<PAGE> 1
KEMPER
INTERMEDIATE
GOVERNMENT TRUST
SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED JUNE 30,
1997
" . . . We favored mortgage securities
and short-term Treasury Bonds . . . This portfolio
composition lessened the impact of the Fed's rate
hike on the fund in March . . ."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
7
Portfolio Statistics
8
Portfolio of
Investments
9
Financial Statements
11
Notes to
Financial Statements
13
Financial Highlights
14
Shareholders' Meeting
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE GOVERNMENT
TRUST TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BASED ON NET ASSET VALUE 2.87%
BASED ON MARKET PRICE 9.14%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- --------------------------------------------------------------------------------
AS OF AS OF
6/30/97 12/31/96
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $ 7.79 $ 7.90
- --------------------------------------------------------------------------------
MARKET PRICE $7.437 $7.125
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DISTRIBUTION REVIEW
- --------------------------------------------------------------------------------
The following table shows per share distribution and yield information for the
fund as of June 30, 1997.
<TABLE>
<S> <C>
SIX-MONTH DISTRIBUTION: $0.3300
- --------------------------------------------------------------------------------
JUNE DISTRIBUTION: $0.0550
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE
(BASED ON NET ASSET VALUE): 8.47%
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE
(BASED ON MARKET VALUE): 8.87%
- --------------------------------------------------------------------------------
</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.
TERMS TO KNOW
DURATION Duration is a measure of the interest rate sensitivity of a
fixed-income portfolio. 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. Total return assumes the
reinvestment of all dividends and it represents the aggregate percentage or
change in the value of an investment in the fund over the period. Total return
may be based upon net asset value or market price.
<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 $80 BILLION IN ASSETS, INCLUDING $45 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD
UNIVERSITY.
DEAR SHAREHOLDER,
A self-regulating economy, a balanced budget agreement and a positive stock
market all have contributed to another excellent year for investors. Given the
extended length of today's bull market (which celebrated its 15th anniversary on
August 12), it is prudent to wonder whether the end is near. Our position is
that while there is a certain precariousness to today's environment, which we
will elaborate on below, we see little to suggest that there will be more than
occasional market corrections.
Bipartisan agreement to balance the federal budget by the year 2002 represents
significant progress that should benefit investors over the long term. By
reducing the burden of capital gains and eliminating certain tax loopholes, the
Taxpayer Relief Act of 1997 and the Balanced Budget Act of 1997 have the
potential to meaningfully affect behavior. Now that the ceiling has been raised
on capital gains from the sale of a home, empty nesters will be more inclined to
move out of homes and into smaller condominiums. Added investment and savings
options should help boost the country's sagging savings rate. From a social
perspective, government's action to widen the difference between the taxation
rate on capital gains and on income reflects a conscious effort to encourage
capital investment. The more people and businesses can do for themselves, the
less likely they are to rely on the government, which should help restrain
federal spending.
The maximum tax on long-term capital gains is now 20 percent versus a maximum
of approximately 40 percent on ordinary income earned by Americans in the
highest income tax brackets. This dramatic difference could have some influence
on the management of mutual funds in the future. Although few investment
decisions are based on their tax consequences, the legislation supports a "buy
and hold" approach to investing, by which a mutual fund generates investment
returns through gains on investments held 18 months or longer. Such gains are
taxed at the reduced capital gains rate. On the margin, portfolio managers
should focus on long-term investing -- the strategy that we have always
supported.
In addition, mutual funds will gain investment flexibility with the new law's
repeal of what has been called the "short/short rule." Previously, investment
companies had been subject to a 30 percent limitation on total income arising
from the sale of securities held less than three months -- or face severe tax
consequences. The lifting of this limitation provides newer funds, in
particular, with much needed maneuvering ability.
You can expect to hear more from Kemper about the implications of the new
legislation, and specifically about the tax reporting changes, over the next
several weeks and months. Overall, we believe that this legislation is something
the country can be proud of. It represents years of a commitment on the part of
the federal government to hold spending in check and refrain from creating new
programs. Expanding corporate revenues and profits in an extended period of low
inflation also contributed to making this investor-friendly environment
possible.
As we look toward the end of the year, we see little to trouble us. The
economy appears to be in excellent condition. Continuing the alternatingly
fast/slow pace that we have experienced for several months, the fast-growing
first quarter was followed by a slower second quarter. Such self-regulation has
minimized any need for the Federal Reserve Board to raise interest rates again.
We don't rule out the possibility of another hike in the fourth quarter,
however.
Inflation is very low. In spite of unemployment being the lowest we have seen
in decades, wage pressures are still manageable. For example, the United Parcel
Service strike and the earlier steel and airlines work actions represent the
most union activity we have seen in 10 years. Encouraged by the low unemployment
(and therefore high demand for workers), the unions are becoming bolder but in
the end seem ready to resolve disputes sensibly. As a consequence, wage
increases remain moderate.
3
<PAGE> 4
ECONOMIC OVERVIEW
- -------------------------------------------------------------------------------
ECONOMIC GUIDPOSTS
- -------------------------------------------------------------------------------
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 (07/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.22 6.42 6.64 6.49
PRIME RATE(2) 8.5 8.25 8.25 8.75
INFLATION RATE(3) 2.23 3.03 2.88 2.62
THE U.S. DOLLAR(4) 7.32 7.67 4.26 -4.11
CAPITAL GOODS ORDERS(5)* 7.11 3.61 16.26 1.75
INDUSTRIAL PRODUCTION(5)* 3.84 4.84 3.38 2.36
EMPLOYMENT GROWTH(6) 2.24 2.2 2.14 2.42
</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 family income and retail sales.
* Data as of June 30, 1997.
Our primary concern is the very high valuations of the stock market. All
things considered, it is difficult to see where we can go from here. With prices
at such heady levels, the market can be expected to react negatively to even
minor earnings disappointments, as we have seen in August. Kemper's response to
this market is to remain fully invested and to reduce exposure by diversifying
across a wider group of investment opportunities. Research, the first step in
stock selection, is key in this kind of a market.
Bond markets are obviously cheered by recent events, and prospects for income
investors continue to be positive. Interest rates are stable and credit quality
has not been an issue. A dwindling supply of municipal bonds has enabled
municipal investments to outperform U.S. Treasuries.
In such a fully valued domestic market, it can make sense to look to
international markets for their growth potential. The strength of the dollar
thus far this year has diminished returns but international opportunities look
bright.
With this commentary 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.
August 14, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
[BYRNES PHOTO]
ELIZABETH BYRNES JOINED KEMPER IN 1982 AND IS A FIRST VICE PRESIDENT. 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 ZURICH KEMPER INVESTMENTS, INC. (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 AN
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.
DURING THE SIX-MONTH PERIOD, ECONOMIC GROWTH GAINED MOMENTUM AND INTEREST
RATES ROSE. PORTFOLIO MANAGERS ELIZABETH BYRNES AND RICHARD VANDENBERG
EXPLAIN HOW THEY ADJUSTED THE PORTFOLIO'S HOLDINGS TO MITIGATE THE IMPACT OF
THE FEDERAL RESERVE BOARD'S SHORT-TERM INTEREST RATE INCREASE EARLY IN THE
PERIOD.
Q HOW DID THE FUND PERFORM DURING THE SEMIANNUAL PERIOD, JANUARY 1, 1997
THROUGH JUNE 30, 1997?
A On a market price base, the fund gained 9.14 percent. On a net asset value
basis, the fund gained 2.87 percent. This gain bettered the 2.40 percent average
gain of the Intermediate U.S. Government Category as tracked by Lipper
Analytical Services, Inc. The category includes four closed-end funds with
similar investment objectives as Kemper Intermediate Government Trust.
Q THERE WAS MUCH UNCERTAINTY ABOUT THE DIRECTION OF INTEREST RATES DURING THE
PERIOD. WHAT OCCURRED IN THE ECONOMY THAT CAUSED THE FEDERAL RESERVE BOARD (THE
FED) TO INCREASE SHORT-TERM RATES IN MARCH AND WHAT WAS ITS IMPACT ON THE
GOVERNMENT MARKET?
A Signs of stronger economic growth and concerns of potentially higher
inflation led to the Fed's 0.25 percent interest rate tightening. The market was
volatile throughout the first several months of the period as it debated the
likelihood and timing of a Fed intervention.
In early 1997 strong economic reports surfaced. A stronger-than-expected
employment report indicated a rise in average hourly earnings and an increase in
hours worked. These indicators suggested solid Gross Domestic Product (GDP)
growth, which registered higher-than-expected for the fourth quarter. This
relatively strong GDP figure indicated to the market that the Fed would likely
raise interest rates to slow the economy. In February, Greenspan stated again
that financial assets might be overvalued. Specifically, Greenspan referenced
the level of wage inflation and suggested that recent productivity advances may
not be able to offset the current level of wage increases. The Fed did move to
increase short-term rates by 0.25 percent in March. This was considered a
preemptive move aimed at slowing growth in the economy to maintain a low rate of
inflation. Remember, excessive growth in the economy indicates the potential for
higher inflation. Inflation is negative for bond investors as it erodes the
"real" value of fixed-income investments.
By the end of April, however, signs of more modest growth began to surface and
inflation remained benign. This helped fixed-income investments begin to gain
back some of the ground they had lost earlier. As a result, market yields began
to fall again. Government securities performed well for the remainder of the
period.
5
<PAGE> 6
PERFORMANCE UPDATE
Q HOW DID YOU PREPARE THE FUND FOR THE POSSIBILITY OF A FED INTEREST RATE
INCREASE?
A We were positioned defensively at the start of the year. The fund's
duration was relatively short compared to its peers. Duration is a measurement
of a fund's sensitivity to interest rates--the shorter the duration, the less
sensitive the fund is to interest rate changes. We favored mortgage securities
and short-term Treasury bonds because these types of securities tend to
outperform intermediate- and long-term Treasuries in a rising interest rate
environment. This portfolio composition lessened the impact of the Fed's rate
hike on the fund in March.
Q HAVE YOU MADE FURTHER ADJUSTMENTS IN THE PORTFOLIO SINCE MARCH?
A As it was clear that economic growth would moderate and inflation would
remain in check, we reduced our position in short-term Treasuries and mortgages
in favor of intermediate- and long-term Treasuries. Longer-term Treasuries
generally perform well in a moderate or declining rate environment, which is
what we experienced the last few months of the period.
Q WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE GOVERNMENT BOND MARKET?
A Our outlook for the market is optimistic. Growth in the economy has slowed
since the Fed's intervention in March. Inflation remains benign and economic
growth remains moderate. At this point in time, it appears unlikely that the Fed
will adjust interest rates. This is a positive environment for the government
bond market and the fund.
Q WHAT WOULD NEED TO HAPPEN TO ALTER YOUR OUTLOOK?
A If the economy takes off, the Fed would most likely be aggressive with rate
increases, which could hurt the bond market until growth truly slows and rates
stabilize. However, based on the current data, we don't expect a surge in
economic growth.
6
<PAGE> 7
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 6/30/97 ON 12/31/96
- --------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGES 42% 52%
- --------------------------------------------------------------------------------
LONG-TERM GOVERNMENTS 22 --
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM GOVERNMENTS 10 28
- --------------------------------------------------------------------------------
SHORT-TERM GOVERNMENTS AND CASH
EQUIVALENTS (ONE YEAR OR LESS) 26 20
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 6/30/97 ON 12/31 96
AVERAGE MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 6/30/97 ON 12/31/96
- --------------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 6.3 YEARS 6.2 YEARS
- --------------------------------------------------------------------------------
</TABLE>
* Portfolio composition is subject to change.
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
KEMPER INTERMEDIATE GOVERNMENT TRUST
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
COUPON PRINCIPAL
U. S. GOVERNMENT OBLIGATIONS TYPE RATE MATURITY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY Notes 8.125-9.25% 1998 $55,500 $ 57,445
SECURITIES - 72.3% 8.00 1999 22,000 22,815
(Cost: $196,510) 8.75 2000 22,240 23,793
Bonds 13.75 2004 7,450 10,482
9.125-10.375 2009 10,242 12,165
12.75 2010 2,495 3,462
12.00 2013 3,700 5,206
12.50-13.25 2014 37,105 56,036
----------------------------------------------------------------------------
191,404
- ------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL (a)Adjustable rate 6.00-7.00 2027 12,000 12,234
MORTGAGE ASSOCIATION mortgages 7.125 2022 5,334 5,485
- - 16.5% 7.00 2022-2026 5,190 5,101
(Cost: $42,492) Pass-through 7.50 2022-2025 19,644 19,749
certificates 9.00 2016-2025 1,097 1,167
----------------------------------------------------------------------------
43,736
- ------------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL Collateralized mortgage
MORTGAGE ASSOCIATION obligation 6.25 2022 10,000 9,608
- - 15.7% Pass-through 7.00-7.50 2027 32,000 31,923
(Cost: $40,442) certificates
----------------------------------------------------------------------------
41,531
- ------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN Collateralized mortgage 6.50 2012 5,000 4,908
MORTGAGE CORPORATION obligations 6.25-7.00 2021 22,000 21,559
- - 10.0%
(Cost: $25,103)
----------------------------------------------------------------------------
26,467
----------------------------------------------------------------------------
TOTAL INVESTMENTS--114.5%
(Cost: $304,547) 303,138
----------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(14.5)% (38,409)
----------------------------------------------------------------------------
NET ASSETS--100% $264,729
----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) The coupon rates on these securities vary with a selected index at specified
intervals and the rates shown above are the effective rates on June 30,
1997. The dates shown represent the final maturity of the obligations.
Based on the cost of investments of $304,547,000 for federal income tax purposes
at June 30, 1997, the gross unrealized appreciation was $3,774,000, the gross
unrealized depreciation was $5,183,000 and the net unrealized depreciation on
investments was $1,409,000.
See accompanying Notes to Financial Statements.
8
<PAGE> 9
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------
Investments, at value
(Cost: $304,547) $303,138
- ---------------------------------------------------------------------------
Cash 1,064
- ---------------------------------------------------------------------------
Receivable for:
Investments sold 4,709
- ---------------------------------------------------------------------------
Interest 5,064
===========================================================================
TOTAL ASSETS 313,975
- ---------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ---------------------------------------------------------------------------
Payable for:
Investments purchased 49,029
- ---------------------------------------------------------------------------
Management fee 177
- ---------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 11
- ---------------------------------------------------------------------------
Trustees' fees and other 29
- ---------------------------------------------------------------------------
Total liabilities 49,246
- ---------------------------------------------------------------------------
NET ASSETS $264,729
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ---------------------------------------------------------------------------
Paid-in capital $313,456
- ---------------------------------------------------------------------------
Accumulated net realized loss on investments (47,318)
- ---------------------------------------------------------------------------
Net unrealized depreciation on investments (1,409)
- ---------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $264,729
- ---------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, $.01 PAR VALUE
($264,729 / 33,996 shares outstanding) $7.79
- ---------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
9
<PAGE> 10
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------
NET INVESTMENT INCOME
- ---------------------------------------------------------------------------------
Interest income $11,225
- ---------------------------------------------------------------------------------
Expenses:
Management fee 1,060
- ---------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 72
- ---------------------------------------------------------------------------------
Professional fees 37
- ---------------------------------------------------------------------------------
Reports to shareholders 32
- ---------------------------------------------------------------------------------
Trustees' fees and other 55
- ---------------------------------------------------------------------------------
Total expenses 1,256
- ---------------------------------------------------------------------------------
NET INVESTMENT INCOME 9,969
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ---------------------------------------------------------------------------------
Net realized loss on sales of investments (478)
- ---------------------------------------------------------------------------------
Net realized gain from futures transactions 282
- ---------------------------------------------------------------------------------
Net realized loss (196)
- ---------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (2,343)
- ---------------------------------------------------------------------------------
Net loss on investments (2,539)
- ---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 7,430
- ---------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED ONE MONTH
JUNE 30, ENDED YEAR ENDED
1997 DECEMBER 31, NOVEMBER 30,
(UNAUDITED) 1996 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS AND DIVIDENDS
Net investment income $ 9,969 1,515 20,818
- --------------------------------------------------------------------------------------------------------
Net realized gain (loss) (196) 856 (6,189)
- --------------------------------------------------------------------------------------------------------
Change in net unrealized
appreciation/depreciation (2,343) (4,740) (2,933)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 7,430 (2,369) 11,696
- --------------------------------------------------------------------------------------------------------
Distribution from net investment income (9,969) (1,515) (20,956)
- --------------------------------------------------------------------------------------------------------
Tax return of capital distribution (1,250) (355) (462)
- --------------------------------------------------------------------------------------------------------
Total distributions to shareholders (11,219) (1,870) (21,418)
- --------------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (3,789) (4,239) (9,722)
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------
Beginning of period 268,518 272,757 282,479
- --------------------------------------------------------------------------------------------------------
END OF PERIOD $264,729 268,518 272,757
- --------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT DESCRIPTION OF FUND. Kemper Intermediate Government
ACCOUNTING POLICIES Trust (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 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
June 30, 1997 the Fund had $48,988,000 in purchase
commitments outstanding (19% of net assets) with a
corresponding amount of assets segregated.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies for the six
months ended June 30, 1997. The accumulated net
realized loss on sales of investments for federal
income tax purposes at June 30, 1997, amounting to
approximately $47,304,000, is available to offset
future taxable gains. 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.
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2 TRANSACTIONS MANAGEMENT AGREEMENT. The Fund has a management
WITH AFFILIATES 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 $1,060,000 for the six
months ended June 30, 1997.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) (formerly
known as Kemper Service Company) is the shareholder
service agent of the Fund. Under the agreement,
ZKSvC received shareholder services fees of $18,000
for the six months ended June 30, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the six months ended June 30, 1997, the Fund
made no payments to its officers and incurred
trustees' fees of $15,000 to independent trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT For the six months ended June 30, 1997, investment
TRANSACTIONS transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $428,948
Proceeds from sales 456,087
- --------------------------------------------------------------------------------
4 FINANCIAL FUTURES The Fund has entered into exchange traded financial
CONTRACTS 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. At June 30,
1997, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $3,082,000. The Fund also had liquid
securities in its portfolio in excess of the face
amount of the following short futures positions
open at June 30, 1997:
<TABLE>
<CAPTION>
FACE EXPIRATION LOSS AT
TYPE AMOUNT MONTH 6/30/97
-------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury
securities $52,243,000 September '97 $(180,000)
-------------------------------------------------------------------
Eurodollar 12,695,000 September '97 (11,000)
-------------------------------------------------------------------
Eurodollar 11,962,000 December '97 (10,000)
-------------------------------------------------------------------
Eurodollar 10,542,000 March '98 (11,000)
-------------------------------------------------------------------
Eurodollar 8,191,000 June '98 (6,000)
-------------------------------------------------------------------
Eurodollar 2,572,000 September '98 (1,000)
-------------------------------------------------------------------
Total $(219,000)
-------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ONE MONTH
ENDED ENDED YEAR ENDED NOVEMBER 30,
JUNE 30, DECEMBER 31, -------------------------------------
1997 1996 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.90 8.02 8.31 7.77 8.69 8.81
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .30 .04 .61 .58 .63 .71
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.08) (.10) (.27) .56 (.87) (.12)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations .22 (.06) .34 1.14 (.24) .59
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
Distribution from net investment income .30 .05 .62 .60 .68 .71
- ----------------------------------------------------------------------------------------------------------------
Tax return of capital distribution .03 .01 .01 -- -- --
- ----------------------------------------------------------------------------------------------------------------
Total distributions .33 .06 .63 .60 .68 .71
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.79 7.90 8.02 8.31 7.77 8.69
- ----------------------------------------------------------------------------------------------------------------
Market value, end of period $7.44 7.13 7.38 7.13 7.13 8.50
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------
Based on net asset value 2.87% (.81) 4.38 15.20 (2.85) 6.90
- ----------------------------------------------------------------------------------------------------------------
Based on market value 9.14% (2.66) 12.73 8.50 (8.36) 3.88
- ----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------
Expenses .95% .95 .91 .95 .94 .92
- ----------------------------------------------------------------------------------------------------------------
Net investment income 7.52% 6.74 7.61 7.28 7.68 8.02
- ----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $264,729 268,518 272,757 282,479 264,063 295,471
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 273% 72 577 552 497 326
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Data for the six months ended June 30, 1997 is unaudited.
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.
13
<PAGE> 14
SHAREHOLDERS' MEETING
ANNUAL SHAREHOLDERS' MEETING
On May 29, 1997, an annual shareholders' meeting was held. Kemper Intermediate
Government Trust shareholders were asked to vote on two separate issues:
re-election of the eight members to the Board of Trustees and ratification of
Ernst & Young LLP as independent auditors. Following are the results for each
issue:
1) Re-election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Akins 29,806,823 784,027
Arthur R. Gottschalk 29,865,590 725,260
Frederick T. Kelsey 29,872,526 718,324
Dominique P. Morax 29,822,661 768,189
Fred B. Renwick 29,820,697 770,153
Stephen B. Timbers 29,875,896 714,954
John B. Tingleff 29,875,745 715,105
John G. Weithers 29,870,657 720,193
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
30,137,137 201,300 252,412
</TABLE>
14
<PAGE> 15
NOTES
15
<PAGE> 16
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS ELIZABETH A. BYRNES
President and Trustee Vice President
JAMES E. AKINS CHARLES R. MANZONI, JR.
Trustee Vice President
ARTHUR R. GOTTSCHALK JOHN E. NEAL
Trustee Vice President
FREDERICK T. KELSEY ROBERT C. PECK, JR.
Trustee Vice President
FRED B. RENWICK RICHARD L. VANDENBERG
Trustee Vice President
JOHN B. TINGLEFF PHILIP J. COLLORA
Trustee Vice President
and Secretary
JOHN G. WEITHERS
Trustee JEROME L. DUFFY
Treasurer
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT ZURICH 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
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[RECYCLED LOGO]
Printed on recycled paper.
KIGT - 3 (8/97) 1036370
Printed in the U.S.A.
[KEMPER FUNDS LOGO]
