<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
KEMPER MUNICIPAL INCOME
TRUST
"... Despite an environment of rising interest rates, municipal bonds held up
relatively well. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
PORTFOLIO COMPOSITION
7
PORTFOLIO STATISTICS
8
PORTFOLIO OF INVESTMENTS
19
FINANCIAL STATEMENTS
22
FINANCIAL HIGHLIGHTS
23
NOTES TO FINANCIAL STATEMENTS
26
REPORT OF INDEPENDENT AUDITORS
27
SHAREHOLDERS' MEETING
28
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
AT A GLANCE
KEMPER MUNICIPAL INCOME TRUST
TOTAL RETURNS
FOR THE YEAR ENDED NOVEMBER 30, 1999
<TABLE>
<S> <C>
BASED ON NAV -4.69%
........................................................
BASED ON MARKET PRICE -24.40%
........................................................
</TABLE>
NET ASSET VALUE AND MARKET PRICE
<TABLE>
<CAPTION>
AS OF AS OF
11/30/99 11/30/98
...............................................................................
<S> <C> <C>
NET ASSET VALUE $11.03 $12.41
...............................................................................
MARKET PRICE $10.31 $14.63
...............................................................................
</TABLE>
DIVIDEND REVIEW
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND INFORMATION FOR THE FUND AS OF
NOVEMBER 30, 1999.
<TABLE>
<CAPTION>
KEMPER MUNICIPAL
INCOME TRUST
..........................................................
<S> <C>
ONE-YEAR INCOME: $0.826
..........................................................
NOVEMBER DIVIDEND: $0.0685
..........................................................
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 7.45%
..........................................................
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 7.97%
..........................................................
TAX-EQUIVALENT DISTRIBUTION RATE
(BASED ON NET ASSET VALUE AND A
37.1% FEDERAL INCOME TAX RATE) 11.84%
..........................................................
TAX-EQUIVALENT DISTRIBUTION RATE
(BASED ON MARKET PRICE AND A
37.1% FEDERAL INCOME TAX RATE) 12.67%
..........................................................
</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. DISTRIBUTION RATES ARE HISTORICAL AND WILL FLUCTUATE.
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
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 & Poor's.
DURATION A measure, in years, of the interest-rate sensitivity of a 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.
YIELD A fund's yield is a measure of the net investment income per share earned
over a specific one-month or 30-day period expressed as a percentage of the
maximum offering.
<PAGE> 3
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 $290 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.
ECONOMIC OVERVIEW
DEAR KEMPER FUNDS SHAREHOLDER:
The end of the metaphorical millennium, it turns out, was not a disaster.
Instead, it was an excuse to party. And why not? As our technological revolution
gained critical mass, its vast potential came into better focus. Capital
spending on information technology didn't slow down; it accelerated. Inflation
remained dormant. The budget surplus nearly doubled, with the promise of oceans
of black ink yet to come. Even the government delivered good news: Its
statisticians toyed with the national accounts to reveal a more productive
economy. It's no wonder the prevailing sentiment could be summed up with the
quintessentially American yelp of glee: Yahoo!
Now, with the potential Y2K crisis seemingly averted, the question hanging
over the economy is whether the Federal Reserve Board will boost interest rates
to soak up extra liquidity caused by its pre-Y2K infusion of cash into the
economy. And unfortunately, all parties end. This one will, too. The questions
are when and how.
The "when" should be before the second half of the year. The Fed has already
raised interest rates three times, and is likely to raise them again on Feb. 2.
Fed officials said they left the rate at 5.5 percent in December mainly because
of "market uncertainties associated with the century-date change." But the Fed
expressed concern that "increases in demand" will foster "inflationary
imbalances" that could spark rate increases once the Y2K issue has been handled.
Although some investors have expressed fear that the Fed's sucking cash out of
banks will jolt the financial system (causing some stock indexes, as well as the
bond markets, to drop sharply in early January), the "how" is likely to be a
slow winding down, thanks to persistent low inflation.
Yes, some prices are higher: Filling up the SUV's gas tank definitely costs
more. But the rate of inflation for non-energy goods and services has actually
slowed during the past year. Although most analysts are worried that the
reprieve won't last -- assuming that higher commodity prices, a softer dollar
and the scarcity of skilled workers will show up as higher prices at the
checkout counter -- we'd turn that worry on its head. If inflation hasn't
accelerated after three years of over 4-percent gross domestic product (GDP)
growth and an unprecedented credit explosion, prices aren't likely to increase
if growth slows and lenders get stingier.
More good news stems from the technological investment boom. While executives
have pared capital budgets in traditional areas such as industrial machinery and
buildings, they've boosted outlays on computers and software. Thanks to the
sheer force of technology spending, overall business investment has grown two to
four times as fast as GDP in every year since 1993. And that expansion should
continue, with more than 20 percent growth likely in high-tech through 2000 and
even beyond. And technology hurts inflation. It saves on labor and inventory,
increases capacity, creates new competitors, cuts out middlemen, gives shoppers
comparative price information and enables global auctions.
Our outlook is for inflation to stay centered around 2 percent, and we expect
the Fed to raise the federal funds rate and the discount rate by one quarter of
a point (0.25%) each on Feb. 2. (More extreme possibilities bandied about by
bearish investors -- including a half-point rise or an emergency move before the
Fed's February meeting -- are unlikely.) We project that the result will be a
gentle slowing of growth from 4 percent in 1999 to around 3.5 percent in 2000
and just under 2.5 percent in 2001.
Despite this positive outlook, the rowdiness of Y2K preparations and
celebration should be sufficient to show us that risks exist in today's markets
and remind us that we could be in for a serious hangover.
The prospect of sparkling growth with no inflation has excited equity
investors, but there's a catch: declining corporate pricing power. If companies
don't have the ability to increase prices, profit growth will decline -- and
it's already happening. For the five years ending in June 1999, S&P 500
operating earnings averaged 9 percent, two and a half percentage points per year
slower than analysts had predicted. Profits did recover strongly in the second
half of 1999, but we suspect that they will soon sputter again. And the
economy's newfound productivity won't change the rules and allow companies to
make money even if they can't raise prices. Productivity gains do produce a
windfall, but historically customers and employees have grabbed the lion's
share. Web sites and dot.coms haven't changed this
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 (12/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.00 5.50 4.80 5.90
Prime rate (2) 8.50 7.75 8.00 8.50
Inflation rate (3)* 2.60 2.30 1.50 2.00
The U.S. dollar (4) -0.7 -0.9 1.20 9.40
Capital goods orders (5)* 12.60 2.50 -0.6 6.40
Industrial production (5)* 3.30 2.90 3.50 6.90
Employment growth (6) 2.10 2.10 2.30 2.70
</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 11/30/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
one iota. As a result, we expect profits to be virtually flat in all of 2000 and
to decline as the economy slows in 2001.
Debt is another drink that could bring on future headaches. America has been
swigging it in prodigious amounts. Companies have borrowed heavily to fund
mergers, share buybacks and new investments. Homeowners have increased their
debt with new home equity loans and bigger mortgages. Financial institutions
have issued record amounts of new paper to fund aggressive growth. There's no
hard and fast rule for determining if the debt America is taking on is too much,
but warning bells should sound when debt grows by orders of magnitude faster
than necessary to fund economic activity. That happened in 1985 and 1986, when
excess credit created a commercial real estate bubble and funded dubious
leveraged buyouts with suspect junk bonds, and it's happening again now. Both
the commercial real estate and the high yield markets took years to recover.
Today, the sheer size of the excesses could make the "morning after" even more
painful.
The end result: Given the continuing thrust of growth from the technological
revolution, an improving world economy and the Fed's experience and skill, 2000
could turn out to be a good year. But it's highly unlikely to be as good a year
as 1999.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
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 THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF JANUARY 6, 2000, 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
PERFORMANCE UPDATE
[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 MANAGEMENT
TEAM 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.
AS THE FISCAL YEAR BEGAN, INVESTOR FOCUS SHIFTED FROM TURBULENCE OVERSEAS TO
STRONG ECONOMIC GROWTH IN THE UNITED STATES. FEARS OF POTENTIALLY HIGHER
INFLATION PUSHED INTEREST RATES UP AND BOND PRICES DOWN THROUGHOUT THE FUNDS'
FISCAL YEAR. IN THE FOLLOWING Q&A, THE MANAGEMENT TEAM DISCUSSES THE MARKET'S
PERFORMANCE AND THEIR INVESTMENT STRATEGY.
Q BEFORE WE GET INTO THE PERFORMANCE OF KEMPER MUNICIPAL INCOME TRUST, COULD
YOU PROVIDE SOME BACKGROUND ON HOW GOVERNMENT BONDS PERFORMED OVER THE LAST 12
MONTHS?
A The last 12 months were characterized by a nearly continuous rise in
interest rates across all maturities.
At the very start of the fiscal year last fall, yields in the government bond
market were near historic lows. A series of problems in Russia, Latin America
and Asia had created a global "flight to quality" as investors worldwide
clamored for the relative safety of established markets. In addition, much of
Europe was converting to the euro at year-end. So, for nervous global investors
looking for a safe place to park their assets, U.S. Treasury bonds were about
the only option. The resulting demand pushed the 30-year Treasury bond yield
down to near 5 percent in November 1998.
To help combat the uncertainty and ward off a worsening of the situation, the
Federal Reserve cut interest rates three times in the last four months of 1998.
The Fed's plan, in part, was to inject liquidity into the global financial
system by stimulating the U.S. economy -- and thereby other economies -- and
make the yields on foreign bonds look more attractive in comparison with U.S.
securities.
Q DID THE FED'S PLAN WORK?
A Yes, it did. In fact, it worked almost TOO well. Investors gained
confidence that foreign economies could bring their problems under control, and
assets shifted from the United States to other markets. At the same time, some
investors feared that the Fed's stimulus, which was uncharacteristically applied
during a time of strong U.S. economic growth, would ignite inflation. Both these
factors acted to push interest rates up in the United States throughout the
fiscal year. On November 25, 1998, 30-year Treasuries yielded 5.18 percent. A
year later, they were 6.20 percent. That's a monumental move for such an
established security. As economic growth in the United States continued to be
strong and labor markets remained tight throughout 1999, the Federal Reserve was
compelled to put the brakes on the U.S. economy. The Fed rescinded its prior
three interest-rate cuts by raising rates in June, August and November.
Q WHAT WAS THE EFFECT OF RISING RATES ON THE BOND MARKET?
A Because bond prices fall when interest rates rise, these last 12 months
have been a challenging period for bond investors. It's been tough to try to
create positive returns for shareholders when fighting the constant headwind of
rising rates. This difficulty is reflected in the returns of bond indices. For
example, the Lehman Brothers Aggregate Bond index*, which is a broad proxy for
the taxable bond market as a whole, experienced a total return of -0.04 percent
for the 12-month period ended November 30, 1999. Government bonds, which don't
provide as much income as corporate bonds and therefore tend to be more
sensitive to interest-rate changes, were hit hardest; the Lehman Brothers Long-
Term Government Bond index* was down 7.52 percent for the same period.
* THE LEHMAN AGGREGATE BOND INDEX IS A TOTAL RETURN INDEX INCLUDING FIXED-RATE
DEBT ISSUES RATED INVESTMENT-GRADE OR BETTER. IT CONTAINS GOVERNMENT,
CORPORATE AND MORTGAGE SECURITIES AND IS GENERALLY CONSIDERED REPRESENTATIVE
OF THE MARKET FOR INVESTMENT-GRADE BONDS AS A WHOLE.
5
<PAGE> 6
PERFORMANCE UPDATE
THE LEHMAN BROTHERS LONG-TERM GOVERNMENT BOND INDEX IS A TOTAL RETURN INDEX
GENERALLY CONSIDERED REPRESENTATIVE OF THE MARKET FOR TREASURIES AND
GOVERNMENT AGENCY SECURITIES WITH MATURITIES GREATER THAN TEN YEARS. INVESTORS
CANNOT INVEST IN THE INDICES.
Q HOW DID MUNICIPAL BONDS FARE IN COMPARISON?
A Despite an environment of rising interest rates, municipal bonds held up
relatively well versus long-term government bonds. The Lehman Brothers Municipal
Bond index* ended the period down 1.07 percent. Certainly, a negative total
return is nothing to cheer about, but in comparison with how long-term
government bonds performed, municipals held their own.
* THE LEHMAN BROTHERS MUNICIPAL BOND INDEX INCLUDES APPROXIMATELY 15,000 BONDS.
TO BE INCLUDED IN THE INDEX, A MUNICIPAL BOND MUST MEET THE FOLLOWING
CRITERIA: A MINIMUM CREDIT RATING OF BBB, ISSUED AS A PART OF AN ISSUE OF AT
LEAST $50 MILLION, ISSUED WITHIN THE LAST FIVE YEARS, AND A MATURITY OF AT
LEAST TWO YEARS. BONDS SUBJECT TO ALTERNATIVE MINIMUM TAX, VARIABLE RATE BONDS
AND ZERO COUPON BONDS ARE EXCLUDED FROM THE INDEX. INVESTORS CANNOT INVEST IN
THE INDEX.
Q WHY DID MUNICIPAL BONDS HOLD UP BETTER THAN THE LONG-TERM GOVERNMENT BOND
MARKET?
A The turbulence had less of an impact because several factors were
operating in favor of municipal bonds. The primary one was a positive
supply/demand situation. Municipal bond issuance in 1999 through November was
down more than 20 percent from the same period last year. With demand remaining
strong and fewer bonds from which to choose, investors were willing to settle
for slightly less yield, and that helped provide a ceiling on how far up yields
would go and, therefore, how far down prices would go.
Second, municipal bond yields were very attractive compared with government
bond yields. Usually, a municipal bond will yield about 10 to 15 percent less
than a similar-maturity government bond, because the tax advantage of a
municipal bond is discounted in its price. But when government bond yields were
so low, A-rated municipal bonds actually OUTYIELDED 30-year Treasuries, which is
very unusual. As a result, a lot of "crossover buyers" -- investors who wouldn't
normally buy municipal bonds -- entered the market and helped boost demand.
According to THE BOND BUYER Revenue Bond index (see Terms To Know on page 2),
A-rated municipal bonds at the end of November offered 97 percent of the yield
of a 30-year Treasury bond -- a very attractive value when you consider the tax
advantage that municipal bonds offer.
Finally, a solid credit situation has helped support municipal bond prices.
The economy is growing well, and that translates to solid tax revenues for
municipalities. A good revenue stream means an increase in high-quality bonds
(see Terms To Know on page 2), which tend to have lower yields because buyers
don't need to be compensated to take extra risk.
Q HOW DID KEMPER MUNICIPAL INCOME TRUST PERFORM SPECIFICALLY?
A As did nearly all municipal bond funds, our fund lagged the Lehman
Brothers Municipal index for the 12-month period ended November 30. Mutual funds
tended to lag the index because funds have to contend with trading charges and
operating expenses that an index does not. Normally, our active management can
take advantage of discrepancies in the market to overcome this difference. But a
market like that of the past year proved to be a great challenge.
The fund performed well on a relative basis, however. Our total return was
- -4.69 based on net asset value, versus an average return of -5.78 for the Lipper
Closed-End General Municipal Debt Funds category. On a market price basis, we
believe negative returns were exacerbated by tax-loss selling.
Q YOU'VE SAID IN THE PAST THAT YOU NORMALLY MANAGE THE FUND BY KEEPING CLOSE
TO A NEUTRAL DURATION AND THEN TRYING TO TAKE ADVANTAGE OF DISLOCATIONS IN THE
MARKET TO INCREMENTALLY BOOST RETURNS. DID YOU DO ANYTHING IN ADDITION TO THAT
DURING THE COURSE OF THE YEAR?
A During the last half of the fiscal year, we concentrated purchases in the
intermediate maturity range. This area of the yield curve appeared to offer the
best trade-off of risk and return. Another thing we've been doing is selectively
selling longer bonds that were purchased in a lower rate environment. The
advantage is that we can reinvest the proceeds of our bond sales at today's
higher rates. Additionally, the fund increased the financial leverage of the
common shares.
Q WHAT'S YOUR OUTLOOK FOR THE MUNICIPAL MARKET FROM HERE?
A We think municipals should perform relatively well for several reasons.
First, the municipal market should continue to be more stable than the
government and corporate bond markets. As the fiscal year drew to a close, it
appeared that investors were expecting the Federal Reserve to continue raising
rates into the year 2000. If the Fed does tighten, Treasuries and corporate
bonds would likely remain volatile as most investors try to interpret the
ramifications of higher rates on both the domestic and global economies. While
municipal securities are also influenced by these factors, supply and demand
fundamentals in the municipal market may act to dampen volatility.
Second, the municipal market continues to offer attractive value, with
long-maturity yields still attractive relative to Treasuries. As we mentioned,
A-rated municipal bonds now yield nearly the same as similar-maturity
Treasuries, even without factoring in the tax advantage. Third, strong municipal
finances should help alleviate credit concerns. And finally, issuance has so far
remained more than 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
fixed-income investors an attractive option.
6
<PAGE> 7
PORTFOLIO Composition PORTFOLIO Statistics
THE FUND'S SECTORS
REPRESENTING THE FUND'S TOTAL NET ASSETS ON NOVEMBER 30, 1999
<TABLE>
<CAPTION>
HOLDINGS PERCENT
<S> <C> <C>
- ---------------------------------------------------------
1. U.S. GOVERNMENT SECURED 18%
- ---------------------------------------------------------
2. GENERAL OBLIGATIONS 7%
- ---------------------------------------------------------
3. REVENUE BONDS 73%
- ---------------------------------------------------------
4. CASH AND EQUIVALENT 2%
- ---------------------------------------------------------
</TABLE>
SECURITIES RATINGS
<TABLE>
<CAPTION>
ON 11/30/99 ON 11/30/98
<S> <C> <C> <C>
AAA 72% 61%
..............................................................................
AA 10 16
..............................................................................
A 7 8
..............................................................................
BBB 9 9
..............................................................................
BB 1 1
..............................................................................
NOT RATED 1 5
- ------------------------------------------------------------------------------
100% 100%
</TABLE>
THE RATINGS OF STANDARD & POOR'S CORPORATION (S&P)
AND MOODY'S INVESTORS SERVICES, INC. (MOODY'S)
REPRESENT THEIR OPINIONS AS TO THE QUALITY OF
SECURITIES THAT THEY UNDERTAKE TO RATE. THE
PERCENTAGE SHOWN REFLECTS THE HIGHER OF MOODY'S OR
S&P RATINGS. RATINGS ARE RELATIVE AND SUBJECTIVE
AND NOT ABSOLUTE STANDARDS OF QUALITY.
[PIE CHART] [PIE CHART]
AVERAGE MATURITY
<TABLE>
<CAPTION>
ON 11/30/99 ON 11/30/98
<S> <C> <C> <C>
AVERAGE MATURITY 16.2 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 as of November 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL INVESTMENTS--7.0% PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA
Los Angeles, CA, Regional Airport
Improvement Lease, Series 1985, Daily
Demand Note, 3.70%, 12/01/2025* $ 200 $ 200
-----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA
District of Columbia, General Fund Recovery
Series B-3, Variable Rate Demand Note,
4.00%, 06/01/2003* 2,200 2,200
-----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
NEW YORK
Long Island Power Authority, Electric
Systems Revenue, Series 5, Variable Rate,
3.60%, 05/01/2033* 8,000 8,000
Long Island, NY, Power Authority New York
Electricity, Revenue, Series 6, Variable
Rate 3.65%, 05/01/2033* 17,500 17,500
-----------------------------------------------------------------------------
25,500
- -----------------------------------------------------------------------------------------------------------------------
OHIO
Ohio Air Quality Development Authority
Revenue, Cincinnati Gas and Electric,
Daily Demand Note, 3.60%, 09/01/2030* 4,000 4,000
-----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TEXAS
Harris County, TX, Health Facilities,
Revenue, Saint Lukes Episcopal Hospital,
Series A, Variable Rate 3.70%, 02/15/2027* 11,100 11,100
Harris County, TX, Health Facilities,
Revenue, St. Lukes Episcopal Hospital,
Series B, Variable Rate 3.70%, 02/15/2027* 3,000 3,000
-----------------------------------------------------------------------------
14,100
- -----------------------------------------------------------------------------------------------------------------------
WASHINGTON
Washington Health Care Facilities Authority,
Variable Rate Demand Bond, Revenue, Series
1985 D, 3.60%, 10/01/2005* 4,100 4,100
-----------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS--7.0%
(Cost $50,100) 50,100
-----------------------------------------------------------------------------
<CAPTION>
LONG-TERM MUNICIPAL INVESTMENTS--93.0%
<S> <C> <C> <C>
ALABAMA
Alabama Docks Department, Facilities
Revenue, 6.30%, 10/01/2021 (c) 8,250 8,380
Jefferson County, AL, Sewer Revenue, 5.70%,
02/01/2020 (c) 3,420 3,342
Jefferson County, AL, Sewer Revenue, 5.75%,
02/01/2022 (c) 5,000 4,886
Jefferson County, AL, Sewer Revenue, 5.75%,
02/01/2027 (c) 600 582
-----------------------------------------------------------------------------
17,190
- -----------------------------------------------------------------------------------------------------------------------
ARIZONA
Arizona Health Facilities Authority,
Catholic Healthcare West, Revenue, Series
A, 6.625%, 07/01/2020 7,000 6,987
-----------------------------------------------------------------------------
</TABLE>
8 The accompanying notes are an integral part of the financial statements.
<PAGE> 9
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA
California, General Obligation, Prerefunded
03/01/2005 5.90%, 03/01/2025 (b)(c) $ 7,410 $ 7,954
California General Obligation, Prerefunded
03/01/2005 5.90%, 03/01/2025 (b)(c) 280 280
California Health Facilities Finance
Authority, Cedars-Sinai Medical Center,
Revenue, Series A, 6.125%, 12/01/2030 10,000 9,810
Foothill Eastern Transportation Corridor
Agency, CA, zero coupon, Toll Road
Revenue, 01/15/2030 16,650 2,399
Foothill Eastern Transportation Corridor
Agency, CA, Toll Road Revenue, 5.75%,
01/15/2040 5,000 4,629
Los Angeles County, CA, Metropolitan
Transportation Authority, Sales Tax
Revenue, 6.00%, 07/01/2026 (c) 2,750 2,993
Orange County, CA, Recovery Certificates of
Participation, 6.00%, 07/01/2026 11,500 11,580
Sacramento County, CA, Airport System,
Revenue, 5.90%, 07/01/2024 (c) 5,000 4,908
-----------------------------------------------------------------------------
44,553
- -----------------------------------------------------------------------------------------------------------------------
COLORADO
Adams County, Colorado, Multifamily Housing,
Oasis Park Apartments Project, 6.15%,
01/01/2026 6,580 6,617
Colorado Health Facilities Authority,
Revenue, Series A, 5.50%, 12/01/2017 6,145 5,878
Colorado Health Facilities Authority,
Revenue, Series A, 6.00%, 12/01/2015 5,705 5,813
Colorado Health Facilities Authority,
Revenue, Series A, 6.00%, 12/01/2016 2,000 2,028
Denver, CO, City and County of Denver,
Airport Improvement Revenue, 6.75%,
11/15/2013 (b) 325 351
Denver, CO, City and County of Denver,
Airport Improvement Revenue, 6.75%,
11/15/2013 (b) 2,455 2,540
Denver, CO, City and County Airport Revenue,
Series C, 6.75%, 11/15/2022 (b) 2,610 2,640
Denver, CO, City and County Airport Revenue,
Series C, Prerefunded 11/15/2002, 6.75%,
11/15/2022 (b) 690 746
Denver, CO, City and County Airport Revenue,
Series A, 8.50%, 11/15/2023 4,110 4,314
Denver, CO, City and County Airport Revenue,
Series A, Prerefunded 11/15/2000, 8.50%,
11/15/2023 (b) 390 414
-----------------------------------------------------------------------------
31,341
- -----------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA
District Columbia, General Obligation,
Series B, 5.50%, 06/01/2011 30,000 30,525
Washington D.C. Airport Authority, General
Airport Revenue, 5.75%, 10/01/2020 (c) 13,100 12,705
-----------------------------------------------------------------------------
43,230
</TABLE>
The accompanying notes are an integral part of the financial statements. 9
<PAGE> 10
(DOLLARS IN THOUSANDS)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
FLORIDA
Broward County, FL, Resource Recovery,
Revenue, Broward Waste Energy Project,
7.95%, 12/01/2008 $ 2,385 $ 2,462
Broward County, FL, Resource Recovery,
Revenue, Broward Waste Energy Project,
7.95%, 12/01/2008 1,175 1,213
Dade County, FL, Special Obligation, Capital
Appreciation, Revenue, Zero Coupon,
Prerefunded 10/01/2008, 10/01/2022 (b) 7,735 2,098
Dade County, FL, Special Obligation, Capital
Appreciation, Revenue, Zero Coupon,
Prerefunded 10/01/2008, 10/01/2024 (b) 16,955 4,050
Dade County, FL, Aviation Revenue, 5.75%,
10/01/2026 (c) 20,400 19,815
Hillsborough County, FL, Industrial
Development Authority Revenue, Health
Facility, University Community Hospital
Project, 5.625%, 08/15/2023 1,000 879
Volusia County, FL, Health Facilities
Authority, Memorial Health Systems
Project, Revenue, Prerefunded 06/01/2000,
8.25%, 06/01/2020 (c) 7,000 7,279
-----------------------------------------------------------------------------
37,796
- -----------------------------------------------------------------------------------------------------------------------
HAWAII
Hawaii Department of Budget and Finance,
Special Purpose, Hawaiian Electric
Company, Inc. Project, Revenue, 6.20%,
05/01/2026 (c) 13,200 13,242
Hawaii State Department Budget and Finance,
Electric Revenue, Series D, 6.15%,
01/01/2020 (c) 2,195 2,207
-----------------------------------------------------------------------------
15,449
- -----------------------------------------------------------------------------------------------------------------------
IDAHO
Idaho Housing Agency, Single Family Mortgage
Revenue, 6.90%, 07/01/2025 1,745 1,782
Idaho Housing Agency, Single Family Mortgage
Revenue, 7.875%, 07/01/2021 875 892
-----------------------------------------------------------------------------
2,674
- -----------------------------------------------------------------------------------------------------------------------
ILLINOIS
Chicago, IL, Gas Supply Revenue, Peoples Gas
& Coke Company, Series A, 8.10%,
05/01/2020 1,250 1,293
Chicago, IL, Midway Airport, Revenue,
5.625%, 01/01/2029 (c) 4,000 3,704
Chicago, IL, Skyway Toll Bridge, Revenue,
Prerefunded 01/01/2004, 6.75%, 01/01/2014
(b) 2,775 3,039
Chicago, IL, O'Hare International Airport,
Internationals Terminal, Special Revenue,
7.625%, 01/01/2010 (c) 10,000 10,230
Chicago, IL, O'Hare International Airport,
International Terminal, Special Revenue,
8.20%, 12/01/2024 4,775 5,387
Chicago, IL, O'Hare International Airport,
Special Facilities Revenue, United
Airlines Project, Series A, 5.35%,
09/01/2016 3,000 2,622
Harvard, IL, Multifamily Housing, Northfield
Court Project, Revenue, 9.50%, 06/01/2006 2,495 2,615
</TABLE>
10 The accompanying notes are an integral part of the financial statements.
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Health Facility Authority, Bethany Home and
Hospital, Revenue, Prerefunded 02/15/2000
8.625%, 02/15/2009 (b) $ 6,095 $ 6,273
Illinois Development Finance Authority,
Catholic Health Partners Services,
Revenue, 5.30%, 02/15/2018 3,500 3,195
Illinois Development Finance Authority,
Hospital Revenue, Adventist Health System,
5.65%, 11/15/2024 7,500 6,547
Illinois Development Financial Authority,
Hospital Revenue, Revenue, Adventist
Health System, 5.50%, 11/15/2020 2,500 2,179
Illinois Development Financial Authority,
Pollution, Revenue, Commonwealth Edison
Company Project, Series D, 6.75%,
03/01/2015 (c) 4,220 4,586
Illinois Educational Facilities Authority,
Revenue, Series D, 5.45%, 09/01/2014 (c) 8,000 7,733
Illinois Housing Development Authority,
Multifamily Housing, Ginger Ridge, 5.90%,
11/01/2030 1,000 954
Illinois Regional Transportation Authority,
Cook, DuPage, Kane, Lake, McHenry and Will
Countries, Revenue, 6.125%, 06/01/2022 (c) 4,000 4,162
Will County, IL, Exempt Facilities, Mobil
Oil Refining Corp. Project, Revenue,
6.00%, 02/01/2027 5,000 4,847
-----------------------------------------------------------------------------
69,366
- -----------------------------------------------------------------------------------------------------------------------
INDIANA
Indiana Health Facility Financing Authority,
Charity Obligation, Series D, 5.25%,
11/15/2015 5,200 4,836
Indiana Health Facility Financing Authority,
Charity Obligation, Series D, 5.50%,
11/15/2011 2,420 2,423
Indiana Health Facility Financing Authority,
Hospital Revenue, Riverview Hospital
Project, 5.50%, 08/01/2019 1,300 1,146
Indiana Health Facility Financing Authority,
Hospital Revenue, Riverview Hospital
Project, 5.50%, 08/01/2024 1,000 854
Indianapolis, IN, Gas Utility System
Revenue, Prerefunded 06/01/2004, 5.875%,
06/01/2024 (b) 14,000 14,938
-----------------------------------------------------------------------------
24,197
- -----------------------------------------------------------------------------------------------------------------------
IOWA
Iowa Financial Authority Single Family
Revenue, 7.90%, 11/01/2022 3,675 3,753
-----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
LOUISIANA
Louisiana Public Facilities Authority,
Lafayette General Medical Center Project,
Revenue, Prerefunded 10/01/2002, 6.50%,
10/01/2022 (b) 7,350 7,882
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAINE
Maine Health and Higher Educational
Facilities Authority, Revenue, 5.70%,
07/01/2013 $ 5,000 $ 5,035
Maine Health and Higher Educational
Facilities Authority, Revenue, 7.00%,
07/01/2024 4,235 4,715
Maine Health and Higher Educational
Facilities Authority, Revenue, Prerefunded
07/01/2004 7.00%, 07/01/2024 (b) 85 95
Maine Housing Authority, Mortgage Purchase,
Revenue, 8.30%, 11/15/2028 30 30
-----------------------------------------------------------------------------
9,875
- -----------------------------------------------------------------------------------------------------------------------
MARYLAND
Howard County, MD, Braeland Commons Project,
Revenue, 6.20%, 06/15/2023 2,500 2,466
Howard County, MD, Multifamily Housing,
Edens Commons Project, Revenue, 6.20%,
06/15/2023 4,250 4,193
-----------------------------------------------------------------------------
6,659
- -----------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS
Massachusetts Bay Transportation Authority,
General Transportation System, Revenue,
Prerefunded 03/01/2006, 5.625%,
03/01/2026 (b) 1,900 1,993
Massachusetts Port Authority, Special
Facilities, US Air Project, Revenue,
5.875%, 09/01/2023 (c) 6,755 6,594
Massachusetts State Port Authority Revenue,
Series B, 5.50%, 07/01/2015 3,000 2,910
-----------------------------------------------------------------------------
11,497
- -----------------------------------------------------------------------------------------------------------------------
MICHIGAN
Chippewa County, MI, Warren Memorial
Hospital, Revenue, 5.625%, 11/01/2014 1,500 1,349
Monroe County, MI, Pollution Control,
Detroit Edison Project, Revenue, 7.75%,
12/01/2019 6,500 6,696
-----------------------------------------------------------------------------
8,045
- -----------------------------------------------------------------------------------------------------------------------
MINNESOTA
Minneapolis and St Paul, MN, Metropolitan
Airport, Revenue, Series B,
5.625%, 01/01/2015 (c) 2,500 2,467
Minneapolis and St Paul, MN, Metropolitan
Community Airport, Revenue, Series B,
5.50%, 01/01/2011 (c) 5,030 5,090
Minneapolis and St Paul, MN, Metropolitan
Community Airport, Revenue, Series B,
5.50%, 01/01/2010 (c) 3,035 3,088
-----------------------------------------------------------------------------
10,645
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MISSOURI
Missouri Health and Educational Facilities
Authority, Lake of the Ozarks General
Hospital, Inc. Project, Revenue,
Prerefunded 02/15/2006, 6.50%,
02/15/2021 (b) $ 755 $ 826
Missouri Health and Educational Facilities
Authority, Lake of the Ozarks General
Hospital, Inc. Project, Revenue,
Prerefunded 02/15/2006, 6.50%,
02/15/2021 (b) 370 368
St Louis County, MO, Regional Convention,
Revenue, Series C, Prerefunded 08/15/2003,
7.90%, 08/15/2021 (b) 155 165
St Louis County, MO, Regional Convention,
Revenue, Series C, Prerefunded 08/15/2003,
7.90%, 08/15/2021 (b) 3,445 3,838
West Plains, MO, Industrial Development
Authority, Ozarks Medical Center Project,
Revenue, Prerefunded 09/15/2000, 8.625%,
09/15/2020 (b) 3,485 3,677
-----------------------------------------------------------------------------
8,874
- -----------------------------------------------------------------------------------------------------------------------
NEBRASKA
Nebraska Investment Finance Authority
Single, Revenue, Series A, 6.70%,
09/01/2026 7,500 7,676
-----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
NEVADA
Clark County Nevada Industrial Development
Revenue, Nevada Power Company Project,
6.70%, 06/01/2022 (c) 1,750 1,830
-----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE
New Hampshire Higher Educational and Health
Facilities Authority, Nashua Memorial
Hospital, Revenue, 6.00%, 10/01/2023 3,000 2,838
-----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
NEW JERSEY
New Jersey Economic Development Authority,
Water Facilities, New Jersey American
Water Co., Inc. Project, Revenue, 6.875%,
11/01/2034 10,775 11,597
New Jersey Economic Development Authority,
Revenue, Series A, 5.75%, 05/01/2013 6,000 6,160
New Jersey Economic Development Authority
Revenue, Harrogate Incorporation, Series
A, 5.875%, 12/01/2026 1,400 1,249
New Jersey Economic Development Authority,
Water Facilities, New Jersey American
Water Co., Inc. Project, Revenue, 6.00%,
05/01/2036 (c) 10,000 10,011
New Jersey Health Care Facilities Financing
Authority, General Hospital Center at
Passaic, Revenue, ETM, 6.75%, 07/01/2019** 5,000 5,548
-----------------------------------------------------------------------------
34,565
- -----------------------------------------------------------------------------------------------------------------------
NEW MEXICO
New Mexico Mortgage Finance Authority,
Single Family Mortgage, Revenue, 8.30%,
03/01/2020 1,870 1,915
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW YORK
Nassau County, NY, Health Facilities,
Revenue, 6.00%, 08/01/2015 $ 3,390 $ 3,451
New York City, NY, General Obligation,
6.125%, 08/01/2025 1,500 1,503
New York City, NY, General Obligation,
7.50%, 08/01/2003 355 362
New York City, NY, General Obligation,
7.50%, 08/01/2004 755 770
New York State, Revenue Bonds Dorm
Authorization, 7.00%, 05/15/2016 5,495 5,665
New York State Dormitory Authority, City
University, Revenue, Series 2, 5.25%,
07/01/2015 5,000 4,747
New York State Dormitory Authority, Revenue,
State University Educational Facilities,
Revenue, Prerefunded 05/15/2002, 7.25%,
05/15/2018 (b) 565 612
New York State Dormitory Authority, Revenue,
State University Educational Facilities,
Revenue, Prerefunded 05/15/2002, 7.25%,
05/15/2018 (b) 4,435 4,808
New York State Dormitory Authority, State
University Educational Facilities,
Revenue, Prerefunded 05/15/2000, 7.375%,
05/15/2014 (b) 1,645 1,699
New York State Dormitory Authority, Bronx-
Lebanon Hospital Center, Revenue, 5.20%,
02/15/2016 1,770 1,612
New York State Dormitory Authority, Jamaica
Hospital, Revenue, 5.20%, 02/15/2016 1,000 910
New York State Dormitory Authority, City
University NC, Revenue, 5.625%, 07/01/2016 1,500 1,478
New York State Dormitory Authority, State
University Educational Facilities,
Revenue, Prerefunded 05/15/2000, 7.375%,
05/15/2014 (b) 1,355 1,403
New York State Housing Finance Agency,
Service Contract, Revenue, Prerefunded
03/15/2002, 7.375%, 09/15/2021 (b) 3,000 3,246
New York State Medical Care Facilities
Finance Agency, Mental Health Services,
Revenue, 7.70%, 02/15/2018 1,505 1,514
New York State Thruway Authority Service
Contract, Local Highway & Bridge Revenue,
5.625%, 04/01/2013 (c) 5,000 5,071
New York State Urban Development
Corporation, State Facilities, Revenue,
Prerefunded 04/01/2001, 7.50%,
04/01/2011 (b) 6,695 7,104
New York and New Jersey Port Authority, JFK
International Air Terminal 6, Revenue,
5.75%, 12/01/2025 (c) 4,000 3,897
Niagara Frontier Transportation, NY, Greater
Buffalo International Airport, Revenue,
6.25%, 04/01/2024 (c) 5,750 5,799
-----------------------------------------------------------------------------
55,651
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 15
(DOLLARS IN THOUSANDS)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NORTH CAROLINA
Charlotte, NC, Airport, Revenue, Series B,
5.75%, 07/01/2013 (c) $ 2,480 $ 2,521
Charlotte, NC, Airport, Revenue, Series B,
5.875%, 07/01/2014 (c) 1,140 1,161
North Carolina Housing Finance Agency,
Single Family Mortgage Revenue, 7.85%,
09/01/2028 790 799
North Carolina Municipal Power Agency,
Electric Revenue, Series B, 6.375%,
01/01/2013 3,000 3,039
-----------------------------------------------------------------------------
7,520
- -----------------------------------------------------------------------------------------------------------------------
NORTH DAKOTA
North Dakota Housing Finance Agency, Single
Family Mortgage, Revenue, 8.375%,
07/01/2021 400 410
-----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
OHIO
Cuyahoga County, OH, Meridia Health System,
Hospital Revenue, Prerefunded 08/15/2005,
6.25%, 08/15/2024 (b) 2,350 2,562
Green Springs, OH, Health Care, Revenue, St
Francis Health Care Center Project, Series
A, 7.125%, 05/15/2025 6,000 5,263
Ohio Building Authority, Administrative
Building Fund Project, Revenue, 5.00%,
10/01/2015 5,110 4,742
Ohio Higher Education Facility Commission,
University of Findlay Project, Revenue,
6.125%, 09/01/2016 2,000 1,985
Ohio Higher Education Facility Commission,
University of Findlay Project, Revenue,
6.15%, 09/01/2011 1,635 1,650
-----------------------------------------------------------------------------
16,202
- -----------------------------------------------------------------------------------------------------------------------
OKLAHOMA
Oklahoma Development Financial Authority,
Revenue Bond, Hillcrest Health Center
Inc., 5.625%, 08/15/2019 3,320 2,839
Oklahoma Turnpike Authority, Turnpike System
Revenue, 7.875%, 01/01/2021 355 363
Tulsa, OK, Airport Improvement Trust,
Revenue, Prerefunded 06/01/2002, 7.70%,
06/01/2013 3,315 3,563
-----------------------------------------------------------------------------
6,765
- -----------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA
Greene County, PA, General Obligation,
Prerefunded 12/01/2000, 8.75%,
12/01/2010 (b) 2,675 2,799
Hazelton Health Services Authority, Hospital
Revenue, 5.625%, 07/01/2017 1,980 1,755
Lehigh County, PA, Industrial Development
Authority, Pollution Control Revenue,
Pennsylvania Power and Light Company,
6.15%, 08/01/2029 (c) 1,500 1,509
Philadelphia, PA, Gas Works, Revenue,
Prerefunded 07/01/2003, 6.375%,
07/01/2026 (b) 2,565 2,750
Philadelphia, PA, Gas Works, Revenue,
Prerefunded 07/01/2003, 6.375%,
07/01/2026 (b) 5,385 5,337
-----------------------------------------------------------------------------
14,150
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOUTH CAROLINA
Oconee County, SC, Pollution Control, Duke
Power Co. Project, Revenue, 7.75%,
02/01/2017 $ 3,500 $ 3,607
-----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TENNESSEE
Chattanooga, TN, General Obligation, 5.00%,
09/01/2018 (c) 4,350 3,920
Memphis-Shelby County, TN, Airport
Authority, Revenue, Series D, 6.25%,
03/01/2017 (c) 4,690 4,821
-----------------------------------------------------------------------------
8,741
- -----------------------------------------------------------------------------------------------------------------------
TEXAS
Austin, TX, Hotel Occupancy Tax, Revenue,
6.00%, 11/15/2013 (c) 3,190 3,317
Austin, TX, Hotel Occupancy Tax, Revenue,
6.00%, 11/15/2015 (c) 3,480 3,562
Austin, TX, Hotel Occupancy Tax, Revenue,
6.00%, 11/15/2016 (c) 3,625 3,691
Brazos River Authority, TX, Collateralized
Pollution Control, Utilities Electric
Company Project, Revenue, 5.125%,
05/01/2019 (c) 5,000 4,500
Dallas-Fort Worth, TX, Airport Revenue,
American Airlines, AMT, 7.50%, 11/01/2025 1,500 1,556
Dallas-Fort Worth, TX, International Airport
Facility, Revenue, 6.375%, 05/01/2035 3,000 2,908
Harris County, TX, Health Facility
Development Corp., Hospital Revenue, Texas
Childrens Hospital Project, 5.25%,
10/01/2029 3,500 3,035
Harris County, TX, Criminal Justice Center,
General Obligation, 5.625%, 10/01/2023 (c) 1,800 1,727
Harris County, TX, Health Facilities,
Revenue, 5.375%, 07/01/2024 (c) 7,000 6,345
Harris County, Tx, Port Houston Authority,
General Obligation, 5.00%, 10/01/2017 2,500 2,217
Lower Neches Valley, TX, Lower Neches Valley
Authority, Industrial Development Corp.,
Mobil Oil Refining Corp. Project, Revenue,
6.35%, 04/01/2026 2,150 2,171
Lower Neches Valley, TX, Lower Neches Valley
Authority, Industrial Development Corp.,
Mobil Oil Refining Corp. Project, Revenue,
6.40%, 03/01/2030 17,000 17,149
Richardson, TX, Hospital Authority, Hospital
Revenue, 5.625%, 12/01/2028 5,000 4,241
Tarrant County, TX, Health Facilities
Development Corp, Resources System,
Revenue, 5.25%, 02/15/2022 (c) 3,250 2,911
Texas College Student Loans, General
Obligation, 5.00%, 08/01/2021 4,015 3,440
Texas Water Development Board, Revenue,
5.125%, 07/15/2018 8,100 7,409
-----------------------------------------------------------------------------
70,179
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTAH
Utah Housing Finance Agency, Single Family
Mortgage Revenue, 6.65%, 07/01/2026 $ 480 $ 492
Utah Intermountain Power Agency, Power
Supply System Revenue, 5.00%, 07/01/2021 6,700 5,768
Utah Intermountain Power Agency, Power
Supply System Revenue, 5.00%, 07/01/2020 10,000 8,757
-----------------------------------------------------------------------------
15,017
- -----------------------------------------------------------------------------------------------------------------------
WASHINGTON
Grant County, WA, Public Utility District
#2, Wanapum HydroElectric, Revenue,
5.875%, 01/01/2031 (c) 1,575 1,514
Port Seattle, WA, Special Facilities,
Revenue, Series B, 5.50%, 09/01/2011 (c) 1,085 1,092
Port Seattle, WA, Special Facilities,
Revenue, Series B, 5.75%, 09/01/2013 (c) 1,045 1,056
Washington Health Care Facilities Authority,
Providence Services, Revenue, 5.375%,
12/01/2019 (c) 11,120 10,274
Washington Public Power Supply System,
Nuclear Project, Revenue, 5.00%,
07/01/2012 10,200 9,683
Washington Public Power Supply System,
Nuclear Project, Revenue, 5.60%,
07/01/2015 (c) 2,000 1,972
Washington Public Power Supply System,
Nuclear Project, Revenue, 5.60%,
07/01/2015 (c) 1,000 986
Washington Public Power Supply System,
Nuclear Project, Revenue, Prerefunded
07/01/2000, 7.00%, 07/01/2012 (b) 15,500 16,069
Washington State, General Obligation, Series
2000 A, 5.50%, 07/01/2016 4,835 4,709
Washington State Health Care Facility
Authority Revenue, Sisters Saint Joseph
Peach Health, Prerefunded 05/01/2000,
7.75%, 05/01/2015 (b) 4,200 4,348
-----------------------------------------------------------------------------
51,703
- -----------------------------------------------------------------------------------------------------------------------
WISCONSIN
Wisconsin Housing and Economic Development
Authority, Home Ownership, Revenue, 6.20%,
03/01/2027 2,500 2,490
Wisconsin State Health & Educational
Facilities, Revenue, Series B, 5.625%,
02/15/2029 8,000 6,817
-----------------------------------------------------------------------------
9,307
-----------------------------------------------------------------------------
TOTAL LONG TERM MUNICIPAL INVESTMENTS--93.0%
(Cost $662,336) 668,089
-----------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $712,436) $718,189
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost for federal income tax purposes was $712,436. At November 30, 1999,
net unrealized appreciation for all securities based on tax cost was $5,753.
This consisted of aggregate gross unrealized appreciation for all securities
in which there was an excess of market value over tax cost of $18,958 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $13,205.
(b) Prerefunded: Bonds which are prerefunded are collateralized by U.S. Treasury
securities which are held in escrow and are used to pay principal and
interest on tax-exempt issues and to retire the bonds in full at the
earliest refunding date.
(c) Bond is insured by one of these companies: AMBAC, FGIC, or MBIA/BIG.
* Floating rate and monthly, weekly, or daily demand notes are securities whose
yields vary with a designated market index or market rate, such as the
coupon-equivalent of the U.S. Treasury bill rate. Variable rate demand notes
are securities whose yields are periodically reset at levels that are
generally comparable to tax-exempt commercial paper. These securities are
payable on demand within seven calendar days and normally incorporate an
irrevocable letter of credit from a major bank. These notes are carried, for
purposes of calculating average weighted maturity, at the longer of the
period remaining until the next rate change or to the extent of the demand
period.
** ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by a
trustee and used to pay principal and interest on bonds so designated.
AMT: Alternative Minimum Tax.
The accompanying notes are an integral part of the financial statements.
18
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
as of November 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments in securities, at value (cost $712,436) $718,189
- ------------------------------------------------------------------------
Receivable for investments sold 725
- ------------------------------------------------------------------------
Interest receivable 11,720
- ------------------------------------------------------------------------
TOTAL ASSETS 730,634
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------
Due to custodian bank 32
- ------------------------------------------------------------------------
Payable for investments purchased 36,891
- ------------------------------------------------------------------------
Dividends payable 311
- ------------------------------------------------------------------------
Accrued management fee 259
- ------------------------------------------------------------------------
Other accrued expenses 231
- ------------------------------------------------------------------------
Total liabilities 37,724
- ------------------------------------------------------------------------
NET ASSETS, AT VALUE $692,910
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) $ 5,913
- ------------------------------------------------------------------------
Remarketed preferred shares, par value $.01 per share,
unlimited number of shares authorized, 53 shares
outstanding at $5 thousand liquidation value per share 265,000
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments
securities 5,753
- ------------------------------------------------------------------------
Accumulated net realized gain (loss) (14,867)
- ------------------------------------------------------------------------
Paid-in capital 431,111
- ------------------------------------------------------------------------
NET ASSETS, AT VALUE $692,910
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET ASSET VALUE
- ------------------------------------------------------------------------
NET ASSET VALUE PER COMMON SHARES
($427,910 / 38,808 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) (Net assets less remarketed preferred shares at
liquidation value divided by common shares outstanding) $11.03
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended November 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------
Interest $ 40,598
- ------------------------------------------------------------------------
Expenses:
Management fee 3,658
- ------------------------------------------------------------------------
Services to shareholders 185
- ------------------------------------------------------------------------
Custodian fees 116
- ------------------------------------------------------------------------
Auditing 66
- ------------------------------------------------------------------------
Legal 269
- ------------------------------------------------------------------------
Trustees' fees and expenses 67
- ------------------------------------------------------------------------
Reports to shareholders 163
- ------------------------------------------------------------------------
Registration and remarketing fee 545
- ------------------------------------------------------------------------
Other 83
- ------------------------------------------------------------------------
Total expenses, before expense reductions 5,152
- ------------------------------------------------------------------------
Expense reductions (51)
- ------------------------------------------------------------------------
Total expenses, after expense reductions 5,101
- ------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 35,497
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- ------------------------------------------------------------------------
Net realized gain (loss) from investments (3,224)
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments (46,314)
- ------------------------------------------------------------------------
Net gain (loss) on investment transactions (49,538)
- ------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $(14,041)
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE> 21
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------
1999 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- --------------------------------------------------------------------------------------------
Operations:
Net investment income $ 35,497 $ 38,270
- --------------------------------------------------------------------------------------------
Net realized gain (loss) (3,224) 1,885
- --------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period (46,314) 3,862
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (14,041) 44,017
- --------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Common shares (31,935) (33,425)
- --------------------------------------------------------------------------------------------
Remarketed preferred shares (7,276) (7,829)
- --------------------------------------------------------------------------------------------
Fund share transactions:
Net proceeds from issuance of remarketed preferred shares 49,500 --
- --------------------------------------------------------------------------------------------
Net proceeds from shares issued to common shareholders in
reinvestment of distributions 3,217 4,503
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions 52,717 4,503
- --------------------------------------------------------------------------------------------
Increase (decrease) in net assets (535) 7,266
- --------------------------------------------------------------------------------------------
Net assets at beginning of period 693,445 686,179
- --------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $5,913 and $9,452, respectively). $692,910 $693,445
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 38,542 38,210
- --------------------------------------------------------------------------------------------
Shares issued to common shareholders in reinvestment of
distributions 266 332
- --------------------------------------------------------------------------------------------
Net increase (decrease) in Fund shares 266 332
- --------------------------------------------------------------------------------------------
Shares outstanding at end of period 38,808 38,542
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS AND MARKET PRICE DATA.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.41 12.33 12.31 12.41 11.12
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .92(a) .99 1.04 1.07 1.10
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (1.28) .16 .05 (.10) 1.29
- -----------------------------------------------------------------------------------------------------
Total from investment operations (.36) 1.15 1.09 .97 2.39
- -----------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income to common shareholders (.83) (.87) (.87) (.87) (.87)
- -----------------------------------------------------------------------------------------------------
Net investment income to preferred
shareholders (common share equivalent) (.18) (.20) (.20) (.20) (.23)
- -----------------------------------------------------------------------------------------------------
Total distributions (1.01) (1.07) (1.07) (1.07) (1.10)
- -----------------------------------------------------------------------------------------------------
Dilution resulting from remarketed preferred
shares (b) (.01) -- -- -- --
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $11.03 12.41 12.23 12.31 12.41
- -----------------------------------------------------------------------------------------------------
Market value, end of year $10.31 14.63 14.13 13.13 12.63
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN PER COMMON SHARE
- -----------------------------------------------------------------------------------------------------
BASED ON NET ASSET VALUE (%) (4.69) 7.96 7.57 6.56 20.00
- -----------------------------------------------------------------------------------------------------
BASED ON MARKET VALUE (%) (24.40) 10.60 15.16 11.57 23.55
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------
Net assets at end of year, net of remarketed
preferred shares ($ thousands) 427,910 478,445 471,179 466,243 464,684
- -----------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(excluding preferred shares) 1.13 1.02 1.02 1.06 1.01
- -----------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%)
(excluding preferred shares) 1.12 1.02 1.02 1.06 1.01
- -----------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(including preferred shares) .77 .70 .69 .72 .69
- -----------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%)
(including preferred shares) .76 .70 .69 .72 .69
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income (%)
(excluding preferred shares) 7.76 8.04 8.66 8.87 9.22
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income (%)
(including preferred shares) 5.27 5.54 5.92 6.03 6.23
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 38 17 7 26 19
- -----------------------------------------------------------------------------------------------------
Remarketed preferred shares information
at end of period:
Aggregate amount outstanding ($ thousands) 265,000 215,000 215,000 215,000 215,000
- -----------------------------------------------------------------------------------------------------
Asset coverage per share $13,100 16,100 16,000 15,800 15,800
- -----------------------------------------------------------------------------------------------------
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.
(a) Based on monthly average shares outstanding during the period.
(b) Effective November 24, 1999, the Fund issued 10,000 remarked preferred
shares.
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Kemper Municipal Income Trust (the "Fund") is
registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as a closed-end,
diversified management investment company organized
as a Massachusetts business trust.
The Fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Portfolio debt securities
purchased with an original maturity greater than
sixty days are valued by pricing agents approved by
the officers of the Trust, whose quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the
calculated mean between the most recent bid and
asked quotation supplied by a bona fide market
maker shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost.
All other securities are valued at their fair value
as determined in good faith by the Valuation
Committee of the Board of Trustees.
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, 1999, the Fund had a tax basis net
loss carryforward of approximately $13,145,000
which may be applied against any realized net
taxable gains of each succeeding year until fully
utilized or until November 30, 2003 ($7,649,000)
and November 30, 2007 ($5,496,000), the respective
expiration dates, or whichever occurs first.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income to common shareholders, if
any, are made monthly. Net realized gains from
investment transactions, in excess of available
capital loss carryforwards, would be taxable to the
Fund if not distributed, and, therefore, will be
distributed to shareholders at least annually.
The timing and characterization of certain income
and gains distributions are determined annually in
accordance with federal tax regulations which may
differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the Fund.
REMARKETED PREFERRED SHARES. Effective November 24,
1999, the Fund issued 10,000 Series E remarketed
preferred shares. The Fund has issued and
outstanding 10,800 Series A, 10,700 Series B,
10,800 Series C, 10,700 Series D and 10,000 Series
E 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
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
together with common shareholders as a single class
and have the same voting rights, subject to certain
class specific preferences.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Realized gains and losses from
investment transactions are recorded on an
identified cost basis. All discounts are accreted
for both tax and financial reporting purposes.
- --------------------------------------------------------------------------------
2 PURCHASE AND SALES OF
SECURITIES For the year ended November 30, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $296,457
Proceeds from sales 255,932
- --------------------------------------------------------------------------------
3 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 $3,658,000 for the year ended
November 30, 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 $91,000
for the year ended November 30, 1999 of which
$6,000 is unpaid.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. For the year ended November 30,
1999, the Fund made no payments to its officers and
incurred trustees' fees of $67,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian whereby credits realized as a result of
uninvested cash balances were used to reduce a
portion of the fund's expenses. During the period,
the Fund's custodian fees were reduced by $51,000
under these arrangements.
- --------------------------------------------------------------------------------
5 LINE OF CREDIT The Fund and several Kemper funds (the
"Participants") share in a $750 million revolving
credit facility for temporary or emergency
purposes. The Participants are charged an annual
commitment fee which is allocated pro rata among
each of the Participants. Interest is calculated
based on the market rate at the date of the
borrowing. The Fund may borrow up to a maximum of
33 percent of its net assets under the agreement.
24
<PAGE> 25
- -------------------------------------------------------------------------------
TAX INFORMATION
- -------------------------------------------------------------------------------
Of the dividends paid from net investment income for the taxable year ended
November 30, 1999, 100% are designated as exempt interest dividends for federal
income tax purposes.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-621-1048.
25
<PAGE> 26
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, 1999, 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 1995.
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 auditing standards generally
accepted in the United States. 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, 1999, 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, 1999, 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 1995, in conformity with accounting principles generally accepted in the
United States.
/S/ERNST & YOUNG LLP
CHICAGO, ILLINOIS
JANUARY 21, 2000
26
<PAGE> 27
SHAREHOLDERS' MEETING
An annual shareholders' meeting was held on July 14, 1999, for Kemper Municipal
Income Trust. Shareholders were asked to vote on three separate issues: election
of members to the Board of Trustees, ratification of Ernst & Young LLP as
independent auditors and approval of an amended and restated certificate of
designation for preferred shares. The following are the results for each issue:
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Akins 10,700 0
James R. Edgar 10,700 0
Arthur R. Gottschalk 10,700 0
Fredrick T. Kelsey 10,700 0
Thomas W. Littauer 10,700 0
Fred B. Renwick 10,700 0
John G. Weithers 10,700 0
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
10,700 0 0
</TABLE>
3) Approval of an amended and restated certificate of designation for preferred
shares.
<TABLE>
<CAPTION>
For Against Abstain Broker non-vote
<S> <C> <C> <C>
10,700 0 0 0
</TABLE>
27
<PAGE> 28
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
form 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 219006
Kansas City, Missouri 64121-6066
1-800-294-4366
28
<PAGE> 29
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.
29
<PAGE> 30
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.
30
<PAGE> 31
NOTES
31
<PAGE> 32
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY LINDA J. WONDRACK
Trustee President Vice President
JAMES R. EDGAR PHILIP J. COLLORA MAUREEN E. KANE
Trustee Vice President and Assistant Secretary
Secretary
ARTHUR R. GOTTSCHALK CAROLINE PEARSON
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
FREDERICK T. KELSEY BRENDA LYONS
Trustee ELEANOR R. BRENNAN Assistant Treasurer
Vice President
THOMAS W. LITTAUER
Trustee and Vice President PHILIP G. CONDON
Vice President
FRED B. RENWICK
Trustee ANN M. MCCREARY
Vice President
JOHN G. WEITHERS
Trustee ROBERT C. PECK, JR.
Vice President
KATHRYN L. QUIRK
Vice President
- -------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- -------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219006
Kansas City, MO 64121
- -------------------------------------------------------------------------------
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
- -------------------------------------------------------------------------------
INDEPENDENT AUDITOR ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- -------------------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
TRUSTEES&OFFICERS
[KEMPER FUNDS LOGO ]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
KMIT - 2 (1/25/00) 1099470
