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File No. 2-98738
CIK #773814
Securities and Exchange Commission
Washington, D. C. 20549
Post-Effective
Amendment No. 8
to
Form S-6
For Registration under the Securities Act of 1933
of Securities of Unit Investment Trusts Registered
on Form N-8B-2
KEMPER GOVERNMENT SECURITIES TRUST GNMA PORTFOLIO, SERIES 7,
AND SERIES 8
Name and executive office address of Depositor:
KEMPER UNIT INVESTMENT TRUSTS
(a service of Kemper Securities, Inc.)
77 West Wacker - 5th Floor
Chicago, Illinois 60601
Name and complete address of agent for service:
C. PERRY MOORE
77 West Wacker - 5th Floor
Chicago, Illinois 60601
X( X ) Check box if it is proposed that this filing will become effective
immediately upon pursuant to paragraph (b) of Rule 485.
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KEMPER GOVERNMENT SECURITIES TRUST
KEMPER DEFINED FUNDS, GNMA PORTFOLIO
KEMPER DEFINED FUNDS, U.S. TREASURY PORTFOLIO
PART ONE
THE DATE OF THIS PART ONE IS THAT DATE
WHICH IS SET FORTH IN PART TWO OF THE PROSPECTUS
Each Series of the Kemper Government Securities Trust, GNMA Portfolio and
Kemper Defined Funds, GNMA Portfolio (collectively, the "GNMA Trust") was
formed for the purpose of obtaining safety of capital and current monthly
distributions of interest and principal through investment in a portfolio
consisting of mortgage-backed Securities of the modified pass-through type.
All payments of principal and interest on the mortgage-backed Securities are
fully guaranteed by the Government National Mortgage Association ("GNMA"). The
full faith and credit of the United States is pledged to the payment of the
Securities in the GNMA Trust but the Units of such Series are not backed by
such full faith and credit.
Each Series of the Kemper Government Securities Trust, FNMA Debenture (the
"FNMA Trust") is a unit investment trust whose objective is to obtain safety of
capital and current monthly distributions of interest through investment in a
portfolio representing undivided interests in specified fixed rate debentures
(unsecured general obligations) issued and guaranteed by the Federal National
Mortgage Association ("FannieMae"). While FannieMae is a corporate
instrumentality of the United States, the Securities in the FNMA Trust are not
guaranteed by the United States or any agency thereof and do not constitute
debts or obligations of the United States. The obligations of FannieMae under
its guarantee are obligations solely of FannieMae and are not backed by, or
entitled to, the full faith and credit of the United States.
Each Series of the Kemper Government Securities Trust, U.S. Treasury
Portfolio and Kemper Defined Funds, U.S. Treasury Portfolio (collectively, the
"U.S. Treasury Portfolio Series") was formed for the purpose of providing
safety of capital and investment flexibility through an investment in a
portfolio of interest-bearing (or in certain Series zero coupon) U.S. Treasury
obligations that are backed by the full faith and credit of the United States
Government. Interest income distributed by the U.S. Treasury Portfolio Series
is exempt from state personal income taxes in all states, except perhaps in
Tennessee. Certain Series of the U.S. Treasury Portfolio are available to
non-resident aliens and the income from such Series, provided certain
conditions are met, will be exempt from withholding for U.S. Federal income tax
for such foreign investors. A FOREIGN INVESTOR MUST PROVIDE A COMPLETED W-8
FORM TO HIS FINANCIAL REPRESENTATIVE OR THE TRUSTEE TO AVOID WITHHOLDING ON HIS
ACCOUNT.
The GNMA Trusts, the FNMA Trusts and the U.S. Treasury Portfolio Series are
sometimes collectively referred to herein as the Trusts.
The value of the Units of each Series will fluctuate with the value of the
Portfolio of underlying Securities. Units of the Trusts are particularly well
suited for purchase by Individual Retirement Accounts, Keogh Plans, pension
funds and other tax deferred retirement plans. Minimum purchases for any
Series of the Trusts: $1,000 ($250 for IRA accounts).
Units of the Trusts are not deposits or obligations of, or guaranteed by, any
bank, and are not federally insured or otherwise protected by the Federal
Deposit Insurance Corporation and involves investment risk including loss of
principal.
SPONSOR: KEMPER UNIT INVESTMENT TRUSTS
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The investor is advised to read and retain both parts of this Prospectus for
future reference.
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TABLE OF CONTENTS
<TABLE>
PAGE NO.
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<S> <C>
SUMMARY - GNMA PORTFOLIO . . . . . . . 1
General . . . . . . . . . . . . . . 1
Monthly Distributions . . . . . . . 1
Securities . . . . . . . . . . . . . 2
Special Considerations . . . . . . . 2
Estimated Current and Long-Term
Returns . . . . . . . . . . . . . . 2
Market for Units . . . . . . . . . . 2
GNMA PORTFOLIO . . . . . . . . . . . . 3
The GNMA Trust . . . . . . . . . . . 3
Special Considerations . . . . . . . 3
Portfolios . . . . . . . . . . . . . 4
Origination . . . . . . . . . . . . 5
Nature of Ginnie Maes and GNMA
Guaranty . . . . . . . . . . . . . 6
Life of the Securities and of the
Series of the GNMA Trust . . . . . 7
SUMMARY - FNMA DEBENTURE . . . . . . . 8
General . . . . . . . . . . . . . . 8
Monthly Distributions . . . . . . . 8
Debentures . . . . . . . . . . . . . 9
Special Considerations . . . . . . . 9
Estimated Current and Long-Term
Returns . . . . . . . . . . . . . . 9
Market for Units . . . . . . . . . . 10
FNMA DEBENTURE . . . . . . . . . . . . 10
The FNMA Trust . . . . . . . . . . . 10
Special Considerations . . . . . . . 11
Portfolios . . . . . . . . . . . . . 11
FannieMae . . . . . . . . . . . . . 11
FNMA Debentures . . . . . . . . . . 12
SUMMARY U.S. TREASURY PORTFOLIO . . . . 13
Monthly Distributions . . . . . . . 14
Stripped Treasury Securities . . . . 14
Special Considerations . . . . . . . 15
Estimated Current and Long-Term
Returns . . . . . . . . . . . . . 16
Market for Units . . . . . . . . . . 16
THE U.S. TREASURY PORTFOLIO SERIES . . 17
Special Considerations . . . . . . . 17
General . . . . . . . . . . . . . . 18
RATING OF UNITS . . . . . . . . . . . . 18
PORTFOLIO SELECTION . . . . . . . . . . 18
THE UNITS . . . . . . . . . . . . . . . 19
ESTIMATED LONG-TERM AND CURRENT
RETURNS . . . . . . . . . . . . . . 19
PUBLIC OFFERING OF UNITS . . . . . . . 20
Public Offering Price . . . . . . . 20
Volume Discount . . . . . . . . . . 20
Public Distribution . . . . . . . . 20
Profits of Sponsor . . . . . . . . . 24
TAX STATUS OF THE TRUSTS . . . . . . . 24
Regulated Investment Companies . . . 26
Foreign Investors Trust . . . . . . 28
U.S. Treasury Portfolio Series. . . . 28
Kemper Defined Funds,
GNMA Portfolio, Series 1 . . . . . . 32
RETIREMENT PLANS . . . . . . . . . . . 34
Individual Retirement Account - IRA 35
Qualified Retirement Plans . . . . . 35
Excess Distributions Tax . . . . . . 36
DISTRIBUTION REINVESTMENT . . . . . . . 36
REDEMPTION . . . . . . . . . . . . . . 37
Right of Redemption . . . . . . . . 37
Computation of Redemption Value . . 38
Postponement of Redemption . . . . . 39
RIGHTS OF UNITHOLDERS . . . . . . . . . 39
Unitholders . . . . . . . . . . . . 39
Ownership of Units . . . . . . . . . 39
Certain Limitations . . . . . . . . 40
EXPENSES AND CHARGES . . . . . . . . . 40
Initial Expenses . . . . . . . . . . 40
Fees . . . . . . . . . . . . . . . . 40
Other Charges . . . . . . . . . . . 41
ADMINISTRATION OF THE TRUST . . . . . . 41
Records and Accounts . . . . . . . . 41
Distributions from the Interest,
Principal and Capital Gains
Accounts. . . . . . . . . . . . . . 42
GNMA Trust . . . . . . . . . . . . 42
FNMA Trust . . . . . . . . . . . . 43
U.S. Treasury Portfolio Series . . 43
General . . . . . . . . . . . . . . 44
Portfolio Supervision . . . . . . . 45
Reports to Unitholders . . . . . . . 45
Amendments . . . . . . . . . . . . . 47
Termination . . . . . . . . . . . . 47
RESIGNATION, REMOVAL AND LIABILITY . . 48
Regarding the Trustee . . . . . . . 48
Regarding the Sponsor . . . . . . . 48
Regarding the Evaluator . . . . . . 48
MISCELLANEOUS . . . . . . . . . . . . . 49
Sponsor . . . . . . . . . . . . . . 49
Trustee . . . . . . . . . . . . . . 49
Legal Opinions . . . . . . . . . . . 50
INDEPENDENT AUDITORS . . . . . . . . . 50
DESCRIPTION OF STANDARD & POOR'S
RATING . . . . . . . . . . . . . . . 50
Essential Information*
Report of Independent Auditors*
Statement of Assets and Liabilities*
Statement of Operations*
Statement of Changes in Net Assets*
Schedule of Investments*
Notes to Schedule of Investments*
Notes to Financial Statements*
*INFORMATION ON THESE ITEMS APPEARS IN PART
TWO
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KEMPER GOVERNMENT SECURITIES TRUST
KEMPER DEFINED FUNDS, GNMA PORTFOLIO
KEMPER DEFINED FUNDS, U.S. TREASURY PORTFOLIO
SUMMARY - GNMA PORTFOLIO
GENERAL. Each Series of the Kemper Government Securities Trust, GNMA
Portfolio and Kemper Defined Funds, GNMA Portfolio (collectively, the "GNMA
Trust"), is one of a series of unit investment trusts whose objective is to
obtain safety of capital and to provide current monthly distributions of
interest and principal through investment in a fixed portfolio initially
consisting of contracts to purchase taxable mortgage- backed securities of the
modified pass-through type ("Ginnie Maes" or "Securities"), including so-called
"Ginnie Mae II's" (see "GNMA Portfolios-Origination"), which involve larger
pools of mortgages and which have a central paying agent, fully guaranteed as
to principal and interest by the Government National Mortgage Association
("GNMA"). Certain Series of the GNMA Trust contain Ginnie Maes which consist
of pools of long term (i.e., 30 year) mortgages on 1-to 4-family dwellings.
Other Series contain Ginnie Maes consisting of pools of mortgages on 1-to-4
family dwellings which have stated maturity of 15 years (so called "Ginnie Mae
Midgets"). See "GNMA Portfolios" and the "Schedule of Investments" in Part
Two. Under certain circumstances, the Sponsor may direct the Trustee to
reinvest certain surplus monies in the principal account of a Series in
additional Ginnie Maes. See "Administration of the Trust - Portfolio
Supervision."
The guaranteed payment of principal and interest afforded by Ginnie Maes
may make an investment in a Series of the GNMA Trust particularly well suited
for purchase by Individual Retirement Accounts, Keogh Plans, pension funds and
other tax-deferred retirement plans. In addition, the ability to buy whole or
fractional Units (minimum purchase $1,000, $250 for IRA accounts) enables such
investors to tailor the dollar amount of their purchases of Units to take
maximum possible advantage of the annual deductions available for contributions
to such plans. Investors should consult with their tax advisers before
investing. See "Retirement Plans."
MONTHLY DISTRIBUTIONS. Monthly distributions of principal, prepayments of
principal, if any, and interest received by a Series of the GNMA Trust will be
paid in cash unless the Unitholder elects to have them automatically reinvested
in any open-end mutual fund underwritten or advised by Kemper Financial
Services, Inc., an affiliate of the Sponsor, Kemper Financial Services, Inc.
(the "Kemper Funds"), other than those Kemper Funds sold with a contingent
deferred sales charge. Since the portfolio securities and investment
objectives of such Kemper Funds may differ significantly from that of the GNMA
Trusts, Unitholders should carefully consider the consequences before selecting
such Kemper Funds for reinvestment. Any such reinvestment is made at net asset
value, that is, without a sales charge. Investors have the ability to
designate that only principal payments (including prepayments) or only interest
payments or both are to be reinvested. Investors who intend to participate in
the Reinvestment Program should so indicate at the time of their purchase. See
"Distribution Reinvestment." It should be noted by purchasers of Midget Foreign
Investors Trusts that distributions from the reinvestment fund chosen generally
will be subject to U.S. Federal income
<PAGE> 4
tax withholding. Distributions will be made on or about the last day of each
month to Unitholders of record on the 1st day of such month.
SECURITIES. One or more different issues of Ginnie Maes were deposited in
the GNMA Trust on the Initial Date of Deposit. The current percentage
relationship among the Ginnie Maes in a GNMA Series is shown under "Essential
Information" and "Schedule of Investments" in Part Two.
SPECIAL CONSIDERATIONS. An investment in Units of a Series of the GNMA
Trust should be made with an understanding of the risks which an investment in
fixed rate long term debt obligations may entail, including the risk that the
value of the Portfolio and hence of the Units will decline with increases in
interest rates. Because of the shorter average life of the Securities in
certain Series of the GNMA Trust and the lower coupon interest rates on such
Securities, the value of such Series should tend to fluctuate less than longer
term obligations. Some or all of the Securities in a Series of the GNMA Trust
may have been purchased at a market discount.
ESTIMATED CURRENT AND LONG-TERM RETURNS. The Estimated Current Return
shown under "Essential Information" in Part Two, shows the return based on the
Public Offering Price which includes a sales charge and is computed by
dividing the estimated net annual interest income by the Public Offering Price.
The net annual interest rate will vary with changes in the fees and expenses of
the Trustee, Sponsor and Evaluator and with the exchange, redemption, sale,
scheduled payments, prepayments or maturity of underlying Securities. The
Public Offering Price will also vary with fluctuations in the evaluation of the
underlying Securities and, in the case of Kemper Define Funds, with changes in
Purchased Interest and Daily Accrued Interest. Therefore, it can be expected
that the Estimated Current Return will fluctuate in the future. The Estimated
Long-Term Return is calculated using a formula which (1) takes into
consideration, and determines and factors in the relative weightings of, the
market values, yields (which takes into account the amortization of premiums
and the accretion of discounts) and estimated average life of all of the
Securities in the Trusts and (2) takes into account the expenses and sales
charge associated with each Unit of each Trust. Since the market values and
estimated average life of the Securities and the expenses of the Trusts will
change, it can be expected that the Estimated Long-Term Returns will fluctuate
in the future. The Estimated Current Return and Estimated Long-Term Return are
expected to differ because the calculation of the Estimated Long-Term Return
reflects the estimated date and amount of principal returned while the
Estimated Current Return calculation includes only the net annual interest rate
and Public Offering Price. See "Estimated Long-Term and Current Returns." The
net annual income is, of course, taxable to a Unitholder. The net annual
income is not taxable for Federal income tax purposes to qualified foreign
investors who have purchased Midget Foreign Investors Trusts. See "Tax Status
of the Trusts" and "Retirement Plans."
MARKET FOR UNITS. The Sponsor, though not obligated to do so, intends to
maintain a market for the Units of the Series of the GNMA Trust based on the
aggregate bid side evaluation of the underlying Securities plus, in the case of
Kemper Defined Funds, Purchased Interest and Daily Accrued Interest. If such
market is not maintained, a Unitholder will, nevertheless, be able to dispose
of his Units through redemption at prices based on the aggregate bid side
evaluation of the underlying Securities in each Series. See "Redemption."
Market
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conditions may cause such prices to be greater or less than the amount
paid for Units.
GNMA PORTFOLIO
THE GNMA TRUST. Each Series of the GNMA Trust is a "unit investment trust"
created under Missouri law pursuant to a Trust Indenture and Agreement
(hereinafter collectively referred to as the "Indenture")* between Kemper Unit
Investment Trusts, a service of Kemper Securities, Inc., as Sponsor and
Investors Fiduciary Trust Company, as Trustee. For information regarding the
relationship between the Sponsor and the Trustee, see "Miscellaneous-Trustee."
The purpose and objective of the GNMA Trust is to provide investors with an
appropriate vehicle to obtain safety of capital and monthly distributions of
interest and principal through investment in a fixed portfolio of securities
(the "GNMA Portfolio") consisting of taxable mortgage-backed securities of the
modified pass-through type ("Ginnie Maes") guaranteed by the Government
National Mortgage Association ("GNMA") and backed by the full faith and credit
of the United States. In addition, the Midget Foreign Investors Trusts and GNMA
Foreign Investors Portfolio Series, which are available only to non-resident
alien investors, have an additional purpose of providing income which is exempt
from withholding for U.S. Federal income taxes for such foreign investors. A
foreign investor must provide a completed W-8 Form to his financial
representative or the Trustee to avoid withholding on his account. See "Tax
Status of the Trusts."
As used herein, the term "Securities" means the Ginnie Maes described in
Part Two under "Schedule of Investments."
On the date shown, each Unit represented the fractional undivided interest
in the Securities and estimated net income of the Series of the GNMA Trust set
forth in Part Two under "Essential Information." Because regular payments of
principal are to be received and certain of the Securities from time to time
may be redeemed or will mature in accordance with their terms or may be sold
under certain circumstances described herein, the Series of the GNMA Trust is
not expected to retain its present size and composition. Units will remain
outstanding until redeemed upon tender to the Trustee by any Unitholder (which
may include the Sponsor) or until the termination of a Series of the GNMA Trust
pursuant to the Indenture.
SPECIAL CONSIDERATIONS. An investment in Units of a Series of the GNMA
Trust should be made with an understanding of the risks which an investment in
fixed rate long term debt obligations may entail, including the risk that the
value of the GNMA Portfolio and hence of the Units will decline with increases
in interest rates. Because of the shorter average life of the Ginnie Mae
Midgets in certain Series of the GNMA Trust, and the lower coupon interest rate
on such Securities, the value of the Units of such Series should tend to
fluctuate less than that of Series composed of longer term obligations. The
value of the underlying Securities
______________________________
* To the extent reference is made to the Indenture, any statements herein are
qualified in their entirety by the provisions of said Indenture.
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will fluctuate inversely with changes in interest rates. In addition, the
potential for appreciation of the underlying Securities, which might otherwise
be expected to occur as a result of a decline in interest rates may be limited
or negated by increased principal prepayments on the underlying mortgages. The
high inflation of prior years, together with the fiscal measures adopted to
attempt to deal with it, have resulted in wide fluctuations in interest rates
and, thus, in the value of fixed rate long term debt obligations generally.
The Sponsor cannot predict whether such fluctuations will continue in the
future.
The Securities in the Series of the GNMA Trust were chosen in part on the
basis of their respective stated maturity dates. The ranges of maturity dates
of the Securities contained in a Series of the Trust are shown in Part Two on
the "Schedule of Investments." See "Life of the Securities and of the Series
of the GNMA Trust."
A Series of the GNMA Trust may be an appropriate medium for investors who
desire to participate in a portfolio of taxable fixed income securities
offering the safety of capital provided by securities backed by the full faith
and credit of the United States but who do not wish to invest the minimum
$25,000 which is required for a direct investment in GNMA guaranteed
securities.
PORTFOLIOS. The GNMA Portfolios of the Series of the GNMA Trust consist of
Ginnie Maes, including so-called Ginnie Mae II's and, in the case of certain
designated Series, Ginnie Mae Midgets, fully guaranteed as to payment of
principal and interest by the Government National Mortgage Association. In
order for Ginnie Maes to be eligible for inclusion in Midget Foreign Investors
Trusts or GNMA Foreign Investors Portfolio Series, evidence must be received by
the Sponsor that the underlying mortgages were originated after July 18, 1984.
Although the Sponsor believes that all the underlying mortgages were originated
after July 18, 1984, to the extent that this is not the case, a Foreign
Investor will be subject to withholding for U.S. Federal income taxes on income
derived from mortgages that were originated on or prior to July 18, 1984. See
"Tax Status of the Trusts." Each group of Ginnie Maes described herein as
having a specified range of maturities includes individual mortgage-backed
securities which have varying ranges of maturities. Each such group of Ginnie
Maes is described as one category of securities because current market
conditions accord no difference in price among the individual Ginnie Mae
securities within such group on the basis of the difference in the maturity
dates of each Ginnie Mae. As long as this market condition prevails, a purchase
of Ginnie Maes with the same coupon rate and a maturity date within the range
mentioned above will be considered an acquisition of the same Security. In the
future, however, the difference in maturity ranges could affect the market
value of the individual Ginnie Maes. At such time, any additional purchases by
a GNMA Portfolio Series of the Trust will take into account the maturities of
the individual Securities.
A Series of the GNMA Trust may contain Securities which were acquired at a
market discount. Such Securities trade at less than par value because the
interest rates thereon are lower than interest rates on comparable debt
securities being issued at currently prevailing interest rates. If interest
rates for newly issued and otherwise comparable securities increase, the market
discount of previously issued securities will increase and if interest rates
for newly issued comparable securities decline, the market discount of
previously issued securities will decrease, other things being equal. Market
discount attributable to interest rate changes does not indicate a lack of
market confidence in the issue.
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Holders of Units will be "at risk" with respect to such Securities (i.e.,
may derive either gain or loss from fluctuations in the evaluation of the
Securities) from the date they commit for Units. See "Estimated Long-Term and
Current Returns."
The mortgages underlying a Ginnie Mae may be prepaid at any time without
penalty. A lower or higher return on Units may occur depending on whether the
price at which the respective Ginnie Maes were acquired by a Series of the
Trust is lower or higher than par (which represents the price at which such
Ginnie Maes will be redeemed upon prepayment). Redemption of premium Ginnie
Maes at par pursuant to prepayments of mortgages will operate to lower the
current return on Units outstanding at that time since premium Ginnie Maes
normally carry higher interest coupons than par or discount Ginnie Maes. If
mortgages rates decline in the future, such prepayments may occur with
increasing frequency because, among other reasons, mortgagors may be able to
refinance their outstanding mortgages at lower interest rates. See "Life of the
Securities and of the Series of the GNMA Trust."
Set forth below is a brief description of the current method of origination
of Ginnie Maes; the nature of such securities, including the guaranty of GNMA;
the basis of selection and acquisition of the Ginnie Maes included in the GNMA
Portfolios; and the expected life of the Ginnie Maes in the Series of the GNMA
Trust. The "Schedule of Investments" in Part Two contains information
concerning the coupon rate and range of stated maturities of the Ginnie Maes in
such Series of the GNMA Trust.
ORIGINATION. The Ginnie Maes included in the GNMA Portfolios are backed by
the indebtedness secured by underlying mortgage pools of long term mortgages on
1-to 4-family dwellings. In the case of The Midget Foreign Investors Trusts or
GNMA Foreign Investors Portfolio Series, which may be acquired only by
qualified foreign investors, the Sponsor has acquired only pools containing
mortgages which it believes were originated after July 18, 1984. The pool of
mortgages which is to underlie a particular new issue of Ginnie Maes is
assembled by the proposed issuer of such Ginnie Maes. The issuer is typically
a mortgage banking firm, and in every instance must be a mortgagee approved by
and in good standing with the Federal Housing Administration ("FHA"). In
addition, GNMA imposes its own criteria on the eligibility of issuers,
including a net worth requirement.
The mortgages which are to comprise a new Ginnie Mae pool may have been
originated by the issuer itself in its capacity as a mortgage lender or may be
acquired by the issuer from a third party. Such third party may be another
mortgage banker, a banking institution, the Veterans Administration ("VA")
(which in certain instances acts as a direct lender and thus originates its own
mortgages) or one of several other governmental agencies. All mortgages in any
given pool will be insured under the National Housing Act, as amended
("FHA-insured") or Title V of the Housing Act of 1949 ("FMHA-insured") or
guaranteed under the Servicemen's Readjustment Act of 1944, as amended, or
Chapter 37 of Title 38, U.S.C. ("VA-guaranteed"). Such mortgages will have a
date for the first scheduled monthly payment of principal that is not more than
one year prior to the date on which GNMA issues its guaranty commitment as
described below, will have comparable interest rates and maturity dates, and
will meet additional criteria of GNMA. All mortgages in the pools backing the
Ginnie Maes contained in the Portfolios are mortgages on 1-to 4-family
dwellings (having a stated maturity of up to 30 years, except in the case of
certain Series containing Ginnie Mae Midgets, whose stated maturity is 15
years). In general, the mortgages in these pools provide for monthly payments
over the
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life of the mortgage (aside from prepayments) designed to repay the principal
of the mortgage over such period, together with interest at the fixed rate of
the unpaid balance.
To obtain GNMA approval of a new pool of mortgages, the issuer will file
with GNMA an application containing information concerning itself, describing
generally the pooled mortgages, and requesting that GNMA approve the issue and
issue its commitment (subject to GNMA's satisfaction with the mortgage
documents and other relevant documentation) to guarantee the timely payment of
principal of and interest on the Ginnie Maes to be issued by the issuer. If
the application is in order, GNMA will issue its commitment and will assign a
GNMA pool number to the pool. Upon completion of the required documentation
(including detailed information as to the underlying mortgages, a custodial
agreement with a Federal or state regulated financial institution satisfactory
to GNMA pursuant to which the underlying mortgages will be held in safekeeping,
and a detailed guaranty agreement between GNMA and the issuer) the issuance of
the Ginnie Maes is permitted. When the Ginnie Maes are issued, GNMA will
endorse its guaranty thereon. The aggregate principal amount of Ginnie Maes
issued will be equal to the then unpaid aggregate principal balances of the
pooled mortgages. The interest rate borne by the Ginnie Maes is currently
fixed at 1/2 of 1% below the interest rate of the pooled 1- to 4-family
mortgages, the differential being applied to the payment of servicing and
custodial charges as well as GNMA's guaranty fee.
Ginnie Mae II's consist of jumbo pools of mortgages consisting of pools of
mortgages from more than one issuer. The major advantage of Ginnie Mae II's
lies in the fact that a central paying agent sends one check to the holder on
the required payment date. This greatly simplifies the current procedure of
collecting distributions from each issuer of a Ginnie Mae, since such
distributions are often received late.
NATURE OF GINNIE MAES AND GNMA GUARANTY. All of the Ginnie Maes in the
GNMA Portfolio, including the Ginnie Mae II's, are of the "modified
pass-through" type, i.e., they provide for timely monthly payments to the
registered holders thereof (including the Series of the GNMA Trust) of a pro
rata share of the scheduled principal payments on the underlying mortgages,
whether or not collected by the issuers. Such monthly payments will also
include, on a pro rata basis, any prepayments of principal of such mortgages
received and interest (net of the servicing and other charges described above)
on the aggregate unpaid principal balance of such Ginnie Maes, whether or not
the interest on the underlying mortgage has been collected by the issuers.
The Ginnie Maes in the GNMA Portfolios are guaranteed as to timely payment
of principal and interest by GNMA. Funds received by the issuers on account of
the mortgages backing the Ginnie Maes in the GNMA Portfolios are intended to be
sufficient to make the required payments of principal of and interest on such
Ginnie Maes but, if such funds are insufficient for that purpose, the guaranty
agreements between the issuers and GNMA require the issuers to make advances
sufficient for such payments. If the issuers fail to make such payments, GNMA
will do so.
GNMA is authorized by Section 306(g) of Title III of the National Housing
Act to guarantee the timely payment of principal of and interest on securities
which are based on or backed by a trust or pool composed of mortgages insured
by FHA, the Farmers' Home Administration ("FMHA") or guaranteed by the VA.
Section 306(g) provides further that the full faith and credit of the United
States is pledged to the payment of
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all amounts which may be required to be paid under any guaranty under such
subsection. An opinion of an Assistant Attorney General of the United States,
dated December 9, 1969, states that such guaranties "constitute general
obligations of the United States backed by its full faith and credit."**1 GNMA
is empowered to borrow from the United States Treasury to the extent necessary
to make any payments of principal and interest required under such guaranties.
Ginnie Maes are backed by the aggregate indebtedness secured by the
underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages and, except to
the extent of funds received by the issuers on account of such mortgages,
Ginnie Maes do not constitute a liability of nor evidence any recourse against
such issuers, but recourse thereon is solely against GNMA. Holders of Ginnie
Maes (such as the GNMA Trust) have no security interest in or lien on the
underlying mortgages.
The GNMA guaranties referred to herein relate only to payment of principal
of and interest on the Ginnie Maes in the GNMA Portfolios and not to the Units
offered hereby.
LIFE OF THE SECURITIES AND OF THE SERIES OF THE GNMA TRUST. Monthly
payments of principal will be made, and additional prepayments of principal may
be made, to the Series of the GNMA Trust in respect of the mortgages underlying
the Ginnie Maes in the GNMA Portfolios. All of the mortgages in the pools
relating to the Ginnie Maes in the GNMA Portfolios are subject to prepayment
without any significant premium or penalty at the option of the mortgagors.
While the mortgages on 1- to 4-family dwellings underlying the Ginnie Maes
have a stated maturity of up to 30 years (15 years for Ginnie Mae Midgets), it
has been the experience of the mortgage industry that the average life of
comparable mortgages, owing to prepayments, refinancings and payments from
foreclosures is considerably less.
In the mid 1970's, published tables for Ginnie Maes utilized a 12 year
average life assumption for Ginnie Mae pools of 26-30 year mortgages on 1- to
4-family dwellings. This assumption was derived from the FHA experience
relating to prepayments on such mortgages during the period from the mid 1950's
to the mid 1970's. This 12 year average life assumption was calculated in
respect of a period during which mortgage lending rates were fairly stable.
That assumption is probably no longer an accurate measure of the life of Ginnie
Maes or their underlying single family mortgage pools. However, current yield
tables, published in 1981, still utilize the 12 year average life assumption
and Ginnie Maes continue to be traded based on this assumption. Recently,
mortgages issued at high interest rates have experienced accelerated prepayment
rates which would indicate a shorter average life than 12 years.
A number of factors, including homeowner's mobility, change in family size
and mortgage market interest rates will affect the average life of the Ginnie
Maes in the GNMA Portfolios. For example, Ginnie Maes issued during a period
of high interest rates will be backed by a pool of mortgage loans bearing
similarly high rates. In general, during a period of declining interest rates,
new mortgage loans with interest rates lower than
** Any statement in this Prospectus that a particular Security is
backed by the full faith and credit of the United States is based upon the
opinion of an Assistant Attorney General of the United States and should be
so construed.
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<PAGE> 10
those charged during periods of high rates will become available. To the
extent a homeowner has an outstanding mortgage with a high rate, he may
refinance his mortgage at a lower interest rate or he may rapidly repay his old
mortgage. Should this happen, a Ginnie Mae issued with a high interest rate
may experience a rapid prepayment of principal as the underlying mortgage loans
prepay in whole or in part. Accordingly, there can be no assurance that the
prepayment levels which will be actually realized will conform to the
experience of the FHA, other mortgage lenders or other Ginnie Mae investors.
It is not possible to meaningfully predict prepayment levels regarding the
Ginnie Maes in the GNMA Portfolios. Therefore, the termination of a Series of
the GNMA Trust might be accelerated as a result of prepayments made as
described herein.
In addition to prepayments as described above, sales of Securities in the
GNMA Portfolios under certain permitted circumstances may result in an
accelerated termination of a Series of the GNMA Trust. Also, it is possible
that, in the absence of a secondary market for the Units or otherwise,
redemptions of Units may occur in sufficient numbers to reduce the GNMA
Portfolios to a size resulting in such termination. Early termination of a
Series of the GNMA Trust may have important consequences to the Unitholder,
e.g., to the extent that Units were purchased with a view to an investment of
longer duration, the overall investment program of the investor may require
readjustment; or the overall return on investment may be less or greater than
anticipated, depending, in part, on whether the purchase price paid for Units
represented the payment of an overall premium or a discount, respectively,
above or below the stated principal amounts of the underlying mortgages. In
addition, a capital gain or loss may result for tax purposes from termination
of the GNMA Portfolios.
SUMMARY - FNMA DEBENTURE
GENERAL. Each Series of the Kemper Government Securities Trust FNMA
Debenture (the "FNMA Trust") is a unit investment trust whose objective is to
obtain safety of capital and current monthly distributions of interest through
investment in a portfolio (the "FNMA Portfolio") representing undivided
interests in specified fixed rate debentures (the "Debentures"), which are
unsecured general obligations issued and guaranteed by the Federal National
Mortgage Association ("FannieMae"). While FannieMae is a corporate
instrumentality of the United States, the Debentures are not guaranteed by the
United States or any agency thereof and do not constitute debts or obligations
of the United States. The obligations of FannieMae under its guarantee are
obligations solely of FannieMae and are not backed by, or entitled to, the full
faith and credit of the United States. The value of the Units and the current
return to new purchasers will fluctuate with the value of the portfolio which
will generally decrease or increase inversely with changes in interest rates.
The guaranteed payment of principal and interest by FannieMae of the
Debentures may make investment in the FNMA Trust particularly well suited for
purchase by Individual Retirement Accounts, Keogh Plans, pension funds and
other tax-deferred retirement plans. In addition, the ability to buy whole or
fractional Units (minimum purchase $1,000 per Series, $250 for IRA accounts)
enables such investors to tailor the dollar amount of their purchases of Units
to take maximum possible advantage of the annual deductions available for
contributions to such plans. Investors should consult with their tax advisers
before investing. See "Retirement Plans."
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MONTHLY DISTRIBUTIONS. Monthly distributions of interest received by the
FNMA Trust will be paid in cash unless the Unitholder elects to have them
automatically reinvested in any mutual fund underwritten or advised by KFS (the
"Kemper Funds"), other than those Kemper Funds sold with a contingent deferred
sales charge. Since the portfolio securities and investment objectives of such
Kemper Funds may differ significantly from that of the FNMA Trust, Unitholders
should carefully consider the consequences before selecting such Kemper Funds
for reinvestment. Any such reinvestment is made at net asset value, that is,
without a sales charge. Investors, at the time of purchase, will have the
ability to designate that only principal payments (including prepayments) or
only interest payments or both are to be reinvested. Investors who intend to
participate in the Reinvestment Program may so designate, at the time of their
purchase. See "Distribution Reinvestment." Distributions will be made on or
about the last business day of each month, to Unitholders of record on the 1st
day of such month.
DEBENTURES. One or more different issues of Debentures were deposited in
the FNMA Trust on the Initial Date of Deposit. The current percentage
relationship among the Debentures in a FNMA Series is shown under "Essential
Information" and "Schedule of Investments" in Part Two.
SPECIAL CONSIDERATIONS. An investment in Units of a Series of the FNMA
Trust should be made with an understanding of the risks which an investment in
fixed rate debt obligations may entail, including the risk that the value of
the FNMA Portfolio and hence of the Units will decline with increases in
interest rates. Because of the shorter average life of the Debentures in a
FNMA Trust, the value of the Units of such Series should tend to fluctuate less
than longer term obligations of a similar nature. Some or all of the
Debentures in the FNMA Trust have been purchased at a market discount. The
current returns (coupon interest rate) of such Debentures are lower than the
current returns of similar, comparably rated, debt securities issued at
currently prevailing interest rates.
ESTIMATED CURRENT AND LONG-TERM RETURNS. The Estimated Current Return per
1,000 Units shown under "Essential Information" in Part Two, shows the return
based on the Public Offering Price which includes a sales charge of 3.0%
(equivalent to 3.093% of the net amount invested) and is computed by
multiplying the estimated net annual interest rate per 1,000 Units of such
Series (which shows the return per 1,000 Units based on a $1,000 principal
amount) by $1,000 and dividing the result by the Public Offering price per
1,000 Units. The sales charge will be reduced for sales involving at least
$250,000 or 250,000 Units. See "Public Offering of Units - Volume Discount."
The net annual interest rate per 1,000 Units will vary with changes in the fees
and expenses of the Trustee, Sponsor and Evaluator and with the exchange,
redemption, sale or maturity of underlying Debentures. The Public Offering
Price of each Series of the FNMA Trust will also vary with fluctuations in the
evaluation of the underlying Debentures. Therefore, it can be expected that
the Estimated Current Return will fluctuate in the future. The Estimated
Long-Term Return is calculated using a formula which (1) takes into
consideration, and determines and factors in the relative weightings of, the
market values, yields (which takes into account the amortization of premiums
and the accretion of discounts) and estimated average life of all of the
Securities in the Trusts and (2) takes into account the expenses and sales
charge associated with each Unit of each Trust. Since the market values and
estimated average life of the Securities and the expenses of the Trusts will
change, it can be expected that the Estimated Long-Term Returns will
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fluctuate in the future. The Estimated Current Return and Estimated Long-Term
Return are expected to differ because the calculation of the Estimated
Long-Term Return reflects the estimated date and amount of principal returned
while the Estimated Current Return calculation includes only the net annual
interest rate and Public Offering Price. See "Estimated Long-Term and Current
Returns." The net annual income is, of course, taxable to a Unitholder. See
"Tax Status of the Trusts" and "Retirement Plans."
MARKET FOR UNITS. The Sponsor, though not obligated to do so, intends to
maintain a market for the Units based on the aggregate bid side evaluation of
the underlying Debentures. If such market is not maintained, a Unitholder
will, nevertheless, be able to dispose of his Units through redemption at
prices based on the aggregate bid side evaluation of the underlying Debentures.
See "Redemptions." Market conditions may cause such prices to be greater or
less than the amount paid for Units.
FNMA DEBENTURE
THE FNMA TRUST. Each Series of the FNMA Trust is a "unit investment trust"
created under Missouri law pursuant to a Trust Indenture and Agreement
(hereinafter collectively referred to as the "Indenture")***2 among the Sponsor
and the Trustee. For information regarding the relationship between the
Sponsor and the Trustee, see "Miscellaneous - Trustee."
The objective of the FNMA Trust is to obtain safety of capital and current
monthly distributions of interest through investment in a portfolio
representing undivided interests in specified fixed rate debentures (unsecured
general obligations) issued and guaranteed by the Federal National Mortgage
Association ("FannieMae"). While FannieMae is a corporate instrumentality of
the United States, the Debentures are not guaranteed by the United States or
any agency thereof and do not constitute debts or obligations of the United
States. The obligations of FannieMae under its guarantee are obligations
solely of FannieMae and are not backed by, or entitled to, the full faith and
credit of the United States. The value of the Units and the current return to
new purchasers will fluctuate with the value of the Debentures included in the
FNMA Portfolio which will generally decrease or increase inversely with changes
in interest rates. See "Tax Status of the Trusts".
As used herein, the term "Debentures" means the debentures (unsecured
general obligations) issued by FannieMae and initially deposited in a Series
of the FNMA Trust described herein and includes all contracts to purchase such
Debentures accompanied by an irrevocable letter of credit sufficient to perform
such contracts initially deposited in the FNMA Trust and described in Part Two
under "Schedule of Investments."
On the date shown, each Unit represented the fractional undivided interest
in the Debentures and estimated net income of the Series of the FNMA Trust set
forth in Part Two under "Essential Information" in the ratio
* To the extent reference is made to the Indenture, any statements herein
are qualified in their entirety by the provisions of said Indenture.
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of 1,000 Units for each $1,000 face amount of Debentures deposited in that
Series of the FNMA Trust. Because certain of the Debentures from time to time
may be redeemed or will mature in accordance with their terms or may be sold
under certain circumstances described herein, the Series of the FNMA Trust will
not retain its present size and composition. Units will remain outstanding
until redeemed upon tender to the Trustee by any Unitholder (which may include
the Sponsor) or until the termination of that Series of the FNMA Trust pursuant
to the Indenture.
SPECIAL CONSIDERATIONS. An investment in Units of a Series of the FNMA
Trust should be made with an understanding of the risks which an investment in
fixed rate debt obligations may entail, including the risk that the value of
the FNMA Portfolio and hence of the Units will decline with increases in
interest rates. The value of the underlying Debentures will fluctuate
inversely with changes in interest rates. The high inflation of recent years,
together with the fiscal measures adopted to attempt to deal with it, have
resulted in wide fluctuations in interest rates and, thus, in the value of
fixed rate long term debt obligations generally. The Sponsor cannot predict
whether such fluctuations will continue in the future.
The Debentures in the FNMA Portfolio were chosen in part on the basis of
their respective stated maturity dates. The maturity dates of each of the
Debentures contained in the FNMA Trust are shown in Part Two on the "Schedule
of Investments."
The FNMA Trust may be an appropriate medium for investors who desire to
participate in a portfolio of taxable fixed income securities offering the
safety of capital provided by debt obligations backed by the guarantee of
FannieMae but who do not wish to invest the minimum $10,000 which is required
for a direct investment in FNMA guaranteed debt obligations.
PORTFOLIOS.
FANNIEMAE. The Federal National Mortgage Association ("FannieMae") is a
federally chartered and stockholder-owned corporation organized and existing
under the Federal National Mortgage Association Charter Act. It is the largest
investor in home mortgage loans in the United States, with a net portfolio of
more than $99 billion of mortgage loans as of June 30, 1988. FannieMae was
originally established in 1938 as a United States Government agency to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder-owned and privately managed corporation by legislation enacted in
1968.
FannieMae provides funds to the mortgage market by purchasing mortgage
loans from lenders, thereby replenishing their funds for additional lending.
FannieMae acquires funds to purchase loans from many capital market investors
that may not ordinarily invest in mortgage loans, thereby expanding the total
amount of funds available for housing. Operating nationwide, FannieMae helps
to redistribute mortgage funds from capital-surplus to capital-short areas.
FannieMae also issues mortgage-backed securities ("MBS"), which are
guaranteed mortgage pass-through certificates evidencing beneficial interests
in pools of mortgage loans. FannieMae receives guaranty fees for its guaranty
of timely payment of principal and interest on the certificates. FannieMae
issues MBS primarily
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in exchange for pools of mortgage loans from lenders. The issuance of MBS
enables FannieMae to further its statutory purpose of increasing the liquidity
of residential mortgage loans. MBS outstanding as of June 30, 1988 totaled
$157.4 billion.
The principal office of FannieMae is located at 3900 Wisconsin Avenue, NW,
Washington, DC 20016 (telephone: 202-752-7000). FannieMae has five regional
offices located in Atlanta, Georgia; Chicago, Illinois; Dallas, Texas; Los
Angeles, California; and Philadelphia, Pennsylvania.
Copies of FannieMae's most recent annual and quarterly reports and proxy
statement are available without charge from the Vice President for Investor
Relations, Federal National Mortgage Association, 3900 Wisconsin Avenue, NW,
Washington, DC 20016 (telephone: 202-752-7115). The Sponsor has not
participated in the preparation of FannieMae's Offering Statements, Information
Statements or Supplements.
FNMA DEBENTURES. The Debentures are unsecured general obligations issued
under the Federal National Mortgage Association Charter Act and do not contain
provisions permitting the holders to accelerate the maturity thereof. The
Debentures are issued in minimum denominations of $10,000 and integral
multiples of $5,000 in excess thereof.
Debt obligations of FannieMae, together with any interest thereon, are not
guaranteed by the United States and do not constitute a debt or obligation of
the United States or any agency thereof. However, FannieMae's obligations have
traditionally been treated as "U.S. agency" debt in the marketplace and are
eligible for investment by many supervised financial institutions without
regard to legal limits generally imposed on investment securities.
FannieMae usually makes debenture offerings through a nationwide group of
securities dealers and dealer banks. FannieMae does not sell its debentures
directly to the public. Payment for such securities must be made in federal
funds. The Debentures are actively traded in the U.S. Treasury - federal
agency securities market.
FannieMae usually offers its Debentures at the beginning of each month for
delivery and payment on or about the 10th day of the month. The Debentures are
available only in book-entry form, i.e., in the form of an entry made on the
records of a Federal Reserve Bank. Principal and interest on the Debentures
are payable through any member of the Federal Reserve System. In most cases
interest payments on interest-bearing obligations are made semi-annually.
Under the Secondary Mortgage Market Enhancement Act of 1984, any person,
trust, corporation, partnership, association business trust, or business entity
created pursuant to or existing under the laws of the United States or any
state is authorized to purchase, hold and invest in securities issued or
guaranteed by FannieMae, to the same extent that such person or entity is
authorized under any applicable law to purchase, hold or invest in obligations
issued by or guaranteed as to principal and interest by the United States or
any agency or instrumentality thereof. However, the preemptive effect of the
law may be limited or eliminated as to future purchases by an applicable state
statute enacted after such Act and prior to October 3, 1991.
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In addition, the Internal Revenue Service has ruled that the FannieMae is
an instrumentality of the United States for purposes of Section 7701(a)(19) of
the Internal Revenue Code of 1986; therefore, domestic building and loan
associations and mutual savings banks are permitted to invest in FannieMae's
securities to meet the percentage of total assets required to be invested in,
among other things, "stock or obligations of a corporation which is an
instrumentality of the United States." Further, the IRS permits real estate
investment trusts to treat holdings of securities of FannieMae as "government
securities" to meet the requirement that 75 percent of the value of their total
assets consists of real estate assets, cash and cash items (including
receivables), and government securities.
The FNMA Trust may contain Debentures which were acquired at a market
discount. Such Debentures trade at less than par value because the interest
rates thereon are lower than interest rates on comparable debt obligations
being issued at currently prevailing interest rates. If such interest rates
for newly issued and otherwise comparable debt obligations increase, the market
discount of previously issued debt obligations will increase and if such
interest rates for newly issued comparable debt obligations decline, the market
discount of previously issued debt obligations will decrease, other things
being equal. Market discount attributable to interest rate changes does not
indicate a lack of market confidence on the issue.
Holders of Units will be "at risk" with respect to the market value of such
Debentures (i.e., may derive either gain or loss from fluctuations in the
offering side evaluation of the Debentures) from the date they commit for
Units.
Debt obligations, such as the Debentures, issued by FannieMae are subject
to federal estate and gift taxes, and the income derived from them does not
have any exemption as such under the Internal Revenue Code of 1986. The Act
establishing FannieMae does not contain any specific exemption with respect to
any taxes on the principal of or interest on obligations issued by FannieMae by
any state or possession of the United States or by any local taxing authority.
Purchasers residing in states that impose intangible property or income taxes
should consult their own tax advisers as to the status of the obligations
issued by FannieMae and their interests under applicable tax laws. See "Tax
Status of the Trust."
SUMMARY U.S. TREASURY PORTFOLIO
Each Kemper Government Securities Trust, U.S. Treasury Portfolio and Kemper
Defined Funds, U.S. Treasury Portfolio (collectively, the "U.S. Treasury
Portfolio Series") is a unit investment trust whose objective is to obtain
safety of capital and investment flexibility as well as current monthly
distributions of interest through investment in a fixed, laddered portfolio
consisting of interest-bearing U.S. Treasury obligations or, in certain U.S.
Treasury Portfolio Series, consisting of some or almost all zero coupon U.S.
Treasury obligations (the "U.S. Treasury Obligations"). The U.S. Treasury
Portfolio Series is formed for the purpose of providing protection against
changes in interest rates and also passing through to Unitholders in all states
the exemption from state personal income taxes afforded to direct owners of
U.S. obligations. Each U.S. Treasury Portfolio Series has an additional
purpose of providing income which is exempt from withholding for U.S. Federal
income taxes for non-resident alien investors. A foreign investor must provide
a completed W-8 Form to his financial representative or the Trustee to avoid
withholding on his account. The Securities are direct obligations of the
United States and are backed by its full faith and credit. The value of the
Units,
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the estimated current return and estimated long-term return to new purchasers
will fluctuate with the value of the portfolio which will generally decrease or
increase inversely with changes in interest rates.
The guaranteed payment of principal and interest afforded by U.S. Treasury
Obligations, and, with respect to those Series which own zero coupon U.S.
Treasury Obligations ("Stripped Treasury Securities"), the additional fact that
no interest distributions will be made prior to maturity of the Stripped
Treasury Securities may make investment in U.S. Treasury Portfolio Series
particularly well suited for purchase by Individual Retirement Accounts, Keogh
Plans, pension funds and other tax-deferred retirement plans. In addition, the
ability to buy Units (minimum purchase $1,000 per Series, $250 for IRA
accounts) at a Public Offering Price of approximately $1.00 per Unit ($10.00
per Unit for Kemper Defined Funds) enables such investors to tailor the dollar
amount of their purchases of Units to take maximum possible advantage of the
annual deductions available for contributions to such plans. Investors should
consult with their tax advisers before investing. See "Retirement Plans."
MONTHLY DISTRIBUTIONS. Monthly distributions of interest received by each
U.S. Treasury Portfolio Series will be paid in cash unless the Unitholder
elects to have them automatically reinvested in any mutual fund underwritten or
advised by an affiliate of the Sponsor, Kemper Financial Services, Inc. (the
"Kemper Funds"), other than those Kemper Funds sold with a contingent deferred
sales charge. Since the portfolio securities and investment objectives of such
Kemper Funds may differ significantly from that of the U.S. Treasury Portfolio,
Unitholders should carefully consider the consequences before selecting such
Kemper Funds for reinvestment. Any such reinvestment is made at net asset
value (that is, without a sales charge). Investors have the ability to
designate that only principal payments or only interest payments or both are to
be reinvested (see "Reinvestment Program"). Distributions of principal will be
made in accordance with the instructions of the investor in any month the
amount in the Principal Account equals or exceeds $1.00 per 1,000 Units ($1.00
per 100 Units for Kemper Defined Funds). Distributions will be made as
specified in Part Two for each Trust.
STRIPPED TREASURY SECURITIES. Stripped Treasury Securities are sold at a
deep discount because the buyer of those securities obtains only the right to
receive a future fixed payment on the security and not any rights to periodic
interest payments thereon. Purchasers of these Securities acquire, in effect,
discount obligations that are economically identical to the "zero-coupon bonds"
that have been issued by corporations. Zero coupon bonds are debt obligations
which do not make any periodic payments of interest prior to maturity and
accordingly are issued at a deep discount.
Stripped Treasury Securities held by any Series of the U.S. Treasury
Portfolio Series Trust shall consist solely of either of the following types of
the registered securities: (a) U.S. Treasury debt obligations originally
issued as bearer coupon bonds which have been stripped of their unmatured
interest coupons and (b) coupons which have been stripped from U.S. Treasury
bearer bonds, either of which may be held through the Federal Reserve Bank's
book entry system called "Separate Trading of Registered Interest and Principal
of Securities" ("STRIPS"). The Stripped Treasury Securities are payable in
full at maturity at their stated maturity amount and are not subject to
redemption prior to maturity. In addition, the Stripped Treasury Securities
do not make any periodic payments of interest.
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<PAGE> 17
The Stripped Treasury Securities are sold at a substantial discount from
their face amounts payable at maturity. The holder of Stripped Treasury
Securities will be required to include annually in gross income an allocable
portion of the deemed original issue discount, prior to receipt of cash
attributable to that income. Accordingly, any Series owning Stripped Treasury
Securities may not be a suitable investment unless these taxes can be paid from
other funds or unless such Series is purchased by Individual Retirement
Accounts, Keogh plans or other tax-deferred retirement plans. Stripped
Treasury Securities are marketable in substantially the same manner as other
discount Treasury Securities.
SPECIAL CONSIDERATIONS. An investment in Units of the U.S. Treasury
Portfolio should be made with an understanding of the risks which an investment
in fixed-rate U.S. Treasury obligations may entail, including the risk that the
value of the portfolio and hence of the Units will decline with increases in
interest rates. Some or all of the Securities in the Trust Fund have been
purchased at a market discount. The current returns (coupon interest rate) of
such Securities are lower than the current returns of similar, comparably
rated, Securities issued at currently prevailing interest rates.
Additionally, an investment in a Series holding Stripped Treasury
Securities should be made with an understanding of the risks which an
investment in debt obligations, most of which were purchased at a deep
discount, may entail, including the risk that the value of the underlying debt
obligations and hence of the Units will decline with increases in interest
rates. The market value of Stripped Treasury Securities, and therefore the
value of the Units, may be subject to greater fluctuations in response to
changing interest rates than debt obligations of comparable maturities which
pay interest currently. This risk is greater when the period to maturity is
longer. No distributions of income are anticipated until maturity of the
Stripped Treasury Securities. The price per Unit will vary in accordance with
fluctuations in the values of the Stripped Treasury Securities, and the
distributions could change if Stripped Treasury Securities are paid or sold, or
if the expenses of the Trust change.
The Stripped Treasury Securities will mature at one year intervals in
consecutive years and do not make any periodic payment of income prior to
maturity. Accordingly, it is not anticipated that there will be any periodic
distributions of income.
Because interest on "zero coupon" debt obligations is not distributed on a
current basis but in effect compounded, the value of securities of this type,
including the value of accreted and reinvested interest (and of a trust
comprised of these obligations), is subject to greater fluctuations than of
obligations which distribute income regularly. Accordingly, while the full
faith and the credit of the U.S. government provides a high level of protection
against credit risks on the Securities, sale of Units before maturity of the
Securities at a time when interest rates have increased would involve greater
risk than in a trust which is invested in debt obligations or comparable
maturity which pay interest currently. This risk is greater when the period to
maturity is longer.
ESTIMATED CURRENT AND LONG-TERM RETURNS. The Estimated Current Return is
calculated by dividing the estimated net annual interest rate per Unit by the
Public Offering Price. The net estimated annual interest rate per Unit will
vary with changes in the fees and expenses of the Trustee, Sponsor and
Evaluator and with
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the exchange, redemption, sales, scheduled payments, prepayments or maturity of
underlying Securities in the portfolio. The Public Offering Price of a Trust
will also vary with fluctuations in the evaluation of the underlying Securities
and in the case of Kemper Defined Funds with changes in the Purchased Interest
and Daily Accrued Interest; therefore, there is no assurance that the present
Estimated Current Return will be realized in the future. The Estimated
Long-Term Return is calculated using a formula which (1) takes into account the
amortization of premiums and the accretion of discounts) and, in the case of
the GNMA and FNMA Trusts, estimated average life of all of the Securities in
such Series, or in the case of the U.S. Treasury Portfolio Series, the
estimated retirements of all the Securities in such Series and (2) takes into
account the expenses and sales charge associated with each Unit of the Trust.
Since the market values and the estimated average lives or estimated
retirements, as the case may be, of the Securities and the expenses of a Trust
will change, it can be expected that the Estimated Long-Term Returns will
fluctuate in the future. Estimate Current Return and Estimated Long-Term
Return are expected to differ because the calculation of the Estimated
Long-Term Return reflects the estimated date and amount of principal returned
while the Estimated Current Return calculation includes only the net annual
interest rate and Public Offering Price.
MARKET FOR UNITS. The Sponsor, though not obligated to do so, after the
initial offering period, intends to maintain a market for the Units based on
the aggregate bid side evaluation of the underlying Securities plus, in the
case of Kemper Defined Funds, Purchased Interest and Daily Accrued Interest.
If such market is not maintained, a Unitholder will, nevertheless, be able to
dispose of his Units through redemption at prices based on the aggregate bid
side evaluation of the underlying Securities. See "Redemption." Market
conditions may cause such prices to be greater or less than the amount paid for
Units.
THE U.S. TREASURY PORTFOLIO SERIES
Each Kemper Government Securities Trust, U.S. Treasury Portfolio and Kemper
Defined Funds, U.S. Treasury Portfolio (collectively, the "U.S. Treasury
Portfolio Series") is a "unit investment trust" created under Missouri law
pursuant to a Trust Indenture and Agreement (hereinafter collectively referred
to as the "Indenture")**** between Kemper Unit Investment Trusts, a service of
Kemper Securities, Inc.(the "Sponsor") and Investors Fiduciary Trust
Company(the "Trustee.") For information regarding the relationship between the
Sponsor and the Trustee, see "Miscellaneous-Trustee."
The objective of the U.S. Treasury Portfolio is to obtain safety of capital
and investment flexibility through investment in a fixed, laddered portfolio
consisting of interest-bearing (or in some cases zero coupon) U.S. Treasury
obligations. The U.S. Treasury Portfolio Series is formed for the purpose of
providing protection against changes in interest rates and also passing through
to Unitholders in all states the exemption from state personal income taxes
afforded to direct owners of U.S. obligations. The Securities are direct
obligations of the United States and are backed by its full faith and credit.
The value of the Units, the estimated current
**** To the estent reference is made to the Indenture, any statements herein
are qualified in their entirety by the provisions of said indenture.
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<PAGE> 19
return and estimated long-term return to new purchasers will fluctuate with the
value of the Securities included in the portfolio which will generally decrease
or increase inversely with changes in interest rates. See "Tax Status of the
Trusts."
SPECIAL CONSIDERATIONS. An investment in Units of the U.S. Treasury
Portfolio Series should be made with an understanding of the risks which an
investment in fixed rate debt obligations may entail, including the risks that
the value of the Portfolio and hence of the Units will decline with increases
in interest rates. The value of the underlying Securities will fluctuate
inversely with changes in interest rates. The high inflation of prior years,
together with the fiscal measures adopted to attempt to deal with it, have
resulted in wide fluctuations in interest rates and, thus, in the value of
fixed rate long term debt obligations generally. The Sponsor cannot predict
whether such fluctuations will continue in the future.
In selecting Securities for deposit in the U.S. Treasury Portfolio Series,
the following factors, among others, were considered by the Sponsor: (i) the
prices of the Securities relative to other comparable Securities; (ii) the
maturities of these Securities; and (iii) whether the Securities were issued
after July 18, 1984.
The U.S. Treasury Portfolio Series may be an appropriate medium for
investors who desire to participate in a portfolio of taxable fixed income
securities offering the safety of capital provided by an investment backed by
the full faith and credit of the United States. In addition, many investors
may benefit from the exemption from state and local personal income taxes that
will pass through the U.S. Treasury Portfolio Series to Unitholders in
virtually all states.
Since Unitholders of a Series holding Stripped Treasury Securities will be
required for federal income tax purposes to include amounts in ordinary gross
income in advance of the receipt of the cash attributable to such income, such
Series may be appropriate only for an account which can pay taxes with other
funds in advance of the receipt of the cash attributable to such income or for
Individual Retirement Accounts, Keogh plans or other tax-deferred retirement
plans.
GENERAL. Each Unit in a Series represents the fractional undivided
interest in the U.S. Treasury Portfolio Series as set forth under "Essential
Information" in Part Two. Because certain of the Securities from time to time
may be redeemed or will mature in accordance with their terms or may be sold
under certain circumstances described herein, the U.S. Treasury Portfolio
Series of the Trust is not expected to retain its present size and composition.
Units will remain outstanding until redeemed upon tender to the Trustee by any
Unitholder (which may include the Sponsor) or until the termination of the
Trust pursuant to the Indenture.
RATING OF UNITS
Standard & Poor's Corporation ("Standard & Poor's") has rated the Units of
each Series of the Trusts "AAA." This is the highest rating assigned by
Standard & Poor's. See "Description of Standard & Poor's Rating" herein.
Standard & Poor's has been compensated by the Sponsor for its services in
rating Units of the
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<PAGE> 20
Series of the Trusts.
PORTFOLIO SELECTION
In selecting Ginnie Maes, Debentures and U.S. Treasury Obligations
(collectively referred to herein as the "Portfolio Obligations") for deposit in
a Series of the appropriate Trusts, the following factors, among others, were
considered by the Sponsor: (i) the types of such obligations available; (ii)
the prices and yields of such obligations relative to other comparable
obligations including the extent to which such obligations are trading at a
premium or at a discount from par; and (iii) the maturities of such
obligations.
Each Series of the Trusts consists of the unamortized principal amount of
the Portfolio Obligations listed in Part Two under "Schedule of Investments" as
may continue to be held from time to time in such Series together with accrued
and undistributed interest thereon and undistributed cash representing payments
and prepayments of principal and proceeds realized from the disposition of
Portfolio Obligations. Neither the sponsor nor the Trustee shall be liable in
any way for any default, failure or defect in any of the Securities.
Each series of the Trust may contain "zero coupon" U.S. Treasury Obligations.
See footnote (6) in "Notes to Schedule of Investments" in Part Two of this
Prospectus. Zero coupon obligations are purchased at a deep discount because
the buyer receives only the right to receive a final payment at the maturity of
the obligations and does not receive any periodic interest payments. The
effect of owning deep discount obligations which do not make current interest
payments (such as the zero coupon obligations) is that a fixed yield is earned
not only on the original investment but also, in effect, on all discount earned
during the life of such income on such obligation at a rate as high as the
implicit yield on the discount obligation, but at the same time eliminates the
holder's ability to reinvest at higher rates in the future. For this reason,
zero coupon obligations are subject to substantially greater price fluctuations
during periods of changing market interest rates than are securities of
comparable quality which pay interest.
Because regular payments of principal are to be received and certain of the
Portfolio Obligations from time to time may be redeemed or will mature in
accordance with their terms or may be sold under certain circumstances
described herein, the Series of the Trusts are not expected to retain their
present size and composition.
THE UNITS
Each Unit represents the fractional undivided interest in a Series of the
Trusts set forth in Part Two under "Essential Information." If any Units are
redeemed by the Trustee, the principal amount of Portfolio Obligations in such
Series of the Trusts will be reduced by amounts allocable to redeemed Units,
and the fractional undivided interest represented by each Unit in the balance
will be increased. Units will remain outstanding until redeemed upon tender to
the Trustee by any Unitholder (which may include the Sponsor) or until the
termination of the Series of the Trusts. See "Redemption" and "Administration
of the Trust - Termination."
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<PAGE> 21
ESTIMATED LONG-TERM AND CURRENT RETURNS
The Estimated Current Return and Estimated Long-Term Return for each trust
are the amounts set forth in Part Two under "Essential Information" as of the
date shown on that page. Estimated Current Return is calculated by dividing the
estimated net annual interest rate per Unit by the Public Offering Price. The
estimated net annual interest rate per Unit will vary with changes in fees and
expenses of the Trustee, the Sponsor and the Evaluator and with the principal
prepayment, redemption, maturity, exchange or sale of Portfolio Obligations
while the Public Offering Price will vary with changes in the offering price of
the underlying Portfolio Obligations and in the case of Kemper Defined Funds,
with changes in Purchased Interest and Daily Accrued Interest; therefore, there
is no assurance that the present Estimated Current Return will be realized in
the future. The Estimated Long-Term Return is calculated using a formula which
(1) takes into consideration, and determines and factors in the relative
weightings of, the market values, yields (which takes into account the
amortization of premiums and the accretion of discounts) and, in the case of
GNMA Portfolio Series, the estimated average life of all the Portfolio
Obligations in such Series or, in the case of U.S. Treasury Portfolio Series,
the estimated retirements of all of the Portfolio Obligations in such Series
and (2) takes into account the expenses and sales charge associated with each
Trust Unit. Since the market values and the estimated average lives or
estimated retirements, as the case may be, of the Portfolio Obligations and the
expenses of the Trust will change, there is no assurance that the present
Estimated Long-Term Return will be realized in the future. The Estimated
Current Return and Estimated Long-Term Return are expected to differ because
the calculation of the Estimated Long-Term Return reflects the estimated dates
and amounts of principal returned while the Estimated Current Return
calculations include only net annual interest rates and Public Offering Price.
See "Summary - GNMA Portfolio - Estimated Current and Long-Term Returns",
"Summary - FNMA Debenture - Estimated Current and Long-Term Returns" and
"Summary - U.S. Treasury Portfolio - Estimated Current and Long-Term Returns".
Payments received in respect of the mortgages underlying the Ginnie Maes in
the GNMA Trust Portfolios will consist of a portion representing interest and a
portion representing principal. Although the aggregate monthly payment made by
the obligor on each mortgage remains constant (aside from optional prepayments
of principal), in the early years most of each such payment will represent
interest, while in later years, the proportion representing interest will
decline and the proportion representing principal will increase. However, by
reason of optional prepayments, principal payments in the earlier years on the
mortgages underlying the Ginnie Maes may be substantially in excess of those
required by the amortization schedules of such mortgages. Therefore, principal
payments in later years may be substantially less since the aggregate unpaid
principal balances of such underlying mortgages may have been greatly reduced.
To the extent that the underlying mortgages bearing higher interest rates in
the GNMA Trust Portfolios are pre-paid faster than the other underlying
mortgages, the net annual interest rate per Unit and the Estimated Current
Return on the Units can be expected to decline. Monthly payments to the
Unitholders will reflect all of the foregoing factors.
In addition to the Public Offering Price, the price of a Unit will include
accrued interest on the Portfolio Obligations from the last Record Date of that
Series of the Trusts to the date of settlement for any purchase. Therefore,
accrued interest will generally be added to the value of the Units. If a
Unitholder sells all or a
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<PAGE> 22
portion of his Units, he will receive his proportionate share of the accrued
interest on such Series from the purchaser of his Units. Similarly, if a
Unitholder redeems all or a portion of his Units, the Redemption Price per Unit
will include accrued interest on the Portfolio Obligations.
PUBLIC OFFERING OF UNITS
PUBLIC OFFERING PRICE. The Public Offering Price of Units is computed by
adding to the aggregate bid price of the Portfolio Obligations in that Series
of the Trusts as determined by the Evaluator (see below) plus any money in the
Principal Account of such Series other than money required to redeem tendered
Units, plus, in the case of Kemper Defined Funds, Purchased Interest and Daily
Accrued Interest, then dividing such sum by the number of Units of such Series
outstanding and then adding that sales charge referred to below.
VOLUME DISCOUNT. Although under no obligation to do so, the Sponsor
intends to permit volume purchasers of Units to purchase Units at a reduced
sales charge. The Sponsor may at any time change the amount by which the sales
charge is reduced or may discontinue the discount altogether.
The sales charge per Unit for the GNMA Portfolio Series will be reduced
pursuant to the following graduated scale:
<TABLE>
<CAPTION>
GNMA Midget Series GNMA Series
------------------ -----------
Percent of Percent of Percent of Percent of
Offering Net Amount Offering Net Amount
Ticket Size Price Invested Price Invested
----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Less than $100,000 . . . 3.50% 3.627 3.95% 4.112
$100,000 to $249,999 . . 3.25 3.359 3.70 3.842
$250,000 to $499,999 . . 2.85 2.934 3.35 3.466
$500,000 to $999,999 2.60 2.669 3.10 3.199
$1,000,000 or more . . . Negotiated Negotiated
</TABLE>
The sales charge per Unit for the FNMA Trusts will be reduced pursuant to
the following graduated scale:
Dollar Weighted Average Years to Maturity
0-2.99 Years 3-6.99 Years 7-10 Years
------------ ------------ ----------
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<PAGE> 23
<TABLE>
<CAPTION>
Percent of Percent of Percent of Percent of Percent of Percent of
Offering Net Amount Offering Net Amount Offering Net Amount
Ticket Size Price Invested Price Invested Price Invested
- ----------- ----- --------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Less than $250,000 . 2.00% 2.041% 2.50% 2.564% 3.00% 3.093%
$250,000 to $499,999 1.50 1.523 1.75 1.781 2.25 2.302
$500,000 or more . . 1.25 1.266 1.50 1.523 2.00 2.041
</TABLE>
The sales charge per Unit for U.S. Treasury Portfolio Series will be
reduced pursuant to the following graduated scale:
<TABLE>
<CAPTION>
Dollar Weighted Average Years to Maturity*
-------------------------------------------
0-1.99 Years 2-2.99 Years 3-4.99 Years 5-6.99 Years 7-9.99 Years
Ticket Size Sales Charge (Percent of Public Offering Price)
- ----------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
Less than $500,000 ........ 1.25% 1.50% 1.75% 2.25% 3.00%
$500,000 -$999,999 ....... 1.00 1.25 1.50 1.75 2.50
$1,000,000-$1,499,999...... 1.00 1.00 1.25 1.50 2.00
- ----------------
</TABLE>
* For any transaction in excess of $1,499,999 the Sponsor intends to negotiate
the applicable sales charge and such charges will be disclosed to any such
purchaser.
The sales charge per Unit for U.S. Treasury Portfolio Series holding
predominately Stripped Treasury Obligations will be reduced pursuant to the
following graduated scale:
<TABLE>
<CAPTION>
Dollar Weighted Average Years to Maturity
0-3.99 Years 4-7.99 Years 8-14 Years
------------ ------------ ----------
Percent of Percent of Percent of Percent of Percent of Percent of
Offering Net Amount Offering Net Amount Offering Net Amount
Ticket Size Price Invested Price Invested Price Invested
- ----------- ----- -------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
$0 - $99,999 . . . . . . 2.50% 2.564% 3.00% 3.093% 3.50% 3.627%
$100,000 to $249,999 . . 2.25 2.302 2.50 2.564 3.00 3.093
$250,000 to $499,999 . . 1.75 1.781 2.00 2.041 2.50 2.564
$500,000 to $999,999 . . 1.50 1.523 1.75 1.781 2.00 2.041
$1,000,000 or more . . . 1.25 1.266 1.50 1.523 1.75 1.781
</TABLE>
The reduced sales charges as shown on the tables above will apply to all
purchases of Units on any one day by the same person from the same firm, and
for this purpose, purchases of Units of one or more Series of the Trusts will
be aggregated with concurrent purchases of Units of any other unit investment
trust that may be offered by the Sponsor.
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<PAGE> 24
Additionally, Units purchased in the name of a spouse or child (under 21)
of such purchaser will be deemed to be additional purchases by such purchaser.
The reduced sales charge is also applicable to a trustee or other fiduciary
purchasing Units for a single trust estate or single fiduciary account.
The Sponsor will also allow purchasers who commit to purchase $1 million or
more of The Series units during a 12 month period to do so at the applicable
sales charge for such series pursuant to a letter of intent, subject to certain
restrictions.
The Sponsor intends to permit officers, directors and employees of the
Sponsor and Evaluator to purchase Units of any Series of the Trusts without a
sales charge, although a transaction processing fee may be imposed on such
trades. The Sponsor reserves the right to reject, in whole or in part, any
order for the purchase of Units and the right to charge the amount of the sales
charge from time to time.
In addition to the Public Offering Price, the price of a Unit of a Series
of the Kemper Government Securities Trust will include accrued interest on the
Portfolio Obligations from the last Record Date of that Series of such Trust to
the date of settlement for any purchase. Therefore, accrued interest will
generally be added to the value of the Units of such Trust. If a Unitholder of
the Kemper Government Securities Trust sells all or a portion of his Units, he
will receive his proportionate share of the accrued interest for that Series of
the Trusts from the purchaser of his Units. Similarly, if a Unitholder of the
Kemper Government Securities Trust redeems all or a portion of his Units, the
Redemption Price per Unit will include accrued interest on the Portfolio
Obligations in such Series.
In the case of any Series of Kemper Defined Funds, the Public Offering
Price includes accrued interest which consists of two elements. The first
element arises as a result of accrued interest which is the accumulation of
unpaid interest on a security from the later of the last day on which interest
thereon was paid or the date of original issuance of the security. Interest on
the Portfolio Obligations in a Trust is paid monthly or semi-annually to the
Trust. The aggregate amount of such accrued interest on the Portfolio
Obligations in a Trust in any Series of Kemper Defined Funds to the First
Settlement Date of such Trust is referred to herein as "Purchased Interest."
Included in the Public Offering Price of the Trust Units is Purchased Interest.
The second element of accrued interest arises because the estimated net
interest on the Units in a Trust is accounted for daily on an accrual basis
(herein referred to as "Daily Accrued Interest" for purposes of Kemper Defined
Funds Trusts). Because of this, the Units always have an amount of interest
earned but not yet paid or reserved for payment. For this reason, the Public
Offering Price of Units in any Series of Kemper Defined Funds will include the
proportionate share of Daily Accrued Interest to the date of settlement. If a
Unitholder in any Series of Kemper Defined Funds sells or redeems all or a
portion of his Units or if the Portfolio Obligations are sold or otherwise
removed or if the Trust is liquidated, he will receive at that time his
proportionate share of the Purchased Interest and Daily Accrued Interest
computed to the settlement date in the case of sale or liquidation and to the
date of tender in the case of redemption in the Trust.
The Public Offering Price on the date shown on the cover of Part Two of the
Prospectus for a Series or on any subsequent date will vary from the amount
stated under "Essential Information" in Part Two due to fluctuations in the
valuation of the underlying Portfolio Obligations in such Series of the Trusts
and, in the case of Kemper Defined Funds, the additions or deletions of
Purchased Interest and Daily Accrued Interest.
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<PAGE> 25
The aggregate bid prices of the Portfolio Obligations in a Series of the
Trusts, are determined for each Series of the Trusts by the Evaluator, in the
following manner: (a) on the basis of current bid prices for the Portfolio
Obligations, (b) if bid prices are not available for the Portfolio Obligations,
on the basis of current bid prices for comparable securities, (c) by
determining the value of the Portfolio Obligations on the bid side of the
market by appraisal, or (d) by any combination of the above. The Evaluator may
obtain current price information as to the Portfolio Obligations from
investment dealers or brokers, including the Sponsor. Such evaluations and
computations will be made as of the close of business on each business day and
will be effective for all sales of Units made during the preceding 24-hour
period. Evaluations, for purposes of redemptions by the Trustee, will be made
each business day as of the Evaluation Time stated under "Essential
Information" in Part Two, effective for all redemptions made subsequent to the
last preceding determination.
In connection with the Ginnie Maes deposited in the GNMA Trusts, there is a
period of time beginning on the first day of each month, during which the total
amount of payments (including prepayments, if any) of principal for the
preceding month on the various mortgages underlying each of the Ginnie Maes in
the Portfolio of a Series will not yet have been reported by the issuer to GNMA
and made generally available to the public. During this period, the precise
principal amount of the underlying mortgages remaining outstanding for each
Ginnie Mae in the Portfolios, and therefore the precise principal amount of
such Security, will not be known, although the principal amount outstanding for
the preceding month will be known. Therefore, the exact amount of principal to
be acquired by the Trustee as a holder of such Securities which may be
distributed to Unitholders of such Series with the next monthly distribution
will not be known. The Sponsor does not expect that the amounts of such
prepayments and the differences in such principal amounts from month to month
will be material in relation to a Series of the GNMA Trusts due to the number
of mortgages underlying each Ginnie Mae and the number of such Ginnie Maes in
each Series of the GNMA Trusts. However, there can be no assurance that they
will not be material. For purposes of the determination by the Evaluator of
the bid prices of the Ginnie Maes in the GNMA Portfolios and for purposes of
calculations of accrued interest on the Units, during the period in each month
prior to the time when the precise amounts of principal of the Ginnie Maes for
the month become publicly available, the Evaluator will base its evaluations
and calculations, which are the basis for calculations of the Public Offering
Price, the Sponsor's Repurchase Price and the Redemption Price per Unit, upon
the principal amount of such Series outstanding for the preceding month. The
Sponsor expects that the differences in such principal amounts from month to
month will not be material to each GNMA Portfolio Series of the Trusts.
Nevertheless, the Sponsor will adopt procedures as to pricing and evaluation
for the Units of each Series of the GNMA Trusts, with such modifications, if
any, deemed necessary by the Sponsor for the protection of Unitholders,
designed to minimize the impact of such differences upon the calculation of the
Public Offering Price per Unit, the Sponsor's Repurchase Price per Unit and the
Redemption Price per Unit of such Series.
PUBLIC DISTRIBUTION. The Sponsor has qualified Units for sale in all
states. Units will be sold through dealers who are members of the National
Association of Securities Dealers, Inc. and through others. Such firms receive
a discount from the Public Offering Price as indicated in the tables under
"Profit of Sponsor" below. Certain commercial banks are making Units of the
Trust available to their customers on an agency basis. A portion of the sales
charge paid by their customers is retained by or remitted to the banks in an
amount as indicated in the tables under "Profit of Sponsor" below. Under the
Glass-Steagall Act, banks are prohibited from underwriting Trust Units;
however, the Glass- Steagall Act does permit certain agency
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<PAGE> 26
transactions and the banking permitted regulators have indicated that these
particular agency transactions are permitted under such Act. In addition,
state securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law. The Sponsor reserves
the right to reject, in whole or in part, any order for the purchase of Units.
The Sponsor reserves the right to change the discounts from time to time. The
difference between the discounts and the sales charge will be retained by the
Sponsor.
The Sponsor also reserves the right to change the discounts set forth above
from time to time. In addition to such discounts, the Sponsor may, from time
to time, pay or allow an additional discount, in the form of cash or other
compensation, to dealers employing registered representatives who sell, during
a specified time period, a minimum dollar amount of Units of the Series of the
Trusts and other unit investment trusts underwritten by the Sponsor.
While not obligated to do so, the Sponsor intends, subject to change at any
time, to maintain a market for Units of the Series of the Trusts offered hereby
and to continuously offer to purchase said Units at prices based on the
aggregate bid prices of the underlying Portfolio Obligations in such Series,
together with accrued interest to the expected date of settlement.
The Sponsor may suspend or discontinue purchases of Units at prices based
on the bid prices of Securities in any Series of the Trusts if the supply of
Units exceeds demand, or for other business reasons.
PROFITS OF SPONSOR. Sales of Units may be made to or through dealers or
through others at prices which represent discounts from the Public Offering
Price as set forth below. Discounted rates for the GNMA Portfolio Series are
as follows:
<TABLE>
<CAPTION>
GNMA GNMA
Ticket Size* Midget Series Series
------------ ------------- ------
<S> <C> <C>
Less than $100,000 . . . . . . . . . . . . . . . . 2.10% 2.60%
$100,000 to $249,999 . . . . . . . . . . . . . . . 2.10 2.60
$250,000 to $499,999 . . . . . . . . . . . . . . . 1.80 2.30
$500,000 to $999,999 . . . . . . . . . . . . . . . 1.55 2.05
$1,000,000 or more . . . . . . . . . . . . . . . . Negotiated Negotiated
</TABLE>
Discounts for the FNMA Debenture Series are as follows:
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<PAGE> 27
Dollar Weighted Average Years to Maturity
<TABLE>
<CAPTION>
Ticket Size 3* 0-2.99 Years 3-6.99 Years 7-10 Years
- ------------- ------------- ------------- -------------
<S> <C> <C> <C>
Less than $250,000 . . . 1.00% 1.75% 2.00%
$250,000 to $499,999 . . 0.75% 1.00 1.25
$500,000 or more . . 0.75% 0.75 1.00
</TABLE>
The discounted rates for U.S. Treasury Portfolio Series holding predominately
interest-bearing obligations are as follows:
Dollar Weighted Average Years to Maturity
<TABLE>
<CAPTION>
0-1.99 Years 2-2.99 Years 3-4.99 Years 5-6.99 Years 7-9.99 Years
Discount Per Unit (% of Public Offering Price)
<S> <C> <C> <C> <C> <C>
Ticket Size* Less than $500,000 0.75% 1.00% 1.00% 1.25% 2.00%
$500,000 to $999,999 0.50 0.75 .90 1.00 1.75
$1,000,000 to $1,499,999 0.50 0.50 .75 0.75 1.50
$1,500,000 or more... Negotiated Negotiated Negotiated Negotiated Negotiated
</TABLE>
The discounted rates for U.S. Treasury Portfolio Series holding predominately
Stripped Treasury Securities are as follows:
* The breakpoint discount is also applied on a Unit basis utilizing a
breakpoint equivalent in the above tables of $1.00 per Unit for $1 Units and
$1,000 per 100 Units for $10 Units.
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<PAGE> 28
<TABLE>
<CAPTION>
Regular Concession or Agency Commission
Dollar Weighted Average Years to Maturity
0-3.99 Years 4-7.99 Years 8-14 Years
Discount Per Unit (% of Public Offering Price)
Ticket Size4*
- ----------- -
<S> <C> <C> <C>
$0 to $99,999 . . . . . . . 1.75% 1.75% 2.25%
$100,000 to $249,999 . . . 1.50 1.50 2.00
$250,000 to $499,000 . . . 1.00 1.00 1.75
$500,000 to $999,999 . . . 0.75 1.00 1.25
$1,000,000 or more . . . . 0.75 0.75 1.00
</TABLE>
On the sale of Units, the Sponsor will retain the difference between the
discount and the sales charge. The Sponsor may also realize profits or sustain
losses while maintaining a market in the Units, in the amount of any difference
between the prices at which it buys Units and the prices at which Units are
resold after allowing for the discount.
Cash, if any, received by a dealer from Unitholders prior to the settlement
date for a purchase of Units of any Series may be used in such dealer's
business subject to the limitations of Rule 15c3-3 under the Securities
Exchange Act of 1934 and may be of benefit to the dealer.
TAX STATUS OF THE TRUSTS
REGULATED INVESTMENT COMPANIES. Each Series of the GNMA and FNMA Trusts
(except Kemper Defined Funds, GNMA Portfolio, Series 1)is an association
taxable as a corporation under the Internal Revenue Code and has qualified for
and elected for tax treatment as a "regulated investment company" under the
Internal Revenue Code of 1986 (the "Code"). By qualifying for and electing
such treatment, such Series of the GNMA and FNMA Trusts will not be subject to
federal income tax on net investment income or net capital gains distributed to
Unitholders of such Series. The Code imposes a 4% excise tax on certain
undistributed income of a regulated investment company that does not timely
distribute certain percentages of its ordinary taxable income and capital gains
by the end of each calendar year. Each Series of the GNMA and FNMA Portfolio
intends to timely distribute taxable income and capital gains to avoid the
imposition of such tax. Distributions of the entire net investment income of
each Series of such Trusts is required by the Indenture.
*The breakpoint discount is applied on a Unit basis utilizing a breakpoint
equivalent in the above tables of $1.00 per Unit for $1 Units and $1,000 per
100 Units for $10 Units.
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<PAGE> 29
Distributions from the Trusts, to the extent of the earnings and profits of
such Series, will constitute dividends for federal income tax purposes which
are taxable as ordinary income to Unitholders. Distributions of the Series'
net investment income and any net short-term capital gain will be taxable as
ordinary income to the Unitholders of such Series. Distributions from each
Series of the GNMA and FNMA Trusts will not be eligible for the 70% dividends
received deduction for corporations.
Although distributions generally will be treated as distributed when paid,
distributions declared in October, November or December, payable to Unitholders
of record on a specified date in one of those months and paid during January of
the following year will be treated as having been distributed by each Series of
such Trusts (and received by the Unitholders) on December 31 of the year such
distributions are declared.
Distributions which the Trusts designate as capital gain dividends will be
taxable to Unitholders thereof as long-term capital gains, regardless of the
length of time the Units have been held by a Unitholder. Distributions in
partial liquidation, reflecting the proceeds of prepayments, redemptions,
maturities (including monthly mortgage payments of principal in GNMA Series) or
sales of Portfolio Obligations from a Series of such Trusts (exclusive of net
capital gain) will not be taxable to Unitholders of such Series to the extent
that they represent a return of capital for tax purposes. The portion of
distributions which represents a return of capital will, however, reduce a
Unitholder's basis in his Units, and to the extent they exceed the basis of his
Units will be taxable as a capital gain. A Unitholder will realize a taxable
gain or loss when his Units are sold or redeemed for an amount different from
his original cost after reduction for previous distributions to the extent that
they represented a return of capital. Such gain or loss will generally
constitute either a long-term or short-term capital gain or loss depending upon
the length of time the Unitholder has held his Units. Any loss on Units held
six months or less will be treated as long-term capital loss to the extent of
any capital gains dividends received (or deemed to have been received) by the
Unitholder with respect to such Units. Under the Code, certain miscellaneous
itemized deductions, such as investment expenses, tax return preparation fees
and employee business expenses, will be deductible by individuals only to the
extent they exceed 2% of adjusted gross income. Miscellaneous itemized
deductions subject to this limitation under present law do not include expenses
incurred by the GNMA and FNMA Trusts, as long as the Units of such Trusts are
held by or for 500 or more persons at all times during the taxable year. In
the event the Units of any Series of a GNMA and FNMA Trust are held by fewer
than 500 persons, additional taxable income will be realized by the individual
Unitholders in excess of the distributions received from such Series.
If a Ginnie Mae or FannieMae has been purchased by a GNMA or FNMA Trust at
a market discount (i.e. for purchase price less than its outstanding principal
amount), each payment of principal on such security will constitute ordinary
income to such Series of the Trust to the extent of any accrued market
discount. In the case of a Ginnie Mae, the amount of market discount that is
deemed to accrue each month shall generally be the amount of discount that
bears the same ratio to the total amount of remaining market discount that the
amount of interest paid during the accrual period (each month) bears to the
total amount of interest remaining to be paid on the Ginnie Mae as of the
beginning of the accrual period.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") raised tax rates
on ordinary income while capital gains remain subject to a 28% maximum stated
rate. Because some or all capital gains are taxed at a comparatively lower rate
under the Tax Act, the Tax Act includes a provision that recharacterizes
capital gains as ordinary income in the case of certain financial transactions
that are "conversion transactions" effective for transactions entered into
after April 30, 1993. Unitholders and prospective investors should consult with
their tax advisers regarding the potential effect of this provision on their
investment in Units.
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Each Unitholder of each Series of the GNMA and FNMA Trusts shall receive an
annual statement describing the tax status of the distributions paid by such
Series of such Trust.
It should be remembered that even if distributions are reinvested, they are
still treated as distributions for income tax purposes.
FOREIGN INVESTORS TRUST
Each Kemper Government Securities Trust, GNMA Portfolio Series of Midget
Foreign Investors Trust, which is available only to non-resident alien
investors, is not an association taxable as a corporation for Federal income
tax purposes and income received by such Series will be treated as the income
of the Unitholders.
A Unitholder of a Series of a Midget Foreign Investors Trust who is not a
citizen or resident of the United States or a United States domestic
corporation (a "Foreign Investor") will generally not be subject to U.S.
Federal income taxes, including withholding taxes on amounts distributed from a
Trust (including any original issue discount) on, or any gain from the sale or
other disposition of, his Units or the sale or disposition of any Ginnie Mae by
the trustee, provided that (i) the interest income or gain is not effectively
connected with the conduct by the Foreign Investor of a trade or business
within the United States, (ii) with respect to any gain, the Foreign Investor
(if an individual) is not present in the United States for 183 days or more
during the taxable year, and (iii) the Foreign Investor provides the required
certification of his status and of the matters contained in clauses (i) and
(ii) above, and further provided that the exemption from withholding for U.S.
Federal income taxes for interest on any Ginnie Mae shall only apply to the
extent the mortgages underlying the Ginnie Mae were originated after July 18,
1984.
Interest income received by the Trust is subject to withholding taxes under
Section 1441 of the Code prior to distribution of such interest income to each
Unitholder unless the Unitholder provides his financial representative or the
Trustee with a statement that (i) is signed by the Unitholder under penalties
of perjury, (ii) certifies that such Unitholder is not a United States person,
or in the case of an individual, that he is neither a citizen nor a resident of
the United States, and (iii) provides the name and address of the Unitholder.
The statement may be made, at the option of the person otherwise required to
withhold, on Form W-8 or on a substitute form that is substantially similar to
Form W- 8. If the information provided on the statement changes, the beneficial
owner must so inform the person otherwise required to withhold within 30 days
of such change.
The foregoing discussions relate only to Federal income taxes on
distributions by each Series of a Trust; such distributions may also be subject
to state and local taxation. Unitholders should consult their own tax advisers
regarding questions of state and local taxation applicable to the Units.
Foreign Unitholders should consult their own tax advisers with respect to
United States Federal income tax consequences or ownership of Units.
It should be remembered that even if distributions are reinvested, they are
still treated as distributions for income tax purposes.
U.S. TREASURY PORTFOLIO SERIES
At the time of the closing for each Series of the U.S. Treasury Portfolio
Series, Chapman and Cutler, counsel for the Sponsor, rendered an opinion under
existing law substantially to the effect that:
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(1) Each Series of the U.S. Treasury Portfolio is not an
association taxable as a corporation for federal income tax
purposes; each Unitholder will be treated as the owner of a pro
rata portion of the U.S. Treasury Portfolio Series of the Trust
under the Code and income of such Series will be treated as the
income of the Unitholders under the Code.
(2) Each Unitholder will have a taxable event when the U.S.
Treasury Portfolio Series disposes of a U.S. Treasury Obligation,
or when the Unitholder redeems or sells his Units. Unitholders
must reduce the tax basis of their Units for their share of
accrued interest received by the U.S. Treasury Portfolio Series, if
any, on U.S. Treasury Obligations delivered after the Unitholders
pay for their Units to the extent that such interest accrued on
such U.S. Treasury Obligations during the period from the
Unitholder's settlement date to the date such U.S. Treasury
Obligations are delivered to the U.S. Treasury Portfolio Series
and, consequently, such Unitholders may have an increase in
taxable gain or reduction in capital loss upon the disposition of
such Units. Gain or loss upon the sale or redemption of Units is
measured by comparing the proceeds of such sale or redemption with
the adjusted basis of the Units. If the Trustee disposes of U.S.
Treasury Obligations (whether by sale, payment on maturity,
redemption or otherwise), gain or loss is recognized to the
Unitholder. The amount of any such gain or loss is measured by
comparing the Unitholder's pro rata share of the total proceeds
from such disposition with the Unitholder's basis for his or her
fractional interest in the asset disposed of. In the case of a
Unitholder who purchases Units, such basis (before adjustment for
earned original issue discount, amortized bond premium and accrued
market discount (if the Unitholder has elected to include such
market discount in income as it accrues), if any) is determined by
apportioning the cost of the Units among each of the U.S. Treasury
Portfolio Series assets ratably according to value as of the date
of acquisition of the Units. The tax cost reduction requirements
of said Code relating to amortization of bond premium may, under
some circumstances, result in the Unitholder realizing a taxable
gain when his Units are sold or redeemed for an amount equal to his
original cost.
(3) Certain Series of the U.S. Treasury Portfolio Series
contain Stripped Treasury Securities. The Stripped Treasury
Securities held by such Trusts are treated as bonds that were
originally issued at an original issue discount provided, pursuant
to a Treasury Regulation (the "Regulation") issued onDecember 28,
1992, that the amount of original issue discount determined under
Section 1286 of the Code is not less than a "de minimis" amount as
determined thereunder. Because the Stripped Treasury Securities
represent interests in "stripped" U.S. Treasury bonds, a
Unitholder's initial cost for his pro rata portion of each Stripped
Treasury Securities held by the Trust (determined at the time he
acquires his Units, in the manner described above) shall be
treated as its "purchase price" by the Unitholder. Original
issue discount is effectively treated as interest for federal
income tax purposes, and the amount of original issue discount in
this case is generally the difference between the bond's purchase
price and its stated redemption price at maturity. A Unitholder
will be required to include in gross income for each taxable year
the sum of his daily portions of original issue discount
attributable to the Stripped Treasury Securities held by the U.S.
Treasury Portfolio Series as such original issue discount
accrues and will, in general, be subject to federal income tax with
respect to the total amount of such original issue discount that
accrues for such year even though the income is not distributed to
the Unitholders during such year to the extent it is not less than
a "de minimis" amount as determined under the Regulation. In
general, original issue discount accrues daily under a constant
interest rate method which takes into account the semi-annual
compounding of accrued interest. In the case of the Stripped
Treasury Securities, this method will generally result in an
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increasing amount of income to the Unitholders each year.
Unitholders should consult their tax advisers regarding the federal
income tax consequences and accretion of original issue discount.
(4) The Unitholder's aliquot share of the total proceeds
received on the disposition of, or principal paid with
respect to, a U.S. Treasury Obligation held by the U.S. Treasury
Portfolio Series will constitute ordinary income (which will be
treated as interest income for most purposes) to the extent it does
not exceed the accrued market discount on such U.S. Treasury
Obligation issued after July 18, 1984 that has not previously been
included in taxable income by such Unitholder. A Unitholder may
generally elect to include market discount in income as such
discount accrues. In general, market discount is the excess, if
any, of the Unitholder's pro rata portion of the outstanding
principal balance of a U.S. Treasury Obligation over the
Unitholder's initial tax cost for such pro rata portion, determined
at the time such Unitholder acquires his Units. However, market
discount with respect to any U.S. Treasury Obligation will
generally be considered zero if it amounts to less than 0.25% of
the obligation's stated redemption price at maturity times the
number of years to maturity. The market discount rules do not
apply to Stripped Treasury Securities because they are stripped
debt instruments subject to special original issue discount rules
as discussed above. If a Unitholder sells his Units, gain, if any,
will constitute ordinary income to the extent of the aggregate of
the accrued market discount on the Unitholder's pro rata portion of
each U.S. Treasury Obligation issued after July 18, 1984 that is
held by the U.S. Treasury Portfolio Series that has not previously
been included in taxable income by such Unitholder. In general,
market discount accrues on a ratable basis unless the Unitholder
elects to accrue such discount on a constant interest rate basis.
However, a Unitholder should consult his own tax adviser regarding
the accrual of market discount. The deduction by a Unitholder for
any interest expense incurred to purchase or carry Units will be
reduced by the amount of any accrued market discount that has not
yet been included in taxable income by such Unitholder. In
general, the portion of any interest expense which is not currently
deductible would be ultimately deductible when the accrued market
discount is included in income.
(5) The Code provides that "miscellaneous itemized deductions"
are allowable only to the extent that they exceed two percent of an
individual taxpayer's adjusted gross income. Miscellaneous
itemized deductions subject to this limitation under present law
include a Unitholder's pro rata share of expenses paid by the
applicable Series of the U.S. Treasury Portfolio Series, including
fees of the Trustee, and the Evaluator, but does not include
amortizable bond premium on U.S. Treasury Obligations held by the
U.S. Treasury Portfolio Series.
"The Revenue Reconciliation Act of 1993"( the"Tax Act") raised tax rates on
ordinary income while capital gains remain subject to a 28% maximum stated
rate. Because some or all capital gains are taxed at a comparatively lower rate
under the Tax Act, the Tax Act includes a provision that recharacterizes
capital gains as ordinary income in the case of certain financial transactions
that are "conversion transactions" effective for transactions entered into
after April 30, 1993. Unitholders and prospective investors should consult with
their tax advisers regarding the potential effect of this provision on their
investment in Units.
The Sponsor believes that Unitholders who are individuals will not be
subject to any state personal income taxes on the interest received by a U.S.
Treasury Portfolio Series and distributed to them. However, Unitholders
(including individuals) may be subject to state and local taxes on any capital
gains (or market discount treated as ordinary income) derived from a U.S.
Treasury Portfolio Series and to other state and local
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<PAGE> 33
taxes (including corporate income or franchise taxes, personal property or
intangibles taxes, and estate or inheritance taxes) on their Units or the
income derived therefrom. In addition, individual Unitholders (and any other
Unitholders which are not subject to state and local taxes on the interest
income derived from U.S. Treasury Portfolio Series) will probably not be
entitled to a deduction for state and local tax purposes for their share of the
fees and expenses paid by a U.S. Treasury Portfolio Series, for any amortized
bond premium or for any interest on indebtedness incurred to purchase or carry
their Units. Therefore, even though the Sponsor believes that interest income
from a U.S. Treasury Portfolio Series is exempt from state personal income
taxes in all states, Unitholders should consult their own tax advisers with
respect to state and local taxation.
A Unitholder of a U.S. Treasury Portfolio Series who is not a citizen or
resident of the United States or a United States domestic corporation (a
"Foreign Investor") will generally not be subject to U.S. federal income taxes,
including withholding taxes on amounts distributed from the U.S. Treasury
Portfolio Series (including any original issue discount) on, or any gain from
the sale or other disposition of, his Units or the sale or disposition of any
U.S. Treasury Obligations by the Trustee, provided that (i) the interest income
or gain is not effectively connected with the conduct by the Foreign Investor
of a trade or business within the United States, (ii) with respect to any gain,
the Foreign Investor (if an individual) is not present in the United States for
183 days or more during the taxable year, and (iii) the Foreign Investor
provides the required certification of his status and of the matters contained
in clauses (i) and (ii) above, and further provided that the exemption from
withholding for U.S. federal income taxes for interest on any U.S. Treasury
Obligation shall only apply to the extent the U.S. Treasury Obligation was
issued after July 18, 1984.
Amounts otherwise distributable by the U.S. Treasury Portfolio Series to a
Foreign Investor will generally be subject to withholding taxes under Section
1441 of the Code unless the Unitholder timely provides his financial
representative or the Trustee with a statement that (i) is signed by the
Unitholder under penalties of perjury, (ii) certifies that such Unitholder is
not a United States person, or in the case of an individual, that he is neither
a citizen nor a resident of the United States, and (iii) provides the name and
address of the Unitholder. The statement may be made, at the option of the
person otherwise required to withhold, on Form W-8 or on a substitute form that
is substantially similar to Form W-8. If the information provided on the
statement changes, the beneficial owner must so inform the person otherwise
required to withhold within 30 days of such change.
Foreign Unitholders should consult their own tax advisers with respect to
the foreign and United States tax consequences on ownership of Units.
It should be remembered that even if distributions are reinvested they are
still treated as distributions for income tax purposes.
It should also be remembered that Unitholders of Series holding Stripped
Treasury Securities will be required for federal income tax purposes to include
amounts in ordinary gross income in advance of the receipt of the cash
attributable to such income.
Each Unitholder (other than a foreign investor who has properly provided
the certifications described in the preceding paragraph) will be requested to
provide the Unitholder's taxpayer identification number to the Trustee and to
certify that the Unitholder has not been notified that payments to the
Unitholder are subject to back-up withholding. If the proper taxpayer
identification number and appropriate certification are not
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<PAGE> 34
provided when requested, distributions by the Trust to such Unitholder will be
subject to back-up withholding.
KEMPER DEFINED FUNDS, GNMA PORTFOLIO, SERIES 1
At the end of the closing for Kemper Defined Funds, GNMA Portfolio, Series 1
Chapman and Cutler, counsel for the Sponsor, rendered an opinion under existing
law substantially to the effect that:
(1) Each GNMA Portfolio Series is not an associate taxable as a
corporation for Federal income tax purposes; each Unitholder will
be treated as the owner of a pro rata portion of the GNMA Portfo
Series of the respective Trust under the Code and income of such
Series will be treated as the incom of the Unitholders under the
Code.
(2) Each Unitholder will have a taxable event when a GNMA
Portfolio Series disposes of a Security, or when the Unitholder
redeems or sells his Units. Unitholders must reduce the tax basis
of their Units for their share of accrued interest received by a
GNMA Portfolio Series, if any, on Securities delivered after the
Unitholders pay for their Units to the extent that such interest
accrued on suc Securities during the period from the Unitholder's
settlement date to the date such Securities are delivered to such
GNMA Portfolio Series and, such Unitholders may have an increase in
taxable gain or reduction in capital loss upon the disposition of
such Units. Gain or loss upon the sale or redemption of Units is
measured by comparing the proceeds of such sale or redemption with
the adjusted basis of the Units. If the Trustee disposes of
Securities (whether by sale, payment on maturity, redemption or
otherwise), gain or loss is recognized to the Unitholder. The
amount of any such gain or loss is measured by comparing the
Unitholder's pro rata share of the total proceeds fro such
disposition with the Unitholder's basis for his or her fractional
interest in the asset disposed of. In the case of a Unitholder
who purchases Units, such basis (before adjustment for earned
original issue discount, amortized bond premium and accrued market
discount (if the Unitholder has elected to include such market
discount in income as it accrues), if any) is determined by
apportioning the cost of the Units among each of a GNMA Portfolio
Series assets ratably according to value as of the date of
acquisition of the Units. The tax cost reduction requirements of
said Code relating to amortization of bond premium may, under some
circumstances, result in the Unitholder realizing a taxable gain
when his Units are sold or redeemed for an amount equal to his
original cost.
(3) Each GNMA Portfolio Series contains Stripped Treasury
Securities. The Stripped Treasury Securities held by the
Trusts are treated as bonds that were originally issued at an
original issue discount provided, pursuant to a Treasury Regulation
(the "Regulation") issued on December 28, 1992, that the amount of
original issue discount determined under Section 1286 of the Code
is not less than a "de minimis" amount as determined thereunder.
Because the Stripped Treasury Securities represent interests in
"stripped" U.S. Treasury bonds, a Unitholder's initial cost for his
pro rata portion of each Stripped Treasury Security held by a Trust
(determined at the time he acquires his Units, in the manner
described above) shall be treated as its "purchase price" by the
Unitholder. Original issue discount is effectively treated as
interest for Federal income tax purposes, and the amount of origina
issue discount in this case is generally the difference between the
bond's purchase price and its stated redemption price at maturity.
A Unitholder will be required to include in gross income for each
taxable year the sum of his daily portions of original issue
discount attributable to the Stripped Treasury Securities held by
a Trust as such original discount accrues and will, in general, be
subjec to Federal income tax with respect to the total amount
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<PAGE> 35
of such original issue discount that accrues for such year even though
the income is not distributed to the Unitholders during such year to the
extent it is not less than a "de minimis" amount as determined under the
Regulation. In general, original issue discount accrues daily under a
constant interest rate method which takes into account the semi-annual
compounding of accrued interest. In the case of the Stripped Treasury
Securities this method will generally result in an increasing amount of income
to the Unitholders each year. Unitholders should consult their tax advisers
regarding the Federal income tax consequences and accretion of original issue
discount.
(4) The Unitholder's aliquot share of the total proceeds received
on the disposition of, or principal paid with respect to, a Security
held by a Trust will constitute ordinary income (which will be treated
as interest income for most purposes) to the extent it does not exceed
the accrued market discount on such Security issued after July 18, 1984
that has not previously been included in taxable income by such
Unitholder. A Unitholder may generally elect to include market
discount in income as such discount accrues. In general, market
discount is the excess, if any, of the Unitholder's pro rata portion of
the outstanding principal balance of a Security over the Unitholder's
initial tax cost for such pro rata portion, determined at the time such
Unitholder acquires his Units. However, market discount with respect
to any Security will generally be considered zero if it amounts to
less than 0.25% of the obligations's stated redemption price at
maturity times the number of years to maturity. The market discount
rules do not apply to Stripped Treasury Securities because they are
stripped debt instruments subject to special original issue discount
rules as discussed above. If a Unitholder sells his Units, gain, if
any, will constitute ordinary income to the extent of the aggregate of
the accrued market discount on the Unitholder's pro rata portion of
each Security issued after July 18, 1984 that is held by a Trust that
has not previously been included in taxable income by such Unitholder.
In general, market discount accrues on a ratable basis unless the
Unitholder elects to accrue such discount on a constant interest rate
basis. However, a Unitholder should consult his own tax adviser
regarding the accrual of market discount. The deduction by a
Unitholder for any interest expense incurred to purchase or carry Units
will be reduced by the amount of any accrued market discount that has
not yet been included in taxable income by such Unitholder. In
general, the portion of any interest expense which is not currently
deductible would be ultimately deductible when the accrued market
discount is included in income.
(5) The Code provides that "miscellaneous itemized deductions" are
allowable only to the extent that they exceed two percent of an
individual taxpayer's adjusted gross income. Miscellaneous itemized
deductions subject to this limitation under present law include a
Unitholder's pro rata share paid by the Trust, including fees of the
Trustee and the Evaluator but does not include amortizable bond premium
on Securities held by the Trusts.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") raised tax rates on
ordinary income while capital gains remain subject to a 28% maximum stated
rate. Because some or all capital gains are taxed at a comparatively lower
rate under the Tax Act, the Tax Act included a provision that recharacterizes
capital gains as ordinary income in the case of certain financial transactions
that are "conversion transactions" effective for transactions entered into
after April 30, 1993. Unitholders and prospective investors should consult
with their tax advisers regarding the potential effect of this provision on
their investment in Units.
A Unitholder of a GNMA Portfolio Series who is not a citizen or resident of the
United States or a United States domestic corporation (a "Foreign Investor")
will generally not be subject to U.S. Federal income taxes, including
withholding taxes on amounts distributed from the Trusts (including any
original issue discount) on,
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<PAGE> 36
or any gain from the sale or other disposition of, his Units or the
sale or disposition of any Securities by the Trustee,provided that (i) the
interest income or gain is not effectively connected with the conduct by the
Foreign Investor of a trade or business within the United States, (ii) with
respect to any gain, the Foreign Investor (if an individual) is not present in
the United States for 183 days or more during the taxable year, and (iii) the
Foreign Investor provides the required certification of his status and of the
matters contained in clauses (i) and (ii) above, and further provided that the
exemption from withholding for U.S. Federal income taxes for interest on any
Stripped Treasury Security shall only apply to the extent the Stripped Treasury
Security was issued after July 18, 1984 and for interest on any Ginnie Mae to
the extent the mortgages underlying such Ginnie Mae were originated after July
18, 1984.
Amounts otherwise distributable by the Trusts to a Foreign Investor will
generally be subject to withholding taxes under Section 1441 of the Code unless
the Unitholder timely provides his financial representative or the Trustee with
a statement that (i) is signed by the Unitholder under penalties of perjury,
(ii) certifies that such Unitholder is not a United States person, or in the
case of an individual, that he is neither a citizen nor a resident of the
United States, and (iii) provides the name and address of the Unitholder. The
statement may be made, at the option of the person otherwise required to
withhold, on Form W-8 or on a substitute form that is substantially similar to
Form W-8. If the information provided on the statement changes, the beneficial
owner must so inform the person otherwise required to withhold within 30 days
of such change.
The foregoing discussions relate only to Federal income taxes on distributions
by the Trusts; such distributions may also be subject to state and local
taxation. Unitholders should consult their own tax advisers regarding
questions of state and local taxation applicable to the Units.
Foreign Unitholders should consult their own tax advisers with respect to the
foreign and United States tax consequences or ownership of Units.
It should be remembered that even if distributions are reinvested, they are
still treated as distributions for income tax purposes.
It should also be remembered that unitholders may be required for Federal
income tax purposes to include amounts in ordinary gross income in advance of
the receipt of the cash attributable to such income.
Each Unitholder (other than a foreign investor who has properly provided the
certifications described above) will be requested to provide the Unitholder's
taxpayer identification number to the Trustee and to certify that the
Unitholder has not been notified that payments to the Unitholder are subject to
back-up withholding. If the proper taxpayer identification number and
appropriate certification are not provided when requested, distributions by a
Trust to such Unitholder will be subject to back-up withholding.
RETIREMENT PLANS
As indicated under "Tax Status of the Trusts" above, Unitholders of a U.S.
Treasury Portfolio Series will be required for Federal income tax purposes to
include amounts in ordinary gross income in advance of the receipt of the cash
attributable to such income. Therefore, purchase of Units may be appropriate
only for an account which can pay taxes with other funds in advance of the
receipt of the cash attributable to such income or for Individual Retirement
Accounts, Keogh plans, pension funds and other qualified retirement plans,
certain of which are briefly described below.
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The various Series of the Trusts which are not Foreign Investors Trusts,
may be well suited for purchase by Individual Retirement Accounts, Keogh Plans,
pension funds and other qualified retirement plans, certain of which are
briefly described below.
Generally, capital gains and income received in each of the foregoing plans
are deferred from federal taxation. All distributions from such plans are
generally treated as ordinary income but may, in some cases, be eligible for
special income averaging or tax-deferred rollover treatment. Investors
considering participation in any such plan should review specific tax laws
related thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan. Such plans are offered
by brokerage firms and other financial institutions. Each Series of the Trusts
will waive the $1,000 minimum investment requirement for IRA accounts. The
minimum investment is $250 for tax-deferred plans such as IRA accounts. Fees
and charges with respect to such plans may vary.
Individual Retirement Account - IRA. Any individual under age 70-1/2 may
contribute the lesser of $2,000 or 100% of compensation to an IRA annually.
Such contributions are fully deductible if the individual (and spouse if filing
jointly) are not covered by a retirement plan at work. The deductible amount
an individual may contribute to an IRA will be reduced $10 for each $50 of
adjusted gross income over $25,000 ($40,000 if married, filing jointly or $0 if
married, filing separately), if either an individual or their spouse (if
married, filing jointly) is an active participant in an employer maintained
retirement plan. Thus, if an individual has adjusted gross income over $35,000
($50,000 if married, filing jointly or $0 if married, filing separately) and if
an individual or their spouse is an active participant in an employer
maintained retirement plan, no IRA deduction is permitted. Under the Code, an
individual may make nondeductible contributions to the extent deductible
contributions are not allowed. All distributions from an IRA (other than the
return of certain excess contributions) are treated as ordinary income for
Federal income taxation purposes provided that under the Code an individual
need not pay tax on the return of nondeductible contributions, the amount
includable in income for the taxable year is the portion of the amount
withdrawn for the taxable year as the individual's aggregate nondeductible IRA
contributions bear to the aggregate balance of all IRAs of the individual.
A participant's interest in an IRA must be, or commence to be, distributed
to the participant not later than April 1 of the calendar year following the
year during which the participant attains at 70-1/2. Distributions made before
attainment of age 59-1/2, except in the case of the participant's death or
disability, or where the amount distributed is to be rolled over to another
IRA, or where the distributions are taken as a series of substantially equal
periodic payments over the participant's life or life expectancy (or the joint
lives or life expectancies of the participant and the designated beneficiary)
are generally subject to a surtax in an amount equal to 10% of the
distribution. The amount of such periodic payments may not be modified before
the later of five years or attainment of age 59-1/2. Excess contributions are
subject to an annual 6% excise tax.
IRA applications, disclosure statement and trust agreements are available
from the Sponsor upon request.
Qualified Retirement Plans. Units of a Series of the Trust which are not
Foreign Investors Trusts may be purchased by qualified pension or profit
sharing plans maintained by corporations, partnerships or sole proprietors.
The maximum annual contribution for a participant in a money purchase pension
plan or to paired profit sharing and pension plans is the lesser of 25% of
compensation or $30,000. Prototype plan documents
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for establishing qualified retirement plans are available from the Sponsor upon
request.
EXCESS DISTRIBUTIONS TAX. In addition to the other taxes due by reason of
a plan distribution, a tax of 15% may apply to certain aggregate distributions
from IRAs, Keogh plans, and corporate retirement plans to the extent such
aggregate taxable distributions exceed specified amounts (generally $150,000,
as adjusted) during a tax year. This 15% tax will not apply to distributions
on account of death, qualified domestic relations orders or amounts eligible
for tax-deferred rollover treatment. In general, for lump sum distributions
the excess distribution over $750,000 (as adjusted) will be subject to the 15%
tax.
The Trustee, Investors Fiduciary Trust Company ("IFTC"), has agreed to act
as custodian for certain retirement plan accounts. An annual fee of $12.00 per
account, if not paid separately, will be assessed by the Trustee and paid
through the liquidation of shares of the retirement account. An individual
wishing IFTC to act as custodian must complete a Kemper UIT/IRA application and
forward it along with a check made payable to Investors Fiduciary Trust
Company. Certificates for Individual Retirement Accounts can not be issued.
DISTRIBUTION REINVESTMENT
Each Unitholder of the Trust may elect, at the time of purchase, to have
distributions of principal (including capital gains, if any) or interest or
both automatically invested without charge in shares of any mutual fund
underwritten or advised by an affiliate of the Sponsor, Kemper Financial
Services, Inc. (the "Kemper Funds"), other than those Kemper Funds sold with a
contingent deferred sales charge. Since the portfolio securities and
investment objectives of such Kemper Funds may differ significantly from that
of the Trusts, Unitholders should carefully consider the consequences before
selecting such Kemper Funds for reinvestment.
Detailed information with respect to the investment objectives and
management of these Kemper Funds is contained in their respective prospectuses,
which can be obtained from the Sponsor or an investor's financial
representative upon request. An investor should read the appropriate
prospectus prior to making the election to reinvest. Unitholders who desire to
have their distributions automatically reinvested should inform their financial
representative at the time of purchase or should file with the Program Agent
referred to below a written notice of such election.
Unitholders who initially elect to receive distributions in cash may elect
to participate in the reinvestment program by filing with the Program Agent an
election to have such distributions reinvested without charge. The election
must be received by the Program Agent at least ten days prior to the Record
Date applicable to any distribution in order to be in effect for such
distribution. The election to participate in the reinvestment program shall
remain in effect until a subsequent notice is received in writing by the
Program Agent. See "Administration of the Trust-Distributions from the
Interest, Principal and Capital Gains Accounts."
The Program Agent is Investors Fiduciary Trust Company. All inquiries
concerning participation in the Reinvestment Plan should be directed to the
Program Agent at P.O. Box 419430, Kansas City, Missouri 64173-0216, telephone
(816) 474-8786.
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Unitholders participating in IRA's, Keogh Plans and other tax deferred
retirement plans, may find it highly advantageous to participate in the
Reinvestment Program in order to keep the monies in the account fully invested
at all times. Should reinvestment be selected, an account with an identical
registration to that established at the time the Trust Units are purchased will
be set up in the reinvestment Fund selected by the investor. Investors should
consult with their plan custodian as to the appropriate disposition of
distributions. If participants in IRA's, Keogh Plans and other tax deferred
retirement plans do not elect a reinvestment option, cash distributions will be
sent to the custodian of the retirement plan and will not be sent to the
investor, since payments to the investor would constitute a distribution from
the plan which would result in tax penalties for premature withdrawals from
such programs. See "Retirement Plans."
REDEMPTION
RIGHT OF REDEMPTION. It may be possible, in some cases, for Units to be
sold in the over-the-counter market for a higher price than the Redemption
Value for such Units. Therefore, a Unitholder who wishes to dispose of his
Units is advised to inquire through his financial representative as to current
market prices for Units in order to determine if there is an over-the-counter
price in excess of Redemption Value per Unit or the Sponsor's Repurchase Price
for such Series of the Trust.
A Unitholder who does not dispose of Units in the secondary market
described above may cause Units to be redeemed by the Trustee by making a
written request to the Trustee, Investors Fiduciary Trust Company, P.O. Box
419430, Kansas City, Missouri 64173-0216 and, in the case of Units evidenced by
a certificate, by tendering such certificate to the Trustee, properly endorsed
or accompanied by a written instrument or instruments of transfer in form
satisfactory to the Trustee. Unitholders must sign the request, and such
certificate or transfer instrument, exactly as their names appear on the
records of the Trustee and on any certificate representing the Units to be
redeemed. If the amount of the redemption is $25,000 or less and the proceeds
are payable to the Unitholder(s) of record at the address of record, no
signature guarantee is necessary for redemption by individual account owners
(including joint owners) or fiduciary accounts where the fiduciary is named in
the account registration. Additional documentation may be requested, and a
signature guarantee is always required, from corporations, executors,
administrators, trustees, guardians or associations. If required, the
signatures must be guaranteed by a participant in the Securities Transfer
Agents Medallion Program ("STAMP") or such other signature guarantee program in
addition to or in substitution for STAMP as may be accepted by the Trustee. A
certificate should only be sent by registered or certified mail for the
protection of the Unitholder. Since tender of the certificate is required for
redemption when one has been issued, Units represented by a certificate cannot
be redeemed until the certificate representing such Units has been received by
the purchaser.
Redemption shall be made by the Trustee on the seventh calendar day
following the day on which a tender for redemption is received, or if the
seventh calendar day is not a business day, on the first business day prior
thereto (the "Redemption Date") by payment of cash equivalent to the Redemption
Value of such Series, determined as set forth below under "Computation of
Redemption Value," next following such tender, multiplied by the number of
Units of such Series being redeemed. Any Units redeemed shall be cancelled and
any undivided fractional interest in such Series of the Trusts extinguished.
The price received upon redemption might be more or less than the amount paid
by the Unitholder depending on the value of the Portfolio Obligations in the
Portfolio of the Series at the time of redemption.
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During the period in which the Sponsor maintains a market for Units, the
Sponsor has the right to repurchase any Unit presented for tender to the
Trustee for redemption no later than the close of business on the second
business day following such presentation.
The Trustee is irrevocably authorized in its discretion, if the Sponsor
does not elect to repurchase any Unit tendered for redemption or if the Sponsor
itself tenders Units for redemption, in lieu of redeeming Units presented for
tender at the Redemption Value, to sell such Units in the over-the-counter
market for the account of a tendering Unitholder at prices which will return to
the Unitholder monies, net after brokerage commissions, transfer taxes and
other charges, equal to or in excess of the Redemption Value for such Units.
In the event of any such sale, the Trustee will pay the net proceeds thereof to
the Unitholder on the day he would otherwise be entitled to receive payment of
the Redemption Value.
Any amounts to be paid on redemption representing interest shall be
withdrawn from the Interest Account of such Series to the extent funds are
available. All other amounts paid on redemption shall be withdrawn from the
Principal Account of such Series. The Trustee is authorized by the Indenture
to sell Portfolio Obligations from a Series in order to provide funds for
redemption. To the extent Portfolio Obligations are sold, the size of that
Series of the Trusts will be reduced. Portfolio Obligations will be sold by
the Trustee so as to maintain, as closely as practicable, the original
percentage relationship between the principal amounts of the Portfolio
Obligations in such Series. The Portfolio Obligations to be sold for purposes
of redeeming Units will be selected from a list supplied by the Sponsor. The
Portfolio Obligations will be chosen for this list by the Sponsor on the basis
of such market and credit factors as it may determine are in the best interests
of such Series of the Trust. Provision is made under the Indenture for the
Sponsor to specify minimum face amounts in which blocks of Portfolio
Obligations are to be sold in order to obtain the best price available. While
such minimum amounts may vary from time to time in accordance with market
conditions, it is anticipated that the minimum face amounts which would be
specified would range from $25,000 to $100,000. Sales may be required at a
time when the Portfolio Obligations would not otherwise be sold and might
result in lower prices than might otherwise be realized. Moreover, due to the
minimum principal amount in which Portfolio Obligations may be required to be
sold, the proceeds of such sales may exceed the amount necessary for payment of
Units redeemed. To the extent not used to meet other redemption requests in
such Series, such excess proceeds will be distributed pro rata to all remaining
Unitholders of record of such Series, unless reinvested in substitute Portfolio
Obligations. See "Administration of the Trust-Portfolio Supervision."
COMPUTATION OF REDEMPTION VALUE. The value of a Unit of a Series of the
Trust is determined as of the Evaluation Time stated under "Essential
Information" in Part Two (a) semiannually, on June 30 and December 31 of each
year (or the last business day prior thereto), (b) on any business day as of
the Evaluation Time next following the tender of any Unit and (c) on any other
business day desired by the Sponsor or the Trustee, (1) by adding:
a. The aggregate bid side evaluation of the Portfolio Obligations in a
Series of the Trust, as determined by the Evaluator;
b. Cash on hand in such Series of the Trusts, other than money deposited
to purchase contract obligations or money credited to the Reserve
Account; and
c. Accrued but unpaid interest on the Portfolio Obligations in such
Series to the redemption date.
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(2) and then deducting from the resulting figure: amounts
representing any applicable taxes or governmental charges payable by such
Series of the Trusts for the purpose of making an addition to the reserve
account (as defined in the Indenture), amounts representing estimated accrued
expenses (including audit fees) of the Series, amounts representing unpaid fees
and expenses of the Trustee, the Sponsor (if applicable), counsel and the
Evaluator and monies held for distribution to Unitholders of record of such
Series as of the business day prior to the evaluation being made on the days
or dates set forth above;
(3) and then dividing the result of the above computation by the total
number of Units of such Series outstanding on the date of evaluation. The
resulting figure equals the Redemption Value for each Unit of such Series. The
Evaluator will determine the aggregate current bid price evaluation of the
Portfolio Obligations in each Series of the Trusts as set forth under "Public
Offering of Units-Public Offering Price."
POSTPONEMENT OF REDEMPTION. The right of redemption of any Series may be
suspended and payment of the Redemption Value per Unit postponed for more than
seven calendar days following a tender of Units for redemption for any period
(as determined by the Securities and Exchange Commission) during which the New
York Stock Exchange is closed, other than for customary weekend and holiday
closings, or during which trading on that Exchange is restricted or an
emergency exists as a result of which disposal or evaluation of the Portfolio
Obligations is not reasonably practicable, or for such other periods as the
Securities and Exchange Commission may by order permit. The Trustee is not
liable to any person in any way for any loss or damage which may result from
any such suspension or postponement.
RIGHTS OF UNITHOLDERS
UNITHOLDERS. A Unitholder is deemed to be a beneficiary of the Series of
the Trusts which he purchased and is vested with all right, title and interest
in the appropriate Series of the Trusts, each of which was created by the
Indenture. A Unitholder may at any time tender his Units to the Trustee for
redemption.
OWNERSHIP OF UNITS. Ownership of Units of a Series of the Trusts will not
be evidenced by Certificates unless a Unitholder or the Unitholder's registered
broker/dealer makes a written request to the Trustee. Units are transferable
by making a written request to the Trustee and, in the case of Units evidenced
by a certificate, by presenting and surrendering such certificate to the
Trustee properly endorsed or accompanied by a written instrument or instruments
of transfer which should be sent registered or certified mail for the
protection of the Unitholder. Unitholders must sign such written request, and
such certificate or transfer instrument, exactly as their names appear on the
records of the Trustee and on any certificate representing the Units to be
transferred. Such signatures must be guaranteed by a participant in the
Securities Transfer Agents Medallion Program ("STAMP") or such other signature
guarantee program in addition to or in substitution for STAMP as may be
accepted by the Trustee.
Certificates will be issued in denominations of 1,000 Units (100 Units for
Kemper Defined Funds) or any whole number of Units in excess thereof. The
Trustee may require a Unitholder to pay a reasonable fee, to be determined in
the sole discretion of the Trustee, for each certificate reissued or
transferred and to pay any
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governmental charge that may be imposed in connection with each such transfer
or exchange. The Trustee at the present time does not intend to charge for the
normal transfer or exchange of certificates. Destroyed, stolen, mutilated or
lost certificates will be replaced upon delivery to the Trustee of satisfactory
indemnity (generally amounting to 3% of the market value of the Units),
affidavit of loss, if appropriate, evidence of ownership and payment of
expenses incurred. Any mutilated certificate must be presented to the Trustee
before a substitute certificate will be issued.
CERTAIN LIMITATIONS. The death or incapacity of any Unitholder (or the
dissolution of the Sponsor) will not operate to terminate the Trusts or any
Series thereof nor entitle the legal representatives or heirs of such
Unitholder to claim an accounting or to take any other action or proceeding in
any court for a partition or winding up of the Trusts or any Series thereof.
No Unitholder shall have the right to vote except with respect to removal
of the Trustee or amendment and termination of the Trust or of the Series of
which they are a Unitholder. See "Administration of the Trust-Amendment" and
"Administration of the Trust-Termination." Unitholders shall have no right to
control the operation or administration of the Trust or any Series thereof in
any manner, except upon the vote of Unitholders representing 66-2/3% of the
Units of a Series outstanding for purposes of amendment, termination or
discharge of the Trustee, all as provided in the Indenture; however, no
Unitholder shall ever be under any liability to any third party for any action
taken by the Trustee, Evaluator or Sponsor.
EXPENSES AND CHARGES
INITIAL EXPENSES. All expenses and charges incurred prior to or in
establishment of the Series of the Trusts, including the cost of the initial
preparation, printing and execution of the Indenture and the certificate, the
initial fees of the Trustee and the Evaluator, initial legal and auditing
expenses, the cost of the preparation and printing of the Prospectus and all
other advertising and selling expenses were paid by the Sponsor.
FEES. The Sponsor will receive no fee from the Trusts or any Series
thereof for its services as such. However, the Sponsor does receive a
portfolio surveillance fee, which is earned for portfolio supervisory services,
at the rate set forth under "Essential Information" in Part Two for the
appropriate Series per $1,000 principal amount of Portfolio Obligations in such
Series of the Trusts, computed monthly on the basis of the largest principal
amount of Portfolio Obligations in such Series of the Trusts at any time during
the preceding month. The portfolio surveillance fee, which may not exceed the
amount set forth under "Essential Information" in Part Two, may exceed the
actual costs of providing portfolio supervisory services for these Series of
the Trusts, but at no time will the total amount the Sponsor receives for
supervisory services rendered to all unit investment trusts sponsored by the
Sponsor in any calendar year exceed the aggregate cost of providing such
services in that year.
The Trustee will receive for its services under the Indenture the fee set
forth in Part Two under "Essential Information" per $1,000 principal amount of
Portfolio Obligations in each Series of the Trusts, computed monthly on the
basis of the largest principal amount of Portfolio Obligations in such Series
at any time during the preceding month. In no event will the Trustee be paid
less than $2,000 per Series in any one year.
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For evaluation of Portfolio Obligations in a Series of the Trusts, the
Evaluator shall receive the fee set forth in Part Two under "Essential
Information" per $1,000 principal amount of Portfolio Obligations in such
Series, computed monthly on the basis of the largest aggregate principal amount
of Portfolio Obligations in such Series at any time during the preceding month.
The Trustee's fees, Sponsor's portfolio surveillance fees and the
Evaluator's fees are payable monthly on or before each Distribution Date from
the Interest Account of each Series to the extent funds are available and
thereafter from the Principal Account of such Series. Any of such fees may be
increased without approval of the Unitholders in proportion to increases under
the category "All Services Less Rent of Shelter" in the Consumer Price Index
published by the United States Department of Labor or if such category is no
longer published, in a comparable category. The Trustee also receives benefits
to the extent that it holds funds on deposits in various non-interest bearing
accounts created under the Indenture.
OTHER CHARGES. The following additional charges are or may be incurred by a
Series of the Trusts as more fully described in the Indenture: (a) fees of the
Trustee for extraordinary services, (b) expenses of the Trustee (including
legal and auditing expenses, but not including any fees and expenses charged by
any agent for custody and safeguarding the Portfolio Obligations) and of
counsel designated by the Sponsor, (c) various governmental charges, (d)
expenses and costs of any action taken by the Trustee to protect the Series of
the Trusts and the rights and interests of the Unitholders thereof, (e)
indemnification of the Trustee for any loss, liability or expense incurred by
it in the administration of the Series of the Trusts without gross negligence,
bad faith, willful malfeasance or willful misconduct on its part or reckless
disregard of its obligations and duties, (f) indemnification of the Sponsor for
any losses, liabilities and expenses incurred in acting as Sponsor under the
Indenture without gross negligence, bad faith, willful malfeasance or willful
misconduct or reckless disregard of its obligations and duties, and (g)
expenditures incurred in contacting Unitholders upon termination of such Series
of the Trusts.
The fees and expenses set forth herein are payable out of a Series of the
Trusts and when so paid by or owing to the Trustee are secured by a lien on
such Series. If the balances in the Interest and Principal Accounts are
insufficient to provide for amounts payable by any Series of the Trusts, the
Trustee has the power to sell Portfolio Obligations from such Series to pay
such amounts. To the extent Portfolio Obligations are sold, the size of that
Series of the Trusts will be reduced and the proportions of the types of
Portfolio Obligations will change. Such sales might be required at a time when
Portfolio Obligations would not otherwise be sold and might result in lower
prices than might otherwise be realized. Moreover, due to the minimum
principal amount in which Portfolio Obligations may be required to be sold, the
proceeds of such sales may exceed the amount necessary for the payment of such
fees and expenses.
ADMINISTRATION OF THE TRUST
RECORDS AND ACCOUNTS. In accordance with the Indenture, the Trustee shall
keep records of all transactions at its office. Such records shall include the
name and address of, and the number of Units held by, each Unitholder of each
Series of the Trusts. Such books and records shall be open to inspection by
any Unitholder of such Series at all reasonable times during the usual business
hours. The Trustee shall make such annual or other reports as may from time to
time be required under any applicable state or federal statute, rule or
regulation. The Trustee shall keep a certified copy or duplicate original of
the Indenture on file in its
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office available for inspection at all reasonable time during usual business
hours by any Unitholder of such Series, together with a current list of the
Portfolio Obligations held in each Series of the Trusts. Pursuant to the
Indenture, the Trustee may employ one or more agents for the purpose of custody
and safeguarding of the Portfolio Obligations comprising the Portfolios.
Distributions from the Interest, Principal and Capital Gains Accounts.
GNMA Trust. The terms of the Ginnie Maes provide for payment to the
holders thereof (including the Series of the GNMA Trust) on the fifteenth day
of each month (the 25th day in the case of Ginnie Mae II's) of amounts
collected by or due to the issuers thereof with respect to the underlying
mortgages during the preceding month. The Trustee will collect the interest
due each Series on the Securities therein as it becomes payable and credit such
interest to a separate Interest Account created by the Indenture for such
Series.
Distributions will be made to each Unitholder of record of each Series of
the GNMA Trust on the appropriate Distribution Date and will consist of an
amount substantially equal to such Unitholder's pro rata share of the cash
balances in the Interest Account, the Principal Account and the Capital Gains
Account, if any, of such Series computed as of the close of business on the
preceding Record Date.
FNMA Trust. The terms of the FNMA Debentures provide for semi-annual
payments of interest on or about the 10th day of the designated months.
Interest received by a Series of the FNMA Trust, including any portion of the
proceeds from a disposition of the Debentures which represents accrued
interest, is credited by the Trustee to the Interest Account for such Series.
All other receipts are credited by the Trustee to a separate Principal Account
for such Series. The Trustee normally has no cash for distribution to
Unitholders until it receives interest payments on the Debentures in such
Series. Since interest is paid semi-annually, during the initial months of
such Series, the Interest Account of such Series, consisting of accrued but
uncollected interest and collected interest (cash), will be predominantly the
uncollected accrued interest that is not available for distribution. On the
dates set forth under "Essential Information" in Part Two, the trustee will
commence distributions, in part from funds advanced by the Trustee.
Thereafter, assuming the Series retains its original size and composition,
after deduction of the fees and expenses of the Trustee, Sponsor and Evaluator
and reimbursements (without interest) to the Trustee for any amounts advanced
to such Series, the Trustee will normally make a distribution on each Interest
Distribution Date (the last business day of the month) or shortly thereafter to
Unitholders of record of such Series on the preceding Record Date. Unitholders
of a Series of the FNMA Trust will receive an amount substantially equal to
one-twelfth of such holders' pro rata share of the estimated net annual
interest income to the Interest Account of such Series. However, interest
earned at any point in time will be greater than the amount actually received
by the Trustee and distributed to the Unitholders. Therefore, there will
always remain an item of accrued interest that is added to the daily value of
the Units. If Unitholders of a Series of the FNMA Trust sell or redeem all or
a portion of their Units, they will be paid their proportionate share of the
accrued interest of such Series to, but not including, the fifth business day
after the date of a sale or to the date of tender in the case of a redemption.
Since interest on the Debentures in a Series of the FNMA Trust is payable
in semi-annual installments, and distributions of income are made to
Unitholders at different intervals from receipt of interest, the interest
accruing to such Series may not be equal to the amount of money received and
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available for distribution from the Interest Account. Therefore, on each
Distribution Date the amount of interest actually deposited in the Interest
Account of a Series of the FNMA Trust and available for distribution may be
slightly more or less than the interest distribution made. In order to
eliminate fluctuations in interest distribution resulting from such variances,
the Trustee is authorized by the Indenture to advance such amounts as may be
necessary to provide interest distributions of approximately equal amounts.
The Trustee will be reimbursed, without interest, for any such advances from
funds available in the Interest Account for such Series.
The Trustee will distribute on each semi-annual Distribution Date or
shortly thereafter, to each Unitholder of record a Series of the FNMA Trust on
the preceding semi-annual Record Date, an amount substantially equal to such
holder's pro rata share of the cash balance, if any, in the Principal Amount of
such Series computed as of the close of business on the preceding Record Date.
However, no distribution will be required if the balance in the Principal
Account is less than $1.00 per 1,000 Units.
U.S. Treasury Portfolio Series. The terms of the U.S. Treasury Obligations
(other than Stripped Treasury Securities) provide for semi- annual payments of
interest on or about the 10th day (the 15th day for Kemper Defined Funds) of
the designated months. Interest received by a U.S. Treasury Portfolio Series,
including any portion of the proceeds from a disposition of the U.S. Treasury
Obligations which represents accrued interest, is credited by the Trustee to
the Interest Account for such Trust Fund. All other receipts are credited by
the Trustee to a separate Principal Account for such Trust Fund.
Since interest on the U.S. Treasury Obligations (other than Stripped
Treasury Securities) in U.S. Treasury Portfolio Series is payable in
semi-annual installments, and distributions of income are made to Unitholders
at different intervals from receipt of interest, the interest accruing to
Unitholders in the U.S. Treasury Portfolio Series may not be equal to the
amount of money received and available for distribution from the Interest
Account. Therefore, on each Distribution Date the amount of interest actually
deposited in the Interest Account of a U.S. Treasury Portfolio Series and
available for distribution may be slightly more or less than the interest
distribution made. In order to eliminate fluctuations in interest
distributions resulting from such variances, the Trustee is authorized by the
Indenture to advance such amounts as may be necessary to provide interest
distributions of approximately equal amounts. The Trustee will be reimbursed,
without interest, for any such advances from funds available in the Interest
Account for such U.S. Treasury Portfolio Series.
Stripped Treasury Securities are sold at a deep discount because the buyer
of those securities obtains only the right to receive a future fixed payment on
the security and not any rights to periodic interest payments thereon.
Purchasers of these Securities acquire, in effect, discount obligations that
are economically identical to the "zero-coupon bonds" that have been issued by
corporations. Zero coupon bonds are debt obligations which do not make any
periodic payments of interest prior to maturity and accordingly are issued at a
deep discount.
Under generally accepted accounting principles, a holder of a security
purchased at a discount normally must report as an item of income for financial
accounting purposes the portion of the discount attributable to the applicable
reporting period. The calculation of this attributable income would be made on
the "interest" method which generally will result in a lesser amount of
includable income in earlier
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periods and a correspondingly larger amount in later periods. For Federal
income tax purposes, the inclusion will be on a basis that reflects the
effective compounding of accrued but unpaid interest effectively represented by
the discount. Although this treatment is similar to the "interest" method
described above, the "interest" method may differ to the extent that generally
accepted accounting principles permit or require the inclusion of interest on
the basis of a compounding period other than the semi-annual period. See "Tax
Status of the Trusts."
The Trustee will distribute on each Distribution Date or shortly
thereafter, to each Unitholder of record of U.S. Treasury Portfolio Series on
the preceding Record Date, an amount substantially equal to such holder's pro
rata share of the cash balance, if any, in the Principal Account of U.S.
Treasury Portfolio Series computed as of the close of business on the preceding
Record Date. However, no distribution will be required if the balance in the
Principal Account is less than $1.00 per 1,000 Units (or in the case of Kemper
Defined Funds, less than $1.00 per 100 Units). Notwithstanding the foregoing,
the Trustee will make a distribution to Unitholders of all principal relating
to maturing Treasury Obligations within seven business days of the date of each
such maturity.
GENERAL. Distributions for an IRA, Keogh or other tax-deferred retirement
plan will not be sent to the individual Unitholder. These distributions will
go directly to the custodian of the plan to avoid the penalties associated with
premature withdrawals from such accounts. See "Retirement Plans."
All funds collected or received will be held by the Trustee in trust,
without interest to Unitholders, as part of the appropriate Series of the
Trusts or the Reserve Account for such Series referred to below until required
to be disbursed in accordance with the provisions of the Indenture. Such funds
will be segregated on the trust ledger of the Trustee so long as such practice
preserves a valid preference of Unitholders of such Series under the bankruptcy
laws of the United States, or if such preference is not preserved, the Trustee
shall handle such funds in such other manner as shall constitute the
segregation and holding thereof in trust within the meaning of the Investment
Company Act of 1940, as the same may from time to time be amended. To the
extent permitted by the Indenture and applicable banking regulations, such
funds are available for use by the Trustee pursuant to normal banking
procedures.
The first distribution for persons who purchase Units between a Record Date
and a Distribution Date will be made on the second Distribution Date following
their purchase of Units.
The Trustee is authorized by the Indenture to withdraw from the Principal
and/or Interest Accounts of each Series such amounts as it deems necessary to
establish a reserve for any taxes or other governmental charges that may be
payable out of such Series of the Trust, which amounts will be deposited in a
separate Reserve Account. If the Trustee determines that the amount in the
Reserve Account is greater than the amount necessary for payment of any taxes
or other governmental charges, it will promptly deposit the excess back in the
Account from which it was withdrawn.
-44-
<PAGE> 47
PORTFOLIO SUPERVISION. The Indenture permits the Sponsor to direct the
Trustee to dispose of any Portfolio Obligation in a Series of the Trusts upon
the happening of any of the following events:
1. Default in the payment of principal or interest on any of the
Portfolio Obligations when due and payable,
2. Institution of legal proceedings seeking to restrain or enjoin the
payment of any of the Portfolio Obligations or attacking their
validity,
3. A breach of covenant or warranty which could adversely affect the
payment of debt service on the Portfolio Obligations,
4. Default in the payment of principal or interest on any other
outstanding obligation guaranteed or backed by the full faith and
credit of the United States of America,
5. A decline in market price to such an extent or such other market
credit or other factors exist, as in the opinion of the Sponsor would
make retention of any of the Portfolio Obligations detrimental to
the Trusts or any Series thereof and to the interests of the
Unitholders.
6. An offer is made to refund or refinance any of the Portfolio
Obligations, or
7. Termination of the Trusts or any Series thereof.
The Trustee shall also sell any Portfolio Obligation in a Series of the
Trusts if there is a default in the payment of principal and interest on such
Portfolio Obligation and no provision for payment is made therefor and the
Sponsor fails to instruct the Trustee to sell or hold such Portfolio Obligation
within thirty days after notice to the Sponsor from the Trustee of such
default. The Trustee shall not be liable for any depreciation or loss by
reason of any sale of Portfolio Obligations or by reason of the failure of the
Sponsor to give directions to the Trustee.
Amounts received by a Series of the Trusts upon the sale of any Portfolio
Obligation under the conditions set forth above will be deposited in the
Principal Account, Interest Account or Capital Gains Account for such Series,
as appropriate, when received and pursuant to the Sponsor's instructions will
be either distributed by the Trustee on the next Distribution Date to
Unitholders of record of such Series on the Record Date prior to such
Distribution Date.
REPORTS TO UNITHOLDERS. With each distribution, the Trustee will furnish
or cause to be furnished to the Unitholders of each Series a statement of the
amount of interest and other receipts, if any, distributed, expressed in each
case as a dollar amount per Unit of such Series.
The accounts of each Series of the Trusts are required to be audited
annually, at such Series' expense, by independent certified public accountants
designated by the Sponsor, unless the Trustee determines that such an audit
would not be in the best interest of the Unitholders of that Series of the
-45-
<PAGE> 48
Trust. The accountants' report will be furnished by the Trustee to any
Unitholder of such Series upon written request.
Within a reasonable period of time after the end of each calendar year, the
Trustee will furnish to each person who at any time during such calendar year
was a Unitholder of record of a Series of the Trusts a statement setting forth
for the applicable Series:
1. As to the Interest Account for such Series:
(a) the amount of interest received on the Portfolio Obligations,
including amounts received as a portion of the proceeds of any
disposition of Portfolio Obligations;
(b) the amount paid from the Interest Account representing accrued
interest for any Units redeemed and amounts paid or reserved for
purchases of substitute Portfolio Obligations;
(c) the deductions from the Interest Account for applicable taxes or
other governmental charges, if any, and fees and expenses of the
Trustee (including auditing fees), the Sponsor, the Evaluator and
counsel;
(d) the deductions from the Interest Account for payment into the
Reserve Account; and
(e) the net amount remaining after such payments and deductions
expressed both as a total dollar amount and as a dollar amount
per Unit or appropriate multiple thereof outstanding on the last
business day of such calendar year.
2. As to the Principal Account for such Series:
(a) the dates of the sale, maturity, liquidation or redemption of any
of the Portfolio Obligations and the net proceeds received
therefrom, excluding any portion credited to the Interest Account;
(b) the amount paid from the Principal Account representing the
principal of any Units redeemed and amounts paid or reserved
for purchases of substitute Portfolio Obligations;
(c) the deductions from the Principal Account, if any, for payment of
applicable taxes or other governmental charges, fees and expenses
of the Trustee (including auditing fees), the Sponsor, the
Evaluator and counsel;
(d) the deductions from the Principal Account for payment into the
Reserve Account; and
(e) the net amounts remaining after such payments and deductions
expressed both as a total dollar amount and as a dollar amount
per Unit or appropriate multiple thereof outstanding on the last
business day of such calendar year.
-46-
<PAGE> 49
3. The following information with respect to such Series:
(a) a list of the Portfolio Obligations, as appropriate, as of the
last business day of such calendar year grouped by coupon and
maturity range;
(b) the number of Units outstanding on the last business day of such
calendar year;
(c) the Unit Value (as defined in the Indenture) based on the last
Trust evaluation made during such calendar year; and
(d) the amounts actually distributed during such calendar year from
the Interest and Principal Accounts, separately stated, expressed
both as total dollar amounts and as dollar amounts per Unit or
appropriate multiple thereof outstanding on the Record Dates for
such distributions.
AMENDMENTS. The Indenture and the Agreement with respect to each Series
may be amended by the Trustee and the Sponsor without the consent of
Unitholders (a) to cure any ambiguity or to correct or supplement any provision
thereof which may be defective or inconsistent, (b) to change any provision
thereof as may be required by the Securities and Exchange Commission or any
successor governmental agency, (c) for those Trusts that have qualified as
"regulated investment companies," to add or change any provision thereof which
may be necessary or advisable for the continuing qualification as a regulated
investment company under the Internal Revenue Code of 1986 and (d) to make such
other provisions as shall not adversely affect the interest of the Unitholders
(as determined in good faith by the Sponsor and the Trustee); provided,
however, that the Indenture may also be amended with respect to any Series by
the Sponsor and the Trustee (or the performance of any of the provisions of the
Indenture may be waived) with the consent of holders of Units representing
66-2/3% of the Units then outstanding of such Series for the purposes of adding
any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture of such Series or of modifying in any manner the
rights of Unitholders thereof. However, the Indenture may not be amended,
without the consent of the holders of all Units of a Series then outstanding,
so as (1) to permit, except in accordance with the terms and conditions of the
Indenture, the acquisition of any Portfolio Obligations other than those
specified in the Indenture, or (2) to reduce the aforesaid percentage of Units
of a Series the holders of which are required to consent to certain of such
amendments and may not be amended so as to reduce the interest in such Series
represented by Units without the consent of the holder of such Units. The
Trustee shall promptly notify Unitholders of the substance of any such
amendment.
TERMINATION. The Indenture provides that a Series of the Trusts will
terminate after the maturity, redemption, sale or other disposition of the last
of the Portfolio Obligations held in such Series. If the value of a Series of
the Trusts, as shown by an evaluation, is less than forty percent (40%) of the
par value of the Portfolio Obligations deposited in such Series of the Trust,
the Trustee shall, if directed by the Sponsor in writing, terminate such
Series. A Series of the Trust may also be terminated at any time by the
written consent of holders of 66-2/3% of the Units of such Series outstanding.
-47-
<PAGE> 50
Upon termination, the Trustee will sell the Portfolio Obligations then held
in the appropriate Series of the Trust and credit the moneys derived from such
sale to the Principal Capital Gains and Interest Accounts thereof. The Trustee
will then, after deduction of any fees and expenses of such Series and payment
into the Reserve Account of any amount required for taxes or other governmental
charges that may be payable by such Series, distribute to each Unitholder of
such Series, only upon surrender for cancellation of his certificate, if
issued, after due notice of such termination, such Unitholder's pro rata share
in the Interest, Capital Gains and Principal Accounts for such Series. The
sale of Portfolio Obligations in a Series of the Trusts upon termination may
result in a lower amount than might otherwise be realized if such sale were not
required at such time. For this reason, among others, the amount realized by a
Unitholder upon termination may be less than the principal amount of Portfolio
Obligations represented by the Units held by such Unitholder.
RESIGNATION, REMOVAL AND LIABILITY
REGARDING THE TRUSTEE. The Trustee shall be under no liability for any
action taken in good faith in reliance on prima facie properly executed
documents or for the disposition of moneys or Portfolio Obligations from any
Series of the Trust, nor shall the Trustee be liable or responsible in any way
for depreciation or loss incurred by reason of the disposition of any Portfolio
Obligations by the Trustee. However, the Trustee shall be liable for willful
malfeasance, willful misconduct, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under the Indenture. In the event of a failure of the
Sponsor to act, the Trustee may act under the Indenture and shall not be liable
for any action taken by it in good faith. The Trustee shall not be personally
liable for any taxes or other governmental charges imposed upon a Series of the
Trust or in respect of the Portfolio Obligations or the interest thereon. The
Indenture also contains other customary provisions limiting the liability of
the Trustee and providing for the indemnification of the Trustee for any loss
or claim accruing to it without gross negligence, bad faith, willful
misconduct, willful malfeasance or reckless disregard of its duties and
obligations under the Indenture on its part.
The Trustee or any successor may resign by executing an instrument in
writing, filing the same with the Sponsor and mailing a copy of such notice or
resignation to all Unitholders then of record. Upon receiving such notice the
Sponsor will use its best efforts to appoint a successor Trustee promptly. If
the Trustee becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, the Sponsor may remove the Trustee and
appoint a successor as provided in the Indenture. If within 30 days of the
resignation of a Trustee no successor has been appointed or, if appointed, has
not accepted the appointment, the retiring Trustee may apply to a court of
competent jurisdiction for the appointment of a successor. The resignation or
removal of a Trustee becomes effective only when the successor Trustee accepts
its appointment as such or when a court of competent jurisdiction appoints a
successor Trustee.
REGARDING THE SPONSOR. The Sponsor shall be under no liability to the
Series of the Trust or to Unitholders for taking any action or for refraining
from any action in good faith or for errors in judgment, nor shall the Sponsor
be liable or responsible in any way for depreciation or loss incurred by
-48-
<PAGE> 51
reason of the disposition of any Portfolio Obligation. The Sponsor will,
however, be liable for its own willful malfeasance, willful misconduct, bad
faith, gross negligence or reckless disregard of its duties and obligations
under the Indenture.
If at any time the Sponsor shall resign under the Indenture or shall fail
or be incapable of performing its duties thereunder or shall become bankrupt or
its affairs are taken over by public authorities, the Indenture directs the
Trustee to either (1) appoint a successor sponsor or sponsors at rates of
compensation deemed reasonable by the Trustee and not exceeding amounts
prescribed by the Securities and Exchange Commission or (2) continue to act as
sponsor itself without terminating the Indenture.
REGARDING THE EVALUATOR. The Trustee, Sponsor and Unitholders may rely on
any evaluation furnished by the Evaluator and shall have no responsibility for
the accuracy thereof. Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information available to
it, provided, however, that the Evaluator shall be under no liability to the
Trustee, Sponsor or Unitholders for errors in judgment. The Evaluator shall,
however, be liable for its own willful malfeasance, bad faith, gross negligence
or reckless disregard of its obligations and duties under the Indenture.
The Evaluator may resign or may be removed by the Sponsor and the Trustee,
and the Sponsor and the Trustee are to use their best efforts to appoint a
satisfactory successor. Such resignation or removal shall become effective
upon the acceptance of appointment by the successor Evaluator. If upon
resignation of the Evaluator no successor accepts appointment within thirty
days after notice of resignation, the Evaluator may apply to a court of
competent jurisdiction for the appointment of a successor.
MISCELLANEOUS
SPONSOR. The Sponsor, Kemper Unit Investment Trusts, with an office at 77
West Wacker Drive, 29th Floor, Chicago, Illinois 60601, (800) 621-5024, is a
service of Kemper Securities, Inc., which is a wholly-owned subsidiary of
Kemper Financial Companies, Inc. which, in turn, is a wholly-owned subsidiary
of Kemper Corporation. The Sponsor will act as underwriter of any other unit
investment trust products developed by the Sponsor in the future. As of January
31, 1994, the total stockholder's equity of Kemper Securities, Inc. was
$261,673,436 (unaudited).
The foregoing information with regard to the Sponsor relates to the Sponsor
only and not to any Series of the Trust. Such information is included in this
Prospectus only for the purpose of informing investors as to the financial
responsibility of the Sponsor and its ability to carry out its contractual
obligations shown herein. More comprehensive financial information can be
obtained from the Sponsor upon request.
TRUSTEE. The Trustee, Investors Fiduciary Trust Company, is a trust
company specializing in investment related services, organized and existing
under the laws of Missouri, having its trust office at
-49-
<PAGE> 52
127 West 10th Street, Kansas City, Missouri 64105. The Trustee is subject to
supervision and examination by the Division of Finance of the State of Missouri
and the Federal Deposit Insurance Corporation. Investors Fiduciary Trust
Company is jointly owned by DST Systems, Inc. and Kemper Financial Services,
Inc., an affiliate of the Sponsor.
The Trustee, whose duties are ministerial in nature, has not participated
in selecting the Portfolio Obligations. For information relating to the
responsibilities of the Trustee under the Indenture, reference is made to the
material set forth under "Administration of the Trust."
LEGAL OPINIONS. The legality of the Units offered hereby and certain
matters relating to federal tax law were originally passed upon by Chapman and
Cutler, 111 West Monroe Street, Chicago, Illinois 60603, as counsel for the
Sponsor.
INDEPENDENT AUDITORS
The financial statements appearing in Part Two of this Prospectus and
Registration Statement, with information pertaining to the specific Series of
the Trusts to which such statements relate, have been audited by Ernst & Young,
independent auditors, as set forth in their report appearing in Part Two and
are included in reliance upon such report given upon the authority of such firm
as experts in auditing and accounting.
DESCRIPTION OF STANDARD & POOR'S RATING*7
A Standard & Poor's Corporation's rating (as described by Standard and
Poor's) on the units of an investment trust (hereinafter referred to
collectively as "units" and "trusts") is a current assessment of
creditworthiness with respect to the investments held by such trust. This
assessment takes into consideration the financial capacity of the issuers and
of any guarantors, insurers, lessees, or mortgagors with the respect to such
investments. The assessment, however, does not take into account the extent to
which trust expenses or portfolio asset sales for less than the trust's
purchase price will reduce payment to the Unitholder of the interest and
principal required to be paid on the portfolio assets. In addition, the rating
is not a recommendation to purchase, sell, or hold units, inasmuch as the
rating does not comment as to market price of the units or suitability for a
particular investor.
* As described by Standard and Poor's Corporation.
Trusts rated "AAA" are composed exclusively of assets that are rated "AAA" by
Standard & Poor's
-50-
<PAGE> 53
or, have, in the opinion of Standard & Poor's, credit characteristics
comparable to assets rated "AAA", or certain short-term investments. Standard
& Poor's defines its "AAA" rating for such assets as the highest rating
assigned by Standard & Poor's to a debt obligation. Capacity to pay interest
and repay principal is very strong.
-51-
<PAGE> 2
Kemper Government Securities Trust
GNMA Portfolio Series 7
Part Two
Dated April 29, 1994
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
NOTE: Part Two of this Prospectus May Not Be Distributed unless
Accompanied by Part One.
<PAGE> 3
Kemper Government Securities Trust
GNMA Portfolio Series 7
Essential Information
As of April 4, 1994
Sponsor: Kemper Financial Services, Inc.
Evaluator: Kemper Unit Investment Trusts
Trustee: Investors Fiduciary Trust Company
<TABLE>
<S> <C>
GENERAL INFORMATION
Principal Amount of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,436,204
Number of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,545,703
Fractional Undivided Interest in the Trust per Unit . . . . . . . . . . . . . . . . . . 1/119,545,703
Principal Amount of Securities per 1,000 Units . . . . . . . . . . . . . . . . . . . . . $ 87
Calculation of Public Offering Price:
Aggregate Value of Securities in the Trust . . . . . . . . . . . . . . . . . . . . . . $ 11,888,620
Aggregate Value of Securities per 1,000 Units . . . . . . . . . . . . . . . . . . . . $ 99
Principal Cash per 1,000 Units (1) . . . . . . . . . . . . . . . . . . . . . . . . . . $ --
Sales Charge of 3.95% of Public Offering Price
(4.112% of net amount invested) per 1,000 Units . . . . . . . . . . . . . . . . . . $ 4
Public Offering Price per 1,000 Units . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103
Accrued interest per 1,000 Units through settlement date of April 11, 1994 . . . . . . . $ --
Total Price per 1,000 Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103
Redemption Price per 1,000 Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 99
Calculation of Estimated Net Annual Interest Income per 1,000 Units:
Estimated Annual Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.86
Less: Estimated Annual Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .30
Estimated Net Annual Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.56
Daily Rate at which Estimated Net Annual Interest Income
Accrues per 1,000 Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .0293
Estimated Current Return Based on Public Offering Price (2) . . . . . . . . . . . . . . . 10.25%
Estimated Long-Term Return (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.52%
</TABLE>
<TABLE>
<S> <C>
Record and Distribution Date . . . . . . . Record Date is the first of each month and distributions to Unitholders on such record
dates will be made on the last day of the month.
Distribution Dates . . . . . . . . . . . . No distribution (other than capital gains distributions) need be made from the
Principal Account if the balance therein, excluding capital gains, is less than $1.00
per 1,000 Units.
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
Trustee's Annual Fee (including
estimated expenses) . . . . . . . . $.287 per 1,000 Units (includes $1.02 of Trustee's annual fee per $1,000 principal amount of
underlying Securities and $.15 of out-of-pocket expenses per 1,000 Units).
Evaluator's Annual Fee . . . . . . . $.175 per $1,000 principal amount of underlying Securities.
Date of Trust Agreement and
Initial Deposit. . . . . . . . . . . January 7, 1986
Mandatory Termination Date . . . . . December 31, 2036
Discretionary Liquidation Amount . . The Trust may be terminated if the value thereof is less than $66,945,842 (40% of the par
value of the Securities deposited in the Trust).
</TABLE>
1. This amount, if any, represents principal cash or overdraft which is an
asset or liability of the Trust and is included in the Public Offering
Price.
2. The Estimated Current Return and Estimated Long-Term Return will vary with
changes in the Public Offering Price and there is no assurance that such
returns on the date hereof will be applicable on a subsequent date of
purchase. These estimated returns are increased for transactions entitled
to a reduced sales charge (see "Public Offering of Units -- Public Offering
Price" -- Part One).
ii
<PAGE> 5
Report of Independent Auditors
Unitholders
Kemper Government Securities Trust
GNMA Portfolio Series 7
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Kemper Government Securities Trust GNMA
Portfolio Series 7 as of December 31, 1993, and the related statements of
operations and changes in net assets for each of the three years in the period
then ended. These financial statements are the responsibility of the Trust's
sponsor. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements 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 December 31, 1993,
by correspondence with the custodial bank. An audit also includes assessing
the accounting principles used and significant estimates made by the sponsor,
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 referred to above present fairly, in
all material respects, the financial position of Kemper Government Securities
Trust GNMA Portfolio Series 7 at December 31, 1993, and the results of its
operations and the changes in its net assets for each of the three years in the
period then ended in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG
ERNST & YOUNG
Kansas City, Missouri
April 15, 1994
1
<PAGE> 6
Kemper Government Securities Trust
GNMA Portfolio Series 7
Statement of Assets and Liabilities
December 31, 1993
<TABLE>
<S> <C> <C>
ASSETS
GNMA Securities, at value (cost $12,316,881) (Note 1) $13,052,171
Cash 480,176
Interest receivable 118,811
------------
Total assets 13,651,158
LIABILITIES AND NET ASSETS
Accrued liabilities 7,056
Net assets, applicable to 119,545,703 Units outstanding (Note 5):
Cost of Trust assets, exclusive of interest (Note 1) $12,316,881
Unrealized appreciation (Note 2) 735,290
Distributable funds 591,931
-----------------------------
Net assets $13,644,102
------------
------------
Net asset value per 1,000 Units $114.13
------------
------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 7
Kemper Government Securities Trust
GNMA Portfolio Series 7
Statement of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1993 1992 1991
--------------------------------------------
<S> <C> <C> <C>
Investment income -- interest $1,352,595 $1,874,719 $2,678,049
Expenses:
Trustee's fees and related expenses 38,065 45,662 59,970
Evaluator's fees 2,494 3,471 4,627
--------------------------------------------
Total expenses 40,559 49,133 64,597
--------------------------------------------
Net investment income 1,312,036 1,825,586 2,613,452
Realized and unrealized gain (loss)
on investments:
Net realized gain 26,204 -- --
Unrealized appreciation (depreciation)
during the year
(592,473) (306,858) 597,831
--------------------------------------------
Net gain (loss) on investments (566,269) (306,858) 597,831
--------------------------------------------
Net increase in net assets resulting
from operations $ 745,767 $1,518,728 $3,211,283
--------------------------------------------
--------------------------------------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 8
Kemper Government Securities Trust
GNMA Portfolio Series 7
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1993 1992 1991
--------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income $ 1,312,036 $ 1,825,586 $ 2,613,452
Net realized gain on investments 26,204 -- --
Unrealized appreciation (depreciation)
on investments during the year (592,473) (306,858) 597,831
--------------------------------------------------
Net increase in net assets resulting from
operations 745,767 1,518,728 3,211,283
Distributions to Unitholders:
Net investment income (1,312,036) (1,825,586) (2,613,769)
Tax return of capital (4,581,838) (6,800,272) (6,711,129)
--------------------------------------------------
Total distributions to Unitholders (5,893,874) (8,625,858) (9,324,898)
Capital transactions:
Redemption of 4,835,786 Units (697,335) -- --
--------------------------------------------------
Total decrease in net assets (5,845,442) (7,107,130) (6,113,615)
Net assets:
Beginning of the year 19,489,544 26,596,674 32,710,289
--------------------------------------------------
End of the year (including distributable funds
applicable to Trust Units of $591,931, $536,217
and $801,643 at December 31, 1993, 1992 and 1991,
respectively) $ 13,644,102 $ 19,489,544 $ 26,596,674
--------------------------------------------------
--------------------------------------------------
Trust Units outstanding at the end of the year 119,545,703 124,381,489 124,381,489
--------------------------------------------------
--------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 9
Kemper Government Securities Trust
GNMA Portfolio Series 7
Schedule of Investments
December 31, 1993
Government National Mortgage Association
Modified Pass-Through Mortgage-Backed Securities
<TABLE>
<CAPTION>
PRINCIPAL RANGE OF STATED
AMOUNT COUPON MATURITIES (1) VALUE
---------------------------------------------------------------------------
<S> <C> <C> <C>
$ 728,653 11.50% 6/15/10--1/15/16 $ 817,227
10,735,420 12.50% 4/15/10--11/15/15 12,234,944
-------------- --------------
$ 11,464,073 $ 13,052,171
-------------- --------------
-------------- --------------
</TABLE>
NOTE TO SCHEDULE OF INVESTMENTS
1. The principal amount of Securities listed as having the range of maturities
shown is an aggregate of individual Securities having varying stated
maturities within that shown. They are listed as one category of
Securities with a single range of maturities because current market
conditions accord no difference in price among the Securities grouped
together on the basis of the difference in their stated maturity. At some
time in the future, however, the differences in stated maturities could
affect the market value of the individual Securities.
See accompanying notes to financial statements.
5
<PAGE> 10
Kemper Government Securities Trust
GNMA Portfolio Series 7
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF SECURITIES
GNMA Securities are stated at bid prices as determined by Kemper Unit
Investment Trusts (A Service of Kemper Securities, Inc.), the "Evaluator" of
the Trust. The aggregate bid prices of the Securities are determined based on
(a) current bid prices of the Securities, (b) current bid prices for comparable
securities, (c) appraisal, or (d) any combination of the above.
COST OF SECURITIES
Cost of the Trust's Securities was based on the offering prices of the
Securities on the dates of deposit of such Securities acquired during the
primary sales period. The premium or discount, if any, is recognized as an
adjustment of investment income on a pro rata basis as principal repayments are
received. Realized gain (loss) from Security transactions is reported on an
identified cost basis.
2. UNREALIZED APPRECIATION AND DEPRECIATION
Following is an analysis of net unrealized appreciation at December 31, 1993:
Gross unrealized appreciation $735,290
Gross unrealized depreciation --
---------
Net unrealized appreciation $735,290
---------
---------
3. TRANSACTIONS WITH AFFILIATES
The Trustee, Investors Fiduciary Trust Company, is 50% owned by Kemper
Financial Services, Inc., an affiliate of Kemper Unit Investment Trusts.
Payments to the Trustee included $1.02 of Trustee's annual fee per $1,000
principal amount of underlying Securities in the Trust through December 31,
1993 ($.875 prior to July 1, 1991), calculated monthly, based on the largest
aggregate principal amount of Securities in the Trust at any time during the
previous month and reimbursement of out-of-pocket expenses of $.15 per 1,000
Units through December 31, 1993 ($.25 prior to January 1, 1992), calculated
monthly, based on the largest number of Trust Units outstanding at any time
during the previous month.
6
<PAGE> 11
Kemper Government Securities Trust
GNMA Portfolio Series 7
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
The annual Evaluator's fee, calculated monthly, is $.175 per $1,000 principal
amount of Securities in the Trust based on the largest aggregate principal
amount of Securities in the Trust at any time during the previous month.
4. FEDERAL INCOME TAXES
The Trust is organized as an investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). It is the Trust's
policy to comply with the special provisions of the Code available to
investment companies. Such provisions were complied with and, therefore, no
federal income tax provision is required. The accumulated net realized loss on
sales of investments for federal income tax purposes at December 31, 1993,
amounting to $31,844 is available to offset future taxable gains. If not
applied, the carryover expires beginning in 1997.
5. OTHER INFORMATION
COST TO INVESTORS
The cost to initial investors of Units of the Trust was based on the aggregate
offering price of the Securities on the date of an investor's purchase, plus or
minus a pro rata share of cash or overdraft in the Principal Account and
accrued interest, plus a sales charge of 3.75% of the Public Offering Price
(equivalent to 3.896% of the net amount invested). The Public Offering Price
for secondary market transactions is based on the aggregate bid prices of the
Securities plus or minus a pro rata share of cash or overdraft in the Principal
Account and accrued interest, if any, on the date of an investor's purchase,
plus a sales charge of 3.95% of the Public Offering Price (equivalent to 4.112%
of the net amount invested).
7
<PAGE> 12
Kemper Government Securities Trust
GNMA Portfolio Series 7
Notes to Financial Statements (continued)
5. OTHER INFORMATION (CONTINUED)
Selected data per 1,000 Units of the Trust outstanding during each year --
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1993 1992 1991
-------------------------------------------
<S> <C> <C> <C>
Investment income -- interest $ 11.18 $ 15.08 $ 21.53
Expenses .34 .40 .52
-------------------------------------------
Net investment income 10.84 14.68 21.01
Distributions to Unitholders:
Net investment income (13.94) (18.84) (25.23)
Tax return of capital (34.90) (49.62) (49.74)
-------------------------------------------
Total distributions to Unitholders (48.84) (68.46) (74.97)
Net gain (loss) on investments (4.56) (3.36) 4.81
-------------------------------------------
Decrease in net asset value (42.56) (57.14) (49.15)
Net asset value:
Beginning of the year 156.69 213.83 262.98
-------------------------------------------
End of the year, including distributable funds $ 114.13 $ 156.69 $ 213.83
-------------------------------------------
-------------------------------------------
</TABLE>
8
<PAGE> 13
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent
Auditors" and to the use of our report dated April 15, 1994, in this
Post-Effective Amendment to the Registration Statement (Form S-6) and related
Prospectus of Kemper Government Securities Trust GNMA Portfolio Series 7 dated
April 29, 1994.
/s/ ERNST & YOUNG
ERNST & YOUNG
Kansas City, Missouri
April 29, 1994
<PAGE> 14
Kemper Government Securities Trust
GNMA Portfolio Series 8
Part Two
Dated April 29, 1994
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
NOTE: Part Two of this Prospectus May Not Be Distributed unless
Accompanied by Part One.
<PAGE> 15
Kemper Government Securities Trust
GNMA Portfolio Series 8
Essential Information
As of April 4, 1994
Sponsor: Kemper Financial Services, Inc.
Evaluator: Kemper Unit Investment Trusts
Trustee: Investors Fiduciary Trust Company
<TABLE>
<S> <C>
GENERAL INFORMATION
Principal Amount of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,337,109
Number of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,895,324
Fractional Undivided Interest in the Trust per Unit . . . . . . . . . . . . . . . . . . . . 1/10,895,324
Principal Amount of Securities per 1,000 Units . . . . . . . . . . . . . . . . . . . . . . $ 215
Calculation of Public Offering Price:
Aggregate Value of Securities in the Trust . . . . . . . . . . . . . . . . . . . . . . . $ 2,529,241
Aggregate Value of Securities per 1,000 Units . . . . . . . . . . . . . . . . . . . . . . $ 232
Principal Cash per 1,000 Units (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ --
Sales Charge of 3.95% of Public Offering Price
(4.112% of net amount invested) per 1,000 Units . . . . . . . . . . . . . . . . . . . . $ 10
Public Offering Price per 1,000 Units . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 242
Accrued interest per 1,000 Units through settlement date of April 11, 1994 . . . . . . . . $ 1
Total Price per 1,000 Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 243
Redemption Price per 1,000 Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 232
Calculation of Estimated Net Annual Interest Income per 1,000 Units:
Estimated Annual Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21.73
Less: Estimated Annual Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .53
Estimated Net Annual Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21.20
Daily Rate at which Estimated Net Annual Interest Income
Accrues per 1,000 Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .0589
Estimated Current Return Based on Public Offering Price (2) . . . . . . . . . . . . . . . . 8.76%
Estimated Long-Term Return (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.82%
</TABLE>
<TABLE>
<S> <C>
Record and Distribution Date . . . . . . . . Record Date is the first of each month and distributions to
Unitholders on such record dates will be made on the last
day of the month.
Distribution Dates . . . . . . . . . . . . . No distribution (other than capital gains distributions) need
be made from the Principal Account if the balance therein,
excluding capital gains, is less than $1.00 per 1,000 Units.
</TABLE>
i
<PAGE> 16
<TABLE>
<S> <C>
Trustee's Annual Fee (including
estimated expenses) . . . . . . . . . . . $.498 per 1,000 Units (includes $1.02 of Trustee's annual fee
per $1,000 principal amount of underlying Securities and $.18
of out-of-pocket expenses per 1,000 Units).
Evaluator's Annual Fee . . . . . . . . . . . $.175 per 1,000 principal amount of underlying Securities.
Date of Trust Agreement and Initial Deposit . January 7, 1986
Mandatory Termination Date . . . . . . . . . December 31, 2036
Discretionary Liquidation Amount . . . . . . The Trust may be terminated if the value thereof is less than
$5,149,311 (40% of the par value of the Securities deposited
in the Trust).
</TABLE>
1. This amount, if any, represents principal cash or overdraft which is an
asset or liability of the Trust and is included in the Public
Offering Price.
2. The Estimated Current Return and Estimated Long-Term Return will vary with
changes in the Public Offering Price and there is no assurance
that such returns on the date hereof will be applicable on a subsequent
date of purchase. These estimated returns are increased for
transactions entitled to a reduced sales charge (see "Public Offering of
Units -- Public Offering Price" -- Part One).
ii
<PAGE> 17
Report of Independent Auditors
Unitholders
Kemper Government Securities Trust
GNMA Portfolio Series 8
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Kemper Government Securities Trust GNMA
Portfolio Series 8 as of December 31, 1993, and the related statements of
operations and changes in net assets for each of the three years in the period
then ended. These financial statements are the responsibility of the Trust's
sponsor. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements 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 December 31, 1993,
by correspondence with the custodial bank. An audit also includes assessing
the accounting principles used and significant estimates made by the sponsor,
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 referred to above present fairly, in
all material respects, the financial position of Kemper Government Securities
Trust GNMA Portfolio Series 8 at December 31, 1993, and the results of its
operations and the changes in its net assets for each of the three years in the
period then ended in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG
ERNST & YOUNG
Kansas City, Missouri
April 15, 1994
1
<PAGE> 18
Kemper Government Securities Trust
GNMA Portfolio Series 8
Statement of Assets and Liabilities
December 31, 1993
<TABLE>
<S> <C> <C>
ASSETS
GNMA Securities, at value (cost $2,779,336) (Note 1) $2,944,383
Cash 129,023
Interest receivable 22,712
---------------
Total assets 3,096,118
LIABILITIES AND NET ASSETS
Accrued liabilities 2,846
Net assets, applicable to 10,895,324 Units outstanding (Note 5):
Cost of Trust assets, exclusive of interest (Note 1) $2,779,336
Unrealized appreciation (Note 2) 165,047
Distributable funds 148,889
-------------------------------
Net assets $3,093,272
---------------
---------------
Net asset value per 1,000 Units $ 283.91
---------------
---------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 19
Kemper Government Securities Trust
GNMA Portfolio Series 8
Statement of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1993 1992 1991
----------------------------------------------
<S> <C> <C> <C>
Investment income -- interest $292,402 $428,540 $615,903
Expenses:
Trustee's fees and related expenses 5,519 10,781 13,203
Evaluator's fees 606 885 1,161
----------------------------------------------
Total expenses 6,125 11,666 14,364
----------------------------------------------
Net investment income 286,277 416,874 601,539
Realized and unrealized gain (loss) on investments:
Net realized gain 13,043 -- 15,766
Unrealized appreciation (depreciation) during the year (105,214) (74,806) 325,521
----------------------------------------------
Net gain (loss) on investments (92,171) (74,806) 341,287
----------------------------------------------
Net increase in net assets resulting from operations $194,106 $342,068 $942,826
----------------------------------------------
----------------------------------------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 20
Kemper Government Securities Trust
GNMA Portfolio Series 8
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1993 1992 1991
---------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income $ 286,277 $ 416,874 $ 601,539
Net realized gain on investments 13,043 -- 15,766
Unrealized appreciation (depreciation) on investments
during the year (105,214) (74,806) 325,521
---------------------------------------------
Net increase in net assets resulting from operations
194,106 342,068 942,826
Distributions to Unitholders:
Net investment income (308,084) (432,004) (622,284)
Tax return of capital (1,236,214) (1,717,640) (779,573)
---------------------------------------------
Total distributions to Unitholders (1,544,298) (2,149,644) (1,401,857)
Capital transactions:
Redemption of 628,536 Units -- -- (357,008)
Redemption of 406,096 Units (148,225) -- --
---------------------------------------------
Total decrease in net assets (1,498,417) (1,807,576) (816,039)
Net assets:
Beginning of the year 4,591,689 6,399,265 7,215,304
---------------------------------------------
End of the year (including distributable funds
applicable to Trust Units of $148,889, $158,283
and $212,170 at December 31, 1993, 1992 and
1991, respectively) $ 3,093,272 $4,591,689 $6,399,265
---------------------------------------------
---------------------------------------------
Trust Units outstanding at the end of the year 10,895,324 11,301,420 11,301,420
---------------------------------------------
---------------------------------------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 21
Kemper Government Securities Trust
GNMA Portfolio Series 8
Schedule of Investments
December 31, 1993
Government National Mortgage Association
Modified Pass-Through Mortgage-Backed Securities
<TABLE>
<CAPTION>
PRINCIPAL RANGE OF STATED
AMOUNT COUPON MATURITIES (1) VALUE
----------------------------------------------------------------------------------
<S> <C> <C> <C>
$1,526,557 9.50% 6/15/09--7/15/16 $1,650,591
1,159,385 11.00% 2/15/10--2/15/16 1,293,792
-------------- ---------------
$2,685,942 $2,944,383
-------------- ---------------
-------------- ---------------
</TABLE>
NOTE TO SCHEDULE OF INVESTMENTS
1. The principal amount of Securities listed as having the range of maturities
shown is an aggregate of individual Securities having varying
stated maturities within that shown. They are listed as one category of
Securities with a single range of maturities because current market
conditions accord no difference in price among the Securities grouped
together on the basis of the difference in their stated maturity. At some
time in the future, however, the differences in stated maturities could
affect the market value of the individual Securities.
See accompanying notes to financial statements.
5
<PAGE> 22
Kemper Government Securities Trust
GNMA Portfolio Series 8
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF SECURITIES
GNMA Securities are stated at bid prices as determined by Kemper Unit
Investment Trusts (A Service of Kemper Securities, Inc.), the "Evaluator" of
the Trust. The aggregate bid prices of the Securities are determined based on
(a) current bid prices of the Securities, (b) current bid prices for comparable
securities, (c) appraisal, or (d) any combination of the above.
COST OF SECURITIES
Cost of the Trust's Securities was based on the offering prices of the
Securities on the dates of deposit of such Securities acquired during the
primary sales period. The premium or discount, if any, is recognized as an
adjustment of investment income on a pro rata basis as principal repayments are
received. Realized gain (loss) from Security transactions is reported on an
identified cost basis.
2. UNREALIZED APPRECIATION AND DEPRECIATION
Following is an analysis of net unrealized appreciation at December 31, 1993:
Gross unrealized appreciation $165,047
Gross unrealized depreciation --
------------
Net unrealized appreciation $165,047
------------
------------
3. TRANSACTIONS WITH AFFILIATES
The Trustee, Investors Fiduciary Trust Company, is 50% owned by Kemper
Financial Services, Inc., an affiliate of Kemper Unit Investment Trusts.
Payments to the Trustee included $1.02 of Trustee's annual fee per $1,000
principal amount of underlying Securities in the Trust through December 31,
1993 ($.875 prior to July 1, 1991), calculated monthly, based on the largest
aggregate principal amount of Securities in the Trust at any time during the
previous month and reimbursement of out-of-pocket expenses of $.18 per 1,000
Units through December 31, 1993 ($.25 prior to January 1, 1992), calculated
monthly, based on the largest number of Trust Units outstanding at any time
during the previous month.
6
<PAGE> 23
Kemper Government Securities Trust
GNMA Portfolio Series 8
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
The annual Evaluator's fee, calculated monthly, is $.175 per $1,000 principal
amount of Securities in the Trust based on the largest aggregate principal
amount of Securities in the Trust at any time during the previous month.
4. FEDERAL INCOME TAXES
The Trust is organized as an investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). It is the Trust's
policy to comply with the special provisions of the Code available to
investment companies. Such provisions were complied with and, therefore, no
federal income tax provision is required.
5. OTHER INFORMATION
COST TO INVESTORS
The cost to initial investors of Units of the Trust was based on the aggregate
offering price of the Securities on the date of an investor's purchase, plus or
minus a pro rata share of cash or overdraft in the Principal Account and
accrued interest, plus a sales charge of 3.75% of the Public Offering Price
(equivalent to 3.896% of the net amount invested). The Public Offering Price
for secondary market transactions is based on the aggregate bid prices of the
Securities plus or minus a pro rata share of cash or overdraft in the Principal
Account and accrued interest, if any, on the date of an investor's purchase,
plus a sales charge of 3.95% of the Public Offering Price (equivalent to 4.112%
of the net amount invested).
7
<PAGE> 24
Kemper Government Securities Trust
GNMA Portfolio Series 8
Notes to Financial Statements (continued)
5. OTHER INFORMATION (CONTINUED)
Selected data per 1,000 Units of the Trust outstanding during each year --
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1993 1992 1991
----------------------------------------------
<S> <C> <C> <C>
Investment income -- interest $ 26.62 $ 37.92 $ 52.05
Expenses .55 1.03 1.21
----------------------------------------------
Net investment income 26.07 36.89 50.84
Distributions to Unitholders:
Net investment income (30.24) (43.80) (54.32)
Tax return of capital (109.79) (146.41) (63.81)
----------------------------------------------
Total distributions to Unitholders (140.03) (190.21) (118.13)
Net gain (loss) on investments (8.42) (6.62) 28.71
Decrease in net asset value (122.38) (159.94) (38.58)
Net asset value:
Beginning of the year 406.29 566.23 604.81
----------------------------------------------
End of the year, including distributable funds $283.91 $406.29 $566.23
----------------------------------------------
----------------------------------------------
</TABLE>
8
<PAGE> 25
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent
Auditors" and to the use of our report dated April 15, 1994, in this
Post-Effective Amendment to the Registration Statement (Form S-6) and related
Prospectus of Kemper Government Securities Trust GNMA Portfolio Series 8 dated
April 29, 1994.
/s/ ERNST & YOUNG
ERNST & YOUNG
Kansas City, Missouri
April 29, 1994
<PAGE> 26
CONTENTS OF POST-EFFECTIVE AMENDMENT
TO REGISTRATION STATEMENT
This Post-Effective amendment to the Registration Statement comprises the
following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Accountants
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, The
Registrant, Kemper Government Securities Trust GNMA Portfolio, Series 7, and
Series 8, certifies that it meets all of the requirements for effectiveness of
this registration statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chicago, and State of Illinois, on the 28th day of April, 1994.
KEMPER GOVERNMENT SECURITIES
TRUST GNMA PORTFOLIO, SERIES
7, AND SERIES 8
Registrant
By: Kemper Unit Investment
Trusts
(a service of Kemper
Securities, Inc.)
Depositor
By /s/ C. Perry Moore
---------------------
C. Perry Moore
Attorney-In-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below on April 28,
1994 by the following persons, who constitute a majority of the Board of
Directors of Kemper Securities, Inc.
SIGNATURE TITLE
James R. Boris Chairman and Chief Executive Officer
James R. Boris
Donald F. Eller Senior Executive Vice President and Director
Donald F. Eller
Stanley R. Fallis Senior Executive Vice President, Chief Financial
Stanley R. Fallis Officer and Director
Frank V. Geremia Senior Executive Vice President and Director
Frank V. Geremia
David B. Mathis Director
David B. Mathis
Robert T. Jackson Director
Robert T. Jackson
Jay B. Walters Senior Executive Vice President and Director
Jay B. Walters
Frederick C. Hosken Senior Executive Vice President and Director
Frederick C. Hosken
Charles M. Kierscht Director
Charles M. Kierscht
Arthur J. McGivern Director
Arthur J. McGivern
C. Perry Moore
- -------------------
C. Perry Moore
C. Perry Moore signs this document pursuant to power of attorney filed
with the Securities and Exchange Commission with (a) Amendment No. 1 to the
Registration Statement on Form S-6 for Kemper Tax-Exempt Insured Income Trust,
Series A-70 and Multi-State Series 28 and Kemper Tax-Exempt Income Trust,
Multi-State Series 42 (Registration No. 33-35425, (b) Amendment No. 1 to the
Registration Statement of Form S-6 for Kemper Tax-Exempt Insured Income Trust,
Series A-72 and Multi-State Series 30 (Registration No. 33-37178) and (c)
Amendment No. 1 to the Registration Statement of Form S-6 for Kemper Tax-Exempt
Insured Income Trust, Multi-State Series 51 (Registration No. 33-48398).
