<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1997
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[LOGO]
KEMPER
MUNICIPAL INCOME TRUST
"... This fund was created to deliver
a high level of tax-exempt income...
and, again the fund did not disappoint
shareholders this year. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
7
Largest Sectors
Portfolio Statistics
8
Portfolio of
Investments
14
Report of
Independent Auditors
15
Financial Statements
17
Notes to
Financial Statements
19
Financial Highlights
20
Description of
Dividend Reivestment Plan
At A GLANCE
- -------------------------------------------------------
TOTAL RETURNS
FOR THE YEAR ENDED NOVEMBER 30, 1997
- -------------------------------------------------------
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
......................................................
<S> <C> <C>
KEMPER MUNICIPAL
INCOME TRUST 7.57% 15.16%
......................................................
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- -------------------------------------------------------
AS OF AS OF
11/30/97 11/30/96
......................................................
<S> <C> <C>
NET ASSET VALUE $12.33 $12.31
......................................................
MARKET PRICE $14.13 $13.13
......................................................
</TABLE>
- -------------------------------------------------------
DIVIDEND REVIEW
- -------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF NOVEMBER 30, 1997.
<TABLE>
<CAPTION>
KEMPER MUNICIPAL
INCOME TRUST
......................................................
<S> <C>
ONE-YEAR INCOME: $0.8700
......................................................
NOVEMBER DIVIDEND: $0.0725
......................................................
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 7.06%
......................................................
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 6.16%
......................................................
TAX EQUIVALENT DISTRIBUTION
RATE: (BASED ON NET ASSET VALUE
AND A 37.1% FEDERAL INCOME TAX
RATE) 11.22%
......................................................
TAX EQUIVALENT DISTRIBUTION
RATE: (BASED ON MARKET PRICE
AND A 37.1% FEDERAL INCOME TAX
RATE) 9.79%
......................................................
</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.
REVENUE BOND INDEX (RBI) The average yield on 25 revenue bonds with 30-year
maturities compiled by THE BOND BUYER, a newspaper that reports on 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 time 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.
<PAGE> 3
ECONOMIC Overview
[ALLYN PHOTO]
MAUREEN F. ALLYN, A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.,
SERVES AS THE FIRM'S CHIEF ECONOMIST. ALLYN GRADUATED SUMMA CUM LAUDE FROM
OAKLAND UNIVERSITY NEAR DETROIT, WITH A BACHELOR'S DEGREE IN PSYCHOLOGY. SHE
RECEIVED HER MASTER'S IN ECONOMICS, WITH A SPECIALIZATION IN INTERNATIONAL TRADE
AND FINANCE, FROM THE NEW SCHOOL FOR SOCIAL RESEARCH IN NEW YORK.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT ADVISOR FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $200 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS. IT IS ONE OF
THE 10 LARGEST MUTUAL FUND COMPANIES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
We start 1998 optimistic about the long-term prospects of the U.S. economy and
financial markets but cautious about the next several months. The Asian
financial crisis that dominated the global investment environment in the second
half of 1997 promises to continue, posing significant risks to the economy and
investors. We look for the strength of the American consumer -- currently
enjoying rising real incomes, better employment opportunities, lower mortgage
rates and easy access to credit -- and the secular strength of the trend toward
capital spending on high technology to be sufficient to override the influence
of Asia on the U.S. In short, our best case scenario calls for the U.S. to
muddle through an unsettling period. As it has for several years, the country
should continue to enjoy relatively low interest rates and low inflation. But
the new year will be different in at least two ways, both of which can be
expected to have direct bearing on investment opportunities.
First, the economy should grow at a much slower pace. A slowdown in Asia will
depress capital goods spending and heighten import pricing pressure, putting a
damper on American corporations' pricing and profit growth at least through
1999. While the U.S. economy grew at an almost 4 percent rate in 1997, we look
for no better than 2 percent growth for the next two years -- with more than
half of the change attributable to the effect of the Asian fallout.
Disappointing corporate profits is another given for 1998. Profits had begun
to slow last year even before the height of the Asian crisis. High current
valuations, however, seem to suggest that Wall Street has yet to recognize this.
The clash between Wall Street profit expectations and actual reported earnings
is part of the risk likely to be associated with equity investing in 1998.
Volatility, such as we experienced in 1997, should continue. In fact, the
overall market volatility is not likely to reflect the turmoil that individual
equities may experience. There will be a narrowing of the number of companies
able to meet analysts' expectations and this market will be absolutely
unforgiving to those companies that fall far short.
Having stated this, however, we look for the Standard & Poor's 500 to return
about 9.5 percent, including the effect of reinvested dividends. This would be
an average return and in line with the historical long-term 10 percent return of
the stock market. On the heels of the last three 20 percent-plus return years,
an investor in 1998 may weigh the 10 percent prospect against a projected 7
percent total return on bonds and consider the difference insufficient
compensation for the inherent added risk. Adopting a more conservative posture
for the new year may be an appropriate step that you'll want to discuss with
your financial representative in the context of your long-term investing
objectives.
To achieve a 9.5 percent return in 1998, the market's already high valuations
need to move even higher. We expect this to occur for a few reasons: the market
has so far demonstrated a certain complacency about the valuation levels;
American investors don't perceive there's anywhere better to go than the U.S.
equity market; and foreigners think of the U.S. market as a safe haven. All
should help support the market.
Where, then, are the opportunities likely to be in 1998? Expect to see
disparate performance within industry sectors. For example, while the financial
services sector in 1997 tended to provide across-the-board strong performance,
in 1998 we expect the sector to include its share of winners and losers. Stock
selection will be key, too, to benefiting from the technology sector. Over the
long term, we are optimistic about technology and corporate America's continuing
commitment to it. It will be difficult to participate in a market return in 1998
without having some exposure to technology-based companies. One caution: Not all
technology companies will survive the year, which raises the risk of investing
in the sector.
Conventional wisdom might argue in favor of remaining in the U.S. with your
investment dollars in 1998 and, more specifically, invested in small
capitalization companies with domestic lines of business. We'd challenge such
thinking as slower growth, slower inflation and even
<PAGE> 4
ECONOMIC OVERVIEW
[BAR GRAPH]
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 (12/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEAR AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 5.81 6.22 6.58 5.65
PRIME RATE(2) 8.5 8.5 8.25 8.5
INFLATION RATE(3) 1.7 2.23 3.04 2.72
THE U.S. DOLLAR(4) 10.43 7.32 4.59 -0.57
CAPITAL GOODS ORDERS(5)* 11.61 8.58 2.23 9.56
INDUSTRIAL PRODUCTION(5)* 5.59 3.91 4.7 2.34
EMPLOYMENT GROWTH(6) 2.66 2.3 2.41 1.57
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of
the last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of November 30, 1997.
Source: Economics Department, Scudder Kemper Investment, Inc.
deflation and pricing pressures change the U.S. economic climate. The only real
antidote is growth, and from now on growth is more likely to be found outside
the United States. Today to participate in the growth from global business you'd
need to be exposed to large capitalization companies.
International investing is a promising proposition in 1998, the Asian fallout
notwithstanding. In established markets, there are attractive opportunities to
be found in Europe and in Japan. Several Japanese companies have real cash flows
and even relatively attractive valuations. In addition, the effect of the Asian
problems has not been to discourage all investment into emerging markets; rather
investors have tended to divert investment dollars and business to other
increasingly attractive emerging markets in eastern Europe, the Middle East,
Africa and Latin America.
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/ Maureen Allyn
MAUREEN ALLYN
Chief Economist, Scudder Kemper Investments, Inc.
January 9, 1998
4
<PAGE> 5
PERFORMANCE UPDATE
[MIER PHOTO]
Christopher Mier joined what is now Scudder Kemper Investments, Inc. in 1986 and
is now a managing director of Scudder Kemper Investments 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.
CHRISTOPHER MIER, PORTFOLIO MANAGER OF KEMPER MUNICIPAL INCOME TRUST,
DISCUSSES SUCCESSFUL RESULTS FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997, AND
DESCRIBES THE INVESTMENT STRATEGY BEHIND THOSE RESULTS.
Q WAS PERFORMANCE FOR THE FISCAL YEAR FAVORABLE?
A Yes, I'm pleased with the results. For the year ended November 30, 1997,
Kemper Municipal Income Trust had a total return of 7.57 percent, roughly in
line with 7.97 percent for the average of the General Municipal Debt category,
as reported by Lipper Analytical Services, Inc.
This fund was created to deliver a high level of tax-exempt income and not
primarily for total return (although we give the Lipper figures for information
purposes) and again, the fund did not disappoint shareholders this year. The
fund paid consistent monthly dividends of $0.0725 ($0.87 annualized) per share
to shareholders.
Based on its net asset value of $12.33, this amounts to an annual distribution
rate of 7.06 percent, compared with its Lipper peer group average of 5.87
percent. And based on the market share price at fiscal year end, November 30,
1997, of $14.13, the distribution rate is 6.16 percent, compared with its Lipper
peer group average of 5.96 percent.
For an individual investor in the federal tax bracket of 37.1 percent, the
fund's tax-equivalent distribution rate on the share price at November 30, 1997
is 9.79 percent.
Q SINCE THIS IS AN INCOME FUND, HOW STABLE HAS THE DIVIDEND BEEN?
A We can answer that best by saying that in the history of the fund, created
in 1988, there has never been a dividend cut or missed monthly dividend.
Q HOW IS THE DIVIDEND VIEWED BY INVESTORS?
A Many funds trade at big discounts to net asset value. Interestingly,
however, since inception, this fund has generally traded at a share price that
is at a premium to net asset value. That premium, of one or two percent above
net asset value, is a validation from the market of the style of portfolio
management used in managing the fund. The market likes to see stability in the
dividend over a long period of time, and Kemper Municipal Income Trust provides
it.
Q HOW DID MARKET CONDITIONS FOR THE YEAR AFFECT INCOME?
A The year began with two quarters of strong growth, and with a parallel
run-up in interest rates, which peaked in the 7 percent range in the Treasury
long bond rate in April 1997. This increase in rates was caused by fears of a
major Federal Reserve Board (the Fed) rate action, following the early December
1996 speech by Alan Greenspan, Fed Chairman, discussing the 'irrational
exuberance' in the stock market.
A second phase began, which we are still in today, in which rates have
declined to levels even lower than before the Fed Chairman's speech. With strong
but sustainable growth in the economy, accompanied by low inflation, investors
became convinced that the lower municipal bond yields we have today are
appropriate.
5
<PAGE> 6
PERFORMANCE UPDATE
The trend to lower interest rates was accentuated in late 1997 by the emerging
financial crisis in Southeast Asia. The banking and other problems, which
continue to cast their shadow in the West, caused a flight to quality (in this
case to the United States fixed-income markets), and a run-up in bond prices and
a commensurate decline in interest rates, to levels we haven't seen in several
years.
Q IN THESE CIRCUMSTANCES, IS NOW A PARTICULARLY GOOD TIME TO INVEST IN
MUNICIPAL BONDS?
A Yes, for a number of reasons. First, if you compare the ratio of the
weekly revenue bond index with the long Treasury bond, municipal bonds are now
basically at their cheapest point in the last 12 months.
Secondly, in general, real interest rates are high. This is demonstrated by
subtracting the trailing 12-month inflation rate (using the Consumer Price Index
or any other inflation measure) from the nominal rate of interest. In fact, the
United States offers some of the highest yields in the world, with municipal
bonds representing less credit risk than many nations.
The third reason is that if you look at the broad span of interest rates over
the last 100 years, 85 percent of the time interest rates have been lower than
they are right now. Most people on the street would tell you that interest rates
seem low because they are thinking back to the early '80s and late '70s. As
people adjust to these rate levels, they will come to find them attractive.
Next, taxes are still consuming more of people's incomes than they ever did,
so that there's a greater need than ever for municipal bonds, a need for
tax-exempt income.
Finally, the last reason concerns asset reallocation. Since October 11, 1990,
the Standard & Poor's 500 Stock Index has gone up 223.36 percent, its largest
upward movement without a correction of 20 percent or more since Standard &
Poor's started to record market activity in 1926. After such a move, it is
prudent to consider diverting a greater percentage of portfolio capital into
bonds, since the equity portion is likely to have been enlarged relative to the
bond portion, thereby increasing portfolio risk.
Q THE AVERAGE MATURITY OF YOUR PORTFOLIO AT FISCAL YEAR END WAS QUITE
LONG--20.1 YEARS. HOW DOES THAT TIE IN WITH YOUR OUTLOOK FOR THE MUNICIPAL BOND
MARKET?
A We expect that rates will continue to decline over the short-term as long
as inflation remains at present levels or lower. As mentioned earlier, adjusted
for inflation, bond yields are unusually high, and we expect rates will decline
further in response to little inflation pressure. We believe it is a good time
to buy municipal bonds.
6
<PAGE> 7
LARGEST SECTORS
- --------------------------------------------------------------------------------
THE FUND'S FIVE LARGEST SECTORS*
- --------------------------------------------------------------------------------
REPRESENTING 64 PERCENT OF THE FUND'S TOTAL NET ASSETS ON NOVEMBER 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------
HOLDINGS PERCENT
- -----------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------
1. U.S. GOVERNMENT SECURED 17%
- -----------------------------------------------------------
2. AIRPORT BONDS 14%
- -----------------------------------------------------------
3. ELECTRICITY BONDS 14%
- -----------------------------------------------------------
4. SINGLE FAMILY HOUSING STATE BONDS 10%
- -----------------------------------------------------------
5. WASTE DISPOSAL 9%
- -----------------------------------------------------------
</TABLE>
PORTFOLIO STATISTICS
SECURITIES RATINGS
[PIE CHART]
<TABLE>
<CAPTION>
............................................................................
ON 11/30/97 ON 11/30/96
............................................................................
<S> <C> <C>
AAA 51% 48%
............................................................................
AA 15 18
............................................................................
A 14 13
............................................................................
BBB 13 14
............................................................................
Not rated 7 7
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
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 11/30/97 ON 11/30/96
- -------------------------------------------------------------------------
<S> <C> <C>
Average Maturity 20.1 years 20.9 years
- -------------------------------------------------------------------------
</TABLE>
*PORTFOLIO HOLDINGS AND COMPOSITION ARE SUBJECT TO CHANGE.
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
KEMPER MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS AT NOVEMBER 30, 1997
(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>
Allegheny County, PA, Greater Pittsburgh
International Airport, Rev., 8.25%, to be called
1-01-98 @ 102 $ 8,450 $ 8,652
Eastern Municipal Power Agcy., NC, Power System,
Rev., 8.00%, to be called 1-01-98 @ 102 262 268
Indianapolis, IN, Local Public Improvement Bond
Bank, Rev., 8.50%, to be called 2-01-98 @ 102 12,470 12,817
Trimble County Pollution Control, KY, Louisville
Gas & Electric Co. Proj., Rev., 7.75%, to be
called 2-01-98 @ 102 7,000 7,185
Medical Care Facilities Finance Agcy., NY, Mental
Health Services Facilities Improvement, Rev.,
7.70%, to be called 2-15-98 @ 102 3,730 3,835
Kenton County, KY, Airport Board, Greater
Cincinnati International Airport, Rev., 8.25%,
to be called 3-01-98 @ 102 1,950 2,010
Greater Orlando, FL, Aviation Auth., Airport
Facilities Rev., 8.00%, to be called 10-01-98 @
102 120 126
Puerto Rico, Gen. Oblg., 7.75%,
to be called 7-01-99 @ 101.50 5,020 5,386
New York City, NY, Gen. Oblg., 7.50%,
to be called 8-01-99 @ 101.50 4,525 4,845
Health Facilities Auth., IL, Bethany Home and
Hospital of the Methodist Church, Rev., 8.625%,
to be called 2-15-00 @ 102 6,815 7,577
Health Care Facilities Auth., WA, Rev., 7.75%,
to be called 5-01-00 @ 102 4,200 4,624
Dormitory Auth., NY, State University Educational
Facilities, Rev., 7.375%, to be called 5-15-00 @
102 1,355 1,485
Volusia County, FL, Health Facilities Auth.,
Memorial Health Systems Proj., Rev., 8.25%
to be called 6-01-00 @ 102 7,000 7,798
Public Power Supply System, WA, Nuclear Proj. #2,
Rev., 7.00%, to be called 7-01-00 @ 102 15,500 16,851
Denver, CO, City and County Airport Improvement
Rev., 8.50%, to be called 11-15-00 @ 102 390 443
Greene County, PA, Gen. Oblg., 8.75%,
to be called 12-01-00 @ 100 3,065 3,446
Urban Dev. Corp., NY, State Facilities, Rev.,
7.50%, to be called 4-01-01 @ 102 6,695 7,512
Housing Finance Agcy., NY, Service Contract, Rev.,
7.375%, to be called 3-15-02 @ 102 3,000 3,419
Dormitory Auth., NY, State University Educational
Facilities, Rev., 7.25%, to be called 5-15-02 @
102 5,000 5,694
Tulsa, OK, Airport Improvement Trust, Rev., 7.70%,
to be called 6-01-02 @ 100 3,315 3,762
Denver, CO, City and County Airport Improvement
Rev., 6.75%, to be called 11-15-02 @ 102 1,015 1,139
St. Louis, MO, Regional Convention and Sports
Complex Auth., Rev., 7.90%, to be called
8-01-03 @ 100 3,445 4,053
Chicago, IL, Skyway Toll Bridge, Rev., 6.75%,
to be called 1-01-04 @ 102 2,775 3,157
---------------------------------------------------------------------------
TOTAL ADVANCED REFUNDED OBLIGATIONS--16.9% 116,084
---------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ILLINOIS--7.8%
Chicago:
Gas Supply, Peoples Gas, Light and Coke Co.,
Rev., 8.10%, 2020 $ 1,250 $ 1,374
Midway Airport, Rev., 5.625%, 2029 4,000 4,018
O'Hare International Airport, International
Terminal, Special Rev., 7.625% and 8.20%, 2010
and 2024 14,775 16,525
Dev. Finance Auth.:
Catholic Health Partners Services, Rev., 5.30%,
2018 3,500 3,427
Pollution Control, Commonwealth Edison Company
Proj., Rev., 6.75%, 2015 4,220 4,715
Harvard, Multifamily Housing, Northfield Court
Proj., Rev., 9.50%, 2006 2,575 2,787
Health Facilities Auth.:
Lutheran General Health Care System, Rev., 6.00%,
2018 1,030 1,046
Methodist Health Services Corp., Rev., 8.00%,
2015 1,880 2,010
Housing Dev. Auth.:
Multifamily Housing Rev., 5.90%, 2030 1,000 1,016
Residential Mortgage, Rev., 8.10%, 2022 520 535
Regional Transportation Auth., Cook, DuPage, Kane,
Lake, McHenry and Will Counties, Rev., 6.125%,
2022 4,000 4,171
Sports Facilities Auth., Rev., 7.875%, 2010 6,000 6,400
Will County Exempt Facilities, Mobil Oil Refining
Corp. Proj., Rev., 6.00%, 2027 5,000 5,157
---------------------------------------------------------------------------
53,181
- --------------------------------------------------------------------------------------------------------------------
NEW YORK--6.2% Dormitory Auth.:
City University System, Rev., 5.625%, 2016 1,500 1,559
State University Educational Facilities, Rev.,
7.00% and 7.375%, 2014 and 2016 7,140 7,722
Energy Research and Dev. Auth., Electric
Facilities, Consolidated Edison Company, Rev.,
7.75%, 2024 13,300 13,575
Medical Care Facilities Finance Agcy., Mental
Health Services, Rev., 7.70%, 2018 1,525 1,568
New York City, Gen. Oblg., 6.125% to 7.50%, 2003
through 2025 7,405 7,881
Niagara Frontier Transportation Auth., Greater
Buffalo International Airport, Rev., 6.25%, 2024 5,750 6,142
Port Auth. of New York & New Jersey, JFK
International Air Terminal 6, Rev., 5.75%, 2025 4,000 4,132
---------------------------------------------------------------------------
42,579
- --------------------------------------------------------------------------------------------------------------------
FLORIDA--6.1% Broward County, Resource Recovery, Waste Energy
Co., Rev., 7.95%, 2008 4,140 4,514
Dade County:
Aviation Rev., 5.75%, 2026 20,400 21,029
Special Oblg., Capital Appreciation, Rev.,
zero coupon, 2022 and 2024 24,690 5,388
Escambia County, Pollution Control, Champion
International Corp. Proj., Rev., 6.40%, 2030 6,000 6,520
Greater Orlando Aviation Auth., Airport Facilities,
Rev., 8.00%, 2018 1,130 1,185
Housing Finance Agcy., Home Ownership, Rev., 8.30%,
2020 3,320 3,456
---------------------------------------------------------------------------
42,092
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Angelina & Neches River Auth., Solid Waste
TEXAS--6.1% Disposal, Champion International Corp. Proj.,
Rev., 6.30%, 2018 $ 2,350 $ 2,494
Brazos River Auth., Collateralized Pollution
Control, Utilities Electric Co. Proj., Rev.,
8.25%, 2019 11,000 11,632
College Student Loans, Gen. Oblg., 5.00%, 2021 4,015 3,776
Dallas-Fort Worth International Airport Facility
Improvement Corp., American Airlines, Inc., Rev.,
7.50%, 2025 1,500 1,632
Harris County, Criminal Justice Center, Gen. Oblg.,
5.625%, 2023 1,800 1,841
Lower Neches Valley Auth., Industrial Dev. Corp.,
Mobil Oil Refining Corp. Proj., Rev., 6.35% and
6.40%, 2026 and 2030 19,150 20,602
---------------------------------------------------------------------------
41,977
- --------------------------------------------------------------------------------------------------------------------
INDIANA--5.8% Employment Dev. Commission, Indianapolis Power and
Light Co., Rev., 7.45%, 2019 14,215 15,127
Fishers, Economic Dev. Auth., Indianapolis Water
Company Proj., Rev., 7.875%, 2019 10,000 10,281
Indianapolis, Gas Utility System Rev., 5.875%, 2024 14,000 14,643
---------------------------------------------------------------------------
40,051
- --------------------------------------------------------------------------------------------------------------------
NEW JERSEY--4.7% Economic Dev. Auth.:
Educational Testing Service, Rev., 5.875%, 2026 1,400 1,434
Water Facilities, New Jersey American Water Co.,
Inc. Proj., Rev., 6.875% and 6.00%, 2034 and
2036 20,775 22,659
Health Care Facilities Financing Auth., General
Hospital Center at Passaic, Rev., 6.75%, 2019 5,000 5,746
Housing and Mortgage Finance Agcy., Home Buyer
Rev., 7.70%, 2029 2,155 2,261
---------------------------------------------------------------------------
32,100
- --------------------------------------------------------------------------------------------------------------------
CALIFORNIA--4.5% Housing Finance Agcy., Home Mortgage, Rev., 8.30%
and 8.35%, 2019 2,015 2,079
Los Angeles County, Metropolitan Transportation
Auth., Sales Tax Rev., 6.00%, 2026 2,750 2,938
Orange County, Recovery Certificates of
Participation, 6.00%, 2026 11,500 12,290
Sacramento County, Airport System, Rev., 5.90%,
2024 5,000 5,220
State, Gen. Oblg., 5.90%, 2025 7,690 8,107
---------------------------------------------------------------------------
30,634
- --------------------------------------------------------------------------------------------------------------------
MAINE--3.5% Health and Higher Educational Facilities Auth.,
Rev., 5.70% and 7.00%, 2013 and 2024 9,320 10,122
Housing Auth., Mortgage Purchase Rev., 8.30%, 2028 30 30
Regional Waste Systems, Inc., Solid Waste Resource
Recovery, Rev., 7.85% and 8.15%, 2011 13,280 14,098
---------------------------------------------------------------------------
24,250
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Adams County, Multifamily Housing, Oasis Park
COLORADO--2.9% Apartments Proj., Rev., 6.15%, 2026 $ 6,580 $ 6,845
City and County of Denver, Airport Improvement
Rev., 6.75% to 8.50%, 2013 through 2023 9,175 10,112
Housing and Finance Auth., Single Family Program,
Rev., 7.70%, 2021 2,885 3,001
---------------------------------------------------------------------------
19,958
- --------------------------------------------------------------------------------------------------------------------
OHIO--2.7% Cuyahoga County, Meridia Health System, Hospital
Rev., 6.25%, 2024 2,350 2,499
Green Springs, Health Care Facilities Rev., 7.125%,
2025 6,000 6,481
Higher Education Facility Commission, University of
Findlay Proj., Rev., 6.15% and 6.125%, 2011 and
2016 3,635 3,777
Housing Finance Agcy., Single Family Mortgage Rev.,
7.65% to 8.25%, 2010 through 2029 5,636 5,919
---------------------------------------------------------------------------
18,676
- --------------------------------------------------------------------------------------------------------------------
ALABAMA--2.7% Docks Dept., Facilities Rev., 6.30%, 2021 8,250 8,916
Jefferson County, Sewer Rev., 5.70% to 5.75%, 2020
through 2027 9,020 9,413
---------------------------------------------------------------------------
18,329
- --------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--2.5% Hazleton Health Services Auth., Hospital Rev.,
5.625%, 2017 1,980 1,982
Lehigh County:
General Purpose Auth., Wiley House, Rev., 8.65%
and 8.75%, 2004 and 2014 5,195 5,436
Industrial Dev. Auth., Pollution Control, Rev.,
6.15%, 2029 1,500 1,615
Philadelphia, Gas Works, Rev., 6.375%, 2026 7,950 8,427
---------------------------------------------------------------------------
17,460
- --------------------------------------------------------------------------------------------------------------------
VIRGINIA--2.2% Fairfax County Economic Dev. Auth., Resource
Recovery, Ogden Martin System Proj., Rev., 7.75%,
2011 13,890 14,802
- --------------------------------------------------------------------------------------------------------------------
HAWAII--2.1% Department of Budget and Finance, Special Purpose,
Hawaiian Electric Co., Inc. Proj., Rev., 6.20%,
2026 13,200 14,082
Housing Finance and Dev. Corp., Single Family
Mortgage Rev., 8.125%, 2019 505 520
---------------------------------------------------------------------------
14,602
- --------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--2.0% Metropolitan Airports Auth., Airport System, Rev.,
5.75%, 2020 13,100 13,455
- --------------------------------------------------------------------------------------------------------------------
UTAH--1.8% Housing Finance Agcy., Single Family Mortgage Rev.,
6.65%, 2026 855 909
Intermountain Power Agcy., Power Supply System
Rev., 7.75% and 5.00%, 2020 and 2021 11,700 11,633
---------------------------------------------------------------------------
12,542
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Housing Finance Agcy., Mortgage Purchase Rev.,
VERMONT--1.8% 8.10%, 2022 $11,890 $ 12,318
- --------------------------------------------------------------------------------------------------------------------
LOUISIANA--1.7% Housing Finance Agcy., Single Family Mortgage Rev.,
8.30%, 2020 3,260 3,389
Public Facilities Auth., Lafayette General Medical
Center Proj., Rev., 6.50%, 2022 7,350 8,017
---------------------------------------------------------------------------
11,406
- --------------------------------------------------------------------------------------------------------------------
KENTUCKY--1.3% Kenton County Airport Board, Greater Cincinnati
International Airport, Rev., 8.25%, 2015 8,950 9,219
- --------------------------------------------------------------------------------------------------------------------
MISSOURI--1.3% Health and Educational Facilities Auth., Lake of
the Ozarks General Hospital Inc. Proj., Rev.,
6.50%, 2021 1,125 1,197
Housing Dev. Commission, Single Family Mortgage
Rev., 7.90%, 2021 3,630 3,779
St. Louis, Regional Convention and Sports Complex
Auth., Rev., 7.90%, 2021 155 173
West Plains, Industrial Dev. Auth., Ozarks Medical
Center Proj., Rev., 8.625%, 2020 3,600 3,930
---------------------------------------------------------------------------
9,079
- --------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--1.3% Bay Transportation Auth., General Transportation
System, Rev., 5.625%, 2026 1,900 1,930
Port Auth., Special Facilities, US Air Project,
Rev., 5.875%, 2023 6,755 7,036
---------------------------------------------------------------------------
8,966
- --------------------------------------------------------------------------------------------------------------------
MICHIGAN--1.2% Chippewa County, Warren Memorial Hospital, Rev.,
5.625%, 2014 1,500 1,497
Monroe County, Pollution Control, Detroit Edison
Proj., 7.75%, 2019 6,500 7,051
---------------------------------------------------------------------------
8,548
- --------------------------------------------------------------------------------------------------------------------
NEBRASKA--1.2% Investment Finance Auth., Single Family Housing
Rev., 6.70%, 2026 7,500 7,960
- --------------------------------------------------------------------------------------------------------------------
NEW MEXICO--1.1% Mortgage Finance Auth., Single Family Mortgage
Rev., 8.30% and 7.80%, 2020 and 2021 6,520 6,902
- --------------------------------------------------------------------------------------------------------------------
MARYLAND--1.0% Howard County, Multifamily Housing, Braeland and
Eden Commons Projs., Rev., 6.20%, 2023 6,750 6,758
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ID, Housing Agcy., Single Family Mortgage Rev.,
STATES LESS THAN 7.875% and 6.90%, 2021 and 2025 $ 4,915 $ 5,166
ONE PERCENT--5.4% IA, Housing Finance Auth., Single Family Mortgage
Rev., 7.90%, 2022 6,120 6,406
MN, Housing Finance Agcy., Single Family Mortgage
Rev., 7.95% and 8.00%, 2022 and 2029 4,575 4,767
NC, Housing Finance Agcy., Single Family Mortgage
Rev., 7.85%, 2028 3,425 3,614
ND, Housing Finance Agcy., Single Family Mortgage
Rev., 8.375%, 2021 650 682
NH, Higher Educational and Health Facilities Auth.,
Nashua Memorial Hospital, Rev., 6.00%, 2023 3,000 3,085
NV, Clark County, Industrial Dev., Power Co. Proj.,
Rev., 6.70%, 2022 1,750 1,904
OK, Turnpike Auth., Turnpike System Rev., 7.875%,
2021 355 375
SC, Oconee County, Pollution Control, Duke Power
Co. Proj., Rev., 7.75%, 2017 3,500 3,727
WA, Grant County, Public Utility District #2,
Wanapum HydroElectric, Rev., 5.875%, 2031 1,575 1,635
WA, Public Power Supply System, Nuclear Proj. #3,
Rev., 5.60%, 2015 3,000 3,063
WI, Housing & Economic Dev. Auth., Home Ownership,
Rev., 6.20%, 2027 2,500 2,603
---------------------------------------------------------------------------
37,027
---------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--80.9% 554,871
---------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--97.8%
(Cost: $622,750) 670,955
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--4.10% to 4.50%
INSTRUMENTS--.6% Due--December, 1997
(Cost: $4,500) 4,500 4,500
---------------------------------------------------------------------------
TOTAL INVESTMENTS--98.4%
(Cost: $627,250) 675,455
---------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES--1.6% 10,724
---------------------------------------------------------------------------
NET ASSETS--100% $686,179
---------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
Based on the cost of investments of $627,250,000 for federal income tax purposes
at November 30, 1997, the gross unrealized appreciation was $48,213,000, the
gross unrealized depreciation was $8,000 and the net unrealized appreciation on
investments was $48,205,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER MUNICIPAL INCOME TRUST
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Municipal Income Trust as of
November 30, 1997, and 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 1993.
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, 1997, 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, 1997, 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 1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 20, 1998
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $627,250) $675,455
- ------------------------------------------------------------------------
Receivable for:
Investments sold 443
- ------------------------------------------------------------------------
Interest 13,681
- ------------------------------------------------------------------------
TOTAL ASSETS 689,579
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Cash overdraft 2,880
- ------------------------------------------------------------------------
Payable for:
Management fee 223
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 61
- ------------------------------------------------------------------------
Trustees' fees and other 236
- ------------------------------------------------------------------------
Total liabilities 3,400
- ------------------------------------------------------------------------
NET ASSETS $686,179
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
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, 38,210 shares outstanding 382
- ------------------------------------------------------------------------
Paid-in surplus 423,534
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (13,378)
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 48,205
- ------------------------------------------------------------------------
Undistributed net investment income 12,436
- ------------------------------------------------------------------------
NET ASSETS $686,179
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET ASSET VALUE PER COMMON SHARE
(net assets less remarketed preferred shares at liquidation
value divided by common shares outstanding) $12.33
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Interest income $44,814
- -----------------------------------------------------------------------
Expenses:
Management fee 3,638
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 267
- -----------------------------------------------------------------------
Registration and remarketing fees 530
- -----------------------------------------------------------------------
Professional fees 75
- -----------------------------------------------------------------------
Reports to shareholders 60
- -----------------------------------------------------------------------
Trustees' fees and other 132
- -----------------------------------------------------------------------
Total expenses 4,702
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 40,112
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized gain on sales of investments 1,008
- -----------------------------------------------------------------------
Net realized loss from futures transactions (217)
- -----------------------------------------------------------------------
Net realized gain 791
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments 389
- -----------------------------------------------------------------------
Net gain on investments 1,180
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $41,292
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996
- -------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 40,112 40,573
- -------------------------------------------------------------------------------------------
Net realized gain 791 577
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) 389 (4,207)
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 41,292 36,943
- -------------------------------------------------------------------------------------------
Distribution from net investment income:
Common shares (33,315) (32,977)
- -------------------------------------------------------------------------------------------
Remarketed preferred shares (7,709) (7,662)
- -------------------------------------------------------------------------------------------
Total dividends to shareholders (41,023) (40,639)
- -------------------------------------------------------------------------------------------
Proceeds from common shares issued in reinvestment of
dividends (347 and 409 shares, respectively) 4,667 5,255
- -------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 4,936 1,559
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------
Beginning of year 681,243 679,684
- -------------------------------------------------------------------------------------------
END OF YEAR (including undistributed
net investment income of
$12,436 and $13,362, respectively) $686,179 681,243
- -------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES DESCRIPTION OF FUND. Kemper Municipal Income Trust
(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. 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, 1997, amounting to approximately
$9,053,000, is available to offset future taxable
gains. If not applied, the loss carryover expires
during the period 2003 through 2006.
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.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
2 TRANSACTIONS WITH
AFFILIATES INVESTMENT MANAGER COMBINATION. Zurich Insurance
Company, the parent of Zurich Kemper Investments,
Inc. (ZKI), has acquired a majority interest in
Scudder, Stevens & Clark, Inc. (Scudder), another
major investment manager. At completion of this
transaction on December 31, 1997, Scudder changed
its name to Scudder Kemper Investments, Inc.
(Scudder Kemper) and the operations of ZKI were
combined with Scudder Kemper. In addition, the name
of the Fund's shareholder service agent was changed
to Kemper Service Company (KSvC).
MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper and pays a management
fee at an annual rate of .55% of average weekly net
assets. The Fund incurred a management fee of
$3,638,000 for the year ended November 30, 1997.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
KSvC is the shareholder service agent of the Fund.
Under the agreement, KSvC received shareholder
services fees of $62,000 for the year ended
November 30, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. During the year ended November 30,
1997, the Fund made no payments to its officers and
incurred trustees' fees of $47,000 to independent
trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the year ended November 30, 1997, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<S> <C>
Purchases $71,317
Proceeds from sales 66,293
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE FOR A COMMON SHARE
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 12.31 12.41 11.12 13.25 12.45
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 1.04 1.07 1.10 1.10 1.16
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .05 (.10) 1.29 (1.84) .66
- ------------------------------------------------------------------------------------------------------
Total from investment operations 1.09 .97 2.39 (.74) 1.82
- ------------------------------------------------------------------------------------------------------
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 .20 .23 .16 .15
- ------------------------------------------------------------------------------------------------------
Distribution from net realized gain to common
shareholders -- -- -- .36 --
- ------------------------------------------------------------------------------------------------------
Total dividends 1.07 1.07 1.10 1.39 1.02
- ------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 12.33 12.31 12.41 11.12 13.25
- ------------------------------------------------------------------------------------------------------
Market value, end of year $ 14.13 13.13 12.63 11.00 12.75
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN PER COMMON SHARE
- ------------------------------------------------------------------------------------------------------
Based on net asset value 7.57% 6.56 20.00 (7.36) 13.80
- ------------------------------------------------------------------------------------------------------
Based on market value 15.16% 11.57 23.55 (4.66) 8.04
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------------
(Ratios exclude the effect of dividends to preferred shareholders)
Expenses .69% .72 .69 .70 .69
- ------------------------------------------------------------------------------------------------------
Net investment income 5.92% 6.03 6.23 6.13 6.20
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------
Net assets at end of year, net of remarketed
preferred shares (in thousands) $471,179 466,243 464,684 414,790 493,108
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 7% 26 19 12 17
- ------------------------------------------------------------------------------------------------------
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 $ 16,000 15,800 15,800 14,600 16,500
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 1997 DIVIDENDS:
All of the dividends paid from net investment income by the Fund constitute
tax-exempt interest that is not taxable for federal income tax purposes;
however, a portion of the dividends paid may be includable in the
alternative minimum tax calculation.
19
<PAGE> 20
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
1 PARTICIPATION We invite you to review the description of the
Dividend Reinvestment Plan (the "Plan") which is
available to you as a shareholder of KEMPER
MUNICIPAL INCOME TRUST (the "Fund"). If you wish to
participate and your shares are held in your own
name, simply contact Kemper Service Company, whose
address and phone number are provided in Paragraph
4 for the appropriate form. If your shares are held
in the name of a brokerage firm, bank, or other
nominee, you must instruct that nominee to
re-register your shares in your name so that you
may participate in the Plan, unless your nominee
has made the Plan available on shares held by them.
Shareholders who so elect will be deemed to have
appointed United Missouri Bank, n.a. ("UMB") as
their agent and as agent for the Fund under the
Plan.
- --------------------------------------------------------------------------------
2 DIVIDEND INVESTMENT
ACCOUNT The Fund's transfer agent and dividend disbursing
agent or its delegate ("Agent") will establish a
Dividend Investment Account (the "Account") for
each shareholder participating in the Plan. Agent
will credit to the Account of each participant
funds it receives from the following sources: (a)
cash dividends and capital gains distributions paid
on shares of beneficial interest (the "Shares") of
the Fund registered in the participant's name on
the books of the Fund; (b) cash dividends and
capital gains distributions paid on Shares
registered in the name of Agent but credited to the
participant's Account. Sources described in clauses
(a) and (b) of the preceding sentence are
hereinafter called "Distribution."
- --------------------------------------------------------------------------------
3 INVESTMENT OF
DISTRIBUTION FUNDS
HELD IN EACH ACCOUNT If on the record date for a Distribution (the
"Record Date"), Shares are trading at a discount
from net asset value per Share (according to the
evaluation most recently made on Shares of the
Fund), funds credited to a participant's Account
will be used to purchase Shares (the "Purchase").
UMB will attempt, commencing five days prior to the
Payment Date and ending at the close of business on
the Payment Date ("Payment Date" as used herein
shall mean the last business day of the month in
which such Record Date occurs), to acquire Shares
in the open market. If and to the extent that UMB
is unable to acquire sufficient Shares to satisfy
the Distribution by the close of business on the
Payment Date, the Fund will issue to UMB Shares
valued at net asset value per Share (according to
the evaluation most recently made on Shares of the
Fund) in the aggregate amount of the remaining
value of the Distribution. If, on the Record Date,
Shares are trading at a premium over net asset
value per Share, the Fund will issue on the Payment
Date, Shares valued at net asset value per Share on
the Record Date to Agent in the aggregate amount of
the funds credited to the participants' accounts.
- --------------------------------------------------------------------------------
4 ADDITIONAL
INFORMATION Address all notices, correspondence, questions, or
other communication regarding the Plan to:
KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, Missouri 64141-6066
1-800-294-4366
20
<PAGE> 21
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
5 ADJUSTMENT OF
PURCHASE PRICE The Fund will increase the price at which Shares
may be issued under the Plan to 95% of the fair
market value of the shares on the Record Date if
the net asset value per Share of the Shares on the
Record Date is less than 95% of the fair market
value of the Shares on the Record Date.
- --------------------------------------------------------------------------------
6 DETERMINATION OF
PURCHASE PRICE The cost of Shares and fractional Shares acquired
for each participant's Account in connection with a
Purchase shall be determined by the average cost
per Share, including brokerage commissions as
described in Paragraph 7 hereof, of the Shares
acquired by UMB in connection with that Purchase.
Shareholders will receive a confirmation showing
the average cost and number of Shares acquired as
soon as practicable after Agent has received or UMB
has purchased Shares. Agent may mingle the cash in
a participant's account with similar funds of other
participants of the Fund for whom UMB acts as agent
under the Plan.
- --------------------------------------------------------------------------------
7 BROKERAGE CHARGES There will be no brokerage charges with respect to
Shares issued directly by the Fund as a result of
Distributions. However, each participant will pay a
pro rata share of brokerage commissions incurred
with respect to UMB's open market purchases in
connection with the reinvestment of Distributions.
Brokerage charges for purchasing small amounts of
Shares for individual Accounts through the Plan can
be expected to be less than the usual brokerage
charges for such transactions, as UMB will be
purchasing Shares for all participants in blocks
and prorating the lower commission thus attainable.
- --------------------------------------------------------------------------------
8 SERVICE CHARGES There is no service charge by Agent or UMB to
shareholders who participate in the Plan other than
service charges specified in Paragraph 12 hereof.
However, the Fund reserves the right to amend the
Plan in the future to include a service charge.
- --------------------------------------------------------------------------------
9 TRANSFER OF SHARES
HELD BY AGENT Agent will maintain the participant's Account, hold
the additional Shares acquired through the Plan in
safekeeping and furnish the participant with
written confirmation of all transactions in the
Account. Shares in the Account are transferable
upon proper written instructions to Agent. Upon
request to Agent, a certificate for any or all full
Shares in a participant's Account will be sent to
the participant.
- --------------------------------------------------------------------------------
10 SHARES NOT HELD IN
SHAREHOLDER'S
NAME Beneficial owners of Shares which are held in the
name of a broker or nominee will not be
automatically included in the Plan and will receive
all distributions in cash. Such shareholders should
contact the broker or nominee in whose name their
Shares are held to determine whether and how they
may participate in the Plan.
- --------------------------------------------------------------------------------
11 AMENDMENTS Experience under the Plan may indicate that changes
are desirable. Accordingly, the Fund reserves the
right to amend or terminate the Plan, including
provisions with respect to any Distribution paid
subsequent to notice thereof sent to participants
in the Plan at least ninety days before the record
date for such Distribution.
21
<PAGE> 22
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.
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13 TAX IMPLICATIONS Shareholders will receive tax information annually
for personal records and to assist in preparation
of their Federal income tax return. If shares are
purchased at a discount, the amount of the discount
is considered taxable income and is added to the
cost basis of the purchased shares.
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
JAMES E. AKINS DANIEL PIERCE
Trustee Chairman of the Board
ARTHUR R. GOTTSCHALK MARK S. CASADY
Trustee President
FREDERICK T. KELSEY PHILIP J. COLLORA
Trustee Vice President,
DANIEL PIERCE Secretary and Treasurer
Trustee JERARD K. HARTMAN
FRED B. RENWICK Vice President
Trustee THOMAS W. LITTAUER
JOHN B. TINGLEFF Vice President
Trustee ANN M. MCCREARY
EDMOND D. VILLANI Vice President
Trustee CHRISTOPHER J. MIER
JOHN G. WEITHERS Vice President
Trustee ROBERT C. PECK, JR.
Vice President
KATHRYN L. QUIRK
Vice President
LINDA J. WONDRACK
Vice President
JOHN R. HEBBLE
Assistant Treasurer
MAUREEN E. KANE
Assistant Secretary
CAROLINE PEARSON
Assistant Secretary
ELIZABETH C. WERTH
Assistant Secretary
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LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- -------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419066
Kansas City, MO 64141
- -------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
Printed on recycled paper.
KMIT - 2 (1/98) 1042040
Printed in the U.S.A.
[KEMPER FUNDS LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
