<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED JUNE 30, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
KEMPER INTERMEDIATE
GOVERNMENT TRUST
"...The first half of 1999 was a more volatile period
than the government market typically experiences. ...
However, investor expectations began to shift as the
year developed. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
7
Portfolio Statistics
8
Portfolio of Investments
10
Financial Statements
12
Notes to Financial Statements
14
Financial Highlights
15
Year 2000 Shareholders' Meeting
At A GLANCE
- --------------------------------------------------------------------------------
TOTAL RETURNS
- --------------------------------------------------------------------------------
For the six-months ended June 30, 1999
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------
BASED ON NAV -1.81%
- --------------------------------------------------------------------------------
BASED ON MARKET PRICE -2.76%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
6/30/99 12/31/98
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $7.41 $7.85
- --------------------------------------------------------------------------------
MARKET PRICE $7.06 $7.56
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DISTRIBUTION REVIEW
- --------------------------------------------------------------------------------
The following table shows per share distribution and yield
information for the fund as of June 30, 1999.
<TABLE>
<CAPTION>
KEMPER
INTERMEDIATE
GOVERNMENT
TRUST
- --------------------------------------------------------------------------------
<S> <C>
Six-Month Distribution $.3000
- --------------------------------------------------------------------------------
June Distribution $.0500
- --------------------------------------------------------------------------------
Annualized Distribution Rate
(based on net asset value) 8.10%
- --------------------------------------------------------------------------------
Annualized Distribution Rate
(based on market value) 8.50%
- --------------------------------------------------------------------------------
</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. Market price,
distribution rates, net asset value and returns are historical and will
fluctuate and do not guarantee future results. Additional information concerning
performance is contained in the Financial Highlights appearing at the end of
this report.
TERMS TO KNOW
BASIS POINT The movement of interest rates or yields expressed in hundredths of
a percent. For example, an increase in yield from 5.00% to 5.50% is 50 basis
points.
DURATION A measure of the interest rate sensitivity of a fixed income investment
or portfolio. The longer the duration, the greater the portfolio's sensitivity
to interest rate fluctuations.
GROSS DOMESTIC PRODUCT (GDP) The market value of goods and services produced by
a country during a specified period. It acts as a useful gauge when measuring
the strength of an economy, especially when comparing different time periods.
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 represents the aggregate percentage or dollar
value change over the period.
<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 PH.D. IN ECONOMICS FROM NORTHEASTERN UNIVERSITY IN BOSTON, MASS.
HE IS A MEMBER OF BOTH THE BLUE CHIP ECONOMIC AND FINANCIAL SURVEYS, AND SERVES
ON THE POLICY ADVISORY COMMITTEES OF THE FEDERAL RESERVE BOARDS OF CHICAGO AND
CLEVELAND.
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $280 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
In his July 22 Humphrey-Hawkins testimony on the economy and Fed policy, Federal
Reserve Board Chairman Alan Greenspan indicated that the Fed will raise interest
rates soon unless job creation slows and productivity continues to increase. But
why, ask many investors, is the Fed tightening when there is no indication of
inflation?
Talk of rising interest rates began last spring, and on June 30 the Fed
boosted the overnight bank lending rate one quarter of a point (0.25%). With
this move the Fed said it was not inclined to increase rates again anytime
soon -- although it noted that it was alert to the potential emergence of
inflationary pressures that could undermine economic growth. The Fed might then
decide that the June rate increase wasn't enough.
That is exactly what appears to be happening. In his July 22 commentary to the
House Banking Committee, which was part of the Fed's twice-yearly outlook report
required by the Humphrey-Hawkins Full Employment and Balanced Growth Act of
1978, Greenspan didn't say that the Fed definitely would raise the overnight
bank loan rate at its next meeting on August 24. Still, the tone of his report
included more warnings than expected about the need to follow the June rate
increase with another.
The possibility of another rate hike frustrates many investors, who do not
understand why the Fed is tightening when there are no signs of inflation. But
Fed policymakers look at the rate hike another way: If the June 30 increase was
not enough to bring inflation risks into balance, a "euphoric" rise in stocks
may fuel increased consumer spending, which could necessitate a more disruptive
adjustment later. If new data confirms this theory, the Fed will likely act
promptly to prevent such an adjustment. In other words, the Fed strongly
believes that "a stitch in time saves nine" -- it wants to be preemptive by
raising interest rates and slowing the economy BEFORE an inflation problem
arises.
What data may confirm the Fed's theory? To start, the Fed forecasts that the
consumer price index (CPI), the average value of an imaginary "basket" of goods
and services in the economy, could rise as much as 2.5 percent this year, up
from 1.6 percent in 1998. The CPI is the standard measure of inflation in the
United States, so a marked increase would suggest rising inflation.
Employment growth also suggests inflation. Job creation has exceeded the
growth of the working-age population by almost one-half a percentage point
(0.50%) in the past year. The Fed believes that if the pool of job seekers
shrinks sufficiently, upward pressures on wage costs are likely. Such cost
increases have invariably presaged rising inflation in that past, and presumably
would in the future.
The Fed also believes that gross domestic product (GDP), the value of all
goods and services produced in the United States, is growing faster than it
would grow without inflation. The Fed believes that GDP can grow 3.0 percent to
3.5 percent per without generating inflation. Actual 1998 GDP growth was 4.3
percent, and 1999 GDP growth is projected to be 3.8 percent.
Productivity growth is another indicator of inflation pressure. After
languishing at about 1 percent in the 1970s and 1980s, productivity growth has
been above 2 percent in each of the past three years. Over the past four
quarters it has increased 2.8 percent, and could reach 3.5 percent if
second-quarter productivity growth comes in close to 4 percent. According to the
Fed, this has enabled output to grow beyond what normally would have been
expected -- and has held down inflationary pressures. But productivity must
continue to grow at an ever faster pace to keep inflation from accelerating. The
Fed is concerned that the gains in technology that have fostered the
productivity growth will slow, and any inflationary pressures in the labor
market could ultimately show in product prices.
The improving global economy could also contribute to inflation. Improving
economic conditions around the world mean that the U.S. economy will no longer
experience declines in basic commodity and import prices that curtailed
inflation in recent years. A rise in the price of imported crude oil -- which is
used to make everything from gasoline to plastic bags -- is already up 57
percent this year. To the Fed, which cut interest rates by 75 basis points last
year because of a slowdown in the global economy, raising interest rates in June
and again in August or October is only "taking back" some of what it gave last
year.
Clearly, then, if the Fed does raise interest rates in August or October, it
will do so to slow the economy. As a result, consumer spending will likely
decrease, leading to a decline in corporate profits. That will have negative
effects on capital spending. The end result could be a decline in the value of
equities in general.
Of course, if the economy slows naturally, the Fed is not likely to increase
interest rates. If stock markets don't continue "outsized" gains, consumer
spending could ease, and business investment could fall back, making a rate hike
unnecessary. But for several years the Fed has been counting on an economic
slowdown to keep inflation in check. So far, that hasn't happened. And now the
Fed feels that unexploited profit-making opportunities made possible by
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 (7/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate 5.79 4.72 5.46 6.22
Prime rate 8.00 7.75 8.50 8.50
Inflation rate* 1.96 1.61 1.68 2.21
The U.S. dollar -2.82 -4.37 8.79 7.32
Capital goods orders* -0.21 12.89 10.92 7.87
Industrial production * 2.71 1.55 3.59 5.07
Employment growth 2.33 2.25 2.43 2.57
</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 6/30/99.
Source: Economics Department, Scudder Kemper Investments, Inc.
low inflation and the growth of technology may mute a natural cyclical slowdown.
All things considered, a hike of 25 basis points is likely when the Fed meets
in August or October. But one rate hike will likely be the end of the Fed's
interest in interest rates for the next six months. The Fed is unlikely to raise
rates between November and February because of the Y2K issue: It doesn't want to
encourage Y2K fears or appear responsible for Y2K-related volatility in the
financial markets.
The long-term possibility of interest rate hikes is likely to be affected by
political considerations. Election primaries begin in February 2000. Will
candidates be talking about tax cuts? Medicare reform? Social Security reform?
These will be the issues to consider when we look at the economy in early- to
mid-2000.
Hopefully it will be as easy for investors to obtain information about Fed
policies at that time as it is today. The Humphrey-Hawkins hearings were created
to give Congress and the public some idea of economic growth and inflation. But
this round of Humphrey-Hawkins hearings could be the last, because the
Humphrey-Hawkins law expires this year. Although Greenspan has said he thinks it
is important for the Fed to report to Congress, and House Banking Committee
Chairman Jim Leach intends to press for a new law, there has been no move to
enact a new reporting requirement. Although the Fed could still provide
hearings, without a law forcing it to do so within a certain framework, we would
likely have no consistent basis for analyzing monetary policy.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ John E. Silvia
John E. Silvia
The information contained in this piece has been taken from sources believed to
be reliable, but the accuracy of the information is not guaranteed. The opinions
and forecasts expressed are those of Dr. John Silvia as of July 26, 1999, and
may not actually come to pass. This information is subject to change. No part of
this material is intended as an investment recommendation.
To obtain a Kemper Funds prospectus, download one from www.kemper.com, talk to
your financial representative or call Shareholder Services at (800) 621-1048.
The prospectus contains more complete information, including management fees and
expenses. Please read it carefully before you invest or send money.
4
<PAGE> 5
PERFORMANCE UPDATE
[VANDENBERG PHOTO]
RICHARD VANDENBERG IS LEAD PORTFOLIO MANAGER OF KEMPER INTERMEDIATE GOVERNMENT
TRUST. HE JOINED SCUDDER KEMPER INVESTMENTS, INC. IN MARCH 1996 AND IS A
MANAGING DIRECTOR. HE HAS 25 YEARS OF FIXED-INCOME PORTFOLIO MANAGEMENT
EXPERIENCE.
[DUGENSKE PHOTO]
JOHN DUGENSKE IS A PORTFOLIO MANAGER FOR KEMPER INTERMEDIATE GOVERNMENT TRUST.
HE IS A VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, JOINING THE FIRM IN 1998.
[DOLAN PHOTO]
SCOTT DOLAN IS A PORTFOLIO MANAGER FOR KEMPER INTERMEDIATE GOVERNMENT TRUST. HE
JOINED SCUDDER KEMPER INVESTMENTS IN 1989 AND IS A VICE PRESIDENT.
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.
ANXIETY ABOUT INFLATION IN THE U.S. AND GROWING CONFIDENCE IN BOND MARKETS
ABROAD COMBINED TO PUSH U.S. GOVERNMENT BOND PRICES LOWER DURING THE FIRST SIX
MONTHS OF 1999. BELOW, THE FUND'S MANAGEMENT TEAM DISCUSSES THE BEHAVIOR OF THE
U.S. GOVERNMENT BOND MARKET AND HOW THE FUND WAS POSITIONED TO RESPOND.
Q HOW DID THE GOVERNMENT BOND MARKET PERFORM DURING THE FIRST SIX MONTHS OF
THE FISCAL YEAR?
A The first half of 1999 was a more volatile period than the government
bond market typically experiences. The returns investors received varied widely
by instrument and by maturity. Mortgage-backed securities tended to outperform
Treasuries by a substantial margin, and shorter-term instruments tended to
significantly outperform longer-term ones. For example, the Lehman Long
Government Bond Index total return year-to-date through June 30 was -6.61
percent. The Lehman Government Bond Index, which contains more short-term bonds,
had a total return of -2.27 percent. Mortgages performed much better relatively,
with a total return of -0.43 percent as measured by the Lipper U.S. Mortgage
Fund Average.*
The source of this volatility was the changing expectations of investors
during the first half of the year. At the beginning of the year, investors
seemed to favor the U.S. government market; the U.S. economy was growing well
but inflation was subdued. Meanwhile, foreign markets, particularly those in
Asia and Latin America, were hindered by uncertainty regarding the strength of
their economies and their currencies. Thus, investors tended to favor U.S.
government bonds for their relative safety and liquidity. In fact, the 30-year
Treasury bond began the year yielding about 5.08 percent, near its historic
lows.
However, investor expectations began to shift as the year developed. In
March, Asia began showing signs of recovery, and the Japanese appeared serious
about stimulating their economy. Potential problems in Latin American economies,
especially Brazil, began to look as if they were under control. At the same
time, inflation appeared to reemerge in select areas of the U.S. economy.
As a result, investors became more comfortable taking a higher degree of
risk and began moving money from the U.S. government market into other markets
such as emerging markets. Unfortunately, this coincided with a deluge of supply
in the U.S. market. The end result was that prices on 30-year Treasury bonds
dropped as the yield moved from 5.08 percent at the beginning of 1999 to about 6
percent by June 30. The impact of these sharply higher yields is reflected in
the index returns we cited earlier. Prices on intermediate-term bonds also
retreated, but not as drastically.
* The Lehman Long Government Bond index is a total return index considered
generally representative of the market for government bonds with maturities of
ten years or more. The Lehman Government Bond Index is a total return index
considered generally representative of the market for government bonds of all
maturities. The Lipper U.S. Mortgage Fund Average is an index of the 25
largest funds in Lipper's U.S. Mortgage Fund category. The source is Lipper
Analytical Services, Inc.
5
<PAGE> 6
PERFORMANCE UPDATE
Q HOW DID YOU POSITION THE FUND DURING THIS VOLATILE PERIOD?
A Even though the market was volatile, and there was a lot of anxiety among
investors, we were reasonably certain of one thing at the beginning of the
fiscal year: that rates wouldn't go much lower. Therefore, for most of the
six-month period we tried to keep the duration of the fund neutral and worked to
add performance by maintaining an overweight in mortgage-backed securities
versus Treasuries compared to the fund's benchmark. In part, we bought mortgages
because, in an environment of steady or rising interest rates, mortgages
generally outperform Treasuries due to the yield advantage they offer. This
strategy worked well since mortgages outperformed Treasuries for the majority of
the six-month period. We also had some short-term targeted interest rate trades
that worked well for the fund.
One other thing we did was change the peer group against which the fund is
managed. Our management style is to create a peer group of funds that we monitor
internally. We adjust our fund's holdings and duration versus this peer group,
and our goal is to outperform it over time with similar or less volatility. The
funds in the old peer group varied widely in the types of instruments in which
they could invest, while our charter was very narrow. That made it difficult to
know how our competition was invested. Now we have created a much better defined
group of funds that have investment limits similar to our own.
Q DID THE PEER GROUP CHANGE AFFECT HOW YOU INVESTED THE FUND OR ITS
PERFORMANCE?
A We discovered that our duration was longer than the peer group, so we
shortened the fund slightly. But even though we had a longer duration (see Terms
To Know on page 2) during the market's most volatile period, our individual
issue selection was good enough to keep the fund's performance (-1.81 percent,
based on net asset value) right in line with the Lipper average (-1.79 percent
for the Lipper Closed-End U.S. Government Fund average) for the first half of
1999.
Now that we have a highly defined target, we expect to be able to perform
more in line with the peer group consistently.
Q HOW IS THE FUND POSITIONED NOW?
A We don't expect rates to move up much farther from current levels. In
addition, the market seems evenly valued at this point, with no specific area
appearing particularly attractive. So we've adopted a fairly neutral duration
and a neutral allocation between Treasuries and mortgages.
Q YOU MENTIONED THAT YOU DON'T THINK RATES WILL CONTINUE TO RISE FURTHER.
WHY?
A There are several reasons. First, the big first quarter GDP (see Terms To
Know on page 2) number that caused a stir in the market appears to have been an
aberration. We think a large part of that was the traditional first quarter
spending of tax refunds. The average refund was far more than last year and we
think the consumer has put that to work already. It's unlikely that this pace of
growth will continue. Inflation remains subdued, and a spring increase in oil
prices has already started to ebb. Meanwhile, worker productivity continues to
increase, which should help keep price increases and inflation in check.
Second, the Federal Reserve raised rates 0.25 percent in June, which should
help put the brakes on incipient inflation. Third, most economists believe the
Federal Reserve will be reluctant to tighten further because they don't want to
put undue pressure on fragile recoveries in foreign economies and they don't
want to constrain the banking system's liquidity given Y2K concerns.
Q WILL Y2K HAVE AN IMPACT ON THE MARKET OR THE FUND?
A With Y2K , the perception may be more important than reality. We don't
think the coming of the millennium will cause enormous problems. But it may
create an artificially heightened level of fear, which may in turn create
opportunities in some areas of the market. We'll keep on the lookout for values
and be nimble. We won't vary terrifically from the norm because the market isn't
currently compensating us to take more risk. Rather, we'll closely monitor the
market and make incremental boosts in yield here and there that we think will
add up to nice performance over the longer term.
The big picture is that investors are able to reap about 6 percent on
intermediate-maturity AAA-rated mortgages while inflation remains lodged near 3
percent. So fixed income investors are getting a nice return on their investment
and we would expect that to continue.
6
<PAGE> 7
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 6/30/99 ON 12/31/98
- --------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGES 37% 60%
- --------------------------------------------------------------------------------
LONG-TERM GOVERNMENTS 6 --
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM GOVERNMENTS 21 35
- --------------------------------------------------------------------------------
SHORT-TERM GOVERNMENTS 34 --
- --------------------------------------------------------------------------------
CASH EQUIVALENTS
(ONE YEAR OR LESS) 2 5
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
On 6/30/99 On 12/31/98
Mortgages
Long-term governments
Intermediate-term governments
Short-term governments
Cash and equivalents (one year or less)
AVERAGE MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 6/30/99 ON 12/31/98
- --------------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 6.1 years 7.1 years
- --------------------------------------------------------------------------------
</TABLE>
*Portfolio composition is subject to change.
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
KEMPER INTERMEDIATE GOVERNMENT TRUST
Portfolio of Investments at June 30, 1999 (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 5.25% 2001 $15,300 $ 15,228
SECURITIES - 61.0% 3.77 2002 25,000 25,662
(Cost: $152,918) 6.375 2002 42,000 42,847
5.50 2009 24,800 24,226
Bonds 10.375 2009 24,150 28,844
11.25 2015 10,000 14,969
-----------------------------------------------------------------------------------------
151,776
- -----------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL Pass-through certificates 6.00 2029 26,913 25,163
MORTGAGE ASSOCIATION - 18.9% 7.00 2027 - 2029 21,545 21,310
(Cost: $48,568) 9.00 2018 - 2025 452 481
-----------------------------------------------------------------------------------------
46,954
- -----------------------------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL Collateralized mortgage 6.00 2019 6,811 6,713
MORTGAGE ASSOCIATION - 10.6% obligations
(Cost: $25,175) Notes 6.25 2022 10,000 9,819
6.375 2009 10,000 9,951
-----------------------------------------------------------------------------------------
26,483
- -----------------------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN Collateralized mortgage 6.00 2004 6,664 6,617
MORTGAGE ASSOCIATION - 7.5% obligations
(Cost: $17,494) Pass-through certificates
6.25 2021 10,000 9,878
10.25 2016 1,915 2,081
-----------------------------------------------------------------------------------------
18,576
-----------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS--98.0%
(Cost: $244,155) 243,789
-----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET (a) Repurchase agreement 109 109
INSTRUMENTS - 2.0% State Street Bank and Trust Company,
(Cost: $5,106) dated 6/30/99, 4.75%, due 7/1/99
(b) Commercial paper 4,997 4,997
Yield - 4.83%
Due - July 1999
-----------------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--2.0%
(Cost: $5,106) 5,106
-----------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $249,261) $248,895
-----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(b) At June 30, 1999, these securities, in part or in whole, have been
segregated to cover initial margin requirements for open futures contracts.
Based on the cost of investments of $249,261,000 for federal income tax purposes
at June 30, 1999, the gross unrealized appreciation was $3,097,000, the gross
unrealized depreciation was $3,463,000 and the net unrealized depreciation on
investments was $366,000.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
At June 30, 1999, open futures contracts were as follow (in thousands):
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION GAIN (LOSS)
TYPE FACE AMOUNT POSITION MONTH AT 6/30/99
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Eurodollar $ 70,658 Long March '00 $(99)
- -------------------------------------------------------------------------------------------------------
Eurodollar (70,631) Short December '99 153
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Note (5 year) 34,880 Long September '99 189
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Note (10 year) 10,674 Long September '99 127
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Bond (16,227) Short September '99 (62)
- -------------------------------------------------------------------------------------------------------
Total net unrealized appreciation on open futures contracts $308
</TABLE>
See accompanying Notes to Financial Statements.
9
<PAGE> 10
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $249,261) $248,895
- ------------------------------------------------------------------------
Receivable for:
Daily variation margin on open futures contracts 322
- ------------------------------------------------------------------------
Investments sold 4
- ------------------------------------------------------------------------
Interest 2,913
- ------------------------------------------------------------------------
TOTAL ASSETS 252,134
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Cash overdraft 73
- ------------------------------------------------------------------------
Payable for:
Management fee 148
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 16
- ------------------------------------------------------------------------
Trustees' fees and other 18
- ------------------------------------------------------------------------
Total liabilities 255
- ------------------------------------------------------------------------
NET ASSETS $251,879
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $299,493
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (47,556)
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investments (366)
- ------------------------------------------------------------------------
Futures 308
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $251,879
- ------------------------------------------------------------------------
NET ASSET VALUE $.01 PAR VALUE PER SHARE
($251,879 + 33,996 shares outstanding) $7.41
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE> 11
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended June 30, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- --------------------------------------------------------------------------------------
Interest income $ 8,275
- --------------------------------------------------------------------------------------
Expenses:
Management fee 908
- --------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 53
- --------------------------------------------------------------------------------------
Professional fees 27
- --------------------------------------------------------------------------------------
Reports to shareholders 54
- --------------------------------------------------------------------------------------
Trustees' fees and other 81
- --------------------------------------------------------------------------------------
Total expenses 1,123
- --------------------------------------------------------------------------------------
NET INVESTMENT INCOME 7,152
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
- --------------------------------------------------------------------------------------
Net realized loss on sales of:
Investments (6,890)
- --------------------------------------------------------------------------------------
Futures (1,615)
- --------------------------------------------------------------------------------------
Net realized loss (8,505)
- --------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) on:
Investments (3,611)
- --------------------------------------------------------------------------------------
Futures 308
- --------------------------------------------------------------------------------------
(3,303)
- --------------------------------------------------------------------------------------
Net loss on investments (11,808)
- --------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (4,656)
- --------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 (unaudited) and the year ended
December 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------
OPERATIONS AND DIVIDENDS
- --------------------------------------------------------------------------------------
Net investment income $ 7,152 17,789
- --------------------------------------------------------------------------------------
Net realized gain (loss) (8,505) 1,292
- --------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (3,303) 832
- --------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (4,656) 19,913
- --------------------------------------------------------------------------------------
Distribution from net investment income (10,199) (19,086)
- --------------------------------------------------------------------------------------
Tax return of capital distribution -- (1,311)
- --------------------------------------------------------------------------------------
Total dividends to shareholders (10,199) (20,397)
- --------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (14,855) (484)
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------
Beginning of period 266,734 267,218
- --------------------------------------------------------------------------------------
END OF PERIOD $251,879 $266,734
- --------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT Kemper Intermediate Government Trust (the fund) is
ACCOUNTING POLICIES registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as a closed-end,
diversified management investment company organized
as a Massachusetts business trust.
The fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the fund in the
preparation of its financial statements.
SECURITY VALUATION. Investments are stated at
value. Portfolio debt securities purchased with an
original maturity greater than sixty days are
valued by pricing agents approved by the officers
of the fund, whose quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost. All other
securities are valued at their fair value as
determined in good faith by the Valuation Committee
of the Board of Trustees.
REPURCHASE AGREEMENTS. The fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FUTURES CONTRACTS. A futures contract is an
agreement between a buyer or seller and an
established futures exchange or its clearinghouse
in which the buyer or seller agrees to take or make
a delivery of a specific amount of a financial
instrument at a specified price on a specific date
(settlement date). During the period, the fund
purchased securities index and interest rate
futures to manage the duration of the portfolio, as
a temporary substitute for purchasing selected
investments and to lock in the purchase price of a
security which it expects to purchase in the near
future. In addition, the fund also sold securities
index and interest rate futures to hedge against
declines in the value of portfolio securities and
as a temporary substitute for selling selected
investments.
Upon entering into a futures contract, the fund is
required to deposit with a financial intermediary
an amount ("initial margin") equal to a certain
percentage of the face value indicated in the
futures contract. Subsequent payments ("variation
margin") are made or received by the fund dependent
upon the daily fluctuations in the value of the
underlying security and are recorded for financial
reporting purposes as unrealized gains or losses by
the fund. When entering into a closing transaction,
the fund will realize a gain or loss equal to the
difference between the value of the futures
contract to sell and the futures contract to buy.
Futures contracts are valued at the most recent
settlement price.
Certain risks may arise upon entering into futures
contracts, including the risk that an illiquid
secondary market will limit the fund's ability to
close out a futures contract prior to the
settlement date and that a change in the value of a
futures contract may not correlate exactly with the
changes in the value of the securities or
currencies hedged. When utilizing futures contracts
to hedge, the fund gives up the opportunity to
profit from favorable price movements in the hedged
positions during the term of the contract.
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Realized gains and losses
from investment transactions are recorded on an
identified cost basis. All discounts are accreted
for both tax and financial reporting purposes.
FEDERAL INCOME TAXES. The fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was required.
At December 31, 1998, the fund had a tax basis net
loss carryforward of approximately $38,420,000,
which may be applied against any realized net
taxable gains of each succeeding year until fully
utilized or it will expire during the period 2000
through 2004. In addition, from November 1, 1998
through December 31, 1998 the fund incurred
approximately $622,000 of net realized capital
losses. As permitted by tax regulations, the fund
intends to elect to defer these losses and treat
them as arising in the fiscal year ended December
31, 1999.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made monthly.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually. 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.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the fund.
- --------------------------------------------------------------------------------
2 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the annual rate of .80%
of average weekly net assets. The fund incurred a
management fee of $908,000 for the six months ended
June 30, 1999.
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 $12,000
for the six months ended June 30, 1999.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. For the six months ended June 30,
1999, the fund made no payments to its officers and
incurred trustees' fees of $11,000 to independent
trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the six months ended June 30, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $1,090,888
Proceeds from sales $1,089,631
13
<PAGE> 14
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED ONE MONTH
ENDED DECEMBER 31, ENDED YEAR ENDED NOVEMBER 30,
JUNE 30, ----------------- DECEMBER 31, ---------------------------
1999 1998 1997 1996 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.85 7.86 7.90 8.02 8.31 7.77 8.69
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .21 .52 .58 .04 .61 .58 .63
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.35) .07 .04 (.10) (.27) .56 (.87)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations (.14) .59 .62 (.06) .34 1.14 (.24)
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment
income .30 .56 .59 .05 .62 .60 .68
- ----------------------------------------------------------------------------------------------------------------------
Tax return of capital distribution -- .04 .07 .01 .01 -- --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions .30 .60 .66 .06 .63 .60 .68
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.41 7.85 7.86 7.90 8.02 8.31 7.77
- ----------------------------------------------------------------------------------------------------------------------
Market value, end of period $ 7.06 7.56 7.56 7.13 7.38 7.13 7.13
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------------
Based on net asset value (1.81)% 7.80 8.18 (.81) 4.38 15.20 (2.85)
- ----------------------------------------------------------------------------------------------------------------------
Based on market value (2.76)% 8.13 15.76 (2.66) 12.73 8.50 (8.36)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------------
Expenses .96% .91 .95 .95 .91 .95 .94
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 5.44% 6.68 7.44 6.74 7.61 7.28 7.68
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $251,879 266,734 267,218 268,518 272,757 282,479 264,063
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 830% 422 351 72 577 552 497
- ----------------------------------------------------------------------------------------------------------------------
</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.
Data for the period ended June 30, 1999 is unaudited.
14
<PAGE> 15
YEAR 2000
YEAR 2000 ISSUE
Like other registered investment companies, the fund could be affected by the
inability of some computer systems to recognize the year 2000. The investment
manager has a year 2000 readiness program designed to address this problem, and
is also researching the readiness of suppliers and business partners as well as
issuers of securities the portfolio owns. Still, there's some risk that the year
2000 problem could materially affect the fund's operations such as its ability
to calculate net asset value, its investments, or securities markets in general.
- --------------------------------------------------------------------------------
SHAREHOLDERS' MEETING
ANNUAL SHAREHOLDERS' MEETING
On July 14, 1999, the annual shareholders' meeting was held. Kemper Intermediate
Government Trust shareholders were asked to vote on two separate issues:
election of members to the Board of Trustees and ratification of Ernst & Young
LLP as independent auditors. The following are the results for each issue:
1) Election of Trustees. Each of these individuals was elected.
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Akins 29,449,842 439,746
James R. Edgar 29,481,052 408,536
Arthur R. Gottschalk 29,500,781 388,807
Frederick T. Kelsey 29,545,345 344,243
Thomas W. Littauer 29,562,858 326,730
Fred B. Renwick 29,552,990 336,598
John G. Weithers 29,584,345 305,243
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
29,539,737 102,898 246,952
</TABLE>
15
<PAGE> 16
TRUSTEES&OFFICERS
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY LINDA J. WONDRACK
Trustee President Vice President
JAMES R. EDGAR PHILIP J. COLLORA MAUREEN E. KANE
Trustee Vice President and Assistant Secretary
Secretary
ARTHUR R. GOTTSCHALK JOHN R. HEBBLE CAROLINE PEARSON
Trustee Treasurer Assistant Secretary
FREDERICK T. KELSEY ANN M. MCCREARY BRENDA LYONS
Trustee Vice President Assistant Treasurer
THOMAS W. LITTAUER ROBERT C. PECK, JR.
Trustee and Vice President Vice President
FRED B. RENWICK KATHRYN L. QUIRK
Trustee Vice President
JOHN G. WEITHERS RICHARD L. VANDENBERG
Trustee Vice President
- ----------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- ----------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219066
Kansas City, MO 64121-9066
- ----------------------------------------------------------------------------
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02109
- ----------------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
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 (8/25/99) 1083660
