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SUPPLEMENT TO THE PROSPECTUS
Kemper Defined Funds Series 15
Supplement to pages commencing with page A-8 of the Prospectus dated
February 23, 1994
The Prospect section entitled "TAX STATUS" commencing on page A-8 of the
Prospectus is deleted and replaced in its entirety with the following:
TAX STATUS
Regulated Investment Companies
Each of the GNMA Portfolio Series of the Trust are associations taxable as
corporations under the Internal Revenue Code and intend to qualify for and
elect tax treatment as "regulated investment companies" under the Internal
Revenue Code of 1986, as amended (the "Code"). By qualifying for and electing
such treatment, such Series of the Trust will not be subject to Federal income
tax on net investment income or net capital gains distributed to Unitholders of
such Series. The Code imposes a 4% excise tax on certain undistributed income
of a regulated investment company that does not timely distribute certain
percentages of its ordinary taxable income and capital gains by the end of each
calendar year. Each Series of the GNMA Portfolio intends to timely distribute
taxable income and capital gains to avoid the imposition of such tax.
Distributions of the entire net investment income of each Series of the Trust
is required by the Indenture.
Distributions from a GNMA Portfolio Series of the Trust, to the extent of the
earnings and profits of such Series, will constitute dividends for Federal
income tax purposes which are taxable as ordinary income to Unitholders.
Distributions of a Series' net investment income and any net short-term capital
gain will be taxable as ordinary income to the Unitholders of such Series.
Distributions from each Series of the Trust will not be eligible for the 70%
dividends received deduction for corporations.
Although distributions generally will be treated as distributed when paid,
distributions declared in October, November or December, payable to Unitholders
of record on a specified date in one of those months and paid during January of
the following year will be treated as having been distributed by each Series of
the Trust (and received by the Unitholders) on December 31 of the year such
distributions are declared.
Distributions which a GNMA Portfolio Series of the Trust designate as capital
gain dividends will be taxable to Unitholders thereof as long-term capital
gains, regardless of the length of time the Units have been held by a
Unitholder. Distributions in partial liquidation, reflecting the proceeds of
prepayments, redemptions, maturities (including monthly mortgage payments of
principal in GNMA Series) or sales of Portfolio Obligations from a Series of
the Trust (exclusive of net capital gain) will not be taxable to Unitholders of
such Series to the extent that they represent a return of capital for tax
purposes. The portion of distributions which represents a
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return of capital will, however, reduce a Unitholder's basis in his Units, and
to the extent they exceed the basis of his Units will be taxable as a capital
gain. A Unitholder will realize a taxable gain or loss when his Units are sold
or redeemed for an amount different from his original cost after reduction for
previous distributions to the extent that they represented a return of capital.
Such gain or loss will constitute either a long-term or short-term capital gain
or loss depending upon the length of time the Unitholder has held his Units.
Any loss on Units held six months or less will be treated as long term capital
loss to the extent of any long-term capital gains dividends received (or deemed
to have been received) by the Unitholder with respect to such Units. For
taxpayers other than corporations, net capital gains are presently subject to a
maximum stated marginal rate of 28%. 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. A capital loss is long-term if the asset is held for more
than one year and short-term if held for one year or less.
Under the Code, certain miscellaneous itemized deductions, such as investment
expenses, tax return preparation fees and employee business expenses, will be
deductible by individuals only to the extent they exceed 2% of adjusted gross
income. Miscellaneous itemized deductions subject to this limitation under
present law do not include expenses incurred by a GNMA Portfolio Series as long
as the Units of such GNMA Portfolio Series are held by or for 500 or more
persons at all times during the taxable year. In the event the Units of a GNMA
Portfolio Series are held by fewer than 500 persons, additional taxable income
will be realized by the individual (and other noncorporate) Unitholders in
excess of the distributions received from such GNMA Portfolio Series.
The Revenue Reconciliation Act of 1993 (the "Act") raised tax rates on ordinary
income while capital gains remain subject to a 28% maximum stated rate.
Because some or all capital gains are taxed at a comparatively lower rate under
the Act, the 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.
If a Ginnie Mae has been purchased by a GNMA Portfolio Series of the Trust at a
market discount (i.e., for a purchase price less than its outstanding principal
amount) unless the amount of market discount is "deminimis" as specified in the
Code, each payment of principal on the Ginnie Mae will constitute ordinary
income to such Series of the Trust to the extent of any accrued market
discount. In the case of a Ginnie Mae, the amount of market discount that is
deemed to accrue each month shall generally be the amount of discount that
bears the same ratio to the total amount of remaining market discount that the
amount of interest paid during the accrual period (each month) bears to the
total amount of interest remaining to be paid on the Ginnie Mae as of the
beginning of the accrual period.
The 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.
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If a Unitholder does not elect to annually include accrued market discount in
taxable income as it accrues, deduction 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 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.
The tax basis of a Unitholder with respect to his interest in a U.S. Treasury
obligations is increased by the amount of original issue discount (and market
discount, if the Unitholder elects to include market discount, if any, on the
U.S. Treasury obligations 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.
A Unitholder will recognize taxable capital gain (or loss) when all or part of
his pro rata interest in a U.S. Treasury obligation 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 U.S. Treasury obligation 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 U.S.
Treasury obligation 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. 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 U.S. Treasury obligations 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.
Additional Units of a GNMA Portfolio Series of the Trust may be issued after
the Initial Date of Deposit in respect of additional Portfolio Obligations
deposited in such Series by the Sponsor. Because of possible market interest
rate fluctuations, the purchase price to a Series of the Trust of such
additional Portfolio Obligations may differ from the purchase price of the
Ginnie Maes in the Trust Fund thereof on the Initial Date of Deposit. If
interest rates decline and such additional Portfolio Obligations are purchased
at a higher price than the Portfolio Obligations
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originally deposited, then the amounts includable in the taxable income of such
Series of the Trust in proportion to the asset value of that Series of the
Trust will be reduced for all Unitholders thereof, not just the Unitholders of
such additional Units. Conversely, if interest rates rise and such additional
Portfolio Obligations are purchased at a lower price than the Portfolio
Obligations originally deposited, then the amounts includable in the taxable
income of such Series of the Trust in proportion to the asset value of that
Series of the Trust will be increased for all Unitholders thereof, not just the
Unitholders of such additional Units.
It should be noted that the 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.
Each Unitholder of each Series of the Trust shall receive an annual statement
describing the tax status of the distributions paid by such Series of the
Trust.
It should be remembered that even if distributions are reinvested, they are
still treated as distributions for income tax purposes.
June 7, 1994
