<PAGE> 1
DEAR SHAREHOLDER:
We are pleased to provide you with the following semiannual report for Kemper
Intermediate Government Trust, and a brief overview of the fixed-income market.
PERFORMANCE HIGHLIGHTS
- The fund returned 9.59% on a net asset value basis for the six-month period
ended May 31, 1995.
- The fund posted a 6.18% total return, based on market price, during the six
months ended May 31, 1995. The fund's closing price on May 31, 1995 was $7.25.
With a net asset value of $8.19 on this date, the fund was trading at a
discount of 11.48%.
DIVIDEND REVIEW
The fund's monthly distribution was reduced in February from $0.0535 to $0.0500
per share. During the six-month reporting period, the fund distributed a total
of $0.3070 in income dividends per share. At the end of May, the fund's
distribution rate was 7.30% based on net asset value and 8.30% based on market
price.
MARKET REVIEW
The period was marked by increasing evidence of a slowing economy. This news was
welcomed by the bond markets, since it implied that inflation was not likely to
be a problem in the near-term. Interest rates declined, boosting bond values for
the period. All sectors of the fixed income market posted positive returns in a
welcome reversal of last year's performance.
Through most of the reporting period investors debated what the Federal
Reserve's next course of action might be. The Fed moved once, in February,
raising the federal funds rate and the discount rate to 6.0% and 5.25%,
respectively. The market rallied with this move, as many concluded that
sufficient tightening had occurred to slow economic growth to a non-inflationary
rate.
Both long- and short-dated Treasuries posted excellent results, with longer
duration bonds providing the highest returns. Mortgages, supported by a lack of
mortgage-banker origination and ongoing demand from non-traditional buyers,
posted strong returns as investors sought securities that offered higher levels
of income.
PORTFOLIO COMPOSITION AND STRATEGY
With compelling signs of a slowing economy and stronger bond market, our stance
is somewhat less defensive than six months ago. We've reduced the fund's cash
position and extended the portfolio's duration to 4.7 years (as of May 31) with
increased weightings in intermediate-duration Treasuries. The longer duration
should help the fund to take advantage of any further drop in interest rates.
Increased positions in mortgage-backed securities boosted performance in January
and February. We've since reduced the mortgage position, however, in favor of
Treasuries. This improves the fund's convexity and provides protection against
the widening of spreads that tends to coincide with a bond market rally.
As of May 31, 1995, the fund's average maturity was approximately 6.8 years. The
portfolio composition was as follows:
<TABLE>
<S> <C>
Treasuries 76%
Mortgages 24%
</TABLE>
1
<PAGE> 2
OUTLOOK
We anticipate a challenging period for the government bond markets as both the
Federal Reserve and investors watch closely for signs of rising inflation. We
believe the Fed's aggressive tightening through 1994 has effectively slowed
economic growth and precluded a significant rise in inflation for the near-term.
This environment is positive for the government bond markets because it helps to
preserve the value of fixed-income investments. Going forward, our outlook
remains positive. We will closely monitor economic data, such as inflation, and
adjust the portfolio accordingly.
We appreciate your continued support of the Kemper Intermediate Government Trust
and look forward to serving you in the future.
Sincerely,
[SIG]
Elizabeth A. Byrnes
Vice President and Portfolio Co-Manager
[SIG]
Michelle M. Keeley
Vice President and Portfolio Co-Manager
July 6, 1995
Ms. Byrnes became Portfolio Co-Manager of the fund in June, 1994. She joined
Kemper Financial Services, Inc. (KFS) in 1982 in the accounting area. In 1992,
Ms. Byrnes transferred to the fixed-income area where she traded government and
mortgage securities. She is now First Vice President of KFS.
Ms. Keeley became a Portfolio Co-Manager of the fund in June, 1994. She joined
KFS in 1990 as a trader in the fixed-income area and is now First Vice President
of KFS.
Statistical Note: Current annualized distribution rate is the latest monthly
dividend shown as an annualized percentage of the net asset value/market price
on the date shown. Distribution rate simply measures the level of dividends and
is not a complete measure of performance. Total return measures aggregate change
in net asset value/market value assuming reinvestment of dividends. Returns are
historical and do not represent future performance. Market price, net asset
value and returns fluctuate. Additional information concerning performance is
contained in the Financial Highlights appearing at the end of this report.
2
<PAGE> 3
ANNUAL SHAREHOLDER MEETING
We are pleased to report that all six trustees have been re-elected to the Board
of Trustees of Kemper Intermediate Government Trust at the annual meeting held
on May 16, 1995. The Trustees are: Arthur R. Gottschalk, Frederick T. Kelsey,
David B. Mathis, Stephen B. Timbers, John B. Tingleff and John G. Weithers.
Along with the re-election of the Trustees, shareholders were asked to ratify
the selection of Ernst & Young LLP as the independent auditors for the fund and
to vote on a proposal to convert Kemper Intermediate Government Trust from a
closed-end investment company to an open-end investment company. The results of
the shareholders' vote at the May 16, 1995 meeting were as follows:
- Election of Trustees
<TABLE>
<CAPTION>
FOR WITHHELD
---------- ---------
<S> <C> <C>
Arthur R.
Gottschalk 29,635,014 1,191,272
Frederick T. Kelsey 29,661,360 1,164,925
David B. Mathis 29,662,719 1,163,567
Stephen B. Timbers 29,641,679 1,184,607
John B. Tingleff 29,691,516 1,134,769
John G. Weithers 29,671,823 1,154,463
</TABLE>
- Ratification of the selection of Ernst & Young LLP as independent auditors for
the fund
FOR 29,878,292
AGAINST 415,314
- Conversion of the fund from a closed-end investment company to an open-end
investment company
FOR 4,982,663
AGAINST 24,386,727
ABSTAIN 1,493,117
3
<PAGE> 4
PORTFOLIO OF INVESTMENTS May 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Coupon Principal
Rate Maturity Amount Value
----------- ---------- --------- --------
U.S. GOVERNMENT OBLIGATIONS
U.S TREASURY SECURITIES-78.7%
(Cost: $213,768)
----------------------------------------------------
<S> <C> <C> <C>
9.25 1996 60,000 $ 61,209
8.875 1998 15,000 16,329
6.375-8.875 1999 54,000 57,181
6.875 2000 10,000 10,334
11.125 2003 16,000 20,900
7.25 2004 40,000 42,517
7.50 2005 5,000 5,423
7.25 2022 5,000 5,308
----------------------------------------------------
219,201
<CAPTION>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-12.2%
(Cost: $32,293)
----------------------------------------------------
Pass-through Certificates
----------------------------------------------------
<S> <C> <C> <C>
9.00 2016 66 69
9.00 2017 211 221
9.00 2018 47 50
9.00 2019 156 163
9.00 2020 462 485
8.00-9.00 2021 244 251
7.00-9.00 2022 2,392 2,431
7.00-8.00 2023 7,407 7,458
7.00-9.00 2024 7,355 7,358
7.00-9.00 2025 15,565 15,569
----------------------------------------------------
34,055
<CAPTION>
FEDERAL NATIONAL MORTGAGE ASSOCIATION-8.7%
(Cost: $23,068)
----------------------------------------------------
Collateralized Mortgage Obligation
----------------------------------------------------
<S> <C> <C> <C>
5.55 2007 14,662 14,541
6.25 2022 10,000 9,519
----------------------------------------------------
24,060
<CAPTION>
Coupon Principal
Rate Maturity Amount Value
---------- ---------- --------- --------
FEDERAL HOME LOAN MORTGAGE CORPORATION-3.4%
(Cost: $8,637)
----------------------------------------------------
Collateralized Mortgage Obligation
----------------------------------------------------
<S> <C> <C> <C>
6.25% 2021 $10,000 $ 9,569
----------------------------------------------------
<CAPTION>
TOTAL U.S. GOVERNMENT
OBLIGATIONS-103.0%
<S> <C>
(Cost: $277,766) 286,885
----------------------------------------------------
<CAPTION>
MONEY MARKET INSTRUMENTS-.5%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
Yield-6.18%
Due-September 1995
<S> <C> <C>
(Cost: $1,279) 1,300 1,279
----------------------------------------------------
TOTAL INVESTMENTS-103.5%
(Cost: $279,045) $288,164
----------------------------------------------------
LIABILITIES, LESS
OTHER ASSETS-(3.5%) (9,781)
----------------------------------------------------
NET ASSETS-100% $278,383
----------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $279,045,000 for federal income tax purposes
at May 31, 1995, the aggregate gross unrealized appreciation was $9,155,000 the
aggregate gross unrealized depreciation was $36,000 and the net unrealized
appreciation of investments was $9,119,000.
See accompanying Notes to Financial Statements.
4
<PAGE> 5
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
(in thousands)
<TABLE>
<S> <C>
ASSETS
-----------------------------------------------------------
Investments, at value
(Cost: $279,045) $ 288,164
-----------------------------------------------------------
Receivable for:
Investments sold 248
-----------------------------------------------------------
Interest receivable 5,073
-----------------------------------------------------------
Total assets 293,485
-----------------------------------------------------------
LIABILITIES AND NET ASSETS
-----------------------------------------------------------
Cash overdraft 306
-----------------------------------------------------------
Payable for:
Investments purchased 14,550
-----------------------------------------------------------
Management fee 194
-----------------------------------------------------------
Custodian and transfer agent fees
and related expenses 35
-----------------------------------------------------------
Other 17
-----------------------------------------------------------
Total liabilities 15,102
-----------------------------------------------------------
Net assets applicable to 33,996
shares outstanding, $.01 par value,
equivalent to $8.19 per share $ 278,383
-----------------------------------------------------------
ANALYSIS OF NET ASSETS
-----------------------------------------------------------
Net amount received from issuance
of shares on account of capital $ 315,523
-----------------------------------------------------------
Accumulated net realized loss on
sales of investments (46,513)
-----------------------------------------------------------
Unrealized appreciation of investments 9,119
-----------------------------------------------------------
Undistributed net investment income 254
-----------------------------------------------------------
Net assets applicable to shares
outstanding $ 278,383
-----------------------------------------------------------
Net asset value per share
($278,383 / 33,996 shares outstanding) $8.19
-----------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Six months ended May 31, 1995
(in thousands)
<TABLE>
<S> <C>
INTEREST INCOME $ 11,304
-----------------------------------------------------------
EXPENSES
-----------------------------------------------------------
Management fee 1,070
-----------------------------------------------------------
Custodian and transfer agent fees
and related expenses 54
-----------------------------------------------------------
Professional fees 15
-----------------------------------------------------------
Reports to shareholders 18
-----------------------------------------------------------
Trustees' fees and other 41
-----------------------------------------------------------
Total expenses 1,198
-----------------------------------------------------------
Net investment income 10,106
-----------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
-----------------------------------------------------------
Net realized loss on sales of investments
(including options purchased) (1,560)
-----------------------------------------------------------
Net realized gain from futures transactions 1,247
-----------------------------------------------------------
Net realized loss (313)
-----------------------------------------------------------
Net change in balance of unrealized
depreciation of investments 14,964
-----------------------------------------------------------
Net gain on investments 14,651
-----------------------------------------------------------
Net increase in net assets resulting
from operations $ 24,757
-----------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months
ended Year ended
May 31, November 30,
1995 1994
---------- ------------
<S> <C> <C>
OPERATIONS
-----------------------------------------------------------
Net investment income $ 10,106 21,451
-----------------------------------------------------------
Net realized loss on
investments (313) (27,056)
-----------------------------------------------------------
Net change in unrealized
depreciation 14,964 (2,567)
-----------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations 24,757 (8,172)
-----------------------------------------------------------
Distribution from net
investment income (10,437) (23,236)
-----------------------------------------------------------
Total increase (decrease) in
net assets 14,320 (31,408)
-----------------------------------------------------------
NET ASSETS
-----------------------------------------------------------
Beginning of period 264,063 295,471
-----------------------------------------------------------
End of period (including
undistributed net investment
income of $254 in 1995 and $585
in 1994) $278,383 264,063
-----------------------------------------------------------
</TABLE>
5
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF FUND
The Fund is registered under the Investment Company Act of 1940 as a
diversified, closed-end management investment company.
INVESTMENT VALUATION
Investments are stated at value. Fixed income securities are valued by using
market quotations, or independent pricing services that use prices provided by
market makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Portfolio securities
that are traded on a domestic securities exchange are valued at the last sale
price on the exchange where primarily traded or, if there is no recent sale, at
the last current bid quotation. Portfolio securities that are primarily traded
on foreign securities exchanges are generally valued at the preceding closing
values of such securities on their respective exchanges where primarily traded.
Securities not so traded are valued at the last current bid quotation if market
quotations are available. Exchange traded options are valued at the last sale
price unless there is no sale price, in which event prices provided by market
makers are used. Over-the-counter traded options are valued based upon prices
provided by market makers. Financial futures and options thereon are valued at
the settlement price established each day by the board of trade or exchange on
which they are traded. Other securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual basis and
includes premium and discount amortization of money market instruments and
mortgage-backed securities; it also includes original issue and market discount
amortization on long-term fixed income securities. Realized gains and losses
from investment transactions are reported on an identified cost basis.
Realized and unrealized gains and losses on financial futures and options are
included in net realized and unrealized gain (loss) on investments, as
appropriate.
The Fund may purchase securities with delivery or payment to occur at a later
date. At the time the Fund enters into a commitment to purchase a security, the
transaction is recorded and the value of the security is reflected in the net
asset value. The value of the security may vary with market fluctuations. No
interest accrues to the Fund until payment takes place. At the time the Fund
enters into this type of transaction it is required to designate cash or other
liquid assets equal to the value of the securities purchased. At May 31, 1995
the Fund had $14,534,000 in purchase commitments outstanding (5.2% of net
assets) with a corresponding amount of assets designated.
FEDERAL INCOME TAXES AND DIVIDENDS TO SHAREHOLDERS
The Fund has complied with the special provisions of the Internal Revenue Code
available to investment companies for the six months ended May 31, 1995. The
accumulated net realized loss on sales of investments for federal income tax
purposes at May 31, 1995, amounting to approximately $46,504,000, is available
to offset future taxable gains. If not applied, the loss carryover expires
during the period 1998 through 2003.
The Fund declares and pays dividends on a monthly basis. Net realized capital
gains, if any, reduced by capital loss carryovers, will be distributed at least
annually. Dividends payable to its shareholders are recorded by the Fund on the
ex-dividend date.
Distributions are determined in accordance with income tax principles which may
treat certain transactions differently from generally accepted accounting
principles.
2. TRANSACTIONS WITH AFFILIATES
The Fund has a management agreement with Kemper Financial Services, Inc. (KFS).
For management services and facilities furnished, the Fund pays a fee at an
annual rate of .80% of average weekly net assets.
6
<PAGE> 7
The Fund incurred a management fee of $1,070,000 for the six months ended May
31, 1995.
The Fund has a custodian agreement and a transfer agent agreement with Investors
Fiduciary Trust Company (IFTC), which was 50% owned by KFS until January 31,
1995, when KFS completed the sale of IFTC to a third party. For the six months
ended May 31, 1995, the Fund incurred custodian and transfer agent fees of
$38,000 (excluding related expenses). Pursuant to a services agreement with
IFTC, Kemper Service Company (KSvC), an affiliate of KFS, is the shareholder
service agent of the Fund. For the six months ended May 31, 1995, IFTC remitted
shareholder service fees of $27,000 to KSvC.
Certain officers or trustees of the Fund are also officers or directors of KFS.
During the six months ended May 31, 1995, the Fund made no direct payments to
its officers and incurred trustees' fees of $5,000 to independent trustees.
3. INVESTMENT TRANSACTIONS
For the six months ended May 31, 1995, investment transactions (excluding money
market instruments) are as follows (dollars in thousands):
Purchases $1,026,001
--------------------------------------------------------------------------------
Proceeds from sales 1,011,792
--------------------------------------------------------------------------------
4. FINANCIAL FUTURES CONTRACTS
In order to protect itself against future changes in market conditions which
otherwise might affect adversely the value of securities the Fund holds, the
Fund has entered into exchange traded financial futures contracts as described
below. The Fund bears the market risk that arises from changes in the value of
these financial instruments.
At the time the Fund enters into a futures contract, it is required to make a
margin deposit with its custodian of a specified amount of cash or eligible
securities. Subsequently, gain or loss is recognized and payments are made on a
daily basis between the Fund and the broker as the market price of the futures
contract fluctuates. At May 31, 1995, the market value of investments pledged by
the Fund to cover margin requirements for open futures positions was $584,000.
At May 31, 1995, the Fund had outstanding financial futures contracts as
follows:
<TABLE>
<CAPTION>
Notional Expiration Gain at
Type Amount Position Month 5/31/95
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $40,000,000 Long June and September $571,000
-------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six months
ended
May 31, Year ended November 30,
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $7.77 8.69 8.81 8.97 8.70
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .30 .63 .71 .87 .87
---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .43 (.87) (.12) (.28) .28
---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .73 (.24) .59 .59 1.15
---------------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .31 .68 .71 .75 .88
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.19 7.77 8.69 8.81 8.97
---------------------------------------------------------------------------------------------------------------------------------
Market value, end of period $7.25 7.13 8.50 8.88 9.00
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%):
Based on net asset value 9.59 (2.85) 6.90 6.76 13.96
---------------------------------------------------------------------------------------------------------------------------------
Based on market value 6.18 (8.24) 3.92 7.00 13.21
---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .90 .94 .92 .93 .93
---------------------------------------------------------------------------------------------------------------------------------
Net investment income 7.56 7.68 8.02 9.78 10.02
---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $278,383 264,063 295,471 298,945 301,207
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 829 497 326 494 368
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return based on net asset value reflects changes in the Fund's net
asset value during the year. Total return based on market value reflects
changes in market value. Each figure includes reinvestment of dividends.
These figures will differ depending upon the level of any discount from or
premium to net asset value at which the Fund's shares trade during the
year.
8
<PAGE> 9
KEMPER INTERMEDIATE GOVERNMENT TRUST
<TABLE>
<S> <C>
Trustees Officers
STEPHEN B. TIMBERS JOHN E. PETERS
President and Trustee Vice President
ARTHUR R. GOTTSCHALK J. PATRICK BEIMFORD, JR.
Trustee Vice President
FREDERICK T. KELSEY ELIZABETH A. BYRNES
Trustee Vice President
DAVID B. MATHIS MICHELLE M. KEELEY
Trustee Vice President
JOHN B. TINGLEFF PAUL F. SLOAN
Trustee Vice President
JOHN G. WEITHERS PHILIP J. COLLORA
Trustee Vice President and
Secretary
CHARLES F. CUSTER
Vice President and
Assistant Secretary
JEROME L. DUFFY
Treasurer
</TABLE>
SEMIANNUAL REPORT TO SHAREHOLDERS
May 31, 1995
--------------------------------------
KEMPER
--------------------------------------
INTERMEDIATE
--------------------------------------
GOVERNMENT
--------------------------------------
TRUST
--------------------------------------
<TABLE>
<S> <C>
---------------------------------------------------------
Legal Counsel Custodian and Transfer Agent
VEDDER, PRICE, KAUFMAN INVESTORS FIDUCIARY
& KAMMHOLZ TRUST COMPANY
222 North LaSalle Street 127 West 10th Street
Chicago, IL 60601 Kansas City, MO 64105
Shareholder Service Agent
KEMPER SERVICE COMPANY
P.O. Box 419430
Kansas City, MO 64141
Investment Manager
KEMPER FINANCIAL
SERVICES, INC.
120 South LaSalle Street
Chicago, IL 60603
</TABLE>
(KEMPER LOGO)
240780
KIGT--3 (7/95) (LOGO)PRINTED ON RECYCLED PAPER Printed in U.S.A.
