<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 1994
REGISTRATION NO. 33-52231
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
ON
FORM S-6
------------------------
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. EXACT NAME OF TRUST:
KEMPER DEFINED FUNDS SERIES 14
B. NAME OF DEPOSITOR:
KEMPER SECURITIES, INC.
(through its Kemper Unit Investment Trusts service)
C. COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES:
KEMPER UNIT INVESTMENT TRUSTS
77 West Wacker Drive, 5th Floor
Chicago, Illinois 60601
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
Copy to:
C. PERRY MOORE MARK J. KNEEDY
77 West Wacker Drive, 5th Floor c/o Chapman and Cutler
Chicago, Illinois 60601 111 West Monroe Street
Chicago, Illinois 60603
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE AND AMOUNT OF AGGREGATE OFFERING AMOUNT OF
SECURITIES BEING REGISTERED PRICE REGISTRATION FEE
<S> <C> <C> <C>
- ---------------------
Series 14 An indefinite number of Units of Indefinite $500
Beneficial Interest pursuant to (previously
Rule 24f-2 under the Invest- paid)
ment Company Act of 1940
</TABLE>
E. APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
/X/ CHECK BOX IF IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE AT 2 P.M.
ON MARCH 2, 1994 PURSUANT TO PARAGRAPH (B) OF RULE 487.
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<PAGE> 2
KEMPER DEFINED FUNDS SERIES 14
------------------
CROSS-REFERENCE SHEET
(FORM N-8B-2 ITEMS REQUIRED BY INSTRUCTIONS AS
TO THE PROSPECTUS IN FORM S-6)
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
- -------------------------------------------------------- -------------------------------------
I. ORGANIZATION AND GENERAL INFORMATION
<S> <C>
1. (a) Name of trust................................. Prospectus Front Cover
(b) Title of securities issued.................... Essential Information
2. Name and address of each depositor.................
Administration of the Trusts
3. Name and address of trustee........................
4. Name and address of principal underwriters......... Administration of the Trusts
5. State of organization of trust..................... The Trust Funds
6. Execution and termination of trust agreement....... The Trust Funds; Administration of
the Trusts
7. Changes of name.................................... The Trust Funds
8. Fiscal year........................................
*
9. Litigation.........................................
<CAPTION>
II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
<S> <C>
10. (a) Registered or bearer securities............... Unitholders
(b) Cumulative or distributive securities......... The Trust Funds
(c) Redemption.................................... Redemption
(d) Conversion, transfer, etc..................... Unitholders; Market for Units
(e) Periodic payment plan......................... *
(f) Voting rights................................. Unitholders
Investment Supervision;
(g) Notice of certificateholders.................. Administration of the Trusts;
Unitholders
(h) Consents required............................. Unitholders; Administration of the Trusts
(i) Other provisions.............................. Federal Tax Status; Insurance on the
Portfolios
11. Type of securities comprising units................ The Trust Funds; Trust Portfolios
12. Certain information regarding periodic payment
certificates....................................... *
Essential Information; Public
Offering of Units; Interest,
13. (a) Load, fees, expenses, etc..................... Estimated Long-Term Return and
Estimated Current Return; Expenses of
the Trusts
(b) Certain information regarding periodic payment
certificates................................ *
(c) Certain percentages........................... Essential Information; Public Offering of
Units; Insurance on the Portfolios
(d) Certain other fees, etc. payable by holders... Unitholders
(e) Certain profits receivable by depositor,
principal underwriters, trustee or Expenses of the Trusts;
affiliated persons.......................... Public Offering of Units
(f) Ratio of annual charges to income............. *
The Trust Funds;
14. Issuance of trust's securities..................... Unitholders
15. Receipt and handling of payments from purchasers... *
</TABLE>
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* Inapplicable, answer negative or not required.
i
<PAGE> 3
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
- -------------------------------------------------------- -------------------------------------
<S> <C>
16. Acquisition and disposition of underlying The Trust Funds; Trust Portfolios;
securities......................................... Investment Supervision
Market for Units; Redemption;
17. Withdrawal or redemption........................... Public Offering of Units
18. (a) Receipt, custody and disposition of income.... Unitholders
(b) Reinvestment of distributions................. Distribution Reinvestment
(c) Reserves or special funds..................... Expenses of the Trusts
(d) Schedule of distributions..................... *
Unitholders; Redemption;
19. Records, accounts and reports...................... Administration of the Trusts
20. Certain miscellaneous provisions of trust agreement
(a) Amendment.....................................
Administration of the Trusts
(b) Termination...................................
(c) and (d) Trustee, removal and successor........ Administration of the Trusts
(e) and (f) Depositor, removal and successor...... Administration of the Trusts
21. Loans to security holders.......................... *
22. Limitations on liability........................... Administration of the Trusts
23. Bonding arrangements............................... *
24. Other material provisions of trust agreement....... *
<CAPTION>
III. ORGANIZATION, PERSONNEL AND AFFILIATED PERSONS OF DEPOSITOR
<S> <C>
25. Organization of depositor.......................... Administration of the Trusts
26. Fees received by depositor......................... See Items 13(a) and 13(e)
27. Business of depositor.............................. Administration of the Trusts
28. Certain information as to officials and affiliated
persons of depositor............................... Administration of the Trusts
29. Voting securities of depositor.....................
Administration of the Trusts
30. Persons controlling depositor......................
31. Payment by depositor for certain services rendered
to trust...........................................
32. Payment by depositor for certain other services
rendered to trust.................................. *
33. Remuneration of employees of depositor for certain
services rendered to trust.........................
34. Remuneration of other persons for certain services
rendered to trust..................................
IV. DISTRIBUTION AND REDEMPTION
35. Distribution of trust's securities by states....... Public Offering of Units
36. Suspension of sales of trust's securities..........
37. Revocation of authority to distribute.............. *
38. (a) Method of distribution........................ Public Offering of Units;
(b) Underwriting agreements....................... Market for Units;
(c) Selling agreements............................ Public Offering of Units
39. (a) Organization of principal underwriters........
(b) N.A.S.D. membership of principal
underwriters................................ Administration of the Trusts
40. Certain fees received by principal underwriters.... See Items 13(a) and 13(e)
41. (a) Business of principal underwriters............ Administration of the Trusts
(b) Branch offices of principal underwriters......
(c) Salesmen of principal underwriters............ *
42. Ownership of trust's securities by certain
persons............................................
43. Certain brokerage commissions received by principal
underwriters....................................... Public Offering of Units
</TABLE>
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* Inapplicable, answer negative or not required.
ii
<PAGE> 4
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
- -------------------------------------------------------- -------------------------------------
<S> <C>
44. (a) Method of valuation........................... Public Offering of Units
(b) Schedule as to offering price................. *
(c) Variation in offering price to certain
persons..................................... Public Offering of Units
45. Suspension of redemption rights.................... Redemption
Redemption; Market for Units;
46. (a) Redemption valuation.......................... Public Offering of Units
(b) Schedule as to redemption price............... *
Market for Units;
47. Maintenance of position in underlying securities... Public Offering of Units;
Redemption
<CAPTION>
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
<S> <C>
48. Organization and regulation of trustee............. Administration of the Trusts
49. Fees and expenses of trustee.......................
50. Trustee's lien..................................... Expenses of the Trusts
<CAPTION>
VI. INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
<S> <C>
51. Insurance of holders of trust's securities......... Cover Page; Expenses of the Trusts;
Insurance on the Portfolios
<CAPTION>
VII. POLICY OF REGISTRANT
<S> <C>
52. (a) Provisions of trust agreement with respect to
selection or elimination of underlying
securities.................................. The Trust Funds; Trust Portfolios;
Investment Supervision
(b) Transactions involving elimination of
underlying securities....................... *
(c) Policy regarding substitution or elimination
of
underlying securities....................... Investment Supervision
(d) Fundamental policy not otherwise covered...... *
Essential Information;
53. Tax status of Trust................................ Trust Portfolios; Federal Tax Status
<CAPTION>
VIII. FINANCIAL AND STATISTICAL INFORMATION
<S> <C>
54. Trust's securities during last ten years...........
55.
56. Certain information regarding periodic payment *
57. certificates.......................................
58.
59. Financial statements (Instruction 1(c) to Form *
S-6)...............................................
</TABLE>
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* Inapplicable, answer negative or not required.
iii
<PAGE> 5
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
PRELIMINARY PROSPECTUS DATED MARCH 2, 1994
SUBJECT TO CHANGE
KEMPER DEFINED FUNDS SERIES 14
INSURED CORPORATE SERIES 3 (INTERMEDIATE LADDERED)
INSURED CORPORATE SERIES 4 (LONG TERM)
Insured Corporate Series 3 and Insured Corporate Series 4 were formed for the
purpose of providing a high level of current income through investment in a
fixed portfolio consisting primarily of corporate debt obligations issued after
July 18, 1984 by utility companies. Each Series also contains zero coupon U.S.
Treasury obligations.
Insurance guaranteeing the scheduled payment of principal and interest on all of
the Bonds in the portfolio of each Trust other than the U.S. Treasury
obligations has been obtained directly by the issuer of such Bonds or by the
Sponsor of the Trusts from Municipal Bond Investors Assurance Corporation. See
"Insurance on the Portfolios" and "Portfolio." This insurance is effective so
long as the Bonds are outstanding. As a result of such insurance, the Bonds so
insured in each Trust and the Units of each Trust have received a rating of
"Aaa" by Moody's Investors Service, Inc. All the Bonds in each Trust have
received a rating of "AAA" by Standard & Poor's Corporation. THE INSURANCE DOES
NOT RELATE TO THE UNITS OF THE RESPECTIVE TRUSTS OFFERED HEREBY OR TO THEIR
MARKET VALUE. See "Insurance on the Portfolios" on page A-6. No representation
is made as to any 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. The use of the term "Insured" in the name of the Trust Funds does not
mean that the Units of the Trusts are insured by any governmental or private
organization. The Units are not insured.
FOR FOREIGN INVESTORS WHO ARE NOT UNITED STATES CITIZENS OR RESIDENTS, INTEREST
INCOME FROM EACH TRUST MAY NOT BE SUBJECT TO FEDERAL WITHHOLDING TAXES IF
CERTAIN CONDITIONS ARE MET. SEE "FEDERAL TAX STATUS."
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SPONSOR: KEMPER UNIT INVESTMENT TRUSTS
a service of Kemper Securities, Inc.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The investor is advised to read and retain this Prospectus for future reference.
THE DATE OF THIS PROSPECTUS IS MARCH 2, 1994.
<PAGE> 6
SUMMARY
PUBLIC OFFERING PRICE. The Public Offering Price per Unit during the initial
offering period is equal to a pro rata share of the offering prices of the Bonds
in each Trust plus or minus a pro rata share of (a) cash, if any, in the
Principal Account held or owed by each Trust, (b) Purchased Interest and (c)
Daily Accrued Interest plus that sales charge indicated under "Essential
Information." The secondary market Public Offering Price per Unit will be based
upon a pro rata share of the bid prices of the Bonds in each Trust plus or minus
a pro rata share of (a) cash, if any, in the Principal Account held or owed by
each Trust (b) Purchased Interest and (c) Daily Accrued Interest plus the
applicable sales charge. For sales charges in the secondary market, see "Public
Offering of Units--Public Offering Price." The sales charge during the initial
offering period is reduced on a graduated scale for sales involving at least
$100,000 or 10,000 Units and will be applied on whichever basis is more
favorable to the investor. For secondary market transactions the sales charge is
reduced on a graduated scale as set forth under "Public Offering of
Units--Public Offering Price."
INTEREST AND PRINCIPAL DISTRIBUTIONS. Distributions of the estimated annual
interest income to be received by each Trust, after deduction of estimated
expenses, will be made monthly. See "Unitholders--Distributions to Unitholders"
and "Essential Information." Distributions of funds, if any, in the Principal
Account will be made as provided in "Unitholders--Distributions to Unitholders."
REINVESTMENT. Each Unitholder may elect to have distributions of principal or
interest or both automatically invested without charge in shares of certain
Kemper mutual funds. See "Distribution Reinvestment."
ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN. As of the opening of
business on the Date of Deposit, the Estimated Long-Term Returns and the
Estimated Current Returns for each Trust were as set forth in "Essential
Information." The Estimated Current Return is 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, Sponsor and Evaluator and with the principal
prepayment, redemption, maturity, exchange or sale of Bonds while the Public
Offering Price will vary with changes in the offering price of the underlying
Bonds and with changes in the Purchased Interest and Daily Accrued Interest;
therefore, there is no assurance that the present Estimated Current Returns will
be realized in the future. The Estimated Long-Term Return is calculated using a
formula which (1) takes into consideration, and determines and factors in the
relative weightings of, the market values, yields (which take into account the
amortization of premiums and the accretion of discounts) and estimated
retirement dates of all of the Bonds in a Trust and (2) takes into account the
expenses and sales charge associated with each Unit. Since the market values and
estimated retirement dates of the Bonds and the expenses of a Trust will change,
there is no assurance that the present Estimated Long-Term Returns will be
realized in the future. The 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. After the initial offering period, while under no obligation
to do so, the Sponsor intends to maintain a market for the Units and to offer to
repurchase such Units at prices subject to change at any time which are based on
the aggregate bid side evaluation of the Bonds in each Trust Fund plus Purchased
Interest and Daily Accrued Interest.
2
<PAGE> 7
KEMPER DEFINED FUNDS SERIES 14
INSURED CORPORATE SERIES 3 AND
INSURED CORPORATE SERIES 4
ESSENTIAL INFORMATION
AT THE OPENING OF BUSINESS ON THE DATE OF DEPOSIT
SPONSOR AND EVALUATOR: KEMPER UNIT INVESTMENT TRUSTS, A SERVICE OF
KEMPER SECURITIES, INC.
TRUSTEE: INVESTORS FIDUCIARY TRUST COMPANY
<TABLE>
<CAPTION>
SERIES 3 SERIES 4
---------- ----------
<S> <C> <C>
Public Offering Price per Unit(1)(2)....................................... $ 10.032 $ 10.000
Principal Amount of Bonds per Unit......................................... $ 10.000 $ 10.000
Estimated Current Return based on Public Offering Price(3)(4)(5)(7)........ 5.91% 6.88%
Estimated Long-Term Return(3)(4)(5)(7)..................................... 6.21% 6.98%
Estimated Normal Annual Distribution per Unit(7)........................... $ 0.59328 $ 0.68796
Principal Amount of Bonds.................................................. $3,750,000 $2,500,000
Number of Units............................................................ 375,000 250,000
Fractional Undivided Interest per Unit..................................... 1/375,000 1/250,000
Calculation of Public Offering Price--Less than 10,000 Units:
Aggregate Offering Price of Bonds...................................... $3,593,304 $2,378,452
Aggregate Offering Price of Bonds per Unit............................. $ 9.582 $ 9.514
Purchased Interest(1).................................................. $ 21,944 $ 16,580
Purchased Interest per Unit............................................ $ 0.059 $ 0.066
Total Offering Price and Purchased Interest Per Unit(1).............. $ 9.641 $ 9.580
Plus Sales Charge per Unit(9).......................................... $ 0.391 $ 0.420
Public Offering Price per Unit(1)(2)..................................... $ 10.032 $ 10.000
Redemption Price per Unit.................................................. $ 9.604 $ 9.516
Sponsor's Initial Repurchase Price per Unit................................ $ 9.641 $ 9.580
Excess of Public Offering Price per Unit over Redemption Price per Unit.... $ 0.428 $ 0.484
Excess Public Offering Price per Unit over Sponsor's Initial Repurchase
Price per Unit........................................................... $ 0.391 $ 0.420
Calculation of Estimated Net Annual Interest Income per Unit(7):
Estimated Annual Interest Income....................................... $ 0.60965 $ 0.70425
Less: Estimated Annual Expense......................................... $ 0.01630 $ 0.01620
Estimated Net Annual Interest Income................................... $ 0.59335 $ 0.68805
Estimated Daily Rate of Net Interest Accrual per Unit...................... $ 0.001648 $ 0.001911
Trustee's Annual Fee per $1,000 principal amount of Bonds(6)............... $ 0.880 $ 0.870
Reduction of Trustee's fee per Unit during the first year(7)............... $ None $ None
Estimated annual interest income per Unit during the first year(7)......... $ 0.60965 $ 0.70425
Interest Payments(8):
First Payment per Unit, representing 22 days............................. $ 0.03626 $ 0.04204
Estimated Normal Monthly Distribution per Unit........................... $ 0.04944 $ 0.05733
Estimated Normal Annual Distribution per Unit............................ $ 0.59328 $ 0.68796
Sales Charge(9):
As a percentage of Public Offering Price per Unit........................ 3.900% 4.200%
As a percentage of net amount invested................................... 4.056% 4.384%
As a percentage of net amount invested in earning assets................. 4.081% 4.415%
</TABLE>
Evaluations for purposes of sale, purchase or redemption of Units are
made as of the close of business of the Sponsor (3:15 p.m. Central Time) 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.
3
<PAGE> 8
ESSENTIAL INFORMATION--(CONTINUED)
<TABLE>
<S> <C>
Date of Trust Agreements................................................. March 2, 1994
First Settlement Date.................................................... March 9, 1994
Mandatory Termination Date............................................... December 31, 2027
Evaluator's Annual Evaluation Fee........................................ Maximum of $0.30 per $1,000 principal
amount of Bonds
Sponsor's Annual Surveillance Fee........................................ Maximum of $0.25 per $1,000 principal
amount of Bonds
Minimum principal value of the Trust under which Trust Agreement may be
terminated............................................................. 40% of the initial aggregate principal
</TABLE>
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(1) Purchased interest is the unpaid interest that has accumulated on the Bonds
in a Trust from the later of the last payment date on the Bonds or the date
of issuance thereof through the First Settlement Date of such Trust. In
addition, anyone ordering Units after the Date of Deposit will pay Daily
Accrued Interest from the later of the First Settlement Date or the last
Record Date for such Trust to the date of settlement (five business days
after order). Daily Accrued Interest is the estimated daily rate of net
interest accrued on the Bonds in a Trust.
(2) Many unit investment trusts comprised of securities issue a number of units
such that each unit represents approximately $1,000 principal amount of
underlying securities. The Sponsor, on the other hand, in determining the
number of Units for each Trust has elected not to follow this format but
rather to provide that number of Units which will establish as close as
possible as of the Date of Deposit a $10.00 principal amount of underlying
securities per unit.
(3) The Estimated Current Return and Estimated Long-Term Return are increased
for transactions entitled to a reduced sales charge. See "Public Offering of
Units--Public Offering Price."
(4) The 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 Bonds while
the Public Offering Price will vary with changes in the offering price of
the underlying Bonds and with changes in the Purchased Interest and Daily
Accrued Interest; therefore, there is no assurance that the present
Estimated Current Returns indicated above will be realized in the future.
The 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
retirement dates of all of the Bonds in the applicable Trust and (2) takes
into account the expenses and sales charge associated with each Trust Unit.
Since the market values and estimated retirement dates of the Bonds and
expenses of each Trust will change, there is no assurance that the present
Estimated Long-Term Returns as indicated above will be realized in the
future. The Estimated Current Returns and Estimated Long-Term Returns are
expected to differ because the calculation of the Estimated Long-Term
Returns reflects the estimated date and amount of principal returned while
the Estimated Current Return calculations include only net annual interest
income and Public Offering Price.
(5) This figure is based on estimated per Unit cash flows. Estimated cash flows
will vary with changes in fees and expenses, with changes in current
interest rates and with the principal prepayment, redemption, maturity,
call, exchange or sale of the underlying Bonds. The estimated cash flows to
Unitholders for the Trusts are either set forth under "Estimated Cash Flows
to Unitholders" or are available upon request at no charge from the Sponsor.
(6) See "Expenses of the Trusts."
(7) During the first year, the Trustee has agreed to reduce its fee (and to the
extent necessary pay expenses of the Trust Funds) in the amounts stated
herein. The Trustee has agreed to the foregoing to cover all or a portion of
the interest on any Bonds accruing prior to their expected dates of
delivery, since interest will not accrue to the benefit of Unitholders of a
Trust Fund until such Bonds are actually delivered to the Trust Fund. The
estimated net annual interest income per Unit will remain as indicated. See
"The Trust Funds" and "Interest, Estimated Long-Term Return and Estimated
Current Return."
(8) Unitholders will receive interest distributions monthly. The Record Date is
the first day of the month, commencing April 1, 1994, and the distribution
date is the fifteenth day of the month, commencing April 15, 1994.
(9) The sales charge as a percentage of the net amount invested in earning
assets will increase as Daily Accrued Interest increases. Transactions
subject to quantity discounts (see "Public Offering of Units--Public
Offering Price") will have reduced sales charges, thereby reducing all
percentages in the table.
4
<PAGE> 9
THE TRUST FUNDS
GENERAL
Kemper Defined Funds Series 14 includes the following separate unit investment
trusts created by the Sponsor under the name Kemper Defined Funds: Insured
Corporate Series 3 (Intermediate Laddered) and Insured Corporate Series 4 (Long
Term). Series 3 (Intermediate Laddered) and Series 4 (Long Term) are referred to
herein collectively as the "Trusts" or the "Trust Funds." The Trusts were
created under the laws of the State of Missouri pursuant to a trust indenture
(the "Trust Agreement") dated the date of this Prospectus (the "Initial Date of
Deposit") between Kemper Unit Investment Trusts, a service of Kemper Securities,
Inc. (the "Sponsor"), and Investors Fiduciary Trust Company (the "Trustee").*
Series 3 (Intermediate Laddered) was formed for the purpose of providing a high
level of current income through investment in a fixed portfolio consisting
primarily of intermediate term corporate debt obligations ("Obligations") issued
after July 18, 1984 by utility companies and two zero coupon U.S. Treasury
obligations ("Treasury Obligations"). There is, of course, no guarantee that the
Trust Fund's objective will be achieved. Corporate and Treasury Obligations are
collectively referred to herein as Bonds (the "Bonds").
Series 4 (Long Term) was formed for the purpose of providing a high level of
current income through investment in a fixed portfolio consisting primarily of
long-term corporate debt obligations issued after July 18, 1984 by utility
companies and one zero coupon U.S. Treasury obligation. There is, of course, no
guarantee that the Trust Fund's objective will be achieved.
The Trust Funds may be appropriate investment vehicles for investors who desire
to participate in a portfolio of intermediate and long-term taxable fixed income
securities issued primarily by public utilities with greater diversification
than investors might be able to acquire individually. Diversification of the
Trusts' assets will not eliminate the risk of loss always inherent in the
ownership of securities. In addition, Bonds of the type deposited in the Trust
Funds often are not available in small amounts.
On the Initial Date of Deposit, the Sponsor delivered to the Trustee the
aggregate principal amount of Bonds indicated under "Essential Information" or
contracts for the purchase thereof for deposit in the Trust Funds along with an
irrevocable letter of credit issued by a major commercial bank in the amount
required for such purchases. In exchange for the Bonds (and contracts) so
deposited, the Trustee delivered to the Sponsor documentation evidencing the
ownership of that number of Units, respectively, of each Trust indicated under
"Essential Information." The Trust Funds initially consist entirely of delivery
statements (i.e., contracts) to purchase obligations.
Additional Units of each Trust may be issued at any time by depositing in the
Trust additional Bonds or contracts to purchase Bonds together with irrevocable
letters of credit or cash. As additional Units are issued by a Trust as a result
of the deposit of additional Bonds by the Sponsor, the aggregate value of the
Bonds in the Trust will be increased and the fractional undivided interest in
the Trust represented by each Unit will be decreased. The Sponsor may continue
to make additional deposits of Bonds into a Trust for a period of up to 90 days
following the Initial Date of Deposit and up to an additional 90 days with the
written consent of MBIA Corporation, provided that such additional deposits will
be in principal amounts which will maintain the same original percentage
relationship among the principal amounts of the Bonds in the Trust established
by the initial deposit of the Bonds. Thus, although additional Units will be
issued, each Unit will continue to represent the same principal amount of each
Bond, and the percentage relationship among the principal amount of each Bond in
a Trust will remain the same.
- ---------------
* Reference is made to the Trust Agreement, and any statements contained herein
are qualified in their entirety by the provisions of the Trust Agreement.
5
<PAGE> 10
Each Unit initially offered represents that undivided interest in the Trust
involved indicated under "Essential Information." To the extent that any Units
are redeemed by the Trustee or additional Units are issued as a result of
additional Bonds being deposited by the Sponsor, the fractional undivided
interest in a Trust represented by each unredeemed Unit will increase or
decrease accordingly, although the actual interest in such Trust represented by
such fraction will remain unchanged. Units will remain outstanding until
redeemed upon tender to the Trustee by Unitholders, which may include the
Sponsor, or until the termination of the Trust Agreement.
An investment in Units 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 Units will decline with increases in
interest rates. The value of the underlying 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 intermediate and long-term obligations in
particular. The Sponsor cannot predict the degree to which such fluctuations
will continue in the future.
SERIES INFORMATION
<TABLE>
<CAPTION>
SERIES 3 SERIES 4
--------------- ---------------
<S> <C> <C>
Number of Obligations........................................................... 7 8
Corporate Debt Obligations(1)(2)................................................ 5 (96%) 7 (96%)
U.S. Treasury Obligations(2).................................................... 2 (4%) 1 (4%)
Corporate Debt Obligation Concentrations:
States(2)..................................................................... None New York (32%)
Area Concentrations(3)........................................................ Northeast (56%) Northeast (62%)
Average life of the Bonds in the Trust(4)....................................... 10.4 years 31 years
Percentage of "when, and as if issued" or "delayed delivery" Bonds purchased by
the Trust..................................................................... None None
Syndication(5).................................................................. None None
</TABLE>
- -------------------------
(1) The Corporate Debt Obligations deposited in each Trust have been issued by
public utility companies.
(2) The portfolio percentage in parenthesis represents the principal amount of
such Bonds to the total principal amount of Bonds in the Trust. For a
discussion of the risks associated with investments in the bonds of such
issuers, see "Trust--Portfolios--General Trust Information."
(3) The percentage provided above represents the percentage of the Principal
Amount of Bonds in a Trust that are concentrated in a specific region of the
country. An adverse economic climate in a given area may affect an issuer's
ability to make payments of principal and/or interest.
(4) The average life of the Bonds in a Trust is calculated based upon the stated
maturities of the Bonds in such Trust (or, with respect to Bonds for which
funds or securities have been placed in escrow to redeem such Bonds on a
stated call date, based upon such call date). The average life of the Bonds
in a Trust may increase or decrease from time to time as Bonds mature or are
called or sold.
(5) The Sponsor and/or affiliated Underwriters have participated as either the
sole underwriter or manager or a member of underwriting syndicates from
which approximately that percentage listed above of the aggregate principal
amount of the Bonds in such Trust were acquired.
6
<PAGE> 11
KEMPER DEFINED FUNDS SERIES 14
INSURED CORPORATE SERIES 3
PORTFOLIO
AS OF THE DATE OF DEPOSIT: MARCH 2, 1994
<TABLE>
<CAPTION>
RATING(2)
------------------- COST OF
AGGREGATE STANDARD REDEMPTION BONDS
PRINCIPAL NAME OF ISSUER(1)(5) COUPON MATURITY MOODY'S & POOR'S PROVISIONS(3) TO TRUST(4)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 750,000 Public Service Electric & Gas Company 6.125 % 8/1/2002 Aaa AAA Non-Callable $ 729,855
750,000 Pacific Gas & Electric Company 6.250 8/1/2003 Aaa AAA Non-Callable 735,368
750,000 Texas Utilities Electric Company 6.250 10/1/2004 Aaa AAA Non-Callable 728,220
75,000 U.S. Treasury Strips(6) 0.000 5/15/2005 Non-Callable 36,001
675,000 Niagara Mohawk Power Corporation 6.625 7/1/2005 Aaa AAA Non-Callable 663,046
75,000 U.S. Treasury Strips(6) 0.000 2/15/2006 Non-Callable 34,035
675,000 Pennsylvania Power & Light Company 6.550 3/1/2006 Aaa AAA Non-Callable 666,779
- ---------- -----------
$3,750,000 $ 3,593,304
- ---------- -----------
- ---------- -----------
</TABLE>
- ---------------
See "Notes to Portfolios."
7
<PAGE> 12
KEMPER DEFINED FUNDS SERIES 14
INSURED CORPORATE SERIES 4
PORTFOLIO
AS OF THE DATE OF DEPOSIT: MARCH 2, 1994
<TABLE>
<CAPTION>
RATING(2)
--------------------
AGGREGATE STANDARD REDEMPTION COST OF BONDS
PRINCIPAL NAME OF ISSUER(1)(5) COUPON MATURITY MOODY'S & POOR'S PROVISIONS(3) TO TRUST(4)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 300,000 Pacific Gas & Electric Company 7.250 % 8/1/2026 Aaa AAA 2003 @ 103.63 $ 295,719
250,000 Public Service Electric & Gas 7.000 9/1/2024 Aaa AAA 2003 @ 102.74 238,248
Company
300,000 New York Telephone Company 7.250 2/15/2024 Aaa AAA 2004 @ 103.06 294,174
500,000 Niagara Mohawak Power Corporation 7.875 4/1/2024 Aaa AAA 2003 @ 103.00 516,370
500,000 Philadelphia Electric Company 7.250 11/1/2024 Aaa AAA 1998 @ 104.71 483,415
250,000 Texas Utilities Electric Company 7.375 10/1/2025 Aaa AAA 2003 @ 103.35 248,765
300,000 Virginia Electric & Power Company 7.000 1/1/2024 Aaa AAA 2004 @ 102.82 287,361
100,000 U.S. Treasury Strips(6) 0.000 11/15/2021 14,400
- ---------- ---------------
$2,500,000 $ 2,378,452
- ---------- ---------------
- ---------- ---------------
</TABLE>
- ---------------
See "Notes to Portfolios."
8
<PAGE> 13
NOTES TO PORTFOLIOS:
All Bonds in the Trust Funds except for the U.S. Treasury obligations are
insured only by MBIA Corporation. The insurance was obtained either directly by
the issuer of the Bonds or by the Sponsor.
* These Bonds are "when, as and if issued" or "delayed delivery" and have
expected settlement dates after the "First Settlement Date."
(1) Contracts to acquire Bonds were entered into by the Sponsor between February
25, 1994 and March 1, 1994. All Bonds are represented by regular way
contracts, unless otherwise indicated, for the performance of which an
irrevocable letter of credit has been deposited with the Trustee.
(2) All the Bonds in the Trusts except for the U.S. Treasury obligations are
insured by MBIA Corporation and therefore are rated AAA by Standard & Poor's
Corporation and Aaa by Moody's Investors Service, Inc. See "Trust
Portfolios--Portfolio Selection" and "Insurance on the Portfolios." Also,
the Units of the Trusts are rated Aaa by Moody's Investors Service, Inc.
(see "Insurance on the Portfolios."). A Moody's Investors Service, Inc.
rating on the units of an insured unit investment trust (hereinafter
referred to collectively as "units" and "trusts") is a current assessment of
creditworthiness with respect to the investment held by such trust. This
assessment takes into consideration the financial capacity of the issuers
and of any guarantors, insurers, lessees or mortgagors with respect to such
investments. The assessment, however, does not take into account the extent
to which trust expenses or portfolio asset sales for less than the trust
purchase price will reduce payment to the unitholder of the interest and
principal required to be paid on the portfolio assets. In addition, the
rating is not a recommendation to purchase, sell or hold units, inasmuch as
the rating does not comment as to market price of the units or suitability
for a particular investor. Units rated "Aaa" are composed exclusively of
assets that are rated "Aaa" by Moody's and/or certain short-term
investments. Moody's defines its Aaa rating for such assets as the highest
rating assigned by Moody's to a debt obligation. Capacity to pay interest
and repay principal is very strong. However, unit ratings may be subject to
revision or withdrawal at any time by Moody's and each rating should be
evaluated independently of any other rating.
(3) There is shown under this heading the year in which each issue of Bonds is
initially or currently redeemable and the redemption price for that year;
unless otherwise indicated, each issue continues to be redeemable at
declining prices thereafter, but not below par value. The prices at which
the Bonds may be redeemed or called prior to maturity may or may not include
a premium and, in certain cases, may be less than the cost of the Bonds to a
Trust. In addition, certain Bonds in the portfolio may be redeemed in whole
or in part other than by operation of the stated redemption provisions under
certain unusual or extraordinary circumstances specified in the instruments
setting forth the terms and provisions of such Bonds.
(4) During the initial offering period, evaluations of Bonds are made on the
basis of current offering side evaluations of the Bonds. The aggregate
offering price is greater than the aggregate bid price of the Bonds, which
is the basis on which the Redemption Price will be determined for purposes
of redemption of Units after the initial offering period.
(5) Other information regarding the Bonds in the Trusts, at the opening of
business on the Initial Date of Deposit, is as follows:
<TABLE>
<CAPTION>
PROFIT
OR ANNUAL
COST OF (LOSS) INTEREST BID SIDE
BONDS TO TO INCOME VALUE
SPONSOR SPONSOR TO TRUST OF BONDS
---------- -------- --------- ----------
<S> <C> <C> <C> <C>
Series 3...................... $3,603,610 $(10,306) $ 228,619 $3,579,495
Series 4...................... $2,387,405 $ (8,953) $ 176,063 $2,362,457
</TABLE>
9
<PAGE> 14
The Cost of Bonds to Sponsor and Profit or (Loss) to Sponsor reflect
portfolio hedging transaction costs, hedging gains or losses, certain other
carrying costs and the cost of insurance obtained by the Sponsor for
individual Bonds, if any, prior to the date such Bonds are deposited in a
Trust.
"#" indicates that such Bond was issued at an original issue discount. The
tax effect of Bonds issued at an original issue discount is described in
"Federal Tax Status".
(6) This Bond has been purchased at a deep discount from the par value because
there is little or no stated interest income thereon. Bonds which pay no
interest are normally described as "zero coupon" bonds. Over the life of
bonds purchased at a deep discount the value of such bonds will increase
such that upon maturity the holders of such bonds will receive 100% of the
principal amount thereof. Approximately 4% and 4% of the aggregate principal
amount of the Bonds in Series 3 (Intermediate Laddered) and Series 4 (Long
Term) respectively are "zero coupon" bonds.
10
<PAGE> 15
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
UNITHOLDERS
KEMPER DEFINED FUNDS SERIES 14
We have audited the accompanying statements of condition and the related
portfolios of Kemper Defined Funds Series 14 (Insured Corporate Series 3 and
Insured Corporate Series 4) as of March 2, 1994. The statements of condition and
portfolios are the responsibility of the Sponsor. Our responsibility is to
express an opinion on such financial statements based on our audit.
We conducted our audit 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 a letter of credit deposited to purchase Bonds by correspondence
with the Trustee. 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 our audit provides 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 Defined Funds Series 14
(Insured Corporate Series 3 and Insured Corporate Series 4) as of March 2, 1994,
in conformity with generally accepted accounting principles.
GRANT THORNTON
Chicago, Illinois
March 2, 1994
11
<PAGE> 16
KEMPER DEFINED FUNDS SERIES 14
INSURED CORPORATE SERIES 3 AND INSURED CORPORATE SERIES 4
STATEMENTS OF CONDITION
AT THE OPENING OF BUSINESS ON MARCH 2, 1994, THE DATE OF DEPOSIT
<TABLE>
<CAPTION>
SERIES 3 SERIES 4
---------- ----------
<S> <C> <C>
INVESTMENT IN BONDS
Bonds deposited in the Trusts(1)(4)..................................................... $ None $ None
Contracts to purchase Bonds(1)(4)....................................................... 3,593,304 2,378,452
Accrued Interest to First Settlement Date on Bonds(1)(2)................................ 47,366 47,803
---------- ----------
Total............................................................................. $3,640,670 $2,426,255
---------- ----------
---------- ----------
Number of Units......................................................................... 375,000 250,000
LIABILITIES AND INTEREST OF UNITHOLDERS
Accrued Interest payable to Sponsor(1)(2)............................................... $ 25,422 $ 31,223
Interest of Unitholders --
Cost to investors(3).................................................................. $3,762,000 $2,500,000
Less: Gross underwriting commission(3)................................................ 146,752 104,968
---------- ----------
Net interest to Unitholders(1)(2)(3).................................................. $3,615,248 $2,395,032
---------- ----------
Total............................................................................. $3,640,670 $2,426,255
---------- ----------
---------- ----------
</TABLE>
- ---------------
NOTES:
(1) The aggregate value of the Bonds listed in each Portfolio and their cost to
the Trust are the same. The value of the Bonds is determined by Muller Data
Corporation on the bases set forth under "Public Offering of Units--Public
Offering Price." The contracts to purchase Bonds are collateralized by an
irrevocable letter of credit of $6,066,925 which has been deposited with the
Trustee. Of this amount, $5,971,756 relates to the offering price of Bonds
to be purchased and $95,169 relates to Purchased Interest on such Bonds to
the expected dates of delivery.
(2) Accrued Interest on the underlying Bonds represents the interest accrued as
of the First Settlement Date from the later of the last payment date on the
Bonds or of the date of issuance thereof. The Trustee may advance to the
Trust a portion of the accrued interest on the underlying Bonds for
distribution to the Sponsor as the Unitholder of record as of the First
Settlement Date. A portion of the accrued interest on the underlying Bonds
is payable by investors and is included in the Public Offering Price. This
portion is called Purchased Interest and represents the difference between
Accrued Interest to First Settlement Date on Bonds and Accrued Interest
payable to Sponsor (see "Essential Information").
(3) The aggregate public offering price includes a sales charge for each Trust
as set forth under Essential Information, assuming all single transactions
involve less than 10,000 Units. For single transactions involving 10,000 or
more Units, the sales charge is reduced (see "Public Offering of
Units--Public Offering Price") resulting in an equal reduction in both the
Cost to investors and the Gross underwriting commission while the Net
interest to Unitholders remains unchanged.
(4) Insurance coverage providing for the timely payment of principal and
interest on the Bonds in each Trust (other than the U.S. Treasury
obligations) has been obtained directly by the issuer of such Bonds or by
the Sponsor from Municipal Bond Investors Assurance Corporation or other
insurers.
12
<PAGE> 17
FEDERAL TAX STATUS
In the opinion of Chapman and Cutler, special counsel for the Sponsor, under
existing law:
The Trust is not an association taxable as a corporation for United States
Federal income tax purposes.
Each Unitholder will be considered the owner of a pro rata portion of each of
the Trust assets for Federal income tax purposes under Subpart E, Subchapter J
of Chapter 1 of the Internal Revenue Code (the "Code"). Each Unitholder will be
considered to have received his pro rata share of interest derived from each
Trust asset when such interest is received by the Trust. Each Unitholder will
also be required to include in taxable income for Federal income tax purposes,
original issue discount with respect to his interest in any Bonds held by the
Trust at the same time and in the same manner as though the Unitholder were the
direct owner of such interest.
Each Unitholder will have a taxable event when a Bond is disposed of (whether by
sale, exchange, redemption, or payment at maturity) or when the Unitholder
redeems or sells his Units. The cost of the Units to a Unitholder on the date
such Units are purchased is allocated among the Bonds held in the Trust (in
accordance with the proportion of the fair market values of such Bonds) in order
to determine his tax basis for his pro rata portion in each Bond. Unitholders
must reduce the tax basis of their Units for their share of accrued interest
received, if any, on Bonds delivered after the date the Unitholders pay for
their Units 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, 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 his basis for his fractional
interest in the asset disposed of. The basis of each Unit and of each Bond which
was issued with original issue discount (including the U.S. Treasury
obligations) must be increased by the amount of accrued original issue discount
and the basis of each Unit and of each Bond which was purchased by the Trust at
a premium must be reduced by the annual amortization of bond premium which the
Unitholder has properly elected to amortize under Section 171 of the Code. 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 or less
than his original cost. The U.S. Treasury obligations held by the Trust are
treated as bonds that were originally issued at an original issue discount
provided, pursuant to a Treasury Regulation (the "Regulation") issued on
December 28, 1992, that the amount of original issue discount determined under
Section 1286 of the Code is not less than a "de minimis" amount as determined
thereunder (as discussed below under "Original Issue Discount"). Because the
U.S. Treasury obligations represent interests in "stripped" U.S. Treasury bonds,
a Unitholder's initial cost for his pro rata portion of each U.S. Treasury
obligation held by the Trust (determined at the time he acquires his Units, in
the manner described above) shall be treated as its "purchase price" by the
Unitholder. Original issue discount is effectively treated as interest for
Federal income tax purposes, and the amount of original issue discount in this
case is generally the difference between the Bond's purchase price and its
stated redemption price at maturity. A Unitholder will be required to include in
gross income for each taxable year the sum of his daily portions of original
issue discount attributable to the U.S. Treasury obligations held by the Trust
as such original issue discount accrues and will, in general, be subject to
Federal income tax with respect to the total amount of such original issue
discount that accrues for such year even though the income is not distributed to
the Unitholders during such year to the extent it is not less than a "de
minimis" amount as determined under the Regulation. In general, original issue
discount accrues daily under a constant interest rate method which takes into
account the semi-annual compounding of accrued interest. In the case of the U.S.
Treasury obligations, this method will
13
<PAGE> 18
generally result in an increasing amount of income to the Unitholders each year.
Unitholders should consult their tax advisers regarding the Federal income tax
consequences and accretion of original issue discount.
Limitations on Deductibility of Trust Expenses by Unitholders. Each
Unitholder's pro rata share of each expense paid by the Trust is deductible by
the Unitholder to the same extent as though the expense had been paid directly
by him, subject to the following limitation. It should be noted that as a result
of the Tax Reform Act of 1986 (the "Act"), certain miscellaneous itemized
deductions, such as investment expenses, tax return preparation fees and
employee business expenses will be deductible by an individual only to the
extent they exceed 2% of such individual's adjusted gross income. Temporary
regulations have been issued which require Unitholders to treat certain expenses
of the Trust as miscellaneous itemized deductions subject to this limitation.
Acquisition Premium. If a Unitholder's tax basis of his pro rata portion in any
Bonds held by the Trust exceeds the amount payable by the issuer of the Bond
with respect to such pro rata interest upon the maturity of the Bond, such
excess would be considered "acquisition premium" which may be amortized by the
Unitholder at the Unitholder's election as provided in Section 171 of the Code.
Unitholders should consult their tax advisors regarding whether such election
should be made and the manner of amortizing acquisition premium.
Original Issue Discount. Certain of the Bonds of the Trust may have been
acquired with "original issue discount." In the case of any Bonds of the Trust
acquired with "original issue discount" that exceeds a "de minimis" amount as
specified in the Code or in the case of the U.S. Treasury obligations as
specified in the Regulation, such discount is includable in taxable income of
the Unitholders on an accrual basis computed daily, without regard to when
payments of interest on such Bonds are received. The Code provides a complex set
of rules regarding the accrual of original issue discount. These rules provide
that original issue discount generally accrues on the basis of a constant
compound interest rate over the term of the Bonds. Unitholders should consult
their tax advisers and to the amount of original issue discount which accrues.
Special original issue discount rules apply if the purchase price of the Bond by
the Trust exceeds its original issue price plus the amount of original issue
discount which would have previously accrued based upon its issue price (its
"adjusted issue price"). Unitholders should also consult their tax advisers
regarding these special rules. Similarly these special rules would apply to a
Unitholder if the tax basis of his pro rata portion of a Bond issued with
original issue discount exceeds his pro rata portion of its adjusted issue
price.
Market Discount. If a Unitholder's tax basis in his pro rata portion of Bonds
is less than the allocable portion of such Bond's stated redemption price at
maturity (or, if issued with original issue discount, the allocable portion of
its "revised issue price"), such difference will constitute market discount
unless the amount of market discount is "de minimis" as specified in the Code.
Market discount accrues daily computed on a straight line basis, unless the
Unitholder elects to calculate accrued market discount under a constant yield
method. The market discount rules do not apply to the U.S. Treasury obligations
because they are stripped debt instruments subject to special original issue
discount rules as discussed above. Unitholders should consult their tax advisors
as to the amount of market discount which accrues.
Accrued market discount is generally includable in taxable income to the
Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on the Bonds, on the sale, maturity or disposition of
such Bonds by the Trust, and on the sale by a Unitholder of Units, unless a
Unitholder elects to include the accrued market discount in taxable income as
such discount accrues. If a Unitholder does not elect to annually include
accrued market discount in taxable income as it accrues, deductions for any
interest expense incurred by the Unitholder which is incurred to purchase or
carry his Units will be reduced by such accrued market discount. In general, the
portion of any interest expense which was not currently deductible would
ultimately be deductible when the accrued market discount is included in income.
Unitholders should
14
<PAGE> 19
consult their tax advisers regarding whether an election should be made to
include market discount in income as it accrues and as to the amount of interest
expense which may not be currently deductible.
Computation of the Unitholder's Tax Basis. The tax basis of a Unitholder with
respect to his interest in a Bond is increased by the amount of original issue
discount (and market discount, if the Unitholder elects to include market
discount, if any, on the Bonds held by the Trust in income as it accrues)
thereon properly included in the Unitholder's gross income as determined for
Federal income tax purposes and reduced by the amount of any amortized
acquisition premium which the Unitholder has properly elected to amortize under
Section 171 of the Code. A Unitholder's tax basis in his Units will equal his
tax basis in his pro rata portion of all of the assets of the Trust.
Recognition of Taxable Gain or Loss Upon Disposition of Obligations by the Trust
or Disposition of Units. A Unitholder will recognize taxable capital gain (or
loss) when all or part of his pro rata interest in a Bond is disposed of in a
taxable transaction for an amount greater (or less) than his tax basis therefor.
Any gain recognized on a sale or exchange and not constituting a realization of
accrued "market discount," and any loss will, under current law, generally be
capital gain or loss except in the case of a dealer or financial institution. As
previously discussed, gain realized on the disposition of the interest of a
Unitholder in any Bond deemed to have been acquired with market discount will be
treated as ordinary income to the extent the gain does not exceed the amount of
accrued market discount not previously taken into income. Any capital gain or
loss arising from the disposition of a Bond by the Trust or the disposition of
Units by a Unitholder will be short-term capital gain or loss unless the
Unitholder has held his Units for more than one year in which case such capital
gain or loss will be long-term. For taxpayers other than corporations, net
capital gains are 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. The tax cost reduction requirements
of the Code relating to amortization of bond premium may under some
circumstances, result in the Unitholder realizing taxable gain when his Units
are sold or redeemed for an amount equal to or less than his original cost.
If the Unitholder disposes of a Unit, he is deemed thereby to have disposed of
his entire pro rata interest in all Trust assets including his pro rata portion
of all of the Bonds represented by the Unit. This may result in a portion of the
gain, if any, on such sale being taxable as ordinary income under the market
discount rules (assuming no election was made by the Unitholder to include
market discount in income as it accrues) as previously discussed.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") raised tax rates on
ordinary income while capital gains would remain subject to a 28 percent maximum
stated rate. Because some or all capital gains would be taxed at a comparatively
lower rate under the Tax Act, the Tax Act includes a provision that would
recharacterize capital gains as ordinary income in the case of certain financial
transactions that are "conversion transactions" effective for transactions
entered into after April 30, 1993. Unitholders and prospective investors should
consult with their tax advisers regarding the potential effect of this provision
on their investment in Units.
Foreign Investors. A Unitholder of either Series who is a foreign investor
(i.e., an investor other than a U.S. citizen or resident or a U.S. corporation,
partnership, estate or trust) will not be subject to United States federal
income taxes, including withholding taxes, on interest income on, or any gain
from the sale or other disposition of, his pro rata interest in any Bond or the
sale of his Units provided that all of the following conditions are met: (i) the
interest income or gain is not effectively connected with the conduct by the
foreign investor of a trade or business within the United States, (ii) the
interest is United States source income (which is the case for most securities
issued by United States issuers), the Bond is issued after July 18, 1984 (which
is the case for each Bond held by the Trust), the foreign investor does not own,
directly or indirectly, 10% or
15
<PAGE> 20
more of the total combined voting power of all classes of voting stock of the
issuer of the Bond and the foreign investor is not a controlled foreign
corporation related (within the meaning of Section 864(d)(4) of the Code) to the
issuer of the Bond, (iii) with respect to any gain, the foreign investor (if an
individual) is not present in the United States for 183 days or more during his
or her taxable year and (iv) the foreign investor provides all certification
which may be required of his status. Foreign investors should consult their tax
advisers with respect to United States tax consequences of ownership of Units.
It should be noted that the Tax Act includes a provision which eliminates the
exemption from United States taxation, including withholding taxes, for certain
"contingent interest." The provision applies to interest received after December
31, 1993. No opinion is expressed herein regarding the potential applicability
of this provision and whether United States taxation or withholding taxes could
be imposed with respect to income derived from the Units as a result thereof.
Unitholders and prospective investors should consult with their tax advisers
regarding the potential effect of this provision on their investment in Units.
General. Each Unitholder (other than a foreign investor who has properly
provided the certifications described in the preceding paragraph) will be
requested to provide the Unitholder's taxpayer identification number to the
Trustee and to certify that the Unitholder has not been notified that payments
to the Unitholder are subject to back-up withholding. If the proper taxpayer
identification number and appropriate certification are not provided when
requested, distributions by the Trust to such Unitholder will be subject to
back-up withholding.
The foregoing discussion relates only to United States Federal income taxes;
Unitholders may be subject to state and local taxation in other jurisdictions
(including a foreign investor's country of residence). Unitholders should
consult their tax advisers regarding potential state, local, or foreign taxation
with respect to the Units.
16
<PAGE> 21
TRUST PORTFOLIOS
PORTFOLIO SELECTION
The selection of Bonds for the Trust Funds was based largely upon the experience
and judgment of the Sponsor. In making such selections the Sponsor considered
the following factors: (a) the price of the Bonds relative to other issues of
similar quality and maturity; (b) whether the Bonds were issued by a utility
company; (c) the diversification of the Bonds as to location of issuer; (d) the
income to the Unitholders of the Trusts; (e) whether the Bonds were insured or
the availability and cost of insurance for the scheduled payment of principal
and interest on the Bonds; (f) whether the Bonds were issued after July 18,
1984; (g) the stated maturity of the Bonds; and (h) the dates of maturity of the
Bonds.
As of the Initial Date of Deposit, all of the Bonds in the Trusts' portfolios
other than the U.S. Treasury obligations are rated "Aaa" by Moody's Investors
Service, Inc. and "AAA" by Standard & Poor's Corporation. Standard & Poor's
Corporation states that "bonds rated AAA have the highest rating assigned by
Standard & Poor's to a debt obligation. Capacity to pay interest and principal
is extremely strong." Moody's Investors Service, Inc. states that 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." See "Insurance on the Portfolios." Subsequent to the Initial Date
of Deposit, a Bond may cease to be so rated. If this should occur, a Trust would
not be required to eliminate the Bond from the Trust, but such event may be
considered in the Sponsor's determination to direct the Trustee to dispose of
such investment. See "Investment Supervision."
PUBLIC UTILITY ISSUES
Certain of the aggregate principal amount of the Bonds in each Trust are
obligations of public utility issuers. In general, public utilities are
regulated monopolies engaged in the business of supplying light, water, power,
heat, transportation or means of communication. Historically, the utilities
industry has provided investors in securities issued by companies in this
industry with high levels of reliability, stability and relative total return on
their investments. However, an investment in either of the Trusts should be made
with an understanding of the characteristics of such issuers and the risks which
such an investment may entail. General problems of such issuers would include
the difficulty in financing large construction programs in an inflationary
period, the limitations on operations and increased costs and delays
attributable to environmental considerations, the difficulty of the capital
market in absorbing utility debt, the difficulty in obtaining fuel at reasonable
prices and the effect of energy conservation. All of such issuers have been
experiencing certain of 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 certain of the Bonds in the portfolios to make
payments of principal and/or interest on such Bonds.
Utilities are generally subject to extensive regulation by state utility
commissions which, for example, establish the rates which may be charged and the
appropriate rate of return on an approved asset base, which must be approved by
the state commissions. Certain utilities have had difficulty from time to time
in persuading regulators, who are subject to political pressures, to grant rate
increases necessary to maintain an adequate return on investment and voters in
many states have the ability to impose limits on rate adjustments (for example,
by initiative or referendum). Any unexpected limitations could negatively affect
the profitability of
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utilities whose budgets are planned far in advance. Also, changes in certain
accounting standards currently under consideration by the Financial Accounting
Standards Board could cause significant write-downs of assets and reductions in
earnings for many investor-owned utilities. In addition, gas pipeline and
distribution companies have had difficulties in adjusting to short and surplus
energy supplies, enforcing or being required to comply with long-term contracts
and avoiding litigation from their customers, on the one hand, or suppliers, on
the other.
Certain of the issuers of the Bonds in the Trusts may own or operate nuclear
generating facilities. Governmental authorities may from time to time review
existing, and impose additional, requirements governing the licensing,
construction and operation of nuclear power plants. Nuclear generating projects
in the electric utility industry have experienced substantial cost increases,
construction delays and licensing difficulties. These have been caused by
various factors, including inflation, high financing costs, required design
changes and rework, allegedly faulty construction, objections by groups and
governmental officials, limits on the ability to finance, reduced forecasts of
energy requirements and economic conditions. This experience indicates that the
risk of significant cost increases, delays and licensing difficulties remains
present through completion and achievement of commercial operation of any
nuclear project. Also, nuclear generating units in service have experienced
unplanned outages or extensions of scheduled outages due to equipment problems
or new regulatory requirements sometimes followed by a significant delay in
obtaining regulatory approval to return to service. A major accident at a
nuclear plant anywhere, such as the accident at a plant in Chernobyl, U.S.S.R.,
could cause the imposition of limits or prohibitions on the operation,
construction or licensing of nuclear units in the United States.
In view of the uncertainties discussed above, there can be no assurance that any
bond issuer's share of the full cost of nuclear units under construction
ultimately will be recovered in rates or of the extent to which a bond issuer
could earn an adequate return on its investment in such units. The likelihood of
a significantly adverse event occurring in any of the areas of concern described
above varies, as does the potential severity of any adverse impact. It should be
recognized, however, that one or more of such adverse events could occur and
individually or collectively could have a material adverse impact on the
financial condition or the results of operations or on a bond issuer's ability
to make interest and principal payments on its outstanding debt.
Other general problems of the gas, water, telephone and electric utility
industry (including state and local joint action power agencies) include
difficulty in obtaining timely and adequate rate increases, difficulty in
financing large construction programs to provide new or replacement facilities
during an inflationary period, rising costs of rail transportation to transport
fossil fuels, the uncertainty of transmission service costs for both interstate
and intrastate transactions, changes in tax laws which adversely affect a
utility's ability to operate profitably, increased competition in service costs,
reductions in estimates of future demand for electricity and gas in certain
areas of the country, restrictions on operations and increased cost and delays
attributable to environmental considerations, uncertain availability and
increased cost of capital, unavailability of fuel for electric generation at
reasonable prices, including the steady rise in fuel costs and the costs
associated with conversion to alternate fuel sources such as coal, availability
and cost of natural gas for resale, technical and cost factors and other
problems associated with construction, licensing, regulation and operation of
nuclear facilities for electric generation, including among other considerations
the problems associated with the use of radioactive materials and the disposal
of radioactive wastes, and the effects of energy conservation. Each of the
problems referred to could adversely affect the ability of the issuers of any
utility Bonds in a Trust to make payments due on these Bonds.
In addition, 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 Washington Public Power Supply
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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.
In 1984, AT&T divested its local telephone operations and created seven new
regional holding companies: American Information Technologies Corporation (known
as "Ameritech"), Bell Atlantic Corporation, BellSouth Corporation, NYNEX
Corporation, Pacific Telesis Group, Southwestern Bell Corporation and US West,
Inc. (the "Regional Companies"). The spinoff was effected pursuant to court
approval to implement a consent decree relating to antitrust proceedings brought
by the U.S. Department of Justice. In addition to providing for the division of
assets, work force and stock ownership of the entities that formerly comprised
the Bell System, the reorganization called for the termination of many business
arrangements that previously existed among the various Bell System companies. In
accordance with the consent decree, the Regional Companies provide local
exchange telephone service, including exchange access for long distance
companies, and may provide directory advertising and new customer equipment. All
of the Regional Companies have been granted waivers to engage in a broad range
of businesses including foreign consulting, selling real estate, servicing
computers and marketing or leasing office equipment. Guidelines established by
the District Court waiver to prevent unfair competition require that the new
ventures be independently capitalized, separate subsidiaries that together
account for less than 10% of the Regional Company's net annual revenue. The
Federal Communications Commission ("FCC") has subsequently lifted the structural
separation restrictions on marketing customer premises equipment, allowing these
activities to be reintegrated into the mainstream business operations. AT&T
provides interexchange long distance telephone service in competition with
numerous other suppliers, and certain other products and services, and is
responsible for certain customer equipment. Since 1984, the impact of the
reorganization on the financial condition of these companies has not proved as
severe as then expected, mainly due to extensive cost cutting by the Regional
Companies to offset the loss of subsidies from AT&T. The Regional Companies
continue to be prohibited from providing information services, although they are
permitted to provide communications for these services. If the modified final
judgment is further modified to lift this prohibition, the Regional Companies
could have significant opportunities for expansion of business, although there
would also be competitive risks to be assessed. Also, cellular service is
providing an increasing component of the net income of several Regional
Companies. A prohibition against AT&T rendering information services expired in
August 1989.
In addition to the specific circumstances affecting AT&T and the regional
holding companies, business conditions of the telephone industry in general may
affect the performance of the Trust Fund. General problems of telephone
companies include regulation of rates for service by the FCC and various state
or other regulatory agencies. However, over the last several years regulation
has been changing, resulting in increased competition. The new approach is more
market oriented, more flexible and more complicated. For example, Federal and
certain state regulators have instituted "price cap" regulation which couples
protection of rate payers for basic services with flexible pricing for ancillary
services. These new approaches to regulation could lead to greater risks as well
as greater rewards for operating telephone companies such as those in the Trust
Funds. Inflation has substantially increased the operating expenses and cost of
plant required for growth, service, improvement and replacement of existing
plant. Continuing cost increases, to the extent not offset by improved
productivity and revenues from increased business, would result in a decreasing
rate of return and a continuing need for rate increases. Although allowances are
generally made in ratemaking proceedings for cost increases, delays may be
experienced in obtaining the necessary rate increases and there can be no
assurance that the regulatory agencies will grant rate increases adequate to
cover operating and other expenses
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and debt service requirements. To meet increasing competition, telephone
companies will have to commit substantial capital, technological and marketing
resources. Telephone usage, and therefore revenues, could also be adversely
affected by any sustained economic recession. New technology, such as cellular
service and fibre optics, will require additional capital outlays. The uncertain
outcomes of future labor agreements may also have a negative impact on the
telephone companies. Each of these problems could adversely affect the ability
of the telephone company issuers of any Bonds in a portfolio to make payments of
principal and interest on their Bonds.
ZERO COUPON U.S. TREASURY OBLIGATIONS
Certain of the Bonds in each Trust are "zero coupon" U.S. Treasury bonds. See
footnote (6) in "Notes to Portfolios." Zero coupon bonds are purchased at a deep
discount because the buyer receives only the right to receive 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 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.
GENERAL TRUST INFORMATION
Because certain of the Bonds in each Trust may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with their terms
and because the proceeds from such events will be distributed to Unitholders and
will not be reinvested, no assurance can be given that a Trust will retain for
any length of time its present size and composition. Neither the Sponsor nor the
Trustee shall be liable in any way for any default, failure or defect in any
Bond. In the event of a failure to deliver any Bond that has been purchased for
a Trust under a contract, including those securities purchased on a "when, as
and if issued" basis ("Failed Obligations"), the Sponsor is authorized under the
Trust Agreement to direct the Trustee to acquire other securities ("Replacement
Obligations") to make up the original corpus of the Trust.
The Replacement Obligations must be purchased within 20 days after delivery of
the notice of the failed contract and the purchase price may not exceed the
amount of funds reserved for the purchase of the Failed Obligations. The
Replacement Obligations shall (i) be intermediate or long-term, as applicable,
corporate bonds, debentures, notes or other straight debt obligations (whether
secured or unsecured and whether senior or subordinated) without equity or other
conversion features, with fixed maturity dates substantially the same as those
of the Failed Obligations having no warrants or subscription privileges
attached; (ii) be payable in United States currency; (iii) not be when, as and
if issued obligations or restricted securities; (iv) be issued after July 18,
1984 if interest thereon is United States source income; (v) must have a fixed
maturity date of at least 10 years; (vi) must be purchased at a price that
results in a yield to maturity and a current return at least equal to that of
the Failed Bonds as of the Initial Date of Deposit; (vii) not cause the Units of
the Trust to cease to be rated Aaa by Moody's Investors Service, Inc.; and
(viii) be insured by the issuer of the Bonds or by the Sponsor under a financial
guaranty insurance policy issued by MBIA Corporation prior to the acquisition by
a Trust. Whenever a Replacement Obligation has been acquired for a Trust, the
Trustee shall, within five days thereafter, notify all Unitholders of that Trust
of the acquisition of the Replacement Obligation and shall, on the next monthly
distribution date which is more than 30 days thereafter, make a pro rata
distribution of the amount, if any, by which the cost to the Trust of the Failed
Obligation exceeded the cost of the Replacement Obligation. Once the original
corpus of a Trust is acquired, the Trustee will have no power to vary the
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investment of such Trust; i.e., the Trustee will have no managerial power to
take advantage of market variations to improve a Unitholder's investment.
If the right of limited substitution described in the preceding paragraph shall
not be utilized to acquire Replacement Obligations in the event of a failed
contract, the Sponsor will refund the sales charge attributable to such Failed
Obligations to all Unitholders of the Trust and distribute the principal,
Purchased Interest and Daily Accrued Interest (at the coupon rate of such Failed
Obligations to the date the Failed Obligations are removed from the Trust)
attributable to such Failed Obligations not more than 30 days after such removal
or such earlier time as the Trustee in its sole discretion deems to be in the
interest of the Unitholders. In the event a Replacement Obligation should not be
acquired by the Trust, the estimated net annual interest income per Unit for the
Trust would be reduced and the Estimated Current Return and the Estimated
Long-Term Return thereon might be lowered. In addition, Unitholders should be
aware that they may not be able at the time of receipt of such principal to
reinvest such proceeds in other securities at a yield equal to or in excess of
the yield which such proceeds were earning to Unitholders in the Trust.
The Sponsor may not alter the portfolio of a Trust Fund except upon the
happening of certain extraordinary circumstances. See "Investment Supervision."
Certain of the Bonds may be subject to optional call or mandatory redemption
pursuant to sinking fund provisions, in each case prior to their stated
maturity. A bond subject to optional call is one which is subject to redemption
or refunding prior to maturity at the option of the issuer, often at a premium
over par. A refunding is a method by which a bond issue is redeemed, at or
before maturity, by the proceeds of a new bond issue. A bond subject to sinking
fund redemption is one which is subject to partial call from time to time at par
from a fund accumulated for the scheduled retirement of a portion of an issue
prior to maturity. Special or extraordinary redemption provisions may provide
for redemption at par of all or a portion of an issue upon the occurrence of
certain circumstances, which may be prior to the optional call dates shown in
"The Trust Funds -- Portfolio." Redemption pursuant to optional call provisions
is more likely to occur, and redemption pursuant to special or extraordinary
redemption provisions may occur, when the Bonds have an offering side evaluation
which represents a premium over par, that is, when they are able to be
refinanced at a lower cost. The proceeds from any such call or redemption
pursuant to sinking fund provisions as well as proceeds from the sale of Bonds
and from Bonds which mature in accordance with their terms, unless utilized to
pay for Units tendered for redemption, will be distributed to Unitholders and
will not be used to purchase additional Bonds for the Trust. Accordingly, any
such call, redemption, sale or maturity will reduce the size and diversity of
the Trust and the net annual interest income and may reduce the Estimated
Current Return and the Estimated Long-Term Return. See "Interest, Estimated
Long-Term Return and Estimated Current Return." The call, redemption, sale or
maturity of Bonds also may have tax consequences to a Unitholder. See "Federal
Tax Status." Information with respect to the call provisions and maturity dates
of the Bonds is contained in "The Trust Funds -- Portfolio."
Insurance guaranteeing the scheduled payment of principal and interest on all of
the Bonds except for the U.S. Treasury obligations in each Trust has been
obtained directly by the issuer thereof or by the Sponsor from MBIA Corporation
(as herein defined). See "Insurance on the Portfolios" and "The Trust Funds --
Portfolio." The value of this insurance is reflected and included in the market
value of the Bonds. See "Insurance on the Portfolios."
To the best of the Sponsor's knowledge, there is no litigation pending as of the
Initial Date of Deposit in respect of any Bond which might reasonably be
expected to have a material adverse effect on the Trust Funds. At any time after
the Initial Date of Deposit, litigation may be instituted on a variety of
grounds with respect to the Bonds. The Sponsor is unable to predict whether any
such litigation may be instituted, or if instituted, whether such litigation
might have a material adverse effect on the Trust Funds. The Sponsor and the
Trustee shall not be liable in any way for any default, failure or defect in any
Bond.
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INSURANCE ON THE PORTFOLIOS
All Bonds in the Trusts except for the U.S. Treasury obligations are insured as
to the scheduled payment of interest and principal either by the issuer of the
Bonds or by the Sponsor under a financial guaranty insurance policy obtained
from Municipal Bond Investors Assurance Corporation ("MBIA Corporation"). See
"The Trust Funds -- Portfolio" and the Notes thereto. The premium for each such
insurance policy has been paid in advance by such issuer or the Sponsor and each
such policy is non-cancellable and will remain in force so long as the Bonds are
outstanding and MBIA Corporation remains in business. No premiums for such
insurance are paid by the Trusts. If MBIA Corporation is unable to meet its
obligations under its policy or if the rating assigned to the claims-paying
ability of MBIA Corporation deteriorates, no other insurer has any obligation to
insure any issue adversely affected by either of these events.
The aforementioned insurance guarantees the scheduled payment of principal and
interest on all of the Bonds in each Trust except for the U.S. Treasury
obligations. It does not guarantee the market value of the Bonds or the value of
the Units of the Trusts. This insurance is effective so long as the Bond is
outstanding, whether or not held by a Trust Fund. Therefore, any such insurance
may be considered to represent an element of market value in regard to the
Bonds, but the exact effect, if any, of this insurance on such market value
cannot be predicted.
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.
As of December 31, 1992, MBIA had admitted assets of $2.6 billion (audited),
total liabilities of $1.7 billion (audited), and total capital and surplus of
$896 million (audited) determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities. As of
September 30, 1993, MBIA Corporation had admitted assets of $3.0 billion
(unaudited), total liabilities of $2.0 billion (unaudited), and total
policyholder's surplus of $951 million (unaudited) prepared in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. Copies of MBIA Corporation's financial statements prepared in
accordance with statutory accounting practices are available from 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. Through 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 bond issues insured by MBIA "Aaa" and short
term loans "MIG 1," both designated to be of the highest quality. Standard &
Poor's Corporation rates all new issues insured by MBIA "AAA".
Because the Bonds (other than the U.S. Treasury obligations) 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 MBIA Corporation, Moody's
Investors Service, Inc. has assigned to the Trust Funds' Units its "Aaa"
investment rating. This is the highest rating assigned to securities by such
rating agency. See "Trust Portfolios--Portfolio Selection." These ratings should
not be construed as an approval of the offering of the Units by Standard &
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Poor's Corporation or as a guarantee of the market value of the Trust Funds or
the Units thereof. See Note (2) to "Notes to Portfolios."
Bonds in the Trust Funds for which insurance has been obtained by the issuer
thereof or by the Sponsor from MBIA Corporation (all of which were rated "Aaa"
by Moody's Investors Service, Inc.) may or may not have a higher yield than
uninsured bonds rated "Aaa" by Moody's Investors Service, Inc. In selecting
Bonds for the portfolio of the Trusts, the Sponsor has applied the criteria
hereinbefore described.
RETIREMENT PLANS
Units of the Trust Funds may be well suited for purchase by Individual
Retirement Accounts, Keogh Plans, pension funds and other qualified retirement
plans, certain of which are briefly described below.
Generally, capital gains and income received under each of the foregoing plans
are deferred from federal taxation. All distributions from such plans are
generally treated as ordinary income but may, in some cases, be eligible for
special income averaging or tax-deferred rollover treatment. Investors
considering participation in any such plan should review specific tax laws
related thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan. Such plans are offered by
brokerage firms and other financial institutions. The Trust Funds will waive the
$1,000 minimum investment requirement for IRA accounts. The minimum investment
is $250 for tax-deferred plans such as IRA accounts. Fees and charges with
respect to such plans may vary.
Individual Retirement Account--IRA. Any individual under age 70 1/2 may
contribute the lesser of $2,000 or 100% of compensation to an IRA annually. Such
contributions are fully deductible if the individual (and spouse if filing
jointly) are not covered by a retirement plan at work. The deductible amount an
individual may contribute to an IRA will be reduced $10 for each $50 of adjusted
gross income over $25,000 ($40,000 if married, filing jointly or $0 if married,
filing separately), if either an individual or their spouse (if married, filing
jointly) is an active participant in an employer maintained retirement plan.
Thus, if an individual has adjusted gross income over $35,000 ($50,000 if
married, filing jointly or $0 if married, filing separately) and if an
individual or their spouse is an active participant in an employer maintained
retirement plan, no IRA deduction is permitted. Under the Internal Revenue Code
of 1986, as amended (the "Code"), an individual may make nondeductible
contributions to the extent deductible contributions are not allowed. All
distributions from an IRA (other than the return of certain excess
contributions) are treated as ordinary income for federal income taxation
purposes provided that under the Code an individual need not pay tax on the
return of nondeductible contributions. The amount includable in income for the
taxable year is the portion of the amount withdrawn for the taxable year as the
individual's aggregate deductible IRA contributions bear to the aggregate
balance of all IRAs of the individual.
A participant's interest in an IRA must be, or commence to be, distributed to
the participant not later than April 1 of the calendar year following the year
during which the participant attains age 70 1/2. Distributions made before
attainment of age 59 1/2, except in the case of the participant's death or
disability, or where the amount distributed is to be rolled over to another IRA,
or where the distributions are taken as a series of substantially equal periodic
payments over the participant's life or life expectancy (or the joint lives or
life expectancies of the participant and the designated beneficiary) are
generally subject to a surtax in an amount equal to 10% of the distribution. The
amount of such periodic payments may not be modified before the later of five
years or attainment of age 59 1/2. Excess contributions are subject to an annual
6% excise tax.
IRA applications, disclosure statements and trust agreements are available from
the Sponsor upon request.
Qualified Retirement Plans. Units of a Trust may be purchased by qualified
pension or profit sharing plans maintained by corporations, partnerships or sole
proprietors. The maximum annual contribution for a participant in a money
purchase pension plan or to paired profit sharing and pension plans is the
lesser of
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25% of compensation or $30,000. Prototype plan documents for establishing
qualified retirement plans are available from the Sponsor upon request.
Excess Distributions Tax. In addition to the other taxes due by reason of a
plan distribution, a tax of 15% may apply to certain aggregate distributions
from IRAs, Keogh plans, and corporate retirement plans to the extent such
aggregate taxable distributions exceed specified amounts (generally $150,000, as
adjusted) during a tax year. This 15% tax will not apply to distributions on
account of death, qualified domestic relations orders or amounts eligible for
tax-deferred rollover treatment. In general, for lump sum distributions the
excess distributions over $750,000 (as adjusted) will be subject to the 15% tax.
The Trustee, Investors Fiduciary Trust Company, has agreed to act as custodian
for certain retirement plan accounts. An annual fee of $12.00 per account, if
not paid separately, will be assessed by the Trustee and paid through the
liquidation of shares of the reinvestment account. An individual wishing the
Trustee to act as custodian must complete a Kemper UIT/IRA application and
forward it along with a check made payable to Investors Fiduciary Trust Company.
Certificates for Individual Retirement Accounts cannot be issued.
DISTRIBUTION REINVESTMENT
Each Unitholder of a 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 open-end mutual fund underwritten or advised by
an affiliate of the Sponsor, Kemper Financial Services, Inc. (the "Kemper
Funds"), other than those Kemper Funds sold with a contingent deferred sales
charge.
If individuals indicate they wish to participate in the Reinvestment Program but
do not designate a reinvestment fund, the Program Agent referred to below will
contact such individuals to determine which reinvestment fund or funds they wish
to elect. Since the portfolio securities and investment objectives of such
Kemper Funds may differ significantly from that of the Trust Funds, Unitholders
should carefully consider the consequences 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 any Trust Underwriter upon request. An investor
should read the prospectus of the reinvestment fund selected prior to making the
election to reinvest. Unitholders who desire to have such distributions
automatically reinvested should inform their broker at the time of purchase or
should file with the Program Agent a written notice of election.
Unitholders who are receiving distributions in cash may elect to participate in
distribution reinvestment by filing with the Program Agent an election to have
such distributions reinvested without charge. 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 Program
Agent at P.O. Box 419430, Kansas City, Missouri 64173-0216, telephone (816)
474-8786.
INTEREST, ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN
As of the opening of business on the Initial Date of Deposit, the Estimated
Long-Term Returns and the Estimated Current Returns for each Trust Fund were as
set forth in the "Essential Information." Estimated Current Return is 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 the
Bonds while the Public Offering Price will vary with changes in the offering
price of the
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underlying Bonds and with changes in the Purchased Interest and Daily Accrued
Interest; 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 retirements of all the Bonds in a Trust and (2) takes into account the
expenses and sales charge associated with each Trust Unit. Since the market
values and estimated retirements of the Bonds and the expenses of a Trust will
change, there is no assurance that the present Estimated Long-Term Returns 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.
In order to acquire certain of the Bonds contracted for by a Trust Fund, it may
be necessary for the Sponsor or Trustee to pay on the dates for delivery of such
Bonds amounts covering accrued interest on such Bonds which exceed the amount
which will be made available in the letter of credit furnished by the Sponsor on
the Date of Deposit. The Trustee has agreed to pay any amounts necessary to
cover any such excess and will be reimbursed therefor, without interest, when
funds become available from interest payments on the Bonds.
PUBLIC OFFERING OF UNITS
PUBLIC OFFERING PRICE. Units of the Trust Funds are offered at the Public
Offering Price thereof. During the initial offering period, the Public Offering
Price per Unit is equal to the aggregate of the offering side evaluations of the
Bonds in each Trust Fund (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 a pro rata share of (a) cash, if any, in the
Principal Account held or owed by each Trust Fund (b) Purchased Interest and (c)
Daily Accrued Interest plus the applicable sales charge referred to in the table
below divided by the number of outstanding Units of each Trust Fund. The Public
Offering Price for secondary market transactions, on the other hand, is based on
the aggregate bid side evaluations of the Bonds in each Trust Fund (also,
currently, as determined by Muller Data Corporation plus or minus (a) cash, if
any, in the Principal Account held or owned by each Trust Fund, (b) Purchased
Interest and (c) Daily Accrued Interest plus a sales charge based upon the
dollar weighted average maturity of the Trust Fund.
The sales charge per Unit will be reduced during the initial offering period
pursuant to the following graduated scale:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE YEARS TO MATURITY
----------------------------------------------------
7.5 TO 14.99 15 OR MORE
------------------------ ------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
OFFERING NET AMOUNT OFFERING NET AMOUNT
NUMBER OF UNITS PRICE INVESTED PRICE INVESTED
- --------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1 to 9,999 Units................................... 3.9% 4.058% 4.2% 4.384%
10,000 to 24,999 Units............................. 3.7 3.842 4.0 4.167
25,000 to 49,999 Units............................. 3.5 3.627 3.8 3.950
50,000 to 99,999 Units............................. 3.3 3.413 3.5 3.627
100,000 or more Units.............................. 2.0 2.001 2.2 2.249
</TABLE>
As indicated above, in connection with secondary market transactions the sales
charge is based upon the dollar weighted average maturity of a Trust Fund and is
determined in accordance with the table set forth below. For purposes of this
computation, Bonds will be deemed to mature on their expressed maturity dates
unless: (a) the Bonds have been called for redemption or funds or securities
have been placed in escrow to
A-9
<PAGE> 30
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 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 a Trust
Fund based upon the dollar weighted average maturity of such Trust Fund's
portfolio, in accordance with the following schedule:
<TABLE>
<CAPTION>
PERCENT PERCENT
OF OF
PUBLIC NET
DOLLAR WEIGHTED AVERAGE 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>
In connection with secondary market transactions the sales charge per Unit will
be reduced as set forth below:
<TABLE>
<CAPTION>
SECONDARY
DOLLAR WEIGHTED AVERAGE YEARS
TO MATURITY*
15
4 TO 8 TO OR
7.99 14.99 MORE
------------------------------
SALES CHARGE (PERCENT OF
DOLLAR AMOUNT OF TRADE PUBLIC OFFERING PRICE)
------------------------------
<S> <C> <C> <C>
$1,000 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>
- ---------------
* If the dollar weighted average maturity of a Trust Fund 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.
The reduced sales charges resulting from quantity discounts as shown on the
tables above will apply to all purchases of Units on any one day by the same
purchaser from the same Underwriter or dealer and for this purpose purchases of
Units of a Trust Fund will be aggregated with concurrent purchases of Units of
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 discussion the Sponsor registered representatives of
selling firms to purchase Units of the Trusts without a sales charge, although a
transaction processing fee may be imposed on such trades.
Had Units of the Trust Funds been available for sale at the opening of business
on the Initial Date of Deposit, the Public Offering Price would have been as
shown under "Essential Information." The Public Offering Price per Unit of a
Trust Fund on the date of this Prospectus or on any subsequent date will vary
from the amount stated under "Essential Information" in accordance with
fluctuations in the prices of the underlying Bonds and the amount of accrued
interest on the Units. On the Initial Date of Deposit, pursuant to an exemptive
order from the Securities and Exchange Commission, the Public Offering Price at
which Units will be sold will not exceed the price determined as of the opening
of business on the Initial Date of Deposit as shown under "Essential
Information"; however, should the value of the underlying Bonds decline,
purchasers will, of course, be given the benefit of such lower price. The
aggregate bid and offering side evaluations of the Bonds shall be determined (a)
on the basis of current bid or offering prices of the Bonds, (b) if bid or
offering prices are not available for any particular Bond, on the basis of
current bid or offering prices for comparable bonds, (c) by determining the
value of Bonds on the bid or offer side of the market by appraisal, or (d) by
any
A-10
<PAGE> 31
combination of the above. The value of insurance obtained by an issuer of Bonds
or by the Sponsor is reflected and included in the market value of such Bonds.
The foregoing evaluations and computations shall be made as of the evaluation
time stated under "Essential Information," on each business day commencing with
the Initial Date of Deposit of the Bonds, effective for all sales made during
the preceding 24-hour period.
The interest on the Bonds deposited in the Trust Funds, less the related
estimated fees and expenses, is estimated to accrue in the annual amounts per
Unit set forth under "Essential Information." The amount of net interest income
which accrues per Unit may change as Bonds mature or are redeemed, exchanged or
sold, or as the expenses of the Trust Funds change or the number of outstanding
Units of such Trust Fund changes.
Payment for Units must be made on or before the fifth business day following
purchase. If a Unitholder desires to have certificates representing Units
purchased, such certificates will be delivered as soon as possible following his
written request therefor. For information with respect to redemption of Units
purchased, but as to which certificates requested have not been received, see
"Redemption" below.
PURCHASED AND DAILY ACCRUED INTEREST. 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 the Trust Fund is paid semi-annually to the
Trust. A portion of the aggregate amount of such accrued interest on the Bonds
in the Trust to the First Settlement Date of the Trust is referred to herein as
"Purchased Interest." Included in the Public Offering Price of the 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
advance 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 Trust Fund 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 will include the proportionate share of Daily Accrued Interest to
the date of settlement.
If a Unitholder sells or redeems all or a portion of his Units or if the Bonds
are sold or otherwise removed or if the Trust Fund is liquidated, he will
receive at that time his proportionate share of the Purchased Interest and Daily
Accrued Interest computed to the settlement date in the case of sale or
liquidation and to the date of tender in the case of redemption in the Trust
Fund.
COMPARISON OF PUBLIC OFFERING PRICE AND REDEMPTION PRICE. While the initial
Public Offering Price of Units will be determined on the basis of the current
offering prices of the Bonds in each Trust, the redemption price per Unit (as
well as the secondary market price per Unit) at which Units may be redeemed (see
"Redemption") will be determined on the basis of the current bid prices of the
Bonds. As of the opening of business on the Initial Date of Deposit, the Public
Offering Price per Unit (based on the offering prices of the Bonds in the Trusts
and including the sales charge) exceeded the redemption price at which Units
could have been redeemed (based upon the current bid prices of the Bonds in the
Trust) by the amount shown under "Essential Information." In the past, bid
prices on bonds similar to those in the Trust Funds have been lower than the
offering prices thereof by as much as 3% or more of principal amount in the case
of inactively traded bonds or as little as 1/2 of 1% in the case of actively
traded bonds, but the difference between such offering and bid prices may be
expected to average 1% to 2% of principal amount. For this reason, among others
(including fluctuations in the market prices of the Bonds and the fact that the
Public Offering Price includes a sales charge), the amount realized by a
Unitholder upon any redemption of Units may be less than the price paid for such
Units.
A-11
<PAGE> 32
PUBLIC DISTRIBUTION OF UNITS. The Sponsor intends to qualify the Units for sale
in a number of states. Units will be sold through dealers who are 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 below. Certain commercial banks are making
Units of the Trust Funds 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 Fund 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. The Sponsor reserves the right to change the discounts set forth below from
time to time. In addition to such discounts, the Sponsor may, from time to time,
pay or allow an additional discount, in the form of cash or other compensation,
to dealers employing registered representatives who sell, during a specified
time period, a minimum dollar amount of Units of the Trusts and other unit
investment trusts underwritten by the Sponsor. The difference between the
discount and the sales charge will be retained by the Sponsor.
<TABLE>
<CAPTION>
PRIMARY MARKET
------------------------------------------------------------------------
VOLUME DISCOUNTS PER UNIT*
-----------------------------------------------------
FIRM SALES FIRM SALES FIRM SALES
REGULAR OR SALE OR SALE OR SALE
CONCESSION ARRANGEMENTS ARRANGEMENTS ARRANGEMENTS
OR AGENCY 25,000 TO 50,000 TO 100,000
------------------------------------------------------------------------
COMMISSION 49,999 99,999 OR MORE
WEIGHTED AVERAGE YEARS TO MATURITY
7.5 TO 15 OR 7.5 TO 15 OR 7.5 TO 15 OR 7.5 TO 15 OR
NUMBER OF $10 UNITS 14.99 MORE 14.99 MORE 14.99 MORE 14.99 MORE
- -------------------------------------- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 to 9,999 Units...................... 2.70% 3.00 % 2.80% 3.10 % 2.90% 3.20 % 3.00% 3.30 %
10,000 to 24,999 Units................ 2.50 2.80 2.60 2.90 2.70 3.00 2.80 3.10
25,000 to 49,999 Units................ 2.30 2.60 2.40 2.70 2.50 2.80 2.60 2.90
50,000 to 99,999...................... 2.20 2.40 2.30 2.60 2.30 2.60 2.30 2.60
100,000 or more Units................. 1.10 1.20 1.20 1.30 1.20 1.30 1.20 1.30
</TABLE>
- -------------------------
* Volume concessions of up to the amount shown can be earned as a marketing
allowance at the discretion of the sponsor during the initial one month period
after the Date of Deposit by firms who reach cumulative firm sales or sales
arrangement levels of at least $250,000. After a firm has met the minimum
$250,000 volume level, volume concessions may be given on all trades
originated from or by that firm, including those placed prior to reaching the
$250,000 level, and may continue to be given during the entire initial
offering period. Firm sales of any corporate trust series issued
simultaneously can be combined for the purposes of achieving the volume
discount. Only sales through Kemper qualify for volume discounts and secondary
purchases do not apply. Kemper Unit Investment Trusts reserves the right to
modify or change those parameters at any time and make the determination of
which firms qualify for the marketing allowance and the amount paid.
[CAPTION]
<TABLE>
<CAPTION>
SECONDARY MARKET
DOLLAR WEIGHTED AVERAGE
YEARS TO MATURITY*
4 TO 7.99 8 TO 14.99 15 OR MORE
DISCOUNT PER UNIT
------------------------------------
(PERCENT OF PUBLIC OFFERING
DOLLAR AMOUNT OF TRADE PRICE)
------------------------------------
<S> <C> <C> <C>
$1,000 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>
- ---------------
* If the dollar weighted average maturity of a Trust Fund is from 1 to 3.99
years, the concession or agency commission is 1.00% of the Public Offering
Price.
A-12
<PAGE> 33
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 receive gross sales charges equal to the
percentage of the Public Offering Price of the Units of the Trusts stated under
"Public Offering Price" and will pay a fixed portion of such sales charges to
dealers and agents. In addition, the Sponsor may realize a profit or a loss
resulting from the difference between the purchase prices of the Bonds to the
Sponsor and the cost of such Bonds to the Trust Fund, which is based on the
offering side evaluation of the Bonds. See "The Trust Funds--Portfolio." The
Sponsor may also realize profits or losses with respect to Bonds deposited in a
Trust which were acquired from underwriting syndicates of which the Sponsor was
a member. An underwriter or underwriting syndicate purchases bonds from the
issuer on a negotiated or competitive bid basis, as principal, with the motive
of marketing such bonds to investors at a profit. The Sponsor may realize
additional profits or losses during the initial offering period on unsold Units
as a result of changes in the daily evaluation of the Bonds in the Trusts.
MARKET FOR UNITS
After the initial offering period, while not obligated to do so, the Sponsor
intends to, subject to change at any time, maintain a market for Units of the
Trusts offered hereby and to continuously offer to purchase said Units at
prices, determined by the Evaluator, based on the aggregate bid prices of the
underlying Bonds, together with Purchased Interest and Daily Accrued Interest to
the expected dates of settlement. To the extent that a market is maintained
during the initial offering period, the prices at which Units will be
repurchased will be based upon the aggregate offering side evaluation of the
Bonds in the Trusts. The aggregate bid prices of the underlying Bonds are
expected to be less than the related aggregate offering prices (which is the
evaluation method used during the initial public offering period). Accordingly,
Unitholders who wish to dispose of their Units should inquire of their bank or
broker as to current market prices in order to determine whether there is in
existence any price in excess of the Redemption Price and, if so, the amount
thereof.
The offering price of any Units resold by the Sponsor 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. The Sponsor may suspend or discontinue purchases of Units 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 Units to be redeemed by the Trustee by making a written request
to the Trustee, Investors Fiduciary Trust Company, P.O. Box 419430, Kansas City,
Missouri, 64173-0216 and, in the case of Units evidenced by a certificate, by
tendering such certificate to the Trustee, properly endorsed or accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Trustee. Unitholders must sign the request, and such certificate or transfer
instrument, exactly as their names appear on the records of the Trustee and on
any certificate representing the Units to be redeemed. If the amount of the
redemption is $25,000 or less and the proceeds are payable to the Unitholder(s)
of record at the address of record, no signature guarantee is necessary for
redemptions by individual account owners (including joint owners). Additional
documentation may be requested, and a signature guarantee is always required,
from corporations, executors, administrators, trustees, guardians or
associations. The signatures must be guaranteed by a commercial bank or trust
company, savings & loan association or by a member firm of a national securities
exchange. A certificate should only be sent by registered or certified mail for
the protection of the Unitholder. Since tender of the certificate is required
for redemption when one has been issued, Units represented by a certificate
cannot be redeemed until the certificate representing such Units has been
received by the purchasers.
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 Trust Fund,
A-13
<PAGE> 34
determined as set forth below under "Computation of Redemption Price," as of the
evaluation time stated under "Essential Information," next following such
tender, multiplied by the number of Units being redeemed. Any Units redeemed
shall be cancelled and any undivided fractional interest in the Trust Fund
extinguished. The price received upon redemption might be more or less than the
amount paid by the Unitholder depending on the value of the Bonds in the Trust
Fund at the time of redemption.
Under regulations issued by the Internal Revenue Service, the Trustee is
required to withhold a certain percentage of the principal amount of a Unit
redemption if the Trustee has not been furnished the redeeming Unitholder's tax
identification number in the manner required by such regulations. Any amount 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 "backup 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 to the extent that funds are available for such purpose. All
other amounts paid on redemption shall be withdrawn from the Principal Account.
The Trustee is empowered to sell Bonds in order to make funds available for the
redemption of Units. Such sale may be required when Bonds would not otherwise be
sold and might result in lower prices than might otherwise be realized. To the
extent Bonds are sold, the size and diversity of a Trust Fund will be reduced.
The Trustee is irrevocably authorized in its discretion, if an Underwriter does
not elect to purchase any Unit tendered for redemption, in lieu of redeeming
such Units, to sell such Units in the over-the-counter market for the account of
tendering Unitholders at prices which will return to the 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 Bonds is not reasonably practicable or it is not
reasonably practicable to fairly determine the value of the underlying Bonds in
accordance with the Trust 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 is computed by
the Evaluator as of the evaluation time stated under "Essential Information"
next occurring after the tendering of a Unit for redemption and on any other
business day desired by it, by:
A. adding: (1) the cash on hand in the Trust other than cash deposited in the
Trust to purchase Bonds not applied to the purchase of such Bonds; (2) the
aggregate value of each issue of the Bonds (including "when issued" contracts,
if any) held in the Trust as determined by the Evaluator on the basis of bid
prices therefor; and (3) Purchased and Daily Accrued Interest;
B. deducting therefrom (1) amounts representing any applicable taxes or
governmental charges payable out of the Trust Fund and for which no deductions
have been previously made for the purpose of additions to the Reserve Account
described under "Expenses of the Trusts"; (2) an amount representing estimated
accrued
A-14
<PAGE> 35
expenses of the Trust Fund, including but not limited to fees and expenses of
the Trustee (including legal and auditing fees), the Sponsor and the Evaluator;
(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
Trust Fund; and
C. finally dividing the results of such computation by the number of Units of
the Trust Fund outstanding as of the date thereof.
UNITHOLDERS
OWNERSHIP OF UNITS. Ownership of Units of a Trust will not be evidenced by
certificates unless a Unitholder or the Unitholder's registered broker/dealer
makes a written request to the Trustee.
Units are transferable by making a written request to the Trustee and, in the
case of Units evidenced by a certificate, by presenting and surrendering such
certificate to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer which should be sent by registered or
certified mail for the protection of the Unitholder. Unitholders must sign such
written request, and such certificate or transfer instrument (if applicable),
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 commercial bank or trust company, savings and loan association
or by a member firm of a national securities exchange.
Units may be purchased and certificates, if requested, will be issued in
denominations of one Unit or any whole Unit multiple thereof subject to any
minimum investment requirement established by the Sponsor from time to time.
However, in connection with qualified plans in which Investors Fiduciary Trust
Company acts as trustee, fractional units (to three decimal places) will be
permitted. 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 reasonable fee, to be
determined in the sole discretion of the Trustee, for each certificate re-issued
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
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 a
Trust, including any portion of the proceeds from a disposition of Bonds which
represents accrued interest, is credited by the Trustee to the Interest Account.
All other receipts are credited by the Trustee to a separate Principal Account.
The Trustee normally has no cash for distribution to Unitholders until it
receives interest payments on the Bonds in a Trust Fund. Since interest usually
is paid semi-annually, during the initial months of a Trust, the Interest
Account, 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 date set forth under "Essential Information,"
the Trustee will commence distributions, in part from funds advanced by the
Trustee.
Thereafter, assuming a Trust Fund retains its original size and composition,
after deduction of the fees and expenses of the Trustee, Sponsor and Evaluator
and reimbursements (without interest) to the Trustee for any amounts advanced to
a Trust Fund, the Trustee will normally distribute on each Interest Distribution
Date (the fifteenth of the month) or shortly thereafter to Unitholders of record
of a Trust Fund on the preceding Record Date (the first day of each month).
Unitholders will receive an amount substantially equal to one-twelfth of such
holders' pro rata share of the estimated net annual interest income to the
Interest Account. 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 sell or redeem all
or a portion of their Units, they will be paid their
A-15
<PAGE> 36
proportionate share of the accrued interest 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
a Trust Fund at a low level, all Unitholders of record in a Trust Fund on the
first Record Date will receive an 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 be a full period,
the first regular distributions may be 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 the Bonds 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 Trust Fund 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 and available for distribution may be slightly more or less than the
interest distribution made. In order to eliminate fluctuations in interest
distributions resulting from such variances, the Trustee is authorized by the
Trust Agreement 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.
Principal Distributions. The Trustee will distribute on each Distribution Date
or shortly thereafter, to each Unitholder of record of a Trust Fund on the
preceding Record Date, an amount substantially equal to such holder's pro rata
share of the cash balance, if any, in the Principal Account 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.
STATEMENTS TO UNITHOLDERS. With each distribution, the Trustee will furnish or
cause to be furnished to 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 are required to be audited annually, at each Trust Fund's expense,
by independent auditors designated by the Sponsor, unless the Trustee determines
that such an audit would not be in the best interest of the Unitholders. The
accountants' report will be furnished by the Trustee to any Unitholder 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 a statement, covering the calender year,
setting forth:
A. As to the Interest Account: (1) The amount of interest received on the Bonds,
including amounts received as a portion of the proceeds of any disposition of
the Bonds; (2) the amount paid from the Interest Account representing accrued
interest of any Units redeemed; (3) the deductions from the Interest Account for
applicable taxes, if any, fees and expenses (including auditing fees) of the
Trustee, the Sponsor and the Evaluator; (4) any amounts credited by the Trustee
to the Reserve Account described under "Expenses of the Trusts"; and (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; and B. As to the Principal Account: (1) The dates of the
maturity, liquidation or redemption of any of the Bonds and the net proceeds
received therefrom excluding any portion credited to the Interest Account; (2)
the amount paid from the Principal Account representing the principal of any
Units redeemed; (3) the deductions from the Principal Account for payment of
applicable taxes, if any, fees and expenses (including auditing fees) of the
Trustee, the Sponsor and the Evaluator; (4) any amounts credited by the Trustee
to the Reserve Account described under "Expenses of the Trusts"; 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
A-16
<PAGE> 37
business day of the calendar year; and C. The following information: (1) A list
of the Bonds as of the last business day of such calendar year; (2) the number
of Units outstanding on the last business day of such calendar year; (3) the
Redemption Price based on the last evaluation made during such calendar year;
and (4) the amount actually distributed during such calendar year from the
Interest and Principal Accounts separately stated, expressed both as total
dollar amounts and as dollar amounts per Unit outstanding on the Record Dates
for each such distribution.
RIGHTS OF UNITHOLDERS. A Unitholder may at any time tender Units to the Trustee
for redemption. The death or incapacity of any Unitholder will not operate to
terminate the 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 Trusts.
No Unitholder shall have the right to control the operation and management of a
Trust in any manner, except to vote with respect to the amendment of the Trust
Agreement or termination of a Trust.
INVESTMENT SUPERVISION
The Sponsor may not alter the portfolio of a Trust by the purchase, sale or
substitution of Bonds, except in the special circumstances noted below and as
indicated earlier under "Trust Portfolios" regarding the substitution of
Replacement Bonds for any Failed Bonds. Thus, with the exception of the
redemption or maturity of Bonds in accordance with their terms, the assets of a
Trust Fund will remain unchanged under normal circumstances.
The Sponsor may direct the Trustee to dispose of Bonds the value of which has
been affected by certain adverse events including institution of certain legal
proceedings or decline in price or the occurrence of other market factors,
including advance refunding, so that in the opinion of the Sponsor the retention
of such Bonds in a Trust Fund would be detrimental to the interest of the
Unitholders. The proceeds from any such sales, exclusive of any portion which
represents accrued interest, will be credited to the Principal Account of the
Trust Fund for distribution to the Unitholders.
The Sponsor is required to instruct the Trustee to reject any offer made by an
issuer of Bonds to issue new obligations in exchange or substitution for any of
such Bonds pursuant to a refunding or refinancing 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 Bonds, designated by the Sponsor, from a Trust Fund for the
purpose of redeeming Units of the Trust Fund tendered for redemption and the
payment of expenses.
ADMINISTRATION OF THE TRUSTS
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 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.
A-17
<PAGE> 38
The Trustee, whose duties are ministerial in nature, has not participated in
selecting the portfolio of any Trust. For information relating to the
responsibilities of the Trustee under the Trust Agreements, reference is made to
the material set forth under "Unitholders."
In accordance with the Trust Agreements, the Trustee shall keep records of all
transactions at its office. Such records shall include the name and address of,
and the number of Units held by, every Unitholder of each Trust. Such books and
records shall be open to inspection by any Unitholder of a 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 Trust Agreements 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 Bonds held in a Trust Fund.
Pursuant to the Trust Agreements, the Trustee may employ one or more agents for
the purpose of custody and safeguarding of the Bonds comprising each Trust Fund.
Under the Trust Agreements, the Trustee or any successor trustee may resign and
be discharged of the trust created by the Trust Agreements 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 60 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 30 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 Trust
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 such 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 $2,000,000.
THE SPONSOR. The Sponsor, Kemper Unit Investment Trusts, with an office at 77
West Wacker Drive, 5th Floor, Chicago, Illinois 60601, (800) 621-5024, is a
service of Kemper Securities, Inc., which is a wholly-owned subsidiary of Kemper
Financial Companies, Inc. which, in turn, is a wholly-owned subsidiary of Kemper
Corporation. The Sponsor acts as underwriter of a number of other Kemper unit
investment trusts and will act as underwriter of any other unit investment trust
products developed by the Sponsor in the future. As of April 30, 1993, the total
stockholder's equity of Kemper Securities, Inc. was $426,125,017 (unaudited).
If at any time the Sponsor shall fail to perform any of its duties under the
Trust Agreements or shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or shall have its affairs 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 Trust Agreements and liquidate the Trust Fund
as provided therein or (c) continue to act as Trustee without terminating the
Trust Agreements.
The foregoing financial information with regard to the Sponsor relates only to
the Sponsor and not to the Trust Funds. 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 with respect to the Trust Funds. More comprehensive financial
information can be obtained upon request from the Sponsor.
A-18
<PAGE> 39
THE EVALUATOR. The Sponsor also serves as Evaluator. The Evaluator may resign or
be removed by the Trustee in which event the Trustee 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 30
days after notice of resignation, the Evaluator may apply to a court of
competent 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, for both
the initial offering period and secondary market transactions, portfolio
evaluations of the Bonds in the Trust Funds 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 Trust Agreements 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 Trust Agreements may also be amended in any respect by the
Sponsor and the Trustee, or any of the provisions thereof may be waived, with
the consent of the holders of Units representing 66 2/3% of the Units then
outstanding of a Trust Fund, provided that no such amendment or waiver will
reduce the interest 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 Trust. In no
event shall the Trust Agreements be amended to increase the number of Units of
the Trust issuable thereunder or to permit, except in accordance with the
provisions of the Trust Agreements, the acquisition of any Bonds in addition to
or in substitution for those initially deposited in the Trust Fund. The Trustee
shall promptly notify Unitholders of the substance of any such amendment.
The Trust Agreements provides that a Trust Fund shall terminate upon the
maturity, redemption or other disposition of the last of the Bonds held in the
Trust Fund, but in no event later than the Mandatory Termination Date set forth
under "Essential Information." If the value of the Trust Fund shall be less than
the applicable minimum value stated under "Essential Information" (40% of the
aggregate principal amount of Bonds deposited in the Trust), the Trustee may, in
its discretion, and shall, when so directed by the Sponsor, terminate the Trust
Fund. A Trust Fund may be terminated at any time by the holders of Units
representing 66 2/3% of the Units thereof then outstanding. In the event of
termination of a Trust Fund, written notice thereof will be sent by the Trustee
to all Unitholders of the Trust Fund. Within a reasonable period after
termination, the Trustee will sell any Bonds remaining in the Trust Fund and,
after paying all expenses and charges incurred by the Trust Fund, 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 the Trust Fund.
LIMITATIONS ON LIABILITY. The Sponsor: The Sponsor is liable for the performance
of its obligations arising from its responsibilities under the Trust Agreements,
but will be under no liability to the Unitholders for taking any action or
refraining from any action in good faith pursuant to the Trust Agreements 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 Bonds.
The Trustee. The Trust Agreements provide 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, Bonds
A-19
<PAGE> 40
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 by the Trustee of any
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 Bonds or upon the interest thereon. In
addition, the Trust Agreements contain other customary provisions limiting the
liability of the Trustee.
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
Trust Agreements provide 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 TRUSTS
The Sponsor will not charge the Trusts any fees for services performed as
Sponsor, except that the Sponsor shall receive an annual surveillance fee, which
is not to exceed the amount set forth under "Essential Information," for
providing portfolio surveillance services for each Trust. Such fee (which is
based on the largest number of Units outstanding during each year) may exceed
the actual costs of providing such surveillance services for a Trust, but at no
time will the total amount received for portfolio surveillance services rendered
to such Series in any calendar year exceed the aggregate cost to the Sponsor of
supplying such services in such year. The foregoing fees may be increased
without approval of the Unitholders by amounts not exceeding proportionate
increases under the category "All Services Less Rent of Shelter" in the Consumer
Price Index published by the United States Department of Labor or, if such
category is no longer published, in a comparable category. The Sponsor will
receive a portion of the sales commissions paid in connection with the purchase
of Units and will retain the profits, if any, related to the deposit of Bonds in
a Trust Fund. The Sponsor has borne all the expenses of creating and
establishing the Trusts including the cost of the initial preparation, printing
and execution of the Prospectus, Trust Agreement and certificates, legal and
accounting expenses, advertising and selling expenses, payment of closing fees,
the expenses of the Trustee, evaluation fees relating to the deposit and other
out-of-pocket expenses.
The Trustee receives for its services the fee set forth under "Essential
Information." The Trustee fee which is calculated monthly is based on the
largest aggregate principal amount of Bonds in each Trust Fund at any time
during the period. Funds that are available for future distributions,
redemptions and payment of expenses are held in accounts which are non-interest
bearing to Unitholders and are available for use by the Trustee pursuant to
normal banking procedures; however, the Trustee is also authorized by the Trust
Agreements to make from time to time certain non-interest bearing advances to
the Trust Funds. The Trustee's fee is payable on or before each Distribution
Date. See "Unitholders--Distributions to Unitholders."
For evaluation of the Bonds, the Evaluator shall receive a fee, payable monthly,
calculated on the basis of that annual rate set forth under "Essential
Information," based upon the largest aggregate principal amount of Bonds in each
Trust Fund at any time during such monthly period.
The Trustee's fees, the Evaluator's fees and the surveillance fees are deducted
from the Interest Account of the Trust Funds to the extent funds are available
and then from the Principal Account. Such fees may be increased without approval
of Unitholders by 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 each Trust Fund: (a)
fees for the Trustee's extraordinary services; (b) expenses of the Trustee
(including legal and auditing expenses, but not including
A-20
<PAGE> 41
any fees and expenses charged by any agent for custody and safeguarding of
Bonds); (c) various governmental charges; (d) expenses and costs of any action
taken by the Trustee to protect the Trust or the rights and interests of the
Unitholders; (e) indemnification of the Trustee for any loss, liability or
expense incurred by it in the administration of the Trust not resulting from
gross negligence, bad faith or willful misconduct on its part; (f)
indemnification of the Sponsor for any loss, liability or expense incurred in
acting in that capacity without gross negligence, bad faith or willful
misconduct; and (g) expenditures incurred in contacting Unitholders upon
termination of a Trust Fund. The fees and expenses set forth herein are payable
out of a Trust and, when owing to the Trustee, are secured by a lien on the
Trust.
Fees and expenses of each Trust Fund 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 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 each Trust. Amounts so withdrawn shall be credited to a
separate account maintained for each Trust Fund known as the Reserve Account and
shall not be considered a part of the Trust Fund 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.
LEGAL OPINIONS
The legality of the Units offered hereby and certain matters relating to federal
tax law have been passed upon by Chapman and Cutler, 111 West Monroe Street,
Chicago, Illinois 60603, as counsel for the Sponsor.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The statements of condition and the related bond portfolios at the Date of
Deposit included in this Prospectus have been audited by Grant Thornton,
independent certified public accountants, as set forth in their report in the
Prospectus, and are included herein in reliance upon the authority of said firm
as experts in accounting and auditing.
A-21
<PAGE> 42
----------------------
----------------------
KEMPER
DEFINED
FUNDS
INSURED CORPORATE
----------------------
----------------------
--------------
--------------
PROSPECTUS
--------------
--------------
INSURED CORPORATE SERIES 3
(INTERMEDIATE LADDERED)
INSURED CORPORATE SERIES 4
(LONG TERM)
MARCH 2, 1994
---------------------------------
KEMPER UNIT INVESTMENT TRUSTS
---------------------------------
<PAGE> 43
<TABLE>
<CAPTION>
CONTENTS PAGE
----
<S> <C>
SUMMARY........................................ 2
ESSENTIAL INFORMATION.......................... 3
THE TRUST FUNDS................................ 5
General...................................... 5
Series Information........................... 6
Portfolio.................................... 7
Notes to Portfolios.......................... 9
REPORT OF INDEPENDENT CERTIFIED ACCOUNTANTS.... 11
STATEMENTS OF CONDITION........................ 12
FEDERAL TAX STATUS............................. 13
TRUST PORTFOLIOS............................... A-1
INSURANCE ON THE PORTFOLIOS.................... A-6
RETIREMENT PLANS............................... A-7
DISTRIBUTION REINVESTMENT...................... A-8
INTEREST, ESTIMATED LONG-TERM RETURN AND
ESTIMATED CURRENT RETURN..................... A-8
PUBLIC OFFERING OF UNITS....................... A-9
Public Offering Price........................ A-9
Purchased and Daily Accrued Interest......... A-11
Comparison of Public Offering Price and
Redemption Price........................... A-11
Public Distribution of Units................. A-12
Profits of Sponsor........................... A-13
MARKET FOR UNITS............................... A-13
REDEMPTION..................................... A-13
UNITHOLDERS.................................... A-15
Ownership of Units........................... A-15
Distributions to Unitholders................. A-15
Statements to Unitholders.................... A-16
Rights of Unitholders........................ A-17
INVESTMENT SUPERVISION......................... A-17
ADMINISTRATION OF THE TRUSTS................... A-17
The Trustee.................................. A-17
The Sponsor.................................. A-18
The Evaluator................................ A-19
Amendment and Termination.................... A-19
Limitations on Liability..................... A-19
EXPENSES OF THE TRUSTS......................... A-20
LEGAL OPINIONS................................. A-21
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS....... A-21
</TABLE>
- --------------------------------------------------------------------------
THIS PROSPECTUS DOES NOT CONTAIN ALL
OF THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENT AND EXHIBITS
RELATING THERETO, FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION,
WASHINGTON, D.C. UNDER THE
SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, AND
TO WHICH REFERENCE IS MADE.
- --------------------------------------------------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN
THIS PROSPECTUS AND ANY INFORMATION
OR REPRESENTATION NOT CONTAINED
HEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE TRUST,
THE TRUSTEE, OR THE SPONSOR. THE
TRUST IS REGISTERED AS A UNIT
INVESTMENT TRUST UNDER THE
INVESTMENT COMPANY ACT OF 1940. SUCH
REGISTRATION DOES NOT IMPLY THAT THE
TRUST OR THE UNITS HAVE BEEN
GUARANTEED, SPONSORED, RECOMMENDED
OR APPROVED BY THE UNITED STATES OR
ANY STATE OR ANY AGENCY OR OFFICER
THEREOF.
- --------------------------------------------------------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN
ANY STATE TO ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE SUCH OFFER IN
SUCH STATE.
<PAGE> 44
This Registration Statement on Form S-6 comprises the following papers and
documents.
<TABLE>
<CAPTION>
The facing sheet of Form S-6.
<S> <C>
The cross-reference sheet.
The prospectus.
The signatures.
The following exhibits.
1.1. Form of Trust Indenture and Agreement for Insured Corporate Series 3 and
Insured Corporate Series 4.
1.1.(a) Standard Terms and Conditions of Trust for Series 1 and Subsequent
Series. Reference is made to Exhibit 1.1.(a) to the Registration
Statement on Form S-6, with respect to Kemper Insured Corporate Trust,
Series 1 (Registration No. 33-38027) as filed on February 12, 1991.
1.2. Certificate of Incorporation of Kemper Securities, Inc. Reference is made
to Exhibit 1.2 to the Registration Statement on Form S-6, with respect to
Kemper Government Securities Trust (Registration No. 33-26754) as filed
on February 14, 1989 and Kemper Defined Funds Series 9 (Registration No.
33-56012) as filed on November 3, 1993.
1.3. By-laws of Kemper Securities, Inc. Reference is made to Exhibit 1.3 to
the Registration Statement on Form S-6, with respect to Kemper Government
Securities Trust (Registration No. 33-26754) as filed on February 14,
1989 and Kemper Defined Funds Series 9 (Registration No. 33-56012) as
filed on November 3, 1993.
2.1. Form of Certificate of Ownership (pages three to nine, inclusive, of the
Standard Terms and Conditions of Trust included as Exhibit 1.1.(a)).
3.1. Opinion of counsel to the Sponsor as to legality of the securities being
registered including a consent to the use of its name under the headings
"Federal Tax Status" and "Legal Opinions" in the Prospectus.
4.1. Consent of Moody's Investors Service, Inc.
4.2. Consent of Muller Data Corporation.
4.3. Consent of Grant Thornton.
</TABLE>
S-1
<PAGE> 45
SIGNATURES
The Registrant, Kemper Defined Funds Series 14 (Insured Corporate Series 3
and Insured Corporate Series 4) hereby identifies Series 1 of the Kemper Insured
Corporate Trust and Kemper Defined Funds Insured National Series I for purposes
of the representations required by Rule 487 and represents the following:
(1) that the portfolio securities deposited in the series as to the
securities of which this Registration Statement is being filed do not
differ materially in type or quality from those deposited in such previous
series;
(2) that, except to the extent necessary to identify the specific
portfolio securities deposited in, and to provide essential financial
information for, the series with respect to the securities of which this
Registration Statement is being filed, this Registration Statement does not
contain disclosures that differ in any material respect from those
contained in the registration statements for such previous series as to
which the effective date was determined by the Commission or the Staff; and
(3) that it has complied with Rule 460 under the Securities Act of
1933.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
KEMPER DEFINED FUNDS SERIES 14 (INSURED CORPORATE SERIES 3 AND INSURED CORPORATE
SERIES 4), 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 1ST DAY OF MARCH, 1994.
KEMPER DEFINED FUNDS SERIES 14
INSURED CORPORATE SERIES 3 AND
INSURED CORPORATE SERIES 4
Registrant
By: KEMPER SECURITIES, INC.
Depositor
By: /s/ C. PERRY MOORE
C. Perry Moore
S-2
<PAGE> 46
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON MARCH 1, 1994 BY THE FOLLOWING
PERSONS, WHO CONSTITUTE A MAJORITY OF THE BOARD OF DIRECTORS OF KEMPER
SECURITIES, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<S> <C>
JAMES R. BORIS Chairman and Chief Executive Officer
- ---------------------------------------------
James R. Boris
JAMES P. FITZGERALD Executive Vice President and
- --------------------------------------------- Director
James P. Fitzgerald
STANLEY R. FALLIS Executive Vice President, Chief Financial
- --------------------------------------------- Officer and Director
Stanley R. Fallis
FRANK V. GEREMIA Executive Vice President and Director
- ---------------------------------------------
Frank V. Geremia
DAVID B. MATHIS Director
- ---------------------------------------------
David B. Mathis
ROBERT T. JACKSON Director
- ---------------------------------------------
Robert T. Jackson
JAY B. WALTERS Director
- ---------------------------------------------
Jay B. Walters
FREDERICK C. HOSKEN Director
- ---------------------------------------------
Frederick C. Hosken
JEFFREY H. KAHN Director
- ---------------------------------------------
Jeffrey H. Kahn
CHARLES M. KIERSCHT Director
- ---------------------------------------------
Charles M. Kierscht
ARTHUR J. MCGIVERN Director
- --------------------------------------------
Arthur J. McGivern
/s/ C. PERRY MOORE
--------------------------------------------
C. Perry Moore
</TABLE>
C. PERRY MOORE SIGNS THIS DOCUMENT PURSUANT TO POWER OF ATTORNEY FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION WITH (A) AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT ON FORM S-6 FOR KEMPER TAX-EXEMPT INSURED INCOME TRUST,
SERIES A-70 AND MULTI-STATE SERIES 28 AND KEMPER TAX-EXEMPT INCOME TRUST,
MULTI-STATE SERIES 42 (REGISTRATION NO. 33-35425), (B) AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT ON FORM S-6 FOR KEMPER TAX-EXEMPT INSURED INCOME TRUST,
SERIES A-72 AND MULTI-STATE SERIES 30 (REGISTRATION NO. 33-37178) AND (C)
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-6 FOR KEMPER TAX-EXEMPT
INSURED INCOME TRUST, MULTI-STATE SERIES 51 (REGISTRATION NO. 33-48398).
S-3
<PAGE> 1
MEMORANDUM OF CHANGES
KEMPER DEFINED FUNDS SERIES 14
The Prospectus filed with Amendment No. 1 of the Registration Statement on
Form S-6 has been revised to reflect information regarding the deposit of bonds
on March 2, 1994 and to set forth certain statistical data based thereon. An
effort has been made to set forth below each of the changes and also to reflect
such changes by blacklining the marked counterparts of the Prospectus submitted
with the Amendment.
THE PROSPECTUS
S-6 Cover Page. The SEC file number, dates, size of the Trust Fund
and Series number have been set forth.
Cover Page. The date of the Prospectus has been completed.
Pages 3 and 4. "Essential Information" - Income, expense and
distribution data has been supplied for each Trust.
Page 6. "The Trust Funds - Series Information" -
Concentrations by industry, state and region, if
applicable, have been set forth.
Page 7. The Portfolios have been completed.
Pages 9 and 10. The "Notes to Portfolios" has been completed.
Page 11. "Report of Independent Certified Public Accountants"
- This section has been completed.
Page 12. "Statements of Condition" - The applicable data has
been added.
Back Cover. The date, Series number and table of contents have
been completed.
Pages S-1 - S-3. The list of exhibits and signature pages have been
completed.
<PAGE> 1
EXHIBIT 1.1
KEMPER DEFINED FUNDS SERIES 14
TRUST AGREEMENT
This Trust Agreement dated as of March 2, 1994 between Kemper Unit
Investment Trusts, a service of Kemper Securities, Inc., as Depositor, and
Investors Fiduciary Trust Company, as Trustee, sets forth certain provisions in
full and incorporates other provisions by reference to the document entitled
"Kemper Insured Corporate Trust, Series 1 and Subsequent Series, Standard Terms
and Conditions of Trust, Effective February 12, 1991" (herein called the
"Standard Terms and Conditions of Trust"), and such provisions as are set forth
in full and such provisions as are incorporated by reference constitute a
single instrument.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the Depositor and the Trustee agree as follows:
PART I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the provisions of Part II hereof, all the provisions
contained in the Standard Terms and Conditions of Trust are herein incorporated
by reference in their entirety and shall be deemed to be a part of this
instrument as fully and to the same extent as though said provisions had been
set forth in this instrument.
PART II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed to:
(a) The interest-bearing obligations listed in the Schedules
hereto have been deposited in trust under this Trust Agreement as
indicated in the Trust named on the attached Schedules.
(b) For the purposes of the definition of the term
"Depositor" in Article I, it is hereby specified that such term shall
mean Kemper Unit Investment Trusts, a service of Kemper Securities,
Inc. or its successors or any successor Depositor appointed.
(c) For the purposes of the definition of the term "Unit" in
Article I, it is hereby specified that the fractional undivided
interest in and ownership of the
<PAGE> 2
Trust is the amount set forth in the section captioned "Essential
Information" in the final Prospectus of the Trust (the "Prospectus")
contained in Amendment No. 1 to the Trust's Registration Statement
(Registration No. 33-52231) as filed with the Securities and Exchange
Commission on March 2, 1994. The fractional undivided interest may
increase by the number of any additional Units issued pursuant to
Section 2.03, or decrease by the number of Units redeemed pursuant to
Section 5.02.
(d) For purposes of the definition of the term "Fund" in
Article I, it is hereby specified that such term shall mean the term
"Trust" as defined on page 2 of the Prospectus.
(e) For purposes of the definition of the term "Trust Fund"
in Article I, it is hereby specified that such term shall include the
definition of the term "Trust Fund" as set forth on page 2 of the
Prospectus and specifically shall include the Insured Corporate Series
3 and Insured Corporate Series 4.
(f) The term "Record Date" shall mean the "Record Dates" set
forth under "Unitholders - Distributions to Unitholders" of the
Prospectus.
(g) The terms "Interest Distribution Date" and "Principal
Distribution Date" shall mean the "Interest Distribution Dates" and
"Principal Distribution Dates" set forth under "Unitholders -
Distributions to Unitholders" in the Prospectus.
(h) The term "Initial Date of Deposit" shall mean March 2,
1994.
(i) Section 2.01(b) shall be amended to read in full as
follows:
(b) From time to time for a period not to exceed six (6)
months following the Initial Date of Deposit for a Trust, the
Depositor is hereby authorized, in its discretion, to assign,
convey to and deposit with the Trustee additional Bonds for such
Trust, duly endorsed in blank or accompanied by all necessary
instruments of assignment and transfer in proper form, to be
held, managed and applied by the Trustee as herein provided.
Such deposit of additional Bonds shall be made, in each case,
pursuant to an executed Supplemental Trust Agreement. Any
additional Bonds to be deposited must (1) be issued by the same
issuer; (2) have the same original issue date; (3) have the same
coupon or interest rate; (4) have the same maturity date; (5)
have the same redemption features; and (6) have other legal
characteristics as the Bonds originally deposited in the Trust on
the Initial Date of Deposit and the Depositor in each case shall
ensure that each deposit of additional Bonds pursuant to this
Section
-2-
<PAGE> 3
shall have the same ratio of Bonds (based on principal amount)
as existed on the Initial Date of Deposit for each Trust Fund.
(j) The number of Units of the Trust referred to in Section
2.03 is as set forth in the section captioned "Essential Information"
in the Prospectus.
(k) As contemplated by the last paragraph of Section 3.04,
an initial distribution for the Trust will be made on the Distribution
Date and in the amount set forth in the section captioned "Unitholders
- Distributions to Unitholders" in the Prospectus to all holders of
record on the Record Date set forth thereunder, regardless of the
payment option selected. Thereafter, the amounts distributed shall be
calculated in the manner set forth in Section 3.04.
(l) For the purposes of Section 3.14, the Depositor shall
receive for portfolio surveillance services a fee calculated on the
basis of that maximum annual rate set forth in "Essential Information"
of $.25 per $1,000 principal amount of Bonds, based upon the largest
aggregate principal amount of Bonds in the Trust at any time during
such monthly period.
(m) For the purposes of Section 4.03, the Evaluator shall
receive for evaluation of the Bonds in the Trust a fee, payable
monthly, calculated on the basis of that annual rate set forth in
"Essential Information" per $1,000 principal amount of Bonds, based
upon the largest aggregate principal amount of Bonds in the Trust at
any time during such monthly period.
(n) For the purposes of Section 8.01(g), the liquidation
amount is hereby specified as the amount set forth under "Essential
Information - Minimum Value of Trust under which Trust Agreement may
be Terminated" in the Prospectus.
(o) For the purposes of Section 8.05, with the exception of the
first year, the compensation for the Trustee for each Trust is the
amount set forth in "Essential Information".
(p) Any monies held to purchase "when-issued" bonds will be
held in non-interest bearing accounts.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed.
KEMPER SECURITIES, INC.
through its Kemper Unit Investment Trusts
service
Depositor
By C. Perry Moore
Senior Vice President
INVESTORS FIDUCIARY TRUST COMPANY
By Ron Puett
Operations Officer
<PAGE> 5
SCHEDULE A
BONDS INITIALLY DEPOSITED
KEMPER DEFINED FUNDS SERIES 14
(Note: Incorporated herein and made a part hereof is the "Portfolio"
as set forth in the Prospectus.)
<PAGE> 1
EXHIBIT 3.1
Chapman and Cutler
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
March 2, 1994
Kemper Unit Investment Trusts,
a service of Kemper Securities, Inc.
77 West Wacker Drive, 5th Floor
Chicago, Illinois 60601
Re: Kemper Defined Funds Series 14
Gentlemen:
We have served as counsel for Kemper Unit Investment Trusts, a service
of Kemper Securities, Inc., as Sponsor and Depositor of Kemper Defined Funds
Series 14 (the "Fund"), in connection with the preparation, execution and
delivery of the Trust Agreement dated the date of this opinion between Kemper
Unit Investment Trusts, a service of Kemper Securities, Inc., as Depositor, and
Investors Fiduciary Trust Company, as Trustee, pursuant to which the Depositor
has delivered to and deposited the Bonds listed in the Schedule to the Trust
Agreement with the Trustee and pursuant to which the Trustee has issued to or
on the order of the Depositor a certificate or certificates representing all
the Units of fractional undivided interest in, and ownership of, the Fund,
created under said Trust Agreement.
In connection therewith we have examined such pertinent records and
documents and matters of law as we have deemed necessary in order to enable us
to express the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Trust Agreement and the
execution and issuance of certificates evidencing the Units of the Fund
have been duly authorized; and
2. The certificates evidencing the Units of the Fund, when
duly executed and delivered by the Depositor and the Trustee in
accordance with the aforementioned Trust Agreement, will constitute a
valid and binding obligation of the Fund and the Depositor in accordance
with the terms thereof.
<PAGE> 2
-2-
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 33-52231) relating to the Units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
<PAGE> 3
Chapman and Cutler
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
March 2, 1994
Kemper Unit Investment Trusts,
a service of Kemper Securities, Inc.
77 West Wacker Drive, 5th Floor
Chicago, Illinois 60601
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64l05
Re: Kemper Defined Funds Series 14
Gentlemen:
We have acted as counsel for Kemper Unit Investment Trusts, a service
of Kemper Securities, Inc., as Sponsor and Depositor of Kemper Defined Funds
Series 14 (the "Trust"), in connection with the issuance of Units of fractional
undivided interest in the Trust, under a Trust Agreement dated March 2, 1994
(the "Indenture") between Kemper Unit Investment Trusts, a service of Kemper
Securities, Inc., as Depositor and Evaluator, and Investors Fiduciary Trust
Company, as Trustee.
In this connection, we have examined the Registration Statement, the
Prospectus, the Indenture, and such other instruments and documents as we have
deemed pertinent.
The assets of the Trust will consist of portfolios of intermediate and
long-term corporate debt obligations issued by utility companies (the
"Corporate Bonds") and "Zero coupon" U.S. Treasury bonds (the "Treasury Bonds")
(collectively, the "Obligations") as set forth in the Prospectus. In the case
of Series 14, all Obligations have been issued after July 18, 1984.
Based upon the foregoing and upon an investigation of such matters of
law as we consider to be applicable, we are of the opinion that, under existing
Federal income tax law:
(i) The Trusts are not associations taxable as corporations
but will be governed by the provisions of subchapter J (relating to
Trusts) of chapter 1, Internal Revenue Code of 1986 (the "Code").
(ii) Each Unitholder will be considered as owning a pro rata
share of each asset of the Trusts in the proportion that the number of
Units held by him bears to the total number of Units outstanding.
Under subpart E, subchapter J of
<PAGE> 4
-2-
chapter 1 of the Code, income of the Trusts will be treated as income
of each Unitholder in the proportion described, and an item of Trust
income will have the same character in the hands of a Unitholder as it
would have in the hands of the Trustee. Each Unitholder will be
considered to have received his pro rata share of interest derived
from each Trust asset when such interest is received by the Trust.
Each Unitholder will also be required to include in taxable income for
Federal income tax purposes, original issue discount with respect to
his interest in any Obligation held by the Trust which was issued with
original issue discount at the same time and in the same manner as
though the Unitholder were the direct owner of such interest.
Original issue discount will be treated as zero with respect to
Corporate Bonds if it is "de minimis" within the meaning of Section
1273 of the Code and, based upon a Treasury Regulation (the
"Regulation") which was issued on December 28, 1992 regarding the
stripped bond rules of the Code, original issue discount with respect
to a Treasury Bond will be treated as zero if it is "de minimis" as
determined thereunder. A Unitholder may elect to include in taxable
income for Federal income tax purposes, market discount as it accrues
with respect to his interest in any Corporate Bond held by a Trust
which he is considered as having acquired with market discount at the
same time and in the same manner as though the Unitholder were the
direct owner of such interest.
(iii) The price a Unitholder pays for his Units, including
sales charges, is allocated among his pro rata portion of each
Obligation held by the Trust (in proportion to the fair market values
thereof on the date the Unitholder purchases his Units), in order to
determine his initial cost for his pro rata portion of each Obligation
held by the Trust. The Treasury Bonds are treated as bonds that were
originally issued at an original issue discount. Because the Treasury
Bonds represent interests in "stripped" U.S. Treasury bonds, a
Unitholder's initial cost for his pro rata portion of each Treasury
Bond held by the Trust (determined at the time he acquires his units,
in the manner described above) shall be treated as its "purchase
price" by the Unitholder. Under the special rules relating to
stripped bonds, original issue discount applicable to the Treasury
Bonds is effectively treated as interest for Federal income tax
purposes and the amount of original issue discount in this case is
generally the difference between the Bond's purchase price and its
stated redemption price at maturity. A Unitholder will be required to
include in gross income for each taxable year the sum of his daily
portions of original issue discount attributable to the Treasury Bonds
held by the Trust as such original issue discount accrues and will in
general be subject to Federal income tax with respect to the
total amount of such original issue discount that accrues for such
year even though the income is not distributed to the Unitholders
during such year to the extent it is greater than or equal to the "de
minimis" amount described below. To the extent the amount of such
discount is less than the respective "de minimis" amount, such
discount shall be treated as zero. In general, original issue
<PAGE> 5
-3-
discount accrues daily under a constant interest rate method which
takes into account the semi-annual compounding of accrued interest.
In the case of Treasury Bonds this method will generally result in an
increasing amount of income to the Unitholders each year.
(iv) Gain or loss will be recognized to a Unitholder upon
redemption or sale of his Units. Such gain or loss is measured by
comparing the proceeds of such redemption or sale with the adjusted
basis of the Units represented by his Certificate. Before adjustment,
such basis would normally be cost if the Unitholder had acquired his
units by purchase. In addition, such basis will be increased by the
Unitholder's aliquot share of the accrued original issue discount with
respect to each Obligation held by the Trust with respect to which
there was original issue discount at the time such Obligation was
issued and by accrued market discount which the Unitholder has elected
to annually include in income with respect to each Corporate Bond and
reduced by the Unitholder's aliquot share of the amortized
acquisition premium, if any, which the Unitholder has properly elected
to amortize under Section 171 of the Code on each Obligation held by
the Trust.
(v) If the Trustee disposes of a Trust asset (whether by
sale, exchange, redemption, payment on maturity or otherwise) gain or
loss will be recognized to the Unitholder and the amount thereof will
be measured by comparing the Unitholder's aliquot share of the total
proceeds from the transaction with his basis for his fractional
interest in the asset disposed of. Such basis is ascertained by
apportioning the tax basis for his Units (as of the date on which his
Units were acquired) among each of the Trust assets ratably according
to their values as of the valuation date nearest the date on which he
purchased such Units. A Unitholder's basis in his Units and of his
fractional interest in each Trust asset must be reduced by the
Unitholder's share of the amortized acquisition premium, if any, on
Obligations held by the Trust which the Unitholder has properly
elected to amortize under Section 171 of the Code and must be
increased by the Unitholder's share of the accrued original issue
discount with respect to each Obligation which, at the time the
Obligation was issued, had original issue discount and in the case of
a Corporate Bond, by accrued market discount which the Unitholder has
elected to annually include in income.
The Tax Reform Act of 1986 (the "Act"), among other things, provides
that certain itemized deductions, such as investment expenses, tax return
preparation fees and employee business expenses will be deductible by
individuals only to the extent they exceed 2% of such individual's adjusted
gross income. Temporary regulations have been issued which require Unitholders
to treat certain expenses of the Trusts as miscellaneous itemized deductions
subject to this limitation.
<PAGE> 6
-4-
The Code provides a complex set of rules governing the accrual of
original issue discount, including special rules relating to "stripped" debt
instruments such as the Treasury Bonds. These rules provide that original
issue discount generally accrues on the basis of a constant compound interest
rate. Special rules apply if the purchase price of an Obligation exceeds its
original issue price plus the amount of original issue discount which would
have previously accrued, based upon its issue price (its "adjusted issue
price"). Similarly, these special rules would apply to a Unitholder if the tax
basis of his pro rata portion of an Obligation issued with original issue
discount exceeds his pro rata portion of its adjusted issue price. The
application of these rules will also vary depending on the value of the
Obligation on the date a Unitholder acquires his Units, and the price a
Unitholder pays for his Units. In addition, as discussed above, the Regulation
provides that the amount of original issue discount on a stripped bond is
considered zero if the actual amount of original issue discount on such
stripped bond as determined under Section 1286 of the Code is less than a "de
minimis" amount, which, the Regulation provides, is the product of (i) 0.25
percent of the stated redemption price at maturity and (ii) the number of full
years from the date the stripped bond is purchased (determined separately for
each new purchaser thereof) to the final maturity date of the bond.
If a Unitholder's tax basis in his interest in any Corporate Bond held
by a Trust is less than his allocable portion of such Corporate Bond's stated
redemption price at maturity (or, if issued with original issue discount, his
allocable portion of its revised issue price on the date he buys his Units),
such difference will constitute market discount unless the amount of market
discount is "de minimis" as specified in the Code. Market discount accrues
daily computed on a straight line basis, unless the Unitholder elects to
calculate accrued market discount under a constant yield method. The market
discount rules do not apply to Treasury Bonds because they are stripped debt
instruments subject to special original issue discount rules as discussed in
paragraph (iii).
Accrued market discount is generally includible in taxable income of
the Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on Corporate Bonds held by a Trust, on the sale,
maturity or disposition of such Corporate Bonds by the Trust and on the sale of
a Unitholder's Units unless a Unitholder elects to include the accrued market
discount in taxable income as such discount accrues. If a Unitholder does not
elect to annually include accrued market discount in taxable income as it
accrues, deductions of any interest expense incurred by the Unitholder to
purchase or carry his Units will be reduced by such accrued market discount.
In general, the portion of any interest which is not currently deductible is
deductible when the accrued market discount is included in income upon the sale
or redemption of the Corporate Bonds or the sale of Units.
A Unitholder will recognize taxable gain (or loss) when all or part of
the pro rata interest in an Obligation is either sold by a Trust or redeemed or
when a Unitholder disposes of his Units in a taxable transaction, in each case
for an amount greater (or less) than his tax basis therefor.
<PAGE> 7
-5-
Any gain recognized on a sale or exchange and not constituting a
realization of accrued "market discount" and any loss will, under current law,
generally be capital gain or loss except in the case of a dealer or financial
institution. As previously discussed, gain attributable to any Corporate Bond
deemed to have been acquired by the Unitholder with market discount will be
treated as ordinary income to the extent the gain does not exceed the amount of
accrued market discount not previously taken into income. The tax cost
reduction requirements of the Code relating to amortization of bond premium
may, under certain circumstances, result in the Unitholder realizing a taxable
gain when his Units are sold or redeemed for an amount equal to or less than
his original cost.
If a Unitholder disposes of a Unit, he is deemed thereby to have
disposed of his entire pro rata interest in all trust assets including his pro
rata portion of all of the Corporate Bonds represented by the Unit. This may
result in a portion of the gain, if any, on such sale being taxable as ordinary
income under the market discount rules (assuming no election was made by the
Unitholder to include market discount in income as it accrues) as previously
discussed.
A Unitholder who is a foreign investor (i.e., an investor other than a
U.S. citizen or resident of U.S. corporation, partnership, estate or trust)
will not be subject to United States Federal income taxes, including witholding
taxes on interest income (including any original issue discount) on, or any
gain from the sale or other disposition or redemption of any Obligation held by
the Trust or the sale of his Units provided that all of the following
conditions are met:
(i) the interest income or gain is not effectively connected
with the conduct by the foreign investor of a trade or business within
the United States;
(ii) either
(a) the interest is United States source income
(which is the case for most securities issued by United States
issuers), the debt instrument is issued after July 18, 1984, the
foreign investor does not own, directly or indirectly, 10% or more of
the total combined voting power of all classes of voting stock of the
issuer of the debt instrument and the Unitholder is not a controlled
foreign corporation related (within the meaning of Section 864(d)(4)
of the Code) to the issuer of the debt instrument, or
(b) the interest income is not from sources within
the United States;
(iii) with respect to any gain, the foreign investor (if an
individual) is not present in the United States for 183 days or more
during his or her taxable year; and
(iv) the foreign investor provides all certification which may
be required of his status.
<PAGE> 8
-6-
It should be noted that the "Revenue Reconciliation Act of 1993,"
includes a provision which eliminates the exemption from United States
taxation, including withholding taxes, for certain "contingent interest," This
provision applies to interest received after December 31, 1993. No opinion is
expressed herein regarding the potential applicability of this provision and
whether United States taxation or withholding taxes could be imposed with
respect to income derived from the Units as a result thereof.
We have also examined the laws of the State of Missouri to determine
their applicability to the Trust. It is our opinion that under Missouri law,
as presently enacted and construed:
(i) The Trust is not an association taxable as a corporation
for Missouri income tax purposes.
(ii) The Unitholders of the Trust will be treated as the owners
of a pro rata portion of the Trust and the income of the Trust will
therefore be treated as income of the Unitholders under Missouri law.
(iii) The Trust will not be subject to the Kansas City, Missouri
Earnings and Profits Tax and each Unitholder's share of income of the
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).
The scope of this opinion is expressly limited to the matters set
forth herein, and, except as expressly set forth above, we express no opinion
with respect to any other taxes, including state or local taxes or collateral
tax consequences with respect to the purchase, ownership and disposition of
Units.
Very truly yours
CHAPMAN AND CUTLER
MJK/ch
<PAGE> 1
EXHIBIT 4.1
[LOGO] MOODY'S INVESTORS SERVICE
March 2, 1994
Mike Thoms
Kemper Securities Group, Inc.
Unit Investment Trust
77 West Wacker Drive - 5th Floor
Chicago, IL 60601
Re: Kemper Defined Funds Series 14 (Insured Corporate Series 3 and Insured
Corporate Series 4)
Dear Mr. Thoms:
Please be advised that once Moody's Investors Service has independently verified
the existence of insurance policies on all Bonds expected to be included in the
Trusts, we will assign Aaa ratings to the Units in the series of Trusts
described above. The ratings on the Units will reflect the portfolios of the
Trusts, which will be composed solely of securities covered by bond insurance
policies. The insurance companies issuing the policies are all rated Aaa by
Moody's.
Insurance guarantying the payments of principal and interest, when due, on the
Bonds in the portfolio of the Trust has been obtained from an insurance company
either by the Trust, by the issuer of the Bonds involved, by a prior owner of
the Bonds or by the Sponsor prior to the deposit of such Bonds in the Trust. It
is important to note that the insurance relates only to the Bonds in the Trust
and does not directly insure the Units or assure payment of the market value
thereof. While as a result of such insurance the Units of the Trust will receive
a rating of "Aaa" by Moody's Investors Service. Moody's has indicated that this
rating is not a recommendation to buy, hold or sell Units. This rating reflects
Moody's determination that the Bonds in the portfolio of the Trust are judged to
be of the best quality. This rating does not reflect a determination by Moody's
that the Unitholder will receive all principal and interest payable on such
Bonds through their nominal maturity. This is due to the possibility that the
Trust may, for a variety of reasons, dispose of such Bonds, including sales to
meet redemptions, to pay expenses of the Trustee, to wind up the Trust when the
value of the Bonds in the Trust falls below a certain minimum amount and for
other reasons specified in the Indenture. Accordingly, while the "Aaa" rating
reflects that such Bonds in the portfolio carry the smallest degree of credit
risk and they are generally considered to be "gilt edged", this rating does not
assure a Unitholder that it will receive all principal and interest payable on
such Bonds through their nominal maturity.
This letter evidences our consent to the use of the name of Moody's Investors
Service in connection with the rating assigned to the Units in the registration
statement or prospectus relating to the Units or the Trusts. However, this
letter should not be construed as a consent by us, within the meaning of Section
7 of the Securities Act of 1933, to the use of the name of Moody's Investors
Service in connection with the ratings assigned to the securities contained in
the Trust. You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Please send us copies of the prospectus as soon as it is available, as well as
any mini-prospectus or other sales materials.
Please do not hesitate to call should you have any additional questions or
requests.
Sincerely,
[SIG]
Laura Levenstein
<PAGE> 1
EXHIBIT 4.2
[MULLER DATA LOGO]
Kemper Capital Markets, Inc.
Unit Investment Trusts
77 West Wacker Drive - 5th Floor
Chicago, Illinois 60601-1994
RE: Kemper Defined Funds Series 14 (Insured Corporate Series 3 and Insured
Corporate Series 4)
Gentlemen:
We have examined Registration Statement File No. 33-52231 for the above
captioned trust. We hereby acknowledge that Muller Data Corporation is currently
acting as the evaluator for the trust. We hereby consent to the use in the
Registration Statement of the reference to Muller Data Corporation as evaluator.
In addition, we hereby confirm that the ratings indicated in the Registration
Statement for the respective bonds comprising the trust portfolio are the
ratings indicated in our Muniview data base as of the date of the Evaluation
Report.
You are hereby authorized to file a copy of this letter with the Securities and
Exchange Commission.
Sincerely,
[SIG]
Neil Edelstein,
Executive Vice President
[Letterhead/Logo]
<PAGE> 1
EXHIBIT 4.3
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' CONSENT
We have issued our report dated March 2, 1994 on the statements of
condition and related bond portfolios of Kemper Defined Funds Series 14 (Insured
Corporate Series 3 and Insured Corporate Series 4) as of March, 2, 1994
contained in the Registration Statement on Form S-6 and in the Prospectus. We
consent to the use of our report in the Registration Statement and in the
Prospectus and to the use of our name as it appears under the caption "Other
Matters--Independent Certified Public Accountants."
GRANT THORNTON
Chicago, Illinois
March 2, 1994
