<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MAY 31, 1999
Kemper Municipal Income
Trust
"... While other fixed income asset classes, such as corporate bonds and
Treasuries, experienced a rough ride during the last six months, municipal bonds
remained relatively stable. ..."
[KEMPER FUNDS LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
PORTFOLIO COMPOSITION
PORTFOLIO STATISTICS
8
PORTFOLIO OF
INVESTMENTS
16
FINANCIAL STATEMENTS
18
NOTES TO
FINANCIAL STATEMENTS
20
FINANCIAL HIGHLIGHTS
21
SHAREHOLDERS' MEETING
At A GLANCE
TERMS TO KNOW
KEMPER MUNICIPAL INCOME TRUST
TOTAL RETURNS
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1999
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
.........................................................
<S> <C> <C> <C> <C>
KEMPER MUNICIPAL
INCOME TRUST 0.19% -10.32%
.........................................................
</TABLE>
NET ASSET VALUE AND MARKET PRICE
<TABLE>
<CAPTION>
AS OF AS OF
5/31/99 11/30/98
.........................................................
<S> <C> <C> <C> <C>
NET ASSET VALUE $12.02 $12.41
.........................................................
MARKET PRICE $12.69 $14.63
.........................................................
</TABLE>
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.
DIVIDEND REVIEW
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF MAY 31, 1999.
<TABLE>
<CAPTION>
KEMPER
MUNICIPAL
INCOME TRUST
......................................................
<S> <C> <C> <C>
SIX-MONTHS INCOME $0.4150
......................................................
MAY DIVIDEND $0.0685
......................................................
ANNUALIZED DISTRIBUTION RATE
(BASED ON NET ASSET VALUE) 6.83%
......................................................
ANNUALIZED DISTRIBUTION RATE
(BASED ON MARKET PRICE) 6.48%
......................................................
TAX EQUIVALENT DISTRIBUTION RATE
(BASED ON NET ASSET VALUE AND A
37.1% FEDERAL INCOME TAX RATE) 10.86%
......................................................
TAX EQUIVALENT DISTRIBUTION RATE
(BASED ON MARKET PRICE AND A
37.1% FEDERAL INCOME TAX RATE) 10.30%
......................................................
</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. MARKET PRICE,
DISTRIBUTION RATES, NET ASSET VALUE AND RETURNS ARE HISTORICAL AND WILL
FLUCTUATE AND DO NOT GUARANTEE FUTURE RESULTS. ADDITIONAL INFORMATION CONCERNING
PERFORMANCE IS CONTAINED IN THE FINANCIAL HIGHLIGHTS APPEARING AT THE END OF
THIS REPORT.
TERMS TO KNOW
BOND RATINGS Grades assigned by credit-rating agencies to corporate and
municipal debt securities, based on the borrower's expected ability to repay.
The higher the grade, the lower the interest rate a borrower will usually pay.
The two major credit rating firms are Moody's Investors Service, Inc. and
Standard and Poor's.
DURATION A measure of the interest rate sensitivity of a fixed investment or
portfolio, incorporating time to maturity and coupon size. The longer a
portfolio's duration, the greater its sensitivity to interest rate changes.
REVENUE BOND INDEX (RBI) The RBI is the average yield on 25 revenue bonds with
30-year maturities generally rated single "A," compiled by THE BOND BUYER, a
newspaper that reports on the municipal bond market.
<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 PH.D. IN ECONOMICS FROM NORTHEASTERN UNIVERSITY IN BOSTON, MASS.
HE IS A MEMBER OF BOTH THE BLUE CHIP ECONOMIC AND FINANCIAL SURVEYS, AND SERVES
ON THE POLICY ADVISORY COMMITTEES OF THE FEDERAL RESERVE BOARDS OF CHICAGO AND
CLEVELAND.
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $280 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
As expected, the Federal Reserve Board raised its federal funds interest rate
(the rate at which banks lend to each other overnight) by one-fourth of a
percentage point in June. Although higher interest rates tend to have a
dampening effect on the market, investors rallied in response to this move. The
Dow Jones Industrial Average, which was down 50 points before the Fed's
statement on June 30, reversed course and ended the day at its highest closing
level in six weeks. The Dow went on to close at a record-setting high of 11,187
on July 7.
What led to the interest rate hike, and why does the market reaction suggest
that investors are happy about it?
It is generally recognized that a modest rate hike by the Fed may be effective
in slowing the economy sufficiently to suppress any simmering inflationary
pressures. Although the economy has been strong, there are concerns that it will
be unable to maintain its current rate of growth without prompting inflationary
pressures -- which is at the heart of the Fed's decision to raise interest
rates. The Fed is acting now to be proactive. In the past, Fed policy has been
reactive, which meant that the Fed tended to respond to inflation only when it
picked up. A rate hike now is intended to halt any future buildup in inflation.
Moreover, by hinting at an increase well in advance -- then by limiting the
increase to 25 basis points -- the Fed relieved worried investors and gave a
boost to the financial markets.
Despite the minor rate increase, the long-term economic situation appears to
be positive. The federal budget surplus continues to benefit from good revenue
gains (which are based on good income gains, especially for households), good
capital gains and continued restraint in federal spending. The surplus this year
is expected to approach $100 billion.
This positive environment is exactly what sometimes poses risk for investors,
and is key to understanding recent volatility in the market. A strong economy
has the potential to feed inflation fears and drive up interest rates. Indeed,
recent market events illustrate the domino effect of investors reacting to
positive economic news, which they consider troubling at this point, more than
eight years into the economic expansion. Prior to its strong close in the second
quarter, the steady stream of positive economic news led to a sell-off in the
financial markets based on fears that the strong pace of economic growth would
eventually lead to higher inflation. The benchmark 30-year Treasury bond yield
rose, which pulled stocks lower.
Where can we expect to go from here? The fundamentals by which we judge the
health of the economy suggest continued growth as we move into the second half
of 1999. For example, the gross domestic product (GDP), the value of all goods
and services produced in the U.S., is expected to rise at an annual rate of 4
percent in the first half of 1999, following a tremendous fourth-quarter surge
of 6 percent. This is very much in line with what we've grown accustomed to over
the past year -- over the four quarters of 1998, the U.S. economy expanded by
4.3 percent. Some people aren't surprised at all by strong GDP growth that once
would have alarmed them. That's partially because we've grown accustomed to a
strong economy. But it's also because we've been able to absorb growth without
driving up inflation. That's important for investors. If prices had been rising
as the economy was growing, the Fed would have most likely raised short-term
interest rates earlier and more drastically, and that would have changed the
financial market outlook.
However, we do see some vulnerability on the economic front. Trade is a weak
spot in the economy right now. Exports of U.S. goods and services dropped in the
first half of 1999, while imports soared. This reflects the fact that the U.S.
is one of the few countries financially fit enough to buy goods produced
elsewhere in the world. But for as long as less vibrant international economies
are unable to buy U.S. goods, the profitability of U.S. companies trying to
export will be challenged.
When you think about it, vulnerability in regard to the international economy
is nothing new. Globally, the outlook is slightly more positive than it was a
few months ago. For example, the European markets are slowing down, which has
already led to the European Central Bank lowering interest rates in order to
boost domestic spending. In many countries in Europe there are no fixed-rate
mortgages, only adjustable-rate mortgages. When interest rates go down, mortgage
payments are reduced and homeowners can spend money elsewhere. This has a huge
impact on consumer spending, and will help European equities over time.
Additionally, the situation in Japan remains unchanged. And, problems in the
emerging markets haven't had the negative impact many people expected -- both
the Mexican and Brazilian stock markets have actually risen in the past two
months.
But don't forget that international crises have the potential to affect the
U.S. markets dramatically. Although the Kosovo crisis seems to be waning, past
increases in military spending on Kosovo by the 11 European Monetary Union (EMU)
countries could force them to spend less in other areas, which could have
economic implications, including higher interest rates. That's because many
European countries (especially Italy) have small economies and
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 (6/30/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Ten Year Treasury Rate 5.90 4.81 5.65 6.69
Prime Rate 7.75 8.49 8.50 8.30
Inflation* 2.03 1.62 1.44 3.03
The U.S. Dollar* -2.4 4.31 4.88 8.58
Capital goods orders* 7.73 11.44 8.10 5.52
Industrial production * 1.72 3.58 5.05 5.86
Employment growth* 2.15 2.48 2.61 2.51
</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, 1999.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
little leeway in their budgets. Consequently, those countries financed unplanned
military expenditures by selling government bonds -- which, in Europe's small
bond market, typically raises interest rates. As an example, consider Italy,
which recently asked for more leeway on its deficit targets. When leeway was
granted, this led to a further sell-off in the eurodollar.
The international situation alone, however, is by no means an indicator of a
U.S. slowdown -- and without any such indications, complacency may be our
greatest concern. It's easy to look at the current U.S. economic situation and
behave as if no risk exists. But when you see the market soaring and are tempted
to jump in, note that the bull market grew to records on the strength of just a
few dozen stocks, while most other stock prices were flat or actually declined.
In summary, there are concerns that the current economy is unsustainable and
we soon could see an abrupt end. In many cases, however, people are looking for
a slowdown because they are fearful growth will drive up inflation these are
particularly older investors who are accustomed to inflation accompanying
growth. But again, sustained inflation seems unlikely, so a sharp slowdown is
not necessary. In the short term, we expect a modest economic slowdown but no
recession. The best approach now, as in any market, is to diversify and invest
for the long term.
Thank you for your continued support. 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 SILVIA AS OF JUNE 9, 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.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
[CONDON PHOTO]
PHILIP G. CONDON JOINED THE FIRM IN 1983 AND IS LEAD PORTFOLIO MANAGER OF THE
FUND AND MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS' MUNICIPAL BOND GROUP.
HE HAS ALSO SERVED AS DIRECTOR OF THE MUNICIPAL BOND RESEARCH DEPARTMENT.
[BRENNAN PHOTO]
ELEANOR R. BRENNAN JOINED THE ORGANIZATION IN 1995 AND IS PORTFOLIO MANAGER OF
THE FUND. SHE IS A SENIOR VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, INC. AND
A CHARTERED FINANCIAL ANALYST.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
PERFORMANCE Update
AS THE FISCAL YEAR BEGAN, INVESTOR FOCUS SHIFTED
FROM TURBULENCE OVERSEAS TO UNEXPECTEDLY STRONG
ECONOMIC GROWTH IN THE U.S. WHILE FEARS OF
POTENTIALLY HIGHER INTEREST RATES CAUSED GOVERNMENT
AND CORPORATE BOND YIELDS TO FLUCTUATE
SUBSTANTIALLY, MUNICIPAL BONDS HELD THEIR GROUND IN
THE MIDST OF THE TURMOIL. BELOW, THE MANAGEMENT
TEAM DISCUSSES THE MARKET'S PERFORMANCE AND HOW THE
FUND WAS POSITIONED IN RESPONSE.
Q
HOW DID THE MUNICIPAL BOND MARKET PERFORM DURING THE LAST SIX MONTHS
RELATIVE TO OTHER FIXED-INCOME ASSET CLASSES?
A
While other fixed income asset classes, such as corporate bonds and
Treasuries, experienced a rough ride during the last six months, municipal bonds
remained relatively stable.
For example, the Lehman Brothers Municipal Bond Index* gained 0.81 percent for
the six-month period ended May 31, 1999. That may not seem like much, but
compare it to the Lehman Brothers Long Government Bond Index,** which fell 5.76
percent, and the Lehman Brothers Government/Corporate Bond Index,*** which was
down 1.73 percent. And of course, the municipal bond index return doesn't take
into account the tax advantage that municipals offer. So municipal bonds were a
good place to be if you were a fixed income investor, especially a nervous one.
* LEHMAN BROTHERS MUNICIPAL BOND INDEX IS GENERALLY REPRESENTATIVE OF THE
PERFORMANCE OF LONG-TERM INVESTMENT-GRADE MUNICIPAL BONDS. THE INDEX IS
CALCULATED MONTHLY AND INCLUDES THE EFFECT OF REINVESTMENT OF DIVIDENDS.
SOURCE IS LIPPER ANALYTICAL SERVICES, INC.
** LEHMAN BROTHERS LONG GOVERNMENT BOND INDEX IS GENERALLY REPRESENTATIVE OF
THE PERFORMANCE OF GOVERNMENT AND AGENCY BONDS WITH A MATURITY OF TEN YEARS
AND GREATER. THIS INDEX IS CALCULATED MONTHLY AND INCLUDES THE EFFECT OF
REINVESTMENT OF DIVIDENDS. SOURCE IS LIPPER ANALYTICAL SERVICES, INC.
*** LEHMAN BROTHERS GOVERNMENT/ CORPORATE BOND INDEX IS GENERALLY REPRESENTATIVE
OF THE PERFORMANCE OF GOVERNMENT, AGENCY AND INVESTMENT-GRADE CORPORATE
BONDS. THIS INDEX IS CALCULATED MONTHLY AND INCLUDES THE EFFECT OF
REINVESTMENT OF DIVIDENDS. SOURCE IS LIPPER ANALYTICAL SERVICES, INC.
Q
WHAT CAUSED THE DOWNTURN
IN OTHER ASSET CLASSES?
A
The sell-off in U.S. government bonds was due to an about-face by
investors. Last summer, turbulence in foreign markets prompted a massive flight
to quality as global investors sought a safe, liquid haven for their assets.
Since U.S. government bonds were the obvious choice, billions of dollars poured
into the U.S. bond market. This demand pushed prices up and yields down,
particularly on Treasury bonds.
At the start of the fiscal year, that situation began to reverse itself. As
the months progressed, the U.S. economy's strong growth continued unabated. Oil
prices began to move higher, the labor market remained robust, and investors
became concerned that higher interest rates were around the corner. In addition,
foreign markets, particularly in Asia, started to settle down. This all prompted
a flight FROM quality, and yields began to rise. For example, on November 25,
1998, before the start of the fiscal year, 30-year Treasuries yielded 5.18
percent. By May 27, 1999, yields had moved up to 5.84 percent.
5
<PAGE> 6
Q
WHY DID MUNICIPAL BONDS SEEM TO BE IMMUNE TO ALL THIS?
A
"Immune" is probably too strong a word. According to THE BOND BUYER
25-Bond Revenue Index, A-rated municipal bond yields increased from 5.25 percent
at the start of the fiscal year to 5.41 percent. Clearly, that isn't as dramatic
as what took place in the Treasury market, but bond prices declined nonetheless.
However, the turbulence had less of an impact because different forces were
acting to limit a municipal sell-off. When Treasuries and other fixed income
classes were being pummeled, two factors helped support municipal bond prices.
First, supply decreased dramatically. Second, municipal bonds offered a very
attractive value to investors who don't usually buy them. The previous dramatic
yield decline on U.S. government bonds had caused municipal bonds to actually
OUTYIELD similar maturity Treasuries (based on THE BOND BUYER index).
Historically, that's very unusual. Normally, long-maturity municipal bonds
typically yield about 80-90 percent of a similar maturity Treasury because the
tax-advantage of municipal bonds is typically "built in" to the price. Thus,
municipal bonds represented a great value throughout the six-month period, which
attracted some non-traditional buyers and helped support prices when the
Treasury market was under pressure.
According to THE BOND BUYER index, municipals now yield about 93 percent of
what similar maturity Treasuries do -- that's less than in previous months, but
municipals are still very attractive.
Q
HOW DID THE FUND RESPOND TO THE MARKET'S CONDITIONS?
A
As is our normal style, we tended to keep the fund's duration near neutral
and tried to spot attractive values created by dislocations in the market. In
the rising rate environment of the last few months, our approach prompted us to
do two things. First, we increased income when opportunities presented
themselves. For example, yields on bonds of differing credit quality didn't move
up in tandem. In some cases, we determined that we could buy bonds that offered
an incremental increase in yield without decreasing the fund's credit quality.
Second, we tended to concentrate on the intermediate area of the yield curve,
roughly 10-15 years. Our analysis has shown that this area of the yield curve
offers an attractive trade-off of risk and return. You can get a significant
percentage of the income that longer-term issues provide, but with bonds that
aren't nearly as potentially volatile.
When possible, we also traded to increase the fund's call protection and
offset gains with losses as appropriate to help the fund operate more
efficiently on a tax basis.
The net result of our efforts was that the fund outperformed its peer group
average during the first half of the fiscal year. The fund achieved a total
return of 0.19 percent (based on net asset value) versus -0.01 percent for the
Lipper Closed-end General Muni Debt Fund Leveraged Index. While our return
certainly isn't spectacular on an absolute basis, given the environment we're
pretty happy with how the fund has performed.
Q
HOW DO YOU VIEW THE ATTRACTIVENESS OF MUNICIPAL BONDS FOR THE REST OF THE
YEAR VERSUS OTHER TYPES OF BONDS?
A
We think there are several reasons why municipals should continue to
perform relatively well. First, the municipal market should be more stable than
the government and corporate bond markets. As the first half of the fiscal year
drew to a close, it appeared that investors were expecting the Federal Reserve
to raise rates at least once. If the Fed does tighten, Treasuries and corporate
bonds would likely remain volatile as investors try to interpret the
ramifications of higher rates on both the domestic and global economies.
Meanwhile, municipal investors tend to pay less attention to global markets or
corporate profits. They are typically more reliable buyers, and their steady
demand should help dampen volatility in the municipal bond market.
Second, the municipal market continues to offer attractive value, with
long-maturity yields still attractive relative to Treasuries. As we mentioned,
municipals now yield more than 90 percent of similar maturity Treasuries. Third,
strong municipal finances should help alleviate credit concerns. And finally,
issuance has so far remained about 20 percent below last year's levels, and that
lack of supply should help support prices.
For these reasons, we think that municipal bonds will continue to offer
investors an attractive alternative to other fixed-income investments.
Performance UPDATE
6
<PAGE> 7
PORTFOLIO Composition PORTFOLIO Statistics
PORTFOLIO COMPOSITION*
REPRESENTING THE FUND'S COMPOSITION ON MAY 31, 1999
<TABLE>
<CAPTION>
HOLDINGS PERCENT
<S> <C> <C>
- ----------------------------------------------------------
1. REVENUE BONDS 76%
- ----------------------------------------------------------
2. U.S. GOVERNMENT SECURED AND 20%
CROSSOVERS
- ----------------------------------------------------------
3. GENERAL OBLIGATIONS 4%
- ----------------------------------------------------------
</TABLE>
SECURITIES RATINGS
<TABLE>
<CAPTION>
ON 5/31/99 ON 11/30/98
<S> <C> <C> <C> <C>
AAA 69% 61%
..............................................................................
AA 13 16
..............................................................................
A 7 8
..............................................................................
BBB 7 9
..............................................................................
BB 1 1
..............................................................................
NOT RATED 3 5
- ------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
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 5/31/99 ON 11/30/98
<S> <C> <C> <C> <C>
AVERAGE MATURITY 19.1 years 18.5 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, 1999 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL INVESTMENTS
- --------------------------------------------------------------------------------------------------------------------
ALABAMA--2.8%
Alabama Docks Department, Facilities Revenue,
6.3%, 10/01/2021 $ 8,250 $ 9,035
Jefferson County, AL, Sewer Revenue:
5.7%, 02/01/2020 3,420 3,598
5.75%, 02/01/2022 5,000 5,286
5.75%, 02/01/2027 600 632
-------------------------------------------------------------------------
18,551
- --------------------------------------------------------------------------------------------------------------------
CALIFORNIA--5.6%
California General Obligations:
Prerefunded 03/01/05 @ 101, 5.9%, 03/01/2025 7,410 8,180
5.9%, 03/01/2025 280 300
California Housing Finance Agency, Home Mortgage,
Revenue, 8.3%, 08/01/2019 400 409
California Public Works Board Lease Revenue,
5.0%, 09/01/2015 4,000 3,998
Los Angeles County, CA, Public Work Financing
Lease, Revenue, 5.125%, 12/01/2017 4,250 4,253
Los Angeles County, CA, Metropolitan
Transportation Authority, Sales Tax Revenue,
6.0%, 07/01/2026 2,750 3,088
Orange County, CA, Recovery Certificates of
Participation, 6.0%, 07/01/2026 11,500 12,353
Sacramento County, CA, Airport System, Revenue,
5.9%, 07/01/2024 5,000 5,293
-------------------------------------------------------------------------
37,874
- --------------------------------------------------------------------------------------------------------------------
COLORADO--3.0%
Adams County, CO, Multifamily Housing, Oasis Park
Apartments Project, 6.15%, 01/01/2026 6,580 6,938
Colorado Housing and Finance Authority, Single
Family Program, Revenue, 7.7%, 02/01/2021 1,630 1,666
Denver, CO, City and County of Denver, Airport
Improvement Revenue:
Prerefunded 11/15/2002 @ 102, 6.75%, 11/15/2013 325 360
6.75%, 11/15/2013 2,455 2,637
Prerefunded 11/15/2002 @ 102, 6.75%, 11/15/2022 690 765
6.75%, 11/15/2022 2,610 2,799
Prerefunded 11/15/2000 @ 102, 8.5%, 11/15/2023 390 425
8.5%, 11/15/2023 4,110 4,418
-------------------------------------------------------------------------
20,008
- --------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--2.0%
Washington D.C. Airport Authority, General
Airport Revenue, 5.75%, 10/01/2020 13,100 13,546
-------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
(DOLLARS IN THOUSANDS)
PORTFOLIO OF Investments
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
FLORIDA--6.7%
Broward County, FL, Resource Recovery, Waste
Energy Company, Revenue:
Waste Energy North, 7.95%, 12/01/2008 $ 2,530 $ 2,652
South Project, 7.95%, 12/01/2008 1,245 1,305
Dade County, FL, Aviation Revenue, 5.75%,
10/01/2026 20,400 21,167
Dade County, FL, Special Obligation, Capital
Appreciation, Revenue, Zero Coupon:
Prerefunded 10/01/2008 @ 42.762, 10/01/2022 7,735 2,170
Prerefunded 10/01/2008 @ 37.66, 10/01/2024 16,955 4,190
Florida Housing Finance Agency, Home Ownership,
Revenue, 8.3%, 06/01/2020 275 275
Hillsborough County, FL, Industrial Development
Authority Revenue, Health Facility, University
Community Hospital Project, 5.625%, 08/15/2023 1,000 993
Orange County, FL, Tourist Development, Tax
Refunding, Revenue, 5.125%, 10/01/2020 5,000 4,955
Volusia County, FL, Health Facilities Authority,
Memorial Health Systems Project, Revenue,
Prerefunded 06/01/00 @ 102, 8.25%, 06/01/2020 7,000 7,464
-------------------------------------------------------------------------
45,171
- --------------------------------------------------------------------------------------------------------------------
HAWAII--2.1%
Hawaii Department of Budget and Finance, Special
Purpose, Hawaiian Electric Company, Inc.
Project, Revenue, 6.2%, 05/01/2026 13,200 14,352
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
IDAHO--.5%
Idaho Housing Agency, Single Family Mortgage
Revenue:
7.875%, 07/01/2021 1,370 1,409
6.9%, 07/01/2025 2,095 2,201
-------------------------------------------------------------------------
3,610
- --------------------------------------------------------------------------------------------------------------------
ILLINOIS--10.7%
Chicago, IL, Midway Airport, Revenue, 5.625%,
01/01/2029 4,000 4,083
Chicago, IL, O'Hare International Airport,
Special Facilities Revenue, United Airlines
Project, Series A, 5.35%, 09/01/2016 3,000 2,957
Chicago, IL, O'Hare International Airport,
International Terminal, Special Revenue:
7.625%, 01/01/2010 10,000 10,428
8.2%, 12/01/2024 4,775 5,589
Chicago, IL, Peoples Gas, Light and Coke Company,
Revenue, 8.1%, 05/01/2020 1,250 1,322
Harvard, IL, Multifamily Housing, Northfield
Court Project, Revenue, 9.5%, 06/01/2006 2,495 2,655
Health Facility Authority, Bethany Home and
Hospital, Revenue, 8.625%, 02/15/2009 6,095 6,439
Illinois Development Finance Authority, Pollution
Control, Commonwealth Edison Company Project,
Revenue, 6.75%, 03/01/2015 4,220 4,720
Illinois Development Finance Authority, Catholic
Health Partners Services, Revenue, 5.3%,
02/15/2018 3,500 3,441
Illinois Development Finance Authority, Hospital
Revenue, Adventist Health System:
5.5%, 11/15/2020 2,500 2,435
5.65%, 11/15/2024 7,500 7,371
</TABLE>
9
<PAGE> 10
(DOLLARS IN THOUSANDS)
Portfolio of INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Illinois Housing Development Authority,
Multifamily Housing, Ginger Ridge, 5.9%,
11/01/2030 $ 1,000 $ 1,042
Illinois Regional Transportation Authority, Cook,
DuPage, Kane, Lake, McHenry and Will Countries,
Revenue, 6.125%, 06/01/2022 4,000 4,200
Illinois Skyway Toll, 6.75%, 01/01/2014 2,775 3,126
Illinois Sports Facilities Authority, 7.875%,
06/15/2010 6,000 6,139
Will County, IL, Exempt Facilities, Mobil Oil
Refining Corp. Project, Revenue, 6.0%,
01/02/2027 5,000 5,307
-------------------------------------------------------------------------
71,254
- --------------------------------------------------------------------------------------------------------------------
INDIANA--4.8%
Indiana Employment and Development Commission,
Indianapolis Power and Light Co., Revenue,
7.45%, 08/01/2019 14,215 14,574
Indiana Health Facility Financing Authority,
Hospital Revenue, Riverview Hospital Project,
5.5%, 08/01/2019 1,300 1,272
5.5%, 08/01/2024 1,000 971
Indianapolis, IN, Gas Utility System Revenue,
Prerefunded 06/01/04 @ 102, 5.875%, 06/01/2024 14,000 15,340
-------------------------------------------------------------------------
32,157
- --------------------------------------------------------------------------------------------------------------------
IOWA--.7%
Iowa Housing Finance Authority, Single Family
Mortgage, Revenue, 7.9%, 11/01/2022 4,645 4,788
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
LOUISIANA--1.2%
Louisiana Public Facilities Authority, Lafayette
General Medical Center Project, Revenue,
Prerefunded 10/01/02 @ 102, 6.5%, 10/01/2022 7,350 8,073
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MAINE--1.5%
Maine Health and Higher Educational Facilities
Authority, Revenue:
5.7%, 07/01/2013 5,000 5,294
Prerefunded 07/01/2004 @ 102, 7.0%, 07/01/2024 4,235 4,868
7.0%, 07/01/2024 85 96
Maine Housing Authority, Mortgage Purchase,
Revenue, 8.3%, 11/15/2028 30 30
-------------------------------------------------------------------------
10,288
- --------------------------------------------------------------------------------------------------------------------
MARYLAND--1.0%
Howard County, MD, Braeland Commons Project,
Revenue, 6.2%, 06/15/2023 2,500 2,554
Howard County, MD, Multifamily Housing, Edens
Commons Project, Revenue, 6.2%, 06/15/2023 4,250 4,342
-------------------------------------------------------------------------
6,896
- --------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--4.2%
Massachusetts Bay Transportation Authority,
General Transportation System, Revenue, 5.625%,
03/01/2026 $ 1,900 $ 2,059
Massachusetts Port Authority, Special Facilities,
US Air Project, Revenue, 5.875%, 09/01/2023 6,755 7,098
Massachusetts Turnpike Authority, Metro Highway
System, Revenue, 5.25%, 01/01/2029 5,050 5,031
Massachusetts Water Resource Authority, Revenue,
5.0%, 08/01/2024 14,750 14,148
-------------------------------------------------------------------------
28,336
</TABLE>
10
<PAGE> 11
(DOLLARS IN THOUSANDS)
PORTFOLIO OF Investments
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
MICHIGAN--2.4%
Chippewa County, MI, Warren Memorial Hospital,
Revenue, 5.625%, 11/01/2014 $ 1,500 $ 1,500
Monroe County, MI, Pollution Control, Detroit
Edison Project, Revenue, 7.75%, 12/01/2019 6,500 6,789
Wayne Charter County, MI, Detroit-Metro Wayne
County, Revenue, 5.0%, 12/01/2022 8,150 7,745
-------------------------------------------------------------------------
16,034
- --------------------------------------------------------------------------------------------------------------------
MISSOURI--1.4%
Missouri Health and Educational Facilities
Authority, Lake of the Ozarks General Hospital,
Inc. Project, Revenue:
Prerefunded 02/15/2006 @ 102, 6.5%, 02/15/2021 755 856
02/15/2021 370 392
St. Louis, MO, Regional Convention and Sports
Complex Authority, Revenue:
Prerefunded 8/15/2003 @ 100, 7.9%, 08/15/2021 3,445 3,964
7.9%, 08/15/2021 155 169
West Plains, MO, Industrial Development
Authority, Ozarks Medical Center Project,
Revenue, Prerefunded 09/15/00 @ 102, 8.625%,
09/15/2020 3,545 3,843
-------------------------------------------------------------------------
9,224
- --------------------------------------------------------------------------------------------------------------------
NEBRASKA--1.8%
Nebraska Investment Finance Authority, Single
Family Housing, Revenue, 6.7%, 09/01/2026 7,500 7,963
Scotts Bluff County, NE, Hospital Authority,
Regional West Medical Center Project, 5.25%,
11/15/2028 4,000 3,818
-------------------------------------------------------------------------
11,781
- --------------------------------------------------------------------------------------------------------------------
NEVADA--.5%
Clark County Nevada Industrial Development
Revenue, Nevada Power Company Project, 6.7%,
06/01/2022 1,750 1,897
Nevada, General Obligation, 5.0%, 05/15/2022 1,690 1,631
-------------------------------------------------------------------------
3,528
- --------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE--.5%
New Hampshire Higher Educational and Health
Facilities Authority, Nashua Memorial Hospital,
Revenue, 6.0%, 10/01/2023 3,000 3,095
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NEW JERSEY--4.7%
New Jersey Economic Development Authority,
Educational Testing Service, Revenue, 5.875%,
12/01/2026 1,400 1,419
New Jersey Economic Development Authority, Water
Facilities, New Jersey American Water Co., Inc.
Project, Revenue:
6.875%, 11/01/2034 10,775 12,089
6.0%, 05/01/2036 10,000 10,779
New Jersey Health Care Facilities Financing
Authority, General Hospital Center at Passaic,
Revenue, 6.75%, 07/01/2019 5,000 5,966
New Jersey Housing and Mortgage Finance Agency,
Home Buyer 7.7%, 10/01/2029 1,455 1,490
-------------------------------------------------------------------------
31,743
</TABLE>
11
<PAGE> 12
(DOLLARS IN THOUSANDS)
Portfolio of INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
NEW MEXICO--.6%
New Mexico Mortgage Finance Authority, Single
Family Mortgage, Revenue:
8.3%, 03/01/2020 $ 2,400 $ 2,599
7.8%, 03/01/2021 1,695 1,736
-------------------------------------------------------------------------
4,335
- --------------------------------------------------------------------------------------------------------------------
NEW YORK--8.0%
New York City, NY, General Obligation:
Prerefunded 08/01/1999 @ 101.5, 7.5%,
08/01/2003 1,780 1,819
7.5%, 08/01/2003 885 904
Prerefunded 08/01/1999 @ 101.5, 7.5%,
08/01/2004 5,890 6,020
7.5%, 08/01/2025 1,875 1,915
6.125%, 08/01/2025 1,500 1,640
New York State, Revenue Bonds Dorm Authorization,
7.0%, 05/15/2016 5,495 5,770
New York State Dormitory Authority, State
University Educational Facilities, Revenue:
Prerefunded 05/15/2000 @ 102, 7.375%,
05/15/2014 1,645 1,732
7.375%, 05/15/2014 1,355 1,434
Prerefunded 05/15/02 @ 102, 7.25%, 05/15/2018 565 629
Series A, Prerefunded 05/15/02 @ 102, 7.25%,
05/15/2018 4,435 4,936
New York State Dormitory Authority:
Bronx-Lebanon Hospital Center, 5.2%, 02/15/2016 1,770 1,739
Jamaica Hospital, 5.2%, 02/15/2016 1,000 982
City University NC, 5.625%, 07/01/2016 1,500 1,579
New York State Housing Finance Agency, Service
Contract, Revenue, Prerefunded 03/15/2002 @
102, 7.375%, 09/15/2021 3,000 3,321
New York State Medical Care Facilities Finance
Agency, Mental Health Services, Revenue,
Prerefunded 04/01/2001 @ 102, 7.7%, 02/15/2018 1,525 1,545
New York State Urban Development Corporation,
State Facilities, Revenue, Prerefunded
04/01/2001 @ 102, 7.5%, 04/01/2011 6,695 7,276
New York and New Jersey Port Authority, JFK
International Air Terminal 6, Revenue, 5.75%,
12/01/2025 4,000 4,182
Niagara Frontier Transportation, NY, Greater
Buffalo International Airport, Revenue, 6.25%,
04/01/2024 5,750 6,256
-------------------------------------------------------------------------
53,679
- --------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA--.3%
North Carolina Housing Finance Agency, Single
Family Mortgage Revenue, 7.85%, 09/01/2028 2,175 2,247
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NORTH DAKOTA--.1%
North Dakota Housing Finance Agency, Single
Family Mortgage, Revenue, 8.375%, 07/01/2021 435 449
-------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
(DOLLARS IN THOUSANDS)
PORTFOLIO OF Investments
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
OHIO--3.0%
Cuyahoga County, OH, Meridia Health System,
Hospital Revenue, Prefunded 08/15/2005 @ 102,
6.25%, 08/15/2024 $ 2,350 $ 2,649
Green Springs, OH, Health Care Facilities
Revenue, 7.125%, 05/20/2025 6,000 5,803
Ohio Building Authority, Administrative Building
Fund Project, Revenue, 5.0%, 10/01/2015 6,010 5,967
Ohio Higher Education Facility Commission,
University of Findlay Project, Revenue:
6.15%, 09/01/2011 1,635 1,700
6.125%, 09/01/2016 2,000 2,069
Ohio Housing Finance Agency, Single Family
Mortgage Revenue, 7.65%, 03/01/2029 1,666 1,703
-------------------------------------------------------------------------
19,891
- --------------------------------------------------------------------------------------------------------------------
OKLAHOMA--1.1%
Oklahoma Development Financial Authority, Revenue
Bond, Hillcrest Health Center Inc., 5.625%,
08/15/2019 3,320 3,310
Oklahoma Turnpike Authority, Turnpike System
Revenue, 7.875%, 01/01/2021 355 363
Tulsa, OK, Airport Improvement Trust, Revenue,
Prerefunded 06/01/2002 @ 100, 7.7%, 06/01/2013 3,315 3,659
-------------------------------------------------------------------------
7,332
- --------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--5.3%
Greene County, PA, General Obligation,
Prerefunded 12/01/00 @ 100, 8.75%, 12/01/2010 2,815 3,031
Hazleton Health Services Authority, Hospital
Revenue, 5.625%, 07/01/2017 1,980 1,967
Lehigh County, PA, General Purpose Authority,
Wiley House, Revenue:
Prerefunded 11/01/1999 @ 102, 8.65%, 11/01/2004 2,845 2,965
Prerefunded 11/01/1999 @ 102, 8.75%, 11/01/2014 2,000 2,085
Lehigh County, PA, Industrial Development
Authority, Pollution Control Revenue,
Pennsylvania Power and Light Company, 6.15%,
08/01/2029 1,500 1,629
Philadelphia, PA, Gas Works, Revenue:
Prerefunded 07/01/2003 @ 102, 6.375%,
07/01/2026 2,565 2,819
6.375%, 07/01/2026 5,385 5,839
Philadelphia, PA, Authority for Industrial
Development, Airport Revenue, 5.125%,
07/01/2028 16,000 15,369
-------------------------------------------------------------------------
35,704
- --------------------------------------------------------------------------------------------------------------------
PUERTO RICO--.8%
Puerto Rico, General Obligation, Prerefunded
07/01/1999 @ 101.5, 7.75%, 07/01/2017 5,020 5,115
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--.5%
Oconee County, SC, Pollution Control, Duke Power
Co. Project, Revenue, 7.75%, 02/01/2017 3,500 3,617
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
TENNESSEE--.6%
Chattanooga, TN, General Obligation, 5.0%,
09/01/2018 4,350 4,258
-------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
(DOLLARS IN THOUSANDS)
Portfolio of INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
TEXAS--9.3%
Bexar, TX, Metropolitan Water District,
Waterworks System Revenue, 5.0%, 05/01/2022 $ 5,000 $ 4,818
Brazos River Authority, TX, Collateralized
Pollution Control, Utilities Electric Company
Project, 5.125%, 05/01/2019 5,000 4,860
Dallas-Fort Worth, TX, Airport Revenue, American
Airlines, AMT, 7.5%, 11/01/2025 1,500 1,592
Harris County, TX, Criminal Justice Center,
General Obligation, 5.625%, 10/01/2023 1,800 1,862
Harris County, TX, Health Facility Development
Corp., Hospital Revenue, Texas Childrens
Hospital Project, 5.25%, 10/01/2029 3,500 3,384
Harris County, TX, Port Houston Authority,
General Obligation, 5.0%, 10/01/2017 2,500 2,411
Houston, TX, Independent School District, 5.0%,
02/15/2024 4,000 3,838
Hurst Euless Bedford, TX, Independent School
District, Revenue, 5.0%, 08/15/2018 6,680 6,522
Lower Neches Valley, TX, Lower Neches Valley
Authority, Industrial Development Corp., Mobil
Oil Refining Corp. Project, Revenue:
6.35%, 04/01/2026 2,150 2,319
6.4%, 03/01/2030 17,000 18,384
Richardson, TX, Hospital Authority, Hospital
Revenue, 5.625%, 12/01/2028 5,000 4,795
Tarrant County, TX, Health Facilities Development
Corp, Resources System, Revenue, 5.25%,
02/15/2022 3,250 3,169
Texas College Student Loans, General Obligation,
5.0%, 08/01/2021 4,015 3,767
-------------------------------------------------------------------------
61,721
- --------------------------------------------------------------------------------------------------------------------
UTAH--2.5%
Utah Housing Finance Agency, Single Family
Mortgage Revenue, 6.65%, 07/01/2026 580 605
Utah Intermountain Power Agency, Power Supply
System Revenue:
5.0%, 07/01/2020 10,000 9,615
5.0%, 07/01/2021 6,700 6,377
-------------------------------------------------------------------------
16,597
</TABLE>
14
<PAGE> 15
(DOLLARS IN THOUSANDS)
PORTFOLIO OF Investments
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
WASHINGTON--7.8%
Chelan County, WA, Public Utility #1, Revenue,
5.25%, 07/01/2033 $ 9,350 $ 9,010
Grant County, WA, Public Utility District #2,
Wanapum HydroElectric, Revenue, 5.875%,
01/01/2031 1,575 1,648
Washington Health Care Facility Authority,
Multicare Health System, Revenue:
5.0%, 08/15/2022 3,500 3,336
Washington Health Care Facility Authority
Revenue, Sisters Saint Joseph Peach Health,
Prerefunded 05/01/00 @ 102, 7.75%, 05/01/2015 4,200 4,450
Washington Public Power Supply System, Nuclear
Project, Revenue:
Prerefunded 07/01/00 @ 102, 7.0%, 07/01/2012 15,500 16,394
Project 1, Series A, 5.0%, 07/01/2012 4,095 4,062
Project 2, Series A, 5.0%, 07/01/2012 10,200 10,117
Project 1, Series B, 5.6%, 07/01/2015 2,000 2,055
Project 3, Series B, 5.6%, 07/01/2015 1,000 1,027
-------------------------------------------------------------------------
52,099
- --------------------------------------------------------------------------------------------------------------------
WISCONSIN--1.6%
Wisconsin Housing and Economic Development
Authority, Home Ownership, Revenue, 6.2%,
03/01/2027 2,500 2,631
Wisconsin State Health & Educational Facilities
Authority, Revenue Bond, Aurora Health Care,
Series B, 5.625%, 02/15/2029 8,000 7,785
-------------------------------------------------------------------------
10,416
-------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS--99.6%
(Cost: $631,028) 667,769
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS--.4%
Yield--3.20%-3.55%
Due--June 1999
(Cost: $3,000) 3,000 3,000
-------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $634,028) $670,769
-------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $634,028,000 for federal income tax purposes
at May 31, 1999, the gross unrealized appreciation on investments was
$39,284,000, the gross unrealized depreciation was $2,543,000 and the new
unrealized appreciation on investments was $36,741,000.
See accompanying Notes to Financial Statements.
15
<PAGE> 16
Financial STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Investments, at value
(Cost: $634,028) $670,769
- ------------------------------------------------------------------------
Cash 778
- ------------------------------------------------------------------------
Receivable for:
Investments sold 10,087
- ------------------------------------------------------------------------
Interest 11,662
- ------------------------------------------------------------------------
TOTAL ASSETS 693,296
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
Payable for:
Dividends 299
- ------------------------------------------------------------------------
Investments purchased 12,244
- ------------------------------------------------------------------------
Management fee 286
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 290
- ------------------------------------------------------------------------
Total liabilities 13,119
- ------------------------------------------------------------------------
NET ASSETS $680,177
- ------------------------------------------------------------------------
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, 38,700 shares outstanding 387
- ------------------------------------------------------------------------
Paid-in surplus 429,988
- ------------------------------------------------------------------------
Undistributed net realized loss on investments (9,977)
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 36,741
- ------------------------------------------------------------------------
Undistributed net investment income 8,038
- ------------------------------------------------------------------------
NET ASSETS $680,177
- ------------------------------------------------------------------------
THE PRICING OF SHARES
NET ASSET VALUE PER COMMON SHARES
(net assets less remarketed preferred shares at liquidation
value divided by common shares outstanding) $12.02
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE> 17
FINANCIAL Statements
STATEMENT OF OPERATIONS
Year ended May 31, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
NET INVESTMENT INCOME
Interest income $ 20,601
- ------------------------------------------------------------------------
Expenses:
Management fee 1,862
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 132
- ------------------------------------------------------------------------
Registration fee and remarketing fees 290
- ------------------------------------------------------------------------
Professional fees 62
- ------------------------------------------------------------------------
Reports to shareholders 59
- ------------------------------------------------------------------------
Trustees' fees and other 144
- ------------------------------------------------------------------------
Total expenses 2,549
- ------------------------------------------------------------------------
NET INVESTMENT INCOME 18,052
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on sales of investments 1,516
- ------------------------------------------------------------------------
Change in net unrealized appreciation on investments (15,326)
- ------------------------------------------------------------------------
Net loss on investments (13,810)
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 4,242
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MAY 31, 1999 SIX MONTHS ENDED
(UNAUDITED) NOVEMBER 30, 1998
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 18,052 38,270
- --------------------------------------------------------------------------------------------------
Net realized gain 1,516 1,885
- --------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (15,326) 3,862
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,242 44,017
- --------------------------------------------------------------------------------------------------
Distributions to shareholders:
Distribution from net investment income:
- --------------------------------------------------------------------------------------------------
Common shares (16,400) (33,425)
- --------------------------------------------------------------------------------------------------
Remarketed preferred shares (3,066) (7,829)
- --------------------------------------------------------------------------------------------------
Total dividends to shareholders (19,466) (41,254)
- --------------------------------------------------------------------------------------------------
Proceeds from common shares issued in reinvestments of
dividends (158 and 332 shares, respectively) 1,956 4,503
- --------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (13,268) 7,266
- --------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period 693,445 686,179
- --------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment income
of $8,038 and $9,452 respectively) $680,177 693,445
- --------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
Notes to Financial Statements
- --------------------------------------------------------------------------------
1
SIGNIFICANT
ACCOUNTING POLICIES DESCRIPTION OF FUND. Kemper Municipal Income Trust,
a Massachusetts business 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.
18
<PAGE> 19
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 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 $1,862,000 for the six months
ended May 31, 1999.
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 $26,000
for the six months ended May 31, 1999.
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,
1999, 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, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $112,623
Proceeds from sales 108,144
19
<PAGE> 20
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, -----------------------------------------------
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE FOR A COMMON SHARE
Net asset value, beginning of period $12.41 12.33 12.31 12.41 11.12 13.25
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .46 .99 1.04 1.07 1.10 1.10
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.35) .16 .05 (.10) 1.29 (1.84)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .11 1.15 1.09 .97 2.39 (.74)
- --------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income
to common shareholders .42 .87 .87 .87 .87 .87
- --------------------------------------------------------------------------------------------------------------
Distribution from net investment income
to preferred shareholders (common share
equivalent) .08 .20 .20 .20 .23 .16
- --------------------------------------------------------------------------------------------------------------
Distribution from net realized gain to
common shareholders -- -- -- -- -- .36
- --------------------------------------------------------------------------------------------------------------
Total dividends .50 1.07 1.07 1.07 1.10 1.39
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.02 12.41 12.33 12.31 12.41 11.12
- --------------------------------------------------------------------------------------------------------------
Market value, end of period $12.69 14.63 14.13 13.13 12.63 11.00
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN PER COMMON SHARE (NOT ANNUALIZED)
Based on net asset value .19% 7.96 7.57 6.56 20.00 (7.36)
- --------------------------------------------------------------------------------------------------------------
Based on market value (10.32)% 10.60 15.16 11.57 23.55 (4.66)
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS EXCLUDING PREFERRED SHARES EQUITY (ANNUALIZED)
Expenses 1.13% 1.02 1.02 1.06 1.01 1.03
- --------------------------------------------------------------------------------------------------------------
Net investment income 8.08% 8.04 8.66 8.87 9.22 9.04
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS INCLUDING PREFERRED SHARES EQUITY (ANNUALIZED)
Expenses .77% .70 .69 .72 .69 .70
- --------------------------------------------------------------------------------------------------------------
Net investment income 5.45% 5.47 5.92 6.03 6.23 6.13
- --------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets at end of period, net of
remarketed preferred shares (in thousands) $465,177 478,445 471,179 466,243 464,684 414,790
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 32% 17 7 26 19 12
- --------------------------------------------------------------------------------------------------------------
Remarketed preferred shares information at
end of period:
Aggregate amount outstanding (in
thousands) $215,000 215,000 215,000 215,000 215,000 215,000
Asset coverage per share $ 15,800 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 5,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return based on net asset value reflects changes in the fund's net
asset value during the period. Total return based on market value reflects
changes in market value. Each figure includes reinvestment of dividends. These
figures will differ depending upon the level of any discount from or premium to
net asset value at which the fund's shares trade during the period. Ratios
exclude the effect of dividends to preferred shareholders. Data for the period
ended May 31, 1999 is unaudited.
20
<PAGE> 21
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held. Kemper Municipal
Income Trust shareholders were asked to vote on a new investment management
agreement with Scudder Kemper Investments, Inc. This item was approved. Below
are the results:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
28,149,122 356,702 566,482
</TABLE>
SHAREHOLDERS' Meeting
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES&OFFICERS
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY KATHRYN L. QUIRK
Trustee President Vice President
JAMES R. EDGAR 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 ELEANOR R. BRENNAN Assistant Secretary
Vice President
THOMAS W. LITTAUER ELIZABETH C. WERTH
Trustee and Vice President PHILIP G. CONDON Assistant Secretary
Vice President
FRED B. RENWICK BRENDA LYONS
Trustee ANN M. MCCREARY Assistant Treasurer
Vice President
JOHN G. WEITHERS
Trustee ROBERT C. PECK, JR.
Vice President
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
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 STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
.............................................................................................
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
</TABLE>
[KEMPER FUNDS LOGO] Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
KMIT - 3 (7/23/99) 1080040
