<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 1995
REGISTRATION NO. 33-
CIK #910894
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
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 30
B. NAME OF DEPOSITOR: Kemper Securities, Inc.
C. COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES:
KEMPER UNIT INVESTMENT TRUSTS
77 West Wacker Drive, 29th Floor
Chicago, Illinois 60601
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
Copy to:
Robert K. Burke MARK J. KNEEDY
Kemper Unit Investment Trusts c/o Chapman and Cutler
77 West Wacker Drive, 29th Floor 111 West Monroe Street
Chicago, Illinois 60601 Chicago, Illinois 60603
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title and amount of Proposed maximum Amount of
securities being registered aggregate offering registration fee
price
<S> <C> <C>
Series 30 An indefinite number of Indefinite $500
Units of Beneficial Interest
pursuant to Rule 24f-2 under
the Investment 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.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
<PAGE>
KEMPER DEFINED FUNDS SERIES 30
-----------------
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 ............. }Underwriting
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 ............................................. } *
II. GENERAL DESCRIPTION OF THE TRUST AND
SECURITIES OF THE TRUST
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
}of the Insured Trust Funds
11. Type of securities comprising units .................... }The Trust Funds; Portfolios
12. Certain information regarding periodic
</TABLE>
-I-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
payment certificates ................................... } *
13. (a) Load, fees, expenses, etc. ......................... }Interest, Estimated Long-Term
}Return
}and Estimated Current
}Return; Expenses of the
}Trust
(b) Certain information regarding periodic
payment certificates .............................. } *
(c) Certain percentages ................................ }Essential Information; Public
}Offering of Units; Insurance
}on the Portfolios of the
}Insured Trust Funds
(d) Certain other fees, etc. payable
by holders ........................................ }Unitholders
(e) Certain profits receivable by depositor,
principal, underwriters, writers, }Expenses of the Trust;
trustee or 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 ....................................... } *
16. Acquisition and disposition of underlying
securities ............................................ }The Trust Funds; Portfolios;
}Investment Supervision
}Market for Units;
17. Withdrawal or redemption ............................... }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 Trust
(d) Schedule of distributions .......................... } *
}Unitholders;
19. Records, accounts and reports .......................... }Redemption; 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 ................................... } *
</TABLE>
-II-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
24. Other material provisions of trust
agreement ............................................. } *
III. ORGANIZATION, PERSONNEL AND
AFFILIATED PERSONS OF DEPOSITOR
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 ............. }Administration of the Trusts
(b) N.A.S.D. membership of principal
underwriters ...................................... } *
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
</TABLE>
-III-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
principal underwriters ................................ }Public Offering of Units
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
46. (a) Redemption valuation ............................... }Units; Public Offering of
}Units
(b) Schedule as to redemption price .................... } *
}Market for Units;
47. Maintenance of position in underlying .................. }Public Offering of Units;
}Redemption
V. INFORMATION CONCERNING THE TRUSTEE
OR CUSTODIAN
48. Organization and regulation of trustee ................. }Administration of the Trusts
49. Fees and expenses of trustee ........................... }Expenses of the Trusts
50. Trustee's lien ......................................... } *
VI. INFORMATION CONCERNING INSURANCE OF
HOLDERS OF SECURITIES
51. Insurance of holders of trust's
securities ............................................ }Cover Page; Expenses of the
}Trusts; Insurance on the
}Portfolios of the Insured Trust
}Funds
VII. POLICY OF REGISTRANT
52. (a) Provisions of trust agreement with
respect to selection or elimination ............... }The Trust Funds; Portfolios;
of underlying securities .......................... }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 .................................... }Portfolios
}Federal Tax Status
</TABLE>
-IV-
<PAGE>
<TABLE>
<CAPTION>
VIII. FINANCIAL AND STATISTICAL INFORMATION
<S> <C>
54. Trust's securities during last ten years .............. } *
55. } *
56. Certain information regarding periodic } *
57. payment certificates ................................. } *
58. } *
59. Financial statements (Instruction 1(c)
to Form S-6) ......................................... } *
</TABLE>
-V-
<PAGE>
Preliminary Prospectus Dated February 14, 1995
Kemper Defined Funds Series 30
(A Unit Investment Trust)
The attached final Prospectus for a prior Series of the Fund is hereby used
as a preliminary Prospectus for the above stated Series. The narrative
information and structure of the attached final Prospectus will be substantially
the same as that of the final Prospectus for this Series. Information with
respect to pricing, the number of Units, dates and summary information regarding
the characteristics of securities to be deposited in this Series is not now
available and will be different since each Series has a unique Portfolio.
Accordingly the information contained herein with regard to the previous Series
should be considered as being included for informational purposes only. Ratings
of the securities in this Series are expected to be comparable to those of the
securities deposited in the previous Series. However, the Estimated Current
Return for this Series will depend on the interest rates and offering prices of
the securities in this Series and may vary materially from that of the previous
Series.
A registration statement relating to the units of this Series will be filed
with the Securities and Exchange Commission but has not yet become effective.
Information contained herein is subject to completion or amendment. Such Units
may not be sold nor may offer 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 the Units 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.
<PAGE>
KEMPER DEFINED FUNDS SERIES 29
(GOVERNMENT SECURITIES PORTFOLIO AND TAX-EXEMPT PORTFOLIO)
U.S. Treasury Portfolio Series 8, 9 and 10 (the "U.S. Treasury Portfolios" or
the "Government Securities Portfolios") were formed for the purpose of
providing safety of capital and investment flexibility through an investment in
a portfolio of U.S. Treasury Obligations that are backed by the full faith and
credit of the United States government. Interest income distributed by the U.S.
Treasury Portfolio Series is exempt from state personal income taxes in all
states. Certain Series of the U.S. Treasury Portfolios may be available to non-
resident aliens and the income from such Series, provided certain conditions
are met, will be exempt from withholding for U.S. Federal income tax for such
foreign investors. A FOREIGN INVESTOR MUST PROVIDE A COMPLETED W-8 FORM TO HIS
FINANCIAL REPRESENTATIVE OR THE TRUSTEE TO AVOID WITHHOLDING ON HIS ACCOUNT.
The value of the Units, the estimated current return and the estimated long-
term return to new purchasers will fluctuate with the value of the portfolio
which will generally decrease or increase inversely with changes in interest
rates.
Units of the Government Securities Portfolio are particularly well suited for
purchase by Individual Retirement Accounts, Keogh Plans, pension funds and
other tax deferred retirement plans. Minimum purchase for any such Series of
the Trust: $1,000 ($250 for IRA accounts).
Insured California Series 13 and Insured Michigan Series 9 (the "Insured State
Trusts", "Insured Trusts" or the "Tax-Exempt Portfolios") were formed for the
purpose of gaining interest income free from Federal and State income taxes
and, where applicable, local income taxes and/or property taxes while
conserving capital and diversifying risks by investing in an insured, fixed
portfolio consisting of obligations issued by or on behalf of the State for
which such Trust Fund is named or counties, municipalities, authorities or
political subdivisions thereof.
Insurance guaranteeing the scheduled payment of principal and interest on all
of the Municipal Bonds in the portfolio of each Insured Trust has been obtained
directly by the issuer or the Sponsor from Municipal Bond Investors Assurance
Corporation or other insurers. See "Insurance on the Portfolios of the Insured
Trust Funds" and "Portfolios." Insurance obtained by a Municipal Bond issuer is
effective so long as such Bonds are outstanding. THE INSURANCE DOES NOT RELATE
TO THE UNITS OF THE INSURED TRUSTS OFFERED HEREBY OR TO THEIR MARKET VALUE. As
a result of such insurance, the Units of the Insured Trusts have received a
rating of "Aaa" by Moody's Investors Service, Inc. See "Insurance on the
Portfolios of the Insured Trust Funds." No representation is made as to any
insurer's ability to meet its commitments. Because the U.S. Treasury
Obligations in each U.S. Treasury Portfolio are backed by the full faith and
credit of the United States government, insurance has not been obtained for the
U.S. Treasury Portfolios. The Units of the U.S. Treasury Portfolios have
received a rating of "AAA" by Standard & Poor's Ratings Group.
Units of the Trusts 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.
- --------------------------------------------------------------------------------
SPONSOR: KEMPER UNIT INVESTMENT TRUSTS
a service of Kemper Securities, Inc.
- --------------------------------------------------------------------------------
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 JANUARY 24, 1995.
<PAGE>
SUMMARY
PUBLIC OFFERING PRICE. The Public Offering Price per Unit of a Trust Fund
during the initial offering period is equal to a pro rata share of the offering
prices of the Securities in such Trust Fund plus or minus a pro rata share of
cash, if any, in the Principal Account held or owned by such Trust Fund, plus
any 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 Securities in each Trust Fund
plus or minus a pro rata share of cash, if any, in the Principal Account held
or owned by such Trust Fund, plus any 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 is reduced on a graduated
scale for certain sales. The minimum purchase for each Trust is $1,000.
ADDITIONAL DEPOSITS. The Sponsor may, from time to time after the Initial Date
of Deposit, deposit additional U.S. Treasury Obligations in the U.S. Treasury
Portfolios, provided it maintains, as nearly as is practicable, the original
proportionate relationship of the Securities in such Trust's portfolio. See
"The Trust Funds."
INTEREST AND PRINCIPAL DISTRIBUTIONS. Distributions of the estimated annual
interest income to be received by each Trust Fund, after deduction of estimated
expenses, will be made monthly. See "Essential Information." Distributions of
funds, if any, in the Principal Account will be made as provided in
"Unitholders--Distributions to Unitholders."
REINVESTMENT. Each Unitholder of a Trust Fund offered herein may elect to have
distributions of principal or interest or both automatically invested without
charge in shares of certain mutual funds sponsored by Kemper Financial
Services, Inc. See "Distribution Reinvestment."
ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN. As of the opening of
business on the Initial Date of Deposit, the Estimated Long-Term Return and the
Estimated Current Return, if applicable, 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, the Sponsor and Evaluator and with the
principal prepayment, scheduled payments, redemption, maturity, exchange or
sale of Securities while the Public Offering Price will vary with changes in
the offering price of the underlying Securities; therefore, there is no
assurance that the present Estimated Current Return will be realized in the
future. Estimated Long-Term Return is calculated using a formula which (1)
takes into consideration, and determines and factors in the relative weightings
of, the market values, yields (which takes into account the amortization of
premiums and the accretion of discounts) and estimated retirement dates of all
of the Securities 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 Securities and the expenses of a
Trust will change, there is no assurance that the present Estimated Long-Term
Return will be realized in the future. Estimated Current Return and Estimated
Long-Term Return are expected to differ because the calculation of Estimated
Long-Term Return reflects the estimated date and amount of principal returned
while Estimated Current Return calculations include only net annual interest
income and Public Offering Price.
MARKET FOR UNITS. After the initial offering period, while under no obligation
to do so, the Sponsor intends to, and certain of the other Underwriters may,
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 Securities in the Trust Fund plus any accrued interest.
RISK FACTORS. An investment in the Trusts should be made with an understanding
of the risks associated therewith, including, among other factors, the
inability of the issuer or an insurer to pay the principal of or interest on a
bond when due, volatile interest rates, early call provisions, and changes to
the tax status of the Securities. See "Portfolios--Risk Factors" and "Risk
Factors" for each Trust.
2
<PAGE>
KEMPER DEFINED FUNDS SERIES 29
(GOVERNMENT SECURITIES PORTFOLIO)
ESSENTIAL INFORMATION
AT THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT
SPONSOR ANDKEMPER UNIT INVESTMENT TRUSTS, A SERVICE OF
EVALUATOR: KEMPER SECURITIES, INC.
TRUSTEE: INVESTORS FIDUCIARY TRUST COMPANY
<TABLE>
<CAPTION>
U.S. U.S. U.S.
TREASURY TREASURY TREASURY
SERIES 8 SERIES 9 SERIES 10
--------- --------- ---------
<S> <C> <C> <C>
Public Offering Price per Unit(1)(2) ........ $ 10.154 $ 8.654 $ 10.248
Principal Amount of Securities per Unit...... $ 10.000 $ 10.000 $ 10.000
Estimated Current Return based on Public Of-
fering Price(3)(4)(5)....................... 7.08% --% 7.38%
Estimated Long-Term Return(3)(4)(5).......... 7.21% 7.26% 7.43%
Principal Amount of Securities............... $ 500,000 $ 500,000 $ 500,000
Number of Units.............................. 50,000 50,000 50,000
Fractional Undivided Interest per Unit....... 1/50,000 1/50,000 1/50,000
Calculation of Public Offering Price--Less
than 10,000 or 50,000 Units, as applicable:
Aggregate Offering Price of Securities...... $ 498,812 $ 424,244 $ 502,375
Aggregate Offering Price of Securities per
Unit....................................... $ 9.976 $ 8.485 $ 10.048
Plus Sales Charge per Unit(6)............... $ 0.178 $ 0.169 $ 0.200
Public Offering Price per Unit(1)........... $ 10.154 $ 8.654 $ 10.248
Redemption Price per Unit.................... $ 9.951 $ 8.471 $ 10.023
Sponsor's Initial Repurchase Price per Unit.. $ 9.976 $ 8.485 $ 10.048
Excess of Public Offering Price per Unit over
Redemption Price per Unit................... $ 0.203 $ 0.183 $ 0.225
Excess Public Offering Price per Unit over
Sponsor's Initial Repurchase Price per Unit. $ 0.178 $ 0.169 $ 0.200
Calculation of Estimated Net Annual Interest
Rate per Unit:
Estimated Annual Interest Rate.............. 7.3250% 0.1080% 7.7000%
Less: Estimated Annual Expenses expressed as
a percentage............................... 0.1350% 0.1080% 0.1300%
--------- --------- ---------
Estimated Net Annual Interest Rate.......... 7.1900% 0.0000% 7.5700%
Estimated Daily Rate of Net Interest Accrual
per Unit.................................... $0.001997 $0.000000 $0.002101
Trustee's Annual Fee per $1,000 principal
amount of Securities(7)..................... $ 0.83 $ 0.58 $ 0.83
Trustee's Annual Estimated Expenses per
$1,000 principal amount of Securities(7).... $ 0.17 $ 0.15 $ 0.17
Interest Payments(8):
First Payment per Unit, representing 30
days....................................... $ 0.05991 $ 0.00000 $ 0.06303
Regular Monthly Payment per Unit............ $ 0.05991 $ 0.00000 $ 0.06303
Sales Charge(6)
As a percentage of Public Offering Price per
Unit....................................... 1.750% 1.950% 1.950%
As a percentage of net amount invested...... 1.784% 1.992% 1.990%
As a percentage of net amount invested in
earning assets............................. 1.784% 1.992% 1.990%
Weighted Average Years to Maturity........... 2.3 years 2.3 years 4.3 years
Evaluator's Maximum Annual Evaluation Fee per
$1,000 Principal Amount of Securities....... $ 0.25 $ 0.25 $ 0.25
Sponsor's Maximum Annual Surveillance Fee per
$1,000 Principal Amount of Securities....... $ 0.10 $ 0.10 $ 0.10
Cusip Numbers................................ 487905168 487905333 487905341
Initial Date of Deposit...................... January 24, 1995
First Settlement Date........................ January 31, 1995
Mandatory Termination Date................... December 31, 2002
Minimum principal value of the Trust under
which Trust Agreement may be terminated..... 40% of the initial aggregate
principal amount of
Securities deposited in the
Trust
</TABLE>
- --------
See "Notes to Essential Information."
3
<PAGE>
KEMPER DEFINED FUNDS SERIES 29
(TAX-EXEMPT PORTFOLIOS)
ESSENTIAL INFORMATION
AS OF THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT
SPONSOR ANDKEMPER UNIT INVESTMENT TRUSTS, A SERVICE OF
EVALUATOR: KEMPER SECURITIES, INC.
TRUSTEE: INVESTORS FIDUCIARY TRUST COMPANY
The income, expense and distribution data set forth below has been calculated
for Unitholders purchasing less than 10,000 Units. Unitholders purchasing more
than 10,000 Units will receive a slightly higher return because of the reduced
sales charge for larger purchases.
<TABLE>
<CAPTION>
INSURED INSURED
CALIFORNIA MICHIGAN
SERIES 13 SERIES 9
---------- ----------
<S> <C> <C>
Public Offering Price per Unit (1)(2)................. $ 10.156 $ 9.822
Principal Amount of Municipal Bonds per Unit.......... $ 10.000 $ 10.000
Estimated Current Return based on Public Offering
Price (3)(4)(5)(9)................................... 4.94% 5.94%
Estimated Long-Term Return (3)(4)(5)(9)............... 5.20% 6.01%
Estimated Normal Annual Distribution per Unit (9)..... $ 0.50148 $ 0.58284
Principal Amount of Municipal Bonds................... $3,750,000 $3,440,000
Number of Units....................................... 375,000 344,000
Fractional Undivided Interest per Unit................ 1/375,000 1/344,000
Calculation of Public Offering Price--Less than 10,000
Units:
Aggregate Offering Price of Bonds.................... $3,694,208 $3,213,247
Aggregate Offering Price of Bonds per Unit........... $ 9.851 $ 9.341
Plus Sales Charge per Unit (6)....................... $ 0.305 $ 0.481
Public Offering Price per Unit (1)(2)................ $ 10.156 $ 9.822
Redemption Price per Unit............................. $ 9.791 $ 9.262
Sponsor's Initial Repurchase Price per Unit........... $ 9.851 $ 9.341
Excess of Public Offering Price per Unit over Redemp-
tion Price per Unit.................................. $ 0.365 $ 0.560
Excess of Public Offering Price per Unit over Spon-
sor's Initial Repurchase Price per Unit.............. $ 0.305 $ 0.481
Calculation of Estimated Net Annual Interest Income
per Unit (9):
Estimated Annual Interest Income..................... $ 0.52375 $ 0.60878
Less: Estimated Annual Expense....................... $ 0.02213 $ 0.02584
---------- ----------
Estimated Net Annual Interest Income................. $ 0.50162 $ 0.58294
Estimated Daily Rate of Net Interest Accrual per Unit. $ 0.001393 $ 0.001619
Minimum Principal Value of the Trust under which Trust
Agreement may be terminated.......................... $ 750,000 $ 688,000
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.
Trustee's Annual Fee per $1,000 principal amount of
Municipal Bonds (7).................................. $ 1.300 $ 1.650
Reduction of Trustee's fee per Unit during the first
year (9)............................................. $ -- $ --
Estimated annual interest income per Unit during the
first year (9)....................................... $ 0.52375 $ 0.60878
Interest Payments (8):
First Payment per Unit, representing 30 days......... $ 0.04179 $ 0.04857
Estimated Normal Monthly Distribution per Unit....... $ 0.04179 $ 0.04857
Estimated Normal Annual Distribution per Unit........ $ 0.50148 $ 0.58284
Sales Charge (6):
As a percentage of Public Offering Price per Unit.... 3.000% 4.900%
As a percentage of net amount invested............... 3.096% 5.149%
As a percentage of net amount invested in earning as-
sets................................................ 3.096% 5.149%
Date of Trust Agreements.............................. January 24, 1995
First Settlement Date................................. January 31, 1995
Mandatory Termination Date............................ December 31, 2024
Evaluator's Annual Evaluation Fee..................... Maximum of $0.30 per
$1,000 Principal
Amount of Municipal
Bonds
Sponsor's Annual Surveillance Fee..................... Maximum of $0.002 per
Unit
</TABLE>
- --------
See "Notes to Essential Information."
4
<PAGE>
NOTES TO ESSENTIAL INFORMATION:
(1) Anyone ordering Units for settlement after the First Settlement Date will
pay accrued interest from such date to the date of settlement (normally
five business days after order) less distributions from the Interest
Account subsequent to the First Settlement Date. For purchases settling on
the First Settlement Date, no accrued interest will be added to the Public
Offering Price.
(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 Fund 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 Initial Date of Deposit a Principal Amount of
Securities per Unit of $10.
(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
Securities while the Public Offering Price will vary with changes in the
offering price of the underlying Securities; 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 Securities 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 Securities 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, scheduled payments,
redemption, maturity, call, exchange or sale of the underlying Securities.
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) The sales charge as a percentage of the net amount invested in earning
assets will increase as 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.
(7) See "Expenses of the Trusts."
(8) Unitholders will receive interest distributions monthly. The Record Date
is the first day of the month, commencing March 1, 1995, and the
distribution date is the fifteenth day of the month, commencing March 15,
1995.
(9) 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 above. The Trustee has agreed to the foregoing to cover all or a
portion of the interest on any Municipal 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."
5
<PAGE>
THE TRUST FUNDS
GENERAL
Kemper Defined Funds Series 29 includes the following separate unit investment
trusts created by the Sponsor under the name Kemper Defined Funds: "U.S.
Treasury Portfolio Series 8," "U.S. Treasury Portfolio Series 9," "U.S.
Treasury Portfolio Series 10," (the "U.S. Treasury Portfolios" or the
"Government Securities Portfolios"), and "Insured California Series 13" and
"Insured Michigan Series 9" (the "Insured State Trusts" or "Tax-Exempt
Portfolios") (hereinafter collectively called the "Trusts" or "Trust Funds").
Each of the Trust Funds is generally similar but each is separate and is
designated by a different series number. Each of the Trust Funds was created
under the laws of the State of Missouri pursuant to a trust indenture dated the
Initial Date of Deposit (the "Trust Agreements" or the "Indenture") between
Kemper Unit Investment Trusts, a service of Kemper Securities, Inc. (the
"Sponsor") and Investors Fiduciary Trust Company (the "Trustee").*
The U.S. Treasury Portfolios were formed for the purpose of providing safety of
capital and investment flexibility through an investment in a portfolio of U.S.
Treasury Obligations that are backed by the full faith and credit of the United
States government. The U.S. Treasury Portfolios are also formed for the purpose
of providing protection against changes in interest rates and also passing
through to Unitholders in all states the exemption from state personal income
taxes afforded to direct owners of U.S. obligations. For all Government
Securities Portfolios, value of the Units, the estimated current return and
estimated long-term return to new purchasers will fluctuate with the value of
the Securities included in the portfolio which will generally increase or
decrease inversely with changes in interest rates.
The Insured State Trusts were formed for the purpose of gaining interest income
free from Federal and State income taxes and, where applicable, local income
and/or property taxes while conserving capital and diversifying risks by
investing in an insured, fixed portfolio consisting of obligations issued by or
on behalf of the State for which such Trust Fund is named or counties,
municipalities, authorities or political subdivisions thereof.
There is, of course, no guarantee that the Trust Funds' objectives will be
achieved.
On the Initial Date of Deposit, the Sponsor delivered to the Trustee that
aggregate principal amount of Securities or contracts for the purchase thereof
for deposit in the Trust Funds as set forth under "Essential Information." Of
such principal amount, the amount specified in "Essential Information" was
deposited in each Trust. In exchange for the Securities so deposited, the
Trustee delivered to the Sponsor documentation evidencing the ownership of that
number of Units for each Trust Fund as indicated under "Essential Information."
Offerers in the states of Illinois, Indiana, Virginia and Washington may only
purchase Units of the U.S. Treasury Portfolios.
Each Trust Fund initially consists of obligations or delivery statements (i.e.,
contracts) to purchase obligations (the "Securities"). The Sponsor has a
limited right of substitution for Bonds in the event of a failed contract. See
"Portfolios." As used herein, the term "Government Securities" or "U.S.
Treasury Portfolio Obligations" means the U.S. Treasury Obligations initially
deposited in the U.S. Treasury Portfolio Series of the Trust and includes all
contracts to purchase such U.S. Treasury Obligations accompanied by an
irrevocable letter of credit sufficient to perform such contracts initially
deposited in the Government Securities Portfolios and described herein under
"Portfolio" for each Trust and any additional U.S. Treasury Obligations
deposited in the U.S. Treasury Portfolio Series following the Initial Date of
Deposit. As used herein, the terms "Municipal Bonds" and "Bonds" mean the
obligations deposited in the Tax-Exempt Portfolios and include all contracts to
purchase such obligations accompanied by an irrevocable letter of credit
sufficient to perform such contracts.
- ------------------
* Reference is made to the Trust Agreements, and any statements contained
herein are qualified in their entirety by the provisions of the Trust
Agreements.
6
<PAGE>
With the deposit of the Government Securities in the Government Securities
Portfolios on the Initial Date of Deposit, the Sponsor established for each
Series a percentage relationship between the principal amounts of Securities of
specified interest rates and ranges of maturities in the related Portfolio.
From time to time, pursuant to the Indenture, following the Initial Date of
Deposit the Sponsor may deposit additional Government Securities in each
Government Securities Portfolio Series and Units may be continuously offered
for sale to the public by means of this Prospectus resulting in a potential
increase in the outstanding number of Units of such Series. Any additional
Government Securities deposited in each Series will maintain as far as
practicable the original percentage relationship between the principal amounts
of Government Securities of specified interest rates and ranges of maturities
in the original Portfolio of such Series. Precise duplication of this original
percentage relationship may not be possible because fractions of Government
Securities may not be purchased, but duplication will continue to be the goal
in connection with any such additional Government Securities. See "Portfolios"
and "Investment Supervision."
The guaranteed payment of principal and interest afforded by U.S. Treasury
Obligations may make investment in the Government Securities Portfolio
particularly well suited for purchase by Individual Retirement Accounts, Keogh
Plans, pension funds and other tax-deferred retirement plans. In addition, the
ability to buy Units (minimum purchase $1,000 per Series, $250 for IRA
accounts) at a Public Offering Price of approximately $10.00 per Unit enables
such investors to tailor the dollar amount of their purchases of Units to take
maximum possible advantage of the annual deductions available for contributions
to such plans. Investors should consult with their tax advisers before
investing. See "Retirement Plans."
All of the Municipal Bonds in each Tax-Exempt Portfolio are rated in the
category "BBB" or better by Standard & Poor's or "Baa" or better by Moody's.
See "Description of Municipal Bond Ratings" and "The Trust Fund--Portfolios."
On the Initial Date of Deposit, each Unit represented an undivided fractional
interest in the Securities deposited in the appropriate Trust Fund, as shown
under "Essential Information." All Municipal Bonds deposited were accompanied
by copies of opinions of bond counsel given at the time of original delivery of
such obligations to the effect that interest thereon is exempt from all Federal
income taxes, except in certain instances depending on the holder, and from
State income taxes and, where applicable, local income and/or property taxes
for residents of the State for which such Trust Fund is named. Capital gains,
if any, are subject to Federal income taxation, payable by Unitholders. See
"Federal Tax Status."
An investment in Units of a Trust Fund 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
Securities will fluctuate inversely with changes in interest rates. The
uncertain economic conditions of recent years, together with the fiscal
measures adopted to attempt to deal with them, have resulted in wide
fluctuations in interest rates and, thus, in the value of fixed rate debt
obligations generally and long-term obligations in particular. The Sponsor
cannot predict the degree to which such fluctuations will continue in the
future.
7
<PAGE>
SERIES INFORMATION
<TABLE>
<CAPTION>
INSURED INSURED
CALIFORNIA MICHIGAN
SERIES 13 SERIES 9
---------- ----------
<S> <C> <C>
Number of Obligations........................ 6 7
Territorial Obligations (1).................. 0 0
General Obligation Bonds (2)(4).............. 0 1(15%)
Revenue Bonds (3)(4)......................... 6(100%) 6(85%)
Revenue Bond Concentrations (4):
Industrial Development...................... -- --
Correctional Facilities..................... -- --
Education................................... 1(10%) --
Electric Systems............................ 1(10%) 1(14%)
Excise Tax Revenue.......................... -- --
Hospital.................................... -- 1(14%)
Housing..................................... -- 2(22%)
Lease Revenue............................... 1(20%) --
Port Authority.............................. -- --
Sales Tax Revenue........................... 2(40%) --
Tax Allocation.............................. -- --
Transportation.............................. -- --
Tollroad.................................... -- --
Utilities................................... 1(20%) --
Water and Sewer............................. -- 1(15%)
Miscellaneous............................... -- 1(20%)
Average life of the Municipal Bonds in the
Trust (5)................................... 5.5 years 27.4 years
Percentage of "when, as and if issued" or
"delayed delivery" Bonds purchased by the
Trust....................................... None None
Syndication (6).............................. None 20%
</TABLE>
- --------
(1) Municipal Bonds issued by Territories of the United States (which term
includes the Commonwealth of Puerto Rico and the District of Columbia)
generally receive the same tax exempt treatment for both state and Federal
tax purposes as Municipal Bonds issued by political entities in the named
State Trust. See "Risk Factors and State Tax Status" for each Trust.
(2) General obligation bonds are general obligations of governmental entities
and are backed by the taxing powers of such entities.
(3) Revenue bonds are payable from the income of a specific project or
authority and are not supported by an issuer's power to levy taxes.
(4) 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 "Portfolios--Risk Factors."
(5) 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.
(6) 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.
TAXABLE EQUIVALENT ESTIMATED CURRENT RETURN TABLES
As of the date of this Prospectus, the following tables show the approximate
taxable estimated current returns for individuals that are equivalent to tax-
exempt estimated current returns under combined Federal and State taxes (where
applicable) using the published Federal and State tax rates (where applicable)
scheduled to be in effect in 1995. They incorporate increased tax rates for
higher income taxpayers that were included in the Revenue Reconciliation Act
of 1993. These tables illustrate approximately what you would have to earn on
taxable investments to equal the tax-exempt estimated current return in your
income tax bracket. For cases in which more than one State bracket falls
within a Federal bracket the highest State bracket is combined with the
Federal bracket. The combined State and Federal tax rates shown reflect the
8
<PAGE>
fact that State tax payments are currently deductible for Federal tax
purposes, and have been rounded to the nearest 1/10 of 1%. The tables do not
show the approximate taxable estimated current returns for individuals that
are subject to the alternative minimum tax. The taxable equivalent estimated
current returns may be somewhat higher than the equivalent returns indicated
in the following tables for those individuals who have adjusted gross incomes
in excess of $114,700. The tables do not reflect the effect of limitations on
itemized deductions and the deduction for personal exemptions. They were
designed to phase out certain benefits of these deductions for higher income
taxpayers. These limitations, in effect, raise the marginal Federal tax rate
to approximately 44 percent for taxpayers filing a joint return and entitled
to four personal exemptions and to approximately 41 percent for taxpayers
filing a single return entitled to only one personal exemption. These
limitations are subject to certain maximums, which depend on the number of
exemptions claimed and the total amount of the taxpayer's itemized deductions.
For example, the limitation on itemized deductions will not cause a taxpayer
to lose more than 80% of his allowable itemized deductions, with certain
exceptions. See "Federal Tax Status" for a more detailed discussion of recent
Federal tax legislation, including a discussion of provisions affecting
corporations.
CALIFORNIA
<TABLE>
<CAPTION>
TAXABLE INCOME ($1,000'S) TAX-EXEMPT ESTIMATED CURRENT RETURN
- --------------------------- ---------------------------------------------
4 5% 5 6% 6 7% 7
1/2% 1/2% 1/2% 1/2%
SINGLE JOINT EQUIVALENT TAXABLE ESTIMATED
RETURN RETURN TAX BRACKET* CURRENT RETURN
------ ------ ------------ ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-
23.35 $ 0- 39.00 20.1% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76% 9.39%
23.35-
56.55 39.00- 94.25 34.7 6.89 7.66 8.42 9.19 9.95 10.72 11.49
94.25-143.60 37.4 7.19 7.99 8.79 9.58 10.38 11.18 11.98
56.55-
117.95 37.9 7.25 8.05 8.86 9.66 10.47 11.27 12.08
117.95-
214.93 143.60-256.50 42.4 7.81 8.68 9.55 10.42 11.28 12.15 13.02
214.93-
256.50 43.0 7.89 8.77 9.65 10.53 11.40 12.28 13.16
256.50-429.86 45.6 8.27 9.19 10.11 11.03 11.95 12.87 13.79
Over
256.50 Over 429.86 46.2 8.36 9.29 10.22 11.15 12.08 13.01 13.94
</TABLE>
- --------
*The State tax rates assumed take into account recent adjustments of tax
brackets based on changes in the Consumer Price Index. The table reflects
California income tax laws that increase State income tax rates for high
income taxpayers. However, the table does not reflect the limitation on
itemized deductions and the phase out of the benefit for the personal
exemption credit and the dependent exemption credit that are imposed by the
California income tax laws in a manner similar to Federal tax law.
MICHIGAN
<TABLE>
<CAPTION>
TAXABLE INCOME ($1,000'S) TAX-EXEMPT ESTIMATED CURRENT RETURN
- --------------------------- ---------------------------------------------
5% 5 6 7
1/2% 6% 1/2% 7% 1/2% 8%
SINGLE JOINT EQUIVALENT TAXABLE ESTIMATED
RETURN RETURN TAX BRACKET* CURRENT RETURN
------ ------ ------------ ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-
23.35 $ 0- 39.00 21.7% 6.39% 7.02% 7.66% 8.30% 8.94% 9.58% 10.22%
23.35-
56.55 39.00- 94.25 33.7 7.54 8.30 9.05 9.80 10.56 11.31 12.07
56.55-
117.95 94.25-143.60 36.5 7.87 8.66 9.45 10.24 11.02 11.81 12.60
117.95-
256.50 143.60-256.50 41.1 8.49 9.34 10.19 11.04 11.88 12.73 13.58
Over
256.50 Over 256.50 44.4 8.99 9.89 10.79 11.69 12.59 13.49 14.39
</TABLE>
- --------
*The combined State and Federal tax brackets reflect Federal and State income
and State intangibles taxes but do not reflect the effect of the exemption
from local income taxes; accordingly, Michigan residents subject to such local
income taxes would need a somewhat higher taxable estimated current return
than those shown to equal the tax-exempt estimated current return of the
Trust.
9
<PAGE>
KEMPER DEFINED FUNDS SERIES 29
U.S. TREASURY PORTFOLIO,
SERIES 8
PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: JANUARY 24, 1995
<TABLE>
<CAPTION>
COST OF
FACE SECURITIES
AMOUNT COUPON MATURITIES TO TRUST(5)
- -----------------------------------------------------------------
<S> <C> <C> <C>
$100,000 7.375% 5/15/1996 $100,375
100,000 7.250 11/30/1996 99,843
100,000 6.750 5/31/1997 98,375
100,000 7.375 11/15/1997 99,531
100,000 7.875 4/15/1998 100,688
- -------- --------
$500,000 $498,812
======== ========
</TABLE>
- --------
See "Notes to Portfolios."
10
<PAGE>
KEMPER DEFINED FUNDS SERIES 29
U.S. TREASURY PORTFOLIO,
SERIES 9
PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: JANUARY 24, 1995
<TABLE>
<CAPTION>
COST OF
FACE SECURITIES
AMOUNT COUPON MATURITIES TO TRUST(5)
- -----------------------------------------------------------------
<S> <C> <C> <C>
$100,000 0.000% 5/15/1996 $ 91,233(6)
100,000 0.000 11/15/1996 87,838(6)
100,000 0.000 5/15/1997 84,362(6)
100,000 0.000 11/15/1997 81,202(6)
94,000 0.000 5/15/1998 73,373(6)
6,000 9.000 5/15/1998 6,236
- -------- --------
$500,000 $424,244
======== ========
</TABLE>
- --------
See "Notes to Portfolios."
11
<PAGE>
KEMPER DEFINED FUNDS SERIES 29
U.S. TREASURY PORTFOLIO,
SERIES 10
PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: JANUARY 24, 1995
<TABLE>
<CAPTION>
COST OF
FACE SECURITIES
AMOUNT COUPON MATURITIES TO TRUST(5)
- -----------------------------------------------------------------
<S> <C> <C> <C>
$100,000 6.750% 5/31/1997 $ 98,375
100,000 7.875 4/15/1998 100,688
100,000 7.000 4/15/1999 97,406
100,000 8.875 5/15/2000 104,875
100,000 8.000 5/15/2001 101,031
- -------- --------
$500,000 $502,375
======== ========
</TABLE>
- --------
See "Notes to Portfolios."
12
<PAGE>
KEMPER DEFINED FUNDS SERIES 29 INSURED CALIFORNIA
SERIES 13
PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT JANUARY 24, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER, TITLE, COUPON RATE AND MATURITY DATE OF BOND
AGGREGATE REPRESENTED BY SPONSOR'S CONTRACTS TO REDEMPTION COST OF BONDS
PRINCIPAL PURCHASE BONDS(1)(4) RATING(2) PROVISIONS(3) TO TRUST(5)
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 750,000 Alameda County Transportation Authority AAA Non-Callable $ 746,610
(California), Sales Tax Revenue Bonds
(Limited Tax Bonds), Series 1992 (FGIC
Insured), 5.000% Due 05/01/1998
750,000 Merced County, California, CSAC Lease Finance AAA Non-Callable 745,350
Program, Certificates of Participation (1992
Construction and Equipment Project) (FSA
Insured), 5.250% Due 10/01/1999
750,000 Los Angeles County Transportation Commission AAA Non-Callable 753,435
(California), Sales Tax Revenue Refunding
Bonds, Series 1992-B (FGIC Insured), 5.600%
Due 07/01/2000
750,000 Sacramento Municipal Utility District, AAA Non-Callable 712,448
Electric Revenue Refunding Bonds, 1993
Series D (MBIA Insured), 4.900% Due
11/15/2001
375,000 Southern California Public Power Authority AAA Non-Callable 353,381
(California), San Juan Power Project Revenue
Bonds (San Juan Unit 3), 1993 Series A (MBIA
Insured), 4.875% Due 01/01/2002
375,000 The Regents of the University of California, AAA Non-Callable 382,984
Refunding Revenue Bonds (Multiple Purpose
Projects), Series A (MBIA Insured), 6.000%
Due 09/01/2002
----------- ----------
$ 3,750,000 $3,694,208
=========== ==========
</TABLE>
- --------
See "Notes to Portfolios."
13
<PAGE>
KEMPER DEFINED FUNDS SERIES 29 INSURED MICHIGAN
SERIES 9
PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT JANUARY 24, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER, TITLE, COUPON RATE AND MATURITY DATE OF BOND
AGGREGATE REPRESENTED BY SPONSOR'S CONTRACTS TO REDEMPTION COST OF BONDS
PRINCIPAL PURCHASE BONDS(1)(4) RATING(2) PROVISIONS(3) TO TRUST(5)
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 500,000 School District of the City of River Rouge, AAA 05/01/03 @ 101.5 $ 441,525
County of Wayne, State of Michigan, 1993 2015 @ 100 S.F.
School Building and Site Bonds (General
Obligation--Unlimited Tax) (FSA Insured),
5.625% Due 05/01/2022
690,000 Michigan Municipal Bond Authority, Local AAA 11/01/04 @ 102 703,897
Government Loan Program, Revenue Bonds, 2015 @ 100 S.F.
Series 1994G (AMBAC Insured), 6.800% Due
11/01/2023
500,000 Michigan State Housing Development Authority, AAA 10/01/02 @ 102 490,445
Rental Housing Revenue Bonds, 1992 Series A 2012 @ 100 S.F.
(AMBAC Insured), 6.500% Due 04/01/2023
500,000 City of Kalamazoo Hospital Finance Authority, AAA 05/15/03 @ 102 486,900
Hospital Revenue Refunding and Improvement 2013 @ 100 S.F.
Bonds (Bronson Methodist Hospital), Series
1992A (MBIA Insured), 6.375% Due 05/15/17
500,000 Michigan Strategic Fund, Limited Obligation AAA 10/01/03 @ 102 467,790
Refunding Revenue Bonds (The Detroit Edison
Company Pollution Control Bonds Project)
(MBIA Insured), 6.050% Due 10/01/2023
500,000 City of Detroit, Michigan, Water Supply AAA 07/01/04 @ 102 397,905
System Revenue and Revenue Refunding Bonds, 2020 @ 100 S.F.
Series 1993 (FGIC Insured), 5.000% Due
07/01/2023
250,000 Michigan State Housing Development Authority, AAA 04/01/03 @ 102 224,785
Rental Housing Revenue Bonds, 1993 Series A 2018 @ 100 S.F.
(AMBAC Insured), 5.900% Due 04/01/2023
---------- ----------
$3,440,000 $3,213,247
========== ==========
</TABLE>
- --------
See "Notes to Portfolios."
14
<PAGE>
NOTES TO PORTFOLIOS:
All insured Bonds in the Tax-Exempt Portfolios are insured only by the insurer
indicated in the description. The insurance was obtained directly by the issuer
of the Bonds or by the Sponsor.
(P)This 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."
(S)These Municipal Bonds are "when, as and if issued" or "delayed delivery" and
have expected settlement dates after the "First Settlement Date." Interest
on these Bonds begins accruing to the benefit of Unitholders on the date of
delivery.
X This Bond is of the same issue as another Bond in the Trust.
[_]This issue of Bonds is secured by, and payable from, escrowed U.S.
Government securities.
(1) Contracts to acquire Municipal Bonds were entered into by the Sponsor
between January 11, 1995 and January 23, 1995. 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) The ratings have been provided by Muller Data Corporation as reported to
Muller Data Corporation by the respective rating agencies. All ratings
represent Standard & Poor's Ratings Group ratings unless marked with the
symbol "*" in which case the rating represents a Moody's Investors Service,
Inc. rating. A brief description of the applicable Standard & Poor's and
Moody's rating symbols and their meanings is set forth under "Description
of Municipal Bond Ratings." A rating marked by "g" is contingent upon
Standard & Poor's Ratings Group receiving final documentation from the
insurer.
(3) There is shown under this heading the year in which each issue of Municipal
Bonds is initially 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 the Trust. In addition, certain Bonds in the portfolio may be
redeemed in whole or in part other than by operation of the stated
redemption or sinking fund provisions under certain unusual or
extraordinary circumstances specified in the instruments setting forth the
terms and provisions of such Bonds. "S.F." indicates that a sinking fund is
established with respect to an issue of Municipal Bonds.
(4) During the initial offering period, evaluations of Securities are made on
the basis of current offering side evaluations of the Securities. The
aggregate offering price is greater than the aggregate bid price of the
Securities, which is the basis on which Redemption Prices will be
determined for purposes of redemption of Units after the initial offering
period.
(5) Other information regarding the Securities in the Trust Funds, at the
opening of business on the Initial Date of Deposit, is as follows:
<TABLE>
<CAPTION>
PROFIT
OR ANNUAL
(LOSS) INTEREST BID SIDE
COST OF SECURITIES TO INCOME VALUE OF
TRUST FUND TO SPONSOR SPONSOR TO TRUST SECURITIES
---------- ------------------ ------- -------- ----------
<S> <C> <C> <C> <C>
Insured California Series 13. $3,672,578 $21,630 $196,406 $3,671,565
Insured Michigan Series 9.... $3,188,616 $24,631 $209,420 $3,186,022
U.S. Treasury Portfolio Se-
ries 8....................... $ 497,594 $ 1,218 $ 36,625 $ 497,562
U.S. Treasury Portfolio Se-
ries 9....................... $ 423,126 $ 1,118 $ 540 $ 423,543
U.S. Treasury Portfolio Se-
ries 10...................... $ 501,234 $ 1,141 $ 38,500 $ 501,125
</TABLE>
Neither Cost of Securities to Sponsor nor Profit or (Loss) to Sponsor
reflects underwriting profits or losses received or incurred by the Sponsor
through its participation in underwriting syndicates but such amounts
reflect portfolio hedging transaction costs, hedging gains or losses,
certain other carrying costs and the cost of insurance obtained by the
Sponsor, if any, prior to the Initial Date of Deposit for individual
Securities.
(6) This Security has been purchased at a deep discount from the par value
because there is little or no stated interest income thereon. Securities
which pay no interest are normally described as "zero coupon" bonds. Over
the life of Securities purchased at a deep discount the value of such
Securities will increase such that upon maturity the holders of such
Securities will receive 100% of the principal amount thereof.
15
<PAGE>
UNDERWRITING
The Sponsor is the sole Underwriter for all Units in the U.S. Treasury
Portfolios. The Underwriters named below have severally purchased Units of the
Tax-Exempt Portfolios in the following respective amounts:
<TABLE>
<CAPTION>
INSURED INSURED
CALIFORNIA MICHIGAN
SERIES 13 SERIES 9
---------- --------
<S> <C> <C>
*Kemper Unit Investment Trusts 305,000 149,000
*Kemper Securities, Inc. 50,000 50,000
Dean Witter Reynolds, Inc. 10,000
First of Michigan Corporation 25,000
Gruntal & Company, Inc. 10,000
Roney & Company 120,000
------- -------
TOTAL UNITS: 375,000 344,000
======= =======
</TABLE>
Underwriter Addresses:
*Kemper Unit Investment Trusts, a service of Kemper Securites, Inc., 77 West
Wacker Drive, 29th Floor, Chicago, IL 60601-1994
*Kemper Securities, Inc., 77 West Wacker Drive, 28th Floor, Chicago, IL 60601-
1994
Dean Witter Reynolds, Inc., Two World Trade Center, 59th Floor, New York, NY
10048
First of Michigan Corporation, 100 Renaissance Center, 26th Floor, Detroit, MI
48243
Gruntal & Co., Inc., 14 Wall Street, 14th Floor, New York, NY 10005
Roney & Company, One Griswold Street, 6th Floor, UITs, Detroit, MI 48226
- --------
*Kemper Corporation owns or has a controlling interest in Kemper Unit
Investment Trusts (the Trusts' Sponsor and Evaluator) and Kemper Securities,
Inc. Kemper Unit Investment Trusts is a service of Kemper Securities, Inc. For
additional information about the Underwriters, see "Underwriting."
The Underwriters acquired the Units of the Tax-Exempt Portfolios at a price per
Unit equal to the Public Offering Prices set forth under "Essential
Information" less the Underwriters' takedown. The amount of the Underwriters'
takedown for Trusts with a weighted average maturity less than 7.5 years for
each Unit is $.22 for those firms committing for 10,000 to 24,999 Units, $.22
plus 50% of any net portfolio profit for those firms committing for 25,000 to
99,999 Units and $.23 plus 50% of any net portfolio profit for those firms
committing for 100,000 or more Units. The amount of the Underwriters' takedown
for Trusts with a weighted average maturity between 7.5 and 9.99 years for each
Unit is $.28 for those firms committing for 10,000 to 24,999 Units, $.28 plus
50% of any net portfolio profits for those firms committing for 25,000 to
49,999 Units, $.29 plus 50% of any net portfolio profit for those firms
committing for 50,000 to 99,999 Units and $.30 plus 50% of any net portfolio
profit for those firms committing for 100,000 or more Units. The amount of the
Underwriters' takedown for Trusts with a weighted average maturity 10 to 14.99
years for each Unit is $.30 for those firms committing for 10,000 to 24,999
Units, $.30 plus 50% of any net portfolio profits for those firms committing
for 25,000 to 49,999 Units, $.31 plus 50% of any net portfolio profit for those
firms committing for 50,000 to 99,999 Units and $.32 plus 50% of any net
portfolio profit for those firms committing for 100,000 or more Units. The
amount of the Underwriters' takedown for Trusts with a weighted average
maturity greater than 14.99 years for each Unit is $.36 for 10,000 to 24,999
Units, $.36 plus 50% of any net portfolio profit for those firms committing for
25,000 to 49,999 Units, $.37 plus
16
<PAGE>
50% of any net portfolio profit for those firms committing for 50,000 to 99,999
Units and $.38 plus 50% of any net portfolio profit for those firms committing
for 100,000 or more Units. In connection with any quantity discounts (see
"Public Offering of Units--Public Offering Price"), the Sponsor and the
applicable Underwriter will each receive reduced concessions as a result of the
reduced sales charges to the investor. 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 who underwrite additional Units
of a Trust or who sell, during a specified time period, a minimum dollar amount
of Units of a Trust and other unit investment trusts underwritten by the
Sponsor. The Underwriting Agreement provides that the Sponsor will select and
purchase the Municipal Bonds for deposit in the Trust Funds on its own behalf
and on behalf of the other Underwriters.
The Underwriting Agreement provides that a public offering of the Units of the
Trust Funds will be made by the Underwriters at the Public Offering Price
described in the Prospectus. Units may also be sold to or through dealers, who
are members of the National Association of Securities Dealers, Inc., and others
at prices representing discounts from the Public Offering Price. However,
resales of Units of the Trust Funds to the public will be made at the Public
Offering Price thereof.
Underwriters and broker-dealers of the Trusts, banks and/or others are eligible
to participate in a program in which such firms receive from the Sponsor a
nominal award for each of their representatives who have sold a minimum number
of Units of unit investment trusts created by the Sponsor during a specified
time period. In addition, at various times the Sponsor may implement other
programs under which the sales forces of Underwriters, brokers, dealers, banks
and/or others may be eligible to win other nominal awards for certain sales
efforts, or under which the Sponsor will reallow to any such Underwriters,
brokers, dealers, banks and/or others that sponsor sales contests or
recognition programs conforming to criteria established by the Sponsor, or
participate in sales programs sponsored by the Sponsor, an amount not exceeding
the total applicable sales charges on the sales generated by such persons at
the public offering price during such programs. Also, the Sponsor in its
discretion may from time to time pursuant to objective criteria established by
the Sponsor pay fees to qualifying underwriters, brokers, dealers, banks or
others for certain services or activities which are primarily intended to
result in sales of Units of the Trusts. Such payments are made by the Sponsor
out of its own assets, and not out of the assets of the Trusts. These programs
will not change the price Unitholders pay for their Units or the amount that
the Trusts will receive from the Units sold. Approximately every eighteen
months the Sponsor holds a business seminar which is open to Underwriters that
sell units of trusts it sponsors. The Sponsor pays substantially all costs
associated with the seminar, excluding Underwriter travel costs. Each
Underwriter is invited to send a certain number of representatives based on the
gross number of units such firm underwrites during a designated time period.
17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
UNITHOLDERS
KEMPER DEFINED FUNDS SERIES 29:
We have audited the accompanying statements of condition and the related
portfolios of Kemper Defined Funds Series 29 (U.S. Treasury Portfolio Series 8,
U.S. Treasury Portfolio Series 9, U.S. Treasury Portfolio Series 10, Insured
California Series 13 and Insured Michigan Series 9) as of January 24, 1995. 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 Securities owned at January 24, 1995 and a
letter of credit deposited to purchase Securities 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 29
(U.S. Treasury Portfolio Series 8, U.S. Treasury Portfolio Series 9, U.S.
Treasury Portfolio Series 10, Insured California Series 13 and Insured Michigan
Series 9) as of January 24, 1995, in conformity with generally accepted
accounting principles.
Grant Thornton LLP
Chicago, Illinois
January 24, 1995
18
<PAGE>
KEMPER DEFINED FUNDS SERIES 29
STATEMENTS OF CONDITION
AT THE OPENING OF BUSINESS ON JANUARY 24, 1995, THE INITIAL DATE OF DEPOSIT
<TABLE>
<CAPTION>
U.S. TREASURY U.S. TREASURY U.S. TREASURY INSURED INSURED
PORTFOLIO PORTFOLIO PORTFOLIO CALIFORNIA MICHIGAN
SERIES 8 SERIES 9 SERIES 10 SERIES 13 SERIES 9
------------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INVESTMENT IN SECURITIES
Securities deposited in
the Trusts (1)(4)...... $ -- $ -- $ -- $ -- $ --
Contracts to purchase
Securities (1)(4)...... 498,812 424,244 502,375 3,694,208 3,213,247
Accrued interest to
First Settlement Date
on Securities (1)(2)... 7,801 114 9,089 44,657 46,890
-------- -------- -------- ---------- ----------
Total.................. $506,613 $424,358 $511,464 $3,738,865 $3,260,137
======== ======== ======== ========== ==========
Number of Units......... 50,000 50,000 50,000 375,000 344,000
LIABILITIES AND INTEREST
OF UNITHOLDERS
Accrued interest payable
to Sponsor (1)(2)...... $ 7,801 $ 114 $ 9,089 $ 44,657 $ 46,890
Interest of
Unitholders--
Cost to investors (3).. 507,770 432,700 512,400 3,808,500 3,378,768
Less: Gross
underwriting
commission (3)........ 8,888 8,456 10,025 114,292 165,521
-------- -------- -------- ---------- ----------
Net interest to
Unitholders (1)(2)(3). 498,812 424,244 502,375 3,694,208 3,213,247
-------- -------- -------- ---------- ----------
Total................. $506,613 $424,358 $511,464 $3,738,865 $3,260,137
======== ======== ======== ========== ==========
</TABLE>
- --------
NOTES:
(1) The aggregate value of the Securities listed in each Portfolio and their
cost to the Trust are the same. The value of the Securities is determined
by Muller Data Corporation on the bases set forth under "Public Offering of
Units--Public Offering Price". The contracts to purchase Securities are
collateralized by an irrevocable letter of credit of $8,441,437 which has
been deposited with the Trustee. Of this amount, $8,332,886 relates to the
offering price of Securities to be purchased and $108,551 relates to
accrued interest on such Securities to the expected dates of delivery.
(2) Accrued interest on the underlying Securities represents the interest
accrued as of the First Settlement Date from the later of the last payment
date on the Securities or the date of issuance thereof. The Trustee may
advance to the Trust a portion of the accrued interest on the underlying
Securities 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 Securities may be payable by investors and may be included in
the Public Offering Price. This portion is called Purchased Interest and
represents the difference between Accrued interest to First Settlement Date
on Securities and Accrued interest payable to Sponsor (see "Essential
Information").
(3) The aggregate public offering price includes a sales charge for the Trust
as set forth under "Essential Information", assuming all single
transactions involve less than 10,000 Units (50,000 Units in the case of
U.S. Treasury Portfolio Series). For single transactions involving 10,000
Units or more (50,000 Units or more in the case of U.S. Treasury Portfolio
Series), 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 Municipal Bonds in the Insured Trusts has been obtained
directly by the issuer of such Municipal Bonds or by the Sponsor from
Municipal Bond Investors Assurance Corporation or other insurers.
19
<PAGE>
RISK FACTORS AND STATE TAX STATUS
THE U.S. TREASURY PORTFOLIO SERIES
RISK FACTORS
Each U.S. Treasury Portfolio Series is a unit investment trust whose objective
is to obtain safety of capital and investment flexibility as well as current
monthly distributions of interest through investment in a fixed, laddered
portfolio initially consisting of contracts to purchase U.S. Treasury
obligations (the "U.S. Treasury Obligations"). The U.S. Treasury Portfolio
Series are formed for the purpose of providing protection against changes in
interest rates and also passing through to Unitholders in all states the
exemption from state personal income taxes afforded to direct owners of U.S.
Treasury Obligations. The U.S. Treasury Portfolio Series has an additional
purpose of providing income which is exempt from withholding for U.S. Federal
income taxes for non-resident alien investors. A foreign investor must provide
a completed W-8 Form to his financial representative or the Trustee to avoid
withholding on his account. The Securities are direct obligations of the United
States and are backed by its full faith and credit.
An investment in Units of the U.S. Treasury Portfolio Series should be made
with an understanding of the risks which an investment in fixed rate debt
obligations may entail, including the risk that the value of the Portfolio and
hence of the Units will fluctuate inversely with changes in interest rates. The
high inflation of prior years, together with the fiscal measures adopted to
attempt to deal with it, have resulted in wide fluctuations in interest rates
and, thus, in the value of fixed rate long term debt obligations generally. The
Sponsor cannot predict whether such fluctuations will continue in the future.
In selecting Securities for deposit in the U.S. Treasury Portfolio Series, the
following factors, among others, were considered by the Sponsor: (i) the prices
of the Securities relative to other comparable Securities; (ii) the maturities
of these Securities; and (iii) whether the Securities were issued after July
18, 1984.
The U.S. Treasury Portfolio Series may be an appropriate medium for investors
who desire to participate in a portfolio of taxable fixed income securities
offering the safety of capital provided by an investment backed by the full
faith and credit of the United States. In addition, many investors may benefit
from the exemption from state and local personal income taxes that will pass
through the U.S. Treasury Portfolio Series to Unitholders in virtually all
states.
The Portfolios initially consist of contracts to purchase U.S. Treasury
Obligations fully secured by the full faith and credit of the United States,
certain of which have been purchased at a market discount or premium. Certain
Securities may have been purchased on a when, as and if issued basis. Interest
on these Securities begins accruing to the benefit of holders on their
respective dates of delivery. Unitholders will be "at risk" with respect to
these Securities (i.e., may derive either gain or loss from fluctuations in the
offering side evaluation of the Securities) from the date they commit for
Units.
The Trusts consist of the U.S. Treasury Obligations (or contracts to purchase
the Securities) listed in the Portfolios as may continue to be held from time
to time in the Trusts and any additional Securities deposited in such Trusts in
connection with the sale of additional Units to the public as described above,
together with the accrued and undistributed interest thereon and undistributed
cash realized from the sale or redemption of Securities (see "Investment
Supervision"). Neither the Sponsor nor the Trustee shall be liable in any way
for any default, failure or defect in any of the Securities. However, should
any contract deposited in connection with the sale of additional Units fail,
the Sponsor shall, on or before the next following Distribution Date, deposit
additional Securities or cause to be refunded the attributable sales charge,
plus the attributable cost of Securities to such U.S. Treasury Portfolio Series
plus accrued interest if any (at the coupon rate of the relevant Security to
the date the failed Security is removed from the portfolio).
20
<PAGE>
The Indenture authorizes the Sponsor to increase the size and the number of
Units of the U.S. Treasury Portfolio Series by the deposit of additional
Securities and the issue of a corresponding number of additional Units
subsequent to the Initial Date of Deposit maintaining, as close as practicable,
the original percentage relationship among the principal amounts of Securities
of specified interest rates and maturities.
On the Initial Date of Deposit each Unit represented the fractional undivided
interest in the U.S. Treasury Portfolio Series set forth under "Essential
Information". Thereafter, if any Units are redeemed by the Trustee the face
amount of Securities in the U.S. Treasury Portfolio Series will be reduced by
amounts allocable to redeemed Units, and the fractional undivided interest
represented by each Unit in the balance will be increased. However, if
additional Units are issued by the U.S. Treasury Portfolio Series (through
deposit of Securities by the Sponsor in connection with the sale of additional
Units), the aggregate value of Securities in the U.S. Treasury Portfolio Series
will be increased by amounts allocable to additional Units, and the fractional
undivided interest represented by each Unit in the balance will be decreased.
Units will remain outstanding until redeemed upon tender to the Trustee by any
Unitholder (which may include the Sponsor) or until the termination of the
Indenture.
INSURED CALIFORNIA SERIES 13
RISK FACTORS
As described above, the Insured California Series 13 will invest substantially
all of its assets in California Municipal Obligations. The Fund is therefore
susceptible to political, economic or regulatory factors affecting issuers of
California Municipal Obligations. These include the possible adverse effects of
certain California constitutional amendments, legislative measures, voter
initiatives and other matters that are described below. The following
information provides only a brief summary of the complex factors affecting the
financial situation in California (the "State") and is derived from sources
that are generally available to investors and are believed to be accurate. No
independent verification has been made of the accuracy or completeness of any
of the following information. It is based in part on information obtained from
various State and local agencies in California or contained in Official
Statements for various California Municipal Obligations.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local governmental finances
generally, will not adversely affect the market value of California Municipal
Obligations held in the portfolio of the Fund or the ability of particular
obligors to make timely payments of debt service on (or relating to) those
obligations.
Economic Overview. California's economy is the largest among the 50 states and
one of the largest in the world. The State's population of over 30 million
represents 12% of the total United States population and grew by 27% in the
1980s. Total personal income in the State, at an estimated $662 billion in
1992, accounts for 13% of all personal income in the nation. Total employment
is almost 14 million, the majority of which is in the service, trade and
manufacturing sectors.
Reports issued by the State Department of Finance and other sources indicate
that the State's economy is suffering its worst recession since the 1930s, with
prospects for recovery slower than for the nation as a whole. The State has
lost over 800,000 jobs since the start of the recession in mid 1990 and
additional job losses are expected before an upturn begins. The largest job
losses have been in Southern California, led by declines in the aerospace and
construction industries. Weaknesses statewide occurred in manufacturing,
construction, services and trade and will be hurt in the next few years by
continued cuts in federal defense spending and base closures. Unemployment is
expected to remain well above the national average in 1994. The State's economy
is only expected to pull out of the recession slowly, following the national
recovery which has begun. Delay in recovery will exacerbate shortfalls in State
revenues.
21
<PAGE>
Certain California Municipal Obligations may be obligations of issuers which
rely in whole or in part, directly or indirectly, on ad valorem property taxes
as a source of revenue. The taxing powers of California local governments and
districts are limited by Article XIIIA of the California Constitution, enacted
by the voters in 1978 and commonly known as "Proposition 13." Briefly, Article
XIIIA limits to 1% of full cash value the rate of ad valorem property taxes on
real property and generally restricts the reassessment of property to 2% per
year, except upon new construction or change of ownership (subject to a number
of exemptions). Taxing entities may, however, raise ad valorem taxes above the
1% limit to pay debt service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against the
assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13 and on June 18, 1992 the U.S. Supreme Court
announced a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." Court
decisions, however, allowed non-voter approved levy of "general taxes" which
were not dedicated to a specific use. In response to these decisions, the
voters of the State in 1986 adopted an initiative statute which imposed
significant new limits on the ability of local entities to raise or levy
general taxes, except by receiving majority local voter approval. Significant
elements of this initiative, "Proposition 62", have been overturned in recent
court cases. An initiative proposed to re-enact the provisions of Proposition
62 as a constitutional amendment was defeated by the voters in November 1990,
but such a proposal may be renewed in the future.
The State and its local governments are subject to an annual "appropriations
limit" imposed by Article XIIIB of the California Constitution, enacted by the
voters in 1979 and significantly amended by Propositions 98 and 111 in 1988 and
1990, respectively. Article XIIIB prohibits the State or any covered local
government from spending "appropriations subject to limitation" in excess of
the appropriations limit imposed. "Appropriations subject to limitation" are
authorizations to spend "proceeds of taxes," which consist of tax revenues and
certain other funds, including proceeds from regulatory licenses, user charges
or other fees to the extent that such proceeds exceed the cost of providing the
product or service, but "proceeds of taxes" excludes most State subventions to
local governments. No limit is imposed on appropriations or funds which are not
"proceeds of taxes," such as reasonable user charges or fees, and certain other
non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations limit
are (1) the debt service cost of bonds issued or authorized prior to January 1,
1979, or subsequently authorized by the voters, (2) appropriations arising from
certain emergencies declared by the Governor, (3) appropriations for certain
capital outlay projects, (4) appropriations by the State of post-1989 increases
in gasoline taxes and vehicle weight fees, and (5) appropriations made in
certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect changes
in cost of living and population, and any transfers of service responsibilities
between government units. The definitions for such adjustments were liberalized
in 1990 by Proposition 111 to more closely follow growth in the State's
economy.
"Excess" revenues are measured over a two-year cycle. Local governments must
return any excess to taxpayers by rate reduction. The State must refund 50% of
any excess, with the other 50% paid to schools
22
<PAGE>
and community colleges. With more liberal annual adjustment factors since 1988,
and depressed revenues since 1990 because of the recession, few governments are
currently operating near their spending limits, but this condition may change
over time. Local governments may by voter approval exceed their spending limits
for up to four years.
During fiscal year 1986-87, State receipts from proceeds of taxes exceeded its
appropriations limit by $1.1 billion, which was returned to taxpayers. Since
that year, appropriations subject to limitation have been under the State
limit. State appropriations are expected to be $3.7 billion under the limit for
Fiscal Year 1993-94.
Because of the complex nature of Articles XIIIA and XIIIB of the California
Constitution, the ambiguities and possible inconsistencies in their terms, and
the impossibility of predicting future appropriations or changes in population
and cost of living, and the probability of continuing legal challenges, it is
not currently possible to determine fully the impact of Article XIIIA or
Article XIIIB on California Municipal Obligations or on the ability of the
State or local governments to pay debt service on such California Municipal
Obligations. It is not presently possible to predict the outcome of any pending
litigation with respect to the ultimate scope, impact or constitutionality of
either Article XIIIA or Article XIIIB, or the impact of any such determinations
upon State agencies or local governments, or upon their ability to pay debt
service on their obligations. Future initiative or legislative changes in laws
or the California Constitution may also affect the ability of the State or
local issuers to repay their obligations.
As of April 1, 1994, the State had approximately $18.1 billion of general
obligation bonds outstanding, and $5.6 billion remained authorized but
unissued. In addition, at June 30, 1993, the State had lease-purchase
obligations, payable from the State's General Fund, of approximately $4.0
billion. Of the State's outstanding general obligation debt, 28% is presently
self-liquidating (for which program revenues are anticipated to be sufficient
to reimburse the General Fund for debt service payments). Four general
obligation bond propositions, totalling $5.9 billion, will be on the June 1994
ballot. In Fiscal Year 1992-93, debt service on general obligation bonds and
lease-purchase debt was approximately 4.1% of General Fund revenues. The State
has paid the principal of and interest on its general obligation bonds, lease-
purchase debt and short-term obligations when due.
The principal sources of General Fund revenues in 1992-93 were the California
personal income tax (44% of total revenues), the sales tax (38%), bank and
corporation taxes (12%), and the gross premium tax on insurance (3%). The State
maintains a Special Fund for Economic Uncertainties (the "Economic
Uncertainties Fund"), derived from General Fund revenues, as a reserve to meet
cash needs of the General Fund, but which is required to be replenished as soon
as sufficient revenues are available. Year-end balances in the Economic
Uncertainties Fund are included for financial reporting purposes in the General
Fund balance. In most recent years, California has budgeted to maintain the
Economic Uncertainties Fund at around 3% of General Fund expenditures but
essentially no reserve has been budgeted in 1992-93 or 1993-1994 because
reserves have been reduced by the recession.
Throughout the 1980s, State spending increased rapidly as the State population
and economy also grew rapidly, including increased spending for many assistance
programs to local governments, which were constrained by Proposition 13 and
other laws. The largest State program is assistance to local public school
districts. In 1988, an initiative (Proposition 98) was enacted which (subject
to suspension by a two-thirds vote of the Legislature and the Governor)
guarantees local school districts and community college districts a minimum
share of State General Fund revenues (currently about 34%).
23
<PAGE>
Since the start of the 1990-91 Fiscal Year, the State has faced adverse
economic, fiscal, and budget conditions. The economic recession seriously
affected State tax revenues. It also caused increased expenditures for health
and welfare programs. The State is also facing a structural imbalance in its
budget with the largest programs supported by the General Fund (education,
health, welfare and corrections) growing at rates significantly higher than the
growth rates for the principal revenue sources of the General Fund. As a
result, the State entered a period of budget imbalance, with expenditures
exceeding revenues for four of the five fiscal years through 1991-92.
As the State fell into a deep recession in the summer of 1990, the State budget
fell sharply out of balance in the 1990-91 and 1991-92 fiscal years, despite
significant expenditure cuts and tax increases. The State had accumulated a
$2.8 billion budget deficit by June 30, 1992. This deficit also severely
reduced the State's cash resources, so that it had to rely on external
borrowing in the short-term markets to meet its cash needs.
With the failure to enact a budget by July 1, 1992, the State had no legal
authority to pay many of its vendors until the budget was passed; nevertheless,
certain obligations (such as debt service, school apportionments, welfare
payments, and employee salaries) were payable because of continuing or special
appropriations, or court orders. However, the State Controller did not have
enough cash to pay all of these ongoing obligations as they came due, as well
as valid obligations incurred in the prior fiscal year.
Starting on July 1, 1992, the Controller was required to issue "registered
warrants" in lieu of normal warrants backed by cash to pay many State
obligations. Available cash was used to pay constitutionally mandated and
priority obligations. Between July 1 and September 3, 1992, the Controller
issued an aggregate of approximately $3.8 billion of registered warrants, all
of which were called for redemption by September 4, 1992 following enactment of
the 1992-93 Budget Act and issuance by the State of $3.3 billion of Interim
Notes.
The 1992-93 Budget Act, when finally adopted, was projected to eliminate the
State's accumulated deficit, with additional expenditure cuts and a $1.3
billion transfer of State education funding costs to local governments by
shifting local property taxes to school districts. However, as the recession
continued longer and deeper than expected, revenues once again were far below
projections, and only reached a level just equal to the amount of expenditures.
Thus, the State continued to carry its $2.8 billion budget deficit at June 30,
1993.
The 1993-94 Budget Act was similar to the prior year, in reliance on
expenditure cuts and an additional $2.6 billion transfer of costs to local
government, particularly counties. A major feature of the budget was a two-year
plan to eliminate the accumulated deficit by borrowing into the 1994-95 fiscal
year. With the recession still continuing longer than expected, the 1994-95
Governor's Budget now projects that in the 1993-94 Fiscal Year, the General
Fund will have $900 million less revenue and $800 million higher expenditures
than budgeted. As a result, revenues will only exceed expenditures by about
$400 million. If this projection is met, it will be the first operating surplus
in four years; however, some budget analysts outside the Department of Finance
project revenues in the balance of 1993-94 will not even meet the revised,
lower projection. In addition, the General Fund may have some unplanned costs
for relief related to the January 17, 1994 Northridge earthquake.
The State has implemented its short-term borrowing as part of the deficit
elimination plan, and has also borrowed additional sums to cover cash flow
shortfalls in the spring of 1994, for a total of $3.2 billion, coming due in
July and December, 1994. Repayment of these short-term notes will require
additional borrowing, as the State's cash position continues to be adversely
affected.
24
<PAGE>
The Governor's 1994-95 Budget proposal recognizes the need to bridge a gap of
around $5 billion by June 30, 1995. Over $3.1 billion of this amount is being
requested from the federal government as increased aid, particularly for costs
associated with incarcerating, educating and providing health and welfare
services to undocumented immigrants. However, President Clinton has not
included these costs in his proposed Fiscal 1995 Budget. The rest of the budget
gap is proposed to be closed with expenditure cuts and projected $600 million
of new revenue assuming the State wins a tax case presently pending in the U.S.
Supreme Court. Thus the State will once again face significant uncertainties
and very difficult choices in the 1994-95 budget, as tax increases are unlikely
and many cuts and budget adjustments have been made in the past three years.
The State's severe financial difficulties for the current and upcoming budget
years will result in continued pressure upon various local governments,
particularly school districts and counties which depend on State aid. Despite
efforts in recent years to increase taxes and reduce governmental expenditures,
there can be no assurance that the State will not face budget gaps in the
future.
State general obligation bonds are currently rated "A1" by Moody's and "A" by
S&P. These ratings were recently reduced from "Aa" and "A+", respectively, due
to the State's inability to reduce its accumulated budget deficit, among a
number of other fiscal uncertainties. Both of these ratings were previously
reduced from "AAA" levels which the State held until late 1991. There can be no
assurance that such ratings will be maintained in the future. It should be
noted that the creditworthiness of obligations issued by local California
issuers may be unrelated to the creditworthiness of obligations issued by the
State of California, and that there is no obligation on the part of the State
to make payment on such local obligations in the event of default.
The State is involved in certain legal proceedings (described in the State's
recent financial statements) that, if decided against the State, may require
the State to make significant future expenditures or may substantially impair
revenues.
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9 of
the federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments which caused a liquidity crisis
for the Fund and the County. Approximately 180 other public entities, most but
not all located in the County, were also depositors in the Fund. As of December
13, 1994, the County indicated that the Fund had lost about 27% of its initial
deposits of approximately $7.4 billion. The County may suffer further losses as
it sells investments to restructure the Fund. Many of the entities which kept
moneys in the Fund, including the County, are facing cash flow difficulties
because of the bankruptcy filing and may be required to reduce programs or
capital projects.
The State of California has no obligations with respect to any bonds or other
securities of the County or any of the other participating entities, although
under existing legal precedents, the State may be obligated to ensure that
school districts have sufficient funds to operate.
State Assistance. Property tax revenues received by local governments declined
more than 50% following passage of Proposition 13. Subsequently, the California
Legislature enacted measures to provide for the redistribution of the State's
General Fund surplus to local agencies, the reallocation of certain State
revenues to local agencies and the assumption of certain governmental functions
by the State to assist municipal issuers to raise revenues. Total local
assistance (including public schools) accounted for approximately 75% of
General Fund expenditures, including the effect of implementing reductions in
certain aid reductions. To
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reduce State General Fund support for school districts, the 1992-93 and 1993-94
Budget Acts caused local governments to transfer $3.9 billion of property tax
revenues to school districts, representing loss of all of the post-Proposition
13 "bail-out" aid. Local governments have in return received greater revenues
and greater flexibility to operate health and welfare programs. To the extent
the State should be constrained by its Article XIIIB appropriations limit, or
its obligation to conform to Proposition 98, or other fiscal considerations,
the absolute level, or the rate of growth, of State assistance to local
governments may be reduced. Any such reductions in State aid could compound the
serious fiscal constraints already experienced by many local governments,
particularly counties. The Richmond Unified School District (Contra Costa
County) entered bankruptcy proceedings in May 1991, but the proceedings have
been dismissed.
Assessment Bonds. California Municipal Obligations which are assessment bonds
may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured
by land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.
California Long Term Lease Obligations. Certain California long term lease
obligations, though typically payable from the general fund of the
municipality, are subject to "abatement" in the event the facility being leased
is unavailable for beneficial use and occupancy by the municipality during the
term of the lease. Abatement is not a default, and there may be no remedies
available to the holders of the certificates evidencing the lease obligation in
the event abatement occurs. The most common causes of abatement are failure to
complete construction of the facility before the end of the period during which
lease payments have been capitalized and uninsured casualty losses to the
facility (e.g., due to earthquake). In the event abatement occurs with respect
to a lease obligation, lease payments may be interrupted (if all available
insurance proceeds and reserves are exhausted) and the certificates may not be
paid when due.
Several years ago the Richmond Unified School District (the "District") entered
into a lease transaction in which certain existing properties of the District
were sold and leased back in order to obtain funds to cover operating deficits.
Following a fiscal crisis in which the District's finances were taken over by a
State receiver (including a brief period under bankruptcy court protection),
the District failed to make rental payments on this lease, resulting in a
lawsuit by the Trustee for the Certificate of Participation holders, in which
the State was a named defendant (on the grounds that it controlled the
District's finances). One of the defenses raised in answer to this lawsuit was
the invalidity of the original lease transaction. The trial court upheld the
validity of the lease, and the case has been settled. A judgment in a future
case against the position asserted by the Trustee in the Richmond case may have
adverse implications for lease transactions of a similar nature by other
California entities.
The repayment of industrial development securities secured by real property may
be affected by California laws limiting foreclosure rights of creditors.
Securities backed by health care and hospital revenues may be affected by
changes in State regulations governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including risks
related to the policy of awarding exclusive contracts to certain hospitals.
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Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (for example, because of a major
natural disaster such as an earthquake), the tax increment revenue may be
insufficient to make principal and interest payments on these bonds. Both
Moody's and S&P suspended ratings on California tax allocation bonds after the
enactment of Articles XIIIA and XIIIB, and only resumed such ratings on a
selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when
taxes on property in the project area are increased to repay voter-approved
bonded indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue-raising
measures or which either would further limit or, alternatively, would increase
the abilities of state and local governments to impose new taxes or increase
existing taxes. It is not presently possible to determine the impact of any
such legislation on California Municipal Obligations in which the Fund may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California Municipal Obligations.
Substantially all of California is within an active geologic region subject to
major seismic activity. Any California Municipal Obligation in the Portfolio
could be affected by an interruption of revenues because of damaged facilities,
or, consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained
by the inability of (i) an issuer to have obtained earthquake insurance
coverage at reasonable rates; (ii) an insurer to perform on its contracts of
insurance in the event of widespread losses; or (iii) the Federal or State
government to appropriate sufficient funds within their respective budget
limitations.
CALIFORNIA TAX STATUS
In the opinion of Orrick, Herrington & Sutcliffe, special California tax
counsel to Insured California Series 13, under existing law:
Insured California Series 13 is not an association taxable as a corporation
and the income of Insured California Series 13 will be treated as the
income of the Unitholders under the income tax laws of California;
Amounts treated as interest on the underlying Bonds in Insured California
Series 13 which are exempt from tax under California personal income tax
and property tax laws when received by Insured California Series 13 will,
under such laws, retain their status as tax-exempt interest when
distributed to Unitholders. However, interest on the underlying Bonds
attributed to a Unitholder which is a corporation subject to the California
franchise tax laws may be includable in its gross income for purposes of
determining its California franchise tax. Further, certain interest which
is attributable to a Unitholder subject to the California personal income
tax and which is treated as an item of tax preference for purposes of the
federal alternative minimum tax pursuant to Section 57(a)(5) of the
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Internal Revenue Code of 1986 may also be treated as an item of tax
preference that must be taken into account in computing such Unitholder's
alternative minimum taxable income for purposes of the California
alternative minimum tax enacted by 1987 California Statutes, chapter 1138.
However, because of the provisions of the California Constitution exempting
the interest on bonds issued by the State of California or by local
governments within the state, from taxes levied on income, the application
of the new California alternative minimum tax to interest otherwise exempt
from the California personal income tax in some cases may be unclear;
Under California income tax law, each Unitholder in Insured California
Series 13 will have a taxable event when Insured California Series 13
disposes of a Bond (whether by sale, exchange, redemption, or payment at
maturity) or when the Unitholder redeems or sells Units. Because of the
requirement that tax cost basis be reduced to reflect amortization of bond
premium, under some circumstances a Unitholder may realize taxable gains
when Units are sold or redeemed for an amount equal to, or less than, their
original cost. The total cost of each Unit in Insured California Series 13
to a Unitholder is allocated among each of the Bond issues held in Insured
California Series 13 (in accordance with the proportion of Insured
California Series 13 comprised by each Bond issue) in order to determine
his per Unit tax cost for each Bond issue; and the tax cost reduction
requirements relating to amortization of bond premium will apply separately
to the per Unit cost of each Bond issue. Unitholders' bases in their Units,
and the bases for their fractional interest in each Insured California
Series 13 asset, may have to be adjusted for their pro rata share of
accrued interest received, if any, on Bonds delivered after the
Unitholders' respective settlement dates;
Under the California personal property tax laws, bonds (including the Bonds
in Insured California Series 13) or any interest therein is exempt from
such tax;
Under Section 17280(b)(2) of the California Revenue and Taxation Code,
interest on indebtedness incurred or continued to purchase or carry Units
of Insured California Series 13 is not deductible for the purposes of the
California personal income tax. While there presently is no California
authority interpreting this provision, Section 17280(b)(2) directs the
California Franchise Tax Board to prescribe regulations determining the
proper allocation and apportionment of interest costs for this purpose. The
Franchise Tax Board has not yet proposed or prescribed such regulations. In
interpreting the generally similar Federal provision, the Internal Revenue
Service has taken the position that such indebtedness need not be directly
traceable to the purchase or carrying of Units (although the Service has
not contended that a deduction for interest on indebtedness incurred to
purchase or improve a personal residence or to purchase goods or services
for personal consumption will be disallowed). In the absence of conflicting
regulations or other California authority, the California Franchise Tax
Board generally has interpreted California statutory tax provisions in
accordance with Internal Revenue Service interpretations of similar Federal
provisions.
At the respective times of issuance of the Bonds, opinions relating to the
validity thereof and to the exemption of interest thereon from Federal income
tax and California personal income tax are rendered by bond counsel to the
respective issuing authorities and we have relied solely upon such opinions,
or, as to securities not yet delivered, forms of such opinions contained in
official statements relating to such securities. Except in certain instances in
which Orrick, Herrington & Sutcliffe acted as bond counsel to issuers of Bonds
in Insured California Series 13, and as such made a review of proceedings
relating to the issuance of certain Bonds at the time of their issuance,
Orrick, Herrington & Sutcliffe has not made any review for the Trust of the
proceedings relating to the issuance of the Bonds in Insured California Series
13 or of the basis for such opinions.
For a discussion of Federal tax matters relating to distributions from the
Trust Fund, see "Federal Tax Status."
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INSURED MICHIGAN SERIES 9
RISK FACTORS
Investors should be aware that the economy of the State of Michigan has, in the
past, proven to be cyclical, due primarily to the fact that the leading sector
of the State's economy is the manufacturing of durable goods. While the State's
efforts to diversify its economy have proven successful, as reflected by the
fact that the share of employment in the State in the durable goods sector has
fallen from 33.1 percent in 1960 to 17.9 percent in 1990, durable goods
manufacturing still represents a sizable portion of the State's economy. As a
result, any substantial national economic downturn is likely to have an adverse
effect on the economy of the State and on the revenues of the State and some of
its local governmental units.
In May 1986, Moody's Investors Service raised the State's general obligation
bond rating to "A1". In October 1989, Standard & Poor's Corporation raised its
rating on the State's general obligation bonds to "AA".
The State's economy could continue to be affected by changes in the auto
industry, notably consolidation and plant closings resulting from competitive
pressures and over-capacity. Such actions could adversely affect State revenues
and the financial impact on the local units of government in the areas in which
plants are closed could be more severe.
General Motors Corporation announced the scheduled closing of several of its
plants in Michigan in 1993 and 1994. Some of these closings have occurred and
some have been deferred. The ultimate impact these closures may have on the
State's revenues and expenditures is not currently known. The impact on the
financial condition of the municipalities in which the plants are located may
be more severe than the impact on the State itself.
In recent years, the State has reported its financial results in accordance
with generally accepted accounting principles. For each of the five fiscal
years ending with the fiscal year ended September 30, 1989, the State reported
positive year-end General Fund balances and positive cash balances in the
combined General Fund/School Aid Fund. For the fiscal years ending September
30, 1990 and 1991, the State reported negative year-end General Fund Balances
of $310.4 million and $169.4 million, respectively, but ended the 1992 fiscal
year with its general fund in balance and ended the 1993 fiscal year with a
small general fund surplus. A positive cash balance in the combined General
Fund/School Aid Fund was recorded at September 30, 1990. In the 1991 thru 1993
fiscal years the State experienced deteriorating cash balances which
necessitated short term borrowing and the deferral of certain scheduled cash
payments. The State borrowed $900 million for cash flow purposes in the 1993
fiscal year, which was repaid on September 30, 1993. The State's Budget
Stabilization Fund received a $283 million transfer from the General Fund in
the 1993 State fiscal year, bringing the fund balance to $303 million at
September 30, 1993.
The Michigan Constitution of 1963 limits the amount of total revenues of the
State raised from taxes and certain other sources to a level for each fiscal
year equal to a percentage of the State's personal income for the prior
calendar year. In the event that the State's total revenues exceed the limit by
1 percent or more, the Michigan Constitution of 1963 requires that the excess
be refunded to taxpayers.
On March 15, 1994, Michigan voters approved a school finance reform amendment
to the State's Constitution which, among other things, increased the State
sales tax rate from 4% to 6% and placed a cap on property assessment increases
for all property taxes. Concurrent legislation cut the State's income tax rate
from 4.6% to 4.4%, reduced some property taxes and altered local school funding
sources to a
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combination of property taxes and state revenues, some of which is provided
from other new or increased State taxes. The legislation also contained other
provisions that alter (and in some cases, may reduce) the revenues of local
units of government, and tax increment bonds could be particularly affected.
While the ultimate impact of the constitutional amendment and related
legislation cannot yet be accurately predicted, investors should be alert to
the potential effect of such measures upon the operations and revenues of
Michigan local units of government.
Although all or most of the Bonds in Insured Michigan Series 9 (the "Michigan
Trust") are revenue obligations or general obligations of local governments or
authorities rather than general obligations of the State of Michigan itself,
there can be no assurance that any financial difficulties the State may
experience will not adversely affect the market value or marketability of the
Bonds or the ability of the respective obligors to pay interest on or principal
of the Bonds, particularly in view of the dependency of local governments and
other authorities upon State aid and reimbursement programs and, in the case of
bonds issued by the State Building Authority, the dependency of the State
Building Authority on the receipt of rental payments from the State to meet
debt service requirements upon such bonds. In the 1991 fiscal year, the State
deferred certain scheduled cash payments to municipalities, school districts,
universities and community colleges. While such deferrals were made up at
specified later dates, similar future deferrals could have an adverse impact on
the cash position of some local governmental units. Additionally, the State
reduced revenue sharing payments to municipalities below that level provided
under formulas by $10.9 million in the 1991 fiscal year and $34.4 million in
the 1992 fiscal year, $45.5 million in the 1993 fiscal year and $64.6 million
(budgeted) in the 1994 fiscal year.
Insured Michigan Series 9 may contain general obligation bonds of local units
of government pledging the full faith and credit of the local unit which are
payable from the levy of ad valorem taxes on taxable property within the
jurisdiction of the local unit. Such bonds issued prior to December 22, 1978,
or issued after December 22, 1978 with the approval of the electors of the
local unit, are payable from property taxes levied without limitation as to
rate or amount. With respect to bonds issued after December 22, 1978, and which
were not approved by the electors of the local unit, the tax levy of the local
unit for debt service purposes is subject to constitutional, statutory and
charter tax rate limitations. In addition, several major industrial
corporations have instituted challenges of their ad valorem property tax
assessments in a number of local municipal units in the State. If successful,
such challenges could have an adverse impact on the ad valorem tax bases of
such units which could adversely affect their abiltiy to raise funds for
operation and debt service requirements.
MICHIGAN TAX STATUS
In the opinion of Miller, Canfield, Paddock and Stone, special counsel to
Insured Michigan Series 9 for Michigan tax matters, under existing Michigan
law:
Insured Michigan Series 9 and the owners of Units will be treated for purposes
of the Michigan income tax laws and the Single Business Tax in substantially
the same manner as they are for purposes of the Federal income tax laws, as
currently enacted. Accordingly, we have relied upon the opinion of Chapman and
Cutler as to the applicability of Federal income tax under the Internal Revenue
Code of 1986 to Insured Michigan Series 9 and the Unitholders.
Under the income tax laws of the State of Michigan, Insured Michigan Series 9
is not an association taxable as a corporation; the income of Insured Michigan
Series 9 will be treated as the income of the Unitholders and be deemed to have
been received by them when received by Insured Michigan Series 9. Interest on
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the underlying Bonds which is exempt from tax under these laws when received by
Insured Michigan Series 9 will retain its status as tax exempt interest to the
Unitholders.
For purposes of the foregoing Michigan tax laws, each Unitholder will be
considered to have received his pro rata share of Bond interest when it is
received by Insured Michigan Series 9, and each Unitholder will have a taxable
event when Insured Michigan Series 9 disposes of a Bond (whether by sale,
exchange, redemption or payment at maturity) or when the Unitholder redeems or
sells his Unit to the extent the transaction constitutes a taxable event for
Federal income tax purposes. The tax cost of each unit to a Unitholder will be
established and allocated for purposes of these Michigan tax laws in the same
manner as such cost is established and allocated for Federal income tax
purposes.
Under the Michigan Intangibles Tax, Insured Michigan Series 9 is not taxable
and the pro rata ownership of the underlying Bonds, as well as the interest
thereon, will be exempt to the Unitholders to the extent Insured Michigan
Series 9 consists of obligations of the State of Michigan or its political
subdivisions or municipalities, or of obligations of the Commonwealth of Puerto
Rico, Guam or of the United States Virgin Islands.
The Michigan Single Business Tax replaced the tax on corporate and financial
institution income under the Michigan Income Tax, and the Intangible Tax with
respect to those intangibles of persons subject to the Single Business Tax the
income from which would be considered in computing the Single Business Tax.
Persons are subject to the Single Business Tax only if they are engaged in
"business activity", as defined in the Act. Under the Single Business Tax, both
interest received by Insured Michigan Series 9 on the underlying Bonds and any
amount distributed from Insured Michigan Series 9 to a Unitholder, if not
included in determining taxable income for Federal income tax purposes, is also
not included in the adjusted tax base upon which the Single Business Tax is
computed, of either Insured Michigan Series 9 or the Unitholders. If Insured
Michigan Series 9 or the Unitholders have a taxable event for Federal income
tax purposes when Insured Michigan Series 9 disposes of a Bond (whether by
sale, exchange, redemption or payment at maturity) or the Unitholder redeems or
sells his Unit, an amount equal to any gain realized from such taxable event
which was included in the computation of taxable income for Federal income tax
purposes (plus an amount equal to any capital gain of an individual realized in
connection with such event but excluded in computing that individual's Federal
taxable income) will be included in the tax base against which, after
allocation, apportionment and other adjustments, the Single Business Tax is
computed. The tax base will be reduced by an amount equal to any capital loss
realized from such a taxable event, whether or not the capital loss was
deducted in computing Federal taxable income in the year the loss occurred.
Unitholders should consult their tax advisor as to their status under Michigan
law.
Any proceeds paid under an insurance policy issued to the Trustee of the Trust,
or paid under individual policies obtained by issuers of Bonds, which, when
received by the Unitholders, represent maturing interest on defaulted
obligations held by the Trustee, will be excludable from the Michigan income
tax laws and the Single Business Tax if, and to the same extent as, such
interest would have been so excludable if paid by the issuer of the defaulted
obligations. While treatment under the Michigan Intangibles Tax is not premised
upon the characterization of such proceeds under the Internal Revenue Code, the
Michigan Department of Treasury should adopt the same approach as under the
Michigan income tax laws and the Single Business Tax.
As the Tax Reform Act of 1986 eliminates the capital gain deduction for tax
years beginning after December 31, 1986, the federal adjusted gross income, the
computation base for the Michigan Income Tax, of a Unitholder will be increased
accordingly to the extent such capital gains are realized when Insured Michigan
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Series 9 disposes of a Bond or when the Unitholder redeems or sells a Unit, to
the extent such transaction constitutes a taxable event for Federal income tax
purposes.
For a discussion of Federal tax matters relating to distributions from the
Trust Fund, see "Federal Tax Status."
FEDERAL TAX STATUS
U.S. TREASURY PORTFOLIO SERIES
In the opinion of Chapman and Cutler, counsel for the Sponsor, under existing
law:
(1) Each U.S. Treasury Portfolio Series is not an association taxable as a
corporation for Federal income tax purposes and each Unitholder will be treated
as the owner of a pro rata portion of such Series of the Trust under the Code
and income of such Series will be treated as the income of the Unitholders
under the Code.
(2) Each Unitholder will have a taxable event when a U.S. Treasury Portfolio
Series disposes of a U.S. Treasury Obligation, or when the Unitholder redeems
or sells his Units. Unitholders must reduce the tax basis of their Units for
their share of accrued interest received by a U.S. Treasury Portfolio Series,
if any, on U.S. Treasury Obligations delivered after the Unitholders pay for
their Units to the extent that such interest accrued on such U.S. Treasury
Obligations during the period from the Unitholder's settlement date to the date
such U.S. Treasury Obligations are delivered to a U.S. Treasury Portfolio
Series and, consequently, such Unitholders may have an increase in taxable gain
or reduction in capital loss upon the disposition of such Units. Gain or loss
upon the sale or redemption of Units is measured by comparing the proceeds of
such sale or redemption with the adjusted basis of the Units. If the Trustee
disposes of U.S. Treasury Obligations (whether by sale, payment on maturity,
redemption or otherwise), gain or loss is recognized to the Unitholder. The
amount of any such gain or loss is measured by comparing the Unitholder's pro
rata share of the total proceeds from such disposition with the Unitholder's
basis for his or her fractional interest in the asset disposed of. In the case
of a Unitholder who purchases Units, such basis (before adjustment for earned
original issue discount, amortized bond premium and accrued market discount (if
the Unitholder has elected to include such market discount in income as it
accrues), if any) is determined by apportioning the cost of the Units among
each of the U.S. Treasury Portfolio Series assets ratably according to value as
of the date of acquisition of the Units. The tax cost reduction requirements of
said Code relating to amortization of bond premium may, under some
circumstances, result in the Unitholder realizing a taxable gain when his Units
are sold or redeemed for an amount equal to his original cost.
(3) Certain U.S. Treasury Portfolio Series contain Stripped Treasury
Securities. The basis of each Unit and of each U.S. Treasury Obligation which
was issued with original issue discount must be increased by the amount of
accrued original issue discount and the basis of each Unit and of each U.S.
Treasury Obligation 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 Stripped
Treasury Securities held by a 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. Because the Stripped
Treasury Securities represent interests in "stripped" U.S. Treasury bonds, a
Unitholder's initial cost for his pro rata portion of each Stripped Treasury
Security held by a Trust (determined at the time he acquires his Units, in the
manner described above) will be treated as its "purchase price" by the
Unitholder. Original issue discount is
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effectively treated as interest for Federal income tax purposes, and the amount
of original issue discount in this case is generally the difference between the
bond's purchase price and its stated redemption price at maturity. A Unitholder
will be required to include in gross income for each taxable year the sum of
his daily portions of original issue discount attributable to the Stripped
Treasury Securities held by a 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 Stripped Treasury Securities, this method will
generally result in an increasing amount of income to the Unitholders each
year. Unitholders should consult their tax advisers regarding the Federal
income tax consequences and accretion of original issue discount.
(4) The Unitholder's aliquot share of the total proceeds received on the
disposition of, or principal paid with respect to, a U.S. Treasury Obligation
held by a Trust will constitute ordinary income (which will be treated as
interest income for most purposes) to the extent it does not exceed the accrued
market discount on such U.S. Treasury Obligation that has not previously been
included in taxable income by such Unitholder. A Unitholder may generally elect
to include market discount in income as such discount accrues. In general,
market discount is the excess, if any, of the Unitholder's pro rata portion of
the outstanding principal balance of a U.S. Treasury Obligation over the
Unitholder's initial tax cost for such pro rata portion, determined at the time
such Unitholder acquires his Units. However, market discount with respect to
any U.S. Treasury Obligation will generally be considered zero if it does not
exceed the statutorily defined "de minimis" amount. The market discount rules
do not apply to Stripped Treasury Securities because they are stripped debt
instruments subject to special original issue discount rules as discussed
above. If a Unitholder sells his Units, gain, if any, will constitute ordinary
income to the extent of the aggregate of the accrued market discount on the
Unitholder's pro rata portion of each U.S. Treasury Obligation that is held by
a Trust that has not previously been included in taxable income by such
Unitholder. In general, market discount accrues on a ratable basis unless the
Unitholder elects to accrue such discount on a constant interest rate basis.
However, a Unitholder should consult his own tax adviser regarding the accrual
of market discount. The deduction by a Unitholder for any interest expense
incurred to purchase or carry Units will be reduced by the amount of any
accrued market discount that has not yet been included in taxable income by
such Unitholder. In general, the portion of any interest expense which is not
currently deductible would be ultimately deductible when the accrued market
discount is included in income.
(5) The Code provides that "miscellaneous itemized deductions" are allowable
only to the extent that they exceed two percent of an individual taxpayer's
adjusted gross income. Miscellaneous itemized deductions subject to this
limitation under present law include a Unitholder's pro rata share of expenses
paid by a Trust, including fees of the Trustee and the Evaluator but does not
include amortizable bond premium on U.S. Treasury Obligations held by a Trust.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") raised tax rates on
ordinary income while capital gains remain subject to a 28% maximum stated rate
for taxpayers other than corporations. Because some or all capital gains are
taxed at a comparatively lower rate under the Tax Act, the Tax Act includes a
provision that recharacterizes capital gains as ordinary income in the case of
certain financial transactions that are "conversion transactions" effective for
transactions entered into after April 30, 1993. Unitholders and prospective
investors should consult with their tax advisers regarding the potential effect
of this provision on their investment in Units.
33
<PAGE>
The Sponsor believes that Unitholders who are individuals will not be subject
to any state personal income taxes on the interest received by a U.S. Treasury
Portfolio Series and distributed to them. However, Unitholders (including
individuals) may be subject to state and local taxes on any capital gains (or
market discount treated as ordinary income) derived from a U.S. Treasury
Portfolio Series and to other state and local taxes (including corporate income
or franchise taxes, personal property or intangibles taxes, and estate or
inheritance taxes) on their Units or the income derived therefrom. In addition,
individual Unitholders (and any other Unitholders which are not subject to
state and local taxes on the interest income derived from a U.S. Treasury
Portfolio Series) will probably not be entitled to a deduction for state and
local tax purposes for their share of the fees and expenses paid by a U.S.
Treasury Portfolio Series, for any amortized bond premium or for any interest
on indebtedness incurred to purchase or carry their Units. Therefore, even
though the Sponsor believes that interest income from a U.S. Treasury Portfolio
Series is exempt from state personal income taxes in all states Unitholders
should consult their own tax advisers with respect to state and local taxation.
A Unitholder of a U.S. Treasury Portfolio Series who is not a citizen or
resident of the United States or a United States domestic corporation (a
"Foreign Investor") will not be subject to U.S. Federal income taxes, including
withholding taxes on amounts distributed from such Trust (including any
original issue discount) on, or any gain from the sale or other disposition of,
his Units or the sale or disposition of any U.S. Treasury Obligations by the
Trustee, provided that (i) the interest income or gain is not effectively
connected with the conduct by the Foreign Investor of a trade or business
within the United States, (ii) with respect to any gain, the Foreign Investor
(if an individual) is not present in the United States for 183 days or more
during the taxable year, and (iii) the Foreign Investor provides the required
certification of his status and of the matters contained in clauses (i) and
(ii) above, and further provided that the exemption from withholding for U.S.
Federal income taxes for interest on any U.S. Treasury Obligation shall only
apply to the extent the U.S. Treasury Obligation was issued after July 18,
1984.
Unless an applicable treaty exemption applies and proper certification is made,
amounts otherwise distributable by the Trust to a Foreign Investor will
generally be subject to withholding taxes under Section 1441 of the Code unless
the Unitholder timely provides his financial representative or the Trustee with
a statement that (i) is signed by the Unitholder under penalties of perjury,
(ii) certifies that such Unitholder is not a United States person, or in the
case of an individual, that he is neither a citizen nor a resident of the
United States, and (iii) provides the name and address of the Unitholder. The
statement may be made, at the option of the person otherwise required to
withhold, on Form W-8 or on a substitute form that is substantially similar to
Form W-8. If the information provided on the statement changes, the beneficial
owner must so inform the person otherwise required to withhold within 30 days
of such change.
Foreign Unitholders should consult their own tax advisers with respect to the
foreign and United States tax consequences or ownership of Units.
It should be remembered that even if distributions are reinvested, they are
still treated as distributions for income tax purposes.
It should also be remembered that Unitholders may be required for Federal
income tax purposes to include amounts in ordinary gross income in advance of
the receipt of the cash attributable to such income.
The market discount rules do not apply to stripped U.S. Treasury Obligations
because they are stripped debt instruments subject to special original issue
discount rules. Unitholders should consult their tax advisers as to the amount
of original issue discount which accrues.
34
<PAGE>
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
Obligation 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 disposes of
his entire pro rata interest in all Trust assets including his pro rata portion
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.
Each Unitholder (other than a foreign investor who has properly provided the
certifications described above) will be requested to provide the Unitholder's
taxpayer identification number to the Trustee and to certify that the
Unitholder had not been notified that payments to the Unitholder are subject to
back-up withholding. If the proper taxpayer identification number and
appropriate certification are not provided when requested, distributions by a
Trust to such Unitholder will be subject to back-up withholding.
TAX EXEMPT PORTFOLIO SERIES
All Municipal Bonds deposited in the Trust Funds will be accompanied by copies
of opinions of bond counsel to the issuers thereof, given at the time of
original delivery of the Municipal Bonds, to the effect that the interest
thereon is excludable from gross income for Federal income tax purposes. In
connection with the offering of Units of the Trust Funds, neither the Sponsor,
the Trustee, the auditors nor their respective counsel have made any review of
the proceedings relating to the issuance of the Municipal Bonds or the basis
for such opinions. Gain realized on the sale or redemption of the Municipal
Bonds by the Trustee
35
<PAGE>
or of a Unit by a Unitholder is, however, includable in gross income for
Federal income tax purposes. Such gain does not include any amounts received in
respect of accrued interest or accrued original issue discount, if any. It
should be noted that under legislation described below that subjects accretion
of market discount on tax-exempt bonds to taxation as ordinary income, gain
realized on the sale or redemption of Municipal Bonds by the Trustee or of
Units by a Unitholder that would have been treated as capital gain under prior
law is treated as ordinary income to the extent it is attributable to accretion
of market discount. Market discount can arise based on the price a Trust Fund
pays for Municipal Bonds or the price a Unitholder pays for his or her Units.
In addition, bond counsel to the issuing authorities rendered opinions as to
the exemption of interest on such Bonds, when held by residents of the state in
which the issuers of such bonds are located, from state income taxes and, where
applicable, local income taxes.
In the opinion of Chapman and Cutler, counsel for the Sponsor, under existing
law:
Each Trust Fund is not an association taxable as a corporation for Federal
income tax purposes and interest and accrued original issue discount on
Bonds which is excludable from gross income under the Internal Revenue Code
of 1986 (the "Code") will retain its status when distributed to
Unitholders, except to the extent such interest is subject to the
alternative minimum tax, an additional tax on branches of foreign
corporations and the environmental tax (the "Superfund Tax"), as noted
below.
Exemption of interest and accrued original issue discount on any Municipal
Bonds for Federal income tax purposes does not necessarily result in tax-
exemption under the laws of the several states as such laws vary with
respect to the taxation of such securities and in many states all or part
of such interest and accrued issue discount may be subject to tax.
Each Unitholder is considered to be the owner of a pro rata portion of each
asset of the respective Trust Fund in the proportion that the number of
Units of such Trust Fund held by him bears to the total number of Units
outstanding of such Trust Fund under subpart E, subchapter J of chapter 1
of the Code and will have a taxable event when such Trust Fund disposes of
a Bond, or when the Unitholder redeems or sells his Units. Unitholders must
reduce the tax basis of their Units for their share of accrued interest
received by a Trust Fund, if any, on Bonds delivered after the date the
Unitholders pay for their Units to the extent that such interest accrued on
such Bonds during the period from the Unitholder's settlement date to the
date such Bonds are delivered to a Trust Fund and, consequently, such
Unitholders may have an increase in taxable gain or reduction in capital
loss upon the disposition of such Units. Gain or loss upon the sale or
redemption of Units is measured by comparing the proceeds of such sale or
redemption with the adjusted basis of the Units. If the Trustee disposes of
Bonds (whether by sale, payment on maturity, redemption or otherwise), gain
or loss is recognized to the Unitholder. The amount of any such gain or
loss is measured by comparing the Unitholder's pro rata share of the total
proceeds from such disposition with the Unitholder's basis for his or her
fractional interest in the asset disposed of. In the case of a Unitholder
who purchases Units, such basis (before adjustment for earned original
issue discount and amortized bond premium, if any) is determined by
apportioning the cost of the Units among each of the Trust Fund's assets
ratably according to value as of the date of acquisition of the Units. The
basis of each Unit and of each Municipal Bond which was issued with
original issue discount must be increased by the amount of the accrued
original issue discount and the basis of each Unit and of the Unitholder's
interest in each Municipal Bond which was acquired by such Unitholder at a
premium must be reduced by the annual amortization of Municipal Bond
premium. 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.
36
<PAGE>
Any insurance proceeds paid under individual policies obtained by issuers
of Bonds which represent maturing interest on defaulted obligations held by
the Trustee will be excludable from Federal gross income if, and to the
same extent as, such interest would have been so excludable if paid in the
normal course by the issuer of the defaulted obligations provided that, at
the time such policies are purchased, the amounts paid for such policies
are reasonable, customary and consistent with the reasonable expectation
that the issuer of the obligations, rather than the insurer, will pay debt
service on the obligations.
Sections 1288 and 1272 of the Code provide a complex set of rules governing the
accrual of original issue discount. These rules provide that original issue
discount accrues either on the basis of a constant compound interest rate or
ratably over the term of the Municipal Bond, depending on the date the
Municipal Bond was issued. In addition, special rules apply if the purchase
price of a Municipal Bond exceeds the original issue price plus the amount of
original issue discount which would have previously accrued based upon its
issue price (its "adjusted issue price"). The application of these rules will
also vary depending on the value of the Municipal Bond on the date a Unitholder
acquires his Units, and the price the Unitholder pays for his Units. Investors
with questions regarding these Code sections should consult with their tax
advisers.
The Revenue Reconciliation Act of 1993 (the "Tax Act") subjects tax-exempt
bonds to the market discount rules of the Code effective for bonds purchased
after April 30, 1993. In general, market discount is the amount (if any) by
which the stated redemption price at maturity exceeds an investor's purchase
price (except to the extent that such difference, if any, is attributable to
original issue discount not yet accrued) subject to a statutory de minimis
rule. Market discount can arise based on the price a Trust Fund pays for
Municipal Bonds or the price a Unitholder pays for his or her Units. Under the
Tax Act, accretion of market discount is taxable as ordinary income; under
prior law the accretion had been treated as capital gain. Market discount that
accretes while a Trust Fund holds a Municipal Bond would be recognized as
ordinary income by the Unitholders when principal payments are received on the
Municipal Bond, upon sale or at redemption (including early redemption), or
upon the sale or redemption of his or her Units, unless a Unitholder elects to
include market discount in taxable income as it accrues. The market discount
rules are complex and Unitholders should consult their tax advisers regarding
these rules and their application.
In the case of certain corporations, the alternative minimum tax and the
Superfund Tax depend upon the corporation's alternative minimum taxable income,
which is the corporation's taxable income with certain adjustments. One of the
adjustment items used in computing the alternative minimum taxable income and
the Superfund Tax of a corporation (other than an S Corporation, Regulated
Investment Company, Real Estate Investment Trust, or REMIC) is an amount equal
to 75% of the excess of such corporation's "adjusted current earnings" over an
amount equal to its alternative minimum taxable income (before such adjustment
item and the alternative tax net operating loss deduction). "Adjusted current
earnings" includes all tax-exempt interest, including interest on all of the
Bonds in a Trust Fund and tax-exempt original issue discount. Unitholders are
urged to consult their tax advisers with respect to the particular tax
consequences to them including the corporate alternative minimum tax, the
Superfund Tax and the branch profits tax imposed by Section 884 of the Code.
Counsel for the Sponsor has also advised that under Section 265 of the Code,
interest on indebtedness incurred or continued to purchase or carry Units of a
Trust Fund is not deductible for Federal income tax purposes. The Internal
Revenue Service has taken the position that such indebtedness need not be
directly traceable to the purchase or carrying of Units (however, these rules
generally do not apply to interest paid on indebtedness incurred to purchase or
improve a personal residence or to purchase goods or services for personal
consumption). Also, under Section 265 of the Code, certain financial
institutions that acquire Units would generally not be able to deduct any of
the interest expense attributable to ownership of such Units. Investors with
questions regarding these issues should consult with their tax advisers.
37
<PAGE>
In the case of certain Municipal Bonds in the Trust Funds, the opinions of bond
counsel indicate that interest on such Municipal Bonds received by a
"substantial user" of the facilities being financed with the proceeds of these
Municipal Bonds or persons related thereto, for periods while such Municipal
Bonds are held by such a user or related person, will not be excludable from
Federal gross income, although interest on such Municipal Bonds received by
others would be excludable from Federal gross income. "Substantial user" and
"related person" are defined under U.S. Treasury Regulations. Any person who
believes that he or she may be a "substantial user" or a "related person" as so
defined should contact his or her tax adviser.
In the case of corporations, the alternative tax rate applicable to long-term
capital gains is 35% effective for long-term capital gains realized in taxable
years beginning on or after January 1, 1993. For taxpayers other than
corporations, net capital gains are subject to a maximum marginal stated tax
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. Under the
Code, taxpayers must disclose to the Internal Revenue Service the amount of
tax-exempt interest earned during the year.
Under existing law, the Trust Funds are not associations taxable as
corporations and the income of the Trust Funds will be treated as the income of
the Unitholders under the income tax laws of the State of Missouri.
All statements of law in the Prospectus concerning exclusion from gross income
for Federal, state or other tax purposes are the opinions of counsel and are to
be so construed.
At the respective times of issuance of the Bonds, opinions relating to the
validity thereof and to the exclusion of interest thereon from Federal gross
income are rendered by bond counsel to the respective issuing authorities.
Neither the Sponsor nor Chapman and Cutler has made any special review for the
Trust Funds of the proceedings relating to the issuance of the Bonds or of the
basis for such opinions.
Section 86 of the Code, in general, provides that fifty percent of Social
Security benefits are includible in gross income to the extent that the sum of
"modified adjusted gross income" plus fifty percent of the Social Security
benefits received exceeds a "base amount". The base amount is $25,000 for
unmarried taxpayers, $32,000 for married taxpayers filing a joint return and
zero for married taxpayers who do not live apart at all times during the
taxable year and who file separate returns. Modified adjusted gross income is
adjusted gross income determined without regard to certain otherwise allowable
deductions and exclusions from gross income and by including tax-exempt
interest. To the extent that Social Security benefits are includible in gross
income, they will be treated as any other item of gross income.
In addition, under the Tax Act, for taxable years beginning after December 31,
1993, up to 85 percent of Social Security benefits are includible in gross
income to the extent that the sum of "modified adjusted gross income" plus
fifty percent of Social Security benefits received exceeds an "adjusted base
amount." The adjusted base amount is $34,000 for unmarried taxpayers, $44,000
for married taxpayers filing a joint return and zero for married taxpayers who
do not live apart at all times during the taxable year and who file separate
returns.
Although tax-exempt interest is included in modified adjusted gross income
solely for the purpose of determining what portion, if any, of Social Security
benefits will be included in gross income, no tax-exempt interest, including
that received from the Trust Fund, will be subject to tax. A taxpayer whose
adjusted gross income already exceeds the base amount or the adjusted base
amount must include 50% or 85%, respectively, of his or her Social Security
benefits in gross income whether or not he or she receives any tax-exempt
interest. A taxpayer whose modified adjusted gross income (after inclusion of
tax-exempt interest) does not exceed the base amount need not include any
Social Security benefits in gross income.
38
<PAGE>
For a discussion of the state tax status of income earned on Units of a state
trust, see the discussion of tax status for the applicable trust. Except as
noted therein, the exemption of interest on state and local obligations for
Federal income tax purposes discussed above does not necessarily result in
exemption under the income or other tax laws of any state or city. The laws of
the several states vary with respect to the taxation of such obligations.
39
<PAGE>
ESTIMATED CASHFLOWS TO UNITHOLDERS
The tables below set forth the per Unit estimated distributions of interest and
principal to Unitholders of the U.S. Treasury Portfolios. The tables assume no
changes in Trust expenses, no redemptions or sales of the underlying U.S.
Treasury Obligations prior to maturity and the receipt of all principal due
upon maturity. To the extent the foregoing assumptions change actual
distributions will vary.
U.S. TREASURY PORTFOLIO, SERIES 8
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
------------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Mar 15, 1995 $0.05991 $0.05991
Apr 15, 1995 to May 15, 1996 0.05991 0.05991
May 31, 1996 -- $2.00000 2.00000
Jun 15, 1996 0.05377 0.05377
Jul 15, 1996 to Nov 15, 1996 0.04782 0.04782
Dec 15, 1996 0.04178 2.00000 2.04178
Jan 15, 1997 to May 15, 1997 0.03594 0.03594
Jun 15, 1997 0.03031 2.00000 2.03031
Jul 15, 1997 to Nov 15, 1997 0.02488 0.02488
Nov 30, 1997 -- 2.00000 2.00000
Dec 15, 1997 0.01874 0.01874
Jan 15, 1998 to Apr 15, 1998 0.01279 0.01279
Apr 30, 1998 0.00622 2.00000 2.00622
</TABLE>
U.S. TREASURY PORTFOLIO, SERIES 9
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
------------ ------------ ------------ ------------
<S> <C> <C> <C>
May 31, 1996 $2.00 $2.00
Nov 30, 1996 2.00 2.00
May 31, 1997 2.00 2.00
Nov 30, 1997 2.00 2.00
May 31, 1998 2.00 2.00
</TABLE>
U.S. TREASURY PORTFOLIO, SERIES 10
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
------------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Mar 15, 1995 $0.06304 $0.06304
Apr 15, 1995 to May 15, 1997 0.06304 0.06304
Jun 15, 1997 0.05742 $2.00000 2.05742
Jul 15, 1997 to Apr 15, 1998 0.05199 0.05199
Apr 30, 1998 -- 2.00000 2.00000
May 15, 1998 0.04543 0.04543
Jun 15, 1998 to Apr 15, 1999 0.03906 0.03906
Apr 30, 1999 -- 2.00000 2.00000
May 15, 1999 0.03323 0.03323
Jun 15, 1999 to May 15, 2000 0.02759 0.02759
May 30, 2000 -- 2.00000 2.00000
Jun 15, 2000 0.02019 0.02019
Jul 15, 2000 to May 15, 2001 0.01300 0.01300
May 30, 2001 0.00633 2.00000 2.00633
</TABLE>
40
<PAGE>
The tables below set forth the estimated monthly distributions of interest and
principal to Unitholders of a Tax Exempt Portfolio on a per 100 Units basis.
The tables assume no changes in expenses, no changes in the current interest
rates, no exchanges, redemptions, sales or prepayments of the underlying
Securities prior to maturity or expected retirement date and the receipt of
principal upon maturity or expected retirement date. To the extent the
foregoing assumptions change actual distributions will vary.
INSURED CALIFORNIA TRUST
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
---------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Mar 15, 1995 $ 4.18 $ 4.18
Apr 15, 1995 to Apr 15, 1998 4.18 4.18
May 15, 1998 4.18 $200.00 204.18
Jun 15, 1998 to Sep 15, 1999 3.37 3.37
Oct 15, 1999 3.37 200.00 203.37
Nov 15, 1999 to Jun 15, 2000 2.53 2.53
Jul 15, 2000 2.53 200.00 202.53
Aug 15, 2000 to Nov 15, 2001 1.62 1.62
Dec 15, 2001 1.21 200.00 201.21
Jan 15, 2002 0.83 100.00 100.83
Feb 15, 2002 to Aug 15, 2002 0.44 0.44
Sep 15, 2002 0.44 100.00 100.44
</TABLE>
INSURED MICHIGAN TRUST
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
---------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Mar 15, 1995 $ 4.87 $ 4.87
Apr 15, 1995 to Oct 15, 2006 4.87 4.87
Nov 15, 2006 4.87 $200.58 205.45
Dec 15, 2006 to May 15, 2017 3.77 3.77
Jun 15, 2017 3.38 145.35 148.73
Jul 15, 2017 to Apr 15, 2022 3.02 3.02
May 15, 2022 3.02 145.35 148.37
Jun 15, 2022 to Mar 15, 2023 2.36 2.36
Apr 15, 2023 2.36 218.02 220.38
May 15, 2023 to Jun 15, 2023 1.25 1.25
Jul 15, 2023 1.25 145.35 146.60
Aug 15, 2023 to Sep 15, 2023 0.67 0.67
Oct 15, 2023 0.67 145.35 146.02
</TABLE>
41
<PAGE>
RATING OF UNITS
GOVERNMENT SECURITIES PORTFOLIO
Standard & Poor's Ratings Group ("Standard & Poor's") has rated the Units of
each Government Securities Portfolio Series "AAA." This is the highest rating
assigned by Standard & Poor's. Standard & Poor's has been compensated by the
Sponsor for its services in rating Units of the Trust Funds.
A Standard & Poor's Ratings Group's rating (as described by Standard & Poor's)
on the units of an investment trust (hereinafter referred to collectively as
"units" or "trust") is a current assessment of creditworthiness with respect to
the investments held by such trust. This assessment takes into consideration
the financial capacity of the issuers and of any guarantors, insurers, lessees,
or mortgagors with respect to such investments. The assessment, however, does
not take into account the extent to which trust expenses or portfolio asset
sales for less than the trust's purchase price will reduce payment to the
Unitholder of the interest and principal required to be paid on the portfolio
assets. In addition, the rating is not a recommendation to purchase, sell, or
hold units, inasmuch as the rating does not comment as to market price of the
units or suitability for a particular investor.
Trusts rated "AAA" are composed exclusively of assets that are rated "AAA" by
Standard & Poor's or have, in the opinion of Standard & Poor's, credit
characteristics comparable to assets rated "AAA," or certain short-term
investments. Standard & Poor's defines its "AAA" rating for such assets as the
highest rating assigned by Standard & Poor's to a debt obligation. Capacity to
pay interest and repay principal is very strong.
TAX-EXEMPT PORTFOLIO
Because the Municipal Bonds in the Insured Trust Funds in the Tax-Exempt
Portfolio are insured as to the scheduled payment of principal and interest and
on the basis of the financial condition and the method of operation of the
insurance companies referred to in "Insurance on the Portfolios of the Insured
Trust Funds", Moody's Investors Service, Inc. has assigned to each of the
Insured Trust Fund's Units its "Aaa" investment rating. These are the highest
ratings assigned to securities by such rating agency. See "Description of
Municipal Bond Ratings." These ratings should not be construed as an approval
of the offering of the Units by Moody's Investors Service, Inc. or as a
guarantee of the market value of an Insured Trust Fund or the Units thereof.
There is no guarantee that the "Aaa" investment rating will be maintained.
Bonds in an Insured Trust Fund for which insurance has been obtained by the
Issuer or the Sponsor (all of which were rated "AAA" by Standard & Poor's
Ratings Group and/or "Aaa" by Moody's Investors Service, Inc.) may or may not
have a higher yield than uninsured bonds rated "AAA" by Standard & Poor's
Ratings Group or "Aaa" by Moody's Investors Service, Inc. In selecting
Municipal Bonds for the portfolios of an Insured Trust Fund, the Sponsor has
applied the criteria hereinbefore described.
DESCRIPTION OF MUNICIPAL BOND RATINGS*
STANDARD & POOR'S RATINGS GROUP.--A brief description of the applicable
Standard & Poor's Ratings Group rating symbols and their meanings follow:
A Standard & Poor's corporate or municipal bond rating is a current assessment
of the creditworthiness of an obligor with respect to a specific debt
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
- ------------------
*As described by the rating company itself.
A-1
<PAGE>
The bond rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer and
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement, under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA--Bonds rated AAA have the highest rating assigned by Standard and Poor's to
a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "A" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "p" indicates the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
MOODY'S INVESTORS SERVICE, INC.--A brief description of the applicable Moody's
Investors Service, Inc. rating symbols and their meanings follow:
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Aaa--Bonds which are rated Aaa are judged to be of 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.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities. Their market value is virtually immune to all but money market
influences, with the occasional exception of oversupply in a few specific
instances.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. The market
value of A-rated bonds may be influenced to some degree by economic performance
during a sustained period of depressed business conditions, but, during periods
of normalcy, A-rated bonds frequently move in parallel with Aaa and Aa
obligations, with the occasional exception of oversupply in a few specific
instances.
A1--Bonds which are rated A1 offer the maximum in security within their quality
group, can be bought for possible upgrading in quality, and additionally,
afford the investor an opportunity to gauge more precisely the relative
attractiveness of offerings in the marketplace.
Baa--Bonds which are rated Baa are considered as lower medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and, in fact, have speculative characteristics as
well. The market value of Baa-rated bonds is more sensitive to changes in
economic circumstances and, aside from occasional speculative factors applying
to some bonds of this class, Baa market valuations move in parallel with Aaa,
Aa and A obligations during periods of economic normalcy, except in instances
of oversupply.
Conditional Ratings: Bonds rated "Con(-)" are ones for which the security
depends upon the completion of some act or the fulfillment of some condition.
These are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals which
begin when facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in certain areas of its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
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PORTFOLIOS
The U.S. Treasury Portfolio Series may be an appropriate investment vehicle for
investors who desire to participate in a portfolio of taxable fixed income
securities offering the safety of capital provided by an investment backed by
the full faith and credit of the United States. In addition, many investors may
benefit from the exemption from state and local personal income taxes that will
pass through the U.S. Treasury Portfolio Series to Unitholders in virtually all
states.
In selecting U.S. Treasury Obligations for deposit in the U.S. Treasury
Portfolio Series, the following factors, among others, were considered by the
Sponsor: (a) the types of such obligations available; (b) the prices and yields
of such obligations relative to other comparable obligations, including the
extent to which such obligations are traded at a premium or at a discount from
par; and (c) the maturities of such obligations.
The Tax-Exempt Portfolio may be an appropriate investment vehicle for investors
who desire to participate in a portfolio of tax-exempt fixed income securities
with greater diversification than they might be able to acquire individually.
In addition, Municipal Bonds of the type deposited in the Tax-Exempt Portfolio
are often not available in small amounts.
The selection of Municipal Bonds for each Tax-Exempt Portfolio was based
largely upon the experience and judgment of the Sponsor. In making such
selections the Sponsor considered the following factors: (a) Standard & Poor's
or Moody's ratings of the Municipal Bonds; (b) the price of the Municipal Bonds
relative to other issues of similar quality and maturity; (c) the
diversification of the Municipal Bonds as to purpose of issue; (d) the income
to the Unitholders of the Trust; (e) in the case of Insured Trust Funds whether
such Bonds were insured or the availability and cost of insurance for the
scheduled payment of principal and interest on the Municipal Bonds; and (f) the
dates of maturity of the Bonds.
All of the Municipal Bonds in each Trust Fund's portfolio are rated in the
category "BBB" or better (including provisional or conditional ratings) by
Standard & Poor's or "Baa" or better by Moody's. See "Description of Municipal
Bond Ratings" and "The Trust Funds--Portfolios."
All Securities deposited in the Trust Funds on the Initial Date of Deposit were
represented by purchase contracts assigned to the Trustee together with cash,
cash equivalents or irrevocable letters of credit issued by a major commercial
bank in the amounts necessary to complete the purchase thereof.
Each Series of the Government Securities Portfolio consists of such of the
unamortized principal amount of the Government Securities listed under the
appropriate Trust Fund's "Portfolio" (or contracts to purchase such
obligations) as may continue to be held from time to time in such Series of the
Trust and any additional obligations acquired and held by such Series of the
Trust pursuant to the provisions of the Indenture (including provisions with
respect to deposits of Government Securities in connection with the issuance of
additional Units) together with accrued and undistributed interest thereon and
undistributed cash representing payments and prepayments of principal and
proceeds realized from the disposition of Government Securities. Neither the
Sponsor nor the Trustee shall be liable in any way for any default, failure or
defect in any of the Government Securities. However, should any contract
deposited hereunder (or to be deposited in connection with the issuance of
additional Units), fail, the Sponsor shall, on or before the next following
Distribution Date, unless substantially all of the moneys held in such Series
of the Trust Funds to cover such purchase are reinvested in substitute
Government Securities in accordance with the Indenture, cause to be refunded to
the Unitholders of that Series the attributable sales charge, plus the
attributable cost of the Government Securities to that Series of the Trust
Funds, plus accrued interest, if any, at the coupon rate of the relevant
Government Securities to the date the Sponsor is notified of the failure.
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Bonds in certain of the Trust Funds in the Tax-Exempt Portfolio may have been
purchased on a "when, as and if issued" or delayed delivery basis with delivery
expected to take place after the First Settlement Date. See "Notes to
Portfolio." Accordingly, the delivery of such Bonds may be delayed or may not
occur. Interest on these Municipal Bonds begins accruing to the benefit of
Unitholders on their respective dates of delivery. To the extent any Municipal
Bonds are actually delivered to a Trust Fund after their respective expected
dates of delivery, Unitholders who purchase Units in such Trust Fund prior to
the date such "when, as and if issued" or "delayed delivery" Municipal Bonds
are actually delivered to the Trustee would, to the extent such income is not
offset by a reduction in the Trustee's fee (or, to the extent necessary, other
expenses), be required to reduce their tax basis in their Units of such Trust
Fund since the interest accruing on such Bonds during the interval between
their purchase of Units and the actual delivery of such Bonds would, for tax
purposes, be considered a non-taxable return of principal rather than as tax-
exempt interest. The result of such adjustment, if necessary, would be, during
the first year only, that the Estimated Long-Term Returns may be, and the
Estimated Current Returns would be, slightly lower than those shown herein,
assuming the Trust Fund portfolios and estimated annual expenses do not vary.
See footnote (4) to "Essential Information." Unitholders will be "at risk" with
respect to these Bonds (i.e., may derive either gain or loss from fluctuations
in the evaluation of such Bonds) from the date they commit for Units.
The Sponsor and the Trustee shall not be liable in any way for any default,
failure or defect in any Municipal Bond. In the event of a notice that any
Bonds, including "when, as and if issued" Bonds that have been purchased for
the Trust under contracts, will not be delivered ("Failed Bonds"), the Sponsor
is authorized under the Trust Agreement to direct the Trustee to acquire other
bonds ("Replacement Bonds").
The Replacement Bonds must be purchased within 20 days after delivery of the
notice that a contract to deliver a Municipal Bond will not be honored and the
purchase price may not exceed the amount of funds reserved for the purchase of
the Failed Bonds. The Replacement Bonds (i) must be tax-exempt bonds issued by
the appropriate state or counties, municipalities, authorities or political
subdivisions thereof, (ii) must have a fixed maturity date of at least three
years if the Bonds are to be deposited in a Trust other than a long-term Trust
or at least 10 years if the Bonds are to be deposited in a long-term Trust,
(iii) 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, (iv) shall not be "when, as and if issued" bonds, (v) must
satisfy the rating criteria for Bonds originally included in such Trust and
(vi) in the case of Insured Trust Funds must be insured. Whenever a Replacement
Bond is acquired for a Trust Fund, the Trustee shall, within five days
thereafter, notify all Unitholders of the Trust Fund of the acquisition of the
Replacement Bond. Once all of the Bonds in a Trust Fund are acquired, the
Trustee will have no power to vary the investments of the Trust Fund, 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 paragraphs is
not utilized to acquire Replacement Bonds in the event of a failed contract,
the Sponsor will refund the sales charge attributable to such Failed Bonds to
all Unitholders of the Trust Fund and the Trustee will distribute the principal
and any accrued interest attributable to such Failed Bonds not more than 30
days after the date on which the Trustee would have been required to purchase a
Replacement Bond. In addition, Unitholders should be aware that, at the time of
receipt of such principal, they may not be able to reinvest such proceeds in
other securities at a yield equal to or in excess of the yield which such
proceeds would have earned for Unitholders of such Trust Fund.
Whether or not a Replacement Bond is acquired, an amount equal to the accrued
interest (at the coupon rate of the Failed Bonds) will be paid to Unitholders
of the Trust Fund to the date the Sponsor is notified of
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the failure if the Sponsor determines not to purchase a Replacement Bond or to
the date of substitution if a Replacement Bond is purchased. All such interest
paid to Unitholders which accrued after the date of settlement for a purchase
of Units will be paid by the Sponsor. In the event a Replacement Bond could not
be acquired by the Trust Fund, the net annual interest income per Unit for such
Trust Fund would be reduced and the Estimated Current Return and Estimated
Long-Term Return might be lowered.
Subsequent to the Initial Date of Deposit, a Municipal Bond may cease to be
rated or its rating may be reduced below the minimum required as of the Initial
Date of Deposit. Neither event requires the elimination of such investment from
a Trust Fund, but may be considered in the Sponsor's determination to direct
the Trustee to dispose of such investment. See "Investment Supervision."
The Sponsor may not alter the portfolio of a Trust Fund except upon the
happening of certain extraordinary circumstances. See "Investment Supervision."
Municipal Bonds in such Trust Fund are 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 with proceeds 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--Portfolios." 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 Municipal Bonds and from Municipal Bonds which mature in accordance
with their terms from a Trust Fund, unless utilized to pay for Units tendered
for redemption, will be distributed to Unitholders of such Trust Fund and will
not be used to purchase additional Municipal Bonds for the Trust Fund.
Accordingly, any such call, redemption, sale or maturity will reduce the size
and diversity of the Trust Fund and the net annual interest income of the Trust
Fund 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 Municipal 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 Municipal Bonds
is contained in "The Trust Funds--Portfolios."
Insurance guaranteeing the scheduled payment of principal and interest on all
of the Municipal Bonds in an Insured Trust Fund has been obtained directly by
the issuer or the Sponsor. See "Insurance on the Portfolios of the Insured
Trust Funds" and "The Trust Funds--Portfolios." The value of insurance obtained
by the issuer or the Sponsor of a Municipal Bond is reflected and included in
the market value of such Bonds. See "Insurance on the Portfolios of the Insured
Trust Funds."
Each Unit of a Trust Fund represents an undivided fractional interest in the
Securities deposited therein, in the ratio shown under "Essential Information."
Units may be purchased and certificates, if requested, will be issued in
denominations of one Unit or any multiple or fraction thereof, subject to the
Trust's minimum investment requirement of one Unit. Fractions of Units will be
computed to three decimal points. To the extent that Units of a Trust Fund are
redeemed, the principal amount of Securities in the Trust Fund will
be reduced and the undivided fractional interest represented by each
outstanding Unit of such Trust Fund
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will increase. See "Redemption." However, if additional Units are issued by a
Series of the Government Securities Portfolio (in connection with the deposit
by the Sponsor of additional Securities), the aggregate value of Securities in
such Series of the Trust will be increased by amounts allocable to additional
Units, and the fractional undivided interest represented by each Unit in the
balance will be decreased. Units will remain outstanding until redeemed upon
tender to the Trustee by any Unitholder (which may include the Sponsor) or
until the termination of the Series. See "Redemption" and "Administration of
the Trusts--Amendment and Termination."
GENERAL TRUST INFORMATION
None of the special counsel to the various Trust Funds has expressed any
opinion regarding the completeness or materiality of any matters contained in
this Prospectus other than the tax opinions set forth under "Federal Tax
Status." For risks specific to the individual Trusts, see "Risk Factors" for
each Trust.
RISK FACTORS
Certain of the Bonds in the Trust Funds may be general obligations of a
governmental entity that are backed by the taxing power of such entity. All
other Bonds in the Trusts are revenue bonds payable from the income of a
specific project or authority and are not supported by the issuer's power to
levy taxes. General obligation bonds are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Revenue bonds, on the other hand, are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. There are, of
course, variations in the security of the different Bonds in the Trust Funds,
both within a particular classification and between classifications, depending
on numerous factors.
Certain of the Bonds in the Trust Funds may be obligations of issuers whose
revenues are derived from services provided by hospitals and other health care
facilities, including nursing homes. Ratings of bonds issued for health care
facilities are often based on feasibility studies that contain projections of
occupancy levels, revenues and expenses. A facility's gross receipts and net
income available for debt service will be affected by future events and
conditions including, among other things, demand for services and the ability
of the facility to provide the services required, physicians' confidence in the
facility, management's capabilities, economic developments in the service area,
competition, efforts by insurers and governmental agencies to limit rates,
legislation establishing state rate-setting agencies, expenses, the cost and
possible unavailability of malpractice insurance, the funding of Medicare,
Medicaid and other similar third party payor programs, and government
regulation. Federal legislation has been enacted which implements a system of
prospective Medicare reimbursement which may restrict the flow of revenues to
hospitals and other facilities which are reimbursed for services provided under
the Medicare program. Future legislation or changes in the areas noted above,
among other things, would affect all hospitals to varying degrees and,
accordingly, any adverse changes in these areas may affect the ability of such
issuers to make payments of principal and interest on Municipal Bonds held in
the portfolios of the Trust Funds. Such adverse changes also may affect the
ratings of the Municipal Bonds held in the portfolios of the Trust Funds.
Certain of the Bonds in the Trust Funds may be single family mortgage revenue
bonds, which are issued for the purpose of acquiring from originating financial
institutions notes secured by mortgages on residences located within the
issuer's boundaries and owned by persons of low or moderate income. Mortgage
loans are generally partially or completely prepaid prior to their final
maturities as a result of events such as sale
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of the mortgaged premises, default, condemnation or casualty loss. Because
these Bonds are subject to extraordinary mandatory redemption in whole or in
part from such prepayments of mortgage loans, a substantial portion of such
Bonds will probably be redeemed prior to their scheduled maturities or even
prior to their ordinary call dates. The redemption price of such issues may be
more or less than the offering price of such Bonds. Extraordinary mandatory
redemption without premium could also result from the failure of the
originating financial institutions to make mortgage loans in sufficient amounts
within a specified time period or, in some cases, from the sale by the Bond
issuer of the mortgage loans. Failure of the originating financial institutions
to make mortgage loans would be due principally to the interest rates on
mortgage loans funded from other sources becoming competitive with the interest
rates on the mortgage loans funded with the proceeds of the single family
mortgage revenue bonds. Additionally, unusually high rates of default on the
underlying mortgage loans may reduce revenues available for the payment of
principal of or interest on such mortgage revenue bonds. Single family mortgage
revenue bonds issued after December 31, 1980 were issued under Section 103A of
the Internal Revenue Code of 1954, which Section contains certain ongoing
requirements relating to the use of the proceeds of such Bonds in order for the
interest on such Bonds to retain its tax-exempt status. In each case, the
issuer of the Bonds has covenanted to comply with applicable ongoing
requirements and bond counsel to such issuer has issued an opinion that the
interest on the Bonds is exempt from Federal income tax under existing laws and
regulations. There can be no assurances that the ongoing requirements will be
met. The failure to meet these requirements could cause the interest on the
Bonds to become taxable, possibly retroactively from the date of issuance.
Certain of the Bonds in the Trust Funds may be obligations of issuers whose
revenues are primarily derived from mortgage loans to housing projects for low
to moderate income families. The ability of such issuers to make debt service
payments will be affected by events and conditions affecting financed projects,
including, among other things, the achievement and maintenance of sufficient
occupancy levels and adequate rental income, increases in taxes, employment and
income conditions prevailing in local labor markets, utility costs and other
operating expenses, the managerial ability of project managers, changes in laws
and governmental regulations, the appropriation of subsidies and social and
economic trends affecting the localities in which the projects are located. The
occupancy of housing projects may be adversely affected by high rent levels and
income limitations imposed under Federal and state programs. Like single family
mortgage revenue bonds, multi-family mortgage revenue bonds are subject to
redemption and call features, including extraordinary mandatory redemption
features, upon prepayment, sale or non-origination of mortgage loans as well as
upon the occurrence of other events. Certain issuers of single or multi-family
housing bonds have considered various ways to redeem bonds they have issued
prior to the stated first redemption dates for such bonds. In connection with
the housing Bonds held by the Trust Funds, the Sponsor has not had any direct
communications with any of the issuers thereof, but at the Date of Deposit it
is not aware that any of the respective issuers of such Bonds are actively
considering the redemption of such Bonds prior to their respective stated
initial call dates. However, there can be no assurance that an issuer of a Bond
in the Trusts will not attempt to so redeem a Bond in the Trust Funds.
Certain of the Bonds in the Trust Funds may be obligations of issuers whose
revenues are derived from the sale of water and/or sewerage services. Water and
sewerage bonds are generally payable from user fees. Problems faced by such
issuers include the ability to obtain timely and adequate rate increases, a
decline in population resulting in decreased user fees, the difficulty of
financing large construction programs, the limitations on operations and
increased costs and delays attributable to environmental considerations, the
increasing difficulty of obtaining or discovering new supplies of fresh water,
the effect of conservation programs and the impact of "no-growth" zoning
ordinances. Issuers may have experienced these problems in varying degrees.
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Certain of the Bonds in the Trust Funds may be obligations of issuers whose
revenues are primarily derived from the sale of electric energy or natural gas.
Utilities are generally subject to extensive regulation by state utility
commissions which, among other things, establish the rates which may be charged
and the appropriate rate of return on an approved asset base. The problems
faced by such issuers include the difficulty in obtaining approval for timely
and adequate rate increases from the governing public utility commission, the
difficulty in financing large construction programs, the limitations on
operations and increased costs and delays attributable to environmental
considerations, increased competition, recent reductions in estimates of future
demand for electricity in certain areas of the country, the difficulty of the
capital market in absorbing utility debt, the difficulty in obtaining fuel at
reasonable prices and the effect of energy conservation. Issuers may have
experienced these problems in varying degrees. In addition, Federal, state and
municipal governmental authorities may from time to time review existing and
impose additional regulations governing the licensing, construction and
operation of nuclear power plants, which may adversely affect the ability of
the issuers of such Bonds to make payments of principal and/or interest on such
Bonds.
Certain of the Bonds in the Trust Funds may be industrial revenue bonds
("IRBs"), including pollution control revenue bonds, which are tax-exempt
securities issued by states, municipalities, public authorities or similar
entities to finance the cost of acquiring, constructing or improving various
industrial projects. These projects are usually operated by corporate entities.
Issuers are obligated only to pay amounts due on the IRBs to the extent that
funds are available from the unexpended proceeds of the IRBs or receipts or
revenues of the issuer under an arrangement between the issuer and the
corporate operator of a project. The arrangement may be in the form of a lease,
installment sale agreement, conditional sale agreement or loan agreement, but
in each case the payments to the issuer are designed to be sufficient to meet
the payments of amounts due on the IRBs. Regardless of the structure, payment
of IRBs is solely dependent upon the creditworthiness of the corporate operator
of the project or corporate guarantor. Corporate operators or guarantors may be
affected by many factors which may have an adverse impact on the credit quality
of the particular company or industry. These include cyclicality of revenues
and earnings, regulatory and environmental restrictions, litigation resulting
from accidents or environmentally-caused illnesses, extensive competition and
financial deterioration resulting from leveraged buy-outs or takeovers. The
IRBs in the Trust Funds may be subject to special or extraordinary redemption
provisions which may provide for redemption at par or, with respect to original
issue discount bonds, at issue price plus the amount of original issue discount
accreted to the redemption date plus, if applicable, a premium. The Sponsor
cannot predict the causes or likelihood of the redemption of IRBs or other
Bonds in the Trust Funds prior to the stated maturity of such Bonds.
Certain of the Bonds in the Trust Funds may be obligations which are payable
from and secured by revenues derived from the ownership and operation of
facilities such as airports, bridges, turnpikes, port authorities, convention
centers and arenas. The major portion of an airport's gross operating income is
generally derived from fees received from signatory airlines pursuant to use
agreements which consist of annual payments for leases, occupancy of certain
terminal space and service fees. Airport operating income may therefore be
affected by the ability of the airlines to meet their obligations under the use
agreements. The air transport industry is experiencing significant variations
in earnings and traffic, due to increased competition, excess capacity,
increased costs, deregulation, traffic constraints and other factors, and
several airlines are experiencing severe financial difficulties. The Sponsor
cannot predict what effect these industry conditions may have on airport
revenues which are dependent for payment on the financial condition of the
airlines and their usage of the particular airport facility. Similarly, payment
on Bonds related to other facilities is dependent on revenues from the
projects, such as user fees from ports, tolls on turnpikes and bridges and
rents from buildings. Therefore, payment may be adversely affected by reduction
in revenues due to such
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factors as increased cost of maintenance, decreased use of a facility, lower
cost of alternative modes of transportation, scarcity of fuel and reduction or
loss of rents.
Certain of the Bonds in the Trust Funds may be obligations of issuers which
are, or which govern the operation of, schools, colleges and universities and
whose revenues are derived mainly from ad valorem taxes, or for higher
education systems, from tuition, dormitory revenues, grants and endowments.
General problems relating to school bonds include litigation contesting the
state constitutionality of financing public education in part from ad valorem
taxes, thereby creating a disparity in educational funds available to schools
in wealthy areas and schools in poor areas. Litigation or legislation on this
issue may affect the sources of funds available for the payment of school bonds
in the Trusts. General problems relating to college and university obligations
would include the prospect of a declining percentage of the population
consisting of "college" age individuals, possible inability to raise tuition
and fees sufficiently to cover increased operating costs, the uncertainty of
continued receipt of Federal grants and state funding and new government
legislation or regulations which may adversely affect the revenues or costs of
such issuers. All of such issuers have been experiencing certain of these
problems in varying degrees.
Certain of the Bonds in the Trust Funds may be Urban Redevelopment Bonds
("URBs"). URBs have generally been issued under bond resolutions pursuant to
which the revenues and receipts payable under the arrangements with the
operator of a particular project have been assigned and pledged to purchasers.
In some cases, a mortgage on the underlying project may have been granted as
security for the URBs. Regardless of the structure, payment of the URBs is
solely dependent upon the creditworthiness of the operator of the project.
Certain of the Bonds in the Trust Funds may be lease revenue bonds whose
revenues are derived from lease payments made by a municipality or other
political subdivision which is leasing equipment or property for use in its
operation. The risks associated with owning Bonds of this nature include the
possibility that appropriation of funds for a particular project or equipment
may be discontinued. The Sponsor cannot predict the likelihood of
nonappropriation of funds for these types of lease revenue Bonds.
Certain of the Bonds in the Trust Funds may be sales and/or use tax revenue
bonds whose revenues are derived from the proceeds of a special sales or use
tax. Such taxes are generally subject to continuing Legislature approval.
Payments may be adversely affected by reduction of revenues due to decreased
use of a facility or decreased sales.
Certain of the Bonds in the Trusts may have been acquired at a market discount
from par value at maturity. The coupon interest rates on the discount bonds at
the time they were purchased and deposited in the Trusts were lower than the
current market interest rates for newly issued bonds of comparable rating and
type. If such interest rates for newly issued comparable bonds increase, the
market discount of previously issued bonds will become greater, and if such
interest rates for newly issued comparable bonds decline, the market discount
of previously issued bonds will be reduced, other things being equal. Investors
should also note that the value of bonds purchased at a market discount will
increase in value faster than bonds purchased at a market premium if interest
rates decrease. Conversely, if interest rates increase, the value of bonds
purchased at a market discount will decrease faster than bonds purchased at a
market premium. In addition, if interest rates rise, the prepayment risk of
higher yielding, premium bonds and the prepayment benefit for lower yielding,
discount bonds will be reduced. A discount bond held to maturity will have a
larger portion of its total return in the form of taxable income and capital
gain and less in the form of tax-exempt interest income (in the case of the
Tax-Exempt Portfolios) than a comparable bond newly issued at
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<PAGE>
current market rates. See "Federal Tax Status." Market discount attributable to
interest changes does not indicate a lack of market confidence in the issue.
Neither the Sponsor nor the Trustee shall be liable in any way for any default,
failure or defect in any of the Municipal Bonds.
Certain of the Securities in the Trust Funds may be "zero coupon" bonds, i.e.,
an original issue discount bond that does not provide for the payment of
current interest. Zero coupon bonds are purchased at a deep discount because
the buyer receives 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
obligation. This implicit reinvestment of earnings at the same rate eliminates
the risk of being unable to reinvest the income on such obligation at a rate as
high as the implicit yield on the discount obligation, but at the same time
eliminates the holder's ability to reinvest at higher rates in the future. For
this reason, zero coupon bonds are subject to substantially greater price
fluctuations during periods of changing market interest rates than are
securities of comparable quality which pay interest currently. For the Federal
tax consequences of original issue discount bonds such as the zero coupon
bonds, see "Federal Tax Status."
Investors should be aware that many of the Bonds in the Trust Funds are subject
to continuing requirements such as the actual use of Bond proceeds or manner of
operation of the project financed from Bond proceeds that may affect the
exemption of interest on such Bonds from Federal income taxation. Although at
the time of issuance of each of the Bonds in the Trusts an opinion of bond
counsel was rendered as to the exemption of interest on such obligations from
Federal income taxation, there can be no assurance that the respective issuers
or other obligors on such obligations will fulfill the various continuing
requirements established upon issuance of the Bonds. A failure to comply with
such requirements may cause a determination that interest on such obligations
is subject to Federal income taxation, perhaps even retroactively from the date
of issuance of such Bonds, thereby reducing the value of the Bonds and
subjecting Unitholders to unanticipated tax liabilities.
Federal bankruptcy statutes relating to the adjustment of debts of political
subdivisions or authorities of states of the United States provide that, in
certain circumstances, such subdivisions or authorities may be authorized to
initiate bankruptcy proceedings without prior notice to or consent of
creditors, which proceedings could result in material and adverse modification
or alteration of the rights of holders of obligations issued by such
subdivisions or authorities.
Certain of the Bonds in the Trust Funds may represent "moral obligations" of a
governmental entity other than the issuer. In the event that the issuer of a
Municipal Bond defaults in the repayment thereof, the governmental entity
lawfully may, but is not obligated to, discharge the obligation of the issuer
to repay such Municipal Bond.
To the best of the Sponsor's knowledge, there is no litigation pending as of
the Initial Date of Deposit in respect of any Municipal Bond which might
reasonably be expected to have a material adverse effect on the Trusts or any
Trust Fund. At any time after the Initial Date of Deposit, litigation may be
instituted on a variety of grounds with respect to the Municipal Bonds.
Although 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 any Trust Fund, the Trust Funds receive copies of the
opinions of bond counsel given at the time of original delivery of each of the
Municipal Bonds to the effect that the Municipal Bonds have been validly issued
and that the interest thereon is exempt from Federal income taxes.
A-11
<PAGE>
INSURANCE ON THE PORTFOLIOS OF THE INSURED TRUST FUNDS
All Municipal Bonds in the portfolios of the Insured Trust Funds are insured as
to the scheduled payment of interest and principal by the issuer or the Sponsor
from Municipal Bond Investors Assurance Corporation or other insurers. See "The
Trust Funds--Portfolios" and the Notes thereto. The premium for any insurance
policy or policies obtained by an issuer of Municipal Bonds or the Sponsor has
been paid in advance by such issuer or the Sponsor and any such policy or
policies are non-cancellable and will remain in force so long as the Municipal
Bonds so insured are outstanding and the insurer and/or insurers thereof remain
in business. Where Municipal Bond insurance is obtained by the issuer or the
Sponsor directly from Municipal Bond Investors Assurance Corporation or another
insurer, no premiums for insurance are paid by an Insured Trust Fund. If the
provider of an original issuance insurance policy is unable to meet its
obligations under such policy or if the rating assigned to the claims-paying
ability of any such insurer deteriorates, no other insurer has an obligation to
insure any issue adversely affected by either of the above described events.
The aforementioned insurance guarantees the scheduled payment of principal and
interest on all of the Municipal Bonds in an Insured Trust Fund. It does not
guarantee the market value of the Municipal Bonds or the value of the Units of
the Insured Trust Fund. Insurance obtained by the issuer of a Municipal Bond or
the Sponsor is effective so long as the Bond is outstanding, whether or not
held by an Insured Trust Fund. Therefore, any such insurance may be considered
to represent an element of market value in regard to the Bonds thus insured,
but the exact effect, if any, of this insurance on such market value cannot be
predicted.
Financial Guaranty Insurance Company. Financial Guaranty is a wholly-owned
subsidiary of FGIC Corporation (the "Corporation"), a Delaware holding company.
The Corporation is a wholly-owned subsidiary of General Electric Capital
Corporation ("GECC"). Neither the Corporation nor GECC is obligated to pay the
debts or the claims against Financial Guaranty. Financial Guaranty is domiciled
in the State of New York and is subject to regulation by the State of New York
Insurance Department. As of September 30, 1994, the total capital and surplus
of Financial Guaranty was approximately $871,000,000. Copies of Financial
Guaranty's financial statements, prepared on the basis of statutory accounting
principles, and the Corporation's financial statements, prepared on the basis
of generally accepted accounting principles, may be obtained by writing to
Financial Guaranty at 115 Broadway, New York, New York 10006, Attention:
Communications Department (telephone number is (212) 312-3000) or to the New
York State Insurance Department at 160 West Broadway, 18th Floor, New York, New
York 10013, Attention: Property Companies Bureau (telephone number (212) 621-
0389).
In addition, Financial Guaranty Insurance Company is currently authorized to
write insurance in all 50 states and the District of Columbia.
The information relating to Financial Guaranty contained above has been
furnished by such corporation. The financial information contained herein with
respect to such corporation is unaudited but appears in reports or other
materials filed with state insurance regulatory authorities and is subject to
audit and review by such authorities. No representation is made herein as to
the accuracy or adequacy of such information or as to the absence of material
adverse changes in such information subsequent to the date thereof but the
Sponsor is not aware that the information herein is inaccurate or incomplete.
AMBAC Indemnity Corporation. AMBAC Indemnity Corporation ("AMBAC") is a
Wisconsin-domiciled stock insurance company, regulated by the Office of the
Commissioner of Insurance of the State of Wisconsin, and licensed to do
business in 50 states, the District of Columbia and the Commonwealth of Puerto
Rico, with admitted assets (unaudited) of approximately $1,988,000,000 and
statutory capital
A-12
<PAGE>
(unaudited) of approximately $1,148,000,000 as of March 31, 1994. Statutory
capital consists of AMBAC policyholders' surplus and statutory contingency
reserve. AMBAC is a wholly owned subsidiary of AMBAC Inc., a 100% publicly-held
company. Moody's Investors Service, Inc. and Standard & Poor's Ratings Group
have both assigned a AAA claims-paying ability rating to AMBAC. Copies of
AMBAC's financial statements prepared in accordance with statutory accounting
standards are available from AMBAC. The address of AMBAC's administrative
offices and its telephone number are One State Street Plaza, 17th Floor, New
York, New York 10004 and (212) 668-0340. AMBAC has entered into quota share
reinsurance agreements under which a percentage of the insurance underwritten
pursuant to certain municipal bond insurance programs of AMBAC has been and
will be assumed by a number of foreign and domestic unaffiliated reinsurers.
Municipal Bond Investors Assurance Corporation. Municipal Bond Investors
Assurance Corporation ("MBIA Corporation") is the principal operating
subsidiary of MBIA, Inc., a New York Stock Exchange listed company. MBIA, Inc.
is not obligated to pay the debts of or claims against MBIA Corporation. MBIA
Corporation, which commenced municipal bond insurance operations on January 5,
1987, is a limited liability corporation rather than a several liability
association. MBIA Corporation is domiciled in the State of New York and
licensed to do business in all 50 states, the District of Columbia and the
Commonwealth of Puerto Rico.
As of September 30, 1994, MBIA had admitted assets of $3.3 billion (unaudited),
total liabilities of $2.2 billion (unaudited), and total capital and surplus of
$1.1 billion (unaudited) determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities. Standard
& Poor's Ratings Group has rated the claims paying ability of MBIA "AAA".
Copies of MBIA Corporation's financial statements prepared in accordance with
statutory accounting practices are available 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 "MIG1," both designated to be of the highest quality. Standard
& Poor's Ratings Group rates all new issues insured by MBIA "AAA."
Financial Security Assurance. Financial Security Assurance ("Financial
Security" or "FSA") is a monoline insurance company incorporated on March 16,
1984 under the laws of the State of New York. The operations of Financial
Security commenced on July 25, 1985, and Financial Security received its New
York State insurance license on September 23, 1985. Financial Security and its
two wholly owned subsidiaries are licensed to engage in financial guaranty
insurance business in 49 states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively in the business
of writing financial guaranty insurance, principally in respect of asset-backed
and other collateralized securities offered in domestic and foreign markets.
Financial Security and its subsidiaries also write financial guaranty insurance
in respect of municipal and other obligations and reinsure financial guaranty
insurance policies written by other leading insurance companies. In general,
financial guaranty insurance consists of the issuance of a guaranty of
A-13
<PAGE>
scheduled payments of an issuer's securities, thereby enhancing the credit
rating of these securities, in consideration for payment of a premium to the
insurer.
Financial Security is approximately 91.6% owned by U S West, Inc. and 8.4%
owned by The Tokio Marine and Fire Insurance Co., Ltd. ("Tokio Marine").
Neither U S WEST, Inc. nor Tokio Marine is obligated to pay the debts of or the
claims against Financial Security. Financial Security is domiciled in the State
of New York and is subject to regulation by the State of New York Insurance
Department.
As of March 31, 1993, the total policyholders' surplus and contingency reserves
and the total unearned premium reserve, respectively, of Financial Security and
its consolidated subsidiaries were, in accordance with statutory accounting
principles, approximately $479,110,000 (unaudited) and $220,078,000
(unaudited), and the total shareholders' equity and the unearned premium
reserve, respectively, of Financial Security and its consolidated subsidiaries
were, in accordance with generally accepted accounting principles,
approximately $628,119,000 (unaudited) and $202,493,000 (unaudited).
Copies of Financial Security's financial statements may be obtained by writing
to Financial Security at 350 Park Avenue, New York, New York, 10022, Attention
Communications Department. Financial Security's telephone number is (212) 826-
0100.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by Financial Security or either of its subsidiaries are
reinsured among such companies at an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, Financial Security
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies with unaffiliated reinsurers under various quota share
treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by Financial Security as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
Financial Security's obligations under any financial guaranty insurance policy.
Financial Security's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc., and "AAA" by Standard & Poor's Ratings Group, Nippon Investors
Service Inc., Duff & Phelps Inc. and Australian Ratings Pty. Ltd. Such ratings
reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies.
Capital Guaranty Insurance Company. Capital Guaranty Insurance Company
("Capital Guaranty" or "CGIC") is a "Aaa/AAA" rated monoline stock insurance
company incorporated in the State of Maryland, and is a wholly owned subsidiary
of Capital Guaranty Corporation, a Maryland insurance holding company. Capital
Guaranty Corporation is a publicly owned company whose shares are traded on the
New York Stock Exchange.
Capital Guaranty Insurance Company is authorized to provide insurance in all 50
states, the District of Columbia and three U.S. territories. Capital Guaranty
focuses on insuring municipal securities and provides policies which guaranty
the timely payment of principal and interest when due for payment on new issue
and secondary market issue municipal bond transactions. Capital Guaranty's
claims-paying ability is rated "Triple-A" by both Moody's and Standard &
Poor's.
As of September 30, 1994, Capital Guaranty had more than $14.6 billion in net
exposure outstanding (excluding defeased issues). The total statutory
policyholders' surplus and contingency reserve of Capital Guaranty was
$193,194,000 (unaudited) and the total admitted assets were $293,036,690
(unaudited) as reported to the Insurance Department of the State of Maryland as
of September 30, 1994.
A-14
<PAGE>
Financial statements for Capital Guaranty Insurance Company, that have been
prepared in accordance with statutory insurance accounting standards, are
available upon request. The address of Capital Guaranty's headquarters is
Steuart Tower, 22nd Floor, One Market Plaza, San Francisco, CA 94105-1413 and
the telephone number is (415) 995-8000.
Chapman and Cutler, counsel for the Sponsor, has given an opinion to the effect
that the payment of insurance proceeds representing maturing interest on
defaulting municipal obligations paid by Financial Guaranty or another insurer
would be excludable from Federal gross income if, and to the same extent as,
such interest would have been so excludable if paid by the issuer of the
defaulted obligations. See "Federal Tax Status."
RETIREMENT PLANS
As indicated under "Federal Tax Status" above, Unitholders of certain U.S.
Treasury Portfolios will be required for Federal income tax purposes to include
amounts in ordinary gross income in advance of the receipt of the cash
attributable to such income. Therefore, purchase of Units may be appropriate
only for an account which can pay taxes with other funds in advance of the
receipt of the cash attributable to such income or for Individual Retirement
Accounts, Keogh plans, pension funds and other qualified retirement plans,
certain of which are briefly described below.
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. Each Series of the
Government Securities Portfolio 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 (the "Code"), an individual may make nondeductible contributions
to the extent deductible contributions are not allowed. All distributions from
an IRA (other than the return of certain excess contributions) are treated as
ordinary income for Federal income taxation purposes provided that under the
Code an individual need not pay tax on the return of nondeductible
contributions, the amount includable in income for the taxable year is the
portion of the amount withdrawn for the taxable year as the individual's
aggregate nondeductible IRA contributions bear to the aggregate balance of all
IRAs of the individual.
A-15
<PAGE>
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 the U.S. Treasury Portfolio Series 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 15% 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 rolled over to
an eligible plan. In general, for lump sum distributions the excess
distribution over $750,000 (as adjusted) will be subject to the 15% tax.
The Trustee, Investors Fiduciary Trust Company ("IFTC"), has agreed to act as
custodian for certain retirement plan accounts. An annual fee of $12.00 per
account, if not paid separately, will be assessed by the Trustee and paid
through the liquidation of shares of the reinvestment account. An individual
wishing IFTC to act as custodian must complete a Kemper UIT/IRA application and
forward it along with a check made payable to Investors Fiduciary Trust
Company. Certificates for Individual Retirement Accounts can not be issued.
DISTRIBUTION REINVESTMENT
Each Unitholder of a Trust Fund may elect to have distributions of principal
(including capital gains, if any) or interest or both automatically invested
without charge in shares of any other mutual fund underwritten or advised by
Kemper Financial Services, Inc., an affiliate of the Sponsor, (the "Kemper
Funds") which are registered in the Unitholder's state of residence, other than
those Kemper Funds sold with a contingent deferred sales charge. Since the
portfolio securities and investment objectives of such Kemper Funds may differ
significantly from that of the Trust Funds, Unitholders should carefully
consider the consequences, including the fact that distributions from such
Kemper Funds may be taxable, before selecting such Kemper Funds for
reinvestment. Detailed information with respect to the investment objectives
and the management of the Kemper Funds is contained in their respective
prospectuses, which can be obtained from any appropriate Trust Fund 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 referred to below a
written notice of election.
A-16
<PAGE>
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
Kemper Service Company, service agent for the Program Agent, at P.O. Box
419430, Kansas City, Missouri 64173-0216, telephone (800) 422-2848.
INTEREST, ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN
As of the opening of business on the Initial Date of Deposit, the Estimated
Long-Term Return and the Estimated Current Return, if applicable, for each
Trust Fund were as set forth in the "Essential Information" for each Trust.
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,
scheduled payments, redemption, maturity, exchange or sale of the Securities
while the Public Offering Price will vary with changes in the offering price of
the underlying Securities; therefore, there is no assurance that the present
Estimated Current Return 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 of the Securities in the 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 Securities and
the expenses of the Trust will change, there is no assurance that the present
Estimated Long-Term Return will be realized in the future. 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 Securities contracted for by a Trust Fund,
it may be necessary for the Sponsor or Trustee to pay on the dates for delivery
of such Securities amounts covering accrued interest on such Securities which
exceed the amount which will be made available in the letter of credit
furnished by the Sponsor on the Initial 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 Securities deposited in that Trust Fund.
PUBLIC OFFERING OF UNITS
PUBLIC OFFERING PRICE. Units of each Trust Fund 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 Securities in a 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 cash, if any, in the
Principal Account held or owned by a Trust Fund, plus accrued interest, if any,
plus the applicable sales charge referred to in the table below divided by the
number of outstanding Units of such Trust Fund. Upon the
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<PAGE>
termination of the initial offering period Units acquired in the secondary
market referred to below may be offered to the public by this Prospectus at
the then current Public Offering Price of such Series. The Public Offering
Price for secondary market transactions, on the other hand, is based on the
bid side evaluations of the Securities in a Trust Fund as determined by Muller
Data Corporation plus or minus cash, if any, in the Principal Account held or
owned by the Trust Fund, plus accrued interest, if any, plus a sales charge
based upon the dollar weighted average maturity of the Trust Fund. Investors
who purchase Units through brokers or dealers pursuant to a current management
agreement which by contract or operation of law does not allow such broker or
dealer to earn an additional commission (other than any fee or commission paid
for maintenance of such investor's account under the management agreement) on
such transactions may purchase such Units at the current Public Offering Price
net of the applicable broker or dealer concession. See "Public Distribution of
Units" below.
The sales charge per Unit for U.S. Treasury Portfolios which contain
predominantly zero coupon U.S. Treasury Obligations will be reduced pursuant
to the following graduated scale:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
YEARS TO MATURITY
---------------------
0 TO 4.99
---------------------
PERCENT OF PERCENT OF
OFFERING NET AMOUNT
TICKET SIZE* PRICE INVESTED
- ------------ ---------- ----------
<S> <C> <C>
Less than $500,000........................................ 1.95 1.989
$500,000 to $999,999...................................... 1.70 1.729
$1,000,000 to $1,499,999**................................ 1.30 1.317
</TABLE>
- --------
*The breakpoint sales charges are also applied on a Unit basis utilizing a
breakpoint equivalent in the above table of $10 per Unit and will be applied
on whichever basis is more favorable to the investor.
**For any transactions in excess of these amounts, contact the Sponsor for the
applicable sales charge.
The sales charge per Unit for U.S. Treasury Portfolios (other than Series
which contain predominantly zero coupon U.S. Treasury Obligations) will be
reduced pursuant to the following graduated scale:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE YEARS TO MATURITY
-------------------------------------------
0 TO 2.99 3 TO 4.99
--------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
OFFERING NET AMOUNT OFFERING NET AMOUNT
TICKET SIZE* PRICE INVESTED PRICE INVESTED
- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Less than $500,000.................. 1.75 1.781 1.95 1.989
$500,000 to $999,999................ 1.50 1.523 1.70 1.729
$1,000,000 to $1,499,999**.......... 1.25 1.266 1.30 1.317
</TABLE>
- --------
*The breakpoint sales charges are also applied on a Unit basis utilizing a
breakpoint equivalent in the above table of $10 per Unit and will be applied
on whichever basis is more favorable to the investor.
**For any transactions in excess of these amounts, contact the Sponsor for the
applicable sales charge.
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<PAGE>
The sales charge per Unit for Trusts in the Tax-Exempt Portfolios will be
reduced during the initial offering period pursuant to the following graduated
scale:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE YEARS TO MATURITY
---------------------------------------------------------------------------------------
0 TO 7.49 7.5 TO 9.99 10 TO 14.99 15 OR MORE
--------------------- --------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
OFFERING NET AMOUNT OFFERING NET AMOUNT OFFERING NET AMOUNT OFFERING NET AMOUNT
NUMBER OF UNITS PRICE INVESTED PRICE INVESTED PRICE INVESTED PRICE INVESTED
--------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 to 9,999 Units........ 3.0% 3.093% 3.9% 4.058% 4.2% 4.384% 4.90% 5.152%
10,000 to 24,999 Units.. 2.8 2.881 3.7 3.842 4.0 4.167 4.50 4.712
25,000 to 49,999 Units.. 2.6 2.669 3.5 3.627 3.8 3.950 4.30 4.493
50,000 to 99,999 Units.. 2.5 2.564 3.3 3.413 3.5 3.627 3.50 3.627
100,000 or more Units... 2.0 2.041 2.7 2.775 2.8 2.881 3.00 3.093
</TABLE>
As indicated above, in connection with secondary market transactions the sales
charge is based upon the dollar weighted average maturity of the Trust Funds
and is determined in accordance with the tables set forth below. In connection
with secondary market transactions of all U.S. Treasury Portfolios, the sales
charge per Unit will be reduced as set forth below:
<TABLE>
<CAPTION>
SECONDARY
----------------------------------------------------------------
DOLLAR WEIGHTED AVERAGE YEARS TO MATURITY*
----------------------------------------------------------------
DOLLAR AMOUNT OF TRADE 0-1.99 YEARS 2-2.99 YEARS 3-4.99 YEARS 5-6.99 YEARS 7-9.99 YEARS
- ---------------------- ------------ ------------ ------------ ------------ ------------
SALES CHARGE (PERCENT OF PUBLIC OFFERING PRICE)
<S> <C> <C> <C> <C> <C>
Less than $500,000...... 1.25% 1.50% 1.75% 2.25% 3.00%
$500,000-$999,999....... 1.00 1.25 1.50 1.75 2.50
$1,000,000-$1,499,999... 1.00 1.00 1.25 1.50 2.00
</TABLE>
- --------
*For any transaction in excess of $1,499,999 contact the Sponsor for the
applicable sales charge.
For purposes of the secondary market sales charge computation, Municipal Bonds
will be deemed to mature on their expressed maturity dates unless: (a) the
Municipal Bonds have been called for redemption or funds or securities have
been placed in escrow to redeem them on an earlier call date, in which case
such call date will be deemed to be the date upon which they mature; or (b)
such Municipal Bonds are subject to a "mandatory tender", in which case such
mandatory tender will be deemed to be the date upon which they mature. The
effect of this method of sales charge computation will be that different sales
charge rates will be applied to the Trust Funds in the Tax-Exempt Portfolios
based upon the dollar weighted average maturity of such Trust Fund's portfolio,
in accordance with the following schedule:
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF NET
PUBLIC OFFERING AMOUNT
YEARS TO MATURITY PRICE INVESTED
----------------- --------------- --------------
<S> <C> <C>
0 to .99 years............................. 0.00% 0.000%
1 to 3.99 years............................ 2.00 2.041
4 to 7.99 years............................ 3.50 3.627
8 to 14.99 years........................... 4.50 4.712
15 or more years........................... 5.50 5.820
</TABLE>
In connection with secondary market transactions the sales charge per Unit for
Trusts in the Tax-Exempt Portfolios will be reduced as set forth below:
<TABLE>
<CAPTION>
SECONDARY
-----------------------------------------------------
YEARS TO MATURITY*
4 TO 7.99 8 TO 14.99 15 OR MORE
------------- ------------------- -------------
AMOUNT OF INVESTMENT SALES CHARGE (% OF PUBLIC OFFERING PRICE)
-------------------- -----------------------------------------------------
<S> <C> <C> <C>
$1,000 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 the 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.
A-19
<PAGE>
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 the 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
will also allow purchasers who commit to purchase $1 million or more of the
Units in a Series of the Government Securities Portfolio during a 12 month
period to do so at the applicable reduced sales charge for such series pursuant
to a letter of intent, subject to certain restrictions.
The Sponsor intends to permit officers, directors and employees of the Sponsor
and Evaluator and, in the sole discretion of the Sponsor, registered
representatives of selling firms to purchase Units of the Trust without a sales
charge, although a transaction processing fee may be imposed on such trades.
The Sponsor reserves the right to reject, in whole or in part, any order for
the purchase of Units and the right to change the amount of the sales charge
from time to time.
Had the Units of the Trust Funds been available for sale at the opening of
business on the Initial Date of Deposit, the Public Offering Prices would have
been as shown under "Essential Information." The Public Offering Price per Unit
of a Trust Fund on the date of the 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 Securities 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 Securities in each Trust
Fund shall be determined (a) on the basis of current bid or offering prices of
the Securities, (b) if bid or offering prices are not available for any
particular Securities, on the basis of current bid or offering prices for
comparable securities, (c) by determining the value of Securities on the bid or
offer side of the market by appraisal, or (d) by any combination of the above.
The value of insurance obtained by an issuer of Municipal Bonds or the Sponsor
is reflected and included in the market value of such Municipal 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 Securities, effective for all sales made
since the most recent preceding evaluation.
The interest on the Securities deposited in each Trust Fund, 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 Securities mature or are redeemed,
exchanged or sold, or as the expenses of a Trust Fund change or the number of
outstanding Units of such Trust Fund changes.
Although payment is normally made five business days following the order for
purchase, payment may be made prior thereto. A person will become the owner of
Units on the First Settlement Date or any date of settlement thereafter
provided payment has been received. Cash, if any, received by the Sponsor or
A-20
<PAGE>
dealers prior to the date of settlement for the purchase of Units may be used
in the Sponsor's or such dealer's business and may be deemed to be a benefit to
the Sponsor or such dealer, subject to the limitations of the Securities
Exchange Act of 1934. If a Unitholder desires to have certificates representing
Units purchased, such certificates will be delivered as soon as possible
following 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.
ACCRUED INTEREST. Accrued interest is the accumulation of unpaid interest on a
bond from the last day on which interest thereon was paid. Interest on
Securities generally is paid semi-annually, although the Trust Fund accrues
such interest daily. Because of this, the Trust Fund always has an amount of
interest earned but not yet collected by the Trustee. For this reason, with
respect to sales settling subsequent to the First Settlement Date, the Public
Offering Price of Units will have added to it the proportionate share of
accrued interest to the date of settlement. Unitholders will receive on the
next distribution date of the Trust the amount, if any, of accrued interest
paid on their Units.
In an effort to reduce the amount of accrued interest which would otherwise
have to be paid in addition to the Public Offering Price in the sale of Units
to the public, the Trustee will advance the amount of accrued interest as of
the First Settlement Date and the same will be distributed to the Sponsor as
the Unitholder of record as of the First Settlement Date. Consequently, the
amount of accrued interest to be added to the Public Offering Price of Units
will include only accrued interest from the First Settlement Date to the date
of settlement, less any distributions from the Interest Account subsequent to
the First Settlement Date.
Because of the varying interest payment dates of the Securities, accrued
interest at any point in time will be greater than the amount of interest
actually received by the Trust Funds and distributed to Unitholders. Therefore,
there will always remain an item of accrued interest that is added to the value
of the Units. If a Unitholder sells or redeems all or a portion of his Units,
he will be entitled to receive his proportionate share of the accrued interest
from the purchaser of his Units. Since the Trustee has the use of the funds
held in the Interest Account for distributions to Unitholders and since such
Account is non-interest-bearing to Unitholders, the Trustee benefits thereby.
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 Securities in each Trust Fund, 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 such Securities. As of the opening of business on the Initial Date of
Deposit, the Public Offering Prices per Unit (based on the offering prices of
the Securities in each Trust Fund and including the sales charge) exceeded the
redemption price at which Units could have been redeemed (based upon the
current bid prices of the Securities in the Trust Fund) by the amount shown
under "Essential Information." Under current market conditions the bid prices
for U.S. Treasury Obligations are expected to be approximately 1/8 to 1/4 of 1%
lower than the offer price of such obligations. In the past, bid prices on
municipal bonds similar to those in the Trust Funds have been lower than the
offering prices thereof by as much as 5% or more of principal amount in the
case of inactively traded municipal bonds or as little as 1/2 of 1% in the case
of actively traded municipal bonds but the difference between such offering and
bid prices may be expected to average 3% to 4% of principal amount. On the
business day indicated under "Essential Information" for the appropriate Series
the bid side evaluation was lower than the offering side evaluation by the
amount set forth in the "Portfolio" for the appropriate Series. For this
reason, among others (including fluctuations in the market prices of such
Securities and the fact that the Public Offering Prices include 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-21
<PAGE>
PUBLIC DISTRIBUTION OF UNITS. The Sponsor intends to qualify the Units of a
Series of the Government Securities Portfolio in any state in which
qualification is deemed necessary by the Sponsor, an Insured National Trust in
all states and an Insured or Uninsured State Trust for sale only in the State
for which such Trust Fund is named. The Sponsor does not intend to qualify
Units of any Series for sale in any foreign country and this Prospectus does
not constitute an offer to sell Units in any country where Units cannot
lawfully be sold without registration. Units will be sold through the
Underwriters, 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 Trust and
other unit investment trusts underwritten by the Sponsor. The difference
between the discount and the sales charge will be retained by the Sponsor and
the Underwriters.
The discounted concessions and agency commissions for each U.S. Treasury
Portfolios which contains predominantly zero coupon U.S. Treasury Obligations
are as follows:
<TABLE>
<CAPTION>
PRIMARY
MARKET
------------
REGULAR
CONCESSION
OR AGENCY
COMMISSION
------------
DOLLAR AMOUNT OF TRADE* 0-4.99 YEARS
- ----------------------- ------------
<S> <C>
$0 to $499,999..................................................... 1.20%
$500,000 to $999,999............................................... 1.10
$1,000,000 to $1,499,000**......................................... .80
</TABLE>
- --------
*The breakpoint discount are also applied on a Unit basis utilizing a
breakpoint equivalent in the above table of $1,000 per 100 Units. No volume
discount is allowed for these Series, however, sales of these Series can be
combined for the purposes of achieving the volume discount given for other
U.S. Treasury Portfolio Series.
**For any transactions in excess of these amounts, contact the Sponsor for the
applicable concessions and agency commissions.
The concessions or agency commissions for each U.S. Treasury Portfolio Series
(other than Series which contain predominantly zero coupon U.S. Treasury
Obligations) are as follows:
<TABLE>
<CAPTION>
PRIMARY MARKET
-----------------------------------------------
VOLUME DISCOUNTS**
-----------------------
REGULAR CONCESSION FIRM SALES OR
OR AGENCY SALE ARRANGEMENT
COMMISSION ($1,000,000 OR MORE)
--------------------- -----------------------
0-2.99 3-4.99 0-2.99 3-4.99
DOLLAR AMOUNT OF TRADE* YEARS YEARS YEARS YEARS
- ----------------------- ------ --------- ---------- ----------
<S> <C> <C> <C> <C>
$0 to $499,999.......... 1.00% 1.10% 1.05% 1.20%
$500,000 to $999,999.... .90 1.00 .95 1.10
$1,000,000 to
$1,499,000***.......... .75 .75 .80 .80
</TABLE>
- --------
*The breakpoint discounts are also applied on a Unit basis utilizing a
breakpoint equivalent in the above table of $1,000 per 100 Units.
A-22
<PAGE>
**For U.S. Treasury Portfolio Series other than Series which contain
predominately zero coupon U.S. Treasury Obligations, volume concessions of
up to the amount listed above can be earned as a marketing allowance at the
discretion of the Sponsor during the initial one month period after the
Initial Date of Deposit for firms who reach cumulative firm sales or sales
arrangement levels of at least $1 million. After a firm has met the
respective minimum volume level, volume concessions will be given on all
trades originated from or by that firm, starting on the Initial Date of
Deposit, including those placed prior to reaching the minimum level, and
will continue to be given during the entire initial offering period. Firm
sales of any primary U.S. Treasury Portfolio Series issued can be combined
for the purposes of achieving the volume discount. Only sales through Kemper
qualify for volume concessions and secondary purchases do not apply. Kemper
Unit Investment Trusts reserves the right to modify or change these
parameters at any time and make the determination of which firms qualify for
the marketing allowance and the amount paid.
***For any transactions in excess of these amounts, contact the Sponsor for
the applicable concessions or agency commissions.
The secondary market concessions or agency commissions for all U.S. Treasury
Portfolio Series are as follows:
<TABLE>
<CAPTION>
SECONDARY MARKET
----------------------------------
DOLLAR WEIGHTED AVERAGE YEARS TO
MATURITY
----------------------------------
0-1.99 2-2.99 3-4.99 5-6.99 7-9.99
------ ------ ------ ------ ------
DISCOUNT PER UNIT
DOLLAR AMOUNT OF TRADE* (PERCENT OF PUBLIC OFFERING PRICE)
- ----------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Less than $500,000........................... .75% 1.00% 1.00% 1.25% 2.00%
$500,000 to $999,999......................... .50 .75 .90 1.00 1.75
$1,000,000 to $1,499,999**................... .50 .50 .75 .75 1.50
</TABLE>
- --------
*The breakpoint discounts are also applied on a Unit basis utilizing a
breakpoint equivalent in the above table of $1,000 per 100 Units.
**For any transactions in excess of these amounts, contact the Sponsor for the
applicable concessions or agency commissions.
The primary and secondary market concessions or agency commissions for all
Trusts in the Tax-Exempt Portfolio are as follows:
<TABLE>
<CAPTION>
PRIMARY
--------------------------------------------
WEIGHTED AVERAGE YEARS TO MATURITY
NUMBER OF UNITS 0 TO 7.49 7.5 TO 9.99 10 TO 14.99 15 OR MORE
--------------- --------- ----------- ----------- ----------
DISCOUNT PER UNIT
--------------------------------------------
<S> <C> <C> <C> <C>
1 to 9,999 Units................... $0.20 $0.27 $0.28 $0.32
10,000 to 24,999 Units............. $0.19 $0.25 $0.27 $0.32
25,000 to 49,999 Units............. $0.18 $0.23 $0.26 $0.32
50,000 to 99,999 Units............. $0.17 $0.22 $0.25 $0.25
100,000 or more Units.............. $0.11 $0.17 $0.18 $0.20
</TABLE>
<TABLE>
<CAPTION>
SECONDARY
-------------------------------
YEARS TO MATURITY*
4 TO 7.99 8 TO 14.99 15 OR MORE
--------- ---------- ----------
DISCOUNT PER UNIT
AMOUNT OF INVESTMENT (% OF PUBLIC OFFERING PRICE)
-------------------- -------------------------------
<S> <C> <C> <C>
$1,000 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.
The Underwriters reserve the right to reject, in whole or in part, any order
for the purchase of Units.
PROFITS OF SPONSOR AND UNDERWRITERS. As set forth under "Underwriting," the
Underwriters of each Trust Fund will receive gross sales charges equal to the
percentage of the Public Offering Price of the Units of such Trust Fund stated
under "Public Offering Price" and the Sponsor will receive a fixed portion of
such
A-23
<PAGE>
sales charges. In addition, the Underwriters and the Sponsor may realize a
profit (or the Sponsor may realize a loss) resulting from the difference
between the purchase prices of the Securities to the Sponsor and the cost of
such Securities to the Trust Funds, which is based on the offering side
evaluation of the Securities on the Initial Date of Deposit. During the initial
offering period and thereafter to the extent additional Units of the Government
Securities Portfolios continue to be issued and offered for sale to the public,
the Sponsor may realize additional profit or sustain a loss due to daily
fluctuations in the offering prices of the Securities in the Series of such
Trusts and thus in the Public Offering Price of Units received by the Sponsor.
See "The Trust Funds--Portfolios" and "Underwriting." The Underwriters may also
realize profits or losses with respect to Securities deposited in the Trust
Funds, which were acquired from underwriting syndicates of which any of the
Underwriters were members. An underwriter or underwriting syndicate purchases
securities from the issuer on a negotiated or competitive bid basis, as
principal, with the motive of marketing such securities to investors at a
profit. The Underwriters of a Trust Fund and 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 Securities in the Trust Funds.
MARKET FOR UNITS
After the initial offering period, while not obligated to do so, the Sponsor
intends to, and certain of the Underwriters may, subject to change at any time,
maintain a market for Units of the Trust Funds 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 Securities in
such Trust Funds, 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
Securities in the Trust Funds. The aggregate bid prices of the underlying
Securities in each Trust Fund 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 or Underwriters will be
in accord with that described in the currently effective Prospectus describing
such Units. Any profit or loss resulting from the resale of such Units, after
allowance of a discount to any dealer or other entity which makes the sale,
will belong to the Sponsor and/or the Underwriters. The Sponsor and/or the
Underwriters may suspend or discontinue purchases of Units of any Trust Fund 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
A-24
<PAGE>
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 participant in the Securities Transfer
Agents Medallion Program ("STAMP") or such other guarantee program in addition
to, or in substitution for, STAMP, as may be accepted by the Trustee. A
certificate should only be sent by registered or certified mail for the
protection of the Unitholder. Since tender of the certificate is required for
redemption when one has been issued, Units represented by a certificate cannot
be redeemed until the certificate representing such Units has been received by
the purchaser.
Redemption shall be made by the Trustee on the seventh calendar day following
the day on which a tender for redemption is received, or if the seventh
calendar day is not a business day, on the first business day prior thereto
(the "Redemption Date") by payment of cash equivalent to the Redemption Price
for such Trust Fund, 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 Securities 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 "back-up
withholding." In the event the Trustee has not been previously provided such
number, one must be provided at the time redemption is requested.
Any amounts paid on redemption representing interest shall be withdrawn from
the Interest Account for such Trust Fund to the extent that funds are available
for such purpose. All other amounts paid on redemption shall be withdrawn from
the Principal Account for such Trust Fund. The Trustee is empowered to sell
Securities in order to make funds available for the redemption of Units of a
Trust Fund. Such sale may be required when Securities would not otherwise be
sold and might result in lower prices than might otherwise be realized. To the
extent Securities are sold, the size and diversity of the Trust Fund will be
reduced. In the case of a Government Securities Portfolio, Government
Securities will be sold by the Trustee so as to maintain, as closely as
practicable, the original percentage relationship between the principal amounts
of the Government Securities in such Series. The Government Securities to be
sold for purposes of redeeming Units will be selected from a list supplied by
the Sponsor. The Government Securities will be chosen for this list by the
Sponsor on the basis of such market and credit factors as it may determine are
in the best interests of such Series of the Trust. Provision is made under the
Indenture for the Sponsor to specify minimum face amounts in which blocks of
Government Securities are to be sold in order to obtain the best price
available. While such minimum amounts may vary from time to time in accordance
with market conditions, it is anticipated that the minimum face amounts which
would be specified would range from $25,000 to $100,000. Sales may be required
at a time when the Government Securities would not otherwise be sold and might
result in lower prices than might otherwise be realized. Moreover, due to the
minimum principal amount in which Government Securities may be required to be
sold, the proceeds of such sales may exceed the amount necessary for payment of
Units redeemed. To the extent not used to meet other redemption requests in
such Series, such excess proceeds will be distributed pro rata to all remaining
Unitholders of record of such Trust, unless reinvested in substitute Government
Securities. See "Investment Supervision."
A-25
<PAGE>
During the period in which the Sponsor maintains a secondary market for Units
of a Series of the Trust, the Sponsor has the right to repurchase any Unit
presented for tender to the Trustee for redemption no later than the close of
business on the second business day following such presentation.
The Trustee is irrevocably authorized in its discretion, if the Sponsor or an
Underwriter does not elect to purchase any Unit tendered for redemption or if
the Sponsor itself tenders 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 Securities is not reasonably practicable or it is
not reasonably practicable to fairly determine the value of the underlying
Securities in accordance with the Trust Agreements; or (3) for such other
period as the Securities and Exchange Commission may by order permit. The
Trustee is not liable to any person in any way for any loss or damage which may
result from any such suspension or postponement.
COMPUTATION OF REDEMPTION PRICE. The Redemption Price for Units of each Trust
Fund 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. The Redemption Price
for Units of a Trust Fund is computed by:
A. adding: (1) the cash on hand in the Trust Fund other than cash deposited in
the Trust Fund to purchase Securities not applied to the purchase of such
Securities or money credited to the Reserve Account; (2) the aggregate value of
each issue of the Securities (including "when issued" contracts, if any) held
in the Trust Fund as determined by the Evaluator on the basis of bid prices
therefor; and (3) interest accrued and unpaid on the Securities in the Trust
Fund as of the date of computation;
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 Trust"; (2) an amount representing estimated
accrued expenses of the Trust Fund, including but not limited to fees and
expenses of the Trustee (including legal and auditing fees and any insurance
costs), the Evaluator, the Sponsor and bond counsel, if any; (3) cash held for
distribution to Unitholders of record as of the business day prior to the
evaluation being made; and (4) other liabilities incurred by the 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 any Trust Fund will not be evidenced
by certificates unless a Unitholder, the Unitholder's registered broker/dealer
or the clearing agent for such broker/dealer makes a written request to the
Trustee. Certificates, if issued, will be so noted on the confirmation
statement sent to the Underwriter and broker. Non-receipt of such
certificate(s) must be reported to the Trustee within one year; otherwise, a 2%
surety bond fee will be required for replacement.
A-26
<PAGE>
Units are transferable by making a written request to the Trustee and, in the
case of Units evidenced by a certificate, by presenting and surrendering such
certificate to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer which should be sent registered or
certified mail for the protection of the Unitholder. Unitholders must sign such
written request, and such certificate or transfer instrument, exactly as their
names appear on the records of the Trustee and on any certificate representing
the Units to be transferred. Such signatures must be guaranteed by a
participant in the Securities Transfer Agents Medallion Program ("STAMP") or
such other signature guarantee program in addition to, or in substitution for,
STAMP, as may be accepted by the Trustee.
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 requirement established by the Sponsor from time to time. Any
certificate issued will be numbered serially for identification, issued in
fully registered form and will be transferable only on the books of the
Trustee. The Trustee may require a Unitholder to pay a 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 OF THE GOVERNMENT SECURITIES PORTFOLIO. Except for
the Stripped Treasury Securities included in any Series, the terms of the U.S.
Treasury Obligations provide for semi-annual payments of interest on the 15th
day of the month. Interest received by a Series of the U.S. Treasury Portfolio
is credited by the Trustee to the Interest Account for such Trust Fund. All
other receipts are credited by the Trustee to a separate Principal Account for
such Trust Fund. Since interest on the U.S. Treasury Obligations in U.S.
Treasury Portfolio Series is payable in semi-annual installments, and
distributions of income are made to Unitholders at different intervals from
receipt of interest, the interest accruing to U.S. Treasury Portfolios may not
be equal to the amount of money received and available for distribution from
the Interest Account. Therefore, on each Distribution Date the amount of
interest actually deposited in the Interest Account of U.S. Treasury Portfolios
and available for distribution may be slightly more or less than the interest
distribution made. In order to eliminate fluctuations in interest distributions
resulting from such variances, the Trustee is authorized by the Indenture to
advance such amounts as may be necessary to provide interest distributions of
approximately equal amounts. The Trustee will be reimbursed for any such
advances from funds available in the Interest Account for U.S. Treasury
Portfolios.
Stripped Treasury Securities are sold at a deep discount because the buyer of
those securities obtains only the right to receive a future fixed payment on
the security and not any rights to periodic interest payments thereon.
Purchasers of these Securities acquire, in effect, discount obligations that
are economically identical to the "zero-coupon bonds" that have been issued by
corporations. Zero coupon bonds are debt obligations which do not make any
periodic payments of interest prior to maturity and accordingly are issued at a
deep discount.
Under generally accepted accounting principles, a holder of a security
purchased at a discount normally must report as an item of income for financial
accounting purposes the portion of the discount attributable to the applicable
reporting period. The calculation of this attributable income would be made on
the "interest" method which generally will result in a lesser amount of
includible income in earlier periods and a correspondingly larger amount in
later periods. For Federal income tax purposes, the inclusion will be on
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a basis that reflects the effective compounding of accrued but unpaid interest
effectively represented by the discount. Although this treatment is similar to
the "interest" method described above, the "interest" method may differ to the
extent that generally accepted accounting principles permit or require the
inclusion of interest on the basis of a compounding period other than the semi-
annual period. See "Federal Tax Status."
The Trustee will distribute on each Distribution Date or shortly thereafter, to
each Unitholder of record of a Series of the U.S. Treasury Portfolio on the
preceding Record Date, an amount substantially equal to such Unitholder's pro
rata share of the cash balance, if any, in the Principal Account of the related
U.S. Treasury Portfolio 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 $.01 per Unit. Notwithstanding the foregoing,
the Trustee will make a distribution to Unitholders of all principal relating
to maturing Treasury Obligations with twelve business days of the date of each
such maturity.
Distributions for an IRA, Keogh or other tax-deferred retirement plan will not
be sent to the individual Unitholder. These distributions will go directly to
the custodian of the plan to avoid the penalties associated with premature
withdrawals from such accounts. See "Retirement Plans."
All funds collected or received will be held by the Trustee in trust, without
interest to Unitholders, as part of the appropriate Series of the Trust or the
Reserve Accounts referred to below until required to be disbursed in accordance
with the provisions of the Indenture. Such funds will be segregated on the
trust ledger of the Trustee so long as such practice preserves a valid
preference of Unitholders of such Series of the Trust under the bankruptcy laws
of the United States, or if such preference is not preserved, the Trustee shall
handle such funds in such other manner as shall constitute the segregation and
holding thereof in trust within the meaning of the Investment Company Act of
1940, as the same may be from time to time amended. To the extent permitted by
the Indenture and applicable banking regulations, such funds are available for
use by the Trustee pursuant to normal banking procedures.
The first distribution, if any, for persons who purchase Units between a Record
Date and a Distribution Date will be made on the second Distribution Date
following their purchase of Units.
The Trustee is authorized by the Indenture to withdraw from the Principal
and/or Interest Accounts of each Series such amounts as it deems necessary to
establish a reserve for any taxes or other governmental charges that may be
payable out of such Series of the Trust, which amounts will be deposited in a
separate Reserve Account. If the Trustee determines that the amount in the
Reserve Account is greater than the amount necessary for payment of any taxes
or other governmental charges, it will promptly deposit the excess back into
the Account from which it was withdrawn.
DISTRIBUTIONS TO UNITHOLDERS OF THE TAX-EXEMPT PORTFOLIO. Interest
Distributions: Interest received by each Trust Fund, including any portion of
the proceeds from a disposition of Municipal Bonds which represents accrued
interest, is credited by the Trustee to the Interest Account for such Trust
Fund. All other receipts are credited by the Trustee to a separate Principal
Account for the Trust Fund. The Trustee normally has no cash for distribution
to Unitholders until it receives interest payments on the Bonds in the Trust
Fund. Since municipal interest usually is paid semi-annually, during the
initial months of the Trust, the Interest Account of each Trust Fund,
consisting of accrued but uncollected interest and collected interest (cash),
will be predominantly the uncollected accrued interest that is not available
for distribution. On the dates set forth under "Essential Information" for each
Trust, the Trustee will commence distributions, in part from funds advanced by
the Trustee.
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Thereafter, assuming the Trust Fund retains its original size and composition,
after deduction of the fees and expenses of the Trustee, the Sponsor and
Evaluator and reimbursements (without interest) to the Trustee for any 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 such Trust Fund on the preceding Record Date (which is
the first day of each month). Unitholders of the Trust Funds will receive an
amount substantially equal to one-twelfth of such holders' pro rata share of
the estimated net annual interest income to the Interest Account of such Trust
Fund. However, interest earned at any point in time will be greater than the
amount actually received by the Trustee and distributed to the Unitholders.
Therefore, there will always remain an item of accrued interest that is added
to the daily value of the Units. If Unitholders of a Trust Fund sell or redeem
all or a portion of their Units, they will be paid their proportionate share of
the accrued interest of such Trust Fund to, but not including, the fifth
business day after the date of a sale or to the date of tender in the case of a
redemption.
In order to equalize distributions and keep the undistributed interest income
of the Trust Funds at a low level, all Unitholders of record in such 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 Municipal Bonds in the Trust Funds
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 of a Trust Fund 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 Agreements to advance
such amounts as may be necessary to provide interest distributions of
approximately equal amounts. The Trustee will be reimbursed for any such
advances from funds available in the Interest Account for such Trust Fund.
Principal Distributions. The Trustee will distribute on each Distribution Date
or shortly thereafter, to each Unitholder of record of the 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 of such Trust Fund
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 $.01 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 of each Trust Fund are required to be audited annually, at the
Trust Fund's expense, by independent auditors designated by the Sponsor, unless
the Sponsor determines that such an audit would not be in the best interest of
the Unitholders of such Trust Fund. The accountants' report will be furnished
by the Trustee to any Unitholder of such Trust Fund upon written request.
Within a reasonable period of time after the end of each calendar year, the
Trustee shall furnish to each person who at any time during the calendar year
was a Unitholder of a Trust Fund a statement, covering the calendar year,
setting forth for the applicable Trust Fund:
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A. As to the Interest Account:
1. The amount of interest received on the Securities (including amounts
received as a portion of proceeds of any disposition of Securities) and, if
applicable, the percentage of such amount by states and territories in which
the issuers of such Securities are located;
2. The amount paid from the Interest Account representing accrued interest of
any Units redeemed and amounts paid or reserved for purchases of substitute
Securities;
3. The deductions from the Interest Account for applicable taxes or other
governmental charges, if any, fees and expenses (including auditing fees) of
the Trustee, the Sponsor, the Evaluator, and, if any, of counsel;
4. Any amounts credited by the Trustee to the Reserve Account described under
"Expenses of the Trust";
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 sale, maturity, liquidation or redemption of any of the
Securities 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 and amounts paid or reserved for purchases of substitute
Securities;
3. The deductions from the Principal Account for payment of applicable taxes or
other governmental charges, if any, fees and expenses (including auditing fees)
of the Trustee, the Sponsor, the Evaluator, and, if any, of counsel;
4. The amount of when-issued interest treated as a return of capital, if any;
5. Any amounts credited by the Trustee to the Reserve Account described under
"Expenses of the Trust";
6. The net amount remaining after distributions of principal and deductions,
expressed both as a dollar amount and as a dollar amount per Unit outstanding
on the last business day of the calendar year; and
C. The following information:
1. A list of the Securities as of the last business day of such calendar year
(grouped by coupon and maturity range in the case of the Government Securities
Portfolio);
2. The number of Units outstanding on the last business day of such calendar
year;
3. The Redemption Price (or Unit Value as defined in the Indenture for the
Government Securities Portfolio) based on the last evaluation made during such
calendar year;
4. The amount actually distributed during such calendar year from the Interest
and Principal Accounts (and the Capital Gains Account in the case of the
Government Securities Portfolio) 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 a Trust or any Trust Fund 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 a Trust or any Trust Fund.
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No Unitholder shall have the right to control the operation and management of
any Trust Fund in any manner, except to vote with respect to the amendment of
the Trust Agreements or termination of any Trust Fund.
INVESTMENT SUPERVISION
The Sponsor may not alter the portfolios of the Trust Funds by the purchase,
sale or substitution of Securities, except in the special circumstances noted
below and as indicated earlier under "Portfolios" regarding the substitution of
Replacement Securities for any Failed Securities. Thus, with the exception of
the redemption or maturity of Securities in accordance with their terms, the
assets of the Trust Funds will remain unchanged under normal circumstances.
The Sponsor may direct the Trustee to dispose of Securities 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 Securities 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 such Trust Fund for distribution to the Unitholders.
The Sponsor is required to instruct the Trustee to reject any offer made by an
issuer of Securities to issue new obligations in exchange or substitution for
any of such Securities pursuant to a refunding financing plan, except that the
Sponsor may instruct the Trustee to accept or reject such an offer or to take
any other action with respect thereto as the Sponsor may deem proper if (1) the
issuer is in default with respect to such Securities or (2) in the written
opinion of the Sponsor the issuer will probably default with respect to such
Securities in the reasonably forseeable 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 Securities originally
deposited thereunder. Within five days after the deposit of obligations in
exchange or substitution for underlying Securities, the Trustee is required to
give notice thereof to each Unitholder, identifying the Securities eliminated
and the Securities substituted therefor.
The Trustee may sell Securities, designated by the Sponsor, from a Trust Fund
for the purpose of redeeming Units of such Trust Fund tendered for redemption
and the payment of expenses.
The Trustee shall also sell any Security in a Series of the Trust if there is a
default in the payment of principal and interest on such Security and no
provision for payment is made therefore and the Sponsor fails to instruct the
Trustee to sell or hold such Security within thirty days after notice to the
Sponsor from the Trustee of such default. The Trustee shall not be liable for
any depreciation or loss by reason of any sale of Securities or by reason of
the failure of the Sponsor to give directions to the Trustee.
Amounts received by a Series of the Trust upon the sale of any Security under
the conditions set forth above will be deposited in the Principal Account,
Interest Account or Capital Gains Account for such Series, as appropriate, when
received and pursuant to the Sponsor's instructions will be distributed by the
Trustee on the next Distribution Date to Unitholders of record of such Series
on the Record Date prior to such Distribution Date.
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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 owned by State Street Boston
Corporation.
The Trustee, whose duties are ministerial in nature, has not participated in
selecting the portfolio of any Trust Fund. For information relating to the
responsibilities of the Trustee under the 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 Fund. Such
books and records shall be open to inspection by any Unitholder of such Trust
Fund at all reasonable times during usual business hours. The Trustee shall
make such annual or other reports as may from time to time be required under
any applicable state or Federal statute, rule or regulation. The Trustee shall
keep a certified copy or duplicate original of the 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
Securities held in each Trust Fund. Pursuant to the Trust Agreements, the
Trustee may employ one or more agents for the purpose of custody and
safeguarding of Securities comprising the Trust Funds.
Under the Trust Agreements, the Trustee or any successor trustee may resign and
be discharged of its duties 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. The Sponsor may at any time remove the Trustee,
with or without cause, and appoint a successor trustee as provided in the Trust
Agreements. 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 $5,000,000.
THE EVALUATOR. Kemper Unit Investment Trusts, a service of Kemper Securities,
Inc., the Sponsor, also serves as Evaluator. The Evaluator may resign or be
removed by the Trustee 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 Securities in the Trust Funds which are then
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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 (as determined in good faith by the Sponsor and the Trustee). The
Trust Agreements with respect to the Trust Funds 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 such 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
Fund. In the case of the Tax-Exempt Portfolio, in no event shall any Trust
Agreement be amended to increase the number of Units of a Trust Fund issuable
thereunder or to permit, except in accordance with the provisions of such Trust
Agreement, the acquisition of any Municipal Bonds in addition to or in
substitution for those initially deposited in a Trust Fund. In the case of the
Government Securities Portfolio, the Indenture may not be amended, without the
consent of the holders of all Units of a Trust Fund then outstanding, so as to
permit, except in accordance with the terms and conditions of the Indenture,
the acquisition of any Government Securities other than those specified in the
Indenture. The Trustee shall promptly notify Unitholders of the substance of
any such amendment.
The Trust Agreements provide that the Trust Funds shall terminate following the
maturity, redemption or other disposition of the last of the Securities held in
a Trust Fund. If the value of a Trust Fund shall be less than the applicable
minimum value stated under "Essential Information", 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 such Trust Fund. Within a reasonable period after
termination, the Trustee will sell any Securities remaining in such 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 (and Capital Gains Account of
a Trust Fund in the Government Securities Portfolio) of such 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 Securities.
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, Securities 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
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by the Trustee of any Securities. 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 Securities 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 charge the Trust Funds a surveillance fee for services
performed for the Trust Funds in an amount not to exceed that amount set forth
in "Essential Information" but in no event will such compensation, when
combined with all compensation received from other unit investment trusts for
which the Sponsor both acts as sponsor and provides portfolio surveillance,
exceed the aggregate cost to the Sponsor for providing such services. In the
case of the Government Securities Portfolio, such fee shall be computed monthly
on the basis of the largest principal amount of Government Securities in the
related Trust Fund at any time during the preceding month. In the case of the
Tax-Exempt Portfolio, such fee shall be based on the total number of Units of
the Trust Fund outstanding as of the January Record Date for any annual period.
The Sponsor will receive a portion of the sales commissions paid in connection
with the purchase of Units and will share in profits, if any, related to the
deposit of Securities in the Trust Funds (see "Underwriting"). The Sponsor and
other Underwriters have borne all the expenses of creating and establishing the
Trust including the cost of the initial preparation, printing and execution of
the Prospectus, Trust Agreements 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 fees set forth under "Essential
Information." The Trustee fee which is calculated monthly is based on the
largest aggregate principal amount of Securities in the Trust Fund at any time
(a) during the period in the case of the Tax-Exempt Portfolio or (b) during the
preceding month in the case of the Government Securities Portfolio. In no event
shall the Trustee be paid less than $2,000 per Trust in any one year. 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 trust 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. In the
case of the Tax-Exempt Portfolio, during the first year the Trustee has agreed
to lower its fees and absorb expenses by the amount set forth under "Essential
Information." The Trustee's fee will not be increased in future years in order
to make up this reduction in the Trustee's fee. The Trustee's fee is payable on
or before each Distribution Date.
For evaluation of Securities in each Trust Fund, 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 Securities in such Trust Fund at any time (a) during such monthly
period in the case of the Tax-Exempt Portfolio or (b) during the preceding
month in the case of the Government Securities Portfolio.
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The Trustee's, Sponsor's and Evaluator's fees are deducted first from the
Interest Account of the Trust Fund 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. In addition, the Trustee's fee may be periodically adjusted in
response to fluctuations in short-term interest rates (reflecting the cost to
the Trustee of advancing funds to a Trust to meet scheduled distributions).
The following additional charges are or may be incurred by the Trust Funds: (a)
fees for the Trustee's extraordinary services; (b) expenses of the Trustee
(including legal and auditing expenses and insurance costs for Insured Trust
Funds, but not including any fees and expenses charged by any agent for custody
and safeguarding of Securities) and of counsel, if any; (c) various
governmental charges; (d) expenses and costs of any action taken by the Trustee
to protect the Trust or any Trust Fund 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 or any Trust Fund 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 the Trust Funds. The fees and expenses set forth herein are
payable out of the appropriate Trust Fund and, when owing to the Trustee, are
secured by a lien on such Trust Fund. Fees or charges relating to the Trust
shall be allocated to each Trust Fund in the same ratio as the principal amount
of such Trust Fund bears to the total principal amount of all Trust Funds in
the Trust. Fees or charges relating solely to a particular Trust Fund shall be
charged only to such Trust Fund.
Fees and expenses of the Trust Funds shall be deducted from the Interest
Account thereof, or, to the extent funds are not available in such Account,
from the Principal Accounts. The Trustee may withdraw from the Principal
Account or the Interest Account of any Trust Fund such amounts, if any, as it
deems necessary to establish a reserve for any taxes or other governmental
charges or other extraordinary expenses payable out of the Trust Fund. Amounts
so withdrawn shall be credited to a separate account maintained for the 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. If the balances in the Interest and Principal Accounts are
insufficient to provide for amounts payable by any Series of the Trust, the
Trustee has the power to sell Securities from such Series to pay such amounts.
To the extent Securities are sold, the size of such Series of the Trust will be
reduced and the proportions of the types of Securities will change. Such sales
might be required at a time when Securities would not otherwise be sold and
might result in lower prices than might otherwise be realized. Moreover, due to
the minimum principal amount in which Securities may be required to be sold,
the proceeds of such sales may exceed the amount necessary for the payment of
such fees and expenses.
THE SPONSOR
The Sponsor, Kemper Unit Investment Trusts, with an office at 77 West Wacker
Drive, 29th Floor, Chicago, Illinois 60601, (800) 621-5024, is a service of
Kemper Securities, Inc., which is a wholly-owned subsidiary of Kemper Financial
Companies, Inc. which, in turn, is a wholly-owned subsidiary of Kemper
Corporation. The Sponsor 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 January 31, 1994,
the total stockholder's equity of Kemper Securities, Inc. was $261,673,436
(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
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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, (b) terminate the Trust Agreements and liquidate the Trust Funds 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 to the
Sponsor only and not to these 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.
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. Special counsel
for the Trust Funds for respective state tax matters are named in the
appropriate state tax sections of "Risk Factors and State Tax Status."
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The statements of condition and the related portfolios at the Initial Date of
Deposit included in this Prospectus have been audited by Grant Thornton LLP,
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-36
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................... 2
ESSENTIAL INFORMATION...................................................... 3
THE TRUST FUNDS............................................................ 6
General................................................................... 6
Series Information........................................................ 8
Taxable Equivalent Estimated Current Return Tables........................ 8
Portfolios................................................................ 10
Notes to Portfolios....................................................... 15
UNDERWRITING............................................................... 16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS......................... 18
STATEMENTS OF CONDITION.................................................... 19
RISK FACTORS AND STATE TAX STATUS.......................................... 20
FEDERAL TAX STATUS......................................................... 32
ESTIMATED CASHFLOWS TO UNITHOLDERS......................................... 40
RATING OF UNITS............................................................ A-1
DESCRIPTION OF MUNICIPAL BOND RATINGS...................................... A-1
PORTFOLIOS................................................................. A-4
General Trust Information................................................. A-7
Risk Factors.............................................................. A-7
INSURANCE ON THE PORTFOLIOS OF THE INSURED TRUST FUNDS..................... A-12
RETIREMENT PLANS........................................................... A-15
DISTRIBUTION REINVESTMENT.................................................. A-16
INTEREST, ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN.......... A-17
PUBLIC OFFERING OF UNITS................................................... A-17
Public Offering Price..................................................... A-17
Accrued Interest.......................................................... A-21
Comparison of Public Offering Price and Redemption Price.................. A-21
Public Distribution of Units.............................................. A-22
Profits of Sponsor and Underwriters....................................... A-23
MARKET FOR UNITS........................................................... A-24
REDEMPTION................................................................. A-24
Computation of Redemption Price........................................... A-26
UNITHOLDERS................................................................ A-26
Ownership of Units........................................................ A-26
Distributions to Unitholders of the Government Securites Portfolio........ A-27
Distributions to Unitholders of the Tax-Exempt Portfolio.................. A-28
Statements to Unitholders................................................. A-29
Rights of Unitholders..................................................... A-30
INVESTMENT SUPERVISION..................................................... A-31
ADMINISTRATION OF THE TRUSTS............................................... A-32
The Trustee............................................................... A-32
The Evaluator............................................................. A-32
Amendment and Termination................................................. A-33
Limitations on Liability.................................................. A-33
EXPENSES OF THE TRUSTS..................................................... A-34
THE SPONSOR................................................................ A-35
LEGAL OPINIONS............................................................. A-36
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS................................... A-36
</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>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement on Form S-6 comprises the following papers and
documents:
The facing sheet of Form S-6
The Cross-Reference Sheet
The Prospectus
The signatures
The following exhibits:
1.1 Form of Trust Indenture and Agreement for Kemper Defined Funds Series 30
(to be filed by amendment).
1.1.1 Standard Terms and Conditions of Trust for Kemper Defined Funds Series
30. Reference is made to Exhibit 1.1.1(b) to the Registration Statement
on Form S-6, with respect to Kemper Defined Funds Series 13 (Registration
No. 33-52165) as filed on February 17, 1994.
2.1 Form of Certificate of Ownership (pages two to four, inclusive, of the
Standard Terms and Conditions of Trust included as Exhibit 1.1.1).
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 and opinion
of counsel as to Federal income tax status of the securities being
registered and certain Missouri tax matters (to be filed by amendment).
4.1 Consent of Moody's Investors Service, Inc. (to be filed by amendment).
4.2 Consent of Muller Data Corporation (to be filed by amendment).
4.3 Consent of Grant Thornton LLP (to be filed by amendment).
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Kemper Defined Funds Series 30, has duly caused this 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 13th day of February, 1995.
KEMPER DEFINED FUNDS SERIES 30
Registrant
By: KEMPER SECURITIES, INC.
Depositor
By: /s/
-------------------------------
Robert K. Burke
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on February 13, 1995 by the
following persons, who constitute a majority of the Board of Directors of Kemper
Securities, Inc.
Signature Title
--------- -----
James R. Boris Chairman and Chief Executive Officer
- -----------------------------
James R. Boris
Steven G. McConahey President and Chief Operating Officer
- -----------------------------
Steven F. McConahey
Frank V. Geremia Senior Executive Vice President,
- -----------------------------
Frank V. Geremia
David M. Greene Senior Executive Vice President
- -----------------------------
David M. Greene
Arthur A. McGivern Senior Executive Vice President and
- ----------------------------- General Counsel
Arthur J. McGivern
Ramon Pecuch Senior Executive Vice President and
- ----------------------------- Director
Ramon Pecuch
Thomas R. Reedy Senior Executive Vice President and
- ----------------------------- Director
Thomas R. Reedy
S-2
<PAGE>
Janet L.Reali Executive Vice President, Corporate
- ----------------------------- Counsel and Secretary
Janet L. Reali
Daniel D. Williams Executive Vice President and Treasurer
- -----------------------------
Daniel D. Williams
David B. Mathis Director
- -----------------------------
David D. Mathis
Stephen B. Timbers Director
- -----------------------------
Stephen B. Timbers
Donald F. Eller Director
- -----------------------------
Donald F. Eller
Charles M. Kierscht Director
- -----------------------------
Charles M. Kierscht
/s/
-------------------------------
Robert K. Burke
Robert K. Burke signs these documents pursuant to Power of Attorney
filed with the Securities and Exchange Commission with Amendment No. 1
to the Registration Statement on Form S-6 for Kemper Defined Funds
Series 28 (Registration No. 33-56779).
S-3
