UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM N-CSRS

Investment Company Act file number 811-05655

                         SCUDDER MUNICIPAL INCOME TRUST
                      ------------------------------------
               (Exact Name of Registrant as Specified in Charter)

                  222 South Riverside Plaza, Chicago, IL 60606
                  --------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

        Registrant's Telephone Number, including Area Code: (212) 454-7190
                                                            --------------

                                  Paul Schubert
                                 345 Park Avenue
                               New York, NY 10154
                     ---------------------------------------
                     (Name and Address of Agent for Service)

Date of fiscal year end:        11/30

Date of reporting period:       05/31/2005



ITEM 1.  REPORT TO STOCKHOLDERS


Scudder Municipal
Income Trust

 

 

 

Semiannual Report to Shareholders

 

May 31, 2005

 

Contents

 

Click Here Performance Summary

Click Here Portfolio Management Review

Click Here Portfolio Summary

Click Here Investment Portfolio

Click Here Financial Statements

Click Here Financial Highlights

Click Here Notes to Financial Statements

Click Here Dividend Reinvestment Plan

Click Here Shareholder Meeting Results

Click Here Additional Information

Click Here Privacy Statement

Investments in funds involve risk. Certain investors' income may be subject to the federal Alternative Minimum Tax (AMT), and state and local taxes may also apply. Shares of closed-end funds frequently trade at a discount to net asset value. The price of the fund's shares is determined by a number of factors, several of which are beyond the control of the fund. Therefore, the fund cannot predict whether its shares will trade at, below or above net asset value. The fund invests in individual bonds whose yields and market values fluctuate, so that your investment may be worth more or less than its original cost.

Scudder Investments is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Investment Management Americas Inc., Deutsche Asset Management Inc., Deutsche Asset Management Investment Services Ltd., Deutsche Bank Trust Company Americas and Scudder Trust Company.

Fund shares are not FDIC-insured and are not deposits or other obligations of, or guaranteed by, any bank. Fund shares involve investment risk, including possible loss of principal.

Performance Summary May 31, 2005

 

Performance is historical, assumes reinvestment of all dividends and capital gains distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when sold, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit scudder.com for the Fund's most recent performance.

Average Annual Total Returns as of 5/31/05

Scudder Municipal Income Trust

6-Month*

1-Year

3-Year

5-Year

10-Year

Based on Net Asset Value(a)

4.25%

10.29%

8.57%

10.29%

7.26%

Based on Market Price

6.60%

19.90%

10.62%

9.80%

7.61%

Lehman Brothers Municipal Bond Index+

3.51%

7.96%

6.00%

7.30%

6.22%

Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.

* Total returns shown for periods less than one year are not annualized.

Net Asset Value and Market Price

 

As of 5/31/05

As of 11/30/04

Net Asset Value

$ 12.52

$ 12.42

Market Price

$ 12.40

$ 12.03

Distribution Information

Six Months:

Income Dividends (common shareholders) as of 5/31/05

$ .41

May Income Dividend (common shareholders)

$ .0675

Current Annualized Distribution Rate (based on Net Asset Value) as of 5/31/05++

6.47%

Current Annualized Distribution Rate (based on Market Price) as of 5/31/05++

6.53%

Tax Equivalent Distribution Rate (based on Net Asset Value) as of 5/31/05++

9.95%

Tax Equivalent Distribution Rate (based on Market Price) as of 5/31/05++

10.05%

a Total investment returns reflect changes in net asset value per share during each period and assume that dividends and capital gain distributions, if any, were reinvested. These percentages are not an indication of the performance of a shareholder's investment in the Fund based on market price.

+ The Lehman Brothers Municipal Bond Index is an unmanaged, unleveraged market-value-weighted measure of municipal bonds issued across the United States. Index issues have a credit rating of at least Baa and a maturity of at least two years. Index returns assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.

++ Current annualized distribution rate is the latest monthly dividend shown as an annualized percentage of net asset value/market price on May 31, 2005. Distribution rate simply measures the level of dividends and is not a complete measure of performance. Tax equivalent distribution rate is based on the Fund's distribution rate and a marginal income tax rate of 35%. Distribution rates are historical and will fluctuate.

Portfolio Management Review

 

mit_top_margin3Philip G. Condon and Eleanor R. Brennan serve as co-lead portfolio managers of Scudder Municipal Income Trust. In the following interview, Scudder's municipal bond team discusses the fund's performance for the period and the market environment for municipal bonds.

Q:  Will you describe the general market environment during the semiannual period ended May 31, 2005?

A:  Municipal bonds and the broad bond market delivered strong results over the period. The municipal bond market, as measured by the Lehman Brothers Municipal Bond Index, delivered a total return of 3.51% for the six months ended May 31, 2005.1 The broad bond market, as measured by the Lehman Brothers Aggregate Bond Index, delivered a total return of 2.90% for the same period.2

1 The Lehman Brothers Municipal Bond Index is an unmanaged, unleveraged market-value- weighted measure of municipal bonds issued across the United States. Index issues have a credit rating of at least Baa and a maturity of at least two years.

2 The Lehman Brothers Aggregate Bond Index is an unmanaged index representing domestic taxable investment-grade bonds, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities with average maturities of one year or more.

Index returns assume reinvestment of dividends and, unlike fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.

The relationship between supply of and demand for municipal issues can be an important factor in the performance of this market. High demand or low supply can drive municipal bond prices higher, while low demand or high supply can have the reverse effect. The supply of new municipal bond issues was generally high during the semiannual period. As we entered 2005, municipal issuance was widely expected to fall off somewhat from the prior year's pace. However, supply remained strong as declining long-term interest rates spurred refunding of existing issues. These same low yields led to soft demand for municipal bonds among retail investors throughout the period. Nevertheless, overall demand was supported by strong interest from institutional investors, such as insurance companies and hedge funds.

During the semiannual period, the Federal Reserve Board (the Fed) increased the federal funds rate — the interbank overnight lending rate and a benchmark for market interest rates — from 2.00% to 3.00% in four increments of 0.25%. This caused yields on shorter-term bonds, which are more sensitive to Fed moves, to rise, causing the fund's borrowing costs to rise as well. At the same time, long-term interest rates actually declined, as high oil prices and moderating growth kept expectations for inflation in check. This meant that long-term bond prices generally rose over the period.

The overall result of rising short-term yields and stable-to-declining long-term yields was that both the taxable and tax-free yield curves experienced significant flattening over the period.3 On the municipal bond curve, yields on two-year issues increased by 57 basis points while bonds with 30-year maturities experienced a yield decrease of 50 basis points, resulting in a total flattening of 107 basis points. (100 basis points equals one percentage point. See the yield curve graph on page 6 for a depiction of municipal bond yield changes between the beginning and end of the period.)

3 The yield curve is a graph with a left-to-right line that shows how high or low yields are, from the shortest to the longest maturities. Typically (and when the yield curve is characterized as "steep," this is especially true) the line rises from left to right as investors who are willing to tie up their money for a longer period are rewarded with higher yields.

Q:  How did Scudder Municipal Income Trust perform for the six-month period ended May 31, 2005?

A:  Scudder Municipal Income Trust delivered strong absolute and relative results. The fund's total return at net asset value was 4.25% for the semiannual period. The fund posted a return based on market value of 6.60%. Its average peer in the Lipper General Municipal Debt Funds category for closed-end funds delivered 3.09% in the

AAA Municipal bond yield curve (as of 11/30/04 and 5/31/05)

mit_g10k130

Maturity

Source: Municipal Market Data

This chart is not intended to represent the yield of any Scudder fund.

period.4 The fund's benchmark, the unmanaged Lehman Brothers Municipal Bond Index, returned 3.51%. (Please see page 3 for more complete performance information.)

4 The Lipper General Municipal Debt Funds category includes closed-end funds that invest in general municipal debt issues in the top four credit grades.

5 Duration is a measure of bond price volatility. Duration can be defined as the approximate percentage change in price for a 100-basis-point (one single percentage point) change in market interest rate levels. A duration of 1.25, for example, means that the price of a bond or bond portfolio should rise by approximately 1.25% for a one-percentage-point drop in interest rates, and that it should fall by 1.25% for a one-percentage-point rise in interest rates.

Q:  How was the fund positioned, and how did this positioning contribute to its performance for the semiannual period?

A:  We continue to monitor the municipal yield curve and position the fund's investments along the curve based upon where we believe the best total return opportunities lie. At the same time, we do not focus on trying to predict the overall level of interest rates, and we attempt to keep the fund's duration and overall interest rate sensitivity similar to that of its benchmark, the Lehman Brothers Municipal Bond Index.5 We also strive to maintain the durability of the fund's dividend by managing call risk.

Strong individual credit selection helped the fund's performance for the period. In particular, our holdings of California general obligation bonds contributed positively to performance, as these experienced a credit upgrade. In addition, our exposure to tobacco-related and other lower-quality issues helped returns as credit spreads generally tightened over the period. Lastly, following a market rally, a portion of the revenue bonds in the portfolio became prerefunded bonds during the period, when they were refinanced.6

Looking ahead, we believe that municipal bond valuations relative to US government and agency debt are attractive all along the yield curve. We will continue to take a prudent approach to investing in the municipal market, while seeking to maintain an attractive dividend and minimize taxable capital gains distributions.

6 Prerefunded bonds — municipal bonds whose repayment is guaranteed by the funds from a second bond issue. Proceeds from the secondary issue are usually invested in US Treasuries.

The views expressed in this report reflect those of the portfolio managers only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions and should not be construed as a recommendation.

Portfolio Summary May 31, 2005

 

Asset Allocation

5/31/05

11/30/04

 

Revenue Bonds

56%

62%

ETM/Prerefunded Bonds

22%

16%

US Government Secured

16%

15%

Lease Obligations

6%

7%

 

100%

100%

Quality

5/31/05

11/30/04

 

AAA

70%

70%

AA

5%

5%

A

15%

14%

BBB

8%

9%

BB

1%

1%

Not Rated

1%

1%

 

100%

100%

Interest Rate Sensitivity

5/31/05

11/30/04

 

Average Maturity

5.8 years

6.8 years

Duration

5.0 years

5.4 years

Top Five State Allocations (% of Investment Portfolio)

5/31/05

11/30/04

 

California

12%

11%

Texas

11%

13%

New York

11%

9%

New Jersey

7%

7%

Colorado

5%

5%

Portfolio composition, quality, interest rate sensitivity and top five state allocations are subject to change.

The quality ratings represent the lower of Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings. The ratings of Moody's and S&P represent their opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The Fund's credit quality does not remove market risk.

For more complete details about the Fund's investment portfolio, see page 9. A quarterly Fact Sheet is available upon request. Please see the Additional Information section for contact information.

Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.

Investment Portfolio as of May 31, 2005 (Unaudited)

mit_accompanying_notes0 mit_top_margin2

 

 

Principal Amount ($)

Value ($)

 

 

Municipal Bonds and Notes 152.2%

Alabama 5.2%

Alabama, Port Authority Revenue, Docks Department, AMT, 6.3%, 10/1/2021 (b)

8,250,000

8,740,627

Camden, AL, Industrial Development Board Revenue, AMT, Series B, 6.375%, 12/1/2024

1,000,000

1,097,540

Huntsville, AL, Hospital & Healthcare Revenue, Health Care Authority, Series A, 5.75%, 6/1/2031

5,500,000

5,879,500

Huntsville, AL, Water & Sewer Revenue, AMT, 5.75%, 10/1/2011 (b)

8,560,000

9,432,264

25,149,931

Arizona 1.6%

Arizona, Hospital & Healthcare Revenue, Health Facilities Authority, Catholic Healthcare West, Series A, 6.625%, 7/1/2020

7,000,000

7,834,610

California 17.6%

California, Electric Revenue, Department of Water Resources and Power Supply, Series A, 5.375%, 5/1/2022

7,350,000

8,036,637

California, General Obligation, Economic Recovery, Series A, 5.0%, 7/1/2015 (b)

8,500,000

9,404,315

California, Hospital & Healthcare Revenue, Health Facilities Funding Authority, Adventist Health Systems, Series A, 5.0%, 3/1/2028

1,000,000

1,024,120

California, Special Assessment Revenue, Golden State Tobacco Securitization Corp.:

 

 

Series B, 5.625%, 6/1/2038

7,080,000

7,721,873

Series 2003-A-1, 6.75%, 6/1/2039

11,730,000

12,815,377

California, State General Obligation:

 

 

5.0%, 12/1/2020

4,600,000

4,939,434

5.0%, 6/1/2026

1,000,000

1,067,390

5.0%, 6/1/2031 (b)

4,965,000

5,267,517

5.125%, 4/1/2024

4,400,000

4,716,008

5.25%, 12/1/2021

10,215,000

11,184,301

5.25%, 4/1/2030

6,250,000

6,710,063

California, State Revenue Lease, Public Works Board, Department of Corrections, Series C, 5.5%, 6/1/2021

2,500,000

2,772,725

California, State Revenue Lease, Public Works Board, University of California Projects, Series F, 5.0%, 11/1/2025

1,000,000

1,062,060

Palmdale, CA, Water District Revenue, Certificates of Participation, 5.0%, 10/1/2034 (b)

3,570,000

3,770,098

Sacramento County, CA, Airport Revenue, AMT, Series A, 5.9%, 7/1/2024 (b)

5,000,000

5,232,200

85,724,118

Colorado 8.2%

Adams County, CO, Multi-Family Housing Revenue, Oasis Park Apartments Project, Series A, 6.15%, 1/1/2026

6,000,000

6,169,680

Colorado, Hospital & Healthcare Revenue, Portercare Adventist Health Project, 6.5%, 11/15/2031

1,000,000

1,114,650

Colorado, Hospital & Healthcare Revenue, Poudre Valley Health Facilities:

 

 

Series A, 5.5%, 12/1/2017 (b)

6,145,000

6,818,431

Series A, 6.0%, 12/1/2015 (b)

5,705,000

6,449,217

Series A, 6.0%, 12/1/2016 (b)

2,000,000

2,260,900

Colorado, Single Family Housing Revenue, AMT, Series B2, 7.25%, 10/1/2031

335,000

345,810

Colorado, Transportation/Tolls Revenue, Anticipation Note, Prerefunded, 6.0%, 6/15/2011 (b)

10,000,000

11,391,900

Denver, CO, Airport Revenue, AMT, Series A, 6.0%, 11/15/2014 (b)

5,000,000

5,548,750

40,099,338

District of Columbia 7.5%

District of Columbia, Core City General Obligation, Series B, 5.5%, 6/1/2011 (b)

20,000,000

22,369,400

District of Columbia, ETM, Series A, Prerefunded, 5.5%, 6/1/2014 (b)

640,000

701,843

District of Columbia, State General Obligation:

 

 

Series A, 5.25%, 6/1/2027 (b)

10,830,000

11,440,704

Series A, 5.5%, 6/1/2014 (b)

1,860,000

2,027,902

36,539,849

Florida 6.3%

Dade County, FL, Airport Revenue, AMT, Series A, 5.75%, 10/1/2026 (b)

13,000,000

13,633,230

Dade County, FL, Special Assessment Revenue:

 

 

Series B, Prerefunded, Zero Coupon, 10/1/2022 (b)

7,735,000

2,980,373

Series B, Prerefunded, Zero Coupon, 10/1/2024 (b)

16,955,000

5,754,018

Hillsborough County, FL, Industrial Development Revenue, University Community Hospital Project, Series A, 5.625%, 8/15/2023

1,000,000

1,038,690

Miami-Dade County, FL, Transportation/Tolls Revenue, Expressway Authority:

 

 

6.0%, 7/1/2013 (b)

1,665,000

1,891,190

6.0%, 7/1/2014 (b)

1,000,000

1,135,850

Orange County, FL, Health Facilities Authority Revenue, Orlando Regional Healthcare System, 5.75%, 12/1/2032

1,000,000

1,077,180

Palm Beach County, FL, School District Revenue Lease, Series A, Prerefunded, 5.75%, 8/1/2017 (b)

2,850,000

3,231,444

30,741,975

Georgia 0.9%

Atlanta, GA, Water & Wastewater Revenue, Water Utilities Improvements, 5.0%, 11/1/2024 (b)

4,000,000

4,280,360

Hawaii 7.3%

Hawaii, Airport System Revenue, AMT, Series B, 6.5%, 7/1/2013 (b)

8,800,000

10,097,560

Hawaii, Electric Revenue, Department of Budget & Finance, AMT:

 

 

Series D, 6.15%, 1/1/2020 (b)

2,195,000

2,404,337

Series A, 6.2%, 5/1/2026 (b)

13,200,000

13,679,688

Hawaii, Port Authority Revenue, AMT:

 

 

Series A, 6.0%, 7/1/2011 (b)

2,950,000

3,317,540

Series A, 6.0%, 7/1/2012 (b)

3,135,000

3,478,408

Hawaii, State General Obligation, Series CT, Prerefunded, 5.75%, 9/1/2014 (b)

2,310,000

2,580,178

35,557,711

Idaho 0.1%

Idaho, Single Family Housing Revenue, AMT, Series C2, 6.9%, 7/1/2025

305,000

305,458

Illinois 7.9%

Chicago, IL, Airport Revenue, O'Hare International Airport, AMT, 5.5%, 1/1/2014 (b)

10,000,000

10,852,100

Chicago, IL, Core City General Obligation:

 

 

Series A, Prerefunded, 6.0%, 1/1/2014 (b)

2,085,000

2,383,530

Series A, Prerefunded, 6.125%, 1/1/2015 (b)

2,000,000

2,298,020

Series A, 6.125%, 1/1/2016 (b)

2,000,000

2,298,020

Chicago, IL, Other General Obligation, Neighborhoods Alive 21 Project:

 

 

Series A, Prerefunded, 6.0%, 1/1/2015 (b)

1,000,000

1,143,180

Series A, 6.0%, 1/1/2017 (b)

1,000,000

1,143,180

Illinois, Higher Education Revenue, DePaul University, Educational Facilities Authority:

 

 

Prerefunded, 5.625%, 10/1/2013 (b)

2,695,000

3,043,518

Prerefunded, 5.625%, 10/1/2015 (b)

1,710,000

1,931,137

Illinois, Hospital & Healthcare Revenue, Adventist Health System, 5.5%, 11/15/2020

2,500,000

2,640,575

Illinois, Hospital & Healthcare Revenue, Children's Memorial Hospital, Series A, Prerefunded, 5.625%, 8/15/2019 (b)

4,000,000

4,432,800

Illinois, Sales & Special Tax Revenue, Metropolitan Pier & Exposition Authority:

 

 

Series A, ETM, 5.5%, 6/15/2017 (b)

1,955,000

2,297,477

Series A, 5.5%, 6/15/2017 (b)

1,555,000

1,802,758

Will County, IL, Industrial Development Revenue, Mobil Oil Refining Corp. Project, AMT, 6.0%, 2/1/2027

2,000,000

2,096,200

38,362,495

Indiana 1.1%

Indiana, Hospital & Healthcare Revenue, Health Facilities Authority, 5.5%, 11/1/2031

5,000,000

5,323,450

Kansas 0.7%

Overland Park, KS, Industrial Development Revenue, Series A, 7.375%, 1/1/2032

3,000,000

3,291,360

Kentucky 1.4%

Kentucky, Hospital & Healthcare Revenue, Economic Development Finance Authority, Norton Healthcare, Inc.:

 

 

Series A, 6.5%, 10/1/2020

2,000,000

2,226,040

Series A, 6.625%, 10/1/2028

4,000,000

4,431,320

6,657,360

Louisiana 0.5%

Louisiana, Electric Revenue, 5.75%, 1/1/2013 (b)

2,000,000

2,308,180

Maine 1.7%

Maine, Hospital & Healthcare Revenue, Series D, 5.7%, 7/1/2013 (b)

1,550,000

1,584,364

Maine, Transportation/Tolls Revenue, 5.0%, 7/1/2017 (b)

6,165,000

6,520,782

8,105,146

Maryland 0.6%

Maryland, Hospital & Healthcare Revenue, University of Maryland Medical System, 6.75%, 7/1/2030

2,500,000

2,822,050

Massachusetts 3.5%

Massachusetts, Airport Revenue, AMT, Series B, 5.5%, 7/1/2009 (b)

8,000,000

8,681,280

Massachusetts, Airport Revenue, U.S. Airways, Inc. Project, AMT, Series A, 5.875%, 9/1/2023 (b)

5,000,000

5,221,500

Massachusetts, Port Authority Revenue, AMT, Series B, 5.5%, 7/1/2015 (b)

3,000,000

3,224,520

17,127,300

Michigan 2.1%

Chippewa County, MI, Hospital & Healthcare Revenue, Chippewa County War Memorial, Series B, 5.625%, 11/1/2014

1,500,000

1,515,375

Michigan, Industrial Development Revenue:

 

 

5.5%, 6/1/2018 (b)

3,425,000

3,750,683

5.75%, 6/1/2016 (b)

4,640,000

5,154,391

10,420,449

Minnesota 1.6%

Minneapolis & St. Paul, MN, Airport Revenue, AMT, Series B, 6.0%, 1/1/2012 (b)

4,395,000

4,859,464

Minneapolis & St. Paul, MN, Port Authority Revenue, AMT, Series B, 5.625%, 1/1/2015 (b)

2,500,000

2,694,625

7,554,089

Missouri 1.1%

Missouri, Hospital & Healthcare Revenue, Lake of the Ozarks General Hospital:

 

 

Prerefunded, 6.5%, 2/15/2021

760,000

793,189

6.5%, 2/15/2021

365,000

376,808

St. Louis, MO, Industrial Development Authority Revenue, St. Louis Convention Center:

 

 

AMT, Series A, 6.875%, 12/15/2020

1,500,000

1,143,405

AMT, Series A, 7.2%, 12/15/2028

4,000,000

3,048,680

5,362,082

Nevada 2.4%

Las Vegas, NV, Core City General Obligation, Water & Sewer Revenue, 5.375%, 4/1/2014 (b)

2,705,000

2,996,707

Nevada, State General Obligation, Capital Improvement and Cultural Affairs Project, Series A, 5.5%, 2/1/2014

2,575,000

2,819,728

Washoe County, NV, School District General Obligation, Prerefunded, 5.75%, 6/1/2014 (b)

5,450,000

6,061,490

11,877,925

New Jersey 11.0%

New Jersey, Casino Reinvestment Development Authority, Hotel Room Fee Revenue, 5.0%, 1/1/2025 (b)

4,000,000

4,273,960

New Jersey, Economic Development Authority Revenue, Cigarette Tax, 5.75%, 6/15/2034

1,090,000

1,168,077

New Jersey, Hospital & Healthcare Revenue, General Hospital Center at Passaic, ETM, 6.75%, 7/1/2019 (b)

5,000,000

6,411,700

New Jersey, Industrial Development Revenue, American Water Co., Inc. Project, AMT, Series A, 6.875%, 11/1/2034 (b)

10,775,000

11,024,441

New Jersey, Industrial Development Revenue, Economic Development Authority, Harrogate, Inc., Series A, 5.875%, 12/1/2026

1,400,000

1,441,160

New Jersey, Resource Recovery Revenue, Tobacco Settlement Financing Corp., 5.75%, 6/1/2032

2,350,000

2,378,999

New Jersey, State Agency General Obligation Lease, Transportation Trust Fund Authority, Series A, Prerefunded, 5.75%, 6/15/2017

10,000,000

11,238,200

New Jersey, Transportation/Tolls Revenue, Economic Development Authority, Series A, Prerefunded, 5.75%, 5/1/2013 (b)

6,000,000

6,607,140

New Jersey, Transportation/Tolls Revenue, Garden State Parkway Project, Prerefunded, 5.6%, 1/1/2017 (b)

8,000,000

8,941,280

53,484,957

New York 16.4%

Nassau County, NY, Hospital & Healthcare, 6.0%, 8/1/2015 (b)

3,390,000

3,850,735

New York, State Agency General Obligation Lease, Higher Education Revenue, Dormitory Authority, Bronx-Lebanon, Hospital Center, Series E, 5.2%, 2/15/2016

1,770,000

1,857,350

New York, State Agency General Obligation Lease, Higher Education Revenue, Dormitory Authority, City University, Series A, 5.625%, 7/1/2016

1,500,000

1,733,340

New York, State Agency General Obligation Lease, Higher Education Revenue, Dormitory Authority, Jamaica Hospital, Series F, 5.2%, 2/15/2016

1,000,000

1,049,350

New York, State General Obligation, Tobacco Settlement Financing Corp.:

 

 

Series A-1, 5.25%, 6/1/2022 (b)

10,000,000

10,873,600

Series A-1, 5.5%, 6/1/2019

1,900,000

2,127,278

Series C-1, 5.5%, 6/1/2019

5,500,000

6,133,765

New York, Transportation/Tolls Revenue:

 

 

Prerefunded, 5.625%, 4/1/2013 (b)

5,000,000

5,528,800

Prerefunded, 5.75%, 4/1/2014 (b)

2,000,000

2,220,520

New York City, NY, Municipal Water Finance Authority, Water & Sewer System Revenue, Series C, 5.0%, 6/15/2027 (b)

9,825,000

10,542,323

New York, NY, Core City General Obligation:

 

 

Series F, 5.25%, 8/1/2015 (b)

10,380,000

11,037,988

Series F, 5.25%, 8/1/2015

5,000,000

5,456,050

New York, NY, General Obligation:

 

 

Series G, 5.0%, 12/1/2023

2,000,000

2,121,860

Series D, 5.0%, 11/1/2024

7,500,000

7,959,450

New York, NY, Sales & Special Tax Revenue, Transitional Finance Authority:

 

 

Series B, Prerefunded, 6.125%, 11/15/2014

1,645,000

1,893,921

Series B, 6.125%, 11/15/2014

355,000

408,719

Series B, Prerefunded, 6.125%, 11/15/2015

3,000,000

3,453,960

Niagara Falls, NY, School District General Obligation, 5.6%, 6/15/2014 (b)

1,180,000

1,372,269

79,621,278

North Carolina 1.7%

Charlotte, NC, Airport Revenue, AMT:

 

 

Series B, 5.75%, 7/1/2013 (b)

2,480,000

2,702,654

Series B, 5.875%, 7/1/2014 (b)

1,140,000

1,245,895

North Carolina, Electric Revenue, Municipal Power Agency:

 

 

Series C, 5.375%, 1/1/2017

1,000,000

1,071,240

Series B, 6.375%, 1/1/2013

3,000,000

3,358,680

8,378,469

North Dakota 0.8%

Grand Forks, ND, Hospital & Healthcare Revenue, Altru Health Care System, 7.125%, 8/15/2024

3,400,000

3,788,382

Ohio 2.4%

Cuyahoga County, OH, Hospital Revenue, Meridia Health Systems, Prerefunded, 6.25%, 8/15/2024

2,350,000

2,413,215

Green Springs, OH, Senior Care Revenue, St. Francis Health Care Center Project, Series A, 7.125%, 5/15/2025

6,000,000

5,317,860

Ohio, Higher Education Revenue, University of Findlay Project:

 

 

6.125%, 9/1/2016

2,000,000

2,048,620

6.15%, 9/1/2011

1,635,000

1,681,287

11,460,982

Oregon 3.3%

Oregon, Other Revenue Lease, Department of Administrative Services:

 

 

Series A, 5.5%, 5/1/2010 (b)

2,245,000

2,374,896

Series A, 5.6%, 5/1/2011 (b)

2,120,000

2,246,585

Oregon, State General Obligation Lease, Department of Administrative Services, Series A, Prerefunded, 6.25%, 5/1/2017 (b)

1,000,000

1,152,770

Oregon, State Revenue Lease, Department of Administrative Services, Series A, Prerefunded, 6.25%, 5/1/2018 (b)

1,000,000

1,152,770

Portland, OR, Special Assessment Revenue, Downtown Waterfront:

 

 

Series A, 5.625%, 6/15/2015 (b)

3,100,000

3,465,211

Series A, 5.75%, 6/15/2018 (b)

2,225,000

2,497,740

Series A, 5.75%, 6/15/2019 (b)

2,820,000

3,165,676

16,055,648

Pennsylvania 2.3%

Pennsylvania, Hospital & Healthcare Revenue, Economic Development Financing Authority, UPMC Health System, Series A, 6.0%, 1/15/2031

2,570,000

2,857,223

Pennsylvania, State University, University & College Improvement Revenue, 5.0%, 9/1/2029

500,000

534,080

Philadelphia, PA, Gas Works Revenue, Series A-1, 5.0%, 9/1/2029 (b)

5,000,000

5,270,350

Philadelphia, PA, Municipal Authority Revenue, Series B, 5.25%, 11/15/2018 (b)

2,500,000

2,725,075

11,386,728

Rhode Island 0.8%

Rhode Island, Special Assessment Revenue, Series A, 6.125%, 6/1/2032

4,000,000

4,082,000

South Carolina 2.5%

Greenwood County, SC, Hospital & Healthcare Revenue, South Carolina Memorial Hospital, 5.5%, 10/1/2031

1,500,000

1,586,430

South Carolina, Hospital & Healthcare Revenue, Jobs Economic Development Authority, Palmetto Health Alliance:

 

 

Series C, 7.0%, 8/1/2030

5,420,000

6,288,392

Series A, Prerefunded, 7.375%, 12/15/2021

2,000,000

2,453,700

South Carolina, Tobacco Settlement Revenue Management Authority, Series B, 6.0%, 5/15/2022

2,000,000

2,049,540

12,378,062

Tennessee 2.8%

Memphis-Shelby County, TN, Airport Revenue, AMT, Series D, 6.25%, 3/1/2017 (b)

4,690,000

5,242,388

Shelby County, TN, Health Educational & Housing Facility Board, Hospital Revenue, Methodist Health Care:

 

 

EMT, 6.5%, 9/1/2026

2,615,000

3,118,859

Prerefunded, 6.5%, 9/1/2026

4,385,000

5,266,648

13,627,895

Texas 16.4%

Austin, TX, Sales & Special Tax Revenue, Hotel Occupancy Tax:

 

 

6.0%, 11/15/2013 (b)

3,190,000

3,544,824

6.0%, 11/15/2015 (b)

3,480,000

3,877,764

6.0%, 11/15/2016 (b)

3,625,000

4,039,337

Brazos River, TX, Pollution Control Revenue, Brazos River Authority, Texas Utilities Electric Co. Project, AMT, Series C, 5.75%*, 5/1/2036

3,965,000

4,256,665

Dallas-Fort Worth, TX, Airport Revenue, International Airport, AMT, Series A, 5.875%, 11/1/2016 (b)

6,500,000

7,251,595

El Paso, TX, State General Obligation:

 

 

5.875%, 8/15/2012 (b)

1,000,000

1,062,740

5.875%, 8/15/2013 (b)

1,570,000

1,668,502

5.875%, 8/15/2014 (b)

1,665,000

1,769,462

Harris County, TX, Hospital & Healthcare Revenue, Health Facilities Development Corp., Memorial Hermann Healthcare, Systems, Series A, 6.375%, 6/1/2029

5,500,000

6,108,190

Houston, TX, Airport Revenue, People Mover Project, AMT, Series A, 5.5%, 7/15/2017 (b)

3,300,000

3,421,737

Houston, TX, Port Authority Revenue, Airport Revenue, AMT, Series A, 5.875%, 7/1/2014 (b)

3,960,000

4,349,862

Red River, TX, School District Revenue Lease, St. Mark's School Project, 6.0%, 8/15/2019

5,390,000

5,938,918

Socorro, TX, Independent School District, 5.0%, 8/15/2025

5,135,000

5,483,821

Tarrant County, TX, Hospital & Healthcare Revenue, Health Facilities Development Corp., 6.7%, 11/15/2030

4,500,000

4,986,810

Texas, Industrial Development Revenue, Waste Disposal Authority, AMT, Series A, 6.1%, 8/1/2024

2,000,000

2,146,660

Texas, State General Obligation, College Student Loans, AMT, 5.0%, 8/1/2021

4,015,000

4,040,736

Texas, State Turnpike Authority, Dallas Northway Revenue, 5.5%, 1/1/2015 (b)

14,605,000

15,709,722

79,657,345

Utah 0.0%

Utah, Single Family Housing Revenue, Housing Finance Agency, AMT, Series B2, 6.65%, 7/1/2026

30,000

30,068

Washington 5.8%

Seattle, WA, Airport Revenue, AMT, Series B, 6.0%, 2/1/2013 (b)

7,355,000

8,399,925

Seattle, WA, Special Assessment Revenue, AMT:

 

 

Series B, 5.5%, 9/1/2011 (b)

1,085,000

1,183,268

Series B, 5.75%, 9/1/2013 (b)

1,045,000

1,147,400

Skagit County, WA, School District General Obligation, School District No. 1, Burlington Edison, 5.625%, 12/1/2014 (b)

1,570,000

1,763,769

Snohomish County, WA, Electric Revenue, Public Utility District No. 1, 5.375%, 12/1/2024 (b)

3,000,000

3,259,290

Washington, Electric Revenue, Energy Northwest Columbia Generating, Series B, 6.0%, 7/1/2018 (b)

3,000,000

3,449,580

Washington, Hospital & Healthcare Revenue, Group Health Coop of Puget Sound, 5.375%, 12/1/2017 (b)

1,500,000

1,639,440

Washington, State General Obligation:

 

 

Series A, 5.5%, 7/1/2013

2,000,000

2,171,120

Series A, 5.5%, 7/1/2016

4,835,000

5,239,061

28,252,853

West Virginia 4.5%

West Virginia, Hospital & Healthcare Revenue, Hospital Finance Authority, Charleston Medical Center:

 

 

Series A, 6.75%, 9/1/2022

2,355,000

2,638,094

6.75%, 9/1/2030

395,000

438,221

West Virginia, Hospital Finance Authority, Charleston Medical Center:

 

 

Prerefunded, 6.75%, 9/1/2022

9,645,000

11,386,598

Prerefunded, 6.75%, 9/1/2030

1,605,000

1,894,815

West Virginia, Hospital Finance Authority, Oak Hill Hospital, Series B, 6.75%, 9/1/2030

2,000,000

2,361,140

West Virginia, Water & Sewer Revenue, Water Development Authority, Series B, 5.25%, 11/1/2023 (b)

2,740,000

3,054,251

21,773,119

Wisconsin 2.2%

Badge, WI, Tobacco Asset Securitization Corp., 6.125%, 6/1/2027

4,435,000

4,619,053

Wisconsin, Hospital & Healthcare Revenue, Health & Education Facilities Authority, Aurora Health Care, Inc., Series A, 5.6%, 2/15/2029

6,000,000

6,212,340

10,831,393

 

% of Net Assets

Value ($)

 

 

Total Investment Portfolio (Cost $676,091,740) (a)

152.2

740,254,415

Other Assets and Liabilities, Net

2.3

10,967,424

Preferred Stock, at Redemption Value

(54.5)

(265,000,000)

Net Assets Applicable to Common Shareholders

100.0

486,221,839

* Variable rate demand notes are securities whose interest rates are reset periodically at market levels. These securities are often payable on demand and are shown at their current rates as of May 31, 2005.

(a) The cost for federal income tax purposes was $675,814,985. At May 31, 2005, net unrealized appreciation for all securities based on tax cost was $64,439,430. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $66,333,965 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1,894,535.

(b) Bond is insured by one of these companies:

Insurance Coverage

As a % of Total Investment Portfolio

Ambac Financial Group

16.0

Financial Guaranty Insurance Company

11.7

Financial Security Assurance Inc.

16.2

MBIA Corp.

17.2

AMT: Subject to alternative minimum tax.

ETM: Bonds bearing the description ETM (escrowed to maturity) are collateralized by US Treasury securities which are held in escrow and used to pay principal and interest on bonds so designated.

Prerefunded: Bonds which are prerefunded are collateralized by US 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.

The accompanying notes are an integral part of the financial statements.

Financial Statements

 

Statement of Assets and Liabilities as of May 31, 2005 (Unaudited)

Assets

Investments in securities, at value (cost $676,091,740)

$ 740,254,415

Receivable for investments sold

330,163

Interest receivable

12,696,441

Other assets

34,673

Total assets

753,315,692

Liabilities

Due to custodian bank

771,308

Dividends payable

468,044

Accrued management fee

334,795

Other accrued expenses and payables

519,706

Total liabilities

2,093,853

Remarketed preferred shares, at redemption value

265,000,000

Net assets applicable to common shareholders

$ 486,221,839

Net Assets

Net assets applicable to common shareholders consist of:

Undistributed net investment income

2,478,353

Net unrealized appreciation (depreciation) on investments

64,162,675

Accumulated net realized gain (loss)

(6,763,844)

Paid-in capital

426,344,655

Net assets applicable to common shareholders

$ 486,221,839

Net Asset Value

Net Asset Value per common share ($486,221,839 ÷ 38,832,628 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)

$ 12.52

The accompanying notes are an integral part of the financial statements.

 

 

Statement of Operations for the six months ended May 31, 2005 (Unaudited)

Investment Income

Income:

Interest

$ 19,609,915

Expenses:

Management fee

2,057,628

Services to shareholders

66,171

Custodian fees

13,342

Auditing

21,772

Legal

16,979

Trustees' fees and expenses

19,175

Reports to shareholders

108,608

Remarketing agent fee

315,886

Stock exchange listing fees

9,485

Other

102,580

Total expenses, before expense reductions

2,731,626

Expense reductions

(2,808)

Total expenses, after expense reductions

2,728,818

Net investment income

16,881,097

Realized and Unrealized Gain (Loss) on Investment Transactions

Net realized gain (loss) from investments

611,894

Net unrealized appreciation (depreciation) during the period on investments

5,189,588

Net gain (loss) on investment transactions

5,801,482

Dividends on remarketed preferred shares

(2,889,762)

Net increase (decrease) in net assets resulting from operations

$ 19,792,817

The accompanying notes are an integral part of the financial statements.

 

 

Statement of Changes in Net Assets

Increase (Decrease) in Net Assets

Six Months Ended May 31, 2005

(Unaudited)

Year Ended November 30, 2004

Operations:

Net investment income

$ 16,881,097

$ 34,687,112

Net realized gain (loss) on investment transactions

611,894

3,351,025

Net unrealized appreciation (depreciation) during the period on investment transactions

5,189,588

(10,049,752)

Dividends on remarketed preferred shares

(2,889,762)

(3,295,705)

Net increase (decrease) in net assets resulting from operations

19,792,817

24,692,680

Distributions to common shareholders from:

Net investment income

(15,737,215)

(31,454,429)

Increase (decrease) in net assets

4,055,602

(6,761,749)

Net assets at beginning of period

482,166,237

488,927,986

Net assets at end of period (including undistributed net investment income of $2,478,353 and $4,224,233, respectively)

$ 486,221,839

$ 482,166,237

Other Information

 

 

Common shares outstanding at beginning of period

38,832,628

38,832,628

Common shares outstanding at end of period

38,832,628

38,832,628

The accompanying notes are an integral part of the financial statements.

Financial Highlights

 

Years Ended November 30,

2005a

2004

2003

2002b

2001c

2000c

Selected Per Share Data

Net asset value, beginning of period

$ 12.42

$ 12.59

$ 12.18

$ 11.87

$ 11.30

$ 11.03

Income (loss) from investment operations:

Net investment incomed

.43

.89

.92

.91

.91

.93

Net realized and unrealized gain (loss) on investment transactions

.16

(.16)

.36

.22

.59

.42

Dividends on remarketed preferred shares (common share equivalent):

From net investment income

(.08)

(.09)

(.07)

(.10)

(.21)

(.28)

Total from investment operations

.51

.64

1.21

1.03

1.29

1.07

Less distributions from:

Net investment income to common shareholders

(.41)

(.81)

(.79)

(.72)

(.72)

(.80)

Net realized gains on investment transactions to common shareholders

(.01)

Total distributions to common shareholders

(.41)

(.81)

(.80)

(.72)

(.72)

(.80)

Net asset value, end of period

$ 12.52

$ 12.42

$ 12.59

$ 12.18

$ 11.87

$ 11.30

Market value, end of period

$ 12.40

$ 12.03

$ 11.96

$ 11.06

$ 11.37

$ 10.25

Total Return

Based on net asset value (%)e

4.25**

5.50

10.53

9.36

11.93

10.40

Based on market value (%)e

6.60**

7.57

15.63

3.76

18.10

7.11

 

 

Years Ended November 30, (continued)

2005a

2004

2003

2002b

2001c

2000c

Ratios to Average Net Assets and Supplemental Data

Net assets, end of period ($ millions)

486

482

489

473

461

439

Ratio of expenses (%) (based on net assets of common shares)  

1.11*

1.06

1.05

1.07

1.09

1.24

Ratio of expenses  (%) (based on net assets of common and remarketed preferred shares)

.72*

.68

.68

.69

.69

.77

Ratio of net investment income  (%) (based on net assets of common shares)

6.96*

7.15

7.35

7.51

7.72

8.48

Ratio of net investment income  (%) (based on net assets of common and remarketed preferred shares)

4.50*

4.62

4.75

4.80

4.90

5.23

Portfolio turnover rate (%)

18*

25

7

7

10

38

Remarketed preferred shares information at end of period:

Aggregate amount outstanding ($ millions)

265

265

265

265

265

265

Asset coverage per share ($)f

14,174

14,097

14,225

13,900

13,700

13,300

Liquidation and market value per share ($)

5,000

5,000

5,000

5,000

5,000

5,000

a For the six months ended May 31, 2005 (Unaudited).

b As required, effective December 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended November 30, 2002 was to increase net investment income by an amount less than $.005 and decrease net realized and unrealized gain (loss) per share by an amount less than $.005. Per share data and ratios for periods prior to December 1, 2001 have not been restated to reflect this change in presentation.

c In 2001 the Fund changed its method of classifying remarketed preferred shares.

d Based on average common shares outstanding during the period.

e Total return based on net asset value reflects changes in the Fund's net asset value during the period. Total return based on market value reflects changes in market value. Each figure includes reinvestment of dividends. These figures will differ depending upon the level of any discount from or premium to net asset value at which the Fund's shares trade during the period.

f Asset coverage per share equals net assets of common shares plus the redemption value of the remarketed preferred shares divided by the total number of remarketed preferred shares outstanding at the end of the period.

* Annualized

** Not annualized

Notes to Financial Statements (Unaudited)

 

mit_top_margin1A. Significant Accounting Policies

Scudder 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 accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Debt securities are valued by independent pricing services approved by the Trustees of the Fund, whose valuations are intended to reflect the mean between the bid and asked prices. If the pricing services are unable to provide valuations, the securities are valued at the average of the means based on the most recent bid quotation and asked or evaluated price obtained from two broker-dealers. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes.

Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost.

Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the 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, 2004, the Fund had a net tax basis capital loss carryforward of approximately $7,300,000 which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until November 30, 2007 ($2,400,000), November 30, 2008 ($3,600,000) and November 30, 2011 ($1,300,000), the respective expiration dates, whichever occurs first.

Distribution of Income and Gains. Net investment income of the Fund is declared and distributed to shareholders 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 capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. 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.

The tax character of current year distributions will be determined at the end of the current fiscal year.

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 preferred shares are senior to and have certain class specific preferences over the common shares. The dividend rate on each series is set by the remarketing agent, and the dividends are generally paid every 28 days. The remarketing agent will pay each broker-dealer a service charge from funds provided by the Fund (remarketing agent fee). The 1940 Act requires that the preferred shareholders of the Fund, voting as a separate class, have the right to: a) elect at least two trustees at all times, and b) elect a majority of the trustees at any time when dividends on the preferred shares are unpaid for two full years. Unless otherwise required by law or under the terms of the preferred shares designation statement, each preferred share is entitled to one vote and preferred shareholders will vote together with common shareholders as a single class and have the same voting rights.

Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.

Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on 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 premiums and discounts are amortized/accreted for financial reporting purposes, with the exception of securities in default of principal.

B. Purchases and Sales of Securities

During the six months ended May 31, 2005, purchases and sales of investment securities (excluding short-term investments) aggregated $65,390,286 and $67,374,680, respectively.

C. Related Parties

Management Agreement. Under the Management Agreement with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Management Agreement. The Fund pays a monthly investment management fee of 1/12 of the annual rate of 0.55% of the Fund's average weekly net assets, of common shares plus the value of remarketed preferred shares, at redemption value, computed and accrued daily and payable monthly.

Service Provider Fees. Scudder Investments Service Company ("SISC"), an affiliate of the Advisor, is the transfer, dividend-paying and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between SISC and DST Systems, Inc. ("DST"), SISC has delegated certain transfer agent and dividend paying agent functions to DST. SISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the six months ended May 31, 2005, the amount charged to the Fund by SISC aggregated $18,769, of which $12,492 is unpaid at May 31, 2005.

Typesetting and Filing Fees. Under an agreement with Deutsche Investment Management Americas Inc. ("DeIM"), an indirect, wholly owned subsidiary of Deutsche Bank AG, DeIM is compensated for providing typesetting and regulatory filing services to the Fund. For the six months ended May 31, 2005, the amount charged to the Fund by DeIM included in the reports to shareholders aggregated $10,560, of which $5,280 is unpaid at May 31, 2005.

Trustees' Fees and Expenses. The Fund pays each Trustee not affiliated with the Advisor retainer fees plus specified amounts for attended board and committee meetings.

Insurance Brokerage Commissions. The Fund paid insurance premiums to an unaffiliated insurance broker in 2002 and 2003. This broker in turn paid a portion of its commissions to an affiliate of the Advisor, which performed certain insurance brokerage services for the broker. The Advisor has reimbursed the Fund for the portion of commissions (plus interest) paid to the affiliate of the Advisor attributable to the premiums paid by the Fund. The amounts for 2002 and 2003 were $184 and $155, respectively.

D. Expense Reductions

For the six months ended May 31, 2005, the Advisor agreed to reimburse the Fund $2,683, which represents a portion of the fee savings expected to be realized by the Advisor related to the outsourcing by the Advisor of certain administrative services to an unaffiliated service provider.

In addition, the Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund's custodian expenses. During the six months ended May 31, 2005, the Fund's custodian fees were reduced by $125 for custody credits earned.

E. Line of Credit

The Fund and several other affiliated funds (the ``Participants'') share in a $1.1 billion revolving credit facility administered by J.P. Morgan Chase Bank for temporary or emergency purposes. The Participants are charged an annual commitment fee which is allocated, based upon net assets, among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.5 percent. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement.

F. Regulatory Matters and Litigation

Since at least July 2003, federal, state and industry regulators have been conducting ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and have requested information from numerous mutual fund companies, including Scudder Investments. It is not possible to determine what the outcome of these inquiries will be or what the effect, if any, would be on the funds or their advisors. Publicity about mutual fund practices arising from these industry-wide inquiries serves as the general basis of a number of private lawsuits against the Scudder funds. These lawsuits, which previously have been reported in the press, involve purported class action and derivative lawsuits, making various allegations and naming as defendants various persons, including certain Scudder funds, the funds' investment advisors and their affiliates, certain individuals, including in some cases fund Trustees/Directors, officers, and other parties. Each Scudder fund's investment advisor has agreed to indemnify the applicable Scudder funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making allegations similar to these lawsuits regarding market timing, revenue sharing, fund valuation or other subjects arising from or related to the pending inquiries. Based on currently available information, the funds' investment advisors believe the likelihood that the pending lawsuits will have a material adverse financial impact on a Scudder fund is remote and such actions are not likely to materially affect their ability to perform under their investment management agreements with the Scudder funds.

In connection with litigation or regulatory action related to possible improper market timing or other improper trading activity or possible improper marketing and sales activity in the Fund, the Fund's investment advisor has agreed, subject to applicable law and regulation, to indemnify and hold harmless the applicable Funds against any and all loss, damage, liability and expense, arising from market timing or marketing and sales matters alleged in any enforcement actions brought by governmental authorities involving or potentially affecting the Fund or the investment advisor ("Enforcement Actions") or that are the basis for private actions brought by shareholders of the Fund against the Fund, their directors and officers, the Fund's investment advisor and/or certain other parties ("Private Litigation"), or any proceedings or actions that may be threatened or commenced in the future by any person (including governmental authorities), arising from or similar to the matters alleged in the Enforcement Actions or Private Litigation. In recognition of its undertaking to indemnify the applicable Funds and in light of the rebuttable presumption generally afforded to independent directors/trustees of investment companies that they have not engaged in disabling conduct, the Fund's investment advisor has also agreed, subject to applicable law and regulation, to indemnify the applicable Funds' Independent Trustees against certain liabilities the Independent Trustees may incur from the matters alleged in any Enforcement Actions or Private Litigation or arising from or similar to the matters alleged in the Enforcement Actions or Private Litigation, and advance expenses that may be incurred by the Independent Trustees in connection with any Enforcement Actions or Private Litigation. The applicable investment advisor is not, however, required to provide indemnification and advancement of expenses: (1) with respect to any proceeding or action with respect to which the applicable Fund's Board determines that the Independent Trustee ultimately would not be entitled to indemnification or (2) for any liability of the Independent Trustee to the Fund or their shareholders to which the Independent Trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the Independent Trustee's duties as a director or trustee of the Fund as determined in a final adjudication in such action or proceeding. The estimated amount of any expenses that may be advanced to the Independent Trustees or indemnity that may be payable under the indemnity agreements is currently unknown. These agreements by the Fund's investment advisor will survive the termination of the investment management agreements between the applicable investment advisor and the Fund.

Dividend Reinvestment Plan

 

mit_top_margin0A. Participation

We invite you to review the description of the Dividend Reinvestment Plan (the ``Plan'') which is available to you as a shareholder of Scudder Municipal Income Trust (the ``Fund''). If you wish to participate and your shares are held in your own name, simply contact Scudder Investments Service Company, whose address and phone number are provided in Paragraph E, 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 UMB Bank, N.A. ("United Missouri Bank" or "UMB") as their agent and as agent for the Fund under the Plan.

B. Dividend Investment Account

The Fund's transfer agent and dividend disbursing agent or its delegate (the ``Transfer Agent'') will establish a Dividend Investment Account (the ``Account'') for each shareholder participating in the Plan. The Transfer 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; and (b) cash dividends and capital gains distributions paid on Shares registered in the name of the Transfer Agent but credited to the participant's Account. Sources described in clauses (a) and (b) of the preceding sentence are hereinafter called ``Distributions.''

C. Investment of Distribution Funds Held in Each Account

If on the record date for a Distribution (the ``Record Date''), Shares are trading at a discount from net asset value per Share (according to the evaluation most recently made on Shares of the Fund), funds credited to a participant's Account will be used to purchase Shares (the ``Purchase''). UMB will attempt, commencing five days prior to the Payment Date and ending at the close of business on the Payment Date (``Payment Date'' as used herein shall mean the last business day of the month in which such Record Date occurs), to acquire Shares in the open market. If and to the extent that UMB is unable to acquire sufficient Shares to satisfy the Distribution by the close of business on the Payment Date, the Fund will issue to UMB Shares valued at net asset value per Share (according to the evaluation most recently made on Shares of the Fund) in the aggregate amount of the remaining value of the Distribution. If, on the Record Date, Shares are trading at a premium over net asset value per Share, the Fund will issue on the Payment Date, Shares valued at net asset value per Share on the Record Date to the Transfer Agent in the aggregate amount of the funds credited to the participants' accounts.

D. Voluntary Cash Contributions

A participant may from time to time make voluntary cash contributions to his Account by sending to Transfer Agent a check or money order, payable to Transfer Agent, in a minimum amount of $100 with appropriate accompanying instructions. (No more than $500 may be contributed per month.) Transfer Agent will inform UMB of the total funds available for the purchase of Shares and UMB will use the funds to purchase additional Shares for the participant's Account the earlier of: (a) when it next purchases Shares as a result of a Distribution or (b) on or shortly after the first day of each month and in no event more than 30 days after such date except when temporary curtailment or suspension of purchases is necessary to comply with applicable provisions of federal securities laws. Cash contributions received more than fifteen calendar days or less than five calendar days prior to a Payment Date will be returned uninvested. Interest will not be paid on any uninvested cash contributions. Participants making voluntary cash investments will be charged a $.75 service fee for each such investment and will be responsible for their pro rata share of brokerage commissions.

E. Additional Information

Address all notices, correspondence, questions, or other communication regarding the Plan, or if you would like a copy of the Plan, to:

Scudder Investments Service Company
P.O. Box 219066
Kansas City, Missouri 64121-9066
1-800-294-4366

F. 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.

G. 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 H 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 the Transfer Agent has received or UMB has purchased Shares. The Transfer 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.

H. 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.

I. Service Charges

There is no service charge by the Transfer Agent or UMB to shareholders who participate in the Plan other than service charges specified in Paragraphs D and M hereof. However, the Fund reserves the right to amend the Plan in the future to include a service charge.

J. Transfer of Shares Held by Agent

The Transfer 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 the Transfer Agent. Upon request to the Transfer Agent, a certificate for any or all full Shares in a participant's Account will be sent to the participant.

K. 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.

L. 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, except when such amendment is necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, in which case such amendment shall be effective as soon as practicable. The amendment shall be deemed to be accepted by each participant unless, prior to the effective date thereof, the Transfer Agent receives notice of the termination of such participant's account under the Plan in accordance with the terms hereof. The Plan may be terminated by the Fund.

M. Withdrawal from Plan

Shareholders may withdraw from the Plan at any time by giving the Transfer Agent a written notice. If the proceeds are $100,000 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 Transfer Agent provided the notice is received by the Transfer 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 L 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, the Transfer 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.

N. Tax Implications

Shareholders will receive tax information annually for personal records and to assist in preparation of their Federal income tax returns. 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.

Shareholder Meeting Results

 

The Annual Meeting of Shareholders of Scudder Municipal Income Trust (the "fund") was held on May 25, 2005. The following matters were voted upon by the shareholders of said fund (the resulting votes are presented below):

1. To elect nine individuals to constitute the Board of Trustees of the fund.

 

Number of Votes:

 

For

Withheld

John W. Ballantine

33,879,210

510,704

Donald L. Dunaway

33,868,606

521,308

James R. Edgar

33,875,595

514,320

Paul K. Freeman

33,878,886

511,028

Robert B. Hoffman

33,848,624

541,290

William McClayton

33,880,107

509,808

Shirley D. Peterson

33,869,224

520,691

William N. Shiebler*

47,775

0

Robert H. Wadsworth*

47,775

0

2. To ratify the selection of Ernst & Young LLP as the Independent Registered Public Accounting Firm for the fund.

Number of Votes:

For

Against

Abstain

33,991,563

123,113

275,238

* Elected by preferred shareholders.

Additional Information

 

Changes in Trustees and Officers

Lewis A. Burnham and John G. Weithers retired from the Board of Trustees effective May 25, 2005 in connection with the fund's Annual Meeting of Shareholders.

On May 11, 2005, the Board of Trustees appointed Scott M. McHugh as Assistant Treasurer of the fund. Kevin Gay and Salvatore Schiavone resigned as Assistant Treasurers of the fund in connection with their resignation as Vice President and Director, respectively, of Deutsche Asset Management.

Additional Information (continued)

 

Automated Information Lines

Scudder Closed-End Fund Info Line

(800) 349-4281

Web Sites

www.scudder.com

or visit our Direct Link:

www.cef.scudder.com

Obtain monthly fact sheets, financial reports, press releases and webcasts when available.

Written Correspondence

Deutsche Investment Management Americas Inc.

222 South Riverside

Chicago, IL 60606

Proxy Voting

A description of the fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 is available on our Web site — scudder.com (type "proxy voting" in the search field) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at (800) 621-1048.

Legal Counsel

Vedder, Price, Kaufman & Kammholz, P.C.

222 North LaSalle Street

Chicago, IL 60601

Dividend Reinvestment Plan Agent

UMB Bank

P.O. Box 410064

Kansas City, MO 64141-0064

Shareholder Service Agent

Scudder Investments Service Company

P.O. Box 219066

Kansas City, MO 64121-9066

(800) 294-4366

Custodian and Transfer Agent

State Street Bank and Trust Company

225 Franklin Street

Boston, MA 02110

Independent Registered Public Accounting Firm

Ernst & Young LLP

200 Clarendon Street

Boston, MA 02116

NYSE Symbol

KTF

CUSIP Number

81118R604

Privacy Statement

 

This privacy statement is issued by Deutsche Investment Management Americas Inc., Deutsche Asset Management, Inc., Scudder Distributors, Inc., Scudder Investor Services, Inc., Scudder Trust Company and the Scudder Funds.

We never sell customer lists or individual client information. We consider privacy fundamental to our client relationships and adhere to the policies and practices described below to protect current and former clients' information. Internal policies are in place to protect confidentiality, while allowing client needs to be served. Only individuals who need to do so in carrying out their job responsibilities may access client information. We maintain physical, electronic and procedural safeguards that comply with federal and state standards to protect confidentiality. These safeguards extend to all forms of interaction with us, including the Internet.

In the normal course of business, clients give us nonpublic personal information on applications and other forms, on our websites, and through transactions with us or our affiliates. Examples of the nonpublic personal information collected are name, address, Social Security number and transaction and balance information. To be able to serve our clients, certain of this client information is shared with affiliated and nonaffiliated third party service providers such as transfer agents, custodians, and broker-dealers to assist us in processing transactions and servicing your account with us. In addition, we may disclose all of the information we collect to companies that perform marketing services on our behalf or to other financial institutions with which we have joint marketing agreements. The organizations described above that receive client information may only use it for the purpose designated by the Scudder Companies listed above.

We may also disclose nonpublic personal information about you to other parties as required or permitted by law. For example, we are required or we may provide information to government entities or regulatory bodies in response to requests for information or subpoenas, to private litigants in certain circumstances, to law enforcement authorities, or any time we believe it necessary to protect the firm.

Questions on this policy may be sent to:

Scudder Investments
Attention: Correspondence — Chicago
P.O. Box 219415
Kansas City, MO 64121-9415

September 2004

Notes

 

mit_notes_page5mit_notes_page4

Notes

 

mit_notes_page3mit_notes_page2

Notes

 

mit_notes_page1mit_notes_page0

mit_backcover0


ITEM 2.         CODE OF ETHICS.

                Not applicable.

ITEM 3.         AUDIT COMMITTEE FINANCIAL EXPERT.

                Not applicable.

ITEM 4.         PRINCIPAL ACCOUNTANT FEES AND SERVICES.

                Not applicable.

ITEM 5.         AUDIT COMMITTEE OF LISTED REGISTRANTS

                Not Applicable

ITEM 6.         SCHEDULE OF INVESTMENTS

                Not Applicable

ITEM 7.         DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
                CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

                Not applicable.

ITEM 8.         PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

                Not applicable.

ITEM 9.         PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT 
                INVESTMENT COMPANY AND AFFILIATED PURCHASERS


         Period                  Total Number of Shares   Average Price Paid 
                                      Purchased               Per Share
December 1- December 31, 2004            N/A                     N/A
January 1- January 31, 2005              N/A                     N/A
February 1-February 28, 2005             N/A                     N/A
March 1- March 31, 2005                  N/A                     N/A
April 1- April 30, 2005                  N/A                     N/A
May 1- May 31, 2005                      N/A                     N/A

                                  Purchased as Part of    Shares they May Yet be
         Period                  Publicly Announced       Purchased under the
                                 Plans or Programs        Plans or Programs
December 1- December 31, 2004            N/A                    N/A
January 1- January 31, 2005              N/A                    N/A
February 1-February 28, 2005             N/A                    N/A
March 1- March 31, 2005                  N/A                    N/A
April 1- April 30, 2005                  N/A                    N/A
May 1- May 31, 2005                      N/A                    N/A

ITEM 10.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The primary function of the Nominating and Governance Committee is to identify
and recommend individuals for membership on the Board and oversee the
administration of the Board Governance Procedures and Guidelines. Shareholders
may recommend candidates for Board positions by forwarding their correspondence
by U.S. mail or courier service to the Fund's Secretary for the attention of the
Chairman of the Nominating and Governance Committee, Two International Place,
Boston, MA 02110. Suggestions for candidates must include a resume of the
candidate.

ITEM 11.        CONTROLS AND PROCEDURES.

(a) The Chief Executive and Financial Officers concluded that the Registrant's
Disclosure Controls and Procedures are effective based on the evaluation of the
Disclosure Controls and Procedures as of a date within 90 days of the filing
date of this report.

(b) There have been no changes in the registrant's internal control over
financial reporting that occurred during the registrant's last half-year (the
registrant's second fiscal half-year in the case of the annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal controls over financial reporting.

ITEM 12.        EXHIBITS.

(a)(1)   Certification  pursuant to Rule 30a-2(a) under the  Investment  Company
         Act of 1940 (17 CFR  270.30a-2(a))  is filed  and  attached  hereto  as
         Exhibit 99.CERT.

(b)      Certification  pursuant to Rule 30a-2(b) under the  Investment  Company
         Act of 1940 (17 CFR  270.30a-2(b))  is furnished and attached hereto as
         Exhibit 99.906CERT.




Form N-CSR Item F

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

Registrant:                         Scudder Municipal Income Trust


By:                                 /s/Julian Sluyters
                                    ------------------
                                    Julian Sluyters
                                    Chief Executive Officer

Date:                               August 2, 2005


Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

Registrant:                         Scudder Municipal Income Trust


By:                                 /s/Julian Sluyters
                                    ------------------
                                    Julian Sluyters
                                    Chief Executive Officer

Date:                               August 2, 2005



By:                                 /s/Paul Schubert
                                    ----------------
                                    Paul Schubert
                                    Chief Financial Officer

Date:                               August 2, 2005