<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED OCTOBER 31, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
SEEKING GROWTH OF CAPITAL.
KEMPER
TECHNOLOGY FUND
"... The best and brightest technology companies are
pioneers, and the technology sector is fast-paced. We're
always finding ourselves on new ground ... This presents
additional challenges, but also additional opportunities. ..."
[KEMPER FUNDS 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, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 8.21%
CLASS B 7.24%
CLASS C 7.57%
LIPPER SCIENCE & TECHNOLOGY FUNDS CATEGORY AVERAGE* 10.01%
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not guarantee future results.
Investment returns and principal values will fluctuate so that shares, when
redeemed, may be worth more or less than original cost.
*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.
Investments by the fund in emerging technology companies present greater risk
than investments in more established companies.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
10/31/98 10/31/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER TECHNOLOGY FUND
CLASS A $11.77 $13.13
- --------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND
CLASS B $11.03 $12.54
- --------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND
CLASS C $11.17 $12.64
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER TECHNOLOGY
FUND RANKINGS AS OF 10/31/98
- --------------------------------------------------------------------------------
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 #38 of 69 FUNDS #40 of 69 FUNDS #39 of 69 FUNDS
- --------------------------------------------------------------------------------
5-YEAR #11 of 19 FUNDS N/A N/A
- --------------------------------------------------------------------------------
10-YEAR #11 of 12 FUNDS N/A N/A
- --------------------------------------------------------------------------------
15-YEAR #4 of 7 FUNDS N/A N/A
- --------------------------------------------------------------------------------
20-YEAR #2 of 3 FUNDS N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE YEAR ENDED OCTOBER 31,1998, KEMPER TECHNOLOGY FUND MADE THE FOLLOWING
DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM CAPITAL GAIN $0.09 $0.09 $0.09
- --------------------------------------------------------------------------------
LONG-TERM CAPITAL GAIN $2.05 $2.05 $2.05
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MATURITY/QUALITY DIAGRAM]
Source: Data provided by Morningstar, Inc., Chicago, IL (312) 696-6000. The
Equity Style Box placement is based on a fund's price-to-earnings and
price-to-book ratios relative to the S&P 500, as well as the size of the
companies in which it invests, or median market capitalization.
Please note that style boxes do not represent an exact assessment of risk and do
not represent future performance. The fund's port- folio changes from
day-to-day. A longer-term view is represented by the fund's Morningstar
category, which is based on its actual investment style as measured by its
underlying portfolio holdings over the past three years. Morningstar has placed
Kemper Technology Fund in the Specialty-Technology Category. Please consult the
prospectus for a description of investment policies.
BOTTOM-UP An investment strategy that focuses on stock selection. Sector
weightings are the result of the individual stock selection. In contrast, a
top-down strategy first focuses on determining sector allocations.
MULTIPLE Synonym for price-to-earnings ratio. The price of a stock divided by
its earnings per share. The statistic is a measure of how much an investor is
paying for the company's earnings power.
LIQUIDITY The ease with which assets can be converted to cash without loss in
value.
VOLATILITY Characteristic of a security, commodity or market to rise or fall
sharply in price within a short period of time. A stock may be volatile due to
uncertainty in a company, industry, market or economy.
YEAR 2000 CRISIS Refers to the concern that computers will interpret "year 2000"
as "1900," causing a widespread crisis at the turn of the century. Commonly
abbreviated as Y2K.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS WITH THE HARRIS
BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
If you're like most investors, you may be wondering if you should allow yourself
to breathe a sigh of relief as 1998 comes to a close. After several months of
generally declining stock prices and extreme volatility, the U.S. stock market
seems to have rediscovered its resiliency. In the fourth quarter, the Standard &
Poor's 500, an unmanaged index generally representative of the U.S. stock
market, bounced back into the 1100-point range, up nearly 20 percent from its
third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a
comparable rise. Investor confidence suddenly overtook the investor uncertainty
that had plagued the markets at summer's end. While financial volatility appears
to be continuing, the mood for investors definitely has improved.
To what can we attribute the change? Simply this -- the cumulative effect of
some good news, not the least of which was a long-awaited series of interest
rate reductions by the Federal Reserve Board. In September, the Fed reduced the
federal funds rate a modest quarter of a percentage point, however, this first
cut disappointed some investors who were expecting a more dramatic gesture. Two
weeks later, the Fed came back with an additional quarter of a percentage point
reduction. This was an unexpected cut that seemed to have a positive effect on
Wall Street. In November, a third rate cut of a quarter of a percentage point
also boosted investor confidence. Investors were further surprised by
better-than-expected corporate earnings reports early in the fourth quarter.
Finally, economic data regarding retail sales, employment and home sales
suggested continued economic growth and very little prospect of recession.
Although there was no good news to be garnered from the sensationalized
presidential scandal, as the shock of Kenneth Starr's report wore off, the
nation seemed to refocus its attention on other matters. In this sense, another
veil of despair was lifted.
In many ways, 1998's market activity provides a study in how investor
perceptions can upstage economic realities. Certainly, the tumultuous lessons of
Russia and Southeast Asia renewed investors' awareness of risk in 1998, which
was an important wake-up call. At all times, investors must understand and
consider risk. But over the course of 1998, U.S. economic fundamentals have
essentially remained strong. In fact, inflation has remained low for the entire
year. Economic growth has been solid. Our consumer confidence has remained
fairly high, although not quite as high as last year. The nation's budget
surplus for 1998 came in at $60 billion, with another budget surplus expected
for fiscal 1999.
Growth in the nation's gross domestic product (GDP), which represents the
total value of all goods and services produced within the U.S. economy, has
remained remarkably steady. GDP is expected to have grown at an annualized rate
of between 2.5 percent and 3.5 percent for the second half of 1998 and is
anticipated to hover around 2 percent for the first half of 1999. The consumer
price index (CPI) remains in a range of 1.5 percent to 2 percent.
While employment growth has slowed a bit, the slowdown in wage gains may
provide the Fed with an incentive to reduce interest rates even further. U.S.
corporate profits have generally been flat, so we may see a decrease in capital
spending. Banks appear to be only a little less willing to lend, so the threat
of a general credit crunch is minimal.
Investors may take comfort in the fact that the U.S. markets and economy have
withstood the test of 1998's tumultuous third quarter. Similarly, while certain
countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering
from economic crises, others, including the Philippines, South Korea, Thailand
and China, appear to have survived. As long as the Fed and the Group of Seven
leading industrial nations (G7) are committed to avoiding recession on national
and global levels respectively, investors have a good chance of experiencing a
more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian
turmoil has not affected U.S. trade as much as it has lowered import prices and
helped reduce global interest rates.
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>
NOV 98 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1)* 4.53 5.64 6.03 6.53
PRIME RATE(2)* 8.12 8.50 8.50 8.25
INFLATION RATE(3)* 1.49 1.50 2.08 2.99
THE U.S. DOLLAR(4) 0.83 6.86 9.65 3.46
CAPITAL GOODS ORDERS(5)* 2.51 7.47 10.64 9.19
INDUSTRIAL PRODUCTION(5)* 2.12 4.97 6.72 4.93
EMPLOYMENT GROWTH(6) 2.28 2.65 2.70 2.33
</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, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
In Europe, the much anticipated Economic and Monetary Union (EMU) is on the
move, with a focus on more flexibility and growth potential for the region.
European equities may be the beneficiaries of increased spending, as governments
seek to foster growth and reduce unemployment.
If you're a long-term investor in today's short-term world, go ahead and
breathe that sigh of relief as 1998 comes to an end -- but get ready for 1999.
It's going to be an interesting year as the EMU emerges, the race for the next
presidency heats up and the year 2000 approaches. And, remember: Investors don't
like uncertainty, be it economic or political. The threat of impeachment, new
acts of terrorism or any other hints of crisis could prompt a downward spike in
our markets in the short run. In the long run, the keys to investment
performance remain moderate growth, low inflation and limited taxation and
regulation.
I would like to take this opportunity to thank you for choosing to invest with
Kemper Funds. We appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
MANAGING DIRECTOR
SCUDDER KEMPER INVESTMENTS, INC
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF DECEMBER 2, 1998, AND
MAY NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
4
<PAGE> 5
PERFORMANCE UPDATE
[CHESTER PHOTO]
TRACY MCCORMICK CHESTER JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1994 AND IS A
MANAGING DIRECTOR. SHE IS ALSO A VICE PRESIDENT AND LEAD PORTFOLIO MANAGER OF
KEMPER TECHNOLOGY FUND. MCCORMICK CHESTER RECEIVED BOTH HER B.A. AND M.B.A.
DEGREES FROM MICHIGAN STATE UNIVERSITY.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
IT'S BEEN A VOLATILE YEAR FOR THE STOCK MARKET. LEAD PORTFOLIO MANAGER TRACY
MCCORMICK CHESTER DISCUSSES THE MARKET CLIMATE AND ITS IMPACT ON TECHNOLOGY
STOCKS, HOW SHE POSITIONED THE FUND DURING A TURBULENT TIME AND HER OUTLOOK ON
TECHNOLOGY-STOCK OPPORTUNITIES.
Q THE YEAR WAS CHARACTERIZED BY MARKET VOLATILITY, AND TECHNOLOGY IS A
PARTICULARLY AGGRESSIVE SECTOR. COULD YOU HIGHLIGHT SOME OF THE KEY EVENTS AND
THEMES THAT SHAPED THE PAST FISCAL YEAR?
A The past fiscal year has been far from quiet. The markets have been very
volatile overall, with technology stocks among those that moved most
dramatically in a constantly changing market climate.
As we entered the fiscal year last November, technology stocks had their work
cut out for them. On October 27, 1997 -- now referred to as Gray
Monday -- instability in Southeast Asia triggered a one-day slide in the U.S.
stock market. Technology stocks were among those most punished. The market
perceived that technology stocks were particularly susceptible to Asian economic
weakness. Many technology stocks are based in Asia, have operations located in
Asia, or are tied to Asia through extensive imports or exports.
The markets recovered quickly from the October 1997 meltdown and rallied
through the first quarter. Strong domestic corporate earnings announcements and
bailout plans for the flagging Asian economies propelled this upbeat period.
Technology stocks experienced mixed fortunes during this period. Many bounced
back briskly, but others struggled in the climate of uncertainty. Because of
their perceived greater exposure to Asia, component-based stocks were rewarded
less than software, services and telecommunications. Investors were very
apprehensive of technology stocks that fell short of earnings, and stocks that
disappointed often dropped precipitously. Overall, investors preferred large
stocks that offered perceived safety, such as consumer nondurable and
pharmaceutical stocks.
The rally slowed markedly in the second quarter, as it became clear that the
Asian economic crisis had not fully unwound. The potential impact on our
domestic economy was still unclear. In August, the Russian debt default
triggered a fevered and broad-based sell-off. There was no safe haven, though
technology stocks held up better than financial services stocks. In the wake of
August's downturn, investors returned to the market quickly. Technology
participated in this rebound, with many stocks posting strong returns in
September and October. Component-based technology began to move upwards, and
many smaller-cap names joined the rally.
At the end of the fiscal year, the climate is marked with volatility, just as
it was at the start. Technology stocks, along with the market as a whole,
continue to struggle with the potential impact of global economic weakness. Year
2000 (see Terms to Know) raises additional questions, while concerns about
decreased capital spending also hover.
Q HOW DID THE FUND PERFORM IN THIS UNCERTAIN CLIMATE?
A For the year ended October 31, 1998, Kemper Technology Fund gained 8.21
percent (Class A shares, unadjusted for any sales charge). The fund finished the
fiscal year a bit behind the Lipper Science and Technology category average of
10.01 percent. Given the market conditions and the inherent volatility of
technology stocks, we feel that the fund posted a respectable return. Certainly,
5
<PAGE> 6
PERFORMANCE UPDATE
however, we strive to surpass the category average over the long-term.
Q THE TECHNOLOGY INDUSTRY IS RAPIDLY CHANGING AND INVESTMENTS IN TECHNOLOGY
STOCKS ENTAIL AN ADDED DEGREE OF VOLATILITY. IN LIGHT OF THESE FACTORS, WHAT ARE
THE CRITERIA THAT YOU USE TO SELECT TECHNOLOGY STOCKS?
A The best and brightest technology companies are pioneers, and the
technology sector is fast-paced. We're always finding ourselves on new ground.
The product cycles can be very short, with stock prices moving up and down very
quickly. This presents additional challenges, but also additional opportunities.
To pursue the potential of cutting-edge technology, we rely on research and a
disciplined, price-conscious stock-selection strategy. We follow a bottom-up
approach (see Terms to Know), and evaluate numerous factors when analyzing
stocks and industries. We scrutinize historical and projected earnings growth,
market niche and stock prices. Our research seeks to target innovative,
well-managed, quality companies with strong growth and earnings potential. We
want to steer clear of trendy, fad-driven stocks. In order to make the grade, a
stock needs to demonstrate staying power. Also, it's absolutely essential for a
stock to be trading at a reasonable price.
We also add value for our shareholders by not getting caught up in the buzz
and emotion surrounding a stock, focusing instead on company fundamentals and
growth prospects. While we pay close attention to the whispers on Wall Street in
order to gauge investor emotion, we rely on our independent research. We adhere
to a rigorous buy-and-sell discipline, striving to purchase the most compelling
stocks when their prices come into our range and to trim stocks as they reach
their targets.
Q AS A TECHNOLOGY FUND MANAGER, CAN YOU ALSO BE RISK CONSCIOUS?
A Technology funds are designed for more aggressive investors who are
comfortable with the higher degree of risk that sector-specific funds entail.
Within that framework, we still strive to not expose the fund to unnecessary
risk. To that end, we place a premium on liquidity and quality companies. The
portfolio is diversified among a variety of technology stocks. We've also used
health care and media-oriented technology stocks as defensive diversifiers.
Currently, however, we feel that the valuations of more "classic" technology
stocks -- such as computer, software and telecommunications -- present ample
opportunities.
Q COULD YOU GIVE US SOME EXAMPLES OF YOUR STOCK-PICKING DISCIPLINE IN
ACTION?
A Certainly. Texas Instruments is a company that shows many of the potential
growth catalysts we seek. The stock trades at attractive valuations and has a
demonstrated history as a global industry leader. Now, Texas Instruments has
exited the computer chip memory market, and is honing its focus to take
advantage of the increased need for digital signal processing. We feel that this
transition has the potential to be a multiple enhancer (see Terms to Know) for
the stock.
Seagate Technology also typifies our approach. Seagate is a disk-drive
manufacturer, with an appealing stock price. We're backing the stock with
considerable conviction. The firm has brought in new management, and has spun
off its software business, to build its core disk-drive operations. Our analysis
seems to be paying off -- Seagate has started to pick up speed.
Motorola is another reasonably priced stock that meets our criteria. The firm
is underfollowed by Wall Street, so we feel that it's a good example of how our
research can lead us to opportunity ahead of the pack. Motorola has many of the
traits that signal solid long-term growth potential. Also, Motorola's management
is refining the firm's direction and consolidating operations. Given its
resources and market and industry conditions, we feel that Motorola's decision
to target semiconductor development demonstrates foresight. The firm seems to be
turning a corner, posting positive earnings after several quarters of falling
short.
Q LOOKING BACK OVER THE YEAR, WERE THERE ANY ELEMENTS THAT HINDERED RELATIVE
PERFORMANCE?
A We remain skeptical of most Internet stocks, many of which have
skyrocketed during the fiscal year. Despite the short-term performance of these
stocks, we don't feel that there are many suitable choices that are in keeping
with our price-conscious approach. The vast majority of Internet companies have
not yet demonstrated that they can consistently deliver the earnings growth that
would justify their high stock prices. Search-engine firms are a prime example
of these sorts of untested enterprises. However, the fund does hold America
On-Line, one of the more tested and compelling Internet companies. We also gain
sensible exposure to the potential of the Internet through stocks such as Cisco
Systems, a well-diversified global company that derives a portion of revenues
from Internet-related operations.
Also, the fund's performance would likely have benefited from more aggressive
exposure to small-capitalization technology stocks. Many smaller-cap names have
bounced back nicely and show
6
<PAGE> 7
PERFORMANCE UPDATE
strong momentum. When considering initial public offerings and small-cap stocks,
we balance our desire for liquidity with the earnings potential of the stocks.
In this case, we feel we were a bit too cautious.
Among individual stocks, hindsight indicates that we were premature in
reducing the fund's position in Dell Computer, a global leader in
personal-computer manufacturing and marketing. We were concerned that valuations
were becoming too high. However, the stock hasn't lost any steam. Additionally,
Parametric Technology, a software firm, and Alcatel, a French telecommunications
company, were stocks that fell short of their anticipated growth potential. We
have eliminated Alcatel and have a small position remaining in Parametric
Technology in the portfolio.
Q HOW ARE YOU POSITIONING THE PORTFOLIO TO TAKE ADVANTAGE OF TECHNOLOGY
OPPORTUNITIES?
A We're finding many attractive opportunities in semiconductor and component
stocks, such as Motorola, Micron Technology and Linear Technology. As a group,
the sector has suffered through downward earnings revisions, and there are
indications that the worst could be behind them.
We maintain a large position in computer systems and hardware. We favor
quality companies, such as Sun Microsystems, International Business Machines and
Compaq Computers. These are industry leaders with a demonstrated ability to meet
the challenges of the global marketplace. We're finding opportunities in storage
firms, such as Storage Technology, Seagate Technology and Legato Systems.
Compared to many technology benchmarks, we're underweighted in networking
stocks. We would be comfortable bolstering our exposure to networking stocks if
we find more attractively valued names. Cable television, contract manufacturing
and communications stocks also present possibilities and we're keeping our eyes
peeled for compelling opportunities.
Q ARE THERE AREAS THAT ARE LESS APPEALING?
A We're less enthusiastic about valuations of many software stocks. In the
wake of the Asian economic meltdown, investors favored software stocks over
commodity-based names. However, we feel that these stocks could be trading at
unsustainable high valuations. While the outlook for semiconductors and
components improves, a rough patch could be around the bend for some software
stocks. In the software arena, therefore, we're taking an especially cautious
approach, trimming our exposure since springtime. Stocks that continue to
satisfy our criteria include Microsoft. As their prices corrected, we also added
Computer Associates and Oracle Systems.
The growth potential of stocks within the information-technology subsector is
also a source of concern. We have been paring back our position throughout the
year, anticipating that rather than increasing information technology, many
companies will channel resources into resolving Year 2000 issues. Also, as
financial-service firms tighten their belts, they may greatly scale back their
allocations for information technology.
Q AS YOU MANAGE THE PORTFOLIO, DO YOU CONSIDER TAX CONSEQUENCES?
A Nobody likes taxes, including portfolio managers! Throughout the year, and
especially toward the end of the year, we monitor the portfolio carefully for
capital gains exposure. Actively managed portfolios always entail potential
capital gains exposure. Whenever possible, we seek to offset gains with losses.
However, it's important to remember a capital gain can be the result of making
timely decisions to sell securities and take profits. During the past fiscal
year, there were several cases when our sell discipline prompted us to exit
stocks at highs, before they began to decline. In such instances, capital gains
can be viewed as a bit of a dark lining to a silver cloud.
Q JAMES BURKART WAS RECENTLY NAMED AS A PORTFOLIO MANAGER FOR KEMPER
TECHNOLOGY FUND. COULD YOU TELL US ABOUT HIM?
A Certainly. We're very pleased to have James Burkart on the portfolio
management team. Previously a technology fund manager with Northern Trust
Company, Jim brings almost two decades of investment industry experience to
Kemper Technology Fund. He is a great addition to the group of analysts,
researchers and traders who are already contributing their expertise to the
fund.
Q THE PAST FISCAL YEAR HAS BEEN EXTREMELY FAST PACED. DO YOU THINK THAT
INVESTORS WILL BE ABLE TO TAKE A BREATHER ANYTIME SOON?
A Investing in technology stocks will always involve a higher-than-average
degree of volatility. Also, I think that investors should be prepared for
continued overall market volatility. Uncertainty looms on many fronts, including
Year 2000, capital spending budgets, and international supply and demand.
Nonetheless, volatility often presents opportunity, particularly for the
disciplined, long-term investor who is armed with thorough information. As we
enter the next fiscal year, we remain absolutely committed to using our
resources, experience and discipline to pursue for our shareholders the
long-term growth potential of technology stocks.
7
<PAGE> 8
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED OCTOBER 31, 1998 (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 2.00% 16.88% 15.88% 13.06% (since 9/7/48)
- --------------------------------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND CLASS B 4.61 N/A N/A 19.46 (since 5/31/94)
- --------------------------------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND CLASS C 7.57 N/A N/A 19.95 (since 5/31/94)
- --------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
KEMPER TECHNOLOGY FUND CLASS A FROM 1/1/79 THROUGH 10/31/98
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kemper Russell Standard &
Technology 1000 Poor's 500
Fund Class Growth Stock
A(1) Index+ Index++
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1/1/79 9429 10000 10000
10013 10647 10710
10201 10949 11002
11936 11849 11844
12509 12389 11861
12144 11737 11368
13361 13432 12901
16139 15530 14349
18744 17292 15710
17967 16831 15927
17089 16050 15561
14971 14077 13968
16070 15333 14937
14605 13688 13845
14336 13577 13767
15828 15228 15353
19473 18470 18155
21646 20218 19973
24452 22816 22191
23797 22018 22161
23272 22063 22250
21461 20287 21717
20956 20050 21159
22378 21596 23210
22140 21853 23646
23874 24047 25817
25009 25592 27711
24145 24359 26576
12/31/85 27937 29031 31148
31859 33564 35541
32512 36315 37636
30051 31877 35011
31966 33496 36962
40455 41582 44854
41523 43153 47106
45730 46066 50213
34158 35270 38902
35244 36363 41114
38115 38318 43851
35775 38155 43997
35215 39244 45341
36480 41973 48552
38963 46199 52832
42498 51947 58483
43951 53344 59685
45033 51369 57890
49808 56367 61530
41441 47949 53083
44144 53205 57838
51977 62748 66228
49202 82146 66073
52801 66487 69601
12/31/91 63724 75100 75426
58932 71389 73524
53912 70610 74919
53512 73718 77280
62968 78860 81164
62386 76202 84708
65169 76967 85116
70281 78126 87312
70330 81148 89333
69985 77575 85951
65010 76790 86312
74475 82891 90528
78315 83310 90510
85435 91238 99316
101434 100215 108786
115673 109316 117425
111807 114296 124491
114492 120431 131172
120533 128091 137053
129067 132701 141293
134842 140710 153063
120885 141459 157175
139456 168213 184595
167483 180854 198416
144433 183598 204114
166037 177641 232573
170792 185687 240248
150819 168814 216388
10/31/98 159922 182386 234065
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
KEMPER TECHNOLOGY FUND CLASS B FROM 5/31/94 THROUGH 10/31/98
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kemper Russell Standard &
Technology 1000 Poor's 500
Fund Class Growth Stock
B(1) Index+ Index++
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9429.43 9705.00 9757.00
10760.80 10451.00 10234.00
11275.80 10529.00 10232.00
12261.80 15730.00 11227.00
14523.90 17278.00 12298.00
16519.20 18847.00 13274.00
12/31/95 15923.90 19705.00 14073.00
16272.80 20763.00 14828.00
17068.30 22084.00 15493.00
18240.60 22878.00 15972.00
12/31/96 18993.30 24259.00 17303.00
17000.10 24388.00 17768.00
19569.80 28001.00 20867.00
23441.00 31181.00 22430.00
12/31/97 20165.20 31654.00 23074.00
23117.70 30627.00 26291.00
23740.30 32014.00 27158.00
20908.30 29106.00 24461.00
10/31/98 21953.50 31445.00 26459.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
KEMPER TECHNOLOGY FUND CLASS C FROM 5/31/94 THROUGH 10/31/98
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kemper Russell Standard &
Technology 1000 Poor's 500
Fund Class Growth Stock
C(1) Index+ Index++
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
5/31/94 10000 10000 10000
9409 9705 9757
10761 10451 10234
11286 10529 10232
12272 15730 11227
14568 17278 12298
16575 18847 13274
12/31/95 16004 19705 14073
16338 20763 14828
17161 22084 15493
18346 22878 15972
12/31/96 19101 24259 17303
17095 24388 17768
19676 28001 20867
23572 31181 22430
12/31/97 20269 31654 23074
23270 30627 26291
23931 32014 27158
21109 29106 24461
10/31/98 22350 31445 26459
</TABLE>
Past performance is not a guarantee of future results. Investment returns and
principal values will fluctuate so that shares, when redeemed, may be worth more
or less than original cost.
* Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of dividends and, where indicated,
adjustment for the maximum sales charge. The maximum sales charge for Class
A shares is 5.75%. For Class B shares, the maximum contingent deferred sales
charge (CDSC) is 4%. Class C shares have no sales charge adjustment, but
redemptions within one year of purchase may be subject to a CDSC of 1%.
Share classes invest in the same underlying portfolio. Average annual total
return reflects annualized change while total return reflects aggregate
change. During the periods noted, securities prices fluctuated. For
additional information, see the Prospectus and Statement of Additional
Information and the Financial Highlights at the end of this report.
(1) Performance includes reinvestment of dividends and adjustment for the
maximum sales charge for Class A shares and the contingent deferred sales
charge 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 fund to the Russell 1000
Growth Index and the Standard & Poor's 500 Stock Index, 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.
+ 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 TowersData.
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, 1998, and on October 31, 1997.
[YEAR-TO-YEAR COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER TECHNOLOGY FUND KEMPER TECHNOLOGY FUND
ON 10/31/98 ON 10/31/97
<S> <C> <C>
SYSTEMS, SOFTWARE & SERVICES 45.70% 26.30%
ELECTRONIC PARTS 21.20% 23.40%
COMMUNICATIONS 18.40% 16.50%
PERSONAL COMPUTING 8.70% 14.30%
LIFE SCIENCES 4.30% 12.50%
INDUSTRIAL TECHNOLOGY/MISC. 1.70% 7.00%
</TABLE>
9
<PAGE> 10
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
REPRESENTING 33.9 PERCENT OF THE FUND'S TOTAL COMMON STOCK HOLDINGS ON
OCTOBER 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. INTERNATIONAL BUSINESS Manufactures data processing equipment and systems in 4.3%
MACHINES the information handling field, encompassing
information handling systems, equipment and services
to solve the increasingly complex problems of
business, government, science, space exploration,
defense, education, medicine and many other areas of
human activity.
- -------------------------------------------------------------------------------------------------------
2. SUN MICROSYSTEMS A provider of high performance workstations, servers 4.2%
and networking software for the engineering,
scientific, commercial and technical industries.
- -------------------------------------------------------------------------------------------------------
3. TEXAS INSTRUMENTS A high technology company with sales or manufacturing 4.2%
operations in over 30 countries. Products and
services include semiconductors, defense electronic
systems, software productivity tools, computer and
peripheral products and consumer products.
- -------------------------------------------------------------------------------------------------------
4. MICROSOFT Develops, markets and supports a variety of 3.4%
microcomputer software, operating systems, language
and application programs, related books and
peripheral devices.
- -------------------------------------------------------------------------------------------------------
5. SEAGATE TECHNOLOGY Provides data storage, management, and access 3.4%
products for computer and data communication systems.
Leads the disc drive storage industry with more than
150 rigid disk drive models.
- -------------------------------------------------------------------------------------------------------
6. CISCO Largest, most comprehensive supplier of routing 3.4%
SYSTEMS software and related systems that direct the flow of
data between local area networks.
- -------------------------------------------------------------------------------------------------------
7. COMPAQ COMPUTER Designs, develops, manufactures and markets personal 2.9%
computers for business and professional users.
- -------------------------------------------------------------------------------------------------------
8. MOTOROLA Manufactures electronic communications equipment and 2.9%
components.
- -------------------------------------------------------------------------------------------------------
9. 3COM Offers a broad range of global networking solutions, 2.7%
such as routers, hubs, LAN switches and adapters.
- -------------------------------------------------------------------------------------------------------
10. MCI WORLDCOM One of the largest long distance telecommunications 2.5%
companies in the world, offering domestic and
international voice, data and video products and
services.
- -------------------------------------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION> NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON
STOCKS
<S> <C> <C> <C>
ELECTRONIC
COMPONENTS--19.0%
(b)Analog Devices 300,666 $ 5,976
(b)Burr-Brown Corp. 425,000 7,889
Corning, Inc. 300,000 10,894
Intel Corp. 350,700 31,278
(b)KLA-Tencor Corp. 220,000 8,112
Linear Technology Corp. 350,000 20,869
(b)Maxim Integrated Products 450,000 16,059
(b)Micron Technology, Inc. 600,000 22,800
Molex, Inc. 500,000 16,344
(b)Novellus Systems 250,000 9,703
(b)STMicroelectronics N.V. 200,000 12,163
Texas Instruments 812,400 51,943
(b)TranSwitch Corp. 13,423 327
(b)Vitesse Semiconductor Corp. 254,000 8,192
(b)Xilinx, Inc. 340,000 15,183
-------------------------------------------------------------------------
237,732
- -------------------------------------------------------------------------------------------------------------------------
PERSONAL
COMPUTING--8.0%
Compaq Computer Corp. 1,163,600 36,799
(b)Dell Computer Corp. 320,000 21,000
(b)Seagate Technology, Inc. 1,600,800 42,221
-------------------------------------------------------------------------
100,020
- -------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--16.9%
(b)American Tower Corp. 435,700 9,531
(b)Ascend Communications, Inc. 400,000 19,300
(a)(b)Cisco Systems 665,665 41,937
(b)Concord Communications, Inc. 183,400 6,809
(b)FORE Systems, Inc. 500,000 7,812
(b)ICG Communications, Inc. 7,270 150
Lucent Technologies, Inc. 160,000 12,830
(b)MCI WorldCom, Inc. 569,000 31,437
Motorola, Inc. 700,000 36,400
(b)Nextel Communications, Inc. 600,000 10,875
(a)(b)Socket Communications, Inc. 134,756 59
(b)3Com Corp. 937,500 33,809
-------------------------------------------------------------------------
210,949
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOFTWARE--23.4%
(b)America On-Line, Inc. 225,000 $ 28,589
(b)BMC Software 300,000 14,419
(b)Cadence Design Systems 542,100 11,587
(b)Citrix Systems, Inc. 120,000 8,505
Computer Associates International, Inc. 450,000 17,719
(b)Dataware Technologies, Inc. 719 2
(b)EMC Corp. 400,000 25,750
(b)Electronic Arts, Inc. 250,000 10,281
(b)Intuit, Inc. 480,000 24,240
J.D. Edwards & Co. 375,000 12,281
(b)Legato System, Inc. 135,000 5,282
(b)Mercury Interactive Corp. 450,000 18,675
(b)Microsoft Corp. 400,000 42,350
(b)Novell, Inc. 960,000 14,280
(b)ObjectShare, Inc. 51,706 52
(b)Oracle Systems Co. 1,000,000 29,562
(b)Parametric Technology Corp. 350,800 5,832
(b)PeopleSoft, Inc. 140,000 2,966
(b)Platinum Technology, Inc. 215,944 3,550
(b)Synopsys, Inc. 175,000 7,919
(b)VERITAS Software Corp. 160,000 8,020
-------------------------------------------------------------------------
291,861
- -------------------------------------------------------------------------------------------------------------------------
SYSTEMS--12.4%
Hewlett-Packard Co. 450,000 27,085
International Business Machines 360,000 53,437
(b)Storage Technology Corp. 500,000 16,719
(b)Sun Microsystems, Inc. 907,500 52,862
Xerox Corp. 50,000 4,844
-------------------------------------------------------------------------
154,947
- -------------------------------------------------------------------------------------------------------------------------
SERVICES--7.5%
(b)At Home Corp. 150,000 6,637
(b)Cambridge Technology Partners 255,000 5,642
(b)Computer Sciences Corp. 295,000 15,561
(b)Convergys Corp. 450,000 6,272
(b)Getty Images, Inc. 9,133 112
(b)Liberty Media Group 300,000 11,419
(b)Sanmina Corp. 250,000 10,250
(b)Solectron Corp. 335,000 19,179
(b)SunGard Data Systems 200,300 6,760
(b)Whittman-Hart, Inc. 600,000 11,925
-------------------------------------------------------------------------
93,757
- -------------------------------------------------------------------------------------------------------------------------
LIFE SCIENCES--2.9%
(b)Arterial Vascular Engineering, Inc. 375,000 11,531
(b)Genentech, Inc. 100,000 7,162
(b)IDX Systems Corp. 300,000 12,712
(a)(b)Med Venture Associates II, L.P.,
6.1% limited partnership interest -- 1,922
(a)(b)Med Venture Associates III, L.P.,
2.7% limited partnership interest -- 150
(b)Pharmos Corp. 411,349 771
(a)(b)Survivalink Corp.
common stock 150,000 450
warrants expiring 2001 110,000 495
(a)(b)Trex Medical Corp. 60,000 735
Tyco International, Ltd. 60 4
-------------------------------------------------------------------------
35,932
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INDUSTRIAL TECHNOLOGY AND
MISCELLANEOUS--1.6%
(a)(b)Adams Capital Management, L.P., -- $ 809
3.6% limited partnership interest
(b)Applied Materials, Inc. 240,000 8,325
(a)(b)Asset Management Associates 1996,
L.P., 2.5% limited partnership interest -- 1,289
(a)(b)Crosspoint Venture Partners 1993, L.P.,
3.1% limited partnership interest -- 3,140
(a)(b)GEO Capital III, L.P.,
5.0% limited partnership interest -- 880
(a)(b)GEO Capital IV, L.P.,
2.9% limited partnership interest -- 2,123
(a)(b)Metrika Systems 66,666 608
(a)(b)Sevin Rosen Fund V, L.P.,
2.8% limited partnership interest -- 2,704
------------------------------------
19,878
-------------------------------------------------------------------------
TOTAL COMMON STOCKS--91.7%
(Cost: $891,322) 1,145,076
-------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS--7.7%
Yield--5.08% to 6.20%
Due--November 1998
(Cost: $95,632) $95,700 95,634
-------------------------------------------------------------------------
TOTAL INVESTMENTS--99.4%
(Cost: $986,954) 1,240,710
-------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--.6% 7,281
-------------------------------------------------------------------------
NET ASSETS--100% $1,247,991
-------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Portfolio of Investments.
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, 1998, with the exception
of Cisco Systems and Socket Communications, Inc., which were valued at 100%
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, 1998, the value of the fund's restricted securities was $16,092,000,
which represented 1.3% of net assets.
<TABLE>
<CAPTION>
DATE OF NUMBER
SECURITY DESCRIPTION ACQUISITION OF SHARES COST
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
September 1997 3.6% limited
Adams Capital Management, L.P. to March 1998 partnership interest $ 834,000
- --------------------------------------------------------------------------------------------------------------
June 1996 2.5% limited
Asset Management Associates 1996, L.P. to March 1998 partnership interest 1,297,198
- --------------------------------------------------------------------------------------------------------------
Cisco Systems April 1998 11,577 shs. 6.57 per share
- --------------------------------------------------------------------------------------------------------------
April 1993 3.1% limited
Crosspoint Venture Partners 1993, L.P. to March 1998 partnership interest 1,368,502
- --------------------------------------------------------------------------------------------------------------
December 1993 5.0% limited
GEO Capital III, L.P. to March 1998 partnership interest 1,412,178
- --------------------------------------------------------------------------------------------------------------
April 1996 2.9% limited
GEO Capital IV, L.P. to March 1998 partnership interest 2,004,318
- --------------------------------------------------------------------------------------------------------------
May 1996 6.1% limited
Med Venture Associates II, L.P. to March 1998 partnership interest 1,395,692
- --------------------------------------------------------------------------------------------------------------
2.7% limited
Med Venture Associates III, L.P. September 1998 partnership interest 150,000
- --------------------------------------------------------------------------------------------------------------
Metrika Systems August 1997 66,666 shs. 15.00 per share
- --------------------------------------------------------------------------------------------------------------
April 1996 2.8% limited
Sevin Rosen Fund V, L.P. to March 1998 partnership interest 2,316,938
- --------------------------------------------------------------------------------------------------------------
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 $986,954,000 for federal income tax purposes
at October 31, 1998, the gross unrealized appreciation was $278,716,000, the
gross unrealized depreciation was $24,960,000 and the net unrealized
appreciation on investments was $253,756,000.
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, 1998, 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 1994. 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, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Technology Fund at October 31, 1998, 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 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 14, 1998
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost: $986,954) $1,240,710
- --------------------------------------------------------------------------
Cash 1,438
- --------------------------------------------------------------------------
Receivable for:
Investments sold 9,452
- --------------------------------------------------------------------------
Fund shares sold 2,684
- --------------------------------------------------------------------------
Dividends 132
- --------------------------------------------------------------------------
TOTAL ASSETS 1,254,416
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Payable for:
Fund shares redeemed 5,123
- --------------------------------------------------------------------------
Management fee 541
- --------------------------------------------------------------------------
Distribution services fee 85
- --------------------------------------------------------------------------
Administrative services fee 192
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 391
- --------------------------------------------------------------------------
Trustees' fees 93
- --------------------------------------------------------------------------
Total liabilities 6,425
- --------------------------------------------------------------------------
NET ASSETS $1,247,991
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $ 902,718
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 91,517
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 253,756
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $1,247,991
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($1,083,864 / 92,083 shares outstanding) $11.77
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $12.49
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($127,238 / 11,537 shares outstanding) $11.03
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($17,500 / 1,567 shares outstanding) $11.17
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($19,389 / 1,635 shares outstanding) $11.86
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended October 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------
Dividends $ 3,638
- ------------------------------------------------------------------------
Interest 3,165
- ------------------------------------------------------------------------
Total investment income 6,803
- ------------------------------------------------------------------------
Expenses:
Management fee 6,842
- ------------------------------------------------------------------------
Distribution services fee 992
- ------------------------------------------------------------------------
Administrative services fee 2,079
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 2,172
- ------------------------------------------------------------------------
Professional fees 67
- ------------------------------------------------------------------------
Reports to shareholders 295
- ------------------------------------------------------------------------
Trustees' fees and other 113
- ------------------------------------------------------------------------
Total expenses 12,560
- ------------------------------------------------------------------------
NET INVESTMENT LOSS (5,757)
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain on sales of investments 112,666
- ------------------------------------------------------------------------
Change in net unrealized appreciation on investments (7,862)
- ------------------------------------------------------------------------
Net gain on investments 104,804
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 99,047
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997
- -----------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment loss $ (5,757) (5,980)
- -----------------------------------------------------------------------------------------------
Net realized gain 112,666 204,378
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (7,862) (21,135)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 99,047 177,263
- -----------------------------------------------------------------------------------------------
Distribution from net realized gain (198,743) (170,339)
- -----------------------------------------------------------------------------------------------
Net increase from capital share transactions 137,964 139,986
- -----------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 38,268 146,910
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------
Beginning of year 1,209,723 1,062,813
- -----------------------------------------------------------------------------------------------
END OF YEAR $1,247,991 1,209,723
- -----------------------------------------------------------------------------------------------
</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 SECURITY VALUATION. Investments are stated at
value. Portfolio securities which are traded on
U.S. or foreign stock exchanges are valued at the
most recent sale price reported on the exchange on
which the security is traded most extensively. If
no sale occurred, the security is then valued at
the calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation is
used. Securities quoted on the Nasdaq Stock Market
(Nasdaq), for which there have been sales, are
valued at the most recent sale price reported on
the Nasdaq. If there are no such sales, the value
is the most recent bid quotation. Securities which
are not quoted on the Nasdaq but are traded in
another over-the-counter market are valued at the
most recent sale price on such market. If no sale
occurred, the security is then valued at the
calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation
shall be used. All other securities are valued at
their fair market value as determined in good faith
by the Valuation Committee of 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 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.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
FEDERAL INCOME TAXES. The fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was required.
DIVIDENDS TO SHAREHOLDERS. The fund declares and
pays dividends of 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. Prior to November 1, 1997,
the fund used equalization accounting to keep a
continuing shareholder's per share interest in
undistributed net investment income unaffected by
shareholder activity. This was accomplished by
allocating a portion of the proceeds from sales and
the cost of redemptions of fund shares to
undistributed net investment income. As of November
1, 1997, the fund discontinued using equalization.
This change has no effect on the fund's net assets,
net asset value per share or distributions to
shareholders. Discontinuing the use of equalization
accounting will result in simpler financial
statements. The cumulative effect of the
discontinuance of equalization accounting was to
increase undistributed net investment income and
decrease paid-in-capital previously reported
through October 31, 1997 by $2,057,000.
- --------------------------------------------------------------------------------
3 TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. The fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the annual rate of .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 $6,842,000 for the
year ended October 31, 1998.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurich's businesses to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, the fund's
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Trustees of the fund has
approved a new investment management agreement with
Scudder Kemper, which is substantially identical to
the former investment management agreement, except
for the dates of execution and termination. The
Board of Trustees of the fund will seek shareholder
approval of the new investment management agreement
through a proxy solicitation that is currently
scheduled to conclude in mid-December.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI).
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
Underwriting commissions paid in connection with
the distribution of Class A shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS ALLOWED
BY KDI
COMMISSIONS -----------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended October 31, 1998 $163,000 824,000 7,000
</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 separate Rule 12b-1 plans for
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
(CDSC) from redemptions of Class B and Class C
shares. Distribution fees, CDSC and commissions
related to Class B and Class C shares are as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Year ended October 31, 1998 $1,267,000 1,364,000
</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 PAID BY KDI
ASF PAID BY THE -----------------------------
FUND TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended October 31, 1998 $2,079,000 2,114,000 5,000
</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. Under the agreement,
KSvC received shareholder services fees of
$1,454,000 for the year ended October 31, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. During the year ended October 31,
1998, the fund made no payments to its officers and
incurred trustees' fees of $35,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended October 31, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $1,711,602
Proceeds from sales 1,803,966
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,
1998 1997
------------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 96,699 $ 1,142,790 17,481 $ 236,561
---------------------------------------------------------------------------------
Class B 5,628 62,605 4,963 61,311
---------------------------------------------------------------------------------
Class C 17,085 191,902 668 8,433
---------------------------------------------------------------------------------
Class I 960 11,469 1,319 16,563
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 13,549 140,294 10,359 125,757
---------------------------------------------------------------------------------
Class B 1,790 17,510 975 11,407
---------------------------------------------------------------------------------
Class C 156 1,528 57 675
---------------------------------------------------------------------------------
Class I 307 3,187 218 2,652
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES REDEEMED
Class A (100,751) (1,195,484) (19,952) (267,634)
---------------------------------------------------------------------------------
Class B (3,520) (39,015) (2,774) (34,589)
---------------------------------------------------------------------------------
Class C (16,431) (185,199) (289) (3,645)
---------------------------------------------------------------------------------
Class I (1,149) (13,623) (1,371) (17,505)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 712 8,375 219 2,856
---------------------------------------------------------------------------------
Class B (755) (8,375) (228) (2,856)
---------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $ 137,964 $ 139,986
---------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------
CLASS A
-------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of year $13.13 13.16 14.63 11.50 10.68
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.04) (.06) (.08) (.03) --
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain .82 2.14 .74 4.66 1.49
- ---------------------------------------------------------------------------------------------
Total from investment operations .78 2.08 .66 4.63 1.49
- ---------------------------------------------------------------------------------------------
Less distribution from net realized gain 2.14 2.11 2.13 1.50 .67
- ---------------------------------------------------------------------------------------------
Net asset value, end of year $11.77 13.13 13.16 14.63 11.50
- ---------------------------------------------------------------------------------------------
TOTAL RETURN 8.21% 17.11 7.83 47.30 14.95
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses .92% .89 .89 .88 .89
- ---------------------------------------------------------------------------------------------
Net investment income (loss) (.37)% (.42) (.62) (.23) .05
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------
CLASS B
-------------------------------------------------
YEAR ENDED OCTOBER 31, MAY 31 TO
------------------------------- OCTOBER 31,
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.54 12.77 14.39 11.45 9.99
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.14) (.18) (.19) (.15) (.05)
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain .77 2.06 .70 4.59 1.51
- ---------------------------------------------------------------------------------------------
Total from investment operations .63 1.88 .51 4.44 1.46
- ---------------------------------------------------------------------------------------------
Less distribution from net realized gain 2.14 2.11 2.13 1.50 --
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $11.03 12.54 12.77 14.39 11.45
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 7.24% 15.91 6.76 45.65 14.61
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses 1.85% 1.85 1.87 1.82 1.99
- ---------------------------------------------------------------------------------------------
Net investment loss (1.30)% (1.38) (1.60) (1.17) (1.08)
- ---------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------
CLASS C
------------------------------------------------
YEAR ENDED OCTOBER 31, MAY 31 TO
------------------------------ OCTOBER 31,
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.64 12.85 14.45 11.45 9.99
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.14) (.17) (.18) (.15) (.05)
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain .81 2.07 .71 4.65 1.51
- ----------------------------------------------------------------------------------------------
Total from investment operations .67 1.90 .53 4.50 1.46
- ----------------------------------------------------------------------------------------------
Less distribution from net realized gain 2.14 2.11 2.13 1.50 --
- ----------------------------------------------------------------------------------------------
Net asset value, end of period $11.17 12.64 12.85 14.45 11.45
- ----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 7.57% 15.98 6.88 46.23 14.61
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------
Expenses 1.81% 1.82 1.82 1.76 1.83
- ----------------------------------------------------------------------------------------------
Net investment loss (1.26)% (1.35) (1.55) (1.11) (.92)
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
CLASS I
----------------------------------------
YEAR ENDED OCTOBER 31, JULY 3 TO
---------------------- OCTOBER 31,
1998 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------
Net asset value, beginning of period $13.19 13.20 14.64 12.72
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.02) (.04) (.07) (.02)
- --------------------------------------------------------------------------------------
Net realized and unrealized gain .83 2.14 .76 1.94
- --------------------------------------------------------------------------------------
Total from investment operations .81 2.10 .69 1.92
- --------------------------------------------------------------------------------------
Less distribution from net realized gain 2.14 2.11 2.13 --
- --------------------------------------------------------------------------------------
Net asset value, end of period $11.86 13.19 13.20 14.64
- --------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 8.44% 17.23 8.06 15.09
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------
Expenses .67% .74 .76 .65
- --------------------------------------------------------------------------------------
Net investment loss (.12)% (.27) (.49) (.33)
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $1,247,991 1,209,723 1,062,813 1,017,955 713,654
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 146% 192 121 105 81
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. Per share
data for 1995 through 1998 were determined based on average shares outstanding.
23
<PAGE> 24
FINANCIAL HIGHLIGHTS
TAX INFORMATION
The fund paid a distribution of $2.05 per share from net long-term capital gains
during the year ended October 31, 1998, of which 32% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$114,116,000 as capital gain dividends for the year ended October 31, 1998, of
which 100% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
24
<PAGE> 25
NOTES
25
<PAGE> 26
NOTES
26
<PAGE> 27
NOTES
27
<PAGE> 28
TRUSTEES AND OFFICERS
<TABLE>
TRUSTEES OFFICERS
<S> <C> <C>
DANIEL PIERCE MARK S. CASADY KATHRYN L. QUIRK
Chairman and Trustee President Vice President
DAVID W. BELIN PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President and Vice President
Secretary
LEWIS A. BURNHAM MAUREEN E. KANE
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
DONALD L. DUNAWAY CAROLINE PEARSON
Trustee TRACY MCCORMICK CHESTER Assistant Secretary
Vice President
ROBERT B. HOFFMAN ELIZABETH C. WERTH
Trustee THOMAS W. LITTAUER Assistant Secretary
Vice President
DONALD R. JONES BRENDA LYONS
Trustee ANN M. MCCREARY Assistant Treasurer
Vice President
SHIRLEY D. PETERSON
Trustee STEVEN H. REYNOLDS
Vice President
WILLIAM P. SOMMERS
Trustee
EDMOND D. VILLANI
Trustee
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- -------------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- -------------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania Avenue
Kansas City, MO 64105
- -------------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- -------------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Funds/Growth Style prospectus.
KTEC - 2 (12/98) 1061630
