AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 10, 1995
REGISTRATION NO. 33-90800
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:
VOYAGEUR TAX-EXEMPT TRUST, SERIES 3
B. NAME OF DEPOSITOR:
VOYAGEUR FUND MANAGERS, INC.
C. COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES:
VOYAGEUR FUND MANAGERS, INC.
90 South Seventh Street, Suite 4400
Minneapolis, Minnesota 55402
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
Copy to:
KENNETH R. LARSEN MARK J. KNEEDY
Voyageur Fund Managers, Inc. c/o Chapman and Cutler
90 South Seventh Street, Suite 4400 111 West Monroe Street
Minneapolis, Minnesota 55402 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> <C>
Voyageur Tax-Exempt Trust, An indefinite number of Indefinite $500*
Series 3 Units of Beneficial Interest
pursuant to Rule 24f-2 under
the Investment Company Act of 1940
</TABLE>
* previously filed
E. APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of the Registration
Statement.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
VOYAGEUR TAX-EXEMPT TRUST, SERIES 3
______________________
CROSS-REFERENCE SHEET
(FORM N-8B-2 ITEMS REQUIRED BY INSTRUCTIONS AS
TO THE PROSPECTUS IN FORM S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. ORGANIZATION AND GENERAL INFORMATION
<TABLE>
<CAPTION>
<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 certificateholders............................................... } 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 } *
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 funds.................................................. } 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
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
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.-58. Certain information regarding periodic payment
certificates.............................................................. } *
59. Financial statements (Instruction 1(c) to Form S-6)............................. } *
</TABLE>
*Inapplicable, answer negative or not required.
P R O S P E C T U S
May 18, 1995
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS
DATED MAY 10,1995
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
VOYAGEUR TAX-EXEMPT TRUST, SERIES 3
ARIZONA INSURED SERIES 1
COLORADO INSURED SERIES 3
MINNESOTA INSURED SERIES 2
PUERTO RICO INSURED SERIES 1
THE FUND. Voyageur Tax-Exempt Trust, Series 3 (the "Fund") consists of
the underlying separate unit investment trusts set forth above. The various
trusts are collectively referred to herein as the "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 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
Trust are located. In the case of the Puerto Rico Trust, interest income may
also be exempt from certain state and local taxes for residents of various
states. 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 tax. All Bonds in the Fund have
insurance guaranteeing the payments of principal and interest, when due. 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 a Trust and not to the
Units offered hereby or to the market value thereof. As a result of such
insurance, the Bonds of each Trust are rated "AAA" by Standard & Poor's Ratings
Group, a division of McGraw-Hill, 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 a
Trust or sales by a 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." 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) will 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
income exempt from 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 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. There is, of course, no guarantee that the
Fund will achieve its 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The investor is advised to read and retain this Prospectus for future reference.
THE DATE OF THIS PROSPECTUS IS MAY __, 1995
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 10,000 or more Units. 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 in the
footnotes to the "Summary of Essential Financial Information" and 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, Voyageur Fund Distributors, Inc., 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 an open-end management investment company as
described herein. See "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."
VOYAGEUR TAX-EXEMPT TRUST, SERIES 3
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AS OF THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT: MAY 18, 1995
SPONSOR AND EVALUATOR: VOYAGEUR FUND MANAGERS, INC.
DISTRIBUTOR: VOYAGEUR FUND DISTRIBUTORS, INC.
TRUSTEE: INVESTORS FIDUCIARY TRUST COMPANY
<TABLE>
<CAPTION>
Arizona Colorado Minnesota Puerto Rico
Insured Insured Insured Insured
Series 1 Series 3 Series 2 Series 1
<S> <C> <C> <C> <C>
Principal Amount (Par Value) of Bonds..................... $0,000,000 $0,000,000 $0,000,000 $0,000,000
Number of Units...........................................
Fractional Undivided Interest in the Trust per Unit.......
Principal Amount (Par Value) of Bonds per Unit............
Public Offering Price: Aggregate Offering Price of Bonds in
Portfolio...............................................
Aggregate Offering Price of Bonds per Unit................
Sales Charge 4.9% (5.152% of the Aggregate Offering Price
of the Bonds) per Unit(1)...............................
Public Offering Price per Unit(1)(2)......................
Redemption Price per Unit(2)(3)...........................
Sponsor's Initial Repurchase Price per Unit...............
Excess of Public Offering Price per Unit Over Redemption
Price per Unit..........................................
Excess of Sponsor's Initial Repurchase Price per Unit Over
Redemption Price per Unit...............................
Minimum Value of the Trust under which Trust Agreement
may be terminated.......................................
Minimum Principal Distribution..............$1.00 per Unit
First Settlement Date.........................May 25, 1995
Mandatory Termination Date..................._____________
Calculation of Estimated Net Annual Unit Income:
Estimated Annual Interest Income per Unit...............
Less: Estimated Annual Expense per Unit.................
Estimated Net Annual Interest Income per Unit...........
Estimated Normal Monthly Distribution per Unit(4).........
Estimated Daily Rate of Net Interest Accrual per Unit.....
Estimated Current Return Based on Public Offering
Price(1)(4)(5)..........................................
Estimated Long-Term Return(1)(4)(5).......................
Initial Distribution (June 15, 1995)......................
Trustee's Initial Annual Fee per $1,000 Principal Amount of
Bonds(6)................................................
Evaluator's Annual Evaluation Fee per Unit................
Record Dates.......................First day of each month
Distribution Dates.............Fifteenth day of each month
</TABLE>
Evaluations for purpose of sale, purchase or redemption of Units are made as of
4:00 P.M. Eastern time on days of trading on the New York Stock 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) 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."
(2) Anyone ordering Units for settlement after the First Settlement Date will
pay accrued interest from such date to the date of settlement (normally
five business days after order) less distributions from the Interest
Account subsequent to the First Settlement Date. For purchases settling
on the First Settlement Date, no accrued interest will be added to the
Public Offering Price. After the initial offering period, the Sponsor's
Repurchase Price per Unit will be determined as described under the
caption "Public Offering--Public Market."
(3) See "Rights of Unitholders--Redemption of Units."
(4) 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.
(5) The Estimated Current Return is calculated by dividing the estimated net
annual interest income per Unit by the Public Offering Price. The
estimated net annual interest income per Unit will vary with changes in
fees and expenses of the Trustee, the Sponsor and the 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 Return indicated above will be realized in the
future. The Estimated Long-Term Return is calculated using a formula
which (1) takes into consideration, and determines and factors in the
relative weightings of, the market values, yields (which takes into
account the amortization of premiums and the accretion of discounts) and
estimated retirements of all of the Bonds in a Trust and (2) takes into
account the expenses and sales charge associated with each Trust Unit.
Since the market values and estimated retirements of the Bonds and the
expenses of a Trust will change, there is no assurance that the present
Estimated Long-Term Return as indicated above will be realized in the
future. The Estimated Current Return and Estimated Long-Term Return are
expected to differ because the calculation of the Estimated Long-Term
Return reflects the estimated date and amount of principal returned while
the Estimated Current Return calculation includes only net annual
interest income and Public Offering Price.
(6) During the first year, the Trustee has agreed to reduce its fee (and to
the extent necessary pay expenses of the Trusts) for Arizona Insured
Series 1, Colorado Insured Series 3, Minnesota Insured Series 2 and
Puerto Rico Insured Series 1 in the amount of $.______, $._____, $._____
and $.______ per $1,000 Principal Amount of Bonds, respectively. The
Trustee has agreed to the foregoing to cover all or a portion of the
interest on any Bonds accruing prior to their expected dates of delivery,
since interest will not accrue to the benefit of Unitholders of a Trust
until such Bonds are actually delivered to the Trust. The estimated net
annual interest income per Unit will remain as indicated. See "The Fund"
and "Estimated Current Return and Estimated Long-Term Return."
THE FUND
GENERAL. Voyageur Tax-Exempt Trust, Series 3 (the "Fund") was created
under the laws of the State of Missouri pursuant to a Trust Agreement (the
"Trust Agreement"), dated the Initial Date of Deposit, as defined in "Summary of
Essential Financial Information," with Voyageur Fund Managers, Inc., as Sponsor
and Evaluator, and Investors Fiduciary Trust Company, as Trustee.
The Fund consists of four 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 a 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 Puerto Rico Trust, interest income may also be
exempt from certain state and local taxes for residents of various states. 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 irrevocable letters 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 the Fund 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.
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 "AAA" by Standard & Poor's or "Aaa" by Moody's;
and (vi) be insured by one of the Insurers. 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 and state income taxation and to conserve capital through an 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 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 Trust from one of several insurance companies (the
"Insurers"). 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. Standard & Poor's describes securities
it rates "AAA" as having "the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong." Moody's describes securities it rates "Aaa" as "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.
In selecting Bonds for the Trusts the following factors, among others,
were considered by the Sponsor: (i) whether the Bonds are insured by an Insurer,
(ii) the prices of the Bonds relative to other bonds of comparable quality and
maturity and (iii) the diversification of Bonds as to purpose of issue and
location of issuer. Subsequent to the Initial Date of Deposit, a Bond may cease
to be rated or its rating may be reduced below "AAA", "Aaa" 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. While 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
ARIZONA INSURED SERIES 1
GENERAL. The Arizona Trust consists of issues of ______ Bonds. _____of
the Bonds in the Arizona Trust is a general obligation (____%) of the
governmental entity issuing it and is 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
Arizona Trust) as follows:____% Healthcare Revenue Bonds, ____% Industrial
Revenue Bonds, ___% Water and Sewer Revenue Bonds, ____% Sales and Use Tax
Revenue Bonds, and ____% Education 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 ARIZONA. The following brief summary regarding
the economy of Arizona is based upon information drawn from publicly available
sources and is included for the purpose of providing the information about
general economic conditions that may or may not affect issuers of the Arizona
Bonds. The Sponsor has not independently verified any of the information
contained in such publicly available documents.
Arizona is the nation's sixth largest state in terms of area. Arizona's
main economic sectors include services, tourism and manufacturing. Mining and
agriculture are also significant, although they tend to be more capital than
labor intensive. Services is the single largest economic sector. Many of these
jobs are directly related to tourism.
The unemployment rate in Arizona for 1994 was 6.3% and for 1993 was 6.2%
compared to a national rate of 6.1% in 1994 and 6.8% in 1993. Job growth may be
adversely affected by the closing of a major air force base near Phoenix.
The State operates on a fiscal year beginning July 1 and ending June 30.
Fiscal year 1995 refers to the year ended June 30, 1995.
Total General Fund revenues of $4.3 billion are expected during fiscal
year 1995. Approximately 44.5% of this budgeted revenue comes from sales and use
taxes, 44.4% from income taxes (both individual and corporate) and 4.4% from
property taxes. All taxes total approximately $4.0 billion, or 93% of General
Fund revenues. Non-tax revenue includes items such as income from the state
lottery, licenses, fees and permits, and interest.
For fiscal year 1994, the budget called for expenditures of approximately
$4.1 billion. These expenditures fell into the following major categories:
education (47.4%), health and welfare (26.3%), protection and safety (4.0%),
general government (15.5%), and inspection and regulation, natural resources,
transportation and other (6.8%). The State's general fund expenditures for
fiscal year 1995 are budgeted at approximately $4.7 billion. Fiscal year 1995's
proposed expenditures fall into the following major categories: education
(51.5%), health and welfare (24.1%), protection and safety (3.6%), general
government (14.5%), and inspection and regulation, natural resources,
transportation and other (6.3%). On March 16, 1995, Governor Symington signed
into law a fiscal year 1996 budget of $4.5 billion.
Most or all of the Bonds of the Arizona Trust are not obligations of the
State of Arizona, and are not supported by the State's taxing powers. The
particular source of payment and security for each of the Bonds is detailed in
the instruments themselves and in related offering materials. There can be no
assurances, however, with respect to whether the market value or marketability
of any of the Bonds issued by an entity other than the State of Arizona will be
affected by the financial or other condition of the State or of any entity
located within the State. In addition, it should be noted that the State of
Arizona, as well as counties, municipalities, political subdivisions and other
public authorities of the state, are subject to limitations imposed by Arizona's
constitution with respect to ad valorem taxation, bonded indebtedness and other
matters. For example, the state legislature cannot appropriate revenues in
excess of 7% of the total personal income by the state in any fiscal year. These
limitations may affect the ability of the issuers to generate revenues to
satisfy their debt obligations.
On July 21, 1994, the Arizona Supreme Court rendered its opinion in
Roosevelt Elementary School District Number 66, et al v. Dianne Bishop, et al
(the "Roosevelt Opinion"). In this opinion, the Arizona Supreme Court held that
the present statutory financing scheme for public education in the State of
Arizona does not comply with the Arizona constitution. Subsequently, the Arizona
School Boards Association, with the approval of the appellants and the appellees
to the Roosevelt Opinion, and certain Arizona school districts, filed with the
Arizona Supreme Court motions for clarification of the Roosevelt Opinion,
specifically with respect to seeking prospective application of the Roosevelt
Opinion. On July 29, 1994, the Arizona Supreme Court clarified the Roosevelt
Opinion to hold that such opinion will have prospective effect only.
Certain other circumstances are relevant to the market value,
marketability and payment of any hospital and health care revenue bonds in the
Arizona Trust. The Arizona Legislature has in the past sought to enact health
care cost control legislation. Certain other health care regulatory laws have
expired. It is expected that the Arizona legislature will at future sessions
continue to attempt to adopt legislation concerning health care cost control and
related regulatory matters. The effect of any such legislation or of the
continued absence of any legislation restricting hospital bed increased and
limiting new hospital construction on the ability of Arizona hospitals and other
health care providers to pay debt service on their revenue bonds cannot be
determined at this time.
Arizona does not participate in the federally administered Medicaid
program. Instead, the state administers an alternative program, Arizona Health
Care Cost Containment System ("AHCCCS"), which provides health care to indigent
persons meeting certain financial eligibility requirements, through managed care
programs. In fiscal year 1995, AHCCCS will be financed approximately 60% by
federal funds, 29% by state funds, and 11% by county funds.
Under state law, hospitals retain the authority to raise with
notification and review by, but not approval from, the Department of Health
Services. Hospitals in Arizona have experienced profitability problems along
with those in other states. At least two Phoenix based hospitals have defaulted
on or reported difficulties in meeting their bond obligations in recent years.
Insofar as tax-exempt Arizona public utility pollution control revenue
bonds are concerned, the issuance of such bonds and the periodic rate increases
needed to cover operation costs and debt service are subject to regulation by
the Arizona Corporation Commission, the only significant exception being the
Salt River Project Agricultural Improvement and Power District which, as a
Federal instrumentality, is exempt from rate regulation. On July 15, 1991,
several creditors of Tucson Electric Power Company ("Tucson Electric") filed
involuntary petitions under Chapter 11 of the U.S. Bankruptcy Code to force
Tucson Power to reorganize under the supervision of the bankruptcy court. On
December 31, 1991, the Bankruptcy Court approved the utility's motion to dismiss
the July petition after five months of negotiations between Tucson Electric and
its creditors to restructure the utility's debts and other obligations. In
December 1992, Tucson Electric announced that it had completed its financial
restructuring. In January 1993, Tucson Electric asked the Arizona Corporation
Commission for a 9.3% average rate increase. Tucson Electric services
approximately 270,000 customers, primarily in the Tucson area. Inability of any
regulated public utility to secure necessary rate increases could adversely
affect, to an indeterminable extent, its ability to pay debt service on its
pollution control revenue bonds.
Based on a recent U.S. Supreme Court ruling, the State has determined to
refund $197 million, including statutory interest, in State income taxes
previously collected from Federal retirees on their pensions. This payment will
be made over a four-year period beginning with approximately $14.6 million in
tax refunds in fiscal year 1994. A combination of tax refunds and tax credits
will be used to satisfy this liability.
STATE TAXATION. For a discussion of the Federal tax status of income
earned on Arizona Trust Units, see "Tax Status."
The assets of the Arizona Trust will consist of interest-bearing
obligations issued by or on behalf of the State of Arizona (the "State"), its
political subdivisions and authorities (the "Bonds"), provided the interest on
such Bonds received by the Trust is exempt from State income taxes.
In the opinion of Chapman and Cutler counsel to the Sponsor, under
existing law:
1. For Arizona income tax purposes, each Unitholder will be treated as
the owner of a pro rata portion of the Arizona Trust, and the income of the
Arizona Trust therefore will be treated as the income of the Unitholder under
State law.
2. For Arizona income tax purposes, interest on the Bonds which is
excludable from Federal gross income and which is exempt from Arizona income
taxes when received by the Arizona Trust, and which would be excludable from
Federal gross income and exempt from Arizona income taxes if received directly
by a Unitholder, will retain its status as tax-exempt interest when received by
the Arizona Trust and distributed to the Unitholders.
3. To the extent that interest derived from the Arizona Trust by a
Unitholder with respect to the Bonds is excludable from Federal gross income,
such interest will not be subject to Arizona income taxes.
4. Each Unitholder will receive taxable gain or loss for Arizona income
tax purposes when Bonds held in the Arizona Trust are sold, exchanged, redeemed
or paid at maturity, or when the Unitholder redeems or sells Units, at a price
that differs from original cost as adjusted for amortization of Bond discount or
premium and other basis adjustments, including any basis reduction that may be
required to reflect a Unitholder's share of interest, if any, accruing on Bonds
during the interval between the Unitholder's settlement date and the date such
Bonds are delivered to the Arizona trust, if later.
5. Amounts paid by the insurer under an insurance policy or policies
issued to the Arizona Trust, if any, with respect to the Bonds in the Arizona
Trust which represent maturing interest on defaulted obligations held by the
Trustee will be exempt from State income taxes if, and to the same extent as,
such interest would have been so exempt if paid by the issuer of the defaulted
obligations provided that, at the time such policies are purchased, the amounts
paid for such policies are reasonable, customary and consistent with the
reasonable expectation that the issuer of the obligations, rather than the
insurer, will pay debt service on the obligations.
6. Arizona law does not permit a deduction for interest paid or incurred
on indebtedness incurred or continued to purchase or carry Units in the Arizona
Trust, the interest on which is exempt from Arizona income taxes.
7. Neither the Bonds nor the Units will be subject to Arizona property
taxes, sales tax or use tax.
ARIZONA INSURED SERIES 1
SCHEDULE OF INVESTMENTS
AS OF THE OPENING OF BUSINESS ON THE INITIAL
DATE OF DEPOSIT: MAY 18, 1995
<TABLE>
<CAPTION>
Name of Issuer, Title, Interest Rate and Offering Price
Aggregate Maturity Date of either Bonds Deposited to Arizona
Principal (1) or Bonds Contracted for (1)(5) Rating (2) Redemption Feature (3) Trust (4)
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
For an explanation of the footnotes used on this page, see "Notes to Schedules
of Investments" on page __.
COLORADO INSURED SERIES 3
GENERAL. The Colorado Trust consists of issues of _____ Bonds. ____ of
the Bonds in the Colorado Trust is a general obligation (___%) of the
governmental entity issuing it and is 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
Colorado Trust) as follows: ____% Healthcare Revenue Bonds, ____% Industrial
Revenue Bonds, ___% Water and Sewer Revenue Bonds, ____% Sales and Use Tax
Revenue Bonds, and ____% Education 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 COLORADO. The State Constitution requires that
expenditures for any fiscal year not exceed revenues for such fiscal year. By
statute, the amount of General Fund revenues available for appropriation is
based upon revenue estimates which, together with other available resources,
must exceed annual appropriations by the amount of the unappropriated reserve
(the "Unappropriated Reserve"). The Unappropriated Reserve requirement for
fiscal year 1991, 1992 and 1993 was set at 3% of total appropriations from the
General Fund. For fiscal years 1994 and thereafter, the Unappropriated Reserve
retirement is set at 4%. In addition to the Unappropriated Reserve, a
constitutional amendment approved by Colorado voters in 1992 requires the State
and each local government to reserve a certain percentage of its fiscal year
spending (excluding bonded debt service) for emergency use (the "Emergency
Reserve"). The minimum Emergency Reserve is set at 2% for 1994 and 3% for 1995
and later years. For fiscal year 1992 and thereafter General Fund appropriations
are also limited by statute to an amount equal to the cost of performing certain
required reappraisals of taxable property plus an amount equal to the lesser of
(i) five percent of Colorado personal income or (ii) 106% of the total General
Fund appropriations for the previous fiscal year. This restriction does not
apply to any General Fund appropriations which are required as a result of a new
federal law, a final state or federal court order or moneys derived from the
increase in the rate or amount of any tax or fee approved by a majority of the
registered electors of the State voting at any general election. In addition,
the statutory limit on the level of Federal Fund appropriations may be exceeded
for a given fiscal year upon the declaration of a State fiscal emergency by the
State General Assembly.
The 1992 fiscal year ending General Fund balance was $133.3 million,
which was $49.1 million over the Unappropriated Reserve requirement. The 1993
fiscal year ending General Fund balance was $326.6 million, or $196.7 million
over the required Unappropriated Reserve and Emergency Reserve. Based on June
20, 1994, estimates, the 1994 fiscal year ending General Fund balance is
expected to be $337.7 million, or $224.3 million over the required
Unappropriated Reserve and Emergency Reserve.
On November 3, 1992, voters in Colorado approved a constitutional
amendment (the "Amendment") which, in general, became effective December 31,
1992, and which could restrict the ability of the State and local governments to
increase revenues and impose taxes. The Amendment applies to the State and all
local governments, including home rule entities ("Districts"). Enterprises,
defined as government-owned businesses authorized to issue revenue bonds and
receiving under 10% of annual revenue in grants from all Colorado state and
local governments combined, are excluded from the provisions of the Amendment.
The provisions of the Amendment are unclear and will probably require
judicial interpretation. Among other provisions, beginning November 4, 1992, the
Amendment requires voter approval prior to tax increases, creation of debt, or
mill levy or valuation for assessment ratio increases. The Amendment also limits
increases in government spending and property tax revenues to specified
percentages. The Amendment requires that District property tax revenues yield no
more than the prior year's revenues adjusted for inflation, voter approved
changes and (except with regard to school districts) local growth in property
values according to a formula set forth in the Amendment. School districts are
allowed to adjust tax levies for changes in student enrollment. Pursuant to the
Amendment, local government spending is to be limited by the same formula as the
limitation for property tax revenues. The Amendment limits increases in
expenditures from the State general fund and program revenues (cash funds) to
the growth in inflation plus the percentage change in State population in the
prior calendar year. The basis for initial spending and revenue limits are
fiscal year 1992 spending and 1991 property taxes collected in 1992. The basis
for spending and revenue limits for fiscal year 1994 and later years will be the
prior fiscal year's spending and property taxes collected in the prior calendar
year. Debt service changes, reductions and voter-approved revenue changes are
excluded from the calculation basis. The Amendment also prohibits new or
increased real property transfer tax rates, new State real property taxes and
local District income taxes.
Litigation concerning several issues relating to the Amendment is
pending in the Colorado courts. The litigation deals with three principal
issues: (i) whether Districts can increase mill levies to pay debt service on
general obligation bonds without obtaining voter approval; (ii) whether a
multi-year lease-purchase agreement subject to annual appropriations is an
obligation which requires voter approval prior to execution of the agreement;
and (iii) what constitutes an "enterprise" which is excluded from the provisions
of the Amendment. In September, 1994 the Colorado Supreme Court held that
Districts can increase mill levies to pay debt service on general obligation
bonds issued after the effective date of the Amendment; litigation regarding
mill levy increases to pay general obligation bonds issued prior to the
Amendment is still pending. Various cases addressing the remaining issues are at
different stages in the trial and appellate process. The outcome of such
litigation cannot be predicted at this time.
According to the Colorado Economic Perspective, Fourth Quarter, FY
1993-94, June 20, 1994 (the "Economic Report"), inflation for 1992 was 3.8% and
population grew at the rate of 2.8% in Colorado. Accordingly, under the
Amendment, increases in State expenditures during the 1994 fiscal year will be
limited to 6.6% over expenditures during the 1993 fiscal year. The limitation
for the 1995 fiscal year is projected to be 7.1%, based on projected inflation
of 4.2% for 1993 and projected population growth of 2.9% during 1993. The 1993
fiscal year is the base year for calculating the limitation for the 1994 fiscal
year. For the 1993 fiscal year, General Fund revenues totaled $3,443.3 million
and program revenues (cash funds) totaled $1,617.6 million, resulting in total
estimated base revenues of $5,060.9 million. Expenditures for the 1994 fiscal
year, therefore, cannot exceed $5,394.9 million. However, the 1994 fiscal year
General Fund and program revenues (cash funds) are projected to be only $5,242.8
million, or $152.1 million less than expenditures allowed under the spending
limitation.
There is also a statutory restriction on the amount of annual increases
in taxes that the various taxing jurisdictions in Colorado can levy without
electoral approval. This restriction does not apply to taxes levied to pay
general obligation debt.
As the State experienced revenue shortfalls in the mid-1980s, it
adopted various measures, including impoundment of funds by the Governor,
reduction of appropriations by the General Assembly, a temporary increase in the
sales tax, deferral of certain tax reductions and inter-fund borrowings. On a
GAAP basis, the State had unrestricted General Fund balances at June 30 of
approximately $100.3 million in fiscal year 1988, $134.4 million in fiscal year
1989, $116.6 million in fiscal year 1990, $16.3 million in fiscal year 1991,
$133.3 million in fiscal year 1992, and $326.6 million in fiscal year 1993. The
fiscal year 1994 unrestricted General Fund ending balance is currently projected
to be $337.7 million.
For fiscal year 1993, the following tax categories generated the
following respective revenue percentages of the State's $3,443.3 million total
gross receipts: individual income taxes represented 51.1% of gross fiscal year
1993 receipts; sales, use and other excise taxes represented 31.3% of gross
fiscal year 1993 receipts; and corporate income taxes represented 4.0% of gross
fiscal year 1993 receipts. The final budget for fiscal year 1994 projects
general fund revenues of approximately $3,570.8 million and appropriations of
approximately $3,556.8 million. The percentages of general fund revenue
generated by type of tax for fiscal year 1994 are not expected to be
significantly different from fiscal year 1993 percentages.
Under its constitution, the State of Colorado is not permitted to issue
general obligation bonds secured by the full faith and credit of the State.
However, certain agencies and instrumentalities of the State are authorized to
issue bonds secured by revenues from specific projects and activities. The State
enters into certain lease transactions which are subject to annual renewal at
the option of the State. In addition, the State is authorized to issue
short-term revenue anticipation notes. Local governmental units in the State are
also authorized to incur indebtedness. The major source of financing for such
local government indebtedness is an ad valorem property tax. In addition, in
order to finance public projects, local governments in the State can issue
revenue bonds payable from the revenues of a utility or enterprise or from the
proceeds of an excise tax, or assessment bonds payable from special assessments.
Colorado local governments can also finance public projects through leases which
are subject to annual appropriation at the option of the local government. Local
governments in Colorado also issue tax anticipation notes. The Amendment
requires prior voter approval for the creation of any multiple fiscal year debt
or other financial obligation whatsoever, except for refundings at a lower rate
or obligations of an enterprise.
Based on data published by the State of Colorado, Office of State
Planning and Budgeting as presented in the Economic Report, over 50% of
non-agricultural employment in Colorado in 1993 was concentrated in the retail
and wholesale trade and service sectors, reflecting the importance of tourism to
the State's economy and of Denver as a regional economic and transportation hub.
The government and manufacturing sectors followed as the fourth and fifth
largest employment sectors in the State, representing approximately 17.8% and
11.3%, respectively, of non-agricultural employment in the State in 1993. The
Office of Planning and Budgeting projects similar concentrations for 1994 and
1995.
According to the Economic Report, the unemployment rate improved
slightly from an average of 5.9% during 1992 to 5.2% during 1993. Total retail
sales increased by 9.7% during 1993. Colorado continued to surpass the job
growth rate of the U.S., with a 3.4% rate of growth projected for Colorado in
1994, as compared with 2.2% for the nation as a whole. However, the rate of job
growth in Colorado is expected to decline in 1995, primarily due to the
completion in 1994 of large public works projects, such as Denver International
Airport, Coors Baseball Field, and the Denver Public Library renovation project.
Personal income rose 7.6% in Colorado during 1992 and 5.5% in 1991.
During 1993, personal income rose 7.4% in Colorado, as compared with 4.7% for
the nation as a whole.
Economic conditions in the State may have continuing effects on other
governmental units within the State (including issuers of the Bonds in the
Colorado Trust), which, to varying degrees, have also experienced reduced
revenues as a result of recessionary conditions and other factors.
STATE TAXATION. For a discussion of the Federal tax status of income
earned on Colorado Trust Units, see "Tax Status."
Neither the Sponsor nor its counsel has independently examined the
Bonds to be deposited in and held in the Colorado 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 Unitholder, would be exempt from the income tax imposed
by the State of Colorado that is applicable to individuals and corporations (the
"State Income Tax"). This opinion does not address the taxation of persons other
than full time residents of Colorado.
In the opinion of Chapman and Cutler, counsel to the Sponsor, under
existing Colorado law:
1. Because Colorado income tax law is based upon the Federal law,
the Colorado Trust is not an association taxable as a corporation for
purposes of Colorado income taxation.
2. With respect to Colorado Unitholders, in view of the
relationship between Federal and Colorado tax computations described
above:
(i) Each Colorado Unitholder will be treated as owning a pro
rata share of each asset of the Colorado Trust for Colorado income
tax purposes in the proportion that the number of Units of such
Trust held by the Unitholder bears to the total number of
outstanding Units of the Colorado Trust, and the income of the
Colorado Trust will therefore be treated as the income of each
Colorado Unitholder under Colorado law in the proportion described
and an item of income of the Colorado Trust will have the same
character in the hands of a Colorado Unitholder as it would have
in the hands of the Trustee;
(ii) Interest on Bonds that would not be includable in income
for Colorado income tax purposes when paid directly to a Colorado
Unitholder will be exempt from Colorado income taxation when
received by the Colorado Trust and attributed to such Colorado
Unitholder and when distributed to such Colorado Unitholder.
(iii) Any proceeds paid under individual policies obtained by
issuers of Bonds in the Colorado Trust which represent maturing
interest on defaulted obligations held by the Trustee will not be
includable in income for Colorado income tax purposes if, and to
the same extent as, such interest is not so includable for Federal
income tax purposes;
(iv) Each Colorado Unitholder will realize taxable gain or
loss when the Colorado Trust disposes of the Bonds (whether by
sale, exchange, redemption, or payment at maturity) or when the
Colorado Unitholder redeems or sells Units at a price that differs
from original cost as adjusted for amortization of bond discount
or premium and other basis adjustments (including any basis
reduction that may be required to reflect a Colorado Unitholder's
share of interest, if any, accruing on Bonds during the interval
between the Colorado Unitholder's settlement date and the date
such Bonds are delivered to the Colorado Trust, if later);
(v) Tax cost reduction requirements relating to amortization
of bond premium may, under some circumstances, result in Colorado
Unitholders realizing taxable gain when their Units are sold or
redeemed for an amount equal to or less than their original cost;
and
(vi) If interest on indebtedness incurred or continued by a
Colorado Unitholder to purchase Units in the Colorado Trust is not
deductible for Federal income tax purposes, it also will be
non-deductible for Colorado income tax purposes.
Unitholders should be aware that all tax-exempt interest, including
their share of interest on the Bonds paid to the Colorado Trust, is taken into
account for purposes of determining eligibility for the Colorado Property
Tax/Rent/Heat Rebate.
COLORADO INSURED SERIES 3
SCHEDULE OF INVESTMENTS
AS OF THE OPENING OF BUSINESS ON THE INITIAL
DATE OF DEPOSIT: MAY 18, 1995
<TABLE>
<CAPTION>
Name of Issuer, Title, Interest Rate and Offering Price
Aggregate Maturity Date of either Bonds Deposited to Colorado
Principal (1) or Bonds Contracted for (1)(5) Rating (2) Redemption Feature (3) Trust (4)
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
For an explanation of the footnotes used on this page, see "Notes to Schedules
of Investments" on page __.
MINNESOTA INSURED SERIES 2
GENERAL. The Minnesota Trust consists of _____ issues of Bonds. ___ of
the Bonds in the Minnesota Trust are general obligations of the governmental
entities issuing them and are 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 Minnesota Trust)
as follows: ____% Healthcare Revenue Bonds and ____% Utility 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 MINNESOTA. In the early 1980s the State of
Minnesota experienced financial difficulties due to a downturn in the State's
economy resulting from the national recession. As a consequence, the State's
revenues were significantly lower than anticipated in the July 1, 1979 to June
30, 1981 biennium and the July 1, 1981 to June 30, 1983 biennium.
In response to revenue shortfalls, the legislature broadened and
increased the State sales tax, increased income taxes (by increasing rates and
eliminating deductions) and reduced appropriations and deferred payment of State
aid, including appropriations for and aids to local governmental units. The
State's fiscal problems affected other governmental units within the State, such
as local government, school districts and state agencies, which, in varying
degrees, also faced cash flow difficulties. In certain cases, revenues of local
governmental units and agencies were reduced by the recession.
Because of the State's fiscal problems, Standard & Poor's reduced its
rating on the State's outstanding general obligation bonds from AAA to AA+ in
August 1981 and to AA in March 1982. Moody's lowered its rating on the State's
outstanding general obligation bonds from Aaa to Aa in April 1982. The State's
economy recovered in the July 1, 1983 to June 30, 1985 biennium, and substantial
reductions in the individual income tax were enacted in 1984 and 1985. Standard
& Poor's raised its rating on the State's outstanding general obligation bonds
to AA+ in January 1985. In 1986, 1987, 1991, 1992 and 1993, legislation was
required to eliminate projected budget deficits by raising additional revenue,
reducing expenditures, including aids to political subdivisions and higher
education, reducing the State's budget reserve (cash flow account), imposing a
sales tax on purchases by local government units, and making other budgetary
adjustments. A budget forecast released by the Minnesota Department of Finance
on March 1, 1994 projects a balanced General Fund at the end of the current
biennium, June 30, 1995, plus an increase in the State's cash flow account from
$360 million to $500 million. Total projected expenditures and transfers for the
biennium are $17.0 billion. The forecast also projects, however, a shortage of
$29.5 million in the Local Government Trust Fund at June 30, 1995, against total
projected expenditures from the Fund of $1.8 billion for the biennium.
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 the State, 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.
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 and bonds issued by possessions of
the United States which would be exempt from Federal and Minnesota income
taxation when paid directly to an individual, trust or estate (the "Bonds"),
(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 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 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. The opinion
set forth below does not address the taxation of persons other than full time
residents of Minnesota.
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 which is exempt from the Minnesota Income
Tax when received by a Unitholder of the Minnesota Trust and which
would be exempt from the Minnesota Income Tax if received directly by a
Unitholder will retain its status as exempt from such tax when received
by the Minnesota Trust and distributed to such Unitholder;
3. To the extent that interest on the Bonds, 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 and on corporations;
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 cost 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 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 obligations is excludible
from gross income for Federal income tax purposes pursuant to 48 U.S.C.
Section 745, 48 U.S.C. Section 1423a and 48 U.S.C. Section 1403, such
interest will not be subject to either the Minnesota Income Tax or the
Minnesota alternative minimum tax imposed on individuals, estates and
trusts. It should be noted that interest relating to possession bonds
is subject to tax in the case of corporations subject to the Minnesota
Corporate Franchise Tax or the Corporate Alternative Minimum Tax.
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 to the exemption from State income taxes of interest on the Bonds if
received directly by a Unitholder.
MINNESOTA INSURED SERIES 2
SCHEDULE OF INVESTMENTS
AS OF THE OPENING OF BUSINESS ON THE INITIAL
DATE OF DEPOSIT: MAY 18, 1995
<TABLE>
<CAPTION>
Name of Issuer, Title, Interest Rate and Offering Price
Aggregate Maturity Date of either Bonds Deposited to Minnesota
Principal (1) or Bonds Contracted for (1)(5) Rating (2) Redemption Feature (3) Trust (4)
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
For an explanation of the footnotes used on this page, see "Notes to Schedules
of Investments" on page __.
PUERTO RICO INSURED SERIES 1
GENERAL. The Puerto Rico Trust consists of issues of ____ Bonds. ____
of the Bonds in the Puerto Rico Trust are general obligations (____%) of the
governmental entities issuing them and are 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 Puerto Rico Trust) as follows: ____% Utility Revenue Bonds; ____%
Healthcare Revenue Bonds; ____% Water and Sewer Revenue Bonds; and ____%
Education 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 the mainland United States. During fiscal 1993
approximately 86% of Puerto Rico's exports were to the U.S. mainland, which was
also the source of approximately 69% of Puerto Rico's imports. The economy of
Puerto Rico is dominated by the manufacturing and service sectors. The
manufacturing sector has experienced a basic change 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.
Gross Product in fiscal 1989 was $20.0 billion, and gross product in
fiscal 1993 was $25.0 billion. This represents an increase in gross product of
25.2% from fiscal 1989 to 1993. Since fiscal 1987, personal income, both
aggregate and per capita, has increased consistently each fiscal year. In fiscal
1993, aggregate personal income was $24.1 billion and personal income per capita
was $6,760. According to the U.S. Census Bureau, the population of Puerto Rico
was approximately 3,522,000 in 1990 compared to 3,196,520 in 1980.
Puerto Rico's decade-long economic expansion continued throughout the
five-year period from fiscal 1989 through fiscal 1993. Almost every sector of
the economy was affected and record levels of employment were achieved. While
trends in the Puerto Rico economy normally follow those in the U.S., Puerto Rico
did not experience a recession as did the U.S., primarily because of low oil
prices, low interest rates, and its strong manufacturing base which has a large
component of non-cyclical industries. Other factors behind the expansion
included Commonwealth-sponsored economic development programs, the relatively
stable prices of oil imports, periodic declines in the exchange value of the
U.S. dollar and the relatively low cost of borrowing during the period.
Average unemployment increased from 14.4% in fiscal 1989 to 16.8% in
fiscal 1993. According to the Labor Department's Household Employment Survey, in
the first eight months of fiscal 1994 total employment (seasonally adjusted)
increased 1.6% when compared to the same period in fiscal 1993. For the first
eight months of fiscal 1994, the unemployment rate (seasonally adjusted)
decreased from 17.3% to 15.1%.
The Gross Product forecast for fiscal 1994, made in February 1994,
shows an increase of 2.9% over fiscal 1993. Whether actual growth in the Puerto
Rico economy in fiscal 1994 and fiscal 1995 will continue depends on several
factors, including the state of the U.S. economy and the relative stability in
the price of oil imports, the exchange value of the U.S. dollar and the cost of
borrowing.
The Puerto Rican economy is affected by a number of Commonwealth and
federal investment incentive programs. For example, Section 936 of the Internal
Revenue Code (the "Code") provides for a credit against federal income taxes for
U.S. companies operating on the island if certain requirements are met. The
Omnibus Budget Reconciliation Act of 1993 imposes limits on such credit,
effective for tax years beginning after 1993. In addition, from time to time
proposals are introduced in Congress which, if enacted into law, would eliminate
some or all of the benefits of Section 936. Although no assessment can be made
at this time of the precise effect of such limitation, it is expected that the
limitation of Section 936 credits would have a negative impact on Puerto Rico's
economy.
Aid for Puerto Rico's economy has traditionally depended heavily on
federal programs, and current federal budgetary policies suggest than 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 a reduction of
tax benefits for distilled products, further reduction in transfer payment
programs such as food stamps, curtailment of military spending and policies
which could lead to a stronger dollar.
In a plebiscite held in November, 1993, the Puerto Rican electorate
chose to continue Puerto Rico's Commonwealth status. Previously proposed
legislation, which was not enacted, would have preserved the federal tax exempt
status of the outstanding debts of Puerto Rico and its public corporations
regardless of the outcome of the referendum, to the extent that similar
obligations issued by states are so treated and subject to the provisions of the
Code currently in effect. There can be no assurance that any pending or future
legislation finally enacted will include the same or similar protection against
loss of tax exemption. The November 1993 plebiscite can be expected to have both
direct and indirect consequences on such matters as the basic characteristics of
future Puerto Rico debt obligations, the markets for these obligations, and the
types, levels and quality of revenue sources pledged for the payment of existing
and future debt obligations. Such possible consequences include legislative
proposals seeking restoration of the status of Section 936 benefits otherwise
subject to the limitations discussed above. However, no assessment can be made
at this time of the economic and other effects of a change in federal laws
affecting Puerto Rico as a result of the November 1993 plebiscite.
STATE TAXATION. For a discussion of the Federal tax status of income
earned on Puerto Rico Trust Units, see "Tax Status."
PUERTO RICO INSURED SERIES 1
SCHEDULE OF INVESTMENTS
AS OF THE OPENING OF BUSINESS ON THE INITIAL
DATE OF DEPOSIT: MAY 18, 1995
<TABLE>
<CAPTION>
Name of Issuer, Title, Interest Rate and Offering Price
Aggregate Maturity Date of either Bonds Deposited to Puerto Rico
Principal(1) or Bonds Contracted for (1)(5) Rating(2) Redemption Feature(3) Trust(4)
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
For an exlanation of the footnotes used on this page, see "Notes to Schedules of
Investments" on page __.
NOTES TO SCHEDULES OF INVESTMENTS
AS OF THE OPENING OF BUSINESS ON THE
INITIAL DATE OF DEPOSIT: MAY 18, 1995
1. All Bonds are represented by "regular way" or "when issued"
contracts for the performance of which an irrevocable letter of credit, obtained
from an unaffiliated financial institution, 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 into during the
period from ______, 1995 to ___________, 1995. These Bonds have expected
settlement dates from ___________, 1995 to _________, 1995 (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, each Bond is rated "AAA" by Standard &
Poor's and/or "Aaa" by Moody's.
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>
Arizona Insured Series 1
Colorado Insured Series 3
Minnesota Insured Series 2
Puerto Rico Insured Series 1
</TABLE>
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 ____%, ____%,
____% and ____% for the Arizona, Colorado, Minnesota and Puerto Rico Trusts,
respectively. All contracts are expected to be settled by the First Settlement
Date for the purchase of Units.
"#" 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."
(section) These Municipal Bonds are "when, as and if issued" or
"delayed delivery" and have expected settlement dates after the "First
Settlement Date." Interest on these Bonds begins accruing to the benefit of
Unitholders on the date of delivery.
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 taxes using the published Federal and State tax rates scheduled to be in
effect in 1995. 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 $114,700. 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.
<TABLE>
<CAPTION>
Arizona Tax Equivalent Table
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- 23.35 $ 0- 39.00 18.0% 5.49% 6.10% 6.71% 7.32% 7.93% 8.54% 9.15%
39.00- 94.25 31.0 6.52 7.25 7.97 8.70 9.42 10.14 10.87
23.35- 56.55 31.7 6.59 7.32 8.05 8.78 9.52 10.25 10.98
56.55-117.95 94.25-143.60 34.6 6.88 7.65 8.41 9.17 9.94 10.70 11.47
143.60-256.50 39.3 7.41 8.24 9.06 9.88 10.71 11.53 12.36
117.95-256.50 39.6 7.45 8.28 9.11 9.93 10.76 11.59 12.42
Over 256.50 Over 256.50 43.0 7.89 8.77 9.65 10.53 11.40 12.28 13.16
</TABLE>
<TABLE>
<CAPTION>
Colorado Tax Equivalent Table
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- 23.50 $ 0- 39.00 19.3% 5.58% 6.20% 6.82% 7.43% 8.05% 8.67% 9.29%
23.50- 56.50 39.00- 94.25 31.6 6.58 7.31 8.04 8.77 9.50 10.23 10.96
56.50-117.95 94.25- 143.60 34.5 6.87 7.63 8.40 9.16 9.92 10.69 11.45
117.95-256.50 143.60-256.50 39.2 7.40 8.22 9.05 9.87 10.69 11.51 12.34
Over 256.50 Over 256.50 42.6 7.84 8.71 9.58 10.45 11.32 12.20 13.07
</TABLE>
<TABLE>
<CAPTION>
Minnesota Tax Equivalent Table
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- 23.50 $ 0- 39.00 21.8% 5.75% 6.39% 7.03% 7.67% 8.31% 8.95% 9.59%
23.50- 56.50 39.00- 94.25 34.1 6.83 7.59 8.35 9.10 9.86 10.62 11.38
56.50-117.95 94.25-143.60 36.9 7.13 7.92 8.72 9.51 10.30 11.09 11.89
117.95-256.50 143.60-256.50 41.4 7.68 8.53 9.39 10.24 11.09 11.95 12.80
Over 256.50 Over 256.50 44.7 8.14 9.04 9.95 10.85 11.75 12.66 13.56
</TABLE>
<TABLE>
<CAPTION>
Puerto Rico Tax Equivalent Table
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- 23.50 $ 0- 39.00 15.0% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82%
23.50- 56.50 39.00- 94.25 28.0 6.25 6.94 7.64 8.33 9.03 9.72 10.42
56.50-117.95 94.25-143.60 31.0 6.52 7.25 7.97 8.70 9.42 10.14 10.87
117.95-256.50 143.60-256.50 36.0 7.03 7.81 8.59 9.38 10.16 10.94 11.72
Over 256.50 Over 256.50 39.6 7.45 8.28 9.11 9.93 10.76 11.59 12.42
</TABLE>
*The table reflects the Federal tax rate and does not reflect any effect that
Puerto Rico taxes may have in determining the taxable equivalent yield for
residents of Puerto Rico.
INDEPENDENT AUDITORS' REPORT
To the Sponsor, Trustee and the Unitholders of Voyageur Tax-Exempt
Trust, Series 3:
We have audited the accompanying statements of net assets, including
the schedules of investments, of Voyageur Tax-Exempt Trust, Series 3 (Arizona
Insured Series 1, Colorado Insured Series 3, Minnesota Insured Series 2 and
Puerto Rico Insured Series 1) as of May 18, 1995. The statements of net assets
are the responsibility of the Sponsor. Our responsibility is to express an
opinion on such financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of an irrevocable letter of credit deposited to purchase securities
by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Sponsor, as
well as evaluating the overall financial statement presentation. We believe our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Voyageur Tax-Exempt
Trust, Series 3 (Arizona Insured Series 1, Colorado Insured Series 3, Minnesota
Insured Series 2 and Puerto Rico Insured Series 1) as of May 18, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 18, 1995
VOYAGEUR TAX-EXEMPT TRUST, SERIES 3
STATEMENTS OF NET ASSETS
AS OF THE OPENING OF BUSINESS ON THE INITIAL
DATE OF DEPOSIT: MAY 18, 1995
<TABLE>
<CAPTION>
Arizona Colorado Minnesota Puerto Rico
Insured Insured Insured Insured
Series 1 Series 2 Series 2 Series 1
<S> <C> <C> <C> <C>
Contracts to purchase securities(1)(2) $ $ $ $
Accrued interest on underlying securities(1)(3)
Less: distributions payable(3)
Net Assets
Net Assets Represented By:
Interest of Unitholders--
Units of fractional undivided interest
outstanding: (______; ______; _______;
and _______ Units, respectively)
Cost to investors(4)
Less: Gross underwriting commission(4)
Net Assets(4)
</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 Securities Pricing Service, a division of George
K. Baum & Company on the bases set forth under "Public Offering--Offering
Price." The contracts to purchase Bonds 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>
Arizona Insured Series 1
Colorado Insured Series 3
Minnesota Insured Series 2
Puerto Rico Insured Series 1
</TABLE>
(2) Insurance coverage providing for the timely payment of principal and
interest on the Bonds in the portfolio of each 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 __________,
1995 (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 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 10,000
Units. For single transactions involving 10,000 or more Units, 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.
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 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.
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 ill 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 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 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 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, 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.
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 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 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, 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," reduce its fee (and to the extent
necessary pay Trust expenses) in an amount equal to that indicated under
"Summary of Essential Financial Information."
TRUST OPERATING EXPENSES
INITIAL COSTS. All costs and expenses incurred in creating and
establishing the Fund, including the cost of the initial preparation, printing
and execution of the Trust Agreement and the certificates, legal and accounting
expenses, advertising and selling expenses, expenses of the Trustee, initial
fees for evaluations and other out-of-pocket expenses have been borne by the
Sponsor at no cost to the Fund.
COMPENSATION OF SPONSOR AND EVALUATOR. Voyageur Fund Managers, Inc.,
which acts as Sponsor and Evaluator, reserves the right to charge fees for such
services in amounts which will not exceed $.40 per 100 Units on an annual basis.
Such fees, if any, are as set forth under "Summary of Essential Financial
Information." Any such charges would be payable in monthly installments and
would be based on the number of Units outstanding on the first day of each month
of each year. Any such fees may exceed the actual costs of providing such
supervisory or evaluation services for this Fund, but at no time will the total
amount paid to the Sponsor for portfolio supervisory and evaluation services
rendered to Series 1 and subsequent series of Voyageur Tax-Exempt Trust in any
calendar year exceed the aggregate cost to the Sponsor of supplying such
services in such year. Both of 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 and
the Underwriters 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."
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. 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 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
Insurance guaranteeing prompt payment of interest and principal, when
due, on all the Bonds 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 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 a Trust.
By the terms of each policy the Insurer will unconditionally guarantee to the
holders or owners of the 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 but not be 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 Insurance Security Fund specified in Article 76 of the New
York Insurance Law. 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 Trusts. The
insurance does not, however, guarantee the market value of the Bonds or of the
Units.
TAX STATUS
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 when
distributed to Unitholders, except to the extent such interest is
subject to the alternative minimum tax, an additional tax on branches
of foreign corporations and the environmental tax (the "Superfund
Tax"), as noted below;
2. Each Unitholder is considered to be the owner of a pro rata
portion 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.
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 during the period from the
Unitholder's settlement date to the date such Bonds are delivered to
the respective Trust and, consequently, such Unitholders may have an
increase in taxable gain or reduction in capital loss upon the
disposition of such Units. Gain or loss upon the sale or redemption of
Units is measured by comparing the proceeds of such sale or redemption
with the adjusted basis of the Units. If the Trustee disposes of Bonds
(whether by sale, payment on maturity, redemption or otherwise), gain
or loss is recognized to the Unitholder. The amount of any such gain or
loss is measured by comparing the Unitholder's pro rata share of the
total proceeds from such disposition with the Unitholder's basis for
his or her fractional interest in the asset disposed of. In the case of
a Unitholder who purchases Units, such basis (before adjustment for
earned original issue discount and amortized bond premium, if any) is
determined by apportioning the cost of the Units among each of the
Trust assets ratably according to value as of the date of acquisition
of the Units. The tax cost reduction requirements of the Code relating
to amortization of bond premium may, under some circumstances, result
in the Unitholder realizing a taxable gain when his Units are sold or
redeemed for an amount equal to his original cost;
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 provided that
original issue discount accrues either on the basis of a constant compound
interest rate or ratably over the term of the Bond, depending on the date the
Bond was issued. In addition, special rules apply if the purchase price of a
Bond exceeds the original issue price plus the amount of original issue discount
which would have previously accrued based upon its issue price (its "adjusted
issue price") to prior owners. The application of these rules will also vary
depending on the value of the Bonds on the date a Unitholder acquires his Units
and the price the Unitholder pays for his Units. Investors with questions
regarding these Code sections should consult with their tax advisers.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") subjects
tax-exempt bonds to the market discount rules of the Code effective for bonds
purchased after April 30, 1993. In general, market discount is the amount (if
any) by which the stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if any, is
attributable to original issue discount not yet accrued). 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 a 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 and the Superfund
Tax of a corporation (other than an S Corporation, Regulated Investment Company,
Real Estate Investment Trust, or REMIC) is an amount equal to 75% of the excess
of such corporation's "adjusted current earnings" over an amount equal to its
alternative minimum taxable income (before such adjustment item and the
alternative tax net operating loss deduction). "Adjusted current earnings"
includes all tax exempt interest, including interest on all of the Bonds in the
Fund. Unitholders are urged to consult their tax advisers with respect to the
particular tax consequences to them including the corporate alternative minimum
tax, the Superfund Tax and the branch profits tax imposed by Section 884 of the
Code.
Counsel for the Sponsor has also advised that under Section 265 of the
Code interest on indebtedness incurred or continued to purchase or carry Units
of a Trust 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 in 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. Investors
with questions regarding this issue should consult with their tax advisers.
In the case of certain of the Bonds in the Fund, 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 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.
Under existing law, the Fund and each Trust are not associations
taxable as corporations and the income of each Trust will be treated as the
income of the Unitholders under the income tax laws of the State of Missouri.
All statements of law in the Prospectus concerning exclusion from gross
income for Federal, state or other tax purposes are the opinions of counsel and
are to be so construed.
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from Federal gross
income are rendered by bond counsel to the respective issuing authorities.
Neither the Sponsor nor Chapman and Cutler has made any special review for the
Fund of the proceedings relating to the issuance of the Bonds or of the basis
for such opinions.
In the case of corporations, the alternative tax rate applicable to
long-term capital gains is 35%. For taxpayers other than corporations, net
capital gains are subject to a maximum marginal stated tax rate of 28%. However,
it should be noted that legislative proposals are introduced from time to time
that affect tax rates and could affect relative differences at which ordinary
income and capital gains are taxed. Under the Code, taxpayers must disclose to
the Internal Revenue Service the amount of tax-exempt interest earned during the
year.
Section 86 of the Code, in general, 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 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.
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 any person acquiring 10,000 or more Units as follows:
Aggregate Number of Units Purchased Percent of Offering Price
10,000 - 24,999 Units....................... 0.30%
25,000 - 49,999 Units....................... 0.50%
50,000 - 99,000 Units....................... 0.90%
100,000 or more Units....................... 1.40%
Any such reduced sales charge, including pursuant to a Letter of Intent
described below, 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. 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. 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. In addition, a purchaser desiring to purchase during a 12
month period $1,000,000 or more of Units in any series of Voyageur Tax-Exempt
Trust may qualify for a reduced sales charge by signing a nonbinding Letter of
Intent. After signing a Letter of Intent, at the date total purchases, less
redemptions, of units of series of Voyageur Tax-Exempt Trust by a purchaser
(including 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) aggregate $1,000,000,
the selling Underwriter or dealer will make a retroactive reduction of the sales
charge on such Units in the amount of $.10 per Unit (reduced by any previous
discount received on the Units). If a purchaser does not complete the required
purchases under the Letter of Intent within the 12 month period, no such
retroactive sales charge reduction shall be made. To qualify as a purchase under
a Letter of Intent each purchase of units of a series of Voyageur Tax-Exempt
Trust must be equal to or exceed $100,000.
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. 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 Securities Pricing Service, a division of
George K. Baum & Company, 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 4:00 P.M.
Eastern time on days the New York Stock Exchange is open 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 4:00
P.M. Eastern time on each such day. Orders received by the Trustee, Sponsor,
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 4:00
P.M. Eastern time on days on which the New York Stock Exchange is open 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 4:00 P.M. Eastern 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
Sponsor'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 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 five 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 Sponsor prior to the date
of settlement for the purchase of Units may be used in the Sponsor's business
and may be deemed to be a benefit to the Sponsor, subject to the limitations of
the Securities Exchange Act of 1934.
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 a Puerto Rico Trust, 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, any dealer who sells at least the lesser
of 100,000 Units or $1,000,000 worth of Units between the Initial Date of
Deposit and the First Settlement Date will be entitled to a concession or agency
commission equal to $.40 per Unit on all Units sold during such period. It is
anticipated that one or more Underwriters will qualify for this additional
concession. 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 Sponsor,
pursuant to the sales charge reduction schedule for quantity purchases set forth
above, resulting in total concessions as contained in the following table:
<TABLE>
<CAPTION>
Total Concession per Unit
Aggregate Number of Units Purchased (as a Percentage of the Public Offering Price)
<S> <C>
10,000 - 24,999 Units....................... 3.2%
25,000 - 49,999 Units....................... 3.2%
50,000 - 99,000 Units....................... 2.9%
100,000 or more Units....................... 2.5%
</TABLE>
The Sponsor and the Distributor each 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 net amount invested), less any
reduced sales charge for quantity purchases as described under "General" above.
Underwriters will acquire Units from the Sponsor based on the amount of Units
underwritten. The concessions from the Public Offering Price will be as set
forth in the following table:
<TABLE>
<CAPTION>
10,000 - 24,999 25,000 - 49,999 50,000 - 99,999 100,000 or more
Units Underwritten Units Underwritten Units Underwritten Units Underwritten
<S> <C> <C> <C>
3.5% 3.6% 3.7% 4.0%
</TABLE>
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 Securities Pricing Service, a
division of George K. Baum & Company). See "Underwriting" and "The
Trusts--Schedules of Investments." Affiliates of the Sponsor and 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, nor any
affiliate of the Sponsor has participated as sole underwriter or as manager or
as a member of any underwriting syndicates 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,
Voyageur Fund Distributors, Inc. (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 Sponsor, 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 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 $1.00 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 such portion 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 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 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 for 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 advised by the Sponsor
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 in
certain respects 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 may obtain a
prospectus for the respective Reinvestment Fund from Voyageur Fund Distributors,
Inc. at 90 South Seventh Street, Suite 4400, Minneapolis, Minnesota 55402.
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 closing of trading on the New York Stock Exchange on such
date.
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 sponsor 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 (received since the preceding distribution)
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 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, express 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, Investors Fiduciary Trust Company,
P.O. Box 419430, Kansas City, Missouri 64173-0216 and, in the case of Units
evidenced by a certificate, by tendering such certificate to the Trustee,
properly endorsed or accompanied by a written instrument or instruments of
transfer in 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.
Redemption shall be made by the Trustee on the seventh calendar day
following the day on which a tender for redemption is received, or if the
seventh calendar day is not a business day, on the first business day prior
thereto (the "Redemption Date"). 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.
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 4:00 P.M.
Eastern 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 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, the Trustee
is obligated to notify promptly all Unitholders of the substance of such
amendment.
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 Sponsor, 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 Sponsor 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. Voyageur Fund Managers, Inc. is the Sponsor of the Fund and
Voyageur Fund Distributors, Inc. is the primary distributor of Fund Units.
Voyageur Fund Managers, Inc. and Voyageur Fund Distributors, Inc. are each
indirect wholly-owned subsidiaries of Dougherty Dawkins, Inc., which is owned
50% by Michael E. Dougherty and 50% by Pohlad Companies.
Mr. Dougherty co-founded the predecessor of Dougherty Dawkins in 1977
and has served as Dougherty Dawkins' Chairman of the Board and Chief Executive
Officer since inception. Pohlad Companies is a holding company owned in equal
parts by each of James O. Pohlad, Robert C. Pohlad and William M. Pohlad. As of
December 31, 1994, Voyageur Fund Managers, Inc. served as the manager to six
closed-end and ten open-end investment companies (comprising 24 separate
investment portfolios), administered numerous private accounts and managed
approximately $7.4 billion in assets. The principal business address for both
Voyageur Fund Managers, Inc. and Voyageur Fund Distributors, Inc. is 90 South
Seventh Street, Suite 4400, Minneapolis, Minnesota 55402. As of December 31,
1994, the total stockholders' equity of Voyageur Fund Managers, Inc. was
$5,675,766 (unaudited). (This paragraph relates only to the Sponsor and not to
the Fund or to any Series thereof or to any of the Underwriters. 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 financial 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. The Sponsor also 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. At the present time, pursuant to a contract with the Evaluator,
Securities Pricing Service, a division of George K. Baum & Company, a
non-affiliated firm regularly engaged in the business of evaluating, quoting or
appraising comparable securities, provides, for both the initial offering period
and secondary market transactions, portfolio evaluations of the Bonds in the
Fund which are then reviewed by the Evaluator. In the event the Sponsor is
unable to obtain current evaluations from Securities Pricing Service, it may
make its own evaluations or it may utilize the services of any other
non-affiliated evaluator or evaluators it deems appropriate.
TRUSTEE. The Trustee, Investors Fiduciary Trust Company, is a trust
company specializing in investment related services, organized and existing
under the laws of Missouri, having its trust office at 127 West 10th Street,
Kansas City, Missouri 64105. The Trustee is subject to supervision and
examination by the Division of Finance of the State of Missouri and the Federal
Deposit Insurance Corporation.
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 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 at any time with or without cause. 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 Sponsor.
<TABLE>
<CAPTION>
Arizona Colorado Minnesota Puerto Rico
Insured Insured Insured Insured
Name Address Series 1 Series 3 Series 2 Series 1
<S> <C>
Voyageur Fund 90 South Seventh Street
Distributor's, Inc. Minneapolis, Minnesota 55402
Dain Bosworth 60 South Sixth Street
Incorporated Minneapolis, Minnesota 55402
Edward D. Jones & Co. 12555 Manchester Road
Maryland Heights, Missouri 63403
Smith Barney Inc. 388 Greenwich Street
New York, New York 10013
Totals
</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 Sponsor and the Distributor each 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 Sponsor 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
Sponsor will reallow to any such Underwriters, brokers, dealers, banks and/or
others that sponsor sales contests or recognition programs conforming to
criteria established by the Sponsor, or participate in sales programs sponsored
by the Sponsor, an amount not exceeding the total applicable sales charges on
the sales generated by such person at the public offering price during such
programs. Also, the Sponsor in its discretion may from time to time pursuant to
objective criteria established by the Sponsor pay fees to qualifying
Underwriters, brokers, dealers, banks or others for certain services or
activities which are primarily intended to result in sales of Units of the
Trusts. Such payments are made by the Sponsor out of its own assets, and not out
of the assets of the Trusts. These programs will not change the price
Unitholders pay for their Units or the amount that the Trusts will receive from
the Units sold.
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.
INDEPENDENT AUDITORS. The statements of net assets and the related
schedules of investments as of the opening of business on the Initial Date of
Deposit included in this Prospectus have been included herein in reliance upon
the report of KPMG Peat Marwick LLP, independent auditors, appearing elsewhere
herein and upon the authority of said firm as experts in accounting and
auditing.
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.................
THE FUND...................................
INVESTMENT OBJECTIVES AND
PORTFOLIO SELECTION...................
THE TRUSTS.................................
EQUIVALENT TAXABLE ESTIMATED
CURRENT RETURNS.......................
INDEPENDENT AUDITORS' REPORT...............
STATEMENTS OF NET ASSETS...................
RISK FACTORS...............................
ESTIMATED CURRENT RETURN AND
ESTIMATED LONG-TERM RETURN............
TRUST OPERATING EXPENSES...................
INSURANCE ON THE BONDS.....................
TAX STATUS.................................
PUBLIC OFFERING............................
RIGHTS OF UNITHOLDERS......................
TRUST ADMINISTRATION.......................
UNDERWRITING...............................
OTHER MATTERS..............................
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 exhibits relating thereto, which the Fund has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act of 1940, and to which reference is hereby made.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement on Form S-6 comprises the following papers
and documents:
The facing sheet of Form S-6
The Cross-Reference Sheet
The Prospectus
The signatures
The following exhibits:
1.1 Form of Trust Indenture and Agreement for Voyageur Tax-Exempt
Trust, Series 3 (to be filed by amendment).
1.1.1 Standard Terms and Conditions of Trust for Voyageur Tax-Exempt
Trust, Series 3 (to be filed by amendment).
1.2 Certificate of Incorporation of Voyageur Fund Managers, Inc. (to
be filed by amendment).
1.3 By-laws of Voyageur Fund Managers, Inc. (to be filed by
amendment).
2.1 Form of Certificate of Ownership (pages two to four, inclusive, of
the Standard Terms and Conditions of Trust included as Exhibit
1.1.1).
3.1 Opinion of counsel to the Sponsor as to legality of the securities
being registered including a consent to the use of its name under
the headings "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 (to be
filed by amendment).
4.1 Consent of KPMG Peat Marwick LLP (to be filed by amendment).
6.1 List of Officers and Directors of Depositor (to be filed by
amendment).
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Voyageur Tax-Exempt Trust, Series 3, has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Minneapolis and State of Minnesota on
the 10th day of May, 1995.
VOYAGEUR TAX-EXEMPT TRUST, SERIES 3
(Registrant)
By: Voyageur Fund Managers, Inc.
(Depositor)
By: /s/ THOMAS J. ABOOD
Vice President and General Counsel
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 May 10, 1995.
SIGNATURE TITLE
/s/ JOHN G. TAFT
John G. Taft Chief Executive Officer and Director
/s/ KENNETH R. LARSEN
Kenneth R. Larsen Chief Financial Officer and Director
/s/ ANDREW M. MCCULLAGH, JR.
Andrew M. McCullagh, Jr. Director
/s/ JANE M. WYATT
Jane M. Wyatt Director
/s/ THEODORE E. JESSEN
Theodore E. Jessen Director
/s/ FRANK C. TONNEMAKER
Frank C. Tonnemaker Director
/s/ DALE L. KURTZ
Dale L. Kurtz Director
/s/ JAMES C. KING
James C. King Director
/s/ THOMAS J. ABOOD
Thomas J. Abood
Thomas J. Abood signs this document pursuant to a Power of Attorney
filed with the Securities and Exchange Commission as Exhibit 7.1 to the
Registration Statement on Form S-6 for Voyageur Tax-Exempt Trust, Series 1 (File
No. 33-84086).
