<PAGE>
File No. 33-60246 CIK #899651
Securities and Exchange CommissionWashington, D. C. 20549
Post-Effective
Amendment No. 2
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 Tax-Exempt Insured Income Trust Multi-State, Series 63 and
Kemper Tax-Exempt Insured Income Trust Multi-State, Series 64
Name and executive office address of Depositor:
Kemper Unit Investment Trusts
(a service of Kemper Securities, Inc.)
77 West Wacker - 29th Floor
Chicago, Illinois 60601
Name and complete address of agent for service:
Robert K. Burke
77 West Wacker - 29th Floor
Chicago, Illinois 60601
( X ) Check box if it is proposed that this filing will
become effective at 2:00 p.m. on July 28, 1995 pursuant
to paragraph (b) of Rule 485.
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KEMPER TAX-EXEMPT INSURED INCOME TRUST
MULTI-STATE SERIES
OHIO TAX-EXEMPT BOND TRUST SERIES 11-22
KEMPER DEFINED FUNDS (TAX-EXEMPT PORTFOLIO)
PART ONE
The date of this Part One is that date
which is set forth in Part Two of the Prospectus
Each State Trust of the Kemper Tax-Exempt Insured Income Trust, Multi-State
Series, Series 11-22 of the Ohio Tax-Exempt Bond Trust and Kemper Defined Funds
(Tax-Exempt Portfolio) was formed for the purpose of gaining interest income
free from Federal, State and, where applicable, local income taxes and/or
property taxes, while conserving capital and diversifying risks by investing in
an insured, fixed portfolio of Municipal Bonds consisting of obligations issued
primarily by or on behalf of the State for which such Trust is named or
counties, municipalities, authorities or political subdivisions thereof.
Insurance guaranteeing the scheduled payment of principal and
interest on all of the Municipal Bonds in the portfolio of each State Trust has
been obtained by the Trust from Financial Guaranty Insurance Company
("Financial Guaranty") or other insurers or directly by the issuer or the
Sponsor from Financial Guaranty, MBIA Corporation or other insurers. See
"Insurance on the Portfolios" herein and the "Schedule of Investments" in Part
Two. Insurance obtained by the Trust remains in effect only while the insured
Municipal Bonds are retained in such State Trust, while insurance obtained by a
Municipal Bond issuer or the Sponsor is effective so long as such Bonds are
outstanding. Pursuant to an irrevocable commitment of Financial Guaranty or
such other insurers, in the event of a sale of any Bond covered under the
Trust's insurance policy, the Trustee has the right to obtain permanent
insurance for such Bond upon the payment of a single predetermined insurance
premium from the proceeds of the sale of such Bond. The insurance, in either
case, does not relate to the Units offered hereby or to their market value. As
a result of such insurance, the Units of each State Trust received on the
original date of deposit a rating of either "AAA" by Standard & Poor's
Corporation or "Aaa" by Moody's Investors Service, Inc. and, while held in a
State Trust, the Municipal Bonds are rated either "Aaa" by Moody's Investors
Service, Inc. or "AAA" by Standard & Poor's Corporation. See "Insurance on the
Portfolios" and "Description of Securities Ratings." No representation is made
as to Financial Guaranty's, MBIA Corporation's or any other insurer's ability
to meet its commitments.
Units of the Trust are not deposits or obligations of, or guaranteed by,
any bank, and Units are not federally insured or otherwise protected by the
Federal Deposit Insurance Corporation and involve investment risk including
loss of principal.
This Prospectus is in two parts.
Read and retain both parts for future reference.
SPONSOR: KEMPER UNIT INVESTMENT TRUSTS
a service of Kemper Securities, Inc.
THE 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.
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TABLE OF CONTENTS
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SUMMARY . . . . . . . . . . . . . . . . 3 UNITHOLDERS . . . . . . . . . . . . . . 99
The Trust . . . . . . . . . . . . . . . 3 Ownership of Units. . . . . . . . . . 99
Insurance . . . . . . . . . . . . . . . 3 Distributions to Unitholders. . . . . 99
Public Offering Price . . . . . . . . . 4 Statements to Unitholders . . . . . . 101
Interest and Principal Distributions . . 4 Rights of Unitholders . . . . . . . . 102
Reinvestment . . . . . . . . . . . . . 4 INVESTMENT SUPERVISION . . . . . . . . 103
Estimated Current Return and ADMINISTRATION OF THE TRUST . . . . . . 103
Estimated Long-Term Return . . . . . . 4 The Trustee 103
Market for Units . . . . . . . . . . . 5 The Evaluator . . . . . . . . . . . . 104
THE TRUST . . . . . . . . . . . . . . . 5 Amendment and Termination . . . . . . 105
PORTFOLIOS . . . . . . . . . . . . . . 6 Limitations on Liability . . . . . . 105
Portfolio Risk Information . . . . . . 7 EXPENSES OF THE TRUST . . . . . . . . . 106
INSURANCE ON THE PORTFOLIOS . . . . . . 13 THE SPONSOR . . . . . . . . . . . . . . 107
Financial Guaranty Insurance LEGAL OPINIONS . . . . . . . . . . . . 108
Company . . . . . . . . . . . . . . 15 AUDITORS . . . . . . . . . . . . . . . 108
AMBAC Indemnity Corporation . . . . . . 16 DESCRIPTION OF SECURITIES RATINGS . . . 108
Municipal Bond Investors Standard & Poor's Corporation . . . . 108
Assurance Corporation . . . . . . . 16 Moody's Investors Service, Inc. . . . 109
Financial Security Assurance . . . . . 17
Capital Guaranty Insurance
Company . . . . . . . . . . . . . . 18
DISTRIBUTION REINVESTMENT . . . . . . . 19
INTEREST, ESTIMATED CURRENT RETURN AND Essential Information*
LONG-TERM RETURN . . . . . . . . . . 20 Report of Certified Public Accountants*
FEDERAL TAX STATUS OF THE STATE Statement of Assets and Liabilities*
TRUSTS . . . . . . . . . . . . . . . 20 Statement of Operations*
DESCRIPTION AND STATE TAX STATUS Statement of Changes in Net Assets*
OF THE STATE TRUSTS . . . . . . . . 24 Schedule of Investments*
Alabama Trusts . . . . . . . . . . . 24 Notes to Schedules of Investments*
Arizona Trusts . . . . . . . . . . . 26 Notes to Financial Statements*
California Trusts . . . . . . . . . 30
Colorado Trusts . . . . . . . . . . 38
Florida Trusts . . . . . . . . . . . 42 *INFORMATION ON THESE ITEMS APPEARS
Louisiana Trusts . . . . . . . . . . 47 IN PART TWO FOR THE APPROPRIATE
Massachusetts Trusts . . . . . . . . 50 STATE TRUST
Michigan Trusts . . . . . . . . . . 53
Minnesota Trusts . . . . . . . . . . 56
Missouri Trusts . . . . . . . . . . 58
New Jersey Trusts . . . . . . . . . 60
New York Trusts . . . . . . . . . . . 64
North Carolina Trusts . . . . . . . 74
Ohio Trusts . . . . . . . . . . . . 79
Pennsylvania Trusts . . . . . . . . 83
Texas Trusts . . . . . . . . . . . . 88
PUBLIC OFFERING OF UNITS . . . . . . . 92
Public Offering Price . . . . . . . 92
Public Distribution of Units . . . . 95
Profits of Sponsor . . . . . . . . . 96
MARKET FOR UNITS . . . . . . . . . . . 96
REDEMPTION . . . . . . . . . . . . . . 97
Computation of Redemption Price . . . 98
</TABLE>
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KEMPER TAX-EXEMPT INSURED INCOME TRUST
MULTI-STATE SERIES
OHIO TAX-EXEMPT BOND TRUST
SERIES 11-22
KEMPER DEFINED FUNDS
(TAX-EXEMPT PORTFOLIO)
SUMMARY
THE TRUST. Kemper Tax-Exempt Insured Income Trust, Multi-State Series,
Ohio Tax-Exempt Bond Trust, Series 11-22 and Kemper Defined Funds (Tax-Exempt
Portfolio) (collectively, the "Trust") are unit investment trusts consisting of
a number of diversified portfolios designated as the State Trusts. Each State
Trust consists of obligations ("Municipal Bonds", "Bonds" or "Securities")
issued primarily by or on behalf of the State for which such State Trust is
named or counties, municipalities, authorities or political subdivisions
thereof.
Each State Trust's investment objective is interest income which is exempt
from Federal, State and, where applicable, local income taxes and/or property
taxes, while conserving capital and diversifying risks by investing in an
insured, fixed portfolio of Municipal Bonds consisting of obligations issued
primarily by or on behalf of the State for which such State Trust is named or
counties, municipalities, authorities or political subdivisions thereof. There
is, of course, no guarantee that the State Trusts' objective will be achieved.
All of the Municipal Bonds in the State Trust portfolios were rated in the
category "BBB" or better by either Standard & Poor's Corporation ("Standard &
Poor's") or "Baa" by Moody's Investors Service, Inc. ("Moody's") on the date
such State Trust was established (the "Date of Deposit"). Ratings of the
Municipal Bonds may have changed since the Date of Deposit. See "Description
of Securities Ratings" herein and the "Schedule of Investments" in Part Two.
The Units, each of which represents a pro rata undivided fractional
interest in the principal amount of Municipal Bonds deposited in the
appropriate Trust, are issued and outstanding Units which have been reacquired
by the Sponsor either by purchase of Units tendered to the Trustee for
redemption or by purchase in the open market. No offering is being made on
behalf of the State Trust and any profit or loss realized on the sale of Units
will accrue to the Sponsor and/or the firm reselling such Units. Offerees in
the states of Indiana, Virginia and Washington may only purchase Units of an
Indiana, Virginia or Washington Trust, respectively.
INSURANCE. Insurance guaranteeing the scheduled payment of principal and
interest on all of the Municipal Bonds in the portfolio of each State Trust has
been obtained by the Trust from Financial Guaranty Insurance Company
("Financial Guaranty"), Municipal Bond Investors Assurance Corporation ("MBIA
Corporation" or "MBIA") or other insurers, or directly by the issuer or the
Sponsor from Financial Guaranty, MBIA or other insurers. See "Insurance on the
Portfolios" herein and the "Schedule of Investments" in Part Two. Insurance
obtained by the Trust remains in effect only while the insured Municipal Bonds
are retained
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in such State Trust, while insurance obtained by a Municipal Bond issuer or the
Sponsor is effective so long as such Bonds are outstanding. Pursuant to an
irrevocable commitment of Financial Guaranty, MBIA or such other insurers, in
the event of a sale of any bond covered under the Trust's insurance policy, the
Trustee has the right to obtain permanent insurance for such Municipal Bonds
upon the payment of a single predetermined insurance premium from the proceeds
of the sale of such Municipal Bond. The insurance, in either case, does not
relate to the Units offered hereby or to their market value. As a result of
such insurance, the Units of each State Trust received on the original Date of
Deposit a rating of "AAA" from Standard & Poor's and, while held in a State
Trust, the Municipal Bonds are rated "Aaa" by Moody's. See "Insurance on the
Portfolios." No representation is made as to Financial Guaranty's or any other
insurer's ability to meet its commitments.
PUBLIC OFFERING PRICE. The Public Offering Price per Unit of each State
Trust is equal to a pro rata share of the aggregate bid prices of the Municipal
Bonds in such State Trust plus or minus a pro rata share of cash, if any, in
the Principal Account, held or owned by the State Trust plus, in the case of
Kemper Defined Funds Purchased Interest, plus a sales charge shown under
"Public Offering of Units." In addition, there will be added to each
transaction in a State Trust an amount equal to the accrued interest ("Daily
Accrued Interest" in the case of Kemper Defined Funds) from the last Record
Date of such State Trust to the date of settlement (five business days after
order). The sales charge is reduced on a graduated scale for sales as
indicated under "Public Offering of Units."
INTEREST AND PRINCIPAL DISTRIBUTIONS. Distributions of the estimated
annual interest income to be received by each State Trust, after deduction of
estimated expenses, will be made monthly unless the Unitholder elects to
receive such distributions quarterly or semi-annually. Distributions will be
paid on the Distribution Dates to holders of record of such State Trust on the
Record Dates set forth for the applicable option. See "Essential Information"
in Part Two. Only monthly distributions of estimated annual interest income
will be available for Kemper Defined Funds Unitholders.
The distribution of funds, if any, in the Principal Account of each State
Trust, will be made as provided in "Unitholders-Distributions to Unitholders."
REINVESTMENT. Each Unitholder of a State Trust offered herein may elect to
have distributions of principal or interest or both automatically invested
without charge in shares of certain mutual funds sponsored by Kemper Financial
Services, Inc. See "Distribution Reinvestment."
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN. The Estimated
Current Return is calculated by dividing the estimated net annual interest
income per Unit by the Public Offering Price of the applicable State Trust.
The estimated net annual interest income per Unit will vary with changes in
fees and expenses of the Trusts and with the principal prepayment, redemption,
maturity, exchange or sale of Bonds while the Public Offering Price will vary
with changes in the bid price of the underlying Bonds and with changes in
Purchased Interest for Kemper Defined Funds; therefore, there is no assurance
that the present Estimated Current Returns will be realized in the future.
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 retirement dates of all of the
Bonds in the State Trust and (2) takes into account the expenses and sales
charge associated with each State Trust Unit. Since the market values and
estimated retirement dates of
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the Bonds and the expenses of the State Trust will change, there is no
assurance that the present Estimated Long-Term Return will be realized in the
future. Estimated Current Return and Estimated Long-Term Return are expected
to differ because the calculation of Estimated Long-Term Return reflects the
estimated date and amount of principal returned while Estimated Current Return
calculations include only net annual interest income and Public Offering Price.
MARKET FOR UNITS. While under no obligation to do so and subject to change
at any time, the Sponsor intends to and certain Underwriters may, maintain a
market for the Units of each State Trust and continuously offer to repurchase
such Units at prices which are based on the aggregate bid side evaluation of
the Municipal Bonds in each State Trust plus accrued interest to the date of
settlement (which, in the case of Kemper Defined Funds, consists of Purchased
Interest and Daily Accrued Interest).
THE TRUST
Each State Trust Fund is one of a series of unit investment trusts created
by the Sponsor under the name Kemper Tax-Exempt Insured Income Trust,
Multi-State Series, Series 11-22 of Ohio Tax-Exempt Bond Trust or Kemper
Defined Funds (Tax-Exempt Portfolio), all of which are similar, and each of
which was created under the laws of the State of Missouri pursuant to a Trust
Agreement*1 (the "Agreement") (such "State Trusts" being collectively referred
to herein as the "Trust"). Kemper Unit Investment Trusts, a service of Kemper
Securities, Inc., acts as Sponsor and Evaluator and Investors Fiduciary Trust
Company acts as Trustee. For information regarding the relationship of Kemper
Unit Investment Trusts and Investors Fiduciary Trust Company, see "The
Sponsor."
A State Trust may be an appropriate investment vehicle for investors who
desire to participate in a portfolio of insured, tax-exempt, fixed income
securities with greater diversification than they might be able to acquire
individually. In addition, Municipal Bonds of the type deposited in the State
Trusts are often not available in small amounts.
Each State Trust was formed for the purpose of gaining interest income free
from Federal, State and, where applicable, local income and/or property taxes,
while conserving capital and diversifying risks by investing in an insured,
fixed portfolio of Municipal Bonds consisting of obligations issued primarily
by or on behalf of the State for which such State Trust is named or counties,
municipalities, authorities or political subdivisions thereof. There is, of
course, no guarantee that the State Trusts' objective will be achieved.
All of the Municipal Bonds in the State Trusts' portfolios are rated "BBB"
or better by Standard & Poor's Corporation ("Standard & Poor's") or "Baa" or
better by Moody's Investors Service, Inc. ("Moody's"). See "Description of
Securities Ratings" herein and the "Schedule of Investments" in Part Two.
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*Reference is hereby made to said Trust Agreement, and any statements
contained herein are qualified in their entirety by the provisions of said
Trust Agreement.
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Each State Trust consists of an insured portfolio of interest bearing
obligations issued by or on behalf of states of the United States or counties,
municipalities, authorities or political subdivisions thereof the interest on
which is, in the opinion of bond counsel to the issuing authorities, exempt
from all Federal income taxes under existing law, but may not be subject to
State and local taxes. Proceeds of the maturity, redemption or sale of the
Municipal Bonds in a State Trust, unless used to pay for Units tendered for
redemption, will be distributed to Unitholders thereof and will not be utilized
to purchase replacement or additional Municipal Bonds for the State Trust.
The Units, each of which represents a pro rata undivided fractional
interest in the principal amount of Municipal Bonds deposited in the
appropriate State Trust, are issued and outstanding Units which have been
reacquired by the Sponsor either by purchase of Units tendered to the Trustee
for redemption or by purchase in the open market. No offering is being made on
behalf of the State Trusts and any profit or loss realized on the sale of Units
will accrue to the Sponsor and/or the firm reselling such Units. To the extent
that Units of any State Trust are redeemed, the principal amount of Municipal
Bonds in such State Trust will be reduced and the undivided fractional interest
represented by each outstanding Unit of such State Trust will increase. See
"Redemption."
PORTFOLIOS
The selection of Municipal Bonds for each State Trust was based largely
upon the experience and judgment of the Sponsor. In making such selections the
Sponsor considered the following factors: (a) a minimum rating in the category
"BBB" by Standard & Poor's Corporation or "Baa" by Moody's Investors Service,
Inc. (see "Description of Securities Ratings") except that the Sponsor may,
from time to time, in specifically designated State Trusts, have deemed it to
be acceptable to acquire unrated municipal bonds which had, in the opinion of
the Sponsor, credit characteristics at least equal to municipal bonds so rated;
(b) the price of the Municipal Bonds relative to other issues of similar
quality and maturity; (c) the diversification of the Municipal Bonds as to
purpose of issue; (d) the income to the Unitholders of the State Trust; (e)
whether such Municipal Bonds were insured, or the cost and availability of
insurance for the scheduled payment of principal and interest, when due, on the
Municipal Bonds; and (f) the dates of maturity of the Municipal Bonds.
Subsequent to the Date of Deposit, a Municipal Bond may cease to be rated
or its rating may be reduced below the minimum required as of the Date of
Deposit. Neither event requires the elimination of such investment from a
State Trust, but may be considered in the Sponsor's determination to direct the
Trustee to dispose of the investment. See "Investment Supervision" herein and
the "Schedule of Investments" in Part Two.
The Sponsor may not alter the portfolio of a State Trust except that
certain of the Municipal Bonds may be sold upon the happening of certain
extraordinary circumstances. See "Investment Supervision."
Certain of the Municipal Bonds in the State Trusts may be subject to
redemption prior to their stated maturity date pursuant to sinking fund
provisions, call provisions or extraordinary optional or mandatory redemption
provisions or otherwise. A sinking fund is a reserve fund accumulated over a
period of time for retirement of debt. A callable debt obligation is one which
is subject to redemption or refunding prior to maturity at the option of the
issuer. A refunding is a method by which a debt obligation is redeemed, at or
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before maturity, by the proceeds of a new debt obligation. In general, call
provisions are more likely to be exercised when the offering side valuation is
at a premium over par than when it is at a discount from par. Accordingly, any
such call, redemption, sale or maturity will reduce the size and diversity of
such State Trust, and the net annual interest income of the State Trust and may
reduce the Estimated Current and Long-Term Returns. See "Interest and
Estimated Current and Long-Term Returns." Each State Trust portfolio contains
a listing of the sinking fund and call, provisions if any, with respect to each
of the debt obligations. Extraordinary optional redemptions and mandatory
redemptions result from the happening of certain events. Generally, events
that may permit the extraordinary optional redemption of Municipal Bonds or may
require the mandatory redemption of Municipal Bonds include, among others: a
final determination that the interest on the Municipal Bonds is taxable; the
substantial damage or destruction by fire or other casualty of the project for
which the proceeds of the Municipal Bonds were used; an exercise by a local,
State or Federal governmental unit of its power of eminent domain to take all
or substantially all of the project for which the proceeds of the Municipal
Bonds were used; changes in the economic availability of raw materials,
operating supplies or facilities or technological or other changes which render
the operation of the project for which the proceeds of the Municipal Bonds were
used uneconomic; changes in law or an administrative or judicial decree which
renders the performance of the agreement under which the proceeds of the
Municipal Bonds were made available to finance the project impossible or which
creates unreasonable burdens or which imposes excessive liabilities, such as
taxes, not imposed on the date the Municipal Bonds are issued on the issuer of
the Municipal Bonds or the user of the proceeds of the Municipal Bonds; an
administrative or judicial decree which requires the cessation of a substantial
part of the operations of the project financed with the proceeds of the
Municipal Bonds; an overestimate of the costs of the project to be financed
with the proceeds of the Municipal Bonds resulting in excess proceeds of the
Municipal Bonds which may be applied to redeem Municipal Bonds; or an
underestimate of a source of funds securing the Municipal Bonds resulting in
excess funds which may be applied to redeem Municipal Bonds. The Sponsor is
unable to predict all of the circumstances which may result in such redemption
of an issue of Municipal Bonds.
The Sponsor and the Trustee shall not be liable in any way for any default,
failure or defect in any Municipal Bond.
PORTFOLIO RISK INFORMATION. An investment in the Units of a State 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
portfolio and hence of the State Trusts will decline with increases in interest
rates. The value of the underlying Municipal Bonds will fluctuate inversely
with changes in interest rates. The uncertain economic conditions of recent
years, together with the fiscal measures adopted to attempt to deal with them,
have resulted in wide fluctuations in interest rates and, thus, in the value of
fixed rate debt obligations generally and long term obligations in particular.
The Sponsor cannot predict whether such fluctuations will continue in the
future.
Certain of the Municipal Bonds in the State Trusts may be general
obligations of a governmental entity that are backed by the taxing power of
such entity. All other Municipal Bonds in the State Trusts are revenue bonds
payable from the income of a specific project or authority and are not
supported by the issuer's power to levy taxes. General obligation bonds are
secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. Revenue bonds, on the other hand, are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. There are, of course, variations in the security of
the different Municipal Bonds in the State Trusts, both within a particular
classification and between classifications, depending on numerous factors.
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Certain of the Municipal Bonds in the State Trusts may be obligations of
issuers whose revenues are derived from services provided by hospitals and
other health care facilities, including nursing homes. Ratings of bonds issued
for health care facilities are often based on feasibility studies that contain
projections of occupancy levels, revenues and expenses. A facility's gross
receipts and net income available for debt service will be affected by future
events and conditions including, among other things, demand for services and
the ability of the facility to provide the services required, physicians'
confidence in the facility, management's capabilities, economic developments in
the service area, competition, efforts by insurers and governmental agencies to
limit rates, legislation establishing state rate-setting agencies, expenses,
the cost and possible unavailability of malpractice insurance, the funding of
Medicare, Medicaid and other similar third party payor programs, and government
regulation. Federal legislation has been enacted which implement a system of
prospective Medicare reimbursement which may restrict the flow of revenues to
hospitals and other facilities which are reimbursed for services provided under
the Medicare program. Future legislation or changes in the areas noted above,
among other things, would affect all hospitals to varying degrees and,
accordingly, any adverse changes in these areas may adversely affect the
ability of such issuers to make payment of principal and interest on Municipal
Bonds held in the State Trusts. Such adverse changes also may adversely affect
the ratings of the Municipal Bonds held in the State Trusts.
Hospitals and other health care facilities are subject to claims and legal
actions by patients and others in the ordinary course of business. Although
these claims are generally covered by insurance, there can be no assurance that
a claim will not exceed the insurance coverage of a health care facility or
that insurance coverage will be available to a facility. In addition, a
substantial increase in the cost of insurance could adversely affect the
results of operations of a hospital or other health care facility. Certain
hospital bonds may provide for redemption at par at any time upon the sale by
the issuer of the hospital facilities to a non-affiliated entity or in other
circumstances. For example, certain hospitals may have the right to call bonds
at par if the hospital may legally be required because of the bonds to perform
procedures against specified religious principles. Certain FHA-insured bonds
may provide that all or a portion of those bonds, otherwise callable at a
premium, can be called at par in certain circumstances. If a hospital defaults
upon a bond obligation, the realization of Medicare and Medicaid receivables
may be uncertain and, if the bond obligation is secured by the hospital
facilities, legal restrictions on the ability to foreclose upon the facilities
and the limited alternative uses to which a hospital can be put may reduce
severely its collateral value.
Certain of the Municipal Bonds in the State Trusts may be single family
mortgage revenue bonds, which are issued for the purpose of acquiring from
originating financial institutions notes secured by mortgages on residences
located within the issuer's boundaries and owned by persons of low or moderate
income. Mortgage loans are generally partially or completely prepaid prior to
their final maturities as a result of events such as sale of the mortgaged
premises, default, condemnation or casualty loss. Because these Municipal
Bonds are subject to extraordinary mandatory redemption in whole or in part
from such prepayments of mortgage loans, a substantial portion of such
Municipal Bonds will probably be redeemed prior to their scheduled maturities
or even prior to their ordinary call dates. The redemption price of such
issues may be more or less than the offering price of such Municipal Bonds.
Extraordinary mandatory redemption without premium could also result from the
failure of the originating financial institutions to make mortgage loans in
sufficient amounts within a specified time period or, in some cases, from the
sale by the Municipal Bond issuer of the mortgage loans. Failure of the
originating financial institutions to make mortgage loans would be due
principally to the interest rates on mortgage loans funded from other sources
becoming competitive with the interest rates on the mortgage loans funded with
the proceeds of the single family mortgage revenue bonds. Additionally,
unusually high rates of default on the underlying mortgage loans may reduce
revenues available for the payment of principal of or interest on such mortgage
revenue bonds. Single family mortgage revenue
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bonds issued after December 31, 1980 were issued under Section 103A of the
Internal Revenue Code of 1954, which Section contains certain ongoing
requirements relating to the use of the proceeds of such Municipal Bonds in
order for the interest on such Municipal Bonds to retain its tax-exempt status.
In each case, the issuer of the Municipal Bonds has covenanted to comply with
applicable ongoing requirements and bond counsel to such issuer has issued an
opinion that the interest on the Municipal Bonds is exempt from Federal income
tax under existing laws and regulations. There can be no assurances that the
ongoing requirements will be met. The failure to meet these requirements could
cause the interest on the Municipal Bonds to become taxable, possibly
retroactively from the date of issuance.
Certain of the Municipal Bonds in the State Trusts may be obligations of
issuers whose revenues are primarily derived from mortgage loans to housing
projects for low to moderate income families. The ability of such issuers to
make debt service payments will be affected by events and conditions affecting
financed projects, including, among other things, the achievement and
maintenance of sufficient occupancy levels and adequate rental income,
increases in taxes, employment and income conditions prevailing in local labor
markets, utility costs and other operating expenses, the managerial ability of
project managers, changes in laws and governmental regulations, the
appropriation of subsidies and social and economic trends affecting the
localities in which the projects are located. The occupancy of housing
projects may be adversely affected by high rent levels and income limitations
imposed under Federal and State programs. Like single family mortgage revenue
bonds, multi-family mortgage revenue bonds are subject to redemption and call
features, including extraordinary mandatory redemption features, upon
prepayment, sale or non-origination of mortgage loans as well as upon the
occurrence of other events. Certain issuers of single or multi-family housing
bonds have considered various ways to redeem bonds they have issued prior to
the stated first redemption dates for such bonds. In connection with the
housing Municipal Bonds held by the State Trusts, the Sponsor has not had any
direct communications with any of the issuers thereof, but at the Initial Date
of Deposit it was not aware that any of the respective issuers of such
Municipal Bonds were actively considering the redemption of such Municipal
Bonds prior to their respective stated initial call dates. However, there can
be no assurance that an issuer of a Municipal Bond in the State Trusts will not
attempt to so redeem a Municipal Bond in the State Trusts.
Certain of the Municipal Bonds in the State Trusts may be obligations of
issuers whose revenues are derived from the sale of water and/or sewerage
services. Water and sewerage bonds are generally payable from user fees.
Problems faced by such issuers include the ability to obtain timely and
adequate rate increases, a decline in population resulting in decreased user
fees, the difficulty of financing large construction programs, the limitations
on operations and increased costs and delays attributable to environmental
considerations, the increasing difficulty of obtaining or discovering new
supplies of fresh water, the effect of conservation programs and the impact of
"no-growth" zoning ordinances. Issuers may have experienced these problems in
varying degrees.
Because of the relatively short history of solid waste disposal bond
financing, there may be technological risks involved in the satisfactory
construction or operation of the projects exceeding those associated with most
municipal enterprise projects. Increasing environmental regulation on the
Federal, State and local level has a significant impact on waste disposal
facilities. While regulation requires more waste producers to use waste
disposal facilities, it also imposes significant costs on the facilities.
These costs include compliance with frequently changing and complex regulatory
requirements, the cost of obtaining construction and operating permits, the
cost of conforming to prescribed and changing equipment standards and required
methods of operation and the cost of disposing of the waste residue that
remains after the disposal process in
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an environmentally safe manner. In addition, waste disposal facilities
frequently face substantial opposition by environmental groups and officials to
their location and operation, to the possible adverse effects upon the public
health and the environment that may be caused by wastes disposed of at the
facilities and to alleged improper operating procedures. Waste disposal
facilities benefit from laws which require waste to be disposed of in a certain
manner but any relaxation of these laws could cause a decline in demand for the
facilities' services. Finally, waste disposal facilities are concerned with
many of the same issues facing utilities insofar as they derive revenues from
the sale of energy to local power utilities.
Certain of the Municipal Bonds in the State Trusts may be obligations of
issuers whose revenues are primarily derived from the sale of electric energy
or natural gas. Utilities are generally subject to extensive regulation by
state utility commissions which, among other things, establish the rates which
may be charged and the appropriate rate of return on an approved asset base.
The problems faced by such issuers include the difficulty in obtaining approval
for timely and adequate rate increases from the governing public utility
commission, the difficulty in financing large construction programs, the
limitations on operations and increased costs and delays attributable to
environmental considerations, increased competition, recent reductions in
estimates of future demand for electricity in certain areas of the country, the
difficulty of the capital market in absorbing utility debt, the difficulty in
obtaining fuel at reasonable prices and the effect of energy conservation.
Issuers may have experienced these problems in varying degrees. In addition,
Federal, state and municipal governmental authorities may from time to time
review existing and impose additional regulations governing the licensing,
construction and operation of nuclear power plants, which may adversely affect
the ability of the issuers of such Municipal Bonds to make payments of
principal and/or interest on such Municipal Bonds.
The ability of state and local joint action power agencies to make payments
on bonds they have issued is dependent in large part on payments made to them
pursuant to power supply or similar agreements. Courts in Washington and Idaho
have held that certain agreements between the Washington Public Power Supply
System ("WPPSS") and the WPPSS participants are unenforceable because the
participants did not have the authority to enter into the agreements. While
these decisions are not specifically applicable to agreements entered into by
public entities in other states, they may cause a reexamination of the legal
structure and economic viability of certain projects financed by joint action
power agencies, which might exacerbate some of the problems referred to above
and possibly lead to legal proceedings questioning the enforceability of
agreements upon which payment of these bonds may depend.
Certain of the Municipal Bonds in the State Trusts may be industrial
revenue bonds ("IRBs"), including pollution control revenue bonds, which are
tax-exempt securities issued by states, municipalities, public authorities or
similar entities to finance the cost of acquiring, constructing or improving
various industrial projects. These projects are usually operated by corporate
entities. Issuers are obligated only to pay amounts due on the IRBs to the
extent that funds are available from the unexpended proceeds of the IRBs or
receipts or revenues of the issuer under an arrangement between the issuer and
the corporate operator of a project. The arrangement may be in the form of a
lease, installment sale agreement, conditional sale agreement or loan
agreement, but in each case the payments to the issuer are designed to be
sufficient to meet the payments of amounts due on the IRBs. Regardless of the
structure, payment of IRBs is solely dependent upon the creditworthiness of the
corporate operator of the project or corporate guarantor. Corporate operators
or guarantors may be affected by many factors which may have an adverse impact
on the credit quality of the particular company or industry. These include
cyclicality of revenues and earnings, regulatory and environmental
restrictions, litigation resulting from accidents or environmentally-caused
illnesses, extensive
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<PAGE> 11
competition and financial deterioration resulting from leveraged buy-outs or
takeovers. The IRBs in the State Trusts may be subject to special or
extraordinary redemption provisions which may provide for redemption at par or,
with respect to original issue discount bonds, at issue price plus the amount
of original issue discount accreted to the redemption date plus, if applicable,
a premium. The Sponsor cannot predict the causes or likelihood of the
redemption of IRBs or other Municipal Bonds in the State Trusts prior to the
stated maturity of such Municipal Bonds.
Certain of the Municipal Bonds in the State Trusts may be obligations which
are payable from and secured by revenues derived from the ownership and
operation of facilities such as airports, bridges, turnpikes, port authorities,
convention centers and arenas. The major portion of an airport's gross
operating income is generally derived from fees received from signatory
airlines pursuant to use agreements which consist of annual payments for
leases, occupancy of certain terminal space and service fees. Airport
operating income may therefore by affected by the ability of the airlines to
meet their obligations under the use agreements. The air transport industry is
experiencing significant variations in earnings and traffic, due to increased
competition, excess capacity, increased costs, deregulation, traffic
constraints and other factors, and several airlines are experiencing severe
financial difficulties. The Sponsor cannot predict what effect these industry
conditions may have on airport revenues which are dependent for payment on the
financial condition of the airlines and their usage of the particular airport
facility. Similarly, payment on Municipal Bonds related to other facilities is
dependent on revenues from the projects, such as user fees from ports, tolls on
turnpikes and bridges and rents from buildings. Therefore, payment may be
adversely affected by reduction in revenues due to such factors as increased
cost of maintenance, decreased use of a facility, lower cost of alternative
modes of transportation, scarcity of fuel and reduction or loss of rents.
Certain of the Municipal Bonds in the State Trusts may be obligations of
issuers which are, or which govern the operation of, schools, colleges and
universities and whose revenues are derived mainly from ad valorem taxes, or
for higher education systems, from tuition, dormitory revenues, grants and
endowments. General problems relating to school bonds include litigation
contesting the state constitutionality of financing public education in part
from ad valorem taxes, thereby creating a disparity in educational funds
available to schools in wealthy areas and schools in poor areas. Litigation or
legislation on this issue may affect the sources of funds available for the
payment of school bonds in the Trust. General problems relating to college and
university obligations would include the prospect of a declining percentage of
the population consisting of "college" age individuals, possible inability to
raise tuition and fees sufficiently to cover increased operating costs, the
uncertainty of continued receipt of Federal grants and state funding and new
government legislation or regulations which may adversely affect the revenues
or costs of such issuers. All of such issuers have been experiencing certain
of these problems in varying degrees.
In addition, the ability of universities and colleges to meet their
obligations is dependent upon various factors, including the size and diversity
of their sources of revenues, enrollment, reputation, management expertise, the
availability and restrictions on the use of endowments and other funds, the
quality and maintenance costs of campus facilities, and, in the case of public
institutions, the financial condition of the relevant state or other
governmental entity and its policies with respect to education. The
institution's ability to maintain enrollment levels will depend on such factors
as tuition costs, geographic location, geographic diversity and quality of
student body, quality of the faculty and the diversity of program offerings.
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Certain of the Municipal Bonds in the State Trusts may be Urban
Redevelopment Bonds ("URBs"). URBs have generally been issued under bond
resolutions pursuant to which the revenues and receipts payable under the
arrangements with the operator of a particular project have been assigned and
pledged to purchasers. In some cases, a mortgage on the underlying project may
have been granted as security for the URBs. Regardless of the structure,
payment of the URBs is solely dependent upon the creditworthiness of the
operator of the project.
Certain of the Municipal Bonds in the State Trusts may be lease revenue
bonds whose revenues are derived from lease payments made by a municipality or
other political subdivision which is leasing equipment or property for use in
its operation. The risks associated with owning Municipal Bonds of this nature
include the possibility that appropriation of funds for a particular project or
equipment may be discontinued. The Sponsor cannot predict the likelihood of
nonappropriation of funds for these types of lease revenue Municipal Bonds.
Certain of the Bonds in the Trust Funds may be sales and/or use tax revenue
bonds whose revenues are derived from the proceeds of a special sales or use
tax. Such taxes are generally subject to continuing Legislature approval.
Payments may be adversely affected by reduction of revenues due to decreased
use of a facility or decreased sales.
Certain of the Municipal Bonds in the State Trusts may be "zero coupon"
bonds, i.e., an original issue discount bond that does not provide for the
payment of current interest. Zero coupon bonds are purchased at a deep
discount because the buyer receives a final payment at the maturity of the bond
and does not receive any periodic interest payments. The effect of owning deep
discount bonds which do not make current interest payments (such as the zero
coupon bonds) 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
obligation. This implicit reinvestment of earnings at the same rate eliminates
the risk of being unable to reinvest the 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 bonds are subject to substantially greater price
fluctuations during periods of changing market interest rates than are
securities of comparable quality which pay interest currently. For the Federal
tax consequences of original issue discount bonds such as the zero coupon
bonds, see "Federal Tax Status of the State Trusts."
Investors should be aware that many of the Municipal Bonds in the State
Trusts are subject to continuing requirements such as the actual use of
Municipal Bond proceeds or manner of operation of the project financed from
Municipal Bond proceeds that may affect the exemption of interest on such
Municipal Bonds from Federal income taxation. Although at the time of issuance
of each of the Municipal Bonds in the State Trusts an opinion of bond counsel
was rendered as to the exemption of interest on such obligations from Federal
income taxation, there can be no assurance that the respective issuers or other
obligers on such obligations will fulfill the various continuing requirements
established upon issuance of the Municipal Bonds. A failure to comply with
such requirements may cause a determination that interest on such obligations
is subject to Federal income taxation, perhaps even retroactively from the date
of issuance of such Municipal Bonds, thereby reducing the value of the
Municipal Bonds and subjecting Unitholders to unanticipated tax liabilities.
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Federal bankruptcy statutes relating to the adjustment of debts of
political subdivisions and authorities of states of the United States provide
that, in certain circumstances, such subdivisions or authorities may be
authorized to initiate bankruptcy proceedings without prior notice to or
consent of creditors, which proceedings could result in material and adverse
modification or alteration of the rights of holders of obligations issued by
such subdivisions or authorities.
Certain issues of the Municipal Bonds in the State Trusts represent "moral
obligations" of another governmental entity. In the event that the issuer of
the Municipal Bond defaults in the repayment thereof, such other governmental
entity lawfully may, but is not obligated to, discharge the obligation of the
issuer to repay such Municipal Bond.
If an issuer of moral obligation bonds is unable to meet its obligations,
the repayment of such Municipal Bonds becomes a moral commitment but not a
legal obligation of the State or municipality in question. Even though the
State may be called on to restore any deficits in capital reserve funds of the
agencies or authorities which issued the bonds, any restoration generally
requires appropriation by the State legislature and accordingly does not
constitute a legally enforceable obligation or debt of the State. The agencies
or authorities generally have no taxing power.
To the best of the Sponsor's knowledge, as of the date of this Prospectus,
there is no litigation pending with respect to any Municipal Bond which might
reasonably be expected to have a material adverse effect on the Trust or any
State Trust. Although the Sponsor is unable to predict whether any litigation
may be instituted, or if instituted, whether such litigation might have a
material adverse effect on the Trust, the Trust received copies of the opinions
of bond counsel given to the issuing authorities at the time of original
delivery of each of the Municipal Bonds to the effect that the Municipal Bonds
had been validly issued and that the interest thereon is exempt from Federal
income taxes.
INSURANCE ON THE PORTFOLIOS
All Municipal Bonds in the portfolio of the State Trusts are insured as to
the scheduled payment of interest and principal, when due, by policies obtained
directly by the Trust from Financial Guaranty Insurance Company ("Financial
Guaranty") or by the Sponsor or by the issuer from Financial Guaranty, MBIA or
other insurers. The insurance policies obtained by the Trust for a Series are
non-cancelable and will continue in force so long as such State Trust is in
existence, Financial Guaranty remains in business and the Municipal Bonds
described in the policy continue to be held in such State Trusts. The premium
for any insurance policy or policies obtained by an issuer of Municipal Bonds
or the Sponsor has been paid in advance by such issuer or the Sponsor and any
such policy or policies are non-cancelable and will remain in force so long as
the Municipal Bonds so insured are outstanding and the insurer and/or insurers
referred to below remain in business. A monthly premium is paid by each State
Trust for the insurance obtained by the Trust, which is payable from the
interest received by such State Trust. In those instances where Municipal Bond
insurance is obtained by the issuer or the Sponsor directly from an insurer, no
premiums for insurance are paid by the State Trust and such bonds are not
covered by the State Trust's policy. Nonpayment of premiums on the policy
obtained by the State Trust will not result in the cancellation of such
insurance but will force the insurer to take action against the Trustee to
recover premium payments due it. Premium rates for each issue of Municipal
Bonds protected by the policy obtained by the Trust are fixed for the life of
the appropriate State Trusts. If the provider of an original issuance
insurance policy is unable to meet its obligations under such
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<PAGE> 14
policy or if the rating assigned to the claims paying ability of any such
insurer deteriorates, no other insurer has an obligation to insure any issue
adversely affected by either of the above describe events.
The aforementioned insurance guarantees the scheduled payment of principal
and interest on the Municipal Bonds of each State Trust. It does not guarantee
the market value of the Municipal Bonds or the value of the Units of a State
Trust. The insurance obtained by the Trust is only effective as to Municipal
Bonds owned by and held in a State Trust and the price which an individual pays
on acquisition of Units, or receives on redemption or resale of Units, does
not, except as indicated below, include any element of value for the insurance
obtained by the Trust. Unitholders should recognize that in order to receive
any benefit from the portfolio insurance obtained by the State Trust, they must
be owners of the Units of a State Trust at the time the Trustee becomes
entitled to receive any payment from the insurer for such State Trust.
Insurance obtained by the issuer or the Sponsor of a Municipal Bond is
effective so long as the Municipal Bond is outstanding, whether or not held by
the State Trust.
Pursuant to an irrevocable commitment of Financial Guaranty, the Trustee,
upon the sale of a Municipal Bond under the Trust's insurance policy, has the
right to obtain permanent insurance with respect to such Municipal Bond (i.e.,
insurance to the maturity of the Municipal Bond regardless of the identity of
the holder thereof) (the "Permanent Insurance") upon the payment of a single
predetermined insurance premium from the proceeds of the sale of such Municipal
Bond. Accordingly, every Municipal Bond in the Trust is eligible to be sold on
an insured basis. It is expected that the Trustee will exercise the right to
obtain Permanent Insurance with respect to Municipal Bonds in the State Trust
only if upon such exercise the Trust would receive net proceeds (i.e., the
value of such Municipal Bond if sold as an insured Municipal Bond less the
insurance premium attributable to the Permanent Insurance) from such sale in
excess of the sale proceeds if such Municipal Bond was sold on an uninsured
basis. The insurance premium with respect to each Municipal Bond is determined
based upon the insurability of each Municipal Bond as of the Date of Deposit
and will not be increased or decreased for any change in the creditworthiness
of such Municipal Bond's issuer.
Insurance obtained for a State Trust, under normal circumstances, has no
effect on the price or redemption value of Units. It is the present intention
of the Evaluator to attribute a value to such insurance for the purpose of
computing the price or redemption value of Units only in circumstances where
the credit quality of an underlying Municipal Bond has significantly
deteriorated. Insurance obtained by the issuer of a Municipal Bond is
effective so long as such Municipal Bond is outstanding. Therefore, any such
insurance may be considered to represent an element of market value in regard
to the Municipal Bonds thus insured, but the exact effect, if any, of this
insurance on such market value cannot be predicted.
The value to be added to such Municipal Bonds shall be an amount equal to
the excess, if any, by which the net proceeds realizable from the sale of the
Municipal Bond on an insured basis exceeds the sum of (i) the net proceeds
receivable from the sale of the Municipal Bonds on an uninsured basis plus (ii)
the insurance premium attributable to the Permanent Insurance. Insurance
obtained by the issuer of a Municipal Bond is effective so long as such
Municipal Bond is outstanding. Therefore, any such insurance may be considered
to represent an element of market value in regard to the Municipal Bonds thus
insured, but the exact effect, if any, of this insurance on such market value
cannot be predicted.
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Under the provisions of the aforementioned insurance, Financial Guaranty
unconditionally and irrevocably agrees to pay to Citibank, N.A., or its
successor, as its agent (the "Fiscal Agent"), that portion of the principal of
and interest on the covered Municipal Bonds which shall become due for payment
but shall be unpaid by reason of nonpayment by the issuer of the Municipal
Bonds. The term "due for payment" means, when referring to the principal of a
Municipal Bond, its stated maturity date or the date on which it shall have
been called for mandatory sinking fund redemption and does not refer to any
earlier date on which payment is due by reason of call for redemption (other
than by mandatory sinking fund redemption), acceleration or other advancement
of maturity and means, when referring to interest on a Municipal Bond, the
stated date for payment of interest. When the interest on a Municipal Bond
shall have been determined, as provided in the underlying documentation
relating to such Municipal Bond, to be subject to Federal income taxation, "due
for payment" also means, when referring to the principal of such Municipal
Bond, the date on which such Municipal Bond has been called for mandatory
redemption as a result of such determination of taxability, and when referring
to interest on such Municipal Bond, the accrued interest at the rate provided
in such documentation to the date on which such Municipal Bond has been called
for such mandatory redemption, together with any applicable redemption premium.
Financial Guaranty will make such payments to the Fiscal Agent on the date
such principal or interest becomes due for payment or on the business day next
following the day on which Financial Guaranty shall have received notice of
nonpayment, whichever is later. The Fiscal Agent will disburse to the Trustee
the face amount of principal and interest which is then due for payment but is
unpaid by reason of nonpayment and interest which is then due for payment but
is unpaid by reason of nonpayment by the issuer but only upon receipt by the
Fiscal Agent of (i) evidence of the Trustee's right to receive payment of the
principal or interest due for payment and (ii) evidence, including any
appropriate instruments of assignment, that all of the rights to payment of
such principal or interest due for payment shall thereupon vest in Financial
Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of
the Municipal Bond, appurtenant coupon or right to payment of principal or
interest on such Municipal Bond and shall be fully subrogated to all the
Trustee's rights thereunder, including the right to payment thereof.
FINANCIAL GUARANTY INSURANCE COMPANY. The policy obtained by the Trust was
issued by Financial Guaranty, a New York stock insurance company. Financial
Guaranty is a wholly-owned subsidiary of FGIC Corporation, a Delaware holding
company (the "Corporation"). The Corporation is a wholly owned subsidiary of
General Electric Capital Corporation ("GECC"). Neither the Corporation nor
GECC is obligated to pay the debts of or the claims against Financial Guaranty.
Financial Guaranty is domiciled in the State of New York and is subject to
regulation by the State of New York Insurance Department. As of December 31,
1993 the total capital and surplus of Financial Guaranty was approximately
$777,000,000. Copies of Financial Guaranty's financial statements, prepared on
the basis of statutory accounting principles, and the Corporation's financial
statements, prepared on the basis of generally accepted accounting principles,
may be obtained by writing to Financial Guaranty at 115 Broadway, New York, New
York 10006, Attention: Communications Department (telephone number is (212)
312-3000) or to the New York State Insurance Department at 160 West Broadway,
18th Floor, New York 10013, Attention: Property Companies Bureau (telephone
number (212) 621-0389).
In addition, Financial Guaranty is currently authorized to write with
insurance in all 50 states and the District of Columbia.
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The information relating to Financial Guaranty contained above has been
furnished by such corporation. The financial information contained herein with
respect to such corporation is unaudited but appears in reports or other
materials filed with state insurance regulatory authorities and is subject to
audit and review by such authorities. No representation is made herein as to
the accuracy or adequacy of such information or as to the absence of material
adverse changes in such information subsequent to the date thereof but the
Sponsor is not aware that the information herein is inaccurate or incomplete.
In determining whether to insure bonds, Financial Guaranty has applied its
own standards, which are not necessarily the same as the criteria used in
regard to the selection of bonds by the Sponsor. This decision is made prior
to the Date of Deposit, as bonds not covered by such insurance are generally
not deposited in the Trust. The insurance obtained by the Trust covers
Municipal Bonds deposited in each State Trust and physically delivered to the
Trustee in the case of bearer bonds or registered in the name of the Trustee or
its nominee for Municipal Bonds held in book-entry form. Contracts to purchase
Municipal Bonds are not covered by the insurance obtained by the Trust,
although Municipal Bonds underlying such contracts are covered by insurance
upon physical delivery to the Trustee.
The contract of insurance relating to the State Trusts and the negotiations
in respect thereof represent the only relationship between Financial Guaranty
and the Trust. Otherwise, neither Financial Guaranty nor its parent, FGIC
Corporation, or any affiliate thereof has any significant relationship, direct
or indirect, with the Trust or the Sponsor, except that Kemper Reinsurance Co.,
an affiliate of the Sponsor, has participated to a very limited extent,
pursuant to an exemptive order obtained from the Securities and Exchange
Commission, in the reinsurance program of Financial Guaranty. Neither the
State Trusts, the related Units nor the portfolios of such State Trusts are
otherwise insured directly or indirectly by FGIC Corporation.
AMBAC INDEMNITY CORPORATION. AMBAC Indemnity Corporation ("AMBAC") is a
Wisconsin-domiciled stock insurance company, regulated by the Office of the
Commissioner of Insurance of the State of Wisconsin, and licensed to do
business in 50 states, the District of Columbia and the Commonwealth of Puerto
Rico, with admitted assets (unaudited) of approximately $1,936,000,000 and
statutory capital (unaudited) of approximately $1,096,000,000 as of September
30, 1993. Statutory capital consists of AMBAC policyholders' surplus and
statutory contingency reserve. AMBAC is a wholly owned subsidiary of AMBAC
Inc., a 100% publicly-held company. Moody's Investors Service, Inc. and
Standard & Poor's Corporation have both assigned a AAA claims-paying ability
rating to AMBAC. Copies of AMBAC's financial statements prepared in accordance
with statutory accounting standards are available from AMBAC. The address of
AMBAC's administrative offices and its telephone number at One State Street
Plaza, 17th Floor, New York, New York 10004 and (212) 668-0340. AMBAC has
entered into quota share reinsurance agreements under which a percentage of the
insurance underwritten pursuant to certain municipal bonds insurance programs
of AMBAC has been and will be assumed by a number of foreign and domestic
unaffiliated reinsurers.
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION. Municipal Bond Investors
Assurance Corporation ("MBIA Corporation") is the principal operating
subsidiary of MBIA, Inc., a New York Stock Exchange listed company. MBIA, Inc.
is not obligated to pay the debts of or claims against MBIA Corporation. MBIA
Corporation, which commenced municipal bond insurance operations on January 5,
1987, is a limited liability corporation rather than a several liability
association. MBIA Corporation is domiciled in the State of New York and
licensed to do business in all 50 states, the District of Columbia and the
Commonwealth of Puerto Rico.
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As of December 31, 1993 MBIA Corporation had admitted assets of $3.1
billion (audited), total liabilities of $2.1 billion (audited), and total
capital and surplus of $978 million (audited) prepared in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. Standard & Poor's Corporation has rated the claims paying ability
of MBIA "AAA." Copies of MBIA Corporation's financial statements prepared in
accordance with statutory accounting practices are available form MBIA
Corporation. The address of MBIA Corporation is 113 King Street, Armonk, New
York 10504.
Effective December 31, 1989 MBIA Inc. acquired Bond Investors Group, Inc.
On January 5, 1990, the Insurer acquired all of the outstanding stock of Bond
Investors Group, Inc., The parent of BIG, now known as MBIA Insurance Corp. of
Illinois. Though a reinsurance agreement, BIG has ceded all of its net insured
risks, as well as its unearned premium and contingency reserves, to the Insurer
and the Insurer has reinsured BIG's net outstanding exposure.
Moody's Investors Service rates all bonds issues insured by MBIA "Aaa" and
short-term loans "MIG1," both designated to be of the highest quality.
Standard & Poor's Corporation rates all new issues insured by MBIA "AAA."
FINANCIAL SECURITY ASSURANCE. Financial Security Assurance ("Financial
Security" or "FSA") is monoline insurance company incorporated on March 16,
1984 under the laws of the State of New York. The operations of Financial
Security commenced on July 25, 1985, and Financial Security received its New
York State insurance license on September 23, 1985. Financial Security and its
two wholly owned subsidiaries are licensed to engage in financial guaranty
insurance business in 49 states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively in the
business of writing financial guaranty insurance, principally in respect of
asset-backed and other collateralized securities offered in domestic and
foreign markets. Financial Security and its subsidiaries also write financial
guaranty insurance in respect of municipal and other obligations and reinsure
financial guaranty insurance policies written by other leadings insurance
companies. In general, financial guaranty insurance consists of the issuance
of a guaranty of scheduled payments of an issuer's securities, thereby
enhancing the credit rating of these securities, in consideration for payment
of a premium to the insurer.
Financial Security is 91.6% owned by U.S. West, Inc., and 8.4% owned by
The Tokio Marine and Fire Insurance Co., Ltd. ("Tokio Marine"). Neither U S
WEST, Inc. nor Tokio Marine is obligated to pay the debts of or the claims
against Financial Security. Financial Security is domiciled in the State of
New York and is subject to regulation by the State of New York Insurance
Department.
As of March 31, 1993, the total policyholders' surplus and contingency
reserves and the total unearned premium reserve, respectively, of Financial
Security and its consolidated subsidiaries were, in accordance with statutory
accounting principles, approximately $479,110,000 (unaudited) and $220,078,000
(unaudited), and the total shareholder's equity and the unearned premium
reserve, respectively of Financial Security and its consolidated subsidiaries
were, in accordance with generally accepted accounting principles,
approximately $628,119,000 (unaudited) and $202,493,000 (unaudited).
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Copies of Financial Security's financial statements may be obtained by
writing to Financial Security at 350 Park Avenue, New York, New York 10022,
Attention: Communications Department. Financial Security's Telephone number is
(212) 826-0100.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by Financial Security or either of its subsidiaries are
insured among such companies at an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, Financial Security
reinsurers a portion of its liabilities under certain of its financial guaranty
insurance policies with unaffiliated reinsurers under various quota share
treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by Financial Security as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
Financial Security's obligations under any financial guaranty insurance policy.
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc., and "AAA" by Standard & Poor's Corporation, Nippon
Investors Service Inc., Duff & Phelps Inc. and Australian Ratings Pty. Ltd.
Such ratings reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies.
CAPITAL GUARANTY INSURANCE COMPANY. Capital Guaranty Insurance Company
("Capital Guaranty") was incorporated in Maryland on June 25, 1986, and is
wholly owned subsidiary of Capital Guaranty Corporation, a Maryland insurance
holding company.
Capital Guaranty Corporation is owned by the following investors:
Constellation Investments, Inc., an affiliate of Baltimore Gas and Electric;
Fleet/Norstar Financial Group, Inc.; Safeco Corporation; Sibag Finance
Corporation, an affiliate of Siemens A.G. and United States Fidelity and
Guaranty Company and management.
Capital Guaranty, headquartered in San Francisco, is a monoline financial
guaranty insurer engaged in the underwriting and development of financial
guaranty insurance. Capital Guaranty insures general obligation, tax supported
and revenue bonds structured as a tax-exempt and taxable securities as well as
selectively insures taxable corporate/asset backed securities. Standard &
Poor's rates the claims paying the ability of Capital Guaranty "AAA".
As of September 30, 1993, Capital Guaranty had $13.6 billion in net
exposure outstanding. The total policyholders' surplus and contingency reserve
of Capital Guaranty was $181,383,432 (unaudited), and the total admitted assets
were $270,021,126 (unaudited) as reported to the Insurance Department of the
State of Maryland. Financial statements for Capital Guaranty Insurance
Company, that have been prepared in accordance with statutory insurance
accounting standards, are available upon request. The address of Capital
Guaranty's headquarters is Steuart Tower, 22nd Floor, One Market Plaza, San
Francisco, CA 94105-1413 and the telephone number is (415) 995-8000.
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Because the Municipal Bonds are insured as to the scheduled payment of
principal and interest and on the basis of the financial condition and the
method of operation of the insurance companies referred to above, either
Standard & Poor's or Moody's has assigned to the State Trusts' Units its "AAA"
or "Aaa" investment rating, respectively, and, in addition, Moody's has
assigned its "Aaa" investment rating to each of the Municipal Bonds covered by
the Financial Guaranty policy while held in the Trust. These are the highest
ratings assigned to securities by such rating agencies. See "Description of
Securities Ratings" herein. These ratings should not be construed as an
approval of the offering of the Units by Standard & Poor's or Moody's or as a
guarantee of the market value of the State Trusts or the Units. There is no
guarantee that the "AAA" or "Aaa" investment ratings will be maintained.
On the date shown under "Essential Information" in Part Two, the Estimated
Long-Term and Current Returns per Unit for the Trust, after payment of the
insurance premium, if any, were as indicated. The Estimated Long-Term and
Current Returns per Unit for a trust with an identical portfolio without the
insurance obtained by the Trust would have been higher on such date.
An objective of the portfolio insurance obtained by the Trust is to obtain
a higher yield on the portfolio of the Series of the Trust than would be
available if all the Municipal Bonds in such portfolios had Standard & Poor's
"AAA" rating and/or Moody's "Aaa" rating(s), and at the same time to have the
protection of insurance of prompt payment of interest and principal, when due,
on the Municipal Bonds. There is, of course, no certainty that this result
will be achieved. Municipal Bonds in a Series of the Trust which have been
insured by the issuer (all of which are rated "AAA" by Standard & Poor's and/or
"Aaa" by Moody's) may or may not have a higher yield than uninsured bonds rated
"AAA" by Standard & Poor's or "Aaa" by Moody's. In selecting such Municipal
Bonds for the portfolio, the Sponsor has applied the criteria described above.
In the event of nonpayment of interest or principal, when due, in respect
of a Municipal Bond, the appropriate insurer shall make such payment not later
than 30 days after it has been notified that such nonpayment has occurred or is
threatened (but not earlier than the date such payment is due). The insurer,
as regards any payment it may make, will succeed to the rights of the Trustee
in respect thereof.
The Internal Revenue Service has issued a letter ruling which holds, in
effect, that insurance proceeds representing maturing interest on defaulted
municipal obligations paid to municipal bond funds substantially similar to the
Trust, under policy provisions substantially identical to the policies
described herein, will be excludable from Federal gross income under Section
103(a)(1) of the Internal Revenue Code. Holders of Units in the State Trust
should discuss with their tax advisers the degree of reliance which they may
place on this letter ruling. Furthermore, Chapman and Cutler, counsel for the
Sponsor, has given an opinion to the effect that such payment of proceeds would
be excludable from Federal gross income to the same extent that such interest
would have been so excludable if paid by the issuer of the defaulted
obligations. See "Federal Tax Status of the State Trusts."
DISTRIBUTION REINVESTMENT
Each Unitholder of a State Trust may elect 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
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advised by Kemper Financial Services, Inc., an affiliate of the sponsor (the
"Kemper Funds") which are registered in the Unitholder's State of Residence,
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 Trust, Unitholders should carefully
consider the consequences, including the fact that distributions from such
Kemper Funds may be taxable, before selecting such Kemper Funds for
reinvestment. Detailed information with respect to the investment objectives
and the management of the Funds is contained in their respective prospectuses,
which can be obtained from the Sponsor, and many investment firms, upon
request. An investor should read the appropriate prospectus prior to making
the election to reinvest.
A Unitholder who desires to have such distributions automatically
reinvested without charge should file a written notice of election with the
Program Agent referred to below. Such 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 Record Date. Any such election shall remain
in effect until a subsequent notice is received by the Program Agent. See
"Unitholders - Distributions to Unitholders."
The Program Agent is Investors Fiduciary Trust Company. All inquiries
concerning participation in distribution reinvestment should be directed to the
Kemper Service Company, service agent for the Program Agent at P.O. Box 419430,
Kansas City, Missouri 64173-0216, telephone (800) 422-2848.
INTEREST, ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN
As of the opening of business on the date indicated therein, the Estimated
Current Returns and the Estimated Long-Term Returns for each State Trust were
as set forth under "Essential Information" for the applicable State Trust in
Part Two of this Prospectus. Estimated Current Returns are calculated by
dividing the estimated net annual interest income per Unit by the Public
Offering Price. The estimated net annual interest income 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
Securities while the Public Offering Price will vary with changes in the
offering price of the underlying Securities and with changes in Purchased
Interest in the case of Kemper Defined Funds; therefore, there is no assurance
that the present Estimated Current Returns will be realized in the future.
Estimated Long-Term Returns are 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 retirements of all of the
Securities in the State Trust and (2) takes into account the expenses and sales
charge associated with each State Trust Unit. Since the market values and
estimated retirements of the Securities and the expenses of the State Trust
will change, there is no assurance that the present Estimated Long-Term Returns
will be realized in the future. Estimated Current Returns and Estimated
Long-Term Returns are expected to differ because the calculation of Estimated
Long-Term Returns reflects the estimated date and amount of principal returned
while Estimated Current Returns calculations include only net annual interest
income and Public Offering Price.
FEDERAL TAX STATUS OF THE STATE TRUSTS
All Municipal Bonds deposited in the State Trusts were accompanied by
copies of opinions of bond counsel given to the issuers thereof at the time of
original delivery of the Municipal Bonds to the effect that
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the interest thereon is excludable from gross income for Federal income taxes.
In addition, bond counsel to the issuing authorities rendered opinions as to
the exemption of interest on such Municipal Bonds, when held by residents of
the state in which the issuers of such Municipal Bonds are located, from State
income taxes and, where applicable, local income taxes. Gain realized on the
sale or redemption of the Municipal Bonds by the Trustee or of a Unit by a
Unitholder is, however, includable in gross income for Federal income tax
purposes. Such gain does not include any amounts received in respect of
accrued interest or earned original issue discount. It should be noted that
under recently enacted legislation described below that subjects accretion of
market discount on tax-exempt bonds to taxation as ordinary income, gain
realized on the sale or redemption of Municipal Bonds by the Trustee or of
Units by a Unitholder that would have been treated as capital gain under prior
law is treated as ordinary income to the extent it is attributable to accretion
of market discount. Market discount can arise based on the price a Trust Fund
pays for Municipal Bonds or the price a Unitholder pays for his or her Units.
In connection with the offering of Units of the State Trusts, neither the
Sponsor, the Trustee, the Auditors nor their respective counsel have made any
review of the proceedings relating to the issuance of the Municipal Bonds or
the bases for such opinions.
At the time of the closing for each Trust, Chapman and Cutler, counsel for
the Sponsor, rendered an opinion under then existing law substantially to the
effect that:
Each State Trust is not an association taxable as a corporation for Federal
income tax purposes and interest and accrued original issue discount on Bonds
which is excludable from gross income under the Internal Revenue Code of 1986
(the "Code") will retain its status when distributed to Unitholders, except to
the extent such interest is subject to the alternative minimum tax, an
additional tax on branches of foreign corporations and the environmental tax
(the "Superfund Tax"), as noted below.
Each Unitholder is considered to be the owner of a pro rata portion of each
asset of the respective State Trust in the proportion that the number of Units
of such Trust held by him bears to the total number of Units outstanding of
such State Trust under subpart E, subchapter J of chapter 1 of the Code and
will have a taxable event when such State Trust disposes of a Bond, 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 State Trust,
if any, on Bonds delivered after the Unitholders pay for their Units to the
extent that such interest accrued on such Bonds during the period from the
Unitholder's settlement date to the date such Bonds are delivered to a State
Trust 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 Bonds (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 and amortized bond premium, if any) is determined by apportioning the
cost of the Units among each of the State Trust's assets ratably according to
the value as of the date of acquisition of the Units. The tax cost reduction
requirements of the 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.
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Any proceeds paid under individual policies obtained by issuers of Bonds
which represent maturing interest on defaulted obligations held by the Trustee
will be excludable from Federal gross income if, and to the same extent as,
such interest would have been so excludable if paid in the normal course by the
issuer of the defaulted obligations.
Sections 1288 and 1272 of the Internal Revenue Code of 1986 (the "Code")
provide a complex set of rules governing the accrual of original issue
discount. These rules provide that original issue discount accrues either on
the basis of a constant compound interest rate or ratably over the term of the
Municipal Bond, depending on the date the Municipal Bond was issued. In
addition, special rules apply if the purchase price of a Municipal Bond exceeds
the original issue price plus the amount of original issue discount which would
have previously accrued based upon its issue price (its "adjusted issue
price"). The application of these rules will also vary depending on the value
of the Municipal Bond on the date a Unitholder acquires his Units, and the
price the Unitholder pays for his Units. Investors with questions regarding
these Code sections should consult with their tax advisers.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") subjects
tax-exempt bonds to the market discount rules of the Code effective for bonds
purchased after April 30, 1993. In general, market discount is the amount (if
any) by which the stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if any, is
attributable to original issue discount not yet accrued). Under the Tax Act,
accretion of market discount is taxable as ordinary income; under prior law the
accretion had been treated as capital gain. Market discount that accretes
while a Trust Fund holds a Municipal Bond would be recognized as ordinary
income by the Unitholders when principal payments are received on the Municipal
Bond, upon sale or at redemption (including early redemption), or upon the sale
or redemption of his or her Units, unless a Unitholder elects to include market
discount in taxable income as it accrues. The market discount rules are
complex and Unitholders should consult their tax advisers regarding these rules
and their application.
In the case of all Unitholders (both individuals and corporations),
interest on all or certain Bonds held by the respective State Trusts may be
treated as an item of tax preference for purposes of computing the alternative
minimum tax. Accordingly, investments in Units may subject Unitholders to (or
result in increased liability under) the alternative minimum tax. Due to the
complexity of the alternative minimum tax, Unitholders are urged to consult
their tax advisers regarding the impact, if any, of the alternative minimum
tax.
In the case of certain corporations, the alternative minimum tax and the
Superfund Tax depend upon the corporation's alternative minimum taxable income,
which is the corporation's taxable income with certain adjustments. One of the
adjustment items used in computing the alternative minimum taxable income and
the Superfund Tax of a corporation (other than an S Corporation, Regulated
Investment Company, Real Estate Investment Trust, or REMIC) is an amount equal
to 75% of the excess of such corporation's "adjusted current earnings" over an
amount equal to its alternative minimum taxable income (before such adjustment
item and the alternative tax net operating loss deduction). "Adjusted current
earnings" includes all tax-exempt interest, including interest on all the Bonds
in a State Trust. Unitholders are urged to consult their tax advisers with
respect to the particular tax consequences to them including the corporate
alternative minimum tax, the Superfund Tax and the branch profits tax imposed
by Section 884 of the Code.
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Counsel for the Sponsor has also advised that under Section 265 of the
Code, interest on indebtedness incurred or continued to purchase or carry Units
of a State Trust is not deductible for Federal income tax purposes. The
Internal Revenue Service has taken the position that such indebtedness need not
be directly traceable to the purchase or carrying of Units (however, these
rules generally do not apply to interest paid on indebtedness incurred to
purchase or improve a personal residence). Also, under Section 265 of the
Code, certain financial institutions that acquire Units would generally not be
able to deduct any of the interest expense attributable to ownership of such
Units. Investors with questions regarding these issues should consult with
their tax advisers.
In the case of certain Municipal Bonds in the State Trusts, the opinions of
bond counsel indicate that interest on such securities received by a
"substantial user" of the facilities being financed with the proceeds of these
securities or persons related thereto, for periods while such securities are
held by such a user or related person, will not be excludable from Federal
gross income, although interest on such securities received by others would be
excludable from Federal gross income. "Substantial user" and "related person"
are defined under U.S. Treasury Regulations. Any person who believes that he
or she may be a "substantial user" or a "related person" as so defined should
contact his or her tax adviser.
Under existing law, the State Trusts are not associations taxable as a
corporation and the income of the Trust Funds will be treated as the income of
the Unitholders under the income tax laws of the State of Missouri.
All statements of law in the Prospectus concerning exclusion from gross
income for Federal, State or other tax purposes are the opinions of counsel and
are to be so construed.
At the respective times of issuance of the Bonds, opinions relating to the
validity thereof and to the exclusion of interest thereon from Federal gross
income are rendered by bond counsel to the respective issuing authorities.
Neither the Sponsor nor Chapman and Cutler has made any special review for the
State Trusts of the proceedings relating to the issuance of the Bonds or of the
basis for such opinions.
For taxpayers other than corporations, net capital gains are presently
subject to a maximum marginal stated tax rate of 28 percent. However, it
should be noted that legislative proposals are introduced from time to time
that affect tax rates and could affect relative differences at which ordinary
income and capital gains are taxed.
Under the Code, taxpayers must disclose to the Internal Revenue Service the
amount of tax-exempt interest earned during the year.
Section 86 of the Code, in general, provides that fifty percent of Social
Security benefits are includible in gross income to the extent that the sum of
"modified adjusted gross income" plus fifty percent of the Social Security
benefits received exceeds a "base amount." The base amount is $25,000 for
unmarried taxpayers, $32,000 for married taxpayers filing a joint return and
zero for married taxpayers who do not live apart at all times during the
taxable year and who file separate returns. Modified adjusted gross income is
adjusted gross
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income determined without regard to certain otherwise allowable deductions and
exclusions from gross income and by including tax exempt interest. To the
extent that Social Security benefits are includible in gross income, they will
be treated as any other item of gross income.
In addition, under the Tax Act, for taxable years beginning after December
31, 1993, up to 85 percent of Social Security benefits are includible in gross
income to the extent that the sum of "modified adjusted gross income" plus
fifty percent of Social Security benefits received exceeds an "adjusted base
amount." The adjusted base amount is $34,000 for married taxpayers, $44,000
for married taxpayers filing a joint return and zero for married taxpayers who
do not live apart at all times during the taxable year and who file separate
returns.
Although tax-exempt interest is included in modified adjusted gross income
solely for the purpose of determining what portion, if any, of Social Security
benefits will be included in gross income, no tax-exempt interest, including
that received from the Trust Fund, will be subject to tax. A taxpayer whose
adjusted gross income already exceeds the base amount or the adjusted base
amount must include fifty percent or eighty-five percent of his Social Security
benefits in gross income whether or not he receives any tax-exempt interest. A
taxpayer whose modified adjusted gross income (after inclusion of tax-exempt
interest) does not exceed the base amount need not include any Social Security
benefits in gross income.
For a discussion of the State tax status of income earned on Units of a
State Trust, see the discussion of tax status for the applicable trust. Except
as noted therein, the exemption of interest on State and local obligations for
Federal income tax purposes discussed above does not necessarily result in
exemption under the income or other tax laws of any State or city. The laws of
the several States vary with respect to the taxation of such obligations.
DESCRIPTION AND STATE TAX STATUS OF THE STATE TRUSTS
ALABAMA TRUSTS. Alabama's economy has experienced a major trend toward
industrialization over the past two decades. By 1990, manufacturing accounted
for 26.7% of Alabama's Real Gross State Product (the total value of goods and
services produced in Alabama). During the 1960s and 1970s the State's
industrial base became more diversified and balanced, moving away from primary
metals into pulp and paper, lumber, furniture, electrical machinery,
transportation equipment, textiles (including apparel), chemicals, rubber and
plastics. Since the early 1980s, modernization of existing facilities and an
increase in direct foreign investments in the State has made the manufacturing
sector more competitive in domestic and international markets.
Among several leading manufacturing industries have been pulp and papers
and chemicals. In recent years Alabama has ranked as the fifth largest
producer of timber in the nation. The State's growing chemical industry has
been the natural complement of production of wood pulp and paper. Mining, oil
and gas production and service industries are also important to Alabama's
economy. Coal mining is by far the most important mining activity.
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Major service industries that are deemed to have significant growth
potential include the research and medical training and general health care
industries, most notably represented by the University of Alabama medical
complex in Birmingham and the high technology research and development
industries concentrated in the Huntsville area.
Real Gross State Product. Real Gross State Product (RGSP) is a
comprehensive measure of economic performance for the State of Alabama.
Alabama's RGSP is defined as the total value of all final goods and services
produced in the State in constant dollar terms. Hence, changes in RGSP reflect
changes in final output. From 1984 to 1990 RGSP originating in manufacturing
increased by 22.99% whereas RGSP originating in all the non-manufacturing
sectors grew by 17.88%.
Those non-manufacturing sectors exhibiting large percentage increases in
RGSP originating between 1984 and 1990 were 1) Services; 2) Trade; 3) Farming;
and 4) Finance, Insurance and Real Estate. From 1984 to 1990 RGSP originating
in Services Increased by 35.07%; Trade grew by 21.53%; Farming Increased by
19.78%; and the gain in Finance, Insurance and Real Estate was 19.19%. The
present movement toward diversification of the State's manufacturing base and a
similar present trend toward enlargement and diversification of the service
industries in the State are expected to lead to increased economic stability.
Employment. The recent national economic recession was felt severely in
Alabama. The manufacturing growth described above reached a peak in 1979, and
was followed by a decrease in activity. The national economic recession was
principally responsible for this decline. The State's industrial structure is
particularly sensitive to high interest rates and monetary policy, and the
resulting unemployment during 1981- 1984 was acute. Unemployment rates have
improved as the impact of the national economic recovery has benefited the
State. The economic recovery experienced on the national level since 1982 has
been experienced in Alabama as well, but to a different degree and with a time
lag.
Among other risks, the State of Alabama's economy depends upon cyclical
industries such as iron and steel, natural resources, and timber and forest
products. As a result, economic activity may be more cyclical than in certain
other Southeastern states. The national economic recession in the early 1980s
caused a decline in manufacturing activity and natural resource consumption,
and Alabama's unemployment rate was 14.4% in 1982, significantly higher than
the national average. Unemployment remains high in some rural areas of the
State. A trend towards diversification of the State's economic base and an
expansion of service industries may lead to improved economic stability in the
future, although there is no assurance of this.
Political subdivisions of the State of Alabama have limited taxing
authority. In addition, the Alabama Supreme Court has held that a governmental
unit may first use its taxes and other revenues to pay the expenses of
providing governmental service before paying debt service on its bonds,
warrants or other indebtedness. The State has statutory budget provisions
which result in a proration procedure in the event estimated budget resources
in a fiscal year are insufficient to pay in full all appropriations for that
year. Proration has a materially adverse effect on public entities that are
dependent upon State funds subject to proration.
Deterioration of economic conditions could adversely affect both tax and
other governmental revenues, as well as revenues to be used to service various
revenue obligations, such as industrial development
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obligations. Such difficulties could affect the market value of the bonds held
by the Alabama Trust and thereby adversely affect Unitholders.
The foregoing information constitutes only a brief summary of some of the
financial difficulties which may impact certain issuers of Bonds and does not
purport to be a complete or exhaustive description of all adverse conditions to
which the issuers in the Alabama Trust are subject. Additionally, many factors
including national economic social and environmental policies and conditions,
which are not within the control of the issuers of Bonds, could affect or could
have an adverse impact on the financial condition of the State and various
agencies and political subdivisions located in the State. The Sponsor is
unable to predict whether or to what extent such factors or other factors may
affect the issuers of Bonds, the market value or marketability of the Bonds or
the ability of the respective issuers of the Bonds acquired by the Alabama
Trust to pay interest on or principal of the Bonds.
At the time of the closing for each Alabama Trust, Special Counsel to the
Fund for Alabama tax matters rendered an opinion under then existing Alabama
income tax law applicable to taxpayers whose income is subject to Alabama
income taxation substantially to the effect that:
(1) the Alabama Trust is not taxable as a corporation for purposes of the
Alabama income tax;
(2) income of the Alabama Trust, to the extent it is taxable, will be
taxable to the Unitholders, not the Alabama Trust;
(3) each Unitholder's distributive share of the Alabama Trust's net income
will be treated as the income of the Unitholder for purposes of the
Alabama income tax;
(4) interest on obligations held by the Alabama Trust which is exempt from
the Alabama income tax will retain its tax-exempt character when the
distributive share thereof is distributed or deemed distributed to
each Unitholder;
(5) any proceeds paid to the Alabama Trust under insurance policies issued
to the Sponsor or under individual policies obtained by the Sponsor,
the issuer or underwriter of the respective obligations which
represent maturing interest on defaulted obligations held by the
Trustee will be exempt from Alabama income tax if and to the same
extent as such interest would be exempt from such taxes if paid
directly by the issuer of such obligations;
(6) each Unitholder will, for purposes of the Alabama income tax, treat
his distributive share of gains realized upon the sale or other
disposition of the Bonds held by the Alabama Trust as though the Bonds
were sold or disposed of directly by the Unitholders; and
(7) gains realized on the sale or redemption of Units by Unitholders, who
are subject to the Alabama income tax will be includable in the
Alabama income of such Unitholders.
ARIZONA TRUSTS. General Economic Conditions. The following brief summary
regarding the economy of Arizona is based upon information drawn from publicly
available sources and is included for the purpose of providing the information
about general economic conditions that may or may not affect issuers of the
Arizona Municipal Obligations. The Sponsor has not independently verified any
of the information contained
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in such publicly available documents. Arizona is the nation's sixth largest
state in terms of area. Arizona's main economic sectors include services,
tourism and manufacturing. Mining and agriculture are also significant,
although they tend to be more capital than labor intensive. Services is the
single largest economic sector. Many of these jobs are directly related to
tourism.
According to the Arizona Department of Economic Security, 1992 unemployment
figures show 7.4 percent of Arizona's population was unemployed, compared to a
national level of 7.4 percent unemployment at the same time. Maricopa County
reported 6.3 percent unemployment and Pima County reported 5.2 percent
unemployment. Significant employers in the state include the government, the
service industry and the trade industry. Building permits in 1992 were up in
both Maricopa County and Pima County.
In June 1991, America West Airlines filed a Chapter 11 reorganization
petition in bankruptcy. America West is currently the fifth largest employer
in Maricopa County, employing approximately 7,100 persons within the county.
The effect of the America West bankruptcy on the state economy and, more
particularly, the Phoenix economy, is uncertain.
In 1986, the value of Arizona real estate began a steady decline,
reflecting a market which had been overbuilt in the previous decade with a
resulting surplus of completed inventory. This decline adversely affected both
the construction industry and those Arizona financial institutions which had
aggressively pursued many facets of real estate lending. In the near future,
Arizona's financial institutions are likely to continue to experience problems
until the excess inventories of commercial and residential properties are
absorbed. The problems of the financial institutions have adversely affected
employment and economic activity. Longer-term prospects are brighter, since
population growth is still strong by most standards, and Arizona's climate and
tourist industry still continue to stimulate the state's economy. However, the
previously robust pace of growth by financial institutions is not likely to be
repeated over an extended period.
The State operates on a fiscal year beginning July 1 and ending June 30.
Fiscal year 1993 refers to the year ending June 30, 1993.
Total General Fund revenues increased 10.8% from fiscal year 1992 to $3.77
billion during fiscal year 1993. Approximately 45% of this budgeted revenue
comes from sales and use taxes, 40% from income taxes (both individual and
corporate) and 6% from property taxes and other taxes represented approximately
9%.
For fiscal year 1993 total general fund expenditures were $3.4 billion.
These expenditures fell into the following major categories: education (54%),
health and welfare (29%), protection and safety (9%), general government (6%),
and inspection and regulation, natural resources and transportation (2.0%).
Most or all of the Bonds of the Arizona Trust are not obligations of the
State of Arizona, and are not supported by the State's taxing powers. The
particular source of payment and security for each of the Bonds is detailed in
the instruments themselves and in related offering materials. There can be no
assurances, however, with respect to whether the market value of marketability
of any of the Bonds issued by an entity other than the State of Arizona will be
affected by the financial or other condition of the State or of any entity
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located within the State. In addition, it should be noted that the State of
Arizona, as well as counties, municipalities, political subdivisions and other
public authorities of the state, are subject to limitations imposed by
Arizona's constitution with respect to ad valorem taxation, bonded indebtedness
and other matters. For example, the legislature cannot appropriate revenues in
excess of 7% of the total personal income of the state in any fiscal year.
These limitations may affect the ability of the issuers to generate revenues to
satisfy their debt obligations.
The State of Arizona was recently sued by four named school districts with
an additional fifty school districts within the state participating in the
suit, claiming that the State's funding system for school buildings and
equipment is unconstitutional. The lawsuit does not seek damages, but requests
that the court order the State to create a new financing system that sets
minimum standards for buildings and furnishings that apply on a statewide
basis. The complaint alleges that some school districts have sufficient funds
to build outdoor swimming pools, while others have classrooms that leak in the
rain. It is unclear, at this time, what effect any judgment would have on
state finances or school district budgets. The U.S. Department of Education
recently determined that Arizona's educational funding system did not meet
federal requirements of equity. This determination could mean a loss in
federal funds of approximately $50 million.
Certain other circumstances are relevant to the market value, marketability
and payment of any hospital and health care revenue bonds in the Arizona Trust.
The Arizona Legislature attempted unsuccessfully in its 1984 regular and
special sessions to enact legislation designed to control health care costs,
ultimately adopting three referenda measures placed on the November 1984
general election ballot which in various ways would have regulated hospital and
health care facility expansions, rates and revenues. At the same time, a
coalition of Arizona employers proposed two initiatives voted on in the
November 1984 general election which would have created a State agency with
power to regulate hospital and health care facility expansions and rates
generally. All of these referenda and initiative propositions were rejected by
the voters in the November 1984 general election. Pre-existing State
certificate-of-need laws regulating hospital and health care facilities'
expansions and services have expired, and a temporary moratorium prohibiting
hospital bed Increases and new hospital construction projects and a temporary
freeze on hospital rates and charges at June 1984 levels has also expired.
Because of such expirations and increasing health care costs, it is expected
that the Arizona Legislature will at future sessions continue to attempt to
adopt legislation concerning these matters. The effect of any such legislation
or of the continued absence of any legislation restricting hospital bed
increases and limiting new hospital construction on the ability of Arizona
hospitals and other health care providers to pay debt service on their revenue
bonds cannot be determined at this time.
Arizona does not participate in the federally administered Medicaid
program. Instead, the state administers an alternative program, AHCCCS, which
provides health care to indigent persons meeting certain financial eligibility
requirements, through managed care programs. In fiscal year 1992, AHCCCS will
be financed approximately 52.7% by federal funds, 33.1% by state funds, and
13.6% by county funds.
Under state law, hospitals retain the authority to raise rates with
notification and review by, but not approval from, the Department of Health
Services. Hospitals in Arizona have experienced profitability problems along
with those in other states. At least two Phoenix based hospitals have
defaulted on or reported difficulties in meeting their bond obligations during
the past three years.
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Insofar as tax-exempt Arizona public utility pollution control revenue
bonds are concerned, the issuance of such bonds and the periodic rate increases
needed to cover operating costs and debt service are subject to regulation by
the Arizona Corporation Commission, the only significant exception being the
Salt River Project Agricultural Improvement and Power District which, as a
Federal instrumentality, is exempt from rate regulation. On July 15, 1991,
several creditors of Tucson Electric Power Company ("Tucson Electric") filed
involuntary petitions under Chapter 11 of the U.S. Bankruptcy Code to force
Tucson Power to reorganize under the supervision of the bankruptcy court. On
December 31, 1991, the Bankruptcy Court approved the utility's motion to
dismiss the July petition after five months of negotiations between Tucson
Electric and its creditors to restructure the utility's debts and other
obligations. In December 1992, Tucson Electric announced that it had completed
its financial restructuring. In January 1993, Tucson Electric asked the
Arizona Corporation Commission for a 9.6% average rate increase. Tucson
Electric serves approximately 270,000 customers, primarily in the Tucson area.
Inability of any regulated public utility to secure necessary rate increases
could adversely affect, to an indeterminable extent, its ability to pay debt
service on its pollution control revenue bonds.
Based on a recent U.S. Supreme Court ruling, the State has determined to
refund $197 million, including statutory interest, in State income taxes
previously collected from Federal retirees on their pensions. This payment
will be made over a four-year period beginning with approximately $14.6 million
in tax refunds in fiscal year 1993-94. A combination of tax refunds and tax
credits will be used to satisfy this liability.
The assets of the Trust will consist of interest-bearing obligations
issued: By or on behalf of the State of Arizona (the "State"), its political
subdivisions and authorities (the "Arizona Bonds"), and by or on behalf of the
government of Puerto Rico, the government of Guam, or the government of the
Virgin Islands (collectively the "Possession Bonds") (collectively the Arizona
Bonds and Possession Bonds shall be referred to herein as the "Bonds"),
provided the interest on such Bonds is exempt from State income taxes.
At the time of the closing for each Arizona Trust, Special Counsel to the
Fund for Arizona tax matters rendered an opinion under then existing Arizona
income tax law applicable to taxpayers whose income is subject to Arizona
income taxation substantially to the effect that:
(1) For Arizona income tax purposes, each Unitholder will be treated as
the owner of a pro rata portion of the Arizona Trust, and the income
of the Trust therefore will be treated as the income of the Unitholder
under State law;
(2) For Arizona income tax purposes, interest on the Bonds which is
excludable from Federal gross income and which is exempt from Arizona
income taxes when received by the Arizona Trust, and which would be
excludable from Federal gross income and exempt from Arizona income
taxes if received directly by a Unitholder, will retain its status as
tax-exempt interest when received by the Arizona Trust and distributed
to the Unitholders;
(3) To the extent that interest derived from the Arizona Trust by a
Unitholder with respect to the Bonds is excludable from Federal gross
income, such interest will not be subject to Arizona income taxes;
(4) Each Unitholder will receive taxable gain or loss for Arizona income
tax purposes when Bonds held in the Arizona Trust are sold, exchanged,
redeemed or paid at maturity, or when the
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Unitholder redeems or sells Units, at a price that differs from
original cost as adjusted for amortization of Bond discount or premium
and other basis adjustments, including any basis reduction that may be
required to reflect a Unitholder's share of interest, if any, accruing
on Bonds during the interval between the Unitholder's settlement date
and the date such Bonds are delivered to the Arizona Trust, if later;
(5) Arizona law does not permit a deduction for interest paid or incurred
on indebtedness incurred or continued to purchase or carry Units in
the Arizona Trust, the interest on which is exempt from Arizona
Income taxes; and
(6) Neither the Bonds nor the Units will be subject to Arizona property
taxes, sales tax or use tax.
(7) In the case of Trusts for which an insurance policy or policies with
respect to the payment of principal and interest on the Arizona Bonds
has been obtained by the Depositor, any proceeds paid under such
policy or policies issued to the Trust, if any, with respect to the
Bonds in the Trust which represent maturing interest on defaulted
obligations held by the Trustee will be exempt from State income taxes
if, and to the same extent as, such interest would have been so exempt
if paid by the issuer of the defaulted obligations.
CALIFORNIA TRUSTS. The Trust will invest substantially all of its assets
in California Municipal Obligations. The Trust is therefore susceptible to
political, economic or regulatory factors affecting issuers of California
Municipal Obligations. These include the possible adverse effects of certain
California constitutional amendments, legislative measures, voter initiatives
and other matters that are described below. The following information provides
only a brief summary of the complex factors affecting the financial situation
in California (the "State") and is derived from sources that are generally
available to investors and are believed to be accurate. No independent
verification has been made of the accuracy or completeness of any of the
following information. It is based in part on information obtained from
various State and local agencies in California or contained in official
statements for various California Municipal Obligations.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local governmental finances
generally, will not adversely affect the market value of California Municipal
Obligations held in the portfolio of the Fund or the ability of particular
obligers to make timely payments of debt service on (or relating to) those
obligations.
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 30 million represents 12%
of the total United States population and grew by 27% in the 1980s. Total
personal income in the State, at an estimated $630 billion in 1991, accounts
for 13% of all personal income in the nation. Total employment is almost 14
million, the majority of which Is In the service, trade and manufacturing
sectors.
Reports issued by the State Department of Finance and the Commission on
State Finance (the "COSF") indicate that the State's economy is suffering its
worst recession since the 1930s, with prospects for recovery slower than for
the nation as a whole. The State has lost over 800,000 jobs since the start of
the recession and additional significant job losses are expected before an
upturn begins. The largest job losses have been in Southern California, led by
declines in the aerospace and construction industries. Weaknesses statewide
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occurred in manufacturing, construction, services and trade. Unemployment was
7.5% for 1991 (compared to 6.7% nationally), and is expected to be higher than
the national average in the near future. The State's economy is only expected
to pull out of the recession slowly once the national recovery has begun.
Delay In recovery will exacerbate shortfalls in State revenues.
Certain California municipal obligations may be obligations of issuers
which rely in whole or in part, directly or indirectly, on ad valorem property
taxes as a source of revenue. The taxing powers of California local
governments and districts are limited by Article XIIIA of the California
Constitution, enacted by the voters in 1978 and commonly known as "Proposition
13." Briefly, Article XIIIA limits to 1% of full cash value the rate of ad
valorem property taxes on real property and generally restricts the
reassessment of property to 2% per year, except upon new construction or change
of ownership (subject to a number of exemptions). Taxing entities may,
however, raise ad valorem taxes above the 1% limit to pay debt service on
voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been flied challenging the acquisition-based
assessment system of Proposition 13 and on June 18, 1992 the U.S. Supreme Court
announced a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give 2/3 approval to levy any "special tax." However,
court decisions allowed non-voter approved levy of "general taxes" which were
not dedicated to a specific use. In response to these decisions, the voters of
the State in 1986 adopted an initiative statute which imposed significant new
limits on the ability of local entities to raise or levy general taxes, except
by receiving majority local voter approval. Significant elements of this
initiative, "Proposition 62", have been overturned in recent court cases. An
initiative proposed to reenact the provisions of Proposition 62 as a
constitutional amendment was defeated by the voters in November 1990, but such
a proposal may be renewed in the future.
The State and its local governments are subject to an annual
"appropriations limit" imposed by Article XIIIB of the California Constitution,
enacted by the voters in 1979 and significantly amended by Propositions 98 and
111 in 1988 and 1990, respectively. Article XIIIB prohibits the State or any
covered local government from spending "appropriations subject to limitation"
in excess of the appropriations limit imposed. "Appropriations subject to
limitation" are authorizations to spend proceeds of taxes," which consists of
tax revenues and certain other funds, including proceeds from regulatory
licenses, user charges or other fees to the extent that such proceeds exceed
the cost of providing the product or service, but "proceeds of taxes" excludes
most State subventions to local governments. No limit is imposed on
appropriations or funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain
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capital outlay projects, (4) appropriations by the State of post-1989 increases
in gasoline taxes and vehicle weight fees, and (5) appropriations made in
certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such
adjustments were liberalized in 1990 by Proposition 111 to more closely follow
growth in California's economy.
"Excess" revenues are measured over a two-year cycle. Local governments
must return any excess to taxpayers by rate reduction. The State must refund
50% of any excess, with the other 50% paid to schools and community colleges.
With more liberal annual adjustment factors since 1988, and depressed revenues
since 1990 because of the recession, few governments are currently operating
near their spending limits, but this condition may change over time. Local
governments may by voter approval exceed their spending limits for up to four
years.
During fiscal year 1986-87, State receipts from proceeds of taxes exceeded
its appropriations limit by $1.1 billion, which was returned to taxpayers.
Appropriations subject to limitation were under the State limit by $1.2
billion, $259 million, $1.6 million, $7.5 billion and $5.2 billion for the five
most recent fiscal years ending with 1991-92. State appropriations are
expected to be $4.2 billion under the limit for Fiscal Year 1992-93.
Because of the complex nature of Articles XIIIA and XIIIB of the California
Constitution (described briefly above), the ambiguities and possible
inconsistencies in their terms, and the impossibility of predicting future
appropriations or changes in population and cost of living, and the probability
of continuing legal challenges, it is not currently possible to determine fully
the impact of Article XIIIA or Article XIIIB on California Municipal
Obligations or on the ability of the State or local governments to pay debt
service on such California Municipal Obligations. It is not presently possible
to predict the outcome of any pending litigation with respect to the ultimate
scope, impact or constitutionality of either Article XIIIA or Article XIIIB, or
the impact of any such determinations upon State agencies or local governments,
or upon their ability to pay debt service on their obligations. Future
initiative or legislative changes in laws or the California Constitution may
also affect the ability of the State or local issuers to repay their
obligations.
As of July 1, 1993, California had approximately $17.6 billion of general
obligation bonds outstanding, and $7.2 billion remained authorized but
unissued. In addition, at June 30, 1993, the State had lease-purchase
obligations, payable from the State's General Fund, of approximately $4.0
billion. In fiscal year 1992-93, debt service on general obligation bonds and
lease-purchase debt was approximately 4.1% of General Fund revenues. The State
has paid the principal of and interest on its general obligation bonds,
lease-purchase debt and short-term obligations when due.
The principal sources of General Fund revenues are the California personal
income tax (45% of total revenues), the sales tax (35%), bank and corporation
taxes (12%), and the gross premium tax on insurance (3%). The State maintains
a Special Fund for Economic Uncertainties (the "Economic Uncertainties Fund"),
derived from General Fund revenues, as a reserve to meet cash needs of the
General Fund, but which is
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required to be replenished as soon as sufficient revenues are available.
Year-end balances in the Economic Uncertainties Fund are included for financial
reporting purposes in the General Fund balance. In recent years, the State has
budgeted to maintain the Economic Uncertainties Fund at around 3% of General
Fund expenditures but essentially no reserve is budgeted in 1992-93.
Throughout the 1980s, State spending increased rapidly as the State
population and economy also grew rapidly, including increased spending for many
assistance programs to local governments, which were constrained by Proposition
13 and other laws. The largest State program is assistance to local public
school districts. In 1988, an initiative (Proposition 98) was enacted which
(subject to suspension by a two-thirds vote of the Legislature and the
Governor) guarantees local school districts and community college districts a
minimum share of State General Fund revenues (currently about 33%).
Since the start of 1990-91 Fiscal Year, the State has faced adverse
economic, fiscal and budget conditions. The economic recession seriously
affected State tax revenues. It also caused increased expenditures for health
and welfare programs. The State is also facing a structural imbalance in its
budget with the largest programs supported by the General Fund (education,
health, welfare and corrections) growing at rates significantly higher than the
growth rates for the principal revenue sources of the General Fund. As a
result, the State entered a period of budget imbalance, with expenditures
exceeding revenues for four of the last five fiscal years. Revenues declined
in 1990-91 over 1989-90, the first time since the 1930s. By June 30, 1992, the
State's General Fund had an accumulated deficit, on a budget basis, of
approximately $2.2 billion.
As a consequence of the large budget imbalances built up over two
consecutive years, the State used up all of its available cash resources. The
State has to rely increasingly on a series of external borrowings to meet its
cash flow requirements.
At the outset of the 1992-93 Fiscal Year, the State estimated that
approximately $7.9 billion of budget actions would be required to end fiscal
year without a budget deficit. The difficulty of taking these actions delayed
enactment of a budget for more than two months past the start of the fiscal
year without a budget deficit. The difficulty of taking these actions delayed
enactment of a budget for more than two months past the start of the 1992-93
Fiscal Year. With the failure to enact a budget by July 1, 1992, the State had
no legal authority to pay many of its vendors until the budget was passed;
nevertheless, certain obligations (such as debt service, school apportionments,
welfare payments and employee salaries) were payable because of continuing or
special appropriations or court orders. However, the State Controller did not
have enough cash to pay all of these ongoing obligations as they came due, as
well as valid obligations incurred in the prior fiscal year.
Because of the delay in enacting the budget, the State could not carry out
its normal cash flow borrowing and, starting on July 1, 1992, the Controller
was required to issue "registered warrants" in lieu of normal warrants backed
by cash to pay many State obligations. Available cash was used to pay
constitutionally mandated and priority obligations. Between July 1 and
September 3, 1992, the Controller issued an aggregate of approximately $3.8
billion of registered warrants, all of which were called for redemption by
September 4, 1992 following enactment of the 1992-93 Budget Act and issuance by
the State of $3.3 billion of Interim Notes.
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The 1992-93 Budget Bill was signed on September 2, 1992. The 1992-93
Budget Act provides for expenditures of $57.4 billion and consists of General
Fund expenditures of $40.8 billion and Special Fund and Bond Fund expenditures
of $16.6 billion. The Department of Finance estimated there would be a balance
In the Special Fund for Economic Uncertainties of $28 million on June 30, 1993.
The $7.9 billion budget gap was closed through a combination of increased
revenues and transfers and expenditure cuts. The principle reductions were in
health and welfare, K-12 schools and community colleges, State aid to local
governments, higher education (partially offset by increased student fees) and
various other programs. In addition, funds were transferred from special
funds, collections of State revenues were accelerated, and other adjustments
were made.
As in the prior year, the economic and fiscal assumptions on which the
1992-93 Budget Act was based proved to be too optimistic. As the recession in
the State entered its third year, with no real upturn predicted until 1994,
State revenues again lagged projections. The Department of Finance projects
current-year revenues will be about $2.4 billion below projections and
expenditures $300 million higher. As a result, the Department predicts the
General Fund will end at June 30, 1993 with fund balance deficit of about $2.2
billion, almost unchanged from June 30, 1992. The projected negative balance
of the Special Fund for Economic Uncertainties is $2.75 billion.
1993-94 Budget. The 1993-94 Budget represents the third consecutive year
of extremely difficult budget choices for the State, in view of the continuing
recession. The Budget Act, signed on June 30, 1993, provides for General Fund
expenditures of $38.5 billion, a 6.3% decline from the prior year. Revenues
are projected at $40.6 billion, about $400 million below the prior year. To
bring the budget into balance, the Budget Act and related legislation provided
for transfer of $2.6 billion of local property taxes to school districts, thus
relieving State support obligations; reductions in health and welfare
expenditures; reductions in support for higher education institutions; a
two-year suspension of the renters' tax credit; and miscellaneous cuts in
general government spending and certain one-time and accounting adjustments.
There were no general state tax increases, but a 0.5% temporary state sales tax
scheduled to expire on June 30 was extended for six months, and dedicated to
support local government public safety costs.
As part of the 1993-94 Budget, the Governor implemented a plan to repay the
accumulated $2.75 billion deficit in the Special Fund for Economic
Uncertainties over 18 months, funding the deficit with external borrowing
maturing not later than December 31, 1994. About $1.6 billion of the deficit
is scheduled to be repaid by June 30, 1994, with the balance paid by December
31, 1994. Taking this borrowing into account, the Department of Finance
projects the Special Fund for Economic Uncertainties would have a balance of
about $600 million at June 30, 1994, and about $100 million at June 30, 1995.
The State's severe financial difficulties for the current and upcoming
budget years will result in continued pressure upon various local governments,
particularly school districts and counties which depend on State aid. Despite
efforts in recent years to increase taxes and reduce governmental expenditures,
there can be no assurance that the State will not face budget gaps in the
future.
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State general obligation bonds are currently rated "Aa" by Moody's and "A+"
by S&F. Both of these ratings were recently reduced from "AAA" levels which
the State held until late 1991. There can be no assurance that such ratings
will be maintained in the future. It should be noted that the creditworthiness
of obligations issued by local California issuers may be unrelated to the
creditworthiness of obligations issued by the State of California, and that
there is no obligation on the part of the State to make payment on such local
obligations in the event of default.
The State is involved in certain legal proceedings (described in the
State's recent financial statements) that, if decided against the State, may
require the State to make significant future expenditures or may substantially
impair revenues.
There are a number of State agencies, instrumentalities and political
subdivisions of the State that issue Municipal Obligations, some of which may
be conduit revenue obligations payable from payments from private borrowers.
These entities are subject to various economic risks and uncertainties, and the
credit quality of the securities issued by them may vary considerably from the
credit quality of the obligations backed by the full faith and credit of the
State.
Property tax revenues received by local governments declined more than 50%
following passage of Proposition 13. Subsequently, the California Legislature
enacted measures to provide for the redistribution of the State's General Fund
surplus to local agencies, the reallocation of certain State revenues to local
agencies and the assumption of certain governmental functions by the State to
assist municipal issuers to raise revenues. Through 1990-1991, local
assistance (including public schools) accounted for around 75% of General Fund
spending. To reduce State General Fund support of school districts, the
1992-93 Budget Act caused local governments to transfer $1.3 billion of
property tax revenues to school districts, representing loss of almost half the
post-Proposition 13 "bail-out" aid. The 1993-94 Budget Act transfers about
$2.6 billion of local property taxes to school districts, the largest share ($2
billion) coming from counties, and the balance from cities ($288 million),
special districts ($244 million) and redevelopment agencies ($65 million). In
order to make up this shortfall to cities and counties, the Legislature has
dedicated 0.5% sales tax to local public safety purposes through December 31,
1993. Voters at a statewide election in November 1993 will vote on a permanent
extension of this sales tax for local public safety. In addition, the
Legislature has changed laws to relieve local governments of certain mandates,
allowing them to reduce costs.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may be reduced. Any such reductions in State
aid could compound the serious fiscal constraints already experienced by many
local governments, particularly counties. At least one rural county (Butte)
publicly announced that it might enter bankruptcy proceedings in August 1990,
although such plans were apparently put off after the Governor approved
legislation to provide additional funds for the county. Other counties have
also indicated that their budgetary condition is extremely grave. The Richmond
United School District (Contra Costa County) entered bankruptcy proceedings in
May 1991, but the proceedings have been dismissed.
Municipal Obligations which are assessment bonds may be adversely affected
by a general decline in real estate values or a slowdown in real estate sales
activity. In many cases, such bonds are secured by land
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which is undeveloped at the time of issuance but anticipated to be developed
within a few years after issuance. In the event of such reduction or slowdown,
such development may not occur or may be delayed, thereby increasing the risk
of a default on the bonds. Because the special assessments or taxes securing
these bonds are not the personal liability of the owners of the property
assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.
Certain California long-term lease obligations, though typically payable
from the general fund of the municipality, are subject to "abatement" in the
event the facility being leased is unavailable for beneficial use and occupancy
by the municipality during the term of the lease. Abatement is not a default,
and there may be no remedies available to the holders of the certificates
evidencing the lease obligation in the event abatement occurs. The most common
causes of abatement are failure to complete construction of the facility before
the end of the period during which lease payments have been capitalized and
uninsured casualty losses to the facility (e.g., due to earthquake). In the
event abatement occurs with respect to a lease obligation, lease payments may
be interrupted (if all available insurance proceeds and reserves are exhausted)
and the certificates may not be paid when due.
Several years ago the Richmond United School District (the "District")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the District's finances were
taken over by a State receiver (including a brief period under bankruptcy court
protection), the District failed to make rental payments on this lease,
resulting in a lawsuit by the Trustee for the Certificate of Participation
holders, in which the State was a named defendant (on the grounds that it
controlled the District's finances). One of the defenses raised in answer to
this lawsuit was the invalidity of the original lease transaction. The case is
still in very preliminary stages, and it is not known how it will be resolved.
If the case goes to trial, a judgment against the Trustee may have adverse
implications for lease transactions of a similar nature by other California
entities.
The repayment of Industrial Development Securities secured by real property
may be affected by California laws limiting foreclosure rights of creditors.
Securities backed by health care and hospital revenues may be affected by
changes in State regulations governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including risks
related to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (for example, because of a major
natural disaster such as an earthquake), the tax increment revenue may be
insufficient to make principal and interest payments on these bonds. Both
Moody's and S&P suspended ratings on California tax allocation bonds after the
enactment of Article XIIIA and Article XIIIB, and only resumed such ratings on
a selective basis.
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Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the Issuers of Tax
Allocation Securities) no longer receive an increase in tax increment when
taxes on property in the project area are increased to repay voter-approved
bonded indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue-raising
measures or which either would further limit or, alternatively, would increase
the abilities of state and local governments to impose new taxes or increase
existing taxes. It is not presently possible to determine the impact of any
such legislation on California Municipal Obligations in which the Fund may
invest future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California Municipal Obligations.
Substantially all of California is within an active geologic region subject
to major seismic activity. Any California Municipal Obligation in the
Portfolio could be affected by an interruption of revenues because of damaged
facilities, or, consequently, income tax deductions for casualty losses or
property tax assessment reductions. Compensatory financial assistance could be
constrained by the inability of (i) an issuer to have obtained earthquake
insurance coverage at reasonable rates; (ii) an insurer to perform on its
contracts of insurance in the event of widespread losses; or (iii) the Federal
or State government to appropriate sufficient funds within their respective
budget limitations.
At the time of the closing for each California Trust, Special Counsel to
each California Trust for California tax matters, rendered an opinion under
then existing California income tax law applicable to taxpayers whose income is
subject to California income taxation substantially to the effect that:
(1) The California Trust is not an association taxable as a corporation
and the income of the California Trust will be treated as the income
of the Unitholders under the Income tax laws of California;
(2) amounts treated as interest on the underlying Securities in the
California Trust which are exempt from tax under California personal
income tax and property tax laws when received by the California Trust
will, under such laws, retain their status as tax-exempt interest when
distributed to Unitholders. However, interest on the underlying
Securities attributed to a Unitholder which is a corporation subject
to the California franchise tax laws may be includable in its gross
income for purposes of determining its California franchise tax.
Further, certain interest which is attributable to a Unitholder
subject to the California personal income tax and which is treated as
an item of tax preference for purposes of the federal alternative
minimum tax pursuant to Section 57(a)(5) of the Internal Revenue Code
of 1986 may also be treated as an Item of tax preference that must be
taken into account in computing such Unitholder's alternative minimum
taxable income for purposes of the California alternative minimum tax
enacted by 1987 California Statutes, chapter 1138. However, because
of the provisions of the California Constitution exempting the
interest on bonds issued by the State of California, or by local
governments within the state, from taxes levied on income, the
application of the new California alternative minimum tax to Interest
otherwise exempt from the California personal income tax in some cases
may be unclear;
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(3) under California income tax law, each Unitholder in the California
Trust will have a taxable event when the California Trust disposes of
a Security (whether by sale, exchange, redemption, or payment at
maturity) or when the Unitholder redeems or sells Units. Because of
the requirement that tax cost basis be reduced to reflect amortization
of bond premium, under some circumstances a Unitholder may realize
taxable gains when Units are sold or redeemed for an amount equal to,
or less than, their original cost. The total cost of each Unit in the
California Trust to a Unitholder is allocated among each of the Bond
issues held in the California Trust (in accordance with the proportion
of the California Trust comprised by each Bond issue) in order to
determine his per Unit tax cost for each Bond issue; and the tax cost
reduction requirements relating to amortization of bond premium will
apply separately to the per Unit tax cost of each Bond issue.
Unitholders' bases in their Units, and the bases for their fractional
interest in each Trust asset, may have to be adjusted for their pro
rata share of accrued interest received, if any, on Securities
delivered after the Unitholders' respective settlement dates;
(4) under the California personal property tax laws, bonds (including the
Securities in the California Trust) or any interest therein is exempt
from such tax;
(5) any proceeds paid under the insurance policy issued to the California
Trust with respect to the Securities which represent maturing interest
on defaulted obligations held by the Trustee will be exempt from
California personal income tax if, and to the same extent as, such
interest would have been so exempt if paid by the issuer of the
defaulted obligations; and
(6) under Section 17280(b)(2) of the California Revenue and Taxation Code,
interest on indebtedness incurred or continued to purchase or carry
Units of the California Trust is not deductible for the purposes of
the California personal income tax. While there presently is no
California authority interpreting this provision, Section 17280(b)(2)
directs the California Franchise Tax Board to prescribe regulations
determining the proper allocation and apportionment of Interest costs
for this purpose. The Franchise Tax Board has not yet proposed or
prescribed such regulations. In interpreting the generally similar
Federal provision, the Internal Revenue Service has taken the position
that such indebtedness need not be directly traceable to the purchase
or carrying of Units (although the Service has not contended that a
deduction for interest on indebtedness incurred to purchase or improve
a personal residence or to purchase goods or services for personal
consumption will be disallowed). In the absence of conflicting
regulations or other California authority, the California Franchise
Tax Board generally has interpreted California statutory tax
provisions in accord with Internal Revenue Service interpretations of
similar Federal provisions.
At the respective times of issuance of the Securities, opinions relating to
the validity thereof and to the exemption of interest thereon from Federal
income tax and California personal income tax are rendered by bond counsel to
the respective issuing authorities. Except in certain instances in which
Special Counsel acted as bond counsel to issuers of Securities, and as such
made a review of proceedings relating to the issuance of certain Securities at
the time of their issuance, Special Counsel has not made any special review for
the California Trusts of the proceedings relating to the issuance of the
Securities or of the basis for such opinions.
COLORADO TRUSTS. The State Constitution requires that expenditures for any
fiscal year not exceed revenues for such fiscal year. By statute, the amount
of General Fund revenues available for appropriation is based upon revenue
estimates which, together with other available resources, must exceed annual
appropriations by the amount of the unappropriated reserve (the "Unappropriated
Reserve"). The
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Unappropriated Reserve requirement for fiscal years 1991, 1992 and 1993 was set
at 3% to enable it to respond to prison overcrowding. For fiscal year 1992 and
thereafter, General Fund appropriations are also limited to an amount equal to
the cost of performing certain required reappraisals of taxable property plus
an amount equal to the lesser of (i) five percent of Colorado personal income
or (ii) 106% of the total General Fund appropriations for the previous fiscal
year. This restriction does not apply to any General Fund appropriations which
are required as a result of a new federal law, a final state or federal court
order or moneys derived from the increase in the rate or amount of any tax or
fee approved by a majority of the registered electors of the State voting at
any general election. In addition, the limit on the level of General Fund
appropriations may be exceeded for a given fiscal year upon the declaration of
a State fiscal emergency by the State General Assembly.
The 1991 fiscal year end fund balance was $16.3 million, which was $62.8
million below the 3% Unappropriated Reserve requirement. As of the end of the
1992 fiscal year, the fund balance was $133.3 million, which was $49.1 million
over the 3% Unappropriated Reserve requirement. Based on June 20, 1993
estimates, the 1993 fiscal year ending fund balance is expected to be $281.8
million, or $189.7 million over the 3% required Unappropriated Reserve.
On November 3, 1992, voters in Colorado approved a constitutional
amendment (the "Amendment") which, in general, became effective December 31,
1992, and which could severely restrict the ability of the State and local
governments to increase revenues and impose taxes. The Amendment applies to
the State and all local governments, including home rule entities
("Districts"). Enterprises, defend as government-owned businesses authorized
to issue revenue bonds and receiving under 10% of annual revenue in grants from
all Colorado state and local governments combined, are excluded from the
provisions of the Amendment.
The provisions of the Amendment are unclear and would probably require
judicial interpretation. Among other provisions, beginning November 4, 1992,
the Amendment requires voter approval prior to tax increases, creation of debt,
or mill levy or valuation for assessment ratio increases. The Amendment also
limits increases in government spending and property tax revenues to specified
percentages. The Amendment requires that District property tax revenues yield
no more than the prior year's revenues adjusted for inflation, voter approved
changes and (except with regard to school districts) local growth in property
values according to a formula set forth in the Amendment. School districts are
allowed to adjust tax levies for changes in student enrollment. Pursuant to
the Amendment, local government spending is to be limited by the same formula
in the prior calendar year. The bases for initial spending and revenue limits
are 1992 fiscal year spending and 1991 property taxes collected in 1992. The
bases for spending and revenue limits for fiscal year 1994 and later years will
be the prior fiscal year's spending and property taxes collected in the prior
calendar year. Debt service changes, reductions and voter-approved revenue
changes are excluded from the calculation bases. The Amendment also prohibits
new or increased real property transfer tax rates, new State real property
taxes and local District income taxes.
According to the Colorado Economic Perspective, Fourth Quarter, FY 1992-93,
June 20, 1993 (the "Economic Report"), inflation for 1992 was 3.7% and
population grew at the rate of 2.7% in Colorado. Accordingly, under the
Amendment, increases in State expenditures during the 1994 fiscal year will be
limited to 6.4% over expenditures during the 1993 fiscal year. The 1993 fiscal
year is the base year for calculating the limitation for the 1994 fiscal year.
For the 1993 fiscal year, the Office of State Planning and Budgeting estimates
the general fund revenues will total $3,341.7 million and that program revenues
(cash funds) will
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total $1,753.4 million, or total estimated base revenues of $5,095.1 million.
Expenditures for the 1994 fiscal year, therefore, cannot exceed $5,421.2
million. However, the 1994 fiscal year general fund and program revenues (cash
fund) are projected to be only $5,220.4 million, or $200.8 million less than
expenditures allowed under the spending limitation.
There is also a statutory restriction on the amount of annual increases in
taxes that the various taxing jurisdictions in Colorado can levy without
electoral approval. This restriction does not apply to taxes levied to pay
general obligation debt.
As the State experienced revenue shortfalls in the mid-1980s, it adopted
various measures, including impoundment of funds by the Governor, reduction of
appropriations by the General Assembly, a temporary increase in the sales tax,
deferral of certain tax reductions and inter-fund borrowings. On a GAAP basis,
the State had unrestricted General Fund balances at June 30 of approximately
$100.3 million in fiscal year 1988, $134.8 million in fiscal year 1989, $116.6
million in fiscal year 1990, $16.3 million in fiscal year 1991 and $133.3
million in fiscal year 1992. The fiscal year 1993 unrestricted general fund is
currently estimated to be $281.8 million.
For fiscal year 1992, the following tax categories generated the following
respective revenue percentages of the State's $2,995.8 million total gross
receipts: individual income taxes represented 53.7% of gross fiscal year 1992
receipts; excise taxes represented 33.4% of gross fiscal year 1992 receipts;
and corporate income taxes represented 3.7% of gross fiscal year 1992 receipts.
The final budget for fiscal year 1993 projects general fund revenues of
approximately $3,341.7 million and appropriations of approximately $3,3046.7
million. The percentages of general fund revenue generated by the type of tax
for fiscal year 1993 are not expected to be significantly different from fiscal
year 1992 percentages.
Under its constitution, the State of Colorado is not permitted to issue
general obligation bonds secured by the full faith and credit of the State.
However, certain agencies and instrumentalities of the State are authorized to
issue bonds secured by revenues from specific projects and activities. The
State enters into certain lease transactions which are subject to annual
renewal at the option of the State. In addition, the State is authorized to
issue short-term revenue anticipation notes. Local governmental units in the
State are also authorized to incur indebtedness. The major source of financing
for such local government indebtedness is an ad valorem property tax. In
addition, in order to finance public projects, local governments in the State
can issue revenue bonds payable from the revenues of a utility or enterprise or
from the proceeds of an excise tax, or assessment bonds payable from special
assessments. Colorado local governments can also finance public projects
through leases which are subject to annual appropriation at the option of the
local government. Local governments in Colorado also issue tax anticipation
notes. The Amendment requires prior voter approval for the creation of any
multiple fiscal year debt or other financial obligation whatsoever, except for
refundings at a lower rate or obligations of an enterprise.
Based on the data published by the State of Colorado, Office of State
Planning and Budgeting as presented in the Economic Report, over 50% of
non-agricultural employment in Colorado in 1992 was concentrated in the retail
and wholesale trade and service sectors, reflecting the importance of tourism
to the State's economy and of Denver as a regional economic and transportation
hub. The government and manufacturing sectors followed as the fourth and fifth
largest employment sectors in the State, representing approximately 18.3% and
11.5%, respectively, of non-agricultural employment in the State in 1992.
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According to the Economic Report, during the first quarter of 1993, 45,900
net new jobs were generated in the Colorado economy, an increase of 24.4% over
the first quarter of 1992. However, the unemployment rate rose from an average
of 5.5% during the first quarter of 1992 to 5.8% during the first quarter of
1993. Total retail sales increased by 9.8% during the first quarter of 1993 as
compared to the same period in 1992.
Personal income rose 6.6% in Colorado during 1992 and 5.5% in 1991. In
1992, Colorado was the twelfth fastest growing state in terms of personal
income growth. However, because of heavy migration into the state and a large
increase in low-paying retail sector jobs, per capita personal income in
Colorado increased by only 3.8% in 1992, 0.1% below the increase in per capita
personal income for the nation as a whole.
Economic conditions in the State may have continuing effects on other
governmental units within the State (including issuers of the Bonds in the
Colorado Trust), which, to varying degrees, have also experienced reduced
revenues as a result of recessionary conditions and other factors.
At the time of the closing for each Colorado Trust, Special Counsel to the
Fund for Colorado tax matters rendered an opinion under then existing Colorado
income tax law applicable to taxpayers whose income is subject to Colorado
income taxation substantially to the effect that:
With respect to Colorado Unitholders, in view of the relationship between
Federal and Colorado tax computations described above:
(1) Each Colorado Unitholder will be treated as owning a pro rata share of
each asset of the Colorado Trust for Colorado income tax purposes in
the proportion that the number of Units of such Trust held by the
Unitholder bears to the total number of outstanding Units of the
Colorado Trust, and the income of the Colorado Trust will therefore be
treated as the income of each Colorado Unitholder under Colorado law
in the proportion described;
(2) interest on Bonds that would not be includable in income for Colorado
income tax purposes when paid directly to a Colorado Unitholder will
be exempt from Colorado income taxation when received by the Colorado
Trust and attributed to such Colorado Unitholder and when distributed
to such Colorado Unitholder;
(3) to the extent that interest paid and original issue discount, if any,
derived from the Colorado Trust by a Unitholder with respect to
Possession Bonds is excludable from gross income from Federal income
tax purposes pursuant to 48 U.S.C Section 745, 48 U.S.C. Section
1423a, and 48 U.S.C. Section 1403, such interest paid and original
issue discount, if any, will not be subject to the Colorado State
Income Tax; however, no opinion is expressed herein regarding taxation
of interest paid and original issue discount, if any, on the
Possession Bonds received by the Colorado Trust and distribution to
Unitholders under any other tax imposed pursuant to Colorado law;
(4) any proceeds paid under individual policies obtained by issuers of
Bonds in the Colorado Trust which represent maturing interest on
defaulted obligations held by the Trustee will not be includable in
income for Colorado income tax purposes if, and to the same extent as,
such interest would have been so excludable if paid in the normal
course by the issuer of the defaulted obligations;
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(5) each Colorado Unitholder will realize taxable gain or loss when the
Colorado Trust disposes of a Bond (whether by sale, exchange,
redemption, or payment at maturity) or when the Colorado Unitholder
redeems or sells Units at a price that differs from original cost as
adjusted for amortization of bond discount or premium and other basis
adjustments (including any basis reduction that may be required to
reflect a Colorado Unitholder's share of interest, if any, accruing on
Bonds during the interval between the Colorado Unitholder's settlement
date and the date such Bonds are delivered to the Colorado Trust, if
later);
(6) tax cost reduction requirements relating to amortization of bond
premium may, under some circumstances, result in Colorado Unitholders
realizing taxable gain when their Units are sold or redeemed for an
amount equal to or less than their original cost; and
(7) if interest on indebtedness incurred or continued by a Colorado
Unitholder to purchase Units in the Colorado Trust is not deductible
for Federal income tax purposes, it also will be nondeductible for
Colorado income tax purposes.
Unitholders should be aware that all tax-exempt interest, including their
share of interest on the Bonds paid to the Colorado Trust, is taken into
account for purposes of determining eligibility for the Colorado Property
Tax/Rent/Heat Rebate.
FLORIDA TRUSTS. Florida's economy has in the past been highly dependent on
the construction industry and construction related manufacturing. This
dependency has declined in recent years and continues to do so as a result of
continued diversification of the State's economy. For example, in 1980 total
contract construction employment as a share of total non-farm employment was
just over seven percent and in 1990 the share had edged downward to six
percent. This trend is expected to continue as Florida's economy continues to
diversify. Florida, nevertheless, has a dynamic construction industry with
single and multi-family housing starts accounting for 9.48% of total U.S.
housing starts in 1991 while the State's population is 5.3% of the U.S. total
population.
A driving force behind the State's construction industry has been the
State's rapid rate of population growth. Although Florida currently is the
fourth most populous state, its annual population growth is now projected to
decline as the number of people moving into the State is expected to hover near
the mid 200,000 range annually well into the 1990s. This population trend
should provide plenty of fuel for business and home builders to keep
construction activity lively in Florida for some time to come. However, other
factors do influence the level of construction in the State. For example,
Federal tax reform in 1986 and other changes to the Federal income tax code
have eliminated tax deductions for owners of two or more residential real
estate properties and have lengthened depreciation schedules on investment and
commercial properties. Economic growth and existing supplies of commercial
buildings and homes also contribute to the level of construction activity in
the State.
Since 1980, the State's job creation rate is well over twice the rate for
the nation as a whole, and its growth rate in new non- agricultural jobs is the
fastest of the 11 most populous states and second only to California in the
absolute number of new jobs created. Contributing to the State's rapid rate of
growth in employment and income is international trade. Since 1980, the
State's unemployment rate has generally been below that of the U.S. Only in
the last two years has the State's unemployment rate moved ahead of the
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national average. According to the U.S. Department of Commerce, the Department
of Labor and Employment Security and the Florida Consensus Economic Estimating
Conference (together the "Organization"), the State's unemployment rate was
5.9% during 1990. As of April 1991, the organization forecasts that when final
numbers are in, the unemployment rate for 1991 will be 7.3% and estimates that
it will be 8.1% for 1992. The State's non-farm employment is expected to
decline 1.5% in 1991-92 and rise 1.8% in 1992-93, mirroring the path of
employment growth nationally. The State's two largest and fastest growing
private employment categories are the service and trade sectors. Together,
they account for more than 50% of the total non-farm employment growth between
1991-92 and 1992-93. Employment in these sectors is expected to decline 3.6%
for trade and growth and 1.5% for services in 1991-92 and are expected to grow
0.7% and 3.7% in 1992-93, respectively. The service sector has overtaken the
trade sector and is now the State's largest employment category.
Tourism is one of the State's most important industries. Tourist arrivals
by car and air in the State will experience difficulties in 1991-92. By the
end of 1991-92, 38.8 million domestic and international tourists are expected
to have visited the State, a decrease of 4.9% from the 40.8 million who visited
in 1990-91. During 1992-93 tourist arrivals are expected to approximate 40
million.
The State's per capita personal income in 1990 of $18,539 was slightly
below the national average of $18,696 and significantly ahead of that for the
southeast United States, which was $16,514. Growth in real personal income in
the State is expected to follow a course similar to that of the nation, growing
at 0.3% in 1991-92 and 2.7% in 1992-93. Between 1990-91 and 1992-93, real
personal income per capita in the State is expected to average 0.5% less than
the 1990-91 level.
Compared to other states, Florida has a proportionately greater retirement
age population which comprises 18.3% (as of April 1, 1991) of the State's
population and is forecast to grow at an average annual rate of over 1.96%
through the 1990s. Thus, property income (dividends, interest, and rent) and
transfer payments (Social Security and pension benefits, among other sources of
income) are relatively more important sources of income. For example,
Florida's total wages and salaries and other labor income in 1990 was 54.9% of
total income, while a similar figure for the nation for 1990 was 64.8%.
Transfer payments are typically less sensitive to the business cycle than
employment income and, therefore, act as stabilizing forces in weak economic
periods. While many of the U.S.'s senior citizens choose the State as their
place of retirement, the State is also recognized as attracting a significant
number of working age people. Since 1980, the prime working age population
(18-44) has grown at an average annual rate of 3.6%.
In fiscal year 1990-91, approximately 64% of the State's total direct
revenue to its three operating funds will be derived from State taxes, with
federal grants and other special revenue accounting for the balance. State
sales and use tax, corporate income tax, and beverage tax amounted to 66%, 7%
and 5%, respectively, of total receipts by the General Revenue Fund during
fiscal 1990-91. in that same year, expenditures for education, health and
welfare, and public safety amounted to 55%, 27% and 8%, respectively, of total
expenditures from the General Revenue Fund. At the end of fiscal 1991,
approximately $4.45 billion in principal amount of debt secured by the full
faith and credit of the State was outstanding. In addition, since July 1,
1991, through August 1992, the State issued about $965 million in principal
amount of full faith and credit bonds.
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On August 24, 1992, the State was hit with a major hurricane, Hurricane
Andrew. Published speculation estimates total damage to the southern portion
of the State to be $20 billion or more. The actual economic impact to the
State is unknown at this time, but, in published reports, the director of
economic and demographic research for the Joint Legislative Management
Committee of the State's Legislature estimates that the State's revenues from
sales tax collection will exceed the estimates prior to Andrew. The director
said that the State is expecting $7 to $8 billion of insurance, and $10 billion
in federal disaster assistance, and up to $1 billion from other sources to
repair the damage caused by Andrew. The director estimates that a substantial
portion, maybe even half, of those monies will be spent over the next year or
two on items subject to the State's sales tax. In addition, the director
estimates that the State will collect documentary stamp taxes in excess of the
amount currently projected. The director foresees property owners using
insurance money to pay off mortgages on buildings that have been destroyed and
then borrowing to rebuild or remodel a home. The director estimates that the
additional spending will more than offset losses from tax revenues as a result
of the decline in sales in areas where businesses have been destroyed and
closed. In addition, a senior advisor to the State's governor in published
reports has said that the State's nearly $30 billion budget may end up having
to absorb an additional $82 million as a result of Andrew.
The State Constitution and statutes mandate that the State budget, as a
whole, and each separate fund within the State budget, be kept in balance from
currently available revenues each fiscal year. If the Governor or Comptroller
believes a deficit will occur in any State fund, by statute, he must certify
his opinion to the Administrative Commission, which then is authorized to
reduce all State agency budgets and releases by a sufficient amount to prevent
a deficit in any fund. Additionally, the State Constitution prohibits issuance
of State obligations to fund State operations.
Estimated fiscal year 1991-92 General Revenue plus Working Capital funds
available total $11,228.1 million. Compared to 1991-92 Estimated General
Revenues of $11,138.6 million, the State was left with unencumbered reserves of
$89.5 million at the end of its fiscal year. Estimated fiscal year 1992-93
General Revenue plus Working Capital funds available total $11,980.1 million, a
6.7% increase over 1991-1992. The $11,859.2 million in combined Estimated
Revenues and revenue generating measures represents an increase of 9.5% over
the previous year's Estimated Revenues. In a June 1992 Special Session of the
State Legislature, the Legislature passed a number of tax rate and base
increases to raise an additional $378.5 million in the State's 1992-93 fiscal
year. With effective General Revenue appropriations at $11,861.9 million,
unencumbered reserves at the end of the fiscal year are estimated at $118.2
million. Current estimates make it likely that this figure will increase when
revenue collections for 1991-92 are finalized.
The State's sales and use tax (6%) currently accounts for the State's
single largest source of tax receipts. Slightly less than 10% of the State's
sales and use tax is designated for local governments and is distributed to the
respective counties in which collected for such use by such counties and the
municipalities therein. In addition to this distribution, local governments
may (by referendum) assess a 0.5% or a 1.0% discretionary sales tax within
their county. Proceeds from this local option sales tax are earmarked for
funding local infrastructure programs and acquiring land for public recreation
or conservation or protection of natural resources as provided under Florida
law. Certain charter counties have other taxing powers in addition, and
non-consolidated counties with a population in excess of 800,000 may levy a
local option sales tax to fund indigent health care. It alone cannot exceed
0.5% and when combined with the infrastructure surtax cannot exceed 1.0%. For
the fiscal year ended June 30, 1991, sales and use tax receipts (exclusive of
the tax on gasoline and special fuels) totalled $8,152.0 million, a decline of
0.9% over fiscal year 1989-90.
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The State imposes an alcoholic beverage wholesale tax (excise tax) on beer,
wine, and liquor. This tax is one of the State's major tax sources, with
revenues totalling $445.4 million in the fiscal year ending June 30, 1991.
Alcoholic beverage tax receipts declined 1.0% over the previous year. The
revenues collected from this tax are deposited into the State's General Revenue
Fund.
The second largest source of State tax receipts is the tax on motor fuels.
However, these revenues are almost entirely dedicated trust funds for specific
purposes and are not included in the State's General Revenue Fund.
The State imposes a corporate income tax. All receipts of the corporate
income tax are credited to the General Revenue Fund. For the fiscal year ended
June 30, 1990, receipts from this source were $701.6 million, a decrease of
13.2% from fiscal year 1989-90.
The State also imposes a stamp tax on deeds and other documents relating to
realty, corporate shares, bonds, certificates of indebtedness, promissory
notes, wage assignments, and retail charge accounts. The documentary stamp
tax collections totaled $470.0 million during fiscal year 1990-91, a 9.4%
increase from the previous fiscal year. For the fiscal year 1990-91, 70.4% of
the documentary stamp tax revenues were deposited to the General Revenue Fund.
Beginning in fiscal year 1991-92, 76.21% of these taxes are to be deposited to
the General Revenue Fund.
On January 12, 1988, the State began its own lottery. State law requires
that lottery revenues be distributed 50% to the public in prizes, 38% for use
in enhancing education, and the balance, 12.0% for costs of administering the
lottery. Fiscal year 1990-91 lottery commissions for ticket sales totalled
$2.19 billion, providing education with $833.5 million.
Currently under litigation are several issues relating to State actions or
State taxes that put at risk substantial amounts of General Revenue Fund
monies. Accordingly, there is no assurance that any of such matters,
individually or in the aggregate, will not have a material adverse affect on
Florida's financial position.
In the wake of the U.S. Supreme Court decision holding that a Hawaii law
unfairly discriminated against out-of-state liquor producers, suits have been
filed in the State's courts contesting a similar State law (in effect prior to
1985) that seek $384 million in tax refunds. A trial court, in a ruling that
was subsequently upheld by the State's Supreme Court, found the State law in
question to be unconstitutional but made its ruling operate prospectively,
thereby denying any tax refunds. The issue of whether the unconstitutionality
of the tax should be applied retroactively was recently decided by the United
States Supreme Court. The Supreme Court found in favor of the taxpayers. On
remand from the U.S. Supreme Court, the Florida Supreme Court, on January 15,
1991, mandated further proceedings to fashion a "clear and certain remedy"
consistent with constitutional restrictions and the opinion of the U.S. Supreme
Court. The Florida Department of Revenue has proposed to the Florida Supreme
Court that the Department be allowed to collect back tax from those who
received a tax preference under the prior law. If the Department's proposal is
rejected and tax refunds are ordered to all potential claimants, a liability of
approximately $298 million could result. The case is now before the Florida
Circuit Court, Second Judicial District. That court will hear the affected
parties' response to the Department's proposed collection of the tax at the
higher rate charged to out-of-staters.
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Florida law provides preferential tax treatment to Insurers who maintain a
home office in the State. Certain insurers challenged the constitutionality of
this tax preference and sought a refund of taxes paid. Recently, the State
Supreme Court ruled in favor of the State. Similar issues have been raised in
other cases where insurers have challenged taxes imposed on premiums received
for certain motor vehicle service agreements. These four cases and pending
refund claims total about $200 million.
Florida maintains a bond rating of Aa and AA from Moody's Investors Service
and Standard & Poor's Corporation, respectively, on the majority of its general
obligation bonds, although the rating of a particular series of revenue bonds
relates primarily to the project, facility, or other revenue sources from which
such series derives funds for repayment. While these ratings and some of the
information presented above indicate that Florida is in satisfactory economic
health, there can be no assurance that there will not be a decline in economic
conditions or that particular Municipal Obligations purchased by the Fund will
not be adversely affected by any such changes.
The sources for the information above include official statements and
financial statements of the State of Florida. While the Sponsor has not
independently verified this information, the Sponsor has no reason to believe
that the information is not correct in all material respects.
At the time of the closing for each Florida Trust, Chapman and Cutler,
Counsel to each Florida Trust for Florida tax matters, rendered an opinion
under then existing Florida income tax law applicable to taxpayers whose
income is subject to Florida income taxation substantially to the effect that:
(1) For Florida state income tax purposes, the Florida Trust will not be
subject to the Florida income tax imposed by Chapter 220, Florida
Statutes. In addition, Florida does not impose any income taxes at
the local level;
(2) Because Florida does not impose an income tax on individuals,
non-corporate Unitholders residing in Florida will not be subject to
any Florida income taxation on income realized by the Florida Trust.
Any amounts paid to the Florida Trust or to non-corporate Unitholders
residing in Florida under an insurance policy issued to the Florida
Trust or the Sponsor which represent maturing interest on defaulted
obligations held by the Trustee will not be subject to the Florida
income tax imposed by Chapter 220, Florida Statutes;
(3) Corporate Unitholders with commercial domiciles in Florida will be
subject to Florida income or franchise taxation on income realized by
the Florida Trust and on payments of interest pursuant to any
insurance policy. Other corporate Unitholders will be subject to
Florida income or franchise taxation on income realized by the Florida
Trust (or on payments of interest pursuant to any insurance policy)
only to the extent that the income realized does not constitute
"non-business income" as defined by Chapter 220;
(4) Units will be subject to Florida estate tax only if held by Florida
residents. However, the Florida estate tax is limited to the amount
of the credit for state death taxes provided for in Section 2011 of
the Internal Revenue Code; and
(5) Neither the Bonds nor the Units will be subject to the Florida ad
valorem property tax, the Florida intangible personal property tax or
Florida sales or use tax.
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LOUISIANA TRUSTS. The following discussion regarding the financial
condition of the state government may not be relevant to general obligation or
revenue bonds issued by political subdivisions of and other issuers in the
State of Louisiana (the "State"). Such information, and the following
discussion regarding the economy of the State, is based upon information about
general economic conditions that may or may not affect issuers of the Louisiana
obligations. The Sponsor has not independently verified any of the information
contained in such publicly available documents, but is not aware of any facts
which would render such information inaccurate.
On December 19, 1990 the State received a rating upgrade on its general
obligation bonds to the current Standard & Poor rating of A from BBB-plus and
was placed on Standard & Poor's Corporation's positive credit watch. Standard
& Poor's cited improvements in the State's cash flow and fiscal reforms
approved by voters in the fall of 1990. The current Moody's rating on the
State's general obligation bonds remains unchanged at BBB-plus. There can be
no assurance that the economic conditions on which these ratings were based
will continue or that particular bond issues may not be adversely affected by
changes in economic or political conditions.
The Revenue Estimating Conference (the "Conference") was established by Act
No. 814 of the 1987 Regular Session of the State Legislature. The Conference
was established by the Legislature to provide an official estimate of
anticipated State revenues upon which the executive budget shall be based, to
provide for a more stable and accurate method of financial planning and
budgeting and to facilitate the adoption of a balanced budget as is required by
Article VII, Section 10(B) of the State Constitution. Act No. 814 provides
that the Governor shall cause to be prepared an executive budget presenting a
complete financial and programmatic plan for the ensuing fiscal year based only
upon the official estimate of anticipated State revenues as determined by the
Revenue Estimating Conference. Act No. 814 further provides that at no time
shall appropriations or expenditures for any fiscal year exceed the official
estimate of anticipated State revenues for that fiscal year. During the 1990
Regular Session of the Louisiana Legislature a constitutional amendment was
approved (Act No. 1096), which was approved by the State electorate, granting
constitutional status to the existence of the Revenue Estimating Conference
without altering its structure, powers, duties and responsibilities which are
currently provided by statute.
The State General Fund is the principal operating fund of the State, and
was established administratively to provide for the distribution of funds
appropriated by the State Legislature for the ordinary expenses of the State
government. Revenue is provided from the direct deposit of federal grants and
the transfer of State revenues from the Bond Security and Redemption Fund after
general obligation debt requirements are met. The Revenue Estimating
Conference met in February of 1991 and reported a projected $437.5 million
State General Fund surplus for the fiscal year ending June 30, 1991. This
surplus will be available for expenditures during the Fiscal Year 1991-92. The
beginning State General Fund surplus for fiscal year 1990-1991 was $702.3
million. The official recurring State General Fund estimate for Fiscal Year
1990-91 (Revenue Estimating Conference February 1991 as revised April 1991) is
$4,173.5 million.
The Transportation Trust Fund was established pursuant to (i) Section 27 of
Article VII of the State Constitution and (ii) Act No. 16 of the First
Extraordinary Session of the Louisiana Legislature for the year 1989
(collectively the "Act") for the purpose of funding construction and
maintenance of state and federal roads and bridges, the statewide flood-control
program, ports, airports, transit and state police traffic control projects and
to fund the Parish Transportation Fund. The Transportation Trust Fund is
funded by a levy of $0.20 per
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gallon on gasoline and motor fuels and on special fuels (diesel, propane,
butane and compressed natural gas) used, sold or consumed in the state (the
"Gasoline and Motor Fuels Taxes and Special Fuels Taxes"). This levy was
increased from $0.16 per gallon (the "Existing Taxes") to the current $0.20 per
gallon pursuant to Act No. 16 of the First Extraordinary Session of the
Louisiana Legislature for the year 1989, as amended. The additional tax of
$0.04 per gallon (the "Act 16 Taxes") became effective January 1, 1990 and will
expire on the earlier of January 1, 2005 or the date on which obligations
secured by the Act No. 16 taxes are no longer outstanding. The Transportation
Infrastructure Model for Economic Development Account (the "TIME Account") was
established in the Transportation Trust Fund. Moneys in the TIME Account will
be expended for certain projects identified in the Act aggregating $1.4 billion
and to fund not exceeding $160 million of additional capital transportation
projects. The State issued $263,902,639.95 of Gasoline and Fuels Tax Revenue
Bonds, 1990 Series A, dated April 15, 1990 payable from the (i) Act No. 16
Taxes, (ii) any Act No. 16 Taxes and Existing Taxes deposited in the
Transportation Trust Fund, and (iii) any additional taxes on gasoline and motor
fuels and special fuels pledged for the payment of said Bonds.
The Louisiana Recovery District (the "Recovery District") was created
pursuant to Act No. 15 of the First Extraordinary Session of the Legislature of
Louisiana of 1988 to assist the State in the reduction and elimination of a
deficit existing at the time and the delivery of essential services to its
citizens and to assist parishes, cities and other units of local government
experiencing cash flow difficulties. The Recovery District is a special taxing
district the boundaries of which are coterminous with the State and is a body
politic and corporate and a political subdivision of the State. The Recovery
District issued $979,125,000 of Louisiana Recovery District Sales Tax Bonds,
Series 1988, dated July 1, 1988, secured by (i) the revenues derived from the
District's 1% statewide sales and use tax remaining after the costs of
collection and (ii) all funds and accounts held under the Recovery District's
General Bond Resolution and all investment earnings on such funds and accounts.
As of June 30, 1990, the principal amount outstanding was $851,880,000.
The Legislature passed tax measures which are projected to raise
approximately $418 million in additional revenues for Fiscal Year 1990-91, the
most important of which include the following: sales tax--$328.3 million;
hazardous waste tax--$41.3 million; severance tax--$39.2 million; income
tax--$14.9 million; and tobacco tax--$14.0 million. The Legislature also
passed several constitutional amendments which were approved by the state
electorate, resulting in comprehensive budgetary reforms mandating that: both
proposed and adopted budgets be balanced in accordance with the official
forecast of the Revenue Estimating Conference; any new tax proposal be tied to
specific expenditures; all mineral revenues earned by the State in excess of
$750 million be placed in the Revenue Stabilization Mineral Trust Fund, to be
used as a "rainy day fund"; and the regular legislative session must end prior
to the completion of the fiscal year in order to streamline budgetary reporting
and planning. The Legislature also adopted a proposed constitutional amendment
which was approved by the State electorate permitting the creation of a
Louisiana lottery. The lottery is projected to generate approximately $111
million per year in net revenues for the State.
Only local governmental units levy ad valorem taxes at present. Under the
1921 State Constitution a 5.75 mills ad valorem tax was being levied by the
State until January 1, 1973 at which time a constitutional amendment to the
1921 Constitution abolished the ad valorem tax. Under the 1974 State
Constitution a State ad valorem tax of up to 5.75 mills was provided for but is
not presently being levied. The property tax is underutilized at the parish
level due to a constitutional homestead exemption from the property tax
applicable to the first $75,000 of the full market value of single family
residences. Homestead exemptions do not apply to ad valorem property taxes
levied by municipalities, with the exception of the City of New Orleans. Since
local governments are also prohibited from levying an individual income tax by
the constitution, their reliance on State government is increased under the
existing tax structure.
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The foregoing information constitutes only a brief summary of some of the
financial difficulties which may impact certain issuers of Bonds and does not
purport to be a complete or exhaustive description of all adverse conditions to
which the issuers of the Louisiana Trust are subject. Additionally, many
factors including national economic, social and environmental policies and
conditions, which are not within the control of the issuers of Bonds, could
affect or could have an adverse impact on the financial condition of the State
and various agencies and political subdivisions located in the State. The
Sponsor is unable to predict whether or to what extent such factors may affect
the issuers of Bonds, the market value or marketability of the Bonds or the
ability of the respective issuers of the Bonds acquired by the Louisiana Trust
to pay interest on or principal of the Bonds.
At the time of the closing for each Louisiana Trust Special Counsel to each
Louisiana Trust for Louisiana tax matters rendered an opinion under then
existing Louisiana income tax law applicable to taxpayers whose income is
subject to Louisiana income taxation substantially to the effect that:
(1) The Louisiana Trust will be treated as a trust for Louisiana income
tax purposes and not as an association taxable as a corporation;
(2) The Louisiana income tax on resident individuals is imposed upon the
"tax table Income" of resident individuals. The calculation of the
"tax table income" of a resident individual begins with federal
adjusted gross income. Certain modifications are specified, but no
such modification requires the addition of interest on obligations of
the State of Louisiana and its political subdivisions, public
corporations created by them and constitutional authorities thereof
authorized to issue obligations on their behalf. Accordingly, amounts
representing interest excludable from gross income for federal income
tax purposes received by the Louisiana Trust with respect to such
obligations will not be taxed to the Louisiana Trust or, except as
provided below, to the resident individual Unitholder, for Louisiana
income tax purposes. In addition to the foregoing, interest on the
respective Securities may also be exempt from Louisiana income taxes
pursuant to the statutes authorizing their issuance;
(3) To the extent that gain from the sale, exchange or other disposition
of obligations held by the Louisiana Trust (whether as a result of a
sale or exchange of such obligations by the Louisiana Trust or as a
result of a sale or exchange of a Unit by a Unitholder) is includable
in the federal adjusted gross income of a resident individual, such
gain will be included in the calculation of the Unitholder's Louisiana
taxable Income; and
(4) Gain or loss on the Unit or as to underlying bonds for Louisiana
income tax purposes would be determined by taking into account the
basis adjustments for federal income tax purposes described in this
Prospectus.
As no opinion is expressed regarding the Louisiana tax consequences of
Unitholders other than individuals who are Louisiana residents, tax counsel
should be consulted by other prospective Unitholders. The Internal Revenue
Code of 1986, as amended (the "1986 Code"), contains provisions relating to
investing in tax-exempt obligations (including, for example, corporate minimum
tax provisions which treat certain tax- exempt interest and corporate book
income which may include tax-exempt interest, as tax preference items,
provisions reducing the deductibility of interest expense by financial
institutions) which could have a corresponding effect on the Louisiana tax
liability of the Unitholders.
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In rendering the opinions expressed above, counsel has relied upon the
opinion of Chapman and Cutler that the Louisiana Trust is not an association
taxable as a corporation for Federal income tax purposes, that each Unitholder
of the Louisiana Trust will be treated as the owner of a pro rata portion of
such Louisiana Trust under the 1986 Code and that the income of the Louisiana
Trust will be treated as income of the Unitholders under the 1986 Code.
Tax counsel should be consulted as to the other Louisiana tax consequences
not specifically considered herein, and as to the Louisiana tax status of
taxpayers other than resident individuals who are Unitholders in the Louisiana
Trust. In addition, no opinion is being rendered as to Louisiana tax
consequences resulting from any proposed or future federal or state tax
legislation.
MASSACHUSETTS TRUSTS. As described above, the Trust will invest
substantially all of its assets in obligations issued by or on behalf of the
Commonwealth of Massachusetts, political subdivisions thereof, or agencies or
instrumentalities of the Commonwealth or its political subdivisions (the
"Bonds"). The Trust os therefore susceptible to general or particular
political, economic, or regulatory factors that may affect issuers of such
Massachusetts Investments. The following information constitutes only a brief
summary of some of the manu complex factors that may have an effect. The
information may not be applicable to "conduit" obligations on which the public
issuer itself has no financial responsibility. This information is derived
from official statements of the Commonwealth and certain of its agencies or
instrumentalities in connection with the issuance of securities, and from other
publicly available documents, and is believed to be accurate. No independent
verification has been made of any of the following information.
The Massachusetts Economy. At the present time, the Massachusetts economy
is experiencing a slow down. While Massachusetts has benefitted from an annual
job growth rate of approximately 2% since the early 1980's, by 1989, employment
had started to decline. Nonagricultural employment declined 0.7% in fiscal
year 1989, 4.0% in fiscal 1990, 5.5% in fiscal 1991, 1.5% in fiscal 1992, and
0.8% in fiscal 1993. A comparison of total, nonagricultural employment in July
1991 with that in December 1992 indicates a decline of 1.6%.
From 1980 to 1989, Massachusetts' unemployment rate was significantly lower
than the national average. By 1990, however, unemployment reached 6.0%,
exceeding the national average for the first time since 1977. Massachusetts'
unemployment rate averaged 9.0% in fiscal 1991 and 8.5% in fiscal 1992. The
Massachusetts unemployment rate was 8.2% as of January 1993, and 6.3% as of
July 1993.
In recent years, per capital personal income growth in Massachusetts has
slowed, after several years during which it was among the highest in the
nation. Between the first quarter of fiscal 1991 and the first quarter of
fiscal 1992, aggregate personal income in Massachusetts increased 2.6% as
compared to 4.1% for the nation as a whole. Between the second quarter of 1991
and the second quarter of 1992, aggregate personal income in Massachusetts
increased 3.9% as compared to 4.7% for the nation as a whole.
The Commonwealth, while the third most densely populated state according to
the 1990 census, has experienced only a modest increase in population from 1980
to 1990 at a rate equal to approximately one-half the rate of increase in the
United States population as a whole. Preliminary information compiled by the
Commonwealth suggests that out-migration has increased in recent years.
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Massachusetts possesses a diversified economic base which includes
traditional manufacturing, high technology and service industries, served by an
extensive transportation system and related facilities. The Massachusetts
service sector, at approximately 33% of the state work force in June 1993, is
the largest sector in the Massachusetts work force. In recent years, the
construction, manufacturing and trade sectors have experienced the greatest
decreases in employment in Massachusetts, with more modest declines taking
place in the government; finance, insurance and real estate; and service
sectors. From 1990 to December of 1992, manufacturing employment in
Massachusetts declined by some 12.5%. At the same time, there has occurred a
reversal of the dramatic growth which occurred during the 1980's in the
finance, insurance and real estate sector and in the construction sector of the
Massachusetts economy.
Over the next decade, Massachusetts has a very full public construction
agenda which is expected not only to improve mobility, but to provide a
substantial number of construction and related employment opportunities,
including the six billion dollar Central Artery Tunnel project involving the
construction of a third tunnel under Boston Harbor linking the Mass Pike and
downtown Boston with Logan International Airport, and the depression into
tunnels of the Central Artery that traverses the City of Boston. Federal funds
are expected to cover approximately 90% of the cost of this project. The
Central Artery Tunnel project as expected to employ approximately 5,000 on-site
workers and 10,000 auxiliary workers during the peak years of construction in
the mid-1990's.
State Finances. In fiscal years 1987 through 1991, Commonwealth spending
exceeded revenues. Spending in five major expenditure categories--Medicaid,
debt service, public assistance, group health insurance and transit
subsidies--grew at rates well in excess of the rate of inflation for the
comparable period. During the same period, the Commonwealth's tax revenues
repeatedly failed to meet official forecasts. The revenue shortfall combined
with steadily escalating costs contributed to serious budgetary and financial
difficulties which have affected the credit standing and borrowing abilities of
Massachusetts and certain of its public bodies and municipalities, and which
may have contributed to higher interest rates on debt obligations issued by
them.
More conservative revenue forecasting for fiscal 1992 together with
significant efforts to restrain spending during fiscal 1991 and reductions in
budgeted program expenditures for fiscal 1992 and fiscal year 1993 have
moderated these difficulties. Significant spending commitments for public
education are contained in recent education reform legislation enacted in June
of 1993. In July and August of 1993, the Executive Office for Administration
and Finance announced a series of actions affecting state workers (including a
hiring freeze, layoffs and the elimination of positions) intended to keep
expected fiscal 1994 expenditures with current appropriations. Notwithstanding
these actions, a continuation, or worsening, of the present slowdown and its
effect on the financial condition of the Commonwealth and its public
authorities and municipalities could result in a decline in the market values
of, or default on existing obligations including the Bonds deposited in the
Massachusetts Trust.
The foregoing information constitutes only a brief summary of some of the
general factors which may impact certain issuers of Bonds and does not purport
to be a complete or exhaustive description of all adverse conditions to which
the issuers of obligations held by a Massachusetts Trust are subject.
Additionally, many factors including national economic, social and
environmental policies and conditions, which are not within the control of the
issuers of Bonds, could affect or could have an adverse impact on the financial
condition of the Commonwealth and various agencies and political subdivisions
located in the Commonwealth. The Sponsor
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is unable to predict whether or to what extent such factors or other factors
may affect the issuers of the Bonds, the market value or marketability of the
Bonds or the ability of the respective issuers of the Bonds acquired by a
Massachusetts Trust to pay interest on or principal of the Bonds.
At the time of the closing for each Massachusetts Trust Special Counsel to
each Massachusetts Trust for Massachusetts tax matters, rendered an opinion
under then existing Massachusetts income tax law applicable to taxpayers whose
income is subject to Massachusetts income taxation substantially to the effect
that:
(1) For Massachusetts income tax purposes, a Massachusetts Trust will be
treated as a corporate trust under Section 8 of Chapter 62 of the
Massachusetts General Laws and not as a grantor trust under Section
10(e) of Chapter 62 of the Massachusetts General Laws;
(2) A Massachusetts Trust will not be held to be engaging in business in
Massachusetts within the meaning of said Section 8 and will,
therefore, not be subject to Massachusetts income tax;
(3) Massachusetts Unitholders who are subject to Massachusetts income
taxation under Chapter 62 of Massachusetts General Laws will not be
required to include their respective shares of the earnings of or
distributions from a Massachusetts Trust in their Massachusetts gross
income to the extent that such earnings or distributions represent
tax-exempt interest for Federal income tax purposes received by a
Massachusetts Trust on obligations issued by Massachusetts, its
counties, municipalities, authorities, political subdivisions or
instrumentalities, or issued by United States territories or
possessions;
(4) Any proceeds of insurance obtained by the Trustee of the Trust or by
the issuer of a Bond held by a Massachusetts Trust which are paid to
Massachusetts Unitholders and which represent maturing interest on
defaulted obligations held by the Trustee will be excludable from
Massachusetts gross income of a Massachusetts Unitholder if, and to
the same extent as, such interest would have been so excludable if
paid by the issuer of the defaulted Bond;
(5) A Massachusetts Trust's capital gains and/or capital losses realized
upon disposition of Bonds held by it will be includable pro rata in
the Federal gross income of Massachusetts Unitholders who are subject
to Massachusetts income taxation under Chapter 62 of the Massachusetts
General Laws, and such gains and/or losses will be included as capital
gains and/or losses in the Massachusetts Unitholder's Massachusetts
gross income, except where capital gain is specifically exempted from
income taxation under acts authorizing issuance of said Bonds;
(6) Gains or losses realized upon sale or redemption of Units by
Massachusetts Unitholders who are subject to Massachusetts income
taxation under Chapter 62 of the Massachusetts General Laws will be
includable in their Massachusetts gross income;
(7) In determining such gain or loss Massachusetts Unitholders will, to
the same extent required for Federal tax purposes, have to adjust
their tax bases for their Units for accrued interest received, if any,
on Bonds delivered to the Trustee after the Unitholders pay for their
Units and for amortization of premiums, if any, on obligations held by
a Massachusetts Trust; and
(8) The Units of a Massachusetts Trust are not subject to any property tax
levied by Massachusetts or any political subdivision thereof, nor to
any income tax levied by any such political subdivision.
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They are includable in the gross estate of a deceased Massachusetts
Unitholder who is a resident of Massachusetts for purposes of the
Massachusetts Estate Tax.
MICHIGAN TRUSTS. Investors should be aware that the economy of the State
of Michigan has, in the past, proven to be cyclical, due primarily to the fact
that the leading sector of the State's economy is the manufacturing of durable
goods. While the State's efforts to diversify its economy have proven
successful, as reflected by the fact that the share of employment in the State
in the durable goods sector has fallen from 33.1 percent in 1960 to 17.9
percent in 1990, durable goods manufacturing still represents a sizable portion
of the State's economy. As a result, any substantial national economic
downturn is likely to have an adverse effect on the economy of the State and on
the revenues of the State and some of its local governmental units.
In May 1986, Moody's Investors Service raised the State's general
obligation bond rating to "Al." In October 1989, Standard & Poor's Corporation
raised its rating on the State's general obligation bonds to "AA".
The State's economy could continue to be affected by changes in the auto
industry, notably consolidation and plant closings resulting from competitive
pressures and over-capacity. Such actions could adversely affect State
revenues and the financial impact on the local units of government in the areas
in which plants are closed could be more severe.
General Motors Corporation has announced the scheduled closing of several
of its plants in Michigan in 1993 and 1994. The impact these closures will
have on the State's revenues and expenditures is not currently known. The
impact on the financial condition of the municipalities in which the plants are
located may be more severe than the impact on the State itself.
In recent years, the State has reported its financial results in accordance
with generally accepted accounting principles. For each of the five fiscal
years ending with the fiscal year ended September 30, 1989, the State reported
positive year-end General Fund balances and positive cash balances in the
combined General Fund/School Aid Fund. For the fiscal years ending September
30 1990 and 1991, the State reported negative year-end General Fund Balances of
$310.4 million and $169.4 million, respectively negative year-end General Fund
Balances of $310.4 million and $169.4 million, respectively, but ended the 1992
fiscal year with its general fund in balance. In the 1993 fiscal year, the
State took actions to eliminate a projected year-end general fund deficit of
$370 million, but the final financial reports for the 1993 fiscal year have not
been released. A positive cash balance in the combined General Fund/School Aid
Fund was recorded at September 30, 1990. Since 1991 the State has experienced
deteriorating cash balances which have necessitated short term borrowing and
the deferral of certain scheduled cash payments. The State borrowed $900
million for cash flow purposes in the 1992 fiscal year. The State's Budget
Stabilization Fund was nearly depleted with a $168 million transfer to the
General Fund for the 1992 State fiscal year.
The Michigan Constitution of 1963 limits the amount of total revenues of
the State raised from taxes and certain other sources to a level for each
fiscal year equal to a percentage of the State's personal income for the prior
calendar year. In the event that the State's total revenues exceeds the limit
by 1 percent or more, the Michigan Constitution of 1963 requires that the
excess be refunded to taxpayers.
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In the summer of 1993, the State adopted legislation which modifies the
local ad valorem property tax system by exempting all property from school
operating millage beginning December 31, 1993, changing the date on which
property valuation is determined (which will have the effect of freezing
assessed values on property for one year, with a one-year lag in assessment
changes thereafter). The legislature contains no provisions replacing school
operating revenues or tax increment revenues lost as a result of the
elimination of school operating taxes, or to assure payment of bonds pledging
those revenues. The ability of taxing units to levy millage to pay voted
unlimited tax general obligation debt is not impaired by the legislation.
While the impact of the legislation and the ultimate nature, extent and impact
of any additional property tax reform measures cannot currently be predicted,
investors should be alert to the potential effect of the movement for property
tax and school finance reform in Michigan upon bonds issued by the State and
local units for government in Michigan, and the security therefor.
Although all or most of the Bonds in each Michigan Trust are revenue
obligations or general obligations of local governments or authorities rather
than general obligations of the State of Michigan itself, there can be no
assurance that any financial difficulties the State may experience will not
adversely affect the market value or marketability of the Bonds or the ability
of the respective obligers to pay interest on or principal of the Bonds,
particularly in view of the dependency of local governments and other
authorities upon State aid and reimbursement programs and, in the case of bonds
issued by the State Building Authority, the dependency of the State Building
Authority on the receipt of rental payments from the State to meet debt service
requirements upon such bonds. In the 1991 fiscal year, the State deferred
certain scheduled cash payments to municipalities, school districts,
universities and community colleges. While such deferrals were made up at
specified later dates, similar future deferrals could have an adverse impact on
the cash position of some local governmental units. Additionally, the State
reduced revenue sharing payments to municipalities below that level provided
under formulas by $10.9 million in the 1991 fiscal year and $34.4 million in
the 1992 fiscal year.
The Michigan Trust may contain general obligation bonds of local units of
government pledging the full faith and credit of the local unit which are
payable from the levy of ad valorem taxes on taxable property within the
jurisdiction of the local unit. Such bonds issued prior to December 22, 1978,
or issued after December 22, 1978 with the approval of the electors of the
local unit, are payable from property taxes levied without limitation as to
rate or amount. With respect to bonds issued after December 22, 1978, and
which were not approved by the electors of the local unit, the tax levy of the
local unit for debt service purposes is subject to constitutional, statutory
and charter tax rate limitations. In addition, several major industrial
corporations have instituted challenges of their ad valorem property tax
assessments in a number of local municipal units in the State. If successful,
such challenges could have an adverse impact on the ad valorem tax bases of
such units which could adversely affect their ability to raise funds for
operating and debt service requirements.
At the time of the closing for each Michigan Trust, Special Counsel to each
Michigan Trust for Michigan tax matters rendered an opinion under then existing
Michigan income tax law applicable to taxpayers whose income is subject to
Michigan income taxation substantially to the effect that:
(1) A Michigan Trust and the owners of Units will be treated for purposes
of the Michigan income tax laws and the Single Business Tax in
substantially the same manner as they are for purposes of the Federal
income tax laws, as currently enacted. Accordingly, we have relied
upon the opinion of Chapman and Cutler as to the applicability of
Federal income tax under the Internal Revenue Code of 1986 to a
Michigan Trust and the Holders of Units;
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(2) Under the income tax laws of the State of Michigan, a Michigan
Trust is not an association taxable as a corporation; the
income of a Michigan Trust will be treated as the income of
the Unitholders and be deemed to have been received by them
when received by a Michigan Trust. Interest on the underlying
Bonds which is exempt from tax under these laws when received
by a Michigan Trust will retain its status as tax exempt
interest to the Unitholders;
(3) For purposes of the foregoing Michigan tax laws, each
Unitholder will be considered to have received his pro rata
share of Bond interest when it is received by a Michigan Trust
and each Unitholder will have a taxable event when a Michigan
Trust disposes of a Bond (whether by sale, exchange,
redemption or payment at maturity) or when the Unitholder
redeems or sells his Certificate to the extent the transaction
constitutes a taxable event for Federal income tax purposes.
The tax cost of each unit to a Unitholder will be established
and allocated for purposes of these Michigan tax laws in the
same manner as such cost is established and allocated for
Federal income tax purposes;
(4) Under the Michigan Intangibles Tax, a Michigan Trust is not
taxable and the pro rata ownership of the underlying Bonds, as
well as the interest thereon, will be exempt to the
Unitholders to the extent the Michigan Trust consists of
obligations of the State of Michigan or its political
subdivisions or municipalities, or of obligations of
possessions of the United States;
(5) The Michigan Single Business Tax replaced the tax on corporate
and financial institution income under the Michigan Income
Tax, and the Intangible Tax with respect to those intangibles
of persons subject to the Single Business Tax the income from
which would be considered in computing the Single Business
Tax. Persons are subject to the Single Business Tax only if
they are engaged in "business activity", as defined in the
Act. Under the Single Business Tax, both interest received by
a Michigan Trust on the underlying Bonds and any amount
distributed from a Michigan Trust to a Unitholder, if not
included in determining taxable income for Federal income tax
purposes, is also not included in the adjusted tax base upon
which the Single Business Tax is computed, of either a
Michigan Trust or the Unitholders. If a Michigan Trust or the
Unitholders have a taxable event for Federal income tax
purposes when a Michigan Trust disposes of a Bond (whether by
sale, exchange, redemption or payment at maturity) or the
Unitholder redeems or sells his Certificate, an amount equal
to any gain realized from such taxable event which was
included in the computation of taxable income for Federal
income tax purposes (plus an amount equal to any capital gain
of an individual realized in connection with such event but
excluded in computing that individual's Federal taxable
income) will be included in the tax base against which, after
allocation, apportionment and other adjustments, the Single
Business Tax is computed. The tax base will be reduced by an
amount equal to any capital loss realized from such a taxable
event, whether or not the capital loss was deducted in
computing Federal taxable income in the year the loss
occurred. Unitholders should consult their tax advisor as to
their status under Michigan law;
(6) Any proceeds paid under an insurance policy issued to the
Trustee of a Trust, or paid under individual policies obtained
by issuers of Bonds, which, when received by the Unitholders,
represent maturing interest on defaulted obligations held by
the Trustee, will be excludable from the Michigan income tax
laws and the Single Business Tax if, and to the same extent
as, such interest would have been so excludable if paid by the
issuer of the defaulted obligations. While treatment under
the Michigan Intangibles Tax is not premised upon the
characterization of such proceeds under the Internal Revenue
Code, the Michigan Department of Treasury should adopt the
same approach as under the Michigan income tax laws and the
Single Business tax; and
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(7) As the Tax Reform Act of 1986 eliminates the capital gain
deduction for tax years beginning after December 31, 1986, the
federal adjusted gross income, the computation base for the
Michigan Income Tax, of a Unitholder will be increased
accordingly to the extent such capital gains are realized when
the Michigan Trust disposes of a Bond or when the Unitholder
redeems or sells a Unit, to the extent such transaction
constitutes a taxable event for Federal income tax purposes.
MINNESOTA TRUSTS. In the early 1980s, the State of Minnesota
experienced financial difficulties due to a downturn in the State's economy
resulting from the national recession. As a consequence, the State's revenues
were significantly lower than anticipated in the July 1, 1979 to June 30, 1981
biennium and the July 1, 1981 to June 30, 1983 biennium.
In response to revenue shortfalls, the legislature broadened and
increased the State sales tax, increased income taxes (by increasing rates and
eliminating deductions) and reduced appropriations and deferred payment of
State aid, Including appropriations for and aids to local governmental units.
The State's fiscal problems affected other governmental units within the State,
such as local government, school districts and state agencies, which, in
varying degrees, also faced cash flow difficulties. In certain cases, revenues
of local governmental units and agencies were reduced by the recession.
Because of the State's fiscal problems, Standard & Poor's Corporation
reduced its rating on the State's outstanding general obligation bonds from AAA
to AA+ in August 1981 and to AA in March 1982. Moody's Investors Service, Inc.
lowered its rating on the State's outstanding general obligation bonds from Aaa
to Aa In April 1982. The State's economy recovered in the July 1, 1983 to June
30, 1985 biennium, and substantial reductions in the individual Income tax were
enacted in 1984 and 1985. Standard & Poor's raised Its rating on the State's
outstanding general obligation bonds to AA+ in January 1985. In 1986, 1987 and
1991, legislation was required to eliminate projected budget deficits by
raising additional revenue, reducing expenditures, including aid to political
subdivisions and higher education, and making other budgetary adjustments. A
budget forecast released by the Minnesota Department of Finance on February 27,
1992 projected a $569 million budget shortfall, primarily attributable to
reduced income tax receipts, for the biennium ending June 30, 1993. Planning
estimates for the 1994-95 biennium projected a budget shortfall of $1.75
billion (less a $400 million reserve). The State responded by enacting
legislation that made substantial accounting changes, reduced the budget
reserve (cash flow account) by $160 million to $240 million, reduced
appropriations for state agencies and higher education, imposed a sales tax on
purchases by local governmental units and adopted other tax and spending
changes. The 1993 legislature enacted further tax and spending changes. An
end-of-legislative-session budget forecast released by the Department of
Finance on June 15, 1993 projects a $297 million General Fund surplus at the
end of the biennium ended on June 30, 1993, plus a $360 million cash flow
account, against a total budget for the biennium of approximately $14.6
billion. The forecast for the biennium, after applying the surplus from June
30, 1993 and after reserving $360 million for the cash flow account.
State grants and aids represent a large percentage of the total
revenues of cities, towns, counties and school districts in Minnesota. Even
with respect to bonds that are revenue obligations and not general obligations
of the State, there can be no assurance that the fiscal problems referred to
above will not adversely affect the market value or marketability of the bonds
or the ability of the respective obligers to pay interest on and principal of
the bonds.
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At the time of the closing for each Minnesota Trust, Special Counsel
to each Minnesota Trust for Minnesota tax matters rendered an opinion under
then existing Minnesota income tax law applicable to taxpayers whose income is
subject to Minnesota income taxation substantially to the effect that:
We understand that a Minnesota Trust will have no income other than (i)
interest income on bonds issued by the State of Minnesota and its political and
governmental subdivisions, municipalities and governmental agencies and
instrumentalities and on bonds issued by possessions of the United States which
would be exempt from Federal and Minnesota income taxation when paid directly
to an individual, trust or estate (and the term "Bonds" as used herein refers
only to such Bonds), (ii) gain on the disposition of such Bonds, and (iii)
proceeds paid under certain insurance policies issued to the Trustee or to the
issuers of the Bonds which represent maturing interest or principal payments on
defaulted Bonds held by the Trustee.
"Taxable income" for Minnesota income tax purposes is the same as
"Taxable Income" for Federal income tax purposes with certain modifications
that (with one exception) do not apply to the present circumstances. The
exception is that corporations must add to Federal taxable income the amount of
any interest received on the obligations of states and their agencies and
instrumentalities, political and governmental subdivisions, and municipalities.
The terms "trust" and "corporation" have the same meanings for Minnesota income
tax purposes, as relevant to the Minnesota tax status of a Minnesota Trust, as
for Federal income tax purposes.
In view of the relationship between Federal and Minnesota law
described in the preceding paragraph and the opinion of Chapman and Cutler with
respect to Federal tax treatment of a Minnesota Trust and its Unitholders: (1)
a Minnesota Trust will be treated as a trust rather than a corporation for
Minnesota income tax purposes and will not be deemed the recipient of any
Minnesota taxable income; (2) each Unitholder of a Minnesota Trust will be
treated as the owner of a pro rata portion of a Minnesota Trust for Minnesota
income tax purposes and the income of a Minnesota Trust will therefore be
treated as the income of the Unitholders under Minnesota law; (3) interest on
the Bonds will be exempt from Minnesota income taxation of Unitholders who are
individuals, trusts and estates when received by a Minnesota Trust and
attributed to such Unitholders and when distributed to such Unitholders (except
as hereinafter provided with respect to "industrial development bonds" and
"private activity bonds" held by "substantial users"); (4) interest on the
Bonds will be includible in the Minnesota taxable income (subject to allocation
and apportionment) of Unitholders that are corporations; (5) each Unitholder
will realize taxable gain or loss when a Minnesota Trust disposes of a Bond
(whether by sale, exchange, redemption or payment at maturity) or when the
Unitholder redeems or sells Units at a price which differs from original cost
as adjusted for amortization of bond discount or premium and other basis
adjustments (including any basis reduction that may be required to reflect a
Unitholder's share of interest, if any, accruing on Bonds during the interval
between the Unitholder's settlement date and the date such Bonds are delivered
to a Minnesota Trust, if later); (6) tax cost reduction requirements relating
to amortization of bond premium may, under some circumstances, result in
Unitholders realizing taxable gain when their Units are sold or redeemed for an
amount equal to or less than their original cost; (7) any proceeds paid under
the insurance policy issued to the Trustee with respect to the Bonds which
represent maturing interest on defaulted obligations held by the Trustee will
be excludible from Minnesota gross income if, and to the same extent as, such
interest would have been so excludible if paid by the issuer of the defaulted
obligations; (8) any proceeds paid under individual insurance policies obtained
by issuers of Bonds which represent maturing interest on defaulted obligations
held by the Trustee will be excludible from Minnesota gross income if, and to
the same extent as, such interest would have been so excludible if paid in the
normal course by the issuer of the defaulted obligations; (9) net capital gains
of Unitholders attributable
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to the Bonds will be fully includible in the Minnesota taxable income of
Unitholders (subject to allocation and apportionment In the case of corporate
Unitholders); and (10) interest on Bonds includible in the computation of
"alternative minimum taxable income" for Federal income tax purposes will also
be includible in the computation of "alternative minimum taxable income" for
Minnesota income tax purposes.
Interest income attributable to Bonds that are "industrial development
bonds" or "private activity bonds," as those terms are defined in the Internal
Revenue Code, will be taxable under Minnesota law to a Unitholder who is a
"substantial user" of the facilities financed by the proceeds of such Bonds (or
a "related person" to such a "substantial user") to the same extent as if such
Bonds were held by such Unitholder.
MISSOURI TRUSTS. The following discussion regarding constitutional
limitations and the economy of the State of Missouri is Included for the
purpose of providing general information that may or may not affect Issuers of
the Bonds In Missouri.
In November 1981, the voters of Missouri adopted a tax limitation
amendment to the constitution of the State of Missouri (the "Amendment"). The
Amendment prohibits increases in local taxes, licenses or fees by political
subdivisions without approval of the voters of such political subdivision. The
Amendment also limits the growth in revenues and expenditures of the State to
the rate of growth in the total personal income of the citizens of Missouri.
The limitation may be exceeded if the General Assembly declares an emergency by
a two-thirds vote.
Although the June 1993 revenue estimate has been revised downward by
$27.5 million, the State budget remains balanced due primarily to delayed
spending for desegregation capital projects. The downward revision in revenues
was considered necessary because of weak economic performance to date, and more
importantly an economic outlook for the second half of the fiscal year which
projects slower growth than was anticipated in June 1992.
The economy of Missouri is diverse and includes manufacturing, retail
and wholesale trade, services, agriculture, tourism and mining. In recent
years, growth in the wholesale and retail trade has offset the more slowly
growing manufacturing and agricultural sectors of the economy. According to
the United States Bureau of Labor Statistics, the 1991 unemployment rate in
Missouri was 6.6%, the 1992 rate was 5.7% and the seasonally adjusted rate for
March of 1993 was 6.7%. There can be no assurance that general economic
conditions or the financial circumstances of Missouri or its political
subdivisions will not adversely affect the market value of the Bonds or the
ability of the obligor to pay debt service on such Bonds.
Currently, Moody's Investors Service rates Missouri general obligation
bonds "Aaa" and Standard & Poor's Corporation rates Missouri general obligation
bonds "AAA". Although these ratings indicate that the State of Missouri is in
relatively good economic health, there can be, of course, no assurance that
this will continue or that particular bond issues may not be adversely affected
by changes in the State or local economic or political conditions.
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The foregoing information constitutes only a brief summary of some of
the general factors which may impact certain issuers of Bonds and does not
purport to be a complete or exhaustive description of all adverse conditions to
which the issuers of obligations held by the Missouri Trust are subject.
Additionally, many factors including national economic, social and
environmental policies and conditions, which are not within the control of the
issuers of the Bonds, could affect or could have an adverse impact on the
financial condition of the State and various agencies and political
subdivisions located in the State. The Sponsor is unable to predict whether
or to what extent such factors or other factors may affect the issuers of the
Bonds, the market value or marketability of the Bonds or the ability of the
respective issuers of the Bonds acquired by the Missouri Trust to pay interest
on or principal of the Bonds.
The assets of the Missouri Trust will consist of debt obligations
issued by or on behalf of the State of Missouri (the "State") or counties,
municipalities, authorities or political subdivisions thereof (the "Missouri
Bonds") or by the Commonwealth of Puerto Rico, Guam and the United States
Virgin Islands (the "Possession Bonds") (collectively, the "Bonds").
Neither the Sponsor nor its counsel have independently examined the
Bonds to be deposited in and held in the Missouri Trust. However, although no
opinion is expressed herein regarding such matters, it is assumed that: (i) the
Bonds were validly issued, (ii) the interest thereon is excludable from gross
income for Federal income tax purposes and (iii) interest on the Missouri
Bonds, if received directly by a Unitholder, would be exempt from the Missouri
income tax applicable to individuals and corporations ("Missouri state income
tax"). The opinion set forth below does not address the taxation of persons
other than full time residents of Missouri. No opinion is expressed regarding
whether the gross earnings derived from the Units is subject to intangible
taxation imposed by counties, cities and townships pursuant to present Kansas
law.
In the opinion of Chapman and Cutler, counsel to the Sponsor under
existing law:
(1) The Missouri Trust is not an association taxable as a
corporation for Missouri income tax purposes, and each
Unitholder of the Missouri Trust will be treated as the owner
of a pro rata portion of the Missouri Trust and the income of
such portion of the Missouri Trust will be treated as the
income of the Unitholder for Missouri state income tax
purposes;
(2) Interest paid and original issue discount, if any, on the
Bonds which would be exempt from the Missouri state income tax
if received directly by a Unitholder will be exempt from the
Missouri state income tax when received by the Missouri Trust
and distributed to such Unitholder; however, no opinion is
expressed herein regarding taxation of interest paid and
original issue discount, if any, on the Bonds received by the
Missouri Trust and distributed to Unitholders under any other
tax imposed pursuant to Missouri law, including but not
limited to the franchise tax imposed on financial institutions
pursuant to Chapter 148 of the Missouri Statutes;
(3) To the extent that interest paid and original issue discount,
if any, derived from the Missouri Trust by a Unitholder with
respect to Possession Bonds is excludable from gross income
for Federal income tax purposes pursuant to 48 U.S.C. Section
745, 48 U.S.C. Section 1423a, and 48 U.S.C. Section 1403, such
interest paid and original issue discount, if any, will not be
subject to the Missouri state income tax; however, no opinion
is expressed herein regarding taxation of interest paid and
original issue discount, if any, on the Bonds received by the
Missouri Trust and distributed to Unitholders under any other
tax imposed pursuant to Missouri law, including but not
limited to the franchise tax imposed on financial institutions
pursuant to Chapter 148 of the Missouri Statutes;
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(4) Each Unitholder of the Missouri Trust will recognize gain or
loss for Missouri state income tax purposes if the Trustee
disposes of a bond (whether by redemption, sale, or otherwise)
or if the Unitholder redeems or sells Units of the Missouri
Trust to the extent that such a transaction results in a
recognized gain or loss to such Unitholder for Federal income
tax purposes. Due to the amortization of bond premium and
other basis adjustments required by the Internal Revenue
Code, a Unitholder under some circumstances, may realize
taxable gain when his or her Units are sold or redeemed for an
amount equal to their original cost;
(5) Any insurance proceeds paid under policies which represent
maturing interest on defaulted obligations which are
excludable from gross income for Federal income tax purposes
will be excludable from Missouri state income tax to the same
extent as such interest would have been paid by the issuer of
such Bonds held by the Missouri Trust; however, no opinion is
expressed herein regarding taxation of interest paid and
original issue discount, if any, on the Bonds received by the
Missouri Trust and distributed to Unitholders under any other
tax imposed pursuant to Missouri law, including but not
limited to the franchise tax imposed on financial institutions
pursuant to Chapter 148 of the Missouri Statutes;
(6) The Missouri state income tax does not permit a deduction of
interest paid or incurred on indebtedness incurred or
continued to purchase or carry Units in the Trust, the
interest on which is exempt from such Tax; and
(7) The Missouri Trust will not be subject to the Kansas City,
Missouri Earnings and Profits Tax and each Unitholder's share
of income of the Bonds held by the Missouri Trust will not
generally be subject to the Kansas City, Missouri Earnings and
Profits Tax or the City of St Louis Earnings Tax (except in
the case of certain Unitholders, including corporations,
otherwise subject to the St. Louis City Earnings Tax).
NEW JERSEY TRUSTS. Each New Jersey Trust consists of a portfolio of
Bonds. The Trust is therefore susceptible to political, economic or regulatory
factors affecting issuers of the Bonds. The following information provides
only a brief summary of some of the complex factors affecting the financial
situation in New Jersey (the "State") and is derived from sources that are
generally available to investors and is believed to be accurate. It is based
in part on information obtained from various State and local agencies in New
Jersey. No independent verification has been made of any of the following
information.
New Jersey is the ninth largest state in population and the fifth
smallest in land area. With an average of 1,050 people per square mile, it is
the most densely populated of all the states. The state's economic base is
diversified, consisting of a variety of manufacturing, construction and service
industries, supplemented by rural areas with selective commercial agriculture.
Historically, New Jersey's average per capita income has been well above the
national average, and in 1991 the State ranked second among States in per
capita personal income ($26,457).
The New Jersey Economic Policy Council, a statutory arm of the New
Jersey Department of Commerce and Economic Development, has reported in New
Jersey Economic Indicators, a monthly publication of the New Jersey Department
of Labor, Division of Labor Market and Demographic Research, that in 1988 and
1989 employment in New Jersey's manufacturing sector failed to benefit from the
export boom experienced by many Midwest states and the State's service sectors,
which had fueled the State's prosperity since 1982,
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lost momentum. In the meantime, the prolonged fast growth in the State in the
mid 1980s resulted in a tight labor market situation, which has led to
relatively high wages and housing prices. This means that, while the incomes
of New Jersey residents are relatively high, the State's business sector has
become more vulnerable to competitive pressures.
The onset of the national recession (which officially began in July
1990 according to the National Bureau of Economic Research) caused an
acceleration of New Jersey's job losses in construction and manufacturing. In
addition, the national recession caused an employment downturn in such
previously growing sectors as wholesale trade, retail trade, finance, utilities
and trucking and warehousing. Reflecting the downturn, the rate of
unemployment in the State rose from a low of 3.6% during the first quarter of
1989 to an estimated 6.2% in November 1993, which is below the national average
of 6.4% in November 1993. Economic recovery is likely to be slow and uneven in
New Jersey, with unemployment receding at a correspondingly slow pace, due to
the fact that some sectors may lag due to continued excess capacity. In
addition, employers even in rebounding sectors can be expected to remain
cautious about hiring until they become convinced that improved business will
be sustained. Also, certain firms will continue to merge or downsize to
increase profitability.
Debt Service. The primary method for State financing of capital
projects is through the sale of the general obligation bonds of the State.
These bonds are backed by the full faith and credit of the State tax revenues
and certain other fees are pledged to meet the principal and interest payments
and if provided, redemption premium payments, if any, required to repay the
bonds. As of June 30, 1993, there was a total authorized bond indebtedness of
approximately $8.98 billion, of which $3.6 billion was issued and outstanding,
$4.0 billion was retired (including bonds for which provision for payment has
been made through the sale and issuance of refunding bonds) and $1.38 billion
was unissued. The debt service obligation for such outstanding indebtedness is
$119.9 million for fiscal year 1994.
New Jersey's Budget and Appropriation System. The State operates on a
fiscal year beginning July 1 and ending June 30. At the end of fiscal year
1989, there was a surplus in the State's general fund (the fund into which all
State revenues not otherwise restricted by statute are deposited and from which
appropriations are made) of $411.2 million. At the end of fiscal year 1990,
there was a surplus in the general fund of $1 million. At the end of fiscal
year 1991, there was a surplus in the general fund of $1.4 million. New Jersey
closed its fiscal year 1992 with a surplus of $760.8 million. It is estimated
that New Jersey closed its fiscal year 1993 with a surplus of $361.3 million.
In order to provide additional revenues to balance future budgets, to
redistribute school aid and to contain real property taxes, on June 27, 1990,
and July 12, 1990, Governor Florio signed into law legislation which was
estimated to raise approximately $2.8 billion in additional taxes (consisting
of $1.5 billion in sales and use taxes and $1.3 billion in income taxes), the
biggest tax hike in New Jersey history. There can be no assurance that
receipts and collections of such taxes will meet such estimates.
The first part of the tax hike took effect on July 1, 1990, with the
increase in the State's sales and use tax rate from 6% to 7% and the
elimination of exemptions for certain products and services not previously
subject to the tax, such as telephone calls, paper products (which has since
been reinstated), soaps and detergents, janitorial services, alcoholic
beverages and cigarettes. At the time of enactment, it was projected
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that these taxes would raise approximately $1.5 billion in additional revenue.
Projections and estimates of receipts from sales and use taxes, however, have
been subject to variance in recent fiscal years.
The second part of the tax hike took effect on January 1, 1991, in the
form of an increased state income tax on individuals. At the time of
enactment, it was projected that this increase would raise approximately $1.3
billion in additional income taxes to fund a new school aid formula, a new
homestead rebate program and state assumption of welfare and social services
costs. Projections and estimates of receipts from income taxes, however, have
also been subject to variance in recent fiscal years. Under the legislation,
income tax rates increased from their previous range of 2% to 3.5% to a new
range of 2% to 7%, with the higher rates applying to married couples with
incomes exceeding $70,000 who file joint returns, and to individuals filing
single returns with incomes of more than $35,000.
The Florio administration has contended that the income tax package
will help reduce local property tax increases by providing more state aid to
municipalities. Under the income tax legislation the State will assume
approximately $289 million in social services costs that previously were paid
by counties and municipalities and funded by property taxes. In addition,
under the new formula for funding school aid, an extra $1.1 billion is proposed
to be sent by the State to school districts beginning in 1991, thus reducing
the need for property tax increases to support education programs.
Effective July 1, 1992, the State's sales and use tax rate decreased
from 7% to 6%.
On June 29, 1993, Governor Florio signed the New Jersey Legislature's
$15.9 billion State budget for Fiscal Year 1994. The balanced budget does not
rely on any new taxes, college tuition increases or any commuter fare
increases, while providing a surplus of more than $400 million. Whether the
State can achieve a balanced budget depends on its ability to enact and
implement expenditure reductions and to collect the estimated tax revenues.
Litigation. The State is a party in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings and other alleged violations of State and Federal
laws. Included in the State's outstanding litigation are cases challenging the
following: the formula relating to State aid to public schools, the method by
which the State shares with its counties maintenance recoveries and costs for
residents in State institutions, unreasonably low Medicaid payment rates for
long-term facilities in New Jersey, the obligation of counties to maintain
Medicaid or Medicare eligible residents of institutions and facilities for the
developmentally disabled, taxes paid into the Spill Compensation Fund (a fund
established to provide money for use by the State to remediate hazardous waste
sites and to compensate other persons for damages incurred as a result of
hazardous waste discharge) based on Federal preemption, various provisions, and
the constitutionality of the Fair Automobile Insurance Reform Act of 1990, the
State's method of funding the judicial system, certain provisions of New
Jersey's hospital rate-setting system, the adequacy of Medicaid reimbursement
for services rendered by doctors and dentists to Medicaid eligible children,
the Commissioner of Health's calculation of the hospital assessment required by
the Health Care Cost Reduction Act of 1991, refusal of the State to share with
Camden County federal funding the State recently received for disproportionate
share hospital payments made to county psychiatric facilities, and recently
enacted legislation calling for a revaluation of several New Jersey public
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employee pension funds in order to provide additional revenues for the State's
general fund. Adverse judgments in these and other matters could have the
potential for either a significant loss of revenue or a significant
unanticipated expenditure by the State.
At any given time, there are various numbers of claims and cases
pending against the State, State agencies and employees seeking recovery of
monetary damages that are primarily paid out of the fund created pursuant to
the New Jersey Tort Claims Act. In addition, at any given time, there are
various numbers of contract claims against the State and State agencies seeking
recovery of monetary damages. The State is unable to estimate its exposure for
these claims.
Debt Ratings. For many years, both Moody's Investors Service, Inc.
and Standard and Poor's Corporation rated New Jersey general obligation bonds
Aaa and "AAA", respectively. On July 3, 1991, however, Standard and Poor's
Corporation downgraded New Jersey general obligation bonds to "AA+." On June 4,
1992, Standard and Poor's Corporation placed New Jersey general obligation
bonds on CreditWatch with negative implications, citing as its principal reason
for its caution the unexpected denial by the federal government of New
Jersey's request for $450 million in retroactive Medicaid payments for
psychiatric hospitals. These funds were critical to closing a $1 billion gap
in the State's $15 billion budget for fiscal year 1992 which ended on June 30,
1992. Under New Jersey state law, the gap in the budget must be closed before
the new budget year begins on July 1, 1992. Standard and Poor's suggested the
State could close fiscal 1992's budget gap and help fill fiscal 1993's hole by
a reversion of $700 million of pension contributions to its general fund under
a proposal to change the way the State calculates its pension liability.
On July 6, 1992, Standard and Poor's Corporation reaffirmed its "AA+"
rating for New Jersey general obligation bonds and removed the debt from its
CreditWatch list, although it stated that New Jersey's long-term financial
outlook was negative. Standard and Poor's Corporation was concerned that the
State was entering fiscal 1993 with only a $26 million surplus and remained
concerned about whether the sagging State economy would recover quickly enough
to meet lawmakers' revenue projections. It also remained concerned about the
recent federal ruling leaving in doubt how much the State was due in
retroactive Medicaid reimbursements and a ruling by a federal judge, now on
appeal, of the State's method for paying for uninsured hospital patients.
There can be no assurance that these ratings will continue or that particular
bond issues may not be adversely affected by changes in the State or local
economic or political conditions.
On August 24, 1992, Moody's Investors Service, Inc. downgraded New
Jersey general obligation bonds to "Aal," stating that the reduction reflects a
developing pattern of reliance on nonrecurring measures to achieve budgetary
balance, four years of financial operations marked by revenue shortfalls and
operating deficits, and the likelihood that serious financial pressures will
persist.
Although New Jersey recently received $412 million in settlement of
its $450 million dispute with the federal government for retroactive Medicaid
reimbursements, neither Moody's nor Standard and Poor's has revised its rating
for New Jersey general obligation bonds.
At the time of the closing for each New Jersey Trust Special Counsel
to each New Jersey Trust for New Jersey tax matters rendered an opinion under
then existing New Jersey income tax law applicable to taxpayers whose income is
subject to New Jersey income taxation substantially to the effect that:
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(1) Each New Jersey Trust will be recognized as a trust and not an
association taxable as a corporation. Each New Jersey Trust
will not be subject to the New Jersey Corporation Business Tax
or the New Jersey Corporation Income Tax;
(2) With respect to the non-corporate Unitholders who are
residents of New Jersey, the income of a New Jersey Trust
will be treated as the income of such Unitholder under the New
Jersey Gross Income Tax. Interest on the underlying Bonds
which is exempt from New Jersey Gross Income Tax when directly
received by the New Jersey Trust will retain its status as
tax-exempt interest when distributed to the Unitholders. Any
proceeds paid under the insurance policy issued to the Trustee
of a New Jersey Trust with respect to the Bonds or under
individual policies obtained by issuers of Bonds which
represent maturing interest on defaulted obligations held by
the Trustee will be exempt from New Jersey Gross Income Tax
if, and to the same extent as, such interest would have been
so exempt if paid by the issuer of the defaulted obligations;
(3) A non-corporate Unitholder will not be subject to the New
Jersey Gross Income Tax on any gain realized either when a New
Jersey Trust disposes of a Bond (whether by sale, exchange,
redemption, or payment at maturity), when the Unitholder
redeems or sells his Units or upon payment of any proceeds
under an insurance policy issued to the Trustee of a New
Jersey Trust with respect to the Bonds or under individual
policies obtained by issuers of Bonds which represent maturing
principal on defaulted obligations held by the Trustee. Any
loss realized on such disposition may not be utilized to
offset gains realized by such Unitholder on the disposition of
assets the gain on which is subject to the New Jersey Gross
Income Tax;
(4) Units of a New Jersey Trust may be taxable on the death of a
Unitholder under the New Jersey Transfer Inheritance Tax Law
or the New Jersey Estate Tax Law; and
(5) If a Unitholder is a corporation subject to the New Jersey
Corporation Business Tax or New Jersey Corporation Income Tax,
interest from the Bonds in a New Jersey Trust which is
allocable to such corporation will be includable in its entire
net income for purposes of the New Jersey Corporation Business
Tax or New Jersey Corporation Income Tax, less any interest
expense incurred to carry such investment to the extent such
interest expense has not been deducted in computing Federal
taxable income. Net gains derived by such corporation on the
disposition of the Bonds by a New Jersey Trust or on the
disposition of its Units will be included in its entire net
income for purposes of the New Jersey Corporation Business Tax
or New Jersey Corporation Income Tax. Any proceeds paid under
an insurance policy issued to the Trustee of a New Jersey
Trust with respect to the Bonds or under individual policies
obtained by issuers of Bonds which represent maturing interest
or maturing principal on defaulted obligations held by the
Trustee will be included in its entire net income for purposes
of the New Jersey Corporation Business Tax or New Jersey
Corporation Income Tax if, and to the same extent as, such
interest or proceeds would have been so included if paid by
the issuer of the defaulted obligations.
NEW YORK TRUSTS. The portfolio of the New York Trust includes certain
Bonds issued by New York State (the "State"), by its various public bodies (the
"Agencies"), and/or by other entities located within the State, including the
City of New York (the "City").
Some of the more significant events relating to the financial situation in
New York are summarized below. This section provides only a brief summary of
the complex factors affecting the financial situation in
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New York and is based in part on official statements issued by, and on other
information reported by, the State, the City and the Agencies in connection
with the issuance of their respective securities.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local government finances
generally, will not adversely affect the market value of New York Municipal
Obligations held in the portfolio of the New York Trust or the ability of
particular obligers to make timely payments of debt service on (or relating to)
those obligations.
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State economy has grown more slowly than
that of the nation as a whole, gradually eroding the State's relative economic
affluence. Statewide, urban centers have experienced significant changes
involving migration of the more affluent to the suburbs and an influx of
generally less affluent residents. Regionally, the older Northeast cities have
suffered because of the relative success that the South and the West have had
in attracting people and business. The City has also had to face greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
The State has for many years had a very high State and local tax
burden relative to other states. The burden of State and local taxation, in
combination with the many other causes of regional economic dislocation, has
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
A national recession commenced in mid-1990. The downturn continued
throughout the State's 1990-91 fiscal year and was followed by a period of weak
economic growth during the 1991 calendar year. For calendar year 1992, the
national economy continued to recover, although at a rate below all post-war
recoveries. For calendar year 1993, the economy is expected to grow faster than
1992, but still at a very moderate rate as compared to other recoveries. The
national recession has been more severe in the State because of factors such as
a significant retrenchment in the financial services industry, cutbacks in
defense spending, and an overbuilt real estate market.
1993-94 Fiscal Year. On April 5, 1993, the State Legislature approved
a $32.08 billion budget. Following enactment of the budget the 1993-94 State
Financial Plan was formulated on April 16, 1993. This Plan projects General
Fund receipts and transfers from other funds at $32.367 billion and
disbursements and transfers to other funds at $32.300 billion. In comparison
to the Governor's recommended Executive Budget for the 1993-94 fiscal year, as
revised on February 18, 1993, the 1993-94 State Financial Plan reflects
increases in both receipts and disbursements in the General Fund of $811
million.
While a portion of the increased receipts was the result of a $487
million increase in the State's 1992-93 positive-year-end margin at March 31,
1993 to $671 million, the balance of such increased receipts is based upon (i)
a projected $269 million increase in receipts resulting from improved 1992-93
results and the expectation of an improving economy, (ii) projected additional
payments of $200 million from the Federal government as reimbursements for
indigent medical care, (iii) the early payment of $50 million of personal tax
returns in 1992-93 which otherwise would have been paid in 1993-94; offset by
(iv) the State Legislature's
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failure to enact $195 million of additional revenue-raising recommendations
proposed by the Governor. There can be no assurance that all of the projected
receipts referred to above will be received.
Despite the $811 million increase in disbursements included in the
1993-94 State Financial Plan, a reduction in aid to some local government units
can be expected. To offset a portion of such reductions, the 1993-94 State
Financial Plan contains a package of mandate relief, cost containment and other
proposals to reduce the costs of many programs for which local governments
provide funding. There can be no assurance, however, that localities that
suffer cuts will not be adversely affected, leading to further requests for
State financial assistance.
There can be no assurance that the State will not face substantial
potential budget gaps in the future resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
spending required to maintain State programs at current levels. To address any
potential budgetary imbalance, the State may need to take significant actions
to align recurring receipts and disbursements.
1992-93 Fiscal Year. Before giving effect to a 1992-93 year-end
deposit to the refund reserve account of $671 million, General Fund receipts in
1992-93 would have been $716 million higher than originally projected. This
year-end deposit effectively reduced 1992-93 receipts by $671 million and made
those receipts available for 1993-94.
The State's favorable performance primarily resulted from income tax
collections that were $700 million higher than projected which reflected both
stronger economic activity and tax-induced one-time acceleration of income into
1992. In other areas larger than projected business tax collections and
unbudgeted receipts offset the loss of $200 million of anticipated Federal
reimbursement and losses of, or shortfalls in, other projected revenue sources.
For 1992-93 disbursements and transfers to other funds (including the
deposit to the refund reserve account discussed above) totalled $30.829
billion, an increase of $45 million above projections in April 1992.
Fiscal year 1992-93 was the first time in four years the State did not
incur a cash-basis operating deficit in the General Fund requiring the issuance
of deficit notes or other bonds, spending cuts or other revenue raising
measures.
Indebtedness. As of March 31,1993, the total amount of long-term
State general obligation debt authorized but unissued stood at $2.4 billion.
As of the same date, the State had approximately $5.4 billion in general
obligation bonds. The State issued $850 million in tax and revenue
anticipation notes ("TRANS") on April 28, 1993. The State does not project the
need to issue additional TRANS during the State's 1993-94 fiscal year.
The State anticipates that its borrowings for capital purposes during
the State's 1993-94 fiscal year will consist of $460 million in general
obligation bonds and $140 million in new commercial paper issuances. In
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addition, the State expects to issue $140 million in bonds for the purpose of
redeeming outstanding bond anticipation notes. The Legislature has authorized
the issuance of up to $85 million in certificates of participation during the
State's 1993-94 fiscal year for personal and real property acquisitions. The
projection of the State regarding its borrowings for the 1993-94 fiscal year
may change if actual receipts fall short of State projections or if other
circumstances require.
In June 1990, legislation was enacted creating the "New York Local
Government Assistance Corporation" ("LGAC"), a public benefit corporation
empowered to issue long-term obligations to fund certain payments to local
governments traditionally funded through the State's annual seasonal borrowing.
To date, LGAC has issued its bonds to provide net proceeds of $3.28 billion.
LGAC has been authorized to issued additional bonds to provide net proceeds of
$703 million during the State's 1993-94 fiscal year.
The $850 million in TRANS issued by the State in April 1993 were rated
SP-1 Plus by S&P on April 26, 1993, and MIG-1 by Moody's on April 23, 1993,
which represents the highest ratings given by such agencies and the first time
the State's TRANS have received these ratings since its May 1989 TRANS
issuance. Both agencies cited the State's improved fiscal position as a
significant factor in the upgrading of the April 1993 TRANS.
Moody's rating of the State's general obligation bonds stood at A on
April 23, 1993, and S&P rating stood at A- with a stable outlook on April 26,
1993, an improvement from S&P's negative outlook prior to April 1993.
Previously, Moody's lowered its rating to A on June 6, 1990, its rating having
been A1 since May 27, 1986. S&P lowered its rating from A to A- on January 13,
1992. S&P's previous rating were A from March 1990 to January 1992, AA- from
August 1987 to March 1990 and A- from November 1982 to August 1987.
Moody's, in confirming its rating of the State's general obligation
bonds, and S&P, in improving its outlook on such bonds from negative to stable,
noted the State's improved fiscal condition and reasonable revenue assumptions
contained in the 1993-94 State budget.
New York City accounts for approximately 41% of the State's population
and personal income, and the City's financial health affects the State in
numerous ways.
In February 1975, the New York State Urban Development Corporation
("UDC"), which had approximately $1 billion of outstanding debt, defaulted on
certain of its short-term notes. Shortly after the UDC default, the City
entered a period of financial crisis. Both the State Legislature and the
United States enacted legislation in response to this crisis. During 1975, the
State Legislature (i) created the Municipal Assistance Corporation ("MAC") to
assist with long-term financing for the City's short-term debt and other cash
requirements and (ii) created the State Financial Control Board (the "Control
Board") to review and approve the City's budgets and City four-year financial
plans (the financial plans also apply to certain City-related public agencies
(the "Covered Organizations")).
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Over the past three years, the rate of economic growth in the City has
slowed substantially, and the City's economy is currently in recession. The
City projects and its current four-year financial plan assumes a recovery early
in the 1993 calendar year. The Mayor is responsible for preparing the City's
four-year financial plan, including the City's current financial plan. The
City Comptroller has issued reports concluding that the recession of the City's
economy will be more severe and last longer than is assumed in the Financial
Plan.
Fiscal Year 1993 and 1993-1996 Financial Plan. The City's 1993 fiscal
year results are projected to be balanced in accordance with generally accepted
accounting principles ("GAAP"). The City was required to close substantial
budget gaps in its 1990, 1991 and 1992 fiscal years in order to maintain
balanced operating results.
The City's modified 1993-1996 Financial Plan dated February 9, 1993
covering fiscal years 1993-1996 projects budget gaps for 1994 through 1996.
The Office of the State Deputy Controller for the City of New York has
estimated that under the modified Financial Plan budget gaps will be $102
million for fiscal year 1994, $196 million for fiscal year 1995 and $354
million for fiscal year 1996, primarily due to anticipated higher spending on
labor costs.
However, the City's modified Plan is dependent upon a gap-closing
program, certain elements of which the staff of Control Board identified on
March 25, 1993 to be at risk due to projected levels of State and Federal aid
and revenue and expenditures estimates which may not be achievable. The
Control Board indicated that the City's modified Financial Plan does not make
progress towards establishing a balanced budget process. The Control Board's
report identified budget gap risks of $1.0 billion, $1.9 billion, $2.3 billion
and $2.6 billion in fiscal years 1994 through 1997, respectively.
On June 3, 1993, the Mayor announced that State and federal aid for
Fiscal Year 1993-94 would be $280 million less than projected and that in order
to balance the City's budget $176 million of previously announced contingent
budget cuts would be imposed. The Mayor indicated that further savings would
entail serious reductions in services. The State Comptroller on June 14, 1993
criticized efforts by the Mayor and City Council to balance the City's budget
which rely primarily on one-shot-revenues. The State Comptroller added that
the City's budget should be based on "recurring revenues that fund recurring
expenditures."
Given the foregoing factors, there can be no assurance that City will
continue to maintain a balanced budget, or that it can maintain a balanced
budget without additional tax or other revenue increases or reductions in City
services, which could adversely affect the City's economic base.
Pursuant to State law, the City prepares a four-year annual financial
plan which is reviewed and revised on a quarterly basis and which includes the
City's capital, revenue and expense projections. The City is required to
submit its financial plans to review bodies, including the Control Board. If
the City were to experience certain adverse financial circumstances, including
the occurrence or the substantial likelihood and imminence of the occurrence
of an annual operating deficit of more than $100 million or the loss of access
to the public credit markets to satisfy the City's capital and seasonal
financing requirements, the Control Board would be required by State law to
exercise certain powers, including prior approval of City financial plans,
proposed borrowings and certain contracts.
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The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. As a result of the
national and regional economic recession, the State's projections of tax
revenues for its 1991 and 1992 fiscal years were substantially reduced. For
its 1993 fiscal year, the State, before taking any remedial action reflected in
the State budget enacted by the State Legislature on April 2, 1992 reported a
potential budget deficit of $4.8 billion. If the State experiences revenue
shortfalls or spending increases beyond its projections during its 1993 fiscal
year or subsequent years, such developments could also result in reductions in
projected State aid to the City. In addition, there can be no assurance that
State budgets in future fiscal years will be adopted by the April 1 statutory
deadline and that there will not be adverse effects on the City's cash flow and
additional City expenditures as a result of such delays.
The City's projections set forth in the Financial Plan are based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and
contingencies include the timing of any regional and local economic recovery,
the absence of wage increases in excess of the increases assumed in its
financial plan, employment growth, provision of State and Federal aid and
mandate relief, State legislative approval of future State budgets, levels of
education expenditures as may be required by State law, adoption of future City
budgets by the New York City Council, and approval by the Governor or the State
Legislature and the cooperation of MAC, with respect to various other actions
proposed in such financial plan.
The City's ability to maintain a balanced operating budget is
dependent on whether it can implement necessary service and personnel reduction
programs successfully. As discussed above, the City must identify additional
expenditure reductions and revenue sources to achieve balanced operating
budgets for fiscal years 1994 and thereafter. Any such proposed expenditure
reductions will be difficult to implement because of their size and the
substantial expenditure reductions already imposed on City operations in the
past two years.
Attaining a balanced budget is also dependent upon the City's ability
to market its securities successfully in the public credit markets. The City's
financing program for fiscal years 1993 through 1996 contemplates issuance of
$15.7 billion of general obligation bonds primarily to reconstruct and
rehabilitate the City's infrastructure and physical assets and to make capital
investments. A significant portion of such bond financing is used to reimburse
the City's general fund for capital expenditures already incurred. In
addition, the City issues revenue and tax anticipation notes to finance its
seasonal working capital requirements. The terms and success of projected
public sales of City general obligation bonds and notes will be subject to
prevailing market conditions at the time of the sale, and no assurance can be
given that the credit markets will absorb the projected amounts of public bond
and note sales. In addition, future developments concerning the City and
public discussion of such developments, the City's future financial needs and
other issues may affect the market for outstanding City general obligation
bonds and notes. If the City were unable to sell its general obligation bonds
and notes, it would be prevented from meeting its planned operating and capital
expenditures.
The City Comptroller, the staff of the Control Board, the Office of
the State Deputy Comptroller for the City of New York (the "OSDC") and other
agencies and public officials have issued reports and made public statements
which, among other things, state that projected revenues may be less and future
expenditures may be greater than those forecast in the financial plan. In
addition, the Control Board and other agencies have questioned whether the City
has the capacity to generate sufficient revenues in the future to meet the
costs of its expenditure increases and to provide necessary services. It is
reasonable to expect that such reports and statements will continue to be
issued and to engender public comment.
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The City achieved balanced operating results as reported in accordance
with GAAP for the 1992 fiscal year. During the 1990 and 1991 fiscal years, the
City implemented various actions to offset a projected budget deficit of $3.2
billion for the 1991 fiscal year, which resulted from declines in City revenue
sources and increased public assistance needs due to the recession. Such
actions included $822 million of tax increases and substantial expenditure
reductions.
The quarterly modification to the City's financial plan submitted to
the Control Board on May 7, 1992 (the "1992 Modification") projected a balanced
budget in accordance with GAAP for the 1992 fiscal year after taking into
account a discretionary transfer of $455 million to the 1993 fiscal year as the
result of a 1992 fiscal year surplus. In order to achieve a balanced budget
for the 1992 fiscal year, during the 1991 fiscal year, the City proposed
various actions for the 1992 fiscal year to close a projected gap of $3.3
billion in the 1992 fiscal year.
On November 19, 1992, the City submitted to the Control Board the
Financial Plan for the 1993 through 1996 fiscal years, which is a modification
to a financial plan submitted to the Control Board on June 11, 1992 (the "June
Financial Plan"), and which relates to the City, the Board of Education ("BOE")
and the City University of New York ("CUNY"). The 1993-1996 Financial Plan
projects revenues and expenditures of $29.9 billion each for the 1993 fiscal
year balanced in accordance with GAAP.
During the 1992 fiscal year, the City proposed various actions to
close a previously projected gap of approximately $1.2 billion for the 1993
fiscal year. The gap-closing actions for the 1993 fiscal year proposed during
the 1992 fiscal year and outlined in the City's June Financial Plan included
$489 million of discretionary transfers from the 1992 fiscal year. The
1993-1996 City Financial Plan includes additional gap-closing actions to offset
an additional potential $81 million budget gap.
The 1993-1996 Financial Plan also sets forth projections and outlines
a proposed gap-closing program for the 1994 through 1996 fiscal years to close
projected budget gaps of $1.7 billion, $2.0 billion and $2.6 billion,
respectively, in the 1994 through 1996 fiscal years. On February 9, 1993, the
City issued a modification to the 1993-1996 Financial Plan (the "February
Modification"). The February Modification projects budget gaps for the fiscal
years 1994, 1995, and 1996 of $2.1 billion, $3.1 billion and $3.8 billion,
respectively.
Various actions proposed in the 1993-1996 Financial Plan are subject
to approval by the Governor and approval by the State Legislature, and the
proposed increase in Federal aid is subject to approval by Congress and the
President. The State Legislature has in the past failed to approve certain
proposals similar to those that the 1993-1996 Financial Plan assumes will be
approved by the State Legislature during the 1993 fiscal year. If these
actions cannot be implemented, the City will be required to take other actions
to decrease expenditures or increase revenues to maintain a balanced financial
plan.
On March 9, 1993, OSDC issued a report on the February Modification.
The report expressed concern that the budget gaps projected for fiscal years
1994 through 1996 are the largest the City has faced at this point in the
financial planning cycle in at least a decade, and concluded that the February
Modification represented a step backward in the City's efforts to bring
recurring revenues into line with recurring expenditures.
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The City is a defendant in a significant number of lawsuits. Such
litigation includes, but is not limited to, actions commenced and claims
asserted against the City arising out of alleged constitutional violations,
torts, breaches of contracts and other violations of law and condemnation
proceedings. While the ultimate outcome and fiscal impact, if any, on the
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the City's ability to
carry out its financial plan. As of June 30, 1992, legal claims in excess of
$341 billion were outstanding against the City for which the City estimated its
potential future liability to be $2.3 billion.
As of the date of this prospectus, Moody's rating of the City's
general obligation bonds stood at Baa1 and S&P's rating stood at A-. On
February 11, 1991, Moody's lowered its rating from A.
On June 30, 1993 in confirming the Baa1 rating, Moody's noted that:
The recent trend of declining reliance on [one-shot revenues]
is notable, and it is too early to predict the increased
reliance on one-shots in the fiscal 1994 budget represents the
beginning of a continuing upward movement in the use of one-
shots. . . . Moody's recognized in February of 1991, when the
[C]ity's rating was lowered from A to Baa1, that the [C]ity
faced structural budgetary imbalances which were unlikely to
be cured in the near term. Moody's continues to expect the
[C]ity's progress toward achieving structural balance to be
slow and uneven, but that the [C]ity will be diligent and
prudent in closing each year's gap, factors which are
consistent with the Baa1 rating level.
On March 30, 1993, S&P affirmed its rating with a negative outlook,
stating that:
The City's key credit factors are marked by a high and growing
debt burden, and taxation levels that are relatively high, but
stable. The City's economy is broad-based and diverse, but
currently is in prolonged recession, with slow growth
prospects for the foreseeable future.
The rating outlook is negative, reflecting the continued
fiscal pressure facing the City, driven by continued weakness
in the local economy, rising spending pressures for education
and labor costs of city employees, and increasing costs
associated with rising debt for capital construction and
repair.
The current financial plan for the City assumes substantial
increases in aid from national and state governments.
Maintenance of the current rating, and stabilization of the
rating outlook, will depend on the City's success in realizing
budgetary aid from these governments, or replacing those
revenues with ongoing revenue-raising measures or spending
reductions under the City's control. However, increased
reliance on non-recurring budget balancing measures that would
support current spending, but defer budgetary gaps to future
years, would be viewed by S&P as detrimental to New York
City's single-'A-' rating.
Previously, Moody's had raised its rating to A in May, 1988, to Baa1
in December, 1985, to Baa in November, 1983 and to Ba1 in November, 1981. S&P
had raised its rating to A- in November, 1987, to BBB+ in July, 1985 and to BBB
in March, 1981.
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On May 9, 1990, Moody's revised downward its rating on outstanding
City revenue anticipation notes from MIG-1 to MIG-2 and rated the $900 million
Notes then being sold MIG-2. On April 30, 1991 Moody's confirmed its MIG-2
rating for the outstanding revenue anticipation notes and for the $1.25 billion
in notes then being sold. On April 29, 1991, S&P revised downward its rating
on City revenue anticipation notes from SP-1 to SP-2.
As of December 31, 1992, the City and MAC had, respectively, $20.3
billion and $4.7 billion of outstanding net long-term indebtedness.
Certain Agencies of the State have faced substantial financial
difficulties which could adversely affect the ability of such Agencies to make
payments of interest on, and principal amounts of, their respective bonds. The
difficulties have in certain instances caused the State (under so-called "moral
obligation" provisions which are non-binding statutory provisions for State
appropriations to maintain various debt service reserve funds) to appropriate
funds on behalf of the Agencies. Moreover, it is expected that the problems
faced by these Agencies will continue and will require increasing amounts of
State assistance in future years. Failure of the State to appropriate
necessary amounts or to take other action to permit those Agencies having
financial difficulties to meet their obligations could result in a default by
one or more of the Agencies. Such default, if it were to occur, would be
likely to have a significant adverse effect on investor confidence in, and
therefore the market price of, obligations of the defaulting Agencies. In
addition, any default in payment on any general obligation of any Agency whose
bonds contain a moral obligation provision could constitute a failure of
certain conditions that must be satisfied in connection with Federal guarantees
of City and MAC obligations and could thus jeopardize the City's long-term
financing plans.
As of September 30, 1992, the State reported that there were eighteen
Agencies that each had outstanding debt of $100 million or more. These
eighteen Agencies had an aggregate of $62.2 billion of outstanding debt,
including refunding bonds, of which the State was obligated under
lease-purchase, contractual obligation or moral obligation provisions on $25.3
billion.
The State is a defendant in numerous legal proceedings pertaining to
matters incidental to the performance of routine governmental operations. Such
litigation includes, but is not limited to, claims asserted against the State
arising from alleged torts, alleged breaches of contracts, condemnation
proceedings and other alleged violations of State and Federal laws. Included
in the State's outstanding litigation are a number of cases challenging the
constitutionality or the adequacy and effectiveness of a variety of significant
social welfare programs primarily involving the State's mental hygiene
programs. Adverse judgments in these matters generally could result in
injunctive relief coupled with prospective changes in patient care which could
require substantial increased financing of the litigated programs in the
future.
The State is also engaged in a variety of claims wherein significant
monetary damages are sought. Actions commenced by several Indian nations claim
that significant amounts of land were unconstitutionally taken from the Indians
in violation of various treaties and agreements during the eighteenth and
nineteenth centuries. The claimants seek recovery of approximately six million
acres of land as well as compensatory and punitive damages.
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The U.S. Supreme Court on March 30, 1993, referred to a Special Master
for determination of damages on an action by the State of Delaware to recover
certain unclaimed dividends, interest and other distributions made by issuers
of securities held by New York-based brokers incorporated in Delaware. (State
of Delaware v. State of New York.) The State had taken such unclaimed property
under its Abandoned Property Law. The State expects that it may pay a
significant amount in damages during fiscal year 1993-94 but it has indicated
that it has sufficient funds on hand to pay any such award, including funds
held in contingency reserves. The State's 1993-94 Financial Plan includes the
establishment of a $100 million contingency reserve fund which would be
available to fund such an award which some reports have estimated at $100-$800
million.
In Schulz v. State of New York, commenced May 24, 1993 ("Schulz
1993"), petitioners have challenged the constitutionality of mass
transportation bonding programs of the New York State Thruway Authority and the
Metropolitan Transportation Authority. On May 24, 1993, the Supreme Court,
Albany County, temporarily enjoined the State from implementing those bonding
programs. In previous actions Mr. Schulz and others have challenged on similar
grounds bonding programs for the New York State Urban Development Corporation
and the New York Local Government Assistance Corporation. While there have
been no decisions on the merits in such previous actions, by an opinion dated
May 11, 1993, the New York Court of Appeals held in a proceeding commenced on
April 29, 1991 in the Supreme Court, Albany County (Schulz v. State of New
York), that petitioners had standing as voters under the State Constitution to
bring such action.
Petitioners in Schulz 1993 have asserted that issuance of bonds by the
two Authorities is subject to approval by statewide referendum. At this time
there can be no forecast of the likelihood of success on the merits by the
petitioners, but a decision upholding this constitutional challenge could
restrict and limit the ability of the State and its instrumentalities to borrow
funds in the future. The State has not indicated that the temporary injunction
issued by the Supreme Court in this action will have any immediate impact on
its financial condition or interfere with projects requiring immediate action.
Adverse developments in the foregoing proceedings or new proceedings
could adversely affect the financial condition of the State in the future.
Certain localities in addition to New York City could have financial
problems leading to requests for additional State assistance. Both the Revised
1992-93 State Financial Plan and the recommended 1993-94 State Financial Plan
include a significant reduction in State aid to localities in such programs as
revenue sharing and aid to education from projected base-line growth in such
programs. It is expected that such reductions will result in the need for
localities to reduce their spending or increase their revenues. The potential
impact on the State of such actions by localities is not included in
projections of State revenues and expenditures in the State's 1993-94 fiscal
year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor or the State Legislature to assist Yonkers could result in allocation
of State resources in amounts that cannot yet be determined.
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Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1991, the total indebtedness of all
localities in the State was approximately $31.6 billion, of which $16.8 billion
was debt of New York City (excluding $6.7 billion in MAC debt). State law
requires the Comptroller to review and make recommendations concerning the
budgets of those local government units other than New York City authorized by
State law to issue debt to finance deficits during the period that such deficit
financing is outstanding. Fifteen localities had outstanding indebtedness for
State financing at the close of their fiscal year ending in 1991. In 1992, an
unusually large number of local government units requested authorization for
deficit financings. According to the Comptroller, ten local government units
have been authorized to issue deficit financing in the aggregate amount of
$131.1 million.
Certain proposed Federal expenditure reductions could reduce, or in
some cases eliminate, Federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, New York City or any of the Agencies were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by
localities within the State, including notes or bonds in the New York Trust,
could be adversely affected. Localities also face anticipated and potential
problems resulting from certain pending litigation, judicial decisions, and
long-range economic trends. The longer-range potential problems of declining
urban population, increasing expenditures, and other economic trends could
adversely affect localities and require increasing State assistance in the
future.
At the time of the closing for each New York Trust, Special Counsel to
each New York Trust for New York tax matters rendered an opinion under then
existing New York income tax law applicable to taxpayers whose income is
subject to New York income taxation substantially to the effect that:
Each New York Trust is not an association taxable as a
corporation and the income of a New York Trust will be treated as the
income of the Unitholders under the income tax laws of the State and
the City of New York. Individuals who reside in New York State or
City will not be subject to State and City tax on interest income
which is exempt from Federal income tax under section 103 of the
Internal Revenue Code of 1986 and derived from obligations of New York
State or a political subdivision thereof, although they will be
subject to New York State and City tax with respect to any gains
realized when such obligations are sold, redeemed or paid at maturity
or when any such Units are sold or redeemed.
NORTH CAROLINA TRUSTS. General obligations of a city, town or county
in North Carolina are payable from the general revenues of the entity,
including ad valorem tax revenues on property within the jurisdiction. Revenue
bonds issued by North Carolina political subdivisions include (1) revenue bonds
payable exclusively from revenue-producing governmental enterprises and (2)
industrial revenue bonds, college and hospital revenue bonds and other "private
activity bonds" which are essentially non-governmental debt issues and which
are payable exclusively by private entities such as non-profit organizations
and business concerns of all sizes. State and local governments have no
obligation to provide for payment of such private activity bonds and in many
cases would be legally prohibited from doing so. The value of such private
activity bonds may be affected by a wide variety of factors relevant to
particular localities or industries, including economic developments outside of
North Carolina.
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Section 23-48 of the North Carolina General Statutes appears to permit
any city, town, school district, county or other taxing district to avail
itself of the provisions of Chapter 9 of the United States Bankruptcy Code, but
only with the consent of the Local Government Commission of the State and of
the holders of such percentage or percentages of the indebtedness of the issuer
as may be required by the Bankruptcy Code (if any such consent is required).
Thus, although limitations apply, in certain circumstances political
subdivisions might be able to seek the protection of the Bankruptcy Code.
State Budget and Revenues. The North Carolina State Constitution
requires that the total expenditures of the State for the fiscal period covered
by each budget not exceed the total of receipts during the fiscal period and
the surplus remaining in the State Treasury at the beginning of the period.
The State's fiscal year runs from July 1st through June 30th.
In 1990 and 1991, the State had difficulty meeting its budget
projections. Lower than anticipated revenues coupled with increases in State
spending requirements imposed by the federal government led to projected budget
deficits for fiscal 1989-1990 and fiscal 1990-91. Consequently, the Governor
ordered cuts in budgeted State expenditures for both fiscal years.
When similar budget deficits were projected for the next two fiscal
years, the General Assembly addressed the problem through a broad array of
State spending reductions in existing programs or previously budgeted increases
and tax increases. The taxes include a one-cent increase in the sales tax, a
three-cent increase in the excise tax on cigarettes, an increase in the
corporate tax rate (from 7 to 7.75 percent, as well as a four-year surtax,
starting at 4% of the regular income tax for tax year 1991 and reducing by 1%
for each of the following three years), an increase in the individual income
tax rate for married couples with income of more than $100,000 and individuals
with income over $60,000, and other taxes.
The effect of the budget reductions and tax increases resulted in a
small budget surplus (approximately $160 million) for the 1991-1992 fiscal year
(ended June 30, 1992). The State netted a larger budget surplus (approximately
$342 million) for the 1992-1993 fiscal year (ended June 30, 1993). The $9
billion for 1993-1994 adopted by the General Assembly did not include any new
tax measures. The 1993-1994 budget does include new spending cuts and
estimated increased revenues totalling $30.6 million.
Both the nation and the State have experienced a modest economic
recovery in recent months. However, it is unclear what effect these
developments, as well as the reduction in government spending or increase in
taxes may have on the value of the Debt Obligation in the North Carolina Trust.
No clear upward trend has developed, and both the State and the national
economies must be watched carefully.
The fiscal condition of the State might be affected adversely by
litigation concerning the legality of certain State tax provisions following
the decision of the United States Court in Davis v. Michigan Dept. of Treasury
(decided March 28, 1989). In Davis, the United States Supreme Court held
unconstitutional a Michigan statute exempting from state income taxation
retirement benefits paid by the State of Michigan or its local governments, but
not exempting retirement benefits paid by the federal government.
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Subsequent to Davis, certain federal retirees and federal military
personnel plaintiffs brought an action in North Carolina state court seeking
refund of the illegal taxes. Swanson, et al. v. State of North Carolina, et
al. (Wake County, North Carolina Superior Court, No. 90 CVS 3127) ("Swanson
State").
The amount of refunds claimed by the federal retirees in the Swanson
action has not been calculated. Plaintiffs have asserted that the plaintiff
class contains about 100,000 taxpayers; the State has asserted that the claims
would aggregate at least $140 million (which might not include interest).
In a 4-3 decision, the North Carolina Supreme Court found for the
defendants, declaring the State would not be required to refund taxes illegally
collected prior to the decision in Davis. Because of this determination, the
Court did not need to decide what remedies would be available if Davis were
held to apply retroactively. The Court reaffirmed its decision following
reconsideration.
Plaintiffs in Swanson State applied for review by the U.S. Supreme
Court. The U.S. Supreme Court vacated the judgement and remanded the case to
the North Carolina Supreme Court for reconsideration in the light of the U.S.
Supreme Court's holding in Harper v. Virginia Dept. of Taxation (No. 91-794)
("Harper"). In Harper, which also involved the disparate income tax treatment
of retired state and federal employees and the question of retroactive
application of the decision in Davis, the Supreme Court held that the
Commonwealth of Virginia must provide "meaningful backward-looking relief" to
the plaintiffs, if the Commonwealth did not have a predeprivation process
adequate to satisfy due process requirements. The case was remanded to the
Supreme Court of Virginia to determine whether a remedy was required and, if
so, what form it would take.
The impact of Harper on the estimated $140 million of refund claims in
Swanson State has yet to be determined. The North Carolina Supreme Court must
determine whether North Carolina law provides an adequate predeprivation
process, and, if not, what remedy should be fashioned to satisfy due process
requirements.
General. The population of the State has increased 13% from 1980,
from 5,880,095 to 6,647,351 as reported by the 1990 federal census. Although
North Carolina is the tenth largest state in population, it is primarily a
rural state, having only five municipalities with populations in excess of
100,000.
The labor force has undergone significant change during recent years.
The State has moved from an agricultural to a service and goods producing
economy. Those persons displaced by farm mechanization and farm consolidations
have, in large measure, sought and found employment in other pursuits. Due to
wide dispersion of non-agricultural employment, the people have been able to
maintain, to a large extent, their rural habitation practices. During the
period 1980 to 1990, the State labor force grew about 19% (from 2,855,200 to
3,401,000), and per capita income grew from $7,999 to $16,203, an increase of
102.6%.
The current economic profile of the State consists of a combination of
industry, agriculture and tourism. As of May 1991, the State was reported to
rank tenth among the states in non-agricultural employment and eighth in
manufacturing employment. Employment indicators have fluctuated somewhat in
the annual periods since June of 1989.
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The unemployment rate in June 1993 was 5.4% of the labor force, as
compared with an unemployment rate of 7.0% nationwide.
The diversity of agriculture in North Carolina and a continuing push
in marketing efforts have protected farm income from some of the wide
variations that have been experienced in other states where most of the
agricultural economy is dependent on a small number of agricultural
commodities.
Gross agricultural income in 1991 was $4.98 billion, including
approximately $4,924,071,000 income from commodities. As of 1991, the State
was tenth in the nation in gross agricultural income. Tobacco production is a
leading source of agricultural income in the State, accounting for 21.4% of
gross agricultural income. Tobacco farming in North Carolina has been and is
expected to continue to be affected by major Federal legislation and regulatory
measures regarding tobacco production and marketing and by international
competition. Measures adverse to tobacco farming could have negative effects
on farm income and the North Carolina economy generally. Eggs and poultry
products accounted for revenues of approximately $1.5 billion in 1991.
According to the State Commissioner of Agriculture, based on 1991
figures, the State ranked first in the nation in the production of flue-cured
tobacco, total tobacco, turkeys and sweet potatoes; second in the production of
cucumbers for pickles; third in the value of poultry products and trout; fourth
in commercial broilers and peanuts; sixth in burley tobacco, greenhouse and
nursery receipts, hogs and strawberries; and seventh in the number of chickens
(excluding broilers), peaches and apples. The number of farms has been
decreasing; in 1992 there were approximately 60,000 farms in the State (down
from approximately 72,000 in 1987, a decrease of about 17% in five years).
However, a strong agribusiness sector also supports farmers with farm inputs
(fertilizer,insecticide, pesticide and farm machinery) and processing of
commodities produced by farmers (vegetable canning and cigarette
manufacturing).
The State Department of Commerce, Travel and Tourism Division, has
reported that in 1991 approximately $7 billion was spent on tourism in the
State with 1992 revenues from tourism expected to exceed $7.3 billion. In
1990, traveler expenditures directly generated more than 141,000 jobs within
the State, 4.5 percent to total nonagricultural employment in that year.
Bond Ratings. Currently, Moody's rates North Carolina general
obligation bonds as Aaa and Standard & Poor's rates such bonds as AAA.
Standard & Poor's placed North Carolina general obligation bonds on "credit
watch" in June of 1990 and continued to monitor the State's economy closely
through 1990 and 1991.
In June of 1992 Standard & Poor's revised its outlook on the State's
AAA-rated general obligation bonds to stable from negative. Among the reasons
for the revision were the revenue spending measures adopted since 1991.
The rating agencies presumably will monitor the results of the
legislative approach to the fiscal difficulties.
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Thus, although both ratings agencies have reaffirmed the AAA rating of
North Carolina's outstanding general obligation bonds for the present time,
there can be no assurance that these ratings will continue, that local
government bond ratings will not decline or that particular bond issues may not
be adversely affected by changes in the economic, political or other conditions
that do not affect the ratings.
The Sponsor believes the information summarized above describes some
of the more significant events relating to the North Carolina Trust. The
sources of this information are the official statements of issuers located in
North Carolina, State agencies, publicly available documents, publications of
ratings agencies and news reports of statements by State officials and
employees and by rating agencies. The Sponsor and its counsel have not
independently verified any of the information contained in the official
statements and other sources and counsel have not expressed any opinion
regarding the completeness or materiality of any contained in this Prospectus
other than the tax opinions set forth below under North Carolina Taxes.
At the time of the closing for each North Carolina Trust, Special
Counsel to the fund for North Carolina tax matters rendered an opinion under
then existing North Carolina income tax law applicable to taxpayers whose
income is subject to North Carolina income taxation substantially to the effect
that:
Upon the establishing of the North Carolina Trust and the Units
thereunder:
(1) The North Carolina Trust is not an "association" taxable as a
corporation under North Carolina law with the result that
income of the North Carolina Trust will be deemed to be income
of the Unitholders.
(2) Interest on the Bonds that is exempt from North Carolina
income tax when received by the North Carolina Trust will
retain its tax-exempt status when received by the Unitholders.
(3) Unitholders will realize a taxable event when the North
Carolina Trust disposes of a Bond (whether by sale, exchange,
redemption or payment at maturity) or when a Unitholder
redeems or sells his Units (or any of them), and taxable gains
for Federal income tax purposes. However, when a Bond had
been issued under an act of the North Carolina General
Assembly that provides that all income from such Bond,
including any profit made from the sale thereof, shall be free
from all taxation by the State of North Carolina, any such
profit received by the North Carolina Trust will retain its
tax-exempt status in the hands of the Unitholders.
(4) Unitholders must amortize their proportionate share of any
premium on a Bond. Amortization for each taxable year is
accomplished by lowering the Unitholder's basis (as adjusted)
in his Units with no deduction against gross income for the
year.
(5) The Units are exempt from the North Carolina tax on intangible
personal property so long as the corpus of the North Carolina
Trust remains composed entirely of Bonds or, pending
distribution, amounts received on the sale, redemption or
maturity of the Bonds and the Trustee periodically supplies to
the North Carolina Department of Revenue at such times
required by the Department of Revenue a complete description
of the North Carolina Trust and also the name, description and
value of the obligations held in the corpus of the North
Carolina Trust.
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OHIO TRUSTS. The Ohio Trust will invest substantially all of its net
assets in obligations issued by or on behalf of (or in certificates of
participation in lease purchase obligations of) the State of Ohio, political
subdivisions thereof, or agencies or instrumentalities of the State or its
political subdivisions (Ohio Obligations). The Ohio Trust is therefore
susceptible to general or particular political, economic or regulatory factors
that may affect issuers of Ohio Obligations. The following information
constitutes only a brief summary of some of the complex factors that may have
an effect. This information does not apply to "conduit" obligations on which
the public issuer itself has no financial responsibility. This information is
derived from official statements of certain Ohio issuers published in
connection with their issuance of securities of certain Ohio issuers and from
other publicly available documents, and is believed to be accurate. No
independent verification has been made of any of the following information.
The creditworthiness of Ohio Obligations of local issuers is generally
unrelated to that of obligations issued by the State itself, and the State has
no responsibility to make payments on those local obligations. There may be
specific factors that at particular times apply in connection with investment
in particular Ohio Obligations or in those obligations of particular Ohio
issuers. It is possible the investment will be in particular Ohio Obligations
or in those Obligations of particular issuers as to which those factors apply.
However, the information below is intended only as a general summary and is not
intended as a discussion of any specific factors that may affect any particular
issue or issuer.
Ohio is the seventh most populous state. Its 1990 Census count of
10,847,000 indicates a 0.5% population increase from 1980.
While diversifying more into the service and other non-manufacturing
areas, the Ohio economy continues to rely in part on durable goods
manufacturing largely concentrated in motor vehicles and equipment, steel,
rubber products and household appliances. As a result, general economic
activity, as in many other industrially-developed states, tends to be more
cyclical than in some other states and in the nation as a whole. Agriculture
also is an important segment of the economy, with over half the State's area
devoted to farming and approximately 15% of total employment is in
agribusiness.
The State's overall unemployment rate was commonly somewhat higher
than the national figure. (For example, the reported 1990 average monthly State
rate was 5.7%, compared to the 5.5% national figure. However, for both 1991 and
1992 the State rates (6.4% and 7.4%) were below the national rates (6.7% and
7.4%). The unemployment rate, and its effects, vary among particular geographic
areas of the State.
There can be no assurance that future national, regional or state-wide
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely affect the market value of Ohio
Obligations held in the Ohio Trust portfolio or the ability of particular
obligors to make timely payments of debt service on (or lease payments relating
to) those obligations.
The State operates on the basis of a fiscal biennium for its
appropriations and expenditures, and is precluded by law from ending its July 1
to June 30 fiscal year (FY) or fiscal year biennium in a deficit position.
Most State operations are financed through the General Revenue Fund (GRF), for
which personal income and sales-use taxes are the major sources. Growth and
depletion of GRF ending fund balances show
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a consistent pattern related to national economic conditions, with the
FY-ending balance reduced during less favorable and increased during more
favorable economic periods. The State has well-established procedures for, and
has timely taken, necessary actions to ensure a resource/expenditure balances
during less favorable economic periods. These include general and selected
reductions in appropriations spending.
Key biennium ending fund balances at June 30, 1989 were $475.1 million
in the GRF and $353 million in the Budget Stabilization Fund (BSF, a cash and
budgetary management fund). In FY's 1990-91, necessary corrective steps were
taken to respond to lower receipts and higher expenditures in certain
categories than earlier estimated. Those steps included selected reductions in
appropriations spending and the transfer of $64 million from the BSF to the
GRF. The State reported June 30, 1991 ending fund balances of $135.3 million
(GRF) and $300 million (BSF).
To allow time to resolve certain Senate and House budget differences
for the latest complete biennium that began July 1, 1991, an interim
appropriations act was enacted, effective July 1, 1991; it included State debt
service and lease rental GRF appropriations for the entire 1992-93 biennium,
while continuing most other appropriations for a month. The general
appropriations act for the entire biennium was passed on July 11, 1991 and
signed by the Governor. Pursuant to it, $200 million was transferred from the
BSF to the GRF in FY 1992.
Based on updated FY financial results and the economic forecast in the
course of FY 1992, both in light of the continuing uncertain nationwide
economic situation, there was projected and timely addressed, an FY 1992
imbalance in GRF resources and expenditures. GRF receipts significantly below
original forecasts resulted primarily from lower collections of certain taxes,
particularly sales and use taxes and personal income taxes. Higher expenditure
levels resulted from higher spending in certain areas, particularly human
services including Medicaid. As an initial action, the Governor ordered most
State agencies to reduce GRF appropriations spending in the final six months of
the FY 1992 by a total of approximately $184 million. As authorized by the
General Assembly, the $100.4 million BSF balance and additional amounts from
certain other funds, were transferred late in the FY to the GRF, and
adjustments in the timing of certain tax payments made. Other administrative
revenue and spending actions resolved the remaining GRF imbalance.
A significant GRF shortfall (approximately $520 million) was then
projected for FY 1993. It was addressed by appropriate legislative and
administrative actions. As a first step the Governor ordered, effective July
1, 1992, $300 million in selected GRF spending reductions. Executive and
legislative action in December 1992 (a combination of tax revisions and
additional appropriations spending reductions) resulted in a balance of GRF
resources and expenditures in the 1992-93 biennium. The State reported an
ending GRF fund balance at June 30, 1993 of approximately $111 million, and, as
a first step to BSF replenishment. OBM has deposited $21 million in the BSF.
No spending reductions were applied to appropriations needed for debt
services or lease rentals on any State obligations.
The GRF appropriations act for the current 1994-95 biennium was passed
and signed by the Governor on July 1, 1993. It includes all necessary GRF
appropriations for biennial State debt services and lease rental payments.
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The State's incurrence or assumption of debt without a vote of the
people is, with limited exceptions, prohibited by current State Constitutional
provisions. The State may incur debt limited in amount to $750,000 to cover
casual deficits or failures in revenues or to meet expenses not otherwise
provided for. The Constitution expressly precludes the State from assuming the
debts of any local government or corporation. (An exception in both cases is
for any debt incurred to repel invasion, suppress insurrection or defend the
State in war.)
By 13 constitutional amendments, the last adopted in 1993, Ohio voters
have authorized the incurrence of State debt to which taxes or excises were
pledged. At January 31, 1994, $712.6 million (excluding certain highway bonds
payable primarily from highway use charges) of this debt was outstanding or
awaiting delivery. With the only such State debt then still authorized to be
incurred are portions of the highway bonds, and the following: (a) up to $100
million of obligations for coal research and development may be outstanding at
any one time ($43.1 million outstanding); (b) $1.2 billion of obligations
authorized for local infrastructure improvements, no more than $120 million may
be issued in any calendar year ($645.2 million outstanding or awaiting
delivery, $480 million remaining to be issued); and (c) up to $200 million in
general obligation bonds for parks and recreation purposes may be outstanding
at any one time (no more than $50 million to be issued in any one year, and
none have yet been issued).
The Constitution also authorizes the issuance of State obligations for
certain purposes the owners of which do not have the right to have excises or
taxes levied to pay debt service. Those special obligations include
obligations issued by the Ohio Public Facilities Commission and the Ohio
Building Authority, $4.28 billion of which were outstanding or awaiting
delivery at January 31, 1994.
A 1990 constitutional amendment authorizes greater State and political
subdivision participation (including financing) in the provision of housing.
The General Assembly may for that purpose authorize the issuance of State
obligations secured by a pledge of all or such portion as it authorizes of
State revenues or receipts (but not by a pledge of the State's full faith and
credit).
State and local agencies issue revenue obligations that are payable
from revenues from or relating to certain facilities (but not from taxes). By
judicial interpretation, these obligations are not "debt" within constitutional
provisions. In general, payment obligations under lease-purchase agreements of
Ohio public agencies (in which certificates of participation may be issued) are
limited in duration to the issuer's fiscal period, and are renewable only upon
appropriations being made available for the subsequent fiscal period.
Local school districts in Ohio receive a major portion (on a
state-wide basis, recently approximately 46%) of their operating moneys from
State subsidies, but are dependent on local property taxes, and in 98 districts
from voter-authorized income taxes, for significant portions of their budgets.
Litigation, similar to that in other states, is pending questioning the
constitutionality of Ohio's system of school funding. A small number of the
State's 612 local school districts have in any year required special assistance
to avoid year-end deficits. A current program provides for school district
cash need borrowing directly from commercial lenders, with diversion of State
subsidy distributions to repayment if needed; in FY 1991 under this program 26
districts borrowed a total of $41.8 million (including over $27 million by one
district), and in FY 1992 borrowings totaled $61.9 million (including $46.6
million for one district). FY 1993 loans totaled $94.5 million for 43
districts (including $75 million for one district). FY 1994 loans totaled at
January 31, 1994, $9.90 million for 16 districts.
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Ohio's 943 incorporated cities and villages rely primarily on property
and municipal income taxes for their operations, and, with other local
governments, receive local government support and property tax relief moneys
distributed by the State. For those few municipalities that on occasion have
faced significant financial problems, there are statutory procedures for a
joint State/local commission to monitor the municipality's fiscal affairs, and
for development of a financial plan developed to eliminate deficits and cure
any defaults. Since inception in 1979, these procedures have been applied to
23 cities and villages; in 16 of them the fiscal situation was resolved and the
procedures terminated.
At present the State itself does not levy any ad valorem taxes on real
or tangible personal property. Those taxes are levied by political
subdivisions and other local taxing districts. The Constitution has since 1934
limited the amount of the aggregate levy (including a levy for unvoted general
obligations) of property taxes by all overlapping subdivisions, without a vote
of the electors or a municipal charter provision, to 1% of true value in money,
and statutes limit the amount of that aggregate levy to 10 mills per $1 of
assessed valuation (commonly referred to as the "ten-mill limitation"). Voted
general obligations of subdivisions are payable from property taxes unlimited
as to amount or rate.
Commencing in 1985, Ohio municipalities may be permitted under Ohio
law to subject interest on certain of the obligations held by each Ohio Trust
to income taxes imposed on their residents and entities doing business therein.
At the time of the closing for each Ohio Trust, Special Counsel to
each Ohio Trust for Ohio tax matters rendered an opinion under then existing
Ohio income tax law applicable to taxpayers whose income is subject to Ohio
income taxation substantially to the effect that:
(1) An Ohio Trust is not taxable as a corporation or otherwise for
purposes of the Ohio personal income tax, Ohio school district
income taxes, the Ohio corporation franchise tax or the Ohio
dealers in intangibles tax;
(2) Income of an Ohio Trust will be treated as the income of the
Unitholders for purposes of the Ohio personal income tax, Ohio
school district income taxes, Ohio municipal income taxes and
the Ohio corporation franchise tax in proportion to the
respective interest therein of each Unitholder;
(3) Interest on obligations issued by or on behalf of the State of
Ohio, political subdivisions thereof, or agencies or
instrumentalities thereof ("Ohio Obligations"), or by the
governments of Puerto Rico, the Virgin Islands or Guam
("Territorial Obligations") held by the Trust is exempt from
the Ohio personal income tax, Ohio municipal income taxes and
Ohio school district income taxes, and is excluded from the
net income base of the Ohio corporation franchise tax when
distributed or deemed distributed to Unitholders;
(4) Proceeds paid to an Ohio Trust under insurance policies
representing maturing interest on defaulted obligations held
by the Ohio Trust will be exempt from Ohio income tax, Ohio
school district income taxes,Ohio municipal income taxes and
the net income base of the Ohio corporation franchise tax if,
and to the same extent as, such interest would be exempt from
such taxes if paid directly by the issuer of such obligations;
and
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(5) Gains and losses realized on the sale, exchange or other
disposition by an Ohio Trust of Ohio Obligations are excluded
in determining adjusted gross and taxable income for purposes
of the Ohio personal income tax, Ohio municipal income taxes
and Ohio school district income taxes, and are excluded from
the net income base of the Ohio corporation franchise tax when
distributed or deemed distributed to Unitholders.
PENNSYLVANIA TRUSTS. Investors should be aware of certain factors
that might affect the financial conditions of the Commonwealth of Pennsylvania.
Pennsylvania historically has been identified as a heavy industry state
although that reputation has changed recently as the industrial composition of
the Commonwealth diversified when the coal, steel and railroad industries began
to decline. The major new sources of growth in Pennsylvania are in the service
sector, including trade, medical and the health services, education and
financial institutions. Pennsylvania's agricultural industries are also an
important component of the Commonwealth's economic structure, accounting for
more than $3.6 billion in crop and livestock products annually, while
agribusiness and food related industries support $38 billion in economic
activity annually.
Non-agricultural employment in the Commonwealth declined by 5.1
percent during the recessionary period from 1980 to 1983. In 1984, the
declining trend was reversed as employment grew by 2.9 percent over 1983
levels. From 1983 to 1990, Commonwealth employment continued to grow each
year, increasing an additional 14.3 percent. For the last two years,
employment in the Commonwealth has declined 1.9 percent. the growth in
employment experienced in Pennsylvania is comparable to the national growth in
employment which has occurred during this period. Back to back recessions in
the early 1980's reduced the manufacturing sector's employment levels
moderately during 1980 and 1981, sharply during 1982, and even further in 1983.
Non-manufacturing employment has increased steadily since 1980 to its 1992
level of 81.3 percent of total Commonwealth employment. Consequently,
manufacturing employment constitutes a diminished share of total employment
within the Commonwealth. Manufacturing, contributing 18.7 percent of 1992
non-agricultural employment, has fallen behind both the services sector and the
trade sector as the largest single source of employment within the
Commonwealth. In 1992 the services sector accounted for employment within the
Commonwealth. In 1992, the service sector accounted for 29.3 percent of all
non-agricultural employment while the trade sector accounted for 22.7 percent.
From 1983 to 1989, Pennsylvania's annual average unemployment rate
dropped from 11.8 percent to 4.5 percent, falling below the national rate in
1986 for the first time in over a decade. Pennsylvania's annual average
unemployment rate remained below the national average from 1986 until 1990.
Slower economic growth caused the unemployment rate in the Commonwealth to rise
to 6.9 percent in 1991 and 7.5 percent in 1992. In April 1993 the seasonally
adjusted unemployment rate for the Commonwealth was 6.6 percent compared to 7.0
percent for the United States.
It should be noted that the creditworthiness of obligations issued by
local Pennsylvania issuers may be unrelated to the creditworthiness of
obligations issued by the Commonwealth of Pennsylvania, and there is no
obligation on the part of the Commonwealth to make payment on such local
obligations in the event of default.
Financial information for the General Fund is maintained on a
budgetary basis of accounting. A budgetary basis of accounting is used for the
purpose of ensuring compliance with the enacted operating budget
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and is governed by applicable statutes of the Commonwealth and by
administrative procedures. The Commonwealth also prepares annual financial
statements in accordance with generally accepted accounting principles
("GAAP"). The budgetary basis financial information maintained by the
Commonwealth to monitor and enforce budgetary control is adjusted at fiscal
year-end to reflect appropriate accruals for financial reporting in conformity
with GAAP.
Fiscal 1991 Financial Results. GAAP Basis: During fiscal 1991 the
General Fund experienced an $861.2 million operating deficit resulting in a
fund balance deficit of $980.9 million at June 30, 1991. The operating deficit
was a consequence of the effect of a national recession that restrained budget
revenues and pushed expenditures above budgeted levels. At June 30, 1991, a
negative unreserved-undesignated balance of $1,146.2 million was reported.
During fiscal 1991 the balance in the Tax Stabilization Reserve Fund was used
to maintain vital state spending and only a minimal balance remains in that
fund.
Budgetary Basis: A deficit of $453.6 million was recorded by the
General Fund at June 30, 1991. The deficit was a consequence of higher than
budgeted expenditures and lower than estimated revenues during the fiscal year
brought about by the national economic recession that began during the fiscal
year. A number of actions were taken throughout the fiscal year by the
Commonwealth to mitigate the effects of the recession on budget revenues and
expenditures. Actions taken, together with normal appropriation lapses,
produced $871 million in expenditure reductions and revenue increases for the
fiscal year. The most significant of these actions were a $214 million
transfer from the Pennsylvania Industrial Development Authority, a $134 million
transfer from the Tax Stabilization Reserve Fund, and a pooled financing
program to match federal Medicaid funds replacing $145 million of state funds.
Fiscal 1992 Financial Results. GAAP Basis: During fiscal 1992 the
General Fund reported a $1.1 billion operating surplus. This operating surplus
was achieved through legislated tax rate increases and tax base broadening
measures enacted in August 1991 and by controlling expenditures through
numerous cost reduction measures implemented throughout the fiscal year. As a
result of the fiscal 1992 operating surplus, the fund balance has increased to
$87.5 million and the unreserved-undesignated deficit has dropped to $138.6
million from its fiscal 1991 level of $1,146.2 million.
Budgetary Basis: Eliminating the budget deficit carried into fiscal
1992 from fiscal 1991 and providing revenues for fiscal 1992 budgeted
expenditures required tax revisions that are estimated to have increased
receipts for the 1992 fiscal year by over $2.7 billion. Total revenues for the
fiscal year were $14,516.8 million, a $2,654.5 million increase over cash
revenues during fiscal 1991. Originally based on forecasts for an economic
recovery, the budget revenue estimates were revised downward during the fiscal
year to reflect continued recessionary economic activity. Largely due to the
tax revisions enacted for the budget, corporate tax receipts totalled $3,761.2
million, up from $2,656.3 million in fiscal 1991, sales tax receipts increased
by $302 million to $4,499.7 million, and personal income tax receipts totalled
$4,807.4 million, an increase of $1,443.8 million over receipts in fiscal 1991.
As a result of the lowered revenue estimate during the fiscal year,
increased emphasis was placed on restraining expenditure growth and reducing
expenditure levels. A number of cost reductions were implemented during the
fiscal year and contributed to $296.8 million of appropriation lapses. These
appropriation lapses were responsible for the $8.8 million surplus at fiscal
year-end, after accounting for the required ten percent transfer of the surplus
to the Tax Stabilization Reserve Fund.
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Spending increases in the fiscal 1992 budget were largely accounted
for by increases for education, social services and corrections programs.
Commonwealth funds for the support of public schools were increased by 9.8
percent to provide a $438 million increase to $4.9 billion for fiscal 1992.
The fiscal 1992 budget provided additional funds for basic and special
education and included provisions designed to help restrain the annual increase
of special education costs, an area of recent rapid cost increases. Child
welfare appropriations supporting county operated child welfare programs were
increased $67 million, more than 31.5 percent over fiscal 1991. Other social
service areas such as medical and cash assistance also received significant
funding increases as costs have risen quickly as a result of the economic
recession and high inflation rates of medical care costs. The costs of
corrections programs, reflecting the marked increase in the prisoner
population, increased by 12 percent. Economic development efforts, largely
funded from bond proceeds in fiscal 1991, were continued with General Fund
appropriations for fiscal 1992.
The budget included the use of several Medicaid pooled financing
transactions. These pooling transactions replaced $135 million of Commonwealth
funds, allowing total spending under the budget to increase by an equal amount.
Fiscal 1993 Budget. (Budgetary Basis). The latest budget estimates
project expenditures from Commonwealth funds for fiscal 1993 to be $13.857
billion, representing only a $5.2 million increase over fiscal 1992
expenditures. The fiscal 1993 budget is balanced within the official revenue
estimate and a planned draw-down of the $8.8 million beginning budgetary basis
surplus carried forward from Fiscal 1992. The Fiscal 1993 budget was amended
on May 28, 1993, through the enactment of $165.1 million of supplement
appropriations. This small increase in expenditures is the result of revenues
being constrained by a personal income tax rate reduction effective July 1,
1992, a low rate of economic growth, higher tax refund reserves to cushion
against adverse decisions on pending tax litigations, and the receipt of
Federal funds for expenditures previously paid out of Commonwealth funds. The
amended fiscal 1993 budget restored partial funding for private educational
institutions that normally receive state appropriations but whose
appropriations were item-vetoed by the Governor from the originally adopted
fiscal 1993 budget. Also restored by the amended budget were certain grants to
the counties to help operating costs of the local judicial system.
Commonwealth revenue sources are estimated for the fiscal 1993 budget
to total $14.592 billion, a $74.9 million increase over actual fiscal 1992
revenues, representing an increase of approximately one-half of one percent.
The projected low revenue growth for fiscal 1993 is caused by the
Commonwealth's expectation that current weak growth in employment, consumer
income, and retail sales will continue, and by the reduction in the personal
income tax rate from 3.1% to 2.8% on July 1, 1992. In addition, tax refund
reserves were increased by $209 million to $548 million for fiscal 1993 to
allow for potential tax refunds that might be payable from any adverse judicial
decision in a number of pending tax litigations. In January 1993, the refund
estimate was reduced to $530 million.
Through May 1993, fiscal 1993 total General Fund revenue collections
were $7.1 million (0.05 percent) above estimate, as fiscal year- to-date
shortfalls in receipts of corporation taxes ($30.3 million) and personal income
tax ($37.2 million) were offset mainly by above estimate sales tax
miscellaneous revenue collections.
Fiscal 1994 Budget (Budgetary Basis). The enacted 1994 fiscal year
budget provides for $14.999 billion of appropriations of Commonwealth funds.
The largest increase in appropriations is for the Department
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of Public Welfare - $235 million - to meet the increasing costs of medical care
and rising case loads. Other large increase are education - $196 million -
including $130 million to increase state educational subsidies for most needy
school districts and $104 million for correctional institutions to pay
operating costs and lease payments for five new prisons and to expand the
capacity of two existing facilities.
The budget estimates revenue growth of 4.0 percent over revised fiscal
1993 estimates. The revenue estimate is based on an expectation of continued
economic recovery, but at a slow rate. Sales tax receipts are projected to
rise 5.1 percent over the fiscal 1993 estimate while personal income tax
receipts are projected to increase by 2.4 percent, a rate that is low because
of the tax rate reduction in July 1992.
All outstanding general obligation bonds of the Commonwealth are rated
AA- by S&P and A1 by Moody.
Any explanation concerning the significance of such ratings must be
obtained from the rating agencies. There is no assurance that any ratings will
continue for any period of time or that they will not be revised or withdrawn.
The City of Philadelphia is the largest city in the Commonwealth with
an estimated population of 1,585,577 according to the 1990 Census.
Philadelphia functions both as a City and a first-class County for the purpose
of administering various governmental programs.
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first class cities
in remedying fiscal emergencies was enacted by the General Assembly and
approved by the Governor in June 1991. PICA is designed to provide assistance
through the issuance of funding debt to liquidate budget deficits and to make
factual findings and recommendations to the assisted city concerning its
budgetary and fiscal affairs. An intergovernmental cooperation agreement
between Philadelphia and PICA was approved by City Counsel on January 3, 1992,
and approved by the PICA Board and signed by the Mayor on January 8, 1992. At
this time, Philadelphia is operating under a revised five-year fiscal plan
approved by PICA on April 6, 1992. Full implementation of the five-year plan
was delayed due to labor negotiations that were not completed until October
1992, three months after the expiration of the old labor contracts. The terms
of the new labor contracts are estimated to cost approximately $144.0 million
more than what was budgeted in the original five-year plan. The Mayor and his
Administration have amended the plan to bring it back in balance and their plan
is presently being considered by PICA and City Council.
The June 1992, PICA issued $474,555,000 of its Special Tax Revenue
bonds to provide financial assistance to Philadelphia and to liquidate the
cumulative General Fund balance deficit. In March 1993, Philadelphia filed an
amended five-year plan with PICA, in which the General Fund balance deficit for
the Fiscal Year ended June 30, 1993, is projected to be $6.6 million. The
fiscal 1994 budget, approved by the City Council, projects no deficit and a
balanced budget for the year ending June 30, 1994. PICA approved the fiscal
1994 budget plan on April 14, 1993.
As of the date hereof, the ratings on the City's long-term obligations
supported by payments from the City's General Fund are rated Ba by Moody's and
B by S&P. Any explanation concerning the significance
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of such ratings must be obtained from the rating agencies. There is no
assurance that any ratings will continue for any period of time or that they
will not be revised or withdrawn.
The foregoing information constitutes only a brief summary of some of
the financial difficulties which may impact certain issuers of bonds and does
not purport to be a complete or exhaustive description of all adverse
conditions to which the issuers of the Bonds in the Pennsylvania Trust are
subject Additionally, many factors including national economic, social and
environmental policies and conditions, which are not within the control of the
issuers of Bonds, could have an adverse impact on the financial condition of
the State and various agencies and political subdivisions located in the State.
The sponsor is unable to predict whether or to what extent such factors or
other factors may affect the issuers of Bonds, the market value or
marketability of the Bonds or the ability of the respective issuers of the
Bonds acquired by the Pennsylvania Trust to pay interest on or principal of the
Bonds.
At the time of the closing for each Pennsylvania Trust, Special
Counsel to each Pennsylvania Trust for Pennsylvania tax matters rendered an
opinion under then existing Pennsylvania income tax law applicable to taxpayers
whose income is subject to Pennsylvania income taxation substantially to the
effect that:
(1) Units evidencing fractional undivided interest in a
Pennsylvania Trust, which are represented by obligations
issued by the Commonwealth of Pennsylvania, any public
authority, commission, board or other agency created by the
Commonwealth of Pennsylvania, any political subdivision of the
Commonwealth of Pennsylvania or any public authority created
by any such political subdivision are not taxable under any of
the personal property taxes presently in effect in
Pennsylvania;
(2) distributions of interest income to Unitholders are not
subject to personal income tax under the Pennsylvania Tax
Reform Code of 1971; nor will such interest be taxable under
the Philadelphia School District Investment Income Tax imposed
on Philadelphia resident individuals;
(3) a Unitholder may have a taxable event under the Pennsylvania
state and local income taxes referred to in the preceding
paragraph upon the redemption or sale of his Units but not
upon the disposition of any of the Securities in a
Pennsylvania Trust to which the Unitholder's Units relate;
Units will be taxable under the Pennsylvania inheritance and
estate taxes;
(4) Units are subject to Pennsylvania inheritance and estate taxes;
(5) a Unitholder which is a corporation may have a taxable event
under the Pennsylvania Corporate Net Income Tax when it
redeems or sells its Units. Interest income distributed to
Unitholders which are corporations is not subject to
Pennsylvania Corporate Net Income Tax or Mutual Thrift
Institutions Tax. However, banks, title insurance companies
and trust companies may be required to take the value of the
Units into account in determining the taxable value of their
Shares subject to Shares Tax;
(6) any proceeds paid under the insurance policy issued to the
Trustee or obtained by issuers of the Bonds with respect to
the Bonds which represent maturing interest on defaulted
obligations held by the Trustee will be excludable from
Pennsylvania gross income if, and to the same extent as, such
interest would have been so excludable if paid by the issuer
of the defaulted obligations; and
(7) the Fund is not taxable as a corporation under Pennsylvania
tax laws applicable to corporations.
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In rendering its opinion, Special Counsel has not, for timing reasons,
made an independent review of proceedings related to the issuance of the Bonds.
It has relied on the Sponsor for assurance that the Bonds have been issued by
the Commonwealth of Pennsylvania or by or on behalf of municipalities or other
governmental agencies within the Commonwealth.
TEXAS TRUSTS. Historically, the primary sources of the State's
revenues have been sales taxes, mineral severance taxes and federal grants.
Due to the collapse of oil and gas prices in 1986 and a resulting enactment by
recent legislatures of new tax measures, including those increasing the rates
of existing taxes and expanding the tax base for certain taxes, there has been
a reordering in the relative importance of the State's taxes in terms of their
contribution to the State's revenue in any year. Sales taxes remain the
State's main revenue source, accounting for 28.8% of State revenues during
fiscal year 1992. Federal grants remain the State's second largest revenue
source, accounting for approximately 28.4% of total revenue during fiscal year
1992. The motor fuels tax is now the State's third largest revenue source and
the second largest tax, accounting for approximately 6.6% of total revenue in
fiscal year 1992. Licenses, fees and permits, the State's fourth largest
revenue source, accounted for 6.3% of the total revenue in fiscal year 1992.
Interest and investment income is the fifth largest revenue source also
accounting for 6.3% of total State revenue for fiscal year 1992. Interest and
investment income is the fifth largest revenue source also accounting for 6.3%
of total State revenue for fiscal year 1992. The remainder of the State's
revenues are derived primarily from other excess taxes. The State currently
has no personal or corporate income tax. The State does however impose a
corporate franchise tax based in certain circumstances in part on a
corporation's profits.
Heavy reliance on the energy and agricultural sectors for jobs and
income resulted in a general downturn in the Texas economy beginning in 1982 as
those industries suffered significantly. The effects of this downturn continue
to adversely affect the State's real estate industry and its financial
institutions. As a result of these problems, the general revenue fund had a
$231 million cash deficit at the beginning of the 1987 fiscal year and ended
the 1987 fiscal year with a $745 million cash deficit. In 1987, the Texas
economy began to move toward a period of recovery. The expansion continued in
1988 and 1989. In fiscal year 1988, the State ended the year with a general
revenue fund cash surplus of $113 million. In fiscal year 1989, the State
ended the year with a general revenue fund cash surplus of $297 million. In
fiscal year 1990, the State ended the year with a general revenue fund surplus
of $767 million. In fiscal 1991, the ending cash balance was $1.005 billion.
In fiscal year 1992, the ending cash balance was $609 million. Since fiscal
year 1987, however, these cash deficits and surpluses have included
approximately $300 million in dedicated oil overcharge funds, which can be
spent for only specific energy conservation projects.
The 71st Texas Legislature meeting in 1989 passed a record budget
totaling $47.4 billion in spending. Six special legislative sessions in 1989
and 1990 relative to workers' compensation and school financing resulted in the
need to raise an additional $512.3 million in revenue, the majority of which
came from an increase in the State sales tax and taxes on tobacco products.
The 72nd Legislature meeting in special session in the summer of 1991
approved for the Governor's signature an approximately $9.4 billion budget
increase for the fiscal 1992-93 biennium to be financed in part by
approximately $3.4 billion in new revenue measures.
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The $3.4 billion in new revenues to finance the new budget came from
several new sources. A tax and fee bill raised a total of $2.1 billion in new
revenues for the state. A fiscal management bill added another $779 million.
Legislative approval of a lottery is expected to add another $462 million.
Finally, another $50 million was added through a change in the Permanent School
Fund investment strategy, which will make additional short-term earnings
available to help fund public schools during the biennium.
The most important component of the tax bill was a major overhaul of
the state's franchise tax, which includes a new measure of business activity
referred to as "earned surplus." A part of the change was a lowering of the
tax rate on capital from $5.25 to $2.50 per $1,000. An additional surtax on
"earned surplus," which includes federal net corporate income and officers' and
directors' compensation of 4.5 percent, was added. Essentially, corporations
pay a tax on capital or a tax on "earned surplus," whichever is higher. The
revised franchise tax is expected to raise an additional $789.3 million over
currently projected franchise tax collections during the 1992-93 biennium.
The 73rd Legislature meeting in 1993 passed the 1994-1995 biennial all
funds budget of $71.2 billion without increasing state taxes. This was
accomplished by cutting spending in certain areas and increasing federal
funding. The state Comptroller has estimated that total state revenues from
all sources would total $65.3 billion for the 1994-1995 biennium.
The Texas Constitution prohibits the State from levying ad valorem
taxes on property for general revenue purposes and limits the rate of such
taxes for other purposes to $.35 per $100 of valuation. The Constitution also
permits counties to levy, in addition to all other ad valorem taxes permitted
by the Constitution, ad valorem taxes on property within the county for flood
control and road purposes in an amount not to exceed $.30 per $100 of
valuation. The Constitution prohibits counties, cities and towns from levying
a tax rate exceeding $.80 per $100 of valuation for general fund and other
specified purposes.
With certain specific exceptions, the Texas Constitution generally
prohibits the creation of debt by or on behalf of the State unless the voters
of the State, by constitutional amendment, authorize the issuance of debt
(including general obligation indebtedness backed by the State's taxing power
and full faith and credit). In excess of $8.28 billion of general obligation
bonds have been authorized in Texas and almost $2.89 billion of such bonds are
currently outstanding. Of these, approximately 70% were issued by the
Veterans' Land Board and the Texas Public Finance Authority.
Though the full faith and credit of the State are pledged for the
payment of all general obligations issued by the State, much of that
indebtedness is designed to be eventually self-supporting from fees, payments,
and other sources of revenues; in some instances, the receipt of such revenues
by certain issuing agencies has been in sufficient amounts to pay the principal
of and interest on the issuer's outstanding bonds without requiring the use of
appropriated funds.
Pursuant to Article 717k-2, Texas Revised Civil Statutes, as presently
amended, the net effective interest rate for any issue or series of Bonds in
the Texas Trust is limited to 15%.
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From the time Standard & Poor's Corporation began rating Texas general
obligation bonds in 1956 until early 1986, that firm gave such bonds its
highest rating, "AAA". In April 1986, in response to the State economic
problems, Standard & Poor's downgraded its rating of Texas general obligation
bonds to "AA+". Such rating was further downgraded in July 1987 to "AA".
Moody's Investors Service, Inc. has rated Texas bonds since prior to the Great
Depression. Moody's upgraded its rating of Texas general obligation bonds in
1962 from "Aa" to "Aaa", its highest rating, following the imposition of a
statewide sales tax by the Legislature. Moody's downgraded such rating to "Aa"
in March 1987. No prediction can be made concerning future changes in ratings
by national rating agencies of Texas general obligation bonds or concerning the
effect of such ratings changes on the market for such issues.
The same economic and other factors affecting the State of Texas and
its agencies also have affected cities, counties, school districts and other
issuers of bonds located throughout the State. Declining revenues caused by
the downturn in the Texas economy in the mid-1980s forced these various other
issuers to raise taxes and cut services to achieve the balanced budget mandated
by their respective charters or applicable State law requirements. Standard &
Poor's Corporation and Moody's Investors Service, Inc. assign separate ratings
to each issue of bonds sold by these other issuers. Such ratings may be
significantly lower than the ratings assigned by such rating agencies to Texas
general obligation bonds.
On April 15, 1991, the Governor signed into law Senate Bill 351, the
School Finance Reform Bill. This bill sets a minimum local property tax rate
which guarantees the local school districts a basic state allotment of a
specified amount per pupil. The funding mechanism is based on tax base
consolidation and creates 188 new taxing units, drawn largely along county
lines. Within each taxing unit, school districts will share the revenue raised
by the minimum local property tax. Local school districts are allowed to
"enrich" programs and provide for facilities construction by levying an
additional tax. In January 1992 the Texas Supreme Court declared the School
Finance Reform Bill unconstitutional because the community education districts
are in essence a state property tax. The legislature was given until September
1, 1993 to pass a new school finance reform bill. The Supreme Court said that,
in the meantime, the county education districts could continue to levy and
collect property taxes. Several taxpayers have filed suit challenging the
right of such districts to collect a tax that has been declared
unconstitutional by the Supreme Court. In March 1993, the Legislature passed a
proposed constitutional amendment which would allow a limited amount of money
to be "recaptured" from wealthy school districts and redistributed to
property-poor school districts. However, the amendment was rejected by the
voters on May 1, 1993, requiring the Legislature to develop a new school
finance plan. At the end of May 1993, the legislature passed a new school
finance bill that provides school districts with certain choices to achieve
funding equalization. Although a number of both poor and wealthy school
districts have challenged the new funding law, the trial judge has stated that
the new law shall be implemented for at least the 1993-1994 school year before
considering any constitutional challenges.
The Comptroller has estimated that total revenues for fiscal 1993 will
be $29.66 billion, compared to actual revenues of $27.56 billion for fiscal
1992. The revenue estimate for fiscal 1993 is based on an assumption that the
Texas economy will show a gradual but steady growth.
A wide variety of Texas laws, rules and regulations affect, directly,
or indirectly, the payment of Interest on, or the repayment of the principal
of, Bonds in the Texas Trust. The Impact of such laws and regulations on
particular Bonds may vary depending upon numerous factors including, among
others, the particular type of Bonds involved, the public purpose funded by the
Bonds and the nature and extent of
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insurance or other security for payment of principal and interest on the Bonds.
For example, Bonds in the Texas Trust which are payable only from the revenues
derived from a particular facility may be adversely affected by Texas laws or
regulations which make it more difficult for the particular facility to
generate revenues sufficient to pay such interest and principal, including,
among others, laws and regulations which limit the amount of fees, rates or
other charges which may be imposed for use of the facility or which increase
competition among facilities of that type or which limit or otherwise have the
effect of reducing the use of such facilities generally, thereby reducing the
revenues generated by the particular facility. Bonds in the Texas Trust, the
payment of interest and principal on which is payable from annual
appropriations, may be adversely affected by local laws or regulations that
restrict the availability of monies with which to make such appropriations.
Similarly, Bonds in the Texas Trust, the payment of interest and principal on
which is secured, in whole or in part, by an interest in real property may be
adversely affected by declines in real estate values and by Texas laws that
limit the availability of remedies or the scope of remedies available in the
event of a default on such Bonds. Because of the diverse nature of such laws
and regulations and the impossibility of predicting the nature or extent of
future changes in existing laws or regulations or the future enactment or
adoption of additional laws or regulations, it is not presently possible to
determine the impact of such laws and regulations on the Bonds in the Texas
Trust and, therefore, on the Units.
The foregoing information constitutes only a brief summary of some of
the financial difficulties which may impact certain issuers of Bonds in the
Texas Trust and does not purport to be a complete or exhaustive description of
all adverse conditions to which the issuers in the Texas Trust are subject.
Additionally, many factors including national economic, social and
environmental policies and conditions, which are not within the control of the
issuers of Bonds, could affect or could have an adverse impact on the financial
condition of the State and various agencies and political subdivisions located
in the State. The Sponsor is unable to predict whether or to what extent such
factors or other factors may affect the issuers of the Bond, the market value
or marketability of the Bonds or the ability of the respective issuers of the
Bonds acquired by the Texas Trust to pay interest on or principal of the Bonds.
At the time of closing for each Texas Trust, Special Counsel to the
Fund for Texas tax matters rendered an opinion under then existing Texas law
substantially to the effect that:
(1) Neither the State nor any political subdivision of the State
currently imposes an income tax on individuals. Therefore, no
portion of any distribution received by an individual
Unitholder of the Trust in respect of his Units, including a
distribution of the proceeds of Insurance in respect of such
units, is subject to income taxation by the State or any
political subdivision of the State;
(2) except in the case of certain transportation businesses,
savings and loan associations and insurance companies, no Unit
of the Trust is taxable under any property tax levied in the
State;
(3) the "inheritance tax" of the State, imposed upon certain
transfers of property of a deceased resident individual
Unitholder, may be measured in part upon the value of Units of
the Trust included in the estate of such Unitholder; and
(4) with respect to any Unitholder which is subject to the State
corporate franchise tax, Units in the Trust held by such
Unitholder, and distributions received thereon, will be taken
into account in computing the "taxable capital" of the
Unitholder allocated to the State, one of the bases by which
such franchise tax is currently measured (the other being a
corporation's "net capital earned surplus," which is,
generally, its net corporate income plus officers and
directors income).
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The opinion set forth in clause (2) above, is limited to the extent
that Units of the Trust may be subject to property taxes levied in the State if
held on the relevant date: (i) by a transportation business described in
V.T.C.A., Tax Code, Subchapter A, Chapter 24; (ii) by a savings and loan
association formed under the laws of the State (but only to the extent
described in section 11.09 of the Texas Savings and Loan Act, Vernon's Ann.
Civ. St. art. 852a); or (iii), by an insurance company incorporated under the
laws of the State (but only to the extent described in V.A.T.S., Insurance
Code, Art. 4.01). Each Unitholder described in the preceding sentence should
consult its own tax advisor with respect to such matters.
Corporations subject to the State franchise tax should be aware that
in its first called 1991 session, the Texas Legislature adopted, and the
Governor has signed into law, certain substantial amendments to the State
corporate franchise tax, the effect of which may be to subject to taxation all
or a portion of any gains realized by such a corporate Unitholder upon the
sale, exchange or other disposition of a Unit. The amendments are applicable
to taxable periods commencing January 1991, and to each taxable period
thereafter. Because no authoritative judicial, legislative or administrative
interpretation of these amendments has issued, and there remain many unresolved
questions regarding its potential effect on corporate franchise taxpayers, each
corporation which is subject to the State franchise tax and which is
considering the purchase of Units should consult its tax advisor regarding the
effect of these amendments.
PUBLIC OFFERING OF UNITS
PUBLIC OFFERING PRICE. Units of each State Trust are offered at the
Public Offering Price thereof. The Public Offering Price per Unit is equal to
the aggregate bid side evaluation of the Municipal Bonds in the State Trust's
portfolio (as determined pursuant to the terms of a contract with the
Evaluator, by Muller Data Corporation, a non-affiliated firm regularly engaged
in the business of evaluating, quoting or appraising comparable securities),
plus or minus cash, if any, in the Principal Account, held or owned by the
State Trust, plus accrued interest to the settlement date (which in the case
of Kemper Defined Funds consists of Purchased Interest and Daily Accrued
Interest) divided by the number of outstanding Units of the State Trust, plus
the sales charge applicable to a Unit of such State Trust. The sales charge is
based upon the dollar weighted average maturity of the State Trust and is
determined in accordance with the table set forth below. For purposes of this
computation, Municipal Bonds will be deemed to mature on their expressed
maturity dates unless: (a) the Municipal Bonds have been called for redemption
or funds or securities have been placed in escrow to redeem them on an earlier
call date, in which case such call date will be deemed to be the date upon
which they mature; or (b) such Municipal Bonds are subject to a "mandatory
tender", in which case such mandatory tender will be deemed to be the date upon
which they mature. The effect of this method of sales charge computation will
be that different sales charge rates will be applied to the State Trust based
upon the dollar weighted average maturity of such State Trust's portfolio, in
accordance with the following schedule:
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF NET
DOLLAR WEIGHTED AVERAGE PUBLIC OFFERING AMOUNT
YEARS TO MATURITY PRICE INVESTED
- ----------------- --------------- ---------------
<S> <C> <C>
0 to .99 years ...................... 0.00% 0.000%
1 to 3.99 years ....................... 2.00 2.041
4 to 7.99 years ....................... 3.50 3.627
8 to 14.99 years ...................... 4.50 4.712
15 or more years ...................... 5.50 5.820
</TABLE>
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The sales charge per Unit will be reduced as set forth below:
<TABLE>
<CAPTION>
DOLLAR WEIGHTED AVERAGE YEARS TO MATURITY*2
(4 TO 7.99 8 TO 14.99 15 OR MORE)
--------------------------------------
AMOUNT OF INVESTMENT SALES CHARGE (% OF PUBLIC OFFERING PRICE)
- -------------------- -----------------------------------------
<S> <C> <C> <C>
$1 to $99,999................. 3.50% 4.50% 5.50%
$100,000 to $499,999 ......... 3.25 4.25 5.00
$500,000 to $999,999 ......... 3.00 4.00 4.50
$1,000,000 or more ........... 2.75 3.75 4.00
</TABLE>
The reduced sales charges as shown on the preceding charts will apply
to all purchases of Units on any one day by the same person from the same
Underwriter or dealer and for this purpose, purchases of Units of a State Trust
will be aggregated with concurrent purchases of Units as any other unit
investment trust that may be offered by the Sponsor. 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 charges
will also be applicable to a trust or other fiduciary purchasing for a single
trust estate or single fiduciary account.
The Sponsor intends to permit officers, directors and employees of the
Sponsor and Evaluator, and at the discretion of the Sponsor, registered
representatives of selling firms to purchase Units of the Trust without a sales
charge, although a transaction processing fee may be imposed on such trades.
The Public Offering Price per Unit of a State Trust on the date shown
on the cover page of Part Two of the Prospectus or on any subsequent date will
vary from the amounts stated under "Essential Information" in Part Two in
accordance with fluctuations in the prices of the underlying Municipal Bonds
and the amount of accrued interest on the Units. The aggregate bid side
evaluation of the Municipal Bonds shall be determined (a) on the basis of
current bid prices of the Municipal Bonds, (b) if bid prices are not available
for any particular Municipal Bonds, on the basis of current bid prices for
comparable bonds, (c) by determining the value of the Municipal Bonds on the
bid side of the market by appraisal, or (d) by any combination of the above.
Except as described in "Insurance on the Portfolios" above, the Evaluator will
not attribute any value to the insurance obtained by a State Trust. On the
other hand, the value of insurance obtained by an issuer of Municipal Bonds is
reflected and included in the market value of such Municipal Bonds.
In any case, the Evaluator will consider the ability of an insurer to
meet its commitments under the Trust's insurance policy (if any). For example,
if a State Trust were to hold a municipality's Municipal Bonds which had
significantly deteriorated in credit quality, the Evaluator would first
consider in its evaluation the market price of the Municipal Bonds at their
lower credit rating. The Evaluator would also attribute a value to the
insurance feature of the Municipal Bonds which would be equal to the difference
between the market value of such Municipal Bonds and the market value of bonds
of a similar nature which were of investment grade rating. It is the position
of the Sponsor that this is a fair method of valuing insured Municipal Bonds
- -----------------------
* If the dollar weighted average maturity of a State Trust is from 1 to 3.99
years, the sales charge is 2% and 1.5% of the Public Offering Price for
purchases of $1,000 to $249,999 and $250,000 or more, respectively.
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and reflects a proper valuation method in accordance with the provisions of the
Investment Company Act of 1940. For a description of the circumstances under
which a full or partial suspension of the right of Unitholders to redeem their
Units may occur, see "Redemption" below.
The foregoing evaluations and computations shall be made as of the
Evaluation Time stated under "Essential Information" in Part Two, on each
business day effective for all sales made during the preceding 24-hour period.
The interest on the Municipal Bonds in each State Trust, less the
related estimated fees and expenses, is estimated to accrue in the annual
amounts per Unit set forth under "Essential Information" in Part Two. The
amount of net interest income which accrues per Unit may change as Municipal
Bonds mature or are redeemed, exchanged or sold, or as the expenses of a State
Trust change or as the number of outstanding Units of such State Trust changes.
Payment for Units must be made on or before the fifth business day
following the order for purchase (the "settlement date"). A purchaser becomes
the owner of Units on the settlement date. Cash, if any, made available to the
Sponsor prior to the date of settlement for the purchase of Units may be used
in the Sponsor's business and may be deemed to be a benefit to the Sponsor,
subject to the limitations of the Securities Exchange Act of 1934. If a
Unitholder desires to have certificates representing Units purchased, such
certificates will be delivered as soon as possible following a written request
therefor, or shortly thereafter. For information with respect to redemption of
Units purchased, but as to which certificates requested have not been received,
see "Redemption" below.
The following section entitled "Accrued Interest" applies only to
series of Kemper Tax-Exempt Insured Income Trust, Multi-State Series and Ohio
Tax-Exempt Bond Trust Series 11-22.
ACCRUED INTEREST. Accrued interest consist of two elements. The first
element arises as a result of accrued interest which is the accumulation of
unpaid interest on a bond from the last day on which interest thereon was paid.
Interest on Bonds in the State Trusts is actually paid either monthly or
semi-annually to the State Trust. However, interest on the bonds in the State
Trusts is accounted for daily on an accrual basis. Because of this, a State
Trust always has an amount of interest earned but not yet collected by the
Trustee because of coupons that are not yet due. For this reason, the Public
Offering Price of Units will have added to it the proportionate share of
accrued and undistributed interest to the date of settlement.
The Trustee advanced the amount of accrued interest as of the First
Settlement Date (which is five business days following the Date of Deposit of
the applicable State Trust) and the same was distributed to the Sponsor. Such
advance was repaid to the Trustee through the first receipts of interest
received on the Municipal Bonds. Consequently, the amount of accrued interest
added to the Public Offering Price of Units included only accrued interest
arising after the First Settlement Date of a State Trust, less any
distributions from the Interest Account subsequent to this First Settlement
Date. Since the First Settlement Date was the date of settlement for anyone
who ordered Units on the Date of Deposit, no accrued interest was added to the
Public Offering Price of Units ordered on the Date of Deposit.
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The second element of accrued interest arises because of the structure
of the Interest Account. The Trustee has no cash for distribution to
Unitholders until it receives interest payments on the Bonds in a State
Trust. The Trustee is obligated to provide its own funds, at times, in order
to advance interest distributions. The Trustee will recover these advancements
when such interest is received. Interest Account balances are established so
that it will not be necessary on a regular basis for the Trustee to advance its
own funds in connection with such interest distributions. The Interest Account
balances are also structured so that there will generally be positive cash
balances and since the funds held by the Trustee will be used by it to earn
interest thereon, it benefits thereby (see "Expenses of the Trust").
Accrued interest is computed as of the initial Record Date of the State
Trusts. On the date of the first distribution of interest to Unitholders after
the First Settlement Date, the interest collected by the Trustee will be
sufficient to repay its advances, to allow for accrued interest under the
monthly, quarterly and semi-annual plans of distribution and to generate enough
cash to commence distributions to Unitholders. If a Unitholder sells or
redeems all or a portion of his Units or if the Bonds in a State Trust are sold
or otherwise removed or if a State Trust is liquidated, he will receive at that
time his proportionate share of the 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 such State Trust.
The following section entitled "Purchased and Daily Accrued Interest"
applies only to series of Kemper Defined Funds.
PURCHASED AND DAILY ACCRUED INTEREST. In the case of a State Trust
in any series of Kemper Defined Funds, accrued interest consists of two
elements. The first element arises as a result of accrued interest which is
the accumulation of unpaid interest on a bond from the later of the last day on
which interest thereon was paid or the date of original issuance of the bond.
Interest on the coupon Bonds in a State Trust is paid semi-annually to the
State Trust. A portion of the aggregate amount of such accrued interest on the
Bonds in the Trust to the First Settlement Date (which is five business days
following the Date of Deposit of the applicable State Trust) of the State Trust
is referred to herein as "Purchased Interest." Included in the Public Offering
Price of the State Trust Units is the Purchased Interest. In an effort to
reduce the amount of Purchased Interest which would otherwise have to be paid
by Unitholders, the Trustee may have advanced a portion of the accrued interest
to the Sponsor as the Unitholder of record as of the First Settlement Date.
The second element of accrued interest arises because the estimated net
interest on the Units in the State Trust is accounted for daily on an accrual
basis (herein referred to as "Daily Accrued Interest"). 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 bonds are sold or otherwise removed or
if the State 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 State Trust.
PUBLIC DISTRIBUTION OF UNITS. The Sponsor has qualified Units of each
State Trust for sale in the State for which such State Trust is named. Units
will be sold through the Underwriters, through dealers who are
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members of the National Association of Securities Dealers, Inc. and through
others. Sales may be made to or through dealers at prices which represent
discounts from the Public Offering Price as set forth in the table 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 the amounts shown in the
table below. Under the Glass-Steagall Act, banks are prohibited from
underwriting Trust Units; however, the Glass-Steagall Act does permit certain
agency transactions and the banking 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.
<TABLE>
<CAPTION>
DOLLAR WEIGHTED AVERAGE YEARS TO MATURITY*3
4 TO 7.99 8 TO 14.99 15 OR MORE
----------------------------------------------------------
DISCOUNT PER UNIT
AMOUNT OF INVESTMENT (% OF PUBLIC OFFERING PRICE)
- --------------------
<S> <C> <C> <C>
$1 to $99,999 ................... 2.00% 3.00% 4.00%
$100,000 to $499,999 ............ 1.75 2.75 3.50
$500,000 to $999,999 ............ 1.50 2.50 3.00
$1,000,000 or more .............. 1.25 2.25 2.50
</TABLE>
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 Trust and other
unit investment trusts underwritten by the Sponsor.
The Sponsor reserves the right to change the levels of discounts at
any time. The difference between the discount allowed to firms and the
sales charge will be retained by the Sponsor and the Underwriters.
The Sponsor reserves the right to reject, in whole or in part, any
order for the purchase of Units.
PROFITS OF SPONSOR. The Sponsor will retain a portion of the sales
charge on each Unit sold representing the difference between the Public
Offering Price of the Units and the discounts allowed to firms selling such
Units. The Sponsor may realize additional profit or loss as a result of the
possible change in the daily evaluation of the Municipal Bonds in the State
Trusts, since the value of its inventory of Units may increase or decrease.
MARKET FOR UNITS
While not obligated to do so, the Sponsor intends to, and certain
Underwriters may, subject to change at any time, maintain a market for Units of
the State Trusts offered hereby and to offer to purchase said Units
- -------------------
* If the dollar weighted average maturity of a Trust is from 1 to 3.99 years,
the concession or agency commission is 1.00% of the Public Offering Price.
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at prices, as determined by the Evaluator, based on the aggregate bid prices of
the underlying Municipal Bonds of such State Trusts, together with accrued
interest to the expected date of settlement (which, in the case of Kemper
Defined Funds, consists of Purchased Interest and Daily Accrued Interest).
Accordingly, Unitholders who wish to dispose of their Units should inquire of
their broker or bank as to current market prices of the Units in order to
determine whether there is in existence any price in excess of the redemption
price and, if so, the amount there of prior to making a tender for redemption
to the Trustee.
The offering price of any Units resold by the Sponsor or Underwriters
will be in accord with that described in the currently effective
Prospectus describing such Units. Any profit or loss resulting from the resale
of such Units will belong to the Sponsor and/or the Underwriters. The Sponsor
and/or the Underwriter may suspend or discontinue purchase of Units of any State
Trust if the supply of Units exceeds demand, or for other business reasons.
REDEMPTION
A Unitholder who does not dispose of Units in the secondary market
described above may cause their 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 a
form satisfactory to the Trustee. 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
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 redemptions by individual account owners
(including joint owners). Additional documentation may be requested, and a
signature guarantee is always required, from corporation, executors,
administrators, trustees, guardians or associations. The signatures must be
guaranteed by a participant in the Securities Transfer Agents Medallion Program
("STAMP") or such other guarantee program in addition to, or in substitution
for, STAMP, as may be acceptable to 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 the 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
Price for such State Trust, determined as set forth below under "Computation of
Redemption Price," as of the Evaluation Time stated under "Essential
Information" in Part Two, next following such tender, multiplied by the number
of Units being redeemed. The price received upon redemption might be more or
less than the amount paid by the Unitholder depending on the value of the
Municipal Bonds in the State Trust's portfolio at the time of redemption. Any
Units redeemed shall be cancelled and any undivided fractional interest in the
State Trust will be extinguished.
Under regulations issued by the Internal Revenue Service, the Trustee
is required to withhold a specified percentage of the principal amount
of a Unit redemption if the Trustee has not been furnishing the redeeming
Unitholder's tax identification number in the manner required by such
regulations. Any amount
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so withheld is transmitted to the Internal Revenue Service and may be recovered
by the Unitholder only when filing a tax return. Under normal circumstances
the Trustee obtains the Unitholder's tax identification number from the selling
broker. However, any time a Unitholder elects to tender Units for redemption,
such Unitholder should make sure that the Trustee has been provided a certified
tax identification number in order to avoid this possible "back-up
withholding." In the event the Trustee has not been previously provided such
number, one must be provided at the time redemption is requested.
Any amounts paid on redemption representing interest shall be
withdrawn from the Interest Account of such State Trust to the extent
that funds are available for such purpose. All other amounts paid on redemption
shall be withdrawn from the Principal Account for such State Trust. The Trustee
is empowered to sell Municipal Bonds from the portfolio of a State Trust in
order to make funds available for the redemption of Units of such State Trust.
Such sale may be required when Municipal Bonds would not otherwise be sold and
might result in lower prices than might otherwise be realized. To the extent
Municipal Bonds are sold, the size and diversity of such State Trust will be
reduced.
The Trustee is irrevocably authorized in its discretion, if the
Sponsor does not elect to purchase any Units tendered for redemption, in
lieu of redeeming such Units, to sell such Units in over-the-counter market for
the account of tendering Unitholders at prices which will return to such
Unitholders amounts in cash, net after brokerage commissions, transfer taxes and
other charges, equal to or in excess of the Redemption Price for such Units. In
the event of any such sale, the Trustee shall pay the net proceeds thereof to
the Unitholders on the day they would otherwise be entitled to receive payment
of the Redemption Price.
The right of redemption may be suspended and payment postponed (1)
for any period during which the New York Stock Exchange is closed, other
than customary weekend and holiday closings, or during which (as determined by
the Securities and Exchange Commission) trading on the New York Stock Exchange
is restricted; (2) for any period during which an emergency exists as a result
of which disposal by the Trustee of Municipal Bonds is not reasonably
practicable or it is not reasonably practicable to fairly determine the value of
the underlying Municipal Bonds in accordance with the Agreement; or (3) for
such other period 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.
COMPUTATION OF REDEMPTION PRICE. The Redemption Price for Units of
each State Trust is computed by the Evaluator as of the Evaluation Time
stated under "Essential Information" on Part Two next occurring after the
tendering of a Unit for redemption and on any other business day desired by it,
by;
A. adding (1) the principal cash on hand held or owed by the State
Trust; (2) the aggregate value of the Municipal Bonds held in the State
Trust, as determined by the Evaluator on the basis of bid prices therefor; (3)
interest accrued and unpaid on the Municipal Bonds in the State Trust as of the
date of computation; and
B. deducting therefrom (1) amounts representing any applicable taxes
or governmental charges payable out of the State Trust and for which no
deductions have been previously made for the purpose of additions to the Reserve
Account described under "Expenses of the Trust"; (2) amounts representing
estimated accrued expenses of the State Trust including, but not limited to,
unpaid fees and expenses of the Trustee (including
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legal and auditing fees and insurance costs), the Evaluator, the Sponsor and
bond counsel, if any; (3) cash held for distribution to Unitholders of record
as of the business day prior to the evaluation being made; and (4) other
liabilities incurred by the State Trust; and
C. finally, dividing the results of such computation by the number of
Units of the State Trust outstanding as of the date thereof.
UNITHOLDERS
OWNERSHIP OF UNITS. Ownership of Units of any State Trust will not be
evidenced by a certificate unless a Unitholder or the Unitholder's registered
broker/dealer or the clearing agent for such broker/dealer makes a written
request to the Trustee. Certificates, if issued, will be so noted on the
confirmation statement sent to the Underwriter and broker. Non-receipt of such
certificate(s) must be reported to the Trustee within one year; otherwise, a 2%
surety bond fee will be required for replacement.
Units are transferable by making a written request to the Trustee and,
in the case of Units evidenced by a certificate, presenting and
surrendering such certificate to the Trustee properly endorsed or accompanied by
a written instrument or instruments of transfer. 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 acceptable to the Trustee.
Units may be purchased and certificates, if requested, will be issued
in denominations of one Unit or any multiple thereof subject to any minimum
investment requirement established by the Sponsor from time to time. Any
certificate issued will be numbered serially for identification, issued in
fully registered form and will be transferable only on the books of the
Trustee. The Trustee may require a Unitholder to pay a fee for each
certificate reissued or transferred, and to pay any governmental charge that
may be imposed in connection with each such transfer or interchange. The
Trustee at the present time does not intend to charge for the normal transfer
or interchange of certificates. Destroyed, stolen, mutilated or lost
certificates will be replaced upon delivery to the Trustee of satisfactory
indemnity (generally amounting to not more than 3% of the market value of the
Units), affidavit of loss, evidence of ownership and payment of expenses
incurred.
DISTRIBUTIONS TO UNITHOLDERS. Interest Distributions: Interest
received by each State Trust, including any portion of the proceeds
(including insurance proceeds) from a disposition of Municipal Bonds which
represents accrued interest, is credited by the Trustee to the Interest Account
for such State Trust. All other receipts are credited by the Trustee to a
separate Principal Account for the State Trust. The Trustee normally has no
cash for distribution to Unitholders until it receives interest payments on the
Bonds in the State Trust. Since municipal interest usually is paid
semi-annually, during the initial months of the Trust, the Interest Account of
each State Trust, 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" for each State Trust in Part Two the Trustee will commence
distributions, in part from funds advanced by the Trustee.
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Thereafter, assuming the State Trust retains its original size and
composition, after deduction of the fees and expenses of the Trustee, the
Sponsor and Evaluator and reimbursements (without interest) to the Trustee for
any amount advanced to a State Trust, the Trustee will normally distribute on
each Interest Distribution Date (the fifteenth of the month) or shortly
thereafter to Unitholders of record of such State Trust on the preceding Record
Date. Unitholders of the State Trusts will receive an amount substantially
equal to one-twelfth, one-fourth or one-half (depending on the distribution
option selected except in series of Kemper Defined Funds in which case only
monthly distributions are available) of such Unitholders' pro rata share of the
estimated net annual interest income to the Interest Account of such State
Trust. 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 State Trust sell or
redeem all or a portion of their Units, they will be paid their proportionate
share of the accrued interest of such State Trust 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.
In order to equalize distributions and keep the undistributed interest
income of the Trusts at a low level, all Unitholders of record in such
State Trust on the first Record Date received and interest distribution on the
first Interest Distribution Date. Because the period of time between the first
Interest Distribution Date and the regular distribution dates may not have been
a full period, the first regular distributions may have been partial
distributions.
Persons who purchase Units between a Record Date and a Distribution
Date will receive their first distribution on the second Distribution
Date following their purchase of Units. Since interest on Municipal Bonds in
the State Trusts is payable at varying intervals, usually in semi-annual
installments, and distributions of income are made to Unitholders at different
intervals from receipt of interest, the interest accruing to a State Trust 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 State Trust 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 variances, the Trustee is authorized by the Trust Agreements 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
State Trust.
Unitholders of any series of Kemper Tax-Exempt Income Trust, Multi-
State Series or Ohio Tax-Exempt Bond Trust, Series 11-22 who desire to
receive distributions on a quarterly or semi-annual basis may elect to do so,
however, only monthly distributions are available for series of Kemper Defined
Funds. Record Dates for monthly distributions will be the first day of each
month; Record Dates for quarterly distributions will be the first day of
January, April, July and October; and Record Dates for semi-annual distributions
will be the first day of January and July. The distribution option selected by
a Unitholder of any series of Kemper Tax-Exempt Income Trust, Multi-State Series
or Ohio Tax-Exempt Bond Trust, Series 1-10 will remain in effect until changed
by written notice to the Trustee.
Unitholders of any series of Kemper Tax-Exempt Insured Income Trust,
Multi-State Series or Ohio Tax-Exempt Bond Trust, Series 11-22 purchasing Units
of the State Trusts in the secondary market will initially receive
distributions in accordance with the election of the prior owner. Unitholders
of such Trusts desiring to change their distribution option may do so by
sending written notice to the Trustee, together with
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their certificate (if one was issued). Certificates should only be sent by
registered or certified mail to minimize the possibility of loss. If written
notice and any certificate are received by the Trustee not later than January 1
or July 1 of a year, the change will become effective for distributions
commencing with February 15 or August 15, respectively, of that year. If
notice is not received by the Trustee, the Unitholder will be deemed to have
elected to continue with the same option.
Principal Distributions. The Trustee will distribute on each semi-
annual Distribution Date (or, in the case of Kemper Defined Funds, on each
Distribution Date) or shortly thereafter, to each Unitholder of record of the
State Trust of the preceding Record Date, an amount substantially equal to such
Unitholder's pro rata share of the cash balance, if any, in the Principal
Account of such State Trust 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 Unit (or $.001 per Unit
for certain Series). Except for Series of Kemper Defined Funds, if such
balance is between $5.00 and $10.00 per Unit, distributions will be made on
each quarterly Distribution Date; and if such balance exceeds $10.00 per Unit,
such amounts will be distributed on the next monthly Distribution Date.
STATEMENTS TO UNITHOLDERS. With each distribution, the Trustee will
furnish each Unitholder a statement of the amount of interest and the
amount of other receipts, if any, which are being distributed, expressed in each
case as a dollar amount per Unit.
The accounts of each State Trust are required to be audited annually 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 such State Trust. The accountants' report will be furnished by
the Trustee to any Unitholder of such State Trust upon written request.
Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each person who at any time during
the calendar year was a Unitholder of a State Trust a statement covering the
calendar year, setting forth:
A. As to the Interest Account:
1. The amount of interest received on the Municipal Bonds
in such State Trust, and the percentage of such amount by states and
territories in which the issuers of such Municipal Bonds are located;
2. The amount paid from the Interest Account of such State
Trust representing accrued interest of any Units redeemed;
3. The deductions from the Interest Account of such State
Trust for applicable taxes, if any, fees and expenses (including
insurance costs and auditing fees) of the Trustee, the Evaluator, the
Sponsor and of bond counsel, if any;
4. Any amounts credited by the Trustee to a Reserve
Account for such State Trust described under "Expenses of the Trust";
and
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5. The net amount remaining after such payments and
deductions, expressed both as a total dollar amount and a dollar
amount per Unit outstanding on the last business day of such calendar
year.
B. As to the Principal Account:
1. The dates of the maturity, liquidation or redemption of
any of the Municipal Bonds in such State Trust and the net proceeds
received therefrom excluding any portion credited to the Interest
Account;
2. The amount paid from the Principal Account of such
Series representing the principal of any Units redeemed;
3. The deductions from the Principal Account of such
Series for payment of applicable taxes, if any, fees and expenses
(including insurance costs and auditing expenses) of the Trustee, the
Evaluator, the Sponsor and of bond counsel, if any;
4. Any amounts credited by the Trustee to a Reserve
Account for such Series described under "Expenses of the Trust"; and
5. The net amount remaining after distributions of
principal and deductions, expressed both as a dollar amount and as a
dollar amount per Unit outstanding on the last business day of such
calendar year.
C. The following information:
1. A list of the Municipal Bonds in such State Trust as of
the last business day of such calendar year;
2. The number of Units of such State Trust outstanding on
the last business day of such calendar year;
3. The Redemption Price of such State Trust based on the
last Trust Fund Evaluation made during such calendar year; and
4. The amount actually distributed during such calendar
year from the Interest and Principal Accounts of such State Trust
separately stated, expressed both as total dollar amounts and as
dollar amounts per Unit of such State Trust outstanding on the Record
Date for each such distribution.
RIGHTS OF UNITHOLDERS. A Unitholder may at any time tender Units to
the Trustee for redemption. No Unitholder of a State Trust shall have
the right to control the operation and management of the Trust or such State
Trust in any manner, except to vote with respect to amendment of the Agreement
or termination of the Trust or such State Trust. The death or incapacity of any
Unitholder will not operate to terminate the Trust or any State Trust nor
entitle legal representatives or heirs to claim an accounting or to bring any
action or proceeding in any court for partition or winding up of the Trust or
any State Trust.
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INVESTMENT SUPERVISION
The Sponsor may not alter the portfolio of the State Trusts by the
purchase, sale or substitution of Municipal Bonds, except in the special
circumstances noted below. Thus, with the exception of the redemption or
maturity of Municipal Bonds in accordance with their terms, and/or the sale of
Municipal Bonds to meet redemption requests, the assets of the State Trusts will
remain unchanged under normal circumstances.
The Sponsor may direct the Trustee to dispose of Municipal Bonds the
value of which has been affected by certain adverse events, including
institution of certain legal proceedings, a decline in their price or the
occurrence of other market factors, including advance refunding, so that in the
opinion of the Sponsor the retention of such Municipal Bonds in a State Trust
would be detrimental to the interest of its Unitholders. The proceeds from any
such sales, exclusive of any portion which represents accrued interest, will be
credited to the Principal Account of such Trust Fund for distribution to its
Unitholders.
The Trustee is permitted to utilize the option to obtain Permanent
Insurance only in circumstances where the value added to the Municipal Bonds
exceeds the costs of acquiring such Permanent Insurance. Unless such Permanent
Insurance may be obtained at an acceptable price, the Sponsor will not direct
the Trustee to dispose of Municipal Bonds which are in default or imminent
danger of default but to retain such Municipal Bonds in the portfolio so that
the Trust may realize the benefits of the insurance on the portfolio.
The Sponsor is required to instruct the Trustee to reject any offer
made by an issuer of the Municipal Bonds to issue new obligations in
exchange or substitution for any of such Municipal Bonds pursuant to a refunding
financing plan except that the Sponsor may instruct the Trustee to accept or
reject such an offer or to take any other action with respect thereto as the
Sponsor may deem proper if (1) the issuer is in default with respect to such
Bonds or (2) in the written opinion of the Sponsor the issuer will probably
default with respect to such Bonds in the reasonably foreseeable future. Any
obligation so received in exchange or substitution will be held by the Trustee
subject to the terms and conditions of the Trust Agreement to the same extent as
Bonds originally deposited thereunder. Within five days after the deposit of
obligations in exchange or substitution for underlying Bonds, the Trustee is
required to give notice thereof to each Unitholder, identifying the Bonds
eliminated and the Bonds substituted therefor.
The Trustee may sell Municipal Bonds, designated by the Sponsor, from a
State Trust for the purpose of redeeming Units of such State Trust tendered for
redemption and the payment of expenses. To the extent that Municipal Bonds are
sold which are current in payment of principal and interest by one of the
Insured Trust Funds in order to meet redemption requests and defaulted Municipal
Bonds are retained in the portfolio of an Insured Trust Fund in order to
preserve the related insurance protection applicable to said Municipal Bonds,
the overall quality of the Municipal Bonds remaining in such Insured Trust
Fund's portfolio will tend to diminish. Because of such restrictions on the
Trustee, under certain circumstances the Sponsor may seek a full or partial
suspension of the right of Unitholders to redeem their Units. See "Redemption."
ADMINISTRATION OF THE TRUST
THE 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 127
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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 of any Trust Fund. For information
relating to the responsibilities of the Trustee under the Agreements, reference
is made to the material set forth under "Unitholders."
In accordance with the Agreements, the Trustee shall keep proper books
of record and account of all transactions at its office. Such records shall
include the name and address of, and the number of Units held by, every
Unitholder of each Trust Fund. Such books and records shall be open to
inspection by any Unitholder of such Trust Fund at all reasonable times during
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 Agreement on file in its office available for inspection at all
reasonable times during usual business hours by any Unitholder, together with a
current list of the Municipal Bonds held in the State Trust. Pursuant to the
Agreement, the Trustee may employ one or more agents for the purpose of custody
and safeguarding of Municipal Bonds comprising the portfolios.
Under the Agreement, the Trustee or any successor trustee may resign
and be discharged of the trust created by the Agreement by executing an
instrument in writing and filing the same with the Sponsor.
The Trustee or successor trustee must mail a copy of the notice of
resignation to all Unitholders then of record, not less than sixty days before
the date specified in such notice when such resignation is to take effect. The
Sponsor upon receiving notice of such resignation is obligated to appoint a
successor trustee promptly. If, upon such resignation, no successor trustee has
been appointed and has accepted the appointment within thirty days after
notification, the retiring Trustee may apply to a court of competent
jurisdiction for the appointment of a successor. In case the Trustee becomes
incapable of acting or is adjudged a bankrupt or is taken over by public
authorities, the Sponsor may remove the Trustee and appoint a successor trustee
as provided in the Agreement. Notice of such removal and appointment shall be
mailed to each Unitholder by the Sponsor. Upon execution of a written
acceptance of such appointment by a successor trustee, all the rights, powers,
duties and obligations of the original Trustee shall vest in the successor.
The Trustee shall be a corporation organized under the laws of the
United States or any state thereof, which is authorized under such laws to
exercise trust powers. The Trustee shall have at all times an aggregate
capital, surplus and undivided profits of not less than $5,000,000.
THE EVALUATOR. Kemper Unit Investment Trusts, a service of Kemper
Securities, Inc., the Sponsor, also serves as Evaluator. The Evaluator may
resign or be removed by the Trustee, which is to use its best efforts to appoint
a satisfactory successor. Such resignation or removal shall become effective
upon acceptance of appointment by the successor evaluator. If, upon resignation
of the Evaluator no successor has accepted appointment within thirty days after
notice of resignation, the Evaluator may apply to a court of competent
-104-
<PAGE> 105
jurisdiction for the appointment of a successor. Notice of such resignation or
removal and appointment shall be mailed by the Trustee to each Unitholder. At
the present time, pursuant to a contract with the Evaluator, Muller Data
Corporation, a non-affiliated firm regularly engaged in the business of
evaluating, quoting or appraising comparable securities, provides portfolio
evaluations of the Municipal Bonds in the State Trusts which are then reviewed
by the Evaluator. In the event the Sponsor is unable to obtain current
evaluations from Muller Data Corporation, it may make its own evaluations or it
may utilize the services of any other non-affiliated evaluator or evaluators it
deems appropriate.
AMENDMENT AND TERMINATION. The Agreement may be amended by the Trustee
and the Sponsor without the consent of any of the Unitholders: (1) to cure any
ambiguity or to correct or supplement any provision which may be defective or
inconsistent; (2) to change any provision thereof as may be required by the
Securities and Exchange Commission or any successor governmental agency; or (3)
to make such provisions as shall not adversely affect the interests of the
Unitholders. The Agreement with respect to any State Trust may also be amended
in any respect by the Sponsor and the Trustee, or any of the provisions thereof
may be waived, with the written consent of the holders of Units representing
66-2/3% of the Units then outstanding of such State Trust, provided that no such
amendment or waiver will reduce the interest in the State Trust of any
Unitholder thereof without the consent of such Unitholder or reduce the
percentage of Units required to consent to any such amendment or waiver without
the consent of all Unitholders of such State Trust. In no event shall the
Agreement be amended to increase the number of Units of a State Trust issuable
thereunder or to permit, except in accordance with the provisions of the
Agreement, the acquisition of any Municipal Bonds in addition to or in
substitution for those in a State Trust. The Trustee shall promptly notify
Unitholders of the substance of any such amendment.
The Agreement provides that each State Trust shall terminate upon the
maturity, redemption or other disposition, as the case may be, of the last of
the Municipal Bonds held in such State Trust. If the value of the State Trust
shall be less than the applicable minimum value stated under "Essential
Information" in Part Two the Trustee may, in its discretion, and shall, when so
directed by the Sponsor, terminate the State Trust. A State Trust may be
terminated at any time by the holders of Units representing 66-2/3% of the Units
thereof then outstanding. Notwithstanding the foregoing, in no event shall any
State Trust continue beyond the mandatory termination date shown in Part Two
under "Essential Information." In the event of termination of a State Trust,
written notice thereof will be sent by the Trustee to all Unitholders of such
State Trust. Within a reasonable period after termination, the Trust will sell
any Municipal Bonds remaining in the State Trust and, after paying all expenses
and charges incurred by the State Trust, will distribute to Unitholders thereof
(upon surrender for cancellation of certificates for Units, if issued) their pro
rata share of the balances remaining in the Interest and Principal Accounts of
such State Trust.
LIMITATIONS ON LIABILITY. The Sponsor: The Sponsor is liable for the
performance of its obligations arising from its responsibilities under the
Agreement, but will be under no liability to the Unitholders for taking any
action or refraining from any action in good faith pursuant to the Agreement or
for errors in judgment, except in cases of its own gross negligence, bad faith
or willful misconduct. The Sponsor shall not be liable or responsible in any
way for depreciation or loss incurred by reason of the sale of any Municipal
Bonds.
The Trustee: The Agreement provides that the Trustee shall be under no
liability for any action taken in good faith in reliance upon prima facie
properly executed documents or for the disposition of monies, Municipal Bonds,
or Certificates except by reason of its own gross negligence, bad faith or
willful misconduct, nor shall the Trustee be liable or responsible in any way
for depreciation or loss incurred by reason of the sale
-105-
<PAGE> 106
by the Trustee of any Municipal Bonds. In the event that the Sponsor shall
fail to act, the Trustee may act and shall not be liable for any such action
taken by it in good faith. The Trustee shall not be personally liable for any
taxes or other governmental charges imposed upon or in respect of the Municipal
Bonds or upon the interest thereon. In addition, the Agreement contains other
customary provisions limiting the liability of the Trustee. The Trustee, whose
duties are ministerial, did not participate in the selection of Municipal Bonds
for the State Trusts.
The Evaluator: The Trustee and Unitholders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the accuracy
thereof. The Agreement provides that the determinations made by the Evaluator
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 or Unitholders for errors in judgment, but shall be liable only for its
gross negligence, lack of good faith or willful misconduct.
EXPENSES OF THE TRUST
Except with respect to those series indicated in the next sentence, the
Sponsor will not charge the Trust an advisory fee and will receive no fee from
the Trust for services performed as Sponsor. The Sponsor will charge Kemper
Tax-Exempt Income Trust, Multi-State Series 45 and subsequent series an annual
surveillance fee for services performed for such Trust Funds in an amount not to
exceed the amount shown under "Essential Information" in Part Two, but in no
event will such compensation when combined with all compensation received from
other unit investment trusts for which the Sponsor acts as sponsor and provides
portfolio surveillance, exceed the aggregate cost to the Sponsor for providing
such services. Such fee shall be based on the total number of Units of such
State Trust Fund outstanding as of the January Record Date for any annual
period. The Sponsor and other Underwriters paid all the expenses of creating
and establishing the Trust, including the cost of the initial preparation,
printing and execution of the Prospectus, Agreement and the certificates, legal
and accounting expenses, advertising and selling expenses, payment of closing
fees, expenses of the Trustee, initial evaluation fees during the initial public
offering and other out-of-pocket expenses.
The Trustee receives for its services a fee calculated on the basis of
the annual rate set forth under "Essential Information" in Part Two per $1,000
principal amount of Municipal Bonds in each State Trust, based on the largest
aggregate principal amount of Municipal Bonds in the State Trust at any time
during the monthly, quarterly or semi-annual period, as appropriate. The
Trustee also receives indirect benefits to the extent that it holds funds on
deposit in the various non-interest bearing accounts created pursuant to the
Agreement; however, the Trustee is also authorized by the Agreement to make from
time to time certain non-interest bearing advances to the State Trusts. See
"Unitholders - Distributions to Unitholders."
For evaluation of Municipal Bonds in the State Trusts, the Evaluator
receives a fee, calculated on an annual rate as set forth under "Essential
Information" in Part Two, based upon the largest aggregate principal amount of
Municipal Bonds in such State Trust at any time during such monthly period.
The Trustee's, Sponsor's (if any) and Evaluator's fees for the State
Trusts are payable monthly on or before each Distribution Date by deductions
from the Interest Accounts thereof to the extent funds are available and then
from the Principal Accounts. Such fees may be increased without approval of the
Unitholders by
-106-
<PAGE> 107
amounts not exceeding a proportionate increase in the Consumer Price Index
entitled "All Services Less Rent of Shelter," published by the United States
Department of Labor, or any equivalent index substituted therefor.
The following additional charges are or may be incurred by a State
Trust: (a) fees for the Trustee's extraordinary services; (b) expenses of the
Trustee (including legal and auditing expenses and insurance costs, but not
including any fees and expenses charged by any agent for custody and
safeguarding of Municipal Bonds) and of bond counsel, if any; (c) various
governmental charges; (d) expenses and costs of any action taken by the Trustee
to protect the Trust or such State Trust, or the rights and interest of the
Unitholders; (e) indemnification of the Trustee for any loss, liability or
expense incurred by it in the administration of the Trust or such State Trust
without gross negligence, bad faith or willful misconduct on its part; (f)
indemnification of the Sponsor for any loss, liability or expense incurred in
acting as Sponsor of the State Trust without gross negligence, bad faith or
willful misconduct; and (g) expenditures incurred in contacting Unitholders upon
termination of the State Trust. The fees and expenses set forth herein are
payable out of the appropriate State Trust and, when owed to the Trustee, are
secured by a lien on such State Trust.
Fees and expenses of a State Trust shall be deducted from the Interest
Account thereof, or, to the extent funds are not available in such Account, from
the Principal Account. The Trustee may withdraw from the Principal Account or
the Interest Account of any State Trust such amounts, if any, as it deems
necessary to establish a reserve for any taxes or other governmental charges or
other extraordinary expenses payable out of the State Trust. Amounts so
withdrawn shall be credited to a separate account maintained for the State Trust
known as the Reserve Account and shall not be considered a part of the State
Trust when determining the value of the Units until such time as the Trustee
shall return all or any part of such amounts to the appropriate account.
THE SPONSOR
The Sponsor, Kemper Unit Investment Trusts, with an office at 77 W.
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., a financial services holding company which, in turn,
is a wholly owned subsidiary of Kemper Corporation. The Sponsor acts as
underwriter of a number of other Kemper unit investment trusts and will act as
underwriter of any other unit investment trust products created by the Sponsor
in the future. As of January 31, 1994, the total stockholders' equity of Kemper
Securities, Inc. was approximately $261,673,436 (unaudited).
If at any time the Sponsor shall fail to perform any of its duties
under the Agreement or shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or its affairs are taken over by public
authorities, then the Trustee may (a) appoint a successor sponsor at rates of
compensation deemed by the Trustee to be reasonable and not exceeding such
reasonable amounts as may be prescribed by the Securities and Exchange
Commission, or (b) terminate the Agreement and liquidate the Trust or any State
Trust as provided therein or (c) continue to act as Trustee without terminating
the Agreement.
The foregoing financial information with regard to the Sponsor relates
to the Sponsor only and not to this Trust or any State 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
-107-
<PAGE> 108
with respect to the State Trusts. More comprehensive financial information can
be obtained upon request fromthe Sponsor.
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.
AUDITORS
The statement of net assets, including the Schedule of Investments,
appearing in Part Two of this Prospectus and Registration Statement, with
information pertaining to the specific Series of the Trust to which such
statement relates, has been audited by Ernst & Young, independent auditors, as
set forth in their report appearing in Part Two and is included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
DESCRIPTION OF SECURITIES RATINGS*4
STANDARD & POOR'S CORPORATION. - A brief description of the applicable
Standad & Poor's Corporation rating symbols and their meanings follows:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific debt
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer
and obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of
the obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation;
- ----------------------
* As published by the rating companies.
-108-
<PAGE> 109
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other
arrangement, under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher rated
categories.
Plus (+) or Minus (-): The ratings from "AA" to "A" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "p" indicates the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
MOODY'S INVESTORS SERVICE, INC. - A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follow:
Aaa - Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Their safety is so
absolute that with the occasional exception of oversupply in a few specific
instances, characteristically, their market value is affected solely by money
market fluctuations.
-109-
<PAGE> 110
Aa - Bonds which are rated Aa are judged to be the high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities. Their market value is virtually immune to all but money market
influences, with the occasional exception of oversupply in a few specific
instances.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime
in the future. The market value of A-rated bonds may be influenced to some
degree by economic performance during a sustained period of depressed business
conditions, but, during periods of normalcy, A-rated bonds frequently move in
parallel with Aaa and Aa obligations, with the occasional exception of
oversupply in a few specific instances.
A1 - Bonds which are rated A1 offer the maximum in security within
their quality group, can be bought for possible upgrading in quality,
and additionally, afford the investor an opportunity to gauge more precisely the
relative attractiveness of offerings in the marketplace.
Baa - Bonds which are rated Baa are considered as lower medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and, in fact, have speculative characteristics as
well. The market value of Baa-rated bonds is more sensitive to changes in
economic circumstances and, aside from occasional speculative factors applying
to some bonds of this class, Baa market valuations move in parallel with Aaa, Aa
and A obligations during periods of economic normalcy, expect in instances of
oversupply.
Conditional Ratings: Bonds rated "Con(-)" are ones for which the
security depends upon the completion of some act or the fulfillment of some
condition. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical ratings denote probable credit
stature upon completion of construction or elimination of basis of condition.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in certain areas of its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
-110-
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
New York Long-Intermediate Trust
Part Two
Dated July 28, 1995
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>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
New York Long-Intermediate Trust
Essential Information
As of June 14, 1995
Sponsor and Evaluator: Kemper Unit Investment
Trusts
Trustee: Investors Fiduciary Trust
Company
<TABLE>
<CAPTION>
General Information
<S>
<C>
Principal Amount of Municipal Bonds
$2,805,000
Number of Units
2,902
Fractional Undivided Interest in the Trust per Unit
1/2,902
Principal Amount of Municipal Bonds per Unit
$966.57
Public Offering Price:
Aggregate Bid Price of Municipal Bonds in the Portfolio
$2,779,187
Aggregate Bid Price of Municipal Bonds per Unit
$957.68
Cash per Unit (1)
$.69
Sales Charge 4.712% (4.5% of Public Offering Price)
$45.16
Public Offering Price per Unit (exclusive of accrued
interest) (2)
$1,003.53
Redemption Price per Unit (exclusive of accrued interest)
$958.37
Excess of Public Offering Price per Unit Over Redemption
Price per Unit
$45.16
Minimum Value of the Trust under which Trust Agreement
may be terminated
$667,000
</TABLE>
Date of Trust
April 21, 1993
Mandatory Termination Date
December 31, 2042
Annual Evaluation and Portfolio Surveillance Fees: Evaluation
fee of $.30 per
$1,000 principal amount of Municipal Bonds. Evaluations for
purpose of sale,
purchase or redemption of Units are made as of the close of
business of the
Sponsor next following receipt of an order for a sale or purchase
of Units or
receipt by Investors Fiduciary Trust Company of Units tendered
for redemption.
Portfolio surveillance fee of $.20 per Unit.
[FN]
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. Units are offered at the Public Offering Price plus accrued
interest to
the date of settlement (three business days after purchase). On
June 14,
1995, there was added to the Public Offering Price of $1,003.53,
accrued
interest to the settlement date of June 19, 1995 of $8.48, $16.42
and $28.42
for a total price of $1,012.01, $1,019.95 and $1,031.95 for the
monthly,
quarterly and semiannual distribution options, respectively.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
New York Long-Intermediate Trust
Essential Information (continued)
As of June 14, 1995
Sponsor and Evaluator: Kemper Unit Investment
Trusts
Trustee: Investors Fiduciary Trust
Company
<TABLE>
<CAPTION>
Special Information Based on Various Distribution Options
Monthly Quarterly
Semiannual
<S> <C> <C>
<C>
-------- --------
--------
Calculation of Estimated Net Annual
Interest Income per Unit (3):
Estimated Annual Interest Income $49.1334 $49.1334
$49.1334
Less: Estimated Annual Expense 1.9458 1.7719
1.5092
-------- --------
--------
Estimated Net Annual Interest Income $47.1876 $47.3615
$47.6242
======== ========
========
Calculation of Interest Distribution
per Unit:
Estimated Net Annual Interest Income $47.1876 $47.3615
$47.6242
Divided by 12, 4 and 2, respectively $3.9323 $11.8404
$23.8121
Estimated Daily Rate of Net Interest
Accrual per Unit $.1311 $.1316
$.1323
Estimated Current Return Based on Public
Offering Price (3) 4.70% 4.72%
4.75%
Estimated Long-Term Return (3) 4.74% 4.76%
4.78%
</TABLE>
Trustee's Annual Fees and Expenses (including Evaluator's and
Portfolio
Surveillance Fees): $1.9458, $1.7719 and $1.5092 ($1.0663,
$1.0663 and
$1.0163 of which represent expenses) per Unit under the monthly,
quarterly and
semiannual distribution options, respectively.
Record and Computation Dates: First day of the month, as
follows: monthly -
each month; quarterly - January, April, July and October;
semiannual - January
and July.
Distribution Dates: Fifteenth day of the month, as follows:
monthly - each
month; quarterly - January, April, July and October; semiannual -
January and
July.
[FN]
3. The Estimated Long-Term Return and Estimated Current Return
will vary.
For detailed explanation, see Part One of this prospectus.
<PAGE>
Report of Independent Auditors
Unitholders
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
New York Long-Intermediate Trust
We have audited the accompanying statement of assets and
liabilities of Kemper
Tax-Exempt Insured Income Trust Multi-State Series 63v New York
Long-
Intermediate Trust, including the schedule of investments, as of
March 31,
1995, and the related statements of operations and changes in net
assets for
the year then ended and for the period from April 21, 1993 (Date
of Deposit)
to March 31, 1994. 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 March
31, 1995, 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
Tax-Exempt Insured
Income Trust Multi-State Series 63v New York Long-Intermediate
Trust at March
31, 1995, and the results of its operations and the changes in
its net assets
for the year then ended and for the period from April 21, 1993 to
March 31,
1994, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Kansas City, Missouri
July 14, 1995
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
New York Long-Intermediate Trust
Statement of Assets and Liabilities
March 31, 1995
<TABLE>
<CAPTION>
<S> <C>
<C>
Assets
Municipal Bonds, at value (cost $2,776,841)
$2,693,882
Interest receivable
51,273
----------
2,745,155
Liabilities and net assets
Cash overdraft
9,227
Accrued liabilities
2,061
----------
11,288
Net assets, applicable to 2,902 Units outstanding:
Cost of Trust assets, exclusive of interest $2,776,841
Unrealized depreciation (82,959)
Distributable funds 39,985
----------
----------
Net assets
$2,733,867
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
New York Long-Intermediate Trust
Statements of Operations
<TABLE>
<CAPTION>
Period from
April 21,
Year ended
1993 to
March 31,
March 31,
1995
1994
<S> <C>
<C>
--------
---------
Investment income - interest $157,853
$159,920
Expenses:
Trustee's fees and related expenses 4,242
4,200
Evaluator's and portfolio surveillance fees 1,584
1,594
--------
---------
Total expenses 5,826
5,794
--------
---------
Net investment income 152,027
154,126
Realized and unrealized gain (loss) on investments:
Realized loss (54,725)
(944)
Unrealized appreciation (depreciation)
during the period 76,327
(159,286)
--------
---------
Net gain (loss) on investments 21,602
(160,230)
--------
---------
Net increase (decrease) in net assets resulting
from operations $173,629
$(6,104)
========
=========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
New York Long-Intermediate Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Period from
April 21,
Year ended
1993 to
March 31,
March 31,
1995
1994
<S> <C>
<C>
----------
----------
Operations:
Net investment income $152,027
$154,126
Realized loss on investments (54,725)
(944)
Unrealized appreciation (depreciation)
on investments during the period 76,327
(159,286)
----------
----------
Net increase (decrease) in net assets resulting
from operations 173,629
(6,104)
Distributions to Unitholders:
Net investment income (157,574)
(110,611)
Capital transactions:
Issuance of Units -
3,306,186
Redemption of Units (374,074)
(97,585)
----------
----------
Total increase (decrease) in net assets (358,019)
3,091,886
Net assets:
At the beginning of the period 3,091,886
-
----------
----------
At the end of the period (including
distributable funds applicable to
Trust Units of $39,985 and $45,430
at March 31, 1995 and 1994, respectively) $2,733,867
$3,091,886
==========
==========
Trust Units outstanding at the end
of the period 2,902
3,335
==========
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Kemper Tax-Exempt
Insured Income Trust
Multi-State
Series 63v
New York
Long-Intermediate Trust
Schedule of
Investments
March 31,
1995
<CAPTION>
Coupon
Maturity Redemption Principal
Name of Issuer and Title of Bond(5)(7) Rate
Date Provisions(2) Rating(1) Amount(4) Value(3)
<S> <C> <C>
<C> <C> <C> <C>
-------
- ---------- ------------- --------- ---------- ----------
County of Broome, New York, Public Improvement 5.20%
4/15/2005 2001 @ 102 AAA $500,000 $491,950
Bonds, Series 1993. Insured by Financial Guaranty
Insurance Company (FGIC).
Metropolitan Transportation Authority, Transit 5.20
7/01/2005 Non-Callable AAA 120,000 117,568
Facilities Revenue Bonds, Series M. Insured by
AMBAC Indemnity Corporation (AMBAC).
New York City Municipal Water Finance Authority, 6.10
6/15/2006 2002 @ 101.5 AAA 500,000 518,700
Water and Sewer System Revenue Bonds, Fiscal 1993
Series A. Insured by AMBAC.
The Trust for Cultural Resources of the City of New 5.40
1/01/2006 2003 @ 102 AAA 375,000 371,059
York, Revenue Refunding Bonds (The Museum of
Modern Art), Series 1993A. Insured by AMBAC.
New York State Medical Care Facilities Finance 5.20
8/15/2005 2003 @ 102 AAA 80,000 77,750
Agency, Mental Health Services Facilities
Improvement Revenue Bonds, 1993 Series A.
Insured by AMBAC.
New York State Medical Care Facilities Finance 4.70
11/01/2005 2003 @ 102 AAA 650,000 594,555
Agency, North Shore University Hospital At Glen
Cove, Mortgage Project Revenue Bonds, 1993 Series
A. Insured by Municipal Bond Investors Assurance
Corporation (MBIA).
Commonwealth of Puerto Rico, Public Improvement 0.00
7/01/2006 Non-Callable AAA 75,000 40,021
Refunding Bonds (General Obligation), Series 1988.
Insured by MBIA. (6)
County of Suffolk, New York, General Obligation 4.90
4/01/2005 2002 @ 102 AAA 365,000 348,341
Refunding Bonds, Public Improvement Refunding
Bonds, 1993 Series G. Insured by MBIA.
#County of Suffolk, New York, General Obligation 5.00
7/15/2006 2002 @ 102 AAA 140,000 133,938
Refunding Bonds, Public Improvement Refunding
---------- ----------
Bonds, 1993 Series F. Insured by FGIC.
$2,805,000 $2,693,882
========== ==========
</TABLE>
[FN]
See accompanying notes to Schedule of Investments.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
New York Long-Intermediate Trust
Notes to Schedule of Investments
1. All ratings are by Standard & Poor's Corporation, unless
marked with the
symbol "*", in which case the rating is by Moody's Investors
Service, Inc.
The symbol "NR" indicates Bonds for which no rating is available.
2. There is shown under this heading the year in which each
issue of Bonds is
initially redeemable and the redemption price for that year or,
if currently
redeemable, the redemption price currently in effect; unless
otherwise
indicated, each issue continues to be redeemable at declining
prices
thereafter, but not below par value. In addition, certain Bonds
in the
Portfolio may be redeemed in whole or in part other than by
operation of the
stated redemption or sinking fund provisions under certain
unusual or
extraordinary circumstances specified in the instruments setting
forth the
terms and provisions of such Bonds. "S.F." indicates a sinking
fund is
established with respect to an issue of Bonds. Redemption
pursuant to call
provisions generally will, and redemption pursuant to sinking
fund provisions
may, occur at times when the redeemed Bonds have a valuation
which represents
a premium over the call price or par.
To the extent that the Bonds were deposited in the Trust at a
price higher
than the price at which they are redeemed, this will represent a
loss of
capital when compared with the original Public Offering Price of
the Units.
To the extent that the Bonds were acquired at a price lower than
the
redemption price, this may represent an increase in capital when
compared with
the original Public Offering Price of the Units. Distributions
of net income
will generally be reduced by the amount of the income which would
otherwise
have been paid with respect to redeemed Bonds and, unless
utilized to pay for
Units tendered for redemption, there will be distributed to
Unitholders the
principal amount and any premium received on such redemption. In
this event
the estimated current return and estimated long-term return may
be affected by
such redemptions.
3. See Note 1 to the accompanying financial statements for a
description of
the method of determining cost and value.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
New York Long-Intermediate Trust
Notes to Schedule of Investments
(continued)
4. At March 31, 1995, the Portfolio of the Trust consists of 8
obligations
issued by 7 entities located in New York and 1 obligation issued
by the
Commonwealth of Puerto Rico. Five obligations, representing
$1,725,000 of the
aggregate principal amount, are payable from the income of a
specific project
or authority and are not supported by an issuer's power to levy
taxes. Four
obligations, representing $1,080,000 of the aggregate principal
amount, are
general obligations of governmental entities and are backed by
the taxing
powers of such entities. The sources of payment for the revenue
bonds are
divided as follows: Hospital, 2; Transportation, 1; Water, 1;
Miscellaneous,
1. Approximately 26% of the aggregate principal amount of Bonds
in the Trust
are hospital revenue bonds. None of the Bonds in the Trust are
subject to
call by the issuers within five years after March 31, 1995.
5. Insurance on the Bonds in the Trust was obtained by the
issuers of such
Bonds.
6. This Bond has been purchased at a discount from the par value
because
there is no stated interest income thereon. Such Bond is
normally described
as a "zero coupon" Bond. Over the life of the Bond the value
increases, so
that upon maturity, the holders of the Bond will receive 100% of
the principal
amount thereof.
7. The security preceded by (#) is of the same issue as another
Bond in the
Trust.
[FN]
See accompanying notes to financial statements.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
New York Long-Intermediate Trust
Notes to Financial Statements
1. Significant Accounting Policies
Valuation of Municipal Bonds
Municipal Bonds (Bonds) are stated at bid prices as determined by
Kemper Unit
Investment Trusts (A Service of Kemper Securities, Inc.), the
"Evaluator" and
sponsor of the Trust. The aggregate bid prices of the Bonds are
determined by
the Evaluator based on (a) current bid prices of the Bonds, (b)
current bid
prices for comparable bonds, (c) appraisal, or (d) any
combination of the
above. (See Note 5 - Insurance.)
Cost of Municipal Bonds
Cost of the Trust's Bonds was based on the offering prices of the
Bonds on
April 21, 1993 (Date of Deposit). The premium or discount
(including any
original issue discount) existing at April 21, 1993, is not being
amortized.
Realized gain (loss) from Bond transactions is reported on an
identified cost
basis.
2. Unrealized Appreciation and Depreciation
Following is an analysis of net unrealized depreciation at March
31, 1995:
<TABLE>
<CAPTION>
<S>
<C>
Gross unrealized depreciation
$(85,376)
Gross unrealized appreciation
2,417
- ---------
Net unrealized depreciation
$(82,959)
=========
</TABLE>
3. Transactions with Affiliates
From the inception of the Trust through January 31, 1995, the
Trustee,
Investors Fiduciary Trust Company (IFTC), was 50% owned by Kemper
Financial
Services, Inc., an affiliate of Kemper Unit Investment Trusts.
On that date,
State Street Boston Corporation acquired IFTC. The Trustee's fee
(not
including the reimbursement of out-of-pocket expenses),
calculated monthly, is
at the annual rate of $.91, $.73 and $.51 under the monthly,
quarterly and
semiannual distribution options, respectively, per $1,000
principal amount of
Bonds in the Trust, based on the largest aggregate principal
amount of Bonds
in the Trust at any time during such monthly, quarterly or
semiannual periods.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
New York Long-Intermediate Trust
Notes to Financial Statements (continued)
3. Transactions with Affiliates (continued)
Kemper Unit Investment Trusts received an evaluation fee, payable
monthly, at
an annual rate of $.30 per $1,000 principal amount of Bonds,
based on the
largest aggregate principal amount of Bonds in the Trust at any
time during
such monthly period and a portfolio surveillance fee, payable
monthly, at an
annual rate of $.20 per Unit based on the total number of Units
of the Trust
outstanding as of the January record date.
4. Federal Income Taxes
The Trust is not an association taxable as a corporation for
federal income
tax purposes. Each Unitholder is considered to be the owner of a
pro rata
portion of the Trust under Subpart E, Subchapter J of Chapter 1
of the
Internal Revenue Code of 1986, as amended. Accordingly, no
provision has been
made for federal income taxes.
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 Bonds on the date of an investor's
purchase, 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 price of the Bonds
plus or minus a
pro rata share of cash or overdraft in the Principal Account, if
any, on the
date of an investor's purchase, plus a sales charge of 4.5% of
the Public
Offering Price (equivalent to 4.712% of the net amount invested).
Insurance
Insurance guaranteeing the payment of all principal and interest
on the Bonds
in the portfolio has been obtained from independent companies by
the
respective issuers of such Bonds. Insurance obtained by a Bond
issuer is
effective as long as such Bonds are outstanding. As a result of
such
insurance, the Units of the Trust have received a rating of "AAA"
by Standard
& Poor's Corporation. No representation is made as to any
insurer's ability
to meet its commitments.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
New York Long-Intermediate Trust
Notes to Financial Statements (continued)
5. Other Information (continued)
Distributions
Distributions of net investment income to Unitholders are
declared and paid in
accordance with the option (monthly, quarterly or semiannual)
selected by the
investor. An initial distribution to investors of $2.00 per Unit
was paid on
July 15, 1993. Such income distributions, on a record date
basis, are as
follows:
<TABLE>
<CAPTION>
Period from
Year ended
April 21, 1993
Distribution March 31, 1995 to
March 31, 1994
Plan Per Unit Total Per Unit
Total
<S> <C> <C> <C>
<C>
-------- -------- --------
--------
Monthly $47.55 $98,385 $34.67*
$79,454*
Quarterly 47.79 21,552 25.85
11,446
Semiannual 48.05 33,343 25.98
19,040
--------
--------
$153,280
$109,940
========
========
</TABLE>
[FN]
* Includes $3,301 ($.99 per Unit) distributed to the Underwriters
of the
Trust, representing interest income from the Date of Deposit to
April 28, 1993
(First Settlement Date).
In addition, the Trust redeemed Units with proceeds from the sale
of Bonds as
follows:
<TABLE>
<CAPTION>
Period from
April 21,
Year ended
1993 to
March 31,
March 31,
1995
1994
<S> <C>
<C>
--------
-------
Principal portion $374,074
$97,585
Net interest accrued 4,294
671
--------
-------
$378,368
$98,256
========
=======
Units 433
100
========
=======
</TABLE>
<PAGE>
<TABLE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
New York Long-Intermediate Trust
Notes to Financial Statements (continued)
5. Other Information (continued)
Selected data for a Unit of the Trust outstanding throughout each
period -
<CAPTION>
Monthly
Quarterly Semiannual
Period
Period Period
from
from from
Year Apr. 28, Year
Apr. 28, Year Apr. 28,
ended 1993 to ended
1993 to ended 1993 to
Mar. 31, Mar. 31, Mar. 31,
Mar. 31, Mar. 31, Mar. 31,
1995 1994 1995
1994 1995 1994
<S> <C> <C> <C>
<C> <C> <C>
------- ------- -------
- ------- ------- -------
Investment income - interest $49.30 $45.70 $49.30
$45.70 $49.30 $45.70
Expenses 1.94 1.77 1.76
1.61 1.49 1.37
------- ------- -------
- ------- ------- -------
Net investment income 47.36 43.93 47.54
44.09 47.81 44.33
Distributions to Unitholders:
Net investment income (47.55) (33.68) (47.79)
(25.85) (48.05) (25.98)
Net gain (loss) on investments 14.88 (48.47) 14.88
(48.47) 14.88 (48.47)
------- ------- -------
- ------- ------- -------
Change in net asset value 14.69 (38.22) 14.63
(30.23) 14.64 (30.12)
Net asset value:
Beginning of the period 924.28 962.50* 932.27
962.50* 932.38 962.50*
------- ------- -------
- ------- ------- -------
End of the period, including
distributable funds $938.97 $924.28 $946.90
$932.27 $947.02 $932.38
======= ======= =======
======= ======= =======
</TABLE>
[FN]
* Value at April 21, 1993 (Date of Deposit).
<PAGE>
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 July 14, 1995, in
this Post-
Effective Amendment to the Registration Statement (Form S-6) and
related
Prospectus of Kemper Tax-Exempt Insured Income Trust Multi-State
Series 63v
New York Long-Intermediate Trust dated July 28, 1995.
Ernst & Young LLP
Kansas City, Missouri
July 28, 1995
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Texas Long-Intermediate Trust
Part Two
Dated July 28, 1995
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>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Texas Long-Intermediate Trust
Essential Information
As of June 14, 1995
Sponsor and Evaluator: Kemper Unit Investment
Trusts
Trustee: Investors Fiduciary Trust
Company
<TABLE>
<CAPTION>
General Information
<S>
<C>
Principal Amount of Municipal Bonds
$3,170,000
Number of Units
3,273
Fractional Undivided Interest in the Trust per Unit
1/3,273
Principal Amount of Municipal Bonds per Unit
$968.53
Public Offering Price:
Aggregate Bid Price of Municipal Bonds in the Portfolio
$3,160,623
Aggregate Bid Price of Municipal Bonds per Unit
$965.67
Cash per Unit (1)
$.66
Sales Charge 4.712% (4.5% of Public Offering Price)
$45.53
Public Offering Price per Unit (exclusive of accrued
interest) (2)
$1,011.86
Redemption Price per Unit (exclusive of accrued interest)
$966.33
Excess of Public Offering Price per Unit Over Redemption
Price per Unit
$45.53
Minimum Value of the Trust under which Trust Agreement
may be terminated
$684,000
</TABLE>
Date of Trust
April 21, 1993
Mandatory Termination Date
December 31, 2042
Annual Evaluation and Portfolio Surveillance Fees: Evaluation
fee of $.30 per
$1,000 principal amount of Municipal Bonds. Evaluations for
purpose of sale,
purchase or redemption of Units are made as of the close of
business of the
Sponsor next following receipt of an order for a sale or purchase
of Units or
receipt by Investors Fiduciary Trust Company of Units tendered
for redemption.
Portfolio surveillance fee of $.20 per Unit.
[FN]
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. Units are offered at the Public Offering Price plus accrued
interest to
the date of settlement (three business days after purchase). On
June 14,
1995, there was added to the Public Offering Price of $1,011.86,
accrued
interest to the settlement date of June 19, 1995 of $9.84, $18.09
and $30.55
for a total price of $1,021.70, $1,029.95 and $1,042.41 for the
monthly,
quarterly and semiannual distribution options, respectively.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Texas Long-Intermediate Trust
Essential Information (continued)
As of June 14, 1995
Sponsor and Evaluator: Kemper Unit Investment
Trusts
Trustee: Investors Fiduciary Trust
Company
<TABLE>
<CAPTION>
Special Information Based on Various Distribution Options
Monthly Quarterly
Semiannual
<S> <C> <C>
<C>
-------- --------
--------
Calculation of Estimated Net Annual
Interest Income per Unit (3):
Estimated Annual Interest Income $50.9410 $50.9410
$50.9410
Less: Estimated Annual Expense 1.9033 1.7289
1.4846
-------- --------
--------
Estimated Net Annual Interest Income $49.0377 $49.2121
$49.4564
======== ========
========
Calculation of Interest Distribution
per Unit:
Estimated Net Annual Interest Income $49.0377 $49.2121
$49.4564
Divided by 12, 4 and 2, respectively $4.0865 $12.3030
$24.7282
Estimated Daily Rate of Net Interest
Accrual per Unit $.1362 $.1367
$.1374
Estimated Current Return Based on Public
Offering Price (3) 4.85% 4.86%
4.89%
Estimated Long-Term Return (3) 4.86% 4.87%
4.90%
</TABLE>
Trustee's Annual Fees and Expenses (including Evaluator's and
Portfolio
Surveillance Fees): $1.9033, $1.7289 and $1.4846 ($1.0219,
$1.0219 and $.9719
of which represent expenses) per Unit under the monthly,
quarterly and
semiannual distribution options, respectively.
Record and Computation Dates: First day of the month, as
follows: monthly -
each month; quarterly - January, April, July and October;
semiannual - January
and July.
Distribution Dates: Fifteenth day of the month, as follows:
monthly - each
month; quarterly - January, April, July and October; semiannual -
January and
July.
[FN]
3. The Estimated Long-Term Return and Estimated Current Return
will vary.
For detailed explanation, see Part One of this prospectus.
<PAGE>
Report of Independent Auditors
Unitholders
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Texas Long-Intermediate Trust
We have audited the accompanying statement of assets and
liabilities of Kemper
Tax-Exempt Insured Income Trust Multi-State Series 63v Texas
Long-Intermediate
Trust, including the schedule of investments, as of March 31,
1995, and the
related statements of operations and changes in net assets for
the year then
ended and for the period from April 21, 1993 (Date of Deposit) to
March 31,
1994. 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 March
31, 1995, 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
Tax-Exempt Insured
Income Trust Multi-State Series 63v Texas Long-Intermediate Trust
at March 31,
1995, and the results of its operations and the changes in its
net assets for
the year then ended and for the period from April 21, 1993 to
March 31, 1994,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
July 14, 1995
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Texas Long-Intermediate Trust
Statement of Assets and Liabilities
March 31, 1995
<TABLE>
<CAPTION>
<S> <C>
<C>
Assets
Municipal Bonds, at value (cost $3,146,915)
$3,082,406
Interest receivable
35,682
Cash
16,738
----------
3,134,826
Liabilities and net assets
Accrued liabilities
1,957
Net assets, applicable to 3,273 Units outstanding:
Cost of Trust assets, exclusive of interest $3,146,915
Unrealized depreciation (64,509)
Distributable funds 50,463
----------
----------
Net assets
$3,132,869
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Texas Long-Intermediate Trust
Statements of Operations
<TABLE>
<CAPTION>
Period from
April 21,
Year ended
1993 to
March 31,
March 31,
1995
1994
<S> <C>
<C>
--------
---------
Investment income - interest $174,698
$169,981
Expenses:
Trustee's fees and related expenses 4,330
4,183
Evaluator's and portfolio surveillance fees 1,687
1,636
--------
---------
Total expenses 6,017
5,819
--------
---------
Net investment income 168,681
164,162
Realized and unrealized gain (loss)
on investments:
Realized loss (17,599)
-
Unrealized appreciation (depreciation)
during the period 97,163
(161,672)
--------
---------
Net gain (loss) on investments 79,564
(161,672)
--------
---------
Net increase in net assets resulting
from operations $248,245
$2,490
========
=========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Texas Long-Intermediate Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Period from
April 21,
Year ended
1993 to
March 31,
March 31,
1995
1994
<S> <C>
<C>
----------
----------
Operations:
Net investment income $168,681
$164,162
Realized loss on investments (17,599)
-
Unrealized appreciation (depreciation)
on investments during the period 97,163
(161,672)
----------
----------
Net increase in net assets resulting
from operations 248,245
2,490
Distributions to Unitholders:
Net investment income (173,451)
(111,110)
Capital transactions:
Issuance of Units -
3,396,663
Redemption of Units (229,968)
-
----------
----------
Total increase (decrease) in net assets (155,174)
3,288,043
Net assets:
At the beginning of the period 3,288,043
-
----------
----------
At the end of the period (including
distributable funds applicable to
Trust Units of $50,463 and $53,052
at March 31, 1995 and 1994, respectively) $3,132,869
$3,288,043
==========
==========
Trust Units outstanding at the end
of the period 3,273
3,529
==========
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Kemper Tax-Exempt
Insured Income Trust
Multi-State
Series 63v
Texas
Long-Intermediate Trust
Schedule of
Investments
March 31,
1995
<CAPTION>
Coupon
Maturity Redemption Principal
Name of Issuer and Title of Bond(5) Rate
Date Provisions(2) Rating(1) Amount(4) Value(3)
<S> <C> <C>
<C> <C> <C> <C>
-------
- ---------- ------------- --------- ---------- ----------
Coastal Bend Health Facilities Development 6.00%
11/15/2006 2002 @ 102 AAA $500,000 $510,200
Corporation, Incarnate Word Health Services,
Revenue Bonds. Insured by AMBAC Indemnity
Corporation (AMBAC).
Collin County, Texas, Jail Facilities Financing 5.30
3/01/2006 2002 @ 100 AAA 550,000 534,892
Corporation, Jail Facilities Revenue Bonds,
Series 1993. Insured by Municipal Bond Investors
Assurance Corporation (MBIA).
City of Coppell, Texas (Dallas and Denton Counties), 5.30
2/01/2006 2002 @ 100 AAA 250,000 244,152
General Obligation Refunding Bonds, Series 1993.
Insured by AMBAC.
City of El Paso, Texas (El Paso County), Combination 5.00
8/15/2005 2002 @ 100 AAA 300,000 287,568
Tax and Revenue Certificates of Obligation, Series
1993A. Insured by MBIA.
City of Houston, Texas, Water and Sewer System 5.90
12/01/2005 2002 @ 102 AAA 600,000 616,374
Junior Lien Revenue Bonds, Series 1992A. Insured
by MBIA.
Hunt Memorial Hospital District (Hunt County, Texas), 0.00
2/15/2005 Non-Callable AAA 175,000 100,765
General Obligation Refunding Bonds, Series 1985.
Insured by MBIA. (6)
North Texas Municipal Water District, Regional Solid 5.40
9/01/2006 2003 @ 100 AAA 295,000 289,330
Waste Disposal System, Refunding and Improvement
Revenue Bonds, Series 1993. Insured by AMBAC.
Trinity River Authority of Texas, Regional 5.60
8/01/2006 2003 @ 100 AAA 500,000 499,125
Wastewater System Revenue Refunding Bonds,
---------- ----------
Series 1993. Insured by AMBAC.
$3,170,000 $3,082,406
========== ==========
</TABLE>
[FN]
See accompanying notes to Schedule of Investments.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Texas Long-Intermediate Trust
Notes to Schedule of Investments
1. All ratings are by Standard & Poor's Corporation, unless
marked with the
symbol "*", in which case the rating is by Moody's Investors
Service, Inc.
The symbol "NR" indicates Bonds for which no rating is available.
2. There is shown under this heading the year in which each
issue of Bonds is
initially redeemable and the redemption price for that year or,
if currently
redeemable, the redemption price currently in effect; unless
otherwise
indicated, each issue continues to be redeemable at declining
prices
thereafter, but not below par value. In addition, certain Bonds
in the
Portfolio may be redeemed in whole or in part other than by
operation of the
stated redemption or sinking fund provisions under certain
unusual or
extraordinary circumstances specified in the instruments setting
forth the
terms and provisions of such Bonds. "S.F." indicates a sinking
fund is
established with respect to an issue of Bonds. Redemption
pursuant to call
provisions generally will, and redemption pursuant to sinking
fund provisions
may, occur at times when the redeemed Bonds have a valuation
which represents
a premium over the call price or par.
To the extent that the Bonds were deposited in the Trust at a
price higher
than the price at which they are redeemed, this will represent a
loss of
capital when compared with the original Public Offering Price of
the Units.
To the extent that the Bonds were acquired at a price lower than
the
redemption price, this may represent an increase in capital when
compared with
the original Public Offering Price of the Units. Distributions
of net income
will generally be reduced by the amount of the income which would
otherwise
have been paid with respect to redeemed Bonds and, unless
utilized to pay for
Units tendered for redemption, there will be distributed to
Unitholders the
principal amount and any premium received on such redemption. In
this event
the estimated current return and estimated long-term return may
be affected by
such redemptions.
3. See Note 1 to the accompanying financial statements for a
description of
the method of determining cost and value.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Texas Long-Intermediate Trust
Notes to Schedule of Investments
(continued)
4. At March 31, 1995, the Portfolio of the Trust consists of 8
obligations
issued by entities located in Texas. Five obligations,
representing
$2,445,000 of the aggregate principal amount, are payable from
the income of a
specific project or authority and are not supported by an
issuer's power to
levy taxes. Three obligations, representing $725,000 of the
aggregate
principal amount, are general obligations of governmental
entities and are
backed by the taxing powers of such entities. The sources of
payment for the
revenue bonds are divided as follows: Correctional Facilities,
1; Hospital,
1; Solid Waste, 1; Wastewater, 1; Water and Sewer, 1. None of
the Bonds in
the Trust are subject to call by the issuers within five years
after March 31,
1995.
5. Insurance on the Bonds in the Trust was obtained by the
issuers of such
Bonds.
6. This Bond has been purchased at a discount from the par value
because
there is no stated interest income thereon. Such Bond is
normally described
as a "zero coupon" Bond. Over the life of the Bond the value
increases, so
that upon maturity, the holders of the Bond will receive 100% of
the principal
amount thereof.
[FN]
See accompanying notes to financial statements.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Texas Long-Intermediate Trust
Notes to Financial Statements
1. Significant Accounting Policies
Valuation of Municipal Bonds
Municipal Bonds (Bonds) are stated at bid prices as determined by
Kemper Unit
Investment Trusts (A Service of Kemper Securities, Inc.), the
"Evaluator" and
sponsor of the Trust. The aggregate bid prices of the Bonds are
determined by
the Evaluator based on (a) current bid prices of the Bonds, (b)
current bid
prices for comparable bonds, (c) appraisal, or (d) any
combination of the
above. (See Note 5 - Insurance.)
Cost of Municipal Bonds
Cost of the Trust's Bonds was based on the offering prices of the
Bonds on
April 21, 1993 (Date of Deposit). The premium or discount
(including any
original issue discount) existing at April 21, 1993, is not being
amortized.
Realized gain (loss) from Bond transactions is reported on an
identified cost
basis.
2. Unrealized Appreciation and Depreciation
Following is an analysis of net unrealized depreciation at March
31, 1995:
<TABLE>
<CAPTION>
<S>
<C>
Gross unrealized depreciation
$(72,692)
Gross unrealized appreciation
8,183
- ---------
Net unrealized depreciation
$(64,509)
=========
</TABLE>
3. Transactions with Affiliates
From the inception of the Trust through January 31, 1995, the
Trustee,
Investors Fiduciary Trust Company (IFTC), was 50% owned by Kemper
Financial
Services, Inc., an affiliate of Kemper Unit Investment Trusts.
On that date,
State Street Boston Corporation acquired IFTC. The Trustee's fee
(not
including the reimbursement of out-of-pocket expenses),
calculated monthly, is
at the annual rate of $.91, $.73 and $.51 under the monthly,
quarterly and
semiannual distribution options, respectively, per $1,000
principal amount of
Bonds in the Trust, based on the largest aggregate principal
amount of Bonds
in the Trust at any time during such monthly, quarterly or
semiannual periods.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Texas Long-Intermediate Trust
Notes to Financial Statements (continued)
3. Transactions with Affiliates (continued)
Kemper Unit Investment Trusts received an evaluation fee, payable
monthly, at
an annual rate of $.30 per $1,000 principal amount of Bonds,
based on the
largest aggregate principal amount of Bonds in the Trust at any
time during
such monthly period and a portfolio surveillance fee, payable
monthly, at an
annual rate of $.20 per Unit based on the total number of Units
of the Trust
outstanding as of the January record date.
4. Federal Income Taxes
The Trust is not an association taxable as a corporation for
federal income
tax purposes. Each Unitholder is considered to be the owner of a
pro rata
portion of the Trust under Subpart E, Subchapter J of Chapter 1
of the
Internal Revenue Code of 1986, as amended. Accordingly, no
provision has been
made for federal income taxes.
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 Bonds on the date of an investor's
purchase, 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 price of the Bonds
plus or minus a
pro rata share of cash or overdraft in the Principal Account, if
any, on the
date of an investor's purchase, plus a sales charge of 4.5% of
the Public
Offering Price (equivalent to 4.712% of the net amount invested).
Insurance
Insurance guaranteeing the payment of all principal and interest
on the Bonds
in the portfolio has been obtained from independent companies by
the
respective issuers of such Bonds. Insurance obtained by a Bond
issuer is
effective as long as such Bonds are outstanding. As a result of
such
insurance, the Units of the Trust have received a rating of "AAA"
by Standard
& Poor's Corporation. No representation is made as to any
insurer's ability
to meet its commitments.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Texas Long-Intermediate Trust
Notes to Financial Statements (continued)
5. Other Information (continued)
Distributions
Distributions of net investment income to Unitholders are
declared and paid in
accordance with the option (monthly, quarterly or semiannual)
selected by the
investor. An initial distribution to investors of $1.00 per Unit
was paid on
July 15, 1993. Such income distributions, on a record date
basis, are as
follows:
<TABLE>
<CAPTION>
Period from
Year ended
April 21, 1993
Distribution March 31, 1995 to
March 31, 1994
Plan Per Unit Total Per Unit
Total
<S> <C> <C> <C>
<C>
-------- -------- --------
--------
Monthly $49.29 $99,616 $34.74*
$74,017*
Quarterly 49.48 16,675 25.65
8,801
Semiannual 49.74 54,668 25.78
28,292
--------
--------
$170,959
$111,110
========
========
</TABLE>
[FN]
* Includes $3,500 ($.99 per Unit) distributed to the
Underwriters of the
Trust, representing interest income from the Date of Deposit to
April 28, 1993
(First Settlement Date).
In addition, the Trust redeemed Units with proceeds from the sale
of Bonds as
follows:
<TABLE>
<CAPTION>
Year ended
March 31,
1995
<S>
<C>
--------
Principal portion
$229,968
Net interest accrued
2,492
--------
$232,460
========
Units
256
========
</TABLE>
<PAGE>
<TABLE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Texas Long-Intermediate Trust
Notes to Financial Statements (continued)
5. Other Information (continued)
Selected data for a Unit of the Trust outstanding throughout each
period -
<CAPTION>
Monthly
Quarterly Semiannual
Period
Period Period
from
from from
Year Apr. 28, Year
Apr. 28, Year Apr. 28,
ended 1993 to ended
1993 to ended 1993 to
Mar. 31, Mar. 31, Mar. 31,
Mar. 31, Mar. 31, Mar. 31,
1995 1994 1995
1994 1995 1994
<S> <C> <C> <C>
<C> <C> <C>
------- ------- -------
- ------- ------- -------
Investment income - interest $51.02 $47.18 $51.02
$47.18 $51.02 $47.18
Expenses 1.90 1.77 1.72
1.60 1.46 1.36
------- ------- -------
- ------- ------- -------
Net investment income 49.12 45.41 49.30
45.58 49.56 45.82
Distributions to Unitholders:
Net investment income (49.29) (33.75) (49.48)
(25.65) (49.74) (25.78)
Net gain (loss) on investments 25.69 (45.84) 25.69
(45.84) 25.69 (45.84)
------- ------- -------
- ------- ------- -------
Change in net asset value 25.52 (34.18) 25.51
(25.91) 25.51 (25.80)
Net asset value:
Beginning of the period 928.32 962.50* 936.59
962.50* 936.70 962.50*
------- ------- -------
- ------- ------- -------
End of the period, including
distributable funds $953.84 $928.32 $962.10
$936.59 $962.21 $936.70
======= ======= =======
======= ======= =======
</TABLE>
[FN]
* Value at April 21, 1993 (Date of Deposit).
<PAGE>
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 July 14, 1995, in
this Post-
Effective Amendment to the Registration Statement (Form S-6) and
related
Prospectus of Kemper Tax-Exempt Insured Income Trust Multi-State
Series 63v
Texas Long-Intermediate Trust dated July 28, 1995.
Ernst & Young LLP
Kansas City, Missouri
July 28, 1995
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Florida Long-Intermediate Trust
Part Two
Dated July 28, 1995
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>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Florida Long-Intermediate Trust
Essential Information
As of June 14, 1995
Sponsor and Evaluator: Kemper Unit Investment
Trusts
Trustee: Investors Fiduciary Trust
Company
<TABLE>
<CAPTION>
General Information
<S>
<C>
Principal Amount of Municipal Bonds
$3,370,000
Number of Units
3,468
Fractional Undivided Interest in the Trust per Unit
1/3,468
Principal Amount of Municipal Bonds per Unit
$971.74
Public Offering Price:
Aggregate Bid Price of Municipal Bonds in the Portfolio
$3,373,348
Aggregate Bid Price of Municipal Bonds per Unit
$972.71
Cash per Unit (1)
$.42
Sales Charge 4.712% (4.5% of Public Offering Price)
$45.85
Public Offering Price per Unit (exclusive of accrued
interest) (2)
$1,018.98
Redemption Price per Unit (exclusive of accrued interest)
$973.13
Excess of Public Offering Price per Unit Over Redemption
Price per Unit
$45.85
Minimum Value of the Trust under which Trust Agreement
may be terminated
$698,000
</TABLE>
Date of Trust
April 21, 1993
Mandatory Termination Date
December 31, 2042
Annual Evaluation and Portfolio Surveillance Fees: Evaluation
fee of $.30 per
$1,000 principal amount of Municipal Bonds. Evaluations for
purpose of sale,
purchase or redemption of Units are made as of the close of
business of the
Sponsor next following receipt of an order for a sale or purchase
of Units or
receipt by Investors Fiduciary Trust Company of Units tendered
for redemption.
Portfolio surveillance fee of $.20 per Unit.
[FN]
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. Units are offered at the Public Offering Price plus accrued
interest to
the date of settlement (three business days after purchase). On
June 14,
1995, there was added to the Public Offering Price of $1,018.98,
accrued
interest to the settlement date of June 19, 1995 of $9.68, $17.83
and $30.17
for a total price of $1,028.66, $1,036.81 and $1,049.15 for the
monthly,
quarterly and semiannual distribution options, respectively.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Florida Long-Intermediate Trust
Essential Information (continued)
As of June 14, 1995
Sponsor and Evaluator: Kemper Unit Investment
Trusts
Trustee: Investors Fiduciary Trust
Company
<TABLE>
<CAPTION>
Special Information Based on Various Distribution Options
Monthly Quarterly
Semiannual
<S> <C> <C>
<C>
-------- --------
--------
Calculation of Estimated Net Annual
Interest Income per Unit (3):
Estimated Annual Interest Income $50.4242 $50.4242
$50.4242
Less: Estimated Annual Expense 1.8874 1.7125
1.4664
-------- --------
--------
Estimated Net Annual Interest Income $48.5368 $48.7117
$48.9578
======== ========
========
Calculation of Interest Distribution
per Unit:
Estimated Net Annual Interest Income $48.5368 $48.7117
$48.9578
Divided by 12, 4 and 2, respectively $4.0447 $12.1779
$24.4789
Estimated Daily Rate of Net Interest
Accrual per Unit $.1348 $.1353
$.1360
Estimated Current Return Based on Public
Offering Price (3) 4.76% 4.78%
4.80%
Estimated Long-Term Return (3) 4.75% 4.76%
4.79%
</TABLE>
Trustee's Annual Fees and Expenses (including Evaluator's and
Portfolio
Surveillance Fees): $1.8874, $1.7125 and $1.4664 ($1.0031,
$1.0031 and $.9531
of which represent expenses) per Unit under the monthly,
quarterly and
semiannual distribution options, respectively.
Record and Computation Dates: First day of the month, as
follows: monthly -
each month; quarterly - January, April, July and October;
semiannual - January
and July.
Distribution Dates: Fifteenth day of the month, as follows:
monthly - each
month; quarterly - January, April, July and October; semiannual -
January and
July.
[FN]
3. The Estimated Long-Term Return and Estimated Current Return
will vary.
For detailed explanation, see Part One of this prospectus.
<PAGE>
Report of Independent Auditors
Unitholders
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Florida Long-Intermediate Trust
We have audited the accompanying statement of assets and
liabilities of Kemper
Tax-Exempt Insured Income Trust Multi-State Series 63v Florida
Long-
Intermediate Trust, including the schedule of investments, as of
March 31,
1995, and the related statements of operations and changes in net
assets for
the year then ended and for the period from April 21, 1993 (Date
of Deposit)
to March 31, 1994. 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 March
31, 1995, 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
Tax-Exempt Insured
Income Trust Multi-State Series 63v Florida Long-Intermediate
Trust at March
31, 1995, and the results of its operations and the changes in
its net assets
for the year then ended and for the period from April 21, 1993 to
March 31,
1994, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Kansas City, Missouri
July 14, 1995
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Florida Long-Intermediate Trust
Statement of Assets and Liabilities
March 31, 1995
<TABLE>
<CAPTION>
<S> <C>
<C>
Assets
Municipal Bonds, at value (cost $3,337,028)
$3,278,426
Interest receivable
49,120
Cash
2,114
----------
3,329,660
Liabilities and net assets
Accrued liabilities
1,859
Net assets, applicable to 3,468 Units outstanding:
Cost of Trust assets, exclusive of interest $3,337,028
Unrealized depreciation (58,602)
Distributable funds 49,375
----------
----------
Net assets
$3,327,801
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Florida Long-Intermediate Trust
Statements of Operations
<TABLE>
<CAPTION>
Period from
April 21,
Year ended
1993 to
March 31,
March 31,
1995
1994
<S> <C>
<C>
--------
---------
Investment income - interest $180,390
$171,146
Expenses:
Trustee's fees and related expenses 4,595
4,322
Evaluator's and portfolio surveillance fees 1,759
1,668
--------
---------
Total expenses 6,354
5,990
--------
---------
Net investment income 174,036
165,156
Realized and unrealized gain (loss)
on investments:
Realized loss (5,878)
-
Unrealized appreciation (depreciation)
during the period 114,634
(173,236)
--------
---------
Net gain (loss) on investments 108,756
(173,236)
--------
---------
Net increase (decrease) in net assets resulting
from operations $282,792
$(8,080)
========
=========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Florida Long-Intermediate Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Period from
April 21,
Year ended
1993 to
March 31,
March 31,
1995
1994
<S> <C>
<C>
----------
----------
Operations:
Net investment income $174,036
$165,156
Realized loss on investments (5,878)
-
Unrealized appreciation (depreciation)
on investments during the period 114,634
(173,236)
----------
----------
Net increase (decrease) in net assets resulting
from operations 282,792
(8,080)
Distributions to Unitholders:
Net investment income (175,218)
(116,078)
Capital transactions:
Issuance of Units -
3,457,300
Redemption of Units (112,915)
-
----------
----------
Total increase (decrease) in net assets (5,341)
3,333,142
Net assets:
At the beginning of the period 3,333,142
-
----------
----------
At the end of the period (including
distributable funds applicable to
Trust Units of $49,375 and $49,078
at March 31, 1995 and 1994, respectively) $3,327,801
$3,333,142
==========
==========
Trust Units outstanding at the end
of the period 3,468
3,592
==========
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Kemper Tax-Exempt
Insured Income Trust
Multi-State
Series 63v
Florida
Long-Intermediate Trust
Schedule of
Investments
March 31,
1995
<CAPTION>
Coupon
Maturity Redemption Principal
Name of Issuer and Title of Bond(5) Rate
Date Provisions(2) Rating(1) Amount(4) Value(3)
<S> <C> <C>
<C> <C> <C> <C>
-------
- ---------- ------------- --------- ---------- ----------
City of Dunedin (Florida), Hospital Revenue 5.125%
11/15/2005 2003 @ 101 AAA $125,000 $121,098
Refunding Bonds (Mease Health Care), Series 1993.
Insured by Municipal Bond Investors Assurance
Corporation (MBIA).
Florida Keys Aqueduct Authority, Water Revenue 5.40
9/01/2006 2003 @ 102 AAA 490,000 486,678
Refunding Bonds, Series 1993. Insured by AMBAC
Indemnity Corporation.
School Board of Hernando County, Florida, 5.40
7/01/2006 2003 @ 102 AAA 195,000 191,603
Certificates of Participation (Florida School
Boards Association, Inc., Florida School
District's Financing Program), Series 1993.
Insured by Financial Security Assurance (FSA).
City of Hollywood, Florida, Water and Sewer Revenue 5.30
10/01/2006 2003 @ 102 AAA 200,000 196,792
Refunding Bonds, Series 1993. Insured by
Financial Guaranty Insurance Company (FGIC).
Indian River County, Florida, Water and Sewer 5.30
9/01/2006 Non-Callable AAA 500,000 491,995
Revenue Bonds, Series 1993A. Insured by FGIC.
The School Board of Lee County, Florida, 5.10
8/01/2005 2003 @ 102 AAA 250,000 241,232
Certificates of Participation, Series 1993A. 5.15
8/01/2006 2003 @ 102 AAA 500,000 479,865
Insured by FSA.
City of North Port, Florida, Utility System Revenue 6.10
10/01/2006 2005 @ 100 S.F. AAA 175,000 183,018
Bonds, Series 1992. Insured by FGIC.
2002 @ 102
Palm Beach County, Florida, Revenue Refunding Bonds, 5.20
10/01/2005 Non-Callable AAA 350,000 344,172
Series 1993. Insured by FGIC.
Commonwealth of Puerto Rico, Public Improvement 0.00
7/01/2006 Non-Callable AAA 85,000 45,358
Refunding Bonds (General Obligation Bonds),
Series 1988. Insured by MBIA. (6)
St. Lucie County, Florida, Utility System Refunding 5.40
10/01/2006 2003 @ 102 AAA 500,000 496,615
and Revenue Bonds, Series 1993. Insured by FGIC.
---------- ----------
$3,370,000 $3,278,426
========== ==========
</TABLE>
[FN]
See accompanying notes to Schedule of Investments.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Florida Long-Intermediate Trust
Notes to Schedule of Investments
1. All ratings are by Standard & Poor's Corporation, unless
marked with the
symbol "*", in which case the rating is by Moody's Investors
Service, Inc.
The symbol "NR" indicates Bonds for which no rating is available.
2. There is shown under this heading the year in which each
issue of Bonds is
initially redeemable and the redemption price for that year or,
if currently
redeemable, the redemption price currently in effect; unless
otherwise
indicated, each issue continues to be redeemable at declining
prices
thereafter, but not below par value. In addition, certain Bonds
in the
Portfolio may be redeemed in whole or in part other than by
operation of the
stated redemption or sinking fund provisions under certain
unusual or
extraordinary circumstances specified in the instruments setting
forth the
terms and provisions of such Bonds. "S.F." indicates a sinking
fund is
established with respect to an issue of Bonds. Redemption
pursuant to call
provisions generally will, and redemption pursuant to sinking
fund provisions
may, occur at times when the redeemed Bonds have a valuation
which represents
a premium over the call price or par.
To the extent that the Bonds were deposited in the Trust at a
price higher
than the price at which they are redeemed, this will represent a
loss of
capital when compared with the original Public Offering Price of
the Units.
To the extent that the Bonds were acquired at a price lower than
the
redemption price, this may represent an increase in capital when
compared with
the original Public Offering Price of the Units. Distributions
of net income
will generally be reduced by the amount of the income which would
otherwise
have been paid with respect to redeemed Bonds and, unless
utilized to pay for
Units tendered for redemption, there will be distributed to
Unitholders the
principal amount and any premium received on such redemption. In
this event
the estimated current return and estimated long-term return may
be affected by
such redemptions.
3. See Note 1 to the accompanying financial statements for a
description of
the method of determining cost and value.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Florida Long-Intermediate Trust
Notes to Schedule of Investments
(continued)
4. At March 31, 1995, the Portfolio of the Trust consists of 10
obligations
issued by 9 entities located in Florida and 1 obligation issed by
the
Commonwealth of Puerto Rico. Ten obligations, representing
$3,285,000 of the
aggregate principal amount, are payable from the income of a
specific project
or authority and are not supported by an issuer's power to levy
taxes. One
obligation, representing $85,000 of the aggregate principal
amount, is a
general obligation of a governmental entity and is backed by the
taxing power
of such entity. The sources of payment for the revenue bonds are
divided as
follows: Education, 3; Hospital, 1; Miscellaneous, 1; Utilities,
2; Water and
Sewer, 3. Approximately 35% and 28% of the aggregate principal
amount of
Bonds in the Trust are obligations of issuers whose revenues are
derived from
the operation of water and sewerage services and educational
facilities,
respectively. None of the Bonds in the Trust are subject to call
by the
issuers within five years after March 31, 1995.
5. Insurance on the Bonds in the Trust was obtained by the
issuers of such
Bonds.
6. This Bond has been purchased at a discount from the par value
because
there is no stated interest income thereon. Such Bond is
normally described
as a "zero coupon" Bond. Over the life of the Bond the value
increases, so
that upon maturity, the holders of the Bond will receive 100% of
the principal
amount thereof.
[FN]
See accompanying notes to financial statements.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Florida Long-Intermediate Trust
Notes to Financial Statements
1. Significant Accounting Policies
Valuation of Municipal Bonds
Municipal Bonds (Bonds) are stated at bid prices as determined by
Kemper Unit
Investment Trusts (A Service of Kemper Securities, Inc.), the
"Evaluator" and
sponsor of the Trust. The aggregate bid prices of the Bonds are
determined by
the Evaluator based on (a) current bid prices of the Bonds, (b)
current bid
prices for comparable bonds, (c) appraisal, or (d) any
combination of the
above. (See Note 5 - Insurance.)
Cost of Municipal Bonds
Cost of the Trust's Bonds was based on the offering prices of the
Bonds on
April 21, 1993 (Date of Deposit). The premium or discount
(including any
original issue discount) existing at April 21, 1993, is not being
amortized.
Realized gain (loss) from Bond transactions is reported on an
identified cost
basis.
2. Unrealized Appreciation and Depreciation
Following is an analysis of net unrealized depreciation at March
31, 1995:
<TABLE>
<CAPTION>
<S>
<C>
Gross unrealized depreciation
$(61,341)
Gross unrealized appreciation
2,739
- ---------
Net unrealized depreciation
$(58,602)
=========
</TABLE>
3. Transactions with Affiliates
From the inception of the Trust through January 31, 1995, the
Trustee,
Investors Fiduciary Trust Company (IFTC), was 50% owned by Kemper
Financial
Services, Inc., an affiliate of Kemper Unit Investment Trusts.
On that date,
State Street Boston Corporation acquired IFTC. The Trustee's fee
(not
including the reimbursement of out-of-pocket expenses),
calculated monthly, is
at the annual rate of $.91, $.73 and $.51 under the monthly,
quarterly and
semiannual distribution options, respectively, per $1,000
principal amount of
Bonds in the Trust, based on the largest aggregate principal
amount of Bonds
in the Trust at any time during such monthly, quarterly or
semiannual periods.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Florida Long-Intermediate Trust
Notes to Financial Statements (continued)
3. Transactions with Affiliates (continued)
Kemper Unit Investment Trusts received an evaluation fee, payable
monthly, at
an annual rate of $.30 per $1,000 principal amount of Bonds,
based on the
largest aggregate principal amount of Bonds in the Trust at any
time during
such monthly period and a portfolio surveillance fee, payable
monthly, at an
annual rate of $.20 per Unit based on the total number of Units
of the Trust
outstanding as of the January record date.
4. Federal Income Taxes
The Trust is not an association taxable as a corporation for
federal income
tax purposes. Each Unitholder is considered to be the owner of a
pro rata
portion of the Trust under Subpart E, Subchapter J of Chapter 1
of the
Internal Revenue Code of 1986, as amended. Accordingly, no
provision has been
made for federal income taxes.
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 Bonds on the date of an investor's
purchase, 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 price of the Bonds
plus or minus a
pro rata share of cash or overdraft in the Principal Account, if
any, on the
date of an investor's purchase, plus a sales charge of 4.5% of
the Public
Offering Price (equivalent to 4.712% of the net amount invested).
Insurance
Insurance guaranteeing the payment of all principal and interest
on the Bonds
in the portfolio has been obtained from independent companies by
the
respective issuers of such Bonds. Insurance obtained by a Bond
issuer is
effective as long as such Bonds are outstanding. As a result of
such
insurance, the Units of the Trust have received a rating of "AAA"
by Standard
& Poor's Corporation. No representation is made as to any
insurer's ability
to meet its commitments.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Florida Long-Intermediate Trust
Notes to Financial Statements (continued)
5. Other Information (continued)
Distributions
Distributions of net investment income to Unitholders are
declared and paid in
accordance with the option (monthly, quarterly or semiannual)
selected by the
investor. An initial distribution to investors of $1.25 per Unit
was paid on
July 15, 1993. Such income distributions, on a record date
basis, are as
follows:
<TABLE>
<CAPTION>
Period from
Year ended
April 21, 1993
Distribution March 31, 1995 to
March 31, 1994
Plan Per Unit Total Per Unit
Total
<S> <C> <C> <C>
<C>
-------- -------- --------
--------
Monthly $48.56 $122,047 $34.61*
$88,833*
Quarterly 48.75 8,958 25.62
4,347
Semiannual 49.01 42,984 25.76
22,898
--------
--------
$173,989
$116,078
========
========
</TABLE>
[FN]
* Includes $3,524 ($.98 per Unit) distributed to the Underwriters
of the
Trust, representing interest income from the Date of Deposit to
April 28, 1993
(First Settlement Date).
In addition, the Trust redeemed Units with proceeds from the sale
of Bonds as
follows:
<TABLE>
<CAPTION>
Year ended
March 31,
1995
<S>
<C>
--------
Principal portion
$112,915
Net interest accrued
1,229
--------
$114,144
========
Units
124
========
</TABLE>
<PAGE>
<TABLE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 63v
Florida Long-Intermediate Trust
Notes to Financial Statements (continued)
5. Other Information (continued)
Selected data for a Unit of the Trust outstanding throughout each
period -
<CAPTION>
Monthly
Quarterly Semiannual
Period
Period Period
from
from from
Year Apr. 28, Year
Apr. 28, Year Apr. 28,
ended 1993 to ended
1993 to ended 1993 to
Mar. 31, Mar. 31, Mar. 31,
Mar. 31, Mar. 31, Mar. 31,
1995 1994 1995
1994 1995 1994
<S> <C> <C> <C>
<C> <C> <C>
------- ------- -------
- ------- ------- -------
Investment income - interest $50.50 $46.67 $50.50
$46.67 $50.50 $46.67
Expenses 1.89 1.77 1.71
1.61 1.45 1.36
------- ------- -------
- ------- ------- -------
Net investment income 48.61 44.90 48.79
45.06 49.05 45.31
Distributions to Unitholders:
Net investment income (48.56) (33.63) (48.75)
(25.62) (49.01) (25.76)
Net gain (loss) on investments 31.42 (48.24) 31.42
(48.24) 31.42 (48.24)
------- ------- -------
- ------- ------- -------
Change in net asset value 31.47 (36.97) 31.46
(28.80) 31.46 (28.69)
Net asset value:
Beginning of the period 925.53 962.50* 933.70
962.50* 933.81 962.50*
------- ------- -------
- ------- ------- -------
End of the period, including
distributable funds $957.00 $925.53 $965.16
$933.70 $965.27 $933.81
======= ======= =======
======= ======= =======
</TABLE>
[FN]
* Value at April 21, 1993 (Date of Deposit).
<PAGE>
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 July 14, 1995, in
this Post-
Effective Amendment to the Registration Statement (Form S-6) and
related
Prospectus of Kemper Tax-Exempt Insured Income Trust Multi-State
Series 63v
Florida Long-Intermediate Trust dated July 28, 1995.
Ernst & Young LLP
Kansas City, Missouri
July 28, 1995
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 64v
California Laddered Maturity Trust
Part Two
Dated July 28, 1995
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>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 64v
California Laddered Maturity Trust
Essential Information
As of June 14, 1995
Sponsor and Evaluator: Kemper Unit Investment
Trusts
Trustee: Investors Fiduciary Trust
Company
<TABLE>
<CAPTION>
General Information
<S>
<C>
Principal Amount of Municipal Bonds
$3,585,000
Number of Units
371,192
Fractional Undivided Interest in the Trust per Unit
1/371,192
Principal Amount of Municipal Bonds per Unit
$9.658
Public Offering Price:
Aggregate Bid Price of Municipal Bonds in the Portfolio
$3,575,823
Aggregate Bid Price of Municipal Bonds per Unit
$9.633
Cash per Unit (1)
$(.007)
Sales Charge 2.041% (2.0% of Public Offering Price)
$.196
Public Offering Price per Unit (exclusive of accrued
interest) (2)
$9.822
Redemption Price per Unit (exclusive of accrued interest)
$9.626
Excess of Public Offering Price per Unit Over Redemption
Price per Unit
$.196
Minimum Value of the Trust under which Trust Agreement
may be terminated
$750,000
</TABLE>
Date of Trust
April 21, 1993
Mandatory Termination Date
December 31, 2042
Annual Evaluation and Portfolio Surveillance Fees: Evaluation
fee of $.30 per
$1,000 principal amount of Municipal Bonds. Evaluations for
purpose of sale,
purchase or redemption of Units are made as of the close of
business of the
Sponsor next following receipt of an order for a sale or purchase
of Units or
receipt by Investors Fiduciary Trust Company of Units tendered
for redemption.
Portfolio surveillance fee of $.20 per 100 Units.
[FN]
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. Units are offered at the Public Offering Price plus accrued
interest to
the date of settlement (three business days after purchase). On
June 14,
1995, there was added to the Public Offering Price of $9.822,
accrued interest
to the settlement date of June 19, 1995 of $.085, $.158 and $.266
for a total
price of $9.907, $9.980 and $10.088 for the monthly, quarterly
and semiannual
distribution options, respectively.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 64v
California Laddered Maturity Trust
Essential Information (continued)
As of June 14, 1995
Sponsor and Evaluator: Kemper Unit Investment
Trusts
Trustee: Investors Fiduciary Trust
Company
<TABLE>
<CAPTION>
Special Information Based on Various Distribution Options
Monthly Quarterly
Semiannual
<S> <C> <C>
<C>
-------- --------
--------
Calculation of Estimated Net Annual
Interest Income per Unit (3):
Estimated Annual Interest Income $.442365 $.442365
$.442365
Less: Estimated Annual Expense .018584 .017033
.014420
-------- --------
--------
Estimated Net Annual Interest Income $.423781 $.425332
$.427945
======== ========
========
Calculation of Interest Distribution
per Unit:
Estimated Net Annual Interest Income $.423781 $.425332
$.427945
Divided by 12, 4 and 2, respectively $.035315 $.106333
$.213973
Estimated Daily Rate of Net Interest
Accrual per Unit $.001177 $.001181
$.001189
Estimated Current Return Based on Public
Offering Price (3) 4.31% 4.33%
4.36%
Estimated Long-Term Return (3) 4.37% 4.39%
4.41%
</TABLE>
Trustee's Annual Fees and Expenses (including Evaluator's and
Portfolio
Surveillance Fees): $.018584, $.017033 and $.014420 ($.009796,
$.009796 and
$.009296 of which represent expenses) per Unit under the monthly,
quarterly
and semiannual distribution options, respectively.
Record and Computation Dates: First day of the month, as
follows: monthly -
each month; quarterly - January, April, July and October;
semiannual - January
and July.
Distribution Dates: Fifteenth day of the month, as follows:
monthly - each
month; quarterly - January, April, July and October; semiannual -
January and
July.
[FN]
3. The Estimated Long-Term Return and Estimated Current Return
will vary.
For detailed explanation, see Part One of this prospectus.
<PAGE>
Report of Independent Auditors
Unitholders
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 64v
California Laddered Maturity Trust
We have audited the accompanying statement of assets and
liabilities of Kemper
Tax-Exempt Insured Income Trust Multi-State Series 64v California
Laddered
Maturity Trust, including the schedule of investments, as of
March 31, 1995,
and the related statements of operations and changes in net
assets for the
year then ended and for the period from April 21, 1993 (Date of
Deposit) to
March 31, 1994. 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 March
31, 1995, 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
Tax-Exempt Insured
Income Trust Multi-State Series 64v California Laddered Maturity
Trust at
March 31, 1995, and the results of its operations and the changes
in its net
assets for the year then ended and for the period from April 21,
1993 to March
31, 1994, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Kansas City, Missouri
July 14, 1995
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 64v
California Laddered Maturity Trust
Statement of Assets and Liabilities
March 31, 1995
<TABLE>
<CAPTION>
<S> <C>
<C>
Assets
Municipal Bonds, at value (cost $3,702,024)
$3,598,218
Interest receivable
46,830
Cash
5,422
----------
3,650,470
Liabilities and net assets
Accrued liabilities
2,264
Net assets, applicable to 381,192 Units outstanding:
Cost of Trust assets, exclusive of interest $3,702,024
Unrealized depreciation (103,806)
Distributable funds 49,988
----------
----------
Net assets
$3,648,206
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 64v
California Laddered Maturity Trust
Statements of Operations
<TABLE>
<CAPTION>
Period from
April 21,
Year ended
1993 to
March 31,
March 31,
1995
1994
<S> <C>
<C>
--------
---------
Investment income - interest $170,624
$161,854
Expenses:
Trustee's fees and related expenses 4,537
4,308
Evaluator's and portfolio surveillance fees 1,896
1,797
--------
---------
Total expenses 6,433
6,105
--------
---------
Net investment income 164,191
155,749
Realized and unrealized gain (loss)
on investments:
Realized loss (2,782)
-
Unrealized appreciation (depreciation)
during the period 1,322
(105,128)
--------
---------
Net loss on investments (1,460)
(105,128)
--------
---------
Net increase in net assets resulting
from operations $162,731
$50,621
========
=========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 64v
California Laddered Maturity Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Period from
April 21,
Year ended
1993 to
March 31,
March 31,
1995
1994
<S> <C>
<C>
----------
----------
Operations:
Net investment income $164,191
$155,749
Realized loss on investments (2,782)
-
Unrealized appreciation (depreciation)
on investments during the period 1,322
(105,128)
----------
----------
Net increase in net assets resulting
from operations 162,731
50,621
Distributions to Unitholders:
Net investment income (165,116)
(103,660)
Capital transactions:
Issuance of Units -
3,772,336
Redemption of Units (68,706)
-
----------
----------
Total increase (decrease) in net assets (71,091)
3,719,297
Net assets:
At the beginning of the period 3,719,297
-
----------
----------
At the end of the period (including
distributable funds applicable to
Trust Units of $49,988 and $52,089
at March 31, 1995 and 1994, respectively) $3,648,206
$3,719,297
==========
==========
Trust Units outstanding at the end
of the period 381,192
388,500
==========
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Kemper Tax-Exempt
Insured Income Trust
Multi-State
Series 64v
California Laddered
Maturity Trust
Schedule of
Investments
March 31,
1995
<CAPTION>
Coupon
Maturity Redemption Principal
Name of Issuer and Title of Bond(5) Rate
Date Provisions(2) Rating(1) Amount(4) Value(3)
<S> <C> <C>
<C> <C> <C> <C>
-------
- ---------- ------------- --------- ---------- ----------
California Health Facilities Financing Authority, 4.90%
8/01/1996 Non-Callable AAA $740,000 $741,584
Insured Hospital Revenue Refunding Bonds (San
Diego Hospital Association), Series 1992A.
Insured by Municipal Bond Investors Assurance
Corporation (MBIA).
State Public Works Board of the State of California, 4.50
12/01/1999 Non-Callable AAA 740,000 712,709
Lease Revenue Refunding Bonds (Department of 4.25
12/01/1997 Non-Callable AAA 720,000 703,382
Corrections) (Various State Prisons), 1993
Series A. Insured by AMBAC Indemnity
Corporation (AMBAC).
City of Rialto, California, 1993 Certificates of 4.40
11/01/1998 Non-Callable AAA 740,000 716,209
Participation (Wastewater Treatment Plant
Refunding Project). Insured by MBIA.
City of San Mateo Joint Powers Financing 4.80
8/01/2000 Non-Callable AAA 740,000 724,334
Authority, Refunding Revenue Bonds (Downtown
---------- ----------
and Shoreline Redevelopment Project Areas),
$3,680,000 $3,598,218
1993 Series A. Insured by AMBAC.
========== ==========
</TABLE>
[FN]
See accompanying notes to Schedule of Investments.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 64v
California Laddered Maturity Trust
Notes to Schedule of Investments
1. All ratings are by Standard & Poor's Corporation, unless
marked with the
symbol "*", in which case the rating is by Moody's Investors
Service, Inc.
The symbol "NR" indicates Bonds for which no rating is available.
2. There is shown under this heading the year in which each
issue of Bonds is
initially redeemable and the redemption price for that year or,
if currently
redeemable, the redemption price currently in effect; unless
otherwise
indicated, each issue continues to be redeemable at declining
prices
thereafter, but not below par value. In addition, certain Bonds
in the
Portfolio may be redeemed in whole or in part other than by
operation of the
stated redemption or sinking fund provisions under certain
unusual or
extraordinary circumstances specified in the instruments setting
forth the
terms and provisions of such Bonds. "S.F." indicates a sinking
fund is
established with respect to an issue of Bonds. Redemption
pursuant to call
provisions generally will, and redemption pursuant to sinking
fund provisions
may, occur at times when the redeemed Bonds have a valuation
which represents
a premium over the call price or par.
To the extent that the Bonds were deposited in the Trust at a
price higher
than the price at which they are redeemed, this will represent a
loss of
capital when compared with the original Public Offering Price of
the Units.
To the extent that the Bonds were acquired at a price lower than
the
redemption price, this may represent an increase in capital when
compared with
the original Public Offering Price of the Units. Distributions
of net income
will generally be reduced by the amount of the income which would
otherwise
have been paid with respect to redeemed Bonds and, unless
utilized to pay for
Units tendered for redemption, there will be distributed to
Unitholders the
principal amount and any premium received on such redemption. In
this event
the estimated current return and estimated long-term return may
be affected by
such redemptions.
3. See Note 1 to the accompanying financial statements for a
description of
the method of determining cost and value.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 64v
California Laddered Maturity Trust
Notes to Schedule of Investments
(continued)
4. At March 31, 1995, the Portfolio of the Trust consists of 5
obligations
issued by 4 entities located in California. All of the
obligations are
payable from the income of a specific project or authority and
are not
supported by an issuer's power to levy taxes. The sources of
payment for the
revenue bonds are divided as follows: Hospital, 1; Lease
Revenue, 2; Sewer,
1; Tax Allocation, 1. Approximately 40% of the aggregate
principal amount of
Bonds in the Trust are obligations of issuers whose revenues are
derived from
lease revenue. All of the Bonds in the Trust will mature within
five years
after March 31, 1995.
5. Insurance on the Bonds in the Trust was obtained by the
issuers of such
Bonds.
[FN]
See accompanying notes to financial statements.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 64v
California Laddered Maturity Trust
Notes to Financial Statements
1. Significant Accounting Policies
Valuation of Municipal Bonds
Municipal Bonds (Bonds) are stated at bid prices as determined by
Kemper Unit
Investment Trusts (A Service of Kemper Securities, Inc.), the
"Evaluator" and
sponsor of the Trust. The aggregate bid prices of the Bonds are
determined by
the Evaluator based on (a) current bid prices of the Bonds, (b)
current bid
prices for comparable bonds, (c) appraisal, or (d) any
combination of the
above. (See Note 5 - Insurance.)
Cost of Municipal Bonds
Cost of the Trust's Bonds was based on the offering prices of the
Bonds on
April 21, 1993 (Date of Deposit). The premium or discount
(including any
original issue discount) existing at April 21, 1993, is not being
amortized.
Realized gain (loss) from Bond transactions is reported on an
identified cost
basis.
2. Unrealized Appreciation and Depreciation
Following is an analysis of net unrealized depreciation at March
31, 1995:
<TABLE>
<CAPTION>
<S>
<C>
Gross unrealized depreciation
$(103,806)
Gross unrealized appreciation
-
- ----------
Net unrealized depreciation
$(103,806)
==========
</TABLE>
3. Transactions with Affiliates
From the inception of the Trust through January 31, 1995, the
Trustee,
Investors Fiduciary Trust Company (IFTC), was 50% owned by Kemper
Financial
Services, Inc., an affiliate of Kemper Unit Investment Trusts.
On that date,
State Street Boston Corporation acquired IFTC. The Trustee's fee
(not
including the reimbursement of out-of-pocket expenses),
calculated monthly, is
at the annual rate of $.91, $.73 and $.51 under the monthly,
quarterly and
semiannual distribution options, respectively, per $1,000
principal amount of
Bonds in the Trust, based on the largest aggregate principal
amount of Bonds
in the Trust at any time during such monthly, quarterly or
semiannual periods.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 64v
California Laddered Maturity Trust
Notes to Financial Statements (continued)
3. Transactions with Affiliates (continued)
Kemper Unit Investment Trusts received an evaluation fee, payable
monthly, at
an annual rate of $.30 per $1,000 principal amount of Bonds,
based on the
largest aggregate principal amount of Bonds in the Trust at any
time during
such monthly period and a portfolio surveillance fee, payable
monthly, at an
annual rate of $.20 per 100 Units based on the total number of
Units of the
Trust outstanding as of the January record date.
4. Federal Income Taxes
The Trust is not an association taxable as a corporation for
federal income
tax purposes. Each Unitholder is considered to be the owner of a
pro rata
portion of the Trust under Subpart E, Subchapter J of Chapter 1
of the
Internal Revenue Code of 1986, as amended. Accordingly, no
provision has been
made for federal income taxes.
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 Bonds on the date of an investor's
purchase, plus a
sales charge of 2.9% of the Public Offering Price (equivalent to
2.987% of the
net amount invested). The Public Offering Price for secondary
market
transactions is based on the aggregate bid price of the Bonds
plus or minus a
pro rata share of cash or overdraft in the Principal Account, if
any, on the
date of an investor's purchase, plus a sales charge of 2.0% of
the Public
Offering Price (equivalent to 2.041% of the net amount invested).
Insurance
Insurance guaranteeing the payment of all principal and interest
on the Bonds
in the portfolio has been obtained from independent companies by
the
respective issuers of such Bonds. Insurance obtained by a Bond
issuer is
effective as long as such Bonds are outstanding. As a result of
such
insurance, the Units of the Trust have received a rating of "AAA"
by Standard
& Poor's Corporation. No representation is made as to any
insurer's ability
to meet its commitments.
<PAGE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 64v
California Laddered Maturity Trust
Notes to Financial Statements (continued)
5. Other Information (continued)
Distributions
Distributions of net investment income to Unitholders are
declared and paid in
accordance with the option (monthly, quarterly or semiannual)
selected by the
investor. An initial distribution to investors of $.01 per Unit
was paid on
July 15, 1993. Such income distributions, on a record date
basis, are as
follows:
<TABLE>
<CAPTION>
Period from
Year ended
April 21, 1993
Distribution March 31, 1995 to
March 31, 1994
Plan Per Unit Total Per Unit
Total
<S> <C> <C> <C>
<C>
-------- -------- --------
--------
Monthly $.423 $83,398 $.300*
$60,945*
Quarterly .425 10,834 .222
5,667
Semiannual .428 70,332 .224
37,048
--------
--------
$164,564
$103,660
========
========
</TABLE>
[FN]
* Includes $3,332 ($.008 per Unit) distributed to the
Underwriters of the
Trust, representing interest income from the Date of Deposit to
April 28, 1993
(First Settlement Date).
In addition, the Trust redeemed Units with proceeds from the sale
of Bonds as
follows:
<TABLE>
<CAPTION>
Year ended
March 31,
1995
<S>
<C>
-------
Principal portion
$68,706
Net interest accrued
552
-------
$69,258
=======
Units
7,308
=======
</TABLE>
<PAGE>
<TABLE>
Kemper Tax-Exempt Insured Income Trust
Multi-State Series 64v
California Laddered Maturity Trust
Notes to Financial Statements (continued)
5. Other Information (continued)
Selected data for a Unit of the Trust outstanding throughout each
period -
<CAPTION>
Monthly
Quarterly Semiannual
Period
Period Period
from
from from
Year Apr. 28, Year
Apr. 28, Year Apr. 28,
ended 1993 to ended
1993 to ended 1993 to
Mar. 31, Mar. 31, Mar. 31,
Mar. 31, Mar. 31, Mar. 31,
1995 1994 1995
1994 1995 1994
<S> <C> <C> <C>
<C> <C> <C>
------ ------ ------
- ------ ------ ------
Investment income - interest $.441 $.408 $.441
$.408 $.441 $.408
Expenses .019 .017 .016
.016 .013 .013
------ ------ ------
- ------ ------ ------
Net investment income .422 .391 .425
.392 .428 .395
Distributions to Unitholders:
Net investment income (.423) (.292) (.425)
(.222) (.428) (.224)
Net loss on investments (.003) (.271) (.003)
(.271) (.003) (.271)
------ ------ ------
- ------ ------ ------
Change in net asset value (.004) (.172) (.003)
(.101) (.003) (.100)
Net asset value:
Beginning of the period 9.538 9.710* 9.609
9.710* 9.610 9.710*
------ ------ ------
- ------ ------ ------
End of the period, including
distributable funds $9.534 $9.538 $9.606
$9.609 $9.607 $9.610
====== ====== ======
====== ====== ======
</TABLE>
[FN]
* Value at April 21, 1993 (Date of Deposit).
<PAGE>
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 July 14, 1995, in
this Post-
Effective Amendment to the Registration Statement (Form S-6) and
related
Prospectus of Kemper Tax-Exempt Insured Income Trust Multi-State
Series 64v
California Laddered Maturity Trust dated July 28, 1995.
Ernst & Young LLP
Kansas City, Missouri
July 28, 1995
<PAGE>
Contents of Post-Effective AmendmentTo 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>
Signatures
Pursuant to the requirements of the Securities Act of 1933,
The Registrant, Kemper Tax-Exempt Insured Income Trust
Multi-State, Series 63 and Kemper Tax-Exempt Insured Income Trust
Multi-State, Series 64, 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
27th day of July, 1995.
Kemper Tax-Exempt Insured Income
Trust Multi-State, Series 63
and Kemper Tax-Exempt Insured
Income Trust Multi-State,
Series 64
Registrant
By: Kemper Unit Investment Trusts
(a service of Kemper
Securities, Inc.)
Depositor
By: Michael J. Thoms
Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement has been signed
below on July 27, 1995 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
Stephen G. McConahey President and Chief Operating Officer
Stephen G. McConahey
Frank V. Geremia Senior Executive Vice President
Frank V. Geremia
David M. Greene Senior Executive Vice President
David M. Greene
Arthur J. McGivern Senior Executive Vice President and
Director
Arthur J. McGivern
Ramon Pecuch Senior Executive Vice President and
Director
Ramon Pecuch
Thomas R. Reedy Senior Executive Vice President and
Director
Thomas R. Reedy
Janet L. Reali Executive Vice President and Director
Janet L. Reali
Daniel D. Williams Executive Vice President and Treasurer
Daniel D. Williams
David B. Mathis Director
David B. Mathis
Stephen B. Timbers Director
Stephen B. Timbers
Donald F. Eller Director
Donald F. Eller
Michael J. Thoms
Michael J. Thoms signs this document pursuant to a Power of
Attorney filed with the Securities and Exchange Commission with
Amendment No. 1 to the Registration Statement on Form S-6 for
Kemper Defined Funds Series 28 (Registration No. 33-56779).
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted
from
Post-effective Amendment Number 2 to Form S-6 and is qualified in
its entirety by reference to such Post-effective Amendment to
Form S-6.
</LEGEND>
<SERIES>
<NUMBER> 63
<NAME> KEMPER TAX EXEMPT INSURED MULTI-STATE NEW YORK SERIES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 2,776,841
<INVESTMENTS-AT-VALUE> 2,693,882
<RECEIVABLES> 51,273
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,726,701
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,288
<TOTAL-LIABILITIES> 11,288
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,776,841
<SHARES-COMMON-STOCK> 2,902
<SHARES-COMMON-PRIOR> 3,335
<ACCUMULATED-NII-CURRENT> 39,985
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (82,959)
<NET-ASSETS> 2,733,867
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 157,853
<OTHER-INCOME> 0
<EXPENSES-NET> 5,826
<NET-INVESTMENT-INCOME> 152,027
<REALIZED-GAINS-CURRENT> (54,725)
<APPREC-INCREASE-CURRENT> 76,327
<NET-CHANGE-FROM-OPS> 173,629
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (157,574)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 433
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (358,019)
<ACCUMULATED-NII-PRIOR> 45,430
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial informatin extracted
from
Post-effective Amendment Number 2 to Form S-6 and is qualified in
its entirety by reference to such Post-effective Amendment to
Form S-6.
</LEGEND>
<SERIES>
<NUMBER> 63
<NAME> KEMPER TAX EXEMPT INSURED MULTI-STATE TEXAS SERIES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 3,146,915
<INVESTMENTS-AT-VALUE> 3,082,406
<RECEIVABLES> 35,682
<ASSETS-OTHER> 16,738
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,134,826
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,957
<TOTAL-LIABILITIES> 1,957
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,146,915
<SHARES-COMMON-STOCK> 3,273
<SHARES-COMMON-PRIOR> 3,529
<ACCUMULATED-NII-CURRENT> 50,463
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (64,509)
<NET-ASSETS> 3,132,869
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 174,698
<OTHER-INCOME> 0
<EXPENSES-NET> 6,017
<NET-INVESTMENT-INCOME> 168,681
<REALIZED-GAINS-CURRENT> (17,599)
<APPREC-INCREASE-CURRENT> 97,163
<NET-CHANGE-FROM-OPS> 248,245
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (173,451)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 256
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (155,174)
<ACCUMULATED-NII-PRIOR> 53,052
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted
from
Post-effective Amendment Number 2 to Form S-6 and is qualified in
its entirety by reference to such Post-effective Amendment to
Form S-6.
</LEGEND>
<SERIES>
<NUMBER> 63
<NAME> KEMPER TAX EXEMPT INSURED MULTI-STATE FLORIDA SERIES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 3,337,028
<INVESTMENTS-AT-VALUE> 3,278,426
<RECEIVABLES> 49,120
<ASSETS-OTHER> 2,114
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,329,660
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,859
<TOTAL-LIABILITIES> 1,859
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,337,028
<SHARES-COMMON-STOCK> 3,468
<SHARES-COMMON-PRIOR> 3,592
<ACCUMULATED-NII-CURRENT> 49,375
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (58,602)
<NET-ASSETS> 3,327,801
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 180,390
<OTHER-INCOME> 0
<EXPENSES-NET> 6,354
<NET-INVESTMENT-INCOME> 174,036
<REALIZED-GAINS-CURRENT> (5,878)
<APPREC-INCREASE-CURRENT> 114,634
<NET-CHANGE-FROM-OPS> 282,792
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (175,218)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 124
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (5,341)
<ACCUMULATED-NII-PRIOR> 49,078
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted
from
Post-effective Amendment Number 2 to Form S-6 and is qualified in
its entirety by reference to such Post-effective Amendment to
Form S-6.
</LEGEND>
<SERIES>
<NUMBER> 64
<NAME> KEMPER TAX EXEMPT INSURED MULTI-STATE CALIFORNIA SERIES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 3,702,024
<INVESTMENTS-AT-VALUE> 3,598,218
<RECEIVABLES> 46,830
<ASSETS-OTHER> 5,422
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,650,470
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,264
<TOTAL-LIABILITIES> 2,264
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,702,024
<SHARES-COMMON-STOCK> 381,192
<SHARES-COMMON-PRIOR> 388,500
<ACCUMULATED-NII-CURRENT> 49,988
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (103,806)
<NET-ASSETS> 3,648,206
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 170,624
<OTHER-INCOME> 0
<EXPENSES-NET> 6,433
<NET-INVESTMENT-INCOME> 164,191
<REALIZED-GAINS-CURRENT> (2,782)
<APPREC-INCREASE-CURRENT> 1,322
<NET-CHANGE-FROM-OPS> 162,731
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (165,116)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 7,308
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (71,091)
<ACCUMULATED-NII-PRIOR> 52,089
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
