<PAGE> 1
Kemper Intermediate
Government Trust
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED NOVEMBER 30, 1995
"Our early decision to extend the fund's duration enabled it to perform
extremely well during the government bond rally, which began in the first
quarter of 1995, heightened in May and continued..."
<PAGE> 2
Table of
Contents
3
General
Economic Overview
5
Performance Update
6
Terms to Know
7
Portfolio Statistics
8
Portfolio of
Investments
9
Report of
Independent Auditors
10
Financial Statements
12
Notes to
Financial Statements
14
Financial Highlights
15
Description of
Dividend Reinvestment
and Cash Purchase Plan
At A Glance
<TABLE>
<CAPTION>
- -------------------------------------------------
TOTAL RETURNS
- -------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 1995:
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- -------------------------------------------------
<S> <C> <C>
KEMPER INTERMEDIATE
GOVERNMENT TRUST 15.20% 8.61%
- -------------------------------------------------
<CAPTION>
- -------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- -------------------------------------------------
AS OF AS OF
11/30/95 11/30/94
- -------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $8.31 $7.77
- -------------------------------------------------
MARKET PRICE $7.13 $7.13
- -------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------
DIVIDEND REVIEW
- -------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND
YIELD INFORMATION FOR THE FUND AS OF
NOVEMBER 30, 1995.
<S> <C>
- -------------------------------------------------
1 YEAR INCOME: $0.5970
- -------------------------------------------------
NOVEMBER DIVIDEND: $0.0475
- -------------------------------------------------
ANNUALIZED DISTRIBUTION RATE: 6.86%
(BASED ON NET ASSET VALUE)
- -------------------------------------------------
ANNUALIZED DISTRIBUTION RATE: 7.99%
(BASED ON MARKET PRICE)
- -------------------------------------------------
</TABLE>
Statistical Note: Current annualized distribution rate is the latest monthly
dividend shown as an annualized percentage of 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.
About Your Report
Your fund's annual report is one of your best sources for tracking the progress
of your investment. This report includes several changes that have been made
in an effort to provide additional information to you as well as to explain
significant changes to the fund over the last fiscal year. In addition, the
performance update includes commentary from your fund's portfolio manager or
management team on what might be expected in the coming months.
Specifically, your report now includes:
- - Terms you need to know related to your fund
- - A look at your fund's portfolio composition and how it has changed
- - The average maturity of your fund's underlying investments
If you have any comments about the revised format, please write to:
Kemper Funds
Shareholder Communications
120 South LaSalle Street
Chicago, IL 60603
<PAGE> 3
General Economic Overview
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER OF KEMPER
FINANCIAL SERVICES, INC. (KFS). KFS AND ITS AFFILIATES MANAGE APPROXIMATELY $63
BILLION IN ASSETS, INCLUDING $44 BILLION IN RETAIL MUTUAL FUNDS. TIMBERS IS A
GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
Investors enjoyed very positive performance in both the fixed income and stock
markets in 1995. The returns of most leading securities markets worldwide were
significantly higher than they were in 1994.
We have an excellent environment for financial assets. After several
quarters of robust growth, the United States economy seems to be growing at a
pace that investors find comfortable. Contrary to isolated reports that caused
some observers to become concerned, we believe the economy is in no jeopardy of
recession. Its health was confirmed with the news that the economy grew (as
measured by real gross domestic product [GDP]) at an annual rate of 4.2 percent
in the third quarter. This follows much lower growth in the first two quarters,
as the economy was adjusting to the Federal Reserve Board's series of interest
rate increases. The slowdown, in fact, was acknowledged by the Fed when it
eased short-term rates by a small but symbolic 25 basis points in July. Now we
know that the economy was rebounding from July through September.
Growth without a corresponding increase in inflation is very
encouraging. Although we are well along in the economic cycle and at a point
when prices often start hiking up, inflationary pressures have actually been
reduced somewhat.
The Fed reduced rates again in December, this time acknowledging
discussions underway to reduce the federal budget deficit. Assuming these
discussions are productive, a third rate cut is possible. Even with such
reducing by the Fed, our forecast calls for lower growth ranging between 2
percent to 3 percent for the next few quarters, with the momentum likely to
come from exports and nonresidential construction.
MARKET OUTLOOK
Slow growth and low inflation is the optimal combination for investors in the
fixed income markets, and we expect them to continue to perform well.
We believe that the opportunities for common stock investors will be
increasingly concentrated in higher quality investments. After hitting new
highs and showing considerable strength for most of the year, the stock market
has shown some vulnerability and then gone on to set records. However, it's
inevitable -- the current bull market will come to an end some day. In fact,
some sectors may be overextended today.
As we view the new year, companies cannot necessarily count on the
economy to provide above-average earnings support. Rather, stocks that have
proven themselves with a pattern of consistent earnings are likely to attract
investor support. Specifically, sectors that produce more consistent earnings,
such as health care, consumer nondurables, selected technology and selected
capital goods can be expected to do well. Picking the right sectors to invest
in will be the key challenge for equity investors during the next few quarters.
International investing continues to be quite complex. After sinking to
its post-World War II low last year, the value of the U.S. dollar has
gained strength against most foreign currencies. While a stronger dollar favors
the U.S. economy because it reduces the cost of American imports and attracts
foreign capital, a strong dollar in relation to a local currency has the effect
of devaluing a foreign investment. The value of the dollar and the
attractiveness of U.S. investments to foreign investors will be key factors in
the next few months.
3
<PAGE> 4
General Economic Overview
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 (12/31/95) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 5.71 6.28 7.78 5.75
PRIME RATE(2) 8.65 8.80 8.50 6.00
INFLATION RATE(3)* 2.60 2.97 2.60 2.74
THE U.S. DOLLAR(4)* -1.57 -9.31 -4.52 1.71
CAPITAL GOODS ORDERS(5)** 7.60 17.84 13.53 23.75
INDUSTRIAL PRODUCTION(6)* 1.88 2.80 6.43 3.76
EMPLOYMENT GROWTH(7)* 1.50 2.29 3.15 2.58
</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%. The low, moderate inflation of the
last few years has meant high real returns.
4 Changes in the exchange value of the dollar impact U.S. exporters and
the value of U.S. firms' foreign profits.
5 These influence corporate profits and equity performance.
6 An influence on corporate profits and equity performance.
7 An influence on family income and retail sales.
* Data as of November 30, 1995
** Data as of October 31, 1995
SOURCE: ECONOMICS DEPARTMENT, KEMPER FINANCIAL SERVICES, INC.
We are in the midst of a global recovery, and the same fundamentals that have
driven markets higher in the U.S. can be found in many foreign countries
currently. However, leading international economies continue to lag the U.S.
Japan and Germany, whose economies typically follow U.S. growth, are not as
robust as in past cycles. Moreover, conditions in emerging market countries
underline the importance of careful research and experience in understanding
how these markets work.
Political leadership also has some bearing on the progress of the
economy and the state of the financial markets. In the months preceding a
presidential election year, it has been common for incumbents to attempt to
stimulate growth. Given our Republican Congress and Democratic President,
however, we do not consider this as likely this time.
With the rest of the country, we are closely following political
initiatives to produce a balanced federal budget. This is a political card, but
we would expect both the stock and fixed-income markets to react with
enthusiasm if progress can be made.
With that as an economic backdrop, we encourage you to read the
following detailed report of your fund, including a question-and-answer
interview with your fund's portfolio managers. Thank you for your continued
support. We appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
CHIEF INVESTMENT AND EXECUTIVE OFFICER
January 9, 1996
4
<PAGE> 5
Performance Update
[BYRNES PHOTO]
ELIZABETH BYRNES JOINED KEMPER FINANCIAL SERVICES, INC. (KFS) IN 1982 AND IS A
FIRST VICE PRESIDENT OF KFS. SHE HAS BEEN PORTFOLIO CO-MANAGER OF KEMPER
INTERMEDIATE GOVERNMENT TRUST SINCE 1994. BYRNES RECEIVED HER B.S. DEGREE FROM
MIAMI UNIVERSITY AND IS A CERTIFIED PUBLIC ACCOUNTANT.
[KEELY PHOTO]
MICHELLE KEELEY JOINED KEMPER FINANCIAL SERVICES, INC. IN 1990 AND IS FIRST
VICE PRESIDENT OF KFS. SHE HAS BEEN PORTFOLIO CO-MANAGER OF KEMPER INTERMEDIATE
GOVERNMENT TRUST SINCE 1994. KEELEY RECEIVED HER BACHELOR OF ARTS DEGREE FROM
MICHIGAN STATE UNIVERSITY AND WENT ON TO RECEIVE HER M.M. FROM KELLOGG GRADUATE
SCHOOL OF MANAGEMENT AT NORTHWESTERN UNIVERSITY.
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.
PORTFOLIO CO-MANAGERS ELIZABETH BYRNES AND MICHELLE KEELEY DISCUSS WHY THEY
MADE INVESTING FOR TOTAL RETURN A PRIORITY AND HOW THEIR REACTIONS TO CHANGES
IN THE MARKET HELPED PROVIDE THE HIGHEST TOTAL RETURN, BASED ON NET ASSET
VALUE, IN THE FUND'S SEVEN YEAR HISTORY.
Q THE FUND'S FISCAL YEAR -- DECEMBER 1, 1994, THROUGH NOVEMBER 30, 1995
- -- WAS A PERIOD OF FALLING INTEREST RATES, WHILE THE PREVIOUS YEAR WAS MARKED
BY RISING INTEREST RATES. WHAT WAS BEHIND THIS SHIFT IN INTEREST RATE DIRECTION
AND HOW DID IT IMPACT THE BOND MARKET?
A Throughout 1994, economic growth was robust. The Federal Reserve Board
- -- in an effort to circumvent inflation -- raised the federal funds rate six
times during 1994 and once in February 1995. These interest rate hikes hurt the
market and bond prices fell dramatically. It was one of the worst years in
history for bonds.
Yet 1995 was a very good year for bonds. The Fed's tightening led to a
soft landing for the economy -- slow economic growth and low inflation. And, as
growth slowed, interest rates began to fall and the performance of fixed-income
investments improved. Government bond prices increased in 1995 as market
interest rates fell, increasing the appeal of bond investments.
Q WHAT TYPES OF ADJUSTMENTS DID YOU MAKE TO THE FUND AS INTEREST RATES
FELL?
A The most important move we made was to extend the fund's average
duration. Duration is a measurement of a portfolio's sensitivity to interest
rates. The longer the portfolio's duration, the more sensitive it is to
interest rate changes. Throughout most of 1994, when interest rates were
rising, we positioned the fund defensively and maintained a short duration. In
late December 1994 and early January 1995, however, our outlook on the economy
changed as economic indicators revealed that growth had begun to slow. At that
point, we began to extend the fund's duration because we expected interest
rates to fall.
The government bond market started to rally in the spring and interest
rates did decline. Our early decision to extend duration enabled the fund to
perform extremely well during the rally, which began in the first quarter,
heightened in May, and continued to a lesser extent through the end of the
fiscal year.
Q HOW DID YOU ADJUST THE DURATION?
A We extended the fund's duration throughout the year by investing in
discount mortgages. Discount mortgages are those purchased below par ($100).
They tend to perform well when the market rallies and interest rates fall. This
is because mortgage prepayments are more prevalent when interest rates fall and
borrowers refinance at lower market rates. Since prepayments
5
<PAGE> 6
Performance Update
are made at par value, the total return on these discount mortgages increases
as prepayments occur.
We also extended duration by purchasing intermediate-term discount
Treasuries. These longer duration securities appreciate in price as they mature.
Thus, while providing less current income, these securities offer better price
appreciation potential.
To finance our mortgage and Treasury purchases, we sold the fund's
shorter duration premium coupon Treasuries and reduced our cash equivalent
position. Although this move sacrificed some current income, it made sense
because as the premium coupon Treasuries mature, their price declines to par.
This amortization to par erodes the total return potential for the fund.
Q THE FUND'S DIVIDEND WAS CUT TWICE THIS YEAR. WERE THESE CUTS A RESULT
OF YOUR EMPHASIS ON TOTAL RETURN?
A The $0.0060 per share reduction in the fund's monthly dividend
distribution was a result of the decline in interest rates and of our strategy
of managing the fund for total return. Granted, the income provided by the
fund's large investment in premium coupon Treasuries was attractive. But we
believed that the investment couldn't offer shareholders a competitive total
return as interest rates fell. And in order to maintain that level of income
during this year's declining rate environment, we would have needed to expose
shareholders to more investment risk than we believed was prudent. Moreover, we
believe that total return -- both income and price appreciation -- benefits
shareholders in the long run.
Q WHAT'S YOUR OUTLOOK FOR THE NEXT FEW MONTHS?
A We expect that interest rates will continue to fall in the coming
months and that slow economic growth will be accompanied by a low rate of
inflation. We also expect that a meaningful federal budget resolution will be
reached, which will allow for even further interest rate cuts by the Federal
Reserve Board. Given this outlook, we have positioned the fund in short-term
and intermediate-term Treasuries that should perform well in that environment.
Q WHAT COULD THREATEN YOUR OUTLOOK -- AND RESULT IN AN ADJUSTMENT OF
YOUR PORTFOLIO MANAGEMENT STRATEGY?
A Our risks are fairly obvious. If the economy begins to grow more
rapidly, for example, our interest rate outlook will be incorrect, and we'd
have to readjust and move into shorter duration investments. But we don't see
that happening. We expect a continued slow-growth, low-inflation environment,
which is positive for government securities and for the fund.
Terms To Know
DURATION Duration is a measure of the interest rate sensitivity of a
fixed-income portfolio incorporating time to maturity and coupon size. The
larger the duration number, the greater the interest rate risk.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period, assuming the
reinvestment of all dividends. It represents the aggregate percentage or dollar
value change over the period.
YIELD A fund's yield is a measure of the net investment income per share
earned over a specific one month or 30-day period expressed as a percentage of
the maximum offering price of the fund's shares at the end of the period.
6
<PAGE> 7
Portfolio Statistics
PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
ON 11/30/95 ON 11/30/94
- ----------------------------------------------------------------------
<S> <C> <C>
INTERMEDIATE-TERM GOVERNMENTS 53% 79%
- ----------------------------------------------------------------------
MORTGAGES 35 10
- ----------------------------------------------------------------------
LONG-TERM GOVERNMENTS 12 --
- ----------------------------------------------------------------------
SHORT-TERM TREASURIES AND CASH
EQUIVALENTS (ONE YEAR OR LESS) -- 11
- ----------------------------------------------------------------------
100% 100%
- ----------------------------------------------------------------------
</TABLE>
[PIE CHART]
- - INTERMEDIATE-TERM GOVERNMENTS
- - MORTGAGES
- - LONG-TERM GOVERNMENTS
- - SHORT-TERM TREASURIES AND CASH EQUIVALENTS (ONE YEAR OR LESS)
AVERAGE MATURITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
ON 11/30/95 ON 11/30/94
- ----------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 8.3 YEARS 3.1 YEARS
- ----------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
Portfolio of Investments
KEMPER INTERMEDIATE GOVERNMENT TRUST
Portfolio of Investments at November 30, 1995
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT COUPON PRINCIPAL
OBLIGATIONS TYPE RATE MATURITY AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY Notes 9.25% 1996 $18,000 $ 18,073
SECURITIES--81.2% 8.875-9.25 1998 25,000 27,321
(Cost: $225,504) 6.375-9.125 1999 82,015 88,822
6.875-8.50 2000 23,240 25,186
6.50 2005 8,590 9,036
Bonds 11.125 2003 16,000 21,275
10.00 2010 5,000 6,448
10.375 2012 10,000 13,641
8.75 2020 7,090 9,262
8.125 2021 8,420 10,382
---------------------------------------------------------------------------
229,446
- -------------------------------------------------------------------------------------------------------
GOVERNMENT Pass-through 6.50 2026 15,000 14,691
NATIONAL MORTGAGE certificates 7.00 2022-2026 33,817 33,842
ASSOCIATION--24.3% 7.50 2022-2026 18,090 18,450
(Cost: $66,623) 9.00 2016-2025 1,587 1,673
---------------------------------------------------------------------------
68,656
- -------------------------------------------------------------------------------------------------------
FEDERAL Collateralized 5.55 2007 9,017 8,973
NATIONAL MORTGAGE mortgage 6.25 2022 10,000 9,869
ASSOCIATION--6.7% obligations
(Cost: $17,485)
---------------------------------------------------------------------------
18,842
- -------------------------------------------------------------------------------------------------------
FEDERAL HOME Collateralized 6.25 2021 10,000 9,920
LOAN MORTGAGE mortgage
CORPORATION--3.5% obligations
(Cost: $8,645)
---------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS--115.7% 326,864
(Cost: $318,257)
---------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
MONEY MARKET Yield-5.64%, Due December 1995
INSTRUMENTS--.7% (Cost: $1,999) 2,000 1,999
---------------------------------------------------------------------------
TOTAL INVESTMENTS--116.4%
(Cost: $320,256) 328,863
---------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(16.4)% (46,384)
---------------------------------------------------------------------------
NET ASSETS--100% $ 282,479
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $320,256,000 for federal income tax purposes
at November 30, 1995, the aggregate gross unrealized appreciation was
$8,895,000, the aggregate gross unrealized depreciation was $288,000 and the net
unrealized appreciation on investments was $8,607,000.
See accompanying Notes to Financial Statements.
8
<PAGE> 9
Report of Independent Auditors
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER INTERMEDIATE GOVERNMENT TRUST
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Intermediate Government Trust
as of November 30, 1995, the related statements of operations for the year then
ended and changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the fiscal years since 1991.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
November 30, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Intermediate Government Trust at November 30, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the fiscal years since 1991, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 12, 1996
9
<PAGE> 10
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995
(in thousands)
ASSETS
<TABLE>
<S> <C>
Investments, at value
(Cost: $320,256) $328,863
- -------------------------------------------------------------------------------------------------
Cash 567
- -------------------------------------------------------------------------------------------------
Receivable for:
Investments sold 10,072
- -------------------------------------------------------------------------------------------------
Interest receivable 3,907
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS 343,409
- -------------------------------------------------------------------------------------------------
</TABLE>
LIABILITIES AND NET ASSETS
<TABLE>
<S> <C>
Payable for:
Investments purchased 60,655
- -------------------------------------------------------------------------------------------------
Management fee 186
- -------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 70
- -------------------------------------------------------------------------------------------------
Other 19
- -------------------------------------------------------------------------------------------------
Total liabilities 60,930
- -------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO 33,996 SHARES OUTSTANDING, $.01 PAR VALUE, EQUIVALENT TO
$8.31 PER SHARE $282,479
- -------------------------------------------------------------------------------------------------
</TABLE>
ANALYSIS OF NET ASSETS
<TABLE>
<S> <C>
Paid-in capital $315,523
- -------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (41,789)
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 8,607
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 138
- -------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $282,479
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ($282,479 / 33,996 shares outstanding) $8.31
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE> 11
Financial Statements
STATEMENT OF OPERATIONS
Year ended November 30, 1995
(in thousands)
NET INVESTMENT INCOME
<TABLE>
<S> <C>
Interest income $22,430
- -------------------------------------------------------------------------------------------------
Expenses:
Management fee 2,181
- -------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 239
- -------------------------------------------------------------------------------------------------
Professional fees 60
- -------------------------------------------------------------------------------------------------
Reports to shareholders 37
- -------------------------------------------------------------------------------------------------
Trustees' fees and other 70
- -------------------------------------------------------------------------------------------------
Total expenses 2,587
- -------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 19,843
- -------------------------------------------------------------------------------------------------
</TABLE>
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
<TABLE>
<S> <C>
Net realized gain on sales of investments (including options purchased) 2,842
- -------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 1,575
- -------------------------------------------------------------------------------------------------
Net realized gain 4,417
- -------------------------------------------------------------------------------------------------
Change in net unrealized depreciation on investments 14,452
- -------------------------------------------------------------------------------------------------
Net gain on investments 18,869
- -------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $38,712
- -------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS AND DIVIDENDS
Net investment income $19,843 21,451
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) 4,417 (27,056)
- --------------------------------------------------------------------------------------------------
Change in net unrealized depreciation 14,452 (2,567)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 38,712 (8,172)
- --------------------------------------------------------------------------------------------------
Distribution from net investment income (20,296) (23,236)
- --------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 18,416 (31,408)
- --------------------------------------------------------------------------------------------------
</TABLE>
NET ASSETS
<TABLE>
<S> <C> <C>
Beginning of year 264,063 295,471
- --------------------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment income of
$138 and $585, respectively) $282,479 264,063
- --------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
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.
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 segregate cash or other liquid assets
equal to the value of the securities purchased. At
November 30, 1995 the Fund had $51,446,000 in
purchase commitments outstanding (18.2% of net
assets) with a corresponding amount of assets
segregated.
FEDERAL INCOME TAXES AND DIVIDENDS TO SHAREHOLDERS.
The Fund has complied with the special provisions
of the Internal Revenue Code available to
investment companies and therefore no federal
income tax is required. The accumulated net
realized loss on sales of investments for federal
income tax purposes at November 30, 1995, amounting
to approximately $41,775,000, is available to
offset future taxable gains. If not applied, the
loss carryover expires during the period 1998
through 2002.
12
<PAGE> 13
Notes to Financial Statements
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) and pays a
management fee at an annual rate of .80% of average
weekly net assets. The Fund incurred a management
fee of $2,181,000 for the year ended November 30,
1995.
Pursuant to a services agreement with the Fund's
transfer agent, Kemper Service Company (KSvC) is
the shareholder service agent of the Fund. For the
year ended November 30, 1995, the transfer agent
remitted shareholder services fees to KSvC of
$50,000.
Certain officers or trustees of the Fund are also
officers or directors of KFS. During the year ended
November 30, 1995, the Fund made no direct payments
to its officers and incurred trustees' fees of
$15,000 to independent trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the year ended November 30, 1995, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $1,557,343
Proceeds from sales 1,507,046
13
<PAGE> 14
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $7.77 8.69 8.81 8.97 8.70
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .58 .63 .71 .87 .87
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .56 (.87) (.12) (.28) .28
- ------------------------------------------------------------------------------------------------------------
Total from investment operations 1.14 (.24) .59 .59 1.15
- ------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .60 .68 .71 .75 .88
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of year $8.31 7.77 8.69 8.81 8.97
- ------------------------------------------------------------------------------------------------------------
Market value, end of year $7.13 7.13 8.50 8.88 9.00
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN
Based on net asset value 15.20% (2.85) 6.90 6.76 13.96
- ------------------------------------------------------------------------------------------------------------
Based on market value 8.61 (8.24) 3.92 7.00 13.21
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses .95% .94 .92 .93 .93
- ------------------------------------------------------------------------------------------------------------
Net investment income 7.28 7.68 8.02 9.78 10.02
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets at end of year (in thousands) $282,479 264,063 295,471 298,945 301,207
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 552% 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.
14
<PAGE> 15
Description of Dividend Reinvestment and Cash Purchase Plan
- --------------------------------------------------------------------------------
1 PARTICIPATION We invite you to review the description of the
Dividend Reinvestment and Cash Purchase Plan (the
"Plan") which is available to you as a shareholder
of Kemper Intermediate Government Trust (the
"Fund"). If you wish to participate and your shares
are held in your own name, simply contact Kemper
Service Company, whose address and phone number are
provided in Paragraph 4 for the appropriate form.
If your shares are held in the name of a brokerage
firm, bank, or other nominee, you must instruct
that nominee to re-register your shares in your
name so that you may participate in the Plan,
unless your nominee has made the Plan available on
shares held by them. Shareholders who so elect will
be deemed to have appointed United Missouri Bank,
n.a. ("UMB") as their agent and as agent for the
Fund under the Plan.
- --------------------------------------------------------------------------------
2 DIVIDEND INVESTMENT
ACCOUNT The Fund's transfer agent and dividend disbursing
agent or its delegate ("Agent") will establish a
Dividend Investment Account (the "Account") for
each shareholder participating in the Plan. Agent
will credit to the Account of each participant
funds it receives from the following sources: (a)
cash dividends and capital gains distributions paid
on shares of beneficial interest (the "Shares") of
the Fund registered in the participant's name on
the books of the Fund; (b) cash dividends and
capital gains distributions paid on Shares
registered in the name of Agent but credited to the
participant's Account; and (c) voluntary cash
contributions made pursuant to Paragraph 5 hereof.
Sources described in clauses (a) and (b) of the
preceding sentence are hereinafter called
"Distributions."
- --------------------------------------------------------------------------------
3 INVESTMENT OF
DISTRIBUTION FUNDS HELD
IN EACH ACCOUNT If on the record date for a Distribution (the
"Record Date"), Shares are trading at a discount
from net asset value per Share (according to the
evaluation most recently made on Shares of the
Fund), funds credited to a participant's Account
will be used to purchase Shares (the "Purchase").
UMB will attempt, commencing five (5) days prior to
the Payment Date and ending at the close of
business on the Payment Date ("Payment Date" as
used herein shall mean the last business day of the
month in which such Record Date occurs), to acquire
Shares in the open market. If and to the extent
that UMB is unable to acquire sufficient Shares to
satisfy the Distribution by the close of business
on the Payment Date, the Fund will issue to UMB
Shares valued at net asset value per Share
(according to the evaluation most recently made on
Shares of the Fund) in the aggregate amount of the
remaining value of the Distribution. If, on the
Record Date, Shares are trading at a premium over
net asset value per Share, the Fund will issue on
the Payment Date, Shares valued at net asset value
per Share on the Record Date to Agent in the
aggregate amount of the funds credited to the
participants' accounts. All cash contributions to a
participant's Account made pursuant to Paragraph 5
hereof will be invested in Shares purchased in the
open market.
- --------------------------------------------------------------------------------
4 ADDITIONAL INFORMATION Address all notices, correspondence, questions, or
other communication regarding the Plan to:
KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, Missouri 64141-6066
1-800-294-4366
15
<PAGE> 16
Description of Dividend Reinvestment and Cash Purchase Plan
- --------------------------------------------------------------------------------
5 VOLUNTARY CASH
CONTRIBUTIONS A participant may from time to time make voluntary
cash contributions to his Account by sending to
Agent a check or money order, payable to Agent, in
a minimum amount of $100 with appropriate
accompanying instructions. (No more than $500 may
be contributed per month.) Agent will inform UMB of
the total funds available for the purchase of
Shares and UMB will use the funds to purchase
additional Shares for the participant's Account the
earlier of: (a) when it next purchases Shares as a
result of a Distribution or (b) on or shortly after
the first day of each month and in no event more
than 30 days after such date except when temporary
curtailment or suspension of purchases is necessary
to comply with applicable provisions of Federal
securities laws. Cash contributions received more
than fifteen calendar days or less than five
calendar days prior to a Payment Date will be
returned uninvested. Interest will not be paid on
any uninvested cash contributions. Participants
making voluntary cash investments will be charged a
$.75 service fee for each such investment and will
be responsible for their pro rata brokerage
commissions.
- --------------------------------------------------------------------------------
6 ADJUSTMENT OF
PURCHASE PRICE The Fund will increase the price at which Shares
may be issued under the Plan to 95% of the fair
market value of the shares on the Record Date if
the net asset value per Share of the Shares on the
Record Date is less than 95% of the fair market
value of the Shares on the Record Date.
- --------------------------------------------------------------------------------
7 DETERMINATION OF
PURCHASE PRICE The cost of Shares and fractional Shares acquired
for each participant's Account in connection with a
Purchase shall be determined by the average cost
per Share, including brokerage commissions as
described in Paragraph 8 hereof, of the Shares
acquired by UMB in connection with that Purchase.
Shareholders will receive a confirmation showing
the average cost and number of Shares acquired as
soon as practicable after Agent has received or UMB
has purchased Shares. Agent may mingle the cash in
a participant's account with similar funds of other
participants of the Fund for whom UMB acts as agent
under the Plan.
- --------------------------------------------------------------------------------
8 BROKERAGE CHARGES There will be no brokerage charges with respect to
Shares issued directly by the Fund as a result of
Distributions. However, each participant will pay a
pro rata share of brokerage commissions incurred
with respect to UMB's open market purchases in
connection with the reinvestment of Distributions
as well as from voluntary cash contributions. With
respect to purchases from voluntary cash
contributions, UMB will charge a pro rata share of
the brokerage commissions. Brokerage charges for
purchasing small amounts of Shares for individual
Accounts through the Plan can be expected to be
less than the usual brokerage charges for such
transactions, as UMB will be purchasing Shares for
all participants in blocks and prorating the lower
commission thus attainable.
- --------------------------------------------------------------------------------
9 SERVICE CHARGES There is no service charge by Agent or UMB to
shareholders who participate in the Plan other than
service charges specified in Paragraphs 5 and 13
hereof. However, the Fund reserves the right to
amend the Plan in the future to include a service
charge.
16
<PAGE> 17
Description of Dividend Reinvestment and Cash Purchase Plan
- --------------------------------------------------------------------------------
10 TRANSFER OF SHARES
HELD BY AGENT Agent will maintain the participant's Account, hold
the additional Shares acquired through the Plan in
safekeeping and furnish the participant with
written confirmation of all transactions in the
Account. Shares in the Account are transferable
upon proper written instructions to Agent. Upon
request to Agent, a certificate for any or all full
Shares in a participant's Account will be sent to
the participant.
- --------------------------------------------------------------------------------
11 SHARES NOT HELD IN
SHAREHOLDER'S NAME Beneficial owners of Shares which are held in the
name of a broker or nominee will not be
automatically included in the Plan and will receive
all distributions in cash. Such shareholders should
contact the broker or nominee in whose name their
Shares are held to determine whether and how they
may participate in the Plan.
- --------------------------------------------------------------------------------
12 AMENDMENTS Experience under the Plan may indicate that changes
are desirable. Accordingly, the Fund reserves the
right to amend or terminate the Plan, including
provisions with respect to any Distribution paid
subsequent to notice thereof sent to participants
in the Plan at least ninety days before the record
date for such Distribution.
- --------------------------------------------------------------------------------
13 WITHDRAWAL FROM
PLAN Shareholders may withdraw from the Plan at any time
by giving Agent a written notice. If the proceeds
are $25,000 or less and the proceeds are to be
payable to the shareholder of record and mailed to
the address of record, a signature guarantee
normally will not be required for notices by
individual account owners (including joint account
owners), otherwise a signature guarantee will be
required. In addition, if the certificate is to be
sent to anyone other than the registered owner(s)
at the address of record, a signature guarantee
will be required on the notice. A notice of
withdrawal will be effective for the next
Distribution following receipt of the notice by the
Agent provided the notice is received by the Agent
at least ten days prior to the Record Date for the
Distribution. When a participant withdraws from the
Plan, or when the Plan is terminated in accordance
with Paragraph 12 hereof, the participant will
receive a certificate for full Shares in the
Account, plus a check for any fractional Shares
based on market price; or if a Participant so
desires, Agent will notify UMB to sell his Shares
in the Plan and send the proceeds to the
participant, less brokerage commissions and a $2.50
service fee.
- --------------------------------------------------------------------------------
14 TAX IMPLICATIONS Shareholders will receive tax information annually
for personal records and to assist in preparation
of Federal income tax returns. If shares are
purchased at a discount, the amount of the discount
is considered taxable income and is added to the
cost basis of the purchased shares.
17
<PAGE> 18
Shareholders' Meeting
SPECIAL SHAREHOLDERS' MEETING
On September 19, 1995, a special shareholders' meeting was held. Kemper
Intermediate Government Trust shareholders were asked to vote on three separate
issues: election of two additional members to the Board of Trustees,
ratification of Ernst & Young LLP as independent auditors and approval of a new
investment management agreement with Kemper Financial Services, Inc. or its
successor on the same terms as the current agreement. We are pleased to report
that all nominees were elected and all other items were approved. Following are
the results for each issue:
1) Election of additional Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Akins 24,407,493 14,653
Fred B. Renwick 24,405,050 17,096
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
23,818,145 189,010 414,991
</TABLE>
3) Approval of new investment management agreement
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
23,426,641 449,272 546,233
</TABLE>
18
<PAGE> 19
NOTES
19
<PAGE> 20
Trustees and Officers
TRUSTEES OFFICERS
STEPHEN B. TIMBERS JOHN E. PETERS
President and Trustee Vice President
JAMES E. AKINS J. PATRICK BEIMFORD, JR.
Trustee Vice President
ARTHUR R. GOTTSCHALK ELIZABETH A. BYRNES
Trustee Vice President
FREDERICK T. KELSEY MICHELLE M. KEELEY
Trustee Vice President
DAVID B. MATHIS PHILIP J. COLLORA
Trustee Vice President and
Secretary
FRED B. RENWICK
Trustee CHARLES F. CUSTER
Vice President and
JOHN B. TINGLEFF Assistant Secretary
Trustee
JEROME L. DUFFY
JOHN G. WEITHERS Treasurer
Trustee
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, MO 64141-6066
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
INVESTMENT MANAGER KEMPER FINANCIAL SERVICES, INC.
120 South LaSalle Street
Chicago, IL 60603
[RECYCLED LOGO] [KEMPER FUNDS LOGO]
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