AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1996
REGISTRATION NO. 333-07491
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 7
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:
THOMAS J. ABOOD 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 7 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.
/ X :/ Check box if it is proposed that this filing will become effective on
July 18, 1996 at 2:00 P.M. pursuant to Rule 487.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<TABLE>
<CAPTION>
VOYAGEUR TAX-EXEMPT TRUST, SERIES 7
----------------------
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
<S> <C>
1. (a) Name of Trust.............................................................. } Prospectus front cover
2. (b) Title of securities issued................................................. } Summary of Essential
} Information
3. Name and address of each depositor.............................................. } Trust Administration
4. Name and address of Trustee..................................................... } Trust Administration
5. State of organization of Trust.................................................. } The Fund
6. Execution and termination of Trust agreement.................................... } Trust Administration
7. Changes of name................................................................. } The Fund; Trust Administration
8. Fiscal year..................................................................... } *
9. Litigation...................................................................... } *
II. GENERAL DESCRIPTION OF THE TRUST AND
SECURITIES OF THE TRUST
10. (a) Registered of bearer securities............................................ } Rights of Unitholders
(b) Cumulative or distributive securities...................................... } Rights of Unitsholders;
} The Fund
(c) Redemption................................................................. } Rights of Unitholders
(d) Conversion, transfer, etc.................................................. } Rights of Unitholders
(e) Periodic payment plan...................................................... } *
(f) Voting rights.............................................................. } Rights of Unitholders
(g) Notice of Unitholders...................................................... } Trust Administration
(h) Consents required.......................................................... } Rights of Unitholders;
} Trust Administration
(i) Other provisions........................................................... } Tax Status; Insurance on
} the Bonds
11. Type of securities comprising units............................................. } The Fund; The State Trusts
12. Certain information regarding periodic } *
payment certificates }
13. (a) Load, fees, expenses, etc.................................................. } Estimated Current Return
} and Estimated Long-Term
} Return; Trust Operating
Expenses
(b) Certain information regarding periodic payment certificates ............... } *
}
(c) Certain percentages........................................................ } Summary of Essential Information;
} Public Offering; Insurance on the
} Bonds
(d) Certain other fees, etc. payable by holders ............................... } Rights of Unitholders
(e) Certain profits receivable by depositor,
principal, underwriters, writers, Trustee or
affiliated person.......................................................... } Trust Operating Expenses; Public
} Offering
(f) Ratio of annual charges to income.......................................... } *
} The Fund
14. Issuance of Trust's securities.................................................. } Rights of Unitholders
15. Receipt and handling of payments from purchasers ............................... } *
16. Acquisition and disposition of underlying } The Fund; Investment Objectives
securities...................................................................... } and Portfolio Selection; Trust
} Administration; Public Offering
}
17. Withdrawal or redemption........................................................ } Rights of Unitholders; Public
} Offering
18. (a) Receipt, custody and disposition of income ................................ } Rights of Unitholders
(b) Reinvestment of distributions.............................................. } Rights of Unitholders
(c) Reserves or special Trusts................................................. } Trust Operating Expenses
(d) Schedule of distributions.................................................. } *
19. Records, accounts and reports................................................... } Rights of Unitholders; Trust
} Administration
20. Certain miscellaneous provisions of Trust agreement
(a) Amendment.................................................................. } Trust Administration
(b) Termination................................................................ } *
(c) and (d) Trustee, removal and successor..................................... } Trust Administration
(e) and (f) Depositor, removal and successor.................................... } Trust Administration
21. Loans to security holders } *
22. Limitations on liability........................................................ } Trust Administration
23. Bonding arrangements............................................................ } *
24. Other material provisions of Trust agreement.................................... } *
III. ORGANIZATION, PERSONNEL AND
AFFILIATED PERSONS OF DEPOSITOR
25. Organization of depositor....................................................... } Trust Administration
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 Certain information regarding periodic payment
thru certificates.............................................................. } *
58.
59. Financial statements (Instruction 1(c) to Form S-6) } *
</TABLE>
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*Inapplicable, answer negative or not required.
VOYAGEUR TAX-EXEMPT TRUST, SERIES 7
ARIZONA INSURED SERIES 2
NATIONAL INSURED SERIES 2
OREGON INSURED SERIES 4
TERRITORIAL SERIES 4
THE FUND. Voyageur Tax-Exempt Trust, Series 7 (the "Fund") consists of
the underlying separate unit investment trusts set forth above. The various
trusts are collectively referred to herein as the "Trusts." Territorial Series 4
and National Insured Series 2 are collectively referred to herein as the
"National Trusts" while Arizona Insured Series 2 and Oregon Insured Series 4 are
collectively referred to herein as the "State Trusts." National Insured Series
2, Arizona Insured Series 2 and Oregon Insured Series 4 are referred to herein
as the "Insured Trusts." Because none of the Bonds in Territorial Series 4 are
insured, Territorial Series 4 is not an insured Trust. 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 State Trust
is, in the opinion of counsel, exempt to the extent indicated from state and
local taxes when held by residents of the state where the issuers of Bonds in
such Trust are located. Investors should consult their tax advisers to determine
the extent to which such interest income is exempt from taxation in their state
of residence. Capital gains, if any, are subject to Federal and state tax. All
Bonds in the Insured Trusts have insurance guaranteeing the payments of
principal and interest, when due, or are escrowed to maturity. All such
insurance remains effective so long as the Bonds are outstanding. IT SHOULD BE
NOTED THAT THE INSURANCE RELATES ONLY TO THE BONDS IN AN INSURED TRUST AND NOT
TO THE UNITS OFFERED HEREBY OR TO THE MARKET VALUE THEREOF. As a result of such
insurance or escrow, the Bonds of each Insured Trust are rated "AAA" by Standard
& Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc.
("Standard & Poor's") and/or "Aaa" by Moody's Investors Service, Inc.
("Moody's"). Both Standard & Poor's and Moody's have indicated that their
respective rating is not a recommendation to buy, hold or sell Units nor does it
take into account the extent to which expenses of 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 in the Insured Trusts". No representation is made as to
any insurer's ability to meet its commitments. NO INSURANCE POLICY HAS BEEN
OBTAINED FOR ANY OF THE BONDS IN THE TRUST WITH THE NAME DESIGNATION OF
TERRITORIAL SERIES 4. Certain of the Bonds in certain of the Trusts may have
been acquired at prices which resulted in such Bonds being purchased at a
discount from the aggregate par value of such Bonds. Gains based upon the
difference, if any, between the value of such Bonds at maturity, redemption or
sale and their purchase price at a discount (plus earned original issue
discount) may constitute taxable ordinary income with respect to a Unitholder
who is not a dealer with respect to his Units.
INVESTMENT OBJECTIVES OF THE FUND. The objectives of the Fund are
income exempt from Federal income tax and, in the case of a State Trust, Federal
and state income tax (if any) and conservation of capital through an investment
in diversified portfolios of Federal and state tax-exempt obligations. The 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 JULY 18, 1996
- 1 -
PUBLIC OFFERING PRICE. The Public Offering Price of the Units of each
Trust during the initial offering period is equal to the aggregate offering
price of the Bonds in such Trust's portfolio and cash, if any, in the Principal
Account held or owned by such Trust divided by the number of Units outstanding,
plus the applicable sales charge and accrued interest, if any. For sales charges
in the secondary market, see "Public Offering--General." If the Bonds in each
Trust were available for direct purchase by investors, the purchase price of the
Bonds would not include the sales charge included in the Public Offering Price
of the Units. During the initial offering period, the sales charge is reduced on
a graduated scale for sales involving $100,000 or more. If Units were available
for purchase at the opening of business on the Initial Date of Deposit, the
Public Offering Price per Unit would have been that amount set forth in the
"Summary of Essential Financial Information." See "Public Offering."
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN. The Estimated
Current Return and Estimated Long-Term Return to Unitholders are as set forth
under "Summary of Essential Financial Information." The methods of calculating
Estimated Current Return and Estimated Long-Term Return are set forth 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."
- 2 -
VOYAGEUR TAX-EXEMPT TRUST, SERIES 7
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AS OF THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT: JULY 18, 1996
SPONSOR AND EVALUATOR: VOYAGEUR FUND MANAGERS, INC.
DISTRIBUTOR: VOYAGEUR FUND DISTRIBUTORS, INC.
TRUSTEE: INVESTORS FIDUCIARY TRUST COMPANY
<TABLE>
<CAPTION>
Arizona National Oregon
Insured Insured Insured Territorial
Series 2 Series 2 Series 4 Series 4
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Principal Amount (Par Value) of Bonds........................ $2,065,000 $2,840,000 $1,985,000 $2,250,000
Number of Units.............................................. 213,221 293,633 204,675 229,627
Fractional Undivided Interest in the Trust per Unit.......... 1/213,221 1/293,633 1/204,675 1/229,627
Principal Amount (Par Value) of Bonds per Unit (1)........... $9.685 $9.672 $9.698 $9.798
Public Offering Price: Aggregate Offering Price of
Bonds in Portfolio...................................... $2,027,732 $2,792,450 $1,946,460 $2,183,753
Aggregate Offering Price of Bonds per Unit................... $9.51 $9.51 $9.51 $9.51
Sales Charge 4.9% (5.152% of the Aggregate Offering
Price of the Bonds) per Unit(2).......................... $0.49 $0.49 $0.49 $0.49
Public Offering Price per Unit(2)(3)......................... $10.00 $10.00 $10.00 $10.00
Redemption Price per Unit(3)(4).............................. $9.44 $9.44 $9.44 $9.44
Sponsor's Initial Repurchase Price per Unit.................. $9.51 $9.51 $9.51 $9.51
Excess of Public Offering Price per Unit Over
Redemption Price per Unit................................ $0.56 $0.56 $0.56 $0.56
Excess of Sponsor's Initial Repurchase Price per Unit
Over Redemption Price per Unit........................... $0.07 $0.07 $0.07 $0.07
Minimum Value of the Trust under which Trust
Agreement may be terminated.............................. $413,000 $568,000 $397,000 $450,000
Minimum Principal Distribution.................$0.10 per Unit
First Settlement Date.......................... July 23, 1996
Mandatory Termination Date..................December 31, 2045
Calculation of Estimated Net Annual Unit Income(5):
Estimated Annual Interest Income per Unit................ $0.53847 $0.56368 $0.53797 $0.56640
Less: Estimated Annual Expense per Unit.................. $0.02071 $0.02274 $0.02915 $0.02573
Estimated Net Annual Interest Income per Unit............ $0.51776 $0.54094 $0.50882 $0.54067
Estimated Normal Monthly Distribution per Unit(6)............ $0.04315 $0.04508 $0.04240 $0.04506
Estimated Daily Rate of Net Interest Accrual per Unit........ $0.00144 $0.00150 $0.00141 $0.00150
Estimated Current Return Based on Public Offering
Price(2)(6)(7)........................................... 5.18% 5.41% 5.09% 5.41%
Estimated Long-Term Return(2)(6)(7).......................... 5.14% 5.42% 5.06% 5.42%
Initial Distribution (August 15, 1996)....................... $0.01151 $0.01202 $0.01131 $0.01201
Trustee's Initial Annual Fee per $1,000 Principal
Amount of Bonds(5)....................................... $1.45 $1.48 $1.44 $1.47
Evaluator's Annual Fee per Unit.............................. $0.00250 $0.00250 $0.00250 $0.00250
Sponsor's Annual Fee per Unit................................ $0.00300 $0.00300 $0.00300 $0.00300
Estimated Organizational and Offering Expenses per Unit (8) $0.02360 $0.07124 $0.02339 $0.04441
Record Dates..........................First day of each month
Distribution Dates................Fifteenth day of each month
</TABLE>
0 - 3 -
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) Because certain of the Securities in certain Trusts may from time to time
under certain circumstances be sold or redeemed or will be called or mature
in accordance with their terms, there is no guarantee that the value of
each Unit at the respective Trusts' termination will be equal to the
Principal Amount (Par Value) of Securities per Unit stated above.
(2) The sales charge is decreased and the Estimated Current Return and
Estimated Long-Term Return are increased for transactions entitled to a
reduced sales charge. See "Public Offering--General."
(3) Anyone ordering Units for settlement after the First Settlement Date will
pay accrued interest from such date to the date of settlement (normally
three business days after order) less distributions from the Interest
Account subsequent to the First Settlement Date. For purchases settling on
the First Settlement Date, no accrued interest will be added to the Public
Offering Price. After the initial offering period, the Sponsor's Repurchase
Price per Unit will be determined as described under the caption "Public
Offering--Public Market."
(4) See "Rights of Unitholders--Redemption of Units."
(5) During the first year the Trustee will reduce its fee in the Arizona,
National and Territorial Trusts by approximately $.00820, $.00438, and
$.00300, respectively, per Unit (which amount is the estimated interest to
be earned per Unit prior to the expected delivery dates for the "when, as
and if issued" Bonds included in such Trust). Should such estimated
interest exceed such amount, the Trustee will reduce its fee up to its
annual fee. After the first year, the Trustee's fee will be that amount
indicated above; Estimated Annual Interest Income per Unit will be
increased to $0.54667, $0.56806, and $0.56940, respectively; Estimated
Annual Expense per Unit will be increased to $0.02891, $0.02712 and
$0.02873, respectively; and Estimated Net Annual Interest Income per Unit
will remain the same as shown. See "Estimated Current Return and Estimated
Long-Term Return."
(6) 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.
(7) 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 a
compounding factor and the expenses and sales charge associated with each
Trust Unit. Since the market values and estimated retirements of the Bonds
and the expenses of a Trust will change, there is no assurance that the
present Estimated Long-Term 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.
(8) Each Trust (and therefore the Unitholders of the respective Trust) will
bear all or a portion of its organizational and offering costs (including
costs of preparing the registration statement, the trust indenture and
other closing documents, registering Units with the Securities and Exchange
Commission and states, the initial audit of the Trust portfolios and the
initial fees and expenses of the Trustee but not including the expenses
incurred in the preparation and printing of brochures and other advertising
materials and any other selling expenses) as is common for mutual funds.
Total organizational and offering expenses will be charged off against
principal at the end of the initial offering period which is currently
expected to be approximately 2-3 months from the Initial Date of Deposit.
In so doing, the Sponsor may have to sell Securities from the Trusts. The
sale of Securities will serve to reduce the Principal Amount (Par Value)
- 4 -
of Securities per Unit stated above. See 'Trust Operating Expenses" and
"Statements of Net Assets." Historically, the sponsors of unit investment
trusts have paid all of the costs of establishing such trusts.
THE FUND
GENERAL. 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 State
Trust are located in the State for which such Trust is named or in United States
territories or possessions and their public authorities; consequently, in the
opinion of counsel, the related interest earned on such Bonds is exempt to the
extent indicated from state and local taxes of such State or territory. In
addition, in the case of the National Trusts, interest income may also be exempt
from certain state and local taxes for residents of various states. Illinois,
Indiana, Virginia and Washington residents may only purchase Units of National
Insured Series 2 and Territorial Series 4 by this Prospectus. On the Initial
Date of Deposit, the Sponsor deposited with the Trustee the Bonds indicated
under the "Schedule of Investments" for each Trust herein, including delivery
statements relating to contracts for the purchase of certain such obligations
and an irrevocable letter of credit issued by a financial institution in the
aggregate amount required for such purchases (the "Bonds"). Thereafter, the
Trustee, in exchange for the Bonds so deposited, delivered to the Sponsor
evidences of ownership of the number of Units of each Trust as indicated under
"Summary of Essential Financial Information."
With the deposit of the Bonds on the Initial Date of Deposit, the
Sponsor established a percentage relationship between the amounts of Bonds in
each Trust's portfolio. From time to time following the Initial Date of Deposit,
the Sponsor, pursuant to the Trust Agreement, may deposit additional Bonds in a
Trust and Units may be continuously offered for sale to the public by means of
this Prospectus, resulting in a potential increase in the outstanding number of
Units of a Trust. Any additional Bonds deposited in a Trust will maintain, as
nearly as is practicable, the original proportionate relationship of the Bonds
in a Trust's portfolio. Since the prices of the underlying Bonds will fluctuate
daily, the ratio, on a market value basis, will also change daily. The portion
of Bonds represented by each Unit will not change as a result of the deposit of
additional Bonds in a Trust.
Certain of the Bonds in certain of the Trusts may have been purchased
on a "when, as and if issued" or "delayed delivery" basis. See footnote (1) in
"The Trusts--Notes to Schedules of Investments." The delivery of any such Bonds
may be delayed or may not occur. Interest on these Bonds begins accruing to the
benefit of Unitholders on their respective dates of delivery. To the
- 5 -
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 at least "AAA" by Standard & Poor's and/or "Aaa"
by Moody's in the case of an Insured Trust and at least BBB by Standard & Poor's
and/or Baa by Moody's in the case of any uninsured Trust; and (vi) be insured by
one of the
- 6 -
Insurers if such Bonds are purchased for an Insured Trust. Whenever a
Replacement Bond has been acquired for a Trust, the Trustee shall, within five
days thereafter, notify all Unitholders of such Trust of the acquisition of the
Replacement Bond and shall, on the next monthly distribution date which is more
than 30 days thereafter, make a pro rata distribution of the amount, if any, by
which the cost to the affected Trust of the Failed Bond exceeded the cost of the
Replacement Bond plus accrued interest. Once the original corpus of a Trust is
acquired, the Trustee will have no power to vary the investment of the Trust;
i.e., the Trust will have no managerial power to take advantage of market
variations to improve a Unitholder's investment.
If the right of limited substitution described in the preceding
paragraph shall not be utilized to acquire Replacement Bonds in the event of a
failed contract, the Sponsor will refund the sales charge attributable to such
Failed Bonds to all Unitholders of the affected Trust and distribute the
principal and accrued interest (at the coupon rate of such Failed Bonds to the
date the Failed Bonds are removed from the Trust) attributable to such Failed
Bonds not later than the next Distribution Date following such removal or such
earlier time as the Trustee in its sole discretion deems to be in the interest
of the Unitholders. In the event a Replacement Bond should not be acquired by a
Trust, the estimated net annual interest income per Unit for the Trust would be
reduced and the Estimated Current Return and the Estimated Long-Term Return
thereon might be lowered. In addition, Unitholders should be aware that they may
not be able at the time of receipt of such principal to reinvest such proceeds
in other securities at a yield equal to or in excess of the yield which such
proceeds were earning to Unitholders in the affected Trust.
INVESTMENT OBJECTIVES AND PORTFOLIO SELECTION
The objectives of the Fund are to gain interest income exempt from
Federal income tax and, in the case of a State Trust, 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 Insured Trust has been obtained by the issuer
of such Bonds, by a prior owner of such Bonds or by the Sponsor prior to the
deposit of such Bonds in such Trust from one of several insurance companies (the
"Insurers"). Certain Bonds may be escrowed to maturity. No representation is
made as to any Insurer's ability to meet its commitments. All Bonds insured by
an Insurer receive a "AAA" rating by Standard & Poor's and a "Aaa" rating by
Moody's. None of the Bonds in Territorial Series 4 are insured. All Bonds
selected for an uninsured Trust were rated in no case less than BBB by Standard
& Poor's or Baa by Moody's. See "Description of Bond Ratings." NO PORTFOLIO
INSURANCE POLICY HAS BEEN OBTAINED BY THE SPONSOR FOR BONDS CONTAINED IN
TERRITORIAL SERIES 4.
- 7 -
In selecting Bonds for the Trusts the following factors, among others,
were considered by the Sponsor: (i) either the Standard & Poor's rating of the
securities was in no case less than AAA in the case of the Insured Trusts and
BBB in the case of the uninsured Trusts, or the Moody's rating of the Securities
was in no case less than Aaa in the case of the Insured Trusts and Baa in the
case of the uninsured Trusts, including provisional or conditional ratings,
respectively, or, if not rated, the Securities had, in the opinion of the
Sponsor, credit characteristics sufficiently similar to the credit
characteristics of interest-bearing tax-exempt obligations that were so rated as
to be acceptable for acquisition by th e Fund, (ii) whether the Bonds are
insured by an Insurer in the case of an Insured Trust, (iii) the prices of the
Bonds relative to other bonds of comparable quality and maturity and (iv) the
diversification of Bonds as to purpose of issue and location of issuer, (v) with
respect to the Insured Trusts, the availability and cost of insurance for the
prompt payment of principal and interest, when due, on the Bonds. Subsequent to
the Initial Date of Deposit, a Bond may cease to be rated or its rating may be
reduced below either the applicable Standard & Poor's or Moody's ratings set
forth above or both. Neither event requires elimination of such Bonds from the
portfolio of a Trust but may be considered in the Sponsor's determination as to
whether or not to direct the Trustee to dispose of the Bonds, see "Trust
Administration-- Portfolio Administration."
To the best knowledge of the Sponsor, there is no litigation pending as
of the Initial Date of Deposit in respect of any Bonds which might reasonably be
expected to have a material adverse effect upon the Fund or any of the Trusts.
At any time after the Initial Date of Deposit, litigation may be initiated on a
variety of grounds with respect to Bonds in the Fund. Such litigation, as, for
example, suits challenging the issuance of pollution control revenue bonds under
environmental protection statutes, may affect the validity of such Bonds or the
tax-free nature of the interest thereon. 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 2
GENERAL. Arizona Insured Series 2 (the "Arizona Trust") consists of
issues of 7 Bonds. Five of the Bonds in the Arizona Trust are general
obligations (63.7%) 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 Arizona Trust) as follows: 24.2% Education Revenue
Bonds and 12.1% Other Revenue Bonds. No Bond has received a provisional rating.
For a general description of certain of the risks associated with the Bonds, see
"Risk Factors" below.
- 8 -
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/ employment 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%. This compares favorably with a national rate of 6.3% in 1994 and 6.8% in
1993.
BUDGETARY PROCESS. Arizona 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 and Special Revenue Funds of over $6.35 billion were
expected during fiscal year 1994. 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 the 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 $6.3 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 revenues
for fiscal year 1995 are budgeted at approximately $4.7 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 of 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.C. DIANNE BISHOP, ET AL
(the "ROOSEVELT OPINION"). In this
- 9 -
opinion, the Arizona Supreme Court held that the present statutory financing
scheme for publiceducation 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 an
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 increases 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 requirements, through managed care programs.
In fiscal year 1994, AHCCCS was financed approximately 60% by federal funds, 29%
by state funds, and 11% by county funds.
Under state law, hospitals retain the authority to raise rates 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 during the past
three 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 operating 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 serves
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.
- 10 -
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 1993-94. A combination of tax refunds and tax credits
will be used to satisfy this liability.
The foregoing information constitutes only a brief summary of some of
the general factors which may impact certain issuers of Bonds and does not
purport to be a complete or exhaustive description of all adverse conditions to
which the issuers of Bonds held by the Arizona Trusts are subject. Additionally,
many factors including national economic, social and environmental policies and
conditions, which are not within the control of the issuers of the Bonds, could
affect or could have an adverse impact on the financial condition of the
issuers. The Sponsor is unable to predict whether or to what extent such factors
or other factors may affect the issuers of the Bonds, the market value or
marketability of the Bonds or the ability of the respective issuers of the Bonds
acquired by the Arizona Trusts to pay interest on or principal of the Bonds.
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
- 11 -
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 Bonds 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 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.
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.
Chapman and Cutler has expressed no opinion with respect to taxation
under any other provision of Arizona law. Ownership of the Units may result in
collateral Arizona tax consequences to certain taxpayers. Prospective investors
should consult their tax advisors as to the applicability of any such collateral
consequences.
ARIZONA INSURED SERIES 2
SCHEDULE OF INVESTMENTS
AS OF THE OPENING OF BUSINESS ON THE INITIAL
DATE OF DEPOSIT: JULY 18, 1996
<TABLE>
<CAPTION>
Name of Issuer, Title, Interest Rate and Offering Price
Aggregate Maturity Date of either Bonds Deposited Redemption to Arizona
Principal (1) or Bonds Contracted for (1)(5) Rating (2) Feature (3) Trust (4)
- ------------- ----------------------------------------------- ---------- ----------- -------------
<C> <C> <C> <C> <C>
$ 250,000 Town of Oro Valley, Municipal Property AAA 2008 @ 101 $235,312
Corporation, Municipal Water System 2020 @ 100 S.F.
Acquisition Bonds, Series 1996 (MBIA
Insured), 5.375% Due 7/1/2026#
500,000 Lake Havasu Unified School District No. 1 of AAA 2006 @ 101 506,250
Mohave County, Arizona, School
Improvement Bonds, Project of 1996, Series
A, (FGIC Insured), 5.90% Due 7/1/2015#
300,000 Madison Elementary School District No. 38 AAA 2006 @ 101 303,000
of Maricopa County, Arizona, School
Improvement Bonds, Project of 1995, Series
B, (MBIA Insured), 5.80% Due 7/1/2015#
- 12 -
200,000 Blue Ridge Unified School District No. 32 of AAA 202,000
Navajo County, Arizona, School
Improvement Bonds, (Projects of 1994),
Series 1996, (FGIC Insured), 5.80% Due
7/1/2014#
250,000 Apache Junction Unified School District No. AAA 2006 @ 101 252,500
43 of Pinal County, Arizona, School 2012 @ 100 S.F.
Improvement Bonds, Project of 1996, Series
A, (FGIC Insured), 5.85% Due 7/1/2015#
500,000 The Industrial Development Authority of The AAA 2006 @ 102 503,750
City of Glendale, Arizona Revenue Bonds,
Midwestern University, Series 1996A,
(ConnieLee Insured), 6.00% Due
5/15/2026#**
65,000 City of Tucson, Arizona, General Obligation AAA 24,920
Capital Appreciation Refunding Bonds, Zero
__________ Coupon Bond, Series 1993, (FGIC Insured), ________
0% Due 7/1/2013#(6)
$2,065,000 $2,027,732
</TABLE>
For an explanation of the footnotes used on this page, see "Notes to Schedules
of Investments" on page 22.
NATIONAL INSURED SERIES 2
GENERAL. National Insured Series 2 (the "National Trust") consists of
issues of 7 Bonds issued by entities located in 5 states and the District of
Columbia. Two of the Bonds in the National Trust are general obligations (26.4%)
of the governmental entities issuing them and are backed by the taxing power
thereof. The issues are payable from the income of a specific project or
authority and are not supported by the issuer's power to levy taxes. These
issues are divided by purpose of issues (and percentage of principal amount to
total National Trust) as follows: 17.6% Water and Sewer Revenue Bonds; 8.8%
Education Revenue Bonds; and 47.2% Health Care Revenue Bonds. No Bond has
received a provisional rating. Two of the Bonds in the National Trust (35.3%)
are Bonds of issuers located in the state of Illinois. For a general description
of certain of the risks associated with the Bonds, see "Risk Factors" below.
FEDERAL TAXATION. For a discussion of the Federal tax status of income
earned on National Trust Units, see "Tax Status."
- 13 -
NATIONAL INSURED SERIES 2
SCHEDULE OF INVESTMENTS
AS OF THE OPENING OF BUSINESS ON THE INITIAL
DATE OF DEPOSIT: JULY 18, 1996
<TABLE>
<CAPTION>
Name of Issuer, Title, Interest Rate and Offering Price
Aggregate Maturity Date of either Bonds Deposited Redemption to National
Principal (1) or Bonds Contracted for (1)(5) Rating (2) Feature (3) Trust (4)
- ------------- --------------------------------------------------------- ----------- -------------
<C> <C> <C> <C> <C>
$ 500,000 Illinois Health Facilities Authority, AAA 2006 @ 102 $493,750
Revenue Bonds, Series 1996, Silver Cross 2017 @ 100 S.F.
Hospital, (MBIA Insured), 6.00% Due
8/15/2026#
500,000 Chicago School Reform Board of Trustees AAA 2006 @ 102 500,625
of the Board of Education of the City of 2020 @ 100 S.F.
Chicago, Illinois, Unlimited Tax General
Obligation Bonds, Series 1996, (MBIA
Insured), 6.00% Due 12/1/2026#
340,000 District of Columbia Hospital Revenue AAA 2006 @ 102 326,825
and Refunding Bonds, Medlantic 2020 @ 100 S.F.
Healthcare Group, Inc. Issue, Series
1996A, (MBIA Insured), 5.75% Due
8/15/2026#
250,000 Mckeesport Area School District, AAA 2006 @ 100 250,937
Allegheny County, Pennsylvania, General 2019 @ 100 S.F.
Obligation Bonds, Series of 1996A, (FSA
Insured), 6.00% Due 10/1/2025#**
500,000 Kitsap County, Washington, Sewer AAA 2006 @ 100 493,750
Revenue Bonds, Series 1996, (MBIA
Insured), 5.75% Due 7/1/2016#**
250,000 Palmdale Elementary School District, Los AAA 2005 @ 102 232,813
Angeles County, California, Community 2015 @ 100 S.F.
Facilities District No. 90-1, Special Tax
Bonds, Series 1995, (FSA Insured), 5.40%
Due 8/1/2025#
500,000 New Hampshire Higher Educational and AAA 2006 @ 102 493,750
Health Facilities Authority Hospital
Revenue Bonds, Concord Hospital Issue,
Series 1996, (AMBAC Insured), 6.00%
__________ Due 10/1/2026#** __________
$2,840,000 $2,792,450
</TABLE>
For an explanation of the footnotes used on this page, see "Notes to Schedules
of Investments" on page 22.
- 14 -
OREGON INSURED SERIES 4
GENERAL. The Oregon Trust consists of 7 issues of Bonds, 6 of which are
from issuers in the State of Oregon and 1 from an issuer in the Commonwealth of
Puerto Rico. Three of the Bonds in the Oregon Trust are general obligations
(55.7%) 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 Oregon Trust) as follows: 2.0% Education Revenue Bonds, 22.7%
Certificates of Participation, 12.6% Water and Sewer Revenue and 7.0%
Transportation 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 OREGON. Oregon's economy has outperformed the
nation's economy in recent years. In every year since 1986, Oregon's employment
growth has outstripped the nation's. Between 1987 and 1994, Oregon employment
increased by 23.9% while U.S. employment grew by 11.2%. From 1990 to 1991, total
employment remained relatively flat and the unemployment rate increased in
Oregon, largely the result of rapid immigration. In 1992 employment resumed its
upward trend, growing a healthy 4.0% in 1995.
With growth has come diversification. Oregon's economy has become less
dependent on the forest products industry and expanded its involvement in high
technology industries. By 1995, 12,500 fewer Oregonians worked in lumber and
wood products manufacturing than had in 1986. Over the same period, employment
in the high technology sectors of electrical and non-electrical machinery
increased by 7,000 jobs. Oregon's other basic industries, agriculture and
tourism, continue to provide strong, diversified support for the State's
economy.
Most of the recent job gains in Oregon have come from non-manufacturing
sectors. Since 1986, Oregon non-manufacturing employment has increased by 38%,
led by trade (up 32%), services (up 58%) and construction (up 97%). The
non-manufacturing sectors now provide approximately 84% of the jobs in Oregon.
Much of the growth in the Oregon non-manufacturing sectors can be
traced to population growth. Oregon's quality of life and low housing costs have
always encouraged in-migration. The State's rapid job growth since 1987 provided
the impetus to push Oregon's population growth rate above the nation's. This
growth, in turn, caused Oregon housing starts to increase in 1988, 1989 and
1990, even as U.S. housing starts declined. In 1990, Oregon housing starts
increased 1%, compared to a national decline of 12.9%. In 1991, Oregon housing
starts declined by 5,000 units, although overall construction activity remained
stable as evidenced by virtually unchanged construction employment data. In 1992
there was a significant increase in single family construction and the pace has
quickened to a 20% increase in 1994 over the previous year.
Positive developments in employment, population growth and housing have
resulted in Oregon's per capita personal income increasing to a current 94% of
the national average, up from a 1988 low of 91% of the U.S. average.
- 15 -
Year over year job growth was 4.3% in 1994 and 4.0% in 1995. Growth has
been broad based, led by the expanding semi-conductor industry and service
sector, making Oregon one of the fastest growing states in the country.
Oregon's low energy costs, excellent water quality and excellent
business climate have attracted over $10 billion in announced investment in
silicon wafer construction and computer equipment manufacturing. Oregon remains
the nation's top producer of wood products, despite a protracted decline in the
lumber and wood products sector as Federal logging restrictions limited the
supply of timber. Employment losses in this sector are decelerating as
adjustment to the new legal restrictions are completed. In late 1995, high
technology employment exceeded lumber, paper and wood products employment for
the first time.
The I-5 corridor is the site of booming industrial construction, while
residential construction also continues to show sustained strength, driven by
the state's rapid population growth. With such vigorous activity, rapid
appreciation in residential prices and land use issues are increasing interest
in a statewide coordinated planning effort to balance growth and quality of
life.
Oregon's economy maintained its momentum through the end of 1995.
Oregon remains one of the fastest growing states in the country. High technology
manufacturing and the service sector are the primary engines driving the state
economy. A surge in income tax withholding receipts during the final months of
1995 is indicative of significant end of the year bonuses paid to workers.
Despite the positive overall tone of the fourth quarter numbers, there were
definite signs of slowing in construction and manufacturing outside the
electronics industry.
The Oregon economy appears to have ample momentum to continue growing
through 1997, though the pace is likely to be slower than the previous two-year
period. Expansion of the state's semi-conductor industry and its suppliers will
likely remain the key engine driving growth in the state. Rising wages and a
continuing flow of new residents is expected to generate jobs in the state's
service and trade sectors. The primary factors likely to slow growth over the
next two years are dwindling supply of skilled labor and rising housing costs.
Oregon's income, employment and population are expected to increase
faster than the country as a whole, as they have since 1987. Personal income is
projected to increase 6.1% in 1996 and 5.8% in 1997. After adjustment for
inflation, personal income is forecast to rise 3.9% in 1996 and 3.4% in 1997.
Job growth is expected to slow from 4.3% in both 1994 and 1995 to 3.2% in 1996
and 2.5% in 1997. The state's population is projected to grow by 114,000 over
the next two years.
Oregon has successfully restructured from an economy highly dependent
on the timber industry to one in which high technology manufacturing and
services also play a prominent role. The fundamentals appear to be in place for
the state to continue growing faster than the overall U.S. economy through 2001.
Despite the generally favorable long-term outlook, rising housing and labor
costs are expected to begin pushing the state's growth rate back toward the
national average. Moreover, the state's growing dependence on the semi-conductor
industry is likely to lead to some
- 16 -
unstable conditions as the industry expands and contracts in response to
national and international pressures.
The March forecast for 1995-97 General Fund revenue is $7,089.2
million, an increase of $54.2 million from the December estimate and $127.7
million or 1.8% from the 1995 Close of Legislative Session (COS) forecast. The
beginning balance is now estimated to be $496.3 million leaving total General
Fund resources available for the 1995-97 biennium of $7,585.6 million. The
General Fund resources estimate is $140.8 million higher than the COS estimate.
The key changes in the current forecast are: $45.0 million increase in the
personal income tax, $8.1 million increase in the corporate income tax, and $2.0
million increase in the cigarette tax.
In its 1995 Regular Session, the Oregon Legislative Assembly approved
General Fund appropriations totaling $7,372.6 million for the 1995-97 biennium.
This is a 15.2% increase compared to estimated 1993-95 expenditures.
General Fund revenue is projected to be $8,065.5 million for the
1995-97 biennium. The beginning balance for the biennium is estimated to be
$161.6 million. This leads to a total General Fund resource estimate of $8,227.1
million. The March 1997-99 General Fund revenue estimate is $97.2 million higher
than the December forecast. The key reasons for the higher forecast are a
reduced estimate for the corporate kicker credit due to legislative actions and
a higher personal income withholding receipts estimate.
The foregoing information constitutes only a brief summary of some of
the financial difficulties which may impact certain issuers of Bonds and does
not purport to be a complete or exhaustive description of all adverse conditions
to which the issuers in the Oregon Trust are subject. Additionally, many factors
including national economic, social and environmental policies and conditions,
which are not within the control of the issuers of Bonds, could affect or could
have an adverse impact on the financial condition of the State and various
agencies and political subdivisions located in the State. The Sponsor is unable
to predict whether or to what extent such factors or other factors may affect
the issuers of Bonds, the market value or marketability of the Bonds or the
ability of the respective issuers of the Bonds acquired by the Oregon Trust to
pay interest on or principal of the Bonds.
STATE TAXATION. For a discussion of the Federal tax status of income
earned on Oregon Trust Units, see "Tax Status."
The assets of the Oregon Trust will consist of interest-bearing
obligations issued by or on behalf of the State of Oregon (the "State") or
counties, municipalities, authorities or political subdivisions thereof (the
"Oregon Bonds") or by the Commonwealth of Puerto Rico, Guam and the United
States Virgin islands (the "Possession Bonds") (collectively, the "Bonds").
Neither the Sponsor nor its counsel have independently examined the Bonds to be
deposited in and held in the Oregon 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 excludable from gross income for
Federal income tax purposes; and (iii) interest on the Bonds, if received
directly by an
- 17 -
Oregon Unitholder, would be exempt from the Oregon income tax applicable to
individuals (the "Oregon Personal Income Tax").
In the opinion of Chapman and Cutler, counsel to the Sponsor, under
existing Oregon law and based on the assumptions set forth above:
1. The Oregon Trust is not an association taxable as a corporation
and based upon an administrative rule of the Oregon State Department of
Revenue, each Oregon Unitholder of the Oregon Trust will be essentially
treated as the owner of a pro rata portion of the Oregon Trust and the
income of such portion of the Oregon Trust will be treated as the
income of the Oregon Unitholder for Oregon Personal Income Tax
purposes;
2. Interest on the Bonds which is exempt from the Oregon Personal
Income Tax when received by the Oregon Trust, and which would be exempt
from the Oregon Personal Income Tax if received directly by an Oregon
Unitholder, will retain its status as exempt from such tax when
received by the Oregon Trust and distributed to an Oregon Unitholder;
3. To the extent that interest derived from the Oregon Trust by an
Oregon Unitholder with respect to the Possession Bonds is excludable
from gross income for Federal income tax purposes and is exempt from
state tax 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 the
Oregon Personal Income Tax. Each Oregon Unitholder of the Oregon Trust
will recognize gain or loss for Oregon Personal Income Tax purposes if
the Trustee disposes of a bond (whether by redemption, sale or
otherwise) or if the Oregon Unitholder redeems or sells Units of the
Oregon Trust to the extent that such a transaction results in a
recognized gain or loss to such Oregon Unitholder for Federal income
tax purposes; and
4. The Oregon Personal Income Tax does not permit a deduction of
interest paid or incurred on indebtedness incurred or continued to
purchase or carry Units in the Oregon Trust, the interest on which is
exempt from such Tax.
Investors should consult their tax advisers regarding collateral tax
consequences under Oregon law relating to the ownership of the Units, including,
but not limited to, the calculation of "net pension income" tax credits for
retirees and the applicability of other Oregon taxes.
Chapman and Cutler has not examined any of the Bonds to be deposited
and held in the Oregon Trust or the proceedings for the issuance thereof or the
opinions of bond counsel with respect thereto and therefore it expresses no
opinion as to the exemption from the Oregon Personal Income Tax of interest on
the Bonds if received directly by an Oregon Unitholder. In addition, prospective
purchasers subject to the Oregon corporate income tax should be advised that for
purposes of the Oregon Corporate Income (Excise) Tax, interest on the Oregon
Bonds received by the Oregon Trust and distributed to an Oregon Unitholder
subject to such tax will be added to the corporate Oregon Unitholder's Federal
taxable income and therefore will be taxable. No opinion is expressed as to the
treatment of interest on any Possession Bonds included in the Oregon Trust
- 18 -
for purposes of the Oregon Corporate Income (Excise) Tax. No opinion is
expressed regarding the Oregon taxation of foreign or domestic insurance
companies.
Chapman and Cutler has expressed no opinion with respect to taxation
under any other provision of Oregon law. Ownership of the Units may result in
collateral Oregon tax consequences for certain taxpayers. Prospective investors
should consult their tax advisors as to the applicability of any such collateral
consequences.
OREGON INSURED SERIES 4
SCHEDULE OF INVESTMENTS
AS OF THE OPENING OF BUSINESS ON THE INITIAL
DATE OF DEPOSIT: JULY 18, 1996
<TABLE>
<CAPTION>
Name of Issuer, Title, Interest Rate and Offering Price
Aggregate Maturity Date of either Bonds Deposited Redemption to Oregon
Principal (1) or Bonds Contracted for (1)(5) Rating (2) Feature (3) Trust (4)
------------- -------------------------------- ---------- ----------- ----------
<C> <C> <C> <C> <C>
$ 250,000 City of Pendleton, Umatilla County, Oregon, AAA 2006 @ 100 $251,875
General Obligation Facility Bonds, Series 1996 2015 @ 100 S.F.
(Bank Qualified), (FGIC Insured) 5.75% Due
1/1/2016#
250,000 City of Salem, Oregon, Water & Sewer Revenue AAA 2006 @ 100 245,312
Bonds, Series 1996 (MBIA Insured), 5.50% Due 2013 @ 100 S.F.
6/1/2014#
450,000 State of Oregon, Department of Administrative AAA 2005 @ 101 437,060
Services, Certificates of Participation, 1995 Series 2017 @ 100 S.F.
A, (MBIA Insured), 5.50% Due 11/1/2020#
140,000 Tri County Metropolitan Transportation District of AAA 2003 @ 102 128,450
Oregon, Revenue Bonds, (Limited Tax Pledge), 2015 @ 100 S.F.
1995 Series A, (AMBAC Insured), 5.00% Due
8/1/2016#
355,000 City of Eugene, Oregon, General Obligation AAA 2006 @ 100 355,888
Public Safety Facilities Bonds, Series 1996 (FGIC 2014 @ 100 S.F.
Insured), 5.70% Due 6/1/2016#
500,000 State of Oregon, State Board of Higher Education, AAA 2006 @ 102 511,875
General Obligation Baccalaureate Bonds, 1996 2019 @ 100 S.F.
Series A, (FSA Insured), 6.00% Due 8/1/2026
40,000 University of Puerto Rico, University System AAA 16,000
Revenue Refunding Bonds, Zero Coupon Bond,
__________ Series N, (MBIA Insured), 0.00% Due 6/1/2013#(6) _________
$1,985,000 $1,946,460
</TABLE>
For an explanation of the footnotes used on this page, see "Notes to Schedules
of Investments" on page 22.
- 19 -
TERRITORIAL SERIES 4
GENERAL. Territorial Series 4 (the "Territorial Trust") consists
entirely of obligations of issuers located in Territories of the United States,
such as Puerto Rico, Guam and the Northern Marianna Islands. Specifically,
Territorial Series 4 consists of issues of 5 Bonds all issued by entities
located in the Commonwealth of Puerto Rico. Two of the Bonds in the Territorial
Trust are general obligations (44.5%) of the governmental entity 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 Territorial Trust) as follows: 22.2%
Utility Revenue Bonds; 11.1% Transportation Revenue Bonds and 22.2% Housing
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. None of the Bonds in the Territorial Trust are insured.
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.
- 20 -
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.
- 21 -
FEDERAL TAXATION. For a discussion of the Federal tax status of income
earned on Territorial Trust Units, see "Tax Status."
TERRITORIAL SERIES 4
SCHEDULE OF INVESTMENTS
AS OF THE OPENING OF BUSINESS ON THE INITIAL
DATE OF DEPOSIT: JULY 18, 1996
<TABLE>
<CAPTION>
Name of Issuer, Title, Interest Rate and Offering Price
Aggregate Maturity Date of either Bonds Deposited Redemption to Territorial
Principal (1) or Bonds Contracted for (1)(5) Rating (2) Feature (3) Trust (4)
------------- ----------------------------------------------- ---------- --------------- -------------
<C> <C> <C> <C> <C>
$ 500,000 Commonwealth of Puerto Rico, Public Baa 2006 @ 101.5 $ 458,126
Improvement Bonds of 1996, General 2018 @ 100 S.F.
Obligation Bonds, 5.40% Due 7/1/2025#
500,000 Puerto Rico Electric Power Authority, Power Baa 2004 @ 102 505,000
Revenue Refunding Bonds, Series U, 6.00% 2010 @ 100 S.F.
Due 7/1/2014#
250,000 Puerto Rico Highway and Transportation Baa 2006 @ 101.5 231,250
Authority, Highway Revenue Bonds, Series 2022 @ 100 S.F.
Y, 5.50% Due 7/1/2026#
500,000 Puerto Rico Public Buildings Authority, Baa 2003 @ 101.5 465,626
Public Education and Health Facilities 2017 @ 100 S.F.
Refunding Bonds, Series M, Guaranteed by
the Commonwealth of Puerto Rico, 5.50%
Due 7/1/2021#**
500,000 Commonwealth of Puerto Rico, Public Baa 2004 @ 101.5 523,751
Improvement Bonds of 1994, General 2018 @ 100 S.F.
__________ Obligation Bonds, 6.50% Due 7/1/2023 _________
$2,250,000 $2,183,753
</TABLE>
For an explanation of the footnotes used on this page, see "Notes to Schedules
of Investments" on page 22.
Notes to Schedules of Investments
As of the Opening of Business on the
Initial Date of Deposit: July 18, 1996
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 June 18, 1996 to July 17, 1996. These Bonds have expected settlement
dates from July 5, 1996 to August 14, 1996 (see "The Fund").
- 22 -
2. All ratings are by Standard & Poor's and/or Moody's. As a result of
the insurance related to each Bond in an Insured Trust, each Bond is rated "AAA"
by Standard & Poor's and/or "Aaa" by Moody's. See "Insurance on Bonds in the
Insured Trusts" and "Description of Bond Ratings."
3. There is shown under this heading the year in which each issue of
the Bonds is initially or currently callable and the call price for that year.
Each issue of the Bonds continues to be callable at declining prices thereafter
(but not below par value) except for original issue discount bonds which are
redeemable at prices based on the issue price plus the amount of original issue
discount accreted to redemption date plus, if applicable, some premium, the
amount of which will decline in subsequent years. "S.F." indicates a sinking
fund is established with respect to an issue of the Bonds. Redemption pursuant
to call provisions generally will, and redemption pursuant to sinking fund
provisions may, occur at times when the redeemed obligations have an offering
side valuation which represents a premium over par. Certain Bonds may be subject
to redemption without premium prior to the date shown pursuant to extraordinary
optional or mandatory redemptions if certain events occur. Notwithstanding any
provisions to the contrary, certain bond issuers have in the past, and others
may in the future, attempt to redeem bonds prior to their initially scheduled
call dates and at prices which do not include any premiums. For a general
discussion of certain of these events, see "Risk Factors--Redemptions of Bonds."
To the extent that the Bonds were deposited in a Trust at a price higher than
the price at which they are redeemed, this will represent a loss of capital when
compared with the original Public Offering Price of the Units. Conversely, to
the extent that the Bonds were acquired at a price lower than the redemption
price, this will represent an increase in capital when compared with the
original Public Offering Price of the Units. Distributions will generally be
reduced by the amount of the income which would otherwise have been paid with
respect to redeemed Bonds and there will be distributed to Unitholders the
principal amount and any premium received on such redemption. The Estimated
Current Return and Estimated Long-Term Return in this event may be affected by
such redemptions. For the Federal tax effect on Unitholders of such redemptions
and resultant distributions, see "Tax Status" and "Estimated Current Return and
Estimated Long-Term Return."
4. Evaluation of Bonds is made on the basis of current offering prices
for the Bonds. The offering prices are greater than the current bid prices of
the Bonds which is the basis on which Unit value is determined for purposes of
redemption of Units (see "Public Offering--Offering Price").
5. Other information regarding the Bonds in each Trust, as of the
opening of business on the Initial Date of Deposit, is as follows:
<TABLE>
<CAPTION>
Annual Bid Side
Cost to Profit (Loss) Interest Income Evaluation
Trust Sponsor to Sponsor to Trust of Bonds
----- ------- ---------- -------- --------
<S> <C> <C> <C> <C>
Arizona Insured Series 2 $1,998,415 $29,317 $116,563 $2,013,483
National Insured Series 2 $2,739,100 $53,350 $166,800 $2,771,979
Oregon Insured Series 4 $1,914,445 $32,015 $110,110 $1,933,153
Territorial Series 4 $2,156,138 $27,615 $130,750 $2,167,955
</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 .708%, .739%,
.688% and .729% for the Arizona, National, Oregon and Territorial Trusts,
respectively. Certain of the Bonds in the Arizona, National and Territorial
Trusts, respresenting 24.2%, 44.0% and 22.2% of the principal amount of the
Bonds, respectively, (marked by a double asterisk (**)) have been purchased on a
"when, as and if issued" basis. Interest on these Bonds begins accruing to the
benefit of Unitholders on their respective dates of delivery. Delivery is
expected to take place at various dates up to 22 days after the First Settlement
Date.
- 23 -
"#" indicates that such Bond was issued at either an original issue discount or
purchased at a market discount. The tax effect of Bonds issued at an original
issue discount or purchased at a market discount is described in "Tax Status."
6. This Bond has been purchased at a deep discount from the par value
because there is little or no stated interest income thereon. Bonds which pay no
interest are normally described as "zero coupon" bonds. Over the life of bonds
purchased at a deep discount the value of such bonds will increase such that
upon maturity the holders of such bonds will receive 100% of the principal
amount thereof. To the extent that zero coupon bonds are sold or called prior to
maturity, there is no guarantee that the value of the proceeds received
therefrom by the Trust will equal or exceed the par value that would have been
obtained at maturity of such zero coupon bonds.
EQUIVALENT TAXABLE ESTIMATED CURRENT RETURNS
As of the date of this Prospectus, the following table shows the
approximate taxable estimated current returns for individuals that are
equivalent to tax-exempt estimated current returns under combined Federal and
State (if applicable) taxes using the published Federal and State (if
applicable) tax rates scheduled to be in effect in 1996. 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 $117,950. 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- 24.00 $ 0- 40.10 18.0% 5.49% 6.10% 6.71% 7.32% 7.93% 8.54% 9.15%
40.10-96.90 31.0 6.52 7.25 7.97 8.70 9.42 10.14 10.87
24.00-58.15 31.7 6.59 7.32 8.05 8.78 9.52 10.25 10.98
58.15-121.30 96.90-147.70 34.6 6.88 7.65 8.41 9.17 9.94 10.70 11.47
147.70-263.75 39.3 7.41 8.24 9.06 9.88 10.71 11.53 12.36
121.30-263.75 39.6 7.45 8.28 9.11 9.93 10.76 11.59 12.42
Over 263.75 Over 263.75 43.0 7.89 8.77 9.65 10.53 11.40 12.28 13.16
- 24 -
National 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
---------------------------------------- -----------------------------------------------------------
$ 0- 24.00 $ 0- 40.10 15.0% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82%
24.00 - 58.15 40.10 - 96.90 28.0 6.25 6.94 7.64 8.33 9.03 9.72 10.42
58.15 - 121.30 96.90 - 147.70 31.0 6.52 7.25 7.97 8.70 9.42 10.14 10.87
121.30 - 263.75 147.70 - 263.75 36.0 7.03 7.81 8.59 9.38 10.16 10.94 11.72
Over 263.75 Over 263.75 39.6 7.45 8.28 9.11 9.93 10.76 11.59 12.42
Oregon 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
--------------------------------------- ------------------------------------------------------------
$ 0- 24.00 $ 0- 40.10 22.7% 5.82% 6.47% 7.12% 7.76% 8.41% 9.06% 9.70%
24.00 - 58.15 40.10 - 96.90 34.5 6.87 7.63 8.40 9.16 9.92 10.69 11.45
58.15 - 121.30 96.90 - 147.70 37.2 7.17 7.96 8.76 9.55 10.35 11.15 11.94
121.30 - 263.75 147.70 - 263.75 41.8 7.73 8.59 9.45 10.35 11.17 12.03 12.89
Over 263.75 Over 263.75 45.0 8.18 9.09 10.00 10.91 11.82 12.73 13.64
Territorial 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
-------------------------------------- ------------------------------------------------------------
$ 0 - 24.00 $ 0 - 40.10 15.0% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82%
24.00 - 58.15 40.10 - 96.90 28.0 6.25 6.94 7.64 8.33 9.03 9.72 10.42
58.15 - 121.30 96.90 - 147.70 31.0 6.52 7.25 7.97 8.70 9.42 10.14 10.87
121.30- 263.75 147.70 - 263.75 36.0 7.03 7.81 8.59 9.38 10.16 10.94 11.72
Over 263.75 Over 263.75 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.
- 25 -
INDEPENDENT AUDITORS' REPORT
TO THE SPONSOR, TRUSTEE AND THE UNITHOLDERS OF
VOYAGEUR TAX-EXEMPT TRUST, SERIES 7:
We have audited the accompanying statements of net assets, including
the schedules of investments, of Voyageur Tax-Exempt Trust, Series 7 (Arizona
Insured Series 2, National Insured Series 2, Oregon Insured Series 4 and
Territorial Series 4) as of July 18, 1996. 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 7 (Arizona Insured Series 2, National Insured Series 2, Oregon
Insured Series 4 and Territorial Series 4) as of July 18, 1996, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 18, 1996
- 26 -
VOYAGEUR TAX-EXEMPT TRUST, SERIES 7
STATEMENTS OF NET ASSETS
AS OF THE OPENING OF BUSINESS ON THE INITIAL
DATE OF DEPOSIT: JULY 18, 1996
<TABLE>
<CAPTION>
Arizona National Oregon
Insured Insured Insured Territorial
Series 2 Series 2 Series 4 Series 4
------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Contracts to purchase securities(1)(2) $2,027,732 $2,792,450 $1,946,460 $2,183,753
Accrued interest on underlying securities(1)(3) 8,342 29,946 22,502 7,990
Organizational and offering Costs (4) 5,031 20,918 4,788 10,198
Total Assets $2,041,105 $2,843,314 $1,973,750 $2,201,941
Less: distributions payable(3) 8,342 29,946 22,502 7,990
Less: accrued organizational and offering costs (4) 5,031 20,918 4,788 10,198
Net Assets $2,027,732 $2,792,450 $1,946,460 $2,183,753
Net Assets Represented By:
Interest of Unitholders--
Units of fractional undivided interest
outstanding: (213,221, 293,633, 204,675
and 229,627 Units, respectively)
Cost to investors(5) $2,132,210 $2,936,330 $2,046,751 $2,296,270
Less: Gross underwriting commission(5) 104,478 143,880 100,291 112,517
Net Assets(5) $2,027,732 $2,792,450 $1,946,460 $2,183,753
</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> <C> <C> <C>
Arizona Insured Series 2 $2,036,074 $2,065,000 $2,027,732 $ 8,342
National Insured Series 2 $2,822,396 $2,840,000 $2,792,450 $29,946
Oregon Insured Series 4 $1,968,962 $1,985,000 $1,946,460 $22,502
Territorial Series 4 $2,191,743 $2,250,000 $2,183,753 $ 7,990
</TABLE>
(2) Insurance coverage providing for the timely payment of principal and
interest on the Bonds in the portfolio of each Insured Trust has been
obtained by the issuer of the Bond, the underwriter of such Bond, the
Sponsor or others. See "Schedule of Investments."
(3) The Trustee will advance the amount of accrued interest as of July 23,
1996 (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.
- 27 -
(4) The Trusts (and therefore Unitholders) will bear all or a portion of their
organizational and offering costs, which will be deferred and charged off
against principal at the end of the initial offering period.
(5) The aggregate public offering price (exclusive of interest) and the
aggregate sales charge are computed on the bases set forth under "Public
Offering--Offering Price" and "Public Offering--Sponsor and Underwriter
Compensation" and assume all single transactions involve less than
$100,000. For single transactions involving $100,000 or more, the sales
charge is reduced (see "Public Offering--General") resulting in an equal
reduction in both the Cost to investors and the Gross underwriting
commission while the Net Assets remains unchanged.
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
- 28 -
capital appreciation bonds, define par as the initial offering price rather than
the maturity value, they share the basic zero coupon bond features of (i) not
paying interest on a semi-annual basis and (ii) providing for the reinvestment
of the bond's semi-annual earnings at the bond's stated yield to maturity. While
zero coupon bonds are frequently marketed on the basis that their fixed rate of
return minimizes reinvestment risk, this benefit can be negated in large part by
weak call protection, i.e., a bond's provision for redemption at only a modest
premium over the accreted value of the bond. See footnote (6) in "The
Trusts--Notes to Schedules of Investments."
Certain of the Bonds in the Trusts may have been acquired at a market
premium from par value at maturity. The coupon interest rates on the premium
bonds at the time they were purchased and deposited in the Trusts were higher
than the current market interest rates for newly issued bonds of comparable
rating and type. If such interest rates for newly issued and otherwise
comparable bonds decrease, the market premium of previously issued bonds will be
increased, and if such interest rates for newly issued comparable bonds
increase, the market premium of previously issued bonds will be reduced, other
things being equal. The current returns of bonds trading at a market premium are
initially higher than the current returns of comparable bonds of a similar type
issued at currently prevailing interest rates because premium bonds tend to
decrease in market value as they approach maturity when the face amount becomes
payable. Because part of the purchase price is thus returned not at maturity but
through current income payments, early redemption of a premium bond at par or
early prepayments of principal will result in a reduction in yield. Redemption
pursuant to call provisions generally will, and redemption pursuant to sinking
fund provisions may, occur at times when the redeemed Bonds have an offering
side valuation which represents a premium over par or for original issue
discount Bonds a premium over the accreted value. To the extent that the Bonds
were deposited in the Fund at a price higher than the price at which they are
redeemed, this will represent a loss of capital when compared to the original
Public Offering Price of the Units. Because premium bonds generally pay a higher
rate of interest than Bonds priced at or below par, the effect of the redemption
of premium bonds would be to reduce estimated net annual unit income by a
greater percentage than the par amount of such bonds bears to the total par
amount of Bonds in the affected Trust. Although the actual impact of any such
redemptions that may occur will depend upon the specific Bonds that are
redeemed, it can be anticipated that the estimated net annual unit income will
be significantly reduced after the dates on which such Bonds are eligible for
redemption. A Trust may be required to sell zero coupon bonds prior 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
- 29 -
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,
- 30 -
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
- 31 -
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 environ-
mentally-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
- 32 -
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.
An investment in Units of the Trusts should be made with an
understanding of the interest rate risk associated with such an investment.
Generally, bond prices (and therefore Unit prices) will move inversely with
interest rates, and bonds (Trusts) with longer maturities are likely to exhibit
- 33 -
greater fluctuations in market value, all other things being equal, than bonds
(Trusts) with shorter maturities.
REDEMPTIONS OF BONDS. Certain of the Bonds in certain of the Trusts are
subject to redemption prior to their stated maturity date pursuant to sinking
fund provisions, call provisions or extraordinary optional or mandatory
redemption provisions or otherwise. A sinking fund is a reserve fund accumulated
over a period of time for retirement of debt. A callable debt obligation is one
which is subject to redemption or refunding prior to maturity at the option of
the issuer. A refunding is a method by which a debt obligation is redeemed, at
or before maturity, by the proceeds of a new debt obligation. In general, call
provisions are more likely to be exercised when the offering side valuation is
at a premium over par than when it is at a discount from par. The exercise of
redemption or call provisions will (except to the extent the proceeds of the
called Bonds are used to pay for Unit redemptions) result in the distribution of
principal and may result in a reduction in the amount of subsequent interest
distributions and it may also affect the current return on Units of the Trust
involved. Each Trust portfolio contains a listing of the sinking fund and call
provisions, if any, with respect to each of the Bonds. Extraordinary optional
redemptions and mandatory redemptions result from the happening of certain
events. Generally, events that may permit the extraordinary optional redemption
of Bonds or may require the mandatory redemption of Bonds include, among others:
the substantial damage or destruction by fire or other casualty of the project
for which the proceeds of the Bonds were used; an exercise by a local, state or
Federal governmental unit of its power of eminent domain to take all or
substantially all of the project for which the proceeds of the Bonds were used;
changes in the economic availability of raw materials, operating supplies or
facilities or technological or other changes which render the operation of the
project for which the proceeds of the Bonds were used uneconomic; changes in law
or an administrative or judicial decree which renders the performance of the
agreement under which the proceeds of the Bonds were made available to finance
the project impossible or which creates unreasonable burdens or which imposes
excessive liabilities, such as taxes, not imposed on the date the Bonds are
issued on the issuer of the Bonds or the user of the proceeds of the Bonds; an
administrative or judicial decree which requires the cessation of a substantial
part of the operations of the project financed with the proceeds of the Bonds,
an overestimate of the costs of the project to be financed with the proceeds of
the Bonds 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
- 34 -
principal prepayment, redemption, maturity, exchange or sale of Bonds while the
Public Offering Price will vary with changes in the offering price of the
underlying Bonds; therefore, there is no assurance that the present Estimated
Current Returns will be realized in the future. Estimated Long-Term Returns are
calculated using a formula which (i) takes into consideration, and determines
and factors in the relative weightings of, the market values, yields (which
takes into account the amortization of premiums and the accretion of discounts)
and estimated retirements of all the Bonds in a Trust and (ii) takes into
account a compounding factor and the expenses and sales charge associated with
each Trust Unit. Since the market values and estimated retirements of the Bonds
and the expenses of a Trust will change, there is no assurance that the present
Estimated Long-Term Returns will be realized in the future. Estimated Current
Returns and Estimated Long-Term Returns are expected to differ because the
calculation of Estimated Long-Term Returns reflects the estimated date and
amount of principal returned while Estimated Current Returns calculations
include only net annual interest income and Public Offering Price.
In order to acquire certain of the Bonds contracted for by the Sponsor
for deposit in each Trust, it may be necessary for the Sponsor or Trustee to pay
on the settlement dates for delivery of such Bonds amounts covering accrued
interest on such Bonds which exceed (i) the amounts paid by Unitholders and (ii)
the amounts which will be made available through cash furnished by the Sponsor
on the Initial Date of Deposit, which amount of cash may exceed the interest
which would accrue to the First Settlement Date. The Trustee has agreed to pay
for any amounts necessary to cover any such excess and will be reimbursed
therefor, without interest, when funds become available from interest payments
on the particular Bonds with respect to which such payments may have been made.
Also, since interest on any "when, as and if issued" Bonds does not begin
accruing as tax-exempt interest income to the benefit of Unitholders until their
respective dates of delivery, the Trustee may, 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
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 $.30 and $.25 per 100 Units on an
annual basis for sponsor and evaluation fees, respectively. 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
- 35 -
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. Expenses incurred in establishing the Trusts,
including the cost of the initial preparation of documents relating to the Trust
(including the Prospectus, Trust Agreement and certificates), federal and state
registration fees, the initial fees and expenses of the Trustee, legal and
accounting expenses, payment of closing fees and any other out-of-pocket
expenses, will be paid by each Trust and charged off against principal at the
end of the initial offering period. The following additional charges are or may
be incurred by the Trusts: (i) fees of the Trustee for extraordinary services,
(ii) expenses of the Trustee (including legal and auditing expenses) and of
counsel designated by the Sponsor, (iii) various governmental charges, (iv)
expenses and costs of any action taken by the Trustee to protect a Trust and the
rights and interests of Unitholders, (v) indemnification of the Trustee for any
loss, liability or expenses incurred by it in the administration of a Trust
without gross negligence, bad faith or willful misconduct on its part, (vi) any
special custodial fees payable in connection with the sale of any of the Bonds
in a Trust and (vii) expenditures incurred in contacting Unitholders upon
termination of a Trust.
The fees and expenses set forth herein are payable out of the Trusts.
When such fees and expenses are paid by or owing to the Trustee, they are
secured by a lien on the portfolio or portfolios of the applicable Trust or
Trusts. If the balances in the Interest and Principal Accounts are
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insufficient to provide for amounts payable by the Fund, the Trustee has the
power to sell Bonds to pay such amounts.
INSURANCE ON THE BONDS IN THE INSURED TRUSTS
Insurance guaranteeing prompt payment of interest and principal, when
due, on the Bonds in the Insured Trusts in the Fund has been obtained by the
Sponsor or by the issuers or underwriters of such Bonds. No insurance has been
obtained on the Bonds in the uninsured Trusts.
An Insurer has issued a policy or policies of insurance covering each
of the Bonds in the Insured Trusts, each policy to remain in force until the
payment in full of such Bonds and whether or not the Bonds continue to be held
by a Trust. By the terms of each policy, the Insurer will unconditionally
guarantee to the holders or owners of the Insured Bonds the payment, when due,
required of the issuer of the Bonds of an amount equal to the principal of and
interest on the Bonds as such payments shall become due, 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
- 37 -
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; however such interest may be taken into
account in computing the alternative minimum tax, an additional tax on
branches of foreign corporations and the environmental tax (the
"Superfund Tax"), as noted below;
2. Each Unitholder is considered to be the owner of a pro rata
portion of 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 valuation date
nearest the date of acquisition of the Units. The tax basis reduction
requirements of the Code relating to amortization of bond premium may,
under some circumstances, result in the Unitholder realizing a taxable
gain when his Units are sold or redeemed for an amount less than or
equal to his original cost; and
3. Any proceeds paid under individual policies obtained by issuers
of Bonds which represent maturing interest on defaulted Bonds held by
the Trustee will be excludable from Federal gross income if, and to the
same extent as, such interest would have been excludable
- 38 -
if paid in the normal course by the issuer of the defaulted Bonds
provided that, at the time such policies are purchased, the amounts
paid for such policies are reasonable, customary and consistent with
the reasonable expectation that the issuer of the Bonds, rather than
the Insurer, will pay debt service on the Bonds.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide that
original issue discount accrues either on the basis of a constant compound
interest rate or ratably over the term of the Bond, depending on the date the
Bond was issued. In addition, special rules apply if the purchase price of a
Bond exceeds the original issue price plus the amount of original issue discount
which would have previously accrued based upon its issue price (its "adjusted
issue price") to prior owners. The application of these rules will also vary
depending on the value of the Bonds on the date a Unitholder acquires his Units
and the price the Unitholder pays for his Units. Unitholders should consult with
their tax advisers regarding these rules and their application.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") subjects
tax-exempt bonds to the market discount rules of the Code effective for bonds
purchased after April 30, 1993. In general, market discount is the amount (if
any) by which the stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if any, is
attributable to original issue discount not yet accrued) subject to a statutory
DE MINIMIS rule. Market discount can arise based on the price a Trust pays for
Bonds or the price a Unitholder pays for his or her Units. Under the Tax Act,
accretion of market discount is taxable as ordinary income; under prior law the
accretion had been treated as capital gain. Market discount that accretes while
a Trust holds a Bond would be recognized as ordinary income by the Unitholders
when principal payments are received on the Bond, upon sale or at redemption
(including early redemption), or upon the sale or redemption of his or her
Units, unless a Unitholder elects to include market discount in taxable income
as it accrues. The market discount rules are complex and Unitholders should
consult their tax advisers regarding these rules and their application.
In the case of certain corporations, the alternative minimum tax and
the Superfund Tax for taxable years beginning after December 31, 1986 depend
upon the corporation's alternative minimum taxable income, which is the
corporation's taxable income with certain adjustments. One of the adjustment
items used in computing the alternative minimum taxable income 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. Under current Code provisions, the Superfund Tax does not apply to tax
years beginning on or after January 1, 1996. However, the Superfund Tax could be
extended retroactively. Under the provisions of Section 884 of the Code, a
branch profits tax is levied on the "effectively connected earnings and profits"
of certain foreign corporations which include tax-exempt interest such as
interest on the Bonds in the Trusts. Unitholders should consult their tax
advisers with respect to the
- 39 -
particular tax consequences to them including the corporate alternative minimum
tax, the Superfund Tax and the branch profits tax imposed by Section 884 of the
Code.
Counsel for the Sponsor has also advised that under Section 265 of the
Code interest on indebtedness incurred or continued to purchase or carry Units
of a Trust is not deductible for Federal income tax purposes. The Internal
Revenue Service has taken the position that such indebtedness need not be
directly traceable to the purchase or carrying of Units (however, these rules
generally do not apply to interest paid on indebtedness incurred to purchase or
improve a personal residence). Also, under Section 265 of the Code, certain
financial institutions that acquire Units would generally not be able to deduct
any of the interest expense attributable to ownership of such Units. On December
7, 1995, the U.S. Treasury Department released proposed legislation that, if
enacted would generally extend the financial institution rules to all
corporations, effective for obligations acquired after the date of announcement.
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 the Code and U.S.
Treasury Regulations. Any person who believes that he or she may be a
"substantial user" or a "related person" as so defined should contact his or her
tax adviser.
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% effective for long-term capital gains realized in
taxable years beginning on or after 1993. For taxpayers other than corporations,
net capital gains are subject to a maximum marginal stated tax rate of 28%.
However, it should be noted that legislative proposals are introduced from time
to time that affect tax rates and could affect relative differences at which
ordinary income and capital gains are taxed. Under the Code, taxpayers must
disclose to the Internal Revenue Service the amount of tax-exempt interest
earned during the year.
- 40 -
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, for taxable years beginning after
December 31, 1993, up to 85% of Social Security benefits are includible in gross
income to the extent that the sum of "modified adjusted gross income" plus 50%
of Social Security benefits received exceeds an "adjusted base amount." The
adjusted base amount is $34,000 for unmarried taxpayers, $44,000 for married
taxpayers filing a joint return, and zero for married taxpayers who do not live
apart at all times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of Social
Security benefits will be included in gross income, no tax-exempt interest,
including that received from a Trust, will be subject to tax. A taxpayer whose
adjusted gross income already exceeds the base amount or the adjusted base
amount must include 50% or 85%, respectively, of his Social Security benefits in
gross income whether or not he receives any tax-exempt interest. A taxpayer
whose modified adjusted gross income (after inclusion of tax-exempt interest)
does not exceed the base amount need not include any Social Security benefits in
gross income.
FOR A DISCUSSION OF THE STATE TAX STATUS OF INCOME EARNED ON UNITS OF A
TRUST, SEE "THE TRUSTS--STATE TAXATION" FOR THE APPLICABLE TRUST. EXCEPT AS
NOTED THEREIN, THE EXEMPTION OF INTEREST ON STATE AND LOCAL OBLIGATIONS FOR
FEDERAL INCOME TAX PURPOSES DISCUSSED ABOVE DOES NOT NECESSARILY RESULT IN
EXEMPTION UNDER THE INCOME OR OTHER TAX LAWS OF ANY STATE OR CITY. THE LAWS OF
THE SEVERAL STATES VARY WITH RESPECT TO THE TAXATION OF SUCH OBLIGATIONS.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation, corporations
subject to either the environmental tax or the branch profits tax, financial
institutions, certain insurance companies, certain S corporations, individual
recipients of Social Security or Railroad Retirement benefits and taxpayers who
may be deemed to have incurred (or continued) indebtedness to purchase or carry
tax-exempt obligations. Prospective investors should consult their tax advisors
as to the applicability of any collateral consequences. On December 7, 1995, the
U.S. Treasury Department released proposed legislation that, if adopted, could
affect the United States federal income taxation of non-United States
Unitholders and the portion of the Trust's income allocable to non-United States
Unitholders. Similar language, which would be effective on the date of
enactment, was included in the Health Insurance Reform Bill as passed by the
U.S. Senate on April 23, 1996.
- 41 -
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 $100,000 or more as follows:
Aggregate Dollar Value Reduction as a
of Units Purchased Percent of Offering Price
$100,000 - 249,999 ......................... 0.30%
$250,000 - 499,999 ......................... 0.50%
$500,000 - 999,999 ......................... 0.90%
$1,000,000 or more ......................... 1.40%
Any such reduced sales charge shall be the responsibility of the
selling Underwriter, broker, dealer or agent. The reduced sales charge structure
will apply on all purchases of Units in a Trust by the same person on any one
day from any one Underwriter or dealer. In addition, Unitholders who, during the
offering period, cumulatively purchase a sufficient number of Units of a Trust
to qualify for a reduced sales charge will receive such reduction retroactively
upon reaching the appropriate level. Units purchased in the name of the spouse
of a purchaser or in the name of a child of such purchaser under 21 years of age
will be deemed for the purposes of calculating the applicable sales charge to be
additional purchases by the purchaser. The reduced sales charges will also be
applicable to a trustee or other fiduciary purchasing securities for one or more
trust estate or fiduciary accounts. Employees, officers and directors (including
their immediate family members, defined as spouses, children, grandchildren,
parents, grandparents, mothers-in-law, fathers-in-law, sons-in-law and
daughters-in-law, and trustees, custodians or fiduciaries for the benefit of
such persons) of the Sponsor and its subsidiaries may purchase Units of the
Trusts without a sales charge in both the initial and secondary offering
periods.
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
- 42 -
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
- 43 -
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 three business days following the
order for purchase, payment may be made prior thereto. However, delivery of
certificates, if any are requested in writing, representing Units so ordered
will be made as soon as possible following such order or shortly thereafter. A
person will become the owner of Units on the date of settlement provided payment
has been received. Cash, if any, made available to the 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 the National Trusts, the
Sponsor intends to qualify Units for sale in a number of states and Puerto Rico.
Broker-dealers or others will be allowed a concession or agency commission in
connection with the distribution of Units during the initial offering period
equal to $.33 per Unit ($.34 per Unit for the portion of aggregate sales of each
Series which exceed $250,000 by broker-dealers or others in the primary offering
who did not act as Underwriters and who purchase such Units from the Sponsor)
and in the secondary market equal to 4.0% of the Public Offering Price per Unit.
In addition, broker-dealers or others who sell, within five business days of a
Trust's Initial Date of Deposit, that amount necessary to qualify for the
Underwriter Concession set forth under "Sponsor and Underwriter Compensation"
below will be allowed the concession set forth in such section on all sales
during such period. Certain commercial banks are making Units of the Fund
available to their customers on an agency basis. A portion of the sales charge
(equal to the agency commission referred to above) is retained by or remitted to
the banks. Under the
- 44 -
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:
Aggregate Dollar Value Total Concession
of Units Purchased per Unit
$100,000 - $249,999 ............................. $.32
$250,000 - $499,999 ............................. .31
$500,000 - $999,999 ............................. .29
$1,000,000 or more............................... .25
The 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:
Aggregate Dollar Value Total Underwriter
of Units Underwritten Concession per Unit
$100,000 - $249,999 .............................. $.35
$250,000 - $499,999 .............................. .36
$500,000 - $999,999 .............................. .37
$1,000,000 or more................................ .40
Broker-dealers and other financial institutions purchasing Units from
the Distributor during the first week after the Initial Date of Deposit may also
receive the concession described above according to the schedule above
describing Underwriters compensation. In addition, the Sponsor will realize a
profit or will sustain a loss, as the case may be, as a result of the difference
between the price paid for the Bonds by the Sponsor and the cost of such Bonds
to a Trust (which is based on the determination of the aggregate offering price
of the Bonds in such Trust on the Initial Date
- 45 -
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 participated as sole
underwriter or as a manager or as a member of any underwriting syndicate from
which 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.
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RIGHTS OF UNITHOLDERS
OWNERSHIP OF UNITS. Ownership of Units of any Trust will not be
evidenced by certificates unless a Unitholder, the Unitholder's registered
broker/dealer or the clearing agent for such broker/dealer makes a written
request to the Trustee. Certificates, if issued, will be so noted on the
confirmation statement sent to the Underwriter and broker. Non-receipt of such
certificate(s) must be reported to the Trustee within one year; otherwise, a 2%
surety bond fee will be required for replacement.
Units are transferable by making a written request to the Trustee and,
in the case of Units evidenced by a certificate, by presenting and surrendering
such certificate to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer which should be sent registered or
certified mail for the protection of the Unitholder. Unitholders must sign such
written request, and such certificate or transfer instrument, exactly as their
names appear on the records of the Trustee and on any certificate representing
the Units to be transferred. Such signatures must be guaranteed by a participant
in the Securities Transfer Agents Medallion Program ("STAMP") or such other
signature guarantee program in addition to, or in substitution for, STAMP, as
may be accepted by the Trustee.
Although no such charge is now made or contemplated, the Trustee may
require a Unitholder to pay a reasonable fee for each certificate reissued or
transferred and to pay any governmental charge that may be imposed in connection
with each such transfer or interchange. Destroyed, stolen, mutilated or lost
certificates will be replaced upon delivery to the Trustee of satisfactory
indemnity, evidence of ownership and payment of expenses incurred. Mutilated
certificates must be surrendered to the Trustee for replacement.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL. Interest received by the
Trusts, including that part of the proceeds of any disposition of Bonds which
represents accrued interest and including any insurance proceeds representing
interest due on defaulted Bonds, is credited by the Trustee to the Interest
Account of the appropriate Trust. Other receipts are credited to the Principal
Account of the appropriate Trust. Interest received by a Trust after deduction
of amounts sufficient to reimburse the Trustee for any amounts advanced and paid
to the Sponsor as the Unitholder of record as of the First Settlement Date (see
"Public Offering--Offering Price") will be distributed on or shortly after the
fifteenth day of each month on a pro rata basis to Unitholders of record as of
the preceding record date (which will be the first day of the month). All
distributions will be net of applicable expenses. The pro rata share of cash in
the Principal Account will be computed as of the applicable record date, and
distributions to the Unitholders as of such record date will be made on or
shortly after the fifteenth day of such month. Proceeds received from the
disposition of any of the Bonds after such record date and prior to the
following distribution date will be held in the Principal Account and not
distributed until the next distribution date. The Trustee is not required to pay
interest on funds held in the Principal or Interest Accounts (but may itself
earn interest thereon and therefore benefits from the use of such funds) nor to
make a distribution from the Principal Account unless the amount available for
distribution shall equal at least $0.10 per Unit.
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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.
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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 419350, 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
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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 third business day
following the day on which a tender for redemption is received (the "Redemption
Date"). Such redemption shall be made by payment of cash, equivalent to the
Redemption Price for such Trust, determined as set forth below as of the
evaluation time stated under "Summary of Essential Financial Information," next
following such tender, multiplied by the number of Units being redeemed. Any
Units redeemed shall be cancelled and any undivided fractional interest in the
Fund extinguished. The price received upon redemption might be more or less than
the amount paid by the Unitholder depending on the value of the Bonds in the
Trust involved at the time of redemption.
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
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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
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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
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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.
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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 Financial Group, Inc. which is
owned approximately 49% by Michael E. Dougherty, 49% by Pohlad Companies and
less than 1% by certain benefit plans for the employees of Dougherty Financial
Group, Inc. and its subsidiaries. The address of each of the Sponsor and
Distributor is 90 South Seventh Street, Suite 4400, Minneapolis,
Minnesota 55402.
Mr. Dougherty co-founded the predecessor of Dougherty Financial Group,
Inc. in 1977 and has served as Dougherty Financial Group's 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, 1995, Voyageur Fund Managers, Inc. served
as the manager to six closed-end and ten open-end investment companies
(comprising 29 separate investment portfolios), administered numerous private
accounts and managed approximately $8.2 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, 1995, the total stockholders' equity of
Voyageur Fund Mangers, Inc. was $5,264,562 (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
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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, (800) 253-5622. 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
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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 National Oregon
Insured Insured Insured Territorial
Name Address Series 2 Series Series 4 Series 4
- ------------------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Voyageur Fund 90 South Seventh Street 213,221 253,633 184,675 229,627
Distributors, Inc. Minneapolis, MN 55402
Dain Bosworth Incorporated 60 South Sixth Street
Minneapolis, MN 55402 10,000
Edward D. Jones & Co. 12555 Manchester Road
St. Louis, MO 63131 10,000
Oppenheimer & Co. 1 World Financial Center
New York, NY 10281 10,000 10,000
Rauscher Pierce Refsnes, Inc. 2200 RPR Tower
Dallas, TX 37201 10,000
Stifel, Nicolaus & Co. 500 N. Broadway
St. Louis, MO 63102 10,000
------- ------- ------- ------
Totals 213,221 293,633 204,675 229,627
</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.
- 56 -
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.
DESCRIPTION OF BOND RATINGS*
STANDARD & POOR'S. A brief description of the applicable Standard &
Poor's ratings symbols and their meanings follows:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific debt
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
- --------
* As published by the ratings companies.
- 57 -
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangements under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.**
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his/her own judgment with respect to such likelihood
and risk.
Credit Watch: Credit Watch highlights potential changes in ratings of
bonds and other fixed income securities. It focuses on events and trends which
place companies and government units under special surveillance by S&P's
180-member analytical staff. These may include merges, voter
- --------
** Bonds insured by Financial Guaranty Insurance Company, AMBAC
Indemnity Corporation, Municipal Bond Investors Assurance Corporation, Connie
Lee Insurance Company, Financial Security Assurance and Capital Guaranty
Insurance Company are automatically rated "AAA" by Standard & Poor's.
- 58 -
referendums, actions by regulatory authorities, or developments gleaned from
analytical reviews. Unless otherwise noted, a rating decision will be made
within 90 days. Issues appear on Credit Watch where an event, situation, or
deviation from trends occurred and needs to be evaluated as to its impact on
credit ratings. A listing, however, does not mean a rating change is inevitable.
Since S&P continuously monitors all of its ratings, Credit Watch is not intended
to include all issues under review. Thus, rating changes will occur without
issues appearing on Credit Watch.
MOODY'S INVESTORS SERVICE, INC. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Their
safety is so absolute that with the occasional exception of oversupply in a few
specific instances, characteristically, their market value is affected solely by
money market fluctuations.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Their market value is virtually immune to all but money market influences, with
the occasional exception of oversupply in a few specific instances.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. The market value of A-rated bonds may be influenced to some degree by
economic performance during a sustained period of depressed business conditions,
but, during periods of normalcy, A-rated bonds frequently move in parallel with
Aaa and Aa obligations, with the occasional exception of oversupply in a few
specific instances.
A 1 and Baa 1 - Bonds which are rated A 1 and Baa 1 offer the maximum
in security within their quality group, can be bought for possible upgrading in
quality, and additionally, afford the investor an opportunity to gauge more
precisely the relative attractiveness of offerings in the market place.
Baa - Bonds which are rated Baa are considered as medium grade
obligation; i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well. The market value of
Baa-rated bonds is more
- 59 -
sensitive to changes in economic circumstances, and aside form occasional
speculative factors applying to some bonds of this class, Baa market valuations
will move in parallel with Aaa, Aa, and A obligations during periods of economic
normalcy, except in instances of oversupply.
Moody's bond rating symbols may contain numerical modifiers of a
generic rating classification. The modifier 1 indicates that the bond ranks at
the high end of its category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Con.(--) - Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
- 60 -
No person is authorized to give any information or to make any representations
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the Fund,
the Sponsor or the Underwriters. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, securities in any state to any
person to whom it is not lawful to make such offer in such state.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
TITLE PAGE
SUMMARY OF ESSENTIAL
FINANCIAL INFORMATION................... 3
THE FUND..................................... 5
INVESTMENT OBJECTIVES AND
PORTFOLIO SELECTION..................... 7
THE TRUSTS................................... 8
EQUIVALENT TAXABLE ESTIMATED
CURRENT RETURNS......................... 24
INDEPENDENT AUDITORS' REPORT................. 26
STATEMENTS OF NET ASSETS..................... 27
RISK FACTORS................................. 28
ESTIMATED CURRENT RETURN AND
ESTIMATED LONG-TERM RETURN.............. 34
TRUST OPERATING EXPENSES..................... 35
INSURANCE ON THE BONDS IN THE
INSURED TRUSTS.......................... 37
TAX STATUS................................... 38
PUBLIC OFFERING.............................. 42
RIGHTS OF UNITHOLDERS........................ 47
TRUST ADMINISTRATION......................... 51
UNDERWRITING................................. 56
OTHER MATTERS................................ 57
DESCRIPTION OF BOND RATINGS.................. 57
- --------------------------------------------------------------------------------
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.
P R O S P E C T U S
- --------------------------------------------------------------------------------
July 18, 1996
VOYAGEUR TAX-EXEMPT TRUST,
SERIES 7
ARIZONA INSURED SERIES 2
NATIONAL INSURED SERIES 2
OREGON INSURED SERIES 4
TERRITORIAL SERIES 4
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement on Form S-6 comprises the following papers
and documents:
The facing sheet of Form S-6
The Cross-Reference Sheet
The Prospectus
The signatures
The following exhibits:
1.1 Standard Terms and Conditions of Trust - Voyageur Tax-Exempt Trust
Series 1 and Subsequent Series, dated January 19, 1995 among
Voyageur Fund Managers, Inc., as Sponsor and Investors Fiduciary
Trust Company, as Trustee (incorporated by reference to Amendment
No. 1 to Form S-6 (File No. 33-62681) filed on behalf of Voyageur
Tax-Exempt Trust, Series 5.)
1.2 Form of Trust Indenture and Agreement for Voyageur Tax-Exempt
Trust, Series 7.
2. Opinion of counsel to the Sponsor as to legality of the securities
being registered including a consent to the use of its name under
the headings "Tax Status" and "Legal Opinions" in the Prospectus
and opinion of counsel as to Federal income tax status of the
securities being registered and certain state tax matters.
3. None.
4. Not applicable.
5. Financial Data Schedules filed hereto electronically as Exhibit(s)
27 pursuant to Rule 401 of Regulation S-T.
6. Written Consents.
(a) Consent of George K. Baum & Company.
(b) Consent of KPMG Peat Marwick LLP.
SIGNATURES
The Registrant, Voyageur Tax-Exempt Trust, Series 7, hereby identifies
Voyageur Tax-Exempt Trust, Series 1, Voyageur Tax-Exempt Trust, Series 3 and
Voyageur Tax-Exempt Trust, Series 4 for purposes of the representations required
by Rule 487 and represents the following: (1) that the portfolio securities
deposited in the series with respect to which this Registration Statement is
being filed do not differ materially in type or quality from those deposited in
such previous series; (2) that, except to the extent necessary to identify the
specific portfolio securities deposited in, and to provide essential financial
information for, the series with respect to which this Registration Statement is
being filed, this Registration Statement does not contain disclosures that
differ in any material respect from those contained in the registration
statements for such previous series as to which the effective date was
determined by the Securities and Exchange Commission or the staff; and (3) that
it has complied with Rule 460 under the Securities Act of 1933.
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Voyageur Tax-Exempt Trust, Series 7, has duly caused this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Minneapolis and State of
Minnesota on the 17th day of July, 1996.
VOYAGEUR TAX-EXEMPT TRUST,
SERIES 7
(Registrant)
By: Voyageur Fund Managers, Inc.
(Depositor)
By: Thomas J. Abood
General Counsel and
Senior Vice President
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 July 17, 1996.
SIGNATURE TITLE
MICHAEL E. DOUGHERTY Chairman of the Board of Directors
Michael E. Dougherty and Director
JOHN G. TAFT
John G. Taft Chief Executive Officer and Director
EDWARD J. KOHLER
Edward J. Kohler Director
FRANK C. TONNEMAKER
Frank C. Tonnemaker Director
JANE M. WYATT
Jane M. Wyatt Director
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 with the Registration
Statement on Form S-6 for Voyageur Tax-Exempt Trust, Series 5 (Registration No.
33-62682).
Exhibit 1.2
VOYAGEUR TAX-EXEMPT TRUST
SERIES 7
TRUST AGREEMENT
Dated: July 18, 1996
This Trust Agreement between Voyageur Fund Managers, Inc., as
Depositor, and Investors Fiduciary Trust Company, as Trustee, sets forth certain
provisions in full and incorporates other provisions by reference to the
document entitled "Standard Terms and Conditions of Trust for Voyageur
Tax-Exempt Trust, Series 1 and Subsequent Series, Effective January 19, 1995"
(herein called the "STANDARD TERMS AND CONDITIONS OF TRUST"), and such
provisions as are set forth in full and such provisions as are incorporated by
reference constitute a single instrument. All references herein to Articles and
Sections are to Articles and Sections of the Standard Terms and Conditions of
Trust.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the Depositor and the Trustee agree as follows:
PART I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the Provisions of Part II hereof, all the provisions
contained in the Standard Terms and Conditions of Trust are herein incorporated
by reference in their entirety and shall be deemed to be a part of this
instrument as fully and to the same extent as though said provisions had been
set forth in full in this instrument.
PART II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed to:
(a) The Bonds defined in Article I listed in Schedule A hereto
have been deposited in Trust under this Trust Agreement.
(b) The fractional undivided interest in and ownership of a
Trust represented by each unit for such Trust on the Initial Date of
Deposit is the amount set forth under "Summary of Essential Financial
Information - Fractional Undivided Interest in the Trust per Unit" in
the Prospectus.
(c) For each Trust the Record Dates, Distribution Dates and
the amount of the first distribution of funds from the Interest Account
shall be the record dates, distribution dates and the amount set forth
under "Summary of Essential Financial Information" on page 3 of the
Prospectus.
(d) The term "Initial Date of Deposit" for each Trust shall
mean July 18, 1996.
(e) The First Settlement Date shall be the date set forth
under "Summary of Essential Financial Information - First Settlement
Date" in the Prospectus.
(f) For the purposes of Section 4.03, the Evaluator shall
receive for providing evaluation services to the Fund that fee set
forth in the section captioned "Summary of Essential Financial
Information" in the Prospectus.
(g) For the purposes of Section 8.01(g), the liquidation
amount for each Trust is hereby specified as the amount set forth under
"Summary of Essential Financial Information" appearing on page 3 of the
Prospectus.
(h) For the purposes of Section 8.05, the compensation for the
Trustee shall be that fee set forth in the section captioned "Summary
of Essential Financial Information" appearing on page 3 of the
Prospectus.
(i) For the purposes of Section 3.13, the Depositor shall
receive for providing supervisory services the each Trust that fee set
forth in the section captioned "Summary of Essential Financial
Information" in the Prospectus.
(j) For the purposes of Section 3.04(b), the balance of the
Principal Account must equal at least that amount specified in "Rights
of Unitholders - Distributions of Interest and Principal" in the
Prospectus.
(k) Section 10.02 of the Standard Terms and Conditions of
Trust shall be replaced in its entirety with the following:
"Section 10.02. Initial Cost. The expenses incurred in establishing a
Trust, including the cost of the initial preparation and typesetting of the
registration statement, prospectuses (including preliminary prospectuses), the
indenture, and other documents relating to a Trust, printing of Certificates,
Securities and Exchange Commission and state blue sky registration fees, the
costs of the initial valuation of the portfolio and audit of a Trust, the
initial fees and expenses of the Trustee, and legal and other out-of-pocket
expenses related thereto, but not including the expenses incurred in the
printing of preliminary prospectuses and prospectuses, expenses incurred in the
preparation and printing of brochures and other advertising materials and any
other selling expenses shall be borne by the Trust, provided, however, the Trust
shall not bear such expenses in excess of the amount shown in the Statements of
Net Assets included in the Prospectus, and any such excess shall be borne by the
Depositor. To the extent the funds in the Interest and Principal Accounts of the
Trust shall be insufficient to pay the expenses borne by the Trust specified in
this Section 10.02, the Trustee shall advance out of its own funds and cause to
be deposited and credited to the Interest Account such amount as may be required
to permit payment of such expenses. The Trustee shall be reimbursed for such
advance in the manner provided in Section 3.04, and the provisions of Section
8.05 with respect to the reimbursement of disbursements for Trust expenses,
including, without limitation, the lien in favor of the Trustee therefore, shall
apply to the payment of expenses made pursuant to this Section. For purposes of
calculation of distributions under Section 3.04 and the addition provided in
clause (4) of Section 5.01, the expenses borne by the Trust pursuant to this
Section shall be deemed to accrue at a daily rate over the time period specified
for their amortization provided in the Prospectus; provided, however, that
nothing herein shall be deemed to prevent, and the Trustee shall be entitled to
full reimbursement for any advances made pursuant to this Section no later than
the termination of the Trust.
(l) Section 5.01 of the Standard Terms and Conditions of Trust
shall be amended by deleting the word "and" appearing immediately prior
to subsection (2) of such paragraph and inserting the following at the
end of subsection (3) of such paragraph:
", and (4) amounts representing organizational expenses paid
less amounts representing accrued organizational expenses of a Trust."
IN WITNESS WHEREOF, Voyageur Fund Managers, Inc. has caused this Trust
Agreement to be executed by its Chairman, President, Chief Financial Officer or
one of its Vice Presidents and Investors Fiduciary Trust Company has caused this
Trust Agreement to be executed by one of its Trust Officers all as of the day,
month and year first above written.
Voyageur Fund Managers, Inc., Depositor
By: THOMAS J. ABOOD
Senior Vice President
INVESTORS FIDUCIARY TRUST COMPANY,
Trustee
By: /S/ RON PUETT
Operations Officer
SCHEDULE A TO TRUST AGREEMENT
SECURITIES INITIALLY DEPOSITED
IN
VOYAGEUR TAX-EXEMPT TRUST, SERIES 7
(Note: Incorporated herein and made a part hereof are the "SCHEDULES OF
INVESTMENTS" as set forth in the Prospectus.)
Exhibit 2
July 18, 1996
Voyageur Fund Managers, Inc.
90 South Seventh Street, Suite 4400
Minneapolis, Minnesota 55402
Re: Voyageur Tax-Exempt Trust, Series 7
Ladies/Gentlemen:
We have served as special counsel for Voyageur Fund Managers, Inc., as
Sponsor and Depositor (the "DEPOSITOR") of Voyageur Tax-Exempt Trust, Series 7
(the "FUND"), in connection with the preparation, execution and delivery of a
Trust Agreement dated July 18, 1996 between Voyageur Fund Managers, Inc., as
Depositor, and Investors Fiduciary Trust Company, as Trustee, pursuant to which
the Depositor has delivered to and deposited the bonds listed in Schedule A to
the Trust Agreement with the Trustee and pursuant to which the Trustee has
issued in the name of the Depositor documents representing units of fractional
undivided interest in and ownership of the Fund created under said Trust
Agreement.
In connection therewith we have examined such pertinent records and
documents and matters of law as we have deemed necessary in order to enable us
to express the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Trust Agreement and the
execution and issuance of certificates evidencing the units of the Fund
have been duly authorized; and
2. The certificates evidencing the units of the Fund when duly
executed and delivered by the Depositor and the Trustee in accordance
with the aforementioned Trust Agreement, will constitute valid and
binding obligations of the Fund and the Depositor in accordance with
the terms thereof.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-07491) relating to the units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
MJK/cjw
July 18, 1996
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Voyageur Fund Managers, Inc.
90 South Seventh Street, Suite 4400
Minneapolis, Minnesota 55402
Re: Voyageur Tax-Exempt Trust, Series 7
Ladies/Gentlemen:
We have acted as special counsel for Voyageur Fund Managers, Inc.,
Depositor of Voyageur Tax-Exempt Trust, Series 7 (the "FUND"), in connection
with the issuance of units of fractional undivided interest in the Fund, under a
Trust Agreement dated July 18, 1996 (the "INDENTURE") between Voyageur Fund
Managers, Inc., as Depositor, and Investors Fiduciary Trust Company, as Trustee.
In this connection, we have examined the Registration Statement, the
form of Prospectus proposed to be filed with the Securities and Exchange
Commission, the Indenture and such other instruments and documents as we have
deemed pertinent.
Based upon the foregoing and upon an investigation of such matters of
law as we consider to be applicable, we are of the opinion that, under existing
Federal income tax law:
(i) Each Trust is not an association taxable as a corporation
but will be governed by the provisions of subchapter J (relating to
Trusts) of chapter 1, Internal Revenue Code of 1986 (the "CODE").
(ii) Each Unitholder will be considered as owning a pro rata
share of each asset of the respective Trust in the proportion that the
number of units of such Trust held by him bears to the total number of
units outstanding of such Trust. Under subpart E, subchapter J of
chapter 1 of the Code, income of the Trust will be treated as income of
each Unitholder in the proportion described, and an item of Trust
income will have the same character in the hands of a Unitholder as it
would have in the hands of the Trustee. Accordingly, to the extent that
the income of a Trust consists of interest and original issue discount
excludable from gross income under Section 103 of the Code, such income
will be excludable from federal gross income of the Unitholders, except
in the case of a Unitholder who is a substantial user (or a person
related to such user) of a facility financed through issuance of any
industrial development bond or certain private activity bonds held by
the Trust. In the case of such Unitholder who is a substantial user
(and no other) interest received and original issue discount with
respect to his units attributable to such industrial development bonds
or such private activity bonds is includible in his gross income. To
the extent a Trust holds bonds that are "specified private activity
bonds" within the meaning of Section 57(a)(5) of the Code, a
Unitholder's pro rata portion of the income on such Bonds will be
included as an item of tax preference in the computation of the
alternative minimum tax applicable to individuals, Trusts and
corporations. In the case of certain corporations, interest on all of
the Bonds is included in computing the alternative minimum tax pursuant
to Section 56(c) of the Code, and the environmental tax (the "SUPERFUND
TAX").imposed by Section 59A of the Code, and the branch profits tax
imposed by section 884 of the Code with respect to U.S. branches of
foreign corporations.
(iii) Gain or loss will be recognized to a Unitholder upon
redemption or sale of his units. Such gain or loss is measured by
comparing the proceeds of such redemption or sale with the adjusted
basis of his units. Before adjustment, such basis would normally be
cost if the Unitholder had acquired his units by purchase, plus his
aliquot share of advances by the Trustee to a Trust to pay interest on
bonds delivered after the Unitholder's settlement date to the extent
that such interest accrued on the bonds during the period from the
Unitholder's settlement date to the date such bonds are delivered to
the respective Trust, but only to the extent that such advances are to
be repaid to the Trustee out of interest received by such Trust with
respect to such bonds. In addition, such basis will be increased by the
Unitholder's aliquot share of the accrued original issue discount with
respect to each bond held by a Trust with respect to which there was an
original issue discount at the time the bond was issued and reduced by
the annual amortization of bond premium, if any, on bonds held by such
Trust.
(iv) If the Trustee disposes of a Trust asset (whether by
sale, payment on maturity, redemption or otherwise) gain or loss is
recognized to the Unitholder and the amount thereof is measured by
comparing the Unitholder's aliquot share of the total proceeds from the
transaction with his basis for his fractional interest in the asset
disposed of. Such basis is ascertained by apportioning the tax basis
for his units among each of the Trust assets (as of the date on which
his units were acquired) ratably according to their values as of the
valuation date nearest the date on which he purchased such units. A
Unitholder's basis in his units and of his fractional interest in each
Trust asset must be reduced by the amount of his aliquot share of
interest received by the Trust, if any, on bonds delivered after the
Unitholder's settlement date to the extent that such interest accrued
on the bonds during the period from the Unitholder's settlement date to
the date such bonds are delivered to the Trust, must be reduced by the
annual amortization of bond premium, if any, on bonds held by the Trust
and will be increased by the Unitholder's share of the accrued original
issue discount with respect to each bond which, at the time the bond
was issued, had original issue discount.
(v) In the case of any bond held by a Trust where the "stated
redemption price at maturity" exceeds the "issue price", such excess
shall be original issue discount. With respect to each Unitholder, upon
the purchase of his Units subsequent to the original issuance of bonds
held by the Trust, Section 1272(a)(7) of the Code provides for a
reduction in the accrued "daily portion" of such original issue
discount upon the purchase of a bond subsequent to the bond's original
issue, under certain circumstances. In the case of any bond held by a
Trust the interest on which is excludable from gross income under
Section 103 of the Code, any original issue discount which accrues with
respect to the bonds will be treated as interest which is excludable
from gross income under Section 103 of the Code.
(vi) Certain bonds in the portfolios of the Trusts have been
insured by the issuers, underwriters, the Sponsor or others against
default in the prompt payment of principal and interest (the "Insured
Bonds"). Such bonds are so designated on the portfolio pages in the
Prospectus for each Trust. Insurance on Insured Bonds is effective so
long as such bonds remain outstanding. For each of these bonds, we have
been advised that the aggregate principal amount of such bonds listed
on the portfolio page was acquired by the Trust and are part of the
series of such bonds in the listed aggregate principal amount. Based
upon the assumption that the Insured Bonds of the Trust are part of a
series covered by an insurance policy, it is our opinion that any
amounts received by the Trust representing maturing interest on such
bonds will be excludable from Federal gross income if, and to the same
extent as, such interest would have been so excludable if paid in
normal course by the issuer notwithstanding that the source of the
payment is from policy proceeds provided that, at the time such
policies are purchased, the amounts paid for such policies are
reasonable, customary and consistent with the reasonable expectation
that the issuer of the bonds, rather than the insurer will pay debt
service on the bonds. Paragraph (ii) of this opinion is accordingly
applicable to such payment representing maturing interest.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide that
original issue discount accrues either on the basis of a constant compound
interest rate or ratably over the term of the bond, depending on the date the
bond was issued. In addition, special rules apply if the purchase price of a
bond exceeds the original issue price plus the amount of original issue discount
which would have accrued to prior owners. The application of these rules will
also vary depending on the value of the bond on the date a Unitholder acquires
his units, and the price the Unitholder pays for his units.
Except with respect to those Trusts that hold "specified private
activity bonds" within the meaning of Section 57 (a)(5) of the Code issued on or
after August 8, 1986 as identified in the Prospectus related hereto (the "AMT
Trusts"), the Trusts do not include any specified private activity bonds and
accordingly none of the interest income of the Trusts (other than the AMT
Trusts, if any) shall be treated as an item of tax preference when computing the
alternative minimum tax. Because the AMT Trusts include "specified private
activity bonds," all or a portion of the income of the AMT Trusts shall be
treated as an item of tax preference for alternative minimum tax purposes in the
case of individuals, Trusts and corporations. In the case of corporations, for
taxable years beginning after December 31, 1986, the alternative minimum tax and
the Superfund Tax depend upon the corporation's alternative minimum taxable
income ("AMTI"), which is the corporation's taxable income with certain
adjustments.
Pursuant to Section 56(c) of the Code, one of the adjustment items used
in computing AMTI and the Superfund Tax of a corporation (other than an S
Corporation, Regulated Investment Company, Real Estate Investment Trust or
REMIC) for taxable years beginning after 1989, is an amount equal to 75% of the
excess of such corporation's "adjusted current earnings" over an amount equal to
its AMTI (before such adjustment item and the alternative tax net operating loss
deduction). "Adjusted current earnings" includes all tax-exempt interest,
including interest on all bonds in the Trusts, and tax-exempt original issue
discount.
Effective for tax returns filed after December 31, 1987, all taxpayers
are required to disclose to the Internal Revenue Service the amount of
tax-exempt interest earned during the year.
Section 265 of the Code provides for a reduction in each taxable year
of 100 percent of the otherwise deductible interest on indebtedness incurred or
continued by financial institutions, to which either Section 585 or Section 593
of the Code applies, to purchase or carry obligations acquired after August 7,
1986, the interest on which is exempt from Federal income taxes for such taxable
year. Under rules prescribed by Section 265, the amount of interest otherwise
deductible by such financial institutions in any taxable year which is deemed to
be attributable to tax-exempt obligations acquired after August 7, 1986, will be
the amount that bears the same ratio to the interest deduction otherwise
allowable (determined without regard to Section 265) to the taxpayer for the
taxable year as the taxpayer's average adjusted basis (within the meaning of
Section 1016) of tax-exempt obligations acquired after August 7, 1986, bears to
such average adjusted basis for all assets of the taxpayer, unless such
financial institution can otherwise establish, under regulations to be
prescribed by the Secretary of the Treasury, the amount of interest on
indebtedness incurred or continued to purchase or carry such obligations.
We also call attention to the fact that, under Section 265 of the Code,
interest on indebtedness incurred or continued to purchase or carry Units by
taxpayers other than certain financial institutions, as referred to above, is
not deductible for Federal income tax purposes. Under rules used by the Internal
Revenue Service for determining when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase of Units may
be considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of units. However, these rules
generally do not apply to interest paid on indebtedness incurred for
expenditures of a personal nature such as a mortgage incurred to purchase or
improve a personal residence.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") subjects
tax-exempt bonds to the market discount rules of the Code effective for bonds
purchased after April 30, 1993. In general, market discount is the amount (if
any) by which the stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if any, is
attributable to original issue discount not yet accrued). Market discount can
arise based on the price the Trust pays for Bonds or the price a Unitholder pays
for his or her units. Under the Tax Act, accretion of market discount is taxable
as ordinary income; under prior law, the accretion had been treated as capital
gain. Market discount that accretes while the Trust holds a Bond would be
recognized as ordinary income by the Unitholders when principal payments are
received on the Bonds, upon sale or at redemption (including early redemption),
or upon the sale or redemption of his or her units, unless a Unitholder elects
to include market discount in taxable income as it accrues.
We have also examined the income tax law of the State of Arizona (the
"STATE"), which is based upon the Federal Law, to determine its applicability to
the Arizona Insured Series 2 (the "ARIZONA TRUST") being created as part of the
Fund and to the holders of Units in the Arizona Trust who are residents of the
State ("ARIZONA UNITHOLDERS").
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 Arizona Trust is exempt from State income taxes.
Although we express no opinion with respect thereto, in rendering the
opinion expressed herein, we have assumed that the Bonds were validly issued by
the State of Arizona or its instrumentalities or municipalities.
Based on the foregoing, and review and consideration of existing State
laws, it is our opinion, and we herewith advise you, as follows:
(1) For State 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 will therefore be treated as the income
of the Unitholder under State law.
(2) For State income tax purposes, interest on the Bonds which
is excludable from Federal gross income and which is exempt from State
income taxes when received by the Arizona Trust, and which would be
excludable from Federal gross income and exempt from State 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 State income taxes.
(4) Each Unitholder will realize taxable gain or loss for
State income tax purposes when Bonds held in the Arizona Trust are
sold, exchanged, redeemed prior to maturity or paid at maturity, or
when the Unitholder redeems or sells his Unit(s), at a price that
differs from original cost as adjusted for accretion of any discount or
amortization of any 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) State 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 State
income taxes.
(6) Neither the Bonds nor the Units will be subject to State
property taxes, sales taxes or use taxes.
(7) In the case of Arizona Trusts for which an insurance
policy or policies with respect to the payment of principal and
interest on the Arizona Bonds has been obtained by the Depositor, any
proceeds paid under such 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 Bonds, rather than the insurer, will pay debt
service on the Bonds.
We have not examined any of the Bonds to be deposited and held in the
Arizona Trust or the proceedings for the issuance thereof or the opinions of
bond counsel with respect thereto, and therefore express no opinion as to the
exemption from State income taxes of interest on the Bonds if received directly
by a Unitholder.
We have also examined certain laws of the State of Oregon, to determine
their applicability to Insured Oregon Series 4 (the "OREGON TRUST") being
created as part of the Fund and to the holders of Units in the Oregon Trust who
are residents of the State of Oregon ("OREGON UNITHOLDER"). The assets of the
Oregon Trust will consist of interest-bearing obligations issued by or on behalf
of the State of Oregon (the "STATE") or counties, municipalities, authorities or
political subdivisions thereof ("OREGON BONDS") or by the Commonwealth of Puerto
Rico, Guam and the United States Virgin Islands (the "POSSESSION BONDS")
(collectively the "BONDS"). Although no opinion is expressed herein regarding
such matters, it is assumed that: (i) the Bonds were validly issued, (ii) the
interest thereon is excludible from gross income for federal income tax purposes
and (iii) interest on the Bonds, if received directly by a Unitholder, would be
exempt from the Oregon income tax applicable to individual, ("OREGON PERSONAL
INCOME TAX"). The opinion set forth below does not address the taxation of
persons other than full time residents of Oregon.
Based on the foregoing, and based on review and consideration of
existing laws of the State as of this date, it is our opinion and we herewith
advise you, as follows:
(1) The Oregon Trust is not an association taxable as a
corporation and based upon an administrative rule of the Oregon State
Department of Revenue, each Oregon Unitholder of the Trust will be
essentially treated as the owner of a PRO RATA portion of the Oregon
Trust and the income of such portion of the Oregon Trust will be
treated as the income of the Oregon Unitholder for Oregon Personal
Income Tax purposes;
(2) interest on the Bonds which is exempt from the Oregon
Personal Income Tax when received by the Oregon Trust, and which would
be exempt from the Oregon Personal Income Tax if received directly by
an Oregon Unitholder, will retain its status as exempt from such tax
when received by the Oregon Trust and distributed to an Oregon
Unitholder;
(3) to the extent that interest derived from the Oregon Trust
by an Oregon Unitholder with respect to the Possession Bonds is
excludable from gross income for Federal income tax purposes pursuant
to 48 U.S.C. ss.745, 48 U.S.C. ss.1423a and 48 U.S.C. ss.1403, such
interest will not be subject to the Oregon Personal Income Tax;
(4) each Oregon Unitholder of the Oregon Trust will recognize
gain or loss for Oregon Personal Income Tax purposes if the Trustee
disposes of a bond (whether by redemption, sale or otherwise) or if the
Oregon Unitholder redeems or sells Units of the Oregon Trust to the
extent that such a transaction results in a recognized gain or loss to
such Oregon Unitholder for Federal income tax purposes; and
(5) the Oregon Personal Income Tax does not permit a deduction
of interest paid or incurred on indebtedness incurred or continued to
purchase or carry Units in the Oregon Trust, the interest on which is
exempt from such Tax.
We have not examined any of the Bonds to be deposited and held in the
Oregon Trust or the proceedings for the issuance thereof or the opinions of bond
counsel with respect thereto, and therefore express no opinion as to the
exemption from the Oregon Personal Income Tax of interest on the Bonds if
received directly by a Unitholder. In addition, prospective purchasers subject
to the Oregon corporate income tax should be advised that for purposes of the
Oregon Corporate Income (Excise) Tax, interest on the Oregon Bonds received by
the Oregon Trust and distributed to an Oregon Unitholder subject to such tax
will be added to the corporate Oregon Unitholder's federal taxable income and
therefore will be taxable.
We have also examined the laws of the State of Missouri to determine
their applicability to the Fund. It is our opinion that under Missouri law, as
presently enacted and construed:
(i) The Fund is not an association taxable as a corporation
for Missouri income tax purposes.
(ii) The Unitholders of the Fund will be treated as the owners
of a pro rata portion of the Fund and the income of the Fund will
therefore be treated as income of the Unitholders under Missouri law.
(iii) The Fund will not be subject to the Kansas City,
Missouri Earnings and Profits Tax and each Unitholder's share of income
of the Fund will not generally be subject to the Kansas City, Missouri
Earnings and Profits Tax or the City of St. Louis Earnings Tax (except
that no opinion is expressed in the case of certain Unitholders,
including corporations, otherwise subject to the St. Louis City
Earnings Tax).
Chapman and Cutler has expressed no opinion with respect to taxation under any
other provisions of Missouri law.
Very truly yours,
CHAPMAN AND CUTLER
MJK/cjw
EXHIBIT 6(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm as experts under the caption
"Other Matters" and to the use of our report dated July 18, 1996 in Amendment
No. 1 to the Registration Statement (Form S-6 File No. 333-07491) and related
Prospectus of Voyageur Tax-Exempt Trust, Series 7.
KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
July 18, 1996
Exhibit 6(b)
Securities Pricing Service
717 Seventeenth Street, Suite 2500
Denver, Colorado 80202
Attn: Mark Nerud
Voyageur Fund Managers, Inc.,
90 S. Seventh Street, Suite 4400
Minneapolis, MN 55402-4115
July 18, 1996
Re: Voyageur Tax-Exempt Trust, Series 7 (A Unit Investment Trust)
Registered Under the Securities Act of 1933, File No. 333-07491
Dear Sir/Madam:
We have examined the Registration Statement for the above captioned
fund, copy of which is attached hereto.
We, the Securities Pricing Service, a division of George K. Baum &
Company, hereby consent to the reference in the Prospectus and Registration
Statement as the Evaluator for the above captioned fund.
You are authorized to file copies of this letter with the Securities
and Exchange Commission.
Sincerely,
T.J. Shah
Vice President, SPS
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<NAME> VOYAGEUR TAX EXEMPT TRUST,SERIES 7
<SERIES>
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<NAME> NATIONAL INSURED, SERIES 2
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<PERIOD-TYPE> OTHER
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<SERIES>
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