Officers
STEPHEN B. TIMBERS
President and Trustee
DAVID W. BELIN
Trustee
LEWIS A. BURNHAM
Trustee
DONALD L. DUNAWAY
Trustee
ROBERT B. HOFFMAN
Trustee
DONALD R. JONES
Trustee
DAVID B. MATHIS
Trustee
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
OFFICERS
RICHARD A. GOERS
Vice President
FRANK D. KORTH
Vice President
JOHN E. PETERS
Vice President
STEVEN H. REYNOLDS
Vice President
PHILIP J. COLLORA
Vice President
and Secretary
CHARLES F. CUSTER
Vice President and
Assistant Secretary
JEROME L. DUFFY
Treasurer
ELIZABETH C. WERTH
Assistant Secretary
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North Lasalle Street
Chicago, IL 60601
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
1-800-621-1048
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
INVESTMENT MANAGER KEMPER FINANCIAL SERVICES, INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street
Chicago, IL 60603
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This report is not to be distributed 1006770
unless preceded or accompanied by a Printed in the U.S.A.
Kemper Technology Funds prospectus.
KTF-2 (12/95)
