<PAGE> 1
KEMPER
MUNICIPAL INCOME TRUST
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED NOVEMBER 30, 1996
"... Despite a relatively volatile municipal bond
market, the fund delivered a stable flow of
dividends and favorable performance [during the year]."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
2
At a Glance
2
Terms to Know
3
Economic Overview
5
Performance Update
7
Largest Sectors Portfolio Statistics
8
Portfolio of Investments
13
Report of Independent Auditors
14
Financial Statements
16
Notes to Financial Statements
18
Financial Highlights
19
Description of Dividend Reinvestment Plan
AT A GLANCE
- --------------------------------------------------------------------------------
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 1996
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER MUNICIPAL
INCOME TRUST 6.56% 11.57%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
11/30/96 11/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $ 12.31 $ 12.41
- --------------------------------------------------------------------------------
MARKET PRICE $13.125 $12.625
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF NOVEMBER 30, 1996.
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
ONE-YEAR INCOME: $ 0.87
- --------------------------------------------------------------------------------
NOVEMBER DIVIDEND: $0.0725
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 7.07%
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 6.63%
- --------------------------------------------------------------------------------
TAX EQUIVALENT DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE AND A 37.1%
FEDERAL INCOME TAX RATE) 11.24%
- --------------------------------------------------------------------------------
TAX EQUIVALENT DISTRIBUTION RATE:
(BASED ON MARKET PRICE AND A 37.1%
FEDERAL INCOME TAX RATE) 10.54%
- --------------------------------------------------------------------------------
</TABLE>
Statistical Note: Current annualized distribution rate is the latest monthly
dividend shown as an annualized percentage of net asset value/market price on
the date shown. Distribution rate simply measures the level of dividends and is
not a complete measure of performance. Total return measures aggregate change in
net asset value/market price assuming reinvestment of dividends. Returns are
historical and do not represent future performance. Market price, net asset
value and returns fluctuate. Additional information concerning performance is
contained in the Financial Highlights appearing at the end of this report.
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.
HEDGING A strategy used to help protect an investment. Financial managers can
use any number of technical and nontechnical procedures to hedge or reduce the
possibility of a loss on an investment. There is no assurance that these
procedures will be successful.
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, assuming the
reinvestment of all dividends. It represents the aggregate percentage or change
in the value of an investment in the fund over the period. Total return may be
based upon net asset value or market price.
2
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $79 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:
As we begin a new year, it's remarkable how eventful 1996 was and yet,
economically, we are essentially where we were one year ago.
The fundamentals of the economy are remarkably similar. Long-term interest
rates are approximately 6.5% compared to the 6.5% to 7% range they were in
during the first half of 1996. We believe the economy is growing at a rate of
approximately 2.5%. Inflation continues to be well under control, at about 3.0%.
One significant difference between today and one year ago is that prices of
the stocks are on average up 20%. While price movements were more volatile in
1996 than in the past few years, the patient investor was amply rewarded. The
prime element sending the stock market higher was strong positive cash flows.
This liquidity in an environment of modestly increasing corporate profits and
relatively stable interest rates pushed stocks higher for most of the year.
This higher stock market has caused many market observers to worry. While
we cannot ignore what has happened, we find no reason to be bearish over the
long term. The environment is benign to favorable for financial assets. Given
steady interest rates, moderate economic growth and continued moderate corporate
earnings growth, there are few excesses in the system. In fact, real interest
rates are probably too high considering our outlook for inflation, and we may
see them decline over time.
Naturally, we cannot rule out the possibility of a market correction. But,
in our belief, the downside would appear to be limited to 5% to 8%, which is the
size of a typical correction based on historical data. As we have said in
previous outlooks, three elements tend to move the market:
- EARNINGS. We forecast corporate earnings to range between 0% and 5% on
average for the Standard & Poor's 500* in 1997 -- not as high as in
recent years but positive nonetheless.
- INTEREST RATES. Rates should remain stable, and short-term interest rates
may even decline.
- LIQUIDITY. Investors, through mutual funds, 401(k)s and qualified
contribution plans in particular, will continue to create strong demand
for securities.
In order to move the market more than would be expected in a typical
decline, one or more of these elements will have to turn negative in 1997, and,
while future market conditions cannot be predicted with certainty, we fail to
see what would materially change our outlook. Our outlook going forward is that
1997 should be a lot like 1996.
While the economy continued along a relatively consistent path, the United
States took some politically significant steps in 1996. First, of course,
President Bill Clinton and a Republican Congress were re-elected by the voters.
In the first few days after the general election, especially, investors
demonstrated their support for such a balance in our leadership. But of much
greater long-term significance is the expressed commitment by both parties to
balance the federal budget and address certain entitlement programs. The first
year after an election can be a fertile time to accomplish major initiatives,
and we are hopeful that progress can be made.
The future of the Social Security system, which many experts believe will
run out of money about 20 years from now, will be a subject in which you can
expect Zurich Kemper Investments, Inc. to play a leadership role. The possible
solutions for "fixing Social Security" are finite: raise Social Security taxes,
reduce benefits, raise the retirement age, change inflation assumptions or
pursue a higher rate of return on assets contributed by workers. We believe that
a bipartisan solution will be worked out, which will include giving individuals
the option of investing a portion of their Social Security contributions in an
account earmarked for them. This change is needed to return credibility to the
system, which many Americans have lost faith in.
What to do with Social Security is a debate that spans generations and
promises to occupy much attention in the coming years. As we hope to help
advance constructive debate, we'll be advocating partial privatization for this
federal program while maintaining a safety net for many low-wage earners and
providing a seamless transition for seniors near or in retirement.
3
<PAGE> 4
ECONOMIC OVERVIEW
- ------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- ------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The 10-year
Treasury rate and the prime rate are prevailing interest rates. The other data
report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (12/31/96) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.30 6.87 5.65 7.78
PRIME RATE (2) 8.25 8.25 8.50 8.50
INFLATION RATE(3)* 3.19 2.75 2.60 2.61
THE U.S. DOLLAR (4) 4.36 8.55 -0.57 -5.29
CAPITAL GOODS ORDERS (5)* 2.69 1.85 13.09 3.68
INDUSTRIAL PRODUCTION (5)* 4.40 4.12 1.08 6.43
EMPLOYMENT GROWTH (6) 2.17 2.19 1.57 3.52
</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,
inflations has been as high as 6%. The low, moderate inflation of the
last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of November 30, 1996.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this letter 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.
January 9, 1997
*THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
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.
THE YEAR ENDED NOVEMBER 30, 1996, WAS A PERIOD OF SHIFTING INTEREST RATES AND
POLITICAL RHETORIC, WHICH GREATLY IMPACTED THE MUNICIPAL BOND MARKET. KEMPER
MUNICIPAL INCOME TRUST PORTFOLIO MANAGER CHRIS MIER EXPLAINS HOW HE MANAGED
THE STRUCTURE OF THE PORTFOLIO TO HELP ENHANCE PERFORMANCE.
Q WERE YOU PLEASED WITH THE FUND'S PERFORMANCE DURING THE YEAR?
A Yes, despite a relatively volatile municipal bond market, the fund
delivered a stable flow of dividends and favorable performance. The fund
outperformed the average return of the Lipper General Municipal Debt category of
6.18 percent by returning 6.56 percent based on net asset value and gained 11.57
percent in market price during the fiscal year.
Q DURING THE LAST FISCAL YEAR, MUNICIPAL BOND YIELDS FLUCTUATED QUITE A BIT
BUT ENDED THE YEAR VIRTUALLY UNCHANGED. WHAT CAUSED THE YIELD VOLATILITY AND
RECOVERY?
A The year began in the midst of a bond rally, sparked by weaker economic
data, relatively benign inflation and optimism that a federal budget resolution
would occur. This created a favorable climate for the municipal market, and bond
yields fell. THE BOND BUYER 25-Revenue Bond Index (RBI) -- a gauge of municipal
bond interest rates -- began the fiscal year at 5.78 percent on November 30,
1995, and then fell to a low of 5.63 percent on January 4, 1996.
Later in January, however, data was released that indicated the economic
slowdown may have been related mostly to the impact of severe weather as opposed
to any fundamental weakness. Moreover, with the start of the Republican party
presidential primaries, focus moved away from the federal budget and deficit
reduction proposals toward other issues. As optimism about deficit reduction
began to fade, yields began to rise.
This rise in yields was propelled in early March, when the U.S.
Department of Labor announced an unanticipated and dramatic increase in
employment growth. Many bond investors saw this data as evidence that the
economy was re-establishing a firm footing. The news caused a sell-off in the
market because more rapid growth is often associated with higher inflation,
which erodes the value of fixed-income investments. Yields jumped from 5.88
percent on March 7, to 6.13 percent on March 14 as measured by the RBI.
The municipal market traded in an irregular pattern until September when
it became clear that the Federal Reserve Board would not raise interest rates.
From September through the end of the period, the market became more optimistic
and interest rates declined. The Revenue Bond Index yield was 5.80 percent on
November 27, 1996, just two basis points higher than at the start of the fiscal
year.
5
<PAGE> 6
PERFORMANCE UPDATE
Q HOW WAS THE FUND'S PERFORMANCE IMPACTED BY THE CHANGES IN INTEREST RATES?
A The fund tended to be less sensitive to the shifts in rates due to a fairly
significant presence of premium bonds in the portfolio. These bonds enabled the
fund to provide more stable performance during a somewhat volatile year.
Q HOW WAS THE FUND MANAGED AS RATES SHIFTED DIRECTION?
A We kept the fund fully invested. From February to April we put on
moderately defensive hedges on a periodic basis. The hedges were used for short
periods of time to help insulate the fund from erosion of its principal.
Throughout the year, we experienced a modest level of bond calls. The proceeds
from these calls were used to purchase longer maturity bonds with good call
protection.
Q WERE THERE ANY SIGNIFICANT TRENDS WITHIN INDIVIDUAL STATES THAT AFFECTED
THE FUND'S PERFORMANCE?
A Like the nation, many states experienced an ongoing economic expansion and
higher rates of employment, which is generally positive for municipal credit
quality. In some states, such as California and Ohio, general obligation bond
ratings were upgraded. During the period, our direct exposure to New York City
issues was reduced due to an advanced refunding. We chose not to add any
additional New York City issues in response to the city's ongoing struggle with
balancing its budget.
Q YOU MENTIONED THAT YOU MAINTAINED A REDUCED EXPOSURE TO THE NEW YORK CITY
CREDIT. HOW DO YOU DETERMINE WHEN TO ADD OR DECREASE PORTFOLIO EXPOSURE OR
DECIDE WHICH ISSUES TO PURCHASE?
A We are fortunate to have a staff of five research analysts dedicated to
following the municipal market. This group of seasoned professionals has more
than 50 years of combined industry experience, which makes them critical to the
portfolio selection process.
Each analyst covers a specific geographic area as well as industry
specialization. They have access, via computer subscription services, to all
relevant regional and national news and financial publications. The analysts
also have access to sophisticated investment databases. The information
available through the services, in many cases, is customized to meet Zurich
Kemper Investments' specific needs. In addition, the research analysts regularly
meet with issuers and often travel to conduct on site visits.
This multi-faceted approach to research enables us to make informed
decisions quickly as issues are offered.
Q WHAT CAN YOU TELL US ABOUT THE LEVEL OF MUNICIPAL SUPPLY?
A Supply picked up during the last few months of 1995 but remained lower than
1994 levels for the year as a whole. Early in 1996, supply was relatively high
but by the close of the year it was moving closer to 1995 levels on a monthly
year-over-year basis.
Q ARE MUNICIPAL BOND FUNDS A GOOD INVESTMENT IN THE CURRENT ECONOMIC
ENVIRONMENT?
A Municipal bonds can play an important role in rounding out a
well-diversified portfolio of investments. The tax-exempt income that municipal
bond funds provide may be especially helpful in today's tax environment.
Municipal bonds and equities can both be important components of a balanced
portfolio. If your exposure to municipals has declined on a relative basis over
the last few years, now may be the right time to review your long-term goals and
rebalance your portfolio of investments to increase your exposure to municipal
bonds.
Q WHAT'S YOUR OUTLOOK FOR THE MUNICIPAL MARKET?
A We expect moderate economic growth to continue, with a relatively low rate
of inflation. At the moment, rates on long Treasury bonds appear likely to
remain within a range of 6 to 7.25 percent. We look for levels of municipal
supply to remain relatively moderate, which would be positive for municipal
bonds and for Kemper Municipal Income Trust.
6
<PAGE> 7
LARGEST SECTORS
THE FUND'S LARGEST SECTORS*
Representing 64% of the fund's total net assets on November 30, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
1. U.S. GOVERNMENT SECURED 16%
- --------------------------------------------------------------------------------
2. ELECTRICITY BONDS 14%
- --------------------------------------------------------------------------------
3. AIRPORT BONDS 14%
- --------------------------------------------------------------------------------
4. SINGLE FAMILY HOUSING STATE BONDS 12%
- --------------------------------------------------------------------------------
5. WASTE DISPOSAL 8%
- --------------------------------------------------------------------------------
</TABLE>
PORTFOLIO STATISTICS
SECURITIES RATINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 11/30/96 ON 11/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 48% 36%
- --------------------------------------------------------------------------------
AA 18 18
- --------------------------------------------------------------------------------
A 13 21
- --------------------------------------------------------------------------------
BBB 14 20
- --------------------------------------------------------------------------------
NOT RATED 7 5
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 11/30/96 ON 11/30/95
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 11/30/96 ON 11/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 20.9 YEARS 21.2 YEARS
- --------------------------------------------------------------------------------
</TABLE>
* Portfolio composition and holdings are subject to change.
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
KEMPER MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS AT NOVEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
ADVANCED REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL
AND INTEREST BY UNITED STATES GOVERNMENT SECURITIES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NY, Urban Dev. Corp., State Facilities, Rev., 7.50%, to be
called 4-01-01 @ 102 $ 6,695 $ 7,673
NY, Dormitory Auth., State University Educational
Facilities, Rev.,
7.25%, to be called 5-15-02 @ 102 5,000 5,781
7.375%, to be called 5-15-00 @ 102 1,355 1,519
NY, New York City, Gen. Oblg., 7.50%, to be called 8-01-99 @
101.50 4,525 4,957
NY, Housing Finance Agcy., Service Contract, Rev., 7.375%,
to be called 3-15-02 @ 102 3,000 3,469
NY, Medical Care Facilities Finance Agcy., Mental Health
Services Facilities Improvement, Rev., 7.70%, to be called
2-15-98 @ 102 2,000 2,130
WA, Public Power Supply System, Nuclear Proj. #2, Rev.,
7.00%, to be called 7-01-00 @ 102 15,500 17,152
WA, Health Care Facilities Auth., Rev., 7.75%, to be called
5-01-00 @ 102 4,200 4,740
IN, Indianapolis, Local Public Improvement Bond Bank, Rev.,
8.50%, to be called 2-01-98 @ 102 12,470 13,350
WI, Health Facilities Auth., Franciscan Health Advisory
Services, Inc., Rev., 7.80%, to be called 3-01-97 @ 102 8,460 8,715
FL, Volusia County, Health Facilities Auth., Memorial Health
Systems Proj., Rev., 8.25% to be called 6-01-00 @ 102 7,000 8,012
FL, Greater Orlando, Aviation Auth., Airport Facilities
Rev., 8.00%, to be called 10-01-98 @ 102 120 130
IL, Chicago:
O'Hare International Airport, General Airport Rev., 8.20%,
to be called 1-01-97 @ 102 3,900 3,993
Skyway Toll Bridge, Rev., 6.75%, to be called 1-01-04 @
102 2,775 3,155
TX, Matagorda County, Navigation District #1, Pollution
Control, Central Power and Light Company Proj., Rev.,
7.875%, to be called 12-01-96 @ 102 5,000 5,101
OK, Tulsa, Airport Improvement Trust, Rev., 7.70%, to be
called 6-01-02 @ 100 3,315 3,821
PA, Greene County, Gen. Oblg., 8.75%, to be called 12-01-00
@ 100 3,175 3,669
KY, Kenton County, Airport Board, Greater Cincinnati
International Airport, Rev., 8.25%, to be called 3-01-98 @
102 1,950 2,090
NC, Eastern Municipal Power Agcy., Power System, Rev.,
8.00%, to be called 1-01-98 @ 102 262 278
Puerto Rico, Gen. Oblg., 7.75%, to be called 7-01-99 @
101.50 5,020 5,559
------------------------------------------------------------------------------------
TOTAL ADVANCED REFUNDED OBLIGATIONS--15.5%
(Cost: $95,350) 105,294
------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER MUNICIPAL OBLIGATIONS
- ---------------------------------------------------------------------------------------------------------------------
ILLINOIS--7.9% Chicago:
Gas Supply, Peoples Gas, Light and Coke Company, Rev.,
8.10%, 2020 $ 1,250 $ 1,388
O'Hare International Airport, International Terminal,
Special Rev., 7.625% and 8.20%, 2010 and 2024 14,775 16,706
Dev. Finance Auth.:
Catholic Health Partners Services, Rev., 5.30%, 2018 3,500 3,356
Pollution Control, Commonwealth Edison Company Proj.,
Rev., 6.75%, 2015 4,220 4,696
Harvard, Multifamily Housing, Northfield Court Proj., Rev.,
9.50%, 2006 2,625 2,859
Health Facilities Auth.:
Bethany Home and Hospital of the Methodist Church, Rev.,
8.625%, 2009 7,135 7,922
Lutheran General Health Care System, Rev., 6.00%, 2018 1,030 1,035
Methodist Health Services Corp., Rev., 8.00%, 2015 1,905 2,097
Housing Dev. Auth., Residential Mortgage, Rev., 8.10%, 2022 3,245 3,373
Regional Transportation Auth., Cook, DuPage, Kane, Lake,
McHenry and Will Counties, Rev., 6.125%, 2022 4,000 4,103
Sports Facilities Auth., Rev., 7.875%, 2010 6,000 6,597
------------------------------------------------------------------------------------
54,132
- ---------------------------------------------------------------------------------------------------------------------
FLORIDA--6.4% Broward County, Resource Recovery, Waste Energy Company,
Rev., 7.95%, 2008 4,295 4,750
Dade County:
Aviation Rev., 5.75%, 2026 22,000 22,233
Special Oblg., Capital Appreciation, Rev., zero coupon,
2022 and 2024 24,690 4,855
Escambia County, Pollution Control, Champion International
Corp. Proj., Rev., 6.40%, 2030 6,000 6,179
Greater Orlando Aviation Auth., Airport Facilities, Rev.,
8.00%, 2018 1,130 1,216
Housing Finance Agcy., Home Ownership, Rev., 8.30%, 2020 3,835 4,003
------------------------------------------------------------------------------------
43,236
- ---------------------------------------------------------------------------------------------------------------------
INDIANA--5.9% Employment Dev. Commission, Indianapolis Power and Light
Company, Rev., 7.45%, 2019 14,215 15,368
Fishers, Economic Dev. Auth., Indianapolis Water Company
Proj., Rev., 7.875%, 2019 10,000 10,534
Indianapolis, Gas Utility System Rev., 5.875%, 2024 14,000 14,296
------------------------------------------------------------------------------------
40,198
- ---------------------------------------------------------------------------------------------------------------------
NEW YORK--5.7% Dormitory Auth.:
City University System, Rev., 5.625%, 2016 1,500 1,507
State University Educational Facilities, Rev., 7.375% and
7.00%, 2014 and 2016 7,140 7,726
Energy Research and Dev. Auth., Electric Facilities,
Consolidated Edison Company Proj., Rev., 7.75%, 2024 13,300 13,926
Medical Care Facilities Finance Agcy., Mental Health
Services, Rev., 7.70%, 2018 3,255 3,447
New York City, Gen. Oblg., 7.50%, 2003 and 2004 5,905 6,324
Niagara Frontier Transportation Auth., Greater Buffalo
International Airport, Rev., 6.25%, 2024 5,750 6,063
------------------------------------------------------------------------------------
38,993
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TEXAS--5.5% Brazos River Auth., Collateralized Pollution Control,
Utilities Electric Company Proj., Rev., 8.25%, 2019 $11,000 $ 11,876
College Student Loans, Gen. Oblg., 5.00%, 2021 4,015 3,717
Dallas-Fort Worth International Airport Facility Improvement
Corp., American Airlines, Inc., Rev., 7.50%, 2025 1,500 1,614
Lower Neches Valley Auth., Industrial Dev. Corp., Mobil Oil
Refining Corp. Proj., Rev., 6.35% and 6.40%, 2026 and 2030 19,150 19,943
------------------------------------------------------------------------------------
37,150
- ---------------------------------------------------------------------------------------------------------------------
NEW JERSEY--4.5% Economic Dev. Auth., Water Facilities, New Jersey American
Water Company, Inc. Proj., Rev., 6.875% and 6.00%, 2034
and 2036 20,775 22,373
Health Care Facilities Financing Auth., General Hospital
Center at Passaic, Rev., 6.75%, 2019 5,000 5,624
Housing and Mortgage Finance Agcy., Home Buyer Rev., 7.70%,
2029 2,845 2,975
------------------------------------------------------------------------------------
30,972
- ---------------------------------------------------------------------------------------------------------------------
CALIFORNIA--4.0% Housing Finance Agcy., Home Mortgage, Rev., 8.30% and 8.35%,
2019 2,535 2,645
Los Angeles County, Metropolitan Transportation Auth., Sales
Tax Rev., 6.00%, 2026 2,750 2,896
Orange County, Recovery Certificates of Participation,
6.00%, 2026 8,500 8,834
Sacramento County, Airport System, Rev., 5.90%, 2024 5,000 5,099
State, Gen. Oblg., 5.90%, 2025 7,690 7,919
------------------------------------------------------------------------------------
27,393
- ---------------------------------------------------------------------------------------------------------------------
MAINE--3.6% Health and Higher Educational Facilities Auth., Rev., 5.70%
and 7.00%, 2013 and 2024 9,320 10,029
Housing Auth., Mortgage Purchase Rev., 8.30%, 2028 305 308
Regional Waste Systems, Inc., Solid Waste Resource Recovery,
Rev., 7.85% and 8.15%, 2011 13,280 14,388
------------------------------------------------------------------------------------
24,725
- ---------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--3.6% Allegheny County, Greater Pittsburgh International Airport,
Rev., 8.25%, 2016 8,450 8,971
Lehigh County:
General Purpose Auth., Wiley House, Rev., 8.65% and 8.75%,
2004 and 2014 5,520 5,750
Industrial Dev. Auth., Pollution Control, Rev., 6.15%,
2029 1,500 1,595
Philadelphia, Gas Works, Rev., 6.375%, 2026 7,950 8,205
------------------------------------------------------------------------------------
24,521
- ---------------------------------------------------------------------------------------------------------------------
COLORADO--3.3% Adams County, Multifamily Housing, Oasis Park Apartments
Proj., Rev., 6.15%, 2026 6,580 6,733
City and County of Denver, Airport System Rev., 6.75% to
8.50%, 2013 through 2023 10,580 11,540
Housing and Finance Auth., Single Family Program, Rev.,
7.70%, 2021 3,720 3,888
------------------------------------------------------------------------------------
22,161
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OHIO--2.8% Cuyahoga County, Meridia Health System, Hospital Rev.,
6.25%, 2024 $ 2,350 $ 2,425
Green Springs, Health Care Facilities Rev., 7.125%, 2025 6,000 6,304
Higher Educational Facility Commission, University of
Findlay Proj., Rev., 6.15% and 6.125%, 2011 and 2016 3,635 3,617
Housing Finance Agcy., Single Family Mortgage Rev., 7.65% to
8.25%, 2010 through 2029 6,626 7,008
------------------------------------------------------------------------------------
19,354
- ---------------------------------------------------------------------------------------------------------------------
KENTUCKY--2.5% Kenton County Airport Board, Greater Cincinnati
International Airport, Rev., 8.25%, 2015 8,950 9,497
Trimble County Pollution Control, Louisville Gas & Electric
Co. Proj., Rev., 7.75%, 2019 7,000 7,373
------------------------------------------------------------------------------------
16,870
- ---------------------------------------------------------------------------------------------------------------------
VIRGINIA--2.2% Fairfax County Economic Dev. Auth., Resource Recovery, Ogden
Martin System Proj., Rev., 7.75%, 2011 13,890 15,017
- ---------------------------------------------------------------------------------------------------------------------
HAWAII--2.1% Department of Budget and Finance, Special Purpose, Hawaiian
Electric Company, Inc. Proj., Rev., 6.20%, 2026 13,200 13,876
Housing Finance and Dev. Corp., Single Family Mortgage Rev.,
8.125%, 2019 565 588
------------------------------------------------------------------------------------
14,464
- ---------------------------------------------------------------------------------------------------------------------
MISSOURI--2.0% Health and Educational Facilities Auth., Health Facilities,
Lake of the Ozarks General Hospital Inc. Proj., Rev.,
6.50%, 2021 1,125 1,141
Housing Dev. Commission, Single Family Mortgage Rev., 7.90%,
2021 4,140 4,328
St. Louis, Regional Convention and Sports Complex Auth.,
Rev., 7.90%, 2021 3,600 3,994
West Plains, Industrial Dev. Auth., Ozarks Medical Center
Proj., Rev., 8.625%, 2020 3,650 3,997
------------------------------------------------------------------------------------
13,460
- ---------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--1.9% Metropolitan Airports Auth., Airport System, Rev., 5.75%,
2020 13,100 13,192
- ---------------------------------------------------------------------------------------------------------------------
UTAH--1.8% Housing Finance Agcy., Single Family Mortgage Rev., 6.65%,
2026 945 980
Intermountain Power Agcy., Power Supply System Rev., 7.75%
and 5.00%, 2020 and 2021 11,700 11,576
------------------------------------------------------------------------------------
12,556
- ---------------------------------------------------------------------------------------------------------------------
VERMONT--1.8% Housing Finance Agcy., Mortgage Purchase Rev., 8.10%, 2022 11,890 12,406
- ---------------------------------------------------------------------------------------------------------------------
LOUISIANA--1.8% Housing Finance Agcy., Single Family Mortgage Rev., 8.30%,
2020 3,665 3,821
Public Facilities Auth., Lafayette General Medical Center
Proj., Rev., 6.50%, 2022 7,350 8,073
------------------------------------------------------------------------------------
11,894
- ---------------------------------------------------------------------------------------------------------------------
ALABAMA--1.3% Docks Dept., Facilities Rev., 6.30%, 2021 8,250 8,866
- ---------------------------------------------------------------------------------------------------------------------
OKLAHOMA--1.2% Tulsa Airport Improvement Trust, General Rev., 7.70%, 2013 7,545 7,874
Turnpike Auth., Turnpike System Rev., 7.875%, 2021 355 384
------------------------------------------------------------------------------------
8,258
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW MEXICO--1.2% Mortgage Finance Auth., Single Family Mortgage Rev., 8.30%
and 7.80%, 2020 and 2021 $ 7,440 $ 7,859
- ---------------------------------------------------------------------------------------------------------------------
NEBRASKA--1.2% Investment Finance Auth., Single Family Housing Rev., 6.70%,
2026 7,500 7,815
- ---------------------------------------------------------------------------------------------------------------------
IOWA--1.1% Housing Finance Auth., Single Family Mortgage Rev., 7.90%,
2022 7,055 7,423
- ---------------------------------------------------------------------------------------------------------------------
MICHIGAN--1.0% Monroe County, Pollution Control, Detroit Edison Proj.,
Rev., 7.75%, 2019 6,500 7,064
- ---------------------------------------------------------------------------------------------------------------------
MARYLAND--1.0% Howard County, Multifamily Housing, Braeland and Eden
Commons Projs., Rev., 6.20%, 2023 6,750 6,629
- ---------------------------------------------------------------------------------------------------------------------
STATES LESS THAN ID, Housing Agcy., Single Family Mortgage Rev., 7.875% and
ONE PERCENT--4.8% 6.90%, 2021 and 2025 5,795 6,060
MN, Housing Finance Agcy., Single Family Mortgage Rev.,
7.95% and 8.00%, 2022 and 2029 4,705 4,925
WA, Public Power Supply System, Nuclear Projs. #1 and #3,
Rev., 5.60%, 2015 3,000 2,958
WA, Grant County, Public Utility District #2, Wanapum
HydroElectric, Rev., 5.875%, 2031 1,575 1,599
NC, Housing Finance Agcy., Single Family Mortgage Rev.,
7.85%, 2028 3,950 4,152
SC, Oconee County, Pollution Control, Duke Power Company
Proj., Rev., 7.75%, 2017 3,500 3,812
NH, Higher Educational and Health Facilities Auth., Nashua
Memorial Hospital, Rev., 6.00%, 2023 3,000 2,935
WI, Housing & Economic Dev. Auth., Home Ownership, Rev.,
6.20%, 2027 2,500 2,512
NV, Clark County, Industrial Dev., Power Company Proj.,
Rev., 6.70%, 2022 1,750 1,890
RI, Housing and Mortgage Finance Corp., Rev., 8.25%, 2022 940 980
ND, Housing Finance Agcy., Single Family Mortgage Rev.,
8.375%, 2021 765 809
------------------------------------------------------------------------------------
32,632
------------------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--82.1%
(Cost: $521,368) 559,240
------------------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--97.6%
(Cost: $616,718) 664,534
------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--4.25% to 4.30%
INSTRUMENTS--.8% Due--December 1996
(Cost: $5,600) 5,600 5,600
------------------------------------------------------------------------------------
TOTAL INVESTMENTS--98.4%
(Cost: $622,318) 670,134
------------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.6% 11,109
------------------------------------------------------------------------------------
NET ASSETS--100% $681,243
------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $622,318,000 for federal income tax purposes
at November 30, 1996, the gross unrealized appreciation of investments was
$47,953,000, the gross unrealized depreciation was $137,000 and the net
unrealized appreciation of investments was $47,816,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 13
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, 1996, 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 1992. 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, 1996, 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, 1996, 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 1992, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 17, 1997
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $622,318) $670,134
- ------------------------------------------------------------------------
Cash 382
- ------------------------------------------------------------------------
Interest receivable 13,849
- ------------------------------------------------------------------------
TOTAL ASSETS 684,365
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Investments purchased 2,508
- ------------------------------------------------------------------------
Management fee 311
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 44
- ------------------------------------------------------------------------
Trustees' fees and other 259
- ------------------------------------------------------------------------
Total liabilities 3,122
- ------------------------------------------------------------------------
NET ASSETS $681,243
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Remarketed preferred shares, par value $.01 per share,
unlimited number of shares authorized, 43 shares
outstanding at $5 thousand liquidation value per share $215,000
- ------------------------------------------------------------------------
Common shares, par value $.01 per share, unlimited number of
shares authorized, 37,863 shares outstanding 379
- ------------------------------------------------------------------------
Paid-in surplus 418,870
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (14,184)
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 47,816
- ------------------------------------------------------------------------
Undistributed net investment income 13,362
- ------------------------------------------------------------------------
NET ASSETS $681,243
- ------------------------------------------------------------------------
NET ASSET VALUE PER COMMON SHARE
(net assets less remarketed preferred shares at liquidation
value divided by common shares outstanding) $12.31
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------
Interest income $45,429
- -----------------------------------------------------------------------------------------------------
Expenses:
Management fee 3,699
- -----------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 230
- -----------------------------------------------------------------------------------------------------
Registration and remarketing fees 664
- -----------------------------------------------------------------------------------------------------
Professional fees 58
- -----------------------------------------------------------------------------------------------------
Reports to shareholders 94
- -----------------------------------------------------------------------------------------------------
Trustees' fees and other 111
- -----------------------------------------------------------------------------------------------------
Total expenses 4,856
- -----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 40,573
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------
Net realized gain on sales of investments (including options purchased) 295
- -----------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 282
- -----------------------------------------------------------------------------------------------------
Net realized gain 577
- -----------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (4,207)
- -----------------------------------------------------------------------------------------------------
Net loss on investments (3,630)
- -----------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $36,943
- -----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995
- -------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 40,573 41,221
- -------------------------------------------------------------------------------------------
Net realized gain (loss) 577 (4,022)
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (4,207) 52,077
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 36,943 89,276
- -------------------------------------------------------------------------------------------
Distribution from net investment income:
Common shares (32,977) (32,507)
- -------------------------------------------------------------------------------------------
Remarketed preferred shares (7,662) (8,569)
- -------------------------------------------------------------------------------------------
Total dividends to shareholders (40,639) (41,076)
- -------------------------------------------------------------------------------------------
Proceeds from common shares issued in reinvestment of
dividends (409 and 137 shares, respectively) 5,255 1,694
- -------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 1,559 49,894
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------
Beginning of year 679,684 629,790
- -------------------------------------------------------------------------------------------
END OF YEAR
(including undistributed net investment income
of $13,362 and $13,416, respectively) $681,243 679,684
- -------------------------------------------------------------------------------------------
</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 financial futures
and options are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Over-the-counter
traded options are valued based upon prices
provided by market makers. Other securities and
assets are valued at fair value as determined in
good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the
accrual basis and includes 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 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, 1996, amounting to approximately
$10,195,000, 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 the dividends
are paid every 28 days. Preferred shareholders will
vote together with common shareholders as a single
class and have the same voting rights, subject to
certain class specific preferences.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI) and pays a management fee at an annual rate
of .55% of average weekly net assets. The Fund
incurred a management fee of $3,699,000 for the
year ended November 30, 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 shareholder services fees of $71,000
for the year ended November 30, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the year ended November 30, 1996, the Fund
made no payments to its officers and incurred
trustees' fees of $40,000 to independent trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the year ended November 30, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $179,150
Proceeds from sales 167,924
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE FOR A COMMON SHARE
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $12.41 11.12 13.25 12.45 11.85
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 1.07 1.10 1.10 1.16 1.16
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.10) 1.29 (1.84) .66 .49
- --------------------------------------------------------------------------------------------------------
Total from investment operations .97 2.39 (.74) 1.82 1.65
- --------------------------------------------------------------------------------------------------------
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) .20 .23 .16 .15 .18
- --------------------------------------------------------------------------------------------------------
Distribution from net realized gain to common
shareholders -- -- .36 -- --
- --------------------------------------------------------------------------------------------------------
Total dividends 1.07 1.10 1.39 1.02 1.05
- --------------------------------------------------------------------------------------------------------
Net asset value, end of year $12.31 12.41 11.12 13.25 12.45
- --------------------------------------------------------------------------------------------------------
Market value, end of year $13.13 12.63 11.00 12.75 12.63
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN PER COMMON SHARE
- --------------------------------------------------------------------------------------------------------
Based on net asset value 6.56% 20.00 (7.36) 13.80 12.80
- --------------------------------------------------------------------------------------------------------
Based on market value 11.57% 23.55 (4.66) 8.04 12.97
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------------
(Ratios exclude the effect of dividends to
preferred shareholders) Expenses .72% .69 .70 .69 .71
- --------------------------------------------------------------------------------------------------------
Net investment income 6.03% 6.23 6.13 6.20 6.48
- --------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------
Net assets at end of year, net of remarketed
preferred shares (in thousands) $466,243 464,684 414,790 493,108 461,119
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 26% 19 12 17 5
- --------------------------------------------------------------------------------------------------------
Remarketed preferred shares information at end of year:
Aggregate amount outstanding (in thousands) $215,000 215,000 215,000 215,000 215,000
Asset coverage per share $ 15,800 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 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 1996 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.
18
<PAGE> 19
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
19
<PAGE> 20
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 notice thereof sent to participants
in the Plan at least ninety days before the record
date for such Distribution.
20
<PAGE> 21
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
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.
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS J. PATRICK BEIMFORD, JR.
President and Trustee Vice President
JAMES E. AKINS CHARLES R. MANZONI, JR.
Trustee Vice President
ARTHUR R. GOTTSCHALK CHRISTOPHER J. MIER
Trustee Vice President
FREDERICK T. KELSEY JOHN E. NEAL
Trustee Vice President
DOMINIQUE P. MORAX PHILIP J. COLLORA
Trustee Vice President and
Secretary
FRED B. RENWICK
Trustee JEROME L. DUFFY
Treasurer
JOHN B. TINGLEFF
Trustee
JOHN G. WEITHERS
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
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
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INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
222 South Riverside Plaza
Chicago, IL 60606
http://www.kemper.com
[RECYCLED LOGO]
Printed on recycled paper.
KMIT - 2 (1/97) 1027600
Printed in the U.S.A. [KEMPER FUNDS LOGO]
