1933 Act Registration No. 2-95930
1940 Act Registration No. 811-4546
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 1997
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___
Post-Effective Amendment No. 28
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 28
(Check appropriate box or boxes.)
VAM INSTITUTIONAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
90 SOUTH SEVENTH STREET, SUITE 4400, MINNEAPOLIS, MINNESOTA 55402
(Address of Principal Executive Offices) (Zip Code)
(612) 376-7000
(Registrant's Telephone Number, including Area Code)
JOHN G. TAFT
90 SOUTH SEVENTH STREET, SUITE 4400, MINNEAPOLIS, MINNESOTA 55402
(Name and Address of Agent for Service)
Copy to:
Kathleen L. Prudhomme, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
It is proposed that this filing will become effective (check appropriate box):
_X_ immediately upon filing pursuant to paragraph (b) of Rule 485
___ on (specify date) pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (specify date) pursuant to paragraph (a)(1) of Rule 485
___ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
___ on (specify date) pursuant to paragraph (a)(2) of Rule 485
The Registrant has registered an indefinite number of shares of common stock
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The most recent Rule 24f-2 Notice filed by the Registrant
was on June 17, 1994, for Series A--Voyageur Money Market Fund for the fiscal
year ended April 30, 1994. Voyageur Money Market Fund no longer exists. The
Registrant's fiscal year end has been changed to October 31; however no Rule
24f-2 Notices have been filed since June 17, 1994 , because none of the
Registrant's currently existing series have commenced operations.
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<PAGE>
CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
(VAM INSTITUTIONAL FUNDS, INC.)
Item No. of
Form N-1A Caption in Prospectus
- --------- ---------------------
1 Cover Page
2 Fees and Expenses
3 Not Applicable
4 Investment Objectives and Policies; Investment Techniques,
Strategies and Risks; General Information
5 Management; General Information
6 Distributions to Shareholders and Taxes; General Information
7 How to Purchase Shares; Exchange Privilege; Management;
Determination of Net Asset Value
8 How to Sell Shares
9 Not Applicable
Caption in Statement of Additional Information
10 Cover Page
11 Table of Contents
12 Additional Information
13 Investment Policies and Restrictions
14 Board Members and Executive Officers
15 Board Members and Executive Officers
16 Board Members and Executive Officers; The Adviser,
Sub-Adviser and Administrative Services
17 The Adviser, Sub-Adviser and Administrative Services
18 Not Applicable
19 Net Asset Value and Public Offering Price
20 Taxes
21 The Adviser, Sub-Adviser and Administrative Services
22 Performance Comparisons
23 Financial Statements
<PAGE>
VAM Institutional Funds, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which offers its shares in separate
diversified investment portfolios (the "Funds"), each with its own investment
objective and policies. This prospectus relates to shares of the six Funds
listed below. The Funds are primarily designed to provide pension and profit
sharing plans, employee benefit trusts, endowments, foundations, other
institutions, corporations and high net worth individuals access to the
professional investment management services offered by Voyageur Asset Management
LLC (the "Adviser" or "VAM LLC"), which serves as investment adviser to the
Funds.
VAM SHORT DURATION TOTAL RETURN FUND
VAM INTERMEDIATE DURATION TOTAL RETURN FUND
VAM CORE TOTAL RETURN FUND
VAM MID CAP STOCK FUND
VAM GROWTH STOCK FUND
The investment objective of each Fund, along with a detailed
description of the types of securities in which each Fund may invest and the
investment policies and restrictions applicable to each Fund, are set forth in
this Prospectus. There is no assurance that any Fund's investment objective will
be achieved.
The Funds are no-load which means that there is no sales charge when
you buy or redeem shares.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE
REFERENCE. THE FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER FEDERAL AGENCY. AN INVESTMENT IN ANY OF THE FUNDS INVOLVES
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL DUE TO FLUCTUATIONS IN
THE APPLICABLE FUND'S NET ASSET VALUE.
This Prospectus sets forth certain information about the Funds that a
prospective investor ought to know before investing. Investors should read and
retain this Prospectus for future reference. A Statement of Additional
Information about the Funds dated July 11, 1997 is available free of charge.
Write to the Funds at 90 South Seventh Street, Suite 4400, Minneapolis,
Minnesota 55402 or telephone 612-376-7030 or 800-277-3862. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated in its entirety by reference in this Prospectus.
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.
Prospectus dated July 11, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
Fees and Expenses.......................................................... 3
Investment Objectives and Policies......................................... 4
Investment Techniques, Strategies and Risks................................ 13
Investment Restrictions.................................................... 18
How to Purchase Shares..................................................... 18
How to Sell Shares......................................................... 19
Exchange Privilege......................................................... 20
Management................................................................. 21
Determination of Net Asset Value........................................... 22
Distributions to Shareholders and Taxes.................................... 23
Investment Performance..................................................... 24
General Information........................................................ 25
<PAGE>
FEES AND EXPENSES
Each Fund is offered to investors on a no-load basis, without any sales
commissions or distribution ("12b-1 plan") charges.
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases....................... None
Sales Load Imposed on Reinvested Dividends............ None
Deferred Sales Load................................... None
Redemption Fees....................................... None
Exchange Fee ......................................... None
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(after fee waivers and expense reimbursements
as a percentage of average net assets)
Total Operating
Investment Other Expenses* Expenses*
Advisory (after expense (after expense
Fees reimbursements) reimbursements)
---- --------------- ---------------
<S> <C> <C> <C>
VAM Short Duration Total Return Fund............... 50% .25% .75%
VAM Intermediate Duration Total Return Fund........ 50% .25% .75%
VAM Core Total Return Fund......................... 50% .25% .75%
VAM Mid Cap Stock Fund............................. 1.00% .25% 1.25%
VAM Growth Stock Fund.............................. 1.00% .25% 1.25%
* If expenses were not waived, Other Expenses are estimated to be approximately
.50% for each Fund and Total Operating Expenses are estimated to be
approximately 1.00% for each of Short Duration Total Return Fund, Intermediate
Duration Total Return Fund and Core Total Return Fund and approximately 1.50%
for each of Mid Cap Stock Fund and Growth Stock Fund.
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming a
5% annual return and redemption at the end of each time period:
1 YEAR 3 YEARS
------ -------
VAM Short Duration Total Return Fund............... $ 8 $ 24
VAM Intermediate Duration Total Return Fund........ $ 8 $ 24
VAM Core Total Return Fund......................... $ 8 $ 24
VAM Mid Cap Stock Fund............................. $ 13 $ 40
VAM Growth Stock Fund.............................. $ 13 $ 40
THE EXAMPLES CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. The purpose of the above Fees and Expenses table is to assist the
investor in understanding the various costs and expenses that investors in the
Funds will bear directly or indirectly. Other Expenses set forth in the table
are based on estimated amounts (after expense reimbursements) for the current
fiscal year. The Adviser has voluntarily agreed to absorb expenses for each Fund
through October 31, 1997, to the extent that Total Operating Expenses exceed the
amounts set forth in the table above.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are described below.
Each Fund's investment objective is fundamental, which means that it cannot be
changed without the approval of a majority of the respective Fund's outstanding
voting securities, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). Unless otherwise stated, the investment policies, techniques
and strategies discussed below represent nonfundamental policies of each Fund
and may be changed by action of the Board of Directors.
Because each Fund has different investment policies, each is subject to
varying degrees of financial, market and credit risks. Therefore, investors
should carefully consider the investment objective, investment policies and
potential risks of any Fund before investing. There are risks in any investment
program and there is no assurance that a Fund's investment objective will be
achieved. The value of each Fund's shares will fluctuate with changes in the
market value of its investments.
THE FIXED INCOME FUNDS
VAM Short Duration Total Return Fund, VAM Intermediate Duration Total
Return Fund and VAM Core Total Return Fund (the "Fixed Income Funds") invest
primarily in debt securities and are therefore subject to interest rate risk and
credit risk. Interest rate risk is the risk that rising interest rates will make
bonds issued at lower interest rates worth less. As a result, the value of each
Fund's shares will vary. To the extent that a Fund invests in non-U.S.
Government securities, it will be subject to credit risk, which is the risk that
a bond issuer will fail to make timely payments of interest or principal. The
Funds will also be subject to prepayment risk and extension risk to the extent
they invest in mortgage-related securities. See "Characteristics and Risks of
Certain Debt Securities -- Mortgage-Related Securities."
Other investment techniques used by the Funds also pose certain risks.
See "Investment Techniques, Strategies and Risks."
VAM SHORT DURATION TOTAL RETURN FUND, VAM INTERMEDIATE DURATION TOTAL RETURN
FUND AND VAM CORE TOTAL RETURN FUND
The investment objective of each Fund is to achieve as high a level of
total return as is consistent with reasonable risk and with the average
effective duration of its respective portfolio securities. Under normal
circumstances, VAM Short Duration Total Return Fund ("Short Fund") seeks to
maintain an average effective portfolio duration ranging from zero to three
years, VAM Intermediate Duration Total Return Fund ("Intermediate Fund") seeks
to maintain an average effective portfolio duration ranging from two and
one-half to four and one-half years and VAM Core Total Return Fund ("Core Fund")
seeks to maintain an average effective portfolio duration ranging from three and
one-half to seven years. Effective duration estimates the interest rate risk of
a portfolio of securities. See " --Duration," below. The total return sought by
each Fund is a combination of income and capital appreciation. The Adviser
emphasizes income in selecting securities for the Funds, but also considers the
potential for changes in value resulting from changes in interest rates,
individual issuers' credit standing and other factors.
Each Fund seeks to realize its objective by investing in a diversified
portfolio of U.S. Government securities (including mortgage-related securities),
corporate bonds and other fixed-income securities, including privately issued
mortgage-backed securities, asset-backed securities, convertible bonds and
short-term fixed-income securities. Each Fund's investments in mortgage-related
securities may include derivative mortgage securities. The Funds will not,
however, invest in any derivative mortgage securities that have risk
characteristics which, in the opinion of the Adviser, are greater than those of
the underlying collateral. The Funds also may invest in fixed-income securities
issued by foreign governmental and nongovernmental issuers and foreign index
linked securities. The Funds'
<PAGE>
investments in foreign securities (which include securities issued by both
governmental and nongovernmental issuers) will be limited to no more than 25% of
the respective Fund's total assets and will consist only of U.S. dollar
denominated securities.
The securities in each Fund's portfolio will have an overall
dollar-weighted average quality of at least A (as rated by S&P or Moody's). In
determining a Fund's overall dollar-weighted average quality, unrated securities
are treated as if rated, based on the Adviser's view of their comparability to
rated securities. However, each Fund may invest up to 15% of its net assets in
securities that are rated lower than BBB by S&P or lower than Baa by Moody's but
rated at least B by S&P or Moody's (or, in either case, if unrated, deemed by
the Adviser to be of comparable quality). Securities rated Baa are considered by
Moody's as medium-grade obligations which lack outstanding investment
characteristics and in fact have speculative characteristics as well, while
securities rated BBB are regarded by S&P as having an adequate capacity to pay
principal and interest. Securities rated lower than Baa or BBB are sometimes
referred to as "high yield" or "junk" bonds. See "Investment Policies and
Restrictions -- High Yield Securities" in the Statement of Additional
Information for a discussion of the risks of investing in high yield securities.
The Funds may be more dependent on the Adviser's investment analysis with
respect to securities for which a comparable quality determination is made than
is the case with respect to rated securities. See Appendix A to the Statement of
Additional Information for a description of Moody's and S&P ratings applicable
to fixed income securities.
Each Fund may buy or sell interest rate futures contracts, options on
interest rate futures contracts and options on debt securities for the purpose
of hedging against changes in the value of securities which a Fund owns or
anticipates purchasing due to anticipated changes in interest rates. The Funds
may enter into swap agreements for purposes of attempting to obtain a particular
investment return at a lower cost to the Fund than if the Fund had invested
directly in an instrument that provided that desired return. In addition, the
Funds may purchase securities on a when-issued basis and purchase or sell
securities on a forward commitment basis, lend their securities to brokers,
dealers and other financial institutions to earn income, and enter into reverse
repurchase agreements as a means of borrowing money for investment purposes. The
foregoing techniques involve special risk considerations. See "Investment
Techniques, Strategies and Risks" for a description of these techniques and a
discussion of the risks involved in their use.
DURATION
Duration is one of the fundamental tools used in portfolio selection
for the Fixed Income Funds. Duration estimates the interest rate risk (price
volatility) of a security, i.e., how much the value of the security is expected
to change with a given change in interest rates. Generally, the longer a
security's effective duration, the more sensitive its price is to changes in
interest rates. For example, if interest rates were to increase by 1%, the
market value of a bond with an effective duration of five years would decrease
by about 5%, with all other factors being consistent.
Traditionally, a debt security's "term to maturity" has been used as a
proxy for the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "volatility" of the security). However,
"term to maturity" measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments prior
to maturity. Duration takes the length of the time intervals between the present
time and the time that the interest and principal payments are scheduled or, in
the case of a callable bond, expected to be received, and weights them by the
present values of the cash to be received at each future point in time. For any
fixed income security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. In general, all other things
being equal, the lower the stated or coupon rate of interest of a fixed income
security, the longer the duration of the security; conversely, the higher the
stated or coupon rate of interest of a fixed income security, the shorter the
duration of the security.
<PAGE>
Futures, options and options on futures have durations which, in
general, are closely related to the duration of the securities which underlie
them. Holding long futures or call option positions (backed by a segregated
account of cash and cash equivalents) will lengthen a Fund's duration by
approximately the same amount as holding an equivalent amount of the underlying
securities. Short futures or put option positions have durations roughly equal
to the negative duration of the securities that underlie these positions and
have the effect of reducing portfolio duration by approximately the same amount
as selling an equivalent amount of the underlying securities.
There are some situations where even the standard duration calculation
does not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. Another example where the interest rate exposure is not properly
captured by duration is the case of mortgage pass-through securities. The stated
final maturity of such securities is up to 30 years, but current prepayment
rates are more critical in determining such securities' interest rate exposure.
In these and other similar situations, the Adviser will use more sophisticated
analytical techniques involving estimates that incorporate the economic life of
a security into the determination of its interest rate exposure. Deviations from
these estimates in the actual prepayments experienced, however, may
significantly affect the ultimate maturity of the security and, in such an
event, the maturity, duration and risk characteristics of the security may be
significantly greater or less than intended.
CHARACTERISTICS AND RISKS OF CERTAIN DEBT SECURITIES
The following describes in greater detail some of the types of
securities in which the Fixed Income Funds invest.
U.S. Government Securities.
Each Fixed Income Fund may invest in U.S. Government securities. U.S.
Government securities are issued or guaranteed as to payment of principal and
interest by the U.S. Government, its agencies or instrumentalities. THE CURRENT
MARKET PRICES FOR SUCH SECURITIES ARE NOT GUARANTEED AND WILL FLUCTUATE AS WILL
THE NET ASSET VALUE OF THE FUNDS. Some U.S. Government securities, such as
Treasury bills, notes and bonds and securities guaranteed by the Government
National Mortgage Association ("GNMA"), are supported by the full faith and
credit of the United States; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the U.S.
Treasury; others, such as those of the Federal National Mortgage Association
("FNMA"), are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations, and still others are supported only by the
credit of the instrumentality.
U.S. Government securities include securities that have no coupons, or
have been stripped of their unmatured interest coupons, individual interest
coupons from such securities that trade separately and evidences of receipt of
such securities. Such securities may pay no cash income and are purchased at a
deep discount from their value at maturity. Because interest on zero coupon
securities is not distributed on a current basis but is, in effect, compounded,
zero coupon securities tend to be subject to greater market risk than
interest-paying securities of similar maturities.
Mortgage-Related Securities.
The Fixed Income Funds' investments in U.S. Government securities may
include investments in mortgage-related securities and each Fund may invest in
mortgage-related securities issued by private issuers. Mortgage-related
securities, as the term is used in this Prospectus, include mortgage
pass-through securities, adjustable rate mortgage securities and derivative
mortgage securities such as collateralized mortgage obligations and stripped
mortgage-backed securities. The investment characteristics of mortgage-related
securities differ from those of traditional fixed-income securities.
<PAGE>
The major differences include the fact that interest payments and principal
repayments on mortgage-related securities are made more frequently (usually
monthly), and principal may be prepaid at any time because the underlying
mortgage loans or other assets generally may be prepaid at any time. These
differences can result in significantly greater price and yield volatility than
is the case with traditional fixed-income securities. Mortgage-related
securities are subject to both prepayment risk and extension risk. Prepayment
risk is the risk that unanticipated prepayments of the underlying mortgages will
occur. Unanticipated prepayments generally occur when, as a result of falling
interest rates, homeowners refinance their home mortgages. Generally, these
unanticipated prepayments must then be invested at lower interest rates,
reducing the income of the Fund. In addition, when interest rates fall, prices
of mortgage-backed securities may not rise as much as prices of other comparable
fixed income securities because investors may anticipate an increase in mortgage
prepayments. Extension risk is the risk that rising interest rates may cause
prepayments to occur at a slower than expected rate.
This particular risk may effectively change a security which was considered
short- or intermediate-duration at the time of purchase into a long-duration
security. Long-duration securities generally fluctuate more widely in response
to changes in interest rates than short- or intermediate-duration securities.
MORTGAGE PASS-THROUGH SECURITIES are securities representing interests
in "pools" of mortgage loans secured by residential or commercial real property
in which payments of both interest and principal on the securities are generally
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities).
Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves) may be
guaranteed by the full faith and credit of the U.S. Government (in the case of
securities guaranteed by GNMA); or guaranteed by agencies or instrumentalities
of the U.S. Government (in the case of securities guaranteed by FNMA or the
Federal Home Loan Mortgage Corporation ("FHLMC"), which guarantees are supported
only by the discretionary authority of the U.S. Government to purchase the
agency's obligations). Mortgage-related securities created by nongovernmental
issuers (such as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other secondary market
issuers) may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit, which
may be issued by governmental entities, private insurers or the mortgage
poolers.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS") are pass-through mortgage
securities collateralized by mortgages with interest rates that are adjusted
from time to time. The adjustments usually are determined in accordance with a
predetermined interest rate index and may be subject to certain limits. While
values of ARMS, like other fixed-income securities, generally vary inversely
with changes in market interest rates (increasing in value during periods of
declining interest rates and decreasing in value during periods of increasing
interest rates), the values of ARMS should generally be more resistant to price
swings than other fixed-income securities because the interest rates of ARMS
move with market interest rates. The adjustable rate feature of ARMS will not,
however, eliminate fluctuations in the prices of ARMS, particularly during
periods of extreme fluctuations in interest rates. Also, since many adjustable
rate mortgages only reset on an annual basis, it can be expected that the prices
of ARMS will fluctuate to the extent that changes in prevailing interest rates
are not immediately reflected in the interest rates payable on the underlying
adjustable rate mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs") are derivative
mortgage-related instruments. CMOs may be collateralized by whole mortgage loans
but are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured into multiple
classes, with each class bearing a different stated maturity. The principal and
interest payments on the underlying mortgages or mortgage pass-through
securities may be allocated among the several classes of a CMO in many ways. For
example, certain classes may have variable or
<PAGE>
floating interest rates and others may be stripped securities which provide only
the principal or interest feature of the underlying security. Generally, the
purpose of the allocation of the cash flow of a CMO to the various classes is to
obtain a more predictable cash flow to certain of the individual classes than
exists with the underlying collateral of the CMO. As a general rule, the more
predictable the cash flow is on a CMO class, the lower the anticipated yield
will be on that tranche at the time of issuance relative to prevailing market
yields on mortgage-related securities. As part of the process of creating more
predictable cash flows on most of the classes of a CMO, one or more classes
generally must be created that absorb most of the volatility in the cash flows
on the underlying mortgage loans. The yields on these classes are generally
higher than prevailing market yields on mortgage-related securities with similar
maturities. As a result of the uncertainty of the cash flows of theses classes,
the market prices of and yields on the classes are generally more volatile. The
Funds will not invest in classes that the Adviser believes have risk
characteristics greater than those of the underlying collateral, including any
classes that have an imbedded leverage component. Classes in which the Funds
will not invest include "interest only" or "IO" classes, "principal only" or
"PO" classes, "inverse floaters," "companion bonds," "Z classes" and "inverse
IOs." The Funds also will not invest in stripped mortgage-backed securities.
CMOs that are issued or guaranteed by the U.S. Government or by any of
its agencies or instrumentalities will be considered U.S. Government securities
by the Funds, while other CMOs, even if collateralized by U.S. Government
securities, will have the same status as other privately issued securities for
purposes of applying a Fund's investment policies.
Asset-Backed Securities.
Each Fixed Income Fund may invest in asset-backed securities. Such
securities represent the application of the securitization techniques used to
develop mortgage-related securities to a broad range of other assets. Through
the use of trusts and special purpose corporations, various types of assets,
primarily automobile and credit card receivables and home equity loans, are
being securitized in pass-through structures similar to the mortgage
pass-through structures described above or in a pay-through structure similar to
the CMO structure.
In general, the collateral supporting asset-backed securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments. As with mortgage-related securities, asset-backed
securities are often backed by a pool of assets representing obligations of a
number of different parties and use various credit enhancement techniques.
Generally, asset-backed securities involve many of the risks associated
with mortgage-related securities; however, asset-backed securities involve
certain risks that are not posed by mortgage-related securities, resulting
mainly from the fact that asset-backed securities do not usually contain the
complete benefit of a security interest in the related collateral. For example,
credit card receivables generally are unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, including
the bankruptcy laws, some of which may reduce the ability to obtain full
payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds for repossessed collateral may not always be
sufficient to support payments on these securities.
Foreign Securities.
Each Fixed Income Fund may invest in foreign fixed income securities
denominated in U.S. dollars.
SECURITIES OF SUPRANATIONAL ORGANIZATIONS. Each Fixed Income Fund may
invest in fixed-income securities issued or guaranteed by supranational
organizations. Such organizations are entities designated or supported by a
government or government entity to promote economic development, and include,
among others, the Asian Development Bank, the European Coal and Steel Community,
the
<PAGE>
European Economic Community and the World Bank. These organizations do not have
taxing authority and are dependent upon their members for payments of interest
and principal. Each supranational entity's lending activities are limited to a
percentage of its total capital (including "callable capital" contributed by
members at the entity's call), reserves and net income. Securities issued by
supranational organizations may be denominated in U.S. dollars or in foreign
currencies. Short Fund, Intermediate Fund and Core Fund will invest only in
those securities denominated in U.S. dollars. Securities issued or guaranteed by
supranational organizations are considered by the Securities and Exchange
Commission to be securities in the same industry. Therefore, no Fund will
concentrate 25% or more of the value of its assets in securities of a single
supranational organization.
BRADY BONDS. Each Fixed Income Fund may invest in Brady Bonds, which
are created through the exchange of existing commercial bank loans to foreign
entities for new obligations in connection with debt restructuring under a plan
introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the
"Brady Plan"). Brady Bonds have been issued only recently and, accordingly, do
not have a long payment history. They may be collateralized or uncollateralized
and issued in various currencies (although most are dollar-denominated) and they
are actively traded in the over-the-counter secondary market.
DEPOSITORY RECEIPTS AND DEPOSITORY SHARES. Each Fixed Income Fund may
invest in ADRs or other similar securities, such as American Depository Shares,
Global Depository Receipts and Global Depository Shares. ADRs are receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying securities. American Depository Shares are convertible into
securities of foreign issuers. Global Depository Receipts, which are generally
issued by foreign banks and evidence ownership of either foreign or domestic
securities, and Global Depository Shares are typically issued in bearer form and
are designed for use in European and other international securities markets.
Global Depository Receipts and Global Depository Shares may not necessarily be
denominated in the same currency as the securities into which they may be
converted.
ADRs, which are U.S. dollar-denominated receipts, are typically issued
by domestic banks or trust companies, and represent the deposit with those
entities of securities of a foreign issuer. These securities may not necessarily
be denominated in the same currency as the securities into which they may be
converted. ADRs are publicly traded on exchanges or over-the-counter in the
United States and are issued through "sponsored" or "unsponsored" arrangements.
In a sponsored ADR arrangement, the foreign issuer assumes the obligation to pay
some or all of the depositary's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligations and the depositary's
transaction fees are paid directly by the ADR holders. In addition, less
information is available in the United States about an unsponsored ADR than
about a sponsored ADR. The Funds may invest in ADRs through both sponsored and
unsponsored arrangements.
Generally, ADRs, in registered form, are designed for use in U.S.
securities markets. As a result of the absence of established securities markets
and publicly owned corporations in certain foreign countries as well as
restrictions on direct investment by foreign entities, the Funds may be able to
invest in such countries solely or primarily through ADRs or similar securities
and government approved investment vehicles. No more than 5% of a Fund's total
assets will be invested in ADRs sponsored by persons other than the underlying
issuers. Issuers of the stock of such unsponsored ADRs are not obligated to
disclose material information in the United States and, therefore, there may not
be a correlation between such information and the market value of such ADRs.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investing in the securities
of foreign issuers involves special risks and considerations not typically
associated with investing in U.S. companies. These include differences in
accounting, auditing and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country); and political instability which
<PAGE>
could affect U.S. investments in foreign countries. There is generally less
publicly available information about foreign companies than is available about
companies in the United States. Foreign companies are not subject to uniform
audit and financial reporting standards, practices and requirements comparable
to those in the United States. Additionally, foreign securities and dividends
and interest payable on those securities may be subject to foreign taxes,
including taxes withheld from payments on those securities. Foreign securities
often trade with less frequency and volume than domestic securities and
therefore may exhibit greater price volatility. Additional costs associated with
an investment in foreign securities may include higher custodial fees than
domestic custodial arrangements and transaction costs of foreign currency
conversions.
Foreign securities involve currency risks. Changes in foreign exchange
rates also will affect the value of securities denominated or quoted in
currencies other than the U.S. dollar. The U.S. dollar value of a foreign
security tends to decrease when the value of the dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the dollar falls against such currency. Fluctuations in exchange
rates may also affect the earning power and asset value of the foreign entity
issuing the security. Dividend and interest payments may be returned to the
country of origin, based on the exchange rate at the time of disbursement, and
restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies in connection with purchases
and sales of foreign securities.
Foreign Index Linked Securities.
Each Fixed Income Fund may invest up to 10% of its total assets in
instruments that return principal and/or pay interest to investors in amounts
which are linked to the level of a particular foreign index ("Foreign Index
Linked Securities"). A foreign index may be based upon the exchange rate of a
particular currency or currencies or the differential between two currencies, or
the level of interest rates in a particular country or countries or the
differential in interest rates between particular countries. In the case of
Foreign Index Linked Securities linking the principal amount to a foreign index,
the amount of principal payable by the issuer at maturity will increase or
decrease in response to changes in the level of the foreign index during the
term of the Foreign Index Linked Securities. In the case of Foreign Index Linked
Securities linking the interest component to a foreign index, the amount of
interest payable will adjust periodically in response to changes in the level of
the foreign index during the term of the Foreign Index Linked Security. Foreign
Index Linked Securities may be issued by a U.S. or foreign governmental agency
or instrumentality or by a private domestic or foreign issuer. Only Foreign
Index Linked Securities issued by foreign governmental agencies or
instrumentalities or by foreign issuers will be considered foreign securities
for purposes of the Funds' investment policies and restrictions.
Foreign Index Linked Securities may offer higher yields than comparable
securities linked to purely domestic indexes but also may be more volatile.
Foreign Index Linked Securities are relatively recent innovations for which the
market has not yet been fully developed and, accordingly, they typically are
less liquid than comparable securities linked to purely domestic indexes. In
addition, the value of Foreign Index Linked Securities will be affected by
fluctuations in foreign exchange rates or in foreign interest rates. If the
Adviser is incorrect in its prediction as to the movements in the direction of
particular foreign currencies or foreign interest rates, the return realized by
a Fund on Foreign Index Linked Securities may be lower than if the Fund had
invested in a similarly rated domestic security.
Corporate Fixed-Income Securities.
Each Fixed Income Fund may each invest in corporate fixed-income
securities, which include corporate bonds, debentures, notes and other similar
corporate debt instruments, including convertible securities.
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Fixed-income securities may be acquired with warrants attached.
Corporate income-producing securities may also include forms of preferred or
preference stock. The risks inherent in debt securities depend primarily on the
term and quality of the obligations in a Fund's portfolio as well as on market
conditions. A decline in the prevailing levels of interest rates generally
increases the value of debt securities, while an increase in rates usually
reduces the value of those securities. The rate of return or return of principal
on some fixed-income obligations may be linked or indexed to the level of
exchange rates between the U.S. dollar and a foreign currency or currencies. See
"-- Foreign Index Linked Securities."
The Fixed Income Funds' investments in corporate fixed-income
securities may also include zero coupon, pay-in-kind and delayed interest
securities. Zero coupon securities pay no cash income to their holders until
they mature and are issued at substantial discounts from their value at
maturity. When held to maturity, their entire return comes from the difference
between their purchase price and their maturity value. Pay-in-kind securities
pay interest through the issuance to the holders of additional securities.
Delayed interest securities are securities that remain zero coupon securities
until a predetermined date at which time the stated coupon rate becomes
effective and interest becomes payable at regular intervals. Because interest on
zero coupon, pay-in-kind and delayed interest securities is not paid on a
current basis, the values of securities of this type are subject to greater
fluctuations than the values of securities that distribute income regularly and
they may be more speculative than such securities. Accordingly, the values of
these securities may be highly volatile as interest rates rise or fall. In
addition, a Fund's investments in zero coupon, pay-in-kind and delayed interest
securities will result in special tax consequences. Although zero coupon
securities do not make interest payments, for tax purposes a portion of the
difference between a zero coupon security's maturity value and its purchase
price is taxable income of the Fund each year.
THE EQUITY FUNDS
GENERAL
VAM Mid Cap Stock Fund ("Mid Cap Fund") and VAM Growth Stock Fund
("Growth Fund") (collectively, the "Equity Funds") invest in common stocks and
are therefore subject to market risk. Market risk is the risk that a security
will be worth less when it is sold than when it was bought due to any number of
factors, including reduced demand or loss of investor confidence in the market.
The stock market tends to be cyclical, with periods when stock prices generally
rise and periods when stock prices generally decline. As a result, the value of
each Fund's shares will vary. Because of the risks associated with common stock
investments, the Funds are intended to be long-term investment vehicles and are
not designed to provide investors with a means of speculating on short-term
market movements. Investors should be willing to accept the risk of the
potential for sudden, sometimes substantial declines in market value.
Companies in which Mid Cap Fund invests may involve certain special
risks. Mid cap companies may have limited product lines, markets or financial
resources, and they may be dependent on a limited management group. The
securities of mid cap companies may have limited market stability and may be
subject to more abrupt or erratic market movements than securities of larger,
more established companies or the market averages in general. Thus, shares of
Mid Cap Fund may be subject to greater fluctuation in value than shares of a
more conservative equity fund.
The investment techniques used by the Funds also pose certain risks.
See "Investment Techniques, Strategies and Risks."
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF MID CAP FUND AND GROWTH FUND
The investment objective of Mid Cap Fund is long-term capital
appreciation. The Fund will attempt to achieve its objective by investing
primarily (at least 65% of its total assets under normal market conditions) in
common stocks of mid-sized companies which the Adviser believes have the
potential for high earnings growth. The mid-sized companies in which the Fund
invests have stock market capitalizations within the range of market
capitalizations for those companies included in the S&P MidCap 400 Index ($110
million to $9.16 billion as of June 30, 1997) or the Russell Mid Cap Index ($751
million to $23.8 billion as of June 30, 1997) at the time of purchase. Mid Cap
Fund has been designed to provide investors with potentially greater long-term
rewards than provided by an investment in a fund that seeks capital appreciation
from common stocks with more established earnings histories.
Mid Cap Fund will invest in common stocks of companies which the
Adviser believes to be undervalued and to have the potential for high earnings
growth. Companies in which the Fund invests generally will meet one or more of
the following criteria: high historical earnings-per-share growth; high
projected future earnings-per-share growth; an increase in research analyst
earnings estimates; attractive relative price to earnings ratios; and high
relative discounted cash flows. In selecting the Fund's investments, the Adviser
also focuses on companies with capable management teams, strong industry
positions, sound capital structures, high returns on equity, high reinvestment
rates and conservative financial accounting policies.
The investment objective of Growth Fund is long-term capital
appreciation. The Fund will attempt to achieve its objective by investing
primarily (at least 65% of its total assets under normal market conditions) in
common stocks diversified among individual companies and industries.
Growth Fund will invest in common stocks of companies which the Adviser
believes offer the potential for long-term capital appreciation. Some of the
factors the Adviser will consider in making the Fund's investments are
increasing demand for a company's products or services, the belief that a
company's securities are temporarily undervalued, the development of new or
improved products or services, the probability of increased operating
efficiencies, changes in management, emphasis on research and development,
cyclical conditions, or possible mergers or acquisitions.
Up to 10% of each Equity Fund's total assets may be invested in foreign
securities. See "--The Fixed Income Funds--Characteristics and Risks of Certain
Debt Securities--Foreign Securities--Risks of Investing in Foreign Securities"
for a discussion of the risks associated with investments in foreign
securities.
Each Equity Fund may also invest in preferred stocks, convertible
bonds, convertible debentures, convertible notes, convertible preferred stocks
and warrants or rights. To the extent that a Fund invests in convertible debt
securities, those securities will be purchased on the basis of their equity
characteristics, and ratings, if any, of those securities will not be an
important factor in their selection. For more information on warrants, see
"Investment Policies and Restrictions -- Warrants" in the Statement of
Additional Information. In addition, as a means of regulating exposure to the
equity markets, the Equity Funds may invest to the extent permitted by law in
securities issued by other registered investment companies, including those
traded on securities exchanges, that invest principally in securities in which
the respective Fund is authorized to invest. To the extent a Fund invests in
other investment companies, the Fund's shareholders will incur certain duplicate
fees and expenses, including investment adviser fees. Exchange traded investment
company securities typically trade at prices that differ from the company's net
asset value per share and often trade at a discount to net asset value. The
Equity Funds will purchase exchange traded investment company securities only in
the secondary market and not in an initial offering.
<PAGE>
The Equity Funds may write covered put and call options on the
securities in which they may invest, purchase put and call options with respect
to such securities, and enter into closing purchase and sale transactions with
respect thereto. The Equity Funds may also purchase and write put and call
options on stock indexes listed on national securities exchanges. In addition,
solely for the purpose of hedging against changes in the value of its portfolio
securities due to anticipated changes in the market, the Equity Funds may enter
into stock index futures contracts and interest rate futures contracts, purchase
and write put or call options on such contracts, and close such contracts and
options. Each Equity Fund may purchase and sell securities on a when-issued or
delayed-delivery basis and enter into forward commitments to purchase
securities, lend its securities to brokers, dealers and other financial
institutions to earn income, and enter into reverse repurchase agreements as a
means of borrowing money for investment purposes. See "Investment Techniques,
Strategies and Risks."
TEMPORARY INVESTMENTS
Each Fund may retain all its assets in cash or invest in short-term
money market instruments when economic or market conditions are such that the
Adviser deems a temporary defensive position to be appropriate. Even when a Fund
is fully invested, normally up to 5% of the Fund's total assets will be held in
short-term money market securities and cash to pay redemption requests and Fund
expenses. Investments in short-term money market securities may include
obligations of the U.S. Government and its agencies and instrumentalities, time
deposits, bank certificates of deposit, bankers' acceptances, high-grade
commercial paper and other money market instruments. See "Investment Objectives,
Policies and Restrictions" in the Statement of Additional Information.
INVESTMENT TECHNIQUES, STRATEGIES AND RISKS
The following discussion describes in greater detail some of the
investment techniques that the Funds may employ from time to time. Additional
information may be found in the Statement of Additional Information.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid
securities, which are securities that cannot be sold in the ordinary course of
business within seven days at approximately the price at which the Fund has
valued the securities. Each Fund may invest in nonpublicly traded securities
(commonly referred to as "restricted securities"), which are securities that
subject to contractual or legal restrictions on transfer.
"Restricted securities" are securities which were originally sold in
private placements and which have not been registered under the Securities Act
of 1933 (the "1933 Act"). Such securities generally have been considered
illiquid, since they may be resold only subject to statutory restrictions and
delays or if registered under the 1933 Act. In 1990, however, the Securities and
Exchange Commission adopted Rule 144A under the 1933 Act, which provides a safe
harbor exemption from the registration requirements of the 1933 Act for resales
of restricted securities to "qualified institutional buyers," as defined in the
rule. The result of this rule has been the development of a more liquid and
efficient institutional resale market for restricted securities. Thus,
restricted securities are no longer necessarily illiquid. The Funds may
therefore invest in Rule 144A securities and treat them as liquid when they have
been determined to be liquid by the Board of Directors of the Company or by the
Adviser subject to the oversight of and pursuant to procedures adopted by the
Board of Directors. Similar determinations may be made with respect to
commercial paper issued in reliance on the so-called "private placement"
exemption from registration under Section 4(2) of the 1933 Act.
Illiquid securities may offer a higher yield than securities which are
more readily marketable, but they may not always be marketable on advantageous
terms. The sale of illiquid securities often requires more time and results in
higher brokerage charges or dealer discounts and other
<PAGE>
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. A Fund may be
restricted in its ability to sell such securities at a time when the Adviser
deems it advisable to do so. In addition, in order to meet redemption requests,
a Fund may have to sell other assets, rather than such illiquid securities, at a
time which is not advantageous.
A Fund's purchase of Rule 144A securities could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become uninterested for a time in purchasing Rule 144A
securities held by the Fund.
REPURCHASE AGREEMENTS
Each Fund may engage in repurchase agreement transactions with respect
to instruments in which the Fund is authorized to invest. Repurchase agreements
are transactions by which a Fund purchases a security and simultaneously commits
to resell that security to the seller (a bank or securities dealer) at an agreed
upon price on an agreed upon date. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or date of maturity of the purchased security. This arrangement results in
a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. In these transactions, the Fund will hold collateral at
its custodian bank having a total value equal to or in excess of the repurchase
price. In entering into a repurchase agreement, a Fund bears a risk of loss in
the event that the other party to the transaction defaults on its obligations
and the Fund is delayed or prevented from exercising its rights to dispose of
the collateral, including the risk of a possible decline in the value of the
collateral during the period in which the Fund seeks to assert its rights to
such collateral, the risk of incurring expenses associated with asserting those
rights and the risk of losing all or a part of the income from the agreement.
Repurchase agreements maturing in more than seven days are considered illiquid
and subject to each Fund's restriction on investing in illiquid securities.
REVERSE REPURCHASE AGREEMENTS
Each Fund may engage in "reverse repurchase agreements" with banks and
securities dealers in an amount up to one-third of the Fund's total assets.
Reverse repurchase agreements will be used as a means of borrowing for
investment purposes. A reverse repurchase agreement involves the sale of a
security by a Fund and its agreement to repurchase the instrument at a specified
time and price. At the time a Fund enters into a reverse repurchase agreement,
cash, U.S. Government securities or other liquid securities having a value
sufficient to make payments for the securities to be repurchased will be
segregated, and will be maintained throughout the period of the obligation. The
use of reverse repurchase agreements by a Fund creates leverage, which increases
a Fund's investment risk. If the income and gains on securities purchased with
the proceeds of reverse repurchase agreements exceed the cost of the agreements,
the Fund's earnings or net asset value will increase faster than otherwise would
be the case; conversely, if the income and gains fail to exceed the cost,
earnings or net asset value would decline faster than otherwise would be the
case.
BORROWING
Each Fund may borrow money from banks for temporary or emergency
purposes in an amount up to one-third of the value of the Fund's total assets.
Reverse repurchase agreements are not included in this limitation. See
"--Reverse Repurchase Agreements" above. Interest paid by a Fund on borrowed
funds would decrease the net earnings of that Fund. None of the Funds will
purchase portfolio securities while outstanding borrowings (other than reverse
repurchase agreements) exceed 5% of the value of the Fund's total assets. Each
Fund may mortgage, pledge or hypothecate its assets to secure temporary or
emergency borrowing. The policies set forth in this paragraph are fundamental
and may not be changed with respect to a Fund without the approval of a majority
of that Fund's shares.
<PAGE>
WHEN-ISSUED SECURITIES
Each Fund may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a later date.
The Funds will not accrue income with respect to when-issued or forward
commitment securities prior to their stated delivery date. Pending delivery of
the securities, each Fund maintains in a segregated account cash or liquid
securities in an amount sufficient to meet its purchase commitments. The Funds
will likewise segregate securities they sell on a forward commitment basis.
The purchase of securities on a when-issued or forward commitment basis
exposes a Fund to risk because the securities may decrease in value prior to
their delivery. Purchasing securities on a when-issued or forward commitment
basis involves the additional risk that the return available in the market when
the delivery takes place will be higher than that obtained in the transaction
itself. A Fund's purchase of securities on a when-issued or forward commitment
basis while remaining substantially fully invested increases the amount of the
Fund's assets that are subject to market risk to an amount that is greater than
the Fund's net asset value, which could result in increased volatility of the
price of the Fund's shares. Placing securities rather than cash in the
segregated account referred to in the previous paragraph may have a leveraging
effect on a Fund's net asset value per share; that is, to the extent that a Fund
remains substantially fully invested in securities at the same time that it has
committed to purchase securities on a when-issued or forward commitment basis,
greater fluctuations in its net asset value per share may occur than if it had
set aside cash to satisfy its purchase commitments.
MORTGAGE DOLLAR ROLLS
Consistent with their ability to purchase securities on a when-issued
or forward commitment basis, each Fixed Income Fund may enter into mortgage
"dollar rolls" in which a Fund sells securities for delivery in the current
month and simultaneously contracts with the same counterparty to repurchase
similar (same type, coupon and maturity) but not identical securities on a
specified future date. The Fund entering into the dollar roll gives up the right
to receive principal and interest paid on the securities sold. However, the Fund
would benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase plus any fee
income received. Unless such benefits exceed the income, capital appreciation
and gain or loss due to mortgage prepayments that would have been realized on
the securities sold as part of the mortgage dollar roll, the use of this
technique will diminish the investment performance of a Fund compared with what
such performance would have been without the use of mortgage dollar rolls. Each
Fund entering into mortgage dollar roll transactions will hold and maintain in a
segregated account until the settlement date cash or liquid securities in an
amount equal to the forward purchase price. The benefits derived from the use of
mortgage dollar rolls may depend upon the Adviser's ability to predict correctly
mortgage prepayments and interest rates. There is no assurance that mortgage
dollar rolls can be successfully employed. In addition, as discussed above with
respect to when-issued and forward commitment purchases, the use of mortgage
dollar rolls by a Fund while remaining substantially fully invested in
securities may result in greater fluctuations in the net asset value of a Fund's
shares than would have occurred had the Fund set aside cash to satisfy its
purchase commitments.
LOANS OF PORTFOLIO SECURITIES
For the purpose of achieving income, each Fund may lend portfolio
securities up to one-third of the value of its total assets to broker-dealers,
banks or other financial borrowers of securities. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
Funds will receive collateral in the form of cash, U.S. Government securities or
other high-grade debt obligations equal to at least 100% of the value of the
securities loaned. The value of the collateral and of the securities loaned will
be marked to market on a daily basis. During the time portfolio securities are
on loan, the borrower pays
<PAGE>
the Fund an amount equivalent to any dividends or interest paid on the
securities and the Fund may invest the cash collateral and earn additional
income or may receive an agreed upon amount on interest income from the
borrower. However, the amounts received by the Fund may be reduced by finders'
fees paid to broker-dealers and related expenses.
HEDGING TECHNIQUES
To the extent permitted by the investment objective and policies of
each Fund, the Funds may purchase and sell put and call options on securities
and securities indexes, enter into futures contracts and use options on futures
contracts as further described below. Certain Funds also may enter into swap
agreements with respect to interest rates and securities indexes. The Funds may
use these techniques to hedge against changes in interest rates or securities
prices, to generate income, to facilitate allocation of a Fund's investments
among asset classes or otherwise as part of their overall investment strategies.
The Funds will maintain segregated accounts consisting of cash, U.S. Government
securities, or other liquid securities (or, as permitted by applicable
regulation, enter into certain offsetting positions) to cover their obligations
under options and futures contracts to avoid leveraging of the Funds.
OPTIONS. A Fund may purchase put options on securities to protect
holdings on an underlying or related security against a substantial decline in
market value. A Fund may purchase call options on securities to protect against
substantial increases in prices of securities the Fund intends to purchase
pending its ability to invest in such securities in an orderly manner. A Fund
may sell put or call options it has previously purchased, which could result in
a net gain or loss depending on whether the amount realized on the sale is more
or less than the premium and other transaction costs paid on the put or call
option which is sold. A Fund may write a call or put option only if the option
is "covered" by the Fund holding a position in the underlying securities or by
other means which would permit immediate satisfaction of the Fund's obligation
as writer of the option. Prior to exercise or expiration, an option may be
closed out by an offsetting purchase or sale of an option of the same series.
The purchase and writing of options involves certain risks. During the
option period, the covered call writer has, in return for the premium on the
option, given up the opportunity to profit from a price increase above the
exercise price in the underlying securities, but, as long as its obligation as a
writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying securities at the exercise price. If a
put or call option purchased by a Fund is not sold when it has remaining value,
and if the market price of the underlying security, in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security is purchased to hedge against price movements in a related security,
the price of the put or call option may move more or less than the price of the
related security. There can be no assurance that a liquid market will exist when
a Fund seeks to close out an option position. Furthermore, if trading
restrictions or suspensions are imposed on the options markets, a Fund may be
unable to close out a position.
The Funds may purchase and sell both exchange traded options and
over-the-counter options. Over-the-counter options differ from traded options in
that they are two-party contracts with price and other terms negotiated between
buyer and seller and generally do not have as much market liquidity as
exchange-traded options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Certain Funds may
invest, as set forth under "Investment Objectives and Policies," in interest
rate futures contracts, stock index futures contracts and options thereon
("futures options").
<PAGE>
There are several risks associated with the use of futures and futures
options for hedging purposes. There can be no guarantee that there will be a
correlation between price movements in the hedging vehicle and in the portfolio
securities being hedged. An incorrect correlation could result in a loss on both
the hedged securities in a Fund and the hedging vehicle so that the portfolio
return might have been greater had hedging not been attempted. There can be no
assurance that a liquid market will exist at a time when a Fund seeks to close
out a futures contract or a futures option position. Most futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single day; once the daily limit has been reached on a
particular contract, no trades may be made that day at a price beyond that
limit. In addition, certain of these instruments are relatively new and without
a significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent a Fund from liquidating an unfavorable position and the
Fund would remain obligated to meet margin requirements until the position is
closed.
The Funds will only enter into futures contracts or futures options
which are standardized and traded on a U.S. exchange or board of trade, or
similar entity, or quoted on an automated quotation system. Each Fund will use
financial futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the Commodity
Futures Trading Commission or, with respect to positions in financial futures
and related options that do not qualify as "bona fide hedging" positions, will
enter such non-hedging positions only to the extent that aggregate initial
margin deposits plus premiums paid by it for open futures option positions, less
the amount by which any such positions are "in-the-money," would not exceed 5%
of the Fund's total assets.
SWAP AGREEMENTS. The Fixed Income Funds may enter into interest rate
and securities index swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to such Funds than if such Funds had
invested directly in an instrument that yielded that desired return. Swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount," i.e.,
the return on or increase in value of a particular dollar amount invested at a
particular interest rate or in a "basket" of securities representing a
particular index. Commonly used swap agreements include interest rate caps,
under which, in return for a premium, one party agrees to make payments to the
other to the extent that interest rates exceed a specified rate, or "cap;"
interest rate floors, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates fall below a
specified level, or "floor;" and interest rate collars, under which a party
sells a cap and purchases a floor or vice versa in an attempt to protect itself
against interest rate movements exceeding given minimum or maximum levels.
The "notional amount" of the swap agreement is only a fictive basis on
which to calculate the obligations which the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by the Funds would
calculate the obligations of the parties to the agreement on a "net basis."
Consequently, a Fund's obligations (or rights) under a swap agreement will
generally be equal only to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). A Fund's obligations under a swap agreement
will be accrued daily (offset against amounts owed to the Fund) and any accrued
but unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash, U.S. Government
securities, or high grade debt obligations, to avoid any potential leveraging of
the Fund's portfolio. A Fund will not enter into a swap agreement with any
single party if the net amount owed or to be received under existing contracts
with that party would exceed 5% of the Fund's total assets.
Whether a Fund's use of swap agreements will be successful in
furthering its investment objective will depend on the Adviser's ability to
predict correctly whether certain types of investments
<PAGE>
are likely to produce greater returns than other investments. Because they are
two-party contracts and because they may have terms of greater than seven days,
swap agreements may be considered to be illiquid. Moreover, a Fund bears the
risk of loss of the amount expected to be received under a swap agreement in the
event of the default or bankruptcy of a swap agreement counterparty. The Adviser
or Sub-Adviser will cause a Fund to enter into swap agreements only with
counterparties that would be eligible for consideration as repurchase agreement
counterparties under the Fund's repurchase agreement guidelines. Certain
restrictions imposed on the Funds by the Internal Revenue Code may limit the
Funds' ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect a
Fund's ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.
PORTFOLIO TURNOVER
It is anticipated that under normal market conditions, the annual rate
of portfolio turnover will not exceed 250% for Short Fund, 200% for Intermediate
Fund, 150% for Core Fund, 200% for Mid Cap Fund and 75% for Growth Fund. A 100%
portfolio turnover rate would occur, for example, if all of the securities in a
Fund's portfolio (other than short-term securities) were replaced once during
the fiscal year. Portfolio turnover could be greater than the rates indicated
above in periods of unusual market movement and volatility. A higher portfolio
turnover rate would result in higher brokerage commissions or other
transactional expenses, which must be borne, directly or indirectly, by a Fund
and ultimately by the Fund's shareholders. High portfolio turnover also may
increase short-term capital gains, which are taxable as ordinary income when
distributed to shareholders. For information on how portfolio turnover rate is
calculated, see "Investment Objectives and Policies -- Portfolio Turnover" in
the Statement of Additional Information.
INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment restrictions in addition to
those set forth above, which are set forth in their entirety in the Statement of
Additional Information. Certain of these restrictions are fundamental and cannot
be changed without shareholder approval, including the following: (1) No Fund,
with respect to 75% of its total assets, will invest more than 5% of its total
assets (taken at market value at the time of such investment) in securities of
any one issuer, except that this restriction does not apply to U.S. Government
Securities. (2) No Fund will concentrate 25% or more of its total assets in any
particular industry, except that this restriction does not apply to U.S.
Government Securities. Except for each Fund's policy regarding borrowing and
investments in illiquid securities, if a percentage restriction is adhered to at
the time of an investment, a later increase or decrease in percentage resulting
from changes in values or assets will not constitute a violation of such
restriction.
HOW TO PURCHASE SHARES
GENERAL
Shares of each Fund are purchased at the net asset value per share next
calculated after receipt of the purchase order, without a sales charge. The
minimum initial investment in each Fund is $500,000 and the minimum additional
investment is $10,000. Purchases of Fund shares will be made in full and
fractional shares. In the interest of economy and convenience, certificates for
shares will generally not be issued. Each Fund reserves the right, in its
absolute discretion, to reject any order for the purchase of its shares.
Shares of the Funds may be purchased by opening an account either by
mail or by phone. An order will be deemed to have been placed at the time that
payment is received. Dividend income begins to accrue on the day that payment is
received. If payment is made by check, payment is
<PAGE>
considered received on the day the check is received if the check is drawn upon
a member bank of the Federal Reserve System within the Ninth Federal Reserve
District (Michigan's Upper Peninsula, Minnesota, Montana, North Dakota, South
Dakota and northwestern Wisconsin). In the case of other checks, payment is
considered received when the check is converted into "Federal Funds," i.e.,
monies of member banks within the Federal Reserve System that are on deposit at
a Federal Reserve Bank, normally within two days after receipt.
An investor who may be interested in having shares redeemed shortly
after purchase should consider making unconditional payment by certified check,
by transmitting Federal Funds by wire or other means approved in advance by the
Underwriter. Payment of redemption proceeds will be delayed as long as necessary
to verify by expeditious means that the purchase payment has been or will be
collected. Such period of time typically will not exceed 15 days.
PURCHASES BY MAIL
To open an account by mail, complete the general authorization form
attached to this Prospectus and mail it along with a check payable to the
appropriate Fund, to Voyageur Asset Management LLC, 90 South Seventh Street,
Suite 4400, Minneapolis, Minnesota 55402.
PURCHASES BY TELEPHONE
To open an account by telephone, call 612-376-7000 or 800-553-2143 to
obtain an account number and instructions. Information concerning the account
will be taken over the phone. The investor must then request a commercial bank
with which he or she has an account and which is a member of the Federal Reserve
System to transmit Federal Funds by wire to the appropriate Fund as follows:
First Bank, N.A., ABA #091000022
For credit of: (insert applicable Fund name)
Checking Account No.:
VAM Short Duration Total Return Fund 1731-0311-7318
VAM Intermediate Duration Total Return Fund 1731-0311-7326
VAM Core Total Return Fund 1731-0311-7334
VAM Mid Cap Stock Fund 1731-0311-7342
VAM Growth Stock Fund 1731-0311-7359
Account Number: (assigned by telephone)
Information on how to transmit Federal Funds by wire is available at
any national bank or any state bank that is a member of the Federal Reserve
System. The bank may charge the shareholder for the wire transfer. If the phone
order and Federal Funds are received before the close of trading on the
Exchange, the order will be deemed to become effective at that time. Otherwise,
the order will be deemed to become effective as of the close of trading on the
Exchange on the next day the Exchange is open for trading. The investor will be
required to complete the general authorization form attached to this Prospectus
and mail it to the appropriate Fund after making the initial telephone purchase.
HOW TO SELL SHARES
WRITTEN REDEMPTIONS
Each Fund will redeem its shares in cash at the net asset value next
determined after receipt of a shareholder's written request for redemption in
"good order." "Good order" means that the redemption request must be executed
exactly as the shares are registered. If the redemption proceeds are to be paid
to the registered holder(s), a signature guarantee is not normally required. A
signature
<PAGE>
guarantee is required in certain other circumstances. See "Redemptions" in the
Statement of Additional Information.
TELEPHONE REDEMPTION
Shareholders of any Fund redeeming at least $1,000 may do so by
telephoning 612-376-7030 or 800-277-3862. The applicable section of the
authorization form must have been completed and filed with the Fund before the
telephone request is received. Shares will be redeemed at their net asset value
next determined following a Fund's receipt of the redemption request. The
proceeds of the redemption will be paid by check mailed to the shareholder's
address of record or, if requested at the time of redemption, by wire to the
bank designated on the general authorization form.
The Funds will employ reasonable procedures to confirm that telephone
requests are genuine, including requiring that payment be made only to the
address of record or the bank account designated on the authorization form and
requiring certain means of telephonic identification. The Adviser and
Distributor will not be liable for following instructions which are reasonably
believed to be genuine.
Each Fund reserves the right at any time to suspend or terminate
telephone redemptions or to impose a fee for this service. There is currently no
additional charge to the shareholder for use of the telephone redemption
procedure.
ADDITIONAL REDEMPTION INFORMATION
Shareholders who have submitted a request to one of the Funds for
redemption of their shares will not earn any income on such shares on the
redemption date. If shares for which payment has been collected are redeemed,
payment must be made within seven days. Each Fund may suspend this right of
redemption and may postpone payment only when the Exchange is closed for other
than customary weekends or holidays, or if permitted by the rules of the
Securities and Exchange Commission during periods when trading on the Exchange
is restricted or during any emergency which makes it impracticable for such Fund
to dispose of its securities or to determine fairly the value of its net assets
or during any other period permitted by order of the Commission for the
protection of investors.
Each Fund reserves the right and currently plans to redeem Fund shares
and mail the proceeds to the shareholder if at any time the value of Fund shares
in the account falls below a specified value, currently set at $1,000, as a
result of redemptions or exchanges. Shareholders will be notified and will have
60 days to bring the account up to the required value before any redemption
action will be taken by a Fund.
EXCHANGE PRIVILEGE
Shares may be exchanged for shares of any of the other VAM Funds or any
money market fund available through the Adviser, provided that the shares to be
acquired in the exchange are eligible for sale in the shareholder's state of
residence. An exchange must meet the minimum account size requirement of the
Fund; however, if an account is in existence, the minimum amount which may be
exchanged into that account is $1,000. The exchange will be made on the basis of
the relative net asset values next determined after receipt of the exchange
request. The Underwriter reserves the right, upon 60 days' prior notice, to
restrict the frequency of, or otherwise modify, condition, terminate or impose
charges upon, exchanges. An exchange is considered to be a sale of shares on
which the investor may realize a capital gain or loss for income tax purposes.
Exchange requests should be placed directly with the Fund by calling
800-277-3862.
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUNDS
The Board of Directors of the Company is responsible for managing the
business and affairs of the Funds. The names, addresses, principal occupations
and other affiliations of Directors and executive officers of the Company are
set forth in the Statement of Additional Information.
INVESTMENT ADVISER
VAM LLC has been retained under an investment advisory agreement (the
"Advisory Agreement") with the Company to act as each Fund's investment adviser,
subject to the authority of the Board of Directors. The Adviser and the
Underwriter are each indirect wholly owned subsidiaries of Dougherty Financial
Group LLC ("DFG"), which is owned approximately 50% by Michael E. Dougherty and
50% equally by James O. Pohlad, Robert C. Pohlad and William M. Pohlad. Mr.
Dougherty co-founded the predecessor of DFG in 1977 and has served as Chairman
of the Board and Chief Executive officer of DFG since inception. As of May 31,
1997, the Adviser and its affiliates served as the manager to one open-end
investment company (comprising three separate investment portfolios),
administered numerous private accounts and managed approximately $10 billion in
assets. The Adviser's principal business address is 90 South Seventh Street,
Suite 4400, Minneapolis, Minnesota 55402.
The Funds pay the Adviser monthly investment advisory and management
fees equivalent on an annual basis to 1.00% of the average daily net assets of
Mid Cap Fund and Growth Fund and .50% of the average daily net assets of Short
Fund, Intermediate Fund and Core Fund. The fees payable by Growth Fund and Mid
Cap Fund are higher than fees paid by most other similar investment companies.
PORTFOLIO MANAGEMENT
Jane M. Wyatt, Chief Investment Officer of the Adviser, has overall
supervisory responsibility with respect to all mutual funds managed by the
Adviser. The day-to-day portfolio manager of Core Fund and Intermediate Fund is
Mark L. Simenstad. Mr. Simenstad is a Senior Vice President and Head of Taxable
Fixed Income of the Adviser. Mr. Simenstad joined the Adviser in July 1996,
prior to which he was a Senior Portfolio Manager at Investment Advisers, Inc. in
Minneapolis from 1993 to June 1996 and a Portfolio Manager at Lutheran
Brotherhood in Minneapolis from 1983 to 1993. He has an M.B.A. from the
University of Minnesota, is a Chartered Financial Analyst and has been in the
investment industry since 1983. The day-to-day portfolio manager of Short Fund
is Jan Mowbray. Ms. Mowbray joined the Adviser in 1985 and is a Vice President
and Taxable Fixed Income Portfolio Manager. Ms. Mowbray is a Chartered Financial
Analyst and has been in the investment industry since 1983.
The day-to-day portfolio manager of Mid Cap Fund is Tony Elavia. Mr.
Elavia has been a Senior Equity Portfolio Manager of the Adviser since March
1995, prior to which he had been a Senior Vice President of Piper Capital
Management Incorporated, Minneapolis since 1991. Mr. Elavia has over 8 years of
investment experience. The day-to-day portfolio manager of Growth Fund is James
King. Mr. King has been a Senior Equity Portfolio Manager of the Adviser since
1990 and was a director of the Adviser and the Underwriter from 1993 through
1995. Mr. King has over 30 years of investment experience.
THE UNDERWRITER
Shares of the Funds are distributed through Dougherty Dawkins LLC (the
"Underwriter") pursuant to a Distribution Agreement between the Underwriter and
the Company. No compensation is paid by the Funds under the Distribution
Agreement.
<PAGE>
CUSTODIAN
First Trust National Association serves as the custodian of each Fund's
portfolio securities and cash.
DIVIDEND DISBURSING, TRANSFER, ADMINISTRATIVE AND ACCOUNTING SERVICES AGENT
VAM LLC acts as each Fund's dividend disbursing, transfer,
administrative and accounting services agent to perform dividend-paying
functions, to calculate each Fund's daily share price, to maintain shareholder
records and to perform certain regulatory reporting and compliance related
services for the Funds pursuant to an Administrative Services Agreement. For
more information, see "The Investment Adviser, Sub-Adviser and Administrative
Services -- Expenses of the Funds" in the Statement of Additional Information.
EXPENSES OF THE FUNDS
Each Fund's expenses include, among others, fees of Directors, expenses
of Directors' and shareholders' meetings, insurance premiums, expenses of
redemption of shares, expenses of the issue and sale of shares (to the extent
not otherwise borne by the Underwriter), expenses of printing and mailing of
shareholder statements, association membership dues, charges of the Fund's
custodian, bookkeeping, audit and legal expenses, the fees and expenses of
registering the Fund and its shares with the Securities and Exchange Commission
and registering or qualifying its shares under state securities laws, and
expenses of preparing and mailing prospectuses and reports to existing
shareholders. The Adviser and the Distributor have voluntarily agreed to waive
fees in whole or part and to voluntarily absorb certain other of the Funds'
expenses so that Total Operating Expenses of each Fund for the fiscal year
ending October 31, 1997 are no greater than those set forth under "Fees and
Expenses." After October 31, 1997, such voluntary fee and expense waivers may be
discontinued or modified by the Adviser or the Distributor in their discretion.
PORTFOLIO TRANSACTIONS
No Fund will effect any brokerage transactions in its portfolio
securities with any broker-dealer affiliated directly or indirectly with the
Adviser unless such transactions, including the frequency thereof, the receipt
of commissions payable in connection therewith and the selection of the
affiliated broker-dealer effecting such transactions, are not unfair or
unreasonable to the shareholders of such Fund. It is not anticipated that any
Fund will effect any brokerage transactions with any affiliated broker-dealer,
including the Underwriter, unless such use would be to such Fund's advantage.
The Adviser may consider sales of shares of the Funds as a factor in the
selection of broker-dealers to execute the Funds' securities transactions.
DETERMINATION OF NET ASSET VALUE
The net asset value of Fund shares is determined once daily, Monday
through Friday, as of 3:00 p.m., Minneapolis time (the regular close of trading
on the Exchange) on each business day the Exchange is open for trading, except
on (i) days on which changes in the value of a Fund's portfolio securities will
not materially affect the current net asset value of the Fund's shares, (ii)
days during which no Fund shares are tendered for redemption and no order to
purchase or sell Fund shares is received by the Fund or (iii) customary national
business holidays on which the Exchange is closed for trading (as of the date
hereof, New Year's Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day).
For each Fund, the net asset value per share is determined by dividing
the value of the securities, cash and other assets of the Fund less all
liabilities by the total number of shares outstanding. A security listed or
traded on an exchange is valued at its last sale price (prior to the time
<PAGE>
as of which assets are valued) on the exchange where it is principally traded.
Securities which are primarily traded on foreign securities exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges. Lacking any sales on the exchange where it is principally
traded on the day of valuation, prior to the time as of which assets are valued,
the security generally is valued at the last bid price on that exchange. All
other securities for which over-the-counter quotations are readily available are
valued on the basis of the last current bid price. When market quotations are
not readily available, such securities are valued at fair value as determined in
good faith by the Board of Directors. However, debt securities may be valued on
the basis of valuations furnished by a pricing service which utilizes electronic
data processing techniques to determine valuations without regard to sale or bid
prices, when such valuations are believed by the Fund's officers, under the
supervision of the Board of Directors, to more accurately reflect the fair
market value of such securities. Short-term investments in debt securities with
maturities of less than 60 days when acquired, or which subsequently are within
60 days of maturity, are valued at amortized cost. While this method provides
certainty in valuation, it may result in periods during which the value, due to
changes in interest rates or other factors, of such short term investments is
higher or lower than the value the Fund would receive if it sold the security.
All assets and liabilities initially expressed in foreign currency values will
be converted into U.S. dollars as last quoted by any recognized dealer.
Generally, trading in foreign securities and in certain other
securities such as corporate bonds, U.S. Government Securities and money market
instruments is substantially completed each day at various times prior to the
primary close of trading on the Exchange. The values of such securities used in
determining the net asset value of Fund shares are computed as of such times.
Occasionally events affecting the value of such securities may occur between
such times and the primary close of trading on the Exchange which are not
reflected in the computation of a Fund's net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities are valued at their fair market value as determined in good faith by
the Adviser in accordance with procedures adopted by the Board of Directors.
DISTRIBUTIONS TO SHAREHOLDERS AND TAXES
The present policy of each Fixed Income Fund is to declare a
distribution from the net investment income of the Fund on each day that the
Fund is open for business and to pay such distributions monthly. Net investment
income consists of interest accrued on portfolio investments of a Fund, less
accrued expenses, computed in each case since the most recent determination of
net asset value. The Equity Funds will make annual distributions from net
investment income, if and when available. Each Fund will distribute any net
realized capital gains at least annually.
Shareholders of each Fund receive distributions from investment income
and capital gains in additional shares of the Fund at net asset value, unless
they elect otherwise. Each Fund sends quarterly statements to its shareholders
with details of all account transactions.
FEDERAL INCOME TAXATION
Each Fund is treated as a separate entity for federal income tax
purposes. Each Fund intends to qualify during its current taxable year as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). So long as a Fund so qualifies, it will not be liable for federal
income taxes to the extent it distributes its taxable income to its
shareholders. The following discussion of the federal income tax consequences of
investing in the Funds is based upon tax laws and regulations in effect on the
date of this Prospectus and is subject to change by legislative or
administrative action. For additional information, see "Taxes" in the Statement
of Additional Information. Prospective investors are advised to consult with
their tax advisers concerning the application of state and local tax laws to
investments in and distributions by the Funds. Shareholders will be notified
annually as to the amount, nature and federal income tax status of dividends and
distributions.
<PAGE>
If shares of any Fund are sold or otherwise disposed of, the
shareholder will realize a capital gain or loss equal to the difference between
the purchase price and the sales price of the shares disposed of, if, as is
usually the case, the shares are a capital asset in the hands of the
shareholder. If the sale or other disposition occurs more than one year after
the shares were acquired, the resulting capital gain or loss will be long-term.
A special provision of the Code states that, if a Fund's shares with respect to
which a long-term capital gain distribution has been made are held for six
months or less, any loss on the sale or other disposition of those shares will
be a long-term capital loss to the extent of such long-term capital gain
distribution, unless such sale or other disposition is made pursuant to a plan
that provides for the periodic liquidation of an investment in the Fund.
A Fund investing in foreign securities may be required to pay
withholding and other taxes imposed by foreign countries, generally at rates
from 10% to 40%, which would reduce the Fund's net investment income. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.
Distributions by the Funds are generally taxable to shareholders,
whether received in cash or in additional shares of the Fund. Distributions from
a Fund's net investment income and net short-term capital gains are taxable to
shareholders as ordinary income. Distributions from a Fund designated as
long-term capital gain distributions will be taxable to the shareholder as
long-term capital gains irrespective of how long the shareholder has held the
shares. Shareholders not subject to federal income taxation will not be taxed on
distributions by the Funds.
INVESTMENT PERFORMANCE
Advertisements and other sales literature for the Funds may refer to
"average annual total return," and "cumulative total return" and, with respect
to the Fixed Income Funds only, "yield" and "current distribution rate." The
Funds may compare such performance quotations with published indices and
comparable quotations of other funds. All such figures are based on historical
earnings and performance and are not intended to be indicative of future
performance. Additionally, performance information may not provide a basis for
comparison with other investments or other mutual funds using a different method
of calculating performance. The investment return on and principal value of an
investment in any Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
The average annual total return is the average annual compounded rate
of return based upon a hypothetical $1,000 investment made at the beginning of
the advertised period. In calculating average annual total return, the maximum
sales charge is deducted from the hypothetical investment and all dividends and
distributions are assumed to be reinvested.
Cumulative total return is calculated by subtracting a hypothetical
$1,000 payment to a Fund from the ending redeemable value of such payment (at
the end of the relevant advertised period), dividing such difference by $1,000
and multiplying the quotient by 100. In calculating ending redeemable value, all
income and capital gain distributions are assumed to be reinvested in additional
Fund shares and the maximum sales charge is deducted.
Each Fixed Income Fund may advertise its yield. The advertised yield of
a Fund will be based on a 30-day period in the advertisement. Yield is
calculated by dividing the net investment income per share deemed earned during
the period by the maximum offering price per share on the last day of the
period. The result is then annualized using a formula that provides for
semiannual compounding of income.
From time to time, each Fixed Income Fund may also quote a current
distribution rate to shareholders. A current distribution rate as of a date is
calculated by determining the amount of distributions that would have been paid
over the twelve-month period ending on such date to the
<PAGE>
holder of one hypothetical Fund share purchased at the beginning of such period,
and dividing such amount by the current maximum offering price per share (the
net asset value per Fund share plus the maximum sales charge).
In addition to advertising total return and yield, comparative
performance information may be used from time to time in advertising the Funds'
shares, including data from Lipper Analytical Services, Inc., Morningstar and
other entities or organizations which track the performance of investment
companies. Performance information for the Fixed Income Funds may be compared to
the Lehman Brothers Government and Corporate Bond Index, the Merrill Lynch 1 to
3 Year and 3 to 7 Year Treasury Indexes, the Lehman Brothers Aggregate and
Intermediate Aggregate Index and the Merrill Lynch 1 to 10 Year Intermediate
Term High Quality Corporate Bond Index. Performance information for the Growth
Fund may be compared to the Dow Jones Industrial Average, the Standard & Poor's
500 Composite Stock Price Index, the Russell 2000 and the Russell 5000.
Performance information for the Mid Cap Fund may be compared to the S&P MidCap
400 Index and the Russell Mid Cap Index. The Funds may be compared to these
unmanaged indexes of common stocks or to other appropriate indexes of investment
securities or with data derived from those indexes. Unmanaged indexes generally
do not reflect deductions for administrative and management costs and expenses.
For Fund performance information and daily net asset value quotations, investors
may call 612-376-7030 or 800-277-3862.
For additional information regarding the calculation of each Fund's
yield, average annual total return, cumulative total return and current
distribution rate, see "Performance Comparisons" in the Statement of Additional
Information.
GENERAL INFORMATION
Each Fund sends to its shareholders six-month unaudited and annual
audited financial statements which include a list of investment securities held
by the Fund.
Each Fund has been established as a separate series of VAM
Institutional Funds, Inc., a Minnesota corporation incorporated in January 1985.
As of the date of this Prospectus, none of the Funds had commenced operations.
All shares of the Company are nonassessable and fully transferable when issued
and paid for in accordance with the terms thereof and possess no cumulative
voting, preemptive or conversion rights. The Board of Directors is empowered to
issue other series of common stock without shareholder approval.
Fund shares are freely transferable, are entitled to dividends as
declared by the Directors, and, in liquidation of a Fund, are entitled to
receive the net assets of the applicable Fund. The Funds do not generally hold
annual meetings of shareholders and will do so only when required by law.
Each share of a series has one vote irrespective of the relative net
asset value of the series' shares. On some issues, such as the election of
Directors, all shares of the Company vote together as one series. On an issue
affecting only a particular series, the shares of the affected series vote as a
separate series. An example of such an issue would be a fundamental investment
restriction pertaining to only one series.
The assets received by the Company for the issue or sale of shares of
each series, and all income, earnings, profits and proceeds thereof, subject
only to the rights of creditors, are allocated to such series, and constitute
the underlying assets of such series. The underlying assets of each series are
required to be segregated on the books of account, and are to be charged with
the expenses in respect to such series and with a share of the general expenses
of the Company. Any general expenses of the Company not readily identifiable as
belonging to a particular series shall be allocated among the series, based upon
the relative net assets of the series at the time such expenses were accrued.
The Articles of Incorporation limit the liability of the Directors to the
fullest extent permitted by law. For
<PAGE>
a further discussion of the above matters, see "Additional Information" in the
Statement of Additional Information.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS (AND/OR IN THE
STATEMENT OF ADDITIONAL INFORMATION REFERRED TO ON THE COVER PAGE OF THIS
PROSPECTUS), AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR DOUGHERTY DAWKINS LLC.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN THE
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
<PAGE>
PART B
VAM SHORT DURATION TOTAL RETURN FUND
VAM INTERMEDIATE DURATION TOTAL RETURN FUND
VAM CORE TOTAL RETURN FUND
VAM MID CAP STOCK FUND
VAM GROWTH STOCK FUND
SEPARATELY MANAGED SERIES OF VAM INSTITUTIONAL FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED JULY 11, 1997
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Prospectus of the Funds dated July 11,
1997. A copy of the Prospectus or this Statement of Additional Information may
be obtained free of charge by contacting the Funds at 90 South Seventh Street,
Suite 4400, Minneapolis, Minnesota 55402. Telephone: 612- 376-7000 or toll free
800-553-2143.
The Funds are primarily designed to provide pension and profit sharing
plans, employee benefit trusts, endowments, foundations, corporations, other
institutions and high net worth individuals access to the professional
investment management services offered by Voyageur Asset Management LLC (the
"Adviser").
TABLE OF CONTENTS
Page
----
Investment Policies and Restrictions.................................... 2
Directors and Executive Officers........................................ 14
The Adviser, Sub-Adviser and Administrative Services.................... 17
Net Asset Value and Public Offering Price............................... 20
Taxes................................................................... 21
Calculations of Performance Data........................................ 23
Redemptions............................................................. 24
Additional Information.................................................. 25
Appendix A -- Description of Securities Ratings......................... A-1
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information or the Prospectus dated July 11, 1997, and, if given or made, such
information or representations may not be relied upon as having been authorized
by the Funds. This Statement of Additional Information does not constitute an
offer to sell securities in any state or jurisdiction in which such offering may
not lawfully be made. The delivery of this Statement of Additional Information
at any time shall not imply that there has been no change in the affairs of the
Funds since the date hereof.
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
The investment objectives, policies and restrictions of VAM Short
Duration Total Return Fund ("Short Fund"), VAM Intermediate Duration Total
Return Fund ("Intermediate Fund"), VAM Core Total Return Fund ("Core Fund"), VAM
Mid Cap Stock Fund ("Mid Cap Fund") and VAM Growth Stock Fund ("Growth Fund")
(collectively, the "Funds") are set forth in the Prospectus. Certain additional
investment information is set forth below. All capitalized terms not defined
herein have the same meanings as set forth in the Prospectus. References to the
Adviser in this section should be deemed to include the Sub-Adviser when
appropriate.
REPURCHASE AGREEMENTS
The Funds may invest in repurchase agreements. When investing in a
repurchase agreement, a Fund purchases a security and obtains a simultaneous
commitment from the seller to repurchase the security at an agreed upon price
and date. The resale price is in excess of the purchase price and reflects an
agreed upon market rate unrelated to the coupon rate on the purchased security.
Generally, repurchase agreements are of short duration--usually less than a
week--but on occasion may be for longer periods. Such transactions afford the
Funds the opportunity to earn a return on temporarily available cash. While the
underlying security may be a bill, certificate of indebtedness, note or bond
issued by an agency, authority or instrumentality of the U. S. Government, the
obligation of the seller is not guaranteed by the U. S. Government and there is
a risk that the seller may fail to repurchase the underlying security. In such
event, the respective Fund would attempt to dispose of the underlying security
in the market or would hold the underlying security until maturity. However, in
the case of a repurchase agreement construed by the courts as a collateralized
loan or an executory contract, the respective Fund may be subject to various
delays and risks of loss in attempting to dispose of the underlying security,
including (a) possible declines in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible
reduced levels of income and lack of access to income during this period, and
(c) expenses involved in the enforcement of the Fund's rights.
The Funds' custodian will hold the securities underlying any repurchase
agreement or such securities may be part of the Federal Reserve Book Entry
System. The market value of the collateral underlying the repurchase agreement
will be determined on each business day. If at any time the market value of the
collateral falls below the repurchase price of the repurchase agreement
(including any accrued interest), the respective Fund will promptly receive
additional collateral (so the total collateral is an amount at least equal to
the repurchase price plus accrued interest).
The use of repurchase agreements also involves certain risks. For
example, if the seller of the agreement defaults on its obligation to repurchase
the underlying securities at a time when the value of those securities has
declined, the respective Fund may incur a loss upon their disposition. In
addition, if the seller of the agreement becomes insolvent and subject to
liquidation or reorganization under the Bankruptcy Code or other laws, a
bankruptcy court may determine that the underlying securities are collateral not
within the control of the respective Fund and therefore subject to sale by the
trustee in bankruptcy.
Investments in repurchase agreements by the Funds will be only for
defensive or temporary purposes. Each Fund will limit its investment in
repurchase agreements with a maturity of more than seven days to 15% of the
Fund's net assets (subject to the Fund's collective 15% limitation regarding
illiquid investments). See " --Illiquid Investments," below.
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ILLIQUID INVESTMENTS
As a nonfundamental policy, each Fund is permitted to invest up to 15%
of its net assets in illiquid investments. An investment is generally deemed to
be "illiquid" if it cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which the investment company
is valuing the investment. "Restricted securities" are securities which were
originally sold in private placements and which have not been registered under
the Securities Act of 1933 (the "1933 Act"). Such securities generally have been
considered illiquid by the staff of the Securities and Exchange Commission (the
"SEC"), since such securities may be resold only subject to statutory
restrictions and delays or if registered under the 1933 Act. However, the SEC
has acknowledged that a market exists for certain restricted securities (for
example, securities qualifying for resale to certain "qualified institutional
buyers" pursuant to Rule 144A under the 1933 Act, certain forms of interest-only
and principal-only mortgaged-backed U.S. Government securities and commercial
paper issued pursuant to the private placement exemption of Section 4(2) of the
1933 Act). Each Fund may invest without limitation in these forms of restricted
securities if such securities are deemed by the Adviser or the Sub-Adviser, as
the case may be, to be liquid in accordance with standards established by the
Fund's Board of Directors. Under these guidelines, the Adviser or the
Sub-Adviser must consider (a) the frequency of trades and quotes for the
security, (b) the number of dealers willing to purchase or sell the security and
the number of other potential purchasers, (c) dealer undertakings to make a
market in the security, and (d) the nature of the security and the nature of the
marketplace trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer).
At the present time, it is not possible to predict with accuracy how
the markets for certain restricted securities will develop. Investing in
restricted securities could have the effect of increasing the level of a Fund's
illiquidity to the extent that qualified purchasers of the securities become,
for a time, uninterested in purchasing these securities.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities in which the Funds may invest include debt obligations of
varying maturities issued by the U.S. Treasury or issued or guaranteed by an
agency or instrumentality of the U.S. Government, including the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
General Services Administration, Central Bank for Cooperatives, Federal Farm
Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage
Association, Maritime Administration, Tennessee Valley Authority, District of
Columbia Armory Board, Student Loan Marketing Association and Resolution Trust
Corporation. Direct obligations of the United States Treasury include a variety
of securities that differ in their interest rates, maturities and dates of
issuance. Because the U.S. Government is not obligated by law to provide support
to an instrumentality that it sponsors, each Fund invests in obligations issued
by an instrumentality of the U.S. Government only if the Fund's Adviser
determines that the instrumentality's credit risk does not make its securities
unsuitable for investment by a Fund.
MORTGAGE-RELATED SECURITIES
As discussed in the Prospectus, each Fixed Income Fund may invest in
mortgage-related securities. The mortgage-related securities in which the Funds
may invest include mortgage pass-through securities, adjustable rate mortgage
securities and derivative mortgage securities such as collateralized mortgage
obligations. There are currently three basic types of mortgage-related
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securities: (a) those issued or guaranteed by the U.S. Government or one of its
agencies or instrumentalities, such as GNMA, FNMA and FHLMC; (b) those issued by
non-governmental issuers that represent interests in, or are collateralized by,
mortgage-related securities issued or guaranteed by the U.S. Government or one
of its agencies or instrumentalities; and (c) those issued by non-governmental
issuers that represent an interest in, or are collateralized by, whole mortgage
loans or mortgage-related securities without a government guarantee but usually
with over-collateralization or some other form of private credit enhancement.
Non-governmental issuers referred to in (b) and (c) above include originators of
and investors in mortgage loans, including savings and loan associations,
mortgage bankers, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.
The government guaranteed mortgage pass-through securities in which the
Funds may invest will include certificates issued or guaranteed by GNMA, FNMA
and FHLMC, which represent interests in underlying residential mortgage loans.
These mortgage pass-through securities provide for the pass-through to investors
of their pro-rata share of monthly payments (including any prepayments) made by
the individual borrowers on the pooled mortgage loans, net of any fees paid to
the guarantor of such securities and the servicer of the underlying mortgage
loans. Each of GNMA, FNMA and FHLMC guarantee timely distributions of interest
to certificate holders. GNMA and FNMA guarantee timely distributions of
scheduled principal. FHLMC generally guarantees only ultimate collection of
principal of the underlying mortgage loans.
Private mortgage pass-through securities ("Private Pass-Throughs") are
structured similarly to GNMA, FNMA and FHLMC mortgage pass-through securities
and are issued by originators of and investors in mortgage loans, including
savings and loan associations, mortgage bankers, commercial banks, investment
banks and special purpose subsidiaries of the foregoing. Since Private
Pass-Throughs typically are not guaranteed by an entity having the credit status
of GNMA, FNMA or FHLMC, such securities generally are structured with one or
more types of credit enhancement.
Collateralized mortgage obligations ("CMOs") are debt instruments
issued by special purpose entities which are secured by pools of mortgage loans
or other mortgage-related securities. Multi-class pass-through securities are
equity interests in a trust composed of mortgage loans or other mortgage-related
securities. Payments of principal and interest on underlying collateral provide
the funds to pay debt service on the CMO or make scheduled distributions on the
multi-class pass-through security. CMOs and multi-class pass-through securities
(collectively CMOs unless the context indicates otherwise) may be issued by
agencies or instrumentalities of the United States Government or by private
organizations.
HIGH YIELD SECURITIES
Each Fixed Income Fund may invest up to 15% of its net assets in
fixed-income securities rated lower than Baa by Moody's or lower than BBB by S&P
but rated at least B by Moody's or S&P. Securities rated lower than Baa by
Moody's or lower than BBB by S&P are sometimes referred to as "high yield" or
"junk" bonds. In addition, securities rated Baa are considered by Moody's to
have some speculative characteristics.
Investing in high yield securities involves special risks in addition
to the risks associated with investments in higher rated fixed-income
securities. High yield securities may be regarded as predominately speculative
with respect to the issuer's continuing ability to meet principal and interest
payments. Analysis of the creditworthiness of issuers of high yield securities
may be more complex than for issuers of higher quality fixed-income securities,
and the ability of the Funds to achieve their investment objectives may, to the
extent of their investments in high yield securities, be more
<PAGE>
dependent upon such creditworthiness analysis than would be the case if the
Funds were investing in higher quality securities.
High yield securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than higher grade
securities. The prices of high yield securities have been found to be less
sensitive to interest rate changes than more highly rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in high yield security prices because the advent
of a recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of high
yield securities defaults, the Funds may incur additional expenses to seek
recovery. In the case of high yield securities structured as zero coupon or
payment-in-kind securities, the market prices of such securities are affected to
a greater extent by interest rate changes, and therefore tend to be more
volatile than securities which pay interest periodically and in cash.
There may be special tax considerations associated with investing in
high yield securities structured as zero coupon or payment-in-kind securities. A
Fund records the interest on these securities as income even though it receives
no cash interest until the security's maturity or payment date. The Funds will
be required to distribute all or substantially all such amounts annually and may
have to obtain the cash to do so by selling securities which otherwise would
continue to be held. Shareholders will be taxed on these distributions.
The secondary markets on which high yield securities are traded may be
less liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect and cause large fluctuations in
the daily net asset value of the Fund's shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield securities, especially in a thinly traded
market.
The use of credit ratings as the sole method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit ratings
in a timely fashion to reflect events since the security was last rated. The
Adviser does not rely solely on credit ratings when selecting securities for the
Funds and develops its own independent analysis of issuer credit quality. If a
credit rating agency changes the rating of a portfolio security held by a Fund,
the Fund may retain the portfolio security if the Adviser deems it in the best
interest of the Fund's shareholders.
The market for high yield securities may be thinner and less active
than that for higher rated fixed-income securities, which can adversely affect
the prices at which the former are sold. If market quotations are not available,
high yield securities will be valued in accordance with procedures established
by the Board of Directors, including the use of outside pricing services.
Judgment plays a greater role in valuing high yield debt securities than is the
case for securities for which more external sources for quotations and last sale
information is available. Adverse publicity and changing investor perception may
affect the ability of outside pricing services to value high yield securities
and the Funds' ability to dispose of these securities.
Since the risk of default is high for high yield securities, research
and credit analysis are an especially important part of managing securities of
this type. The Adviser will attempt to identify those issuers of high yielding
debt securities whose financial condition is adequate to meet future
obligations, has improved or is expected to improve in the future. The Adviser's
analysis will focus on
<PAGE>
relative values based on such factors as interest in dividend coverage, asset
coverage, earnings prospects and the experience and managerial strength of the
issuer.
OPTIONS AND FUTURES TRANSACTIONS
Certain Funds may buy and sell put and call options, futures contracts
and options on futures contracts with respect to financial instruments and stock
and interest rate indexes. The Funds will engage in such transactions only to
hedge existing positions. They will not engage in such transactions for the
purposes of speculation or leverage. Different uses of futures and options have
different risk and return characteristics. Generally, selling futures contracts,
purchasing put options and writing (i.e., selling) call options are strategies
designed to protect against falling securities prices and can limit potential
gains if prices rise. Purchasing futures contracts, purchasing call options and
writing put options are strategies whose returns tend to rise and fall together
with securities prices and can cause losses if prices fall. If securities prices
remain unchanged over time option writing strategies tend to be profitable,
while option buying strategies tend to decline in value.
WRITING OPTIONS. Certain Funds may write (i.e., sell) covered put and
call options with respect to the securities in which they may invest. By writing
a call option, a Fund becomes obligated during the term of the option to deliver
the securities underlying the option upon payment of the exercise price if the
option is exercised. By writing a put option, a Fund becomes obligated during
the term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised. With respect to put options written
by any Fund, there will have been a predetermination that acquisition of the
underlying security is in accordance with the investment objective of such Fund.
"Covered options" means that so long as a Fund is obligated as the
writer of a call option, it will own the underlying securities subject to the
option (or comparable securities satisfying the cover requirements of securities
exchanges). A Fund will be considered "covered" with respect to a put option it
writes if, so long as it is obligated as the writer of a put option, it deposits
and maintains with its custodian cash, U.S. Government securities or other
liquid securities having a value equal to or greater than the exercise price of
the option.
Through the writing of call or put options, a Fund may obtain a greater
current return than would be realized on the underlying securities alone. A Fund
receives premiums from writing call or put options, which it retains whether or
not the options are exercised. By writing a call option, a Fund might lose the
potential for gain on the underlying security while the option is open, and by
writing a put option, a Fund might become obligated to purchase the underlying
security for more than its current market price upon exercise.
PURCHASING OPTIONS. Certain Funds may purchase put options in order to
protect portfolio holdings in an underlying security against a decline in the
market value of such holdings. Such protection is provided during the life of
the put because a Fund may sell the underlying security at the put exercise
price, regardless of a decline in the underlying security's market price. Any
loss to a Fund is limited to the premium paid for, and transaction costs paid in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the exercise price. However, if the market price of
such security increases, the profit a Fund realizes on the sale of the security
will be reduced by the premium paid for the put option less any amount for which
the put is sold.
A Fund may wish to protect certain portfolio securities against a
decline in market value at a time when no put options on those particular
securities are available for purchase. The Fund may therefore purchase a put
option on securities other than those it wishes to protect even though it does
not hold such other securities in its portfolio.
<PAGE>
Each Fund may also purchase call options. During the life of the call
option, the Fund may buy the underlying security at the call exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Fund will reduce any
profit it might have realized had it bought the underlying security at the time
it purchased the call option by the premium paid for the call option and by
transaction costs.
The securities exchanges have established limitations governing the
maximum number of options which may be written by an investor or group of
investors acting in concert. These position limits may restrict a Fund's ability
to purchase or sell options on a particular security. It is possible that with
respect to a Fund, the Fund and other clients of the Adviser may be considered
to be a group of investors acting in concert. Thus, the number of options which
a Fund may write may be affected by options written by other investment advisory
clients of the Adviser.
SECURITIES INDEX OPTION TRADING. Certain Funds may purchase and write
put and call options on securities indexes. Options on securities indexes are
similar to options on securities except that, rather than the right to take or
make delivery of a security at a specified price, an option on an index gives
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The writer of the option is obligated to make delivery of
this amount.
The effectiveness of purchasing or writing index options as a hedging
technique depends upon the extent to which price movements in a Fund's portfolio
correlate with price movements of the index selected. Because the value of an
index option depends upon movements in the level of the index rather than the
price of a particular security, whether a Fund will realize a gain or loss from
the purchase or writing of options on an index depends upon movements in the
level of prices in the stock or bond markets generally or, in the case of
certain indexes, in an industry market segment, rather than movements in the
price of a particular security. Accordingly, successful use by a Fund of options
on security indexes will be subject to the Adviser's ability to predict
correctly movements in the direction of the stock market or interest rates
market generally or of a particular industry. This requires different skills and
techniques than predicting changes in the price of individual securities. In the
event the Adviser is unsuccessful in predicting the movements of an index, a
Fund could be in a worse position than had no hedge been attempted.
Because exercises of index options are settled in cash, a Fund cannot
determine the amount of its settlement obligations in advance and, with respect
to call writing, cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. When a Fund
writes an option on an index, the Fund will segregate or put into escrow with
its custodian or pledge to a broker as collateral for the option, cash, liquid
securities or "qualified securities" with a market value determined on a daily
basis of not less than 100% of the current market value of the option.
Options purchased and written by a Fund may be exchange traded or may
be options entered into by the Fund in negotiated transactions with investment
dealers and other financial institutions (over-the-counter or "OTC" options)
(such as commercial banks or savings and loan associations) deemed creditworthy
by the Adviser. OTC options are illiquid and it may not be possible for the Fund
to dispose of options it has purchased or to terminate its obligations under an
option it has written at a time when the Adviser believes it would be
advantageous to do so.
<PAGE>
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Certain Funds may
enter into futures contracts and purchase and write options on these contracts,
including but not limited to interest rate and securities index futures
contracts and put and call options on these futures contracts. These contracts
will be entered into on domestic exchanges and boards of trade, subject to
applicable regulations of the Commodity Futures Trading Commission. These
transactions may be entered into for bona fide hedging and other permissible
risk management purposes.
In connection with transactions in futures contracts and writing
related options, each Fund will be required to deposit as "initial margin" a
specified amount of cash or short-term, U.S. Government securities. The initial
margin required for a futures contract is set by the exchange on which the
contract is traded. It is expected that the initial margin would be
approximately 1-1/2% to 5% of a contract's face value. Thereafter, subsequent
payments (referred to as "variation margin") are made to and from the broker to
reflect changes in the value of the futures contract. No Fund will purchase or
sell futures contracts or related options if, as a result, the sum of the
initial margin deposit on that Fund's existing futures and related options
positions and premiums paid for options or futures contracts entered into for
other than bona fide hedging purposes would exceed 5% of the liquidation value
of the Fund's portfolio.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded, a
Fund will incur brokerage fees when it purchases or sells futures contracts.
Risks of Transactions in Futures Contracts and Options.
HEDGING RISKS IN FUTURES CONTRACTS TRANSACTIONS. There are several
risks in using stock index or interest rate futures contracts as hedging
devices. One risk arises because the prices of futures contracts may not
correlate perfectly with movements in the underlying index or financial
instrument due to certain market distortions. First, all participants in the
futures market are subject to initial margin and variation margin requirements.
Rather than making additional variation margin payments, investors may close the
contracts through offsetting transactions which could distort the normal
relationship between the index or security and the futures market. Second, the
margin requirements in the futures market are lower than margin requirements in
the securities market, and as a result the futures market may attract more
speculators than does the securities market. Increased participation by
speculators in the futures market may also cause temporary price distortions.
Because of possible price distortion in the futures market and because of
imperfect correlation between movements in stock indexes of securities and
movements in the prices of futures contracts, even a correct forecast of general
market trends may not result in a successful hedging transaction over a very
short period.
Another risk arises because of imperfect correlation between movements
in the value of the futures contracts and movements in the value of securities
subject to the hedge. With respect to index futures contracts, the risk of
imperfect correlation increases as the composition of a Fund's portfolio
diverges from the financial instruments included in the applicable index.
Successful use of futures contracts by a Fund is subject to the ability
of the Adviser to predict correctly movements in the direction of interest rates
or the stock market. If a Fund has hedged against
<PAGE>
the possibility of a decline in the value of the stocks held in its portfolio or
an increase in interest rates adversely affecting the value of fixed-income
securities held in its portfolio and stock prices increase or interest rates
decrease instead, the Fund will lose part or all of the benefit of the increased
value of its security which it has hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market or decline in interest rates.
The Fund may have to sell securities at a time when it may be disadvantageous to
do so.
LIQUIDITY OF FUTURES CONTRACTS. A Fund may elect to close some or all
of its contracts prior to expiration. The purpose of making such a move would be
to reduce or eliminate the hedge position held by the Fund. A Fund may close its
positions by taking opposite positions. Final determinations of variation margin
are then made, additional cash as required is paid by or to the Fund, and the
Fund realizes a loss or a gain.
Positions in futures contracts may be closed only on an exchange or
board of trade providing a secondary market for such futures contracts. Although
the Funds intend to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time.
In addition, most domestic futures exchanges and boards of trade limit
the amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, the Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee that
the price of the securities being hedged will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on a
futures contract.
RISKS OF OPTIONS. The use of options on financial instruments and
indexes and on interest rate and stock index futures contracts also involves
additional risk. Compared to the purchase or sale of futures contracts, the
purchase of call or put options involves less potential risk to a Fund because
the maximum amount at risk is the premium paid for the options (plus
transactions costs). The writing of a call option generates a premium which may
partially offset a decline in the value of a Fund's portfolio assets. By writing
a call option, the Fund becomes obligated to sell an underlying instrument or a
futures contract, which may have a value higher than the exercise price.
Conversely, the writing of a put option generates a premium, but the Fund
becomes obligated to purchase the underlying instrument or futures contract,
which may have a value lower than the exercise price. Thus, the loss incurred by
a Fund in writing options may exceed the amount of the premium received.
The effective use of options strategies is dependent, among other
things, on a Fund's ability to terminate options positions at a time when the
Adviser deems it desirable to do so. Although a Fund will enter into an option
position only if the Adviser believes that a liquid secondary market exists for
such option, there is no assurance that the Fund will be able to effect closing
transactions at any
<PAGE>
particular time or at an acceptable price. The Funds' transactions involving
options on futures contracts will be conducted only on recognized exchanges.
A Fund's purchase or sale of put or call options will be based upon
predictions as to anticipated interest rates or market trends by the Adviser,
which could prove to be inaccurate. Even if the expectations of the Adviser are
correct, there may be an imperfect correlation between the change in the value
of the options and of the Fund's portfolio securities.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must fulfill
the obligation to purchase the underlying security at the exercise price which
will usually exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an investor who is
the holder of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option
will permit a Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit a Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If a Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
A Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; a Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a
secondary market for an option of the same series. If a secondary market does
not exist, it might not be possible to effect closing transactions in particular
options with the result that the Fund would have to exercise the options in
order to realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be
<PAGE>
imposed by a national securities exchange ("Exchange") on opening transactions
or closing transactions or both, (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities, (iv) unusual or unforeseen circumstances may
interrupt normal operations on an Exchange, (v) the facilities of an Exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume, or (vi) one or more Exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options on that Exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
Exchange would continue to be exercisable in accordance with their terms.
Certain Funds may purchase put options to hedge against a decline in
the value of their portfolios. By using put options in this way, such Funds will
reduce any profit they might otherwise have realized in the underlying security
by the amount of the premium paid for the put option and by transaction costs.
Certain Funds may purchase call options to hedge against an increase in
the price of securities that the Funds anticipate purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by a Fund upon exercise of the option, and, unless the
price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
As discussed above, options may be traded over-the-counter ("OTC
options"). In an over-the-counter trading environment, much of the protection
afforded to exchange participants will not be available. For example, there are
no daily price fluctuation limits, and adverse market movements could therefore
continue to an unlimited extent over a period of time. OTC options are illiquid
and it may not be possible for the Funds to dispose of options they have
purchased or terminate their obligations under an option they have written at a
time when the Adviser believes it would be advantageous to do so. Accordingly,
OTC options are subject to each Fund's limitation that a maximum of 15% of its
net assets be invested in illiquid securities. In the event of the bankruptcy of
the writer of an OTC option, a Fund could experience a loss of all or part of
the value of the option.
FOREIGN TRANSACTIONS. Transactions in options and futures contracts by
Funds investing in foreign securities may be conducted outside of the United
States. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (a) other complex
foreign political and economic factors; (b) lesser availability than in the
United States of data on which to make trading decisions; (c) delays in a Fund's
ability to act upon economic events occurring in foreign during nonbusiness
hours in the United States; (d) the imposition of different exercise and
settlement terms and procedures and margin requirements than in the United
States; and (e) lesser trading volume. In addition, such transactions may not
involve a clearing mechanism and related guarantee.
WARRANTS
Growth Fund and Mid Cap Fund may invest in warrants. Because a warrant,
which is a security permitting, but not obligating, its holder to subscribe for
another security, does not carry with it the right to dividends or voting rights
with respect to the securities that the warrant holder is entitled to purchase,
and because a warrant does not represent any rights to the assets of the issuer,
a warrant may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying security and a warrant ceases to have value if
it is not exercised prior to its expiration date.
<PAGE>
TEMPORARY INVESTMENTS
To the extent set forth in the Prospectus, the Funds may invest in
short-term money market securities, including obligations of the U.S. Government
and its agencies and instrumentalities, bank certificates of deposit, bankers'
acceptances, high-grade commercial paper and other money market instruments.
Securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities include Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury bills have initial
maturities of one year or less; Treasury notes have initial maturities of one to
ten years; and Treasury bonds generally have initial maturities of greater than
ten years. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, GNMA pass-through certificates, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, by the right of the issuer to borrow from the Treasury;
others, such as those issued by the Federal National Mortgage Association, by
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality; and others, such as those issued by the
Student Loan Marketing Association, only by the credit of the agency or
instrumentality. While the U.S. Government provides financial support to such
U.S. Government-sponsored agencies or instrumentalities, no assurance can be
given that it will always do so, since it is not so obligated by law. Securities
issued or guaranteed by the U.S. Government or its agencies or instrumentalities
that mature within 397 days are considered money market securities for purposes
of the Funds' investment policies.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits are not transferable and are therefore illiquid prior to their
maturity. No Fund will invest more than 15% of its net assets in time deposits
and other illiquid securities. See "Investment Restrictions" below. Certificates
of deposit are certificates evidencing the obligation of a bank to repay funds
deposited with it for a specified period of time. Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the full amount of the instrument upon maturity.
Commercial paper consists of short-term, unsecured promissory notes
issued to finance short-term credit needs. The commercial paper purchased by the
Funds will consist only of direct obligations which, at the time of their
purchase, are (a) rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P (or
comparably rated by any other nationally recognized statistical rating
organization), (b) issued by companies having an outstanding unsecured debt
issue currently rated at least Aa by Moody's or at least AA by S&P (or
comparably rated by any other nationally recognized statistical rating
organization), or (c) if unrated, determined by the Adviser to be of comparable
quality to those rated obligations which may be purchased by the Funds.
Money market instruments in which the Funds may invest also include
nonconvertible corporate debt securities (for example, bonds and debentures)
with no more than 397 days remaining to maturity, provided such obligations are
rated Aa or better by Moody's, AA or better by S&P (or comparably rated by any
other nationally recognized statistical rating organization) or, if unrated,
determined to be of comparable quality by the Adviser.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following investment restrictions which,
together with the investment objective of such Fund, cannot be changed without
approval by holders of a majority of the
<PAGE>
outstanding voting shares of such Fund. As defined in the 1940 Act, this means
the lesser of the vote of (a) 67% of the shares of such Fund at a meeting where
more than 50% of the outstanding shares of such Fund are present in person or by
proxy or (b) more than 50% of the outstanding shares of such Fund.
1. No Fund, with respect to 75% of its total assets, will invest more than
5% of the value of its total assets (taken at market value at the time
of purchase) in the outstanding securities of any one issuer, or own
more than 10% of the outstanding voting securities of any one issuer,
in each case other than securities issued or guaranteed by the U.S.
Government or any agency or instrumentality thereof.
2. No Fund will invest 25% or more of the value of its total assets in the
securities of issuers conducting their principal business activities in
any one industry. This restriction does not apply to securities of the
U.S. Government or its agencies and instrumentalities and repurchase
agreements relating thereto. The various types of utilities companies,
such as gas, electric, telephone, telegraph, satellite and microwave
communications companies, are considered as separate industries.
3. No Fund will underwrite the securities of other issuers except to the
extent that, in connection with the disposition of its portfolio
securities, the Fund may be deemed to be an underwriter.
4. No Fund will borrow money except for temporary or emergency purposes.
The amount of such borrowing (not including borrowing through reverse
repurchase agreements) may not exceed one-third of such Fund's total
assets. No Fund will purchase portfolio securities while outstanding
borrowings (other than reverse repurchase agreements) exceed 5% of the
value of the Fund's total assets. The Funds will not borrow for
leverage purposes.
5. No Fund will issue any senior securities, as defined in the 1940 Act,
except as set forth in investment restriction number 4 above, and
except to the extent that using options, futures contracts and options
on futures contracts, or purchasing or selling securities on a
when-issued or forward commitment basis, or using similar investment
strategies may be deemed to constitute issuing a senior security.
6. No Fund will purchase or sell commodities or commodities futures
contracts, except that the Funds may enter into financial futures
contracts and engage in related options transactions.
7. No Fund will mortgage, pledge or hypothecate its assets except to
secure temporary or emergency borrowing. For purposes of this policy,
collateral arrangements for margin deposits on future contracts or with
respect to the writing of options are not deemed to be a pledge of
assets.
8. No Fund will lend money to other persons, except through purchasing
debt obligations, lending portfolio securities and entering into
repurchase agreements.
9. No Fund will purchase or sell real estate or real estate limited
partnership interests, except that the Funds may purchase and sell
securities of companies that deal in real estate or interests in real
estate.
For purposes of the Funds' concentration policy contained in
fundamental restriction (2) above, the applicable Funds intend to comply with
the SEC staff position that securities issued or guaranteed as to principal and
interest by any single foreign government are considered to be securities of
issuers in the same industry.
<PAGE>
Each Fund has adopted the following operating (i.e., non-fundamental)
investment restrictions which may be changed by the Board of Directors at any
time without shareholder approval. No Fund will:
1. Invest more than 15% of its net assets in illiquid securities.
2. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions and
except that the Funds may make margin deposits in connection with
futures contracts.
3. Make short sales of securities.
Additionally, Growth Fund and Mid Cap Fund may invest in warrants if no
more than 5% of the value of each Fund's net assets would be invested in such
securities.
Any investment restriction or limitation which involves a maximum
percentage of securities or assets, except the policies regarding borrowing and
investments in illiquid securities, shall not be considered to be violated
unless an excess over the percentage occurs immediately after an acquisition of
securities or a utilization of assets and such excess results therefrom.
DIVERSIFICATION
As indicated by the first fundamental investment restriction set forth
above, each Fund operates as a "diversified" fund. Each Fund intends to conduct
its operations so that it will comply with diversification requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and
qualify as a "regulated investment company." In order to qualify as a regulated
investment company, each Fund must limit its investments so that, at the close
of each quarter of the taxable year, with respect to at least 50% of its total
assets, not more than 5% of its total assets will be invested in the securities
of a single issuer. In addition, the Code requires that not more than 25% in
value of each Fund's total assets may be invested in the securities of a single
issuer at the close of each quarter of the taxable year.
PORTFOLIO TURNOVER
Portfolio turnover is the ratio of the lesser of annual purchases or
sales of portfolio securities by a Fund to the average monthly value of
portfolio securities owned by the Fund, not including securities maturing in
less than 12 months. A 100% portfolio turnover rate would occur, for example, if
the lesser of the value of purchases or sales of a Fund's portfolio securities
for a particular year were equal to the average monthly value of the portfolio
securities owned by the Fund during the year. Each Fund will dispose of
securities without regard to the time they have been held when such action
appears advisable to the Adviser. Frequent portfolio trades may result in higher
transaction and other costs for a Fund.
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and officers of the Company, their position with the
Company and their principal occupations are set forth below. Unless indicated
otherwise, all positions have been held at least five years.
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S) DURING
NAME, ADDRESS, AND AGE POSITION PAST FIVE YEARS AND OTHER AFFILIATIONS
- ---------------------- -------- --------------------------------------
<S> <C> <C>
Clarence G. Frame, 78 Director Of counsel, Briggs & Morgan law firm. Mr. Frame
First National Bank Building, currently serves on the board of directors of Tosco
W-875 Corporation (an oil refining and marketing company).
332 Minnesota Street Milwaukee Land Company, and Independence One
St. Paul, Minnesota 55101 Mutual Funds.
Richard F. McNamara, 63 Director Chief Executive Officer of Activar, Inc., a Minneapolis-
7808 Creekridge Circle #200 based holding company consisting of seventeen
Minneapolis, Minnesota 554239 companies in industrial plastics, sheet metal, automotive
aftermarket, construction supply, electronics and financial
services, since 1966. Mr. McNamara currently serves on the
board of directors of Rimage (electronics manufacturing)
and Interbank.
Thomas F. Madison, 60 Director President and CEO of MLM Partners, Inc. since January
200 South Fifth Street 1993; previously, Vice Chairman--Office of the CEO,
Suite 2100 The Minnesota Mutual Life Insurance Company from
Minneapolis, Minnesota 55402 February to September 1994; President of U.S. WEST
Communications--Markets from 1988 to 1993. Mr. Madison
currently serves on the board of directors of Valmont
Industries, Inc. (metal manufacturing), Eltrax Systems, Inc.
(data communications integration), Minnegasco, Span Link
Communications (software), ACI Telecentrics (outbound
telemarketing and telecommunications) and various civic
and educational organizations.
James W. Nelson, 55 Director Chairman and Chief Executive Officer of Eberhardt
81 South Ninth Street Holding Company and its subsidiaries.
Suite 400
Minneapolis, Minnesota 55440
Robert J. Odegard, 75 Director Special Assistant to the President of the University of
University of Minnesota Minnesota.
Foundation
1300 South Second Street
Minneapolis, Minnesota 55454
John G. Taft, 42 President Chief Executive Officer and Director of the Adviser Since
90 South Seventh Street 1997; previously, Director from 1993 to 1997 of the
Suite 4400 predecessor of the Adviser and the Underwriter; President
Minneapolis, Minnesota 55402 of the predecessor of the Underwriter from 1991 to 1995;
Management committee member of the predecessor of
the Adviser from 1991 to 1995.
Jane M. Wyatt, 42 Executive Chief Investment Officer of the Adviser since 1997; previously,
90 South Seventh Street Vice Chief Investment Officer and Director of the predecessor of the
Suite 4400 President Adviser from 1993 to 1997; Director and Executive Vice President
Minneapolis Minnesota 55402 of the predecessor of the Underwriter from 1993 to 1997.
<PAGE>
James C. King, 56 Vice Senior Equity Portfolio Manager of the Adviser since 1997;
90 South Seventh Street President previously, Senior Equity Portfolio Manager of the
Suite 4400 predecessor of the Adviser from 1993 to 1997; Director of
Minneapolis, Minnesota 55402 the Adviser and the Underwriter from 1993 to 1995.
Steven P. Eldredge, 40 Vice Senior Tax Exempt Portfolio Manager of the Adviser since
90 South Seventh Street President 1997; previously, Senior Tax Exempt Portfolio Manager of
Suite 4400 the predecessor of the Adviser from 1995 to 1997; portfolio
Minneapolis, Minnesota 55402 manager for ABT Mutual Funds, Palm Beach, Florida,
from 1989 to 1995.
Steven B. Johansen, 39 Treasurer Director, Treasurer and Chief Financial Officer of the Adviser and
90 South Seventh Street the Underwriter since 1997; previously, Secretary and Chief
Suite 4400 Financial Officer of the predecessor of the Underwriter
Minneapolis, Minnesota 55402 until 1977.
Thomas J. Abood, 33 Secretary Secretary, Senior Vice President and General Counsel of
90 South Seventh Street Dougherty Financial Group LLC since 1997; previously,
Suite 4400 Senior Vice President and General Counsel of Dougherty
Minneapolis, Minnesota 55402 Financial Group, Inc. from 1995 to 1997; Senior Vice
President of the predecessor of the Adviser and the
Underwriter and of Voyageur Companies, Inc. from 1994
to 1997; Vice President of the predecessor of the Adviser
and Voyageur Companies, Inc. from 1994 to 1995;
associated with the law firm of Skadden, Arps, Slate,
Meagher & Flom, Chicago, Illinois from 1988 to 1994.
- -----------------------------
*Directors of the Company who are interested persons (as that term is defined by
the 1940 Act) of Piper Capital Management Incorporated and the Funds.
</TABLE>
As of May 31, 1997, the officers and directors of the Company as a
group did not own any shares of the Funds.
The Company does not compensate its officers. Each director (who is not
an employee of the Adviser or any of its affiliates) receives a total annual fee
of $1,000 for serving as a director of the Company, plus a $500 fee for each
in-person meeting attended by such director. These fees are allocated among each
series of the Company based on the relative average net asset value of each
series. In addition, each director who is not an employee of the Adviser any of
its affiliates is reimbursed for expenses incurred in connection with attending
meetings. The Adviser currently serves as investment adviser to the Company
which has eight series.
For the calendar year ended December 31, 1996, each of Messrs. Frame,
McNamara, Madison, Nelson and Odegard received compensation from the investment
companies (the "Fund Complex") for which Voyageur Fund Managers, Inc., the
predecessor of the Adviser, served as investment adviser. (For the calendar year
ended December 31, 1996, the Fund Complex consisted of 10 open-end investment
companies comprising 33 series or funds and 6 closed-end investment companies.)
The following table sets forth the compensation received by each director from
the Company during the fiscal year ended October 31, 1996, as well as the total
compensation received by each director from the Fund Complex during the calendar
year ended December 31, 1996.
<PAGE>
Aggregate Compensation Total Compensation
Director from the Company * from Fund Complex
- -------- ---------------------- ------------------
Clarence G. Frame $ -0- $ 25,500
Richard F. McNamara $ -0- $ 25,500
Thomas F. Madison $ -0- $ 25,500
James W. Nelson $ -0- $ 25,500
Robert J. Odegard $ -0- $ 25,500
* The Company had no assets as of the fiscal year ended October 31, 1996, and
paid no fees.
THE INVESTMENT ADVISER, SUB-ADVISER AND ADMINISTRATIVE SERVICES
GENERAL
Voyageur Asset Management LLC (the "Adviser"), a Minnesota limited
liability company, has been retained under an investment advisory agreement (the
"Advisory Agreement") with the Company to act as each Fund's investment adviser,
subject to the authority of the Board of Directors. Dougherty Dawkins LLC (the
"Distributor") is the principal distributor of the Funds' shares. The Adviser
and the Distributor are each indirect wholly-owned subsidiaries of Dougherty
Financial Group LLC ("DFG").
INVESTMENT ADVISORY AGREEMENT
The Funds do not maintain their own research department. The Company,
on behalf of each Fund, has contracted with the Adviser for investment advice,
research and management. Pursuant to the Investment Advisory Agreement, the
Adviser has the sole and exclusive responsibility for the management of each
Fund's portfolio and the making and execution of all investment decisions for
the Fund subject to the objectives and investment policies and restrictions of
the Fund and subject to the supervision of the Company's Board of Directors. The
Adviser also furnishes, at its own expense, office facilities, equipment and
personnel for servicing the investments of each Fund. The Adviser has agreed to
arrange for officers and employees of the Adviser to serve without compensation
from the Funds as directors, officers or employees of the Company if duly
elected to such positions by the shareholders or directors.
As compensation for the Adviser's services, each Fixed Income Fund is
obligated to pay a monthly fee equivalent on an annual basis to .50% of each
such Fund's average daily net assets and each Equity Fund is obligated to pay a
monthly fee equivalent on an annual basis to 1.00% of each such Fund's average
daily net assets. The percentage fee is based on the average daily value of each
Fund's net assets at the close of each business day. For purposes of calculating
average daily net assets, as such term is used in the Investment Advisory
Agreement, each Fund's net assets equal its total assets minus its total
liabilities.
The Investment Advisory Agreement continues from year to year only if
approved annually (a) by the Board of Directors of the Company or by vote of a
majority of the outstanding voting securities of each Fund and (b) by vote of a
majority of Directors of the Company who are not parties to such Investment
Advisory Agreement or interested persons (as defined in the 1940 Act) of any
such party, cast in person at a meeting of the Board of Directors called for the
purpose of voting on such approval. The Investment Advisory Agreement may be
terminated by either party on 60 days' notice to the other party and terminates
automatically upon its assignment. The Investment Advisory Agreement also
provides that amendments to the Agreement may be effected if approved by the
Board of Directors of the Company (including a majority of the directors who are
not interested persons of the Adviser or the Company), unless the 1940 Act
requires that any such amendment must be submitted for approval by the
<PAGE>
shareholders and that all proposed assignments of such agreement are subject to
approval by the Company's Board of Directors (unless the 1940 Act otherwise
requires shareholder approval thereof).
ADMINISTRATIVE SERVICES AGREEMENT
The Adviser also acts as each Fund's dividend disbursing, transfer,
administrative and accounting services agent pursuant to an Administrative
Services Agreement (the "Administrative Services Agreement") between the Adviser
and the Company. Pursuant to the Administrative Services Agreement, the Adviser
provides each Fund all dividend disbursing, transfer agency, administrative and
accounting services required by such Fund including, without limitation, the
following: (i) the calculation of net asset value per share (including the
pricing of each Fund's portfolio of securities) at such times and in such manner
as is specified in the Fund's current Prospectus and Statement of Additional
Information, (ii) upon the receipt of funds for the purchase of such Fund's
shares or the receipt of redemption requests with respect to such Fund's shares
outstanding, the calculation of the number of shares to be purchased or
redeemed, respectively, (iii) upon such Fund's distribution of dividends, the
calculation of the amount of such dividends to be received per share, the
calculation of the number of additional shares of such Fund to be received by
each shareholder of such Fund (other than any shareholder who has elected to
receive such dividends in cash) and the mailing of payments with respect to such
dividends to shareholders who have elected to receive such dividends in cash,
(iv) the provision of transfer agency services, (v) the creation and maintenance
of such records relating to the business of such Fund as such Fund may from time
to time reasonably request, (vi) the preparation of tax forms, reports, notices,
proxy statements, proxies and other shareholder communications, and the mailing
thereof to shareholders of such Fund, and (vii) the provision of such other
dividend disbursing, transfer agency, administrative and accounting services as
such Fund and the Adviser may from time to time agree upon. Pursuant to the
Administrative Services Agreement, the Adviser also provides such regulatory
reporting and compliance related services and tasks for the Company or any Fund
as the Company may reasonably request.
As compensation for these services, each Fund pays the Adviser a
monthly fee equivalent on an annual basis to .15% of the Fund's average daily
net assets. For purposes of calculating average daily net assets, as such term
is used in the Administrative Services Agreements, each Fund's net assets equals
its total assets minus its total liabilities. Each Fund also reimburses the
Adviser for its out-of-pocket expenses in connection with the Adviser's
provision of services under such Fund's Administrative Services Agreement.
The Administrative Services Agreement is renewable from year to year if
the Company's directors (including a majority of the Company's disinterested
directors) approve the continuance of the Agreement. Each Fund or the Adviser
can terminate such Fund's Administrative Services Agreement on 60 days' notice
to the other party. The Administrative Services Agreement also provides that
amendments to the Agreement may be effected if approved by the Board of
Directors of the Company (including a majority of the directors who are not
interested persons of the Adviser or the Fund), unless the 1940 Act requires
that any such amendment must be submitted for approval by the Fund's
shareholders, and that all proposed assignments of such agreement are subject to
approval by the Company's Board of Directors (unless the 1940 Act otherwise
requires shareholder approval thereof).
EXPENSES OF THE FUNDS
All costs and expenses (other than those specifically referred to as
being borne by the Adviser or the Distributor) incurred in the operation of each
Fund are borne by such Fund. These expenses include, among others, fees of the
directors who are not employees of the Adviser or any of its affiliates,
expenses of directors' and shareholders' meetings, including the cost of
printing and mailing
<PAGE>
proxies, expenses of insurance premiums for fidelity and other coverage,
expenses of redemption of shares, expenses of issue and sale of shares (to the
extent not borne by the Distributor under its agreement with such Fund),
association membership dues, charges of such Fund's custodian, and bookkeeping,
auditing and legal expenses. Each Fund will also pay the fees and bear the
expense of registering and maintaining the registration of such Fund and its
shares with the Securities and Exchange Commission and registering or qualifying
its shares under state or other securities laws and the expense of preparing and
mailing prospectuses, reports and statements to shareholders.
The Adviser reserves the right to voluntarily waive its fees in whole
or part and to voluntarily absorb certain other of the Fund's expenses. Any such
waiver or absorption, however, is in the Adviser's sole discretion and may be
lifted or reinstated at any time. The Adviser has voluntarily agreed to waive
fees and absorb expenses for each Fund through October 31, 1997, to the extent
set forth under "Fees and Expenses" in the Prospectus.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Decisions with respect to placement of the Funds' portfolio
transactions are made by the Adviser. In selecting brokers to execute portfolio
transactions, the Adviser seeks to obtain the best net price and efficiency of
execution of orders. Commission rates, being a component of price, are
considered together with other relevant factors.
When consistent with the objectives of best net price and efficiency of
execution of orders, business may be placed with broker-dealers who furnish
investment research services to the Adviser; provided, however, that the
provision of research and brokerage services may not be considered in selecting
dealers to execute futures contracts and related options. Such research services
include advice, both directly and in writing, as to the value of securities, the
advisability of investing in, purchasing, or selling securities, and the
availability of securities or purchasers or sellers of securities, as well as
analyses and reports concerning issues, industries, securities, economic factors
and trends, portfolio strategy, and the performance of accounts. This allows the
Adviser to supplement its own investment research activities by obtaining the
views and information of individuals and research staffs of many different
securities research firms prior to making investment decisions for a Fund.
Research may also include computer software and hardware which conveys or
analyzes the foregoing. To the extent portfolio transactions are effected with
broker-dealers who furnish research services, the Adviser receives a benefit,
not capable of evaluation in dollar amounts, without providing any direct
monetary benefit to the Funds from these transactions.
The Adviser has not entered into any formal or informal agreements with
any broker-dealers, nor do it maintain any "formula" which must be followed in
connection with the placement of the Funds' portfolio transactions in exchange
for research services provided the Adviser, except as noted below. However, the
Adviser maintains informal lists of broker-dealers, which is used from time to
time as a general guide in the placement of the Funds' business, in order to
encourage certain broker-dealers to provide the Adviser with research services
which the Adviser anticipates will be useful. Because the list is merely a
general guide, which is to be used only after the primary criterion for the
selection of broker-dealers (discussed above) has been met, substantial
deviations from the list are permissible and may be expected to occur. The
Adviser will authorize the Funds to pay an amount of commission for effecting a
securities transaction in excess of the amount of commission another
broker-dealer would have charged only if the Adviser determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either that particular transaction or the Adviser's overall responsibilities
with respect to the accounts as to which it exercises investment discretion. The
Funds will not purchase at a higher price or sell at a lower price in connection
with transactions effected with
<PAGE>
a broker-dealer, acting as principal, who furnishes research services to the
Adviser than would be the case if no weight were given by the Adviser to the
dealer's furnishing of such services.
The Adviser believes that most research services obtained will
generally benefit one or more of the investment companies managed by the Adviser
and will also benefit accounts which they manage. Normally research services
obtained through commissions paid by the managed funds and accounts investing in
debt securities would primarily benefit such funds and accounts; similarly,
services obtained from transactions in common stocks would be of greater benefit
to the managed funds and accounts investing in common stocks.
Pursuant to conditions set forth in the rules of the Securities and
Exchange Commission, each Fund may effect brokerage transactions in its
portfolio securities with a broker or dealer affiliated directly or indirectly
with the Adviser. In determining the commissions to be paid to a broker-dealer
affiliated with the Adviser, it is the policy of the Funds that such commissions
will, in the judgment of the Adviser, subject to review by the Board of
Directors, be both (a) at least as favorable as those which would be charged by
other qualified brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time, and (b) at least as favorable as commissions contemporaneously
charged by such affiliated broker-dealers on comparable transactions for their
most favored comparable unaffiliated customers.
When two or more clients of the Adviser are simultaneously engaged in
the purchase or sale of the same security, the prices and amounts are allocated
in accordance with a formula considered by the Adviser to be equitable to each
client. In some cases, this system could have a detrimental effect on the price
or volume of the security as far as each client is concerned. In other cases,
however, the ability of the clients to participate in volume transactions will
produce better executions for each client.
Pursuant to conditions set forth in rules of the Securities and
Exchange Commission, the Funds may purchase securities from an underwriting
syndicate of which an affiliated broker-dealer is a member (but not directly
from such affiliated broker-dealer itself). Such conditions relate to the price
and amount of the securities purchased, the commission or spread paid and the
quality of the issuer. The rules further require that such purchases take place
in accordance with procedures adopted and reviewed periodically by the Board of
Directors of the Funds, particularly those directors who are not interested
persons of the Funds.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to the policies set forth in the
preceding paragraphs and such other policies as the Company's directors may
determine, the Adviser may consider sales of shares of the Funds as a factor in
the selection of broker-dealers to execute the Funds' securities transactions.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price of Fund shares,
which is equal to the net asset value per share, is summarized in the
Prospectus. The portfolio securities in which the Funds invest fluctuate in
value and hence the net asset value per share of each Fund also fluctuates. The
net asset value of each Fund's shares is determined on each day on which the New
York Stock Exchange is open, provided that the net asset value need not be
determined on days when no Fund shares are tendered for redemption and no order
for Fund shares is received. The New York Stock Exchange is not open for
business on the following holidays (or on the nearest Monday or Friday if the
holiday falls on a weekend): New Year's Day, President's Day, Good Friday,
Memorial Day, July 4th, Labor Day, Thanksgiving and Christmas.
<PAGE>
TAXES
GENERAL
Each Fund intends to qualify each year as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). In order to so qualify, a Fund must meet certain requirements
imposed by the Code as to the sources of the Fund's income and the
diversification of the Fund's assets. A Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to loans of securities, gains from the sale or
other disposition of securities or other income derived with respect to its
business of investing in such securities (including, but not limited to, gains
from options, futures or forward contracts); (b) generally derive in each
taxable year less than 30% of its gross income from gains from the sale or other
disposition of securities, options, futures or forward contracts held for less
than three months; and (c) diversify its holdings so that, at the end of each
fiscal quarter, (i) at least 50% of the value of the Fund's assets is
represented by (A) cash, United States government securities or securities of
other regulated investment companies, and (B) other securities that, with
respect to any one issuer, do not represent more than 5% of the value of the
Fund's assets or more than 10% of the voting securities of such issuer, and (ii)
not more than 25% of the value of the Fund's assets is invested in the
securities of any issuer (other than United States government securities or the
securities of other regulated investment companies).
If a Fund qualifies as a regulated investment company and satisfies a
minimum distribution requirement, the Fund will not be subject to federal income
tax on income and gains to the extent that it distributes such income and gains
to its shareholders. The minimum distribution requirement is satisfied if a Fund
distributes at least 90% of its net investment income (including tax-exempt
interest and net short-term capital gains) for the taxable year.
Each Fund will be subject to a nondeductible 4% excise tax to the
extent that it does not distribute by the end of each calendar year (or is not
subjected to regular corporate tax in such year on) an amount equal to the sum
of (a) 98% of the Fund's ordinary income for such calendar year; (b) 98% of the
excess of capital gains over capital losses for the one-year period ending on
October 31 of each year; and (c) the undistributed income and gains from the
preceding years (if any).
FEDERAL TAX TREATMENT OF SHAREHOLDERS
Distributions to shareholders attributable to a Fund's net investment
income (including interest income and net short-term capital gains) are taxable
as ordinary income whether paid in cash or reinvested in additional shares of
the Fund. Distributions of any net capital gain (I.E., the excess of net
long-term capital gain over net short-term capital loss, if any) that are
designated as capital gain dividends are taxable as long-term capital gains,
whether paid in cash or additional shares of a Fund, regardless of how long the
shares have been held.
Dividends and distributions by each Fund are generally taxable to the
shareholders at the time the dividend or distribution is made (even if
reinvested in additional shares of the Fund). However, any dividend declared by
a Fund in October, November or December of any calendar year which is payable to
shareholders of record on a specified date in such a month will be treated as
received by the shareholders on December 31 of such year if the dividend is paid
during January of the following year. The realization by a Fund of original
issue or market discount will increase the investment income of such Fund and
the amount required to be distributed.
<PAGE>
Distributions may also be subject to state, local and foreign taxes
depending on each shareholder's particular situation.
In general, if a share of common stock is sold or exchanged, the seller
will recognize gain or loss equal to the difference between the amount realized
in the sale or exchange and the seller's adjusted basis in the share of common
stock. Any gain or loss realized upon a sale or exchange of shares of common
stock will be treated as long-term capital gain or loss if the shares have been
held for more than one year, and otherwise as short-term capital gain or loss.
Further, if such shares are held for six months or less, loss realized by a
shareholder will be treated as long-term capital loss to the extent of the total
of any capital gain dividend received by the shareholder. In addition, any loss
realized on a sale or exchange of shares of common stock will be disallowed to
the extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the shares. In
such case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Each Fund may be required to withhold federal income tax at the rate of
31% of all taxable distributions payable to shareholders who fail to provide
such Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code are generally exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's federal income tax liability.
The foregoing discussion relates solely to United States federal income
tax law as applicable to "U.S. persons,"I.E., U.S. citizens and residents and
U.S. domestic corporations, partnerships, trusts and estates. Shareholders who
are not U.S. persons should consult their tax advisers regarding the U.S. and
non-U.S. tax consequences of ownership of shares of the Funds, including the
fact that such a shareholder may be subject to U.S. withholding tax at a rate of
30% (or at a lower rate under an applicable U.S. income tax treaty) on amounts
constituting ordinary income from U.S. sources, including ordinary dividends
paid by the Funds.
TAX INFORMATION RELATING TO FUND INVESTMENTS
The Funds will recognize gain or loss on futures contracts, options,
and forward currency contracts when realized by entering into a closing
transaction or by exercise. In addition, if a Fund holds such contracts and
options at the end of its taxable year, unrealized gain or loss on such
contracts is taken into account at the then current fair market value thereof
under a special "marked-to-market, 60/40 system," and such gain or loss is
recognized for tax purposes. The gain or loss from such contracts and options
(including premiums on certain options that expire unexercised) is treated as
60% long-term and 40% short-term capital gain or loss, regardless of their
holding period. The amount of any capital gain or loss actually realized by a
Fund in a subsequent sale or other disposition of such contracts will be
adjusted to reflect any capital gain or loss taken into account by the Fund in a
prior year as a result of the constructive sale under the "marked-to-market,
60/40 system." Notwithstanding the rules described above, with respect to
certain futures or forward currency contracts, a Fund may make an election that
will have the effect of exempting all or a part of those identified contracts
from being treated for federal income tax purposes as sold on the last business
day of the Fund's taxable year. All or part of any loss realized by a Fund on
any closing of a contract may be deferred until all of the Fund's offsetting
positions with respect to the futures contract are closed.
Code Section 988 may also apply for forward currency contracts. Under
Section 988, each foreign currency gain or loss is generally computed separately
and treated as ordinary income or loss. In the case of overlap between Sections
1256 and 988, special provisions determine the character and timing of
<PAGE>
any income, gain or loss. The Funds engaging in forward currency contracts will
attempt to monitor Section 988 transactions to avoid an adverse tax impact.
Sales of forward currency contracts which are intended to hedge against
a change in the value of securities or currencies held by a Fund may affect the
holding period of such securities or currencies and, consequently, the nature of
the gain or loss on such securities or currencies upon distribution.
It is expected that any net gain realized from the closing out of
forward currency contracts will be considered gain from the sale of securities
or currencies and therefore be qualifying income for purposes of the 90% of
gross income from qualified sources requirement, as discussed above. In order to
avoid realizing excessive gains on securities or currencies held less than three
months, a Fund may be required to defer the closing out of forward currency
contracts beyond the time when it would otherwise be advantageous to do so. It
is expected that unrealized gains on forward currency contracts, which have been
open for less than three months as of the end of a Fund's fiscal year and which
are recognized for tax purposes, will not be considered gains on securities or
currencies held less than three months for purposes of the 30% test, as
discussed above.
Under the Code, a Fund's taxable income for each year will be computed
without regard to any net foreign currency loss attributable to transactions
after October 31, and any such net foreign currency loss will be treated as
arising on the first day of the following taxable year.
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the Funds may refer to
"average annual total return" and "cumulative total return" and, with respect to
the Fixed Income Funds only, "yield" and "current distribution rate." These
amounts are calculated as described below. No performance information is
provided for the Funds because none of the Funds had commenced operations as of
the date of this Statement of Additional Information.
YIELD
Yield is computed by dividing the net investment income per share
deemed earned during the computation period by the maximum offering price per
share on the last day of the period, according to the following formula:
YIELD = 2[(a-b + 1)6 - 1]
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the
period.
AVERAGE ANNUAL TOTAL RETURN
Average annual total return is computed by finding the average annual
compounded rates of return over the periods indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
<PAGE>
P (1 + T) n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged as expenses to all shareholder accounts.
CUMULATIVE TOTAL RETURN
Cumulative total return is computed by finding the cumulative
compounded rate of return over the period indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
CTR = 100 (ERV-P)/P
Where: CTR = Cumulative total return;
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period; and
P = initial payment of $1,000.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged as expenses to all shareholder accounts.
DISTRIBUTION RATE
A Fund's current distribution rate as of a specified date is calculated
by determining the amount of distributions that would have been paid over the
twelve-month period ending on such date to the holder of one hypothetical Fund
share purchased at the beginning of such period, and dividing such amount by the
current offering price per share.
REDEMPTIONS
A signature guarantee is required if a redemption: (1) exceeds $50,000
(unless it is being wired to a pre-authorized bank account, in which case a
guarantee is not required), (2) is to be paid to someone other than the
registered shareholder or (3) is to be mailed to an address other than the
address of record or wired to an account other than the pre-authorized bank or
brokerage account. On joint account redemptions, each signature must be
guaranteed. A signature guarantee may not be provided by a notary public. Please
contact the Adviser for instructions as to what institutions constitute eligible
signature guarantors. The Underwriter may waive certain of these redemption
requirements at its own risk, but also reserves the right to require signature
guarantees on all redemptions, in contexts perceived by the Underwriter to
subject a Fund to an unusual degree of risk.
<PAGE>
ADDITIONAL INFORMATION
Organizational costs incurred by the Company in connection with its
start-up and initial registration will be amortized over 60 months on an inverse
acceleration (sum-of-the-years-digits) basis beginning on the date of each
Fund's initial effective date. If the Adviser redeems any or all of its shares
of any Fund prior to the end of such Fund's 60-month amortization period, the
redemption proceeds will be reduced by its pro rata portion of such Fund's
unamortized organizational costs. If a Fund liquidates prior to the date such
costs are fully amortized, the Adviser will bear all unamortized organizational
costs of such Fund.
CUSTODIAN; COUNSEL; INDEPENDENT AUDITORS
First Trust National Association, 180 East Fifth Street, St. Paul,
Minnesota 55101, acts as custodian of the Funds' assets and portfolio
securities.
Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota
55402, serves as counsel for the Funds.
KPMG Peat Marwick LLP, 4200 Norwest Center, Minneapolis, Minnesota
55402, serves as the Funds' independent auditors.
SHAREHOLDER MEETINGS
The Company is not required under Minnesota law to hold annual or
periodically scheduled regular meetings of shareholders. Regular and special
shareholder meetings are held only at such times and with such frequency as
required by law. Minnesota law provides for the Board of Directors to convene
shareholder meetings when it deems appropriate. In addition, if a regular
meeting of shareholders has not been held during the immediately preceding
fifteen months, a shareholder or shareholders holding three percent or more of
the voting shares of a Fund may demand a regular meeting of shareholders of a
Fund by written notice of demand given to the chief executive officer or the
chief financial officer of the Fund. Within ninety days after receipt of the
demand, a regular meeting of shareholders must be held at the expense of the
fund. Additionally, the 1940 Act requires shareholder votes for all amendments
to fundamental investment policies and restrictions and for all investment
advisory contracts and amendments thereto.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each director of the Company owes certain
fiduciary duties to each Fund and to its shareholders. Minnesota law provides
that a director "shall discharge the duties of the position of director in good
faith, in a manner the director reasonably believes to be in the best interest
of the corporation, and with the care an ordinarily prudent person in a like
position would exercise under similar circumstances." Fiduciary duties of a
director of a Minnesota corporation include, therefore, both a duty of "loyalty"
(to act in good faith and act in a manner reasonably believed to be in the best
interests of the corporation) and a duty of "care" (to act with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances). Minnesota corporations are authorized to eliminate or limit the
personal liability of a director to the corporation or its shareholders for
monetary damages for breach of the fiduciary duty of "care". Minnesota law does
not, however, permit a corporation to eliminate or limit the liability of
directors (i) for any breach of the directors' duty of "loyalty" to the
corporation or its shareholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) for
authorizing a dividend, stock repurchase or redemption or other distribution in
violation of Minnesota law or for
<PAGE>
violation of certain provisions of Minnesota securities law, or (iv) for any
transaction from which the directors derived an improper personal benefit. The
Articles of Incorporation of the Company limit the liability of the Company's
directors to the fullest extent permitted by Minnesota statutes, except to the
extent that such liability cannot be limited as provided in the 1940 Act (which
Act prohibits any provisions which purport to limit the liability of directors
arising from such directors' willful misfeasance, bath faith, gross negligence,
or reckless disregard of the duties involved in the conduct of their role as
directors).
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers). Minnesota law does not permit elimination or limitation of
the availability of equitable relief, such as injunctive or rescissionary
relief. Further, Minnesota law does not permit elimination or limitation of a
director's liability under the 1933 Act or the Securities Exchange Act of 1934,
and it is uncertain whether and to what extent the elimination of monetary
liability would extend to violations of duties imposed on directors by the 1940
Act and the rules and regulations adopted thereunder.
ORGANIZATION AND CAPITALIZATION OF THE FUNDS
The Company's (and, therefore, each Fund's) fiscal year ends on October
31 of each year.
The Articles of Incorporation of the Company were amended and restated
on November 23, 1993 to, among other things, change the name of the Company from
Voyageur Money Market Fund, Inc. to Voyageur Mutual Funds IV, Inc. and were
amended and restated on January 20, 1995 to change the Company name to VAM
Institutional Funds, Inc.
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S RATINGS SERVICES -- A brief description of the
applicable Standard & Poor's Ratings Services (S&P) rating symbols and their
meanings (as published by S&P) follows.
An S&P corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt 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 S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
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;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.
1. LONG-TERM BONDS.
AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated 'A' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits 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 debt in this category than in
higher-rated categories.
BB Debt rated 'BB,' 'B,' 'CCC,' 'CC' and 'C' is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. 'BB'
indicates the lowest degree of speculation and 'C' the highest degree
of
<PAGE>
speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties of
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The 'BB' rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied 'BBB-' rating.
B Debt rated 'B' has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The 'B'
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied 'BB' or 'BB-' rating.
2. COMMERCIAL PAPER.
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
165 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The Funds may invest in:
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further
refined with the designation 1, 2, and 3 to indicate the relative
degree of safety.
A-1 This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for
issues designated "A-1."
MOODY'S INVESTORS SERVICE -- A brief description of the applicable
Moody's Investors Service, Inc. ("Moody's") rating symbols and their meanings
(as published by Moody's) follows.
1. LONG-TERM BONDS.
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.
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.
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
<PAGE>
considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations,
i.e. they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future can be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Note: Those bonds in the above groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa1, A1, Baa1,
Ba1, and B1.
2. COMMERCIAL PAPER.
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers.
The Funds may invest in:
ISSUERS RATED PRIME-1 (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations.
ISSUERS RATED PRIME-2 (or related supporting institutions)
have a strong capacity for repayment of short-term promissory
obligations.
<PAGE>
PART C
VAM INSTITUTIONAL FUNDS, INC.
VAM Short Duration Total Return Fund
VAM Intermediate Duration Total Return Fund
VAM Core Total Return Fund
VAM Mid Cap Stock Fund
VAM Growth Stock Fund
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial statements -
(b) Exhibits
1 Amended and Restated Articles of Incorporation (1)
2 Bylaws, as amended (1)
2.1 Amendment to the Bylaws (2)
3 Not applicable
4 Not applicable
5 Investment Advisory Agreement (3)
6 Distribution Agreement (3)
7 Not applicable
8 Custodian Agreement for Series B - F (3)
9 Administrative Services Agreement (3)
10 Opinion and Consent of Dorsey & Whitney P.L.L.P. with respect
to Series B-F (3)
11 Consent of KPMG Peat Marwick LLP (3)
12 Not applicable
13 Not applicable
14 Not applicable
15 Not applicable
16 Calculations of Yield - Not yet available
17 Master Power of Attorney (1)
- ------------------------
(1) Incorporated by reference to Post-Effective Amendment No. 23 to the
Registrant's Registration Statement on Form N-1A filed August 1, 1995.
(2) Incorporated by reference to Post-Effective Amendment No. 26 to the
Registrant's Registration Statement on Form N-1A filed April 30, 1997.
(3) Filed herewith.
Item 25. Persons Controlled by or Under Common Control with Registrant
Voyageur Asset Management LLC serves as investment manager to VAM
Institutional Funds, Inc., an open-end investment management company which
currently offers its shares in the following series:
VAM Institutional Funds, Inc.
VAM Short Duration Total Return Fund
VAM Intermediate Duration Total Return Fund
VAM Core Total Return Fund
VAM Mid Cap Stock Fund
VAM Growth Stock Fund
Segall Bryant & Hamill Growth and Income Fund
VAM Financial Institutions Intermediate Duration Portfolio
VAM Financial Institutions Core Portfolio
<PAGE>
Item 26. Number of Holders of Securities
No information is presented for the Funds because they have not yet
commenced operations.
Item 27. Indemnification
The Registrant's Articles of Incorporation and Bylaws provide that the
Registrant shall indemnify such persons, for such expenses and liabilities, in
such manner, under such circumstances, and to such extent as permitted by
Section 302A.521 of the Minnesota Statutes, as now enacted or hereafter amended;
provided, however, that no such indemnification may be made if it would be in
violation of Section 17(h) of the Investment Company Act of 1940, as now enacted
or hereinafter amended, and any rules, regulations or releases promulgated
thereunder.
The Registrant may indemnify its officers and directors and other
"persons" acting in an "official capacity" (as such terms are defined in Section
302A.521) pursuant to a determination by the board of directors or shareholders
of the Registrant as set forth in Section 302A.521, by special legal counsel
selected by the board or a committee thereof for the purpose of making such a
determination, or by a Minnesota court upon application of the person seeking
indemnification. If a director is seeking indemnification for conduct in the
capacity of director or officer of the Registrant, then such director generally
may not be counted for the purpose of determining either the presence of a
quorum or such director's eligibility to be indemnified.
In any case, indemnification is proper only if the eligibility
determining body decides that the person seeking indemnification has (a) not
received indemnification for the same conduct from any other party or
organization; (b) acted in good faith; (c) received no improper personal
benefit; (d) in the case of criminal proceedings, had no reasonable cause to
believe the conduct was unlawful; (e) reasonably believed that the conduct was
in the best interest of the Registrant, or in certain contexts, was not opposed
to the best interest of the Registrant; and (f) had not otherwise engaged in
conduct which precludes indemnification under either Minnesota or Federal law
(including, but not limited to, conduct constituting willful misfeasance, bad
faith, gross negligence, or reckless disregard of duties as set forth in Section
17(h) and (i) of the Investment Company Act of 1940).
If a person is made or threatened to be made a party to a proceeding,
the person is entitled, upon written request to the Registrant, to payment or
reimbursement by the Registrant of reasonable expenses, including attorneys'
fees and disbursements, incurred by the person in advance of the final
disposition of the proceeding, (a) upon receipt by the Registrant of a written
affirmation by the person of a good faith belief that the criteria for
indemnification set forth in Section 302A.521 have been satisfied and a written
undertaking by the person to repay all amounts so paid or reimbursed by the
Registrant, if it is ultimately determined that the criteria for indemnification
have not been satisfied, and (b) after a determination that the facts then known
to those making the determination would not preclude indemnification under
Section 302A.521. The written undertaking required by clause (a) is an unlimited
general obligation of the person making it, but need not be secured and shall be
accepted without reference to financial ability to make the repayment.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
<PAGE>
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless, in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant undertakes to comply with the indemnification
requirements of Investment Company Release 7221 (June 9, 1972) and Investment
Company Release 11330 (September 2, 1980).
Item 28. Business and Other Connections of Investment Adviser
Information on the business of the Adviser is described in the section
of the Prospectus, incorporated by reference in this Registration Statement,
entitled "Management" and in the section of the Statement of Additional
Information entitled "The Investment Adviser, Sub-Adviser, Administrative
Services, Expenses and Brokerage" filed as part of this Registration Statement.
The name and principal occupations(s) during the past two fiscal years of each
director and officer of the Adviser are set forth below. The business address of
each is 90 South Seventh Street, Suite 4400, Minneapolis, Minnesota 55402.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH ADVISER PRINCIPAL OCCUPATION(S)
- ---------------- --------------------- -----------------------
<S> <C> <C>
John G. Taft Director and See biographical information in Part B
Chairman of the Registration Statement.
of the Board
Jane M. Wyatt Director and Chief See biographical information in Part B
Investment Officer of the Registration Statement.
Edward J. Kohler Director and Director and President of the Adviser
President since 1997; previously, Director and
Executive Vice President of the
predecessor of the Adviser and
Director of the predecessor of the
Underwriter from 1995 to 1997;
President and Director of Piper
Capital Management Incorporated from
1985 to 1995.
Thomas J. Abood Secretary See biographical information in Part B
of the Registration Statement.
Steven B. Johansen Director, Treasurer See biographical information in Part B
and Chief Financial of the Registration Statement.
Officer
</TABLE>
Item 29. Principal Underwriters
(a) Dougherty Dawkins LLC, the underwriter of the Registrant's shares,
is principal underwriter for the shares of all series of VAM Institutional
Funds, Inc.
(b) The directors and executive officers of the Underwriter are set
forth below.
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ---- --------------------- ---------------------
Gerald A. Kraut Chairman of the Board None
and Director
<PAGE>
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ---- --------------------- ---------------------
Ronald C. Hume Director and Senior Vice None
President
Mark B. Landreville Director and Executive None
Vice President
John D. MacDonald Director and Senior Vice None
President
Steven D. McWhirter Director and Senior Vice None
President
Steven B. Johansen Director, Treasurer and Treasurer
Chief Financial Officer
Thomas M. Strand Director and Chief None
Administrative Officer
Thomas J. Abood Secretary Secretary
The address of each of the executive officers is 90 South Seventh Street, Suite
4400, Minneapolis, Minnesota 55402.
(c) Not applicable.
Item 30. Location of Accounts and Records
The custodian for Registrant is First Trust, National Association, 180
East Fifth Street, St. Paul, Minnesota 55101. The dividend disbursing,
administrative and accounting services agent of Registrant is Voyageur Asset
Management LLC. The address of Voyageur Asset Management LLC and the Registrant
is 90 South Seventh Street, Suite 4400, Minneapolis, Minnesota 55402.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) The Registrant undertakes to file a post-effective amendment,
using financial statements which need not be certified, within four to six
months from the commencement of operations of each respective series.
(c) Each recipient of a prospectus of any series of the Registrant may
request the latest Annual Report of such series, and such Annual Report will be
furnished by the Registrant without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
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 11th
day of July 1997.
VAM INSTITUTIONAL FUNDS, INC.
By /s/ John G. Taft
----------------------------
John G. Taft, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ John G. Taft President (Principal July 11, 1997
- ----------------------------- Executive Officer)
John G. Taft
/s/ Steven B. Johansen Treasurer (Principal Financial July 11, 1997
- ----------------------------- and Accounting Officer)
Steven B. Johansen
James W. Nelson* Director
Clarence G. Frame* Director
Robert J. Odegard* Director
Richard F. McNamara* Director
Thomas F. Madison* Director
/s/ Thomas J. Abood
- -----------------------------
Thomas J. Abood, Attorney-in-Fact July 11, 1997
(Pursuant to a Power of Attorney dated January 24, 1995)
<PAGE>
EXHIBIT INDEX
TO
REGISTRATION STATEMENT
OF
VAM INSTITUTIONAL FUNDS, INC.
Exhibit Page No.
- ------- --------
5 Investment Advisory Agreement
6 Distribution Agreement
8 Custodian Agreement for Series B - F
9 Administrative Services Agreement
10 Opinion and Consent of Dorsey & Whitney LLP
11 Consent of KPMG Peat Marwick LLP
EXHIBIT 5.1
INVESTMENT ADVISORY AGREEMENT
This Agreement, made as of the 30th day of April, 1997, by and between
VAM Institutional Funds, Inc., a Minnesota corporation (the "Company"), on
behalf of each Fund represented by a series of shares of common stock of the
Fund that adopts this Agreement (each a "Fund" and, collectively, the "Funds")
(the Funds, together with the date each Fund adopts this Agreement, are set
forth in Exhibit A hereto, which shall be updated from time to time to reflect
additions, deletions or other changes thereto), and Voyageur Asset Management
LLC, a Minnesota limited liability company ("VAM LLC"),
WITNESSETH:
1. Investment Advisory Services.
(a) The Company hereby engages VAM LLC on behalf of the Funds,
and VAM LLC hereby agrees to act, as investment adviser for, and to
manage the investment of the assets of, the Funds.
(b) The investment of the assets of each Fund shall at all
times be subject to the applicable provisions of the Articles of
Incorporation, the Bylaws, the Registration Statement, and the current
Prospectus and the Statement of Additional Information, if any, of the
Company and each Fund and shall conform to the policies and purposes of
each Fund as set forth in such documents and as interpreted from time
to time by the Board of Directors of the Company. Within the framework
of the investment policies of each Fund, and except as otherwise
permitted by this Agreement, VAM LLC shall have the sole and exclusive
responsibility for the management of each Fund's investment portfolio
and for making and executing all investment decisions for each Fund;
provided that VAM LLC shall be authorized to retain a sub-adviser or
sub-advisers to assist VAM LLC in furnishing investment advice to the
Funds, and provided further that VAM LLC shall be responsible for
monitoring compliance by the sub-adviser(s) with the investment
policies and restrictions of such Funds and with such other limitations
or directions as the Board of Directors of the Company may from time to
time prescribe. VAM LLC shall report to the Board of Directors of the
Company regularly at such times and in such detail as the Board may
from time to time determine to be appropriate, in order to permit the
Board to determine the adherence of VAM LLC to the investment policies
of each Fund.
(c) VAM LLC shall, at its own expense, furnish all office
facilities, equipment and personnel necessary to discharge its
responsibilities and duties hereunder. VAM LLC shall arrange, if
requested by the Company, for officers or employees of VAM LLC to serve
without compensation from any Fund as directors, officers, or employees
of the Company if duly elected to such
<PAGE>
positions by the shareholders or directors of the Company (as required
by law).
(d) VAM LLC hereby acknowledges that all records pertaining to
each Fund's investments are the property of the Company, and in the
event that a transfer of investment advisory services to someone other
than VAM LLC should ever occur, VAM LLC will promptly, and at its own
cost, take all steps necessary to segregate such records and deliver
them to the Company.
2. Compensation for Services. In payment for the investment advisory
and management services to be rendered by VAM LLC hereunder, each Fund shall pay
to VAM LLC a monthly fee, which fee shall be paid to VAM LLC not later than the
fifth business day of the month following the month in which said services were
rendered. The monthly fee payable by each Fund shall be as set forth in Exhibit
A hereto, which may be updated from time to time to reflect amendments, if any,
to Exhibit A. The monthly fee payable by each Fund shall be based on the average
of the net asset values of all of the issued and outstanding shares of the Fund
as determined as of the close of each business day of the month pursuant to the
Articles of Incorporation, Bylaws, and currently effective Prospectus and
Statement of Additional Information of the Company and the Fund. For purposes of
calculating each Fund's average daily net assets, as such term is used in this
Agreement, each Fund's net assets shall equal its total assets minus (a) its
total liabilities and (b) its net orders receivable from dealers.
3. Allocation of Expenses.
(a) In addition to the fee described in Section 2 hereof, each
Fund shall pay all its costs and expenses which are not assumed by VAM
LLC. These Fund expenses include, by way of example, but not by way of
limitation, all expenses incurred in the operation of the Fund and any
public offering of its shares, including, among others, Rule 12b-1 plan
of distribution fees (if any), interest, taxes, brokerage fees and
commissions, fees of the directors who are not employees of VAM LLC or
the principal underwriter of the Fund's shares (the "Underwriter"), or
any of their affiliates, expenses of directors' and shareholders'
meetings, including the cost of printing and mailing proxies, expenses
of insurance premiums for fidelity and other coverage, expenses of
redemption of shares, expenses of issue and sale of shares (to the
extent not borne by the Underwriter under its agreement with the Fund),
expenses of printing and mailing stock certificates representing shares
of the Fund, association membership dues, charges of custodians,
transfer agents, dividend disbursing agents, accounting services
agents, investor servicing agents, and bookkeeping, auditing, and legal
expenses. Each Fund will also pay the fees and bear the expense of
registering and maintaining the registration of the Fund and its shares
with the Securities and Exchange Commission and registering or
qualifying its shares under state
<PAGE>
or other securities laws and the expense of preparing and mailing
prospectuses and reports to shareholders.
(b) The Underwriter shall bear all advertising and promotional
expenses in connection with the distribution of each Fund's shares,
including paying for prospectuses for new shareholders, except as
provided in the following sentence. No Fund shall use any of its assets
to finance costs incurred in connection with the distribution of its
shares except pursuant to a Plan of Distribution, if any, adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (as
amended, the "Act").
4. Freedom to Deal With Third Parties. VAM LLC shall be free to render
services to others similar to those rendered under this Agreement or of a
different nature except as such services may conflict with the services to be
rendered or the duties to be assumed hereunder.
5. Reports to Directors of the Fund. Appropriate officers of VAM LLC
shall provide the directors of the Company with such information as is required
by any plan of distribution adopted by the Company on behalf of any Fund
pursuant to Rule 12b-1 under the Act.
6. Effective Date, Duration and Termination of Agreement.
(a) The effective date of this Agreement with respect to each
Fund shall be the date set forth on Exhibit A hereto.
(b) Unless sooner terminated as hereinafter provided, this
Agreement shall continue in effect with respect to each Fund for a
period more than two years from the date of its execution but only as
long as such continuance is specifically approved at least annually by
(i) the Board of Directors of the Company or by the vote of a majority
of the outstanding voting securities of the applicable Fund, and (ii)
by the vote of a majority of the directors of the Company who are not
parties to this Agreement or "interested persons", as defined in the
Act, of VAM LLC or of the Company cast in person at a meeting called
for the purpose of voting on such approval.
(c) This Agreement may be terminated with respect to any Fund
at any time, without the payment of any penalty, by the Board of
Directors of the Company or by the vote of a majority of the
outstanding voting securities of such Fund, or by VAM LLC, upon 60
days' written notice to the other party.
(d) This agreement shall terminate automatically in the event
of its "assignment" (as defined in the Act).
(e) No amendment to this Agreement shall be effective with
respect to any Fund until approved by the vote of: (i) a majority of
the directors of the
<PAGE>
Company who are not parties to this Agreement or "interested persons"
(as defined in the Act) of VAM LLC or of the Company cast in person at
a meeting called for the purpose of voting on such approval; and (ii) a
majority of the outstanding voting securities of the applicable Fund.
(f) Wherever referred to in this Agreement, the vote or
approval of the holders of a majority of the outstanding voting
securities or shares of a Fund shall mean the lesser of (i) the vote of
67% or more of the voting securities of such Fund present at a regular
or special meeting of shareholders duly called, if more than 50% of the
Fund's outstanding voting securities are present or represented by
proxy, or (ii) the vote of more than 50% of the outstanding voting
securities of such Fund.
7. Notices. Any notice under this Agreement shall be in writing,
addressed, delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Company and VAM LLC have caused this Agreement
to be executed by their duly authorized officers as of the day and year first
above written.
VAM INSTITUTIONAL FUNDS, INC.
By /s/ John G. Taft
---------------------------------
Name: John G. Taft
Title: President
VOYAGEUR ASSET MANAGEMENT LLC
By /s/ Edward J. Kohler
---------------------------------
Name: Edward J. Kohler
Title: President
<PAGE>
Exhibit A
to
Investment Advisory Agreement
between
Voyageur Asset Management LLC
and
VAM Institutional Funds, Inc.
MONTHLY
ADVISORY FEE
(as % of average
FUND EFFECTIVE DATE daily net assets)
- -------------------------------------- -------------- -----------------
Series B -- VAM Short Duration Total
Return Fund July 11, 1997 .041667
Series C -- VAM Intermediate Duration
Total Return Fund July 11, 1997 .041667
Series D -- VAM Core Total Return Fund July 11, 1997 .041667
Series E -- VAM Mid Cap Stock Fund July 11, 1997 .083333
Series F -- VAM Growth Stock Fund July 11, 1997 .083333
Series H -- Segall Bryant & Hamill April 30, 1997 .062500
Growth and Income Fund
EXHIBIT 6
VAM INSTITUTIONAL FUNDS, INC.
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into as of the 11th day of July
1997, by and between VAM Institutional Funds, Inc., a Minnesota corporation (the
"Company"), for and on behalf of each series of the Company (each series is
referred to hereinafter as a "Fund"), and Dougherty Dawkins LLC, a Minnesota
limited liability company (the "Distributor"). This Agreement shall apply to
shares offered by the following Funds:
VAM Short Duration Total Return Fund
VAM Intermediate Duration Total Return Fund
VAM Core Total Return Fund
VAM Mid Cap Stock Fund
VAM Growth Stock Fund
WITNESSETH:
1. Underwriting Services. The Company, on behalf of each Fund, hereby
engages the Distributor, and the Distributor hereby agrees to act, as principal
underwriter for each Fund in the sale and distribution of the shares of each
class of such Fund to the public, either through dealers or otherwise. The
Distributor agrees to offer such shares for sale at all times when such shares
are available for sale and may lawfully be offered for sale and sold.
2. Sale of Shares. The shares of each Fund are to be sold only on the
following terms:
(a) All subscriptions, offers, or sales shall be subject to
acceptance or rejection by the Company. Any offer for or sale of shares
shall be conclusively presumed to have been accepted by the Company if
the Company shall fail to notify the Distributor of the rejection of
such offer or sale prior to the computation of the net asset value of
such shares next following receipt by the Company of notice of such
offer or sale.
(b) No share of a Fund shall be sold by the Distributor (i)
for any consideration other than cash or, pursuant to any exchange
privilege provided for by the applicable currently effective Prospectus
or Statement of Additional Information (hereinafter referred to
collectively as the "Prospectus"), shares of any other investment
company for which the Distributor acts as an underwriter, or (ii)
except in instances otherwise provided for by the applicable currently
effective Prospectus, for any amount
<PAGE>
less than the public offering price per share, which shall be
determined in accordance with the applicable currently effective
Prospectus.
3. Registration of Shares. The Company agrees to make prompt and
reasonable efforts to effect and keep in effect, at its expense, the
registration or qualification of each Fund's shares for sale in such
jurisdictions as the Company may designate.
4. Information to be Furnished to the Distributor. The Company agrees
that it will furnish the Distributor with such information with respect to the
affairs and accounts of the Company (and each Fund) as the Distributor may from
time to time reasonably require, and further agrees that the Distributor, at all
reasonable times, shall be permitted to inspect the books and records of the
Company.
5. Allocation of Expenses. During the period of this Agreement, the
Distributor agrees to pay all costs of distributing the shares of each Fund,
other than those assumed by the Adviser. The Company shall pay all other
expenses, costs and fees incurred by the Company.
6. Compensation to the Distributor
(a) It is understood and agreed by the parties hereto that the
sale of Fund shares will benefit the Distributor, which is an affiliate
of the investment adviser for the Funds, and therefore the Distributor
will receive no additional compensation for services it performs
hereunder in connection with sales of Fund shares.
7. Limitation of the Distributor's Authority. The Distributor shall be
deemed to be an independent contractor and, except as specifically provided or
authorized herein, shall have no authority to act for or represent any Fund or
the Company.
8. Subscription for Shares--Refund for Canceled Orders. The Distributor
shall subscribe for the shares of a Fund only for the purpose of covering
purchase orders already received by it or for the purpose of investment for its
own account. In the event that an order for the purchase of shares of a Fund is
placed with the Distributor by a customer or dealer and subsequently canceled,
the Distributor shall forthwith cancel the subscription for such shares entered
on the books of the Fund, and, if the Distributor has paid the Fund for such
shares, shall be entitled to receive from the Fund in refund of such payment the
lesser of:
(a) the consideration received by the Fund for said shares; or
(b) the net asset value of such shares at the time of
cancellation by the Distributor.
<PAGE>
9. Indemnification of the Company. The Distributor agrees to indemnify
each Fund and the Company against any and all litigation and other legal
proceedings of any kind or nature and against any liability, judgment, cost, or
penalty imposed as a result of such litigation or proceedings in any way arising
out of or in connection with the sale or distribution of the shares of such Fund
by the Distributor. In the event of the threat or institution of any such
litigation or legal proceedings against any Fund, the Distributor shall defend
such action on behalf of the Fund or the Company at the Distributor's own
expense, and shall pay any such liability, judgment, cost, or penalty resulting
therefrom, whether imposed by legal authority or agreed upon by way of
compromise and settlement; provided, however, the Distributor shall not be
required to pay or reimburse a Fund for any liability, judgment, cost, or
penalty incurred as a result of information supplied by, or as the result of the
omission to supply information by, the Company to the Distributor, or to the
Distributor by a director, officer, or employee of the Company who is not an
"interested person," as defined in the provisions of the 1940 Act, of the
Distributor, unless the information so supplied or omitted was available to the
Distributor or the Fund's investment adviser without recourse to the Fund or the
Company or any such person referred to above.
10. Freedom to Deal With Third Parties. The Distributor shall be free
to render to others services of a nature either similar to or different from
those rendered under this contract, except such as may impair its performance of
the services and duties to be rendered by it hereunder.
11. Effective Date, Duration and Termination of Agreement.
(a) The effective date of this Agreement is set forth in the
first paragraph of this Agreement. Unless sooner terminated as
hereinafter provided, this Agreement shall continue in effect for a
period of one year after the date of its execution, and from year to
year thereafter, but only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the
Company, and of the directors who are not "interested persons" (as
defined in the provisions of the 1940 Act) of the Company and have no
direct or indirect financial interest in the operation of the Plan or
in any agreement related to the Plan (including, without limitation,
this Agreement), cast in person at a meeting called for the purpose of
voting on this Agreement.
(b) This Agreement may be terminated at any time with respect
to any Fund or class thereof without the payment of any penalty, by the
vote of a majority of the members of the Board of Directors of the
Company who are not "interested persons" (as defined in the provisions
of the 1940 Act) of the Company and have no direct or indirect
financial interest in the operation of the Plan or in any agreement
related to the Plan (including, without limitation, this Agreement), or
by the vote of a majority of the outstanding
<PAGE>
voting securities of such Fund (or class thereof), or by the
Distributor, upon 60 days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event
of its "assignment" (as defined by the provisions of the 1940 Act).
(d) Wherever referred to in this Agreement, the vote or
approval of the holders of a majority of the outstanding voting
securities of a Fund (or class thereof) shall mean the lesser of (i)
the vote of 67% or more of the voting securities of such Fund (or class
thereof) present at a regular or special meeting of shareholders duly
called, if more than 50% of the Fund's (or class's, as applicable)
outstanding voting securities are present or represented by proxy, or
(ii) the vote of more than 50% of the outstanding voting securities of
such Fund (or class thereof).
12. Amendments to Agreement. No material amendment to this Agreement
shall be effective until approved by the Distributor and by vote of a majority
of the Board of Directors of the Company who are not interested persons of the
Distributor.
13. Notices. Any notice under this Agreement shall be in writing,
addressed, delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Company and the Distributor have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
VAM INSTITUTIONAL FUNDS, INC.
By
-------------------------------
Name: John G. Taft
Title: President
DOUGHERTY DAWKINS LLC
By
-------------------------------
Name: Gerald A. Kraut
Title: President
EXHIBIT 8
CUSTODIAN AGREEMENT
V.A M. INSTITUTIONAL FUNDS, INC.
FIRST TRUST NATIONAL ASSOCIATION
THIS AGREEMENT, made this 10th day of July 1997, by and between VAM
Institutional Funds, Inc., a Minnesota corporation (the "Fund"), for and on
behalf of each series of the Fund that adopts this Agreement (said series being
hereinafter referred to, individually, as a "Series" and, collectively, as the
"Series"), and First Trust National Association (the "Custodian"), a national
banking association organized and existing under the laws of the United States
of America, with its principal place of business at St. Paul, Minnesota. The
name of each Series that adopts this Agreement and the effective date of this
Agreement with respect to each such Series are set forth in Exhibit A hereto.
1. APPOINTMENT OF CUSTODIAN.
Fund hereby constitutes and appoints Custodian as Custodian of the
Fund, and Custodian accepts such appointment.
2. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets
Fund will deliver or cause to be delivered to Custodian on the
effective date of this Agreement, or as soon thereafter as practicable,
and from time to time thereafter, all portfolio securities acquired by
it and monies then owned by it except as permitted by the Investment
Company Act of 1940 or from time to time coming into its possession
during the time this Agreement shall continue in effect. Custodian
shall have no responsibility or liability whatsoever for or on account
of securities or monies not so delivered. All securities so delivered
to Custodian (other than bearer securities) shall be registered in the
name of Fund or its nominee, or of a nominee of Custodian, or shall be
properly endorsed and in form for transfer satisfactory to Custodian.
B. Delivery of Accounts and Records
Fund shall turn over to Custodian all of the Fund's relevant accounts
and records previously maintained by it, if any. Custodian shall be
entitled to rely conclusively on the completeness and correctness of
the accounts and records turned over to it by Fund, and Fund shall
indemnify and hold Custodian harmless of and from any and all expenses,
damages and losses whatsoever arising out of or in connection with any
omission, inaccuracy or other deficiency of such accounts and records
or in the failure of Fund to provide any portion of such or to provide
any information needed by the Custodian knowledgeably to perform its
function hereunder.
<PAGE>
C. Delivery of Assets to Third Parties
Custodian will receive delivery of and keep safely the assets of Fund
delivered to it from time to time segregated in a separate account.
Custodian will not deliver, assign, pledge or hypothecate any such
assets to any person except as permitted by the provisions of this
Agreement or any agreement executed by it according to the terms of
Section 2.0 of this Agreement. Upon delivery of any such assets to a
subcustodian pursuant to Section 2.0 of this agreement, Custodian will
create and maintain records identifying those assets which have been
delivered to the subcustodian as belonging to Fund. The Custodian is
responsible for the securities and monies of Fund only until they have
been transmitted to and received by other persons as permitted under
the terms of this Agreement, except for securities and monies
transmitted to any subcustodians appointed by the Custodian pursuant to
Section 2.0, for which Custodian remains responsible. With respect to
subcustodians appointed at Fund's request, Custodian shall be
responsible to Fund for securities and cash transmitted to such
subcustodian to the same extent those entities are responsible to
Custodian. Custodian may participate directly or indirectly through a
subcustodian in the Depository Trust Company, Treasury/Federal Reserve
Book Entry System, or Participant Trust Company (as such entities are
defined in 17 CFR Section 270.17f 4(b)) provided that (i) the account
of the Custodian in which securities of the Fund held at such an entity
shall not include any assets of the Custodian other than assets held as
a fiduciary, custodian or otherwise for customers; (ii) the records of
the Custodian with respect to securities of the Fund which are
maintained in such an entity shall identify by book-entry those
securities belonging to the Fund; (iii) the Custodian shall pay for
securities purchased for the account of the Fund upon (a) receipt of
advice from such entity that the Fund's securities have been
transferred to the Custodian's account, and (b) the making of an entry
on the records of the Custodian to reflect such payment and transfer
for the account of the Fund; (iv) the Custodian shall transfer
securities sold for the account of the Fund upon (a) receipt of advice
from such entity that payment for the Fund's securities has been
transferred to the Custodian's account, and (b) the making of any entry
on the records of the Custodian to reflect such transfer and payment
for the account of the Fund; (v) copies of all advices or reports from
such entity(ies) of transfers of securities for the account of the Fund
shall be maintained for the Fund by the Custodian and the Custodian
shall furnish the Fund with confirmation of each transfer to or from
the account of the Fund; (vi) upon request the Custodian shall provide
the Fund with any report obtained by the Custodian on the entity(ies)
accounting system, internal accounting control and procedures for
safeguarding securities deposited with such entity.
D. Registration of Securities
Custodian will hold stocks and other registrable portfolio securities
of Fund registered in the name of Fund or in the name of any nominee of
Custodian for whose fidelity and liability Custodian will be fully
responsible, or in street
<PAGE>
certificate form so-called, with or without any indication of fiduciary
capacity. Unless otherwise instructed, Custodian will register all such
portfolio securities in the name of its authorized nominee. All
securities, and the ownership thereof by Fund, which are held by
Custodian hereunder, however, shall at all times be identifiable on the
records of the Custodian. The Fund agrees to hold Custodian and its
nominee harmless from any liability resulting from Custodian's status
as record holder of securities held in custody.
E. Exchange of Securities
Upon receipt of instructions as defined herein in Section 3.A,
Custodian will exchange, or cause to be exchanged, portfolio securities
held by it for the account of Fund for other securities or cash issued
or paid in connection with any reorganization, recapitalization,
merger, consolidation, split-up of shares, change of par value,
conversion or otherwise, and will deposit any such securities in
accordance with the terms of any reorganization or protective plan,
provided, however, that Custodian may proceed with any such mandatory
transaction without instructions. Without instructions, Custodian is
authorized to exchange securities held by it in temporary form for
securities in definitive form, to effect an exchange of shares when the
par value of the stock is changed, and, upon receiving payment
therefore, to surrender bonds or other securities held by it at
maturity or when advised of earlier call for redemption, except that
Custodian shall receive instructions prior to surrendering any
convertible security.
F. Purchases of Investments of the Fund
Fund will, on each business day on which a purchase of securities shall
be made by it, deliver to Custodian instructions which shall specify
with respect to each such purchase:
1. The name of the issuer and description of the security;
2. The number of shares or the principal amount purchased, and
accrued interest, if any;
3. The trade date;
4. The settlement date;
5. The purchase price per unit and the brokerage commission,
taxes and other expenses payable upon such purchase;
6. The total amount payable upon such purchase; and
7. The name of the person from whom or the broker or dealer
through whom the purchase was made.
In accordance with such instructions, Custodian will pay for out of
monies held for the account of Fund and receive the portfolio
securities so purchased by or for the account of Fund. Such payment
will be made only upon receipt by Custodian of the securities so
purchased in form for transfer satisfactory to Custodian.
<PAGE>
G. Sales and Deliveries of Investments of Fund - Other than Options and
Futures Fund will, on each business day on which a sale of investment
securities of Fund has been made, deliver to Custodian instructions
specifying with respect to each such sale:
1. The name of the issuer and description of the securities;
2. The number of shares or principal amount sold, and accrued
interest, if any;
3. The date on which the securities sold were purchased or other
information identifying the securities sold and to be
delivered;
4. The trade date;
5. The settlement date;
6. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;
7. The total amount to be received by Fund upon such sale; and 8.
The name and address of the broker or dealer through whom or
person to whom the sale was made.
In accordance with such instructions, Custodian will deliver or cause
to be delivered the securities thus designated as sold for the account
of Fund to the broker or other person specified in the instructions
relating to such sale, such delivery to be made only upon receipt of
payment therefore in such form as is satisfactory to Custodian, with
the understanding that Custodian may deliver or cause to be delivered
securities for payment in accordance with the customs prevailing among
dealers in securities.
H. Purchases or Sales of Security Options, Options on Indices and Security
Index Futures Contracts
Fund will, on each business day on which a purchase or sale of the
following options and/or futures shall be made by it, deliver to
Custodian instructions which shall specify with respect to each such
purchase or sale:
1. Security Options
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded;
j. Name and address of the broker or dealer through whom
the sale or purchase was made.
<PAGE>
2. Options on Indices
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising,
expiring or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased;
j. The name and address of the broker or dealer through
whom the sale or purchase was made, or other
applicable settlement instructions.
3. Security Index Futures Contracts
a. The last trading date specified in the contract and,
when available, the closing level thereof;
b. The index level on the date the contract is entered
into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition
to instructions, and if not already in the possession
of Custodian, Fund shall deliver a substantially
complete and executed custodial safekeeping account
and procedural agreement which shall be incorporated
by reference into this Custody Agreement); and
f. The name and address of the futures commission
merchant through whom the sale or purchase was made,
or other applicable settlement instructions.
4. Options on Index Future Contracts
a. The underlying index futures contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction is an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Securities Pledged or Loaned
1. Upon receipt of instructions, Custodian will release or cause
to be released securities held in custody to the pledgee
designated in such instructions by way of pledge or
hypothecation to secure any loan incurred by Fund;
<PAGE>
provided, however, that the securities shall be released only
upon payment to Custodian of the monies borrowed, except that
in cases where additional collateral is required to secure a
borrowing already made, further securities may be released or
caused to be released for that purpose upon receipt of
instructions. Upon receipt of instructions, Custodian will
pay, but only from funds available for such purpose, any such
loan upon redelivery to it of the securities pledged or
hypothecated therefore and upon surrender of the note or notes
evidencing such loan.
2. Upon receipt of instructions, Custodian will release
securities held in custody to the borrower designated in such
instructions; provided, however, that the securities will be
released only upon deposit with Custodian of full cash
collateral as specified in such instructions, and that Fund
will retain the right to any dividends, interest or
distribution on such loaned securities. Upon receipt of
instructions and the loaned securities, Custodian will release
the cash collateral to the borrower.
J. Routine Matters
Custodian will, in general, attend to all routine and mechanical
matters in connection with the sale, exchange, substitution, purchase,
transfer, or other dealings with securities or other property of Fund
except as may be otherwise provided in this Agreement or directed from
time to time by the Board of Directors of Fund.
K. Income and other Payments to Fund
Custodian will:
1. Collect, claim and receive and deposit for the account of Fund
all income and other payments which become due and payable on
or after the effective date of this Agreement with respect to
the securities deposited under this Agreement, and credit the
account of Fund with such income on the date received;
2. Execute ownership and other certificates and affidavits for
all foreign, federal, state and local tax purposes in
connection with the collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with:
a. the collection, receipt and deposit of such income
and other payments, including but not limited to the
presentation for payment of:
1. all coupons and other income items requiring
presentation; and
2. all other securities which may mature or be
called, redeemed, retired or otherwise
become payable and regarding which the
Custodian has actual knowledge, or notice of
which is contained in publications of the
type to which it normally subscribes for
such purpose; and
<PAGE>
b. the endorsement for collection, in the name of Fund,
of all checks, drafts or other negotiable
instruments.
Custodian, however, will not be required to take action to effect
collection of any amount if the securities upon which such payment is
due are in default, or if payment is refused after due demand and
presentation, except upon receipt of instructions and upon being
indemnified to its satisfaction against the costs and expenses of such
action. Custodian will receive, claim and collect all stock dividends,
rights and other similar items and will deal with the same pursuant to
instructions. If Custodian receives notification of existence of rights
granted to Fund prior to the expiration date of such rights, Custodian
shall reflect such rights in the Fund's records, and shall advise Fund
of the expiration of such rights prior to the expiration date and await
instructions from Fund in connection therewith.
L. Proxies and Notices
Custodian will promptly deliver or mail or have delivered or mailed to
Fund all proxies properly signed, all notices of meetings, all proxy
statements and other notices, requests or announcements affecting or
relating to securities held by Custodian for Fund and will, upon
receipt of instructions, execute and deliver or cause its nominee to
execute and deliver or mail or have delivered or mailed such proxies or
other authorizations as may be required. Except as provided by this
Agreement or pursuant to instructions hereafter received by Custodian,
neither it nor its nominee will exercise any power inherent in any such
securities, including any power to vote the same, or execute any proxy,
power of attorney, or other similar instrument voting any of such
securities, or give any consent, approval or waiver with respect
thereto, or take any other similar action.
M. Disbursements
Custodian will pay or cause to be paid insofar as funds are available
for the purpose, bills, statements and other obligations of Fund
(including but not limited to obligations in connection with the
conversion, exchange or surrender of securities owned by Fund, interest
charges, dividend disbursements, taxes, management fees, custodian
fees, legal fees, auditors' fees, transfer agents' fees, brokerage
commissions, compensation to personnel, and other operating expenses of
Fund) pursuant to instructions of Fund setting forth the name of the
person to whom payment is to be made, the amount of the payment, and
the purpose of the payment.
N. Daily Statement of Accounts
Custodian will, within a reasonable time, render to Fund as of the
close of business on each day, a detailed statement of the amounts
received or paid and of securities received or delivered for the
account of Fund during said day in
<PAGE>
compliance with Rule 31a-1(b)(1) of the Investment Company Act of 1940,
as amended. Custodian will, from time to time, upon request by Fund,
render a detailed statement of the securities and monies held for Fund
under this Agreement, and Custodian will maintain such books and
records as are necessary to enable it to do so and will permit such
persons as are authorized by Fund including Fund's independent public
accountants, access to such records or confirmation of the contents of
such records; and if demanded, will permit federal and state regulatory
agencies to examine the securities, books and records. Upon the written
instructions of Fund or as demanded by federal or state regulatory
agencies, Custodian will instruct any subcustodian to give such persons
as are authorized by Fund including Fund's independent public
accountants, access to such records or confirmation of the contents of
such records; and if demanded, to permit federal and state regulatory
agencies to examine the books, records and securities held by
subcustodian which relate to Fund.
O. Appointment of Subcustodians
Notwithstanding any other provisions of this Agreement, all or any of
the monies or securities of Fund may be held in Custodian's own custody
or in the custody of one or more other banks or trust companies
selected by Custodian or as directed by the Fund. Any such subcustodian
must have the qualifications required for custodians under the
Investment Company Act of 1940, as amended. The Custodian or
subcustodian may participate directly or indirectly in The Depository
Trust Company, Treasury/Federal Reserve Book Entry System, or
Participant Trust Company (as such entities are defined at 17 CFR Sec.
270.17f-4(b)), or other depository approved by the Fund.
P. Accounts and Records Property of Fund
Custodian acknowledges that all of the accounts and records maintained
by Custodian pursuant to this Agreement are the property of Fund, and
will be made available to Fund for inspection or reproduction within a
reasonable period of time, upon demand. Custodian will assist Fund's
independent auditors, or upon approval of Fund, or upon demand, any
regulatory body, in any requested review of Fund's accounts and records
but shall be reimbursed for all expenses and employee time invested in
any such review outside of routine and normal periodic reviews. Upon
receipt from Fund of the necessary information, Custodian will supply
necessary data for Fund's completion of any necessary tax returns,
questionnaires, periodic reports to Shareholders and such other reports
and information requests as Fund and Custodian shall agree upon from
time to time.
Q. Adoption of Procedures
Custodian and Fund may from time to time adopt procedures as they agree
upon, and Custodian may conclusively assume that no procedure approved
by
<PAGE>
Fund, or directed by Fund, conflicts with or violates any requirements
of its prospectus, Articles of Incorporation, Bylaws, or any rule or
regulation of any regulatory body or governmental agency. Fund will be
responsible to notify Custodian of any changes in statutes,
regulations, rules or policies which might necessitate changes in
Custodian's responsibilities or procedures.
R. Overdrafts
If Custodian shall in its sole discretion advance funds to the account
of the Fund which results in an overdraft because the monies held by
Custodian on behalf of the Fund are insufficient to pay the total
amount payable upon a purchase of securities as specified in Fund's
instructions or for some other reason, the amount of the overdraft,
plus accrued interest thereon at a rate agreed upon by the parties from
time to time, shall be payable by the Fund to Custodian upon demand.
The Fund hereby grants Custodian a security interest in the assets held
in the account to the extent of any such advances.
3. INSTRUCTIONS.
A. The term "instructions," as used herein means written or oral
instructions to Custodian from a designated representative of
Fund. Certified copies of resolutions of the Board of
Directors of Fund naming one or more designated
representatives to give instructions in the name and on behalf
of Fund, may be received and accepted from time to time by
Custodian as conclusive evidence of the authority of any
designated representative to act for Fund and may be
considered to be in full force and effect (and Custodian will
be fully protected in acting in reliance thereon) until
receipt by Custodian of notice to the contrary. Unless the
resolution delegating authority to any person to give
instructions specifically requires that the approval of anyone
else will first have been obtained, Custodian will be under no
obligation to inquire into the right of the person giving such
instructions to do so. Notwithstanding any of the foregoing
provisions of this Section 3, no authorizations or
instructions received by Custodian from Fund, will be deemed
to authorize or permit any director, officer, employee or
agent of Fund to withdraw any of the securities or similar
investments of Fund upon the mere receipt of such
authorization or instructions from such director, officer,
employee or agent.
Notwithstanding any other provision of this Agreement,
Custodian, upon receipt (and acknowledgment if required at the
discretion of Custodian) of the instructions of a designated
representative of Fund will undertake to deliver for Fund's
account monies (provided such monies are on hand or available)
in connection with Fund's transactions and to wire transfer
such monies to such broker, dealer, subcustodian, bank or
other agent specified in such instructions by a designated
representative of Fund.
<PAGE>
B. No later than the next business day immediately following each
oral instruction, Fund will send Custodian written
confirmation of such oral instruction. At Custodian's sole
discretion, Custodian may record on tape, or otherwise, any
oral instructions whether given in person or via telephone,
each such recording identifying the parties, the date and the
time of the beginning and ending of such oral instruction.
4. LIMITATION OF LIABILITY OF CUSTODIAN.
A. Custodian shall hold harmless and indemnify Fund from and
against any claim, loss, liability or expense (collectively a
"Claim") arising out of Custodian's failure to comply with the
terms of this Agreement or arising out of Custodian's
negligence, willful misconduct, or bad faith. Custodian shall
not be liable for consequential, special or punitive damages.
Custodian may reasonably request and obtain the advice and
opinion of counsel for Fund, or of its own counsel with
respect to questions or matters of law, and it shall be
without liability to Fund for any action taken or omitted by
it in good faith, in conformity with such advice or opinion.
B. The Fund agrees to indemnify and hold the Custodian harmless
from and against any Claim arising from the Custodian's
performance of its duties hereunder or its actions taken at
the direction of the Fund, provided that the Custodian shall
not be indemnified for any Claim arising out of Custodian's
failure to comply with the terms of this Agreement or arising
out of Custodian's negligence, bad faith or willful
misconduct. Fund shall not be liable for consequential,
special or punitive damages.
C. Custodian may rely upon the advice of Fund and upon statements
of Fund's accountants and other persons believed by it in good
faith, to be expert in matters upon which they are consulted,
and Custodian shall not be liable for any actions taken, in
good faith without negligence upon such statements.
D. If Fund requires Custodian in any capacity to take, with
respect to any securities, any action which involves the
payment of money by it, or which in Custodian's opinion might
make it or its nominee liable for payment of monies or in any
other way, Custodian, upon notice to Fund given prior to such
actions, shall be and be kept indemnified by Fund in an amount
and form satisfactory to Custodian against any liability on
account of such action.
E. Custodian shall be entitled to receive, and Fund agrees to pay
to Custodian, on demand, reimbursement for such cash
disbursements, costs
<PAGE>
and expenses as may be agreed upon from time to time by
Custodian and Fund.
F. Custodian shall be protected in acting as custodian hereunder
upon any instructions, advice, notice, request, consent,
certificate or other instrument or paper reasonably appearing
to it to be genuine and to have been properly executed and
shall, unless otherwise specifically provided herein, be
entitled to receive as conclusive proof of any fact or matter
required to be ascertained from Fund hereunder, a certificate
signed by the Fund's President, or other officer specifically
authorized for such purpose.
G. Without limiting the generality of the foregoing, Custodian
shall be under no duty or obligation to inquire into, and
shall not be liable for:
1. The validity of the issue of any securities purchased
by or for Fund, the legality of the purchase thereof
or evidence of ownership required by Fund to be
received by Custodian, or the propriety of the
decision to purchase or amount paid therefore; or
2. The legality of the sale of any securities by or for
Fund, or the propriety of the amount for which the
same are sold.
H. Custodian shall not be liable for any loss or diminution of
securities by reason of investment experience or for its
actions taken in reliance upon an instruction from Fund.
I. Custodian shall not be liable for, or considered to be
Custodian of, any money represented by any check, draft, wire
transfer, clearing house funds, uncollected funds, or
instrument for the payment of money received by it on behalf
of Fund, until Custodian actually receives such money,
provided only that it shall advise Fund promptly if it fails
to receive any such money in the ordinary course of business,
and use its best efforts and cooperate with Fund toward the
end that such money shall be received.
J. Except for any subcustodians appointed under Section 2.0,
Custodian shall not be responsible for loss occasioned by the
acts, neglect, defaults or insolvency of any broker, bank,
trust company, or any other person with whom Custodian may
deal in the absence of negligence, or bad faith on the part of
Custodian.
5. COMPENSATION.
Fund will pay to Custodian such compensation as is stated in the Fee
Schedule attached hereto as Exhibit A which may be changed from time to
time as agreed to in writing by Custodian and Fund. Custodian may
charge such compensation against monies held by it for the account of
Fund. Custodian will also be entitled, notwithstanding the provisions
of Sections 4.D or 4.E hereof, to charge
<PAGE>
against any monies held by it for the account of Fund or to place a
lien upon the securities or monies of the Fund the amount of any loss,
damage, liability, or expense for which it shall be entitled to
reimbursement under the provisions of this Agreement including fees or
expenses due to Custodian for other services provided to the Fund by
the Custodian or advance and interest due to Custodian under Section
2.R Custodian will not be entitled to reimbursement by Fund for any
loss or expenses of any subcustodian, except for such expenses as would
otherwise be paid by the Fund under this Agreement.
6. TERMINATION.
Either party may terminate this Agreement by notice in writing,
delivered or mailed, postage prepaid, to the other party hereto and
received not less than ninety (90) days prior to the date upon which
such termination will take effect. Upon termination of this Agreement,
Fund will pay to Custodian such compensation for its reimbursable
disbursements, costs and expenses paid or incurred to such date and
Fund will use its best efforts to obtain a successor custodian. Unless
the holders of a majority of the outstanding shares of Capital Stock of
Fund vote to have the securities, funds and other properties held under
this Agreement delivered and paid over to some other person, firm or
corporation specified in the vote, having not less than Two Million
Dollars ($2,000,000) aggregate capital, surplus and undivided profits,
as shown by its last published report, and meeting such other
qualifications for custodian as set forth in the Bylaws of Fund, the
Board of Directors of Fund will, forthwith upon giving or receiving
notice of termination of this Agreement, appoint as successor custodian
a bank or trust company having such qualifications. Custodian will,
upon termination of this Agreement, deliver to the successor custodian
so specified or appointed, at Custodian's office, all securities then
held by Custodian hereunder, duly endorsed and in form for transfer,
and all funds and other properties of Fund deposited with or held by
Custodian hereunder, or will cooperate in effecting changes in
book-entries at the Depository Trust Company or in the Treasury/Federal
Reserve Book Entry System. In the event no such vote has been adopted
by the shareholders of Fund and no written order designating a
successor custodian has been delivered to Custodian on or before the
date when such termination becomes effective, then Custodian will
deliver the securities, funds and properties of Fund to a bank or trust
company at the selection of Custodian and meeting the qualifications
for custodian, if any, set forth in the Bylaws of Fund and having not
less than Two Million Dollars ($2,000,000) aggregate capital, surplus
and undivided profits, as shown by its last published report. Upon
either such delivery to a successor custodian, Custodian will have no
further obligations or liabilities under this Agreement. Thereafter
such bank or trust company will be the successor custodian under this
Agreement and will be entitled to reasonable compensation for its
services. In the event that no such successor custodian can be found,
Fund will submit to its shareholders, before permitting delivery of the
cash and securities owned by
<PAGE>
Fund to anyone other than a successor custodian, the question of
whether Fund will be liquidated or function without a custodian.
Notwithstanding the foregoing requirement as to delivery upon
termination of this Agreement, Custodian may make any other delivery of
the securities, funds and property of Fund which is permitted by the
Investment Company Act of 1940, Fund's Articles of Incorporation and
Bylaws then in effect or apply to a court of competent jurisdiction for
the appointment of a successor custodian.
7. TRANSFER TAXES AND OTHER DISBURSEMENTS.
The Fund shall pay or reimburse the Custodian for any transfer taxes
payable upon transfers of securities made hereunder, including
transfers incident to the termination of this Agreement, and for all
other necessary and proper disbursements and expenses made or incurred
by the Custodian in the performance or incident to the termination of
this Agreement, and the Custodian shall have a lien upon any cash or
securities held by it for the account of the Fund for all such items,
enforceable, after thirty (30) days written notice by registered mail
to the Fund, by the sale of sufficient securities to satisfy such lien.
The Custodian may reimburse itself by deducting from the proceeds of
any sale of securities an amount sufficient to pay any transfer taxes
payable upon transfer of securities sold. The Custodian shall execute
such certificates in connection with securities delivered to it under
this Agreement as may be required, under the provisions of any federal
revenue act and any Regulations of the Treasury Department issued
thereunder or any state laws, to exempt from taxation any transfers
and/or deliveries of any such securities as may qualify for such
exemption.
8. NOTICES.
Notices, requests, instructions and other writings received by Fund at
90 South Seventh Street, Suite 4400, Minneapolis, Minnesota 55402 or at
such other address as Fund may have designated to Custodian in writing,
will be deemed to have been properly given to Fund hereunder; and
notices, requests, instructions and other writings received by
Custodian at its offices at 336 N. Robert Street, 6th Floor Custody,
St. Paul, Minnesota 55101, or to such other address as it may have
designated to Fund in writing, will be deemed to have been properly
given to Custodian hereunder.
9. MISCELLANEOUS.
A. This Agreement is executed and delivered in the State of Minnesota and
shall be governed by the laws of said state.
B. All the terms and provisions of this Agreement shall be binding upon,
inure to the benefit of, and be enforceable by the respective successor
and assigns of the parties hereto.
<PAGE>
C. No provisions of the Agreement may be amended or modified, in any
manner except by a written agreement properly authorized and executed
by both parties hereto.
D. The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
E. This Agreement shall become effective at the close of business on the
10th day of July 1997.
F. This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original but all of which
together will constitute one and the same instrument.
G. If any part, term or provision of this Agreement is by the courts held
to be illegal, in conflict with any law or otherwise invalid, the
remaining portion or portions shall be considered severable and not be
affected, and the rights and obligations of the parties shall be
construed and enforced as if the Agreement did not contain the
particular part, term or provision held to be illegal or invalid.
H. This Agreement may not be assigned by either party without prior
written consent of the other party. Any bank or trust company into
which the Custodian or any successor custodian may be merged or
converted or with which it or any successor custodian may be
consolidated, or any bank or trust company resulting from any merger,
conversion or consolidation to which the Custodian or any successor
custodian shall be a party, or any bank or trust company succeeding to
the business of the Custodian, shall be and become the successor
custodian without the execution of any instrument or any further act on
the part of the Fund or the Custodian or any successor custodian.
I. Nothing expressed or mentioned in or to be implied from any provisions
of this Agreement is intended to give or shall be construed to give any
person or corporation other than the parties hereto any legal or
equitable right, remedy or claim under or in respect of this Agreement
or any covenant, condition or provision herein contained, this
Agreement and all of the covenants, conditions and provisions hereof
being intended to be, and being, for the sole and exclusive benefit of
the parties hereto and their respective successors and assigns.
J. Custodian shall not be responsible for, and the Fund does hereby waive
all duties or functions of Custodian (imposed by law or otherwise)
relating to, the withholding and government deposit of any and all
taxes, or amounts with respect thereto, that may be incurred or payable
in connection with the account established hereunder, income or gain
realized on securities held therein or
<PAGE>
transactions undertaken with respect thereto. Except as required by law
in such manner that cannot be delegated to or assumed by the Fund,
Custodian shall have no responsibility to undertake any federal, state
or local tax reporting in connection with securities, the account
established hereunder or transactions therein.
IN WITNESS WHEREOF, the Fund and the Custodian have caused this Agreement to be
executed in duplicate as of the date first above written by their duly
authorized officers.
ATTEST: V.A.M. INSTITUTIONAL FUNDS, INC.
By: By: /s/ John G. Taft
--------------------------------- --------------------------------
Its: Its: President
--------------------------------- --------------------------------
ATTEST: FIRST TRUST NATIONAL ASSOCIATION
By: By: /s/ Alice Weibye
--------------------------------- --------------------------------
Its: Its: Vice President
--------------------------------- --------------------------------
<PAGE>
EXHIBIT B
TO
CUSTODIAN AGREEMENT
BETWEEN
VAM INSTITUTIONAL FUNDS, INC.
AND
FIRST TRUST NATIONAL ASSOCIATION
NAME OF SERIES EFFECTIVE DATE
- -------------- --------------
Series B--VAM Short Duration Total Return Fund July 11, 1997
Series C--VAM Intermediate Duration Total
Return Fund July 11, 1997
Series D--VAM Core Total Return Fund July 11, 1997
Series E--VAM Mid Cap Stock Fund July 11, 1997
Series F--VAM Growth Stock Fund July 11, 1997
EXHIBIT 9
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement is made and entered into as of the 30th day of April,
1997, by and between VAM Institutional Funds, Inc., a Minnesota corporation (the
"Company"), on behalf of each series of the Company that adopts this Agreement
(each, a "Fund" and, collectively, the "Funds") (the Funds, together with the
date each Fund adopts this Agreement, are set forth in Exhibit A hereto, which
shall be updated from time to time to reflect additions, deletions or other
changes thereto), and Voyageur Asset Management LLC, a Minnesota limited
liability company ("VAM LLC").
1. Dividend Disbursing, Administrative, Accounting and Transfer Agency
Services; Compliance Services.
(a) The Company on behalf of each Fund hereby engages VAM LLC,
and VAM LLC hereby agrees, to provide to each Fund all dividend
disbursing, administrative and accounting services required by each
Fund, including, without limitation, the following:
(i) the calculation of net asset value per share at
such times and in such manner as specified in each Fund's
current Prospectus and Statement of Additional Information and
at such other times as the parties hereto may from time to
time agree upon;
(ii) upon the receipt of funds for the purchase of
Fund shares or the receipt of redemption requests with respect
to Fund shares outstanding, the calculation of the number of
shares to be purchased or redeemed, respectively;
(iii) upon the Fund's distribution of dividends, (A)
the calculation of the amount of such dividends to be received
per Fund share, (B) the calculation of the number of
additional Fund shares to be received by each Fund
shareholder, other than any shareholder who has elected to
receive such dividends in cash and (C) the mailing of payments
with respect to such dividends to shareholders who have
elected to receive such dividends in cash;
(iv) the provision of transfer agency services as
described below:
(A) VAM LLC shall make original issues of
shares of each Fund in accordance with each Fund's
current Prospectus and Statement of Additional
Information and with instructions from the Company;
(B) prior to the daily determination of net
asset value of each Fund in accordance with the each
Fund's current Prospectus and Statement of Additional
Information, VAM LLC
<PAGE>
shall process all purchase orders received since the
last determination of each Fund's net asset value;
(C) transfers of shares shall be registered
and new Fund share certificates shall be issued by
VAM LLC upon surrender of properly endorsed
outstanding Fund share certificates with all
necessary signature guarantees and satisfactory
evidence of compliance with all applicable laws
relating to the payment or collection of taxes;
(D) VAM LLC may issue new Fund share
certificates in place of Fund share certificates
represented to have been lost, destroyed or stolen,
upon receiving indemnity satisfactory to VAM LLC and
may issue new Fund share certificates in exchange
for, and upon surrender of, mutilated Fund share
certificates;
(E) VAM LLC will maintain stock registry
records in the usual form in which it will note the
issuance, transfer and redemption of Fund shares and
the issuance and transfer of Fund share certificates,
and is also authorized to maintain an account in
which it will record the Fund shares and fractions
issued and outstanding from time to time for which
issuance of Fund share certificates is deferred; and
(F) VAM LLC will, in addition to the duties
and functions above-mentioned, perform the usual
duties and functions of a stock transfer agent for a
registered investment company.
(v) the creation and maintenance of such records
relating to the business of each Fund as each Fund may from
time to time reasonably request;
(vi) the preparation of tax forms, reports, notices,
proxy statements, proxies and other Fund shareholder
communications, and the mailing thereof to Fund shareholders;
and
(vii) the provision of such other dividend
disbursing, administrative and accounting services as the
parties hereto may from time to time agree upon.
(b) The Company also hereby engages VAM LLC to perform, and
VAM LLC hereby agrees to perform, such regulatory reporting and
compliance related services and tasks for the Company or any Fund as
the
<PAGE>
Company may reasonably request. Without limiting the generality of the
foregoing, VAM LLC shall:
(i) prepare or assist in the preparation of
prospectuses, statements of additional information and
registration statements for the Funds, and assure the timely
filing of all required amendments thereto;
(ii) prepare such reports, applications and documents
as may be necessary to register the Funds' shares with state
securities authorities; monitor sales of Fund shares for
compliance with state securities laws; and file with the
appropriate state securities authorities the registration
statement for each Fund and all amendments thereto, required
reports regarding sales and redemptions of Fund shares and
such other reports as may be necessary to register each Fund
and its shares with state securities authorities and keep such
registrations effective;
(iii) develop and prepare communications to
shareholders, including each Fund's annual and semi-annual
report to shareholders;
(iv) obtain and keep in effect fidelity bonds and
directors and officers/errors and omissions insurance policies
for the Funds in accordance with the requirements of Rules
17g-1 and 17d-1(7) under the Investment Company Act of 1940 as
such bonds and policies are approved by the Funds' Board of
Directors;
(v) prepare and file with the Securities and Exchange
Commission each Fund's semi-annual reports on Form N-SAR and
all required notices pursuant to Rule 24f-2 under the
Investment Company Act of 1940;
(vi) prepare materials (including, but not limited
to, agendas, proposed resolutions and supporting materials) in
connection with meetings of the Company's Board of Directors;
(vii) prepare or assist in the preparation of proxy
and other materials in connection with meetings of the
shareholders of the Company or any Fund;
(viii) prepare and file tax returns for the Funds;
(ix) concur with Fund counsel in connection with the
development and preparation of any of the foregoing; and
<PAGE>
(x) perform such other compliance related services
and tasks upon which the parties hereto may from time to time
agree.
(c) The parties agree that VAM LLC may contract with third
parties to provide certain of the services which it has been engaged to
provide hereunder.
(d) VAM LLC hereby acknowledges that all records necessary in
the operation of the Fund are the property of the Company, and in the
event that a transfer of any of the responsibilities set forth herein
to someone other than VAM LLC should ever occur, VAM LLC will promptly,
and at its own cost, take all steps necessary to segregate such records
and deliver them to the Company.
2. Compensation
(a) As compensation for the dividend disbursing,
administrative, accounting and compliance services to be provided by
VAM LLC hereunder, each Fund shall pay to VAM LLC a monthly fee as set
forth in Exhibit A hereto, which fee shall be paid to VAM LLC not later
than the fifth business day following the end of each month in which
said services were rendered. For purposes of calculating each Fund's
average daily net assets, as such term is used in this Agreement, the
Fund's net assets shall equal its total assets minus (i) its total
liabilities and (ii) its net orders receivable from dealers.
(b) In addition to the compensation provided for in Section
2(a) hereof and as set forth in Exhibit A hereto, each Fund shall
reimburse VAM LLC for all out-of-pocket expenses incurred by VAM LLC in
connection with its provision of services hereunder, including, without
limitation, postage, stationery and mailing expenses. Said
reimbursement shall be paid to VAM LLC not later than the fifth
business day following the end of each month in which said expenses
were incurred.
(c) For purposes of calculating the compensation to be paid to
VAM LLC pursuant to Section 2(a) above, "house accounts" with brokerage
firms which hold shares in a Fund will be treated as separate accounts
for fee calculation purposes (based upon the number of shareholder
accounts within the "house account"), where VAM LLC's work in
connection with servicing such house accounts is substantially the same
as if such accounts did not exist, and VAM LLC had to directly service
the shareholder accounts underlying such house accounts.
3. Freedom To Deal With Third Parties. VAM LLC shall be free to render
services to others similar to those rendered under this Agreement or of a
different nature except as such services may conflict with the services to be
rendered or the duties to be assumed hereunder.
<PAGE>
4. Effective Date, Duration, Amendment and Termination of Agreement.
(a) The effective date of this Agreement with respect to each
Fund shall be the date set forth on Exhibit A hereto.
(b) Unless sooner terminated as hereinafter provided, this
Agreement shall continue in effect with respect to each Fund for a
period more than two years from the date of its execution but only as
long as such continuance is specifically approved at least annually by
(i) the Board of Directors of the Company or by the vote of a majority
of the outstanding voting securities of the applicable Fund, and (ii)
by the vote of a majority of the directors of the Company who are not
parties to this Agreement or "interested persons", as defined in the
Investment Company Act of 1940 (as amended, the "Act"), of the Adviser
or of the Company cast in person at a meeting called for the purpose of
voting on such approval.
(c) This Agreement may be terminated with respect to any Fund
at any time, without the payment of any penalty, by the Board of
Directors of the Company or by the vote of a majority of the
outstanding voting securities of such Fund, or by VAM LLC, upon 60
days' written notice to the other party.
(d) This agreement shall terminate automatically in the event
of its "assignment" (as defined in the Act) unless such assignment is
approved in advance by the Board of Directors, including a majority of
the directors of the Company who are not parties to this Agreement or
"interested persons" (as defined in the Act) of the Adviser or of the
Company, and, if and to the extent required by the Act, the approval of
the shareholders of each Fund.
(e) No amendment to this Agreement shall be effective with
respect to any Fund until approved by the vote of a majority of the
directors of the Company who are not parties to this Agreement or
"interested persons" (as defined in the Act) of the Adviser or of the
Company cast in person at a meeting called for the purpose of voting on
such approval and, if and to the extent required by the Act, a majority
of the outstanding voting securities of the applicable Fund.
5. Notices. Any notice under this Agreement shall be in writing,
addressed, delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate in writing for receipt of such notice.
6. Interpretation; Governing Law. This Agreement shall be subject to
and interpreted in accordance with all applicable provisions of law including,
but not limited to, the Act and the rules and regulations promulgated
thereunder. To the extent that the provisions herein contained conflict with any
such applicable provisions of law, the latter shall control. The laws of the
State of Minnesota shall otherwise govern the construction, validity and effect
of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company and VAM LLC have caused this Agreement
to be executed by their duly authorized officers as of the day and year first
above written.
VAM INSTITUTIONAL FUNDS, INC.
By /s/ John G. Taft
-----------------------------------
Name: John G. Taft
Title: President
VOYAGEUR ASSET MANAGEMENT LLC
By /s/ Edward J. Kohler
-----------------------------------
Name: Edward J. Kohler
Title: President
<PAGE>
EXHIBIT A
TO
ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
VOYAGEUR ASSET MANAGEMENT LLC
AND
VAM INSTITUTIONAL FUNDS, INC.
MONTHLY
SERVICE FEES
(as a % of average
FUND EFFECTIVE DATE daily net assets)
---- -------------- -----------------
Series B -- VAM Short Duration Total
Return Fund July 11, 1997 .012500
Series C -- VAM Intermediate Duration
Total Return Fund July 11, 1997 .012500
Series D -- VAM Core Total Return Fund July 11, 1997 .012500
Series E -- VAM Mid Cap Stock Fund July 11, 1997 .012500
Series F -- VAM Growth Stock Fund July 11, 1997 .012500
Series H -- Segall Bryant & Hamill April 30, 1997 *
Growth and Income Fund
Series I -- VAM Financial Institutions April 30, 1997 .008333%
Intermediate Duration
Portfolio
Series J -- VAM Financial Institutions April 30, 1997 .008333%
Core Portfolio
* The sum of (i) $1.25 per shareholder account per month; (ii) $1,000 per month
if the Fund's average daily net assets do not exceed $50 million, $1,250 per
month if the Fund"s average daily net assets are greater than $50 million but do
not exceed $100 million, and $1,500 per month if the Fund's average daily net
assets are greater than $100 million; and (iii) 0.11% per annum of the first $20
million of the Fund's average daily net assets, .06% per annum of the next $80
million of the Fund's average daily net assets and .035% per annum of the Fund's
average daily net assets in excess of $100 million.
EXHIBIT 10
DORSEY & WHITNEY LLP
PILLSBURY CENTER SOUTH
220 SOUTH SIXTH STREET
MINNEAPOLIS, MINNESOTA 55402-1498
TELEPHONE: (612) 340-2600
FAX: ((612) 340-2868
VAM Institutional Funds, Inc.
90 South Seventh Street, Suite 4400
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
We have acted as counsel to VAM Institutional Funds, Inc., a
Minnesota corporation (the "Fund"), in connection with a Registration Statement
on Form N-1A (File No. 2-95930) (the "Registration Statement") relating to the
sale by the Fund of an indefinite number of shares of the Fund's Series B,
Series C, Series D, Series E and Series F common stock, each with a par value of
$.01 per share (collectively, the "Shares").
We have examined such documents and have reviewed such
questions of law as we have considered necessary and appropriate for the
purposes of our opinions set forth below. In rendering our opinions set forth
below, we have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures and the conformity to authentic
originals of all documents submitted to us as copies. We have also assumed the
legal capacity for all purposes relevant hereto of all natural persons and, with
respect to all parties to agreements or instruments relevant hereto other than
the Fund, that such parties had the requisite power and authority (corporate or
otherwise) to execute, deliver and perform such agreements or instruments, that
such agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Fund and of public officials. We have also
assumed that the Shares will be issued and sold as described in the Registration
Statement.
Based on the foregoing, we are of the opinion that the Shares
have been duly authorized by all requisite corporate action and, upon issuance,
delivery and payment therefore as described in the Registration Statement, will
be validly issued, fully paid and nonassessable.
Our opinions expressed above are limited to the laws of the
State of Minnesota.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement, and to the reference to our firm under the
caption "Counsel" on the back cover of the Prospectus constituting part of the
Registration Statement.
Dated: July 11, 1997
Very truly yours,
/s/ Dorsey & Whitney LLP
KLP
EXHIBIT 11
KPMG PEAT MARWICK [LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
VAM Institutional Funds, Inc.
We consent to the reference to our Firm under the "ADDITIONAL INFORMATION -
Custodian; Counsel; Independent Auditors" in Part B of the Registration
Statement.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 10, 1997
