<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1995
REGISTRATION NO. 33-64619
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-6
----------------
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. EXACT NAME OF TRUST:
EVEREN UNIT INVESTMENT TRUSTS, SERIES 40
B. NAME OF DEPOSITOR:
EVEREN UNIT INVESTMENT TRUSTS,
a service of EVEREN Securities, Inc.
C. COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES:
EVEREN UNIT INVESTMENT TRUSTS
77 West Wacker Drive, 29th Floor
Chicago, Illinois 60601
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE: Copy to:
ROBERT K. BURKE MARK J. KNEEDY
77 West Wacker Drive, 29th Floor c/o Chapman and Cutler
Chicago, Illinois 60601 111 West Monroe Street
Chicago, Illinois 60603
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE AND AMOUNT OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES BEING REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series An indefinite number of Indefinite $500 (previously paid)
40 Units of Beneficial Inter-
est pursuant to Rule 24f-2
under the Investment Com-
pany Act of 1940
</TABLE>
E. APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
[X] Check box if it is proposed that this filing will become effective at
2:00 P.M. on December 5, 1995 pursuant to paragraph (b) of Rule 487.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a) may determine.
<PAGE>
EVEREN UNIT INVESTMENT TRUSTS, SERIES 40
----------------
CROSS-REFERENCE SHEET
(FORM N-8B-2 ITEMS REQUIRED BY INSTRUCTIONS AS
TO THE PROSPECTUS IN FORM S-6)
<TABLE>
<CAPTION>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
----------- ---------------------
I. ORGANIZATION AND GENERAL INFORMATION
<C> <S> <C>
1. (a)Name of trust................... Prospectus front cover
(b)Title of securities issued...... Essential Information
2. Name and address of each depositor. General Information--Administration of
the Trusts
3. Name and address of trustee........
4. Name and address of principal
underwriters...................... *
5. State of organization of trust..... The Trust Funds
6. Execution and termination of trust The Trust Funds; General Information--
agreement......................... Administration of the Trusts
7. Changes of name.................... The Trust Funds
8. Fiscal year........................ *
9. Litigation.........................
II. GENERAL DESCRIPTION OF THE TRUST AND
SECURITIES OF THE TRUST
10. (a)Registered or bearer securities. General Information--Unitholders
(b)Cumulative or distributive
securities........................ The Trust Funds
(c)Redemption...................... General Information--Redemption
(d)Conversion, transfer, etc....... General Information--Unitholders;
General Information--Market for Units
(e)Periodic payment plan........... *
(f)Voting rights................... General Information--Unitholders
General Information--Investment
(g)Notice of certificateholders.... Supervision; General Information--
Administration of the Trusts; General
Information--Unitholders
(h)Consents required............... General Information--Unitholders;
General Information--Administration of
the Trusts
(i)Other provisions................ The Investment Grade Corporate Income
Series--Federal Tax Status; The
Corporate Income Series--Federal Tax
Status
Type of securities comprising The Trust Funds; General Information--
11. units............................. Trust Information
12. Certain information regarding peri-
odic payment
certificates...................... *
Essential Information; Public Offering
of Units; General Information--
13. (a) Load, fees, expenses, etc...... Interest, Estimated Long-Term Return
and Estimated Current Return; General
Information--Expenses of the Trusts
</TABLE>
- --------
* Inapplicable, answer negative or not required.
i
<PAGE>
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
----------- ---------------------
<C> <S> <C>
(b)Certain information regarding
periodic payment certifi-
cates....................... *
(c)Certain percentages........... Essential Information; Public Offering
of Units
(d)Certain other fees, etc. pay-
able by holders............. General Information--Unitholders
(e)Certain profits receivable by
depositor, principal under-
writers, trustee or affili- General Information--Expenses of the
ated persons................ Trusts; Public Offering of Units
(f)Ratio of annual charges to in-
come........................ *
The Trust Funds;
14. Issuance of trust's securities... General Information--Unitholders
15. Receipt and handling of payments
from purchasers................. *
16. Acquisition and disposition of The Trust Funds; General Information--
underlying securities........... Trust Information; General
Information--Investment Supervision
General Information--Market for Units;
General Information--Redemption;
17. Withdrawal or redemption......... Public Offering of Units
18. (a)Receipt, custody and disposi-
tion of income.............. General Information--Unitholders
(b)Reinvestment of distributions. General Information--Distribution
Reinvestment
(c)Reserves or special funds..... General Information--Expenses of the
Trusts
(d)Schedule of distributions..... *
General Information--Unitholders;
19. Records, accounts and reports.... General Information--Redemption;
General Information--Administration of
the Trusts
20. Certain miscellaneous provisions
of trust agreement
(a)Amendment..................... General Information--Administration of
the
(b)Termination................... Trusts
(c)and (d) Trustee, removal and General Information--Administration of
successor................... the Trusts
(e)and (f) Depositor, removal and General Information--Administration of
successor................... the Trusts
21. Loans to security holders........ *
22. Limitations on liability......... General Information--Administration of
the Trusts
23. Bonding arrangements............. *
24. Other material provisions of
trust agreement................. *
III. ORGANIZATION, PERSONNEL AND
AFFILIATED PERSONS OF DEPOSITOR
25. Organization of depositor........ General Information--Administration of
the Trusts
26. Fees received by depositor....... See Items 13(a) and 13(e)
27. Business of depositor............ General Information--Administration of
the Trusts
28. Certain information as to offi-
cials and affiliated persons of General Information--Administration of
depositor....................... the Trusts
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
----------- ---------------------
<C> <S> <C>
29. Voting securities of depos- General Information--Administration of the
itor...................... Trusts
30. Persons controlling deposi-
tor.......................
31. Payment by depositor for
certain services rendered
to trust..................
32. Payment by depositor for *
certain other services
rendered to trust.........
33. Remuneration of employees
of depositor for certain
services rendered to
trust.....................
34. Remuneration of other per-
sons for certain services
rendered to trust.........
IV. DISTRIBUTION AND REDEMPTION
35. Distribution of trust's se- Public Offering of Units
curities by states........
36. Suspension of sales of *
trust's securities........
37. Revocation of authority to
distribute................
38. (a)Method of distribution.. Public Offering of Units;
(b)Underwriting agreements. General Information--Market for Units;
(c)Selling agreements...... Public Offering of Units
39. (a)Organization of princi-
pal underwriters..........
(b)N.A.S.D. membership of General Information--Administration
principal underwriters.... of the Trusts
40. Certain fees received by See Items 13(a) and 13(e)
principal underwriters....
41. (a)Business of principal General Information--Administration
underwriters.............. of the Trusts
(b)Branch offices of prin-
cipal underwriters........
(c)Salesmen of principal *
underwriters..............
42. Ownership of trust's secu-
rities by certain persons.
43. Certain brokerage commis-
sions received by princi-
pal underwriters.......... Public Offering of Units
44. (a)Method of valuation..... Public Offering of Units
(b)Schedule as to offering *
price.....................
(c)Variation in offering Public Offering of Units
price to certain persons..
45. Suspension of redemption General Information--Redemption
rights....................
46. (a)Redemption valuation.... General Information--Redemption;
General Information--Market for Units;
Public Offering of Units
(b)Schedule as to redemp- *
tion price................
General Information--Market for Units;
47. Maintenance of position in Public Offering of Units;
underlying securities..... General Information--Redemption
V. INFORMATION CONCERNING THE TRUSTEE
OR CUSTODIAN
48. Organization and regulation General Information--Administration
of trustee................ of the Trusts
49. Fees and expenses of trust-
ee........................
50. Trustee's lien............. General Information--Expenses of the Trusts
</TABLE>
- --------
* Inapplicable, answer negative or not required.
iii
<PAGE>
<TABLE>
<CAPTION>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
----------- ---------------------
VI. INFORMATION CONCERNING INSURANCE OF
HOLDERS OF SECURITIES
<C> <S> <C>
51. Insurance of holders of trust's Cover Page; General Information--
securities.................. Expenses of the Trusts; The Tax-Exempt
Portfolios--Insurance on the Bonds
VII. POLICY OF REGISTRANT
52. (a) Provisions of trust agreement The Trust Funds; General Information--
with respect to selection or Trust Information; General
elimination of underlying se- Information--Investment Supervision
curities.....................
(b) Transactions involving elimi-
nation of underlying securi-
ties......................... *
(c) Policy regarding substitution
or elimination of underlying General Information--Investment
securities................... Supervision; General Information--
Trust Information
(d) Fundamental policy not other-
wise covered................. *
Essential Information; General
Information--Trust Information; The
53. Tax status of Trust.............. Investment Grade Corporate Income
Series--Federal Tax Status; The
Corporate Income Series--Federal Tax
Status
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trust's securities during last
ten years........................
55.
56. Certain information regarding pe-
riodic payment certificates..... *
57.
58.
59. Financial statements (Instruction
1(c) to Form S-6)............... *
</TABLE>
- --------
* Inapplicable, answer negative or not required.
iv
<PAGE>
EVEREN UNIT INVESTMENT TRUSTS, SERIES 40
Investment Grade Corporate Income Series 2 (the "Investment Grade Series") was
formed for the purpose of providing a high level of current income through
investment in a fixed portfolio consisting primarily of investment grade,
corporate debt obligations issued after July 18, 1984. The payment of income
is dependent upon the continuing ability of the issuers and/or obligors to
meet their respective obligations. See "The Investment Grade Series--Risk
Factors." For foreign investors who are not United States citizens or
residents, interest income from the Corporate Income Series may not be subject
to federal withholding taxes if certain conditions are met. See "The
Investment Grade Series--Federal Tax Status."
Corporate Income Series 4 (the "Corporate Income Series") was formed for the
purpose of providing a high level of current income through investment in a
fixed portfolio consisting primarily of high yield, high risk corporate debt
obligations issued after July 18, 1984. THE SECURITIES INCLUDED IN THE
CORPORATE INCOME SERIES ARE RATED BELOW INVESTMENT GRADE (COMMONLY KNOWN AS
"JUNK BONDS") AND ARE SUBJECT TO GREATER MARKET FLUCTUATIONS AND POTENTIAL
RISK OF LOSS OF INCOME AND PRINCIPAL THAN ARE INVESTMENTS IN LOWER-YIELDING,
HIGHER RATED FIXED INCOME SECURITIES. THE SECURITIES INCLUDED IN THE CORPORATE
INCOME SERIES SHOULD BE VIEWED AS SPECULATIVE AND AN INVESTOR SHOULD REVIEW
HIS ABILITY TO ASSUME THE RISKS ASSOCIATED WITH SPECULATIVE CORPORATE BONDS.
THE PAYMENT OF INCOME IS DEPENDENT UPON THE CONTINUING ABILITY OF THE ISSUERS
AND/OR OBLIGORS TO MEET THEIR RESPECTIVE OBLIGATIONS. SEE "THE CORPORATE
INCOME SERIES--RISK FACTORS." For foreign investors who are not United States
citizens or residents, interest income from the Corporate Income Series may
not be subject to federal withholding taxes if certain conditions are met. See
"The Corporate Income Series--Federal Tax Status."
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.
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 DECEMBER 5, 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 Investment Grade Corporate
Income Series--Risk Factors" and "The Corporate Income Series--Risk Factors."
2
<PAGE>
EVEREN UNIT INVESTMENT TRUSTS, SERIES 40
ESSENTIAL INFORMATION
AS OF THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT
SPONSOR AND EVALUATOR: EVEREN UNIT INVESTMENT TRUSTS, A SERVICE OF
EVEREN SECURITIES, INC.
TRUSTEE:
THE BANK OF NEW YORK
The income, expense and distribution data set forth below has been calculated
for Unitholders purchasing less than 10,000 Units of a Trust (less than 50,000
Units of a U.S. Treasury Portfolio). Unitholders purchasing 10,000 Units or
more of a Trust (50,000 Units or more of a U.S. Treasury Portfolio) will
receive a slightly higher return because of the reduced sales charge for
larger purchases.
<TABLE>
<CAPTION>
INVESTMENT CORPORATE
GRADE INCOME
SERIES 2 SERIES 4
------------ ------------
<S> <C> <C>
Public Offering Price per Unit (1)(2)............. $ 10.174 $ 10.038
Principal Amount of Securities per Unit........... $ 10.000 $ 10.000
Estimated Current Return based on Public Offering
Price (3)(4)(5)(6)............................... 6.07% 8.16%
Estimated Long-Term Return (3)(4)(5)(6)........... 6.05% 8.28%
Estimated Normal Annual Distribution per Unit (6). $ 0.61712 $ 0.81907
Principal Amount of Securities.................... $ 950,000 $ 1,575,000
Number of Units................................... 95,000 157,500
Fractional Undivided Interest per Unit............ 1/95,000 1/157,500
Calculation of Public Offering Price:
Aggregate Offering Price of Securities........... $ 922,998 $ 1,509,834
Aggregate Offering Price of Securities per Unit.. 9.716 9.586
Plus Sales Charge of 4.5% (4.712042% of
offer/unit) (7)................................. $ 0.458 $ 0.452
Public Offering Price per Unit (1)(2)............ $ 10.174 $ 10.038
Redemption Price per Unit......................... $ 9.678 $ 9.549
Sponsor's Initial Repurchase Price per Unit....... $ 9.716 $ 9.586
Excess of Public Offering Price per Unit over
Redemption Price per Unit........................ $ 0.496 $ 0.489
Excess of Public Offering Price per Unit over
Sponsor's Initial Repurchase Price per Unit...... $ 0.458 $ 0.452
Calculation of Estimated Net Annual Interest
Income per Unit (6):
Estimated Annual Interest........................ $ 0.63882 $ 0.84167
Less: Estimated Annual Expense................... $ 0.02170 $ 0.02260
Estimated Net Annual Interest Income............. $ 0.61712 $ 0.81907
Estimated Daily Rate of Net Interest Accrual per
Unit............................................. $0.001714220 $0.002275190
Minimum Principal Value of the Trust under which
Trust Agreement may be terminated (8)............ $ 190,000 $ 315,000
</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)
(the "Evaluation Time") next following receipt of an order for a sale or
purchase of Units or receipt by the Trustee of Units tendered for redemption.
3
<PAGE>
ESSENTIAL INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
INVESTMENT CORPORATE
GRADE INCOME
SERIES 2 SERIES 4
---------- ---------
<S> <C> <C>
Trustee's Annual Fee per $1,000 principal amount of
Securities (9)........................................... $ 1.370 $ 1.510
Reduction of Trustee's fee per Unit during the first
year (6)................................................. N/A N/A
Estimated annual interest income per Unit during the first
year (6)................................................. $0.63882 $0.84167
Interest Payments (10):
First Payment per Unit, representing 23 days............. $0.03943 $0.05233
Estimated Normal Monthly Distribution per Unit........... $0.05143 $0.06826
Estimated Normal Annual Distribution per Unit............ $0.61712 $0.81907
Sales Charge (7):
As a percentage of Public Offering Price per Unit........ 4.500% 4.500%
As a percentage of net amount invested................... 4.714% 4.715%
As a percentage of net amount invested in earning assets. 4.714% 4.715%
</TABLE>
<TABLE>
<S> <C>
Date of Trust
Agreements............. December 5, 1995
First Settlement Date... December 8, 1995
Mandatory Termination
Date................... December 31, 2008
Evaluator's Annual
Evaluation Fee......... Maximum of $0.30 per $1,000 Principal Amount of Securities
Sponsor's Annual
Surveillance Fee....... Maximum of $0.25 per $1,000 Principal Amount of Securities
</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>
- ---------------------
* Reference is made to the Trust Agreements, and any statements contained
herein are qualified in their entirety by the provisions of the Trust
Agreements.
(6) During the first year, the Trustee has agreed to reduce its fee (and to
the extent necessary pay expenses of the Trust Funds) in the amounts
stated above. The Trustee has agreed to the foregoing to cover all or a
portion of the interest on any Securities accruing prior to their expected
dates of delivery, since interest will not accrue to the benefit of
Unitholders of a Trust Fund until such Securities are actually delivered
to the Trust Fund. The estimated net annual interest income per Unit will
remain as indicated. See "The Trust Funds" and "General Information--
Interest, Estimated Long-Term Return and Estimated Current Return."
(7) The sales charge as a percentage of the net amount invested in earning
assets will increase as accrued interest increases. Transactions subject
to quantity discounts (see "Public Offering of Units--Public Offering
Price") will have reduced sales charges, thereby reducing all percentages
in the table.
(8) The minimum principal value of each Trust (other than a Tax-Exempt
Portfolio) under which the Trust Agreement may be terminated is 40% of the
total aggregate principal amount of securities deposited in each such
Trust during the primary offering period. The minimum principal value of
each Tax-Exempt Portfolio under which the Trust Agreement may be
terminated is 20% of the initial aggregate principal amount of securities
deposited in such Trust.
(9) See "General Information--Expenses of the Trusts."
(10) Unitholders will receive interest distributions monthly. The Record Date
is the first day of the month, commencing January 1, 1996, and the
distribution date is the fifteenth day of the month, commencing January
15, 1996.
THE TRUST FUNDS
EVEREN Unit Investment Trusts, Series 40 includes the following separate unit
investment trusts created by the Sponsor under the name EVEREN Unit Investment
Trusts: "Investment Grade Corporate Income Series 2" and "Corporate Income
Series 4" (collectively, the "Trusts" or "Trust Funds"). Investment Grade
Corporate Income Series 2 is referred to herein as the "Investment Grade
Series" or the "Defined Investment Grade Income Trust (DIGIT)" while Corporate
Income Series 4 is referred to herein as the "Corporate Income Series" or the
"Defined Uninsured Corporate Income Trust (DUCOR)". 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 New York pursuant to a trust
indenture dated the Initial Date of Deposit (the "Trust Agreements") between
EVEREN Unit Investment Trusts, a service of EVEREN Securities, Inc. (the
"Sponsor") and The Bank of New York (the "Trustee").*
The Investment Grade Series was formed for the purpose of providing a high
level of current income through investment in a fixed portfolio consisting
primarily of investment grade, corporate debt obligations issued after July
18, 1984. The Investment Grade Series may be an appropriate investment vehicle
for investors who desire to participate in a portfolio of intermediate term
taxable fixed income securities issued by corporate obligors with greater
diversification than investors might be able to acquire individually.
Diversification of the Trust assets will not eliminate the risk of loss always
inherent in the ownership of securities.
The Corporate Income Series was formed for the purpose of providing a high
level of current income through investment in a fixed portfolio consisting
primarily of high yield, high risk corporate debt obligations issued after
July 18, 1984. The Corporate Income Series may be an appropriate investment
vehicle for investors who desire to participate in a portfolio of intermediate
term taxable fixed income securities issued by corporate obligors with greater
diversification than investors might be able to acquire individually.
Diversification of the Trust assets will not eliminate the risk of loss always
inherent in the ownership of securities.
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.
5
<PAGE>
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.
Each Unit initially offered represents that undivided interest in the
appropriate Trust indicated under "Essential Information." To the extent that
any Units are redeemed by the Trustee or additional Units are issued as a
result of additional Securities being deposited by the Sponsor, the fractional
undivided interest in a Trust represented by each unredeemed Unit will increase
or decrease accordingly, although the actual interest in such Trust represented
by such fraction will remain unchanged. Units will remain outstanding until
redeemed upon tender to the Trustee by Unitholders, which may include the
Sponsor, or until the termination of the Trust Agreement.
An investment in Units of a Trust Fund should be made with an understanding of
the risks which an investment in fixed rate debt obligations may entail,
including the risk that the value of the portfolio and hence of the Units will
decline with increases in interest rates. The value of the underlying
Securities will fluctuate inversely with changes in interest rates. The
uncertain economic conditions of recent years, together with the fiscal
measures adopted to attempt to deal with them, have resulted in wide
fluctuations in interest rates and, thus, in the value of fixed rate debt
obligations generally and long-term obligations in particular. The Sponsor
cannot predict the degree to which such fluctuations will continue in the
future.
6
<PAGE>
The chart below represents current yields on various corporate bond indices
and 10-year U.S. government bonds for the period ending September 30, 1995.
Source: Standard & Poor's High Yield Directions and Bloomberg Financial
Markets.
It is important to note that this chart represents past performance of the
indices and is shown for illustrative purposes only. The chart is not intended
to forecast, imply or guarantee the future performance of any particular
investment, including Units of any Trust offered by this prospectus which
represent interests in a portfolio of Bonds which differ from the bonds
included in the indices.
The following chart illustrates the total returns (which include income and
any capital appreciation) for BB-rated high yield bonds and the S&P 500 Index
since 1991./1/ The BB-rated high yield market has returned an average of
12.92% per year since 1983. The total return figures shown are not guarantees
of future performance and should not be used as a predictor of returns to be
expected in connection with the Trust Fund. Such total return figures do not
reflect sales charges, commissions, expenses or taxes. Investors should also
bear in mind that BB-rated high yield securities are fixed income obligations,
while the S&P Index is an unmanaged index comprised of equity securities which
may involve greater risk because they have no maturities, and income thereon
is subject to the financial condition of, and declaration by, the issuers.
TOTAL RETURN PERFORMANCE
<TABLE>
<CAPTION>
BB
HIGH S&P
YIELD 500
------ ------
<S> <C> <C>
1991 24.43 30.45
1992 12.07 7.61
1993 15.86 10.08
1994 (0.39) 1.32
1995 (through 10/31/95) 22.02 35.12
Average Annual Return 14.798% 16.916%
</TABLE>
/1/Through October 31, 1995. Source:
Lehman Brothers High Yield Bond
indices--Total Returns by Credit
Quality (1983 through October 31,
1995).
7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
UNITHOLDERS
EVEREN UNIT INVESTMENT TRUSTS, SERIES 40
We have audited the accompanying statements of condition and the related
portfolios of EVEREN Unit Investment Trusts, Series 40 as of December 5, 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 December 5, 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 EVEREN Unit Investment
Trusts, Series 40 as of December 5, 1995, in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
December 5, 1995
8
<PAGE>
EVEREN UNIT INVESTMENT TRUSTS, SERIES 40
STATEMENTS OF CONDITION AT THE OPENING OF BUSINESS ON DECEMBER 5, 1995, THE
INITIAL DATE OF DEPOSIT
<TABLE>
<CAPTION>
INVESTMENT CORPORATE
GRADE INCOME
SERIES 2 SERIES 4
----------- ----------
<S> <C> <C>
INVESTMENT IN SECURITIES
Securities deposited in the Trusts...................... -- --
Contracts to purchase Securities........................ 922,998 1,509,834
Accrued interest to First Settlement Date on Securities. 18,895 25,722
----------- ----------
Total.................................................. $ 941,893 $1,535,556
=========== ==========
Units of fractional undivided interest outstanding...... 95,000 157,500
LIABILITY AND INTEREST OF UNITHOLDERS
Accrued interest payable to Sponsor.................... $ 18,895 $ 25,722
Cost to investors (3).................................. 966,530 1,580,985
Less: Gross underwriting commission (3)................ 43,532 71,151
----------- ----------
Net interest to Unitholders (1)(3)..................... 922,998 1,509,834
----------- ----------
Total................................................ $ 941,893 $1,535,556
=========== ==========
</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 Cantor Fitzgerald & Co. 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 $2,477,449 which has
been deposited with the Trustee. Of this amount, $2,432,832 relates to the
offering price of Securities to be purchased and $44,617 relates to
accrued interest on such Securities to the expected dates of delivery.
(2) 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.
(3) The aggregate public offering price includes a sales charge for the Trust
as set forth under "Essential Information", assuming all single
transactions involve less than 10,000 Units. For single transactions
involving 10,000 or more Units the sales charge is reduced (see "Public
Offering of Units--Public Offering Price") resulting in an equal reduction
in both the Cost to investors and the Gross underwriting commission while
the Net interest to Unitholders remains unchanged.
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 Cantor Fitzgerald & Co., 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
Cantor Fitzgerald & Co.), 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.
The sales charge per Unit will be reduced during the initial offering period
pursuant to the following graduated scale:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE YEARS TO MATURITY
-----------------------------------------------------------
UNDER 5 YEARS 5 TO 14.99
--------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
OFFERING NET AMOUNT OFFERING NET AMOUNT
NUMBER OF UNITS PRICE INVESTED PRICE INVESTED
- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 to 9,999 Units........ 3.9% 4.058% 4.5% 4.712%
10,000 to 24,999 Units.. 3.7 3.842 4.2 4.384
25,000 to 49,999 Units.. 3.5 3.627 4.0 4.167
50,000 to 99,999 Units.. 3.3 3.413 3.5 3.627
100,000 or more Units... 2.0 2.001 2.2 2.249
</TABLE>
10
<PAGE>
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.
In connection with secondary market transactions the sales charge per Unit
will be reduced as set forth below:
<TABLE>
<CAPTION>
SECONDARY
---------------------------------------------
DOLLAR WEIGHTED AVERAGE YEARS TO MATURITY*
DOLLAR AMOUNT OF TRADE 2 TO 3.99 4 TO 9.99 10 OR MORE
---------------------- ---------------------------------------------
SALES CHARGE (PERCENT OF PUBLIC OFFERING
PRICE)
---------------------------------------------
<S> <C> <C> <C>
$1,000 to $99,999....... 3.50% 4.50% 5.50%
$100,000 to $499,999.... 3.25 4.25 5.00
$500,000 to $999,999.... 3.00 4.00 4.50
$1,000,000 or more...... 2.75 3.75 4.00
</TABLE>
- ---------------------
* If the dollar weighted average maturity of a Trust Fund is from 1 to 1.99
years, the sales charge is 2% and 1.5% of the Public Offering Price for
purchases of $1,000 to $249,999 and $250,000 or more, respectively.
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.
11
<PAGE>
Unitholders of the various series of EVEREN Unit Investment Trusts, Insured
Corporate Series (or its predecessors) who meet the conditions in the next
succeeding sentence may, during the primary offering period of an Investment
Grade Series or a Corporate Income Series only, acquire Units of such Series
at the reduced sales charge equivalent to purchases during the initial
offering period of 100,000 or more Units. First, the special sales charge
discount only applies to purchases acquired with funds received from
distributions of unscheduled principal payments in connection with units
issued in such series and, second, the minimum purchase must be at least
$1,000.
The Sponsor intends to permit officers, directors and employees of the Sponsor
and Evaluator and at the discretion of the Sponsor registered representatives
of selling firms to purchase Units of a Trust without a sales charge, although
a transaction processing fee may be imposed on such trades.
Had Units of a Trust been available for sale at the opening of business on the
Initial Date of Deposit, the Public Offering Price would have been as shown
under "Essential Information." The Public Offering Price per Unit of a Trust
on the date of this Prospectus or on any subsequent date will vary from the
amount stated under "Essential Information" in accordance with fluctuations in
the prices of the underlying Securities and the amount of accrued interest on
the Units. On the Initial Date of Deposit, pursuant to an exemptive order from
the Securities and Exchange Commission, the Public Offering Price at which
Units will be sold will not exceed the price determined as of the opening of
business on the Initial Date of Deposit as shown under "Essential
Information"; however, should the value of the underlying Securities decline,
purchasers will, of course, be given the benefit of such lower price. The
aggregate bid and offering side evaluations of the Securities shall be
determined (a) on the basis of current bid or offering prices of the
Securities, (b) if bid or offering prices are not available for any particular
Security, on the basis of current bid or offering prices for comparable bonds,
(c) by determining the value of Securities on the bid or offer side of the
market by appraisal, or (d) by any combination of the above.
The foregoing evaluations and computations shall be made as of the evaluation
time stated under "Essential Information," on each business day commencing
with the Initial Date of Deposit of the Securities, effective for all sales
made during the preceding 24-hour period.
The interest on the Securities deposited in a Trust, less the related
estimated fees and expenses, is estimated to accrue in the annual amounts per
Unit set forth under "Essential Information." The amount of net interest
income which accrues per Unit may change as Securities mature or are redeemed,
exchanged or sold, or as the expenses of a Trust change or the number of
outstanding Units of a Trust changes.
Although payment is normally made 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
12
<PAGE>
case of Ginnie Maes, if any) although a Trust accrues such interest daily.
Because of this, a Trust always has an amount of interest earned but not yet
collected by the Trustee. For this reason, with respect to sales settling
subsequent to the First Settlement Date, the Public Offering Price of Units
will have added to it the proportionate share of accrued interest to the date
of settlement. Unitholders will receive on the next distribution date of a
Trust the amount, if any, of accrued interest paid on their Units.
In an effort to reduce the amount of accrued interest which would otherwise
have to be paid in addition to the Public Offering Price in the sale of Units
to the public, the Trustee will advance the amount of accrued interest as of
the First Settlement Date and the same will be distributed to the Sponsor as
the Unitholder of record as of the First Settlement Date. Consequently, the
amount of accrued interest to be added to the Public Offering Price of Units
will include only accrued interest from the First Settlement Date to the date
of settlement, less any distributions from the Interest Account subsequent to
the First Settlement Date.
Because of the varying interest payment dates of the Securities, accrued
interest at any point in time will be greater than the amount of interest
actually received by the Trusts and distributed to Unitholders. Therefore,
there will always remain an item of accrued interest that is added to the
value of the Units. If a Unitholder sells or redeems all or a portion of his
Units, he will be entitled to receive his proportionate share of the accrued
interest from the purchaser of his Units. Since the Trustee has the use of the
funds held in the Interest Account for distributions to Unitholders and since
such Account is non-interest-bearing to Unitholders, the Trustee benefits
thereby.
COMPARISON OF PUBLIC OFFERING PRICE AND REDEMPTION PRICE. While the Initial
Public Offering Price of Units will be determined on the basis of the current
offering prices of the Securities in a Trust, the redemption price per Unit
(as well as the secondary market price per Unit) at which Units may be
redeemed (see "General Information--Redemption") will be determined on the
basis of the current bid prices of the Securities. As of the opening of
business on the Initial Date of Deposit, the Public Offering Price per Unit
(based on the offering prices of the Securities in a Trust and including the
sales charge) exceeded the redemption price at which Units could have been
redeemed (based upon the current bid prices of the Securities in a Trust) by
the amount shown under "Essential Information." 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;
13
<PAGE>
however, the Glass-Steagall Act does permit certain agency transactions and
the banking regulators have indicated that these particular agency
transactions are permitted under such Act. In addition, state securities laws
on this issue may differ from the interpretations of federal law expressed
herein and banks and financial institutions may be required to register as
dealers pursuant to state law. The Sponsor reserves the right to change the
discounts set forth below from time to time. In addition to such discounts,
the Sponsor may, from time to time, pay or allow an additional discount, in
the form of cash or other compensation, to dealers employing registered
representatives who sell, during a specified time period, a minimum dollar
amount of Units of a Trust and other unit investment trusts created by the
Sponsor. The difference between the discount and the sales charge will be
retained by the Sponsor. For Tax-Exempt Portfolios only, any dealer who sells
at least those amounts of Units set forth under "The Tax-Exempt Portfolios--
Underwriting" on the Initial Date of Deposit will be entitled to a concession
or agency commission equal to the corresponding takedown set forth in that
section for those Units sold on the Initial Date of Deposit.
The primary market concessions or agency commissions are as follows:
<TABLE>
<CAPTION>
PRIMARY MARKET
-----------------------------------------------------------------
VOLUME DISCOUNTS PER UNIT*
---------------------------------------------------
FIRM SALES OR FIRM SALES OR FIRM SALES OR
REGULAR SALE SALE SALE
CONCESSION ARRANGEMENTS ARRANGEMENTS ARRANGEMENTS
OR AGENCY 25,000 TO 50,000 TO 100,000 OR
COMMISSION 49,999 99,999 MORE
------------ --------------- --------------- ---------------
WEIGHTED AVERAGE YEARS TO MATURITY
UNDER 5 TO UNDER 5 TO UNDER 5 TO UNDER 5 TO
NUMBER OF $10 UNITS 5 14.99 5 14.99 5 14.99 5 14.99
- ------------------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 to 9,999 Units........ 2.70% 3.00% 2.80% 3.20% 2.90% 3.30% 3.00% 3.40%
10,000 to 24,999 Units.. 2.50 2.90 2.60 3.00 2.70 3.10 2.80 3.20
25,000 to 49,999 Units.. 2.30 2.80 2.40 2.90 2.50 2.90 2.60 3.00
50,000 to 99,999 Units.. 2.20 2.40 2.30 2.50 2.30 2.50 2.30 2.50
100,000 or more Units... 1.10 1.20 1.20 2.10 1.20 2.10 1.20 2.10
</TABLE>
- --------
* Volume concessions of up to the amount shown can be earned as a marketing
allowance at the discretion of the Sponsor during the initial one month
period after the Initial Date of Deposit by firms who reach cumulative firm
sales or sales arrangement levels of at least $250,000. After a firm has
met the minimum $250,000 volume level, volume concessions may be given on
all trades originated from or by that firm, including those placed prior to
reaching the $250,000 level, and may continue to be given during the entire
initial offering period. Firm sales of any Investment Grade Series or
Corporate Income Series issued simultaneously can be combined for the
purposes of achieving the volume discount. Only sales through EVEREN
qualify for volume discounts and secondary purchases do not apply. The
Sponsor reserves the right to modify or change those parameters at any time
and make the determination of which firms qualify for the marketing
allowance and the amount paid.
14
<PAGE>
The Sponsor reserves the right to reject, in whole or in part, any order for
the purchase of Units.
PROFITS OF SPONSOR AND UNDERWRITERS. In connection with Trusts other than a
Tax-Exempt Portfolio, the Sponsor will receive gross sales charges equal to
the percentage of the Offering Price of the Units of such Trusts stated under
"Public Offering Price" and will pay a fixed portion of such sales charges to
dealers and agents. As set forth under "The Tax-Exempt Portfolios--
Underwriting," the Underwriters of each Tax-Exempt Portfolio will receive
gross sales charges equal to the percentage of the Public Offering Price of
the Units of such Trust Fund stated under "Public Offering Price" and the
Sponsor will receive a fixed portion of such sales charges. In addition, the
Sponsor may realize a profit or a loss resulting from the difference between
the purchase prices of the Securities to the Sponsor and the cost of such
Securities to a Trust Fund, which is based on the offering side evaluation of
the Securities. See "Portfolio" for each Trust. The Sponsor or Underwriters
may also realize profits or losses with respect to Securities deposited in a
Trust which were acquired from underwriting syndicates of which the Sponsor or
any Underwriter was a member. An underwriter or underwriting syndicate
purchases securities from the issuer on a negotiated or competitive bid basis,
as principal, with the motive of marketing such securities to investors at a
profit. The Sponsor and the Underwriters may realize additional profits or
losses during the initial offering period on unsold Units as a result of
changes in the daily evaluation of the Securities in a Trust.
15
<PAGE>
I
N
V
E
S
T
M
E
N
T
G
R
A
D
E
S
E
R
I
E
S
THE INVESTMENT GRADE SERIES
THE TRUST PORTFOLIO
The Investment Grade Series was formed for the purpose of providing a high
level of current income through investment in a fixed portfolio consisting
primarily of investment grade, corporate debt obligations issued after July
18, 1984. There is, of course, no guarantee that the Trust Fund's objective
will be achieved.
The Trust Fund may be an appropriate investment vehicle for investors who
desire to participate in a portfolio of intermediate term taxable fixed income
securities issued by corporate obligors with greater diversification than
investors might be able to acquire individually. Diversification of the Trust
assets will not eliminate the risk of loss always inherent in the ownership of
securities. In addition, Bonds of the type deposited in the Trust Fund often
are not available in small amounts.
The selection of Bonds for the Trust Fund was based largely upon the
experience and judgment of the Sponsor. In making such selections the Sponsor
considered the following factors: (a) the price of the Bonds relative to other
issues of similar quality and maturity; (b) the present rating and credit
quality of the issuers of the Bonds and the potential improvement in the
credit quality of such issuers; (c) the diversification of the Bonds as to
location of issuer; (d) the income to the Unitholders of the Trust; (e)
whether the Bonds were issued after July 18, 1984; and (f) the stated maturity
of the Bonds.
As of the Initial Date of Deposit, all of the Bonds in the Trust are rated
"Baa" or better by Moody's or "BBB" or better by Standard & Poor's or Duff &
Phelps Credit Rating Co. See "Appendix: Description of Ratings" and
"Portfolio" below. Subsequent to the Initial Date of Deposit, a Bond may cease
to be so rated. If this should occur, the Trust would not be required to
eliminate the Bond from the Trust, but such event may be considered in the
Sponsor's determination to direct the Trustee to dispose of such investment.
See "General Information--Investment Supervision." The Trust consists of that
number of Bonds divided by type (and percentage of principal amount of the
Trust) as set forth in the following table.
SERIES INFORMATION
<TABLE>
<S> <C> <C>
Number of Bonds................................................ 9
Debt Obligations(1):
U.S. Corporate................................................ 9(100%)
Average life of the Bonds in the Trust(2)...................... 8 years
Percentage of "when, as and if issued" or "delayed delivery"
Bonds purchased by the Trust.................................. None
Syndication(3)................................................. None
</TABLE>
- -------------------
(1) The portfolio percentage in parenthesis represents the principal amount of
such Bonds to the total principal amount of Bonds in the Trust. For a
discussion of the risks associated with investments in the bonds of such
issuers, see "Risk Factors" below.
(2) The average life of the Bonds in the Trust is calculated based upon the
stated maturities of the Bonds in the Trust (or, with respect to Bonds for
which funds or securities have been placed in escrow to redeem such Bonds
on a stated call date, based upon such call date). The average life of the
Bonds in the Trust may increase or decrease from time to time as Bonds
mature or are called or sold.
(3) The Sponsor and its affiliates have participated as either the sole
underwriter or manager or a member of underwriting syndicates from which
approximately that percentage listed above of the aggregate principal
amount of the Bonds in the Trust were acquired.
IG-1
INVESTMENT GRADE SERIES
<PAGE>
EVEREN UNIT INVESTMENT TRUSTS SERIES 40
INVESTMENT GRADE CORPORATE INCOME SERIES 2 PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: DECEMBER 5, 1995
<TABLE>
<CAPTION>
RATING(2)
-----------------------
STANDARD COST OF
AGGREGATE & DUFF & REDEMPTION BONDS
PRINCIPAL NAME OF ISSUER(1)(5) COUPON MATURITY MOODY'S POOR'S PHELPS PROVISIONS(3) TO TRUST(4)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
$125,000 Apple Computer, Inc. 6.500% 02/15/2004 Baa2 BBB NR Non-Callable $124,921
100,000 Dole Food Co. 7.000 05/15/2003 Baa3 BBB- NR Non-Callable 102,867
125,000 Grand Metropolitan 0.000 01/06/2004 A2 A+ A Non-Callable 75,909
Investment(6)
100,000 Hertz Corp. 7.000 07/15/2003 Baa2 A- NR Non-Callable 103,875
75,000 Paine Webber Group, Inc. 7.875 02/15/2003 Baa1 BBB+ NR Non-Callable 80,594
125,000 RJR Nabisco, Inc. 8.750 08/15/2005 Baa3 BBB- BBB Non-Callable 128,304
100,000 Royal Caribbean Cruises, 7.125 09/18/2002 Baa3 BBB- NR Non-Callable 102,222
Ltd.
125,000 Salomon Financial, Inc. 6.875 12/15/2003 Baa1 BBB A- Non-Callable 123,783
75,000 Tele-Communications, 8.000 08/01/2005 BBB-
Inc. Baa3 BBB- Non-Callable 80,523
-------- --------
$950,000 $922,998
======== ========
</TABLE>
<TABLE>
<S> <C>
Portfolio Composition:
Computers 13%
Food and Tobacco 24%
Cable 8%
Financial Services 21%
Entertainment 11%
Conglomerate 13%
Auto Rental 10%
</TABLE>
IG-2
INVESTMENT GRADE SERIES
<PAGE>
NOTES TO PORTFOLIO:
* These Bonds are "when, as and if issued" or "delayed delivery" and have
expected settlement dates after the "First Settlement Date."
(1) Contracts to acquire Bonds were entered into by the Sponsor on December 4,
1995. All Bonds are represented by regular way contracts, unless otherwise
indicated, for the performance of which an irrevocable letter of credit
has been deposited with the Trustee.
(2) A brief description of the applicable Standard & Poor's, Moody's and Duff
& Phelps Credit Rating Co. rating symbols and their meanings is set forth
under "Appendix: Description of Ratings." "N.R." indicates that the issue
has not been rated by that rating agency.
(3) There is shown under this heading the year in which each issue of Bonds is
initially or currently redeemable and the redemption price for that year;
unless otherwise indicated, each issue continues to be redeemable at
declining prices thereafter, but not below par value. The prices at which
the Bonds may be redeemed or called prior to maturity may or may not
include a premium and, in certain cases, may be less than the cost of the
Bonds to the Trust. In addition, certain Bonds in the portfolio may be
redeemed in whole or in part other than by operation of the stated
redemption provisions under certain unusual or extraordinary circumstances
specified in the instruments setting forth the terms and provisions of
such Bonds. "S.F." indicates that a sinking fund is established with
respect to that issue of Bonds.
(4) During the initial offering period, evaluations of Bonds are made on the
basis of current offering side evaluations of the Bonds. The aggregate
offering price is greater than the aggregate bid price of the Bonds, which
is the basis on which the Redemption Price will be determined for purposes
of redemption of Units after the initial offering period.
(5) Other information regarding the Bonds in the Trust, at the opening of
business on the Initial Date of Deposit, is as follows:
<TABLE>
<CAPTION>
ANNUAL
COST OF PROFIT OR INTEREST BID SIDE
BONDS TO (LOSS) TO INCOME VALUE OF
SPONSOR SPONSOR TO TRUST BONDS
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Investment Grade Corporate Income Se-
ries 2............................... $919,435 $3,563 $60,688 $919,435
</TABLE>
The Cost of Bonds to Sponsor and Profit or (Loss) to Sponsor reflect
portfolio hedging transaction costs, hedging gains or losses, and certain
other carrying costs.
(6) This Bond was issued at an original issue discount. The tax effect of
Bonds issued at an original issue discount is described in "Federal Tax
Status". This Bond has been purchased at a deep discount from the par
value because there is little or no stated interest income thereon. Bonds
which pay no interest are normally described as "zero coupon" bonds. Over
the life of bonds purchased at a deep discount the value of such bonds
will increase such that upon maturity the holders of such bonds will
receive 100% of the principal amount thereof. Approximately 13% of the
aggregate principal amount of the Bonds in the Trust were issued at an
original issue discount.
IG-3
INVESTMENT GRADE SERIES
<PAGE>
RISK FACTORS
General. An investment in Units of the Trust should be made with an
understanding of the risks that an investment in fixed rate, investment grade
corporate debt obligations may entail, including credit risks and the risk
that the value of the Units will decline with increases in interest rates. In
recent years there have been wide fluctuations in interest rates and thus in
the value of fixed-rate, debt obligations generally, Securities such as those
included in the Trust are, under most circumstances, subject to greater market
fluctuations and risk of loss of income and principal than are investments in
lower-yielding, higher rated securities, and their value may decline because
of increases in interest rates not only because the increases in rates
generally decrease values but also because increased rates may indicate a
slowdown in the economy and a decrease in the value of assets generally that
may adversely affect the credit of certain issuers. A slowdown in the economy,
or a development adversely affecting an issuer's creditworthiness, may result
in the issuer being unable to maintain earnings or sell assets at the rate and
at the prices, respectively, that are required to produce sufficient cash flow
to meet its interest and principal requirements. For an issuer that has
outstanding both senior commercial bank debt and subordinated high yield, high
risk securities, an increase in interest rates will increase that issuer's
interest expense insofar as the interest rate on the bank debt is fluctuating.
However, many leveraged issuers enter into interest rate protection agreements
to fix or cap the interest on a large portion of their bank debt. This reduces
exposure to increasing interest rates but reduces the benefit to the issuer of
declining rates. The Sponsor cannot predict future economic policies or their
consequences or, therefore, the course or extent of any similar market
fluctuations in the future. The portfolio consists of Bonds that, in many
cases, do not have the benefit of covenants that would prevent the issuer from
engaging in capital restructurings or borrowing transactions in connection
with corporate acquisitions, leveraged buy outs or restructurings that could
have the effect of reducing the ability of the issuer to meet its obligations
and might result in the ratings of the Bonds and the value of the underlying
portfolio being reduced.
Lower-rated securities tend to offer higher yields than higher-rated
securities with the same maturities because the creditworthiness of the
issuers of lower-rated securities may not be as strong as that of other
issuers. Moreover, if a Bond is recharacterized as equity by the Internal
Revenue Service for Federal income tax purposes, the issuer's interest
deduction with respect to the Bond will be disallowed and this disallowance
may adversely affect the issuer's credit rating. Because investors generally
perceive that there are greater risks associated with lower-rated securities,
the yields and prices of these securities tend to fluctuate more than higher-
rated securities with changes in the perceived quality of the credit of their
issuers. In addition, the market value of certain fixed-income securities may
fluctuate more than the market value of higher-rated securities since lower-
rated, fixed-income securities tend to reflect short-term credit development
to a greater extent than higher-rated securities. Issuers of certain
securities may possess less creditworthiness characteristics than issuers of
higher-rated securities and, especially in the case of issuers whose
obligations or credit standing have recently been downgraded, may be subject
to claims by debtholders, owners of property leased to the issuer or others
which, if sustained, would make it more difficult for the issuers to meet
their payment obligations. Bonds are also affected by variables such as
interest rates, inflation rates and real growth in the economy. Therefore,
investors should consider carefully the relative risks associated with
investment in securities which carry lower ratings.
IG-4
INVESTMENT GRADE SERIES
<PAGE>
The value of the Units reflects the value of the portfolio securities,
including the value (if any) of securities in default. Should the issuer of
any Bond default in the payment of principal or interest, the Trust may incur
additional expenses seeking payment on the defaulted Bond. Because amounts (if
any) recovered by the Trust in payment under the defaulted Bond may not be
reflected in the value of the Units until actually received by the Trust, and
depending upon when a Unitholder purchases or sells his Units, it is possible
that a Unitholder would bear a portion of the cost of recovery without
receiving any portion of the payment recovered.
FEDERAL TAX STATUS
In the opinion of Chapman and Cutler, special counsel for the Sponsor, under
existing law:
1. The Trust is not an association taxable as a corporation for Federal
income tax purposes.
2. Each Unitholder will be considered the owner of a pro rata portion of
each of the Trust assets for Federal income tax purposes under Subpart E,
Subchapter J of Chapter 1 of the Internal Revenue Code of 1986 (the
"Code"); and the income of the Trust will be treated as income of the
Unitholders. Each Unitholder will be considered to have received his pro
rata share of income derived from each Trust asset when such income is
received by the Trust. Each Unitholder will also be required to include in
taxable income for Federal income tax purposes, original issue discount
with respect to his interest in any Bonds held by the Trust at the same
time and in the same manner as though the Unitholder were the direct owner
of such interest.
3. Each Unitholder will have a taxable event when a Bond is disposed of
(whether by sale, exchange, redemption, or payment at maturity) or when the
Unitholder redeems or sells his Units. A Unitholder's tax basis in his
Units will equal his tax basis in his pro rata portion of all the assets of
the Trust. Such basis is determined (before the adjustments described
below) by apportioning the tax basis for the Units among each of the Trust
assets according to value as of the valuation date nearest the date of
acquisition of the Units. Unitholders must reduce the tax basis of their
Units for their share of accrued interest received, if any, on Bonds
delivered after the date the Unitholders pay for their Units to the extent
such interest accrued on such Bonds during the period from the Unitholder's
settlement date to the date such Bonds are delivered to the Trust, and,
consequently, such Unitholders may have an increase in taxable gain or
reduction in capital loss upon the disposition of such Units. Gain or loss
upon the sale or redemption of Units is measured by comparing the proceeds
of such sale or redemption with the adjusted basis of the Units. If the
Trustee disposes of Bonds, gain or loss is recognized to the Unitholder
(subject to various nonrecognition provisions of the Code). The amount of
any such gain or loss is measured by comparing the Unitholder's pro rata
share of the total proceeds from such disposition with his basis for his
fractional interest in the asset disposed of. The basis of each Unit and of
each Bond which was issued with original issue discount (or which has
market discount) must be increased by the amount of accrued original issue
discount (and accrued market discount if the Unitholder elects to include
market discount in income as it accrues) and the basis of each Unit and of
each Bond which was purchased by the Trust at a premium must be reduced by
the annual amortization of bond premium which the Unitholder has properly
elected to amortize under Section 171 of the Code. The tax basis 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. Original issue discount is effectively treated as interest
for Federal income tax purposes and the amount of the original issue
discount is generally the difference between the Bond's purchase price and
its stated redemption price at maturity. A Unitholder will be required to
include in gross income for each taxable year the sum of the daily portions
of any original issue discount attributable to the Bonds held by the Trust
as such original issue discount accrues for such
IG-5
INVESTMENT GRADE SERIES
<PAGE>
year even though the income is not distributed to the Unitholders during
such year unless a Bond's original issue discount is less than a "de
minimis" amount as determined under the Code. To the extent the amount of
such discount is less than the respective "de minimis" amount, such
discount shall be treated as zero. In general, original issue discount
accrues daily under a constant interest rate method which takes into
account the semi-annual compounding of accrued interest. Unitholders should
consult their tax advisers regarding the Federal income tax consequences
and accretion of original issue discount.
Limitations on Deductibility of Trust Expenses by Unitholders. Each
Unitholder's pro rata share of each expense paid by the Trust is deductible by
the Unitholder to the same extent as though the expense had been paid directly
by him. It should be noted that as a result of the Tax Reform Act of 1986 (the
"Act"), certain miscellaneous itemized deductions, such as investment
expenses, tax return preparation fees and employee business expenses will be
deductible by an individual only to the extent they exceed 2% of such
individual's adjusted gross income. Unitholders may be required to treat some
or all of the expenses paid by the Trust as miscellaneous itemized deductions
subject to this limitation.
Premium. If a Unitholder's tax basis of his pro rata portion in any Bonds held
by the Trust exceeds the amount payable by the issuer of the Bond with respect
to such pro rata interest upon the maturity of the Bond, such excess would be
considered premium which may be amortized by the Unitholder at the
Unitholder's election as provided in Section 171 of the Code. Unitholders
should consult their tax advisors regarding whether such election should be
made and the manner of amortizing premium.
Original Issue Discount. Certain of the Bonds in the Trust may have been
acquired with "original issue discount." In the case of any Bonds in the Trust
acquired with "original issue discount" that exceeds a "de minimis" amount as
specified in the Code, such discount is includable in taxable income of the
Unitholders on an accrual basis computed daily, without regard to when
payments of interest on such Bonds are received. The Code provides a complex
set of rules regarding the accrual of original issue discount. These rules
provide that original issue discount generally accrues on the basis of a
constant compound interest rate over the term of the Bonds. Unitholders should
consult their tax advisers as to the amount of original issue discount which
accrues.
Special original issue discount rules apply if the purchase price of the Bond
by the Trust exceeds its original issue price plus the amount of original
issue discount which would have previously accrued based upon its issue price
(its "adjusted issue price"). Similarly these special rules would apply to a
Unitholder if the tax basis of his pro rata portion of a Bond issued with
original issue discount exceeds his pro rata portion of its adjusted issue
price. Unitholders should also consult their tax advisers regarding these
special rules.
It is possible that a corporate Bond that has been issued at an original issue
discount may be characterized as a "high-yield discount obligation" within the
meaning of Section 163(e)(5) of the Code. To the extent that such an
obligation is issued at a yield in excess of six percentage points over the
applicable Federal rate, a portion of the original issue discount on such
obligation will be characterized as a distribution on stock (e.g. dividends)
for purposes of the dividends received deduction which is available to certain
corporations with respect to certain dividends received by such corporation.
Market Discount. If a Unitholder's tax basis in his pro rata portion of Bonds
is less than the allocable portion of such Bond's stated redemption price at
maturity (or, if issued with original issue discount, the allocable portion of
its "revised issue price"), such difference will constitute market discount
unless the amount of market discount is "de minimis" as specified in the Code.
Market discount accrues daily computed on a straight line basis, unless the
Unitholder elects to calculate accrued market discount
IG-6
INVESTMENT GRADE SERIES
<PAGE>
under a constant yield method. Unitholders should consult their tax advisors
regarding whether such election should be made and as to the amount of market
discount which accrues.
Accrued market discount is generally includable in taxable income to the
Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on the Bonds, on the sale, maturity or disposition
of such Bonds by the Trust, and on the sale by a Unitholder of Units, unless a
Unitholder elects to include the accrued market discount in taxable income as
such discount accrues. If a Unitholder does not elect to annually include
accrued market discount in taxable income as it accrues, deductions for any
interest expense incurred by the Unitholder which is incurred to purchase or
carry his Units will be reduced by such accrued market discount. In general,
the portion of any interest expense which was not currently deductible would
ultimately be deductible when the accrued market discount is included in
income. Unitholders should consult their tax advisers regarding whether an
election should be made to include market discount in income as it accrues and
as to the amount of interest expense which may not be currently deductible.
Computation of the Unitholder's Tax Basis. The tax basis of a Unitholder with
respect to his interest in a Bond is increased by the amount of original issue
discount (and market discount, if the Unitholder elects to include market
discount, if any, on the Bonds held by the Trust in income as it accrues)
thereon properly included in the Unitholder's gross income as determined for
Federal income tax purposes and reduced by the amount of any amortized premium
which the Unitholder has properly elected to amortize under Section 171 of the
Code. A Unitholder's tax basis in his Units will equal his tax basis in his
pro rata portion of all of the assets of the Trust.
Recognition of Taxable Gain or Loss Upon Disposition of Obligations by the
Trust or Disposition of Units. A Unitholder will recognize taxable capital
gain (or loss) when all or part of his pro rata interest in a Bond is disposed
of in a taxable transaction for an amount greater (or less) than his tax basis
therefor. As previously discussed, gain realized on the disposition of the
interest of a Unitholder in any Bond deemed to have been acquired with market
discount will be treated as ordinary income to the extent the gain does not
exceed the amount of accrued market discount not previously taken into income.
Any capital gain or loss arising from the disposition of a Bond by the Trust
or the disposition of Units by a Unitholder will be short-term capital gain or
loss unless the Unitholder has held his Units for more than one year in which
case such capital gain or loss will generally be long-term. For taxpayers
other than corporations, net capital gains are subject to a maximum marginal
stated tax rate of 28 percent. However, it should be noted that legislative
proposals are introduced from time to time that affect tax rates and could
affect relative differences at which ordinary income and capital gains are
taxed. The tax basis reduction requirements of the Code relating to
amortization of bond premium may under some circumstances, result in the
Unitholder realizing taxable gain when his Units are sold or redeemed for an
amount equal to or less than his original cost.
If the Unitholder disposes of a Unit, he is deemed thereby to have disposed of
his entire pro rata interest in all Trust assets including his pro rata
portion of all of the Bonds represented by the Unit. This may result in a
portion of the gain, if any, on such sale being taxable as ordinary income
under the market discount rules (assuming no election was made by the
Unitholder to include market discount in income as it accrues) as previously
discussed.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") raised tax rates on
ordinary income while capital gains remain subject to a 28 percent maximum
stated rate for taxpayers other than corporations. Because some or all capital
gains are taxed at a comparatively lower rate under the Tax Act, the Tax Act
includes a provision that recharacterizes capital gains as ordinary income in
the case of certain financial transactions that are "conversion transactions"
effective for transactions entered into after April 30, 1993.
IG-7
INVESTMENT GRADE SERIES
<PAGE>
Unitholders and prospective investors should consult with their tax advisers
regarding the potential effect of this provision on their investment in Units.
Foreign Investors. A Unitholder who is a foreign investor (i.e., an investor
other than a U.S. citizen or resident or a U.S. corporation, partnership,
estate or trust) will not be subject to United States federal income taxes,
including withholding taxes, on interest income (including any original issue
discount) on, or any gain from the sale or other disposition of, his pro rata
interest in any Bond or the sale of his Units provided that all of the
following conditions are met: (i) the interest income or gain is not
effectively connected with the conduct by the foreign investor of a trade or
business within the United States, (ii) if the interest is United States
source income (which is the case for most securities issued by United States
issuers), the Bond is issued after July 18, 1984 (which is the case for each
Bond held by the Trust), then the foreign investor does not own, directly or
indirectly, 10% or more of the total combined voting power of all classes of
voting stock of the issuer of the Bond and the foreign investor is not a
controlled foreign corporation related (within the meaning of Section
864(d)(4) of the Code) to the issuer of the Bond, or with respect to any gain,
the foreign investor (if an individual) is not present in the United States
for 183 days or more during his or her taxable year and (iv) the foreign
investor provides all certification which may be required of his status
(foreign investors may contact the Sponsor to obtain a Form W-8 which must be
filed with the Trustee and refiled every three calendar years thereafter).
Foreign investors should consult their tax advisers with respect to United
States tax consequences of ownership of Units.
It should be noted that the Tax Act includes a provision which eliminates the
exemption from United States taxation, including withholding taxes, for
certain "contingent interest." The provision applies to interest received
after December 31, 1993. No opinion is expressed herein regarding the
potential applicability of this provision and whether United States taxation
or withholding taxes could be imposed with respect to income derived from the
Units as a result thereof. Unitholders and prospective investors should
consult with their tax advisers regarding the potential effect of this
provision on their investment in Units.
General. Each Unitholder (other than a foreign investor who has properly
provided the certifications described above) will be requested to provide the
Unitholder's taxpayer identification number to the Trustee and to certify that
the Unitholder has not been notified that payments to the Unitholder are
subject to back-up withholding. If the proper taxpayer identification number
and appropriate certification are not provided when requested, distributions
by the Trust to such Unitholder (including amounts received upon the
redemption of the Units) will be subject to back-up withholding.
The foregoing discussion relates only to United States Federal income taxes;
Unitholders may be subject to state and local taxation in other jurisdictions
(including a foreign investor's country of residence). Unitholders should
consult their tax advisers regarding potential state, local, or foreign
taxation with respect to the Units.
TAX REPORTING AND REALLOCATION
Because the Trust receives interest and makes monthly distributions based upon
the Trust's expected total collections of interest and any anticipated
expenses, certain tax reporting consequences may arise. The Trust is required
to report Unitholder information to the Internal Revenue Service ("IRS"),
based upon the actual collection of interest by such Trust on the securities
in such Trust, without regard to such Trust's expenses or to such Trust's
payments to Unitholders during the year. If distributions to Unitholders
exceed interest collected, the difference will be reported as a return of
principal which will reduce a Unitholder's cost basis in its Units (and its
pro rata interest in the securities in the Trust). A Unitholder must include
in taxable income the amount of income reported by the Trust to the IRS
regardless of the amount distributed to such Unitholder. If a Unitholder's
share of taxable income exceeds income
IG-8
INVESTMENT GRADE SERIES
<PAGE>
distributions made by a Trust to such Unitholder, such excess is in all
likelihood attributable to the payment of miscellaneous expenses of such Trust
which will not be deductible by an individual Unitholder as an itemized
deduction except to the extent that the total amount of certain itemized
deductions, such as investments expenses (which would include the Unitholder's
share of Trust expenses), tax return preparation fees and employee business
expenses, exceeds 2% of such Unitholder's adjusted gross income.
Alternatively, in certain cases, such excess may represent an increase in the
Unitholder's tax basis in the Units owned. Investors with questions regarding
these issues should consult with their tax advisers.
ESTIMATED CASH FLOWS TO UNITHOLDERS
The table below sets forth the estimated distributions of interest and
principal to Unitholders on a per Unit basis. The table assumes no changes in
expenses, no changes in the current interest rates, no exchanges, redemptions,
sales or prepayments of the underlying Bonds prior to maturity or expected
retirement date and the receipt of principal upon maturity or expected
retirement date. To the extent the foregoing assumptions change actual
distributions will vary.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
------------------------------------------- ------------ ------------
<S> <C> <C> <C> <C>
Jan 15, 1996 $0.03943 $0.03943
Feb 15, 1996 to Sep 15, 2002 $0.05143 $0.05143
Oct 15, 2002 $0.04830 $1.05263 $1.10093
Nov 15, 2002 to Feb 15, 2003 $0.04533 $0.04533
Mar 15, 2003 $0.04274 $0.78947 $0.83221
Apr 15, 2003 to May 15, 2003 $0.04023 $0.04023
Jun 15, 2003 $0.03716 $1.05263 $1.08979
Jul 15, 2003 $0.03423 $0.03423
Aug 15, 2003 $0.03116 $1.05263 $1.08379
Sep 15, 2003 to Dec 15, 2003 $0.02823 $0.02823
Jan 15, 2004 $0.02446 $1.31579 $1.34025
Feb 15, 2004 $0.02093 $1.31579 $1.33672
Mar 15, 2004 $0.01756 $1.31579 $1.33335
Apr 15, 2004 to Jul 15, 2005 $0.01423 $0.01423
Aug 15, 2005 $0.01423 $0.78947 $0.80370
Sep 15, 2005 $0.00433 $1.31579 $1.32012
</TABLE>
IG-9
INVESTMENT GRADE SERIES
<PAGE>
C
O
R
P
O
R
A
T
E
I
N
C
O
M
E
S
E
R
I
E
S
THE CORPORATE INCOME SERIES
THE TRUST PORTFOLIO
The Corporate Income Series was formed for the purpose of providing a high
level of current income through investment in a fixed portfolio consisting
primarily of high yield, high risk corporate debt obligations issued after
July 18, 1984. There is, of course, no guarantee that the Trust Fund's
objective will be achieved.
The Trust Fund may be an appropriate investment vehicle for investors who
desire to participate in a portfolio of intermediate term taxable fixed income
securities issued by corporate obligors with greater diversification than
investors might be able to acquire individually. Diversification of the Trust
assets will not eliminate the risk of loss always inherent in the ownership of
securities. In addition, Bonds of the type deposited in the Trust Fund often
are not available in small amounts.
The selection of Bonds for the Trust Fund was based largely upon the
experience and judgment of the Sponsor. In making such selections the Sponsor
considered the following factors: (a) the price of the Bonds relative to other
issues of similar quality and maturity; (b) the present rating and credit
quality of the issuers of the Bonds and the potential improvement in the
credit quality of such issuers; (c) the diversification of the Bonds as to
location of issuer; (d) the income to the Unitholders of the Trust; (e)
whether the Bonds were issued after July 18, 1984; and (f) the stated maturity
of the Bonds.
As of the Initial Date of Deposit, all of the Bonds in the Trust are rated
"Ba" or better by Moody's or "BB" or better by Standard & Poor's or Duff &
Phelps Credit Rating Co. See "Appendix: Description of Ratings" and
"Portfolio" below. Subsequent to the Initial Date of Deposit, a Bond may cease
to be so rated. If this should occur, the Trust would not be required to
eliminate the Bond from the Trust, but such event may be considered in the
Sponsor's determination to direct the Trustee to dispose of such investment.
See "General Information--Investment Supervision." The Trust consists of that
number of Bonds divided by type (and percentage of principal amount of the
Trust) as set forth in the following table.
SERIES INFORMATION
<TABLE>
<S> <C> <C>
Number of Bonds.............................................. 19
Debt Obligations(1):
U.S. Corporate.............................................. 17(92%)
Foreign Corporate........................................... 2(8%)
Average life of the Bonds in the Trust(2).................... 8.0 years
Percentage of "when, as and if issued" or "delayed delivery"
Bonds purchased by the Trust................................ None
Syndication(3)............................................... None
</TABLE>
- -------------------
(1) The portfolio percentage in parenthesis represents the principal amount of
such Bonds to the total principal amount of Bonds in the Trust. For a
discussion of the risks associated with investments in the bonds of such
issuers, see "Risk Factors" below.
(2) The average life of the Bonds in the Trust is calculated based upon the
stated maturities of the Bonds in the Trust (or, with respect to Bonds for
which funds or securities have been placed in escrow to redeem such Bonds
on a stated call date, based upon such call date). The average life of the
Bonds in the Trust may increase or decrease from time to time as Bonds
mature or are called or sold.
(3) The Sponsor and its affiliates have participated as either the sole
underwriter or manager or a member of underwriting syndicates from which
approximately that percentage listed above of the aggregate principal
amount of the Bonds in the Trust were acquired.
C-1
CORPORATE INCOME SERIES
<PAGE>
EVEREN UNIT INVESTMENT TRUSTS SERIES 40
CORPORATE INCOME SERIES 4 PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: DECEMBER 5, 1995
<TABLE>
<CAPTION>
RATING(2)
-----------------------
STANDARD COST OF
AGGREGATE & DUFF & REDEMPTION BONDS
PRINCIPAL NAME OF ISSUER(1)(5) COUPON MATURITY MOODY'S POOR'S PHELPS PROVISIONS(3) TO TRUST(4)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
$ 100,000 Bally Park Place Funding 9.250% of 03/15/2004 Ba3 BB BB [email protected] $ 101,025
100,000 Century Communications 0.000% of 03/15/2003 Ba3 BB- NR Non-callable 52,375
Corp (6)
75,000 Clark Oil & Refining 9.500% of 09/15/2004 Ba2 BB NR [email protected] 78,169
Corp.
50,000 Federated Department 8.125% of 10/15/2002 Ba1 BB- NR Non-callable 51,313
Stores
50,000 Continental Cablevision 8.875% of 09/15/2005 Ba2 BB+ NR Non-callable 52,813
Inc.
75,000 Jones Intercable Inc. 9.625% of 03/15/2002 Ba2 BB NR Non-callable 80,869
125,000 Kaufman & Broad Home 9.375% of 05/01/2003 Ba3 BB- BB- [email protected] 122,813
Corp.
75,000 Long Island Lighting Co. 7.125% of 06/01/2005 Ba1 BB+ BB+ Non-callable 71,438
75,000 Owens Illinois Inc. 9.950% of 10/15/2004 B2 B+ BB [email protected] 79,031
125,000 Payless Cashways Inc. 9.125% of 04/15/2003 Ba3 B+ NR [email protected] 99,519
75,000 Rogers Cablesystems 9.625% of 08/01/2002 Ba3 BB+ NR Non-callable 77,719
125,000 Ryland Group Inc. 9.625% of 06/01/2004 B1 BB- NR [email protected] 120,938
100,000 Stone Container Corp. 10.750% of 10/01/2002 B1 BB- NR [email protected] 103,675
50,000 Telewest PLC (6)L 0.000% of 10/01/2007 B1 BB NR [email protected] 29,413
75,000 TransTexas Gas Corp. 11.500% of 06/15/2002 B2 BB- BB [email protected] 78,656
75,000 Tenet Healthcare Corp. 8.625% of 12/01/2003 Ba2 B+ NR Non-callable 78,506
75,000 Viacom Inc 8.000% of 07/07/2006 B1 BB- NR [email protected] 76,406
75,000 Westinghouse Electric 8.375% of 06/15/2002 Ba1 B+ NR Non-callable 76,500
Corp.
75,000 Valassis Communication 9.550% of 12/01/2003 Baa3 BBB- NR Non-callable 78,656
Inc.
---------- ----------
$1,575,000 $1,509,834
========== ==========
</TABLE>
L The Telewest PLC bond commences paying interest at 11.00% on October 1, 2000.
<TABLE>
<S> <C>
Portfolio Composition:
Telecommunications--Cable 22%
Healthcare 5%
Refining and Distribution 9%
Utilities 5%
Home Building 16%
Retail 11%
Packaging 11%
Marketing Services 5%
Gaming 6%
Diversified Conglomerate 10%
</TABLE>
C-2
CORPORATE INCOME SERIES
<PAGE>
NOTES TO PORTFOLIO:
* These Bonds are "when, as and if issued" or "delayed delivery" and have
expected settlement dates after the "First Settlement Date."
(1) Contracts to acquire Bonds were entered into by the Sponsor between
December 1, 1995 and December 4, 1995. All Bonds are represented by
regular way contracts, unless otherwise indicated, for the performance of
which an irrevocable letter of credit has been deposited with the Trustee.
(2) A brief description of the applicable Standard & Poor's, Moody's and Duff
& Phelps Credit Rating Co. rating symbols and their meanings is set forth
under "Appendix: Description of Ratings." "N.R." indicates that the issue
has not been rated by that rating agency. As of the Initial Date of
Deposit the Bonds were rated as follows by Standard & Poor's (as a
percentage of the Trust's total assets): BBB-- 5%; BB--73%; and B--22%.
(3) There is shown under this heading the year in which each issue of Bonds is
initially or currently redeemable and the redemption price for that year;
unless otherwise indicated, each issue continues to be redeemable at
declining prices thereafter, but not below par value. The prices at which
the Bonds may be redeemed or called prior to maturity may or may not
include a premium and, in certain cases, may be less than the cost of the
Bonds to the Trust. In addition, certain Bonds in the portfolio may be
redeemed in whole or in part other than by operation of the stated
redemption provisions under certain unusual or extraordinary circumstances
specified in the instruments setting forth the terms and provisions of
such Bonds. "S.F." indicates that a sinking fund is established with
respect to that issue of Bonds.
(4) During the initial offering period, evaluations of Bonds are made on the
basis of current offering side evaluations of the Bonds. The aggregate
offering price is greater than the aggregate bid price of the Bonds, which
is the basis on which the Redemption Price will be determined for purposes
of redemption of Units after the initial offering period.
(5) Other information regarding the Bonds in the Trust, at the opening of
business on the Initial Date of Deposit, is as follows:
<TABLE>
<CAPTION>
ANNUAL
COST OF PROFIT OR INTEREST BID SIDE
BONDS TO (LOSS) TO INCOME VALUE OF
SPONSOR SPONSOR TO TRUST BONDS
---------- --------- -------- ----------
<S> <C> <C> <C> <C>
Corporate Income Series 4........... $1,503,925 $5,909 $132,563 $1,503,925
</TABLE>
The Cost of Bonds to Sponsor and Profit or (Loss) to Sponsor reflect
portfolio hedging transaction costs, hedging gains or losses, and certain
other carrying costs.
(6) This Bond was issued at an original issue discount. The tax effect of
Bonds issued at an original issue discount is described in "Federal Tax
Status". This Bond has been purchased at a deep discount from the par
value because there is little or no stated interest income thereon. Bonds
which pay no interest are normally described as "zero coupon" bonds. Over
the life of bonds purchased at a deep discount the value of such bonds
will increase such that upon maturity the holders of such bonds will
receive 100% of the principal amount thereof. Approximately 9.5% of the
aggregate principal amount of the Bonds in the Trust were issued at an
original issue discount.
C-3
CORPORATE INCOME SERIES
<PAGE>
RISK FACTORS
General. An investment in Units of the Trust should be made with an
understanding of the risks that an investment in "high yield", high risk,
fixed rate, corporate debt obligations or "junk bonds" may entail, including
increased credit risks and the risk that the value of the Units will decline,
and may decline precipitously, with increases in interest rates. In recent
years there have been wide fluctuations in interest rates and thus in the
value of fixed-rate, debt obligations generally, Securities such as those
included in the Trust are, under most circumstances, subject to greater market
fluctuations and risk of loss of income and principal than are investments in
lower-yielding, higher rated securities, and their value may decline
precipitously because of increases in interest rates not only because the
increases in rates generally decrease values but also because increased rates
may indicate a slowdown in the economy and a decrease in the value of assets
generally that may adversely affect the credit of issuers of high yield, high
risk securities resulting in a higher incidence of defaults among high yield,
high risk securities. A slowdown in the economy, or a development adversely
affecting an issuer's creditworthiness, may result in the issuer being unable
to maintain earnings or sell assets at the rate and at the prices,
respectively, that are required to produce sufficient cash flow to meet its
interest and principal requirements. For an issuer that has outstanding both
senior commercial bank debt and subordinated high yield, high risk securities,
an increase in interest rates will increase that issuer's interest expense
insofar as the interest rate on the bank debt is fluctuating. However, many
leveraged issuers enter into interest rate protection agreements to fix or cap
the interest on a large portion of their bank debt. This reduces exposure to
increasing interest rates but reduces the benefit to the issuer of declining
rates. The Sponsor cannot predict future economic policies or their
consequences or, therefore, the course or extent of any similar market
fluctuations in the future. The portfolio consists of Bonds that, in many
cases, do not have the benefit of covenants that would prevent the issuer from
engaging in capital restructurings or borrowing transactions in connection
with corporate acquisitions, leveraged buy outs or restructurings that could
have the effect of reducing the ability of the issuer to meet its obligations
and might result in the ratings of the Bonds and the value of the underlying
portfolio being reduced.
The Bonds in the Trust consist of "high yield, high risk" corporate bonds.
"High yield" or "junk" bonds, the generic names for corporate bonds rated
below BBB by Standard & Poor's or Duff & Phelps Credit Rating Co. or below Baa
by Moody's Investor Service, Inc., are frequently issued by corporations in
the growth stage of their development, by established companies whose
operations or industries are depressed or by highly leveraged companies
purchased in leveraged buyout transactions. The market for high yield bonds is
very specialized and investors in it have been predominantly financial
institutions. High yield bonds are generally not listed on a national
securities exchange. Trading of high yield bonds, therefore, takes place
primarily in over-the-counter markets which consist of groups of dealer firms
that are typically major securities firms. Because the high yield bond market
is a dealer market, rather than an auction market, no single obtainable price
for a given bond prevails at any given time. Prices are determined by
negotiation between traders. The existence of a liquid trading market for the
Bonds may depend on whether dealers will make a market in the Bonds. There can
be no assurance that a market will be made for any of the Bonds, that any
market for the Bonds will be maintained or of the liquidity of the Bonds in
any markets made. Not all dealers maintain markets in all high yield bonds.
Therefore, since there are fewer traders in these bonds than there are in
"investment grade" bonds, the bid-offer spread is usually greater for high
yield bonds than it is for investment grade bonds. The price at which the
Securities may be sold to meet redemptions and the value of the Trust will be
adversely affected if trading markets for the Bonds are limited or absent. If
the rate of redemptions is great, the value of the Trust may decline to a
level that requires liquidation (see "General Information--Administration of
the Trusts--Amendment and Termination").
C-4
CORPORATE INCOME SERIES
<PAGE>
Lower-rated securities tend to offer higher yields than higher-rated
securities with the same maturities because the creditworthiness of the
issuers of lower-rated securities may not be as strong as that of other
issuers. Moreover, if a Bond is recharacterized as equity by the Internal
Revenue Service for Federal income tax purposes, the issuer's interest
deduction with respect to the Bond will be disallowed and this disallowance
may adversely affect the issuer's credit rating. Because investors generally
perceive that there are greater risks associated with the lower-rated
securities in the Trust, the yields and prices of these securities tend to
fluctuate more than higher-rated securities with changes in the perceived
quality of the credit of their issuers. In addition, the market value of high
yield, high risk, fixed-income securities may fluctuate more than the market
value of higher-rated securities since high yield, high risk, fixed-income
securities tend to reflect short-term credit development to a greater extent
than higher-rated securities. Lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities. Issuers of
lower-rated securities may possess less creditworthiness characteristics than
issuers of higher-rated securities and, especially in the case of issuers
whose obligations or credit standing have recently been downgraded, may be
subject to claims by debtholders, owners of property leased to the issuer or
others which, if sustained, would make it more difficult for the issuers to
meet their payment obligations. High yield, high risk bonds are also affected
by variables such as interest rates, inflation rates and real growth in the
economy. Therefore, investors should consider carefully the relative risks
associated with investment in securities which carry lower ratings.
The value of the Units reflects the value of the portfolio securities,
including the value (if any) of securities in default. Should the issuer of
any Bond default in the payment of principal or interest, the Trust may incur
additional expenses seeking payment on the defaulted Bond. Because amounts (if
any) recovered by the Trust in payment under the defaulted Bond may not be
reflected in the value of the Units until actually received by the Trust, and
depending upon when a Unitholder purchases or sells his Units, it is possible
that a Unitholder would bear a portion of the cost of recovery without
receiving any portion of the payment recovered.
High yield, high risk bonds are generally subordinated bonds. The payment of
principal (and premium, if any), interest and sinking fund requirements with
respect to subordinated bonds of an issuer is subordinated in right of payment
to the payment of senior bonds of the issuer. Senior bonds generally include
most, if not all, significant debt bonds of an issuer, whether existing at the
time of issuance of subordinated debt or created thereafter. Upon any
distribution of the assets of an issuer with subordinated bonds upon
dissolution, total or partial liquidation or reorganization of or similar
proceeding relating to the issuer, the holders of senior indebtedness will be
entitled to receive payment in full before holders of subordinated
indebtedness will be entitled to receive any payment. Moreover, generally no
payment with respect to subordinated indebtedness may be made while there
exists a default with respect to any senior indebtedness. Thus, in the event
of insolvency, holders of senior indebtedness of an issuer generally will
recover more, ratably, than holders of subordinated indebtedness of that
issuer.
Bonds that are rated lower than BBB by Standard & Poor's or Duff & Phelps or
Baa by Moody's, respectively, should be considered speculative as such ratings
indicate a quality of less than investment grade. Investors should carefully
review the objective of the Trust and consider their ability to assume the
risks involved before making an investment in the Trust. See "Appendix:
Description of Ratings" for a description of speculative ratings issued by
Standard & Poor's, Duff & Phelps and Moody's.
C-5
CORPORATE INCOME SERIES
<PAGE>
FEDERAL TAX STATUS
In the opinion of Chapman and Cutler, special counsel for the Sponsor, under
existing law:
1. The Trust is not an association taxable as a corporation for Federal
income tax purposes.
2. Each Unitholder will be considered the owner of a pro rata portion of
each of the Trust assets for Federal income tax purposes under Subpart E,
Subchapter J of Chapter 1 of the Internal Revenue Code of 1986 (the
"Code"); and the income of the Trust will be treated as income of the
Unitholders. Each Unitholder will be considered to have received his pro
rata share of income derived from each Trust asset when such income is
received by the Trust. Each Unitholder will also be required to include in
taxable income for Federal income tax purposes, original issue discount
with respect to his interest in any Bonds held by the Trust at the same
time and in the same manner as though the Unitholder were the direct owner
of such interest.
3. Each Unitholder will have a taxable event when a Bond is disposed of
(whether by sale, exchange, redemption, or payment at maturity) or when the
Unitholder redeems or sells his Units. A Unitholder's tax basis in his
Units will equal his tax basis in his pro rata portion of all the assets of
the Trust. Such basis is determined (before the adjustments described
below) by apportioning the tax basis for the Units among each of the Trust
assets according to value as of the valuation date nearest the date of
acquisition of the Units. Unitholders must reduce the tax basis of their
Units for their share of accrued interest received, if any, on Bonds
delivered after the date the Unitholders pay for their Units to the extent
such interest accrued on such Bonds during the period from the Unitholder's
settlement date to the date such Bonds are delivered to the Trust and,
consequently, such Unitholders may have an increase in taxable gain or
reduction in capital loss upon the disposition of such Units. Gain or loss
upon the sale or redemption of Units is measured by comparing the proceeds
of such sale or redemption with the adjusted basis of the Units. If the
Trustee disposes of Bonds, gain or loss is recognized to the Unitholder
(subject to various nonrecognition provisions of the Code). The amount of
any such gain or loss is measured by comparing the Unitholder's pro rata
share of the total proceeds from such disposition with his basis for his
fractional interest in the asset disposed of. The basis of each Unit and of
each Bond which was issued with original issue discount (or which has
market discount) must be increased by the amount of accrued original issue
discount (and accrued market discount if the Unitholder elects to include
market discount in income as it accrues) and the basis of each Unit and of
each Bond which was purchased by the Trust at a premium must be reduced by
the annual amortization of bond premium which the Unitholder has properly
elected to amortize under Section 171 of the Code. The tax basis 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. Original issue discount is effectively treated as interest
for Federal income tax purposes and the amount of the original issue
discount is generally the difference between the Bond's purchase price and
its stated redemption price at maturity. A Unitholder will be required to
include in gross income for each taxable year the sum of the daily portions
of any original issue discount attributable to the Bonds held by the Trust
as such original issue discount accrues for such year even though the
income is not distributed to the Unitholders during such year unless a
Bond's original issue discount is less than a "de minimis" amount as
determined under the Code. To the extent the amount of such discount is
less than the respective "de minimis" amount, such discount shall be
treated as zero. In general, original issue discount accrues daily under a
constant interest rate method which takes into account the semi-annual
compounding of accrued interest. Unitholders should consult their tax
advisers regarding the Federal income tax consequences and accretion of
original issue discount.
C-6
CORPORATE INCOME SERIES
<PAGE>
Limitations on Deductibility of Trust Expenses by Unitholders. Each
Unitholder's pro rata share of each expense paid by the Trust is deductible by
the Unitholder to the same extent as though the expense had been paid directly
by him. It should be noted that as a result of the Tax Reform Act of 1986 (the
"Act"), certain miscellaneous itemized deductions, such as investment
expenses, tax return preparation fees and employee business expenses will be
deductible by an individual only to the extent they exceed 2% of such
individual's adjusted gross income. Unitholders may be required to treat some
or all of the expenses paid by the Trust as miscellaneous itemized deductions
subject to this limitation.
Premium. If a Unitholder's tax basis of his pro rata portion in any Bonds held
by the Trust exceeds the amount payable by the issuer of the Bond with respect
to such pro rata interest upon the maturity of the Bond, such excess would be
considered premium which may be amortized by the Unitholder at the
Unitholder's election as provided in Section 171 of the Code. Unitholders
should consult their tax advisors regarding whether such election should be
made and the manner of amortizing premium.
Original Issue Discount. Certain of the Bonds in the Trust may have been
acquired with "original issue discount." In the case of any Bonds in the Trust
acquired with "original issue discount" that exceeds a "de minimis" amount as
specified in the Code, such discount is includable in taxable income of the
Unitholders on an accrual basis computed daily, without regard to when
payments of interest on such Bonds are received. The Code provides a complex
set of rules regarding the accrual of original issue discount. These rules
provide that original issue discount generally accrues on the basis of a
constant compound interest rate over the term of the Bonds. Unitholders should
consult their tax advisers as to the amount of original issue discount which
accrues.
Special original issue discount rules apply if the purchase price of the Bond
by the Trust exceeds its original issue price plus the amount of original
issue discount which would have previously accrued based upon its issue price
(its "adjusted issue price"). Similarly these special rules would apply to a
Unitholder if the tax basis of his pro rata portion of a Bond issued with
original issue discount exceeds his pro rata portion of its adjusted issue
price. Unitholders should also consult their tax advisers regarding these
special rules.
It is possible that a corporate Bond that has been issued at an original issue
discount may be characterized as a "high-yield discount obligation" within the
meaning of Section 163(e)(5) of the Code. To the extent that such an
obligation is issued at a yield in excess of six percentage points over the
applicable Federal rate, a portion of the original issue discount on such
obligation will be characterized as a distribution on stock (e.g. dividends)
for purposes of the dividends received deduction which is available to certain
corporations with respect to certain dividends received by such corporation.
Market Discount. If a Unitholder's tax basis in his pro rata portion of Bonds
is less than the allocable portion of such Bond's stated redemption price at
maturity (or, if issued with original issue discount, the allocable portion of
its "revised issue price"), such difference will constitute market discount
unless the amount of market discount is "de minimis" as specified in the Code.
Market discount accrues daily computed on a straight line basis, unless the
Unitholder elects to calculate accrued market discount under a constant yield
method. Unitholders should consult their tax advisors regarding whether such
election should be made and as to the amount of market discount which accrues.
Accrued market discount is generally includable in taxable income to the
Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on the Bonds, on the sale, maturity or disposition
of such Bonds by the Trust, and on the sale by a Unitholder of Units, unless a
Unitholder elects to include the accrued market discount in taxable income as
such discount accrues. If a Unitholder
C-7
CORPORATE INCOME SERIES
<PAGE>
does not elect to annually include accrued market discount in taxable income
as it accrues, deductions for any interest expense incurred by the Unitholder
which is incurred to purchase or carry his Units will be reduced by such
accrued market discount. In general, the portion of any interest expense which
was not currently deductible would ultimately be deductible when the accrued
market discount is included in income. Unitholders should consult their tax
advisers regarding whether an election should be made to include market
discount in income as it accrues and as to the amount of interest expense
which may not be currently deductible.
Computation of the Unitholder's Tax Basis. The tax basis of a Unitholder with
respect to his interest in a Bond is increased by the amount of original issue
discount (and market discount, if the Unitholder elects to include market
discount, if any, on the Bonds held by the Trust in income as it accrues)
thereon properly included in the Unitholder's gross income as determined for
Federal income tax purposes and reduced by the amount of any amortized premium
which the Unitholder has properly elected to amortize under Section 171 of the
Code. A Unitholder's tax basis in his Units will equal his tax basis in his
pro rata portion of all of the assets of the Trust.
Recognition of Taxable Gain or Loss Upon Disposition of Obligations by the
Trust or Disposition of Units. A Unitholder will recognize taxable capital
gain (or loss) when all or part of his pro rata interest in a Bond is disposed
of in a taxable transaction for an amount greater (or less) than his tax basis
therefor. As previously discussed, gain realized on the disposition of the
interest of a Unitholder in any Bond deemed to have been acquired with market
discount will be treated as ordinary income to the extent the gain does not
exceed the amount of accrued market discount not previously taken into income.
Any capital gain or loss arising from the disposition of a Bond by the Trust
or the disposition of Units by a Unitholder will be short-term capital gain or
loss unless the Unitholder has held his Units for more than one year in which
case such capital gain or loss will generally be long-term. For taxpayers
other than corporations, net capital gains are subject to a maximum marginal
stated tax rate of 28 percent. However, it should be noted that legislative
proposals are introduced from time to time that affect tax rates and could
affect relative differences at which ordinary income and capital gains are
taxed. The tax basis reduction requirements of the Code relating to
amortization of bond premium may under some circumstances, result in the
Unitholder realizing taxable gain when his Units are sold or redeemed for an
amount equal to or less than his original cost.
If the Unitholder disposes of a Unit, he is deemed thereby to have disposed of
his entire pro rata interest in all Trust assets including his pro rata
portion of all of the Bonds represented by the Unit. This may result in a
portion of the gain, if any, on such sale being taxable as ordinary income
under the market discount rules (assuming no election was made by the
Unitholder to include market discount in income as it accrues) as previously
discussed.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") raised tax rates on
ordinary income while capital gains remain subject to a 28 percent maximum
stated rate for taxpayers other than corporations. Because some or all capital
gains are taxed at a comparatively lower rate under the Tax Act, the Tax Act
includes a provision that recharacterizes capital gains as ordinary income in
the case of certain financial transactions that are "conversion transactions"
effective for transactions entered into after April 30, 1993. Unitholders and
prospective investors should consult with their tax advisers regarding the
potential effect of this provision on their investment in Units.
Foreign Investors. A Unitholder who is a foreign investor (i.e., an investor
other than a U.S. citizen or resident or a U.S. corporation, partnership,
estate or trust) will not be subject to United States federal income taxes,
including withholding taxes, on interest income (including any original issue
discount) on, or any gain from the sale or other disposition of, his pro rata
interest in any Bond or the sale of his Units
C-8
CORPORATE INCOME SERIES
<PAGE>
provided that all of the following conditions are met: (i) the interest income
or gain is not effectively connected with the conduct by the foreign investor
of a trade or business within the United States, (ii) if the interest is
United States source income (which is the case for most securities issued by
United States issuers), the Bond is issued after July 18, 1984 (which is the
case for each Bond held by the Trust), then the foreign investor does not own,
directly or indirectly, 10% or more of the total combined voting power of all
classes of voting stock of the issuer of the Bond and the foreign investor is
not a controlled foreign corporation related (within the meaning of Section
864(d)(4) of the Code) to the issuer of the Bond, or (iii) with respect to any
gain, the foreign investor (if an individual) is not present in the United
States for 183 days or more during his or her taxable year and (iv) the
foreign investor provides all certification which may be required of his
status (foreign investors may contact the Sponsor to obtain a Form W-8 which
must be filed with the Trustee and refiled every three calendar years
thereafter). Foreign investors should consult their tax advisers with respect
to United States tax consequences of ownership of Units.
It should be noted that the Tax Act includes a provision which eliminates the
exemption from United States taxation, including withholding taxes, for
certain "contingent interest." The provision applies to interest received
after December 31, 1993. No opinion is expressed herein regarding the
potential applicability of this provision and whether United States taxation
or withholding taxes could be imposed with respect to income derived from the
Units as a result thereof. Unitholders and prospective investors should
consult with their tax advisers regarding the potential effect of this
provision on their investment in Units.
General. Each Unitholder (other than a foreign investor who has properly
provided the certifications described above) will be requested to provide the
Unitholder's taxpayer identification number to the Trustee and to certify that
the Unitholder has not been notified that payments to the Unitholder are
subject to back-up withholding. If the proper taxpayer identification number
and appropriate certification are not provided when requested, distributions
by the Trust to such Unitholder (including amounts received upon the
redemption of the Units) will be subject to back-up withholding.
The foregoing discussion relates only to United States Federal income taxes;
Unitholders may be subject to state and local taxation in other jurisdictions
(including a foreign investor's country of residence). Unitholders should
consult their tax advisers regarding potential state, local, or foreign
taxation with respect to the Units.
TAX REPORTING AND REALLOCATION
Because each Trust receives interest and makes monthly distributions based
upon such Trust's expected total collections of interest and any anticipated
expenses, certain tax reporting consequences may arise. Each Trust is required
to report Unitholder information to the Internal Revenue Service ("IRS"),
based upon the actual collection of interest by such Trust on the securities
in such Trust, without regard to such Trust's expenses or to such Trust's
payments to Unitholders during the year. If distributions to Unitholders
exceed interest collected, the difference will be reported as a return of
principal which will reduce a Unitholder's cost basis in its Units (and its
pro rata interest in the securities in the Trust). A Unitholder must include
in taxable income the amount of income reported by a Trust to the IRS
regardless of the amount distributed to such Unitholder. If a Unitholder's
share of taxable income exceeds income distributions made by a Trust to such
Unitholder, such excess is in all likelihood attributable to the payment of
miscellaneous expenses of such Trust which will not be deductible by an
individual Unitholder as an itemized deduction except to the extent that the
total amount of certain itemized
C-9
CORPORATE INCOME SERIES
<PAGE>
deductions, such as investment expenses (which would include the Unitholder's
share of Trust expenses), tax return preparation fees and employee business
expenses, exceeds 2% of such Unitholder's adjusted gross income.
Alternatively, in certain cases, such excess may represent an increase in the
Unitholder's tax basis in the Units owned. Investors with questions regarding
these issues should consult with their tax advisers.
ESTIMATED CASH FLOWS TO UNITHOLDERS
The table below sets forth the estimated distributions of interest and
principal to Unitholders on a per Unit basis. The table assumes no changes in
expenses, no changes in the current interest rates, no exchanges, redemptions,
sales or prepayments of the underlying Bonds prior to maturity or expected
retirement date and the receipt of principal upon maturity or expected
retirement date. To the extent the foregoing assumptions change actual
distributions will vary.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DATES DISTRIBUTION DISTRIBUTION DISTRIBUTION
---------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Jan 15, 1996 $0.05233 $0.05233
Feb 15, 1996 to Sep 15, 1999 $0.06826 $0.06826
Oct 15, 1999 $0.06637 $0.47619 $0.54256
Nov 15, 1999 to Oct 15, 2000 $0.06456 $0.06456
Nov 15, 2000 to Sep 15, 2001 $0.06747 $0.06747
Oct 15, 2001 $0.06747 $0.63492 $0.70239
Nov 15, 2001 $0.05989 $0.47619 $0.53608
Dec 15, 2001 to Mar 15, 2002 $0.05797 $0.05797
Apr 15, 2002 $0.05361 $1.11111 $1.16472
May 15, 2002 to Jun 15, 2002 $0.04947 $0.04947
Jul 15, 2002 $0.04552 $0.95238 $0.99790
Aug 15, 2002 $0.04018 $0.95238 $0.99256
Sep 15, 2002 to Oct 15, 2002 $0.03497 $0.03497
Nov 15, 2002 $0.03389 $0.31746 $0.35135
Dec 15, 2002 to Mar 15, 2003 $0.03287 $0.03287
Apr 15, 2003 $0.03287 $0.63492 $0.66779
May 15, 2003 $0.02995 $1.58730 $1.61725
Jun 15, 2003 to Nov 15, 2003 $0.02097 $0.02097
Dec 15, 2003 $0.02097 $0.95238 $0.97335
Jan 15, 2004 to May 15, 2004 $0.01397 $0.01397
Jun 15, 2004 $0.01397 $0.79365 $0.80762
Jul 15, 2004 to May 15, 2005 $0.00777 $0.00777
Jun 15, 2005 $0.00777 $0.47619 $0.48396
Jul 15, 2005 to Sep 15, 2005 $0.00507 $0.00507
Oct 15, 2005 $0.00389 $0.31746 $0.32135
Nov 15, 2005 to Sep 15, 2007 $0.00264 $0.00264
Oct 15, 2007 $0.00264 $0.31746 $0.32010
</TABLE>
C-10
CORPORATE INCOME SERIES
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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
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GENERAL INFORMATION
<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, an Investment Grade Series or Corporate Income Series,
Replacement Securities also must be 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 and (ii) be issued after July 18,
1984 if interest thereon is United States source income. 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 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
GI-2
GENERAL INFORMATION
<PAGE>
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 extent that Units of
a Trust are redeemed, the principal amount of Securities in such Trust will be
reduced
GI-3
GENERAL INFORMATION
<PAGE>
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.
GI-4
GENERAL INFORMATION
<PAGE>
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
GI-5
GENERAL INFORMATION
<PAGE>
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 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 an EVEREN UIT/IRA application and forward it along with a check
made payable to The Bank of New York. 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 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 The Bank of New York. All inquiries concerning
participation in distribution reinvestment should be directed to the Program
Agent at its corporate trust office.
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
GI-7
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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, The Bank of New York, 101 Barclay Street, New York,
New York 10286, 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;
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B. deducting therefrom (1) amounts representing any applicable taxes or
governmental charges payable out of the Trust and for which no deductions have
been previously made for the purpose of additions to the Reserve Account
described under "General Information--Expenses of the Trusts"; (2) an amount
representing estimated accrued expenses of the Trust, including but not
limited to fees and expenses of the Trustee (including legal and auditing fees
and any insurance costs), the Evaluator, the Sponsor and bond counsel, if any;
(3) cash held for distribution to Unitholders of record as of the business day
prior to the evaluation being made; and (4) other liabilities incurred by the
Trust; and
C. finally dividing the results of such computation by the number of Units of
the Trust outstanding as of the date thereof.
UNITHOLDERS
Ownership of Units. Ownership of Units of any Trust will not be evidenced by
certificates unless a Unitholder, the Unitholder's registered broker/dealer or
the clearing agent for such broker/dealer makes a written request to the
Trustee. Certificates, if issued, will be so noted on the confirmation
statement sent to the Underwriter and broker. Non-receipt of such
certificate(s) must be reported to the Trustee within one year; otherwise, a
2% surety bond fee will be required for replacement.
Units are transferable by making a written request to the Trustee and, in the
case of Units evidenced by a certificate, by presenting and surrendering such
certificate to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer which should be sent registered or
certified mail for the protection of the Unitholder. Unitholders must sign
such written request, and such certificate or transfer instrument, exactly as
their names appear on the records of the Trustee and on any certificate
representing the Units to be transferred. Such signatures must be guaranteed
by a participant in the Securities Transfer Agents Medallion Program ("STAMP")
or such other signature guarantee program in addition to, or in substitution
for, STAMP, as may be accepted by the Trustee.
Units may be purchased and certificates, if requested will be issued in
denominations of one Unit subject to each Trust's minimum investment
requirement of 100 Units or any whole Unit multiple thereof subject to any
minimum requirement established by the Sponsor from time to time. Any
certificate issued will be numbered serially for identification, issued in
fully registered form and will be transferable only on the books of the
Trustee. The Trustee may require a Unitholder to pay a reasonable fee, to be
determined in the sole discretion of the Trustee, for each certificate re-
issued or transferred and to pay any governmental charge that may be imposed
in connection with each such transfer or interchange. The Trustee at the
present time does not intend to charge for the normal transfer or interchange
of certificates. Destroyed, stolen, mutilated or lost certificates will be
replaced upon delivery to the Trustee of satisfactory indemnity (generally
amounting to 3% of the market value of the Units), affidavit of loss, evidence
of ownership and payment of expenses incurred.
Distributions to Unitholders. Interest received by each Trust, including any
portion of the proceeds from a disposition of Securities which represents
accrued interest, is credited by the Trustee to the Interest Account for such
Trust. All other receipts are credited by the Trustee to a separate Principal
Account for the Trust. The Trustee normally has no cash for distribution to
Unitholders until it receives interest payments on the Securities in the
Trust. Since interest usually is paid semi-annually (monthly in the case of a
GNMA Portfolio), during the initial months of the Trusts, the Interest Account
of each Trust, consisting of accrued but uncollected interest and collected
interest (cash), will be predominantly the uncollected accrued interest that
is not available for distribution. On the dates set forth under "Essential
Information" for each Trust, the Trustee will commence distributions, in part
from funds advanced by the Trustee.
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Thereafter, assuming the Trust retains its original size and composition,
after deduction of the fees and expenses of the Trustee, the Sponsor and
Evaluator and reimbursements (without interest) to the Trustee for any amounts
advanced to a Trust, the Trustee will normally distribute on each Interest
Distribution Date (the fifteenth of the month) or shortly thereafter to
Unitholders of record of such Trust on the preceding Record Date (which is the
first day of each month). Unitholders of the Trusts will receive an amount
substantially equal to one-twelfth of such holders' pro rata share of the
estimated net annual interest income to the Interest Account of such Trust.
However, interest earned at any point in time will be greater than the amount
actually received by the Trustee and distributed to the Unitholders.
Therefore, there will always remain an item of accrued interest that is added
to the daily value of the Units. If Unitholders of a Trust sell or redeem all
or a portion of their Units, they will be paid their proportionate share of
the accrued interest of such Trust to, but not including, the 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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<PAGE>
The Trustee will distribute on each Distribution Date or shortly thereafter,
to each Unitholder of record of a Trust on the preceding Record Date, an
amount substantially equal to such holder's pro rata share of the cash
balance, if any, in the Principal Account of such Trust computed as of the
close of business on the preceding Record Date. However, no distribution will
be required if the balance in the Principal Account is less than $.01 per
Unit. Notwithstanding the foregoing, the Trustee will make a distribution to
Unitholders of all principal relating to maturing U.S. Treasury Obligations in
any U.S. Treasury Portfolio or GNMA Portfolio within twelve business days of
the date of such maturity.
In connection with GNMA Portfolios only, the terms of the Ginnie Maes provide
for payment to the holders thereof (including a GNMA Portfolio) on the
fifteenth day of each month of amounts collected by or due to the issuers
thereof with respect to the underlying mortgages during the preceding month.
The Trustee will collect the interest due a GNMA Portfolio on the Securities
therein as it becomes payable and credit such interest to a separate Interest
Account for such GNMA Portfolio created by the Indenture. Distributions will
be made to each Unitholder of record of a GNMA Portfolio on the appropriate
Distribution Date (see "Essential Information") and will consist of an amount
substantially equal to such Unitholder's pro rata share of the cash balances,
if any, in the Interest Account, the Principal Account and any Capital Gains
Account of such GNMA Portfolio, computed as of the close of business on the
preceding Record Date.
Statements to Unitholders. With each distribution, the Trustee will furnish or
cause to be furnished to each Unitholder a statement of the amount of interest
and the amount of other receipts, if any, which are being distributed,
expressed in each case as a dollar amount per Unit.
The accounts of each Trust are required to be audited annually, at the Trust's
expense, by independent auditors designated by the Sponsor, unless the Sponsor
determines that such an audit would not be in the best interest of the
Unitholders of such Trust. The accountants' report will be furnished by the
Trustee to any Unitholder of such Trust upon written request. Within a
reasonable period of time after the end of each calendar year, the Trustee
shall furnish to each person who at any time during the calendar year was a
Unitholder of a Trust a statement, covering the calendar year, setting forth
for the applicable Trust:
A. As to the Interest Account:
1. The amount of interest received on the Securities (and for Tax-Exempt
Portfolios, the percentage of such amount by states and territories in which
the issuers of such Securities are located);
2. The amount paid from the Interest Account representing accrued interest of
any Units redeemed;
3. The deductions from the Interest Account for applicable taxes, if any, fees
and expenses (including auditing fees) of the Trustee, the Sponsor, the
Evaluator, and, if any, of bond counsel;
4. Any amounts credited by the Trustee to the Reserve Account described under
"General Information--Expenses of the Trusts";
5. The net amount remaining after such payments and deductions, expressed both
as a total dollar amount and a dollar amount per Unit outstanding on the last
business day of such calendar year; and
B. As to the Principal Account:
1. The dates of the maturity, liquidation or redemption of any of the
Securities and the net proceeds received therefrom excluding any portion
credited to the Interest Account;
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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
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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 is The Bank of New York, a trust company organized
under the laws of New York. The Bank of New York has its offices at 101
Barclay Street, New York, New York 10286. The Bank of New York is subject to
supervision and examination by the Superintendent of Banks of the State of New
York and the Board of Governors of the Federal Reserve System, and its
deposits are insured by the Federal Deposit Insurance Corporation to the
extent permitted by law.
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.
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<PAGE>
The Evaluator. EVEREN Unit Investment Trusts, a service of EVEREN 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.
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GENERAL INFORMATION
<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.
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<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, EVEREN Unit Investment Trusts, with an office at 77 West Wacker
Drive, 29th Floor, Chicago, Illinois 60601, (800) 621-5024, is a service of
EVEREN Securities, Inc., which is a wholly-owned subsidiary of EVEREN Capital
Corporation. The Sponsor acts as underwriter of a number of other 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 EVEREN 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 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.
GI-17
GENERAL INFORMATION
<PAGE>
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>
APPENDIX
DESCRIPTION OF RATINGS*
Standard & Poor's -- A brief description of the applicable Standard & Poor's
rating symbols and their meanings follow:
A Standard & Poor's corporate or municipal bond rating is a current assessment
of the creditworthiness of an obligor with respect to a specific debt
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer and
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default -- capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement, under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
Bonds rated "BB,' "B,' "CCC,' "CC,' and "C' are regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal.
- --------
*As described by the rating company itself.
A-1
<PAGE>
"BB' indicates the least degree of speculation and "C,' the highest degree of
speculation. While such Bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB -- Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could
lead to inadequate capacity to meet timely interest and principal payments.
B -- Bonds rated B have greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions would likely impair capacity or willingness
to pay interest and repay principal.
CCC -- Bonds rated CCC have a current identifiable vulnerability to default,
and is dependent on favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal.
CC -- The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
D -- Bonds are rated D when the issue is in payment default, or the obligor
has filed for bankruptcy. The D rating is used when interest or principal
payments are not made on the date due, even if the applicable grace period has
not expired, unless S&P believes that such payments will be made during such
grace period.
Plus (+) or Minus (-): The ratings from "AA" to "A" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "p" indicates the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Moody's Investors Service, Inc.--A brief description of the applicable Moody's
Investors Service, Inc. rating symbols and their meanings follow:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Their safety is so
absolute that with the occasional exception of oversupply in a few specific
instances, characteristically, their market value is affected solely by money
market fluctuations.
A-2
<PAGE>
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities. Their market value is virtually immune to all but money market
influences, with the occasional exception of oversupply in a few specific
instances.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future. The market value of A-rated bonds may be influenced to some degree by
economic performance during a sustained period of depressed business
conditions, but, during periods of normalcy, A-rated bonds frequently move in
parallel with Aaa and Aa obligations, with the occasional exception of
oversupply in a few specific instances.
A1 -- Bonds which are rated A1 offer the maximum in security within their
quality group, can be bought for possible upgrading in quality, and
additionally, afford the investor an opportunity to gauge more precisely the
relative attractiveness of offerings in the marketplace.
Baa -- Bonds which are rated Baa are considered as lower medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and, in fact, have speculative characteristics as
well. The market value of Baa-rated bonds is more sensitive to changes in
economic circumstances and, aside from occasional speculative factors applying
to some bonds of this class, Baa market valuations move in parallel with Aaa,
Aa and A obligations during periods of economic normalcy, except in instances
of oversupply.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C -- bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Conditional Ratings: Bonds rated "Con(--)" are ones for which the security
depends upon the completion of some act or the fulfillment of some condition.
These are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals
A-3
<PAGE>
which begin when facilities are completed, or (d) payments to which some other
limiting conditions attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in certain areas of its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Duff & Phelps Credit Rating Co. -- A brief description of the applicable Duff
& Phelps Credit Rating Co. rating symbols and their meanings follow:
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related
to such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and
expertise. The projected viability of the obligor at the trough of the cycle
is a critical determination.
AAA -- Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA -- High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A -- Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB -- Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.
BB -- Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B -- Below investment grade and possessing risk that obligations will not be
met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.
CCC -- Well below investment grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD -- Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
A-4
<PAGE>
<TABLE>
<CAPTION>
PAGE
CONTENTS -----
<S> <C>
SUMMARY................................................................... 2
ESSENTIAL INFORMATION..................................................... 3
THE TRUST FUNDS........................................................... 5
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS............................................................. 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................. 13
Public Distribution of Units............................................. 13
Profits of Sponsor and Underwriters...................................... 15
THE INVESTMENT GRADE SERIES............................................... IG-1
The Trust Portfolio...................................................... IG-1
Series Information....................................................... IG-1
Portfolio................................................................ IG-2
Notes to Portfolio....................................................... IG-3
Risk Factors............................................................. IG-4
Federal Tax Status....................................................... IG-5
Tax Reporting and Reallocation........................................... IG-8
Estimated Cash Flows to Unitholders...................................... IG-9
THE CORPORATE INCOME SERIES............................................... CI-1
The Trust Portfolio...................................................... CI-1
Series Information....................................................... CI-1
Portfolio................................................................ CI-2
Notes to Portfolio....................................................... CI-3
Risk Factors............................................................. CI-4
Federal Tax Status....................................................... CI-6
Tax Reporting and Reallocation........................................... CI-9
Estimated Cash Flows to Unitholders...................................... CI-10
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
APPENDIX
Description of Ratings................................................... A-1
</TABLE>
-----------------------------------
THIS PROSPECTUS DOES NOT CONTAIN ALL OF THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENT AND EXHIBITS RELATING THERETO, FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, WASHINGTON, D.C. UNDER THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940, AND TO WHICH REFERENCE IS MADE.
-----------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUSTS, THE TRUSTEE, OR THE SPONSOR. THE TRUSTS ARE REGISTERED AS UNIT
INVESTMENT TRUSTS UNDER THE INVESTMENT COMPANY ACT OF 1940. SUCH REGISTRATION
DOES NOT IMPLY THAT THE TRUSTS OR THE UNITS HAVE BEEN GUARANTEED, SPONSORED,
RECOMMENDED OR APPROVED BY THE UNITED STATES OR ANY STATE OR ANY AGENCY OR
OFFICER THEREOF.
-----------------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE SUCH OFFER IN SUCH STATE.
<PAGE>
This Registration Statement on Form S-6 comprises the following papers and
documents.
<TABLE>
<C> <S>
The facing sheet of Form S-6.
The cross-reference sheet.
The prospectus.
The signatures.
The following exhibits.
1.1. Form of Trust Agreement.
1.1.1. Standard Terms and Conditions of Trust.
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" for each Trust and "Legal Opinions" in
the Prospectus and opinion of counsel as to the Federal income tax
status of the securities being registered.
4.1. Consent of Cantor Fitzgerald & Co.
4.2. Consent of Grant Thornton LLP.
Ex-27. Financial Data Schedules.
</TABLE>
S-1
<PAGE>
SIGNATURES
THE REGISTRANT, EVEREN UNIT INVESTMENT TRUSTS, SERIES 40 HEREBY IDENTIFIES
KEMPER DEFINED FUNDS SERIES 9 FOR PURPOSES OF THE REPRESENTATIONS REQUIRED BY
RULE 487 AND REPRESENTS THE FOLLOWING:
(1) THAT THE PORTFOLIO SECURITIES DEPOSITED IN THE SERIES AS TO THE
SECURITIES OF WHICH THIS REGISTRATION STATEMENT IS BEING FILED DO NOT
DIFFER MATERIALLY IN TYPE OR QUALITY FROM THOSE DEPOSITED IN SUCH PREVIOUS
SERIES;
(2) THAT, EXCEPT TO THE EXTENT NECESSARY TO IDENTIFY THE SPECIFIC
PORTFOLIO SECURITIES DEPOSITED IN, AND TO PROVIDE ESSENTIAL FINANCIAL
INFORMATION FOR, THE SERIES WITH RESPECT TO THE SECURITIES OF WHICH THIS
REGISTRATION STATEMENT IS BEING FILED, THIS REGISTRATION STATEMENT DOES NOT
CONTAIN DISCLOSURES THAT DIFFER IN ANY MATERIAL RESPECT FROM THOSE
CONTAINED IN THE REGISTRATION STATEMENTS FOR SUCH PREVIOUS SERIES AS TO
WHICH THE EFFECTIVE DATE WAS DETERMINED BY THE COMMISSION OR THE STAFF; AND
(3) THAT IT HAS COMPLIED WITH RULE 460 UNDER THE SECURITIES ACT OF 1933.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
EVEREN UNIT INVESTMENT TRUSTS, SERIES 40 HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, AND STATE OF ILLINOIS, ON
THE 5TH DAY OF DECEMBER, 1995.
EVEREN UNIT INVESTMENT TRUSTS,
SERIES 40
Registrant
By: EVEREN UNIT INVESTMENT TRUSTS,
a service of EVEREN Securities,
Inc.
Depositor
/s/ Michael J. Thoms
By: _________________________________
Michael J. Thoms
S-2
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON DECEMBER 5, 1995 BY THE
FOLLOWING PERSONS, WHO CONSTITUTE A MAJORITY OF THE BOARD OF DIRECTORS OF
EVEREN SECURITIES, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ James R. Boris
- -------------------------------------------
James R. Boris Chairman and Chief Executive Officer
/s/ Daniel D. Williams
- -------------------------------------------
Daniel D. Williams Senior Executive Vice President, Chief
Financial Officer and Treasurer
/s/ Frank V. Geremia
- -------------------------------------------
Frank V. Geremia Senior Executive Vice President
/s/ Stephen G. McConahey
- -------------------------------------------
Stephen G. McConahey President and Chief Operating Officer
/s/ Stanley R. Fallis
- -------------------------------------------
Stanley R. Fallis Senior Executive Vice President and Chief
Administrative Officer
/s/ David M. Greene
- -------------------------------------------
David M. Greene Senior Executive Vice President and
Director of Client Services
/s/ Thomas R. Reedy
- -------------------------------------------
Thomas R. Reedy Senior Executive Vice President and
Director of Capital Markets
/s/ Janet L. Reali
- -------------------------------------------
Janet L. Reali Executive Vice President, Corporate Counsel
and Corporate Secretary
</TABLE>
/s/ Michael J. Thoms
_____________________________________
Michael J. Thoms
MICHAEL J. THOMS SIGNS THIS DOCUMENT PURSUANT TO A POWER OF ATTORNEY FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION WITH AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT ON FORM S-6 FOR EVEREN UNIT INVESTMENT TRUSTS, SERIES
39 (REGISTRATION NO. 33-63111).
S-3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
Amendment Number 1 to Form S-6 and is qualified in its entirety by reference to
such Amendment Number 1 to Form S-6.
</LEGEND>
<SERIES>
<NAME> CORPORATE INCOME
<NUMBER> 4
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-05-1995
<PERIOD-END> DEC-05-1995
<INVESTMENTS-AT-COST> 1,509,834
<INVESTMENTS-AT-VALUE> 1,509,834
<RECEIVABLES> 25,722
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,535,556
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,722
<TOTAL-LIABILITIES> 25,722
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,509,834
<SHARES-COMMON-STOCK> 157,500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,509,834
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
Amendment Number 1 to Form S-6 and is qualified in its entirety by reference to
such Amendment Number 1 to Form S-6.
</LEGEND>
<SERIES>
<NAME> INVESTMENT GRADE
<NUMBER> 2
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-05-1995
<PERIOD-END> DEC-05-1995
<INVESTMENTS-AT-COST> 922,998
<INVESTMENTS-AT-VALUE> 922,998
<RECEIVABLES> 18,895
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 941,893
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,895
<TOTAL-LIABILITIES> 18,895
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 922,998
<SHARES-COMMON-STOCK> 95,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 922,998
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 1.1(a)
EVEREN Unit Investment Trusts, Series 40
Trust Agreement
Dated: December 5, 1995
This Trust Agreement between EVEREN Securities, Inc., as Depositor and
Evaluator, and The Bank of New York, as Trustee, sets forth certain provisions
in full and incorporates other provisions by reference to the document entitled
"Standard Terms and Conditions of Trust for Corporate Bond Trusts Sponsored by
EVEREN Unit Investment Trusts, a service of EVEREN Securities, Inc. and
Subsequent Series, Effective: December 5, 1995" (herein called the "Standard
Terms and Conditions of Trust") and such provisions as are set forth in full and
such provisions as are incorporated by reference constitute a single instrument.
All references herein to Articles and Sections are to Articles and Sections of
the Standard Terms and Conditions of Trust.
Witnesseth That:
In consideration of the premises and of the mutual agreements herein
contained, the Depositor and the Trustee and the Evaluator agree as follows:
Part I
Standard Terms and Conditions of Trust
Subject to the Provisions of Part ii hereof, all the provisions contained
in the Standard Terms and Conditions of Trust are herein incorporated by
reference in their entirety and shall be deemed to be a part of this instrument
as fully and to the same extent as though said provisions had been set forth in
full in this instrument.
Part II
Special Terms and Conditions of Trust
The following special terms and conditions are hereby agreed to:
(a) The Bonds defined in Section 1.01(4), listed in Schedule A
hereto, have been deposited in trust under this Trust Agreement.
(b) The fractional undivided interest in and ownership of each Trust
Fund represented by each Unit is the amount set forth under "Summary of
Essential Financial Information@Fractional Undivided Interest in the Fund
per Unit" in the Prospectus.
(c) The number of Units in each Trust is that amount set forth under
"Essential Information-Number of Units" in the Prospectus.
(d) The "First General Record Date" shall be January 1, 1996.
<PAGE>
-2-
(e) The amount of the second distribution of funds from the Interest
Account shall be that amount set forth under "Essential Information-
Interest Payments-First Payment per Unit" for each Trust in the Prospectus.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to
be duly executed.
EVEREN SECURITIES, INC.
through its EVEREN Unit Investment Trusts
service
Depositor
By Robert K. Burke
------------------------------
Senior Vice President
THE BANK OF NEW YORK
By Ted Rudish
-------------------------------
Vice President
<PAGE>
-2-
SCHEDULE A
Bonds Initially Deposited
EVEREN Unit Investment Trusts Series 40
(Note: Incorporated herein and made a part hereof is the "Portfolios" as
set forth in the Prospectus for each Trust.)
<PAGE>
Standard Terms and Conditions of Trust
for
Corporate Bond Trusts
Sponsored by
EVEREN Unit Investment Trusts,
a service of EVEREN Securities, Inc.
Effective: December 5, 1995
Among
EVEREN Securities Inc.
Depositor and Evaluator
and
The Bank of New York
Trustee
___________________________________
Applicable to Insured Corporate Series 9 and Subsequent Series,
Investment Grade Corporate Income Series 2 and Subsequent Series,
and Corporate Income Series 4 And Subsequent Series
___________________________________
STANDARD TERMS AND CONDITIONS OF TRUST
CONTENTS
<TABLE>
<CAPTION>
Page
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Preambles 1
Article I Definitions 1
Section 1.01. Definitions 1
Article II Deposit of Bonds; Acceptance of Trust;
Form and Issuance of Certificates;
Portfolio Insurance 6
Section 2.01. Deposit of Bonds 6
Section 2.02. Acceptance of Trust 7
Section 2.03. Issuance of Units 7
Section 2 04. Form of Certificates 7
Section 2.05. Portfolio Insurance 7
Article III Administration of Fund 9
Section 3.01. Initial Cost 9
Section 3.02. Interest Account 9
Section 3.03. Principal Account 9
Section 3.04. Reserve Account 10
Section 3.05. Distributions 10
Section 3.06. Distribution Statements 13
Section 3.07. Sale of Bonds 14
Section 3.08. Refunding Bonds 15
Section 3.09. Bond Counsel 16
Section 3.10. Notice and Sale by Trustee 16
Section 3.11. Trustee Not Required to Amortize 16
Section 3.12. Liability of Depositor 16
Section 3.13. Notice to Depositor 16
Section 3.14. Limited Replacement of Special Bonds 16
Section 3.15. Compensation of Depositor for
Supervisory Services 18
Article IV Evaluation of Bonds; Evaluator 19
Section 4.01. Evaluation of Bonds 19
Section 4.02. Information for Unitholders 19
Section 4.03. Compensation of Evaluator 19
Section 4.04. Liability of Evaluator 20
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Section 4.05. Resignation and Removal of Evaluator; Successor 20
Article V Evaluation, Redemption, Purchase, Transfer, Interchange or Replacement
of Certificates 21
Section 5.01. Evaluation 21
Section 5.02. Redemptions by Trustee; Purchases by Depositor 22
Section 5.03. Transfer or Interchange of Certificates 24
Section 5.04. Certificates Mutilated, Destroyed, Stolen or Lost 24
Article VI Trustee 25
Section 6.01. General Definition of Trustee's Liabilities, Rights and Duties 25
Section 6.02. Books, Records and Reports 27
Section 6.03. Indenture and List of Bonds on File 28
Section 6.04. Compensation 28
Section 6.05. Removal and Resignation of Trustee; Successor 29
Section 6.06. Qualifications of Trustee 30
Article VII Rights of Unitholders 30
Section 7.01. Beneficiaries of Trust 30
Section 7.02. Rights, Terms and Conditions 30
Article VIII Additional Covenants; Miscellaneous Provisions 31
Section 8.01. Amendments 31
Section 8.02. Termination 31
Section 8.03. Construction 33
Section 8.04. Registration of Units 33
Section 8.05. Written Notice 33
Section 8.06. Severability 34
Section 8.07. Dissolution of Depositor Not to Terminate 34
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This Table of Contents does not constitute part of the Indenture
STANDARD TERMS AND CONDITIONS OF TRUST
EFFECTIVE: DECEMBER 5, 1995
These Standard Terms and Conditions of Trust are executed between EVEREN
Securities Inc., as Depositor and Evaluator and The Bank of New York, as
Trustee.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the Depositor, the Trustee and the Evaluator agree as follows:
INTRODUCTION
These Standard Terms and Conditions of Trust effective shall be applicable
to certain Series of EVEREN Unit Investment Trusts established after the date of
effectiveness hereof primarily containing corporate bonds, as provided in this
paragraph. For all Series established after the date of effectiveness hereof to
which these Standard Terms and Conditions of Trust are to be applicable, the
Depositor, the Trustee and the Evaluator shall execute a Trust Agreement
incorporating by reference these Standard Terms and Conditions of Trust and
designating any exclusion from or exception to such incorporation by reference
for the purposes of that Series or variation of the terms hereof for the
purposes of that Series and specifying for that Series (i) the Bonds deposited
in trust and the number of Units delivered by the Trustee in exchange for the
Bonds pursuant to Section 2.03, (ii) the fractional undivided interest
represented by each Unit, (iii) the First Settlement Date, (iv) the First
General Record Date, (v) the amount of the Trustee advancement with respect to
any "when issued" Bonds deposited in a Trust, and (vi) the amount of the second
distribution from the Interest Account.
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Now Therefore, in consideration of the premises and of the mutual
agreements herein contained the Depositor, Evaluator and the Trustee agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Whenever used in this Indenture the
following words and phrases, unless the context clearly indicates otherwise,
shall have the following meanings:
(1) "Depositor" shall mean EVEREN Unit Investment Trusts, a service
of EVEREN Securities, Inc. and its successors in interest, or any successor
depositor appointed as hereinafter provided.
(2) "Evaluator" shall mean EVEREN Unit Investment Trusts, a service
of EVEREN Securities, Inc., and its successors in interest, or any
successor evaluator appointed as hereinafter provided.
(3) "Trustee" shall mean The Bank of New York or any successor
trustee appointed as hereinafter provided, or any entity which acquires all
or a substantial part of the unit investment trust division of The Bank of
New York.
(4) "Bonds" shall mean such of the interest bearing debt
obligations, including delivery statements relating to "when issued" and/or
"regular way" contracts, if any, for the purchase of certain bonds and
cash, certified or bank check or checks or letter of credit or letters of
credit sufficient in amount or availability required for such purchase,
deposited in irrevocable trust and listed in Schedule A of the Trust
Agreement, and any obligations received in exchange, substitution or
replacement for such obligations pursuant to Sections 3.08 and 3.14 hereof,
as may from time to time continue to be held as a part of the Trust.
(5) "Certificate" shall mean any one of the certificates executed by
the Trustee and the Depositor in substantially the following form with the
blanks appropriately filled in:
Face of Certificate
Number EVEREN Unit Investment Trusts Units
CERTIFICATE OF BENEFICIAL OWNERSHIP
This certifies that _______________________________________ is the
registered owner of ____ units(s) of fractional undivided interest in EVEREN
Unit Investment Trusts of the above-named Series (herein referred to as the
"Trust") created under the laws of the State of New York pursuant to the
Agreement and the related Trust Agreement, a copy of which is available at the
office of the Trustee. This Certificate is issued under and is subject to the
terms, provisions and conditions of the aforesaid Agreement and the related
Trust Agreement to which the holder of this Certificate by virtue of the
acceptance hereof assents and is bound. This Certificate is transferable and
interchangeable by the registered owner in person or by his duly authorized
attorney at the office of the Trustee upon surrender of this Certificate
properly endorsed or accompanied by a written instrument of transfer and any
other documents that the Trustee may require for transfer, in form satisfactory
to the Trustee, and payment of the fees and expenses provided in the Agreement.
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Witness the facsimile signature of the Depositor and the manual signature
of an authorized signatory of the Trustee.
Dated
EVEREN Securities, Inc.,
Depositor
The Bank of New York,
Trustee,
By
Authorized Signature
By
Authorized Signature
Reverse of Certificate
FORM OF ASSIGNMENT
For Value Received, the undersigned hereby sells, assigns and transfers
_________ Units represented by this Certificate unto
Please Insert Social Security or
Other
Identifying Number of Assignee
and does hereby irrevocably constitute and appoint attorney, to transfer said
Units on the books of the Trustee, with full power of substitution in the
premises.
Dated:
Notice: The signature to this assignment must correspond with the
name as written upon the face of the Certificate in every particular,
without alteration or enlargement or any change whatever, and 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.
Signature Guaranteed
By
(6) "Unitholder" shall mean the registered holder of any Certificate
as recorded on the books of the Trustee, his legal representatives and
heirs and the successors of any corporation, partnership or other legal
entity which is a registered holder of any Certificate and as such shall be
deemed a beneficiary of the trust created by this Indenture to the extent
of his pro rata share thereof.
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(7) "Contract Bonds" shall mean Bonds which are to be acquired by a
Trust pursuant to contracts, including (i) Bonds listed in Schedule A to
the Trust Agreement and (ii) Bonds which the Depositor has contracted to
purchase for the Trust pursuant to Section 3.14 hereof.
(8) "Trust" shall mean any one of the separate trusts created by the
Trust Agreement, which shall consist of the Bonds held pursuant and subject
to the Indenture together with all undistributed interest received or
accrued thereon, any undistributed cash realized from the sale, redemption,
liquidation, or maturity thereof or the proceeds of insurance received in
respect thereof. Such amounts as may be on deposit in the Reserve Account
hereinafter established shall be excluded from the Trust.
(9) "Trust Agreement" shall mean the Trust Agreement for the
particular series of the Fund into which these Standard Terms and
Conditions is incorporated.
(10) "Insurance" shall mean one or more contracts or policies of
insurance obtained by the Trust guaranteeing the payment when due of the
principal of and interest on the Bonds held pursuant and subject to this
Indenture, together with the proceeds, if any, thereof payable to or
received by the Trustee for the benefit of the Trust and the Unitholders
thereof except that Insurance shall not include those Bonds held pursuant
and subject to this Indenture which are insured by individual policies of
insurance which have been obtained by the issuers of such Bonds (the "Pre-
Insured Bonds"). All references herein relating to Insurance shall apply
exclusively to Insured Corporate Series.
(11) "Insurer" shall mean AMBAC Indemnity Corporation and/or Capital
Markets Assurance Corporation ("CAPMAC"), their respective successors and
assigns, having its principal office in New York, New York, or any other
insurer named in the Prospectus for a Trust, which has issued the contract
or policy of insurance obtained by the Trust protecting the Trust and the
Unitholders thereof against nonpayment when due of the principal of and
interest on the Bonds (except for Pre-Insured Bonds or U.S. Treasury
Obligations) held by the Trustee as part of the Trust. All references to
an Insurer shall apply exclusively to Insured Corporate Series.
(12) "Units" shall mean the fractional undivided interest in and
ownership of the Trust equal initially to the fraction specified in the
Trust Agreement, the denominator of which shall be decreased by the number
of any such Units redeemed as provided in Section 5.02.
(13) "Indenture" shall mean these Standard Terms and Conditions of
Trust as originally executed or, if amended as hereinafter provided, as so
amended, together with the Trust Agreement creating a particular series of
the Fund.
(14) "Business Day" shall mean any day other than a Sunday or, in
the City of New York, a legal holiday or a day on which banking
institutions are authorized by law to close.
(15) "Insured Corporate Series" shall mean any Trust so designated
in the related Prospectus.
(16) "Investment Grade Corporate Income Series" shall mean any Trust
so designated in the related Prospectus.
(17) "Corporate Income Series" shall mean any Trust so designated in
the related Prospectus.
(18) "Prospectus" shall mean (a) the prospectus relating to a Trust
filed with the Securities and Exchange Commission pursuant to Rule 497(b)
under the Securities Act of 1933, as amended, and dated the date of the
Trust Agreement or (b) if any post effective amendment to such prospectus
shall have been subsequently made effective under the Securities Act of
1933, as amended, such post effective amendment thereto.
(19) "Fund" shall mean all Trusts outstanding under this Indenture.
(20) "Evaluation Time" shall mean the close of business of the
Depositor or such other evaluation time set forth in the Prospectus.
(21) Words importing singular number shall include the plural number
in each case and vice versa, and words importing persons shall include
corporations and associations, as well as natural persons.
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(22) The words "herein," "hereby," "herewith," "hereof,"
"hereinafter," "hereunder," "hereinabove," "hereafter," "heretofore" and
similar words or phrases of reference and association shall refer to this
Indenture in its entirety.
ARTICLE II
DEPOSIT OF BONDS; ACCEPTANCE OF TRUST; FORM AND
ISSUANCE OF CERTIFICATES; PORTFOLIO INSURANCE
Section 2.01. Deposit of Bonds. The Depositor, on the date of the
Trust Agreement, has deposited with the Trustee in trust the Bonds listed in
Schedule A to this Indenture in bearer form or duly endorsed in blank or
accompanied by all necessary instruments of assignment and transfer in proper
form to be held, managed and applied by the Trustee as herein provided. The
Depositor shall deliver the Bonds listed on said Schedule A to the Trustee which
were not actually delivered concurrently with the execution and delivery of the
Trust Agreement within 90 days after said execution and delivery, or if the
contract to buy such Bond between the Depositor and seller is terminated by the
seller thereof for any reason beyond the control of the Depositor, the Depositor
shall forthwith take the remedial action specified in Section 3.14.
Section 2.02. Acceptance of Trust. The Trustee hereby accepts the
trusts herein created for the use and benefit of the Unitholders, subject to the
terms and conditions of this Indenture.
Section 2.03. Issuance of Units. The Trustee hereby acknowledges
receipt of the deposit referred to in Section 2.01, and simultaneously with the
receipt of said deposit has executed and delivered to or on the order of the
Depositor, Certificates substantially in the form above recited representing the
ownership of an aggregate of the number of Units of each Trust specified in the
Prospectus for the related Trust. The Trustee may not transfer the Certificates
to a registered holder other than the Depositor until the Trustee receives
evidence satisfactory to it of the registration of the Certificates under the
Securities Act of 1933.
Section 2 04. Form of Certificates. Each Certificate referred to in
Section 2.03 is, and each Certificate hereafter issued shall be, in
substantially the form hereinabove recited, numbered serially for
identification, in fully registered form, transferable only on the books of the
Trustee as herein provided, executed manually by an authorized officer of the
Trustee and in facsimile by the President or one of the Vice Presidents of the
Depositor and dated the date of execution and delivery by the Trustee.
Section 2.05. Portfolio Insurance. This Section 2.05 shall apply
only to Insured Corporate Series Trusts and not to Investment Grade Corporate
Income Series Trusts or Corporate Income Series Trusts. Concurrently with the
delivery to the Trustee of the Bonds listed in Schedule A to this Indenture the
Insurer has delivered to and deposited with the Trustee, a Bond Fund Portfolio
Insurance Policy (the "Insurance") to protect the related Trust and the
Unitholders thereof against nonpayment of principal and interest, when due, on
any Bond or Bonds (except for Pre-Insured Bonds) held by the Trustee in the
portfolio of the Trust. The Trustee shall take all action deemed necessary or
advisable in connection with the Insurance to continue the Insurance in full
force and effect and shall pay all premiums due thereon, including the initial
premium, all in such manner as in its sole discretion shall appear to result in
the most protection and least expense to such trust.
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The Insurance may not be cancelled by the Insurer. The Trustee shall make
the deduction and payment of premiums prescribed in Section 3.05(c)(5) of this
Indenture in order to continue in force the coverage thus provided. The
Insurer's right to the payment of premiums from funds held by the Trustee in
accordance with the terms of the policy is absolute (except when payment is
withheld in good faith by the Trustee in the event of dispute over the amount
thereof), but no failure on the part of the Trustee to make such payment of
premium or installment thereof to the Insurer shall result in a cancellation of
the Insurance or otherwise affect the right of any Unitholder under the policy
to have any amounts of principal and interest paid by the Insurer to the Trustee
to be held as part of the Trust when the same are not paid when due by the
issuer of a Bond or Bonds held by the Trustee as part of the Trust.
With each payment of a premium or installment thereof, the Trustee shall
notify the Insurer of all Bonds (except Pre-Insured Bonds) which during the
expiring premium period were redeemed from or sold by the Trust.
At all times during the existence of the Trust the Insurance policy shall
provide for payment by the Insurer to the Trustee of any amounts of principal
and interest due, but not paid, by the issuer of a Bond insured by the
Insurance. The Trustee shall promptly notify the Insurer of any nonpayment of
principal or interest and the Insurer shall, pursuant to the terms of the
Insurance policy, make payment to the Trustee of all amounts of principal and
interest at that time due, but not paid.
Payments of principal and interest assumed by the Insurer shall be made as
required by the related Bond or Bonds. In the event of a sale of any such Bond
or Bonds by the Trustee under Section 3.07, 5.02 or 6.04, or a termination of
this Indenture and the trust created hereby under Section 8.02, prior to the
final maturity of such Bond or Bonds, upon notice from the Trustee, the Insurer
shall, pursuant to the terms of the Insurance policy, promptly make payment to
the Trustee of the accrued interest on such Bond or Bonds to the date such Bond
or Bonds are removed from the portfolio of the Trust and the Insurer shall be
relieved of further obligation to the Trustee thereon.
Upon the making of any payment referred to in the preceding paragraphs, the
Insurer shall succeed to the rights of the Trustee under the Bond or Bonds
involved to the extent of the payments made at that time, or any time subsequent
thereto, and shall continue to make all payments required by the terms of such
Bond or Bonds to the extent that funds are not provided therefor by the issuer
thereof and such Bond or Bonds are held by the Trust. To the extent the Trustee
receives partial payments of principal (or partial payments in lieu of
principal) from an issuer of Bonds in the Trust, such payments will reduce the
outstanding principal amount of such Bonds subject to the Insurance provided by
the Insurer and any interest payments to be paid by the Insurer will be based on
such reduced principal. Upon the payment of any amounts by the Insurer,
occasioned by the nonpayment thereof by the issuer, the Trustee shall execute
and deliver to the Insurer any receipt, instrument or document required to
evidence the right of the Insurer in the Bond or Bonds involved to payment of
principal and/or interest thereon to the extent of the payments made by the
Insurer to the Trustee.
With respect to Pre-Insured Bonds in a Trust, the Trustee shall promptly
notify the respective insurance company of any nonpayment of principal or
interest on such Pre-Insured Bonds and if the respective insurance company
should fail to make payment to the Trustee within 30 days after receipt of such
notice, the Trustee shall take all action against the respective insurance
company and/or the issuer deemed necessary to collect all amounts of principal
and interest at that time due, but not collected.
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The Trustee shall also take such action required by Section 5.02 hereof
with respect to Permanent Insurance, if such Permanent Insurance is available,
as defined in such Section 5.02.
ARTICLE III
ADMINISTRATION OF FUND
Section 3.01. Initial Cost. To the extent not borne by the Depositor
the expenses incurred in establishing a Trust shall be borne by the Trust,
including the cost of the initial preparation and typesetting of the
registration statement, prospectuses (including preliminary prospectuses), the
Indenture, and other documents relating to a Trust, printing of Certificates,
Securities and Exchange Commission and state blue sky registration fees, the
costs of the initial valuation of the portfolio and audit of a Trust, the
initial fees and expenses of the Trustee, and legal and other out-of-pocket
expenses related thereto, but not including the expenses incurred in the
printing of prospectuses (including preliminary prospectuses), expenses incurred
in the preparation and printing of brochures and other advertising materials and
any other selling expenses. To the extent the funds in the Interest and Capital
Accounts of the Trust shall be insufficient to pay the expenses borne by the
Trust specified in this Section 3.01, the Trustee shall advance out of its own
funds and cause to be deposited and credited to the Interest or Capital Accounts
such amount as may be required to permit payment of such expenses. The Trustee
shall be reimbursed for such advance in the manner provided in the related
Prospectus; provided, however, that nothing herein shall be deemed to prevent,
and the Trustee shall be entitled to, full reimbursement for any advances made
pursuant to this Section no later than the termination of the Trust.
Section 3.02. Interest Account. The Trustee shall collect the
interest on the Bonds as it becomes payable (including all interest accrued but
unpaid prior to the date of deposit of the Bonds in trust and including that
part of the proceeds of the sale, liquidation, redemption or maturity of any
Bonds or insurance thereon which represents accrued interest thereon) and credit
such interest to a separate account to be known as the "Interest Account."
Section 3.03. Principal Account. (a) The Bonds and all moneys
(except moneys held by the Trustee pursuant to subsection (b) hereof) other than
amounts credited to the Interest Account, received by the Trustee in respect of
the Bonds, including insurance thereon, shall be credited to a separate account
to be known as the "Principal Account."
(b) Moneys and/or irrevocable letters of credit required to purchase
Contract Bonds or deposited to secure such purchases are hereby declared to be
held specially by the Trustee for such purchases and shall not be deemed to be
part of the Principal Account until (i) the Depositor fails to timely purchase a
Contract Bond and has not given the Failed Contract Notice (as defined in
Section 3.14) at which time the moneys and/or letters of credit attributable to
the Contract Bond not purchased by the Depositor shall be credited to the
Principal Account; or (ii) the Depositor has given the Trustee the Failed
Contract Notice at which time the moneys and/or letters of credit attributable
to failed contracts referred to in such Notice shall be credited to the
Principal Account; provided, however, that if the Depositor also notifies the
Trustee in the Failed Contract Notice that it has purchased or entered into a
contract to purchase a New Bond (as defined in Section 3.14), the Trustee shall
not credit such moneys and/or letters of credit to the Principal Account unless
the New Bond shall also have failed or is not delivered by the Depositor within
two business days after the settlement date of such New Bond, in which event the
Trustee shall forthwith credit such moneys and/or letters of credit to the
Principal Account. The Trustee shall in any case forthwith credit to the
Principal Account, and/or cause the Depositor to deposit in the Principal
Account, the difference, if any, between the purchase price of the failed
Contract Bond and the purchase price of the New Bond, together with any sales
charge and accrued interest applicable to such difference and distribute such
moneys to Unitholders pursuant to Section 3.05.
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The Trustee shall give prompt written notice to the Depositor and the
Evaluator of all amounts credited to or withdrawn from a Principal Account and
the balance in such Account after giving effect to such credit or withdrawal.
Section 3.04. Reserve Account. From time to time the Trustee shall
withdraw from the cash on deposit in an Interest Account or Principal Account
such amounts as it, in its sole discretion, shall deem requisite to establish a
reserve for any applicable taxes or other governmental charges that may be
payable out of the Trust. Such amounts so withdrawn shall be credited to a
separate account which shall be known as the "Reserve Account." The Trustee
shall not be required to distribute to the Unitholders any of the amounts in the
Reserve Account; provided, however, that if it shall, in its sole discretion,
determine that such amounts are no longer necessary for payment of any
applicable taxes or other governmental charges, then it shall promptly deposit
such amounts in the account from which withdrawn or if the Trust shall have
terminated or shall be in the process of termination, the Trustee shall
distribute same in accordance with Section 8.02 (d) and (e) to each Unitholder
such holder's interest in the Reserve Account.
Section 3.05. Distributions. (a) The Trustee, as of the "First
Settlement Date," as defined in the Prospectus for the related Trust, shall
advance from its own funds and shall pay to the Unitholders then of record the
amount of interest accrued on the Bonds deposited in the Trust. The Trustee
shall also advance from its own funds and pay the appropriate persons the amount
specified in the Prospectus for the related Trust, which amount represents
interest which accrues on any "when issued" Bonds deposited in the Trust from
the date stated in the preceding sentence to the respective dates of delivery to
the Trust of any of such Bonds. The Trustee shall be entitled to reimbursement,
without interest, for such advancement from interest received by the Trust
before any further distributions shall be made from the Interest Account to
Unitholders of the Trust. Subsequent distributions shall be made as hereinafter
provided.
(b) The second distribution of funds from the Interest Account shall be
in the amount specified in Part II of the Trust Agreement and shall be made
fifteen days after the "First General Record Date," as defined in Part II of the
Trust Agreement, to all Unitholders of record as of the First General Record
Date. For all semi-annual distributions the "Record Date" is hereby fixed to be
the first day of June and December of each year unless such other dates are set
forth in the Trust Agreement relating to a Trust.
(c) As of the first day of each month of each year commencing the First
General Record Date, the Trustee shall:
(1) deduct from the Interest Account or, to the extent funds are not
available in such Account, from the Principal Account and pay to itself
individually the amounts that it is at the time entitled to receive
pursuant to Section 6.04;
(2) deduct from the Interest Account, or, to the extent funds are
not available in such Account, from the Principal Account and pay to the
Evaluator the amount that it is at the time entitled to receive pursuant to
Section 4.03;
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(3) deduct from the Interest Account, or to the extent funds are not
available in such Account, from the Principal Account and pay to the
Evaluator the amount that it is entitled to receive pursuant to Section
3.15;
(4) deduct from the Interest Account, or, to the extent funds are
not available in such Account, from the Principal Account and pay to bond
counsel, as hereinafter provided for, an amount equal to unpaid fees and
expenses, if any, of such bond counsel pursuant to Section 3.09 as
certified to by the Depositor; and
(5) deduct from the Interest Account, or, to the extent funds are
not available in such Account, from the Principal Account and pay to the
Insurer the amount of any premium to which it is at the time entitled to
receive, pursuant to Section 2.05.
(d) On or shortly after the fifteenth day of each month (the
"Distribution Date") occurring subsequent to the First General Record Date, the
Trustee shall distribute by mail to or upon the order of each Unitholder of
record as of the close of business on the preceding Record Date at the post
office address appearing on the registration books of the Trustee such
Unitholder's pro rata share of the balance of the Interest Account calculated as
of each Record Date on the basis of one-twelfth of the estimated annual interest
income to the Trust for the ensuing twelve months, after deduction of the
estimated costs and expenses to be incurred during the twelve month period for
which the interest income has been estimated.
In the event the amount on deposit in the Interest Account is not
sufficient for the payment of the amount of interest to be distributed to
Unitholders on the bases of the aforesaid computations, the Trustee shall
advance its own funds and cause to be deposited in and credited to the Interest
Account such amounts as may be required to permit payment of the monthly
interest distribution to be made as aforesaid and shall be entitled to be
reimbursed, without interest, out of interest received by the Trust subsequent
to the date of such advance and subject to the condition that any such
reimbursement shall be made only under conditions which will not reduce the
funds in or available for the Interest Account to an amount less than required
for the next ensuing distribution of interest. Distributions of Unitholders who
are participating in the optional plan for distribution of interest shall not be
affected because of advancements by the Trustee for the purpose of equalizing
distributions to Unitholders participating in the different plan.
Distributions of amounts represented by the cash balance in the Principal
Account shall be computed as of the semi-annual Record Dates of each year
occurring subsequent to the date of the First General Record Date. On the
fifteenth day of each month as of which such computation is made, or within a
reasonable period of time thereafter, the Trustee shall distribute by mail to
each Unitholder of record at the close of business on the date of computation
(the Record Date) at his post office address such holder's pro rata share of the
cash balance of the Principal Account as thus computed. The Trustee shall not
be required to make a distribution from the Principal Account unless the cash
balance on deposit therein available for distribution shall be sufficient to
distribute at least $0.01 per Unit. Should the amount available for
distribution in the Principal Account equal or exceed $0.10 per Unit, to the
extent permissible under the Investment Company Act of 1940, the Trustee will
make a special distribution from the Principal Account on the next succeeding
monthly distribution date to holders of record on the related monthly record
date.
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If the Depositor (i) fails to replace any failed Special Bond (as defined
in Section 3.14) or (ii) is unable or fails to enter into any contract for the
purchase of any New Bond in accordance with Section 3.14, the Trustee shall
distribute to all Unitholders the principal, accrued interest and sales charge
attributable to such Special Bonds at the next monthly distribution date which
is more than thirty days after the expiration of the Purchase Period (as defined
in Section 3.14) or at such earlier time or in such manner as the Trustee in its
sole discretion deems to be in the best interest of the Unitholders.
If any contract for a New Bond in replacement of a Special Bond shall fail,
the Trustee shall distribute the principal, accrued interest and sales charge
attributable to the Special Bond to the Unitholders at the next monthly
distribution date which is more than thirty days after the date on which the
contract in respect of such New Bond failed or at such earlier time or in such
earlier manner as the Trustee in its sole discretion determines to be in the
best interest of the Unitholders.
If, at the end of the Purchase Period, less than all moneys attributable to
a failed Special Bond have been applied or allocated by the Trustee pursuant to
a contract to purchase New Bonds, the Trustee shall distribute the remaining
moneys to Unitholders at the next monthly distribution date which is more than
thirty days after the end of the Purchase Period or at such earlier time
thereafter as the Trustee in its sole discretion deems to be in the best
interest of the Unitholders.
The amounts to be so distributed to each Unitholder shall be that pro rata
share of the cash balance of the Interest and Principal Accounts, computed as
set forth above, as shall be represented by the Units evidenced by the
outstanding Certificate or Certificates registered in the name of such
Unitholder.
In the computation of each such share, fractions of less than one cent
shall be omitted. After any such distribution provided for above, any cash
balance remaining in an Interest Account or Principal Account shall be held in
the same manner as other amounts subsequently deposited in each of such
accounts, respectively.
For the purpose of distributions as herein provided, the holders of record
on the registration books of the Trustee at the close of business on each Record
Date shall be conclusively entitled to such distribution, and no liability shall
attach to the Trustee by reason of payment to any such registered Unitholder of
record. Nothing herein shall be construed to prevent the payment of amounts
from the Interest Account and the Principal Account to individual Unitholders by
means of one check, draft or other proper instrument, provided that the
appropriate statement of such distribution shall be furnished therewith as
provided in Section 3.06 hereof.
Section 3.06. Distribution Statements. With each distribution from
the Interest or Principal Accounts the Trustee shall set forth, either in the
instrument by means of which payment of such distribution is made or in an
accompanying statement, the amount being distributed from each such account and,
if from the Interest Account, the amount of accrued interest (uncollected and
not available for distribution) on the record date for such distribution, each
expressed as a dollar amount per Unit. Within a reasonable period of time after
the last business day of each calendar year, the Trustee shall furnish to each
person who at any time during such calendar year was a Unitholder a statement
setting forth, with respect to such calendar year:
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(A) as to the Interest Account:
(1) the amount of interest received on the Bonds,
(2) the amounts paid for purchases of New Bonds pursuant to
Section 3.14 and for redemptions pursuant to Section 5.02,
(3) the deductions for applicable taxes and fees and expenses
of the Trustee and all other Trust expenses, and
(4) the balance remaining after such distributions and
deductions, expressed both as a total dollar amount and as a dollar
amount per Unit outstanding on the last business day of such calendar
year;
(B) as to the Principal Account:
(1) the dates of the sale, maturity, liquidation or redemption
of any of the Bonds and the net proceeds received therefrom, excluding
any portion thereof credited to the Interest Account,
(2) the amount paid for purchases of New Bonds pursuant to
Section 3.14 and for redemptions pursuant to Section 5.02,
(3) the deductions for payment of applicable taxes and fees
and expenses, including the cost of Permanent Insurance, of the
Trustee and all other Trust expenses, and
(4) the balance remaining after such distributions and
deductions, expressed both as a total dollar amount and as a dollar
amount per Unit outstanding on the last business day of such calendar
year; and
(C) the following information:
(1) a list of the Bonds 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 Unit Value based on the last Trust Evaluation made
during such calendar year, and
(4) the amounts actually distributed during such calendar year
from the Interest and Principal Accounts, separately stated, expressed
both as total dollar amounts and as dollar amounts per Unit
outstanding on the record dates for each plan of distribution.
Section 3.07. Sale of Bonds. If necessary, in order to maintain the
investment character of the Trust, the Depositor may direct the Trustee to sell
or liquidate Bonds at such price and time and in such manner as shall be
determined by the Depositor, provided that the Depositor has determined that any
one or more of the following conditions exist:
(a) that there has been a default on such Bonds in the payment of
principal or interest, or both, when due and payable;
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(b) that any action or proceeding has been instituted in law or
equity seeking to restrain or enjoin the payment of principal or interest
on any such Bonds, attacking the constitutionality of any enabling
legislation or alleging and seeking to have judicially determined the
illegality of the issuing body or the constitution of its governing body or
officers, the illegality, irregularity or omission of any necessary acts or
proceedings preliminary to the issuance of such Bonds, or seeking to
restrain or enjoin the performance by the officers or employees of any such
issuing body of any improper or illegal act in connection with the
administration of funds necessary for debt service on such Bonds or
otherwise; or that there exists any other legal question or impediment
affecting such Bonds or the payment of debt service on the same;
(c) that there has occurred any breach of covenant or warranty in
any resolution, ordinance, trust indenture or other document, which would
adversely affect either immediately or contingently the payment of debt
service on such Bonds, or their general credit standing, or otherwise
impair the sound investment character of such Bonds;
(d) that there has been a default in the payment of principal of or
interest on any other outstanding obligations of an issuer or guarantor of
such Bonds;
(e) that the price of any such Bonds had declined to such an extent,
or such other market or credit factor exists, so that in the opinion of the
Depositor the retention of such Bonds would be detrimental to the Trust and
to the interest of the Unitholders;
(f) that such Bonds are the subject of an advanced refunding. For
the purposes of this Section 3.07(g), "an advanced refunding" shall mean
when refunding bonds are issued and the proceeds thereof are deposited in
irrevocable trust to retire the Bonds on or before their redemption date;
or
(g) that as of any Record Date any of the Bonds are scheduled to be
redeemed and paid prior to the next succeeding monthly Distribution Date;
provided, however, that as the result of such redemption the Trustee will
receive funds in an amount sufficient to enable the Trustee to include in
the next distribution from the Principal Account at least $1.00 per Unit.
Upon receipt of such direction from the Depositor, upon which the Trustee
shall rely, the Trustee shall proceed to sell or liquidate the specified Bonds
in accordance with such direction; provided, however, that the Trustee shall not
sell or liquidate any Bonds upon receipt of a direction from the Depositor that
it has determined that the conditions in subdivision (g) above exist, unless the
Trustee shall receive on account of such sale or liquidation the full principal
amount of such Bonds, plus the premium, if any, and the interest accrued and to
accrue thereon to the date of the redemption of such Bonds.
The Trustee shall not be liable or responsible in any way for depreciation
or loss incurred by reason of any sale made pursuant to any such direction or by
reason of the failure of the Depositor to give any such direction, and in the
absence of such direction the Trustee shall have no duty to sell or liquidate
any Bonds under this Section 3.07 except to the extent otherwise required by
Section 3.10 of this Indenture.
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Section 3.08. Refunding Bonds. In the event that an offer shall be
made by an obligor of any of the Bonds to issue new obligations in exchange and
substitution for any issue of Bonds pursuant to a plan for the refunding or
refinancing of such Bonds, the Depositor shall instruct the Trustee in writing
to reject such offer and either to hold or sell such Bonds, except that if (1)
the issuer is in default with respect to such Bonds or (2) in the opinion of the
Depositor, given in writing to the Trustee, the issuer will probably default
with respect to such Bonds in the reasonably foreseeable future, the Depositor
shall instruct the Trustee in writing to accept or reject such offer or take any
other action with respect thereto as the Depositor may deem proper. Any
obligation so received in exchange shall be deposited hereunder and shall be
subject to the terms and conditions of this Indenture to the same extent as the
Bonds originally deposited hereunder. Within five days after such deposit,
notice of such exchange and deposit shall be given by the Trustee to each
Unitholder, including an identification of the Bonds eliminated and the bonds
substituted therefor.
Section 3.09. Bond Counsel. The Depositor may employ from time to
time as it may deem necessary a firm of bond attorneys for any legal services
that may be required in connection with the disposition of underlying bonds
pursuant to Section 3.07 or the substitution of any securities for underlying
bonds as the result of any refunding permitted under Section 3.08. The fees and
expenses of such bond counsel shall be paid by the Trustee from the Interest and
Principal Accounts as provided for in Section 3.05(c)(4) hereof.
Section 3.10. Notice and Sale by Trustee. If at any time the
principal of or interest on any of the Bonds shall be in default and not paid or
provision for payment thereof shall not have been duly made within thirty days,
either pursuant to the Insurance or otherwise, the Trustee shall notify the
Depositor thereof. If within thirty days after such notification the Depositor
has not given any instruction to sell or to hold or has not taken any other
action in connection with such Bonds, the Trustee may in its discretion sell
such Bonds forthwith, and the Trustee shall not be liable or responsible in any
way for depreciation or loss incurred by reason of such sale.
Section 3.11. Trustee Not Required to Amortize. Nothing in this
Indenture, or otherwise, shall be construed to require the Trustee to make any
adjustments between the Interest and Principal Accounts by reason of any premium
or discount in respect of any of the Bonds.
Section 3.12. Liability, Indemnification and Succession of Depositor.
(a) The Depositor shall be under no liability to the Unitholders for any action
taken or for refraining from the taking of any action in good faith pursuant to
this Indenture or for errors in judgment, but shall be liable only for its own
wilful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
hereunder. The Depositor may rely in good faith on any paper, order, notice,
list, affidavit, receipt, opinion, endorsement, assignment, draft or any other
document of any kind prima facie properly executed and submitted to it by the
Trustee, bond counsel or any other persons pursuant to this Indenture and in
furtherance of its duties.
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(b) Each Trust shall pay and hold the Depositor harmless from and against
any loss, liability or expense incurred in acting as Depositor of such Trust
other than by reason of wilful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties hereunder. The Depositor shall not be under any
obligation to appear in, prosecute or defend any legal action which in its
opinion may involve it in any expense or liability, provided, however, that the
Depositor may in its discretion undertake any such action which it may deem
necessary or desirable in respect of this Agreement and the rights and duties of
the parties hereto and the interests of the Unitholders hereunder and, in such
event, the legal expenses and costs of any such action and any liability
resulting therefrom shall be expenses, costs and liabilities of the Trust
concerned and shall be paid directly by the Trustee out of the Interest and
Principal Accounts of such Trust.
(c) The covenants, provisions and agreements herein contained shall in
every case be binding upon any successor to the business of any Depositor. In
the event of an assignment by any Depositor to a successor corporation or
partnership as permitted by the next following sentence, such Depositor and, if
such Depositor is a partnership, its partners shall be relieved of all further
liability under this Indenture. Any Depositor may transfer all or substantially
all of its assets to a corporation or partnership which carries on the business
of such Depositor, if at the time of such transfer such successor duly assumes
all the obligations of such Depositor under this Indenture.
Section 3.13. Notice to Depositor. In the event that the Trustee
shall have been notified at any time of any action to be taken or proposed to be
taken by holders of the Bonds (including but not limited to the making of any
demand, direction, request, giving of any notice, consent or waiver or the
voting with respect to any amendment or supplement to any indenture, resolution,
agreement or other instrument under or pursuant to which the Bonds have been
issued), the Trustee shall promptly notify the Depositor and shall thereupon
take such action or refrain from taking any action as the Depositor shall in
writing direct; provided, however, that if the Depositor shall not within five
business days of the giving of such notice to the Depositor direct the Trustee
to take or refrain from taking any action, the Trustee shall take such action as
it, in its sole discretion, shall deem advisable. Neither the Depositor nor the
Trustee shall be liable to any person for any action or failure to take action
with respect to this Section 3.13.
Section 3.14. Limited Replacement of Special Bonds. If any contract
in respect of Contract Bonds other than a contract to purchase a New Bond (as
defined below), including those purchased on a when, as and if issued basis,
shall have failed due to any occurrence, act or event beyond the control of the
Depositor or the Trustee (such failed Contract Bonds being herein called the
"Special Bonds"), the Depositor shall notify the Trustee and the Insurer (such
notice being herein called the "Failed Contract Notice") of its inability to
deliver the failed Special Bond to the Trustee after it is notified in writing
that the Special Bond will not be delivered by the seller thereof to the
Depositor. Prior to, or simultaneously with, giving the Trustee the Failed
Contract Notice, or within a maximum of twenty days after giving such Notice
(such twenty day period being herein called the "Purchase Period"), the
Depositor shall, if possible, purchase or enter into the contract, if any, to
purchase an obligation to be held as a Bond hereunder (herein called the "New
Bond") as part of the Trust in replacement of the failed Special Bond, subject
to the satisfaction of all of the following conditions in the case of each
purchase or contract to purchase:
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(a) The New Bonds (i) shall be 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 Bonds, having
no warrants or subscription privileges attached; (ii) shall be payable in
United States currency; (iii) shall not be when, as and if issued
obligations or restricted securities; (iv) shall be issued after July 18,
1984 if interest thereon is United States source income; (v) in the case of
an Insured Corporate Series Trust, shall be issued or guaranteed by an
issuer subject to or exempt from the reporting requirements under Section
13 or 15(d) of the Securities Exchange Act of 1934 (or similar provisions
of law) or in effect guaranteed, directly or indirectly, by means by of a
lease agreement, agreement to buy securities, services or products, or
other similar commitment of the credit of such an issuer to the payment of
the substitute Securities; (vi) in the case of an Insured Corporate Series
Trust, shall not cause the Units of the Trust to cease to be rated AAA by
Standard & Poor's; (vii) in the case of an Insured Corporate Series Trust,
must be insured by the Insurer or be eligible for (and when acquired be
insured under) the insurance obtained by the Trust; and (viii) in the case
of an Insured Corporate Series Trust, must be eligible for (and when
acquired be covered by) the Permanent Insurance if such Permanent Insurance
is available to the Trust.
(b) The purchase price of the New Bonds (exclusive of accrued
interest) shall not exceed the principal attributable to the Special Bonds.
(c) The Depositor shall furnish a notice to the Trustee and any
Insurer (which may be part of the Failed Contract Notice) in respect of the
New Bond purchased or to be purchased that shall (i) identify the New
Bonds, (ii) state that the contract to purchase, if any, entered into by
the Depositor is satisfactory in form and substance, and (iii) state that
the foregoing conditions of clauses (a) and (b) have been satisfied with
respect to the New Bonds.
Upon satisfaction of the foregoing conditions with respect to any New Bond,
the Depositor shall pay the purchase price for the New Bond from its own
resources or, if the Trustee has credited any moneys and/or letters of credit
attributable to the failed Special Bond to the Principal Account, the Trustee
shall pay the purchase price of the New Bond upon directions from the Depositor
from the moneys and/or letters of credit so credited to the Principal Account.
If the Depositor has paid the purchase price, and, in addition, the Trustee has
credited moneys of the Depositor to the Principal Account, the Trustee shall
forthwith return to the Depositor the portion of such moneys that is not
properly distributable to Unitholders pursuant to Section 3.05.
Whenever a New Bond is acquired by the Depositor pursuant to the provisions
of this Section 3.14, the Trustee shall, within five days thereafter, mail to
all Unitholders notices of such acquisition, including an identification of the
failed Special Bonds and the New Bonds acquired. The purchase price of the New
Bonds shall be paid out of the principal attributable to the failed Special
Bonds. The Trustee shall not be liable or responsible in any way for
depreciation or loss incurred by reason of any purchase made pursuant to any
such directions and in the absence of such directions the Trustee shall have no
duty to purchase any New Bonds under this Indenture. The Depositor shall not be
liable for any failure to instruct the Trustee to purchase any New Bonds or for
errors of judgment in respect of this Section 3.14; provided, however, that this
provision shall not protect the Depositor against any liability to which it
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties hereunder.
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Section 3.15. Compensation of Depositor for Supervisory Services. As
compensation for providing supervisory portfolio services under this Indenture,
the Depositor shall receive against a statement or statements therefor
submitted to the Trustee monthly or annually that aggregate annual fee set forth
in the Prospectus for the related Trust, but in no event shall such compensation
when combined with all compensation received from other series of the Fund for
providing such supervisory services in any calendar year exceed the aggregate
cost to the Depositor for providing such services. Such compensation may, from
time to time, be adjusted provided that the total adjustment upward does not, at
the time of such adjustment, exceed the percentage of the total increase, after
the date hereof, in consumer prices for services as measured by the United
States Department of Labor Consumer Price Index entitled "All Services Less Rent
of Shelter" or similar index, if such index should no longer be published. The
consent or concurrence of any Unitholder hereunder shall not be required for any
such adjustment or increase. Such compensation shall be charged by the Trustee,
upon receipt of invoice therefor from the Depositor, against the Interest and
Principal Accounts on or before the Distribution Date on which such period
terminates. If the cash balance in the Interest and Principal Accounts shall be
insufficient to provide for amounts payable pursuant to this Section 3.15, the
Trustee shall have the power to sell (i) Bonds from the current list of Bonds
designated to be sold pursuant to Section 5.02 hereof, or (ii) if no such Bonds
have been so designated, such Bonds as the Trustee may see fit to sell in its
own discretion, and to apply the proceeds of any such sale in payment of the
amounts payable pursuant to this Section 3.15. Any moneys payable to the
Depositor pursuant to this Section 3.15 shall be secured by a prior lien on the
Trust except that no such lien shall be prior to any lien in favor of the
Trustee under the provisions of Section 6.04.
ARTICLE IV
EVALUATION OF BONDS; EVALUATOR
Section 4.01. Evaluation of Bonds. The Evaluator shall determine
separately and promptly furnish to the Trustee and the Depositor upon request
the value of each issue of Bonds (treating separate maturities of Bonds as
separate issues) as of the Evaluation Time on days of trading on the New York
Stock Exchange on the bid side of the market on the days on which an evaluation
of the Trust is required by Section 5.01 and, in addition, as of the Evaluation
Time on days of trading on the New York Stock Exchange on the bid side of the
market if a secondary market for the Units is maintained, such additional
evaluation being made on any day desired by the Trustee or deemed necessary by
the Depositor. Such evaluations shall be made (i) on the basis of current bid
and offering prices for the Bonds, (ii) if bid and offering prices are not
available for the Bonds, on the basis of current bid and offering prices for
comparable bonds, (iii) by causing the value of the Bonds to be determined by
others engaged in the practice of evaluation, quoting or appraising comparable
bonds, or (iv) by any combination of the above. Any evaluation of Bonds which
includes amounts attributable to Permanent Insurance, as defined in Section 5.02
hereof, shall, to the extent necessary, include a deduction for amounts which
would be payable as premiums and related expenses to obtain Permanent Insurance
if the Trustee had exercised the right to obtain Permanent Insurance. For each
evaluation, the Evaluator shall also determine and furnish to the Trustee and
the Depositor the aggregate of (a) the value of all Bonds on the basis of such
evaluation and (b) on the basis of the information furnished to the Evaluator by
the Trustee pursuant to Section 3.03, the amount of cash then held in the
Principal Account which was received by the Trustee after the Record Date
preceding such determination less any amounts held in the Principal Account for
distribution to Unitholders on a subsequent Distribution Date when a Record Date
occurs four business days or less after such determination. For the purposes of
the foregoing, the Evaluator may obtain current bid prices for the Bonds from
investment dealers or brokers (including the Depositor) that customarily deal in
bonds comparable to those held by the Trust.
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Section 4.02. Information for Unitholders. For the purpose of
permitting Unitholders to satisfy any reporting requirements of applicable
federal or state tax law, the Evaluator shall make available to the Trustee and
the Trustee shall transmit to any Unitholder upon request any determinations
made by it pursuant to Section 4.01.
Section 4.03. Compensation of Evaluator. As compensation for its
services hereunder, the Evaluator shall receive against a statement therefor
submitted to the Trustee, that annual fee set forth in the Prospectus for the
related Trust, payable as set forth in such Prospectus. The Evaluator's
compensation for any year shall be computed on the basis of the principal amount
of Bonds included in the Trust outstanding on the first day of such year and
shall be apportioned among the respective plans of distribution in effect as of
January 1 next preceding such computation. Such compensation may, from time to
time, be adjusted provided that the total adjustment upward does not, at the
time of such adjustment, exceed the percentage of the total increase, after the
date hereof, in consumer prices for services as measured by the United States
Department of Labor Consumer Price Index entitled "All Services Less Rent" or
similar index, if such index shall no longer be published. The consent or
concurrence of any Unitholder hereunder shall not be required for any such
adjustment or increase. Such compensation shall be charged by the Trustee
against the Interest and Principal Accounts on or before the Distribution Date
on which such period terminates. If the cash balances in the Interest and
Principal Accounts shall be insufficient to provide for amounts payable pursuant
to this Section 4.03, the Trustee shall have the power to sell (i) Bonds
designated to be sold pursuant to Section 5.02 hereof, or (ii) if no such Bonds
have been so designated, such Bonds as the Trustee may see fit to sell in its
own discretion, and to apply the proceeds of any such sale in payment of the
amounts payable pursuant to this Section 4.03. Any moneys payable to the
Evaluator pursuant to this Section 4.03 shall be secured by a prior lien on the
Trust except that no such lien shall be prior to any lien in favor of the
Trustee under the provisions of Section 6.04.
Section 4.04. Liability of Evaluator. The Trustee, the Depositor and
the Unitholders may rely on any evaluation furnished by the Evaluator and shall
have no responsibility for the accuracy thereof. The determinations made by the
Evaluator hereunder shall be made in good faith upon the basis of the best
information available to it. The Evaluator shall be under no liability to the
Trustee, the Depositor or the Unitholders for errors in judgment; provided,
however, that this provision shall not protect the Evaluator against any
liability to which it would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties hereunder.
Section 4.05. Resignation and Removal of Evaluator; Successor. (a)
The Evaluator may resign and be discharged hereunder, by executing an instrument
in writing resigning as Evaluator and filing the same with the Depositor and the
Trustee, not less than 60 days before the date specified in such instrument
when, subject to Section 4.05(e), such resignation is to take effect. Upon
receiving such notice of resignation, the Depositor and the Trustee shall use
their (its, in case the Depositor is the Evaluator) best efforts to appoint a
successor evaluator having qualifications and at a rate of compensation
satisfactory to the Depositor and the Trustee. Such appointment shall be made
by written instrument executed by the Depositor and Trustee, in duplicate, one
copy of which shall be delivered to the resigning Evaluator and one copy to the
successor evaluator. The Depositor or the Trustee may remove the Evaluator at
any time upon 30 days' written notice and appoint a successor evaluator having
qualifications and at a rate of compensation satisfactory to the Depositor and
the Trustee. Such appointment shall be made by written instrument executed by
the Depositor and the Trustee, in duplicate, one copy of which shall be
delivered to the Evaluator so removed and one copy to the successor evaluator.
Notice of such resignation or removal and appointment of a successor evaluator
shall be mailed by the Trustee to each Unitholder then of record.
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(b) Any successor evaluator appointed hereunder shall execute,
acknowledge and deliver to the Depositor and the Trustee an instrument accepting
such appointment hereunder, and such successor evaluator without any further
act, deed or conveyance shall become vested with all the rights, powers, duties
and obligations of its predecessor hereunder with like effect as if originally
named Evaluator herein and shall be bound by all the terms and conditions of
this Indenture.
(c) In case at any time the Evaluator shall resign and no successor
evaluator shall have been appointed and have accepted appointment within 30 days
after notice of resignation has been received by the Depositor and the Trustee,
the Evaluator may forthwith apply to a court of competent jurisdiction for the
appointment of a successor evaluator. Such court may thereupon after such
notice, if any, as it may deem proper and prescribe, appoint a successor
evaluator.
(d) Any corporation into which the Evaluator hereunder may be merged or
with which it may be consolidated, or any corporation resulting from any merger
or consolidation to which the Evaluator hereunder shall be a party, shall be the
successor evaluator under this Indenture without the execution or filing of any
paper, instrument or further act to be done on the part of the parties hereto,
anything herein, or in any agreement relating to such merger or consolidation,
by which the Evaluator may seek to retain certain powers, rights and privileges
theretofore obtaining for any period of time following such merger or
consolidation, to the contrary notwithstanding.
(e) Any resignation or removal of the Evaluator and appointment of a
successor evaluator pursuant to this Section shall become effective upon
acceptance of appointment by the successor evaluator as provided in subsection
(b) hereof.
ARTICLE V
EVALUATION, REDEMPTION, PURCHASE, ISSUANCE, TRANSFER, INTERCHANGE
OR REPLACEMENT OF CERTIFICATES
Section 5.01. Evaluation. The Trustee shall make an evaluation of
each Trust as of 3:00 P.M. Eastern time on days of trading on the New York Stock
Exchange (i) on the day on which any Unit is tendered for redemption and (ii) on
any other day desired by the Trustee or requested by the Depositor. Such
evaluations shall take into account and itemize separately (1) the cash on hand
in the Trust (other than cash declared held in trust to cover contracts to
purchase bonds) or moneys in the process of being collected from matured
interest coupons or bonds matured or called for redemption prior to maturity,
(2) the value of each issue of the Bonds in the Trust as last determined by the
Evaluator pursuant to Section 4.01 and (3) interest accrued thereon not subject
to collection and distribution. For each such evaluation there shall be
deducted from the sum of the above (1) amounts representing any applicable taxes
or governmental charges payable out of the Trust and for which no deductions
shall have previously been made for the purpose of addition to the Reserve
Account, (2) amounts representing accrued expenses of the Trust including but
not limited to unpaid fees and expenses of the Trustee, the Evaluator, the
Depositor and bond counsel, in each case as reported by the Trustee to the
Depositor on or prior to the date of evaluation, and (3) cash held for
distribution to Unitholders of record as of a date prior to the evaluation then
being made. The value of the pro rata share of each Unit determined on the
basis of any such evaluation shall be referred to herein as the "Unit Value."
The Trustee shall make an evaluation of the Bonds deposited in the Fund as of
the time said Bonds are deposited under this Indenture. Such evaluation shall
be made on the same basis as set forth in Section 4.01, except that it shall be
based upon the offering prices of the Bonds. The Trustee, in lieu of making the
evaluation required hereby, may use an evaluation prepared by the Evaluator
and/or by any other recognized evaluator and in so doing shall not be liable or
responsible, under any circumstances whatever, for the accuracy or correctness
thereof, or for any error or omission therein. The Trustee's determination of
the offering price of the Bonds on the date of deposit determined as herein
provided shall be included in Schedule A attached to the Trust Agreement.
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Section 5.02. Redemptions by Trustee; Purchases by Depositor. Any
Unit tendered for redemption by a Unitholder or his duly authorized attorney to
the Trustee at its corporate trust office shall be redeemed by the Trustee on
the third calendar day following the day on which tender for redemption is made
(being herein called the "Redemption Date"). Subject to payment by such
Unitholder of any tax or other governmental charges which may be imposed
thereon, such redemption is to be made by payment on the Redemption Date of cash
equivalent to the Unit Value, determined by the Trustee as of 3:00 P.M. Eastern
time on the date of tender; provided that accrued interest is paid to the
Redemption Date, multiplied by the number of Units represented by such
Certificate (herein called the "Redemption Price"). Units received for
redemption by the Trustee on any day after 3:00 P.M. Eastern time on days of
trading on the New York Stock Exchange will be held by the Trustee until the
next day on which the New York Stock Exchange is open for trading and will be
deemed to have been tendered on such day for redemption at the Redemption Price
computed on that day. Units will be deemed to be "tendered" to the Trustee when
the Trustee is in physical receipt of the Certificate or Certificates
representing such Units in the form and with such documentation as is required
to accomplish transfers of Units pursuant to Section 5.03 hereof.
The Trustee may in its discretion, and shall when so directed by the
Depositor, suspend the right of redemption or postpone the date of payment of
the Redemption Price for more than seven calendar days following the day on
which tender for redemption is made (1) for any period during which the New York
Stock Exchange is closed other than customary weekend and holiday closings or
during which 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
Trust of the Bonds is not reasonably practicable or it is not reasonably
practicable fairly to determine in accordance herewith the value of the Bonds;
or (3) for such other period as the Securities and Exchange Commission may by
order permit, and shall not be liable to any person or in any way for any loss
or damage which may result from any such suspension or postponement.
Not later than the close of business on the day of tender of a Unit or
Units for redemption by a Unitholder other than the Depositor, the Trustee shall
notify the Depositor of such tender. The Depositor shall have the right to
purchase such Unit or Units by notifying the Trustee of its election to make
such purchase as soon as practicable thereafter but in no event subsequent to
the close of business on the second business day after the day on which such
Unit or Units were tendered for redemption. Such purchase shall be made by
payment for such Unit or Units by the Depositor to the Unitholder not later than
the close of business on the Redemption Date of an amount not less than the
Redemption Price which would otherwise be payable by the Trustee to such
Unitholder.
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Any Unit or Units so purchased by the Depositor may at the option of the
Depositor be tendered to the Trustee for redemption at the corporate trust
office of the Trustee in the manner provided in the first paragraph of this
Section 5.02.
If the Depositor does not elect to purchase any Unit or Units tendered to
the Trustee for redemption, or if a Unit or Units are being tendered by the
Depositor for redemption, that portion of the Redemption Price which represents
interest shall be withdrawn from the Interest Account to the extent available.
The balance paid on any redemption, including accrued interest, if any, shall be
withdrawn from the Principal Account to the extent that funds are available for
such purpose. If such available balance shall be insufficient, the Trustee
shall sell such of the Bonds, currently designated for such purposes by the
Evaluator, as the Trustee in its sole discretion shall deem necessary. In the
event that funds are withdrawn from the Principal Account for payment of accrued
interest, the Principal Account shall be reimbursed for such funds so withdrawn
when sufficient funds are next available in the Interest Account.
The Evaluator shall maintain with the Trustee a current list of Bonds held
in the Trust designated to be sold for the purpose of redemption of Certificates
tendered for redemption and not purchased by the Depositor, and for payment of
expenses hereunder, provided that if the Evaluator shall for any reason fail to
maintain such a list, the Trustee, in its sole discretion, may designate a
current list of Bonds for such purposes. The net proceeds of any sales of Bonds
from such list representing principal shall be credited to the Principal Account
of the Trust and the proceeds of such sales representing accrued interest shall
be credited to the Interest Account of the Trust. The Evaluator shall also
designate on such list of Bonds designated to be sold the Bonds upon the sale of
which the Trustee shall obtain permanent insurance (the "Permanent Insurance")
from the Insurer (if such Permanent Insurance is available to the Trust),
provided that if the Evaluator shall for any reason fail to make such
designation, the Trustee, in its sole discretion, shall make such designation if
it deems such designation to be in the best interests of Unitholders. The
Trustee is hereby authorized to pay and shall pay out of the proceeds of the
sale of the Bonds which are covered by Permanent Insurance any premium for such
Permanent Insurance and expenses related thereto and the net proceeds after such
deduction shall be credited to the Principal Account and the net proceeds
representing accrued interest shall be credited to the Interest Account.
The Trustee shall not be liable or responsible in any way for depreciation
or loss incurred by reason of any sale of Bonds made pursuant to this Section
5.02. Certificates evidencing Units redeemed pursuant to this Section 5.02
shall be cancelled by the Trustee and the Unit or Units evidenced by such
Certificates shall be terminated by such redemptions.
Section 5.03. Issuance, Transfer or Interchange of Certificates. (a)
Certificates representing Units held by a Unitholder will not be issued except
upon written request by a Unitholder, or his or her registered broker/dealer, to
the Trustee at its principal trust office. Certificates that have been issued
may be returned to the Trustee at any time and cancelled, without affecting the
Unitholder's interest in the Trust, when accompanied by proper written
instructions from the Unitholder.
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(b) A Unitholder may transfer any of his Units by making a written
request to the Trustee at its principal trust office and, in the case of Units
evidenced by a Certificate, by presenting and surrendering such Certificate at
such office properly endorsed or accompanied by a written instrument or
instruments of transfer in form satisfactory to the Trustee. Unitholders must
sign such written request, and such Certificate of transfer instrument, exactly
as their name appears on the records of the Trustee and on any Certificate
representing the Units to be transferred. Such signature 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. Such transfer shall thereupon be made
on the records of the Trustee and, if appropriate, a new registered Certificate
or Certificates for the same number of Units of the same Trust shall be issued
in exchange and substitution therefor. Certificates issued pursuant to this
Agreement are interchangeable for one or more other Certificates of the same
Trust in an equal aggregate number of Units and all Certificates issued shall be
issued in denominations of one Unit or any whole multiple thereof as may be
requested by the Unitholder. The Trustee may deem and treat the person in whose
name any Unit or Certificate shall be registered upon the books of the Trustee
as the owner of such Unit or Certificate for all purposes hereunder and the
Trustee shall not be affected by any notice to the contrary. The transfer books
maintained by the Trustee for each Trust for the purpose of this Section 5.03
shall be closed for an individual Trust as such Trust is terminated pursuant to
Article VIII hereof.
A sum sufficient to pay any tax or other charge that may be imposed in
connection with any such transfer or interchange shall be paid by the Unitholder
to the Trustee. The Trustee may require a Unitholder to pay a reasonable fee
which the Trustee in its sole discretion shall determine for each new
Certificate issued on any such transfer or interchange.
All Certificates cancelled pursuant to this Indenture shall be disposed of
by the Trustee without liability on its part.
Section 5.04. Certificates Mutilated, Destroyed, Stolen or Lost. In
case any Certificate shall become mutilated or be destroyed, stolen or lost, the
Trustee shall execute and deliver a new Certificate in exchange and substitution
therefor upon the holder's furnishing the Trustee with proper identification and
satisfactory indemnity, complying with such other reasonable regulations and
conditions as the Trustee may prescribe and paying such expenses as the Trustee
may incur. Any mutilated Certificate shall be duly surrendered and cancelled
before any new Certificate shall be issued in exchange and substitution
therefor. Upon the issuance of any new Certificate a sum sufficient to pay any
tax or other governmental charge and the fees and expenses of the Trustee may be
imposed. Any such new Certificate issued pursuant to this Section shall
constitute complete and indefeasible evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time. In the event the Trust has terminated or is in the
process of termination, the Trustee may, instead of issuing a new Certificate in
exchange and substitution for any Certificate which shall have become mutilated
or shall have been destroyed, stolen or lost, make the distributions in respect
of such mutilated, destroyed, stolen or lost Certificate (without surrender
thereof except in the case of a mutilated Certificate) as provided in Section
8.02 hereof if the Trustee is furnished with such security or indemnity as it
may require to save it harmless, and in the case of destruction, loss or theft
of a Certificate, evidence to the satisfaction of the Trustee of the
destruction, loss or theft of such Certificate and of the ownership thereof.
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ARTICLE VI
TRUSTEE
Section 6.01. General Definition of Trustee's Liabilities, Rights and
Duties. The Trustee shall in its discretion undertake such action as it may
deem necessary at any and all times to protect the Trust and the rights and
interests of the Unitholders pursuant to the terms of this Indenture, provided,
however, that the expenses and costs of such actions, undertakings or
proceedings shall be reimbursable to the Trustee from the Interest and Principal
Accounts, and the payment of such costs and expenses shall be secured by a prior
lien on the Trust.
In addition to and notwithstanding the other duties, rights, privileges and
liabilities of the Trustee as otherwise set forth the liabilities of the Trustee
are further defined as follows:
(a) all moneys deposited with or received by the Trustee hereunder
shall be held by it without interest in trust as part of the Trust or the
Reserve Account until required to be disbursed in accordance with the
provisions of this Indenture and such moneys will be segregated by separate
recordation on the trust ledger of the Trustee so long as such practice
preserves a valid preference under applicable law, or if such preference is
not so preserved the Trustee shall handle such moneys in such other manner
as shall constitute the segregation and holding thereof in trust within the
meaning of the Investment Company Act of 1940;
(b) the Trustee shall be under no liability for any action taken in
good faith on any appraisal, paper, order, list, demand, request, consent,
affidavit, notice, opinion, direction, evaluation, endorsement, assignment,
resolution, draft or other document whether or not of the same kind prima
facie properly executed, or for the disposition of moneys, Bonds or
certificates pursuant to this Indenture, or in respect of any evaluation
which it is required to make or is required or permitted to have made by
others under this Indenture or otherwise, except by reason of its own
negligence, lack of good faith or wilful misconduct, provided that the
Trustee shall not in any event be liable or responsible for any evaluation
made by the Evaluator. The Trustee may construe any of the provisions of
this Indenture, insofar as the same may appear to be ambiguous or
inconsistent with any other provisions hereof, and any construction of any
such provisions hereof by the Trustee in good faith shall be binding upon
the parties hereto;
(c) the Trustee shall not be responsible for or in respect of the
recitals herein, the validity or sufficiency of this Indenture or for the
due execution hereof by the Depositor, or for the form, character,
genuineness, sufficiency, value or validity of any Bonds (except that the
Trustee shall be responsible for the exercise of due care in determining
the genuineness of Bonds delivered to it pursuant to contracts for the
purchase of such Bonds) or for or in respect of the validity or sufficiency
of the Certificates (except for the due execution thereof by the Trustee)
or of the due execution thereof by the Depositor, or for the payment by the
Insurer of amounts due under, or the performance by the Insurer of its
obligations in accordance with, the Insurance, or the Permanent Insurance
and the Trustee shall in no event assume or incur any liability, duty, or
obligation to any Unitholder or the Depositor other than as expressly
provided for herein. The Trustee shall not be responsible for or in
respect of the validity of any signature by or on behalf of the Depositor;
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(d) the Trustee shall not be under any obligation to appear in,
prosecute or defend any action, which in its opinion may involve it in
expense or liability, unless as often as required by the Trustee, it shall
be furnished with reasonable security and indemnity against such expense or
liability, and any pecuniary cost of the Trustee from such actions shall be
deductible from and a charge against the Interest and Principal Accounts;
(e) the Trustee may employ agents, attorneys, accountants and
auditors and shall not be answerable for the default or misconduct of any
such agents, attorneys, accountants or auditors if such agents, attorneys,
accountants or auditors shall have been selected with reasonable care. The
Trustee shall be fully protected in respect of any action under this
Indenture taken, or suffered, in good faith by the Trustee, in accordance
with the opinion of its counsel. The fees and expenses charged by such
agents, attorneys, accountants or auditors shall constitute an expense of
the Trustee reimbursable from the Interest and Principal Accounts as set
forth in Section 6.04 hereof;
(f) if at any time the Depositor shall fail to undertake or perform
any of the duties which by the terms of this Indenture are required by it
to be undertaken or performed, or such Depositor shall become incapable of
acting or shall be adjudged a bankrupt or insolvent, or a receiver of such
Depositor or of its property shall be appointed, or any public officer
shall take charge or control of such Depositor or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation,
then in any such case, the Trustee may: (1) appoint a successor depositor
who shall act hereunder in all respects in place of such Depositor which
successor shall be satisfactory to the Trustee, and which may be
compensated at rates deemed by the Trustee to be reasonable under the
circumstances, by deduction from the Interest Account or, to the extent
funds are not available in such Account, from the Principal Account but no
such deduction shall be made exceeding such reasonable amount as the
Securities and Exchange Commission may prescribe in accordance with Section
26(a)(2)(C) of the Investment Company Act of 1940, or (2) terminate this
Indenture and the trust created hereby and liquidate the Trust in the
manner provided in Section 8.02;
(g) if (i) the value of the Trust as shown by any evaluation by the
Trustee pursuant to Section 5.0l hereof shall be less than 20% of the
aggregate principal amount of Bonds initially deposited in the Trust or
(ii) by reason of the aggregate redemption of Units by the Depositor and/or
one or more Underwriters not theretofore sold constituting more than 60% of
the number of Units initially authorized and the net worth of the Trust is
reduced to less than 40% of the aggregate principal amount of Bonds
initially deposited in the Trust, the Trustee may in its discretion, and
shall when so directed by the Depositor, terminate this Indenture and the
trust created hereby and liquidate the Trust, all in the manner provided in
Section 8.02;
(h) in no event shall the Trustee be liable for any taxes or other
governmental charges imposed upon or in respect of the Bonds or upon the
interest thereon or upon it as Trustee hereunder or upon or in respect of
the Trust which it may be required to pay under any present or future law
of the United States of America or of any other taxing authority having
jurisdiction in the premises. For all such taxes and charges and for any
expenses, including counsel fees, which the Trustee may sustain or incur
with respect to such taxes or charges, the Trustee shall be reimbursed and
indemnified out of the Interest and Principal Accounts of the Trust, and
the payment of such amounts so paid by the Trustee shall be secured by a
prior lien on the Trust;
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(i) except as provided in Sections 3.01 and 3.05, no payment to a
Depositor or to any principal underwriter (as defined in the Investment
Company Act of 1940) for the Trust or to any affiliated person (as so
defined) or agent of a Depositor or such underwriter shall be allowed the
Trustee as an expense except for payment of such reasonable amounts as the
Securities and Exchange Commission may prescribe as compensation for
performing bookkeeping and other administrative services of a character
normally performed by the Trustee; and
(j) the Trustee except by reason of its own negligence or wilful
misconduct shall not be liable for any action taken or suffered to be taken
by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture.
Section 6.02. Books, Records and Reports. The Trustee shall keep
proper books of record and account of all the transactions of each Trust under
this Indenture at its corporate trust office including a record of the name and
address of, and the Certificates issued by each Trust and held by, every
Unitholder, and such books and records of each Trust shall be open to inspection
by any Unitholder of such Trust at all reasonable times during the usual
business hours. The Trustee shall cause, at Trust expense, audited statements
as to the assets and income of each Trust to be prepared on an annual basis by
independent public accountants selected by the Depositor, provided, however, if
the cost to a Trust for preparation of such statements shall exceed an amount
equivalent to $.50 per Unit on an annual basis, then the Trustee shall not be
required to have such statements prepared. Any such report shall be provided to
a Unitholder upon request.
To the extent permitted under the Investment Company Act of 1940 as
evidenced by an opinion of independent counsel to the Depositor, the Trustee
shall pay, or reimburse to the Depositor or others, the costs of the preparation
of documents and information with respect to a Trust required by law or
regulation in connection with the maintenance of a secondary market in units of
such Trust. Such costs may include but are not limited to accounting and legal
fees, blue sky registration and filing fees, printing expenses and other
reasonable expenses related to documents required under Federal and state
securities law. Such costs shall be a Trust expense and the Trustee shall not
be obligated to advance any of its own funds to make such payments.
The Trustee shall make such annual or other reports as may from time to
time be required under any applicable state or federal statute or rule or
regulation thereunder.
Section 6.03. Indenture and List of Bonds on File. The Trustee shall
keep a certified copy or duplicate original of this Indenture on file at its
corporate trust office available for inspection at all reasonable times during
the usual business hours by any Unitholder, together with a current list of the
Bonds.
Section 6.04. Compensation. For services performed under this
Indenture the Trustee shall be paid that amount per annum set forth in the
Prospectus for the related Trust computed on the basis set forth in such
Prospectus. The Trustee may from time to time adjust its compensation as set
forth above provided that total adjustment upward does not, at the time of such
adjustment, exceed the percentage of the total increase, after the date hereof,
in consumer prices for services as measured by the United States Department of
Labor Consumer Price Index entitled "All Services Less Rent of Shelter" or
similar index, if such index should no longer be published. The consent or
concurrence of any Unitholder hereunder shall not be required for any such
adjustment or increase. Such compensation shall be charged by the Trustee
against the Interest and Principal Accounts on or before the Distribution Date
on which such period terminates; provided, however, that such compensation shall
be deemed to provide only for the usual, normal and proper functions undertaken
as Trustee pursuant to this Indenture. The Trustee shall charge the Interest
and Principal Accounts for any and all expenses and disbursements incurred
hereunder, including insurance premiums, legal and auditing expenses, and for
any extraordinary services performed by the Trustee hereunder.
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The Trustee shall be indemnified and held harmless against any loss or
liability accruing to it without negligence, bad faith or wilful misconduct on
its part, arising out of or in connection with the acceptance or administration
of the trust, including the costs and expenses (including counsel fees) of
defending itself against any claim of liability in the premises. If the cash
balances in the Interest and Principal Accounts shall be insufficient to provide
for amounts payable pursuant to this Section 6.04, the Trustee shall have the
power to sell (i) Bonds designated to be sold pursuant to Section 5.02 hereof,
or (ii) if no such Bonds have been so designated, such Bonds as the Trustee may
see fit to sell in its own discretion, and to apply the proceeds of any such
sale in payment of the amounts payable pursuant to this Section 6.04.
The Trustee shall not be liable or responsible in any way for depreciation
or loss incurred by reason of any sale of Bonds made pursuant to this Section
6.04. Any moneys payable to the Trustee pursuant to this Section shall be
secured by a prior lien on the Trust.
Section 6.05. Removal and Resignation of Trustee; Successor. The
following provisions shall provide for the removal and resignation of the
Trustee and the appointment of any successor trustee:
(a) the Trustee or any trustee or trustees hereafter appointed may
resign and be discharged of the Trust created by this Indenture, by
executing an instrument in writing resigning as Trustee of the Trust and
filing same with the Depositor and mailing a copy of a notice of
resignation to all Unitholders then of record, not less than sixty days
before the date specified in such instrument when, subject to Section
6.05(e), such resignation is to take effect. Upon receiving such notice of
resignation, the Depositor shall promptly appoint a successor trustee as
hereinafter provided, by written instrument, in duplicate, one copy of
which shall be delivered to the resigning Trustee and one copy to the
successor trustee. The Depositor may at any time remove the Trustee, with
or without cause, and appoint a successor trustee by written instrument, in
duplicate, one copy of which shall be delivered to the Trustee so removed
and one copy to the successor trustee. Notice of such resignation or
removal of a trustee and appointment of a successor trustee shall be mailed
by the successor trustee, promptly after its acceptance of such
appointment, to each Unitholder then of record;
(b) any successor trustee appointed hereunder shall execute,
acknowledge and deliver to the Depositor and to the retiring Trustee an
instrument accepting such appointment hereunder, and such successor trustee
without any further act, deed or conveyance shall become vested with all
the rights, powers, duties and obligations of its predecessor hereunder
with like effect as if originally named Trustee herein and shall be bound
by all the terms and conditions of this Indenture. Upon the request of
such successor trustee, the Depositor and the retiring Trustee shall, upon
payment of any amounts due the retiring Trustee, or provision therefor to
the satisfaction of such retiring Trustee, execute and deliver an
instrument acknowledged by it transferring to such successor trustee all
the rights and powers of the retiring Trustee; and the retiring Trustee
shall transfer, deliver and pay over to the successor trustee all Bonds and
moneys at the time held by it hereunder, together with all necessary
instruments of transfer and assignment or other documents properly executed
necessary to effect such transfer and such of the records or copies thereof
maintained by the retiring Trustee in the administration hereof as may be
requested by the successor trustee, and shall thereupon be discharged from
all duties and responsibilities under this Indenture;
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(c) in case at any time the Trustee shall resign and no successor
trustee shall have been appointed and have accepted appointment within
thirty days after notice of resignation has been received by the Depositor,
the retiring Trustee may forthwith apply to a court of competent
jurisdiction for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee;
(d) any entity into which any trustee hereunder may be merged or
with which it may be consolidated, or any entity resulting from any merger
or consolidation to which any trustee hereunder shall be a party, shall be
the successor trustee under this Indenture without the execution or filing
of any paper, instrument or further act to be done on the part of the
parties hereto, anything herein, or in any agreement relating to such
merger or consolidation, by which any such trustee may seek to retain
certain powers, rights and privileges theretofore obtaining for any period
of time following such merger or consolidation, to the contrary
notwithstanding; and
(e) any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to this Section shall become effective upon
acceptance of appointment by the successor trustee as provided in
subsection (b) hereof.
Section 6.06. Qualifications of Trustee. The Trustee shall be a
corporation organized and doing business under the laws of the United States or
any state thereof, which is authorized under such laws to exercise corporate
trust powers and having at all times an aggregate capital, surplus, and
undivided profits of not less than $5,000,000.
ARTICLE VII
RIGHTS OF UNITHOLDERS
Section 7.01. Beneficiaries of Trust. By the purchase and acceptance
or other lawful delivery and acceptance of any Unit, whether certificated or
not, the Unitholder shall be deemed to be a beneficiary of the Trust created by
this Indenture and vested with all right, title and interest in the Trust to the
extent of such Unit or Units, subject to the terms and conditions of this
Indenture.
Section 7.02. Rights, Terms and Conditions. In addition to the other
rights and powers set forth in the other provisions and conditions of this
Indenture the Unitholders shall have the following rights and powers and shall
be subject to the following terms and conditions:
(a) a Unitholder may at any time tender his Units to the Trustee for
redemption in accordance with Section 5.02;
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(b) the death or incapacity of any Unitholder shall not operate to
terminate this Indenture or the Trust, nor entitle his legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court of competent jurisdiction for a partition or
winding up of the Trust, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them. Each Unitholder
expressly waives any right he may have under any rule of law, or the
provisions of any statute, or otherwise, to require the Trustee at any time
to account, in any manner other than as expressly provided in this
Indenture, in respect of the Bonds or moneys from time to time received,
held and applied by the Trustee hereunder; and
(c) except as expressly provided herein, no Unitholder shall have
any right to vote or in any manner otherwise control the operation and
management of the Trust, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of any
Certificates issued, be construed so as to constitute the Unitholders from
time to time as partners or members of an association; nor shall any
Unitholder ever be under any liability to any third persons by reason of
any action taken by the parties to this Indenture, or any other cause
whatsoever.
ARTICLE VIII
ADDITIONAL COVENANTS; MISCELLANEOUS PROVISIONS
Section 8.01. Amendments. (a) This Indenture may be amended from
time to time by the parties hereto or their respective successors, without the
consent of any of the Unitholders, (i) to cure any ambiguity or to correct or
supplement any provision contained hereon which may be defective or inconsistent
with any other provision contained herein; or (ii) to make such other provision
in regard to matters or questions arising hereunder as shall not adversely
affect the interests of the Unitholders; provided, however, that the parties
hereto may not amend this Indenture so as to (1) increase the number of Units
issuable hereunder above the maximum number set forth in Section 2.03 of this
Indenture except as provided in Section 5.04 hereof or such lesser amount as may
be outstanding at any time during the term of this Indenture or (2) permit,
subject to Sections 3.08 and 3.14 hereof, the deposit or acquisition hereunder
of interest-bearing obligations or other securities either in addition to or in
substitution for any of the Bonds.
(b) Except for the amendments, changes or modifications as provided in
Section 8.01(a) hereof, neither the parties hereto nor their respective
successors shall consent to any other amendment, change or modification of this
Indenture without the giving of notice and the obtaining of the approval or
consent of Unitholders representing at least 66-2/3% of the Units then
outstanding of the affected Trust. Nothing contained in this Section 8.01(b)
shall permit, or be construed as permitting, a reduction of the aggregate
percentage of Units the holders of which are required to consent to any
amendment, change or modification of this Indenture without the consent of the
Unitholders of all of the Units then outstanding of the affected Trust and in no
event may any amendment be made which would (1) alter the rights to the
Unitholders as against each other, (2) provide the Trustee with the power to
engage in business or investment activities other than as specifically provided
in this Indenture or (3) adversely affect the characterization of the Trust as a
grantor trust for federal income tax purposes.
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(c) Promptly after the execution of any such amendment the Trustee shall
furnish written notification to all then outstanding Unitholders of the
substance of such amendment.
Section 8.02. Termination. This Indenture and the Trust created
hereby shall terminate upon the maturity, redemption, sale or other disposition
as the case may be of the last Bond held hereunder unless sooner terminated as
hereinbefore specified and may be terminated at any time by the written consent
of Unitholders representing 66-2/3% of the then outstanding Units thereof;
provided, that in no event shall this trust continue beyond the end of the
calendar year preceding the fiftieth anniversary of the execution of this
Indenture (the "Mandatory Termination Date"); and provided further that in
connection with any such liquidation it shall not be necessary for the Trustee
to dispose of any Bond or Bonds if retention of such Bond or Bonds, until due,
shall be deemed to be in the best interests of Unitholders, including, but not
limited to, situations in which a Bond or Bonds insured by the Insurance are in
default, situations in which a Bond or Bonds insured by the Insurance reflect a
deteriorated market price resulting from a fear of default and situations in
which a Bond or Bonds mature after the Mandatory Termination Date.
Written notice of any termination, specifying the time or times at which
the Unitholders may surrender any Certificates held for cancellation, shall be
given by the Trustee to each Unitholder at his address appearing on the
registration books of the Trustee. Within a reasonable period of time after
such termination the Trustee shall fully liquidate the Bonds then held, if any,
and shall:
(a) deduct from the Interest Account or, to the extent that funds
are not available in such Account, from the Principal Account and pay to
itself individually an amount equal to the sum of (1) its accrued
compensation for its ordinary recurring services, (2) any compensation due
it for its extraordinary services and (3) any costs, expenses or
indemnities as provided herein;
(b) deduct from the Interest Account or, to the extent that funds
are not available in such Account, from the Principal Account and pay
accrued and unpaid fees of the Evaluator, Depositor and bond counsel, if
any;
(c) deduct from the Interest Account or the Principal Account any
amounts which may be required to be deposited in the Reserve Account to
provide for payment of any applicable taxes or other governmental charges
and any other amounts which may be required to meet expenses incurred under
this Indenture;
(d) distribute to each Unitholder of such Trust such Unitholder's
pro rata share of the balance of the Interest Account;
(e) distribute to each Unitholder of such Trust such Unitholder's
pro rata share of the balance of the Principal Account; and
(f) together with such distribution to each Unitholder as provided
for in (d) and (e), furnish to each such Unitholder a final distribution
statement as of the date of the computation of the amount distributable to
Unitholders, setting forth the data and information in substantially the
form and manner provided for in Section 3.06 hereof.
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The amounts to be so distributed to each Unitholder holding Certificates
shall be that pro rata share of the balance of the total Interest and Principal
Accounts as shall be represented by the Units held of record by such Unitholder.
The Trustee shall be under no liability with respect to moneys held by it
in the Interest, Reserve and Principal Accounts upon termination except to hold
the same in trust without interest until disposed of in accordance with the
terms of this Indenture.
In the event that all of the Unitholders shall not surrender their
Certificates for cancellation within six months after the time specified in the
above-mentioned written notice, the Trustee shall give a second written notice
to the remaining Unitholders to surrender their Certificates for cancellation
and receive the liquidating distribution with respect thereto. If within one
year after the second notice all the Certificates shall not have been
surrendered for cancellation, the Trustee may take steps, or may appoint an
agent to take appropriate steps, to contact the remaining Unitholders concerning
surrender of their Certificates and the cost thereof shall be paid out of the
moneys and other assets which remain in the Trust hereunder.
Section 8.03. Construction. This Indenture is executed and delivered
in the State of New York, and all laws or rules of construction of such State
shall govern the rights of the parties hereto and the Unitholders and the
interpretation of the provisions hereof.
Section 8.04. Registration of Units. Except as provided in Sections
3.01 and 3.05, the Depositor agrees and undertakes on its own part to register
the Units with the Securities and Exchange Commission or other applicable
governmental agency, federal or state, pursuant to applicable federal or state
statutes, if such registration shall be required, and to do all things that may
be necessary or required to comply with this provision during the term of the
Trust created hereunder, and the Trustee shall incur no liability or be under
any obligation for expenses in connection therewith.
Section 8.05. Written Notice. Any notice, demand, direction or
instruction to be given to the Depositor or the Evaluator hereunder shall be in
writing and shall be duly given if mailed or delivered to the Depositor, 77 West
Wacker Drive, Chicago, Illinois 60601-1994, or at such other address as shall
be specified by the Depositor or the Evaluator to the other parties hereto in
writing. Any notice, demand, direction or instruction to be given to the
Trustee hereunder shall be in writing and shall be duly given if mailed or
delivered to the corporate trust office of the Trustee at 101 Barclay Street,
New York, New York 10286, Attention: Unit Investment Trust Division, or at such
other address as shall be specified by the Trustee to the other parties hereto
in writing.
Any notice to be given to the Unitholders shall be duly given if mailed or
delivered to each Unitholder at the address of such holder appearing on the
registration books of the Trustee.
Section 8.06. Severability. If any one or more of the covenants,
agreements, provisions or terms of this Indenture shall be held contrary to any
express provision of law or contrary to policy of express law, though not
expressly prohibited, or against public policy, or shall for any reason
whatsoever be held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Indenture and shall in no way affect the validity or
enforceability of the other provisions of this Indenture or the rights of the
Unitholders.
30
<PAGE>
Section 8.07. Dissolution of Depositor Not to Terminate. The
dissolution of the Depositor from or for any cause whatsoever shall not operate
to terminate this Indenture or the Trust insofar as the duties and obligations
of the Trustee are concerned.
In Witness Whereof, EVEREN Securities, Inc. and The Bank of New York has caused
this Indenture to be executed by one of their Vice Presidents as of the day,
month and year first above written.
EVEREN Securities, Inc., Depositor and
Evaluator
By
Vice President
The Bank of New York, Trustee
By
Vice President
31
<PAGE>
Exhibit 3.1
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
December 5, 1995
EVEREN Unit Investment Trusts
77 West Wacker Drive
Chicago, Illinois 60601
Re: EVEREN Unit Investment Trusts Series 40
---------------------------------------
Gentlemen:
We have served as counsel for EVEREN Unit Investment Trusts, as Sponsor and
Depositor of EVEREN Unit Investment Trusts Series 40 (the "Fund"), in connection
with the preparation, execution and delivery of Trust Agreements dated the date
of this opinion between EVEREN Unit Investment Trusts, as Depositor, and The
Bank of New York, as Trustee, pursuant to which the Depositor has delivered to
and deposited the Bonds listed in the Schedules to each Trust Agreement with the
Trustee and pursuant to which the Trustee has issued to or on the order of the
Depositor a certificate or certificates representing all the Units of fractional
undivided interest in, and ownership of, the Fund, created under said Trust
Agreements.
In connection therewith we have examined such pertinent records and
documents and matters of law as we have deemed necessary in order to enable us
to express the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Trust Agreements and the
execution and issuance of certificates evidencing the Units of the Fund
have been duly authorized; and
2. The certificates evidencing the Units of the Fund, when duly
executed and delivered by the Depositor and the Trustee in accordance with
the aforementioned Trust Agreements, will constitute valid and binding
obligations of the Fund and the Depositor in accordance with the terms
thereof.
<PAGE>
-2-
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 33-64619) relating to the Units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
<PAGE>
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
December 5, 1995
EVEREN Unit Investment Trusts,
a service of Kemper Securities, Inc.
77 West Wacker Drive, 29th Floor
Chicago, Illinois 60601
The Bank of New York
101 Barclay Street
New York, New York 10286
Re: EVEREN Unit Investment Trusts Series 40
Gentlemen:
We have acted as counsel for EVEREN Unit Investment Trusts, a service of
Kemper Securities, Inc., as Sponsor and Depositor of EVEREN Unit Investment
Trusts Series 40 (the "Trust"), in connection with the issuance of Units of
fractional undivided interest in the Trust, under a Trust Agreement dated
December 5, 1995 (the "Indenture") between EVEREN Unit Investment Trusts, a
service of EVEREN Securities, Inc., as Depositor and Evaluator, and The Bank of
New York, as Trustee.
In this connection, we have examined the Registration Statement, the
Prospectus, the Indenture, and such other instruments and documents as we have
deemed pertinent.
The assets of the Trust will consist of a portfolio of corporate debt
obligations (the "Corporate Bonds" or the "Obligations") as set forth in the
Prospectus. All Obligations have been issued after July 18, 1984.
Based upon the foregoing and upon an investigation of such matters of law
as we consider to be applicable, we are of the opinion that, under existing
Federal income tax law:
(i) The Trust is not an association taxable as a corporation for
Federal in come tax purposes but will be governed by the provisions of
subchapter J (relating to Trusts) of chapter 1, Internal Revenue Code of
1986 (the "Code").
(ii) Each Unitholder will be considered as owning a pro rata share
of each asset of the Trust for Federal income tax purposes. Under subpart
E, subchapter J of chapter 1 of the Code, income of the Trust will be
treated as
<PAGE>
-2-
income of each Unitholder. Each Unitholder will be considered to have
received his pro rata share of income derived from each Trust asset when
such income is received by the Trust. Each Unitholder will also be required
to include in taxable income for Federal income tax purposes, original
issue discount with respect to his interest in any Obligation held by the
Trust at the same time and in the same manner as though the Unitholder were
the direct owner of such interest.
(iii) Each Unitholder will have a taxable event when an Obligation
is disposed of (whether by sale, exchange, redemption, payment on maturity
or otherwise) or when the Unitholder redeems or sells his Units. A
Unitholder's tax basis in his Units will equal his tax basis in his pro
rata portion of all the assets of the Trust. Such basis, is determined
(before the adjustments described below) by apportioning the tax basis for
the Units among each of the Trust assets according to value as of the
valuation date nearest the date of acquisition of the Units Unitholders
must reduce their tax basis of their Units for their share of accrued
interest, if any on obligations delivered after the date the Unitholders
pay for their Units to the extent such interest accrued on such Obligations
during the period from the Unitholder's settlement date to the date such
obligations are delivered to the Trust and, consequently such Unitholder
may have an increase in taxable gain or reduction in capital loss upon the
disposition of such Units. Gain or loss measured by comparing the proceeds
of such sale or redemption with the adjusted basis of the Units. If the
Trustee disposes of Obligations, gain or loss is recognized to the
Unitholder (subject to various nonrecognition provisions of the Code). the
amount of any such gain or loss is measured by comparing the Unitholder's
pro rata portion of the total proceeds from such disposition with his basis
for his fractional interest in the asset disposed of. The basis of each
Unit and of each Obligation which was issued with original issue discount
(or has market discount) must be increased by the amount of accrued
original issue discount (and accrued market discount if the Unitholder
elects to include market discount as it accrues) and the basis of each Unit
and of each Obligation which was purchased by the Trust at a premium must
be reduced by the annual amortization of bond premium, which the Unitholder
has properly elected to amortize under Section 171 of the Code.
Each Unitholders pro rata share of each expense paid by the Trust is
deductible by the Unitholder to the same extent as though the expense had been
paid directly to him. It should be noted that, as a result of The Tax Reform
Act of 1986 (the "Act"), certain itemized deductions, such as investment
expenses, tax return preparation fees and employee business expenses will be
deductible by individuals only to the extent they exceed 2% of such individual's
adjusted gross income. Unitholders may be required to treat some or all of the
expenses paid by the Trust as miscellaneous itemized deductions subject to this
limitation.
<PAGE>
-3-
Certain of the Obligations in the Trust may have been acquired with
"original issue discount." In the case of any Obligations in the Trust acquired
with "original issue discount" that exceeds a "de minimis" amount as specified
in the Code, such discount is includable in taxable income of the Unitholders on
an accrual basis computed daily, without regard to when payments of interest on
such Obligations are received. The Code provides a complex set of rules
governing the accrual of original issue discount. These rules provide that
original issue discount generally accrues on the basis of a constant compound
interest rate over the term of the Obligations. Special rules apply if the
purchase price of an Obligation exceeds its original issue price plus the amount
of original issue discount which would have previously accrued, based upon its
issue price (its "adjusted issue price"). Similarly, these special rules would
apply to a Unitholder if the tax basis of his pro rata portion of an Obligation
issued with original issue discount exceeds his pro rata portion of its adjusted
issue price. It is possible that a Corporate Bond that has been issued at an
original issue discount may be characterized as a "high-yield discount
obligation" within the meaning of Section 163(e)(5) of the Code. To the extent
that such an obligation is issued at a yield in excess of six percentage points
over the applicable Federal rate, a portion of the original issue discount on
such obligation will be characterized as a distribution on stock (e.g.,
dividends) for purposes of the dividends received deduction which is available
to certain corporations with respect to certain dividends received by such
corporations.
If a Unitholder's tax basis in his pro rata portion of any Corporate Bond
held by the Trust is less than his allocable portion of such Corporate Bond's
stated redemption price at maturity (or, if issued with original issue discount,
the allocable portion of its revised issue price), such difference will
constitute market discount unless the amount of market discount is "de minimis"
as specified in the Code. Market discount accrues daily computed on a straight
line basis, unless the Unitholder elects to calculate accrued market discount
under a constant yield method.
Accrued market discount is generally includable in taxable income of the
Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on Corporate Bonds held by the Trust, on the sale,
maturity or disposition of such Corporate Bonds by the Trust and on the sale of
a Unitholder's Units unless a Unitholder elects to include the accrued market
discount in taxable income as such discount accrues. If a Unitholder does not
elect to annually include accrued market discount in taxable income as it
accrues, deductions for any interest expense incurred by the Unitholder to
purchase or carry his Units will be reduced by such accrued market discount. In
general, the portion of any interest which was not currently deductible would
ultimately be deductible when the accrued market discount is included in income.
The tax basis of a Unitholder with respect to his interest in an Obligation
is increased by the amount of original issue discount (and market discount, if
the Unitholder elects to include market discount, if any, on the Obligations
held by the Trust in income as it accrues) thereon properly included in the
Unitholder's gross income as determined for Federal income tax purposes and
reduced by the amount of any amortized premium which the
<PAGE>
-4-
Unitholder has properly elected to amortize under Section 171 of the Code. A
Unitholder's tax basis in his Units will equal his tax basis in his pro rata
portion of all o the assets of the Trust.
A Unitholder will recognize taxable gain (or loss) when all or part of the
pro rata interest in an Obligation is disposed of in a taxable transaction for
an amount greater (or less) than his tax basis therefor..
As previously discussed, gain realized on the disposition of the interest
of a Unitholder in any Corporate Bond deemed to have been acquired by the
Unitholder with market discount will be treated as ordinary income to the extent
the gain does not exceed the amount of accrued market discount not previously
taken into income.
If a Unitholder disposes of a Unit, he is deemed thereby to have disposed
of his entire pro rata interest in all Trust assets including his pro rata
portion of all of the Corporate Bonds represented by the Unit. This may result
in a portion of the gain, if any, on such sale being taxable as ordinary income
under the market discount rules (assuming no election was made by the Unitholder
to include market discount in income as it accrues) as previously discussed.
A Unit who is a foreign investor (i.e., an investor other than a U.S.
citizen or resident or a U.S. corporation, partnership, estate or trust) will
not be subject to United States Federal income taxes, including withholding
taxes on interest income (including any original issue discount) on, or any gain
from the sale or other disposition of, his pro rata interest in any Obligation
held by the Trust or the sale of his Units provided that all of the following
conditions are met:
(i) the interest income or gain is not effectively connected with
the conduct by the foreign investor of a trade or business within the
United States;
(ii) if the interest is United States source income (which is the
case for most securities issued by United States issuers), the Obligation
is issued after July 18, 1984, (which is the case for each Obligation held
by the Trust) the foreign investor does not own, directly or indirectly,
10% or more of the total combined voting power of all classes of voting
stock of the issuer of the Obligation and the foreign investor is not a
controlled foreign corporation related (within the meaning of Section
864(d)(4) of the Code) to the issuer of the Obligation;
(iii) with respect to any gain, the foreign investor (if an
individual) is not present in the United States for 183 days or more during
his or her taxable year; and
(iv) the foreign investor provides all certification which may be
required of his status.
<PAGE>
-5-
It should be noted that the Tax Act includes a provision which eliminates
the exemption from United States taxation, including withholding taxes, for
certain "contingent interest." This provision applies to interest received
after December 31, 1993. No opinion is expressed herein regarding the potential
applicability of this provision and whether United States taxation or
withholding taxes could be imposed with respect to income derived from the Units
as a result thereof.
The scope of this opinion is expressly limited to the federal income tax
matters set forth herein, and, except as expressly set forth above, we express
no opinion with respect to any other taxes, including foreign, state or local
taxes or collateral tax consequences with respect to the purchase, ownership and
disposition of Units.
Very truly yours
CHAPMAN AND CUTLER
MJK/ch
<PAGE>
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
December 5, 1995
EVEREN Unit Investment Trusts,
a service of Kemper Securities, Inc.
77 West Wacker Drive, 29th Floor
Chicago, Illinois 60601
The Bank of New York
101 Barclay Street
New York, New York 10286
Re: EVEREN Unit Investment Trusts Series 40
Gentlemen:
We have acted as counsel for EVEREN Unit Investment Trusts, a service of
Kemper Securities, Inc., as Sponsor and Depositor of EVEREN Unit Investment
Trusts Series 40 (the "Trust"), in connection with the issuance of Units of
fractional undivided interest in the Trust, under a Trust Agreement dated
December 5, 1995 (the "Indenture") between EVEREN Unit Investment Trusts, a
service of EVEREN Securities, Inc., as Depositor and Evaluator, and The Bank of
New York, as Trustee.
In this connection, we have examined the Registration Statement, the
Prospectus, the Indenture, and such other instruments and documents as we have
deemed pertinent.
The assets of the Trust will consist of a portfolio of high yield, high-
risk corporate debt obligations (the "Corporate Bonds" or the "Obligations") as
set forth in the Prospectus. All Obligations have been issued after July 18,
1984.
Based upon the foregoing and upon an investigation of such matters of law
as we consider to be applicable, we are of the opinion that, under existing
Federal income tax law:
(i) The Trust is not an association taxable as a corporation for
Federal income tax purposes but will be governed by the provisions of
subchapter J (relating to Trusts) of chapter 1, Internal Revenue Code of
1986 (the "Code").
(ii) Each Unitholder will be considered as owning a pro rata share
of each asset of the Trust for Federal income tax purposes. Under subpart
E, subchapter J of chapter 1 of the Code, income of the Trust will be
treated as
<PAGE>
-2-
income of each Unitholder. Each Unitholder will be considered to have
received his pro rata share of income derived from each Trust asset when
such income is received by the Trust. Each Unitholder will also be required
to include in taxable income for Federal income tax purposes, original
issue discount with respect to his interest in any Obligation held by the
Trust at the same time and in the same manner as though the Unitholder were
the direct owner of such interest.
(iii) Each Unitholder will have a taxable event when an Obligation
is disposed of (whether by sale, exchange, redemption, payment on maturity
or otherwise) or when the Unitholder redeems or sells his Units. A
Unitholder's tax basis in his Units will equal his tax basis in his pro
rata portion of all the assets of the Trust. Such basis, is determined
(before the adjustments described below) by apportioning the tax basis for
the Units among each of the Trust assets according to value as of the
valuation date nearest the date of acquisition of the Units Unitholders
must reduce their tax basis of their Units for their share of accrued
interest, if any on obligations delivered after the date the Unitholders
pay for their Units to the extent such interest accrued on such Obligations
during the period from the Unitholder's settlement date to the date such
obligations are delivered to the Trust and, consequently such Unitholder
may have an increase in taxable gain or reduction in capital loss upon the
disposition of such Units. Gain or loss measured by comparing the proceeds
of such sale or redemption with the adjusted basis of the Units. If the
Trustee disposes of Obligations, gain or loss is recognized to the
Unitholder (subject to various nonrecognition provisions of the Code). The
amount of any such gain or loss is measured by comparing the Unitholder's
pro rata portion of the total proceeds from such disposition with his basis
for his fractional interest in the asset disposed of. The basis of each
Unit and of each Obligation which was issued with original issue discount
(or has market discount) must be increased by the amount of accrued
original issue discount (and accrued market discount if the Unitholder
elects to include market discount as it accrues) and the basis of each Unit
and of each Obligation which was purchased by the Trust at a premium must
be reduced by the annual amortization of bond premium, which the Unitholder
has properly elected to amortize under Section 171 of the Code.
Each Unitholders pro rata share of each expense paid by the Trust is
deductible by the Unitholder to the same extent as though the expense had been
paid directly to him. It should be noted that, as a result of The Tax Reform
Act of 1986 (the "Act"), certain itemized deductions, such as investment
expenses, tax return preparation fees and employee business expenses will be
deductible by individuals only to the extent they exceed 2% of such individual's
adjusted gross income. Unitholders may be required to treat some or all of the
expenses paid by the Trust as miscellaneous itemized deductions subject to this
limitation.
<PAGE>
-3-
Certain of the Obligations in the Trust may have been acquired with
"original issue discount." In the case of any Obligations in the Trust acquired
with "original issue discount" that exceeds a "de minimis" amount as specified
in the Code, such discount is includable in taxable income of the Unitholders on
an accrual basis computed daily, without regard to when payments of interest on
such Obligations are received. The Code provides a complex set of rules
governing the accrual of original issue discount. These rules provide that
original issue discount generally accrues on the basis of a constant compound
interest rate over the term of the Obligations. Special rules apply if the
purchase price of an Obligation exceeds its original issue price plus the amount
of original issue discount which would have previously accrued, based upon its
issue price (its "adjusted issue price"). Similarly, these special rules would
apply to a Unitholder if the tax basis of his pro rata portion of an Obligation
issued with original issue discount exceeds his pro rata portion of its adjusted
issue price. It is possible that a Corporate Bond that has been issued at an
original issue discount may be characterized as a "high-yield discount
obligation" within the meaning of Section 163(e)(5) of the Code. To the extent
that such an obligation is issued at a yield in excess of six percentage points
over the applicable Federal rate, a portion of the original issue discount on
such obligation will be characterized as a distribution on stock (e.g.,
dividends) for purposes of the dividends received deduction which is available
to certain corporations with respect to certain dividends received by such
corporations.
If a Unitholder's tax basis in his pro rata portion of any Corporate Bond
held by the Trust is less than his allocable portion of such Corporate Bond's
stated redemption price at maturity (or, if issued with original issue discount,
the allocable portion of its revised issue price), such difference will
constitute market discount unless the amount of market discount is "de minimis"
as specified in the Code. Market discount accrues daily computed on a straight
line basis, unless the Unitholder elects to calculate accrued market discount
under a constant yield method.
Accrued market discount is generally includable in taxable income of the
Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on Corporate Bonds held by the Trust, on the sale,
maturity or disposition of such Corporate Bonds by the Trust and on the sale of
a Unitholder's Units unless a Unitholder elects to include the accrued market
discount in taxable income as such discount accrues. If a Unitholder does not
elect to annually include accrued market discount in taxable income as it
accrues, deductions for any interest expense incurred by the Unitholder to
purchase or carry his Units will be reduced by such accrued market discount. In
general, the portion of any interest which was not currently deductible would
ultimately be deductible when the accrued market discount is included in income.
The tax basis of a Unitholder with respect to his interest in an Obligation
is increased by the amount of original issue discount (and market discount, if
the Unitholder elects to include market discount, if any, on the Obligations
held by the Trust in income as it accrues) thereon properly included in the
Unitholder's gross income as determined for Federal income tax purposes and
reduced by the amount of any amortized premium which the Unitholder has properly
elected to amortize under Section 171 of the Code. A Unitholder's tax basis in
his Units will equal his tax basis in his pro rata portion of all o the assets
of the Trust.
<PAGE>
-4-
A Unitholder will recognize taxable gain (or loss) when all or part of the
pro rata interest in an Obligation is disposed of in a taxable transaction for
an amount greater (or less) than his tax basis therefor..
As previously discussed, gain realized on the disposition of the interest
of a Unitholder in any Corporate Bond deemed to have been acquired by the
Unitholder with market discount will be treated as ordinary income to the extent
the gain does not exceed the amount of accrued market discount not previously
taken into income.
If a Unitholder disposes of a Unit, he is deemed thereby to have disposed
of his entire pro rata interest in all Trust assets including his pro rata
portion of all of the Corporate Bonds represented by the Unit. This may result
in a portion of the gain, if any, on such sale being taxable as ordinary income
under the market discount rules (assuming no election was made by the Unitholder
to include market discount in income as it accrues) as previously discussed.
A Unit who is a foreign investor (i.e., an investor other than a U.S.
citizen or resident or a U.S. corporation, partnership, estate or trust) will
not be subject to United States Federal income taxes, including withholding
taxes on interest income (including any original issue discount) on, or any gain
from the sale or other disposition of, his pro rata interest in any Obligation
held by the Trust or the sale of his Units provided that all of the following
conditions are met:
(i) the interest income or gain is not effectively connected with
the conduct by the foreign investor of a trade or business within the
United States;
(ii) either
(a) the interest is United States source income (which is the
case for most securities issued by United States issuers), the debt
instrument is issued after July 18, 1984, the foreign investor does
not own, directly or indirectly, 10% or more of the total combined
voting power of all classes of voting stock of the issuer of the
debt instrument and the Unitholder is not a controlled foreign
corporation related (within the meaning of Section 864(d)(4) of the
Code) to the issuer of the debt instrument; or
(b) the interest income is not from sources within the United
States;
(iii) with respect to any gain, the foreign investor (if an
individual) is not present in the United States for 183 days or more during
his or her taxable year; and
(iv) the foreign investor provides all certification which may be
required of his status.
<PAGE>
-5-
It should be noted that the "Revenue Reconciliation Act of 1993," includes
a provision which eliminates the exemption from United States taxation,
including withholding taxes, for certain "contingent interest." This provision
applies to interest received after December 31, 1993. No opinion is expressed
herein regarding the potential applicability of this provision and whether
United States taxation or withholding taxes could be imposed with respect to
income derived from the Units as a result thereof.
The scope of this opinion is expressly limited to the matters set forth
herein, and, except as expressly set forth above, we express no opinion with
respect to any other taxes, including state or local taxes or collateral tax
consequences with respect to the purchase, ownership and disposition of Units.
Very truly yours
CHAPMAN AND CUTLER
MJK/ch
<PAGE>
[CANTOR FITZGERALD LOGO AND LETTERHEAD]
EVEREN Securities, Inc.
Unit Trust Department 29th Floor
77 West Wacker Drive
Chicago, Illinois 60601
Re: Defined Corporate Income Trust Series 4
Defined Investment Grade Corporate
Income Trust Series 2
Gentlemen:
You have provided to us and we have examined Registration Statement File No.
33-64619 for the above captioned trust. We hereby acknowledge that Cantor
Fitzgerald & Co. ("Cantor") will act as the evaluator for the trust pursuant to
the terms and conditions of the Information Evaluation Service Agreement between
Cantor and EVEREN Securities, Inc. ("EVEREN") dated as of October 13, 1995 (the
"IES Agreement"). We hereby consent to the use in the Registration Statement of
the reference to Cantor Fitzgerald & Co. as evaluator.
You acknowledge that this letter shall not confer upon you any rights or impose
on Cantor any obligations, other than those expressly set forth in the IES
Agreement.
You are hereby authorized to file a copy of this letter with the Securities and
Exchange Commission.
Very truly yours,
CANTOR FITZGERALD & CO.,
By: /s/ Debra Walton
Debra Walton
Managing Director
Acknowledged and Agreed:
EVEREN SECURITIES, INC.
By:
[CANTOR FITZGERALD LETTERHEAD]
<PAGE>
EXHIBIT 4.2
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' CONSENT
-------------------------------------------------
We have issued our report dated December 5, 1995 on the statements of
condition and related bond portfolios of EVEREN Unit Investment Trusts Series 40
as of December 5, 1995 contained in the Registration Statement on Form S-6 and
in the Prospectus. We consent to the use of our report in the Registration
Statement and in the Prospectus and to the use of our name as it appears under
the caption "Other Matters-Independent Certified Public Accountants".
GRANT THORNTON LLP
Chicago, Illinois
December 5, 1995
