<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MAY 31, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD (SM)
KEMPER
MUNCIPAL INCOME TRUST
"...We concentrated on keeping the
fund fully invested in solid muncipal bond
issues throughout the period..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
INDUSTRY SECTORS PORTFOLIO STATISTICS
8
PORTFOLIO OF INVESTMENTS
14
FINANCIAL STATEMENTS
16
NOTES TO FINANCIAL STATEMENTS
18
FINANCIAL HIGHLIGHTS
19
SHAREHOLDERS' MEETING
AT A GLANCE
- --------------------------------------------------------------------------------
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1998
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER MUNICIPAL
INCOME TRUST 3.90% -1.17%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- --------------------------------------------------------------------------------
AS OF AS OF
5/31/98 11/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $12.37 $12.33
- --------------------------------------------------------------------------------
MARKET PRICE $13.50 $14.13
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF MAY 31, 1998.
<TABLE>
<CAPTION>
KEMPER
MUNICIPAL
INCOME TRUST
- --------------------------------------------------------------------------------
<S> <C>
SIX-MONTHS INCOME: $0.4350
- --------------------------------------------------------------------------------
MAY DIVIDEND: $0.0725
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 7.03%
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 6.44%
- --------------------------------------------------------------------------------
TAX EQUIVALENT DISTRIBUTION
RATE: (BASED ON NET ASSET VALUE AND A
37.1% FEDERAL INCOME TAX RATE) 11.18%
- --------------------------------------------------------------------------------
TAX EQUIVALENT DISTRIBUTION
RATE: (BASED ON MARKET PRICE AND A
37.1% FEDERAL INCOME TAX RATE) 10.24%
- --------------------------------------------------------------------------------
</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
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period, assuming the
reinvestment of all dividends. It represents the aggregate percentage or dollar
value change over the period. Total return may be based upon net asset value or
market price.
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.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
Dr. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS. HE IS ALSO A MEMBER OF THE INVESTMENT POLICY AND STRATEGY COMMITTEE
FOR KEMPER FUNDS.
SILVIA HOLDS BACHELOR OF ARTS AND PH.D. DEGREES IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND HAS A MASTER'S DEGREE IN ECONOMICS FROM BROWN
UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS
WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $218 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 COMPLEXES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
Stable economic growth, low interest rates and sustained low inflation continued
to produce a beneficial market environment for investors in the second quarter
of 1998. Despite heightened sensitivity to earnings estimates and announcements,
the economy continued to support financial assets. We expect this favorable
climate to continue -- in spite of the sensitivity -- at least over the shorter
term.
As always, expectations have been at the heart of the actions and reactions
that move the markets. Expectations appear to be high, as demonstrated by a
record flow of new cash into mutual funds. As of April 30, 1998, a record $5
trillion in mutual fund assets surpassed total assets of the nation's banks,
according to the Investment Company Institute, a trade organization that
monitors the mutual fund industry, and the Federal Reserve Bank in Washington.
Unfortunately, high expectations often combine with high anxiety -- today's
investors are attuned to even the smallest hint of economic change. The result
is volatility. Many who believe that our long-running bull market is too good to
be true or that stock prices are too high are wondering when the market will
reverse.
While a reversal may not be on the immediate horizon, investors are wise to
watch for several signs that change is underway: rising prices, indicating
higher inflation; repercussions of the Asian economic crisis on American
business, which could appear in the form of reduced earnings; and a continued
widening of our trade deficit, a serious imbalance caused by heightened American
demand for foreign goods and services.
But at its monetary policy meeting at the end of the second quarter, the
Federal Reserve Board (the Fed) again chose to leave interest rates alone. In
the coming months, the Fed could raise interest rates if inflation accelerates
or if growth appears to be too rapid compared to the Fed's expectations.
Our positive outlook for the short term is based primarily on the current
resiliency of our marketplace. The United States appears to be firmly planted in
the middle of an economic cycle, with no evidence of detrimental pressures that
might be associated with the market's phenomenal growth. We are not seeing
widespread price increases for goods and services or a downturn in the housing
market, both of which we might expect late in an economic cycle.
Equities have continued to reward investors. The U.S. stock market, as
measured by the Standard & Poor's 500, gained nearly 18 percent in the first
half of 1998 but just 3.5 percent in the second quarter as profit concerns moved
front and center. Bonds in 1998 have also rewarded investors in terms of real
return, which is total return less the rate of inflation. The Treasury and high
yield debt markets have performed particularly well.
U.S. economic growth, as measured by the gross domestic product (GDP) growth
rate, was slightly above 5 percent for the first quarter. Our general
expectation for the year is that growth in all of 1998 will increase between 2.5
and 3 percent over last year. In other words, the economy will remain strong,
but will continue to slow down as the year progresses.
Consumer spending and corporate fixed investment have fueled the economy's
solid growth. Spending on both capital goods and high technology has been
strong. Corporate profit growth has continued to slow, which appears to be
acceptable to investors in an environment of stable interest rates. U.S.
employment growth has ranged from 2 to 2.25 percent, continuing to exceed
expectations. Consumer confidence has remained at all-time highs. The increase
in output prices, an indicator of inflation measured by the Consumer Price Index
(CPI), has stayed at 1.5 to 2 percent.
Adding to the good news, all seems to be quiet on the domestic policy front.
At the end of February, the U.S. federal budget deficit essentially vanished.
Recent efforts to reduce the deficit, combined with higher federal revenues due
to the robust economy, have left us with an expected budget surplus of $60
billion to $80 billion for fiscal 1998. To date, our Democratic president and
Republican Congress have not agreed on any significant legislation regarding tax
credits, spending cuts or health care that could threaten the newfound federal
budget surplus.
Can we expect a little more excitement from overseas? A full-scale global
recession from last year's Asian economic crisis seems unlikely at this point.
Although the crisis has impacted exporters in particular, it has yet to hurt
most U.S. businesses and investors. Quite the
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 (6/30/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <S> <C>
10-YEAR TREASURY RATE(1) 5.5 5.54 6.22 6.87
PRIME RATE(2) 8.5 8.5 8.5 8.25
INFLATION RATE(3)* 1.75 1.7 2.3 2.82
THE U.S. DOLLAR(4) 9.54 9.32 7.32 8.35
CAPITAL GOODS ORDERS(5)* 10.51 14.37 8.58 2.44
INDUSTRIAL PRODUCTION(5)* 4.42 5.74 3.91 3.99
EMPLOYMENT GROWTH(6) 2.62 2.88 2.56 2.23
</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 May 31, 1998.
contrary. While the mere threat of repercussions from the Asian crisis added to
the anxiety mentioned earlier, it has also had the effect of keeping U.S.
interest rates and prices in check, making the U.S. economy all the more
attractive to investors around the world.
In the global economy, the U.S. dollar continues to appreciate in value
compared to other currencies. In fact, more capital is flowing into U.S.
markets as investors generally avoid Asia. Europe also has been benefiting from
the crisis. Canada, which is a commodity-producing exporter, has been somewhat
negatively affected as commodity prices have fallen. Political unrest in
Indonesia, nuclear tests in India and Pakistan and economic turmoil in Russia
have been keeping international investors on the edges of their seats.
Other major developments abroad include the final selection of
countries to participate in Europe's single currency next year. Many European
countries are adopting more restrictive fiscal policy and reducing inflation in
anticipation of their momentous entry into the European Economic and Monetary
Union (EMU). But after the EMU is established in 1999, tensions may indeed
mount as countries work to adapt to the new structure.
As we approach the turn of the century, one caveat remains: Don't
underestimate the potential of the Year 2000 computer code problem. It appears
that a significant number of federal government agencies will not meet the
criteria necessary to avoid the problem. Many businesses are revealing that
billions of dollars are being spent on the situation. Some experts say a global
recession is in store. Others adamantly disagree. In any event, we may indeed
see a reduction in capital spending toward the of 1998 and the first half of
next year as companies focus on fixing existing computers rather than on
purchasing new equipment. We'll keep you posted!
Thank you for your continued support. We appreciate the opportunity to
serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
July 10, 1998
4
<PAGE> 5
PERFORMANCE UPDATE
[MIER PHOTO]
CHRISTOPHER MIER JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1986 AND IS A
MANAGING DIRECTOR. MIER IS A VICE PRESIDENT AND PORTFOLIO MANAGER OF KEMPER
MUNICIPAL INCOME TRUST. MIER RECEIVED A BACHELOR'S DEGREE IN ECONOMICS FROM THE
UNIVERSITY OF MICHIGAN AND EARNED HIS M.M. IN FINANCE FROM THE KELLOGG GRADUATE
SCHOOL OF MANAGEMENT AT NORTHWESTERN UNIVERSITY. HE IS A CHARTERED FINANCIAL
ANALYST.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
KEMPER MUNICIPAL INCOME TRUST EXPERIENCED STRONG PERFORMANCE DURING THE
SIX-MONTH PERIOD AGAINST A BACKDROP OF RECORD LOW INFLATION, HIGH NEW
ISSUE VOLUME AND THE ASIAN MARKETS AND CURRENCIES CRISIS. PORTFOLIO MANAGER
CHRIS MIER EXPLAINS HOW THESE FACTORS AFFECTED THE FUNDS AND MUNICIPAL MARKET
AND WHAT HE EXPECTS FOR THE REMAINDER OF THE FUND'S FISCAL YEAR.
Q KEMPER MUNICIPAL INCOME TRUST PERFORMED WELL DURING THE SIX-MONTH PERIOD
ENDED MAY 31, 1998, WITH A TOTAL RETURN BASED ON NET ASSET VALUE OF 3.90 PERCENT
COMPARED TO THE LIPPER ANALYTICAL SERVICE'S GENERAL MUNICIPAL DEBT CATEGORY
AVERAGE OF 4.06 PERCENT. TO WHAT DO YOU ATTRIBUTE THIS PERFORMANCE?
A We concentrated on keeping the fund fully invested in solid municipal bond
issues throughout the period, which can help explain its performance. With a
closed-end fund, we don't adjust the duration of the portfolio with the same
level of activity as we do in our open-end municipal bond fund.
However, I want to add a reminder that 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. Since the fund's creation
in 1988, it has not experienced a dividend cut or missed a monthly dividend,
something we feel investors value.
Q THE DIVIDEND WAS STABLE THROUGHOUT THE PERIOD, BUT THE MARKET PRICE FELL
THREE MONTHS IN A ROW. WHY?
A Market price made a big comeback in May when it gained 5.97 percent after
falling in February, March and April. We announced in February we were lowering
the dividend of Kemper Strategic Municipal Income Trust. In my view, I think the
implication of the cut for Kemper Strategic Municipal Income Trust had a
negative impact on this fund. It's also my opinion that once it was clear a cut
was not in the plans for Kemper Municipal Income Trust, the fund benefited,
resulting in the comeback in May.
Q WHAT OVERALL MARKET FACTORS AFFECTED THE MUNICIPAL BOND MARKET DURING
THESE SIX MONTHS?
A Strong economic growth, lower-than-expected inflation, declining interest
rates and, of course, the continuation of the Southeast Asian currency and
market crisis were the main four factors that affected the municipal bond market
from December 1, 1997 through May 31, 1998.
Q YOU MENTION THE SOUTHEAST ASIAN CURRENCY AND MARKET CRISIS AS A FACTOR
AFFECTING THE BOND MARKET. COULD YOU EXPLAIN THE EFFECT THE CRISIS HAD ON THE
MARKET?
A When the Hong Kong stock market followed other Asian markets and crashed
last fall, investors worldwide sought safe investment vehicles. U.S. dollar and
dollar-denominated investments, particularly those of high quality and
liquidity, such as U.S. Treasuries, experienced a massive cash inflow. This is
generally referred to as "flight to quality." The municipal bond market, which
often moves in tandem with the Treasury market, benefited from the resulting
declining interest rate environment.
5
<PAGE> 6
PERFORMANCE UPDATE
Q THE AMOUNT OF NEW MUNICIPAL ISSUES CONTINUES AT A HEAVY RATE. WHAT EFFECT
DID THIS HAVE ON THE MARKET AND THE FUND'S PERFORMANCE?
A The volume of new issues forced municipal rates to stay attractive
relative to their taxable counterparts. Municipal rates were about 92.5 percent
of a 30-year Treasury bond at the end of the fund's six-month period.
Q DO YOU ANTICIPATE THIS HIGH VOLUME TO CONTINUE?
A The elevated supply was due to two factors -- declining interest rates,
which led to an increase in advanced refunding issues, and continued growth in
new project financing. The economy has been strong with inflation not much of a
threat, so municipalities can afford to undertake large capital improvements and
other projects that municipal bonds are issued to finance. New issue volume has
been increasing year over year, and while it will have to subside at some point,
I don't see any signs of slowing yet.
Q HOW HAS THE DIRECTION OF INTEREST RATES AFFECTED THE MARKET?
A Throughout half of this period, the Federal Reserve Board (the Fed) had
indicated a bias toward tightening rates because of strong domestic growth. When
the economy expands too quickly, inflation becomes a threat. The Fed was poised
to slow that growth by raising interest rates. However, minutes released in
February indicated the Fed went to a neutral bias at its December meetings
because it was becoming apparent the Asian crisis would have a deflationary
effect and offset our very strong economy to some degree. When the Fed met again
in March, it again made no move to change rates.
Q EL NINO AND OTHER UNUSUAL WEATHER HAVE PLAGUED MUCH OF THE U.S. WILL THE
COSTS ASSOCIATED WITH REBUILDING AFFECT A MUNICIPALITY'S ABILITY TO REPAY THEIR
OBLIGATIONS?
A When a natural disaster occurs, cities, counties and states receive a
great deal of federal money and insurance money to repair whatever has been
destroyed, so a disaster isn't generally as much of a financial drain as would
be expected.
Q WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET?
A The market is likely to be relatively range bound, and prices should
remain somewhat stable. I do think rates will trend lower again once the
domestic economy begins to slow somewhat due to the effect from the Asian
problems.
Q IS THIS STILL A GOOD TIME TO BE IN MUNICIPALS?
A I think municipals are quite attractive right now. They're at high yield
percentages to Treasuries and offer attractive real rates of interest because of
our current low rate of inflation. If supply begins to taper off and the economy
begins to slow, that should be more good news for the fund.
YEAR 2000
YEAR 2000 ISSUE
Like other registered investment companies and financial and business
organizations worldwide, the fund could be adversely affected if computer
systems on which the fund relies, which primarily include those used by the
Manager, its affiliates or other service providers, are unable to correctly
process date-related information on and after January 1, 2000. This risk is
commonly called the Year 2000 Issue. Failure to successfully address the Year
2000 Issue could result in interruptions to and other material adverse effects
on the fund's business and operations. The Manager has commenced a review of the
Year 2000 Issue as it may affect the fund and is taking steps it believes are
reasonably designed to address the Year 2000 Issue, although there can be no
assurances that these steps will be sufficient. In addition, there can be no
assurances that the Year 2000 Issue will not have an adverse effect on the
municipalities whose securities are held by the fund or on global markets or
economies generally.
6
<PAGE> 7
INDUSTRY SECTORS
THE FUND'S FIVE LARGEST SECTORS*
REPRESENTING 62 PERCENT OF THE FUND'S TOTAL NET ASSETS ON MAY 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------
<S> <C> <C>
1. U.S. GOVERNMENT SECURED 16%
2. ELECTRICITY BONDS 14%
3. AIRPORT BONDS 13%
4. WASTE DISPOSAL BONDS 10%
5. SINGLE FAMILY HOUSING STATE BONDS 9%
</TABLE>
PORTFOLIO STATISTICS
SECURITIES RATINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 5/31/98 ON 11/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 57% 51%
- --------------------------------------------------------------------------------
AA 16 15
- --------------------------------------------------------------------------------
A 11 14
- --------------------------------------------------------------------------------
BBB 11 13
- --------------------------------------------------------------------------------
BB 1 --
- --------------------------------------------------------------------------------
Not rated 4 7
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 5/31/98 ON 11/30/97
The ratings of Standard & Poor's Corporation (S&P) and Moody's Investors
Services, Inc. (Moody's) represent their opinions as to the quality of
securities that they undertake to rate. The percentage shown reflects the
higher of Moody's or S&P ratings. Portfolio composition will change over time.
Ratings are relative and subjective and not absolute standards of quality.
AVERAGE MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 5/31/98 ON 11/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
Average Maturity 19.9 years 20.1 years
- --------------------------------------------------------------------------------
</TABLE>
*PORTFOLIO HOLDINGS AND COMPOSITION ARE SUBJECT TO CHANGE.
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
KEMPER MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS AT MAY 31, 1998 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL VALUE
AMOUNT
- --------------------------------------------------------------------------------------------------------------------
ADVANCED REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL
AND INTEREST BY UNITED STATES GOVERNMENT SECURITIES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Greater Orlando, FL, Aviation Auth., Airport
Facilities Rev., 8.00%, to be called 10-1-98 @
102 $ 120 $ 124
Health Facilities Auth., IL, Methodist Health
Services Corp., Rev., 8.00%, to be called 2-1-99
@ 103 1,880 1,988
Puerto Rico, Gen. Oblg., 7.75%, to be called
7-1-99 @ 101.50 5,020 5,306
New York City, NY, Gen. Oblg., 7.50%,
to be called 8-1-99 @ 101.50 7,670 8,106
Health Facilities Auth., IL, Bethany Home and
Hospital of the Methodist Church, Rev., 8.625%,
to be called 2-15-00 @ 102 6,470 7,083
Health Care Facilities Auth., WA, Rev., 7.75%,
to be called 5-1-00 @ 102 4,200 4,570
Dormitory Auth., NY, State University Educational
Facilities, Rev., 7.375%, to be called 5-15-00 @
102 1,355 1,469
Volusia County, FL, Health Facilities Auth.,
Memorial Health Systems Proj., Rev., 8.25% to be
called 6-1-00 @ 102 7,000 7,692
Public Power Supply System, WA, Nuclear Proj. #2,
Rev., 7.00%, to be called 7-1-00 @ 102 15,500 16,713
West Plains, MO, Industrial Dev. Auth., Ozarks
Medical Center Proj., Rev., 8.625%,
to be called 9-15-00 @ 102 3,600 4,028
Denver, CO, City and County Airport Improvement
Rev., 8.50%, to be called 11-15-00 @ 102 390 438
Greene County, PA, Gen. Oblg., 8.75%,
to be called 12-1-00 @ 100 2,945 3,277
Urban Dev. Corp., NY, State Facilities, Rev.,
7.50%, to be called 4-1-01 @ 102 6,695 7,440
Housing Finance Agcy., NY, Service Contract, Rev.,
7.375%, to be called 3-15-02 @ 102 3,000 3,398
Dormitory Auth., NY, State University Educational
Facilities, Rev., 7.25%, to be called 5-15-02 @
102 5,000 5,663
Tulsa, OK, Airport Improvement Trust, Rev., 7.70%,
to be called 6-1-02 @ 100 3,315 3,739
Denver, CO, City and County Airport Improvement
Rev., 6.75%, to be called 11-15-02 @ 102 1,015 1,140
St. Louis, MO, Regional Convention and Sports
Complex Auth., Rev., 7.90%, to be called
8-1-03 @ 100 3,445 4,045
Chicago, IL, Skyway Toll Bridge, Rev., 6.75%,
to be called 1-1-04 @ 102 2,775 3,170
Gen. Oblg., CA, 5.90%, to be called 3-1-05 @ 101 7,410 8,211
Cuyahoga County, OH, Meridia Health System,
Hospital Rev., 6.25%, to be called 8-15-05 @ 102 2,350 2,676
Bay Transportation Auth., MA, General
Transportation System, Rev., 5.625%, to be
called 3-1-06 @ 101 1,900 2,073
Dade County, FL, Special Oblg., Capital
Appreciation, Rev., zero coupon, to be called
10-1-08 @ 42.76 7,735 2,076
Dade County, FL, Special Oblg., Capital
Appreciation, Rev., zero coupon, to be called
10-1-08 @ 37.66 16,955 4,009
---------------------------------------------------------------------------
TOTAL ADVANCED REFUNDED OBLIGATIONS--15.8% 108,434
---------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL VALUE
AMOUNT
- --------------------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ILLINOIS--7.4%
Chicago:
Gas Supply, Peoples Gas, Light and Coke Co.,
Rev., 8.10%, 2020 $ 1,250 $ 1,362
Midway Airport, Rev., 5.625%, 2029 4,000 4,130
O'Hare International Airport, International
Terminal, Special Rev., 7.625% and 8.20%, 2010
and 2024 14,775 16,402
Dev. Finance Auth.:
Catholic Health Partners Services, Rev., 5.30%,
2018 3,500 3,519
Pollution Control, Commonwealth Edison Company
Proj., Rev., 6.75%, 2015 4,220 4,764
Harvard, Multifamily Housing, Northfield Court
Proj., Rev., 9.50%, 2006 2,575 2,776
Health Facilities Auth, Lutheran General Health
Care System, Rev., 6.00%, 2018 1,030 1,062
Housing Dev. Auth.:
Multifamily Housing Rev., 5.90%, 2030 1,000 1,031
Residential Mortgage, Rev., 8.10%, 2022 360 368
Regional Transportation Auth., Cook, DuPage, Kane,
Lake, McHenry and Will Counties, Rev.,
6.125%, 2022 4,000 4,216
Sports Facilities Auth., Rev., 7.875%, 2010 6,000 6,331
Will County Exempt Facilities, Mobil Oil Refining
Corp. Proj., Rev., 6.00%, 2027 5,000 5,320
---------------------------------------------------------------------------
51,281
- --------------------------------------------------------------------------------------------------------------------
TEXAS--7.3% Angelina & Neches River Auth., Solid Waste
Disposal, Champion International Corp. Proj.,
Rev., 6.30%, 2018 2,350 2,533
Brazos River Auth.:
Collateralized Pollution Control, Utilities
Electric Co. Proj., Rev., 5.125% and 8.25%,
2019 11,000 11,459
Houston Industries, Inc. Proj., Rev., 5.125%,
2019 5,000 4,934
College Student Loans, Gen. Oblg., 5.00%, 2021 4,015 3,814
Dallas-Fort Worth International Airport Facility
Improvement Corp., American Airlines, Inc.,
Rev., 7.50%, 2025 1,500 1,618
Harris County, Criminal Justice Center, Gen.
Oblg., 5.625%, 2023 1,800 1,870
Lower Neches Valley Auth., Industrial Dev. Corp.,
Mobil Oil Refining Corp. Proj., Rev., 6.35% and
6.40%, 2026 and 2030 19,150 20,883
Tarrant County, Health Facilities Dev. Corp.,
Resources System Rev., 5.25%, 2022 3,250 3,245
---------------------------------------------------------------------------
50,356
- --------------------------------------------------------------------------------------------------------------------
FLORIDA--6.0% Broward County, Resource Recovery, Waste Energy
Co., Rev., 7.95%, 2008 3,970 4,275
Dade County, Aviation Rev., 5.75%, 2026 20,400 21,437
Escambia County, Pollution Control, Champion
International Corp. Proj., Rev., 6.40%, 2030 6,000 6,560
Greater Orlando Aviation Auth., Airport
Facilities, Rev., 8.00%, 2018 1,130 1,166
Housing Finance Agcy., Home Ownership, Rev.,
8.30%, 2020 3,085 3,196
Orange County, Tourist Development, Tax Refunding
Rev., 5.125%, 2020 5,000 5,010
---------------------------------------------------------------------------
41,644
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL VALUE
AMOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INDIANA--5.8% Employment Dev. Commission, Indianapolis Power and
Light Co., Rev., 7.45%, 2019 $ 14,215 $ 14,984
Fishers, Economic Dev. Auth., Indianapolis Water
Company Proj., Rev., 7.875, 2019 10,000 10,228
Indianapolis, Gas Utility System Rev., 5.875%,
2024 14,000 14,781
---------------------------------------------------------------------------
39,993
- --------------------------------------------------------------------------------------------------------------------
CALIFORNIA--5.0% Housing Finance Agcy., Home Mortgage, Rev.,
8.30% and 8.35%, 2019 1,885 1,928
Los Angeles County:
Metropolitan Transportation Auth., Sales Tax
Rev., 6.00%, 2026 2,750 2,972
Public Works Financing Lease Rev., 5.125%, 2017 4,250 4,263
Orange County, Recovery Certificates of
Participation, 6.00%, 2026 11,500 12,508
Regents of the University of California, Multiple
Purposes Projects, Refunding Rev., 5.125%, 2020 3,000 2,990
Sacramento County, Airport System, Rev., 5.90%,
2024 5,000 5,312
State:
Gen. Oblg., 5.90%, 2025 280 297
Public Works Board, Lease Rev., 5.00%, 2015 4,000 4,000
---------------------------------------------------------------------------
34,270
- --------------------------------------------------------------------------------------------------------------------
NEW JERSEY--4.7% Economic Dev. Auth.:
Educational Testing Service, Rev., 5.875%, 2026 1,400 1,444
Water Facilities, New Jersey American Water Co.,
Inc. Proj., Rev., 6.875% and 6.00%, 2034 and
2036 20,775 22,914
Health Care Facilities Financing Auth., General
Hospital Center at Passaic, Rev., 6.75%, 2019 5,000 6,059
Housing and Mortgage Finance Agcy., Home Buyer
Rev., 7.70%, 2029 2,095 2,187
---------------------------------------------------------------------------
32,604
- --------------------------------------------------------------------------------------------------------------------
NEW YORK--4.1% Dormitory Auth.:
Bronx-Lebanon Hospital Center, Rev., 5.20%, 2016 1,770 1,765
City University System, Rev., 5.625%, 2016 1,500 1,594
Jamaica Hospital, Rev., 5.20%, 2016 1,000 997
State University Educational Facilities, Rev.,
7.00% and 7.375%, 2014 and 2016 7,140 7,628
Medical Care Facilities Finance Agcy., Mental
Health Services, Rev., 7.70%, 2018 1,525 1,560
New York City, Gen. Oblg., 6.125% to 7.50%,
2003 through 2025 4,260 4,531
Niagara Frontier Transportation Auth., Greater
Buffalo International Airport, Rev., 6.25%, 2024 5,750 6,199
Port Auth. of New York & New Jersey, JFK
International Air Terminal 6, Rev., 5.75%, 2025 4,000 4,182
---------------------------------------------------------------------------
28,456
- --------------------------------------------------------------------------------------------------------------------
MAINE--3.5% Health and Higher Educational Facilities Auth.,
Rev., 5.70% and 7.00%, 2013 and 2024 9,320 10,292
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 13,912
---------------------------------------------------------------------------
24,234
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL VALUE
AMOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PENNSYLVANIA--3.3% Hazleton Health Services Auth., Hospital Rev.,
5.625%, 2017 $ 1,980 $ 2,013
Lehigh County:
General Purpose Auth., Wiley House, Rev.,
8.65% and 8.75%, 2004 and 2014 5,195 5,435
Industrial Dev. Auth., Pollution Control, Rev.,
6.15%, 2029 1,500 1,648
Philadelphia:
Gas Works, Rev., 6.375%, 2026 7,950 8,552
Water and Wastewater, Rev., 5.00%, 2015 5,000 4,960
---------------------------------------------------------------------------
22,608
- --------------------------------------------------------------------------------------------------------------------
OHIO--3.2% Cleveland Airport Systems, Rev., 5.125%, 2017 500 496
Green Springs, Health Care Facilities Rev.,
7.125%, 2025 6,000 6,244
Higher Education Facility Commission, University
of Findlay Proj., Rev., 6.15% and 6.125%,
2011 and 2016 3,635 3,815
Housing Finance Agcy., Single Family Mortgage
Rev., 7.65% to 8.25%, 2010 through 2029 5,061 5,302
State, Building Auth., Administrative Building
Fund Proj., Rev., 5.00%, 2015 6,010 6,015
---------------------------------------------------------------------------
21,872
- --------------------------------------------------------------------------------------------------------------------
COLORADO--2.8% Adams County, Multifamily Housing, Oasis Park
Apartments Proj., Rev., 6.15%, 2026 6,580 6,900
City and County of Denver, Airport Improvement
Rev., 6.75% to 8.50%, 2013 through 2023 9,175 10,055
Housing and Finance Auth., Single Family Program,
Rev., 7.70%, 2021 2,610 2,703
---------------------------------------------------------------------------
19,658
- --------------------------------------------------------------------------------------------------------------------
WASHINGTON--2.7% Grant County, Public Utility District #2, Wanapum
HydroElectric, Rev., 5.875%, 2031 1,575 1,658
Public Power Supply System, Nuclear Projs. #1 and
#3, Rev., 5.00% and 5.60%, 2012 and 2015 17,295 17,372
---------------------------------------------------------------------------
19,030
- --------------------------------------------------------------------------------------------------------------------
ALABAMA--2.7% Docks Dept., Facilities Rev., 6.30%, 2021 8,250 9,071
Jefferson County, Sewer Rev., 5.70% to 5.75%, 2020
through 2027 9,020 9,542
---------------------------------------------------------------------------
18,613
- --------------------------------------------------------------------------------------------------------------------
HAWAII--2.1% Department of Budget and Finance, Special Purpose,
Hawaiian Electric Co., Inc. Proj., Rev., 6.20%,
2026 13,200 14,251
Housing Finance and Dev. Corp., Single Family
Mortgage Rev., 8.125%, 2019 495 506
---------------------------------------------------------------------------
14,757
- --------------------------------------------------------------------------------------------------------------------
VIRGINIA--2.1% Fairfax County Economic Dev. Auth., Resource
Recovery, Ogden Martin System Proj., Rev.,
7.75%, 2011 13,890 14,610
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--2.0% Metropolitan Airports Auth., Airport System, Rev.,
5.75%, 2020 13,100 13,644
---------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL VALUE
AMOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTAH--1.8% Housing Finance Agcy., Single Family Mortgage
Rev., 6.65%, 2026 $ 795 $ 849
Intermountain Power Agcy., Power Supply System
Rev., 7.75% and 5.00%, 2020 and 2021 11,700 11,654
---------------------------------------------------------------------------
12,503
- --------------------------------------------------------------------------------------------------------------------
VERMONT--1.8% Housing Finance Agcy., Mortgage Purchase Rev.,
8.10%, 2022 11,890 12,267
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MICHIGAN--1.7% Chippewa County, Warren Memorial Hospital, Rev.,
5.625%, 2014 1,500 1,521
Detroit, Sewage Disposal System Rev., 5.00%, 2022 3,455 3,370
Monroe County, Pollution Control, Detroit Edison
Proj., 7.75%, 2019 6,500 6,988
---------------------------------------------------------------------------
11,879
- --------------------------------------------------------------------------------------------------------------------
LOUISIANA--1.6% Housing Finance Agcy., Single Family Mortgage
Rev., 8.30%, 2020 2,965 3,052
Public Facilities Auth., Lafayette General Medical
Center Proj., Rev., 6.50%, 2022 7,350 8,029
---------------------------------------------------------------------------
11,081
- --------------------------------------------------------------------------------------------------------------------
NEBRASKA--1.2% Investment Finance Auth., Single Family Housing
Rev., 6.70%, 2026 7,500 7,987
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--1.0% Port Auth., Special Facilities, US Air Project,
Rev., 5.875%, 2023 6,755 7,146
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MARYLAND--1.0% Howard County, Multifamily Housing, Braeland and
Eden Commons Projs., Rev., 6.20%, 2023 6,750 6,892
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
IOWA--1.0% Housing Finance Auth., Single Family Mortgage
Rev., 7.90%, 2022 6,030 6,359
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NEW MEXICO--1.0% Mortgage Finance Auth., Single Family Mortgage
Rev., 8.30% and 7.80%, 2020 and 2021 5,775 6,142
---------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL VALUE
AMOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATES LESS THAN ID, Housing Agency., Single Family Mortgage Rev.,
ONE PERCENT--5.0% 7.875% and 6.90%, 2021 and 2025 $ 4,595 $ 4,825
MO, Health and Educational Facilities Auth., Lake
of the Ozarks General Hospital, Inc., Proj.,
Rev., 6.50%, 2021 1,125 1,225
MO, Housing Dev. Commission, Single Family
Mortgage Rev., 7.90%, 2021 3,365 3,476
MO, St. Louis, Regional Convention and Sports
Complex Auth., Rev., 7.90%, 2021 155 173
MN, Housing Finance Agcy., Single Family Mortgage
Rev., 7.95% and 8.00%, 2022 and 2029 4,465 4,625
NC, Housing Finance Agcy., Single Family Mortgage
Rev., 7.85%, 2028 3,220 3,379
ND, Housing Finance Agcy., Single Family Mortgage
Rev., 8.375%, 2021 620 648
NH, Higher Educational and Health Facilities
Auth., Nashua Memorial Hospital, Rev., 6.00%,
2023 3,000 3,175
NV, Clark County, Industrial Dev., Power Co.
Proj., Rev., 6.70%, 2022 1,750 1,905
OK, Turnpike Auth., Turnpike System Rev., 7.875%,
2021 355 370
SC, Oconee County, Pollution Control, Duke Power
Co. Proj., Rev., 7.75%, 2017 3,500 3,683
TN, Chattanooga, Gen. Oblg., 5.00%, 2018 4,350 4,317
WI, Housing & Economic Dev. Auth., Home Ownership,
Rev., 6.20%, 2027 2,500 2,636
---------------------------------------------------------------------------
34,437
---------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--81.8% 564,323
---------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--97.6%
(Cost: $622,296) 672,757
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--4.10% to 4.15%
INSTRUMENTS--.6% Due--June 1998
(Cost: $4,265) 4,265 4,265
---------------------------------------------------------------------------
TOTAL INVESTMENTS--98.2%
(Cost: $626,561) 677,022
---------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.8% 12,613
---------------------------------------------------------------------------
NET ASSETS--100% $689,635
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $626,561,000 for federal income tax purposes
at May 31, 1998, the gross unrealized appreciation was $50,521,000, the gross
unrealized depreciation was $60,000 and the net unrealized appreciation on
investments was $50,461,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $626,561) $677,022
- ------------------------------------------------------------------------
Cash 358
- ------------------------------------------------------------------------
Interest receivable 12,838
- ------------------------------------------------------------------------
TOTAL ASSETS 690,218
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Management fee 315
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 43
- ------------------------------------------------------------------------
Trustees' fees and other 225
- ------------------------------------------------------------------------
Total liabilities 583
- ------------------------------------------------------------------------
NET ASSETS $689,635
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
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, 38,380 shares outstanding 384
- ------------------------------------------------------------------------
Paid-in surplus 425,839
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (12,957)
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 50,461
- ------------------------------------------------------------------------
Undistributed net investment income 10,908
- ------------------------------------------------------------------------
NET ASSETS $689,635
- ------------------------------------------------------------------------
NET ASSET VALUE PER COMMON SHARE
(net assets less remarketed preferred
shares at liquidation value divided by
common shares outstanding) $12.37
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Interest income $21,620
- -----------------------------------------------------------------------
Expenses:
Management fee 1,994
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 89
- -----------------------------------------------------------------------
Registration and remarketing fees 255
- -----------------------------------------------------------------------
Professional fees 40
- -----------------------------------------------------------------------
Reports to shareholders 51
- -----------------------------------------------------------------------
Trustees' fees and other 72
- -----------------------------------------------------------------------
Total expenses 2,501
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 19,119
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized gain on sales of investments 421
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments 2,256
- -----------------------------------------------------------------------
Net gain on investments 2,677
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $21,796
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 31, YEAR ENDED
1998 NOVEMBER 30,
(UNAUDITED) 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------
Net investment income $ 19,119 40,112
- ----------------------------------------------------------------------------------------
Net realized gain 421 791
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation 2,256 389
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 21,796 41,292
- ----------------------------------------------------------------------------------------
Distribution from net investment income:
Common shares (16,749) (33,314)
- ----------------------------------------------------------------------------------------
Remarketed preferred shares (3,898) (7,709)
- ----------------------------------------------------------------------------------------
Total dividends to shareholders (20,647) (41,023)
- ----------------------------------------------------------------------------------------
Proceeds from common shares issued in reinvestments of
dividends (170 and 347 shares, respectively) 2,307 4,667
- ----------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 3,456 4,936
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------
Beginning of period 686,179 681,243
- ----------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of
$10,908 and $12,436, respectively) $689,635 686,179
- ----------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
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 for the six
months ended May 31, 1998. The accumulated net
realized loss on sales of investments for federal
income tax purposes at May 31, 1998, amounting to
approximately $8,632,000, is available to offset
future taxable gains. If not applied, the loss
carryover expires during the period ending 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 Scudder Kemper Investments, Inc.
(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 $1,994,000
for the six months ended May 31, 1998.
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 $29,000
for the six months ended May 31, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. For the six months ended May 31,
1998, the Fund made no payments to its officers and
incurred trustees' fees of $24,000 to independent
trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the six months ended May 31, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<S> <C>
Purchases $79,719
Proceeds from sales 80,594
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, ------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE FOR A COMMON SHARE
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.33 12.31 12.41 11.12 13.25
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .50 1.04 1.07 1.10 1.10
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .08 .05 (.10) 1.29 (1.84)
- ---------------------------------------------------------------------------------------------------------
Total from investment operations .58 1.09 .97 2.39 (.74)
- ---------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income to
common shareholders .44 .87 .87 .87 .87
- ---------------------------------------------------------------------------------------------------------
Distribution from net investment income to
preferred shareholders (common share
equivalent) .10 .20 .20 .23 .16
- ---------------------------------------------------------------------------------------------------------
Distribution from net realized gain to common
shareholders -- -- -- -- .36
- ---------------------------------------------------------------------------------------------------------
Total dividends .54 1.07 1.07 1.10 1.39
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.37 12.33 12.31 12.41 11.12
- ---------------------------------------------------------------------------------------------------------
Market value, end of period $ 13.50 14.13 13.13 12.63 11.00
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN PER COMMON SHARE (NOT ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------
Based on net asset value 3.90% 7.57 6.56 20.00 (7.36)
- ---------------------------------------------------------------------------------------------------------
Based on market value (1.17)% 15.16 11.57 23.55 (4.66)
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS EXCLUDING PREFERRED SHARES EQUITY (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------
Expenses 1.05% 1.01 1.06 1.01 1.03
- ---------------------------------------------------------------------------------------------------------
Net investment income 8.05% 8.66 8.87 9.22 9.04
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS INCLUDING PREFERRED SHARES EQUITY (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------
Expenses .72% .69 .72 .69 .70
- ---------------------------------------------------------------------------------------------------------
Net investment income 5.54% 5.92 6.03 6.23 6.13
- ---------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets at end of period, net of remarketed
preferred shares (in thousands) $474,635 471,179 466,243 464,684 414,790
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 20% 7 26 19 12
- ---------------------------------------------------------------------------------------------------------
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 16,000 15,800 15,800 14,600
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. Ratios exclude the effect of dividends to preferred shareholders.
Data for the period ended May 31, 1998 is unaudited.
18
<PAGE> 19
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 3, 1997, a special shareholders' meeting was held and adjourned as
necessary. Kemper Municipal Income Trust shareholders were asked to vote on
three separate issues: election of a member to the Board of Trustees,
ratification of Ernst & Young LLP as independent auditors, and approval of a new
investment management agreement with Scudder Kemper Investments, Inc. The
following are the results for each issue:
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Edmond D. Villani 27,555,177 513,495
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the current fiscal year.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
68,234,871 162,695 231,107
</TABLE>
3) Approval of a new investment management agreement with Scudder Kemper
Investments, Inc.
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
66,000,400 407,774 585,713 1,634,785
</TABLE>
19
<PAGE> 20
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY CHRISTOPHER J. MIER
Chairman and Trustee President Vice President
JAMES E. AKINS PHILIP J. COLLORA ROBERT C. PECK, JR.
Trustee Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK KATHRYN L. QUIRK
Trustee JOHN R. HEBBLE Vice President
Treasurer
FREDERICK T. KELSEY LINDA J. WONDRACK
Trustee JERARD K. HARTMAN Vice President
Vice President
FRED B. RENWICK MAUREEN E. KANE
Trustee THOMAS W. LITTAUER Assistant Secretary
Vice President
JOHN B. TINGLEFF CAROLINE PEARSON
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
EDMOND D. VILLANI ELIZABETH C. WERTH
Trustee Assistant Secretary
JOHN G. WEITHERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419006
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
[KEMPER FUNDS LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed on recycled paper in the U.S.A.
KMIT - 3 (7/98) 1050210
