<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 1995
REGISTRATION NO. 33-57781
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
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 31
B. NAME OF DEPOSITOR:
KEMPER UNIT INVESTMENT TRUSTS
(a service of 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
77 West Wacker Drive, 29th Floor c/o Chapman and Cutler
Chicago, Illinois 60601 111 West Monroe Street
Chicago, Illinois 60603
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE AND AMOUNT OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES BEING REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kemper An indefinite number of Indefinite $500 (previously paid)
Defined Units of Beneficial Inter-
Funds est pursuant to Rule 24f-2
Series under the Investment Com-
31 pany Act of 1940
</TABLE>
E. APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
[X] Check box if it is proposed that this filing will become effective at
2:00 P.M. on March 22, 1995 pursuant to paragraph (b) of Rule 487.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 31
----------------
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
<C> <S> <C>
1. (a)Name of trust................... Prospectus front cover
(b)Title of securities issued...... Essential Information
2. Name and address of each depositor. General Information--Administration of
the Trusts
3. Name and address of trustee........
4. Name and address of principal The Tax-Exempt Portfolios--
underwriters...................... Underwriting
5. State of organization of trust..... The Trust Funds
6. Execution and termination of trust The Trust Funds; General Information--
agreement......................... 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. General Information--Unitholders
(b)Cumulative or distributive
securities........................ The Trust Funds
(c)Redemption...................... General Information--Redemption
(d)Conversion, transfer, etc....... General Information--Unitholders;
General Information--Market for Units
(e)Periodic payment plan........... *
(f)Voting rights................... General Information--Unitholders
General Information--Investment
(g)Notice of certificateholders.... Supervision; General Information--
Administration of the Trusts; General
Information--Unitholders
(h)Consents required............... General Information--Unitholders;
General Information--Administration of
the Trusts
(i)Other provisions................ The Tax-Exempt Portfolios--Federal Tax
Status; The GNMA Portfolio Series--
Federal Tax Status; The Tax-Exempt
Portfolios--Insurance on the Bonds
Type of securities comprising The Trust Funds; General Information--
11. units............................. Trust Information
12. Certain information regarding peri-
odic payment
certificates...................... *
Essential Information; Public Offering
of Units; General Information--
13. (a) Load, fees, expenses, etc...... Interest, Estimated Long-Term Return
and Estimated Current Return; General
Information--Expenses of the Trusts
</TABLE>
- --------
* Inapplicable, answer negative or not required.
i
<PAGE>
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
----------- ---------------------
<C> <S> <C>
(b)Certain information regarding
periodic payment certifi-
cates....................... *
(c)Certain percentages........... Essential Information; Public Offering
of Units; The Tax-Exempt Portfolios--
Insurance on the Bonds
(d)Certain other fees, etc. pay-
able by holders............. General Information--Unitholders
(e)Certain profits receivable by
depositor, principal under-
writers, trustee or affili- General Information--Expenses of the
ated persons................ Trusts; Public Offering of Units
(f)Ratio of annual charges to in-
come........................ *
The Trust Funds;
14. Issuance of trust's securities... General Information--Unitholders
15. Receipt and handling of payments
from purchasers................. *
16. Acquisition and disposition of The Trust Funds; General Information--
underlying securities........... Trust Information; General
Information--Investment Supervision
General Information--Market for Units;
General Information--Redemption;
17. Withdrawal or redemption......... Public Offering of Units
18. (a)Receipt, custody and disposi-
tion of income.............. General Information--Unitholders
(b)Reinvestment of distributions. General Information--Distribution
Reinvestment
(c)Reserves or special funds..... General Information--Expenses of the
Trusts
(d)Schedule of distributions..... *
General Information--Unitholders;
19. Records, accounts and reports.... General Information--Redemption;
General Information--Administration of
the Trusts
20. Certain miscellaneous provisions
of trust agreement
(a)Amendment..................... General Information--Administration of
the
(b)Termination................... Trusts
(c)and (d) Trustee, removal and General Information--Administration of
successor................... the Trusts
(e)and (f) Depositor, removal and General Information--Administration of
successor................... the Trusts
21. Loans to security holders........ *
22. Limitations on liability......... General Information--Administration of
the Trusts
23. Bonding arrangements............. *
24. Other material provisions of
trust agreement................. *
III. ORGANIZATION, PERSONNEL AND
AFFILIATED PERSONS OF DEPOSITOR
25. Organization of depositor........ General Information--Administration of
the Trusts
26. Fees received by depositor....... See Items 13(a) and 13(e)
27. Business of depositor............ General Information--Administration of
the Trusts
28. Certain information as to offi-
cials and affiliated persons of General Information--Administration of
depositor....................... the Trusts
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
----------- ---------------------
<C> <S> <C>
29. Voting securities of depos- General Information--Administration of the
itor...................... Trusts
30. Persons controlling deposi-
tor.......................
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 per-
sons for certain services
rendered to trust.........
IV. DISTRIBUTION AND REDEMPTION
35. Distribution of trust's se- Public Offering of Units
curities by states........
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. General Information--Market for Units;
(c)Selling agreements...... Public Offering of Units; The Tax-Exempt
Portfolios--Underwriting
39. (a)Organization of princi-
pal underwriters..........
(b)N.A.S.D. membership of General Information--Administration
principal underwriters.... of the Trusts
40. Certain fees received by See Items 13(a) and 13(e)
principal underwriters....
41. (a)Business of principal General Information--Administration
underwriters.............. of the Trusts
(b)Branch offices of prin-
cipal underwriters........
(c)Salesmen of principal *
underwriters..............
42. Ownership of trust's secu-
rities by certain persons.
43. Certain brokerage commis-
sions received by princi-
pal underwriters.......... Public Offering of Units
44. (a)Method of valuation..... Public Offering of Units
(b)Schedule as to offering *
price.....................
(c)Variation in offering Public Offering of Units
price to certain persons..
45. Suspension of redemption General Information--Redemption
rights....................
46. (a)Redemption valuation.... General Information--Redemption;
General Information--Market for Units;
Public Offering of Units
(b)Schedule as to redemp- *
tion price................
General Information--Market for Units;
47. Maintenance of position in Public Offering of Units;
underlying securities..... General Information--Redemption
V. INFORMATION CONCERNING THE TRUSTEE
OR CUSTODIAN
48. Organization and regulation General Information--Administration
of trustee................ of the Trusts
49. Fees and expenses of trust-
ee........................
50. Trustee's lien............. General Information--Expenses of the Trusts
</TABLE>
- --------
* Inapplicable, answer negative or not required.
iii
<PAGE>
<TABLE>
<CAPTION>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
----------- ---------------------
VI. INFORMATION CONCERNING INSURANCE OF
HOLDERS OF SECURITIES
<C> <S> <C>
51. Insurance of holders of trust's Cover Page; General Information--
securities.................. Expenses of the Trusts; The Tax-Exempt
Portfolios--Insurance on the Bonds
VII. POLICY OF REGISTRANT
52. (a) Provisions of trust agreement The Trust Funds; General Information--
with respect to selection or Trust Information; General
elimination of underlying se- Information--Investment Supervision
curities.....................
(b) Transactions involving elimi-
nation of underlying securi-
ties......................... *
(c) Policy regarding substitution
or elimination of underlying General Information--Investment
securities................... Supervision; General Information--
Trust Information
(d) Fundamental policy not other-
wise covered................. *
Essential Information; General
Information--Trust Information; The
53. Tax status of Trust.............. GNMA Portfolio Series--Federal Tax
Status; The Tax-Exempt Portfolios--
VIII. FINANCIAL AND STATISTICALFINFORMATIONederal Tax Status
Trust's securities during last
54. ten years........................
55.
56. Certain information regarding pe-
riodic payment certificates..... *
57.
58.
59. Financial statements (Instruction
1(c) to Form S-6)............... *
</TABLE>
- --------
* Inapplicable, answer negative or not required.
iv
<PAGE>
KEMPER DEFINED FUNDS SERIES 31
(GNMA PORTFOLIO SERIES AND TAX-EXEMPT PORTFOLIO)
GNMA Portfolio Series 4 and GNMA Portfolio Series 5 (each a "GNMA Portfolio")
were formed for the purpose of obtaining safety of capital and current monthly
distributions of interest and principal through investment in a portfolio
primarily consisting of mortgage-backed securities of the modified pass-
through type. All payments of principal and interest on the mortgage-backed
securities are fully guaranteed by the Government National Mortgage
Association ("GNMA"). The full faith and credit of the United States is
pledged to the payment of the Securities in each series of the GNMA Portfolios
but the Units themselves are not backed by such full faith and credit. 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 GNMA Portfolios are particularly well suited for purchase by
Individual Retirement Accounts, Keogh Plans, pension funds and other tax
deferred retirement plans. Minimum purchase for each Trust: $1,000 ($250 for
IRAs).
Insured National Series 15 (a "Tax-Exempt Portfolio" or the "Insured National
Trust") was formed for the purpose of gaining interest income exempt from
Federal income taxes while conserving capital and diversifying risks by
investing in an insured, fixed portfolio consisting of obligations issued by
or on behalf of states of the United States or counties, municipalities,
authorities or political subdivisions thereof.
Insured California Series 15 and Insured Michigan Series 11 (each a "Tax-
Exempt Portfolio" or an "Insured State Trust") 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.
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.
Insurance guaranteeing the scheduled payment of principal and interest on all
of the 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 Bonds" for each Insured
Trust. Insurance obtained by a 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 Bonds" for each Insured Trust.
No representation is made as to any insurer's ability to meet its commitments.
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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 MARCH 22, 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
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 accrued interest plus the applicable sales
charge indicated under "Public Offering of Units--Public Offering Price." The
sales charge is reduced on a graduated scale for sales involving at least
$100,000 or 10,000 Units and will be applied on whichever basis is more
favorable to the investor. The minimum purchase for each Trust is $1,000.
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 "General
Information--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 "General Information--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, redemption, maturity and exchange or sale of Securities
while the Public Offering Price will vary with changes in the offering price of
the underlying Securities and with changes in the accrued interest; 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 or average lives 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 retirements or average lives
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 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 a Trust plus 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
security when due, volatile interest rates, early call provisions, and changes
to the tax status of the Securities. See "The GNMA Portfolio Series--Risk
Factors" and "The Tax-Exempt Portfolios--Municipal Bond Risk Factors."
2
<PAGE>
KEMPER DEFINED FUNDS SERIES 31
ESSENTIAL INFORMATION
AS OF THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT
SPONSOR AND EVALUATOR: KEMPER UNIT INVESTMENT TRUSTS, A SERVICE OF
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>
GNMA GNMA INSURED INSURED INSURED
PORTFOLIO PORTFOLIO NATIONAL CALIFORNIA MICHIGAN
SERIES 4 SERIES 5 SERIES 15 SERIES 15 SERIES 11
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Public Offering Price
per Unit (1)(2)........ $ 10.010 $ 9.983 $ 10.180 $ 10.190 $ 10.012
Principal Amount of
Securities per Unit.... $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000
Estimated Current Return
based on Public
Offering
Price (3)(4)(5)(6)..... 6.55% 7.07% 4.75% 4.47% 5.46%
Estimated Long-Term
Return (3)(4)(5)(6).... 7.11% 7.46% 4.93% 4.68% 5.55%
Estimated Normal Annual
Distribution per Unit
for Tax-Exempt
Portfolios (6)......... $ 0.48384 $ 0.45576 $ 0.54684
Principal Amount of
Securities............. $ 500,000 $ 500,000 $6,000,000 $3,000,000 $3,225,000
Number of Units......... 50,000 50,000 600,000 300,000 322,500
Fractional Undivided
Interest per Unit...... 1/50,000 1/50,000 1/600,000 1/300,000 1/322,500
Calculation of Public
Offering Price--Less
than 10,000 Units:
Agregate Offering Price
of Securities......... $ 483,008 $ 479,454 $5,924,928 $2,965,308 $3,070,542
Agregate Offering Price
of Securities per
Unit.................. $ 9.660 $ 9.589 $ 9.875 $ 9.884 $ 9.521
Plus Sales Charge per
Unit (7).............. $ 0.350 $ 0.394 $ 0.305 $ 0.306 $ 0.491
Public Offering Price
per Unit (1)(2)....... $ 10.010 $ 9.983 $ 10.180 $ 10.190 $ 10.012
Redemption Price per
Unit................... $ 9.623 $ 9.552 $ 9.830 $ 9.792 $ 9.432
Sponsor's Initial
Repurchase Price per
Unit................... $ 9.660 $ 9.589 $ 9.875 $ 9.884 $ 9.521
Excess of Public
Offering Price per Unit
over Redemption Price
per Unit............... $ 0.387 $ 0.431 $ 0.350 $ 0.398 $ 0.580
Excess of Public
Offering Price per Unit
over Sponsor's Initial
Repurchase Price per
Unit................... $ 0.350 $ 0.394 $ 0.305 $ 0.306 $ 0.491
Calculation of Estimated
Net Annual Interest per
Unit (6):
Estimated Annual
Interest.............. 6.750% 7.250% $ 0.50700 $ 0.47900 $ 0.57260
Less: Estimated Annual
Expense............... 0.190% 0.190% $ 0.02314 $ 0.02322 $ 0.02591
Estimated Net Annual
Interest.............. 6.560% 7.060% $ 0.48386 $ 0.45578 $ 0.54669
Estimated Daily Rate of
Net Interest Accrual
per Unit for Tax-Exempt
Portfolios............. $ 0.001344 $ 0.001266 $ 0.001519
Type of GNMA Securities. Midget Long Term
Estimated Average Life
of GNMA Securities..... 5.96 years 11.26 years
Minimum Principal Value
of the Trust under
which Trust Agreement
may be
terminated (10)........ 40% 40% $1,200,000 $ 600,000 $ 645,000
</TABLE>
Evaluations for purposes of sale, purchase or redemption of Units are made as
of the close of business of the Sponsor (currently 3:15 p.m. Central Time)
next following receipt of an order for a sale or purchase of Units or receipt
by Investors Fiduciary Trust Company of Units tendered for redemption.
3
<PAGE>
ESSENTIAL INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
INSURED INSURED
GNMA GNMA NATIONAL INSURED MICHIGAN
PORTFOLIO PORTFOLIO SERIES CALIFORNIA SERIES
SERIES 4 SERIES 5 15 SERIES 15 11
--------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Trustee's Annual Fee per
$1,000 principal amount of
Securities (9)............. $ 0.875 $ 0.875 $ 1.510 $ 1.350 $ 1.640
Reduction of Trustee's fee
per Unit during the first
year (6)................... N/A N/A $ N/A $ N/A $0.00051
Estimated annual interest
income per Unit during the
first year (6)............. $0.50700 $0.47900 $0.57209
Interest Payments (10):
First Payment per Unit,
representing 2 days....... $0.00364 $0.00392 $0.00269 $0.00253 $0.00304
Estimated Normal Monthly
Distribution per Unit..... $0.04032 $0.03798 $0.04557
Estimated Normal Annual
Distribution per Unit..... $0.48384 $0.45576 $0.54684
Sales Charge (7):
As a percentage of Public
Offering Price per Unit... 3.500% 3.950% 3.000% 3.000% 4.900%
As a percentage of net
amount invested........... 3.623% 4.109% 3.089% 3.096% 5.157%
As a percentage of net
amount invested in earning
assets.................... 3.623% 4.109% 3.089% 3.096% 5.157%
</TABLE>
<TABLE>
<S> <C>
Date of Trust Agreements........................ March 22, 1995
First Settlement Date........................... March 29, 1995
Mandatory Termination Date...................... December 31, 2025
Evaluator's Annual Evaluation Fee--GNMA Portfo- Maximum of $0.175 per $1,000
lios........................................... Principal Amount of Securities
Evaluator's Annual Evaluation Fee--Tax-Exempt Maximum of $0.30 per $1,000
Portfolios..................................... Principal Amount of Securities
Sponsor's Annual Surveillance Fee--GNMA Portfo- Maximum of $0.25 per $1,000
lio............................................ Principal Amount of Securities
Sponsor's Annual Surveillance Fee--Tax-Exempt Maximum of $0.002 per Unit
Portfolios.....................................
</TABLE>
- ---------------------
(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 issue a number of units such that each unit
represents approximately $1,000 principal amount of underlying securities.
The Sponsor, on the other hand, in determining the number of Units for
each Trust has elected not to follow this format but rather to provide
that number of Units which will establish as close as possible as of the
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 and with changes in the
accrued interest; therefore, there is no assurance that the present
Estimated Current Returns indicated above will be realized in the future.
The Estimated Long-Term Returns are calculated using a formula which (1)
takes into consideration, and determines and factors in the relative
weightings of, the market values, yields (which takes into account the
amortization of premiums and the accretion of discounts) and, in the case
of the GNMA Portfolios, the estimated average life of all the Securities
in such Portfolios or, in the case of the Tax-Exempt Portfolios, the
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, redemption, maturity,
call, exchange or sale of the underlying Securities and, in the case of
the GNMA Portfolios, with changes in the average life assumptions of the
GNMA pools. The estimated cash flows to Unitholders for the Trusts are
either set forth under "Estimated Cash Flows to Unitholders" for each
Trust or are available upon request at no charge from the Sponsor.
(6) Estimated Annual Interest amounts, which are expressed in dollar amounts
for the tax-exempt Portfolios, are expressed as percentages for the GNMA
Portfolios due to the prepayment risk associated with GNMA Securities.
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 Securities accruing prior to their expected
dates of delivery, since interest will not accrue to the benefit of
Unitholders of a Trust Fund until such Securities are actually delivered
to the Trust Fund. The estimated net annual interest income per Unit will
remain as indicated. See "The Trust Funds" and "General Information--
Interest, Estimated Long-Term Return and Estimated Current Return."
(7) 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.
(8) The minimum principal value of each GNMA Portfolio under which the Trust
Agreement may be terminated is 40% of the total aggregate principal amount
of securities deposited in each Portfolio during the primary offering
period. The minimum principal value of each Tax Exempt Portfolio under
which the Trust Agreement may be terminated is 20% of the initial
aggregate principal amount of securities deposited in each Portfolio.
(9) See "General Information--Expenses of the Trusts."
(10) Unitholders will receive interest distributions monthly. The Record Date
is the first day of the month, commencing April 1, 1995, and the
distribution date is the fifteenth day of the month, commencing April 15,
1995.
4
<PAGE>
THE TRUST FUNDS
Kemper Defined Funds Series 31 includes the following separate unit investment
trusts created by the Sponsor under the name Kemper Defined Funds: "GNMA
Portfolio Series 4," "GNMA Portfolio Series 5" (the "GNMA Portfolios"),
"Insured National Series 15" (the "Insured National Trust"), "Insured
California Series 15" and "Insured Michigan Series 11" (the "Insured State
Trusts") (hereinafter collectively called the "Trusts" or "Trust Funds"). The
Insured National Trust and Insured State Trusts are also referred to as the
"Tax-Exempt Portfolios" and "Insured Trusts." Each of the Trust Funds 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") between
Kemper Unit Investment Trusts, a service of Kemper Securities, Inc. (the
"Sponsor") and Investors Fiduciary Trust Company (the "Trustee").*
The GNMA Portfolios were formed for the purpose of obtaining safety of capital
and currently monthly distributions of interest and principal through
investment in a portfolio primarily consisting of mortgage-backed securities
of the modified pass-through type on which all payments of principal and
interest are fully guaranteed by the GNMA. The full faith and credit of the
United States is pledged to the payment of the Securities in each GNMA
Portfolio but the Units themselves are not backed by such full faith and
credit.
The Insured National Trust was formed for the purpose of gaining interest
income free from Federal income taxes while conserving capital and
diversifying risks by investing in an insured, fixed portfolio consisting of
obligations issued by or on behalf of states of the United States or counties,
municipalities, authorities or political subdivisions thereof.
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. Offerees in the states of Illinois, Indiana, Virginia and Washington
may purchase Units of the GNMA Portfolios and Insured National Series 15 only.
As used herein, the terms "Securities" and "Bonds" mean the obligations
initially deposited in the Trusts described under "Portfolio" for each Trust
(including all contracts to purchase such obligations accompanied by an
irrevocable letter of credit sufficient to perform such contracts initially
deposited in the Trusts) and any additional obligations deposited in the
Trusts following the Initial Date of Deposit. As used herein, the terms
"Municipal Bonds" and "Municipal Obligations" mean the obligations (and
contracts for the purchase thereof) included in the Tax-Exempt Portfolios.
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 as indicated under "Essential
Information." Each Trust initially consists of delivery statements (i.e.,
contracts) to purchase
- ---------------------
* Reference is made to the Trust Agreements, and any statements contained
herein are qualified in their entirety by the provisions of the Trust
Agreements.
5
<PAGE>
obligations. The Sponsor has a limited right of substitution for such
Securities in the event of a failed contract. See "General Information--Trust
Information."
Additional Units of each Trust may be issued from time to time following the
Initial Date of Deposit by depositing in the Trust additional Securities or
contracts to purchase thereof together with irrevocable letters of credit or
cash. As additional Units are issued by a Trust as a result of the deposit of
additional Securities by the Sponsor, the aggregate value of the Securities in
the Trust will be increased and the fractional undivided interest in the Trust
represented by each Unit will be decreased. The Sponsor may continue to make
additional deposits of Securities into a Trust following the Initial Date of
Deposit, provided that such additional deposits will be in principal amounts
which will maintain the same original percentage relationship among the
principal amounts of the Securities in such Trust established by the initial
deposit of the Securities. Thus, although additional Units will be issued, each
Unit will continue to represent the same principal amount of each Security, and
the percentage relationship among the principal amount of each Security in the
related Trust will remain the same.
Each Unit initially offered represents that undivided interest in the
appropriate Trust indicated under "Essential Information." To the extent that
any Units are redeemed by the Trustee or additional Units are issued as a
result of additional Securities being deposited by the Sponsor, the fractional
undivided interest in a Trust represented by each unredeemed Unit will increase
or decrease accordingly, although the actual interest in such Trust represented
by such fraction will remain unchanged. Units will remain outstanding until
redeemed upon tender to the Trustee by Unitholders, which may include the
Sponsor, or until the termination of the Trust Agreement.
An investment in Units 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.
6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
UNITHOLDERS
KEMPER DEFINED FUNDS SERIES 31
We have audited the accompanying statements of condition and the related
portfolios of Kemper Defined Funds Series 31 (GNMA Portfolio Series 4, GNMA
Portfolio Series 5, Insured National Series 15, Insured California Series 15
and Insured Michigan Series 11) as of March 22, 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 March 22, 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
31 (GNMA Portfolio Series 4, GNMA Portfolio Series 5, Insured National Series
15, Insured California Series 15 and Insured Michigan Series 11) as of March
22, 1995, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
March 22, 1995
7
<PAGE>
KEMPER DEFINED FUNDS SERIES 31
STATEMENTS OF CONDITION AT THE OPENING OF BUSINESS ON MARCH 22, 1995, THE
INITIAL DATE OF DEPOSIT
<TABLE>
<CAPTION>
GNMA GNMA INSURED INSURED INSURED
PORTFOLIO PORTFOLIO NATIONAL CALIFORNIA MICHIGAN
SERIES 4 SERIES 5 SERIES 15 SERIES 15 SERIES 11
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INVESTMENT IN SECURITIES
Securities deposited in
the Trusts (1)(2)........ $ -- $ -- $ -- $ -- $ --
Contracts to purchase Se-
curities (1)(2).......... 483,008 479,454 5,924,928 2,965,308 3,070,542
Accrued interest to First
Settlement Date on Secu-
rities (1)(3)............ 2,625 2,820 49,960 41,977 52,890
-------- -------- ---------- ---------- ----------
Total.................... $485,633 $482,274 $5,974,888 $3,007,285 $3,123,432
======== ======== ========== ========== ==========
Number of Units........... 50,000 50,000 600,000 300,000 322,500
LIABILITY AND INTEREST OF
UNITHOLDERS
Accrued interest payable
to Sponsor (1)(3)........ $ 2,625 $ 2,820 $ 49,960 $ 41,977 $ 52,890
Interest of Unitholders--
Cost to investors (4).... 500,500 499,150 6,108,000 3,057,000 3,228,870
Less: Gross underwriting
commission (4).......... 17,492 19,696 183,072 91,692 158,328
-------- -------- ---------- ---------- ----------
Net interest to
Unitholders (1)(3)(4)... 483,008 479,454 5,924,928 2,965,308 3,070,542
-------- -------- ---------- ---------- ----------
Total.................. $485,633 $482,274 $5,974,888 $3,007,285 $3,123,432
======== ======== ========== ========== ==========
</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 $13,073,677 which has
been deposited with the Trustee. Of this amount, $12,923,240 relates to
the offering price of Securities to be purchased and $150,437 relates to
accrued interest on such Securities to the expected dates of delivery.
(2) Insurance coverage providing for the timely payment of principal and
interest on the Securities in an Insured Trust Fund has been obtained
directly by the issuer of such Securities or by the Sponsor from Municipal
Bond Investors Assurance Corporation or other insurers.
(3) The Trustee will advance to each Trust the amount of net interest accrued
to the First Settlement Date for distribution to the Sponsor as the
Unitholder of Record.
(4) 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. For single transactions
involving 10,000 or more Units, the sales charge is reduced (see "Public
Offering of Units--Public Offering Price") resulting in an equal reduction
in both the Cost to investors and the Gross underwriting commission while
the Net interest to Unitholders remains unchanged.
8
<PAGE>
PUBLIC OFFERING OF UNITS
PUBLIC OFFERING PRICE. Units of a Trust 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 such Trust (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 such Trust plus accrued interest plus the applicable
sales charge referred to in the tables below divided by the number of
outstanding Units of such Trust. The Public Offering Price for secondary market
transactions, on the other hand, is based on the aggregate bid side evaluations
of the Securities in a Trust (also, currently, as determined by Muller Data
Corporation), plus or minus cash, if any, in the Principal Account held or
owned by such Trust, plus accrued interest plus a sales charge based upon the
dollar weighted average maturity of such Trust. 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 Offering of Units--Public
Distribution of Units" below.
For the GNMA Portfolios, the sales charge per Unit will be reduced pursuant to
the following graduated scale:
<TABLE>
<CAPTION>
MIDGET TRUST LONG-TERM TRUST
--------------------- ---------------------
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 $100,000.................. 3.50% 3.627% 3.95% 4.112%
$100,000 to $249,999................ 3.25 3.359 3.70 3.842
$250,000 to $499,999................ 2.85 2.934 3.35 3.466
$500,000 to $999,999**.............. 2.60 2.669 3.10 3.199
</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.
For the Tax-Exempt Portfolios, the sales charge per Unit will be reduced during
the initial offering period pursuant to the following graduated scale:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE YEARS TO MATURITY
---------------------------------------------------------------------------------------
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% 4.9% 5.152%
10,000 to 24,999 Units.. 2.8 2.881 3.7 3.842 4.0 4.167 4.5 4.712
25,000 to 49,999 Units.. 2.6 2.669 3.5 3.627 3.8 3.950 4.3 4.493
50,000 to 99,999 Units.. 2.5 2.564 3.3 3.413 3.5 3.627 3.5 3.627
100,000 or more Units... 2.0 2.041 2.7 2.775 2.8 2.881 3.0 3.093
</TABLE>
As indicated above, in connection with secondary market transactions the sales
charge is based upon the dollar weighted average maturity of a Trust and is
determined in accordance with the tables set forth below. For purposes of this
computation, Securities will be deemed to mature on their expressed maturity
9
<PAGE>
dates unless: (a) the Securities 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 Securities are subject to a "mandatory tender," in which
case such mandatory tender will be deemed to be the date upon which they
mature. The effect of this method of sales charge computation will be that
different sales charge rates will be applied to a Trust based upon the dollar
weighted average maturity of such Trust's portfolio, in accordance with the
following schedule.
For the Tax-Exempt Portfolios, in connection with secondary market
transactions the sales charge per Unit will be reduced as set forth below:
<TABLE>
<CAPTION>
SECONDARY
---------------------------------------
YEARS TO MATURITY*
4 TO 7.99 8 TO 14.99 15 OR MORE
--------- ------------------ ----------
SALES CHARGE (% OF PUBLIC OFFERING
AMOUNT OF INVESTMENT 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.
The reduced sales charges resulting from quantity discounts as shown on the
tables above will apply to all purchases of Units on any one day by the same
purchaser from the same Underwriter or dealer and for this purpose purchases
of Units of a Trust Fund will be aggregated with concurrent purchases of Units
of any other unit investment trust that may be offered by the Sponsor.
Additionally, Units purchased in the name of a spouse or child (under 21) of
such purchaser will be deemed to be additional purchases by such purchaser.
The reduced sales charges will also be applicable to a trust or other
fiduciary purchasing for a single trust estate or single fiduciary account.
The Sponsor intends to permit officers, directors and employees of the Sponsor
and Evaluator and at the discretion of the Sponsor registered representatives
of selling firms to purchase Units of a Trust without a sales charge, although
a transaction processing fee may be imposed on such trades.
Had Units of a Trust been available for sale at the opening of business on the
Initial Date of Deposit, the Public Offering Price would have been as shown
under "Essential Information." The Public Offering Price per Unit of a Trust
on the date of this Prospectus or on any subsequent date will vary from the
amount stated under "Essential Information" in accordance with fluctuations in
the prices of the underlying 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 Securities decline,
purchasers will, of course, be given the benefit of such lower price. The
aggregate bid and offering side evaluations of the Securities 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
Security, on the
10
<PAGE>
basis of current bid or offering prices for comparable bonds, (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 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
during the preceding 24-hour period.
The interest on the Securities deposited in a Trust, 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 change or the number of outstanding Units
of a Trust changes.
Although payment is normally made five business days following the order for
purchase, payments 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, made available to the Sponsor
prior to the date of settlement for the purchase of Units may be used on the
Sponsor's business and may be deemed to be a benefit to the Sponsor, subject to
the limitations of the Securities Exchange Act of 1934. If a Unitholder desires
to have certificates representing Units purchased, such certificates will be
delivered as soon as possible following his written request therefor. For
information with respect to redemption of Units purchased, but as to which
certificates requested have not been received, see "General Information--
Redemption" below.
ACCRUED INTEREST. Accrued interest is the accumulation of unpaid interest on a
security from the last day on which interest thereon was paid. Interest on
Securities generally is paid semi-annually (monthly in the case of Ginnie Maes,
if any) although a Trust accrues such interest daily. Because of this, a Trust
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 a 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 Trusts 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 a Trust, the redemption price per Unit (as
well as the secondary market price per Unit) at which Units may be
11
<PAGE>
redeemed (see "General Information--Redemption") will be determined on the
basis of the current bid prices of the Securities. As of the opening of
business on the Initial Date of Deposit, the Public Offering Price per Unit
(based on the offering prices of the Securities in a Trust 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 a Trust) by
the amount shown under "Essential Information." In the past, bid prices on
securities 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 bonds or as little as 1/2 of 1% in the case of
actively traded bonds, but the difference between such offering and bid prices
may be expected to average 3% to 4% of principal amount. For this reason, among
others (including fluctuations in the market prices of the Securities and the
fact that the Public Offering Price includes a sales charge), the amount
realized by a Unitholder upon any redemption of Units may be less than the
price paid for such Units.
PUBLIC DISTRIBUTION OF UNITS. The Sponsor intends to qualify the Units for sale
in a number of states (except for an Insured State Trust or uninsured State
Trust which will be qualified for sale only in the state for which such Trust
is named). Units will be sold through dealers who are members of the National
Association of Securities Dealers, Inc. and through others. Sales may be made
to or through dealers at prices which represent discounts from the Public
Offering Price as set forth below. Certain commercial banks are making Units of
the Trust Funds available to their customers on an agency basis. A portion of
the sales charge paid by their customers is retained by or remitted to the
banks in the amount shown in the tables 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 a Trust and other unit investment
trusts created by the Sponsor. The difference between the discount and the
sales charge will be retained by the Sponsor.
For the GNMA portfolios, the primary and secondary market concessions or agency
commissions are as follows:
<TABLE>
<CAPTION>
MIDGET TRUSTS
-----------------------------------------------------------
SECONDARY
PRIMARY MARKET MARKET
------------------------------------------------- ---------
VOLUME DISCOUNTS**
--------------------------------------
FIRM SALES FIRM SALES FIRM SALES
REGULAR OR SALE OR SALE OR SALE
CONCESSION ARRANGEMENTS ARRANGEMENTS ARRANGEMENTS
OR AGENCY ($250,000 TO ($500,000 TO ($1,000,000
DOLLAR AMOUNT OF TRADE* COMMISSION $499,999) $999,999) OR MORE) ALL SALES
- ----------------------- ---------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
$0 to $99,999........... 2.10% 2.15% 2.20% 2.25% 2.10%
$100,000 to $249,999.... 2.00 2.05 2.10 2.20 2.10
$250,000 to $499,999.... 1.75 1.80 1.80 1.85 1.80
$500,000 to $999,999***. 1.50 1.55 1.55 1.60 1.55
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM TRUSTS
-----------------------------------------------------------
SECONDARY
PRIMARY MARKET MARKET
------------------------------------------------- ---------
VOLUME DISCOUNTS**
--------------------------------------
FIRM SALES FIRM SALES FIRM SALES
REGULAR OR SALE OR SALE OR SALE
CONCESSION ARRANGEMENTS ARRANGEMENTS ARRANGEMENTS
OR AGENCY ($250,000 TO ($500,000 TO ($1,000,000
DOLLAR AMOUNT OF TRADE* COMMISSION $499,999) $999,999) OR MORE) ALL SALES
- ----------------------- ---------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
$0 to $99,999........... 2.50% 2.60% 2.65% 2.70% 2.60%
$100,000 to $249,999.... 2.50 2.55 2.60 2.65 2.60
$250,000 to $499,999.... 2.25 2.30 2.30 2.35 2.30
$500,000 to $999,999***. 2.00 2.05 2.05 2.10 2.05
</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.
**Volume discounts will be given to firms who reach cumulative firm sales or
sales arrangement levels of at least $250,000 during the initial one month
period after the Initial Date of Deposit. After a firm has met the minimum
$250,000 volume level, volume discounts will be given on all trades
originated from or by that firm, including those placed prior to reaching
the $250,000 level, and will continue to be given during the entire initial
offering period.
***For any transactions in excess of these amounts, contact the Sponsor for the
applicable rates.
For the Tax-Exempt Portfolios, the primary market concessions or agency
commissions are as follows:
<TABLE>
<CAPTION>
PRIMARY
--------------------------------------------
WEIGHTED AVERAGE YEARS TO MATURITY
0 TO 7.49 7.5 TO 9.99 10 TO 14.99 15 OR MORE
---------------------------------------
NUMBER OF UNITS 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>
The secondary market concessions or agency commissions for Tax Exempt
Portfolios are as follows:
<TABLE>
<CAPTION>
SECONDARY MARKET
-------------------------------
DOLLAR WEIGHT AVERAGE
YEARS TO MATURITY*
4 TO 7.99 8 TO 14.99 15 OR MORE
------------------------------------
DISCOUNT PER UNIT
(PERCENT OF PUBLIC OFFERING
DOLLAR AMOUNT OF TRADE PRICE)
---------------------- -------------------------------
<S> <C> <C> <C>
$1,000 to $99,999......................... 2.00% 3.00% 4.00%
$100,000 to $499,999...................... 1.75 2.75 3.50
$500,000 to $999,999...................... 1.50 2.50 3.00
$1,000,000 or more........................ 1.25 2.25 2.50
</TABLE>
- ---------------------
* If the dollar weighted average maturity of a Trust Fund is from 1 to 3.99
years, the concession or agency commission is 1.00% of the Public Offering
Price.
The Sponsor reserves the right to reject, in whole or in part, any order for
the purchase of Units.
13
<PAGE>
PROFITS OF SPONSOR AND UNDERWRITERS. In connection with the GNMA Portfolios,
the Sponsor will receive gross sales charges equal to the percentage of the
Public Offering Price of the Units of such Trust stated under "Public Offering
Price" and will pay a fixed portion of such sales charges to dealers and
agents. As set forth under "The Tax-Exempt Portfolios--Underwriting," the
Underwriters of each Tax-Exempt Portfolio 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 sales charges. In addition, the Sponsor may realize a profit or
a loss resulting from the difference between the purchase prices of the
Securities to the Sponsor and the cost of such Securities to a Trust Fund,
which is based on the offering side evaluation of the Securities. See
"Portfolio" for each Trust. The Sponsor or Underwriters may also realize
profits or losses with respect to Securities deposited in a Trust which were
acquired from underwriting syndicates of which the Sponsor or any Underwriter
was a member. 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 Sponsor
and the Underwriters 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 a Trust.
14
<PAGE>
G
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THE GNMA PORTFOLIO SERIES
THE TRUST PORTFOLIO
The purpose and objective of GNMA Portfolio Series 4 and GNMA Portfolio Series
5 is to provide investors with an appropriate vehicle to obtain safety of
capital and monthly distributions of interest and principal through investment
in a fixed portfolio primarily consisting of Ginnie Maes backed by the full
faith and credit of the United States.
In selecting Securities for deposit in the GNMA Portfolios, the following
factors, among others, were considered by the Sponsor: (i) the types of such
obligations available; (ii) the prices and yields of such obligations relative
to other comparable obligations, including the extent to which such
obligations are traded at a premium or at a discount from par; and (iii) the
maturities of such obligations.
Because regular payments of principal are to be received and certain of the
Securities from time to time may be redeemed or will mature in accordance with
their terms or may be sold under certain circumstances described herein, the
Trusts referred to herein might not retain their present size and composition.
GNMA-1
GNMA PORTFOLIO SERIES
<PAGE>
KEMPER DEFINED FUNDS SERIES 31
GNMA PORTFOLIO SERIES 4 PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: MARCH 22, 1995
Government National Mortgage Association, Modified Pass-Through
Mortgage-Backed Securities
<TABLE>
<CAPTION>
RANGE OF COST OF
FACE STATED SECURITIES
AMOUNT ISSUER COUPON MATURITIES(1) TO TRUST(2)
- ---------------------------------------------------
<C> <S> <C> <C> <C>
$375,000 GNMA 6.50% 2009 to 2010 $358,125
125,000 GNMA 7.50% 2009 to 2010 124,883
-------- --------
$500,000 $483,008
======== ========
</TABLE>
- --------
See "Notes to Portfolios."
KEMPER DEFINED FUNDS SERIES 31
GNMA PORTFOLIO SERIES 5 PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: MARCH 22, 1995
Government National Mortgage Association, Modified Pass-Through
Mortgage-Backed Securities
<TABLE>
<CAPTION>
RANGE OF COST OF
FACE STATED SECURITIES
AMOUNT ISSUER COUPON MATURITIES(1) TO TRUST(2)
- ---------------------------------------------------
<C> <S> <C> <C> <C>
$375,000 GNMA 7.000% 2023 to 2025 $354,375
125,000 GNMA 8.000% 2022 to 2024 125,079
-------- --------
$500,000 $479,454
======== ========
</TABLE>
- --------
See "Notes to Portfolios."
GNMA-2
GNMA PORTFOLIO SERIES
<PAGE>
NOTES TO PORTFOLIOS
(1) The principal amount of Securities listed as having the range of
maturities shown is an aggregate of individual Securities having varying
ranges of maturities within that shown. They are listed as one category of
Securities with a single range of maturities because of current market
conditions that accord no difference in price among the Securities grouped
together on the basis of the difference in their maturity ranges. At some
time in the future, however, the difference in maturity ranges could
affect the market value of the individual Securities.
(2) Some Securities may be represented by contracts to purchase such
Securities. 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. Other information regarding the Securities in the Trusts,
at the opening of business on the Initial Date of Deposit, is as follows:
<TABLE>
<CAPTION>
PROFIT
OR ANNUAL
COST OF (LOSS) INTEREST BID SIDE
SECURITIES TO INCOME VALUE OF
TRUST TO SPONSOR SPONSOR TO TRUST SECURITIES
----- ---------- ------- -------- ----------
<S> <C> <C> <C> <C>
GNMA Portfolio Series 4.............. $480,430 $2,578 $33,750 $481,133
GNMA Portfolio Series 5.............. $476,758 $2,696 $36,250 $477,579
</TABLE>
(3) 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.
----------------
* In addition to the information as to the GNMA modified pass-through
mortgage-backed Securities set forth under "Portfolios," the Trustee will
furnish Unitholders a statement listing the name of issuer, pool number,
interest rate, maturity date and principal amount for each such Security in
the portfolio upon written request.
----------------
GNMA-3
GNMA PORTFOLIO SERIES
<PAGE>
RISK FACTORS
Each Trust is a unit investment trust whose objectives are to obtain safety of
capital and to provide current monthly distributions of interest and principal
through investment in a fixed portfolio initially consisting primarily of
contracts to purchase taxable mortgage-backed securities of the modified pass-
through type ("Ginnie Maes" or "Securities"), including so-called "Ginnie Mae
II's," which involve larger pools of mortgages and which have a central paying
agent, fully guaranteed as to principal and interest by the Government
National Mortgage Association ("GNMA"). All of the Ginnie Maes in the Trusts
consist of pools of long term mortgages on 1- to 4-family dwellings. Certain
GNMA Portfolio Series may also include certain zero coupon U.S. Treasury
Obligations.
An investment in Units of a Trust should be made with an understanding of the
risks which an investment in fixed rate long term debt obligations may entail,
including the risk that the value of the portfolio and hence of the Units will
decline with increases in interest rates. The value of the underlying
Securities will fluctuate inversely with changes in interest rates. In
addition, the potential for appreciation of the underlying Securities, which
might otherwise be expected to occur as a result of a decline in interest
rates, may be limited or negated by increased principal prepayments in respect
of the underlying mortgages. The high inflation of prior years, together with
the fiscal measures adopted to attempt to deal with it, have resulted in wide
fluctuations in interest rates and, thus, in the value of fixed rate long term
debt obligations generally. The sponsor cannot predict whether such
fluctuations will continue in the future.
The Securities in the Trusts were chosen in part on the basis of their
respective stated maturity dates. The ranges of maturity dates of each of the
Securities contained in the Trusts are shown on the "Portfolios." The stated
mandatory termination date of the GNMA Portfolios are set forth under
"Essential Information." See "Life of the Securities and of the GNMA Trusts"
below.
The Trusts may be appropriate mediums for investors who desire to participate
in a portfolio of taxable fixed income securities offering the safety of
capital provided by securities backed by the full faith and credit of the
United States but who do not wish to invest the minimum amount which is
required for a direct investment in GNMA guaranteed securities. The portfolio
of each GNMA Trust initially consists of contracts to purchase Ginnie Maes,
including so-called Ginnie Mae II's, fully guaranteed as to payments of
principal and interest by the Government National Mortgage Association.
Each group of Ginnie Maes described herein as having a specified range of
maturities includes individual mortgage-backed securities which have varying
ranges of maturities within each range specified under "Essential
Information." Each such group of Ginnie Maes is described as one category of
securities because current market conditions accord no difference in price
among the individual Ginnie Mae securities within such group on the basis of
the difference in the maturity dates of each Ginnie Mae. As long as this
market condition prevails, a purchase of Ginnie Maes with the same coupon rate
and a maturity date within the range mentioned above will be considered an
acquisition of the same Security. In the future, however, the difference in
maturity ranges could affect the market value of the individual Ginnie Maes.
At such time, any additional purchases by a Trust will take into account the
maturities of the individual Securities.
The Trusts may contain Securities which were acquired at a market discount.
Such Securities trade at less than par value because the interest rates
thereon are lower than interest rates on comparable debt securities being
issued at currently prevailing interest rates. If such interest rates for
newly issued and otherwise comparable securities increase, the market discount
of previously issued securities will increase
GNMA-4
GNMA PORTFOLIO SERIES
<PAGE>
and if such interest rates for newly issued comparable securities decline, the
market discount of previously issued securities will decrease, other things
being equal. Market discount attributable to interest rate changes does not
indicate a lack of market confidence in the issue.
Unitholders will be "at risk" with respect to such Securities (i.e., may
derive either gain or loss from fluctuations in the evaluation of the
Securities) from the date they commit for Units. See "General Information--
Interest, Estimated Current Return and Estimated Long-Term Return."
The mortgages underlying a Ginnie Mae may be prepaid at any time without
penalty. A lower or higher return on Units may occur depending on whether the
price at which the respective Ginnie Maes were acquired by a Trust is lower or
higher than par (which represents the price at which such Ginnie Maes will be
redeemed upon prepayment). Redemption of premium Ginnie Maes at par pursuant
to prepayments of mortgages will operate to lower the current return on Units
of such Series outstanding at that time since premium Ginnie Maes normally
carry higher interest coupons than par or discount Ginnie Maes. If mortgage
rates decline in the future, such prepayments may occur with increasing
frequency because, among other reasons, mortgagors may be able to refinance
their outstanding mortgages at lower interest rates. See "Life of the
Securities and of the GNMA Trusts."
Set forth below is a brief description of the current method of origination of
Ginnie Maes; the nature of such securities, including the guaranty of GNMA;
the basis of selection and acquisition of the Ginnie Maes included in the
Trusts; and the expected life of the Ginnie Maes and of the Trusts. The
"Portfolios" contain information concerning the coupon rate and range of
stated maturities of the Ginnie Maes in the Trusts.
Origination. The Ginnie Maes included in each Trust are backed by the
indebtedness secured by underlying mortgage pools of long-term mortgages on 1-
to 4-family dwellings. The pool of mortgages which is to underlie a particular
new issue of Ginnie Maes is assembled by the proposed issuer of such Ginnie
Maes. The issuer is typically a mortgage banking firm, and in every instance
must be a mortgagee approved by and in good standing with the Federal Housing
Administration ("FHA"). In addition, GNMA imposes its own criteria on the
eligibility of issuers, including a net worth requirement.
The mortgages which are to comprise a new Ginnie Mae pool may have been
originated by the issuer itself in its capacity as a mortgage lender or may be
acquired by the issuer from a third party. Such third party may be another
mortgage banker, a banking institution, the Veterans Administration ("VA")
(which in certain instances acts as a direct lender and thus originates its
own mortgages) or one of several governmental agencies. All mortgages in any
given pool will be insured under the National Housing Act, as amended ("FHA-
insured") or Title V of the Housing Act of 1949 ("FMHA-insured") or guaranteed
under the Servicemen's Readjustment Act of 1944, as amended, or Chapter 37 of
Title 38, U.S.C. ("VA-guaranteed"). Such mortgages will have a date for the
first scheduled monthly payment of principal that is not more than one year
prior to the date on which GNMA issues its guaranty commitment as described
below, will have comparable interest rates and maturity dates, and will meet
additional criteria of GNMA. All mortgages in the pools backing the Ginnie
Maes contained in the GNMA Portfolio Series are mortgages on 1- to 4-family
dwellings. In general, the mortgages in these pools provide for monthly
payments over the life of the mortgage (aside from prepayments) designed to
repay the principal of the mortgage over such period, together with interest
at the fixed rate of the unpaid balance.
To obtain GNMA approval of a new pool of mortgages, the issuer will file with
GNMA an application containing information concerning itself, describing
generally the pooled mortgages, and requesting that GNMA approve the issue and
issue its commitment (subject to GNMA's satisfaction with the mortgage
GNMA-5
GNMA PORTFOLIO SERIES
<PAGE>
documents and other relevant documentation) to guarantee the timely payment of
principal of and interest on the Ginnie Maes to be issued by the issuer. If
the application is in order, GNMA will issue its commitment and will assign a
GNMA pool number to the pool. Upon completion of the required documentation
(including detained information as to the underlying mortgages, a custodial
agreement with a Federal or state regulated financial institution satisfactory
to GNMA pursuant to which the underlying mortgages will be held in
safekeeping, and a detailed guaranty agreement between GNMA and the issuer)
the issuance of the Ginnie Maes is permitted. When the Ginnie Maes are issued,
GNMA will endorse its guaranty thereon. The aggregate principal amount of
Ginnie Maes issued will be equal to the then aggregate unpaid principal
balances of the pooled mortgages. The interest rate borne by the Ginnie Maes
is currently fixed at 1/2 of 1% below the interest rate of the pooled 1- to 4-
family mortgages, the differential being applied to the payment of servicing
and custodial charges as well as GNMA's guaranty fee.
Ginnie Mae II's consist of jumbo pools of mortgages consisting of pools or
mortgages from more than one issuer. The major advantage of Ginnie Mae II's
lies in the fact that a central paying agent sends one check to the holder on
the required payment date. This greatly simplifies the current procedure of
collecting distributions from each issuer of a Ginnie Mae, since such
distributions are often received late.
Nature of Ginnie Maes and GNMA Guaranty. All of the Ginnie Maes in the GNMA
Portfolio Series, including the Ginnie Mae II's, are of the "modified pass-
through" type, i.e., they provide for timely monthly payments to the
registered holders thereof (including a GNMA Portfolio) of a pro rata share of
the scheduled principal payments on the underlying mortgages, whether or not
collected by the issuers. Such monthly payments will also include, on a pro
rata basis, any prepayments of principal of such mortgages received and
interest (net of the servicing and other charges described above) on the
aggregate unpaid principal balance of such Ginnie Maes, whether or not the
interest on the underlying mortgages has been collected by the issuers.
The Ginnie Maes in the GNMA Portfolio Series are guaranteed as to timely
payment of principal and interest by GNMA. Funds received by the issuers on
account of the mortgages backing the Ginnie Maes in the GNMA Portfolio Series
are intended to be sufficient to make the required payments of principal of
and interest on such Ginnie Maes but, if such funds are insufficient for that
purpose, the guaranty agreements between the issuers and GNMA require the
issuers to make advances sufficient for such payments. If the issuers fail to
make such payments, GNMA will do so.
GNMA is authorized by Section 306(g) of Title III of the National Housing Act
to guarantee the timely payment of principal of and interest on securities
which are based on or backed by a trust for pool composed of mortgages insured
by FHA, the Farmers' Home Administration ("FMHA") or guaranteed by the VA.
Section 306(g) provides further that the full faith and credit of the United
States is pledged to the payment of all amounts which may be required to be
paid under any guaranty under such subsection. An opinion of an Assistant
Attorney General of the United States, dated December 9, 1969, states that
such guaranties "constitute general obligations of the United States backed by
its full faith and credit."* GNMA is empowered to borrow from the United
States Treasury to the extent necessary to make any payments of principal and
interest required under such guaranties. Ginnie Maes are backed by the
aggregate indebtedness secured by the underlying FHA-insured, FMHA-insured or
VA-guaranteed
- --------
*Any statement in this Prospectus that a particular Security is backed by the
full faith and credit of the United States is based upon the opinion of an
Assistant Attorney General of the United States and should be so construed.
GNMA-6
GNMA PORTFOLIO SERIES
<PAGE>
mortgages and, except to the extent of funds received by the issuers on account
of such mortgages, Ginnie Maes do not constitute a liability of nor evidence
any recourse against such issuers, but recourse thereon is solely against GNMA.
Holders of Ginnie Maes (such as the Trusts) have no security interest in or
lien on the underlying mortgages.
The GNMA guaranties referred to herein relate only to payment of principal of
and interest on the Ginnie Maes in the portfolio and not the Units offered
hereby.
Life of the Securities and of the GNMA Trusts. Monthly payments of principal
will be made, and additional prepayments of principal may be made, to the GNMA
Trusts in respect of the mortgages underlying the Ginnie Maes in each GNMA
Portfolio. All of the mortgages in the pools relating to the Ginnie Maes in
each GNMA Portfolio are subject to prepayment without any significant premium
or penalty at the option of the mortgagors. It has been the experience of the
mortgage industry that the average life of mortgages comparable to those
contained in the GNMA Portfolios, owing to prepayments, refinancings and
payments from foreclosures is considerably less than the stated maturity for
each series set forth in "Essential Information."
In the mid 1970's, published tables for Ginnie Maes utilized a 12 year average
life assumption for Ginnie Mae pools of 26-30 year mortgages on 1- to 4-family
dwellings. This assumption was derived from the FHA experience relating to
prepayments on such mortgages during the period from the mid 1950's to the mid
1970's. This 12 year average life assumption was calculated in respect of a
period during which mortgage lending rates were fairly stable. That assumption
is probably no longer an accurate measure of the life of Ginnie Maes or their
underlying single family mortgage pools. However, current yield tables,
published in 1981, still utilize the 12 year average life assumption and Ginnie
Maes continue to be traded based on this assumption. Recently it has been
observed that mortgages issued at high interest rates have experienced
accelerated prepayment rates which would indicate a shorter average life than
12 years.
A number of factors, including homeowner's mobility, change in family size and
mortgage market interest rates will affect the average life of the Ginnie Maes
in the Trusts. For example, Ginnie Maes issued during a period of high interest
rates will be backed by a pool of mortgage loans bearing similarly high rates.
In general, during a period of declining interest rates, new mortgage loans
with interest rates lower than those charged during periods of high rates will
become available. To the extent a homeowner has an outstanding mortgage with a
high rate, he may refinance his mortgage at a lower interest rate or he may
rapidly repay his old mortgage. Should this happen, a Ginnie Mae issued with a
high interest rate may experience a rapid prepayment of principal as the
underlying mortgage loans prepay in whole or in part. Accordingly, there can be
no assurance that the prepayment levels which will be actually realized will
conform to the experience of the FHA, other mortgage lenders or other Ginnie
Mae investors. It is not possible to meaningfully predict prepayment levels
regarding the Ginnie Maes in the Trusts. Therefore, the termination of a Trust
might be accelerated as a result of prepayments made as described herein.
In addition to prepayments as described above, sales of Securities in a Trust
under certain permitted circumstances may result in an accelerated termination
of such Trust. Also, it is possible that, in the absence of a secondary market
for the Units or otherwise, redemptions of Units may occur in sufficient
numbers to reduce a Trust to a size resulting in such termination. Early
termination of a Trust may have important consequences to the Unitholder; e.g.,
to the extent that Units were purchased with a view to an investment of longer
duration, the overall investment program of the investor may require
readjustment; or the overall return on investment may be less or greater than
anticipated, depending in part on whether the purchase price paid for Units
represented the payment of an overall premium or a
GNMA-7
GNMA PORTFOLIO SERIES
<PAGE>
discount, respectively, above or below the stated principal amounts of the
underlying mortgages. In addition, a capital gain or loss may result for tax
purposes from termination of a Trust.
FEDERAL TAX STATUS
In the opinion of Chapman and Cutler, counsel for the Sponsor, under existing
law:
Each Trust is an association taxable as a corporation under the Internal
Revenue Code and intends to qualify for and elect tax treatment as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). By qualifying for and electing such treatment, such Trust will not be
subject to Federal income tax on net investment income or net capital gains
distributed to Unitholders of such Trust. The Code imposes a 4% excise tax on
certain undistributed income of a regulated investment company that does not
timely distribute certain percentages of its ordinary taxable income and
capital gains by the end of each calendar year. Each Trust intends to timely
distribute taxable income and capital gains to avoid the imposition of such
tax. Distributions of the entire net investment income of each Trust is
required by the Indenture.
Distributions from a Trust, to the extent of the earnings and profits of such
Trust, will constitute dividends for Federal income tax purposes which are
taxable as ordinary income to Unitholders. Distributions of a Series' net
investment income and any net short-term capital gain will be taxable as
ordinary income to the Unitholders of such Trust. Distributions from each Trust
will not be eligible for the 70% dividends received deduction for corporations.
Although distributions generally will be treated as distributed when paid,
distributions declared in October, November or December, payable to Unitholders
of record on a specified date in one of those months and paid during January of
the following year will be treated as having been distributed by each Trust
(and received by the Unitholders) on December 31 of the year such distributions
are declared.
Distributions which a Trust designates as capital gain dividends will be
taxable to Unitholders thereof as long-term capital gains, regardless of the
length of time the Units have been held by a Unitholder. Distributions in
partial liquidation, reflecting the proceeds of prepayments, redemptions,
maturities (including monthly mortgage payments of principal) or sales of
Portfolio Obligations from a Trust (exclusive of net capital gain) will not be
taxable to Unitholders of such Trust to the extent that they represent a return
of capital for tax purposes. The portion of distributions which represents a
return of capital will, however, reduce a Unitholder's basis in his Units, and
to the extent they exceed the basis of his Units will be taxable as a capital
gain. A Unitholder will realize a taxable gain or loss when his Units are sold
or redeemed for an amount different from his original cost after reduction for
previous distributions to the extent that they represented a return of capital.
Such gain or loss will constitute either a long-term or short-term capital gain
or loss depending upon the length of time the Unitholder has held his Units.
Any loss of Units held six months or less will be treated as long-term capital
loss to the extent of any long-term capital gains dividends received (or deemed
to have been received) by the Unitholder with respect to such Units. For
taxpayers other than corporations, net capital gains are presently subject to a
maximum stated marginal rate of 28%. However, it should be noted that
legislative proposals are introduced from time to time that affect tax rates
and could affect relative differences at which ordinary income and capital
gains are taxed. A capital loss is long-term if the asset is held for more than
one year and short-term if held for one year or less.
GNMA-8
GNMA PORTFOLIO SERIES
<PAGE>
Under the Code, certain miscellaneous itemized deductions, such as investment
expenses, tax return preparation fees and employee business expenses, will be
deductible by individuals only to the extent they exceed 2% of adjusted gross
income. Miscellaneous itemized deductions subject to this limitation under
present law do not include expenses incurred by a Trust as long as the Units
of such Trust are held by or for 500 or more persons at all times during the
taxable year. In the event the Units of a Trust are held by fewer than 500
persons, additional taxable income will be realized by the individual (and
other noncorporate) Unitholders in excess of the distributions received from
such Trust.
The Revenue Reconciliation Act of 1993 (the "Act") raised tax rates on
ordinary income while capital gains remain subject to a 28% maximum stated
rate for taxpayers other than corporations. Because some or all capital gains
are taxed at a comparatively lower rate under the Act, the 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.
If a Ginnie Mae has been purchased by a Trust at a market discount (i.e., for
a purchase price less than its outstanding principal amount) unless the amount
of market discount is "de minimis" as specified in the Code, each payment of
principal on the Ginnie Mae will constitute ordinary income to such Series of
the Trust to the extent of any accrued market discount. In the case of a
Ginnie Mae, the amount of market discount that is deemed to accrue each month
shall generally be the amount of discount that bears the same ratio to the
total amount of remaining market discount that the amount of interest paid
during the accrual period (each month) bears to the total amount of interest
remaining to be paid on the Ginnie Mae as of the beginning of the accrual
period.
The market discount rules do not apply to 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.
Additional Units of a Trust may be issued after the Initial Date of Deposit in
respect of additional Portfolio Obligations deposited in such Trust by the
Sponsor. Because of possible market interest rate fluctuations, the purchase
price to a Trust of such additional Portfolio Obligations may differ from the
purchase price of the Ginnie Maes in such Trust thereof on the Initial Date of
Deposit. If interest rates decline and such additional Portfolio Obligations
are purchased at a higher price than the Portfolio Obligations originally
deposited, then the amounts includable in the taxable income of such Trust in
proportion to the asset value of that Trust will be reduced for all
Unitholders thereof, not just the Unitholders of such additional Units.
Conversely, if interest rates rise and such additional Portfolio Obligations
are purchased at a lower price than the Portfolio Obligations originally
deposited, then the amounts includable in the taxable income of such Trust in
proportion to the asset value of that Trust will be increased for all
Unitholders thereof, not just the Unitholders of such additional Units.
Each Unitholder of each Trust shall receive an annual statement describing the
tax status of the distributions paid by such Trust. Foreign Unitholders should
consult their own tax advisers with respect to the tax consequences or
ownership of Units.
It should be remembered that even if distributions are invested, they are
still treated as distributions for income tax purposes.
GNMA-9
GNMA PORTFOLIO SERIES
<PAGE>
T
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THE TAX-EXEMPT PORTFOLIOS
THE TRUST PORTFOLIO
The Tax-Exempt Portfolios may be appropriate investment vehicles 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
Portfolios are often not available in small amounts.
The selection of Municipal Bonds for each Trust 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 "Appendix: Description of
Ratings" and "Portfolio" for each Tax-Exempt Portfolio.
All Municipal Bonds 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 Trust consists of that number of Municipal Bonds divided by
purpose of issues (and percentage of principal amount of such Trust) as set
forth in the following table.
SERIES INFORMATION
<TABLE>
<CAPTION>
INSURED INSURED INSURED
NATIONAL CALIFORNIA MICHIGAN
SERIES 15 SERIES 15 SERIES 11
--------- ---------- ----------
<S> <C> <C> <C>
Number of Obligations........................ 5 5 8
Territorial Obligations (1).................. 1 0 0
General Obligation Bonds (2)(3).............. 1(20%) 1(20%) 3(32%)
Revenue Bonds (4)(3)......................... 4(80%) 4(80%) 5(68%)
Revenue Bond Concentrations (3):
Correctional Facilities..................... 1(20%)
Excise Tax Revenue.......................... 1(20%)
Sales Tax Revenue...........................
Electric Systems............................ 1(20%) 1(14%)
Utilities...................................
Hospital.................................... 1(20%) 1(15%)
Housing..................................... 1(20%) 1(16%)
Lease Revenue...............................
Education................................... 1(8%)
Wastewater..................................
Water & Sewer............................... 2(40%)
Transportation..............................
Tollroad.................................... 1(20%)
Miscellaneous............................... 1(15%)
Average life of the Municipal Bonds in the
Trust (5)................................... 5.9 years 5.4 years 25.7 years
Percentage of "when, as and if issued" or
"delayed delivery" Bonds purchased by the
Trust....................................... None None 31%
Syndication (6).............................. None None 30%
</TABLE>
TE-1
TAX-EXEMPT PORTFOLIOS
<PAGE>
- ---------------------
(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 "State 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) 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 risk associated with investments in the bonds of such
issuers, see "Municipal Bond Risk Factors" below.
(4) 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.
(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
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.
TE-2
TAX-EXEMPT PORTFOLIOS
<PAGE>
NATIONAL
<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 15.0% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82%
23.35-
56.55 39.00- 94.25 28.0 6.25 6.94 7.64 8.33 9.03 9.72 10.42
56.55-
117.95 94.25-143.60 31.0 6.52 7.25 7.97 8.70 9.42 10.14 10.87
117.95-
256.50 143.60-256.50 36.0 7.03 7.81 8.59 9.38 10.16 10.94 11.72
Over
256.50 Over 256.50 39.6 7.45 8.28 9.11 9.93 10.76 11.59 12.42
</TABLE>
CALIFORNIA
<TABLE>
<CAPTION>
TAXABLE INCOME ($1,000'S) TAX-EXEMPT ESTIMATED CURRENT RETURN
- ---------------------------- --------------------------------------------
4% 4 5% 5 6% 6 7%
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% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
23.35-
56.55 39.00- 94.25 34.7 6.13 6.89 7.66 8.42 9.19 9.95 10.72
94.25-143.60 37.4 6.39 7.19 7.99 8.79 9.58 10.38 11.18
56.55-
117.95 37.9 6.44 7.25 8.05 8.86 9.66 10.47 11.27
117.95-
214.93 143.60-256.50 42.4 6.94 7.81 8.68 9.55 10.42 11.28 12.15
214.93-
256.50 43.0 7.02 7.89 8.77 9.65 10.53 11.40 12.28
256.50-429.86 45.6 7.35 8.27 9.19 10.11 11.03 11.95 12.87
Over
256.50 Over 429.86 46.2 7.43 8.36 9.29 10.22 11.15 12.08 13.01
</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 of 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
- ---------------------------- --------------------------------------------
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 21.7% 5.75% 6.39% 7.02% 7.66% 8.30% 8.94% 9.58%
23.35-
56.55 39.00- 94.25 33.7 6.79 7.54 8.30 9.05 9.80 10.56 11.31
56.55-
117.95 94.25-143.60 36.5 7.09 7.87 8.66 9.45 10.24 11.02 11.81
117.95-
256.50 143.60-256.50 41.1 7.64 8.49 9.34 10.19 11.04 11.88 12.73
Over
256.50 Over 256.50 44.4 8.09 8.99 9.89 10.79 11.69 12.59 13.49
</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.
TE-3
TAX-EXEMPT PORTFOLIOS
<PAGE>
KEMPER DEFINED FUNDS SERIES 31 INSURED NATIONAL
SERIES 15
PORTFOLIO AS OF THE INITIAL DATE OF DEPOSIT: MARCH 22, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER, TITLE,
COUPON RATE AND MATURITY
DATE OF BOND
REPRESENTED BY SPONSOR'S
AGGREGATE CONTRACTS TO PURCHASE REDEMPTION COST OF BONDS
PRINCIPAL BONDS(1)(5) RATING(2) PROVISIONS(3) TO TRUST(4)
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$1,200,000 The County of DuPage, AAA Non-Callable $1,197,000
Illinois, Motor Fuel Tax
Revenue Bonds, Series 1995
(FSA Insured), 5.00% Due
01/01/1999
1,200,000 District of Columbia AAA Non-Callable 1,191,876
(Washington D.C.), General
Obligation Refunding
Bonds, Series 1993A (FSA
Insured), 5.30% Due
06/01/2000
1,200,000 Massachusetts Bay AAA Non-Callable 1,178,796
Transportation Authority,
General Transportation
System Bonds, 1993 Series
A Refunding (FGIC
Insured), 4.90% Due
03/01/2001
1,200,000 Tennessee Housing AAA Non-Callable 1,195,500
Development Agency,
Mortgage Finance Program
Bonds, 1993 Series A (MBIA
Insured), 5.20% Due
01/01/2002
1,200,000 Washington County AAA 2002 @ 101.50 1,161,756
Industrial Development
Authority (Pennsylvania),
Pollution Control Revenue
Bonds (West Penn Power
Company Mitchell Station
Project), 1993 Series F
(MBIA Insured), 4.95% Due
03/01/2003
---------- ----------
$6,000,000 $5,924,928
========== ==========
</TABLE>
- --------
See "Notes to Portfolios."
TE-4
TAX-EXEMPT PORTFOLIOS
<PAGE>
KEMPER DEFINED FUNDS SERIES 31 INSURED CALIFORNIA
SERIES 15
PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: MARCH 22, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER, TITLE, COUPON
RATE AND MATURITY DATE OF BOND COST OF
REPRESENTED BY SPONSOR'S BONDS
AGGREGATE CONTRACTS TO PURCHASE REDEMPTION TO
PRINCIPAL BONDS(1)(5) RATING(2) PROVISIONS(3) TRUST(4)
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 600,000 San Diego County Water AAA Non-Callable $ 598,272
Authority (California), Water
Revenue Refunding
Certificates of
Participation, Series 1993A
(FGIC Insured), 4.75% Due
05/01/1998
600,000 State Public Works of the AAA Non-Callable 588,822
State of California, Lease
Revenue Refunding Bonds
(Department of Corrections),
1993 Series A (Various State
Prisons) (AMBAC Insured),
4.50% Due 12/01/1999
600,000 California Statewide AAA Non-Callable 592,866
Communities Development
Authority, Insured Health
Facilities Revenue,
Certificates of Participation
(Unihealth America), 1993
Series A (AMBAC Insured),
4.80% Due 10/01/2000
600,000 Chino Basin Regional Financing AAA Non-Callable 600,000
Authority (California),
Revenue Bonds, Series 1994
(Chino Basin Municipal Water
District Sewer System
Project), Series 1994 (AMBAC
Insured), 5.10% Due
08/01/2001
600,000 The City of Los Angeles AAA Non-Callable 585,348
(California), General
Obligation Bonds, Series
1993-A (AMBAC Insured), 4.80%
Due 09/01/2002
---------- ----------
$3,000,000 $2,965,308
========== ==========
</TABLE>
- --------
See "Notes to Portfolios."
TE-5
TAX-EXEMPT PORTFOLIOS
<PAGE>
KEMPER DEFINED FUNDS SERIES 31 INSURED MICHIGAN
SERIES 11
PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: MARCH 22, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER, TITLE,
COUPON RATE AND MATURITY
DATE OF BOND
REPRESENTED BY SPONSOR'S
AGGREGATE CONTRACTS TO PURCHASE REDEMPTION COST OF BONDS
PRINCIPAL BONDS(1)(5) RATING(2) PROVISIONS(3) TO TRUST(4)
- ------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 250,000 Board of Trustees of AAA 2002 @ 102 $ 250,000
Western Michigan 2013 @ 100 S.F.
University, General
Revenue Bonds, Series
1992A (FGIC Insured),
6.125% Due 11/15/2022
500,000 Michigan State Housing AAA 2003 @ 103 464,620
Development Authority, 2009 @ 100 S.F.
Limited Obligation
Revenue Bonds (Breton
Village Green Project),
Series 1993 (FSA
Insured), 5.625% Due
10/15/2018
125,000 West Ottawa Public AAA 2002 @ 102 124,190
Schools, County of 2011 @ 100 S.F.
Ottawa, State of
Michigan, 1992
Refunding Bonds,
(General Obligation--
Unlimited Tax)(FGIC
Insured), 6.00% Due
05/10/2020
450,000 The Economic Development AAA 2002 @ 102 446,900
Corporation of the
County of St. Clair,
State of Michigan,
Pollution Control
Refunding Revenue Bonds
(The Detroit Edison
Company Project),
Collateralized Series
1992 DD (AMBAC
Insured), 6.05% Due
08/01/2024
150,000 Livonia Public Schools AAA 2004 @ 102 130,724
School District, County 2016 @ 100 S.F.
of Wayne, State of
Michigan, 1994
Refunding Bonds
(General Obligation--
Unlimited Tax)(FGIC
Insured), 5.125% Due
05/01/2022
500,000 City of Kalamazoo AAA 2004 @ 102 445,885
Hospital Finance 2015 @ 100 S.F.
Authority, Hospital
Revenue Refunding Bonds
(Borgess Medical
Center), Series 1994A
(FGIC Insured), 5.25%
Due 06/01/2017
750,000 Goodrich Area Schools, AAA 2005 @ 102 732,083
Counties of Genesee, 2016 @ 100 S.F.
Oakland and Lapeer,
State of Michigan, 1995
School Building and
Site and Refunding
Bonds (General
Obligation--Unlimited
Tax)(AMBAC Insured)
5.875% Due 05/01/2024
500,000 Michigan Municipal Bond AAA 2003 @ 102 476,140
Authority, Local 2010 @ 100 S.F.
Government Loan
Program, Refunding
Revenue Bonds, Series
1993B (AMBAC Insured),
5.70% Due 11/01/2016
---------- ----------
$3,225,000 $3,070,542
========== ==========
</TABLE>
- --------
See "Notes to Portfolios."
TE-6
TAX-EXEMPT PORTFOLIOS
<PAGE>
NOTES TO PORTFOLIOS:
All insured Bonds in the Trust Funds 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.
(C) This Bond is of the same issue as another Bond in the Trust.
(D) 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 March 8, 1995 and March 21, 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
"Appendix: Description of Ratings." A rating marked by "[_]" 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 Municipal Bonds are
made on the basis of current offering side evaluations of the Municipal
Bonds. The aggregate offering price is greater than the aggregate bid
price of the Municipal Bonds, 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 Municipal Bonds in the Trust Funds, at the
opening of business on the Initial Date of Deposit, is as follows:
<TABLE>
<CAPTION>
PROFIT
OR ANNUAL
COST OF (LOSS) INTEREST BID SIDE
BONDS TO TO INCOME VALUE OF
TRUST FUND SPONSOR SPONSOR TO TRUST BONDS
---------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C>
Insured National Series 15.......... $5,925,292 $ (364) $304,200 $5,898,036
Insured California Series 15........ $2,965,182 $ 126 $143,700 $2,937,522
Insured Michigan Series 11.......... $3,050,204 $20,338 $184,663 $3,041,753
</TABLE>
Neither Cost of Bonds 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 Bonds.
TE-7
TAX-EXEMPT PORTFOLIOS
<PAGE>
MUNICIPAL BOND 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 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
TE-8
TAX-EXEMPT PORTFOLIOS
<PAGE>
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 Initial 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.
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.
TE-9
TAX-EXEMPT PORTFOLIOS
<PAGE>
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 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 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 eduction
systems, from tuition, dormitory revenues, grants and endowments. General
problems relating to school bonds include litigation contesting the state
constitutionality of financing public eduction 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
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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.
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 issue 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.
STATE RISK FACTORS AND STATE TAX STATUS
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.
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INSURED CALIFORNIA SERIES 15
Risk Factors
As described above, the Fund 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.
California's economy is the largest among the 50 states and one of the largest
in the world. The State's population of almost 32 million represents 12.3% of
the total United States population and grew by 27% in the 1980s. While the
State's substantial population growth during the 1980s stimulated local
economic growth and diversification and sustained a real estate boom between
1984 and 1990, it has increased strains on the State's limited water resources
and its infrastructure. Resultant traffic congestion, school overcrowding and
high housing costs have increased demands for government services and may
impede future economic growth. Population growth has slowed between 1991 and
1993 even while substantial immigration has continued, due to a significant
increase in outmigration by California residents. Generally, the household
incomes of new residents have been substantially lower (and their education
and social service utilization higher) than those of departing households,
which may have a major long-term socioeconomic and fiscal impact. However,
with the California economy improving, the recent net outmigration within the
Continental U.S. is expected to decrease or be reversed.
From mid-1990 to late 1993, the State's economy suffered its worst recession
since the 1930s, with recovery starting later than for the nation as a whole.
The State has experienced the worst job losses of any post-war recession.
Prerecession job levels may not be realized until near the end of the decade.
The largest job losses have been in Southern California, led by declines in
the aerospace and construction industries. Weakness statewide occurred in
manufacturing, construction, services and trade. Additional military base
closures will have further adverse effects on the State's economy later in the
decade.
Since the start of 1994, the California economy has shown signs of steady
recovery and growth. The State Department of Finance reports net job growth,
particularly in construction and related manufacturing, wholesale and retail
trade, transportation, recreation and services. This growth has offset the
continuing but slowing job losses in the aerospace industry and restructuring
of the finance and utility sectors. Unemployment in the State was down
substantially in 1994 from its 10% peak in January, 1994, but still remains
higher than the national average rate. Retail sales were up strongly in 1994
from year-earlier figures. Delay or slowdown in recovery will adversely affect
State revenues.
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Constitutional Limitations on Taxes and Appropriations
Limitation on Taxes. 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 the rate of inflation, not to exceed 2% per year,
or decline in value, or in the case of 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.
Appropriations Limits. California and its local governments are subject to an
annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB
prohibits the State or any covered local government from spending
"appropriations subject to limitation" in excess of the appropriations limit
imposed. "Appropriations subject to limitation" are authorizations to spend
"proceeds of taxes," which consists of tax revenues and certain other funds,
including proceeds from regulatory licenses, user charges or other fees, to
the extent that such proceeds exceed the cost of providing the product or
service, but "proceeds of taxes" excludes most State subventions to local
governments. No limit is imposed on appropriations of 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
qualified 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 to follow more closely growth in
California's economy.
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"Excess" revenues are now measured over a two-year cycle. With respect to
local governments, excess revenues must be returned by a revision of tax rates
or fee schedules within the two subsequent fiscal years. The appropriations
limit for a local government may be overridden by referendum under certain
conditions for up to four years at a time. With respect to the State, 50% of
any excess revenues is to be distributed to K-12 school districts and
community college districts (collectively, "K-14 districts") and the other 50%
is to be refunded to taxpayers. With more liberal annual adjustment factors
since 1988, and depresssed revenues since 1990 because of the recession, few
governments, including the State, 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.
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
California 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 initiatives or
legislative changes in laws or the California Constitution may also affect the
ability of the State or local issuers to repay their obligations.
Obligations of the State of California. Under the California Constitution,
debt service on outstanding general obligation bonds is the second charge to
the General Fund after support of the public school system and public
institutions of higher education. Total outstanding general obligation bond
and lease purchase debt of the State increased from $9.4 billion at June 30,
1987 to $23.5 billion at June 30, 1994. In FY1993-94, debt service on general
obligation bonds and lease purchase debt was approximately 5.2% of General
Fund revenues.
Recent Financial Results. 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%). California 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.
General. Throughout the 1980's, State spending increased rapidly as the State
population and economy also grew rapidly, including increased spending for
many assistance programs to local governments, which were constrained by
Proposition 13 and other laws. The largest State program is assistance to
local public school districts. In 1988, an initiative (Proposition 98) was
enacted which (subject to suspension by a two-thirds vote of the Legislature
and the Governor) guarantees local school districts and community college
districts a minimum share of State General Fund revenues (currently about
33%).
Since the start of 1990-91 Fiscal Year, the State has faced adverse economic,
fiscal, and budget conditions. The economic recession seriously affected State
tax revenues. It also caused increased expenditures for health and welfare
programs. The State is also facing a structural imbalance in its budget with
the largest programs supported by the General Fund (education, health, welfare
and corrections) growing at rates higher than the growth rates for the
principal revenue sources of the General Fund. These structured concerns will
be exacerbated in coming years by the expected need to substantially increase
capital and operating funds for corrections as a result of a "Three Strikes"
law enacted in 1994. As a
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result, the State entered a period of budget imbalance, with expenditures
exceeding revenues for four of the five fiscal years ending in 1991-92;
revenues and expenditures were about equal in 1992-93. By June 30, 1993, the
State's General Fund had an accumulated deficit, on a budget basis, of
approximately $2.8 billion.
Recent Budgets. The state failed to enact its 1992-93 budget by July 1, 1992.
Although the State had no legal authority to pay many of its vendors, 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 as they came due all of these ongoing obligations, 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 short-term 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 represented a third consecutive year of difficult
budget choices. As in the prior year, the budget contained no general state
tax increases, and relied principally on expenditure cuts, particularly for
health and welfare and higher education, a two-year suspension of the renters'
tax credit, some one-time and accounting adjustments, and--the largest
component--an additional $2.6 billion transfer of property taxes from local
government, particularly counties, to school districts to reduce State
education funding requirements. A temporary state sales tax scheduled to
expire on June 30, 1993 was extended for six months, and dedicated to support
local government public safety costs.
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 General Fund had $800 million less
revenue and $800 million higher expenditures than budgeted. As a result
revenues only exceed expenditures by about $500 million. However, this was the
first operating surplus in four years and reduced the accumulated deficit to
$2.0 billion at June 30, 1994 (after taking account of certain other
accounting reserves).
Current Budget. The 1994-95 Budget Act was passed on July 8, 1994, and
provides for an estimated $41.9 billion of General Fund revenues, and $40.9
billion of expenditures. The budget assumed receipt of about $750 million of
new federal assistance for the costs of incarceration, education, health and
welfare related to undocumented immigrants. Other major components of the
budget include further reductions in health and welfare costs and
miscellaneous government costs, some additional transfers of funds from local
government, and a plan to defer retirement of $1 billion of the accumulated
budget deficit to the 1995-96 fiscal year. The federal government has
apparently budgeted only $33 million of the expected immigration aid. However,
this shortfall is expected to be almost fully offset by higher than projected
revenues, and lower than projected caseload growth, as the economy
improves.
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The State issued $7.0 billion of short-term debt in July, 1994 to meet its
cash flow needs and to finance the deferral of part of the accumulated budget
deficit to the 1995-96 fiscal year. In order to assure repayment of the $4
billion, 22-month part of this borrowing, the State enacted legislation (the
"Trigger Law") which can lead to automatic, across-the-board cuts in General
Fund expenditures in either the 1994-95 or 1995-96 fiscal years if cash flow
projections made at certain times during those years show deterioration from
the projections made in July 1994 when the borrowings were made. On November
15, 1994, the State Controller as part of the Trigger Law reported that the
cash position of the General Fund on June 30, 1995 would be about $580 million
better than earlier projected, so no automatic budget adjustments were
required in 1994-95. The Controller's report showed that loss of federal funds
was offset by higher revenues, lower expenditures, and certain other increases
in cash resources.
Proposed 1995-96 Budget. On January 10, 1995, the Governor presented his
proposed FY 1995-96 Budget. This budget projects total General Fund revenues
and transfers of $42.5 billion, and expenditures of $41.7 billion, to complete
the elimination of the accumulated deficits from earlier years. However, this
proposal leaves no cushion, as the projected budget reserve at June 30, 1996
would be only about $92 million. While proposing increases in funding for
schools, universities and corrections, the Governor proposes further cuts in
welfare programs, and a continuation of the "realignment" of functions with
counties which would save the State about $240 million. The Governor also
expects about $800 million in new federal aid for the State's costs of
incarcerating and educating illegal immigrants. The Budget proposal also does
not account for possible additional costs if the State loses its appeals on
lawsuits which are currently pending concerning such matters as school funding
and pension payments, but these appeals could take several years to resolve.
Part of the Governor's proposal also is a 15% cut in personal income and
corporate taxes, to be phased in over three years, starting with calendar year
1996 (which would have only a small impact on 1995-96 income).
The State's difficult financial condition for the current and upcoming budget
years will result in continued pressure upon almost all 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.
Bond Rating. State general obligation bonds ratings were reduced in July, 1994
to "A1" by Moody's and "A" by S&P. Both of these ratings were 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.
Legal Proceedings. 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. Trial courts have recently
entered tentative decisions or injunctions which would overturn several parts
of the state's recent budget compromises. The matters covered by these
lawsuits include a deferral of payments by the State to the Public Employees
Retirement System, reductions in welfare payments, and the use of certain
cigarette tax funds for health costs. All of these cases are subject to
further proceedings and appeals, and if the State eventually loses, the final
remedies may not have to be implemented in one year.
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Obligations of Other Issuers
Other Issuers of California Municipal Obligations. There are a number of state
agencies, instrumentalities and political subdivisions of the State that issue
Municipal Obligations, some of which may be conduit revenue obligations
payable from payments from private borrowers. These entities are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from the credit quality of the
obligations backed by the full faith and credit of the State.
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. Through 1990-91, local assistance (including public schools)
accounted for approximately 75% of General Fund spending. To 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
"bailout" aid. The largest share of these transfers came from counties, and
the balance from cities, special districts and redevelopment agencies. In
order to make up this shortfall, the Legislature proposed and voters approved
in 1993 dedicating 0.5% of the sales tax to counties and cities for public
safety purposes. In addition, the Legislature has changed laws to relieve
local governments of certain mandates, allowing them to reduce costs.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may be reduced. Any such reductions in State
aid could compound the serious fiscal constraints already experienced by many
local governments, particularly counties. At least one rural county (Butte)
publicly announced that it might enter bankruptcy proceedings in August 1990,
although such plans were put off after the Governor approved legislation to
provide additional funds for the county. Other counties have also indicated
that their budgetary condition is extremely grave. The Richmond 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 cases of abatement
are failure to complete construction of the facility before the end of the
period during which lease
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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 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 District's lease. The trial court has
upheld the validity of the lease and the case has been settled. Any ultimate
judgment in any future case against the position asserted by the Trustee in
the Richmond case may have adverse implication for lease transactions of a
similar nature by other California entities.
Other Considerations. The repayment of industrial development securities
secured by real property may be affected by California laws limiting
foreclosure rights of creditors. Securities backed by health care and hospital
revenues may be affected by changes in State regulations governing cost
reimbursements to health care providers under Medi-Cal (the State's Medicaid
program), including risks related to the policy of awarding exclusive
contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment
project area after the start of redevelopment activity. In the event that
assessed values in the redevelopment project decline (e.g., 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 predict the extent to which
any such legislation will be enacted. Nor is it 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. Northern California in 1989 and Southern California in
1994 experienced major earthquakes causing
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billions of dollars in damages. The federal government provided more than $13
billion in aid for both earthquakes, and neither event is expected to have any
long-term negative economic impact. Any California Municipal Obligation in the
California Insured Trust 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.
On January 17, 1994, a major earthquake with an estimated magnitude of 6.8 on
the Richter scale struck the Los Angeles area, causing significant property
damage to public and private facilities, presently estimated at $15-20 billion.
While over $9.5 billion of federal aid, and a projected $1.9 billion of State
aid, plus insurance proceeds, will reimburse much of that loss, there will be
some ultimate loss of wealth and income in the region, in addition to costs of
the disruption caused by the event. Short-term economic projections are
generally neutral, as the infusion of aid will restore billions of dollars to
the local economy within a few months; already the local construction industry
has picked up. Although the earthquake will hinder recovery from the recession
in Southern California, already hard-hit, its long-term impact is not expected
to be material in the context of the overall wealth of the region. Almost five
years after the event, there are few remaining effects of the 1989 Loma Prieta
earthquake in northern California (which, however, caused less severe damage
than Northridge).
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Pooled Fund") filed for protection under
Chapter 9 of the federal Bankruptcy Code, after reports that the Pooled Fund
had suffered significant market losses in its investments caused a liquidity
crisis for the Pooled Fund and the County. More than 180 other public entities,
most but not all located in the County, were also depositors in the Pooled
Fund. As of mid-January, 1995, the County estimated the Pooled Fund's loss at
about $1.64 billion of its initial deposits of around $7.5 billion. The Pooled
Fund has been almost completely restructured to reduce its exposure to changes
in interest rates. Many of the entities which kept moneys in the Pooled 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 County and some of these entities have, and others may in the future,
default in payment of their obligations. Moody's and Standard & Poor's have
suspended, reduced to below investment grade levels, or placed on "Credit
Watch" various securities of the County and the entities participating in the
Pooled Fund.
The State of California has no obligation with respect to any obligations or
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.
California Tax Status
In the opinion of Orrick, Herrington & Sutcliffe, special California tax
counsel to Insured California Series 15 (the "Insured California Trust"), under
existing law:
The Insured California Trust is not an association taxable as a corporation
and the income of the Insured California Trust 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 the Insured
California Trust which are exempt from tax under California personal income
tax and property tax laws when received by the Insured
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California Trust 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 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 the Insured California
Trust will have a taxable event the Insured California Trust 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 the Insured California Trust to a Unitholder
is allocated among each of the Bond issues held in the Insured California
Trust (in accordance with the proportion of the Insured California Trust
comprised by each Bond issue) in order to determine his per Unit tax cost
for each Bond issue; and the tax cost reduction requirements relating to
amortization of bond premium will apply separately to the per Unit cost of
each Bond issue. Unitholders' bases in their Units, and the bases for their
fractional interest in each Insured California Trust 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 the Insured California Trust) 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 Trust is not deductible for the purposes of the
California personal income tax. While there presently is no California
authority interpreting this provision, Section 17280(b)(2) directs the
California Franchise Tax Board to prescribe regulations determining the
proper allocation and apportionment if 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
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as bond counsel to issuers of Bonds in the Insured California Trust, 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 the Insured California Trust 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."
INSURED MICHIGAN SERIES 11
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 diversity 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.
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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 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 the 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.
The Trust may contain general obligation bonds of local units of government
pledging the full faith and credit of the local unit which are payable from the
levy of ad valorem taxes on taxable property within the jurisdiction of the
local unit. Such bonds issued prior to December 22, 1978, or issued after
December 22, 1978 with the approval of the electors of the local unit, are
payable from property taxes levied without limitation as to rate or amount.
With respect to bonds issued after December 22, 1978, and which were not
approved by the electors of the local unit, the tax levy of the local unit for
debt service purposes is subject to constitutional, statutory and charter tax
rate limitations. In addition, several major industrial corporations have
instituted challenges of their ad valorem property tax assessments in a number
of local municipal units in the State. If successful, such challenges could
have an adverse impact on the ad valorem tax bases of such units which could
adversely affect their ability to raise funds for operation and debt service
requirements.
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Michigan Tax Status
In the opinion of Miller, Canfield, Paddock and Stone, special counsel to the
Insured Michigan Series 11 (the "Insured Michigan Trust") for Michigan tax
matters, under existing Michigan law:
The Insured Michigan Trust and the owners of Units will be treated for
purposes of the Michigan income tax laws and the Single Business Tax in
substantially the same manner as they are for purposes of the Federal
income tax laws, as currently enacted. Accordingly, we have relied upon the
opinion of Chapman and Cutler as to the applicability of Federal income tax
under the Internal Revenue Code of 1986 to the Insured Michigan Trust and
the Unitholders.
Under the income tax laws of the State of Michigan, the Insured Michigan
Trust is not an association taxable as a corporation; the income of the
Insured Michigan Trust will be treated as the income of the Unitholders and
be deemed to have been received by them when received by the Insured
Michigan Trust. Interest on the underlying Bonds which is exempt from tax
under these laws when received by the Insured Michigan Trust 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 the Insured Michigan Trust, and each Unitholder will have a
taxable event when the Insured Michigan Trust 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, the Insured Michigan Trust is not
taxable and the pro rata ownership of the underlying Bonds, as well as the
interest thereon, will be exempt to the Unitholders to the extent the
Insured Michigan Trust 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 the Insured
Michigan Trust on the underlying Bonds and any amount distributed from
Insured Michigan Trust to a Unitholder, if not included in determining
taxable income for Federal income tax purposes, is also not included in the
adjusted tax base upon which the Single Business Tax is computed, of either
the Insured Michigan Trust or the Unitholders. If the Insured Michigan
Trust or the Unitholders have a taxable event for Federal income tax
purposes when the Insured Michigan Trust 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.
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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
the Insured Michigan Trust disposes of a Bond or when the Unitholder
redeems or sells a Unit, to the extent such transaction constitutes a
taxable event for Federal income tax purposes.
For a discussion of Federal tax matters relating to distributions from the
Trust Fund, see "Federal Tax Status."
INSURANCE ON THE BONDS
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
"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
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$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 (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.
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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
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.
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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.
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."
FEDERAL TAX STATUS
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 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
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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 original 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 their 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.
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.
TAX-EXEMPT PORTFOLIOS
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<PAGE>
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.
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
TAX-EXEMPT PORTFOLIOS
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<PAGE>
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 PORTFOLIOS
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<PAGE>
tax-exempt interest) does not exceed the base amount need not include any
Social Security benefits in gross income.
For a discussion of the state tax status of income earned on Units of a state
trust, see the discussion of tax status for the applicable trust. Except as
noted therein, the exemption of interest on state and local obligations for
Federal income tax purposes discussed above does not necessarily result in
exemption under the income or other tax laws of any state or city. The laws of
the several states vary with respect to the taxation of such obligations.
Because each Trust receives interest and makes monthly distributions based upon
such Trust's expected total collections of interest and any anticipated
expenses, certain tax reporting consequences may arise. Each Trust is required
to report Unitholder information to the Internal Revenue Service ("IRS"), based
upon the actual collection of interest by such Trust on the securities in such
Trust, without regard to such Trust's expenses or to such Trust's payments to
Unitholders during the year. If distributions to Unitholders exceed interest
collected, the difference will be reported as a return of principal which will
reduce a Unitholder's cost basis in its Units (and its pro rata interest in the
securities in the Trust). A Unitholder must include in taxable income the
amount of income reported by a Trust to the IRS regardless of the amount
distributed to such Unitholder. If a Unitholder's share of taxable income
exceeds income distributions made by a Trust to such Unitholder, such excess is
in all likelihood attributable to the payment of miscellaneous expenses of such
Trust which will not be deductible by an individual Unitholder as an itemized
deduction except to the extent that the total amount of certain itemized
deductions, such as investments expenses (which would include the Unitholder's
share of Trust expenses), tax return preparation fees and employee business
expenses, exceeds 2% of such Unitholder's adjusted gross income. Alternatively,
in certain cases, such excess may represent an increase in the Unitholder's tax
basis in the Units owned. Investors with questions regarding these issues
should consult with their tax advisers.
TAX-EXEMPT PORTFOLIOS
TE-31
<PAGE>
UNDERWRITING
The Underwriters named below have severally purchased Units of the Trusts in
the following respective amounts:
<TABLE>
<CAPTION>
INSURED INSURED
NATIONAL INSURED MICHIGAN TOTAL
SERIES CALIFORNIA SERIES UNITS BY
FIRM NAME 15 SERIES 15 11 FIRM
--------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C>
*Kemper Unit Investment Trusts........... 460,000 250,000 202,500 912,500
*Kemper Securities, Inc.................. 50,000 50,000 50,000 150,000
First of Michigan Corporation............ 10,000 10,000
Gruntal & Co., Inc....................... 10,000 10,000
Pershing................................. 10,000 10,000
Raymond James & Associates, Inc.......... 10,000 10,000
Robert W. Baird & Company, Inc........... 50,000 50,000
Roney & Company.......................... 10,000 60,000 70,000
------- ------- ------- ---------
TOTAL UNITS:............................. 600,000 300,000 322,500 1,222,500
======= ======= ======= =========
</TABLE>
Underwriter Addresses:
Kemper Unit Investment Trusts, 77 West Wacker Drive, 29th Floor, Chicago, IL
60601-1994
*Kemper Securities, Inc., 77 West Wacker Drive, 28th Floor, Chicago, IL 60601-
1994
First of Michigan Corporation, 100 Renaissance Center, 26th Floor, Detroit, MI
48243
Gruntal & Co., Inc., 14 Wall Street, 14th Floor, New York, NY 10005
Pershing, a Division of Donaldson, Lufkin & Jenrette, One Pershing Plaza, 7th
Floor, Jersey City, NJ 07399
Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, FL
33716
Robert W. Baird & Co., Inc., 777 East Wisconsin Avenue, Milwaukee, WI 53202
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 Trust Funds 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 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.
TAX-EXEMPT PORTFOLIOS
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<PAGE>
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.
TAX-EXEMPT PORTFOLIOS
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<PAGE>
ESTIMATED CASHFLOWS TO UNITHOLDERS
The tables below set forth the estimated monthly distributions of interest and
principal to Unitholders 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 NATIONAL TRUST
Monthly
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
---------------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Apr 15, 1995 $0.27 $ 0.27
May 15, 1995 to Dec 15, 1998 4.03 4.03
Jan 15, 1999 4.03 $200.00 204.03
Feb 15, 1999 to May 15, 2000 3.23 3.23
Jun 15, 2000 3.23 200.00 203.23
Jul 15, 2000 to Feb 15, 2001 2.38 2.38
Mar 15, 2001 2.38 200.00 202.38
Apr 15, 2001 to Dec 15, 2001 1.59 1.59
Jan 15, 2002 1.59 200.00 201.59
Feb 15, 2002 to Feb 15, 2003 0.75 0.75
Mar 15, 2003 0.75 200.00 200.75
</TABLE>
INSURED CALIFORNIA TRUST
Monthly
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
---------------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Apr 15, 1995 $0.25 $ 0.25
May 15, 1995 to Apr 15, 1998 3.80 3.80
May 15, 1998 3.80 $200.00 203.80
Jun 15, 1998 to Nov 15, 1999 3.03 3.03
Dec 15, 1999 3.03 200.00 203.03
Jan 15, 2000 to Sep 15, 2000 2.31 2.31
Oct 15, 2000 2.31 200.00 202.31
Nov 15, 2000 to Jul 15, 2001 1.54 1.54
Aug 15, 2001 1.54 200.00 201.54
Sep 15, 2001 to Aug 15, 2002 0.72 0.72
Sep 15, 2002 0.72 200.00 200.72
</TABLE>
TAX-EXEMPT PORTFOLIOS
TE-34
<PAGE>
INSURED MICHIGAN TRUST
Monthly
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
---------------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Apr 15, 1995 $0.30 $ 0.30
May 15, 1995 to Oct 15, 2016 4.56 4.56
Nov 15, 2016 4.56 $155.04 159.60
Dec 15, 2016 to May 15, 2017 3.84 3.84
Jun 15, 2017 3.84 155.04 158.88
Jul 15, 2017 to Oct 15, 2018 3.19 3.19
Nov 15, 2018 2.83 155.04 157.87
Dec 15, 2018 to Apr 15, 2020 2.49 2.49
May 15, 2020 2.49 38.76 41.25
Jun 15, 2020 to Apr 15, 2022 2.30 2.30
May 15, 2022 2.30 46.51 48.81
Jun 15, 2022 to Nov 15, 2022 2.11 2.11
Dec 15, 2022 1.91 77.52 79.43
Jan 15, 2023 to Apr 15, 2024 1.73 1.73
May 15, 2024 1.73 232.56 234.29
Jun 15, 2024 to Jul 15, 2024 0.63 0.63
Aug 15, 2024 0.63 139.53 140.16
</TABLE>
TAX-EXEMPT PORTFOLIOS
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<PAGE>
G
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GENERAL INFORMATION
RATING OF UNITS
Because the Securities in an Insured Trust Fund in a Tax-Exempt Portfolio or
an Insured Corporate Series 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 Bonds" for each such Trust, Moody's Investors Service, Inc. has assigned
its "Aaa" investment rating to the Units of any Insured Trust Fund. This is
the highest rating assigned to securities by such rating agency. 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.
Securities 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 Securities rated "AAA" by Standard & Poor's
Ratings Group or "Aaa" by Moody's Investors Service, Inc. In selecting
Securities for the portfolios of an Insured Trust Fund, the Sponsor has
applied the criteria hereinbefore described.
Standard & Poor's Ratings Group ("Standard & Poor's") has rated the Units of
each Series of the GNMA Portfolios "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 GNMA Portfolios.
A Standard & Poor'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.
TRUST INFORMATION
Because certain of the Securities in certain of the Trusts may from time to
time under certain circumstances be sold or redeemed or will mature in
accordance with their terms and because the proceeds from such events will be
distributed to Unitholders and will not be reinvested, no assurance can be
given that a Trust will retain for any length of time its present size and
composition. Neither the Sponsor nor the Trustee shall be liable in any way
for any default, failure or defect in any Security. In the event of a failure
to deliver any Security that has been purchased for a Trust under a contract,
including those securities purchased on a "when, as and if issued" basis
("Failed Securities"), the Sponsor is authorized under the Trust Agreement to
direct the Trustee to acquire other securities ("Replacement Securities") to
make up the original corpus of such Trust.
GI-1
GENERAL INFORMATION
<PAGE>
Securities in certain of the Trust Funds 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 Portfolios" for each Trust.
Accordingly, the delivery of such Securities may be delayed or may not occur.
Interest on these Securities begins accruing to the benefit of Unitholders on
their respective dates of delivery. To the extent any Municipal Bonds in a Tax-
Exempt Portfolio are actually delivered to such Trust after their respective
expected dates of delivery, Unitholders who purchase Units in such Trust 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
since the interest accruing on such Municipal Bonds during the interval between
their purchase of Units and the actual delivery of such Municipal 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 such Trust portfolios and estimated annual expenses do not vary. See
footnote (4) to "Essential Information." Unitholders of all Trusts will be "at
risk" with respect to any "when, as and if issued" or "delayed delivery"
Securities included in their respective Trust (i.e., may derive either gain or
loss from fluctuations in the evaluation of such Securities) from the date they
commit for Units.
The Replacement Securities must be purchased within 20 days after delivery of
the notice that a contract to deliver a Security will not be honored and the
purchase price may not exceed the amount of funds reserved for the purchase of
the Failed Securities. The Replacement Securities (i) must be payable in United
States currency, (ii) 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 Securities
as of the Initial Date of Deposit, (iii) shall not be "when, as and if issued"
or restricted securities, (iv) must satisfy any rating criteria for Securities
originally included in such Trust, (v) not cause the Units of such Trust to
cease to be rated Aaa by Moody's Investors Service, Inc. if the Units were so
rated on the Initial Date of Deposit and (vi) in the case of Insured Trust
Funds must be insured prior to acquisition by a Trust. In connection with an
Insured Corporate Series only, Replacement Securities also must (i) be
intermediate or long-term, as applicable, corporate bonds, debentures, notes or
other straight debt obligations (whether secured or unsecured and whether
senior or subordinated) without equity or other conversion features, with fixed
maturity dates substantially the same as those of the Failed Securities having
no warrants or subscription privileges attached, (ii) be issued after July 18,
1984 if interest thereon is United States source income and (iii) have a fixed
maturity of at least 10 years. In connection with a Corporate Income Series
only, Replacement Securities also must (i) be corporate bonds, debentures,
notes or other straight debt obligations (whether secured or unsecured and
whether senior or subordinated) without equity or other conversion features,
with fixed maturity dates substantially the same as those of the Failed
Securities having no warrants or subscription privileges attached, (ii) be
issued after July 18, 1984 and (iii) have a fixed maturity of at least 6 years.
In connection with a Tax-Exempt Portfolio only, Replacement Securities must
also (i) be tax-exempt bonds issued by the appropriate state or counties,
municipalities, authorities or political subdivisions thereof and (ii) have a
fixed maturity date of at least 3 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. Whenever a Replacement Security is acquired for
a Trust, the Trustee shall, within five days thereafter, notify all Unitholders
of the Trust of the acquisition of the Replacement Security and shall, on the
next monthly distribution date which is more than 30 days thereafter, make a
pro rata distribution of the amount, if any, by which the cost to the Trust of
the Failed Security exceeded the cost of the Replacement Security. Once all of
the Securities in a Trust are acquired, the Trustee will have no power to vary
the investments of the Trust,
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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 Securities in the event of a failed
contract, the Sponsor will refund the sales charge attributable to such Failed
Securities to all Unitholders of the Trust Fund and the Trustee will distribute
the principal and accrued interest attributable to such Failed Securities not
more than 30 days after the date on which the Trustee would have been required
to purchase a Replacement Security. 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 Security is acquired, an amount equal to the
accrued interest (at the coupon rate of the Failed Securities) will be paid to
Unitholders of the Trust Fund to the date the Sponsor removes the Failed
Securities from the Trust Fund if the Sponsor determines not to purchase a
Replacement Security or to the date of substitution if a Replacement Security
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 Security could not be acquired by a Trust, the net annual
interest income per Unit for such Trust would be reduced and the Estimated
Current Return and Estimated Long-Term Return might be lowered.
Subsequent to the Initial Date of Deposit, a Security may cease to be rated or
its rating may be reduced below any minimum required as of the Initial Date of
Deposit. Neither event requires the elimination of such investment from a
Trust, but may be considered in the Sponsor's determination to direct the
Trustee to dispose of such investment. See "General Information--Investment
Supervision."
The Sponsor may not alter the portfolio of a Trust except upon the happening of
certain extraordinary circumstances. See "General Information--Investment
Supervision." Certain of the Securities may be subject to optional call or
mandatory redemption pursuant to sinking fund provisions, in each case prior to
their stated maturity. A bond subject to optional call is one which is subject
to redemption or refunding prior to maturity at the option of the issuer, often
at a premium over par. A refunding is a method by which a bond issue is
redeemed, at or before maturity, by the proceeds of a new bond issue. A bond
subject to sinking fund redemption is one which is subject to partial call from
time to time at par with proceeds from a fund accumulated for the scheduled
retirement of a portion of an issue 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 under "Portfolio" for each Trust. Redemption
pursuant to optional call provisions is more likely to occur, and redemption
pursuant to special or extraordinary redemption provisions may occur, when the
Securities 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 Securities and from Securities which mature in
accordance with their terms from a Trust, unless utilized to pay for Units
tendered for redemption, will be distributed to Unitholders of such Trust and
will not be used to purchase additional Securities for such Trust. Accordingly,
any such call, redemption, sale or maturity will reduce the size and diversity
of a Trust and the net annual interest income of such Trust and may reduce the
Estimated Current Return and the Estimated Long-Term Return. See "General
Information--Interest, Estimated Long-Term Return and Estimated Current
Return." The call, redemption, sale or maturity of Securities also may have tax
consequences to a Unitholder. See "Federal Tax Status" for each Trust.
Information with respect to the call provisions and maturity dates of the
Securities is contained in "Portfolio" for each Trust.
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Each Unit of a Trust 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 each
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 are
redeemed, the principal amount of Securities in such Trust will be reduced and
the undivided fractional interest represented by each outstanding Unit of such
Trust will increase. See "General Information--Redemption."
Certain of the Securities in certain of the Trusts may have been acquired at a
market discount from par value at maturity. The coupon interest rates on the
discount securities 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
securities increase, the market discount of previously issued securities will
become greater, and if such interest rates for newly issued comparable
securities decline, the market discount of previously issued securities will be
reduced, other things being equal. Investors should also note that the value of
securities purchased at a market discount will increase in value faster than
securities purchased at a market premium if interest rates decrease.
Conversely, if interest rates increase, the value of securities purchased at a
market discount will decrease faster than securities purchased at a market
premium. In addition, if interest rates rise, the prepayment risk of higher
yielding, premium securities and the prepayment benefit for lower yielding,
discount securities will be reduced. A discount security held to maturity will
have a larger portion of its total return in the form of taxable income and
capital gain and loss in the form of tax-exempt interest income than a
comparable security newly issued at 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
Securities.
Certain of the Securities in certain of 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
securities such as the zero coupon bonds, see "Federal Tax Status" for each
Trust.
To the best of the Sponsor's knowledge, there is no litigation pending as of
the Initial Date of Deposit in respect of any Security which might reasonably
be expected to have a material adverse effect on the Trust Funds. At any time
after the Initial Date of Deposit, litigation may be instituted on a variety of
grounds with respect to the Securities. The Sponsor is unable to predict
whether any such litigation may be instituted, or if instituted, whether such
litigation might have a material adverse effect on the Trust Funds. The Sponsor
and the Trustee shall not be liable in any way for any default, failure or
defect in any Security.
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RETIREMENT PLANS
Units of the Trusts (other than a Tax-Exempt Portfolio) may be well suited for
purchase by Individual Retirement Accounts, Keogh Plans, pension funds and
other qualified retirement plans, certain of which are briefly described below.
Generally, capital gains and income received under each of the foregoing plans
are deferred from federal taxation. All distributions from such plans are
generally treated as ordinary income but may, in some cases, be eligible for
special income averaging or tax-deferred rollover treatment. Investors
considering participation in any such plan should review specific tax laws
related thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan. Such plans are offered
by brokerage firms and other financial institutions. The Trusts will waive the
$1,000 minimum investment requirement for IRA accounts. The minimum investment
is $250 for tax-deferred plans such as IRA accounts. Fees and charges with
respect to such plans may vary.
Individual Retirement Account--IRA. Any individual under age 70 1/2 may
contribute the lesser of $2,000 or 100% of compensation to an IRA annually.
Such contributions are fully deductible if the individual (and spouse if filing
jointly) are not covered by a retirement plan at work. The deductible amount an
individual may contribute to an IRA will be reduced $10 for each $50 of
adjusted gross income over $25,000 ($40,000 if married, filing jointly or $0 if
married, filing separately), if either an individual or their spouse (if
married, filing jointly) is an active participant in an employer maintained
retirement plan. Thus, if an individual has adjusted gross income over $35,000
($50,000 if married, filing jointly or $0 if married, filing separately) and if
an individual or their spouse is an active participant in an employer
maintained retirement plan, no IRA deduction is permitted. Under the Internal
Revenue Code of 1986, as amended (the "Code"), an individual may make
nondeductible contributions to the extent deductible contributions are not
allowed. All distributions from an IRA (other than the return of certain excess
contributions) are treated as ordinary income for federal income taxation
purposes provided that under the Code an individual need not pay tax on the
return of nondeductible contributions. The amount includable in income for the
taxable year is the portion of the amount withdrawn for the taxable year as the
individual's aggregate deductible IRA contributions bear to the aggregate
balance of all IRAs of the individual.
A participant's interest in an IRA must be, or commence to be, distributed to
the participant not later than April 1 of the calendar year following the year
during which the participant attains age 70 1/2. Distributions made before
attainment of age 59 1/2, except in the case of the participant's death or
disability, or where the amount distributed is to be rolled over to another
IRA, or where the distributions are taken as a series of substantially equal
periodic payments over the participant's life or life expectancy (or the joint
lives or life expectancies of the participant and the designated beneficiary)
are generally subject to a surtax in an amount equal to 10% of the
distribution. The amount of such periodic payments may not be modified before
the later of five years or attainment of age 59 1/2. Excess contributions are
subject to an annual 6% excise tax.
IRA applications, disclosure statements and trust agreements are available from
the Sponsor upon request.
Qualified Retirement Plans. Units of a Trust may be purchased by qualified
pension or profit sharing plans maintained by corporations, partnerships or
sole proprietors. The maximum annual contribution for a participant in a money
purchase pension plan or to paired profit sharing and pension plans is the
lesser of 25% of compensation or $30,000. Prototype plan documents for
establishing qualified retirement plans are available from the Sponsor upon
request.
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Excess Distributions Tax. In addition to the other taxes due by reason of a
plan distribution, a tax of 15% may apply to certain aggregate distributions
from IRAs, Keogh plans, and corporate retirement plans to the extent such
aggregate taxable distributions exceed specified amounts (generally $150,000,
as adjusted) during a tax year. This 15% tax will not apply to distributions on
account of death, qualified domestic relations orders or amounts eligible for
tax-deferred rollover treatment. In general, for lump sum distributions the
excess distributions over $750,000 (as adjusted) will be subject to the 15%
tax.
The Trustee, Investors Fiduciary Trust Company, has agreed to act as custodian
for certain retirement plan accounts. An annual fee of $12.00 per account, if
not paid separately, will be assessed by the Trustee and paid through the
liquidation of shares of the reinvestment account. An individual wishing the
Trustee to act as custodian must complete a Kemper UIT/IRA application and
forward it along with a check made payable to Investors Fiduciary Trust
Company. Certificates for Individual Retirement Accounts cannot be issued.
DISTRIBUTION REINVESTMENT
Each Unitholder of a Trust may elect to have distributions of principal
(including capital gains, if any) or interest or both automatically invested
without charge in shares of any mutual fund which is registered in such
Unitholder's state of residence and is underwritten or advised by an affiliate
of the Sponsor, Kemper Financial Services, Inc. (the "Kemper Funds"), other
than those Kemper Funds sold with a contingent deferred sales charge.
If individuals indicate they wish to participate in the Reinvestment Program
but do not designate a reinvestment fund, the Program Agent referred to below
will contact such individuals to determine which reinvestment fund or funds
they wish to elect. Since the portfolio securities and investment objectives of
such Kemper Funds generally will differ significantly from that of the Trusts,
Unitholders should carefully consider the consequences before selecting such
Kemper Funds for reinvestment. Detailed information with respect to the
investment objectives and the management of the Funds is contained in their
respective prospectuses, which can be obtained from the Sponsor upon request.
An investor should read the prospectus of the reinvestment fund selected prior
to making the election to reinvest. Unitholders who desire to have such
distributions automatically reinvested should inform their broker at the time
of purchase or should file with the Program Agent a written notice of election.
Unitholders who are receiving distributions in cash may elect to participate in
distribution reinvestment by filing with the Program Agent an election to have
such distributions reinvested without charge. Such election must be received by
the Program Agent at least ten days prior to the Record Date applicable to any
distribution in order to be in effect for such Record Date. Any such election
shall remain in effect until a subsequent notice is received by the Program
Agent. See "General Information--Unitholders--Distributions to Unitholders."
The Program Agent is Investors Fiduciary Trust Company. All inquiries
concerning participation in distribution reinvestment should be directed to the
Program Agent at P.O. Box 419430, Kansas City, Missouri 64173-0216, telephone
(816) 474-8786.
INTEREST, ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN
As of the opening of business on the Initial Date of Deposit, the Estimated
Long-Term Return and the Estimated Current Return, if applicable, for each
Trust 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
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<PAGE>
changes in fees and expenses of the Trustee, the Sponsor and the Evaluator and
with the principal prepayment, redemption, maturity, exchange or sale of the
Securities while the Public Offering Price will vary with changes in the
offering price of the underlying Securities and accrued interest; 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 or average life of all of the Securities in a Trust and (2) takes
into account the expenses and sales charge associated with each Trust Unit.
Since the market values and estimated retirements of the 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.
In order to acquire certain of the Securities contracted for by a Trust, 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.
Payments received in respect of mortgages underlying Ginnie Maes in each series
of a GNMA Portfolio will consist of a portion representing interest and a
portion representing principal. Although the aggregate monthly payment made by
the obligor on each mortgage remains constant (aside from optional prepayments
of principal), in the early years most of each such payment will represent
interest, while in later years, the proportion representing interest will
decline and the proportion representing principal will increase. However, by
reason of optional prepayments, principal payments in the earlier years on
mortgages underlying Ginnie Maes may be substantially in excess of those
required by the amortization schedules of such mortgages. Therefore, principal
payments in later years may be substantially less since the aggregate unpaid
principal balances of such underlying mortgages may have been greatly reduced.
To the extent that the underlying mortgages bearing higher interest rates in a
GNMA Portfolio are prepaid faster than the other underlying mortgages, the net
annual interest rate per Unit and the Estimated Current Return on the Units of
a GNMA Portfolio can be expected to decline. Monthly payments to the
Unitholders of a GNMA Portfolio will reflect all of these factors.
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 Trusts, together with 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 Trusts.
The aggregate bid prices of the underlying Securities in each Trust 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.
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GENERAL INFORMATION
<PAGE>
The offering price of any Units resold by the Sponsor or Underwriters will be
in accord with that described in the currently effective Prospectus describing
such Units. Any profit or loss resulting from the resale of such Units will
belong to the Sponsor and/or the Underwriters. The Sponsor and/or the
Underwriters may suspend or discontinue purchases of Units of any Trust if the
supply of Units exceeds demand, or for other business reasons.
REDEMPTION
A Unitholder who does not dispose of Units in the secondary market described
above may cause Units to be redeemed by the Trustee by making a written request
to the Trustee, Investors Fiduciary Trust Company, P.O. Box 419430, Kansas
City, Missouri, 64173-0216 and, in the case of Units evidenced by a
certificate, by tendering such certificate to the Trustee, properly endorsed or
accompanied by a written instrument or instruments of transfer in a form
satisfactory to the Trustee. Unitholders must sign the request, and such
certificate or transfer instrument, exactly as their names appear on the
records of the Trustee and on any certificate representing the Units to be
redeemed. If the amount of the redemption is $25,000 or less and the proceeds
are payable to the Unitholder(s) of record at the address of record, no
signature guarantee is necessary for redemptions by individual account owners
(including joint owners). Additional documentation may be requested, and a
signature guarantee is always required, from corporations, executors,
administrators, trustees, guardians or associations. The signatures must be
guaranteed by a 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 purchasers.
Redemption shall be made by the Trustee on the seventh calendar day following
the day on which a tender for redemption is received, or if the seventh
calendar day is not a business day, on the first business day prior thereto
(the "Redemption Date") by payment of cash equivalent to the Redemption Price
for such Trust, 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 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 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 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. The Trustee is empowered to sell Securities
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GENERAL INFORMATION
<PAGE>
for a Trust in order to make funds available for the redemption of Units of
such Trust. 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 a Trust will be reduced.
In the case of a U.S. Treasury Portfolio or a GNMA Portfolio, 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
Securities in such Trusts. The Securities to be sold for purposes of redeeming
Units will be selected from a list supplied by the Sponsor. The 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 Trusts. Provision
is made under the related Trust Agreements for the Sponsor to specify minimum
face amounts in which blocks of 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 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 U.S. Treasury Obligations and Ginnie Maes
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 Trusts, such excess proceeds will be distributed
pro rata to all remaining Unitholders of record of such Trusts, unless
reinvested in substitute Securities. See "General Information--Investment
Supervision."
The Trustee is irrevocably authorized in its discretion, if an Underwriter does
not elect to purchase any Unit tendered for redemption, in lieu of redeeming
such Units, to sell such Units in the over-the-counter market for the account
of tendering Unitholders at prices which will return to the Unitholders amounts
in cash, net after brokerage commissions, transfer taxes and other charges,
equal to or in excess of the Redemption Price for such Units. In the event of
any such sale, the Trustee shall pay the net proceeds thereof to the
Unitholders on the day they would otherwise be entitled to receive payment of
the Redemption Price.
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange is closed, other than customary
weekend and holiday closings, or during which (as determined by the Securities
and Exchange Commission) trading on the New York Stock Exchange is restricted;
(2) for any period during which an emergency exists as a result of which
disposal by the Trustee of 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
is computed by the Evaluator as of the evaluation time stated under "Essential
Information" next occurring after the tendering of a Unit for redemption and on
any other business day desired by it, by:
A. adding: (1) the cash on hand in the Trust other than cash deposited in the
Trust to purchase Securities not applied to the purchase of such Securities;
(2) the aggregate value of each issue of the Securities (including "when
issued" contracts, if any) held in the Trust as determined by the Evaluator on
the basis of bid prices therefor; and (3) interest accrued and unpaid on the
Securities in the Trust as of the date of computation;
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GENERAL INFORMATION
<PAGE>
B. deducting therefrom (1) amounts representing any applicable taxes or
governmental charges payable out of the Trust and for which no deductions have
been previously made for the purpose of additions to the Reserve Account
described under "General Information--Expenses of the Trusts"; (2) an amount
representing estimated accrued expenses of the Trust, 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; and
C. finally dividing the results of such computation by the number of Units of
the Trust outstanding as of the date thereof.
UNITHOLDERS
Ownership of Units. Ownership of Units of any Trust 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.
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 subject to each Trust's minimum investment
requirement of 100 Units 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. Interest received by each Trust, including any
portion of the proceeds from a disposition of Securities which represents
accrued interest, is credited by the Trustee to the Interest Account for such
Trust. All other receipts are credited by the Trustee to a separate Principal
Account for the Trust. The Trustee normally has no cash for distribution to
Unitholders until it receives interest payments on the Securities in the Trust.
Since interest usually is paid semi-annually (monthly in the case of a GNMA
Portfolio), during the initial months of the Trusts, the Interest Account of
each Trust, consisting of accrued but uncollected interest and collected
interest (cash), will be predominantly the uncollected accrued interest that is
not available for distribution. On the dates set forth under "Essential
Information" for each Trust, the Trustee will commence distributions, in part
from funds advanced by the Trustee.
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GENERAL INFORMATION
<PAGE>
Thereafter, assuming the Trust retains its original size and composition, after
deduction of the fees and expenses of the Trustee, the Sponsor and Evaluator
and reimbursements (without interest) to the Trustee for any amounts advanced
to a Trust, the Trustee will normally distribute on each Interest Distribution
Date (the fifteenth of the month) or shortly thereafter to Unitholders of
record of such Trust on the preceding Record Date (which is the first day of
each month). Unitholders of the Trusts 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. 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 sell or redeem all or a portion of their
Units, they will be paid their proportionate share of the accrued interest of
such Trust to, but not including, the fifth business day after the date of a
sale or to the date of tender in the case of a redemption.
In order to equalize distributions and keep the undistributed interest income
of the Trusts at a low level, all Unitholders of record in such Trust 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.
Unitholders of a U.S. Treasury Portfolio which contains Stripped Treasury
Securities should note that 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 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" for the U.S. Treasury Portfolios, if any.
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 Bonds in the Trusts is payable at
varying intervals, usually in semi-annual installments, and distributions of
income are made to Unitholders at different intervals from receipt of interest,
the interest accruing to a Trust may not be equal to the amount of money
received and available for distribution from the Interest Account. Therefore,
on each Distribution Date the amount of interest actually deposited in the
Interest Account of a Trust and available for distribution may be slightly more
or less than the interest distribution made. In order to eliminate fluctuations
in interest distributions resulting from 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, without interest, for any such advances from funds
available in the Interest Account for such Trust.
GI-11
GENERAL INFORMATION
<PAGE>
The Trustee will distribute on each Distribution Date or shortly thereafter, to
each Unitholder of record of a Trust 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 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 U.S. Treasury Obligations in
any U.S. Treasury Portfolio or GNMA Portfolio within twelve business days of
the date of such maturity.
In connection with GNMA Portfolios only, the terms of the Ginnie Maes provide
for payment to the holders thereof (including a GNMA Portfolio) on the
fifteenth day of each month of amounts collected by or due to the issuers
thereof with respect to the underlying mortgages during the preceding month.
The Trustee will collect the interest due a GNMA Portfolio on the Securities
therein as it becomes payable and credit such interest to a separate Interest
Account for such GNMA Portfolio created by the Indenture. Distributions will be
made to each Unitholder of record of a GNMA Portfolio on the appropriate
Distribution Date (see "Essential Information") and will consist of an amount
substantially equal to such Unitholder's pro rata share of the cash balances,
if any, in the Interest Account, the Principal Account and any Capital Gains
Account of such GNMA Portfolio, computed as of the close of business on the
preceding Record Date.
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 are required to be audited annually, at the Trust'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. The accountants' report will be furnished by the
Trustee to any Unitholder of such Trust upon written request. Within a
reasonable period of time after the end of each calendar year, the Trustee
shall furnish to each person who at any time during the calendar year was a
Unitholder of a Trust a statement, covering the calendar year, setting forth
for the applicable Trust:
A. As to the Interest Account:
1. The amount of interest received on the Securities (and for Tax-Exempt
Portfolios, 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;
3. The deductions from the Interest Account for applicable taxes, if any, fees
and expenses (including auditing fees) of the Trustee, the Sponsor, the
Evaluator, and, if any, of bond counsel;
4. Any amounts credited by the Trustee to the Reserve Account described under
"General Information--Expenses of the Trusts";
5. The net amount remaining after such payments and deductions, expressed both
as a total dollar amount and a dollar amount per Unit outstanding on the last
business day of such calendar year; and
B. As to the Principal Account:
1. The dates of the maturity, liquidation or redemption of any of the
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;
3. The deductions from the Principal Account for payment of applicable taxes,
if any, fees and expenses (including auditing fees) of the Trustee, the
Sponsor, the Evaluator, and, if any, of bond counsel;
GI-12
GENERAL INFORMATION
<PAGE>
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
"General Information--Expenses of the Trusts";
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;
2. The number of Units outstanding on the last business day of such calendar
year;
3. The Redemption Price based on the last evaluation made during such calendar
year;
4. The amount actually distributed during such calendar year from the Interest
and Principal Accounts (and Capital Gains Account, if applicable) 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 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.
No Unitholder shall have the right to control the operation and management of
any Trust in any manner, except to vote with respect to the amendment of the
Trust Agreements or termination of any Trust.
INVESTMENT SUPERVISION
The Sponsor may not alter the portfolios of the Trusts by the purchase, sale or
substitution of Securities, except in the special circumstances noted below and
as indicated earlier under "General Information--Trust Information" 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 Trusts 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 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 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 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.
GI-13
GENERAL INFORMATION
<PAGE>
The Trustee may sell Securities, designated by the Sponsor, from a Trust for
the purpose of redeeming Units of such Trust tendered for redemption and the
payment of expenses.
ADMINISTRATION OF THE TRUSTS
The Trustee. The Trustee, Investors Fiduciary Trust Company, is a trust company
specializing in investment related services, organized and existing under the
laws of Missouri, having its trust office at 127 West 10th Street, Kansas City,
Missouri 64105. The Trustee is subject to supervision and examination by the
Division of Finance of the State of Missouri and the Federal Deposit Insurance
Corporation. Investors Fiduciary Trust Company is owned by State Street Boston
Corporation.
The Trustee, whose duties are ministerial in nature, has not participated in
selecting the portfolio of any Trust. For information relating to the
responsibilities of the Trustee under the Trust Agreements, reference is made
to the material set forth under "General Information--Unitholders."
In accordance with the Trust Agreements, the Trustee shall keep records of all
transactions at its office. Such records shall include the name and address of,
and the number of Units held by, every Unitholder of each Trust. Such books and
records shall be open to inspection by any Unitholder of such Trust 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. Pursuant to the Trust Agreements, the Trustee may employ one or
more agents for the purpose of custody and safeguarding of Securities
comprising the Trusts.
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
GI-14
GENERAL INFORMATION
<PAGE>
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 Trusts which are
then reviewed by the Evaluator. In the event the Sponsor is unable to obtain
current evaluations from Muller Data Corporation, it may make its own
evaluations or it may utilize the services of any other non-affiliated
evaluator or evaluators it deems appropriate.
Amendment and Termination. The Trust Agreements may be amended by the Trustee
and the Sponsor without the consent of any of the Unitholders: (1) to cure any
ambiguity or to correct or supplement any provision which may be defective or
inconsistent; (2) to change any provision thereof as may be required by the
Securities and Exchange Commission or any successor governmental agency; or (3)
to make such provisions as shall not adversely affect the interests of the
Unitholders. The Trust Agreements with respect to the Trusts 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, provided that no such
amendment or waiver will reduce the interest of any Unitholder thereof without
the consent of such Unitholder or reduce the percentage of Units required to
consent to any such amendment or waiver without the consent of all Unitholders
of such Trust. In no event shall any Trust Agreement be amended to increase the
number of Units of a Trust issuable thereunder or to permit, except in
accordance with the provisions of such Trust Agreement, the acquisition of any
Securities in addition to or in substitution for those initially deposited in a
Trust. The Trustee shall promptly notify Unitholders of the substance of any
such amendment.
The Trust Agreements provide that the Trusts shall terminate upon the maturity,
redemption or other disposition of the last of the Securities held in a Trust.
If the value of a Trust 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. A Trust 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, written notice
thereof will be sent by the Trustee to all Unitholders of such Trust. Within a
reasonable period after termination, the Trustee will sell any Securities
remaining in such Trust and, after paying all expenses and charges incurred by
the Trust, will distribute to Unitholders thereof (upon surrender for
cancellation of certificates for Units, if issued) their pro rata share of the
balances remaining in the Interest and Principal Accounts (and Capital Gains
Account, if applicable) of such Trust.
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 by the Trustee of any
Securities. In the event that the Sponsor shall fail to act, the Trustee may
GI-15
GENERAL INFORMATION
<PAGE>
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 Trusts a surveillance fee for services performed
for the Trusts 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. Such fee shall be based on the
total number of Units of the related Trust 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 Trusts. The
Sponsor and other Underwriters have borne all the expenses of creating and
establishing the Trusts 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 a Trust at any time during
the period. Funds that are available for future distributions, redemptions and
payment of expenses are held in accounts which are non-interest bearing to
Unitholders and are available for use by the Trustee pursuant to normal 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 Trusts.
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, 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 at any time during such monthly period.
The Trustee's and Evaluator's fees are deducted first from the Interest Account
of a Trust 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).
GI-16
GENERAL INFORMATION
<PAGE>
The following additional charges are or may be incurred by the Trusts: (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 bond counsel, if any; (c) various
governmental charges; (d) expenses and costs of any action taken by the Trustee
to protect a Trust or the rights and interests of the Unitholders; (e)
indemnification of the Trustee for any loss, liability or expense incurred by
it in the administration of a Trust not resulting from gross negligence, bad
faith or willful misconduct on its part; (f) indemnification of the Sponsor for
any loss, liability or expense incurred in acting in that capacity without
gross negligence, bad faith or willful misconduct; and (g) expenditures
incurred in contacting Unitholders upon termination of the Trusts. The fees and
expenses set forth herein are payable out of the appropriate Trust and, when
owing to the Trustee, are secured by a lien on such Trust. Fees or charges
relating to a Trust shall be allocated to each Trust in the same ratio as the
principal amount of such Trust bears to the total principal amount of all
Trusts. Fees or charges relating solely to a particular Trust shall be charged
only to such Trust.
Fees and expenses of the Trusts 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 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. Amounts so withdrawn shall be
credited to a separate account maintained for a Trust known as the Reserve
Account and shall not be considered a part of the Trust when determining the
value of the Units until such time as the Trustee shall return all or any part
of such amounts to the appropriate account.
THE SPONSOR
The Sponsor, Kemper Unit Investment Trusts, with an office at 77 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
authorities, then the Trustee may (a) appoint a successor sponsor at rates of
compensation deemed by the Trustee to be reasonable and not exceeding such
reasonable amounts as may be prescribed by the Securities and Exchange
Commission, or (b) terminate the Trust Agreements and liquidate the Trusts 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 Trusts. 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 Trusts. More comprehensive financial
information can be obtained upon request from the Sponsor.
GI-17
GENERAL INFORMATION
<PAGE>
LEGAL OPINIONS
The legality of the Units offered hereby and certain matters relating to
Federal tax law have been passed upon by Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603, as counsel for the Sponsor.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The statements of condition and the related 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.
GI-18
GENERAL INFORMATION
<PAGE>
<TABLE>
<CAPTION>
PAGE
CONTENTS ------
<S> <C>
SUMMARY.................................................................. 2
ESSENTIAL INFORMATION.................................................... 3
THE TRUST FUNDS.......................................................... 5
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS............................................................ 7
STATEMENTS OF CONDITION.................................................. 8
PUBLIC OFFERING OF UNITS................................................. 9
Public Offering Price................................................... 9
Accrued Interest........................................................ 11
Comparison of Public Offering Price and Redemption Price................ 11
Public Distribution of Units............................................ 12
Profits of Sponsor and Underwriters..................................... 14
THE GNMA PORTFOLIO SERIES................................................ GNMA-1
The Trust Portfolio..................................................... GNMA-1
Portfolios.............................................................. GNMA-2
Notes to Portfolios..................................................... GNMA-3
Risk Factors............................................................ GNMA-4
Federal Tax Status...................................................... GNMA-8
THE TAX-EXEMPT PORTFOLIOS................................................ TE-1
The Trust Portfolio..................................................... TE-1
Series Information...................................................... TE-1
Taxable Equivalent Estimated Current Return Tables...................... TE-2
Portfolios.............................................................. TE-4
Notes to Portfolios..................................................... TE-7
Municipal Bond Risk Factors............................................. TE-8
State Risk Factors and State Tax Status................................. TE-11
Insurance on the Bonds.................................................. TE-24
Federal Tax Status...................................................... TE-27
Underwriting............................................................ TE-32
Estimated Cash Flows to Unitholders..................................... TE-34
GENERAL INFORMATION...................................................... GI-1
Rating of Units......................................................... GI-1
Trust Information....................................................... GI-1
Retirement Plans........................................................ GI-4
Distribution Reinvestment............................................... GI-5
Interest, Estimated Long-Term Return and Estimated Current Return....... GI-6
Market For Units........................................................ GI-7
Redemption.............................................................. GI-7
Unitholders............................................................. GI-10
Investment Supervision.................................................. GI-13
Administration of the Trusts............................................ GI-14
Expenses of the Trusts.................................................. GI-16
The Sponsor............................................................. GI-17
Legal Opinions.......................................................... GI-18
Independent Certified Public Accountants................................ GI-18
</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
TRUSTS, THE TRUSTEE, OR THE SPONSOR. THE TRUSTS ARE REGISTERED AS UNIT
INVESTMENT TRUSTS UNDER THE INVESTMENT COMPANY ACT OF 1940. SUCH REGISTRATION
DOES NOT IMPLY THAT THE TRUSTS 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.
KEMPER
DEFINED
FUNDS.
GOVERNMENT AND
TAX-EXEMPT
PROSPECTUS
GNMA PORTFOLIO SERIES 4
GNMA PORTFOLIO SERIES 5
INSURED NATIONAL SERIES 15
INSURED CALIFORNIA SERIES 15
INSURED MICHIGAN SERIES 11
MARCH 22, 1995
KEMPER UNIT INVESTMENT TRUSTS.
<PAGE>
This Registration Statement on Form S-6 comprises the following papers and
documents.
<TABLE>
<C> <S>
The facing sheet of Form S-6.
The cross-reference sheet.
The prospectus.
The signatures.
The following exhibits.
1.1(a). Form of Trust Indenture and Agreement for the GNMA Portfolios.
1.1(b). Form of Trust Indenture and Agreement for the Insured National
Trust.
1.1(c). Form of Trust Indenture and Agreement for the Insured State Trusts.
1.1.1(a). Standard Terms and Conditions of Trust for the GNMA Portfolios.
Reference is made to Exhibit 1.1.1 to the Registration Statement on
Form S-6 with respect to Kemper Government Securities Trust
(Registration No. 33-26754) as filed on February 14, 1989.
1.1.1(b). Standard Terms and Conditions of Trust for the Insured National
Trust. Reference is made to Exhibit 1.1.1 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.
1.1.1(c). Standard Terms and Conditions of Trust for the Insured State Trusts.
Reference is made to Exhibit 1.1.1 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 Exhibits
1.1.1(a), 1.1.1(b) and 1.1.1(c)).
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" for each Trust and "Legal
Opinions" in the Prospectus and opinion of counsel as to the Federal
income tax status of the securities being registered and certain
Missouri tax matters.
3.2. Opinion and consent of special counsel to Insured California Series
15 for California tax matters.
3.3. Opinion and consent of special counsel to Insured Michigan Series 11
for Michigan tax matters.
4.1. Consent of Moody's Investors Service.
4.2. Consent of Muller Data Corporation.
4.3. Consent of Grant Thornton LLP.
Ex-27. Financial Data Schedules.
</TABLE>
S-1
<PAGE>
SIGNATURES
THE REGISTRANT, KEMPER DEFINED FUNDS SERIES 31 HEREBY IDENTIFIES SERIES A-62
AND MULTI-STATE SERIES 19 OF THE KEMPER TAX-EXEMPT INSURED INCOME TRUST,
KEMPER DEFINED FUNDS INSURED NATIONAL SERIES 1 AND KEMPER GOVERNMENT
SECURITIES TRUST, SERIES 39 (GNMA PORTFOLIO), SERIES 40 (GNMA PORTFOLIO) AND
SERIES 41 (U.S. TREASURY PORTFOLIO) FOR PURPOSES OF THE REPRESENTATIONS
REQUIRED BY RULE 487 AND REPRESENTS THE FOLLOWING:
(1) THAT THE PORTFOLIO SECURITIES DEPOSITED IN THE SERIES AS TO THE
SECURITIES OF WHICH THIS REGISTRATION STATEMENT IS BEING FILED DO NOT
DIFFER MATERIALLY IN TYPE OR QUALITY FROM THOSE DEPOSITED IN SUCH PREVIOUS
SERIES;
(2) THAT, EXCEPT TO THE EXTENT NECESSARY TO IDENTIFY THE SPECIFIC
PORTFOLIO SECURITIES DEPOSITED IN, AND TO PROVIDE ESSENTIAL FINANCIAL
INFORMATION FOR, THE SERIES WITH RESPECT TO THE SECURITIES OF WHICH THIS
REGISTRATION STATEMENT IS BEING FILED, THIS REGISTRATION STATEMENT DOES NOT
CONTAIN DISCLOSURES THAT DIFFER IN ANY MATERIAL RESPECT FROM THOSE
CONTAINED IN THE REGISTRATION STATEMENTS FOR SUCH PREVIOUS SERIES AS TO
WHICH THE EFFECTIVE DATE WAS DETERMINED BY THE COMMISSION OR THE STAFF; AND
(3) THAT IT HAS COMPLIED WITH RULE 460 UNDER THE SECURITIES ACT OF 1933.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
KEMPER DEFINED FUNDS SERIES 31 HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, AND STATE OF ILLINOIS, ON
THE 22ND DAY OF MARCH, 1995.
KEMPER DEFINED FUNDS SERIES 31
Registrant
By: KEMPER UNIT INVESTMENT TRUSTS
(a service of Kemper Securities,
Inc.)
Depositor
/s/ Michael J. Thoms
By: _________________________________
Michael J. Thoms
S-2
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON MARCH 22, 1995 BY THE
FOLLOWING PERSONS, WHO CONSTITUTE A MAJORITY OF THE BOARD OF DIRECTORS OF
KEMPER SECURITIES, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
James R. Boris
- -------------------------------------------
James R. Boris Chairman and Chief Executive Officer
Stephen G. McConahey
- -------------------------------------------
Stephen G. McConahey President and Chief Operating Officer
Frank V. Geremia
- -------------------------------------------
Frank V. Geremia Senior Executive Vice President
David M. Greene
- -------------------------------------------
David M. Greene Senior Executive Vice President
Arthur J. McGivern
- -------------------------------------------
Arthur J. McGivern Senior Executive Vice President and General
Counsel
Ramon Pecuch
- -------------------------------------------
Ramon Pecuch Senior Executive Vice President and
Director
Thomas R. Reedy
- -------------------------------------------
Thomas R. Reedy Senior Executive Vice President and
Director
Janet L. Reali
- -------------------------------------------
Janet L. Reali Executive Vice President, Corporate Counsel
and Secretary
Daniel D. Williams
- -------------------------------------------
Daniel D. Williams Executive Vice President and Treasurer
David B. Mathis
- -------------------------------------------
David B. Mathis Director
Stephen B. Timbers
- -------------------------------------------
Stephen B. Timbers Director
Donald F. Eller
- -------------------------------------------
Donald F. Eller Director
</TABLE>
/s/ Michael J. Thoms
_____________________________________
Michael J. Thoms
MICHAEL J. THOMS SIGNS THIS DOCUMENT PURSUANT TO A POWER OF ATTORNEY FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION WITH AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT ON FORM S-6 FOR KEMPER DEFINED FUNDS SERIES 28
(REGISTRATION NO. 33-56779).
S-3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
Amendment Number 1 to Form S-6 and is qualified in its entirety by reference to
such Amendment Number 1 to Form S-6.
</LEGEND>
<SERIES>
<NAME> GNMA PORTFOLIO
<NUMBER> 4
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAR-22-1995
<PERIOD-END> MAR-22-1995
<INVESTMENTS-AT-COST> 483,008
<INVESTMENTS-AT-VALUE> 483,008
<RECEIVABLES> 2,625
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 485,633
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,625
<TOTAL-LIABILITIES> 2,625
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 483,008
<SHARES-COMMON-STOCK> 50,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 483,008
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
Amendment Number 1 to Form S-6 and is qualified in its entirety by reference to
such Amendment Number 1 to Form S-6.
</LEGEND>
<SERIES>
<NAME> GNMA PORTFOLIO
<NUMBER> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAR-22-1995
<PERIOD-END> MAR-22-1995
<INVESTMENTS-AT-COST> 479,454
<INVESTMENTS-AT-VALUE> 479,454
<RECEIVABLES> 2,820
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 482,274
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,820
<TOTAL-LIABILITIES> 2,820
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 479,454
<SHARES-COMMON-STOCK> 50,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 479,454
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
Amendment Number 1 to Form S-6 and is qualified in its entirety by reference to
such Amendment Number 1 to Form S-6.
</LEGEND>
<SERIES>
<NAME> INSURED NATIONAL 15
<NUMBER> 0
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAR-22-1995
<PERIOD-END> MAR-22-1995
<INVESTMENTS-AT-COST> 5,924,928
<INVESTMENTS-AT-VALUE> 5,924,928
<RECEIVABLES> 49,960
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,974,888
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49,960
<TOTAL-LIABILITIES> 49,960
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,924,928
<SHARES-COMMON-STOCK> 600,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,924,928
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
Amendment Number 1 to Form S-6 and is qualified in its entirety by reference to
such Amendment Number 1 to Form S-6.
</LEGEND>
<SERIES>
<NAME> INSURED CALIFORNIA
<NUMBER> 15
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAR-22-1995
<PERIOD-END> MAR-22-1995
<INVESTMENTS-AT-COST> 2,965,308
<INVESTMENTS-AT-VALUE> 2,965,308
<RECEIVABLES> 41,977
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,007,285
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41,977
<TOTAL-LIABILITIES> 41,977
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,965,308
<SHARES-COMMON-STOCK> 300,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,965,308
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
Amendment Number 1 to Form S-6 and is qualified in its entirety by reference to
such Amendment Number 1 to Form S-6.
</LEGEND>
<SERIES>
<NAME> INSURED MICHIGAN
<NUMBER> 11
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAR-22-1995
<PERIOD-END> MAR-22-1995
<INVESTMENTS-AT-COST> 3,070,542
<INVESTMENTS-AT-VALUE> 3,070,542
<RECEIVABLES> 52,890
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,123,432
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52,890
<TOTAL-LIABILITIES> 52,890
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,070,542
<SHARES-COMMON-STOCK> 322,500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,070,542
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 1.1(A)
TRUST AGREEMENT
KEMPER DEFINED FUNDS SERIES 31
GNMA Portfolio, Series 4 and
GNMA Portfolio, Series 5
This Trust Agreement dated as of March 22, 1995 between Kemper Unit
Investment Trusts, a service of Kemper Securities, Inc., as Depositor, and
Investors Fiduciary Trust Company, as Trustee, sets forth certain provisions in
full and incorporates other provisions by reference to the document entitled
"Kemper Government Securities Trust, GNMA Portfolio, Series 30 (Foreign
Investors Trust) and Subsequent Series of Foreign Investors Trust, Standard
Terms and Conditions of Trust, Effective February 14, 1989" (herein called the
"Standard Terms and Conditions of Trust"), and such provisions as are set forth
in full and such provisions as are incorporated by reference constitute a single
instrument.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the Depositor and the Trustee agree as follows:
Part I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the provisions of Part II hereof, all the provisions contained in
the Standard Terms and Conditions of Trust are herein incorporated by reference
in their entirety and shall be deemed to be a part of this instrument as fully
and to the same extent as though said provisions had been set forth in full in
this instrument.
Part II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed to:
A. The Securities deposited in the Trusts pursuant to Section 2.01 of
this Trust Agreement are set forth in the Schedule hereto.
B. The aggregate number of Units outstanding for GNMA Portfolio, Series 4
and GNMA Portfolio, Series 5 on the date of this Trust Agreement is that
number of Units set forth for each Trust under "Essential Information" in the
final Prospectus of the Trusts (the "Prospectus") contained in Amendment No.
1 to the Registration Statement (Registration No. 33-57781) as filed with the
Securities and Exchange Commission on March 22, 1995. The initial
<PAGE>
-2-
fractional undivided interest in and ownership of the Trusts represented by
each Unit thereof shall be that fraction set forth under "Essential
Information" in the Prospectus. Documents representing this number of Units
for each Trust are being delivered by the Trustee to the Depositor pursuant
to Section 2.03 of this Trust Agreement.
C. The Percentage Ratio required to be set forth by Section 1.02 of this
Trust Agreement is as follows:
GNMA Portfolio, Series 4 - 75% of the aggregate principal
amount of the Trust is comprised of 6.50% coupon Ginnie Maes
maturing within a range of 2009 through 2010, 25% of the
aggregate principal amount of the Trust is comprised of 7.50%
coupon Ginnie Maes maturing within a range of 2009 through 2010.
GNMA Portfolio, Series 5 - 75% of the aggregate principal
amount of the Trust is comprised of 7.00% coupon Ginnie Maes
maturing within a range of 2023 through 2025 and 25% of the
aggregate principal amount of the Trust is comprised of 8.00%
coupon Ginnie Maes maturing within a range of 2022 through 2024.
D. Distribution Dates for each GNMA Portfolio Series shall be the 15th
day of each month for each Unitholder of Record on the lst day of the month,
commencing with that date set forth under "Essential Information" in the
Prospectus.
E. Record Dates for each GNMA Portfolio Series shall be the lst day of
each month in each year, commencing with that date set forth under
"Essential Information" in the Prospectus.
F. The Discretionary Liquidation Amount for the Trust shall be forty per
centum (40%) of the face value of the Securities deposited in the Trust
pursuant to Section 2.01 of this Trust Agreement.
-2-
<PAGE>
-3-
G. The Mandatory Termination Date for the Trust shall be the "Mandatory
Termination Date" set forth under "Essential Information" in the
Prospectus.
H. The Evaluator's compensation as referred to in Section 4.03 of this
Trust Agreement shall be an annual fee of $0.175 per $1,000 principal
amount of Securities in the Trust, payable monthly.
I. The Trustee's Compensation Rate pursuant to Section 6.04 of this Trust
Agreement shall be an annual fee computed as $1.275 per $1,000 Units payable
monthly (including $0.875 of Trustees annual fee per $1000 principal amount
of underlying Securities); however, in no event shall the Trustee receive
compensation in any one year from the Trust of less than $2,000 for such
annual compensation.
J. The Initial Date of Deposit for the Trust is March 22, 1995.
K. The minimum principal amount of any Securities to be sold by the
Trustee pursuant to Section 5.02(d) of this Trust Agreement for the
redemption of Units shall be $25,000.
L. The Depositor's surveillance fee referred to in Section 3.16 of this
Trust Agreement shall be an annual fee of $0.25 per $1,000 principal amount
of Securities for each Trust.
M. The second sentence of Section 6.06(a) is hereby eliminated and the
last sentence of such Section shall be restated as follows:
The Depositor may at any time remove the Trustee, with or without
cause, and appoint a successor Trustee by written instrument or
instruments delivered to the Trustee so removed and the successor
Trustee, provided that a notice of such removal and appointment of a
successor Trustee shall be mailed by the successor Trustee promptly
after acceptance of such appointment to each Unitholder then of
record.
Part III
The Trustee will be required to advance out of its own funds and pay
to the Sponsor a sum equal to the accrued interest, if any, on each Security to
the First Settlement Date. The Trustee will be reimbursed for such advancements
out of the Trust, pursuant to Section 3.02 of this Trust Agreement, from the
income received on such Securities.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed.
KEMPER UNIT INVESTMENT TRUSTS,A service of
Kemper Securities, Inc.
Depositor
By Robert K. Burke
-----------------------------------
Senior Vice President
INVESTORS FIDUCIARY TRUST COMPANY
Trustee
By Ron Puett
----------------------------
Operations Officer
<PAGE>
SCHEDULE TO TRUST AGREEMENT
SECURITIES INITIALLY DEPOSITED
KEMPER DEFINED FUNDS SERIES 31
GNMA PORTFOLIO, SERIES 4 AND
GNMA PORTFOLIO, SERIES 5
(Note: Incorporated herein and made a part hereof for the Fund is the
"Portfolio" for each Trust as set forth in the Prospectus.)
<PAGE>
Exhibit 1.1(B)
KEMPER DEFINED FUNDS SERIES 31
(Insured National Series)
TRUST AGREEMENT
This Trust Agreement dated as of March 22, 1995 between Kemper Unit
Investment Trusts, a service of Kemper Securities, Inc., as Depositor, and
Investors Fiduciary Trust Company, as Trustee, sets forth certain provisions in
full and incorporates other provisions by reference to the document entitled
"Kemper Defined Funds Series 13 and Subsequent Series, Standard Terms and
Conditions of Trust, Effective February 17, 1994" (herein called the "Standard
Terms and Conditions of Trust"), and such provisions as are set forth in full
and such provisions as are incorporated by reference constitute a single
instrument.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the Depositor and the Trustee agree as follows:
Part I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the provisions of Part II hereof, all the provisions
contained in the Standard Terms and Conditions of Trust are herein incorporated
by reference in their entirety and shall be deemed to be a part of this
instrument as fully and to the same extent as though said provisions had been
set forth in this instrument.
Part II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed to:
(a) The interest-bearing tax-exempt obligations listed in the
Schedules hereto have been deposited in trust under this Trust Agreement
as indicated in the Trust named on the attached Schedules.
(b) For the purposes of the definition of the terms "Depositor" and
"Evaluator" in Article I, it is hereby specified that such term shall mean
Kemper Unit Investment Trusts, a service of Kemper Securities, Inc. or its
successors or any successor Depositor appointed.
(c) For the purposes of the definition of the term "Unit" in
Article I, it is hereby specified that the fractional undivided interest in
and ownership of the Trust is the amount set forth in the section captioned
"Essential Information" in
<PAGE>
the final Prospectus of the Trust (the "Prospectus") contained in Amendment
No. 1 to the Trust's Registration Statement (Registration No. 33-57781) as
filed with the Securities and Exchange Commission on March 22, 1995.
(d) For purposes of the definition of the term "Fund" in Article
I, it is hereby specified that such term shall mean the term "Trust" as
defined on page 5 of the Prospectus.
(e) For purposes of the definition of the term "Trust Fund" in
Article I, it is hereby specified that such term shall include the
definition of the term "Trust Fund" as set forth on page 5 of the
Prospectus and specifically shall include Insured National Series 15.
(f) The term "Record Date" shall mean the "Record Dates" set
forth under "Unitholders - Distributions to Unitholders" of the Prospectus.
(g) The terms "Interest Distribution Date" and "Principal
Distribution Date" shall mean the "Interest Distribution Dates" and
"Principal Distribution Dates" set forth under "Unitholders - Distributions
to Unitholders" in the Prospectus.
(h) The number of Units of the Trust referred to in Section 2.01
is as set forth in the section captioned "Essential Information" in the
Prospectus.
(i) As contemplated by Section 3.04, an initial distribution for
the Trust will be made on the Distribution Date and in the amount set forth
in the section captioned "Unitholders - Distributions to Unitholders" in
the Prospectus to all holders of record on the Record Date set forth
thereunder. Thereafter, the amounts distributed shall be calculated in the
manner set forth in Section 3.04.
(j) For the purposes of Section 4.03, the Evaluator shall
receive for evaluation of the Bonds in the Trust a fee, payable monthly,
calculated on the basis of an annual rate of $.30 per $1,000 principal
amount of Bonds, based upon the largest aggregate principal amount of Bonds
in the Trust at any time during such monthly period.
(k) For the purposes of Section 3.13, the Depositor shall
receive for portfolio surveillance services a fee calculated on the basis
of an annual rate of $.20 per $1,000 principal amount of Bonds, based upon
the largest aggregate principal amount of Bonds in the Trust at any time
during such monthly period.
(l) For the purposes of Section 8.01(g), the liquidation amount
is hereby specified as the amount set forth under "Essential Information -
Minimum
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<PAGE>
Value of Trust under which Trust Agreement may be Terminated" in the
Prospectus.
(m) For the purposes of Section 8.05, with the exception of the
first year, the compensation for the Trustee is hereby specified as the
amount set forth under "Essential Information". During the first year, the
Trustee has agreed to lower its fee and to the extent necessary assume and
pay out of its own funds expenses of the Trust by the amount set forth
under "Essential Information" in the Prospectus.
(n) Any monies held to purchase "when-issued" bonds will be held
in non-interest bearing accounts.
(o) The term "First Settlement Date" shall mean the "First
Settlement Date" set forth under the section captioned "Essential
Information" in the Prospectus.
(p) The fourth sentence of Section 8.06(a) is hereby eliminated
and the last sentence of such Section shall be restated as follows:
The Depositor may at any time remove the Trustee, with or
without cause, and appoint a successor Trustee by written instrument
or instruments delivered to the Trustee so removed and the successor
Trustee, provided that a notice of such removal and appointment of a
successor Trustee shall be mailed by the successor Trustee promptly
after acceptance of such appointment to each Unitholder then of
record.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed.
KEMPER UNIT INVESTMENT TRUSTS
a service of Kemper Securities, Inc.
Depositor
By Robert K. Burke
---------------------------------------
Senior Vice President
INVESTORS FIDUCIARY TRUST COMPANY
By Ron Puett
---------------------------------------
Operations Officer
<PAGE>
SCHEDULE A
Bonds Initially Deposited
Kemper Defined Funds Series 31
(Insured National Series)
(Note: Incorporated herein and made a part hereof is the "Portfolio" as
set forth in the Prospectus.)
<PAGE>
SCHEDULE A
Bonds Initially Deposited
Kemper Defined Funds Series 31
(Insured State Series)
(Note: Incorporated herein and made a part hereof is the "Portfolio" as set
forth in the Prospectus.)
<PAGE>
Exhibit 3.1
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
March 22, 1995
Kemper Unit Investment Trusts
77 West Wacker Drive
Chicago, Illinois 60601
Re: Kemper Defined Funds Series 31
------------------------------
Gentlemen:
We have served as counsel for Kemper Unit Investment Trusts, as Sponsor
and Depositor of Kemper Defined Funds Series 31 (the "Fund"), in connection with
the preparation, execution and delivery of Trust Agreements dated the date of
this opinion between Kemper Unit Investment Trusts, as Depositor, and Investors
Fiduciary Trust Company, as Trustee, pursuant to which the Depositor has
delivered to and deposited the Bonds listed in the Schedules to each Trust
Agreement with the Trustee and pursuant to which the Trustee has issued to or on
the order of the Depositor a certificate or certificates representing all the
Units of fractional undivided interest in, and ownership of, the Fund, created
under said Trust Agreements.
In connection therewith we have examined such pertinent records and
documents and matters of law as we have deemed necessary in order to enable us
to express the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Trust Agreements and the execution
and issuance of certificates evidencing the Units of the Fund have been
duly authorized; and
2. The certificates evidencing the Units of the Fund, when duly executed
and delivered by the Depositor and the Trustee in accordance with the
aforementioned Trust Agreements, will constitute valid and binding
obligations of the Fund and the Depositor in accordance with the terms
thereof.
<PAGE>
-2-
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 33-57781) relating to the Units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
<PAGE>
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
March 22, 1995
Kemper Unit Investment Trusts
77 West Wacker Drive
Chicago, Illinois 60601
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Re: Kemper Defined Funds Series 31
(Insured National Series 15, Insured California Series 15
and Insured Michigan Series 11)
Gentlemen:
We have acted as counsel for Kemper Unit Investment Trusts, Depositor of
Kemper Defined Funds Series 31 (Insured National Series 15, Insured California
Series 15 and Insured Michigan Series 11) (the "Fund"), in connection with the
issuance of Units of fractional undivided interest in the several Trusts of said
Fund under Trust Agreements dated March 22, 1995 (the "Indenture") between
Kemper Unit Investment Trusts, as Depositor and Evaluator and Investors
Fiduciary Trust Company, as Trustee.
In this connection, we have examined the Registration Statement, the form of
Prospectus proposed to be filed with the Securities and Exchange Commission, the
Indenture and such other instruments and documents as we have deemed pertinent.
Based upon the foregoing and upon an investigation of such matters of law as
we consider to be applicable, we are of the opinion that, under existing Federal
income tax law:
(i) Each Trust is not an association taxable as a corporation but will
be governed by the provisions of subchapter J (relating to trusts) of
chapter 1, Internal Revenue Code of 1986 (the "Code").
(ii) Each Unitholder will be considered as owning a pro rata share of
each asset of the respective Trust in the proportion that the number of
Units of such Trust held by him bears to the total number of Units
outstanding of such
<PAGE>
-2-
Trust. Under subpart E, subchapter J of chapter 1 of the Code, income of each
Trust will be treated as income of each Unitholder of the respective Trust in
the proportion described, and an item of Trust income will have the same
character in the hands of a Unitholder as it would have in the hands of the
Trustee. Accordingly, to the extent that the income of a Trust consists of
interest excludable from gross income under Section 103 of the Code, such
income will be excludable from Federal gross income of the Unitholders,
except in the case of a Unitholder who is a substantial user (or a person
related to such user) of a facility financed through issuance of any
industrial development bonds or certain private activity bonds held by the
respective Trust. In the case of such Unitholder (and no other) interest
received with respect to his Units attributable to such industrial
development bonds or such private activity bonds is includable in his gross
income. In the case of certain corporations, interest on the Bonds is
included in computing the alternative minimum tax pursuant to Section 56(c)
of the Code, the environmental tax (the "Superfund Tax") imposed by Section
59A of the Code, and the branch profits tax imposed by Section 884 of the
Code with respect to U.S. branches of foreign corporations.
(iii) Gain or loss will be recognized to a Unitholder upon redemption or
sale of his Units. Such gain or loss is measured by comparing the proceeds of
such redemption or sale with the adjusted basis of the Units represented by
his Certificate. Before adjustment, such basis would normally be cost if the
Unitholder had acquired his Units by purchase, plus his aliquot share of
advances by the Trustee to the Trust to pay interest on Bonds delivered after
the Unitholder's settlement date to the extent that such interest accrued on
the Bonds during the period from the Unitholder's settlement date to the date
such Bonds are delivered to the respective Trust, but only to the extent that
such advances are to be repaid to the Trustee out of interest received by
such Trust with respect to such Bonds. In addition, such basis will be
increased by the Unitholder's aliquot share of the accrued original issue
discount with respect to each Bond held by the Fund with respect to which
there was an original issue discount at the time the Bond was issued and
reduced by the annual amortization of bond premium, if any, on Bonds held by
the Trust.
(iv) If the Trustee disposes of a Trust asset (whether by sale, payment
on maturity, redemption or otherwise) gain or loss is recognized to the
Unitholder and the amount thereof is measured by comparing the Unitholder's
aliquot share of the total proceeds from the transaction with his basis for
his fractional interest in the asset disposed of. Such basis is ascertained
by apportioning the tax basis for his Units among each of the Trust assets
(as of the date on which his Units were acquired) ratably according to their
values as of the valuation date nearest the date on which he purchased such
Units. A Unitholder's basis in
-2-
<PAGE>
-3-
his Units and of his fractional interest in each Trust asset must be reduced
by the amount of his aliquot share of interest received by the Trust, if any,
on Bonds delivered after the Unitholder's settlement date to the extent that
such interest accrued on the Bonds during the period from the Unitholder's
settlement date to the date such Bonds are delivered to the Trust; must be
reduced by the annual amortization of bond premium, if any, on Bonds held by
each Trust and must be increased by the Unitholder's share of the accrued
original issue discount with respect to each Bond which, at the time the Bond
was issued, had original issue discount.
(v) In the case of any Bond held by a Trust where the "stated redemption
price at maturity" exceeds the "issue price", such excess shall be original
issue discount. With respect to each Unitholder, upon the purchase of his
Units subsequent to the original issuance of Bonds held by a Trust, Section
1272(a)(7) of the Code provides for a reduction in the accrued "daily
portion" of such original issue discount upon the purchase of a Bond
subsequent to the Bond's original issue, under certain circumstances. In the
case of any Bond held by a Trust the interest on which is excludable from
gross income under Section 103 of the Code, any original issue discount which
accrues with respect thereto will be treated as interest which is excludable
from gross income under Section 103 of the Code.
(vi) Certain bonds in the portfolios of certain of the Trusts have been
insured by the issuers thereof against default in the prompt payment of
principal and interest (the "Insured Bonds"). Insurance has been obtained for
such bonds, or, in the case of a commitment, the bonds will be ultimately
insured under the terms of such an insurance policy, which are designated as
issuer insured bonds on the portfolio pages of the respective Trusts in the
prospectus for the Fund, by the issuer of such bonds. Insurance obtained by
the issuer is effective so long as such bonds remain outstanding. For each of
these bonds, we have been advised that the aggregate principal amount of such
bonds listed on the portfolio page for the respective Trust was acquired by
the applicable Trust and is part of the series of such bonds listed on the
portfolio page for the respective Trust in the aggregate principal amount
listed on the portfolio page for the respective Trust. Based upon the
assumption that the Bonds acquired by the applicable Trust are part of the
series covered by an insurance policy or, in the case of a commitment, will
be ultimately insured under the terms of such an insurance policy, it is our
opinion that any amounts received by the applicable Trust representing
maturing interest on such bonds will be excludable from federal gross income
if, and to the same extent as, such interest would have been so excludable if
paid in normal course by the Issuer provided that, at the time such policies
are purchased, the amounts paid for such policies are reasonable,
-3-
<PAGE>
-4-
customary and consistent with the reasonable expectation that the issuer of
the bonds, rather than the insurer, will pay debt service on the bonds.
Paragraph (ii) of this opinion is accordingly applicable to such payment
representing maturing interest.
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 Bond, depending on the date the Bond was issued.
In addition, special rules apply if the purchase price of a 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") to
prior owners. The application of these rules will also vary depending on the
value of the Bond on the date a Unitholder acquires his Units, and the price the
Unitholder pays for his Units.
Because the Trusts do not include any "private activity bonds" within the
meaning of Section 141 of the Code issued on or after August 8, 1986, none of
the Trust Fund's interest income shall be treated as an item of tax preference
when computing the alternative minimum tax. In the case of corporations, for
taxable years beginning after December 31, 1986, the alternative minimum tax and
the Superfund Tax depend upon the corporation's alternative minimum taxable
income ("AMTI") which is the corporation's taxable income with certain
adjustments.
Pursuant to Section 56(c) of the Code, one of the adjustment items used in
computing AMTI and the Superfund Tax of a corporation (other than an S
Corporation, Regulated Investment Company, Real Estate Investment Trust or
REMIC) for taxable years beginning after 1989, is an amount equal to 75% of the
excess of such corporation's "adjusted current earnings" over an amount equal to
its AMTI (before such adjustment item and the alternative tax net operating loss
deduction). "Adjusted current earnings" includes all tax-exempt interest,
including interest on all Bonds in each Trust, and tax-exempt original issue
discount.
Effective for tax returns filed after December 31, 1987, all taxpayers are
required to disclose to the Internal Revenue Service the amount of tax-exempt
interest earned during the year.
Section 265 of the Code provides for a reduction in each taxable year of
100 percent of the otherwise deductible interest on indebtedness incurred or
continued by financial institutions, to which either Section 585 or Section 593
of the Code applies, to purchase or carry obligations acquired after August 7,
1986, the interest on which is exempt from Federal income taxes for such taxable
year. Under rules prescribed by Section 265, the amount of interest otherwise
deductible by such financial institutions in any taxable year
-4-
<PAGE>
-5-
which is deemed to be attributable to tax-exempt obligations acquired after
August 7, 1986, will be the amount that bears the same ratio to the interest
deduction otherwise allowable (determined without regard to Section 265) to the
taxpayer for the taxable year as the taxpayer's average adjusted basis (within
the meaning of Section 1016) of tax-exempt obligations acquired after August 7,
1986, bears to such average adjusted basis for all assets of the taxpayer,
unless such financial institution can otherwise establish, under regulations to
be prescribed by the Secretary of the Treasury, the amount of interest on
indebtedness incurred or continued to purchase or carry such obligations.
We also call attention to the fact that, under Section 265 of the Code,
interest on indebtedness incurred or continued to purchase or carry Units by
taxpayers other than certain financial institutions, as referred to above, is
not deductible for Federal income tax purposes. Under rules used by the
Internal Revenue Service for determining when borrowed funds are considered used
for the purpose of purchasing or carrying particular assets, the purchase of
Units may be considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of Units. However,
these rules generally do not apply to interest paid on indebtedness incurred for
expenditures of a personal nature such as a mortgage incurred to purchase or
improve a personal residence.
"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 pays
for 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 holds a Bond would be recognized as ordinary income by
the Unitholders when principal payments are received on the Bonds, 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.
We have also examined the laws of the State of Missouri to determine their
applicability to the Fund. It is our opinion that under Missouri law, as
presently enacted and construed:
(i) Each Trust is not an association taxable as a corporation for
Missouri income tax purposes.
-5-
<PAGE>
-6-
(ii) The Unitholders of each Trust will be treated as the owners of a pro
rata portion of each Trust and the income of each Trust will therefore be
treated as income of the Unitholders under Missouri law.
(iii) Each Trust will not be subject to the Kansas City, Missouri
Earnings and Profits Tax and each Unitholder's share of income of each
Trust will not generally be subject to the Kansas City, Missouri Earnings
and Profits Tax or the City of St. Louis Earnings Tax (except in the case
of certain Unitholders, including corporations, otherwise subject to the
St. Louis City Earnings Tax).
The scope of this opinion is expressly limited to the matters set forth
herein, and, except as expressly set forth above, we express no opinion with
respect to any other taxes, including state or local taxes or collateral tax
consequences with respect to the purchase, ownership and disposition of Units.
Very truly yours,
CHAPMAN AND CUTLER
-6-
<PAGE>
EXHIBIT 3.2
ORRICK, HERRINGTON & SUTCLIFFE
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, California 94111
March 22, 1995
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Re: Kemper Defined Funds Series 31
Insured California Series 15
Dear Sirs:
We have acted as special California counsel for Kemper Unit Investment
Trust, a Service of Kemper Securities, Inc., as Depositor of Kemper Defined
Funds Series 31--Insured California Series 15 (the "Fund"), in connection with
the issuance under the Trust Indenture and Agreement dated March 22, 1995,
between Kemper Unit Investment Trust, a Service of Kemper Securities, Inc., as
Depositor, and Investors Fiduciary Trust Company, as Trustee, of 300,000 Units
of fractional undivided interest in the Fund (the "Units") in exchange for
certain bonds, as well as "regular-way" and "when-issued" contracts for the
purchase of bonds (such bonds and contracts are hereinafter referred to
collectively as the "Securities").
In connection therewith, we have examined such corporate records,
certificates and other documents and such questions of law as we have deemed
necessary or appropriate for the purpose of this opinion, and, on the basis of
such examination, and upon existing provisions of the Revenue and Taxation Code
of the State of California, we are of the opinion that:
1. The Fund is not an association taxable as a corporation and the
income of the Fund will be treated as the income of the certificateholders
under the income tax laws of California.
2. Amounts treated as interest on the underlying securities which
are exempt from tax under California personal income tax and property tax
laws when received by the Fund will, under such laws, retain their status
as tax-exempt interest when distributed to certificateholders. However,
interest on the underlying securities attributed to a certificateholder
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.
<PAGE>
Investors Fiduciary Trust Company
March 22, 1995
Page 2
3. Under California income tax law, each certificateholder in the
Fund will have a taxable event when the Fund disposes of a security
(whether by sale, exchange, redemption, or payment at maturity) or when the
certificateholder redeems or sells Units. Because of the requirement that
tax cost basis be reduced to reflect amortization of bond premium, under
some circumstances a certificateholder may realize taxable gain when Units
are sold or redeemed for an amount equal to, or less than, their original
cost. The total tax cost of each Unit to a certificateholder is allocated
among each of the bond issues held in the Fund (in accordance with the
proportion of the Fund 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. Certificateholders' bases in
their Units, and the bases for their fractional interest in each Fund
asset, may have to be adjusted for their pro rata share of accrued interest
received, if any, on securities delivered after the certificateholders'
respective settlement dates.
4. Under the California personal property tax laws, bonds (including
the Securities) or any interest therein is exempt from such tax.
5. Any proceeds paid under the insurance policy, if any, issued to
the Trustee of the Fund with respect to the Securities which represent
maturing interest on defaulted obligations held by the Trustee will be
exempt from California personal income tax if, and to the same extent as,
such interest would have been so exempt if paid by the issuer of the
defaulted obligations.
6. Under Section 17280(b)(2) of the California Revenue and Taxation
Code, interest on indebtedness incurred or continued to purchase or carry
Units of the Fund is not deductible for the purposes of the California
personal income tax. While there presently is no California authority
interpreting this provision, Section 17280(b)(2) directs the California
Franchise Tax Board to prescribe regulations determining the proper
allocation and apportionment of interest costs for this purpose. The
Franchise Tax Board has not yet proposed or prescribed such regulations.
In interpreting the generally similar Federal provision, the Internal
Revenue Service has taken the position that such indebtedness need not be
directly traceable to the purchase or carrying of Units (although the
Service has not contended that a deduction for interest on indebtedness
incurred to purchase or improve a personal residence or to purchase goods
or services for personal consumption will be disallowed). In the absence
of conflicting regulations or other California authority, the California
Franchise Tax Board generally has interpreted California statutory tax
provisions in accord with Internal Revenue Service interpretations of
similar Federal provisions.
Opinions relating to the validity of securities and the exemption of
interest thereon from State of California income tax are rendered by bond
counsel to the issuing authority at the time securities are issued and we have
relied solely upon such opinions, or as to
<PAGE>
Investors Fiduciary Trust Company
March 22, 1995
Page 3
securities not yet delivered, forms of such opinions contained in official
statements relating to such securities. Except in certain instances in which we
acted as bond counsel to issuers of securities, and as such made a review of
proceedings relating to the issuance of certain securities at the time of their
issuance, we have not made any review of proceedings relating to the issuance of
securities or the bases of bond counsels' opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (SEC No. 33-57781) relating to the Units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Very truly yours,
Orrick, Herrington & Sutcliffe
<PAGE>
Exhibit 3.3
Miller, Canfield, Paddock and Stone, P.L.C.
1400 North Woodward Avenue
Bloomfield Hills, Michigan 48303-2014
March 22, 1995
Kemper Unit Investment Trusts, a service
of Kemper Securities Group, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Re: Kemper Defined Funds State File 31
Insured Michigan Series 11
Gentlemen:
We have acted as special Michigan counsel to you as Depositor and
Trustee of Kemper Defined Funds State File 31 -- Insured Michigan Series 11 (the
"Insured Michigan Trust") referred to above (the "Fund"). You have asked that
we, acting in such capacity, render an opinion to you with respect to certain
matters relating to the issuance of the units of fractional undivided interest
in the Fund (the "Units") pursuant to a Registration Statement on Form S-6 filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Registration Statement").
You have requested our opinion as to the applicability to the Insured
Michigan Trust (the "Michigan Trust") and the holders of Units (the
"Unitholders") , each of which Units represents the ownership of a specified
fractional undivided interest in the assets of the Michigan Trust, of the
Michigan Income Tax Act (M.C.L.A. (S)(S)206.1 et seq.; M.S.A. (S)(S)7.557(101)
et seq.) (the "Michigan Income Tax"), the City Income Tax Act (M.C.L.A.
(S)(S)141.501 et seq.; M.S.A. (S)(S)5.3194(1) et seq.), which incorporates the
"Uniform City Income Tax ordinance," the First Class School District excise tax
upon income (M.C.L.A. (S)380.451; M.S.A. (S)(S)15.4451) (collectively, the
"income tax laws"), the Michigan Single Business Tax Act (M.C.L.A. (S)(S)208.1
et seq.; M.S.A. (S)(S)7.558(1) et seq.) (the "Single Business Tax") and the
Michigan Tax on ownership of Intangible Personal Property (M.C.L.A.
(S)(S)205.131 et seq.; M.S.A. (S)(S)7.556(1) et seq.) (the "Intangibles Tax").
You have also requested our opinion regarding the tax status of proceeds payable
from an insurance policy to be obtained by either the Fund or by the issuer of
the Bonds involved, guaranteeing prompt payment of principal and interest on all
Bonds in the portfolio of the Fund.
The Michigan Trust, its formation, its proposed method of operation,
the rights of owners of Certificates representing Units, the nature of such
ownership and the portfolio of
<PAGE>
Miller, Canfield, Paddock and Stone
March 22, 1995
Page 2
investments of the Michigan Trust are described and set forth in the Prospectus
dated March 22, 1995, filed with the Securities and Exchange Commission in
Registration No. 33-57781. In giving our opinion set forth hereunder, we have
relied upon the facts contained in such Registration Statement, including the
fact that, at the respective dates of issuance of the underlying Debt
Obligations, opinions of bond counsel to the respective Michigan authorities
issuing such Debt Obligations were given with respect to the validity of the
Debt obligations and the exemption of the same, and of the interest thereon,
from Michigan taxation.
Based on the above, it is our opinion that:
The Michigan Trust and the owners of Units will, in our opinion, 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
Messrs. Chapman and Cutler as to the applicability of Federal income tax under
the Internal Revenue Code of 1986, as currently amended, to the Michigan Trust
and the Unitholders.
Under the income tax laws of the State of Michigan, the Michigan Trust
is not an association taxable as a corporation; the income of the Michigan Trust
will be treated as the income of the Unitholders of the Michigan Trust and be
deemed to have been received by them when received by the Michigan Trust.
Interest on the Debt Obligations in the Michigan Trust which is exempt from tax
under the Michigan income tax laws when received by the Michigan Trust will
retain its status as tax exempt interest to the Unitholders of the Michigan
Trust.
For purposes of the Michigan income tax laws, each Unitholder of the
Michigan Trust will be considered to have received his pro rata share of
interest on each Debt Obligation in the Michigan Trust when it is received by
the Michigan Trust, and each Unitholder will have a taxable event when the
Michigan Trust disposes of a Debt Obligation (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 the Michigan income tax laws in the
same manner as such cost is established and allocated for Federal income tax
purposes.
Under the Michigan Intangibles Tax, the Michigan Trust is not taxable
and the pro rata ownership of the underlying Debt Obligations, as well as the
interest thereon, will be exempt to the Unitholders to the extent the Michigan
Trust consists of obligations of the State of Michigan or its political
subdivisions or municipalities, or of obligations of 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
<PAGE>
Miller, Canfield, Paddock and Stone
March 22, 1995
Page 3
Business Tax only if they are engaged in "business activity," as defined in the
Act. Under the Single Business Tax, both interest received by the Michigan Trust
on the underlying Debt Obligations and any amount distributed from the Michigan
Trust to a Unitholder, if not included in determining taxable income for Federal
income tax purposes, is also not included in the adjusted tax base upon which
the Single Business Tax is computed, of either the Michigan Trust or the
Unitholders. If the Michigan Trust or the Unitholders have a taxable event for
Federal income tax purposes when the Michigan Trust disposes of a Debt
Obligation (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 Fund, 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.
Chapman and Cutler of 111 West Monroe Street, Chicago, Illinois 60603,
are entitled to rely on this opinion as though it were addressed to them.
We also advise you that, as the Tax Reform Act of 1986 eliminates the
capital gain deduction for tax years beginning after December 31, 1986, the
federal adjusted gross income, the computation base for the Michigan Income Tax,
of a Unitholder will be increased accordingly to the extent such capital gains
are realized when the Michigan Trust disposes of a Debt obligation or when the
Unitholder redeems or sells a Unit, to the extent such transaction constitutes a
taxable event for Federal income tax purposes.
<PAGE>
Miller, Canfield, Paddock and Stone
March 22, 1995
Page 4
We hereby consent to the reference to Miller, Canfield, Paddock and
Stone under the heading "Michigan Tax Status" in the Prospectus relating to the
Michigan Trust which is part of the Registration Statement in Registration No.
33-57781 filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, and to the filing of this opinion as an exhibit to said
registration statement.
Yours very truly,
MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.
<PAGE>
EXHIBIT 4.1
Consent of Moody's Investors Service
Laura Levenstein 99 Church Street
Vice President New York, NY 10007
Structured Ratings 212-553-0319
Public Finance Department
March 22, 1995
Mr. Mike Thoms
Kemper Securities Group, Inc.
Unit Investment Trust
77 West Wacker Drive-29th Floor
Chicago, IL 60601
Re: Kemper Defined Funds, Insured National Series 15,
Insured California Series 15 and Insured Michigan Series 11.
Dear Mr. Thoms:
Please be advised that once Moody's Investors Service has independently verified
the existence of insurance policies on all Bonds expected to be included in the
Trusts, we will assign Aaa ratings to the Units in the series of Trusts
described above. The ratings on the Units will reflect the portfolios of the
Trusts, which will be composed solely of securities covered by bond insurance
policies. The insurance companies issuing the policies are all rated Aaa by
Moody's.
Insurance guarantying the payments of principal and interest, when due, on the
Bonds in the portfolio of the Trust has been obtained from an insurance company
either by the Trust, by the Issuer of the Bonds involved, by a prior owner of
the Bonds or by the Sponsor prior to the deposit of such Bonds in the Trust. It
is important to note that the insurance relates only to the Bonds in the Trust
and does not directly insure the Units or assure payment of the market value
thereof. While as a result of such insurance the Units of the Trust will receive
a rating of "Aaa" by Moody's Investors Service, Moody's has indicated that
this rating is not a recommendation to buy, hold or sell Units. This rating
reflects Moody's determination that the Bonds in the portfolio of the Trust are
judged to be of the best quality. This rating does not reflect a determination
by Moody's that the Unitholder will receive all principal and interest payable
on such Bonds through their nominal maturity. This is due to the possibility
that the Trust may, for a variety of reasons, dispose of such Bonds, including
sales to meet redemptions, to pay expenses of the Trustee, to wind up the Trust
when the value of the Bonds in the Trust falls below a certain minimum amount
and for other reasons specified in the Indenture. Accordingly, while the "Aaa"
rating reflects that such Bonds in the portfolio carry the smallest degree of
credit risk and they are generally considered to be "gilt edged", this rating
does not assure a Unitholder that it will receive all principal and interest
payable on such Bonds through their nominal maturity.
<PAGE>
Page 2
This letter evidences our consent to the use of the name of Moody's Investors
Service in connection with the rating assigned to the Units in the registration
statement or prospectus relating to the Units or the Trusts. However, this
letter should not be construed as a consent by us, within the meaning of
Section 7 of the Securities Act of 1933, to the use of the name of Moody's
Investors Service in connection with the ratings assigned to the securities
contained in the Trust. You are hereby authorized to file a copy of this letter
with the Securities and Exchange Commission.
Please send us copies of the prospectus as soon as it is available, as well as
any mini-prospectus or other sales materials.
Please do not hesitate to call should you have any additional questions or
requests.
Sincerely,
Laura Levenstein
<PAGE>
EXHIBIT 4.15
Standard & Poor's Ratings Group
Municipal Finance Department
25 Broadway
New York, New York 10004-1064
Telephone 212/208-1767
Fax 212/412-0460
Richard P. Larkin
Managing Director
Mr. Michael J. Thoms
Vice President of Operations
Kemper Unit Investment Trusts
77 West Wacker Drive - 5th Floor
Chicago, IL 60601-1994
Re: Kemper Defined Funds Series 31, GNMA Portfolio Series 4 and
GNMA Portfolio Series 5 (SEC Reg. #33-57781)
Dear Mr. Thoms:
Pursuant to your request for a Standard & Poor's rating on the units of
the above captioned trust, we have reviewed the information presented to us and
have assigned an "AAA" rating to the units in the trust. The rating is a direct
reflection of the portfolio of the trust, which will be composed solely of
Mortgage-backed Securities of the Modified Pass-Through type fully guaranteed as
to principal and interest by the full faith and credit of the United States.
You have permission to use the name of Standard & Poor's Ratings Group and
the above-assigned rating in connection with your dissemination of information
relating to these units, provided that it is understood that the rating is not a
"market" rating nor a recommendation to buy, hold, or sell the units of the
trust. Further, it should be understood the rating does not take into account
the extent to which fund expenses or portfolio asset sales for less than the
fund's purchase price will reduce payment to the unit holders of the interest
and principal required to be paid on the portfolio assets. S&P reserves the
right to advise its own clients, subscribers, and the public of the rating. S&P
relies on the sponsor and its counsel, accountants, and other experts for the
accuracy and completeness of the information submitted in connection with the
rating. S&P does not independently verify the truth or accuracy of any such
information.
This letter evidences our consent to the use of the name of Standard &
Poor's Ratings Group and the above-assigned rating in the registration statement
or prospectus relating to the units or the trust. However, this letter should
not be construed as a consent by us, within the meaning of Section 7 of the
Securities Act of 1933, to the use of the name of Standard & Poor's Ratings
Group in connection with the ratings assigned to the securities contained in the
trust. You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Please be certain to send us three copies of your final prospectus as soon
as it becomes available. Should we not receive them within a reasonable time
after the closing or should they not conform to the representations made to us,
we reserve the right to withdraw the rating.
We are pleased to have had the opportunity to be of service to you. Our
bill will be sent to you within one month. If we can be of further help, please
do not hesitate to call upon us.
Sincerely,
[Signature of Richard P. Larkin]
Richard P. Larkin
RPL:jmj
[LOGO OF McGRAW HILL]
<PAGE>
Exhibit 4.2
Consent of Muller Data Corporation,
90 Fifth Avenue,
New York, New York 10011
Kemper Capital Markets, Inc.
Unit Investment Trusts
77 West Wacker Drive-29th Floor
Chicago, Illinois 60601-1994
RE: Kemper Defined Funds GNMA Portfolio Series 4
Kemper Defined Funds GNMA Portfolio Series 5
Kemper Defined Funds Insured National Series 15
Kemper Defined Funds Insured California Series 15
Kemper Defined Funds Insured Michigan Series 11
Gentlemen:
We have examined Registration Statement File No. 33-57781 for the above
captioned trust. We hereby acknowledge that Muller Data Corporation is currently
acting as the evaluator for the trust. We hereby consent to the use in the
Registration Statement of the reference to Muller Data Corporation as evaluator.
In addition, we hereby confirm that the ratings indicated in the Registration
Statement for the respective bonds comprising the trust portfolio are the
ratings indicated in our Muniview data base as of the date of the Evaluation
Report.
You are hereby authorized to file a copy of this letter with the Securities and
Exchange Commission.
Sincerely,
/s/ Neil Edelstein
- ----------------------
Neil Edelstein,
Executive Vice President
NE/tg
<PAGE>
EXHIBIT 4.3
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' CONSENT
-------------------------------------------------
We have issued our report dated March 22, 1995 on the statements of
condition and related bond portfolios of Kemper Defined Funds Series 31 (GNMA
Portfolio Series 4, GNMA Portfolio Series 5, Insured National Series 15, Insured
California Series 15 and Insured Michigan Series 11) as of March 22, 1995
contained in the Registration Statement on Form S-6 and in the Prospectus. We
consent to the use of our report in the Registration Statement and in the
Prospectus and to the use of our name as it appears under the caption "Other
Matters-Independent Certified Public Accountants".
GRANT THORNTON LLP
Chicago, Illinois
March 22, 1995
