<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED APRIL 30, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
KEMPER
TECHNOLOGY FUND
"... In general, technology stocks
enjoyed strong performance, flourishing
relative to the overall market. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
8
Industry Sectors
9
Largest Holdings
10
Portfolio of Investments
14
Financial Statements
16
Notes to Financial Statements
19
Financial Highlights
21
Shareholders' Meetings
At A GLANCE
- --------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 45.98
CLASS B 45.13
CLASS C 45.19
LIPPER GNMA TECHNOLOGY FUNDS CATEGORY AVERAGE* 60.35
- --------------------------------------------------------------------------------------------------------
</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.
INVESTMENT BY THE FUND IN EMERGING TECHNOLOGY COMPANIES PRESENTS GREATER RISK
THAN INVESTMENTS IN MORE ESTABLISHED COMPANIES.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE
- ---------------------------------------------------------------------------------------------------------
AS OF AS OF
4/30/99 10/31/98
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
KEMPER TECHNOLOGY FUND CLASS A $15.93 $11.77
- ---------------------------------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND CLASS B $14.77 $11.03
- ---------------------------------------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND CLASS C $14.98 $11.17
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------
KEMPER TECHNOLOGY FUND
LIPPER RANKINGS AS OF 4/30/99*
- --------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER SCIENCE & TECHNOLOGY FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #52 of 80 funds #55 of 80 funds #54 of 80 funds
- ---------------------------------------------------------------------------------------------------------
5-YEAR #15 of 23 funds N/A N/A
- ---------------------------------------------------------------------------------------------------------
10-YEAR #10 of 12 funds N/A N/A
- ---------------------------------------------------------------------------------------------------------
15-YEAR #5 of 8 funds N/A N/A
- ---------------------------------------------------------------------------------------------------------
20-YEAR #2 of 3 funds N/A N/A
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------
DURING THE SIX-MONTH PERIOD, KEMPER TECHNOLOGY FUND PAID THE FOLLOWING
DIVIDEND PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM CAPITAL GAIN $1.07 $1.07 $1.07
- -----------------------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- -------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- -------------------------------------------------------------------
[STYLE/SIZE DIAGRAM]
Source: Morningstar, Inc. Chicago, IL. (312) 696-6000. The Equity Style Box
placement is based on two variables: a fund's market capitalization relative to
the movements of the market and a fund's valuation, which is calculated by
comparing the stocks in the fund's portfolio with the most relevant of the three
market-cap groups.
PLEASE NOTE THAT STYLE BOXES DO NOT REPRESENT AN EXACT ASSESSMENT OF RISK AND DO
NOT REPRESENT FUTURE PERFORMANCE. THE FUND'S PORTFOLIO 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.
CONSUMER NONDURABLES Consumer nondurable companies produce goods or services
that tend to be consumed or replaced within a relatively short period of time.
Due to the steadier demand for consumer nondurables, stocks in this sector are
often considered more defensive in nature than other stocks, including
technology stocks.
LARGE-CAP STOCKS Shares in larger, established corporations. The biggest
advantage of large-cap stocks is that they can generally offer relative
stability compared with newer, smaller companies. Overall, investments in
large-cap stocks tend to be more conservative than investments in small-cap
stocks. However, small-caps may have the potential to generate higher returns in
exchange for their higher level of risk.
SEMICONDUCTOR Semiconductors are the essential parts that make it possible to
build small, inexpensive electronic systems.
<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 INVESTMENTS, HE WAS WITH
THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $280 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
In April, investor enthusiasm drove the market to its second milestone in a
year -- the Dow Jones Industrial Average rose to 11,000 just a month after it
broke 10,000 for the first time. In May, expectations of rising inflation and
higher short-term interest rates led to a slowdown. But in early June, the
market rallied again. What drove the market rallies, and what, at the same time,
led to investor anxiety?
Inflation worries have been seeping into the market for months. The growing
conviction that Asian and Latin American economies are recovering is raising
commodity prices, particularly oil. The price of West Texas Intermediate oil
surged from less than $12 in February to almost $19 in early May. That alone
almost guarantees a rise in the "headline" inflation rate this year, which is
the rate of inflation as measured by the entire CPI. But it's important to note
that the Federal Reserve Board looks primarily at the core inflation rate, which
is the CPI minus food and energy -- and the core inflation rate looks at if it
will remain low at about 2 percent this year. Investors should note, however,
that the Federal Reserve Board also considers what will happen to inflation next
year -- and all indications are that the Fed expects inflation to increase in
2000.
As a result, the Fed is considering a change in monetary policy. Recent Fed
policy has been reactive, not proactive, which means that the Fed tends to
respond to inflation only when it picks up. That may change as the Fed tries to
preemptively halt inflation momentum. Such a change in monetary policy would
likely lead to an increase in short-term interest rates before the end of the
year. However, the change is likely to be small. Because we don't see pressure
toward sustained inflation, there's no reason for the Fed to want a sharp
slowdown in the overall economy.
The long-term economic situation, however, appears to be positive. The
federal budget surplus continues to benefit from good revenue gains (which are
based on good income gains, especially for households), good capital gains and
continued restraint in federal spending. The surplus this year is expected to
approach $100 billion.
This positive environment is exactly what sometimes poses risk for
investors, and is key to understanding recent volatility in the market. A strong
economy has the potential to feed inflation fears and drive up interest rates.
Indeed, recent market events illustrate the domino effect of investors reacting
to positive economic news, which they consider troubling at this point, more
than eight years into the economic expansion. In April, the steady stream of
positive economic news led to a sell-off in the financial markets based on fears
that the strong pace of economic growth would eventually lead to higher
inflation. The benchmark 30-year Treasury bond yield rose, which pulled stocks
lower.
Where can we expect to go from here? The fundamentals by which we judge the
health of the economy suggest continued growth as we move into the second half
of 1999. For example, the gross domestic product (GDP), the value of all goods
and services produced in the U.S., rose at an annual rate of 4.5 percent in the
first quarter, following a tremendous fourth-quarter surge of 6 percent. This is
very much in line with what we've grown accustomed to over the past year -- over
the four quarters of 1998, the U.S. economy expanded by 4.3 percent. Some people
aren't surprised at all by strong GDP growth that once would have alarmed them.
That's partially because we've grown accustomed to a strong economy. But it's
also because we've been able to absorb growth without driving up inflation.
That's important for investors. If prices had been rising as the economy was
growing, the Fed would have most likely raised short-term interest rates by now,
and that would have changed the financial market outlook.
However, we do see some vulnerability on the economic front. Trade is a weak
spot in the economy right now. Exports of U.S. goods and services dropped in the
first quarter while imports soared. This reflects the fact that the U.S. is one
of the few countries financially fit enough to buy goods produced elsewhere in
the world. But for as long as less vibrant international economies are unable to
buy U.S. goods, the profitability of U.S. companies trying to export will be
challenged.
When you think about it, vulnerability in regard to the international
economy is nothing new. Globally, the outlook is slightly more positive than it
was a few months ago. For example, the European markets are slowing down, which
has already led to the European Central Bank lowering interest rates in order to
boost domestic spending. In many countries in Europe there are no fixed-rate
mortgages, only adjustable-rate mortgages. When interest rates go down, mortgage
payments are reduced and homeowners can spend money elsewhere. This has a huge
impact on consumer spending, and will help European equities over time.
Additionally, the situation in Japan remains unchanged. And, problems in the
emerging markets haven't had the negative impact many people expected -- both
the Mexican and Brazilian stock markets have actually risen in the past two
months.
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 (5/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10 Year Treasury Rate(1) 5.54 5.34 5.57 6.42
Prime Rate(2) 7.75 8.5 8.5 8.25
Inflation Rate(3)* 2.28 1.68 1.63 3.04
The U.S. Dollar(4) -1.22 8.17 5.05 7.67
Capital goods orders(5)* 11.67 3.05 12.61 3.93
Industrial production (5)* 2.01 2.71 5.92 6.44
Employment growth(6) 2.14 2.67 2.76 2.44
</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 APRIL 30, 1999.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
But don't forget that international crises have the potential to affect the
U.S. markets dramatically. An increase in military spending on Kosovo by the 11
European Monetary Union (EMU) countries could force them to spend less in other
areas, which could have economic implications, including higher interest rates.
That's because many European countries have small economies and little leeway in
their budgets. Consequently, those countries finance unplanned military
expenditures by selling government bonds -- which, in Europe's small bond
market, typically raises interest rates. As an example, consider Italy, which
recently asked for more leeway on its deficit targets. When leeway was granted,
this led to a further sell-off in the eurodollar.
The international situation alone, however, is by no means an indicator of
a U.S. slowdown -- and without any such indications, complacency may be our
greatest concern. It's easy to look at the current U.S. economic situation and
behave as if no risk exists. But when you see the market soaring and are tempted
to jump in, note that the bull market grew to records on the strength of just a
few dozen stocks, while most other stock prices were flat or actually declined.
In summary, there are concerns that the current economy is unsustainable and
we soon could see an abrupt end. In many cases, however, people are looking for
a slowdown because they are fearful growth will drive up inflation these are
particularly older investors who are accustomed to inflation accompanying
growth. But again, sustained inflation seems unlikely, so a sharp slowdown is
not necessary. In the short term, we expect a modest economic slowdown but no
recession. The best approach now, as in any market, is to diversify and invest
for the long term.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ JOHN E. SILVIA
John E. Silvia
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 JUNE 9, 1999, AND MAY
NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
JIM BURKART IS THE LEAD PORTFOLIO MANAGER OF KEMPER TECHNOLOGY FUND. HE IS A
VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, INC. AND A MEMBER OF SCUDDER
KEMPER'S GLOBAL EQUITY GROUP. BURKART BRINGS MORE THAN 25 YEARS OF INVESTMENT
EXPERIENCE TO THE MANAGEMENT OF THE FUND.
TRACY MCCORMICK SERVES AS PORTFOLIO MANAGER OF THE FUND. MCCORMICK IS A MANAGING
DIRECTOR OF SCUDDER KEMPER INVESTMENTS AND HAS MORE THAN 15 YEARS OF INVESTMENT
INDUSTRY EXPERIENCE. BURKART AND MCCORMICK DRAW ON THE RESOURCES OF SCUDDER
KEMPER INVESTMENTS' LARGE STAFF OF PORTFOLIO MANAGERS, ANALYSTS, RESEARCHERS,
ECONOMISTS AND TRADERS.
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.
TECHNOLOGY STOCKS ENJOYED A STRONG COMEBACK DURING THE SEMIANNUAL PERIOD. BELOW,
LEAD PORTFOLIO MANAGER JIM BURKART PROVIDES AN OVERVIEW OF THE MARKET. HE ALSO
SHARES HIS INVESTMENT PHILOSOPHY AND PROVIDES AN UPDATE AS TO WHERE HE'S FINDING
THE MOST ATTRACTIVE TECHNOLOGY-STOCK OPPORTUNITIES.
Q JIM, HOW DID THE FUND PERFORM DURING THE SEMIANNUAL PERIOD?
A For the six months ending April 30, 1999, Kemper Technology Fund earned
45.98 percent (Class A shares, unadjusted for any sales charges). We're pleased
with the fund's gain, particularly given our focus on established, large-cap
technology companies.
Compared to our peers, the fund did trail, however. During the six-month
period, the average return for the Lipper Science and Technology Funds Category
was 60.35 percent. While this discrepancy may seem considerable, we'd like to
offer this perspective: Remember that technology funds follow a wide variety of
investment approaches. Some focus on large-cap stocks, others on smaller
companies. Technology funds also have different degrees of diversification.
While some invest in a single industry -- such as software or the Internet --
other funds are broadly diversified.
Many of the funds that outperformed during the period were invested
primarily in small-cap stocks, or those that concentrated very heavily on
untested Internet stocks. Kemper Technology Fund, in contrast, takes a
diversified approach, and invests in a variety of technology industries. As
indicated from the fund's Morningstar style box (see page 2), we've invested
primarily in large companies. This large-cap, diversified strategy may have held
back returns, but we recognize that our shareholders select this fund for broad
exposure to quality technology stocks. And, from a longer-term historical
perspective, we feel quite positive about a 46 percent six-month gain.
Our performance did more closely track the PSE Technology Index, a
price-change benchmark of 100 large-cap technology stocks. And, the fund's
return nearly doubled that of the Standard & Poor's 500 Index (S&P 500), a
benchmark often used as a gauge of overall market performance. (Source is Lipper
Analytical Services, Inc.)
Q BEFORE WE DISCUSS THE FUND IN GREATER DETAIL, COULD YOU PROVIDE US WITH AN
OVERVIEW OF THE MARKETS DURING THE SEMIANNUAL PERIOD?
A In general, technology stocks enjoyed strong performance, flourishing
relative to the overall market. For instance, the PSE Technology Index's 44.62
percent gain far surpassed that of the S&P 500, up 22.31 percent.
For many technology stocks, these improved fortunes were a long time
coming. Since the Asian market meltdown in late 1997, investors had been very
jittery about technology, preferring more stable consumer nondurable stocks (see
Terms To Know on page 2). By November 1998 (the start of the fund's fiscal
year), investors had regained confidence. The leading technology companies had
made considerable progress in resolving supply and demand issues triggered by
the Asian economic crisis. The
5
<PAGE> 6
PERFORMANCE UPDATE
stocks of these companies were now priced very attractively relative to their
growth potential. Investors took notice. Technology stocks surged ahead, leading
a market rally. Excitement about Internet expansion further fueled interest in
technology stocks.
To some extent, we can also look to seasonal growth patterns to understand
this upswing. Historically, tech stocks have posted particularly strong
performance from October through April. Corporations typically spend more on
their infrastructures -- such as upgrading computers and operating software
- -- during this period. And, consumers spend more during the holidays on items
such as VCRs, televisions and cell phones.
Q DID TECHNOLOGY STOCKS EXPERIENCE THEIR CHARACTERISTIC VOLATILITY AS WELL?
A When it comes to technology stocks, volatility is par for the course.
During the semiannual period, there were downs as well as ups. On a broad market
level, technology-stock performance fluctuated considerably from month to month.
For instance, January's strong gains were followed by a steep correction in
February. Similarly, a considerably weaker April followed on the heels of a
brisk March. Investors remained emotional, and were quick to shun stocks that
showed weakness or fell short of earnings expectations. Market speculation also
generated volatility. Many novice investors threw their hats in the ring, often
chasing untested, highly volatile Internet stocks.
Also, throughout the semiannual period, there was a high degree of uncertainty
surrounding the potential impact of Year 2000. Let's take a closer look: On one
hand, companies are spending money for technology consulting and new Y2K-
compliant equipment. So, here, Y2K could offer a short-term benefit to the
providers of certain technology products and services. On the other hand, many
companies are going into "lockdown" periods, freezing any additions or changes
to their technology infrastructures, in an effort to avoid introducing potential
Y2K loopholes to their systems.
Q TELL US ABOUT YOUR INVESTMENT PHILOSOPHY?
A Kemper Technology Fund's charter gives us the freedom to invest throughout
the technology sector. This flexibility allows us to target the areas where we
believe the opportunities are most promising. We use rigorous research to target
quality companies with these characteristics:
- Sustainable, above-average earnings-per-share momentum
- Dominant and growing market positions
- Innovative management and products
- Excellent balance sheets
We sell stocks when we see signs of decelerating long-term growth rates,
potentially negative changes in strategic direction or resignation of key
employees. We will also sell stocks if their prices are unsustainably high or
exceed their underlying values.
Q WHERE ARE YOU FINDING STOCKS THAT SATISFY YOUR STRICT INVESTMENT CRITERIA?
A We've been finding attractive opportunities in diverse areas of
technology. Let's look at a few notable areas:
- INTERNET: The fund reaped excellent gains from America Online (AOL), its
largest holding. Among Internet service providers, AOL has established
itself as a dominant leader. Unlike many Internet stocks, AOL also offers a
strong business plan and a history of earnings growth. We purchased the
stock in 1997, before it skyrocketed, and the fund's sizable position is due
in large part to capital appreciation. We saw the potential of this company
early and are happy that we were able to translate our research into a gain
for shareholders.
Additionally, during the semiannual period, we established small positions in
Amazon.com and Yahoo! Investors have been buzzing about these stocks for a
while, but we held off until we could see a clearer picture of their earnings-
growth potential and business plan. We've seen Amazon.com make good inroads
within a niche market, while Yahoo! has set up intriguing strategic alliances.
- SEMICONDUCTORS AND COMPONENTS: We've found many appealing stocks in the
semiconductor-and-component group. Semiconductors are the enabling hardware
of today's technology, so we believe the best semiconductor companies offer
outstanding growth potential. Motorola typifies the characteristics we seek,
and it demonstrates our commitment to independent research. When we first
established a position in Motorola, the stock didn't enjoy much enthusiasm
from Wall Street. However, we believed that the management's clarified focus
presented a compelling opportunity for investors. Thanks to innovative
management and superior
6
<PAGE> 7
PERFORMANCE UPDATE
products, the company continued to build on its turnaround and has posted
good earnings.
Similar to Motorola, Xilinx focuses on component-based technology for
communications devices. Xilinx suffered in the wake of the Asian crisis, but we
stepped up to the plate because we believed that Xilinx was very attractively
priced given its fundamental strength and quality product line.
- NETWORKING: Networking companies play a key role in the growth of today's
technologies, including the Internet. Among our network stocks, Cisco
Systems provided us with extremely strong gains during the semiannual
period. The company occupies a global leadership position, and offers
impressive fundamentals, historical earnings-per-share momentum and positive
earnings surprises.
- STORAGE: As companies increase their reliance on Internet business models
and networks, we anticipate a fast and growing demand for computer memory
storage and retrieval capacity. We believe that companies such as EMC and
Seagate Technology are well-positioned to benefit from this trend.
- SOFTWARE: We have also backed software companies with conviction. Here, too,
we look for companies that can leverage the incredible potential of the
Internet's growth through forward-thinking business plans. Intuit is one
notable example. Intuit develops software for financial management,
including Quickbooks and Quicken. Now, the company has broadened its scope
to include Internet-based financial management tools and casualty insurance
and mortgage-originator services.
We also believe that the software sector could further benefit once
corporations resolve their Year 2000 issues. As companies emerge from their
lockdown periods, we would expect to see them revisit projects that they had put
on hold, particularly projects involving software applications.
Q DESPITE THE FUND'S SIZABLE RETURN, WERE THERE FACTORS THAT NEGATIVELY
IMPACTED PERFORMANCE?
A As we noted earlier, the fund's relative gains were hindered by our
more-cautious, large-cap focus. We didn't put all our eggs in the ".com" basket,
nor did we invest in some of the highest-octane small-cap stocks. We didn't feel
that this would be consistent with our management philosophy.
The fund also included some individual holdings that slowed performance.
Returns were hurt by exposure to Oracle. The software giant fell short of
earnings expectations, and its stock price dove. Although we had reduced our
position before the tumble, we weren't soon enough to sidestep the damage
entirely. Two computer hardware providers, Compaq Computers and Dell Computers,
also took a toll on performance. 3Com, a networking company, also fell short of
expectations.
Although it didn't lose money, Seagate Technology couldn't keep up in the
rally and posted muted returns. Seagate is the leading provider in the
disk-drive industry, an area that has faced considerable challenges since 1997.
Oversupply and limited demand made it difficult for disk-drive producers to sell
their products at good prices. However, we believe that these supply issues are
resolving themselves. Because we believe in both, in Seagate's strong
earnings-growth potential, as well as in the improving climate for disk-drive
sales, we continue to hold a large position in the stock.
Q CURRENTLY, KEMPER TECHNOLOGY FUND INVESTS PRIMARILY IN THE STOCKS OF
LARGE, DOMESTIC TECHNOLOGY COMPANIES. WHAT'S YOUR OUTLOOK FOR THESE FIRMS?
A Our long-term outlook for large-cap domestic technology stocks is very
optimistic. Today's leading large-cap domestic technology firms have
consistently demonstrated a strong entrepreneurial vision, and the ability to
dominate competition worldwide. They are domestic powerhouses that have created
and drive a declining-cost industry, by delivering increased capabilities at
declining costs.
On a broader economic level, we believe that the strong U.S. economy further
supports the earnings-growth potential of large-cap, domestic technology
companies. Corporate earnings are strong and steady. Consumer confidence is
robust.
The global market place is healthier than it has been. This bodes well for
domestic large-cap technology companies, which typically have multinational
operations and significant international markets for their products. Asia, with
the exception of Japan, is improving, and Europe still is a positive force.
We pair this optimistic long-term view with caution, though. Over the next
months, we're braced for short-term volatility. The impact of Year 2000 on
technology companies remains a source of concern. As we enter the slow seasonal
period for technology stocks, we
7
<PAGE> 8
PERFORMANCE UPDATE
believe that added care is warranted. We're therefore holding a slightly larger
cash position (about 9 percent) than we would under ordinary circumstances.
Q THANKS, JIM. DO YOU HAVE ANY CLOSING WORDS FOR THE SHAREHOLDERS?
A We encourage shareholders to remember that although technology moves
rapidly and changes quickly over the short-term, technology-stock investing
remains a long-term proposition. Despite the challenges and volatility that are
inherent in technology-stock investing, we're looking forward to what the future
will bring.
INDUSTRY SECTORS
A SIX-MONTH COMPARISON
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
REPRESENTED ON APRIL 30, 1999, AND ON OCTOBER 31, 1998.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER TECHNOLOGY FUND ON KEMPER TECHNOLOGY FUND ON
4/30/99 10/31/98
------------------------- -------------------------
<S> <C> <C>
SYSTEMS, SOFTWARE & SERVICES 49.30 45.70
ELECTRONIC COMPONENTS 22.80 21.20
COMMUNICATIONS 18.30 18.40
PERSONAL COMPUTING 4.90 8.70
INDUSTRIAL TECHNOLOGY/MISC. 3.10 1.70
LIFE SCIENCES 1.60 4.30
</TABLE>
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
Representing 36.5 percent of the fund's total common stock holdings on April 30,
1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
HOLDINGS PERCENT
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. AMERICA ONLINE Global leader in consumer online 5.9%
services, including Internet
access, e-mail, software,
computer support, and electronic
periodicals. Owns Netscape
Communications.
- -------------------------------------------------------------------------------------
2. TEXAS INSTRUMENTS Leading technology company with 4.4%
sales or manufacturing operations
in more than 30 countries.
Products and services include
semiconductors, defense
electronic systems, software
productivity tools, computer and
peripheral products and consumer
products.
- -------------------------------------------------------------------------------------
3. CISCO SYSTEMS Large, comprehensive supplier of 3.8%
routing software and related
systems that direct the flow of
data between local networks.
- -------------------------------------------------------------------------------------
4. MOTOROLA Manufactures components, notably 3.8%
semiconductors, and electronic
communications equipment.
- -------------------------------------------------------------------------------------
5. HEWLETT-PACKARD Large supplier of enterprise 3.5%
computer systems. Products
include low-cost printers and
personal computers.
- -------------------------------------------------------------------------------------
6. MICROSOFT Develops, markets and supports a 3.1%
variety of microcomputer
software, operating systems,
language and application
programs, related books and
peripheral devices.
- -------------------------------------------------------------------------------------
7. INTUIT Develops software products for 3.1%
financial tasks, including
Quicken and Quickbooks. The
company is also broadening its
focus to include Internet-based
financial service products.
- -------------------------------------------------------------------------------------
8. XILINX Designs, develops and markets 3.0%
computer circuits, software
designing tools, and field
engineering support.
- -------------------------------------------------------------------------------------
9. SEAGATE TECHNOLOGY Provides data storage, 3.0%
management, and access products
for computer and data
communications systems. Leads the
disk-drive storage industry with
more than 150 rigid disk-drive
models.
- -------------------------------------------------------------------------------------
10. INTERNATIONAL BUSINESS Manufactures data processing 2.9%
MACHINES equipment and systems for
information handling, for a
variety of end markets.
- -------------------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER TECHNOLOGY FUND
Portfolio of Investments at April 30, 1999 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ELECTRONIC
COMPONENTS--20.7%
(b) Broadcom Corp. 150,000 $ 11,569
(b) Burr-Brown Corp. 325,000 8,613
Corning, Inc. 100,000 5,725
(b) DuPont Photomasks, Inc. 100,000 4,375
Harris Corp. 200,000 6,912
Intel Corp. 601,400 36,798
(b) KLA-Tencor Corp. 320,000 15,880
Linear Technology Corp. 600,000 34,125
(b) Maxim Integrated Products, Inc. 450,000 25,200
(b) Micron Technology, Inc. 750,000 27,844
Molex, Inc. 600,000 17,325
(b) Novellus Systems 250,000 11,813
(b) QLogic Corp. 20,900 1,462
(b) SCI Systems, Inc. 200,000 7,612
(b) STMicroelectronics, N.V. 200,000 20,400
Symbol Technologies, Inc. 72,000 3,438
Texas Instruments, Inc. 732,400 74,796
(b) TranSwitch Corp. 13,423 591
(b) Uniphase Corp. 60,000 7,282
(b) Vitesse Semiconductor Corp. 254,000 11,763
(b) Xilinx, Inc. 1,119,400 51,073
---------------------------------------------------------------------------
384,596
- -------------------------------------------------------------------------------------------------------------------------
PERSONAL COMPUTING--4.5%
Compaq Computer Corp. 263,600 5,882
(b) Dell Computer Corp. 640,000 26,360
(b) Seagate Technology, Inc. 1,800,800 50,197
---------------------------------------------------------------------------
82,439
- -------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--16.7%
(b) Ascend Communications, Inc. 400,000 38,650
(b) Cisco Systems, Inc. 565,665 64,521
(b) Concord Communications, Inc. 150,000 6,713
(b) FORE Systems, Inc. 425,000 14,344
Frontier Corp. 250,000 13,797
(b) ICG Communications, Inc. 7,270 160
Lucent Technologies, Inc. 495,000 29,762
(b) MCI WorldCom, Inc. 309,000 25,396
Motorola, Inc. 800,000 64,100
(b) Newbridge Networks Corp. 800,000 29,800
Nokia, A.B. 300,000 22,256
(b) Socket Communications, Inc. 134,756 97
(b) WinStar Communications, Inc. 10,000 486
---------------------------------------------------------------------------
310,082
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOFTWARE--17.9%
Autodesk, Inc. 250,000 $ 7,438
(b) BEA Systems, Inc. 100,000 1,513
(b) BMC Software, Inc. 100,000 4,306
(b) Citrix Systems, Inc. 20,000 850
Computer Associates International, Inc. 450,000 19,209
(b) Dataware Technologies, Inc. 719 2
(b) Descartes Systems Group, Inc. 200,000 1,262
(b) EMC Corp. 350,000 38,128
(b) Electronic Arts, Inc. 350,000 17,784
(b) Intuit, Inc. 610,000 52,536
(b) Legato Systems, Inc. 135,000 5,459
(b) Mercury Interactive Corp. 500,000 14,094
(b) Microsoft Corp. 650,000 52,853
(b) Momentum Business Applications, Inc. 2,800 21
(b) NetGravity, Inc. 103,000 4,165
(b) New Era Networks, Inc. 97,600 3,666
(b) Novell, Inc. 960,000 21,360
(b) ObjectShare, Inc. 51,706 39
(b) Oracle Systems Corp. 1,650,000 44,653
(b) Parametric Technology Corp. 14,754 193
(b) Platinum Technology, Inc. 215,944 5,507
(b) Rational Software Corp. 100,000 2,962
(b) Synopsys, Inc. 375,000 17,672
(b) VERITAS Software Corp. 160,000 11,360
(b) ViaGrafix Corp. 15,581 101
(b) Wind River Systems 300,000 4,500
---------------------------------------------------------------------------
331,633
- -------------------------------------------------------------------------------------------------------------------------
SYSTEMS--9.5%
Hewlett-Packard Co. 755,000 59,551
International Business Machines Corp. 235,000 49,159
(b) Storage Technology Corp. 500,000 9,656
(b) Sun Microsystems, Inc. 714,400 42,730
(b) Unisys Corp. 500,000 15,719
---------------------------------------------------------------------------
176,815
- -------------------------------------------------------------------------------------------------------------------------
SERVICES--17.5%
(b) Amazon.com, Inc. 90,000 15,486
(b) America Online, Inc. 700,000 99,925
(b) At Home Corp. 150,000 21,591
(b) Com21, Inc. 18,752 584
Electronic Data Systems Corp. 400,000 21,500
First Data Corp. 820,000 34,799
(b) Getty Images, Inc. 9,133 237
(b) Liberty Media Group 300,000 19,163
(b) Priceline.com, Inc. 43,800 7,112
(b) PSINet, Inc. 150,000 7,575
(b) Rhythms NetConnections, Inc. 1,100 91
(b) Sanmina Corp. 350,000 23,231
(b) Siebel Systems, Inc. 200,000 7,686
(b) Solectron Corp. 670,000 32,495
VeriSign, Inc. 102,000 11,730
(b) Whittman-Hart, Inc. 300,000 8,475
(b) Yahoo!, Inc. 75,000 13,102
---------------------------------------------------------------------------
324,782
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIFE SCIENCES--1.5%
(b) ArthroCare Corp. 14,579 $ 251
(b) Genentech, Inc. 100,000 8,463
(a)(b) Med Venture Associates II, L.P., 6.1% -- 1,510
limited partnership interest
(a)(b) Med Venture Associates III, L.P., 2.7% -- 326
limited partnership interest
Medtronic Inc. 205,089 14,754
(b) Pharmos Corp. 411,349 527
(a)(b) Survivalink Corp.
common stock 150,000 450
warrants expiring 2001 110,000 495
(b) Trex Medical Corp. 60,000 296
---------------------------------------------------------------------------
27,072
- -------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL TECHNOLOGY AND
MISCELLANEOUS--2.8%
(a)(b) Adams Capital Management, L.P., 3.6% -- 1,128
limited partnership interest
(b) Applied Materials, Inc. 740,000 39,682
(a)(b) Asset Management Association 1996, -- 1,504
L.P., 2.5% limited partnership
interest
(a)(b) Asset Management Association 1998, -- 449
L.P., 3.5% limited partnership
interest
(a)(b) Crosspoint Venture Partners 1993, L.P., -- 2,475
3.1% limited partnership interest
(a)(b) GEO Capital III, L.P., 5.0% limited -- 2,709
partnership interest
(a)(b) GEO Capital IV, L.P., 2.9% limited -- 842
partnership interest
(b) Metrika Systems Corp. 66,666 517
(a)(b) Sevin Rosen Fund V, L.P., 2.8% limited -- 3,359
partnership interest
---------------------------------------------------------------------------
52,665
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--91.1%
(Cost: $1,005,749) 1,690,084
---------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET
INSTRUMENTS--8.9%
Yield--4.67% to 4.83%
Due--May 1999 to June 1999
Federal Home Loan Mortgage Corp. $ 25,000 24,938
Federal National Mortgage Association 30,000 29,938
Sara Lee Corp. 25,000 24,917
Other 85,000 84,764
---------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--8.9%
(Cost: $164,557) 164,557
---------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $1,170,306) $1,854,641
---------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
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.
These securities are valued at fair value as determined in good faith by the
Board of Trustees of the Fund. At April 30, 1999 the value of the fund's
restricted securities was $15,247,000 which represented .8% 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 April 1999 partnership interest $1,134,000
- --------------------------------------------------------------------------------------------------------------
June 1996 2.5% limited
Asset Management Associates 1996, L.P. to March 1998 partnership interest 1,543,204
- --------------------------------------------------------------------------------------------------------------
3.5% limited
Asset Management Associates 1998, L.P. May 1998 partnership interest 450,000
- --------------------------------------------------------------------------------------------------------------
April 1993 3.1% limited
Crosspoint Venture Partners 1993, L.P. to March 1998 partnership interest 872,342
- --------------------------------------------------------------------------------------------------------------
December 1993 5.0% limited
GEO Capital III, L.P. to March 1998 partnership interest 1,364,344
- --------------------------------------------------------------------------------------------------------------
April 1996 2.9% limited
GEO Capital IV, L.P. to March 1998 partnership interest 2,454,318
- --------------------------------------------------------------------------------------------------------------
May 1996 6.1% limited
Med Venture Associates II, L.P. to March 1998 partnership interest 1,413,540
- --------------------------------------------------------------------------------------------------------------
2.7% limited
Med Venture Associates III, L.P. September 1998 partnership interest 350,000
- --------------------------------------------------------------------------------------------------------------
April 1996 2.8% limited
Sevin Rosen Fund V, L.P. to March 1998 partnership interest 2,601,938
- --------------------------------------------------------------------------------------------------------------
Survivalink Corp.
common stock December 1995 150,000 shrs. 3.00 per share
warrants expiring 2001 to October 1996 110,000 shrs. 4.50 per share
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Non-income producing security.
Based on the cost of investments of $1,170,306,000 for federal income tax
purposes at April 30, 1999, the gross unrealized appreciation was $704,145,000,
the gross unrealized depreciation was $19,810,000 and the net unrealized
appreciation on investments was $684,335,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost: $1,170,306) $1,854,641
- --------------------------------------------------------------------------
Cash 2,735
- --------------------------------------------------------------------------
Receivable for:
Investments sold 22,143
- --------------------------------------------------------------------------
Fund shares sold 1,199
- --------------------------------------------------------------------------
Dividends 152
- --------------------------------------------------------------------------
TOTAL ASSETS 1,880,870
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Payable for:
Investments purchased 8,095
- --------------------------------------------------------------------------
Fund shares redeemed 284
- --------------------------------------------------------------------------
Management fee 863
- --------------------------------------------------------------------------
Distribution services fee 192
- --------------------------------------------------------------------------
Administrative services fee 281
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 609
- --------------------------------------------------------------------------
Trustees' fees 96
- --------------------------------------------------------------------------
Total liabilities 10,420
- --------------------------------------------------------------------------
NET ASSETS $1,870,450
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $ 954,735
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 231,380
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 684,335
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $1,870,450
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($1,564,117 / 98,160 shares outstanding) $15.93
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $16.90
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($243,209 / 16,463 shares outstanding) $14.77
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($38,215 / 2,552 shares outstanding) $14.98
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($24,909 / 1,547 shares outstanding) $16.10
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended April 30, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------
Interest $ 2,511
- ------------------------------------------------------------------------
Dividends 1,070
- ------------------------------------------------------------------------
Total investment income 3,581
- ------------------------------------------------------------------------
Expenses:
Management fee 4,503
- ------------------------------------------------------------------------
Distribution services fee 807
- ------------------------------------------------------------------------
Administrative services fee 1,521
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,532
- ------------------------------------------------------------------------
Professional fees 41
- ------------------------------------------------------------------------
Reports to shareholders 180
- ------------------------------------------------------------------------
Trustees' fees and other 78
- ------------------------------------------------------------------------
Total expenses 8,662
- ------------------------------------------------------------------------
NET INVESTMENT LOSS (5,081)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain on sales of investments 139,863
- ------------------------------------------------------------------------
Change in net unrealized appreciation on investments 430,579
- ------------------------------------------------------------------------
Net gain on investments 570,442
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $565,361
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
Six months ended April 30, 1999 (unaudited) and for the year ended
October 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------
Net investment loss $ (5,081) (5,757)
- -----------------------------------------------------------------------------------------------
Net realized gain 139,863 112,666
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation 430,579 (7,862)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 565,361 99,047
- -----------------------------------------------------------------------------------------------
Distribution from net realized gain (112,712) (198,743)
- -----------------------------------------------------------------------------------------------
Net increase from capital share transactions 169,810 137,964
- -----------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 622,459 38,268
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
Beginning of period 1,247,991 1,209,723
- -----------------------------------------------------------------------------------------------
END OF PERIOD $1,870,450 1,247,991
- -----------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
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 generally
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. If
there are no such sales, the value is the most
recent bid quotation. Securities which are not
quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price 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. Money market instruments purchased
with an original maturity of sixty days or less are
valued at amortized cost. All other securities are
valued at their fair 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. 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.
16
<PAGE> 17
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.
- --------------------------------------------------------------------------------
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 $4,503,000 for the six
months ended April 30, 1999.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commissions
retained by KDI in connection with the distribution
of Class A shares for the six months ended April
30, 1999 are $103,000.
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 and CDSC received by KDI
for the six months ended April 30, 1999 are
$1,011,000.
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 paid by the
fund to KDI for the six months ended April 30, 1999
are $1,521,000, of which $3,000 was paid by KDI to
affiliates.
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
$1,316,000 for the six months ended April 30, 1999.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. For the six months ended April 30,
1999, the fund made no payments to its officers and
incurred trustees' fees of $26,000 to independent
trustees.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended April 30, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $486,649
Proceeds from sales 512,088
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1999 OCTOBER 31, 1998
---------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------
SHARES SOLD
-------------------------------------------------------------------------------
Class A 74,550 $ 1,108,541 96,699 $ 1,142,790
-------------------------------------------------------------------------------
Class B 7,704 109,509 5,628 62,605
-------------------------------------------------------------------------------
Class C 5,139 72,367 17,085 191,902
-------------------------------------------------------------------------------
Class I 1,020 15,490 960 11,469
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
-------------------------------------------------------------------------------
Class A 5,729 78,659 13,549 140,294
-------------------------------------------------------------------------------
Class B 932 11,900 1,790 17,510
-------------------------------------------------------------------------------
Class C 133 1,726 156 1,528
-------------------------------------------------------------------------------
Class I 119 1,654 307 3,187
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SHARES REDEEMED
-------------------------------------------------------------------------------
Class A (74,628) (1,107,669) (100,751) (1,195,484)
-------------------------------------------------------------------------------
Class B (3,252) (44,660) (3,520) (39,015)
-------------------------------------------------------------------------------
Class C (4,287) (59,173) (16,431) (185,199)
-------------------------------------------------------------------------------
Class I (1,227) (18,534) (1,149) (13,623)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
CONVERSION OF SHARES
-------------------------------------------------------------------------------
Class A 426 6,469 712 8,375
-------------------------------------------------------------------------------
Class B (458) (6,469) (755) (8,375)
-------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $ 169,810 $ 137,964
-------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------
CLASS A
--------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -----------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------
Net asset value, beginning of period $11.77 13.13 13.16 14.63 11.50
- ---------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.04) (.04) (.06) (.08) (.03)
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain 5.27 .82 2.14 .74 4.66
- ---------------------------------------------------------------------------------------
Total from investment operations 5.23 .78 2.08 .66 4.63
- ---------------------------------------------------------------------------------------
Less distribution from net realized gain 1.07 2.14 2.11 2.13 1.50
- ---------------------------------------------------------------------------------------
Net asset value, end of period $15.93 11.77 13.13 13.16 14.63
- ---------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 45.98% 8.21 17.11 7.83 47.30
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------
Expenses .92% .92 .89 .89 .88
- ---------------------------------------------------------------------------------------
Net investment loss (.50)% (.37) (.42) (.62) (.23)
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> -------------------------------------------
CLASS B
-------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -----------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------
Net asset value, beginning of period $11.03 12.54 12.77 14.39 11.45
- ---------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.10) (.14) (.18) (.19) (.15)
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain 4.91 .77 2.06 .70 4.59
- ---------------------------------------------------------------------------------------
Total from investment operations 4.81 .63 1.88 .51 4.44
- ---------------------------------------------------------------------------------------
Less distribution from net realized gain 1.07 2.14 2.11 2.13 1.50
- ---------------------------------------------------------------------------------------
Net asset value, end of period $14.77 11.03 12.54 12.77 14.39
- ---------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 45.13% 7.24 15.91 6.76 45.65
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------
Expenses 1.82% 1.85 1.85 1.87 1.82
- ---------------------------------------------------------------------------------------
Net investment loss (1.40)% (1.30) (1.38) (1.60) (1.17)
- ---------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------
CLASS C
------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -----------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------
Net asset value, beginning of period $11.17 12.64 12.85 14.45 11.45
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.09) (.14) (.17) (.18) (.15)
- -------------------------------------------------------------------------------------
Net realized and unrealized gain 4.97 .81 2.07 .71 4.65
- -------------------------------------------------------------------------------------
Total from investment operations 4.88 .67 1.90 .53 4.50
- -------------------------------------------------------------------------------------
Less distribution from net realized gain 1.07 2.14 2.11 2.13 1.50
- -------------------------------------------------------------------------------------
Net asset value, end of period $14.98 11.17 12.64 12.85 14.45
- -------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 45.19% 7.57 15.98 6.88 46.23
- -------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------
Expenses 1.78% 1.81 1.82 1.82 1.76
- -------------------------------------------------------------------------------------
Net investment loss (1.36)% (1.26) (1.35) (1.55) (1.11)
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> -------------------------------------------------
CLASS I
-------------------------------------------------
SIX MONTHS YEAR ENDED OCTOBER
ENDED 31, JULY 3 TO
APRIL 30, --------------------- OCTOBER 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.86 13.19 13.20 14.64 12.72
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.01) (.02) (.04) (.07) (.02)
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain 5.32 .83 2.14 .76 1.94
- -------------------------------------------------------------------------------------------
Total from investment operations 5.31 .81 2.10 .69 1.92
- -------------------------------------------------------------------------------------------
Less distribution from net realized gain 1.07 2.14 2.11 2.13 --
- -------------------------------------------------------------------------------------------
Net asset value, end of period $16.10 11.86 13.19 13.20 14.64
- -------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 46.25% 8.44 17.23 8.06 15.09
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------
Expenses .63% .67 .74 .76 .65
- -------------------------------------------------------------------------------------------
Net investment loss (.21)% (.12) (.27) (.49) (.33)
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ---------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in
thousands) $1,870,450 1,247,991 1,209,723 1,062,813 1,017,955
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 63% 146 192 121 105
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. Per share
data for 1995 through 1999 was determined based on average shares outstanding.
Data for the period ended April 30, 1999 is unaudited.
20
<PAGE> 21
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held. Kemper
Technology Fund shareholders were asked to vote on two separate issues: approval
of the new Investment Management Agreement between the fund and Scudder Kemper
Investments, Inc., and to modify or eliminate certain policies and to eliminate
the shareholder approval requirements as to certain other matters. The following
are the results.
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
63,613,194 1,808,508 2,473,460
</TABLE>
2) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Investment objectives
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
49,824,030 3,961,440 4,524,057 9,585,634
</TABLE>
Investment policies
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
49,810,441 3,975,030 4,524,057 9,585,634
</TABLE>
Diversification
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
49,948,861 3,836,610 4,524,057 9,585,634
</TABLE>
Borrowing
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
49,709,293 4,076,178 4,524,057 9,585,634
</TABLE>
Senior securities
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
49,964,631 3,820,840 4,524,057 9,585,634
</TABLE>
Concentration
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
49,936,584 3,848,886 4,524,057 9,585,634
</TABLE>
Underwriting of securities
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
49,932,772 3,852,698 4,524,057 9,585,634
</TABLE>
Investment in real estate
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
49,890,486 3,894,985 4,524,057 9,585,634
</TABLE>
Purchase of commodities
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
49,769,245 4,016,226 4,524,057 9,585,634
</TABLE>
Lending
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
49,794,253 3,991,217 4,524,057 9,585,634
</TABLE>
Margin purchases and short sales
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
49,587,747 4,197,724 4,524,057 9,585,634
</TABLE>
Pledging of assets
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
49,622,854 4,162,617 4,524,057 9,585,634
</TABLE>
Purchases of securities
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
49,884,588 3,900,883 4,524,057 9,585,634
</TABLE>
Purchases of options and warrants
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
49,751,758 4,033,713 4,524,057 9,585,634
</TABLE>
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY CORNELIA SMALL
Chairman and Trustee President Vice President
JOHN W. BALLANTINE 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 ANN M. MCCREARY Assistant Secretary
Vice President
DONALD R. JONES BRENDA LYONS
Trustee KATHRYN L. QUIRK Assistant Treasurer
Vice President
THOMAS W. LITTAUER
Trustee and Vice President
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
- ------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- ------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- ------------------------------------------------------------------------------
CUSTODIAN AGENT STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
- ------------------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- ------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
This report is not to be distributed unless preceded or accompanied by a Kemper
Equity Funds/Growth Style prospectus.
KTEC - 3 (6/21/99) 1076820
Printed on recycled paper in the U.S.A.
