<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED JUNE 30, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
KEMPER INTERMEDIATE
GOVERNMENT TRUST
"... Overall, we sought to position the portfolio to do
best in a low volatility environment ... As our
performance year-to-date has shown, that
strategy has been successful. ..."
[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
AT A GLANCE
- --------------------------------------------------------------------------------
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER INTERMEDIATE
GOVERNMENT TRUST 3.36% 2.31%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- --------------------------------------------------------------------------------
AS OF AS OF
6/30/98 12/31/97
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $7.82 $7.86
- --------------------------------------------------------------------------------
MARKET PRICE $7.44 $7.56
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DISTRIBUTION REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DISTRIBUTION AND YIELD INFORMATION FOR THE
FUND AS OF JUNE 30, 1998.
<TABLE>
<CAPTION>
KEMPER
INTERMEDIATE
GOVERNMENT
TRUST
- --------------------------------------------------------------------------------
<S> <C>
SIX MONTHS DISTRIBUTION: $.300
- --------------------------------------------------------------------------------
JUNE DISTRIBUTION: $.050
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 7.67%
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET VALUE) 8.06%
- --------------------------------------------------------------------------------
</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
ASIAN "FLU" Term used to describe the overflow effect of Southeast Asia's
markets and currency troubles onto neighboring Asian countries and the global
economy.
GINNIE MAE Short for Government National Mortgage Association and securities
guaranteed by the agency.
DURATION A measure of the interest rate sensitivity of a portfolio,
incorporating time to maturity and coupon size. The longer the duration, the
greater the interest rate risk.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR OF ARTS AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND HAS A MASTER'S DEGREE IN ECONOMICS FROM BROWN
UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS
WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $218 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS. IT IS ONE OF
THE 10 LARGEST MUTUAL FUND COMPLEXES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
It's been a bumpy ride for many investors in the third quarter of 1998, with
concern over corporate profits generating considerable market volatility. On
August 4, the Dow Jones Industrial Average suffered its largest single-day point
drop for the year. While this was the Dow's third largest point decline in
history, it didn't even make the top 100 in terms of percentage losses. In any
event, stock market tensions spilled over into the bond markets, fueling the
debate about whether we would finally see the end of our long-running bull
market -- or even plummet into a recession.
But investors who are riding out the stock market's abrupt short-term
adjustments should find comfort in the fact that economic fundamentals continue
to favor financial assets in the United States. In a nutshell, the nation's
economy remains strong despite its slowdown in the second half of the year.
Short-term interest rates are expected to remain low -- the federal funds rate
is holding at 5.5 percent and will most likely stay put for the remainder of
the year. There are no major tax or regulatory threats waiting in the wings.
And our economy continues to draw investors from around the world, although
perhaps not as fervently as last year.
The nation's gross domestic product (GDP), which represents the total
value of all goods and services produced within the U.S. economy, grew at an
annualized rate of 1.4 percent in the second quarter of 1998. While this was
the slowest growing quarter in the last three years, it was much stronger than
consensus. Slower growth can be attributed to several factors, including the
impact of decreased trade with Asia, domestic corrections in inventory levels
and the General Motors strike, which has since been resolved.
Real capital spending and employment growth have remained solid.
Consumer confidence remains fairly high. Home sales remain robust. Economic
policy continues to support the nation's fiscal budget surplus projection of
$65 billion.
As far as inflation goes, there are two tales to be told. Prices for
consumer goods, as measured by the consumer price index (CPI), are steady.
Compare this to prices for services, which have risen between 3 and 4 percent.
For investors, this difference in pricing flexibility translates into a
difference in profit expectations. Profits of domestic service firms should be
much stronger than commodity producers dependent on export markets.
Across the Atlantic, Europe's economy appears to be growing at an even
pace as the region progresses toward the Economic and Monetary Union (EMU)
slated for January 1, 1999. One effect of the union may be a slight rise in
short-term interest rates in Europe -- not because there will be an overt
change in policy, but simply because of the convergence of some very disparate
interest rates. The average rate will likely be higher than the relatively
attractive rate the German Central Bank currently offers, for example.
In Asia, which has been making headlines around the world for more than
a year now, the latest news is from Japan, which recently installed a new prime
minister as well as a new finance minister. Much discussion will be focused on
changes in Japan's economic policy, particularly in terms of taxation and
banking reform -- and patience is in order. Most of the changes in taxation
will impact Japan in the first half of 1999. But as far as banking reform goes,
those of us familiar with bank reform in the U.S. know that this will be a two-
to five-year process. Certainly, investors are looking to Japan to spark
recovery for Asia as a whole, which continues to suffer from the "contagion" of
low currency values, seriously reduced consumer spending and general economic
malaise.
Indeed, while its full effects remain to be seen -- and felt -- by the
majority of American businesses and individuals, the Asian economic crisis has
contributed to the general uncertainty of the emotion-driven U.S. markets.
Whether it's an economic crisis abroad or political scandal at home, current
events move the investors who move the markets.
One might conclude that, as a result of today's low corporate profits
and lingering turmoil in Asia, the psychology of the markets is shifting --
even some of Wall Street's most resolute bulls appear to be reconsidering their
long-held convictions. But with the economy's strong
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 (7/31/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10 -YEAR TREASURY RATE(1) 5.46 5.57 6.3 6.64
PRIME RATE(2) 8.5 8.5 8.5 8.25
INFLATION RATE(3)* 1.62 1.57 2.16 2.95
THE U.S. DOLLAR(4) 8.79 5.05 10.01 4.26
CAPITAL GOODS ORDERS(5)* 10.44 12.61 10.3 17.23
INDUSTRIAL PRODUCTION(5)* 3.66 5.38 4.69 4.08
EMPLOYMENT GROWTH(6) 2.45 2.78 2.39 2.25
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of the
last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of June 30, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
fundamentals in place, that outlook may be premature. In any case, prudent
investors are wise to watch for the following economic warning signs: inflation
in the form of rising wages and/or prices; residual fallout from Asia,
which could appear in the form of reduced sales and earnings for American
businesses; and a continued widening of our trade deficit, an imbalance caused
by heightened American demand for foreign goods and services. In the months to
come, investors are likely to maintain their bias in favor of investments that
have historically been considered more conservative: larger capitalization
stocks, U.S. Treasuries and only the highest-grade corporate bonds.
Thank you for your continued support. We appreciate the opportunity to
serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
August 12, 1998
4
<PAGE> 5
PERFORMANCE UPDATE
RICHARD VANDENBERG JOINED SCUDDER KEMPER INVESTMENTS, INC. IN MARCH 1996, AND IS
A MANAGING DIRECTOR. HE IS ALSO A LEAD PORTFOLIO MANAGER OF KEMPER INTERMEDIATE
GOVERNMENT TRUST. VANDENBERG HAS 25 YEARS OF FIXED-INCOME PORTFOLIO MANAGEMENT
EXPERIENCE. HE RECEIVED A BACHELOR'S DEGREE AND M.B.A. FROM THE UNIVERSITY OF
WISCONSIN.
JOHN DUGENSKE IS A VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS AND A PORTFOLIO
MANAGER FOR KEMPER INTERMEDIATE GOVERNMENT TRUST. HE EARNED HIS BACHELOR'S AND
MASTERS DEGREE IN MECHANICAL ENGINEERING AND ALSO HIS M.B.A. FROM THE UNIVERSITY
OF ILLINOIS.
SCOTT DOLAN JOINED SCUDDER KEMPER INVESTMENTS IN 1989 AND IS A VICE PRESIDENT.
HE IS ALSO A PORTFOLIO MANAGER FOR KEMPER INTERMEDIATE GOVERNMENT TRUST. HE
RECEIVED A BACHELOR'S DEGREE IN BUSINESS ADMINISTRATION MAJORING IN FINANCE FROM
NORTHEASTERN UNIVERSITY AND AN MS DEGREE IN FINANCE FROM BOSTON COLLEGE.
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 FUND PERFORMED WELL IN THE FIRST FEW MONTHS OF THE FISCAL YEAR, AMID A
NEAR PERFECT ENVIRONMENT FOR U.S. GOVERNMENT BONDS. BELOW, THE FUND'S
MANAGEMENT TEAM DISCUSSES THE FACTORS DRIVING THE MARKET AND HOW THEY
POSITIONED THE FUND IN THEIR EFFORT TO BENEFIT.
Q BEFORE YOU DETAIL THE FIXED-INCOME MARKET ENVIRONMENT DURING THE LAST SIX
MONTHS, COULD YOU PROVIDE A BRIEF UPDATE ON THE FUND'S PERFORMANCE FOR THE
PERIOD?
A Certainly. For the six-month period ended June 30, 1998, the fund's total
return was 3.36 percent on a net asset value basis. Our solid performance
illustrates that our management style during the period was effective.
Q YOU MENTIONED IN THE FUND'S ANNUAL REPORT THAT 1997 WAS A GOOD YEAR FOR
FIXED-INCOME SECURITIES. DID THAT ENVIRONMENT CONTINUE?
A Yes, for U.S. securities it was a remarkably steady period, with modest
declines in interest rates leading to higher bond prices overall.
The market during the period took many of its cues from news outside the
United States. Economies in Asia, South America and Russia experienced continued
turbulence, renewing uncertainty regarding their ability to sustain viable
economic plans. The result was a worldwide flight to quality, meaning that
investors sought the relatively safe harbor afforded by U.S. government
securities. The resulting demand led to higher prices on existing bonds,
particularly U.S. Treasuries.
This "Asian flu" also alleviated concerns that the U.S. economy might be
growing at too strong a rate. First quarter gross domestic product (GDP) was
exceedingly strong, but Asian troubles, along with the General Motors strike,
began to dampen GDP growth and inflation concerns, resulting in a favorable
environment for U.S. fixed-income securities.
These and other economic factors produced a moderate increase in
government bond prices along with very low price volatility.
Q IT DOESN'T SOUND AS IF THE FEDERAL RESERVE HAS HAD A LOT TO DO LATELY.
A That's true. The Fed has been left on the sidelines in 1998. Chairman Alan
Greenspan in his July Humphrey-Hawkins testimony reiterated his concern that the
economy's growth could spur higher inflation, but moderated this stance because
of Asian turbulence. He lauded the current high growth/low inflation "virtuous
cycle" as the most impressive he has experienced during his nearly 50 years of
daily economic observations.
Q HOW DID YOU APPROACH THIS RELATIVELY BENIGN ENVIRONMENT?
A As usual, we worked hard to uncover and capitalize on low risk
opportunities. Our approach is always to rigorously research investment options
open to us, and build a portfolio of bonds that will enhance returns without
unduly increasing risk. Any additional risk we take is carefully measured using
stringent analysis that helps us gauge how the securities will likely behave in
a variety of economic conditions. Although it should be understood that we
cannot test for all market anomalies. We also constantly monitor the portfolio's
construction with respect to market opportunities. We believe that, over time,
this combination of hard
5
<PAGE> 6
PERFORMANCE UPDATE
work, market experience and strong analysis will put us in a position to enhance
performance in a stable, sustainable manner.
A good example of this approach in action is our use of mortgages in the
first half of 1998. As rates fell, mortgages began to underperform due to
prepayment concerns. During this time we maintained a conservative
portfolio weighted more heavily with Treasury bonds. But when mortgages finally
became attractively valued in the context of the new market conditions, we
traded out of Treasuries and into mortgage-backed securities, particularly in
June. This was done only after extensive relative value analysis and risk
assessment.
All mortgages held in the fund are subject to rigorous analytic screens
with great regard given to economic and market factors. We make adjustments
within the mortgage market by varying agency, maturity, and coupon profiles.
For instance, one way we lowered potential price volatility was by increasing
exposure to 15-year mortgages versus 30-year mortgages. Fifteen-year mortgages
tend not to be as volatile because their payment dates are sooner . . . there's
less benefit to be gained by paying them off early.
Overall, we sought to position the portfolio to do best in a low
volatility environment, not by adjusting the maturity or duration of the fund,
but by choosing individual securities that we expected to perform modestly
better than Treasuries. As our performance year-to-date has shown, that
strategy has been successful.
Q AS YOU MENTIONED, IT'S BEEN A GOOD SIX MONTHS FOR U.S. GOVERNMENT BONDS.
DO YOU THINK THIS BULL RUN WILL CONTINUE?
A Fundamentally, the environment appears attractive for bonds. The biggest
fear in the bond market currently is a rise in inflation. That's because bonds
offer a fixed rate of return, and any increase in inflation eats into that
return. However, inflation remains remarkably subdued. In fact, Alan Greenspan
pointed out in his recent testimony that the "inflation premium" -- the extra
level of interest that investors demand due to the unpredictability of inflation
- -- has shrunk due to confidence in the domestic inflation situation. A variety
of factors, including a projected federal budget surplus, an extremely capable
Federal Reserve Board and foreign negative price pressure portend continued
stability. The dwindling national debt may actually create a shortage of U.S.
government securities and further support higher bond prices in the future.
Of course, there are many wildcards that could figure into that rosy
scenario. An Asian turnaround could lead to improved opportunities for
investors overseas. Currently, however, a quick fix is unlikely. We are
also watching commodity prices, the development of a united European
marketplace, domestic corporate earnings and equity valuations as possible
catalysts that could change the fixed-income landscape.
Primarily, we plan to maintain a neutral duration, meaning that the fund
is in the middle of its range as far as its sensitivity to interest rates. To
add value, we'll continue to stringently research individual bonds and
sector allocation strategies to add incremental performance when there's a
particularly attractive opportunity. Even though the market's advance has been
slow and steady, there are still relative value eccentricities that allow our
research to spot bonds that offer an attractive level of return for an
acceptable level of risk.
YEAR 2000
YEAR 2000 ISSUE
Like other registered investment companies and financial and business
organizations worldwide, the fund could be adversely affected if computer
systems on which the fund relies, which primarily include those used by the
Manager, its affiliates or other service providers, are unable to correctly
process date-related information on and after January 1, 2000. This risk is
commonly called the Year 2000 Issue. Failure to successfully address the Year
2000 Issue could result in interruptions to and other material adverse effects
on the fund's business and operations. The Manager has commenced a review of the
Year 2000 Issue as it may affect the fund and is taking steps it believes are
reasonably designed to address the Year 2000 Issue, although there can be no
assurances that these steps will be sufficient. In addition, there can be no
assurances that the Year 2000 Issue will not have an adverse effect on the
issuers whose securities are held by the fund or on global markets or economies
generally.
6
<PAGE> 7
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 6/30/98 ON 12/31/97
- --------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGES 70% 44%
- --------------------------------------------------------------------------------
LONG-TERM GOVERNMENTS 2 1
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM GOVERNMENTS 27 41
- --------------------------------------------------------------------------------
SHORT-TERM TREASURIES AND CASH
EQUIVALENTS (ONE YEAR OR LESS) 1 14
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 6/30/98 ON 12/31/97
*Portfolio composition is subject to change.
AVERAGE MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 6/30/98 ON 12/31/97
- --------------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 6.0 years 5.7 years
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
KEMPER INTERMEDIATE GOVERNMENT TRUST
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
COUPON PRINCIPAL
U.S. GOVERNMENT OBLIGATIONS TYPE RATE MATURITY AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GOVERNMENT (a)Adjustable rate 7.00% 2022 $ 4,200 $ 4,298
NATIONAL MORTGAGE mortgages Pass-through 6.50 2028 9,900 9,881
ASSOCIATION--38.1% certificates 7.00 2022-2028 63,564 64,582
(Cost: $99,868) 7.50 2022-2028 21,057 21,654
9.00 2016-2025 820 881
------------------------------------------------------------------------------
101,296
- ----------------------------------------------------------------------------------------------------------------------
U.S. TREASURY Notes 9.25 1998 17,500 17,579
SECURITIES--35.6% Bonds 10.75 2005 7,120 9,262
(Cost: $94,866) 9.125-10.375 2009 16,712 20,615
12.75 2010 25,525 36,349
10.375 2012 5,000 6,694
12.00 2013 2,605 3,863
---------------------------------------------------------------------------
94,362
- ----------------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL Collateralized mortgage
MORTGAGE obligation 6.25 2022 10,000 10,089
ASSOCIATION--18.6% Pass-through
(Cost: $47,982) certificates 6.00 2028 9,873 9,614
6.50 2013-2028 29,789 29,868
---------------------------------------------------------------------------
49,571
- ----------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN Collateralized mortgage 6.25 2021 10,000 10,099
MORTGAGE obligations 7.00 2021 12,000 12,111
CORPORATION--13.2% Pass-through 6.50 2013 9,900 9,968
(Cost: $33,141) certificates 7.00 2028 211 214
10.25 2016 2,491 2,753
---------------------------------------------------------------------------
35,145
---------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS--105.5%
(Cost: $275,857) 280,374
---------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--5.40%
INSTRUMENTS--23.5% Due--July 1998
Federal Home Loan Bank
(Cost: $62,600) 62,600 62,600
---------------------------------------------------------------------------
TOTAL INVESTMENTS--129.0%
(Cost: $338,457) 342,974
---------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(29.0)% (77,190)
---------------------------------------------------------------------------
NET ASSETS--100% $265,784
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Adjustable rate security. The interest rate on this security varies with a
selected index at specified intervals and the rate shown above is the
effective rate on June 30, 1998. The date shown represents the final
maturity of the obligation.
Based on the cost of investments of $338,457,000 for federal income tax purposes
at June 30, 1998, the gross unrealized appreciation was $5,770,000, the gross
unrealized depreciation was $1,253,000 and the net unrealized appreciation on
investments was $4,517,000.
See accompanying Notes to Financial Statements.
8
<PAGE> 9
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $338,457) $342,974
- ------------------------------------------------------------------------
Cash 155
- ------------------------------------------------------------------------
Receivable for:
Investments sold 15,071
- ------------------------------------------------------------------------
Interest 2,669
- ------------------------------------------------------------------------
TOTAL ASSETS 360,869
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Investments purchased 94,864
- ------------------------------------------------------------------------
Management fee 177
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 30
- ------------------------------------------------------------------------
Trustees' fees 14
- ------------------------------------------------------------------------
Total liabilities 95,085
- ------------------------------------------------------------------------
NET ASSETS $265,784
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $307,787
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (46,520)
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 4,517
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $265,784
- ------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, $.01 PAR VALUE
($265,784 / 33,996 shares outstanding) $7.82
- ------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Interest income $10,900
- -----------------------------------------------------------------------
Expenses:
Management fee 1,022
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 42
- -----------------------------------------------------------------------
Professional fees 3
- -----------------------------------------------------------------------
Reports to shareholders 36
- -----------------------------------------------------------------------
Trustees' fees and other 10
- -----------------------------------------------------------------------
Total expenses 1,113
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 9,787
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized loss on sales of investments (2,668)
- -----------------------------------------------------------------------
Net realized loss from futures transactions (458)
- -----------------------------------------------------------------------
Net realized loss (3,126)
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments 2,104
- -----------------------------------------------------------------------
Net loss on investments (1,022)
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,765
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED
1998 DECEMBER 31,
(UNAUDITED) 1997
- ---------------------------------------------------------------------------------------------
OPERATIONS AND DIVIDENDS
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 9,787 19,750
- ---------------------------------------------------------------------------------------------
Net realized loss (3,126) (261)
- ---------------------------------------------------------------------------------------------
Change in net unrealized appreciation 2,104 1,479
- ---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 8,765 20,968
- ---------------------------------------------------------------------------------------------
Distribution from net investment income (9,787) (19,974)
- ---------------------------------------------------------------------------------------------
Tax return of capital distribution (412) (2,294)
- ---------------------------------------------------------------------------------------------
Total distributions to shareholders (10,199) (22,268)
- ---------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (1,434) (1,300)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------
Beginning of period 267,218 268,518
- ---------------------------------------------------------------------------------------------
END OF PERIOD $265,784 267,218
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES DESCRIPTION OF FUND. The Fund is registered under
the Investment Company Act of 1940 as a
diversified, closed-end management investment
company.
INVESTMENT VALUATION. Investments are stated at
value. Fixed income securities are valued by using
market quotations, or independent pricing services
that use prices provided by market makers or
estimates of market values obtained from yield data
relating to instruments or securities with similar
characteristics. Portfolio securities that are
traded on a domestic securities exchange are valued
at the last sale price on the exchange where
primarily traded or, if there is no recent sale, at
the last current bid quotation. Portfolio
securities that are primarily traded on foreign
securities exchanges are generally valued at the
preceding closing values of such securities on
their respective exchanges where primarily traded.
Securities not so traded are valued at the last
current bid quotation if market quotations are
available. Exchange traded 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. 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, 1998, the Fund had $94,850,000 in purchase
commitments outstanding (36% 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 and therefore no
federal income tax provision is required. The
accumulated net realized loss on sales of
investments for federal income tax purposes at June
30, 1998, amounting to approximately $46,512,000,
is available to offset future taxable gains. If not
applied, the loss carryover expires during the
period 1998 through 2006.
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 1996 the Fund adopted a
managed distribution policy whereby, in the current
interest rate environment, the Fund intends to pay
a monthly distribution of $.05 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 WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a management fee at an
annual rate of .80% of average weekly net assets.
The Fund incurred a management fee of $1,022,000
for the six months ended June 30, 1998.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of $16,000
for the six months ended June 30, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. During the six months ended June
30, 1998, the Fund made no payments to its officers
and incurred trustees' fees of $9,000 to
independent trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the six months ended June 30, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $469,856
Proceeds from sales 496,671
- --------------------------------------------------------------------------------
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. At June 30,
1998, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $352,000. The Fund also had liquid
securities in its portfolio in excess of the face
amount of the following short futures position open
at June 30, 1998:
<TABLE>
<CAPTION>
FACE EXPIRATION
TYPE AMOUNT MONTH LOSS
----------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Note $26,016,000 September '98 $30,000
----------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ONE MONTH
ENDED YEAR ENDED ENDED YEAR ENDED NOVEMBER 30,
JUNE 30, DECEMBER 31, DECEMBER 31, -----------------------------
1998 1997 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.86 7.90 8.02 8.31 7.77 8.69
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .29 .58 .04 .61 .58 .63
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (.03) .04 (.10) (.27) .56 (.87)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations .26 .62 (.06) .34 1.14 (.24)
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
Distribution from net investment
income .30 .59 .05 .62 .60 .68
- -----------------------------------------------------------------------------------------------------------------------
Tax return of capital distribution -- .07 .01 .01 -- --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions .30 .66 .06 .63 .60 .68
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.82 7.86 7.90 8.02 8.31 7.77
- -----------------------------------------------------------------------------------------------------------------------
Market value, end of period $7.44 7.56 7.13 7.38 7.13 7.13
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------------------
Based on net asset value 3.36% 8.18 (.81) 4.38 15.20 (2.85)
- -----------------------------------------------------------------------------------------------------------------------
Based on market value 2.31% 15.76 (2.66) 12.73 8.50 (8.36)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------------------
Expenses .97% .95 .95 .91 .95 .94
- -----------------------------------------------------------------------------------------------------------------------
Net investment income 8.64% 7.44 6.74 7.61 7.28 7.68
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $265,784 267,218 268,518 272,757 282,479 264,063
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 350% 351 72 577 552 497
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
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. Data for the period
ended June 30, 1998 is unaudited.
13
<PAGE> 14
NOTES
14
<PAGE> 15
NOTES
15
<PAGE> 16
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY KATHRYN L. QUIRK
Chairman and Trustee President Vice President
JAMES E. AKINS PHILIP J. COLLORA RICHARD L. VANDENBERG
Trustee Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK LINDA J. WONDRACK
Trustee JOHN R. HEBBLE Vice President
Treasurer
FREDERICK T. KELSEY MAUREEN E. KANE
Trustee JERARD K. HARTMAN Assistant Secretary
Vice President
FRED B. RENWICK CAROLINE PEARSON
Trustee THOMAS W. LITTAUER Assistant Secretary
Vice President
JOHN B. TINGLEFF ELIZABETH C. WERTH
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
EDMOND D. VILLANI
Trustee ROBERT C. PECK, JR.
Vice President
JOHN G. WEITHERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419066
Kansas City, MO 64141-6066
- --------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania Avenue
Kansas City, MO 64105
[KEMPER FUNDS LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed on recycled paper in the U.S.A.
KIGT - 3(8/98) 1053080
