<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
KEMPER
MUNICIPAL INCOME TRUST
"... We're very optimistic about the prospects for municipal bonds. They
represent an extremely attractive investment. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
6
Year 2000
7
Portfolio Composition
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 Reinvestment Plan
23
Shareholders' Meeting
AT A GLANCE
- ---------------------------------------------------------
TOTAL RETURNS
- ---------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- ---------------------------------------------------------
<S> <C> <C>
KEMPER MUNICIPAL
INCOME TRUST 7.96% 10.60%
- ---------------------------------------------------------
</TABLE>
- ---------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- ---------------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
11/30/98 11/30/97
- ---------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $12.41 $12.33
- ---------------------------------------------------------
MARKET PRICE $14.63 $14.13
- ---------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF NOVEMBER 30, 1998
<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) 7.01%
- ---------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 5.95%
- ---------------------------------------------------------
TAX EQUIVALENT DISTRIBUTION RATE
(BASED ON NET ASSET VALUE AND A
37.1% FEDERAL INCOME TAX RATE) 11.14%
- ---------------------------------------------------------
TAX EQUIVALENT DISTRIBUTION RATE
(BASED ON MARKET PRICE AND A
37.1% FEDERAL INCOME TAX RATE) 9.46%
- ---------------------------------------------------------
</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, DISTRIBUTION
RATES, 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. (SEE PROSPECTUS
FOR MORE DETAILS)
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.
LEVERAGING As it pertains to closed-end funds, leveraging allows a fund to sell
a short-term preferred class of stock. The assets of this sale are normally used
to buy securities that yield more than the preferred stock yields. When used
judiciously, leverage thus provides a way to increase income for the fund.
Leveraging also gives a fund an advantage over non-leveraged funds in a falling
interest rate environment, because the fund may use its extra assets to gain
exposure to longer-term securities, which tend to perform better than
shorter-term securities when interest rates decline. However, leveraging may
also increase a fund's volatility.
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
[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.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND 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 $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
If you're like most investors, you may be wondering if you should allow yourself
to breathe a sigh of relief as 1999 begins. After several months of generally
declining stock prices and extreme volatility, the U.S. stock market seems to
have rediscovered its resiliency. In the fourth quarter, the Standard & Poor's
500, an unmanaged index generally representative of the U.S. stock market,
bounced back into the 1200-point range, up approximately 20 percent from its
third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a
comparable rise. Investor confidence suddenly overtook the investor uncertainty
that had plagued the markets at summer's end. While financial volatility appears
to be continuing, the mood for investors definitely has improved.
To what can we attribute the change? Simply this -- the cumulative effect of
some good news, not the least of which was a long-awaited series of interest
rate reductions by the Federal Reserve Board. In September, the Fed reduced the
federal funds rate a modest quarter of a percentage point, however, this first
cut disappointed some investors who were expecting a more dramatic gesture. Two
weeks later, the Fed came back with an additional quarter of a percentage point
reduction. This was an unexpected cut that seemed to have a positive effect on
Wall Street. In November, a third rate cut of a quarter of a percentage point
also boosted investor confidence. Investors were further surprised by
better-than-expected corporate earnings reports early in the fourth quarter.
Finally, economic data regarding retail sales, employment and home sales
suggested continued economic growth and very little prospect of recession.
In many ways, 1998's market activity provides a study in how investor
perceptions can upstage economic realities. Certainly, the tumultuous lessons of
Russia and Southeast Asia renewed investors' awareness of risk in 1998, which
was an important wake-up call. At all times, investors must understand and
consider risk. But over the course of 1998, U.S. economic fundamentals have
essentially remained strong. In fact, inflation has remained low for the entire
year. Economic growth has been solid. Our consumer confidence remained fairly
high, although not quite as high as in 1997. The nation's budget surplus for
1998 came in at $60 billion, with another budget surplus expected for fiscal
1999.
Growth in the nation's gross domestic product (GDP), which represents the
total value of all goods and services produced within the U.S. economy, has
remained remarkably steady. GDP is expected to have grown at an annualized rate
of 3 percent for the second half of 1998 and is anticipated to hover around 2
percent to 2.5 percent for the first half of 1999. The consumer price index
(CPI) remains in a range of 1.5 percent to 2 percent.
While employment growth has slowed a bit, the slowdown in wage gains may
provide the Fed with an incentive to reduce interest rates even further. U.S.
corporate profits have generally been flat, so we may see a decrease in capital
spending. Banks appear to be only a little less willing to lend, so the threat
of a general credit crunch is minimal.
Investors may take comfort in the fact that the U.S. markets and economy have
withstood the test of 1998's tumultuous third quarter. Similarly, while certain
countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering
from economic crises, others, including the Philippines, South Korea, Thailand
and China, appear to have survived. As long as the Fed and the Group of Seven
leading industrial nations (G7) are committed to avoiding recession on national
and global levels respectively, investors have a good chance of experiencing a
more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian
turmoil has not affected U.S. trade as much as it has lowered import prices and
helped reduce global interest rates.
In Europe, the much anticipated Economic and Monetary Union (EMU) is on the
move, with a focus on more flexibility and growth potential for the region.
European equities may be the beneficiaries of increased spending, as governments
seek to foster growth and reduce unemployment.
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND SHAREHOLDER
DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR DEFLATION, CREDIT
EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE 10-YEAR
TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES. THE OTHER DATA
REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (12/31/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 4.65 5.50 5.81 6.30
Prime rate(2) 7.75 8.50 8.50 8.25
Inflation rate(3)* 1.55 1.75 1.89 3.18
The U.S. dollar(4) -2.45 9.54 10.26 4.36
Capital goods orders(5)* 7.82 9.52 8.53 4.82
Industrial production(5)* 1.47 5.10 6.56 5.32
Employment growth(6)* 2.28 2.65 2.70 2.33
</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, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
If you're a long-term investor in today's short-term world, go ahead and
breathe that sigh of relief -- but be on your toes in 1999. It's going to be an
interesting year as the EMU emerges, the race for the next presidency heats up
and the year 2000 approaches. And, remember: Investors don't like uncertainty,
be it economic or political. More trauma in the White House, continuing disputes
with Iraq or any other hints of crisis could prompt a downward spike in our
markets in the short run. In the long run, the keys to investment performance
remain moderate growth, low inflation and limited taxation and regulation.
Thank you for choosing to invest with Kemper Funds. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
The information contained in this piece has been taken from sources believed to
be reliable, but the accuracy of the information is not guaranteed. The opinions
and forecasts expressed are those of Dr. John E. Silvia as of January 4, 1999,
and may not actually come to pass. This information is subject to change. No
part of this material is intended as an investment recommendation.
4
<PAGE> 5
PERFORMANCE UPDATE
[MIER PHOTO]
CHRISTOPHER MIER JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1986 AND IS A
MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS AND A VICE PRESIDENT AND LEAD
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.
IN A VOLATILE YEAR WHEN U.S. GOVERNMENT BOND PRICES WERE DRIVEN BY EVENTS
ABROAD, MUNICIPAL BONDS PERFORMED REASONABLY WELL. BELOW, LEAD PORTFOLIO MANAGER
CHRIS MIER DISCUSSES THE FORCES THAT AFFECTED THE MUNICIPAL BOND MARKET, AND HOW
THE FUND WAS POSITIONED IN RESPONSE.
Q CHRIS, WHAT WERE THE CENTRAL FORCES THAT AFFECTED THE MARKET FOR MUNICIPAL
BONDS IN 1998?
A The last year was somewhat unusual because factors outside the U.S. played
a significant role in the performance of municipal bonds. The market was
impacted first by developments in Asia, then in Russia and Latin America.
Indications of potential economic and currency problems in Asian countries
had been circulating throughout the summer of 1997. Investors began to realize
that the outsized growth experienced by these countries -- particularly Hong
Kong, Thailand, Malaysia and Indonesia -- was fueled largely by intense investor
speculation worldwide. Increasingly, investors began to doubt the ability of
these countries to make the tough fiscal and monetary decisions to justify the
value of their currencies. Just after the fiscal year began, this uncertainty
came to a head, culminating in November as the Hong Kong stock market imploded,
and a number of Asian countries devalued their currencies.
In 1998, Russia effectively devalued the ruble, and Latin American
countries, specifically Brazil, also started to experience problems.
Ironically, the problems abroad led to strong performance by government
bonds here in the U.S. Investors opted for the relatively safe haven of
Treasuries, and demand drove Treasury bond prices sharply higher. At the same
time, investors expected cheaper imports of foreign goods to put a damper on
U.S. inflation, and lower exports to impede U.S. economic growth. This suggested
lower interest rates in the future, a positive for bonds, and continuing turmoil
further increased demand for U.S. government bonds. The result was that
Treasuries staged a powerful rally in August and September.
As the gloom regarding foreign markets deepened, however, it became clear
that the Federal Reserve (the Fed) was becoming increasingly concerned with the
specter of a serious decline in the liquidity of capital markets. To help head
off such a debacle, the Fed reduced short-term interest rates three times: on
September 29, October 16 and November 17. The cuts re-energized world stock
markets and sparked a pullback in the U.S. bond market as the fiscal year drew
to a close.
Overall, it was a volatile year for bonds, but performance was good.
According to the Lehman Long Government Bond Index, long-term government bonds
provided a total return of 15.51 percent, far in excess of the 3 percent annual
inflation rate.
Q DID MUNICIPAL BONDS ENJOY THE SAME KIND OF RALLY?
A Municipal bonds managed a reasonably good year, with the Lehman Municipal
Bond Index up 7.76 percent for the year. But the municipal market's progress was
impeded by very heavy issuance. The declining rate environment that
characterized the majority of the
5
<PAGE> 6
PERFORMANCE UPDATE
year increased the supply of municipal bonds in two ways:
1) New issues -- new bond offerings flooded the market as local governments
tried to capitalize on low interest rates to beef up infrastructure such as
highways and water/sewer projects.
2) Refinancing bonds -- when rates decline, municipal issuers look to
refinance their debt, just like private homeowners refinance their mortgages
when rates fall. So municipal governments issued new lower-yielding bonds to
replace the higher-yielding ones.
As the year began, it looked as if we might experience a record year for
issuance. But as volatility increased during the fall of 1998, issuance slacked
off. Nevertheless, volume this year has been extraordinarily heavy by historical
standards.
Much of this supply has been sopped up by hedge funds and "crossover"
buyers, primarily investors who usually buy taxable bonds, but who have
recognized the outstanding value in municipals. Such "non-traditional" buyers
have helped offset the glut of issuance.
Q WHAT DID YOU DO TO HELP THE FUND RESPOND TO THE MARKET'S CONDITIONS?
A Our strategy involved four basic approaches:
1. Since Kemper Municipal Income Trust is a leveraged fund to begin with, we
maintained a neutral to short duration to offset some of the market volatility.
2. We strove to improve average call protection whenever possible.
3. We concentrated purchases in the highest quality ratings.
4. We kept the fund fully invested.
Q YOU MENTIONED THAT CROSSOVER BUYERS HAVE BEGUN TO "RECOGNIZE THE
OUTSTANDING VALUE IN MUNICIPALS." WHAT OUTSTANDING VALUE DO YOU MEAN?
A Municipal bonds offer attractive value right now for several reasons.
First, the heavy supply of municipal bonds has kept yields from declining as
fast as Treasuries. Thus, at the end of the fiscal year, municipal bonds
actually offered a higher yield than Treasuries -- an unusual state of affairs.
Second, that relatively high yield doesn't even take into account the tax
advantage, which further enhances the attractiveness of municipal bonds versus
Treasuries. Third, municipal bonds give you a better real return, that is, what
you have left after taking into account the effects of taxes and inflation.
Finally, municipal bonds are not currently experiencing some of the credit
problems other markets -- such as those for corporate bonds or emerging foreign
bonds -- are facing.
Q SO YOUR OUTLOOK FOR THE MUNICIPAL MARKET IS PRETTY BRIGHT AT THIS POINT.
A We're very optimistic about the prospects for municipal bonds. They
represent an extremely attractive investment. Their value versus other fixed
income securities is only one reason. There are others. For example, the strong
economy and low interest rates have increased tax revenues and allowed municipal
governments to strengthen their balance sheets. So in our experience credit
quality has never been better for many states.
The Federal Reserve has demonstrated its commitment to stimulating domestic
economic growth and encouraging liquid capital markets. As investors look for
value in bond markets, the municipal market seems an obvious choice.
And finally, the volatility in other markets over the last 12 months has
shown the importance of diversification. Because the stock market has advanced
strongly over the last three years, many investors' portfolios may have become a
little stock-heavy. They may want to take some money out of stocks and put it in
bonds to rebalance and help stabilize their portfolios, and municipal bonds
right now may be a smart way to do that.
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
investment 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, such as problems with calculating
net asset value. The investment 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
PORTFOLIO COMPOSITION
PORTFOLIO COMPOSITION*
REPRESENTING THE FUND'S COMPOSITION AS OF NOVEMBER 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------
HOLDINGS PERCENT
- ------------------------------------------------------
<S> <C> <C>
1. REVENUE BONDS 73%
- ------------------------------------------------------
2. U.S. GOVERNMENT SECURED 22%
- ------------------------------------------------------
3. GENERAL OBLIGATIONS 3%
- ------------------------------------------------------
4. CASH & EQUIVALENTS 2%
- ------------------------------------------------------
</TABLE>
PORTFOLIO STATISTICS
SECURITIES RATINGS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
ON 11/30/98 ON 11/30/97
- ---------------------------------------------------------------------------
<S> <C> <C>
AAA 61% 51%
- ----------------------------------------------------------------------------
AA 16 15
- ----------------------------------------------------------------------------
A 8 14
- ----------------------------------------------------------------------------
BBB 9 13
- ----------------------------------------------------------------------------
BB 1 --
- ----------------------------------------------------------------------------
Not rated+ 5 7
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 11/30/98 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. RATINGS ARE RELATIVE AND SUBJECTIVE AND NOT
ABSOLUTE STANDARDS OF QUALITY.
AVERAGE MATURITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
ON 11/30/98 ON 11/30/97
- ----------------------------------------------------------------------------
<S> <C> <C>
Average Maturity 18.5 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 November 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
ADVANCED REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL
AND INTEREST BY UNITED STATES GOVERNMENT SECURITIES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Regional Waste System Inc., ME, Solid Waste
Recovery, Rev., 8.15%, to be called 1-1-99 @ 103 $ 9,565 $ 9,892
Health Facilities Auth., IL, Methodist Health
Services Corp., Rev., 8.00%, to be called 2-1-99
@ 103 1,855 1,926
Puerto Rico, Gen. Oblg., 7.75%, to be called
7-1-99 @ 101.50 5,020 5,230
New York City, NY, Gen. Oblg., 7.50%, to be called
8-1-99 @ 101.50 7,670 8,008
Lehigh County, PA, Gen. Purpose Auth., Wiley
House, Rev., 8.75%, to be called 11-1-99 @ 102 2,000 2,138
Lehigh County, PA, Gen. Purpose Auth., Wiley
House, Rev., 8.65%, to be called 11-1-99 @ 102 2,845 3,038
Health Care Facilities Auth., WA, Rev., 7.75%, to
be called 5-1-00 @ 102 4,200 4,528
Dormitory Auth., NY, State University Educational
Facilities, Rev., 7.375%, to be called 5-15-00 @
102 1,355 1,457
Volusia County, FL, Health Facilities Auth.,
Memorial Health Systems Proj., Rev., 8.25%, to
be called 6-1-00 @ 102 7,000 7,612
Public Power Supply System, WA, Nuclear Proj. #2,
Rev., 7.00%, to be called 7-1-00 @ 102 15,500 16,629
West Plains, MO, Industrial Dev. Auth., Ozarks
Medical Center Proj., Rev., 8.625%, to be called
9-15-00 @ 102 3,545 3,925
Denver, CO, City and County Airport Improvement,
Rev., 8.50%, to be called 11-15-00 @ 102 390 434
Greene County, PA, Gen. Oblg., 8.75%, to be called
12-1-00 @ 100 2,815 3,101
Urban Dev. Corp., NY, State Facilities, Rev.,
7.50%, to be called 4-1-01 @ 102 6,695 7,397
Housing Finance Agcy., NY, Service Contract, Rev.,
7.375%, to be called 3-15-02 @ 102 3,000 3,390
Dormitory Auth., NY, State University Educational
Facilities, Rev., 7.25%, to be called 5-15-02 @
102 5,000 5,655
Tulsa, OK, Airport Improvement Trust, Rev., 7.70%,
to be called 6-1-02 @ 100 3,315 3,732
Public Facilities Auth., LA, Lafayette General
Medical Center Proj., Rev., 6.50%, to be called
10-1-02 @ 102 7,350 8,197
Denver, CO, City and County Airport Improvement,
Rev., 6.75%, to be called 11-15-02 @ 102 1,015 1,143
Philadelphia, PA, Gas Works, Rev., 6.375%, to be
called 7-1-03 @ 102 7,950 8,731
St. Louis, MO, Regional Convention and Sports
Complex Auth., Rev., 7.90%, to be called 8-15-03
@ 100 3,445 4,046
Chicago, IL, Skyway Toll Bridge, Rev., 6.75%, to
be called 1-1-04 @ 102 2,775 3,181
Health and Higher Educational Facilities Auth.,
ME, Rev., 7.00%, to be called 7-1-04 @ 102 4,320 5,035
Indianapolis, IN, Gas Utility System Rev., 5.875%,
to be called 6-1-04 @ 102 14,000 15,573
Gen. Oblg., CA, 5.90%, to be called 3-1-05 @ 101 7,410 8,338
Cuyahoga County, OH, Meridia Health System,
Hospital Rev., 6.25%, to be called 8-15-05 @ 102 2,350 2,703
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bay Transportation Auth., MA, General
Transportation System, Rev., 5.625%, to be
called 3-1-06 @ 101 $ 1,900 $ 2,097
Dade County, FL, Special Oblg., Capital
Appreciation, Rev., zero coupon, to be called
10-1-08 @ 42.76 7,735 2,183
Dade County, FL, Special Oblg., Capital
Appreciation, Rev., zero coupon, to be called
10-1-08 @ 37.66 16,955 4,214
---------------------------------------------------------------------------
TOTAL ADVANCED REFUNDED OBLIGATIONS--22.1% 153,533
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- --------------------------------------------------------------------------------------------------------------------
ILLINOIS--8.3%
Chicago:
Gas Supply, Peoples Gas, Light and Coke Co.,
Rev., 8.10%, 2020 1,250 1,344
Midway Airport, Rev., 5.625%, 2029 4,000 4,195
O'Hare International Airport, International
Terminal, Special Rev., 7.625% and 8.20%, 2010
and 2024 14,775 16,266
Dev. Finance Auth.:
Catholic Health Partners Services, Rev., 5.30%,
2018 3,500 3,533
Pollution Control, Commonwealth Edison Company
Proj., Rev., 6.75%, 2015 4,220 4,800
Harvard, Multifamily Housing, Northfield Court
Proj., Rev., 9.50%, 2006 2,520 2,710
Health Facilities Auth:
Bethany Home and Hospital Service, Rev., 8.625%,
2009 6,470 6,990
Lutheran General Health Care System, Rev.,
6.00%, 2018 1,030 1,057
Housing Dev. Auth., Multifamily Housing Rev.,
5.90%, 2030 1,000 1,054
Regional Transportation Auth., Cook, DuPage, Kane,
Lake, McHenry and Will Counties, Rev., 6.125%,
2022 4,000 4,250
Sports Facilities Auth., Rev., 7.875%, 2010 6,000 6,253
Will County Exempt Facilities, Mobil Oil Refining
Corp. Proj., Rev., 6.00%, 2027 5,000 5,416
---------------------------------------------------------------------------
57,868
- --------------------------------------------------------------------------------------------------------------------
TEXAS--8.2% Brazos River Auth., Collateralized Pollution
Control, Utilities Electric Co. Proj., Rev.,
5.125% and 8.25%, 2019 16,000 16,301
College Student Loans, Gen. Oblg., 5.00%, 2021 4,015 3,880
Dallas-Fort Worth International Airport Facility
Improvement Corp., American Airlines, Inc.,
Rev., 7.50%, 2025 1,500 1,607
Harris County, Criminal Justice Center, Gen.
Oblg., 5.625%, 2023 1,800 1,906
Hurst Euless Bedford Independent School District,
Rev., 5.00%, 2018 6,680 6,708
Lower Neches Valley Auth., Industrial Dev. Corp.,
Mobil Oil Refining Corp. Proj., Rev., 6.35% and
6.40%, 2026 and 2030 19,150 20,940
Port Houston Auth., Harris County, Gen. Oblg.,
5.00%, 2017 2,500 2,501
Tarrant County, Health Facilities Dev. Corp.,
Resources System, Rev., 5.25%, 2022 3,250 3,277
---------------------------------------------------------------------------
57,120
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FLORIDA--5.7% Broward County, Resource Recovery, Waste Energy
Co., Rev., 7.95%, 2008 $ 3,775 $ 4,025
Dade County, Aviation Rev., 5.75%, 2026 20,400 21,665
Housing Finance Agcy., Home Ownership, Rev.,
8.30%, 2020 2,420 2,495
Miami--Dade County Professional Sports Franchise,
Facility Tax, Rev., 4.75%, 2030 6,900 6,610
Orange County, Tourist Development, Tax Refunding,
Rev., 5.125%, 2020 5,000 5,077
---------------------------------------------------------------------------
39,872
- --------------------------------------------------------------------------------------------------------------------
CALIFORNIA--4.8% Housing Finance Agcy., Home Mortgage, Rev., 8.30%,
2019 545 557
Los Angeles County:
Metropolitan Transportation Auth., Sales Tax
Rev., 6.00%, 2026 2,750 3,029
Public Work Financing Lease, Rev., 5.125%, 2017 4,250 4,380
Orange County, Recovery Certificates of
Participation, 6.00%, 2026 11,500 12,750
Sacramento County, Airport System, Rev., 5.90%,
2024 5,000 5,385
State:
Gen. Oblg., 5.90%, 2025 280 304
Public Works Board, Lease Rev., 5.00%, 2015 and
2021 7,000 7,103
---------------------------------------------------------------------------
33,508
- --------------------------------------------------------------------------------------------------------------------
NEW JERSEY--4.7% Economic Dev. Auth.:
Educational Testing Service, Rev., 5.875%, 2026 1,400 1,455
Water Facilities, New Jersey American Water Co.,
Inc. Proj., Rev., 6.875% and 6.00%, 2034 and
2036 20,775 23,228
Health Care Facilities Financing Auth., General
Hospital Center at Passaic, Rev., 6.75%, 2019 5,000 6,132
Housing and Mortgage Finance Agcy., Home Buyer
Rev., 7.70%, 2029 1,550 1,607
---------------------------------------------------------------------------
32,422
- --------------------------------------------------------------------------------------------------------------------
NEW YORK--4.1% Dormitory Auth.:
Bronx-Lebanon Hospital Center, Rev., 5.20%, 2016 1,770 1,792
City University System, Rev., 5.625%, 2016 1,500 1,626
Jamaica Hospital, Rev., 5.20%, 2016 1,000 1,013
State University Educational Facilities, Rev.,
7.00% and 7.375%, 2014 and 2016 7,140 7,591
Medical Care Facilities Finance Agcy., Mental
Health Services, Rev., 7.70%, 2018 1,525 1,560
New York City, Gen. Oblg., 7.50% and 6.125%, 2003
through 2025 4,260 4,527
Niagara Frontier Transportation Auth., Greater
Buffalo International Airport, Rev., 6.25%, 2024 5,750 6,320
Port Auth. of New York & New Jersey, JFK
International Air Terminal 6, Rev., 5.75%, 2025 4,000 4,244
---------------------------------------------------------------------------
28,673
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>)
(DOLLARS IN THOUSAND)
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WASHINGTON--4.0% Chelan County, Public Utility District #1, Rev.,
5.25%, 2033 $ 4,675 $ 4,671
Grant County, Public Utility District #2, Wanapum
HydroElectric, Rev., 5.875%, 2031 1,575 1,686
Health Care Facility Auth., Multicare Health
System, Rev., 5.00%, 2022 3,500 3,426
Public Power Supply System, Nuclear Projs. #1
through #3, Rev., 5.00% and 5.60%, 2012 and 2015 17,295 17,653
---------------------------------------------------------------------------
27,436
- --------------------------------------------------------------------------------------------------------------------
OHIO--3.0% Cleveland Airport Systems, Rev., 5.125%, 2017 500 505
Green Springs, Health Care Facilities Rev.,
7.125%, 2025 6,000 5,988
Higher Education Facility Commission, University
of Findlay Proj., Rev., 6.15% and 6.125%, 2011
and 2016 3,635 3,824
Housing Finance Agcy., Single Family Mortgage
Rev., 7.65% to 8.25%, 2010 through 2029 4,561 4,704
State, Building Auth., Administrative Building
Fund Proj., Rev., 5.00%, 2015 6,010 6,108
---------------------------------------------------------------------------
21,129
- --------------------------------------------------------------------------------------------------------------------
COLORADO--2.8% Adams County, Multifamily Housing, Oasis Park
Apartments Proj., Rev., 6.15%, 2026 6,580 7,023
City and County of Denver, Airport Improvement
Rev., 6.75% to 8.50%, 2013 through 2023 9,175 10,028
Housing and Finance Auth., Single Family Program,
Rev., 7.70%, 2021 2,165 2,230
---------------------------------------------------------------------------
19,281
- --------------------------------------------------------------------------------------------------------------------
ALABAMA--2.7% Docks Dept., Facilities Rev., 6.30%, 2021 8,250 9,133
Jefferson County, Sewer Rev., 5.70% to 5.75%, 2020
through 2027 9,020 9,704
---------------------------------------------------------------------------
18,837
- --------------------------------------------------------------------------------------------------------------------
UTAH--2.5% Housing Finance Agcy., Single Family Mortgage
Rev., 6.65%, 2026 675 726
Intermountain Power Agcy., Power Supply System
Rev., 5.00%, 2020 and 2021 16,700 16,499
---------------------------------------------------------------------------
17,225
- --------------------------------------------------------------------------------------------------------------------
INDIANA--2.1% Employment & Dev. Commission, Indianapolis Power
and Light Co., Rev., 7.45%, 2019 14,215 14,789
- --------------------------------------------------------------------------------------------------------------------
HAWAII--2.1% Department of Budget and Finance, Special Purpose,
Hawaiian Electric Co., Inc. Proj., Rev., 6.20%,
2026 13,200 14,543
- --------------------------------------------------------------------------------------------------------------------
VIRGINIA--2.1% Fairfax County Economic Dev. Auth., Resource
Recovery, Ogden Martin System Proj., Rev.,
7.75%, 2011 13,890 14,405
---------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSAND)
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DISTRICT OF COLUMBIA--2.0% Metropolitan Airports Auth., Airport System, Rev.,
5.75%, 2020 $ 13,100 $ 13,803
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--1.8% Port Auth., Special Facilities, US Air Proj.,
Rev., 5.875%, 2023 6,755 7,263
State Turnpike Auth., Metro Highway System, Rev.,
5.25%, 2029 5,050 5,135
---------------------------------------------------------------------------
12,398
- --------------------------------------------------------------------------------------------------------------------
MICHIGAN--1.8% Chippewa County, Warren Memorial Hospital, Rev.,
5.625%, 2014 1,500 1,531
Monroe County, Pollution Control, Detroit Edison
Proj., Rev., 7.75%, 2019 6,500 6,893
Wayne Charter County, Michigan Airport, Rev.,
5.00%, 2022 4,000 3,904
---------------------------------------------------------------------------
12,328
- --------------------------------------------------------------------------------------------------------------------
VERMONT--1.8% Housing Finance Agcy., Mortgage Purchase, Rev.,
8.10%, 2022 11,890 12,285
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MAINE--1.3% Health and Higher Educational Facilities Auth.,
Rev., 5.70%, 2013 5,000 5,407
Housing Auth., Mortgage Purchase Rev., 8.30%, 2028 30 30
Regional Waste Systems, Inc., Solid Waste Resource
Recovery, Rev., 7.85%, 2011 3,715 3,804
---------------------------------------------------------------------------
9,241
- --------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--1.3% Hazeleton Health Services Auth., Hospital Rev.,
5.625%, 2017 1,980 2,030
Lehigh County, Industrial Dev. Auth., Pollution
Control, Rev., 6.15%, 2029 1,500 1,681
Philadelphia, Water and Wastewater, Rev., 5.00%,
2015 5,000 5,035
---------------------------------------------------------------------------
8,746
- --------------------------------------------------------------------------------------------------------------------
NEBRASKA--1.2% Investment Finance Auth., Single Family Housing,
Rev., 6.70%, 2026 7,500 8,042
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MARYLAND--1.0% Howard County, Multifamily Housing, Braeland and
Eden Commons Projs., Rev., 6.20%, 2023 6,750 6,954
---------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSAND)
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATES LESS THAN IA, Housing Finance Auth., Single Family Mortgage,
ONE PERCENT--6.2% Rev., 7.90%, 2022 $ 5,200 $ 5,431
ID, Housing Agency., Single Family Mortgage Rev.,
7.875% and 6.90%, 2021 and 2025 4,070 4,274
MO, Health and Educational Facilities Auth., Lake
of the Ozarks General Hospital, Inc., Proj.,
Rev., 6.50%, 2021 1,125 1,229
MO, Housing Dev. Commission, Single Family
Mortgage Rev., 7.90%, 2021 3,120 3,193
MO, St. Louis, Regional Convention and Sports
Complex Auth., Rev., 7.90%, 2021 155 172
MN, Housing Finance Agcy., Single Family Mortgage
Rev., 8.00%, 2029 3,265 3,335
NC, Housing Finance Agcy., Single Family Mortgage
Rev., 7.85%, 2028 2,920 3,048
ND, Housing Finance Agcy., Single Family Mortgage
Rev., 8.375%, 2021 490 509
NH, Higher Educational and Health Facilities
Auth., Nashua Memorial Hospital, Rev., 6.00%,
2023 3,000 3,188
NM, Mortgage Finance Auth., Single Family
Mortgage, Rev., 8.30% and 7.80%, 2020 and 2021 4,970 5,334
NV, Clark County, Industrial Dev., Power Co.
Proj., Rev., 6.70%, 2022 1,750 1,916
OK, Turnpike Auth., Turnpike System Rev., 7.875%,
2021 355 363
SC, Oconee County, Pollution Control, Duke Power
Co. Proj., Rev., 7.75%, 2017 3,500 3,629
TN, Chattanooga, Gen. Oblg., 5.00%, 2018 4,350 4,375
WI, Housing & Economic Dev. Auth., Home Ownership,
Rev., 6.20%, 2027 2,500 2,667
---------------------------------------------------------------------------
42,663
---------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--75.5% 523,568
---------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--97.6%
(Cost: $625,034) 677,101
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--3.75%
INSTRUMENTS--.2%
Due--December 1998
(Cost: $1,000) 1,000 1,000
---------------------------------------------------------------------------
TOTAL INVESTMENTS--97.8%
(Cost: $626,034) 678,101
---------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES--2.2% 15,344
---------------------------------------------------------------------------
NET ASSETS--100% $693,445
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $626,034,000 for federal income tax purposes
at November 30, 1998, the gross unrealized appreciation was $52,076,000, the
gross unrealized depreciation was $9,000 and the net unrealized appreciation on
investments was $52,067,000.
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, 1998, 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 1994.
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, 1998, by correspondence with the custodian. 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, 1998, 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 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 19, 1999
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1998
(in thousands)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $626,034) $678,101
- ------------------------------------------------------------------------
Receivable for:
Interest 12,722
- ------------------------------------------------------------------------
Investments sold 3,778
- ------------------------------------------------------------------------
TOTAL ASSETS 694,601
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
Cash overdraft 266
- ------------------------------------------------------------------------
Payable for:
Management fee 323
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 71
- ------------------------------------------------------------------------
Trustees' fees and other 496
- ------------------------------------------------------------------------
Total liabilities 1,156
- ------------------------------------------------------------------------
NET ASSETS $693,445
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
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, 38,542 shares outstanding 385
- ------------------------------------------------------------------------
Paid-in surplus 428,034
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (11,493)
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 52,067
- ------------------------------------------------------------------------
Undistributed net investment income 9,452
- ------------------------------------------------------------------------
NET ASSETS $693,445
- ------------------------------------------------------------------------
NET ASSET VALUE PER COMMON SHARE (net assets less remarketed
preferred shares at liquidation value divided by common
shares outstanding) $12.41
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended November 30, 1998
(in thousands)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
NET INVESTMENT INCOME
- ------------------------------------------------------------------------
Interest income $43,141
- -----------------------------------------------------------------------
Expenses:
Management fee 3,800
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 233
- -----------------------------------------------------------------------
Registration and remarketing fees 526
- -----------------------------------------------------------------------
Professional fees 79
- -----------------------------------------------------------------------
Reports to shareholders 78
- -----------------------------------------------------------------------
Trustees' fees and other 155
- -----------------------------------------------------------------------
Total expenses 4,871
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 38,270
- -----------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain on sales of investments 1,885
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments 3,862
- -----------------------------------------------------------------------
Net gain on investments 5,747
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $44,017
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997
<S> <C> <C>
- --------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- --------------------------------------------------------------------------------------
Net investment income $ 38,270 40,112
- --------------------------------------------------------------------------------------
Net realized gain 1,885 791
- --------------------------------------------------------------------------------------
Change in net unrealized appreciation 3,862 389
- --------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 44,017 41,292
- --------------------------------------------------------------------------------------
Distribution from net investment income:
Common shares (33,425) (33,314)
- --------------------------------------------------------------------------------------
Remarketed preferred shares (7,829) (7,709)
- --------------------------------------------------------------------------------------
Total dividends to shareholders (41,254) (41,023)
- --------------------------------------------------------------------------------------
Proceeds from common shares issued in reinvestments of
dividends
(332 and 347 shares, respectively) 4,503 4,667
- --------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 7,266 4,936
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------
Beginning of year 686,179 681,243
- --------------------------------------------------------------------------------------
END OF YEAR (including undistributed
net investment income of
$9,452 and $12,436, respectively) $693,445 686,179
- --------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES DESCRIPTION OF FUND. Kemper Municipal Income Trust
is registered under the Investment Company Act of
1940 as a diversified, closed-end management
investment company.
SECURITY 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. 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's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable and tax-exempt income to its
shareholders. Accordingly, the fund paid no federal
income taxes and no federal income tax provision
was required.
At November 30, 1998, the fund had a tax basis net
loss carryforward of approximately $7,648,000 which
may be applied against any realized net taxable
gains of each succeeding year until fully utilized
or it will expire during the period ended 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.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2 TRANSACTIONS WITH MANAGEMENT AGREEMENT. The fund has a management
AFFILIATES agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the annual rate of .55%
of average weekly net assets. The fund incurred a
management fee of $3,800,000 for the year ended
November 30, 1998.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurich's business to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, the fund's
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Trustees of the fund has
approved a new investment management agreement with
Scudder Kemper, which is substantially identical to
the former investment management agreement, except
for the dates of execution and termination.
Shareholders approved the new investment management
agreement through a proxy solicitation that
concluded in mid-December.
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 $55,000
for the year ended November 30, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. For the year ended November 30,
1998, the fund made no payments to its officers and
incurred trustees' fees of $44,000 to independent
trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT For the year ended November 30, 1998, investment
TRANSACTIONS transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<S> <C>
Purchases $131,600
Proceeds from sales 131,201
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE FOR A COMMON SHARE
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 12.33 12.31 12.41 11.12 13.25
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .99 1.04 1.07 1.10 1.10
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .16 .05 (.10) 1.29 (1.84)
- -------------------------------------------------------------------------------------------------------
Total from investment operations 1.15 1.09 .97 2.39 (.74)
- -------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income to
common shareholders .87 .87 .87 .87 .87
- -------------------------------------------------------------------------------------------------------
Distribution from net investment income to
preferred shareholders (common share
equivalent) .20 .20 .20 .23 .16
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain to common
shareholders -- -- -- -- .36
- -------------------------------------------------------------------------------------------------------
Total dividends 1.07 1.07 1.07 1.10 1.39
- -------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 12.41 12.33 12.31 12.41 11.12
- -------------------------------------------------------------------------------------------------------
Market value, end of year $ 14.63 14.13 13.13 12.63 11.00
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN PER COMMON SHARE
Based on net asset value 7.96% 7.57 6.56 20.00 (7.36)
- -------------------------------------------------------------------------------------------------------
Based on market value 10.60% 15.16 11.57 23.55 (4.66)
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS EXCLUDING PREFERRED SHARES EQUITY
Expenses 1.02% 1.02 1.06 1.01 1.03
- -------------------------------------------------------------------------------------------------------
Net investment income 8.04% 8.66 8.87 9.22 9.04
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS INCLUDING PREFERRED SHARES EQUITY
Expenses .70% .69 .72 .69 .70
- -------------------------------------------------------------------------------------------------------
Net investment income 5.54% 5.92 6.03 6.23 6.13
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets at end of year, net of remarketed
preferred shares (in thousands) $478,445 471,179 466,243 464,684 414,790
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate 17% 7 26 19 12
- -------------------------------------------------------------------------------------------------------
Remarketed preferred shares information at end of year:
Aggregate amount outstanding (in thousands) $215,000 215,000 215,000 215,000 215,000
Asset coverage per share $ 16,100 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.
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.
- --------------------------------------------------------------------------------
13 TAX IMPLICATIONS Shareholders will receive tax information annually
for personal records and to assist in preparation
of their Federal income tax return. If shares are
purchased at a discount, the amount of the discount
is considered taxable income and is added to the
cost basis of the purchased shares.
22
<PAGE> 23
SHAREHOLDERS' MEETING
ANNUAL SHAREHOLDERS' MEETING
An annual shareholders' meeting was held on October 22, 1998 for Kemper
Municipal Income Trust. Shareholders were asked to vote on two separate issues:
election of members to the Board of Trustees and ratification of Ernst & Young
LLP as independent auditors. The following are the results for each issue:
1) Election of Trustees
Preferred Shares (Voting alone)
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Frederick T. Kelsey 35,075 0
Daniel Pierce 35,075 0
</TABLE>
Common and Preferred Shares (Voting together)
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Atkins 34,026,096 554,668
Arthur R. Gottschalk 34,134,151 446,614
Thomas W. Littauer 34,084,747 496,018
Fred B. Renwick 34,066,096 514,669
John B. Tingleff 34,148,509 428,181
John G. Weithers 34,053,957 432,255
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund. This item was approved.
Common and Preferred Shares (Voting together)
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
34,053,957 153,949 372,856
</TABLE>
23
<PAGE> 24
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY KATHRYN L. QUIRK
Chairman and Trustee President Vice President
JAMES E. AKINS PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK MAUREEN E. KANE
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
FREDERICK T. KELSEY CAROLINE PEARSON
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
THOMAS W. LITTAUER CHRISTOPHER J. MIER ELIZABETH C. WERTH
Trustee and Vice President Vice President Assistant Secretary
ROBERT C. PECK, JR.
FRED B. RENWICK Vice President BRENDA LYONS
Trustee Assistant Treasurer
JOHN B. TINGLEFF
Trustee
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 Avenue
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
KEMPER FUNDS LOGO
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed on recycled paper in the U.S.A.
KMIT - 2 (1/26/99) 1064350
