<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1995
REGISTRATION NO. 33-
CIK #910900
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
REGISTRATION STATEMENT
ON
FORM S-6
----------------
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. EXACT NAME OF TRUST:
Kemper Defined Funds Series 33
B. NAME OF DEPOSITOR:
KEMPER SECURITIES, INC.
C. COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES:
KEMPER UNIT INVESTMENT TRUSTS
77 West Wacker Drive, 29th Floor
Chicago, Illinois 60601
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
Copy to:
ROBERT K. BURKE MARK J. KNEEDY
Kemper Unit Investment Trusts c/o Chapman and Cutler
77 West Wacker Drive, 29th Floor 111 West Monroe Street
Chicago, Illinois 60601 Chicago, Illinois 60603
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE AND AMOUNT OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES BEING REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------
<C> <S> <C> <C>
Series 33 An Indefinite $500
indefinite
number of
Units of
Beneficial
Interest
pursuant
to Rule
24f-2
under the
Investment
Company
Act of
1940
</TABLE>
E. APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a) may determine.
<PAGE>
KEMPER DEFINED FUNDS SERIES 33
----------------
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 Administration of the Trusts
depositor........................
3. Name and address of trustee....... *
4. Name and address of principal Underwriting
underwriters.....................
5. State of organization of trust.... The Trust Funds
6. Execution and termination of trust The Trust Funds; Administration of
agreement........................ 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 Unitholders
securities...................
(b)Cumulative or distributive The Trust Funds
securities...................
(c)Redemption..................... Redemption
(d)Conversion, transfer, etc...... Unitholders; Market for Units
(e)Periodic payment plan.......... *
(f)Voting rights.................. Unitholders; Investment
Supervision
(g)Notice of certificateholders... Administration of the Trusts;
Unitholders
(h)Consents required.............. Unitholders; Administration of the
Trusts
(i)Other provisions............... Federal Tax Status; Insurance on the
Portfolios of the Insured Trust Funds
11. Type of securities comprising The Trust Funds; Portfolios
units............................
12. Certain information regarding *
periodic payment certificates....
Interest, Estimated Long-Term Return
13. (a)Load, fees, expenses, etc...... and Estimated Current Return; Expenses
of the Trust
(b)Certain information regarding
periodic payment *
certificates.................
Essential Information; Public Offering
(c)Certain percentages............ of Units; Insurance on the Portfolios
of the Insured Trust Funds
(d)Certain other fees, etc. Unitholders
payable by holders...........
</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>
(e)Certain profits receivable by
depositor, principal, Expenses of the Trusts; Public
underwriters, writers, trustee Offering of Units
or affiliated persons...........
(f)Ratio of annual charges to income. *
14. Issuance of trust's securities....... The Trust Funds; Unitholders
15. Receipt and handling of payments from *
purchasers..........................
Acquisition and disposition of The Trust Funds; Portfolios;
16. underlying securities............... Investment Supervision Market for
Units;
17. Withdrawal or redemption............. Redemption; Public Offering of Units
18. (a)Receipt, custody and disposition Unitholders
of income.......................
(b)Reinvestment of distributions..... Distribution Reinvestment
(c)Reserves or special funds......... Expenses of the Trusts
(d)Schedule of distributions......... *
19. Records, accounts and reports........ Unitholders; Redemption;
Administration of the Trusts
20. Certain miscellaneous provisions of
trust agreement
(a)Amendment......................... Administration of the Trusts
(b)Termination....................... *
(c)and (d) Trustee, removal and Administration of the Trusts
successor.......................
(e)and (f) Depositor, removal and Administration of the Trusts
successor.......................
21. Loans to security holders............ *
22. Limitations on liability............. 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............ Administration of the Trusts
26. Fees received by depositor........... See Items 13(a) and 13(e)
27. Business of depositor................ Administration of the Trusts
28. Certain information as to officials
and affiliated persons of depositor. Administration of the Trusts
29. Voting securities of depositor....... *
Administration of the Trusts
30. Persons controlling depositor........
31. Payment by depositor for certain
services rendered to trust..........
32. Payment by depositor for certain
other services rendered to trust.... *
33. Remuneration of employees of
depositor for certain services
rendered to trust...................
34. Remuneration of other persons for
certain services rendered to trust..
IV. DISTRIBUTION AND REDEMPTION
35. Distribution of Trust's securities by Public Offering of Units
states..............................
36. Suspension of sales of trust's
securities..........................
37. Revocation of authority to *
distribute..........................
</TABLE>
- --------
* Inapplicable, answer negative or not required.
ii
<PAGE>
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
----------- ---------------------
<C> <S> <C>
38. (a)Method of Distribution............ Public Offering of Units;
(b)Underwriting Agreements........... Market for Units;
(c)Selling Agreements................ Public Offering of Units
39. (a)Organization of principal Administration of the Trusts
underwriters....................
(b)N.A.S.D. membership of principal *
underwriters....................
40. Certain fees received by principal See Items 13(a) and 13(e)
underwriters........................
41. (a)Business of principal Administration of the Trusts
underwriters....................
(b)Branch offices of principal
underwriters....................
(c)Salesmen of principal *
underwriters....................
42. Ownership of trust's securities by
certain persons.....................
43. Certain brokerage commissions
received by principal underwriters.. Public Offering of Units
44. (a)Method of valuation............... Public Offering of Units
(b)Schedule as to offering price..... *
(c)Variation in offering price to Public Offering of Units
certain persons.................
45. Suspension of redemption rights...... Redemption
46. (a)Redemption valuation.............. Redemption; Market for Units; Public
Offering of Units
(b)Schedule as to redemption price... *
47. Maintenance of position in Market for Units; Public Offering of
underlying.......................... Units; Redemption
V. INFORMATION CONCERNING THE TRUSTEE
OR CUSTODIAN
48. Organization and regulation of Administration of the Trusts
trustee.............................
49. Fees and expenses of trustee......... Expenses of the Trusts
50. Trustee's lien....................... *
VI. INFORMATION CONCERNING INSURANCE OF
HOLDERS OF SECURITIES
51. Insurance of holders of trust's Cover Page; Expenses of the Trusts;
securities.......................... Insurance on the Portfolios of the
Insured Trust Funds
VII. POLICY OF REGISTRANT
52. (a)Provisions of trust agreement with
respect to selection or The Trust Funds; Portfolios;
elimination of underlying Investment Supervision
securities......................
(b)Transactions involving elimination
of underlying securities........ *
(c)Policy regarding substitution or
elimination of underlying Investment Supervision
securities......................
(d)Fundamental policy not otherwise *
covered.........................
53. Tax status of Trust.................. Essential Information;
Portfolios Federal Tax Status
</TABLE>
- --------
* Inapplicable, answer negative or not required.
iii
<PAGE>
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
----------- ---------------------
VIII. FINANCIAL AND STATISTICAL INFORMATION
<C> <S> <C>
54. Trust's securities during last ten years..
55.
56. Certain information regarding periodic *
payment certificates.....................
57.
58.
59. Financial statements (Instruction 1(c) to *
Form S-6)................................
</TABLE>
- --------
* Inapplicable, answer negative or not required.
iv
<PAGE>
Preliminary Prospectus Dated May 5, 1995
Kemper Defined Funds Series 33
(A Unit Investment Trust)
The attached final Prospectus for a prior Series of the Fund is hereby used
as a preliminary Prospectus for the above stated Series. The narrative
information and structure of the attached final Prospectus will be substantially
the same as that of the final Prospectus for this Series. Information with
respect to pricing, the number of Units, dates and summary information regarding
the characteristics of securities to be deposited in this Series is not now
available and will be different since each Series has a unique Portfolio.
Accordingly the information contained herein with regard to the previous Series
should be considered as being included for informational purposes only. Ratings
of the securities in this Series are expected to be comparable to those of the
securities deposited in the previous Series. However, the Estimated Current
Return for this Series will depend on the interest rates and offering prices of
the securities in this Series and may vary materially from that of the previous
Series.
A registration statement relating to the units of this Series will be filed
with the Securities and Exchange Commission but has not yet become effective.
Information contained herein is subject to completion or amendment. Such Units
may not be sold nor may offer to buy be accepted prior to the time the
registration statement becomes effective. This Prospectus shall not constitute
an offer to sell or the solicitation of an offer to buy nor shall there be any
sale of the Units in any state in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
any such state.
<PAGE>
KEMPER DEFINED FUNDS SERIES 32
(CORPORATE INCOME SERIES AND TAX-EXEMPT PORTFOLIO)
Investment Grade Corporate Income Series 1 (the "Corporate Income Series") was
formed for the purpose of providing a high level of current income through
investment in a fixed portfolio consisting primarily of investment grade,
corporate debt obligations issued after July 18, 1984. THE PAYMENT OF INCOME
IS DEPENDENT UPON THE CONTINUING ABILITY OF THE ISSUERS AND/OR OBLIGORS TO
MEET THEIR RESPECTIVE OBLIGATIONS. SEE "CORPORATE INCOME SERIES--RISK
FACTORS." For foreign investors who are not United States citizens or
residents, interest income from the Corporate Income Series may not be subject
to federal withholding taxes if certain conditions are met. See "Corporate
Income Series--Federal Tax Status."
Insured California Series 16, Insured Colorado Series 5 and Insured New York
Series 7 (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 Standard &
Poor's Ratings Group. See "Insurance on the Bonds" for each Insured Trust. No
representation is made as to any insurer's ability to meet its commitments.
- -------------------------------------------------------------------------------
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 APRIL 12, 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 Corporate Income Series--Risk
Factors" and "The Tax-Exempt Portfolios--Municipal Bond Risk Factors."
2
<PAGE>
KEMPER DEFINED FUNDS SERIES 32
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>
INVESTMENT
GRADE
CORPORATE INSURED INSURED INSURED
INCOME CALIFORNIA COLORADO NEW YORK
SERIES 1 SERIES 16 SERIES 5 SERIES 7
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Public Offering Price per
Unit (1)(2)................... $ 10.177 $ 10.287 $ 10.237 $ 10.278
Principal Amount of Securities
per Unit...................... $ 10.000 $ 10.000 $ 10.000 $ 10.000
Estimated Current Return based
on Public Offering
Price (3)(4)(5)(6)............ 7.16% 4.45% 5.29% 4.64%
Estimated Long-Term
Return (3)(4)(5)(6)........... 7.36% 4.52% 5.30% 4.72%
Estimated Normal Annual
Distribution per Unit (6)..... $ 0.72864 $ 0.45771 $ 0.54120 $ 0.47728
Principal Amount of Securities. $1,350,000 $3,250,000 $3,045,000 $3,000,000
Number of Units................ 135,000 325,000 304,500 300,000
Fractional Undivided Interest
per Unit...................... 1/135,000 1/325,000 1/304,500 1/300,000
Calculation of Public Offering
Price--Less than 10,000 Units:
Agregate Offering Price of
Securities................... $1,312,020 $3,242,792 $2,964,362 $2,990,856
Agregate Offering Price of
Securities per Unit.......... $ 9.719 $ 9.978 $ 9.735 $ 9.970
Plus Sales Charge per
Unit (7)..................... $ 0.458 $ 0.309 $ 0.502 $ 0.308
Public Offering Price per
Unit (1)(2).................. $ 10.177 $ 10.287 $ 10.237 $ 10.278
Redemption Price per Unit...... $ 9.681 $ 9.919 $ 9.650 $ 9.899
Sponsor's Initial Repurchase
Price per Unit................ $ 9.719 $ 9.978 $ 9.735 $ 9.970
Excess of Public Offering Price
per Unit over Redemption Price
per Unit...................... $ 0.496 $ 0.368 $ 0.587 $ 0.379
Excess of Public Offering Price
per Unit over Sponsor's
Initial Repurchase Price per
Unit.......................... $ 0.458 $ 0.309 $ 0.502 $ 0.308
Calculation of Estimated Net
Annual Interest Income per
Unit (6):
Estimated Annual Interest
Income....................... $ 0.75556 $ 0.48000 $ 0.56737 $ 0.50250
Less: Estimated Annual
Expense...................... $ 0.02690 $ 0.02229 $ 0.02617 $ 0.02522
Estimated Net Annual Interest
Income....................... $ 0.72866 $ 0.45771 $ 0.54120 $ 0.47728
Estimated Daily Rate of Net
Interest Accrual per Unit..... $ 0.002024 $ 0.001271 $ 0.001503 $ 0.001326
Minimum Principal Value of the
Trust under which Trust
Agreement may be terminated... 40% $ 650,000 $ 609,000 $ 600,000
</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>
INVESTMENT
GRADE
CORPORATE INSURED INSURED INSURED
INCOME CALIFORNIA COLORADO NEW YORK
SERIES 1 SERIES 16 SERIES 5 SERIES 7
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Trustee's Annual Fee per $1,000 prin-
cipal amount of Securities (8)...... $ 1.840 $ 1.280 $ 1.680 $ 1.550
Reduction of Trustee's fee per Unit
during the first year (6)........... $ -- $ -- $ -- $ --
Estimated annual interest income per
Unit during the first year (6)...... $0.75556 $0.48000 $0.56737 $0.50250
Interest Payments (9):
First Payment per Unit, representing
11 days............................ $0.02226 $0.01399 $0.01654 $0.01458
Estimated Normal Monthly Distribu-
tion per Unit...................... $0.06072 $0.03814 $0.04510 $0.03977
Estimated Normal Annual Distribution
per Unit........................... $0.72864 $0.45771 $0.54120 $0.47728
Sales Charge (7):
As a percentage of Public Offering
Price per Unit..................... 4.500% 3.000% 4.900% 3.000%
As a percentage of net amount in-
vested............................. 4.712% 3.097% 5.157% 3.089%
As a percentage of net amount in-
vested in earning assets........... 4.712% 3.097% 5.157% 3.089%
</TABLE>
<TABLE>
<S> <C>
Date of Trust Agreements........................ April 12, 1995
First Settlement Date........................... April 20, 1995
Mandatory Termination Date...................... December 31, 2034
Evaluator's Annual Evaluation Fee............... Maximum of $0.30 per $1,000
Principal Amount of Securities
Sponsor's Annual Surveillance Fee--Corporate In-
come Series.................................... Maximum of $0.25 per $1,000
Principal Amount of Securities
Sponsor's Annual Surveillance Fee--Tax-Exempt
Portfolios..................................... Maximum of $0.002 per Unit
</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 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. 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) 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) See "General Information--Expenses of the Trusts."
(9) Unitholders will receive interest distributions monthly. The Record Date
is the first day of the month, commencing May 1, 1995, and the
distribution date is the fifteenth day of the month, commencing May 15,
1995.
4
<PAGE>
THE TRUST FUNDS
Kemper Defined Funds Series 32 includes the following separate unit investment
trusts created by the Sponsor under the name Kemper Defined Funds: "Investment
Grade Corporate Income Series 1" (the "Corporate Income Series"), "Insured
California Series 16," "Insured Colorado Series 5" and "Insured New York
Series 7" (the "Insured State Trusts," 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 Corporate Income Series was formed for the purpose of providing a high
level of current income through investment in a fixed portfolio consisting
primarily of investment grade, corporate debt obligations issued after July
18, 1984. The Corporate Income Series may be an appropriate investment vehicle
for investors who desire to participate in a portfolio of intermediate term
taxable fixed income securities issued by corporate obligors with greater
diversification than investors might be able to acquire individually.
Diversification of the Trust assets will not eliminate the risk of loss always
inherent in the ownership of securities.
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 Corporate Income Series 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 obligations. The Sponsor has a limited right of
substitution for such Securities in the event of a failed contract. See
"General Information--Trust Information."
- ---------------------
* 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>
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 32
We have audited the accompanying statements of condition and the related
portfolios of Kemper Defined Funds Series 32 (Investment Grade Corporate
Income Series 1, Insured California Series 16, Insured Colorado Series 5 and
Insured New York Series 7) as of April 12, 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 April 12, 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
32 (Investment Grade Corporate Income Series 1, Insured California Series 16,
Insured Colorado Series 5 and Insured New York Series 7) as of April 12, 1995,
in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
April 12, 1995
7
<PAGE>
KEMPER DEFINED FUNDS SERIES 32
STATEMENTS OF CONDITION AT THE OPENING OF BUSINESS ON APRIL 12, 1995, THE
INITIAL DATE OF DEPOSIT
<TABLE>
<CAPTION>
INVESTMENT
GRADE
CORPORATE INSURED INSURED INSURED
INCOME CALIFORNIA COLORADO NEW YORK
SERIES 1 SERIES 16 SERIES 5 SERIES 7
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT IN SECURITIES
Securities deposited in the Trusts
(1)(2)............................ $ -- $ -- $ -- $ --
Contracts to purchase Securities
(1)(2)............................ 1,312,020 3,242,792 2,964,362 2,990,856
Accrued interest to First Settle-
ment Date on Securities (1)(3).... 19,671 28,230 51,413 35,160
---------- ---------- ---------- ----------
Total............................. $1,331,691 $3,271,022 $3,015,775 $3,026,016
========== ========== ========== ==========
Number of Units.................... 135,000 325,000 304,500 300,000
LIABILITY AND INTEREST OF
UNITHOLDERS
Accrued interest payable to Sponsor
(1)(3)............................ $ 19,671 $ 28,230 $ 51,413 $ 35,160
Interest of Unitholders--
Cost to investors (4)............. 1,373,895 3,343,275 3,117,167 3,083,400
Less: Gross underwriting commis-
sion (4)......................... 61,875 100,483 152,805 92,544
---------- ---------- ---------- ----------
Net interest to Unitholders
(1)(3)(4)........................ 1,312,020 3,242,792 2,964,362 2,990,856
---------- ---------- ---------- ----------
Total........................... $1,331,691 $3,271,022 $3,015,775 $3,026,016
========== ========== ========== ==========
</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 $10,644,504 which has
been deposited with the Trustee. Of this amount, $10,510,030 relates to the
offering price of Securities to be purchased and $134,474 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 Corporate Income Series, 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
-------------------------------------------
UNDER 5 YEARS 5 TO 14.99
--------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
OFFERING NET AMOUNT OFFERING NET AMOUNT
NUMBER OF UNITS PRICE INVESTED PRICE INVESTED
- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1 to 9,999 Units.................... 3.9% 4.058% 4.5% 4.712%
10,000 to 24,999 Units.............. 3.7 3.842 4.2 4.384
25,000 to 49,999 Units.............. 3.5 3.627 4.0 4.167
50,000 to 99,999 Units.............. 3.3 3.413 3.5 3.627
100,000 or more Units............... 2.0 2.001 2.2 2.249
</TABLE>
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 schedules:
For the Corporate Income Series, in connection with secondary market
transactions the sales charge per Unit will be reduced as set forth below:
<TABLE>
<CAPTION>
SECONDARY
------------------------------
DOLLAR WEIGHTED AVERAGE YEARS
DOLLAR AMOUNT OF TRADE TO MATURITY*
---------------------- 2 TO 3.99 4 TO 9.99 10 OR MORE
--------------------------------------
SALES CHARGE (PERCENT OF
PUBLIC OFFERING PRICE)
------------------------------
<S> <C> <C> <C>
$1,000 to $99,999.......................... 3.50% 4.50% 5.50%
$100,000 to $499,999....................... 3.25 4.25 5.00
$500,000 to $999,999....................... 3.00 4.00 4.50
$1,000,000 or more......................... 2.75 3.75 4.00
</TABLE>
- ---------------------
* If the dollar weighted average maturity of a Trust Fund is from 1 to 1.99
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.
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.
10
<PAGE>
Unitholders of the various series of Kemper Insured Corporate Trust and Kemper
Defined Funds Insured Corporate Series who meet the conditions in the next
succeeding sentence may, during the primary offering period of the Corporate
Income Series only, acquire Units of the Corporate Income Series at the
reduced sales charge equivalent to purchases during the initial offering
period of 100,000 or more Units. First, the special sales charge discount only
applies to purchases acquired with funds received from distributions of
unscheduled principal payments in connection with units issued in such series
and, second, the minimum purchase must be at least $1,000.
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 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
11
<PAGE>
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
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;
12
<PAGE>
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 Corporate Income Series, the primary market concessions or agency
commissions are as follows:
<TABLE>
<CAPTION>
PRIMARY MARKET
-----------------------------------------------------------------
VOLUME DISCOUNTS PER UNIT*
---------------------------------------------------
FIRM SALES OR FIRM SALES OR FIRM SALES OR
REGULAR SALE SALE SALE
CONCESSION ARRANGEMENTS ARRANGEMENTS ARRANGEMENTS
OR AGENCY 25,000 TO 50,000 TO 100,000 OR
COMMISSION 49,999 99,999 MORE
------------ --------------- --------------- ---------------
WEIGHTED AVERAGE YEARS TO MATURITY
UNDER 5 TO UNDER 5 TO UNDER 5 TO UNDER 5 TO
NUMBER OF $10 UNITS 5 14.99 5 14.99 5 14.99 5 14.99
------------------- ----- ----- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 to 9,999 Units........ 2.70% 3.00% 2.80% 3.20% 2.90% 3.30% 3.00% 3.40%
10,000 to 24,999 Units.. 2.50 2.90 2.60 3.00 2.70 3.10 2.80 3.20
25,000 to 49,999 Units.. 2.30 2.80 2.40 2.90 2.50 2.90 2.60 3.00
50,000 to 99,999........ 2.20 2.40 2.30 2.50 2.30 2.50 2.30 2.50
100,000 or more Units... 1.10 1.20 1.20 2.10 1.20 2.10 1.20 2.10
</TABLE>
- ---------------------
* Volume concessions of up to the amount shown can be earned as a marketing
allowance at the discretion of the Sponsor during the initial one month
period after the Initial Date of Deposit by firms who reach cumulative firm
sales or sales arrangement levels of at least $250,000. After a firm has
met the minimum $250,000 volume level, volume concessions may be given on
all trades originated from or by that firm, including those placed prior to
reaching the $250,000 level, and may continue to be given during the entire
initial offering period. Firm sales of any Corporate Income Series issued
simultaneously can be combined for the purposes of achieving the volume
discount. Only sales through Kemper qualify for volume discounts and
secondary purchases do not apply. The Sponsor reserves the right to modify
or change those parameters at any time and make the determination of which
firms qualify for the marketing allowance and the amount paid.
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>
13
<PAGE>
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.
PROFITS OF SPONSOR AND UNDERWRITERS. In connection with the Corporate Income
Series, 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>
C
O
R
P
O
R
A
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E
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S
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S
THE CORPORATE INCOME SERIES
THE TRUST PORTFOLIO
The Corporate Income Series was formed for the purpose of providing a high
level of current income through investment in a fixed portfolio consisting
primarily of investment grade, corporate debt obligations issued after July
18, 1984. There is, of course, no guarantee that the Trust Fund's objective
will be achieved.
The Trust Fund may be an appropriate investment vehicle for investors who
desire to participate in a portfolio of intermediate term taxable fixed income
securities issued by corporate obligors with greater diversification than
investors might be able to acquire individually. Diversification of the Trust
assets will not eliminate the risk of loss always inherent in the ownership of
securities. In addition, Bonds of the type deposited in the Trust Fund often
are not available in small amounts.
The selection of Bonds for the Trust Fund was based largely upon the
experience and judgment of the Sponsor. In making such selections the Sponsor
considered the following factors: (a) the price of the Bonds relative to other
issues of similar quality and maturity; (b) the present rating and credit
quality of the issuers of the Bonds and the potential improvement in the
credit quality of such issuers; (c) the diversification of the Bonds as to
location of issuer; (d) the income to the Unitholders of the Trust; (e)
whether the Bonds were issued after July 18, 1984; and (f) the stated maturity
of the Bonds.
As of the Initial Date of Deposit, all of the Bonds in the Trust are rated
"Baa" or better by Moody's Investors Service, Inc. or "BBB" or better by
Standard & Poor's Ratings Group or Duff & Phelps Credit Rating Co. See
"Appendix: Description of Ratings" and "Portfolio" below. Subsequent to the
Initial Date of Deposit, a Bond may cease to be so rated. If this should
occur, the Trust would not be required to eliminate the Bond from the Trust,
but such event may be considered in the Sponsor's determination to direct the
Trustee to dispose of such investment. See "General Information--Investment
Supervision." The Trust consists of that number of Bonds divided by type (and
percentage of principal amount of the Trust) as set forth in the following
table.
SERIES INFORMATION
<TABLE>
<S> <C> <C>
Number of Bonds............................................... 9
Debt Obligations(1):
U.S. Corporate............................................... 9
Average life of the Bonds in the Trust(2)..................... 10 years
Percentage of "when, as and if issued" or "delayed delivery"
Bonds purchased by the Trust................................. None
Syndication(3)................................................ None
</TABLE>
- -------------------
(1) The portfolio percentage in parenthesis represents the principal amount of
such Bonds to the total principal amount of Bonds in the Trust. For a
discussion of the risks associated with investments in the bonds of such
issuers, see "Risk Factors" below.
(2) The average life of the Bonds in the Trust is calculated based upon the
stated maturities of the Bonds in the 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 the Trust may increase or decrease from time to time as Bonds
mature or are called or sold.
(3) The Sponsor and its affiliates 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 the Trust were acquired.
C-1
CORPORATE INCOME SERIES
<PAGE>
KEMPER DEFINED FUNDS SERIES 32
INVESTMENT GRADE CORPORATE INCOME SERIES 1 PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: APRIL 12, 1995
<TABLE>
<CAPTION>
RATING(2)
-----------------------
STANDARD COST OF
AGGREGATE & DUFF & REDEMPTION BONDS
PRINCIPAL NAME OF ISSUER(1)(5) MOODY'S POOR'S PHELPS PROVISIONS(3) TO TRUST(4)
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
$ 150,000 Merrill Lynch & Company, A1 A+ AA- Non-Callable $ 141,432
Inc., 6.875% Due
March 1, 2003
150,000 BankAmerica Corporation, A3 A- AA- Non-Callable 147,849
7.625% Due
June 15, 2004
150,000 Philip Morris Companies, A2 A A Non-Callable 142,848
Inc., 7.125% Due
October 1, 2004
200,000 Lehman Brothers Baa1 A A Non-Callable 202,368
Holdings, Inc., 8.750%
Due
March 15, 2005
150,000 PNC Bank Corporation, A1 A- A+ Non-Callable 149,532
7.875% Due April 15,
2005
100,000 Chase Manhattan A3 A- A- Non-Callable 90,316
Corporation, 6.500% Due
August 1, 2005
100,000 Ford Motor Credit, A1 A+ A+ Non-Callable 90,122
6.375% Due December 15,
2005
150,000 Citicorp, 7.750% Due A3 A- A Non-Callable 148,547
June 15, 2006
200,000 Chemical Banking A3 A- A Non-Callable 199,006
Corporation, 7.875% Due
July 15, 2006
---------- ----------
$1,350,000 $1,312,020
========== ==========
</TABLE>
C-2
CORPORATE INCOME SERIES
<PAGE>
NOTES TO PORTFOLIO:
* These Bonds are "when, as and if issued" or "delayed delivery" and have
expected settlement dates after the "First Settlement Date."
(1) Contracts to acquire Bonds were entered into by the Sponsor on April 11,
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) A brief description of the applicable Standard & Poor's Ratings Group,
Moody's Investors Service, Inc. and Duff & Phelps Credit Rating Co. rating
symbols and their meanings is set forth under "Appendix: Description of
Ratings." "N.R." indicates that the issue has not been rated by that
rating agency.
(3) There is shown under this heading the year in which each issue of Bonds is
initially or currently redeemable and the redemption price for that year;
unless otherwise indicated, each issue continues to be redeemable at
declining prices thereafter, but not below par value. The prices at which
the Bonds may be redeemed or called prior to maturity may or may not
include a premium and, in certain cases, may be less than the cost of the
Bonds to 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 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 that issue of Bonds.
(4) During the initial offering period, evaluations of Bonds are made on the
basis of current offering side evaluations of the Bonds. The aggregate
offering price is greater than the aggregate bid price of the Bonds, which
is the basis on which the Redemption Price will be determined for purposes
of redemption of Units after the initial offering period.
(5) Other information regarding the Bonds in the Trust, at the opening of
business on the Initial Date of Deposit, is as follows:
<TABLE>
<CAPTION>
ANNUAL
COST OF PROFIT OR INTEREST BID SIDE
BONDS TO (LOSS) TO INCOME VALUE OF
SPONSOR SPONSOR TO TRUST BONDS
---------- --------- -------- ----------
<S> <C> <C> <C> <C>
Investment Grade Corporate Income
Series 1......................... $1,312,020 $ 0 $102,000 $1,306,957
</TABLE>
The Cost of Bonds to Sponsor and Profit or (Loss) to Sponsor reflect
portfolio hedging transaction costs, hedging gains or losses, and certain
other carrying costs.
(6) 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". This Bond has been purchased at a deep discount from the par
value because there is little or no stated interest income thereon. Bonds
which pay no interest are normally described as "zero coupon" bonds. Over
the life of bonds purchased at a deep discount the value of such bonds
will increase such that upon maturity the holders of such bonds will
receive 100% of the principal amount thereof. Approximately 0% of the
aggregate principal amount of the Bonds in the Trust were issued at an
original issue discount.
C-3
CORPORATE INCOME SERIES
<PAGE>
RISK FACTORS
General. An investment in Units of the Trust should be made with an
understanding of the risks that an investment in "high yield", higher risk,
fixed rate, investment grade corporate debt obligations may entail, including
increased credit risks and the risk that the value of the Units will decline,
and may decline precipitously, with increases in interest rates. In recent
years there have been wide fluctuations in interest rates and thus in the
value of fixed-rate, debt obligations generally, Securities such as those
included in the Trust are, under most circumstances, subject to greater market
fluctuations and risk of loss of income and principal than are investments in
lower-yielding, higher rated securities, and their value may decline
precipitously because of increases in interest rates not only because the
increases in rates generally decrease values but also because increased rates
may indicate a slowdown in the economy and a decrease in the value of assets
generally that may adversely affect the credit of issuers of high yield, high
risk securities resulting in a higher incidence of defaults among high yield,
high risk securities. A slowdown in the economy, or a development adversely
affecting an issuer's creditworthiness, may result in the issuer being unable
to maintain earnings or sell assets at the rate and at the prices,
respectively, that are required to produce sufficient cash flow to meet its
interest and principal requirements. For an issuer that has outstanding both
senior commercial bank debt and subordinated high yield, high risk securities,
an increase in interest rates will increase that issuer's interest expense
insofar as the interest rate on the bank debt is fluctuating. However, many
leveraged issuers enter into interest rate protection agreements to fix or cap
the interest on a large portion of their bank debt. This reduces exposure to
increasing interest rates but reduces the benefit to the issuer of declining
rates. The Sponsor cannot predict future economic policies or their
consequences or, therefore, the course or extent of any similar market
fluctuations in the future. The portfolio consists of Bonds that, in many
cases, do not have the benefit of covenants that would prevent the issuer from
engaging in capital restructurings or borrowing transactions in connection
with corporate acquisitions, leveraged buy outs or restructurings that could
have the effect of reducing the ability of the issuer to meet its obligations
and might result in the ratings of the Bonds and the value of the underlying
portfolio being reduced.
Lower-rated securities tend to offer higher yields than higher-rated
securities with the same maturities because the creditworthiness of the
issuers of lower-rated securities may not be as strong as that of other
issuers. Moreover, if a Bond is recharacterized as equity by the Internal
Revenue Service for Federal income tax purposes, the issuer's interest
deduction with respect to the Bond will be disallowed and this disallowance
may adversely affect the issuer's credit rating. Because investors generally
perceive that there are greater risks associated with the lower-rated
securities in the Trust, the yields and prices of these securities tend to
fluctuate more than higher-rated securities with changes in the perceived
quality of the credit of their issuers. In addition, the market value of high
yield, high risk, fixed-income securities may fluctuate more than the market
value of higher-rated securities since high yield, high risk, fixed-income
securities tend to reflect short-term credit development to a greater extent
than higher-rated securities. Lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities. Issuers of
lower-rated securities may possess less creditworthiness characteristics than
issuers of higher-rated securities and, especially in the case of issuers
whose obligations or credit standing have recently been downgraded, may be
subject to claims by debtholders, owners of property leased to the issuer or
others which, if sustained, would make it more difficult for the issuers to
meet their payment obligations. High yield, high risk bonds are also affected
by variables such as interest rates, inflation rates and real growth in the
economy. Therefore, investors should consider carefully the relative risks
associated with investment in securities which carry lower ratings.
C-4
CORPORATE INCOME SERIES
<PAGE>
The value of the Units reflects the value of the portfolio securities,
including the value (if any) of securities in default. Should the issuer of
any Bond default in the payment of principal or interest, the Trust may incur
additional expenses seeking payment on the defaulted Bond. Because amounts (if
any) recovered by the Trust in payment under the defaulted Bond may not be
reflected in the value of the Units until actually received by the Trust, and
depending upon when a Unitholder purchases or sells his Units, it is possible
that a Unitholder would bear a portion of the cost of recovery without
receiving any portion of the payment recovered.
High yield, high risk bonds are generally subordinated bonds. The payment of
principal (and premium, if any), interest and sinking fund requirements with
respect to subordinated bonds of an issuer is subordinated in right of payment
to the payment of senior bonds of the issuer. Senior bonds generally include
most, if not all, significant debt bonds of an issuer, whether existing at the
time of issuance of subordinated debt or created thereafter. Upon any
distribution of the assets of an issuer with subordinated bonds upon
dissolution, total or partial liquidation or reorganization of or similar
proceeding relating to the issuer, the holders of senior indebtedness will be
entitled to receive payment in full before holders of subordinated
indebtedness will be entitled to receive any payment. Moreover, generally no
payment with respect to subordinated indebtedness may be made while there
exists a default with respect to any senior indebtedness. Thus, in the event
of insolvency, holders of senior indebtedness of an issuer generally will
recover more, ratably, than holders of subordinated indebtedness of that
issuer.
FEDERAL TAX STATUS
In the opinion of Chapman and Cutler, special counsel for the Sponsor, under
existing law:
1. The Trust is not an association taxable as a corporation for Federal
income tax purposes.
2. Each Unitholder will be considered the owner of a pro rata portion of
each of the Trust assets for Federal income tax purposes under Subpart E,
Subchapter J of Chapter 1 of the Internal Revenue Code of 1986 (the
"Code"). Each Unitholder will be considered to have received his pro rata
share of income derived from each Trust asset when such income is received
by the Trust. Each Unitholder will also be required to include in taxable
income for Federal income tax purposes, original issue discount with
respect to his interest in any Bonds held by the Trust at the same time and
in the same manner as though the Unitholder were the direct owner of such
interest.
3. Each Unitholder will have a taxable event when a Bond is disposed of
(whether by sale, exchange, redemption, or payment at maturity) or when the
Unitholder redeems or sells his Units. The cost of the Units to a
Unitholder on the date such Units are purchased is allocated among the
Bonds held in the Trust (in accordance with the proportion of the fair
market values of such Bonds) in order to determine his tax basis for his
pro rata portion in each Bond. Unitholders must reduce the tax basis of
their Units for their share of accrued interest received, if any, on Bonds
delivered after the date the Unitholders pay for their Units and,
consequently, such Unitholders may have an increase in taxable gain or
reduction in capital loss upon the disposition of such Units. Gain or loss
upon the sale or redemption of Units is measured by comparing the proceeds
of such sale or redemption with the adjusted basis of the Units. If the
Trustee disposes of Bonds, gain or loss is recognized to the Unitholder.
The amount of any such gain or loss is measured by comparing the
Unitholder's pro rata share of the total proceeds from such disposition
with his basis for his fractional interest in the asset disposed of. The
basis of each Unit and of each Bond which was issued with original issue
discount must be increased by the amount of accrued original issue discount
and the basis of each Unit and of each Bond which was purchased by the
Trust at a premium must be reduced by the annual
C-5
CORPORATE INCOME SERIES
<PAGE>
amortization of bond premium which the Unitholder has properly elected to
amortize under Section 171 of the Code. The tax cost reduction requirements
of the Code relating to amortization of bond premium may, under some
circumstances, result in the Unitholder realizing a taxable gain when his
Units are sold or redeemed for an amount equal to or less than his original
cost. In general, original issue discount accrues daily under a constant
interest rate method which takes into account the semi-annual compounding
of accrued interest.
Limitations on Deductibility of Trust Expenses by Unitholders. Each
Unitholder's pro rata share of each expense paid by the Trust is deductible by
the Unitholder to the same extent as though the expense had been paid directly
by him, subject to the following limitation. It should be noted that as a
result of the Tax Reform Act of 1986 (the "Act"), certain miscellaneous
itemized deductions, such as investment expenses, tax return preparation fees
and employee business expenses will be deductible by an individual only to the
extent they exceed 2% of such individual's adjusted gross income. Temporary
regulations have been issued which require Unitholders to treat certain
expenses of the Trust as miscellaneous itemized deductions subject to this
limitation.
Acquisition Premium. If a Unitholder's tax basis of his pro rata portion in
any Bonds held by the Trust exceeds the amount payable by the issuer of the
Bond with respect to such pro rata interest upon the maturity of the Bond,
such excess would be considered "acquisition premium" which may be amortized
by the Unitholder at the Unitholder's election as provided in Section 171 of
the Code. Unitholders should consult their tax advisors regarding whether such
election should be made and the manner of amortizing acquisition premium.
Original Issue Discount. Certain of the Bonds in the Trust may have been
acquired with "original issue discount." In the case of any Bonds in the Trust
acquired with "original issue discount" that exceeds a "de minimis" amount as
specified in the Code, such discount is includable in taxable income of the
Unitholders on an accrual basis computed daily, without regard to when
payments of interest on such Bonds are received. The Code provides a complex
set of rules regarding the accrual of original issue discount. These rules
provide that original issue discount generally accrues on the basis of a
constant compound interest rate over the term of the Bonds. Unitholders should
consult their tax advisers as to the amount of original issue discount which
accrues.
Special original issue discount rules apply if the purchase price of the Bond
by the Trust exceeds its original issue price plus the amount of original
issue discount which would have previously accrued based upon its issue price
(its "adjusted issue price"). Similarly these special rules would apply to a
Unitholder if the tax basis of his pro rata portion of a Bond issued with
original issue discount exceeds his pro rata portion of its adjusted issue
price. Unitholders should also consult their tax advisers regarding these
special rules.
It is possible that a corporate Bond that has been issued at an original issue
discount may be characterized as a "high-yield discount obligation" within the
meaning of Section 163(e)(5) of the Code. To the extent that such an
obligation is issued at a yield in excess of six percentage points over the
applicable Federal rate, a portion of the original issue discount on such
obligation will be characterized as a distribution on stock (e.g. dividends)
for purposes of the dividends received deduction which is available to certain
corporations with respect to certain dividends received by such corporation.
Market Discount. If a Unitholder's tax basis in his pro rata portion of Bonds
is less than the allocable portion of such Bond's stated redemption price at
maturity (or, if issued with original issue discount, the
C-6
CORPORATE INCOME SERIES
<PAGE>
allocable portion of its "revised issue price"), such difference will
constitute market discount unless the amount of market discount is "de
minimis" as specified in the Code. Market discount accrues daily computed on a
straight line basis, unless the Unitholder elects to calculate accrued market
discount under a constant yield method. Unitholders should consult their tax
advisors as to the amount of market discount which accrues.
Accrued market discount is generally includable in taxable income to the
Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on the Bonds, on the sale, maturity or disposition
of such Bonds by the Trust, and on the sale by a Unitholder of Units, unless a
Unitholder elects to include the accrued market discount in taxable income as
such discount accrues. If a Unitholder does not elect to annually include
accrued market discount in taxable income as it accrues, deductions for any
interest expense incurred by the Unitholder which is incurred to purchase or
carry his Units will be reduced by such accrued market discount. In general,
the portion of any interest expense which was not currently deductible would
ultimately be deductible when the accrued market discount is included in
income. Unitholders should consult their tax advisers regarding whether an
election should be made to include market discount in income as it accrues and
as to the amount of interest expense which may not be currently deductible.
Computation of the Unitholder's Tax Basis. The tax basis of a Unitholder with
respect to his interest in a Bond is increased by the amount of original issue
discount (and market discount, if the Unitholder elects to include market
discount, if any, on the Bonds held by the Trust in income as it accrues)
thereon properly included in the Unitholder's gross income as determined for
Federal income tax purposes and reduced by the amount of any amortized
acquisition premium which the Unitholder has properly elected to amortize
under Section 171 of the Code. A Unitholder's tax basis in his Units will
equal his tax basis in his pro rata portion of all of the assets of the Trust.
Recognition of Taxable Gain or Loss Upon Disposition of Obligations by the
Trust or Disposition of Units. A Unitholder will recognize taxable capital
gain (or loss) when all or part of his pro rata interest in a Bond is disposed
of in a taxable transaction for an amount greater (or less) than his tax basis
therefor. Any gain recognized on a sale or exchange and not constituting a
realization of accrued "market discount," and any loss will, under current
law, generally be capital gain or loss except in the case of a dealer or
financial institution. As previously discussed, gain realized on the
disposition of the interest of a Unitholder in any Bond deemed to have been
acquired with market discount will be treated as ordinary income to the extent
the gain does not exceed the amount of accrued market discount not previously
taken into income. Any capital gain or loss arising from the disposition of a
Bond by the Trust or the disposition of Units by a Unitholder will be short-
term capital gain or loss unless the Unitholder has held his Units for more
than one year in which case such capital gain or loss will be long-term. For
taxpayers other than corporations, net capital gains are subject to a maximum
marginal stated tax rate of 28 percent. However, it should be noted that
legislative proposals are introduced from time to time that affect tax rates
and could affect relative differences at which ordinary income and capital
gains are taxed. The tax cost reduction requirements of the Code relating to
amortization of bond premium may under some circumstances, result in the
Unitholder realizing taxable gain when his Units are sold or redeemed for an
amount equal to or less than his original cost.
If the Unitholder disposes of a Unit, he is deemed thereby to have disposed of
his entire pro rata interest in all Trust assets including his pro rata
portion of all of the Bonds represented by the Unit. This may result in a
portion of the gain, if any, on such sale being taxable as ordinary income
under the market discount rules (assuming no election was made by the
Unitholder to include market discount in income as it accrues) as previously
discussed.
C-7
CORPORATE INCOME SERIES
<PAGE>
"The Revenue Reconciliation Act of 1993" (the "Tax Act") raised tax rates on
ordinary income while capital gains remain subject to a 28 percent maximum
stated rate for taxpayers other than corporations. Because some or all capital
gains are taxed at a comparatively lower rate under the Tax Act, the Tax Act
includes a provision that recharacterizes capital gains as ordinary income in
the case of certain financial transactions that are "conversion transactions"
effective for transactions entered into after April 30, 1993. Unitholders and
prospective investors should consult with their tax advisers regarding the
potential effect of this provision on their investment in Units.
Foreign Investors. A Unitholder who is a foreign investor (i.e., an investor
other than a U.S. citizen or resident or a U.S. corporation, partnership,
estate or trust) will not be subject to United States federal income taxes,
including withholding taxes, on interest income (including any original issue
discount) on, or any gain from the sale or other disposition of, his pro rata
interest in any Bond or the sale of his Units provided that all of the
following conditions are met: (i) the interest income or gain is not
effectively connected with the conduct by the foreign investor of a trade or
business within the United States, (ii) either (a) the interest is United
States source income (which is the case for most securities issued by United
States issuers), the Bond is issued after July 18, 1984 (which is the case for
each Bond held by the Trust), the foreign investor does not own, directly or
indirectly, 10% or more of the total combined voting power of all classes of
voting stock of the issuer of the Bond and the foreign investor is not a
controlled foreign corporation related (within the meaning of Section
864(d)(4) of the Code) to the issuer of the Bond, or (b) the interest income
is not from sources within the United States (iii) with respect to any gain,
the foreign investor (if an individual) is not present in the United States
for 183 days or more during his or her taxable year and (iv) the foreign
investor provides all certification which may be required of his status
(foreign investors may contact the Sponsor to obtain a Form W-8 which must be
filed with the Trustee and refiled every three calendar years thereafter).
Foreign investors should consult their tax advisers with respect to United
States tax consequences of ownership of Units.
It should be noted that the Tax Act includes a provision which eliminates the
exemption from United States taxation, including withholding taxes, for
certain "contingent interest." The provision applies to interest received
after December 31, 1993. No opinion is expressed herein regarding the
potential applicability of this provision and whether United States taxation
or withholding taxes could be imposed with respect to income derived from the
Units as a result thereof. Unitholders and prospective investors should
consult with their tax advisers regarding the potential effect of this
provision on their investment in Units.
General. Each Unitholder (other than a foreign investor who has properly
provided the certifications described above) will be requested to provide the
Unitholder's taxpayer identification number to the Trustee and to certify that
the Unitholder has not been notified that payments to the Unitholder are
subject to back-up withholding. If the proper taxpayer identification number
and appropriate certification are not provided when requested, distributions
by the Trust to such Unitholder will be subject to back-up withholding.
The foregoing discussion relates only to United States Federal income taxes;
Unitholders may be subject to state and local taxation in other jurisdictions
(including a foreign investor's country of residence). Unitholders should
consult their tax advisers regarding potential state, local, or foreign
taxation with respect to the Units.
Because the Trust receives interest and makes monthly distributions based upon
the Trust's expected total collections of interest and any anticipated
expenses, certain tax reporting consequences may arise. The
C-8
CORPORATE INCOME SERIES
<PAGE>
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 the 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.
ESTIMATED CASH FLOWS TO UNITHOLDERS
The table below sets forth the estimated distributions of interest and
principal to Unitholders on a per 100 Units basis. The table assumes no
changes in expenses, no changes in the current interest rates, no exchanges,
redemptions, sales or prepayments of the underlying Bonds 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.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
---------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
May 15, 1995 $2.23 $ 2.23
Jun 15, 1995 to Feb 15, 2003 $6.07 $ 6.07
Mar 15, 2003 $6.07 $111.11 $117.18
Apr 15, 2003 to Jun 15, 2004 $5.46 $ 5.46
Jul 15, 2004 $5.10 $111.11 $116.21
Aug 15, 2004 to Sep 15, 2004 $4.77 $ 4.77
Oct 15, 2004 $4.77 $111.11 $115.88
Nov 15, 2004 to Mar 15, 2005 $4.14 $ 4.14
Apr 15, 2005 $3.60 $148.15 $151.75
May 15, 2005 $2.72 $111.11 $113.83
Jun 15, 2005 to Jul 15, 2005 $2.38 $ 2.38
Aug 15, 2005 $2.38 $ 74.07 $ 76.45
Sep 15, 2005 to Dec 15, 2005 $1.99 $ 1.99
Jan 15, 2006 $1.80 $ 74.07 $ 75.87
Feb 15, 2006 to Jun 15, 2006 $1.61 $ 1.61
Jul 15, 2006 $1.25 $111.11 $112.36
Aug 15, 2006 $0.43 $148.15 $148.58
</TABLE>
C-9
CORPORATE INCOME 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
CALIFORNIA COLORADO NEW YORK
SERIES 16 SERIES 5 SERIES 7
---------- ---------- ---------
<S> <C> <C> <C>
Number of Obligations.......................... 5 7 5
Territorial Obligations (1).................... -- -- --
General Obligation Bonds (2)(3)................ None 1(16%) 1(20%)
Revenue Bonds (4)(3)........................... 5(100%) 6(84%) 4(80%)
Revenue Bond Concentrations (3):
Correctional Facilities.......................
Excise Tax Revenue............................ 1(13%)
Sales Tax Revenue............................. 1(20%)
Electric Systems.............................. 1(20%) 1(20%)
Utilities..................................... 1(20%) 1(16%)
Hospital...................................... 2(30%)
Pollution Control............................. 1(8%)
Lease Revenue................................. 1(20%)
Education..................................... 1(17%) 1(20%)
Wastewater....................................
Water & Sewer................................. 1(20%)
Transportation................................ 1(20%)
Tollroad......................................
Miscellaneous................................. 1(20%)
Average life of the Municipal Bonds in the
Trust (5)..................................... 5.1 years 22.6 years 7.2 years
Percentage of "when, as and if issued" or "de-
layed delivery" Bonds purchased by the Trust.. None None None
Syndication (6)................................ None None None
</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>
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.
COLORADO
<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 19.3% 5.58% 6.20% 6.82% 7.43% 8.05% 8.67% 9.29%
23.35-
56.55 39.00- 94.25 31.6 6.58 7.31 8.04 8.77 9.50 10.23 10.96
56.55-
117.95 94.25-143.60 34.5 6.87 7.63 8.40 9.16 9.92 10.69 11.45
117.95-
256.50 143.60-256.50 39.2 7.40 8.22 9.05 9.87 10.69 11.51 12.34
Over
256.50 Over 256.50 42.6 7.84 8.71 9.58 10.45 11.32 12.20 13.07
</TABLE>
NEW YORK
<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 21.5% 5.73% 6.37% 7.01% 7.64% 8.28% 8.92% 9.55%
23.35-
56.55 39.00- 94.25 33.5 6.77 7.52 8.27 9.02 9.77 10.53 11.28
56.55-
117.95 94.25-143.60 36.2 7.05 7.84 8.62 9.40 10.19 10.97 11.76
117.95-
256.50 143.60-256.50 40.9 7.61 8.46 9.31 10.15 11.00 11.84 12.69
Over
256.50 Over 256.50 44.2 8.06 8.96 9.86 10.75 11.65 12.54 13.44
</TABLE>
- --------
*Combined Federal and State tax bracket was computed assuming that the
investor is not subject to local income taxes, such as New York City taxes.
Should a Unitholder reside in a locality which imposes an income tax, the
Unitholder's equivalent taxable estimated current return would be greater than
the equivalent taxable estimated current returns indicated in the table. The
table does not reflect the recent enactment of a New York State supplemental
income tax based upon a taxpayer's New York State taxable income and New York
State adjusted gross income. This supplemental tax results in an increased
marginal state income tax rate to the extent a taxpayer's New York State
adjusted gross income ranges between $100,000 and $150,000. In addition, the
table does not reflect the amendments to the New York State income tax law
that imposes limitations on the deductibility of itemized deductions. The
application of the New York State limitation on itemized deductions may result
in a higher combined Federal, State and local tax rate than indicated in the
table. The table assumes for this purpose that a taxpayer's New York State
adjusted income equals his Federal adjusted gross income.
TE-3
TAX-EXEMPT PORTFOLIOS
<PAGE>
NEW YORK STATE AND CITY
<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 25.2% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36% 10.03%
23.35-
56.55 39.00- 94.25 36.6 7.10 7.89 8.68 9.46 10.25 11.04 11.83
56.55-
117.95 94.25-143.60 39.3 7.41 8.24 9.06 9.88 10.71 11.53 12.36
117.95-
256.50 143.60-256.50 43.7 7.99 8.88 9.77 10.66 11.55 12.43 13.32
Over
256.50 Over 256.50 46.9 8.47 9.42 10.36 11.30 12.24 13.18 14.12
</TABLE>
- --------
*Combined Federal, State and City tax bracket was computed assuming that the
investor is subject to New York City taxes. The table does not reflect the New
York State supplemental income tax based upon a taxpayer's New York State
taxable income and New York State adjusted gross income. This supplemental tax
results in an increased marginal State income tax rate to the extent a
taxpayer's New York State adjusted gross income ranges between $100,000 and
$150,000. In addition, the tables does not reflect the amendments to the New
York State income tax law that impose limitations on the deductibility of
itemized deductions. The application of the New York State supplemental income
tax and limitation on itemized deductions may result in a higher combined
Federal, State and local tax rate than indicated in the table.
TE-4
TAX-EXEMPT PORTFOLIOS
<PAGE>
KEMPER DEFINED FUNDS SERIES 32 INSURED CALIFORNIA
SERIES 16
PORTFOLIO AS OF THE INITIAL DATE OF DEPOSIT: APRIL 12, 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>
$ 650,000 Contra Costa (California) AAA Non-Callable $ 650,000
Transportation Authority
Sales Tax Revenue Bonds
(Limited Tax Bonds), 1995
Series A (FGIC Insured),
4.60% Due 03/01/1998
650,000 State Public Works Board of AAA Non-Callable 651,274
the State of California,
Energy Efficiency Revenue
Bonds, Series 1995A (AMBAC
Insured), 4.80% Due
10/01/1999
650,000 County of Kern, California, AAA Non-Callable 650,000
Certificates of
Participation (1995 Kern
Medical Center Surgical
Services Facility) (MBIA
Insured), 4.85% Due
04/01/2000
650,000 Southern California Public AAA Non-Callable 643,565
Power Authority, San Juan
Power Project Revenue
Bonds (San Juan Unit 3),
1993 Series A (MBIA
Insured), 4.75% Due
01/01/2001
650,000 Sacramento Municipal AAA Non-Callable 647,953
Utility District
(California), Electric
Revenue Refunding Bonds,
1993 Series D (FSA
Insured), 5.00% Due
11/15/2002
---------- ----------
$3,250,000 $3,242,792
========== ==========
</TABLE>
- --------
See "Notes to Portfolios."
TE-5
TAX-EXEMPT PORTFOLIOS
<PAGE>
KEMPER DEFINED FUNDS SERIES 32 INSURED COLORADO
SERIES 5
PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: APRIL 12, 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>
$ 500,000 Adams County School District AAA 2003 @ 100 $ 462,605
No. 1 (Mapleton Public 2013 @ 100 S.F.
Schools), Adams County,
Colorado, General
Obligation Refunding Bonds,
Series 1993 (MBIA Insured),
5.25% Due 6/01/2017
250,000 Adams County, Colorado, AAA 2003 @ 101 252,153
Pollution Control Refunding
Revenue Bonds, 1993, Series
A (MBIA Insured), 5.875%
Due 4/01/2014
500,000 Board of Trustees of the AAA 2004 @ 101 489,675
State Colleges in Colorado, 2010 @ 100 S.F.
Auxiliary Facilities
System--Enterprise Revenue
Bonds, Adams State College
Project, Series A 1994
(MBIA Insured), 5.625% Due
5/15/2015
420,000 City and County of Denver, AAA 2003 @ 102 424,859
Colorado, Hospital Revenue 2006 @ 100 S.F.
Bonds (The Children's
Hospital Association
Project), Series 1993 (FGIC
Insured), 6.00% Due
10/01/2015
500,000 City of Colorado Springs, AAA 2004 @ 100 446,770
Colorado, Utilities System 2020 @ 100 S.F.
Improvement and Refunding
Revenue Bonds, Series 1994A
(MBIA Insured), 5.125% Due
11/15/2023
375,000 City of Steamboat Springs, AAA 2004 @ 100 382,680
Colorado, Accommodations
Tax Revenue Bonds, Series
1995 (MBIA Insured), 6.10%
Due 3/01/2015
500,000 Colorado Health Facilities AAA 2003 @ 100 505,620
Authority, Hospital Revenue 2013 @ 100 S.F.
Bonds (North Colorado
Medical Center), Series
1993 (MBIA Insured), 6.00%
Due 5/15/2020
---------- ----------
$3,045,000 $2,964,362
========== ==========
</TABLE>
- --------
See "Notes to Portfolios."
TE-6
TAX-EXEMPT PORTFOLIOS
<PAGE>
KEMPER DEFINED FUNDS SERIES 32 INSURED NEW YORK
SERIES 7
PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: APRIL 12, 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>
$ 600,000 County of Albany, New York, AAA Non-Callable $ 588,624
General Obligation
Refunding Bonds--1993
(FGIC Insured), 4.50% Due
10/01/2000
600,000 New York State Energy AAA Non-Callable 603,036
Research and Development
Authority, State Service
Contract Revenue Bonds,
Series 1995 (Western New
York Nuclear Service
Center Project), (CapMAC
Insured), 5.10% Due
04/01/2001
600,000 Metropolitan Transportation AAA Non-Callable 592,800
Authority, Transit
Facilities Revenue Bonds,
Series M (AMBAC Insured),
4.90% Due 07/01/2002
600,000 Dormitory Authority of the AAA Non-Callable 611,838
State of New York, City
University Refunding
Bonds, 1993B Issue (MBIA
Insured), 5.50% Due
07/01/2003
600,000 New York City, Municipal AAA Non-Callable 594,558
Water Finance Authority,
Water and Sewer System
Revenue Bonds, 1994 Series
B (MBIA Insured), 5.125%
Due 06/15/2004
---------- ----------
$3,000,000 $2,990,856
========== ==========
</TABLE>
- --------
See "Notes to Portfolios."
TE-7
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 April 3, 1995 and April 11, 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>
ANNUAL
COST OF PROFIT OR INTEREST BID SIDE
BONDS TO (LOSS) TO INCOME VALUE OF
TRUST FUND SPONSOR SPONSOR TO TRUST BONDS
---------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C>
Insured California Series 16....... $3,236,260 $6,532 $156,000 $3,223,688
Insured Colorado Series 5.......... $2,963,992 $ 370 $172,763 $2,938,334
Insured New York Series 7.......... $2,989,763 $4,093 $150,750 $2,969,814
</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-8
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-9
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.
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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 16
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 16 (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 COLORADO SERIES 5
Risk Factors
The State Constitution requires that expenditures for any fiscal year not
exceed revenues for such fiscal year. By statute, the amount of General Fund
revenues available for appropriation is based upon revenue estimates which,
together with other available resources, must exceed annual appropriations by
the amount of the unappropriated reserve (the "Unappropriated Reserve"). The
Unappropriated Reserve requirement for fiscal year 1991, 1992 and 1993 was set
at 3% of total appropriations from the General Fund. For fiscal years 1994 and
thereafter, the Unappropriated Reserve requirement is set at 4%. In addition
to the Unappropriated Reserve, a constitutional amendment approved by Colorado
voters in 1992 requires the State and each local government to reserve a
certain percentage of its fiscal year spending (excluding bonded debt service)
for emergency use (the "Emergency Reserve"). The minimum Emergency Reserve is
set at 2% for 1994 and 3% for 1995 and later years. for fiscal year 1992 and
thereafter, General Fund appropriations are also limited by statute to an
amount equal to the cost of performing certain required reappraisals of
taxable property plus an amount equal to the lesser of (i) five percent of
Colorado personal income or (ii) 106% of the total General Fund appropriations
for the previous fiscal year. This restriction does not apply to any General
Fund appropriations which are required as a result of a new federal law, a
final state or federal court order or moneys derived from the increase in the
rate or amount of any tax or fee approved by a statutory majority of the
registered electors of the State voting at any general election. In addition,
the statutory limit on the level of General Fund appropriations may be
exceeded for a given fiscal year upon the declaration of a State fiscal
emergency by the State General Assembly.
The 1992 fiscal General Fund balance was $133.3 million, which was $49.1
million below the Unappropriated Reserve requirement. The 1993 fiscal year
ending General Fund balance was $326.6 million, or $196.7 million over the
required Unappropriated Reserve and Emergency Reserve. Based on June 20, 1994
estimates, the 1994 fiscal year ending General Fund balance is expected to be
$337.7 million, or $224.3 million over the required Unappropriated Reserve and
Emergency Reserve.
On November 3, 1992, voters in Colorado approved a constitutional amendment
(the "Amendment") which, in general, became effective December 31, 1992, and
could restrict the ability of the State and local governments to increase
revenues and impose taxes. The Amendment applies to the State and all local
governments, including home rule entities ("Districts"). Enterprises, defined
as government-owned businesses authorized to issue revenue bonds and receiving
under 10% of annual revenue in grants from all Colorado state and local
governments combined, are excluded from the provisions of the Amendment.
The provisions of the Amendment are unclear and will probably require judicial
interpretation. Among other provisions, beginning November 4, 1992, the
Amendment requires voter approval prior to tax increases, creation of debt, or
mill levy or valuation for assessment ratio increases. The Amendment also
limits increases in government spending and property tax revenues to specified
percentages. The
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Amendment requires that District property tax revenues yield no more than the
prior year's revenues adjusted for inflation, voter approved changes and
(except with regard to school districts) local growth in property values
according to a formula set forth in the Amendment. School districts are allowed
to adjust tax levies for changes in student enrollment. Pursuant to the
Amendment, local government spending is to be limited by the same formula as
the limitation for property tax revenues. The Amendment limits increases in
expenditures from the State general fund and program revenues (cash funds) to
the growth in inflation plus the percentage change in State population in the
prior calendar year. The bases for initial spending and revenue limits are
fiscal year 1992 spending and 1991 property taxes collected in 1992. The bases
for spending and revenue limits for fiscal year 1994 and later years will be
the prior fiscal year's spending and property taxes collected in the prior
calendar year. Debt service changes, reductions and voter-approved revenue
changes are excluded from the calculation bases. The Amendment also prohibits
new or increased real property transfer tax rates, new State real property
taxes and local District income taxes.
Litigation concerning several issues relating to the Amendment is pending in
the Colorado courts. The litigation deals with three principal issues: (i)
whether Districts can increase mill levies to pay debt service on general
obligation bonds without obtaining voter approval; (ii) whether a multi-year
lease purchase agreement subject to annual appropriations is an obligation
which requires voter approval prior to execution of the agreement; and (iii)
what constitutes an "enterprise" which is excluded from the provisions of the
Amendment. In September, 1994, the Colorado Supreme Court held that Districts
can increase mill levies to pay levies to pay debt service on general
obligation bonds issued after the effective date of the Amendment; litigation
regarding mill levy increases to pay general obligation bonds issued prior to
the Amendment is still pending. Various cases addressing the remaining issues
are at different stages in the trial and appellate process. The outcome of such
litigation cannot be predicted at this time.
According to the Colorado Economic Perspective, Fourth Quarter, FY 1993-94,
June 20, 1994 (the "Economic Report"), inflation for 1992 was 3.8% and
population grew at the rate of 2.8% in Colorado. Accordingly, under the
Amendment, increases in State expenditures during the 1994 fiscal year will be
limited to 6.6% over expenditures during the 1993 fiscal year. The limitation
for the 1995 fiscal year is projected to be 7.1%, based on projected inflation
of 4.2% for 1993 and projected population growth of 2.9% during 1993. The 1993
fiscal year is the base year for calculating the limitation for the 1994 fiscal
year. For the 1993 fiscal year, general fund revenues totalled $3,443.3 million
and program revenues (cash funds) totalled $1,617.6 million, resulting in total
estimated base revenues of $5,060.9 million. Expenditures for the 1994 fiscal
year, therefore, cannnot exceed $5,394.9 million. However, the 1994 fiscal year
general fund and program revenues (cash funds) are projected to be only
$5,242.8 million, or $152.1 million less than expenditures allowed under the
spending limitation.
There is also a statutory restriction on the amount of annual increases in
taxes that the various taxing jurisdictions in Colorado can levy without
electoral approval. This restriction does not apply to taxes levied to pay
general obligation debt.
As the State experienced revenue shortfalls in the mid-1980s, it adopted
various measures, including impoundment of funds by the Governor, reduction of
appropriations by the General Assembly, a temporary increase in the sales tax,
deferral of certain tax reductions and inter-fund borrowings. On a GAAP basis,
the State had unrestricted General Fund balances at June 30 of approximately
$100.3 million in fiscal year 1988, $134.4 million in fiscal year 1989, $116.6
million in fiscal year 1990, $16.3 million in fiscal year 1991, $133.3 million
in fiscal year 1992 and $326.6 million in fiscal year 1993. The fiscal year
1994 unrestricted general fund ending balance is currently projected to be
$337.6 million.
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For fiscal year 1993, the following tax categories generated the following
respective revenue percentages of the State's $3,443.3 million total gross
receipts: individual income taxes represented 51.1% of gross fiscal year 1993
receipts; excise taxes represented 31.57% of gross fiscal year 1993 receipts;
and corporate income taxes represented 4.0% of gross fiscal year 1993
receipts. The final budget for fiscal year 1994 projects general fund revenues
of approximately $3,570.8 million and appropriations of approximately $3,556.8
million. The percentages of general fund revenue generated by type of tax for
fiscal year 1994 are not expected to be significantly different from fiscal
year 1993 percentages.
State Debt. Under its constitution, the State of Colorado is not permitted to
issue general obligation bonds secured by the full faith and credit of the
State. However, certain agencies and instrumentalities of the State are
authorized to issue bonds secured by revenues from specific projects and
activities. The State enters into certain lease transactions which are subject
to annual renewal at the option of the State. In addition, the State is
authorized to issue short-term revenue anticipation notes. Local governmental
units in the State are also authorized to incur indebtedness. The major source
of financing for such local government indebtedness is an ad valorem property
tax. In addition, in order to finance public projects, local governments in
the State can issue revenue bonds payable from the revenues of a utility or
enterprise or from the proceeds of an excise tax, or assessment bonds payable
from special assessments. Colorado local governments can also finance public
projects through leases which are subject to annual appropriation at the
option of the local government. Local governments in Colorado also issue tax
anticipation notes. The Amendment requires prior voter approval for the
creation of any multiple fiscal year debt or other financial obligation
whatsoever, except for refundings at a lower rate or obligations of an
enterprise.
State Economy. Based on data published by the State of Colorado, Office of
State Planning and Budgeting as presented in the Economic Report, over 50% of
non-agricultural employment in Colorado in 1993 was concentrated in the retail
and wholesale trade and service sectors, reflecting the importance of tourism
to the State's economy and of Denver as a regional economic and transportation
hub. The government and manufacturing sectors followed as the fourth and fifth
largest employment sectors in the State, representing approximately 17.8% and
11.3%, respectively, of non-agricultural employment in the State in 1993.
According to the Economic Report, the unemployment rate improved slightly from
an average of 5.9% during 1992 to 5.2% during 1993. Total retail sales
increased by 9.7% during 1993. Colorado continued to surpass the job growth
rate of the U.S. with a 3.4% rate of growth projected for Colorado in 1994, as
compared with 2.2% for the nation as a whole. However, the rate of job growth
in Colorado is expected to decline in 1995, primarily due to the completion in
1994 of large public works projects such as Denver International Airport,
Coors Baseball Field, and the Denver public Library renovation project.
Personal income rose 6.6% in Colorado during 1992 and 5.5% in 1991. In 1992,
Colorado was the twelfth fastest growing state in terms of personal income
growth. However, because of heavy migration into the state and a large
increase in low-paying retail sector jobs, per capita personal income in
Colorado increased by only 3.8% in 1992, 0.1% below the increase in per capita
personal income for the nation as a whole.
Economic conditions in the State may have continuing effects on other
governmental units within the State (including issuers of the Bonds in Insured
Colorado Series 5), which, to varying degrees, have also experienced reduced
revenues as a result of recessionary conditions and other factors.
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COLORADO TAX STATUS
The assets of Insured Colorado Series 5 will consist of debt obligations
issued by or on behalf of the State of Colorado (the "State") or counties,
municipalities, authorities or political subdivisions thereof (the "Colorado
Bonds") or by the Commonwealth of Puerto Rico, Guam and the United States
Virgin Islands (the "Possession Bonds") (collectively, the "Bonds").
Neither the Sponsor nor its counsel have independently examined the Bonds to
be deposited in and held in Insured Colorado Series 5. However, although no
opinion is expressed herein regarding such matters, it is assumed that: (i)
the Bonds were validly issued, (ii) the interest thereon is excludible from
gross income for federal income tax purposes and (iii) interest on the
Colorado Bonds, if received directly by a Unitholder, would be exempt from the
Colorado income tax applicable to individuals and corporations ("Colorado
State Income Tax"). The opinion set forth below does not address the taxation
of persons other than full time residents of Colorado.
In the opinion of Chapman and Cutler, counsel to the Sponsor, under existing
Colorado law:
(1) Each Colorado Unitholder will be treated as owning a pro rata share of
each asset of Insured Colorado Series 5 for Colorado income tax
purposes in the proportion that the number of Units of such Trust held
by the Unitholder bears to the total number of outstanding Units of the
Insured Colorado Trust, and the income of Insured Colorado Series 5
will therefore be treated as the income of each Colorado Unitholder
under Colorado law in the proportion described;
(2) Interest on Bonds that would not be includable in income for Colorado
income tax purposes when paid directly to a Colorado Unitholder will be
exempt from Colorado income taxation when received by Insured Colorado
Series 5 and attributed to such Colorado Unitholder and when
distributed to such Colorado Unitholder;
(3) To the extent that interest paid and original issue discount, if any,
derived from the Insured Colorado Trust by a Unitholder with respect to
Possession Bonds is excludable from gross income for Federal income tax
purposes pursuant to 48 U.S.C. (S) 745, 48 U.S.C. (S) 1423a, and 48
U.S.C. (S) 1403, such interest paid and original issue discount, if
any, will not be subject to the Colorado State Income Tax; however, no
opinion is expressed herein regarding taxation of interest paid and
original issue discount, if any, on the Possession Bonds received by
Insured Colorado Series 5 and distributed to Unitholders under any
other tax imposed pursuant to Colorado law;
(4) Any proceeds paid under individual policies obtained by issuers of
Bonds in Insured Colorado Series 5 which represent maturing interest on
defaulted obligations held by the Trustee will not be includable in
income for Colorado income tax purposes if, and to the same extent as,
such interest is not includable for Federal income tax purposes;
(5) Each Colorado Unitholder will realize taxable gain or loss when Insured
Colorado Series 5 disposes of a Bond (whether by sale, exchange,
redemption, or payment at maturity) or when the Colorado Unitholder
redeems or sells Units at a price that differs from original cost as
adjusted for amortization of bond discount or premium and other basis
adjustments (including any basis reduction that may be required to
reflect a Colorado Unitholder's share of interest, if any, accruing on
Bonds during the interval between the Colorado Unitholder's settlement
date and the date such Bonds are delivered to Insured Colorado Series 5
, if later);
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(6) Tax cost reduction requirements relating to amortization of bond
premium may, under some circumstances, result in Colorado Unitholders
realizing taxable gain when their Units are sold or redeemed for an
amount equal to or less than their original cost; and
(7) If interest on indebtedness incurred or continued by a Colorado
Unitholder to purchase Units in Insured Colorado Series 5 is not
deductible for Federal income tax purposes, it also will be non-
deductible for Colorado income tax purposes.
Unitholders should be aware that all tax-exempt interest, including their
share of interest on the Bonds paid to Insured Colorado Series 5, is taken
into account for purposes of determining eligibility for the Colorado Property
Tax/Rent/Heat Rebate.
For a discussion of Federal tax matters relating to distributions from the
Trust Fund, see "Federal Tax Status."
INSURED NEW YORK SERIES 7
Risk Factors
The portfolio of Insured New York Series 7 includes certain bonds issued by
New York State (the "State"), by its various public bodies (the "Agencies"),
and/or by other entities located within the State, including the City of New
York (the "City").
Some of the more significant events and conditions relating to the financial
situation in New York are summarized below. This section provides only a brief
summary of the complex factors affecting the financial situation in New York
and is derived from sources that are generally available to investors and is
believed to be accurate. It is based in part on Official Statements and
prospectuses issued by, and on other information reported by the State, the
City and their agencies in connection with the issuance of their respective
securities.
There can be no assurance that current or future statewide or regional
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely affect the market value of New York
Municipal Obligations held in the portfolio of the Fund or the ability of
particular obligors to make timely payments of debt service on (or relating
to) those obligations.
The State has historically been one of the wealthiest states in the nation.
For decades, however, the State economy has grown more slowly than that of the
nation as a whole, gradually eroding the State's relative economic affluence.
Statewide, urban centers have experienced significant changes involving
migration of the more affluent to the suburbs and an influx of generally less
affluent residents. Regionally, the older Northeast cities have suffered
because of the relative success that the South and the West have had in
attracting people and business. The City has also had to face greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
The State has for many years had a very high state and local tax burden
relative to other states. The burden of State and local taxation, in
combination with the many other causes of regional economic dislocation, has
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
A national recession commenced in mid-1990. The downturn continued throughout
the State's 1990-91 fiscal year and was followed by a period of weak economic
growth during the 1991 calendar year. For
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calendar year 1992, the national economy continued to recover, although at a
rate below all post-war recoveries. For calendar year 1993, the economy grew
faster than 1992, but still at a very moderate rate as compared to other
recoveries. Moderate economic growth is expected to continue in calendar year
1994 at a slightly faster rate than in 1993. Economic recovery started
considerably later in the State than in the nation as a whole due in part to
the significant retrenchment in the banking and financial services industries,
downsizing by several major corporations, cutbacks in defense spending, and an
oversupply of office buildings. Many uncertainties exist in forecasts of both
the national and State economies and there can be no assurance that the State
economy will perform at a level sufficient to meet the State's projections of
receipts and disbursements.
1994-95 Fiscal Year. The Governor presented the recommended Executive Budget
for the 1994-95 fiscal year on January 18, 1994 and amended it on February 17,
1994. The Recommended 1994-95 State Financial Plan projects a balanced General
Fund, receipts and transfers from other funds at $33.422 billion (including a
projected $339 million surplus anticipated for the State's 1993-94 fiscal
year) and disbursements and transfers to other funds at $33.399 billion.
The recommended 1994-95 Executive Budget includes tax and fee reductions ($210
million), retention of revenues currently received, primarily by deferral of a
scheduled personal income tax rate reduction ($1.244 billion), and additional
increases to miscellaneous revenue sources ($237 million). No major additional
programs are recommended other than a $198 million increase in school aid,
$185 million in Medicaid cost-containment initiatives and $110 million in
local government Medicaid costs to be assumed by the State.
There can be no assurance that the State Legislature will enact the Executive
Budget as proposed, nor can there be any assurance that the Legislature will
enact a budget for the State's 1994-95 fiscal year prior to its commencement.
A delay in its enactment may negatively affect certain proposed actions and
reduce projected savings.
1993-94 Fiscal Year. The 1993-94 State Financial Plan issued on April 16, 1993
projected General Fund receipts and transfers from other funds at $32.367
billion and disbursements and transfers to other funds at $32.300 billion. In
comparison to the Governor's recommended Executive Budget for the 1993-94
fiscal year, as revised on February 18, 1993, the 1993-94 State Financial Plan
reflected increases in both receipts and disbursements in the General Fund of
$811 million.
The 1993-94 State Financial Plan was last revised on January 18, 1994. The
State projects a surplus of $299 million, as the result of developments which
positively impacted upon receipts and disbursements. In the revised Plan, the
State announced its intention to pay a 53rd weekly Medicaid payment, estimated
at $120 million, and to add $82 million to a reserve fund for contingencies.
On January 21, 1994, the State entered into a settlement with Delaware with
respect to State of Delaware v. State of New York, which is discussed below at
State Litigation. The State made an immediate $35 million payment and agreed
to make a $33 million annual payment in each of the next five fiscal years.
The State has not settled with other parties to the litigation and will
continue to incur litigation expense as to those claims.
On November 16, 1993, the Court of Appeals, the State's highest court,
affirmed the decision of a lower court in three actions, which declared
unconstitutional State actuarial funding methods for determining State and
local contributions to the State employee retirement system. Following the
decision, the State Comptroller developed a plan to phase in a constitutional
funding method and to restore prior funding
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levels of the retirement systems over a four year period. The plan is not
expected to require the State to make additional contributions with respect to
the 1993-94 fiscal year nor to materially and adversely affect the State's
financial condition thereafter. Through fiscal year 1998-99, the State expects
to contribute $643 million more to the retirement plans than would have been
required under the prior funding method.
Future Fiscal Years. There can be no assurance that the State will not face
substantial potential budget gaps in the future resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To
address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements.
Indebtedness. As of December 31, 1993, the total amount of long-term State
general obligation debt authorized but unissued stood at $2.3 billion. As of
the same date, the State had approximately $5.0 billion in general obligation
bonds and $294 million of Bond Anticipation Notes ("BANs"). The State issued
$850 million in tax and revenue anticipation notes ("TRANS") on May 4 all of
which matured on December 31, 1993. The State does not project the need to
issue TRANS during the State's 1994-95 fiscal year.
The State anticipates that its borrowings for capital purposes during the
State's 1993-94 fiscal year will consist of $413 million in general obligation
bonds and BANs. The projection of the State regarding its borrowings for the
1994-95 fiscal year may change if actual receipts fall short of State
projections or if other circumstances require.
In June 1990, legislation was enacted creating the "New York Local Government
Assistance Corporation" ("LGAC"), a public benefit corporation empowered to
issue long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. As of
February 28, 1994, LGAC has issued its bonds to provide net proceeds of $3.7
billion. The Governor has recommended the issuance of additional bonds to
provide net proceeds of $703 million during the State's 1994-95 fiscal year.
The Legislature passed a proposed constitutional amendment which would permit
the State subject to certain restrictions to issue revenue bonds without voter
referendum. Among the restrictions proposed is that such bonds would not be
backed by the full faith and credit of the State. The Governor intends to
submit changes to the proposed amendment, which before becoming effective must
be passed again by the next separately-elected Legislature and approved by
voter referendum at a general election. The earliest such an amendment could
take effect would be in November 1995.
Ratings. The $850 million in TRANS issued by the State in April 1993 were
rated SP-1-Plus by S&P on April 26, 1993, and MIG-1 by Moody's on April 23,
1993, which represents the highest ratings given by such agencies and the
first time the State's TRANS have received these ratings since its May 1989
TRANS issuance. Both agencies cited the State's improved fiscal position as a
significant factor in the upgrading of the April 1993 TRANS.
Moody's rating of the State's general obligation bonds stood at A on April 23,
1993, and S&P's rating stood at A- with a stable outlook on April 26, 1993, an
improvement from S&P's negative outlook prior to April 1993. Previously,
Moody's lowered its rating to A on June 6, 1990, its rating having been A1
since May 27, 1986. S&P lowered its rating from A to A- on January 13, 1992.
S&P's previous ratings were A from March 1990 to January 1992, AA- from August
1987 to March 1990 and A+ from November 1982 to August 1987.
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Moody's maintained its A rating and S&P continued its A- rating in connection
with the State's issuance of $224.1 million of its general obligation bonds in
March 1994.
The City and the Municipal Assistance Corporation ("MAC"). New York City
accounts for approximately 41% of the State's population and personal income,
and the City's financial health affects the State in numerous ways.
In response to the City's fiscal crisis in 1975, the State took a number of
steps to assist the City in returning to fiscal stability. Among other
actions, the State Legislature (i) created MAC to assist with long-term
financing for the City's short-term debt and other cash requirements and (ii)
created the State Financial Control Board (the "Control Board") to review and
approve the City's budgets and City four-year financial plans (the financial
plans also apply to certain City-related public agencies (the "Covered
Organizations")).
Over the past three years, the rate of economic growth in the City has slowed
substantially, and the City's economy is currently in recession. The Mayor is
responsible for preparing the City's four-year financial plan, including the
City's current financial plan. The City Comptroller has issued reports
concluding that the recession of the City's economy will be more severe and
last longer than is assumed in the Financial Plan.
Fiscal Year 1993 and 1994-1997 Financial Plan. The City's 1993 fiscal year
results are projected to be balanced in accordance with generally accepted
accounting principles ("GAAP"). The City was required to close substantial
budget gaps in its 1990, 1991 and 1992 fiscal years in order to maintain
balanced operating results.
On August 10, 1993, the City adopted and submitted to the Control Board its
Financial Plan for fiscal years 1994-1997, which was subsequently modified on
November 23, 1993. As modified in November 1993, the Plan projects a balanced
budget for fiscal year 1994 based upon revenues of $31.585 billion, and
projects budget gaps of $1.7 billion, $2.5 billion and $2.7 billion in fiscal
years 1995 through 1997, respectively.
During December 1993, a three-member panel appointed by the Mayor, the Office
of the State Deputy Comptroller and the Control Board, each issued reports
that were critical of the City's 1994-1996 Financial Plan. While each report
noted improvement in the outlook for fiscal year 1994, the reports indicated
that the budget gap for fiscal year 1995 could be as much as $450 million
higher than projected and that the budget gap might continue to increase in
later years to as much as $1.5 billion above current projections by fiscal
year 1997. Recommendations included addressing the City's tax and cost
structure to maximize revenues on a recurring basis and minimize expenditures,
a review of capital spending plans, service cuts, productivity gains and
economic development measures.
On February 2, 1994, the Mayor proposed further modifications to the 1994-1997
Financial Plan. The Mayor's proposed Plan projects a balanced budget for
fiscal year 1994, assuming revenues of $31.735 billion, and includes a reserve
of $198 million. The proposed modification projects budget gaps for fiscal
years 1995, 1996 and 1997 of $2.3 billion, $3.2 billion and $3.3 billion,
respectively. The Mayor identified $2.2 billion in gap closing measures for
fiscal year 1995. Implementation of these measures will require the
cooperation of municipal labor unions, the City Council and the State and
Federal governments. The Mayor's proposal includes a tax reduction program
which will have a financial impact on later years.
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Given the foregoing factors, there can be no assurance that the City will
continue to maintain a balanced budget, or that it can maintain a balanced
budget without additional tax or other revenue increases or reductions in City
services, which could adversely affect the City's economic base.
Pursuant to the laws of the State, the City prepares a four-year annual
financial plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections. The City is
required to submit its financial plans to review bodies, including the Control
Board. If the City were to experience certain adverse financial circumstances,
including the occurrence or the substantial likelihood and imminence of the
occurrence of an annual operating deficit of more than $100 million or the
loss of access to the public credit markets to satisfy the City's capital and
seasonal financing requirements, the Control Board would be required by State
law to exercise certain powers, including prior approval of City financial
plans, proposed borrowings and certain contracts.
The City depends on the State for State aid both to enable the City to balance
its budget and to meet its cash requirements. If the State experiences revenue
shortfalls or spending increases beyond its projections during its 1993 fiscal
year or subsequent years, such developments could result in reductions in
projected State aid to the City. In addition, there can be no assurance that
State budgets in future fiscal years will be adopted by the April 1 statutory
deadline and that there will not be adverse effects on the City's cash flow
and additional City expenditures as a result of such delays.
The City's projections set forth in the financial plan are based on various
assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and
contingencies include the timing of any regional and local economic recovery,
the absence of wage increases in excess of the increases assumed in the
financial plan, employment growth, provision of State and Federal aid and
mandate relief, State legislative approval of future State budgets, levels of
education expenditures as may be required by State law, adoption of future
City budgets by the New York City Council, and approval by the Governor, the
State Legislature and the cooperation of MAC with respect to various other
actions proposed in the financial plan.
The City's ability to maintain a balanced operating budget is dependent on
whether it can implement necessary service and personnel reduction programs
successfully. As discussed above, the City must identify additional
expenditure reductions and revenue sources to achieve operating budgets for
fiscal years 1994 and thereafter. Any such proposed expenditure reductions
will be difficult to implement because of their size and the substantial
expenditure reductions already imposed on City operations in the past two
years.
Attaining a balanced budget is also dependent upon the City's ability to
market its securities successfully in the public credit markets. The City's
financing program for fiscal years 1994 through 1997 contemplates capital
spending of $16.2 billion, which will be financed through issuance of $10.5
billion of general obligation bonds, $4.3 billion of Water Authority Revenue
Bonds and the balance by Covered Organization obligations, and will be
utilized primarily to reconstruct and rehabilitate the City's infrastructure
and physical assets and to make capital investments. A significant portion of
such bond financing is used to reimburse the City's general fund for capital
expenditures already incurred. In addition, the City issues revenue and tax
anticipation notes to finance its seasonal working capital requirements. The
terms and success of projected public sales of City general obligation bonds
and notes will be subject to prevailing market conditions at the time of the
sale, and no assurance can be given
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that the credit markets will absorb the projected amounts of public bond and
note sales. In addition, future developments concerning the City and public
discussion of such developments, the City's future financial needs and other
issues may affect the market for outstanding City general obligation bonds and
notes. If the City were unable to sell its general obligation bonds and notes,
it would be prevented from meeting its planned operating and capital
expenditures.
Fiscal Years 1990, 1991 and 1992. The City achieved balanced operating results
as reported in accordance with GAAP for the 1992 fiscal year. During the 1990
and 1991 fiscal years, the City implemented various actions to offset a
projected budget deficit of $3.2 billion for the 1991 fiscal year, which
resulted from declines in City revenue sources and increased public assistance
needs due to the recession. Such actions included $822 million of tax
increases and substantial expenditure reductions.
The City is a defendant in a significant number of lawsuits. Such litigation
includes, but is not limited to, actions commenced and claims asserted against
the City arising out of alleged constitutional violations, torts, breaches of
contracts and other violations of law and condemnation proceedings. While the
ultimate outcome and fiscal impact, if any, on the proceedings and claims are
not currently predictable, adverse determination in certain of them might have
a material adverse effect upon the City's ability to carry out its Financial
Plan. As of June 30, 1992, legal claims in excess of $341 billion were
outstanding against the City for which the City estimated its potential future
liability to be $2.3 billion.
As of the date of this prospectus, Moody's rating of the City's general
obligation bonds stood at Baa1 and S&P's rating stood at A-. On February 11,
1991, Moody's had lowered its rating from A.
On December 6, 1993 in confirming the Baa1 rating, Moody's noted that:
The fiscal 1994 budget is nominally balanced, in part through reliance on
one-shot revenues, but contains a number of risks . . . [T]he financial
plan . . . shows increased gaps in succeeding years.
The financial plan for fiscal 1995 and beyond shows an ongoing imbalance
between the City's expenditures and revenues . . . A key risk is that the
replacement of one-shot revenues is likely to become increasingly difficult
over time. Moody's continues to expect that the City's progress toward
achieving long-term balance will be slow and uneven, but that the City will
be diligent and prudent in closing gaps as they arise.
As discussed above under Fiscal Year 1993 and 1993-1996 Financial Plan, on
July 2, 1993 after a review of the City's budget for fiscal year 1994, its
proposed budget for fiscal year 1995 and certain additional cuts in both
proposed by the Mayor and the City Comptroller, S&P confirmed its A- rating
with a negative outlook of the City's general obligation bonds but indicated a
continuing concern about budgets for fiscal year 1995 and thereafter. S&P's
rating of the City's general obligation bonds remains unchanged.
On October 12, 1993, Moody's increased its rating of the City's issuance of
$650 million of Tax Anticipation Notes ("TANs") to MIG-1 from MIG-2. Prior to
that date, on May 9, 1990, Moody's revised downward its rating on outstanding
City revenue anticipation notes from MIG-1 to MIG-2 and rated the $900 million
Notes then being sold MIG-2. S&P's rating of the October 1993 TANS issue
increased to SP-1 from SP-2. Prior to that date, on April 29, 1991, S&P
revised downward its rating on City revenue anticipation notes from SP-1 to
SP-2.
As of June 30, 1993, the City and MAC had, respectively, $19.6 billion and
$4.5 billion of outstanding net long-term indebtedness.
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State Agencies. Certain Agencies of the State have faced substantial financial
difficulties which could adversely affect the ability of such Agencies to make
payments of interest on, and principal amounts of, their respective bonds. The
difficulties have in certain instances caused the State (under so-called "moral
obligation" provisions which are non-binding statutory provisions for State
appropriations to maintain various debt service reserve funds) to appropriate
funds on behalf of the Agencies. Moreover, it is expected that the problems
faced by these Agencies will continue and will require increasing amounts of
State assistance in future years. Failure of the State to appropriate necessary
amounts or to take other action to permit those Agencies having financial
difficulties to meet their obligations could result in a default by one or more
of the Agencies. Such default, if it were to occur, would be likely to have a
significant adverse effect on investor confidence in, and therefore the market
price of, obligations of the defaulting Agencies. In addition, any default in
payment on any general obligation of any Agency whose bonds contain a moral
obligation provision could constitute a failure of certain conditions that must
be satisfied in connection with Federal guarantees of City and MAC obligations
and could thus jeopardize the City's long-term financing plans.
As of September 30, 1993, the State reported that there were eighteen Agencies
that each had outstanding debt of $100 million or more. These eighteen Agencies
had an aggregate of $63.5 billion of outstanding debt, including refunding
bonds, of which $7.7 billion was moral obligation debt of the State and $19.3
billion was financed under lease-purchase or contractual obligation financing
arrangements.
State Litigations. The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings and other alleged violations of State and Federal
laws. Included in the State's outstanding litigation are a number of cases
challenging the constitutionality or the adequacy and effectiveness of a
variety of significant social welfare programs primarily involving the State's
mental hygiene programs. Adverse judgments in these matters generally could
result in injunctive relief coupled with prospective changes in patient care
which could require substantial increased financing of the litigated programs
in the future.
The State is also engaged in a variety of claims wherein significant monetary
damages are sought. Actions commenced by several Indian nations claim that
significant amounts of land were unconstitutionally taken from the Indians in
violation of various treaties and agreements during the eighteenth and
nineteenth centuries. The claimants seek recovery of approximately six million
acres of land as well as compensatory and punitive damages.
The U.S. Supreme Court on March 30, 1993, referred to a Special Master for
determination of damages on an action by the State of Delaware to recover
certain unclaimed dividends, interest and other distributions made by issuers
of securities held by New York based-brokers incorporated in Delaware. (State
of Delaware v. State of New York.) The State had taken such unclaimed property
under its Abandoned Property Law. New York and Delaware have entered into a
settlement agreement which provides for a payment of $35 million in fiscal year
1993-94 and thereafter five $33 million annual payments. Claims of other states
and the District of Columbia have not been settled and the State expects that
additional payments, which may be significant, may be required with respect
thereto during fiscal year 1994 and thereafter.
In Schulz v. State of New York, commenced May 24, 1993 ("Schulz 1993"),
petitioners have challenged the constitutionality of mass transportation
bonding programs of the New York State Thruway Authority
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and the Metropolitan Transportation Authority. On May 24, 1993, the Supreme
Court, Albany County, temporarily enjoined the State from implementing those
bonding programs. In previous actions Mr. Schulz and others have challenged on
similar grounds bonding programs for the New York State Urban Development
Corporation and the New York Local Government Assistance Corporation. While
there have been no decisions on the merits in such previous actions, by an
opinion dated May 11, 1993, the New York Court of Appeals held in a proceeding
commenced on April 29, 1991 in the Supreme Court, Albany County (Schulz v.
State of New York), that petitioners had standing as voters under the State
Constitution to bring such action.
Petitioners in Schulz 1993 have asserted that issuance of bonds by the two
Authorities is subject to approval by statewide referendum. By decision dated
October 21, 1993, the Appellate Division, Third Department, affirmed the order
of the Supreme Court, Albany County, granting the State's motion for summary
judgment, dismissing the complaint and vacating the temporary restraining
order. In December 1993, the New York Court of Appeals indicated that it would
hear the plaintiffs' appeal of the Appellate Division's decision in Schulz
1993. At this time there can be no forecast of the likelihood of success on
the merits by the petitioners, but a decision upholding this constitutional
challenge could restrict and limit the ability of the State and its
instrumentalities to borrow funds in the future.
Adverse developments in the foregoing proceedings or new proceedings could
adversely affect the financial condition of the State in the future.
Other Municipalities. Certain localities in addition to New York City could
have financial problems leading to requests for additional State assistance.
The potential impact on the State of such actions by localities is not
included in projections of State revenues and expenditures in the State's
1993-94 and 1994-95 fiscal years.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted in
the creation of the Financial Control Board for the City of Yonkers (the
"Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor or the State Legislature to assist Yonkers could result in allocation
of State resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings. In 1991, the total indebtedness of all localities in the
State was approximately $31.6 billion, of which $16.8 billion was debt of New
York City (excluding $6.7 billion in MAC debt). State law requires the
Comptroller to review and make recommendations concerning the budgets of those
local government units other than New York City authorized by State law to
issue debt to finance deficits during the period that such deficit financing
is outstanding. Fifteen localities had outstanding indebtedness for deficit
financing at the close of their fiscal year ending in 1991. In 1992, an
unusually large number of local government units requested authorization for
deficit financings. According to the Comptroller, ten local government units
have been authorized to issue deficit financing in the aggregate amount of
$131.1 million.
Certain proposed Federal expenditure reductions could reduce, or in some cases
eliminate, Federal funding of some local programs and accordingly might impose
substantial increased expenditure requirements on affected localities. If the
State, New York City or any of the Agencies were to suffer serious financial
difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State, including bonds in Insured New
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York Long-Intermediate Value Trust, could be adversely affected. Localities
also face anticipated and potential problems resulting from certain pending
litigation, judicial decisions, and long-range economic trends. The longer-
range potential problems of declining urban population, increasing
expenditures, and other economic trends could adversely affect certain
localities and require increasing State assistance in the future.
New York Tax Status
In the opinion of Tanner, Propp & Farber, special counsel to the Fund for New
York tax matters, under existing New York law:
Insured New York Series 7 is not an association taxable as a corporation and
the income of the Insured New York Series 7 will be treated as the income of
the Unitholders under the income tax laws of the State and City of New York.
Individuals who reside in New York State or City will not be subject to State
and City tax on interest income which is exempt from Federal income tax under
section 103 of the Internal Revenue Code of 1986 and derived from obligations
of New York State or a political subdivision thereof, although they will be
subject to New York State and City tax with respect to any gains realized when
such obligations are sold, redeemed or paid at maturity or when any such Units
are sold or redeemed.
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
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obligated to pay the debts or the claims against Financial Guaranty. Financial
Guaranty is domiciled in the State of New York and is subject to regulation by
the State of New York Insurance Department. As of September 30, 1994, the
total capital and surplus of Financial Guaranty was approximately
$871,000,000. Copies of Financial Guaranty's financial statements, prepared on
the basis of statutory accounting principles, and the Corporation's financial
statements, prepared on the basis of generally accepted accounting principles,
may be obtained by writing to Financial Guaranty at 115 Broadway, New York,
New York 10006, Attention: Communications Department (telephone number is
(212) 312-3000) or to the New York State Insurance Department at 160 West
Broadway, 18th Floor, New York, New York 10013, Attention: Property Companies
Bureau (telephone number (212) 621-0389).
In addition, Financial Guaranty Insurance Company is currently authorized to
write insurance in all 50 states and the District of Columbia.
The information relating to Financial Guaranty contained above has been
furnished by such corporation. The financial information contained herein with
respect to such corporation is unaudited but appears in reports or other
materials filed with state insurance regulatory authorities and is subject to
audit and review by such authorities. No representation is made herein as to
the accuracy or adequacy of such information or as to the absence of material
adverse changes in such information subsequent to the date thereof but the
Sponsor is not aware that the information herein is inaccurate or incomplete.
AMBAC Indemnity Corporation. AMBAC Indemnity Corporation ("AMBAC") is a
Wisconsin-domiciled stock insurance company, regulated by the Office of the
Commissioner of Insurance of the State of Wisconsin, and licensed to do
business in 50 states, the District of Columbia and the Commonwealth of Puerto
Rico, with admitted assets (unaudited) of approximately $1,988,000,000 and
statutory capital (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.
MBIA Insurance Corporation. MBIA Insurance 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, Inc. 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, Inc. "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, Inc. "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, Inc.
"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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<PAGE>
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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<PAGE>
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 interest) does not exceed the base amount need not include any
Social Security benefits in gross income.
TAX-EXEMPT PORTFOLIOS
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<PAGE>
For a discussion of the state tax status of income earned on Units of a state
trust, see the discussion of tax status for the applicable trust. Except as
noted therein, the exemption of interest on state and local obligations for
Federal income tax purposes discussed above does not necessarily result in
exemption under the income or other tax laws of any state or city. The laws of
the several states vary with respect to the taxation of such obligations.
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
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<PAGE>
UNDERWRITING
The Underwriters named below have severally purchased Units of the Trusts in
the following respective amounts:
<TABLE>
<CAPTION>
INSURED
NEW
INSURED INSURED YORK
CALIFORNIA COLORADO SERIES
FIRM NAME SERIES 16 SERIES 5 7
--------- ---------- -------- -------
<S> <C> <C> <C>
*Kemper Unit Investment Trusts..................... 265,000 254,500 210,000
*Kemper Securities, Inc............................ 50,000 50,000 50,000
Advest, Inc........................................ 10,000
Gruntal & Co., Inc................................. 10,000 10,000
Nathan & Lewis Securities, Inc..................... 10,000
Pershing, a Division of Donaldson, Lufkin & Jen-
rette ............................................ 10,000
------- ------- -------
TOTAL UNITS:....................................... 325,000 304,500 300,000
======= ======= =======
</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
Advest, Inc., One Commercial Plaza, 280 Trumbull Street, Hartford, CT
Gruntal & Co., Inc., 14 Wall Street, 14th Floor, New York, NY 10005
Nathan & Lewis Securities, Inc., 1140 6th Avenue, 4th Floor, New York, NY
10036
Pershing, a Division of Donaldson, Lufkin & Jenrette, One Pershing Plaza, 7th
Floor, Jersey City, NJ 07399
- ------------------
*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.
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<PAGE>
ESTIMATED CASH FLOWS TO UNITHOLDERS
The tables below set forth the estimated monthly distributions of interest and
principal to Unitholders on a per Unit basis. The tables assume no changes in
expenses, no changes in the current interest rates, no exchanges, redemptions,
sales or prepayments of the underlying Securities prior to maturity or
expected retirement date and the receipt of principal upon maturity or
expected retirement date. To the extent the foregoing assumptions change
actual distributions will vary.
INSURED CALIFORNIA TRUST
Monthly
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
----------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
May 15, 1995 $0.01399 $0.01399
Jun 15, 1995 to Feb. 15, 1998 $0.03814 $0.03814
Mar 15, 1998 $0.03814 $2.00000 $2.03814
Apr 15, 1998 to Sep 15, 1999 $0.03074 $0.03074
Oct 15, 1999 $0.03074 $2.00000 $2.03074
Nov 15, 1999 to Mar 15, 2000 $0.02304 $0.02304
Apr 15, 2000 $0.02304 $2.00000 $2.02304
May 15, 2000 to Dec 15, 2000 $0.01524 $0.01524
Jan 15, 2001 $0.01524 $2.00000 $2.01524
Feb 15, 2001 to Nov 15, 2002 $0.00754 $0.00754
Dec 15, 2002 $0.00338 $2.00000 $2.00338
</TABLE>
INSURED COLORADO TRUST
Monthly
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
---------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
May 15, 1995 $0.01654 $0.01654
Jun 15, 1995 to Feb 15, 2004 $0.04510 $0.04510
Mar 15, 2004 $0.04510 $1.23153 $1.27663
Apr 15, 2004 $0.03900 $0.82102 $0.86002
May 15, 2004 to May 15, 2005 $0.03510 $0.03510
Jun 15, 2005 $0.03099 $1.64204 $1.67303
Jul 15, 2005 to Sep 15, 2005 $0.02720 $0.02720
Oct 15, 2005 $0.02720 $1.37931 $1.40651
Nov 15, 2005 to May 15, 2015 $0.02050 $0.02050
Jun 15, 2016 $0.01665 $1.64204 $1.65869
Jul 15, 2016 to May 15, 2017 $0.01310 $0.01310
Jun 15, 2017 $0.01310 $1.64204 $1.65514
Jul 15, 2017 to Nov 15, 2023 $0.00620 $0.00620
Dec 15, 2024 $0.00269 $1.64204 $1.64473
</TABLE>
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<PAGE>
INSURED NEW YORK TRUST
Monthly
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
---------------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
May 15, 1995 $0.01458 $0.01458
Jun 15, 1995 to Sep 15, 2000 $0.03977 $0.03977
Oct 15, 2000 $0.03977 $2.0000 $2.03977
Nov 15, 2000 to Mar 15, 2001 $0.03257 $0.03257
Apr 15, 2001 $0.03257 $2.0000 $2.03257
May 15, 2001 to Jun 15, 2002 $0.02437 $0.02437
Jul 15, 2002 $0.02437 $2.0000 $2.02437
Aug 15, 2002 to Jun 15, 2003 $0.01647 $0.01647
Jul 15, 2003 $0.01647 $2.0000 $2.01647
Aug 15, 2003 to Jun 15, 2004 $0.00757 $0.00757
Jul 15, 2004 $0.00330 $2.0000 $2.00330
</TABLE>
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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, Standard & Poor's Ratings Group ("Standard &
Poor's") has rated the Units of any Insured Trust Fund "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 Insured
Trust Funds.
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.
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.
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.
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
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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,
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
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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.
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
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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.
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.
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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.
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
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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 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
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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.
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
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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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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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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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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.
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 investment expenses
(which would include the Unitholder's share of Trust expenses), tax return
preparation fees and employees 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.
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
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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.
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:
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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;
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.
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<PAGE>
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.
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
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<PAGE>
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 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
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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
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
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<PAGE>
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).
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
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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.
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.
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APPENDIX
DESCRIPTION OF RATINGS*
Standard & Poor's Ratings Group -- A brief description of the applicable
Standard & Poor's Rating Group rating symbols and their meanings follow:
A Standard & Poor's corporate or municipal bond rating is a current assessment
of the creditworthiness of an obligor with respect to a specific debt
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer and
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default -- capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement, under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
Bonds rated "BB,' "B,' "CCC,' "CC,' and "C' are regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal.
- --------
*As described by the rating company itself.
A-1
<PAGE>
"BB' indicates the least degree of speculation and "C,' the highest degree of
speculation. While such Bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB -- Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could
lead to inadequate capacity to meet timely interest and principal payments.
B -- Bonds rated B have greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions would likely impair capacity or willingness
to pay interest and repay principal.
CCC -- Bonds rated CCC have a current identifiable vulnerability to default,
and is dependent on favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal.
CC -- The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
D -- Bonds are rated D when the issue is in payment default, or the obligor
has filed for bankruptcy. The D rating is used when interest or principal
payments are not made on the date due, even if the applicable grace period has
not expired, unless S&P believes that such payments will be made during such
grace period.
Plus (+) or Minus (-): The ratings from "AA" to "A" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "p" indicates the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Moody's Investors Service, Inc.--A brief description of the applicable Moody's
Investors Service, Inc. rating symbols and their meanings follow:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Their safety is so
absolute that with the occasional exception of oversupply in a few specific
instances, characteristically, their market value is affected solely by money
market fluctuations.
A-2
<PAGE>
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities. Their market value is virtually immune to all but money market
influences, with the occasional exception of oversupply in a few specific
instances.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future. The market value of A-rated bonds may be influenced to some degree by
economic performance during a sustained period of depressed business
conditions, but, during periods of normalcy, A-rated bonds frequently move in
parallel with Aaa and Aa obligations, with the occasional exception of
oversupply in a few specific instances.
A1 -- Bonds which are rated A1 offer the maximum in security within their
quality group, can be bought for possible upgrading in quality, and
additionally, afford the investor an opportunity to gauge more precisely the
relative attractiveness of offerings in the marketplace.
Baa -- Bonds which are rated Baa are considered as lower medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and, in fact, have speculative characteristics as
well. The market value of Baa-rated bonds is more sensitive to changes in
economic circumstances and, aside from occasional speculative factors applying
to some bonds of this class, Baa market valuations move in parallel with Aaa,
Aa and A obligations during periods of economic normalcy, except in instances
of oversupply.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C -- bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Conditional Ratings: Bonds rated "Con(--)" are ones for which the security
depends upon the completion of some act or the fulfillment of some condition.
These are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals which
begin
A-3
<PAGE>
when facilities are completed, or (d) payments to which some other limiting
conditions attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in certain areas of its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Duff & Phelps Credit Rating Co. -- A brief description of the applicable Duff
& Phelps Credit Rating Co. rating symbols and their meanings follow:
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related
to such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and
expertise. The projected viability of the obligor at the trough of the cycle
is a critical determination.
AAA -- Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA -- High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A -- Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB -- Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.
BB -- Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B -- Below investment grade and possessing risk that obligations will not be
met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.
CCC -- Well below investment grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD -- Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
A-4
<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................. 12
Public Distribution of Units............................................. 12
Profits of Sponsor and Underwriters...................................... 14
THE CORPORATE INCOME SERIES............................................... C-1
The Trust Portfolio...................................................... C-1
Series Information....................................................... C-1
Portfolio................................................................ C-2
Notes to Portfolio....................................................... C-3
Risk Factors............................................................. C-4
Federal Tax Status....................................................... C-5
Estimated Cash Flows to Unitholders...................................... C-9
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-5
Notes to Portfolios...................................................... TE-8
Municipal Bond Risk Factors.............................................. TE-9
State Risk Factors and State Tax Status.................................. TE-12
Insurance on the Bonds................................................... TE-34
Federal Tax Status....................................................... TE-37
Underwriting............................................................. TE-42
Estimated Cash Flows to Unitholders...................................... TE-44
GENERAL INFORMATION....................................................... GI-1
Rating of Units.......................................................... GI-1
Trust Information........................................................ GI-1
Retirement Plans......................................................... GI-4
Distribution Reinvestment................................................ GI-6
Interest, Estimated Long-Term Return and Estimated Current Return........ GI-6
Market For Units......................................................... GI-7
Redemption............................................................... GI-8
Unitholders.............................................................. GI-10
Investment Supervision................................................... GI-14
Administration of the Trusts............................................. GI-14
Expenses of the Trusts................................................... GI-16
The Sponsor.............................................................. GI-18
Legal Opinions........................................................... GI-18
Independent Certified Public Accountants................................. GI-18
APPENDIX: DESCRIPTION OF RATINGS.......................................... A-1
</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.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
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 Form of Trust Indenture and Agreement for Kemper Defined Funds Series 33
(to be filed by amendment).
1.1.1 Standard Terms and Conditions of Trust for Kemper Defined Funds Series
33 (to be filed by amendment).
2.1 Form of Certificate of Ownership (pages two to four, inclusive, of the
Standard Terms and Conditions of Trust included as Exhibit 1.1.1).
3.1 Opinion of counsel to the Sponsor as to legality of the securities being
registered including a consent to the use of its name under the headings
"Federal Tax Status" and "Legal Opinions" in the Prospectus and opinion
of counsel as to Federal income tax status of the securities being
registered and certain Missouri tax matters (to be filed by amendment).
4.1 Consent of Moody's Investors Service, Inc. (to be filed by amendment).
4.2 Consent of Muller Data Corporation (to be filed by amendment).
4.3 Consent of Grant Thornton LLP (to be filed by amendment).
</TABLE>
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
KEMPER DEFINED FUNDS SERIES 33, HAS DULY CAUSED THIS REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CHICAGO, AND STATE OF ILLINOIS, ON THE 5TH DAY OF MAY, 1995.
KEMPER DEFINED FUNDS SERIES 33
Registrant
By: KEMPER SECURITIES, INC.
Depositor
/s/ Robert K. Burke
By: _________________________________
Robert K. Burke
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON MAY 5, 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
Steven G. McConahey
- -------------------------------------------
Steven 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
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
David B. Mathis
- -------------------------------------------
David B. Mathis Director
Stephen B. Timbers
- -------------------------------------------
Stephen B. Timbers Director
Donald F. Eller
- -------------------------------------------
Donald F. Eller Director
Charles M. Kierscht
- -------------------------------------------
Charles M. Kierscht Director
</TABLE>
/s/ Robert K. Burke
_____________________________________
Robert K. Burke
ROBERT K. BURKE SIGNS THESE DOCUMENTS PURSUANT TO POWER OF ATTORNEY FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION WITH AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT ON FORM S-6 FOR KEMPER DEFINED FUNDS SERIES 28
(REGISTRATION NO. 33-56779).
S-3
