<PAGE> 1
KEMPER MUNICIPAL
INCOME TRUST
SEMIANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED MAY 31, 1996
". . . the [higher coupon] bonds experienced less price movement as
rates rose during the period. This cushioned the fund from the
potential impact of rising interest rates."
<PAGE> 2
Table of
Contents
2
Terms to Know
3
General
Economic Overview
6
Performance Update
6
Largest Sectors
7
Portfolio Statistics
8
Portfolio of
Investments
14
Financial Statements
16
Notes to
Financial Statements
18
Financial Highlights
At A Glance
- ---------------------------------------------------------------------------
TOTAL RETURNS
- ---------------------------------------------------------------------------
FOR THE PERIOD ENDED MAY 31, 1996
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
<S> <C> <C>
- ---------------------------------------------------------------------------
KEMPER MUNICIPAL
INCOME TRUST -0.22% 4.47%
- ---------------------------------------------------------------------------
</TABLE>
NET ASSET VALUE AND MARKET PRICE
<TABLE>
<CAPTION>
AS OF AS OF
5/31/96 11/30/95
- ---------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $11.95 $12.41
- ---------------------------------------------------------------------------
MARKET PRICE $12.75 $12.63
- ---------------------------------------------------------------------------
</TABLE>
- ---------------------------------------------------------------------------
DIVIDEND REVIEW
- ---------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND INFORMATION FOR THE FUND AS OF MAY
31, 1996.
<TABLE>
- ---------------------------------------------------------------------------
<S> <C>
SIX-MONTH INCOME: $0.4350
- ---------------------------------------------------------------------------
MAY DIVIDEND: $0.0725
- ---------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 7.28%
- ---------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 6.82%
- ---------------------------------------------------------------------------
TAX EQUIVALENT DISTRIBUTION RATE
(BASED ON NET ASSET VALUE AND A
37.1% FEDERAL INCOME TAX RATE
AND AN ASSUMED $150,000 OF
TAXABLE INCOME FOR A JOINT
RETURN) 11.57%
- ---------------------------------------------------------------------------
TAX EQUIVALENT DISTRIBUTION RATE
(BASED ON MARKET PRICE AND A
37.1% FEDERAL INCOME TAX RATE
AND AN ASSUMED $150,000 OF
TAXABLE INCOME FOR A JOINT
RETURN) 10.84%
- ---------------------------------------------------------------------------
</TABLE>
Statistical Note: Current annualized distribution rate is the latest monthly
dividend shown as an annualized percentage of market price/net asset value on
the date shown. Distribution rate simply measures the level of dividends and is
not a complete measure of performance. Total return measures aggregate change in
net asset value/market price assuming reinvestment of dividends. Returns are
historical and do not represent future performance. Market price, net asset
value and returns fluctuate. Additional information concerning performance is
contained in the Financial Highlights appearing at the end of this report.
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.
Terms To Know
DURATION Duration is a measure of the interest rate sensitivity of a fixed-
income investment or portfolio. The longer the duration, the greater the
interest rate risk.
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 a specified period. Total return
assumes the reinvestment of all dividends and it represents the aggregate
percentage change in the value of an investment in the fund over the period.
Total return may be based upon net asset value or market price.
2
<PAGE> 3
GENERAL ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $78 BILLION IN ASSETS, INCLUDING $45 BILLION
IN RETAIL MUTUAL FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN
M.B.A. FROM HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
The first six months of 1996 have provided a few surprises. As the year began,
most of us expected sluggish economic and corporate growth -- which the Federal
Reserve Board would address by reducing short-term interest rates. Yet, what we
experienced was stronger-than-anticipated economic growth, better corporate
earnings and rising interest rates. Although such surprises unsettled the bond
market, the stock market has followed a spectacular 1995 with strength so far
this year.
Where is the economy headed now? Its direction is even less predictable as we
draw nearer to the November elections. Half of the country's leading economists
are forecasting 3 percent growth while an equal number are looking for no better
than 1 percent growth. At Kemper Funds, we suspect that the economy is growing
at a subpar rate of 2 percent. Although commodity prices may suggest otherwise,
we think inflation is holding at less than 3 percent. We see no reason to expect
the Fed to reduce rates to stimulate growth but neither is it likely to raise
rates significantly to control growth. In an environment of stable or gently
rising rates, we would expect corporate earnings to grow at a rate of about 7 to
8 percent -- that's somewhat higher than we believed likely at the start of the
year.
Our forecast calls for a generally comfortable environment for investors. But
both the economy and the general direction of the markets are due for a
reversal. In July, the U.S. economy entered its 64th month of consecutive
growth. This is the longest expansion without a single quarter of negative
output growth since George Washington was president. Today's bull market started
in October 1990, which makes it one of the longest running bull markets in
history. By virtue of its length alone, the stock market is vulnerable to a
correction.
As expected, volatility has returned to the market this year. For example: The
stock market's performance on March 8, the date that a surprisingly strong
employment report was released, betrayed some level of investor skittishness.
But while the Standard & Poor's lost 3.1 percent that day, it quickly regained
the ground and moved higher.
CONSUMERS AND JOB SECURITY
The restructuring of corporate America, which is generally credited for its
improved profitability, has been an important influence on the consumer.
Economic growth is heavily dependent upon consumer spending which, in turn, is
a function of inflation, pay raises and fear of job loss. While the first two
have not been a recent concern, fear of losing one's job has dampened consumer
confidence.
Such anxiety in the workplace was the subject of a recent study by the
Council of Economic Advisors. According to that report, more than two-thirds
of the new jobs created in the United States in 1994 and 1995 paid better than
the average job. The report found that the rate at which jobs were eliminated
has risen slightly despite strong economic growth of recent years -- however, it
reported that the length of time most workers spent unemployed has declined.
The graph below tracks Bureau of Labor Statistics data that show the
recent relationship between number of jobs created versus the number of jobs
lost.
[LINE GRAPH]
<TABLE>
<CAPTION>
Jobs Created Jobs Lost
<S> <C> <C>
12/31/91 (300,000) 40,000
12/31/92 120,000 (30,000)
12/31/93 300,000 70,000
12/31/94 180,000 70,000
12/31/95 (80,000) (40,000)
3/31/96 490,000 (10,000)
</TABLE>
SOURCE: BUREAU OF LABOR STATISTICS
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.
<TABLE>
<CAPTION>
Now (5/31/96) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 6.74 5.71 6.17 7.10
Prime rate(2) 8.25 8.63 9.00 7.25
Inflation rate(3) 2.96 2.60 3.04 2.56
The U.S. dollar(4) 8.51 -2.58 -9.31 0.51
Capital
goods orders(5) 2.93 11.03 12.98 25.11
Industrial production(6) 3.26 1.08 2.80 6.61
Employment growth(7) 2.00 1.92 2.71 3.12
</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, infla-
tion 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.
Source: Economics Department, Zurich Kemper Investments, Inc.
Such ebb and flow is to be expected in investing, especially at this point in
the cycle. Attempting to "prepare" for a correction is futile, we believe. Those
whose caution caused them to excuse themselves from the market early this year,
for example, would have forgone its significant gain year to date.
Several opportunities exist today for the careful investor. First, having
settled down some from a raucous 1995, the technology sector continues to enjoy
the product and market demand that make it the dominant sector of the 1990s.
Second, equity investors willing to look overseas may find opportunities in
countries whose economies today are at a point where the U.S. economy was in
1995. Our forecast assumes that strength in foreign markets could boost those
countries' currencies, which would weaken the value of the dollar.
We expect the fixed-income markets to continue to be sensitive to interest
rate and inflation news. However, for as long as economic growth is positive and
earnings are growing, we believe the high-yield market is one market segment
that has significant potential.
Finally, we look for political activity to have less and less bearing on the
markets' performance. Although they may continue to debate tax reform,
federal budget deficit reduction and health care reform, the incumbent
legislators are running out of time to take action before the November
elections. If there is any suspense by November, it is likely to be in whether
the Republicans can retain control of Congress. Their success would make a
balanced budget and tax reform likely agenda topics for 1997.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including an interview with your fund's portfolio
management. Thank you for your continued support. We appreciate the opportunity
to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
ZURICH KEMPER INVESTMENTS, INC.
July 2, 1996
4
<PAGE> 5
PERFORMANCE UPDATE
[MIER PHOTO]
CHRIS MIER JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI) IN 1986 AND IS NOW
SENIOR VICE PRESIDENT OF ZKI AND A VICE PRESIDENT AND PORTFOLIO MANAGER OF
KEMPER MUNICIPAL INCOME TRUST. HE HAS BEEN PORTFOLIO MANAGER SINCE THE FUND'S
INCEPTION IN 1988. MIER RECEIVED A 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.
PORTFOLIO MANAGER CHRIS MIER DISCUSSES HOW THE KEMPER MUNICIPAL INCOME
TRUST'S POSITION IN PREMIUM COUPON BONDS MITIGATED THE IMPACT OF THE PERIOD'S
RISING INTEREST RATE ENVIRONMENT, THUS ENABLING THE FUND TO OUTPERFORM THE
AVERAGE OF ITS PEERS DURING THE SIX MONTH REPORTING PERIOD.
Q. HOW WOULD YOU CHARACTERIZE THE MARKET OVER THE LAST SIX MONTHS, AND HOW
DID MUNICIPAL BONDS FARE?
A. In December, at the start of the reporting period, the market was
enjoying a declining interest rate environment and bond yields were almost at
their lowest point in 1995. The Bond Buyer 25-Bond Revenue Bond Index (RBI) --
a gauge of municipal bond interest rates -- began the period at 5.78 percent on
November 30, 1995.
However, by mid-January that scenario began to change. Data began to
indicate that the economic slowdown experienced in late 1995, which helped
cause the decline in yields, may have been related mostly to the impact of
severe weather as opposed to any fundamental weakness in the economy. Moreover,
with the start of the Republican party presidential primaries, focus moved away
from the federal budget and deficit reduction proposals toward other issues.
Yields began to rise as the focus on the deficit reduction began to fall. By
the end of March, the RBI had risen to 6.15 percent. Although fluctuating
somewhat throughout the rest of the period, on May 30, the RBI was 6.17 percent.
Q. KEMPER MUNICIPAL INCOME TRUST OUTPERFORMED THE AVERAGE RETURN OF ITS
LIPPER PEER GROUP BY MORE THAN A PERCENTAGE POINT FOR THE SIX-MONTH PERIOD.
HOW WAS THE FUND MANAGED TO ACHIEVE THESE RESULTS?
A. We maintained our substantial investment in premium coupon bonds during
the period. In addition to providing an attractive flow of income, they helped
cushion the impact of the period's rising interest rates. Because of their
higher coupons, they experienced less movement in price as interest rates rose,
which was important for the fund. In addition, these bonds helped offset 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.
Q. HOW DID MUNICIPAL BOND SUPPLY IMPACT THE MARKET DURING THE PERIOD?
A. The volume of new supply during the period was heavier than anticipated.
As rates continued to fall early in the period, there was significant refunding
activity in the market. When an issuer refunds debt, they offer new debt at
lower coupon rates. As market interest rates began to rise in late January and
February, the refunding activity subsided. Supply began to moderate somewhat,
although it remained ahead of 1995 levels. Demand for municipal bonds from the
mutual fund industry was relatively weak, but demand from individuals and
property casualty insurance companies was fairly strong.
5
<PAGE> 6
PERFORMANCE UPDATE
Q. DID TALK OF TAX REFORM CONTINUE TO IMPACT THE MUNICIPAL BOND MARKET
DURING THE PERIOD?
A. Talk of tax reform -- including a possible flat tax -- has raised
considerable interest in the media and among municipal bond investors. At this
writing, however, it seems that the market is less confident that a flat tax
will come to pass. President Clinton has not embraced such tax changes and
Republican presidential candidate Robert Dole has gone on record as supporting
a "flatter" tax but not a flat tax. These factors should tend to mitigate the
risk of radical tax law change.
Q. WHAT'S YOUR OUTLOOK FOR THE REMAINDER OF THE FISCAL YEAR?
A. We anticipate continued moderate growth with inflation remaining under
control at approximately 2.5 percent to 3.0 percent.
LARGEST SECTORS
THE FUND'S LARGEST SECTORS*
REPRESENTING 64% OF THE FUND'S TOTAL NET ASSETS ON MAY 31, 1996
<TABLE>
<CAPTION>
HOLDINGS PERCENT
- --------------------------------------------------------
<S> <C> <C>
ELECTRICITY BONDS 17%
1.
- --------------------------------------------------------
AIRPORT BONDS 14%
2.
- --------------------------------------------------------
SINGLE FAMILY STATE HOUSING BONDS 13%
3.
- --------------------------------------------------------
U.S. GOVERNMENT SECURED BONDS 11%
4.
- --------------------------------------------------------
WASTE DISPOSAL BONDS 9%
5.
- --------------------------------------------------------
</TABLE>
* Portfolio composition and holdings are subject to change.
6
<PAGE> 7
P0RTFOLIO STATISTICS
SECURITIES RATINGS
<TABLE>
<CAPTION>
ON 5/31/96 ON 11/30/95
<S> <C> <C>
AAA 42% 36%
- ----------------------------------------------------------------------------
AA 19 18
- ----------------------------------------------------------------------------
A 17 21
- ----------------------------------------------------------------------------
BBB 15 20
- ----------------------------------------------------------------------------
NOT RATED 7 5
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
On 5/31/96
AAA 42
AA 19
A 17
BBB 15
Not Rated 7
On 11/30/95
AAA 36
AA 18
A 21
BBB 20
Not Rated 5
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 5/31/96 ON 11/30/95
<S> <C> <C>
AVERAGE MATURITY 21.3 YEARS 21.2 YEARS
- ----------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
KEMPER MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS AT MAY 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
ADVANCED REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL AND
INTEREST BY UNITED STATES GOVERNMENT SECURITIES--10.7%
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NY, Urban Dev. Corp., State Facilities, Rev.,
7.50%, to be called 4-01-01 @ 102 $ 6,695 $ 7,583
NY, Dormitory Auth., State University Educational
Facilities, Rev.:
7.25%, to be called 5-15-02 @ 102 5,000 5,698
7.375%, to be called 5-15-2000 @ 102 1,355 1,510
NY, Housing Finance Agcy., Service Contract, Rev.,
7.375%, to be called 3-15-02 @ 102 3,000 3,430
NY, Medical Care Facilities Finance Agcy., Mental
Health Services Facilities Improvement, Rev.,
7.70%, to be called 2-15-98 @ 102 2,000 2,159
IN, Indianapolis, Local Public Improvement Bond
Bank, Rev., 8.50%, to be called 2-01-98 @ 102 12,470 13,597
WI, Health Facilities Auth., Franciscan Health
Advisory Services, Inc., Rev., 7.80%, to be
called 3-01-97 @ 102 8,460 8,871
FL, Volusia County, Health Facilities Auth.,
Memorial Health Systems, Hospital Facilities
Rev., 8.25% to be called 6-01-2000 @ 102 7,000 7,987
FL, Greater Orlando, Aviation Auth., Airport
Facilities, Rev., 8.00%, to be called 10-01-98 @
102 120 132
WA, Health Care Facilities Auth., Rev., 7.75%, to
be called 5-01-2000 @ 102 4,200 4,732
OK, Tulsa, Airport Improvement Trust, Rev., 7.70%,
to be called 6-01-02 @ 100 3,315 3,780
PA, Greene County, Gen. Oblg., 8.75%, to be called
12-01-2000 @ 100 3,175 3,666
KY, Kenton County, Airport Board, Greater
Cincinnati International Airport, Rev., 8.25%, to
be called 3-01-98 @ 102 1,950 2,121
NC, Eastern Municipal Power Agcy., Power System,
Rev., 8.00%, to be called 1-01-98 @ 102 262 283
Puerto Rico, Gen. Oblg., 7.75%, to be called
7-01-99 @ 101.50 5,020 5,562
------------------------------------------------------------------------
TOTAL ADVANCED REFUNDED OBLIGATIONS
(Cost: $63,330) 71,111
--------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS--86.6%
- -----------------------------------------------------------------------------------------------------------
NEW YORK--9.4%
Dormitory Auth.:
City University System, Rev., 5.625%, 2016 1,500 1,391
State University Educational Facilities, Rev.,
7.375% and 7.00%, 2014 and 2016 7,140 7,630
Energy Research and Dev. Auth.:
Consolidated Edison Company, Rev., 7.75%, 2024 13,300 14,019
Pollution Control, Rev., 6.15%, 2026 10,000 9,925
Medical Care Facilities Finance Agcy., Mental
Health Services, Rev., 7.70%, 2018 3,255 3,458
Niagara Frontier Transportation Auth., Greater
Buffalo International Airport, Rev., 6.25%, 2024 5,750 5,798
Port Auth., Rev., 8.00% and 5.75%, 2023 and 2030 8,780 8,821
City, Gen. Oblg., 7.50%, 2003 and 2004 10,430 11,178
--------------------------------------------------------------------------
62,220
- -----------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TEXAS--8.9%
Brazos River Auth., Texas Utilities Electric
Company, Pollution Control Rev., 8.25%, 2019 $11,000 $ 11,865
Dallas-Fort Worth International Airport Facility
Improvement Corp., American Airlines, Inc., Rev.,
7.50%, 2025 1,500 1,584
Lower Neches Valley, Industrial Dev. Auth., Mobil
Oil, Rev., 6.40%, 2030 17,000 17,248
Matagorda County, Navigation District Number 1,
Central Power and Light Company, Pollution
Control Rev., 7.875% and 6.00%, 2016 and 2028 20,000 19,569
Red River Auth., Texas Utilities Company, Public
Service Company of Oklahoma and Central Power and
Light Company, Pollution Control Rev., 7.875%,
2014 5,200 5,399
State College Student Loans, Gen. Oblg., 5.00%,
2021 4,015 3,380
--------------------------------------------------------------------------
59,045
- -----------------------------------------------------------------------------------------------------------
ILLINOIS--8.6%
Chicago:
Gas Supply, Peoples Gas, Light and Coke Company,
Rev., 8.10%, 2020 1,250 1,380
O'Hare International Airport:
General Airport Rev., 8.20%, 2018 3,900 4,052
International Terminal, Special Rev., 7.625% and
8.20%, 2010 and 2024 14,775 16,268
Skyway Toll Bridge, Rev. Bonds, 6.75%, 2014 2,775 2,827
Dev. Finance Auth., Pollution Control, Commonwealth
Edison Finance Company Proj., Rev., 6.75%, 2015 4,220 4,590
Harvard, Multifamily Housing, Northfield Court,
Rev., 9.50%, 2006 2,650 2,873
Health Facilities Auth.:
Bethany Home and Hospital, Rev., 8.625%, 2009 7,135 7,923
Lutheran General Health Care System, Rev., 6.00%,
2018 1,030 983
Methodist Health Services Corp., Rev., 8.00%, 2015 1,925 2,119
Housing Dev. Auth., Residential Mortgage, Rev.,
8.10%, 2022 3,470 3,609
Regional Transportation Auth., Cook, DuPage, Kane,
Lake, McHenry, and Will Counties, Gen. Oblg.,
6.125%, 2022 4,000 4,006
Sports Facilities Auth., Rev., 7.875%, 2010 6,000 6,553
--------------------------------------------------------------------------
57,183
- -----------------------------------------------------------------------------------------------------------
INDIANA--5.9%
Employment Dev. Commission, Indianapolis Power and
Light Company, Rev., 7.45%, 2019 14,215 15,312
Indianapolis, Gas Utility System Rev., 5.875%, 2024 14,000 13,644
Town of Fishers, Economic Dev. Water Facilities,
Indianapolis Water Company, Rev., 7.875%, 2019 10,000 10,582
--------------------------------------------------------------------------
39,538
- -----------------------------------------------------------------------------------------------------------
FLORIDA--5.4%
Broward County, Broward Waste Energy Company, Rev.,
7.95%, 2008 4,295 4,733
Dade County, Aviation Rev., 5.75%, 2026 22,000 21,013
Housing Finance Agcy.:
Brittany of Rosemont Rev., 6.15%, 2025 1,225 1,228
Home Ownership, Rev., 8.30%, 2020 4,230 4,392
Greater Orlando Aviation Auth., Airport Facilities,
Rev., 8.00%, 2018 1,130 1,222
Lake County, Resource Recovery, Industrial Dev.
Rev., 5.95%, 2013 4,000 3,768
--------------------------------------------------------------------------
36,356
- -----------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAINE--3.7%
Health and Higher Educational Facilities Auth.,
Rev., 5.70% and 7.00%, 2013 and 2024 $ 9,320 $ 9,612
Regional Waste Systems, Inc., Solid Waste Resource
Recovery System, Rev., 7.85% and 8.15%, 2011 13,280 14,257
State Housing Auth., Mortgage Purchase Rev., 8.30%,
2028 1,045 1,065
-------------------------------------------------------------------------------
24,934
- ----------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--3.6%
Allegheny County, Greater Pittsburgh International
Airport, Rev., 8.25%, 2016 8,450 9,014
Lehigh County:
General Purpose Auth., Wiley House, Rev., 8.65%
and 8.75%, 2004 and 2014 5,815 5,971
Industrial Dev. Auth., Pollution Control, Rev.,
6.15%, 2029 1,500 1,515
Philadelphia, Gas Works, Rev., 6.375%, 2026 7,950 7,876
-------------------------------------------------------------------------------
24,376
- ----------------------------------------------------------------------------------------------------------------
COLORADO--3.3%
Adams County, Oasis Park Apartments Proj.,
Multifamily Housing, Rev., 6.15%, 2026 6,580 6,518
City and County of Denver, Airport System Rev.,
6.75% and 8.50%, 2013 through 2023 10,580 11,384
Housing and Finance Auth., Single Family Program,
Rev., 7.70%, 2021 4,170 4,338
-------------------------------------------------------------------------------
22,240
- ----------------------------------------------------------------------------------------------------------------
NEW JERSEY--3.0%
Economic Dev. Auth., American Water Company, Inc.
Proj., Water Facilities Rev., 6.875%, 2036 10,775 11,544
Health Care Facilities Financing Auth., General
Hospital Center at Passaic, Rev., 6.75%, 2019 5,000 5,360
Housing and Mortgage Finance Agcy., Home Buyer
Rev., 7.70%, 2029 2,875 2,978
-------------------------------------------------------------------------------
19,882
- ----------------------------------------------------------------------------------------------------------------
WASHINGTON--2.9%
Public Power Supply System, Nuclear Proj. #2, Rev.,
7.00% and 5.60%, 2012 and 2015 18,500 19,621
- ----------------------------------------------------------------------------------------------------------------
KENTUCKY--2.6%
Kenton County Airport Board, Greater Cincinnati
International Airport, Rev. 8.25%, 2015 8,950 9,591
Trimble County, Louisville Gas & Electric Company,
Pollution Control Rev., 7.75%, 2019 7,000 7,412
-------------------------------------------------------------------------------
17,003
- ----------------------------------------------------------------------------------------------------------------
OHIO--2.4%
Cuyahoga County, Meridia Health System, Hospital
Rev., 6.25%, 2024 2,350 2,314
Green Springs, Health Care Facilities Rev., 7.125%,
2025 6,000 6,070
Housing Finance Agcy., Single Family Mortgage Rev.,
7.65% to 8.25%, 2010 through 2029 7,141 7,488
-------------------------------------------------------------------------------
15,872
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTAH--2.4%
Davis County, Solid Waste Management & Energy
Recovery, Special Service District, Rev., 6.125%,
2009 $ 5,000 $ 4,752
Intermountain Power Agcy., Power Supply System
Rev., 7.75% and 5.00%, 2020 and 2021 11,700 11,047
-------------------------------------------------------------------------------
15,799
- ----------------------------------------------------------------------------------------------------------------
VIRGINIA--2.3%
Fairfax County Economic Dev. Auth., Ogden Martin
System, Resource Recovery Rev., 7.75%, 2011 13,890 15,032
- ----------------------------------------------------------------------------------------------------------------
VERMONT--2.1%
Housing Finance Agcy., Mortgage Purchase Rev.,
8.10%, 2022 13,660 14,180
- ----------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--1.9%
Metropolitan Airports Auth., Airport System, Rev.,
5.75%, 2020 13,100 12,529
- ----------------------------------------------------------------------------------------------------------------
MISSOURI--1.9%
Housing Dev. Commission, Single Family Mortgage
Rev., 7.90%, 2021 4,420 4,618
St. Louis, Regional Convention and Sports Complex
Auth., Rev., 7.90%, 2021 3,600 3,908
West Plains, Industrial Dev. Auth., Ozarks Medical
Center, Hospital Rev., 8.625%, 2020 3,650 3,978
-------------------------------------------------------------------------------
12,504
- ----------------------------------------------------------------------------------------------------------------
LOUISIANA--1.8%
Housing Finance Agcy., Single Family Mortgage Rev.,
8.30%, 2020 3,930 4,096
Public Facilities Auth., Lafayette General Medical
Center, Rev., 6.50%, 2022 7,350 7,629
-------------------------------------------------------------------------------
11,725
- ----------------------------------------------------------------------------------------------------------------
NEW MEXICO--1.3%
Mortgage Finance Auth., Single Family Mortgage
Rev., 8.30% and 7.80%, 2020 and 2021 8,170 8,486
- ----------------------------------------------------------------------------------------------------------------
ALABAMA--1.2%
State Docks Dept., Docks Facilities Rev., 6.30%,
2021 8,250 8,337
- ----------------------------------------------------------------------------------------------------------------
OKLAHOMA--1.2%
Tulsa Airport Improvement Trust, General Rev.,
7.70%, 2013 7,545 7,944
Turnpike Auth., Turnpike System Rev., 7.875%, 2021 355 384
-------------------------------------------------------------------------------
8,328
- ----------------------------------------------------------------------------------------------------------------
IOWA--1.2%
Housing Finance Auth., Single Family Mortgage Rev.,
7.90%, 2022 7,755 8,119
- ----------------------------------------------------------------------------------------------------------------
NEBRASKA--1.2%
Investment Finance Auth., Single Family Housing
Rev., 6.70%, 2026 7,500 7,649
- ----------------------------------------------------------------------------------------------------------------
MICHIGAN--1.1%
Monroe County, Detroit Edison, Pollution Control
Rev., 7.75%, 2019 6,500 7,021
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATES LESS THAN
ONE PERCENT--7.3%
ID, Housing Agcy., Single Family Mortgage Rev.,
7.875% and 6.90%, 2021 and 2025 $ 6,180 $ 6,405
-------------------------------------------------------------------------------
MD, Howard County, Braeland Eden Commons,
Multifamily Housing Rev., 6.20%, 2023 6,750 6,347
-------------------------------------------------------------------------------
NH, Higher Education and Health Facilities, Nashua
Memorial Hospital, Rev., 6.00%, 2013 and 2023 6,000 5,712
-------------------------------------------------------------------------------
NV, Clark County:
Las Vegas - McCarran International Airport,
Passenger Facility Charge Rev., 5.50%, 2025 4,000 3,677
Power Company Proj., Industrial Dev. Rev., 6.70%,
2022 1,750 1,821
-------------------------------------------------------------------------------
MN, Housing Finance Agcy., Single Family Mortgage
Rev., 7.95% and 8.00%, 2022 and 2029 4,900 5,109
-------------------------------------------------------------------------------
NC, Housing Finance Agcy., Single Family Mortgage
Rev., 7.85%, 2028 4,245 4,439
-------------------------------------------------------------------------------
SC, Oconee County, Duke Power Company, Pollution
Control Rev., 7.75%, 2017 3,500 3,813
-------------------------------------------------------------------------------
RI, Housing and Mortgage Finance Corp., Rev.,
8.25%, 2022 2,715 2,830
-------------------------------------------------------------------------------
CA, Housing Finance Agcy., Home Mortgage, Rev.,
8.30% and 8.35%, 2019 2,620 2,729
-------------------------------------------------------------------------------
AZ, Maricopa County, Rural Road Improvement
District, Gen. Oblg., 8.625%, 2007 1,940 2,207
-------------------------------------------------------------------------------
WY, Community Dev. Auth., Housing Rev., 6.30%, 2028 1,500 1,500
-------------------------------------------------------------------------------
ND, Housing Finance Agcy., Single Family Mortgage
Rev., 8.375%, 2021 820 865
-------------------------------------------------------------------------------
HI, Housing Finance and Dev. Corp., Single Family
Mortgage Rev., 8.125%, 2019 565 589
- ----------------------------------------------------------------------------------------------------------------
48,043
-----------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS
(Cost: $550,074) 576,023
-----------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--97.3%
(Cost: $613,404) 647,133
-----------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET
INSTRUMENTS--.6%
Yield--3.08% to 4.10%,
Due--June 1996
(Cost: $3,700) $ 3,700 $ 3,700
-----------------------------------------------------------------------------
TOTAL INVESTMENTS--97.9%
(Cost: $617,104) 650,833
-----------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--2.1% 14,286
-----------------------------------------------------------------------------
NET ASSETS--100% $ 665,119
-----------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $617,104,000 for federal income tax purposes
at May 31, 1996, the gross unrealized appreciation of investments was
$35,728,000, the gross unrealized depreciation was $1,999,000 and the net
unrealized appreciation on investments was $33,729,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1996
(IN THOUSANDS)
<TABLE>
- -------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------
<S> <C>
Investments, at value
(Cost: $617,104) $650,833
- -------------------------------------------------------------------------------------------------------
Cash 157
- -------------------------------------------------------------------------------------------------------
Receivable for:
Investments sold 57
- -------------------------------------------------------------------------------------------------------
Interest receivable 14,699
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 665,746
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Payable for:
Management fee 305
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 50
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 272
- -------------------------------------------------------------------------------------------------------
Total liabilities 627
- -------------------------------------------------------------------------------------------------------
NET ASSETS $665,119
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Remarketed preferred shares, par value $.01 per share, unlimited number of shares
authorized,
43,000 shares outstanding at $5,000 liquidation value per share $215,000
- -------------------------------------------------------------------------------------------------------
Common shares, par value $.01 per share, unlimited number of shares authorized,
37,659,000 shares outstanding 377
- -------------------------------------------------------------------------------------------------------
Paid-in surplus 416,160
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (13,544)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 33,729
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 13,397
- -------------------------------------------------------------------------------------------------------
NET ASSETS $665,119
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER COMMON SHARE ($665,119 less remarketed preferred shares at liquidation
value of $215,000 divided by 37,659,000 common shares outstanding) $11.95
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended May 31, 1996
(IN THOUSANDS)
<TABLE>
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------
<S> <C>
Interest income $ 22,787
- --------------------------------------------------------------------------------------------------------
Expenses:
Management fee 1,854
- --------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 129
- --------------------------------------------------------------------------------------------------------
Registration and remarketing fees 416
- --------------------------------------------------------------------------------------------------------
Professional fees 82
- --------------------------------------------------------------------------------------------------------
Reports to shareholders 15
- --------------------------------------------------------------------------------------------------------
Trustees' fees and other 15
- --------------------------------------------------------------------------------------------------------
Total expenses 2,511
- --------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 20,276
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments (including options purchased) 830
- --------------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 375
- --------------------------------------------------------------------------------------------------------
Net realized gain 1,205
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (18,294)
- --------------------------------------------------------------------------------------------------------
Net loss on investments (17,089)
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,187
- --------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------------
Net investment income $ 20,276 41,221
- ---------------------------------------------------------------------------------------------------------
Net realized gain (loss) 1,205 (4,022)
- ---------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (18,294) 52,077
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,187 89,276
- ---------------------------------------------------------------------------------------------------------
Distribution from net investment income:
Common shares (16,352) (32,507)
- ---------------------------------------------------------------------------------------------------------
Remarketed preferred shares (3,943) (8,569)
- ---------------------------------------------------------------------------------------------------------
Total dividends to shareholders (20,295) (41,076)
- ---------------------------------------------------------------------------------------------------------
Proceeds from common shares issued in reinvestment of dividends
(205,000 and 137,000 shares, respectively) 2,543 1,694
- ---------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (14,565) 49,894
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Beginning of period 679,684 629,790
- ---------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment income
of $13,397,000 and $13,416,000, respectively) $665,119 679,684
- ---------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
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 includes premium and original
issue discount amortization on fixed income
securities. Realized gains and losses from
investment transactions are reported on an
identified cost basis.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies for the six
months ended May 31, 1996. The accumulated net
realized loss on sales of investments for federal
income tax purposes at May 31, 1996, amounting to
approximately $9,920,000, is available to offset
future taxable gains. If not applied, the loss
carryover expires during the period 2002 through
2003.
DIVIDENDS TO SHAREHOLDERS. 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.
16
<PAGE> 17
- --------------------------------------------------------------------------------
2 TRANSACTIONS WITH
AFFILIATES
MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI) (formerly known as Kemper Financial Services,
Inc.), and pays a management fee at an annual rate
of .55% of average weekly net assets. The Fund
incurred a management fee of $1,854,000 for the six
months ended May 31, 1996.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholders services fees of $36,000
for the six months ended May 31, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the six months ended May 31, 1996, the Fund
made no payments to its officers and incurred
trustee' fees of $12,000 to independent trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the six months ended May 31, 1996, investment
transactions (excluding short-term investments) are
as follows (in thousands):
Purchases $94,758
Proceeds from sales 87,381
- --------------------------------------------------------------------------------
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, ----------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE FOR A COMMON SHARE
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.41 11.12 13.25 12.45 11.85
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .54 1.10 1.10 1.16 1.16
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.46) 1.29 (1.84) .66 .49
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .08 2.39 (.74) 1.82 1.65
- --------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income to common
shareholders .44 .87 .87 .87 .87
- --------------------------------------------------------------------------------------------------------------------
Distribution from net investment income to
preferred shareholders (common share equivalent) .10 .23 .16 .15 .18
- --------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- .36 -- --
- --------------------------------------------------------------------------------------------------------------------
Total dividends .54 1.10 1.39 1.02 1.05
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.95 12.41 11.12 13.25 12.45
- --------------------------------------------------------------------------------------------------------------------
Market value, end of period $12.75 12.63 11.00 12.75 12.63
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN PER COMMON SHARE (NOT ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------
Based on net asset value (.22)% 20.00 (7.36) 13.80 12.80
- --------------------------------------------------------------------------------------------------------------------
Based on market value 4.47 23.55 (4.52) 8.00 12.72
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------
(Ratios exclude the effect of dividends to preferred
shareholders)
Expenses .74% .69 .70 .69 .71
- --------------------------------------------------------------------------------------------------------------------
Net investment income 6.02 6.23 6.13 6.20 6.48
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period, net of remarketed
preferred shares (in thousands) $450,119 464,684 414,790 493,108 461,119
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 27% 19 12 17 5
- --------------------------------------------------------------------------------------------------------------------
Remarketed preferred shares information at end of
period:
Aggregate amount outstanding (in thousands) $215,000 215,000 215,000 215,000 215,000
Asset coverage per share $ 15,500 15,800 14,600 16,500 15,700
Liquidation and market value per share $ 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 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.
18
<PAGE> 19
SHAREHOLDERS' MEETING
ANNUAL SHAREHOLDER'S MEETING
On May 29, 1996, an annual shareholders' meeting was held. Kemper Municipal
Income Trust shareholders were asked to vote on two separate issues: re-election
of the eight members to the Board of Trustees that were elected by both the
holders of Common and Preferred shares and ratification of Ernst & Young LLP as
independent auditors. We are pleased to report that all nominees were elected
and the selection of Ernst & Young LLP as the fund's auditors was ratified.
Following are the results for each issue:
1) Re-election of Trustees:
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Akins 30,060,129 582,204
Arthur R. Gottschalk 30,167,377 474,956
Frederick T. Kelsey* 33,665 227
Dominique P. Morax 30,078,514 563,819
Fred B. Renwick 30,060,129 582,204
Stephen B. Timbers 33,672 222
John B. Tingleff* 30,191,891 450,442
John G. Weithers 30,204,148 438,185
* preferred shares only
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
30,186,226 161,252 294,855
</TABLE>
19
<PAGE> 20
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
DOMINIQUE P. MORAX PHILIP J. COLLORA
Trustee Vice President
and Secretary
FRED B. RENWICK
Trustee CHARLES F. CUSTER
Vice President and
JOHN B. TINGLEFF Assistant Secretary
Trustee
JEROME L. DUFFY
JOHN G. WEITHERS Treasurer
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
120 South LaSalle Street Chicago, IL 60603
http://www.kemper.com
(RECYCLE LOGO) KEMPER FUNDS LOGO
Printed on recycled paper. 1018220
KMIT - 3 (7/96) Printed in the U.S.A.
