<PAGE> 1
Kemper Municipal Income Trust
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED NOVEMBER 30, 1995
"...We maintained our investment in premium bonds because of the high
level of income they provide and because they help us moderate the volatility
of the fund..."
<PAGE> 2
Table of
Contents
3
General
Economic Overview
5
Performance Update
6
Terms to Know
7
Portfolio Statistics
7
Largest Sectors
8
Portfolio of
Investments
14
Report of
Independent Auditors
15
Financial Statements
17
Notes to
Financial Statements
19
Financial Highlights
20
Description of
Dividend
Reinvestment Plan
At A Glance
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
TOTAL RETURNS
- ----------------------------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 1995
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- ----------------------------------------------------------------------------
<S> <C> <C>
KEMPER MUNICIPAL
INCOME TRUST 20.00% 23.55%
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- ----------------------------------------------------------------------------
AS OF AS OF
11/30/95 11/30/94
- ----------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $12.41 $11.12
MARKET PRICE $12.625 $11.00
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------
DIVIDEND REVIEW
- ----------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND
YIELD INFORMATION FOR THE FUND
AS OF NOVEMBER 30, 1995.
- ----------------------------------------------------
<S> <C>
1 YEAR INCOME: $0.87
NOVEMBER DIVIDEND: $0.0725
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 7.01%
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 6.89%
TAX EQUIVALENT DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE AND A
37.1% FEDERAL INCOME TAX RATE) 11.14%
TAX EQUIVALENT DISTRIBUTION RATE:
(BASED ON MARKET PRICE AND A
37.1% FEDERAL INCOME TAX RATE) 10.95%
</TABLE>
Statistical Note: Current annualized distribution rate is the latest monthly
dividend shown as an annualized percentage of net asset value/market price on
the date shown. Distribution rate simply measures the level of dividends and is
not a complete measure of performance. Total return measures aggregate change
in net asset value/market value assuming reinvestment of dividends. Returns are
historical and do not represent future performance. Market price, net asset
value and returns fluctuate. Additional information concerning performance is
contained in the Financial Highlights appearing at the end of this report.
Income may be subject to state and local taxes and a portion of the income may
be subject to the alternative minimum tax for certain investors.
About Your Report
Your fund's annual report is one of your best sources for tracking the progress
of your investment. This report includes several changes that have been made in
an effort to provide additional information to you as well as to explain
significant changes to the fund over the last fiscal year. In addition, the
performance update includes commentary from your fund's portfolio manager on
what might be expected in the coming months.
Specifically, your report now includes:
- Terms you need to know related to your fund
- A look at your fund's largest sectors
- The maturity and quality of your fund's underlying investments
If you have any comments about the revised format, please write to:
Kemper Funds
Shareholder Communications
120 South LaSalle Street
Chicago, IL 60603
2
<PAGE> 3
General Economic Overview
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER OF KEMPER
FINANCIAL SERVICES, INC. (KFS). KFS AND ITS AFFILIATES MANAGE APPROXIMATELY $63
BILLION IN ASSETS, INCLUDING $44 BILLION IN RETAIL MUTUAL FUNDS. TIMBERS IS A
GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
Investors enjoyed very positive performance in both the fixed income and
stock markets in 1995. The returns of most leading securities markets worldwide
were significantly higher than they were in 1994.
We have an excellent environment for financial assets. After several
quarters of robust growth, the United States economy seems to be growing at a
pace that investors find comfortable. Contrary to isolated reports that caused
some observers to become concerned, we believe the economy is in no jeopardy of
recession. Its health was confirmed with the news that the economy grew (as
measured by real gross domestic product [GDP]) at an annual rate of 4.2 percent
in the third quarter. This follows much lower growth in the first two quarters,
as the economy was adjusting to the Federal Reserve Board's series of interest
rate increases. The slowdown, in fact, was acknowledged by the Fed when it
eased short-term rates by a small but symbolic 25 basis points in July. Now we
know that the economy was rebounding from July through September.
Growth without a corresponding increase in inflation is very
encouraging. Although we are well along in the economic cycle and at a point
when prices often start hiking up, inflationary pressures have actually been
reduced somewhat.
The Fed reduced rates again in December, this time acknowledging
discussions underway to reduce the federal budget deficit. Assuming these
discussions are productive, a third rate cut is possible. Even with such
reducing by the Fed, our forecast calls for lower growth ranging between 2
percent to 3 percent for the next few quarters, with the momentum likely to
come from exports and nonresidential construction.
MARKET OUTLOOK
Slow growth and low inflation is the optimal combination for investors in the
fixed income markets, and we expect them to continue to perform well.
We believe that the opportunities for common stock investors will be
increasingly concentrated in higher quality investments. After hitting new
highs and showing considerable strength for most of the year, the stock market
has shown some vulnerability and then gone on to set records. However, it's
inevitable -- the current bull market will come to an end some day. In fact,
some sectors may be overextended today.
As we view the new year, companies cannot necessarily count on the
economy to provide above-average earnings support. Rather, stocks that have
proven themselves with a pattern of consistent earnings are likely to attract
investor support. Specifically, sectors that produce more consistent earnings,
such as health care, consumer nondurables, selected technology and selected
capital goods can be expected to do well. Picking the right sectors to invest
in will be the key challenge for equity investors during the next few quarters.
International investing continues to be quite complex. After sinking to
its post-World War II low last year, the value of the U.S. dollar has gained
strength against most foreign currencies. While a stronger dollar favors the
U.S. economy because it reduces the cost of American imports and attracts
foreign capital, a strong dollar in relation to a local currency has the effect
of devaluing a foreign investment. The value of the dollar and the
attractiveness of U.S. investments to foreign investors will be key factors in
the next few months.
3
<PAGE> 4
GENERAL ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The 10-
year Treasury rate and the prime rate are prevailing interest rates. The other
data report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
Now (12/31/95) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.71 6.28 7.78 5.75
Prime rate (2) 8.65 8.80 8.50 6.00
Inflation rate (3)* 2.60 2.97 2.60 2.74
The U.S. dollar (4)* -1.57 -9.31 -4.52 1.71
Capital goods orders (5)** 7.60 17.84 13.53 23.75
Industrial production (6)* 1.88 2.80 6.43 3.76
Employment growth (7)* 1.50 2.29 3.15 2.58
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on corporate profits and equity performance.
(7) An influence on family income and retail sales.
* Data as of November 30, 1995
** Data as of October 31, 1995
SOURCE: ECONOMICS DEPARTMENT, KEMPER FINANCIAL SERVICES, INC.
We are in the midst of a global recovery, and the same fundamentals that
have driven markets higher in the U.S. can be found in many foreign countries
currently. However, leading international economies continue to lag the U.S.
Japan and Germany, whose economies typically follow U.S. growth, are not as
robust as in past cycles. Moreover, conditions in emerging market countries
underline the importance of careful research and experience in understanding how
these markets work.
Political leadership also has some bearing on the progress of the economy and
the state of the financial markets. In the months preceding a presidential
election year, it has been common for incumbents to attempt to stimulate
growth. Given our Republican Congress and Democratic President, however, we do
not consider this as likely this time.
With the rest of the country, we are closely following political
initiatives to produce a balanced federal budget. This is a political wild card,
but we would expect both the stock and fixed-income markets to react with
enthusiasm if progress can be made.
With that as an economic backdrop, we encourage you to read the
following detailed report of your fund, including a question-and-answer
interview with your fund's portfolio manager. Thank you for your continued
support. We appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
CHIEF INVESTMENT AND EXECUTIVE OFFICER
January 9, 1996
4
<PAGE> 5
Performance Update
[MIER PHOTO]
CHRIS MIER JOINED KEMPER FINANCIAL SERVICES, INC. IN 1986 AND IS NOW SENIOR
VICE PRESIDENT AND PORTFOLIO MANAGER OF KEMPER MUNICIPAL INCOME TRUST. HE HAS
BEEN PORTFOLIO MANAGER SINCE ITS INCEPTION IN OCTOBER 1988. MIER RECEIVED HIS
B.A. DEGREE IN ECONOMICS FROM THE UNIVERSITY OF MICHIGAN AND WENT ON TO RECEIVE
HIS M.M. IN FINANCE FROM THE KELLOGG GRADUATE SCHOOL OF MANAGEMENT AT
NORTHWESTERN UNIVERSITY. HE IS A CHARTERED FINANCIAL ANALYST.
The views expressed in this report reflect those of the portfolio manager only
through the end of the period of the report, as stated on the cover. The
manager's views are subject to change at any time, based on market and other
conditions.
KEMPER MUNICIPAL INCOME TRUST PORTFOLIO MANAGER CHRIS MIER DISCUSSES HOW
FALLING INTEREST RATES, LOW INFLATION AND IMPROVING CREDIT QUALITY AT THE STATE
LEVEL ENHANCED THE FUND'S PERFORMANCE DURING THE YEAR.
Q: THE FUND POSTED A SOLID GAIN OF 20.00 PERCENT, ON A NET ASSET
VALUE BASIS, AND 23.55 PERCENT, ON A MARKET VALUE BASIS, FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1995. WHAT WAS BEHIND THIS STRONG PERFORMANCE?
A: The fiscal year was a good one for the bond market. Bond prices
appreciated as interest rates fell due to moderate economic growth and low
inflation. THE BOND BUYER 25-Bond Revenue Bond Index (RBI) -- a gauge of
municipal bond interest rates -- peaked on November 17, 1994, at 7.37 percent
and fell to 5.78 percent by November 30, 1995. As the environment for
bonds improved, so did the fund's performance. The market price per share
increased during the year by $1.625 to $12.625 per share while the net asset
value climbed $1.29 to $12.41 per share.
The reason for the market's solid performance was the Federal Reserve
Board's apparent success in engineering a "soft landing" for the economy --
slow growth and low inflation. In early 1994, the Fed began raising short-term
interest rates to slow robust economic growth and to keep inflation under
control. After a series of interest rate hikes, market yields for long-term
bonds peaked in November 1994. With interest rates high, inflation low and
economic growth moderating, the market was poised for a significant rally.
Q: HOW WAS THE FUND POSITIONED DURING THE YEAR?
A: During the year we maintained our investment in premium bonds because
of the high level of income they provide and because they help us moderate the
volatility of the fund, offsetting the effects of the fund's leverage. In
leveraging, we borrow short-term capital to reinvest in bonds with yields
higher than the interest we pay on the borrowed funds. This can enhance
shareholders' dividend return. However, leverage can increase the volatility of
the fund's net asset value and income.
In addition, we added holdings in select states to take advantage of specific
market or credit opportunities. The Midwest and Texas, in particular,
offered a number of investment opportunities. The market's strong fundamentals
during the year enabled us to keep the fund fully invested, increasing income.
To help enhance the fund's total return, we added long-term bonds, which
performed well in 1995's declining interest rate environment.
5
<PAGE> 6
Performance Update
Q: WERE THERE ANY SIGNIFICANT TRENDS THAT AFFECTED MUNICIPAL BOND
PERFORMANCE DURING THE FISCAL YEAR?
A: Municipal bond credit quality continued to improve at the state level
last year as the nation's economic expansion approached its fifth year. As
such, some states began to see large fund balances and deliberated over
tax cuts or possible rebates to tax payers. Political considerations at both
the national and state level -- particularly those with respect to tax reform
- -- also impacted the municipal bond market.
Q: WHAT EFFECT HAS TAX REFORM DISCUSSION HAD ON THE MUNICIPAL MARKET?
A: Tax reform discussion caused the municipal bond yield ratio to increase
by about 10 percentage points compared to Treasuries. The yield ratio measures
the relationship of municipal bond yields to comparable-term U.S. Treasury
yields. This wider yield ratio means that the market has already discounted
some of the potential impact of tax reform. If significant reform fails to
materialize, the market will most likely correct itself, which may help the
performance of municipal bonds.
Q: WAS SUPPLY A POSITIVE FACTOR FOR THE FUND LAST YEAR?
A: Supply in calendar year 1995 was $156.2 billion, which was down
approximately 5 percent from 1994's total supply of $164.5 billion. In
addition, bond calls and redemptions were high in 1995. Therefore, the
availability of bonds declined, for the second year in a row, as calls and
redemptions outpaced new issue supply. These factors are generally favorable
for municipal bond market performance.
Q: WHAT'S YOUR OUTLOOK FOR 1996?
A: We anticipate continued slow but positive economic growth with
inflation remaining under control. We also expect that a meaningful federal
budget resolution will eventually occur, which could move rates even lower.
Although it is unlikely that we'll see total returns of the magnitude of
1995, this year should provide a positive environment for the bond market.
For the municipal bond market, in particular, we expect the supply of
and demand for new municipal issues to increase moderately if interest rates
fall. And as mentioned before, we believe that the market has substantially
discounted the potential of tax reform. Should the market overreact or
over-discount events as they unfold, we may well see some attractive buying
opportunities.
Terms to Know
REVENUE BOND INDEX (RBI) The average yield on 25 revenue bonds with 30-year
maturities compiled by THE BOND BUYER, a newspaper that covers the municipal
bond market.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period, assuming the
reinvestment of all dividends. It may represent the aggregate percentage or
dollar value change over a period or may be shown as an annualized figure.
DISTRIBUTION RATE 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.
6
<PAGE> 7
Portfolio Statistics
SECURITIES RATINGS
<TABLE>
<CAPTION>
- ------------------------------------------------------------
ON 11/30/95 ON 11/30/94
- ------------------------------------------------------------
<S> <C> <C>
AAA 36% 26%
AA 18 28
A 21 20
BBB 20 23
NOT RATED 5 3
- ------------------------------------------------------------
100% 100%
</TABLE>
-AAA
- AA
[PIE CHARTS] - A
-BBB
-NOT RATED
THE RATINGS OF STANDARD & POOR'S CORPORATION (S&P) AND MOODY'S INVESTORS
SERVICES, INC. (MOODY'S) REPRESENT THEIR OPINIONS AS TO THE QUALITY OF
SECURITIES THAT THEY UNDERTAKE TO RATE. THE PERCENTAGE SHOWN REFLECTS THE
HIGHER OF MOODY'S OR S&P RATINGS. PORTFOLIO COMPOSITION WILL CHANGE OVER TIME.
RATINGS ARE RELATIVE AND SUBJECTIVE AND NOT ABSOLUTE STANDARDS OF QUALITY.
AVERAGE MATURITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------
ON 11/30/95 ON 11/30/94
- ------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 21.2 YEARS 21.2 YEARS
- ------------------------------------------------------------
</TABLE>
Largest Sectors
<TABLE>
<CAPTION>
THE FUND'S LARGEST SECTORS
REPRESENTING 61.1% OF THE FUND'S TOTAL NET ASSETS
ON NOVEMBER 30, 1995
- ----------------------------------------------------
Holdings Percent
- ----------------------------------------------------
<S> <C> <C>
1. ELECTRICITY BONDS 15.8%
2. SINGLE FAMILY STATE BONDS 13.9%
3. AIRPORT BONDS 12.5%
4. WASTE DISPOSAL 9.5%
5. U.S. GOVERNMENT SECURED 9.4%
- ----------------------------------------------------
</TABLE>
7
<PAGE> 8
Portfolio of Investments
KEMPER MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS AT NOVEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
ADVANCED REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL AND
INTEREST BY UNITED STATES GOVERNMENT SECURITIES--9.4%
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NY, Urban Dev. Corp., State Facilities, Rev.,
7.50%, to called 4-01-2001 @ 102 $ 6,695 $ 7,789
NY, Dormitory Auth., State University
Educational Facilities, Rev.:
7.25%, to be called 5-15-02 @ 102 5,000 5,900
7.375%, to be called 5-15-00 @ 102 1,355 1,554
NY, Housing Finance Agcy., Service Contract,
Rev., 7.375%, to be called 3-15-2002 @ 102 3,000 3,549
NY, Medical Care Facilities Finance Agcy.,
Mental Health Services Facilities
Improvement, Rev., 7.70%, to be called
2-15-98 @ 102 2,000 2,196
Indianapolis, IN, Local Public Improvement Bond
Bank, Rev., 8.50%, to be called 2-1-98 @ 102 12,470 13,843
Volusia County, FL, Health Facilities Auth.,
Memorial Health Systems, Hospital Facilities
Rev., 8.25% to be called 6-1-00 @ 102 7,000 8,163
Greater Orlando, FL, Aviation Auth., Airport
Facilities, Rev., 8.00%, to be called 10-1-98
@ 102 120 134
Puerto Rico, Gen. Oblg., 7.75%, to be called
7-1-99 @ 101 1/2 5,020 5,699
WA, Health Care Facilities Auth., Rev., 7.75%,
to be called 5-01-2000 @ 102 4,200 4,862
Tulsa, OK, Tulsa Airport Improvement Trust,
Rev., 7.70%, to be called 6-1-02 @ 100 3,315 3,903
Greene County, PA, Gen. Oblg., 8.75%, to be
called 12-1-00 @ 100 3,275 3,896
Kenton County, KY, Airport Board, Greater
Cincinnati International Airport, Rev.,
8.25%, to be
called 3-1-98 @ 102 1,950 2,159
NC, Eastern Municipal Power Agcy., Power
System, Rev., 8.00%, to be called 1-01-1998 @
102 262 288
===========================================================================
TOTAL ADVANCED REFUNDED OBLIGATIONS--9.4%
(Cost: $55,376) 63,935
===========================================================================
OTHER MUNICIPAL OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------
ILLINOIS--10.8% Chicago:
Gas Supply, Peoples Gas, Light and Coke
Company, Rev., 8.10%, 2020 1,250 1,421
O'Hare International Airport:
General Airport Rev., 8.20%, 2018 3,900 4,141
International Terminal, Special Rev., 7.625%
and
8.20%, 2010 and 2024 14,775 16,670
Skyway Toll Bridge, Rev., 6.75%, 2014 2,775 2,930
Dev. Finance Auth., Pollution Control,
Commonwealth Edison Finance Company Proj.,
Rev., 6.75%, 2015 4,220 4,690
Harvard, Multifamily Housing, Northfield Court,
Rev., 9.50%, 2006 2,650 2,921
Health Facilities Auth.:
Bethany Home and Hospital, Rev., 8.625%, 2009 7,430 8,130
Lutheran General Health Care System, Rev.,
6.00%, 2018 1,030 1,017
Methodist Health Services Corp., Rev., 8.00%,
2015 1,925 2,167
</TABLE>
8
<PAGE> 9
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Housing Dev. Auth., Residential Mortgage, Rev.,
8.10%, 2022 $ 3,790 $ 4,027
Regional Transportation Auth., Cook, DuPage,
Kane, Lake, McHenry, and Will Counties, Gen.
Oblg., 6.125%, 2022 4,000 4,125
Scholarship Commission, Student Loan Rev.,
7.85% to 8.00%, 1999 through 2002 13,900 14,311
Sports Facilities Auth., Rev., 7.875%, 2010 6,000 6,715
---------------------------------------------------------------------------
73,265
- ------------------------------------------------------------------------------------------------------------
NEW YORK--9.0% Dormitory Auth.:
City University System, Rev., 5.625%, 2016 1,500 1,498
State University Educational Facilities, Rev.,
7.375%
and 7.00%, 2014 and 2016 7,140 7,763
Energy Research and Dev. Auth.:
Consolidated Edison Company, Rev., 7.75%, 2024 13,300 14,258
Pollution Control, Rev., 6.15%, 2026 10,000 10,433
Medical Care Facilities Finance Agcy., Mental
Health Services, Rev., 7.70%, 2018 3,255 3,505
Niagara Frontier Transportation Auth., Greater
Buffalo International Airport, Rev., 6.25%,
2024 5,750 6,098
Port Auth., Rev., 8.00%, 2023 6,000 6,156
State, Gen. Oblg., 7.50%, 2003 and 2004 10,430 11,435
---------------------------------------------------------------------------
61,146
- ------------------------------------------------------------------------------------------------------------
TEXAS--9.0% Austin, Airport System Prior Lien, Rev. Bonds,
6.20%, 2015 3,000 3,154
Brazos River Auth., Utilities Electric Company,
Pollution Control Rev., 8.25%, 2019 11,000 12,209
Dallas-Fort Worth International Airport
Facility Improvement Corp., American
Airlines, Inc., Rev., 7.50%, 2025 1,500 1,602
Lower Neches Valley, Industrial Dev. Auth.,
Mobil Oil, Rev., 6.40%, 2030 17,000 17,962
Matagorda County, Navigation District Number 1,
Central Power and Light Company, Pollution
Control Rev., 6.00% and 7.875%, 2028 and 2016 20,000 20,465
Red River Auth., Utilities Company, Public
Service Company of Oklahoma and Central Power
and Light Company, Pollution Control Rev.,
7.875%, 2014 5,200 5,488
---------------------------------------------------------------------------
60,880
- ------------------------------------------------------------------------------------------------------------
INDIANA--7.1% Employment Dev. Commission, Indianapolis Power
and Light Company, Rev., 7.45%, 2019 14,215 15,580
Indianapolis, Airport Auth., Federal Express
Corp. Proj.,
Special Facilities Rev., 7.10%, 2017 7,000 7,558
Indianapolis, Gas Utility System Rev., 5.875%,
2024 14,000 14,286
Town of Fishers, Economic Dev. Water
Facilities, Indianapolis Water Company, Rev.,
7.875%, 2019 10,000 10,812
---------------------------------------------------------------------------
48,236
- ------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
WASHINGTON--4.4%
Housing Finance Commission, Rev., 7.05%, 2022 $ 8,800 $ 9,313
Public Power Supply System, Nuclear Proj. #2,
Rev., 5.60% and 7.00%, 2015 and 2012 18,500 20,224
---------------------------------------------------------------------------
29,537
- ------------------------------------------------------------------------------------------------------------
MAINE--3.9%
Health and Higher Educational Facilities Auth.,
Rev., 5.70% and 7.00%, 2013 and 2024 9,320 9,972
Regional Waste Systems, Inc., Solid Waste
Resource Recovery System, Rev., 7.85% and
8.15%, 2011 13,280 14,574
State Housing Auth., Mortgage Purchase Rev.,
8.30%, 2028 1,620 1,692
---------------------------------------------------------------------------
26,238
- ------------------------------------------------------------------------------------------------------------
FLORIDA--3.7%
Broward County, Broward Waste Energy Company,
Rev., 7.95%, 2008 4,440 5,031
Dade County, Housing Finance Auth., Single
Family Mortgage Rev., 6.55%, 2027 3,500 3,621
Escambia County, Housing Finance Auth., Single
Family Mortgage Rev., 6.90%, 2021 3,780 4,021
Housing Finance Agcy.:
Rev., 6.15% and 6.25%, 2025 and 2035 2,525 2,558
Home Ownership, Rev., 8.30%, 2020 4,485 4,760
Greater Orlando Aviation Auth., Airport
Facilities, Rev., 8.00%, 2018 1,130 1,257
Lake County, Resource Recovery, Industrial Dev.
Rev., 5.95%, 2013 4,000 3,897
---------------------------------------------------------------------------
25,145
- ------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--3.7%
Allegheny County, Greater Pittsburgh
International Airport, Rev., 8.25%, 2016 8,450 9,204
Lehigh County:
General Purpose Auth., Wiley House, Rev.,
8.65% and 8.75%, 2004 and 2014 5,815 6,065
Industrial Dev. Auth., Pollution Control, Rev.,
6.15%, 2029 1,500 1,589
Philadelphia, Gas Works, Rev., 6.375%, 2026 7,950 8,132
---------------------------------------------------------------------------
24,990
- ------------------------------------------------------------------------------------------------------------
NEW JERSEY--3.1%
Economic Dev. Auth., American Water
Company, Inc. Proj., Water Facilities Rev.,
6.875%, 2034 10,775 11,920
Health Care Facilities Financing Auth., General
Hospital Center at Passaic, Rev., 6.75%, 2019 5,000 5,601
Housing and Mortgage Finance Agcy., Home Buyer
Rev., 7.70%, 2029 3,485 3,696
---------------------------------------------------------------------------
21,217
- ------------------------------------------------------------------------------------------------------------
COLORADO--2.8%
City and County of Denver, Airport System Rev.,
6.75% to 8.50%, 2013 through 2023 13,080 14,332
Housing and Finance Auth., Single Family
Program, Rev., 7.70%, 2021 4,620 4,866
---------------------------------------------------------------------------
19,198
- ------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
KENTUCKY--2.6%
Kenton County Airport Board, Greater Cincinnati
International Airport, Rev., 8.25%, 2015 $ 8,950 $ 9,866
Trimble County, Louisville Gas & Electric
Company, Pollution Control Rev., 7.75%, 2019 7,000 7,536
---------------------------------------------------------------------------
17,402
- ------------------------------------------------------------------------------------------------------------
OHIO--2.4%
Cuyahoga County, Meridia Health System,
Hospital Rev., 6.25%, 2024 2,350 2,437
Green Springs, Health Care Facilities Rev.,
7.125%, 2025 6,000 6,193
Housing Finance Agcy., Single Family Mortgage
Rev., 7.65% to 8.25%, 2010 through 2029 7,496 7,944
---------------------------------------------------------------------------
16,574
- ------------------------------------------------------------------------------------------------------------
VIRGINIA--2.3%
Fairfax County Economic Dev. Auth., Ogden
Martin System, Resource Recovery Rev., 7.75%,
2011 13,890 15,287
- ------------------------------------------------------------------------------------------------------------
VERMONT--2.1%
Housing Finance Agcy., Mortgage Purchase Rev.,
8.10%, 2022 13,660 14,423
- ------------------------------------------------------------------------------------------------------------
MISSOURI--1.9%
Housing Dev. Commission, Single Family Mortgage
Rev., 7.90%, 2021 4,700 5,011
St. Louis, Regional Convention and Sports
Complex Auth., Rev., 7.90%, 2021 3,600 4,046
West Plains, Industrial Dev. Auth., Ozarks
Medical Center, Hospital Rev., 8.625%, 2020 3,650 4,061
---------------------------------------------------------------------------
13,118
- ------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--1.9%
Metropolitan Airports Auth., Airport System,
Rev., 5.75%, 2020 13,100 13,115
- ------------------------------------------------------------------------------------------------------------
LOUISIANA--1.8%
Housing Finance Agcy., Single Family Mortgage
Rev., 8.30%, 2020 4,205 4,502
Public Facilities Auth., Lafayette General
Medical Center, Rev., 6.50%, 2022 7,350 7,829
---------------------------------------------------------------------------
12,331
- ------------------------------------------------------------------------------------------------------------
UTAH--1.5%
Davis County, Solid Waste Management & Energy
Recovery, Special Service District, Rev.,
6.125%, 2009 5,000 4,970
Intermountain Power Agcy., Power Supply System
Rev., 7.75%, 2020 5,000 5,455
---------------------------------------------------------------------------
10,425
- ------------------------------------------------------------------------------------------------------------
MICHIGAN--1.5%
Greater Detroit Resource Recovery Auth.,
Resource Recovery Facility, Rev., 9.25%, 2008 3,000 3,099
Monroe County, Detroit Edison, Pollution
Control Rev., 7.75%, 2019 6,500 7,156
---------------------------------------------------------------------------
10,255
- ------------------------------------------------------------------------------------------------------------
NEW MEXICO--1.4%
Mortgage Finance Auth., Single Family Mortgage
Rev., 7.80% and 8.30%, 2021 and 2020 8,470 9,118
- ------------------------------------------------------------------------------------------------------------
IOWA--1.3%
Housing Finance Auth., Single Family Mortgage
Rev., 7.90%, 2022 8,430 9,021
- ------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
WISCONSIN--1.3%
Health Facilities Auth., Franciscan Health
Advisory Services, Inc., Rev., 7.80%, 2014 $ 8,460 $ 8,868
- ------------------------------------------------------------------------------------------------------------
OKLAHOMA--1.2%
Tulsa Airport Improvement Trust, General Rev.,
7.70%, 2013 7,545 8,070
Turnpike Auth., Turnpike System Rev., 7.875%,
2021 355 403
---------------------------------------------------------------------------
8,473
- ------------------------------------------------------------------------------------------------------------
IDAHO--1.0%
Housing Agcy., Single Family Mortgage Rev.,
7.875% and 6.90%, 2021 and 2025 6,590 6,953
- ------------------------------------------------------------------------------------------------------------
MARYLAND--1.0%
Howard County, Braeland Eden Commons,
Multifamily Housing Rev., 6.20%, 2023 6,750 6,542
- ------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE--.9%
Higher Education and Health Facilities,
Nashua Memorial Hospital, Rev.,
6.00%, 2013 and 2023 6,000 5,948
- ------------------------------------------------------------------------------------------------------------
MINNESOTA--.8%
Housing Finance Agcy., Single Family Mortgage
Rev., 7.95% and 8.00%, 2022 and 2029 5,065 5,340
- ------------------------------------------------------------------------------------------------------------
NORTH CAROLINA--.7%
Housing Finance Agcy., Single Family Mortgage
Rev., 7.85%, 2028 4,465 4,757
- ------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--.6%
Oconee County, Duke Power Company, Pollution
Control Rev., 7.75%, 2017 3,500 3,883
- ------------------------------------------------------------------------------------------------------------
CALIFORNIA--.4%
Housing Finance Agcy., Home Mortgage, Rev.,
8.30% and 8.35%, 2019 2,845 3,031
- ------------------------------------------------------------------------------------------------------------
RHODE ISLAND--.4%
Housing and Mortgage Finance Corp., Rev.,
8.25%, 2022 2,715 2,902
- ------------------------------------------------------------------------------------------------------------
ARIZONA--.3%
Maricopa County, Rural Road Improvement
District, Gen. Oblg., 8.625%, 2007 1,940 2,274
- ------------------------------------------------------------------------------------------------------------
NEVADA--.3%
Clark County, Power Company Proj., Industrial
Dev. Rev., 6.70%, 2022 1,750 1,875
- ------------------------------------------------------------------------------------------------------------
NORTH DAKOTA--.1%
Housing Finance Agcy., Single Family Mortgage
Rev., 8.375%, 2021 855 911
- ------------------------------------------------------------------------------------------------------------
HAWAII--.1%
Housing Finance and Dev. Corp., Single Family
Mortgage Rev., 8.125%, 2019 570 607
---------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--87.3%
(Cost: $549,821) 593,285
---------------------------------------------------------------------------
TOTAL OBLIGATIONS--96.7%
(Cost: $605,197) 657,220
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
Portfolio of Investments
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET INSTRUMENTS--1.4%
Yield--4.00% to 4.10%,
Due--December 1995
(Cost: $9,500) $ 9,500 $ 9,500
---------------------------------------------------------------------------
TOTAL INVESTMENTS--98.1%
(Cost: $614,697) 666,720
---------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.9% 12,964
---------------------------------------------------------------------------
NET ASSETS--100% $ 679,684
---------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $614,697,000 for federal income tax purposes
at November 30, 1995, the aggregate gross unrealized appreciation of investments
was $52,349,000, the aggregate gross unrealized depreciation was $326,000 and
the net unrealized appreciation on investments was $52,023,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
Report of Independent Auditors
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER MUNICIPAL INCOME TRUST
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Municipal Income Trust as of
November 30, 1995, the related statements of operations for the year then ended,
and changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the fiscal years since 1991. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
November 30, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Municipal Income Trust at November 30, 1995, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the fiscal years
since 1991, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 12, 1996
14
<PAGE> 15
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995
(in thousands)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
Investments, at value
(Cost: $614,697) $666,720
- -------------------------------------------------------------------------------------------------
Cash 284
- -------------------------------------------------------------------------------------------------
Interest receivable 14,605
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS 681,609
- -------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
<TABLE>
<S> <C>
Payable for:
Investments purchased 1,453
- -------------------------------------------------------------------------------------------------
Management fee 309
- -------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 6
- -------------------------------------------------------------------------------------------------
Other 157
- -------------------------------------------------------------------------------------------------
Total liabilities 1,925
- -------------------------------------------------------------------------------------------------
NET ASSETS $679,684
- -------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
<TABLE>
<S> <C>
Remarketed preferred shares, par value $.01 per share, unlimited number of shares
authorized, 43 shares outstanding at $5,000 liquidation value per share $215,000
- -------------------------------------------------------------------------------------------------
Common shares, par value $.01 per share, unlimited number of shares authorized, 37,454
shares outstanding 375
- -------------------------------------------------------------------------------------------------
Paid-in surplus 413,619
- -------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (14,749)
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 52,023
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 13,416
- -------------------------------------------------------------------------------------------------
NET ASSETS $679,684
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER COMMON SHARE ($679,684 less remarketed preferred shares at
liquidation value of $215,000 divided by 37,454 common shares outstanding) $12.41
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
Financial Statements
STATEMENT OF OPERATIONS
Year ended November 30, 1995
(in thousands)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
<TABLE>
<S> <C>
Interest income $45,803
- -------------------------------------------------------------------------------------------------
Expenses:
Management fee 3,641
- -------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 242
- -------------------------------------------------------------------------------------------------
Professional fees 63
- -------------------------------------------------------------------------------------------------
Reports to shareholders 27
- -------------------------------------------------------------------------------------------------
Registration and remarketing fees 527
- -------------------------------------------------------------------------------------------------
Trustees' fees and other 82
- -------------------------------------------------------------------------------------------------
Total expenses 4,582
- -------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 41,221
- -------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
<TABLE>
<S> <C>
Net realized loss on sales of investments (including options purchased) (3,590)
- -------------------------------------------------------------------------------------------------
Net realized loss from futures transactions (432)
- -------------------------------------------------------------------------------------------------
Net realized loss (4,022)
- -------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 52,077
- -------------------------------------------------------------------------------------------------
Net gain on investments 48,055
- -------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $89,276
- -------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $41,221 40,996
- --------------------------------------------------------------------------------------------------
Net realized loss (4,022) (7,810)
- --------------------------------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation 52,077 (60,931)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 89,276 (27,745)
- --------------------------------------------------------------------------------------------------
Distribution from net investment income
Common shares (32,507) (32,429)
- --------------------------------------------------------------------------------------------------
Remarketed preferred shares (8,569) (6,096)
- --------------------------------------------------------------------------------------------------
Distribution from net realized gain on investments -- (13,395)
- --------------------------------------------------------------------------------------------------
Total dividends to shareholders (41,076) (51,920)
- --------------------------------------------------------------------------------------------------
Proceeds from common shares issued in reinvestment of dividends
(137,000 shares in 1995 and 109,000 shares in 1994) 1,694 1,347
- --------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 49,894 (78,318)
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NET ASSETS
<TABLE>
<S> <C> <C>
Beginning of year 629,790 708,108
- --------------------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment income of
$13,416,000 and $13,339,000, respectively) $679,684 629,790
- --------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
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. Exchange traded options are valued
at the last sale price unless there is no sale
price, in which event prices provided by market
makers are used. Over-the-counter traded options
are valued based upon prices provided by market
makers. Financial futures and options thereon are
valued at the settlement price established each day
by the board of trade or exchange on which they are
traded. Other securities and assets are valued at
fair value as determined in good faith by the Board
of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Interest income is recorded on the
accrual basis and premiums and original issue
discount on securities are amortized. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FEDERAL INCOME TAXES AND DIVIDENDS TO SHAREHOLDERS.
The Fund has complied with the special provisions
of the Internal Revenue Code available to
investment companies and therefore no federal
income tax provision is required. The accumulated
net realized loss on sales of investments for
federal income tax purposes at November 30, 1995,
amounting to approximately $11,125,000, is
available to offset future taxable gains. If not
applied, the loss carryover expires during the
period 2002 through 2004.
The Fund declares and pays common share dividends
on a monthly basis. Dividends payable to its
shareholders are recorded by the Fund on the ex-
dividend date.
Dividends are determined in accordance with income
tax principles which may treat certain transactions
differently from generally accepted accounting
principles.
REMARKETED PREFERRED SHARES. The Fund has issued
and outstanding 10,800 Series A, 10,700 Series B,
10,800 Series C and 10,700 Series D remarketed
preferred shares, each at a liquidation value of
$5,000 per share. The dividend rate on each series
is set by the remarketing agent, and preferred
share dividends are generally paid every 28 days.
- --------------------------------------------------------------------------------
2 TRANSACTIONS WITH
AFFILIATES The Fund has a management agreement with Kemper
Financial Services, Inc. (KFS) and pays a
management fee at an annual rate of .55% of average
weekly net assets. The Fund incurred a management
fee of $3,641,000 for the year ended November 30,
1995.
17
<PAGE> 18
Notes to Financial Statements
Pursuant to a services agreement with the Fund's
transfer agent, Kemper Service Company (KSvC) is
the shareholder service agent of the Fund. For the
year ended November 30, 1995, the transfer agent
remitted shareholder services fees to KSvC of
$84,000.
Certain officers or trustees of the Fund are also
officers or directors of KFS. During the year ended
November 30, 1995, the Fund made no direct payments
to its officers and incurred trustees' fees of
$15,000 to independent trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the year ended November 30, 1995, investment
transactions (excluding short-term investments) are
as follows (in thousands):
Purchases $133,168
Proceeds from sales 124,342
18
<PAGE> 19
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE FOR A COMMON SHARE
Net asset value, beginning of year $11.12 13.25 12.45 11.85 11.25
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 1.10 1.10 1.16 1.16 1.18
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.29 (1.84) .66 .49 .56
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations 2.39 (.74) 1.82 1.65 1.74
- -----------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income to common
shareholders .87 .87 .87 .87 .87
- -----------------------------------------------------------------------------------------------------------------
Distribution from net investment income to
preferred shareholders (common share equivalent) .23 .16 .15 .18 .27
- -----------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- .36 -- -- --
- -----------------------------------------------------------------------------------------------------------------
Total dividends 1.10 1.39 1.02 1.05 1.14
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of year $12.41 11.12 13.25 12.45 11.85
- -----------------------------------------------------------------------------------------------------------------
Market value, end of year $12.63 11.00 12.75 12.63 12.00
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN PER COMMON SHARE
Based on net asset value 20.00% (7.36) 13.80 12.80 13.55
- -----------------------------------------------------------------------------------------------------------------
Based on market value 23.55 (4.52) 8.00 12.72 14.78
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(Ratios exclude the effect of dividends to preferred shareholders)
Expenses .69% .70 .69 .71 .72
- -----------------------------------------------------------------------------------------------------------------
Net investment income 6.23 6.13 6.20 6.48 6.76
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets at end of year, net of remarketed
preferred shares (in thousands) $464,684 414,790 493,108 461,119 434,924
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 19% 12 17 5 4
- -----------------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at end of
year (in thousands) $215,000 215,000 215,000 215,000 215,000
- -----------------------------------------------------------------------------------------------------------------
Asset coverage per share of remarketed preferred
shares outstanding at end of year $ 15,800 14,600 16,500 15,700 15,100
- -----------------------------------------------------------------------------------------------------------------
Liquidation and market value per share of remarketed
preferred shares $ 5,000 5,000 5,000 5,000 5,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return based on net asset value reflects changes in the
Fund's net asset value during the year. Total return based on market value
reflects changes in market value. Each figure includes reinvestment of
dividends. These figures will differ depending upon the level of any discount
from or premium to net asset value at which the Fund's shares trade during the
year.
FEDERAL TAX STATUS OF 1995 DIVIDENDS
All of the dividends paid from net investment income by the Fund constitute
tax-exempt interest that is not taxable for federal income tax purposes;
however, a portion of the dividends paid may be includable in the alternative
minimum tax calculation.
19
<PAGE> 20
Description of Dividend Reinvestment Plan
- --------------------------------------------------------------------------------
1 PARTICIPATION We invite you to review the description of the
Dividend Reinvestment Plan (the "Plan") which is
available to you as a shareholder of Kemper
Municipal Income Trust (the "Fund"). If you wish to
participate and your shares are held in your own
name, simply contact Kemper Service Company, whose
address and phone number are provided in Paragraph
4 for the appropriate form. If your shares are held
in the name of a brokerage firm, bank, or other
nominee, you must instruct that nominee to
re-register your shares in your name so that you
may participate in the Plan, unless your nominee
has made the Plan available on shares held by them.
Shareholders who so elect will be deemed to have
appointed United Missouri Bank, n.a. ("UMB") as
their agent and as agent for the Fund under the
Plan.
- --------------------------------------------------------------------------------
2 DIVIDEND INVESTMENT
ACCOUNT The Fund's transfer agent and dividend disbursing
agent or its delegate ("Agent") will establish a
Dividend Investment Account (the "Account") for
each shareholder participating in the Plan. Agent
will credit to the Account of each participant
funds it receives from the following sources: (a)
cash dividends and capital gains distributions paid
on shares of beneficial interest (the "Shares") of
the Fund registered in the participant's name on
the books of the Fund; (b) cash dividends and
capital gains distributions paid on Shares
registered in the name of Agent but credited to the
participant's Account. Sources described in clauses
(a) and (b) of the preceding sentence are
hereinafter called "Distribution."
- --------------------------------------------------------------------------------
3 INVESTMENT OF
DISTRIBUTION FUNDS HELD
IN EACH ACCOUNT If on the record date for a Distribution (the
"Record Date"), Shares are trading at a discount
from net asset value per Share (according to the
evaluation most recently made on Shares of the
Fund), funds credited to a participant's Account
will be used to purchase Shares (the "Purchase").
UMB will attempt, commencing five days prior to the
Payment Date and ending at the close of business on
the Payment Date ("Payment Date" as used herein
shall mean the last business day of the month in
which such Record Date occurs), to acquire Shares
in the open market. If and to the extent that UMB
is unable to acquire sufficient Shares to satisfy
the Distribution by the close of business on the
Payment Date, the Fund will issue to UMB Shares
valued at net asset value per Share (according to
the evaluation most recently made on Shares of the
Fund) in the aggregate amount of the remaining
value of the Distribution. If, on the Record Date,
Shares are trading at a premium over net asset
value per Share, the Fund will issue on the Payment
Date, Shares valued at net asset value per Share on
the Record Date to Agent in the aggregate amount of
the funds credited to the participants' accounts.
- --------------------------------------------------------------------------------
4 ADDITIONAL INFORMATION Address all notices, correspondence, questions, or
other communication regarding the Plan to:
KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, Missouri 64141-6066
1-800-294-4366
20
<PAGE> 21
Description of Dividend Reinvestment Plan
- --------------------------------------------------------------------------------
5 ADJUSTMENT OF
PURCHASE PRICE The Fund will increase the price at which Shares
may be issued under the Plan to 95% of the fair
market value of the shares on the Record Date if
the net asset value per Share of the Shares on the
Record Date is less than 95% of the fair market
value of the Shares on the Record Date.
- --------------------------------------------------------------------------------
6 DETERMINATION OF
PURCHASE PRICE The cost of Shares and fractional Shares acquired
for each participant's Account in connection with a
Purchase shall be determined by the average cost
per Share, including brokerage commissions as
described in Paragraph 7 hereof, of the Shares
acquired by UMB in connection with that Purchase.
Shareholders will receive a confirmation showing
the average cost and number of Shares acquired as
soon as practicable after Agent has received or UMB
has purchased Shares. Agent may mingle the cash in
a participant's account with similar funds of other
participants of the Fund for whom UMB acts as agent
under the Plan.
- --------------------------------------------------------------------------------
7 BROKERAGE CHARGES There will be no brokerage charges with respect to
Shares issued directly by the Fund as a result of
Distributions. However, each participant will pay a
pro rata share of brokerage commissions incurred
with respect to UMB's open market purchases in
connection with the reinvestment of Distributions.
Brokerage charges for purchasing small amounts of
Shares for individual Accounts through the Plan can
be expected to be less than the usual brokerage
charges for such transactions, as UMB will be
purchasing Shares for all participants in blocks
and prorating the lower commission thus attainable.
- --------------------------------------------------------------------------------
8 SERVICE CHARGES There is no service charge by Agent or UMB to
shareholders who participate in the Plan other than
service charges specified in Paragraph 12 hereof.
However, the Fund reserves the right to amend the
Plan in the future to include a service charge.
- --------------------------------------------------------------------------------
9 TRANSFER OF SHARES
HELD BY AGENT Agent will maintain the participant's Account, hold
the additional Shares acquired through the Plan in
safekeeping and furnish the participant with
written confirmation of all transactions in the
Account. Shares in the Account are transferable
upon proper written instructions to Agent. Upon
request to Agent, a certificate for any or all full
Shares in a participant's Account will be sent to
the participant.
- --------------------------------------------------------------------------------
10 SHARES NOT HELD IN
SHAREHOLDER'S NAME Beneficial owners of Shares which are held in the
name of a broker or nominee will not be
automatically included in the Plan and will receive
all distributions in cash. Such shareholders should
contact the broker or nominee in whose name their
Shares are held to determine whether and how they
may participate in the Plan.
- --------------------------------------------------------------------------------
11 AMENDMENTS Experience under the Plan may indicate that changes
are desirable. Accordingly, the Fund reserves the
right to amend or terminate the Plan, including
provisions with respect to any Distribution paid
subsequent to
21
<PAGE> 22
Description of Dividend Reinvestment Plan
notice thereof sent to participants in the Plan at
least ninety days before the record date for such
Distribution.
- --------------------------------------------------------------------------------
12 WITHDRAWAL FROM
PLAN Shareholders may withdraw from the Plan at any time
by giving Agent a written notice. If the proceeds
are $25,000 or less and the proceeds are to be
payable to the shareholder of record and mailed to
the address of record, a signature guarantee
normally will not be required for notices by
individual account owners (including joint account
owners), otherwise a signature guarantee will be
required. In addition, if the certificate is to be
sent to anyone other than the registered owner(s)
at the address of record, a signature guarantee
will be required on the notice. A notice of
withdrawal will be effective for the next
Distribution following receipt of the notice by the
Agent provided the notice is received by the Agent
at least ten days prior to the Record Date for the
Distribution. When a participant withdraws from the
Plan, or when the Plan is terminated in accordance
with Paragraph 11 hereof, the participant will
receive a certificate for full Shares in the
Account, plus a check for any fractional Shares
based on market price; or if a Participant so
desires, Agent will notify UMB to sell his Shares
in the Plan and send the proceeds to the
participant, less brokerage commissions and a $2.50
service fee.
- --------------------------------------------------------------------------------
13 TAX IMPLICATIONS Shareholders will receive tax information annually
for personal records and to assist in preparation
of their Federal income tax return. If shares are
purchased at a discount, the amount of the discount
is considered taxable income and is added to the
cost basis of the purchased shares.
22
<PAGE> 23
Shareholders' Meeting
SPECIAL SHAREHOLDERS' MEETING
On September 19, 1995, a special shareholders' meeting was held. Kemper
Municipal Income Trust shareholders were asked to vote on three separate issues:
election of two additional members to the Board of Trustees that were elected by
both the holders of Common and Preferred Shares, ratification of Ernst & Young
LLP as independent auditors and approval of a new investment management
agreement with Kemper Financial Services, Inc. We are pleased to report that all
nominees were elected and all other items were approved. Following are the
results for each issue:
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Akins 25,710,966 7,716
Fred B. Renwick 25,713,538 5,144
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
25,176,200 187,301 355,181
</TABLE>
3) Approval of new investment management agreement
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
24,634,775 404,675 679,232
</TABLE>
23
<PAGE> 24
Trustees and Officers
TRUSTEES OFFICERS
STEPHEN B. TIMBERS JOHN E. NEAL
President and Trustee Vice President
JAMES E. AKINS JOHN E. PETERS
Trustee Vice President
ARTHUR R. GOTTSCHALK J. PATRICK BEIMFORD, JR.
Trustee Vice President
FREDERICK T. KELSEY CHRISTOPHER J. MIER
Trustee Vice President
FRED B. RENWICK PHILIP J. COLLORA
Trustee Vice President and
Secretary
JOHN B. TINGLEFF CHARLES F. CUSTER
Trustee Vice President and
Assistant Secretary
JOHN G. WEITHERS
Trustee JEROME L. DUFFY
Treasurer
- -----------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- -----------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, MO 64141
- -----------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- -----------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- -----------------------------------------------------------------------
INVESTMENT MANAGER KEMPER FINANCIAL SERVICES, INC.
120 South LaSalle Street
Chicago, IL 60603
[RECYCLED LOGO] [KEMPER MUTUAL FUNDS LOGO]
Printed on recycled paper.
KMIT - 2 (1/96) 1008320
Printed in the U.S.A.
