<PAGE> 1
KEMPER
TECHNOLOGY
FUND
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED OCTOBER 31, 1997
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Seeking growth of capital.
"...Technology stocks experienced periods of powerful
rallies and strong sell-offs. In short, it was
a normal year..."
[KEMPER LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
9
INDUSTRY SECTORS
10
LARGEST HOLDINGS
11
PORTFOLIO OF
INVESTMENTS
15
REPORT OF
INDEPENDENT AUDITORS
16
FINANCIAL STATEMENTS
18
NOTES TO
FINANCIAL STATEMENTS
22
FINANCIAL HIGHLIGHTS
AT A GLANCE
- -------------------------------------------------------------------------------
KEMPER TECHNOLOGY
FUND TOTAL RETURNS
- -------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 17.11%
CLASS B 15.91%
CLASS C 15.98%
LIPPER SCIENCE & TECHNOLOGY FUNDS CATEGORY AVERAGE* 22.84%
- -------------------------------------------------------------------------------
</TABLE>
Returns and rankings 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.
Investment by the fund in emerging technology companies presents greater risk
than investment in more established companies.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NET ASSET VALUE
- -------------------------------------------------------------------------------
AS OF AS OF
10/31/97 10/31/96
- -------------------------------------------------------------------------------
<S> <C> <C>
KEMPER TECHNOLOGY FUND
CLASS A $13.13 $13.16
- -------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND
CLASS B $12.54 $12.77
- -------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND
CLASS C $12.64 $12.85
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
KEMPER TECHNOLOGY
FUND LIPPER RANKINGS*
- -------------------------------------------------------------------------------
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER SCIENCE & TECHNOLOGY FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #40 of 55 funds #43 of 55 funds #42 of 55 funds
- -------------------------------------------------------------------------------
5-YEAR #10 of 15 funds N/A N/A
- -------------------------------------------------------------------------------
10-YEAR #10 of 12 funds N/A N/A
- -------------------------------------------------------------------------------
15-YEAR #3 of 5 funds N/A N/A
- -------------------------------------------------------------------------------
20-YEAR #1 of 3 funds N/A N/A
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
DIVIDEND REVIEW
- -------------------------------------------------------------------------------
DURING THE FISCAL-YEAR, KEMPER TECHNOLOGY FUND MADE THE FOLLOWING DISTRIBUTIONS
PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM CAPITAL GAIN $2.11 $2.11 $2.11
- -------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
[MORNINGSTAR STYLE BOX]
- -------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- -------------------------------------------------------------------------------
Source: Morningstar, Inc., Chicago, IL (312) 696-6000. (Morningstar Style Box
is based on a portfolio date as of October 31, 1997.) The Equity Style Box
placement is based on a fund's price-to-earnings and price-to-book ratio
relative to the S&P 500, as well as the size of the companies in which it
invests, or median market capitalization. Please note that style boxes do not
represent an exact assessment of risk and do not represent future performance.
Please consult the prospectus for a description of investment policies.
CORRECTION A reverse movement, usually downward, in the price of a group of
stocks or the overall market. Corrections are to be expected over a long term.
PRICE-TO-EARNINGS RATIO A company's stock price divided by its earnings for the
past four quarters, also referred to as its P/E.
SECTOR Stocks usually found in related industries. Stocks within a market sector
may be similarly effected by financial, economic, business, and other
developments.
SEMICONDUCTOR A material that is neither a good conductor of electricity, nor a
good insulator, and whose conduction properties can therefore be manipulated
easily. Semiconductor devices are the essential parts that make it possible to
build small, inexpensive electronic systems.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
Stephen B. Timbers is president, chief executive and chief investment officer of
Zurich Kemper Investments, Inc. (ZKI). ZKI and its affiliates manage
approximately $86 billion in assets, including $49 billion in retail mutual
funds. Timbers is a graduate of Yale University and holds an M.B.A. from
Harvard University.
DEAR SHAREHOLDERS,
Once again, investors experienced extreme market volatility in the month of
October. Unlike the October corrections of 1987 and 1989, this year's market
drop occurred at a time when the United States economy is remarkably healthy and
resilient. As we have noted, the U.S. economy has been moving forward for
several years with an alternating fast/slow pace that has proven successful in
removing whatever excesses build from quarter to quarter. As a consequence,
interest rates and the rate of inflation are both low and stable. Moreover, the
federal budget deficit has been reduced to such an extent that discussion has
now turned to what the government should do with a projected surplus in 1998.
Fortunately, no part of our strong economic foundation was shaken by the
market correction. If anything, the correction provided a short-lived and
relatively painless lesson about the vulnerability of a highly valued market.
When markets are high, everything -- economic news, corporate earnings and
liquidity -- must go right. When markets are high -- as our equity market was
for most of this year -- they are vulnerable to relatively minor
disappointments.
As you have read, of course, the direct source of the October correction was
Southeast Asia, where the world's highest growth economies had been stumbling
since the summer. These economies had become overextended, banks ran into
trouble with bad loans and the local governments failed to take prompt action.
The result was a domino effect of competitive devaluations of currencies,
crashing markets and political chaos.
But while Southeast Asia produced the event that led to the mini-panic in the
U.S. equity market -- resulting in a 7 percent loss on October 27 -- the world
quickly looked to the U.S. for solutions. When the U.S. market quickly
rebounded, other markets became less volatile. Considering U.S. economic
fundamentals and the relatively small effect that Southeast Asian problems have
on U.S. companies as a whole, rational investors had to expect our market to
bounce back. In fact, if the U.S. equity market had not been so highly valued,
we would have expected the market's reaction to the Asian problems to be quite
muted. For instance, if the Dow Jones Industrial Average had been closer to 7000
than to 8000, we would have expected that the market would have dropped only
slightly.
But as we have said before, today's markets move very fast. We experienced in
one day the kind of correction that we used to experience over a six-month
period. By Wednesday, November 19, the Dow Jones Industrial Average had climbed
back to where it was before Gray Monday, October 27, 1997. It took only 26 days
to recoup -- contrast that with the 463 days needed to recoup from Black Monday.
The market did not recover from its 22.6 percent October 19, 1987, market
correction until January 24, 1989. At this writing, the U.S. equity market
remains very volatile. We expect that condition to continue, as volatility is a
factor of higher valued markets. Despite what the last few years may have
suggested, markets do not go in just one direction.
Our recent experience supported many of the basic tenets of investing:
- Invest for the long term and don't react to the short-term noise. Investors
who got hurt in the October correction were those who had borrowed the
money they invested and were forced to sell at low prices. Investors who
were able to remain invested and did, lost only some of their
above-average gain for the year.
- Diversification helps reduce overall portfolio risk. Government securities
investors, for example, found the bond market to be a safe haven as the
bond market rallied during the stock market correction.
- Investing abroad is complex and requires expert advice. Currency
valuations, in particular, can have a significant effect on investment
returns.
Our forecast for the next several months calls for moderate economic growth,
stable interest rates and controlled inflation. While we cannot rule out the
possibility of another market event that would add to the excitement of equity
investing, we would expect the U.S. market to again demonstrate its resiliency.
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND SHAREHOLDER
DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR DEFLATION, CREDIT
EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON MUTUAL FUND
PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR INVESTMENT
RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE 10-YEAR TREASURY
RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES. THE OTHER DATA REPORT
YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (11/30/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 5.88 6.49 6.3 5.71
PRIME RATE(2) 8.5 8.5 8.25 8.65
INFLATION RATE(3)* 2.08 2.3 3.25 2.6
THE U.S. DOLLAR(4) 9.65 5.52 4.36 -2.58
CAPITAL GOODS ORDERS(5)* 9.92 7.16 3.3 8.09
INDUSTRIAL PRODUCTION(5)* 5.51 4.23 4.33 3.4
EMPLOYMENT GROWTH(6) 2.52 2.13 2.15 1.91
</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 October 31, 1997.
Sources: Economics Department, Zurich Kemper Investments, Inc.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT AND CHIEF INVESTMENT OFFICER
ZURICH KEMPER INVESTMENTS INC.
December 4, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
FRANK KORTH, THE MANAGER OF KEMPER TECHNOLOGY FUND SINCE JANUARY 1994, LEFT THE
FIRM AT THE END OF THE FUND'S FISCAL YEAR. HE HAS BEEN REPLACED BY A TEAM OF
PORTFOLIO MANAGERS WITH A LONG HISTORY OF INVESTING IN TECHNOLOGY STOCKS: TRACY
CHESTER, WHO ALSO MANAGES KEMPER BLUE CHIP FUND, HAS SEVERAL YEARS' EXPERIENCE
AS A TECHNOLOGY ANALYST WITH KEMPER FUNDS; DICK GOERS IS KEMPER FUNDS' SENIOR
TECHNOLOGY ANALYST AND PREVIOUSLY CO-MANAGED THE FUND; GARY LANGBAUM, MANAGER OF
KEMPER TOTAL RETURN FUND, JOINED KEMPER IN 1988 AND HAS NEARLY 30 YEARS OF
INVESTMENT EXPERIENCE; STEVEN REYNOLDS IS PORTFOLIO MANAGER OF KEMPER GROWTH
FUND AND IS ALSO CHIEF INVESTMENT OFFICER OF EQUITIES.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY
TIME, BASED ON MARKET AND OTHER CONDITIONS.
BELOW, THIS DISTINGUISHED TEAM PROVIDES A RECAP OF KEMPER TECHNOLOGY FUND'S
PERFORMANCE OVER THE LAST YEAR, AND THEIR PHILOSOPHY REGARDING HOW THE FUND
WILL BE MANAGED IN THE FUTURE.
Q HOW DID THE TECHNOLOGY SECTOR PERFORM COMPARED WITH THE STOCK MARKET AS A
WHOLE?
A The year ended October 31, 1997, was a typically volatile one for
technology stocks. They experienced periods of powerful rallies and strong
sell-offs. In short, it was a normal year. Overall, the sector underperformed
the stock market. The Standard and Poor's 500 Stock Index gained 32.10 percent,
while the Lipper Science and Technology Fund Index gained 22.72 percent. The
fund's Class A shares (unadjusted for any sales charge) achieved a total return
of 17.11 percent for the same period. When viewed in detail, the year clearly
breaks down into two halves. During the first six months of the fiscal year, the
S&P 500 gained 14.72 percent, but the average technology fund managed only a
1.72 percent gain. The second half of the fiscal year was much better for tech
stocks; the market was up 15.16 percent, while the Lipper index gained 20.64
percent. However, that obviously wasn't enough to make up lost ground.
Q WHY DID TECH STOCKS LAG SO DRASTICALLY DURING THE FIRST SIX MONTHS OF THE
FISCAL YEAR?
A The reason can be summed up in one word: uncertainty. At the start of the
year, there was still widespread concern over the pace of economic growth, the
direction of interest rates, and the level of inflation. In such conditions,
investors tend to emphasize larger, more stable growth companies that
can deliver solid earnings with less dependence on a strong economy. The S&P
500's big gains reflect that. Conversely, technology companies tend to be
smaller and their income streams a bit more precarious. So they experienced
volatility, ending up in June about where they started the previous October.
During the second half of the year, however, the economic picture became
clearer - particularly the direction on interest rates. Fewer and fewer people
anticipated an interest rate hike by the Federal Reserve and the economy
appeared to be chugging along at a good pace. This reassured investors and the
market, especially tech stocks, benefited. The sector rallied strongly from
June through October, but then problems in the Pacific Rim economies came to
the fore, and the sector was hit with a 10 percent correction as the fiscal
year drew to a close.
Given volatility of this magnitude, it can be a struggle for investors to
maintain their composure. But although past performance does not guarantee
future results, historically the technology sector's overall volatility has
outpaced other sector's volatility over the longer term as shown in the
accompanying chart on page 6.
As noted earlier, investment in emerging technology companies presents
greater risk than investments in more established companies.
5
<PAGE> 6
PERFORMANCE UPDATE
[VOLATILE GRAPH]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
IT WAS A TYPICALLY VOLATILE YEAR FOR TECH STOCKS...
- --------------------------------------------------------------------------------------------------------------------
MONTHLY TOTAL RETURNS 10/31/96-10/31/97
1996 1997
- ---------------- --------------------------------------------------------------------------------------------------
11/30 12/31 1/31 2/28 3/31 4/30 5/31 6/30 7/31 8/31 9/30 10/31
- ---------------- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.47% -1.98% 7.00% -8.19% -7.43% 3.31% 13.72% 0.68% 12.88% 0.41% 5.20% -9.45%
</TABLE>
Source: Lipper Analytical Services. Technology stocks represented by the Lipper
Science and Technology Fund Index.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
BUT TECHNOLOGY'S VOLATILITY HAS TENDED TO WORK FOR YOU
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN AVERAGE ANNUAL TOTAL
YTD AS OF RETURN AS OF 10/31/97
10/31/97 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Science & Technology 15.66% 24.53% 20.15%
- --------------------------------------------------------------------------------------------------------------------
Growth and Income 21.39 17.61 15.21
- --------------------------------------------------------------------------------------------------------------------
Small Cap 21.40 18.94 17.43
- --------------------------------------------------------------------------------------------------------------------
Growth 21.73 17.28 15.75
- --------------------------------------------------------------------------------------------------------------------
S&P 500 25.31 19.85 17.14
- --------------------------------------------------------------------------------------------------------------------
Capital Appreciation 19.58 16.49 14.50
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Lipper Analytical Services. Sector performance represented by the Lipper
fund category average.
Q WHAT MOVES WERE MADE TO COUNTER THE SECTOR'S VOLATILITY?
A As a technology fund, there's not a lot you CAN do when the universe in
which you operate undergoes turbulence. One thing that was NOT done was to try
and time the sector's rise and fall. The fund tended to stay substantially
invested, and seek outstanding values when they appeared. That meant trading in
and out of certain areas of the market, primarily semiconductors, data
communications and systems/software/services. We'll take a look at the fund's
exposure to each area at the end of the fiscal year compared to six months ago:
- - SEMICONDUCTORS WERE REDUCED FROM 25 PERCENT OF NET ASSETS TO 22 PERCENT. The
fund increased exposure to semiconductors early in the year because there were
some outstanding values in these companies. And in fact, it was one of the
strongest performing areas through the summer. At that time, the stocks
appeared fully valued and the position was scaled back. It was the right idea,
but wasn't done quickly enough as these stocks were hit particularly hard by
the events in Asian markets.
- - COMMUNICATIONS WERE 21 PERCENT OF THE PORTFOLIO, AND ARE NOW 16 PERCENT. Data
communications had run up strongly over the last six months and profits were
taken in companies like Ascend and 3Com.
- - SYSTEMS/SOFTWARE/SERVICES WERE 15 PERCENT AND ARE NOW 27 PERCENT. A lot of the
increase is price appreciation after a strong rally in these stocks. We will
likely maintain this overweighting, because this is one of the more resilient
areas of the technology sector, compared with areas like personal computers or
semiconductors.
6
<PAGE> 7
PERFORMANCE UPDATE
Also notable was a move in personal computer related stocks. The fund
had been heavier into component manufacturers, particularly disk-drive makers.
But as that area became more competitive, it was shifted in favor of PC makers
like Compaq and Dell.
Q WILL THE CURRENCY PROBLEMS IN ASIA HAVE A GREAT IMPACT ON TECHNOLOGY
FIRMS?
A Some of the concern is well-founded, but some isn't. Technology firms in
Asia tend to export primarily to European and American markets, which have been
remarkably strong. Certainly in-region demand will be affected and there will be
a global impact, but the extent is unclear. Our experience is that the
technology sector has a history of discounting to the worst-case scenario, and
usually does so in a hurry. We don't think the impact will be that severe. In
fact, it may give us an opportunity to realign the portfolio at prices that
are quite attractive.
Q HOW DO YOU PLAN TO POSITION THE PORTFOLIO GOING FORWARD?
A There are three primary goals that will likely guide our approach:
- - CONSOLIDATE NAMES. There were about 120 companies in the portfolio at the end
of the fiscal year, and we'd like to reduce that somewhat to concentrate on
the firms that we believe have the best chance of being strong, consistent
performers. Market leaders tended to be hit as badly as market laggards during
the October correction, so we've got an excellent opportunity to buy these
types of companies at good prices. To find them, we'll research the firms we
like and see how they've performed historically in prior economic slowdowns
and corrections such as those prompted by the Asia crisis. We're looking for
companies that are near their historic lows but have the characteristics we
value: strong management, a dominant market position, and the potential to
consistently produce earnings growth.
- - CONCENTRATE ON LARGER, HIGHER QUALITY COMPANIES. The traits we look for tend
to be inherent in bigger, more established companies. Also, given the
volatility and uncertainty surrounding the technology sector right now, and
the modest pace of economic expansion both here and abroad, we think smaller
companies will have a more difficult time being competitive.
- - REDUCE VOLATILITY WHERE POSSIBLE. That means trimming exposure to the more
volatile areas, such as personal computers, biotech and semiconductors. We'll
certainly maintain holdings in these areas, but we're looking for the cream of
the crop.
Q WHAT'S YOUR OUTLOOK FOR THE SECTOR?
A It will be a stock-picker's market going forward. Opportunities will be
much more selective, and astute evaluations of earnings, products, management
and valuations will be crucial. But that's the way it always is in technology.
7
<PAGE> 8
PERFORMANCE UPDATE
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- -------------------------------------------------------------------------------
FOR PERIODS ENDED OCTOBER 31, 1997 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR 10-YEAR CLASS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER TECHNOLOGY FUND CLASS A 10.40% 19.66% 15.10% 13.16% (since 9/7/48)
- -------------------------------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND CLASS B 12.96 N/A N/A 23.26 (since 5/31/94)
- -------------------------------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND CLASS C 15.98 N/A N/A 23.82 (since 5/31/94)
- -------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND CLASS A
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class A shares from 1/1/79 to 10/31/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1/1/79 12/31/85 12/31/91 10/31/97
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Technology Fund Class A(1) 10000 27937 63724 147785
Russell 1000 Growth Index+ 10000 28186 72895 169047
Standared & Poor's 500 Stock Index++ 10000 31047 74980 190216
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND CLASS B
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class A shares from 5/31/94 to 10/31/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/95 12/31/96 10/31/97
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Technology Fund Class A(1) 10000 15924 18994 20457
Russell 1000 Growth Index+ 10000 14445 17784 22011
Standared & Poor's 500 Stock Index++ 10000 14135 17372 21739
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND CLASS C
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class A shares from 5/31/94 to 10/31/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/95 12/31/96 10/31/97
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Technology Fund Class A(1) 10000 16004 19101 20777
Russell 1000 Growth Index+ 10000 14445 17784 22011
Standared & Poor's 500 Stock Index++ 10000 14135 17372 21739
</TABLE>
Returns are historical and do not represent future performance. Returns
and net asset values 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
percent, for Class B shares adjustment for the applicable contingent
deferred sales charge (CDSC) as follows: 1 year, 3 percent; 5 year, 1
percent; since inception, 0 percent. For Class C shares, there is no
adjustment for sales charge. The maximum CDSC for Class B shares is 4
percent. For Class C shares, there is a 1 percent CDSC on certain
redemptions within the first year of purchase. 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 Class A shares and the CDSC in effect at the
end of the period for Class B shares. When reviewing the
performance chart, please note that the inception date for the Russell
1000 Growth Index is January 1, 1979. As a result, we are not able
to illustrate the life of fund performance (since September 7,
1948) for Kemper Technology Fund Class A shares. In comparing the
funds Class A and Class B shares to the Russell 1000 Growth Index and
the Standards & Poor's 500 Stock Index, you should also note that the
fund's performance reflects the applicable sales charge, while no
such charges are reflected in the performance of the indices.
(+) 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 Standard & Poor's 500 Stock Index is an unmanaged index
generally representative of the U.S. stock market.
Source is Towers Data Systems.
8
<PAGE> 9
INDUSTRY SECTORS
A YEAR-TO-YEAR COMPARISON
Data shows the percentage of the common stocks in the portfolio that each sector
represented on October 31, 1997, and on October 31, 1996.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER TECHNOLOGY KEMPER TECHNOLOGY
FUND ON 10/31/97 FUND ON 10/31/96
<S> <C> <C>
SYSTEMS, SOFTWARE & SERVICES 26.3% 20.9%
ELECTRONIC PARTS 23.4% 12.9%
COMMUNICATIONS 16.5% 25.7%
PERSONAL COMPUTING 14.3% 14.2%
LIFE SCIENCES 12.5% 21.8%
INDUSTRIAL TECHNOLOGY/MISC. 7.0% 4.5%
</TABLE>
A COMPARISON WITH THE HAMBRECHT & QUIST INDEX
Data shows the percentage of the common stocks in the portfolio that each sector
of Kemper Technology Fund represented on October 31, 1997, compared with the
industry sectors that make up the Hambrecht & Quist (H&Q) Technology Index. In
contrast with broader indexes such as 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.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER TECHNOLOGY H & Q TECHNOLOGY
FUND ON 10/31/97 INDEX ON 10/31/97
<S> <C> <C>
SYSTEMS, SOFTWARE & SERVICES 26.3% 38.3%
ELECTRONIC PARTS 23.4% 18.1%
COMMUNICATIONS 16.5% 18.7%
PERSONAL COMPUTING 14.3% 19.9%
LIFE SCIENCES 12.5% 0.0%
INDUSTRIAL TECHNOLOGY/MISC. 7.0% 5.0%
</TABLE>
9
<PAGE> 10
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS
REPRESENTING 35.2 PERCENT OF THE FUND'S TOTAL COMMON STOCK HOLDINGS ON OCTOBER
31, 1997*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Holdings Percent
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. COMPAQ COMPUTER Designs, develops, manufactures and markets personal 5.0%
computers for business and professional users.
2. INTEL Engaged in the design, development, manufacture and 4.5%
sale of advanced microcomputer components, such as
integrated circuits and other related products.
3. DELL COMPUTER World's largest direct marketer of PCs and a major 4.3%
manufacturer of them as well.
4. CISCO SYSTEMS Largest, most comprehensive supplier of routing 4.2%
software and related systems that direct the flow of
data between local area networks. A play on the
explosive growth of the Internet.
5. TEXAS INSTRUMENTS A high technology company with sales or manufacturing 4.2%
operations in over 30 countries. Products and services
include semiconductors, defense electronics systems,
software productivity tools, computer and peripheral
products and consumer products.
6. INTERNATIONAL BUSINESS Manufactures data processing equipment and systems. 3.0%
MACHINES
7. MICROSOFT CORP. Develops, markets and supports a variety of 3.0%
microcomputer software, operating systems, language and
application programs, related books and peripheral
devices.
8. EMC CORP. Designs, manufactures and markets storage-related 2.6%
hardware, software and service products.
9. COMPUTER ASSOCIATES The leading software company for integrated systems, 2.5%
INTERNATIONAL database management, business applications and
application development solutions.
10. SANMINA CORP. Leading manufacturer of high density printed circuit 1.9%
boards for sophisticated electronics equipment.
</TABLE>
*PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
10
<PAGE> 11
PORTFOLIO OF Investments
KEMPER TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRONIC
COMPONENTS--21.9%
(b)Analog Devices 575,666 $ 17,594
(b)Dupont Photomasks, Inc. 259,000 11,137
(b)Integrated Process Equipment Corp. 325,000 7,211
Intel Corp. 708,000 54,516
(b)KLA-Tencor Corp. 150,000 6,591
Linear Technology Corp. 250,000 15,719
MRV Communications 160,600 4,698
(b)Maxim Integrated Products 100,000 6,625
(b)Microchip Technology 525,000 20,934
(b)Novellus Systems 300,000 13,350
(b)Rambus, Inc. 107,000 5,323
(b)Teradyne 475,000 17,783
Texas Instruments 475,000 50,677
(b)TranSwitch Corp. 125,511 1,412
(b)VLSI Technology, Inc. 300,000 8,887
(b)Vitesse Semiconductor Corp. 100,000 4,338
Xerox Corp. 225,000 17,845
----------------------------------------------------------------------------
264,640
- -------------------------------------------------------------------------------------------------------------------------
PERSONAL
COMPUTING--13.4%
Canon, Inc. 45,000 1,093
(b)Compaq Computer Corp. 950,000 60,562
(b)Dell Computer Corp. 650,000 52,081
(b)Microsoft Corp. 275,000 35,750
Nikon Corp. 165,000 1,838
(b)Quantum Corp. 350,000 11,069
----------------------------------------------------------------------------
162,393
- -------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--15.4%
(b)ADC Telecommuncations, Inc. 300,000 9,937
(b)America On-Line, Inc. 200,000 15,400
Bellsystem 24, Inc. 12,500 1,725
(b)CIENA Corp. 100,041 5,502
(b)Cisco Systems 625,000 51,270
(b)Geoworks 301,300 3,842
Globalstar Telecommunications, convertible 250,000 19,750
preferred
L.M. Ericsson Telephone Co., "B" 69,870 3,081
Lucent Technologies, Inc. 200,000 16,488
(b)Netcom On-Line Communications Services 8,427 160
(b)Netscape Communications Corp. 7,764 255
(b)Newbridge Networks Corp. 150,000 7,950
(b)PairGain Technologies, Inc. 150,000 4,237
(b)Powerwave Technologies, Inc. 11,055 341
(b)QUALCOMM, Inc., convertible preferred 204,000 10,277
(a)(b)Socket Communications, Inc. 134,756 72
(b)Tellabs, Inc. 350,000 18,900
(b)WorldCom, Inc. 500,000 16,813
(b)Xylan Corp. 43,679 699
----------------------------------------------------------------------------
186,699
- -------------------------------------------------------------------------------------------------------------------------
SYSTEMS, SOFTWARE
AND SERVICES--24.6%
(b)BMC Software 250,000 15,094
(b)Cadence Design Systems 60,000 3,195
(b)Cambridge Technology Partners 125,000 4,563
(b)Check Point Software Technologies, Ltd. 250,000 10,656
Computer Associates International 400,000 29,825
(b)Computer Sciences Corp. 75,000 5,320
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b)Compuware Corp. 150,000 $ 9,919
(b)Data General Corp. 150,000 2,887
J.D. Edwards & Co. 100,000 3,400
(b)EMC Corp. 565,000 31,640
(b)Electronic Arts 325,000 11,009
Galileo International, Inc. 200,000 5,025
(b)Gartner Group 30,000 847
Getronics, N.V. 19,608 648
Hewlett-Packard Co. 200,000 12,338
International Business Machines 375,000 36,773
(b)Iomega Corp. 400,000 10,725
(b)Jackson Hewitt, Inc. 9,209 417
Keane, Inc. 75,000 2,222
(b)Logic Works 36,691 344
(b)Mercury Interactive Corp. 375,000 8,438
(b)MicroAge, Inc. 135,000 2,970
(b)Open Market, Inc. 75,000 844
(b)Oracle Corp. 305,000 10,913
(b)PeopleSoft, Inc. 295,000 18,548
SAP, A.G. 12,130 3,485
(b)Security Dynamics Technology, Inc. 275,000 9,316
(b)Storage Technology Corp. 272,900 16,016
(b)SunGard Data Systems 325,300 7,685
(b)Sykes Enterprises, Inc. 100,000 2,488
(b)Tech Data Corp. 100,000 4,450
(b)Unisys Corp. 450,000 5,991
(b)VIASOFT 150,000 6,150
(b)Whittman-Hart, Inc. 125,000 3,625
----------------------------------------------------------------------------
297,766
- -------------------------------------------------------------------------------------------------------------------------
LIFE SCIENCES--11.7%
(b)Agouron Pharmaceuticals, Inc. 100,000 4,562
(b)Alkermes, Inc. 150,000 3,412
(b)Angeion Corp. 175,000 689
(b)Arterial Vascular Engineering 175,000 9,297
(b)Biochem Pharma, Inc. 630,000 15,789
(b)Biogen 83,000 2,780
(b)British Biotech, PLC 258,750 440
(b)Centocor, Inc. 400,000 17,600
(b)Dura Pharmaceuticals 190,000 9,191
Glaxo Wellcome 128,500 2,754
(b)Gilead Sciences 250,000 8,531
HBO & Co. 475,000 20,663
(b)Immunex Corp. 75,000 4,800
(b)Incyte Pharmaceuticals, Inc. 75,000 6,037
(b)Ligand Pharmaceutical, Inc. 275,000 4,022
(a)(b)Med Venture Associates II, L.P.
6.1% limited partnership interest -- 836
(b)North American Vaccine 140,500 3,530
(b)PathoGenesis Corp. 175,000 6,300
(b)Pharmos Corp. 411,349 900
(b)Protein Design Labs, Inc. 175,000 8,728
Survivalink Corp.
(b) Common Stock 150,000 450
(a) 110,000 warrants expiring 2001 -- 495
Thermo Electron Corp. 250,000 9,328
(a)(b)Trex Medical Corp. 60,000 615
----------------------------------------------------------------------------
141,749
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INDUSTRIAL TECHNOLOGY AND
MISCELLANEOUS--6.6%
(a)Adams Capital Management, L.P., 3.9% -- $ 250
limited partnership interest
(a)(b)Advanced Technology Ventures II, L.P.,
17.9% limited partnership interest -- 429
(b)Applied Materials, Inc. 650,000 21,694
Arch Coal, Inc. 35,000 936
(a)Asset Management Associates 1996, L.P., -- 740
2.5% limited partnership interest
(b)Commodore Separation Technologies,
Inc.,
convertible preferred with warrants 45,600 319
expiring 2002
(a)(b)Crosspoint Venture Partners 1993, L.P.,
3.1% limited partnership interest -- 3,494
(b)Cymer Laser, Inc. 75,000 1,716
(b)DII Group, Inc. 170,000 4,186
(a)(b)GEO Capital III, L.P.,
5.0% limited partnership interest -- 1,354
(a)(b)GEO Capital IV, L.P.,
2.9% limited partnership interest -- 959
Matsushita Electric Industrial Co., Ltd. 77,000 1,293
(a)Metrika Systems 66,667 850
Murata Manufacturing 31,000 1,258
Ricoh Co., Ltd. 51,000 657
(b)Sanmina Corp. 300,000 22,425
(a)(b)Sevin Rosen Fund V, L.P.,
2.8% limited partnership interest -- 1,694
(b)Solectron Corp. 370,000 14,523
Sony Corp. 7,300 606
----------------------------------------------------------------------------
79,383
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--93.6%
(Cost: $871,011) 1,132,630
----------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET
INSTRUMENTS--2.6%
Yield--5.52% to 5.65%
Due November and December, 1997
(Cost: $31,290) 31,289
----------------------------------------------------------------------------
TOTAL INVESTMENTS--96.2%
(Cost: $902,301) 1,163,919
----------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--3.8% 45,804
----------------------------------------------------------------------------
NET ASSETS--100% $1,209,723
----------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
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, 1997, with the exception
of Socket Communications, Inc., which was valued at 85% 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, 1997, the value of the
Fund's restricted securities was $12,238,000 which represented 1.01% of net
assets.
<TABLE>
<CAPTION>
DATE OF NUMBER
SECURITY DESCRIPTION ACQUISITION OF SHARES COST
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3.9% limited
Adams Capital Management, L.P. September 1997 partnership interest $250,000
- --------------------------------------------------------------------------------------------------------------
17.9% limited
Advanced Technology Ventures II, L.P. December 1994 partnership interest 1,687,908
- --------------------------------------------------------------------------------------------------------------
June 1996 to 2.5% limited
Asset Management Associates 1996, L.P. October 1997 partnership interest 750,888
- --------------------------------------------------------------------------------------------------------------
April 1993 3.1% limited
Crosspoint Venture Partners 1993, L.P. to October 1995 partnership interest 1,481,231
- --------------------------------------------------------------------------------------------------------------
December 1993 5.0% limited
GEO Capital III L.P. to September 1995 partnership interest 1,832,081
- --------------------------------------------------------------------------------------------------------------
2.9% limited
GEO Capital IV, L.P. April 1996 partnership interest 1,050,000
- --------------------------------------------------------------------------------------------------------------
May 1996 6.1% limited
Med Venture Associates II L.P. to October 1996 partnership interest 900,000
- --------------------------------------------------------------------------------------------------------------
Metrika Systems December 1996 66,667 shs. 12.75 per share
- --------------------------------------------------------------------------------------------------------------
April 1996 2.8% limited
Sevin Rosen Fund V, L.P. to October 1996 partnership interest 806,189
- --------------------------------------------------------------------------------------------------------------
May 1994
Socket Communications, Inc. to December 1994 134,756 shs. 4.62 per share
- --------------------------------------------------------------------------------------------------------------
Survivalink Corp.
Common stock December 1995 150,000 shs. 3.00 per share
Warrants expiring 2001 to October 1996 110,000 shs. 4.50 per share
- --------------------------------------------------------------------------------------------------------------
Trex Medical Corp. November 1995 60,000 shs. 10.25 per share
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Non-income producing security.
Based on the cost of investments of $902,301,000 for federal income tax purposes
at October 31, 1997, the gross unrealized appreciation was $278,574,000, the
gross unrealized depreciation was $16,956,000 and the net unrealized
appreciation on investments was $261,618,000.
See accompanying Notes to Financial Statements.
14
<PAGE> 15
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, 1997, 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 1993. 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, 1997, 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, 1997, 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 1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 16, 1997
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost: $902,301) $1,163,919
- --------------------------------------------------------------------------
Cash 442
- --------------------------------------------------------------------------
Receivable for:
Investments sold 86,353
- --------------------------------------------------------------------------
Fund shares sold 10,705
- --------------------------------------------------------------------------
Dividends 71
- --------------------------------------------------------------------------
TOTAL ASSETS 1,261,490
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Payable for:
Investments purchased 49,657
- --------------------------------------------------------------------------
Fund shares redeemed 886
- --------------------------------------------------------------------------
Management fee 614
- --------------------------------------------------------------------------
Distribution services fee 80
- --------------------------------------------------------------------------
Administrative services fee 187
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 250
- --------------------------------------------------------------------------
Trustees' fees 93
- --------------------------------------------------------------------------
Total liabilities 51,767
- --------------------------------------------------------------------------
NET ASSETS $1,209,723
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $ 770,520
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 177,585
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 261,618
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $1,209,723
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($1,074,848 / 81,874 shares outstanding) $13.13
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $13.93
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($105,299 / 8,394 shares outstanding) $12.54
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($9,572 / 757 shares outstanding) $12.64
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($20,004 / 1,517 shares outstanding) $13.19
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------
Dividends $ 2,536
- -----------------------------------------------------------------------------------------------
Interest 2,841
- -----------------------------------------------------------------------------------------------
Total investment income 5,377
- -----------------------------------------------------------------------------------------------
Expenses:
Management fee 6,532
- -----------------------------------------------------------------------------------------------
Distribution services fee 749
- -----------------------------------------------------------------------------------------------
Administrative services fee 1,927
- -----------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,816
- -----------------------------------------------------------------------------------------------
Professional fees 68
- -----------------------------------------------------------------------------------------------
Reports to shareholders 222
- -----------------------------------------------------------------------------------------------
Trustees' fees and other 43
- -----------------------------------------------------------------------------------------------
Total expenses 11,357
- -----------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (5,980)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------
Net realized gain on sales of investments 204,378
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (21,135)
- -----------------------------------------------------------------------------------------------
Net gain on investments 183,243
- -----------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $177,263
- -----------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------
Net investment loss $ (5,980) (6,765)
- -----------------------------------------------------------------------------------------------
Net realized gain 204,378 171,891
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (21,135) (92,784)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 177,263 72,342
- -----------------------------------------------------------------------------------------------
Net equalization credits -- 38
- -----------------------------------------------------------------------------------------------
Distribution from net realized gain (170,339) (148,702)
- -----------------------------------------------------------------------------------------------
Net increase from capital share transactions 139,986 121,180
- -----------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 146,910 44,858
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
Beginning of year 1,062,813 1,017,955
- -----------------------------------------------------------------------------------------------
END OF YEAR $1,209,723 1,062,813
- -----------------------------------------------------------------------------------------------
</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 sales charge but
are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge
payable upon certain redemptions within one year of
purchase. Class C shares do not convert into
another class. Class I shares 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. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of the Fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
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 discount
amortization on money market instruments. 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 and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open 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
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
class by dividing the Fund's net assets
attributable to that class by the number of shares
of the class outstanding.
FEDERAL INCOME TAXES. 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.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income and net
realized capital gains annually, which are recorded
on the ex-dividend date. Dividends are determined
in accordance with income tax principles which may
treat certain transactions differently from
generally accepted accounting principles.
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 Zurich Kemper Investments, Inc.
(ZKI) and pays a management fee at an annual rate
of .58% of the first $250 million of average daily
net assets declining to .42% of average daily net
assets in excess of $12.5 billion. The Fund
incurred a management fee of $6,532,000 for the
year ended October 31, 1997. Zurich Investment
Management Limited, an affiliate of ZKI, serves as
sub-adviser with respect to foreign securities
investments in the Fund, and is paid by ZKI for its
services.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The Fund has an underwriting and
distribution services agreement with Zurich Kemper
Distributors, Inc. (ZKDI). Underwriting commissions
paid in connection with the distribution of Class A
shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED
RETAINED BY BY ZKDI
ZKDI TO ALL FIRMS TO AFFILIATES
----------- ------------ -------------
<S> <C> <C> <C>
Year ended October 31, 1997 $181,000 853,000 7,000
</TABLE>
For services under the distribution services
agreement, the Fund pays ZKDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, ZKDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, ZKDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C 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 such shares are
as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES
RECEIVED BY PAID BY ZKDI
ZKDI TO FIRMS
----------------- -----------------
<S> <C> <C>
Year ended October 31, 1997 $931,000 1,338,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with ZKDI. For
providing information and administrative services
to
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
Class A, Class B and Class C shareholders, the Fund
pays ZKDI a fee at an annual rate of up to .25% of
average daily net assets of each class. ZKDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF PAID BY
THE FUND TO ASF PAID BY
ZKDI ZKDI TO FIRMS
----------- -------------
<S> <C> <C>
Year ended October 31, 1997 $1,927,000 1,955,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) is the
shareholder service agent of the Fund. Under the
agreement, ZKSvC received shareholder services fees
of $1,091,000 for the year ended October 31, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the year ended October 31, 1997, the Fund
made no payments to its officers and incurred
trustees' fees of $31,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended October 31, 1997, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $2,160,635
Proceeds from sales 2,241,713
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,
1997 1996
---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 17,481 $236,561 6,779 $ 84,646
-----------------------------------------------------------------------------
Class B 4,963 61,311 4,430 55,798
-----------------------------------------------------------------------------
Class C 668 8,433 403 5,168
-----------------------------------------------------------------------------
Class I 1,319 16,563 947 11,854
-----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 10,359 125,757 10,245 109,842
-----------------------------------------------------------------------------
Class B 975 11,407 650 6,818
-----------------------------------------------------------------------------
Class C 57 675 25 262
-----------------------------------------------------------------------------
Class I 218 2,652 244 2,616
-----------------------------------------------------------------------------
SHARES REDEEMED
Class A (19,952) (267,634) (8,858) (111,018)
-----------------------------------------------------------------------------
Class B (2,774) (34,589) (2,317) (28,675)
-----------------------------------------------------------------------------
Class C (289) (3,645) (216) (2,686)
-----------------------------------------------------------------------------
Class I (1,371) (17,505) (1,054) (13,445)
-----------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 219 2,856 151 1,900
-----------------------------------------------------------------------------
Class B (228) (2,856) (156) (1,900)
-----------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $139,986 $121,180
-----------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------
Class A
------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------
Net asset value, beginning of year $13.16 14.63 11.50 10.68 9.95
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.06) (.08) (.03) -- (.01)
- --------------------------------------------------------------------------------------
Net realized and unrealized gain 2.14 .74 4.66 1.49 2.03
- --------------------------------------------------------------------------------------
Total from investment operations 2.08 .66 4.63 1.49 2.02
- --------------------------------------------------------------------------------------
Less distribution from net realized gain 2.11 2.13 1.50 .67 1.29
- --------------------------------------------------------------------------------------
Net asset value, end of year $13.13 13.16 14.63 11.50 10.68
- --------------------------------------------------------------------------------------
TOTAL RETURN 17.11% 7.83 47.30 14.95 21.76
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------
Expenses .89% .89 .88 .89 .81
- --------------------------------------------------------------------------------------
Net investment income (loss) (.42)% (.62) (.23) .05 (.06)
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
Class B
----------------------------------------
YEAR ENDED OCTOBER 31, MAY 31 TO
---------------------- OCTOBER 31,
1997 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------
Net asset value, beginning of period $12.77 14.39 11.45 9.99
- ------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.18) (.19) (.15) (.05)
- ------------------------------------------------------------------------------------
Net realized and unrealized gain 2.06 .70 4.59 1.51
- ------------------------------------------------------------------------------------
Total from investment operations 1.88 .51 4.44 1.46
- ------------------------------------------------------------------------------------
Less distribution from net realized gain 2.11 2.13 1.50 --
- ------------------------------------------------------------------------------------
Net asset value, end of period $12.54 12.77 14.39 11.45
- ------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 15.91% 6.76 45.65 14.61
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------
Expenses 1.85% 1.87 1.82 1.99
- ------------------------------------------------------------------------------------
Net investment loss (1.38)% (1.60) (1.17) (1.08)
- ------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------ ---------------------------
CLASS C CLASS I
------------------------------------ ---------------------------
MAY 31 YEAR ENDED JULY 3
YEAR ENDED OCTOBER 31, TO OCTOBER 31, TO
---------------------- OCTOBER 31, ------------- OCTOBER 31,
1997 1996 1995 1994 1997 1996 1995
- ---------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------- ---------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------- ---------------------------
Net asset value, beginning of period $12.85 14.45 11.45 9.99 13.20 14.64 12.72
- ---------------------------------------------------------------------------------- ---------------------------
Income from investment operations:
Net investment loss (.17) (.18) (.15) (.05) (.04) (.07) (.02)
- ---------------------------------------------------------------------------------- ---------------------------
Net realized and unrealized gain 2.07 .71 4.65 1.51 2.14 .76 1.94
- ---------------------------------------------------------------------------------- ---------------------------
Total from investment operations 1.90 .53 4.50 1.46 2.10 .69 1.92
- ---------------------------------------------------------------------------------- ---------------------------
Less distribution from net realized gain 2.11 2.13 1.50 -- 2.11 2.13 --
- ---------------------------------------------------------------------------------- ---------------------------
Net asset value, end of period $12.64 12.85 14.45 11.45 13.19 13.20 14.64
- ---------------------------------------------------------------------------------- ---------------------------
TOTAL RETURN (NOT ANNUALIZED) 15.98% 6.88 46.23 14.61 17.23 8.06 15.09
- ---------------------------------------------------------------------------------- ---------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------- ---------------------------
Expenses 1.82% 1.82 1.76 1.83 .74 .76 .65
- ---------------------------------------------------------------------------------- ---------------------------
Net investment loss (1.35)% (1.55) (1.11) (.92) (.27) (.49) (.33)
- ---------------------------------------------------------------------------------- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $1,209,723 1,062,813 1,017,955 713,654 612,604
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 192% 121 105 81 95
- ----------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the years ended October 31, 1997 and
1996 were $.0583 and $.0558, respectively.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. Per share
data for 1995 through 1997 were determined based on average shares outstanding.
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
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
CHARLES R. MANZONI, JR.
Vice President
JOHN E. NEAL
Vice President
STEVEN H. REYNOLDS
Vice President
PHILIP J. COLLORA
Vice President and
Secretary
JEROME L. DUFFY
Treasurer
ELIZABETH C. WERTH
Assistant Secretary
- -------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- -------------------------------------------------------------------------------
SHAREHOLDER ZURICH KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- -------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- -------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
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This report is not to be distributed
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KTEC - 2 (12/97) 1040940
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