AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1998
REGISTRATION NO. 333-47871
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO THE
REGISTRATION STATEMENT
ON
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT
INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
A. EXACT NAME OF TRUST: DELAWARE INVESTMENTS TAX-EXEMPT TRUST, SERIES 14
B. NAME OF DEPOSITOR: DELAWARE INVESTMENT ADVISERS
C. COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES:
DELWARE INVESTMENT ADVISERS
One Commerce Square
Philadelphia, Pennsylvania 19103
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
Copy to:
George M. Chamberlain, Jr. MARK J. KNEEDY
Delaware Investment Advisers c/o Chapman and Cutler
One Commerce Square 111 West Monroe Street
Philadelphia, Pennsylvania 19103 Chicago, Illinois 60603
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title and amount of Proposed maximum Amount of
securities being registered aggregate offering registration fee
price
<S> <C> <C>
Delaware Investments Tax-Exempt An indefinite number of Indefinite $0.00
Trust, Series 14 Units of Beneficial Interest
pursuant to Rule 24f-2 under
the Investment Company Act of 1940
</TABLE>
E. APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
/X:/ Check box if it is proposed that this filing will become effective on
March 19, 1998 at 2:00 P.M. pursuant to 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>
DELAWARE INVESTMENTS TAX-EXEMPT TRUST, SERIES 14
----------------------
CROSS-REFERENCE SHEET
(FORM N-8B-2 ITEMS REQUIRED BY INSTRUCTIONS AS
TO THE PROSPECTUS IN FORM S-6)
<TABLE>
<CAPTION>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. ORGANIZATION AND GENERAL INFORMATION
<S> <C>
1. (a) Name of Trust } Prospectus front cover
2. (b) Title of securities issued....................................} Summary of Essential
} Information
3. Name and address of each depositor.................................} Trust Administration
4. Name and address of Trustee........................................} Trust Administration
5. State of organization of Trust.....................................} The Fund
6. Execution and termination of Trust agreement.......................} Trust Administration
7. Changes of name } The Fund; Trust Administration
8. Fiscal year } *
9. Litigation } *
II. GENERAL DESCRIPTION OF THE TRUST AND
SECURITIES OF THE TRUST
10. (a) Registered of bearer securities...............................} Rights of Unitholders
(b) Cumulative or distributive securities.........................} Rights of Unitsholders; The
} Fund
(c) Redemption....................................................} Rights of Unitholders
(d) Conversion, transfer, etc.....................................} Rights of Unitholders
(e) Periodic payment plan.........................................} *
(f) Voting rights.................................................} Rights of Unitholders
(g) Notice of Unitholders.........................................} Trust Administration
(h) Consents required.............................................} Rights of Unitholders; Trust
} Administration
(i) Other provisions..............................................} Tax Status; Insurance on the
} Bonds
11. Type of securities comprising units................................} The Fund; The State Trusts
12. Certain information regarding periodic payment } *
certificates }
<PAGE>
13. (a) Load, fees, expenses, etc.....................................} Estimated Current Return and
} Estimated Long-Term
} Return; Trust Operating
Expenses
(b) Certain information regarding periodic payment................} *
certificates }
(c) Certain percentages...........................................} Summary of Essential
} Information; Public Offering;
} Insurance on the Bonds
(d) Certain other fees, etc. payable by holders...................} Rights of Unitholders
(e) Certain profits receivable by depositor,
principal, underwriters, writers, Trustee or
affiliated person........................................} Trust Operating Expenses;
} Public Offering
(f) Ratio of annual charges to income.............................} *
} The Fund
14. Issuance of Trust's securities.....................................} Rights of Unitholders
15. Receipt and handling of payments from purchasers...................} *
16. Acquisition and disposition of underlying } The Fund; Investment Objectives
securities...................................................} and Portfolio Selection; Trust
} Administration; Public
} Offering
17. Withdrawal or redemption...........................................} Rights of Unitholders; Public
} Offering
18. (a) Receipt, custody and disposition of income....................} Rights of Unitholders
(b) Reinvestment of distributions.................................} Rights of Unitholders
(c) Reserves or special Trusts....................................} Trust Operating Expenses
(d) Schedule of distributions.....................................} *
19. Records, accounts and reports......................................} Rights of Unitholders; Trust
} Administration
20. Certain miscellaneous provisions of Trust agreement
(a) Amendment.....................................................} Trust Administration
(b) Termination...................................................} *
(c) and (d) Trustee, removal and successor........................} Trust Administration
(e) and (f) Depositor, removal and successor......................} Trust Administration
21. Loans to security holders } *
22. Limitations on liability...........................................} Trust Administration
23. Bonding arrangements...............................................} *
24. Other material provisions of Trust agreement.......................} *
III. ORGANIZATION, PERSONNEL AND
AFFILIATED PERSONS OF DEPOSITOR
25. Organization of depositor..........................................} Trust Administration
<PAGE>
26. Fees received by depositor.........................................} See Items 13(a) and 13(e)
27. Business of depositor..............................................} Trust Administration
28. Certain information as to officials and
affiliated persons of depositor..............................} Trust Administration
29. Voting securities of depositor.....................................} *
30. Persons controlling depositor......................................} *
31. Payment by depositor for certain services
rendered to Trust............................................} *
32. Payment by depositor for certain other services
rendered to Trust............................................} *
33. Remuneration of employees of depositor
for certain services rendered to Trust.......................} *
34. Remuneration of other persons for certain
services rendered to Trust...................................} *
IV. DISTRIBUTION AND REDEMPTION
35. Distribution of Trust's securities by states.......................} Public Offering
36. Suspension of sales of Trust's securities..........................} *
37. Revocation of authority to distribute..............................} *
38. (a) Method of Distribution........................................} Public Offering
(b) Underwriting Agreements.......................................} Underwriting
(c) Selling Agreements............................................} Public Offering
39. (a) Organization of principal underwriters........................} Trust Administration
(b) N.A.S.D. membership of principal underwriters.................} *
40. Certain fees received by principal underwriters....................} See Items 13(a) and 13(e)
41. (a) Business of principal underwriters............................} Trust Administration
(b) Branch offices of principal underwriters......................} *
(c) Salesmen of principal underwriters............................} *
42. Ownership of Trust's securities by certain persons.................} *
43. Certain brokerage commissions received by
principal underwriters.......................................} Public Offering
44. (a) Method of valuation...........................................} Public Offering
(b) Schedule as to offering price.................................} *
(c) Variation in offering price to certain persons................} Public Offering
45. Suspension of redemption rights....................................} Rights of Unitholders
46. (a) Redemption valuation..........................................} Public Offering
(b) Schedule as to redemption price...............................} *
47. Maintenance of position in underlying securities...................} Public Offering
} Rights of Unitholders
V. INFORMATION CONCERNING THE TRUSTEE
OR CUSTODIAN
48. Organization and regulation of Trustee.............................} Trust Administration
49. Fees and expenses of Trustee.......................................} Trust Operating Expenses
<PAGE>
50. Trustee's lien.....................................................} *
VI. INFORMATION CONCERNING INSURANCE OF
HOLDERS OF SECURITIES
51. Insurance of holders of Trust's securities.........................} Cover Page; Trust Operating
} Expenses; Insurance on the
} Bonds
VII. POLICY OF REGISTRANT
52. (a) Provisions of Trust agreement with respect
to selection or elimination..................................} The Fund; Trust Administration
(b) Transactions involving elimination of
underlying securities........................................} *
(c) Policy regarding substitution or elimination
of underlying securities.....................................} The Fund; Trust Administration
(d) Fundamental policy not otherwise covered......................} *
53. Tax status of Trust................................................} Tax Status
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trust's securities during last ten years...........................} *
55 Certain information regarding periodic payment
thru certificates.................................................} *
58.
59. Financial statements (Instruction 1(c) to Form S-6)................} *
</TABLE>
- -------------
*Inapplicable, answer negative or not required.
<PAGE>
DELAWARE INVESTMENTS TAX-EXEMPT TRUST, SERIES 14
CALIFORNIA INSURED SERIES 1 TERRITORIAL INSURED SERIES 8
MINNESOTA INSURED SERIES 5
THE FUND. Delaware Investments Tax-Exempt Trust, Series 14 (the "Fund")
consists of the underlying separate unit investment trusts set forth above. The
various trusts are collectively referred to herein as the "Trusts." California
Insured Series 1 and Minnesota Insured Series 5 are referred to herein as the
"Insured State Trusts." Territorial Insured Series 8 is referred to herein as
the "Insured National Trust." Collectively, the Insured State Trusts and the
Insured National Trust may be referred to herein as the "Insured Trusts." Each
Trust initially consists of interest-bearing obligations (including delivery
statements relating to contracts for the purchase of certain such obligations
and an irrevocable letter of credit) issued by or on behalf of states and
territories of the United States and political subdivisions and authorities
thereof, the interest on which is, with certain exceptions, in the opinion of
recognized bond counsel to the issuing governmental authorities, exempt from all
Federal income taxes under existing law (the "Bonds"). In addition, the interest
income of each Insured State Trust is, in the opinion of counsel, exempt to the
extent indicated from state and local taxes when held by residents of the state
where the issuers of Bonds in such Insured State Trust are located. Investors
should consult their tax advisers to determine the extent to which such interest
income is exempt from taxation in their state of residence. Capital gains, if
any, are subject to Federal and state tax. All Bonds in the Insured Trusts have
insurance guaranteeing the payments of principal and interest, when due, or are
escrowed to maturity. All such insurance remains effective so long as the Bonds
are outstanding. IT SHOULD BE NOTED THAT THE INSURANCE RELATES ONLY TO THE BONDS
IN AN INSURED TRUST AND NOT TO THE UNITS OFFERED HEREBY OR TO THE MARKET VALUE
THEREOF. As a result of such insurance or escrow, the Bonds of each Insured
Trust are rated "AAA" by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("Standard & Poor's") and/or "Aaa" by Moody's Investors Service,
Inc. ("Moody's"). Both Standard & Poor's and Moody's have indicated that their
respective rating is not a recommendation to buy, hold or sell Units nor does it
take into account the extent to which expenses of an Insured Trust or sales by
an Insured Trust of Bonds for less than the purchase price paid by such Trust
will reduce payment to Unitholders of the interest and principal required to be
paid on such Bonds. See "Insurance on the Bonds in the Insured Trusts." No
representation is made as to any insurer's ability to meet its commitments.
Certain of the Bonds in certain of the Trusts may have been acquired at prices
which resulted in such Bonds being purchased at a discount from the aggregate
par value of such Bonds. Gains based upon the difference, if any, between the
value of such Bonds at maturity, redemption or sale and their purchase price at
a discount (plus earned original issue discount) may constitute taxable ordinary
income with respect to a Unitholder who is not a dealer with respect to his
Units.
INVESTMENT OBJECTIVES OF THE FUND. The objectives of the Fund are to gain
interest income exempt from Federal income tax and, in the case of the Insured
State Trust, Federal and state income tax (if any) and conservation of capital
through an investment in diversified portfolios of Federal and state tax-exempt
obligations. The Trusts may be an appropriate investment vehicle for investors
who desire to participate in a portfolio of tax-exempt fixed income securities
with greater diversification than they might be able to acquire individually. In
addition, securities of the type deposited in the Trusts are often not available
in small amounts. There is, of course, no guarantee that the Trusts will achieve
their objectives. The payment of interest and the preservation of principal are
dependent upon the continuing ability of the issuers and/or obligors of the
Bonds and of the insurers thereof to meet their respective obligations.
UNITS OF THE TRUSTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED OR OTHERWISE PROTECTED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY AND INVOLVE INVESTMENT RISK, INCLUDING LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The investor is advised to read and retain this Prospectus for future reference.
THE DATE OF THIS PROSPECTUS IS MARCH 19, 1998
<PAGE>
PUBLIC OFFERING PRICE. The Public Offering Price of the Units of each Trust
during the initial offering period is equal to the aggregate offering price of
the Bonds in such Trust's portfolio and cash, if any, in the Principal Account
held or owned by such Trust divided by the number of Units outstanding, plus the
applicable sales charge and accrued interest, if any. For sales charges in the
secondary market, see "Public Offering -- General." If the Bonds in each Trust
were available for direct purchase by investors, the purchase price of the Bonds
would not include the sales charge included in the Public Offering Price of the
Units. During the initial offering period, the sales charge is reduced on a
graduated scale for sales involving $100,000 or more. If Units were available
for purchase at the opening of business on the Initial Date of Deposit, the
Public Offering Price per Unit would have been that amount set forth in the
"Summary of Essential Financial Information." See "Public Offering."
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN. The Estimated
Current Return and Estimated Long-Term Return to Unitholders are as set forth
under "Summary of Essential Financial Information." The methods of calculating
Estimated Current Return and Estimated Long-Term Return are set forth under
"Estimated Current Return and Estimated Long-Term Return."
DISTRIBUTIONS. Unitholders will receive distributions on a monthly basis.
See "Rights of Unitholders -- Distributions of Interest and Principal." Record
dates will be the first day of each month. Distributions will be made on the
fifteenth day of the month subsequent to the respective record dates.
MARKET FOR UNITS. Although not obligated to do so, an affiliate of the
Sponsor, Delaware Distributors, L.P., intends to, and certain of the other
Underwriters may, maintain a secondary market for the Units at prices based upon
the aggregate bid price of the Bonds in the portfolio of a Trust; however,
during the initial offering period such prices will be based upon the aggregate
offering prices of the Bonds. If such a market is not maintained and no other
over-the-counter market is available, a Unitholder will be able to dispose of
his Units through redemption at prices based upon the bid prices of the
underlying Bonds (see "Rights of Unitholders -- Redemption of Units").
REINVESTMENT OPTION. Unitholders have the opportunity to have their
distributions reinvested into open-end management investment companies advised
by its Sponsor or its affiliates as described under "Rights of Unitholders --
Reinvestment Option."
RISK FACTORS. An investment in the Trusts should be made with an
understanding of the risks associated therewith, including, among other
factors, the inability of the issuer or an insurer to pay the principal of or
interest on a Bond when due, volatile interest rates, early call provisions,
and changes to the tax status of the Bonds. See "The Trusts -- Risk Factors"
for the applicable Trust and "Risk Factors."
2
<PAGE>
DELAWARE INVESTMENTS TAX-EXEMPT TRUST, SERIES 14
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AS OF THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT: MARCH 19, 1998
SPONSOR: DELAWARE INVESTMENT ADVISERS
DISTRIBUTOR: DELAWARE DISTRIBUTORS, L.P.
EVALUATOR: MULLER DATA CORPORATION
TRUSTEE: THE CHASE MANHATTAN BANK
<TABLE>
<CAPTION>
CALIFORNIA MINNESOTA TERRITORIAL
INSURED INSURED INSURED
SERIES 1 SERIES 5 SERIES 8
----------- ----------- -----------
<S> <C> <C> <C>
Principal Amount (Par Value) of Bonds ....................... $ 2,050,000 $ 1,590,000 $ 2,575,000
Number of Units ............................................. 209,600 164,478 264,723
Fractional Undivided Interest in the Trust per Unit ......... 1/209,600 1/164,478 1/264,723
Principal Amount (Par Value) of Bonds per Unit (1) .......... $ 9.781 $ 9.667 $ 9.727
Public Offering Price:
Aggregate Offering Price of Bonds in Portfolio ............. $ 1,993,297 $ 1,564,186 $ 2,517,526
Aggregate Offering Price of Bonds per Unit ................. $ 9.51 $ 9.51 $ 9.51
Sales Charge 4.9% (5.152% of the Aggregate Offering
Price of the Bonds) per Unit (2) .......................... $ 0.49 $ 0.49 $ 0.49
Public Offering Price per Unit (2)(3) ...................... $ 10.00 $ 10.00 $ 10.00
Redemption Price per Unit (3)(4) ............................ $ 9.44 $ 9.44 $ 9.44
Sponsor's Initial Repurchase Price per Unit ................. $ 9.51 $ 9.51 $ 9.51
Excess of Public Offering Price per Unit Over Redemption
Price per Unit ............................................. $ 0.56 $ 0.56 $ 0.56
Excess of Sponsor's Initial Repurchase Price per Unit Over
Redemption Price per Unit .................................. $ 0.07 $ 0.07 $ 0.07
Minimum Value of the Trust under which Trust Agreement
may be terminated .......................................... $ 820,000 $ 636,000 $ 1,030,000
Minimum Principal Distribution ............... $0.01 per Unit
First Settlement Date ........................ March 24, 1998
Mandatory Termination Date ................ December 31, 2045
Calculation of Estimated Net Annual Unit Income: (7)
Estimated Annual Interest Income per Unit .................. $ 0.48679 $ 0.48304 $ 0.48164
Less: Estimated Annual Expense per Unit .................... $ 0.02841 $ 0.03087 $ 0.02636
----------- ----------- -----------
Estimated Net Annual Interest Income per Unit .............. $ 0.45838 $ 0.45217 $ 0.45528
Estimated Normal Monthly Distribution per Unit (5) .......... $ 0.03820 $ 0.03768 $ 0.03794
Estimated Daily Rate of Net Interest
Accrual per Unit ........................................... $ 0.00127 $ 0.00126 $ 0.00126
Estimated Current Return Based on Public
Offering Price (2)(5)(6) ................................... 4.58% 4.52% 4.55%
Estimated Long-Term Return (2)(5)(6) ........................ 4.59% 4.48% 4.53%
Initial Distribution (April 15, 1998) ....................... $ 0.010184 $ 0.01005 $ 0.01012
Trustee's Initial Annual Fee per $1,000 Principal Amount of
Bonds (7) .................................................. $ 1.26 $ 1.26 $ 1.26
Evaluator's Fee per Evaluation .............................. $ 8.00 $ 8.00 $ 8.00
Maximum Annual Supervisory Fee per Unit (8) ................. $ 0.00300 $ 0.00300 $ 0.00300
Estimated Organizational and Offering
Expenses per Unit (9) ...................................... $ 0.04265 $ 0.04799 $ 0.04382
Distribution Dates .............. Fifteenth day of each month
</TABLE>
Evaluations for purpose of sale, purchase or redemption of Units are made
as of the close of the New York Stock Exchange (usually 4:00 P.M. Eastern time)
on days of trading on the New York Stock
3
<PAGE>
Exchange next following receipt of an order for a sale or purchase of Units or
receipt by the Trustee of Units tendered for redemption.
- ------------------
(1) Because certain of the Bonds in certain Trusts may from time to time under
certain circumstances be sold or redeemed or will be called or mature in
accordance with their terms, there is no guarantee that the value of each
Unit at the respective Trusts' termination will be equal to the Principal
Amount (Par Value) of Bonds per Unit stated above.
(2) The sales charge is decreased and the Estimated Current Return and
Estimated Long-Term Return are increased for transactions entitled to a
reduced sales charge. See "Public Offering -- General."
(3) 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. After the initial offering period, the Distributor's
Repurchase Price per Unit will be determined as described under the caption
"Public Offering."
(4) See "Rights of Unitholders -- Redemption of Units."
(5) These figures are 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 Bonds. The estimated cash flows
for each Trust are available upon request at no charge from the Sponsor.
(6) See "Estimated Current Return and Estimated Long-Term Return" for
information concerning the calculation of both Estimated Current Returns
and Estimated Long-Term Returns.
(7) During the first year the Trustee will reduce its fee in the California,
Minnesota and Territorial Trusts by approximately $0.13, $0.65, and $0.08
per 100 Units, respectively (which amount is the estimated interest to be
earned per Unit prior to the expected delivery date for the "when, as and
if issued" Bonds included in such Trusts). Should such estimated interest
exceed such amount, the Trustee will reduce its fee up to its annual fee.
After the first year, the Trustee's fee will be that amount indicated
above; Estimated Annual Interest Income per Unit, Estimated Annual Expense
per Unit, and Estimated Net Annual Interest Income per Unit will remain the
same as shown. See "Estimated Current Return and Estimated Long-Term
Return."
(8) The Supervisory Fee is payable to the Sponsor. In addition, the Sponsor
will be reimbursed by the Trust for bookkeeping and administrative expenses
currently at a maximum annual rate of $0.001 per Unit.
(9) Each Trust (and therefore the Unitholders of the respective Trust) will
bear all or a portion of its organizational and offering costs (including
costs of preparing the registration statement, the trust indenture and
other closing documents, registering Units with the Securities and Exchange
Commission and states, the initial audit of the Trust portfolios and the
initial fees and expenses of the Trustee but not including the expenses
incurred in the preparation and printing of brochures and other advertising
materials and any other selling expenses) as is common for mutual funds.
Total organizational and offering expenses will be charged off at the end
of the initial offering period which is currently expected to be
approximately 4-6 months from the Initial Date of Deposit. In order to
reimburse the Trustee for organizational and offering costs, the Sponsor
may have to sell Securities from the Trusts. The sale of Securities will
serve to reduce the Principal Amount (Par Value) of Bonds per Unit stated
above. See "Trust Operating Expenses" and "Statements of Net Assets."
Historically, the sponsors of unit investment trusts have paid all of the
costs of establishing such trusts.
4
<PAGE>
THE FUND
GENERAL. The Fund was created under the laws of the State of New York
pursuant to a Trust Agreement (the "Trust Agreement"), dated the Initial Date of
Deposit, as defined in "Summary of Essential Financial Information," with
Delaware Investment Advisers as Sponsor, Muller Data Corporation as Evaluator,
and The Chase Manhattan Bank as Trustee.
The Fund consists of three separate unit investment trusts, each having a
portfolio of interest-bearing obligations (including delivery statements
relating to contracts for the purchase of certain such obligations) issued by or
on behalf of states and territories of the United States, and political
subdivisions and authorities thereof, the interest on which is, in the opinion
of recognized bond counsel to the issuing governmental authorities, exempt from
all Federal income taxes under existing law. All issuers of Bonds in an Insured
State Trust are located in the State for which such Trust is named or in United
States territories or possessions and their public authorities; consequently, in
the opinion of counsel, the related interest earned on such Bonds is exempt to
the extent indicated from state and local taxes of such State or territory. In
addition, in the case of the Insured National Trust, interest income may also be
exempt from certain state and local taxes for residents of various states.
Illinois, Indiana, Virginia and Washington residents may only purchase units of
an Insured National Trust by this Prospectus. On the Initial Date of Deposit,
the Sponsor deposited with the Trustee the Bonds indicated under the "Schedule
of Investments" for each Trust herein, including delivery statements relating to
contracts for the purchase of certain such obligations and an irrevocable letter
of credit issued by a financial institution in the aggregate amount required for
such purchases (the "Bonds"). Thereafter, the Trustee, in exchange for the Bonds
so deposited, delivered to the Sponsor evidences of ownership of the number of
Units of each Trust as indicated under "Summary of Essential Financial
Information."
With the deposit of the Bonds on the Initial Date of Deposit, the Sponsor
established a percentage relationship between the amounts of Bonds in each
Trust's portfolio. From time to time following the Initial Date of Deposit, the
Sponsor, pursuant to the Trust Agreement, may deposit additional Bonds in a
Trust and Units may be continuously offered for sale to the public by means of
this Prospectus, resulting in a potential increase in the outstanding number of
Units of a Trust. Any additional Bonds deposited in a Trust will maintain, as
nearly as is practicable, the original proportionate relationship of the Bonds
in a Trust's portfolio. Since the prices of the underlying Bonds will fluctuate
daily, the ratio, on a market value basis, will also change daily. The portion
of Bonds represented by each Unit will not change as a result of the deposit of
additional Bonds in a Trust.
Certain of the Bonds in certain of the Trusts may have been purchased on a
"when, as and if issued" or "delayed delivery" basis. See footnote (1) in "The
Trusts -- Notes to Schedules of Investments." The delivery of any such Bonds may
be delayed or may not occur. Interest on these Bonds begins accruing to the
benefit of Unitholders on their respective dates of delivery. To the extent any
Bonds are actually delivered to a Trust after their respective expected dates of
delivery, Unitholders who purchase their Units prior to the date such Bonds are
actually delivered to the Trustee would be required to adjust their tax basis in
their Units for a portion of the interest accruing on such Bonds during the
interval between their purchase of Units and the actual delivery of such Bonds.
As a result of any such adjustment, the Estimated Current Returns during the
first year would be slightly lower than those stated herein which would be the
returns after the first year, assuming the portfolio of a Trust and estimated
annual expenses other than those of the Trustee (which may be reduced in the
first year only) do not vary from that set forth under "Summary of Essential
Financial Information." Unitholders will be "at risk" with respect to all Bonds
in the portfolios including "when, as and if issued" and "delayed delivery"
Bonds (i.e., may derive either gain or loss from fluctuations in the evaluation
of such Bonds) from the date they commit for Units. For a discussion of the
Sponsor's obligations in the event of the failure of any contract for the
purchase of any of the Bonds and limited right to substitute other tax-exempt
bonds to replace any failed contract, see "Replacement Bonds" below.
5
<PAGE>
Each Unit initially offered represents the fractional undivided interest in
each Trust as indicated under "Summary of Essential Financial Information." To
the extent that any Units are redeemed by the Trustee, the fractional undivided
interest in a Trust represented by each unredeemed Unit will increase, 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 the Underwriters, or
until the termination of the Trust Agreement.
REPLACEMENT BONDS. Because certain of the Bonds in a Trust 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 Bond. In the event of a failure to deliver
any Bond that has been purchased for a Trust under a contract, including those
securities purchased on a "when, as and if issued" basis ("Failed Bonds"), the
Sponsor is authorized under the Trust Agreement to direct the Trustee to acquire
other securities ("Replacement Bonds") to make up the original corpus of the
affected Trust.
The Replacement Bonds must be purchased within 20 days after delivery of
the notice of the failed contract and the purchase price (exclusive of accrued
interest) may not exceed the amount of funds reserved for the purchase of the
Failed Bonds. The Replacement Bonds shall (i) be tax-exempt bonds, issued by
states or territories of the United States or political subdivisions thereof and
shall have the benefit of an exemption from state taxation of interest to an
extent equal to or greater than that of the bonds they replace, with fixed
maturity dates substantially the same as those of the Failed Bonds; (ii) be
purchased at a price that results in a yield to maturity and in a current
return, in each case as of the Initial Date of Deposit, at least equal to that
of the Failed Bonds; (iii) be payable in U.S. currency; (iv) not be when, as and
if issued bonds; (v) be rated at least "AAA" by Standard & Poor's and/or "Aaa"
by Moody's in the case of an Insured Trust and (vi) be insured by one of the
Insurers if such Bonds are purchased for an Insured Trust. Whenever a
Replacement Bond has been acquired for a Trust, the Trustee shall, within five
days thereafter, notify all Unitholders of such Trust of the acquisition of the
Replacement Bond 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 affected Trust of the Failed Bond exceeded the cost of the
Replacement Bond plus accrued interest. Once the original corpus of a Trust is
acquired, the Trustee will have no power to vary the investment of the Trust;
i.e., the Trust 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 paragraph
shall not be utilized to acquire Replacement Bonds in the event of a failed
contract, the Sponsor will refund the sales charge attributable to such Failed
Bonds to all Unitholders of the affected Trust and distribute the principal and
accrued interest (at the coupon rate of such Failed Bonds to the date the Failed
Bonds are removed from the Trust) attributable to such Failed Bonds not later
than the next Distribution Date following such removal or such earlier time as
the Trustee in its sole discretion deems to be in the interest of the
Unitholders. In the event a Replacement Bond should not be acquired by a Trust,
the estimated net annual interest income per Unit for the Trust would be reduced
and the Estimated Current Return and the Estimated Long-Term Return thereon
might be lowered. In addition, Unitholders should be aware that they may not be
able at the time of receipt of such principal to reinvest such proceeds in other
securities at a yield equal to or in excess of the yield which such proceeds
were earning to Unitholders in the affected Trust.
INVESTMENT OBJECTIVES AND PORTFOLIO SELECTION
The objectives of the Fund are to gain interest income exempt from Federal
income tax and, in the case of an Insured State Trust, Federal and state income
taxation and to conserve capital through an
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investment in diversified portfolios of Federal and state tax-exempt
obligations. There is, of course, no guarantee that the Trusts will achieve
their objectives. The Fund may be an appropriate investment vehicle for
investors who desire to participate in a portfolio of tax-exempt fixed income
securities with greater diversification than they might be able to acquire
individually. In addition, securities of the type deposited in the Fund are
often not available in small amounts.
Insurance guaranteeing the timely payment, when due, of all principal and
interest on the Bonds in each Insured Trust has been obtained by the issuer of
such Bonds, by a prior owner of such Bonds or by the Sponsor prior to the
deposit of such Bonds in such Insured Trust from one of several insurance
companies (the "Insurers"). Certain Bonds may be escrowed to maturity. No
representation is made as to any Insurer's ability to meet its commitments. All
Bonds insured by an Insurer receive a "AAA" rating by Standard & Poor's and a
"Aaa" rating by Moody's. See "Description of Bond Ratings."
In selecting Bonds for the Trusts the following factors, among others, were
considered by the Sponsor: (i) either the Standard & Poor's rating of the
securities was in no case less than AAA in the case of the Insured Trusts or the
Moody's rating of the Securities was in no case less than Aaa in the case of the
Insured Trusts including provisional or conditional ratings, respectively, or,
if not rated, the Securities had, in the opinion of the Sponsor, credit
characteristics sufficiently similar to the credit characteristics of
interest-bearing tax-exempt obligations that were so rated as to be acceptable
for acquisition by the Fund, (ii) whether the Bonds are insured by an Insurer in
the case of an Insured Trust, (iii) the prices of the Bonds relative to other
bonds of comparable quality and maturity, (iv) the diversification of Bonds as
to purpose of issue and location of issuer, and (v) with respect to the Insured
Trusts, the availability and cost of insurance for the prompt payment of
principal and interest, when due, on the Bonds. Subsequent to the Initial Date
of Deposit, a Bond may cease to be rated or its rating may be reduced below
either the applicable Standard & Poor's or Moody's ratings set forth above or
both. Neither event requires elimination of such Bonds from the portfolio of a
Trust but may be considered in the Sponsor's determination as to whether or not
to direct the Trustee to dispose of the Bonds. See "Trust Administration --
Portfolio Administration."
To the best knowledge of the Sponsor, there is no litigation pending as of
the Initial Date of Deposit in respect of any Bonds which might reasonably be
expected to have a material adverse effect upon the Fund or any of the Trusts.
At any time after the Initial Date of Deposit, litigation may be initiated on a
variety of grounds with respect to Bonds in the Fund. Such litigation as, for
example, suits challenging the issuance of pollution control revenue bonds under
environmental protection statutes, may affect the validity of such Bonds or the
tax-free nature of the interest thereon. The outcome of litigation of such
nature can never be entirely predicted. The Fund has received or will receive
opinions of bond counsel to the issuing authorities of each Bond on the date of
issuance to the effect that such Bonds have been validly issued and that the
interest thereon is exempt from Federal and applicable state income taxation. In
addition, other factors may arise from time to time which potentially may impair
the ability of issuers to meet obligations undertaken with respect to the Bonds.
THE TRUSTS
CALIFORNIA INSURED SERIES 1
GENERAL. California Insured Series 1 (the "California Trust") consists of 8
issues of Bonds. None of the Bonds in the California Trust are general
obligations of the governmental entities issuing them or are backed by the
taxing power thereof. All of the issues are payable from the income of a
specific project or authority and are not supported by the issuer's power to
levy taxes. These issues are divided by purpose of issues (and percentage of
principal amount to total California Trust) as follows: 6% Health Care, 63%
Other Revenue, and 31% Utility. No Bond issue has received a provisional rating.
For a general description of certain of the risks associated with the Bonds, see
"Risk Factors" below.
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RISK FACTORS SPECIFIC TO CALIFORNIA. The California Trust will invest
substantially all of its assets in California Municipal Obligations. The
California Trust is therefore susceptible to political, economic or regulatory
factors affecting issuers of California Municipal Obligations. These include the
possible adverse effects of certain California constitutional amendments,
legislative measures, voter initiatives and other matters that are described
below. The following information provides only a brief summary of the complex
factors affecting the financial situation in California (the "State") and is
derived from sources that are generally available to investors and are believed
to be accurate. No independent verification has been made of the accuracy or
completeness of any of the following information. It is based in part on
information obtained from various State and local agencies in California or
contained in official statements for various California Municipal Obligations.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local governmental finances
generally, will not adversely affect the market value of California Municipal
Obligations held in the portfolio of the California Trust or the ability of
particular obligors to make timely payments of debt service on (or relating to)
those obligations.
California's economy is the largest among the 50 states and one of the
largest in the world. California's population grew by 386,000 in 1996 for an
increase of 1.2%. As of January 1997, the State's population was 32.6 million.
The diversified economy has major components in agriculture, manufacturing,
high-technology, trade, entertainment, tourism, construction and services. Total
state gross domestic product of $1 trillion in 1997 will be larger than all but
seven nations in the world and California will become the first state to produce
over one trillion dollars worth of goods and services in a single year.
Events in Asia could have implications for California. Over half of
California-made goods exports are sold to Asia, and the state has already seen
declines in cargoes destined for Japan, South Korea, Singapore and Malaysia. At
the same time, strong growth continues in exports to Taiwan, Hong Kong, and
Mexico. Overall, exports of California-made goods slowed to 2% growth in the
first half of 1997, from over 8% the year before. Strong export growth was a
major element during the initial stages of the state's recovery in 1994 and
1995. The upturn has broadened sufficiently over the last two years, to the
point that California is now posting solid gains in employment and income
despite the slowing of exports.
After suffering through a severe recession, California's economy has been
on a steady recovery since the start of 1994. In 1996, California had eight
consecutive months of record high employment levels. Employment grew over
330,000 jobs in 1996 or 2.7%, and between November 1996 and November 1997,
335,000 jobs were added for a growth rate of 2.6%. All industry divisions showed
job gains over the year. The service industries continue to post the largest job
growth, on a numerical basis, up 151,400 jobs or 3.8%. The growth continues to
be primarily in the business service sector. On a percentage basis, employment
in construction shows the strongest job growth, up 8.1%, for an increase of
43,000 jobs. The growth in construction is predominantly in the special trade
contractors sector. Other industries posting strong job growth over the year
were wholesale and trade (up 43,200 jobs), manufacturing (up 38,500) and
government (up 33,200). California employment is expanding more rapidly than the
nation as a whole, which saw 2.3% job gains from November 1996 to November 1997.
Residential housing construction reached a seven-year high at an annual rate of
134,000 units in October 1997, up 29% from the year-ago pace. New home
construction has been growing slowly since 1993.
California enjoys a large and diverse labor force. As of November 1997, the
total civilian labor force was 15,931,000 with 15,000,000 individuals employed
and 931,000, or 5.8%, unemployed. In comparison, the unemployment rate for the
United States during the same time was 4.6%. Yet, with several major industries
undergoing restructuring, job losses are occurring in industries which, in the
past, have been a stable source of growth to California's economy. Energy and
telephone companies are deregulating
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while banking and insurance are streamlining and consolidating. Deregulation is
expected to make California more competitive by lowering electric rates by at
least 20% over the next five years.
Personal income rose to $808 billion in 1996, a 5.7% increase over 1995 and
ranked first in the nation in total personal income. Wages and salaries grew
5.4% during 1996. This is double the increase in employment. Solid gains in
employment and income are expected to continue for the next several years with
growth above the national average.
Certain California Municipal Obligations may be obligations of issuers
which rely in whole or in part, directly or indirectly, on ad valorem property
taxes as a source of revenue. The taxing powers of California local governments
and districts are limited by Article XIIIA of the California Constitution,
enacted by the voters in 1978 and commonly known as "Proposition 13." Briefly,
Article XIIIA limits to 1% of full cash value the rate of ad valorem property
taxes on real property and generally restricts the reassessment of property to
2% per year, except upon new construction or change of ownership (subject to a
number of exemptions). Taxing entities may, however, raise ad valorem taxes
above the 1% limit to pay debt service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This system
has resulted in widely varying amounts of tax on similarly situated properties.
Several lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13, and on June 18, 1992 the U.S. Supreme Court announced
a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." Court
decisions, however, allowed non-voter approved levy of "general taxes" which
were not dedicated to a specific use. In response to these decisions, the voters
of the State in 1986 adopted an initiative statute which imposed significant new
limits on the ability of local entities to raise or levy general taxes, except
by receiving majority local voter approval. Significant elements of this
initiative, "Proposition 62," have been overturned in recent court cases. An
initiative proposed to re-enact the provisions of Proposition 62 as a
constitutional amendment was defeated by the voters in November 1990, but such a
proposal may be renewed in the future.
California and its local governments are subject to an annual
"appropriations limit" imposed by Article XIIIB of the California Constitution,
enacted by the voters in 1979 and significantly amended by Propositions 98 and
111 in 1988 and 1990, respectively. Article XIIIB prohibits the State or any
covered local government from spending "appropriations subject to limitation" in
excess of the appropriations limit imposed. "Appropriations subject to
limitation" are authorizations to spend "proceeds of taxes," which consists of
tax revenues and certain other funds, including proceeds from regulatory
licenses, user charges or other fees, to the extent that such proceeds exceed
the cost of providing the product or service, but "proceeds of taxes" excludes
most State subventions to local governments. No limit is imposed on
appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of
post-1989 increases in gasoline taxes and vehicle weight fees, and (5)
appropriations made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for
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such adjustments were liberalized in 1990 by Proposition 111 to follow more
closely growth in California's economy.
"Excess" revenues are measured over a two-year cycle. With respect to local
governments, excess revenues must be returned by a revision of tax rates or fee
schedules within the two subsequent fiscal years. The appropriations limit for a
local government may be overridden by referendum under certain conditions for up
to four years at a time. With respect to the State, 50% of any excess revenues
is to be distributed to K-12 school districts and community college districts
(collectively, "K-14 DISTRICTS") and the other 50% is to be refunded to
taxpayers. With more liberal annual adjustment factors since 1988, and depressed
revenues since 1990 because of the recession, few governments, including the
State, are currently operating near their spending limits, but this condition
may change over time. Local governments may, by voter approval, exceed their
spending limits for up to four years.
Because of the complex nature of Articles XIIIA and XIIIB of the California
Constitution, the ambiguities and possible inconsistencies in their terms, and
the impossibility of predicting future appropriations or changes in population
and cost of living, and the probability of continuing legal challenges, it is
not currently possible to determine fully the impact of Article XIIIA or Article
XIIIB on California Municipal Obligations or on the ability of California or
local governments to pay debt service on such California Municipal Obligations.
It is not presently possible to predict the outcome of any pending litigation
with respect to the ultimate scope, impact or constitutionality of either
Article XIIIA or Article XIIIB, or the impact of any such determinations upon
State agencies or local governments, or upon their ability to pay debt service
on their obligations. Future initiative or legislative changes in laws or the
California Constitution may also affect the ability of the State or local
issuers to repay their obligations.
Under the California Constitution, debt service on outstanding general
obligation bonds is the second charge to the General Fund after support of the
public school system and public institutions of higher education. The State had
$14.9 billion aggregate principal amount of non-self-liquidating general
obligation bonds outstanding, and $6.4 billion authorized and unissued, as of
December 31, 1997. Outstanding lease revenue bonds totaled $7.2 billion as of
December 31, 1997, and are estimated to total $7.5 billion as of June 30, 1998.
From July 1, 1996 to July 1, 1997, the State issued approximately $1.03
billion in non-self-liquidating general obligation bonds and $1.26 billion in
revenue bonds. Refunding bonds, which are used to refinance existing long-term
debt, accounted for none of the general obligation bonds and $841.38 million of
the revenue bonds.
General Fund general obligation debt service expenditures for fiscal year
1996-97 were $1.92 billion, and are estimated at $1.89 billion for fiscal year
1997-98.
California maintains a Special Fund for Economic Uncertainties (the
"ECONOMIC UNCERTAINTIES FUND"), derived from General Fund revenues, as a reserve
to meet cash needs of the General Fund. As of November 30, 1997, the General
Fund had outstanding internal loans from Special Funds of $2.8 billion (in
addition, there are $3 billion of external loans represented by the 1997 Revenue
Anticipation Notes, which mature on June 30, 1998). The revised projected
1997-98 fiscal year General Fund Reserve for Economic Uncertainties is $329
million.
General Fund revenues and transfers for fiscal year 1996-97 were $49.2
billion, a 6% increase from the prior year. Expenditures for the 1996-97 fiscal
year were $49.1 billion, an 8% increase. A revised balance of $329 million is
expected in the Economic Uncertainties Fund at June 30, 1998. Special Fund
revenues are estimated at $14.2 billion for the 1997-98 fiscal year and
appropriated Special Fund expenditures at $14.4 billion. As of June 30, 1997,
the General Fund balance was $906 million. The estimate for June 30, 1998 is
$773.8 million.
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Overall, General Fund revenues and transfers represent about 78% of total
revenues. The remaining 22% are special funds, dedicated to specific programs.
The three largest revenue sources (personal income, sales, and bank and
corporation) account for about 73% of total revenues.
Several important tax changes were enacted in 1996. The bank and
corporation tax was reduced by 5%, and a number of targeted business tax
incentives were put into place.
The Governor's proposed budget for fiscal year 1997-98 kept General Fund
spending below revenues. K-12 education remained the state's top funding
priority -- nearly 42 cents of every General Fund dollar is spent on K-12
education. Education, public safety, and health and welfare expenditures
constitute nearly 93% of all state General Fund expenditures. The remaining
expenditures are in areas such as business, transportation, housing, and
environmental protection.
As of November 1997, General Fund cash receipts for the year are $407
million below the 1997 Budget Act Forecast. Also, personal income tax revenues
for the year are below expectations by $56 million. Yet, year-to-date sales and
use tax receipts are $48 million above forecast.
The State's general obligation bonds have received ratings of "Al" by
Moody's Investors Service, "A+" by Standard & Poor's Ratings Group and "A+" by
Fitch IBCA, Inc. (formerly Fitch Investors Service, L.P.). There can be no
assurance that such ratings will be maintained in the future. It should be noted
that the creditworthiness of obligations issued by the State of California may
differ from those of local governments, and that there is no obligation on the
part of the State to make payment on such local obligations in the event of
default.
The State is involved in certain legal proceedings (described in the
State's recent financial statements) that, if decided against the State, may
require the State to make significant future expenditures or may substantially
impair revenues. In the consolidated case of MALIBU VIDEO SYSTEMS, ET AL. V.
KATHLEEN BROWN AND ABRAMOVITZ, ET AL., a stipulated judgment was entered
requiring a return of $119 million plus interest to specified special funds over
a period of up to five years beginning in fiscal year 1996-97. The lawsuit
challenges the transfer of monies from special fund accounts within the State
Treasury to the State's General Fund pursuant to the Budget Acts of 1991, 1992,
1993, and 1994. Plaintiffs allege that the monetary transfers violated various
statutes and provisions of the State Constitution.
OBLIGATIONS OF OTHER ISSUERS. There are a number of State agencies,
instrumentalities and political subdivisions of the State that issue Municipal
Obligations, some of which may be conduit revenue obligations payable from
payments from private borrowers. These entities are subject to various economic
risks and uncertainties, and the credit quality of the securities issued by them
may vary considerably from the credit quality of the obligations backed by the
full faith and credit of the State.
Property tax revenues received by local governments declined more than 50%
following passage of Proposition 13. Subsequently, the California Legislature
enacted measures to provide for the redistribution of the State's General Fund
surplus to local agencies, the reallocation of certain State revenues to local
agencies and the assumption of certain governmental functions by the State to
assist municipal issuers to raise revenues. Total local assistance from the
State's General Fund was budgeted at approximately 75% of General Fund
expenditures in recent years, including the effect of implementing reductions in
certain aid programs. To reduce State General Fund support for school districts,
the 1992-93 and 1993-94 Budget Acts caused local governments to transfer $3.9
billion of property tax revenues to school districts, representing loss of the
post-Proposition 13 "bailout" aid. The largest share of these transfers came
from counties, and the balance from cities, special districts and redevelopment
agencies. In order to make up this shortfall, the Legislature proposed and
voters approved in 1993 dedicating 0.5% of the sales tax to counties and cities
for public safety purposes. In addition, the Legislature has changed laws to
relieve local governments of certain mandates, allowing them to reduce costs.
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To the extent the State should be constrained by its Article XIII
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may be further reduced. Any such reductions in
State aid could compound the serious fiscal constraints already experienced by
many local governments, particularly counties. At least one rural county (Butte)
publicly announced that it might enter bankruptcy proceedings in August, 1990,
although such plans were put off after the Governor approved legislation to
provide additional funds for the county. Other counties have also indicated that
their budgetary condition is extremely grave. The Richmond Unified School
District (Contra Costa County) entered bankruptcy proceedings in May, 1991 but
the proceedings have been dismissed. Los Angeles County, the largest in the
State, has reported severe fiscal problems, leading to a nominal $1.2 billion
deficit in its $11 billion budget for the 1995-96 Fiscal Year. To balance the
budget, the county has imposed severe cuts in services, particularly for health
care. The Legislature is considering actions to help alleviate the County's
fiscal problems, but none were completed before August 15, 1995. As a result of
its bankruptcy proceedings (discussed further below), Orange County also has
implemented stringent cuts in services and has laid off workers.
California Municipal Obligations which are assessment bonds may be
adversely affected by a general decline in real estate values or a slowdown in
real estate sales activity. In many cases, such bonds are secured by land which
is undeveloped at the time of issuance but anticipated to be developed within a
few years after issuance. In the event of such reduction or slowdown, such
development may not occur or may be delayed, thereby increasing the risk of a
default on the bonds. Because the special assessments or taxes securing these
bonds are not the personal liability of the owners of the property assessed, the
lien on the property is the only security for the bonds. Moreover, in most cases
the issuer of these bonds is not required to make payments on the bonds in the
event of delinquency in the payment of assessments or taxes, except from
amounts, if any, in a reserve fund established for the bonds.
Certain California long-term lease obligations, though typically payable
from the general fund of the municipality, are subject to "abatement" in the
event the facility being leased is unavailable for beneficial use and occupancy
by the municipality during the term of the lease. Abatement is not a default,
and there may be no remedies available to the holders of the certificates
evidencing the lease obligation in the event abatement occurs. The most common
cases of abatement are failure to complete construction of the facility before
the end of the period during which lease payments have been capitalized and
uninsured casualty losses to the facility (E.G., due to an earthquake). In the
event abatement occurs with respect to a lease obligation, lease payments may be
interrupted (if all available insurance proceeds and reserves are exhausted) and
the certificates may not be paid when due.
Several years ago, the Richmond Unified School District (the "DISTRICT")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the District's finances were taken
over by a State receiver (including a brief period under bankruptcy court
protection), the District failed to make rental payments on this lease,
resulting in a lawsuit by the Trustee for the Certificate of Participation
holders, in which the State was a named defendant (on the grounds that it
controlled the District's finances). One of the defenses raised in answer to
this lawsuit was the invalidity of the original lease transaction. The trial
court has upheld the validity of the District's lease, and the case has been
settled. Any judgment in any future case against the position asserted by the
Trustee in the Richmond case may have adverse implications for lease
transactions of a similar nature by other California entities.
The repayment of industrial development securities secured by real property
may be affected by California laws limiting foreclosure rights of creditors.
Securities backed by health care and hospital revenues may be affected by
changes in State regulations governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including risks related
to the policy of awarding exclusive contracts to certain hospitals.
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Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (E.G., because of a major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the Issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not presently possible to determine the impact of any such legislation on
California Municipal Obligations in which the Fund may invest, future
allocations of state revenues to local governments or the abilities of state or
local governments to pay the interest on, or repay the principal of, such
California Municipal Obligations.
Substantially all of California is within an active geologic region subject
to major seismic activity. Northern California in 1989 and Southern California
in 1994 experienced major earthquakes causing billions of dollars in damages.
The federal government provided more than $13 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any California Municipal Obligation in the Portfolio could be
affected by an interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained by
the inability of (i) an issuer to have obtained earthquake insurance coverage at
reasonable rates; (ii) an insurer to perform on its contracts of insurance in
the event of widespread losses; or (iii) the Federal or State government to
appropriate sufficient funds within their respective budget limitations.
On December 7, 1994, Orange County California (the "COUNTY"), together with
its pooled investment fund (the "POOLS"), filed for protection under Chapter 9
of the federal Bankruptcy Code, after reports that the Pools had suffered
significant market losses in its investments caused a liquidity crisis for the
Pools and the County. Approximately 180 other public entities, most but not all
located in the County, were also depositors in the Pools. The County estimated
the Pools' loss at about $1.64 billion, or 23%, of its initial deposits of
around $7.5 billion. Many of the entities which kept moneys in the Pools,
including the County, faced cash flow difficulties because of the bankruptcy
filing and may be required to reduce programs or capital projects. Moody's and
Standard & Poor's have suspended, reduced to below investment grade levels, or
placed on "Credit Watch" various securities of the County and the entities
participating in the Pools.
On May 2, 1995, the Bankruptcy Court approved a settlement agreement
covering claims of the other participating entities against the County and the
Pools. Most participants have received in cash 80% (90% for school districts) of
their Pools' investment; the balance is to be paid in the future. The County
succeeded in deferring, by consent, until June 30, 1996, the repayment of $800
million of
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short-term obligations due in July and August, 1995; these notes are, however,
considered to be in default by Moody's and S&P. On June 27, 1995, County voters
turned down a proposal for a temporary 0.5% increase in the local sales tax,
making the County's fiscal recovery much harder.
The State of California has no obligation with respect to any obligations
or securities of the County or any of the other participating entities,
although, under existing legal precedents, the State may be obligated to ensure
that school districts have sufficient funds to operate. All school districts
were able to meet their obligations in the 1994-95 Fiscal Year.
STATE TAXATION. For a discussion of the Federal tax status of income
earned on California Trust Units, see "Tax Status."
We have examined the income tax laws of the State of California to
determine its applicability to the California Trust and to the holders of Units
in the California Trust who are full-time residents of the State of California
("CALIFORNIA UNITHOLDERS"). The assets of the California Trust will consist of
bonds issued by the State of California or a local government of California (the
"CALIFORNIA BONDS") or by the Commonwealth of Puerto Rico or its authority (the
"POSSESSION BONDS") (collectively, the "BONDS"). For purposes of the following
opinions, it is assumed that each asset of the California Trust is debt, the
interest on which is excluded from gross income for federal income tax purposes.
Neither the Sponsor nor its counsel have independently examined the Bonds
to be deposited in and held in the California Trust. However, although Chapman
and Cutler expresses no opinion with respect to the issuance of the Bonds, in
rendering its opinion expressed herein, it has assumed that: (i) the Bonds were
validly issued; (ii) the interest thereon is excludable from gross income for
federal income tax purposes; and (iii) interest on the Bonds, if received
directly by a California Unitholder, would be exempt from the income tax imposed
by the State of California that is applicable to individuals, trusts and estates
(the "CALIFORNIA PERSONAL INCOME TAX"). This opinion does not address the
taxation of persons other than full-time residents of California. We have
assumed that, at the respective times of issuance of the Bonds, opinions that
the Bonds were validly issued and that interest on the Bonds is excluded from
gross income for federal income tax purposes were rendered by bond counsel to
the respective issuing authorities. In addition, we have assumed that, with
respect to the California Bonds, bond counsel to the issuing authorities
rendered opinions that the interest on the California Bonds is exempt from the
California Personal Income Tax and, with respect to the Possession Bonds, bond
counsel to the issuing authorities rendered opinions that the Possession Bonds
and the interest thereon is exempt from all state and local income taxation.
Neither the Sponsor nor its counsel has made any review for the California Trust
of the proceedings relating to the issuance of the Bonds or of the basis for the
opinions rendered in connection therewith.
Based upon the foregoing, and upon an investigation of such matters of law
as we considered to be applicable, we are of the opinion that, under existing
provisions of the law of the State of California as of the date hereof:
1. The California Trust is not an association taxable as a corporation for
purposes of the California Bank and Corporation Tax Law, and each
California Unitholder will be treated as the owner of a pro rata portion of
the California Trust, and the income of such portion of the California
Trust will be treated as the income of the California Unitholders under the
California Personal Income Tax.
2. Interest on the Bonds which is exempt from tax under the California
Personal Income Tax when received by the California Trust and which would
be excludable from California taxable income for purposes of the California
Personal Income Tax if received directly by a California Unitholder will be
excludable from California taxable income for purposes of the California
Personal Income Tax when received by the California Trust and distributed
to a California Unitholder.
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<PAGE>
3. Each California Unitholder of the California Trust will generally recognize
gain or loss for California Personal Income Tax purposes if the Trustee
disposes of a Bond (whether by redemption, sale or otherwise) or when the
California Unitholder redeems or sells Units of the California Trust, to
the extent that such a transaction results in a recognized gain or loss to
such California Unitholder for federal income tax purposes. However, there
are certain differences between the recognition of gain or loss for federal
income tax purposes and for California Personal Income Tax purposes, and
California Unitholders are advised to consult their own tax advisors. Tax
basis reduction requirements relating to amortization of bond premium may,
under some circumstances, result in a California Unitholder realizing
taxable gain for California Personal Income Tax purposes when a Unit is
sold or redeemed for an amount equal to or less than its original cost.
4. Under the California Personal Income Tax, interest on indebtedness incurred
or continued by a California Unitholder to purchase Units in the California
Trust is not deductible for purposes of the California Personal Income Tax.
This opinion relates only to California Unitholders subject to the
California Personal Income Tax. No opinion is expressed with respect to the
taxation of California Unitholders subject to the California Bank and
Corporation Tax Law and such California Unitholders are advised to consult their
own tax advisors. Please note, however, that interest on the underlying Bonds
attributed to a California Unitholder that is subject to the California Bank and
Corporation Tax Law may be includible in its gross income for purposes of
determining its California franchise tax. We have not examined any of the Bonds
to be deposited and held in the California Trust or the proceedings for the
issuance thereof or the opinions of bond counsel with respect thereto, and we
express no opinion with respect to taxation under any other provisions of the
California law. Ownership of the Units may result in collateral California tax
consequences to certain taxpayers. Prospective investors should consult their
tax advisors as to the applicability of any such collateral consequences.
MINNESOTA INSURED SERIES 5
GENERAL. Minnesota Insured Series 5 (the "Minnesota Trust") consists of 8
issues of Bonds. One of the Bonds (14%) in the Minnesota Trust is a general
obligation of the governmental entities issuing it or is backed by the taxing
power thereof. All of the issues are payable from the income of a specific
project or authority and are not supported by the issuer's power to levy taxes.
These issues are divided by purpose of issues (and percentage of principal
amount to total Minnesota Trust) as follows: 18% Education, 27% Other Revenue,
22% Health Care, and 19% Utility. No Bond issue has received a provisional
rating. For a general description of certain of the risks associated with the
Bonds, see "Risk Factors" below.
RISK FACTORS SPECIFIC TO MINNESOTA. Minnesota's constitutionally prescribed
fiscal period is a biennium, and Minnesota operates on a biennial budget basis.
Legislative appropriations for each biennium are prepared and adopted during the
final legislative session of the immediately preceding biennium. Prior to each
fiscal year of a biennium, Minnesota's Department of Finance allots a portion of
the applicable biennial appropriation to each agency or other entity for which
an appropriation has been made. An agency or other entity may not expend moneys
in excess of its allotment. If revenues are insufficient to balance total
available resources and expenditures, Minnesota's Commissioner of Finance, with
the approval of the Governor, is required to reduce allotments to the extent
necessary to balance expenditures and forecasted available resources for the
then current biennium. The Governor may prefer legislative action when a large
reduction in expenditures appears necessary, and if Minnesota's legislature is
not in session, the Governor is empowered to convene a special session.
Frequently in recent years, legislation has been required to eliminate
projected budget deficits by raising additional revenue, reducing expenditures,
including aids to political subdivisions and higher
15
<PAGE>
education, reducing the State's budget reserve, imposing a sales tax on
purchases by local governmental units, and making other budgetary adjustments.
During fiscal year 1997, the total fund balance, on a GAAP basis, for the
General Fund increased by $66.9 million to $1.486 billion. At June 30, 1997, the
unreserved, undesignated portion of the fund balance reflected a positive
balance of $642.3 million, after providing for a $583.5 million budgetary
reserve. This compares with a $491.9 million unreserved, undesignated fund
balance at the end of fiscal year 1996 with a $570 million budgetary reserve. On
a budgetary basis, the June 30, 1997, unrestricted (undesignated) fund balance
for the General Fund was $812.7 million, compared with a balance of $506 million
at the end of 1996.
General Fund revenues and transfers-in totaled $10.412 billion for fiscal
year 1997, up 8% from those for fiscal year 1996. General Fund expenditures and
transfers-out for the year totaled $9.926 billion, an increase of 3% from the
previous year. Of this amount, $6.917 billion (70%) is in the form of grants and
subsidies to local governments, individuals and non-profit organizations.
The Minnesota Department of Finance November 1997 Forecast projects that,
under current law, the State will complete its current biennium June 30, 1999
with a $453 million surplus, plus a $350 million cash flow account balance, a
$522 million budget reserve, and $93 million in other dedicated accounts.
Revenues for the 1998-99 biennium are forecast at $21.045 billion. Total General
Fund expenditures and transfers for the biennium are projected to be $20.7
billion. The forecast balance for the General Fund is $1.36 billion for the
1998-99 biennium.
The State is party to a variety of civil actions that could adversely
affect the State's General Fund. In addition, substantial portions of State and
local revenues are derived from federal expenditures, and reductions in federal
aid to the State and its political subdivisions and other federal spending cuts
may have substantial adverse effects on the economic and fiscal condition of the
State and its local governmental units. Risks are inherent in making revenue and
expenditure forecasts. Economic or fiscal conditions less favorable than those
reflected in State budget forecasts and planning estimates may create additional
budgetary pressures.
State grants and aids represent a large percentage of the total revenues of
cities, towns, counties and school districts in Minnesota. Even with respect to
bonds that are revenue obligations of the issuer and not general obligations of
Minnesota, there can be no assurance that the fiscal problems referred to above
will not adversely affect the market value or marketability of the bonds or the
ability of the respective obligors to pay interest on and principal of the
bonds.
The state issued $170.0 million of new general obligation bonds, and $172.1
million of general obligation bonds were redeemed during 1997, leaving an
outstanding balance of $2.2 billion. Moody's Investor Services and Fitch's rates
Minnesota general obligation bonds Aaa and AAA, respectively. In August 1997,
Standard & Poor's upgraded the state's general obligation bond rating to AAA
from AA+.
MINNESOTA ECONOMY. Minnesota relies heavily on a progressive individual
income tax and a retail sales tax for revenue, which results in a fiscal system
unusually sensitive to economic conditions. In fiscal year 1997, Minnesota's
economy outperformed the United States economy as a whole.
In November 1997, the state's unemployment rate, on a seasonally adjusted
basis, was 2.8%, down 1.2 percentage points from the 4.0% observed one year
earlier. That unemployment rate was well below the national rate of 4.6%.
Payroll employment in Minnesota grew by 53,000 jobs during the 1997 fiscal year.
Employment in fiscal year 1997 grew by 2.2%, the same rate as the U.S. average.
At present, the state's most serious economic challenge is ensuring there will
be sufficient workers to fill the jobs currently being generated.
16
<PAGE>
Personal income in Minnesota is now estimated to have grown at a 6.6%
annual rate during fiscal year 1997, well above the national average of 5.3%.
Wage growth was strong, but as in neighboring Midwestern states, all of whom
also had strong growth in personal income, the agricultural sector was a major
contributor. Prices were higher than average, yields were strong, and federal
farm program payments under the 1996 farm bill were much larger than they would
have been under the previous program.
Personal income in Minnesota is forecast to grow by 5.0% during the 1998
fiscal year, slightly below the average rate forecast for the nation. Payroll
employment is expected to grow at a 2.1% annual rate, consistent with the
national average. Wage and salary income growth, however, is projected to lag
the national average rate as states outside the Midwest also begin to feel labor
market pressures and part-time workers elsewhere increase their hours to, or
beyond, the levels they desire. Farm income in the 1998 fiscal year is also
forecast to be down from the high levels reported during fiscal year 1997 since
commodity prices have returned to more normal levels.
There can be no assurance that Minnesota's economy and fiscal condition
will not materially change in the future or that future difficulties will not
occur. Economic difficulties and the resultant impact on state and local
government finances may adversely affect the market value of obligations in the
portfolio of Minnesota Insured Intermediate Tax Free Fund or the ability of
respective obligors to make timely payment of the principal and interest on such
obligations.
STATE TAXATION. For a discussion of the Federal tax status of income
earned on Minnesota Trust Units, see "Tax Status."
Counsel to the Minnesota Trust understands that the Minnesota Trust will
only have income consisting of (i) interest from bonds issued by the State of
Minnesota and its political and governmental subdivisions, municipalities and
governmental agencies and instrumentalities (the "MINNESOTA BONDS") and bonds
issued by possessions of the United States or its authority (the "POSSESSION
BONDS" and, with the Minnesota Bonds, the "BONDS") which would be exempt from
Federal and Minnesota income taxation when paid directly to an individual, trust
or estate, (ii) gain on the disposition of such Bonds and (iii) proceeds paid
under certain insurance policies issued to the issuers of the Bonds which
represent maturing interest or principal payments on defaulted Bonds held by the
Trustee.
Neither the Sponsor nor its counsel has independently examined the Bonds to
be deposited in and held in the Trust. However, although no opinion is expressed
herein regarding such matters, it is assumed that: (i) the Bonds were validly
issued, (ii) the interest thereon is excludible from gross income for Federal
income tax purposes and (iii) the interest thereon is exempt from the income tax
imposed by Minnesota that is applicable to individuals, trusts and estates (the
"MINNESOTA INCOME TAX"). It should be noted that interest on the Minnesota Bonds
is subject to tax in the case of corporations subject to the Minnesota Corporate
Franchise Tax or the Corporate Alternative Minimum Tax and is a factor in the
computation of the Minimum Fee applicable to financial institutions; no opinion
is expressed with respect to the treatment of interest on the Possession Bonds
for purposes of such taxes. The opinion set forth below does not address the
taxation of persons other than full time residents of Minnesota.
We have assumed that, at the respective times of issuance of the Bonds,
opinions relating to the validity thereof and to the exemption of interest
thereon from Federal income tax were rendered by bond counsel to the respective
issuing authorities. In addition, we have assumed that, with respect to the
Minnesota Bonds, bond counsel to the issuing authorities rendered opinions that
the interest on the Minnesota Bonds is exempt from the Minnesota Income Tax and,
with respect to the Possession Bonds, bond counsel to the issuing authorities
rendered opinions that the Possession Bonds and the interest thereon is exempt
from all state and local income taxation. Neither the Sponsor nor its counsel
has made any review for the Minnesota Trust of the proceedings relating to the
issuance of the Bonds or of the bases for the opinions rendered in connection
therewith.
17
<PAGE>
Although Minnesota state law provides that interest on Minnesota bonds is
exempt from Minnesota state income taxation, the Minnesota state legislature has
enacted a statement of intent that interest on Minnesota bonds should be subject
to Minnesota state income taxation if it is judicially determined that the
exemption discriminates against interstate commerce, effective for the calendar
year in which such a decision becomes final. It cannot be predicted whether a
court would render such a decision or whether, as a result thereof, interest on
Minnesota Bonds and therefore distributions by the Minnesota Trust would become
subject to Minnesota state income taxation.
In the opinion of Chapman and Cutler, counsel to the Sponsor, under
existing Minnesota income tax law as of the date of this prospectus and based
upon the assumptions above:
1. The Minnesota Trust is not an association taxable as a corporation and
each Unitholder of the Minnesota Trust will be treated as the owner of
a pro rata portion of the Minnesota Trust, and the income of such
portion of the Minnesota Trust will therefore be treated as the income
of the Unitholder for Minnesota Income Tax purposes;
2. Income on the Bonds, excludable from Minnesota taxable income for
purposes of the Minnesota Income Tax when received by the Minnesota
Trust, and which would be excludable from Minnesota taxable income for
purposes of the Minnesota Income Tax if received directly by a
Unitholder, will be excludable from Minnesota taxable income for
purposes of the Minnesota Income Tax when received by the Minnesota
Trust and distributed to such Unitholder;
3. To the extent that interest on certain Bonds (except with respect to
Possession Bonds, as to which no opinion is expressed), if any, is
includible in the computation of "alternative minimum taxable income"
for Federal income tax purposes, such interest will also be includible
in the computation of "alternative minimum taxable income" for
purposes of the Minnesota Alternative Minimum Tax imposed on
individuals, estates and trusts;
4. Each Unitholder of the Minnesota Trust will recognize gain or loss for
Minnesota Income Tax purposes if the Trustee disposes of a Bond
(whether by redemption, sale or otherwise) or if the Unitholder
redeems or sells Units of the Minnesota Trust to the extent that such
a transaction results in a recognized gain or loss to such Unitholder
for Federal income tax purposes;
5. Tax basis reduction requirements relating to amortization of bond
premium may, under some circumstances, result in Unitholders realizing
taxable gain for Minnesota Income Tax purposes when their Units are
sold or redeemed for an amount equal to or less than their original
cost;
6. Proceeds, if any, paid under individual insurance policies obtained by
issuers of Bonds which represent maturing interest on defaulted
obligations held by the Trustee will be excludible from Minnesota net
income if, and to the same extent as, such interest would have been so
excludible from Minnesota net income if paid in the normal course by
the issuer of the defaulted obligation PROVIDED that, at the time such
policies are purchased, the amounts paid for such policies are
reasonable, customary and consistent with the reasonable expectation
that the issuer of the bonds, rather than the insurer, will pay debt
service on the bonds; and
7. To the extent that interest derived from the Minnesota Trust by a
Unitholder with respect to any Possession Bonds is excludible from
gross income for Federal income tax purposes and is exempt from state
and local taxation pursuant to federal law when received by the
Minnesota Trust, such interest will not be subject to the Minnesota
Income Tax when
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<PAGE>
distributed by the Minnesota Trust and received by the Unitholders. As
noted above, we have expressed no opinion as to the treatment of
interest on the Possession Bonds for purposes of the Minnesota
Corporate Franchise Tax or the Alternative Minimum Tax or whether it
is a factor in the computation of the Minimum Fee applicable to
financial institutions. Although a federal statute currently provides
that bonds issued by the Government of Puerto Rico, or by its
authority, are exempt from all state and local taxation, the Supreme
Court of Minnesota has held that interest earned on bonds issued by
the Government of Puerto Rico may be included in taxable net income
for purposes of computing the Minnesota bank excise tax. The State of
Minnesota could apply the same reasoning in determining whether
interest on the Possession Bonds is subject to the taxes listed above
on which we express no opinion.
Chapman and Cutler has not examined any of the Bonds to be deposited and
held in the Minnesota Trust or the proceedings for the issuance thereof or the
opinions of bond counsel with respect thereto, and therefore express no opinions
as to the exemption from State income taxes of interest on the Bonds if received
directly by a Unitholder. Chapman and Cutler has expressed no opinion with
respect to taxation under any other provision of Minnesota law. Ownership of the
Units may result in collateral Minnesota tax consequences to certain taxpayers.
Prospective investors should consult their tax advisors as to the applicability
of any such collateral consequences.
TERRITORIAL INSURED SERIES 8
GENERAL. Territorial Insured Series 8 (the "Territorial Trust") consists
entirely of obligations of issuers located in Territories of the United States,
such as Puerto Rico, Guam and the Northern Marianna Islands. Specifically, the
Territorial Trust consists of 7 issues of Bonds 6 of which are issued by
entities located in the Commonwealth of Puerto Rico and 1 of which was issued by
an entity located in Guam. None of the Bonds in the Territorial Trust are
general obligations of a governmental entity issuing them or backed by the
taxing power thereof. The remaining issues are payable from the income of a
specific project or authority and are not supported by the issuer's power to
levy taxes. These issues are divided by purpose of issues (and percentage of
principal amount to total Territorial Trust) as follows: 8% Government
Facilities Revenue Bonds, 25% Infrastructure Revenue Bonds, 33% Transportation
Revenue Bonds, 17% Education Revenue Bonds, 17% Other Revenue Bonds. No Bond has
received a provisional rating. For a general description of certain of the risks
associated with the Bonds, see "Risk Factors" below.
RISK FACTORS SPECIFIC TO PUERTO RICO. The economy of Puerto Rico is closely
integrated with that of mainland United States. During fiscal 1996 approximately
88% of Puerto Rico's exports were to the U.S. mainland, which was also the
source of approximately 62% of Puerto Rico's imports. The economy of Puerto Rico
is dominated by the manufacturing and service sectors. The manufacturing sector
has experienced fundamental changes over the years as a result of increased
emphasis on higher wage, high technology industries such as pharmaceuticals,
electronics, computers, microprocessors, professional and scientific
instruments, and certain high technology machinery and equipment. The service
sector, including finance, insurance and real estate, also plays a major role in
the economy. It ranks second only to manufacturing in contribution to the gross
domestic product and leads all sectors in providing employment. In recent years,
the service sector has experienced significant growth in response to the
expansion of the manufacturing sector.
Puerto Rico's more than decade-long economic expansion continued throughout
the five-year period from fiscal 1993 through fiscal 1997. Almost every sector
of the economy participated and record levels of employment were achieved.
Factors behind this expansion included government-sponsored economic development
programs, periodic declines in the exchange value of the U.S. dollar, increases
in
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<PAGE>
the level of federal transfers and the relatively low cost of borrowing. Further
growth in the Puerto Rico economy in fiscal 1998 depends on several factors,
including the strength of the U.S. economy, the relative stability in the price
of oil imports, increases in the number of visitors to the island, the level of
exports, the exchange value of the U.S. dollar, the level of federal transfers
and the cost of borrowing.
The economic activity index showed an increase of four points in fiscal
1997, reaching 163.5, 13 points above 1992. The increase in Puerto Rico's gross
product surpassed 3%, a rate almost four times greater than that of 1992. The
main driving force behind this growth was manufacturing, Puerto Rico's largest
and most quickly developing economic sector. Manufacturing exports increased 35%
during the last five years, from $16.9 billion in 1993 to $22.8 billion in 1997,
due in part to increasing emphasis on rebuilding Puerto Rico's infrastructure,
including the upcoming renovation of the Port of San Juan. Since fiscal 1985,
personal income, both aggregate and per capita, has increased consistently each
fiscal year. In fiscal 1996, aggregate personal income was $29.4 billion ($27.8
billion in 1992 prices). In fiscal 1997, personal income per capita was
approximately $8,200, up from $7,882 in 1996 and $6,429 in 1992.
Puerto Rico's unemployment, although at relatively low historical levels,
remains above the average for the United States. Average total employment
increased from 987,000 in fiscal 1992 to 1,132,000 in fiscal 1997, with 145,000
new jobs created during the most recent five-year period, an increase of 14.7%.
Non-farm employment (not seasonally adjusted) for December 1997 reached 955,000,
its highest level. The average unemployment rate decreased from 17.0% in fiscal
1993 to 13.5% in fiscal 1997.
The Puerto Rican economy is affected by a number of Commonwealth and
federal investment incentive programs. Aid for Puerto Rico's economy has
traditionally depended heavily on federal programs, and current federal
budgetary policies suggest that an expansion of aid to Puerto Rico is unlikely.
An adverse effect on the Puerto Rican economy could result from other U.S.
policies, including further reduction in transfer payment programs such as food
stamps, curtailment of military spending and policies which could lead to a
stronger dollar. One of the factors assisting the development of the Puerto
Rican economy has been the tax incentives offered by the federal and Puerto Rico
governments.
Puerto Rico's future will be determined by the leadership and initiatives
of both the private and public sector to compensate for the loss of the federal
tax credit under Section 936 of the U.S. tax code. This important credit which
enabled companies to repatriate profits at a 40-60% reduction in federal taxes
was terminated as of July 1996. Existing U.S. companies operating in Puerto Rico
were given a ten year grace period, but new U.S. manufacturing companies coming
to Puerto Rico will have to pay U.S. deferral taxes when repatriating their
profits to the mainland.
FEDERAL TAXATION. For a discussion of the Federal tax status of income
earned on Territorial Trust Units, see "Tax Status."
20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE SPONSOR, TRUSTEE AND THE UNITHOLDERS OF DELAWARE INVESTMENTS
TAX-EXEMPT TRUST, SERIES 14:
We have audited the accompanying statements of net assets, including the
schedules of investments, of Delaware Investments Tax-Exempt Trust, Series 14
(comprised of the California Insured Series 1, Minnesota Insured Series 5 and
Territorial Insured Series 8) as of the opening of business on March 19, 1998.
The statements of net assets are the responsibility of the Trust's Sponsor. Our
responsibility is to express an opinion on these statements of net assets 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 statements of net assets are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements of net assets. Our
procedures included confirmation of the irrevocable letter of credit held by the
Trustee and deposited in the Trust on March 19, 1998. An audit also includes
assessing the accounting principles used and significant estimates made by the
Sponsor, as well as evaluating the overall presentation of the statements of net
assets. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the statements of net assets referred to above present
fairly, in all material respects, the financial position of each of the
respective series constituting the Delaware Investments Tax-Exempt Trust, Series
14 at the opening of business on March 19, 1998, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 19, 1998
21
<PAGE>
DELAWARE INVESTMENTS TAX-EXEMPT TRUST, SERIES 14
STATEMENTS OF NET ASSETS
AS OF THE OPENING OF BUSINESS ON THE INITIAL
DATE OF DEPOSIT: MARCH 19, 1998
<TABLE>
<CAPTION>
CALIFORNIA MINNESOTA TERRITORIAL
INSURED INSURED INSURED
SERIES 1 SERIES 5 SERIES 8
----------- ---------- ------------
<S> <C> <C> <C>
Investments in securities (1)(2) ............................ $1,120,177 $ 857,328 $1,506,668
Contracts to purchase securities (1)(2) ..................... 873,120 706,858 1,010,858
Accrued interest on underlying securities (1)(3) ............ 14,092 14,944 24,944
Organizational and offering Costs (4) ....................... 8,940 7,893 11,600
---------- ---------- ----------
Total Assets ................................................ $2,016,329 $1,587,023 $2,554,070
Less: distributions payable (3) ............................. 14,092 14,944 24,944
Less: accrued organizational and offering costs (4) ......... 8,940 7,893 11,600
---------- ---------- ----------
Net Assets .................................................. $1,993,297 $1,564,186 $2,517,526
========== ========== ==========
Net Assets Represented By:
Interest of Unitholders --
Units of fractional undivided interest
outstanding: (209,600, 164,478 and 264,723 Units,
respectively)
Cost to investors (5) ....................................... $2,096,001 $1,644,781 $2,647,230
Less: Gross underwriting commission (5) ..................... 102,704 80,595 129,704
---------- ---------- ----------
Net Assets (5) .............................................. $1,993,297 $1,564,186 $2,517,526
========== ========== ==========
</TABLE>
- ----------------------
(1) The aggregate value of the Bonds listed under "Schedule of Investments" for
each Trust herein and their cost to such Trust are the same. The value of
the Bonds is determined by Muller Data Corporation on the bases set forth
under "Public Offering -- Offering Price." The contracts to purchase
securities are collateralized by an irrevocable letter of credit which has
been deposited with the Trustee in and for the following amounts:
<TABLE>
<CAPTION>
PRINCIPAL OFFERING
AMOUNT OF PRICE OF ACCRUED INTEREST
AMOUNT OF BONDS UNDER BONDS UNDER TO EXPECTED
LETTER OF CREDIT CONTRACTS CONTRACTS DELIVERY DATES
---------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
California Insured Series 1 .......... $1,500,000 $ 925,000 $ 873,120 $ 4,570
Minnesota Insured Series 5 ........... $1,500,000 $ 725,000 $ 706,858 $ 4,260
Territorial Insured Series 8 ......... $2,500,000 $1,075,000 $1,010,858 $ 4,097
</TABLE>
(2) Insurance coverage providing for the timely payment of principal and
interest on the Bonds in the portfolio of each Insured Trust has been
obtained by the issuer of the Bond, the underwriter of such Bond, the
Sponsor or others. See "Schedule of Investments."
(3) The Trustee will advance the amount of accrued interest as of March 24,
1998 (the "First Settlement Date"), and all accrued interest to the First
Settlement Date will be distributed to the Sponsor as the Unitholder of
record as of the First Settlement Date.
(4) The Trusts (and therefore Unitholders) will bear all or a portion of their
organizational and offering costs, which will be deferred and charged off
against principal at the end of the initial offering period.
(5) The aggregate public offering price (exclusive of interest) and the
aggregate sales charge are computed on the bases set forth under "Public
Offering -- Offering Price" and "Public Offering -- Sponsor and Underwriter
Compensation" and assume all single transactions involve less than
$100,000. For single transactions involving $100,000 or more, the sales
charge is reduced (see "Public Offering -- General") resulting in an equal
reduction in both the Cost to investors and the Gross underwriting
commission while the Net Assets remains unchanged.
22
<PAGE>
CALIFORNIA INSURED SERIES 1
SCHEDULE OF INVESTMENTS
AS OF THE OPENING OF BUSINESS ON THE INITIAL
DATE OF DEPOSIT: MARCH 19, 1998
<TABLE>
<CAPTION>
NAME OF ISSUER, TITLE, INTEREST RATE AND OFFERING PRICE
AGGREGATE MATURITY DATE OF EITHER BONDS DEPOSITED REDEMPTION TO CALIFORNIA
PRINCIPAL (1) OR BONDS CONTRACTED FOR (1)(5) RATING (2) PROVISIONS (3) TRUST (4)
- --------------- --------------------------------------------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C>
$ 250,000 Pomona Public Financing Authority, 1998 AAA 2008 @ 102 $ 242,113
Refunding Revenue Bonds, (Southwest
Pomona Redevelopment Project), Series
W, (MBIA Insured), 5.00%, Due
02/01/2030 #**
500,000 California State University, Hayward AAA 2008 @ 101 502,910
Foundation, Inc., Auxiliary Organization
Revenue Refunding Bonds, Series 1998,
(MBIA Insured), 5.25%, Due 08/01/2025
250,000 San Francisco, California, Bay Area Rapid AAA 2008 @ 101 243,393
Transit District, Sales Tax Revenue Bonds, 2024 @ 100 S.F.
(AMBAC Insured), 5.00%, Due 07/01/2028 #
500,000 City of Santa Clara, California, AAA 2008 @ 102 486,990
Subordinated Electric Revenue Refunding 2018 @ 100 S.F.
Bonds, Series 1998 A, (AMBAC Insured),
5.00%, Due 07/01/2027 #
250,000 Los Angeles County Public Works AAA 2007 @ 101 250,713
Financing Authority, Lease Revenue 2013 @ 100 S.F.
Bonds, (Multiple Capital Facilities Project
V), 1996 Series B, (AMBAC Insured),
5.125%, Due 12/01/2017 #
125,000 Public Facilities Financing Authority of the AAA 2007 @ 101 125,826
City of San Diego, Sewer Revenue Bonds, 2023 @ 100 S.F.
Series 1997A, (FGIC Insured), 5.25%,
Due 05/15/2027 #
125,000 California Health Facilities Financing AAA 2007 @ 102 123,161
Authority, Insured Revenue Bonds, 2018 @ 100 S.F.
Cedars-Sinai Medical Center, Series 1997B
(MBIA Insured), 5.125%, Due 08/01/2027 *
50,000 Puerto Rico Highway and Transportation AAA 18,191
Authority, Transportation Revenue Bonds,
Series A, (AMBAC Insured), 0.00%, Due
7/01/2018 # (6)
---------- ----------
$2,050,000 $1,993,297
========== ==========
</TABLE>
For an explanation of footnotes used on this page, see "Notes to Schedule
of Investments" on page 26.
23
<PAGE>
MINNESOTA INSURED SERIES 5
SCHEDULE OF INVESTMENTS
AS OF THE OPENING OF BUSINESS ON THE INITIAL
DATE OF DEPOSIT: MARCH 19, 1998
<TABLE>
<CAPTION>
NAME OF ISSUER, TITLE, INTEREST RATE AND OFFERING PRICE
AGGREGATE MATURITY DATE OF EITHER BONDS DEPOSITED REDEMPTION TO MINNESOTA
PRINCIPAL (1) OR BONDS CONTRACTED FOR (1)(5) RATING (2) PROVISIONS (3) TRUST (4)
- --------------- ------------------------------------------------ ------------ ---------------- ---------------
<S> <C> <C> <C> <C>
$ 200,000 Independent School District No. 330, Southwest AAA 2007 @ 100 $ 196,374
Star Concept Schools, Heron Lake, Minnesota,
(MBIA Insured), 4.95%, Due 02/01/2022 #
100,000 Independent School District No. 2144, Chisago AAA 2006 @ 100 98,291
Lakes Area Schools, Minnesota, General 2021 @ 100 S.F.
Obligation School Building Bonds, Series 1998,
(MBIA Insured), 5.00%, Due 02/01/2023 #
250,000 Minnesota Agriculture and Economic AAA 2007 @ 102 250,258
Development Board Revenue Bonds, The 2010 @ 100 S.F.
Evangelical Lutheran Good Samaritan Society
Project, Series 1997, (AMBAC Insured), 5.15%,
Due 12/01/2022 #
215,000 City of St. Cloud, Minnesota, General AAA 2008 @ 100 211,788
Obligation Judgment Funding Bonds, Series 2021 @ 100 S.F.
1998A, (FGIC Insured), 5.00%, Due 12/01/2024 #
100,000 City of St. Cloud, Minnesota, Hospital AAA 2003 @ 102 100,617
Refunding Revenue Bonds, The Saint Cloud 2014 @ 100 S.F.
Hospital, Series 1993-C, (AMBAC Insured),
5.30%, Due 10/01/2020 #
250,000 City of Minneapolis, Minnesota, and Housing AAA 2003 @ 102 237,075
and Redevelopment Authority of the City of St. 2014 @ 100 S.F.
Paul, Minnesota, Health Care System Revenue
Bonds, Series 1993, (AMBAC Insured), 4.75%,
Due 11/15/2018 #
175,000 Polk County, Minnesota, General Watershed AAA 2007 @ 100 174,965
District Bonds of 1998, (MBIA Insured), 5.00%, 2019 @ 100 S.F.
Due 02/01/2020 #**
300,000 City of Marshall, Minnesota, Utility Revenue AAA 2007 @ 100 294,818
Bonds, Series 1998, (MBIA Insured), 5.00%,
Due 07/01/2023 #**
---------- ----------
$1,590,000 $1,564,186
========== ==========
</TABLE>
For an explanation of footnotes used on this page, see "Notes to Schedule
of Investments" on page 26.
24
<PAGE>
TERRITORIAL INSURED SERIES 8
SCHEDULE OF INVESTMENTS
AS OF THE OPENING OF BUSINESS ON THE INITIAL
DATE OF DEPOSIT: MARCH 19, 1998
<TABLE>
<CAPTION>
NAME OF ISSUER, TITLE, INTEREST RATE AND OFFERING PRICE
AGGREGATE MATURITY DATE OF EITHER BONDS DEPOSITED REDEMPTION TO TERRITORIAL
PRINCIPAL OR BONDS CONTRACTED FOR (1)(5) RATING (2) PROVISIONS (3) TRUST (4)
- ------------- ------------------------------------------ ------------ ---------------- ---------------
<S> <C> <C> <C> <C>
$ 250,000 Government of Guam, Limited AAA 2007 @ 102 $ 249,068
Obligation Infrastructure Improvement 2013 @ 100 S.F.
Bonds, 1997 Series A, (AMBAC Insured),
5.00%, Due 11/01/2017 #
500,000 Puerto Rico Industrial, Tourist, AAA 2008 @ 101 491,545
Educational, Medical and Environmental 2019 @ 100 S.F.
Control Facilities Financing Authority,
Higher Education Revenue Bonds, 1998
Series A, (MBIA Insured), 5.00%, Due
10/01/2022 #**
500,000 Puerto Rico Highway and Transportation AAA 2008 @ 101 492,025
Authority, Transportation Revenue Bonds, 2019 @ 100 S.F.
Series A, (AMBAC Insured), 5.00%, Due
07/01/2028 #
75,000 Puerto Rico Highway and Transportation AAA 27,288
Authority, Transportation Revenue Bonds,
Series A, (AMBAC Insured), 0.00%, Due
07/01/2018 # (6)
500,000 Puerto Rico Infrastructure Financing AAA 2008 @ 101 491,270
Authority, Special Tax Revenue Bonds, 2022 @ 100 S.F.
Series 1997 A, (AMBAC Insured), 5.00%,
Due 07/01/2028 #
250,000 Puerto Rico Public Buildings Authority, AAA 2007 @ 101.5 246,400
Government Facilities Revenue Bonds, 2022 @ 100 S.F.
Series B, (AMBAC Insured), 5.00%, Due
07/01/2027 #
500,000 Puerto Rico Municipal Finance Agency, AAA 2007 @ 101.5 519,930
1997 Series A Bonds, (FSA Insured), 2018 @ 100 S.F.
5.50%, Due 07/01/2021 #
---------- ----------
$2,575,000 $2,517,526
========== ==========
</TABLE>
For an explanation of footnotes used on this page, see "Notes to Schedule
of Investments" on page 26.
25
<PAGE>
NOTES TO SCHEDULES OF INVESTMENTS
AS OF THE OPENING OF BUSINESS ON THE
INITIAL DATE OF DEPOSIT: MARCH 19, 1998
1. Certain Bonds are represented by "regular way" or "when issued"
contracts for the performance of which an irrevocable letter of credit, obtained
from a financial institution unaffiliated with the Sponsor, has been deposited
with the Trustee. The Sponsor has assigned to the Trustee all of its right,
title and interest in and to such Bonds. Contracts to acquire Bonds were entered
on or after February 27, 1998. These Bonds have expected settlement dates on or
prior to April 14, 1998 (see "The Fund").
2. All ratings are by Standard & Poor's and/or Moody's. As a result of the
insurance related to each Bond in an Insured Trust, each Bond is rated "AAA" by
Standard & Poor's and/or "Aaa" by Moody's. See "Insurance on Bonds in the
Insured Trusts" and "Description of Bond Ratings."
3. There is shown under this heading the year in which each issue of the
Bonds is initially or currently callable and the call price for that year. Each
issue of the Bonds continues to be callable at declining prices thereafter (but
not below par value) except for original issue discount bonds which are
redeemable at prices based on the issue price plus the amount of original issue
discount accreted to redemption date plus, if applicable, some premium, the
amount of which will decline in subsequent years. "S.F." indicates a sinking
fund is established with respect to an issue of the Bonds. Redemption pursuant
to call provisions generally will, and redemption pursuant to sinking fund
provisions may, occur at times when the redeemed obligations have an offering
side valuation which represents a premium over par. Certain Bonds may be subject
to redemption without premium prior to the date shown pursuant to extraordinary
optional or mandatory redemptions if certain events occur. Notwithstanding any
provisions to the contrary, certain bond issuers have in the past, and others
may in the future, attempt to redeem bonds prior to their initially scheduled
call dates and at prices which do not include any premiums. For a general
discussion of certain of these events, see "Risk Factors -- Redemptions of
Bonds." To the extent that the Bonds were deposited in a Trust at a price higher
than the price at which they are redeemed, this will represent a loss of capital
when compared with the original Public Offering Price of the Units. Conversely,
to the extent that the Bonds were acquired at a price lower than the redemption
price, this will represent an increase in capital when compared with the
original Public Offering Price of the Units. Distributions will generally be
reduced by the amount of the income which would otherwise have been paid with
respect to redeemed Bonds and there will be distributed to Unitholders the
principal amount and any premium received on such redemption. The Estimated
Current Return and Estimated Long-Term Return in this event may be affected by
such redemptions. For the Federal tax effect on Unitholders of such redemptions
and resultant distributions, see "Tax Status" and "Estimated Current Return and
Estimated Long-Term Return."
4. Evaluation of Bonds is made on the basis of current offering prices for
the Bonds. The offering prices are greater than the current bid prices of the
Bonds which is the basis on which Unit value is determined for purposes of
redemption of Units (see "Public Offering -- Offering Price").
5. Other information regarding the Bonds in each Trust, as of the opening
of business on the Initial Date of Deposit, is as follows:
<TABLE>
<CAPTION>
ANNUAL BID SIDE
COST TO PROFIT (LOSS) INTEREST INCOME EVALUATION
TRUST SPONSOR TO SPONSOR TO TRUST OF BONDS
----- ---------- ------------- --------------- -----------
<S> <C> <C> <C> <C>
California Insured Series 1 .......... $1,976,098 $17,199 $102,031 $1,978,190
Minnesota Insured Series 5 ........... $1,547,297 $16,889 $ 79,450 $1,552,261
Territorial Insured Series 8 ......... $2,490,853 $26,673 $127,500 $2,498,614
</TABLE>
26
<PAGE>
The Sponsor may have entered into contracts which hedge interest rate
fluctuations on certain Bonds in the portfolios. On the opening of business on
the Initial Date of Deposit, the offering side evaluation of the Bonds in each
Trust was higher than the bid side evaluation of such Bonds by 0.76%, 0.77% and
0.76% for the California, Minnesota and Territorial Trusts, respectively. One
Bond in the California Trust, two Bonds in the Minnesota Trust, and one Bond in
the Territorial Trust, representing 12%, 30%, and 19% of the principal amount of
the Bonds, respectively, (marked by a double asterisk(**)) were purchased on a
"when, as and if issued" basis. Interest on these Bonds begins accruing to the
benefit of Unitholders on their respective dates of delivery. Delivery is
expected to take place two to 21 days after the First Settlement Date.
"#" indicates that such Bond was issued at either an original issue discount or
purchased at a market discount. The tax effect of Bonds issued at an original
issue discount or purchased at a market discount is described in "Tax Status."
6. 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. To the extent that zero coupon bonds are sold or called prior to
maturity, there is no guarantee that the value of the proceeds received
therefrom by the Trust will equal or exceed the par value that would have been
obtained at maturity of such zero coupon bonds.
- --------------------------------
EQUIVALENT TAXABLE ESTIMATED CURRENT RETURNS
As of the date of this Prospectus, the following table shows the
approximate taxable estimated current returns for individuals that are
equivalent to tax-exempt estimated current returns under combined Federal and
State (if applicable) taxes using the published Federal and State (if
applicable) tax rates scheduled to be in effect in 1998. This table illustrates
approximately what you would have to earn on taxable investments to equal the
tax-exempt estimated current return in your income tax bracket. For cases in
which more than one State bracket falls within a Federal bracket, the highest
State bracket is combined with the Federal bracket. The combined State and
Federal tax rates shown reflect the fact that State tax payments are currently
deductible for Federal tax purposes. The table does not show the approximate
taxable estimated current returns for individuals who are subject to the
alternative minimum tax. The taxable equivalent estimated current returns may be
somewhat higher than the equivalent returns indicated in the following table for
those individuals who have adjusted gross incomes in excess of $124,500. The
table does not reflect the effect of limitations on itemized deductions and the
deduction for personal exemptions which were designed to phase out certain
benefits of these deductions for higher income taxpayers. These limitations, in
effect, raise the marginal maximum Federal tax rate to approximately 44 percent
for taxpayers filing a joint return and entitled to four personal exemptions and
to approximately 41 percent for taxpayers filing a single return entitled to
only one personal exemption. These limitations are subject to certain maximums,
which depend on the number of exemptions claimed and the total amount of the
taxpayer's itemized deductions. For example, the limitation on itemized
deductions will not cause a taxpayer to lose more than 80 percent of his
allowable itemized deductions, with certain exceptions. See "Tax Status" for a
more detailed discussion of recent Federal tax legislation, including a
discussion of provisions affecting corporations.
27
<PAGE>
CALIFORNIA TAX EQUIVALENT TABLE
<TABLE>
<CAPTION>
TAXABLE INCOME ($1,000'S) TAX-EXEMPT ESTIMATED CURRENT RETURN
- --------------------------------- ------------------------------------------------------------------------
SINGLE JOINT TAX 4-1/2% 5% 5-1/2% 6% 6-1/2% 7% 7-1/2%
RETURN RETURN BRACKET* EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
- -------------- -------------- -------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-25.35 $ 0-42.35 20.10% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76% 9.39%
25.35-61.40 42.35-102.30 34.70 6.89 7.66 8.42 9.19 9.95 10.72 11.49
61.40-128.10 102.30-155.95 37.40 7.19 7.99 8.79 9.58 10.38 11.18 11.98
128.10-278.45 155.95-278.45 42.00 7.76 8.62 9.48 10.34 11.21 12.07 12.93
Over 278.45 Over 278.45 45.20 8.21 9.12 10.04 10.95 11.86 12.77 13.69
</TABLE>
- ------------------
*The State tax brackets are those for 1997. The 1998 brackets will be adjusted
to take into account changes in the California Comsumer Price Index. These
adjustments have not yet been released.
MINNESOTA TAX EQUIVALENT TABLE
<TABLE>
<CAPTION>
TAXABLE INCOME ($1,000'S) TAX-EXEMPT ESTIMATED CURRENT RETURN
- --------------------------------- ------------------------------------------------------------------------
SINGLE JOINT TAX 4-1/2% 5% 5-1/2% 6% 6-1/2% 7% 7-1/2%
RETURN RETURN BRACKET EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
- -------------- -------------- -------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-25.35 $ 0-42.35 21.80% 5.75% 6.39% 7.03% 7.67% 8.31% 8.95% 9.59%
25.35-61.40 42.35-102.30 34.10 6.83 7.59 8.35 9.10 9.86 10.62 11.38
61.40-128.10 102.30-155.95 36.90 7.13 7.92 8.72 9.51 10.30 11.09 11.89
28.10-278.45 155.95-278.45 41.40 7.68 8.53 9.39 10.24 11.09 11.95 12.80
Over 278.45 Over 278.45 44.70 8.14 9.04 9.95 10.85 11.75 12.66 13.56
</TABLE>
TERRITORIAL TAX EQUIVALENT TABLE
<TABLE>
<CAPTION>
TAXABLE INCOME ($1,000'S) TAX-EXEMPT ESTIMATED CURRENT RETURN
- --------------------------------- ------------------------------------------------------------------------
SINGLE JOINT TAX 4-1/2% 5% 5-1/2% 6% 6-1/2% 7% 7-1/2%
RETURN RETURN BRACKET* EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
- -------------- -------------- -------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-25.35 $ 0-42.35 15.0% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82%
25.35-61.40 42.35-102.30 28.0 6.25 6.94 7.64 8.33 9.03 9.72 10.42
61.40-128.10 102.30-155.95 31.0 6.52 7.25 7.97 8.70 9.42 10.14 10.87
128.10-278.45 155.95-278.45 36.0 7.03 7.81 8.59 9.38 10.16 10.94 11.72
Over 278.45 Over 278.45 39.6 7.45 8.28 9.11 9.93 10.76 11.59 12.42
</TABLE>
RISK FACTORS
GENERAL. Certain of the Bonds in the Trusts may have been acquired at a
market discount from par value. The coupon interest rates on the discount bonds
at the time they were purchased and deposited in the Trusts were lower than the
current market interest rates for newly issued bonds of comparable rating and
type. If such interest rates for newly issued comparable bonds increase, the
market discount of previously issued bonds will become greater, and if such
interest rates for newly issued comparable bonds decline, the market discount of
previously issued bonds will be reduced, other things being equal. Investors
should also note that the value of bonds purchased at a market discount will
increase in value faster than Bonds purchased at a market premium if interest
rates decrease. Conversely, if interest rates increase, the value of bonds
purchased at a market discount will decrease faster than Bonds purchased at a
market premium. In addition, if interest rates rise, the prepayment risk of
higher yielding, premium bonds and the prepayment benefit for lower yielding,
discount bonds will be reduced. A discount bond held to maturity will have a
larger portion of its total return in the form of taxable income and capital
gain and less in the form of tax-exempt interest income than a comparable bond
newly issued at current market rates. See "Tax Status." Market discount
attributable to interest
28
<PAGE>
changes does not indicate a lack of market confidence in the issue. Neither the
Sponsor, the Distributor nor the Trustee shall be liable in any way for any
default, failure or defect in any of the Bonds.
Certain of the Bonds in the Trusts may be original issue discount bonds.
Under current law, the original issue discount, which is the difference between
the stated redemption price at maturity and the issue price of the Bonds, is
deemed to accrue on a daily basis and the accrued portion is treated as
tax-exempt interest income for Federal income tax purposes. On sale or
redemption, any gain realized that is in excess of the earned portion of
original issue discount will be taxable as capital gain unless the gain is
attributable to market discount in which case the accretion of market discount
is taxable as ordinary income. See "Tax Status." The current value of an
original issue discount bond reflects the present value of its stated redemption
price at maturity. The market value tends to increase in greater increments as
the Bonds approach maturity.
Certain of the original issue discount bonds may be zero coupon bonds
(including bonds known as multiplier bonds, money multiplier bonds, capital
appreciation bonds, capital accumulator bonds, compound interest bonds and money
discount maturity payment bonds). Zero coupon bonds do not provide for the
payment of any current interest and generally provide for payment at maturity at
face value unless sooner sold or redeemed. Zero coupon bonds may be subject to
more price volatility than conventional bonds. While some types of zero coupon
bonds, such as multipliers and capital appreciation bonds, define par as the
initial offering price rather than the maturity value, they share the basic zero
coupon bond features of (i) not paying interest on a semi-annual basis and (ii)
providing for the reinvestment of the bond's semi-annual earnings at the bond's
stated yield to maturity. While zero coupon bonds are frequently marketed on the
basis that their fixed rate of return minimizes reinvestment risk, this benefit
can be negated in large part by weak call protection, i.e., a bond's provision
for redemption at only a modest premium over the accreted value of the bond. See
footnote (6) in "The Trusts -- Notes to Schedules of Investments."
Certain of the Bonds in the Trusts may have been acquired at a market
premium from par value at maturity. The coupon interest rates on the premium
bonds at the time they were purchased and deposited in the Trusts were higher
than the current market interest rates for newly issued bonds of comparable
rating and type. If such interest rates for newly issued and otherwise
comparable bonds decrease, the market premium of previously issued bonds will be
increased, and if such interest rates for newly issued comparable bonds
increase, the market premium of previously issued bonds will be reduced, other
things being equal. The current returns of bonds trading at a market premium are
initially higher than the current returns of comparable bonds of a similar type
issued at currently prevailing interest rates because premium bonds tend to
decrease in market value as they approach maturity when the face amount becomes
payable. Because part of the purchase price is thus returned not at maturity but
through current income payments, early redemption of a premium bond at par or
early prepayments of principal will result in a reduction in yield. Redemption
pursuant to call provisions generally will, and redemption pursuant to sinking
fund provisions may, occur at times when the redeemed Bonds have an offering
side valuation which represents a premium over par or for original issue
discount Bonds a premium over the accreted value. To the extent that the Bonds
were deposited in the Fund at a price higher than the price at which they are
redeemed, this will represent a loss of capital when compared to the original
Public Offering Price of the Units. Because premium bonds generally pay a higher
rate of interest than Bonds priced at or below par, the effect of the redemption
of premium bonds would be to reduce estimated net annual unit income by a
greater percentage than the par amount of such bonds bears to the total par
amount of Bonds in the affected Trust. Although the actual impact of any such
redemptions that may occur will depend upon the specific Bonds that are
redeemed, it can be anticipated that the estimated net annual unit income will
be significantly reduced after the dates on which such Bonds are eligible for
redemption. A Trust may be required to sell zero coupon bonds prior
29
<PAGE>
to maturity (at their current market price which is likely to be less than their
par value) in the event that all the Bonds in the portfolio other than the zero
coupon bonds are called or redeemed in order to pay expenses of a Trust or in
case a Trust is terminated. See "Trust Administration -- Portfolio
Administration" and "Trust Administration -- Amendment or Termination." See "The
Trusts -- Schedule of Investments" for each Trust for the earliest scheduled
call date and the initial redemption price for each Bond.
Certain of the Bonds in certain of the Trusts may be general obligations of
a governmental entity that are backed by the taxing power of such entity. In
view of this, an investment in such a Trust should be made with an understanding
of the characteristics of such issuers and the risks which such an investment
may entail. All other Bonds in the Trusts are revenue bonds payable from the
income of a specific project or authority and are not supported by the issuer's
power to levy taxes. General obligation bonds are secured by the issuer's pledge
of its faith, credit and taxing power for the payment of principal and interest.
Revenue bonds, on the other hand, are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source. There are, of
course, variations in the security of the different Bonds in the Fund, both
within a particular classification and between classifications, depending on
numerous factors. See "The Trusts -- General" for each Trust.
Certain of the Bonds in certain of the Trusts may be obligations which
derive their payments from mortgage loans. Certain of such housing bonds may be
FHA insured or may be single family mortgage revenue bonds issued for the
purpose of acquiring from originating financial institutions notes secured by
mortgages on residences located within the issuer's boundaries and owned by
persons of low or moderate income. In view of this, an investment in such a
Trust should be made with an understanding of the characteristics of such
issuers and the risks which such an investment may entail. Mortgage loans are
generally partially or completely prepaid prior to their final maturities as a
result of events such as sale of the mortgaged premises, default, condemnation
or casualty loss. Because these bonds are subject to extraordinary mandatory
redemption in whole or in part from such prepayments of mortgage loans, a
substantial portion of such bonds will probably be redeemed prior to their
scheduled maturities or even prior to their ordinary call dates. Extraordinary
mandatory redemption without premium could also result from the failure of the
originating financial institutions to make mortgage loans in sufficient amounts
within a specified time period. Additionally, unusually high rates of default on
the underlying mortgage loans may reduce revenues available for the payment of
principal of or interest on such mortgage revenue bonds. These bonds were issued
under Section 103A of the Internal Revenue Code, which Section contains certain
requirements relating to the use of the proceeds of such bonds in order for the
interest on such bonds to retain its tax-exempt status. In each case the issuer
of the bonds has covenanted to comply with applicable requirements and bond
counsel to such issuer has issued an opinion that the interest on the bonds is
exempt from Federal income tax under existing laws and regulations. Certain
issuers of housing bonds have considered various ways to redeem bonds they have
issued prior to the stated first redemption dates for such bonds. In connection
with any housing bonds held by the Fund, the Sponsor at the Initial Date of
Deposit is not aware that any of the respective issuers of such Bonds are
actively considering the redemption of such Bonds prior to their respective
stated initial call dates. See "The Trusts -- General" for each Trust.
Certain of the Bonds in certain of the Trusts may be health care revenue
bonds. In view of this, an investment in such a Trust should be made with an
understanding of the characteristics of such issuers and the risks which such an
investment may entail. Ratings of bonds issued for health care facilities are
often based on feasibility studies that contain projections of occupancy levels,
revenues and expenses. A facility's gross receipts and net income available for
debt service may be affected by future events and conditions including, among
other things, demand for services and the ability of the facility to provide
30
<PAGE>
the services required, physicians' confidence in the facility, management
capabilities, competition with other health care facilities, efforts by insurers
and governmental agencies to limit rates, legislation establishing state
rate-setting agencies, expenses, the cost and possible unavailability of
malpractice insurance, the funding of Medicare, Medicaid and other similar third
party payor programs, government regulation and the termination or restriction
of governmental financial assistance, including that associated with Medicare,
Medicaid and other similar third party payor programs. Medicare reimbursements
are currently calculated on a prospective basis utilizing a single nationwide
schedule of rates. Prior to such legislation Medicare reimbursements were based
on the actual costs incurred by the health facility. The current legislation may
adversely affect reimbursements to hospitals and other facilities for services
provided under the Medicare program. See "The Trusts -- General" for each Trust.
Certain of the Bonds in certain of the Trusts may be obligations of public
utility issuers, including those selling wholesale and retail electric power and
gas. In view of this, an investment in such a Trust should be made with an
understanding of the characteristics of such issuers and the risks which such an
investment may entail. General problems of such issuers would include the
difficulty in financing large construction programs in an inflationary period,
the limitations on operations and increased costs and delays attributable to
environmental considerations, the difficulty of the capital market in absorbing
utility debt, the difficulty in obtaining fuel at reasonable prices and the
effect of energy conservation. All of such issuers have been experiencing
certain of these problems in varying degrees. In addition, Federal, state and
municipal governmental authorities may from time to time review existing, and
impose additional, regulations governing the licensing, construction and
operation of nuclear power plants, which may adversely affect the ability of the
issuers of certain of the Bonds in the portfolio to make payments of principal
and/or interest on such Bonds. See "The Trusts -- General" for each Trust.
Certain of the Bonds in certain of the Trusts may be obligations of issuers
whose revenues are derived from the sale of water and/or sewerage services. In
view of this, an investment in such a Trust should be made with an understanding
of the characteristics of such issuers and the risks which such an investment
may entail. Such Bonds are generally payable from user fees. The problems of
such issuers include the ability to obtain timely and adequate rate increases,
population decline resulting in decreased user fees, the difficulty of financing
large construction programs, the limitations on operations and increased costs
and delays attributable to environmental considerations, the increasing
difficulty of obtaining or discovering new supplies of fresh water, the effect
of conservation programs and the impact of "no growth" zoning ordinances. All of
such issuers have been experiencing certain of these problems in varying
degrees. See "The Trusts -- General" for each Trust.
Certain of the Bonds in certain of the Trusts may be industrial revenue
bonds ("IRBs"). In view of this, an investment in such a Trust should be made
with an understanding of the characteristics of such issuers and the risks which
such an investment may entail. IRBs have generally been issued under bond
resolutions pursuant to which the revenues and receipts payable under the
arrangements with the operator of a particular project have been assigned and
pledged to purchasers. In some cases, a mortgage on the underlying project may
have been granted as security for the IRBs. Regardless of the structure, payment
of IRBs is solely dependent upon the creditworthiness of the corporate operator
of the project or corporate guarantor. Corporate operators or guarantors may be
affected by many factors which may have an adverse impact on the credit quality
of the particular company or industry. These include cyclicality of revenues and
earnings, regulatory and environmental restrictions, litigation resulting from
accidents or environmentally caused illnesses, extensive competition and
financial deterioration resulting from a corporate restructuring pursuant to a
leveraged buy-out, takeover or otherwise. Such a restructuring may result in the
operator of a project becoming highly leveraged which may impact on such
operator's creditworthiness which in turn would have an adverse impact on the
rating and/or market value of such Bonds. Further, the possibility of such a
restructuring may have an adverse impact
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on the market for and consequently the value of such Bonds, even though no
actual takeover or other action is ever contemplated or effected. See "The
Trusts -- General" for each Trust.
Certain of the Bonds in certain of the Trusts may be obligations that are
secured by lease payments of a governmental entity (hereinafter called "lease
obligations"). Lease obligations are often in the form of certificates of
participation. In view of this, an investment in such a Trust should be made
with an understanding of the characteristics of such issuers and the risks which
such an investment may entail. Although the lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to appropriate for and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease
payments in future years unless money is appropriated for such purpose on a
yearly basis. A governmental entity that enters into such a lease agreement
cannot obligate future governments to appropriate for and make lease payments
but covenants to take such action as is necessary to include any lease payments
due in its budgets and to make the appropriations therefor. A governmental
entity's failure to appropriate for and to make payments under its lease
obligation could result in insufficient funds available for payment of the
obligations secured thereby. Although "non-appropriation" lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. See "The Trusts -- General" for each Trust.
Certain of the Bonds in certain of the Trusts may be obligations of issuers
which are, or which govern the operation of, schools, colleges and universities
and whose revenues are derived mainly from ad valorem taxes or, for higher
education systems, from tuition, dormitory revenues, grants and endowments. In
view of this, an investment in such a Trust should be made with an understanding
of the characteristics of such issuers and the risks which such an investment
may entail. General problems relating to school bonds include litigation
contesting the state constitutionality of financing public education in part
from ad valorem taxes, thereby creating a disparity in educational funds
available to schools in wealthy areas and schools in poor areas. Litigation or
legislation on this issue may affect the sources of funds available for the
payment of school bonds in the Trusts. General problems relating to college and
university obligations include the prospect of a declining percentage of the
population consisting of "college" age individuals, possible inability to raise
tuitions and fees sufficiently to cover increased operating costs, the
uncertainty of continued receipt of Federal grants and state funding, and
government legislation or regulations which may adversely affect the revenues or
costs of such issuers. All of such issuers have been experiencing certain of
these problems in varying degrees. See "The Trusts -- General" for each Trust.
Certain of the Bonds in certain of the Trusts may be obligations which are
payable from and secured by revenues derived from the ownership and operation of
facilities such as airports, bridges, turnpikes, port authorities, convention
centers and arenas. In view of this, an investment in such a Trust should be
made with an understanding of the characteristics of such issuers and the risks
which such an investment may entail. The major portion of an airport's gross
operating income is generally derived from fees received from signatory airlines
pursuant to use agreements which consist of annual payments for leases,
occupancy of certain terminal space and service fees. Airport operating income
may therefore be affected by the ability of the airlines to meet their
obligations under the use agreements. The air transport industry is experiencing
significant variations in earnings and traffic, due to increased competition,
excess capacity, increased costs, deregulation, traffic constraints and other
factors, and several airlines are experiencing severe financial difficulties.
The Sponsor cannot predict what effect these industry conditions may have on
airport revenues, which are dependent for payment on the financial condition of
the airlines and their usage of the particular airport facility. Similarly,
payment on Bonds related to other facilities is dependent on revenues from the
projects, such as user fees from ports,
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tolls on turnpikes and bridges and rents from buildings. Therefore, payment may
be adversely affected by reduction in revenues due to such factors as increased
cost of maintenance, decreased use of facility, lower cost of alternative modes
of transportation, scarcity of fuel and reduction or loss of rents. See "The
Trusts -- General" for each Trust.
Certain of the Bonds in certain of the Trusts may be obligations which are
payable from and secured by revenues derived from the operation of resource
recovery facilities. In view of this, an investment in such a Trust should be
made with an understanding of the characteristics of such issuers and the risks
which such an investment may entail. Resource recovery facilities are designed
to process solid waste, generate steam and convert steam to electricity.
Resource recovery bonds may be subject to extraordinary optional redemption at
par upon the occurrence of certain circumstances, including but not limited to:
destruction or condemnation of a project; contracts relating to a project
becoming void, unenforceable or impossible to perform; changes in the economic
availability of raw materials, operating supplies or facilities necessary for
the operation of a project or technological or other unavoidable changes
adversely affecting the operation of a project; administrative or judicial
actions which render contracts relating to the projects void, unenforceable or
impossible to perform; or impose unreasonable burdens or excessive liabilities.
The Sponsor cannot predict the causes or likelihood of the redemption of
resource recovery bonds in a Trust prior to the stated maturity of the Bonds.
See "The Trusts -- General" for each Trust.
An investment in Units of the Trusts should be made with an understanding
of the interest rate risk associated with such an investment. Generally, bond
prices (and therefore Unit prices) will move inversely with interest rates, and
bonds (Trusts) with longer maturities are likely to exhibit greater fluctuations
in market value, all other things being equal, than bonds (Trusts) with shorter
maturities.
REDEMPTIONS OF BONDS. Certain of the Bonds in certain of the Trusts are
subject to redemption prior to their stated maturity date pursuant to sinking
fund provisions, call provisions or extraordinary optional or mandatory
redemption provisions or otherwise. A sinking fund is a reserve fund accumulated
over a period of time for retirement of debt. A callable debt obligation is one
which is subject to redemption or refunding prior to maturity at the option of
the issuer. A refunding is a method by which a debt obligation is redeemed, at
or before maturity, by the proceeds of a new debt obligation. In general, call
provisions are more likely to be exercised when the offering side valuation is
at a premium over par than when it is at a discount from par. The exercise of
redemption or call provisions will (except to the extent the proceeds of the
called Bonds are used to pay for Unit redemptions) result in the distribution of
principal and may result in a reduction in the amount of subsequent interest
distributions and it may also affect the current return on Units of the Trust
involved. Each Trust portfolio contains a listing of the sinking fund and call
provisions, if any, with respect to each of the Bonds. Extraordinary optional
redemptions and mandatory redemptions result from the happening of certain
events. Generally, events that may permit the extraordinary optional redemption
of Bonds or may require the mandatory redemption of Bonds include, among others:
the substantial damage or destruction by fire or other casualty of the project
for which the proceeds of the Bonds were used; an exercise by a local, state or
Federal governmental unit of its power of eminent domain to take all or
substantially all of the project for which the proceeds of the Bonds were used;
changes in the economic availability of raw materials, operating supplies or
facilities or technological or other changes which render the operation of the
project for which the proceeds of the Bonds were used uneconomic; changes in law
or an administrative or judicial decree which renders the performance of the
agreement under which the proceeds of the Bonds were made available to finance
the project impossible or which creates unreasonable burdens or which imposes
excessive liabilities, such as taxes, not imposed on the date the Bonds are
issued on the issuer of the Bonds or the user of the proceeds of the Bonds; an
administrative or judicial decree which requires the cessation of a substantial
part of the operations of the project financed with the proceeds of the Bonds,
an overestimate of the costs of the project to be financed with the proceeds of
the Bonds
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resulting in excess proceeds of the Bonds which may be applied to redeem Bonds;
or an underestimate of a source of funds securing the Bonds resulting in excess
funds which may be applied to redeem Bonds. The Sponsor is unable to predict all
of the circumstances which may result in such redemption of an issue of Bonds.
See "The Trusts -- Schedule of Investments" for each Trust and footnote (3) in
"The Trusts -- Notes to Schedules of Investments."
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN
As of the opening of business on the Initial Date of Deposit, the Estimated
Current Returns and the Estimated Long-Term Returns were those indicated in the
"Summary of Essential Financial Information." 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, Sponsor and Evaluator and
with the principal prepayment, redemption, maturity, exchange or sale of Bonds,
while the Public Offering Price will vary with changes in the offering price of
the underlying Bonds; therefore, there is no assurance that the present
Estimated Current Returns will be realized in the future. Estimated Long-Term
Returns are calculated using a formula which (i) takes into consideration, and
determines and factors in the relative weightings of, the market values, yields
(which takes into account the amortization of premiums and the accretion of
discounts) and estimated retirements of all the Bonds in a Trust and (ii) takes
into account a compounding factor and the expenses and sales charge associated
with each Trust Unit. Since the market values and estimated retirements of the
Bonds and the expenses of a Trust will change, there is no assurance that the
present Estimated Long-Term Returns will be realized in the future. Estimated
Current Returns and Estimated Long-Term Returns are expected to differ because
the calculation of Estimated Long-Term Returns reflects the estimated date and
amount of principal returned while Estimated Current Returns calculations
include only net annual interest income and Public Offering Price.
In order to acquire certain of the Bonds contracted for by the Sponsor for
deposit in each Trust, it may be necessary for the Sponsor or Trustee to pay on
the settlement dates for delivery of such Bonds amounts covering accrued
interest on such Bonds which exceed (i) the amounts paid by Unitholders and (ii)
the amounts which will be made available through cash furnished by the Sponsor
on the Initial Date of Deposit, which amount of cash may exceed the interest
which would accrue to the First Settlement Date. The Trustee has agreed to pay
for any amounts necessary to cover any such excess and will be reimbursed
therefor, without interest, when funds become available from interest payments
on the particular Bonds with respect to which such payments may have been made.
Also, since interest on any "when, as and if issued" Bonds does not begin
accruing as tax-exempt interest income to the benefit of Unitholders until their
respective dates of delivery, the Trustee may reduce its fee (and, to the extent
necessary, pay Trust expenses) in an amount equal to that indicated under
"Summary of Essential Financial Information," in order to maintain (or in some
cases approach) for the Unitholders the same estimated net annual interest
incomes during the first year of the Trusts' operations as is indicated under
"Summary of Essential Financial Information."
TRUST OPERATING EXPENSES
COMPENSATION OF SPONSOR. Delaware Investment Advisers, which acts as
Sponsor, will receive a fee for providing portfolio supervision services in
amounts set forth under "Summary of Essential Financial Information." Such
charges will be payable in monthly installments based on the number of Units
outstanding on the first day of each month of each year. The Sponsor will also
be reimbursed for bookkeeping and administrative services in amounts as set
forth under "Summary of Essential Information." With respect to the fees payable
to the Sponsor for providing portfolio supervision and bookkeeping and other
administrative services to the Trusts, such individual fees may exceed the
actual
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costs of providing such services for the Trusts, but at no time will the total
amount paid to the Sponsor for providing such services rendered to all unit
investment trusts sponsored by Delaware Investment Advisers in any calendar year
exceed the aggregate cost to the Sponsor of supplying such services in such
year. The foregoing fees may be increased without approval of the Unitholders by
amounts not exceeding proportionate increases under the category "All Services
Less Rent of Shelter" in the Consumer Price Index published by the United States
Department of Labor or, if such category is no longer published, in a comparable
category. An affiliate of the Sponsor will receive sales commissions and may
realize other profits (or losses) in connection with the sale of Units and the
Sponsor and the Underwriters may realize profits (or the Sponsor may realize
losses) in connection with the deposit of the Bonds as described under "Public
Offering -- Sponsor and Underwriter Compensation."
EVALUATOR'S FEE. For its services, the Evaluator will receive a fee as set
forth under "Summary of Essential Financial Information." The Evaluator's fees
are payable in monthly installments. The Evaluator's fees may be increased
without approval of the Unitholders by amounts not exceeding proportionate
increases under the category "All Services Less Rent of Shelter" in the Consumer
Price Index published by the United States Department of Labor or, if such
category is no longer published, in a comparable category.
TRUSTEE'S FEE. For its services, the Trustee will receive an annual fee as
set forth under "Summary of Essential Financial Information." The Trustee's fees
are payable in monthly installments (based on the outstanding principal amount
of Bonds in a Trust as of the first day of each month of each year) on or before
the fifteenth day of each month from the Interest Account to the extent funds
are available and then from the Principal Account. 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) and may be further increased without approval of the
Unitholders by amounts not exceeding proportionate increases under the category
"All Services Less Rent of Shelter" in the Consumer Price Index published by the
United States Department of Labor or, if such category is no longer published,
in a comparable category. Since the Trustee has the use of the funds being held
in the Principal and Interest Accounts for future distributions, payment of
expenses and redemptions and since such Accounts are non-interest bearing to
Unitholders, the Trustee benefits thereby. Part of the Trustee's compensation
for its services to the Fund is expected to result from the use of these funds.
For a discussion of the services rendered by the Trustee pursuant to its
obligations under the Trust Agreement, see "Rights of Unitholders -- Reports
Provided" and "Trust Administration."
MISCELLANEOUS EXPENSES. Expenses incurred in establishing the Trusts,
including the cost of the initial preparation of documents relating to the Trust
(including the Prospectus, Trust Agreement and certificates), federal and state
registration fees, the initial fees and expenses of the Trustee, legal and
accounting expenses, payment of closing fees and any other out-of-pocket
expenses, will be paid by each Trust and charged off against principal at the
end of the initial offering period. The following additional charges are or may
be incurred by the Trusts: (i) fees of the Trustee for extraordinary services,
(ii) expenses of the Trustee (including legal and auditing expenses) and of
counsel designated by the Sponsor, (iii) various governmental charges, (iv)
expenses and costs of any action taken by the Trustee to protect a Trust and the
rights and interests of Unitholders, (v) indemnification of the Trustee for any
loss, liability or expenses incurred by it in the administration of a Trust
without gross negligence, bad faith or willful misconduct on its part, (vi) any
special custodial fees payable in connection with the sale of any of the Bonds
in a Trust and (vii) expenditures incurred in contacting Unitholders upon
termination of a Trust.
The fees and expenses set forth herein are payable out of the Trusts. When
such fees and expenses are paid by or owing to the Trustee, they are secured by
a lien on the portfolio or portfolios of the
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applicable Trust or Trusts. If the balances in the Interest and Principal
Accounts are insufficient to provide for amounts payable by the Fund, the
Trustee has the power to sell Bonds to pay such amounts.
INSURANCE ON THE BONDS IN THE INSURED TRUSTS
Insurance guaranteeing prompt payment of interest and principal, when due,
on the Bonds in the Insured Trusts in the Fund has been obtained by the Sponsor
or by the issuers or underwriters of such Bonds.
An Insurer has issued a policy or policies of insurance covering each of
the Bonds in the Insured Trusts, each policy to remain in force until the
payment in full of such Bonds and whether or not the Bonds continue to be held
by an Insured Trust. By the terms of each policy, the Insurer will
unconditionally guarantee to the holders or owners of the Insured Bonds the
payment, when due, required of the issuer of the Bonds of an amount equal to the
principal of and interest on the Bonds as such payments shall become due, in the
event such payments are not paid (except that in the event of any acceleration
of the due date of principal by reason of mandatory or optional redemption,
default or otherwise, the payments guaranteed will be made in such amounts and
at such times as would have been due had there not been an acceleration). The
Insurer will be responsible for such payments, less any amounts received by the
holders or owners of the Bonds from any trustee for the bond issuers or from any
other sources other than the Insurer. The Insurers' policies relating to small
industrial development bonds and pollution control revenue bonds also guarantee
the full and complete payments required to be made by or on behalf of an issuer
of Bonds pursuant to the terms of the Bonds if there occurs an event which
results in the loss of the tax-exempt status of the interest on such Bonds,
including principal, interest or premium payments, if any, as and when thereby
required. Each Insurer has indicated that its insurance policies do not insure
the payment of principal or interest on bonds which are not required to be paid
by the issuer thereof because the bonds were not validly issued. However, as
indicated under "Tax Status," the respective issuing authorities have received
opinions of bond counsel relating to the valid issuance of each of the Bonds in
the Trusts. Each Insurer's policy also does not insure against non-payment of
principal of or interest on the Bonds resulting from the insolvency, negligence
or any other act or omission of the trustee or other paying agent for the Bonds.
Such policies are not covered by the property/casualty insolvency funds
maintained by various states. The policies are non-cancelable and the insurance
premiums have been fully paid on or prior to the date of deposit, either by the
Sponsor or, if a policy has been obtained by a Bond issuer, by such issuer.
Standard & Poor's rates all new issues insured by an Insurer "AAA Prime
Grade." Moody's rates all bond issues insured by an Insurer "Aaa." These ratings
independently reflect each company's current assessment of the creditworthiness
of each Insurer and its ability to pay claims on its policies of insurance. See
"Investment Objectives and Portfolio Selection." Any further explanation as to
the significance of either rating may be obtained only from the company which
issued the respective rating. Neither rating is a recommendation to buy, sell or
hold the Bonds, and such rating may be subject to revision or withdrawal at any
time by the respective issuer. Any downward revision or withdrawal of the rating
may have an adverse effect on the market price of the Bonds.
Because the insurance on the Bonds will be effective so long as the Bonds
are outstanding, such insurance will be taken into account in determining the
market value of the Bonds and therefore some value attributable to such
insurance will be included in the value of the Units of the Insured Trusts. The
insurance does not, however, guarantee the market value of the Bonds or of the
Units.
TAX STATUS
At the respective times of issuance of the Bonds, opinions relating to the
validity thereof and to the exclusion of interest thereon from Federal gross
income were rendered by bond counsel to the
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respective issuing authorities. In addition, with respect to State Trusts, where
applicable, bond counsel to the issuing authorities rendered opinions as to the
exemption of interest on such Bonds when held by residents of the State in which
issuers of such Bonds are located, from State income taxes and certain State or
local intangibles and local income taxes. Neither the Sponsor nor Chapman and
Cutler have made any special review for the Fund of the proceedings relating to
the issuance of the Bonds or of the bases for such opinions. If the interest on
a Bond should be determined to be taxable, the Bond would generally have to be
sold at a substantial discount. In addition, investors could be required to pay
income tax on interest received prior to the date on which interest is
determined to be taxable.
Gain realized on the sale or redemption of the Bonds by the Trustee or of a
Unit by a Unitholder is includible in gross income for Federal income tax
purposes and may be includible in gross income for state tax purposes. (Such
gain does not include any amounts received in respect of accrued interest or
accrued original issue discount, if any). If a Bond is acquired with accrued
interest, that portion of the price paid for the accrued interest is added to
the tax basis of the Bond. When this accrued interest is received, it is treated
as a return of capital and reduces the tax basis of the Bond. If a Bond is
purchased for a premium, the amount of the premium is added to the tax basis of
the Bond. Bond premium is amortized over the remaining term of the Bond, and the
tax basis of the Bond is reduced each tax year by the amount of the premium
amortized in that tax year. For purposes of the following opinions, it is
assumed that each asset of the Trust is debt, the interest on which is excluded
for Federal income tax purposes.
In the opinion of Chapman and Cutler, counsel for the Sponsor, under
existing law:
1. Each Trust is not an association taxable as a corporation for
Federal income tax purposes and interest and accrued original issue
discount on Bonds which is excludable from gross income under the Internal
Revenue Code of 1986 (the "Code") will retain its status for Federal income
tax purposes, when received by a Trust and when distributed to Unitholders;
however such interest may be taken into account in computing the
alternative minimum tax, an additional tax on branches of foreign
corporations and the environmental tax (the "Superfund Tax"), as noted
below;
2. Each Unitholder is considered to be the owner of a pro rata portion
of each asset of the respective Trust under subpart E, subchapter J of
chapter 1 of the Code and will have a taxable event when such Trust
disposes of a Bond, or when the Unitholder redeems or sells his Unit. If
the Unitholder disposes of a Unit, he is deemed thereby to have disposed of
his entire pro rata interest in all assets of the Trust involved including
his pro rata portion of all the Bonds represented by the Unit. The Taxpayer
Relief Act of 1997 includes provisions that treat certain transactions
designed to reduce or eliminate risk of loss and opportunities for gain as
constructive sales for purposes of recognition of gain (but not loss) and
for purposes of determining the holding period. Unitholders should consult
their own tax advisors with regard to any such constructive sale rules.
Unitholders must reduce the tax basis of their Units for their share of
accrued interest received by the respective Trust, if any, on Bonds
delivered after the date the Unitholders pay for their Units to the extent
that such interest accrued on such Bonds before the date the Trust acquired
ownership of the Bonds (and the amount of this reduction may exceed the
amount of accrued interest paid to the seller), and, consequently, such
Unitholders may have an increase in taxable gain or reduction in capital
loss upon the disposition of such Units. Gain or loss upon the sale or
redemption of Units is measured by comparing the proceeds of such sale or
redemption with the adjusted basis of the Units. If the Trustee disposes of
Bonds (whether by sale, payment on maturity, redemption or otherwise), gain
or loss is recognized to the Unitholder (subject to various non-recognition
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 the Unitholder's basis for his or her fractional interest
in the asset disposed of. In the case of a Unitholder who purchases
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Units, such basis (before adjustment for accrued original issue discount
and amortized bond premium, if any) is determined by apportioning the cost
of the Units among each of the Trust assets ratably according to value as
of the valuation date nearest the date of acquisition of the Units.
Unitholders should consult their own tax advisors with regard to the
calculation of basis. 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 less than or equal to his original cost; and
3. Any proceeds paid under individual policies obtained by issuers of
Bonds which represent maturing interest on defaulted Bonds held by the
Trustee will be excludable from Federal gross income if, and to the same
extent as, such interest would have been excludable if paid in the normal
course by the issuer of the defaulted Bonds provided that, at the time such
policies are purchased, the amounts paid for such policies are reasonable,
customary and consistent with the reasonable expectation that the issuer of
the Bonds, rather than the Insurer, will pay debt service on the Bonds.
Sections 1288 and 1272 of the Code provide a complex set of rules governing
the accrual of original issue discount. These rules provide that original issue
discount accrues either on the basis of a constant compound interest rate or
ratably over the term of the Bond, depending on the date the Bond was issued. In
addition, special rules apply if the purchase price of a Bond exceeds the
original issue price plus the amount of original issue discount which would have
previously accrued based upon its issue price (its "adjusted issue price") to
prior owners. If a Bond is acquired with accrued interest, that portion of the
price paid for the accrued interest is added to the tax basis of the Bond. When
this accrued interest is received, it is treated as a return of capital and
reduces the tax basis of the Bond. If a Bond is purchased for a premium, the
amount of the premium is added to the tax basis of the Bond. Bond premium is
amortized over the remaining term of the Bond, and the tax basis of the Bond is
reduced each tax year by the amount of the premium amortized in that tax year.
The application of these rules will also vary depending on the value of the
Bonds on the date a Unitholder acquires his Units and the price the Unitholder
pays for his Units. Unitholders should consult with their tax advisers regarding
these rules and their application.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") subjects
tax-exempt bonds to the market discount rules of the Code effective for bonds
purchased after April 30, 1993. In general, market discount is the amount (if
any) by which the stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if any, is
attributable to original issue discount not yet accrued) subject to a statutory
DE MINIMIS rule. Market discount can arise based on the price a Trust pays for
Bonds or the price a Unitholder pays for his or her Units. Under the Tax Act,
accretion of market discount is taxable as ordinary income; under prior law the
accretion had been treated as capital gain. Market discount that accretes while
a Trust holds a Bond would be recognized as ordinary income by the Unitholders
when principal payments are received on the Bond, upon sale or at redemption
(including early redemption), or upon the sale or redemption of his or her
Units, unless a Unitholder elects to include market discount in taxable income
as it accrues. The market discount rules are complex and Unitholders should
consult their tax advisers regarding these rules and their application.
In the case of certain corporations, the alternative minimum tax and the
Superfund Tax for taxable years beginning after December 31, 1986 depend upon
the corporation's alternative minimum taxable income, which is the corporation's
taxable income with certain adjustments. One of the adjustment items used in
computing the alternative minimum taxable income of a corporation (other than an
S Corporation, Regulated Investment Company, Real Estate Investment Trust, or
REMIC) is an amount equal to 75% of the excess of such corporation's "adjusted
current earnings" over an amount equal to its alternative minimum taxable income
(before such adjustment item and the alternative tax net
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operating loss deduction). "Adjusted current earnings" includes all tax exempt
interest, including interest on all of the Bonds in the Trust. Under current
code provisions, the Superfund Tax does not apply to tax years beginning on or
after January 1, 1996. Legislative proposals have been introduced that would
reinstate the Superfund Tax for taxable years beginning after December 31, 1997
and before January 1, 2009. Under the provisions of Section 884 of the Code, a
branch profits tax is levied on the "effectively connected earnings and profits"
of certain foreign corporations which include tax-exempt interest such as
interest on the Bonds in the Trusts. Unitholders should consult their tax
advisers with respect to the particular tax consequences to them including the
corporate alternative minimum tax, the Superfund Tax and the branch profits tax
imposed by Section 884 of the Code.
Counsel for the Sponsor has also advised that under Section 265 of the Code
interest on indebtedness incurred or continued to purchase or carry Units of a
Trust is not deductible for Federal income tax purposes. The Internal Revenue
Service has taken the position that such indebtedness need not be directly
traceable to the purchase or carrying of Units (however, these rules generally
do not apply to interest paid on indebtedness incurred to purchase or improve a
personal residence). Also, under Section 265 of the Code, certain financial
institutions that acquire Units would generally not be able to deduct any of the
interest expense attributable to ownership of such Units. Legislative proposals
have been made that would extend the financial institution rules to certain
other corporations including securities dealers and other financial
intermediaries. Investors with questions regarding these issues should consult
with their tax advisers.
In the case of certain of the Bonds in the Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial user" of
the facilities being financed with the proceeds of these Bonds, or persons
related thereto, for periods while such Bonds are held by such a user or related
person, will not be excludible from Federal gross income, although interest on
such Bonds received by others would be excludible from Federal gross income.
"Substantial user" and "related person" are defined under the Code and U.S.
Treasury Regulations. Any person who believes that he or she may be a
"substantial user" or a "related person" as so defined should contact his or her
tax adviser.
ALL STATEMENTS OF LAW IN THE PROSPECTUS CONCERNING EXCLUSION FROM GROSS
INCOME FOR FEDERAL, STATE OR OTHER TAX PURPOSES ARE THE OPINIONS OF COUNSEL AND
ARE TO BE SO CONSTRUED.
At the respective times of issuance of the Bonds, opinions relating to the
validity thereof and to the exclusion of interest thereon from Federal gross
income are rendered by bond counsel to the respective issuing authorities.
Neither the Sponsor nor Chapman and Cutler has made any special review for the
Fund of the proceedings relating to the issuance of the Bonds or of the basis
for such opinions.
For taxpayers other than corporations, net capital gain (which is defined
as net long-term capital gain over net short-term capital loss for the taxable
year) is subject to a maximum marginal stated tax rate of either 28% or 20%,
depending upon the holding periods of the capital assets. Capital gain or loss
is long-term if the holding period for the asset is more than one year, and is
short-term if the holding period for the asset is one year or less. Generally,
capital gains realized from assets held for more than one year but not more than
18 months are taxed at a maximum marginal stated tax rate of 28% and capital
gains realized from assets (with certain exclusions) held for more than 18
months are taxed at a maximum marginal stated tax rate of 20% (10% in the case
of certain taxpayers in the lowest tax bracket). Further, capital gains realized
from assets held for one year or less are taxed at the same rates as ordinary
income. Legislation is currently pending that provides the appropriate
methodology that should be applied in netting the realized capital gains and
losses. Such legislation is proposed to be effective retroactively for tax years
ending after May 6, 1997.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions
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entered into after April 30, 1993. Unit holders and prospective investors should
consult with their tax advisers regarding the potential effect of this provision
on their investment in Units.
For purposes of computing the alternative minimum tax for individuals and
corporations and the Superfund Tax for corporations, interest on certain private
activity bonds (which includes most industrial and housing revenue bonds) issued
on or after August 8, 1996 is included as an item of tax preference.
In general, Section 86 of the Code, provides that 50% of Social Security
benefits are includible in gross income to the extent that the sum of "modified
adjusted gross income" plus 50% of the Social Security benefits received exceeds
a "base amount." The base amount is $25,000 for unmarried taxpayers, $32,000 for
married taxpayers filing a joint return and zero for married taxpayers who do
not live apart at all times during the taxable year and who file separate
returns. Modified adjusted gross income is adjusted gross income determined
without regard to certain otherwise allowable deductions and exclusions from
gross income and by including tax-exempt interest. To the extent that Social
Security benefits are includible in gross income, they will be treated as any
other item of gross income.
In addition, under the Tax Act, for taxable years beginning after December
31, 1993, up to 85% of Social Security benefits are includible in gross income
to the extent that the sum of "modified adjusted gross income" plus 50% of
Social Security benefits received exceeds an "adjusted base amount." The
adjusted base amount is $34,000 for unmarried taxpayers, $44,000 for married
taxpayers filing a joint return, and zero for married taxpayers who do not live
apart at all times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross income
solely for the purpose of determining what portion, if any, of Social Security
benefits will be included in gross income, no tax-exempt interest, including
that received from a Trust, will be subject to tax. A taxpayer whose adjusted
gross income already exceeds the base amount or the adjusted base amount must
include 50% or 85%, respectively, of his Social Security benefits in gross
income whether or not he receives any tax-exempt interest. A taxpayer whose
modified adjusted gross income (after inclusion of tax-exempt interest) does not
exceed the base amount need not include any Social Security benefits in gross
income.
FOR A DISCUSSION OF THE STATE TAX STATUS OF INCOME EARNED ON UNITS OF A
TRUST, SEE "THE TRUSTS -- STATE TAXATION" FOR THE APPLICABLE TRUST. EXCEPT AS
NOTED THEREIN, THE EXEMPTION OF INTEREST ON STATE AND LOCAL OBLIGATIONS FOR
FEDERAL INCOME TAX PURPOSES DISCUSSED ABOVE DOES NOT NECESSARILY RESULT IN
EXEMPTION UNDER THE INCOME OR OTHER TAX LAWS OF ANY STATE OR CITY. THE LAWS OF
THE SEVERAL STATES VARY WITH RESPECT TO THE TAXATION OF SUCH OBLIGATIONS.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation, corporations
subject to the branch profits tax, financial institutions, certain insurance
companies, certain S corporations, individual recipients of Social Security or
Railroad Retirement benefits and taxpayers who may be deemed to have incurred
(or continued) indebtedness to purchase or carry tax-exempt obligations.
Prospective investors should consult their tax advisors as to the applicability
of any collateral consequences.
PUBLIC OFFERING
GENERAL. Units are offered at the Public Offering Price. During the initial
offering period the Public Offering Price is based on the offering prices of the
Bonds in each Trust and includes a sales charge of 4.9% of the Public Offering
Price (5.152% of the aggregate offering price of the Bonds) plus any accrued
interest. In the secondary market the Public Offering Price is based on the bid
prices of the Bonds in each Trust and includes a sales charge of 5.5% of the
Public Offering Price (5.820% of the aggregate bid price of the Bonds) plus any
accrued interest. However, the sales charge applicable to quantity purchases is,
during the initial offering period, reduced by a discount on a graduated basis
to
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any person acquiring $100,000 or more as follows (except for sales made pursuant
to a "wrap fee account" or similar arrangements as set forth below):
AGGREGATE DOLLAR VALUE REDUCTION AS A
OF UNITS PURCHASED PERCENT OF OFFERING PRICE
---------------------- -------------------------
$100,000 - 249,999 ......... 0.30%
$250,000 - 499,999 ......... 0.50%
$500,000 - 999,999 ......... 0.90%
$1,000,000 or more ......... 1.40%
Any such reduced sales charge shall be the responsibility of the selling
Underwriter, broker, dealer or agent. The reduced sales charge structure will
apply on all purchases of Units in a Trust by the same person on any one day
from any one Underwriter or dealer. In addition, Unitholders who, during the
offering period, cumulatively purchase a sufficient number of Units of a Trust
to qualify for a reduced sales charge will receive such reduction retroactively
upon reaching the appropriate level. Units purchased in the name of the spouse
of a purchaser or in the name of a child of such purchaser under 21 years of age
will be deemed for the purposes of calculating the applicable sales charge to be
additional purchases by the purchaser. Investors may use the redemption proceeds
they have received from other unit investment trusts sponsored by the Sponsor to
purchase Units of a Trust without a sales charge. The reduced sales charges will
also be applicable to a trustee or other fiduciary purchasing securities for one
or more trust estate or fiduciary accounts. Employees, officers and directors
(including their immediate family members, defined as spouses, children,
grandchildren, parents, grandparents, mothers-in-law, fathers-in-law,
sons-in-law and daughters-in-law, and trustees, custodians or fiduciaries for
the benefit of such persons) of the Sponsor and its affiliates may purchase
Units of the Trusts without a sales charge in both the initial and secondary
offering periods.
Investors who purchase Units through registered broker/dealers who charge
periodic fees for financial planning, investment advisory or asset management
services, or provide such services in connection with the establishment of an
investment account for which a comprehensive "wrap fee" charge is imposed, may
purchase Units in the initial and secondary offering periods at the Public
Offering Price less the concession the Distributor typically would allow such
broker/dealer. See "Public Offering -- Unit Distribution."
ACCRUED INTEREST. Accrued interest is the accumulation of unpaid interest
on a bond from the last day on which interest thereon was paid. Interest on
Bonds generally is paid semi-annually, although a Trust accrues such interest
daily. Because of this, each 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
the respective 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. See "Rights of Unitholders -- Distributions of Interest
and Principal."
Because of the varying interest payment dates of the Bonds, accrued
interest at any point in time will be greater than the amount of interest
actually received by a Trust and distributed to Unitholders.
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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 noninterest-bearing to Unitholders, the Trustee benefits
thereby.
OFFERING PRICE. The Public Offering Price of the Units will vary from the
amounts stated under "Summary of Essential Financial Information" in accordance
with fluctuations in the prices of the underlying Bonds in each Trust.
As indicated above, the price of the Units as of the opening of business on
the Initial Date of Deposit was determined by adding to the determination of the
aggregate offering price of the Bonds an amount equal to 5.152% of such value
and dividing the sum so obtained by the number of Units outstanding. This
computation produced a gross underwriting profit equal to 4.9% of the Public
Offering Price. Such price determination as of the opening of business on the
Initial Date of Deposit was made on the basis of an evaluation of the Bonds in
each Trust prepared by Muller Data Corporation, a firm regularly engaged in the
business of evaluating, quoting or appraising comparable securities. Except on
the Initial Date of Deposit, during the initial offering period, the Evaluator
will appraise or cause to be appraised daily the value of the underlying Bonds
as of the close of trading on the New York Stock Exchange (generally 4:00 P.M.
Eastern Time) on days the New York Stock Exchange is open (or as of any earlier
closing time on a day on which the New York Stock Exchange is scheduled in
advance to close at such earlier time) and will adjust the Public Offering Price
of the Units commensurate with such appraisal. Such Public Offering Price will
be effective for all orders received at or prior to the close of trading on the
New York Stock Exchange on each such day (or as of any earlier closing time on a
day on which the New York Stock Exchange is scheduled in advance to close at
such earlier time). Orders received by the Trustee, Distributor or any
Underwriter or dealer for purchases, sales or redemptions after that time, or on
a day when the New York Stock Exchange is closed, will be held until the next
determination of price. For secondary market sales, the Public Offering Price
per Unit will be equal to the aggregate bid price of the Bonds in a Trust plus
the secondary market sales charge. For secondary market purposes, such appraisal
and adjustment will be made by the Evaluator as of the close of trading on the
New York Stock Exchange on days on which the New York Stock Exchange is open (or
as of any earlier closing time on a day on which the New York Stock Exchange is
schedule in advance to close at such earlier time) for each day on which any
Unit of a Trust is tendered for redemption, and it shall determine the aggregate
value of such Trust as of the close of trading on the New York Stock Exchange
(or as of any earlier closing time on a day on which the New York Stock Exchange
is scheduled in advance to close at such earlier time) on such other days as may
be necessary.
The aggregate price of the Bonds in each Trust has been and will be
determined on the basis of bid prices or offering prices, as appropriate, (i) on
the basis of current market prices for the Bonds obtained from dealers or
brokers who customarily deal in bonds comparable to those held by the Trust;
(ii) if such prices are not available for any particular Bonds, on the basis of
current market 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.
The initial or primary Public Offering Price of the Units and the
Distributor's initial repurchase price per Unit are based on the offering price
per Unit of the underlying Bonds plus the applicable sales charge plus interest
accrued but unpaid from the First Settlement Date to the date of settlement. The
secondary market Public Offering Price and the Redemption Price per Unit are
based on the bid price per Unit of the Bonds in each Trust plus the applicable
sales charge plus accrued interest. The offering price of Bonds in each Trust
may be expected to range from .35%-1% more than the bid price of such
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Bonds. On the Initial Date of Deposit, the offering side evaluation of the Bonds
in each Trust were higher than the bid side evaluation of such Bonds by the
amount indicated under footnote (5) in "The Trusts -- Notes to Schedules of
Investments."
Although payment is normally made three business days following the order
for purchase, payment may be made prior thereto. However, delivery of
certificates, if any are requested in writing, representing Units so ordered
will be made as soon as possible following such order or shortly thereafter. 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 Distributor prior to the
date of settlement for the purchase of Units may be used in the Distributor's
business and may be deemed to be a benefit to the Distributor, subject to the
limitations of the Securities Exchange Act of 1934.
UNIT DISTRIBUTION. During the initial offering period, Units will be
distributed to the public by Underwriters, broker-dealers and others (see
"Underwriting") at the Public Offering Price, plus accrued interest computed as
described above. Upon the completion of the initial offering, Units repurchased
in the secondary market, if any, may be offered by this prospectus at the
secondary Public Offering Price in the manner described.
The Sponsor intends to qualify the Units for sale in the state for which
such Trust is named, except that in the case of the National Trusts, the Sponsor
intends to qualify Units for sale in a number of states and Puerto Rico.
Broker-dealers or others will be allowed a concession or agency commission in
connection with the distribution of Units during the initial offering period
equal to $.33 per Unit and in the secondary market equal to 4.0% of the Public
Offering Price per Unit. In addition, broker-dealers or others who sell, within
five business days of a Trust's Initial Date of Deposit, that amount necessary
to qualify for the Underwriter Concession set forth under "Sponsor and
Underwriter Compensation" below will be allowed the concession set forth in such
section on all sales during such period. Certain commercial banks are making
Units of the Fund available to their customers on an agency basis. A portion of
the sales charge (equal to the agency commission referred to above) is retained
by or remitted to the banks. Under the Glass-Steagall Act, banks are prohibited
from underwriting Units of the Fund; however, the Glass-Steagall Act does permit
certain agency transactions and the banking regulators have not indicated that
these particular agency transactions are not 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.
Notwithstanding the concessions referred to above, in connection with any
quantity purchases, a broker/dealer or bank will receive the following
concessions for purchases made from the Distributor, pursuant to the sales
charge reduction schedule for quantity purchases set forth above, resulting in
total concessions as contained in the following table:
AGGREGATE DOLLAR VALUE TOTAL CONCESSION
OF UNITS PURCHASED PER UNIT
---------------------- ----------------
$100,000 - $249,999........... $ .32
$250,000 - $499,999........... .31
$500,000 - $999,999........... .29
$1,000,000 or more............ .25
The Distributor reserves the right to reject, in whole or in part, any
order for the purchase of Units and to change the amount of the concession or
agency commission to dealers and others from time to time. See "Underwriting."
To facilitate the handling of transactions, sales of Units shall normally be
limited to transactions involving a minimum of $1,000.
SPONSOR AND UNDERWRITER COMPENSATION. The gross sales commission through
the initial or primary distribution of Units will equal 4.9% of the Public
Offering Price of the Units (5.152% of the
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net amount invested), less any reduced sales charge for quantity purchases as
described under "General" above. Underwriters will acquire Units from the
Distributor based on the amount of Units underwritten. The concessions from the
Public Offering Price will be as set forth in the following table:
AGGREGATE DOLLAR VALUE TOTAL UNDERWRITER
OF UNITS UNDERWRITTEN CONCESSION PER UNIT
------------------------------- -------------------
$100,000 - $249,999............ $ .35
$250,000 - $499,999 ........... .36
$500,000 - $999,999 ........... .37
$1,000,000 or more............. .40
Broker-dealers and other financial institutions purchasing Units from the
Distributor during the first week after the Initial Date of Deposit may also
receive the concession described above according to the schedule above
describing Underwriters compensation. In addition, the Sponsor will realize a
profit or will sustain a loss, as the case may be, as a result of the difference
between the price paid for the Bonds by the Sponsor and the cost of such Bonds
to a Trust (which is based on the determination of the aggregate offering price
of the Bonds in such Trust on the Initial Date of Deposit as prepared by Muller
Data Corporation). See "Underwriting" and "The Trusts -- Schedules of
Investments." Affiliates of the Underwriters may also realize profits or sustain
losses with respect to Bonds deposited in a Trust which were acquired by the
Sponsor from underwriting syndicates of which such parties were members. Neither
the Sponsor, the Distributor, nor their affiliates have participated as sole
underwriter or as a manager or as a member of an underwriting syndicate from
which any of the Bonds in the portfolios of the Trusts were acquired. The
Underwriters may further realize additional profit or loss during the initial
offering period as a result of the possible fluctuations in the market value of
the Bonds in a Trust after the Initial Date of Deposit, since all proceeds
received from purchasers of Units (excluding dealer concessions or agency
commissions allowed, if any) will be retained by the Underwriters.
As stated under "Public Market" below, an affiliate of the Sponsor,
Delaware Distributors, L.P. (the "Distributor"), intends to, and certain of the
other Underwriters may, maintain a secondary market for the Units of the Fund.
In so maintaining a market, the Distributor or any such Underwriters will also
realize profits or sustain losses in the amount of any difference between the
price at which Units are purchased and the price at which Units are resold
(which price is based on the bid prices of the Bonds in a Trust and includes a
sales charge). In addition, the Distributor or any such Underwriters will also
realize profits or sustain losses resulting from a redemption of such
repurchased Units at a price above or below the purchase price for such Units,
respectively.
PUBLIC MARKET. During the initial public offering period, the Distributor
and/or certain of the other Underwriters intend to offer to purchase Units at a
price based on the aggregate offering price per Unit of the Bonds in each Trust
plus accrued interest to the date of settlement. Afterward, although they are
not obligated to do so, the Distributor intends to, and certain of the other
Underwriters may, maintain a market for the Units offered hereby and to offer
continuously to purchase such Units at the bid price of the Bonds in the
portfolio plus interest accrued to the date of settlement plus any principal
cash on hand, less any amounts representing taxes or other governmental charges
payable out of the Trust and less any accrued Trust expenses. If the supply of
Units exceeds demand or if some other business reason warrants it, the
Distributor and/or the other Underwriters may either discontinue all purchases
of Units or discontinue purchases of Units at such prices. In the event that a
market is not maintained for the Units and the Unitholder cannot find another
purchaser, a Unitholder desiring to dispose of his Units may dispose of such
Units by tendering them to the Trustee for redemption at the Redemption Price,
which is based upon the aggregate bid price of the Bonds in the portfolio and
any accrued interest. The aggregate bid prices of the underlying Bonds in a
Trust are expected to be less than the related aggregate offering prices. See
"Rights of Unitholders -- Redemption of Units." A UNITHOLDER
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WHO WISHES TO DISPOSE OF HIS UNITS SHOULD INQUIRE OF HIS 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.
RIGHTS OF 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.
Although no such charge is now made or contemplated, the Trustee may
require a Unitholder to pay a reasonable fee for each certificate reissued or
transferred and to pay any governmental charge that may be imposed in connection
with each such transfer or interchange. Destroyed, stolen, mutilated or lost
certificates will be replaced upon delivery to the Trustee of satisfactory
indemnity, evidence of ownership and payment of expenses incurred. Mutilated
certificates must be surrendered to the Trustee for replacement.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL. Interest received by the Trusts,
including that part of the proceeds of any disposition of Bonds which represents
accrued interest and including any insurance proceeds representing interest due
on defaulted Bonds, is credited by the Trustee to the Interest Account of the
appropriate Trust. Other receipts are credited to the Principal Account of the
appropriate Trust. Interest received by a Trust after deduction of amounts
sufficient to reimburse the Trustee for any amounts advanced and paid to the
Sponsor as the Unitholder of record as of the First Settlement Date (see "Public
Offering -- Offering Price") will be distributed on or shortly after the
fifteenth day of each month on a pro rata basis to Unitholders of record as of
the preceding record date (which will be the first day of the month). All
distributions will be net of applicable expenses. The pro rata share of cash in
the Principal Account will be computed as of the applicable record date, and
distributions to the Unitholders as of such record date will be made on or
shortly after the fifteenth day of such month. Proceeds received from the
disposition of any of the Bonds after such record date and prior to the
following distribution date will be held in the Principal Account and not
distributed until the next distribution date. The Trustee is not required to pay
interest on funds held in the Principal or Interest Accounts (but may itself
earn interest thereon and therefore benefits from the use of such funds) nor to
make a distribution from the Principal Account unless the amount available for
distribution shall equal at least $0.01 per Unit.
The distribution to the Unitholders as of each record date after the First
Settlement Date will be made on the following distribution date or shortly
thereafter and shall consist of an amount substantially equal to one twelfth of
the Unitholders' pro rata share of the estimated net annual unit income in the
Interest Account after deducting estimated expenses. Because interest payments
are not received by the
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Trusts at a constant rate throughout the year, such interest distribution may be
more or less that the amount credited to the Interest Account as of the record
date. For the purpose of minimizing fluctuation in the distributions from the
Interest Account, the Trustee is authorized to advance such amounts as may be
necessary to provide interest distributions of approximately equal amounts. The
Trustee shall be reimbursed for any such advances from funds in the Interest
Account on the ensuing record date. Persons who purchase Units will commence
receiving distributions only after such person becomes a record owner.
Notification to the Trustee of the transfer of Units is the responsibility of
the purchaser, but in the normal course of business such notice is provided by
the selling broker-dealer.
As of the first day of each month, the Trustee will deduct from the
Interest Account and, to the extent funds are not sufficient therein, from the
Principal Account, amounts necessary to pay the expenses of the Trusts (as
determined on the basis set forth under "Trust Operating Expenses"). The Trustee
also may withdraw from said accounts such amounts, if any, as it deems necessary
to establish a reserve for any governmental charges or extraordinary charges
payable out of the Trusts. Amounts so withdrawn shall not be considered a part
of a Trust's assets until such time as the Trustee shall return all or any part
of such amounts to the appropriate accounts. In addition, the Trustee may
withdraw from the Interest and Principal Accounts such amounts as may be
necessary to cover purchases of Replacement Bonds and redemption of Units by the
Trustee.
REINVESTMENT OPTION. Unitholders of the Trusts may elect to have each
distribution of interest income, capital gains and/or principal on their Units
automatically reinvested in shares of any mutual fund in the Delaware
Investments Mutual Funds which are registered in the Unitholder's state of
residence. Such mutual funds are hereinafter collectively referred to as the
"Reinvestment Funds."
Each Reinvestment Fund has investment objectives which differ from those of
the Trusts. The prospectus relating to each Reinvestment Fund describes the
investment policies of such fund and sets forth the procedures to follow to
commence reinvestment. A Unitholder should obtain a prospectus for the
respective Reinvestment Fund by writing to Delaware Distributors, L.P. at 1818
Market Street, Philadelphia, Pennsylvania 19103, or by phone at 800-362-7500.
After becoming a participant in a reinvestment plan, each distribution of
interest income, capital gains and/or principal on the participant's Units will,
on the applicable distribution date, automatically be applied, as directed by
such person, as of such distribution date by the Trustee to purchase shares (or
fractions thereof) of the applicable Reinvestment Fund at a net asset value as
computed as of the next end of a "business day," as defined in the Reinvestment
Fund's prospectus.
Confirmations of all reinvestments by a Unitholder into a Reinvestment Fund
will be mailed to the Unitholder by such Reinvestment Fund.
A participant may at any time prior to five days preceding the next
succeeding distribution date, by so notifying the Trustee in writing, elect to
terminate his or her reinvestment plan and receive future distributions on his
or her Units in cash. There will be no charge or other penalty for such
termination. Each Reinvestment Fund, its principal underwriter and its
investment adviser shall have the right to terminate at any time the
reinvestment plan relating to such fund.
REPORTS PROVIDED. The Trustee shall furnish Unitholders of a Trust in
connection with each distribution a statement of the amount of interest and, if
any, the amount of other receipts being distributed expressed in each case as a
dollar amount representing the pro rata share of each Unit of a Trust
outstanding. For as long as the Sponsor deems it to be in the best interests of
the Unitholders, the accounts of each Trust shall be audited, not less
frequently than annually, by independent certified public accountants and the
report of such accountants shall be furnished by the Trustee to Unitholders of
such Trusts upon request. Within a reasonable period of time after the end of
each calendar year, the Trustee
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shall furnish to each person who at any time during the calendar year was a
registered Unitholder of a Trust a statement (i) as to the Interest Account:
interest received (including amounts representing interest received upon any
disposition of the Bonds) and the percentage of such amount by states and
territories in which the issuers of such Bonds are located, deductions for
applicable taxes and for fees and expenses of such Trust, for purchases of
Replacement Bonds and for redemptions of Units, if any, reservations made by the
Trustee, if any, and the balance remaining after such distributions and
deductions, expressed in each case both as a total dollar amount and as a dollar
amount representing the pro rata share of each Unit outstanding on the last
business day of such calendar year; (ii) as to the Principal Account: the dates
of disposition of any Bonds and the net proceeds received therefrom (excluding
any portion representing accrued interest), the amount paid for purchases of
Replacement Bonds and for redemptions of Units, if any, reservations made by the
Trustee, if any, deductions for payment of applicable taxes, fees and expenses
of such Trust and the balance remaining after such distributions and deductions
expressed both as a total dollar amount and as a dollar amount representing the
pro rata share of each Unit outstanding on the last business day of such
calendar year; (iii) a list of the Bonds held and the number of Units
outstanding on the last business day of such calendar year; (iv) the Redemption
Price per Unit based upon the last computation thereof made during such calendar
year; and (v) 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 representing the pro rata share of each
Unit outstanding.
In order to comply with Federal and state tax reporting requirements,
Unitholders will be furnished, upon request to the Trustee, evaluations of the
Bonds in a Trust furnished to it by the Evaluator.
REDEMPTION OF UNITS. 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, at its unit investment trust office,
The Chase Manhattan Bank, Bowling Green Station, P.O. Box 5185, New York, NY
10274-5185 and, in the case of Units evidenced by a certificate, by tendering
such certificate to the Trustee, properly endorsed or accompanied by a written
instrument or instruments of transfer in form satisfactory to the Trustee.
Unitholders must sign the request, and such certificate or transfer instrument,
exactly as their names appear on the records of the Trustee and on any
certificate representing the Units to be redeemed. If the amount of the
redemption is $25,000 or less and the proceeds are payable to the Unitholder(s)
of record at the address of record, no signature guarantee is necessary for
redemptions by individual account owners (including joint owners). Additional
documentation 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 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. The Trustee's
toll-free number for customer assistance is 1-800-428-8890, available 9:00 a.m.
to 5:00 p.m. EST any business day.
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").
Such redemption shall be made by payment of cash, equivalent to the Redemption
Price for such Trust, determined as set forth below as of the evaluation time
stated under "Summary of Essential Financial 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 Fund
extinguished. The price received upon redemption might be more or less than the
amount paid by the Unitholder depending on the value of the Bonds in the Trust
involved at the time of redemption.
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<PAGE>
Under regulations issued by the Internal Revenue Service, the Trustee will
be required to withhold a specified 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 return. Under normal circumstances the Trustee
obtains the Unitholder's tax identification number from the selling broker.
However, at any time a Unitholder elects to tender Units for redemption, such
Unitholder should provide a tax identification number to the Trustee in order to
avoid this possible "back-up withholding" in the event the Trustee has not been
previously provided such number.
Accrued interest paid on redemption shall be withdrawn from the Interest
Account or, if the balance therein is insufficient, from the Principal Account.
All other amounts will be withdrawn from the Principal Account. The Trustee is
empowered to sell underlying Bonds in order to make funds available for
redemption. Units so redeemed shall be cancelled.
The Redemption Price per Unit (as well as the secondary market Public
Offering Price) will be determined on the basis of the bid price of the Bonds in
each Trust, while the initial and primary Public Offering Price of Units will be
determined on the basis of the offering price of the Bonds, as of the close of
trading on the New York Stock Exchange (or as of any earlier closing time on a
day on which the New York Stock Exchange is schedule in advance to close at such
earlier time) on days of trading on the New York Stock Exchange on the date any
such determination is made. On the Initial Date of Deposit, the Public Offering
Price per Unit (which is based on the offering prices of the Bonds and includes
the sales charge) exceeded the value at which Units could have been redeemed
(based upon the current bid prices of the Bonds in such Trust) by the amount
shown under "Summary of Essential Financial Information." While the Trustee has
the power to determine the Redemption Price per Unit when Units are tendered for
redemption, such authority has been delegated to the Evaluator which determines
the price per Unit on a daily basis. The Redemption Price per Unit is the pro
rata share of each Unit in a Trust determined on the basis of (i) the cash on
hand in such Trust or monies in the process of being collected, (ii) the value
of the Bonds in such Trust based on the bid prices of the Bonds (including "when
issued" contracts, if any) and (iii) interest accrued thereon, less (a) amounts
representing taxes or other governmental charges payable out of such Trust and
(b) the accrued expenses of such Trust. The Evaluator may determine the value of
the Bonds in a Trust by employing any of the methods set forth in "Public
Offering -- Offering Price."
The price at which Units may be redeemed could be less than the price paid
by the Unitholder and may be less than the par value of the Bonds represented by
the Units so redeemed. As stated above, the Trustee may sell Bonds to cover
redemptions. When Bonds are sold, the size of the affected Trust will be, and
the diversity may be, reduced. Such sales may be required at a time when Bonds
would not otherwise be sold and might result in lower prices than might
otherwise be realized.
The right of redemption may be suspended and payment postponed for any
period during which the New York Stock Exchange is closed, other than for
customary weekend and holiday closings, or during which the Securities and
Exchange Commission determines that trading on that Exchange is restricted or an
emergency exists, as a result of which disposal or evaluation of the Bonds in a
Trust is not reasonably practicable, or for such other periods 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.
TRUST ADMINISTRATION
DISTRIBUTOR PURCHASES OF UNITS. The Trustee shall notify the Distributor
of any tender of Units for redemption. If the Distributor's bid in the
secondary market at that time equals or exceeds the
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<PAGE>
Redemption Price per Unit, it may purchase such Units by notifying the Trustee
before the close of business on the date of such notification and by making
payment therefor to the Unitholder not later than the day on which the Units
would otherwise have been redeemed by the Trustee. Units held by the Sponsor or
Distributor may be tendered to the Trustee for redemption as any other Units.
The offering price of any Units acquired by the Distributor will be in
accord with the Public Offering Price described in the then currently effective
prospectus describing such Units. Any profit resulting from the resale of such
Units will belong to the Distributor which likewise will bear any loss resulting
from a lower offering or redemption price subsequent to its acquisition of such
Units.
PORTFOLIO ADMINISTRATION. The Trustee is empowered to sell, for the purpose
of redeeming Units tendered by any Unitholder, and for the payment of expenses
for which funds may not be available, such of the Bonds designated by the
Sponsor as the Trustee in its sole discretion may deem necessary. The Sponsor,
in designating such Bonds, will consider a variety of factors, including (i)
interest rates, (ii) market value and (iii) marketability. The Sponsor may
direct the Trustee to dispose of Bonds in the event there is a decline in price
or the occurrence of other market or credit factors, including advance refunding
(i.e., the issuance of refunding securities and the deposit of the proceeds
thereof in trust or escrow to retire the refunded securities on their respective
redemption dates), so that in the opinion of the Sponsor the retention of such
Securities would be detrimental to the interest of the Unitholders.
The Sponsor is required to instruct the Trustee to reject any offer made by
an issuer of any of the Bonds to issue new obligations in exchange or
substitution for any Bond pursuant to a refunding or refinancing 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
(i) the issuer is in default with respect to such Bond or (ii) in the written
opinion of the Sponsor the issuer will probably default with respect to such
Bond in the reasonably foreseeable 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 Bonds originally
deposited thereunder. Within five days after the deposit of obligations in
exchange or substitution for underlying Bonds, the Trustee is required to give
notice thereof to each Unitholder, identifying the Bonds eliminated and the
Bonds substituted therefor. Except as stated herein and under "The Fund --
Replacement Bonds" regarding the substitution of Replacement Bonds for Failed
Bonds, the acquisition by the Trust of any obligations other than the Bonds
initially deposited is not permitted.
If any default in the payment of principal or interest on any Bond occurs
and no provision for payment is made therefor within 30 days, the Trustee is
required to notify the Sponsor thereof. If the Sponsor fails to instruct the
Trustee to sell or to hold such Bond within 30 days after notification by the
Trustee to the Sponsor of such default, the Trustee may in its discretion sell
the defaulted Bond and not be liable for any depreciation or loss thereby
incurred.
AMENDMENT OR TERMINATION. The Sponsor and the Trustee have the power to
amend the Trust Agreement without the consent of any of the Unitholders when
such an amendment is (i) to cure an ambiguity or to correct or supplement any
provision of the Trust Agreement which may be defective or inconsistent with any
other provision contained therein or (ii) to make such other provisions as shall
not adversely affect the interest of the Unitholders (as determined in good
faith by the Sponsor and the Trustee), provided that the Trust Agreement may not
be amended to increase the number of Units issuable thereunder or to permit the
deposit or acquisition of obligations either in addition to or in substitution
for any of the Bonds initially deposited in a Trust, except for the substitution
of certain refunding obligations for such Bonds, for Replacement Bonds and for
subsequent deposits (see "The Fund"). In the event of any amendment requiring
the consent of Unitholders, the Trustee is obligated to notify promptly all
Unitholders of the substance of such amendment.
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<PAGE>
A Trust may be terminated at any time by consent of Unitholders
representing 66-2/3% of the Units of such Trust then outstanding or by the
Trustee when the value of such Trust, as shown by any semi-annual evaluation, is
less than the minimum value indicated under "Summary of Essential Financial
Information." A Trust will be liquidated by the Trustee in the event that a
sufficient number of Units not yet sold are tendered for redemption by the
Underwriters, including the Distributor, so that the net worth of such Trust
would be reduced to less than 40% of the initial principal amount of such Trust.
If a Trust is liquidated because of the redemption of unsold Units by the
Underwriters, the Distributor will refund to each purchaser of Units the entire
sales charge paid by such purchaser.
The Trust Agreement provides that a Trust shall terminate upon the
redemption, sale or other disposition of the last Bond held in such Trust, but
in no event shall it continue beyond the end of the year preceding the fiftieth
anniversary of the Trust Agreement. In the event of termination of a Trust,
written notice thereof will be sent by the Trustee to each Unitholder of such
Trust at his address appearing on the registration books of the Trust maintained
by the Trustee, such notice specifying the time or times at which the Unitholder
may surrender his certificate or certificates, if any were issued, for
cancellation. Within a reasonable time thereafter the Trustee shall liquidate
any Bonds then held in such Trust and shall deduct from the funds of such Trust
any accrued costs, expenses or indemnities provided by the Trust Agreement,
including estimated compensation of the Trustee and costs of liquidation and any
amounts required as a reserve to provide for payment of any applicable taxes or
other governmental charges. The sale of Bonds in a Trust upon termination may
result in a lower amount than might otherwise be realized if such sale were not
required at such time. For this reason, among others, the amount realized by a
Unitholder upon termination may be less than the principal amount or par amount
of Bonds represented by the Units held by such Unitholder. The Trustee shall
then distribute to each Unitholder his or her share of the balance of the
Interest and Principal Accounts. With such distribution the Unitholders shall be
furnished a final distribution statement of the amount distributable. At such
time as the Trustee in its sole discretion shall determine that any amounts held
in reserve are no longer necessary, it shall make distribution thereof to
Unitholders in the same manner.
LIMITATION ON LIABILITIES. The Sponsor, the Evaluator, the Distributor and
the Trustee shall be under no liability to Unitholders for taking any action or
for refraining from taking any action in good faith pursuant to the Trust
Agreement, or for errors in judgment, but shall be liable only for their own
willful misfeasance, bad faith or gross negligence in the performance of their
duties or by reason of their reckless disregard of their obligations and duties
thereunder. The Trustee shall not be liable for depreciation or loss incurred by
reason of the sale by the Trustee of any of the Bonds. In the event of the
failure of the Sponsor to act under the Trust Agreement, the Trustee may act
thereunder and shall not be liable for any action taken by it in good faith
under the Trust Agreement.
The Trustee shall not 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 under the Trust Agreement or upon or in respect of the Fund which the
Trustee 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
addition, the Trust Agreement contains other customary provisions limiting the
liability of the Trustee.
The Trustee, Sponsor, Distributor and Unitholders may rely on any
evaluation furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Trust Agreement
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, Sponsor, Distributor or Unitholders for errors in judgment. This
provision shall not protect the Evaluator in any case of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations and duties.
SPONSOR. Delaware Investment Advisers is the Sponsor of the Fund and
Delaware Distributors, L.P. is the primary Distributor of Fund Units. Both the
Sponsor and Distributor are indirect, wholly
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owned subsidiaries of Lincoln National Corporation ("LNC"). LNC, headquartered
in Fort Wayne, Indiana, owns and operates insurance and investment management
businesses, including Delaware Management Holdings, Inc. ("DMH"). Affiliates of
DMH serve as adviser, distributor and transfer agent for the Delaware
Investments Mutual Funds.
As of February 28, 1998, affiliates of DMH, including the Sponsor, had
assets under management of approximately $43 billion in mutual fund and
institutional accounts, and served as investment adviser to over 100 mutual fund
portfolios. The principal business address for the Sponsor is One Commerce
Square, Philadelphia, Pennsylvania 19103; the principal business address for the
Distributor is 1818 Market Street, Philadelphia, Pennsylvania 19103. (This
paragraph relates only to the Sponsor and not to the Fund or to any Series
thereof. The information is included herein only for the purpose of informing
investors as to the financial responsibility of the Sponsor and its ability to
carry out its contractual obligations. More detailed information will be made
available by the Sponsor upon request.)
If the Sponsor shall fail to perform any of its duties under the Trust
Agreement or become incapable of acting or become bankrupt or its affairs are
taken over by public authorities, then the Trustee may (i) appoint a successor
Sponsor at rates of compensation deemed by the Trustee to be reasonable and not
exceeding amounts prescribed by the Securities and Exchange Commission, (ii)
terminate the Trust Agreement and liquidate the Fund as provided therein or
(iii) continue to act as Trustee without terminating the Trust Agreement.
EVALUATOR. Muller Data Corporation serves as Evaluator. The Evaluator may
resign or be removed by the Sponsor in which event the Sponsor 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
evaluation. 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.
TRUSTEE. The Trustee is The Chase Manhattan Bank, with its principal
executive office located at 270 Park Avenue, New York, New York 10017 and its
unit investment trust office at 4 New York Plaza, 6th Floor, New York, New York
10004-2413. The Trustee is subject to supervision by the Superintendent of Banks
of the State of New York, the Federal Deposit Insurance Corporation and the
Board of Governors of the Federal Reserve System.
The duties of the Trustee are primarily ministerial in nature. It did not
participate in the selection of Bonds for the portfolio of any Trust.
In accordance with the Trust Agreement, the Trustee shall keep proper books
of record and account of all transactions at its office for the Fund. Such
records shall include the name and address of, and the certificates issued by
each Trust to, every Unitholder of each Trust. Such books and records shall be
open to inspection by any Unitholder 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 (see "Rights of Unitholders -- Reports Provided"). The Trustee is
required to keep a certified copy or duplicate original of the Trust Agreement
on file in its office available for inspection at all reasonable times during
the usual business hours by any Unitholder, together with a current list of the
Bonds held in the Trusts.
Under the Trust Agreement, the Trustee or any successor trustee may resign
and be discharged of the Trusts created by the Trust Agreement 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
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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 remove the Trustee and appoint a successor trustee as provided in
the Trust Agreement. 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 resignation
or removal of a Trustee becomes effective only when the successor trustee
accepts its appointment as such or when a court of competent jurisdiction
appoints a successor trustee.
Any corporation into which a Trustee may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which a Trustee shall be a party, shall be the successor trustee. The Trustee
must be a corporation organized under the laws of the United States or any
State, be authorized to exercise trust powers and have at all times an aggregate
capital, surplus and undivided profits of not less than $5,000,000.
UNDERWRITING
The Underwriters named below have severally purchased Units in the
following respective amounts from the Distributor.
<TABLE>
<CAPTION>
CALIFORNIA MINNESOTA TERRITORIAL
INSURED INSURED INSURED
NAME ADDRESS SERIES 1 SERIES 5 SERIES 8
- ----------------------------- ------------------------------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Delaware Distributors, L.P. 1818 Market Street 209,600 154,478 229,723
Philadelphia, PA 19103
Dain/Rauscher, Inc. 60 South 6th Street, 15th Floor 10,000 25,000
Minneapolis, MN 55402
Edward D. Jones 12555 Manchester Road 10,000
St. Louis, MO 63131
------- ------- -------
Total Units 209,600 164,478 264,723
======= ======= =======
</TABLE>
Units may also be sold to broker-dealers and others at prices representing
the per Unit concession or agency commission stated under "Public Offering --
Unit Distribution." However, resales of Units by such broker-dealers and others
to the public will be made at the Public Offering Price described in the
Prospectus. The Distributor reserves the right to reject, in whole or in part,
any order for the purchase of Units and the right to change the amount of the
concession or agency commission from time to time.
At various times the Distributor may implement programs under which the
sales forces of Underwriters, brokers, dealers, banks and/or others may be
eligible to win nominal awards for certain sales efforts, or under which the
Distributor will reallow to any such Underwriters, brokers, dealers, banks
and/or others that sponsor sales contests or recognition programs conforming to
criteria established by the Distributor, or participate in sales programs
sponsored by the Distributor, an amount not exceeding the total applicable sales
charges on the sales generated by such person at the public offering price
during such programs. Also, the Distributor in its discretion may from time to
time pursuant to objective criteria established by the Distributor pay fees to
qualifying Underwriters, brokers, dealers, banks or others for certain services
or activities which are primarily intended to result in sales of Units of the
Trusts. Such payments are made by the Distributor out of its own assets, and not
out of
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<PAGE>
the assets of the Trusts. These programs will not change the price Unitholders
pay for their Units or the amount that the Trusts will receive from the Units
sold.
OTHER MATTERS
LEGAL OPINIONS. The legality of the Units offered hereby and certain
matters relating to Federal and state tax law have been passed upon by Chapman
and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, as counsel for the
Sponsor. Carter, Ledyard & Milburn will act as counsel for the Trustee and as
special New York tax counsel for the Trusts.
INDEPENDENT AUDITORS. The statements of net assets, including the schedules
of investments, as of the opening of business on the Initial Date of Deposit,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
DESCRIPTION OF BOND RATINGS*
STANDARD & POOR'S. A brief description of the applicable Standard & Poor's
ratings symbols and their meanings follows:
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 or
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 arrangements 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.
- ------------------
*As published by the ratings companies.
**Bonds insured by Financial Guaranty Insurance Company, AMBAC Indemnity
Corporation, Municipal Bond Investors Assurance Corporation, Connie Lee
Insurance Company, Financial Security Assurance and Capital Guaranty Insurance
Company are automatically rated "AAA" by Standard & Poor's.
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<PAGE>
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" 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 that 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/her own judgment with respect to such likelihood
and risk.
Credit Watch: Credit Watch highlights potential changes in ratings of bonds
and other fixed income securities. It focuses on events and trends which place
companies and government units under special surveillance by S&P's 180-member
analytical staff. These may include merges, voter referendums, actions by
regulatory authorities, or developments gleaned from analytical reviews. Unless
otherwise noted, a rating decision will be made within 90 days. Issues appear on
Credit Watch where an event, situation, or deviation from trends occurred and
needs to be evaluated as to its impact on credit ratings. A listing, however,
does not mean a rating change is inevitable. Since S&P continuously monitors all
of its ratings, Credit Watch is not intended to include all issues under review.
Thus, rating changes will occur without issues appearing on Credit Watch.
MOODY'S INVESTORS SERVICE, INC. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Their safety is so absolute
that with the occasional exception of oversupply in a few specific instances,
characteristically, their market value is affected solely by money market
fluctuations.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation 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
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<PAGE>
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.
A 1 and Baa 1 - Bonds which are rated A 1 and Baa 1 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 market place.
Baa - Bonds which are rated Baa are considered as medium grade obligation;
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 will move in parallel with Aaa, Aa, and A obligations during periods
of economic normalcy, except in instances of oversupply.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the bond ranks at the high
end of its 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.
Con.(---) - Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
55
<PAGE>
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 Fund,
the Sponsor or the Underwriters. 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.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
TITLE PAGE
- ----- ----
SUMMARY OF ESSENTIAL
FINANCIAL INFORMATION ................ 3
THE FUND ............................... 5
INVESTMENT OBJECTIVES AND
PORTFOLIO SELECTION .................. 6
THE TRUSTS ............................. 7
REPORT OF INDEPENDENT AUDITORS ......... 21
STATEMENTS OF NET ASSETS ............... 22
EQUIVALENT TAXABLE ESTIMATED
CURRENT RETURNS ...................... 27
RISK FACTORS ........................... 28
ESTIMATED CURRENT RETURN AND
ESTIMATED LONG-TERM RETURN ........... 34
TRUST OPERATING EXPENSES ............... 34
INSURANCE ON THE BONDS IN THE
INSURED TRUSTS ....................... 36
TAX STATUS ............................. 36
PUBLIC OFFERING ........................ 40
RIGHTS OF UNITHOLDERS .................. 45
TRUST ADMINISTRATION ................... 48
UNDERWRITING ........................... 52
OTHER MATTERS .......................... 53
DESCRIPTION OF BOND RATINGS ............ 53
- --------------------------------------------------------------------------------
This Prospectus contains information concerning the Fund and the Sponsor, but
does not contain all of the information set forth in the registration statements
and 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 hereby made.
UIT-FIPR14 3/98
P R O S P E C T U S
- --------------------------------------------------------------------------------
March 19, 1998
DELAWARE INVESTMENTS
TAX-EXEMPT TRUST,
SERIES 14
CALIFORNIA INSURED
SERIES 1
MINNESOTA INSURED
SERIES 5
TERRITORIAL INSURED
SERIES 8
================================================================================
DELAWARE INVESTMENT ADVISERS
ONE COMMERCE SQUARE
PHILADELPHIA, PENNSYLVANIA 19103
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement on Form S-6 comprises the following papers
and documents:
The facing sheet of Form S-6
The Cross-Reference Sheet
The Prospectus
The signatures
The following exhibits:
1.1 Standard Terms and Conditions of Trust - Delaware-Voyageur Tax-Exempt
Trust Series 10 and certain Subsequent Series (incorporated by
reference to Amendment No. 1 to Form S-6 (File No. 333-27095) filed on
behalf of Delaware-Voyageur Tax-Exempt Trust, Series 10).
1.2 Form of Trust Indenture and Agreement for Delaware Investments
Tax-Exempt Trust, Series 14.
2. 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 "Tax Status" and "Legal Opinions" in the Prospectus and
opinion of counsel as to Federal income tax status of the securities
being registered and certain state tax matters.
3.1 Opinion of counsel as to New York income tax status of securities being
registered.
3.2 Opinion of counsel as to advancement of funds by Trustee.
4. Not applicable.
5. Financial Data Schedules filed hereto electronically as Exhibit(s) 27
pursuant to Rule 401 of Regulation S-T.
6. Written Consents.
(a) Consent of Muller Data Corporation.
(b) Consent of Ernst & Young LLP.
<PAGE>
SIGNATURES
The Registrant, Delaware Investments Tax-Exempt Trust, Series 14,
hereby identifies Delaware-Voyageur Tax-Exempt Trust, Series 1,
Delaware-Voyageur Tax-Exempt Trust, Series 3 and Delaware-Voyageur Tax-Exempt
Trust, Series 4 for purposes of the representations required by Rule 487 and
represents the following: (1) that the portfolio securities deposited in the
series with respect to 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 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 Securities and Exchange 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, Delaware Investments Tax-Exempt Trust, Series 14, has duly caused
this Amendment No. 1 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Philadelphia and
State of Pennsylvania on the 19th day of March, 1998.
DELAWARE INVESTMENTS TAX-
EXEMPT TRUST, SERIES 14
(Registrant)
By: Delaware Investment Advisers
(Depositor), a series of Delaware
Management Business Trust
By: Wayne A. Stork
-----------------------------------------
Chairman of the Board of Trustees of
Delaware Management Business Trust;
Chief Executive Officer and Chief
Investment Officer of Delaware Investment
Advisers
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on by the following person in the
capacity indicated and on March 19, 1998.
<PAGE>
SIGNATURE TITLE
WAYNE A. STORK
- ----------------------------- Chairman of the Board of Trustees of
Wayne A. Stork Delaware Management Business Trust;
Chief Executive Officer and Chief
Investment Officer of Delaware Investment
Advisers
DAVID K. DOWNES
- ----------------------------- Trustee of Delaware Management Business
David K. Downes Trust; Executive Vice President, Chief
Operating Officer, Chief Financial
Officer and Treasurer of Delaware
Investment Advisers
GEORGE M. CHAMBERLAIN, JR.
- -----------------------------
George M. Chamberlain, Jr. Trustee of Delaware Management Business
Trust; Senior Vice President, Secretary and
General Counsel of Delaware Investment
Advisers
JOHN B. FIELDS
- -----------------------------
John B. Fields Trustee of Delaware Managment Business
Trust; Vice President/Senior Portfolio
Manager of Delaware Investment Advisers
RICHARD G. UNRUH
- -----------------------------
Richard G. Unruh Trustee of Delaware Management Business
Trust; President of Delaware Investment
Advisers
MEMORANDUM OF CHANGES
DELAWARE INVESTMENTS TAX-EXEMPT TRUST, SERIES 14
The Prospectus filed with Amendment No. 1 of the Registration Statement
on Form S-6 has been revised to reflect information regarding the deposit of
bonds on March 19, 1998, and to set forth certain statistical data based
thereon.
COVER PAGE. The series number and the Trusts in the Fund have been
added. Information relating to the sales charge and the price of the
offering if the units were available for purchase at the opening of
business on the Initial Date of Deposit is set forth in the "Public
Offering Price" section.
PAGE 3. The "Summary of Essential Financial Information" table
has been completed.
PAGES 7-20. The following information for the Trusts appears on the
pages indicated:
Summary data regarding the composition of the portfolio
of the Trusts.
Information regarding special State risk factors.
The opinion of Special Counsel to the Fund for State tax
matters.
PAGE 21. The Independent Auditors' Report has been completed.
PAGE 22. The Statements of Net Assets have been completed.
PAGE 23. California Insured Series 1 Schedule of Investments.
Page 24. Minnesota Insured Series 5 Schedule of Investments.
PAGE 25. Territorial Insured Series 8 Schedule of Investments.
PAGE 26. The Notes to Schedules of Investments has been
completed.
PAGE 42. In the section "Offering Price," the differences between
the offering side evaluations and the bid side
evaluations of the Bonds in the Trusts have been set
forth.
<PAGE>
PAGE 43. The dealer concession has been set forth in the "Public
Offering" section.
PAGE 44. The percentage of the aggregate principal amount of the
Securities in the Trusts in which the Sponsor or
affiliates of the Sponsor have participated as
underwriters or members of the underwriting syndicate
has been set forth in the "Sponsor and Underwriter
Compensation" section.
PAGE 52. The "Underwriting" section has been completed.
BACK COVER The Series numbers, the Trusts in the Fund and the date
of the Prospectus have been included.
Exhibit 1.2
DELAWARE INVESTMENTS TAX-EXEMPT TRUST
SERIES 14
TRUST AGREEMENT
Dated: March 19, 1998
This Trust Agreement between Delaware Investment Advisers, as
Depositor, Muller Data Corporation, as Evaluator and The Chase Manhattan Bank,
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 Delaware-Voyageur Tax-Exempt Trust, Series 10 and Certain
Subsequent Series, Effective May 22, 1997" (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 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 Article I listed in Schedule A hereto
have been deposited in Trust under this Trust Agreement.
(b) All references to Voyageur Fund Managers, Inc. in the
Standard Terms and Conditions of Trust shall be amended to refer to
Delaware Investment Advisers.
<PAGE>
IN WITNESS WHEREOF, Delaware Investment Advisers has caused this Trust
Agreement to be executed by its Assistant Vice President and Assistant
Secretary, Muller Data Corporation has caused this Trust Agreement to be signed
by its Chief Operating Officer and The Chase Manhattan Bank has caused this
Trust Agreement to be executed by one of its Vice Presidents all as of the day,
month and year first above written.
DELAWARE INVESTMENT ADVISERS,
Depositor
By:
-------------------------------------------
Assistant Vice President and Assistant Secretary
MULLER DATA CORPORATION, Evaluator
By:
-------------------------------------------
THE CHASE MANHATTAN BANK, Trustee
By:
-------------------------------------------
<PAGE>
SCHEDULE A TO TRUST AGREEMENT
SECURITIES INITIALLY DEPOSITED
IN
DELAWARE INVESTMENTS TAX-EXEMPT TRUST, SERIES 14
(Note: Incorporated herein and made a part hereof are the "SCHEDULES OF
INVESTMENTS" as set forth in the Prospectus.)
Exhibit 3.1
March 19, 1998
Delaware Investment Advisers
One Commerce Square
Philadelphia, Pennsylvania 19103
Re: Delaware Investments Tax-Exempt Trust, Series 14
Ladies/Gentlemen:
We have served as special counsel for Delaware Investment Advisers, as
Sponsor and Depositor (the "DEPOSITOR") of Delaware Investments Tax-Exempt
Trust, Series 14 (the "FUND"), in connection with the preparation, execution and
delivery of a Trust Agreement dated March 19, 1998 between Delware Investment
Advisers, as Depositor, Muller Data Corporation, as Evaluator, and The Chase
Manhattan Bank, as Trustee, pursuant to which the Depositor has delivered to and
deposited the bonds listed in Schedule A to the Trust Agreement with the Trustee
and pursuant to which the Trustee has issued in the name of the Depositor
documents representing units of fractional undivided interest in and ownership
of the Fund created under said Trust Agreement.
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 Agreement 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 Agreement, will constitute valid and
binding obligations of the Fund and the Depositor in accordance with
the terms thereof.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-47871) 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
MJK/erg
Exhibit 3.2
March 19, 1998
The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004-2413
Delaware Investment Advisers
One Commerce Square
Philadelphia, Pennsylvania 19103
Re: Delaware Investments Tax-Exempt Trust, Series 14
Ladies/Gentlemen:
We have acted as special counsel for Delaware Investment Advisers,
Depositor of Delaware Investments Tax-Exempt Trust, Series 14 (the "FUND"), in
connection with the issuance of units of fractional undivided interest in the
Fund, under a Trust Agreement dated March 19, 1998 (the "INDENTURE") between
Delaware Investment Advisers, as Depositor, Muller Data Corporation, as
Evaluator, and The Chase Manhattan Bank, as Trustee.
In this connection, we have examined the Registration Statement, the
form of Prospectus proposed to be filed with the Securities and Exchange
Commission, the Indenture and such other instruments and documents as we have
deemed pertinent. For purposes of the following opinions, it is assumed that
each asset of the Trust is debt the interest on which is excluded from gross
income for federal income tax purposes.
Based upon the foregoing and upon an investigation of such matters of
law as we consider to be applicable, we are of the opinion that, under existing
Federal income tax law:
(i) Each Trust is not an association taxable as a corporation
but will be governed by the provisions of subchapter J (relating to
Trusts) of chapter 1, Internal Revenue Code of 1986 (the "CODE").
(ii) Each Unitholder will be considered as owning a pro rata
share of each asset of the respective Trust in the proportion that the
number of units of such Trust held by him bears to the total number of
units outstanding of such Trust. Under subpart E, subchapter J of
chapter 1 of the Code, income of the Trust will be treated as income of
each Unitholder of the respective Trust in the proportion described,
and an item of Trust income will have the same character in the hands
of a Unitholder as it
<PAGE>
would have in the hands of the Trustee. Accordingly, to the extent that
the income of a Trust consists of interest and original issue discount
excludable from gross income under Section 103 of the Code, such income
will be excludable from federal gross income of the Unitholders, except
in the case of a Unitholder who is a substantial user (or a person
related to such user) of a facility financed through issuance of any
industrial development bonds or certain private activity bonds held by
the respective Trust. In the case of such Unitholder who is a
substantial user (and no other) interest received with respect to his
units attributable to such industrial development bonds or such private
activity bonds is includible in his gross income. To the extent a Trust
holds bonds that are "specified private activity bonds" within the
meaning of Section 57(a)(5) of the Code, a Unitholder's pro rata
portion of the income on such Bonds will be included as an item of tax
preference in the computation of the alternative minimum tax applicable
to all taxpayers (including non-corporate taxpayers) subject to the
alternative minimum tax. Moreover, in the case of certain corporations,
interest on all of the Bonds is included in computing the alternative
minimum tax pursuant to Section 56(c) of the Code, and the branch
profits tax imposed by section 884 of the Code with respect to U.S.
branches of foreign corporations.
(iii) Gain or loss will be recognized to a Unitholder upon
redemption or sale of his Units. Such gain or loss is measured by
comparing the proceeds of such redemption or sale with the adjusted
basis of the Units represented by his Certificate. If a Bond is
acquired with accrued interest, that portion of the price paid for the
accrued interest is added to the tax basis of the Bond. When this
accrued interest is received, it is treated as a return of capital and
reduces the tax basis of the Bond. If a Bond is purchased for a
premium, the amount of the premium is added to the tax basis of the
Bond. Bond premium is amortized over the remaining term of the Bond,
and the tax basis of the Bond is reduced each tax year by the amount of
the premium amortized in that tax year. Accordingly, Unitholders must
reduce the tax basis of their Units for their share of accrued interest
received by the respective Trust, if any, on Bonds delivered after the
Unitholders pay for their Units to the extent that such interest
accrued on such Bonds before the date the Trust acquired ownership of
the Bonds (and the amount of this reduction may exceed the amount of
accrued interest paid to the seller) and, consequently, such
Unitholders may have an increase in taxable gain or reduction in
capital loss upon the disposition of such Units. In addition, such
basis will be increased by the Unitholder's aliquot share of the
accrued original issue discount (and market discount, if the Unitholder
elects to include market discount in income as it accrues) with respect
to each bond held by a Trust with respect to which there was an
original issue discount at the time the bond was issued (or which was
purchased with market discount) and reduced by the annual amortization
of bond premium, if any, on bonds held by such Trust.
(iv) If the Trustee disposes of a Trust asset (whether by
sale, payment on maturity, redemption or otherwise) gain or loss is
recognized to the Unitholder and the amount thereof is measured by
comparing the Unitholder's aliquot share of the
<PAGE>
total proceeds from the transaction with his basis for his fractional
interest in the asset disposed of. Such basis is ascertained by
apportioning the tax basis for his Units among each of the Trust assets
(as of the date on which his units were acquired) ratably according to
their values as of the valuation date nearest the date on which he
purchased such Units. A Unitholder's basis in his Units and of his
fractional interest in each Trust asset must be reduced by the amount
of his aliquot share of accrued interest received by the Trust, if any,
on Bonds delivered after the Unitholders pay for their Units to the
extent that such interest accrued on the Bonds before the date the
Trust acquired ownership of the Bonds (and the amount of this reduction
may exceed the amount of accrued interest paid to the seller) must be
reduced by the annual amortization of bond premium, if any, on Bonds
held by the Trust and will be increased by the Unitholder's share of
the accrued original issue discount (and market discount, if the
Unitholder elects to include market discount in income as it accrues)
with respect to each bond which, at the time the Bond was issued, had
original issue discount (or which was purchased with market discount).
(v) In the case of any Bond held by a Trust where the "stated
redemption price at maturity" exceeds the "issue price", such excess
shall be original issue discount. With respect to each Unitholder, upon
the purchase of his Units subsequent to the original issuance of bonds
held by the Trust, Section 1272(a)(7) of the Code provides for a
reduction in the accrued "daily portion" of such original issue
discount upon the purchase of a Bond subsequent to the Bond's original
issue, under certain circumstances. In the case of any Bond held by a
Trust the interest on which is excludable from gross income under
Section 103 of the Code, any original issue discount which accrues with
respect to the Bonds will be treated as interest which is excludable
from gross income under Section 103 of the Code.
(vi) We have examined the Municipal Bond Unit Investment Trust
Insurance Policies, if any, issued to the Trust on the Date of Deposit
by AMBAC Indemnity Corporation, Financial Guaranty Insurance
Corporation or a combination thereof. Each such policy, or a
combination of such policies, insures all Bonds held by the Trustee for
that particular Trust (other than Bonds described in paragraph (vii))
against default in the prompt payment of principal and interest. In our
opinion, any amount paid under each said policy, or a combination of
said policies, which represents maturing interest on defaulted Bonds
held by the Trustee will be excludable from Federal gross income if,
and to the same extent as, such interest would have been so excludable
if paid in normal course by the Issuer of the defaulted Bonds provided
that, at the time such policies are purchased, the amounts paid for
such policies are purchased the amounts paid for such policies are
reasonable, customary and consistent with the reasonable expectation
that the issuer of the Bonds, rather than the insurer will pay debt
service on the Bonds. Paragraph (ii) of this opinion is accordingly
applicable to such payment.
<PAGE>
(vii) Certain Bonds in the portfolios of the Trusts have been
insured by the issuers, underwriters, the Sponsor or others against
default in the prompt payment of principal and interest (the "Insured
Bonds"). Such bonds are so designated on the portfolio pages in the
Prospectus for each Trust. Insurance on Insured Bonds is effective so
long as such Insured Bonds remain outstanding. For each of these
Insured Bonds, we have been advised that the aggregate principal amount
of such Insured Bonds listed on the portfolio page was acquired by the
applicable Trust and are part of the series of such Insured Bonds in
the listed aggregate principal amount. Based upon the assumption that
the Insured Bonds of the Trust are part of a series covered by an
insurance policy, it is our opinion that any amounts received by the
applicable Trust representing maturing interest on such Insured Bonds
will be excludable from Federal gross income if, and to the same extent
as, such interest would have been so excludable if paid in normal
course by the issuer notwithstanding that the source of the payment is
from policy proceeds provided that, at the time such policies are
purchased, the amounts paid for such policies are reasonable, customary
and consistent with the reasonable expectation that the issuer of the
Insured Bonds, rather than the insurer will pay debt service on the
Insured Bonds. Paragraph (ii) of this opinion is accordingly applicable
to such payment representing maturing interest.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide that
original issue discount accrues either on the basis of a constant compound
interest rate or ratably over the term of the Bond, depending on the date the
Bond was issued. In addition, special rules apply if the purchase price of a
Bond exceeds the original issue price plus the amount of original issue discount
which would have previously accrued based upon its issue price (its "adjusted
issue price"). The application of these rules will also vary depending on the
value of the Bond on the date a Unitholder acquires his Units, and the price the
Unitholder pays for his Units.
Except with respect to those Trusts that hold "specified private
activity bonds" within the meaning of Section 57 (a)(5) of the Code issued on or
after August 8, 1986 as identified in the Prospectus related hereto (the "AMT
Trusts"), the Trusts do not include any specified private activity bonds and
accordingly none of the interest income of the Trusts (other than the AMT
Trusts, if any) shall be treated as an item of tax preference when computing the
alternative minimum tax. Because the AMT Trusts include "specified private
activity bonds," all or a portion of the income of the AMT Trusts shall be
treated as an item of tax preference for alternative minimum tax purposes. In
the case of corporations, for taxable years beginning after December 31, 1986,
the alternative minimum tax and the Superfund Tax depend upon the corporation's
alternative minimum taxable income ("AMTI"), which is the corporation's taxable
income with certain adjustments.
Pursuant to Section 56(c) of the Code, one of the adjustment items used
in computing AMTI of a corporation (other than an S Corporation, Regulated
Investment Company, Real Estate Investment Trust or REMIC) for taxable years
beginning after 1989, is an amount equal to 75% of the excess of such
corporation's "adjusted current earnings" over an amount
<PAGE>
equal to its AMTI (before such adjustment item and the alternative tax net
operating loss deduction). "Adjusted current earnings" includes all tax-exempt
interest, including interest on all bonds in the Trusts, and tax-exempt original
issue discount.
Effective for tax returns filed after December 31, 1987, all taxpayers
are required to disclose to the Internal Revenue Service the amount of
tax-exempt interest earned during the year.
Section 265 of the Code provides for a reduction in each taxable year
of 100 percent of the otherwise deductible interest on indebtedness incurred or
continued by financial institutions, to which either Section 585 or Section 593
of the Code applies, to purchase or carry obligations acquired after August 7,
1986, the interest on which is exempt from Federal income taxes for such taxable
year. Under rules prescribed by Section 265, the amount of interest otherwise
deductible by such financial institutions in any taxable year which is deemed to
be attributable to tax-exempt obligations acquired after August 7, 1986, will
generally be the amount that bears the same ratio to the interest deduction
otherwise allowable (determined without regard to Section 265) to the taxpayer
for the taxable year as the taxpayer's average adjusted basis (within the
meaning of Section 1016) of tax-exempt obligations acquired after August 7,
1986, bears to such average adjusted basis for all assets of the taxpayer. The
U.S. Treasury Department has proposed extending the financial institution rules
to all corporations.
We also call attention to the fact that, under Section 265 of the Code,
interest on indebtedness incurred or continued to purchase or carry Units is not
deductible for Federal income tax purposes. Under rules used by the Internal
Revenue Service for determining when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase of Units may
be considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of Units. However, these rules
generally do not apply to interest paid on indebtedness incurred for
expenditures of a personal nature such as a mortgage incurred to purchase or
improve a personal residence.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") subjects
tax-exempt bonds to the market discount rules of the Code effective for bonds
purchased after April 30, 1993. In general, market discount is the amount (if
any) by which the stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if any, is
attributable to original issue discount not yet accrued) subject to a statutory
de minimis rule. Market discount can arise based on the price the Trust pays for
Bonds or the price a Unitholder pays for his or her units. Under the Tax Act,
accretion of market discount is taxable as ordinary income; under prior law, the
accretion had been treated as capital gain. Market discount that accretes while
the Trust holds a Bond would be recognized as ordinary income by the Unitholders
when principal payments are received on the Bonds, upon sale or at redemption
(including early redemption), or upon the sale or
<PAGE>
redemption of his or her Units, unless a Unitholder elects to include market
discount in taxable income as it accrues.
We have also examined the income tax laws of the State of California to
determine its applicability to the California Insured Series 1 (the "CALIFORNIA
TRUST") being created as part of the Fund and to the holders of Units in the
California Trust who are full-time residents of the State of California
("CALIFORNIA UNITHOLDERS").
In connection therewith, we have examined the Registration Statement,
the form of Prospectus proposed to be filed with the Securities and Exchange
Commission, the Indenture and such other documents as we have deemed pertinent.
The assets of the California Trust will consist of bonds issued by the State of
California or a local government of California (the "CALIFORNIA BONDS") or by
the Commonwealth of Puerto Rico or its authority (the "POSSESSION BONDS")
(collectively, the "BONDS"). For purposes of the following opinions, it is
assumed that each asset of the California Trust is debt, the interest on which
is excluded from gross income for federal income tax purposes.
Neither the Sponsor nor its counsel have independently examined the
Bonds to be deposited in and held in the California Trust. However, although we
express no opinion with respect to the issuance of the Bonds, in rendering our
opinion expressed herein, we have assumed that: (i) the Bonds were validly
issued; (ii) the interest thereon is excludable from gross income for federal
income tax purposes; and (iii) interest on the Bonds, if received directly by a
California Unitholder, would be exempt from the income tax imposed by the State
of California that is applicable to individuals, trusts and estates (the
"CALIFORNIA PERSONAL INCOME TAX"). This opinion does not address the taxation of
persons other than full time residents of California. We have assumed that, at
the respective times of issuance of the Bonds, opinions that the Bonds were
validly issued and that interest on the Bonds is excluded from gross income for
Federal income tax purposes were rendered by bond counsel to the respective
issuing authorities. In addition, we have assumed that, with respect to the
California Bonds, bond counsel to the issuing authorities rendered opinions that
the interest on the California Bonds is exempt from the California Personal
Income Tax and, with respect to the Possession Bonds, bond counsel to the
issuing authorities rendered opinions that the Possession Bonds and the interest
thereon is exempt from all state and local income taxation. Neither the Sponsor
nor its counsel has made any review for the California Trust of the proceedings
relating to the issuance of the Bonds or of the basis for the opinions rendered
in connection therewith.
Based upon the foregoing, and upon an investigation of such matters of
law as we considered to be applicable, we are of the opinion that, under
existing provisions of the law of the State of California as of the date hereof:
1. The California Trust is not an association taxable as a
corporation for purposes of the California Bank and Corporation Tax
Law, and each California Unitholder will be treated as the owner of a
pro rata portion of the California Trust,
<PAGE>
and the income of such portion of the California Trust will be treated
as the income of the California Unitholders under the California
Personal Income Tax.
2. Interest on the Bonds which is exempt from tax under the
California Personal Income Tax when received by the California Trust
and which would be excludable from California taxable income for
purposes of the California Personal Income Tax if received directly by
a California Unitholder, will be excludable from California taxable
income for purposes of the California Personal Income Tax when received
by the California Trust and distributed to a California Unitholder.
3. Each California Unitholder of the California Trust will
generally recognize gain or loss for California Personal Income Tax
purposes if the Trustee disposes of a Bond (whether by redemption, sale
or otherwise) or when the California Unitholder redeems or sells Units
of the California Trust, to the extent that such a transaction results
in a recognized gain or loss to such California Unitholder for federal
income tax purposes. However, there are certain differences between the
recognition of gain or loss for federal income tax purposes and for
California Personal Income Tax purposes, and California Unitholders are
advised to consult their own tax advisors. Tax basis reduction
requirements relating to amortization of bond premium may, under some
circumstances, result in a California Unitholder realizing taxable gain
for California Personal Income Tax purposes when a Unit is sold or
redeemed for an amount equal to or less than its original cost.
4. Under the California Personal Income Tax, interest on
indebtedness incurred or continued by a California Unitholder to
purchase Units in the California Trust is not deductible for purposes
of the California Personal Income Tax.
This opinion relates only to California Unitholders subject to the
California Personal Income Tax. No opinion is expressed with respect to the
taxation of California Unitholders subject to the California Bank and
Corporation Tax Law and such California Unitholders are advised to consult their
own tax advisors. Please note, however, that interest on the underlying Bonds
attributed to a California Unitholder that is subject to the California Bank and
Corporation Tax Law may be includible in its gross income for purposes of
determining its California franchise tax. We have not examined any of the Bonds
to be deposited and held in the California Trust or the proceedings for the
issuance thereof or the opinions of bond counsel with respect thereto, and we
express no opinion with respect to taxation under any other provisions of the
California law. Ownership of the Units may result in collateral California tax
consequences to certain taxpayers. Prospective investors should consult their
tax advisors as to the applicability of any such collateral consequences.
We have also examined the income tax law of the State of Minnesota,
which is based upon the Federal law, to determine its applicability to Minnesota
Insured Series 5 (the "MINNESOTA TRUST") being created as part of the Fund and
to the holders of Units in the Minnesota Trust who are residents of the State of
Minnesota ("MINNESOTA UNITHOLDERS"). We
<PAGE>
understand that the Minnesota Trust will only have income consisting of (i)
interest from bonds issued by the State of Minnesota and its political and
governmental subdivisions, municipalities and governmental agencies and
instrumentalities (the "MINNESOTA BONDS") and bonds issued by possessions of the
United States or its authority (the "Possession Bonds" and, collectively with
the Minnesota Bonds, the "Bonds") which would be exempt from Federal and
Minnesota income taxation when paid directly to an individual, trust or estate,
(ii) gain on the disposition of such Bonds, and (iii) proceeds paid under
certain insurance policies issued to the Trustee or to the issuers of the Bonds
which represent maturing interest or principal payments on defaulted Bonds held
by the Trustee.
Neither the Sponsor nor its counsel have independently examined the
Bonds to be deposited in and held in the Minnesota Trust. However, although we
express no opinion herein regarding such matters we have assumed that: (i) the
Bonds were validly issued, (ii) the interest thereon is excludable from gross
income for Federal income tax purposes and (iii) the interest thereon is exempt
from income tax imposed by Minnesota that is applicable to individuals, trusts
and estates (the "Minnesota Income Tax"). It should be noted that interest on
the Minnesota Bonds is subject to tax in the case of corporations subject to the
Minnesota Corporate Franchise Tax or the Corporate Alternative Minimum Tax and
is a factor in the computation of the Minimum Fee applicable to financial
institutions; no opinion is expressed with respect to the treatment of interest
on the Possession Bonds for purposes of such taxes. The opinion set forth below
does not address the taxation of persons other than full time residents of
Minnesota.
We have assumed that, at the respective times of issuance of the Bonds,
opinions relating to the validity thereof and to the exemption of interest
thereon from Federal income tax were rendered by bond counsel to the respective
issuing authority. In addition, we have assumed that with respect to the
Minnesota Bonds, bond counsel to the issuing authorities rendered opinions that
interest on the Minnesota Bonds is exempt from the Minnesota Income Tax, and,
with respect to the Possession Bonds, bond counsel to the issuing authorities
rendered opinions that the Possession Bonds and the interest thereon is exempt
from all state and local income taxation. Neither the Sponsor nor its counsel
has made any review for the Minnesota Trust of the proceedings relating to the
issuance of the Bonds or of the bases for the opinions rendered in connection
therewith. Although Minnesota state law provides that interest on Minnesota
bonds is exempt from Minnesota state income taxation, the Minnesota state
legislature has enacted a statement of intent that interest on Minnesota bonds
should be subject to Minnesota state income taxation if it is judicially
determined that the exemption discriminates against interstate commerce,
effective for the calendar year in which such a decision becomes final. It
cannot be predicted whether a court would render such a decision or whether, as
a result thereof, interest on Minnesota bonds and therefore distributions by the
Minnesota Trust would become subject to Minnesota state income taxation.
Based on the foregoing it is our opinion that under existing Minnesota
income tax law as of the date of this prospectus and based upon the assumptions
above:
<PAGE>
(1) The Minnesota Trust is not an association taxable as a
corporation and each Unitholder of the Minnesota Trust will be treated
as the owner of a pro rata portion of the Minnesota Trust, and the
income of such portion of the Minnesota Trust will therefore be treated
as the income of the Unitholder for Minnesota Income Tax purposes;
(2) Income on the Minnesota Bonds which is excludable from
Minnesota taxable income for purposes of the Minnesota Income Tax when
received by the Minnesota Trust and which would be excludable from
Minnesota taxable income for purposes of the Minnesota Income Tax if
received directly by a Unitholder, will be excludable from Minnesota
taxable income for purposes of the Minnesota Income tax when received
by the Minnesota Trust and distributed to such Unitholder;
(3) To the extent that interest on certain Bonds (except with
respect to Possession Bonds, as to which no opinion is expressed) if
any, which is includible in the computation of "alternative minimum
taxable income" for federal income tax purposes, such interest will
also be includible in the computation of "alternative minimum taxable
income" for purposes of the Minnesota Alternative Minimum Tax imposed
on individuals, estates and trusts;
(4) Each Unitholder of the Minnesota Trust will recognize
gain or loss for Minnesota Income Tax purposes if the Trustee disposes
of a Bond (whether by redemption, sale or otherwise) or if the
Unitholder redeems or sells Units of the Minnesota Trust to the extent
that such a transaction results in a recognized gain or loss to such
Unitholder for federal income tax purposes;
(5) Tax basis reduction requirements relating to amortization
of bond premium may, under some circumstances, result in Unitholders
realizing taxable gain for Minnesota Income Tax purposes when their
Units are sold or redeemed for an amount equal to or less than their
original cost;
(6) Proceeds, if any, paid under individual insurance
policies obtained by issuers of Bonds or the Trustee which represent
maturing interest on defaulted obligations held by the Trustee will be
excludable from Minnesota net income if paid in the normal course by
the issuer of the defaulted obligation provided that, at the time such
policies are purchased, the amounts paid for such policies are
reasonable, customary and consistent with the reasonable expectation
that the issuer of the Bonds, rather than the insurer, will pay debt
service on the Bonds; and
(7) To the extent that interest derived from the Minnesota
Trust by a Unitholder with respect to any Possession Bonds is
excludable from gross income for federal income tax purposes and is
exempt from state and local taxation pursuant to federal law when
received by the Minnesota Trust, such interest will not be subject to
<PAGE>
the Minnesota Income Tax when distributed by the Minnesota Trust and
received by the Unitholders.
As noted above, we have expressed no opinion as to the treatment of
interest on the Possession Bonds for purposes of the Minnesota Corporate
Franchise Tax or the Alternative Minimum Tax or whether it is a factor in the
computation of the Minimum Fee applicable to financial institutions. Although a
federal statute currently provides that bonds issued by the Government of Puerto
Rico, or by its authority, are exempt from all state and local taxation, the
Supreme Court of Minnesota has held that interest earned on bonds issued by the
Government of Puerto Rico may be included in taxable net income for purposes of
computing the Minnesota bank excise tax. The State of Minnesota could apply the
same reasoning in determining whether interest on the Possession Bonds is
subject to the taxes listed above on which we express no opinion.
We have not examined any of the Bonds to be deposited and held in the
Minnesota Trust or the proceedings for the issuance thereof or the opinions of
bond counsel with respect thereto, and therefore express no opinions to the
exemption from State income taxes of interest on the Bonds if received directly
by a Minnesota Unitholder. Chapman and Cutler has expressed no opinion with
respect to taxation under any other provision of Minnesota law. Ownership of the
Units may result in collateral Minnesota tax consequences to certain taxpayers.
Prospective investors should consult their own tax advisers as to the
applicability of any such collateral consequences.
Very truly yours,
CHAPMAN AND CUTLER
MJK/erg
Exhibit 3.3
CARTER, LEDYARD & MILBURN
COUNSELLORS AT LAW
2 WALL STREET
NEW YORK, N.Y. 10005-2072
March 19, 1998
The Chase Manhattan Bank,
as Trustee of
Delaware Investments Tax-Exempt Trust,
Series 14
Four New York Plaza
New York, New York 10004-2413
Attn: Mr. Thomas Porrazzo
Vice President
Re: Delaware Investments Tax-Exempt Trust, Series 14, consisting
of California Insured Series 1, Minnesota Insured Series 5 and
Territorial Insured Series 8
Dear Sirs:
We are acting as special counsel with respect to New York tax matters
for Delaware Investments Tax-Exempt Trust, Series 14, which consists of
California Insured Series 1, Minnesota Insured Series 5 and Territorial Insured
Series 8 (each, a "Trust"), which will be established under a certain Standard
Terms and Conditions of Trust and a related Trust Agreement each dated as of
today (collectively, the "Indenture") between Delaware Investment Advisers, as
Depositor (the "Depositor"), Muller Data Corporation, as Evaluator, and The
Chase Manhattan Bank, as Trustee (the "Trustee"). Pursuant to the terms of the
Indenture, units of fractional undivided interest in the Trust (the "Units")
will be issued in the aggregate number set forth in the Indenture.
We have examined and are familiar with originals or certified copies,
or copies otherwise identified to our satisfaction, of such documents as we have
deemed necessary or appropriate for the purpose of this opinion. In giving this
opinion, we have relied upon the two opinions, each dated today and addressed to
the Trustee, of Chapman and Cutler, counsel for the Depositor, with respect to
the matters of law set forth therein.
Based upon the foregoing, we are of the opinion that:
<PAGE>
1. The Trust will not constitute an association taxable as a
corporation under New York law, and accordingly will not be subject to the New
York State franchise tax or the New York City general corporation tax.
2. Under the income tax laws of the State and City of New York, the
income of the Trust will be considered the income of the holders of the Units.
We consent to the filing of this opinion as an exhibit to the
Registration Statement (No. 333-47871) filed with the Securities and Exchange
Commission with respect to the registration of the sale of the Units and to the
references to our name under the captions "Taxation" and "Legal Opinions" in
such Registration Statement and the preliminary prospectus included therein.
Very truly yours,
CARTER, LEDYARD & MILBURN
SFL:tbm
Exhibit 3.4
CARTER, LEDYARD & MILBURN
COUNSELLORS AT LAW
2 WALL STREET
NEW YORK, N.Y. 10005-2072
March 19, 1998
The Chase Manhattan Bank,
as Trustee of
Delaware Investments Tax-Exempt Trust,
Series 14
Four New York Plaza
New York, New York 10004-2413
Attn: Mr. Thomas Porrazzo
Vice President
Re: Delaware Investments Tax-Exempt Trust, Series 14, consisting
of California Insured Series 1, Minnesota Insured Series 5 and
Territorial Insured Series 8
Dear Sirs:
We are acting as counsel for The Chase Manhattan Bank ("Chase") in
connection with the execution and delivery of a Standard Terms and Conditions of
Trust and a related Trust Agreement each dated as of today (collectively, the
"Indenture"), between Delaware Investment Advisers, as Depositor (the
"Depositor"), Muller Data Corporation, as Evaluator, and Chase, as Trustee (the
"Trustee"), establishing Delaware Investments Tax-Exempt Trust, Series 14, which
consists of California Insured Series 1, Minnesota Insured Series 5 and
Territorial Insured Series 8 (each, a "Trust"), and the confirmation by Chase,
as Trustee under the Indenture, that it has registered on the registration books
of the Trust the ownership by the Depositor of a number of units constituting
the entire interest in the respective Trust (such aggregate units being herein
called "Units"), each of which Units represents an undivided interest in the
Trust, which consists of tax-exempt municipal obligations (including
confirmation of contracts for the purchase of certain obligations not yet
delivered and cash, cash equivalents or an irrevocable letter of credit in the
amount required for such purchase upon the receipt of such obligations), such
obligations being defined in the Indenture as Securities and referenced in the
schedules to the Indenture.
<PAGE>
We have examined the Indenture, the Closing Memorandum delivered today
by the parties to the Indenture (the "Closing Memorandum"), and such other
documents as we have deemed necessary in order to render this opinion. Based on
the foregoing, we are of the opinion that:
1. Chase is a duly organized and existing corporation having the powers
of a trust company under the laws of the State of New York.
2. The Indenture has been duly executed and delivered by Chase and,
assuming due execution and delivery by the other parties thereto, constitutes
the valid and legally binding obligation of Chase.
3. Chase, as Trustee, has registered on the registration books of the
Trust the ownership of the Units by the Depositor. Upon receipt of confirmation
of the effectiveness of the registration statement for the sale of the Units
filed with the Securities and Exchange Commission under the Securities Act of
1933, the Trustee may cause the Units to be registered in such names as the
Depositor may request, to or upon the order of the Depositor, as provided in the
Closing Memorandum.
4. Chase, as Trustee, may lawfully advance amounts to the Trust and may
be reimbursed, without interest, for any such advances from funds in the
interest and capital accounts, as provided in the Indenture.
In rendering the foregoing opinion, we have not considered, among other
things, whether the Securities have been duly authorized and delivered.
Very truly yours,
CARTER, LEDYARD & MILBURN
SFL:gcm
EXHIBIT 6(a)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Auditors" and to the use of our report dated March 19, 1998 in this Amendment
No. 1 to the Registration Statement (Form S-6 No. 333-47871) and related
Prospectus of Delaware Investments Tax-Exempt Trust, Series 14 dated March 19,
1998.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 19, 1998
Exhibit 6(b)
Muller Data Corporation
395 Hudson Street
New York, New York 10014-3622
March 19, 1998
Delaware Investment Advisers
One Commerce Square
Philadelphia, Pennsylvania 19103
Re: Delaware Investments Tax-Exempt Trust, Series 14 (the "Fund")
Gentlemen:
We have examined the Registration Statement File No. 333-47871 for the
above captioned Fund.
We hereby acknowledge that Muller Data Corporation is currently acting
as the Evaluator for the Fund. We hereby consent to the use in the Registration
Statement of the reference to Muller Data Corporation as the Evaluator for the
above captioned Fund.
You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Sincerely,
Muller Data Corporation
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