<PAGE> 1
KEMPER
INTERMEDIATE
GOVERNMENT TRUST
REPORT TO SHAREHOLDERS FOR THE MONTH ENDED DECEMBER 31, 1996
AND FOR THE YEAR ENDED NOVEMBER 30, 1996
" ....By fall, we extended the fund's
duration and maintained it at a neutral to
slightly longer position."
[KEMPER FUND LOGO]
<PAGE> 2
CONTENTS
2
About Your Report
At a Glance
3
Economic Overview
5
Performance Update
7
Terms to Know
8
Portfolio Statistics
9
Report of Independent Auditors
10
Portfolio of Investments
12
Financial Statements
14
Notes to Financial Statements
16
Financial Highlights
17
Description of Dividend Reinvestment Plan
ABOUT YOUR REPORT
- --------------------------------------------------------------------------------
CHANGE IN FISCAL YEAR
The fiscal year end for Kemper Intermediate Government Trust has been changed to
December 31 from November 30. Therefore, this report contains information about
the fund covering the 13-month period ended December 31, 1996. You can expect
your next shareholder report, which will be a semiannual update, in August.
AT A GLANCE
- --------------------------------------------------------------------------------
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER INTERMEDIATE
GOVERNMENT TRUST 2.21% 7.14%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- --------------------------------------------------------------------------------
AS OF AS OF
12/31/96 12/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $7.90 $8.37
- --------------------------------------------------------------------------------
MARKET PRICE $7.125 $7.25
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DISTRIBUTION REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DISTRIBUTION AND YIELD INFORMATION FOR THE
FUND AS OF DECEMBER 31, 1996.
<TABLE>
<S> <C>
1-YEAR DISTRIBUTION: $0.6375
- --------------------------------------------------------------------------------
DECEMBER DISTRIBUTION: $0.0550
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE
(BASED ON NET ASSET VALUE): 8.35%
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE
(BASED ON MARKET PRICE): 9.26%
- --------------------------------------------------------------------------------
</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 price 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
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $79 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:
As we begin a new year, it's remarkable how eventful 1996 was and yet,
economically, we are essentially where we were one year ago.
The fundamentals of the economy are remarkably similar. Long-term interest
rates are approximately 6.5% compared to the 6.5% to 7% range they were in
during the first half of 1996. We believe the economy is growing at a rate of
approximately 2.5%. Inflation continues to be well under control, at about 3.0%.
One significant difference between today and one year ago is that prices of
the stocks are on average up 20%. While price movements were more volatile in
1996 than in the past few years, the patient investor was amply rewarded. The
prime element sending the stock market higher was strong positive cash flows.
This liquidity in an environment of modestly increasing corporate profits and
relatively stable interest rates pushed stocks higher for most of the year.
This higher stock market has caused many market observers to worry. While
we cannot ignore what has happened, we find no reason to be bearish over the
long term. The environment is benign to favorable for financial assets. Given
steady interest rates, moderate economic growth and continued moderate corporate
earnings growth, there are few excesses in the system. In fact, real interest
rates are probably too high considering our outlook for inflation, and we may
see them decline over time.
Naturally, we cannot rule out the possibility of a market correction. But,
in our belief, the downside would appear to be limited to 5% to 8%, which is the
size of a typical correction based on historical data. As we have said in
previous outlooks, three elements tend to move the market:
- EARNINGS. We forecast corporate earnings to range between 0% and 5% on
average for the Standard & Poor's 500* in 1997 -- not as high as in
recent years but positive nonetheless.
- INTEREST RATES. Rates should remain stable, and short-term interest rates
may even decline.
- LIQUIDITY. Investors, through mutual funds, 401(k)s and qualified
contribution plans in particular, will continue to create strong demand
for securities.
In order to move the market more than would be expected in a typical
decline, one or more of these elements will have to turn negative in 1997, and,
while future market conditions cannot be predicted with certainty, we fail to
see what would materially change our outlook. Our outlook going forward is that
1997 should be a lot like 1996.
While the economy continued along a relatively consistent path, the United
States took some politically significant steps in 1996. First, of course,
President Bill Clinton and a Republican Congress were re-elected by the voters.
In the first few days after the general election, especially, investors
demonstrated their support for such a balance in our leadership. But of much
greater long-term significance is the expressed commitment by both parties to
balance the federal budget and address certain entitlement programs. The first
year after an election can be a fertile time to accomplish major initiatives,
and we are hopeful that progress can be made.
The future of the Social Security system, which many experts believe will
run out of money about 20 years from now, will be a subject in which you can
expect Zurich Kemper Investments, Inc. to play a leadership role. The possible
solutions for "fixing Social Security" are finite: raise Social Security taxes,
reduce benefits, raise the retirement age, change inflation assumptions or
pursue a higher rate of return on assets contributed by workers. We believe that
a bipartisan solution will be worked out, which will include giving individuals
the option of investing a portion of their Social Security contributions in an
account earmarked for them. This change is needed to return credibility to the
system, which many Americans have lost faith in.
What to do with Social Security is a debate that spans generations and
promises to occupy much attention in the coming years. As we hope to help
advance constructive debate, we'll be advocating partial privatization for this
federal program while maintaining a safety net for many low-wage earners and
providing a seamless transition for seniors near or in retirement.
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 (12/31/96) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.30 6.87 5.65 7.78
PRIME RATE (2) 8.25 8.25 8.50 8.50
INFLATION RATE(3)* 3.19 2.75 2.60 2.61
THE U.S. DOLLAR (4) 4.36 8.55 -0.57 -5.29
CAPITAL GOODS ORDERS (5)* 2.69 1.85 13.09 3.68
INDUSTRIAL PRODUCTION (5)* 4.40 4.12 1.08 6.43
EMPLOYMENT GROWTH (6) 2.17 2.19 1.57 3.52
</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,
inflations 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 family income and retail sales.
* Data as of November 30, 1996.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this letter as an economic backdrop, we encourage you to read the
following detailed report of your fund, including an interview with your fund's
portfolio management. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
Zurich Kemper Investments, Inc.
January 9, 1997
*THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
4
<PAGE> 5
PERFORMANCE UPDATE
[BYRNES PHOTO]
ELIZABETH BYRNES JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI) IN 1982 AND IS A
FIRST VICE PRESIDENT OF ZKI. SHE HAS BEEN PORTFOLIO CO-MANAGER OF KEMPER
INTERMEDIATE GOVERNMENT TRUST SINCE 1994. BYRNES RECEIVED A BACHELOR OF SCIENCE
DEGREE FROM MIAMI UNIVERSITY AND IS A CERTIFIED PUBLIC ACCOUNTANT.
[VANDENBERG PHOTO]
RICHARD VANDENBERG JOINED ZKI IN MARCH 1996. HE IS SENIOR VICE PRESIDENT OF ZKI
AND PORTFOLIO CO-MANAGER OF KEMPER INTERMEDIATE GOVERNMENT TRUST. VANDENBERG HAS
MORE THAN 22 YEARS OF FIXED-INCOME PORTFOLIO MANAGEMENT EXPERIENCE. HE RECEIVED
BOTH A BACHELOR'S DEGREE AND M.B.A. FROM THE UNIVERSITY OF WISCONSIN.
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.
THE FISCAL YEAR END FOR KEMPER INTERMEDIATE GOVERNMENT TRUST HAS BEEN CHANGED
TO DECEMBER 31 FROM NOVEMBER 30. THIS REPORT SUMMARIZES THE ADJUSTMENTS MADE
TO THE FUND DURING THE 13-MONTH PERIOD ENDED DECEMBER 31, 1996. DURING THIS
TIME, RICHARD VANDENBERG JOINED BETH BYRNES AS PORTFOLIO CO-MANAGER OF THE
FUND.
Q HOW WOULD YOU CHARACTERIZE THE ECONOMIC ENVIRONMENT OVER THE LAST 13
MONTHS, AND HOW DID GOVERNMENT SECURITIES FARE?
A The investment climate changed dramatically over the past 13 months. We
began the fiscal year in the midst of 1995's strong bond market rally that
continued into the early part of 1996. The market became bearish in February and
interest rates rose more than 100 basis points during the next six months. On
January 3, 1996, the rate on a 30-year Treasury was 5.89 percent and on July 8,
the 30-year Treasury was at 7.12 percent. In September, the market reversed
course and rates declined by approximately 40 basis points by the end of
December 1996.
Here's what happened to cause the reversal: At the start of the fiscal
year, investors were optimistic about the government market. It was expected
that the economy would continue to grow slowly, inflation would remain low, and
that perhaps the Federal Reserve Board (the Fed) would lower short-term
interest rates. (The Fed did reduce rates in both December 1995 and January
1996.) The market was also hopeful that the negotiations underway in
Washington, D.C. in late 1995 would lead to an agreement with a solid plan for
reducing the federal budget deficit. All of these events were positive for
government securities because they supported a slow growth, benign inflation
environment. As a result, market interest rates (yields) of government
securities fell and their prices increased.
In February 1996, data was released that indicated that economic growth was
improving. In addition, federal budget negotiations had broken down. Moreover,
with the start of the federal election primaries, the focus moved away from the
federal budget and deficit reduction proposals toward other issues. This
effectively eliminated the chances for a balanced budget during the first half
of 1996. As optimism about deficit reduction began to fade and the pace of
economic growth improved, bond yields began rising and prices began declining.
The most dramatic rise in yields occurred in early March, when the U.S.
Department of Labor announced an unanticipated and dramatic increase in
employment growth. Many bond investors interpreted this as evidence that the
economy was growing faster than its potential, or at an inflationary pace.
Concerned that the Fed would raise rates to slow growth and contain inflation,
the market sold off and yields jumped. The government market continued to trade
in a choppy pattern until September, when fears of a Fed intervention abated.
Since September, interest rates have declined and the market has become more
optimistic.
5
<PAGE> 6
PERFORMANCE UPDATE
Q WHAT OCCURRED LAST FALL TO REIGNITE THE BOND MARKET?
A In September, economic data began to show signs of slower economic growth,
especially in the manufacturing and housing industries. This news, coupled with
a still relatively benign rate of inflation, virtually eliminated concern in the
market about a Fed intervention. The market was further charged by the
re-election of President Bill Clinton and a Republican Congress. Since the
election, federal budget negotiations have resumed, and the market has become
optimistic that some credible progress may occur. All of these events created a
favorable environment for the bond market.
Q HOW WAS THE FUND'S PERFORMANCE AFFECTED BY RISING AND THEN FALLING INTEREST
RATES?
A Rising interest rates hurt the performance of government bonds and the fund
while falling rates (during the beginning and at the end of the fiscal period)
boosted performance.
In December 1995, we had expected interest rates to continue falling and
therefore positioned the fund with a longer-than-average duration. Duration is a
measure of a fund's sensitivity to interest rates. The longer the duration, the
more sensitive it is to interest rate changes. Our outlook on rates, however,
began to change in February so we reduced the fund's duration believing that the
yields would not continue their precipitous decline. We reduced duration again
in early March and positioned the fund for a more stable interest rate
environment. Unfortunately, the employment release in March caused the market to
trade down sharply, which hurt the fund's performance -- even with its shortened
duration.
From that point, we maintained a neutral to defensive duration
positioning for the fund. This means that we reduced the portfolio's duration
to a length similar to that of the market or shorter. This positioning helped
the fund as the market traded in a choppy pattern throughout the summer. By
fall, we extended the fund's duration and maintained it at a neutral to
slightly longer position. We extended duration because we were convinced that
the economy had slowed down to a non-inflationary pace and because we didn't
expect any sharp spikes in interest rates. This lengthening of duration was
positive for the fund.
Q WHAT TYPES OF ADJUSTMENTS DID YOU MAKE TO THE PORTFOLIO TO ALTER THE FUND'S
DURATION?
A To adjust duration, we altered our level of mortgage holdings versus U.S.
Treasuries. When interest rates fell during the first two months of the period,
we added Treasuries to the portfolio. This enabled the fund to benefit from the
market's rally, as Treasuries offer better price appreciation potential when
interest rates decline. It also reduced the fund's exposure to mortgage
prepayment risk. The risk of prepayments is always more prevalent when rates
fall because borrowers are likely to refinance into lower-rate mortgages. As
this happens, mortgages with higher interest rates are paid off early and the
proceeds are reinvested at lower market rates. Although mortgages generally
provide higher yields, Treasuries offered the potential for a higher total
return early in the fiscal year. Total return, remember, includes both income on
the investments and price change.
In February 1996, we began selling Treasuries to reduce the fund's duration
and to increase its investment in mortgages. This adjustment was made because we
expected that rates would begin to stabilize or move somewhat higher. In a
higher interest rate environment, mortgages tend to outperform Treasuries.
Another reason for the adjustment was to align the fund's portfolio more closely
to the defensive positioning favored by our peers. We maintained our exposure to
mortgages until September, when rates began to move lower again. At that time we
increased the fund's exposure to Treasuries because economic growth seemed to be
moderating and fears of an interest rate tightening by the Fed were beginning to
abate. This addition of longer term securities, although somewhat bullish, kept
the fund's duration at neutral to slightly extended.
Q HOW EFFECTIVE HAS THE FUND'S MANAGED DISTRIBUTION STRATEGY BEEN?
A As you'll recall, the fund adopted a managed distribution strategy in April
1996, because it was determined that a competitive, consistent stream of
distribution could have a positive impact on the fund's discount. This strategy
enabled us to provide a stable monthly distribution of $0.055 per share. These
6
<PAGE> 7
PERFORMANCE UPDATE
monthly distributions, which began at the end of April, can be made from the
fund's income, net capital gains and, to the extent necessary, shareholders'
capital. Two of the distribution payments have returned a portion of
shareholders' capital while the rest have been paid solely from income.
Since the managed distribution strategy was implemented, the fund's
discount to net asset value has moved from 10.38 percent to 9.81 percent
as of December 31, 1996. The Board of Trustees and management of the fund will
continue to monitor the discount to determine whether or not it is appropriate
to continue with the managed distribution strategy.
Q WHAT'S YOUR OUTLOOK FOR THE GOVERNMENT MARKET AND KEMPER INTERMEDIATE
GOVERNMENT TRUST IN PARTICULAR?
A Our outlook for the market has turned cautious. Since mid-December,
Treasury prices have declined as economic data has posted stronger than expected
growth. The fourth quarter gross domestic product (GDP) now appears stronger
than the market had previously forecasted.
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
longer the duration, 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. Total return may be based upon net asset value or
market price.
7
<PAGE> 8
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
ON 12/31/96 ON 12/31/95
- ------------------------------------------------------------------------------
<S> <C> <C>
INTERMEDIATE-TERM GOVERNMENTS 28% 38%
- ----------------------------------------------------------------------------
MORTGAGES 52 34
- ----------------------------------------------------------------------------
LONG-TERM GOVERNMENTS -- 17
- ----------------------------------------------------------------------------
SHORT-TERM TREASURIES AND CASH
EQUIVALENTS (ONE YEAR OR LESS) 20 11
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 12/31/96 ON 12/31/95
AVERAGE MATURITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
ON 12/31/96 ON 12/31/95
- -----------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 6.2 YEARS 8.7 YEARS
- -----------------------------------------------------------------------------
</TABLE>
* Portfolio composition is subject to change.
8
<PAGE> 9
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER INTERMEDIATE GOVERNMENT TRUST
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Kemper Intermediate Government Trust
as of December 31, 1996 and November 30, 1996, the related statements of
operations for the month ended December 31, 1996 and the year ended November 30,
1996, and changes in net assets for the month ended December 31, 1996, and for
each of the two years in the period ended November 30, 1996, and the financial
highlights for the month ended December 31, 1996 and for each of the fiscal
years since 1992. 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 December 31, 1996 and November 30, 1996, 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 December 31, 1996 and November 30, 1996, the
results of its operations, the changes in its net assets and the financial
highlights for the periods referred to above in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 17, 1997
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER INTERMEDIATE GOVERNMENT TRUST
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COUPON PRINCIPAL
TYPE RATE MATURITY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U. S. GOVERNMENT OBLIGATIONS
U.S. TREASURY Notes 8.125-9.25% 1998 $53,500 $ 56,130
SECURITIES - 72.1% 8.00 1999 22,000 23,055
(Cost: $196,348) 8.75 2000 22,240 24,099
7.00 2006 41,400 43,024
Bonds 13.75 2004 7,450 10,722
9.125 2009 10,727 12,358
12.75 2010 2,495 3,532
10.375 2012 12,020 15,485
12.00 2013 3,700 5,294
---------------------------------------------------------------------------
193,699
- ------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL Adjustable rate mortgage 7.125 2022 5,833 5,962
MORTGAGE ASSOCIATION Pass-through 7.00 2022-2027 10,245 10,022
- - 34.3% certificates 7.50 2022-2027 27,561 27,604
(Cost: $90,567) 8.00 2027 31,000 31,620
8.50 2027 15,000 15,539
9.00 2016-2025 1,194 1,267
---------------------------------------------------------------------------
92,014
- ------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN Collateralized mortgage 5.00 2021 5,000 4,547
MORTGAGE CORPORATION obligations 6.25 2021 10,000 9,681
- - 9.7% 7.00 2021 12,000 11,822
(Cost: $24,869)
---------------------------------------------------------------------------
26,050
- ------------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL Collateralized mortgage 6.25 2022 10,000 9,594
MORTGAGE ASSOCIATION obligations 7.00 2027 12,000 11,741
- - 7.9%
(Cost: $20,380)
---------------------------------------------------------------------------
21,335
---------------------------------------------------------------------------
TOTAL INVESTMENTS--124.0%
(Cost: $332,164) 333,098
---------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(24.0)% (64,580)
---------------------------------------------------------------------------
NET ASSETS--100.0% $268,518
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $332,164,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $4,291,000, the
gross unrealized depreciation was $3,357,000 and the net unrealized appreciation
of investments was $934,000.
See accompanying Notes to Financial Statements.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER INTERMEDIATE GOVERNMENT TRUST
PORTFOLIO OF INVESTMENTS AT NOVEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COUPON PRINCIPAL
TYPE RATE MATURITY AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U. S. GOVERNMENT OBLIGATIONS
U.S. TREASURY Notes 8.125 - 9.25% 1998 $57,500 $ 60,621
SECURITIES - 74.3% 8.00 1999 22,000 23,258
(Cost: $202,238) 8.75 2000 23,240 25,524
7.00 2006 41,400 44,143
Bonds 11.875 2003 3,200 4,262
13.75 2004 7,450 10,957
9.125 2009 10,727 12,624
10.375 2012 12,020 15,883
12.00 2013 3,700 5,434
--------------------------------------------------------------------------
202,706
- -----------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL Pass-through 7.00 2022-2026 5,272 5,246
MORTGAGE ASSOCIATION certificates 7.50 2022-2027 27,672 28,095
- - 26.3% 8.00 2027 21,000 21,610
(Cost: $69,625) 8.50 2027 15,000 15,628
9.00 2016-2025 1,203 1,285
--------------------------------------------------------------------------
71,864
- -----------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN Collateralized mortgage 5.00 2021 5,000 4,614
MORTGAGE CORPORATION obligations 6.25 2021 10,000 9,869
- - 9.7% 7.00 2021 12,000 12,034
(Cost: $24,866)
--------------------------------------------------------------------------
26,517
- -----------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL Collateralized mortgage 6.25 2022 10,000 9,806
MORTGAGE ASSOCIATION obligations 7.00 2027 12,000 11,888
- - 8.0%
(Cost: $20,378)
--------------------------------------------------------------------------
21,694
--------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS--118.3%
(Cost: $317,107) 322,781
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield 5.70%
INSTRUMENT - .5% Due--December 1996 1,300 1,300
(Cost: $1,300)
--------------------------------------------------------------------------
TOTAL INVESTMENTS--118.8%
(Cost: $318,407) 324,081
--------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(18.8)% (51,324)
--------------------------------------------------------------------------
NET ASSETS--100.0% $272,757
--------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $318,407,000 for federal income tax purposes
at November 30, 1996, the gross unrealized appreciation was $7,266,000, the
gross unrealized depreciation was $1,592,000 and the net unrealized appreciation
of investments was $5,674,000.
See accompanying Notes to Financial Statements.
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1996 1996
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------
Investments, at value
(Cost: $332,164 and $318,407, respectively) $333,098 324,081
- -----------------------------------------------------------------------------------------------
Cash 144 97
- -----------------------------------------------------------------------------------------------
Receivable for:
Investments sold 348 --
- -----------------------------------------------------------------------------------------------
Interest 5,697 4,460
- -----------------------------------------------------------------------------------------------
TOTAL ASSETS 339,287 328,638
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -----------------------------------------------------------------------------------------------
Payable for:
Investments purchased 70,528 55,646
- -----------------------------------------------------------------------------------------------
Management fee 180 181
- -----------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 34 28
- -----------------------------------------------------------------------------------------------
Trustees' fees and other 27 26
- -----------------------------------------------------------------------------------------------
Total liabilities 70,769 55,881
- -----------------------------------------------------------------------------------------------
NET ASSETS $268,518 272,757
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -----------------------------------------------------------------------------------------------
Paid-in capital $314,706 315,061
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (47,122) (47,978)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 934 5,674
- -----------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $268,518 272,757
- -----------------------------------------------------------------------------------------------
SHARES OUTSTANDING 33,996 33,996
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, $.01 PAR VALUE $7.90 8.02
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONE MONTH
ENDED YEAR ENDED
DECEMBER 31, NOVEMBER 30,
1996 1996
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------
Interest income $ 1,727 23,310
- ---------------------------------------------------------------------------------------------
Expenses:
Management fee 180 2,187
- ---------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 13 106
- ---------------------------------------------------------------------------------------------
Professional fees 14 52
- ---------------------------------------------------------------------------------------------
Reports to shareholders 1 56
- ---------------------------------------------------------------------------------------------
Trustees' fees and other 4 91
- ---------------------------------------------------------------------------------------------
Total expenses 212 2,492
- ---------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,515 20,818
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS
- ---------------------------------------------------------------------------------------------
Net realized loss on sales of investments (including
options purchased) (72) (4,029)
- ---------------------------------------------------------------------------------------------
Net realized gain(loss) from futures transactions 928 (2,160)
- ---------------------------------------------------------------------------------------------
Net realized gain(loss) 856 (6,189)
- ---------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (4,740) (2,933)
- ---------------------------------------------------------------------------------------------
Net loss on investments (3,884) (9,122)
- ---------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $(2,369) 11,696
- ---------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONE MONTH
ENDED YEAR ENDED NOVEMBER 30,
DECEMBER 31, -------------------------
1996 1996 1995
- ------------------------------------------------------------------------------------------------------------
OPERATIONS AND DIVIDENDS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income $ 1,515 20,818 19,843
- ------------------------------------------------------------------------------------------------------------
Net realized gain(loss) 856 (6,189) 4,417
- ------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation (4,740) (2,933) 14,452
- ------------------------------------------------------------------------------------------------------------
Net increase(decrease) in net assets resulting from
operations (2,369) 11,696 38,712
- ------------------------------------------------------------------------------------------------------------
Distribution from net investment income (1,515) (20,956) (20,296)
- ------------------------------------------------------------------------------------------------------------
Tax return of capital distribution (355) (462) --
- ------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1,870) (21,418) (20,296)
- ------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (4,239) (9,722) 18,416
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Beginning of period 272,757 282,479 264,063
- ------------------------------------------------------------------------------------------------------------
END OF PERIOD
(including undistributed net investment
income of $138 in 1995) $268,518 272,757 282,479
- ------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
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.
In 1996, the Fund changed its fiscal year end for
financial reporting purposes from November 30 to
December 31. As a result, the financial statements
for the year ended November 30, 1996 and the one
month period ended December 31, 1996 have been
presented together in this report to shareholders.
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 financial futures and
options are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Over-the-counter
traded fixed income options are valued based upon
prices provided by market makers. 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 discount amortization on
all fixed income securities and premium
amortization on mortgage-backed 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
December 31 and November 30, 1996 the Fund had
$70,528,000 and $55,646,000 in purchase commitments
outstanding (26% and 20% of net assets,
respectively) with corresponding amounts of assets
segregated.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required. For
federal income tax purposes, accumulated net
realized losses on sales of investments are
available to offset future taxable gains. At
December 31, the Fund had accumulated losses of
approximately $47,108,000. If not applied, the loss
carryover expires during the period 1997 through
2005.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends to its shareholders on a monthly
basis. The dividends are recorded by the Fund on
the ex-dividend date. In April 1996, the Fund
adopted a managed distribution policy. In the
current interest rate environment the Fund intends
to pay a monthly distribution of $.055 per share.
The distribution will be made from net investment
income, net realized gains and, to the extent
necessary, paid-in capital.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
2 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI), and pays a management fee at an annual rate
of .80% of average weekly net assets. The Fund
incurred a management fee of $180,000 for the one
month period ended December 31, 1996 and $2,187,000
for the year ended November 30, 1996.
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. For the one month period
ended December 31, 1996 and the year ended November
30, 1996, the transfer agent remitted shareholders
fees to KSvC of $3,000 and $41,000, respectively.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
For the one month period ended December 31, 1996
and the year ended November 30, 1996 the Fund made
no payments to its officers and incurred trustees'
fees of $4,000 and $26,000, respectively, to
independent trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS Investment transactions (excluding short-term
instruments) are as follows (in thousands):
<TABLE>
<CAPTION>
ONE MONTH
ENDED YEAR ENDED
DECEMBER 31, NOVEMBER 30,
1996 1996
------------------------------
<S> <C> <C>
Purchases $34,900 1,969,019
Proceeds from sales 19,771 1,966,140
</TABLE>
- --------------------------------------------------------------------------------
4 FINANCIAL FUTURES
CONTRACTS The Fund has entered into exchange traded financial
futures contracts in order to help protect itself
from anticipated market conditions and, as such,
bears the risk that arises from entering into these
contracts.
At the time the Fund enters into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the Fund and its broker as the market value
of the futures contract fluctuates. The market
value of assets pledged by the Fund to cover margin
requirements for open futures positions was
$3,172,000 at December 31, 1996, and $3,193,000 at
November 30, 1996. The Fund also had liquid
securities in its portfolio in excess of the face
amount of the following open futures positions (in
thousands):
<TABLE>
<CAPTION>
FACE EXPIRATION GAIN
TYPE POSITION AMOUNT MONTH (LOSS)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL FUTURES AT DECEMBER 31, 1996:
U.S. Treasury Notes
and Bonds Short $40,892 March '97 $ 610
------------------------------------------------------------------------------
FINANCIAL FUTURES AT NOVEMBER 30, 1996:
U.S. Treasury Notes
and Bonds Short $20,016 March '97 $ (121)
U.S. Treasury Notes
and Bonds Short $26,446 December '96 (1,389)
------------------------------------------------------------------------------
$(1,510)
</TABLE>
15
<PAGE> 16
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ONE MONTH
ENDED YEAR ENDED NOVEMBER 30,
DECEMBER 31, -----------------------------------------------
1996 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.02 8.31 7.77 8.69 8.81 8.97
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .04 .61 .58 .63 .71 .87
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain(loss) (.10) (.27) .56 (.87) (.12) (.28)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations (.06) .34 1.14 (.24) .59 .59
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
Distribution from net investment income .05 .62 .60 .68 .71 .75
- ----------------------------------------------------------------------------------------------------------------------
Tax return of capital distribution .01 .01 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions .06 .63 .60 .68 .71 .75
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.90 8.02 8.31 7.77 8.69 8.81
- ----------------------------------------------------------------------------------------------------------------------
Market value, end of period $7.13 7.38 7.13 7.13 8.50 8.88
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------------
Based on net asset value (.81)% 4.38 15.20 (2.85) 6.90 6.76
- ----------------------------------------------------------------------------------------------------------------------
Based on market value (2.66)% 12.73 8.50 (8.36) 3.88 7.18
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------------
Expenses .95% .91 .95 .94 .92 .93
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 6.74% 7.61 7.28 7.68 8.02 9.78
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $268,518 272,757 282,479 264,063 295,471 298,945
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 72% 577 552 497 326 494
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return based on net asset value reflects changes in the Fund's net
asset value during the period. 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 period.
16
<PAGE> 17
DESCRIPTION OF DIVIDEND REINVESTMENT 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
17
<PAGE> 18
DESCRIPTION OF DIVIDEND REINVESTMENT 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.
18
<PAGE> 19
DESCRIPTION OF DIVIDEND REINVESTMENT 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.
19
<PAGE> 20
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS J. PATRICK BEIMFORD, JR.
President and Trustee Vice President
JAMES E. AKINS ELIZABETH A. BYRNES
Trustee Vice President
ARTHUR R. GOTTSCHALK CHARLES R. MANZONI, JR.
Trustee Vice President
FREDERICK T. KELSEY JOHN E. NEAL
Trustee Vice President
DOMINIQUE P. MORAX RICHARD L. VANDENBERG
Trustee Vice President
FRED B. RENWICK PHILIP J. COLLORA
Trustee Vice President
and Secretary
JOHN B. TINGLEFF
Trustee JEROME L. DUFFY
Treasurer
JOHN G. WEITHERS
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 ZURICH KEMPER INVESTMENTS, INC.
222 South Riverside Plaza
Chicago, IL 60606
http://www.kemper.com
[RECYCLED LOGO]
Printed on recycled paper.
KIGT - 2 (1/97) 1027590
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