<PAGE>
As filed with the Securities and Exchange Commission on August 14, 1995
Registration No. 33-
CIK #910903
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 36
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 60601
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
Title and amount of Proposed maximum Amount of
securities being registered aggregate offering registration fee
price
Series 36 An indefinite number of Indefinite $500
Units of Beneficial Interest
pursuant to Rule 24f-2 under
the Investment Company Act of 1940
-------------------------------------------------------------------------------------------------------------
</TABLE>
E. Approximate date of proposed sale to public:
As soon as practicable after the effective date of the Registration
Statement.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
<PAGE>
KEMPER DEFINED FUNDS SERIES 36
-----------------
CROSS-REFERENCE SHEET
(FORM N-8B-2 ITEMS REQUIRED BY INSTRUCTIONS AS
TO THE PROSPECTUS IN FORM S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
----------- ---------------------
I. ORGANIZATION AND GENERAL INFORMATION
1. (a) Name of trust................... }Prospectus front cover
(b) Title of securities issued...... }Essential Information
2. Name and address of each depositor... }Administration of the Trusts
3. Name and address of trustee.......... } *
4. Name and address of principal
underwriters........................ }Underwriting
5. State of organization of trust....... }The Trust Funds
6. Execution and termination of trust
agreement........................... }The Trust Funds;
}Administration of the Trusts
7. Changes of name...................... }The Trust Funds
8. Fiscal year.......................... } *
9. Litigation........................... } *
II. GENERAL DESCRIPTION OF THE TRUST AND
SECURITIES OF THE TRUST
10. (a) Registered or bearer securities. }Unitholders
(b) Cumulative or distributive
securities..................... }The Trust Funds
(c) Redemption...................... }Redemption
(d) Conversion, transfer, etc....... }Unitholders; Market for Units
(e) Periodic payment plan........... } *
(f) Voting rights................... }Unitholders
}Investment Supervision;
(g) Notice of certificateholders.... }Administration of the Trusts;
}Unitholders
(h) Consents required............... }Unitholders; Administration
}of the Trusts
(i) Other provisions................ }Federal Tax Status; Insurance
}on the Portfolios of the
}Insured Trust Funds
11. Type of securities comprising units.. }The Trust Funds; Portfolios
12. Certain information regarding periodic
-I-
<PAGE>
payment certificates..................... } *
13. (a) Load, fees, expenses, etc............. }Interest, Estimated Long-Term
...................................... }Return
}and Estimated Current
}Return; Expenses of the
}Trust
(b) Certain information regarding periodic
payment certificates................. } *
(c) Certain percentages................... }Essential Information; Public
...................................... }Offering of Units; Insurance
...................................... }on the Portfolios of the
...................................... }Insured Trust Funds
(d) Certain other fees, etc. payable
by holders........................... }Unitholders
(e) Certain profits receivable by depositor,
principal, underwriters, writers, }Expenses of the Trusts;
trustee or affiliated persons........ }Public Offering of Units
(f) Ratio of annual charges to income..... } *
}The Trust Funds;
14. Issuance of trust's securities............ }Unitholders
15. Receipt and handling of payments
from purchasers.......................... } *
16. Acquisition and disposition of underlying
securities............................... }The Trust Funds; Portfolios;
}Investment Supervision
}Market for Units;
17. Withdrawal or redemption.................. }Redemption; Public Offering
}of Units
18. (a) Receipt, custody and disposition
of income........................... }Unitholders
(b) Reinvestment of distributions........ }Distribution Reinvestment
(c) Reserves or special funds............ }Expenses of the Trusts
(d) Schedule of distributions............ *
}Unitholders;
19. Records, accounts and reports............. }Redemption; Administration
}of the Trusts
20. Certain miscellaneous provisions of
trust agreement
(a) Amendment............................ }Administration of the Trusts
(b) Termination.......................... } *
(c) and (d) Trustee, removal and
successor........................... }Administration of the Trusts
(e) and (f) Depositor, removal and
successor........................... }Administration of the Trusts
21. Loans to security holders................. } *
22. Limitations on liability.................. }Administration of the Trusts
23. Bonding arrangements...................... } *
-II-
<PAGE>
24. Other material provisions of trust
agreement................................ } *
III. ORGANIZATION, PERSONNEL AND
AFFILIATED PERSONS OF DEPOSITOR
25. Organization of depositor................. }Administration of the Trusts
26. Fees received by depositor................ }See Items 13(a) and 13(e)
27. Business of depositor..................... }Administration of the Trusts
28. Certain information as to officials and
affiliated persons of depositor.......... }Administration of the Trusts
29. Voting securities of depositor............ } *
}Administration of the Trusts
30. Persons controlling depositor............. } *
31. Payment by depositor for certain services
rendered to trust........................ } *
32. Payment by depositor for certain other
services rendered to trust............... } *
33. Remuneration of employees of depositor }
for certain services rendered to trust... } *
34. Remuneration of other persons for certain }
services rendered to trust............... } *
IV. DISTRIBUTION AND REDEMPTION
35. Distribution of Trust's securities
by states................................ }Public Offering of Units
36. Suspension of sales of trust's securities. } *
37. Revocation of authority to distribute..... } *
38. (a) Method of Distribution................ }Public Offering of Units;
(b) Underwriting Agreements............... }Market for Units;
(c) Selling Agreements.................... }Public Offering of Units
39. (a) Organization of principal underwriters }Administration of the Trusts
(b) N.A.S.D. membership of principal }
underwriters......................... } *
40. Certain fees received by principal
underwriters............................. }See Items 13(a) and 13(e)
41. (a) Business of principal underwriters.... }Administration of the Trusts
(b) Branch offices of principal }
underwriters......................... } *
(c) Salesmen of principal underwriters.... } *
42. Ownership of trust's securities by }
certain persons.......................... } *
43. Certain brokerage commissions received by
-III-
<PAGE>
principal underwriters................... }Public Offering of Units
44. (a) Method of valuation................... }Public Offering of Units
(b) Schedule as to offering price......... } *
(c) Variation in offering price to
certain persons...................... }Public Offering of Units
45. Suspension of redemption rights........... }Redemption
}Redemption; Market for
46. (a) Redemption valuation.................. }Units; Public Offering of
}Units
(b) Schedule as to redemption price....... } *
}Market for Units;
47. Maintenance of position in underlying..... }Public Offering of Units;
}Redemption
V. INFORMATION CONCERNING THE TRUSTEE
OR CUSTODIAN
48. Organization and regulation of trustee.... }Administration of the Trusts
49. Fees and expenses of trustee.............. }Expenses of the Trusts
50. Trustee's lien............................ } *
VI. INFORMATION CONCERNING INSURANCE OF
HOLDERS OF SECURITIES
51. Insurance of holders of trust's
securities............................... }Cover Page; Expenses of the
}Trusts; Insurance on the
}Portfolios of the Insured
}Trust Funds
VII. POLICY OF REGISTRANT
52. (a) Provisions of trust agreement with
respect to selection or elimination.. }The Trust Funds; Portfolios;
of underlying securities............. }Investment Supervision
(b) Transactions involving elimination of
underlying securities................ } *
(c) Policy regarding substitution or
elimination of underlying securities. }Investment Supervision
(d) Fundamental policy not otherwise
covered.............................. } *
}Essential Information;
53. Tax status of Trust....................... }Portfolios
}Federal Tax Status
-IV-
<PAGE>
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trust's securities during last ten years.. } *
55. } *
56. Certain information regarding periodic } *
57. payment certificates..................... } *
58. } *
59. Financial statements (Instruction 1(c)
to Form S-6)............................. } *
-V-
<PAGE>
Preliminary Prospectus Dated August 14, 1995
KEMPER DEFINED FUNDS SERIES 36
(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 offers to buy be accepted prior to the time the
registration statement becomes effective. This Prospectus shall not constitute
an offer to sell or the solicitation of an offer to buy nor shall there be any
sale of 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 34
(TAX-EXEMPT PORTFOLIO)
Insured California Series 18 and Insured Florida Series 2 (the "Tax-Exempt
Portfolios" or the "Insured Trusts") were formed for the purpose of gaining
interest income free from Federal income taxes and, where applicable, State
and 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 MBIA Insurance 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, a
Division of The McGraw-Hill Companies ("Standard & Poor's"). 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 JUNE 21, 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 Tax-Exempt Portfolios--Municipal
Bond Risk Factors."
2
<PAGE>
KEMPER DEFINED FUNDS SERIES 34
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 of a Tax-Exempt Portfolio.
Unitholders purchasing 10,000 Units or more of a Tax-Exempt Portfolio will
receive a slightly higher return because of the reduced sales charge for
larger purchases.
<TABLE>
<CAPTION>
INSURED INSURED
CALIFORNIA FLORIDA
SERIES 18 SERIES 2
------------ ------------
<S> <C> <C>
Public Offering Price per Unit (1)(2)............. $ 10.318 $ 9.900
Principal Amount of Securities per Unit........... $ 10.000 $ 10.000
Estimated Current Return based on Public Offering
Price (3)(4)(5)(6)............................... 4.29% 5.17%
Estimated Long-Term Return (3)(4)(5)(6)........... 4.41% 5.25%
Estimated Normal Annual Distribution per Unit (6). $ 0.44237 $ 0.51170
Principal Amount of Securities.................... $ 3,750,000 $ 3,095,000
Number of Units................................... $ 375,000 $ 309,500
Fractional Undivided Interest per Unit............ 1/375,000 1/309,500
Calculation of Public Offering Price--Less than
10,000 Units:
Aggregate Offering Price of Securities........... $ 3,752,890 $ 2,914,052
Aggregate Offering Price of Securities per Unit.. $ 10.008 $ 9.415
Plus Sales Charge per Unit (7)................... $ 0.310 $ 0.485
Public Offering Price per Unit (1)(2)............ $ 10.318 $ 9.900
Redemption Price per Unit......................... $ 9.990 $ 9.365
Sponsor's Initial Repurchase Price per Unit....... $ 10.008 $ 9.415
Excess of Public Offering Price per Unit over
Redemption Price per Unit........................ $ 0.328 $ 0.535
Excess of Public Offering Price per Unit over
Sponsor's Initial Repurchase Price per Unit...... $ 0.310 $ 0.485
Calculation of Estimated Net Annual Interest
Income per Unit (6):
Estimated Annual Interest Income................. $ 0.46200 $ 0.53693
Less: Estimated Annual Expense................... $ 0.01963 $ 0.02523
Estimated Net Annual Interest Income............. $ 0.44237 $ 0.51170
Estimated Daily Rate of Net Interest Accrual per
Unit............................................. $0.001228810 $0.001421390
Minimum Principal Value of the Trust under which
Trust Agreement may be terminated................ $ 750,000 $ 619,000
</TABLE>
Evaluations for purposes of sale, purchase or redemption of Units are made as
of the close of business of the Sponsor (currently 3:15 p.m. Central Time)
next following receipt of an order for a sale or purchase of Units or receipt
by Investors Fiduciary Trust Company of Units tendered for redemption.
3
<PAGE>
ESSENTIAL INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
INSURED INSURED
CALIFORNIA FLORIDA
SERIES 18 SERIES 2
---------- --------
<S> <C> <C>
Trustee's Annual Fee per $1,000 principal amount of Secu-
rities (8)............................................... $ 1.080 $ 1.590
Reduction of Trustee's fee per Unit during the first year
(6)......................................................
Estimated annual interest income per Unit during the first
year (6)................................................. $0.46200 $0.53693
Interest Payments (9):
First Payment per Unit, representing 5 days.............. $0.00614 $0.00711
Estimated Normal Monthly Distribution per Unit........... $0.03686 $0.04264
Estimated Normal Annual Distribution per Unit............ $0.44237 $0.51170
Sales Charge (7):
As a percentage of Public Offering Price per Unit........ 3.000% 4.900%
As a percentage of net amount invested................... 3.098% 5.151%
As a percentage of net amount invested in earning
assets.................................................. 3.098% 5.151%
</TABLE>
<TABLE>
<S> <C>
Date of Trust Agree- June 21, 1995
ments..................
First Settlement Date... June 26, 1995
Mandatory Termination December 31, 2028
Date...................
Evaluator's Annual Eval-
uation Fee--Tax-
Exempt Portfolios...... Maximum of $0.30 per $1,000 Principal Amount of Securities
Sponsor's Annual Sur-
veillance 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
three 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.
4
<PAGE>
(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 July 1, 1995, and the
distribution date is the fifteenth day of the month, commencing July 15,
1995.
5
<PAGE>
---------------------
* Reference is made to the Trust Agreements, and any statements contained
herein are qualified in their entirety by the provisions of the Trust
Agreements.
THE TRUST FUNDS
Kemper Defined Funds Series 34 includes the following separate unit investment
trusts created by the Sponsor under the name Kemper Defined Funds: "Insured
California Series 18" and "Insured Florida Series 2" (the "Insured State
Trusts") (collectively, the "Trusts" or "Trust Funds"). Each Insured State
Trust is also referred to as a "Tax-Exempt Portfolio" and "Insured Trust."
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").*
Each Insured State Trust was formed for the purpose of gaining interest income
free from Federal income taxes and, where applicable, State and 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.
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."
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.
6
<PAGE>
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.
7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
UNITHOLDERS
KEMPER DEFINED FUNDS SERIES 34
We have audited the accompanying statements of condition and the related
portfolios of Kemper Defined Funds Series 34 (Insured California Series 18 and
Insured Florida Series 2) as of June 21, 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 June 21, 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
34 (Insured California Series 18 and Insured Florida Series 2) as of June 21,
1995, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
June 21, 1995
8
<PAGE>
KEMPER DEFINED FUNDS SERIES 34
STATEMENTS OF CONDITION AT THE OPENING OF BUSINESS ON JUNE 21, 1995, THE
INITIAL DATE OF DEPOSIT
<TABLE>
<CAPTION>
INSURED INSURED
CALIFORNIA FLORIDA
SERIES 18 SERIES 2
---------- ----------
<S> <C> <C>
INVESTMENT IN SECURITIES
Securities deposited in the Trusts (1)(2)................ $ 0 $ 0
Contracts to purchase Securities (1)(2).................. 3,752,890 2,914,052
Accrued interest to First Settlement Date on Securities
(1)(3).................................................. 33,115 48,968
---------- ----------
Total................................................... $3,786,005 $2,963,020
========== ==========
Number of Units.......................................... 375,000 309,500
LIABILITY AND INTEREST OF UNITHOLDERS
Liability--
Accrued interest payable to Sponsor (1)(3).............. $ 33,115 $ 48,968
Interest of Unitholders--
Cost to investors (4)................................... 3,869,250 3,064,050
Less: Gross underwriting commission (4)................. 116,360 149,998
---------- ----------
Net interest to Unitholders (1)(3)(4)................... 3,752,890 2,914,052
---------- ----------
Total................................................. $3,786,005 $2,963,020
========== ==========
</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 $6,749,025 which has
been deposited with the Trustee. Of this amount, $6,666,942 relates to the
offering price of Securities to be purchased and $82,083 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 MBIA
Insurance 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 Tax-Exempt Portfolios. For
single transactions involving 10,000 or more Units for Tax-Exempt
Portfolios, 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.
9
<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 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
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.
10
<PAGE>
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.
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 a Corporate
Income Series only, acquire Units of such 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.
11
<PAGE>
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 three business days following the order for
purchase, payments may be made prior thereto. A person will become the owner of
Units on the date of settlement provided payment has been received. Cash, if
any, made available to the Sponsor prior to the date of settlement for the
purchase of Units may be used on the Sponsor's business and may be deemed to be
a benefit to the Sponsor, subject to the limitations of the Securities Exchange
Act of 1934. If a Unitholder desires to have certificates representing Units
purchased, such certificates will be delivered as soon as possible following
his written request therefor. For information with respect to redemption of
Units purchased, but as to which certificates requested have not been received,
see "General Information--Redemption" below.
ACCRUED INTEREST. Accrued interest is the accumulation of unpaid interest on a
security from the last day on which interest thereon was paid. Interest on
Securities generally is paid semi-annually (monthly in the case of Ginnie Maes,
if any) although a Trust accrues such interest daily. Because of this, a Trust
always has an amount of interest earned but not yet collected by the Trustee.
For this reason, with respect to sales settling subsequent to the First
Settlement Date, the Public Offering Price of Units will have added to it the
proportionate share of accrued interest to the date of settlement. Unitholders
will receive on the next distribution date of a Trust the amount, if any, of
accrued interest paid on their Units.
In an effort to reduce the amount of accrued interest which would otherwise
have to be paid in addition to the Public Offering Price in the sale of Units
to the public, the Trustee will advance the amount of accrued interest as of
the First Settlement Date and the same will be distributed to the Sponsor as
the Unitholder of record as of the First Settlement Date. Consequently, the
amount of accrued interest to be added to the Public Offering Price of Units
will include only accrued interest from the First Settlement Date to the date
of settlement, less any distributions from the Interest Account subsequent to
the First Settlement Date.
Because of the varying interest payment dates of the Securities, accrued
interest at any point in time will be greater than the amount of interest
actually received by the Trusts and distributed to Unitholders. Therefore,
there will always remain an item of accrued interest that is added to the value
of the Units. If a Unitholder sells or redeems all or a portion of his Units,
he will be entitled to receive his proportionate share of the accrued interest
from the purchaser of his Units. Since the Trustee has the use of the funds
held in the Interest Account for distributions to Unitholders and since such
Account is non-interest-bearing to Unitholders, the Trustee benefits thereby.
COMPARISON OF PUBLIC OFFERING PRICE AND REDEMPTION PRICE. While the Initial
Public Offering Price of Units will be determined on the basis of the current
offering prices of the Securities in a Trust, the redemption price per Unit (as
well as the secondary market price per Unit) at which Units may be redeemed
(see "General Information--Redemption") will be determined on the basis of the
current bid
12
<PAGE>
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." Under current market conditions the bid prices for
U.S. Treasury Obligations are expected to be approximately 1/8 to 1/4 of 1%
lower than the offer price of such obligations. In the past, bid prices on
securities similar to those in the Trust Funds have been lower than the
offering prices thereof by as much as 5% or more of principal amount in the
case of inactively traded bonds or as little as 1/2 of 1% in the case of
actively traded bonds, but the difference between such offering and bid prices
may be expected to average 3% to 4% of principal amount. For this reason, among
others (including fluctuations in the market prices of the Securities and the
fact that the Public Offering Price includes a sales charge), the amount
realized by a Unitholder upon any redemption of Units may be less than the
price paid for such Units.
PUBLIC DISTRIBUTION OF UNITS. The Sponsor intends to qualify the Units for sale
in a number of states (except for an Insured State Trust or uninsured State
Trust which will be qualified for sale only in the state for which such Trust
is named). Units will be sold through dealers who are members of the National
Association of Securities Dealers, Inc. and through others. Sales may be made
to or through dealers at prices which represent discounts from the Public
Offering Price as set forth below. Certain commercial banks are making Units of
the Trust Funds available to their customers on an agency basis. A portion of
the sales charge paid by their customers is retained by or remitted to the
banks in the amount shown in the tables below. Under the Glass-Steagall Act,
banks are prohibited from underwriting Trust Fund Units; however, the Glass-
Steagall Act does permit certain agency transactions and the banking regulators
have indicated that these particular agency transactions are permitted under
such Act. In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. The
Sponsor reserves the right to change the discounts set forth below from time to
time. In addition to such discounts, the Sponsor may, from time to time, pay or
allow an additional discount, in the form of cash or other compensation, to
dealers employing registered representatives who sell, during a specified time
period, a minimum dollar amount of Units of a Trust and other unit investment
trusts created by the Sponsor. The difference between the discount and the
sales charge will be retained by the Sponsor.
For the 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. 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>
T
A
X
E
X
E
M
P
T
P
O
R
T
F
O
L
I
O
S
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 "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
CALIFORNIA FLORIDA
SERIES 18 SERIES 2
---------- --------
<S> <C> <C>
Number of Obligations...................................... 5 7
Territorial Obligations (1)................................ 0 0
General Obligation Bonds (2)(3)............................ 0 0
Revenue Bonds (4)(3)....................................... 5(100%) 7(100%)
Revenue Bond Concentrations (3):
Correctional Facilities...................................
Excise Tax Revenue........................................
Sales Tax Revenue.........................................
Electric Systems.......................................... 20% 16%
Utilities................................................. 10%
Hospital.................................................. 40% 29%
Pollution Control.........................................
Lease Revenue.............................................
Education................................................. 20% 16%
Wastewater................................................
Water & Sewer.............................................
Transportation............................................
Tollroad.................................................. 13%
Miscellaneous............................................. 20% 16%
Average life of the Municipal Bonds in the Trust (5)....... 5 years 27 years
Percentage of "when, as and if issued" or "delayed
delivery" Bonds purchased by the Trust.................... None None
Syndication (6)............................................ None None
</TABLE>
TAX-EXEMPT PORTFOLIOS
TE-1
<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.
TE-2
TAX-EXEMPT PORTFOLIOS
<PAGE>
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.
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.
TAX-EXEMPT PORTFOLIOS
TE-3
<PAGE>
FLORIDA
<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 15% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
23.35-
56.55 39.00- 94.25 28 5.56 6.25 6.94 7.64 8.33 9.03 9.72
56.55-
117.95 94.25-143.60 31 5.80 6.52 7.25 7.97 8.70 9.42 10.14
117.95-
256.50 143.60-256.50 36 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over
256.50 Over 256.50 39.6 6.62 7.45 8.28 9.11 9.93 10.76 11.59
</TABLE>
--------
*The State of Florida imposes no income tax on individuals; accordingly, the
table reflects only the exemption from Federal income taxes. The table does
not reflect the exemption of Units of the Florida Trust from the State's
intangible tax; accordingly, Florida residents subject to such tax would need
a somewhat higher taxable estimated current return than those shown to equal
the tax-exempt estimated current return of the Florida Trust.
TE-4
TAX-EXEMPT PORTFOLIOS
<PAGE>
INSURED CALIFORNIA
KEMPER DEFINED FUNDS SERIES 34
SERIES 18
PORTFOLIO AS OF THE INITIAL DATE OF DEPOSIT: JUNE 21, 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>
$ 750,000 City of Walnut Creek AAA Non-Callable $ 742,553
California, Certificates
of Participation
Refunding Series 1994
(John Muir Medical
Center) (MBIA Insured),
4.00% Due 2/15/1998
750,000 City and County of San AAA Non-Callable 742,238
Francisco, California,
Certificates of
Participation (San
Francisco Courthouse
Project), Series 1995
(Capital Guaranty
Insured), 4.30% Due
4/01/1999
750,000 California Statewide AAA Non-Callable 753,413
Communities Development
Authority, Insured Health
Facilities Revenue
Certificates of
Participation (UniHealth
America), 1993 Series A
(AMBAC Insured), 4.80%
Due 10/01/2000
750,000 Imperial Irrigation AAA Non-Callable 737,753
District, 1993 Refunding
Certificates of
Participation (1990
Electric System Project)
(MBIA Insured), 4.50% Due
11/01/2001
750,000 Y/S School Facilities AAA Non-Callable 776,933
Financing Authority, A
California Joint Exercise
of Powers Authority, 1995
Sweetwater Refunding
Bonds (MBIA Insured),
5.50% Due 9/01/2002
---------- ----------
$3,750,000 $3,752,890
========== ==========
</TABLE>
--------
See "Notes to Portfolios."
TE-5
TAX-EXEMPT PORTFOLIOS
<PAGE>
KEMPER DEFINED FUNDS SERIES 34 INSURED FLORIDA
SERIES 2
PORTFOLIO AS OF THE INITIAL DATE OF DEPOSIT: JUNE 21, 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>
$ 500,000 Florida Municipal Power AAA 2003 @ 100 $ 403,745
Agency, Stanton II 2017 @ 100 S.F.
Project Refunding
Revenue Bonds, Series
1993 (AMBAC Insured),
4.50% Due 10/01/2027
500,000 City of Clearwater, AAA 2003 @ 102 502,695
Florida Improvement 2018 @ 100 S.F.
Revenue Bonds, Series
1995 (Municipal
Services/Public Safety
and Police Complex
Project) (MBIA Insured),
5.875% Due 2/01/2020
400,000 State of Florida, AAA 2003 @ 102 364,572
Orlando-Orange County
Expressway Authority,
Junior Lien Revenue
Refunding Bonds, Series
of 1993A, (FGIC
Insured), 5.125% Due
7/01/2020
400,000 Adventist Health AAA 2005 @ 102 391,536
System/Sunbelt Obligated 2021 @ 100 S.F.
Group, Orange County
(Florida) Health
Facilities Authority
Hospital Revenue Bonds,
Series 1995, (AMBAC
Insured), 5.75% Due
11/15/2025
500,000 Certificates of AAA 2005 @ 100 480,665
Participation, Series
1995A, The School Board
of Palm Beach County,
Florida, as Lessee,
Pursuant to a Master
Lease Purchase Agreement
with the Palm Beach
School Board Leasing
Corp., as Lessor, (AMBAC
Insured), 5.375% Due
8/01/2015
295,000 City of West Palm Beach, AAA 2002 @ 101 284,619
Florida, Utility System 2017 @ 100 S.F.
Revenue Bonds, Series
1993B, (FGIC Insured),
5.40% Due 10/01/2023
500,000 Pinellas County Health AAA 2003 @ 102 486,220
Facilities Authority 2014 @ 100 S.F.
Hospital Facilities
Revenue Bonds, Series
1993A (Bayfront
Obligated Group
Projects) (MBIA
Insured), 5.60% Due
7/01/2023
---------- ----------
$3,095,000 $2,914,052
========== ==========
</TABLE>
--------
See "Notes to Portfolios."
TE-6
TAX-EXEMPT PORTFOLIOS
<PAGE>
NOTES TO PORTFOLIO:
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 May 3, 1995 and June 13, 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 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" or under "General Information--Rating of Units." A rating marked
by "[_]" is contingent upon Standard & Poor's 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>
INSURED INSURED
CALIFORNIA FLORIDA
SERIES 18 SERIES 2
---------- ----------
<S> <C> <C>
Cost of Bonds to Sponsor.............................. $3,704,855 $2,904,734
Profit or (Loss) to Sponsor........................... $ 48,035 $ 9,318
Annual Interest Income to Trust....................... $ 173,250 $ 166,180
Bid Side Value of Bonds............................... $3,746,423 $2,898,577
</TABLE>
Neither Cost of Bonds to Sponsor nor Profit or (Loss) to Sponsor reflects
underwriting profits or losses received or incurred by the Sponsor through
its participation in underwriting syndicates but such amounts reflect
portfolio hedging transaction costs, hedging gains or losses, certain other
carrying costs and the cost of insurance obtained by the Sponsor, if any,
prior to the Initial Date of Deposit for individual Bonds.
TE-7
TAX-EXEMPT PORTFOLIOS
<PAGE>
MUNICIPAL BOND RISK FACTORS
Certain of the Bonds in the Trust Funds may be general obligations of a
governmental entity that are backed by the taxing power of such entity. All
other Bonds in the Trusts are revenue bonds payable from the income of a
specific project or authority and are not supported by the issuer's power to
levy taxes. General obligation bonds are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Revenue bonds, on the other hand, are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. There are, of
course, variations in the security of the different Bonds in the Trust Funds,
both within a particular classification and between classifications, depending
on numerous factors.
Certain of the Bonds in the Trust Funds may be obligations of issuers whose
revenues are derived from services provided by hospitals and other health care
facilities, including nursing homes. Ratings of bonds issued for health care
facilities are often based on feasibility studies that contain projections of
occupancy levels, revenues and expenses. A facility's gross receipts and net
income available for debt service will be affected by future events and
conditions including, among other things, demand for services and the ability
of the facility to provide the services required, physicians' confidence in the
facility, management's capabilities, economic developments in the service area,
competition, efforts by insurers and governmental agencies to limit rates,
legislation establishing state rate-setting agencies, expenses, the cost and
possible unavailability of malpractice insurance, the funding of Medicare,
Medicaid and other similar third party payor programs, and government
regulation. Federal legislation has been enacted which implements a system of
prospective Medicare reimbursement which may restrict the flow of revenues to
hospitals and other facilities which are reimbursed for services provided under
the Medicare program. Future legislation or changes in the areas noted above,
among other things, would affect all hospitals to varying degrees and,
accordingly, any adverse changes in these areas may affect the ability of such
issuers to make payments of principal and interest on Municipal Bonds held in
the portfolios of the Trust Funds. Such adverse changes also may affect the
ratings of the Municipal Bonds held in the portfolios of the Trust Funds.
Certain of the Bonds in the Trust Funds may be single family mortgage revenue
bonds, which are issued for the purpose of acquiring from originating financial
institutions notes secured by mortgages on residences located within the
issuer's boundaries and owned by persons of low or moderate income. Mortgage
loans are generally partially or completely prepaid prior to their final
maturities as a result of events such as sale of the mortgaged premises,
default, condemnation or casualty loss. Because these Bonds are subject to
extraordinary mandatory redemption in whole or in part from such prepayments of
mortgage loans, a substantial portion of such Bonds will probably be redeemed
prior to their scheduled maturities or even prior to their ordinary call dates.
The redemption price of such issues may be more or less than the offering price
of such Bonds. Extraordinary mandatory redemption without premium could also
result from the failure of the originating financial institutions to make
mortgage loans in sufficient amounts within a specified time period or, in some
cases, from the sale by the Bond issuer of the mortgage loans. Failure of the
originating financial institutions to make mortgage loans would be due
principally to the interest rates on mortgage loans funded from other sources
becoming competitive with the interest rates on the mortgage loans funded with
the proceeds of the single family mortgage revenue bonds. Additionally,
unusually high rates of default on the underlying mortgage loans may reduce
revenues available for the payment of principal of or interest on such mortgage
revenue bonds. Single family mortgage revenue bonds issued after December 31,
1980 were issued under Section 103A of the Internal Revenue Code of 1954, which
Section contains certain ongoing requirements relating to the use
TE-8
TAX-EXEMPT PORTFOLIOS
<PAGE>
of the proceeds of such Bonds in order for the interest on such Bonds to retain
its tax-exempt status. In each case, the issuer of the Bonds has covenanted to
comply with applicable ongoing requirements and bond counsel to such issuer has
issued an opinion that the interest on the Bonds is exempt from Federal income
tax under existing laws and regulations. There can be no assurances that the
ongoing requirements will be met. The failure to meet these requirements could
cause the interest on the Bonds to become taxable, possibly retroactively from
the date of issuance.
Certain of the Bonds in the Trust Funds may be obligations of issuers whose
revenues are primarily derived from mortgage loans to housing projects for low
to moderate income families. The ability of such issuers to make debt service
payments will be affected by events and conditions affecting financed projects,
including, among other things, the achievement and maintenance of sufficient
occupancy levels and adequate rental income, increases in taxes, employment and
income conditions prevailing in local labor markets, utility costs and other
operating expenses, the managerial ability of project managers, changes in laws
and governmental regulations, the appropriation of subsidies and social and
economic trends affecting the localities in which the projects are located. The
occupancy of housing projects may be adversely affected by high rent levels and
income limitations imposed under Federal and state programs. Like single family
mortgage revenue bonds, multi-family mortgage revenue bonds are subject to
redemption and call features, including extraordinary mandatory redemption
features, upon prepayment, sale or non-origination of mortgage loans as well as
upon the occurrence of other events. Certain issuers of single or multi-family
housing bonds have considered various ways to redeem bonds they have issued
prior to the stated first redemption dates for such bonds. In connection with
the housing Bonds held by the Trust Funds, the Sponsor has not had any direct
communications with any of the issuers thereof, but at the Initial Date of
Deposit it is not aware that any of the respective issuers of such Bonds are
actively considering the redemption of such Bonds prior to their respective
stated initial call dates. However, there can be no assurance that an issuer of
a Bond in the Trusts will not attempt to so redeem a Bond in the Trust Funds.
Certain of the Bonds in the Trust Funds may be obligations of issuers whose
revenues are derived from the sale of water and/or sewerage services. Water and
sewerage bonds are generally payable from user fees. Problems faced by such
issuers include the ability to obtain timely and adequate rate increases, a
decline in population resulting in decreased user fees, the difficulty of
financing large construction programs, the limitations on operations and
increased costs and delays attributable to environmental considerations, the
increasing difficulty of obtaining or discovering new supplies of fresh water,
the effect of conservation programs and the impact of "no-growth" zoning
ordinances. Issuers may have experienced these problems in varying degrees.
Certain of the Bonds in the Trust Funds may be obligations of issuers whose
revenues are primarily derived from the sale of electric energy or natural gas.
Utilities are generally subject to extensive regulation by state utility
commissions which, among other things, establish the rates which may be charged
and the appropriate rate of return on an approved asset base. The problems
faced by such issuers include the difficulty in obtaining approval for timely
and adequate rate increases from the governing public utility commission, the
difficulty in financing large construction programs, the limitations on
operations and increased costs and delays attributable to environmental
considerations, increased competition, recent reductions in estimates of future
demand for electricity in certain areas of the country, the difficulty of the
capital market in absorbing utility debt, the difficulty in obtaining fuel at
reasonable prices and the effect of energy conservation. Issuers may have
experienced these problems in varying degrees. In addition, Federal, state and
municipal governmental authorities may from time to time review existing and
impose additional regulations governing the licensing, construction and
operation of nuclear power plants, which may adversely affect the ability of
the issuers of such Bonds to make payments of principal and/or interest on such
Bonds.
TAX-EXEMPT PORTFOLIOS
TE-9
<PAGE>
Certain of the Bonds in the Trust Funds may be industrial revenue bonds
("IRBs"), including pollution control revenue bonds, which are tax-exempt
securities issued by states, municipalities, public authorities or similar
entities to finance the cost of acquiring, constructing or improving various
industrial projects. These projects are usually operated by corporate entities.
Issuers are obligated only to pay amounts due on the IRBs to the extent that
funds are available from the unexpended proceeds of the IRBs or receipts or
revenues of the issuer under an arrangement between the issuer and the
corporate operator of a project. The arrangement may be in the form of a lease,
installment sale agreement, conditional sale agreement or loan agreement, but
in each case the payments to the issuer are designed to be sufficient to meet
the payments of amounts due on the IRBs. Regardless of the structure, payment
of IRBs is solely dependent upon the creditworthiness of the corporate operator
of the project or corporate guarantor. Corporate operators or guarantors may be
affected by many factors which may have an adverse impact on the credit quality
of the particular company or industry. These include cyclicality of revenues
and earnings, regulatory and environmental restrictions, litigation resulting
from accidents or environmentally-caused illnesses, extensive competition and
financial deterioration resulting from leveraged buy-outs or takeovers. The
IRBs in the Trust Funds may be subject to special or extraordinary redemption
provisions which may provide for redemption at par or, with respect to original
issue discount bonds, at issue price plus the amount of original issue discount
accreted to the redemption date plus, if applicable, a premium. The Sponsor
cannot predict the causes or likelihood of the redemption date plus, if
applicable, a premium. The Sponsor cannot predict the causes or likelihood of
the redemption of IRBs or other Bonds in the Trust Funds prior to the stated
maturity of such Bonds.
Certain of the Bonds in the Trust Funds may be obligations which are payable
from and secured by revenues derived from the ownership and operation of
facilities such as airports, bridges, turnpikes, port authorities, convention
centers and arenas. The major portion of an airport's gross operating income is
generally derived from fees received from signatory airlines pursuant to use
agreements which consist of annual payments for leases, occupancy of certain
terminal space and service fees. Airport operating income may therefore be
affected by the ability of the airlines to meet their obligations under the use
agreements. The air transport industry is experiencing significant variations
in earnings and traffic, due to increased competition, excess capacity,
increased costs, deregulation, traffic constraints and other factors, and
several airlines are experiencing severe financial difficulties. The Sponsor
cannot predict what effect these industry conditions may have on airport
revenues which are dependent for payment on the financial condition of the
airlines and their usage of the particular airport facility. Similarly, payment
on Bonds related to other facilities is dependent on revenues from the
projects, such as user fees from ports, tolls on turnpikes and bridges and
rents from buildings. Therefore, payment may be adversely affected by reduction
in revenues due to such factors as increased cost of maintenance, decreased use
of a facility, lower cost of alternative modes of transportation, scarcity of
fuel and reduction or loss of rents.
Certain of the Bonds in the Trust Funds may be obligations of issuers which
are, or which govern the operation of, schools, colleges and universities and
whose revenues are derived mainly from ad valorem taxes, or for higher eduction
systems, from tuition, dormitory revenues, grants and endowments. General
problems relating to school bonds include litigation contesting the state
constitutionality of financing public eduction in part from ad valorem taxes,
thereby creating a disparity in educational funds available to schools in
wealthy areas and schools in poor areas. Litigation or legislation on this
issue may affect the sources of funds available for the payment of school bonds
in the Trusts. General problems relating to college and university obligations
would include the prospect of a declining percentage of the population
consisting of "college" age individuals, possible inability to raise tuition
and fees sufficiently
TE-10
TAX-EXEMPT PORTFOLIOS
<PAGE>
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.
TAX-EXEMPT PORTFOLIOS
TE-11
<PAGE>
INSURED CALIFORNIA SERIES 18
Risk Factors
As described above, the Trust will invest substantially all of its assets in
California Municipal Obligations. The Trust 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.
TE-12
TAX-EXEMPT PORTFOLIOS
<PAGE>
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 18 (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
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Insured 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 when 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 the 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
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relating to such securities. Except in certain instances in which Orrick,
Herrington & Sutcliffe acted 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 FLORIDA SERIES 2
Risk Factors
Florida's economy has in the past been highly dependent on the construction
industry and construction related manufacturing. This dependency has declined
in recent years and continues to do so as a result of continued diversification
of the State's economy. For example, in 1980 total contract construction
employment as a share of total non-farm employment was just over seven percent
and in 1993 the share had edged downward to five percent. This trend is
expected to continue as Florida's economy continues to diversify. Florida,
nevertheless, has a dynamic construction industry with single and multi-family
housing starts accounting for 8.5% of total U.S. housing starts in 1993 while
the State's population is 5.3% of the U.S. total population. Florida's housing
starts since 1980 have represented an average of 11.0% of the U.S.'s total
annual starts, and since 1980 total housing starts have averaged 156,450 a
year.
A driving force behind the State's construction industry has been the State's
rapid rate of population growth. Although Florida currently is the fourth most
populous state (with an estimated population of 13.4 million), its annual
population growth is now projected to decline as the number of people moving
into the State is expected to hover near the mid 250,000 range annually
throughout the 1990s. This population trend should provide fuel for business
and home builders to keep construction activity lively in Florida for some time
to come. However, other factors do influence the level of construction in the
State. For example, Federal tax reform in 1986 and other changes to the Federal
income tax code have eliminated tax deductions for owners of two or more
residential real estate properties and have lengthened depreciation schedules
on investment and commercial properties. Economic growth and existing supplies
of homes also contribute to the level of construction activity in the State.
Since 1980, the State's job creation rate is almost twice the rate for the
nation as a whole, and its growth rate in new non-agricultural jobs is the
fastest of the 11 most populous states and second only to California in the
total number of new jobs created. Contributing to the State's rapid rate of
growth in employment and income is international trade. Since 1980, the State's
unemployment rate has generally been below that of the U.S. In recent years,
however, as the State's economic growth has slowed from its previous highs, the
State's unemployment rate has tracked above the national average. The average
in Florida since 1980 has been 6.5% while the national average is 7.1%.
According to the U.S. Department of Commerce, the Florida Department of Labor
and Employment Security, and the Florida Consensus Economic Estimating
Conference (together the "Organization") the State's unemployment rate was 8.2%
during 1992. As of January, 1994, the Organization estimates that the
unemployment rate will be 6.7% for 1993-94 and 6.1% in 1994-95.
The rate of job creation in Florida's manufacturing sector has exceeded that of
the U.S. From the beginning of 1980 through 1993, the State added over 50,100
new manufacturing jobs, an 11.7%
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increase. During the same period, national manufacturing employment declined
ten out of the fourteen years, for a loss of 2,977,000 jobs.
Total non-farm employment in Florida is expected to increase 2.7% in 1993-94
and rise 3.8% in 1994-95. Trade and services, the two largest figures, account
for more than half of the total non-farm employment. Employment in the service
sectors should experience an increase of 3.9% in 1993-94, while growing 4.9% in
1994-95. Trade is expected to expand 2.2% in 1994 and 3.4% in 1995. The service
sector is now the State's largest employment category.
Tourism is one of Florida's most important industries. Approximately 41.1
million tourists visited the State in 1993, as reported by the Florida
Department of Commerce. In terms of business activities and state tax revenues,
tourists in Florida in 1993 represented an estimated 4.5 million additional
residents. Visitors to the State tend to arrive equally by air and car. The
State's tourism industry over the years has become more sophisticated,
attracting visitors year-round and, to a degree, reducing its seasonality.
Tourist arrivals are expected to decline by almost two percent this year, but
are expected to recover next year with 5.0% growth. By the end of the State's
current fiscal year, 41.0 million domestic and international tourists are
expected to have visited the State. In 1994-95, tourist arrivals should
approximate 43.0 million.
The State's per capita personal income in 1992 of $19,711 was slightly below
the national average of $20,105 and significantly ahead of that for the
southeast United States, which was $17,296. Real personal income in the State
is estimated to increase 5.5% in 1993-94 and 4.7% in 1994-95. By the end of
1994-95, real personal income per capita in the State is projected to average
6.7% higher than its 1992-93 level.
Compared to other states, Florida has a proportionately greater retirement age
population which comprises 18.3% (as of April 1, 1991) of the State's
population and is forecast to grow at an average annual rate of over 1.96%
through the 1990s. Thus, property income (dividends, interest, and rent) and
transfer payments (Social Security and pension benefits, among other sources of
income) are a relatively more important source of income. For example,
Florida's total wages and salaries and other labor income in 1993 was 62% of
total income, while a similar figure for the nation for 1992 was 72.0%.
Transfer payments are typically less sensitive to the business cycle than
employment income and, therefore, act as stabilizing forces in weak economic
periods. While many of the U.S.'s senior citizens choose the State as their
place of retirement, the State is also recognized as attracting a significant
number of working age people. Since 1982, the prime working age population (18-
44) has grown at an average annual rate of 3.3%
In fiscal year 1991-92, approximately 64% of the State's total direct revenue
to its three operating funds was derived from State taxes, with federal grants
and other special revenue accounting for the balance. State sales and use tax,
corporate income tax, and beverage tax amounted to 68%, 7% and 5%,
respectively, of total receipts by the General Revenue Fund during fiscal year
1991-92. In that same year, expenditures for education, health and welfare, and
public safety amounted to 53%, 30% and 13.3%, respectively, of total
expenditures from the General Revenue Fund.
Hurricane Andrew left some parts of south Florida devastated. Post-Hurricane
Andrew clean up and rebuilding have changed the outlook for the State's
economy. Single and multi-family housing starts in 1993-94 are projected to
reach a combined level of 118,000, increasing to 134,300 next year. Lingering
recessionary effects on consumers and tight credit are two of the reasons for
relatively slow core
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construction activity, as well as lingering effects from the 1986 tax reform
legislation discussed above. However, construction is one of the sectors most
severely affected by Hurricane Andrew. Low interest rates and pent up demand
combined with improved consumer confidence should lead to improved housing
starts. The construction figures above include additional housing starts as a
result of destruction by Hurricane Andrew. Total construction expenditures are
forecasted to increase 15.6% this year and increase 13.3% next year.
The State Constitution and statutes mandate that the State budget, as a whole,
and each separate fund within the State budget, be kept in balance from
currently available revenues each fiscal year. If the Governor or Comptroller
believes a deficit will occur in any State fund, by statute, he must certify
his opinion to the Administrative Commission, which then is authorized to
reduce all State agency budgets and releases by a sufficient amount to prevent
a deficit in any fund. Additionally, the State Constitution prohibits issuance
of State obligations to fund State operations.
Estimated fiscal year 1993-94 General Revenue plus Working Capital funds
available total $13,582.7 million, an 8.4% increase over 1992-93. This reflects
a transfer of $190 million, out of an estimated $220 million in non-recurring
revenue due to Andrew, to a hurricane relief trust fund. Of the total General
Revenue plus Working Capital funds available to the State, $12,943.5 million of
that is Estimated Revenues (excluding the Andrew impact) which represents an
increase of 7.3% over the previous year's Estimated Revenues. With effective
General Revenues plus Working Capital Fund appropriations at $13,276.9 million,
unencumbered reserves at the end of 1993-94 are estimated at $302.8 million.
Estimated, fiscal year 1994-95 General Revenue plus Working Capital and Budget
Stabilization funds available total $14,573.7 million, a 7.3% increase over
1993-94. This amount reflects a transfer of $159.00 million in non-recurring
revenue due to Hurricane Andrew, to a hurricane relief trust fund. The
$13,860.8 million in Estimated Revenues (excluding the Hurricane Andrew impact)
represent an increase of 7.1% over the previous year's Estimated Revenues. The
massive effort to rebuild and replace destroyed or damaged property in the wake
of Andrew is responsible for the substantial positive revenue impacts shown
here. Most of the impact is in the increase in the State's sales tax.
In fiscal year 1992-93, approximately 62% of the State's total direct revenue
to its three operating funds were derived from State taxes, with Federal grants
and other special revenue accounting for the balance. State sales and use tax,
corporate income tax, intangible personal property tax, and beverage tax
amounted to 68%, 7%, 4%, and 4%, respectively, of total General Revenue Funds
available during fiscal 1992-93. In that same year, expenditures for education,
health and welfare, and public safety amounted to approximately 49%, 30%, and
11%, respectively, of total expenditures from the General Revenue Fund.
The State's sales and use tax (6%) currently accounts for the State's single
largest source of tax receipts. Slightly less than 10% of the State's sales and
use tax is designated for local governments and is distributed to the
respective counties in which collected for such use by such counties and the
municipalities therein. In addition to this distribution, local governments may
(by referendum) assess a 0.5% or a 1.0% discretionary sales tax within their
county. Proceeds from this local option sales tax are earmarked for funding
local infrastructure programs and acquiring land for public recreation or
conservation or protection of natural resources as provided under Florida law.
Certain charter counties have other taxing powers in addition, and non-
consolidated counties with a population in excess of 800,000 may levy a local
option sales tax to fund indigent health care. It alone cannot exceed 0.5% and
when combined with the infrastructure surtax cannot exceed 1.0%. For the fiscal
year ended June 30,
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1993, sales and use tax receipts (exclusive of the tax on gasoline and special
fuels) totalled $9,426.0 million, an increase of 12.5% over fiscal year 1991-
92.
The second largest source of State tax receipts is the tax on motor fuels.
However, these revenues are almost entirely dedicated trust funds for specific
purposes and are not included in the State's General Revenue Fund.
The State imposes an alcoholic beverage wholesale tax (excise tax) on beer,
wine, and liquor. This tax is one of the State's major tax sources, with
revenues totalling $442.2 million in fiscal year ending June 30, 1993.
Alcoholic beverage tax receipts declined 1.6% over the previous year. The
revenues collected from this tax are deposited into the State's General Revenue
Fund.
The State imposes a corporate income tax. All receipts of the corporate income
tax are credited to the General Revenue Fund. For the fiscal year ended June
30, 1993, receipts from this source were $846.6 million, an increase of 5.6%
from fiscal year 1991-92.
The State imposes a documentary stamp tax on deeds and other documents relating
to realty, corporate shares, bonds, certificates of indebtedness, promissory
notes, wage assignments, and retail charge accounts. The documentary stamp tax
collections totalled $639.0 million during fiscal year 1992-93, a 27.0%
increase from the previous fiscal year. Beginning in fiscal year 1992-93,
71.29% of these taxes are to be deposited to the General Revenue Fund.
The State imposes a gross receipts tax on electric, natural gas, and
telecommunications services. All gross receipts utilities tax collections are
credited to the State's Public Education Capital Outlay and Debt Service Trust
Fund. In fiscal year 1992-93, this amounted to $447.9 million.
The State imposes an intangible personal property tax on stocks, bonds,
including bonds secured by liens in Florida real property, notes, governmental
leaseholds, and certain other intangibles not secured by a lien on Florida real
property. The annual rate of tax is 2 mils. Second, the State imposes a non-
recurring 2 mil tax on mortgages and other obligations secured by liens on
Florida real property. In fiscal year 1992-93, total intangible personal
property tax collections were $783.4 million, a 33% increase over the prior
year. Of the tax proceeds, 66.5% are distributed to the General Revenue Fund.
The State began its own lottery in 1988. State law requires that lottery
revenues be distributed 50% to the public in prizes, 38% for use in enhancing
education, and the balance, 12.0% for costs of administering the lottery.
Fiscal year 1992-93 lottery ticket sales totalled $2.13 billion, providing
education with $810.4 million.
The State's severance tax applies to oil, gas, and sulphur production, as well
as the severance of phosphate rock and other solid minerals. Total collections
from severance taxes total $64.5 million during fiscal year 1992-93, down 4.0%
from the previous year. Currently, 60.0% of this amount is transferred to the
General Revenue Fund.
The State has continuously been dependent on the highly cyclical construction
and construction related manufacturing industries. While that dependency has
decreased, the State is still somewhat at the mercy of the construction and
construction related manufacturing industries. The construction industry is
driven to a great extent by the State's rapid growth in population. There can
be no assurance that population growth will in fact continue throughout the
1990's in which case there could be an adverse impact on the State's economy
through the loss of construction and construction related manufacturing jobs.
Also,
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while interest rates remain low currently, an increase in interest rates could
significantly adversely impact the financing of new construction within the
State, thereby adversely impacting unemployment and other economic factors
within the State. In addition, available commercial office space has tended to
remain high over the past few years. So long as this glut of commercial rental
space continues, construction of this type of space will likely continue to
remain slow.
At the end of fiscal 1993, approximately $5.61 billion in principal amount of
debt secured by the full faith and credit of the State was outstanding. In
addition, since July 1, 1993, the State issued about $1.13 billion in principal
amount of full faith and credit bonds.
The State Constitution and statutes mandate that the State budget, as a whole,
and each separate fund within the State budget, be kept in balance from
currently available revenues each fiscal year. If the Governor or Comptroller
believe a deficit will occur in any State fund, by statute, he must certify his
opinion to the Administrative Commission, which then is authorized to reduce
all State agency budgets and releases by a sufficient amount to prevent a
deficit in any fund. Additionally, the State Constitution prohibits issuance of
State obligations to fund State operations.
Currently under litigation are several issues relating to State actions or
State taxes that put at risk substantial amounts of General Revenue Fund
monies. Accordingly, there is no assurance that any of such matters,
individually or in the aggregate, will not have a material adverse affect on
Florida's financial position.
Florida law provides preferential tax treatment to insurers who maintain a home
office in the State. Certain insurers challenged the constitutionality of this
tax preference and sought a refund of taxes paid. Recently, the State Supreme
Court ruled in favor of the State. This case and others, along with pending
refund claims, total about $150 million.
The State imposes a $295 fee on the issuance of certificates of title for motor
vehicles previously titled outside the State. The State has been sued by
plaintiffs alleging that this fee violates the Commerce Clause of the U.S.
Constitution. The Circuit Court in which the case was filed has granted summary
judgment for the plaintiffs and has enjoined further collection of the impact
fee and has ordered refunds to all those who have paid the fee since the
collection of the fee went into effect. The State has appealed the lower
Court's decision and an automatic stay has been granted to the State allowing
it to continue to collect the fee. The potential refund exposure to the State
if it should lose the case may be in excess of $100 million.
Florida maintains a bond rating of Aa and AA from Moody's Investors Service and
Standard & Poor's, respectively, on the majority of its general obligation
bonds, although the rating of a particular series of revenue bonds relates
primarily to the project, facility, or other revenue sources from which such
series derives funds for repayment. While these ratings and some of the
information presented above indicate that Florida is in satisfactory economic
health, there can be no assurance that there will not be a decline in economic
conditions or that particular Municipal Obligations purchased by the Trust will
not be adversely affected by any such changes.
The sources for the information presented above include official statements and
financial statements of the State of Florida. While the Sponsor has not
independently verified this information, the Sponsor has no reason to believe
that the information is not correct in all material respects.
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Florida Tax Status
The Bonds were accompanied by opinions of Bond Counsel to the respective
issuers thereof to the effect that the Bonds were exempt from the Florida
intangibles tax. Neither the Sponsor nor its counsel have independently
reviewed such opinions or examined the Bonds to be deposited in and held by the
Florida Trust and have assumed the correctness as of the date of deposit of the
opinions of Bond Counsel.
In the opinion of Chapman and Cutler, counsel to the Sponsor, under existing
law:
For Florida state income tax purposes, the Florida Trust will not be
subject to the Florida income tax imposed by Chapter 220, Florida Statutes.
In addition, Florida does not impose any income taxes at the local level.
Because Florida does not impose an income tax on individuals, non-corporate
Unitholders residing in Florida will not be subject to any Florida income
taxation on income realized by the Florida Trust. Any amounts paid to the
Florida Trust or to non-corporate Unitholders residing in Florida under an
insurance policy issued to the Florida Trust or the Sponsor which represent
maturing interest on defaulted obligations held by the Trustee will not be
subject to the Florida income tax imposed by Chapter 220, Florida Statutes
to the extent not included in gross income for Federal income tax purposes.
Corporate Unitholders with commercial domiciles in Florida will be subject
to Florida income or franchise taxation on income realized by the Florida
Trust and on payments of interest pursuant to any insurance policy. Other
corporate Unitholders will be subject to Florida income or franchise
taxation on income realized by the Florida Trust (or on payments of
interest pursuant to any insurance policy) only to the extent that the
income realized does not constitute "non-business income" as defined by
Chapter 220.
Units will be subject to Florida estate tax only if held by Florida
residents. However, the Florida estate tax is limited to the amount of the
credit for state death taxes provided for in Section 2011 of the Internal
Revenue Code.
Neither the Bonds nor the Units will be subject to the Florida ad valorem
property tax, the Florida intangibles personal property tax or Florida
sales or use tax.
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 MBIA Insurance ("MBIA Corporation") 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 MBIA 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.
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The aforementioned insurance guarantees the scheduled payment of principal and
interest on all of the Municipal Bonds in an Insured Trust Fund. It does not
guarantee the market value of the Municipal Bonds or the value of the Units of
the Insured Trust Fund. Insurance obtained by the issuer of a Municipal Bond or
the Sponsor is effective so long as the Bond is outstanding, whether or not
held by an Insured Trust Fund. Therefore, any such insurance may be considered
to represent an element of market value in regard to the Bonds thus insured,
but the exact effect, if any, of this insurance on such market value cannot be
predicted.
Financial Guaranty Insurance Company. Financial Guaranty is a wholly-owned
subsidiary of FGIC Corporation (the "Corporation"), a Delaware holding company.
The Corporation is a wholly-owned subsidiary of General Electric Capital
Corporation ("GECC"). Neither the Corporation nor GECC is obligated to pay the
debts or the claims against Financial Guaranty. Financial Guaranty is domiciled
in the State of New York and is subject to regulation by the State of New York
Insurance Department. As of March 31, 1995, the total capital and surplus of
Financial Guaranty was approximately $962,700,000. 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
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
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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 the Northern Mariana Islands, the Commonwealth of Puerto Rico,
the Virgin Islands of the United States and the Territory of Guam.
As of March 31, 1995 MBIA Corporation had admitted assets of $3.5 billion
(unaudited), total liabilities of $2.4 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. As of December 31, 1994, MBIA, Inc. had admitted assets of $3.4
billion (audited), total liabilities of $2.3 billion (audited), and total
capital and surplus of $1.1 billion (audited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. Standard & Poor's 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.
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 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.
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As of March 31, 1993, the total policyholders' surplus and contingency reserves
and the total unearned premium reserve, respectively, of Financial Security and
its consolidated subsidiaries were, in accordance with statutory accounting
principles, approximately $479,110,000 (unaudited) and $220,078,000
(unaudited), and the total shareholders' equity and the unearned premium
reserve, respectively, of Financial Security and its consolidated subsidiaries
were, in accordance with generally accepted accounting principles,
approximately $628,119,000 (unaudited) and $202,493,000 (unaudited).
Copies of Financial Security's financial statements may be obtained by writing
to Financial Security at 350 Park Avenue, New York, New York, 10022, Attention
Communications Department. Financial Security's telephone number is (212) 826-
0100.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by Financial Security or either of its subsidiaries are
reinsured among such companies at an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, Financial Security
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies with unaffiliated reinsurers under various quota share
treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by Financial Security as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
Financial Security's obligations under any financial guaranty insurance policy.
Financial Security's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc., and "AAA" by Standard & Poor's, 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, the Commonwealth of Puerto Rico, Guam and the
U.S. Virgin Islands. 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 December 31, 1994, Capital Guaranty had more than $15.7 billion in net
exposure outstanding (excluding defeased issues). The total statutory
policyholders' surplus and contingency reserve of Capital Guaranty was
$196,529,000 and the total admitted assets were $303,723,316 as reported to the
Insurance Department of the State of Maryland as of December 31, 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.
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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 Fund 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 Fund, 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, as further described below,
accretion of market discount on tax-exempt bonds is subject to taxation as
ordinary income. Market discount can arise based on the price a Trust Fund pays
for Municipal Bonds or the price a Unitholder pays for his or her Units. In
addition, bond counsel to the issuing authorities rendered opinions as to the
exemption of interest on such Bonds, when held by residents of the state in
which the issuers of such bonds are located, from state income taxes and, where
applicable, local income taxes.
In the opinion of Chapman and Cutler, counsel for the Sponsor, under existing
law:
The 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
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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.
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
TAX-EXEMPT PORTFOLIOS
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<PAGE>
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 a Trust Fund, the opinions of bond
counsel indicate that interest on such Municipal Bonds received by a
"substantial user" of the facilities being financed with the proceeds of these
Municipal Bonds or persons related thereto, for periods while such Municipal
Bonds are held by such a user or related person, will not be excludable from
Federal gross income, although interest on such Municipal Bonds received by
others would be excludable from Federal gross income. "Substantial user" and
"related person" are defined under U.S. Treasury Regulations. Any person who
believes that he or she may be a "substantial user" or a "related person" as
so defined should contact his or her tax adviser.
In the case of corporations, the alternative tax rate applicable to long-term
capital gains is 35% effective for long-term capital gains realized in taxable
years beginning on or after January 1, 1993. For taxpayers other than
corporations, net capital gains are subject to a maximum marginal stated tax
rate of 28%. However, it should be noted that legislative proposals are
introduced from time to time that affect tax rates and could affect relative
differences at which ordinary income and capital gains are taxed. Under the
Code, taxpayers must disclose to the Internal Revenue Service the amount of
tax-exempt interest earned during the year.
Under existing law, the Trust Fund is not an association taxable as
corporations and the income of the Trust Fund 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 Fund 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
TAX-EXEMPT PORTFOLIOS
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<PAGE>
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.
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.
TAX REPORTING AND REALLOCATION
Because the 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. The 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 INSURED TOTAL
CALIFORNIA FLORIDA UNITS
FIRM NAME SERIES 18 SERIES 2 BY FIRM
--------- ---------- -------- -------
<S> <C> <C> <C>
*Kemper Unit Investment Trusts...................... 325,000 249,500 574,500
*Kemper Securities, Inc............................. 50,000 50,000 100,000
Robert W. Baird & Co., Inc.......................... 10,000 10,000
------- ------- -------
TOTAL UNITS:........................................ 375,000 309,500 684,500
======= ======= =======
</TABLE>
Underwriter Addresses:
*Kemper Unit Investment Trusts, 77 West Wacker Drive, 29th Floor, Chicago, IL
60601-1994
*Kemper Securities, Inc., 77 West Wacker Drive, 28th Floor, Chicago, IL 60601-
1994
Robert W. Baird & Co., Inc., 777 East Wisconsin Avenue, Milwaukee, WI 53202
------------------
*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. 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
TAX-EXEMPT PORTFOLIOS
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<PAGE>
or through dealers, who are members of the National Association of Securities
Dealers, Inc., and others at prices representing discounts from the Public
Offering Price. However, resales of Units of the Trust Funds to the public will
be made at the Public Offering Price thereof.
Underwriters and broker-dealers of the Trusts, banks and/or others are eligible
to participate in a program in which such firms receive from the Sponsor a
nominal award for each of their representatives who have sold a minimum number
of Units of unit investment trusts created by the Sponsor during a specified
time period. In addition, at various times the Sponsor may implement other
programs under which the sales forces of Underwriters, brokers, dealers, banks
and/or others may be eligible to win other nominal awards for certain sales
efforts, or under which the Sponsor will reallow to any such Underwriters,
brokers, dealers, banks and/or others that sponsor sales contests or
recognition programs conforming to criteria established by the Sponsor, or
participate in sales programs sponsored by the Sponsor, an amount not exceeding
the total applicable sales charges on the sales generated by such persons at
the public offering price during such programs. Also, the Sponsor in its
discretion may from time to time pursuant to objective criteria established by
the Sponsor pay fees to qualifying underwriters, brokers, dealers, banks or
others for certain services or activities which are primarily intended to
result in sales of Units of the Trusts. Such payments are made by the Sponsor
out of its own assets, and not out of the assets of the Trusts. These programs
will not change the price Unitholders pay for their Units or the amount that
the Trusts will receive from the Units sold. Approximately every eighteen
months the Sponsor holds a business seminar which is open to Underwriters that
sell units of trusts it sponsors. The Sponsor pays substantially all costs
associated with the seminar, excluding Underwriter travel costs. Each
Underwriter is invited to send a certain number of representatives based on the
gross number of units such firm underwrites during a designated time period.
TAX-EXEMPT PORTFOLIOS
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<PAGE>
ESTIMATED 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 SERIES 18
Monthly
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
---------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Jul 15, 1995 $0.00614 $0.00614
Aug 15, 1995 to Feb 15, 1998 0.03686 0.03686
Mar 15, 1998 0.03353 $2.00000 2.03353
Apr 15, 1998 to Mar 15, 1999 0.03046 0.03046
Apr 15, 1999 0.03046 2.00000 2.03046
May 15, 1999 to Sep 15, 2000 0.02356 0.02356
Oct 15, 2000 0.02356 2.00000 2.02356
Nov 15, 2000 to Oct 15, 2001 0.01576 0.01576
Nov 15, 2001 0.01576 2.00000 2.01576
Dec 15, 2001 to Aug 15, 2002 0.00846 0.00846
Sep 15, 2002 0.00846 2.00000 2.00846
</TABLE>
INSURED FLORIDA SERIES 2
Monthly
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
---------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Jul 15, 1995 $0.00711 $0.00711
Aug 15, 1995 to Jan 15, 2005 0.04264 0.04264
Feb 15, 2005 0.04264 $1.61551 1.65815
Mar 15, 2005 to Jul 15, 2015 0.03494 0.03494
Aug 15, 2015 0.03494 1.61551 1.65045
Sep 15, 2015 to Jun 15, 2020 0.02794 0.02794
Jul 15, 2020 0.02794 1.29241 1.32035
Aug 15, 2020 to Jun 15, 2023 0.02264 0.02264
Jul 15, 2023 0.02264 1.61551 1.63815
Aug 15, 2023 to Sep 15, 2023 0.01534 0.01534
Oct 15, 2023 0.01534 0.95315 0.96849
Nov 15, 2023 to Nov 15, 2025 0.01124 0.01124
Dec 15, 2025 0.00815 1.29241 1.30056
Jan 15, 2026 to Sep 15, 2027 0.00524 0.00524
Oct 15, 2027 0.00524 1.61551 1.62075
</TABLE>
TAX-EXEMPT PORTFOLIOS
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<PAGE>
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GENERAL INFORMATION
RATING OF UNITS
Standard & Poor's has rated the Units of any U.S. Treasury Portfolio Series or
GNMA Portfolio Series "AAA." Because the Securities in an Insured Trust Fund in
a Tax-Exempt Portfolio Series 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
has also 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 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
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 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
GENERAL INFORMATION
GI-1
<PAGE>
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 Standard & Poor's. 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
GI-2
GENERAL INFORMATION
<PAGE>
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
GENERAL INFORMATION
GI-3
<PAGE>
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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GENERAL INFORMATION
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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
GENERAL INFORMATION
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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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GENERAL INFORMATION
<PAGE>
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
GENERAL INFORMATION
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<PAGE>
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 third business day following the
day on which a tender for redemption is received (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
GI-8
GENERAL INFORMATION
<PAGE>
for a Trust in order to make funds available for the redemption of Units of
such Trust. Such sale may be required when Securities would not otherwise be
sold and might result in lower prices than might otherwise be realized. To the
extent Securities are sold, the size and diversity of a Trust will be reduced.
In the case of a U.S. Treasury Portfolio or a GNMA Portfolio, Securities will
be sold by the Trustee so as to maintain, as closely as practicable, the
original percentage relationship between the principal amounts of the
Securities in such Trusts. The Securities to be sold for purposes of redeeming
Units will be selected from a list supplied by the Sponsor. The Securities will
be chosen for this list by the Sponsor on the basis of such market and credit
factors as it may determine are in the best interests of such Trusts. Provision
is made under the related Trust Agreements for the Sponsor to specify minimum
face amounts in which blocks of Securities are to be sold in order to obtain
the best price available. While such minimum amounts may vary from time to time
in accordance with market conditions, it is anticipated that the minimum face
amounts which would be specified would range from $25,000 to $100,000. Sales
may be required at a time when the Securities would not otherwise be sold and
might result in lower prices than might otherwise be realized. Moreover, due to
the minimum principal amount in which U.S. Treasury Obligations and Ginnie Maes
may be required to be sold, the proceeds of such sales may exceed the amount
necessary for payment of Units redeemed. To the extent not used to meet other
redemption requests in such Trusts, such excess proceeds will be distributed
pro rata to all remaining Unitholders of record of such Trusts, unless
reinvested in substitute Securities. See "General Information--Investment
Supervision."
The Trustee is irrevocably authorized in its discretion, if an Underwriter does
not elect to purchase any Unit tendered for redemption, in lieu of redeeming
such Units, to sell such Units in the over-the-counter market for the account
of tendering Unitholders at prices which will return to the Unitholders amounts
in cash, net after brokerage commissions, transfer taxes and other charges,
equal to or in excess of the Redemption Price for such Units. In the event of
any such sale, the Trustee shall pay the net proceeds thereof to the
Unitholders on the day they would otherwise be entitled to receive payment of
the Redemption Price.
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange is closed, other than customary
weekend and holiday closings, or during which (as determined by the Securities
and Exchange Commission) trading on the New York Stock Exchange is restricted;
(2) for any period during which an emergency exists as a result of which
disposal by the Trustee of Securities is not reasonably practicable or it is
not reasonably practicable to fairly determine the value of the underlying
Securities in accordance with the Trust Agreements; or (3) for such other
period as the Securities and Exchange Commission may by order permit. The
Trustee is not liable to any person in any way for any loss or damage which may
result from any such suspension or postponement.
Computation of Redemption Price. The Redemption Price for Units of each Trust
is computed by the Evaluator as of the evaluation time stated under "Essential
Information" next occurring after the tendering of a Unit for redemption and on
any other business day desired by it, by:
A. adding: (1) the cash on hand in the Trust other than cash deposited in the
Trust to purchase Securities not applied to the purchase of such Securities;
(2) the aggregate value of each issue of the Securities (including "when
issued" contracts, if any) held in the Trust as determined by the Evaluator on
the basis of bid prices therefor; and (3) interest accrued and unpaid on the
Securities in the Trust as of the date of computation;
GENERAL INFORMATION
GI-9
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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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GENERAL INFORMATION
<PAGE>
Thereafter, assuming the Trust retains its original size and composition, after
deduction of the fees and expenses of the Trustee, the Sponsor and Evaluator
and reimbursements (without interest) to the Trustee for any amounts advanced
to a Trust, the Trustee will normally distribute on each Interest Distribution
Date (the fifteenth of the month) or shortly thereafter to Unitholders of
record of such Trust on the preceding Record Date (which is the first day of
each month). Unitholders of the Trusts will receive an amount substantially
equal to one-twelfth of such holders' pro rata share of the estimated net
annual interest income to the Interest Account of such Trust. However, interest
earned at any point in time will be greater than the amount actually received
by the Trustee and distributed to the Unitholders. Therefore, there will always
remain an item of accrued interest that is added to the daily value of the
Units. If Unitholders of a Trust sell or redeem all or a portion of their
Units, they will be paid their proportionate share of the accrued interest of
such Trust to, but not including, the third business day after the date of a
sale or to the date of tender in the case of a redemption.
In order to equalize distributions and keep the undistributed interest income
of the Trusts at a low level, all Unitholders of record in such Trust on the
first Record Date will receive an interest distribution on the first Interest
Distribution Date. Because the period of time between the first Interest
Distribution Date and the regular distribution dates may not be a full period,
the first regular distributions may be partial distributions.
Unitholders of a U.S. Treasury Portfolio which contains Stripped Treasury
Securities should note that Stripped Treasury Securities are sold at a deep
discount because the buyer of those securities obtains only the right to
receive a future fixed payment on the security and not any rights to periodic
interest payments thereon. Purchasers of these Securities acquire, in effect,
discount obligations that are economically identical to the "zero-coupon bonds"
that have been issued by corporations. Zero coupon bonds are debt obligations
which do not make any periodic payments of interest prior to maturity and
accordingly are issued at a deep discount. Under generally accepted accounting
principles, a holder of a security purchased at a discount normally must report
as an item of income for financial accounting purposes the portion of the
discount attributable to the applicable reporting period. The calculation of
this attributable income would be made on the "interest" method which generally
will result in a lesser amount of includible income in earlier periods and a
correspondingly larger amount in later periods. For Federal income tax
purposes, the inclusion will be on a basis that reflects the effective
compounding of accrued but unpaid interest effectively represented by the
discount. Although this treatment is similar to the "interest" method described
above, the "interest" method may differ to the extent that generally accepted
accounting principles permit or require the inclusion of interest on the basis
of a compounding period other than the semi-annual period. See "Federal Tax
Status" for the U.S. Treasury Portfolios, if any.
Persons who purchase Units between a Record Date and a Distribution Date will
receive their first distribution on the second Distribution Date following
their purchase of Units. Since interest on Bonds in the Trusts is payable at
varying intervals, usually in semi-annual installments, and distributions of
income are made to Unitholders at different intervals from receipt of interest,
the interest accruing to a Trust may not be equal to the amount of money
received and available for distribution from the Interest Account. Therefore,
on each Distribution Date the amount of interest actually deposited in the
Interest Account of a Trust and available for distribution may be slightly more
or less than the interest distribution made. In order to eliminate fluctuations
in interest distributions resulting from such variances, the Trustee is
authorized by the Trust Agreements to advance such amounts as may be necessary
to provide interest distributions of approximately equal amounts. The Trustee
will be reimbursed, without interest, for any such advances from funds
available in the Interest Account for such Trust.
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The Trustee will distribute on each Distribution Date or shortly thereafter, to
each Unitholder of record of a Trust on the preceding Record Date, an amount
substantially equal to such holder's pro rata share of the cash balance, if
any, in the Principal Account of such Trust computed as of the close of
business on the preceding Record Date. However, no distribution will be
required if the balance in the Principal Account is less than $.01 per Unit.
Notwithstanding the foregoing, the Trustee will make a distribution to
Unitholders of all principal relating to maturing U.S. Treasury Obligations in
any U.S. Treasury Portfolio or GNMA Portfolio within twelve business days of
the date of such maturity.
In connection with GNMA Portfolios only, the terms of the Ginnie Maes provide
for payment to the holders thereof (including a GNMA Portfolio) on the
fifteenth day of each month of amounts collected by or due to the issuers
thereof with respect to the underlying mortgages during the preceding month.
The Trustee will collect the interest due a GNMA Portfolio on the Securities
therein as it becomes payable and credit such interest to a separate Interest
Account for such GNMA Portfolio created by the Indenture. Distributions will be
made to each Unitholder of record of a GNMA Portfolio on the appropriate
Distribution Date (see "Essential Information") and will consist of an amount
substantially equal to such Unitholder's pro rata share of the cash balances,
if any, in the Interest Account, the Principal Account and any Capital Gains
Account of such GNMA Portfolio, computed as of the close of business on the
preceding Record Date.
Statements to Unitholders. With each distribution, the Trustee will furnish or
cause to be furnished to each Unitholder a statement of the amount of interest
and the amount of other receipts, if any, which are being distributed,
expressed in each case as a dollar amount per Unit.
The accounts of each Trust are required to be audited annually, at the Trust's
expense, by independent auditors designated by the Sponsor, unless the Sponsor
determines that such an audit would not be in the best interest of the
Unitholders of such Trust. The accountants' report will be furnished by the
Trustee to any Unitholder of such Trust upon written request. Within a
reasonable period of time after the end of each calendar year, the Trustee
shall furnish to each person who at any time during the calendar year was a
Unitholder of a Trust a statement, covering the calendar year, setting forth
for the applicable Trust:
A. As to the Interest Account:
1. The amount of interest received on the Securities (and for Tax-Exempt
Portfolios, the percentage of such amount by states and territories in which
the issuers of such Securities are located);
2. The amount paid from the Interest Account representing accrued interest of
any Units redeemed;
3. The deductions from the Interest Account for applicable taxes, if any, fees
and expenses (including auditing fees) of the Trustee, the Sponsor, the
Evaluator, and, if any, of bond counsel;
4. Any amounts credited by the Trustee to the Reserve Account described under
"General Information--Expenses of the Trusts";
5. The net amount remaining after such payments and deductions, expressed both
as a total dollar amount and a dollar amount per Unit outstanding on the last
business day of such calendar year; and
B. As to the Principal Account:
1. The dates of the maturity, liquidation or redemption of any of the
Securities and the net proceeds received therefrom excluding any portion
credited to the Interest Account;
GI-12
GENERAL INFORMATION
<PAGE>
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.
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
GENERAL INFORMATION
GI-13
<PAGE>
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 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.
GI-14
GENERAL INFORMATION
<PAGE>
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
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.
GENERAL INFORMATION
GI-15
<PAGE>
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 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. In no event shall the Trustee be paid less than $2,000 per Trust in
any one year. Funds that are available for future distributions, redemptions
and payment of expenses are held in accounts which are non-interest bearing to
Unitholders and are available for use by the Trustee pursuant to normal trust
procedures; however, the Trustee is also authorized by the Trust Agreements to
make from time to time certain non-interest bearing advances to the 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.
GI-16
GENERAL INFORMATION
<PAGE>
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
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 December 31, 1994,
the total stockholder's equity of Kemper Securities, Inc. was $252,676,937.
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
GENERAL INFORMATION
GI-17
<PAGE>
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.
GI-18
GENERAL INFORMATION
<PAGE>
<TABLE>
<CAPTION>
PAGE
CONTENTS -----
<S> <C>
SUMMARY................................................................... 2
ESSENTIAL INFORMATION..................................................... 3
THE TRUST FUNDS........................................................... 6
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS............................................................. 8
STATEMENTS OF CONDITION................................................... 9
PUBLIC OFFERING OF UNITS.................................................. 10
Public Offering Price.................................................... 10
Accrued Interest......................................................... 12
Comparison of Public Offering Price and Redemption Price................. 12
Public Distribution of Units............................................. 13
Profits of Sponsor and Underwriters...................................... 14
THE TAX-EXEMPT PORTFOLIOS................................................. TE-1
The Trust Portfolio...................................................... TE-1
Series Information....................................................... TE-1
Taxable Equivalent Estimated Current Return Tables....................... TE-3
Portfolio................................................................ TE-5
Notes to Portfolio....................................................... TE-7
Municipal Bond Risk Factors.............................................. TE-8
State Risk Factors and State Tax Status.................................. TE-11
Insurance on the Bonds................................................... TE-12
Federal Tax Status....................................................... TE-30
Tax Reporting and Reallocation........................................... TE-33
Underwriting............................................................. TE-34
Estimated Cash Flows to Unitholders...................................... TE-36
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-13
Administration of the Trusts............................................. GI-14
Expenses of the Trusts................................................... GI-16
The Sponsor.............................................................. GI-17
Legal Opinions........................................................... GI-18
Independent Certified Public Accountants................................. GI-18
</TABLE>
-----------------------------------
THIS PROSPECTUS DOES NOT CONTAIN ALL OF THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENT AND EXHIBITS RELATING THERETO, FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, WASHINGTON, D.C. UNDER THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940, AND TO WHICH REFERENCE IS MADE.
-----------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUSTS, THE TRUSTEE, OR THE SPONSOR. THE TRUSTS ARE REGISTERED AS UNIT
INVESTMENT TRUSTS UNDER THE INVESTMENT COMPANY ACT OF 1940. SUCH REGISTRATION
DOES NOT IMPLY THAT THE TRUSTS OR THE UNITS HAVE BEEN GUARANTEED, SPONSORED,
RECOMMENDED OR APPROVED BY THE UNITED STATES OR ANY STATE OR ANY AGENCY OR
OFFICER THEREOF.
-----------------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE SUCH OFFER IN SUCH STATE.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement on Form S-6 comprises the following papers and
documents:
The facing sheet of Form S-6
The Cross-Reference Sheet
The Prospectus
The signatures
The following exhibits:
1.1 Form of Trust Indenture and Agreement for Kemper Defined Funds Series 36
(to be filed by amendment).
1.1.1 Standard Terms and Conditions of Trust for Kemper Defined Funds Series
36 (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 Standard & Poor's (to be filed by amendment).
4.2 Consent of Muller Data Corporation (to be filed by amendment).
4.3 Consent of Grant Thornton LLP (to be filed by amendment).
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Kemper Defined Funds Series 36, 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 11th day of August, 1995.
KEMPER DEFINED FUNDS SERIES 36
Registrant
By: KEMPER SECURITIES, INC.
Depositor
By: /s/
------------------------------------
Robert K. Burke
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on August 14, 1995 by the following
persons, who constitute a majority of the Board of Directors of Kemper
Securities, Inc.
Signature Title
--------- -----
JAMES R. BORIS Chairman and Chief Executive Officer
---------------------------
James R. Boris
STEVEN G. MCCONAHEY President and Chief Operating Officer
---------------------------
Steven F. McConahey
FRANK V. GEREMIA Senior Executive Vice President
---------------------------
Frank V. Geremia
DAVID M. GREENE Senior Executive Vice President
---------------------------
David M. Greene
ARTHUR A. MCGIVERN Senior Executive Vice President and
--------------------------- General Counsel
Arthur J. McGivern
RAMON PECUCH Senior Executive Vice President and
--------------------------- Director
Ramon Pecuch
THOMAS R. REEDY Senior Executive Vice President and
--------------------------- Director
Thomas R. Reedy
S-2
<PAGE>
JANET L. REALI Executive Vice President, Corporate
--------------------------- Counsel and Secretary
Janet L. Reali
DANIEL D. WILLIAMS Executive Vice President and Treasurer
---------------------------
Daniel D. Williams
DAVID B. MATHIS Director
---------------------------
David D. Mathis
STEPHEN B. TIMBERS Director
---------------------------
Stephen B. Timbers
DONALD F. ELLER Director
---------------------------
Donald F. Eller
/s/
------------------------------------
Robert K. Burke
Robert K. Burke signs these documents pursuant to Power of Attorney filed
with the Securities and Exchange Commission with Amendment No. 1 to the
Registration Statement on Form S-6 for Kemper Defined Funds Series 28
(Registration No. 33-56779).
S-3
